AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1997
REGISTRATION NO. 333-18489
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
PRE-EFFECTIVE AMENDMENT NO. 4 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 04-3268334
(STATE OR OTHER JURISDICTION 3571 (I.R.S.
OF INCORPORATION OR (PRIMARY STANDARD INDUSTRIAL EMPLOYER
ORGANIZATION) CLASSIFICATION CODE NUMBER) 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.
WILLIAM C. ROGERS, ESQ. MITCHELL C. LITTMAN, ESQ.
CHOATE, HALL & STEWART LITTMAN KROOKS ROTH & BALL P.C.
Exchange Place, 53 State Street 655 Third Avenue
Boston, Massachusetts 02109 New York, New York 10017
(617) 248-5000 (212) 490-2020
----------------
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 THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION, ACTING
PURSUANT TO 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 Security 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 Securities
and Exchange Commission. These securities may not be sold nor becomes effective.
This prospectus shall not constitute an offer to sell or the in any State in
which such offer, solicitation or sale would be unlawful prior registration
statement relating to these securities has been filed with the may offers to buy
be accepted prior to the time the registration statement solicitation of an
offer to buy nor shall there be any sale of these securities to registration or
qualification under the securities laws of any such State.
SUBJECT TO COMPLETION, DATED MARCH 25, 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, an indirect subsidiary of Palomar Medical Technologies, Inc.
("Palomar"). Following the Offering, Palomar will beneficially own approximately
67.4% of the Common Stock (assuming no exercise of the Underwriters'
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 of Common
Stock which Palomar may acquire upon conversion of shares of Convertible
Preferred Stock. See "Certain Transactions" and "Description of Capital Stock."
In addition to the shares offered hereby, 6,700,000 shares of Common Stock
are being registered for sale by Palomar and three institutional investors from
time-to-time in the open market. See "Shares Eligible for Resale." Such
transactions are being registered by separate prospectus concurrently with the
Offering. The Company will not receive any proceeds from any sale of such
shares. Palomar has advised the Underwriters' representatives that it has no
current intention to sell any of its shares in the foreseeable future, but it is
not precluded from doing so in its discretion. See "Risk Factors -- Substantial
Number of Registered Shares Eligible for Resale."
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 6 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON STOCK OFFERED
HEREBY.
----------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per Share ..................... $ $ $
Total(3) ...................... $ $ $
</TABLE>
================================================================================
(1) Does not reflect additional compensation to Sands Brothers & Co., Ltd.,
the lead representative of the Underwriters, payable by the Company in the
form of warrants entitling Sands Brothers & Co., Ltd. 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 165% of the initial public offering price (the "Warrants") and a
non-accountable expense allowance equal to 2% 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 offices of Sands Brothers & Co., Ltd., 90 Park Avenue, New York,
New York 10016.
SANDS BROTHERS & CO., LTD. CREDIT LYONNAIS SECURITIES (USA) INC.
, 1997
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.
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 educational 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)
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK.
SPECIFICALLY, THE UNDERWRITERS MAY OVER-ALLOT IN CONNECTION WITH THE OFFERING
AND MAY BID FOR, AND PURCHASE, SHARES OF THE COMMON STOCK IN THE OPEN MARKET.
FOR A DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
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.
2-A
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)
2-B
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.
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 (i)
resellers to offer a custom-configured PC on demand, and (ii) end-users to
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 which is typically shipped to
resellers without the key system-defining components (microprocessor, memory and
hard drive), but which is otherwise 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.
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 central processing unit
(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. 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, system integrators, computer superstores, direct
response resellers, and independent dealers.
The Company's current PCs are based on an industry-standard, open
architecture design, co-engineered by HCL Hewlett Packard Ltd., which allows the
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.
NEXAR has developed and expects to 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's Pentium or Pentium Pro and
compatible CPUs. The NEXAR XPA technology is being designed to also accommodate
microprocessors based on other technologies, such as the Alpha CPU made by
Digital Equipment Corporation.
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.
3
THE OFFERING
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"), effected on December 18,
1996, (ii) gives effect to the conversion of $11,000,000 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."
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 $8,249,549 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
- ------------
(1) Based on the number of shares of Common Stock outstanding on December 31,
1996. Includes 1,200,000 shares of Common Stock to be held by Palomar
subject to a contingent repurchase right of the Company at a nominal price
per share in the event the Company does not achieve certain performance
milestones. Such 1,200,000 shares are not includable in the computation of
earnings per common and common equivalent share while subject to such
contingency. See Note 3 of Notes to Consolidated Financial Statements.
(2) 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 $0.52 per share, of which options to purchase 1,063,973
shares were then exercisable, (ii) 304,560 shares (assuming an initial
public offering price of $12.00 per share) of Common Stock reserved for
issuance upon conversion of shares of Convertible Preferred Stock, and (iii)
1,050,000, 50,000 and 50,000 shares of Common Stock reserved for issuance
under stock options to be granted upon the effectiveness of the Offering at
exercise prices equal to 100%, 85% and 50%, respectively, of the initial
public offering price. See "Certain Transactions," "Capitalization,"
"Management -- Stock Plans" and "Beneficial Ownership of Management."
RISK FACTORS
Each prospective investor should carefully consider the information set
forth under the heading "Risk Factors" beginning on page 6 before making an
investment decision with respect to the shares of Common Stock offered hereby.
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. Important factors that could cause or contribute to
such differences are set forth under "Risk Factors" and elsewhere in this
Prospectus.
-------------------
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.
4
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 7, 1995) TO YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues $ 619,629 $18,695,364
Cost of revenues 574,611 16,392,483
------- ----------
Gross profit 45,018 2,302,881
Total operating expenses(1) 2,306,452 9,813,020
--------- ---------
Net loss $(2,261,434) $(7,510,139)
=========== ===========
Pro forma net loss per common and common equivalent share(2): $ (0.27) $ (0.89)
=========== ===========
Pro forma weighted average number of common and common
equivalent shares outstanding: 8,421,838 8,421,838
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(3)(4)
---------- ------------ -----------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEETS DATA:
Cash $ 2,738,983 $ 2,738,983 $ 20,792,892
Working capital 11,424,555 11,424,555 29,711,464
Total assets 19,589,121 19,589,121 36,956,572
Amounts due to related parties(5) 23,817,998 8,249,549 --
Stockholders' (deficit) equity (9,771,173) 5,797,276 31,647,276
</TABLE>
(1) Includes $525,000 and $1,375,000 of non-recurring litigation costs in 1995
and 1996, respectively. See Notes 2 and 10 of Notes to Consolidated
Financial Statements.
(2) Computed on the basis described in Note 3(b) of Notes to Consolidated
Financial Statements.
(3) Presented on a pro forma basis to give effect to the conversion of
indebtedness to related parties totaling $11,000,000 at December 31, 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."
(4) 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 $8,249,549 of amounts due to related parties. See "Use of
Proceeds," "Capitalization" and "Certain Transactions."
(5) Represents amounts due to Palomar and Palomar Electronics Corporation
(PEC). See Note 2 of Notes to Consolidated Financial Statements.
5
RISK FACTORS
In addition to the other information contained in this Prospectus,
prospective investors should consider carefully the following risk factors, as
well as those discussed elsewhere in this Prospectus, before making an
investment decision with respect to the shares of Common Stock offered hereby.
Prospective investors are advised that statements contained herein
expressing the beliefs and expectations of the Company regarding its future
results or performance are forward-looking statements that involve a number of
risks and uncertainties. The Company's actual results could differ significantly
from the results discussed in such forward-looking statements. Factors that
could cause or contribute to such differences include those discussed below and
elsewhere in this Prospectus.
LIMITED OPERATING HISTORY; HISTORY OF OPERATING LOSSES; ACCUMULATED DEFICIT
The Company was incorporated in March 1995 and commenced selling its PCs in
volume in April 1996. Accordingly, the Company has a limited operating history
upon which an evaluation of the Company and its prospects can be based. The
Company's prospects must be evaluated with regard to the risks encountered by a
company in an early stage of development, particularly in light of the
uncertainties relating to the intensely competitive market in which the Company
operates. As of December 31, 1996, the Company had an accumulated deficit of
$9,771,573. 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, Inc., Compaq Computer Corporation,
Dell Computer Corporation, Gateway 2000, Inc., Hewlett-Packard Company,
International Business Machines Corporation (IBM) and Packard Bell NEC, Inc. In
addition, the Company is planning to compete in the network server market
commencing by late 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 develop, promote and
distribute products and provide related consulting and training services. Some
of the Company's competitors have established, or may
6
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 fiscal year ended December 31, 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," "Business -- Strategy" and Note 3(i) of Notes to
Consolidated Financial Statements.
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 and 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 its 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 due to the rapid improvements in computer technology and
resulting product obsolescence. There
7
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 by late 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
The Company's success is dependent in large part upon its intellectual
property rights. The Company has rights to two pending patent applications
covering the essential technology which enables the easy installation, removal
and replacement of key components in the Company's PCs. The Company filed a
patent application in late 1996 covering its proprietary Cross Processor
Architecture(tm) (NEXAR XPA(tm)) technology, which is expected to be used in the
Company's PCs by mid-1997. Also, the Company has agreed to acquire, no later
than the closing of the Offering, a patent application originally filed in March
1995, together with the related technology which is currently included in the
Company's PCs under an exclusive license agreement. See "Business --
Intellectual Property" and "Certain Transactions -- Other Related Party
Transactions." Although the Company has been advised that a Notice of
Allowability has been issued by the United States Patent and Trademark Office
with respect to certain of the claims made in the patent application to be
acquired, there can be no assurance that this preliminary determination will
result in the issuance of a patent or that a patent will be issued with respect
to the Company's XPA patent application. Even if issued, there can be no
assurance that any such patents would survive a legal challenge to their
validity or provide adequate protection. In addition, the Company has not
conducted any formal study of prior art and, therefore, has not determined what
effect any prior art may have on any such patents that may issue. The Company
also relies on copyrights, unpatented trade secrets and trademarks to protect
its proprietary technology. No assurance
8
can be given that the Company's competitors will not independently develop or
otherwise acquire substantially equivalent techniques or otherwise gain access
to the Company's proprietary technology or that the Company can ultimately
protect its rights to such proprietary technology. In addition, there can be no
assurance that the Company will be able to afford the expense of any litigation
which may be necessary to enforce its rights under any such patents that may
issue. 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."
POTENTIAL INFRINGEMENT OF PROPRIETARY TECHNOLOGY
Although the Company believes that its products do not infringe patents or
other proprietary rights of third parties, there can be no assurance that the
Company is aware of all patents or other proprietary rights that may be
infringed by the Company's products, that any infringement does not exist or
that infringement may not be alleged by third parties in the future. If
infringement is alleged, there can be no assurance that the necessary licenses
would be available on acceptable terms, if at all, or that the Company would
prevail in any related litigation. Patent litigation can be extremely protracted
and expensive even if the Company ultimately prevails, and involvement in such
litigation and related diversion of management attention and resources could
have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business -- Intellectual Property."
RISK OF TECHNOLOGICAL OBSOLESCENCE
There can be no assurance that products or technologies of the Company's
competitors will not render the Company's products or technologies
noncompetitive or obsolete. Although the Company's product lines have been
designed to forestall such obsolescence, there can be no assurance that the
Company's products will 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
9
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, original equipment manufacturers (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 and adversely affected if these
distribution channels are unsuccessful in selling the Company's products. See
"Business -- Sales and Marketing."
RELIANCE ON SUPPLIERS; RISK OF DELAY
The Company's manufacturing process requires a high volume of quality
components that are procured from third party suppliers. Reliance on suppliers,
as well as industry supply conditions generally, involves several risks,
including the possibility of defective parts, a shortage of components,
increases in component costs and reduced control over delivery schedules, any or
all of which could adversely affect the Company's financial results. As part of
the manufacturing process, the Company uses industry standard components for its
products. Most of these components are generally available from multiple
sources; however, the Company relies on two outside contractors to manufacture
motherboards used in its PCs and plans to rely on a sole outside contractor to
manufacture the motherboards to be used in its planned server product. In
addition, the Company relies on a single supplier to produce its customized
chassis and 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.
Also, the Company ultimately is reliant on major suppliers of key components,
such as CPUs and chipsets sold by Intel, which are included in the Company's
products, either at the request of a customer prior to shipment or by the
Company's resellers. Occasionally, such components are subject to allocations
and the Company has at times experienced difficulty in obtaining sufficient
quantities of such products. 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 the
fourth quarter of 1996, the Company did not have in inventory and was unable to
obtain on a timely basis 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. The Company has also been unable to
obtain sufficient quantites of certain components in the first quarter of 1997,
which has caused delays in some shipments. 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."
10
CONCENTRATION OF OWNERSHIP BY PALOMAR AND MANAGEMENT
Upon completion of the Offering, Palomar will beneficially own approximately
66% of the outstanding Common Stock (approximately 64% 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 between the Company and Palomar. In addition, 45,684
shares of Convertible Preferred Stock will be issued to Palomar upon the closing
of the Offering 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 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 Certificate of Incorporation 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 27.4% of the outstanding Common Stock assuming the
exercise of all such options (approximately 26.7% if the over-allotment option
is exercised in full). Approximately 70.0% of the shares subject to such options
are subject to vesting based on the option holder's length of service with the
Company. See "Stockholders," "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
intends to seek to obtain key-man life insurance on Mr. Agbay. The Company is
not contemplating securing any significant amount of key-man life insurance on
any of its other executive officers or other key employees. See "Business --
Strategy," "-- Products" and "Management."
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
11
customer budgets, competitive conditions in the industry and general economic
conditions. For example, during the fourth quarter of 1996, the Company did not
have in inventory and was unable to obtain on a timely basis sufficient
quantities of key components to meet outstanding purchase orders, which caused
the financial results for such period to be adversely affected and which may
adversely affect future sales to customers whose orders were not promptly
shipped. The Company has also been unable to obtain sufficient quantities of
certain components in the first quarter of 1997, which has caused delays in some
shipments. 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 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
Representatives 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
12
to related parties in the amount of $8,249,549 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 First Restated Certificate of
Incorporation (the "Restated 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 Restated Charter and By-laws, require that all stockholder
actions be taken at duly called annual or special meetings and not by written
consent, and impose various procedural and other requirements that could make it
more difficult for stockholders to effect certain corporate actions.
Furthermore, the Company is subject to the anti-takeover provisions of Section
203 of the Delaware General Corporation Law, which prohibits the Company from
engaging in a "business combination" with an "interested stockholder" for a
period of three years after the date of the transaction in which the person
first becomes an "interested stockholder," unless the business combination is
approved in a prescribed manner. The application of Section 203 could also have
the effect of delaying or preventing a change of control of the Company. See
"Description of Capital Stock."
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
December 31, 1996, employees and directors of the Company held options
exercisable for the acquisition of 3,055,920 shares of Common Stock
(approximately 65% of which shall be exercisable upon consummation of the
Offering, as of December 31, 1996) and the Company will grant options
exercisable for 1,050,000, 50,000 and 50,000 shares of Common Stock upon the
effectiveness of the Offering at exercise prices equal to 100%, 85% and 50%,
respectively, of the initial public offering price. The Company intends to
register all such shares subject to options for resale from time to time under
the Securities Act soon after consummation of the Offering. See "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 $9.23 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."
13
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 ($29,877,500 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 to repay non-interest
bearing demand indebtedness to related parties, which was $8,249,549 at December
31, 1996 (including $2,750,000 incurred by Palomar on the Company's behalf to
settle claims of a former executive officer and to acquire certain technology;
see "Certain Transactions") and for general corporate purposes, including
working capital, product development and capital expenditure. 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.
14
CAPITALIZATION
The following table sets forth the capitalization of the Company (i) actual
as of December 31, 1996 (ii) pro forma as of December 31, 1996 to give effect to
the conversion of $11,000,000 and $4,568,449 due to related parties into
1,900,000 shares of Common Stock and 45,684 shares of Convertible Preferred
Stock, respectively, 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 DECEMBER 31, 1996
-------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(1) ADJUSTED(1)(2)
------ ------------ --------------
<S> <C> <C> <C>
Amounts due to related parties(1) ............ $23,817,998 $ 8,249,549 --
----------- ----------- ------------
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) 15,501,392 41,326,392
Accumulated deficit ........................ (9,771,573) (9,771,573) (9,771,573)
---------- ---------- ----------
Total stockholders' (deficit) equity ......... (9,771,173) 5,797,276 31,647,276
---------- --------- ----------
Total capitalization .................... $14,046,825 $14,046,825 $31,647,276
=========== =========== ===========
</TABLE>
- ---------------
(1) Adjusted to give effect to the conversion of indebtedness to related
parties totaling $11,000,000 and $4,568,449 at December 31, 1996 into
1,900,000 shares of Common Stock and 45,684 shares of Convertible Preferred
Stock, respectively. 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 $8,249,549 of amounts due to related parties. See "Use of Proceeds" and
"Certain Transactions."
15
DILUTION
The pro forma negative net tangible book value of the Company at December
31, 1996 was ($1,072,631) or ($0.16) per share of Common Stock. 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 $11,000,000 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 December 31, 1996 would have been $25,463,827 or $2.77 per share
of Common Stock. This represents an immediate increase in such adjusted net
tangible book value of $2.93 per share to existing stockholders and an immediate
dilution of $9.23 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
Pro forma negative net tangible book value per share as of
December 31, 1996 ...................................... $(0.16)
Increase per share attributable to new investors ......... 2.93
----
Adjusted pro forma net tangible book value per share after the
offering .................................................... 2.77
----
Dilution per share to new investors ......................... $9.23
=====
</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 PER
NUMBER PERCENT AMOUNT PERCENT SHARE
------ ------- ------ ------- -----
<S> <C> <C> <C> <C> <C>
Existing stockholders 6,700,000 72.8% $ 11,000,400 26.8% $ 1.64
New investors 2,500,000 27.2 30,000,000 73.2% 12.00
--------- ---- ---------- ----
Total 9,200,000 100.0% $41,000,400 100.0%
========= ===== =========== =====
</TABLE>
(1) Gives effect to the conversion of indebtedness to related parties totalling
$11,000,000 at December 31, 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 $0.52 per share, of which options to purchase
1,063,973 shares were then exercisable, and (ii) 1,050,000, 50,000 and 50,000
shares of Common Stock reserved for issuance under stock options to be granted
upon the effectiveness of the Offering at exercise prices equal to 100%, 85% and
50%, respectively, of the initial public offering price. See "Management --
Stock Plans," "Beneficial Ownership of Management" and "Certain Transactions."
16
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data set forth below as of and for the
period from inception (March 7, 1995) to December 31, 1995, and for the year
ended December 31, 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. 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) TO YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
CONSOLIDATED STATEMENTS OF OPERATIONS DATA:
Net revenues $ 619,629 $ 18,695,364
Cost of revenues 574,611 16,392,483
--------- ---------
Gross profit 45,018 2,302,881
Operating expenses:
Research and development 104,383 803,186
Selling and marketing 581,482 4,819,379
General and administrative 1,095,587 2,815,455
Litigation costs 525,000 1,375,000
--------- ---------
Total operating expenses 2,306,452 9,813,020
--------- ---------
Net loss $(2,261,434) $(7,510,139)
=========== ===========
Pro forma net loss per common and common equivalent share(1): $ (0.27) $ (0.89)
----------- -----------
Pro forma weighted average number of common and common
equivalent shares outstanding: 8,421,838 8,421,838
========= =========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
--------------------------------------------
PRO FORMA AS
ACTUAL PRO FORMA(2) ADJUSTED(2)(3)
------ ------------ --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash $ 2,738,983 $ 2,738,983 $ 20,792,892
Working capital 11,424,555 11,424,555 29,711,464
Total assets 19,589,121 19,589,121 36,956,572
Amounts due to related parties(4) 23,817,998 8,249,549 --
Stockholders' (deficit) equity (9,771,173) 5,797,276 31,647,276
</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 $11,000,000 at December 31, 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 $8,249,549 of amounts due to related parties. See "Use of
Proceeds," "Capitalization" and "Certain Transactions."
(4) Represents amounts due to Palomar and Palomar Electronics Corporation. See
Note 2 of Notes to Consolidated Financial Statements.
17
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion of the financial condition and results of operation
of the Company should be read in conjunction with the Company's Consolidated
Financial Statements and Notes thereto, and the other financial information
included elsewhere in this Prospectus.
OVERVIEW
The Company was incorporated in Delaware on March 7, 1995. Since the
commencement of operations in March 1995, the Company has focused on developing
its products and its marketing and distribution strategies and did not generate
material revenues until April 1996. As a result, the Company incurred
substantial losses principally from expenses incurred from the development of
its products, the establishment of its manufacturing operations, sales
administration organization and obtaining key personnel to adequately support
the Company's expected growth. Total revenues from the sale of its PCs for the
year ended December 31, 1996 were $18,695,364. For the three and nine month
periods ended December 31, 1996, the Company generated total revenues of
$7,353,938 and $18,577,896, respectively. During 1997, the Company expects its
selling and marketing expenses, 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, September 30, 1996 and December 31, 1996, the
Company sold approximately 2,317, 7,920 and 6,786 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 its 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 moderate revenues to date and has been
dependent upon one customer. The Company's ability to continue 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. See "Risk Factors."
RESULTS OF OPERATIONS
The following table sets forth unaudited consolidated quarterly financial data
for each of the four quarters in 1995 and 1996 and such information expressed as
a percentage of the Company's total revenues. This unaudited quarterly
information has been prepared on the same basis as the audited financial
information presented elsewhere herein and, in management's opinion, includes
all adjustments (consisting only of normal recurring adjustments) that the
Company considers necessary for a fair presentation of the information for the
quarters presented. In view of the Company's recent growth and other factors,
the Company believes that quarter-to-quarter comparisons of its financial
results are not necessarily meaningful and should not be relied upon as an
indication of future performance.
18
<TABLE>
<CAPTION>
FISCAL QUARTER ENDED
-------------------------------------------------------------------------------------------------------
PERIOD FROM
INCEPTION
(MARCH 7,
1995) TO
MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31, MARCH 31, JUNE 30, SEPTEMBER 30, DECEMBER 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- -------- ------------ ------------ --------- --------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Net revenues $ -- $ 212,120 $ 51,379 $ 356,130 $ 117,468 $ 2,033,811 $9,190,147 $ 7,353,938
Cost of revenues -- 194,030 33,857 346,724 116,388 1,798,229 7,423,725 7,054,141
--------- ---------- ---------- ------------ ---------- ----------- ---------- -----------
Gross profit -- 18,090 17,522 9,406 1,080 235,582 1,766,422 299,797
--------- ---------- ---------- ------------ ---------- ----------- ---------- -----------
Operating expenses:
Research and
development -- -- 24,263 80,120 67,318 102,728 130,961 502,179
Selling and marketing 6,746 123,486 169,845 281,405 327,284 1,678,727 981,200 1,832,168
General and
administrative -- 185,230 291,163 619,194 441,627 634,282 619,979 1,119,567
Litigation costs -- -- -- 525,000 -- -- -- 1,375,000
--------- ---------- ---------- ------------ ---------- ----------- ---------- -----------
Total operating expenses 6,746 308,716 485,271 1,505,719 836,229 2,415,737 1,732,140 4,828,914
--------- ---------- ---------- ------------ ---------- ----------- ---------- -----------
Net income (loss) $ (6,746) $ (290,626)$ (467,749) $ (1,496,313) $ (835,149) $(2,180,155) $ 34,282 $(4,529,117)
======== ========== ========== ============ ========== =========== ========== ===========
Backlog -- -- -- -- -- $ 598,455 $2,616,259 $4,101,400
======== ========== ========== ============ ========== =========== ========== ===========
AS A PERCENTAGE OF NET REVENUES:
Net revenues 100.0% 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 95.9
---------- ---------- ------------ ---------- ----------- ---------- -----------
Gross profit 8.5 34.1 2.6 0.9 11.6 19.2 4.1
Operating expenses:
Research and development -- 47.2 22.5 57.3 5.1 1.4 6.8
Selling and marketing 58.2 330.6 79.0 278.6 82.5 10.7 24.9
General and administrative 87.3 566.7 173.9 376.0 31.2 6.7 15.2
Litigation costs -- -- 147.4 -- -- -- 18.7
---------- ---------- ------------ ---------- ----------- ---------- -----------
Total operating expenses 145.5% 944.5% 422.8% 711.9% 118.8% 18.8% 65.6%
---------- ---------- ------------ ---------- ----------- ---------- -----------
Net income (loss) -- -- -- -- -- 0.4% (61.5)%
========== ========== ============ ========== =========== ========== ===========
</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's gross profit as a percentage of revenues was 4.1% for the three
months ended December 31, 1996. This decrease from the prior quarter was due to
revenue shortfalls caused primarily by a delay in receiving certain key
components necessary to meet outstanding purchase orders. The Company believes
that its gross profit as a percentage of revenues will improve during 1997 as
the Company strengthens its procurement procedures and realizes labor and
material costs savings and efficiencies from full scale manufacturing
operations. During the quarters ended December 31, 1995 and 1996, the Company
incurred $525,000 and $1,375,000, respectively, in litigation costs to settle
potential claims against the Company. The Company also recorded management
bonuses to be paid by Palomar totaling $1,000,000 in the quarter ended December
31, 1996. The 57% increase in product order backlog from the third to the fourth
quarter of 1996 was primarily due to delays in shipments caused by the inability
of the Company to obtain on a timely basis sufficient quantities of circuit
boards and chassis. One customer represented 69%, 10% and 25% of the Company's
total backlog for the quarters ended June 30, 1996, September 30, 1996 and
December 31, 1996, respectively. See "Business -- Backlog."
The Company has experienced and expects to continue 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
19
performance. Due to the foregoing factors, among others, it is likely that the
Company's future quarterly operating results from time to time will not meet the
expectations of market analysts or investors, which may have an adverse effect
on the price of the Company's Common Stock.
PERIOD FROM INCEPTION (MARCH 7, 1995) TO DECEMBER 31, 1995 AND THE YEAR
ENDED DECEMBER 31, 1996
Net Revenues. Net revenues increased to $18,695,364, for the year ended
December 31, 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 ceased the production of these PCs in June of
1995 to concentrate on the development of its upgradeable PCs. The increase in
revenues during the year ended December 31, 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 $2,302,881, or 12.3% of net revenues, for the
year ended December 31, 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 consist
primarily of expenses incurred for the design and development of the Company's
upgradeable PCs and a charge for management bonuses. Research and development
expenses increased to $803,186, or 669.5%, during the year ended December 31,
1996 as compared to $104,383 for the period ended December 31, 1995. The primary
reason for this increase is $375,000 of management bonuses for 1996 to be paid
by Palomar. 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, advertising and
marketing costs and a charge for management bonuses to be paid by Palomar.
Selling and marketing expenses increased 728.8% to $4,819,379 for the year ended
December 31, 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, supporting the introduction of the Company's upgradeable
PC, and attendance of various trade shows. 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 157.0% to $2,815,455 for the year
ended December 31, 1996 from $1,095,587 for the period ended December 31, 1995.
This increase in expenses during the year ended December 31, 1996 was
attributable to the additional expenditures for general and administrative
expenses as a result of the Company's anticipated growth and a charge for
management bonuses to be paid by Palomar. The Company anticipates that general
and administrative expenses will continue to increase due to its forecasted
growth.
Litigation Costs. Litigation costs represent the expenses to settle
potential claims against the Company. See Notes 2 and 10 of the Notes to the
Consolidated Financial Statements.
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 $6,375,000. 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.
20
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 $23,818,000. At December 31, 1996, the
Company had approximately $2,739,000 in cash.
Net cash used in operating activities was approximately $1,860,000 during
the period from inception to December 31, 1995. Net cash used in operations was
approximately $14,420,000 for the year ended December 31, 1996. The significant
use of cash by operating activities was the result of a net loss of
approximately $7.5 million during the year together with cash used to finance a
significant increase in accounts receivable and inventory purchases.
The Company's investing activities used net cash of approximately $103,000
and $493,000 during the period from inception to December 31, 1995 and the year
ended December 31, 1996, respectively. Expenditures for property and equipment
were approximately $103,000 for the period from inception to December 31, 1995
and $187,000 for the year ended December 31, 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 first six
months of 1997.
The Company has no credit facilities with unaffiliated lenders and believes that
its available cash resources combined with the net proceeds of the Offering, and
interest earned thereon, as well as anticipated funds from operations will be
sufficient to meet its presently anticipated working capital and capital
expenditure requirements through December 31, 1997. 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. Palomar has agreed to continue to fund the Company, if
needed, at least through December 31, 1997. If adequate funds are not available
or are not available on acceptable terms, the Company may be unable to develop
or enhance products or services, take advantage of future opportunities, or
respond to competitive pressures, which could have a material adverse effect on
the Company's business, financial condition or operating results. See "Risk
Factors" and "Dilution."
21
BUSINESS
Nexar Technologies, Inc. develops, manufactures and markets
high-performance, competitively- priced desktop personal computers (PCs) based
on patent-pending technologies. Unlike conventional PCs, NEXAR systems permit
(i) resellers to offer a custom-configured PC on demand, and (ii) end-users to
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 which is typically shipped to
resellers without the key system-defining components (microprocessor, memory and
hard drive), but which is otherwise 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 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 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 central processing unit
(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.
The Company's current PCs are based on an industry-standard, open
architecture design, co-engineered by HCL Hewlett Packard Ltd., which allows the
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.
NEXAR has developed and expects to 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 and compatible CPUs. The NEXAR XPA technology is being designed to also
accommodate microprocessors based on other technologies, such as the Alpha CPU
made by Digital Equipment Corporation (DEC).
22
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. 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 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 at a strong rate, although more
moderately than in the early 1990s. According to forecasts by International Data
Corporation (IDC), an independent industry analyst, 81.5 million PCs with a
value of $182.5 billion, including 64.9 million desktop PCs (worth $128.1
billion), will be shipped worldwide in 1997, an increase of 16.7% over estimated
1996 shipments. In the United States, IDC forecasts that in 1997, 30.6 million
PCs (worth $68.6 billion), including 23.9 million desktops (worth $46.0
billion), will be shipped. IDC forecasts that worldwide, in the year 2000, 117.6
million PCs (worth $247.7 billion), including 91.0 million desktops (worth
$169.9 billion), will be shipped. In the United States, IDC forecasts that in
the year 2000, 42.0 million PCs (worth $89.3 billion), including 31.2 million
desktops (worth $56.1 billion), will be shipped. These estimates indicate that
desktop PCs will continue to represent more than 75% of worldwide PC sales
through the year 2000.
Factors driving the PC industry's growth include continued
price/performance improvements of fundamental PC technologies fueled by intense
competition, the growth of the Internet, and the convergence of content,
technologies, and communications on the PC which broadens its base of
applications and users. Also contributing to growth are the aging installed base
of 386 and 486 CPU systems, the introduction of next generation CPUs, and the
development of applications that more fully utilize the capabilities of the more
advanced microprocessors and require ever increasing amounts of storage
capabilities. The Company believes that as businesses recognize the benefits of
distributed computing and thus increase their interest in distributed
enterprise-wide networks (e.g., "intranets"), and as small business and home
office markets grow worldwide, demand for PCs will further increase.
The PC market has been characterized by intense competition and substantial
technological advances occurring over short periods of time. Hundreds of vendors
compete in today's PC marketplace. Leading manufacturers include Acer, Apple
Computer, Compaq Computer, Dell Computer, Gateway 2000, Hewlett-Packard, IBM,
and Packard Bell NEC. See " -- Competition." Rapid technology advances have
resulted in high rates of product innovation and enhancements, and short product
life cycles, creating difficult choices for both current owners and prospective
purchasers of PC systems. PC users occasionally find that they cannot
effectively use the latest software programs, or even the latest enhancements to
their existing software programs, because their PC has insufficient memory,
their CPU is too slow, or their hard drive is full and cannot store additional
data. Consequently, a user who does not wish to forego the latest technology
advancements must either attempt to upgrade his or her existing PC (to the
extent the system can be upgraded and which typically requires technical
assistance) or make a substantial investment in a newer, more powerful PC.
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,
23
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 then 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****
* 1996
** Early 1997
*** Mid-1977
**** Late 1997
Source: BYTE Magazine. November, 1996. Reproduced with permission.
(C)by The McGraw-Hill Companies, Inc. New York, N.Y. All rights reserved.
The above chart outlines the choices presented by the following product
releases: Intel introduced MMX into its P55C model in January 1997. Also, in
early 1997, Advanced Micro Devices, Inc. (AMD(R)) and Cyrix Corporation are
expected to introduce new microprocessors which incorporate architectural
enhancements to Pentium-class processors providing significant performance
improvements when running multimedia applications. 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 Pentium II (previously 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.
24
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
and Dell, 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. This trend appears to have accelerated in recent
months. According to IDC, while the still healthy growth rate of worldwide PC
shipments slowed in the fourth quarter of 1996, as compared to the fourth
quarter of 1995, Dell's shipments grew 69 percent worldwide and Gateway's
shipments grew 39 percent in the United States (where most of Gateway's sales
occur). 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 allowing reseller
partners to perform "channel assembly" in completing the configuration of their
PCs.
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
upgradability 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 competing with the direct
marketers and 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.
NEXAR systems are designed to be sold by the Company without the key system
defining components. The reseller is then able to offer a NEXAR PC at a
competitive price by avoiding the typical PC manufacturer mark-up on the key
components, which typically represent more than 50 percent 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 the key
25
components. Unlike other previously marketed "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.
The NEXAR PC. The current NEXAR PC features an innovative architecture
including patent- pending technology which the Company currently has a license
to market on an exclusive worldwide basis and which it has agreed to acquire no
later than the consummation of the Offering. See " -- Intellectual Property" and
"Certain Transactions." 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 expects that its
patent-pending NEXAR XPA systems will offer its resellers and end-users all of
the same ease of upgradability features and benefits within a CPU family. NEXAR
XPA 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, Pentium II (Klamath) and other x86
CPUs, or the RISC-based processors such as DEC's Alpha. The Company believes
this capability will become increasingly important as technology advances and
the demands of personal computing intensify. End-users without this 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. The Company expects that 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 in most cases, regardless of the demands of the
end-user, a NEXAR XPA PC will be an optimal solution to purchasers seeking
investment protection of their system infrastructure.
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 UPGRADABLE AND
CROSS-PROCESSOR PCS
The Company intends to devote most of its product 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. These efforts
26
seek to ensure that the Company's 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 central focus on offering state-of-the-art PCs
which forestall system obsolescence will be 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 enhanced multimedia performance
and 32-bit software applications, become factors in the purchasing decisions
within the PC markets in which the Company does and intends to participate. The
design of the Company's existing PCs currently allow, and the upcoming NEXAR XPA
systems are being designed to 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 management information systems (MIS) departments of large and small
enterprises time and expense upgrading components or replacing outdated
systems.
* End-users are not locked into the upgrade path of a single manufacturer,
but, instead, can utilize numerous widely-available, industry-standard
components and platforms.
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. See "Management."
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.
27
In order to enlist resellers to carry NEXAR PCs, the Company has established
a Reseller Partnership Program, under which resellers receive volume price
discounts negotiated by NEXAR on components, making it possible for resellers to
configure and sell the NEXAR PC at competitive prices.
Government Resellers. The Company believes that, in addition to the other
advantages of NEXAR PCs and the increased security and other benefits of the
removable hard disk drive described herein, the NEXAR PC is particularly
appealing to many government buyers because the time required for ordering
entirely new systems is often prohibitive under government regulations, while
component parts can be more timely requisitioned, thereby allowing a government
office to more easily remain technologically current. The Company has entered
into an agreement with Government Technology Services, Inc. (GTSI), a leading
supplier of desktop systems to the U.S. government, pursuant to which GTSI
serves as NEXAR's exclusive federal reseller with respect to GSA scheduled
purchases provided that GTSI purchase at least $35 million of the Company's
products in 1997. GTSI is, however, under no obligation to purchase any products
of the Company. In the year ended December 31, 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. 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 is
growing and will continue to 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. The Company is currently negotiating with Bull
HN Information Systems to provide NEXAR PCs to Bull's South American division,
which would enable Bull to configure systems with components obtained within the
borders of various countries, thereby producing savings on import taxes and
related charges.
SALES AND MARKETING
The Company's marketing strategy is channel-based, focused primarily on
distributors, value added and other resellers, system integrators, rather than
on end-users. During its initial marketing period, NEXAR has concentrated on
building awareness of NEXAR and its innovative PC architecture with its channel
resellers. To accomplish this, NEXAR advertises regularly in industry
publications such as Computer Reseller News and VAR Business. To generate
end-user "pull-through" demand, NEXAR also advertises in publications such as PC
Week, PC World and PC Magazine. The current NEXAR PC has been reviewed in
publications such as Windows Sources, Windows Magazine, PC World, Computer
Shopper, Computer Reseller News, Computer Life and Government Computer News.
NEXAR provides broad co-op advertising and joint marketing support to its
channel-reseller customers. In particular, NEXAR has co-marketed extensively
with GTSI, its largest customer, to the federal government market. See " --
Strategy -- Government Resellers." The Company conducts its marketing primarily
through meetings with and sales presentations to national and regional
resellers. In addition, the Company displays its products at national and
international trade shows such as COMDEX and PC Expo.
28
The Company executes its marketing strategy primarily through the efforts of
a direct sales force and through independent manufacturer sales representatives.
As of December 31, 1996, NEXAR's sales force consisted of 16 people, eight
located at its Westborough, Massachusetts headquarters and the remainder in
regional locations. The Company intends to increase the size of its sales force
as its revenue grows. As of December 31, 1996, the Company was also a party to
agreements with five 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, direct
response resellers, and independent dealers.
The following is a representative listing of NEXAR resellers:
<TABLE>
<CAPTION>
<S> <C>
NATIONAL AND REGIONAL DISTRIBUTORS COMPUTER SUPERSTORES
- ---------------------------------- --------------------
Ingram Micro, Inc. Fry's Electronics, Inc.
Gates/Arrow Distributing, Inc. Elek-Tek, Inc.
MicroAge Computer Centers, Inc. Nationwide Computers & Electronics, Inc.
Avnet Computer Marketing Group The Computer Factory
Computer Attic
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
OEMS AND VARS GOVERNMENT RESELLERS DIRECT RESPONSE RETAILER
- ------------- -------------------- ------------------------
Bull HN Information Government Technology MicroWarehouse, Inc.
Systems Services, Inc. (GTSI)
CompUSA Inc. Comstor/GE Capital
GSMBSoft Systems, Inc. Pulsar Data Systems Inc.
Gibraltar Computer
Bay Resources Inc.
</TABLE>
In the fiscal year ended December 31, 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 continue to represent a significant portion
of the Company's sales during the fiscal year. 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. See
"-- Strategy -- Channel Marketing -- Focus on Government Resellers" and Note 3
of Notes to Consolidated Financial Statements.
29
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 generally 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.
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.
FUTURE PRODUCTS
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
30
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 product 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 by late 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
planned because some of NEXAR's resellers have requested a server of this design
to complete NEXAR's product offerings to the corporate end-users.
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 one year on-site hardware support, including diagnostics and
repair. Wang also provides telephone support for software products bundled with
NEXAR's systems for a period of ninety days after purchase. Wang support is
provided directly to NEXAR's customers. In addition, service contract extensions
are available. Customers can also obtain hardware support via the Internet or a
toll free telephone number. While the Company selected Wang based on its belief
that Wang has the capability to perform these warranty obligations on a timely
and efficient basis, the failure of Wang to meet the demands of the end-users of
the Company's products could materially and adversely affect the reputation of
the Company and its products, which in turn could result in lower sales and
profits.
PRODUCT DEVELOPMENT
The market for NEXAR's products is characterized by rapid technological
change involving the application of a number of advanced technologies, including
those relating to computer hardware and software, mass storage devices, and
other peripheral components. The Company's ability to remain competitive depends
upon its ability to anticipate and effectively react to technological change.
The Company currently has only a limited product development staff. The Company
has entered into a Development Agreement with GDA Technologies, Inc. (GDA), a
provider of computer engineering services, 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 $500,000 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 upgradability 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. 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
31
be able to deliver commercial quantities of new products in a timely manner. The
success of new product introductions is dependent on a number of factors,
including market acceptance, the Company's ability to anticipate and manage
risks associated with product transitions, the effective management of inventory
levels in line with anticipated product demand and the timely manufacturing of
products in appropriate quantities to meet anticipated demand. The failure of
the Company to develop, produce and market commercially viable products could
result in the Company's business, operating results and financial condition
being materially and adversely affected.
The Company's product development efforts will continue to require
substantial investments by the Company for third-party research, refinement and
testing, and there can be no assurance that the Company will have the resources
sufficient to make such investments. Participants in the PC industry generally
rely on the creation and implementation of technology standards to win the
broadest market acceptance for their products. The Company must successfully
manage and participate in the development of standards while continuing to
differentiate its products in a manner valued by customers. While industry
participants generally accept, and may encourage, the use of their intellectual
property by third parties under license, nonetheless, when intellectual property
owned by competitors or suppliers becomes accepted as an industry standard, the
Company must obtain a license, purchase components utilizing such technology
from the owners of such technology or their licensees, or otherwise acquire
rights to use such technology. The failure of the Company to license, purchase
or otherwise acquire rights to such technologies could result in the Company's
business, operating results and financial condition being materially and
adversely affected.
MANUFACTURING
The Company operates a 100,000 square foot manufacturing facility in
Hayward, California. The Company's manufacturing operations consist primarily of
assembly, test and quality control of its PC systems. The single shift capacity
of the facility is up to 15,000 units produced 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 addition, the Company relies on a single supplier to produce its
customized chassis and has several other single supplier relationships for less
critical components. In the fourth quarter of 1996, the Company was unable to
obtain on a timely basis sufficient quantities of certain key components to meet
all of its outstanding purchase orders. The Company has also been unable to
obtain sufficient quantities of certain components in the first quarter of 1997,
which has caused delays in some shipments. 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.
BACKLOG
The Company had $4,101,400 of unfilled firm purchase orders as of December
31, 1996, a 57 percent increase from September 30, 1996. This level of and
increase in backlog was primarily due to delays in meeting outstanding purchase
orders during the fourth quarter of 1996 because the Company was unable to
obtain on a timely basis sufficient quantities of key components. The Company
does not believe that its current and future product order backlogs are or will
be a meaningful indicator of the Company's business prospects as it expects it
will generally be able to ship its products within 30 days of the receipt of
orders. See "-- Manufacturing," "Management's Discussion and Analysis of
Financial Condition and Results of Operation," and "Risk Factors -- Reliance on
Suppliers."
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
32
Acer, Apple Computer, Compaq Computer, Dell Computer, Gateway 2000,
Hewlett-Packard, IBM and Packard Bell NEC. In addition, the Company plans to
compete in the network server market by late 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 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 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's success is dependent in large part upon its intellectual
property rights. The Company has rights to two pending patent applications
covering the essential technology which enables the easy installation, removal
and replacement of key components in the Company's PCs. The Company filed a
patent application in late 1996 covering its proprietary Cross Processor
Architecture(tm) (NEXAR XPA(tm)) technology, which is expected to be used in the
Company's PCs by mid-1997. Also, the Company has agreed to acquire, no later
than the closing of the Offering, a patent application originally filed in March
1995 together with the related technology which is currently included in the
Company's PCs under an exclusive license agreement. See "Certain Transactions --
Other Related Party Transactions." Although the Company has been advised that a
notice of allowability has been issued by the United States Patent and Trademark
Office with respect to certain of the claims made in the patent application to
be acquired, there can be no assurance that this preliminary determination will
result in the issuance of a patent or that a patent will be issued with respect
to the Company's XPA patent application. Even if issued there can be no
assurance that any such patents would survive a legal challenge to their
validity or provide adequate protection. In addition, the Company has not
conducted any formal study of prior art and, therefore, has not determined what
effect any prior art may have on any such patents that may issue. The Company
also relies on copyrights, unpatented trade secrets and trademarks to protect
its proprietary technology. In addition, there can be no assurance that the
Company will be able to afford the expense of any litigation which may be
necessary to enforce its rights under any such patent. Also, 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.
33
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 67 employees, including executive
officers, sales, marketing, technical support, finance, manufacturing,
engineering, and administrative personnel. Twenty-eight of these employees are
employed at the Westborough, Massachusetts facility, and 39 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 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.
34
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers, directors and director nominee of the Company and
their ages as of December 31, 1996 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
Morton Goldman 67 Director Nominee
</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.
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,
35
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.
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.
36
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.
MORTON GOLDMAN has agreed to become a director of the Company upon
consummation of the Offering. Since July 1994, Mr. Goldman has been a private
investor. From 1982 to July 1994 Mr. Goldman was Chairman of the Board of
Elek-Tek, Inc., a publicly held reseller of personal computers and related
products. Mr. Goldman co-founded Elek-Tek in 1979 and held numerous senior
management positions with the company from 1979 to May 1992, including Chief
Advertising and Marketing Director.
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 consummation 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.
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 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 for the fiscal year ended December 31, 1996 by 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 with respect to
1995, pursuant to an SEC filing requirement.
37
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
ANNUAL COMPENSATION COMPENSATION
------------------- ------------
NUMBER OF
OTHER SECURITIES
ANNUAL UNDERLYING ALL OTHER
YEAR SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS COMPENSATION(2)
---- --------- -------- ------------------ ------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Albert J. Agbay 1996 $225,000 $395,046(3)(4) $12,000 1,044,480 $ 4,750
Chief Exective Officer and
President
1995 182,423 -- 12,000 1,651,203(5) --
Liaqat Y. Kahn 1996 111,923 340,840(3) 8,250 361,560 4,750
Executive Vice President of
Manufacturing
Michael J. Paciello 1996 110,000 83,720(3) 6,000 241,080 4,750
Executive Vice President
Victor J. Melfa, Jr. 1996 100,384 81,115(3) 6,000 241,080 4,750
Senior Vice President of Sales
James P. Lucivero 1996 100,000 80,645(3) 6,000 241,080 4,750
Vice President of Sales --
Eastern United States
</TABLE>
- ---------
(1) Consists of amounts paid as car allowances.
(2) Consists 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) Includes $325,000, $325,000, $65,000, $65,000 and $65,000 in bonuses to be
paid by Palomar to Messrs. Agbay, Khan, Paciello, Melfa and Lucivero,
respectively.
(4) Includes $34,046 in bonus payments payable at a rate of $2.00 per PC sold
by the Company. See "--Employment and Severence Agreements."
(5) Such option grant was cancelled pursuant to an agreement between Mr. Agbay
and Palomar Electronics Corporation (PEC), a wholly-owned subsidiary of
Palomar, in connection with a September 1995 reorganization in which the
Company became a wholly-owned subsidiary of PEC. Pursuant to such
agreement, Mr. Agbay received an option exercisable for shares of common
stock of PEC in consideration of his agreement to cancel such options. Such
option grant issuable for common stock of PEC was subsequently cancelled
pursuant to a cancellation agreement between Mr. Agbay and PEC. Mr. Agbay
separately received a new option grant in 1996 as reflected in the table
above.
<TABLE>
<CAPTION>
OPTION GRANTS IN LAST FISCAL YEAR
---------------------------------
POTENTIAL REALIZABLE
VALUE AT ASSUMED
ANNUAL RATES OF STOCK PRICE
APPRECIATION
FOR OPTION TERMS($)(3)
----------------------
NUMBER OF % OF TOTAL
SECURITIES OPTIONS
UNDERLYING GRANTED TO EXERCISE
OPTIONS EMPLOYEES IN PRICE EXPIRATION
NAME GRANTED FISCAL YEAR ($/SH.) DATE 5% 10%
---- ------- ----------- ------- ---- -- ---
<S> <C> <C> <C> <C> <C> <C>
Albert J. Agbay 1,044,480(1) 36.0% .0025 01/30/2001 $721.43 $1,594.16
Liaqat Y. Kahn 361,560(2) 12.5% .0025 01/30/2001 $249.73 $ 551.84
Michael J. Paciello 241,080(2) 8.3% .0025 01/30/2001 $166.51 $ 367.95
Victor J. Melfa, Jr. 241,080(2) 8.3% .0025 01/30/2001 $166.51 $ 367.95
James P. Lucivero 241,080(2) 8.3% .0025 01/30/2001 $166.51 $ 367.95
- --------
(1) Such option was fully exercisable on the date of grant. See also footnote
(5) to the Summary Compensation Table above.
(2) The exercisability of all such options were initially granted subject to
ratable annual vesting over four years. The respective employment
agreements of each of the indicated Named Executive Officers provide that
half of all such option shares shall vest upon consummation of the Offering
and that such option shares shall vest in full on the first anniversary
date of the Offering or upon a change in control transaction. See "--
Employment and Severance Agreements."
(3) 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>
38
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 ($12.00) as determined by the Board of
Directors) of unexercised options issued by the Company and held by the Named
Executive Officers on December 31, 1996. No options were exercised by any of the
Named Executive Officers in 1996. Only vested options as of such date were then
exercisable.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING UNEXERCISED VALUE OF UNEXERCISED IN-THE-MONEY
OPTIONS AT FISCAL YEAR END OPTIONS AT FISCAL YEAR END($)
(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
Liaqat Y. Khan -- 361,560 361,560 -- 4,337,816 4,337,816
Michael J. Paciello -- 241,080 241,080 -- 2,892,357 2,892,357
Victor J. Melfa, Jr. -- 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, participates in deliberations of the Board of Directors concerning
executive officer compensation.
STOCK PLANS
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (as amended, the "1995 Plan") was
adopted by the Board of Directors and approved by the sole stockholder of the
Company as of March 1995. An amendment and restatement of the 1995 Plan was
adopted by the Board and approved by the Company's stockholders in February
1997. 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 5,300,000 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 February 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 66 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
39
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 February 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 effective 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 Plan will terminate in December 2006.
401(K) PLAN OF PALOMAR
The Company's employees are eligible to participate in Palomar's deferred
compensation plan under Section 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 are made to a
designated fund of the 401(k) Plan invested solely in 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 and the Company are parties to an employment agreement for a five
year term expiring in March 2002. Unless either party chooses otherwise by
notice to the other, the agreement automatically extends at the end of each year
for an additional year throughout the term of the agreement. The agreement
provides that Mr. Agbay is entitled to receive an annual base salary of $250,000
in 1997 subject to annual increases by the Board of Directors (or a duly formed
compensation committee thereof) and is eligible to receive an annual incentive
bonus upon the achievement of mutually agreed upon revenue and net income
performance objectives determined annually by the Board of Directors or
compensation committee thereof and Mr. Agbay. The employment agreement also
provides that Mr. Agbay shall receive an additional bonus equal to $2.00 per
personal computer sold (subject to reduction for returns, credit, set-offs and
allowances) by the Company throughout the term of his employment with the
Company.
Under his employment agreement, if Mr. Agbay's employment is terminated by
the Company without cause following a "change of control" (as defined in the
agreement), Mr. Agbay will receive the following severance payments and further
benefits: (i) $2,250,000, (ii) full payment of any accrued, unpaid salary, bonus
and benefit payments; (iii) a sum equal to three years of his highest to date
annual base pay; (iv) a sum equal to three times his highest to date annual
bonus earned; (v) full immediate vesting of any issued but unvested stock
options; (vi) three years of continuation of participation in the Company's
benefits (to the extent not received by Mr. Agbay in another position),
including health, disability and life insurance, qualified and non-qualified
retirement and pensions plans or, if any, the then current value of the same in
cash if the terms of such plans preclude such continued participation; and (vii)
such additional sums as are necessary for Mr. Agbay to meet any additional
federal taxes due to the payment of severance pay and other benefits having been
contingent upon a change in control. If Mr. Agbay's employment is terminated by
the Company without cause in the absence of such a change of control, Mr. Agbay
will be entitled to all of the foregoing severance payments and other benefits,
other than any additional sums required for the payment of federal taxes in the
event of a change in control transaction and in lieu of a cash payment of
$2,250,000, Mr. Agbay shall be
40
entitled to a minimum (the "Minimum Amount") of (i) $1,000,000 if he is
terminated on or prior to December 31, 1997, or (ii) $1,500,000 if he is
terminated on or after January 1, 1998, subject in either case to increase as
follows:
(x) If the Company achieves $150,000,000 in total revenues in any fiscal
year prior to his termination, Agaby shall be entitled to $3,000,000; and
(y) if (x) is not achieved, Mr. Agbay shall receive a sum equal to (but not
greater, in any event, than $3,000,000) the applicable Minimum Amount plus
either (i) if the Minimum Amount is $1,000,000, an amount equal to the product
of $2,000,000 multiplied by the quotient (the "Quotient Amount") of (A) the
amount by which the Company's total revenues for the four previous completed
fiscal quarters of the Company prior to the date of Mr. Agbay's termination
exceeds $70,000,000, divided by (B) $80,000,000, or (ii) if the Minimum Amount
is $1,500,000, an amount equal to the product of $1,500,000 multiplied by the
Quotient Amount.
In addition, if Mr. Agbay's termination occurs after January 1, 2000, and
the remaining term of Mr. Agbay's contract immediately prior to his termination
is more than three years, Mr. Agbay shall receive an amount of cash equal to (at
the highest prior levels) the amount of both his base pay and incentive pay
which would be paid out over such remaining period of time rather than three
years of such base and incentive pay. If Mr. Agbay were to resign following a
reduction in his responsibilities or pay or change in location, his agreement
deems such a termination as having been effected by the Company.
Upon expiration of Mr. Agbay's term of employment, Mr. Agbay will receive
the following severance payments and further benefits: (i) $2,250,000, but only
if the Company has achieved cumulative total revenues of $150,000,000 for the
period commencing on January 1, 1997 to the date of expiration, (ii) full
payment of any accrued, unpaid salary, bonus and benefit payments; (iii) a sum
equal to eighteen months of his highest to date annual base pay; (iv) a sum
equal to one and one-half of his highest to date annual bonus earned; and (v)
eighteen months of continuation of participation in the Company's benefits (to
the extent not received by Mr. Agbay in another position), including health,
disability and life insurance, qualified and non-qualified retirement and
pensions plans or, if any, the then current value of the same in cash if the
terms of such plans preclude such continued participation. If Mr. Agbay were to
resign prior to the expiration of the term of employment agreement and absent a
reduction in his responsibilities or pay or change in location, Mr. Agbay will
receive the following severance payments and further benefits: (i) $1,000,000 if
he resigns on or after January 1, 2000, (ii) full payment of any accrued, unpaid
salary, bonus and benefit payments; (iii) a sum equal to eighteen months of his
highest to date annual base pay; (iv) a sum equal to one and one-half of his
highest to date annual bonus earned; and (v) eighteen months of continuation of
participation in the Company's benefits (to the extent not received by Mr. Agbay
in another position), including health, disability and life insurance, qualified
and non-qualified retirement and pensions plans or, if any, the then current
value of the same in cash if the terms of such plans preclude such continued
participation. If Mr. Agbay's employment were to be terminated for cause (as
defined in the agreement), Mr. Agbay would be entitled only to full payment of
any accrued, unpaid, salary, bonus and benefit payments and retention of any
fully vested stock options and similar vested benefits. Pursuant to the
agreement, throughout the term of his employment, Mr. Agbay will serve as Chief
Executive Officer of the Company.
Mr. Khan and the Company are parties to an employment agreement for a five
year term expiring in October 2001. Unless either party chooses otherwise by
notice to the other, the agreement automatically extends at the end of each year
for an additional year throughout the term of the agreement. The agreement
provides that Mr. Khan is entitled to receive an annual base salary of $150,000
in 1997 subject to annual increases by the Board of Directors (or a duly formed
compensation committee thereof) and is eligible to receive an annual incentive
bonus upon the achievement of mutually agreed upon revenue and net income
performance objectives determined annually by the Chief Executive Officer and
Mr. Khan. The employment agreement also provides that Mr. Khan shall receive an
additional bonus equal to $2.00 per personal computer sold by the Company
throughout the term of his employment with the Company.
Under his employment agreement, if Mr. Khan's employment is terminated by
the Company without cause following a "change of control" (as defined in the
agreement), Mr. Khan will receive the following severance payments and further
benefits: (i) $750,000, (ii) full payment of any accrued, unpaid salary, bonus
41
and benefit payments; (iii) a sum equal to one year of his highest to date
annual base pay; (iv) a sum equal to his highest to date annual bonus earned;
(v) full immediate vesting of any issued but unvested stock options; (vi) one
year of continuation of participation in the Company's benefits (to the extent
not provided to Mr. Khan in another position), including health, disability and
life insurance, qualified and non-qualified retirement and pensions plans or, if
any, the then current value of the same in cash if the terms of such plans
preclude such continued participation; and (vii) such additional sums as are
necessary for Mr. Khan to meet any additional federal taxes and/or penalties due
to the payment of severance pay and other benefits having been contingent upon a
change in control. If Mr. Khan's employment is terminated by the Company without
cause in the absence of such a change of control, Mr. Khan will be entitled to
all of the foregoing severance payments and other benefits, other than any
additional sums required for the payment of federal taxes and/or penalities in
the event of a change in control transaction.
Upon expiration of Mr. Khan's term of employment, Mr. Khan will receive the
following severance payments and further benefits: (i) $750,000, but only if the
Company has achieved cumulative total revenues of $150,000,000 for the period
commencing on January 1, 1997 to the date of expiration, (ii) full payment of
any accrued, unpaid salary, bonus and benefit payments; (iii) a sum equal to one
year of his highest to date annual base pay; (iv) a sum equal to his highest to
date annual bonus earned; and (v) one year of continuation of participation in
the Company's benefits (to the extent not received by Mr. Khan in another
position), including health, disability and life insurance, qualified and
non-qualified retirement and pensions plans or, if any, the then current value
of the same in cash if the terms of such plans preclude such continued
participation. If Mr. Khan's employment were to be terminated for cause (as
defined in the agreement), Mr. Khan would be entitled only to full payment of
any accrued, unpaid, salary, bonus and benefit payments and retention of any
fully vested stock options and similar vested benefits.
The Company is also party to substantially similar employment agreements
with each of the other Named Executive Officers: Messrs. Paciello, Melfa and
Lucivero. These agreements provide for annual base salaries ranging from
$110,000 to $150,000, as well as annual bonuses based upon the achievement of
mutually agreed upon revenue and net income objectives between the Chief
Executive Officer of the Company and the respective Named Executive Officers.
Each of these agreements is for a term expiring in March 2000. Each of these
agreements provides for severance pay equal to twelve months of the Named
Executive Officer's highest monthly base pay if employment is terminated without
cause.
In addition, each of the employment agreements described above (other than
Mr. Agbay's) provides that fifty percent of all shares subject to stock options
held by each of the Named Executive Officers will vest upon consummation of the
Offering and all such option shares will vest in full one year after
consummation of the Offering and upon a change of control (as defined in the
agreements). Each of the employment agreements described in the preceding
paragraphs include a non-competition covenant pursuant to which the Named
Executive Officers of the Company are prohibited from competing with the Company
during their respective terms of employment and for a period of 12 months
thereafter. Also, each of the agreements described above provides for car
allowances ranging from $600 to $1,000 per month. Original employment agreements
with each of the Named Executive Officers provided for stock option grants to
such executive officers, all of which options were terminated by agreements
dated as of December 1, 1995 between the Company and each of the Named Executive
Officers. 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."
42
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
$21,792,998 and $2,025,000, respectively, through December 31, 1996. The amount
owed to Palomar includes $2,750,000 incurred by Palomar on behalf of the Company
to settle claims of a former executive officer and to acquire certain
technology. See "-- Other Related Party Transactions" below. On February 28,
1997 the Company entered into an agreement with Palomar whereby upon the closing
of the Offering, $8,249,549 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 $11,000,000 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:
(x) 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
(y) if the Company achieves $70,000,000 in cumulative net income after
taxes for the four fiscal years ended December 31, 2000, or if the Company
is party to any merger (other than a merger with a subsidiary or in which
the Company is the survivor and "acquiror"), a sale of substantially all
assets of the Company or similar change in control transaction.
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.
43
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."
All of the 1,900,000 shares of Common Stock and 45,684 shares of Convertible
Preferred Stock (and shares of Common Stock issuable upon conversion thereof)
describd above shall be issued by the Company following the consummation of the
Offering in private transactions exempt from registration under federal and
state securities laws.
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 year ended December
31, 1996, respectively. There is no intention by Palomar to charge management
fees to the Company. During the year ended December 31, 1996 Palomar and its
subsidiaries other than the Company purchased approximately $197,000 of products
from the Company. All such amounts due the Company were outstanding at December
31, 1996 and the Company anticipates it will be paid all such amounts upon
consummation of the Offering. Palomar agreed to pay $1,000,000 of management
bonuses for services rendered to the Company in 1996 in order to conserve the
Company's capital resources.
OTHER RELATED PARTY TRANSACTIONS
The Company's current PCs are shipped with motherboards based on technology
licensed from Technovation Computer Labs, Inc. (Technovation), 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. The Company has agreed to
acquire all such technology and a patent application related thereto, and settle
all claims between Mr. Hamirani and the Company, no later than the closing of
the Offering pursuant to an Asset Purchase and Settlement Agreement by and among
Mr. Hamirani, Technovation, the Company and Palomar dated as of February 28,
1997 (the "Asset Purchase and Settlement Agreement"). Pursuant to the Asset
Purchase and Settlement Agreement and a separate asset purchase agreement
between the Company and Palomar, Palomar will first acquire the subject
technology and then convey such technology to the Company. See Note 10 of Notes
to Consolidated Financial Statements. Through December 31, 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 year ended December 31, 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 Liaqat Y. Khan, an executive officer of the Company, by Mr. 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 December 31, 1996, approximately $220,000 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. Pursuant to the Asset Purchase and
Settlement Agreement described in the preceding paragraph, the Company has
agreed to release Computer Universe and its affiliates from all liabilities with
respect to amounts owed to the Company relating to such transactions and any
other claims of the Company arising on or before the date of such agreement
against Computer Universe and its affiliates, including Mr. Hamirani. In
December 1996, the Board of Directors of the Company established a policy for
considering transactions with directors, officers, and shareholders of the
Company and their affiliates. Pursuant to this policy, the Board of Directors of
the Company will not approve any such related party transactions unless the
Board of Directors has determined that the terms of the transaction are no less
favorable to the Company than those available from unaffiliated parties. Because
this policy is not contained in the Company's Certificate of Incorporation or
Bylaws, this policy is subject to change at any time by the vote of the Board of
Directors. It currently is not contemplated that this policy will be changed.
44
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 approximate amount of
$693,000. 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.
Mr. Goldman, a nominee for director of the Company, is a greater than 10
percent stockholder of Elek-Tek, Inc., a customer of the Company. In the fiscal
year ended December 31, 1996, the Company sold approximately $105,000 in
products to Elek-Tek. All such sales were on terms based on arms length
negotiation.
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.
<TABLE>
<CAPTION>
NUMBER OF
SHARES
BENEFICIALLY
NAME AND ADDRESS OWNED PERCENT
---------------- ----- -------
<S> <C> <C>
Palomar Medical Technologies, Inc. 4,200,000(1) 87.4%
66 Cherry Hill Drive
Beverly, Massachusetts 01915
The Travelers Insurance Company 200,000 4.2
One Tower Square
Hartford, Connecticut 06183
GFL Advantage Fund Limited 200,000 4.2
c/o Citco
Kaya Flamboyan 9
Curacao, Netherlands, Antilles
Clearwater Fund IV LLC 200,000 4.2
611 Druid Road East
Suite 200
Clearwater, Florida 34616
</TABLE>
- ----------
(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%
(6,100,000 shares) of the outstanding Common Stock (approximately 64% 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 $11,000,000
of indebtedness owed by the Company to Palomar and PEC. See "Certain
Transactions."
45
BENEFICIAL OWNERSHIP OF MANAGEMENT
The following table sets forth certain information as of December 31, 1996
regarding the beneficial ownership of the Common Stock, as well as information
regarding the beneficial ownership of the common stock of Palomar and PEC, with
respect to (i) each of the Named Executive Officers, Directors and Director
Nominee of the Company, and (ii) all directors and executive officers of the
Company as a group.
<TABLE>
<CAPTION>
COMPANY COMMON STOCK PALOMAR COMMON STOCK PEC COMMON STOCK
-------------------- -------------------- ----------------
NUMBER OF NUMBER OF NUMBER OF
NAME SHARES SHARES SHARES
BENEFICIALLY BENEFICIALLY BENEFICIALLY
OWNED PERCENT OWNED PERCENT OWNED PERCENT
---- ------ ------- ------ ------- ------ -------
<S> <C> <C> <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
Liaqat Y. Kahn 90,390(1)(2) 1.8 11,250(1) *
Executive Vice President of
Manufacturing
Michael J. Paciello 60,270(1)(3) 1.2
Executive Vice President
Victor J. Melfa, Jr. 60,270(1)(3) 1.2 2,450 *
Senior Vice President, Sales
James P. Lucivero 60,270(1)(3) 1.2
Vice President, Eastern United
States Sales
Morton Goldman
Director Nominee
DIRECTORS AND EXECUTIVE OFFICERS OF
PALOMAR SERVING AS NEXAR DIRECTORS**
- ------------------------------------
Steven Georgiev 4,240,170(4) 88.3 1,070,820(6) 3.4%
Joseph E. Levangie 4,240,170(4) 88.3 612,985(7) 2.0
Joseph P. Caruso 4,240,170(4) 88.3 691,825(8) 2.2
Buster C. Glosson 4,208,250(4) 87.5 53,333(9) *
All directors, director nominee
and executive officers as a
group (13 persons) 5,704,680(5) 90.7% 2,485,913 7.92% 11,250 *
</TABLE>
- --------
* Less than 1%.
** Each with an address c/o Palomar as set forth above.
(1) Consists entirely of shares issuable upon the exercise of options or
warrants exercisable within sixty days of December 31, 1996.
(2) Excludes 135,585 option shares which vest in full upon consummation of the
Offering.
(3) Excludes 90,405 option shares which vest in full upon consummation of the
Offering.
(4) 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 and warrants exercisable within sixty days of
December 31, 1996.
46
(5) Includes 1,492,840 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. Excludes 451,950 shares which vest upon consummation
of the Offering.
(6) 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; 66,666 shares issuable upon exercise of five-year
warrants granted in December 1996 at an exercise price of $6.00 per share.
(7) Includes 4,500 shares held by Mr. Lavangie's wife, beneficial ownership of
which Mr. Levangie disclaims. Also 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; 50,000 shares issuable upon exercise
of five-year warrants granted in August 1996 at an exercise price of $8.00
per share; 50,000 shares issuable upon exercise of five-year warrants
granted in December 1996 at an exercise price of $6.00 per share.
(8) 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; 75,000
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; 100,000
shares issuable upon exercise of five-year options expiring October 6, 1999
at an exercise price of $2.375 per share; 33,333 shares issuable upon
exercise of five-year warrants granted in December 1996 at an exercise
price of $6.00 per share.
(9) Includes 20,000 shares issuable upon exercise of four-year warrants granted
in August 1995, 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.
47
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists 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 $11,000,000 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 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
48
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
shares 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 Company's By-Laws
provide that a stockholder may nominate candidates for directorships only upon
written notice delivered to the Company not less than 90 days prior to any
meeting of stockholders. The Restated Charter also provides that stockholder
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.
49
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, employees and directors of the Company held
options exercisable for the acquisition of 3,055,920 shares of Common Stock
(approximately 65% of which shall be exercisable upon consummation of the
Offering), at an average weighted exercise price of $0.52 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 1,050,000, 50,000
and 50,000 shares of Common Stock at exercise prices equal to 100%, 85% and 50%,
respectively, of the initial public offering price. Unless registered for
resale, 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 6,100,000 shares of Common Stock to be 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 will be convertible into
304,560 shares of Common Stock, assuming an initial public offering price of
$12.00 per share. See "Certain Transactions."
In general, under Rule 144 (giving effect to recent changes to the holding
periods described below adopted by the Securities and Exchange Commission to
become effective April 29, 1997) a person (or persons whose shares are
aggregated), including an affiliate, who has beneficially owned shares for at
least one year is entitled to sell, by means of a broker 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 two 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. 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 "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.
50
All directors and executive officers of the Company, who will hold upon
closing of the Offering in the aggregate options exercisable for 3,485,280
shares (approximately 56% of which shall be exercisable upon consummation of the
Offering) shares of Common Stock, have agreed, pursuant to agreements with Sands
Brothers & Co., Ltd, who is acting as the lead 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. Neither Palomar nor the three
instititutional investors who will collectively hold an aggregate of 6,700,000
shares upon closing of the Offering will be subject to any such lock-up
agreement.
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. ("Sands Brothers") and Credit Lyonnais Securities
(USA) Inc. are acting as the Representatives, 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.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITER SHARES
----------- ------
<S> <C>
Sands Brothers & Co., Ltd.
Credit Lyonnais Securities (USA) Inc.
---------
TOTAL 2,500,000
=========
</TABLE>
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.
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 Sands Brothers a non-accountable expense
allowance of 2% of the gross proceeds of this offering, $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.
51
The Company has agreed to sell to Sands Brothers or its designees, for
nominal consideration, warrants (the "Warrants") to purchase up to 250,000
shares of Common Stock at an exercise price of $ per share (165% of the initial
public offering price). The 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, 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 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 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 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
Warrants. Any profit realized by Sands Brothers on the sale of the Warrants or
the underlying shares of Common Stock may be deemed additional underwriting
compensation. The 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 Warrants, at the Company's expense, to register
the shares underlying the Warrants under the Securities Act on one occasion
during the Warrant Exercise Term and to include the 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 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, at Sands Brother's request, to
nominate and use its best efforts to elect a designee of Sands Brothers as a
member of or, at Sands Brothers' option, as a non-voting advisor to the Board of
Directors of the Company. As of the date of this Prospectus, Sands Brothers 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 first obtaining the prior written
approval of Sands Brothers, which can withhold such approval in its sole
discretion.
In order to facilitate the offering of the Common Stock, the Underwriters
may engage in transactions that stabilize, maintain or otherwise affect the
price of the Common Stock. Specifically, the Underwriters may over-allot in
connection with the offering, creating a short position in the Common Stock for
their own account. In addition, to cover over-allotments or to stabilize the
price of the Common Stock, the Underwriters may bid for, and purchase, shares of
Common Stock in the open market. Finally, the underwriting syndicate may reclaim
selling concessions allowed to an underwriter or a dealer for distributing the
Common Stock in the offering, if the syndicate repurchases previously
distributed Common Stock in transactions to cover syndicate short positions, in
stabilization transactions or otherwise. Any of these activities may stabilize
or maintain the market price of the Common Stock above independent market
levels. The Underwriters are not required to engage in these activities, and may
end any of these activities at any time.
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
Representatives. 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 reports with respect thereto and are
included herein upon the authority of said firm as experts in giving said
reports.
52
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, amendments thereto, 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,
and amendments thereto, may be inspected without charge at the Commission's
Public Reference Room, Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C.
20549, and at the Commission's regional offices located at Seven World Trade
Center, 13th Floor, New York, New York 10048 and at Northwest Atrium Center,
Suite 1400, 500 West Madison Street, Chicago, Illinois 10048. Copies of the
Registration Statement may be obtained from the Commission from its Public
Reference Section, 450 Fifth Street, N.W., Washington, D.C. 20549, upon payment
of prescribed fees. The Registration Statement is also available on the
Commission site on the World Wide Web at http://www.sec.gov.
The Company intends to distribute to its stockholders annual reports
containing financial statements audited by its independent accountants and will
make available copies of quarterly reports for the first three quarters of each
fiscal year containing unaudited financial statements.
TRADEMARKS
The Company's logo, 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.
53
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 and 1996, and Pro forma as of
December 31, 1996 (Unaudited) F-3
Consolidated Statements of Operations for the period from inception (March 7, 1995)
to December 31, 1995 and for the Year Ended December 31, 1996 F-4
Consolidated Statements of Stockholders' Deficit for the period from
inception (March 7, 1995) to December 31, 1995 and for the Year Ended December 31, 1996 F-5
Consolidated Statements of Cash Flows for the period from inception
(March 7, 1995) to December 31, 1995 and for the Year Ended December 31, 1996 F-6
Notes to Consolidated Financial Statements F-7
</TABLE>
F-1
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 majority-owned subsidiary of
Palomar Medical Technologies, Inc.) and subsidiary as of December 31, 1995 and
1996, and the related consolidated statements of operations, stockholders'
deficit and cash flows for the period from inception (March 7, 1995) to December
31, 1995 and for the year ended December 31, 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 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 year ended December 31, 1996, in conformity with generally
accepted accounting principles.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 24, 1997 (except with respect
to the matter discussed
in Note 10 as to which
the date is February 28, 1997)
F-2
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
DECEMBER 31, DECEMBER 31, 1996
1995 1996 PRO FORMA
------------ ------------ -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
CURRENT ASSETS:
Cash $ 980,618 $ 2,738,983 $ 2,738,983
Accounts receivable, net of allowance of $12,000 and
$603,953 in 1995 and 1996, respectively 327,471 7,747,007 7,747,007
Inventories 8,432 6,112,821 6,112,821
Prepaid expenses and other current assets 52,150 368,040 368,040
------------ ------------ -----------
Total current assets 1,368,671 16,966,851 16,966,851
------------ ------------ -----------
PROPERTY AND EQUIPMENT, NET 100,674 254,812 254,812
------------ ------------ -----------
PURCHASED TECHNOLOGY -- 1,375,000 1,375,000
------------ ------------ -----------
OTHER ASSETS -- 992,458 992,458
------------ ------------ -----------
$ 1,469,345 $ 19,589,121 $ 19,589,121
============ ============ ============
LIABILITIES AND STOCKHOLDERS' (DEFICIT) EQUITY
CURRENT LIABILITIES:
Accounts payable $ 178,154 $ 4,537,052 $ 4,537,052
Accrued expenses 609,333 1,005,244 1,005,244
------------ ------------ -----------
Total current liabilities 787,487 5,542,296 5,542,296
------------ ------------ -----------
DUE TO RELATED PARTIES 2,942,892 23,817,998 8,249,549
------------ ------------ -----------
COMMITMENTS AND CONTINGENCIES (Note 7)
STOCKHOLDERS' (DEFICIT) EQUITY:
Preferred Stock, $.01 par value --
Authorized -- 10,000,000 shares
Issued and Outstanding -- None at December 31, 1995 and
1996; 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 1996; 6,700,000 shares pro forma 48,000 48,000 67,000
Additional paid-in capital (47,600) (47,600) 15,501,392
Accumulated deficit (2,261,434) (9,771,573) (9,771,573)
------------ ------------ -----------
Total stockholders' (deficit) equity (2,261,034) (9,771,173) 5,797,276
------------ ------------ -----------
$ 1,469,345 $ 19,589,121 $ 19,589,121
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 7, 1995) TO YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
NET REVENUES $ 619,629 $ 18,695,364
COST OF REVENUES 574,611 16,392,483
----------- ------------
Gross profit 45,018 2,302,881
----------- ------------
OPERATING EXPENSES:
Research and development 104,383 803,186
Selling and marketing 581,482 4,819,379
General and administrative 1,095,587 2,815,455
Litigation costs (Notes 2 and 10) 525,000 1,375,000
----------- ------------
Total operating expenses 2,306,452 9,813,020
----------- ------------
Net loss $(2,261,434) $ (7,510,139)
============ ============
PRO FORMA NET LOSS PER COMMON AND COMMON EQUIVALENT SHARE (Note 3(b)) $ (0.27) $ (0.89)
============ ============
PRO FORMA WEIGHTED AVERAGE NUMBER OF COMMON AND
COMMON EQUIVALENT SHARES OUTSTANDING (Note 3(b)) 8,421,838 8,421,838
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
COMMON STOCK
TOTAL
NUMBER OF $.01 ADDITIONAL ACCUMULATED STOCKHOLDERS'
SHARES PAR VALUE PAID-IN CAPITAL DEFICIT (DEFICIT) EQUITY
--------- --------- --------------- ----------- ----------------
<S> <C> <C> <C> <C> <C>
INITIAL ISSUANCE OF COMMON STOCK,
MARCH 7, 1995 4,800,000 $ 48,000 $ (47,600) $ -- $ 400
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 -- -- -- (7,510,139) (7,510,139)
--------- --------- --------------- ----------- --------------
BALANCE, DECEMBER 31, 1996 4,800,000 $ 48,000 $ (47,600) $(9,771,573) $ (9,771,173)
========= ======== =============== ============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
INCEPTION
(MARCH 7, 1995) TO YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (2,261,434) $ (7,510,139)
Adjustments to reconcile net loss to net cash used
in operating activities --
Litigation costs 500,000 1,375,000
Management bonuses to be paid by Palomar -- 1,000,000
Depreciation and amortization 2,119 33,166
Changes in current assets and liabilities --
Accounts receivable (327,471) (7,419,536)
Inventories (8,432) (6,104,389)
Prepaid expenses and other current assets (52,150) (315,890)
Accounts payable 178,154 4,358,898
Accrued expenses 109,333 162,911
---------- -----------
Net cash used in operating activities (1,859,881) (14,419,979)
---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property and equipment (102,793) (187,304)
Increase in other assets -- (306,000)
---------- -----------
Net cash used in investing activities (102,793) (493,304)
---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Due to related parties 2,942,892 16,671,648
Proceeds from initial issuance of common stock 400 --
---------- -----------
Net cash provided by financing activities 2,943,292 16,671,648
---------- -----------
NET INCREASE IN CASH 980,618 1,758,365
CASH, BEGINNING OF PERIOD -- 980,618
---------- -----------
CASH, END OF PERIOD $ 980,618 $ 2,738,983
============ ============
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND
FINANCING ACTIVITIES:
Deferred offering costs $ -- $ 686,459
============ ============
Purchase of technology $ -- $ 1,375,000
============ ============
</TABLE>
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) OPERATIONS AND ORGANIZATION
Nexar Technologies, Inc. (the Company or Nexar) is in its early stages of
manufacturing, marketing and selling 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.
Nexar 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).
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, dependence on Palomar for funding and 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
Palomar and PEC have funded all of the Company's operations to date. Palomar
has agreed to continue to fund the Company, if needed, at least through December
31, 1997. The total amount of funds provided by Palomar and PEC has been
$21,792,998 and $2,025,000, respectively, through December 31, 1996. The
weighted average balances of these contributions were approximately $767,000 and
$9,791,000 for the period ended December 31, 1995 and the year ended December
31, 1996, respectively. All of these loans have been non-interest-bearing. On
December 19, 1996, the Company entered into an agreement with Palomar whereby
$11,000,000 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 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 $8,249,549 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 at an assumed initial
public offering price of $12.00 per share.
The pro forma consolidated balance sheet at December 31, 1996 reflects the
conversion of $11,000,000 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.
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 PECs 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 year ended December
31, 1996, respectively. Palomar also agreed to pay bonuses to the Company's
management totaling $1,000,000 for the year ended December 31, 1996. 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 stand-alone
basis.
Included in accounts receivable in the accompanying consolidated balance
sheet at December 31, 1996 is approximately $197,000 due from Palomar and its
majority-owned subsidiaries for product purchases. There was no amount due from
Palomar at December 31, 1995.
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)
During the year ended December 31, 1996, the Company purchased inventory
components from affiliated companies totaling approximately $693,000, of which
approximately $693,000 is included in accounts payable in the accompanying
consolidated balance sheet as of December 31, 1996.
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 litigation 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.
(a) Unaudited Pro Forma Presentation
The unaudited pro forma consolidated balance sheet as of December 31, 1996
reflects the conversion of $11,000,000 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 at an assumed
initial public offering price of $12.00 per share. In connection with this
conversion of amounts due to related parties, by agreement between Palomar and
the Company, 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 year ended
December 31, 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 (APB) Opinion No. 15, the pro forma
weighted average number of common and common equivalent shares outstanding
assumes the conversion of $11,000,000 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 revenue, net income and
stock price milestones, as defined, in an agreement between Palomar and the
Company), and assumes that all common stock and common stock equivalents issued
within 12 months prior to the initial filing of 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-8
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 revenue and cost of revenue 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 year ended December 31, 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. Subsequent to December 31, 1996
all of this product had been shipped to this customer. Included in accounts
receivable at December 31, 1996 is approximately $160,000 due from this customer
related to this transaction. The Company has recognized this revenue in
accordance with the Securities and Exchange Commission Accounting and Auditing
Enforcement Release No. 108.
(f) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market
and consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
------------ -----------
<S> <C> <C>
Raw materials $ 8,432 $ 4,214,097
Work-in-process -- 244,230
Finished goods -- 1,129,494
------- -----------
$ 8,432 $ 5,587,821
======= ===========
</TABLE>
Work-in-process and finished goods inventories consist of material, labor
and manufacturing overhead.
(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 DECEMBER 31, DECEMBER 31,
ASSET CLASSIFICATION USEFUL LIFE 1995 1996
-------------------- ----------- ---- ----
<S> <C> <C> <C>
Machinery and equipment 5 Years $ 76,614 $ 112,705
Computer equipment 5 Years 700 80,744
Furniture and fixtures 5 Years 25,479 47,718
Leasehold improvements Life of lease -- 48,930
--------- ----------
102,793 290,097
Less -- Accumulated depreciation and amortization 2,119 35,285
--------- ----------
$ 100,674 $ 254,812
========= ==========
</TABLE>
F-9
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(3) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (Continued)
(h) Other Assets
As of December 31, 1996, the Company has incurred costs of approximately
$686,000 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 consolidated balance sheet as
of December 31, 1996. Upon the consummation of the proposed initial public
offering, the deferred offering costs will be charged to stockholders' 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 Concentrations of Credit Risk, requires disclosures
of any significant off-balance-sheet and credit risk concentrations. The Company
has no significant off-balance-sheet concentrations of credit risk such as
foreign currency exchange contracts, options contracts or other foreign hedging
arrangements. Financial instruments that subject the Company to credit risk
consist primarily of cash and trade accounts receivable. The Company places its
cash in highly rated financial institutions. 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 year ended December 31, 1996, who represented
approximately $12,270,000 of total revenues and approximately $4,256,000 of
accounts receivable at December 31, 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 year ended
December 31, 1996, the Company sold approximately $430,000 of product to a
company owned by a current and former officer of Nexar. The Company collected
$210,000 of this amount and wrote off the remaining balance, approximately
$220,000, as uncollectible during the year ended December 31, 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 values of the Company's financial instruments, which
include cash, accounts receivable, accounts payable and amounts due to related
parties, approximate their carrying value.
(k) Research and Development Expenses
The Company charges research and development expenses to operations as
incurred.
(4) STOCKHOLDERS' DEFICIT
(a) Recapitalization
In December 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.
In December 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
F-10
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) STOCKHOLDERS' DEFICIT -- (Continued)
(a) Recapitalization (Continued)
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 of $100 per share, resulting in a total liquidation preference of
$4,568,400.
(b) Stock Option Plans
In August 1995, the Company established the 1995 Stock Option Plan (the
Plan), which 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. Subsequent to December 31, 1996 the Board of
Directors increased the number of shares issuable under the Plan to 5,300,000.
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).
On January 30, 1996 and July 19, 1996 the Company granted options to
purchase 3,234,480 and 83,000 respective shares of the Company's Common Stock at
an exercise price of $0.0025 and $4.25 per share. The price per share was based
on the fair market value of the Company's Common Stock as determined by the
Board of Directors on the date of grant.
The Company has also agreed, as a condition to the employment of two
employees, to issue, upon consummation of the initial public offering, options
to purchase 50,000 and 50,000 shares of the Company's common stock at 85% and
50% of the initial public offering price, respectively. Upon the granting of
these options, the Company will record deferred compensation expense for the
difference between the exercise price and the price of the initial public
offering, if any. In addition, the Board of Directors approved the issuance of
stock options to purchase 1,050,000 shares of the Company's common stock at the
initial public offering price upon the effectiveness of the proposed initial
public offering price to certain employees, directors and officers of Palomar
and the Company. These stock options will vest over periods ranging from four to
five years, except for stock options to purchase 800,000 shares of the Company's
common stock, which may vest earlier, upon the achievement of certain revenue,
net income and stock price milestones, as defined, through December 31, 2000.
In December 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, initial 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 annually
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 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 Plan will terminate in December 2006.
Subsequent to December 31, 1996, the Board of Directors authorized
amendments to employment agreements accelerating the vesting of certain options
to purchase 451,950 shares of the Company's common stock upon the closing of the
initial public offering contemplated herein. In addition, the Board of Directors
approved amendments to employment agreements accelerating the vesting of options
to purchase 903,900 shares of the Company's common stock to vest one year from
the closing of the initial public offering contemplated herein.
F-11
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) STOCKHOLDERS' DEFICIT -- (CONTINUED)
(b) Stock Option Plans (Continued)
The Company accounts for its stock-based compensation plans under APB
Opinion No. 25, Accounting for Stock Issued to Employees. In October 1995, the
Financial Accounting Standards Board issued SFAS No. 123, Accounting for
Stock-Based Compensation, which is effective for fiscal years beginning after
December 15, 1995. SFAS No. 123 establishes a fair-value-based method of
accounting for stock-based compensation plans. The Company has adopted the
disclosure-only alternative under SFAS No. 123, which requires disclosure of the
pro forma effects on earnings and earnings per share as if SFAS No. 123 had been
adopted, as well as certain other information.
The Company has computed the pro forma disclosures required under SFAS No.
123 for all stock options granted as of December 31, 1996 using the
Black-Scholes option pricing model prescribed by SFAS No. 123.
The assumptions used and the weighted average information for the period
from inception (March 7, 1995) to December 31, 1995 and for the year ended
December 31, 1996 are as follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(MARCH 7, 1995) TO YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Risk-free interest rates 6.11% 5.23%-6.51%
Expected dividend yield -- --
Expected lives 4.5 years 4.5 years
Expected volatility 51% 51%
Weighted average grant-date fair value of
options granted during the period $0.001 $0.28
Weighted-average exercise price $0.001 $0.45
Weighed-average remaining contractual life of
options outstanding 4.58 years 4.13 years
Weighted average exercise price of 5,733 and
1,063,973 options exercisable at December 31,
1995 and 1996, respectively $0.001 $0.0025
</TABLE>
The effect of applying SFAS No. 123 would be as follows:
<TABLE>
<CAPTION>
PERIOD FROM INCEPTION
(MARCH 7, 1995) TO YEAR ENDED
DECEMBER 31, 1995 DECEMBER 31, 1996
----------------- -----------------
<S> <C> <C>
Pro forma net loss $ (2,261,434) $ (7,646,716)
============ ============
Pro forma net loss per share $ (0.27) $ (0.91)
============ ============
</TABLE>
The following table summarizes all stock option activity under the Plan:
<TABLE>
<CAPTION>
NUMBER EXERCISE
OF SHARES PRICE
---------- --------------
<S> <C> <C>
Inception, March 7, 1995 -- $ --
Granted 20,640 .001
========= ==============
Balance, December 31, 1995 20,640 .001
Granted 3,396,840 .0025-10.00
Terminated (361,560) .0025
--------- --------------
Balance, December 31, 1996 3,055,920 $ .001--$10.00
========= ==============
Exercisable, December 31, 1996 1,063,973 $ .001-$0.0025
========= ==============
</TABLE>
F-12
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(4) STOCKHOLDERS' DEFICIT -- (CONTINUED)
(c) Employee Stock Purchase Plan
In December 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
Upon the consummation of the proposed initial public offering contemplated
herein, the Company will issue to the underwriter, as part of their investment
banking fee, warrants to purchase 250,000 shares of the Company's common stock
at a price equal to 165% 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. It is anticipated the consolidated tax return will also
reflect a net operating loss for the year ended December 31, 1996. 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.
As of December 31, 1996, the Company had generated net operating loss
carryforwards for federal and state income tax purposes of approximately
$6,375,000 that expire through 2011. The Company also has certain tax credits
available to offset future federal and state 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 Companys 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>
1995 1996
---------- -----------
<S> <C> <C>
Net operating loss carryforwards $ 830,000 $ 2,567,000
Litigation costs -- 550,000
Management bonuses -- 403,000
Other temporary differences 75,000 385,000
---------- ------------
905,000 3,905,000
Less -- Valuation allowance (905,000) (3,905,000)
---------- ------------
-- $ --
========== =============
</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 assets.
F-13
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(6) ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31, DECEMBER 31,
1995 1996
----------- -----------
<S> <C> <C>
Accrued payroll and related costs $ 51,452 $ 128,373
Accrued settlement costs 500,000 --
Other accrued expenses 57,881 876,871
-------- -----------
Total $609,333 $ 1,005,244
======== ===========
</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 December 31,
1996 are as follows:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED AMOUNT
- ----------------- ------
<S> <C>
1997 $ 418,000
1998 450,000
1999 453,000
2000 506,000
2001 352,000
-----------
$ 2,179,000
===========
</TABLE>
Rent expense related to all operating leases was approximately $85,000 and
$161,000 for the period from inception (March 7, 1995) to December 31, 1995 and
for the year ended December 31, 1996, respectively.
(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 period from
inception (March 7, 1995) to December 31, 1995 and for the year ended December
31, 1996, royalties charged to operations were immaterial. Subsequent to
December 31, 1996, Palomar and the Licensor entered into an Asset Purchase and
Settlement Agreement, see Note 10.
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-Homes software application
F-14
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(7) COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
(b) License Agreements (Continued)
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 December 31,
1996.
(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 December 31, 1996, the Company incurred and charged to
operations approximately $126,000 under this agreement.
(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. No royalties
have been incurred under this agreement as of December 31, 1996.
(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) Employment Agreements
The Company has an employment agreement with its Chief Executive Officer
(CEO) expiring in March 2002, unless extended. The agreement provides for annual
salary and bonus for the CEO and a bonus of $2.00 per personal computer sold by
the Company. Upon termination of employment with the Company, as defined, the
CEO will be entitled to amounts ranging from $1,000,000 to $3,000,000 in cash,
three to five years of salary, bonus and participation in the Company's benefit
plans, immediate vesting of unvested stock options and an income tax "gross up"
for all of the above items in the event of a change of control, as defined.
The Company has an employment agreement with another executive officer
expiring in March 2002, unless extended. The agreement provides for annual
salary and bonus for the officer and a bonus of $2.00 per personal computer sold
by the Company. Upon termination of employment with the Company, as defined, the
officer will be entitled to up to $750,000 in cash, one year of salary, bonus
and participation in the Company's benefit plans, immediate vesting of unvested
stock options and an income tax "gross up" for all of the above items in the
event of a change of control, as defined.
The Company has substantially similar employment agreements with certain
other executive officers that provide for annual salaries and bonuses to the
officers and expire in March 2000. Each of these agreements provide for 12
months severance upon termination of employment, as defined.
F-15
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(8) 401(K) PROFIT SHARING PLAN
In April 1996, the Company began participating in a 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 managements 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 was immaterial through December 31,
1996.
(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
December 31, 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
December 31, 1996, the Company has not received any proceeds under this
agreement.
(10) SUBSEQUENT EVENTS
In 1996, an attorney for a former executive officer of the Company
threatened to file a lawsuit or seek arbitration proceeding against the Company
regarding the Company's termination of this executive's employment and the
Company's license agreement with the Licensor.
On February 28, 1997, Palomar and the Company entered into an Asset Purchase
and Settlement Agreement with this former executive and Licensor. Under the
terms of this agreement, Palomar has agreed to pay this former executive and
certain of his affiliates $1,250,000 in cash and deliver $1,500,000 worth of
Palomar's common stock in exchange for all right, title and interest in and to
all the technology licensed under Company's license agreement with the Licensor
and a patent application related thereto and a complete release and settlement
of all claims between this former executive and the Company. Palomar will first
acquire the subject technology and then convey such technology to the Company.
Accordingly, Palomar paid $75,000 upon the execution of this agreement. Palomar
will issue its common shares and remit $475,000 to this former executive on the
earlier of April 30, 1997 or the closing of the initial public offering,
contemplated herein. The $700,000 balance of the cash consideration will be held
in escrow, subject to release to the former executive and/or Licensor in the
absence of a breach of a representation, warranty or covenant within one year
after the closing.
Palomar has agreed to assign to the Company all of its rights and title in
the technology to be received under the Asset Purchase and Settlement Agreement
immediately upon the receipt thereof, and has charged to the Company the costs
associated with this claim and the purchase of the technology. The Company has
allocated $1,375,000 of the consideration to settle this claim and has reflected
this amount as litigation expense in its statement of operations for the year
ended December 31, 1996. The remaining consideration totaling $1,375,000 has
been allocated to the purchase of the technology as of December 31, 1996 and
will be amortized over the technology's estimated useful life. The allocation of
the purchased technology was based on the value of anticipated royalty payments
due to the licensor over the three years ended December 31, 1999.
The Company has included $2,750,000 in Due to Related Parties as of December
31, 1996 in connection with this settlement.
F-16
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, 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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary 3
Risk Factors 6
Use of Proceeds 14
Dividend Policy 14
Capitalization 15
Dilution 16
Selected Consolidated Financial Data 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations 18
Business 22
Management 35
Certain Transactions 43
Stockholders 45
Beneficial Ownership of Management 46
Description of Capital Stock 48
Shares Eligible for Future Sale 50
Underwriting 51
Legal Matters 52
Experts 52
Additional Information 53
Trademarks 53
Index to Consolidated Financial Statements F-1
</TABLE>
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
----------
SANDS BROTHERS & CO., LTD.
Credit Lyonnais Securities (USA) Inc.
, 1997
================================================================================
ALTERNATE PAGE FOR SELLING SECURITY HOLDERS' PROSPECTUS
SUBJECT TO COMPLETION, DATED , 1997
PROSPECTUS
- ----------
6,700,000 SHARES
[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"), 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 6 FOR A DISCUSSION OF CERTAIN
FACTORS THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE COMMON
STOCK OFFERED HEREBY.
The Selling Security Holders and their agents, donees, distributees,
pledgees and other successors in interest may offer and sell the remainder of
the shares from time to time in one or more transactions on The Nasdaq Stock
Market, or otherwise, at market prices then prevailing or in negotiated
transactions. The shares may also be sold pursuant to option, hedging or other
transactions with broker-dealers. The shares may also be offered in one or more
underwritten offerings, although no such arrangments have been made. The
underwriters in an underwritten offering, if any, and the terms and conditions
of any such offering will be described in a supplement to this Prospectus. See
"Selling Security Holders" and "Plan of Distribution."
On , 1997, the Company consummated 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 $0.52 per share, of which options to purchase
1,063,973 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 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 shares of Common Stock which
were issued to related parties upon conversion of $11,000,000 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 ($29,877,500 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 to repay non-interest
bearing demand indebtedness to related parties, which was $8,249,549 at December
31, 1996 (including $2,750,000 incurred by Palomar on the Company's behalf to
settle claims of a former executive officer and to acquire certain technology;
see "Certain Transactions") and for general corporate purposes, including
working capital, product development and capital expenditure. 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
---------------- --------------- --------------- ------------
6,100,000 6,100,000 0
<S> <C> <C> <C>
Palomar Medical Technologies, Inc. ......
66 Cherry Hill Drive
Beverly, Massachusetts 01915
200,000 200,000 0
The Travelers Insurance Company .........
One Tower Square
Hartford, Connecticut 06183
GFL Advantage Fund Limited .............. 200,000 200,000 0
c/o Citco
Kaya Flamboyan 9
Curacao, Netherlands, Antilles
Clearwater Fund IV LLC .................. 200,000 200,000 0
611 Druid Road East
Suite 200
Clearwater, Florida 34616
</TABLE>
- -----------
(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%
(6,100,000 shares) of the outstanding Common Stock (approximately 64% 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 $11,000,000
of indebtedness owed by the Company to Palomar and PEC. See "Certain
Transactions."
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 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, l0b-5, l0b-6 and l0b-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 and filing the registration statement and any and
all amendments thereto will be borne by the Company.
================================================================================
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
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
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 F-1
</TABLE>
================================================================================
ALTERNATE PAGE FOR SELLING
SECURITY HOLDERS' PROSPECTUS
================================================================================
6,700,000 SHARES
[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:
<TABLE>
<CAPTION>
<S> <C>
SEC Filing fee $ 37,720
NASD Filing fee 12,948
Nasdaq National Market fee 40,500
Printing and mailing expenses 100,000
Legal fees and expenses 400,000
Accounting fees and expenses 300,000
Blue Sky fees and expenses (including legal fees) 25,000
Transfer agent and registrar fees and expenses 2,500
Miscellaneous 81,332
----------
Total $1,000,000
==========
</TABLE>
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.
The directors and officers of the Registrant are beneficiaries of a
director's and officer's liability insurance policy maintained by the
Registrant's parent corporation, Palomar Medical Technologies, Inc. Such policy
provides coverage up to $5,000,000 and will continue to apply to the
Registrant's officers and directors while in force and for as long as Palomar
owns more than 50% of the issued and outstanding voting stock of the Registrant.
II-1
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:
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
--- -----------
<S> <C>
1.1 -- Revised 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 as of February 28, 1997 between Palomar Medical Technologies,
Inc. and the Registrant
+4.4 -- Registration Rights Agreement dated as of December 18, 1996 between the Registrant
and The Travelers Insurance Company
+4.5 -- Registration Rights Agreement dated as of December 31, 1996 between the Registrant
and GFL Advantage Fund Limited.
+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, as amended
10.8 -- 1996 Employee Stock Purchase Plan
10.9 -- 1996 Non-Employee Directors Stock Option Plan
II-2
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 Y. Khan
10.14 -- Key Employee Agreement between the Registrant and Victor J. Melfa, Jr.
10.15 -- Key Employee Agreement between the Registrant and James P. Lucivero
10.16 -- Amendment to Key Employee Agreement between the Registrant and E. Craig Conrad
**10.17 -- Development Agreement dated as of November 12, 1996 between the Registrant and
GDA Technologies, Inc.
10.19 -- Amendment to Key Employment Agreement between the Registrant and Michael J. Paciello
10.20 -- Amendment to Key Employment Agreement between the Registrant and Liaqat Y. Khan
10.21 -- Amendment to Key Employment Agreement between the Registrant and Victor J. Melfa
10.22 -- Amendment to Key Employment Agreement between the Registrant and James P. Lucivero
+10.23 -- Asset Purchase Agreement dated as of February 28, 1997 among the Registrant, Palomar
Medical Technologies, Inc., Babar I. Hamirani and Technovation Computer Labs,
Inc.
+10.24 -- Asset Purchase Agreement dated as of February 28, 1997 between the Registrant
and Palomar Medical Technologies, Inc.
10.25 -- Draft of Warrant Agreement between the Registrant and Sands Brothers & Co., Ltd.
+11.1 -- Statement Re: Earnings Per Share
+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
</TABLE>
- ---------
+ 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.
The undersigned registrant hereby undertakes:
(a) (1) To file, during any period in which offers or sales are being
made, a post-effective amendment to this registration statement;
(i) To include any prospectus required by Section 10(a)(3) of
the Securities Act of 1933;
(ii) 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
II-3
forth in the registration statement. Notwithstanding the
foregoing, any increase or decrease in the volume of securities
offered (if the total dollar value of securities offered would
not exceed that which was registered) and any deviation from the
low or high end of the estimated maximum offering range may be
reflected in the form of prospectus filed with the Securities
and Exchange Commission pursuant to Rule 424(b) if, in the
aggregate, the changes in volume and price represent no more
than a 20 percent change in the maximum aggregate offering price
set forth in the "Calculation of Registration Fee" table in the
effective registration statement.
(iii) 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.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed to
be the initial bona fide offering thereof.
(3) 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.
(f) 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.
(h) 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.
(i) (1) For purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS PRE-EFFECTIVE AMENDMENT NO. 4 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 MARCH 25, 1997.
NEXAR TECHNOLOGIES, INC.
By: /s/ ALBERT J. AGBAY
-------------------------------
ALBERT J. AGBAY
CHIEF EXECUTIVE OFFICER,
PRESIDENT AND CHAIRMAN OF
THE BOARD
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
PRE-EFFECTIVE AMENDMENT NO. 4 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> <C>
/s/ ALBERT J. AGBAY Chief Executive Officer March 25, 1997
---------------------------- (Principal Executive Officer),
ALBERT J. AGBAY President and Chairman of the
Board of Directors
/s/ GERALD Y. HATTORI Vice President of Finance, March 25, 1997
----------------------------- Chief Financial Officer and
GERALD Y. HATTORI Treasurer (Principal Financial
and Accounting Officer)
*
---------------------------- Director March 25, 1997
STEVEN GEORGIEV
*
---------------------------- Director March 25, 1997
JOSEPH E. LEVANGIE
*
---------------------------- Director March 25, 1997
JOSEPH P. CARUSO
*
---------------------------- Director March 25, 1997
BUSTER C. GLOSSON
*By: /s/ ALBERT J. AGBAY
-----------------------------
ATTORNEY-IN-FACT
</TABLE>
II-5
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
January 24, 1997 (except with respect to the matter discussed in Note 10 as to
which the date is February 28, 1997). 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.
ARTHUR ANDERSEN LLP
Boston, Massachusetts
January 24, 1997
S-1
NEXAR TECHNOLOGIES, INC. AND SUBSIDIARY
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE, BALANCE,
BEGINNING OF END OF
PERIOD INCREASES(1) DEDUCTIONS PERIOD
------ ------------ ---------- ------
<S> <C> <C> <C> <C>
ACCOUNTS RECEIVABLE RESERVE:
December 31, 1995 $ -- $ 12,000 $ -- $ 12,000
December 31, 1996 $ 12,000 $ 811,096 $ (219,143) $ 603,953
</TABLE>
- -------
(1) Includes allowances for doubtful accounts, sales returns and stock
rebalancing arrangements.
S-2
EXHIBIT 1.1
2,500,000 Shares
NEXAR TECHNOLOGIES, INC.
Common Stock
UNDERWRITING AGREEMENT
March ___, 1997
Sands Brothers & Co., Ltd.
Credit Lyonnais Securities (USA) Inc.
As Representatives of the Several Underwriters
c/o Sands Brothers & Co., Ltd.
90 Park Avenue
New York, New York 10016
Dear Sirs:
Nexar Technologies, Inc., a Delaware corporation (the "Company"),
proposes to issue and sell to the underwriters named in Schedule A (the
"Underwriters") of this Underwriting Agreement (the "Agreement"), for whom you
are acting as representatives (in such capacities, the "Representatives"),
2,500,000 shares (the "Firm Shares") of Common Stock, par value $0.01 per share
of the Company (the "Common Stock"). In addition, the Company has agreed to
grant to the Underwriters an option (which may be exercised by the
Representatives as provided in Section 3 hereof) to purchase an additional
375,000 shares of Common Stock (the "Option Shares") as provided in Section 3
hereof. The Firm Shares and the Option Shares are hereinafter collectively
referred to as the "Shares." If you are the only Underwriters, all references
herein to the Representatives shall be deemed to be to the Underwriters.
The Company also proposes to issue and sell to Sands Brothers & Co.,
Ltd. (for its own account and not as one of the Representatives of the Several
Underwriters and hereinafter, "Sands Brothers") or, at your discretion, to your
bona fide officers or shareholders, as described below, warrants (the "Sands
Brothers Warrants") to purchase an aggregate of 250,000 shares of Common Stock
(subject to adjustment) at an exercise price of $_________ per share, which sale
will be consummated in accordance with the terms and conditions of the form of
Warrant Agreement filed as an exhibit to the Registration Statement. The shares
of Common Stock issuable upon exercise of the Sands Brothers Warrants are
hereinafter sometimes referred to as the "Warrant Shares." The Shares, the Sands
Brothers Warrants and the Warrant Shares (collectively, the "Securities") are
more fully described in the Registration Statement and the Prospectus, as
defined below.
You have advised the Company that you and the other Underwriters desire
to purchase, severally, the Firm Shares and that you have been authorized by the
Underwriters to execute this agreement on their behalf. The Company confirms the
agreements made by it with respect to the purchase of the Firm Shares by the
several Underwriters on whose behalf you are signing this Agreement, as follows:
1. Purchase and Sale of Firm Shares. (a) Subject to the terms and
conditions of this Agreement, and upon the basis of the representations,
warranties, and agreements herein contained, the Company agrees to issue and
sell to the Underwriters, and each such Underwriter agrees, severally and not
jointly, to buy from the Company at $_________ for each Firm Share, at the place
and time hereinafter specified, the number of Firm Shares set forth opposite the
names of the Underwriters in Schedule A attached hereto plus any additional Firm
Shares which such Underwriters may become obligated to purchase pursuant to the
provisions of Section 9 hereof.
2. Payment and Delivery; Sands Brothers Warrants.
(a) Delivery to the Underwriters of and payment for the Firm
Shares shall take place at 10:00 a.m., New York Time, on the third full business
day (or, if the Firm Shares are priced, as contemplated in Rule 15c6-1(c) under
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), after 4:30
p.m., New York Time, the fourth full business day) following the date of the
initial public offering, at the offices of the Sands Brothers, 90 Park Avenue,
New York, New York 10016 or at such time on such other date, as may be agreed
upon by the Company and the Underwriters (such date hereinafter is referred to
as the "Closing Date").
(b) The Company will make the certificates for the Shares to
be purchased by the Underwriters hereunder available to you for inspection at
least 24 hours prior to the Closing Date or the Option Closing Date (which are
collectively referred to herein as the "Closing Dates"). The certificates shall
be in such names and denominations as you may request, at least two (2) full
business days prior to the Closing Dates. Time shall be of the essence and
delivery at the time and place specified in this Agreement is a further
condition to the obligations of each Underwriter.
Definitive certificates in negotiable form for the Firm
Shares to be purchased by the Underwriters hereunder will be delivered by the
Company to you for the accounts of the several Underwriters against payment of
the respective purchase prices therefor by the several Underwriters, by federal
wire transfer to the Company. The Representatives' written confirmation of the
effectuation of such federal wire transfer, detailing the specific federal wire
number, shall be satisfactory evidence that payment of the purchase price for
the Firm Shares has been made for purposes of the Closing Date and, upon
presentation of such confirmation, the Company shall be required to deliver
certificates in negotiable form for the Firm Shares at such time.
In addition, in the event the Underwriters (or the
Representatives, individually ) exercise the option to purchase from the Company
all or any portion of the Option Shares pursuant to the provisions of Section 3
hereof, payment for such securities
-2-
shall be made to the Company by the effectuation of a federal wire transfer at
the date of delivery of such securities as required by the provisions of Section
3 hereof.
It is understood that you, individually and not as one of
the Representatives of the several Underwriters, may (but shall not be obligated
to) make any and all payments required pursuant to this Section 2 on behalf of
any Underwriters whose check or checks shall not have been received by the
Representatives at the time of delivery of the Firm Shares to be purchased by
such Underwriter or Underwriters. Any such payment by you shall not relieve any
such Underwriter or underwriters of any of its or their obligations hereunder.
It is also understood that the Representatives individually rather than all of
the Underwriters may (but shall not be obligated to) purchase the Option Shares
(as hereinafter defined).
It is understood that the several Underwriters propose to
offer the Firm Shares to be purchased hereunder to the public upon the terms and
conditions set forth in the Registration Statement, after the Registration
Statement becomes effective.
The cost of original issue tax stamps, if any, in
connection with the issuance and delivery of the Shares by the Company to the
Underwriters shall be borne by the Company. The Company will pay and save each
Underwriter and any subsequent holder of the Shares harmless from and any and
all liabilities with respect to or resulting from any failure or delay in paying
Federal and state stamp and other transfer taxes, if any, which may be payable
or determined to be payable in connection with the original issuance or sale to
such Underwriter of Shares sold by such entity.
(c) On the Closing Date, the Company will sell the Sands
Brothers Warrants to Sands Brothers, for its own account and not as a
Representatives of the several Underwriters, or to its designees. The Sands
Brothers Warrants will be in the form of, and in accordance with, the provisions
of the Sands Brothers' Common Stock Purchase Warrant attached as an exhibit to
the Warrant Agreement. The aggregate purchase price for the Sands Brothers
Warrants is $100.00. The Sands Brothers Warrants will be restricted from sale,
transfer, assignment or hypothecation for a period of one year from the
Effective Date, except to bona fide officers and shareholders of Sands Brothers.
Payment for the Sands Brothers Warrants will be made to the Company by check or
checks payable to its order on the Closing Date against delivery of the
certificates representing the Sands Brothers Warrants. The certificates
representing the Sands Brothers Warrants will be in such denominations and such
names as Sands Brothers may request not less than 24 hours prior to the Closing
Date.
3. Option to Purchase Option Shares.
(a) For the purposes of covering any overallotments in
connection with the distribution and sale of the Firm Shares as contemplated by
the Prospectus, the Company hereby grants an option to the several Underwriters
(which may be exercised, at its option, by Sands Brothers as one of the
Representatives, individually) to purchase all or any part of the Option Shares
from the Company. This option may be exercised in whole or in part at anytime
and from time to time within 45 days after the effective date of the
-3-
Registration Statement upon written notice (each, an "Option Share Notice") by
Sands Brothers to the Company setting forth the aggregate number of Option
Shares to be purchased, the names and denominations in which the certificates
for such Option Shares are to be registered and the time and date for such
purchase. Such time and date shall be determined by Sands Brothers but shall be
at least two and no more than five full business days before the date specified
for closing in the Option Share Notice (each an "Option Closing Date"). Delivery
of the Option Shares against payment therefor shall take place at the offices of
Sands Brothers, 90 Park Avenue, New York, New York 10016. The number of Option
Shares to be purchased by each Underwriter, if any, shall bear the same
percentage to the total number of Option Shares being purchased by the several
Underwriters pursuant to this subsection (a) as the number of Firm Shares such
Underwriter is purchasing bears to the total number of Firm Shares being
purchased pursuant to subsection (a) of Section 1, as adjusted, in each case by
the Representatives in such manner as the Representatives may deem appropriate.
The purchase price to be paid for the Option Shares will be the same price per
Option Share as the price per Firm Share set forth in Section 1 hereof.
(b) Payment for any Option Shares purchased will be made to
the Company by the effectuation of a federal wire transfer, against receipt of
the certificates for such securities by the Representatives for the respective
accounts of the several Underwriters registered in such names and in such
denominations as the Representatives may request. The Representatives' written
confirmation of the effectuation of such federal wire transfer, detailing the
specific federal wire number, shall be satisfactory evidence that payment of the
purchase price for the Option Shares has been made for purposes of the Option
Closing Date and, upon presentation of such confirmation, the Company shall be
required to deliver certificates in negotiable form for the Option Shares at
such time.
(c) The obligation of the Underwriters to purchase and pay for
any of the Option Shares is subject to the accuracy and completeness (as of the
date hereof and as of the Option Closing Date) in all material respects of the
representations and warranties of the Company herein, to the accuracy and
completeness of the statements of the Company or its officers made in any
certificate or other document to be delivered by the Company pursuant to this
Agreement, to the performance in all material respects by the Company of its
obligations hereunder, to the satisfaction by the Company of the conditions, as
of the date hereof and as of the Option Closing Date, and to the delivery to the
Underwriters of opinions, certificates and letters dated the Option Closing Date
substantially similar in scope to those specified in Section 5, 6(b), (c), (d)
and (e) hereof, but with each reference to "Firm Shares," and "Closing Date" to
be, respectively, to the Option Shares and the Option Closing Date.
4. Representations and Warranties of the Company. The Company
represents and warrants to, and agrees with, the several Underwriters that:
(a) Each of the Company and its subsidiary, Intelesys
Corporation (the "Subsidiary"), is a corporation duly organized, validly
existing and in good standing under the laws of the State of Delaware, with full
power and authority, corporate and other, to own or lease and operate its
properties and to conduct its business as described in the
-4-
Registration Statement. Each of the Company and the Subsidiary is duly licensed
or qualified to do business as a foreign corporation and is in good standing in
all jurisdictions in which the nature of its activities conducted by each of
them or the character of the assets owned or leased by each of them makes such
license or qualification necessary, except to the extent that the failure to be
so qualified or be in good standing would not materially and adversely effect
the financial condition, results of operations, business or properties of the
Company and its Subsidiary, when taken as a whole. Except as set forth in the
Prospectus, the Company (i) does not own, and at the Closing Date and, if later,
the Option Closing Date will not own, directly or indirectly, any shares of
stock or any other equity or long-term debt securities of any corporation or
have any equity interest in any corporation, firm, partnership, joint venture,
association or other entity and (ii) is not, and at the Closing Date and, if
later, the Option Closing Date will not be, engaged in any discussions or a
party to any agreement or understanding, written or oral, regarding the
acquisition of an interest in any corporation, firm, partnership, joint venture,
association or other entity. Complete and correct copies of the certificate of
incorporation, the bylaws or other organizational documents of the Company and
the Subsidiary and all amendments thereto have been delivered to the
Representatives, and, except for the filing of the Company's First Restated
Certificate of Incorporation in substantially the form filed as an exhibit to
the Registration Statement, no changes therein will be made subsequent to the
date hereof and prior to Closing Date or, if later, the Option Closing Date.
(b) The Company has full corporate power and authority to
enter into this Agreement and the Warrant Agreement, to issue and sell the
Shares and the Sands Brothers Warrants and to perform its respective obligations
thereunder. This Agreement has been duly executed and delivered by the Company
and constitutes the valid and binding obligation of the Company, and the Sands
Brothers' Warrant Agreement, when executed and delivered by the Company on the
Closing Date, will be valid and binding obligations of the Company, enforceable
against the Company in accordance with their respective terms, in each case
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally. The execution, delivery and performance of this Agreement
and the Warrant Agreement by the Company, the consummation by the Company of the
transactions herein and therein contemplated and the compliance by the Company
with the terms of this Agreement and the Warrant Agreement do not and will not,
with or without the giving of notice or the lapse of time, or both, (i) result
in any violation of the certificate of incorporation, by-laws or other
organizational documents of the Company or the Subsidiary; (ii) result in a
breach of or conflict with any of the terms or provisions of, or constitute a
default under, or result in the modification or termination of, or result in the
creation or imposition of any lien, security interest, charge or encumbrance
upon any of the properties or assets of the Company or the Subsidiary pursuant
to any indenture, mortgage, note, contract, commitment or other agreement or
instrument to which the Company is a party or by which the Company or the
Subsidiary or any of their respective properties or assets is or may be bound or
affected; (iii) violate any existing applicable law, rule, regulation, judgment,
order or decree of any governmental agency or court, domestic or foreign, having
jurisdiction over the Company or any of its properties or business which, in the
case of clause (ii) or (iii), would have a material adverse effect on the
financial condition, results of operations, business or properties of the
Company and the Subsidiary,
-5-
when taken as a whole or the ability of the Company to consummate the
transactions contemplated hereby.
(c) The Company has prepared in conformity with the
requirements of the Securities Act of 1933 (the"Act") and the rules and
regulations (the "Regulations") of the Securities and Exchange Commission (the
"Commission") and filed with the Commission a registration statement (File No.
333-18489) on Form S-1 and has filed one or more amendments thereto, covering
the registration of the Shares under the Act, including the related preliminary
prospectus or preliminary prospectuses (each thereof being herein called a
"Preliminary Prospectus") and a proposed final prospectus. Each Preliminary
Prospectus was endorsed with the legend required by Item 501(c)(5) of Regulation
S-K of the Regulations. Such registration statement, as amended at the time it
becomes effective, including all financial schedules and exhibits thereto, and
all exhibits and any information deemed to be included by Rule 430A and the
final prospectus included therein are herein, respectively, called the
"Registration Statement" and the "Prospectus," except that, (i) if the
prospectus filed by the Company pursuant to Rule 424(b) of the Regulations
differs from the Prospectus, the term "Prospectus" will also include the
prospectus filed pursuant to Rule 424(b), and (ii) if the Registration Statement
is amended or such Prospectus is supplemented after the effective date of the
Registration Statement (the "Effective Date") and prior to the Option Closing
Date (as hereinafter defined), the terms "Registration Statement" and
"Prospectus" shall include the Registration Statement as amended or
supplemented.
(d) Neither the Commission, nor to the best of the Company's
knowledge, any state regulatory authority has issued any order preventing or
suspending the use of any Preliminary Prospectus or has instituted or, to the
Company's knowledge, threatened to institute any proceedings with respect to
such an order.
(e) The Registration Statement when it becomes effective, the
Prospectus when it is filed with the Commission pursuant to Rule 424(b), and
both documents as of the Closing Date, as the case may be, will comply in all
material respects as to form with the Act and the Regulations and will in all
material respects conform to the requirements of the Act and the Regulations,
and neither the Registration Statement nor the Prospectus, nor any amendment or
supplement thereto, on such dates, will contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading, except that this representation and
warranty does not apply to statements or omissions made in reliance upon and in
conformity with information furnished in writing to the Company by or on behalf
of the Underwriters in connection with the Registration Statement or Prospectus
or any amendment or supplement thereto by the Underwriters expressly for use
therein.
(f) Arthur Andersen LLP, the accountants who have certified
certain of the financial statements filed and to be filed with the Commission as
part of the Registration Statement and the Prospectus, are independent public
accountants within the meaning of the Act and Regulations. The financial
statements and schedules and the notes thereto and the selected financial
statements and summary financial statements filed as part
-6-
of the Registration Statement and included in the Prospectus present fairly in
all material respects the financial position of the Company as of the dates
thereof, and the results of operations and changes in financial position of the
Company for the periods indicated therein, in conformity with generally accepted
accounting principles (which, as applied to the Company for the periods
involved, are substantially identical in all material respects) applied on a
consistent basis throughout the periods involved except as otherwise stated in
the Registration Statement and the Prospectus.
(g) The Company had at the date or dates indicated in the
Prospectus a duly authorized and outstanding capitalization as set forth in the
Registration Statement and the Prospectus. Based on the assumptions stated in
the Registration Statement and the Prospectus, the Company will have on the
Closing Date referred to below the adjusted stock capitalization set forth
therein. Except as disclosed in the Registration Statement or the Prospectus, on
the Effective Date and on the Closing Date referred to below, there will be no
options to purchase, warrants or other rights to subscribe for, or any
securities or obligations convertible into, or any contracts or commitments to
issue or sell, shares of the Company's capital stock or any such warrants,
convertible securities or obligations. Except as set forth in the Registration
Statement, no holders of any of the Company's securities have any rights,
"demand," "piggyback" or otherwise, to have such securities registered under the
Act.
(h) The descriptions in the Registration Statement and the
Prospectus of contracts and other documents are accurate and present fairly the
information required to be disclosed, and there are no contracts or other
documents required to be described in the Registration Statement or the
Prospectus or to be filed as exhibits to the Registration Statement under the
Act or the Regulations which have not been so described or filed as required.
(i) The Company's parent, Palomar Medical Technologies, Inc.
has filed with the appropriate federal, state and local governmental agencies,
and all foreign countries and political subdivisions thereof, all tax returns,
including, without limitation, franchise tax and sales tax returns, which are
required to be filed with respect to the Company, which consolidated returns are
complete and correct in all material respects and has paid all taxes shown on
such returns and all assessments received by it to the extent that the same have
become due. All payroll withholdings required to be made by the Company or the
Subsidiary with respect to employees have been made. The Company has not
executed or filed with any taxing authority, foreign or domestic, any agreement
extending the period for assessment or collection of any income taxes and is not
a party to any pending action or proceeding by any foreign or domestic
governmental agency for assessment or collection of taxes; and no claims for
assessment or collection of taxes have been asserted against the Company. The
Company has no tax deficiency which has been or, to the Company's knowledge,
might be asserted or threatened against the Company or its business, properties,
business prospects, condition (financial or otherwise), net worth or results of
operations.
(j) The outstanding shares of Common Stock and outstanding
options and warrants to purchase shares of Common Stock have been duly
authorized and validly issued. The outstanding shares of Common Stock are fully
paid and nonassessable. The
-7-
outstanding options and warrants to purchase Common Stock constitute the valid
and binding obligations of the Company, enforceable in accordance with their
terms, in each case subject to applicable bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium and similar laws affecting creditors'
rights and remedies generally, and except that rights to indemnification and
contribution thereunder and under this Agreement may be limited by United States
or state securities laws or public policy relating thereto. None of the
outstanding shares of Common Stock or options or warrants to purchase shares of
Common Stock has been issued in violation of the preemptive rights of any
shareholder of the Company. None of the holders of the outstanding Common Stock
is subject to personal liability solely by reason of being such a holder. The
offers and sales of the outstanding Common Stock and outstanding options and
warrants to purchase Common Stock were at all relevant times either registered
under the Act, the applicable state securities or Blue Sky laws or exempt from
such registration requirements. The authorized Common Stock and outstanding
options and warrants to purchase Common Stock conform in all material respects
to the descriptions thereof contained in the Registration Statement and
Prospectus.
(k) The issuance and sale of the Shares have been duly
authorized and, when issued and delivered against payment therefor as
contemplated by this Agreement, the Shares will be validly issued, fully paid
and nonassessable. The holders of the Shares will not be subject to personal
liability solely by reason of being such holders and none of the Shares will be
subject to preemptive rights of any shareholder of the Company.
(l) The issuance and sale of the Sands Brothers Warrants have
been duly authorized and, when issued, paid for and delivered pursuant to the
terms of this Agreement or the Warrant Agreement, as the case may be, the Sands
Brothers Warrants will constitute valid and binding obligations of the Company,
enforceable as to the Company in accordance with their terms, in each case
subject to applicable bankruptcy, insolvency, fraudulent conveyance,
reorganization, moratorium and similar laws affecting creditors' rights and
remedies generally and except that rights to indemnification and contribution
thereunder and under this Agreement may be limited by United States or state
securities laws or public policy relating thereto. A sufficient number of shares
of Common Stock have been duly reserved for issuance upon exercise of the Sands
Brothers Warrants in accordance with the provisions of the Sands Brothers
Warrants. The Sands Brothers Warrants will conform in all material respects to
the descriptions thereof contained in the Registration Statement and Prospectus.
(m) The Company is not in violation of, or in default under,
(i) any term or provision of its certificate of incorporation, by-laws, or any
other organizational documents; (ii) any material term or provision or any
financial covenants of any indenture, mortgage, contract, commitment or other
agreement or instrument to which it is a party or by which it or any of its
property or business is or may be bound or affected; or (iii) any existing
applicable law, rule, regulation, judgment, order or decree of any governmental
agency or court, domestic or foreign, having jurisdiction over the Company or
any of its properties or business, which, in the case of clause (ii) and (iii),
would have a material adverse effect on the financial condition, results of
operations, business or properties of the Company or the ability of the Company
to consummate the transactions contemplated
-8-
hereby. The Company and the Subsidiary own, possess or have obtained all
governmental and other licenses, permits, certifications, registrations,
approvals or consents and other authorizations ("Permits") necessary to own or
lease, as the case may be, and to operate their respective properties, and to
conduct their respective business or operations as presently conducted, except
where the failure to own, possess or obtain such Permits would not have a
material adverse effect on the financial condition, results of operations,
business or properties of the Company and the Subsidiary, when taken as a whole.
All such Permits are outstanding and in good standing, and there are no
proceedings pending or, to the best of the Company's or the Subsidiary's
knowledge, threatened, or any basis therefor, seeking to cancel, terminate or
limit such Permits.
(n) Except as set forth in the Prospectus, there are no
claims, actions, suits, proceedings, arbitrations, investigations or inquiries
before any governmental agency, court or tribunal, domestic or foreign, or
before any private arbitration tribunal, pending, or, to the best of the
Company's knowledge, threatened against the Company or involving the Company's
properties or business which, if determined adversely to the Company, would,
individually or in the aggregate, have a material adverse effect on the
financial position, results of operations, properties, or business of the
Company or which question the validity of the capital stock of the Company or
this Agreement or of any action taken or to be taken by the Company pursuant to,
or in connection with, this Agreement; nor, to the best of the Company's
knowledge, except as disclosed in the Prospectus, is there any reasonable basis
for any such claim, action, suit, proceeding, arbitration, investigation or
inquiry. There are no outstanding orders, judgments or decrees of any court,
governmental agency or other tribunal naming the Company and enjoining the
Company from taking, or requiring the Company to take, any action, or to which
the Company, or the Company's properties or business is bound or subject which
would be material to the Company.
(o) The Company has not incurred any liability for any
finder's fees or similar payments in connection with the transactions herein
contemplated other than payments previously made to Sands Brothers.
(p) (i) The Company has sufficient title and ownership of, or
license or other rights to, or have applied for, all patents, patent
applications, trademarks, trademark applications, service marks,
service mark applications, trade names, copyrights, trade secrets,
information, proprietary rights, technologies, know-how and processes
(collectively, "Intellectual Property") necessary for its business as
now conducted and as proposed to be conducted, as described in the
Prospectus.
(ii) Except as disclosed in the Prospectus, no
claims have been asserted by any person to the ownership or use of any
Intellectual Property or challenging or questioning the validity or
effectiveness of any such license or agreement and the Company has no
knowledge of any valid basis for any such claim. The use of the
Intellectual Property by the Company does not infringe on the rights of
any person and there are no pending or, to the knowledge of the
Company, threatened claims nor has it been alleged that the
Intellectual Property is engaged in such infringements. All of the
trademark and trade name registrations, patent applications are in full
force and effect. Other than potential sublicensees of
-9-
the Company, no other person has any right to use any Intellectual
Property for similar or related products in competition with the
products of the Company and no other person is infringing any of the
Intellectual Property.
(iii) The Company has taken reasonable steps
sufficient to safeguard and maintain the secrecy and confidentiality
of, or their respective proprietary rights in, all of the unpatented
know how, technology, proprietary processes, formulae, and other
information owned by it. Without limiting the generality of the
foregoing, the Company has obtained confidentiality and secrecy
agreements from all past and present employees and independent third
parties involved in the invention or creation of their respective
Intellectual Properties.
(q) Since the respective dates as of which information is
given in the Registration Statement and the Prospectus, the Company has not
incurred any material liability or obligation (absolute or contingent), except
liabilities and obligations incurred in the ordinary course of business, and has
not sustained any material loss or interference with its business from fire,
storm, explosion, flood or other casualty, whether or not covered by insurance,
or from any labor dispute or court or governmental action, order or decree; and
since the respective dates as of which information is given in the Registration
Statement and the Prospectus, there have not been, and prior to the Closing Date
referred to below there will not be, any changes in the capital stock or any
material increases in the long-term debt of the Company or any material adverse
change in or affecting the general affairs, management, financial condition,
shareholders' equity, results of operations or prospects of the Company, other
than as set forth or contemplated in the Prospectus.
(r) The Company owns no real property. The Company has good
title to all material personal property (tangible and intangible) owned by it,
free and clear of all security interests, charges, mortgages, liens,
encumbrances and defects, except such as are described in the Registration
Statement and Prospectus or such as do not materially affect the value or
transferability of such property and do not interfere with the use of such
property made, or proposed to be made, by the Company. The leases, licenses or
other contracts or instruments under which the Company leases, holds or is
entitled to use any property, real or personal, are valid and subsisting and
neither the Company, nor, to the best of the Company's knowledge, any other
party is in default thereunder and, to the best of the Company's knowledge, no
event has occurred which, with the passage of time or the giving of notice, or
both, would constitute a default thereunder. The Company has not received any
notice of any violation of any applicable law, ordinance, regulation, order or
requirement relating to its owned or leased properties the violation of which
would have a material adverse effect on the Company.
(s) Each material contract or other instrument (however
characterized or described) to which the Company is a party or by which its
properties or business is or may be bound or affected and to which reference is
made in the Prospectus has been duly and validly executed by the Company and,
assuming that such contracts or other instruments have been properly executed by
parties other than the Company, is in full force and effect in all material
respects and is enforceable against the parties thereto in accordance with its
terms, in each case subject to applicable bankruptcy, insolvency,
-10-
fraudulent conveyance, reorganization, moratorium and similar laws affecting
creditors' rights and remedies generally; and none of such contracts or
instruments has been assigned by the Company, and neither the Company nor, to
the best of the Company's knowledge, any other party is in default thereunder
and, to the best of the Company's knowledge, no event has occurred which, with
the lapse of time or the giving of notice, or both, would constitute a default
thereunder.
(t) The employment agreements between the Company and its
officers and employees, described in the Registration Statement, are in all
material respects binding and enforceable obligations upon the respective
parties thereto in accordance with their respective terms, except as such
enforceability may be limited by applicable bankruptcy, insolvency, moratorium
or other similar laws or arrangements affecting creditors' rights generally and
subject to principles of equity and public policy and subject to the possible
finding by a court of competent jurisdiction that the scope, time period or
geographic range of any post-employment non-competition restriction exceeds that
required to protect the Company's legitimate interests.
(u) Except as set forth in the Prospectus, the Company has no
employee benefit plans (including, without limitation, profit sharing and
welfare benefit plans) or deferred compensation arrangements that are subject to
the provisions of the Employee Retirement Income Security Act of 1974. To the
best of the Company's knowledge, no labor problem exists with any of the
Company's employees or is imminent which could have a material adverse affect on
the Company.
(v) The Company has filed registration statements pursuant to
Sections 12(g) and 12(b)of the Exchange Act to register the Common Stock, has
filed an application for quotation of the Shares on the NASDAQ National Market
and listing of the Shares on the Pacific Stock Exchange, and has received
notification that such quotation and listing have been approved, subject in each
case, to notice of issuance.
(w) The Company has adequately insured its properties against
loss or damage by fire or other casualty and maintains, in amounts which it
deems, in good faith, to be adequate, such other insurance, including but not
limited to, liability insurance, as is usually maintained by companies engaged
in the same or similar businesses located in its geographic area.
(x) Neither the Company nor, to its knowledge, any of its
officers, employees, agents or any other person acting on behalf of the Company
has, directly or indirectly, given or agreed to give any money, gift or similar
benefit (other than legal price concessions to customers in the ordinary course
of business) to any customer, supplier, employee or agent of a customer or
supplier, or official or employee of any governmental agency (domestic or
foreign) or instrumentality of any government (domestic or foreign) or any
political party or candidate for office (domestic or foreign) or other person
who was, is, or may be in a position to help or hinder the business of the
Company (or to assist the Company in connection with any actual or proposed
transaction) which (a) might subject the Company or any other such person, to
any damage or penalty in any civil, criminal or governmental litigation or
proceeding (domestic or foreign); (b) if not given in the past,
-11-
might have had a material adverse effect on the assets, business or operations
of the Company; or (c) if not continued in the future, might adversely affect
the assets, business, operations or prospects of the Company, taken as a whole.
(y) Except as set forth in Prospectus, no officer, director,
principal stockholder or partner of the Company, or any "affiliate" or
"associate" (as these terms are defined in Rule 405 promulgated under the Rules
and Regulations) of any of the foregoing persons or entities has or has had,
either directly or indirectly, (i) an interest in any person or entity which (A)
furnishes or sells services or products which are furnished or sold or are
proposed to be furnished or sold by the Company or (B) purchases from or sells
or furnishes to the Company any goods or services, or (ii) a beneficial interest
in any contract or agreement to which the Company is a party or by which it may
be bound or affected. Except as set forth in the prospectus under "Certain
Transactions," there are no existing, agreements, arrangements, understandings
or transactions, or proposed agreements, arrangements, understandings or
transactions, between or among the Company, and any officer, director, holder of
5% or more of the Common Stock of the Company, or any partner, affiliate or
associate of any of the foregoing persons or entities.
(z) The minute books of the Company have been made available
to the Underwriters and contain a complete record in all material respects of
all meetings and actions of the directors and stockholders of the Company since
the time of its respective incorporation, and accurately reflects all
transactions referred to in such minutes in all material respects.
Any certificate signed by an officer of the Company and
delivered to the Representatives or to counsel for the Representatives shall be
deemed to be a representation and warranty by the Company to the Representatives
as to the matters covered thereby.
5. Certain Covenants of the Company. The Company covenants with the
several Underwriters as follows:
(a) The Company will not at any time, whether before the
Effective Date or thereafter during such period as the Prospectus is required by
law to be delivered in connection with the sales of the Firm Shares by the
several Underwriters, file or publish any amendment or supplement to the
Registration Statement or Prospectus of which the Representatives has not been
previously advised and furnished a copy, or to which the Representatives shall
object in writing.
(b) The Company will use its best efforts to cause the
Registration Statement to become effective and will advise the Representatives
immediately, and, if requested by the Representatives, confirm such advice in
writing, (i) when the Registration Statement, or any post-effective amendment to
the Registration Statement or any supplemented Prospectus is filed with the
Commission; (ii) of the receipt of any comments from the Commission; (iii) of
any request of the Commission for amendment or supplementation of the
Registration Statement or Prospectus or for additional information and (iv) of
the issuance by the Commission of any stop order suspending the effectiveness of
the Registration Statement or of any order preventing or suspending the use of
any
-12-
Preliminary Prospectus, or of the suspension of the qualification of the Firm
Shares for offering or sale in any jurisdiction, or of the initiation of any
proceedings for any of such purposes. The Company will make every reasonable
effort to prevent the issuance of any such stop order or of any order preventing
or suspending such use and to obtain as soon as possible the lifting thereof, if
any such order is issued.
(c) The Company will deliver to the several Underwriters,
without charge, from time to time until the Effective Date, as many copies of
each Preliminary Prospectus as the Underwriters may reasonably request, and the
Company hereby consents to the use of such copies for purposes permitted by the
Act. The Company will deliver to the several Underwriters, without charge, as
soon as the Registration Statement becomes effective, and thereafter from time
to time as requested, such number of copies of the Prospectus (as supplemented,
if the Company makes any supplements to the Prospectus) as the Underwriters may
reasonably request. The Company has furnished or will furnish to the
Representatives two conformed copies of the Registration Statement as originally
filed and of all amendments thereto, whether filed before or after the
Registration Statement becomes effective, two copies of all exhibits filed
therewith and two conformed copies of all consents and certificates of experts.
(d) The Company will comply with the Act, the Regulations, the
Exchange Act, and the rules and regulations thereunder so as to permit the
continuance of sales of and dealings in the Firm Shares, and in any Option
Shares which may be issued and sold. If, at any time when a prospectus relating
to such Securities is required to be delivered under the Act, any event occurs
as a result of which the Registration Statement and Prospectus as then amended
or supplemented would include an untrue statement of a material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, or if it shall be
necessary to amend or supplement the Registration Statement and Prospectus to
comply with the Act or the regulations thereunder, the Company will promptly
file with the Commission, subject to Section 5(a) hereof, an amendment or
supplement which will correct such statement or omission or which will effect
such compliance.
(e) The Company will furnish such proper information as may be
required and otherwise cooperate in qualifying the Shares for offering and sale
under the securities or Blue Sky laws relating to the offering or for sale in
such jurisdictions as the Representatives may reasonably designate, provided
that no such qualification will be required in any jurisdiction where, solely as
a result thereof, the Company would be subject to service of general process or
to taxation or qualification as a foreign corporation doing business in such
jurisdiction.
(f) The Company will make generally available to its security
holders, in the manner specified in Rule 158(b) under the Act, and deliver to
the Sands Brothers and its counsel as soon as practicable and in any event not
later than 45 days after the end of its fiscal quarter in which the first
anniversary date of the effective date of the Registration Statement occurs, an
earning statement meeting the requirements of Rule 158(a) under the Act covering
a period of at least 12 consecutive months beginning after the effective date of
the Registration Statement.
-13-
(g) For a period of five years from the Effective Date, the
Company will deliver to Sands Brothers and to Representatives' Counsel on a
timely basis (i) a copy of each report or document, including, without
limitation, reports on Forms 8-K, 10-K and 10-Q and exhibits thereto, filed or
furnished to the Commission, any securities exchange or the National Association
of Securities Dealers, Inc. (the "NASD"); (ii) as soon as practicable, copies of
any reports or communications (financial or other) of the Company mailed to its
security holders; (iii) as soon as practicable, a copy of any Schedule 13D, 13G,
14D-1 or 13E-3 or Form 3, 4 and 5 received or prepared by the Company from time
to time; and (iv) such additional information concerning the business and
financial condition of the Company as Sands Brothers may from time to time
reasonably request and which can be prepared or obtained by the Company without
unreasonable effort or expense. The Company will furnish to its shareholders
annual reports containing audited financial state ments and such other periodic
reports as it may determine to be appropriate or as may be required by law.
(h) Neither the Company nor any person that is controlled by
the Company will take any action designed to or which might be reasonably
expected to cause or result in the stabilization or manipulation of the price of
the Firm Shares.
(i) If the transactions contemplated by this Agreement are
consummated, Sands Brothers shall retain the Fifty Thousand Dollars ($50,000)
previously paid to it, and the Company will pay or cause to be paid the
following: all of the Company's costs and expenses incident to the performance
of its obligations under this Agreement, including, but not limited to, the fees
and expenses of accountants and counsel for the Company, the preparation,
printing, mailing and filing of the Registration Statement (including financial
statements and exhibits), Preliminary Prospectuses and the Prospectus, and any
amendments or supplements thereto, the printing and mailing of the Selected
Dealer Agreement, the issuance and delivery of the Shares to the several
Underwriters; all taxes, if any, on the issuance of the Shares; the fees,
expenses and other costs of qualifying the Shares for sale under the Blue Sky or
securities laws of those states in which the Shares are to be offered or sold,
the cost of printing and mailing the "Blue Sky Survey" and fees and
disbursements of counsel in connection therewith, including those of such local
counsel as may have been retained for such purpose; the filing fees incident to
securing any required review by the NASD; the cost of furnishing to the
Underwriters copies of the Registration Statement, Preliminary Prospectuses and
the Prospectus as herein provided; the costs of "bound volumes" for Sands
Brothers and its counsel, and all other costs and expenses incident to the
performance of the Company's obligations hereunder which are not otherwise
specifically provided for in this Section 5(i).
In addition, at the Closing Date or the Option
Closing Date, as the case may be, Sands Brothers will, in its individual rather
than its representative capacity, deduct from the payment for the Firm Shares or
any Option Shares purchased, a total of two percent (2%) of the gross proceeds
of the entire offering (less the sum of Fifty Thousand Dollars ($50,000)
previously paid to Sands Brothers), as payment for the non-accountable expense
allowance relating to the transactions contemplated hereby.
-14-
(j) If the Company elects not to proceed with the offering or
if the Representatives elect to not proceed with the offering because of a
breach by the Company of any covenant, representation or warranty herein or as a
result of material adverse changes in the affairs of the Company, the Company
shall be liable only for the actual accountable out-of-pocket expenses of the
Representatives, including legal fees, up to the sum of $100,000. In the event
the Representative decides not to proceed with the offering for any other
reason, the Company shall be liable for the actual accountable out-of-pocket
expenses of the Representatives, including legal fees, up to the sum of $50,000,
inclusive of the $50,000 previously paid. In the event the transactions
contemplated hereby are not consummated for any reason, should the Underwriter's
out-of-pocket expenses equal an amount that is less than the $50,000 advance
received, the remaining sum will be returned to the Company.
(k) The Company will apply the net proceeds from the sale of
the Shares in the manner set forth in the Prospectus under "Use of Proceeds" and
shall file such reports with the Commission with respect to the sale of the
Shares and the application of the proceeds therefrom as may be required in
accordance with Rule 463 under the Act.
(l) During the six month period following the date hereof,
none of the Company's executive officers or directors will offer for sale or
sell or otherwise dispose of any securities of the Company owned by them,
directly or indirectly, in any manner whatsoever (including pursuant to Rule 144
under the Act), and no holder of registration rights relating to the securities
of the Company will exercise any such registration rights, in either case,
without obtaining the prior written approval of Sands Brothers. The Company will
deliver to Sands Brothers the written undertakings as of the date hereof of its
officers and directors to this effect.
(m) The Company will not file any registration statement
relating to the offer or sale of any of the Company's securities, other than a
registration statement on Form S-8 to cover Shares underlying options granted
pursuant to the Company's Stock Option Plan, during the twelve (12) months
following the date hereof without Sands Brothers' prior written consent.
(n) The Company maintains and will continue to maintain a
system of internal accounting controls sufficient to provide reasonable
assurances that: (i) transactions are executed in accordance with management's
general or specific authorization; (ii) transactions are recorded as necessary
in order to permit preparation of financial statements in accordance with
generally accepted accounting principles and to maintain accountability for
assets; (iii) access to assets is permitted only in accordance with management's
general or specific authorization; and (iv) the recorded accountability for
assets is compared with existing assets at reasonable intervals and appropriate
action is taken with respect to any differences.
(o) The Company will use its best efforts to maintain the
quotation of the Shares on the Nasdaq National Market for so long as the Shares
remain qualified for such listing.
-15-
(p) Intentionally Omitted.
(q) Subject to the sale of the Firm Shares, for a period
commencing the date of the Prospectus and expiring upon the earlier of (i) three
(3) years from the date of the Prospectus or (ii) such time in which the Company
consummates an underwritten secondary equity public offering, the Company will,
at Sands Brothers' option and if so requested by Representative, recommend and
use its best efforts to elect one designee of Representative, at the option of
Representative, either as a member of or nonvoting advisor to its Board of
Directors; such designee, if elected or appointed, shall attend meetings of the
Board and receive no more or less compensation than is paid to other
non-management directors of the Company and shall be entitled to receive
reimbursement for all reasonable costs incurred in attending such meetings
including, but not limited to, food, lodging and transportation. The Company
agrees to indemnify and hold Representative and its designee harmless, to the
maximum extent permitted by law, against any and all claims, actions, awards and
judgments arising out of such designee's service as a director or advisor and in
the event the Company maintains a liability insurance policy affording coverage
for the acts of its officers and directors, to include each of Representative
and its designee as an insured under such policy.
If Representative does not exercise its option to
designate such member of or advisor to the Company's Board of Directors,
Representative shall nonetheless have the right to send a representative (who
need not be the same individual from meeting to meeting) to observe each meeting
of the Board of Directors. The Company agrees to give Representative notice of
each such meeting and to provide Representative with an agenda and minutes of
the meeting no later than it gives such notice and provides such items to the
directors.
(r) Intentionally Omitted.
(s) Intentionally Omitted.
(t) Intentionally Omitted.
(u) The Company shall retain a transfer agent for the shares
of Common Stock, reasonably acceptable to Sands Brothers (the First Bank of
Boston being so acceptable), for a period of five (5) years following the
Effective Date. In addition, for a period of three (3) years from the Effective
Date, the Company, at its own expense, shall cause such transfer agent to
provide Sands Brothers, if so requested in writing, with copies of the Company's
daily transfer sheets, and, when so requested by Sands Brothers, a current list
of the Company's security holders, including a list of the beneficial owners of
securities held by a depository trust company and other nominees.
(v) Intentionally Omitted.-- if NMS approved
(w) Intentionally Omitted.
(x) Intentionally Omitted.--if NMS approved
-16-
(y) For a period of five (5) years following the Effective
Date, the Company shall continue to retain Arthur Andersen LLP (or a nationally
recognized accounting firm reasonably acceptable to Sands Brothers) as the
Company's independent public accountants and shall promptly, upon the Company's
receipt thereof, submit to Sands Brothers copies of such accountants' management
reports and similar correspondence between such accountants and the Company.
(z) For a period of five (5) years following the Effective
Date, the Company, at its expense, shall cause its then independent certified
public accountants, as described in Section 5(x) above, to read(but not audit)
the Company's financial statements for each of the first three fiscal quarters
prior to the announcement of quarterly financial information, the filing of the
Company's 10-Q quarterly report and the mailing of quarterly financial
information to shareholders.
(aa) For a period of twenty-five (25) days following the
Effective date, the Company will not issue press releases or engage in any other
publicity without Sands Brothers' prior written consent, other than normal and
customary releases issued in the ordinary course of the Company's business or
those releases required by law.
6. Conditions of the Underwriters' Obligation to Purchase Shares from
the Company. The obligation of the several Underwriters to purchase and pay for
the Firm Shares which it has agreed to purchase from the Company is subject (as
of the date hereof and the Closing Date) to the accuracy in all material
respects of the representations and warranties of the Company herein, to the
accuracy of the statements of the Company or its officers made pursuant hereto,
to the performance in all material respects by the Company of its obligations
hereunder, and to the following additional conditions:
(a) The Registration Statement will have become effective not
later than 10:30 A.M., New York City time, on the day following the date of this
Agreement, or at such later time or on such later date as the Representatives
may agree to in writing; prior to the Closing Date, no stop order suspending the
effectiveness of the Registration Statement will have been issued and no
proceedings for that purpose will have been initiated or will be pending or, to
the best of the Representatives' or the Company's knowledge, will be
contemplated by the Commission; and any request on the part of the Commission
for additional information will have been complied with to the satisfaction of
Representatives' Counsel.
(b) At the time that this Agreement is executed and at the
Closing Date, there will have been delivered to the Underwriters a signed
opinion of Choate, Hall & Stewart, counsel for the Company, dated as of the date
hereof or the Closing Date, as the case may be (and any other opinions of
counsel referred to in such opinion of Company Counsel or relied upon by Company
Counsel in rendering their opinion), substantially as set forth in Exhibit 6b.
(c) At the Closing Date (i) the Registration Statement and the
Prospectus and any amendments or supplements thereto will conform in all
material respects to the requirements of the Act and the Regulations, and
neither the Registration Statement nor
-17-
the Prospectus nor any amendment or supplement thereto will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading; (ii) since the
respective dates as of which information is given in the Registration Statement
and the Prospectus, there will not have been any material adverse change in the
financial condition, results of operations or general affairs of the Company
from that set forth or contemplated in the Registration Statement and the
Prospectus, except changes which the Registration Statement and the Prospectus
indicates might occur after the Effective Date; (iii) since the respective dates
as of which information is given in the Registration Statement and the
Prospectus, there shall have been no material transaction, contract or agreement
entered into by the Company, other than in the ordinary course of business,
which would be required to be set forth in the Registration Statement and the
Prospectus, other than as set forth therein; and (iv) no action, suit or
proceeding at law or in equity will be pending or, to the best of the Company's
know ledge, threatened against the Company which is required to be set forth in
the Registration Statement and the Prospectus, other than as set forth therein,
and no proceedings will be pending or, to the best of the Company's knowledge,
threatened against the Company before or by any federal, state or other
commission, board or administrative agency wherein an unfavorable decision,
ruling or finding would materially adversely affect the business, property,
financial condition or results of operations of the Company, other than as set
forth in the Registration Statement and the Prospectus. At the Closing Date,
there will be delivered to the several Underwriters a certificate signed by the
Chairman of the Board or the President or a Vice President of the Company, dated
the Closing Date, evidencing compliance with the provisions of this Section 6(c)
and stating that the representations and warranties of the Company set forth in
Section 4 hereof were accurate and complete in all material respects when made
on the date hereof and are accurate and complete in all material respects on the
Closing Date as if then made; that the Company has performed all covenants and
complied with all conditions required by this Agreement to be performed or
complied with by the Company prior to or as of the Closing Date; and that, as of
the Closing Date, no stop order suspending the effectiveness of the Registration
Statement has been issued and no proceedings for that purpose have been
initiated or, to his knowledge, are contemplated or threatened. In addition, the
Representatives will have received such other and further certificates of
officers of the Company as the Representatives or Representatives' Counsel may
reasonably request.
(d) At the time that this Agreement is executed and at the
Closing Date, the several Underwriters will have received a signed letter from
Arthur Andersen, LLP dated the date such letter is to be received by the
Underwriters and addressed to them, confirming that it is a firm of independent
public accountants within the meaning of the Act and Regulations and stating
that: (i) insofar as reported on by them, in their opinion, the financial
statements of the Company included in the Prospectus comply as to form in all
material respects with the applicable accounting requirements of the Act and the
applicable Regulations; (ii) on the basis of procedures and inquiries (not
constituting an examination in accordance with generally accepted auditing
standards) consisting of a reading of the unaudited interim financial statements
of the Company, if any, appearing in the Registration Statement and the
Prospectus and the latest available unaudited interim financial statements of
the Company, if more recent than that appearing in the Registration
-18-
Statement and Prospectus, inquiries of officers of the Company responsible for
financial and accounting matters as to the transactions and events subsequent to
the date of the latest audited financial statements of the Company, and a
reading of the minutes of meetings of the shareholders, the Board of Directors
of the Company and any committees of the Board of Directors, as set forth in the
minute books of the Company, nothing has come to their attention which, in their
judgment, would indicate that (A) during the period from the date of the latest
financial statements of the Company appearing in the Registration Statement and
Prospectus to a specified date not more than three business days prior to the
date of such letter, there have been any decreases in net current assets or net
assets as compared with amounts shown in such financial statements or decreases
in net sales or increases in total or per share net loss compared with the
corresponding period in the preceding year or any change in the capitalization
or long-term debt of the Company, except in all cases as set forth in or
contemplated by the Registration Statement and the Prospectus, and (B) the
unaudited interim financial statements of the Company, if any, appearing in the
Registration Statement and the Prospectus, do not comply as to form in all
material respects with the applicable accounting requirements of the Act and the
Regulations or are not fairly presented in conformity with generally accepted
accounting principles and practices on a basis substantially consistent with the
audited financial statements included in the Registration Statement or the
Prospectus; and (iii) they have compared specific dollar amounts, numbers of
shares, numerical data, percentages of revenues and earnings, and other
financial information pertaining to the Company set forth in the Prospectus
(with respect to all dollar amounts, numbers of shares, percentages and other
financial information contained in the Prospectus, to the extent that such
amounts, numbers, percen tages and information may be derived from the general
accounting records of the Company, and excluding any questions requiring an
interpretation by legal counsel) with the results obtained from the application
of specified readings, inquiries and other appro priate procedures (which
procedures do not constitute an examination in accordance with generally
accepted auditing standards) set forth in the letter, and found them to be in
agreement.
(e) There shall have been duly tendered to the Representatives
certificates representing the Firm Shares to be sold on the Closing Date.
(f) The NASD shall have indicated that it has no objection to
the underwriting arrangements pertaining to the sale of the Shares by the
Underwriters.
(g) No action shall have been taken by the Commission or the
NASD the effect of which would make it improper, at any time prior to the
Closing Date or the Option Closing Date, as the case may be, for any member firm
of the NASD to execute transactions (as principal or as agent) in the Shares,
and no proceedings for the purpose of taking such action shall have been
instituted or shall be pending, or, to the best of the Underwriters' or the
Company's knowledge, shall be contemplated by the Commission or the NASD. The
Company represents at the date hereof, and shall represent as of the Closing
Date or Option Closing Date, as the case may be, that it has no knowledge that
any such action is in fact contemplated by the Commission or the NASD.
-19-
(h) All proceedings taken at or prior to the Closing Date or
the Option Closing Date, as the case may be, in connection with the
authorization, issuance and sale of the Shares shall be reasonably satisfactory
in form and substance to the Representatives and to Representatives' counsel,
and such counsel shall have been furnished with all such documents, certificates
and opinions as they may reasonably request in order to evidence the accuracy
and completeness of any of the representations, warranties or statements of the
Company, the performance of any covenants of the Company, or the compliance by
the Company with any of the conditions herein contained.
If any of the conditions specified in this Section 6 have not
been fulfilled, this Agreement may be terminated by the Representatives on
notice to the Company.
7. Indemnification.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each officer, director, partner, employee and agent of each
Underwriter, and each person, if any, who controls any Underwriter within the
meaning of Section 15 of the Act or Section 20(a) of the Exchange Act, from and
against any and all losses, claims, liabilities, expenses and damages, joint or
several (which shall, for all purposes of this Agreement, include, but not be
limited to, any and all investigative, legal and other expenses reasonably
incurred in connection with, and any and all amounts paid in settlement of, any
action, suit or proceeding or any claim asserted), to which they, or any of
them, may become subject, under the Act or otherwise, insofar as such losses,
claims, liabilities, expenses or damages (i) arise out of or are based on any
untrue statement or alleged untrue statement of any material fact contained in
(A) the Registration Statement, any Preliminary Prospectus, the Prospectus, or
any amendment or supplement thereto or (B) any blue sky application or other
document executed by the Company specifically for that purpose or based on
written information furnished by the Company filed in any state or other
jurisdiction in order to qualify any or all of the Securities under the
securities laws thereof (any such application, document or information being
hereinafter called a "Blue Sky Application"), or the omission or alleged
omission to state in such document or in any Blue Sky Application, a material
fact required to be stated therein or necessary to make the statements therein
not misleading, (ii) arise out of or are based in whole or in part on any
inaccuracy in the representations and warranties of the Company contained
herein; or (iii) arise out of or are based on any failure of the Company to
perform its obligations hereunder or under law in connection with the
transactions contemplated hereby; provided, however, that the Company will not
be liable in any such case to the extent, but only to the extent, that any such
loss, claim, liability, expense or damage arises from the sale of Shares in the
public offering to any person by an Underwriter and is based on an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance on and in conformity with written information furnished to the Company
by or on behalf of the Underwriters specifically for inclusion in the
Registration Statement or any such amendment or supplement thereof or any such
preliminary Prospectus or the Prospectus or any such amendment or supplement
thereto.
(b) Each Underwriter severally, but not jointly, will
indemnify and hold harmless the Company, each of its directors, each nominee (if
any) for director named in
-20-
the Prospectus, each of its officers who have signed the Registration Statement,
and each person, if any, who controls the Company within the meaning of Section
15 of the Act or Section 20(a) of the Exchange Act, to the same extent as the
foregoing indemnity from the Company to each Underwriter, as set forth in
Section 7(a), but only insofar as such losses, claims, liabilities, expenses or
damages arise out of or are based on any untrue statement or alleged untrue
statement or any omission or alleged omission made in reliance on and in
conformity with written information furnished to the Company by you or by any
Underwriter through you specifically for use in the Registration Statement, any
Preliminary Prospectus, the Prospectus, or any amendment or supplement thereto.
(c) Promptly after receipt by an indemnified party under this
Section 7 of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 7, notify in writing the indemnifying party of the
commencement thereof; but the omission so to notify the indemnifying party will
not relieve it from any liability which it may have to any indemnified party
otherwise than under this Section 7. In case any such action is brought against
any indemnified party, and it notifies the indemnifying party of the
commencement thereof, the indemnifying party will be entitled to participate in,
and, to the extent that it may wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, subject to the provisions
herein stated, with counsel reasonably satisfactory to such indemnified party,
and after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party under this Section for any legal or other
expenses subsequently incurred by such indemnified party in connection with the
defense thereof other than reasonable costs of investigation. The indemnified
party shall have the right to employ separate counsel in any such action and to
participate in the defense thereof, but the fees and expenses of such counsel
shall not be at the expense of the indemnifying party if the indemnifying party
has assumed the defense of the action with counsel reasonably satisfactory to
the indemnified party; provided that if the indemnified party is an Underwriter
or a person who controls such Underwriter within the meaning of the Act, the
fees and expenses of such counsel shall be at the expense of the indemnifying
party if (i) the employment of such counsel has been specifically authorized in
writing by the indemnifying party or (ii) the named parties to any such action
(including any impleaded parties) include both such Underwriter or such
controlling person and the indemnifying party and in the judgment of the
Representatives, it is advisable for the Representatives or such Underwriters or
controlling persons to be represented by separate counsel (in which case the
indemnifying party shall not have the right to assume the defense of such action
on behalf of such Underwriter or such controlling person, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the reasonable fees and expenses of more than one separate firm of
attorneys for all such Underwriters and controlling persons, which firm shall be
designated in writing by you). No settlement of any action against an
indemnified party shall be made without the consent of the indemnifying party,
which shall not be unreasonably withheld in light of all factors of importance
to such indemnifying party.
-21-
8. Contribution. In order to provide for just and equitable
contribution under the Act in any case in which (i) any Underwriter makes claim
for indemnification pursuant to Section 7 hereof but it is judicially determined
(by the entry of a final judgment or decree by a court of competent jurisdiction
and the expiration of time to appeal or the denial of the last right of appeal)
that such indemnification may not be enforced in such case, notwithstanding the
fact that the express provisions of Section 7 provide for indemnification in
such case, or (ii) contribution under the Act may be required on the part of any
Underwriter, then the Company and each person who controls the Company, in the
aggregate, and any such Underwriter shall contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (which shall, for
all purposes of this Agreement, include, but not be limited to, all reasonable
costs of defense and investigation and all reasonable attorneys' fees) in either
such case (after contribution from others) in such proportions that all such
Underwriters are responsible in the aggregate for that portion of such losses,
claims, damages or liabilities represented by the percentage that the
underwriting discount per share appearing on the cover page of the Prospectus
bears to the public offering price appearing thereon, and the Company shall be
responsible for the remaining portion, provided, however, that (a) if such
allocation is not permitted by applicable law then the relative fault of the
Company and the Underwriters and controlling persons, in the aggregate, in
connection with the statements or omissions which resulted in such damages and
other relevant equitable considerations shall also be considered. The relative
fault shall be determined by reference to, among other things, whether in the
case of an untrue statement of a material fact or the omission to state a
material fact, such statement or omission relates to information supplied by the
Company or the Underwriters and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such untrue statement or
omission. The Company and the Underwriters agree that it would not be just and
equitable if the respective obligations of the Company and the Underwriters to
contribute pursuant to this Section 8 were to be determined by pro rata or per
capita allocation of the aggregate damages (even if the Underwriters and their
respective controlling persons in the aggregate were treated as one entity for
such purpose) or by any other method of allocation that does not take account of
the equitable considerations referred to in the first sentence of this Section 7
and (b) that the contribution of each contributing Underwriter shall not be in
excess of its proportionate share (based on the ratio of the number of Units
purchased by such Underwriter to the number of Units purchased by all
contributing Underwriters) of the portion of such losses, claims, damages or
liabilities for which the Underwriters are responsible. No person guilty of a
fraudulent misrepresentation (within the meaning of Section 11(f) of the Act)
shall be entitled to contribution from any person who is not guilty of such
fraudulent misrepresentation. As used in this paragraph, the term "Underwriter"
includes any officer, director, or other person who controls an Underwriter
within the meaning of Section 15 of the Act, the word "Company" includes any
officer, director, or person who controls the Company within the meaning of
Section 15 of the Act. If the full amount of the contribution specified in this
paragraph is not permitted by law, then any Underwriter and each person who
controls any Underwriter shall be entitled to contribution from the Company, its
officers, directors and controlling persons to the full extent permitted by law.
The foregoing contribution agreement shall in no way affect the contribution
liabilities of any persons having liability under Section 11 of the Act other
than the Company and the Underwriters. No contribution shall be requested with
regard
-22-
to the settlement of any matter from any party who did not consent to the
settlement; provided, however, that such consent shall not be unreasonably
withheld in light of all factors of importance to such party.
9. Substitution of Underwriters. If any Underwriters shall for any
reason not permitted hereunder cancel their obligations to purchase the Firm
Shares hereunder, or shall fail to take up and pay for the number of Firm Shares
set forth opposite their respective names in Schedule A hereto upon tender of
such Firm Shares in accordance with the terms hereof, then:
(a) If the aggregate number of Firm Shares which such
Underwriter or Underwriters agreed but failed to purchase does not exceed 10% of
the total number of Firm Shares, the other Underwriters shall be obligated
severally, in proportion to their respective commitments hereunder, to purchase
the Firm Shares which such defaulting Underwriter or Underwriters agreed but
failed to purchase.
(b) If any Underwriter or Underwriters so default and the
agreed number of Firm Shares with respect to which such default or defaults
occurs is more than 10% of the total number of Firm Shares, the remaining
Underwriters shall have the right to take up and pay for (in such proportion as
may be agreed upon among them) the Firm Shares which the defaulting Underwriter
or Underwriters agreed but failed to purchase. If such remaining Underwriters do
not, at the First Closing Date, take up and pay for the Firm Shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase, the time
for delivery of the Firm Shares shall be extended to the next business day to
allow the several Underwriters the privilege of substituting within twenty-four
hours (including nonbusiness hours) another underwriter or underwriters
satisfactory to the Company. If no such underwriter or underwriters shall have
been substituted as aforesaid, within such twenty-four hour period, the time of
delivery of the Firm Shares may, at the option of the Company, be again extended
to the next following business day, if necessary, to allow the Company the
privilege of finding within twenty-four hours (including nonbusiness hours)
another underwriter or underwriters to purchase the Firm Shares which the
defaulting Underwriter or Underwriters agreed but failed to purchase. If it
shall be arranged for the remaining Underwriters or substituted Underwriters to
take up the Firm Shares of the defaulting Underwriter or Underwriters as
provided in this Section, (i) the Company or the Representatives shall have the
right to postpone the time of delivery for a period of not more than seven
business days, in order to effect whatever changes may thereby be made necessary
in the Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees promptly to file any amendments to the
Registration Statement or supplements to the Prospectus which may thereby be
made necessary, and (ii) the respective numbers of Firm Shares to be purchased
by the remaining Underwriters or substituted Underwriters shall be taken at the
basis of the underwriting obligation for all purposes of this Agreement.
If in the event of a default by one or more Underwriters and
the remaining Underwriters shall not take up and pay for all the Firm Shares
agreed to be purchased by the defaulting Underwriters or substitute another
underwriter or underwriters as aforesaid,
-23-
and the Company shall not find or shall not elect to seek another underwriter or
underwriters for such Firm Shares as aforesaid, then this Agreement shall
terminate.
If, following exercise of the option provided in Section 3(a)
hereof, any Underwriter or Underwriters shall for any reason not permitted
hereunder cancel their obligations to purchase Option Shares at the Option
Closing Date, or shall fail to take up and pay for the number of Option Shares,
which they become obligated to purchase at the Option Closing Date upon tender
of such Option Shares in accordance with the terms hereof, then the remaining
Underwriters or substituted Underwriters may take up and pay for the Option
Shares of the defaulting Underwriters in the manner provided in Section 9(b)
hereof. If the remaining Underwriters or substituted Underwriters shall not take
up and pay for all such Option Shares, then the Underwriters shall be entitled
to purchase the number of Option Shares for which there is no default or, at
their election, the option shall terminate, the exercise thereof shall be of no
effect.
As used in this Agreement, the term "Underwriter" includes any
person substituted for an Underwriter under this Section. In the event of
termination, there shall be no liability on the part of any nondefaulting
Underwriter to the Company, provided that the provisions of this Section 9 shall
not in any event affect the liability of any defaulting Underwriter to the
Company arising out of such default.
10. Survival of Indemnities, Contribution, Warranties and
Representations. The respective indemnity and contribution agreements of the
Company and the Underwriters contained in Sections 7 and 8 hereof, and the
representations and warranties of the Company contained herein shall remain
operative and in full force and effect, regardless of any investigation made by
or on behalf of the Underwriters, the Company or any of its directors and
officers, or any controlling person referred to in said Sections, and shall
survive the delivery of, and payment for, the Shares.
11. Termination of Agreement.
(a) The Company, by written or telegraphic notice to the
Underwriter, or the Underwriter, by written or telegraphic notice to the
Company, may terminate this Agreement prior to the earlier of (i) 11:00 A.M.,
New York City time, on the first full business day after the Effective Date; or
(ii) the time when the Underwriter, after the Registration Statement becomes
effective, releases the Firm Shares for public offering. The time when the
Underwriter "releases the Firm Shares for public offering" for the purposes of
this Section 10 means the time when the Underwriter releases for publication the
first newspaper advertisement, which is subsequently published, relating to the
Firm Shares or the time when the Underwriter releases for delivery to members of
a selling group copies of the Prospectus and an offering letter or an offering
telegram relating to the Firm Shares, whichever will first occur.
(b) This Agreement, including without limitation, the
obligation to purchase the Firm Shares and the obligation to purchase the Option
Shares after exercise of the option referred to in Section 3 hereof, are subject
to termination in the absolute discretion of the Underwriter, by notice given to
the Company prior to delivery of and
-24-
payment for all the Firm Shares or the Option Shares, as the case may be, if,
prior to such time, any of the following shall have occurred: (i) the Company
withdraws the Registration Statement from the Commission or the Company does not
or cannot expeditiously proceed with the public offering; (ii) the
representations and warranties in Section 4 hereof are not materially correct or
covenants in Section 5 hereof cannot be complied with; (iii) trading in
securities generally on the New York Stock Exchange or the Nasdaq Stock Market
will have been suspended; (iv) limited or minimum prices will have been
established on either such Exchange; (v) a banking moratorium will have been
declared either by United States federal or New York State authorities; (vi) any
other restrictions on transactions in securities materially affecting the free
market for securities or the payment for such securi ties, including the Firm
Shares or the Option Shares, will be established by NASDAQ, by the Commission,
by any other United States federal or state agency, by action of the Congress or
by Executive Order; (vii) trading in any securities of the Company shall have
been suspended or halted by any national securities exchange, the NASD or the
Commission; (viii) there has been a materially adverse change in the condition
(financial or otherwise), prospects or obligations of the Company; (ix) the
Company will have sustained a material loss, whether or not insured, by reason
of fire, flood, accident or other calamity; (x) any action has been taken by the
government of the United States or any department or agency thereof which, in
the judgment of the Underwriter, has had a material adverse effect upon the
market or potential market for securities in general; or (xi) the market for
securities in general or political, financial or economic conditions will have
so materially adversely changed that, in the judgment of the Underwriter, it
will be impracticable to offer for sale, or to enforce contracts made by the
Underwriter for the resale of, the Firm Shares or the Option Shares, as the case
may be.
(c) If this Agreement is terminated pursuant to Section 6
hereof or this Section 11 or if the purchases provided for herein are not
consummated because any condition of the Underwriter's obligations hereunder is
not satisfied or because of any refusal, inability or failure on the part of the
Company to comply with any of the terms or to fulfill any of the conditions of
this Agreement, or if for any reason the Company shall be unable to or does not
perform all of its obligations under this Agreement, the Company will not be
liable to the Underwriter for damages on account of loss of anticipated profits
arising out of the transactions covered by this Agreement, but the Company will
remain liable to the extent provided in Sections 5(j), 7, 8 and 10 of this
Agreement.
12. Information Furnished by the Underwriters to the Company. It is
hereby acknowledged and agreed by the parties hereto that for the purposes of
this Agreement, including, without limitation, Sections 4(e), 7(a), 7(b) and 8
hereof, the only information given by the Underwriters to the Company for use in
the Prospectus are the statements set forth on page 2 with respect to
stabilization, under the heading "Underwriting" and the identity of counsel to
the Underwriters under the heading "Legal Matters", and the last paragraph of
the cover page of the Prospectus, as such information appears in any Prelim
inary Prospectus and in the Prospectus.
13. Notices and Governing Law. All communications hereunder will be in
writing and, except as otherwise provided, will be delivered at, or mailed by
certified mail, return receipt requested, or telegraphed to, the following
addresses: if to the
-25-
Representatives, c/o Sands Brothers & Co., Ltd., 90 Park Avenue, New York, New
York 10016, Attention: Howard Sterling, Executive Vice President, with a copy to
Littman Krooks Roth & Ball P.C., Attn: Mitchell C. Littman, Esq., 655 Third
Avenue, New York, New York 10017; if to the Company, addressed to it at 182
Turnpike Road, Westborough, MA 01581 Attention: Albert J. Agbay, Chairman and
Chief Executive Officer, with a copy to Choate, Hall & Stewart, Exchange Place,
53 State Street, Boston, MA 02109, Attention: Stephen K. Fogg, Esq. and William
C. Rogers, Esq.; or, in each case, to such other address as the parties may
hereinafter designate by like notice.
This Agreement shall be deemed to have been made and delivered
in New York City and shall be governed as to validity, interpretation,
construction, effect and in all other respects by the internal laws of the State
of New York. The Company (1) agrees that any legal suit, action or proceeding
arising out of or relating to this Agreement shall be instituted exclusively in
New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York, (2) waives any objection
which the Company may have now or hereafter to the venue of any such suit,
action or proceeding, and (3) irrevocably consents to the jurisdiction of the
New York State Supreme Court, County of New York, and the United States District
Court for the Southern District of New York in any such suit, action or
proceeding. The Company further agrees to accept and acknowledge service of any
and all process which may be served in any such suit, action or proceeding in
the New York State Supreme Court, County of New York, or in the United States
District Court for the Southern District of New York and agrees that service of
process upon the Company mailed by certified mail to the Company's address shall
be deemed in every respect effective service of process upon the Company, in any
such suit, action or proceeding.
14. Parties in Interest. This Agreement is made solely for the benefit
of the several Underwriters, the Company and, to the extent expressed, any
person controlling the Company or any of the Underwriters, each officer,
director, partner, shareholder, employee and agent of the several Underwriters,
the directors of the Company, its officers who have signed the Registration
Statement, and their respective executors, administrators, successors and
assigns, and, no other person will acquire or have any right under or by virtue
of this Agreement. The term "successors and assigns" will not include any
purchaser of the Shares from any of the several Underwriters, as such purchaser.
15. Validity. In case any term of this Agreement will be held invalid,
illegal or unenforceable, in whole or in part, the validity of any other terms
of this Agreement will not in any way be affected thereby.
16. Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties with respect to the subject matter hereof, and
there are no representations, inducements, promises or agreements, oral or
otherwise, not embodied herein.
17. Counterparts. This Agreement may be executed in counterparts and
each of such counterparts will for all purposes be deemed to be an original, and
such counterparts together will constitute one and the same instrument.
-26-
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed duplicates hereof,
whereupon it will become a binding agreement between the Company and the
Underwriters in accordance with its terms.
Very truly yours,
NEXAR TECHNOLOGIES, INC.
By: ________________________________
Name:
Title:
Confirmed and accepted in
New York, N.Y., as of the
date first above written:
SANDS BROTHERS & CO., LTD.
CREDIT LYONNAIS SECURITIES (USA) INC.
By: SANDS BROTHERS & CO., LTD.
By: _____________________________________
Name:
Title:
For itself and on behalf of the
Representatives and the Several Underwriters
-27-
SCHEDULE A
Name of Underwriter Number of Firm Shares to be Purchased
- ------------------- -------------------------------------
Sands Brothers & Co., Ltd.
Credit Lyonnais Securities (USA) Inc.
Total: 2,500,000
=========
EXHIBIT 10.7
NEXAR TECHNOLOGIES, INC.
(formerly known as Dynasys Systems Corporation)
1995 STOCK OPTION PLAN
(As Amended and Restated on February 28, 1997)
--------------
1. PURPOSE
The purpose of this Nexar Technologies, Inc. (formerly known as Dynasys
Systems Corporation) 1995 Stock Option Plan (the "Plan") is to provide an
incentive to certain key employees, directors and consultants of and to Nexar
Technologies, Inc. (the "Company") and its parent, if any, and any present or
future subsidiaries of the Company (collectively, the "Related Companies") by
providing a favorable opportunity for them to purchase stock of the Company.
This Plan provides for the grant of incentive stock options, as defined
in Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"), to
key employees of the Company and the Related Companies, and for the grant of
non-qualified stock options to key employees, non-employee directors and
consultants to the Company and the Related Companies. All such incentive stock
options and non-qualified options which may be granted under this Plan are
hereinafter referred to as "Options."
2. ADMINISTRATION OF THE PLAN
This Plan shall be administered by the Board of Directors of the
Company (the "Board"). The Board may appoint a Compensation Committee (the
"Committee") of two or more of its members to administer this Plan. If the
Company registers any class of equity security pursuant to Section 12 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), each member of
the Committee shall be an "outside director" within the meaning of Section
162(m) of the Code and a "non-employee director" as defined in Rule 16b-3 under
the Exchange Act. Subject to the terms of the Plan, the Committee, if so
appointed, shall have the authority to (i) determine the employees, non-employee
directors and consultants (from among the class of persons eligible under
Section 4) to whom Options may be granted; (ii) determine the time or times at
which Options may be granted; (iii) determine the option price of shares subject
to each Option, which price shall not be less than the minimum specified in
Section 7; (iv) determine whether each Option granted shall be an incentive
stock option or a non-qualified option; (v) determine the time or times when
each Option shall become exercisable and the duration of the exercise period;
(vi) determine whether restrictions such as repurchase options are to be imposed
on shares subject to Options and the nature of such restrictions if any; and
(vii) interpret the Plan and prescribe and rescind rules and regulations
relating to it.
The interpretation and construction by the Committee of any provisions
of the Plan or of any Option granted under it shall be final unless otherwise
determined by the Board. The Committee may from time to time adopt such rules
and regulations for carrying out the Plan as it may deem best. No member of the
Board or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option granted under it.
The Committee may select one of its members as its chairman, and shall
hold meetings at such time and places as it may determine. Acts by a majority of
the Committee, or acts reduced to or approved in writing by a majority of the
members of the Committee, shall be the valid acts of the Committee. All
references in this Plan to the Committee shall mean the Board if there is no
Committee so appointed. From time to time the Board may increase the size of the
Committee and appoint additional members thereof, remove members (with or
without cause), and appoint new members in substitution therefor, fill vacancies
however caused, or remove all members of the Committee and thereafter directly
administer the Plan.
3. SHARES COVERED BY THE PLAN
Options may be granted under the Plan while the Plan is in effect for
the purchase of not more than 5,300,000 shares of the Common Stock, $0.01 par
value per share ("Common Stock"), of the Company. Shares covered by unexercised
Options which are no longer exercisable for any reason shall be available for
issuance under Options granted hereunder for purposes of computing the foregoing
limitation unless the Plan has been terminated. Shares delivered on exercise of
Options may be made available from authorized and unissued Common Stock or from
Common Stock held in the Treasury of the Company. In connection with the grant
of any non-qualified stock option under the Plan, the Committee may in its
discretion provide for a cash payment to be made to the person exercising the
Option, at the time of exercise, in such amount as the Committee determines to
be appropriate to reimburse such person, in whole or in part, for any federal or
state income taxes incurred in connection with such exercise. Such payment may
be applied to the satisfaction of any applicable withholding tax which is
incurred in connection with such exercise or with such payment.
4. ELIGIBILITY
The persons who shall be eligible to receive Options under the Plan
shall include key employees, non-employee directors and individuals performing
services as non-employee independent contractors to the Company or any of the
Related Companies. Such persons are hereinafter referred to as "Eligible
Individuals."
-2-
5. ALLOTMENT OF OPTIONS AND NUMBER OF SHARES
The allotment of Options among the Eligible Individuals, the number of
shares to be covered by each Option to be granted, and the designation of
Options as either incentive stock options or non-qualified stock options shall
be determined by the Committee; provided, however, that an incentive stock
option may be granted only to an Eligible Individual who is an employee of the
Company or a Related Company.
In no event may any Eligible Individual be granted options with respect
to more than 1,250,000 shares of Common Stock in any fiscal year. The number of
shares of Common Stock issuable pursuant to an option granted to a Plan
participant in a fiscal year that is subsequently forfeited, canceled or
otherwise terminated shall continue to count toward the foregoing limitation in
such fiscal year. In addition, if the exercise price of an option is
subsequently reduced, the transaction shall be deemed a cancellation of the
original option and the grant of a new one so that both transactions shall count
toward the maximum shares issuable in the fiscal year of each representative
transaction.
6. OPTION AGREEMENTS
Each Eligible Individual to whom an Option is granted (an "Optionee")
shall enter into a written agreement setting forth the terms and conditions of
the Option granted to him, which agreement may contain such terms, conditions
and restrictions not inconsistent with the terms of the Plan as the Committee
shall approve.
7. OPTION PRICE
The price to be paid by an Optionee who exercises an Option shall be
determined by the Committee but shall in no event be less than the fair market
value of the Common Stock on the date the Option is granted; provided that in
the case of an incentive stock option granted to an Eligible Individual who owns
stock representing more than 10% of the voting power of all classes of stock of
the Company, the option price shall not be less than 110% of such fair market
value.
8. DURATION AND RATE OF EXERCISE OF OPTIONS
The option period shall be fixed by the Committee but in any event each
Option shall by its terms be exercisable no later than the expiration of ten
years from the date the Option is granted; provided that in the case of an
incentive stock option granted to an Eligible Individual who owns stock
representing more than 10% of the voting power of all classes of stock of the
Company, the option shall not be exercisable to any extent after the expiration
of five years from the date the Option is granted.
-3-
The Committee shall determine the rate at which each Option shall be
exercisable.
In the case of an incentive stock option, the amount of aggregate fair
market value of shares (determined at the time of grant of the Option pursuant
to Section 7) with respect to which incentive stock options are exercisable for
the first time by an Optionee during any calendar year (under all such plans of
his employer corporation and its parent and subsidiary corporations) shall not
exceed $100,000. To the extent the limitation in the preceding sentence would be
exceeded with respect to any portion of an Option otherwise first becoming
exercisable for any year in accordance with the vesting schedule established for
an Optionee, the Committee may determine at the time of grant that vesting with
respect to such excess amount shall be deferred until the first subsequent year
that such excess amount (or any part thereof) can become exercisable within the
limitation of the preceding sentence, or, in the alternative, that such excess
amount become vested as a non-qualified stock option.
The Committee shall determine the manner in which each Option shall be
exercisable, the timing and form of the purchase price to be paid by an Optionee
upon the exercise of an Option, and any restrictions to be imposed upon the
Common Stock received on exercise of an Option. To the extent provided in the
option agreement, payment of the purchase price may be in cash, part in cash and
part by personal promissory note or in whole or in part by the surrender of a
whole number of shares of previously issued Common Stock of the Company.
Previously issued shares of Common Stock shall be accepted as payment in an
amount equal to the then fair market value of the surrendered shares.
9. NONTRANSFERABILITY OF OPTIONS
Unless specifically otherwise by the Committee with respect to
non-qualified options only, each Option granted under the Plan to any Eligible
Individual shall by its terms not be transferable by him otherwise than by will
or the laws of descent and distribution, and shall be exercisable during his
lifetime only by him.
10. RIGHTS AS A STOCKHOLDER
An Optionee shall have no rights as a stockholder with respect to any
shares covered by his Options until he shall have become the holder of record of
such shares, and no adjustment shall be made, except adjustments pursuant to
Section 11 hereof, for dividends (ordinary or extraordinary, whether in cash,
securities or other property) or distributions or other rights in respect of
such shares for which the record date is prior to the date on which he shall
have become the holder of record thereof.
-4-
11. EFFECT OF CHANGE IN STOCK SUBJECT TO THE PLAN
In the event there is any change in the shares of Common Stock of the
Company through the declaration of stock dividends or through recapitalizations
resulting in stock split-ups or combinations or exchanges of shares or
otherwise, the number of shares available for Option, the exercise price of
outstanding Options, and the number of shares subject to any Option shall be
appropriately adjusted by the Committee.
If the Company is merged into or consolidated with another corporation
under circumstances where the Company is not the surviving corporation, or if
the Company is liquidated or sells or otherwise disposes of substantially all of
its assets to another corporation while unexercised Options remain outstanding,
(i) subject to the provisions of clauses (iii) and (iv) below, after the
effective date of such merger, consolidation or sale, as the case may be, each
holder of an outstanding Option shall be entitled, upon exercise of such Option,
to receive in lieu of shares of Common Stock, shares of such stock or other
securities as the holders of shares of Common Stock received pursuant to the
terms of the merger, consolidation or sale; or (ii) the Committee may waive any
discretionary limitations imposed pursuant to Section 8 hereof so that all
Options from and after a date prior to the effective date of such merger,
consolidation, liquidation or sale, as the case may be, specified by the
Committee, shall be exercisable in full; or (iii) all outstanding Options may be
canceled by the Committee as of the effective date of any such merger,
consolidation, liquidation or sale provided that notice of such cancellation
shall be given to each holder of an Option, and each holder of an Option shall
have the right to exercise such Option in full (without regard to any
discretionary limitations imposed pursuant to Section 8 hereof) during a 30-day
period preceding the effective date of such merger, consolidation, liquidation
or sale; or (iv) all outstanding Options may be canceled by the Committee as of
the date of any such merger, consolidation, liquidation or sale provided that
notice of such cancellation shall be given to each holder of an Option, and each
holder of an Option shall have the right to exercise such Option but only to the
extent exercisable in accordance with any discretionary limitations imposed
pursuant to Section 8 prior to the effective date of such merger, consolidation,
liquidation or sale.
12. GRANT OF OPTIONS IN CONNECTION WITH CERTAIN ACQUISITIONS
The Committee may grant Options under the Plan in substitution for
incentive stock options or non-qualified stock options granted under plans of
other employers, if such grant occurs by reason of a corporate merger,
consolidation, separation, reorganization, or liquidation to which the Company
is a party, or by reason of the acquisition of property or stock of another
corporation by the Company; provided that, with respect to any incentive stock
option, such transaction is a transaction to which Section 424(a) of the Code
applies. The Committee may impose such terms and conditions upon the grant of
any incentive stock option under this Section 12 as are necessary to ensure that
the substitution will not constitute a modification of the Option under Section
424(h) of the Code, even though any such term or
-5-
condition would otherwise be inconsistent with the provisions of this Plan.
Options granted under the provisions of this Section 12 may be granted at a
price less than the fair market value of the Common Stock on the date such
Option is granted, so long as the ratio of the option price to the fair market
value of the Common Stock is no more favorable to the Optionee than the ratio of
the option price to the fair market value of the stock subject to the old option
immediately before such substitution. Except as otherwise specifically provided
in the agreement setting forth the terms and conditions of such an Option, the
provisions of this Plan shall govern any options granted under this Section 12.
Nothing in this Section 12 shall be deemed to authorize the grant of Options
under the Plan for a number of shares in excess of the number set forth in
Section 3, nor to limit in any way the authority of the Committee to grant
substituted options in connection with such transactions other than under the
Plan.
13. USE OF PROCEEDS
The proceeds received by the Company from the sale of Common Stock
pursuant to the Plan may be used for general corporate purposes.
14. AMENDMENT AND DISCONTINUANCE
The Board may from time to time alter or suspend and at any time
discontinue the Plan. However, no action of the Board may, without the approval
of the stockholders, increase the maximum number of shares to be offered for
sale under Options in the aggregate (other than according to the terms of
Section 11), modify the provisions of Section 4 regarding eligibility, reduce
the purchase price at which shares may be offered pursuant to Options (other
than according to the terms of Section 11) or extend the expiration date of the
Plan; nor may any action of the Board or the stockholders alter or impair an
Optionee's rights under any outstanding Option previously granted under the
Plan, without the consent of the holder of the Option. Notwithstanding the
above, the Board of Directors may from time to time alter the terms of an
outstanding Option previously granted under the Plan, without the consent of the
holder of the Option, if the sole effect of such alteration is to accelerate the
time at which the Option (or any portion thereof) may be exercised.
15. EFFECTIVE DATE AND TERMINATION DATE
The Plan and any amendment thereto requiring stockholder approval shall
become effective upon the date of its adoption by the Board, subject, however to
approval by the stockholders of the Company within twelve months of such date.
The Plan shall remain in effect until terminated by the Board, but not later
than ten years after the date the Plan is initially adopted by the Board, or is
approved by the stockholders, whichever first occurs.
-6-
The Plan was initially adopted by the Board on March 29, 1995 and
approved by the stockholders of the Company on April 1, 1995.
As Amended and Restated on February 28, 1997, the date upon which such
amendments and restatement were adopted by the Board and approved by the
Company's stockholders.
-7-
EXHIBIT 10.8
NEXAR TECHNOLOGIES, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
----------------------
l. PURPOSE
The purpose of this Employee Stock Purchase Plan (the "Plan") is to
provide employees of Nexar Technologies, Inc., a Delaware corporation (the
"Company"), and its subsidiaries, an opportunity to purchase Common Stock, $0.01
par value, of the Company (the "Shares"). The Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of Section 423 of the Internal
Revenue Code of 1986, as amended (the "Code").
2. ADMINISTRATION OF THE PLAN
The Board of Directors or any committee or persons to whom it delegates
its authority (the "Administrator") shall administer, interpret and apply all
provisions of the Plan. The Administrator may waive such provisions of the Plan
as it deems necessary to meet special circumstances not anticipated or covered
expressly by the Plan. Nothing contained in this Section shall be deemed to
authorize the Administrator to alter or administer the provisions of the Plan in
a manner inconsistent with the provisions of Section 423 of the Code. No member
of the Administrator shall be liable for any action or determination made in
good faith with respect to the Plan or any right granted under it.
3. ELIGIBLE EMPLOYEES
Subject to the provisions of Sections 8, 9 and 10 below, any individual
who is in the full-time employment (as defined below) of the Company, or any of
its subsidiaries (as defined in Section 424(f) of the Code) the employees of
which are designated by the Board of Directors as eligible to participate in the
Plan, is eligible to participate in any Offering of Shares (as defined in
Section 4 below) made by the Company hereunder. Full-time employment shall
include all employees whose customary employment is:
(a) in excess of 20 hours per week; and
(b) more than five months in the relevant calendar year.
4. OFFERING DATES
From time to time the Company, by action of the Board of Directors,
will grant rights to purchase Shares to employees eligible to participate in the
Plan pursuant to one or more offerings (each of which is an "Offering") on a
date or series of dates (each of which is an "Offering Date") designated for
this purpose by the Board of Directors.
5. PRICES
The price per share for each grant of rights hereunder shall be the
lesser of:
(a) eighty-five percent (85%) of the fair market value of a Share
on the Offering Date on which such right was granted; or
(b) eighty-five percent (85%) of the fair market value of a Share
on the date such right is exercised. At its discretion, the
Board of Directors may determine a higher price for a grant of
rights.
For purposes of this Plan, the term "fair market value" on any date
shall mean (i) the average (on that date) of the high and low prices
for shares of the Common Stock on the principal national securities
exchange on which the Common Stock are traded, if the Common Stock is
then listed on a national securities exchange; or (ii) the last
reported sale price (on that date) of shares of the Common Stock on the
Nasdaq Stock Market if the Common Stock is not then listed on a
national securities exchange; or, if not so reported or listed, (iii)
the closing bid price (or average of bid prices) last quoted (on that
date) of shares of the Common Stock on the over-the-counter market. If
the Company's Common Stock is not publicly traded at the time a right
is granted under this Plan, "fair market value" shall mean the fair
market value of shares of the Common Stock as determined by the
Administrator after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer
prices of shares of the Common Stock in private transactions negotiated
at arm's length.
6. EXERCISE OF RIGHTS AND METHOD OF PAYMENT
(a) Rights granted under the Plan will be exercisable periodically
on specified dates as determined by the Board of Directors.
(b) The method of payment for Shares purchased upon exercise of
rights granted hereunder shall be through regular payroll
deductions or by lump sum cash payment, or both, as determined
by the Board of Directors. No interest shall be paid upon
payroll deductions unless specifically provided for by the
Board of Directors.
2
(c) Any payments received by the Company from a participating
employee and not utilized for the purchase of Shares upon
exercise of a right granted hereunder shall be promptly
returned to such employee by the Company after termination of
the right to which the payment relates.
7. TERM OF RIGHTS
Rights granted on any Offering Date shall be exercisable upon the
expiration of such period ("Offering Period") as shall be determined by the
Board of Directors when it authorizes the Offering, provided that such Offering
Period shall in no event be longer than twenty-seven (27) months.
8. SHARES COVERED BY THE PLAN
No more than 200,000 Shares may be sold pursuant to rights granted
under the Plan; provided, however, that appropriate adjustment shall be made in
such number, in the number of Shares covered by outstanding rights granted
hereunder, in the exercise price of the rights and in the maximum number of
Shares which an employee may purchase (pursuant to Section 9 below) to give
effect to any mergers, consolidations, reorganizations, recapitalizations, stock
splits, stock dividends or other relevant changes in the capitalization of the
Company occurring after the effective date of the Plan, provided that no
fractional Shares shall be subject to a right and each right shall be adjusted
downward to the nearest full Share. Any agreement of merger or consolidation
will include provisions for protection of the then existing rights of
participating employees under the Plan. Either authorized and unissued Shares or
issued Shares heretofore or hereafter reacquired by the Company may be made
subject to rights under the Plan. If for any reason any right under the Plan
terminates in whole or in part, Shares subject to such terminated right may
again be subjected to a right under the Plan.
9. LIMITATIONS ON GRANTS
(a) No employee shall be granted a right hereunder if such
employee, immediately after the right is granted, would own
stock or rights to purchase stock possessing five percent (5%)
or more of the total combined voting power or value of all
classes of stock of the Company, or of any subsidiary,
computed in accordance with Sections 423(b)(3) and 424(d) of
the Code.
(b) No employee shall be granted a right which permits his right
to purchase shares under all employee stock purchase plans of
the Company and its subsidiaries to accrue at a rate which
exceeds twenty-five thousand dollars ($25,000) (or such other
maximum as may be prescribed from time to time by the Code) of
the fair market value of such Shares (determined at the time
such right is granted) for each calendar year in which such
right is outstanding at any time in accordance with the
provisions of Section 423(b)(8) of the Code.
3
(c) No right granted to any participating employee under a single
Offering shall cover more shares than may be purchased at an
exercise price equal to 10% of the compensation payable to the
employee during the Offering not taking into consideration any
changes in the employee's rate of compensation after the date
the employee elects to participate in the Offering, or such
other percentage as determined by the Board of Directors from
time to time.
10. LIMIT ON PARTICIPATION
Participation in an Offering shall be limited to eligible employees who
elect to participate in such Offering in the manner, and within the time
limitation, established by the Board of Directors when it authorizes the
offering.
11. CANCELLATION OF ELECTION TO PARTICIPATE
An employee who has elected to participate in an Offering may, unless
the employee has waived this cancellation right at the time of such election in
a manner established by the Board of Directors, cancel such election as to all
(but not part) of the rights granted under such Offering by giving written
notice of such cancellation to the Company before the expiration of the Offering
Period. Any amounts paid by the employee for the Shares or withheld for the
purchase of Shares from the employee's compensation through payroll deductions
shall be paid to the employee, without interest, upon such cancellation.
12. TERMINATION OF EMPLOYMENT
Upon termination of employment for any reason, including the death of
the employee, before the date on which any rights granted under the Plan are
exercisable, all such rights shall immediately terminate and amounts paid by the
employee for the Shares or withheld for the purchase of Shares from the
employee's compensation through payroll deductions shall be paid to the employee
or to the employee's estate, without interest.
13. EMPLOYEE'S RIGHTS AS STOCKHOLDER
No participating employee shall have any rights as a stockholder in the
Shares covered by a right granted hereunder until such right has been exercised,
full payment has been made for the corresponding Shares and the Share
certificate is actually issued.
14. RIGHTS NOT TRANSFERABLE
Rights under the Plan are not assignable or transferable by a
participating employee and are exercisable only by the employee.
4
15. LIMITS ON SALE OF STOCK PURCHASED UNDER THE PLAN
The Plan is intended to provide shares of Common Stock for investment
and not for resale. The Company does not, however, intend to restrict or
influence any employee in the conduct of his/her own affairs. An employee may,
therefore, sell stock purchased under the Plan at any time the employee chooses,
subject to compliance with any applicable Federal or state securities laws;
provided, however, that because of certain Federal tax requirements, each
employee agrees by entering the Plan, promptly to give the Company notice of any
such stock disposed of within two years after the date of grant of the
applicable right showing the number of such shares disposed of. THE EMPLOYEE
ASSUMES THE RISK OF ANY MARKET FLUCTUATIONS IN THE PRICE OF THE STOCK.
16. AMENDMENTS TO OR DISCONTINUANCE OF THE PLAN
The Board of Directors may at any time terminate or amend this Plan
without notice and without further action on the part of stockholders of the
Company, provided that no such termination or amendment shall adversely affect
the then existing rights of any participating employee.
17. EFFECTIVE DATE AND APPROVALS
The Plan was being adopted by the Board of Directors on December 19,
1996 to become effective as of the date of the closing of the Company's initial
public offering. The Plan was approved by the stockholders on February 28, 1997.
The Company's obligation to offer, sell and deliver its Shares under the Plan is
subject to the approval of any governmental authority required in connection
with the authorized issuance or sale of such Shares and is further subject to
the Company receiving the opinion of its counsel that all applicable securities
laws have been complied with.
18. TERM OF PLAN. No rights shall be granted under the Plan after December
19, 2006.
5
EXHIBIT 10.9
NEXAR TECHNOLOGIES, INC.
1996 NON-EMPLOYEE DIRECTORS STOCK OPTION PLAN
--------------
1. PURPOSE
The purpose of this Nexar Technologies, Inc. 1996 Non-Employee Director
Stock Option Plan (the "Plan") is to enable Nexar Technologies, Inc. (the
"Company") to attract and retain non-employee directors and further align their
interests with those of the shareholders by providing for or increasing their
equity interests in the Company.
2. ADMINISTRATION
This Plan shall be administered by the Board of Directors of the
Company (the "Board") or by the Compensation Committee appointed by the Board
(the "Committee"). In the event the Board refrains from delegating
administration of this Plan to the Committee, the Board shall have all power and
authority to administer this Plan. In such event, the word "Committee" wherever
used herein shall be deemed to mean the Board. The Committee shall, subject to
the provisions of the Plan, have the power to construe this Plan, to determine
all questions hereunder, and to adopt and amend such rules and regulations for
the administration of this Plan as it may deem desirable.
3. ELIGIBILITY
Each member of the Board who is not an employee of the Company, its
parent or any of its subsidiaries (a "Non-Employee Director") shall be eligible
for the grant of Options (as hereinafter defined) under this Plan.
4. AVAILABLE SHARES
The total number of shares of Common Stock, par value $0.01 per share,
of the Company ("Common Shares"), for which options may be granted under this
Plan shall not exceed 100,000, subject to adjustment as provided in Section 6
hereof. Shares covered by unexercised Options which are no longer exercisable
for any reason shall be available for issuance under Options granted hereunder
for purposes of computing the foregoing limitation unless the Plan has been
terminated. Shares delivered on exercise of Options may be made available from
authorized and issued Common Stock or from Common Stock held in the Treasury of
the Company.
5. OPTIONS
(a) Initial Grants. Each person who first becomes a Non-Employee
Director after the effectiveness of an underwritten initial public offering of
the Common Stock shall
automatically be granted an option ("Option") to purchase 15,000 Common Shares,
subject to adjustment as provided in Section 6 hereof.
(b) Annual Grants. On the date of each annual meeting of Stockholders
of the Company conducted after the Company consummates an underwritten initial
public offering of the Common Stock, each person who is a Non-Employee Director
shall automatically be granted an Option to purchase 10,000 Common Shares,
subject to adjustment as provided in Section 6 hereof.
(c) Insufficient Shares. Notwithstanding the foregoing, if, on any date
upon which Options are to be granted under Section 5(a) or 5(b) hereof, the
number of Common Shares remaining available for issuance under this Plan is
insufficient for the grant of Options to purchase the total number of Common
Shares specified in such sections, then each Non- Employee Director entitled to
receive an Option on such date shall be granted an Option to purchase a
proportionate amount of the available number of Common Shares (rounded down to
the greatest number of whole shares). Except for the specific Options referred
to in Sections 5(a) and 5(b) above, no other Options shall be granted under this
Plan.
(d) Option Price and Terms. Each Option shall be evidenced by a written
option agreement that shall contain the following terms and provisions:
(i) The exercise price per Common Share shall be equal to the
Fair Market Value (as hereinafter defined) of one Common Share on the
date of grant of such Option. If, at the time an Option is granted the
Company's Common Shares are publicly traded, "Fair Market Value" shall
be determined as of the last business day for which the prices or
quotes discussed in this sentence are available prior to the date such
Option is granted and shall mean (i) the average (on that date) of the
high and low prices of the Common Shares on the principal national
securities exchange on which the Common Shares are traded, if the
Common Shares are then listed on a national securities exchange; or
(ii) the last reported sale price (on that date) of the Common Shares
on The Nasdaq Stock Market if the Common Shares are not then listed on
a national securities exchange; or, if not so reported or listed, (iii)
the closing bid price (or average of bid prices) last quoted (on that
date) of the Common Shares on the over-the-counter market. If, at the
time an Option is granted under the Plan, the Company's Common Shares
are not publicly traded, "Fair Market Value" shall be the fair market
value on the date the Option is granted as determined by the Committee
in good faith.
(ii) Payment of the exercise price of the Option shall be made in
full in cash or by check concurrently with the exercise of the Option.
(iii) The Option shall be nontransferable by the optionee other than
by will or the laws of descent and distribution, and shall be
exercisable during the optionee's life time only by the optionee or the
optionee's guardian or legal representative.
-2-
(iv) Options granted pursuant to Section 5(a) shall become
exercisable by the optionee in three annual installments of 33%, 33%
and 34% on the first, second and third anniversaries, respectively, of
the date of grant and shall expire upon the first to occur of the
following:
(A) the third anniversary of the date upon which the
optionee shall cease to be a Non-Employee Director, or
(B) the tenth anniversary of the date of grant.
(v) Options granted pursuant to Section 5(b) shall become
exercisable by the optionee on the first anniversary of the date of
grant and shall expire upon the first to occur of the following:
(A) the third anniversary of the date upon which the
optionee shall cease to be a Non-Employee Director, or
(B) the tenth anniversary of the date of grant.
(vi) In the event that the optionee shall cease to be a
Non-Employee Director prior to the date all or any portion of an Option
becomes exercisable in accordance with clause (iv) or clause (v) above,
such Option or portion thereof (A) shall become exercisable in full at
any time within one year of the date of such event if it occurred as a
result of the optionee's death or permanent disability, or (B) shall
terminate in full on the date of such event if it occurred for any
other reason.
(vii) Such other terms and conditions, not inconsistent with the
terms of this Plan, as the Committee shall include in the written
option agreement.
6. ADJUSTMENTS
(a) Stock Dividends, Recapitalization, Etc. If the outstanding
securities of the class then subject to this Plan are increased, decreased or
exchanged for or converted into a different number or kind of securities of the
Company, or if cash, property or securities are distributed in respect of such
outstanding securities, in either case as a result of a reorganization, merger,
consolidation, recapitalization, restructuring, reclassification, dividend
(other than a regular cash dividend) or other distribution, stock split, reverse
stock split or the like, then, unless the terms of such transaction shall
provide otherwise, the Committee shall make appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Options theretofore granted
under this Plan, and (ii) the maximum number and type of shares or other
securities that may be issued pursuant to Options thereafter granted under this
Plan.
(b) Merger, Sale of Assets, Etc. If the Company is merged into or
consolidated with another corporation under circumstances where the Company is
not the surviving
-3-
corporation or if the Company is liquidated or sells or otherwise disposes of
all or substantially all of its assets while unexercised Options remain
outstanding under the Plan, as of the date thirty (30) days prior to such
transaction (i) all outstanding Options shall become fully vested and
exercisable in full, and (ii) any Options which remain unexercised as of the day
prior to the effective date of the transaction shall be canceled as of such day
and shall not thereafter be exercisable by anyone; provided that the accelerated
exercisability of Options shall be contingent on completion of the transaction
and shall be null and void if the transaction is not consummated; and provided,
further, that accelerated exercisability pursuant to this provision shall not
extend the expiration date for any Option determined pursuant to Section 5.
7. AMENDMENT AND TERMINATION OF PLAN
The Board may amend or terminate this Plan at any time and in any
manner, subject to the following:
(a) no such amendment or termination shall deprive the recipient of any
Option theretofore granted under this Plan, without the consent of such
recipient, of any of his or her rights thereunder or with respect thereto.
8. EFFECTIVE DATE AND DURATION OF PLAN
The Plan was adopted by the Board on December 19, 1996 to become
effective on the date the Company consummates an underwritten initial public
offering of the Common Stock. The stockholders of the Company approved the Plan
on February 28, 1997. This Plan shall terminate and no Options shall be granted
hereunder after December 19, 2006.
-4-
EXHIBIT 10.10
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Albert J. Agbay, Jr.
The undersigned, Dynasys Systems Corporation, a Delaware corporation (the
"Company"), with its principal place of business located at One Research Drive,
Westborough, Massachusetts 01581, hereby agrees with you as follows:
1. Position and Responsibilities.
1.1 You shall serve as President and Chief Executive Officer of the
Company, (or in such other executive capacity as shall be designated by the
Board of Directors (the "Board") or Executive Committee of the Company and
reasonably acceptable to you) and shall perform the duties customarily
associated with such capacity from time to time and at such place or places as
the Chairman of the Board or Executive Committee of the Company shall designate
as appropriate and necessary in connection with such employment.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and the business and affairs
of the Company. You agree to perform such executive duties as may be assigned to
you by or on authority of the Company's Chairman of the Board or Executive
Committee from time to time. After receipt of notice of termination of your
employment hereunder, you shall continue to be available to the Company on a
part-time basis at reasonable and customary hourly rates to assist in any
necessary transition with the understanding that such period of availability
shall run conterminously with the one year period of non-competition set forth
in Section 7.1.
1.3 You will duly, punctually, and faithfully perform and observe any and
all rules and regulations that the Company may now or shall hereafter reasonably
establish governing your conduct as an employee and the conduct of its business.
1.4 During the term of this Agreement, and after termination of this
Agreement for so long as you shall hold not less than ten percent (10%) of the
issued and outstanding voting stock of the Company, you shall have the right to
designate one (1) member of the Board; and during the term of this Agreement,
subject to the terms and conditions of the Stock Option Plan referred to below,
you shall have the right to designate one (1) member of the Compensation
Committee of the Board.
1.5 Without limiting your authority described in this Agreement, during the
term hereof, you shall have the right (i) to appoint senior executive officers
of the Company, on such terms and conditions as are appropriate in your
reasonable judgment and (ii) to retain
outside legal counsel on behalf of the Company, in each case with the approval
of Palomar, such approval not to be unreasonably withheld or delayed.
2. Term of Employment
2.1 The initial term of this Agreement shall be for the period of years set
forth on Exhibit A annexed hereto. At the end of the first year of the initial
term and each succeeding year, this Agreement shall be automatically renewed for
successive periods of five (5) years. Your employment with the Company may be
terminated as provided in Sections 2.2 or 2.3.
2.2 The Company shall have the right to terminate your employment at any
time under this Agreement prior to the stated term in any of the following ways:
(a) on thirty (30) days prior written notice to you upon your death or
disability (disability shall be defined as your inability to perform duties
under this Agreement for an aggregate of ninety (90) days out of any one
hundred eighty (180) day period due to mental or physical disability);
(b) immediately without prior notice to you by the Company for Cause, as
hereinafter defined, provided, however, that prior to any such termination
for Cause, you have had a reasonable opportunity to be heard thereon;
(c) immediately without prior notice to you or Cause, in the event of the
liquidation or reorganization of the Company under the federal Bankruptcy
Act or any state insolvency or bankruptcy law;
(d) at any time without Cause, provided the Company shall be obligated to
pay to you upon notice of termination, as severance pay, a lump sum amount
equal to twelve (12) month's Base Salary (as set forth on Exhibit A
attached hereto), less applicable taxes and other required withholdings and
any amounts you may owe to the Company. If, however, a change in control of
the Company should occur causing termination of your employment without
Cause or if there is a substantial change in your duties as set forth
herein which is at the direction of the Company's board of directors and
not consented to by you, then you shall be entitled to receive as severance
pay a lump sum amount equal to twelve (12) months' Base Salary, (as set
forth on Exhibit A attached hereto), or an amount equal to the salary due
to you under the terms of this contract at the time of termination,
whichever is less. For purposes of this Agreement "Change of control" shall
be deemed to be the sale of all or substantially all of the stock or assets
of the Company or the merger of the Company with another entity where the
other entity survives the merger. Palomar Medical Technologies, Inc.,
parent company of the Company, hereby agrees to guarantee payment of the
severance pay described above in this Section 2.2(d).
2.3 You shall have the right to terminate your employment hereunder (a) for
any reason, upon not less than ninety (90) days' prior written notice to the
Company or (b) in the event of a material change, without your consent, in your
duties or responsibilities, upon not less than thirty (30) days' prior written
notice to the Company. Any termination of your employment pursuant to clause (b)
of the preceding sentence shall be deemed to be termination without Cause, and
you shall have the rights set forth in subsection 2.2(d) above. For the purposes
of this Section 2.3 a material change includes, but is not limited to,
relocation of the Company's location at which you are employed to more than one
hundred (100) miles from its present location.
2.4 "Cause" for the purpose of Section 2 of this Agreement shall mean: (i)
the falseness or material inaccuracy of any of your warranties or
representations herein; (ii) your willful failure or refusal to comply with
explicit directives of the Board of Directors or Executive Committee or to
render the services required herein; (iii) fraud or embezzlement involving
assets of the Company, its customers, suppliers or affiliates or other
misappropriation of the Company's assets or funds; (iv) your conviction of a
criminal felony offense; (v) the willful breach or habitual neglect of your
obligations under this Agreement or your duties as an employee of the Company;
(vi) habitual use of drugs or insanity. The existence of Cause for termination
of your employment by the Company shall be subject, upon the written election by
you or the Company, to binding arbitration as provided in Section 9 hereof. The
cost of arbitration, exclusive of the cost of each party's legal representation
(which, except as hereinafter otherwise provided, shall be borne by the party
incurring the expense), shall be borne by the instigating party; provided,
however, that the arbitrators' award may require either party to reimburse the
other for the reasonable cost of legal representation in the arbitration
proceedings.
Further, any dispute, controversy, or claim arising out of, in connection
with or in relation to this definition of "Cause" shall be settled by
arbitration as provided in Section 9 hereof. Any award or determination shall be
final, binding, and conclusive upon the parties, and a judgment rendered may be
entered in any court having jurisdiction thereof.
2.5 If your employment is terminated because of your death, pursuant to
subsection 2.2(a), all obligations of the Company hereunder cease, except with
respect to amounts and obligations accrued to you through the last day of the
month during which your death has occurred.
If your employment is terminated by the Company for any other reason,
pursuant to subsection 2.2(b), (c), or (d) above, all obligations of the Company
(except with respect to amounts and obligations accrued to you prior to the date
of termination) shall cease.
3. Compensation
You shall receive the compensation and benefits set forth on Exhibit A
attached hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of
property rights pursuant to an agreement relating to proprietary information and
inventions of even date herewith attached hereto as Exhibit C between you and
the Company (the "Confidential Information Agreement"). Such Compensation shall
be subject to temporary or permanent reduction by the Board of Directors or
Executive Committee if the Board or Committee shall determine in good faith that
economic conditions so warrant.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently held by
you as listed on Exhibit B attached hereto, and except with the prior written
consent of a disinterested majority of the Company's Board of Directors, which
consent will not be unreasonably withheld, you will not, during the term of this
Agreement, undertake or engage in any other employment, occupation or business
enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B attached
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (i) individually, (ii) as an officer, (iii) as a director, (iv) as an
employee, (v) as a consultant, (vi) as an advisor, (vii) as an agent (whether a
salesperson or otherwise), (viii) as a broker, or (ix) as a partner, covenantor,
stockholder or other proprietor owning directly or indirectly more than five
percent (5) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged in the planning, research, development,
production, manufacture, marketing, sales, or distribution of products,
equipment, or services similar to those produced by the Company, its parent
corporation Palomar Medical Technologies, Inc. ("Palomar") or any company owned
or controlled by Palomar, (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
"Prohibited Enterprise"). Except as may be shown on Exhibit B attached hereto,
you hereby represent that you are not engaged in any of the foregoing capacities
(i) through (ix) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior or current employment,
consulting agreement or relationship whether oral or written. You represent and
warrant that you do not possess confidential information arising out of any such
employment, consulting agreement or relationship which, in your best judgment,
would be utilized in connection with your employment by the Company in the
absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your
former employers; but during your employment by the Company you will use in the
performance of your duties all information which is generally known and used by
persons with training and experience comparable to your own all information
which is common knowledge in the industry or otherwise legally in the public
domain.
6. Proprietary Information and Inventions.
You agree to execute, deliver and be bound by the provisions of the
Confidential Information Agreement attached hereto as Exhibit C.
7. Post-Employment Activities.
7.1 For a period of one (1) year after the termination or expiration, for
any reason, of your employment with the Company hereunder, absent the Board of
Directors' prior written approval, you will not directly or indirectly engage in
activities similar to those described in Section 4.2, nor render services
similar or reasonably related to those which you shall have rendered hereunder
to, any person or entity whether now existing or hereafter established which
directly competes with (or proposes or plans to directly compete with) the
Company ("Direct Competitor") in the same or similar business. Nor shall you
entice, induce or encourage any of the Company's other employees to engage in
any activity which, were it done by you, would violate any provision of the
Confidential Information Agreement or this Section 7. As used in this Agreement,
the term "any line of business engaged in or under demonstrable development by
the Company" shall be applied as at the date of termination of your employment,
or, if later, as at the date of termination of any post-employment consultation.
7.2 For a period of one (1) year after the termination of your employment
with the Company, the provisions of Section 4.2 shall be applicable to you and
you shall comply therewith.
7.3 No provision of this Agreement shall be construed to preclude you from
performing the same services which the Company hereby retains you to perform for
any person or entity which is not a Direct Competitor of the Company upon the
expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of this Agreement
or the Confidential Information Agreement.
8. Remedies.
Your obligations under the Confidential Information Agreement and the
provisions of Sections 4.2, 7, 8, 9, and 11 of this Agreement (as modified by
Section 4, if applicable) shall survive the expiration or termination of your
employment (whether through your resignation or otherwise) with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you of
the provisions of the Confidential Information Agreement or Section 4 or 7
hereof would be inadequate and you therefore agree that the
Company shall be entitled to such injunctive relief in case of any such breach
or threatened breach.
9. Arbitration
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
10. Assignment.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successor or successors of the Company by
reorganization, merger or consolidation and any assignee of all or substantially
all of its business and properties, but, except as to any such successor or
assignee of the Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or by you, except by operation or law
or by a further written agreement by the parties hereto.
11. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any one or more of the provisions contained in this Agreement is
or becomes or is deemed invalid, illegal or unenforceable or in case any shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provision shall be construed by amending,
limiting and/or reducing it to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken and the remainder of this
Agreement shall remain in full force and effect.
12. Notices.
Any notice which the Company is required to or may desire to give you shall
be given by registered or certified mail, return receipt requested, addressed to
you at your
address of record with the Company, or at such other place as you may from time
to time designate in writing. Any notice which you are required or may desire to
give to the Company hereunder shall be given by registered or certified mail,
return receipt requested, addressed to the Company at its principal office, or
at such other office as the Company may from time to time designate in writing
with a copy to Joseph Caruso, Chief Financial Officer, Palomar Medical
Technologies, Inc., 66 Cherry Hill Drive, Beverly, Massachusetts 01915 and a
copy to Stewart K. Hall, Esq., 24 Lee Street, Suite B-5, Marblehead,
Massachusetts 01945.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
14. Complete Agreement; Amendments.
The foregoing, including Exhibits A, B, C, D and E attached hereto, is the
entire agreement of the parties with respect to the subject matter hereof,
superseding any previous oral or written communications, representations,
understandings, or agreements with the Company or any officer or representative
thereof. This Agreement may be amended or modified or certain provisions waived
only by a written instrument signed by the parties hereto, upon authorization of
the Company's Board of Directors.
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
18. Certain Covenants of Palomar.
All costs and expenses in connection with the organization of the Company
and the negotiation and preparation of this Agreement, the employment agreements
of Michael Paciello, James Lucivero and Victor Melfa, the Stock Option Plan, the
assumption of the Swan Note and the transactions contemplated hereby, in an
amount reasonably acceptable to Palomar, shall be borne by Palomar.
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Confidential Information Agreement, whereupon both
agreements shall become binding in accordance with their terms. Please then
return this Agreement to the Company. (You may retain for your records the
accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
DYNASYS SYSTEMS CORPORATION
By: /s/ Steven Georgiev
--------------------------------
Steven Georgiev
Chairman of the Board of Directors
Accepted and Agreed:
/s/ Albert J. Agbay, Jr.
- -----------------------------------------
Albert J. Agbay, Jr.
Agreed, in regard to the guarantee set forth in subsection 2.2(d) and the
covenants set forth in Section 18:
Palomar Medical Technologies, Inc.
By: /s/ Steven Georgiev
----------------------------------
Title: Chairman & CEO
-------------------------------
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
Albert J. Agbay, Jr.
1. Term.
The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for five (5) years, renewing automatically each year
pursuant to Section 2.1 of the Agreement, commencing April ______, 1995, unless
terminated prior thereto in accordance with Section 2.2 or 2.3 of the Agreement.
2. Compensation.
(a) Base Salary. Your initial Base Salary shall be Two Hundred Thousand
($200,000) per annum, during the term of the Agreement, to be paid in
accordance with the Company's payroll policies and to be subject to
increases or deceases thereafter as determined in good faith by the
Company's Board of Directors or Executive Committee.
(b) Bonus. Not less than $25,000 annually, paid calendar quarterly in
arrears, thirty days after the close of the previous calendar quarter based
on revenue and profit goals as set forth below in Schedule I. All future
annual bonus goals are to be determined in good faith by the Board of
Directors.
3. Vacation.
You shall be paid for and entitled to all legal and religious holidays,
and three (3) weeks paid vacation per annum. You shall arrange for vacations in
advance at such time or times as shall be mutually agreeable to you and the
Company. Any vacation time not used in any particular year may be carried
forward into the subsequent year. You may not receive pay in lieu of vacation.
4. Insurance Benefits.
You shall be eligible for participation in any health or other group
insurance plan to be established by or for the benefit of the Company, with
benefits substantially identical to those provided to senior executive officers
of Palomar, or which the Company is required to
maintain by law. You shall also be entitled to participate in any employee
benefit program which the Company may establish for its key employees or for its
employees generally, including, but in no way limited to, bonuses and stock
purchase or option plans. Without limiting the foregoing, you shall be entitled
to participate in a 401(k) plan to be established by or for the benefit of the
Company, on terms substantially identical to those provided to senior executive
officers of Palomar. The Company shall provide comprehensive health insurance
for you and your dependents. Should your employment be terminated for any
reason, the Company will use its best efforts to allow you to assume these
policies. The Company shall provide term life insurance for you in an amount
equal to three times your annual base compensation.
5. Expenses.
The Company shall reimburse you promptly for all reasonable and
ordinary business and out-of-pocket expenses incurred by you in connection with
the Company's business and in the scope of your employment hereunder, as
approved by the Company, including, without limitation, reasonable and necessary
travel, lodging, entertainment and meals incurred by you during the term of this
Agreement, provided the expenses are incurred in furtherance of the Company's
business and at the request of the Company. You agree to keep and maintain
records of the aforesaid expenses as may be requested by the Company and to
account to the Company for the expenses prior to reimbursement.
In addition, the Company will provide you with a $1,000 monthly car
allowance to cover all car costs.
6. Stock Options.
Upon your execution of this Agreement, you shall be entitled to
receive, in addition to the foregoing compensation, (i) an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, to purchase 8,600 shares of the Company's common stock, $.01 par
value per share ("Common Stock"), exercisable for a period of ten years at a
price $.01 per share, under the Company's 1995 Stock Option Plan, a copy of
which is attached to this Employment Agreement as Exhibit D (the "Stock Option
Plan"), subject to the terms and conditions set forth in the form of Incentive
Stock Option Agreement attached to this Employment Agreement as Exhibit E (the
"ISO Agreement") and (ii) an additional incentive stock option to purchase 5,160
shares of Common Stock, subject to terms and conditions identical to those set
forth in the preceding clause (i), except that such additional options shall
vest at such time as the Company shall achieve income before income taxes
(determined in accordance with generally accepted accounting principles) in any
fiscal year or portion thereof of not less than $2,000,000. You and the Company
agree that the fair market value of one share of Common Stock on the date hereof
is $.01, which shall be the value attributed to such shares by you and the
Company for financial reporting and tax return purposes.
SCHEDULE I
TO EXHIBIT A
ANNUAL BONUS CALCULATION AND TARGET
OF
Albert J. Agbay
1. Revenue Incentive Compensation.
You shall be entitled to receive Revenue Incentive Compensation at a
rate equal to $100,000 for each $33,000,000 of revenues (determined in
accordance with generally accepted accounting principles) or portion thereof
achieved by the Company in the 12-month period commencing July 1, 1995. By way
of example, if the Company were to achieve $16,500,000 in revenues in the
12-month period commencing July 1, 1995, you shall be entitled to receive
$50,000 in Revenue Incentive Compensation; if the Company were to achieve
$66,000,000 in revenues in such period, you would be entitled to receive
$200,000 in Revenue Incentive Compensation. Revenue goals for subsequent periods
shall be mutually agreed in good faith by you and the Board.
Notwithstanding the foregoing formula, you shall be entitled to receive
not less than $25,000 annually on account of Revenue Incentive Compensation, as
a guaranteed bonus.
2. Profit/Loss Incentive Compensation.
You shall be entitled to receive Profit/Loss Incentive Compensation in
the amount of $50,000 during the first year of this Agreement, in the event the
Company achieves net operating losses of not more than ($300,000) for the period
commencing on July 1, 1995 and ending on December 31, 1995. Profit/Loss
Incentive Compensation shall be paid within 90 days after the end of each fiscal
year of the Company. Profit/Loss goals for fiscal year 1996 and thereafter shall
be mutually agreed in good faith by you and the Board.
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF
Albert J. Agbay
NONE
EXHIBIT C
----------------------------------
CONFIDENTIAL INFORMATION AGREEMENT
----------------------------------
As of April __, 1995
To: Dynasys Systems Corporation
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by companies which you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:
1. Confidentiality.
I agree to keep confidential, except as the Company may otherwise consent
in writing, and, except for the Company benefit, not to disclose or make any use
of at any time either during or subsequent to my employment, any Inventions (as
hereinafter defined), trade secrets and confidential information, knowledge,
data or other information of the Company, its parent corporation Palomar Medical
Technologies, Inc. ("Palomar") or any company owned or controlled by Palomar
relating to products, processes, know-how, techniques, methods, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
business of the Company or any of its affiliates, which I may produce, obtain,
or otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any such
trade secrets and confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or used
by any third parties without specific direction or consent of a duly authorized
representative of the Company.
2. Conflicting Employment; Return of Confidential Material.
I agree that during my employment with the Company I will not engage in any
other employment, occupation, consulting or other activity relating to the
business in which the Company is now or may hereafter become engaged, or which
would otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all
records, materials, equipment, drawings, computer disks, documents and data of
which I may obtain or produce during the course of my employment, and I will not
take with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, technologies, devices, or improvements
in any of the foregoing or other ideas, whether or not patentable or
copyrightable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) during the period of my employment with
the Company which relate in any manner to the actual or demonstrably anticipated
business, work, or research and development of the Company, or result from or
are suggested by any task assigned to me or any work performed by me or on
behalf of the Company.
3.3 Any discovery, process, design, method, technique, technology, device,
or improvement in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
whether solely or jointly with others) which I develop entirely on my own time
not using any of the Company equipment, supplies, facilities, or trade secret
information ("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i)Edoes not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (ii) does not result,
directly or indirectly, from any work performed by me or on behalf of the
Company.
4. Disclosure of Inventions.
I agree that in connection with any Invention, I will promptly disclose
such Invention to the Board of Directors and the Executive Committee of the
Company in order to permit the Company to enforce its property rights to such
Invention in accordance with this Agreement. My disclosure shall be received in
confidence by the Company.
5. Patents and Copyrights: Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for Inventions in any
and all countries. Such patent and copyrights shall be and remain the sole and
exclusive property of the Company or its
nominee. I agree to perform such lawful acts as the Company deems to be
necessary to allow it to exercise all right, title and interest in and to such
patents and copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge and
deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in the
Company or its nominee to any of the foregoing.
6. Maintenance of Records.
It is understood that all Personal Inventions if any, whether patented or
unpatented, which I made prior to my employment by the Company, are excluded
from this Agreement. To preclude any possible uncertainty, I have set forth on a
separate schedule attached hereto a complete list of all of my prior Personal
Inventions, including numbers of all patents and patent applications and a brief
description of all unpatented Personal Inventions which are not the property of
a previous employer. I represent and covenant that the list is complete and
that, if no items are on the list, I have no such prior Personal Inventions. I
agree to notify the Company in writing before I make any disclosure or perform
any work on behalf of the Company which appears to threaten or conflict with
proprietary rights I claim in any Personal Invention. In the event of my failure
to give such notice, agree that I will make no claim against the Company with
respect to any such Personal Invention.
7. Other Obligations.
I acknowledge that the Company from time to time may have agreements with
other persons, companies, entities, the U.S. Government or agencies thereof,
which impose obligations or restrictions on the Company regarding Inventions
made during the course of work thereunder or regarding the confidential nature
of such work. I agree to be bound by all such obligations and restrictions and
to take all action necessary to discharge the Company's obligations.
8. Trade Secrets of Others.
I represent that my performance of all the terms of this Agreement and as
an employee of the Company does not and will not breach any agreement to keep
confidential proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with the Company, and I will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any agreement either written or oral in
conflict herewith.
9. Modification.
I agree that any subsequent change or changes in my employment duties,
salary or compensation or, if applicable, in any Employment Agreement between
the Company and me, shall not affect the validity or scope of this Agreement.
10. Arbitration.
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives and successors.
12. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable or in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any
right arising from any breach or failure to perform shall be deemed to be a
waiver of any future such right or of any other right arising under this
Agreement.
14. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and
supersedes any prior oral or written communications, representations,
understandings or agreements concerning the subject matter hereof with the
Company or any officer or representative thereof. This Agreement may be amended,
modified, or certain provisions waived only by a written instrument signed by
the parties hereto, upon authorization of the Company's Board of Directors.
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
18. Notices.
All notices, requests, demands and communications which are or may be
required to be given hereunder shall be deemed given if and when sent by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses.
If to the Company: Dynasys Systems
Corporation
300 West Main Street
Northborough, Massachusetts 01532
With a copy to: Joseph Caruso, Chief Financial Officer
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
If to Employee: Albert J. Agbay, Jr.
15 Cranbrook Road
Shrewsbury, MA 01545
Executed as of the date first above written.
EMPLOYEE
/s/ Albert J. Agbay, Jr.
-------------------------------
Albert J. Agbay, Jr.
Accepted and Agreed:
DYNASYS SYSTEMS CORPORATION
By: /s/ Steven Georgiev
---------------------------
Steven Georgiev
Chairman of the Board of Directors
EXHIBIT 10.11
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Gerald Y. Hattori
The undersigned, Nexar Technologies Incorporation, a Delaware corporation
(the "Company"), with its principal place of business located at 182 Turnpike
Road, Westborough, Massachusetts 01581, hereby agrees with you as follows:
1. Position and Responsibilities.
1.1 You shall serve as Vice President of Finance and Chief Financial
Officer of the Company (or in such other executive capacity as shall be
designated by the CEO & Chairman) and shall perform the duties customarily
associated with such capacity from time to time and at such place or places as
the CEO & Chairman shall designate as appropriate and necessary in connection
with such employment.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and the business and affairs
of the Company. You agree to perform such executive duties as may be assigned to
you by or on authority of the Company's CEO & Chairman from time to time.
1.3 You will duly, punctually, and faithfully perform and observe any and
all rules and regulations that the Company may now or shall hereafter reasonably
establish governing your conduct as an employee and the conduct of its business.
2. Term of Employment
2.1 The term of this Agreement shall be for the period of years set forth
on Exhibit A annexed hereto. Your employment with the Company may be terminated
as provided in Sections 2.2 or 2.3.
2.2 The Company shall have the right to terminate your employment at any
time under this Agreement prior to the stated term in any of the following ways:
(a) on thirty (30) days prior written notice to you upon your death or
disability (disability shall be defined as your inability to perform duties
under this Agreement for an aggregate of ninety (90) days out of any one
hundred eighty (180) day period due to mental or physical disability);
(b) immediately without prior notice to you by the Company for Cause, as
hereinafter defined, provided, however, that prior to any such termination
for Cause, you have had a reasonable opportunity to be heard thereon;
(c) immediately without prior notice to you or Cause, in the event of the
liquidation or reorganization of the Company under the federal Bankruptcy
Act or any state insolvency or bankruptcy law;
(d) at any time without Cause, provided the Company shall be obligated to
pay to you upon notice of termination, as severance pay, a lump sum amount
equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, less applicable taxes and other required withholdings and
any amounts you may owe to the Company. If, however, a change in control of
the Company should occur causing termination of your employment without
Cause, then you shall be entitled to receive as severance pay a lump sum
amount equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, or an amount equal to the salary due to you under the
terms of this contract at the time of termination, whichever is less. For
purposes of this Agreement "change of control" shall be deemed to be the
sale of all or substantially all of the stock or assets of the Company or
the merger of the Company with another entity where the other entity
survives the merger. Palomar Medical Technologies, Inc., parent company of
the Company, hereby agrees to guarantee payment of the severance pay
described above in this Section 2.2(d).
2.3 You shall have the right to terminate your employment hereunder for any
reason, upon not less than ninety (90) days' prior written notice to the
Company.
2.4 "Cause" for the purpose of Section 2 of this Agreement shall mean: (i)
the falseness or material inaccuracy of any of your warranties or
representations herein; (ii) your willful failure or refusal to comply with
explicit directives of the Chairman of the Board or President or to render the
services required herein; (iii) fraud or embezzlement involving assets of the
Company, its customers, suppliers or affiliates or other misappropriation of the
Company's assets or funds; (iv) your conviction of a criminal felony offense;
(v) the willful breach or habitual neglect of your obligations under this
Agreement or your duties as an employee of the Company; (vi) habitual use of
drugs or insanity. The existence of Cause for termination of your employment by
the Company shall be subject, upon the written election by you or the Company,
to binding arbitration as provided in Section 9 hereof. The cost of arbitration,
exclusive of the cost of each party's legal representation (which, except as
hereinafter otherwise provided, shall be borne by the party incurring the
expense), shall be borne by the instigating party; provided, however, that the
arbitrators' award may require either party to reimburse the other for the
reasonable cost of legal representation in the arbitration proceedings.
Further, any dispute, controversy, or claim arising out of, in connection
with or in relation to this definition of "Cause" shall be settled by
arbitration as provided in Section 9 hereof. Any award or determination shall be
final, binding, and conclusive upon the parties, and a judgment rendered may be
entered in any court having jurisdiction thereof.
2.5 If your employment is terminated because of your death, pursuant to
subsection 2.2(a), all obligations of the Company hereunder cease, except with
respect to amounts and obligations accrued to you through the last day of the
month during which your death has occurred.
If your employment is terminated by the Company for any other reason,
pursuant to subsection 2.2(b), (c), or (d) above, all obligations of the Company
(except with respect to amounts and obligations accrued to you prior to the date
of termination) shall cease.
3. Compensation
You shall receive the compensation and benefits set forth on Exhibit A
attached hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Confidential
Information Agreement"). Such Compensation shall be subject to temporary or
permanent reduction by the Board of Directors or Executive Committee if the
Board or Committee shall determine in good faith that economic conditions so
warrant.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently held by
you as listed on Exhibit B attached hereto, and except with the prior written
consent of a disinterested majority of the Company's Board of Directors, which
consent will not be unreasonably withheld, you will not, during the term of this
Agreement, undertake or engage in any other employment, occupation or business
enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B attached
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (i) individually, (ii) as an officer, (iii) as a director, (iv) as an
employee, (v) as a consultant, (vi) as an advisor, (vii) as an agent (whether a
salesperson or otherwise), (viii) as a broker, or (ix) as a partner, covenantor,
stockholder or other proprietor owning directly or indirectly more than five
percent (5) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged in the planning, research, development,
production, manufacture, marketing, sales, or distribution of products,
equipment, or services similar to those produced by the Company, its parent
corporation Palomar Medical Technologies, Inc. ("Palomar") or any company owned
or controlled by Palomar, (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
3
"Prohibited Enterprise"). Except as may be shown on Exhibit B attached hereto,
you hereby represent that you are not engaged in any of the foregoing capacities
(i) through (ix) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior or current employment,
consulting agreement or relationship whether oral or written. You represent and
warrant that you do not possess confidential information arising out of any such
employment, consulting agreement or relationship which, in your best judgment,
would be utilized in connection with your employment by the Company in the
absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions.
You agree to execute, deliver and be bound by the provisions of the
Confidential Information Agreement attached hereto as Exhibit C.
7. Post-Employment Activities.
7.1 For a period of one (1) year after the termination or expiration, for
any reason, of your employment with the Company hereunder, absent the Board of
Directors' prior written approval, you will not directly or indirectly engage in
activities similar to those described in Section 4.2, nor render services
similar or reasonably related to those which you shall have rendered hereunder
to, any person or entity whether now existing or hereafter established which
directly competes with (or proposes or plans to directly compete with) the
Company ("Direct Competitor") in the same or similar business. Nor shall you
entice, induce or encourage any of the Company's other employees to engage in
any activity which, were it done by you, would violate any provision of the
Confidential Information Agreement or this Section 7. As used in this Agreement,
the term "any line of business engaged in or under demonstrable development by
the Company" shall be applied as at the date of termination of your employment,
or, if later, as at the date of termination of any post-employment consultation.
4
7.2 For a period of one (1) year after the termination of your employment
with the Company, the provisions of Section 4.2 shall be applicable to you and
you shall comply therewith.
7.3 No provision of this Agreement shall be construed to preclude you from
performing the same services which the Company hereby retains you to perform for
any person or entity which is not a Direct Competitor of the Company upon the
expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of this Agreement
or the Confidential Information Agreement.
8. Remedies.
Your obligations under the Confidential Information Agreement and the
provisions of Sections 4.2, 7, 8, 9, and 11 of this Agreement (as modified by
Section 4, if applicable) shall survive the expiration or termination of your
employment (whether through your resignation or otherwise) with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you of
the provisions of the Confidential Information Agreement or Section 4 or 7
hereof would be inadequate and you therefore agree that the Company shall be
entitled to such injunctive relief in case of any such breach or threatened
breach.
9. Arbitration
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
10. Assignment.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successor or successors of the Company by
reorganization, merger or consolidation and any assignee of all or substantially
all of its business and properties, but, except as to any such successor or
assignee of the Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or by you, except by operation or law
or by a further written agreement by the parties hereto.
5
11. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any one or more of the provisions contained in this Agreement is
or becomes or is deemed invalid, illegal or unenforceable or in case any shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provision shall be construed by amending,
limiting and/or reducing it to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken and the remainder of this
Agreement shall remain in full force and effect.
12. Notices.
Any notice which the Company is required to or may desire to give you shall
be given by registered or certified mail, return receipt requested, addressed to
you at your address of record with the Company, or at such other place as you
may from time to time designate in writing. Any notice which you are required or
may desire to give to the Company hereunder shall be given by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing, to the attention of the Chairman and the President of the
Company, with a copy to Joseph Caruso, Chief Financial Officer, Palomar Medical
Technologies, Inc., 66 Cherry Hill Drive, Beverly, Massachusetts 01915.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
14. Complete Agreement; Amendments.
The foregoing, including Exhibits A and B and C attached hereto, is the
entire agreement of the parties with respect to the subject matter hereof,
superseding any previous oral or written communications, representations,
understandings, or agreements with the Company or any officer or representative
thereof. This Agreement may be amended or modified or certain provisions waived
only by a written instrument signed by the parties hereto, upon authorization of
the Company's Board of Directors.
6
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
7
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Confidential Information Agreement, whereupon both
agreements shall become binding in accordance with their terms. Please then
return this Agreement to the Company. (You may retain for your records the
accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
NEXAR TECHNOLOGIES, INC.
By: /s/ Albert J.Agbay
--------------------------------
Albert J. Agbay, Chairman & CEO
Accepted and Agreed:
/s/ Gerald Y. Hattori
- --------------------------
Gerald Y. Hattori
Agreed, in regard to the guarantee set forth in subsection 2.2(d):
Palomar Medical Technologies, Inc.
By: /s/ Steven Georgiev
----------------------------
Title: Chairman &CEO
--------------------------
8
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
Gerald Y. Hattori
1. Term.
The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for 1 (one) year, commencing September 30, 1996, unless
terminated prior thereto in accordance with Section 2.2 or 2.3 of the Agreement.
2. Compensation.
(a) Base Salary. Your initial Base Salary shall be One Hundred Ten Thousand
Dollars ($110,000) per annum, during the term of the Agreement, to be paid
in accordance with the Company's payroll policies and to be subject to
increases or deceases thereafter as determined in good faith by the
Company's Board of Directors or Executive Committee.
(b) Bonus. The amount set forth on Schedule I. The Revenue Incentive Plan
paid calendar quarterly in arrears, thirty days after the close of the
previous calendar quarter based on revenue performance. The Profit/Loss
Incentive Plan paid annually within 90 days after the close of the calendar
year based on profit performance to plan. All future annual bonus goals are
to be determinied in good faith by the Board of Directors.
(c) Lump Sum Severance Pursuant to Section 2.2(d) of the Agreement: 6
months Base Salary.
(d) Car Allowance of $500 per month.
(e) Non-recoverable guaranteed draw against commissions equal to 50% of
monthly revenue quota during initial ninety (90) days of employment.
3. Vacation.
You shall be paid for and entitled to all legal and religious holidays,
and three (3) weeks paid vacation per annum. You shall arrange for vacations in
advance at such time or times as shall be mutually agreeable to you and the
Company. Any vacation time not used in
A-1
any particular year may be carried forward into the subsequent year. You may not
receive pay in lieu of vacation.
4. Insurance Benefits.
You shall be eligible for participation in any health or other group
insurance plan to be established by or for the benefit of the Company, with
benefits substantially identical to those provided to executive officers of
Palomar, or which the Company is required to maintain by law. You shall also be
entitled to participate in any employee benefit program which the Company may
establish for its key employees or for its employees generally, including, but
in no way limited to, bonuses and stock purchase or option plans. Without
limiting the foregoing, you shall be entitled to participate in a 401(k) plan to
be established by or for the benefit of the Company, on terms substantially
identical to those provided to executive officers of Palomar. The Company shall
provide comprehensive health insurance for you and your dependents, starting
your first day of employment, which may result in NEXAR paying your COBRA
premiums until you are enrolled in our established plan. Should your employment
be terminated for any reason, the Company will use its best efforts to allow you
to assume these policies. The Company shall provide term life insurance for you
in an amount equal to three times your annual base compensation.
5. Expenses.
The Company shall reimburse you promptly for all reasonable and
ordinary business and out-of-pocket expenses incurred by you in connection with
the Company's business and in the scope of your employment hereunder, as
approved by the Company, including, without limitation, reasonable and necessary
travel, lodging, entertainment and meals incurred by you during the term of this
Agreement, provided the expenses are incurred in furtherance of the Company's
business and at the request of the Company. You agree to keep and maintain
records of the aforesaid expenses as may be requested by the Company and to
account to the Company for the expenses prior to reimbursement.
6. Stock Options.
Upon your execution of this Agreement, you shall be entitled to
receive, in addition to the foregoing compensation, an "incentive stock option"
within the meaning of Section 422 of the Internal Revenue Code of 1986, as
amended, to purchase up to one hundred thousand (100,000) shares of NEXAR
Technologies, Inc. stock at eighty-five (85%) percent of the IPO validation at
the time of a NEXAR Technologies, Inc. official Initial Public Offering, under
the Company's 1996 Stock Option Plan, subject to the terms and conditions set
forth for similiar executives within the Company.
A-2
SCHEDULE I
TO EXHIBIT A
ANNUAL BONUS CALCULATION AND TARGET
OF
Gerald Y. Hattori
1. Revenue Incentive Compensation.
You shall be entitled to receive Revenue Incentive Compensation at a
rate equal to $20,000 for each $46,000,000 of revenues (determined in accordance
with generally accepted accounting principles) or portion thereof achieved by
the Company in the 12-month period commencing January 1, 1996. By way of
example, if the Company were to achieve 23,000,000 in revenues in the 12-month
period commencing January 1, 1996, you shall be entitled to receive $10,000 in
Revenue Incentive Compensation; if the Company were to achieve $92,000,000 in
revenues in such period, you would be entitled to receive $40,000 in Revenue
Incentive Compensation. Revenue goals for subsequent periods shall be mutually
agreed in good faith by you and the Chairman and CEO.
2. Profit/Loss Incentive Compensation.
You shall be entitled to receive Profit/Loss Incentive Compensation in
the amount of $5,000 during the first year of this Agreement, in the event the
Company achieves net operating losses of not more than $2,212,000 for the period
commencing on January 1, 1996 and ending on December 31, 1996. Profit/Loss
Incentive Compensation shall be paid within 90 days after the end of each fiscal
year of the Company. Profit/Loss goals for fiscal year 1997 and thereafter shall
be mutually agreed in good faith by you and the Chairman and CEO.
A-3
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF
Gerald Y. Hattori
NONE
B-1
EXHIBIT C
----------------------------------
CONFIDENTIAL INFORMATION AGREEMENT
----------------------------------
As of September 30, 1996
To: Nexar Technologies Incorporated
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by companies which you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:
1. Confidentiality.
I agree to keep confidential, except as the Company may otherwise consent
in writing, and, except for the Company benefit, not to disclose or make any use
of at any time either during or subsequent to my employment, any Inventions (as
hereinafter defined), trade secrets and confidential information, knowledge,
data or other information of the Company, its parent corporation Palomar Medical
Technologies, Inc. ("Palomar") or any company owned or controlled by Palomar
relating to products, processes, know-how, techniques, methods, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
business of the Company or any of its affiliates, which I may produce, obtain,
or otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any such
trade secrets and confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or used
by any third parties without specific direction or consent of a duly authorized
representative of the Company.
2. Conflicting Employment; Return of Confidential Material.
I agree that during my employment with the Company I will not engage in any
other employment, occupation, consulting or other activity relating to the
business in which the Company is now or may hereafter become engaged, or which
would otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all
C-1
records, materials, equipment, drawings, computer disks, documents and data of
which I may obtain or produce during the course of my employment, and I will not
take with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, technologies, devices, or improvements
in any of the foregoing or other ideas, whether or not patentable or
copyrightable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) during the period of my employment with
the Company which relate in any manner to the actual or demonstrably anticipated
business, work, or research and development of the Company, or result from or
are suggested by any task assigned to me or any work performed by me or on
behalf of the Company.
3.3 Any discovery, process, design, method, technique, technology, device,
or improvement in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
whether solely or jointly with others) which I develop entirely on my own time
not using any of the Company equipment, supplies, facilities, or trade secret
information ("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i)Edoes not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (ii) does not result,
directly or indirectly, from any work performed by me or on behalf of the
Company.
4. Disclosure of Inventions.
I agree that in connection with any Invention, I will promptly disclose
such Invention to the Board of Directors and the Executive Committee of the
Company in order to permit the Company to enforce its property rights to such
Invention in accordance with this Agreement. My disclosure shall be received in
confidence by the Company.
5. Patents and Copyrights: Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for Inventions in any
and all countries. Such patent and copyrights shall be and remain the sole and
exclusive property of the Company or its
C-2
nominee. I agree to perform such lawful acts as the Company deems to be
necessary to allow it to exercise all right, title and interest in and to such
patents and copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge and
deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in the
Company or its nominee to any of the foregoing.
6. Maintenance of Records.
It is understood that all Personal Inventions if any, whether patented or
unpatented, which I made prior to my employment by the Company, are excluded
from this Agreement. To preclude any possible uncertainty, I have set forth on a
separate schedule attached hereto a complete list of all of my prior Personal
Inventions, including numbers of all patents and patent applications and a brief
description of all unpatented Personal Inventions which are not the property of
a previous employer. I represent and covenant that the list is complete and
that, if no items are on the list, I have no such prior Personal Inventions. I
agree to notify the Company in writing before I make any disclosure or perform
any work on behalf of the Company which appears to threaten or conflict with
proprietary rights I claim in any Personal Invention. In the event of my failure
to give such notice, agree that I will make no claim against the Company with
respect to any such Personal Invention.
7. Other Obligations.
I acknowledge that the Company from time to time may have agreements with
other persons, companies, entities, the U.S. Government or agencies thereof,
which impose obligations or restrictions on the Company regarding Inventions
made during the course of work thereunder or regarding the confidential nature
of such work. I agree to be bound by all such obligations and restrictions and
to take all action necessary to discharge the Company's obligations.
8. Trade Secrets of Others.
I represent that my performance of all the terms of this Agreement and as
an employee of the Company does not and will not breach any agreement to keep
confidential proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with the Company, and I will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any agreement either written or oral in
conflict herewith.
C-3
9. Modification.
I agree that any subsequent change or changes in my employment duties,
salary or compensation or, if applicable, in any Employment Agreement between
the Company and me, shall not affect the validity or scope of this Agreement.
10. Arbitration.
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives and successors.
12. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable or in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any
C-4
right arising from any breach or failure to perform shall be deemed to be a
waiver of any future such right or of any other right arising under this
Agreement.
14. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and
supersedes any prior oral or written communications, representations,
understandings or agreements concerning the subject matter hereof with the
Company or any officer or representative thereof. This Agreement may be amended,
modified, or certain provisions waived only by a written instrument signed by
the parties hereto, upon authorization of the Company's Board of Directors.
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
18. Notices.
All notices, requests, demands and communications which are or may be
required to be given hereunder shall be deemed given if and when sent by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses.
If to the Company: Nexar Technologies Incorporated
182 Turnpike Road
Westborough, MA 01581
Attention: President
C-5
With a copy to: Joseph Caruso, Chief Financial Officer
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
If to Employee: Gerald Y. Hattori
13 Judy Drive
Londonderry, NH 03053
Executed as of the date first above written.
EMPLOYEE
/s/ Gerald Y. Hattori
---------------------
(Signature of Employee)
Gerald Y. Hattori
---------------------
Print Name
Accepted and Agreed:
NEXAR TECHNOLOGIES, INC.
By: /s/ Albert J. Agbay
------------------------
Albert J. Agbay, President
C-6
EXHIBIT 10.12
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Michael J. Paciello
The undersigned, Dynasys Systems Corporation, a Delaware corporation (the
"Company"), with its principal place of business located at 300 West Main
Street, Northborough, Massachusetts 01532, hereby agrees with you as follows:
1. Position and Responsibilities.
1.1 You shall serve as Executive Vice President of the Company (or in such
other executive capacity as shall be designated by the Chairman of the Board or
Directors of the President of the Company) and shall perform the duties
customarily associated with such capacity from time to time and at such place or
places as the Chairman of the Board or President of the Company shall designate
as appropriate and necessary in connection with such employment.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and the business and affairs
of the Company. You agree to perform such executive duties as may be assigned to
you by or on authority of the Company's Chairman of the Board or President from
time to time.
1.3 You will duly, punctually, and faithfully perform and observe any and
all rules and regulations that the Company may now or shall hereafter reasonably
establish governing your conduct as an employee and the conduct of its business.
2. Term of Employment
2.1 The term of this Agreement shall be for the period of years set forth
on Exhibit A annexed hereto. Your employment with the Company may be terminated
as provided in Sections 2.2 or 2.3.
2.2 The Company shall have the right to terminate your employment at any
time under this Agreement prior to the stated term in any of the following ways:
(a) on thirty (30) days prior written notice to you upon your death or
disability (disability shall be defined as your inability to perform duties
under this Agreement for an aggregate of ninety (90) days out of any one
hundred eighty (180) day period due to mental or physical disability);
(b) immediately without prior notice to you by the Company for Cause, as
hereinafter defined, provided, however, that prior to any such termination
for Cause, you have had a reasonable opportunity to be heard thereon;
(c) immediately without prior notice to you or Cause, in the event of the
liquidation or reorganization of the Company under the federal Bankruptcy
Act or any state insolvency or bankruptcy law;
(d) at any time without Cause, provided the Company shall be obligated to
pay to you upon notice of termination, as severance pay, a lump sum amount
equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, less applicable taxes and other required withholdings and
any amounts you may owe to the Company. If, however, a change in control of
the Company should occur causing termination of your employment without
Cause, then you shall be entitled to receive as severance pay a lump sum
amount equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, or an amount equal to the salary due to you under the
terms of this contract at the time of termination, whichever is less. For
purposes of this Agreement "change of control" shall be deemed to be the
sale of all or substantially all of the stock or assets of the Company or
the merger of the Company with another entity where the other entity
survives the merger. Palomar Medical Technologies, Inc., parent company of
the Company, hereby agrees to guarantee payment of the severance pay
described above in this Section 2.2(d).
2.3 You shall have the right to terminate your employment hereunder for any
reason, upon not less than ninety (90) days' prior written notice to the
Company.
2.4 "Cause" for the purpose of Section 2 of this Agreement shall mean: (i)
the falseness or material inaccuracy of any of your warranties or
representations herein; (ii) your willful failure or refusal to comply with
explicit directives of the Chairman of the Board or President or to render the
services required herein; (iii) fraud or embezzlement involving assets of the
Company, its customers, suppliers or affiliates or other misappropriation of the
Company's assets or funds; (iv) your conviction of a criminal felony offense;
(v) the willful breach or habitual neglect of your obligations under this
Agreement or your duties as an employee of the Company; (vi) habitual use of
drugs or insanity. The existence of Cause for termination of your employment by
the Company shall be subject, upon the written election by you or the Company,
to binding arbitration as provided in Section 9 hereof. The cost of arbitration,
exclusive of the cost of each party's legal representation (which, except as
hereinafter otherwise provided, shall be borne by the party incurring the
expense), shall be borne by the instigating party; provided, however, that the
arbitrators' award may require either party to reimburse the other for the
reasonable cost of legal representation in the arbitration proceedings.
Further, any dispute, controversy, or claim arising out of, in connection
with or in relation to this definition of "Cause" shall be settled by
arbitration as provided in Section 9 hereof. Any award or determination shall be
final, binding, and conclusive upon the parties, and a judgment rendered may be
entered in any court having jurisdiction thereof.
2.5 If your employment is terminated because of your death, pursuant to
subsection 2.2(a), all obligations of the Company hereunder cease, except with
respect to amounts and obligations accrued to you through the last day of the
month during which your death has occurred.
If your employment is terminated by the Company for any other reason,
pursuant to subsection 2.2(b), (c), or (d) above, all obligations of the Company
(except with respect to amounts and obligations accrued to you prior to the date
of termination) shall cease.
3. Compensation
You shall receive the compensation and benefits set forth on Exhibit A
attached hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Confidential
Information Agreement"). Such Compensation shall be subject to temporary or
permanent reduction by the Board of Directors or Executive Committee if the
Board or Committee shall determine in good faith that economic conditions so
warrant.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently held by
you as listed on Exhibit B attached hereto, and except with the prior written
consent of a disinterested majority of the Company's Board of Directors, which
consent will not be unreasonably withheld, you will not, during the term of this
Agreement, undertake or engage in any other employment, occupation or business
enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B attached
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (i) individually, (ii) as an officer, (iii) as a director, (iv) as an
employee, (v) as a consultant, (vi) as an advisor, (vii) as an agent (whether a
salesperson or otherwise), (viii) as a broker, or (ix) as a partner, covenantor,
stockholder or other proprietor owning directly or indirectly more than five
percent (5) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged in the planning, research, development,
production, manufacture, marketing, sales, or distribution of products,
equipment, or services similar to those produced by the Company, its parent
corporation Palomar Medical Technologies, Inc. ("Palomar") or any company owned
or controlled by Palomar, (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
3
"Prohibited Enterprise"). Except as may be shown on Exhibit B attached hereto,
you hereby represent that you are not engaged in any of the foregoing capacities
(i) through (ix) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior or current employment,
consulting agreement or relationship whether oral or written. You represent and
warrant that you do not possess confidential information arising out of any such
employment, consulting agreement or relationship which, in your best judgment,
would be utilized in connection with your employment by the Company in the
absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions.
You agree to execute, deliver and be bound by the provisions of the
Confidential Information Agreement attached hereto as Exhibit C.
7. Post-Employment Activities.
7.1 For a period of one (1) year after the termination or expiration, for
any reason, of your employment with the Company hereunder, absent the Board of
Directors' prior written approval, you will not directly or indirectly engage in
activities similar to those described in Section 4.2, nor render services
similar or reasonably related to those which you shall have rendered hereunder
to, any person or entity whether now existing or hereafter established which
directly competes with (or proposes or plans to directly compete with) the
Company ("Direct Competitor") in the same or similar business. Nor shall you
entice, induce or encourage any of the Company's other employees to engage in
any activity which, were it done by you, would violate any provision of the
Confidential Information Agreement or this Section 7. As used in this Agreement,
the term "any line of business engaged in or under demonstrable development by
the Company" shall be applied as at the date of termination of your employment,
or, if later, as at the date of termination of any post-employment consultation.
4
7.2 For a period of one (1) year after the termination of your employment
with the Company, the provisions of Section 4.2 shall be applicable to you and
you shall comply therewith.
7.3 No provision of this Agreement shall be construed to preclude you from
performing the same services which the Company hereby retains you to perform for
any person or entity which is not a Direct Competitor of the Company upon the
expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of this Agreement
or the Confidential Information Agreement.
8. Remedies.
Your obligations under the Confidential Information Agreement and the
provisions of Sections 4.2, 7, 8, 9, and 11 of this Agreement (as modified by
Section 4, if applicable) shall survive the expiration or termination of your
employment (whether through your resignation or otherwise) with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you of
the provisions of the Confidential Information Agreement or Section 4 or 7
hereof would be inadequate and you therefore agree that the Company shall be
entitled to such injunctive relief in case of any such breach or threatened
breach.
9. Arbitration
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
10. Assignment.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successor or successors of the Company by
reorganization, merger or consolidation and any assignee of all or substantially
all of its business and properties, but, except as to any such successor or
assignee of the Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or by you, except by operation or law
or by a further written agreement by the parties hereto.
5
11. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any one or more of the provisions contained in this Agreement is
or becomes or is deemed invalid, illegal or unenforceable or in case any shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provision shall be construed by amending,
limiting and/or reducing it to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken and the remainder of this
Agreement shall remain in full force and effect.
12. Notices.
Any notice which the Company is required to or may desire to give you shall
be given by registered or certified mail, return receipt requested, addressed to
you at your address of record with the Company, or at such other place as you
may from time to time designate in writing. Any notice which you are required or
may desire to give to the Company hereunder shall be given by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing, to the attention of the Chairman and the President of the
Company, with a copy to Joseph Caruso, Chief Financial Officer, Palomar Medical
Technologies, Inc., 66 Cherry Hill Drive, Beverly, Massachusetts 01915.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
14. Complete Agreement; Amendments.
The foregoing, including Exhibits A and B and C attached hereto, is the
entire agreement of the parties with respect to the subject matter hereof,
superseding any previous oral or written communications, representations,
understandings, or agreements with the Company or any officer or representative
thereof. This Agreement may be amended or modified or certain provisions waived
only by a written instrument signed by the parties hereto, upon authorization of
the Company's Board of Directors.
6
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
7
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Confidential Information Agreement, whereupon both
agreements shall become binding in accordance with their terms. Please then
return this Agreement to the Company. (You may retain for your records the
accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
DYNASYS SYSTEMS CORPORATION
By: /s/ Steven Georgiev
-------------------------
Steven Georgiev
Chairman of the Board of Directors
Accepted and Agreed:
/s/ Michael J. Paciello 5-19-95
- --------------------------------------
Michael J. Paciello
Agreed, in regard to the guarantee set forth in subsection 2.2(d):
Palomar Medical Technologies, Inc.
By: /s/ Steven Georgiev
------------------------------
Title: Chairman & CEO
-----------------------------
8
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
Michael J. Paciello
1. Term.
The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for 2 years, commencing __________, 1995 unless terminated
prior thereto in accordance with Section 2.2 or 2.3 of the Agreement.
2. Compensation.
(a) Base Salary. Your initial Base Salary shall be One Hundred Ten Thousand
Dollars ($110,000) per annum, during the term of the Agreement, to be paid
in accordance with the Company's payroll policies and to be subject to
increases or deceases thereafter as determined in good faith by the
Company's Board of Directors or Executive Committee.
(b) Bonus. The amount set forth on Schedule I, annually, paid calendar
quarterly in arrears, thirty days after the close of the previous calendar
quarter based on revenue and profit goals as set forth below in Schedule I.
All future annual bonus goals are to be determined in good faith by the
Board of Directors.
(c) Lump Sum Severance Pursuant to Section 2.2(d) of the Agreement: 6
months Base Salary.
3. Vacation.
You shall be paid for and entitled to all legal and religious holidays,
and three (3) weeks paid vacation per annum. You shall arrange for vacations in
advance at such time or times as shall be mutually agreeable to you and the
Company. Any vacation time not used in any particular year may be carried
forward into the subsequent year. You may not receive pay in lieu of vacation.
A-1
4. Insurance Benefits.
You shall be eligible for participation in any health or other group
insurance plan to be established by or for the benefit of the Company, with
benefits substantially identical to those provided to executive officers of
Palomar, or which the Company is required to maintain by law. You shall also be
entitled to participate in any employee benefit program which the Company may
establish for its key employees or for its employees generally, including, but
in no way limited to, bonuses and stock purchase or option plans. Without
limiting the foregoing, you shall be entitled to participate in a 401(k) plan to
be established by or for the benefit of the Company, on terms substantially
identical to those provided to executive officers of Palomar. The Company shall
provide comprehensive health insurance for you and your dependents. Should your
employment be terminated for any reason, the Company will use its best efforts
to allow you to assume these policies. The Company shall provide term life
insurance for you in an amount equal to three times your annual base
compensation.
5. Expenses.
The Company shall reimburse you promptly for all reasonable and
ordinary business and out-of-pocket expenses incurred by you in connection with
the Company's business and in the scope of your employment hereunder, as
approved by the Company, including, without limitation, reasonable and necessary
travel, lodging, entertainment and meals incurred by you during the term of this
Agreement, provided the expenses are incurred in furtherance of the Company's
business and at the request of the Company. You agree to keep and maintain
records of the aforesaid expenses as may be requested by the Company and to
account to the Company for the expenses prior to reimbursement.
6. Stock Options.
Upon your execution of this Agreement, you shall be entitled to
receive, in addition to the foregoing compensation, (i) an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, to purchase 2,580 shares of the Company's common stock, $.01 par
value per share ("Common Stock"), exercisable for a period of ten years at a
price $.01 per share, under the Company's 1995 Stock Option Plan, subject to the
terms and conditions set forth in the Company's standard form of Incentive Stock
Option Agreement and (ii) an additional incentive stock option to purchase 860
shares of Common Stock, subject to terms and conditions identical to those set
forth in the preceding clause (i), except that such additional options shall
vest at such time as the Company shall achieve income before income taxes
(determined in accordance with generally accepted accounting principles) in any
fiscal year or portion thereof of not less than $2,000,000. You and the Company
agree that the fair market value of one share of Common Stock on the date hereof
is $.01, which shall be the value attributed to such shares by you and the
Company for financial reporting and tax return purposes.
A-2
SCHEDULE I
TO EXHIBIT A
ANNUAL BONUS CALCULATION AND TARGET
OF
Michael J. Paciello
1. Revenue Incentive Compensation.
You shall be entitled to receive Revenue Incentive Compensation at a
rate equal to $52,000 for each $33,000,000 of revenues (determined in accordance
with generally accepted accounting principles) or portion thereof achieved by
the Company in the 12-month period commencing ___________, 1995. By way of
example, if the Company were to achieve 16,500,000 in revenues in the 12-month
period commencing __________, 1995, you shall be entitled to receive $26,000 in
Revenue Incentive Compensation; if the Company were to achieve $66,000,000 in
revenues in such period, you would be entitled to receive $104,000 in Revenue
Incentive Compensation. Revenue goals for subsequent periods shall be mutually
agreed in good faith by you and the Chairman and President.
2. Profit/Loss Incentive Compensation.
You shall be entitled to receive Profit/Loss Incentive Compensation in
the amount of $13,000 during the first year of this Agreement, in the event the
Company achieves net operating losses of not more than ($300,000) for the period
commencing on _____________, 1995 and ending on December 31, 1995. Profit/Loss
Incentive Compensation shall be paid within 90 days after the end of each fiscal
year of the Company. Profit/Loss goals for fiscal year 1996 and thereafter shall
be mutually agreed in good faith by you and the Chairman and President.
A-3
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF
Michael J. Paciello
NONE
B-1
EXHIBIT C
----------------------------------
CONFIDENTIAL INFORMATION AGREEMENT
----------------------------------
As of ________ __, 1995
To: Dynasys Systems Corporation
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by companies which you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:
1. Confidentiality.
I agree to keep confidential, except as the Company may otherwise consent
in writing, and, except for the Company benefit, not to disclose or make any use
of at any time either during or subsequent to my employment, any Inventions (as
hereinafter defined), trade secrets and confidential information, knowledge,
data or other information of the Company, its parent corporation Palomar Medical
Technologies, Inc. ("Palomar") or any company owned or controlled by Palomar
relating to products, processes, know-how, techniques, methods, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
business of the Company or any of its affiliates, which I may produce, obtain,
or otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any such
trade secrets and confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or used
by any third parties without specific direction or consent of a duly authorized
representative of the Company.
2. Conflicting Employment; Return of Confidential Material.
I agree that during my employment with the Company I will not engage in any
other employment, occupation, consulting or other activity relating to the
business in which the Company is now or may hereafter become engaged, or which
would otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all
C-1
records, materials, equipment, drawings, computer disks, documents and data of
which I may obtain or produce during the course of my employment, and I will not
take with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, technologies, devices, or improvements
in any of the foregoing or other ideas, whether or not patentable or
copyrightable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) during the period of my employment with
the Company which relate in any manner to the actual or demonstrably anticipated
business, work, or research and development of the Company, or result from or
are suggested by any task assigned to me or any work performed by me or on
behalf of the Company.
3.3 Any discovery, process, design, method, technique, technology, device,
or improvement in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
whether solely or jointly with others) which I develop entirely on my own time
not using any of the Company equipment, supplies, facilities, or trade secret
information ("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i)Edoes not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (ii) does not result,
directly or indirectly, from any work performed by me or on behalf of the
Company.
4. Disclosure of Inventions.
I agree that in connection with any Invention, I will promptly disclose
such Invention to the Board of Directors and the Executive Committee of the
Company in order to permit the Company to enforce its property rights to such
Invention in accordance with this Agreement. My disclosure shall be received in
confidence by the Company.
5. Patents and Copyrights: Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for Inventions in any
and all countries. Such patent and copyrights shall be and remain the sole and
exclusive property of the Company or its
C-2
nominee. I agree to perform such lawful acts as the Company deems to be
necessary to allow it to exercise all right, title and interest in and to such
patents and copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge and
deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in the
Company or its nominee to any of the foregoing.
6. Maintenance of Records.
It is understood that all Personal Inventions if any, whether patented or
unpatented, which I made prior to my employment by the Company, are excluded
from this Agreement. To preclude any possible uncertainty, I have set forth on a
separate schedule attached hereto a complete list of all of my prior Personal
Inventions, including numbers of all patents and patent applications and a brief
description of all unpatented Personal Inventions which are not the property of
a previous employer. I represent and covenant that the list is complete and
that, if no items are on the list, I have no such prior Personal Inventions. I
agree to notify the Company in writing before I make any disclosure or perform
any work on behalf of the Company which appears to threaten or conflict with
proprietary rights I claim in any Personal Invention. In the event of my failure
to give such notice, agree that I will make no claim against the Company with
respect to any such Personal Invention.
7. Other Obligations.
I acknowledge that the Company from time to time may have agreements with
other persons, companies, entities, the U.S. Government or agencies thereof,
which impose obligations or restrictions on the Company regarding Inventions
made during the course of work thereunder or regarding the confidential nature
of such work. I agree to be bound by all such obligations and restrictions and
to take all action necessary to discharge the Company's obligations.
8. Trade Secrets of Others.
I represent that my performance of all the terms of this Agreement and as
an employee of the Company does not and will not breach any agreement to keep
confidential proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with the Company, and I will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any agreement either written or oral in
conflict herewith.
C-3
9. Modification.
I agree that any subsequent change or changes in my employment duties,
salary or compensation or, if applicable, in any Employment Agreement between
the Company and me, shall not affect the validity or scope of this Agreement.
10. Arbitration.
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives and successors.
12. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable or in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any
C-4
right arising from any breach or failure to perform shall be deemed to be a
waiver of any future such right or of any other right arising under this
Agreement.
14. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and
supersedes any prior oral or written communications, representations,
understandings or agreements concerning the subject matter hereof with the
Company or any officer or representative thereof. This Agreement may be amended,
modified, or certain provisions waived only by a written instrument signed by
the parties hereto, upon authorization of the Company's Board of Directors.
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
18. Notices.
All notices, requests, demands and communications which are or may be
required to be given hereunder shall be deemed given if and when sent by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses.
If to the Company: Dynasys Systems Corporation
300 West Main Street
Northborough, MA 01532
Attention: Chairman and President
C-5
With a copy to: Joseph Caruso, Chief Financial Officer
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
If to Employee: -------------------------
-------------------------
-------------------------
Executed as of the date first above written.
EMPLOYEE
/s/ Michael J. Paciello 5-19-95
-----------------------------------------
Michael J. Paciello
Accepted and Agreed:
DYNASYS SYSTEMS CORPORATION
By: /s/ Steven Georgiev
---------------------------------------
Chairman of the Board of Directors
Chairman of the Board of Directors
C-6
EXHIBIT 10.13
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Liaqat Khan
The undersigned, Dynasys/Intelligent Systems Corporation, a Delaware
corporation (the "Company"), with its principal place of business located at 300
West Main Street, Northborough, Massachusetts 01532, hereby agrees with you as
follows:
1. Position and Responsibilities.
1.1 You shall serve as Vice President of Manufacturing of Dynasys Systems
Corporation and Executive Vice President of Product Development of the Company
(or in such other executive capacity as shall be designated by the Chairman of
the Board of Directors or the President of the Company) and shall perform the
duties customarily associated with such capacity from time to time and at such
place or places in Northern California as the Chairman of the Board or President
of the Company shall designate as appropriate and necessary in connection with
such employment.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and the business and affairs
of the Company. You agree to perform such executive duties as may be assigned to
you by or on authority of the Company's Chairman of the Board or President from
time to time.
1.3 You will duly, punctually, and faithfully perform and observe any and
all rules and regulations that the Company may now or shall hereafter reasonably
establish governing your conduct as an employee and the conduct of its business.
2. Term of Employment
2.1 The term of this Agreement shall be for the period of years set forth
on Exhibit A annexed hereto. Your employment with the Company may be terminated
as provided in Sections 2.2 or 2.3.
2.2 The Company shall have the right to terminate your employment at any
time under this Agreement prior to the stated term in any of the following ways:
(a) immediately upon your death or on thirty (30) days prior written notice
to you upon your disability (disability shall be defined as your inability
to perform duties under this Agreement for an aggregate of ninety (90) days
out of any one hundred eighty (180) day period due to mental or physical
disability);
(b) immediately without prior notice to you by the Company for Cause, as
hereinafter defined, provided, however, that prior to any such termination
for Cause, you have had a reasonable opportunity to be heard thereon;
(c) immediately without prior notice to you or Cause, in the event of the
liquidation or reorganization of the Company under the federal Bankruptcy
Act or any state insolvency or bankruptcy law;
(d) at any time without Cause, provided the Company shall be obligated to
pay to you upon notice of termination, as severance pay, a lump sum amount
equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, less applicable taxes and other required withholdings and
any amounts you may owe to the Company. If, however, a change in control of
the Company should occur causing termination of your employment without
Cause, then you shall be entitled to receive as severance pay a lump sum
amount equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, or an amount equal to the salary due to you under the
terms of this contract at the time of termination, whichever is less. For
purposes of this Agreement "change of control" shall be deemed to be the
sale of all or substantially all of the stock or assets of the Company or
the merger of the Company with another entity where the other entity
survives the merger.
2.3 You shall have the right to terminate your employment hereunder for any
reason, upon not less than ninety (90) days' prior written notice to the
Company.
2.4 "Cause" for the purpose of Section 2 of this Agreement shall mean: (i)
the falseness or material inaccuracy of any of your warranties or
representations herein; (ii) your willful failure or refusal to comply with
explicit directives of the Chairman of the Board or to render the services
required herein; (iii) fraud or embezzlement involving assets of the Company,
its customers, suppliers or affiliates or other misappropriation of the
Company's assets or funds; (iv) your conviction of a criminal felony offense;
(v) the willful breach or habitual neglect of your obligations under this
Agreement or your duties as an employee of the Company; (vi) habitual use of
drugs or insanity. The existence of Cause for termination of your employment by
the Company shall be determined by the Board of Directors of the Company, in its
sole discretion.
2.5 If your employment is terminated pursuant to subsection 2.2(a), all
obligations of the Company hereunder cease, except with respect to amounts and
obligations accrued to you through the last day of the month during which your
death has occurred.
If your employment is terminated by the Company for any other reason,
pursuant to subsection 2.2(b), (c), or (d) above, all obligations of the Company
(except with respect to amounts and obligations accrued to you prior to the date
of termination) shall cease.
2
3. Compensation
You shall receive the compensation and benefits set forth on Exhibit A
attached hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Confidential
Information Agreement").
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently held by
you as listed on Exhibit B attached hereto, and except with the prior written
consent of a disinterested majority of the Company's Board of Directors, you
will not, during the term of this Agreement, undertake or engage in any other
employment, occupation or business enterprise other than one in which you are an
inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B attached
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (i) individually, (ii) as an officer, (iii) as a director, (iv) as an
employee, (v) as a consultant, (vi) as an advisor, (vii) as an agent (whether a
salesperson or otherwise), (viii) as a broker, or (ix) as a partner, covenantor,
stockholder or other proprietor owning directly or indirectly more than five
percent (5) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged in the planning, research, development,
production, manufacture, marketing, sales, or distribution of products,
equipment, or services similar to those produced by the Company, its ultimate
parent corporation Palomar Medical Technologies, Inc. ("Palomar") or any company
owned or controlled, directly or indirectly, by Palomar (such firm, corporation,
partnership, trust, association, or other organization being hereinafter
referred to as a "Prohibited Enterprise"). Except as may be shown on Exhibit B
attached hereto, you hereby represent that you are not engaged in any of the
foregoing capacities (i) through (ix) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior or current employment,
consulting agreement or relationship whether oral or written. You represent and
warrant that you do not possess confidential information arising out of any such
employment, consulting agreement or relationship which, in your best judgment,
would be utilized in connection with your employment by the Company in the
absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your
3
former employers; but during your employment by the Company you will use in the
performance of your duties all information which is generally known and used by
persons with training and experience comparable to your own all information
which is common knowledge in the industry or otherwise legally in the public
domain.
6. Proprietary Information and Inventions.
You agree to execute, deliver and be bound by the provisions of the
Confidential Information Agreement attached hereto as Exhibit C.
7. Post-Employment Activities.
7.1 For a period of six (6) months after the termination or expiration, for
any reason, of your employment with the Company hereunder, absent the Board of
Directors' prior written approval, you will not directly or indirectly engage in
activities similar to those described in Section 4.2, nor render services
similar or reasonably related to those which you shall have rendered hereunder
to, any person or entity whether now existing or hereafter established which
directly competes with (or proposes or plans to directly compete with) the
Company ("Direct Competitor") in the same or similar business. Nor shall you
entice, induce or encourage any of the Company's other employees to engage in
any activity which, were it done by you, would violate any provision of the
Confidential Information Agreement or this Section 7. As used in this Agreement,
the term "any line of business engaged in or under demonstrable development by
the Company" shall be applied as at the date of termination of your employment,
or, if later, as at the date of termination of any post-employment consultation.
7.2 For a period of six (6) months after the termination of your employment
with the Company, the provisions of Section 4.2 shall be applicable to you and
you shall comply therewith.
7.3 No provision of this Agreement shall be construed to preclude you from
performing the same services which the Company hereby retains you to perform for
any person or entity which is not a Direct Competitor of the Company upon the
expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of this Agreement
or the Confidential Information Agreement.
8. Remedies.
Your obligations under the Confidential Information Agreement and the
provisions of Sections 4.2, 7, 8, 9, and 11 of this Agreement (as modified by
Section 4, if applicable) shall survive the expiration or termination of your
employment (whether through your resignation or otherwise) with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you of
the provisions of the Confidential Information Agreement or Section 4 or 7
hereof would be inadequate and you therefore agree that the
4
Company shall be entitled to such injunctive relief in case of any such breach
or threatened breach.
9. Arbitration
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
10. Assignment.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successor or successors of the Company by
reorganization, merger or consolidation and any assignee of all or substantially
all of its business and properties, but, except as to any such successor or
assignee of the Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or by you, except by operation or law
or by a further written agreement by the parties hereto.
11. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any one or more of the provisions contained in this Agreement is
or becomes or is deemed invalid, illegal or unenforceable or in case any shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provision shall be construed by amending,
limiting and/or reducing it to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken and the remainder of this
Agreement shall remain in full force and effect.
12. Notices.
Any notice which the Company is required to or may desire to give you shall
be given by registered or certified mail, return receipt requested, addressed to
you at your
5
address of record with the Company, or at such other place as you may from time
to time designate in writing. Any notice which you are required or may desire to
give to the Company hereunder shall be given by registered or certified mail,
return receipt requested, addressed to the Company at its principal office, or
at such other office as the Company may from time to time designate in writing,
to the attention of the Chairman of the Company, with a copy to Joseph Caruso,
Chief Financial Officer, Palomar Medical Technologies, Inc., 66 Cherry Hill
Drive, Beverly, Massachusetts 01915.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
14. Complete Agreement; Amendments.
The foregoing, including Exhibits A and B and C attached hereto, is the
entire agreement of the parties with respect to the subject matter hereof,
superseding any previous oral or written communications, representations,
understandings, or agreements with the Company or any officer or representative
thereof. This Agreement may be amended or modified or certain provisions waived
only by a written instrument signed by the parties hereto, upon authorization of
the Company's Board of Directors.
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
6
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
18. Termination By Employee.
Notwithstanding any other provision in this Agreement or the Confidential
Information Agreement to the contrary, if by August 1, 1995 Dynasys Systems
Corporation (the parent corporation of the Company) shall not have received from
Palomar Medical Technologies, Inc. (the parent corporation of Dynasys Systems
Corporation) a capital infusion in the amount of $1,000,000 in cash or other
immediately available funds, you may terminate this Agreement immediately upon
notice to the Company, whereupon any and all of your obligations under this
Agreement and the Confidential Information Agreement shall cease and be of no
further force or effect, without any liability on the part of any party to the
other.
7
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Confidential Information Agreement, whereupon both
agreements shall become binding in accordance with their terms. Please then
return this Agreement to the Company. (You may retain for your records the
accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
DYNASYS/INTELLIGENT SYSTEMS
CORPORATION
By: /s/ Albert J. Agbay, Jr.
--------------------------------
Albert J. Agbay, Jr., Chairman
Accepted and Agreed:
/s/ Liaqat Khan
- -----------------------
Liaqat Khan
8
Palomar Medical Technologies, Inc., the ultimate parent company of the Company,
hereby guarantees payment of the severance pay described above in Section
2.2(d).
PALOMAR MEDICAL TECHNOLOGIES, INC.
By: /s/ Steven Georgiev
------------------------------
Title: Chairman and CEO
--------------------------------
9
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
Liaqat Khan
1. Term.
The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for three (3) years, commencing August 1, 1995, unless
terminated prior thereto in accordance with Section 2.2 or 2.3 of the Agreement.
2. Compensation.
(a) Base Salary. Your initial Base Salary shall be One Hundred Fifteen
Thousand Dollars ($115,000) per annum, during the term of the Agreement, to
be paid in accordance with the Company's payroll policies and to be subject
to increases thereafter as determined in good faith by the Company's Board
of Directors or Executive Committee.
(b) Bonus. The amount set forth on Schedule I, annually, paid calendar
quarterly in arrears, thirty days after the close of the previous calendar
quarter based on revenue and profit goals as set forth below in Schedule I.
All future annual bonus goals are to be determined in good faith by the
Board of Directors.
(c) Lump Sum Severance Pursuant to Section 2.2(d) of the Agreement: six (6)
months Base Salary.
3. Vacation.
You shall be paid for and entitled to all legal and religious holidays,
and three (3) weeks paid vacation per annum. You shall arrange for vacations in
advance at such time or times as shall be mutually agreeable to you and the
Company. Any vacation time not used in any particular year may be carried
forward into the subsequent year. You may not receive pay in lieu of vacation.
10
4. Insurance Benefits.
You shall be eligible for participation in any health or other group
insurance plan to be established by or for the benefit of the Company, with
benefits substantially identical to those provided to executive officers of
Dynasys Systems Corporation, or which the Company is required to maintain by
law. You shall also be entitled to participate in any employee benefit program
which the Company may establish for its key employees or for its employees
generally, including, but in no way limited to, bonuses and stock purchase or
option plans. Without limiting the foregoing, you shall be entitled to
participate in a 401(k) plan to be established by or for the benefit of the
Company, on terms substantially identical to those provided to executive
officers of Dynasys Systems Corporation. The Company shall provide comprehensive
health insurance for you and your dependents. Should your employment be
terminated for any reason, the Company will use its best efforts to allow you to
assume these policies. The Company shall provide term life insurance for you in
an amount equal to three times your annual base compensation.
5. Expenses.
The Company shall reimburse you promptly for all reasonable and
ordinary business and out-of-pocket expenses incurred by you in connection with
the Company's business and in the scope of your employment hereunder, as
approved by the Company, including, without limitation, reasonable and necessary
travel, lodging, entertainment and meals incurred by you during the term of this
Agreement, provided the expenses are incurred in furtherance of the Company's
business and at the request of the Company. You agree to keep and maintain
records of the aforesaid expenses as may be requested by the Company and to
account to the Company for the expenses prior to reimbursement.
The Company will provide you with a monthly automobile allowance of
$750.
6. Stock Options.
Upon your execution of this Agreement, you shall be entitled to
receive, in addition to the foregoing compensation, (i) an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, to purchase 5,500 shares of common stock, $.01 par value per share
("Dynasys Common Stock"), of Dynasys Systems Corporation, the parent corporation
of the Company ("Dynasys"), exercisable for a period of ten years at a price
$.01 per share, under Dynasys' 1995 Stock Option Plan, subject to the terms and
conditions set forth in the Dynasys' standard form of Incentive Stock Option
Agreement, and vesting in equal semi-annual installments over two (2) years and
(ii) an additional incentive stock option to purchase 1,500 shares of Dynasys
Common Stock, subject to terms and conditions identical to those set forth in
the preceding clause (i), except that such additional options shall vest at such
time as Dynasys shall achieve income before income taxes (determined in
accordance with generally accepted accounting principles) in any fiscal year or
portion thereof of not less than $2,000,000. You and Dynasys agree that the
11
fair market value of one share of Dynasys Common Stock on the date hereof is
$.01, which shall be the value attributed to such shares by you and Dynasys for
financial reporting and tax return purposes.
7. Warrants. In the event you are employed by the Company upon consummation of
an underwritten registered public offering (an "IPO") of Dynasys' Common Stock,
you shall be entitled to receive, upon the consummation of such IPO, warrants to
purchase up to 1% of the outstanding Common Stock of Dynasys (determined
immediately after the initial closing of such IPO) at a price per share equal to
80% of the price per share to the public of the Dynasys Common Stock offered in
such IPO.
12
SCHEDULE I
TO EXHIBIT A
ANNUAL BONUS CALCULATION AND TARGET
OF
Liaqat Khan
1. Revenue Incentive Compensation.
You shall be entitled to receive Revenue Incentive Compensation at a
rate equal to $35,000 for each $30,000,000 of revenues (determined in accordance
with generally accepted accounting principles) or portion thereof achieved by
Dynasys in the 12-month period commencing August 1, 1995. By way of example, if
Dynasys were to achieve $60,000,000 in revenues in the 12-month period
commencing August 1, 1995, you shall be entitled to receive $70,000 in Revenue
Incentive Compensation; if Dynasys were to achieve $15,000,000 in revenues in
such period, you would be entitled to receive $17,500 in Revenue Incentive
Compensation. Revenue goals for subsequent periods shall be mutually agreed in
good faith by you and the Chairman.
2. Profit/Loss Incentive Compensation.
You shall be entitled to receive Profit/Loss Incentive Compensation in
the amount of $15,000 during the first year of this Agreement, in the event
Dynasys achieves net operating income in excess of $900,000 for the period
commencing on August 1, 1995 and ending on December 31, 1995. Profit/Loss
Incentive Compensation shall be paid within 90 days after the end of each fiscal
year of Dynasys. Profit/Loss goals for fiscal year 1996 and thereafter shall be
mutually agreed in good faith by you and the Chairman.
13
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF
Liaqat Khan
1. Director of Technovation Computer Lab, Inc.
2. Director of Amerisel.
3. Director of Intelligent Computers and Technologies, Inc.
4. Others:
B-1
EXHIBIT C
----------------------------------
CONFIDENTIAL INFORMATION AGREEMENT
----------------------------------
As of August 1, 1995
To: Dynasys/Intelligent Systems Corporation
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by companies which you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:
1. Confidentiality.
I agree to keep confidential, except as the Company may otherwise consent
in writing, and, except for the Company benefit, not to disclose or make any use
of at any time either during or subsequent to my employment, any Inventions (as
hereinafter defined), trade secrets and confidential information, knowledge,
data or other information of the Company, its parent corporation Palomar Medical
Technologies, Inc. ("Palomar") or any company owned or controlled by Palomar
relating to products, processes, know-how, techniques, methods, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
business of the Company or any of its affiliates, which I may produce, obtain,
or otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any such
trade secrets and confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or used
by any third parties without specific direction or consent of a duly authorized
representative of the Company.
2. Conflicting Employment; Return of Confidential Material.
I agree that during my employment with the Company I will not engage in any
other employment, occupation, consulting or other activity relating to the
business in which the Company is now or may hereafter become engaged, or which
would otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all
C-1
records, materials, equipment, drawings, computer disks, documents and data of
which I may obtain or produce during the course of my employment, and I will not
take with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, technologies, devices, or improvements
in any of the foregoing or other ideas, whether or not patentable or
copyrightable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) during the period of my employment with
the Company which relate in any manner to the actual or demonstrably anticipated
business, work, or research and development of the Company, or result from or
are suggested by any task assigned to me or any work performed by me or on
behalf of the Company.
3.3 Any discovery, process, design, method, technique, technology, device,
or improvement in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
whether solely or jointly with others) which I develop entirely on my own time
not using any of the Company equipment, supplies, facilities, or trade secret
information ("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i) does not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (ii) does not result,
directly or indirectly, from any work performed by me or on behalf of the
Company.
4. Disclosure of Inventions.
I agree that in connection with any Invention, I will promptly disclose
such Invention to the Board of Directors and the Executive Committee of the
Company in order to permit the Company to enforce its property rights to such
Invention in accordance with this Agreement. My disclosure shall be received in
confidence by the Company.
5. Patents and Copyrights: Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for Inventions in any
and all countries. Such patent and copyrights shall be and remain the sole and
exclusive property of the Company or its
C-2
nominee. I agree to perform such lawful acts as the Company deems to be
necessary to allow it to exercise all right, title and interest in and to such
patents and copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge and
deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in the
Company or its nominee to any of the foregoing.
6. Maintenance of Records.
It is understood that all Personal Inventions if any, whether patented or
unpatented, which I made prior to my employment by the Company, are excluded
from this Agreement. To preclude any possible uncertainty, I have set forth on a
separate schedule attached hereto a complete list of all of my prior Personal
Inventions, including numbers of all patents and patent applications and a brief
description of all unpatented Personal Inventions which are not the property of
a previous employer. I represent and covenant that the list is complete and
that, if no items are on the list, I have no such prior Personal Inventions. I
agree to notify the Company in writing before I make any disclosure or perform
any work on behalf of the Company which appears to threaten or conflict with
proprietary rights I claim in any Personal Invention. In the event of my failure
to give such notice, agree that I will make no claim against the Company with
respect to any such Personal Invention.
7. Other Obligations.
I acknowledge that the Company from time to time may have agreements with
other persons, companies, entities, the U.S. Government or agencies thereof,
which impose obligations or restrictions on the Company regarding Inventions
made during the course of work thereunder or regarding the confidential nature
of such work. I agree to be bound by all such obligations and restrictions and
to take all action necessary to discharge the Company's obligations.
8. Trade Secrets of Others.
I represent that my performance of all the terms of this Agreement and as
an employee of the Company does not and will not breach any agreement to keep
confidential proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with the Company, and I will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any agreement either written or oral in
conflict herewith.
C-3
9. Modification.
I agree that any subsequent change or changes in my employment duties,
salary or compensation or, if applicable, in any Employment Agreement between
the Company and me, shall not affect the validity or scope of this Agreement.
10. Arbitration.
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives and successors.
12. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable or in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any
C-4
right arising from any breach or failure to perform shall be deemed to be a
waiver of any future such right or of any other right arising under this
Agreement.
14. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and
supersedes any prior oral or written communications, representations,
understandings or agreements concerning the subject matter hereof with the
Company or any officer or representative thereof. This Agreement may be amended,
modified, or certain provisions waived only by a written instrument signed by
the parties hereto, upon authorization of the Company's Board of Directors.
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
18. Notices.
All notices, requests, demands and communications which are or may be
required to be given hereunder shall be deemed given if and when sent by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses.
If to the Company: Dynasys/Intelligent Systems Corporation
300 West Main Street
Northborough, MA 01532
Attention: Chairman
C-5
With a copy to: Joseph Caruso, Chief Financial Officer
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
If to Employee: --------------------------
-------------------------
-------------------------
Executed as of the date first above written.
EMPLOYEE
/s/ Liaqat Khan
------------------------------------
(Signature of Employee)
Print Name: Liaqat Khan
-------------------------
Accepted and Agreed:
DYNASYS/INTELLIGENT SYSTEMS
CORPORATION
By: /s/ Albert J. Agbay, Jr.
------------------------------------
Albert J. Agbay, Jr., Chairman
C-6
Personal Inventions
-------------------
C-7
EXHIBIT 10.14
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: Victor J. Melfa, Jr.
The undersigned, Dynasys Systems Corporation, a Delaware corporation (the
"Company"), with its principal place of business located at One Research Drive,
Westborough, Massachusetts 01581, hereby agrees with you as follows:
1. Position and Responsibilities.
1.1 You shall serve as Vice President, Sales of the Company (or in such
other executive capacity as shall be designated by the Chairman of the Board or
Directors of the President of the Company) and shall perform the duties
customarily associated with such capacity from time to time and at such place or
places as the Chairman of the Board or President of the Company shall designate
as appropriate and necessary in connection with such employment.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and the business and affairs
of the Company. You agree to perform such executive duties as may be assigned to
you by or on authority of the Company's Chairman of the Board or President from
time to time.
1.3 You will duly, punctually, and faithfully perform and observe any and
all rules and regulations that the Company may now or shall hereafter reasonably
establish governing your conduct as an employee and the conduct of its business.
2. Term of Employment
2.1 The term of this Agreement shall be for the period of years set forth
on Exhibit A annexed hereto. Your employment with the Company may be terminated
as provided in Sections 2.2 or 2.3.
2.2 The Company shall have the right to terminate your employment at any
time under this Agreement prior to the stated term in any of the following ways:
(a) on thirty (30) days prior written notice to you upon your death or
disability (disability shall be defined as your inability to perform duties
under this Agreement for an aggregate of ninety (90) days out of any one
hundred eighty (180) day period due to mental or physical disability);
(b) immediately without prior notice to you by the Company for Cause, as
hereinafter defined, provided, however, that prior to any such termination
for Cause, you have had a reasonable opportunity to be heard thereon;
(c) immediately without prior notice to you or Cause, in the event of the
liquidation or reorganization of the Company under the federal Bankruptcy
Act or any state insolvency or bankruptcy law;
(d) at any time without Cause, provided the Company shall be obligated to
pay to you upon notice of termination, as severance pay, a lump sum amount
equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, less applicable taxes and other required withholdings and
any amounts you may owe to the Company. If, however, a change in control of
the Company should occur causing termination of your employment without
Cause, then you shall be entitled to receive as severance pay a lump sum
amount equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, or an amount equal to the salary due to you under the
terms of this contract at the time of termination, whichever is less. For
purposes of this Agreement "change of control" shall be deemed to be the
sale of all or substantially all of the stock or assets of the Company or
the merger of the Company with another entity where the other entity
survives the merger. Palomar Medical Technologies, Inc., parent company of
the Company, hereby agrees to guarantee payment of the severance pay
described above in this Section 2.2(d).
2.3 You shall have the right to terminate your employment hereunder for any
reason, upon not less than ninety (90) days' prior written notice to the
Company.
2.4 "Cause" for the purpose of Section 2 of this Agreement shall mean: (i)
the falseness or material inaccuracy of any of your warranties or
representations herein; (ii) your willful failure or refusal to comply with
explicit directives of the Chairman of the Board or President or to render the
services required herein; (iii) fraud or embezzlement involving assets of the
Company, its customers, suppliers or affiliates or other misappropriation of the
Company's assets or funds; (iv) your conviction of a criminal felony offense;
(v) the willful breach or habitual neglect of your obligations under this
Agreement or your duties as an employee of the Company; (vi) habitual use of
drugs or insanity. The existence of Cause for termination of your employment by
the Company shall be subject, upon the written election by you or the Company,
to binding arbitration as provided in Section 9 hereof. The cost of arbitration,
exclusive of the cost of each party's legal representation (which, except as
hereinafter otherwise provided, shall be borne by the party incurring the
expense), shall be borne by the instigating party; provided, however, that the
arbitrators' award may require either party to reimburse the other for the
reasonable cost of legal representation in the arbitration proceedings.
1
Further, any dispute, controversy, or claim arising out of, in connection
with or in relation to this definition of "Cause" shall be settled by
arbitration as provided in Section 9 hereof. Any award or determination shall be
final, binding, and conclusive upon the parties, and a judgment rendered may be
entered in any court having jurisdiction thereof.
2.5 If your employment is terminated because of your death, pursuant to
subsection 2.2(a), all obligations of the Company hereunder cease, except with
respect to amounts and obligations accrued to you through the last day of the
month during which your death has occurred.
If your employment is terminated by the Company for any other reason,
pursuant to subsection 2.2(b), (c), or (d) above, all obligations of the Company
(except with respect to amounts and obligations accrued to you prior to the date
of termination) shall cease.
3. Compensation
You shall receive the compensation and benefits set forth on Exhibit A
attached hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Confidential
Information Agreement"). Such Compensation shall be subject to temporary or
permanent reduction by the Board of Directors or Executive Committee if the
Board or Committee shall determine in good faith that economic conditions so
warrant.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently held by
you as listed on Exhibit B attached hereto, and except with the prior written
consent of a disinterested majority of the Company's Board of Directors, which
consent will not be unreasonably withheld, you will not, during the term of this
Agreement, undertake or engage in any other employment, occupation or business
enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B attached
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (i) individually, (ii) as an officer, (iii) as a director, (iv) as an
employee, (v) as a consultant, (vi) as an advisor, (vii) as an agent (whether a
salesperson or otherwise), (viii) as a broker, or (ix) as a partner, covenantor,
stockholder or other proprietor owning directly or indirectly more than five
percent (5) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged in the planning, research, development,
production, manufacture, marketing, sales, or distribution of products,
equipment, or services similar to those produced by the Company, its parent
corporation Palomar Medical Technologies, Inc. ("Palomar") or any company owned
or controlled by Palomar, (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
2
"Prohibited Enterprise"). Except as may be shown on Exhibit B attached hereto,
you hereby represent that you are not engaged in any of the foregoing capacities
(i) through (ix) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior or current employment,
consulting agreement or relationship whether oral or written. You represent and
warrant that you do not possess confidential information arising out of any such
employment, consulting agreement or relationship which, in your best judgment,
would be utilized in connection with your employment by the Company in the
absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions.
You agree to execute, deliver and be bound by the provisions of the
Confidential Information Agreement attached hereto as Exhibit C.
7. Post-Employment Activities.
7.1 For a period of one (1) year after the termination or expiration, for
any reason, of your employment with the Company hereunder, absent the Board of
Directors' prior written approval, you will not directly or indirectly engage in
activities similar to those described in Section 4.2, nor render services
similar or reasonably related to those which you shall have rendered hereunder
to, any person or entity whether now existing or hereafter established which
directly competes with (or proposes or plans to directly compete with) the
Company ("Direct Competitor") in the same or similar business. Nor shall you
entice, induce or encourage any of the Company's other employees to engage in
any activity which, were it done by you, would violate any provision of the
Confidential Information Agreement or this Section 7. As used in this Agreement,
the term "any line of business engaged in or under demonstrable development by
the Company" shall be applied as at the date of termination of your employment,
or, if later, as at the date of termination of any post-employment consultation.
3
7.2 For a period of one (1) year after the termination of your employment
with the Company, the provisions of Section 4.2 shall be applicable to you and
you shall comply therewith.
7.3 No provision of this Agreement shall be construed to preclude you from
performing the same services which the Company hereby retains you to perform for
any person or entity which is not a Direct Competitor of the Company upon the
expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of this Agreement
or the Confidential Information Agreement.
8. Remedies.
Your obligations under the Confidential Information Agreement and the
provisions of Sections 4.2, 7, 8, 9, and 11 of this Agreement (as modified by
Section 4, if applicable) shall survive the expiration or termination of your
employment (whether through your resignation or otherwise) with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you of
the provisions of the Confidential Information Agreement or Section 4 or 7
hereof would be inadequate and you therefore agree that the Company shall be
entitled to such injunctive relief in case of any such breach or threatened
breach.
9. Arbitration
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
10. Assignment.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successor or successors of the Company by
reorganization, merger or consolidation and any assignee of all or substantially
all of its business and properties, but, except as to any such successor or
assignee of the Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or by you, except by operation or law
or by a further written agreement by the parties hereto.
4
11. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any one or more of the provisions contained in this Agreement is
or becomes or is deemed invalid, illegal or unenforceable or in case any shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provision shall be construed by amending,
limiting and/or reducing it to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken and the remainder of this
Agreement shall remain in full force and effect.
12. Notices.
Any notice which the Company is required to or may desire to give you shall
be given by registered or certified mail, return receipt requested, addressed to
you at your address of record with the Company, or at such other place as you
may from time to time designate in writing. Any notice which you are required or
may desire to give to the Company hereunder shall be given by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing, to the attention of the Chairman and the President of the
Company, with a copy to Joseph Caruso, Chief Financial Officer, Palomar Medical
Technologies, Inc., 66 Cherry Hill Drive, Beverly, Massachusetts 01915.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
14. Complete Agreement; Amendments.
The foregoing, including Exhibits A and B and C attached hereto, is the
entire agreement of the parties with respect to the subject matter hereof,
superseding any previous oral or written communications, representations,
understandings, or agreements with the Company or any officer or representative
thereof. This Agreement may be amended or modified or certain provisions waived
only by a written instrument signed by the parties hereto, upon authorization of
the Company's Board of Directors.
5
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
6
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Confidential Information Agreement, whereupon both
agreements shall become binding in accordance with their terms. Please then
return this Agreement to the Company. (You may retain for your records the
accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
DYNASYS SYSTEMS CORPORATION
By: /s/ Steven Georgiev
---------------------------------
Steven Georgiev
Chairman of the Board of Directors
Accepted and Agreed:
/s/ Victor J. Melfa, Jr.
- ----------------------------
Victor J. Melfa, Jr.
Agreed, in regard to the guarantee set forth in subsection 2.2(d):
Palomar Medical Technologies, Inc.
By: /s/ Steven Georgiev
---------------------------------
Title: Chairman & CEO
-----------------------------
8
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
Victor J. Melfa, Jr.
1. Term.
The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for 2 years, commencing April___, 1995, unless terminated
prior thereto in accordance with Section 2.2 or 2.3 of the Agreement.
2. Compensation.
(a) Base Salary. Your initial Base Salary shall be One Hundred Thousand
Dollars ($100,000) per annum, during the term of the Agreement, to be paid
in accordance with the Company's payroll policies and to be subject to
increases or deceases thereafter as determined in good faith by the
Company's Board of Directors or Executive Committee.
(b) Bonus. The amount set forth on Schedule I, annually, paid calendar
quarterly in arrears, thirty days after the close of the previous calendar
quarter based on revenue and profit goals as set forth below in Schedule I.
All future annual bonus goals are to be determined in good faith by the
Board of Directors.
(c) Lump Sum Severance Pursuant to Section 2.2(d) of the Agreement: 6
months Base Salary.
3. Vacation.
You shall be paid for and entitled to all legal and religious holidays,
and three (3) weeks paid vacation per annum. You shall arrange for vacations in
advance at such time or times as shall be mutually agreeable to you and the
Company. Any vacation time not used in any particular year may be carried
forward into the subsequent year. You may not receive pay in lieu of vacation.
A-1
4. Insurance Benefits.
You shall be eligible for participation in any health or other group
insurance plan to be established by or for the benefit of the Company, with
benefits substantially identical to those provided to executive officers of
Palomar, or which the Company is required to maintain by law. You shall also be
entitled to participate in any employee benefit program which the Company may
establish for its key employees or for its employees generally, including, but
in no way limited to, bonuses and stock purchase or option plans. Without
limiting the foregoing, you shall be entitled to participate in a 401(k) plan to
be established by or for the benefit of the Company, on terms substantially
identical to those provided to executive officers of Palomar. The Company shall
provide comprehensive health insurance for you and your dependents. Should your
employment be terminated for any reason, the Company will use its best efforts
to allow you to assume these policies. The Company shall provide term life
insurance for you in an amount equal to three times your annual base
compensation.
5. Expenses.
The Company shall reimburse you promptly for all reasonable and
ordinary business and out-of-pocket expenses incurred by you in connection with
the Company's business and in the scope of your employment hereunder, as
approved by the Company, including, without limitation, reasonable and necessary
travel, lodging, entertainment and meals incurred by you during the term of this
Agreement, provided the expenses are incurred in furtherance of the Company's
business and at the request of the Company. You agree to keep and maintain
records of the aforesaid expenses as may be requested by the Company and to
account to the Company for the expenses prior to reimbursement. In addition, the
Company will provide you with a $500.00 monthly car allowance to cover all
automobile costs.
6. Stock Options.
Upon your execution of this Agreement, you shall be entitled to
receive, in addition to the foregoing compensation, (i) an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, to purchase 1,720 shares of the Company's common stock, $.01 par
value per share ("Common Stock"), exercisable for a period of ten years at a
price $.01 per share, under the Company's 1995 Stock Option Plan, subject to the
terms and conditions set forth in the Company's standard form of Incentive Stock
Option Agreement and (ii) an additional incentive stock option to purchase 860
shares of Common Stock, subject to terms and conditions identical to those set
forth in the preceding clause (i), except that such additional options shall
vest at such time as the Company shall achieve income before income taxes
(determined in accordance with generally accepted accounting principles) in any
fiscal year or portion thereof of not less than $2,000,000. You and the Company
agree that the fair market value of one share of
A-2
Common Stock on the date hereof is $.01, which shall be the value
attributed to such shares by you and the Company for financial reporting and tax
return purposes.
A-3
SCHEDULE I
TO EXHIBIT A
ANNUAL BONUS CALCULATION AND TARGET
OF
Victor J. Melfa, Jr.
1. Revenue Incentive Compensation.
You shall be entitled to receive Revenue Incentive Compensation at a
rate equal to $40,000 for each $33,000,000 of revenues (determined in accordance
with generally accepted accounting principles) or portion thereof achieved by
the Company in the 12-month period commencing May 1, 1995. By way of example, if
the Company were to achieve $16,500,000 in revenues in the 12-month period
commencing May 1, 1995, you shall be entitled to receive $20,000 in Revenue
Incentive Compensation; if the Company were to achieve $66,000,000 in revenues
in such period, you would be entitled to receive $80,000 in Revenue Incentive
Compensation. Revenue goals for subsequent periods shall be mutually agreed in
good faith by you and the Chairman and President.
2. Profit/Loss Incentive Compensation.
You shall be entitled to receive Profit/Loss Incentive Compensation in
the amount of $10,000 during the first year of this Agreement, in the event the
Company achieves net operating losses of not more than ($300,000) for the period
commencing on May 1, 1995 and ending on December 31, 1995. Profit/Loss Incentive
Compensation shall be paid within 90 days after the end of each fiscal year of
the Company. Profit/Loss goals for fiscal year 1996 and thereafter shall be
mutually agreed in good faith by you and the Chairman and President.
A-4
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF
Victor J. Melfa, Jr.
NONE
B-1
EXHIBIT C
----------------------------------
CONFIDENTIAL INFORMATION AGREEMENT
----------------------------------
As of April __, 1995
To: Dynasys Systems Corporation
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by companies which you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:
1. Confidentiality.
I agree to keep confidential, except as the Company may otherwise consent
in writing, and, except for the Company benefit, not to disclose or make any use
of at any time either during or subsequent to my employment, any Inventions (as
hereinafter defined), trade secrets and confidential information, knowledge,
data or other information of the Company, its parent corporation Palomar Medical
Technologies, Inc. ("Palomar") or any company owned or controlled by Palomar
relating to products, processes, know-how, techniques, methods, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
business of the Company or any of its affiliates, which I may produce, obtain,
or otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any such
trade secrets and confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or used
by any third parties without specific direction or consent of a duly authorized
representative of the Company.
2. Conflicting Employment; Return of Confidential Material.
I agree that during my employment with the Company I will not engage in any
other employment, occupation, consulting or other activity relating to the
business in which the Company is now or may hereafter become engaged, or which
would otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all records, materials, equipment,
drawings, computer disks, documents and data of which I
C-1
may obtain or produce during the course of my employment, and I will not take
with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, technologies, devices, or improvements
in any of the foregoing or other ideas, whether or not patentable or
copyrightable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) during the period of my employment with
the Company which relate in any manner to the actual or demonstrably anticipated
business, work, or research and development of the Company, or result from or
are suggested by any task assigned to me or any work performed by me or on
behalf of the Company.
3.3 Any discovery, process, design, method, technique, technology, device,
or improvement in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
whether solely or jointly with others) which I develop entirely on my own time
not using any of the Company equipment, supplies, facilities, or trade secret
information ("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i)Edoes not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (ii) does not result,
directly or indirectly, from any work performed by me or on behalf of the
Company.
4. Disclosure of Inventions.
I agree that in connection with any Invention, I will promptly disclose
such Invention to the Board of Directors and the Executive Committee of the
Company in order to permit the Company to enforce its property rights to such
Invention in accordance with this Agreement. My disclosure shall be received in
confidence by the Company.
5. Patents and Copyrights: Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for Inventions in any
and all countries. Such patent and copyrights shall be and remain the sole and
exclusive property of the Company or its
C-2
nominee. I agree to perform such lawful acts as the Company deems to be
necessary to allow it to exercise all right, title and interest in and to such
patents and copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge and
deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in the
Company or its nominee to any of the foregoing.
6. Maintenance of Records.
It is understood that all Personal Inventions if any, whether patented or
unpatented, which I made prior to my employment by the Company, are excluded
from this Agreement. To preclude any possible uncertainty, I have set forth on a
separate schedule attached hereto a complete list of all of my prior Personal
Inventions, including numbers of all patents and patent applications and a brief
description of all unpatented Personal Inventions which are not the property of
a previous employer. I represent and covenant that the list is complete and
that, if no items are on the list, I have no such prior Personal Inventions. I
agree to notify the Company in writing before I make any disclosure or perform
any work on behalf of the Company which appears to threaten or conflict with
proprietary rights I claim in any Personal Invention. In the event of my failure
to give such notice, agree that I will make no claim against the Company with
respect to any such Personal Invention.
7. Other Obligations.
I acknowledge that the Company from time to time may have agreements with
other persons, companies, entities, the U.S. Government or agencies thereof,
which impose obligations or restrictions on the Company regarding Inventions
made during the course of work thereunder or regarding the confidential nature
of such work. I agree to be bound by all such obligations and restrictions and
to take all action necessary to discharge the Company's obligations.
8. Trade Secrets of Others.
I represent that my performance of all the terms of this Agreement and as
an employee of the Company does not and will not breach any agreement to keep
confidential proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with the Company, and I will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any agreement either written or oral in
conflict herewith.
C-3
9. Modification.
I agree that any subsequent change or changes in my employment duties,
salary or compensation or, if applicable, in any Employment Agreement between
the Company and me, shall not affect the validity or scope of this Agreement.
10. Arbitration.
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives and successors.
12. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable or in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any
C-4
right arising from any breach or failure to perform shall be deemed to be a
waiver of any future such right or of any other right arising under this
Agreement.
14. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and
supersedes any prior oral or written communications, representations,
understandings or agreements concerning the subject matter hereof with the
Company or any officer or representative thereof. This Agreement may be amended,
modified, or certain provisions waived only by a written instrument signed by
the parties hereto, upon authorization of the Company's Board of Directors.
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
18. Notices.
All notices, requests, demands and communications which are or may be
required to be given hereunder shall be deemed given if and when sent by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses.
If to the Company: Dynasys Systems Corporation
300 West Maine Street
Northborough, MA 01532
Attention: Chairman and President
With a copy to: Joseph Caruso, Chief Financial Officer
Palomar Medical Technologies, Inc.
66 Cherry Hill Drive
Beverly, Massachusetts 01915
C-5
If to Employee: Victor Melfa
8 Piccadilly Way
Westboro, MA 01581
Executed as of the date first above written.
EMPLOYEE
/s/ Victor J. Melfa, Jr.
--------------------------
Accepted and Agreed:
DYNASYS SYSTEMS CORPORATION
By: /s/ Steven Georgiev
---------------------------------------
Chairman of the Board of Directors
C-6
EXHIBIT 10.15
----------------------
KEY EMPLOYEE AGREEMENT
----------------------
To: James P. Lucivero
The undersigned, Dynasys Systems Corporation, a Delaware corporation (the
"Company"), with its principal place of business located at 300 West Main
Street, Northborough, Massachusetts 01532, hereby agrees with
you as follows:
1. Position and Responsibilities.
1.1 You shall serve as ___________________________________________ of the
Company (or in such other executive capacity as shall be designated by the
Chairman of the Board or Directors of the President of the Company) and shall
perform the duties customarily associated with such capacity from time to time
and at such place or places as the Chairman of the Board or President of the
Company shall designate as appropriate and necessary in connection with such
employment.
1.2 You will, to the best of your ability, devote your full time and best
efforts to the performance of your duties hereunder and the business and affairs
of the Company. You agree to perform such executive duties as may be assigned to
you by or on authority of the Company's Chairman of the Board or President from
time to time.
1.3 You will duly, punctually, and faithfully perform and observe any and
all rules and regulations that the Company may now or shall hereafter reasonably
establish governing your conduct as an employee and the conduct of its business.
2. Term of Employment
2.1 The term of this Agreement shall be for the period of years set forth
on Exhibit A annexed hereto. Your employment with the Company may be terminated
as provided in Sections 2.2 or 2.3.
2.2 The Company shall have the right to terminate your employment at any
time under this Agreement prior to the stated term in any of the following ways:
(a) on thirty (30) days prior written notice to you upon your death or
disability (disability shall be defined as your inability to perform duties
under this Agreement for an aggregate of ninety (90) days out of any one
hundred eighty (180) day period due to mental or physical disability);
(b) immediately without prior notice to you by the Company for Cause, as
hereinafter defined, provided, however, that prior to any such termination
for Cause, you have had a reasonable opportunity to be heard thereon;
(c) immediately without prior notice to you or Cause, in the event of the
liquidation or reorganization of the Company under the federal Bankruptcy
Act or any state insolvency or bankruptcy law;
(d) at any time without Cause, provided the Company shall be obligated to
pay to you upon notice of termination, as severance pay, a lump sum amount
equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, less applicable taxes and other required withholdings and
any amounts you may owe to the Company. If, however, a change in control of
the Company should occur causing termination of your employment without
Cause, then you shall be entitled to receive as severance pay a lump sum
amount equal to the number of months of Base Salary set forth on Exhibit A
attached hereto, or an amount equal to the salary due to you under the
terms of this contract at the time of termination, whichever is less. For
purposes of this Agreement "change of control" shall be deemed to be the
sale of all or substantially all of the stock or assets of the Company or
the merger of the Company with another entity where the other entity
survives the merger. Palomar Medical Technologies, Inc., parent company of
the Company, hereby agrees to guarantee payment of the severance pay
described above in this Section 2.2(d).
2.3 You shall have the right to terminate your employment hereunder for any
reason, upon not less than ninety (90) days' prior written notice to the
Company.
2.4 "Cause" for the purpose of Section 2 of this Agreement shall mean: (i)
the falseness or material inaccuracy of any of your warranties or
representations herein; (ii) your willful failure or refusal to comply with
explicit directives of the Chairman of the Board or President or to render the
services required herein; (iii) fraud or embezzlement involving assets of the
Company, its customers, suppliers or affiliates or other misappropriation of the
Company's assets or funds; (iv) your conviction of a criminal felony offense;
(v) the willful breach or habitual neglect of your obligations under this
Agreement or your duties as an employee of the Company; (vi) habitual use of
drugs or insanity. The existence of Cause for termination of your employment by
the Company shall be subject, upon the written election by you or the Company,
to binding arbitration as provided in Section 9 hereof. The cost of arbitration,
exclusive of the cost of each party's legal representation (which, except as
hereinafter otherwise provided, shall be borne by the party incurring the
expense), shall be borne by the instigating party; provided, however, that the
arbitrators' award may require either party to reimburse the other for the
reasonable cost of legal representation in the arbitration proceedings.
2
Further, any dispute, controversy, or claim arising out of, in connection
with or in relation to this definition of "Cause" shall be settled by
arbitration as provided in Section 9 hereof. Any award or determination shall be
final, binding, and conclusive upon the parties, and a judgment rendered may be
entered in any court having jurisdiction thereof.
2.5 If your employment is terminated because of your death, pursuant to
subsection 2.2(a), all obligations of the Company hereunder cease, except with
respect to amounts and obligations accrued to you through the last day of the
month during which your death has occurred.
If your employment is terminated by the Company for any other reason,
pursuant to subsection 2.2(b), (c), or (d) above, all obligations of the Company
(except with respect to amounts and obligations accrued to you prior to the date
of termination) shall cease.
3. Compensation
You shall receive the compensation and benefits set forth on Exhibit A
attached hereto ("Compensation") for all services to be rendered by you
hereunder and for your transfer of property rights pursuant to an agreement
relating to proprietary information and inventions of even date herewith
attached hereto as Exhibit C between you and the Company (the "Confidential
Information Agreement"). Such Compensation shall be subject to temporary or
permanent reduction by the Board of Directors or Executive Committee if the
Board or Committee shall determine in good faith that economic conditions so
warrant.
4. Other Activities During Employment.
4.1 Except for any outside employments and directorships currently held by
you as listed on Exhibit B attached hereto, and except with the prior written
consent of a disinterested majority of the Company's Board of Directors, which
consent will not be unreasonably withheld, you will not, during the term of this
Agreement, undertake or engage in any other employment, occupation or business
enterprise other than one in which you are an inactive investor.
4.2 You hereby agree that, except as disclosed on Exhibit B attached
hereto, during your employment hereunder, you will not, directly or indirectly,
engage (i) individually, (ii) as an officer, (iii) as a director, (iv) as an
employee, (v) as a consultant, (vi) as an advisor, (vii) as an agent (whether a
salesperson or otherwise), (viii) as a broker, or (ix) as a partner, covenantor,
stockholder or other proprietor owning directly or indirectly more than five
percent (5) interest in any firm, corporation, partnership, trust, association,
or other organization which is engaged in the planning, research, development,
production, manufacture, marketing, sales, or distribution of products,
equipment, or services similar to those produced by the Company, its parent
corporation Palomar Medical Technologies, Inc. ("Palomar") or any company owned
or controlled by Palomar, (such firm, corporation, partnership, trust,
association, or other organization being hereinafter referred to as a
3
"Prohibited Enterprise"). Except as may be shown on Exhibit B attached hereto,
you hereby represent that you are not engaged in any of the foregoing capacities
(i) through (ix) in any Prohibited Enterprise.
5. Former Employers.
5.1 You represent and warrant that your employment by the Company will not
conflict with and will not be constrained by any prior or current employment,
consulting agreement or relationship whether oral or written. You represent and
warrant that you do not possess confidential information arising out of any such
employment, consulting agreement or relationship which, in your best judgment,
would be utilized in connection with your employment by the Company in the
absence of Section 5.2.
5.2 If, in spite of the second sentence of Section 5.1, you should find
that confidential information belonging to any other person or entity might be
usable in connection with the Company's business, you will not intentionally
disclose to the Company or use on behalf of the Company any confidential
information belonging to any of your former employers; but during your
employment by the Company you will use in the performance of your duties all
information which is generally known and used by persons with training and
experience comparable to your own all information which is common knowledge in
the industry or otherwise legally in the public domain.
6. Proprietary Information and Inventions.
You agree to execute, deliver and be bound by the provisions of the
Confidential Information Agreement attached hereto as Exhibit C.
7. Post-Employment Activities.
7.1 For a period of one (1) year after the termination or expiration, for
any reason, of your employment with the Company hereunder, absent the Board of
Directors' prior written approval, you will not directly or indirectly engage in
activities similar to those described in Section 4.2, nor render services
similar or reasonably related to those which you shall have rendered hereunder
to, any person or entity whether now existing or hereafter established which
directly competes with (or proposes or plans to directly compete with) the
Company ("Direct Competitor") in the same or similar business. Nor shall you
entice, induce or encourage any of the Company's other employees to engage in
any activity which, were it done by you, would violate any provision of the
Confidential Information Agreement or this Section 7. As used in this Agreement,
the term "any line of business engaged in or under demonstrable development by
the Company" shall be applied as at the date of termination of your employment,
or, if later, as at the date of termination of any post-employment consultation.
4
7.2 For a period of one (1) year after the termination of your employment
with the Company, the provisions of Section 4.2 shall be applicable to you and
you shall comply therewith.
7.3 No provision of this Agreement shall be construed to preclude you from
performing the same services which the Company hereby retains you to perform for
any person or entity which is not a Direct Competitor of the Company upon the
expiration or termination of your employment (or any post-employment
consultation) so long as you do not thereby violate any term of this Agreement
or the Confidential Information Agreement.
8. Remedies.
Your obligations under the Confidential Information Agreement and the
provisions of Sections 4.2, 7, 8, 9, and 11 of this Agreement (as modified by
Section 4, if applicable) shall survive the expiration or termination of your
employment (whether through your resignation or otherwise) with the Company. You
acknowledge that a remedy at law for any breach or threatened breach by you of
the provisions of the Confidential Information Agreement or Section 4 or 7
hereof would be inadequate and you therefore agree that the Company shall be
entitled to such injunctive relief in case of any such breach or threatened
breach.
9. Arbitration
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
10. Assignment.
This Agreement and the rights and obligations of the parties hereto shall
bind and inure to the benefit of any successor or successors of the Company by
reorganization, merger or consolidation and any assignee of all or substantially
all of its business and properties, but, except as to any such successor or
assignee of the Company, neither this Agreement nor any rights or benefits
hereunder may be assigned by the Company or by you, except by operation or law
or by a further written agreement by the parties hereto.
5
11. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any one or more of the provisions contained in this Agreement is
or becomes or is deemed invalid, illegal or unenforceable or in case any shall
for any reason be held to be excessively broad as to duration, geographical
scope, activity or subject, such provision shall be construed by amending,
limiting and/or reducing it to conform to applicable laws so as to be valid and
enforceable or, if it cannot be so amended without materially altering the
intention of the parties, it shall be stricken and the remainder of this
Agreement shall remain in full force and effect.
12. Notices.
Any notice which the Company is required to or may desire to give you shall
be given by registered or certified mail, return receipt requested, addressed to
you at your address of record with the Company, or at such other place as you
may from time to time designate in writing. Any notice which you are required or
may desire to give to the Company hereunder shall be given by registered or
certified mail, return receipt requested, addressed to the Company at its
principal office, or at such other office as the Company may from time to time
designate in writing, to the attention of the Chairman and the President of the
Company, with a copy to Joseph Caruso, Chief Financial Officer, Palomar Medical
Technologies, Inc., 66 Cherry Hill Drive, Beverly, Massachusetts 01915.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any right arising from any breach or failure to perform shall be
deemed to be a waiver of any future such right or of any other right arising
under this Agreement.
14. Complete Agreement; Amendments.
The foregoing, including Exhibits A and B and C attached hereto, is the
entire agreement of the parties with respect to the subject matter hereof,
superseding any previous oral or written communications, representations,
understandings, or agreements with the Company or any officer or representative
thereof. This Agreement may be amended or modified or certain provisions waived
only by a written instrument signed by the parties hereto, upon authorization of
the Company's Board of Directors.
6
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed by and construed in accordance with the
laws of the Commonwealth of Massachusetts.
7
If you are in agreement with the foregoing, please sign your name below and
also at the bottom of the Confidential Information Agreement, whereupon both
agreements shall become binding in accordance with their terms. Please then
return this Agreement to the Company. (You may retain for your records the
accompanying counterpart of this Agreement enclosed herewith).
Very truly yours,
DYNASYS SYSTEMS CORPORATION
By: /s/ Steven Georgiev
-----------------------------------
Steven Georgiev
Chairman of the Board of Directors
Accepted and Agreed:
/s/ James P. Lucivero
- -------------------------------------
James P. Lucivero
Agreed, in regard to the guarantee set forth in subsection 2.2(d):
Palomar Medical Technologies, Inc.
By: /s/ Steven Georgiev
----------------------------------
Title: Chairman and CEO
----------------------------
8
EXHIBIT A
EMPLOYMENT TERM, COMPENSATION AND BENEFITS
OF
JAMES P. LUCIVERO
1. Term.
The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for 2 years, commencing ________ ___, 1995, unless
terminated prior thereto in accordance with Section 2.2 or 2.3 of the Agreement.
2. Compensation.
(a) Base Salary. Your initial Base Salary shall be One Hundred Thousand
Dollars ($100,000) per annum, during the term of the Agreement, to be paid
in accordance with the Company's payroll policies and to be subject to
increases or deceases thereafter as determined in good faith by the
Company's Board of Directors or Executive Committee.
(b) Bonus. The amount set forth on Schedule I, annually, paid calendar
quarterly in arrears, thirty days after the close of the previous calendar
quarter based on revenue and profit goals as set forth below in Schedule I.
All future annual bonus goals are to be determined in good faith by the
Board of Directors.
(c) Lump Sum Severance Pursuant to Section 2.2(d) of the Agreement: 6
months Base Salary.
3. Vacation.
You shall be paid for and entitled to all legal and religious holidays,
and three (3) weeks paid vacation per annum. You shall arrange for vacations in
advance at such time or times as shall be mutually agreeable to you and the
Company. Any vacation time not used in any particular year may be carried
forward into the subsequent year. You may not receive pay in lieu of vacation.
A-1
4. Insurance Benefits.
You shall be eligible for participation in any health or other group
insurance plan to be established by or for the benefit of the Company, with
benefits substantially identical to those provided to executive officers of
Palomar, or which the Company is required to maintain by law. You shall also be
entitled to participate in any employee benefit program which the Company may
establish for its key employees or for its employees generally, including, but
in no way limited to, bonuses and stock purchase or option plans. Without
limiting the foregoing, you shall be entitled to participate in a 401(k) plan to
be established by or for the benefit of the Company, on terms substantially
identical to those provided to executive officers of Palomar. The Company shall
provide comprehensive health insurance for you and your dependents. Should your
employment be terminated for any reason, the Company will use its best efforts
to allow you to assume these policies. The Company shall provide term life
insurance for you in an amount equal to three times your annual base
compensation.
5. Expenses.
The Company shall reimburse you promptly for all reasonable and
ordinary business and out-of-pocket expenses incurred by you in connection with
the Company's business and in the scope of your employment hereunder, as
approved by the Company, including, without limitation, reasonable and necessary
travel, lodging, entertainment and meals incurred by you during the term of this
Agreement, provided the expenses are incurred in furtherance of the Company's
business and at the request of the Company. You agree to keep and maintain
records of the aforesaid expenses as may be requested by the Company and to
account to the Company for the expenses prior to reimbursement.
6. Stock Options.
Upon your execution of this Agreement, you shall be entitled to
receive, in addition to the foregoing compensation, (i) an "incentive stock
option" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended, to purchase 1,720 shares of the Company's common stock, $.01 par
value per share ("Common Stock"), exercisable for a period of ten years at a
price $.01 per share, under the Company's 1995 Stock Option Plan, subject to the
terms and conditions set forth in the Company's standard form of Incentive Stock
Option Agreement and (ii) an additional incentive stock option to purchase 860
shares of Common Stock, subject to terms and conditions identical to those set
forth in the preceding clause (i), except that such additional options shall
vest at such time as the Company shall achieve income before income taxes
(determined in accordance with generally accepted accounting principles) in any
fiscal year or portion thereof of not less than $2,000,000. You and the Company
agree that the fair market value of one share of Common Stock on the date hereof
is $.01, which shall be the value attributed to such shares by you and the
Company for financial reporting and tax return purposes.
A-2
SCHEDULE I
TO EXHIBIT A
ANNUAL BONUS CALCULATION AND TARGET
OF
James P. Lucivero
1. Revenue Incentive Compensation.
You shall be entitled to receive Revenue Incentive Compensation at a
rate equal to $40,000 for each $33,000,000 of revenues (determined in accordance
with generally accepted accounting principles) or portion thereof achieved by
the Company in the 12-month period commencing ________ ___, 1995. By way of
example, if the Company were to achieve $16,500,000 in revenues in the 12-month
period commencing ________ ___, 1995, you shall be entitled to receive $20,000
in Revenue Incentive Compensation; if the Company were to achieve $66,000,000 in
revenues in such period, you would be entitled to receive $80,000 in Revenue
Incentive Compensation. Revenue goals for subsequent periods shall be mutually
agreed in good faith by you and the Chairman and President.
2. Profit/Loss Incentive Compensation.
You shall be entitled to receive Profit/Loss Incentive Compensation in
the amount of $10,000 during the first year of this Agreement, in the event the
Company achieves net operating losses of not more than ($300,000) for the period
commencing on ________ ___, 1995 and ending on December 31, 1995. Profit/Loss
Incentive Compensation shall be paid within 90 days after the end of each fiscal
year of the Company. Profit/Loss goals for fiscal year 1996 and thereafter shall
be mutually agreed in good faith by you and the Chairman and President.
A-3
EXHIBIT B
OUTSIDE EMPLOYMENTS AND DIRECTORSHIPS
OF
James P. Lucivero
NONE
B-1
EXHIBIT C
----------------------------------
CONFIDENTIAL INFORMATION AGREEMENT
----------------------------------
As of ________ __, 1995
To: Dynasys Systems Corporation
The undersigned, in consideration of and as a condition of my employment or
continued employment by you and/or by companies which you own, control, or are
affiliated with or their successors in business (collectively, the "Company"),
hereby agrees as follows:
1. Confidentiality.
I agree to keep confidential, except as the Company may otherwise consent
in writing, and, except for the Company benefit, not to disclose or make any use
of at any time either during or subsequent to my employment, any Inventions (as
hereinafter defined), trade secrets and confidential information, knowledge,
data or other information of the Company, its parent corporation Palomar Medical
Technologies, Inc. ("Palomar") or any company owned or controlled by Palomar
relating to products, processes, know-how, techniques, methods, designs,
formulas, test data, customer lists, business plans, marketing plans and
strategies, pricing strategies, or other subject matter pertaining to any
business of the Company or any of its affiliates, which I may produce, obtain,
or otherwise acquire during the course of my employment, except as herein
provided. I further agree not to deliver, reproduce or in any way allow any such
trade secrets and confidential information, knowledge, data or other
information, or any documentation relating thereto, to be delivered to or used
by any third parties without specific direction or consent of a duly authorized
representative of the Company.
2. Conflicting Employment; Return of Confidential Material.
I agree that during my employment with the Company I will not engage in any
other employment, occupation, consulting or other activity relating to the
business in which the Company is now or may hereafter become engaged, or which
would otherwise conflict with my obligations to the Company. In the event my
employment with the Company terminates for any reason whatsoever, I agree to
promptly surrender and deliver to the Company all
C-1
records, materials, equipment, drawings, computer disks, documents and data of
which I may obtain or produce during the course of my employment, and I will not
take with me any description containing or pertaining to any confidential
information, knowledge or data of the Company which I may produce or obtain
during the course of my employment.
3. Assignment of Inventions.
3.1 I hereby acknowledge and agree that the Company is the owner of all
Inventions. In order to protect the Company's rights to such Inventions, by
executing this Agreement I hereby irrevocably assign to the Company all my
right, title and interest in and to all Inventions to the Company.
3.2 For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, technologies, devices, or improvements
in any of the foregoing or other ideas, whether or not patentable or
copyrightable and whether or not reduced to practice, made or conceived by me
(whether solely or jointly with others) during the period of my employment with
the Company which relate in any manner to the actual or demonstrably anticipated
business, work, or research and development of the Company, or result from or
are suggested by any task assigned to me or any work performed by me or on
behalf of the Company.
3.3 Any discovery, process, design, method, technique, technology, device,
or improvement in any of the foregoing or other ideas, whether or not patentable
or copyrightable and whether or not reduced to practice, made or conceived by me
whether solely or jointly with others) which I develop entirely on my own time
not using any of the Company equipment, supplies, facilities, or trade secret
information ("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i)Edoes not relate to the actual or demonstrably anticipated
business, research and development of the Company, and (ii) does not result,
directly or indirectly, from any work performed by me or on behalf of the
Company.
4. Disclosure of Inventions.
I agree that in connection with any Invention, I will promptly disclose
such Invention to the Board of Directors and the Executive Committee of the
Company in order to permit the Company to enforce its property rights to such
Invention in accordance with this Agreement. My disclosure shall be received in
confidence by the Company.
5. Patents and Copyrights: Execution of Documents.
5.1 Upon request, I agree to assist the Company or its nominee (at its
expense) during and at any time subsequent to my employment in every reasonable
way to obtain for its own benefit patents and copyrights for Inventions in any
and all countries. Such patent and copyrights shall be and remain the sole and
exclusive property of the Company or its
C-2
nominee. I agree to perform such lawful acts as the Company deems to be
necessary to allow it to exercise all right, title and interest in and to such
patents and copyrights.
5.2 In connection with this Agreement, I agree to execute, acknowledge and
deliver to the Company or its nominee upon request and at its expense all
documents, including assignments of title, patent or copyright applications,
assignments of such applications, assignments of patents or copyrights upon
issuance, as the Company may determine necessary or desirable to protect the
Company's or its nominee's interest in Inventions, and/or to use in obtaining
patents or copyrights in any and all countries and to vest title thereto in the
Company or its nominee to any of the foregoing.
6. Maintenance of Records.
It is understood that all Personal Inventions if any, whether patented or
unpatented, which I made prior to my employment by the Company, are excluded
from this Agreement. To preclude any possible uncertainty, I have set forth on a
separate schedule attached hereto a complete list of all of my prior Personal
Inventions, including numbers of all patents and patent applications and a brief
description of all unpatented Personal Inventions which are not the property of
a previous employer. I represent and covenant that the list is complete and
that, if no items are on the list, I have no such prior Personal Inventions. I
agree to notify the Company in writing before I make any disclosure or perform
any work on behalf of the Company which appears to threaten or conflict with
proprietary rights I claim in any Personal Invention. In the event of my failure
to give such notice, agree that I will make no claim against the Company with
respect to any such Personal Invention.
7. Other Obligations.
I acknowledge that the Company from time to time may have agreements with
other persons, companies, entities, the U.S. Government or agencies thereof,
which impose obligations or restrictions on the Company regarding Inventions
made during the course of work thereunder or regarding the confidential nature
of such work. I agree to be bound by all such obligations and restrictions and
to take all action necessary to discharge the Company's obligations.
8. Trade Secrets of Others.
I represent that my performance of all the terms of this Agreement and as
an employee of the Company does not and will not breach any agreement to keep
confidential proprietary information, knowledge or data acquired by me in
confidence or in trust prior to my employment with the Company, and I will not
disclose to the Company, or induce the Company to use, any confidential or
proprietary information or material belonging to any previous employer or
others. I agree not to enter into any agreement either written or oral in
conflict herewith.
C-3
9. Modification.
I agree that any subsequent change or changes in my employment duties,
salary or compensation or, if applicable, in any Employment Agreement between
the Company and me, shall not affect the validity or scope of this Agreement.
10. Arbitration.
Any dispute concerning this Agreement including, but not limited to, its
existence, validity, interpretation, performance or non-performance, arising
before or after termination or expiration of this Agreement, shall be settled by
a single arbitrator in Boston, Massachusetts, in accordance with the expedited
procedures of the commercial rules then in effect of the American Arbitration
Association; provided, however, that the arbitrator shall have sole discretion
with regard to the admissibility of evidence. The parties shall have the right
to be represented by counsel in any arbitration. Judgment upon any award may be
entered in the highest court, state or federal, having jurisdiction. The cost of
such arbitration (but not expenses of counsel, which shall be borne by each
party) shall be borne equally between the parties thereto unless otherwise
determined by such arbitration panel.
11. Binding Effect.
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective legal representatives and successors.
12. Interpretation.
IT IS THE INTENT OF THE PARTIES THAT in case any one or more of the
provisions contained in this Agreement shall, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality or
unenforceability shall not affect the other provisions of this Agreement, and
this Agreement shall be construed as if such invalid, illegal or unenforceable
provision had never been contained herein. MOREOVER, IT IS THE INTENT OF THE
PARTIES THAT if any provision of this Agreement is or becomes or is deemed
invalid, illegal or unenforceable or in case any one or more of the provisions
contained in this Agreement shall for any reason be held to be excessively broad
as to duration, geographical scope, activity or subject, such provision shall be
construed by amending, limiting and/or reducing it to conform to applicable laws
so as to be valid and enforceable or, if it cannot be so amended without
materially altering the intention of the parties, it shall be stricken and the
remainder of this Agreement shall remain in full force and effect.
13. Waivers.
No waiver of any right under this Agreement shall be deemed effective
unless contained in a writing signed by the party charged with such waiver, and
no waiver of any
C-4
right arising from any breach or failure to perform shall be deemed to be a
waiver of any future such right or of any other right arising under this
Agreement.
14. Entire Agreement; Modification.
This Agreement constitutes the entire agreement between the parties and
supersedes any prior oral or written communications, representations,
understandings or agreements concerning the subject matter hereof with the
Company or any officer or representative thereof. This Agreement may be amended,
modified, or certain provisions waived only by a written instrument signed by
the parties hereto, upon authorization of the Company's Board of Directors.
15. Headings.
The headings of the Sections contained in this Agreement are inserted for
convenience and reference only and in no way define, limit, extend or describe
the scope of this Agreement, the intent of any provisions hereof, and shall not
be deemed to constitute a part hereof nor to affect the meaning of this
Agreement in any way.
16. Counterparts.
This Agreement may be signed in two counterparts, each of which shall be
deemed an original and both of which shall together constitute one agreement.
17. Governing Law.
This Agreement shall be governed and construed in accordance with the laws
of the Commonwealth of Massachusetts.
18. Notices.
All notices, requests, demands and communications which are or may be
required to be given hereunder shall be deemed given if and when sent by
registered or certified mail, return receipt requested, postage prepaid, to the
following addresses.
If to the Company: Dynasys Systems Corporation
300 West Main Street
Northborough, MA 01532
Attention: Chairman and President
C-5
If to Employee:
-------------------------
-------------------------
-------------------------
Executed as of the date first above written.
EMPLOYEE
/s/ James P. Lucivero
---------------------------------
James P. Lucivero
Print Name: James P. Lucivero
------------------------
Accepted and Agreed:
DYNASYS SYSTEMS CORPORATION
By: /s/ Steven Georgiev
---------------------------------
Steven Georgiev
Chairman of the Board of Directors
C-6
EXHIBIT 10.16
AMENDMENT TO
KEY EMPLOYEE AGREEMENT
AND
CONFIDENTIAL INFORMATION AGREEMENT
THIS AGREEMENT, dated and effective as of February 28, 1997, among
Albert J. Agbay ("Agbay") and Nexar Technologies, Inc. (f/k/a Dynasys Systems
Corporation), a Delaware corporation (the "Company"), amends (i) the Key
Employee Agreement entered into on or about April 1, 1995 (the "Original
Employment Agreement") between the Company and Agbay and (ii) the Confidential
Information Agreement entered into on or about April 1, 1995 (the "Original
Confidentiality Agreement") between the Company and Agbay.
The parties hereto agree as follows:
1. The text of Section 2.1 (entitled "Term of Employment") of the
Original Employment Agreement is amended to read in its entirety as follows:
"The initial term of this Agreement shall be for the period of years
set forth on Exhibit A annexed hereto. Unless either party chooses
otherwise by notice to the other given prior to the expiration of each
such contract year, the Agreement automatically extends at the end of
each year for an additional year throughout the term of the Agreement.
Your employment with the Company may be terminated as provided in
Sections 2.2 or 2.3."
2. The text of Section 2.2(d) of the Original Employment Agreement is
amended to read in its entirety as follows:
"(d) at any time without Cause, provided the Company shall be obligated
to pay you the applicable severance compensation and other benefits set
forth on Exhibit A hereto."
3. The text of Section 2.4 of the Original Employment Agreement is
amended to read in its entirety as follows:
" "Cause" for the purposes of this Agreement shall mean (i) fraud or
embezzlement involving assets of the Company, its customers, suppliers
or affiliates; (ii) your conviction of a criminal felony offense; (iii)
the willful material breach or habitual neglect of your obligations
under this Agreement or your duties as an employee of the Company; or
(iv) your willful failure to follow lawful material directives of the
Board of Directors. The existence of Cause for termination of your
employment by the Company shall be subject, upon the written election
by you or the Company, to binding arbitration as provided in Section 9
hereof. The cost of arbitration, exclusive of the cost of each party's
legal representation (which, except as hereinafter otherwise provided,
shall be borne by the party incurring the expense), shall be borne by
the instigating party; provided, however, that the arbitrators' award
may require either
party to reimburse the other for the reasonable cost of legal
representation in the arbitration proceedings.
Further, any dispute, controversy, or claim arising out of, in
connection with or in relation to this definition of "Cause" shall be
settled by arbitration as provided in Section 9 hereof. Any award or
determination shall be final, binding, and conclusive upon the parties,
and a judgement rendered may be entered in any court having
jurisdiction thereof."
4. The text of Section 1 of Exhibit A (entitled "Term") to the Original
Employment Agreement is amended to read in its entirety as follows:
"The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for five (5) years, renewing automatically each
year pursuant to Section 2.1 of the Agreement, commencing March 1,
1997, unless terminated prior thereto in accordance with Section 2.2 or
2.3 of the Agreement."
5. The text of subparagraphs (a) and (c) (subparagraph (b) remaining in
full force and effect) of Section 2 of Exhibit A (entitled "Compensation") to
the Original Employment Agreement are each amended to read in their entirety as
follows:
"(a) Base Salary. Your Base Salary is Two Hundred Fifty Thousand
Dollars ($250,000) per annum as of April 1, 1997, and thereafter for
the term of the Agreement, to be paid in accordance with the Company's
payroll policies and subject to increases thereafter as determined in
good faith by the Company's Board of Directors (or a duly appointed
Compensation Committee thereof)."
"(c) Severance Package Pursuant to Section 2.2(d) of the Agreement:
1. Termination Without Cause after Change in Control: If there
occurs a Change of Control of the Company (for purposes
hereof, "Change of Control" is defined as any merger (other
than a merger with a subsidiary or in which the Company is the
survivor and "acquiror"), a sale of substantially all assets
or similar change in control transaction involving the
Company) at any time, and your employment is terminated (i) by
the Company for any reason other than Cause or (ii) by you
after a reduction in either responsibilities or pay or change
in location, you will receive the following:
a) Full immediate vesting of any issued,
unvested stock options,
b) Full payment of any accrued, unpaid salary,
bonus or benefit payments,
c) Three years base pay at highest prior level,
2
d) Three years incentive bonus at highest prior
level,
e) Three years of full benefits package
including health, disability and life
insurance, full contributions to all
qualified and non-qualified retirement and
pension plans or (then) current value of
same in cash if terms of plans preclude
participation, but only to the extent
similar benefits are not received in another
position,
f) $2,250,000 cash, and
g) In the event that your employment is
terminated pursuant to this item 1 and the
excise tax imposed by Section 4999 of the
Internal Revenue Service Code (the "Code")
(or any successor penalty or excise tax
subsequently imposed by law) applies to any
payments under this item 1, an additional
amount shall be paid by the Company to you
such that the aggregate after-tax amount
that you shall receive under this item 1,
shall have a present value equal to the
aggregate after-tax amount that you would
have received and retained had such excise
tax not applied to you. For this purpose,
you shall be assumed to be subject to tax in
each year relevant to the computation at the
then maximum applicable combined Federal and
Massachusetts income tax rate, and the
determination of the present value of
payments to you shall be made consistent
with the principles of Section 280G of the
Code.
2. Termination Without Cause Absent Change in Control: If your
employment as Chief Executive Officer is terminated by the
Company (other than for Cause as defined below) or by you
after a reduction in either responsibilities or pay or change
in location, you will receive all of the items listed in item
1 above, except (f) and (g). In lieu of item (f), you shall be
entitled to a minimum (the "Minimum Amount") of (i) $1,000,000
if you are terminated on or prior to December 31, 1997, or
(ii) $1,500,000 if you are terminated on or after January 1,
1998, subject in either case to increase as follows:
(x) If the Company achieves $150,000,000 in
total revenues in any fiscal year prior to
your termination, you shall be entitled to
$3,000,000; and
(y) if (x) is not achieved, you shall receive a
sum equal to (but not greater, in any event,
than $3,000,000) the applicable Minimum
Amount plus either (i) if the Minimum Amount
is $1,000,000, an amount equal to the
product of $2,000,000 multiplied by the
3
quotient of (A) the amount by which the
Company's total revenues for the four
previous completed fiscal quarters of the
Company prior to the date of your
termination exceeds $70,000,000, divided by
(B) $80,000,000, or (ii) if the Minimum
Amount is $1,500,000, an amount equal to the
product of $1,500,000 multiplied by the
quotient of (A) the amount by which the
Company's total revenues for the four
previous completed fiscal quarters of the
Company prior to the date of your
termination exceeds $70,000,000, divided by
(B) $80,000,000.
In addition, if your termination occurs after January
1, 2000, and the remaining term of your contract immediately
prior to your termination is more than three years, in lieu of
(c) and (d) of item 1 you shall receive an amount of cash
equal to (at the highest prior levels) the amount of both your
base pay and incentive bonus which would be paid out over such
remaining period of time.
All payments set forth above in this item 2 shall be
guaranteed by Palomar Medical Technologies, Inc. ("Palomar")
for as long as Palomar and its subsidiaries own 50% or more of
the voting power of the capital stock of the Company.
3. Resignation by Agbay: If you resign in the absence of a
reduction in either responsibilities or pay or change in
location, you will be entitled to receive the following (all
payments set forth in this item 3 shall be guaranteed by
Palomar for as long as Palomar and its subsidiaries own 50% or
more of the voting power of the capital stock of the Company):
a) Full payment of any accrued, unpaid salary,
bonus or benefit payments,
b) Eighteen months of base pay at highest prior
level,
c) Eighteen months of incentive bonus at
highest prior level,
d) Eighteen months of full benefits package
including health, disability and life
insurance, full contributions to all
qualified and non-qualified retirement and
pension plans or (then) current value of
same in cash if terms of plans preclude
participation, but only to the extent
similar benefits are not received in another
position, and
e) $1,000,000 cash, but only if your
resignation is on or after January 1, 2000.
4
4. Expiration of Employment Agreement: Upon the expiration of
this Agreement (or successor agreement), you will be entitled
to receive the following (all payments set forth in this item
4 shall be guaranteed by Palomar for as long as Palomar and
its subsidiaries own 50% or more of the voting power of the
capital stock of the Company):
a) Full payment of any accrued, unpaid salary,
bonus or benefit payments,
b) Eighteen months of base pay at highest prior
level,
c) Eighteen months of incentive bonus at
highest prior level,
d) Eighteen months of full benefits package
including health, disability and life
insurance, full contributions to all
qualified and non-qualified retirement and
pension plans or (then) current value of
same in cash if terms of plans preclude
participation, but only to the extent
similar benefits are not received in another
position, and
e) $2,250,000 cash, but only if the Company has
achieved cumulative total revenues of
$150,000,000 for the period commencing on
January 1, 1997 to the date of expiration.
5. Termination For Cause: If your employment as Chief
Executive Officer is terminated for Cause, you will be
entitled only to full payment of any accrued, unpaid salary,
bonus and benefit payments and retention of any fully vested
stock options and other benefits.
6. The following new subparagraph (d) is added to Section 2 of Exhibit
A (entitled "Compensation") to the Original Employment Agreement:
"(d) Per Unit Sold Bonus. In addition to the Bonus determined
pursuant to subparagraph (b) above, an amount equal to the product of
$2.00 multiplied by the number of personal computers sold by the
Company (subject to reduction for returns, credits, set-offs and
allowances) during the period commencing on April 1, 1996, and
thereafter for the term of the Agreement, payable quarterly."
7. Section 3.2 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, works, technologies, devices,
or improvements in any of the foregoing or other ideas, whether or not
patentable or copyrightable, or reduced to
5
practice, made, conceived, authored or developed by me (whether solely
or jointly with others) during the period of my employment with the
Company, or within one year thereafter, which relate in any manner to
the actual or demonstrably anticipated business, products, or research
and development of the Company, or result from or are suggested by any
task assigned to me or any work performed by me or on behalf of the
Company."
8. Section 3.3 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"Any discovery, process, design, method, technique, work, technology,
device, or improvement in any of the foregoing or other ideas, whether
or not patentable or copyrightable and whether or not reduced to
practice, made or conceived by me (whether solely or jointly with
others) which I develop entirely on my own time not using any of the
Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i) does not relate to the actual or demonstrably
anticipated business, products, or research and development of the
Company, and (ii) does not result, directly or indirectly, from any
work performed by me or on behalf of the Company."
9. The respective addresses for notices under the Original Employment
Agreement and the Original Confidentiality Agreement shall be as follows:
If to Nexar: Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
Attention: Gerald Y. Hattori
If to Agbay: Albert J. Agbay
c/o Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
10. Except to the extent modified hereby, all terms of the Original
Employment Agreement and the Original Confidentiality Agreement shall be
unaffected hereby and shall continue in full force and effect.
* * * * *
6
EXECUTED as of the date first above written.
By: Albert J. Agbay
NEXAR TECHNOLOGIES, INC.
By: Gerald Y. Hattori
Vice President and Chief Financial Officer
7
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 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.
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 it has agreed to indemnify GDA and its officers,
directors and employees with respect to certain adverse
consequences GDA may suffer to Technovation Computer Labs,
Inc., a Nevada corporation ("TCL"), to the extent set
forth in an Indemnification Agreement between Nexar and
GDA dated November 7, 1996, which Agreement remains in
full force and effect as of the date hereof.
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 10.19
AMENDMENT TO
KEY EMPLOYEE AGREEMENT
AND
CONFIDENTIAL INFORMATION AGREEMENT
THIS AGREEMENT, dated and effective as of February 28, 1997, among
Michael J. Paciello ("Employee") and Nexar Technologies, Inc. (f/k/a Dynasys
Systems Corporation), a Delaware corporation (the "Company"), amends (i) the Key
Employee Agreement entered into on or about April 1, 1995 (the "Original
Employment Agreement") between the Company and Employee and (ii) the
Confidential Information Agreement entered into on or about April 1, 1995 (the
"Original Confidentiality Agreement") between the Company and Employee.
The parties hereto agree as follows:
1. The text of Section 1 of Exhibit A (entitled "Term") to the Original
Employment Agreement is amended to read in its entirety as follows:
"The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for three (3) years, commencing March 1, 1997,
unless terminated prior thereto in accordance with Section 2.2 or 2.3
of the Agreement."
2. The text of subparagraphs (a) and (c) (subparagraph (b) remaining in
full force and effect) of Section 2 of Exhibit A (entitled "Compensation") to
the Original Employment Agreement are each amended to read in their entirety as
follows:
"(a) Base Salary. Your Base Salary is One Hundred Twenty Thousand
Dollars ($120,000) per annum as of April 1, 1997, and thereafter for
the term of the Agreement, to be paid in accordance with the Company's
payroll policies and to be subject to increases thereafter as
determined in good faith by the Board of Directors (or a duly appointed
Compensation Committee thereof)."
"(c) Severance Package Pursuant to Section 2.2(d) of the Agreement:
twelve (12) months Base Salary."
3. The text of the second paragraph of Section 5 of Exhibit A (entitled
"Expenses") of the Original Employment Agreement is amended to read in its
entirety as follows:
"The Company will provide you with a monthly automobile allowance of
$600."
4. The following new Section 7 of Exhibit A (entitled "Vesting of Stock
Options Upon IPO") is added to the Original Employment Agreement:
"7. Vesting of Stock Options Upon IPO. All stock options held by you as
of February 28, 1997, will vest 50% upon consummation of an
underwritten registered
initial public offering (an "IPO") of the common stock of the Company
and in full one year after the closing of such IPO and immediately
prior to a change of control."
5. Section 3.2 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, works, technologies, devices,
or improvements in any of the foregoing or other ideas, whether or not
patentable or copyrightable, or reduced to practice, made, conceived,
authored or developed by me (whether solely or jointly with others)
during the period of my employment with the Company, or within one year
thereafter, which relate in any manner to the actual or demonstrably
anticipated business, products, or research and development of the
Company, or result from or are suggested by any task assigned to me or
any work performed by me or on behalf of the Company."
6. Section 3.3 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"Any discovery, process, design, method, technique, work, technology,
device, or improvement in any of the foregoing or other ideas, whether
or not patentable or copyrightable and whether or not reduced to
practice, made or conceived by me (whether solely or jointly with
others) which I develop entirely on my own time not using any of the
Company equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i) does not relate to the actual or demonstrably
anticipated business, products, or research and development of the
Company, and (ii) does not result, directly or indirectly, from any
work performed by me or on behalf of the Company."
7. The respective addresses for notices under the Original Employment
Agreement and the Original Confidentiality Agreement shall be as follows:
If to Nexar: Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
Attention: Albert J. Agbay, Chairman
If to Employee: Michael J. Paciello
c/o Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
8. Except to the extent modified hereby, all terms of the Original
Employment Agreement and the Original Confidentiality Agreement shall be
unaffected hereby and shall continue in full force and effect.
2
EXECUTED as of the date first above written.
By: Michael J. Paciello
NEXAR TECHNOLOGIES, INC.
By: Albert J. Agbay, Chairman,
Chief Executive Officer and President
3
EXHIBIT 10.20
AMENDMENT TO
KEY EMPLOYEE AGREEMENT
AND
CONFIDENTIAL INFORMATION AGREEMENT
THIS AGREEMENT, dated and effective as of October 1, 1996, among Liaqat
Khan ("Khan"), Intelesys Corporation, a Delaware corporation formerly known as
Dynasys/ Intelligent Systems Corporation ("Intelesys"), and a Delaware
corporation currently known as Nexar Technologies, Inc. ("Nexar") which owns all
of the issued and outstanding capital stock of Intelesys, amends (i) the Key
Employee Agreement entered into on or about August 1, 1995 (the "Original
Employment Agreement") between Intelesys and Khan and (ii) the Confidential
Information Agreement entered into on or about August 1, 1995 (the "Original
Confidentiality Agreement") between Intelesys and Khan.
The parties hereto agree as follows:
1. The text of Section 1.1 of the Original Employment Agreement is
amended to read in its entirety as follows:
"You shall serve as Executive Vice President of Manufacturing of the
Company (or in such other executive capacity as shall be designated by
the Chairman of the Board of Directors or the President of the Company)
and you shall perform the duties customarily associated with such
capacity from time to time and at such place or places in Northern
California as the Chairman of the Board of Directors or the President
of the Company shall designate as appropriate and necessary in
connection with such employment."
2. The text of Section 2.1 (entitled "Term of Employment") of the
Original Employment Agreement is amended to read in its entirety as follows:
"The initial term of this Agreement shall be for the period of years
set forth on Exhibit A annexed hereto. Unless either party chooses
otherwise by notice to the other given prior to the expiration of each
such contract year, the Agreement automatically extends at the end of
each year for an additional year throughout the term of the Agreement.
Your employment with the Company may be terminated as provided in
Sections 2.2 or 2.3."
3. The text of Section 2.2(d) of the Original Employment Agreement is
amended to read in its entirety as follows:
"(d) at any time without Cause, provided the Company shall be obligated
to pay you the applicable severance compensation and other benefits set
forth on Exhibit A attached hereto."
4. The text of Section 1 of Exhibit A (entitled "Term") to the Original
Employment Agreement is amended to read in its entirety as follows:
"The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for five (5) years, renewing automatically each
year pursuant to Section 2.1 of the Agreement, commencing October 1,
1996, unless terminated prior thereto in accordance with Section 2.2 or
2.3 of the Agreement."
5. The text of subparagraphs (a) and (c) (subparagraph (b) remaining in
full force and effect) of Section 2 of Exhibit A (entitled "Compensation") to
the Original Employment Agreement are each amended to read in their entirety as
follows:
"(a) Base Salary. Your Base Salary is One Hundred Fifty Thousand
Dollars ($150,000) per annum as of October 1, 1996 and thereafter for
the term of the Agreement, to be paid in accordance with the Company's
payroll policies and subject to increases thereafter as determined in
good faith by the Company's Board of Directors (or a duly appointed
Compensation Committee thereof)."
"(c) Severance Package Pursuant to Section 2.2(d) of the Agreement:
1. Termination Without Cause after Change in Control: If there
occurs a Change of Control of the Company (for purposes
hereof, "Change of Control" is defined as any merger (other
than a merger with a subsidiary or in which the Company is the
survivor and "acquiror"), a sale of substantially all assets
or similar change in control transaction involving the
Company) at any time, and your employment is terminated (i) by
the Company for any reason other than Cause or (ii) by you
after a reduction in either responsibilities or pay or change
in location, you will receive the following:
a) Full immediate vesting of any issued,
unvested stock options,
b) Full payment of any accrued, unpaid salary,
bonus or benefit payments,
c) One year base pay at highest prior level,
d) One year incentive bonus at highest prior
level,
e) One year of full benefits package including
health, disability and life insurance, full
contributions to all qualified and
non-qualified retirement and pension plans
or (then) current value of same in cash if
terms of plans preclude participation, but
only to the extent similar benefits are not
received in another position,
2
f) $750,000 cash, and
g) In the event that your employment is
terminated pursuant to this item 1 and the
excise tax imposed by Section 4999 of the
Internal Revenue Service Code (the "Code")
(or any successor penalty or excise tax
subsequently imposed by law) applies to any
payments under this item 1, an additional
amount shall be paid by the Company to you
such that the aggregate after-tax amount
that you shall receive under this item 1,
shall have a present value equal to the
aggregate after-tax amount that you would
have received and retained had such excise
tax not applied to you. For this purpose,
you shall be assumed to be subject to tax in
each year relevant to the computation at the
then maximum applicable combined Federal and
California income tax rate, and the
determination of the present value of
payments to you shall be made consistent
with the principles of Section 280G of the
Code.
2. Termination Without Cause Absent Change in Control: If your
employment is terminated by the Company (other than for Cause)
or by you after a reduction in either responsibilities or pay
or change in location, you will receive all of the items
listed in item 1 above, except (g) (all payments set forth in
this item 2 shall be guaranteed by Palomar Medical
Technologies, Inc. ("Palomar") for as long as Palomar and its
subsidiaries own 50% or more of the voting power of the
capital stock of the Company).
3. Expiration of Employment Agreement: Upon the expiration of
this Agreement (or successor agreement), you will be entitled
to receive the following (all payments set forth in this item
3 shall be guaranteed by Palomar for as long as Palomar and
its subsidiaries own 50% or more of the voting power of the
capital stock of the Company):
a) Full payment of any accrued, unpaid salary,
bonus or benefit payments,
b) $750,000 cash, but only if the Company has
achieved cumulative total revenues of
$150,000,000 for the period commencing on
January 1, 1997 to the date of expiration,
c) One year base pay at highest prior level,
d) One year incentive bonus at highest prior
level, and
3
e) One year of full benefits package including
health, disability and life insurance, full
contributions to all qualified and
non-qualified retirement and pension plans
or (then) current value of same in cash if
terms of plans preclude participation, but
only to the extent similar benefits are not
received in another position.
4. Termination For Cause: If your employment is terminated for
Cause (as defined in Section 2.4), you will be entitled only
to full payment of any accrued, unpaid salary, bonus and
benefit payments and retention of any fully vested stock
options and other benefits."
6. The following new subparagraph (d) is added to Section 2 of Exhibit
A (entitled "Compensation") to the Original Employment Agreement:
"(d) Per Unit Sold Bonus. In addition to the Bonus determined
pursuant to subparagraph (b) above, an amount equal to the product of
$2.00 multiplied by the number of personal computers sold by the
Company (subject to reduction for returns, credits, set-offs and
allowances) during the period commencing on April 1, 1997 and
thereafter for the term of the Agreement, payable quarterly."
7. The text of the second paragraph of Section 5 of Exhibit A (entitled
"Expenses") of the Original Employment Agreement is amended to read in its
entirety as follows:
"The Company will provide you with a monthly automobile allowance of
$1,000."
8. The following new Section 8 of Exhibit A (entitled "Vesting of Stock
Options Upon IPO") is added to the Original Employment Agreement:
"8. Vesting of Stock Options Upon IPO. All stock options held by you as
of February 28, 1997, will vest 50% upon consummation of an
underwritten registered initial public offering ("IPO") of the common
stock of the Company and in full one year after the closing of such IPO
and immediately prior to a Change of Control."
9. Section 3.2 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, works, technologies, devices,
or improvements in any of the foregoing or other ideas, whether or not
patentable or copyrightable, or reduced to practice, made, conceived,
authored or developed by me (whether solely or jointly with others)
during the period of my employment with the Company, or within one year
thereafter, which relate in any manner to the actual or demonstrably
anticipated business, products, or research and development of the
Company, or result from or are
4
suggested by any task assigned to me or any work performed by me or on
behalf of the Company."
10. Section 3.3 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"Any discovery, process, design, method, technique, work, technology,
device, or improvement in any of the foregoing or other ideas, whether
or not patentable or copyrightable and whether or not reduced to
practice, made or conceived by me (whether solely or jointly with
others) which I develop entirely on my own time not using any of the
Company's equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i) does not relate to the actual or demonstrably
anticipated business, products, or research and development of the
Company, and (ii) does not result, directly or indirectly, from any
work performed by me or on behalf of the Company."
11. All references herein and in the Original Employment Agreement to
the "Company" shall mean Nexar, rather than Intelesys. All references herein and
in the Original Employment Agreement to the Chairman of the Board of the Company
shall mean the Chairman of the Board of Nexar. All references in the Original
Confidentiality Agreement to the "Company" shall mean Nexar, any entities
directly or indirectly owned or controlled by, or affiliated with, Nexar, and
any successors or assigns of the foregoing.
12. Any notices under the Original Employment Agreement and the
Original Confidentiality Agreement required by their terms to be given to
Intelesys shall instead be given to Nexar. The respective addresses for notices
under the Original Employment Agreement and the Original Confidentiality
Agreement shall be as follows:
If to Nexar: Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
Attention: Albert J. Agbay, Chairman
If to Khan: Liaqat Y. Khan
c/o Nexar Technologies, Inc.
30551 Huntwood Avenue
Hayward, CA 94544
13. Except to the extent modified hereby, all terms of the Original
Employment Agreement and the Original Confidentiality Agreement shall be
unaffected hereby and shall continue in full force and effect.
* * * * *
5
EXECUTED as of the date first above written.
By: Liaqat Khan
INTELESYS CORPORATION
(f/k/a Dynasys/Intelligent Systems Corporation)
By: Albert J. Agbay, Chairman
NEXAR TECHNOLOGIES, INC.
By: Albert J. Agbay, Chairman,
Chief Executive Officer and President
6
EXHIBIT 10.21
AMENDMENT TO
KEY EMPLOYEE AGREEMENT
AND
CONFIDENTIAL INFORMATION AGREEMENT
THIS AGREEMENT, dated and effective as of February 28, 1997, among
Victor J. Melfa, Jr. ("Employee") and Nexar Technologies, Inc. (f/k/a Dynasys
Systems Corporation), a Delaware corporation (the "Company"), amends (i) the Key
Employee Agreement entered into on or about April 1, 1995 (the "Original
Employment Agreement") between the Company and Employee and (ii) the
Confidential Information Agreement entered into on or about April 1, 1995 (the
"Original Confidentiality Agreement") between the Company and Employee.
The parties hereto agree as follows:
1. The text of Section 1.1 of the Original Employment Agreement is
amended to read in its entirety as follows:
"You shall serve as Senior Vice President of Sales of the Company (or
in such other executive capacity as shall be designated by the Chairman
of the Board of Directors or the President of the Company) and you
shall perform the duties customarily associated with such capacity from
time to time and at such place or places as the Chairman of the Board
of Directors or the President of the Company shall designate as
appropriate and necessary in connection with such employment."
2. The text of Section 1 of Exhibit A (entitled "Term") to the Original
Employment Agreement is amended to read in its entirety as follows:
"The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for three (3) years, commencing March 1, 1997,
unless terminated prior thereto in accordance with Section 2.2 or 2.3
of the Agreement."
3. The text of subparagraphs (a) and (c) (subparagraph (b) remaining in
full force and effect) of Section 2 of Exhibit A (entitled "Compensation") to
the Original Employment Agreement are each amended to read in their entirety as
follows:
"(a) Base Salary. Your Base Salary is One Hundred Twenty Thousand
Dollars ($120,000) per annum as of April 1, 1997, and thereafter for
the term of the Agreement, to be paid in accordance with the Company's
payroll policies and to be subject to increases thereafter as
determined in good faith by the Board of Directors (or a duly appointed
Compensation Committee thereof)."
"(c) Severance Package Pursuant to Section 2.2(d) of the Agreement:
twelve (12) months Base Salary."
4. The text of the second paragraph of Section 5 of Exhibit A (entitled
"Expenses") of the Original Employment Agreement is amended to read in its
entirety as follows:
"The Company will provide you with a monthly automobile allowance of
$600."
5. The following new Section 7 of Exhibit A (entitled "Vesting of Stock
Options Upon IPO") is added to the Original Employment Agreement:
"7. Vesting of Stock Options Upon IPO. All stock options held by you as
of February 28, 1997, will vest 50% upon consummation of an
underwritten registered initial public offering (an "IPO") of the
common stock of the Company and in full one year after the closing of
such IPO and immediately prior to a change of control."
6. Section 3.2 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, works, technologies, devices,
or improvements in any of the foregoing or other ideas, whether or not
patentable or copyrightable, or reduced to practice, made, conceived,
authored or developed by me (whether solely or jointly with others)
during the period of my employment with the Company, or within one year
thereafter, which relate in any manner to the actual or demonstrably
anticipated business, products, or research and development of the
Company, or result from or are suggested by any task assigned to me or
any work performed by me or on behalf of the Company."
7. Section 3.3 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"Any discovery, process, design, method, technique, work, technology,
device, or improvement in any of the foregoing or other ideas, whether
or not patentable or copyrightable and whether or not reduced to
practice, made or conceived by me (whether solely or jointly with
others) which I develop entirely on my own time not using any of the
Company equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i) does not relate to the actual or demonstrably
anticipated business, products, or research and development of the
Company, and (ii) does not result, directly or indirectly, from any
work performed by me or on behalf of the Company."
2
8. The respective addresses for notices under the Original Employment
Agreement and the Original Confidentiality Agreement shall be as follows:
If to Nexar: Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
Attention: Albert J. Agbay, Chairman
If to Employee: Victor J. Melfa, Jr.
c/o Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
9. Except to the extent modified hereby, all terms of the Original
Employment Agreement and the Original Confidentiality Agreement shall be
unaffected hereby and shall continue in full force and effect.
* * * * *
3
EXECUTED as of the date first above written.
By: Victor J. Melfa, Jr.
NEXAR TECHNOLOGIES, INC.
By: Albert J. Agbay, Chairman,
Chief Executive Officer and President
4
EXHIBIT 10.22
AMENDMENT TO
KEY EMPLOYEE AGREEMENT
AND
CONFIDENTIAL INFORMATION AGREEMENT
THIS AGREEMENT, dated and effective as of February 28, 1997, among
James P. Lucivero ("Employee") and Nexar Technologies, Inc. (f/k/a Dynasys
Systems Corporation), a Delaware corporation (the "Company"), amends (i) the Key
Employee Agreement entered into on or about April 1, 1995 (the "Original
Employment Agreement") between the Company and Employee and (ii) the
Confidential Information Agreement entered into on or about April 1, 1995 (the
"Original Confidentiality Agreement") between the Company and Employee.
The parties hereto agree as follows:
1. The text of Section 1.1 of the Original Employment Agreement is
amended to read in its entirety as follows:
"You shall serve as Vice President of Sales - Eastern United States or
International of the Company (or in such other executive capacity as
shall be designated by the Chairman of the Board of Directors or the
President of the Company) and you shall perform the duties customarily
associated with such capacity from time to time and at such place or
places as the Chief Executive Officer of the Company shall designate as
appropriate and necessary in connection with such employment."
2. The text of Section 1 of Exhibit A (entitled "Term") to the Original
Employment Agreement is amended to read in its entirety as follows:
"The term of the Agreement to which this Exhibit A is annexed and
incorporated shall be for three (3) years, commencing March 1, 1997,
unless terminated prior thereto in accordance with Section 2.2 or 2.3
of the Agreement."
3. The text of subparagraphs (a) and (c) (subparagraph (b) remaining in
full force and effect) of Section 2 of Exhibit A (entitled "Compensation") to
the Original Employment Agreement are each amended to read in their entirety as
follows:
"(a) Base Salary. Your Base Salary is One Hundred Ten Thousand Dollars
($110,000) per annum as of April 1, 1997, and thereafter for the term
of the Agreement, to be paid in accordance with the Company's payroll
policies and to be subject to increases thereafter as determined in
good faith by the Board of Directors (or a duly appointed Compensation
Committee thereof)."
"(c) Severance Package Pursuant to Section 2.2(d) of the Agreement:
twelve (12) months Base Salary."
4. The text of the second paragraph of Section 5 of Exhibit A (entitled
"Expenses") of the Original Employment Agreement is amended to read in its
entirety as follows:
"The Company will provide you with a monthly automobile allowance of
$600."
5. The following new Section 7 of Exhibit A (entitled "Vesting of Stock
Options Upon IPO") is added to the Original Employment Agreement:
"7. Vesting of Stock Options Upon IPO. All stock options held by you as
of February 28, 1997, will vest 50% upon consummation of an
underwritten registered initial public offering (an "IPO") of the
common stock of the Company and in full one year after the closing of
such IPO and immediately prior to a change of control."
6. Section 3.2 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"For purposes of this Agreement, "Inventions" shall mean all
discoveries, processes, designs, methods, works, technologies, devices,
or improvements in any of the foregoing or other ideas, whether or not
patentable or copyrightable, or reduced to practice, made, conceived,
authored or developed by me (whether solely or jointly with others)
during the period of my employment with the Company, or within one year
thereafter, which relate in any manner to the actual or demonstrably
anticipated business, products, or research and development of the
Company, or result from or are suggested by any task assigned to me or
any work performed by me or on behalf of the Company."
7. Section 3.3 of the Original Confidentiality Agreement is hereby
amended to read in its entirety as follows:
"Any discovery, process, design, method, technique, work, technology,
device, or improvement in any of the foregoing or other ideas, whether
or not patentable or copyrightable and whether or not reduced to
practice, made or conceived by me (whether solely or jointly with
others) which I develop entirely on my own time not using any of the
Company equipment, supplies, facilities, or trade secret information
("Personal Invention") is excluded from this Agreement provided such
Personal Invention (i) does not relate to the actual or demonstrably
anticipated business, products, or research and development of the
Company, and (ii) does not result, directly or indirectly, from any
work performed by me or on behalf of the Company."
2
8. The respective addresses for notices under the Original Employment
Agreement and the Original Confidentiality Agreement shall be as follows:
If to Nexar: Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
Attention: Albert J. Agbay, Chairman
If to Employee: James P. Lucivero
c/o Nexar Technologies, Inc.
182 Turnpike Road
Westborough, MA 01581
9. Except to the extent modified hereby, all terms of the Original
Employment Agreement and the Original Confidentiality Agreement shall be
unaffected hereby and shall continue in full force and effect.
* * * * *
3
EXECUTED as of the date first above written.
By: James P. Lucivero
NEXAR TECHNOLOGIES, INC.
By: Albert J. Agbay, Chairman,
Chief Executive Officer and President
4
EXHIBIT 10.25
WARRANT AGREEMENT dated as of _________ ___, 1997 between
Nexar Technologies, Inc., a Delaware corporation (the "Company"), and Sands
Brothers & Co., Ltd. (hereinafter referred to as the "Representative").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Representative,
in its individual capacity and not as representative of the several Underwriters
(defined below) warrants ("Warrants") to purchase up to an aggregate of 250,000
shares (the "Shares") of common stock of the Company, $0.01 par value (the
"Common Stock"); and
WHEREAS, the Representative has agreed, pursuant to the
underwriting agreement (the "Underwriting Agreement") dated _________ ___, 1997
between the Representative, as representative of the several Underwriters named
in Schedule A to the Underwriting Agreement (the "Underwriters") and the
Company, to act as one of the underwriters in connection with the Company's
proposed public offering (the "Public Offering") of 2,500,000 shares of Common
Stock at an initial public offering price of $_____ per share of Common Stock;
and
WHEREAS, the Warrants issued pursuant to this Agreement
are being issued by the Company to the Representative or bona fide officers or
shareholders of the Representative, in consideration for, and as part of the
Representative's compensation in connection with, the Representative acting as
one of the underwriters pursuant to the Underwriting Agreement;
NOW, THEREFORE, in consideration of the premises, the payment
by the Representative to the Company of ONE HUNDRED DOLLARS ($100.00), the
agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. Grant.
The Representative, and/or its designees who are officers or
shareholders of the Representative in connection with the Public Offering, are
hereby granted the right to purchase, at any time from __________ __, 1998
[FIRST ANNIVERSARY OF EFFECTIVE DATE] until 5:00 P.M., New York City time, on
_______ __, 2002 [FIFTH ANNIVERSARY OF EFFECTIVE DATE] (the "Warrant Exercise
Term"), up to 250,000 Shares at an initial exercise price (subject to adjustment
as provided in Article 8 hereof) of $_____ per Share.
-2-
2. Warrant Certificates.
The warrant certificates (the "Warrant Certificates")
delivered and to be delivered pursuant to this Agreement shall be in the form
set forth as Exhibit A, attached hereto and made a part hereof, with such
appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. Exercise of Warrants.
3.1 Cash Exercise. The Warrants initially are
exercisable at a price of $_____ per Share purchased, payable in cash or by
check to the order of the Company, or any combination of cash or check, subject
to adjustment as provided in Article 8 hereof. Upon surrender of the Warrant
Certificate with the annexed Form of Election to Purchase duly executed,
together with payment of the Exercise Price (as hereinafter defined) for the
Shares purchased, at the principal office of the Company in Massachusetts
(presently located at 182 Turnpike Road, Westborough, MA 01581) or at the office
of its transfer agent, the registered holder of a Warrant Certificate ("Holder"
or "Holders") shall be entitled to receive a certificate or certificates for the
Shares so purchased. The purchase rights represented by each Warrant Certificate
are exercisable at the option of the Holder
-3-
hereof, in whole or in part (but not as to fractional Shares). In the case of
the purchase of less than all the Shares purchasable under any Warrant
Certificate, the Company shall cancel said Warrant Certificate upon the
surrender thereof and shall execute and deliver a new Warrant Certificate of
like tenor for the balance of the Shares purchasable thereunder.
3.2 Cashless Exercise. At any time during the
Warrant Exercise Term, the Holder may, at its option, exchange this Warrant, in
whole or in part (a "Warrant Exchange"), into the number of Shares determined in
accordance with this Section 3.2, by surrendering this Warrant at the principal
office of the Company or at the office of its transfer agent, accompanied by a
notice stating such Holder's intent to effect such exchange, the number of
Shares to be exchanged and the date on which the Holder requests that such
Warrant Exchange occur (the "Notice of Exchange"). The Warrant Exchange shall
take place on the date specified in the Notice of Exchange or, if later, the
date the Notice of Exchange is received by the Company (the "Exchange Date").
Certificates for the Shares issuable upon such Warrant Exchange and, if
applicable, a new warrant of like tenor evidencing the balance of the Shares
remaining subject to this Warrant, shall be issued as of the
-4-
Exchange Date and delivered to the Holder within three (3) days following the
Exchange Date. In connection with any Warrant Exchange, this Warrant shall
represent the right to subscribe for and acquire the number of Shares (rounded
to the next highest integer) equal to (i) the number of Shares specified by the
Holder in its Notice of Exchange (the "Total Number") less (ii) the number of
Shares equal to the quotient obtained by dividing (A) the product of the Total
Number and the existing Exercise Price (as hereinafter defined) by (B) the
current market value of a Public Share. Notwithstanding the foregoing, the
exercising Holder must pay the nominal value of each share of Common Stock that
is issued by the Company pursuant to any such exercise.
4. Issuance of Certificates.
Upon the exercise of the Warrants, the issuance of
certificates for the Shares purchased shall be made forthwith (and in any event
within three business days thereafter) without charge to the Holder thereof
including, without limitation, any tax which may be payable in respect of the
issuance thereof, and such certificates shall (subject to the provisions of
Article 5 hereof) be issued in the name of, or in such names as may be directed
by, the Holder thereof; provided, however, that the Company shall not
-5-
be required to pay any tax which may be payable in respect of any transfer
involved in the issuance and delivery of any such certi ficates in a name other
than that of the Holder and the Company shall not be required to issue or
deliver such certificates unless or until the person or persons requesting the
issuance thereof shall have paid to the Company the amount of such tax or shall
have established to the satisfaction of the Company that such tax has been paid.
The Warrant Certificates and the certificates repre senting
the Shares shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman or Vice Chairman of the Board of
Directors or President or Vice President of the Company under its corporate seal
reproduced thereon, attested to by the manual or facsimile signature of the
present or any future Secretary or Assistant Secretary of the Company. Warrant
Certificates shall be dated the date of execution by the Company upon initial
issuance, division, exchange, substitution or transfer.
Upon exercise, in part or in whole, of the Warrants,
certificates representing the Shares shall bear a legend substantially similar
to the following:
-6-
"The securities represented by this certificate and the other
securities issuable upon exercise thereof have not been registered
under the Securities Act of 1933, as amended (the "Act"), and may not
be offered or sold except (i) pursuant to an effective registration
statement under the Act, (ii) to the extent applicable, pursuant to
Rule 144 under the Act (or any similar rule under such Act relating to
the disposition of securities), or (iii) upon the delivery by the
holder to the Company of an opinion of counsel, reasonably satisfactory
to counsel to the Company, stating that an exemption from registration
under such Act is available."
5. Restriction on Transfer of Warrants.
The Holder of a Warrant Certificate, by its acceptance
thereof, covenants and agrees that the Warrants are being acquired as an
investment and not with a view to the distribution thereof, and that the
Warrants may not be sold, transferred, assigned, hypothecated or otherwise
disposed of, in whole or in part, for a period of one (1) year from the date
hereof, except to officers or shareholders of the Representative.
6. Price.
6.1 Initial and Adjusted Exercise Price. The
initial exercise price of each Warrant shall be $ per Share. The adjusted
exercise price shall be the price which shall result from time to time from any
and all adjustments of the initial
-7-
exercise price in accordance with the provisions of Article 8 hereof.
6.2 Exercise Price. The term "Exercise Price"
herein shall mean the initial exercise price or the adjusted exercise price,
depending upon the context.
7. Registration Rights.
7.1 Registration Under the Securities Act of
1933. The Warrants and the Shares have not been registered for purposes of
public distribution under the Securities Act of 1933, as amended (the "Act").
7.2 Registrable Securities. As used herein the
term "Registrable Security" means each of the Shares and any shares of Common
Stock issued upon any stock split or stock dividend in respect of such Shares;
provided, however, that with respect to any particular Registrable Security,
such security shall cease to be a Registrable Security when, as of the date of
determination, (i) it has been effectively registered under the Act and disposed
of pursuant thereto, (ii) registration under the Act is no longer required for
subsequent public distribution of such security or (iii) it has ceased to be
outstanding. The term "Registrable Securities" means any and/or all of the
securities
-8-
falling within the foregoing definition of a "Registrable Security." In the
event of any merger, reorganization, consolidation, recapitalization or other
change in corporate structure affecting the Common Stock, such adjustment shall
be made in the definition of "Registrable Security" as is appropriate in order
to prevent any dilution or enlargement of the rights granted pursuant to this
Article 7.
7.3 Piggyback Registration. If, at any time
during the five years following the date of this Agreement, the Company proposes
to prepare and file any new registration statement or post-effective amendments
thereto covering equity or debt securities of the Company, or any such
securities of the Company held by its shareholders (in any such case, other than
in connection with a merger, acquisition or pursuant to Form S-8 or successor
form), (for purposes of this Article 7, collectively, a "Registration
Statement"), it will give written notice of its intention to do so by registered
mail ("Notice"), at least thirty (30) business days prior to the filing of each
such Registration Statement, to all holders of the Registrable Securities. Upon
the written request of
-9-
such a holder (a "Requesting Holder"), made within fifteen (15) business days
after receipt of the Notice, that the Company include any of the Requesting
Holder's Registrable Securities in the proposed Registration Statement, the
Company shall, as to each such Requesting Holder, use its best efforts to effect
the registration under the Act of the Registrable Securities which it has been
so requested to register ("Piggyback Registration"), at the Company's sole cost
and expense and at no cost or expense to the Requesting Holders; provided that
the Requesting Holders shall bear all selling commissions and fees and
disbursements of counsel, if any, for the Requesting Holders.
7.4 Demand Registration.
(a) At any time during the Warrant
Exercise Term, any "Majority Holder" (as such term is defined in Section 7.4(c)
below) of the Registrable Securities shall have the right (which right is in
addition to the piggyback registration rights provided for under Section 7.3
hereof), exercisable by written notice to the Company (the "Demand Registration
Request"), to have the Company prepare and file with the Securities and Exchange
Commission (the "Commission"), on one occasion, at the sole expense of the
Company, a Registration Statement and such other documents,
-10-
including a prospectus, as may be necessary (in the opinion of both counsel for
the Company and counsel for such Majority Holder), in order to comply with the
provisions of the Act, so as to permit a public offering and sale of the
Registrable Securities by the holders thereof, for twelve (12) consecutive
months.
(b) The Company covenants and agrees to
give written notice of any Demand Registration Request to all holders of the
Registrable Securities within ten (10) days from the date of the Company's
receipt of any such Demand Registration Request. After receiving notice from the
Company as provided in this Section 7.4(b), holders of Registrable Securities
may request the Company to include their Registrable Securities in the
Registration Statement to be filed pursuant to Section 7.4(a) hereof by
notifying the Company of their decision to include such securities within ten
(10) days of their receipt of the Company's notice.
(c) The term "Majority Holder" as used
in this Section 7.4 shall mean any holder or any combination of holders of
Registrable Securities, if included in such holders' Registrable Securities are
that aggregate number of Shares (including Shares already issued and Shares
issuable pursuant to the exercise of outstanding Warrants) as would constitute a
majority of the
-11-
aggregate number of Shares (including Shares already issued and Shares issuable
pursuant to the exercise of outstanding Warrants) included in all of the
Registrable Securities.
7.5 Covenants of the Company With Respect to
Registration. The Company covenants and agrees as follows:
(a) In connection with any registration
under Section 7.4 hereof, the Company shall file the Registration Statement as
expeditiously as possible, but in no event later than thirty (30) days following
receipt of any demand therefor, shall use its best efforts to have any such
Registration Statements declared effective at the earliest possible time, and
shall furnish each holder of Registrable Securities such number of prospectuses
as shall reasonably be requested.
(b) The Company shall pay all costs,
fees and expenses in connection with all Registration Statements filed pursuant
to Sections 7.3 and 7.4(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, and reasonable blue sky fees and
expenses.
(c) The Company will take all necessary
action which may be required in qualifying or registering the Registrable
Securities included in a Registration Statement for offering and
-12-
sale under the securities or blue sky laws of such states as are reasonably
requested by the holders of such securities, provided that the Company shall not
be obligated to execute or file any general consent to service of process or to
qualify as a foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Company shall indemnify any
holder of the Registrable Securities to be sold pursuant to any Registration
Statement and any underwriter or person deemed to be an underwriter under the
Act and each person, if any, who controls such holder or underwriter or person
deemed to be an underwriter within the meaning of Section 15 of the Act or
Section 20(a) of the Securities Exchange Act of 1934, as amended ("Exchange
Act"), against all loss, claim, damage, expense or liability (including all
expenses reasonably incurred in investigating, preparing or defending against
any claim whatsoever) to which any of them may become subject under the Act, the
Exchange Act or otherwise, arising from such registration statement to the same
extent and with the same effect as the provisions pursuant to which the Company
has agreed to indemnify the Underwriters contained in Section 7 of the
Underwriting Agreement and to provide for just and equitable contribution as set
forth in Section 8 of the Underwriting
-13-
Agreement.
(e) Nothing contained in this Agreement
shall be construed as requiring any Holder to exercise his Warrants prior to the
initial filing of any Registration Statement or the
-14-
effectiveness thereof.
(f) If the Company shall fail to comply
with the provisions of this Article 7, the Company shall, in addition to any
other equitable or other relief available to the holders of Registrable
Securities, be liable for any or all incidental, special and consequential
damages sustained by the holders of Registrable Securities, requesting
registration of their Registrable Securities.
(g) Except as set forth in Section
7.5(i) hereof, the Company shall not permit the inclusion of any securities
other than the Registrable Securities to be included in any Registration
Statement filed pursuant to Section 7.4 hereof, or permit any other registration
statement to be or remain effective during the effectiveness of a Registration
Statement filed pursuant to Section 7.4 hereof, without the prior written
consent of the Majority Holders, which consent shall not be unreasonably
withheld.
(h) The Company shall deliver promptly
to each holder of Registrable Securities participating in the offering in which
such Holder's shares are being registered pursuant to Section 7.3 hereof and
requesting the correspondence and memoranda described in this Section 7.5(h) and
to the managing underwriter,
-15-
if any, copies of all correspondence between the Commission and the Company, its
counsel or auditors and all memoranda relating to discussions with the
Commission or its staff with respect to the Registration Statement and permit
each holder of Registrable Securities and underwriters to do such investigation,
upon reasonable advance notice, with respect to information contained in or
omitted from the Registration Statement as it deems reasonably necessary to
comply with applicable securities laws or rules of the National Association of
Securities Dealers, Inc. Such investigation shall include access to books,
records and properties and opportunities to discuss the business of the Company
with its officers and independent auditors, all to such reasonable extent and at
such reasonable times and as often as any such holder of Registrable Securities
or underwriter shall reasonably request.
(i) Upon the written request therefor by
any holders of Registrable Securities, the Company shall include in the
Registration Statement covering any of the Registrable Securities any other
securities of the Company held by such holders of Registrable Securities as of
the date of filing of such Registration Statement, including, without
limitation, restricted shares of Common Stock, options, warrants or any other
securities
-16-
convertible into shares of Common Stock.
7.6 Covenants of the Requesting Holders With Respect to
Registration. In connection with such Registration Statement, the
following shall be applicable:
(a) Any holder of Registrable Securities to be sold pursuant
to a Registration Statement, and its successors and assigns, shall severally,
and not jointly, indemnify, the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15 of the
Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or
expense or liability (including all expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Act, the Exchange Act or otherwise, arising
from information furnished in writing by or on behalf of such holder, or its
successors or assigns, for specific inclusion in such Registration Statement to
the same extent and with the same effect as the provisions contained in Section
7 of the Underwriting Agreement pursuant to which the Underwriters have agreed
to indemnify the Company and to provide for just and equitable contribution as
set forth in Section 8 of the Underwriting Agreement.
-17-
(b) In connection with such Registration Statement, each
Holder will:
(i) furnish to the Company such information regarding such
Holder, the Registrable Securities and any other securities of the Company
beneficially held by such Holder as the Company may reasonably request in
writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement; and
(ii) if, after a Registration Statement becomes effective,
the Company advises the holders of Registrable Securities that the Company
considers it appropriate for the Registration Statement to be amended, the
Holders of such shares shall suspend any further sales of their Registrable
Securities until the Company advises them that the Registration Statement has
been amended.
8. Adjustments of Exercise Price and Number of Shares.
The following adjustments apply to the Exercise Price of the Warrants with
respect to the Shares and the number of Shares purchasable upon exercise of the
Warrants.
8.1 Computation of Adjusted Price. In case the
Company shall at any time after the date hereof pay a dividend in
-18-
Common Stock or make a distribution in Common Stock, then upon such dividend or
distribution the Exercise Price in effect immediately prior to such dividend or
distribution shall forthwith be reduced to a price determined by dividing:
(a) an amount equal to the total
number of shares of Common Stock outstanding immediately prior to such dividend
or distribution multiplied by the Exercise Price in effect immediately prior to
such dividend or distribution, by
(b) the total number of shares of
Common Stock outstanding immediately after such issuance or sale.
For the purposes of any computation to be
made in accordance with the provisions of this Section 8.1, the Common Stock
issuable by way of dividend or other distribution on any stock of the Company
shall be deemed to have been issued immediately after the opening of business on
the date following the date fixed for the determination of stockholders entitled
to receive such dividend or other distribution.
8.2 Subdivision and Combination. In case the
Company shall at any time subdivide or combine the outstanding shares of Common
Stock, the Exercise Price shall forthwith be proportionately decreased in the
case of subdivision or increased
-19-
in the case of combination.
8.3 Adjustment in Number of Shares. Upon each
adjustment of the Exercise Price pursuant to the provisions of this Article 8,
the number of Shares issuable upon the exercise of each Warrant shall be
adjusted to the nearest full Share by multiplying a number equal to the Exercise
Price in effect immediately prior to such adjustment by the number of Shares
issuable upon exercise of the Warrants immediately prior to such adjustment and
dividing the product so obtained by the adjusted Exercise Price.
8.4 Reclassification, Consolidation, Merger, etc.
In case of any reclassification or change of the outstanding shares of Common
Stock (other than a change in par value to no par value, or from no par value to
par value, or as a result of a subdivision or combination), or in the case of
any consolidation of the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the Company is the
surviving corporation and which does not result in any reclassification or
change of the outstanding shares of Common Stock, except a change as a result of
a subdivision or combination of such shares or a change in par value, as
aforesaid), or in the case of a sale or conveyance to another corporation of the
property
-20-
of the Company as an entirety, the Holders shall thereafter have the right to
purchase the kind and number of shares of stock and other securities and
property receivable upon such reclassification, change, consolidation, merger,
sale or conveyance as if the Holders were the owners of both the Shares
immediately prior to any such events at a price equal to the product of (x) the
number of shares of Common Stock issuable upon exercise of the Holders' Warrants
(y) the Exercise Price in effect immediately prior to the record date for such
reclassification, change, consolidation, merger, sale or conveyance as if such
Holders had exercised the Warrants.
8.5 Intentionally Omitted. The number of shares of
Common Stock at any one time outstanding shall include the aggregate number of
shares issued or issuable upon the exercise of options, rights, warrants and
upon the conversion or exchange of convertible or exchangeable securities.
8.6 Dividends and Other Distributions with
Respect to Outstanding Securities. In the event that the Company shall at any
time prior to the exercise of all Warrants declare a dividend (other than a
dividend consisting solely of shares of Common Stock
-21-
or a cash dividend or distribution) or otherwise distribute to its shareholders
any monies, assets, property, rights, evidences of indebtedness, securities
(other than shares of Common Stock), whether issued by the Company or by another
person or entity, or any other thing of value, the Holder or Holders of the
unexercised Warrants shall thereafter be entitled, in addition to the shares of
Common Stock or other securities receivable upon the exercise thereof, to
receive, upon the exercise of such Warrants, the same monies, property, assets,
rights, evidences of indebtedness, securities or any other thing of value that
they would have been entitled to receive at the time of such dividend or
distribution. At the time of any such dividend or distribution, the Company
shall make appropriate reserves to ensure the timely performance of the
provisions of this Subsection 8.6.
8.7 Subscription Rights for Shares of Common
Stock or Other Securities. In the case the Company or an affiliate of the
Company shall at any time after the date hereof and prior to the exercise of all
the Warrants issue any rights to subscribe for shares of Common Stock or any
other securities of the Company or of such affiliate to all the shareholders of
the Company, the Holders of the unexercised Warrants shall be entitled, in
addition to the
-22-
shares of Common Stock or other securities receivable upon the exercise of the
Warrants, to receive such rights at the time such rights are distributed to the
other shareholders of the Company.
9. Exchange and Replacement of Warrant Certificates.
Each Warrant Certificate is exchangeable without expense, upon
the surrender hereof by the registered Holder at the principal executive office
of the Company, for a new Warrant Certificate of like tenor and date
representing in the aggregate the right to purchase the same number of Shares in
such denominations as shall be designated by the Holder thereof at the time of
such surrender.
Upon receipt by the Company of evidence reasonably
satisfactory to it of the loss, theft, destruction or mutilation of any Warrant
Certificate, and, in case of loss, theft or destruction, of indemnity or
security reasonably satisfactory to it, and reimbursement to the Company of all
reasonable expenses incidental thereto, and upon surrender and cancellation of
the Warrants, if mutilated, the Company will make and deliver a new Warrant
Certificate of like tenor, in lieu thereof.
10. Elimination of Fractional Interests.
The Company shall not be required to issue certificates
representing fractions of Shares upon the exercise of the Warrants
-23-
nor shall it be required to issue scrip or pay cash in lieu of fractional
interests, it being the intent of the parties that all fractional interests
shall be eliminated by rounding any fraction up to the nearest whole number of
Shares.
11. Reservation and Listing of Securities.
The Company shall at all times reserve and keep available out
of its authorized shares of Common Stock , solely for the purpose of issuance
upon the exercise of the Warrants, such number of shares of Common Stock as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all Shares issuable upon such exercise shall be duly and validly issued, fully
paid, non-assessable and not subject to the preemptive rights of any
shareholder. As long as the Warrants shall be outstanding, the Company shall use
its best efforts to cause all shares of Common Stock issuable upon the exercise
of the Warrants to be listed on or quoted by the NASDAQ National Market, or
listed on such national securities exchanges as requested by the Representative.
12. Notices to Warrant Holders.
Nothing contained in this Agreement shall be construed as
conferring upon the Holder or Holders the right to vote or to
-24-
consent or to receive notice as a shareholder in respect of any meetings of
shareholders for the election of directors or any other matter, or as having any
rights whatsoever as a shareholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the
holders of its shares of Common Stock for the purpose of
entitling them to receive a dividend or distribution payable
otherwise than in cash, or a cash dividend or distribution
payable otherwise than out of current or retained earnings, as
indicated by the accounting treatment of such dividend or
distribution on the books of the Company; or
(b) the Company shall offer to all the
holders of its shares of Common Stock any additional shares of
capital stock of the Company or securities convertible into or
exchangeable for shares of capital stock of the Company, or
any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up
-25-
of the Company (other than in connection with a consoli dation
or merger) or a sale of all or substantially all of its
property, assets and business as an entirety shall be
proposed; or
(d) reclassification or change of the out
standing shares of Common Stock (other than a change in par
value to no par value, or from no par value to par value, or
as a result of a subdivision or combination), consolidation of
the Company with, or merger of the Company into, another
corporation (other than a consolidation or merger in which the
Company is the surviving corporation and which does not result
in any reclassification or change of the outstanding shares of
Common Stock, except a change as a result of a subdivi sion or
combination of such shares or a change in par value, as
aforesaid), or a sale or conveyance to another corporation of
the property of the Company as an entirety is proposed; or
(e) The Company or an affiliate of the
Company shall propose to issue any rights to subscribe for
shares of Common Stock or any other securities of the Company
or
-26-
of such affiliate to all the shareholders of the Company;
then, in any one or more of said events, the Company shall
give written notice of such event at least fifteen (15) days
prior to the date fixed as a record date or the date of
closing the transfer books for the determination of the
shareholders entitled to such dividend, distribution,
convertible or exchangeable securities or subscription rights,
options or warrants, or entitled to vote on such proposed
dissolution, liquidation, winding up or sale. Such notice
shall specify such record date or the date of closing the
transfer books, as the case may be. Failure to give such
notice or any defect therein shall not affect the validity of
any action taken in connection with the declaration or payment
of any such dividend or distribution, or the issuance of any
convertible or exchangeable securities or subscription rights,
options or warrants, or any proposed dissolution, liquidation,
winding up or sale.
13. Notices.
All notices, requests, consents and other communications
hereunder shall be in writing and shall be deemed to have been duly made when
delivered, or mailed by registered or certified mail, return receipt requested:
-27-
(f) If to a registered Holder of the
Warrants, to the address of such Holder as shown on the books
of the Company; or
(g) If to the Company, to the address set
forth in Section 3 of this Agreement or to such other address
as the Company may designate by notice to the Holders.
14. Supplements and Amendments.
The Company and the Representative may from time to time
supplement or amend this Agreement without the approval of any Holders of
Warrant Certificates in order to cure any ambiguity, to correct or supplement
any provision contained herein which may be defective or inconsistent with any
provisions herein, or to make any other provisions in regard to matters or
questions arising hereunder which the Company and the Representative may deem
necessary or desirable and which the Company and the Representative deem not to
adversely affect the interests of the Holders of Warrant Certificates.
15. Successors.
All the covenants and provisions of this Agreement by or
-28-
for the benefit of the Company and the Holders inure to the benefit of their
respective successors and assigns hereunder.
16. Termination.
This Agreement shall terminate at the close of business on
__________, 200_ [TWO YEARS AFTER LAST DATE OF EXERCISE OF WARRANTS TO GIVE
SUFFICIENT COVERAGE FOR REGISTRATION OF THE SECURITIES AND PERIOD OF SALE.]
Notwithstanding the foregoing, this Agreement will terminate on any earlier date
when all Warrants and Underlying Warrants have been exercised and all Warrant
Securities have been resold to the public; provided, however, that the
provisions of Section 7.4 shall survive such termination until the close of
business on _________, 200_ [TWO YEARS PLUS THE TIME PERIOD ABOVE IN THIS
SECTION 16.].
17. Governing Law.
This Agreement and each Warrant Certificate issued hereunder
shall be deemed to be a contract made under the laws of the State of New York
and for all purposes shall be construed in accordance with the laws of said
State.
18. Benefits of This Agreement.
Nothing in this Agreement shall be construed to give to any
person or corporation other than the Company and the Under-
-29-
writer and any other registered holder or holders of the Warrant Certificates,
or Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Under writer and any other holder or holders of the Warrant
Certificates, Warrants or the Shares.
19. Counterparts.
This Agreement may be executed in any number of counterparts
and each of such counterparts shall for all purposes be deemed to be an
original, and such counterparts shall together constitute but one and the same
instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed, as of the day and year first above written.
[SEAL] NEXAR TECHNOLOGIES, INC.
By:________________________________
Name:
Title:
Attest:
- -----------------------
-30-
SANDS BROTHERS & CO., LTD.
By:________________________________
Name:
Title:
-31-
EXHIBIT A
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED OR SOLD EXCEPT (i) PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, (ii) TO THE EXTENT APPLICABLE,
PURSUANT TO RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE UNDER SUCH ACT RELATING
TO THE DISPOSITION OF SECURITIES), OR (iii) UPON THE DELIVERY BY THE HOLDER TO
THE COMPANY OF AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR THE
COMPANY, STATING THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS
AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, _________, 2002
No. W- _______ Warrants
WARRANT CERTIFICATE
This Warrant Certificate certifies that Sands Brothers & Co.,
Ltd. or registered assigns, is the registered holder of _______ Warrants to
purchase, at any time from _______, 1998_ until 5:00 P.M. New York City time on
________, 2002 ("Expiration Date"), up to _____ fully paid and non-assessable
shares ("Shares") of Common Stock, par value $0.01 per share ("Common Stock"),
of Nexar Technologies, Inc., a Delaware corporation (the "Company"), at the
initial exercise price, subject to adjustment in certain events (the "Exercise
Price"), of $_____ per Share, upon surrender of this Warrant Certificate and
payment of the Exercise Price at an office or agency of the Company, but subject
to the conditions set forth herein and in the warrant agreement dated as of
____________, 1997 between the Company and Sands Brothers & Co., Ltd. (the
"Warrant Agreement"). Payment of the Exercise Price may be made in cash, or by
certified or official bank check in New York Clearing House funds payable to the
order of the Company, or any combination
-32-
of cash or check.
No Warrant may be exercised after 5:00 P.M., New York City
time, on the Expiration Date, at which time all Warrants evi denced hereby,
unless exercised prior thereto, shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of
a duly authorized issue of Warrants issued pursuant to the Warrant Agreement,
which Warrant Agreement is hereby incorporated by reference in and made a part
of this instrument and is hereby referred to in a description of the rights,
limitation of rights, obligations, duties and immunities thereunder of the
Company and the holders (the words "holders" or "holder" meaning the registered
holders or registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of
certain events, the Exercise Price and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this
Warrant Certificate at an office or agency of the Company, a new Warrant
Certificate or Warrant Certificates of like tenor and evidencing in the
aggregate a like number of Warrants shall be issued to the transferee(s) in
exchange for this Warrant Certi ficate, subject to the limitations provided
herein and in the Warrant Agreement, without any charge except for any tax, or
other governmental charge imposed in connection therewith.
Upon the exercise of less than all of the Warrants evidenced
by this Certificate, the Company shall forthwith issue to the holder hereof a
new Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof
as the absolute owner(s) of this Warrant Certificate (notwithstanding any
notation of ownership or other writing hereon
-33-
made by anyone), for the purpose of any exercise hereof, and of any distribution
to the holder(s) hereof, and for all other purposes, and the Company shall not
be affected by any notice to the contrary.
All terms used in this Warrant Certificate which are defined
in the Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
-34-
IN WITNESS WHEREOF, the Company has caused this Warrant
Certificate to be duly executed under its corporate seal.
Dated: ___________, 1997 NEXAR TECHNOLOGIES, INC.
[SEAL] By:__________________________
Name:
Title:
Attest:
- ----------------------
-35-
[FORM OF ELECTION TO PURCHASE]
The undersigned hereby irrevocably elects to exercise the
right, represented by this Warrant Certificate, to purchase _________ Shares and
herewith tenders in payment for such Shares cash or a certified or official bank
check payable in New York Clearing House Funds to the order of NEXAR
TECHNOLOGIES, INC. in the amount of $______ , all in accordance with the terms
hereof. The undersigned requests that a certificate for such Shares be
registered in the name of , whose address is __________________, and that such
Certificate be delivered to __________________, whose address is _____________.
Dated: Signature:_________________
(Signature must conform in
all respects to name of
holder as specified on the
face of the Warrant
Certificate.)
--------------------------------
--------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
-36-
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _______________________________________
hereby sells, assigns and transfers unto
____________________________________________________________________________
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _______________, Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature: ___________________
(Signature must conform in all
respects to name of holder as
specified on the face of the
Warrant Certificate)
- -------------------------------
- -------------------------------
(Insert Social Security or Other
Identifying Number of Assignee)
-37-
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
March 24, 1997
