<PAGE>
As filed with the Securities and Exchange Commission on February 2, 2000
Registration No. 333-93409
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
--------------
EMBEDDED SUPPORT TOOLS CORPORATION
(Exact name of registrant as specified in its charter)
Massachusetts 3674 04-3034207
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of Classification Code Number)Identification Number)
incorporation or
organization)
120 Royall Street
Canton, MA 02021
(781) 828-5588
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
--------------
PETER S. DAWSON
120 Royall Street
Canton, MA 02021
(781) 828-5588
(Name, Address, Including Zip Code, and Telephone
Number, Including Area Code, of Agent for Service)
Copies to:
JAMES POLLOCK, ESQ. TIMOTHY C. MAGUIRE, ESQ.
HOLLAND & KNIGHT LLP TESTA, HURWITZ & THIBEAULT, LLP
One Beacon Street High Street Tower
Boston, Massachusetts 02109 125 High Street
Telephone: (617) 523-2700 Boston, Massachusetts 02110
Telecopy: (617) 720-0325 Telephone: (617) 248-7000
Telecopy: (617) 248-7100
--------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date hereof.
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. [_]
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 number of the earlier effective registration statement for the
same offering. [_]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration 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,
please 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 Commission, acting pursuant to said Section 8(a),
may determine.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. EST +
+may not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state on where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
PROSPECTUS SUBJECT TO COMPLETION--February 2, 2000
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4,500,000 Shares
[LOGO]
Common Stock
- --------------------------------------------------------------------------------
Embedded Support Tools Corporation is offering 4,100,000 shares and one
stockholder is offering 400,000 shares of common stock in an initial public
offering. Prior to this offering, there has been no public market for EST's
common stock.
EST designs, manufactures, sells and supports integrated hardware and software
tools for programming, testing and debugging embedded systems.
It is anticipated that the public offering price will be between $10.00 and
$12.00 per share. The shares of EST will be quoted in the Nasdaq National
Market under the symbol "ESTC".
<TABLE>
<CAPTION>
Per Share Total
<S> <C> <C>
Public offering price................................. $ $
Underwriting discounts and commissions................ $ $
Proceeds, before expenses, to EST..................... $ $
Proceeds, before expenses, to the selling stockholder. $ $
</TABLE>
See "Risk Factors" on pages 8 to 14 for factors that should be considered
before
investing in the shares of EST.
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Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or passed upon the
accuracy or adequacy of this prospectus. Any representation to the contrary is
a criminal offense.
- --------------------------------------------------------------------------------
The underwriters may, under certain circumstances, purchase up to 675,000
additional shares from EST and another stockholder at the public offering
price, less underwriting discounts and commissions. Delivery and payment for
the shares will be on February , 2000.
Prudential Volpe Technology
a unit of Prudential Chase H&Q
Securities
Needham & Company, Inc.
, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary........................................................ 4
Risk Factors.............................................................. 8
Forward-Looking Statements................................................ 15
Subchapter S Corporation and Termination of Subchapter S Corporation
Status................................................................... 16
Use of Proceeds........................................................... 17
Dividend Policy........................................................... 17
Capitalization............................................................ 18
Dilution.................................................................. 19
Selected Consolidated Financial Data...................................... 20
Management's Discussion and
Analysis of Financial Condition
and Results of Operations................................................ 22
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Business................................................................... 32
Management ................................................................ 41
Certain Transactions....................................................... 46
Principal and Selling Stockholders......................................... 47
Description of Capital Stock............................................... 48
Shares Eligible for Future Sale............................................ 50
Underwriting............................................................... 52
Legal Matters.............................................................. 54
Experts.................................................................... 54
Available Information...................................................... 54
Index to Consolidated Financial
Statements................................................................ F-1
</TABLE>
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"EST," "ESTC," "CPMSpy," "visionPROBE," "visionICE," "visionCLICK,"
"visionEVENT" and "visionXD" are our trademarks. This prospectus also contains
trademarks and trade names of other companies.
- --------------------------------------------------------------------------------
You should rely only on the information contained in this prospectus. We
have not authorized anyone to provide you with different information. We are
not making an offer of these securities in any jurisdiction where the offer or
sale is not permitted. You should not assume that the information contained in
this prospectus is accurate as of any date other than the date on the front
cover of this prospectus.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
It may not contain all of the information investors should consider before
investing in the common stock of EST. Investors should read the entire
prospectus carefully.
Embedded Support Tools Corporation
We are a leading provider of integrated hardware and software tools for
programming, testing and debugging embedded systems. Our products enable
developers to quickly and reliably program and debug the embedded systems that
manufacturers build into their industrial and consumer products. As the
complexity and speed of embedded systems increase, we believe that embedded
systems developers will require more efficient solutions to program their
products and that we are well positioned to offer these solutions.
A significant portion of our customers are in the communications industry,
including telecommunications, data communications and Internet infrastructure
equipment suppliers. Our largest customers by revenue include Hewlett-Packard,
Lucent Technologies, Motorola, Nortel Networks, Tellabs Wireless and 3Com.
We were incorporated in Massachusetts in 1989. Our principal executive
offices are located at 120 Royall Street, Canton, Massachusetts 02021 and our
telephone number is (781) 828-5588. Our World Wide Web site address is
www.estc.com. The information contained on our Web site is not part of this
prospectus.
Our Market Opportunity
Embedded systems are the special purpose computers within intelligent
industrial and consumer products such as network switches and routers, cellular
base stations, process control systems, cell phones, printers and anti-lock
braking systems. As with all computers, embedded systems minimally consist of a
microprocessor, memory and software, and the level of complexity of that system
can be enhanced with additional components. Embedded systems differ from
general purpose computers, such as PCs, workstations and mainframes, in that
they are designed to run only the specific set of tasks required for the end
product to operate as intended. Manufacturers use embedded systems to enhance
functionality and performance, reduce cost and size, and improve reliability of
a broad variety of products, ranging from simple systems found in microwave
ovens to complex multiprocessor driven systems controlling the infrastructure
of the Internet. Embedded systems development tools enable the developer to
edit and compile code, transfer the operating system and application software
to the microprocessor, and test and debug the program and the functionality of
the embedded system as a whole.
According to industry and market research firms, at least 55% of the more
than 265 million microprocessors produced by the semiconductor industry in 1998
were used in embedded systems, while the remainder were used in general purpose
computers such as PCs. We participate in the market for the higher-end 32-bit
and greater embedded microprocessors, which is forecast to grow at a rate of
21%, from 106 million units in 1998 to 228 million units in 2002. Motorola is
the largest supplier of embedded microprocessors, with a market share of 35% in
1997, the latest year for which data is available. The market for embedded
software development tools is part of the overall embedded operating systems
and development tools market, which was approximately $550 million in 1998 and
is forecast to grow 14% annually through 2003.
4
<PAGE>
Our Solution
We design, manufacture, sell and support a comprehensive suite of high
performance, open and scalable embedded systems development tools, consisting
of both hardware and software components. Our tools enable development
engineers to program, test and debug embedded systems quickly and reliably at
each stage of the development process. We believe that our leadership position
arises from the following:
Superior Development Tools - Our tools offer the following advantages:
. Bundled - We bundle software debuggers and other graphical utilities
with hardware tools to produce a complete solution for early stage
hardware and firmware development;
. Open - We enable developers using our tools to incorporate a variety of
real-time operating systems into their products and to use a wide range
of software tools with our hardware products;
. Graphical - Our software tools provide a rich graphical user interface,
which gives programmers easy access to multiple in-depth views of
microprocessor data and development status; and
. Scalable - Our hardware tools are modular and designed to easily allow
developers to configure and scale their development environments to meet
their specific needs.
Microprocessor Knowledge Base - We were one of the first companies in the
industry to develop and market tools for debugging Motorola microprocessors
using its on-chip debug capabilities. We have been able to adapt our tools
to work with over 50 different microprocessors within the Motorola and IBM
families. Through our relationships with Motorola and IBM, we gain early
access to new microprocessor designs prior to commercial release.
Comprehensive Customer Support - We deploy a team of 41 field salespeople
and support engineers to assist our customers throughout the development
process. This support includes providing early development kits containing
single board computers and board support packages. We also offer our
customers formal one-day and three-day training sessions on microprocessor
architectures.
Our Strategy
Our goal is to maintain and enhance our position as a technological and
market leader in embedded systems development tools. In order to achieve this
goal, we intend to:
Extend Our Technological Leadership - We have established leadership in
development tools by bundling hardware and software solutions, and we must
insure that our products continue to embody the latest technologies and
features.
Continue Our Focus on Communications Applications - A significant number of
our customers build highly complex data communications, telecommunications
and Internet networking equipment. We plan to expand our product offerings
to address the specific needs of developers by leveraging our strengths
within these markets.
Increase Our Software Product Offerings - We intend to use our strengths in
the hardware bring-up development stage to extend and enhance our software
solutions, while remaining operating system independent.
Satisfy Customer Demand for Additional Microprocessor Architectures - Our
tools work with more than 50 different microprocessors from Motorola and
IBM. We intend to meet the needs of our customers by continuing to adapt
our development tools for an even wider range of microprocessor
architectures.
Strengthen and Develop Strategic Alliances - We have developed significant
relationships with Motorola and Wind River Systems, and we intend to
strengthen these relationships as well as seek new alliances.
5
<PAGE>
The Offering
<TABLE>
<S> <C>
Shares offered by EST............... 4,100,000 shares
Shares offered by the selling
stockholder ....................... 400,000 shares
Total shares outstanding after this
offering........................... 16,994,000 shares (1)
Use of proceeds by EST.............. To (i) make a distribution of previously
undistributed subchapter S corporation
income of approximately $4.6 million, (ii)
repay a $2.0 million line of credit and
(iii) for general corporate purposes,
including working capital and capital
expenditures.
Nasdaq National Market Symbol....... ESTC
</TABLE>
- --------
(1) The common stock to be outstanding after this offering is based on shares
outstanding as of February 2, 2000 and excludes 2,555,500 shares of common
stock issuable upon the exercise of options outstanding as of such date at
a weighted average exercise price of $3.27 per share and 1,444,500 shares
available for future grant under our stock plans. See Note 8 of Notes to
Consolidated Financial Statements.
Except as set forth in the consolidated financial statements or as otherwise
indicated, all information in the prospectus:
. reflects a two-for-one stock split effective December 21, 1999; and
. does not include the 475,000 shares offered by EST and the 200,000
shares offered by another selling stockholder if the underwriters
exercise their over-allotment option in full.
Risk Factors
You should consider the risk factors before investing in EST's common stock
and the impact from various events which could adversely affect our business.
6
<PAGE>
Summary Consolidated Financial Data
EST has been treated as a Subchapter S corporation for federal income tax
purposes since its organization on January 5, 1989. As a Subchapter S
corporation, EST has not been subject to federal and certain state income
taxes. The pro forma net income (loss) reflects the provision for income taxes
that would have been recorded had EST been a Subchapter C corporation, assuming
an effective tax rate of 40%, 40%, 32%, 34% and 40% for the years ended
December 31, 1994, 1995, 1996, 1997 and 1998, respectively, and 40% and 44% for
the nine months ended September 30, 1998 and 1999, respectively. See Notes 2
and 10 of Notes to Consolidated Financial Statements.
Pro forma as adjusted balance sheet data set forth below reflects the
distribution of an estimated $4.6 million, calculated as of December 31, 1998,
of cumulative undistributed Subchapter S corporation taxable income for which
stockholders of record prior to the closing of this offering have been taxed.
The distribution will be made out of the net proceeds of this offering. The
actual amount to be distributed is expected to remain the same based upon an
estimate of taxable earnings for the period from January 1, 1999 through the
closing of this offering, subject to certain limitations. The pro forma as
adjusted balance sheet data also reflects the sale of 4,100,000 shares of
common stock by us at an assumed initial public offering price of $11.00 per
share, after deducting the underwriting discounts and commissions and estimated
offering expenses payable by EST.
<TABLE>
<CAPTION>
Nine Months
Ended
Year Ended December 31, September 30,
------------------------------------ ---------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Total revenues........... $3,568 $4,787 $8,262 $11,766 $18,250 $13,171 $19,544
Total cost of revenues... 1,661 1,326 1,945 2,874 3,823 2,968 3,789
------ ------ ------ ------- ------- ------- -------
Gross profit............. 1,907 3,461 6,317 8,892 14,427 10,203 15,755
Selling and marketing.... 1,204 1,575 2,833 4,052 7,236 5,111 7,274
Research and development. -- 1,100 1,636 2,150 3,085 2,281 3,378
General and
administrative.......... 339 314 541 721 1,040 766 999
Stock-related
compensation expense(1). -- -- -- -- -- -- 9,363
------ ------ ------ ------- ------- ------- -------
Total operating expenses. 1,543 2,989 5,010 6,923 11,361 8,158 21,014
------ ------ ------ ------- ------- ------- -------
Income (loss) from
operations.............. 364 472 1,307 1,969 3,066 2,045 (5,259)
Net income (loss)........ $ 238 $ 269 $1,101 $ 1,860 $ 2,890 $ 1,909 $(5,645)
Pro Forma Statement of
Operations Data(2):
Pro forma net income
(loss).................. $ 218 $ 283 $ 874 $ 1,314 $ 1,865 $ 1,240 $(2,924)
====== ====== ====== ======= ======= ======= =======
Pro forma net income
(loss) per share - basic
and diluted............. $ 0.02 $ 0.03 $ 0.09 $ 0.13 $ 0.18 $ 0.12 $ (0.25)
====== ====== ====== ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
-------------------
Pro Forma
Actual As Adjusted
------- -----------
(in thousands)
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents................................... $ 1,579 $37,873
Working capital............................................. 3,019 39,313
Total assets................................................ 10,329 46,623
Long-term debt.............................................. -- --
Redeemable common stock..................................... 1,893 --
Total stockholders' equity.................................. $ 2,522 $40,159
</TABLE>
- --------
(1) The stock-related compensation expense relates to the issuance of
2,783,000 shares of common stock and the grant of options to purchase
1,692,000 shares of common stock to employees in June 1999. See Note 8 to
Notes to Consolidated Financial Statements.
(2) Pro forma net income (loss) and net income (loss) per share data assumes:
(i) the termination of the redemption rights of certain common
stockholders and therefore excludes related accretion charges and
(ii) that EST was subject to income taxation as a Subchapter C corporation
for all periods presented. See Note 2 to Notes to Consolidated Financial
Statements.
7
<PAGE>
RISK FACTORS
You should carefully consider the following risk factors, in addition to
the other information in this prospectus, before purchasing shares of EST
common stock. Each of these risk factors could adversely affect our business,
operating results and financial condition as well as adversely affect the
value of an investment in our common stock and could cause you to lose some or
all of your investment. This offering involves a high degree of risk.
Risks Related To Our Business
We derive substantially all of our revenues from customers who use Motorola
microprocessors and any disruption in Motorola microprocessor sales could
harm our business.
We have designed our tools to work principally with embedded systems using
Motorola microprocessor architectures. To date, substantially all of our
revenues have come from customers who use Motorola microprocessors in their
embedded systems. We would be harmed if Motorola microprocessor sales are
interrupted for any reason or if embedded systems developers who use our tools
choose another microprocessor family. We are in the process of creating
development tools to be used with microprocessors made by manufacturers in
addition to Motorola. If we are unsuccessful in developing tools that work
with microprocessors other than Motorola microprocessors, we may fail to grow
our business and our revenues may decline.
If our early access to Motorola microprocessor designs is interrupted, our
business would suffer.
As part of our relationship with Motorola, our engineers communicate with
their counterparts at Motorola and have early access to new microprocessor
designs. With this knowledge, we are able to adapt our tools to these new
designs and make our tools available at the time our customers begin to
incorporate new Motorola microprocessor releases into their product designs.
Our relationship with Motorola is not the subject of any written agreement and
it is not exclusive. We could lose significant revenue if our early access to
design and product information from Motorola is interrupted for any reason.
If Motorola expands its operations to become a direct source of development
tools to a broad range of embedded systems developers our business may be
significantly adversely affected.
Motorola has traditionally relied on third-party vendors to provide tools
for its microprocessors. Motorola recently acquired Metrowerks, a maker of
software-only tools. If Motorola expands its operations to include selling
development tools to a broad range of embedded systems developers, our
revenues and profits could be negatively impacted.
If our relationship with Wind River Systems is interrupted for any reason,
our business could be significantly harmed.
Wind River Systems is a major provider of operating systems and development
tools. Currently, we collaborate with Wind River in marketing and selling our
respective product offerings. However, Wind River recently acquired Integrated
Systems, another provider of operating systems and development tools. We
believe this acquisition will likely affect our relationship with Wind River,
as Wind River will expand its product offerings to actively market and sell
development tools similar to the products we offer. Any interruption of our
relationship would likely cause significant harm to our business.
Intense competition in our industry may hurt our business and we may not be
able to compete successfully.
The embedded systems development tools market is rapidly evolving and
intensely competitive. Competition could intensify even further if
microprocessor manufacturers were to enter into our marketplace.
8
<PAGE>
Competitors may develop and offer products and services similar to ours in the
future. Our business would be harmed if we are not able to compete
successfully against current or future competitors. Although we believe that
there are market opportunities for several providers of products and services
similar to ours, a single provider might obtain a dominant position. Increased
competition is likely to result in price reductions, reduced gross margins and
loss of market share, any of which could harm our business. A number of our
current and potential competitors have longer operating histories, larger
customer bases, greater brand recognition and significantly greater financial,
marketing, technical and other resources than we do. Our competitors may be
able to devote significantly greater resources to marketing campaigns, adopt
more aggressive pricing policies and may expend substantially more resources
on product development. If we do not compete effectively, our revenues and
earnings may suffer.
If we lose the services of any of our key personnel, our business and stock
price could suffer.
In order to continue to provide quality services in our rapidly changing
business, we believe it is particularly important to retain personnel with
experience. Our business depends in large part on the continued service of a
number of key employees, including Peter Dawson, our President and Chief
Executive Officer, and James Watkins, our Chief Operating Officer and Senior
Vice President of Sales and Marketing. The loss of the services of Mr. Dawson,
Mr. Watkins or any of our other key personnel could seriously impede our
success. Our employees, other than Messrs. Dawson, Watkins, Lossky and
McGillivray, are not subject to employment contracts and are free to leave us
at any time. We might not be able to prevent key personnel, who may leave our
employ in the future, from disclosing or using our technical knowledge,
practices and procedures. One or more of our key employees could join a
competitor or form a competing company. Losing the services of one or more of
our key employees could impede our ability to develop new products, service
our customers or expand our operations.
There is intense competition for qualified engineers and sales and marketing
personnel, and our failure to recruit, retain and motivate such skilled
employees could affect our ability to increase our sales.
Our failure to attract and retain qualified employees could impair our
ability to grow our business. In order to maintain and increase our market
share, we must be able to hire, train, and retain and manage highly skilled
employees. To date, we have been successful in meeting our requirements for
highly skilled sales and support personnel and research and development
engineers. However, competition for such engineers is intense and likely to
become more so in the future. If our operations continue to grow, it may
become more difficult to recruit, train and retain skilled engineers and
managers. Failure to attract and retain qualified employees will impede our
ability to develop new products and service our customers and expand our
operations.
If our customers' new products do not use microprocessors for which we supply
development tools, we will lose significant sales in the future.
We do not provide development tools for many microprocessor families used
in embedded systems. Our success depends on our customers selecting
microprocessors that we provide development tools for as the standard for new
generations of their products. If our customers do not use these
microprocessors, our future sales would be reduced.
If customers are late in commencing their product development cycles, our
short-term revenues would be negatively affected.
Developers generally buy our development tools at the beginning of a
product development cycle. If a customer delays its product development cycle,
it will likely also postpone the purchase of our development tools. Such a
delay could cause a decline in our short-term revenues. There are many reasons
why a particular customer's project might experience delays. For example, the
customer's own design process could be slowed by technical problems or
unavailability of personnel.
9
<PAGE>
Our operating results may fluctuate and our stock price may decline if we do
not meet expectations of investors and analysts.
We expect that our quarterly and annual operating results will fluctuate
significantly due to many factors, some of which are outside our control,
including:
. demand for and market acceptance of our products and services;
. our ability to retain key customers or strategic partners;
. intense and increased competition;
. introductions of new products or services, by us and our competitors; and
. our ability to control our costs.
In addition, a substantial portion of our expenses, including most product
development and selling and marketing expenses, must be incurred in advance of
revenue generation. If our revenues do not meet our expectations, then our
operating profit, if any, may fall short of our expectations.
Any one or more of these factors could affect our business, financial
condition and results of operations, and this makes any prediction of results
of operations on a quarterly basis unreliable. As a result, we believe that
period-to-period comparisons of our historical results of operations are not
necessarily meaningful and that you should not rely on them as an indication
of future performance. Also, due to these and other factors, it is possible
that our quarterly results of operations may be below the expectations of
public market analysts and investors. This could cause the price of our common
stock to decline substantially.
Risks associated with our international business operations could impair our
ability to grow our business.
A significant portion of our sales are generated outside the United States.
As a result, our business is subject to political and economic fluctuations in
various countries. We must employ and retain personnel throughout the world
and employment laws vary widely from country to country. To date, we have been
able to successfully staff our international operations, but if we continue to
grow our operations, it may become more difficult to manage our business. We
have experienced long payment cycles and occasional problems in collecting
certain accounts receivable originating outside of the United States. We may
also experience foreign currency fluctuations which could have a significant
impact on our revenues, cash flow and ability to achieve and maintain
profitability as we attempt to grow our business. If we fail to manage our
international operations successfully, our ability to service our foreign
customers and grow our business in these countries will be seriously impeded.
We rely on a single source for supply of a circuit board component and our
business may be harmed if our supply of this component is disrupted.
We currently purchase a key component (field programmable gate arrays) from
Altera Corporation. We purchase this component as needed and have no long-term
contracts with Altera. Although we believe that there are alternative sources
for this component, switching to another source could require significant re-
engineering and result in product delays. Such a disruption in supply could
hurt our ability to deliver our products to our customers and negatively
affect our operating margins.
We generally do not have long term contracts, which makes it difficult to
predict our future revenues.
A majority of our revenue is derived from individual projects rather than
long-term contracts. We cannot assure you that a customer will purchase
additional products from us once a project is completed. A decrease in demand
for our products from one or more customers could occur with limited advance
notice and could have a negative impact on our results of operations in any
particular period. Consequently, our future operating results may fall below
expectations of securities analysts and investors, which would likely cause
the market price of our common stock to drop significantly.
10
<PAGE>
If we do not respond rapidly to technological changes, our business will
suffer.
Our customers are continuously developing new products to compete within
their own markets and are seeking to both shorten the time to market and
improve the quality of their products. In addition, microprocessor technology
is constantly changing and our competitors are constantly improving their
products in response. As a result, we must anticipate and react to changes in
our market, and we cannot assure you that we will be able to respond quickly or
effectively to such developments. The introduction of new products by
competitors, market acceptance of products based on new or alternative
technologies or the emergence of new industry standards could render our
existing or future products obsolete. Our business will suffer if we do not
modify our products or create new ones in order to meet customer needs on a
timely basis and match or surpass the advances in competitive products.
We may be unable to manage future growth associated with our current efforts
to expand our product offerings.
We seek continued growth by expanding our product line and extending it to
microprocessor platforms for which we do not currently provide tools. This
effort will:
. place a significant burden on our management;
. require our recruiting and retaining additional high-level executives;
. require the hiring of significantly more engineers;
. require significant outlays of cash for technically skilled sales persons
and sales efforts; and
. strain existing operational systems and controls.
We may not be able to meet our hiring needs for engineering and management
personnel because of the small number of qualified candidates and the intense
demand for their services. We are unable to assure that we will be able to
continue our growth and, if we do grow, whether we will be able to expand our
managerial and operational infrastructure to manage such growth successfully.
We could become involved in litigation regarding intellectual property rights
which could seriously harm our business.
We rely on a combination of patent, copyright, trademark and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights. We also enter into nondisclosure agreements with our employees,
consultants and corporate partners, and control access to our proprietary
information. Litigation may be necessary in order to enforce our intellectual
property rights, to protect our trade secrets, to determine the validity and
scope of the proprietary rights of others or to defend against claims of
infringement. Although we are not aware of any third party intellectual
property rights that would prevent the use and sale of our products, we may
unknowingly infringe the proprietary rights of others. Any infringement could
result in significant liability to us. If we do infringe the proprietary rights
of others, we could be forced to either seek a license to those intellectual
property rights or alter our products so that they no longer infringe upon
other's proprietary rights. Any such license could be very expensive to obtain
or may not be available at all. Similarly, changing our products or processes
to avoid infringing the rights of others may be costly or impractical. Such
litigation could result in substantial costs and diversion of resources and
management's focus.
Year 2000 non-compliance by our customers, vendors or third parties could
adversely impact our business.
Many computers use two-digit date fields to identify a given year. Year 2000
non-compliance is the failure of date sensitive computing systems and
applications to properly recognize and process dates into and after the year
2000. Problems associated with such recognition failures may not become
apparent until some time after January 2000. We believe that our own products
do not contain any date sensitive components. However, we
11
<PAGE>
are unable to evaluate whether our customers', vendors' or third parties'
products are Year 2000 compliant. Purchasing patterns may be affected by Year
2000 issues if our customers are required to expend significant resources to
correct or replace their current systems. These customers and potential
customers may have fewer funds available to purchase our products. Further, our
vendors and suppliers may use computing systems that are not Year 2000
compliant. If a limited or sole source supplier experienced difficulties
relating to their computer system, we may be forced to expend resources in
locating an alternative supplier. In addition, our internal information and
manufacturing systems are dependent upon personal computers using date
sensitive components. If any of these systems were to fail, we may have to
expend financial and managerial resources to correct any problems.
Our former status as a Subchapter S corporation could expose us to liability.
We elected Subchapter S corporation status under the Internal Revenue Code
from our inception to the completion of this offering. Although we believe that
we met the Subchapter S corporation requirements under the Code during this
period, we have not requested, and the IRS has not made a determination, as to
our status. If the IRS were to challenge our status and determine that we did
not meet the Code requirements for Subchapter S corporations, we could be
liable for unpaid federal and state income taxes for all or a part of the time
that we elected Subchapter S corporation status, plus interest and possible
penalties.
Risks Related To This Offering
We are controlled by a small number of stockholders who could make decisions
that adversely affect other stockholders.
Peter Dawson, James Watkins and John Baggott will, in the aggregate, hold
57.1% of the outstanding shares of our common stock upon the closing of this
offering, or 55.6% if the underwriters exercise their over-allotment option in
full. As a result of their ownership share, these stockholders will have
significant control over management and operations and will have a significant
influence on all votes requiring stockholder approval, including votes to amend
our Restated Articles of Organization in certain respects or approve a merger,
sale of assets or other major corporate transactions.
Our stock has never been traded publicly and our stock price could be
volatile, which could affect your ability to resell your shares at a profit.
Prior to this offering, you could not buy or sell our common stock publicly.
An active market for our common stock may not develop or be sustained after
this offering. The stock market has from time to time experienced significant
price and volume fluctuations that have affected the market prices for the
securities of technology companies. As a result, you may not be able to resell
your shares at a price equal to or greater than the initial public offering
price.
The market price of our common stock may fluctuate significantly in response
to many factors, some of which are beyond our control, including the following:
. actual or anticipated fluctuations in our operating results;
. changes in market valuations of other technology companies;
. announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic relationships, joint
ventures or capital commitments;
. termination of a strategic relationship; and
. sales of common stock in the future.
12
<PAGE>
A significant number of shares are restricted from immediate resale but may
be sold into the market in the near future. This could cause the market price
of our common stock to drop significantly.
After this offering, we will have outstanding 16,994,000 shares of common
stock. This includes the 4,500,000 shares we and a selling stockholder are
selling in this offering, all of which may be resold in the public market
immediately. The remaining 12,494,000 shares of our total outstanding shares
are presently restricted but will become available for resale in the public
market as shown below.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them or are perceived by the
market as intending to sell them.
<TABLE>
<CAPTION>
Number of Shares Date of availability for resale into public market
---------------- --------------------------------------------------
<C> <S>
8,689,900 On August , 2000, due to a lock-up agreement these
stockholders have with Prudential Securities Incorporated on
behalf of the underwriting group. However, Prudential
Securities Incorporated can waive this restriction at any
time and without notice.
3,804,100 Between August , 2000 and February , 2001, due to the
requirements of the federal securities laws.
</TABLE>
After the date of this prospectus, we intend to file one or more
registration statements under the Securities Act to register all shares of
common stock issuable upon the exercise of outstanding stock options or
reserved for issuance under our Amended and Restated 1999 Stock Option Plan of
which 558,400 will be immediately exercisable as of March 1, 2000 and 528,400
shares will be exercisable within 60 days of December 1, 1999. Those
registration statements are expected to become effective immediately upon
filing, and subject to the vesting requirements and exercise of the related
options and the grant of stock awards as well as the terms of the lock-up
agreements, shares covered by those registration statements will be eligible
for sale in the public markets, except for any shares held by our
"affiliates."
Investors in this offering will experience immediate and substantial
dilution.
The initial public offering price of our stock is substantially higher than
the net tangible book value per share of our common stock immediately after
this offering. Therefore, if you purchase our common stock in the offering,
you will incur immediate and substantial dilution of approximately $8.76 per
share in the net tangible book value per share of common stock from the price
you pay for a share of common stock in the offering based upon the assumed
initial public offering price of $11.00 per share. As of December 17, 1999,
there were options outstanding to purchase 2,589,500 shares of our common
stock at a weighted average exercise price of $3.36. To the extent any of
these options are exercised, you will suffer dilution greater than the $8.64
per share described above.
Our management will have broad discretion in the use of proceeds and they may
not effectively utilize those funds.
Our management will have considerable discretion in the application of the
net proceeds of this offering and you will not have the opportunity, as part
of your investment decision, to assess whether the proceeds are being used
appropriately. The net proceeds may be used for corporate purposes that do not
increase our profitability or our market value.
Our charter and Massachusetts law may inhibit a takeover, which may limit the
price an investor is willing to pay for our common stock.
Certain provisions of our Restated Articles of Organization and Amended and
Restated Bylaws, and certain provisions of Massachusetts 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 EST. Such
provisions could
13
<PAGE>
limit the price that investors might be willing to pay in the future for the
EST's common stock. These provisions permit the issuance of "blank check"
preferred stock by the Board of Directors without stockholder approval, require
super-majority approval to amend certain provisions in the charter and Bylaws
and impose various procedural and other requirements that could make it more
difficult for stockholders to effect certain corporate actions. The application
of such provisions also could have the effect of delaying or preventing a
change of control in the Company.
14
<PAGE>
FORWARD-LOOKING STATEMENTS
This prospectus includes forward-looking statements. We have based these
forward-looking statements largely on our current expectations and projections
about future events and financial trends affecting the financial condition of
our business. These forward-looking statements are subject to a number of
risks, uncertainties and assumptions about us, including, among other things:
. General economic and business conditions, both nationally and in our
markets,
. Our expectations and estimates concerning future financial performance,
financing plans and the impact of competition,
. Anticipated trends in our business,
. Competition in our market, and
. Other risk factors set forth under "Risk Factors" in this prospectus.
In addition, in this prospectus, the words "believe," "may," "will,"
"estimate," "continue," "anticipate," "intend," "expect" and similar
expressions, as they relate to us, our business or our management, are intended
to identify forward-looking statements.
We undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
In light of these risks and uncertainties, the forward-looking events and
circumstances discussed in this prospectus may not occur and actual results
could differ materially from those anticipated or implied in the forward-
looking statements.
15
<PAGE>
SUBCHAPTER S CORPORATION AND TERMINATION OF SUBCHAPTER S CORPORATION STATUS
We have been treated as a Subchapter S corporation for federal income tax
purposes since we were organized on January 5, 1989. As a result, we have not
been liable for federal and certain state income taxes, and all of our earnings
have been subject to federal, and certain state, income taxation directly at
the stockholder level. Our Subchapter S corporation status will terminate upon
the closing of this offering, at which time we will become subject to corporate
income taxation under Subchapter C of the Internal Revenue Code and applicable
state income taxation law. Pro forma statement of operations data included in
this prospectus have been adjusted to include pro forma income tax provisions
as if we had been a Subchapter C corporation during the relevant periods.
As soon as practicable following the closing of this offering, we intend to
make a distribution to our stockholders of record on the day prior to the
effective date of the registration statement of $4.6 million, which is the
estimated amount of our cumulative Subchapter S income for the period we were a
Subchapter S corporation (from January 5, 1989 through the date of the closing
of this offering ) minus any distributions made to stockholders during this
period. Investors purchasing shares in this offering will not receive any
portion of the distribution.
We expect to enter into a Tax Indemnification Agreement with our existing
stockholders providing for, among other things, the stockholders to indemnify
us for any federal and state income taxes, including interest and penalties,
incurred by us if for any reason we are deemed to be treated as a Subchapter C
corporation during any period in which we reported our taxable income as a
Subchapter S corporation. The tax indemnification obligation of each existing
stockholder is limited to the aggregate amount of all distributions made to
such stockholders by us since the first day of the first tax year that we are
deemed to be treated as a Subchapter C corporation. We believe we have met the
requirements for a Subchapter S corporation and the Tax Indemnification
Agreement will provide for payment by our existing stockholders to us and by us
to our existing stockholders to adjust for any increases or decreases in tax
liability arising from a tax audit which affects our tax liability and results
in a corresponding adjustment to the tax liability of our existing
stockholders. The amount of any payment cannot exceed the amount of refund
received from the IRS by us or our existing stockholders attributable to the
adjustment.
16
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from the sale of the 4,100,000 shares of
common stock to be sold by us will be approximately $40,943,000 ($45,802,250 if
the underwriters exercise their over-allotment option in full), assuming an
initial public offering price of $11.00 per share and after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us. We will not receive any proceeds from the sales of common stock by the
selling stockholder. We intend to use these net proceeds for the following
specific purposes:
. to make a distribution of previously undistributed Subchapter S
corporation income of approximately $4.6 million;
. to repay an outstanding balance of $2.4 million on a $2.5 million line of
credit from BankBoston, N.A., dated as of December 27, 1999. This line of
credit requires monthly payments of accrued interest to be paid until
August 31, 2001, at which time all outstanding principal is payable. The
line of credit accrues interest at an initial rate of 8.25% per annum and
is collateralized by all of our assets. The purpose of the borrowings
under the line of credit is to fund payments of taxes to the Internal
Revenue Service and state taxing authorities incurred by seven key
employee stockholders, other than the recipients of the $4.6 million
described above, who were awarded shares of common stock in 1999; and
. for general working capital purposes.
We have broad discretion regarding the use of some of the proceeds to us
from this offering. We currently intend to use the remainder of the net
proceeds from this offering for general corporate purposes, including working
capital, product development, the hire of additional engineers and the
expansion of our sales force, and expansion of our international operations. We
may also use a portion of the net proceeds to acquire or invest in
complementary businesses or products or to obtain the right to use
complementary technologies. We have no specific understandings, commitments or
agreements with respect to any such acquisition or investment. Pending these
uses, we plan to invest the net proceeds of this offering in short-term,
interest-bearing, investment-grade securities or guaranteed obligations of the
U.S. government.
DIVIDEND POLICY
We do not anticipate declaring or paying cash dividends in the foreseeable
future. We currently intend to retain all future earnings, if any, to finance
the expansion of our business. We currently intend, subject to our contractual
obligations under the Tax Indemnification Agreement, to retain earnings for the
expansion and continued development of our business. Our current loan agreement
restricts the payment of dividends without prior written consent. Other
restrictions or limitations on the payment of dividends may be imposed in the
future under the terms of credit agreements or under other contractual
provisions. In the absence of such restrictions or limitations, the declaration
and payment of any dividends will be at the discretion of our Board of
Directors.
17
<PAGE>
CAPITALIZATION
The following table sets forth EST's capitalization as of September 30,
1999:
(i) on an actual basis,
(ii) on a pro forma as adjusted basis after giving effect to:
. the intended distribution to stockholders of approximately $4.6
million, calculated as of December 31, 1998, of cumulative
undistributed Subchapter S corporation taxable income for which
stockholders of record prior to the closing of this offering have
been taxed and reclassification of the remaining undistributed
losses to additional paid-in capital. The actual amount to be
distributed is expected to remain the same based upon an estimate
of taxable earnings for the period from January 1, 1999 through
the closing of this offering, subject to certain limitations,
. termination of the redemption rights of the existing holders of
common stock upon consummation of the initial public offering,
and
. the sale of 4,100,000 shares of common stock in this offering at
an assumed initial public offering price of $11.00 per share,
after deducting underwriting discounts and commissions and
estimated offering expenses.
<TABLE>
<CAPTION>
September 30, 1999
-------------------------------------
Pro Forma
Actual As Adjusted
---------------- -------------------
(in thousands, except share data)
<S> <C> <C>
Note payable............................. $ 359 $ 359
Redeemable common stock:
Common stock, $0.10 par value;
45,000,000 shares authorized;
10,111,000 shares issued and
outstanding; none issued and
outstanding, as adjusted.............. 1,893 --
Note receivable from stockholder....... (550) --
---------------- ----------------
Total.............................. 1,343 --
Stockholders' equity:
Common stock, $.10 par value;
45,000,000 shares authorized;
2,783,000 shares issued and
outstanding; 16,994,000 shares
issued and outstanding, as adjusted... 278 1,699
Additional paid-in capital............. 8,206 40,092
Deferred compensation ................. (1,016) (1,016)
Note receivable from stockholder....... -- (550)
Accumulated deficit.................... (4,880) --
Accumulated other comprehensive loss... (66) (66)
---------------- ----------------
Total stockholders' equity .......... 2,522 40,159
---------------- ----------------
Total capitalization............... $ 4,224 $ 40,518
================ ================
</TABLE>
The common stock to be outstanding after this offering is based on shares
outstanding as of February 2, 2000 and excludes 2,555,500 shares of common
stock issuable upon the exercise of options outstanding as of such date at a
weighted average exercise price of $3.27 per share. See Note 8 of Notes to
Consolidated Financial Statements.
18
<PAGE>
DILUTION
Purchasers of the common stock in the offering will experience immediate and
substantial dilution in the net tangible book value of the common stock from
the initial public offering price. The pro forma net tangible book value per
share represents the amount of the total tangible assets less total
liabilities, divided by the number of shares of common stock outstanding. At
September 30, 1999, we had a pro forma net tangible book value of approximately
$(0.8) million or $(0.06) per share of common stock. After giving effect to the
sale of 4,100,000 shares of common stock offered by us at an assumed initial
public offering price of $11.00 per share, the assumed exercise of 2,555,500
options at a weighted average exercise price of $3.27 per share outstanding at
February 2, 2000 and after the deduction of underwriting discounts and
commissions and estimated offering expenses, pro forma net tangible book value
at September 30, 1999 would have been approximately $43.9 million or $2.24 per
share. This represents an immediate increase in net tangible book value of
$2.30 per share to existing shareholders and an immediate and substantial
dilution of $8.76 per share to new investors purchasing common stock in this
offering. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price........................ $11.00
Pro forma net tangible book value as of September 30, 1999. $(0.06)
Increase attributable to new investors..................... $ 2.30
Pro forma, as adjusted, net tangible book value after this
offering.................................................... 2.24
------
Dilution to new investors.................................... $ 8.76
======
</TABLE>
Excluding the effect of the assumed exercise of stock options, the pro
forma, as adjusted net tangible book value after this offering would be $2.36
per share and the dilution to new investors would be $8.64 per share.
The following table summarizes, on the pro forma basis described above as of
September 30, 1999, the differences between existing stockholders and new
investors in this offering with respect to the number of shares of common stock
purchased from us, the total consideration paid to EST and the average
consideration paid per share at an assumed initial public offering price of
$11.00 per share, before the deduction of underwriting discounts and
commissions and estimated offering expenses payable by us.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average
------------------ ------------------- Price
Number Percent Amount Percent Per Share
---------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing shareholders.......... 15,449,500 79.0% $ 8,345,000 15.6% $ 1.85
New investors.................. 4,100,000 21.0% $45,100,000 84.4% $11.00
---------- ----- ----------- -----
Total........................ 19,549,500 100.0% $53,445,000 100.0%
========== ===== =========== =====
</TABLE>
The foregoing discussion and tables assume no exercise of the underwriters'
over-allotment option.
19
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data set forth below should be
read in conjunction with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. The
selected consolidated statement of operations data for the years ended December
31, 1996, 1997 and 1998, and the selected consolidated balance sheet data as of
December 31, 1997 and 1998, are derived from and are qualified by reference to
the audited consolidated financial statements included elsewhere in this
prospectus. The consolidated financial statement of operations data for the
year ended December 31, 1995 and the consolidated balance sheet data as of
December 31, 1995 and 1996, have been derived from audited consolidated
financial statements of EST that do not appear in this prospectus. The
consolidated statements of operations data for the year ended December 31, 1994
and the consolidated balance sheet as of December 31, 1994, are derived from
unaudited consolidated financial statements of EST that do not appear in this
prospectus. The consolidated statement of operations data for the nine month
periods ended September 30, 1998 and 1999 and the consolidated balance sheet
data as of September 30, 1999 are derived from the unaudited consolidated
financial statements included elsewhere in this prospectus. The unaudited
consolidated financial statements have been prepared on the same basis as the
audited consolidated financial statements and, in the opinion of our
management, include all adjustments, consisting only of normal recurring
adjustments except with respect to the stock-related compensation expense
recorded in June 1999, necessary for a fair presentation of the information set
forth therein. The historical results are not necessarily indicative of the
operating results to be expected in the future.
EST has been treated as a Subchapter S corporation under the applicable
provisions of the Internal Revenue Code since January 5, 1989. As a Subchapter
S corporation, EST has not been subject to federal and certain state income
taxes. Therefore, the historical net income (loss) and net income (loss) per
share data set forth below does not include provision for federal income taxes.
The pro forma net income (loss) reflects the provision for income taxes that
would have been recorded had EST been a Subchapter C corporation, assuming an
effective tax rate of 40%, 40%, 32%, 34% and 40% for the years ended December
31, 1994, 1995, 1996, 1997 and 1998, respectively and 40% and 44% for the nine
months ended September 30, 1998 and 1999, respectively. See Notes 2 and 10 to
Notes to Consolidated Financial Statements.
20
<PAGE>
<TABLE>
<CAPTION>
Nine Months
Year Ended December 31, Ended September 30,
-------------------------------------- -------------------
1994 1995 1996 1997 1998 1998 1999
------ ------ ------ ------- ------- -------------------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Revenues................ $3,568 $4,787 $8,262 $11,766 $18,250 $ 13,171 $ 19,544
Cost of revenues........ 1,661 1,326 1,945 2,874 3,823 2,968 3,789
------ ------ ------ ------- ------- --------- ---------
Gross profit............ 1,907 3,461 6,317 8,892 14,427 10,203 15,755
Selling and marketing... 1,204 1,575 2,833 4,052 7,236 5,111 7,274
Research and
development............ -- 1,100 1,636 2,150 3,085 2,281 3,378
General and
administrative......... 339 314 541 721 1,040 766 999
Stock-related
compensation expense
(1).................... -- -- -- -- -- -- 9,363
------ ------ ------ ------- ------- --------- ---------
Total operating
expenses............... 1,543 2,989 5,010 6,923 11,361 8,158 21,014
Income (loss) from
operations............. 364 472 1,307 1,969 3,066 2,045 (5,259)
Interest income
(expense).............. -- -- (22) 22 42 21 37
------ ------ ------ ------- ------- --------- ---------
Income (loss) before
provision for
income taxes and
minority interest in
majority owned
subsidiary............. 364 472 1,285 1,991 3,108 2,066 (5,222)
Provision for income
taxes.................. 60 111 116 131 218 157 423
------ ------ ------ ------- ------- --------- ---------
Income before minority
interest in majority
owned subsidiary....... 304 361 1,169 1,860 2,890 1,909 (5,645)
Minority interest in
majority
owned subsidiary....... 66 92 68 -- -- -- --
------ ------ ------ ------- ------- --------- ---------
Net income (loss)....... 238 269 1,101 1,860 2,890 1,909 (5,645)
====== ====== ====== ======= ======= ========= =========
Accretion of redeemable
common stock to
redemption value...... -- -- -- -- -- -- (1,893)
------ ------ ------ ------- ------- --------- ---------
Net income (loss) to
common stockholders.... $ 238 $ 269 $1,101 $ 1,860 $ 2,890 $ 1,909 $ (7,538)
====== ====== ====== ======= ======= ========= =========
Historical net income
(loss) per share -
basic and diluted...... $ 0.02 $ 0.03 $ 0.11 $ 0.18 $ 0.29 $ 0.19 $ (0.67)
====== ====== ====== ======= ======= ========= =========
Pro forma statement of
operations data
(unaudited):
Historical income (loss)
before income taxes.... $ 364 $ 472 $1,285 $ 1,991 $ 3,108 $ 2,066 $ (5,222)
Pro forma provision for
income taxes assuming C
corporation tax........ 146 189 411 677 1,243 826 (2,298)
------ ------ ------ ------- ------- --------- ---------
Pro forma net income
(loss)................. $ 218 $ 283 $ 874 $ 1,314 $ 1,865 $ 1,240 $ (2,924)
====== ====== ====== ======= ======= ========= =========
Pro forma net income
(loss) per common
share - basic and
diluted................ $ 0.02 $ 0.03 $ 0.09 $ 0.13 $ 0.18 $ 0.12 $ (0.25)
====== ====== ====== ======= ======= ========= =========
<CAPTION>
December 31, September 30, 1999
-------------------------------------- -------------------
1994 1995 1996 1997 1998 Actual Pro Forma
------ ------ ------ ------- ------- -------------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Balance Sheet Data:
Cash and cash
equivalents............ $ 178 $ 232 $ 618 $ 1,158 $ 2,440 $ 1,579 $ 1,579
Working capital......... 272 507 1,513 2,321 3,848 3,019 3,019
Total assets............ 1,133 2,229 3,072 4,728 7,604 10,329 10,329
Redeemable common stock. -- -- -- -- -- 1,893 --
Total stockholders'
equity (deficit)....... (807) 530 1,609 2,685 4,393 2,522 (784)
</TABLE>
- --------
(1) The stock-related compensation expense relates to the issuance of
2,783,000 shares of common stock and the grant of options to purchase
1,692,000 shares of common stock to employees in June 1999. See Note 8 to
Notes to Consolidated Financial Statements.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of the financial condition and results
of operations of EST should be read in conjunction with "Selected Consolidated
Financial Data" and EST's consolidated financial statements and notes thereto
appearing elsewhere in this prospectus. This discussion and analysis contains
forward-looking statements that involve risks and uncertainties. You should not
place undue reliance on these forward-looking statements. Our actual results
may differ materially from those anticipated in these forward-looking
statements as a result of certain important factors, including, but not limited
to, those set forth under "Risk Factors" and elsewhere in this prospectus.
Overview
We are a leading provider of integrated hardware and software tools for
programming, testing and debugging embedded systems. Embedded systems are
special purpose computers within intelligent industrial and consumer products
such as network switches and routers, cellular base stations, process control
systems, cell phones, printers and anti-lock braking systems. Our products
enable developers to quickly and reliably program and debug the embedded
systems that manufacturers build into their industrial and consumer products.
Founded in January 1989 by our current president and chief executive
officer, Peter Dawson, we have experienced consistent annual growth in revenues
and operating profits, except for a loss in the nine months ended September 30,
1999 attributable to the compensation charge described further below. We have
financed this growth principally from operations and, to a lesser extent,
through periodic short-term bank borrowings. Prior to the offering, EST's
common stock was owned solely by its founder, officers and employees.
Over the three years ended December 31, 1998, revenues have grown at a
compound annual rate of 56%. We have experienced significant revenue growth
both internationally and domestically as a result of our late 1997 transition
from indirect sales through manufacturing representatives to direct sales
utilizing our own sales personnel; overall growth in industry demand; increased
penetration of major domestic and international accounts; our focus on adding
more functionality and features in an integrated hardware/software development
solution; and comprehensive customer support available from our experienced
development engineers, sales personnel and technical support teams.
Revenues are recognized when products are shipped against written purchase
orders. Service and extended warranty revenues, which are not significant, are
recognized as earned over the related contract periods. We sell our products
pursuant to purchase orders and do not have long term contracts with customers.
Because we typically ship within 30 days of receipt of an order, we do not have
a significant backlog. The lack of any substantial backlog could contribute to
fluctuations in quarterly operating results.
In the nine months ended September 30, 1999, we recorded compensation
expense of $9.3 million related to the fair value of common stock and stock
options awarded to employees and to partial payment of related tax liabilities
on behalf of employees related to the common stock awards. For more
information, please see Note 8 to Notes to the Consolidated Financial
Statements.
Our business could over time be affected materially by competitive changes
in the embedded systems industry, including industry consolidation, decisions
by major industry elements to change their methods of securing tool support for
customer development, improved or restricted access to qualified engineering
employees (for sales and support as well as for research and development), our
present efforts to adapt our tools to support non-Motorola microprocessors, as
well as general industry conditions and trends in individual overseas
economies.
Costs of revenues as a percentage of sales could be affected by any number
of factors, including availability and prices of key components and
subassemblies. Any gradual improvement in margins as a result
22
<PAGE>
of greater software value and manufacturing efficiencies may well be offset by
higher expenses relating to customer and technical support.
Our policy is to hire sales, support and development engineers qualified in
the embedded systems field whenever they become available. We are currently
hiring aggressively to staff up for the development and introduction of tools
for new microprocessor families. Hiring in advance of budget could adversely
effect our quarterly results. We intend to continue and accelerate our policy
of maximizing growth in products, features and customer support with the view
of maximizing long-term shareholder value.
Results of Operations
The following table sets forth for the periods indicated the percentage of
total revenue of certain line items included in our statement of operations:
<TABLE>
<CAPTION>
Year Ended December Nine Months
31, Ended September 30,
---------------------- --------------------
1996 1997 1998 1998 1999
------ ------ ------ --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues........................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues................ 23.5 24.4 20.9 22.5 19.4
------ ------ ------ --------- ---------
Gross profit................ 76.5 75.6 79.1 77.5 80.6
------ ------ ------ --------- ---------
Operating expenses:
Selling and marketing......... 34.3 34.4 39.7 38.8 37.2
Research and development...... 19.8 18.3 16.9 17.3 17.3
General and administrative.... 6.5 6.1 5.7 5.8 5.1
Stock-related compensation
expense (1).................. -- -- -- -- 47.9
------ ------ ------ --------- ---------
Total operating expenses.... 60.6 58.8 62.3 61.9 107.5
------ ------ ------ --------- ---------
Income (loss) from operations... 15.9 16.8 16.8 15.6 (26.9)
Interest income (expense)....... (0.3) 0.2 0.2 0.2 0.2
------ ------ ------ --------- ---------
Income (loss) before provision
for income taxes and minority
interest in majority owned
subsidiary..................... 15.6 17.0 17.0 15.8 (26.7)
Provision for income taxes...... 1.4 1.1 1.2 1.2 2.2
------ ------ ------ --------- ---------
Income (loss) before minority
interest in majority owned
subsidiary..................... 14.2 15.9 15.8 14.6 (28.9)
Minority interest in majority
owned subsidiary .............. 0.8 -- -- -- --
------ ------ ------ --------- ---------
Net income (loss)............... 13.4% 15.9% 15.8% 14.6% (28.9)%
====== ====== ====== ========= =========
</TABLE>
- --------
(1) The stock-related compensation expense relates to the issuance of
2,783,000 shares of common stock and the grant of options to purchase
1,692,000 shares of common stock to employees in June 1999. See Note 8 to
Notes to Consolidated Financial Statements.
Nine Months Ended September 30, 1999 Compared to Nine Months Ended September
30, 1998
Revenues. Revenues increased to $19.5 million in the nine months ended
September 30, 1999 from $13.2 million in the nine months ended September 30,
1998, an increase of 48.4%. Domestic revenue increased from $9.4 million in the
nine months ended September 30, 1998 to $13.2 million in the nine months ended
September 30, 1999, an increase of 40.4%, while foreign revenue increased from
$4.5 million in the nine months ended September 30, 1998 to $6.3 million in the
nine months ended September 30, 1999, an increase of 75.9%. Unit sales for all
significant product lines increased. Our subsidiaries in Japan and the UK
contributed strongly to unit sales growth in overseas revenues for the nine
months as compared with the comparable period in 1998.
23
<PAGE>
Cost of Revenues. Cost of revenues consists of materials (including
procurement costs of finished boards and subassemblies), manufacturing expenses
(final test, assembly and quality control), and costs associated with our
technical support department. For the nine months ended September 30, 1999
compared to the comparable period in 1998, cost of revenues increased to $3.8
million in 1999 from $3.0 million in the 1998 period, but declined as a
percentage of revenues from 22.5% to 19.4%. The decline in cost of revenues as
a percentage of revenues and commensurate increase in gross margins is
attributable to increased features and functionality delivered in our bundled
products, as well as to overall manufacturing efficiencies on higher volumes.
Selling and Marketing. Selling and marketing expenses increased by 42.3%
from $5.1 million in the nine months ended September 30, 1998 to $7.3 million
in the nine months ended September 30, 1999, but decreased as a percentage of
revenue from 38.8% to 37.2% during this period. The increase in selling and
marketing expenses was principally due to a growth in sales and marketing
personnel, including salaries, related benefits, commissions, travel and other
personnel-related expenses, from 26 at September 30, 1998 to 35 at September
30, 1999. We intend to continue to increase the number of sales and marketing
personnel and these associated expenses are likely to continue to increase.
Research and Development. Research and development expenses increased to
$3.4 million in the nine months ended September 30, 1999 from $2.3 million in
the nine months ended September 30, 1998, an increase of 48.1%, and remained
constant at 17% as a percentage of revenue. The increase in research and
development expenses (which includes salaries and related benefits as well as
expenses for development materials and depreciation on computer facilities
related to personnel) was principally due to a growth in research and
development personnel from 21 at September 30, 1998 to 35 at September 30,
1999. Our plans to adapt our development tools for use with non-Motorola
microprocessor architectures, to add application specific features and to
provide software services to our tools suite, will result in increases in these
expenses in the future.
General and Administrative. General and administrative expenses increased to
$1.0 million in the nine months ended September 30, 1999 from $0.8 million in
the nine months ended September 30, 1998, an increase of 30.4%, but decreased
as a percentage of revenue from 5.8% in the nine months ended September 30,
1998 to 5.1% in the nine months ended September 30, 1999. The increase in
general and administrative expenses was principally due to a growth in general
and administrative personnel from three at September 30, 1998 to six at
September 30, 1999. We expect to add additional personnel and incur increased
infrastructure costs in support of growth and our status as a publicly-held
company.
Stock-Related Compensation Expense. Results for the nine months ended
September 30, 1999 include a charge of $9.3 million related to the fair value
of common stock and stock options awarded to employees and to partial payment
of related tax liabilities on behalf of employees related to the common stock
awards. For more information, please see Note 8 to Notes to the Consolidated
Financial Statements.
Interest Income. Interest income increased to $37,000 in the nine months
ended September 30, 1999 from $21,000 in the nine months ended September 30,
1998, an increase of 76.2%. The increase in interest income was largely due to
higher average cash balances.
Year Ended December 31, 1998 Compared to Year Ended December 31, 1997
Revenues. Revenues increased to $18.3 million in the year ended December 31,
1998 from $11.8 million in the year ended December 31, 1997, an increase of
55.1%. Domestic revenue increased from $9.0 million in the year ended December
31, 1997 to $12.9 million in the year ended December 31, 1998, an increase of
43.3%, while foreign revenue increased from $2.8 million in the year ended
December 31, 1997 to $5.3 million in the year ended December 31, 1998, an
increase of 89.3%. All product lines contributed to the revenue growth. The
increase in revenues was due to greater market penetration achieved through an
increase in direct sales personnel as a result of the shift from indirect to
direct selling, both domestically and internationally.
24
<PAGE>
Cost of Revenues. Cost of revenues increased to $3.8 million for the period
ended December 31, 1998 from $2.9 million for the period ended December 31,
1997, an increase of 33%, but declined as a percentage of revenues to 20.9%
from 24.4%. The corresponding increase in gross margin was principally due to
lower costs associated with direct sales in 1998 compared to sales through
manufacturers' representatives in 1997.
Selling and Marketing. Selling and marketing expenses increased to $7.2
million for the year ended December 31, 1998 from $4.1 million for the year
ended December 31, 1997, an increase of 78.6%, but increased as a percentage of
revenue from 34.4% to 39.6%. The year-to-year increase in expenses was due to
higher personnel and related costs associated with converting our distribution
channel from reliance on manufacturers' representatives to a direct sales
force. This conversion involved opening several new sales offices and forming
two new subsidiaries, and increasing selling and marketing personnel from 21 at
December 31, 1997 to 29 at December 31, 1998.
Research and Development. Research and development expenses increased to
$3.1 million in the year ended December 31, 1998 from $2.2 million in the year
ended December 31, 1997, an increase of 43.5%, but decreased as a percentage of
revenue from 18.3% to 16.9%. The increase in research and development expenses
was principally due to increased costs associated with an increase in research
and development personnel from 16 at December 31, 1997 to 23 at December 31,
1998.
General and Administrative. General and administrative expenses increased to
$1.0 million in the year ended December 31, 1998 from $0.7 million in the year
ended December 31, 1997, an increase of 44.2%, but decreased as a percentage of
revenue from 6.1% to 5.7%. The increase in general and administrative expenses
resulted from higher compensation awarded to key employees in the year ended
December 31, 1998.
Interest Income. Interest income increased to $42,000 in the year ended
December 31, 1998 from $22,000 in the year ended December 31, 1997, an increase
of 90.9%. The increase in interest income was largely due to higher average
cash balances.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Revenues. Revenues increased to $11.8 million for the year ended December
31, 1997 from $8.3 million for the year ended December 31, 1996, an increase of
42.5%. Domestic revenue increased from $6.1 million for the year ended December
31, 1996 to $9.0 million for the year ended December 31, 1997, an increase of
47.5%, while foreign revenue increased from $2.1 million for the year ended
December 31, 1996 to $2.8 million for the year ended December 31, 1997, an
increase of 38.1%. All significant product lines participated in revenue
growth.
Cost of Revenues. Cost of revenues increased to $2.9 million for the period
ended December 31, 1997 from $1.9 million for the period ended December 31,
1996, an increase of 48%, and increased slightly as a percentage of revenues to
24.4% from 23.5%. The corresponding decline in gross margin was attributable to
increased technical support spending and other manufacturing expenditures.
Selling and Marketing. Selling and marketing expenses increased to $4.1
million for the year ended December 31, 1997 from $2.8 million for the year
ended December 31, 1996, an increase of 43.0%, remaining stable as a percentage
of revenue. The year-to-year increase in selling and marketing expenses related
directly with an increase in selling and marketing personnel from 13 at
December 31, 1996 to 21 at December 31, 1997.
Research and Development. Research and development expenses increased to
$2.2 million for the year ended December 31, 1997 from $1.6 million for the
year ended December 31, 1996, an increase of 31.4%, but decreased as a
percentage of revenue from 19.8% for the year ended December 31, 1996 to 18.3%
for the year ended December 31, 1997. The increase in research and development
expenses principally resulted from an increase in research and development
personnel from 10 at December 31, 1996 to 16 at December 31, 1997.
25
<PAGE>
General and Administrative. General and administrative expenses increased to
$0.7 million for the year ended December 31, 1997 from $0.5 million for the
year ended December 1996, an increase of 33.3%, but decreased as a percentage
of revenue from 6.5% for the year ended December 31, 1996 to 6.1% for the year
ended December 31, 1997. The increase in general and administrative expenses
was principally due to an increase in general and administrative salaries and
an increase in other expenses associated with an overall company-wide increase
in personnel.
Interest Income and Interest Expense. Interest income of $22,000 in the year
ended December 31, 1997 reflected higher average cash balances versus bank
borrowings in the year ended December 31, 1996 which created interest expense
of $22,000.
26
<PAGE>
Quarterly Results of Operations
The following tables set forth a summary of EST's unaudited quarterly
results for each of the seven quarters ended September 30, 1999. This
information has been derived from unaudited interim consolidated financial
statements that, in the opinion of management, have been prepared on a basis
consistent with the audited Consolidated Financial Statements contained
elsewhere in this prospectus and include all adjustments, consisting only of
normal recurring adjustments, necessary for a fair presentation of such
information. The operating results for any quarter are not necessarily
indicative of results for any future quarterly period.
Statement of Operations Data:
<TABLE>
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ $3,476 $4,436 $5,259 $5,079 $5,530 $ 6,495 $7,519
Cost of revenues........ 791 1,201 976 855 1,083 1,282 1,424
------ ------ ------ ------ ------ ------- ------
Gross profit.......... 2,685 3,235 4,283 4,224 4,447 5,213 6,095
------ ------ ------ ------ ------ ------- ------
Operating expenses:
Selling and marketing. 1,322 1,599 2,190 2,125 2,026 2,497 2,751
Research and
development.......... 710 740 831 804 1,041 1,043 1,294
General and
administrative....... 235 280 251 274 280 343 376
Stock-related
compensation expense. -- -- -- -- -- 9,363 --
------ ------ ------ ------ ------ ------- ------
Total operating
expenses............. 2,267 2,619 3,272 3,203 3,347 13,246 4,421
------ ------ ------ ------ ------ ------- ------
Income (loss) from
operations............. 418 616 1,011 1,021 1,100 (8,033) 1,674
Interest income......... 7 3 11 21 14 13 10
------ ------ ------ ------ ------ ------- ------
Income (loss) before
provision for income
taxes.................. 425 619 1,022 1,042 1,114 (8,020) 1,684
Provision for income
taxes.................. 41 53 63 61 113 136 174
------ ------ ------ ------ ------ ------- ------
Net income (loss)....... $ 384 $ 566 $ 959 $ 981 $1,001 $(8,156) $1,510
====== ====== ====== ====== ====== ======= ======
As a Percentage of Revenues:
<CAPTION>
March 31, June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30,
1998 1998 1998 1998 1999 1999 1999
--------- -------- --------- -------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Revenues................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues........ 22.8 27.1 18.6 16.8 19.6 19.7 18.9
------ ------ ------ ------ ------ ------- ------
Gross profit.......... 77.2 72.9 81.4 83.2 80.4 80.3 81.1
------ ------ ------ ------ ------ ------- ------
Operating expenses:
Selling and marketing. 38.0 36.0 41.6 41.8 36.6 38.4 36.6
Research and
development.......... 20.4 16.7 15.8 15.8 18.8 16.1 17.2
General and
administrative....... 6.8 6.3 4.8 5.4 5.1 5.3 5.0
Stock-related
compensation expense. -- -- -- -- -- 144.2 --
------ ------ ------ ------ ------ ------- ------
Total operating
expenses............. 65.2 59.0 62.2 63.1 60.5 204.0 58.8
------ ------ ------ ------ ------ ------- ------
Income (loss) from
operations............. 12.0 13.9 19.2 20.1 19.9 (123.7) 22.3
Interest income......... 0.2 0.1 0.2 0.4 0.3 0.2 0.1
------ ------ ------ ------ ------ ------- ------
Income (loss) before
provision for income
taxes.................. 12.2 14.0 19.4 20.5 20.1 (123.5) 22.4
Provision for income
taxes.................. 1.2 1.2 1.2 1.2 2.0 2.1 2.3
------ ------ ------ ------ ------ ------- ------
Net income (loss)....... 11.0% 12.8% 18.2% 19.3% 18.1% (125.6)% 20.1%
====== ====== ====== ====== ====== ======= ======
</TABLE>
27
<PAGE>
During the seven quarters ended September 30, 1999, revenues increased
consecutively with the exception of the fourth quarter of 1998, during which we
experienced a slowdown in revenue primarily attributable to new product
introductions and a temporary slowing in industry demand. Cost of revenues
increased to 27.1% of revenues in the quarter ended June 30, 1998 as a result
of book-to-physical inventory charges and cost adjustments to inventory
incurred during that period. Stock-related compensation expense, during the
quarter ended June 30, 1999, attributable to the issuance of common stock to
seven key employees and the grant of stock options to employees in connection
with previously granted common stock rights and stock option rights, distorted
operating expenses and overall results for that period. Although overall
operating expenses during the seven quarters ended September 30, 1999 remained
steady or declined slightly as a percentage of revenues, accelerated spending
on the development of tools for new microprocessor families could significantly
increase research and development expenses both in absolute dollars and as a
percentage of revenues in future quarters.
Historical and Pro forma (Unaudited) Income Taxes
EST has been treated as a Subchapter S corporation for federal income tax
purposes since its organization in 1989. As such, EST has not been subject to
federal and certain state income taxes. Therefore, historical provision for
income taxes reflects state and foreign tax provisions only. The increase in
the provision for income taxes over the period from the year ended December 31,
1996 through the year ended December 31, 1998 and for the nine months ended
September 30, 1998 as compared to the nine months ended September 30, 1999 is
due to increased revenues and profits before taxes in EST's foreign
subsidiaries.
The pro forma provision for income taxes reflects the estimated tax expense
EST would have incurred had it been subject to federal and state income taxes
as a Subchapter C corporation under the Internal Revenue Code. The pro forma
provisions reflect pro forma tax rates of 32%, 34% and 40% for the year ended
December 31, 1996, 1997 and 1998, respectively and 40% and 44% for the nine
months ended September 30, 1998 and 1999, respectively. The increase in the pro
forma tax rates over these periods is principally due to higher foreign taxes
and, for the nine months ended September 30, 1999, an increase in research and
development tax credits which increased the tax benefit generated.
Liquidity and Capital Resources
Since our inception, we have financed our operations and capital
requirements primarily through cash provided by operations and periodic short-
term borrowing.
Cash provided by operations was $0.9 million, $1.7 million and $2.8 million
for the fiscal years ended December 31, 1996, 1997 and 1998, respectively, and
$1.5 million and $1.8 million for the nine months ended September 30, 1998 and
1999, respectively. Cash provided by operations for the nine months ended
September 30, 1999 was primarily driven by operating profit, excluding
compensation expense (see Note 8 to Notes to Consolidated Financial Statements)
as well as increases in accounts payable and accrued liabilities, offset by
increases in accounts receivable.
Working capital at September 30, 1999 was approximately $3.0 million
compared to approximately $3.8 million and approximately $2.3 million at
December 31, 1998 and 1997, respectively. The decrease in working capital from
December 31, 1998 to September 30, 1999 was primarily due to increased
expenditures to support EST's growing expense base.
In December 1999, we borrowed $2.4 million from BankBoston, N.A. to fund in
part the payment of federal and state taxes incurred by us and seven key
employees upon their receipt of stock-related compensation. We intend to repay
this line of credit from the proceeds of this offering. In addition, these
stockholders delivered promissory notes providing for the repayment of
approximately $0.5 million of this amount on or before April 1, 2005, which
notes will be collateralized by their shares of our common stock.
28
<PAGE>
We believe that the financial resources available to us, including the net
proceeds of the offering, our current working capital, and any future
availability under the working capital portion of our loan agreement, will be
sufficient to finance our planned operations and capital expenditures at least
through 2000. However, our future liquidity and capital requirements beyond
2000 will depend upon numerous factors, including the resources required to
further develop our marketing and sales organization domestically and
internationally, to expand manufacturing capacity, and to meet market demand
for our products.
Year 2000 Compliance
The Year 2000 problem stems from the fact that many currently installed
computer systems include software and hardware products that are unable to
distinguish dates after December 31, 1999. As a result, computer software
and/or hardware used by many companies and governmental agencies may need to be
upgraded to comply with Year 2000 requirements or risk system failure or
miscalculations causing disruptions to normal business activities.
We have defined Year 2000 compliant or Year 2000 readiness as the ability
to:
. Correctly handle date information needed for the December 31, 1999 to
January 1, 2000 date change;
. Function according to the product documentation provided for this date
change, without changes in operation, assuming correct configuration;
. Where appropriate, respond to two-digit date input in a way that
resolves the ambiguity as to century in a disclosed, defined and
predetermined manner;
. Store and provide output of date information in ways that are
unambiguous as to century if the date elements in interfaces and data
storage specify the century; and
. Recognize Year 2000 as a leap year.
State of Readiness. We have made an assessment of the Year 2000 readiness of
our mission critical operating, financial and administrative systems, including
the hardware and software that support our systems. This review included
assessing and validating and, where necessary, remediation, upgrading and
replacing noncompliant systems, hardware or software, as well as evaluating the
need for contingency planning.
We have completed our Year 2000 compliance efforts and believe that our
products are Year 2000 compliant in all material respects. For all other
mission critical internal information technology systems, we have determined
that all our critical hardware and software is up to date. A small number of
desktop computers and workstations whose operating systems are not Year 2000
compliant was identified, but are not used in ongoing business activities.
We are also conducting an assessment of our non-information technology
systems. Some aspects of our facilities and manufacturing equipment may include
embedded technology, such as microcontrollers. The Year 2000 problem could
cause a system failure or miscalculation in such facilities or manufacturing
equipment, which could disrupt our operations. Affected areas include voice
mail and phone systems and computer-based test equipment. We believe we have
identified and addressed all material systems for Year 2000 readiness.
Costs. Our costs to date associated with assessment, remediation and testing
activities concerning the Year 2000 problem have not been material. Costs
incurred for Year 2000 compliance for our products were included in the regular
costs of research and development. We estimate that we will not incur more than
approximately $5,000 of additional costs in connection with addressing Year
2000 compliance issues.
Worst Case Scenario. Our reasonably likely worst case Year 2000 scenario
would be that a material third party vendor or supplier, such as a limited or
sole source supplier or a microprocessor manufacturer or
29
<PAGE>
operating system supplier for which we develop tools, or a significant
customer, would, as a result of its own Year 2000 difficulties, fail to
successfully remediate Year 2000 problems in hardware, software or equipment
which is material to our business and operations. If this scenario occurred, we
may be required to seek out new vendors and suppliers, which may not be
available to us in a timely basis, if at all. Furthermore, we would be required
to certify certain new limited or sole source suppliers. If we are required to
seek out or certify new vendors or suppliers, it will be costly and divert
management attention and our resources, which could have a material adverse
effect on our business and operating results. If embedded systems manufacturers
were to cease using microprocessors or operating systems which our tools
support, our business would be harmed.
Contingency Plan. To date, we have no specific contingency plan to address
the effect of Year 2000 compliance failures. If, in the future, it comes to our
attention that certain of our products need modifications or certain of our
third party hardware, software and equipment are not Year 2000 compliant or
certain vendors are not Year 2000 compliant, then we will seek to make the
necessary modifications or substitutions. In such cases, we expect such
modifications or substitutions to be made on a timely basis and we do not
believe that the cost of such modifications or substitutions will have a
material effect on our business, financial condition and results of operations.
There can be no assurance, however, that we will be able to modify our
products, services, systems and equipment or find alternative vendors in a
timely and successful manner to comply with Year 2000 requirements, which could
have a material adverse effect on our business, financial condition and results
of operations.
Conversion to the Euro
On January 1, 1999, 11 European countries began using the euro as their
single currency, while still continuing to use their own notes and coins for
cash transactions. Bank notes and coins denominated in euros are expected to be
in circulation by 2002, at which time local notes and coins will cease to be
legal tender. We conduct a significant amount of business in these countries
and although our accounting systems permit invoicing in multiple currencies, to
date no customer has requested invoices in Euros. The introduction of the euro
has not resulted in any material adverse impact upon our operations, although
we continue to monitor the effects of the conversion.
Qualitative and Quantitative Disclosures About Market Risk
We are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Most of our revenue is transacted
in U.S. dollars. However, a significant portion of our international sales and
the expenses and capital spending of our international subsidiaries are
transacted in local currency. As a result, changes in foreign currency exchange
rates or weak economic conditions in foreign markets could affect our financial
results. We do not use derivative instruments to hedge our foreign exchange
risk. Our exposure to market risk for changes in interest rates relates
primarily to our cash and cash equivalents and loan agreement. The majority of
our investments are in short-term instruments and subject to fluctuations in
U.S. interest rates. Due to the short-term nature of our cash equivalents and
note payable, we believe that there is no material risk exposure.
Recent Accounting Pronouncements
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for EST's fiscal year 2000 financial statements and EST
does not expect its adoption to have a material effect on its financial
condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative
30
<PAGE>
instruments, including derivative instruments embedded in other contracts,
(collectively referred to as derivatives) and for hedging activities. We will
adopt SFAS No. 133 as required by SFAS 137, "Deferral of the Effective Date of
FASB Statement No. 133," in fiscal year 2001. The adoption of SFAS No. 133 is
not expected to have an impact on our financial condition or results of
operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements." SAB 101
summarizes the application of generally accepted accounting principles to
revenue recognition in financial statements. EST does not expect SAB 101 to
have a material effect on its financial position or results of operations.
31
<PAGE>
BUSINESS
Overview
We are a leading provider of integrated hardware and software tools for
programming, testing and debugging embedded systems. Our products enable
developers to quickly and reliably program and debug the embedded systems that
are part of the industrial and consumer products they manufacture. As the
complexity and speed of embedded systems increase, we believe that embedded
systems developers will require more efficient solutions to debug their
products and that we are well positioned to offer these solutions.
A significant portion of our customers are in the communications industry,
including telecommunications, data communications and Internet infrastructure
equipment suppliers. Our largest customers by revenue include Hewlett-Packard,
Lucent Technologies, Motorola, Nortel Networks, Tellabs Wireless and 3Com.
Industry Background
Embedded systems are the special purpose computers within intelligent
industrial and consumer products such as network switches and routers, cellular
base stations, process control systems, cell phones, printers and anti-lock
braking systems. As with all computers, embedded systems minimally consist of a
microprocessor, memory and software, and the level of complexity of that system
can be enhanced with additional components. Embedded systems differ from
general purpose computers, such as PCs, workstations and mainframes, in that
they are designed to run only the specific set of tasks required for the end
product to operate as intended. Manufacturers use embedded systems to enhance
functionality and performance, reduce cost and size, and improve reliability of
a broad variety of products, ranging from simple systems found in microwave
ovens to complex multiprocessor driven systems controlling the infrastructure
of the Internet.
According to industry and market research firms, at least 55% of the more
than 265 million microprocessors produced by the semiconductor industry in 1998
were used in embedded systems, while the remainder were used in general purpose
computers such as PCs. We participate in the market for the higher-end 32-bit
and greater embedded microprocessors, which is forecast to grow at a rate of
21%, from 106 million units in 1998 to 228 million units in 2002. Motorola is
the largest supplier of embedded microprocessors, with a market share of 35% in
1997, the latest year for which data is available. The market for embedded
software development tools is part of the overall embedded operating systems
and development tools market, which was approximately $550 million in 1998 and
is forecast to grow 14% annually through 2003.
The advancement in microprocessors to 32-bit and greater devices has enabled
the development of embedded systems capable of performing more complex tasks
more efficiently. As microprocessor prices have declined and performance has
increased, manufacturers have incorporated more powerful chips into embedded
systems in order to increase the end product's functionality, reduce product
size and cost, and enhance product reliability. As an example, the
implementation of more powerful embedded systems into increasing complex
communications infrastructure equipment has enabled the deployment of greater
network connectivity ranging from small local area networks to the Internet.
Building a complex embedded system requires significant technical expertise,
time and capital investment. Product manufacturers compete on the basis of the
functionality and quality of their products, and therefore must design and
develop increasingly complex embedded systems that possess greater speed,
performance and reliability. Competitive demands increase pressure to minimize
development costs and time to market. The necessity for product reliability and
interoperability leaves no margin for error or delay in the development cycle.
32
<PAGE>
Complex embedded systems development projects require sophisticated
development tools. In their search for shorter time to market, increased
functionality, and assured reliability, embedded systems developers demand, and
product manufacturers must invest, in technically sophisticated tools that help
them accomplish these objectives quickly, economically and reliably.
Our Solution
We design, manufacture, sell and support a comprehensive suite of bundled
high performance, open and scalable embedded systems development tools
consisting of both hardware and software components. We are a leading worldwide
provider of integrated tools necessary to develop complex embedded systems. Our
tools enable development engineers to program, test and debug embedded systems
quickly, economically and reliably at each stage of the development process. We
believe that our leadership position arises from the following:
Superior Development Tools. Our tools, which support five different
microprocessor families encompassing more than 50 microprocessor derivatives,
offer the following advantages:
. Bundled - We bundle source level software debuggers and other graphical
utilities with hardware tools to produce a complete solution for early
stage hardware and firmware development. Traditional hardware tools
makers generally do not engineer and bundle software development tools
with hardware tools. Conversely, software tool makers do not develop
their own hardware connectivity products. Our integrated solution
enables developers to more effectively visualize the operation of the
application software on the embedded microprocessor.
. Open - We enable developers using our tools to incorporate a broad range
of real-time operating systems and a wide range of applications. For
example, during the early stage of hardware and firmware development,
our tools allow customers to optimize their system design by choosing
and incorporating the real-time operating system best suited to their
end product. In the later applications software development phase, the
customer may choose to maintain hardware connectivity using our tools as
a platform while integrating tools from other vendors as appropriate.
. Graphical - Our software tools provide a rich graphical user-interface,
which gives developers easy access to multiple in-depth views of
microprocessor data and development status. For example, simultaneous
access to microprocessor registers and program data structures increases
developers' productivity.
. Scalable - Our hardware tools are modular and designed to easily allow
developers to configure and scale their development environments to meet
their specific needs. For example, developers using our entry level
products in the early stage of hardware and firmware development can
subsequently upgrade to our trace analyzer, which provides visibility
into the real time issues typically associated with later phases of the
development cycle.
Microprocessor Knowledge Base. We were one of the first companies in the
industry to develop and market tools for debugging Motorola microprocessors
using its on-chip debug capabilities. We have been able to adapt our tools to
work with over 50 different microprocessors within the Motorola and IBM
families. We have done this through relationships with Motorola and IBM, which
gives us early access to new microprocessor designs prior to commercial
release. We are then able to identify new features and implement them in our
tools for the new microprocessors. We also provide customers with hardware and
software reference designs, which enable them to initiate early development of
their embedded systems.
Comprehensive Customer Support. We believe customer support and service is a
critical component of our success. Our in-depth knowledge of microprocessor
technology enables us to provide a high level of technical and informational
support to our customers. We deploy a team of 41 sales and support engineers to
assist our customers throughout their development cycles. We effect a major
knowledge transfer to our customers by providing early development kits
containing single board computers and board support packages. We also offer our
customers formal one-day or three-day training sessions on the microprocessor
architectures
33
<PAGE>
we support. Because we use embedded systems in our own products and test and
debug them with our own tools, we can anticipate and provide solutions for the
problems our customers are likely to face in the development cycle.
Our Strategy
Our goal is to maintain and enhance our position as a technological and
market leader in embedded systems development tools. In order to achieve this
goal, we intend to:
Extend Our Technological Leadership. The embedded systems industry is
characterized by the introduction of faster microprocessors and more complex
applications software. We have established leadership in development tools by
bundling hardware and software solutions, and we must insure that our products
continue to embody the latest technologies and features. To accomplish this, we
intend to substantially increase our investment in research and development and
expand the number of engineers with embedded systems experience.
Continue Our Focus On Communications Applications. We believe that the
communications network and Internet infrastructure markets provide us with
major growth opportunities. A significant number of our customers build highly
complex data communications, telecommunications and Internet networking
equipment. These customers require greater visibility into their network
applications during the development stage. We plan to expand our product
offerings to address the specific needs of these developers by leveraging our
existing strengths within the communications market. To do this, we will focus
on making our tools more application specific by adding additional features for
networking and network data acquisition.
Increase Our Software Product Offerings. Our customers increasingly demand
integrated hardware and software development solutions. We intend to use our
strengths in the hardware bring-up development stage to extend and enhance our
software solutions for embedded systems. We plan to:
. extend our graphical user interface products to provide an integrated
development environment; and
. provide systems developers with initialization code and diagnostics that
can be embedded into a user's end application.
A key aspect of our strategy is to remain operating system independent; that
is, we will build our products to interface with a wide variety of operating
systems.
Satisfy Customer Demand for Additional Microprocessor Architectures. The
embedded microprocessor market is increasingly competitive, with semiconductor
manufacturers introducing new architectures for embedded applications. We have
adapted our tools to work with more than 50 different microprocessors from
Motorola and IBM. As our customers are exposed to an even wider choice of
microprocessor architectures, we intend to meet their needs by continuing to
adapt our development products for those architectures. Our product design
incorporating field programmable logic devices allows for timely and cost-
effective adaptations to new architectures.
Strengthen and Develop Strategic Alliances. We believe that our customers
are best served by our having strategic alliances with market leaders. We have
developed significant relationships with both Motorola and Wind River Systems.
These relationships provide us with early access to new microprocessor
technology as well as expanded sales channels. We intend to strengthen these
relationships as well as seek new alliances. Moreover, we may seek additional
technology or distribution channels through selective acquisitions.
Customers
Our customers develop a wide range of products that incorporate embedded
systems. A significant portion of our customers are in the communications
industry, including telecommunications, data communications and
34
<PAGE>
Internet infrastructure equipment suppliers. In each of 1996, 1997, 1998 and
the first nine months of 1999, no customer accounted for more than ten percent
or more of our revenues. Each of the following customers was one of our top ten
customers by sales during either of the years ended December 31, 1997 or 1998
or the first nine months of 1999:
<TABLE>
<S> <C>
Advanced Fibre Communications (1998, 1999)Next Level Systems (1997, 1998,
Ciena (1998) 1999)
General Instruments (1998) Nortel Networks (1997, 1998,
Lucent Technologies (1997, 1998, 1999) 1999)
Motorola (1997, 1998, 1999) Tellabs Wireless (1998, 1999)
</TABLE> 3 Com (1999)
The following is a representative list of emerging growth companies who have
purchased products from us during the first nine months of 1999:
Diamond Lane Sycamore Networks
Castle Networks Sunrise Telecom
Copper Mountain Networks Tut Systems
Strategic Relationships
We have established and will continue to pursue strategic relationships with
significant industry leaders to increase our market penetration and to maintain
our technological leadership. Our principal relationships are with Motorola, a
leading supplier of microprocessors for embedded systems, and with Wind River
Systems, a leading supplier of real time operating systems and software tools
for embedded applications.
Motorola. Our first products introduced in 1989 were hardware tools which
connected an embedded system developer's workstation to Motorola
microprocessors. Since that time we have enjoyed a close informal relationship
with Motorola that provides us with silicon design documentation and the
related pre-release versions of new microprocessors. This enables us to design
and build tools concurrently with Motorola's microprocessor development cycle
and make these tools available to embedded systems developers at the same time
that Motorola delivers the new microprocessor. These tools, which include
reference designs, help embedded systems designers evaluate the microprocessor
and initiate their development efforts prior to investing in their own hardware
design. Motorola benefits from our relationship because our tools help
customers adopt new microprocessors rapidly into their embedded systems, thus
reducing Motorola's sales cycle.
Wind River Systems. We have worked closely with Wind River Systems, a
leading supplier of real time operating systems and software tools for embedded
applications. We have jointly designed our tools to provide seamless
integration with Wind River's Tornado(TM) development environment. This
integration provides Wind River customers with critical hardware connectivity
while increasing our target market. In June 1999 we became one of a limited
number of charter members of the Wind River Direct Program. Our membership
allows Wind River's direct sales force to sell our development tools. Recently,
Wind River acquired a development tools company considered by us to be a direct
competitor. We anticipate that Wind River will focus on developing this new
line of business and that our relationship with Wind River is likely to weaken
over time, reducing the volume of sales and sales leads which we might
otherwise have expected.
Products
We offer bundled hardware and software tools and reference designs for
programming, testing and debugging complex embedded systems throughout their
development cycle. Our products are categorized as follows:
35
<PAGE>
Microprocessor Connectivity and Debug Run Control Products
We are a leader in hardware tools that connect a PC or workstation
programming station to a Motorola or IBM embedded microprocessor using on-chip
debug technology. On-chip debug is a set of services that silicon vendors
design into their microprocessors to allow developers to download and test
software running on the embedded system. Substantially all recent 32-bit and
64-bit microprocessors targeted for embedded applications have on-chip debug
capabilities designed into the microprocessor.
Product
Description
Benefits
visionPROBE
Entry-level on-chip . Easy control of the embedded
debug cable which microprocessor
connects a PC .Reduces development time
running visionCLICK .Enables flash programming
software to the .Used with over 50
embedded microprocessors
microprocessor
.All benefits of visionPROBE,
plus
-Turnkey network support
Scalable hardware -Scales with real-time trace
development tool option
connects PC or UNIX
programming station
to the
microprocessor via a
visionICE local area network
Host Software Tools
We develop, market and support software development tools which run on PCs
under Windows 9x/NT, as well as workstations under UNIX and Linux. The software
tools provide a graphical user interface designed to control and operate our
hardware connectivity tools and real-time data acquisition systems. The
software tools include C and C++ source-level debuggers. These high-level
language debuggers significantly increase developers' productivity by
correlating microprocessor data and status to the embedded program as
originally coded in the C or C++ programming language.
We bundle and sell our software tools in combination with our hardware tools
to form an integrated development solution. These tools are:
Product
Description
Benefits
visionCLICK Graphical User . Lets programmers control the
visionXD Interface and C/C++ embedded microprocessor
High Level Language . Multiple windows provide
Debuggers. easy and simultaneous access
visionCLICK runs to pertinent microprocessor
under PC/Windows; data and status
visionXD runs under . Correlates microprocessor
UNIX and Linux instructions and trace data
to high-level language
statements
Real-time Data Acquisition Systems
We market visionEVENT, a sophisticated real-time trace and data acquisition
system as a modular upgrade to visionICE. visionEVENT utilizes external
hardware to capture and store microprocessor activity while the microprocessor
continues to operate at full speed. Developers upload and analyze the captured
data in order to gain system visibility and identify complex software and
hardware bugs.
36
<PAGE>
Product
Description
Benefits
visionEVENT Modular real-time . Captures and stores
trace and data microprocessor code and
acquisition data at full processor
system speed
. Developers analyze the
captured data to identify
real-time hardware and
software problems
. Provides detailed timing
information used to
optimize the embedded
application
Reference Designs
We engineer, market, sell and support reference designs consisting of
microprocessor-based circuit boards, software examples and hardware design
documentation. These components, which constitute our reference designs, create
both a blueprint or roadmap for understanding the particular microprocessor
being programmed and a working environment for programming the microprocessor
prior to incorporation in a customer's product. These reference designs enable
our customers to begin developing systems with a new microprocessor in parallel
with their own hardware development. We also reduce our customers' total
development time by encouraging them to re-use much of the hardware and
software components and intellectual property included in the reference
designs. We offer the following reference designs to our customers:
Product
Description
Benefits
SBC8260 Reference designs . Board schematics, which
SBC8240 for specific accelerate customer
SBC603/740/750 Motorola embedded hardware development
MDP8xx microprocessors . Board support packages,
SBC520x which adapt operating
SBC5307 systems to target hardware,
SBC3xx reduce early software
SBC360 development time and enable
SBC34x software development in
parallel with hardware
development
- --------
x denotes that a design supports multiple microprocessor derivatives.
Sales and Marketing
Purchase decisions for development tools are generally not centralized.
Typically, project managers decide which development tools to use and their
decisions are based upon the nature of the project and the preferences of the
engineers using the tools. Therefore, our field salespeople may be
simultaneously pursuing multiple sales within the same company. We rely on our
field salespeople and support engineers to make and nurture these contacts with
customer decision makers.
Our field salespeople and support engineers market our products in North
America, Europe and Japan by direct contact, engineer to engineer, with project
managers and development engineers of existing and prospective customers. We
employ a total of 41 field salespeople and support engineers in North America,
Europe and Japan. We have eight offices in the major markets of North America,
and operate wholly-owned subsidiaries in Canada, France, Germany, Japan, Sweden
and the United Kingdom.
Our field salespeople and support engineers have on average 10 years
experience in selling to and supporting customers in the embedded systems
industry. We believe that the experience and expertise of our sales and support
staff has been critical in building and sustaining customer relationships.
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We contract with distributors of embedded systems development tools in
China, India, Israel, Italy, Korea, Spain and Taiwan for sales and customer
support in these countries. We also utilize direct mail and phone promotions to
targeted prospects and participate in national and international trade shows.
Competition
The market for development tools used in the embedded systems market is
highly competitive and characterized by rapidly changing technological needs
and capabilities. Competition focuses on a variety of factors, including the
availability of tools that are compatible with the customer's chosen embedded
microprocessor, engineering workstation and other software development
equipment, performance characteristics and features such as high-speed
processing, real-time visibility and control, high-level programming language
and ease-of-use, product reliability, price/performance characteristics,
customer service and worldwide support, and product availability and delivery
time. We believe that the relative importance of each of these factors to a
prospective customer varies for each development project depending upon the
complexity of the embedded system design, the microprocessor to be used, the
project development schedule and the software engineer's budget and experience
level.
Increased competition could result in price reductions, reduced margins or
loss of market share, any of which could materially adversely affect the
Company's business financial condition and results of operations. If we are
unable to compete successfully against current and future competitors, our
business will be materially adversely affected. We presently compete primarily
against Applied Microsystems, Agilent Technologies and Lauterbach GmbH. In
October, 1999, Wind River Systems acquired Integrated Systems, Inc., which had
earlier in the year acquired a development tools business directly competitive
with ours. Wind River is a major supplier of operating systems which are widely
used by embedded systems makers. We anticipate that Wind River will focus on
the manufacture and sale of programming tools directly competitive with ours
for use in the early stages of hardware and firmware development.
We anticipate that competition in the embedded systems market is likely to
intensify as competitors consolidate to broaden their product offerings. In
addition, microprocessor manufacturers may acquire or form alliances with
developers of development tools. We believe that much of the competition is
now, and will increasingly be, from companies larger than us and having
substantially greater technical, financial and marketing resources, as well as
larger customer bases and greater name recognition. To compete effectively, we
must continue to differentiate our development tools from those available or
under development by our competitors and we may find it necessary to enter into
alliances with other tool makers, or to acquire other technologies or product
lines, in order to broaden our product offerings.
Intellectual Property
Our success and ability to compete are dependent on our ability to develop
and maintain the proprietary aspects of our technology and products and operate
without infringing on the proprietary rights of others. We rely primarily on a
combination of trade secret, copyright law and contractual restrictions and to
a lesser extent patent law to protect the proprietary aspects of our products.
These legal protections afford only limited protection for our products. We
presently have one patent application pending in the United States and we
cannot be certain that a patent will be granted based on this or any other
application. We believe that our technological leadership is based on our know-
how, our in-depth expertise in microprocessor technology and our superior
utilization of known core technologies present in the industry.
For example, we utilize field programmable gate array technology to make our
tools programmable. This means that as we elect to adapt our tools to different
microprocessor architectures, we can do so by re-programming certain components
without having to effect a complete product redesign. At present, we have re-
programmed visionPROBE and visionICE to adapt to more than 50 different
microprocessors within the Motorola PowerPC(TM), ColdFire(TM) and CPU32
families and the IBM PowerPC(TM) family. We believe that this feature will also
enable us to re-program and adapt our tools for architectures from other major
microprocessor families.
38
<PAGE>
visionEVENT is our version of high speed logic analysis, or trace, which is
used by programmers to correct extremely complex embedded software bugs. This
technology uses passive pod connectivity, which facilitates connections to the
target microprocessor and enables traces to the microprocessor at higher bus
frequencies than tools using traditional emulation techniques.
CPMSpy is a recently introduced software utility bundled with visionCLICK.
As visionEVENT captures data from the microprocessor's communications processor
module, CPMSpy uploads the communications data and presents the programmer with
a three pane window showing key information about packet transmission and
behavior.
Our products are susceptible to reverse engineering; however, we believe
such a process would be difficult, laborious and costly. In addition, we
believe that due to rapid technological change, factors such as the
technological and creative skills of our personnel, new product developments
and enhancements to existing products are more important to establishing and
maintaining a leadership position than the various legal protections afforded
our products.
Research and Development
We invest significant resources in research and development. In general, we
have invested in new product development and major enhancements to our existing
products through product engineering. A significant portion of our research and
development has focused on:
. Broadening the capabilities of our integrated development environment;
. Adding new features to address the needs of the communications industry;
and
. Extending our product line to new microprocessors.
As of September 30, 1999, we had 34 employees engaged in research and
development. We expended approximately $1.6 million, $2.1 million and $3.0
million for the years ended 1996, 1997 and 1998, respectively, and $3.3 million
for the nine months ended September 30, 1999, on research and development.
Manufacturing and Facilities
We conduct final assembly, test, quality assurance, packaging and shipping
of our products at our 28,878 square foot plant in Canton, Massachusetts. Our
purchase managers conduct all parts procurement from the Canton office. Parts
suppliers are selected for their reputation and experience and their output is
tested for quality assurance in Canton. Purchased parts are then collected into
kits and sent for board assembly at any one of several qualified board assembly
companies located in close proximity to our plant. The completed boards are
returned to us for final assembly and testing.
Typically, our customers place orders when they are about to commence a new
product development cycle. Because we maintain an adequate inventory of
components and are able to assemble products quickly, we can satisfy most
orders within a short period of time after receiving the order. As a result, we
do not have a significant backlog of unfilled orders. We believe that backlog
is neither a significant factor in understanding our business nor a useful
means to predict potential revenue in any particular future period. However,
our inability to predict order volume at any particular time can result in
unexpected increases in our assembly activity. This requires us to maintain
considerable inventory of product components to avoid delivery delays under
such circumstances.
We moved to our current location in Canton in 1992 and have leased
additional space there as needed from time to time. The present lease expires
on January 1, 2003. We believe that our currently leased facilities are
adequate for operations for the foreseeable future. We presently maintain sales
offices in Dana Point and San Jose, California, Colorado Springs, Colorado,
Westford, Massachusetts, Ambler, Pennsylvania and
39
<PAGE>
Addison, Texas in the United States and Hampshire, England, Vallingby, Sweden,
Malsch, Germany, Tokyo, Japan, Montigny, France and Richmond, Canada. We expect
that we will need additional space if our business expands, and that we will be
able to obtain additional space on an as needed basis on commercially
reasonable terms.
Employees
As of September 30, 1999, we employed approximately 112 full time employees
world wide as follows: 34 in research and development; 45 in sales and
marketing; 10 in manufacturing; 8 in service and support; and 15 in
administration.
None of our employees is represented by a union. We believe that our
relationship with our employees is good.
Legal Proceedings
We are not a party to any material legal proceedings.
40
<PAGE>
MANAGEMENT
Directors and Executive Officers
The following table sets forth the directors and executive officers of EST,
their ages and the positions held by them.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Peter S. Dawson......... 44 Chairman of the Board of Directors, President and Chief Executive Officer
Mark F. Lapham.......... 53 Chief Financial Officer and Treasurer
James E. Watkins (1).... 37 Chief Operating Officer, Senior Vice President of Sales and
Marketing and Director
John T. W. Baggott ..... 64 Vice President of Human Resources and Director
Nicolas Lossky.......... 36 Vice President of European Sales and Business Development
Daniel McGillivray...... 36 Vice President of Sales for North America and Asia
Howard V. Neff, Jr. (1)
(2).................... 51 Director
P. J. Plauger, Ph.D (2). 55 Director
John C. Edmunds (1)(2).. 52 Director
</TABLE>
- --------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Peter S. Dawson has served as Chairman of the Board of Directors, President
and Chief Executive Officer of EST since he founded EST in January 1989. Prior
to 1989 Mr. Dawson was a principal software engineer and project leader at EMC
Corporation. Mr. Dawson attended the University of Hull in England where he
earned a B.S. in Electrical Engineering.
Mark F. Lapham has served as EST's Chief Financial Officer since April 1999
and as Treasurer since December 1999. From January 1995 to April 1998 Mr.
Lapham provided consulting services to several companies and in particular
served as Vice President of Corporate Development for MRS Technology. From
April 1998 to April 1999 he served as a consultant for Resources Connection.
Mr. Lapham received an A.B. from Harvard College and an M.B.A. from Babson
College.
James E. Watkins has served as EST's Senior Vice President of Sales and
Marketing from May 1991. Since September 1999 he has also served as Chief
Operating Officer of EST. Mr. Watkins holds a B.S. in Electrical Engineering
from the University of Missouri - Rolla. Mr. Watkins has served as a director
of EST since May 1991.
John T. W. Baggott joined EST in May 1991. He served as Vice President of
Finance and Treasurer of EST from May 1991 to December 1999. Since December
1999 he has served as Vice President of Human Resources of EST and has served
as a director since May 1991. Mr. Baggott was educated in England at S.W. Essex
College.
Nicolas Lossky joined EST in February 1993 as General Manager for EST
Corporation Europe and served in that position until August 1997. From August
1997 to February 1999 he served as Director of European Sales and Director of
Strategic Relationships. Since February 1999 Mr. Lossky has served as Vice
President of European Sales and Business Development. Mr. Lossky graduated from
Northeastern University and holds a B.S. in Computer Science.
Daniel McGillivray has served as the Vice President of Sales for North
America and Asia from April 1992 to January 1999. Mr. McGillivray holds an
M.B.A. from Boston University and a B.S. in Computer Science and Accounting
from Boston College.
Howard V. Neff, Jr. has served as a member of EST's Board of Directors since
June 1999. For the past five years, Mr. Neff has served as Senior Vice
President, Real Estate at Boston Mutual Insurance Company. Mr. Neff attended
Nichols College.
41
<PAGE>
P.J. Plauger, Ph.D has served as a member of EST's Board of Directors since
June 1999. Since 1995 Dr. Plauger has been President of Dinkumware, Ltd., which
licenses certain software libraries and on-line documentation. Dr. Plauger has
also served since 1990 as Senior Editor of The C/C++ User's Journal, and a
Contributing Editor to Embedded Systems Programming. Dr. Plauger received a
Ph.D. in nuclear physics from Michigan State University and an A.B. in physics
from Princeton University.
John C. Edmunds has served as a member of EST's Board of Directors since
December 1999. Mr. Edmunds is Chairman of Finance Faculty at Babson College and
since June 1998 has served as Professor of Quantitative Methods at the Arthur
D. Little School of Management. He is also a director of Greenpoint Mortgage
Securities, Inc.
Election of Officers and Directors
The executive officers of EST are elected by the Board of Directors on an
annual basis and serve until their successors are duly elected and qualified.
Our Restated Articles of Organization and Amended and Restated Bylaws provide
that our board of directors will be divided into three classes of directors,
with the classes to be as equal in number as possible. Messrs. Edmunds and
Baggott will serve as Class I directors, whose terms expire at the annual
meeting of stockholders to be held in 2000. Messrs. Neff and Plauger will serve
as Class II directors, whose terms expire at the annual stockholders meeting to
be held in 2001. Messrs. Dawson and Watkins will serve as Class III directors,
whose terms expire at the annual meeting of the stockholders to be held in
2002.
Board Committees
On December 17, 1999 we established an Audit Committee and a Compensation
Committee. The Audit Committee, which currently consists of Messrs. Neff,
Plauger and Edmunds, reviews our internal accounting procedures and consults
with and reviews the services provided by our independent accountants. The
Compensation Committee, which consists of Messrs. Watkins, Neff and Edmunds,
reviews and determines the compensation and benefits of all our officers and
reviews general policies relating to the compensation and benefits of employees
and administers our Amended and Restated 1999 Stock Option Plan.
Compensation Committee Interlocks and Insider Participation
Prior to December 1999, we did not have a separate compensation committee or
other board committee performing equivalent functions. These functions were
performed by our board of directors. In December 1999, we established a
compensation committee and appointed Messrs. Watkins, Neff and Edmunds to serve
on the compensation committee.
The compensation committee evaluates the salaries and incentive compensation
of management and employees of EST and administers our equity incentive plans.
Peter S. Dawson, Chairman of the Board, President and Chief Executive Officer,
participates in discussions and decisions regarding salaries and
incentive compensation for all employees and consultants of EST, except that he
is excluded from all discussions regarding his own salary and incentive
compensation. Other than Mr. Watkins, who serves as our Chief Operating Officer
and Senior Vice President of Sales and Marketing, no member of this committee
was at any time during the past year an officer or employee of EST or any of
its subsidiaries. Other than Mr. Watkins, no member of the compensation
committee owns any capital stock of EST. No interlocking relationships exist
between any member of the compensation committee and any member of any other
company's board of directors or compensation committee. No interlocking
relationship existed between any member of our board of directors and any
member of any other company's board of directors or compensation committee in
1998. Mr. Neff is a Senior Vice President, Real Estate of Boston Mutual
Insurance Company, the landlord of our principal office in Canton,
Massachusetts. We pay rent of $52,402 per month to Boston Mutual
Insurance Company.
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<PAGE>
Director Compensation
We pay each non-employee director $6,000 annually as compensation. Each
director is reimbursed for reasonable travel and other out-of-pocket expenses
incurred in attending meetings of the Board of Directors or of any committee of
the board of directors. Non-employee directors are eligible to receive options
to purchase shares of our common stock pursuant to our Amended and Restated
1999 Stock Option Plan. During 1999 we granted options to purchase 20,000
shares of common stock to each of our non-employee directors.
Executive Compensation
The table below sets forth the total compensation paid or accrued for the
fiscal year ended December 31, 1998 for our chief executive officer and each of
our four most highly compensated other executive officers who received annual
compensation in excess of $100,000 for the fiscal year ended December 31, 1998.
Summary Compensation Table
<TABLE>
<CAPTION>
Annual Compensation Long Term Compensation
------------------------------ ----------------------
Name and Principal Other Annual Number of Securities All Other
Position Salary Bonus Compensation Underlying Options Compensation
------------------ -------- -------- ------------ ---------------------- ------------
<S> <C> <C> <C> <C> <C>
Peter S. Dawson......... $497,115 $150,000 -- -- $21,821(1)
Chairman of the Board
of Directors, President
and Chief Executive
Officer
James E. Watkins........ $298,846 $ 75,000 -- -- $25,311(2)
Chief Operating Officer
and Senior Vice
President of
Sales and Marketing
John T. W. Baggott...... $249,135 $ 75,000 -- -- $19,911(3)
Vice President of Human
Resources
Nicolas Lossky.......... $185,268 $ 25,000 -- -- $24,021(4)
Vice President of
European Sales and
Business Development
Daniel McGillivray...... $242,839 -- -- -- $19,911(3)
Vice President of Sales
for North America and
Asia
</TABLE>
- --------
(1) Consists of $3,333 for 401(k) matching payments, $6,978 in 401(k) plan
contributions, $9,600 in defined contribution plan contributions and $2,910
in payments for a car allowance.
(2) Consists of $3,333 for 401(k) matching payments, $6,978 in 401(k) plan
contributions, $9,600 in defined contribution plan contributions and $5,400
in payments for a car allowance.
(3) Consists of $3,333 for 401(k) matching payments, $6,978 in 401(k) plan
contributions and $9,600 in defined contribution plan contributions.
(4) Consists of $3,333 for 401(k) matching payments, $6,978 in 401(k) plan
contributions, $9,600 in defined contribution plan contributions and $4,100
in payments for a car allowance.
Option Grants
The table below sets forth grants of stock options granted to each of the
named executive officers during fiscal year 1999. The exercise price per share
of each option was equal to the fair market value of the common stock on the
date of grant as determined by the board of directors. The potential realizable
value is calculated based on the term of the option at its time of grant (10
years). It is calculated assuming that the fair market
43
<PAGE>
value of common stock on the date of grant appreciates at the indicated annual
rate compounded annually for the entire term of the option and that the option
is exercised and sold on the last day of its term for the appreciated stock
price.
Option Grants
<TABLE>
<CAPTION>
Potential Realizable Value at
Assumed Annual Rates of
Individual Grants Stock Price Appreciation for
-------------------------------------------- Option Term
Number of Percent of
Securities Total
Underlying Options Exercise or
Options Granted to Base Price Expiration
Name Granted(1) Employees Per Share Date 5% 10%
- ------------------------ ---------- ---------- ----------- ---------- -----------------------------
<S> <C> <C> <C> <C> <C> <C>
Peter S. Dawson......... -- -- -- -- -- --
James E. Watkins........ -- -- -- -- -- --
John T. W. Baggott...... -- -- -- -- -- --
Nicolas Lossky.......... 10,000 0.4% $1.73(2) 7/01/09 $ 28,180 $ 44,872
50,000 2.0% $9.90 12/17/09 $ 806,303 $ 1,283,900
Daniel McGillivray...... 10,000 0.4% $1.73(2) 7/01/09 $ 28,180 $ 44,872
50,000 2.0% $9.90 12/17/09 $ 806,303 $ 1,283,900
</TABLE>
- --------
(1) The dates of exercisability of the options are determined in accordance
with their respective vesting schedules. These options vest in five equal
installments.
(2) The fair value at the grant date was $2.55 which was determined by the
Board of Directors based primarily upon the price per share of an arms'
length offer made by a third party in May 1999 to acquire EST and the
sales price of a comparable company sold in July 1999.
Amended and Restated 1999 Stock Option Plan
Our Amended and Restated 1999 Stock Option Plan was adopted by the Board of
Directors on June 15, 1999 and approved by our stockholders on the same day. It
was amended and restated in December 1999. The Plan provides employees,
directors, independent contractors, consultants and advisers an opportunity to
acquire an ownership interest and a shared incentive. During 1999, we granted
options to purchase a total of 2,589,500 shares of common stock to our
employees, of which options for 520,000 shares were granted to our executive
officers. The Plan is administered by the Compensation Committee of the Board
of Directors. As of December 21, 1999, 4,000,000 shares of our common stock
were reserved for issuance under the Plan. The Plan provides for the grant of
incentive stock options and nonqualified stock options. However, eligibility
for the grant of incentive stock options is limited to employees. Options need
not have identical terms with respect to each optionee. Options shall have such
terms and be exercisable in such manner and at such times as the Compensation
Committee may determine. Each option must expire within 10 years from the grant
date. Each option is transferable only by will or the law of descent and
distribution and exercisable only by the optionee during his or her lifetime.
The Plan remains in effect until June 15, 2009 or earlier if terminated by
the Board of Directors. Any amendment is subject to the approval of
stockholders only to the extent required by applicable laws, regulations or
rules. Rights and obligations under any option may not be materially altered or
impaired without the optionee's consent.
Employment and Non-Competition Agreements
We have entered into employment agreements with Messrs. Dawson, Watkins,
Lossky and McGillivray, which become effective upon completion of this
offering:
Mr. Dawson has agreed to serve as President and Chief Executive Officer of
EST, Mr. Watkins has agreed to serve as Chief Operating Officer and Senior Vice
President of Sales and Marketing, Mr. Lossky has agreed
44
<PAGE>
to serve as Vice President of European Sales and Business Development and Mr.
McGillivray has agreed to serve as Vice President of Sales for North America
and Asia, each for a period of three years. Their annual base salary will be
$300,000, $240,000, $150,000 and $170,000 respectively. Each will be entitled
to an annual bonus if certain performance targets established by them and our
Compensation Committee are met.
Under the agreements, we may terminate either for cause or without cause. If
we terminate any of them without cause we must continue salary payments for the
lesser of 52 weeks or the balance of the employment term. Each may resign on
180-days notice. Their agreements contain non-competition covenants and
provisions limiting the solicitation of our employees for other jobs. These
provisions survive termination of employment for a period of one year.
On July 1, 1999, we entered into an Employment Agreement with Mr. Baggott
and amended such agreement on December 17, 1999. Mr. Baggott's Employment
Agreement currently provides for an annual salary of $250,000. From January 1,
2000 through December 31, 2000 Mr. Baggott will be paid an annual salary of
$125,000 and be required to work no more than 20 hours per week as Vice
President of Human Resources. After December 31, 2002, Mr. Baggott may continue
to provide services to EST at the same level of compensation, provided,
however, his compensation and related benefits shall be reduced proportionately
if he reduces his responsibilities or time commitment. Mr. Baggott's agreement
contains non-solicitation and non-competition provisions that are intended to
survive termination of his employment.
45
<PAGE>
CERTAIN TRANSACTIONS
First Amended and Restated Shareholders' Agreement
On July 1, 1999 we entered into the First Amended and Restated Founding
Shareholders' Agreement with each of Messrs. Dawson, Watkins and Baggott, each
a director, officer and stockholder of EST. This Agreement will terminate upon
completion of this offering. However, pursuant to the Agreement Messrs. Dawson,
Watkins and Baggott could require EST to purchase annually 10% of their total
common stock or extend to each of them a loan in lieu of such purchase. On July
1, 1999 Mr. Baggott borrowed $550,000 from EST pursuant to a promissory note
secured by a pledge of his EST common stock. Mr. Baggott will pay his
obligations under the promissory note from the proceeds he shall receive from
the sale of his common stock in the offering. On December 17, 1999, each waived
his rights under the Agreement to borrow funds from us, participate in any new
stock issuances and require us to re-purchase any of their shares of common
stock.
Stock Grants
We granted to employees options to purchase 202,000 shares of our common
stock pursuant to our 1998 Stock Option Plan. Further, in years prior to 1998,
we granted 2,124,000 common stock rights to seven employees pursuant to so-
called "mirror stock" agreements entitling the employees to receive cash upon
the occurrence of certain events, and we issued an option to purchase 659,000
shares of our common stock to Nicolas Lossky which was not pursuant to a plan.
Of these common stock rights, 868,000 were granted to Daniel McGillvray. In
June 1999, we cancelled all outstanding common stock rights and stock options
granted to date. In lieu of cancelled common stock rights and the stock option
not pursuant to a plan, we issued 2,783,000 shares of common stock, which
included 659,000 shares to Mr. Lossky and 868,000 shares to Mr. McGillvray. In
lieu of the remaining cancelled stock options, we granted stock options for
202,000 shares of common stock under the 1999 Stock Option Plan. In connection
with the grant of 2,783,000 shares of common stock, we agreed to pay the
employees' tax liability resulting from the issuance of common stock, provided,
however, that the employees have agreed to repay an amount equal to their
capital gains tax liability. Each has agreed to evidence his or her obligation
with a promissory note collateralized by his or her shares of our common stock.
Payment of these notes will be due no later than April 1, 2005. See Note 8 to
Notes to Consolidated Financial Statements.
Distributions
We have been treated as a Subchapter S corporation for federal income tax
purposes since our formation in January 1989. As a result, we have never paid
federal, and certain state income taxes. Instead, all of our earnings are
subject to federal, and certain state, income taxation directly at the
stockholder level. In each calendar year, we have distributed enough cash to
our stockholders for them to pay their personal federal and state tax
liabilities to the extent related to our Subchapter S income. Our Subchapter S
corporation status will terminate upon the closing of this offering, at which
time we will become subject to corporate income taxation under Subchapter C of
the Internal Revenue Code. As soon as practicable following the closing of this
offering, we intend to make a distribution to the stockholders of record on the
day prior to the effective date of the registration statement in the amount of
approximately $4.6 million, which is the estimated amount of undistributed
cumulative Subchapter S income from our date of formation through the closing
of this offering, less the sum of amounts previously distributed.
Lease
Mr. Neff, a director of EST, is the Senior Vice President, Real Estate of
Boston Mutual Insurance Company, the landlord for our principal office in
Canton, Massachusetts. We pay rent in the amount of $52,402 per month to Boston
Mutual Insurance Company.
46
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth information regarding beneficial ownership of
our common stock as of December 1, 1999, including the selling stockholders, as
adjusted to reflect sale of common stock offered by us in this offering by:
. each of our directors and the named executive officers;
. all of our directors and executive officers as a group; and
. each person who beneficially owns more than 5% of the outstanding shares
of our common stock.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission, and includes voting or investment power
with respect to shares. For purposes of calculating the percentage of shares
beneficially owned, the number of shares of our common stock outstanding as of
December 1, 1999 was 12,894,000 shares. Shares of common stock issuable by EST
to a person named below pursuant to stock options that are exercisable within
60 days after December 1, 1999 are deemed to be beneficially owned and
outstanding for computing the percentage ownership of the person holding the
options. However, these shares are not deemed to be beneficially owned and
outstanding for computing the percentage ownership of any other person.
Unless otherwise indicated below, to our knowledge, all persons named in the
table have sole voting and investment power with respect to their shares of
common stock, except to the extent authority is shared by spouses under
applicable law. Unless otherwise indicated, the address of each person listed
on the table is c/o Embedded Support Tools Corporation, 120 Royall Street,
Canton, Massachusetts 02021.
<TABLE>
<CAPTION>
Shares Beneficially Owned Shares Beneficially Owned
Prior to the Offering Shares After the Offering (1)(2)
----------------------------- Being ---------------------------------
Name of Beneficial Owner Number Percent Offered Number Percent
- ------------------------ --------------- -------------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
Peter S. Dawson (3)..... 5,667,000 44.0% -- 5,667,000 33.3%
John T. W. Baggott (4).. 2,222,000 17.2 400,000 1,822,000 10.7
James E. Watkins ....... 2,222,000 17.2 -- 2,222,000 (5) 13.1
Nicolas Lossky (6)...... 659,000 5.1 -- 659,000 3.9
Daniel McGillivray (7).. 869,000 6.7 -- 869,000 5.1
Howard V. Neff, Jr...... -- * -- -- *
P. J. Plauger, Ph.D..... -- * -- -- *
John C. Edmunds......... -- * -- -- *
All current directors
and executive officers
as a group (8 persons) . 11,639,000 90.3% -- 11,239,000 66.1%
</TABLE>
- --------
* Beneficially owns less than 1% of the outstanding common stock.
(1) The number of shares of common stock deemed outstanding after this offering
includes the 4,100,000 shares of common stock being offered for sale in
this offering. The persons and entities named in the table have sole voting
and investment power with respect to the shares beneficially owned by them,
except as noted below. Share numbers include shares of common stock
issuable pursuant to outstanding options that may be exercised within the
60-day period following December 1, 1999.
(2) Assumes no exercise of the underwriters' over-allotment option.
(3) Includes 500,000 shares held in trust for the benefit of Mr. Dawson's minor
children. Mr. Dawson disclaims beneficial ownership of the shares.
(4) Includes 260,000 shares held in trust for the benefit of Mr. Baggott's
adult child. Mr. Baggott disclaims beneficial ownership of the shares.
(5) Includes the 200,000 shares of common stock to be sold in the event the
underwriters exercise their over-allotment option in full.
(6) Includes 58,000 shares held in trust for the benefit of Mr. Lossky's minor
children. Mr. Lossky disclaims beneficial ownership of these shares.
(7) Includes 87,000 shares held in trust for the benefit of Mr. McGillivray's
minor children. Mr. McGillivray disclaims beneficial ownership of the
shares.
47
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
We are authorized to issue 45,000,000 shares of common stock, $.10 par value
per share, and 5,000,000 shares of preferred stock, $.10 par value per share.
Common Stock
As of February 2, 2000, there were 12,894,000 shares of common stock
outstanding and held of record by ten stockholders.
Following the filing of the Restated Articles of Organization all holders of
common stock shall be entitled to one vote for each share held on all matters
submitted to a vote of stockholders and will 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 any
outstanding preferred stock. Upon the liquidation, dissolution or winding up of
EST, the holders of common stock are entitled to receive ratably the net assets
of EST available after the payment of all debts and other liabilities, 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 EST in this
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 that EST may designate and issue in the future.
Preferred Stock
The Restated Articles of Organization authorize our Board of Directors,
subject to certain limitations prescribed by law and without further
stockholder approval, from time to time to issue up to an aggregate of
5,000,000 shares of preferred stock, $.10 par value per share, in one or more
series and to fix or alter the designations, preferences and rights, and any
qualifications, limitations or restrictions thereof, of the shares of each such
series, including the number of shares constituting any such series and the
dividend rights, dividend rates, conversion rights, voting rights, terms of
redemption (including sinking fund provisions), redemption price or prices and
liquidation preferences thereof. The issuance of preferred stock may have the
effect of delaying, deferring or preventing a change in control of EST. Upon
the closing of this offering, there will be no shares of preferred stock
outstanding. EST has no present plans to issue any shares of preferred stock.
Massachusetts Law and Certain Provisions of EST's Restated Articles of
Organization and Amended and Restated By-Laws
Our Amended and Restated By-Laws include a provision excluding EST from the
applicability of Massachusetts General Laws Chapter 110D, entitled "Regulation
of Control Share Acquisitions." In general, this statute provides that any
stockholder of a corporation subject to this statute who acquires 20% or more
of the outstanding voting stock of a corporation may not vote such stock unless
the other stockholders of the corporation so authorize. In addition,
Massachusetts General Laws Chapter 156B, Section 50A generally requires that
publicly-held Massachusetts corporations have a classified board of directors
consisting of three classes as nearly equal in size as possible, unless such
corporation elects to opt out of the statute's coverage. The Amended and
Restated By-Laws contain provisions which give effect to Section 50A.
The Amended and Restated By-Laws require that nominations for the Board of
Directors made by a stockholder of a planned nomination must be given not less
than 30 and not more than 90 days prior to a scheduled meeting, provided that
if less than 40 days' notice is given of the date of the meeting, a stockholder
will have 10 days within which to give such notice.
48
<PAGE>
The Amended and Restated By-Laws also require that a stockholder seeking to
have any business conducted at a regularly scheduled meeting of stockholders
generally give notice to EST not less than 120 calendar days prior to the date
EST's proxy statement was released to stockholders in connection with the
previous year's annual meeting. Proposals for meetings of stockholders that are
not regularly scheduled must be received a resonable time before EST begins to
print its proxy materials. The notice from the stockholder must describe the
proposed business to be brought before the meeting and include information
about the stockholder making the proposal, any beneficial owner on whose behalf
the proposal is made. The By-Laws require EST to call a special stockholders
meeting at the request of stockholders holding at least 40% of the voting
ownership of EST.
The Restated Articles of Organization provide that the directors and
officers of EST shall be indemnified by EST to the fullest extent authorized by
Massachusetts law, as it now exists or may in the future be amended, against
all expenses and liabilities reasonably incurred in connection with service for
or on behalf of EST. In addition, the Restated Articles of Organization provide
that the directors of EST will not be personally liable for monetary damages to
EST for breaches of their fiduciary duty as directors, unless they have
violated their duty of loyalty to EST or its stockholders, acted in bad faith,
knowingly or intentionally violated the law, including the securities laws,
authorized illegal dividends or redemptions or derived an improper personal
benefit from their action as directors.
The Restated Articles of Organization provide that any amendment to the
Articles of Organization, the sale, lease or exchange of all or substantially
all of EST's property and assets, or the merger or consolidation of EST into or
with any corporation may be authorized by the approval of the holders of a
majority of the shares of each class of stock entitled to vote thereon, rather
than by two-thirds as otherwise provided by statute, provided that the
transactions have been authorized by a majority of the members of the Board of
Directors and the requirements of any other applicable provisions of the
Articles of Organization have been met.
The Restated Articles of Organization contain a provision excluding EST from
the applicability of Massachusetts General Laws Chapter 110F, which places
limitations on a Massachusetts corporation's ability to engage in business
combinations with certain stockholders for a period of three years.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is BankBoston, N.A.
49
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. The market price of our common stock could drop due to sales of a large
number of shares of our common stock or the perception that such sales could
occur. These factors could also make it more difficult to raise funds through
future offerings of common stock.
After this offering, 16,994,000 shares of common stock will be outstanding
(17,469,000 shares if the underwriters exercise their over-allotment option in
full). Of these shares, the 4,500,000 shares (5,175,000 shares if the
underwriters exercise their over-allotment option in full) sold in this
offering will be freely tradable without restriction under the Securities Act
except for any shares purchased by "affiliates" of the Company as defined in
Rule 144 under the Securities Act. The remaining 12,494,000 shares are
"restricted securities" within the meaning of Rule 144 under the Securities
Act. The restricted securities generally may not be sold unless they are
registered under the Securities Act or are sold pursuant to an exemption from
registration, such as the exemption provided by Rules 144 or 701 under the
Securities Act.
We, our officers, directors, all of our stockholders and a majority of our
optionholders, including the selling stockholders, have entered into lock-up
agreements pursuant to which we and they have agreed not to offer or sell any
shares of common stock or securities convertible into or exchangeable or
exercisable for shares of common stock for a period of 180 days after the date
of this prospectus without the prior written consent of Prudential Securities
Incorporated, on behalf of the underwriters. Transfers or dispositions can be
made in the case of gifts or estate planning transfers where the donee signs a
lock-up agreement. Prudential Securities Incorporated may, at any time and
without notice, waive any of the terms of these lock-up agreements specified in
the underwriting agreement. Following the lock-up period, these shares will not
be eligible for sale in the public market without registration under the
Securities Act unless such sales meet the conditions and restrictions of Rules
144 and 701 as described below.
As restrictions on resale end, the market price could drop significantly if
the holders of these restricted shares sell them, or are perceived by the
market as intending to sell them.
<TABLE>
<CAPTION>
Date of availability for resale
Number of shares into public market
---------------- -------------------------------
<C> <S>
8,689,900 August , 2000, due to lock-up agreements these stockholders
have with Prudential Securities Incorporated. However,
Prudential Securities Incorporated can waive this restriction
at any time and without notice.
3,804,100 Between August , 2000 and February , 2001, due to the
requirements of the federal securities laws.
</TABLE>
In general, under Rule 144 as currently in effect, any person (or persons
whose shares are aggregated), including an affiliate, who has beneficially
owned shares for a period of at least one year is entitled to sell, within any
three-month period, a number of shares that does not exceed the greater of
. 1% of the then-outstanding shares of common stock; and
. the average weekly trading volume in the common stock during the four
calendar weeks immediately preceding the date on which the notice of
such sale on Form 144 is filed with the Securities and Exchange
Commission.
Sales under Rule 144 are also subject to certain provisions relating to
notice and manner of sale and the availability of current public information
about EST.
In addition, a person (or persons whose shares are aggregated) who has not
been an affiliate of EST at any time during the 90 days immediately preceding a
sale, and who has beneficially owned the shares for at least two years, would
be entitled to sell such shares under Rule 144(k) without regard to the volume
limitation and
50
<PAGE>
other conditions described above. Therefore, unless otherwise restricted, Rule
144(k) shares may be sold immediately upon the completion of this offering. The
foregoing summary of Rule 144 is not intended to be a complete description.
Subject to limitations on the aggregate offering price of a transaction and
other conditions, Rule 701 may be relied upon with respect to the resale of
securities orginally purchased from EST by its employees, directors, officers,
consultants or advisors prior to the date the issuer becomes subject to the
reporting requirements of the Exchange Act. To be eligible for resale under
Rule 701, shares must have been issued pursuant to written compensatory benefit
plans or written contracts relating to the compensation of such persons. In
addition, the SEC has indicated that Rule 701 will apply to typical stock
options granted by an issuer before it becomes subject to the reporting
requirements of the Exchange Act, along with the shares acquired upon exercise
of such options (including exercises after the date of the offering).
Securities issued in reliance on Rule 701 are restricted securities and,
subject to the contractual restrictions described above, beginning 90 days
after the date of this prospectus, may be sold by persons other than
affiliates, subject only to the manner of sale provisions of Rule 144, and by
affiliates, under Rule 144 without compliance with its one-year minimum holding
period requirement. The foregoing summary of Rule 701 is not intended to be a
complete description.
Ninety days following the consummation of this offering, EST intends to file
a registration statement under the Securities Act to register the shares of
common stock available for issuance pursuant to its stock option plans as of
the date of this prospectus. Shares issued pursuant to these plans after the
effective date of such registration statement will be available for sale in the
open market subject to the lock-up period and, for affiliates of EST, subject
to conditions and restrictions of Rule 144.
51
<PAGE>
UNDERWRITING
We and each of the selling stockholders have entered into an underwriting
agreement with the underwriters named below, for whom Prudential Securities
Incorporated, Chase Securities Inc. and Needham & Company, Inc. are acting as
representatives. We and the selling stockholder are obligated to sell, and the
underwriters are obligated to purchase, all of the shares offered on the cover
page of this prospectus, if any are purchased. Subject to conditions of the
underwriting agreement, each underwriter has severally agreed to purchase the
shares indicated opposite its name:
<TABLE>
<CAPTION>
Number
Underwriters of Shares
------------ ---------
<S> <C>
Prudential Securities Incorporated....................................
Chase Securities Inc..................................................
Needham & Company, Inc................................................
---------
Total............................................................... 4,500,000
=========
</TABLE>
The underwriters may sell more shares than the total number of shares
offered on the cover page of this prospectus and they have, for a period of 30
days from the date of this prospectus, an over-allotment option to purchase up
to 475,000 additional shares from us and up to 200,000 additional shares from
another selling stockholder. If any additional shares are purchased, the
underwriters will severally purchase the shares in the same proportion as shown
in the table above.
The representatives of the underwriters have advised us and the selling
stockholders that the shares will be offered to the public at the offering
price indicated on the cover page of this prospectus. The underwriters may
allow selected dealers a concession not in excess of $[ ] share and such
dealers may reallow a concession not in excess of $[ ] share to certain other
dealers. After the shares are released for sale to the public, the
representatives may change the offering price and the concessions. The
representatives have informed us that the underwriters do not intend to sell
shares to any investor who has granted them discretionary authority.
We and the selling stockholders have agreed to pay to the underwriters the
following fees, assuming both no exercise and full exercise of the
underwriters' over-allotment option to purchase additional shares:
<TABLE>
<CAPTION>
Total Fees
-------------------------------------------
Fee Without Exercise of Full Exercise
Per Share Over-Allotment Option Over-Allotment Option
--------- --------------------- ---------------------
<S> <C> <C> <C>
Fees paid by us.......... $ $ $
Fees paid by the selling
stockholders............ $ $ $
</TABLE>
In addition, we estimate that we will spend approximately $1,000,000 in
expenses for this offering, including expenses for the selling stockholders.
We, the recipients of the Subchapter S distribution and the selling
stockholders have agreed to indemnify the underwriters against liabilities,
including liabilities under the Securities Act, or contribute to payments that
the underwriters may be required to make in respect of these liabilities.
We, our officers, directors and all stockholders, including the selling
stockholders, have entered into lock-up agreements pursuant to which we and
they have agreed not to offer or sell any shares of common stock or securities
convertible into or exchangeable or exercisable for shares of common stock for
a period of 180 days from the date of this prospectus without the prior written
consent of Prudential Securities Incorporated, on behalf of the underwriters.
Prudential Securities Incorporated may, at any time and without notice, waive
the terms of these lockup agreements specified in the underwriting agreement.
Prior to this offering, there has been no public market for our common
stock. The public offering price, negotiated between us and the
representatives, is based upon various factors such as our financial and
operating history and condition, our prospects, the prospects for the industry
we are in and prevailing market conditions.
52
<PAGE>
Prudential Securities Incorporated, on behalf of the underwriters, may
engage in the following activities in accordance with applicable securities
rules:
. Over-allotments involving sales in excess of the offering size, creating
a short position. Prudential Securities Incorporated may elect to reduce
this short position by exercising some or all of the over-allotment
option.
. Stabilizing and short covering: stabilizing bids to purchase the shares
are permitted if they do not exceed a specified maximum price. After the
distribution of shares has been completed, short covering purchases in
the open market may also reduce the short position. These activities may
cause the price of the shares to be higher than would otherwise exist in
the open market.
. Penalty bids permitting the underwriters to reclaim concessions from a
syndicate member for the shares purchased in the stabilizing or short
covering transactions that were retained by or released to the syndicate
member.
Such activities, which may be commenced and discontinued at any time, may be
effected on the Nasdaq National Market, in the over-the-counter market or
otherwise.
Each underwriter has represented that it has complied and will comply with
all applicable laws and regulations in connection with the offer, sale or
delivery of the shares and related offering materials in the United Kingdom,
including:
.the Public Offers of Securities Regulations 1995,
.the Financial Services Act 1986, and
.the Financial Services Act 1986, Investment Advertisements, Exemptions,
Order 1996 (as amended).
Prudential Securities Incorporated facilitates the marketing of new issues
online through its PrudentialSecurities.com division. Clients of Prudential
Advisor SM, a full-service brokerage firm program, may view offering terms and
a prospectus online and place orders through their financial advisors.
53
<PAGE>
LEGAL MATTERS
The validity of the common stock offered hereby will be passed upon for EST
by Holland & Knight LLP, Boston, Massachusetts. Legal matters will be passed
upon for the underwriters by Testa, Hurwitz & Thibeault, LLP, Boston,
Massachusetts.
EXPERTS
The consolidated financial statements as of December 31, 1997 and 1998 and
for each of the three years in the period ended December 31, 1998 included in
this prospectus have been so included in reliance on the report of
PricewaterhouseCoopers LLP, independent accountants, given on the authority of
said firm as experts in auditing and accounting.
AVAILABLE INFORMATION
We have filed with the Securities and Exchange Commission, a Registration
Statement on Form S-1 including the exhibits and schedules thereto under the
Securities Act with respect to the shares to be sold in this offering. This
prospectus does not contain all the information set forth in the Registration
Statement. For further information with respect to EST and the shares to be
sold in this offering, reference is made to the Registration Statement.
Statements contained in this prospectus as to the contents of any contract,
agreement or other document referred to, are not necessarily complete, and in
each instance reference is made to the copy of such contract, agreement or
other document filed as an exhibit to the Registration Statement, each
statement being qualified in all respects by a more complete description of the
matter involved, and each such statement shall be deemed incorporated by such
reference.
You may read and copy all or any portion of the Registration Statement or
any reports, statements or other information we file at the Commission's public
reference room at Room 1024, Judiciary Plaza, 450 Fifth Street, N.C.,
Washington, D.C. 20549 and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. You can request copies of
these documents upon payment of a duplicating fee by writing to the Commission.
Please call the Commission at 1-800-SEC-0330 for further information on the
operation of the public reference rooms. Our filings, including the
Registration Statement will also be available to you on the Commission's
Internet site (http://www.sec.gov).
EST intends to send to its stockholders annual reports containing audited
consolidated financial statements and quarterly reports containing unaudited
Consolidated Financial Statements for the first three quarters of each fiscal
year.
54
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Accountants......................................... F-2
Consolidated Balance Sheets as of December 31, 1997 and 1998 and September
30, 1999 (unaudited)..................................................... F-3
Consolidated Statements of Operations for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended September 30, 1998 and
1999 (unaudited)......................................................... F-4
Consolidated Statements of Changes in Stockholders' Equity for the years
ended December 31, 1996, 1997 and 1998 and for the nine months ended
September 30, 1999 (unaudited)........................................... F-5
Consolidated Statements of Cash Flows for the years ended December 31,
1996, 1997 and 1998 and for the nine months ended September 30, 1998 and
1999 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Embedded Support Tools Corporation:
In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of operations, of stockholders' equity and of cash
flows present fairly, in all material respects, the financial position of
Embedded Support Tools Corporation and its subsidiaries at December 31, 1997
and 1998, and the results of their operations and their cash flows for the
years ended December 31, 1996, 1997 and 1998 in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of EST's management; our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits of
these statements in accordance with generally accepted auditing standards which
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, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 5, 1999, except as to the information presented in Note 13, for which
the date is December 22, 1999
F-2
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31, Pro Forma
-------------- September 30, September 30,
1997 1998 1999 1999
------ ------ ------------- -------------
(Note 2)
(unaudited)
(in thousands, except share amounts)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......... $1,158 $2,440 $ 1,579 $ 1,579
Accounts receivable, net of
allowance for doubtful accounts of
$25 and $91 at December 31, 1997
and 1998 and $80 at September 30,
1999 (unaudited), respectively.... 2,211 2,778 4,738 4,738
Inventory, net (Note 3)............ 883 1,757 3,072 3,072
Prepaid expenses and other current
assets............................ 112 84 94 94
------ ------ ------- -------
Total current assets.............. 4,364 7,059 9,483 9,483
Property and equipment, net (Note
4)................................. 354 505 824 824
Other assets........................ 10 40 22 22
------ ------ ------- -------
Total assets...................... $4,728 $7,604 $10,329 $10,329
====== ====== ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
(DEFICIT)
Current liabilities:
Accounts payable................... 453 964 1,235 1,235
Accrued expenses (Note 5).......... 1,107 1,692 3,974 3,974
Deferred revenue................... 483 555 896 896
Note payable....................... -- -- 359 359
Distribution payable .............. -- -- -- 4,649
------ ------ ------- -------
Total current liabilities......... 2,043 3,211 6,464 11,113
Commitments and contingencies (Note
11)
Redeemable common stock (Note 7):
Common stock, $0.10 par value;
45,000,000 shares authorized;
shares issued and outstanding: 0,
0 and 10,111,000 at December 31,
1997 and 1998 and September 30,
1999; respectively; no shares on a
pro forma basis .................. -- -- 1,893 --
Note receivable from stockholder
(Note 7).......................... -- -- (550) --
------ ------ ------- -------
-- -- 1,343 --
Stockholders' equity (deficit):
Common stock, $.10 par value;
45,000,000 shares authorized;
shares issued and outstanding: 10,
111,000 at December 31, 1997 and
1998 and 2,783,000 at September
30, 1999, respectively (actual);
12,894,000 on a pro forma basis... 1,011 1,011 278 1,289
Additional paid-in capital......... -- -- 8,206 --
Deferred compensation ............. -- -- (1,016) (1,016)
Note receivable from stockholder
(Note 7) -- -- -- (550)
Retained earnings (accumulated
deficit).......................... 1,709 3,441 (4,880) (441)
Accumulated other comprehensive
loss.............................. (35) (59) (66) (66)
------ ------ ------- -------
Total stockholders' equity
(deficit)........................ 2,685 4,393 2,522 (784)
------ ------ ------- -------
Total liabilities and
stockholders' equity (deficit).. $4,728 $7,604 $10,329 $10,329
====== ====== ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-3
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
<TABLE>
<CAPTION>
Nine Months
Years Ended December Ended
31, September 30,
------------------------ ---------------
1996 1997 1998 1998 1999
------- ------- ------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Revenues............................ $ 8,262 $11,766 $18,250 $13,171 $19,544
Cost of revenues.................... 1,945 2,874 3,823 2,968 3,789
------- ------- ------- ------- -------
Gross profit....................... 6,317 8,892 14,427 10,203 15,755
------- ------- ------- ------- -------
Operating expenses:
Selling and marketing.............. 2,833 4,052 7,236 5,111 7,274
Research and development........... 1,636 2,150 3,085 2,281 3,378
General and administrative......... 541 721 1,040 766 999
Stock-related compensation expense. -- -- -- -- 9,363
------- ------- ------- ------- -------
Total operating expenses.......... 5,010 6,923 11,361 8,158 21,014
------- ------- ------- ------- -------
Income (loss) from operations....... 1,307 1,969 3,066 2,045 (5,259)
Interest income (expense)........... (22) 22 42 21 37
------- ------- ------- ------- -------
Income (loss) before provision for
income taxes and minority interest
in majority owned subsidiary....... 1,285 1,991 3,108 2,066 (5,222)
Provision for income taxes.......... 116 131 218 157 423
------- ------- ------- ------- -------
Income (loss) before minority
interest in majority owned
subsidiary......................... 1,169 1,860 2,890 1,909 (5,645)
Minority interest in majority owned
subsidiary......................... 68 -- -- -- --
------- ------- ------- ------- -------
Net income (loss)................... 1,101 1,860 2,890 1,909 (5,645)
======= ======= ======= ======= =======
Accretion of redeemable common
stock to redemption value......... -- -- -- -- (1,893)
------- ------- ------- ------- -------
Net loss to common stockholders..... $ 1,101 $ 1,860 $ 2,890 $ 1,909 $(7,538)
======= ======= ======= ======= =======
Historical net income (loss) per
share--basic and diluted........... $ 0.11 $ 0.18 $ 0.29 $ 0.19 $ (0.67)
======= ======= ======= ======= =======
Shares used in computing historical
net income (loss) per share--basic
and diluted........................ 10,111 10,111 10,111 10,111 11,202
======= ======= ======= ======= =======
Pro forma data (unaudited):
Historical income (loss) before
income taxes...................... $ 1,285 $ 1,991 $ 3,108 $ 2,066 $(5,222)
Pro forma provision for income
taxes assuming C corporation tax.. 411 677 1,243 826 (2,298)
------- ------- ------- ------- -------
Pro forma net income (loss)........ $ 874 $ 1,314 $ 1,865 $ 1,240 $(2,924)
======= ======= ======= ======= =======
Pro forma net income (loss) per
common share--basic and diluted.... $ 0.09 $ 0.13 $ 0.18 $ 0.12 $ (0.25)
======= ======= ======= ======= =======
Shares used in computing pro forma
net income (loss) per share--basic
and diluted........................ 10,111 10,111 10,534 10,111 11,625
======= ======= ======= ======= =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-4
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(in thousands)
<TABLE>
<CAPTION>
Retained Accumulated
Common Stock Additional Earnings Other Total
--------------- Paid-in Deferred (Accumulated Comprehensive Comprehensive Stockholders'
Shares Amount Capital Compensation Deficit) Income (Loss) Income Equity
------- ------ ---------- ------------ ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31,
1995................... 10,011 1,011 $ (506) $ 25 -- $ 530
Distributions paid to
shareholders.......... -- -- (11) -- -- (11)
Comprehensive income:
Net income............ -- -- 1,101 -- $ 1,101 1,101
Foreign currency
translation
adjustments.......... -- -- -- (11) (11) (11)
-------
Comprehensive income.. 1,090
------- ------ ------ ------- ------- ---- ======= ------
Balance at December 31,
1996................... 10,111 1,011 -- 584 14 -- 1,609
Distributions paid to
shareholders.......... -- -- (735) -- -- (735)
Comprehensive income:
Net income............ -- -- 1,860 -- 1,860 1,860
Foreign currency
translation
adjustments.......... -- -- -- (49) (49) (49)
-------
Comprehensive income.. -- -- -- -- 1,811 --
------- ------ ------ ------- ------- ---- ======= ------
Balance at December 31,
1997................... 10,111 1,011 -- 1,709 (35) -- 2,685
Distributions paid to
shareholders.......... -- -- (1,158) -- -- (1,158)
Comprehensive income:
Net income............ -- -- 2,890 -- 2,890 2,890
Foreign currency
translation
adjustments.......... -- -- -- (24) (24) (24)
-------
Comprehensive income.. -- -- -- -- 2,866 --
------- ------ ------ ------- ------- ---- ======= ------
Balance at December 31,
1998................... 10,111 1,011 -- 3,441 (59) -- 4,393
Distributions paid to
shareholders.......... -- -- (1,794) -- -- (1,794)
Reclassification of
common stock to
redeemable common
stock ................ (10,111) (1,011) 1,011
Accretion of redeemable
common stock to
redemption value...... -- -- -- (1,893) -- -- (1,893)
Issuance of common
stock under stock-
based compensation
program............... 2,783 $ 278 $ (278) -- -- -- --
Deferred compensation
associated with stock
and stock options
awards to employees... -- -- 8,484 $(8,484) -- -- -- --
Amortization of
deferred compensation
...................... -- -- -- 7,468 -- -- -- 7,468
Comprehensive loss:
Net loss.............. -- -- -- -- (5,645) -- (5,645) (5,645)
Foreign currency
translation
adjustments.......... -- -- -- -- -- (7) (7) (7)
------
Comprehensive loss.... -- -- -- -- -- -- $(5,652) --
------- ------ ------ ------- ------- ---- ======= ------
Balance at September 30,
1999 (unaudited)....... 2,783 $ 278 $8,206 $(1,016) $(4,880) $(66) $2,522
======= ====== ====== ======= ======= ==== ======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-5
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Nine Months
Year Ended December Ended
31, September 30,
---------------------- ---------------
1996 1997 1998 1998 1999
------ ------ ------ ------ -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................... $1,169 $1,860 $2,890 $1,909 $(5,645)
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation of property and
equipment........................... 65 98 250 126 316
Compensation expense................. -- -- -- -- 7,468
Changes in operating assets and
liabilities:
Accounts receivable.................. (223) (829) (597) (1,037) (1,960)
Inventory............................ (129) 42 (876) (583) (1,315)
Prepaid expenses and other current
assets.............................. -- (97) (2) (91) 9
Accounts payable..................... (96) (135) 527 548 271
Accrued expenses..................... 63 553 582 574 2,282
Deferred revenue..................... 34 175 71 74 341
------ ------ ------ ------ -------
Net cash provided by operating
activities......................... 883 1,667 2,845 1,520 1,767
Cash flows from investing activities:
Purchases of property and equipment.. (222) (366) (401) (223) (636)
------ ------ ------ ------ -------
Net cash used in investing
activities......................... (222) (366) (401) (223) (636)
Cash flows from financing activities:
Note repayment....................... (253) -- -- -- --
Note receivable from stockholder..... -- -- -- -- (550)
Net borrowings on demand note
payable............................. -- -- -- -- 359
Distributions paid to stockholders... (11) (735) (1,158) (1,171) (1,794)
------ ------ ------ ------ -------
Net cash used by financing
activities......................... (264) (735) (1,158) (1,171) (1,985)
------ ------ ------ ------ -------
Effect of exchange rate changes on
cash................................. (11) (26) (4) 7 (7)
------ ------ ------ ------ -------
Net increase (decrease) in cash and
cash equivalents..................... 386 540 1,282 133 (861)
Cash and cash equivalents, beginning
of period............................ 232 618 1,158 1,158 2,440
------ ------ ------ ------ -------
Cash and cash equivalents, end of
period............................... $ 618 $1,158 $2,440 $1,291 $ 1,579
====== ====== ====== ====== =======
Supplemental disclosure of cash flow
information:
Cash paid during period for:
Income taxes......................... $ 111 $ 116 $ 131 $ 157 $ 423
====== ====== ====== ====== =======
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
F-6
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Nature of Business:
Embedded Support Tools Corporation (the "Company" or "EST") and its
subsidiaries operate in one segment. EST designs, manufactures, sells and
supports hardware and software tools used for development and debugging
embedded systems. Embedded systems are programmable semiconductor chips that
are used in a wide variety of data communications, computer networking,
automotive and consumer electronic applications. EST was incorporated in The
Commonwealth of Massachusetts on January 5, 1989 and is located in Canton,
Massachusetts.
2. Summary of Significant Accounting Policies:
Principles of Consolidation
The consolidated financial statements include the accounts of Embedded
Support Tools Corporation and its wholly-owned subsidiaries: E.S.T. Corp.
Europe SARL, a French corporation; Embedded Support Tools Corp. Nordic AB, a
Swedish corporation; E.S.T. KK, a Japanese Corporation; and E.S.T. Corp., UK
Ltd., a United Kingdom corporation. All significant intercompany accounts and
transactions have been eliminated.
Interim Financial Statements (Unaudited)
The consolidated balance sheet as of September 30, 1999, the consolidated
statements of operations and cash flows for the nine months ended September 30,
1998 and 1999 and the consolidated statement of stockholders' deficit for the
nine months ended September 30, 1999 and the related footnote disclosures are
unaudited, have been prepared on a basis substantially consistent with the
audited consolidated financial statements and, in the opinion of management,
include all adjustments, consisting of normal, recurring adjustments (except
with respect to the stock-related compensation expense recorded in June 1999.
See Note 8) necessary for a fair presentation of results for these interim
periods. The results for the nine months ended September 30, 1999 are not
necessarily indicative of results to be expected for the entire year, although
EST expects to incur a significant loss for the year ending December 31, 1999.
Pro Forma Balance Sheet Presentation (Unaudited)
The pro forma balance sheet reflects the termination, upon the closing of
EST's initial public offering, of the redemption rights of the existing holders
of common stock resulting in the reclassification of $1,893,000 from redeemable
common stock to common stock and accumulated deficit in the amount of
$1,011,100 and $881,900, respectively. The pro forma balance sheet also gives
effect to the estimated $4.6 million distribution to shareholders upon the
closing of the initial public offering and reclassification of the remaining
undistributed losses to additional paid-in capital in the amount of $8,206,000.
Historical and Pro Forma (Unaudited) Net Income (Loss) Per Share
EST computes basic and diluted earnings per share in accordance with
Statement of Financial Accounting Standards No. 128 ("SFAS 128") "Earnings per
Share." SFAS 128 requires both basic earnings per share, which is based on the
weighted average number of common shares outstanding, and diluted earnings per
share, which is based on the weighted average number of common shares
outstanding and all dilutive potential common equivalent shares outstanding.
The dilutive effect of options is determined under the treasury stock method
using the average market price for the period. Common equivalent shares are
included in the per share calculations where the effect of their inclusion
would be dilutive. The stock rights and stock options granted under stock-based
compensation plans in years prior to 1999 have been excluded from the
computation of diluted earnings per share because the employees' right to the
stock was exercisable only upon a future event.
F-7
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Historical net income (loss) and net income (loss) per share is not
meaningful as a result of accretion associated with redemption rights on
certain common stock which terminate upon the closing of this offering and
EST's planned conversion from a Subchapter S corporation to a Subchapter C
corporation upon the closing of this offering. Historical net income (loss) has
been adjusted to exclude the accretion and for the pro forma provision for
income taxes calculated assuming EST was subject to income taxation as a
Subchapter C corporation, at a pro forma tax rate of 32%, 34% and 40% for the
years ended December 31, 1996, 1997 and 1998 and 40% and 44% for the nine
months ended September 30, 1998 and 1999, respectively. In accordance with a
regulation of the Securities and Exchange Commission, pro forma net income
(loss) per share for the year ended December 31, 1998 and for the nine months
ended September 30, 1999 has been presented to reflect, as of January 1, 1998,
the effect of the assumed issuance of 422,636 shares of common stock necessary
to be sold at the proposed initial public offering price of $11.00 in order to
fund the intended distribution of the accumulated and undistributed S
corporation earnings. The following is a reconciliation of basic and diluted
pro forma and historical net income (loss) per share (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31, Nine Months Ended September 30,
----------------------------------------------------- -------------------------------------
1996 1997 1998 1998 1999
----------------- ----------------- ----------------- ----------------- -------------------
Pro Pro Pro Pro Pro
forma Historical forma Historical forma Historical forma Historical forma Historical
------ ---------- ------ ---------- ------ ---------- ------ ---------- ------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net income (loss)....... $ 874 $1,101 $1,314 $1,860 $1,865 $2,890 $1,240 $1,909 $(2,924) $(7,538)
Shares used in net
income (loss) per
common share, basic and
diluted................ 10,111 10,111 10,111 10,111 10,534 10,111 10,111 10,111 11,625 11,202
====== ====== ====== ====== ====== ====== ====== ====== ======= =======
Net income (loss) per
common share, basic and
diluted................ $ 0.09 $ 0.11 $ 0.13 $ 0.18 $ 0.18 $ 0.29 $ 0.12 $ 0.19 $ (0.25) $ (0.67)
====== ====== ====== ====== ====== ====== ====== ====== ======= =======
</TABLE>
Cash and Cash Equivalents
EST considers all highly liquid investments purchased with an original
maturity of three months or less to be cash equivalents. EST invests its excess
cash primarily in an overnight investment account that invests primarily in
money market accounts, commercial paper and treasury bills. The carrying value
of EST's cash and cash equivalents approximates their fair value. Accordingly,
these investments are subject to minimal credit and market risk.
Financial Instruments
The carrying value of EST's financial instruments, which include cash and
cash equivalents, accounts receivable, accounts payable and accrued expenses,
approximate their fair values.
Revenue Recognition
Revenue from product sales is recognized upon shipment provided that no
uncertainties regarding customer acceptance exist and collection of the related
receivable is probable. Revenue from maintenance services is recognized ratably
over the contract period, generally one year. Revenue from consulting and
training services is recognized when the services are provided.
Concentration of Credit Risk
Financial instruments which potentially expose EST to concentrations of
credit risk consist primarily of trade accounts receivable. Management
considers its concentration of credit risk with respect to accounts receivable
to be limited due to its credit evaluation policies, relatively short payment
terms, and geographical dispersion of sales. EST obtains letters of credit for
sales to certain foreign customers based on management's credit evaluation.
F-8
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
EST maintains reserves for potential credit losses. Such losses historically
have been minimal and within management's expectations.
Inventory
Inventory is stated at the lower of cost or market value, with cost being
determined by the first-in, first-out (FIFO) method.
Property and Equipment
Property and equipment are recorded at cost. Depreciation is computed using
the straight-line method over the estimated useful lives of the assets or,
where applicable, over the lease term. The cost of additions and improvements
are capitalized, while expenditures for maintenance and repairs are charged to
expense as incurred. Upon retirement or sale, the cost of the disposed assets
and related accumulated depreciation are removed from the accounts, and any
resulting gain or loss is credited or charged to income.
Research and Development and Computer Software Development Costs
Research and development costs are expensed as incurred. Software
development costs are expensed until technological feasibility is established
at which time, and until the product is available for general release to
customers, costs are capitalized. No software development costs were
capitalized during the years ended December 31, 1996, 1997, and 1998, since
costs incurred subsequent to establishment of technological feasibility were
not material.
Foreign Currency Translation
The functional currency of EST's foreign subsidiaries is the local currency.
Accordingly, the assets and liabilities of EST's foreign subsidiaries are
translated into U.S. dollars at exchange rates in effect at the balance sheet
date. Income and expense items are translated at average exchange rates for the
period. Foreign currency translation adjustments are included in accumulated
other comprehensive income as a separate component of stockholders' deficit.
Foreign currency transaction gain or losses are recorded in operating expenses
and were not significant for the years ended December 31, 1996, 1997 and 1998.
Product Warranty Costs
EST provides three months hardware warranty as part of its product sales.
Estimated future costs for initial product warranties are provided for at the
time of sale.
Advertising Expense
EST recognizes advertising expense as incurred. Advertising expense was
approximately $313,000, $256,000 and $310,000 for the years ended December 31,
1996, 1997 and 1998, respectively.
Accounting for Stock-Based Compensation
EST accounts for its stock-based awards to employees using the intrinsic
value method as prescribed by Accounting Principles Board ("APB") Opinion No.
25, "Accounting for Stock Issued to Employees," and related interpretations.
EST has adopted the disclosure only provisions of SFAS No. 123, "Accounting for
Stock-Based Compensation."
Income Taxes
Prior to its completed reorganization as a Subchapter C corporation
effective upon completion of the initial public offering, EST has been treated
as a Subchapter S corporation and is not required to pay federal income taxes.
Subchapter S corporation shareholders are required to report their respective
share of EST's taxable income or loss on their individual tax returns and are
personally liable for the related tax.
F-9
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Comprehensive Income
Comprehensive income is defined as the change in equity of a company during
a period from transactions and other events and circumstances excluding
transactions resulting from investments by owners and distributions to owners.
At December 31, 1998 and 1997, accumulated other comprehensive income was
comprised solely of cumulative foreign currency translation adjustments.
Use of Estimates
The preparation of consolidated 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
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Areas particularly subject to estimation include the
allowance for doubtful accounts, inventory reserves and revenue reserves.
Actual results could differ from those estimates.
Recently Issued Accounting Pronouncements
In April 1998, the AcSEC issued SOP 98-5, "Reporting on the Costs of Start-
Up Activities." Start-up activities are defined broadly as those one-time
activities relating to opening a new facility, introducing a new product or
service, conducting business in new territory, conducting business with a new
class of customer, commencing some new operation or organizing a new entity.
Under SOP 98-5, the cost of start-up activities should be expensed as incurred.
SOP 98-5 is effective for EST's fiscal year 2000 financial statements and EST
does not expect its adoption to have a material effect on its financial
condition or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
"Accounting for Derivatives and Hedging Activities," which establishes
accounting and reporting standards for derivative instruments, including
derivative instruments embedded in other contracts, (collectively referred to
as derivatives) and for hedging activities. We will adopt SFAS No. 133 as
required by SFAS 137, "Deferral of the Effective Date of FASB Statement No.
133," in fiscal year 2001. The adoption of SFAS No. 133 is not expected to have
an impact on EST's financial condition or results of operations.
In December 1999, the Securities and Exchange Commission issued Staff
Accounting Bulletin 101, "Revenue Recognition in Financial Statements." SAB 101
summarizes the application of generally accepted accounting principles to
revenue recognition in financial statements. EST does not expect SAB 101 to
have a material effect on its financial position or results of operations.
3. Inventory:
Inventory consists of the following (in thousands):
<TABLE>
<CAPTION>
December
31, September 30,
----------- -------------
1997 1998 1999
---- ------ -------------
(unaudited)
<S> <C> <C> <C>
Raw material....................................... $353 $ 765 $1,638
Work-in-process.................................... 511 864 746
Finished goods..................................... 19 128 688
---- ------ ------
$883 $1,757 $3,072
==== ====== ======
</TABLE>
F-10
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
4. Property and Equipment:
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
Estimated
Useful December 31, September 30,
Lives ------------- -------------
(Years) 1997 1998 1999
--------- ----- ------ -------------
(unaudited)
<S> <C> <C> <C> <C>
Computer software and equipment....... 3 $ 538 $ 839 $1,197
Furniture and fixtures................ 7 63 110 195
Office equipment...................... 5 29 79 176
Leasehold improvements................ 5 20 23 20
----- ------ ------
650 1,051 1,588
Less: accumulated depreciation........ (296) (546) (764)
----- ------ ------
Property and equipment, net........... $ 354 $ 505 $ 824
===== ====== ======
</TABLE>
5. Accrued Expenses:
Accrued expenses consist of the following (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
------------- -------------
1997 1998 1999
------ ------ -------------
(unaudited)
<S> <C> <C> <C>
Wages and benefits............................... $ 574 $ 974 $ 957
Taxes............................................ 166 262 1,802
Commissions...................................... 257 248 252
Professional fees................................ 33 132 60
Other............................................ 77 76 903
------ ------ ------
$1,107 $1,692 $3,974
====== ====== ======
</TABLE>
6. Line of Credit:
At September 30, 1999, EST had a $2,000,000 revolving line of credit with
BankBoston, N.A. Borrowings under the line are payable on demand and bear
interest at the Base Rate determined by BankBoston N.A. (9.25% at September 30,
1999). Borrowings are collateralized by all of the assets of EST. Interest is
payable monthly in arrears. Under the terms of the agreement, EST is required
to comply with certain restrictive covenants. EST was in compliance with all
restrictive covenants at September 30, 1999. $359,000 of borrowings were
outstanding under the line of credit at September 30, 1999. See Note 13.
7. Redeemable Common Stock:
On January 1, 1998, EST's stockholders approved an increase in the
authorized shares of common stock, $0.10 par value, to 7,500,000. Also on
January 1, 1998, EST effected a five hundred-for-one stock split of its common
stock in the form of a stock dividend. Accordingly, all share amounts have been
adjusted to give retroactive effect to this stock split.
EST had an agreement with certain of its shareholders under which EST had
the right to repurchase all or part of the founders' shares of common stock at
a stated value per share, as defined, upon certain events including death,
termination of employment by EST, permanent disability or retirement. On July
1, 1999, EST
F-11
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
executed the First Amended and Restated Founding Shareholders Agreement
("Amended Shareholders Agreement") which amended and restated the Shareholders
Agreement. Under the Amended Shareholders Agreement, in addition to EST's right
to repurchase the founders' shares, during the period beginning on July 1, 1999
and ending on the earlier of either an initial public offering or a change in
control, at the election of each individual founder, EST shall be required to
purchase up to 10% per year of the founder's respective shares of common stock
at a redemption price in accordance with a redemption formula, as defined.
Alternatively, and in lieu of the right to redeem shares of common stock, each
founder is entitled to obtain loans from EST which are collateralized by a
pledge of shares of common stock. Accordingly, the carrying value of the common
stock has been recorded at its redemption value at December 31, 1998 and 1997.
On July 1, 1999, a loan totaling $550,000 was issued to a founder, which is
collateralized by a pledge of 220,000 shares of common stock.
8. Stock-Based Compensation:
The 1998 Stock Option Plan ("the Plan") provided for the grant of
nonqualified stock options to employees. Options granted under the Plan were
exercisable only upon notification by the Company prior to a change in control
and expired on the earlier of the day prior to a change in control, whether or
not notification had occurred, and termination of employment. Options to
purchase 202,000 shares of common stock were granted under the Plan through the
year ended December 31, 1998. In addition, prior to 1998, EST had issued can
option, not pursuant to a plan, to an employee to purchase 659,000 shares of
common stock and issued common stock rights to employees pursuant to "mirror
stock" agreements under which the employees had rights to cash or common stock
totaling 2,124,000 shares. The employees' rights to common stock under this
option and the "mirror stock" agreements were exercisable only upon a change in
control, registration of the common stock of EST under the Securities Act of
1933 or liquidation of EST. At December 31, 1998, no stock options were
exercisable and no rights had converted to cash or common stock. No
compensation expense has been recorded in the years ended December 31, 1996,
1997 and 1998 or for the nine months ended September 30, 1999 (unaudited), with
respect to any stock options or common stock rights granted in years prior to
1999 because exercise of the stock options and common stock rights was
contingent upon the occurrence of certain future events.
During 1999, EST's Board of Directors approved the 1999 Stock Option Plan
(the "1999 Plan"). The 1999 Plan provides for the granting of incentive and
nonqualified stock options and stock bonus awards to officers, directors,
employees and consultants of EST. The exercise price of stock options granted
under the 1999 Plan is determined by the Board of Directors. The maximum number
of common shares that may be issued pursuant to the 1999 Plan is 4,000,000.
During the nine months ended September 30, 1999, EST granted 2,118,000 options
under the 1999 Plan. All options granted under the 1999 Plan expire ten years
from the date of grant and generally vest over a five-year period beginning on
the date of hire.
In June 1999, EST cancelled all outstanding stock options and common stock
rights granted prior to December 31, 1998 and terminated the Plan and the
"mirror stock" agreements. Also in June 1999, EST granted 2,783,000 shares of
common stock to certain employees, in lieu of the rights to 2,124,000 shares of
common stock under the "mirror stock" agreements and the stock option for
659,000 shares of common stock not pursuant to a plan. EST has a right of first
refusal in any proposed transfer of the shares by the employee until EST
completes an initial public offering. Additionally, EST has a right, but not an
obligation, to repurchase the shares in the event of termination of employment
with EST at the fair value of the common stock as determined by the Board of
Directors. In addition, included in the 2,118,000 stock options granted in
1999, 202,000 stock options were granted in lieu of stock options granted under
the 1998 Plan.
In connection with the grant of 2,783,000 shares of common stock, at no cost
to the grantees, and 1,692,000 stock options, at an exercise price of $1.73 in
June 1999, EST recorded deferred compensation of
F-12
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
$8,484,000 representing the difference between the fair value of the common
stock of $2.55 at the grant date and the purchase or exercise prices of the
common stock and stock options. During the nine months ended September 30,
1999, EST amortized expense of $7,468,000 based on the vesting provisions. In
connection with the issuance of the common stock, EST agreed to pay a portion
of the employee's tax liability resulting from the issuance of the common
stock. As a result, an additional charge of $1,895,000 was also recorded in
June 1999 (See Note 13).
The following table summarizes the activity of the Company's stock option
plans:
<TABLE>
<CAPTION>
Year ended Year Ended Nine Months Ended
December 31, 1997 December 31, 1998 September 30, 1999
------------------ ------------------ ------------------
Weighted Weighted Weighted
Average Average Average
Number of Exercise Number of Exercise Number of Exercise
Options Price Options Price Options Price
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Outstanding-beginning of
period ................ 659,000 $0.10 861,000 $0.19
Granted below fair value
....................... -- -- 1,692,000 1.73
Granted at fair value .. 659,000 202,000 0.50 426,000 2.55
Exercised .............. -- -- -- -- --
Cancelled .............. -- -- -- 861,000 0.19
------- ----- ------- ----- --------- -----
Outstanding-end of
period ................ 659,000 $0.10 861,000 $0.19 2,118,000 $1.89
======= ===== ======= ===== ========= =====
Exercisable at end of
period -- -- -- -- 473,600 $1.35
Weighted average grant
date fair value $0.03 $0.12 $0.94
</TABLE>
The following table summarizes information about stock options outstanding
at September 30, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------------- ---------------------
Weighted- Weighted-
Weighted-Average Average Average
Range of Number Remaining Exercise Number Exercise
Exercise Prices Outstanding Contractual Life Price Exercisable Price
--------------- ----------- ---------------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C>
$1.73 1,692,000 9.5 $1.73 456,000 $1.73
2.55 426,000 9.7 2.55 17,600 2.55
--------- -------
$1.73-$9.90 2,118,000 9.6 $1.89 473,600 $1.89
========= =======
</TABLE>
The Company had adopted the disclosure requirements of SFAS No. 123,
"Accounting for Stock-Based Compensation." The Company continues to recognize
compensation costs using the intrinsic value based method described in
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." Accordingly, compensation expense recognized was different than
what would have been otherwise recognized under the fair value based method
defined in SFAS No. 123. Had the company accounted for these plans under SFAS
No. 123, the Company's pro forma net loss to common stockholders and net loss
per share would have been the same for the years ended December 31, 1997 and
1998 because none of the common stock rights or stock options were forfeitable
and had not vested, and for the nine months ended September 30, 1999 would have
been as follows:
<TABLE>
<S> <C>
Net loss to common stockholders-as reported (000's) .................. $(7,538)
Net loss to common stockholders-pro forma (000's) .................... $(7,792)
Net loss per common share-basic and diluted as reported .............. $ (0.67)
Net loss per common share-basic and diluted pro forma ................ $ (0.70)
</TABLE>
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are expected
to be made.
F-13
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
For the purpose of providing pro forma disclosures, the fair values of
options granted were estimated using the Black-Scholes option pricing model
with the following weighted average assumptions used for grants in 1999: no
dividend yield; risk free interest rates of 6.33%, 5.49% and 5.87% for the
years ended December 31, 1997 and 1998 and the nine months ended September 30,
1999; no volatility; and an expected option term of 6 years.
9. Employee Benefit Plans:
EST maintains a defined contribution plan incorporating features under
section 401(a) of the Internal Revenue Code which covers substantially all
employees. Under the money purchase pension feature of the plan, employer
contributions are determined at a rate of eligible employees' salary. Under the
profit sharing feature of the plan, EST may make annual discretionary
contributions at a rate determined by the Board of Directors. Under the 401(k)
feature of the plan, eligible employees can elect to contribute up to 12% of
their salary limited to a total contribution of $10,000 a year. EST matches
these contributions at a rate of 33% for each dollar contributed by its
employees up to a maximum of 3% of the eligible employee's annual salary.
During the years ended December 31, 1996, 1997 and 1998, EST made contributions
of approximately $210,000, $300,000 and $500,000, respectively.
F-14
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
10. Income Taxes:
The components of the income tax provision are as follows at December
31(000's):
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
State......................................................... $114 $ 28 $ 59
Foreign....................................................... 2 103 159
---- ---- ----
$116 $131 $218
==== ==== ====
</TABLE>
The Company has elected to be taxed as a Subchapter S Corporation for
federal and certain states income tax purposes and, as a result, is not subject
to federal taxation, but is subject to state taxation on income in certain
states. The stockholders are liable for individual federal and certain state
income taxes on their allocated portion of the Company's taxable income. The
foreign taxes primarily represent income taxes of EST's foreign subsidiaries
based upon the income reported in the respective jurisdictions.
As EST is not subject to federal income taxes, a reconciliation of the
effective tax rate to the federal statutory rate is not meaningful.
At December 31, 1997 and 1998, the components of the deferred tax asset and
deferred tax liability were immaterial.
11. Commitments and Contingencies:
Commitments
EST and its subsidiaries lease their facilities and certain office equipment
under operating leases in excess of one year.
Future minimum lease payments due under non-cancellable operating leases are
as follows at December 31, 1998 (000's):
<TABLE>
<S> <C>
1999................................................................ $ 339
2000................................................................ 329
2001................................................................ 329
2002................................................................ 329
2003................................................................ 104
Thereafter.......................................................... 116
------
Total minimum lease payments........................................ $1,546
======
</TABLE>
Total rent expense under operating leases was $94,000, $164,000, $288,000,
for the years ended December 31, 1996, 1997 and 1998, respectively.
Contingencies
EST outsources the assembly of its product components to a limited number of
subcontractors. Although there are several available vendors for assembly of
its products, management believes that the nature of its business requires
outsourcing to vendors who have expertise in assembling the components for
EST's products. A change in or loss of one or more of these subcontractors
could cause delays in meeting customer orders, delays in revenue recognition or
the loss of sales which could adversely affect results of operations.
F-15
<PAGE>
EMBEDDED SUPPORT TOOLS CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
12. Segment Information:
EST operates in one reportable segment: the design, development,
manufacture, sale and support of development tools for embedded systems.
During the years ended December 31, 1996, 1997 and 1998, no single customer
accounted for greater than 10% of revenues.
Information by geographic area as of December 31, 1998, 1997 and 1996 and
for the years then ended, is summarized below (in thousands):
<TABLE>
<CAPTION>
Other
Year Ended December 31, United Foreign
1998 States France Subsidiaries Eliminations Consolidated
----------------------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Unaffiliated Customers $12,936 $2,771 $2,543 -- $18,250
Intercompany 3,292 -- -- (3,292) --
Long-Lived Assets 436 17 52 -- 505
<CAPTION>
Other
Year Ended December 31, United Foreign
1997 States France Subsidiaries Eliminations Consolidated
----------------------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Unaffiliated Customers $ 8,958 $2,449 $ 359 -- $11,766
Intercompany 2,222 -- -- (2,222) --
Long-Lived Assets 320 23 11 -- 354
<CAPTION>
Other
Year Ended December 31, United Foreign
1996 States France Subsidiaries Eliminations Consolidated
----------------------- ------- ------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Revenue:
Unaffiliated Customers $ 6,116 $2,146 -- -- $ 8,262
Intercompany 1,054 -- (1,054) --
Long-Lived Assets 210 32 -- -- 242
</TABLE>
Revenue is presented geographically based on the country in which the sale
is recorded. Inventories are transferred to the Company's foreign subsidiaries
at previously established transfer prices, resulting in intercompany revenue
and receivables for the United States operation.
Other foreign subsidiaries is comprised of the United Kingdom, Sweden and
Japan at December 31, 1998, the United Kingdom and Sweden at December 31, 1997
and there were no other foreign subsidiaries at December 31, 1996. None of
these other foreign subsidiaries were considered significant during the periods
presented.
13. Subsequent Events:
In December 1999, EST borrowed $2,000,000 under its line of credit agreement
to fund in part the payment of federal and state taxes incurred by us and seven
key employees upon their receipt of stock-related compensation.
Also in December 1999, the Board of Directors approved an increase in the
authorized capital of the Company to 45,000,000 shares of common stock and
5,000,000 shares of preferred stock. The Board of Directors also approved a
two-for-one stock split effected in the form of a stock dividend. All share and
per share amounts have been adjusted to give retroactive effect to this stock
split.
F-16
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors of Embedded Support Tools Corporation
Our audits of the consolidated financial statements referred to in our
report dated August 5, 1999, except as to the information presented in Note 13
for which the date is December 21, 1999, appearing elsewhere in this
Registration Statement also included an audit of the financial statement
schedule listed in Item 16(b) of this Registration Statement.
In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
PricewaterhouseCoopers LLP
Boston, Massachusetts
August 5, 1999, except as to the information presented in
Note 13 for which the date is December 21, 1999
F-17
<PAGE>
- --------------------------------------------------------------------------------
Until March , 2000 all dealers effecting transactions in these securities,
whether or not participating in this offering, 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.
- --------------------------------------------------------------------------------
[ESTC LOGO]
Prudential Volpe Technology
a unit of Prudential Securities
Chase H&Q
Needham & Company, Inc.
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution.
The following table sets forth the various expenses, all of which will be
borne by the Registrant, in connection with the sale and distribution of the
securities being registered, other than the underwriting discounts and
commissions. All amounts shown are estimates except for the Securities and
Exchange Commission registration fee, the NASD filing fee and the Nasdaq
National Market listing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC registration fee............................................ $ 16,394
NASD filing fee................................................. 6,710
Nasdaq National Market listing fee.............................. 95,000
Blue Sky fees and expenses...................................... 10,000
Transfer Agent and Registrar fees............................... 25,000
Accounting fees and expenses.................................... 375,000
Legal fees and expenses......................................... 300,000
Printing and mailing expenses................................... 125,000
Miscellaneous................................................... 46,896
==========
Total $1,000,000
==========
</TABLE>
Item 14. Indemnification of Directors And Officers.
Section 67 of Chapter 156B of the Massachusetts General Laws provides that a
corporation may indemnify its directors and officers to the extent specified in
or authorized by (1) the articles of organization; (2) a by-law adopted by the
stockholders; or (3) a vote adopted by the holders of a majority of the shares
of stock entitled to vote on the election of directors. In all instances, the
extent to which a corporation provides indemnification to its directors and
officers under Section 67 is optional. In its Restated Articles of Organization
(the "Articles of Organization"), the Registrant has elected to commit to
provide indemnification to its directors and officers in specified
circumstances. Generally, Article 6 of the Registrant's Articles of
Organization provides that the Registrant shall indemnify directors and
officers of the Registrant against liabilities and expenses arising out of
legal proceedings brought against them by reason of their status as directors
or officers or by reason of their agreeing to serve, at the request of the
Registrant, as a director or officer with another organization. Under this
provision, a director or officer of the Registrant shall be indemnified by the
Registrant for all costs and expenses (including attorneys' fees), judgments,
liabilities and amounts paid in settlement of such proceedings, even if he is
not successful on the merits, if he acted in good faith in the reasonable
belief that his action was in the best interests of the Registrant. The Board
of Directors may authorize advancing litigation expenses to a director or
officer at his request upon receipt of an undertaking by any such director or
officer to repay such expenses if it is ultimately determined that he is not
entitled to indemnification for such expenses.
Article 6 of the Registrant's Articles of Organization eliminates the
personal liability of the Registrant's directors to the Registrant or its
stockholders for monetary damages for breach of a director's fiduciary duty,
except to the extent Chapter 156B of the Massachusetts General Laws prohibits
the elimination or limitation of such liability.
Under Section 9 of the Underwriting Agreement, the Underwriters are
obligated, under certain circumstances, to indemnify directors and officers of
the Registrant against certain liabilities, including liabilities under the
Securities Act of 1933 (the "Securities Act").
II-1
<PAGE>
Item 15. Recent Sales of Unregistered Securities.
Set forth below is information regarding shares of our common stock issued,
and options granted, by the Registrant within the past three years. Further
included is the consideration, if any, received by the Registrant for such
shares and options and information relating to the section of the Securities
Act, or rule of the Securities and Exchange Commission under which exemption
from registration was claimed.
Certain of the transactions described below involved directors, officers and
5% stockholders of the Registrant. See "Certain Transactions."
Certain Sales of Securities. Within the past three years, the Registrant has
issued the following securities that were not registered under the Securities
Act.
The Registrant's Board of Directors approved the 1997 Stock Option Plan and
1998 Stock Option Plan (the "Plans"). The Plans provided for the grant of
nonqualified stock options to employees. Options to purchase an aggregate of
202,000 shares of common stock were granted under the Plans. In addition, prior
to 1998, the Registrant issued an option to Nicolas Lossky to purchase 659,000
shares of common stock, which was exercisable only upon the occurrence of
certain events. In years prior to 1997, Registrant granted common stock rights
under its Mirror Stock Plan that entitled certain of its employees to receive
cash or shares of common stock upon the occurrence of certain events.
In June 1999, Registrant's Board of Directors approved the 1999 Stock Option
Plan. The 1999 Plan provides for the granting of incentive and nonqualified
stock options and stock bonus awards to officers, directors, employees and
consultants of EST. In December 1999 the Board of Directors amended and
restated the 1999 Plan to increase the maximum number of shares of common stock
of the Registrant that may be issued pursuant to the 1999 Plan from 2,000,000
to 4,000,000. As of December 17, 1999, Registrant granted 2,589,500 options at
a weighted average exercise price of $3.36 per share.
In June 1999, Registrant cancelled all outstanding stock options and common
stock rights granted pursuant to the Plans, as well as the common stock rights
granted to Nicolas Lossky under the Mirror Stock Plan. In exchange, Registrant
issued 2,783,000 shares of common stock to certain employees in lieu of any
options to purchase common stock under previously cancelled options and any
common stock rights under the Mirror Stock Plan. Additionally, EST has agreed
to pay the employees' tax liability resulting from the issuance of common
stock.
No underwriters were involved in the foregoing sales of securities. Such
sales were made in reliance upon exemptions from the registration provisions of
the Securities Act set forth in Sections 3(b) and 4(2) thereof relative to
sales by an issuer not involving any public offering or the rules and
regulations thereunder or, in the case of options to purchase common stock,
Rule 701 of the Securities Act. All of the foregoing securities are deemed
restricted securities for purposes of the Securities Act.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules.
(a) Exhibits:
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
1* Form of Underwriting Agreement
3.1+ Restated Articles of Organization
3.2+ Amended and Restated By-Laws
4.1 First Amended and Restated Founding Shareholders' Agreement
4.2 First Amendment to First Amended and Restated Founding Shareholders'
Agreement
4.3+ Specimen Certificate for shares of common stock, $0.10 par value, of
the Registrant
5.1* Opinion of Holland & Knight LLP with respect to the validity of the
securities being offered
10.1+ 1999 Stock Option Plan
10.2+ Form of Option Agreement under 1999 Stock Option Plan
10.3+ Amended and Restated 1999 Stock Option Plan
10.4+ Form of Employment Agreement by and between Peter S. Dawson and the
Registrant
10.5+ Form of Employment Agreement by and between James E. Watkins and the
Registrant
10.6+ Employment Agreement by and between John T. W. Baggott and the
Registrant
10.7+ First Amendment to Employment Agreement by and between John T. W.
Baggott and the Registrant
10.8+ Employment Letter Agreement by and between Mark F. Lapham and the
Registrant
10.9+ Lease dated October 1, 1999 between Boston Mutual Life Insurance and
the Registrant
10.10+ Lease dated July 1, 1999 between Westford Plaza Trust and the
Registrant
10.11+ Lease and Service Agreement dated July 8, 1998 between the Registrant
and ANI Dallas Inc.
10.12+ Office Lease Agreement dated January 7, 1999 between Gwynedd Office
Park Associates, L.P. and the Registrant
10.13+ Standard Industrial/Commercial Multi-Tenant Lease dated August 3,
1999 between the City of Dana Point and the Registrant
10.14+ Business Lease Agreement dated August 30, 1999 between Pointe West,
Inc. and the Registrant
10.15+ Agreement dated July 25, 1997 between Richmond House (Newbury)
Limited and the Registrant
10.16 Agreement between the Registrant and Viak AB/Valling by Kontposhotell
relating to lease of certain premises in Sweden
10.17+ Lease Agreement between Kabushikikaisha Katori Shoten and the
Registrant relating to lease of certain premises in Japan
10.18+ Lease Agreement dated September 17, 1999 between Samuel A. Lu,
Winston A. Lu and the Registrant
10.19* Standard Office Lease dated November 5, 1999 between Katherine
Amoukhteh and the Registrant
10.20 Office Park Commercial Lease and Service Agreement dated July 17,
1998 between the Registrant and Promopole S.E.M.L. relating to lease
of certain premises in France
10.21 Lease Agreement dated March 1, 1999 between the Registrant and
Marketteam Creativ GmbH relating to lease of certain premises in
Germany
10.22+ Business Loan Agreement dated September 23, 1999 between BankBoston,
N.A. and the Registrant
10.23+ Commercial Security Agreement dated September 23, 1999 between
BankBoston, N.A. and the Registrant
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
Exhibit
No. Description
------- -----------
<C> <S>
10.24+ Form of Tax Indemnification Agreement between the Registrant and each
of its stockholders
10.25+ Stock Pledge Agreement dated July 30, 1999 between John T. W. Baggott
and the Registrant
10.26+ Secured Demand Promissory Note dated July 30, 1999 issued by John
T. W. Baggott in favor of the Registrant
10.27 Sourcebook Program Distribution Agreement dated July 19, 1999 between
Wind River Systems, Inc. and the Registrant
10.28+ Confidential Disclosure Agreement dated May 9, 1999 between
International Business Machines, Inc., and the Registrant together
with Supplement relating thereto
10.29+ PowerPC(TM) Confidential Disclosure Agreement dated June 25, 1998
between International Business Machines, Inc. and the Registrant,
together with Supplement relating thereto
10.30+ Confidential Disclosure Agreement dated November 1, 1999 between
Hewlett-Packard and the Registrant
10.31+ Agreement with Case Assembly dated May 11, 1999
10.32 Intentionally omitted
10.33 Distributor Agreement dated February 4, 1994 between Toyo Corporation
and the Registrant
10.34 Distributor Agreement dated September 18, 1998 between Microtek
International Inc. and the Registrant
10.35 Distributor Agreement dated April 1, 1998 between Microtask and the
Registrant
10.36 Distributor Agreement dated May 26, 1999 between New Level Telecom
and the Registrant
10.37 Distributor Agreement dated May 24, 1998 between DeSecam and the
Registrant
10.38 Intentionally omitted
10.39 Intentionally omitted
10.40+ Assignment and Assumption Agreement dated December 14, 1999 between
Achieve Software Corporation and the Registrant
11* Statement regarding computation of per share earnings
21* Subsidiaries of the Registrant
23.1* Consent of Holland & Knight LLP (included in Exhibit 5)
23.2 Consent of PricewaterhouseCoopers LLP, Independent Auditors
24 Powers of Attorney (included on page II-6)
27.1+ Financial Data Schedule for the nine months ended September 30, 1999
27.2+ Financial Data Schedule for the nine months ended September 30, 1998
27.3+ Financial Data Schedule for the year ended December 31, 1998
27.4+ Financial Data Schedule for the year ended December 31, 1997
27.5+ Financial Data Schedule for the year ended December 31, 1996
</TABLE>
- --------
* To be filed by amendment
+ Previously filed
(b) Financial Statement Schedules:
Schedule II Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulations of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
II-4
<PAGE>
Item 17. Undertakings.
The undersigned Registrant hereby undertakes 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.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933, as amended (the "Securities Act") may be permitted to directors,
officers and controlling persons of the Registrant pursuant to the provisions
contained in the Registrant's Restated Articles of Organization, the
Underwriting Agreement, the laws of the Commonwealth of Massachusetts, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable. In
the event that a claim for indemnification against such liabilities (other than
the payment by the Registrant of expenses incurred or paid by a director,
officer or controlling person of the Registrant in the successful defense of
any action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel that the matter has been
settled by controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public policy as
expressed in the Securities Act and will be governed by the final adjudication
of such issue.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act,
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, 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-5
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in Canton, Massachusetts on February 2,
2000.
EMBEDDED SUPPORT TOOLS CORPORATION
/s/ Peter S. Dawson
By___________________________________
Peter S. Dawson
President, Chief Executive Officer
and Chairman of the Board of
Directors
POWER OF ATTORNEY AND SIGNATURES
We, the undersigned officers and directors of Embedded Support Tools
Corporation, hereby severally constitute and appoint Peter S. Dawson, James E.
Watkins and Mark F. Lapham, and each of them singly, our true and lawful
attorneys with full power to them, and each of them singly, to sign for us and
in our names in the capacities indicated below, the Registration Statement on
Form S-1 filed herewith and any and all pre-effective and post-effective
amendments to said Registration Statement, and any subsequent Registration
Statement for the same offering which may be filed under Rule 462(b), and
generally to do all such things in our names and on our behalf in our
capacities as officers and directors to enable Embedded Support Tools
Corporation to comply with the provisions of the Securities Act of 1933, as
amended, and all requirements of the Securities and Exchange Commission, hereby
ratifying and confirming our signatures as they may be signed by our said
attorneys, or any of them, to said Registration Statement and any and all
amendments thereto or to any subsequent Registration Statement for the same
offering which may be filed under Rule 462(b).
Pursuant to the requirements of the Securities Act of 1933, the Registration
Statement has been signed below by the following persons in the capacities and
on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Peter S. Dawson
______________________________________
Peter S. Dawson President, Chief Executive February 2, 2000
Officer and Chairman of the
Board of Directors (Principal
Executive Officer)
*
______________________________________
Mark F. Lapham Chief Financial Officer February 2, 2000
and Treasurer (Principal
Financial and Accounting
Officer)
</TABLE>
II-6
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
*
______________________________________
James E. Watkins Chief Operating Officer, February 2, 2000
Senior Vice President of Sales
and Marketing and Director
*
______________________________________
John T. W. Baggott Vice President and February 2, 2000
Director
*
______________________________________
Howard V. Neff Director February 2, 2000
*
______________________________________
P.J. Plauger, Ph.D Director February 2, 2000
*
______________________________________
John C. Edmunds Director February 2, 2000
*By: /s/ Peter S. Dawson
-------------------------------------------------
Peter S. Dawson
Attorney-in-fact
</TABLE>
II-7
<PAGE>
Schedule II
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Balance at
beginning costs and end of
of year expenses Deductions year
---------- ---------- ---------- ----------
(in thousands)
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Accounts receivable reserve......... $10 $ 2 $-- $12
Inventory obsolescence reserve...... $20 $ 3 $-- $23
Year Ended December 31, 1997
Accounts receivable reserve......... $12 $ 12 $-- $24
Inventory obsolescence reserve...... $23 $-- $ 1 $22
Year Ended December 31, 1998
Accounts receivable reserve......... $24 $ 66 $-- $90
Inventory obsolescence reserve...... $22 $ 22 $-- $44
</TABLE>
S-1
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
1* Form of Underwriting Agreement.................................
3.1+ Restated Articles of Organization..............................
3.2+ Amended and Restated By-Laws...................................
4.1 First Amended and Restated Founding Shareholders' Agreement....
4.2 First Amendment to First Amended and Restated Founding
Shareholders' Agreement.......................................
4.3+ Specimen Certificate for shares of common stock, $0.10 par
value, of the Registrant......................................
5.1* Opinion of Holland & Knight LLP with respect to the validity of
the securities being offered..................................
10.1+ 1999 Stock Option Plan.........................................
10.2+ Form of Agreement under 1999 Stock Option Plan.................
10.3+ Amended and Restated 1999 Stock Option Plan....................
10.4+ Form of Employment Agreement by and between Peter S. Dawson and
the Registrant................................................
10.5+ Form of Employment Agreement by and between James E. Watkins
and the Registrant............................................
10.6+ Employment Agreement by and between John T.W. Baggott and the
Registrant....................................................
10.7+ First Amendment to Employment Agreement by and between John
T.W. Baggott and the Registrant...............................
10.8+ Employment Letter Agreement by and between Mark F. Lapham and
the Registrant................................................
10.9+ Lease dated October 1, 1999 between Boston Mutual Insurance
Company and the Registrant....................................
10.10+ Lease dated July 1, 1999 between the Registrant and Westford
Plaza Trust...................................................
10.11+ Lease and Service Agreement dated July 8, 1998 between the
Registrant and ANI Dallas, Inc. ..............................
10.12+ Office Lease Agreement dated January 7, 1999 between the
Registrant and Gwynedd Office Park Associates, L.P. ..........
10.13+ Standard Industrial/Commercial Multi-Tenant Lease dated August
3, 1999 between the Registrant and the City of Dana Point.....
10.14+ Business Lease Agreement dated August 30, 1999 between
Registrant and Pointe West, Inc. .............................
10.15+ Agreement dated July 25, 1997 between the Registrant and
Richmond House (Newbury) Limited .............................
10.16 Contract of Lease dated October 21, 1997 between the Registrant
and Viak AB/Vallingby Kontposhotell, relating to lease of
certain premises in Sweden....................................
10.17+ Lease Agreement between the Registrant and Kabushikikaisha
Katori Shoten relating to lease of certain premises in Japan..
10.18+ Lease Agreement dated September 17, 1999 between the Registrant
and Samuel A. Lu and Winston A. Lu............................
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
10.19* Standard Office Lease dated November 5, 1999 between the
Registrant and Katherine Amoukhteh............................
10.20 Office Park Commercial Lease and Service Agreement dated July
17, 1998 between the Registrant and Promopole S.E.M.L.
relating to lease of certain premises in France...............
10.21 Lease Agreement dated March 1, 1999 between the Registrant and
Marketteam Creativ GmbH relating to lease of certain premises
in Germany....................................................
10.22+ Business Loan Agreement dated September 23, 1999 between the
Registrant and BankBoston, N.A. ..............................
10.23+ Commercial Security Agreement dated September 23, 1999 between
the Registrant and BankBoston, N.A. ..........................
10.24+ Form of Tax Indemnification Agreement between the Registrant
and each of its stockholders..................................
10.25+ Stock Pledge Agreement dated July 30, 1999 between the
Registrant and John T.W. Baggott..............................
10.26+ Secured Demand Promissory Note dated July 30, 1999 issued by
John T.W. Baggott in favor of the Registrant..................
10.27 Sourcebook Program Distribution Agreement dated July 19, 1999
between the Registrant and Wind River Systems, Inc. ..........
10.28+ Confidential Disclosure Agreement dated May 9, 1999 between the
Registrant and International Business Machines, Inc., together
with Supplement relating thereto..............................
10.29+ Power PC Confidential Disclosure Agreement dated June 25, 1998
between the Registrant and International Business Machines,
Inc., together with Supplement relating thereto...............
10.30+ Confidential Disclosure Agreement dated November 1, 1999
between the Registrant and Hewlett-Packard....................
10.31+ Agreement with Case Assembly dated May 11, 1999................
10.32 Intentionally Omitted
10.33 Distributor Agreement dated February 4, 1994 between Toyo
Corporation and the Registrant................................
10.34 Distributor Agreement dated September 18, 1998 between the
Registrant and Microtek International Inc. ...................
10.35 Distributor Agreement dated April 1, 1998 between the
Registrant and Microtask......................................
10.36 Distributor Agreement dated May 26, 1999 between the Registrant
and New Level Telecom.........................................
10.37 Distributor Agreement dated May 24, 1998 between the Registrant
and DeSecam...................................................
10.38 Intentionally Omitted
10.39 Intentionally Omitted
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description Page
------- ----------- ----
<C> <S> <C>
10.40+ Assignment and Assumption Agreement dated December 14, 1999
between the Registrant and Achieve Software Corporation.........
11* Statement regarding computation of per share earnings............
21* Subsidiaries of the Registrant...................................
23.1* Consent of Holland & Knight LLP (included in Exhibit 5)..........
23.2 Consent of PricewaterhouseCoopers LLP, Independent Auditors......
24 Powers of Attorney (included on page II-6).......................
27.1+ Financial Data Schedule for the nine months ended September 30,
1999............................................................
27.2+ Financial Data Schedule for the nine months ended September 30,
1998............................................................
27.3+ Financial Data Schedule for the year ended December 31, 1998.....
27.4+ Financial Data Schedule for the year ended December 31, 1997.....
27.5+ Financial Data Schedule for the year ended December 31, 1996.....
</TABLE>
- --------
* To be filed by amendment
+ Previously filed
<TABLE>
<S> <C> <C>
</TABLE>
<PAGE>
Exhibit 4.1
EMBEDDED SUPPORT TOOLS CORPORATION
FIRST AMENDED AND RESTATED
FOUNDING SHAREHOLDERS AGREEMENT
This FIRST AMENDED AND RESTATED FOUNDING SHAREHOLDERS' AGREEMENT is made as
of the 1/st/ day of July, 1999 ("Effective Date") by and among Peter S. Dawson,
--------------
an individual residing at 1931 Washington Street, Canton, Massachusetts 02021
("Dawson"), John T.W. Baggott, an individual residing at 88 Wayside Inn Road,
Marlborough, Massachusetts ("Baggott"), James E. Watkins, an individual residing
-------
at 34 Braddock Park, Number 3, Boston, Massachusetts, 02116 ("Watkins" and,
-------
together with Dawson and Baggott, the "Founders"), and Embedded Support Tools
--------
Corporation, a Massachusetts corporation with a principal place of business at
120 Royall Street, Canton, Massachusetts (the "Company").
-------
WHEREAS, the parties hereto are parties to a certain Shareholders'
Agreement dated as of April 18, 1991 (the "Original Shareholders' Agreement");
--------------------------------
WHEREAS, the Founders are the sole stockholders of the Company, owning the
following number of shares of common stock, no par value per share, of the
Company (the "Common Stock"):
------------
Dawson 2,833,500
Watkins 1,111,000
Baggott 1,111,000
------- ---------
Total 5,055,500
WHEREAS, the Company has agreed to redeem shares of Common Stock from the
Founders and/or make loans to the Founders from time to time pursuant to the
terms hereof in order to permit the Founders to liquidate a portion of their
equity in the Company; and
WHEREAS, the parties hereto now wish to amend and restate the Original
Shareholders' Agreement in its entirety to take into account (i) the change in
circumstances since the date of that agreement and (ii) the redemption and loan
terms included herein.
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. Current Capital Structure; Future Issuance of Capital Stock of the
------------------------------------------------------------------
Company
-------
1.1 The parties hereto hereby acknowledge and agree that the total
issued and outstanding shares (the "Shares") of common stock, no par value per
------
share, of the Company ("Common Stock") as of the date hereof is as follows,
------------
which constitutes all of the issued and outstanding capital stock of the Company
as of the date hereof:
<PAGE>
No. of Shares
-------------
Peter S. Dawson 2,833,500
John T.W. Baggott 1,111,000
James E. Watkins 1,111,000
---------
Total 5,055,500
1.2 The parties hereto hereby acknowledge and agree that the Company
has issued the following mirror stock and stock options representing the
following percentages of fully-diluted equity in the Company (assuming full
vesting of all mirror stock and options):
Fully-Diluted
No. of Shares Percentage
------------- ----------
Mirror Stock 1,062,000 15.58%
Special Option 329,500 4.83%
Stock Options 369,000 5.41%
--------- -----
Total 1,760,500 25.82%
1.3 Unless waived by unanimous action of the Founders, each Founder
shall have the right, for as long as such Founder is one of the ten (10) largest
stockholders in the Company, to participate in the issuance by the Company of
any capital stock, or any rights to acquire capital stock of the Company, to the
extent of such Founder's proportionate ownership of the Common Stock at the time
of such issuance upon the terms offered to any other person. In the event that a
Founder declines to participate fully under this subsection, the securities not
purchased by such Founder may be purchased by the other Founders in the
foregoing manner. The Company shall not be entitled to issue stock, stock
options, warrants, mirror stock or any other capital stock or rights to acquire
capital stock of the Company to any one of the Founders without the prior
consent of the other Founders.
1.4 Notwithstanding the foregoing, however, the Company shall be
entitled to issue shares of Common Stock, or options, warrants or other rights
to acquire Common Stock, mirror stock and other quasi-equity rights to new or
existing employees or new or existing consultants of the Company other than the
other Founders pursuant to a Stock Option Plan or similar plan or plans adopted
by the Board of Directors of the Company from time to time. In addition, the
foregoing restrictions shall not apply to any issuance of capital stock or
rights to acquire capital stock as part of a Change in Control or IPO.
2. Covenant against Competition. So long as he is a Director or officer
----------------------------
or employed by the Company, each Founder agrees that he will not, directly or
indirectly, as an employee, consultant, partner, owner or stockholder of, or in
any other capacity with, any person, firm, corporation or other organization,
without prior written consent of the Company; (i) engage in competition with the
Company in any business in which the Company is engaged (or
-2-
<PAGE>
has taken preliminary steps to become engaged), or (ii) induce any employee of
the Company to leave the employ of the Company. Each Founder acknowledges that
the remedy at law for any breach of this section will be inadequate, and the
Company shall, in addition to whatever other remedies it may have, be entitled
to injunctive relief.
3. Compliance with the Securities Act. Each Founder represents and
----------------------------------
warrants that he acquired his Shares for his own account for investment and not
with a view to any distribution thereof so as to cause a violation of the
Securities Act of 1933, as amended (the "Securities Act"), or any rules or
--------------
regulations thereunder, and agrees that he will not sell, transfer, distribute
or otherwise dispose of any of the Shares except (i) pursuant to an effective
registration statement under the Securities Act as then in effect covering such
Shares and such proposed distribution or (ii) upon first furnishing to the
Company an opinion of counsel satisfactory to the Company stating that the
proposed sale, transfer, distribution or other disposition is not in violation
of the registration requirements of the Securities Act and such undertakings and
agreements with the Company by the proposed transferee as the Company may
reasonably require to insure continued compliance with the Securities Act.
Each Founder acknowledges that his Shares are restricted securities that
are unregistered, and that he must hold them indefinitely unless they are
subsequently registered under the Securities Act or an exemption from such
registration is available; that one such exemption, Rule 144 under the
Securities Act, will not provide a meaningful way of disposing of the Shares
should he decide to do so at some future date since the procedure under Rule 144
presupposes the existence of an independent public market for the Shares; and
that the Company is under no obligation to register the Shares or to comply with
any such exemption.
4. Restrictions on the Transfer of Shares.
--------------------------------------
4.1 Notwithstanding any provisions set forth in the Company's
Articles of Organization or By-Laws, before any of the Shares may be sold,
transferred, pledged or otherwise encumbered, including a transfer by operation
of law (such as under the laws of intestacy or in accordance with a divorce
decree), other than a transfer or pledge of Shares pursuant to Sections 10 and
11 of this Agreement, the holder of such Shares proposing such sale or transfer
or his representative (the "Transferor") shall first give written notice thereof
----------
to the Company and each other Founder stating the proposed transferee, the
number of Shares proposed to be transferred, the purchase price, if any, and the
terms of the proposed transaction. The Company shall thereupon have the option,
but not the obligation, to acquire some or all of the Shares proposed to be
transferred at the Purchase Price provided in Section 6 (the "Purchase Price").
--------------
Within 30 days after the giving of such notice by the Transferor, the Company
shall give written notice to the Transferor and to the other Founders stating
whether or not it elects to exercise the option to purchase, the number of
Shares, if any, it elects to purchase and a date and time (the "Closing Date")
------------
for consummation of the purchase no more than 90 days after the giving of such
notice. Failure by the Company to give such notice within such time period
shall be deemed an election by the Company not to exercise
-3-
<PAGE>
such option. The Transferor shall not be entitled to vote, either as a
Stockholder or Director of the Company, in connection with the decision of the
Company whether to exercise its option to purchase his Shares, provided that if
his vote is required for valid corporate action he shall vote in accordance with
the decision of the majority of the other Directors. If, however, the other
Directors are split on whether to exercise the Company's option hereunder, the
Founders may, by a vote of a majority of the Shares held by those Founders other
than the Transferor, direct the Board to exercise the Company's option
hereunder.
4.2 If the Company fails to exercise such option with respect to all
of the Shares proposed to be transferred, each of the other Founders shall
thereupon have the option, but not the obligation, to purchase for the Purchase
Price that portion of all of the Shares proposed to be transferred as to which
the Company has not exercised its option in proportion to their then ownership
of Shares. Within 45 days after the giving of the notice provided in subsection
4.1 hereof by the Transferor, each other Founder shall give written notice to
the Transferor, the other Founders and the Company stating whether or not he
elects to exercise his option, the number of Shares, if any, which he elects to
purchase, and a Closing Date no more than 60 days after the giving of such
notice. If any Founder elects not to exercise his option with respect to some
or all of the Shares which he is entitled to purchase, the other Founders may
elect to purchase such Shares in the manner provided in this subsection.
Failure by any Founder to give such notice within such time period shall be
deemed an election by him not to exercise his option.
4.3 Notwithstanding anything herein to the contrary, the Transferor
shall in no event be required to sell hereunder less than all of the Shares
proposed to be transferred in accordance with his notice under subsection 4.1.
4.4 If the Shares offered hereunder are not purchased within the
respective time periods stated above, the Transferor may transfer such Shares at
any time during the 30-day period after the termination of the applicable time
period, but only upon the terms and to the transferee stated in his notice under
subsection 4.1. After such Shares are so transferred, or if the transfer is not
consummated within such period, the Shares shall again become subject to the
terms of this agreement.
4.5 Article V of the Articles of Organization of the Company contains
restrictions on the transfer of shares of Common Stock. The Founders and the
Company understand and expressly acknowledge that (i) the provisions contained
in this Agreement shall in all respects supersede any and all conflicting
provisions contained in the Articles of Organization and (ii) none of such
provisions in Article V with respect to the transfer of shares of Common Stock
by a Founder shall apply to the Founders.
5. Company's Option to Purchase Shares.
-----------------------------------
5.1 Upon the occurrence of the following events:
-4-
<PAGE>
(i) the death of a Founder;
(ii) the permanent disability of a Founder; and
(iii) in the case of Dawson and Watkins, only, the retirement or
termination of full-time employment for any reason with the Company, the
Company shall have the option, but not the obligation (except in the event
of death in which case the Company shall have the obligation), to purchase
all Shares then owned by such Founder or owned by such Founder at his
death, as the case may be, at the Purchase Price (as determined in
accordance with Section 6.1 below).] The Company may exercise the
foregoing option at any time within 30 days after the date of retirement or
termination of employment or, in the case of death, within 30 days after
the appointment of the Founder's legal representative, by written notice to
the Founder whose Shares are to be purchased, or his legal representatives
in the case of death, stating a date and time for consummation of the
purchase not less than 30 or more than 60 days after the giving of such
notice. The Company's option to purchase Shares hereunder shall remain in
effect notwithstanding any transfer of the Shares by a Founder or any
subsequent holder.
5.2 The Company may assign its option under this Section, in whole or
in part, to the continuing Founders who shall accept such assignment in
proportion to their then proportionate ownership of Shares. The Founder whose
Shares are subject to the option (or his legal representative) shall not be
entitled to vote, either as a Stockholder or Director of the Company, in
connection with the decision of the Company whether to exercise or assign its
option to purchase his Shares, provided that if his vote is required for valid
corporate action he shall vote in accordance with the decision of the majority
of the other Directors. If, however, the other Directors are split on whether
to exercise (or assign) the Company's option hereunder, the Founders may, by a
vote of a majority of the Shares held by those Founders other than the
Transferor, direct the Board to exercise (or assign) the Company's option
hereunder.
5.3 It is the intention of the Founders to maintain low cost
insurance on the lives of the Founders in order to pay a portion of the Purchase
Price for each Founder's Shares upon the death of such Founder. The Board of
Directors shall, in its discretion, obtain and maintain such insurance policies,
provided, however, that the Company shall not reduce the current level of
insurance on each of the Founder's lives.
5.4 With respect to Shares purchased by the Company under Sections 4
and 5, the Company may elect to pay the Purchase Price in installments in
accordance with the following terms (notwithstanding the fact that Section 10
calls for payments for redeemed shares to be made in cash):
-5-
<PAGE>
(i) The Company shall pay the Purchase Price in five (5) equal annual
installments of principal with interest on the unpaid balance of principal
at the per annum rate of interest designated from time to time by Fleet
Boston, or its successor, as its prime rate or, if no such rate is so
designated, the nearest equivalent, payable on the date of the Closing of
the sale. Prepayment in whole or in part without penalty may be made at any
time. In the event that the Company is in default in the payment of any
installment of principal or interest, the principal balance and all accrued
interest shall become immediately due and payable at the option of the
payee. In the event that legally available funds are insufficient to pay
an installment, the Company shall take such reasonable action, including
without limitation a recapitalization or revaluation of assets, as may be
legally permissible to create sufficient available funds for such payment;
(ii) The certificates for the Shares purchased by the Company shall be
held by the seller and pledged as security for the payment of the Purchase
Price, and such certificates shall be delivered to the Company, duly
endorsed, concurrently with the payment of the last installment of Purchase
Price. Shares purchased by the Company shall not be considered outstanding
or entitled to vote so long as the Company is not in default of its
obligation described herein.
5.5 Notwithstanding the foregoing, any amounts received by the
Company in respect of the insurance policies referred to above shall be
immediately applied to the Purchase Price (whether the deceased Founder's Shares
are purchased by the Company or by the surviving Founders) and the balance, if
any, may be paid in five (5) equal installments in accordance with the foregoing
Section 5.4.
5.6 The Company may elect to exercise or assign its option under this
Section 5 notwithstanding a proposed sale or transfer to which Section 4 is
applicable.
6. The Purchase Price.
------------------
6.1 The Purchase Price shall be determined as follows:
(i) In the case of a proposed sale or transfer under Section 4 to a
third party in a bona fide transaction for fair value payable in cash or
the equivalent currently or in future installments, the Purchase Price for
such Shares shall be the value offered by such third party payable upon
substantially similar terms, provided, however, that the Company may elect
to pay the Purchase Price in installments, in which case payment shall be
made in accordance with Section 5.4 above in the event that such third
party offers to purchase Shares for cash.
-6-
<PAGE>
(ii) In the case of the death of a Founder, the Purchase Price shall
be equal to the fair market value of the deceased Founder's Shares which
shall be determined by appraisal. The Company, on the one hand, and the
estate of the deceased Founder, on the other hand, shall mutually agree on
an appraiser and, if they shall fail to agree within twenty (20) days of
the death of the Founder, then they each shall select their own independent
appraiser and those two (2) appraisers shall select a third appraiser. The
appraiser or the appraisers, as the case may be, shall be instructed to
deliver his, her or their determination of the Purchase Price within thirty
(30) days of the date of his, her or their selection. The appraiser(s)
shall be instructed to take into account all relevant factors in making
his, her or their determination of the fair market value of the Shares of
the deceased Founder, such as, but not limited to, the percentage interest
held by the deceased Founder, the lack of a public market for the Shares
and the impact on the business resulting from the death of the Founder. If
a single appraiser is used, the Company, on the one hand, and the estate of
the deceased Founder, on the other hand, shall share equally the costs of
such appraiser. If three (3) appraisers are used, then each party shall
bear the costs of the appraiser selected by such party and shall share
equally the costs of the third appraiser.
(iii) In all other cases, including without limitation a proposed
transfer or other disposition not constituting a sale described in
subsection 6.1(i), the Purchase Price per share shall be determined in
accordance with the formula and method set forth in Section 11.2 of this
Agreement provided, however, that the "Determination Date" shall be the
date on which the event giving rise to the Company's purchase option
occurred.
7. Legend; Transfers of Record. Each certificate for Shares shall bear a
---------------------------
legend satisfactory to counsel for the Company reflecting this agreement. No
Shares shall be transferred on the books of the Company except upon compliance
with the restrictions on transfer contained in this agreement.
8. Subsequent Transfers of Common Stock
------------------------------------
8.1 In the event that, at any time or from time to time, any Shares
are transferred to any person or entity pursuant to any provision hereof, such
person or entity shall hold such Shares pursuant to all provisions,
restrictions, rights, conditions and covenants of this Agreement and, as a
condition precedent to the transfer of such Shares, such person or entity shall
agree (for and on behalf of such person or entity, his, her or its legal
representatives and his, her or its transferees and assigns) in writing in
accordance with Section 8.3 below to be bound by all provisions of this
Agreement as a party hereto and in the capacity of a Founder.
-7-
<PAGE>
8.2 In the event that there shall be any transfer to any person or
entity pursuant to any provision of this Agreement, all references herein to the
Founders or to any Founder shall thereafter be deemed to include such person or
entity, and all provisions of this Agreement shall thereafter be applicable to
such person or entity and, unless otherwise specifically provided herein, not
the transferor Participating Stockholder.
8.3 Any person or entity other than a person who is already a Founder
who becomes a party hereto by acquiring Shares after the date hereof from an
existing Founder pursuant to the terms hereof ("Additional Stockholder") shall,
----------------------
as a condition to his, her or its acquisition of such Common Stock, evidence
his, her or its intention to be bound by the terms hereof by executing a
Counterpart Signature Page in the form attached hereto as Exhibit A and, even
---------
though not executed by the other parties hereto, such other parties hereby agree
to continue to be bound by the terms of this Agreement as amended by the
inclusion of the Additional Stockholder.
9. S Status. The Company and each Founder, for and on behalf of himself,
--------
his estate, his executors or administrators and transferees, direct or indirect,
covenant and agree not to do any act or fail to do any act, the commission or
omission of which would voluntarily or involuntarily cause the termination of
the election of the Company and the stockholders of the Company to be treated as
an S Corporation under and pursuant to Subchapter S of the Internal Revenue Code
of 1986, as amended, unless and until all of the Founders agree to such
termination. For as long as the Company remains an S corporation, the parties
hereto agree that the Company shall make Tax Distributions to the Founders each
year. For purposes hereof, "Tax Distributions" shall mean an amount equal to
-----------------
the net taxable income and/or net gain of the Company required to be reported by
the Founders, multiplied by a percentage, accurate to three decimal points, that
is equal to the highest "effective combined income-tax rate" applicable to any
Founder, such effective combined income-tax rate to take into account the
combined effects of federal and state income taxation (but not city or other
local income taxes), including but not limited to any deduction, for federal
purposes, of state income taxes paid. The determination of the effective
combined income-tax rate referred to in the preceding sentence shall be made by
the accountants retained by the Company to prepare its tax returns for each
year, and such determination shall be conclusive. The purpose of the Tax
Distribution is to pay the Founders an amount not less than the federal and
state income tax liabilities incurred by them with respect to the Company's
taxable income and gain in each year, as a result of the Company's status as an
S corporation. The Tax Distribution for each tax year shall be declared by the
Board of Directors and distributed in accordance with the prevailing tax laws
governing estimated tax payments, and shall be expressly denominated by the
Board of Directors as a Tax Distribution.
10. Optional Redemption of Shares of Common Stock
---------------------------------------------
10.1 During the period (the "Optional Redemption Period") beginning on
--------------------------
the Effective Date and ending on the earlier to occur of (i) an IPO (as defined
below), or (ii) a Change in Control (as defined below), each Founder shall be
entitled to sell to the Company and, if such election to sell is made by a
Founder, the Company shall be required to purchase
-8-
<PAGE>
up to 10%, per year of their respective shares of Common Stock owned by them as
of the date hereof (as adjusted for any stock splits, stock dividends or other
reorganization) upon the terms and conditions set forth below, subject to the
limitations contained in Section 12 below. For purposes hereof, an "IPO" shall
---
be defined as an initial public offering of shares of the Company's capital
stock pursuant to the provisions of the Securities Act, the Exchange Act of
1934, as amended (the "Exchange Act"), and the rules and regulations of the
United States Securities and Exchange Commission (the "Commission") or any other
----------
federal agency at the time administering the Securities Act and the Exchange
Act; and a "Change in Control" shall be defined as a merger or consolidation of
-----------------
the Company with another corporation or entity in which the Company is not the
surviving corporation, or which results in the acquisition of substantially all
of the Company's outstanding Common Stock by a single person, entity or group of
persons or entities acting in concert, or the sale or transfer of all or
substantially all of the assets of the Company.
10.2 The price to be paid by the Company for any such shares of Common
Stock purchased from a Founder pursuant to the terms of this Agreement (the "Per
---
Share Value") shall be the fair market value which the parties hereto hereby
- -----------
agree shall, for purposes of this Agreement, be equal to the number obtained by
the following formula rounded up to the next $.25.
Formula: 1.3 x A
-------
B - C
Where: A = The consolidated annual sales
for the Company during the
Prior Year (as defined below)
as determined by the Company's
auditors.
B = The total number of shares of
Common Stock issued and
outstanding as of the
Determination Date (as defined
below).
C = Any Pledged Shares as of the
Determination Date.
As used herein, "Prior Year" shall mean:
----------
(i) The immediately preceding calendar year, if the Determination Date
is between April 1 and December 31 of any year; or
-9-
<PAGE>
(ii) The calendar year preceding the immediately preceding calendar year
if the Determination Date is between January 1 and March 30 of any year.
Example 1: Assume that on June 1, 1999, a Founder notifies the Company
---------
that he wishes to redeem 111,100 shares of Stock, and the Company's consolidated
annual sales for 1998 was $19,000,000. Then the Per Share Value would be $5.00
[(1.3 x $19,000,000) / 5,055,000 = $4.89, which is then rounded up to the next
$.25 = $5.00] and the Redemption Price payable to such Founder would be
$555,500.
Example 2: Assume that after the above redemption is completed, a Founder
---------
notifies the Company on February 1, 2000 that he wishes to redeem a further
50,000 shares of Common Stock. Since the Determination Date is between January 1
and March 30, the consolidated annual sales figure to be used will be 1998
audited sales ($19,000,000) and the total outstanding shares of Common Stock
will be 4,943,900, which takes into account the prior redemption of 111,100
shares. Therefore, the Per Share Value would be $5.00 [(1.3 x $19,000,000) /
4,943,900 = $4.996, which is then rounded up to the next $.25 = $5.00] and the
Redemption Price payable to such Founder would be $250,000.
Example 3: Assume that after the above two redemptions, the Founder
---------
notifies the Company on November 1, 2000 that he wishes to redeem a further
50,000 shares of Common Stock and that the Company's consolidates sales figures
for 1999 was $24,000,000. The Per Share Value would be $6.50 [(1.3 x
$24,000,000) / 4,893,900 = $6.38, which is then rounded up to the next $.25 =
$6.50] and the Redemption Price payable to such Founder would be $325,000.
10.3 In the event a Founder does not exercise his right to redeem his
maximum number of shares of Common Stock in any given year during the Optional
Redemption Period, he shall have the right to redeem such unredeemed shares (the
"Carry-Over Shares") in subsequent years, provided, however, that the
-----------------
Determination Date used to calculate the Per Share Value for such Carry-Over
Shares shall be deemed to be December 31 of the year during which such Carry-
Over Shares were first redeemable by such Founder. In addition, a Founder's
redemption of any Carry-Over Shares in subsequent years shall not affect such
Founder's right to redeem his entire 10% share allotment becoming redeemable in
respect of each subsequent year.
Example 4: Assume that after the above three redemptions are made, the
---------
Founder notifies the Company on June 1, 2001 that he wishes to redeem his full
allotment of 111,100 shares ( in this case, either Watkins or Baggott) together
with the 11,100 shares not redeemed in 2000, and assume the Company's
consolidated sales for 2000 were $26,000,000. The Per Share Value for the
11,100 Carry-Over Shares would be $6.50 [(1.3 x $24,000,000) / 4,843,900 =
$6.44, which is then rounded up to the next $.25 = $6.50]. The Per Share Value
for the 111,100 shares that become redeemable during 2001 would be $7.00 [(1.3 x
$26,000,000) / 4,832,800 = $6.99, which is then rounded up to the next $.25 =
$7.00]. Therefore, the Redemption Price payable to such Founder for all 122,200
shares would be $849,850.00 [($6.50 x 11,100) + ($7.00 x 111,100)].
-10-
<PAGE>
10.4 A Founder shall provide notice to the Company of his election
to sell shares of Common Stock to the Company (a "Redemption Notice"). The
-----------------
Redemption Notice shall set forth the number of shares of Common Stock being
sold to the Company (the "Redeemed Shares"). The date of such Redemption Notice
---------------
shall be referred to herein as the "Determination Date". The Company shall,
------------------
within thirty (30) days of the Determination Date, calculate the aggregate
purchase price for the Redeemed Shares (the "Redemption Price"). Unless the
----------------
Company and the electing Founder otherwise agree, the closing of the redemption
of the Redeemed Shares shall take place on the thirtieth (30/th/) day following
the Determination Date or, if that day shall be a Saturday, Sunday or legal
holiday, on the next following business day, at the principal offices of the
Company. Payment of the Redemption Price shall be made by Company check, wire
transfer or other form reasonably acceptable to the Founder. At the closing, the
Founder shall execute and deliver a stock power, his original stock certificate
and/or other documents reasonably requested by counsel to the Company evidencing
the sale of the Redeemed Shares to the Company.
10.5 Each Founder hereby represents and warrants to the Company as
follows (which representations and warranties shall be true and correct as of
the Effective Date and as of the closing of any redemption hereunder and on the
closing of any Loan pursuant to Section 11 below):
(i) He has good and marketable title to the shares of Common Stock
registered in his name, free and clear of any and all covenants,
conditions, restrictions, voting trust arrangements, liens, charges,
encumbrances, options, warrants and adverse claims or rights of purchase or
conversion whatsoever other than the Pledged Shares, if any.
(ii) He has the full right, power and authority to enter into this
Agreement and to transfer, convey and sell to the Company the Redeemed
Shares as of the Effective Date hereof and as of the date of any redemption
thereof.
(iii) This Agreement and the performance of the transactions
contemplated hereby and thereby are each binding upon and enforceable
against him in accordance with its respective terms.
(iv) The execution, delivery and performance of this Agreement and
the consummation of the transactions contemplated hereby (i) do not require
the consent, waiver or approval of any person or public authority and (ii)
do not conflict with, or result in a breach of any provision of any
material agreement or any judgement, order, writ, prohibition, injunction
or decree of any court or other governmental body to which he is a party.
-11-
<PAGE>
11. Company Loans
-------------
11.1 During the Optional Redemption Period, each Founder shall be
entitled to obtain loans from the Company (individually, a "Loan" and,
----
collectively, the "Loans") in lieu of redeeming shares of Common Stock pursuant
-----
to Section 10 above. Such Loans shall be secured by a pledge of shares of
Common Stock and shall be on the terms and conditions set forth in the form of
Promissory Note attached hereto as Exhibit B (the "Note").
--------- ----
11.2 Each Founder may obtain Loans in any given year during the
Optional Redemption Period in an aggregate original principal amount not to
exceed the Per Share Value (determined using the formula in Section 10 above)
multiplied by the amount by which 10% of such Founder's Shares as of the date
hereof (as adjusted for any stock splits, stock dividends or other
reorganization) exceeds the number of Redeemed Shares in respect of such year,
subject to the limitations contained in Section 12 below. It is the intention
of the parties that each Founder's right to obtain Loans is in lieu of his right
-- ---- --
to redeem his shares of Common Stock. Therefore, in respect of any given year
during the Optional Redemption Period, each Founder shall not be entitled to
receive proceeds from the Company, whether in the form of Loans or Redemption
Price, in excess of 10% of such Founder's Shares multiplied by the Per Share
Value (using the immediately preceding year's sales figure for such
calculation).
11.3 Each Founder shall provide notice to the Company of his election
to obtain a Loan from the Company (a "Loan Notice"), provided, however, that all
-----------
Loans must be in multiples of $25,000. The Loan Notice shall set forth the
number of Pledged Shares in respect of such Loan. The date of such Loan Notice
shall be used as the Determination Date in calculating the amount of the Loan.
The Company shall, within thirty (30) days of the Determination Date, calculate
the Loan Amount. Unless the Company and the Founder seeking the Loan otherwise
agree, the closing of the Loan shall take place on the thirtieth (30/th/) day
following the Determination Date or, if that day shall be a Saturday, Sunday or
legal holiday, on the next following business day, at the principal offices of
the Company. Payment of the proceeds of the Loan shall be made by company
check, wire transfer or other form reasonably acceptable to the Founder seeking
the Loan. At the closing, the Founder seeking the Loan shall execute and
deliver to the Company a Note, a Pledge Agreement together with a stock power
signed in blank and original stock certificates relating to the Pledged Shares
and/or any other documents reasonably requested by counsel to the Company
evidencing the Loan and the pledge of the Pledged Shares.
11.4 Each Founder's right to obtain Loans shall carry-over from year
to year in a manner similar to his right to redeem shares of Common Stock such
that, if a Founder does not obtain the full amount of the Loans to which he is
entitled in any given year (taking into account any Redeemed Shares during such
year), he shall be entitled to obtain Loans in subsequent years during the
Optional Redemption Period (taking into
-12-
<PAGE>
account any redemption of Carry-Over Shares) provided that the computation of
such Loans shall be based upon such prior year's Per Share Value.
11.5 All Loans shall be secured by a pledge of shares of Common Stock
pursuant to a pledge agreement substantially in the form attached hereto as
Exhibit C (the "Pledge Agreement"). The shares of Common Stock so pledged are
- --------- ----------------
referred to herein as "Pledged Shares."
--------------
11.6 Each Note shall bear simple interest at a rate (computed at the
time of issuance of the Note) equal to the greater of (i) the Applicable Federal
Rate or (ii) the spread between the rate of interest earned by the Company on
liquid assets and the rate of interest payable by the Company on short-term
borrowings. All Loans shall be due and payable upon the earlier to occur of (i)
five (5) years from the date of issuance, or (ii) one (1) year after the
expiration of any Lock-Up (as defined below) following an IPO, or (iii) a Change
in Control. Payments of interest only shall be made in cash on December 31 of
each year. All payments of principal shall be made in the form of cash or in
the form of Pledged Shares. The parties hereby agree that if a Founder elects
to repay all or any portion of the principal balance of any Note using Pledged
Shares, the value of such Pledged Shares for purposes of repaying such Loan
shall be equal to the Per Share Value used to compute the face amount of such
Loan at the time the Founder obtained such Loan. The parties also agree and
acknowledge that in the event the Founder defaults under a Note, the Company
shall have the right to acquire the Pledged Shares securing the payment of such
Note from the defaulting Founder and apply such Pledged Shares against the
amounts owed to the Company under the Note at a valuation based upon the Per
Share Value for such Pledged Shares at the time the Founder obtained the Loan,
notwithstanding the fact that the Per Share Value for other shares of Common
Stock may be higher at such time.
Example 5: Assume that in Example 1 above, instead of redeeming the full
---------
10% of his Share Ownership he is entitled to redeem each year, the Founder
redeems 50,000 shares and elects to pledge the remaining 61,100 shares as
security for a Loan. The total proceeds paid to such Founder by the Company
would be the same as in Example 1 above (i.e., $5.00 x 111,100 = $555,500)
however, $250,000 of this would be paid to him as a Redemption Price for his
50,000 Redeemed Shares and $305,500 would be the original principal balance of a
Loan which would be secured by a pledge of the remaining 61,100 shares. Upon
the maturity of the Note, the Founder could elect to repay the Loan in cash or
by transferring the 61,100 Pledged Shares to the Company.
12. Limitations on Redemptions and Borrowings. Beginning on April 1,
-----------------------------------------
2001, the following additional limitations shall apply to the Founders' right to
redeem their Shares and obtain Loans from the Company.
12.1 If the consolidated annual sales of the Company (as determined
by the Company's auditors) in respect of the Prior Year shall be less than the
Company's consolidated annual sales (as determined by the Company's auditor's)
in respect of the year
-13-
<PAGE>
immediately preceding the Prior Year, then no Founder shall be entitled to
redeem any of his Shares or obtain any Loans. Nevertheless, the Founders' rights
to redeem their Shares and obtain Loans shall accrue and shall be deemed to be
"Carry-Over Shares". The Determination Date used to calculate the Per Share
Value for such Carry-Over Shares shall be deemed to be December 31 of the year
during which the right to redeem such Carry-Over Shares first accrued.
Example 6: Assume consolidated annual sales in 1998, 1999, 2000 and 2001
---------
were $19,000,000, $25,000,000, $24,000,000 and $27,000,000, respectively.
During the period when 2000 is the Prior Year, none of the Founders would be
allowed to exercise their rights to redeem their Shares or obtain Loans.
However, when 2001 becomes the Prior Year, then the Founders shall be entitled
to exercise a further twenty (20%) of their Shares (or obtain equivalent Loans),
but the Per Share Valuation of the ten percent (10%) Carry-Over Shares from the
Prior Year shall be based upon annual sales in 2000 of $24,000,000.
12.2 In the event the Company declares and pays a distribution to
the Founders above and beyond a Tax Distribution (a "Non-Tax Distribution"), the
--------------------
portion of any such Non-Tax Distribution paid to a Founder shall reduce (i) the
aggregate amount of Shares that such Founder would otherwise be entitled to
redeem hereunder during such year, and (ii) the aggregate amount of Loans such
Founder would otherwise be entitled to obtain hereunder during such year.
12.3 In the event that a Founder has obtained a Loan during any
given year, and the Company declares and pays a Non-Tax Distribution, such
Founder shall be required to apply the portion of such Non-Tax Distribution
allocated to such Founder against the outstanding balance of any Loan obtained
by such Founder during such year. Such amount may not be re-borrowed by such
Founder during that year. The Company may, in its sole discretion, retain such
Founder's portion of a Non-Tax Distribution and apply the proceeds of such
distribution against the amounts due under the relevant Note from such Founder.
To the extent such Founder's portion of such Non-Tax Distribution exceeds the
aggregate amount due under the relevant Note, such excess shall be paid to the
Founder.
13. IPO and Change in Control. In the event of an IPO or a Change in
-------------------------
Control, each Founder's right to redeem his shares of Common Stock and his right
to obtain Loans shall immediately terminate.
14. "Piggy Back" Registration Rights. If at any time the Company shall
-------------------------------
determine to register under the Securities Act any of the shares of Common Stock
held a Founder and if, within twenty (20) days from the date of such notice,
either of the other Founders shall request in writing, the Company shall use its
best efforts to include in such registration statement all or any portion of all
of the requesting Founder's shares of Common Stock, other than any Pledged
Shares, that such Founder shall request to be registered, except that if, in
connection with any underwritten public offering, the Lead Underwriter shall
impose a limitation on the number of shares of Common Stock which may be
included in any such registration statement because, in
-14-
<PAGE>
its judgment, such limitation is necessary to affect an orderly public
distribution, and such limitation is imposed pro rata among the Founders
--- ----
according to the number of shares of Common Stock which each of them had
requested to be included in the registration statement, then the Company shall
be obligated to include in such registration statement only such limited portion
of such Founder's shares of Common Stock.
15. Fees and Expenses. Except as otherwise set forth herein, the Founders
-----------------
and the Company shall each pay their respective expenses, including, but not
limited to, legal and accounting expenses incident to the preparation and
carrying out of this Agreement and the consummation of the transactions
contemplated hereby, provided, however, that to the extent the Company pays
expenses of any Founder in connection with an IPO, Change of Control or
"piggyback" registration rights, the Company shall also pay the comparable
expenses of the other Founders.
16. Broker. Each party hereto represents and warrants to the other that
------
no person, firm or corporation has acted in the capacity of broker or finder on
its behalf to bring about the negotiation of this Agreement. Each party agrees
to indemnify and hold harmless the other against any claims or liabilities
asserted against either of them by any person acting or claiming to act as a
broker or finder on behalf of such party.
17. Preparation of Agreement. The Founders acknowledge that the Company's
------------------------
counsel, Holland & Knight, LLP, prepared this Agreement on behalf of and in the
course of their representation of the Company, as directed by its Board of
Directors, and that each of them have been advised that a conflict may exist
between his interests and those of the Company and each has had the opportunity
to seek the advice of independent counsel.
18. Amendment and Termination. This Agreement may be modified or amended
-------------------------
upon the written consent of all of the Founders, except that this Agreement may
be modified by an agreement in writing signed by the party against whom the
enforcement of any waiver, changes, modification or discharge is sought. This
Agreement shall terminate upon the earlier to occur of the following:
(i) an IPO;
(ii) Change in Control;
(iii) at such time as there is only one Founder;
(iv) upon the unanimous written consent of all of the Founders;
(v) the redemption of all of the Founders' Shares.
-15-
<PAGE>
In the event of termination of this Agreement, each then living Founder
shall have the right to purchase from the Company for an amount equal to the
then unamortized prepaid gross premium one or more of the then in force policies
insuring his life referred to in subsection 5.3.
19. Board of Directors. For as long as a Founder remains one of the ten
------------------
(10) largest stockholders in the Company, the other Founders hereby agree to
elect such Founder to the Board of Directors of the Company provided, that such
Founder attends (either in person or by telephone) at least one-half of all
regularly-scheduled Board Meetings during any 12-month period.
20. Captions and Headings. Captions and headings of the paragraphs and
---------------------
subparagraphs of this Agreement are for convenience and reference only, and the
words contained therein shall in no way be held to explain, modify, amplify, or
aid in the interpretation, construction or meaning of the provisions of this
Agreement.
21. Severability. In the event that any provision of this Agreement or
------------
the application thereof to any person or in any circumstances shall be
determined to be invalid, unlawful, or unenforceable to any extent, the
remainder of this Agreement, and the application of such provision to persons or
circumstances other than those as to which it is determined to be invalid,
unlawful or unenforceable, shall not be affected thereby, and each remaining
provision of this Agreement shall continue to be valid and may be enforced to
the fullest extent permitted by law.
22. Counterparts. This Agreement may be executed simultaneously in two or
------------
more counterparts, each of which shall be deemed to be an original but all of
which together shall constitute one and the same instrument.
23. Publicity and Disclosures. No press releases or public disclosure,
-------------------------
either written or oral, of the transactions contemplated by this Agreement,
shall be made without the prior knowledge and written consent of the parties
hereto.
24. Miscellaneous.
-------------
24.1 Any notice hereunder shall be personally delivered or mailed by
registered or certified mail, postage prepaid, and addressed to any Founder at
his address as appearing in the records of the Company and to the Company at its
principal office, or at such other address as may be specified by a party to the
other parties by notice given in the manner herein provided.
24.2 No waiver by a party hereto of a breach of any provision of this
agreement shall be deemed to be a waiver of any preceding or subsequent breach
of the same or any other provision hereof.
24.3 This Agreement shall be governed by the laws of Massachusetts;
-16-
<PAGE>
24.4 This Agreement, including the Exhibits attached hereto, set forth
the entire agreement among the parties concerning the subject matter hereof and
supersedes all prior agreements and understandings relating to the subject
matter hereof, including, without limitation, the Prior Shareholders' Agreement.
24.5 This agreement shall bind and benefit the parties hereto and
their respective successors and legal representatives, provided that the rights
of a Founder under Section 1 may not be assigned to a transferee of such Founder
without the prior written consent of the other Founders. The Company may assign
its rights hereunder to purchase shares of Common Stock from a Founder and may
assign all of its rights and obligations in connection with a Change in Control.
Otherwise, the Company may not assign its rights or obligations hereunder
without the prior written consent of each of the Founders.
Except as expressly set forth herein, nothing herein expressed or implied
is intended or shall be construed to confer upon or give to any person or entity
other than the parties hereto and their successors or permitted assigns, any
rights or remedies under or by reason of this Agreement including, without
limitation, any right to continued employment.
[Remainder of Page Intentionally Left Blank]
-17-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this agreement under seal on
the date first above written.
EMBEDDED SUPPORT TOOLS CORPORATION, a
Massachusetts corporation
By: /s/ Peter Dawson
--------------------------------
Peter S. Dawson, President
By: /s/ Peter Dawson
--------------------------------
Peter S. Dawson, Individually
By: /s/ James Watkins
--------------------------------
James E. Watkins, Individually
By: /s/ John Baggott
--------------------------------
John T.W. Baggott, Individually
-18-
<PAGE>
Exhibit A
---------
COUNTERPART SIGNATURE PAGE
--------------------------
The undersigned hereby executes this Counterpart Signature Page as a part
of the First Amended and Restated Founding Shareholders' Agreement, dated as of
July 1, 1999, by and among, Embedded Support Tools Corporation, a Massachusetts
corporation, and its stockholders (the "Shareholders' Agreement") and hereby
accepts and agrees to be bound by all the terms and conditions of the
Shareholders' Agreement.
IN WITNESS WHEREOF, the undersigned has executed this instrument under seal
as of the date set forth below.
___________________________ _____________________________
Witness Stockholder's Signature
Print Name ______________________________
Date ______________________________
-19-
<PAGE>
Exhibit 4.2
FIRST AMENDMENT TO
FIRST AMENDED AND RESTATED
FOUNDING SHAREHOLDERS AGREEMENT
Agreement made this 17 day of December, 1999 by and between Peter S. Dawson
--
("Dawson"), John T.W. Baggott ("Baggott"), James E. Watkins ("Watkins") and
Embedded Support Tools Corporation ("Company").
Reference is made to the First Amended and Restated Founding Shareholders
Agreement dated July 1, 1999 (the "First Restated Agreement").
WHEREAS, the individual parties (the "Founders") and the Company desire to
make certain changes in the First Restated Agreement with a view to facilitating
the Company's completion of possible equity financing or merger transactions in
the future;
WHEREAS, the parties deem such changes and the other agreements set forth
herein to be in each of their and the Company's mutual best interests;
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth herein and other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereby agree as
follows:
1. For the six months period beginning with the date of this agreement,
each of the Founders:
(a) hereby waives and agrees not to exercise his rights, as more fully
set forth in Section 1.3 of the First Restated Agreement, to participate in
the issuance by the Company of any capital stock or any rights to acquire
capital stock of the Company;
(b) hereby waives and agrees not to exercise his rights, as more fully
set forth in Section 11 of the First Restated Agreement, to obtain loans
from the Company provided that this shall not have effect upon any loans
which a Founder presently has outstanding from the Company pursuant to the
First Restated Agreement;
(c) hereby waives and agrees not to exercise his rights, as more fully
set forth in Section 10 of the First Restated Agreement, to sell shares of
his Common Stock to the Company
<PAGE>
2. The parties agrees that section 19 of the First Restated Agreement,
providing for each Founder to vote, under certain circumstances, for the
election of each of the others as a director of the Company, be terminated and
of no force and effect.
3. Except as set forth above, the First Restated Agreement shall remain
in full force and effect.
IN WITNESS WHEREOF, the parties have executed this agreement under seal on
the date first above written.
EMBEDDED SUPPORT TOOLS CORPORATION, a
Massachusetts corporation
By: /s/ Peter Dawson
--------------------------------
Peter S. Dawson, President
By: /s/ Peter Dawson
--------------------------------
Peter S. Dawson, Individually
By: /s/ James E. Watkins
--------------------------------
James E. Watkins, Individually
By: /s/ John T.W. Baggott
--------------------------------
John T.W. Baggott, Individually
<PAGE>
Exhibit 10.16
VALLINGBY CONTRACT OF LEASE No. 9201-152
Kontorshotell for premises in office hotel
[Vallingby
Office Hotel]
The undersigned have on this day entered into the following lease agreement:
<TABLE>
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Landlord: VIAK AB/VVB Fastigheter [= VIAK Corp./VVB Real Estate]
- ------------------------------------------------------------------------------------------------------------------
Tenant: EST Corporation [handwritten:] Nordic AB
- ------------------------------------------------------------------------------------------------------------------
Address Municipality: Stockholm Block: Kontorsskylten 6
of premises:
---------------------------------------------------------------------------------------
Street: Vallingbyplan 26
- ------------------------------------------------------------------------------------------------------------------
Condition and use of Office
premises:
- ------------------------------------------------------------------------------------------------------------------
Size of premises: Room No.: 316 Floor No.: 2 Annex: 1
-----------------------------------------------------------------------------------------
Area in m/2/: Floor No.: -
----------------------------------------------------------------
Garage space number: -
- -----------------------------------------------------------------------------------------
Equipment: Office furniture for . . . . st. /?/ work locations.
--------------------------------------------------------
X Cleaning of room
--------------------------------------------------------
--------------------------------------------------------
General conditions on reverse side apply.
- ---------------------------------------------------------------------------------
Period of lease: From: Nov. 1, 1997 incl. To: Dec. 1, 1999 incl.
- ------------------------------------------------------------------------------------------------------------------
Period of notice: 1 month Extension: 1 mo.
- ------------------------------------------------------------------------------------------------------------------
Rent: Kronor/month: 2950.-
- ------------------------------------------------------------------------------------------------------------------
Index: Rent is escalated by 3% yearly
- ------------------------------------------------------------------------------------------------------------------
Value-added tax:
- ------------------------------------------------------------------------------------------------------------------
Payment: Rent is payable monthly in advance.
Bank giro acct.: 5750-4755 Postal giro acct.: 458 62 29-9
- ------------------------------------------------------------------------------------------------------------------
Other remarks: Special conditions apply
- ------------------------------------------------------------------------------------------------------------------
Signature: Place/date: Stockholm 10/21/97 Place/date: Stockholm 10/-/97
-----------------------------------------------------------------------------------------
Landlord: Tenant:
VIAK AB/Vallingby Kontorshotell EST Corp.
[=VIAK Corp./Vallingby [Signed:] Johan Skyle /?/
Office Hotel] [handwritten:]
[Signed:] Stig Johansson Johan Skyle /?/
Stig Johansson/Vivianne Sandgren [handwritten:]
Chief of Real Estate VD EST Corp. Nordic AB
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
FRAVAN2.xls October 29, 1997 09:68
[Translator's note: It is possible that the handwritten letters which appear
-----------------
to be "VD" in the faxed copy of the Swedish text are intended to be "VP," as
in contract No. 9201-151.]
<PAGE>
STATE OF NEW YORK )
)
COUNTY OF BRONX )
CERTIFICATE OF ACCURACY
-----------------------
I, Alexander Schwartz, hereby certify:
that I am a translator of the Swedish and English languages;
that I translated the attached documents* from Swedish into English;
that I reviewed this translation and
that the English version attached hereto is a true, accurate, and complete
rendition of the Swedish documents.
*Two contacts of lease between Vallingby Kontorshotell and EST Corp.
Sworn and subscribed to before me, Notary Public, on this 28th day of
December, 1999.
___________________________________
Alexander Schwartz
__________________________________
Notary Public
<PAGE>
Exhibit 10.20
OFFICE PARK
COMMERCIAL LEASE
AND SERVICE AGREEMENT
BETWEEN THE UNDERSIGNED:
PROMOPOLE, S.E.M.L., with headquarters in Montigny Le Bretonneux, at 12, avenue
des Pres - BL 125 - 78059 Saint-Quentin Yvelines CEDEX, represented by Mr. Luc
DAUVERGNE, acting in his capacity as President,
Hereinafter the "lessor,"
AND
EMBEDDED SUPPORT TOOLS CORP. - EUROPE (E.S.T.), S.A.R.L., capitalized to FF.
250,000, registered in the Commercial Registry of VERSAILLES under number B 390
362 762, with its corporate headquarters at 12, avenue des Pres - BL 219 -
MONTIGNY LE BRETONNEUX, 78059 Saint-Quentin Yvelines CEDEX, represented by it
manager, Mr. Stephane OILLIC, residing at 125, avenue de Versailles 92410 VILLE
D'AVRAY,
Hereinafter the "lessee."
ARTICLE 1
- ---------
The Partially State-Owned Company based in Saint-Quentin Yvelines [PROMOPOLE,
S.E.M.L.], hereby:
1. Grants in lease, in accordance with the provisions of decree No. 53-960 of
September 30, 1953, to the company E.S.T., which accepts, the real property
defined hereinafter, located at 12, avenue des Pres - 78180 MONTIGNY LE
BRETONNEUX, [consisting of] office space of 155 m2 and designated by Lot: VE 12.
The lessee represents that it is familiar with the property as it exists in its
current condition, having visited it in consideration of this lease.
2. Agrees to provide the following services to the lessee who agrees to accept
them throughout the term of the lease: to make available to the lessee a set of
shared services such as: copying, fax, telex, word processing, reception,
continuous telephone service, the proper management of the use of the common
areas, the operation and coordination of the PROMOPOLE structure as well as the
management of the staff providing all said services.
ARTICLE 2: TERM
- ---------------
This lease is granted and accepted for a term of 9 full and consecutive years
beginning on August 1, 1998 and ending July 31, 2007.
In accordance with the provisions of article 3 of the decree of September 30,
1953, the lessee shall be authorized to serve notice of termination at the end
of each three-year period; the lessor shall be authorized in the same fashion if
it intends to make use of the provisions of article 10.13 and 15 of said decree,
in order to build or rebuild the existing property, to raise the height thereof
or to perform works stipulated or authorized within the framework of a real
property restoration project.
The party wishing to terminate the lease in either of the cases set forth above,
shall serve notice thereof to the other party by means of extra-judicial notice
at least six months prior to the expiration of the three-year period underway.
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ARTICLE 3: USE
- --------------
The property hereby leased shall be used exclusively for the activity defined in
the bylaws, to wit: All operations related to equipment and media, software and
hardware and related activities.
ARTICLE 4: RENT AND FEES
- ------------------------
4.1 Rent
a) Rent
In addition, this lease is granted and accepted by means of an annual rent, not
including tax, of an amount of FF. 108,500 (ONE HUNDRED EIGHT THOUSAND FIVE
HUNDRED FRANCS) which the lessee agrees to pay in advance and on a quarterly
basis, as well as the charges set forth in Article 5, section 7, and the fees
set forth in article 4.2, by bank check drafted to the order of the Partially
State-Owned Company based in Saint-Quentin Yvelines [PROMOPOLE, S.E.M.L.].
The first payment shall be made on August 1, 1998, with the knowledge that it
has already been billed to E.S.T. with the invoice for the third quarter for the
prior provisional lease, since no change of location will take place. The next
quarterly invoice shall be for October 1, 1998.
All payments shall be made at the domicile of the lessor or at any other
location determined thereby.
b) Rent Indexing
The parties set forth that the amount of the rent was determined by taking the
national index of construction costs determined for the first quarter of 1998 by
the National Institute of Statistical and Economic Research (INSEE) as a base
index, which is 1058 on the basis of 100 as of the 4th quarter of 1953.
The parties expressly agree:
1. That the rent for the first year shall be applied without
modification.
2. That the rent shall be reevaluated on June 1 of each year, effective
for the entire year, for the first time on August 1, 1999 as a
function of the positive or negative variation of the national index
of construction costs.
It is set forth that the index of reference to be used annually to calculate the
revised rent shall be the index known on the date of the revision.
The indexing shall take effect without requiring any prior modification by the
parties.
In the event that the lessee fails to make payment for the rent and charges
within the terms set forth above, for any reason whatsoever, it shall pay to the
lessor or to its beneficiaries on a monthly basis and in arrears, an indemnity
equal to 6% of the amounts due in lump sum, irreducible payments.
4.2 Fees
All fees and charges arising from services rendered, after deduction of the
share of the salaries and charges for time spent by the person responsible for
receiving rent payments, shall be divided between the tenants on a prorated
basis according to the space leased.
The lessee agrees to pay a provision for access to the shared services
referenced in Article 1. This provision shall be claimed by the lessor at the
same time as rent payments and other charges.
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ARTICLE 5: CHARGES AND CONDITIONS
- ---------------------------------
This lease is granted and accepted subject to standard charges and conditions
and those set forth by law, and is also subject to the following, which the
lessor agrees to perform, without being able to demand any indemnity or decrease
of the rent set forth below:
1) Condition of the property:
-------------------------
a) The lessee shall take possession of the property in its current
condition.
b) During the month when possession is taken, a statement of condition
shall be drafted by both parties, at the expense of the lessee,
otherwise the lessee shall be considered to have received the property
in perfect condition.
2) Maintenance:
-----------
The LESSEE shall maintain the leased property in a good state of repair for
rental purposes or by minor maintenance and shall return them in good condition
upon expiration of the lease. Major repairs are defined in article 606 of the
Civil Code and shall be borne exclusively by the LESSOR.
It shall bear the cost of all repairs which become necessary either due to
failure to perform rental repairs or minor maintenance, or due to damages caused
by it, its personnel or clients.
3) Works:
-----
The LESSEE shall not undertake any demolition or construction in the leased
property without the express written authorization of the LESSOR. In the event
that the authorization is requested, it shall be accompanied by the statement of
the building's architect in justification and the authorized works shall be
performed under the supervision thereof. The corresponding fees shall be borne
by the lessee.
All improvements [or] modifications work or any new work shall remain part of
the property and shall not imply any indemnity by the LESSOR, unless the LESSOR
prefers to demand that the property be returned to its original condition at the
expense of the LESSEE.
The LESSEE may not place any sign on the property, as set forth in the
regulations.
4) Repairs:
-------
The lessee shall permit all repairs, reconstruction, improvements, increases in
height and any work which the LESSOR has carried out on the leased property, and
it may not request any indemnity or decrease in rent, regardless of the scope or
term thereof, even when same exceeds forty days.
It shall also permit all work performed in public areas or by neighbors,
regardless of the inconvenience this may cause, except in cases where it may
have justified recourse against a party.
It shall notify the LESSOR immediately of any damage or wear to the leased
property which may give rise to repairs to be borne by the LESSOR.
5) Occupation - Enjoyment:
----------------------
a) The lessee shall enjoy the lease property in a prudent manner, in
accordance with its use.
It shall ensure that no action or omission is taken or made that may
disrupt the enjoyment of other tenants, in particular with respect to
noise, odors and smoke, and in general, shall not engage in any abuse of
said enjoyment.
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The lessee shall fulfill all municipal payment obligations and sanitation,
water, hygiene health or insurance regulations so that the lessor is never
concerned or sought out in this regard, and shall justify such fulfillment
to the lessor upon its request.
b) The lessee shall take no action nor allow [such] to be taken that may
damage the leased property and shall, under pain of personal liability,
provide the lessor with immediate written notice of any action taken
against its property and of any damage or wear which is caused to or arises
in the leased property and which would require work to be performed by the
lessor.
c) The lessee shall decorate the leased property and shall maintain same with
furnishings and equipment sufficient in value and quantity to cover the
exact payment of the rent and fulfillment of the charges under this lease.
As a measure of cleanliness, the cleaning of carpeted floors shall be
performed at the expense of the lessee at the end of its occupation of the
property.
6) Assignment - Subletting:
-----------------------
a) The lessee may not sublet the leased property in whole or in part, without
the express written authorization of the lessor, or lend the leased
property, even temporarily to third parties.
b) The lessee may not assign its right to this lease, except to a buyer of its
business and by remaining guarantor and jointly responsible with the
assignee.
The lessee shall notify the lessor by registered letter, return receipt
requested, within one month of the event, of any change in its civil
status, if it is an individual, or of any change in the form, headquarters,
name, administration of the corporate lessee, throughout the term of this
lease or its extensions, if it is a legal entity. In the event of the death
of the lessee, its heirs or representatives shall be jointly and severally
responsible for the payment of rents and accessories, as well as for the
performance of the conditions of the lease.
7) Taxes and Miscellaneous Charges:
-------------------------------
a) The lessee shall pay personal, property, professional and rental taxes and
any other taxes for which it is personally liable or which are related to
its activities, to which tenants may be subject.
b) The lessee shall pay waste removal fees, sewage fees, cleaning fees, new
taxes, municipal and other taxes and tax increases which may be imposed on
tenants, of any type or classification whatsoever, and shall reimburse the
lessor for any sums which it may pay in advance in this regard, in
particular, its share of the property tax and any charges related to the
incorporation of the property into any legal entity.
c) Rental charges: the lessee agrees to pay to the lessor or its
representative, in advance, a provision corresponding to the general and
specific charges and in particular the fees related to the use, maintenance
and repair of the structure and equipment therein, as well as the
building's shared and private accessories, it being understood that these
accessories are inseparable from the lease agreement, including the
following list, without limitation:
- - labor and products necessary for cleaning the common and private areas,
- - maintenance of green spaces pertaining to the building and parking lots,
- - fees for clearing, cleaning or draining the water pipes and drains,
- - the share of the insurance premium engaged by the lessor as set forth herein
in the "Insurance" section,
- - security, if such a service exists,
- - water and electricity for common areas,
- - fees for the annual required inspection of electrical installations.
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This provision shall be claimed by the lessor at the same time as the rent
and other charges.
In addition, it is set forth that the amount of the provisions for charges
shall be modified at the same time as the rent and under the same
conditions.
However, it may be decreased or increased in consideration of the level of
charges for the preceding fiscal year (or the potential modification of the
rates for public utilities, water, electricity, etc.).
A statement shall be drafted and issued to the lessee annually for all
expenses for the fiscal year which are shared among the tenants on a
prorated basis according to the leased space.
8) Insurance:
---------
a) The lessee shall be required to contract with one or more insurance
companies represented in France, for one or more insurance policies
covering the following risks:
. Fire, any explosions, lightning, electrical damages,
. Water damage,
. Broken windows and similar damages,
. Theft, vandalism.
This shall cover the property, furnishings and fixtures pertaining thereto
(furnishings, equipment, merchandise, etc.) as well as any build-outs,
improvements and installations which it owns and/or of which it has custody
for any purpose whatsoever, at its real value.
In addition, the policies set forth above shall specifically include the
following guarantees in sufficient amounts:
. Lessor's liability as set forth in articles 1732 et seq. of the Civil
Code.
. Loss of rent suffered by joint lessees.
. Loss of enjoyment for the amount corresponding to two years of its own
rent.
. Remedy against neighbors and third parties.
In addition, the lessee shall execute an insurance policy covering its
civil liability for legal representatives, associates, employees salaried
or otherwise, and for its property or such property of which it has custody
for any reason whatsoever.
The lessee shall justify the existence of this insurance and the regular
payment of the corresponding premiums upon any request from the lessor or
its representatives.
b) In the event that the lessee's activity gives rise to an increase in the
insurance rates paid by the owner to cover the building, the lessee shall
be required to reimburse the lessor for the additional premium amounts.
c) The lessee may in no case hold the lessor responsible for any theft which
may occur on the leased property. It may not claim any indemnity or damages
from the lessor in this regard and shall take personal responsibility for
the control and oversight of its space.
d) It may not claim any decrease in rent or indemnity in the event of
temporary elimination or reduction of common services, in particular for
water, gas, electricity and telephone.
e) The lessee shall waive all liability-related remedies against the lessor.
f) The lessee shall immediately inform its insurer of any event which may
cause damages to it or to others, regardless of its significance and even
if it does not result in apparent damages, failing
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<PAGE>
which it shall be held liable for any complications which may result from
its silence. Said notification shall also be confirmed with the lessor
within 48 hours.
9) Site Inspection:
---------------
a) The lessee shall allow the lessor, its architect, any contractors and
workers, and any parties authorized by the lessor to enter the leased
property in order to verify its condition whenever the lessor deems such
action appropriate.
b) It shall allow inspections of the property by the lessor or potential
future lessees, or in the event of termination, for a period of six months
prior to the expected date of departure of the lessee, it shall allow the
posting of signs and indications in the locations deemed appropriate by the
lessor during said term.
ARTICLE 6: TERMINATION CLAUSE
- -----------------------------
It is expressly agreed that failing payment of a single installment by its exact
due date or failing to perform a single clause, one month after a simple order
for payment or performance, noting this clause and without effective remedy,
this lease shall be terminated by operation of law at the option of the lessor,
without requiring any legal action.
In the event that the lessee or any tenant in its own right should refuse to
relinquish the leased property, eviction may take place immediately upon simple
summary court order issued by the Presiding Judge of the Regional Court of
Versailles which shall be enforceable notwithstanding recourse to appeal.
ARTICLE 7: REPRESENTATIONS OF THE LESSOR
- ----------------------------------------
The lessor represents:
. That there is no restriction on the use of the leased property defined
above resulting from the provisions of articles 340 et seq. of the Urban
Planning and Residential Code.
. And that to its knowledge, the leased property is not subject to any
current expropriation measures, that this property is not located in a
renovation sector and more generally, that no current town planning
measures exist which may jeopardize the enjoyment arising from this lease.
ARTICLE 8: REPRESENTATIONS OF THE LESSEE
- ----------------------------------------
For its part, the lessee represents being aware of the provisions of articles
340 et seq. of the Urban Planning and Residential Code, as well as articles L
520-1 et seq. of the Urban Planning Code.
It also acknowledges being informed of the services applicable to the leased
property's status in terms of urban planning.
ARTICLE 9: GUARANTEE DEPOSIT
- ----------------------------
In order to guarantee the performance of the obligations incumbent upon the
lessee, the lessee shall deposit with the lessor, the sum of FF. 27,125 (TWENTY-
SEVEN THOUSAND ONE HUNDRED TWENTY-FIVE FRANCS) corresponding to three months'
rent.
By express agreement between the parties, the following is agreed: this sum
shall be held by the lessor throughout the term of the lease until the final
payment in full of any indemnity whatsoever which the lessee owes to the lessor
upon the expiration of the lease. Thus, the lessee may in no case attribute the
amount of the last rent installment to this guarantee deposit. Finally, this sum
is turned over to the lessor as a security deposit and shall bear no interest.
6
<PAGE>
In the event of termination of this lease due to nonperformance of one of the
conditions or for any cause attributable to the lessee, the guarantee deposit
shall remain in the possession of the lessor as initial damages, without
prejudice to any others.
It is expressly agreed that in the event of modification of the rent by virtue
of the clause set forth above or any other legal modification, the sum paid as
the guarantee deposit shall be increased in the same proportion as the new rent.
Consequently, the lessee shall pay the sum required to complement this guarantee
deposit at the time of the first increase.
ARTICLE 10: ENTIRE AGREEMENT
- ----------------------------
The parties acknowledge that they have only entered into this agreement due to
the fact that the lease agreement is combined with a service agreement and that
in no case shall they be bound by only one of these agreements without the
existence of the other.
Consequently, the breach by either party or by the actions of either party of
either of these agreements shall result ipso facto in the breach of the other
contract, subject to all damages and losses.
ARTICLE 11: VALUE-ADDED TAX
- ---------------------------
In application of article 260-1-5e of the General Tax Code, the lessor affirms
election of subjection to value-added tax on the rent resulting from this lease.
Consequently, the rents are exempted from the tenant's right to lease, and the
lessee shall pay the lessor, in addition to the rent, the value-added tax
applicable at the time of payment.
ARTICLE 12: FEES
- ----------------
All fees and charges for this document and any amendments hereto shall be borne
by the lessee who agrees thereto, including those expenses incurred by the
lessor to enforce performance of the lease conditions.
ARTICLE 13: DOMICILE
- --------------------
For the performance of this lease and any amendments hereto, the parties elect
their domiciles at the leased property.
ARTICLE 14: JURISDICTION
- ------------------------
For any dispute arising between the parties, the competent jurisdiction shall be
that of the Regional Court of Versailles.
Executed in two counterparts
In Montigny on 7/17/98
For the Lessor For the Lessee
The President of the SEML The Manager of E.S.T.
[signature] [signature]
L. DAUVERGNE S. OILLIC
- ------------ ---------
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<PAGE>
INTERNAL REGULATIONS
ARTICLE 1 Lessees may only use the space made available to them under the
terms of their lease agreements.
ARTICLE 2 Storage is prohibited in the common areas and outside. No hazardous
products shall be stored in the building.
ARTICLE 3 Lessees shall respect the safety regulations in use in the leased
industrial buildings. The emergency exits, hallways, and stairways
shall be maintained completely unobstructed. In the event of a
fire, advise the fire department immediately. While waiting for
assistance, use the fire extinguishers located on the posted map of
the building.
ARTICLE 4 No company operating in the building may compete with the services
of the Partially State-Owned Company.
ARTICLE 5 It is strongly advised that the maximum load limits not be exceeded
in the building. They are 1000 kg/m2 on the ground floor and 350
kg/m2 on the upper floors. The authorized load for the freight
elevator is 630 kg.
ARTICLE 6 Prior to leaving the property, lessees agree to ensure that the
lights are turned off and that the windows, interior and exterior
doors are closed.
ARTICLE 7 Notice must be given of any damage to or malfunctioning of the
equipment available in the common areas.
ARTICLE 8 Industrial waste is not removed by the Waste Removal Service. Each
lessee shall take personal responsibility for the removal of its
industrial waste including packaging (boxes, pallets, etc.)
ARTICLE 9 Tenants shall refrain from causing disruptions to the serenity and
safety of their neighbors. They are asked to use the property in a
peaceful manner and to maintain the common areas in good condition
through normal use. They shall ensure respect for the integrity of
the other lessees and neighbors.
ARTICLE 10 Lessees who wish to park in the parking lot must obtain a remote
control with a deposit of FF. 400. For security reasons, parking
next to the building is prohibited.
ARTICLE 11 Each lessee shall ensure the security of its space. However, the
owner may assign a security guard for supervision and maintenance
of common equipment.
ARTICLE 12 Only black and white colored blinds are permitted.
ARTICLE 13 Prior to posting adhesive signs or advertising, lessees must obtain
permission from the lessor.
ARTICLE 14 Failure to respect these regulations will jeopardize the security
and proper operation of the building. The termination clause in the
lease agreement may be enforced by the lessor in the event that the
parties cannot negotiate a resolution.
ARTICLE 15 Whenever a tenant vacates a space, a statement on the condition of
the space will be drafted and a carpet cleaning will be performed
at the expense of the departing tenant.
ARTICLE 16 Upon arrival, the lessee must install a sign, pay for it,
respecting the color and style of the panels, and update it in the
event of location changes.
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ARTICLE 17 The lessee shall be required to contract with an insurance company
for one or more insurance policies covering: fire, explosions,
lightning, electrical damages, water damage, broken windows and
similar damages, theft, and vandalism.
ARTICLE 18 Lessees shall ensure that access doors are constantly closed for
security reasons, in particular, after 6:00 p.m. and on weekends.
ARTICLE 19 Any electrical or wiring modifications shall be the responsibility
of the tenant.
ARTICLE 20 Any delay in payment of rent, charges and services shall result in
the systematic termination of services (photocopying, word
processing, cleaning, continuous telephone service, meeting rooms).
Montigny, 2/27/97
TRANSLATOR'S NOTE: There are illegible initials in the lower right margin of
each page of this document
9
<PAGE>
CERTIFICATE OF TRANSLATION ACCURACY
STATE OF FLORIDA )
) SS.
COUNTY OF MIAMI-DADE )
I, KIRK ANDERSON, duly accredited by the American Translators Association,
Alexandria, Virginia, in translation from the French language into the English
language (ATA No. 4614), hereby certify that the attached English translation of
the Lease and Service Agreement between PROMPOPOLE, S.E.M.L. and EMBEDDED
SUPPORT TOOLS CORPORATION -- EUROPE (E.S.T.), S.A.R.L. is a complete, accurate
and true translation from the original French version into English, to the best
of my knowledge and belief.
_______________________________________
KIRK ANDERSON
The foregoing instrument was acknowledged before me this 3rd day of
January, 2000, by Kirk Anderson who is personally known to me and who did not
take an oath.
_______________________________________
NOTARY PUBLIC
Notary Named Printed:
[SEAL]
My Commission Expires:
10
<PAGE>
Exhibit 10.21
LEASE AGREEMENT
The following sublease agreement is entered between
Marketteam creativ GmbH (hereafter called "Landlord") and
EST GmbH, Dipl. Wirtschaftsingenieur (FH) Christian Benz (hereafter
called "Tenant"):
(S) 1 Lease Premises
1. Landlord hereby leases to Tenant a furnished office (useable floor space
approximately 20 square meters on the first floor) and a storage area
(approximately 15 square meters in the basement) of the building Hebel
Wohnbau GmbH Malsch, Daimlerstrasse 2, 76316 Malsch.
2. Tenant shall also be entitled to the use of Landlord's conference room,
kitchen, and restrooms.
3. Tenant is a distributor of microprocessor development systems. Tenant
shall notify Landlord of every major change in the purpose of his
business. Landlord shall be notified of changes relevant to the
Landlord's lease after their occurrence.
4. At the time of delivery of the premises, Tenant shall be handed the keys
to the premises. The exact number of keys shall be listed in the delivery
log and shall be returned at the time the premises are vacated.
<PAGE>
(S) 2 Rent
1. According to (S) 4 (1) of the contract, the rent for the premises
described in (S) 1 shall be from the date of delivery:
DM 22,00 per month per square meter of furnished useable floor space on
the first floor and
DM 6.00 per month per square meter of useable floor space in the basement
a lump sum of DM 200.00 for the use of the common areas and for
incidental costs plus value added tax in the respective amount.
______________
Ground floor DM 440.00 + 16% value added tax
Basement DM 90,00 + 16% value added tax
Lump sum DM 200.00 + 16% value added tax
Total DM 730.00 + DM 116.80 value added tax = DM 846.60
2. The entire rent plus value added tax shall be paid in advance by the
third business day of the month.
3. Incidental Services / Incidental Costs
1. In addition to the rent Tenant shall pay the proportionate share of the
operating and incidental costs not specifically designated as landlord
provided services.
a) The cost for water and sewage is included in the rent. Repairs caused by
Tenant mishandling shall be paid by Tenant.
b) The cost of operating the heating and warm water systems is included in
the rent. Repairs caused by Tenant mishandling shall be paid by Tenant.
c) The cost of garbage disposal is included in the rent.
d) The cost of cleaning, cleaning equipment, and supplies is included in the
rent.
e) The cost of electricity is included in the rent.
<PAGE>
2. Insurance must be obtained and paid for by Tenant. This item includes
insurance for damages caused by water pipes, liability insurance, flood
insurance, machinery insurance, and glass insurance for the leased
premises. Fire and insurance against natural disasters will be paid for
by Hebel Wohnbau GmbH Malsch.
3. The cost of maintaining and operating the equipment, appliances, and
technical components on the premises and any incidental costs shall be
paid by Tenant directly.
(S) 4 Commencement and Duration of Lease
1. The lease shall begin on March 1, 1999.
2. The initial lease period shall be two years.
The lease agreement may be terminated by giving six months' notice prior
to the end of a quarter, but not before the expiration of the initial
lease period.
Upon the expiration of the initial lease and upon the expiration of each
subsequent two year lease period Landlord shall grant Tenant an option to
extend the lease period for another two years.
The option must be exercised no later than twelve months before the
expiration of the lease period.
3. Any agreement to continue or renew an expired lease period must be in
writing.
4. Irrespective of the above provisions the lease agreement may be
terminated for cause at any time without notice.
(S) 5 Building Rules / Parking Lot Regulations
Tenant recognizes the applicable rules of the building as binding.
<PAGE>
(S) 6. Surrender of the Premises
1. Upon the expiration of the lease term, Tenant shall surrender the
premises completely vacated, in clean condition, and ready to be rented.
2. All keys, including those obtained by Tenant, must be returned to
Landlord.
3. In case Tenant has altered the premises or has equipped them with
improvements, appliances, machinery, and furnishings, he must, upon the
request of Landlord, return the premises to their original condition at
his expense.
(S) 7. Venue
Venue for all disputes arising out of this agreement shall be Karlsruhe.
(S) 8. Special Agreements
1. Modifications and amendments of this agreement must be in writing. There
are no oral side agreements.
2. The agreement shall be valid in case one of its provisions is or should
become invalid or null and void.
Malsch, March 1, 1999
sd. S. Schneider sd. illegible signature
Landlord Tenant
Stamp: EST GmbH
Daimlerstr. 2
76316 Malsch
Tel 07246/9203-0
Fax 07245/92 03-20
[email protected]
www.estc.com
------------
<PAGE>
STATE OF SOUTH CAROLINA CERTIFICATE OF ACCURACY
COUNTY OF GREENVILLE
I, Erika B. Matt, a German translator accredited by the American
Translators Association for translations from German into English and English
into German, declare:
1. I am familiar with the German and English language.
2. I have prepared the attached translation of the above German document into
English I and herewith certify that it is a complete and accurate
translation of the German original.
______________________________
Erika B. Matt, Esq.
Greenville, December 30, 1999
STATE OF SOUTH CAROLINA )
:ss.:
GREENVILLE COUNTY )
I, _____________, a notary public for the above county and state, certify
herewith that before me on this December 30, 1999, personally appeared Erika B.
Matt, personally known to me to be the person described in the above document
and who executed the foregoing document in my presence and duly acknowledged to
me that she executed the same.
______________________________________
Notary Public
My commission expires on:
<PAGE>
Exhibit 10.27
WIND RIVER SYSTEMS, INC.
SOURCEBOOK PROGRAM DISTRIBUTION AGREEMENT
THIS AGREEMENT is by and between Embedded Support Tools Corporation
(hereinafter "Supplier"), a Corporation with principal offices at 120 Royall
Street, Canton, MA 02021, and Wind River Systems, Inc. (hereinafter "WRS"), a
Delaware corporation with principal offices at 500 Wind River Way, Alameda, CA
94501.
The parties will check below to indicate whether they have elected to use the
"Drop Ship Method" or the "Inventory Method" as defined herein. The parties
will also check below to indicate whether WRS will be distributing Supplier's
products in object code form, source code form, or both.
Please check one of the following: Please check one of the following:
[_] Inventory Method per [_] Object Code only
section 3.1
x Drop Ship Method per [_] Source Code only
section 3.2 x Both Source and Object Code
WITNESSETH:
WHEREAS, Supplier has created and produces certain computer programs with or
without hardware in the form of program packages;
WHEREAS, Supplier is willing to make such programs available for marketing by
WRS to its customers, under the terms and conditions of this Agreement; and
WHEREAS, WRS is willing to distribute such programs under the terms and
conditions of this Agreement;
NOW, THEREFORE, the parties hereto, intending to be legally bound, hereby agree
as follows:
Section 1
DEFINITIONS
As used herein, the following words and phrases shall have the following
meanings:
1.1. "End-Users." Customers of WRS who have ordered Products directly from
WRS in accordance with the terms of end user license agreements.
<PAGE>
1.2. "Products." Program packages, including (1) object and/or source
code on various media; (2) instruction booklets and other information prepared
for End-Users concerning the use of the program; and (3) an end user license
agreement, packaged for distribution to End-Users. Products may also include
hardware. The products covered by this Agreement are listed by title and
functional description on the "Product Price List" attached hereto as Exhibit B.
1.3. "Sales Support and Materials." Sales literature, brochures, and
demonstration materials, listed on the "Schedule of Marketing Materials"
attached hereto as Exhibit C and furnished by Supplier at the prices listed
therein.
Section 2
MARKETING APPOINTMENT; SUPPLIER AND DISTRIBUTOR SUPPORT
2.1. Subject to the terms and conditions of this Agreement, Supplier
grants WRS the nonexclusive, nontransferable (except as set forth in Section
13.10), sublicensable (as set forth in Section 2.4) right to market and
distribute the Products under this Agreement, in unopened and unaltered form, to
its customers. WRS acknowledges and agrees that sales will be made only to
customers who have executed with Supplier an end user license agreement
substantially of the form as set forth on Exhibit D (the "End User License
----------------
Agreement").
- ---------
2.2. Supplier agrees to provide WRS with a reasonable number of free
copies of Products and Sales Support and Materials for the purpose of marketing
and demonstrating the Products. In addition, training, telephone consultation
services, and Product updates may be provided by Supplier for certain Products
as sales support, all as more fully described in Exhibit A.
2.3. Supplier agrees that WRS will not provide Product support to End
Users. All End User support shall be provided by Supplier in accordance with its
standard maintenance and support policies.
2.4. Except for Japan, WRS may not appoint subdistributors or agents to
promote and/or distribute Products. In Japan WRS may appoint subdistributors or
agents to promote and/or distribute Products provided that (i) such
subdistributors and agents also distribute and sell the other products
distributed by WRS and (ii) WRS informs Supplier in writing of any new
subdistributors and agents who are engaged after the effective date of this
agreement. A list of WR's current subdistributors and agents is set forth on
Exhibit F. Distributor shall be liable for the performance of any
subdistributors and/or agents and Distributor hereby agrees to indemnify and
hold harmless Supplier from all damages, costs or expenses arising directly from
any act or omission on the part of its subdistributors or agents. WRS shall
insure that such subdistributors and agents do not (i) remove, alter, cover or
obfuscate any copyright notices or other proprietary rights notices placed or
2
<PAGE>
embedded by Supplier on or in any Products or (ii) modify, alter, reverse
engineer, disassemble or decompile any Products.
Section 3
PRODUCT ORDERS AND SHIPMENT
3.1. WRS Inventory Method. In the event that the parties have checked
"Inventory Method" as indicated on first page of this Agreement, the following
shall apply:
3.1.1 WRS shall from time to time prepare and submit to Supplier product
orders stating the number and type of Products that WRS desires to receive, with
shipment by Supplier expected for approximately 10 (ten) business days
thereafter. WRS's product orders shall be in writing and shall constitute
binding commitments to accept the number and type of Products stated therein, in
accordance with the terms and conditions of this Agreement.
3.1.2 Within 5 (five) business days after receiving a product order from
WRS submitted in accordance with the terms hereof, Supplier shall acknowledge
its acceptance of such product order to WRS. Supplier's acceptance shall
constitute a binding commitment to ship to WRS the number and type of Products
stated in such product order, in accordance with the terms and conditions
hereof.
3.1.3 Supplier shall use all reasonable efforts to ship quantities of
Products ordered within 10 (ten) business days of receipt and acceptance of
products orders. Packaging and means of shipment of Products shall be determined
by Supplier unless otherwise agreed. Risk of loss with respect to Products shall
pass to WRS at the time Products are delivered to WRS.
3.1.4 If scheduling of shipment by Supplier is delayed to occur more than
30 (thirty) days from the date of receipt of a product order, Supplier shall
notify WRS and WRS may either agree to accept later shipment or may cancel its
order in whole or in part.
3.1.5 Failure to ship Products within 45 days of the date of receipt of a
product order shall be considered a material breach of this Agreement.
3.1.6 Products damaged in transit shall be returned to Supplier, in
accordance with Supplier's return material authorization ("RMA") procedures,
within ten (10) days after receipt, accompanied by such documentation as may
reasonably be required to assert any claims that may lie against the carrier
causing such damage.
3
<PAGE>
3.2. Supplier Drop Ship Method. In the event that parties have checked
"Drop Ship Method" as indicated on first page of this Agreement, the following
shall apply:
3.2.1 WRS shall obtain orders for Product from its customers, and directly
submit such orders to Supplier. WRS's product orders shall be in writing and
shall constitute binding commitments to accept the number and type of Products
stated therein, in accordance with the terms and conditions of this Agreement.
3.2.2 Within 5 (five) business days after receiving a product order from
WRS submitted in accordance with the terms hereof, Supplier shall acknowledge
its acceptance of such product order to WRS. Supplier's acceptance shall
constitute a binding commitment to ship to WRS (or such End User address as WRS
may indicate on its purchase order) the number and type of Products stated in
such product order, in accordance with the terms and conditions hereof.
3.2.3 Supplier shall use all reasonable efforts to ship quantities of
Products ordered within 10 (ten) business days of receipt and acceptance of
product orders. Packaging and means of shipment of Products shall be determined
by Supplier unless otherwise agreed. Risk of loss with respect to Products shall
pass to WRS (or an End User) at the time Products are delivered to WRS (or to an
End User, respectively).
3.2.4 If scheduling of shipment by Supplier is delayed to occur more than
30 (thirty) days from the date of receipt of a product order, Supplier shall so
notify WRS and WRS may either agree to accept later shipment or may cancel its
order in whole or in part.
3.2.5 Failure to ship Products within 45 days of the date of receipt of a
product order shall be considered a material breach of this Agreement.
3.2.6 Products damaged in transit shall be returned to Supplier, in
accordance with Supplier's return material authorization ("RMA") procedures,
within 10 (ten) days after receipt, accompanied by such documentation as may
reasonably be required to assert any claims that may lie against the carrier
causing such damage.
3.3. Product Changes. Supplier reserves the right, in its discretion,
to: (i) alter the specifications for any Product; (b) discontinue any Product;
or (c) discontinue the development of any new product, whether or not such
product has been announced publicly. Notwithstanding the foregoing, Supplier
shall use commercially reasonable efforts to provide WRS with a minimum of
ninety (90) days written notice of such decisions and shall fill all accepted
orders from WRS for any such altered or discontinued Products.
4
<PAGE>
Section 4
PRICES AND PAYMENT
4.1. WRS is granted a discount of 25% (twenty five percent) in that WRS
-------------------------
shall pay Supplier 75% of Supplier's Product Price List of 75% of the actual
sales price, whichever is greater WRS recognizes that SUPPLIER pricing varies by
country and will honor the pricing structure for each country in which WRS sells
SUPPLIER products. WRS will not knowingly sell SUPPLIER products in a location
of lower pricing for shipment to another country where pricing is higher. WRS
will work diligently to enforce SUPPLIER pricing by country in a manner
consistent with its own practices. The Product Price List attached as Exhibit B
is the one in effect as of the effective date of this Agreement. Prices are
quoted exclusive of taxes, shipping, and insurance charges.
4.2. The Product Prices and discounts set forth in Exhibit B are firm for
at least 6 (six) months after the execution hereof. After the expiration of such
period, Supplier may, at any time, change the suggested retail prices for
Products and applicable discounts by providing at least 60 (sixty) days' prior
written notice of the change. Such new price shall apply to all product orders
received after the effective date of the change set forth in such written
notice.
4.3. If the parties have agreed to use the WRS Inventory Method, WRS shall
prepare and deliver to Supplier within thirty (30) days of the last day of each
WRS fiscal quarter during the term of this Agreement a written report which
shall describe all Products sold by WRS, and a check for the corresponding
amount of fees payable to Supplier.
4.4. If the parties have agreed to the Supplier Drop Ship Method, Supplier
shall issue an invoice to WRS upon Product shipment, payable net thirty days.
4.5. Amounts payable to Supplier under this Agreement are payable in full
to Supplier with deduction and are net of any taxes (including any sales, use,
excise, ad volorem, property, withholding, value added tax, or other tax),
tariffs, duties or assessments. WRS shall pay and shall indemnify and hold
Supplier harmless from all such taxes and customs duties payable with respect to
the sale and purchase of Products under this Agreement. When Supplier has the
legal obligation (independent of this Agreement) to collect such taxes, the
appropriate amount shall be added to WRS's invoice and paid by WRS unless WRS
provides Supplier with a valid tax exemption certificate authorized by the
appropriate taxing authority.
5
<PAGE>
Section 5
TRADEMARKS; MARKING OF PRODUCTS
5.1. WRS may use and display the trademarks and logos of Supplier (the
"Trademarks") to identify and market the Products only as included in the
marketing materials prepared by Supplier and delivered to WRS or such materials
as are approved by Supplier in writing prior to use, which materials relate to
the Products set forth in Exhibit B. In each case, WRS shall comply with
Supplier's trademark advertising guidelines. No other use of Trademarks is
authorized. WRS shall not alter or remove any Trademarks applied by Supplier to
any Products or related materials. Nothing herein shall grant to WRS any right,
title or interest in the Trademarks and all goodwill accruing to the Trademarks
shall accrue to Supplier. At no time during or after the term of this Agreement
shall WRS challenge or assist others to challenge the Trademarks or the
registration thereof or attempt to register any trademarks, marks or trade names
confusingly similar to the Trademarks.
Section 6
COMPETITIVE PRODUCTS AND NONEXCLUSIVITY
Nothing in this Agreement shall be construed to (i) require WRS to refrain
from distribution of any other microcomputer software, regardless of whether it
is competitive with the Products or (ii) prevent Supplier from appointing other
distributors, resellers or VARs or otherwise sell or distribute the Products.
Section 7
PROPRIETARY PROTECTION OF PROGRAMS
WRS shall be authorized only to market and distribute the Products in their
form and packaging as delivered by Supplier in accordance with the terms of this
Agreement. This Agreement shall not be construed to grant to WRS any other
right, title, or interest in any intellectual property rights embodied in or
associated with the Products, or any right to copy, modify, loan, or lease the
Products. All other use of the Products by WRS shall be subject to the terms
and conditions of the End-User License Agreement included with each Product, or
under the terms of any other agreement in place between the parties, as
applicable. WRS shall not (and shall require that End-users do not) remove,
alter, cover or obfuscate any copyright notices or other proprietary rights
notice placed or embedded by Supplier on or in any Products. WRS shall not, and
shall not authorize any third party to, modify, alter, reverse engineer,
dissemble or decompile any Products.
6
<PAGE>
Section 8
WARRANTIES AND LIMITATIONS OF LIABILITY
8.1. Supplier warrants to and for the benefit of WRS and End-Users that
Suppliers owns or has right to the Products, including any intellectuals
property rights associated therewith, adequate to enable Supplier to perform its
obligations, to authorize the distribution of the Products by WRS, and to
authorize the use of the Products by End-Users in accordance with the terms and
conditions of the End-User License Agreement. Supplier sole and exclusive
liability and WRS's sole and exclusive remedy for breach of this warranty shall
be Supplier's indemnification obligations set forth in Section 10.
8.2. Supplier warrants to and for the benefit of WRS and its End-Users
that the Products and the distribution thereof do not infringe the trademarks,
patents, copyrights, or other proprietary rights of any third party. Suppliers
sole and exclusive liability and WRS's sole and exclusive remedy for breach of
this warranty shall be Supplier's indemnification obligations set forth in
Section 10.
8.3. Suppliers limited warranty to End-Users is stated in the end user
license agreement included with each Product. Certain Products are provided "as
is" without warranty to End-users. The end user license agreement respecting a
particular product may provide that the sole remedy of an End-User shall be a
refund of the purchase price of the Product.
8.4. WRS agrees to use the "Returns Form" attached hereto as Exhibit E.
WRS may return opened packages of Products to Suppler only when a Returns Form
has been duly filled out and signed by an End-User indicating one of the
approved reasons for return.
8.5. WRS shall provide copies of such completed Returns Forms to Supplier.
Upon receipt of the packages of Products with such duly completed and signed
form, Supplier shall issue a credit or payment to WRS in the amount previously
received by Supplier with respect to such returned Products. Supplier shall
have no obligation to accept returns of Products or issue credits or payments
with respect to Products that were returned because of allegedly erroneous or
misleading statements made by WRS.
8.6. If the parties have agreed to use the WRS Inventory Method, WRS may
return to Supplier at the end of each calendar quarter, quantities of Product
less than equal to one third of the shipments received by WRS in the preceding
three calendar months, provided:
1. Shipping costs for such returns are prepaid by WRS;
7
<PAGE>
2. All returned Products are in unopened and undamaged condition.
8.7. WRS shall accept for full refund and return to inventory any Products
that are returned by a customer because the customer is unwilling to be bound by
the terms of the End-User License Agreement.
Section 9
DISCLAIMER AND LIMITATION
9.1. The warranties set forth in Section 8 hereof are expressly contingent
upon use of such Products strictly in accordance with the instructions contained
in the user's manual and without misuse, damage, alterations, or modifications.
THE WARRANTIES SET FORTH IN SECTION 8 ARE IN LIEU OF ALL OTHER WARRANTIES, AND
SUPPLIER DISCLAIMS ALL OTHER WARRANTIES, WHETHER EXPRESS OR IMPLIED, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTY OR MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE.
9.2. The liability of Supplier to WRS for any claim whatsoever related to
the Products or this Agreement, including any cause of action sounding in
contract, tort, or strict liability, shall not exceed the total amount of
payments previously made to Supplier hereunder. Regardless of any other breach
hereunder or any other claim by WRS against Supplier, Supplier in no event shall
be liable to WRS for any loss of profits; any incidental, special, exemplary, or
consequential damages; or any claims or demands brought against WRS by any other
party, regardless of whether Supplier has been previously advised of the
possibility of such claims or demands. The foregoing limitation shall not apply
to damages arising out of claims alleging infringement of any third-party
proprietary rights for which indemnification is made pursuant to Section 10
hereof.
Section 10
INDEMNIFICATION
10.1. Supplier hereby indemnifies and agrees to hold WRS harmless from and
against any and all claims, demands, or actions and any related costs,
liabilities, or losses arising out of any actual or alleged infringement of any
patent, trademark, or copyright or violation of any trade secret or other
proprietary rights by any of the Products furnished hereunder.
10.2. WRS hereby indemnifies and agrees to hold Supplier harmless from and
against any and all claims, demands, or actions and any related costs,
liabilities, or losses arising out of any statements or representations made by
WRS, employees, or agents with respect to the Products, except for statements
that are
8
<PAGE>
direct quotations of the documentation and marketing materials provided by
Supplier to WRS for use in connection with the Products.
10.3. The foregoing indemnities are in addition to any rights otherwise
under this Agreement, but shall be expressly contingent on the party seeking
indemnity (1) promptly notifying the indemnifying party in writing of any such
claim, demand, action, or liability, (2) cooperating in the defense or
settlement thereof; and (3) allowing the indemnifying party to control the
defense or settlement of the same.
Section 11
TERM AND TERMINATION
11.1. The term of this Agreement shall be 12 (twelve) months from the date
first above written. This Agreement shall be extended automatically for
additional one (1) year periods unless one party shall notify the other in
writing of termination three months prior to the anniversary date hereof.
11.2. Either party may terminated this Agreement if the other party
commits a material breach of any of the terms hereof and such breach remains
uncured 30 (thirty) days after written notice of such breach has been furnished
to the party in breach by the other party.
11.3. The provisions of Sections 1 and 9-13, and all payments obligations
that have accrued prior to termination or expiration, shall survive any
termination or expiration of this Agreement, all of WRS's rights and licenses
with respect to the Products shall terminate, provided that each End User
license granted in accordance with this Agreement shall survive in accordance
with its terms, subject to termination for default in accordance with its terms.
All copies of Products in WRS's and its subdistributors' possession at the time
of termination or expiration of this Agreement shall be promptly returned to the
Supplier.
11.4. In the event of termination by either party in accordance with any
of the provisions of this Agreement, neither party shall be liable to the other,
because of such termination, for compensation, reimbursement or damages on
account of the loss of prospective profits or anticipated sales or on account of
expenditures, inventory, investments, leases or commitments in connection with
the business or goodwill of either party. Termination shall not, however,
relieve either party of any obligations incurred prior to the termination,
including, without limitation, the obligation of WRS to pay the Supplier for
Products purchased or reproduced prior to such termination.
9
<PAGE>
11.5. If WRS distributes products that are direct competitors with
Supplier's products, Supplier may elect to terminate this agreement with 30 days
written notice to WRS.
Section 12
MISCELLANEOUS
12.1. WRS is an independent contractor under this Agreement, and nothing
herein shall be construed to create a partnership, joint venture, or agency
relationship between parties hereto. WRS shall have no authority to enter into
agreements of any kind of behalf of Supplier and shall not have the power or
authority to bind or obligate Supplier in any manner to any third party.
12.2. Each party represents and warrants that it has full power and
authority to undertake the obligation set forth in this Agreement and that it
has not entered into any other agreement nor will it enter into any other
agreement that would render it incapable of satisfactorily performing its
obligations hereunder.
12.3. Each party agrees that it will comply with all applicable laws and
regulations of governmental bodies or agencies in its performance under this
Agreement.
12.4. Each party represents that it is acting on its own behalf and is not
acting as an agent for or on behalf of any third party.
12.5. Any notice required or permitted by this Agreement shall be in
writing and shall be deemed sufficient upon receipt, when delivered personally
or by courier, overnight delivery service or confirmed facsimile, or forty-eight
(48) hours after being deposited in the regular mail as certified or register
mail (airmail if sent internationally) with postage prepaid, if such notice is
addressed to the party to be notified at such party's address as set forth
below, or as subsequently modified by written notice.
Wind River System, Inc.
500 Wind River Way
Alameda, CA 94501
Fax: ___________________
12.6. All questions concerning the validity, operation, interpretation,
and constructions of this Agreement will be governed by the determined in
accordance with the laws of the State of California without reference to its
principles of conflicts of laws.
10
<PAGE>
12.7. Neither party shall be mere lapse of time, without giving notice or
taking other action hereunder, be deemed to have waived any breach by the other
party of any of the provisions of this Agreement. Further, the waiver by either
party of a particular breach of this Agreement by the other shall not be
construed as or constitute a continuing waiver of such breach or of other
breaches of the same or other provisions of this Agreement.
12.8. Except for obligations of WRS respecting (1) protection of
Supplier's proprietary rights in the Products and (2) payment of invoices for
Products, neither party shall be in default in any delay or failure to perform
any obligation hereunder is caused solely be events beyond such party's control.
Any party claiming the benefit of such excuse shall be entitled to do so only to
the extent that such party has diligently acted or cure the cause and
consequence of such event.
12.9. The parties hereto acknowledge that this Agreement is the complete
the exclusive statement of agreement respecting the subject matter hereto and
supersedes all proposals (oral or written), understandings, representations,
conditions, and other communications between the parties relating hereto. This
Agreement may be amended only by a subsequent writing that specifically refers
to this Agreement and is signed by both parties, and no other act, document,
usage, or custom shall be deemed to amend this Agreement.
12.10. Neither party shall assign or transfer this Agreement or any rights
or obligations under this Agreement without the prior written consent of the
other party. Notwithstanding the foregoing, either party may assign or transfer
rights or obligations under this Agreement pursuant to a merger, consolidation
or reorganization of such party or pursuant to an acquisition of such party
(whether by sale of all or substantially all of such party's assets or by sale
of such party's stock). Any assignment or transfer of this Agreement made in
contravention of the terms hereof shall be null and void. subject to the
foregoing, this Agreement shall be binding on and inure to the benefit of the
parties' respective successors and permitted assigns.
12.11. In order to promote Supplier's sales organization and WRS's sale
organization to work together Supplier and WRS will both compensate, via
commissions, their respective field organizations for sales of Supplier
products.
12.12. Contact Info. WRS will provide end user contact information to
SUPPLIER promptly after the sale and in no event in greater than 30 days after
the sale. Contact information will include Account Name and complete address,
end user contact name/title, phone number or email address, the products and
quantity sold date of sale and actual end user price. If the shipment will be
distributed to multiple locations by the customers, WRS will make reasonable
effort to obtain such re-shipment information with appropriate contact
information at each location.
11
<PAGE>
WHEREBY, the parties have caused this Agreement to be executed by their
duly authorized officers as set forth below effective this 19th day of July
1999.
Wind River System, Inc. Supplier:
By: /s/ Richard W. Kraber By: /s/ Jim Watkins
--------------------------- ------------------------------
Name: Richard W. Kraber Name: Jim Watkins
------------------------- ----------------------------
Title: CFO Title: Senior Vice President
------------------------ ---------------------------
Date: 7/19/99 Date: 7/14/99
------------------------- ----------------------------
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<PAGE>
Exhibit 10.33
Addendum to EST Distributor Agreement
This addendum supersedes the EST Distributor Agreement dated February 2, 1994
between Embedded Support Tools Corporation (EST) and Toyo, Corporation
(Distributor).
EST hereby appoints Distributor and Distributor hereby accepts appointment as a
non-exclusive distributor for the sale of EST hardware and software products in
Japan. A detailed plan of the terms of the non-exclusive agreement will be
provided by the President of ESTKK located at Katori Building, 16-6 Kodenmacho
Nihonbashi, Chuo-Ku, Tokyo 103-0001.
The attached Schedule A titled "Sales Territory (Account Base)" and dated
February 25th, 1998 is agreed to be the allocation of the existing sales base
between EST KK and Toyo Corporation.
Initials:
EST: /s/ John T.W. Baggott Distributor /s/ Kohzo Yumoto
------------------------- ------------------
John T. W. Baggott Kohzo Yumoto,
President President
EST Corporation TOYO Corporation
<PAGE>
Addendum to EST Distributor Agreement
This addendum supersedes the EST Distributor Agreement dated February 2, 1994
between Embedded Support Tools Corporation (EST) and Toyo Corporation
(Distributor).
EST hereby appoints Distributor and Distributor hereby accepts appointment as a
non-exclusive distributor for the sale of EST hardware and software products in
Japan. A detailed plan of the terms of the non-exclusive agreement will be
provided by the President of ESTKK located at Katori Building, 16-6 Kodenmacho
Nihonbashi, Chuo-Ku, Tokyo 103-0001
Initials:
EST: /s/ John T.W. Baggott Distributor ________________________
-------------------------
John T.W. Baggott
Vice President
EST Corporation
<PAGE>
Addendum to EST Distributor Agreement
This addendum supersedes the EST Distributor Agreement dated February 2, 1994
between Embedded Support Tools Corporation (EST) and Toyo Corporation
(Distributor).
EST hereby appoints Distributor and Distributor hereby accepts appointment as a
non-exclusive distributor for the sale of EST hardware and software products in
Japan. A detailed plan of the terms of the non-exclusive agreement will be
provided by the President of ESTKK located at Katori Building, 16-6 Kodenmacho
Nihonbashi, Chuo-Ku, Tokyo 103-0001
Initials:
EST: /s/ John T.W. Baggott Distributor ________________________
-------------------------
John T.W. Baggott
Vice President
EST Corporation
<PAGE>
Schedule A
Sales Territory (Account base)
Feb. 25, 1998
- -------------------------------------------------------------------------
Customer Plant Territory
- -------------------------------------------------------------------------
NEC All TOYO
Fujitsu All TOYO
PFU All TOYO
Hitachi Totsuka EST KK
Hitachi Telecom TOYO
Hitachi Mito TOYO
Mitsubishi Ofuna EST KK
Mitsubishi Tsuden EST KK
Mitsubishi Kamakura TOYO
Mitsubishi Kyoto TOYO
Oki Elc. All EST KK
Matsushita Comm-Saedo EST KK
Matsushita Comm-Tsunasima TOYO
Matsushita Others Open
Toshiba Hino/Ome TOYO
Toshiba Others EST KK
Sony All TOYO
Sharp All TOYO
Sanyo All TOYO
Minolta All TOYO
Sumitomo Elec Osaka TOYO
Furukawa Hiratsuka TOYO
Yahama Hamamatsu TOYO
Kyocela Ise TOYO
Advantest All TOYO
Richo All EST KK
Cannon All EST KK
Xerox All EST KK
JVC All TOYO
Kodak All TOYO
Fuji-Film Asaka TOYO
Fuji-Film Miyanodai EST KK
TakaokaSS All TOYO
Yamatake Isehara TOYO
NihonKoden Nakano TOYO
- -------------------------------------------------------------------------
Others Open
- -------------------------------------------------------------------------
<PAGE>
Sales Territory (Account base)
Feb. 25, 1998
- -------------------------------------------------------------------------
Customer Plant Territory
- -------------------------------------------------------------------------
NEC All TOYO
Fujitsu All TOYO
PFU All TOYO
Hitachi Totuska EST KK
Hitachi Telecom TOYO
Hitachi Mito TOYO
Mitsubishi Ofuna EST KK
Mitsubishi Tsuden EST KK
Mitsubishi Kamakura TOYO
Mitsubishi Kyoto TOYO
Oki Elc. All EST KK
Matsushita Comm-Saedo EST KK
Matsushita Comm-Tsunasima TOYO
Matsushita Others Open
Toshiba Hino/Ome TOYO
Toshiba Others EST KK
Sony All TOYO
Sharp All TOYO
Sanyo All TOYO
Minolta All TOYO
Sumitomo Elec Osaka TOYO
Furukawa Hiratsuka TOYO
Yahama Hamamatsu TOYO
Kyocela Ise TOYO
Advantest All TOYO
Richo All EST KK
Cannon All EST KK
Xerox All EST KK
JVC All TOYO
Kodak All TOYO
Fuji-Film Asaka TOYO
Fuji-Film Miyanodai EST KK
TakaokaSS All TOYO
Yamatake Isehara TOYO
NihonKoden Nakano TOYO
- -------------------------------------------------------------------------
Others Open
- -------------------------------------------------------------------------
<PAGE>
Addendum to EST Distributor Agreement
This addendum supersedes the EST Distributor Agreement dated February 2, 1994
between Embedded Support Tools Corporation (EST) and Toyo Corporation
(Distributor).
EST hereby appoints Distributor and Distributor hereby accepts appointment as a
non-exclusive distributor for the sale of EST hardware and software products in
Japan. A detailed plan of the terms of the non-exclusive agreement will be
provided by the President of ESTKK located at Katori Building, 16-6 Kodenmacho
Nihonbashi, Chuo-Ku, Tokyo 103-0001
Initials:
EST: /s/ John T.W. Baggott Distributor _________________________
------------------------
John T.W. Baggott
Vice President
EST Corporation
<PAGE>
EST DISTRIBUTOR AGREEMENT
This Agreement is entered into this 2nd day of February 1994 between Embedded
Support Tools Corp., a corporation duly organized under the laws of the
Commonwealth of Massachusetts, and having its principal place of business at 120
Royall Street, Canton, Massachusetts 02021, USA, ("EST"), and TOYO Corporation,
a corporation duly organized under the laws of JAPAN, with its principal place
of business at 1-2, Hongokucho 1-chome, Nihonbashi, Chuo-ku, Tokyo 103, Japan
("Distributor"). IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES HEREIN
CONTAINED, THE PARTIES HERETO AGREE AS FOLLOWS:
1. APPOINTMENT AND ACCEPTANCE
EST hereby appoints Distributor and Distributor hereby accepts appointment as an
exclusive distributor for the sale of EST hardware products and for the sale of
licenses and support services for the EST software products, in executable form,
specified in the attached Schedule B ("Products") to end-users located within
and for installation only within the geographical area specified in the attached
Schedule A ("Territory"). Additional EST products (including new versions of the
Products) may be included under this Agreement by the mutual written consent of
the parties in the form of an amendment to this Agreement. EST reserves the
right to delete any Product from this list of which development, production,
licensing or maintenance is discontinued by EST.
2. DISTRIBUTION RIGHTS
A. No Software Product shall be distributed to an end-user by Distributor, if
the Product is designated a shrink-wrapped product by EST, until (i) the
end-user executes an EST Software License Agreement, which identifies EST
as the licensor and the end-user as the licensee, or (ii) the Product is
packaged with an EST Software License Agreement, the terms and conditions
of which the end-user agrees to comply with by opening the shrink-wrap
package containing this same Agreement.
B. The EST Software License Agreement is attached to, and made part of this
Agreement as Schedule D. Any modification, deletion or change Distributor
desires to make in any particular licensing transaction shall require the
prior written approval of EST. EST reserves the right to change any of the
terms and conditions of the attached EST Software License Agreement, or its
licensing procedures, provided Distributor is given thirty (30) calendar
days prior written notice of any such changes.
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C. All orders submitted to EST by Distributor are subject to approval and
acceptance by EST in its sole discretion. Such approval shall not be
unreasonably withheld.
D. All shipments shall be made F.O.B. origin to Distributor at TOYO
Corporation, 26-9 Yushima 3-chome, Bunkyo-ku, Tokyo 113, Japan, or to a
forwarding agent as may be specified on orders received from Distributor.
It is the responsibility of Distributor to ship the Product to the
applicable end-user.
E. Nothing in this Agreement shall be construed as a grant to Distributor of
any right, title or interest in and to copyrights, patents or trade secrets
of the Products, all rights related thereto being reserved by EST.
F. Except for copying as may be specifically provided by Schedule E,
Distributor will not copy, in whole or in part, or modify, alter, reverse
engineer, decompile or disassemble any Product furnished Distributor,
without prior written consent of EST. Such consent shall not be
unreasonably withheld.
G. In the event that copying is authorized by Schedule E for the purpose of
making deliveries to Distributor's customers, Distributor shall reproduce
and include EST copyright notice both in and on every copy made, in any
form, including partial copies. Distributor agrees to keep a record of
every copy made and to furnish such record to EST upon its request.
H. Distributor is hereby granted an exclusive, non-transferable right to use
as selling aids in the Territory, during the life of this Agreement, the
trademarks identifying the Products. Distributor shall not sublicense or
otherwise permit the use of said trademarks by other parties. All rights in
said trademarks shall, at all times during the life of this Agreement and
thereafter, be and remain the sole property of EST and good will and other
benefits associated therewith are hereby assigned and shall inure to the
benefit of EST. Distributor shall not use said trademarks in any manner
which would injure or destroy their value or diminish EST's property rights
therein. Distributor shall promptly notify EST of any infringement or
suspected infringement of said trademarks that may come to Distributor's
attention and assist EST, at EST's expense, in taking action against such
infringement as EST, in its sole discretion, may decide.
I. Distributor is hereby granted the right to translate into Kanji and publish
any of the technical or sales promotional materials for use in promoting
EST products in Japan. Distributor will retain sole rights to such
material.
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3. OBLIGATIONS OF DISTRIBUTOR
Distributor shall:
A. Submit to EST, if requested by EST, a marketing plan for the Products to be
distributed, including a twelve (12) month forecast of sales revenue
anticipated for these products.
B. Provide its best efforts to promote the licensing of and support services
for the Products within the Territory in accordance with terms and
conditions determined by EST, and provide evidence of such efforts if
requested to do so by EST.
C. Employ, on an on-going basis, a fully trained and competent sales and
technical support organization sufficient to meet Distributor's obligations
hereunder and to have such personnel complete, at Distributor's expense,
any training deemed necessary by EST to meet this requirement.
D. Maintain adequate person-power and facilities to ensure prompt handling of
inquiries, orders, shipments and support services as described by Section
13 below to end-users of the Products in the Territory.
E. Assign a specific contact at the office of Distributor who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
F. In the conduct of its business under this Agreement, comply with all
applicable laws, regulations and orders in the Territory and shall not take
any action which will cause EST to be in violation of any such law,
regulation or order in the Territory or the United States including, but
not limited to the US Foreign Corrupt Practices Act, the US Export
Administration Regulations and the US Anti-Boycott Laws.
G. Not without prior written consent of EST, appoint any sub-representatives,
agents, sub-distributors or dealers to carry out any of the activities
covered by this Agreement.
H. Assume all responsibility for delivery of the Products to end-users in the
Territory, including shipping and like costs, taxes, compliance with and
expense of any import legalities and duties.
I. Bear exclusively all responsibility toward its employees imposed by
legislation within the Territory and shall hold EST harmless from and
indemnify EST against any and all claims by any such employee against EST
for payment of commissions, salaries, expenses, termination indemnities or
any other amounts payable under such legislation.
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4. OBLIGATIONS OF EST
EST shall:
A. Furnish reasonable quantities of promotional literature at no charge to
Distributor. Additional quantities shall be available at cost.
B. Promptly advise Distributor when Products are shipped.
C. Assign a specific contact at EST in Canton, MA, USA who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
5. CHARGES AND PAYMENTS
A. Fees/Prices for the Products to be supplied to Distributor for unbundled
distribution by Distributor are in accordance with the EST Price List, for
the applicable product line, then in effect at the time of receipt of the
order by EST, minus the discount set forth in Schedule C. Fees/Prices for
bundled distribution, if applicable, are set forth in Exhibit E. Discounted
fees/prices are due and payable within thirty (30) calendar days of
shipment of the Product(s) to Distributor. Fees under the bundled pricing
arrangement are due as specified in Exhibit E. All payments are due when
specified, regardless of whether or not Distributor has received payment
from the end-user. All payments are to be made in United States Dollars on
drafts payable at a US bank to:
Accounts Receivable
Embedded Support Tools Corp.
120 Royall Street
Canton, MA 02021
or wired directly to a bank designated by EST for credit to an EST account
at such bank.
B. EST reserves the right to change any fee/price set forth in the EST Price
List, provided Distributor is given sixty (60) calendar days prior written
notice. EST reserves the right to increase fees for bundled pricing upon
sixty (60) days written notice in the event there is a material increase in
EST price list or upon renewal of this agreement.
C. Distributor shall pay or promptly reimburse EST for all property, sales,
use and other taxes or duties imposed on EST with respect to this Agreement
and payments made hereunder, including any withholding taxes withheld on
payments made to EST hereunder, but excluding taxes based on EST net
income.
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D. Distributor shall cause true and accurate books of account and records
relating to the Products to be kept in such detail as to enable EST to
ascertain what fees are due hereunder, and all such books and records shall
be open to inspection and audit by EST or its duly authorized
representatives at all reasonable times during regular business hours, but
not more than twice in any single calendar year. In the event such audit
discloses any breach of this Agreement, Distributor shall pay the full cost
of the audit, in addition to other damages and rights available to EST as
the result of such breach.
E. For each end-user under a support services agreement, Distributor agrees to
pay to EST the applicable annual fee specified in EST's Support Price List
then in effect, minus the discount set forth in Schedule C. Said fees are
due and payable by Distributor within thirty (30) calendar days from the
acceptance of a support services contract from the end-user.
6. TERM
This Agreement shall enter into effect on the date set forth above and shall
have an initial term of one year (365 days) from such date. Said initial term
shall be automatically renewed for successive terms of one year (365 days) each,
unless either party notifies the other in writing at least sixty (60) calendar
days prior to the date of expiration of the term in effect, of its election that
the Agreement not be renewed. This Agreement shall be interpreted as a definite
term Agreement.
7. TERMINATION
Either party may terminate this Agreement at any time after the initial term by
giving sixty (60) calendar days prior written notice to the other party. Either
party may terminate this Agreement upon written notice if the other party
breaches any of its basic obligations hereunder and fails to cure such breach
within thirty (30) calendar days from the date of written notice given by the
other party identifying such breach.
Either party may terminate this Agreement immediately upon written notice if the
other party (i) becomes bankrupt or insolvent, or files a petition therefor;
(ii) makes an assignment for the benefit of its creditors; (iii) enters
proceedings for winding up or dissolution; (iv) is dissolved; (v) is
nationalized or is subject to the expropriation of all or substantially all of
its business or assets. EST may terminate this Agreement upon written notice in
the event that Distributor changes ownership either by sale, acquisition, merger
or other reason.
8. CONSEQUENCES OF TERMINATION
Upon the termination of this Agreement: (i) all orders submitted by Distributor
and not accepted by EST on or before the date of termination shall be canceled
or
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accepted at the sole option of EST; (ii) Distributor shall return all lists,
catalogs, samples, and promotional literature and Products furnished to it by
EST and any and all copies thereof; and (iii) EST shall not be liable to
Distributor for, and Distributor hereby expressly waives any claims for,
extracontractual compensation or damages of any kind whatsoever in connection
with this agreement or its termination, expiration or modification, whether on
account of the loss by Distributor of anticipated profits or of expenditures,
investments or commitments made in connection with the establishment,
development or maintenance of Distributor's business or for any cause
whatsoever. Sections 3I, 5, 8, 10, 11, 14, 15, and 16 shall survive the
termination, expiration or cancellation of this agreement.
9. NOTICES
All communication between parties shall be made by facsimile, telex, cable, or
regular airmail. Notices concerning termination or alleged breaches hereof shall
be made by registered mail, return receipt requested. Notices are to be
addressed to:
EST: Distributor:
President President
Embedded Support Tools Corp. Toyo Corporation
120 Royall Street 1-2, Hongokucho 1-chome
Canton, MA 02021, USA Nihonbashi, Chuo-Ku, Tokoyo
103 Japan
10. CONFIDENTIALITY
Distributor understands and recognizes the confidential and proprietary nature
of the Products and related business and technical information which may be
furnished from time to time to Distributor by EST under this Agreement. Except
that Distributor may ship Products to licensed end-users as provided by Section
3 above, Distributor shall not disclose, provide or otherwise make available the
Products or related information to any person other than Distributor employees
who have a need to know, without EST prior written consent, and shall use the
same only for purposes consistent with this Agreement. Distributor agrees to
take all the necessary steps to safeguard the proprietary and confidential
nature of the Products and related information and to ensure that no
unauthorized person has access to the Products and related information and that
no unauthorized copy, in whole or part, in any form, is made. Distributor
further agrees, at EST request, to assist EST in protecting the same against
unlawful appropriation by third parties.
The obligations of this Article do not apply to information that has become part
of the public domain through no fault of Distributor.
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11. WARRANTIES
The only warranties which shall be granted by EST with respect to the Products
licensed to end-users within and for installation in the Territory, shall be
those expressly set forth in the EST Software License Agreements, Hardware
Product Users' Manual and Schedule F of this Agreement. IN NO EVENT SHALL ANY
SUCH WARRANTIES OR ANY WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
BE DEEMED TO HAVE BEEN EXTENDED TO DISTRIBUTOR.
12. PATENT AND COPYRIGHT INDEMNIFICATIONS
EST will defend at its own expense any action brought against Distributor to the
extent it is based on a claim that an unmodified Product used by an end-user
within the scope of the EST Software License Agreement infringes a United States
patent or copyright. EST will pay any costs, damages and attorney fees finally
awarded against Distributor in such action which are attributable to such claim
provided EST is given prompt written notice of the claim, information,
assistance, and authority over the control of the defense and/or settlement of
the same. In the event that the Product becomes or, in EST opinion, is likely to
become the subject of a claim of infringement, EST may, at its option, secure
Distributor's and any licensed end-users' right to continue using the Product,
replace or modify the Product to make it noninfringing or remove the Product and
refund the license fee paid by Distributor thereof as depreciated or amortized
over the lifetime of the Product as established by EST in its sole discretion.
EST shall have no liability for any claim or patent copyright infringement based
upon the use of a combination of the Product with programs or data not supplied
by EST where the Product alone would not constitute an infringement. THE
FOREGOING STATES THE ENTIRE LIABILITY OF EST WITH RESPECT TO INFRINGEMENT OF ANY
COPYRIGHTS OR PATENTS OR OTHER PROPRIETARY RIGHTS BY THE PRODUCTS OR ANY PART
THEREOF.
13. SUPPORT SERVICES
A. EST shall provide Distributor support services which are equivalent to
those normally provided to EST's end-user customers for the Products as
follows:
1. EST will use its reasonable efforts to correct deviations from the
Products' published specifications current at the time of shipment to
Distributor, within reasonable time of written notification from
Distributor of the deviation, such notification to include the
specific version number and parts list number of the Product that
showed the deviation and a complete and accurate description of the
deviation.
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2. EST will provide Distributor updates, enhancements and documentation
of known deviations to the Products as generally made available by EST
to its customers under support services agreements with EST.
3. EST will provide Distributor with reasonable telephone consultations
regarding the use and functionality of the Products.
B. Distributor agrees that it will provide support services for the Products
to its licensed end-users in accordance with EST's standard practices as
set forth in Section 13A above, provided that the end-user has entered into
a support services agreement with Distributor. In no event shall
Distributor distribute support services provided by EST to an end-user who
is not under a support services agreement with Distributor and for which
Distributor has not paid EST a support services fee.
C. EST will make its best effort to enable Distributor to carry out local
repairs to EST hardware products including in-warranty repairs. This will
include the supply by EST, at reasonable cost, of critical parts to enable
Distributor to maintain a local inventory. EST agrees to reimburse
Distributor for any parts used for in-warranty repairs. In the event that
it is agreed that a hardware product should be returned to EST for repair
or replacement, EST will make all reasonable effort to carry out the repair
or send a replacement within (4) weeks of receiving the returned unit at
its place of business in the USA.
D. All communication from EST, including manuals and technical support
documents, shall be in English.
E. Distributor shall provide the first line of support to its customers such
as installation and operation assistance. For support issues requiring the
assistance of EST, Distributor shall use the standard EST procedure and
forms then in effect for documenting and communicating the support issues
to EST.
F. EST shall have no obligation under this Section 13 to provide support
services for Product(s) altered or modified without EST prior written
consent; problems resulting from equipment malfunction or created by causes
within Distributor's or its owner's control; and, at EST option, Product(s)
that have been superseded by a new release for more than six (6) months.
G. Distributor shall, on a quarterly basis, provide EST with a record of all
end-users to which Distributor is providing support services.
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H. Distributor will grant EST, reasonable access to any unique software,
equipment or information required by EST in carrying out its obligations
under Section 13A.
14. GOVERNING LAW
The laws of the Commonwealth of Massachusetts, United States of America shall
apply to any interpretation of the terms and conditions of this Agreement.
15. LIMITATION OF LIABILITY
DISTRIBUTOR AGREES THAT EST's LIABILITY, IF ANY, IN ANY ACTION REGARDLESS OF
FORM SHALL NOT EXCEED THE PAYMENTS MADE HEREUNDER BY DISTRIBUTOR TO EST. IN NO
EVENT SHALL EST BE LIABLE FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR CLAIMS BY
THIRD PARTIES.
DISTRIBUTOR AGREES TO INDEMNIFY AND HOLD EST HARMLESS FROM AND AGAINST ANY SUIT,
CLAIM, EXPENSE, LOSS OR LIABILITY (INCLUDING BUT NOT LIMITED TO COUNSEL FEES AND
EXPENSE) ARISING FROM THE ACT, OMISSION OR NEGLIGENCE OF DISTRIBUTOR.
16. FOREIGN RESHIPMENT LIABILITY
This Agreement is made subject to any laws, regulations, orders or other
restrictions on export from the United States of America of controlled
commodities, technical data or information about such commodities or data, which
may be imposed from time to time by the Government of the United States of
America. Distributor will not export, directly or indirectly, any of the
Products or information pertaining thereto to any country for which the
Government of the United States or any agency thereof requires an export license
or other government approval or written assurance at the time of export without
first obtaining such license, approval or assurance and shall indemnify EST for
any failure to do so.
17. FORCE MAJEURE
EST will incur no liability arising out of any delay in delivery or non-delivery
of any Products or Support Services due to a force majeure. A force majeure is
defined as any circumstances beyond the reasonable control of EST including, but
not limited to, fire, floods, earthquakes, fuel shortages, acts of nature, war,
or acts of any Government.
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18. DISPUTES
Any controversy or claim out of or pertaining to this Agreement or breach
thereof shall be resolved by arbitration in accordance with the rules of the
American Arbitration Association, then in effect, at the office of the American
Arbitration Association located closest to EST's corporate address, and the
decision rendered by the American Arbitration Association shall be final and
binding upon both parties and judgement upon such decision may be entered in any
court of competent jurisdiction. Neither party shall be precluded hereby from
seeking provisional remedies in the courts of any jurisdiction, including but
not limited to temporary restraining orders and preliminary injunctions to
protect its right and interest, but such shall not be sought as a means to avoid
or stay any arbitration. Neither party shall institute a proceeding hereunder
unless, at least thirty (30) calendar days prior thereto, such party shall have
provided to the other party written notice of its intent to do so and the
grounds therefor.
19. ASSIGNMENT
Distributor shall not assign or transfer this Agreement or any of its rights or
obligations hereunder, including assignment or transfer to a successor Company,
without the prior written consent of EST. EST may assign, transfer or delegate
any of its rights or obligations hereunder to any affiliated or subsidiary
company of EST or any company acquiring all or substantially all of the assets
of Embedded Support Tools Corp.
20. WAIVER
A waiver of any breach or acceptance of any order inconsistent with the terms of
this Agreement, or the making of deliveries pursuant to such order, shall effect
no modification of this Agreement. No waiver of any provision of this Agreement
shall be effective unless made in writing. Any waiver of any breach of any
provision of this Agreement shall not constitute a waiver of any subsequent
breach of the same of any other provision of the Agreement.
21. SEVERABILITY
In the event that any provision of this Agreement is declared invalid or becomes
unlawful in its operation, such provision shall be deemed to be omitted and
shall not affect that validity or enforceability of any of the other provisions.
22. RELATIONSHIP
Distributor shall perform its work as an independent contractor and not as an
employee, agent, or partner of EST. Distributor shall have no right or authority
to enter into any contracts in the name of, or for the account of EST, nor to
assume or create any obligation or liability of any kind, expressed or implied,
on behalf of EST,
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and shall not take any action which has the effect of creating the appearance of
its having such authority.
23. ENTIRE AGREEMENT
This Agreement, including the attached Schedules A, B, C, D and E, contains the
entire Agreement of the parties hereto. No verbal or oral statements or
representations by either party shall in any way modify, add to, delete or
otherwise amend this Agreement. This Agreement may be changed only by a writing
signed by authorized representatives of the parties hereto.
Agreed to by:
Embedded Support Tools Corp. Distributor
Signature: /s/ John T.W. Baggott Signature: /s/ Tadahiro Hara
------------------------ ------------------------
Name: John T.W. Baggott Name: Tadahiro Hara
Title: Vice President Title: President
Date: February 3, 1994 Date: March 2, 1994
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SCHEDULE A
TERRITORY
Territory:
1. JAPAN
2.
3.
Initials:
EST______________________________ Distributor________________________
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SCHEDULE B
PRODUCTS
Products: (Exclusive for Term of this Agreement)
1. ALL PRODUCTS DEVELOPED, MANUFACTURED AND THE OWNERSHIP RIGHTS TO WHICH
ARE THE PROPERTY OF EST.
2.
3.
4.
5.
6.
Initials:
EST______________________________ Distributor___________________________
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SCHEDULE C
DISTRIBUTOR
DISCOUNTS
FOR
PRODUCTS AND SUPPORT SERVICES
1. Distributor Discount for Products
EST grants to Distributor a discount off the International Price List (IPL)
based on the following:-
Net US $s transferred to EST Current calendar quarter
by Distributor for previous discount off EST's IPL
calendar quarter
- ---------------------------- ------------------------
$US
$ 0 to $39,999 30%
$ 40,000 to $69,999 35%
$ 70,000+ 40%
Distributor will receive the higher discount for the remainder of the current
quarter after the sales volume to receive that discount has been met.
All payments to EST are based on the current EST International Price List in
effect when Distributor places the order, regardless of the selling price by
Distributor.
2. Distributor Discount for Support Services
Distributor will receive a 30% discount on all standard EST's Support Services
Contracts sold during the contract period. Support Services Contract prices are
calculated in accordance with the current EST Price List in effect when
Distributor places the order.
Initials:
EST___________________________________ Distributor___________________________
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SCHEDULE D
EST SOFTWARE LICENSE AGREEMENT
EMBEDDED SUPPORT TOOLS CORP. END USER LICENSE AGREEMENT
READ THE TERMS AND CONDITIONS OF THIS LICENSE AGREEMENT ("AGREEMENT") CAREFULLY
BEFORE OPENING THE PACKAGE CONTAINING THE MEDIA, COMPUTER SOFTWARE, HARDWARE,
AND ACCOMPANYING USER DOCUMENTATION ("THE PRODUCT"). THIS AGREEMENT REPRESENTS
THE ENTIRE AGREEMENT BETWEEN YOU AND EMBEDDED SUPPORT TOOLS CORPORATION ("EST")
AND IT SUPERSEDES ANY PRIOR PROPOSAL, REPRESENTATION OR UNDERSTANDING BETWEEN
THE PARTIES. BY OPENING THE PACKAGE CONTAINING THE PRODUCT, YOU ARE ACCEPTING
AND AGREEING TO THE TERMS OF THIS AGREEMENT. IF YOU ARE NOT WILLING TO BE BOUND
BY THE TERMS OF THIS AGREEMENT, PROMPTLY RETURN THE UNOPENED PACKAGE AND YOU
WILL RECEIVE A REFUND OF YOUR MONEY. LICENSE: This Agreement grants you a
non-exclusive right to use the media and computer software contained therein
(collectively referred to as the "Software"), hardware, and the accompanying
Documentation, only as authorized in this Agreement. The Software may be used
only on one computer owned, leased or controlled by you. Neither concurrent use
on more computers nor use in a local area network or other network is authorized
without the prior written consent of EST and the payment of additional license
fees. You agree that you will not assign, sublicense, rent, lease, loan,
distribute or share your rights to the Product. You may not modify, adapt,
alter, translate, decompile, disassemble, reverse engineer, or create derivative
works based on the Product.
BACKUP: Except as authorized under this paragraph, no copies of the Product may
be made. You may make one (1) copy of the Software solely for backup purposes.
Any such copies made shall include EST's and all other copyright and other
proprietary notices which are included in the original Software.
OWNERSHIP: The Product is licensed, not sold to you, for use only under the
terms of this Agreement. You acknowledge and agree that the Product consists of
proprietary, unpublished products of EST, protected under the copyright law and
trade secret laws. All right title and interest in and to the Product are and
shall remain with EST except for the nonexclusive license granted to you as
expressly provided herein.
TERM: This Agreement is effective upon your opening the package containing the
Software and shall continue until terminated. You may terminate this Agreement
at any time by returning the Product and all copies thereof to EST. EST may
terminate this Agreement if you fail to comply with any provisions of this
Agreement. Upon such termination by EST, you agree to return to EST the Product
and all copies thereof.
LIMITED WARRANTY: EST warrants that, for thirty (30) days from the date of
delivery of software and one (1) year from the date of delivery of hardware, the
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Product shall operate substantially in accordance with the published functional
specifications current at the time of shipment. If, during the warranty period,
a defect appears, EST will use its best efforts to correct the defect within a
reasonable time after notification by you. You agree that the forgoing
constitutes your sole and exclusive remedy for breach by EST under any
warranties made under this Agreement. This warranty does not cover any Product
that has been altered or changed in any way by anyone other than EST. EST is not
responsible for changes made after ordering the Product to computer hardware,
operating systems or test equipment, or for problems in the interaction of the
Software with software not furnished by EST. EXCEPT AS STATED ABOVE, EST GRANTS
NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION THE IMPLIED
WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OR THAT USE OF
THE PRODUCT WILL BE UNINTERRUPTED OR ERROR FREE. These warranties give you
specific legal rights, and you may also have other rights which vary from state
to state. LIMITATION OF LIABILITY: EST'S LIABILITY TO YOU ARISING OUT OF OR IN
RELATION TO THIS AGREEMENT, IN ANY ACTION REGARDLESS OF FORM, SHALL NOT EXCEED
THE LICENSE FEE PAID TO EST FOR YOUR USE OF THIS PRODUCT. IN NO EVENT SHALL EST
BE LIABLE FOR ANY INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES,
INCLUDING LOST PROFITS, BUSINESS INTERRUPTION AND LIKE DAMAGES, EVEN IF IT HAS
BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR CLAIMS BY THIRD PARTIES.
SOME STATES DO NOT ALLOW THE LIMITATION OR EXCLUSION OF LIABILITY FOR INCIDENTAL
OR CONSEQUENTIAL DAMAGES, SO THE ABOVE LIMITATION OR EXCLUSION MAY NOT APPLY TO
YOU.
UPDATES: Any updates or corrected Products provided under the above warranty or
any subsequent maintenance services shall be covered by the terms of this
Agreement.
GOVERNMENT END-USERS: If this Product is acquired by or on behalf of a unit or
agency of the United States Government this provision applies: This Product was
(a) not developed with Government funds, (b) is a trade secret of EST for all
purposes of the Freedom of Information Act and (c) is "commercial computer
software". For units of the Department of Defense (DoD), this Product is sold
only with "Restricted Rights" as defined in the DoD Supplement to the Federal
Acquisition Regulations, 52.227-7013(b)(3)(ii). Use, duplication, or disclosure
is subject to the restrictions as set forth in subdivision (b)(3)(ii) of the
Rights to Technical Data and Computer Software clause at 52.227-7013.
Manufacturer: Embedded Support Tools Corporation, 120 Royall Street, Canton, MA
02021.
EXPORT LAWS: You agree and certify that neither the product nor any direct
product thereof shall be directly or indirectly shipped, transferred or re-
exported into any country prohibited by the United States export laws and
regulations and you agree to comply with such laws and regulations.
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GENERAL: Terms and conditions contained in any purchase order issued by you
shall in no way modify the terms of this Agreement. If any of the provisions of
this Agreement, or portions thereof, are declared void or unenforceable by any
court of competent jurisdiction, they are to that extent deemed omitted and the
remaining portions shall remain in full force and effect. No waiver of any
provision of this Agreement shall be affective unless made in writing. No waiver
of any breach of any provision of this Agreement shall constitute a waiver of
any subsequent breach of the same or of any other provision of this Agreement.
This Agreement shall be construed and governed by the laws of the Commonwealth
of Massachusetts.
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SCHEDULE E
NOT APPLICABLE
Initials:
EST:________________________________ Distributor:__________________________
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Exhibit 10.34
EST DISTRIBUTOR AGREEMENT
This Agreement is entered into this 18th day of September 1998 between
Embedded Support Tools Corp., a corporation duly organized under the laws of the
Commonwealth of Massachusetts, and having its principal place of business at 120
Royall Street, Canton, Massachusetts 02021, USA ("EST"), and Microtek
International Inc., a corporation duly organized under the laws of Taiwan, with
its principal place of business at 6 Industry East Road 111, Science-Based
Industrial Park, Hsinchu, Taiwan, R.O.C. ("Distributor"). IN CONSIDERATION OF
THE MUTUAL COVENANTS AND PROMISES HEREIN CONTAINED, THE PARTIES HERETO AGREE AS
FOLLOWS:
1. APPOINTMENT AND ACCEPTANCE
EST hereby appoints Distributor and Distributor hereby accepts appointment
as an exclusive (except Taiwan) distributor for the sale of EST hardware
products, and for the sale of licenses and support services for the EST software
products, in executable form, specified in the attached Schedule B ("Products")
to end-users located within and for installation only within the geographical
area specified in the attached Schedule A ("Territory"). Additional EST products
(including new versions of the Products) may be included under this Agreement by
the mutual written consent of the parties in the form of an amendment to this
Agreement. EST reserves the right to delete any Product from this list of which
development, production, licensing or maintenance is discontinued by EST.
2. DISTRIBUTION RIGHTS
A. No Software Product shall be distributed to an end-user by
Distributor, if the Product is designated a shrink-wrapped product by EST, until
(i) the end-user executes an EST Software License Agreement which identifies EST
as the licensor and the end-user as the licensee, or (ii) the Product is
packaged with an EST Software License Agreement, the terms and conditions of
which the end-user agrees to comply with by opening the shrink-wrap package
containing this same Agreement.
B. The EST Software License Agreement is attached to, and made part of
this Agreement as Schedule D. Any modification, deletion or change Distributor
desires to make in any particular licensing transaction shall require the prior
written approval of EST. EST reserves the right to change any of the terms and
conditions of the attached EST Software License Agreement, or its licensing
procedures, provided Distributor is given thirty (30) calendar days prior
written notice of any such changes.
C. All orders submitted to EST by Distributor are subject to approval and
acceptance by EST in its sole discretion. Such approval shall not be
unreasonably withheld.
D. All shipments shall be made F.O.B. origin to Distributor at 6,
Industry East Road III, Science-Based Industrial Park, Hsinchu, Taiwan, R.O.C.
or to a forwarding agent
<PAGE>
as may be specified on orders received from Distributor. It is the
responsibility of Distributor to ship the Product to the applicable end-user.
E. Nothing in this Agreement shall be construed as a grant to Distributor
of any right, title or interest in and to copyrights, patents or trade secrets
of the Products, all rights related thereto being reserved by EST.
F. Except for copying as may be specifically provided by Schedule E,
Distributor will not copy, in whole or in part, or modify, alter, reverse
engineer, decompile or disassemble any Product furnished Distributor, without
prior written consent of EST. Such consent shall not be unreasonably withheld.
G. In the event that copying is authorized by Schedule E for the purpose
of making deliveries to Distributor's customers, Distributor shall reproduce and
include EST copyright notice both in and on every copy made, in any form,
including partial copies. Distributor agrees to keep a record of every copy made
and to furnish such record to EST upon its request.
H. Distributor is hereby granted an exclusive, non-transferable right to
use as selling aids in the Territory, during the life of this Agreement, the
trademarks identifying the Products. Distributor shall not sublicense or
otherwise permit the use of said trademarks by other parties. All fights in said
trademarks shall, at all times during the life of this Agreement and thereafter,
be and remain the sole property of EST and good will and other benefits
associated therewith are hereby assigned and shall inure to the benefit of EST.
Distributor shall not use said trademarks in any manner which would injure or
destroy their value or diminish EST's property rights therein. Distributor shall
promptly notify EST of any infringement or suspected infringement of said
trademarks that may come to Distributor's attention and assist EST, at EST's
expense, in taking action against such infringement as EST, in its sole
discretion, may decide.
I. Distributor is hereby granted the right to translate into Chinese and
publish any of the technical or sales promotional materials for use in promoting
EST products in Taiwan. Distributor will retain sole rights to such material.
3. OBLIGATIONS OF DISTRIBUTOR
Distributor shall:
A. Submit to EST, if requested by EST, a marketing plan for the Products
to be distributed, including a twelve (12) month forecast of sales revenue
anticipated for these products.
B. Provide its best efforts to promote the licensing of and support
services for the Products within the Territory in accordance with terms and
conditions determined by EST, and provide evidence of such efforts if requested
to do so by EST.
C. Employ, on an on-going basis, a fully trained and competent sales and
technical support organization sufficient to meet Distributor's obligations
hereunder and to
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<PAGE>
have such personnel complete, at Distributor's expense, any training deemed
necessary by EST to meet this requirement.
D. Maintain adequate person-power and facilities to ensure prompt
handling' of inquiries, orders, shipments and support services as described by
Section 13 below to end-users of the Products in the Territory.
E. Assign a specific contact at the office of Distributor who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
F. In the conduct of its business under this Agreement, comply with all
applicable laws, regulations and orders in the Territory and shall not take any
action which will cause EST to be in. violation of any such law, regulation or
order in the Territory or the United States including, but not limited to the US
Foreign Corrupt Practices Act, the US Export Administration Regulations and the
US Anti-Boycott Laws.
G. Not without prior written consent of EST, appoint any sub-
representatives, agents, sub-distributors or dealers to carry out any of the
activities covered by this Agreement.
H. Assume all responsibility for delivery of the Products to end-users in
the Territory, including shipping and like costs, taxes, compliance with and
expense of any import legalities and duties.
I. Bear exclusively all responsibility toward its employees imposed by
legislation within the Territory and shall hold EST harmless from and indemnify
EST against any and all claims by any such employee against EST for payment of
commissions, salaries, expenses, termination indemnities or any other amounts
payable under such legislation.
4. OBLIGATIONS OF EST
EST shall:
A. Furnish reasonable quantifies of promotional literature at no charge
to Distributor. Additional quantities shall be available at cost.
B. Promptly advise Distributor when Products are shipped.
C. Assign a specific contact at EST in Canton, MA, USA who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
5. CHARGES AND PAYMENTS
A. Fees/Prices for the Products to be supplied to Distributor for
unbundled distribution by Distributor are in accordance with the EST Price List,
for the applicable product line, then in effect at the time of receipt of the
order by EST, minus the discount set forth in Schedule C. Fees/Prices for
bundled distribution, if applicable, are set forth in Exhibit E. Discounted
fees/prices are due and payable
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<PAGE>
within thirty (30) calendar days of shipment of the Product(s) to Distributor.
Fees under the bundled pricing arrangement are due as specified in Exhibit E.
All payments are due when specified, regardless of whether or I not Distributor
has received payment from the end-user. All payments are to be made in United
States Dollars on drafts payable at a US bank to:
Accounts Receivable
Embedded Support Tools Corp.
120 Royall Street
Canton, MA 02021
or wired directly to:
BANKBOSTON N.A.
100 FEDERAL STREET,
BOSTON, MA 02110, USA
ABA # 011-000-390. SWIFT # FNBBUS33
FOR EMBEDDED SUPPORT TOOLS CORP.
ACCOUNT NUMBER: 1908 - 489 - 2
B. EST reserves the right to change any fee/price set forth in the EST
Price List, provided Distributor is given sixty (60) calendar days prior written
notice. EST reserves the right to increase fees for bundled pricing upon sixty
(60) days written notice in the event there is a material increase in EST price
list or upon renewal of this agreement.
C. Distributor shall pay or promptly reimburse EST for all property,
sales, use and other taxes or duties imposed on EST with respect to this
Agreement and payments made hereunder, including any withholding taxes withheld
on payments made to EST hereunder, but excluding taxes based on EST net income.
D. Distributor shall cause true and accurate books of account and records
relating to the Products to be kept in such detail as to enable EST to ascertain
what fees are due hereunder, and all such books and records shall be open to
inspection and audit by EST or its duly authorized representatives at all
reasonable times during regular business hours, but not more than twice in any
single calendar year. In the event such audit discloses any breach of this
Agreement, Distributor shall pay the full cost of the audit in addition to other
damages and rights available to EST as the result of such breach.
E. For each end-user under a support services agreement Distributor
agrees to pay to EST the applicable annual fee specified in EST's Support Price
List then in effect, minus the discount set forth in Schedule C. Said fees are
due and payable by Distributor within thirty (30) calendar days from the
acceptance of a support services contract from the end-user.
6. TERM
This Agreement shall enter into effect on the date set forth above and
shall have an initial term of one year (365 days) from such date. Said initial
term shall be
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<PAGE>
automatically renewed for successive terms of one year (365 days) each, unless
either party notifies the other in writing at least sixty (60) calendar days
prior to the date of expiration of the term in effect, of its election that the
Agreement not be renewed. This Agreement shall be interpreted as a definite term
Agreement.
7. TERMINATION
Either party may terminate this Agreement at any time after the initial
term by giving sixty (60) calendar days prior written notice to the other party.
Either party may terminate this Agreement upon written notice if the other party
breaches any of its basic. obligations hereunder and fails to cure such breach
within thirty (30) calendar days from the date of written notice given by the
other party identifying such breach. Either party may terminate this Agreement
immediately upon written notice if the other party (i) becomes bankrupt or
insolvent, or files a petition therefor, (ii) makes an assignment for the
benefit of its creditors; (iii) enters proceedings for winding up or
dissolution; (iv) is dissolved; (V) is nationalized or is subject to the
expropriation of all or substantially all of its business or assets. EST may
terminate this Agreement upon written notice in the event that Distributor
changes .ownership either by sale, acquisition, merger or other reason.
8. CONSEQUENCES OF TERMINATION
Upon the termination of this Agreement: (i) all orders submitted by
Distributor and not accepted by EST on or before the date of termination shall
be canceled or accepted at the sole option of EST; (ii) Distributor shall return
all lists, catalogs, samples, and promotional literature and Products furnished
to it by EST and any and all copies thereof, and (iii) EST shall not be liable
to Distributor for, and Distributor hereby expressly waives any claims for,
extracontractual compensation or damages of any kind whatsoever in connection
with this agreement or its termination, expiration or modification, whether on
account of the loss by Distributor of anticipated profits or of expenditures,
investments or commitments made in connection with the establishment,
development or maintenance of Distributor's business or for any cause
whatsoever. Sections 3I, 5, 8, 10, 11, 14, 15, and 16 shall survive the
termination, expiration or cancellation of this agreement.
9. NOTICES
All communication between parties shall be made by facsimile, telex, cable,
or regular airmail. Notices concerning termination or alleged breaches hereof
shall be made by registered mail, return receipt requested. Notices are to be
addressed to:
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<PAGE>
EST: Distributor
President Vice president Gary Wang
Embedded Support Tools Corp. Microtek International Inc.
120 Royall Street 6, Industry East Road III
Canton, Massachusetts 02021 Science-Based Industrial Park
USA Hsinchu, Taiwan, R.O.C.
10. CONFIDENTIALITY
Distributor understands and recognizes the confidential and proprietary
nature of the Products and related business and technical information which may
be furnished from time to time to Distributor by EST under this Agreement.
Except that Distributor may ship Products to licensed end-users as provided by
Section 3 above, Distributor shall not disclose, provide or otherwise make
available the Products or related information to any person other than
Distributor employees who have a need to know, without EST prior written
consent, and shall use the same only for purposes consistent with this
Agreement. Distributor agrees to take all the necessary steps to safeguard the
proprietary. and confidential nature of the Products and related information and
to ensure that no unauthorized., person has access to. the Products. and related
information and that no unauthorized copy, in whole or part, in any form, is
made. Distributor further agrees, at EST request, to assist EST in protecting
the same against unlawful appropriation by third parties. The obligations of
this Article do not apply to information that has become part of the public
domain through no fault of Distributor.
11. WARRANTIES
The only warranties which shall be granted by EST with respect to the
Products licensed to end-users within and for installation in the Territory,
shall be those expressly set forth in the EST Software License Agreements,
Hardware Product Users' Manual and Schedule F of this Agreement. IN NO EVENT
SHALL ANY SUCH WARRANTIES OR ANY WARRANTIES, EXPRESS OR IMPLIED, INCLUDING
WITHOUT LIMITATION, WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR
PURPOSE BE DEEMED TO HAVE BEEN EXTENDED TO DISTRIBUTOR.
12. PATENT AND COPYRIGHT INDEMNIFICATIONS
EST will defend at its own expense any action brought against Distributor
to the extent it is based on a claim that an unmodified Product used by an end-
user within the scope of the EST Software License Agreement infringes a patent
or copyright. EST will pay any costs, damages and attorney fees finally awarded
against Distributor in such action which are attributable to such claim provided
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<PAGE>
EST is given prompt written notice of the claim, information, assistance, and
authority over the control of the defense and/or settlement of the same. In the
event that the Product becomes or, in EST opinion, is likely to become the
subject of a claim of infringement, EST may, at its option, secure Distributors
and any licensed end-users' right to continue using the Product, replace or
modify the Product to make it non-infringing or remove the Product and refund
the license fee paid by Distributor thereof as depreciated or amortized over the
lifetime of the Product as established by EST in its sole discretion. EST shall
have no liability for any claim or patent copyright infringement based upon the
use of a combination of the Product with programs or data not supplied by EST
where the Product alone would not constitute an infringement. THE FOREGOING
STATES THE ENTIRE LIABILITY OF EST WITH RESPECT TO INFRINGEMENT OF ANY
COPYRIGHTS OR PATENTS OR OTHER PROPRIETARY RIGHTS BY THE PRODUCTS OR ANY PART
THEREOF.
13. SUPPORT SERVICES
A. EST shall provide Distributor support services which are equivalent to
those normally provided to EST's end-user customers for the Products as follows:
(1) EST will use its reasonable efforts to correct deviations from
the Products' published specifications current at the time of
shipment to Distributor, within reasonable time of written
notification from Distributor of the deviation, such notification
to include the specific version number and parts list number of
the Product that showed the deviation and a complete and accurate
description of the deviation.
(2) EST will provide Distributor updates, enhancements and
documentation of known deviations to the Products as generally
made available by EST to its customers under support services
agreements with EST.
(3) EST will provide Distributor with reasonable telephone
consultations regarding the use and functionality of the
Products.
B. Distributor agrees that it will provide support services for the
Products to its licensed end-users in accordance with EST's standard practices
as set forth in Section 13A above, provided that the end-user has entered into a
support services agreement with Distributor. In no event shall Distributor
distribute support services provided by EST to an end-user who is not under a
support services agreement with Distributor and for which Distributor has not
paid EST a support services fee.
C. EST will make its best effort to enable Distributor to carry out local
repairs to EST hardware products including in-warranty repairs. This will
include the supply by EST, at reasonable cost, of critical parts to enable
Distributor to maintain a local inventory. EST agrees to reimburse Distributor
for any parts used for in-warranty repairs. In the event that it is agreed that
a hardware product should be returned to EST for repair or replacement, EST will
make all reasonable effort to carry out the repair or send a
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<PAGE>
replacement within (4) weeks of receiving the returned unit at its place of
business in the USA.
D. All communication from EST, including manuals and technical support
documents, shall be in English.
E. Distributor shall provide the first line of support to its customers
such as installation and operation assistance. For support issues requiring the
assistance of EST, Distributor shall use the standard EST procedure and forms
then in effect for documenting and communicating the support issues to EST.
F. EST shall have no obligation under this Section 13 to provide support
services for Product(s) altered or modified without EST prior written consent;
problems resulting from equipment malfunction or created by causes within
Distributor's or its owner's control; and, at EST option, Product(s) that have
been superseded by a new release for more than six (6) months.
G. Distributor shall, on a quarterly basis, provide EST with a record of
all end-users to which Distributor is providing support services.
H. Distributor will grant EST, reasonable access to any unique software,
equipment or information required by EST in carrying out its obligations under
Section 13A.
14. GOVERNING LAW
The laws of the Commonwealth of Massachusetts, United States of America
shall apply to any interpretation of the terms and conditions of this Agreement.
15. LIMITATION OF LIABILITY
DISTRIBUTOR AGREES THAT EST's LIABILITY, IF ANY, IN ANY ACTION REGARDLESS
OF FORM SHALL NOT EXCEED THE PAYMENTS MADE HEREUNDER BY DISTRIBUTOR TO EST. IN
NO EVENT SHALL EST BE LIABLE FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL
DAMAGES EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR
CLAIMS BY THIRD PARTIES. DISTRIBUTOR AGREES TO INDEMNIFY AND HOLD EST HARMLESS
FROM AND AGAINST ANY SUIT, CLAIM, EXPENSE, LOSS OR LIABILITY (INCLUDING BUT NOT
LIMITED TO COUNSEL FEES AND EXPENSE) ARISING FROM THE ACT, OMISSION OR
NEGLIGENCE OF DISTRIBUTOR.
16. FOREIGN RESHIPMENT LIABILITY
This Agreement is made subject to any laws, regulations, orders or other
restrictions on export from the United States of America of controlled
commodities, technical data or information about such commodities or data, which
may be imposed from time to time by the Government of the United States of
America.
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<PAGE>
Distributor will not export, directly or indirectly, any of the Products or
information pertaining thereto to any country for which the Government of the
United States or any agency thereof requires an export license or other
government approval or written assurance at the time of export without first
obtaining such license, approval or assurance and shall indemnify EST for any
failure to do so.
17. FORCE MAJEURE
EST will incur no liability arising out of any delay in delivery or non-
delivery of any Products or Support Services due to a force majeure. A force
majeure is defined as any circumstances beyond the reasonable control of EST
including, but not limited to, fire, floods, earthquakes, fuel shortages, acts
of nature, war, or acts of any Government.
18. DISPUTES
Any controversy or claim out of or pertaining to this Agreement or breach
thereof shall be resolved by arbitration in accordance with the rules of the
American Arbitration Association, then in effect, at the office of the American
Arbitration Association located closest to ESTs corporate address, and the
decision rendered by the American Arbitration Association shall be final and
binding upon both parties and judgement upon such decision may be entered in any
court of competent jurisdiction. Neither party shall be precluded hereby from
seeking provisional remedies in the courts of any jurisdiction, including but
not limited to temporary restraining orders and preliminary injunctions to
protect its right and interest, but such shall not be sought as a means to avoid
or stay any arbitration. Neither party shall institute a proceeding hereunder
unless, at least thirty (30) calendar days prior thereto, such party shall have
provided to the other party written notice of its intent to do so and the
grounds therefor. The place of arbitration shall be at Canton, Massachusetts if
EST is defending party, or it shall be at Hsinchu, Taiwan if Distributor is
defending party.
19. ASSIGNMENT
Distributor shall not assign or transfer this Agreement or any of its
rights or obligations hereunder, including assignment or transfer to a successor
Company, without the prior written consent of EST. EST may assign, transfer or
delegate any of its rights or obligations hereunder to any affiliated or
subsidiary company of EST or any company acquiring all or substantially all of
the assets of Embedded Support Tools Corp.
20. WAIVER
A. A waiver of any breach or acceptance of any order inconsistent with
the terms of this Agreement, or the making of deliveries pursuant to such order,
shall effect no modification of this Agreement. No waiver of any provision of
this Agreement shall be
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<PAGE>
effective unless made in writing. Any waiver of any breach of any provision of
this Agreement shall not constitute a waiver of any subsequent breach of the
same of any other provision of the Agreement.
21. SEVERABILITY
In the event that any provision of this Agreement is declared invalid or
becomes unlawful in its operation, such provision shall be deemed to be omitted
and shall not affect that validity or enforceability of any of the other
provisions.
22. RELATIONSHIP
Distributor shall perform its work as an independent contractor and not as
an employee, agent, or partner of EST. Distributor shall have no right or
authority to enter into any contracts in the name of, or for the account of EST,
nor to assume or create any obligation or liability of any kind, expressed or
implied, on behalf of EST, and shall not take any action which has the effect of
creating the appearance of its having such authority.
23. ENTIRE AGREEMENT
This Agreement, including the attached Schedules A, B, C, D and E, contains
the entire Agreement of the parties hereto. No verbal or oral statements or
representations by either party shall in any way modify, add to, delete or
otherwise amend this Agreement. This Agreement may be changed only by a writing
signed by authorized representatives of the parties hereto.
Agreed to by:
Embedded Support Tools Corp. Microtek international Inc.
Signature: /s/ Daniel McGillivray Signature: /s/ Gary Wang
------------------------- ------------------
Name: Daniel McGillivray Name: Gary Wang
------------------------------ -----------------------
Title: Vice President Title: Vice President
----------------------------- ----------------------
Date: 9/1/98 Date: 9/18/98
------------------------------ -----------------------
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SCHEDULE A
TERRITORY
Territory:
1. Taiwan, R.O.C.: nonexclusive distributor
2. China: exclusive distributor
3. Hong Kong: exclusive distributor
4. Australia: exclusive distributor
Initials:
EST: _______________________ Microtek __________________________
<PAGE>
SCHEDULE B
PRODUCTS
Products: (Exclusive for Term of this Agreement)
1. ALL PRODUCTS DEVELOPED, MANUFACTURED AND THE OWNERSHIP RIGHTS TO WHICH
ARE THE PROPERTY OF EST.
2.
3.
4.
5.
6.
Initials:
EST: _______________________ Microtek __________________________
<PAGE>
SCHEDULE C
Discount Schedule
This schedule is based on US Dollars sent to EST, net of commissions, in
any given calendar quarter.
Sales Volume US Dollars Discount Percentage
----------------------- -------------------
30%
35%
$0 and Above 40%
Initials:
EST: _____________________ Microtek ________________________
<PAGE>
Exhibit 10.35
EST DISTRIBUTOR AGREEMENT
This Agreement is entered into this 1st day of April 1998 between Embedded
Support Tools Corp., a corporation duly organized under the laws of the
Commonwealth of Massachusetts, and having its principal place of business at 120
Royall Street, Canton, Massachusetts 02021, USA, ("EST"), MICROTASK, a
corporation duly organized under the laws of Italy, with its principal place of
business at Plazza Virgilio, 3, 20123 MILANO, Italy ("Distributor"). IN
CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES HEREIN CONTAINED, THE PARTIES
HERETO AGREE AS FOLLOWS:
1. APPOINTMENT AND ACCEPTANCE
EST hereby appoints Distributor and Distributor hereby accepts appointment as a
non-exclusive distributor for the sale of EST hardware products and for the sale
of licenses and support services for the EST software products, in executable
form, specified in the attached Schedule B ("Products") to end-users located
within and for installation only within the geographical area specified in the
attached Schedule A ("Territory"). Additional EST products (including new
versions of the Products) may be included under this Agreement by the mutual
written consent of the parties in the form of an amendment to this Agreement.
EST reserves the right to delete any Product from this list of which
development, production, licensing or maintenance is discontinued by EST.
2. DISTRIBUTION RIGHTS
A. No Software Product shall be distributed to an end-user by Distributor, if
the Product is designated a shrink-wrapped product by EST, until (i) the
end-user executes an EST Software License Agreement, which identifies EST
as the licenser and the end-user as the licensee, or (ii) the Product is
packaged with an EST Software License Agreement, the terms and conditions
of which the end-user agrees to comply with by opening the shrink-wrap
package containing this same Agreement.
B. The EST Software License Agreement is attached to, and made part of this
Agreement as Schedule D. Any modification, deletion or change Distributor
desires to make in any particular licensing transaction shall require the
prior written approval of EST. EST reserves the right to change any of the
terms and conditions of the attached EST Software License Agreement, or its
licensing procedures, provided Distributor is given thirty (30) calendar
days prior written notice of any such changes.
C. All orders submitted to EST by Distributor are subject to approval and
acceptance by EST in its sole discretion. Such approval shall not be
unreasonably withheld.
<PAGE>
D. All shipments shall be made F.O.B. origin to Distributor at, Plazza
Virgilio, 3, 20123 MILANO, Italy, or to a forwarding agent as may be
specified on orders received from Distributor. It is the responsibility of
Distributor to ship the Product to the applicable end-user.
E. Nothing in this Agreement shall be construed as a grant to Distributor of
any right, title or interest in and to copyrights, patents or trade secrets
of the Products, all rights related thereto being reserved by EST.
F. Except for copying as may be specifically provided by Schedule E,
Distributor will not copy, in whole or in part, or modify, alter, reverse
engineer, decompile or disassemble any Product furnished Distributor,
without prior written consent of EST. Such consent shall not be
unreasonably withheld.
G. In the event that copying is authorized by Schedule E for the purpose of
making deliveries to Distributor's customers, Distributor shall reproduce
and include EST copyright notice both in and on every copy made, in any
form, including partial copies. Distributor agrees to keep a record of
every copy made and to furnish such record to EST upon its request.
H. Distributor is hereby granted a non-exclusive, non-transferable right to
use as selling aids in the Territory, during the life of this Agreement,
the trademarks identifying the Products. Distributor shall not sublicense
or otherwise permit the use of said trademarks by other parties. All rights
in said trademarks shall, at all times during the life of this Agreement
and thereafter, be and remain the sole property of EST and good will and
other benefits associated therewith are hereby assigned and shall inure to
the benefit of EST. Distributor shall not use said trademarks in any manner
which would injure or destroy their value or diminish EST's property rights
therein. Distributor shall promptly notify EST of any infringement or
suspected infringement of said trademarks that may come to Distributor's
attention and assist EST, at EST's expense, in taking action against such
infringement as EST, in its sole discretion, may decide.
I. Distributor is hereby granted the right to translate into Italian and
publish any of the technical or sales promotional materials for use in
promoting EST products in Italy. Distributor will retain sole rights to
such material.
3. OBLIGATIONS OF DISTRIBUTOR
Distributor shall:
A. Submit to EST, if requested by EST, a marketing plan for the Products to be
distributed, including a twelve (12) month forecast of sales revenue
anticipated for these products.
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<PAGE>
B. Provide its best efforts to promote the licensing of and support services
for the Products within the Territory in accordance with terms and
conditions determined by EST, and provide evidence of such efforts if
requested to do so by EST.
C. Employ, on an on-going basis, a fully trained and competent sales and
technical support organization sufficient to meet Distributor's obligations
hereunder and to have such personnel complete, at Distributor's expense,
any training deemed necessary by EST to meet this requirement.
D. Maintain adequate person-power and facilities to ensure prompt handling of
inquiries, orders, shipments and support services as described by Section
13 below to end-users of the Products in the Territory.
E. Assign a specific contact at the office of Distributor who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
F. In the conduct of its business under this Agreement, comply with all
applicable laws, regulations and orders in the Territory and shall not take
any action which will cause EST to be in violation of any such law,
regulation or order in the Territory or the United States including, but
not limited to the US Foreign Corrupt Practices Act, the US Export
Administration Regulations and the US Anti-Boycott Laws.
G. Not without prior written consent of EST, appoint any sub-representatives,
agents, sub-distributors or dealers to carry out any of the activities
covered by this Agreement.
H. Assume all responsibility for delivery of the Products to end-users in the
Territory, including shipping and like costs, taxes, compliance with and
expense of any import legalities and duties.
I. Bear exclusively all responsibility toward its employees imposed by
legislation within the Territory and shall hold EST harmless from and
indemnify EST against any and all claims by any such employee against EST
for payment of commissions, salaries, expenses, termination indemnities or
any other amounts payable under such legislation.
J. Maintain EST product line as an exclusive solution on EST processor
coverage of ColdFire and PowerPC.
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<PAGE>
4. OBLIGATIONS OF EST
EST shall:
A. Furnish reasonable quantities of promotional literature at no charge to
Distributor. Additional quantities shall be available at cost.
B. Promptly advise Distributor when Products are shipped.
C. Assign a specific contact at EST in Canton, MA, USA who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
D. Immediately upon receipt of a purchase order from the Distributor, will
confirm acceptance of the order and advise Distributor of expected shipping
date.
5. CHARGES AND PAYMENTS
A. Fees/Prices for the Products to be supplied to Distributor for unbundled
distribution by Distributor are in accordance with the EST Price List, for
the applicable product line, then in effect at the time of receipt of the
order by EST, minus the discount set forth in Schedule C. Fees/Prices for
bundled distribution, if applicable, are set forth in Exhibit E. Discounted
fees/prices are due and payable within sixty days (60) calendar days of
shipment of the Product(s) to Distributor. In case of non respect of these
payments terms for any reasons at any time, payments terms will be
automatically reduced to thirty days (30) until termination of the
contract. Fees under the bundled pricing arrangement are due as specified
in Exhibit E. All payments are due when specified, regardless of whether or
not Distributor has received payment from the end-user. All payments are to
be made in United States Dollars on drafts payable at a US bank to:
Accounts Receivable
Embedded Support Tools Corp.
120 Royall Street
Canton, MA 02021, USA
or wired directly to a bank designated by EST for credit to an EST account
at such bank.
B. EST reserves the right to change any fee/price set forth in the EST Price
List, provided Distributor is given sixty (60) calendar days prior written
notice. EST reserves the right to increase fees for bundled pricing upon
sixty (60) days written notice in the event there is a material increase in
EST price list or upon renewal of this agreement.
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<PAGE>
C. Distributor shall pay or promptly reimburse EST for all property, sales,
use and other taxes or duties imposed on EST with respect to this Agreement
and payments made hereunder, including any withholding taxes withheld on
payments made to EST hereunder, but excluding taxes based on EST net
income.
D. Distributor shall cause true and accurate books of account and records
relating to the Products to be kept in such detail as to enable EST to
ascertain what fees are due hereunder, and all such books and records shall
be open to inspection and audit by EST or its duly authorized
representatives at all reasonable times during regular business hours, but
not more than twice in any single calendar year. In the event such audit
discloses any breach of this Agreement, Distributor shall pay the full cost
of the audit, in addition to other damages and rights available to EST as
the result of such breach.
E. For each end-user under a support services agreement, Distributor agrees to
pay to EST the applicable annual fee specified in EST's Support Price List
then in effect, minus the discount set forth in Schedule C. Said fees are
due and payable by Distributor within same payment terms than products from
the acceptance of a support services contract from the end-user.
6. TERM
This Agreement shall enter into effect on the date set forth above and shall
have an initial term of one year (365 days) from such date. Said initial term
shall be automatically renewed for successive terms of one year (365 days) each,
unless either party notifies the other in writing at least sixty (60) calendar
days prior to the date of expiration of the term in effect, of its election that
the Agreement not be renewed. This Agreement shall be interpreted as a definite
term Agreement.
7. TERMINATION
Either party may terminate this Agreement upon written notice if the other party
breaches any of its basic obligations hereunder and fails to cure such breach
within thirty (30) calendar days from the date of written notice given by the
other party identifying such breach.
Either party may terminate this Agreement immediately upon written notice if the
other party (i) becomes bankrupt or insolvent, or files a petition therefor;
(ii) makes an assignment for the benefit of its creditors; (iii) enters
proceedings for winding up or dissolution; (iv) is dissolved; (v) is
nationalized or is subject to the expropriation of all or substantially all of
its business or assets. EST may terminate this Agreement upon written notice in
the event that Distributor changes ownership either by sale, acquisition, merger
or other reason.
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<PAGE>
8. CONSEQUENCES OF TERMINATION
Upon the termination of this Agreement: (i) all orders submitted by Distributor
and not accepted by EST on or before the date of termination shall be canceled
or accepted at the sole option of EST; (ii) Distributor shall return all lists,
catalogs, samples, and promotional literature and Products furnished to it by
EST and any and all copies thereof; and (iii) EST shall not be liable to
Distributor for, and Distributor hereby expressly waives any claims for, extra-
contractual compensation or damages of any kind whatsoever in connection with
this agreement or its termination, expiration or modification, whether on
account of the loss by Distributor of anticipated profits or of expenditures,
investments or commitments made in connection with the establishment,
development or maintenance of Distributor's business or for any cause
whatsoever. Sections 3I, 5, 8, 10, 11, 14, 15, and 16 shall survive the
termination, expiration or cancellation of this agreement.
9. NOTICES
All communication between parties shall be made by facsimile, telex, cable, or
regular airmail. Notices concerning termination or alleged breaches hereof
shall be made by registered mail, return receipt requested. Notices are to be
addressed to:
EST:
- ---
President
Embedded Support Tools Corp.
120 Royall Street
Canton, MA 02021, USA.,
MICROTASK:
- ---------
President
Microtask
Plazza Virgilio, 3
20123 MILANO
Italy
10. CONFIDENTIALITY
Distributor understands and recognizes the confidential and proprietary nature
of the Products and related business and technical information which may be
furnished from time to time to Distributor by EST under this Agreement. Except
that Distributor may ship Products to licensed end-users as provided by Section
3 above, Distributor shall not disclose, provide or otherwise make available the
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<PAGE>
Products or related information to any person other than Distributor employees
who have a need to know, without EST prior written consent, and shall use the
same only for purposes consistent with this Agreement. Distributor agrees to
take all the necessary steps to safeguard the proprietary and confidential
nature of the Products and related information and to ensure that no
unauthorized person has access to the Products and related information and that
no unauthorized copy, in whole or part, in any form, is made. Distributor
further agrees, at EST request, to assist EST in protecting the same against
unlawful appropriation by third parties.
The obligations of this Article do not apply to information that has become part
of the public domain through no fault of Distributor.
11. WARRANTIES
The only warranties which shall be granted by EST with respect to the Products
licensed to end-users within and for installation in the Territory, shall be
those expressly set forth in the EST Software License Agreements, Hardware
Product Users' Manual and Schedule F of this Agreement. IN NO EVENT SHALL ANY
SUCH WARRANTIES OR ANY WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION, WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE
BE DEEMED TO HAVE BEEN EXTENDED TO DISTRIBUTOR.
12. PATENT AND COPYRIGHT INDEMNIFICATIONS
EST will defend at its own expense any action brought against Distributor to the
extent it is based on a claim that an unmodified Product used by an end-user
within the scope of the EST Software License Agreement infringes a United States
patent or copyright. EST will pay any costs, damages and attorney fees finally
awarded against Distributor in such action which are attributable to such claim
provided EST is given prompt written notice of the claim, information,
assistance, and authority over the control of the defense and/or settlement of
the same. In the event that the Product becomes or, in EST opinion, is likely
to become the subject of a claim if infringement, EST may, at its option, secure
Distributor's and any licensed end-users' right to continue using the Product,
replace or modify the Product to make it non-infringing or remove the Product
and refund the license fee paid by Distributor thereof as depreciated or
amortized over the lifetime of the Product as established by EST in its sole
discretion. EST shall have no liability for any claim or patent copyright
infringement based upon the use of a combination of the Product with programs or
data not supplied by EST where the Product alone would not constitute an
infringement. THE FOREGOING STATES THE ENTIRE LIABILITY OF EST WITH RESPECT TO
INFRINGEMENT OF ANY COPYRIGHTS OR PATENTS OR OTHER PROPRIETARY RIGHTS BY THE
PRODUCTS OR ANY PART THEREOF.
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<PAGE>
13. SUPPORT SERVICES
A. EST shall provide Distributor support services which are equivalent to
those normally provided to EST's end-user customers for the Products as
follows:
1. EST will use its reasonable efforts to correct deviations from the
Products' published specifications current at the time of shipment to
Distributor, within reasonable time of written notification from
Distributor of the deviation, such notification to include the
specific version number and parts list number of the Product that
showed the deviation and a complete and accurate description of the
deviation.
2. EST will provide Distributor updates, enhancements and documentation
of known deviations to the Products as generally made available by EST
to its customers under support services agreements with EST.
3. EST will provide Distributor with reasonable telephone consultations
regarding the use and functionality of the Products.
B. Distributor agrees that it will provide support services for the Products
to its licensed end-users in accordance with EST's standard practices as
set forth in Section 13A above, provided that the end-user has entered into
a support services agreement with Distributor. In no event shall
Distributor distribute support services provided by EST to an end-user who
is not under a support services agreement with Distributor and for which
Distributor has not paid EST a support services fee.
C. EST will make its best effort to enable Distributor to carry out local
repairs to EST hardware products including in-warranty repairs. This will
include the supply by EST, at reasonable cost, of critical parts to enable
Distributor to maintain a local inventory. EST agrees to reimburse
Distributor for any parts used for in-warranty repairs. In the event that
it is agreed that a hardware product should be returned to EST for repair
or replacement, EST will make all reasonable effort to carry out the repair
or send a replacement within (3) weeks of receiving the returned unit at
its place of business in the USA.
D. All communication from EST, including manuals and technical support
documents, shall be in English.
E. Distributor shall provide the first line of support to its customers such
as installation and operation assistance. For support issues requiring the
assistance of EST, Distributor shall use the standard EST procedure and
forms then in effect for documenting and communicating the support issues
to EST.
-8-
<PAGE>
F. EST shall have no obligation under this Section 13 to provide support
services for Product(s) altered or modified without EST prior written
consent; problems resulting from equipment malfunction or created by causes
within Distributor's or its owner's control; and, at EST option, Product(s)
that have been superseded by a new release for more than six (6) months.
G. Distributor shall, on a quarterly basis, provide EST with a record of all
end-users to which Distributor is providing support services.
H. Distributor will grant EST, reasonable access to any unique software,
equipment or information required by EST in carrying out its obligations
under Section 13A.
14. GOVERNING LAW
The laws of the Commonwealth of Massachusetts, United States of America shall
apply to any interpretation of the terms and conditions of this Agreement.
15. LIMITATION OF LIABILITY
DISTRIBUTOR AGREES THAT EST's LIABILITY, IF ANY, IN ANY ACTION REGARDLESS OF
FORM SHALL NOT EXCEED THE PAYMENTS MADE HEREUNDER BY DISTRIBUTOR TO EST. IN NO
EVENT SHALL EST BE LIABLE FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR CLAIMS BY
THIRD PARTIES.
DISTRIBUTOR AGREES TO INDEMNIFY AND HOLD EST HARMLESS FROM AND AGAINST ANY SUIT,
CLAIM, EXPENSE, LOSS OR LIABILITY (INCLUDING BUT NOT LIMITED TO COUNSEL FEES AND
EXPENSE) ARISING FROM THE ACT, OMISSION OR NEGLIGENCE OF DISTRIBUTOR.
16. FOREIGN RESHIPMENT LIABILITY
This Agreement is made subject to any laws, regulations, orders or other
restrictions on export from the United States of America of controlled
commodities, technical data or information about such commodities or data, which
may be imposed from time to time by the Government of the United States of
America. Distributor will not export, directly or indirectly, any of the
Products or information pertaining thereto to any country for which the
Government of the United States or any agency thereof requires an export license
or other government approval or written assurance at the time of export without
first obtaining such license, approval or assurance and shall indemnify EST for
any failure to do so.
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<PAGE>
17. FORCE MAJEURE
EST will incur no liability arising out of any delay in delivery or non-delivery
of any Products or Support Services due to a force majeure. A force majeure is
defined as any circumstances beyond the reasonable control of EST including, but
not limited to, fire, floods, earthquakes, fuel shortages, acts of nature, war,
or acts of any Government.
18. DISPUTES
Any controversy or claim out of or pertaining to this Agreement or breach
thereof shall be resolved by arbitration in accordance with the rules of the
American Arbitration Association, then in effect, at the office of the American
Arbitration Association located closest to EST's corporate address, and the
decision rendered by the American Arbitration Association shall be final and
binding upon both parties and judgment upon such decision may be entered in any
court of competent jurisdiction. Neither party shall be precluded hereby from
seeking provisional remedies in the courts of any jurisdiction, including but
not limited to temporary restraining orders and preliminary injunctions to
protect its right and interest, but such shall not be sought as a means to avoid
or stay any arbitration. Neither party shall institute a proceeding hereunder
unless, at least thirty (30) calendar days prior thereto, such party shall have
provided to the other party written notice of its intent to do so and the
grounds therefor.
19. ASSIGNMENT
Distributor shall not assign or transfer this Agreement or any of its rights or
obligations hereunder, including assignment or transfer to a successor Company,
without the prior written consent of EST. EST may assign, transfer or delegate
any of its rights or obligations hereunder to any affiliated or subsidiary
company of EST or any company acquiring all or substantially all of the assets
of Embedded Support Tools Corp.
20. WAIVER
A waiver of any breach or acceptance of any order inconsistent with the terms of
this Agreement, or the making of deliveries pursuant to such order, shall effect
no modification of this Agreement. No waiver of any provision of this Agreement
shall be effective unless made in writing. Any waiver of any breach of any
provision of this Agreement shall not constitute a waiver of any subsequent
breach of the same of any other provision of the Agreement.
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<PAGE>
21. SEVERABILITY
In the event that any provision of this Agreement is declared invalid or becomes
unlawful in its operation, such provision shall be deemed to be omitted and
shall not affect that validity or enforceability of any of the other provisions.
22. RELATIONSHIP
Distributor shall perform its work as an independent contractor and not as an
employee, agent, or partner of EST. Distributor shall have no right or
authority to enter into any contracts in the name of, or for the account of EST,
nor to assume or create any obligation or liability of any kind, expressed or
implied, on behalf of EST, and shall not take any action which has the effect of
creating the appearance of its having such authority.
23. ENTIRE AGREEMENT
This Agreement, including the attached Schedules A, B, and C, contains the
entire Agreement of the parties hereto. No verbal or oral statements or
representations by either party shall in any way modify, add to, delete or
otherwise amend this Agreement. This Agreement may be changed only by a writing
signed by authorized representatives of the parties here
Agreed to by:
Embedded Support Tools Corp. Microtask
Signature: /s/ Nicholas Lossky Signature: /s/ Marco Cavallaro
------------------------ -----------------------
Name: Nicholas Lossky Name: Marco Cavallaro
----------------------------- ----------------------------
Title: European Sales Mgr. Title: General Manager
---------------------------- ---------------------------
Date: August 31/st/ 1998 Date: 01 April 1998
----------------------------- ----------------------------
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<PAGE>
SCHEDULE A
TERRITORY
Territory:
1. ITALY with exclusions explained below.
Exclusions: Due to some existing global and direct agreements that EST has with
Alcatel Italy (Milan/Chieti) and Marconi Group (Genova/...), these companies are
excluded from Microtask territory and are considered as EST direct customers.
This agreement does not apply to these accounts. These exclusions might be
renegotiated for next fiscal year (starting 01/01/1999) depending on Microtask
global activity.
Initials:
EST:______________________ Microtask: /s/ Marco Cavallaro
-------------------
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<PAGE>
SCHEDULE B
PRODUCTS
Products: (Non-Exclusive for Term of this Agreement)
1. ALL PRODUCTS DEVELOPED, MANUFACTURED AND THE OWNERSHIP RIGHTS TO WHICH
ARE THE PROPERTY OF EST.
Initials:
EST:______________________ Microtask: /s/ Marco Cavallaro
-------------------
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<PAGE>
SCHEDULE C
DISTRIBUTOR DISCOUNTS FOR
PRODUCTS AND SUPPORT SERVICES
1. Distributor Discount for Products
---------------------------------
EST grants to the Distributor a discount off the International Price List
(IPL) of Thirty percent (30%). All prices billed to the Distributor by EST
shall be those in effect when the Distributor places the order, regardless
of the selling price quoted by the Distributor to the end-user.
2. Distributor Discount for Support Services
-----------------------------------------
Distributor will receive a 30% discount on all standard EST's Support
Services Contracts sold during the period of this contract. Support
Services Contract prices are calculated in accordance with the current EST
price list (IPL) in effect when the Distributor places the order.
3. Rate Modification after 6 months
--------------------------------
Six months from the commencement of this agreement, EST agrees to review
the sales performance of Microtask under this agreement and if, in the
opinion of EST, the performance has equaled or exceeded EST's expectations
EST will notify Microtask and the discount rate will be increased to 35%.
This review could be effective on 1st September 1998, if the total amount
of orders processed by EST since the beginning of the agreement reach 50k$.
Initials:
EST:________________________ Microtask: /s/ Marco Cavallaro
-------------------
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<PAGE>
Exhibit 10.36
EST DISTRIBUTOR AGREEMENT
This Agreement is entered into this _____ day of _____________, 2000 between
Embedded Support Tools Corp., a corporation duly organized under the laws of the
Commonwealth of Massachusetts, and having its principal place of business at 120
Royall Street, Canton, Massachusetts 02021, USA ("EST"), and New Level Telecom,
a corporation duly organized under the laws of Korea, with its principal place
of business at 4 floor, Donghwa Building, 349-24, ShinDaebang-dong, Dongjak-gu,
Seoul, Korea ("Distributor").
IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES HEREIN CONTAINED, THE
PARTIES HERETO AGREE AS FOLLOWS:
1. APPOINTMENT AND ACCEPTANCE
EST hereby appoints Distributor and Distributor hereby accepts appointment as a
nonexclusive distributor for the sale of EST hardware products, and for the sale
of licenses and support services for the EST software products, in executable
form, specified in the attached Schedule B ("Products") to end-users located
within and for installation only within the geographical area specified in the
attached Schedule A ("Territory"). Additional EST products (including new
versions of the Products) may be included under this Agreement by the mutual
written consent of the parties in the form of an amendment to this Agreement.
EST reserves the right to delete any Product from this list of which
development, production, licensing or maintenance is discontinued by EST.
2. DISTRIBUTION RIGHTS
A. No Software Product shall be distributed to an end-user by Distributor, if
the Product is designated a shrink-wrapped product by EST, until (i) the
end-user executes an EST Software License Agreement, which identifies EST
as the licensor and the end-user as the licensee, or (ii) the Product is
packaged with an EST Software License Agreement, the terms and conditions
of which the end-user agrees to comply with by opening the shrink-wrap
package containing this same Agreement.
B. The EST Software License Agreement is attached to, and made part of this
Agreement as Schedule D. Any modification, deletion or change Distributor
desires to make in any particular licensing transaction shall require the
prior written approval of EST. EST reserves the right to change any of the
terms and conditions of the attached EST Software License Agreement, or its
licensing procedures, provided Distributor is given thirty (30) calendar
days" prior written notice of any such changes.
<PAGE>
C. All orders submitted to EST by Distributor are subject to approval and
acceptance by EST in its sole discretion. Such approval shall not be
unreasonably withheld.
D. All shipments shall be made F.O.B. origin to Distributor at the above
address or to a forwarding agent as may be specified on orders received
from Distributor. It is the responsibility of Distributor to ship the
Product to the applicable end-user.
E. Nothing in this Agreement shall be construed as a grant to Distributor of
any right, title or interest in and to copyrights, patents or trade secrets
of the Products, all rights related thereto being reserved by EST.
F. Except for copying as may be specifically provided by Schedule E,
Distributor will not copy, in whole or in part, or modify, alter, reverse
engineer, decompile or disassemble any Product furnished Distributor,
without prior written consent of EST. Such consent shall not be
unreasonably withheld.
G. In the event that copying is authorized by Schedule E for the purpose of
making deliveries to Distributor"s customers, Distributor shall reproduce
and include EST copyright notice both in and on every copy made, in any
form, including partial copies. Distributor agrees to keep a record of
every copy made and to furnish such record to EST upon its request.
H. Distributor is hereby granted a non-exclusive, non-transferable right to
use as selling aids in the Territory, during the life of this Agreement,
the trademarks identifying the Products. Distributor shall not sublicense
or otherwise permit the use of said trademarks by other parties. All
rights in said trademarks shall, at all times during the life of this
Agreement and thereafter, be and remain the sole property of EST and
goodwill and other benefits associated therewith are hereby assigned and
shall inure to the benefit of EST. Distributor shall not use said
trademarks in any manner which would injure or destroy their value or
diminish EST"s property rights therein. Distributor shall promptly notify
EST of any infringement or suspected infringement of said trademarks that
may come to Distributor"s attention and assist EST, at EST"s expense, in
taking action against such infringement as EST, in its sole discretion, may
decide.
I. Distributor is hereby granted the right to translate into Chinese and
publish any of the technical or sales promotional materials for use in
promoting EST products in Korea. Distributor will retain sole rights to
such material.
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<PAGE>
3. OBLIGATIONS OF DISTRIBUTOR
Distributor shall:
A. Submit to EST, if requested by EST* a marketing plan for the Products to be
distributed, including a twelve (12) month forecast of sales revenue
anticipated for these products.
B. Provide its best efforts to promote the licensing of and support services
for the Products within the Territory in accordance with terms and
conditions determined by EST, and provide evidence of such efforts if
requested to do so by EST.
C. Employ, on an ongoing basis, a fully trained and competent sales and
technical support organization sufficient to meet Distributor"s obligations
hereunder and to have such personnel complete, at Distributor"s expense,
any training deemed necessary by EST to meet this requirement.
D. Maintain adequate person-power and facilities to ensure prompt handling of
inquiries, orders, shipments and support services as described by Section
13 below to end-users of the Products in the Territory.
E. Assign a specific contact at the office of Distributor who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
F. In the conduct of its business under this Agreement, comply with all
applicable laws, regulations and orders in the Territory and shall not take
any action which will cause EST to be in violation of any such law,
regulation or order in the Territory or the United States including, but
not limited to the US Foreign Corrupt Practices Act, the US Export
Administration Regulations and the US Anti-Boycott Laws.
G. Not without prior written consent of EST, appoint any subrepresentatives,
agents, sub-distributors or dealers to carry out of any of the activities
covered by this Agreement.
H. Assume all responsibility for delivery of the Products to end-users in the
Territory, including shipping and like costs, taxes, compliance with and
expense of any import legalities and duties.
I. Bear exclusively all responsibility toward its employees imposed by
legislation within the Territory and shall hold EST harmless from and
indemnify EST against any and all claims by any such employee against EST
for payment of commissions, salaries, expenses, termination indemnities or
any other amounts payable under such legislation.
* Less than
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<PAGE>
4. OBLIGATIONS OF EST
EST shall:
A. Furnish reasonable quantities of promotional literature at no charge to
Distributor. Additional quantities shall be available at cost.
B. Promptly advise Distributor when Products are shipped.
C. Assign a specific contact at EST in Canton, MA, USA who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
5. CHARGES AND PAYMENTS
A. Fees/Prices for the Products to be supplied to Distributor for unbundled
distribution by Distributor are in accordance with the EST Price List, for
the applicable product line, then in effect at the time of receipt of the
order by EST, minus the discount set forth in Schedule C. Fees/Prices for
bundled distribution, if applicable, are set forth in Exhibit E.
Discounted fees/prices are due and payable within thirty (30) calendar days
of shipment of the Product(s) to Distributor. Fees under the bundled
pricing arrangement are due as specified in Exhibit E. All payments are
due when specified, regardless of whether or not Distributor has received
payment from the end-user. All payments are to be made in United States
Dollars on drafts payable at a US bank to:
Accounts Receivable
Embedded Support Tools Corp.
120 Royall Street
Canton, MA 02021
or wired directly to a bank designated by EST for credit to an EST account
at such bank.
B. EST reserves the right to change any fee/price set forth in the EST Price
List, provided Distributor is given sixty (60) calendar days" prior written
notice. EST reserves the right to increase fees for bundled pricing upon
sixty (60) days" written notice in the event there is a material increase
in the EST Price List or upon renewal of this Agreement. Distributor shall
pay or promptly reimburse EST for all property, sales, use and other taxes
or duties imposed on EST with respect to this Agreement and payments made
hereunder, including any withholding taxes withheld on payments made to EST
hereunder, but excluding taxes based on EST net income.
-4-
<PAGE>
C. Distributor shall cause true and accurate books of account and records
relating to the Products to be kept in such detail as to enable EST to
ascertain what fees are due hereunder, and all such books and records shall
be open to inspection and audit by EST or its duly authorized
representatives at all reasonable times during regular business hours, but
not more than twice in any single calendar year. In the event such audit
discloses any breach of this Agreement, Distributor shall pay the full cost
of the audit, in addition to other damages and rights available to EST as
the result of such breach.
D. For each end-user under a support services agreement, Distributor agrees to
pay to EST the applicable annual fee specified in EST"s Support Price List
then in effect, minus the discount set forth in Schedule C. Said fees are
due and payable by Distributor within thirty (30) calendar days from the
acceptance of a support services contract from the end-user.
6. TERM
This Agreement shall enter into effect on the date set forth above and shall
have an initial term of one year (365 days) from such date. Said initial term
shall be automatically renewed for successive terms of one year (365 days) each,
unless either party notifies the other in writing at least sixty (60) calendar
days prior to the date of expiration of the term in effect, of its election that
the Agreement not be renewed. This Agreement shall be interpreted as a definite
term Agreement.
7. TERMINATION
Either party may terminate this Agreement at any time after the initial term by
giving sixty (60) calendar days" prior written notice to the other party.
Either party may terminate this Agreement upon written notice if the other party
breaches any of its basic obligations hereunder and fails to cure such breach
within thirty (30) calendar days from the date of written notice if the other
party (i) becomes bankrupt or insolvent, or files a petition therefor; (ii)
makes an assignment for the benefit of its creditors; (iii) enters proceedings
for winding up or dissolution; (iv) is dissolved; (v) is nationalized or is
subject to the expropriation of all or substantially all of its business or
assets. EST may terminate this Agreement upon written notice in the event that
Distributor changes ownership either by sale, acquisition, merger or other
reason.
8. CONSEQUENCES OF TERMINATION
Upon the termination of this Agreement: (i) all orders submitted by Distributor
and not accepted by EST on or before the date of termination shall be canceled
or accepted at the sole option of EST; (ii) Distributor shall return all lists,
catalogs, samples, and promotional literature and Products furnished to it by
EST and any
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<PAGE>
and all copies thereof; and (iii) EST shall not be liable to Distributor for,
and Distributor hereby expressly waives any claims for, extracontractual
compensation or damages of any kind whatsoever in connection with this Agreement
or its termination, expiration or modification, whether on account of the loss
by Distributor of anticipated profits or of expenditures, investments or
commitments made in connection with the establishment, development or
maintenance of Distributor"s business or for any cause whatsoever. Sections 3I,
5, 8, 10, 11, 14, 15 and 16 shall survive the termination, expiration or
cancellation of this Agreement.
9. NOTICES
All communication between parties shall be made by facsimile, telex, cable, or
regular airmail. Notices concerning termination or alleged breaches hereof
shall be made by registered mail, return receipt requested. Notices are to be
addressed to:
EST: Distributor:
President President
Embedded Support Tools Corp. NEW Level Telecom Co., Ltd.
120 Royall Street 4 Floor Donghwa BD, 349-24
Canton, MA 02021 SinDaebang-dong, Dongjak-gu
USA Seoul, 156-012 Korea
10. CONFIDENTIALITY
Distributor understands and recognizes the confidential and proprietary nature
of the Products and related business and technical information which may be
furnished from time to time to Distributor by EST under this Agreement. Except
that Distributor may ship Products to licensed end-users as provided by Section
3 above, Distributor shall not disclose, provide or otherwise make available the
Products or related information to any person other than Distributor employees
who have a need to know, without EST"s prior written consent, and shall use the
same only for purposes consistent with this Agreement. Distributor agrees to
take all the necessary steps to safeguard the proprietary and confidential
nature of the Products and related information and to ensure that no
unauthorized person has access to the Products and related information and that
no unauthorized copy, in whole or part, in any form, is made. Distributor
further agrees, at EST"s request, to assist EST in protecting the same against
unlawful appropriation by third parties. The obligations of this Article do not
apply to information that has become part of the public domain through no fault
of Distributor.
11. WARRANTIES
The only warranties which shall be granted by EST with respect to the Products
licensed to end-users within and for installation in the Territory, shall be
those
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<PAGE>
expressly set forth in the EST Software License Agreements, Hardware Product
Users" Manual and Schedule F of this Agreement. IN NO EVENT SHALL NAY SUCH
WARRANTIES OR ANY WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION,
WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE BE DEEMED TO
HAVE BEEN EXTENDED TO DISTRIBUTOR.
12. PATENT AND COPYRIGHT INDEMNIFICATIONS
EST will defend at its own expense any action brought against Distributor to the
extent it is based on a claim that an unmodified Product used by an end-user
within the scope of the EST Software License Agreement infringes a United States
patent or copyright. EST will pay any costs, damages and attorney fees finally
awarded against Distributor in such action which are attributable to such claim
provided EST is given prompt written notice of the claim, information,
assistance, and authority over the control of the defense and/or settlement of
the same. In the event that the Product becomes or, in EST"s opinion, is likely
to become, the subject of a claim of infringement, EST may, at its option,
secure Distributor"s and any licensed end-user"s right to continue using the
Product, replace or modify the Product to make it non-infringing or remove the
Product and refund the license fee paid by Distributor thereof as depreciated or
amortized over the lifetime of the Product as established by EST in its sole
discretion. EST shall have no liability for any claim or patent copyright
infringement based upon the use of a combination of the Product with programs or
data not supplied by EST where the Product alone would not constitute an
infringement. THE FOREGOING STATES THE ENTIRE LIABILITY OF EST WITH RESPECT TO
INFRINGEMENT OF ANY COPYRIGHTS OR PATENTS OR OTHER PROPRIETARY RIGHTS BY THE
PRODUCTS OR ANY PART THEREOF.
13. SUPPORT SERVICES
A. EST shall provide Distributor support services which are equivalent to
those normally provided to EST"s end-user customers for the Products as
follows:
1. EST will use its reasonable efforts to correct deviations from the
Products" published specifications current at the time of shipment to
Distributor, within reasonable time of written notification from
Distributor of the deviation, such notification to include the
specific version number and parts list number of the Product that
showed the deviation and a complete and accurate description of the
deviation.
2. EST will provide Distributor updates, enhancements and documentation
or known deviations to the Products as generally made available by EST
to its customers under support services agreements with EST.
-7-
<PAGE>
3. EST will provide Distributor with reasonable telephone consultations
regarding the sue and functionality of the Products.
B. Distributor agrees that it will provide support services for the Products
to its licensed end-users in accordance with EST"s standard practices as
set forth in Section 13A above, provided that the end-user has entered into
a support services agreement with Distributor. In no event shall
Distributor distribute support services provided by EST to an end-user who
is not under a support services agreement with Distributor and for which
Distributor has not paid EST a support services fee.
C. EST will make its best efforts to enable Distributor to carry out local
repairs to EST hardware products including in-warranty repairs. This will
include the supply by EST, at reasonable costs, of critical parts to enable
Distributor to maintain a local inventory. EST agrees to reimburse
Distribution for any parts used for in-warranty repairs. In the event that
it is agreed that a hardware product should be returned to EST for repair
or replacement, EST will make all reasonable effort to carry out the repair
or send a replacement within four (4) weeks of receiving the returned unit
a its place of business in the USA.
D. All communication from EST, including manuals and technical support
documents, shall be in English.
E. Distributor shall provide the first line of support to its customers such
as installation and operation assistance. For support issues requiring the
assistance of EST, Distributor shall use the standard EST procedure and
forms then in effect for documenting and communicating the support issues
to EST.
F. EST shall have no obligation under Section 13 to provide support services
for Product(s) altered or modified without EST prior written consent;
problems resulting from equipment malfunction or created by causes within
Distributor"s or its owner"s control; and, at EST option, Product(s) that
have been superseded by a new release for more than six (6) months.
G. Distributor shall, on a quarterly basis, provide EST with a record of all
end-users to which Distributor is providing support services.
H. Distributor will grant EST, reasonable access to any unique software,
equipment or information required by EST in carrying out its obligations
under Section 13A.
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<PAGE>
14. GOVERNING LAW
The laws of the Commonwealth of Massachusetts, United States of America shall
apply to any interpretation of the terms and conditions of this Agreement.
15. LIMITATION OF LIABILITY
DISTRIBUTOR AGREES THAT EST"s LIABILITY, IF ANY, IN ANY ACTION REGARDLESS OF
FORM SHALL NOT EXCEED THE PAYMENTS MADE HEREUNDER BY DISTRIBUTOR TO EST. IN NO
EVENT SHALL EST BE LIABLE FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
EVEN IF ITS HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR CLAIMS BY
THIRD PARTIES. DISTRIBUTOR AGREES TO INDEMNIFY AND HOLD EST HARMLESS FROM AND
AGAINST ANY SUIT, CLAIM, EXPENSE, LOSS OR LIABILITY (INCLUDING BUT NOT LIMITED
TO COUNSEL FEES AND EXPENSE) ARISING FROM THE ACT, OMISSION OR NEGLIGENCE OF
DISTRIBUTOR.
16. FOREIGN RESHIPMENT LIABILITY
This Agreement is made subject to any laws, regulations, orders or other
restrictions on export from the United States of America of controlled
commodities, technical data or information about such commodities or data, which
may be imposed from time to time by the Government of the Untied States of
America. Distributor will not export, directly or indirectly, any of the
Products or information pertaining thereto to any country for which the
Government of the United States or any agency thereof requires an export license
or other government approval or written assurance at the time of export without
first obtaining such license, approval or assurance and shall indemnify EST for
any failure to do so.
17. FORCE MAJEURE
EST will incur no liability arising out of any delay in delivery or non-delivery
of any Products or Support Services due to a force majeure. A force majeure is
defined as any circumstances beyond the reasonable control of EST including, but
not limited to, fire, floods, earthquakes, fuel shortages, acts of nature, war,
or acts of any Government.
18. DISPUTES
Any controversy or claim out of or pertaining to this Agreement or breach
thereof shall be resolved by arbitration in accordance with the rules of the
American Arbitration Association, then in effect, at the office of the American
Arbitration Association located closest to EST"s corporate address, and the
decision rendered by the American Arbitration Association shall be final and
binding upon both parties and judgement upon such decision may be entered in any
court of competent
-9-
<PAGE>
jurisdiction. Neither party shall be precluded hereby from seeking provisional
remedies in the courts of any jurisdiction, including but not limited to
temporary restraining orders and preliminary injunctions to protect its right
and interest, but such shall not be sought as a means to avoid or stay any
arbitration. Neither party shall institute a proceeding hereunder unless, at
least thirty (30) calendar days prior thereto, such party shall have provided to
the other party written notice of its intent to do so and the grounds therefor.
19. ASSIGNMENT
Distributor shall not assign or transfer this Agreement or any of its rights or
obligations hereunder, including assignment or transfer to a successor Company,
without the prior written consent of EST. EST may assign, transfer or delegate
any of its rights or obligations hereunder to any affiliated or subsidiary
company of EST or any company acquiring all or substantially all of the assets
of Embedded Support Tools Corp.
20. WAIVER
A waiver of any breach or acceptance of any order inconsistent with the terms of
this Agreement, or the making of deliveries pursuant to such order, shall effect
no modification of this Agreement. No waiver of any provision of this Agreement
shall be effective unless made in writing. Any waiver of any breach of any
provision of this Agreement shall not constitute a waiver of any subsequent
breach of the same of any other provision of the Agreement.
21. SEVERABILITY
In the event that any provision of this Agreement is declared invalid or becomes
unlawful in its operation, such provision shall be deemed to be omitted and
shall not affect that validity or enforceability of any of the other provisions.
22. RELATIONSHIP
Distributor shall perform its work as an independent contractor and not as an
employee, agent, or partner of EST. Distributor shall have no right or
authority to enter into any contracts in the name of, or for the account of EST,
nor to assume or create any obligation or liability of any kind, expressed or
implied, on behalf of EST, and shall not take any action which has the effect of
creating the appearance of its having such authority.
23. ENTIRE AGREEMENT
This Agreement, including the attached Schedules A, B, C, D and E, contains the
entire Agreement of the parties hereto. No verbal or oral statements or
representations by either party shall in any way modify, add to, delete or
otherwise
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<PAGE>
amend this Agreement. This Agreement may be changed only a writing signed by
authorized representatives of the parties hereto.
Agreed to by:
Embedded Support Tools Corp. New Level Telecom
Signature:_____________________ Signature:________________________
Name:__________________________ Name:_____________________________
Title:___________________________ Title:____________________________
Date:___________________________ Date:_____________________________
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<PAGE>
SCHEDULE A
TERRITORY
Territory:
1. Korea
Initials:
EST:______________________ New Level Telecom __________________
<PAGE>
SCHEDULE B
PRODUCTS
Products: (Exclusive for Term of this Agreement)
2. ALL PRODUCTS DEVELOPED, MANUFACTURED AND THE OWNERSHIP RIGHTS TOO
WHICH ARE THE PROPERTY OF EST.
3.
4.
5.
6.
Initials:
EST:______________________ New Level Telecom __________________
<PAGE>
SCHEDULE C
Discount Schedule
This schedule is based on US Dollars sent to EST, net of commissions, in any
given calendar quarter.
Sales Volume US Dollars Discount Percentage
- ----------------------- -------------------
$0 and Above 30%
Initials:
EST:______________________ New Level Telecom __________________
<PAGE>
Exhibit 10.37
EST DISTRIBUTOR AGREEMENT
This Agreement is entered into this _____________ day of __________ 1998 between
Embedded Support Tools Corp., a corporation duly organized under the laws of the
Commonwealth of Massachusetts, and having its principal place of business at 120
Royall Street, Canton, Massachusetts 02021, USA, ("EST"), and DeSeCAM, a
corporation duly organized under the laws of Denmark, with its principal place
of business at Frederiksvaerksgade 23 E, DK-3400 Hilleroed, Denmark
("Distributor"). IN CONSIDERATION OF THE MUTUAL COVENANTS AND PROMISES HEREIN
CONTAINED, THE PARTIES HERETO AGREE AS FOLLOWS:
1. APPOINTMENT AND ACCEPTANCE
EST hereby appoints Distributor and Distributor hereby accepts appointment as a
non-exclusive distributor for the sale of EST hardware products, and for the
sale of licenses and support services for the EST software products, in
executable form, specified in the attached Schedule B ("Products") to end-users
located within and for installation only within the geographical area specified
in the attached Schedule A ("Territory"). Additional EST products (including new
versions of the Products) may be included under this Agreement by the mutual
written consent of the parties in the form of an amendment to this Agreement.
EST reserves the right to delete any Product from this list of which EST
discontinues development, production, licensing or maintenance.
2. DISTRIBUTION RIGHTS
A. No Software Product shall be distributed to an end-user by Distributor, if
the Product is designated a shrink-wrapped product by EST, until (i) the
end-user executes an EST Software License Agreement, which identifies EST
as the licenser and the end-user as the licensee, or (ii) the Product is
packaged with an EST Software License Agreement, the terms and conditions
of which the end-user agrees to comply with by opening the shrink-wrap
package containing this same Agreement.
B The EST Software License Agreement is attached to, and made part of this
Agreement as Schedule D. Any modification, deletion or change Distributor
desires to make in any particular licensing transaction shall require the
prior written approval of EST. EST reserves the right to change any of the
terms
1
<PAGE>
and conditions of the attached EST Software License Agreement, or its
licensing procedures, provided Distributor is given thirty (30) calendar
days prior written notice of any such changes.
C. All orders submitted to EST by Distributor are subject to approval and
acceptance by EST in its sole discretion. Such approval shall not be
unreasonably withheld.
D. All shipments shall be made F.O.B. origin to Distributor at
Frederiksvaerksgade 23 E, DK-3400 Hilleroed, Denmark, or to a forwarding
agent as may be specified on orders received from Distributor. It is the
responsibility of Distributor to ship the Product to the applicable end-
user.
E. Nothing in this Agreement shall be construed as a grant to Distributor of
any right, title or interest in and to copyrights, patents or trade secrets
of the Products, all rights related thereto being reserved by EST.
F. Except for copying as May be specifically provided by Schedule E,
Distributor will not copy, in whole or in part, or modify, after, reverse
engineer, decompile or disassemble any Product furnished Distributor,
without prior written consent of EST. Such consent shall not be
unreasonably withheld.
G. In the event that copying is authorized by Schedule E for the purpose of
making deliveries to Distributors customers, Distributor shall reproduce
and include EST copyright notice both in and on every copy made, in any
form, including partial copies. Distributor agrees to keep a record of
every copy made and to furnish such record to EST upon its request.
H Distributor is hereby granted a non-exclusive, non-transferable right to
use as selling aids in the Territory, during the life of this Agreement,
the trademarks identifying the Products. Distributor shall not sublicense
or otherwise permit the use of said trademarks by other parties. All rights
in said trademarks shall, at all times during the life of this Agreement
and thereafter, be and remain the sole property of EST and good will and
other benefits associated therewith are hereby assigned and shall inure to
the benefit of EST. Distributor shall not use said trademarks in any manner
which would injure or destroy their value or diminish EST's property rights
therein. Distributor shall promptly notify EST of any infringement or
suspected infringement of said trademarks that may come to Distributors
attention and assist EST, at EST's expense, in taking action against such
infringement as EST, in its sole discretion, may decide.
2
<PAGE>
I. Distributor is hereby granted the right to translate into Dutch and publish
any of the technical or sales promotional materials for use in promoting
EST products in The Netherlands. Distributor will retain sole rights to
such material.
3. OBLIGATIONS OF DISTRIBUTOR
Distributor shall:
A. Submit to EST, if requested by EST, a marketing plan for the Products to be
distributed, including a twelve (12) month forecast of sales revenue
anticipated for these products.
B. Provide its best efforts to promote the licensing of and support services
for the Products within the Territory in accordance with terms and
conditions determined by EST, and provide evidence of such efforts if
requested to do so by EST.
C. Employ, on an on-going basis, a fully trained and competent sales and
technical support organization sufficient to meet Distributor's obligations
hereunder and to have such personnel complete, at Distributors expense, any
training deemed necessary by EST to meet this requirement.
D. Maintain adequate person-power and facilities to ensure prompt handling of
inquiries, orders, and shipments and support services as described by
Section 13 below to end-users of the Products in the Territory.
E. Assign a specific contact at the office of Distributor who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
F. In the conduct of its business under this Agreement, comply with all
applicable laws, regulations and orders in the Territory and shall not take
any action which will cause EST to be in violation of any such law,
regulation or order in the Territory or the United States including, but
not limited to the US Foreign Corrupt Practices Act, the US Export
Administration Regulations and the US Anti-Boycott Laws.
G. Not without prior written consent of EST, appoint any sub-representatives,
agents, sub-distributors or dealers to carry out any of the activities
covered by this Agreement.
3
<PAGE>
H. Assume all responsibility for delivery of the Products to end-users in the
Territory, including shipping and like costs, taxes, compliance with and
expense of any import legalities and duties.
I. Bear exclusively all responsibility toward its employees imposed by
legislation within the Territory and shall hold EST harmless from and
indemnify EST against any and all claims by any such employee against EST
for payment of commissions, salaries, expenses, termination indemnities or
any other amounts payable under such legislation.
4. OBLIGATIONS OF EST
EST shall:
A. Furnish reasonable quantities of promotional literature at no charge to
Distributor. Additional quantities shall be available at cost.
B. Promptly advise Distributor when Products are shipped.
C Assign a specific contact at EST in Canton, MA, USA who will handle
inquiries and correspondence pertaining to this Agreement with reasonable
promptness.
D. Immediately upon receipt of a purchase order from the Distributor will
confirm acceptance of the order and advise Distributor of expected shipping
date.
5. CHARGES AND PAYMENTS
A. Fees/Prices for the Products to be supplied to Distributor for unbundled
distribution by Distributor are in accordance with the EST Price List, for
the applicable product line, then in effect at the time of receipt of the
order by EST, minus the discount set forth in Schedule C. Fees/Prices for
bundled distribution, if applicable, are set forth in Exhibit E. Discounted
fees/prices are due and payable within forty-five (45) calendar days of
shipment of the Product(s) to Distributor. Fees under the bundled pricing
arrangement are due as specified in Exhibit E. All payments are due when
specified, regardless of whether or not Distributor has received payment
from the end-user. All payments are to be made in United States Dollars on
drafts payable at a US bank to:
4
<PAGE>
Accounts Receivable
Embedded Support Tools Corp.
120 Royall Street
Canton, MA 02021, USA
or wired directly to a bank designated by EST for credit to an EST account
at such bank.
C. EST reserves the right to change any fee/price set forth in the EST Price
List, provided Distributor is given sixty (60) calendar days prior written
notice. EST reserves the right to increase fees for bundled pricing upon
sixty (60) days written notice in the event there is a material increase in
EST price list or upon renewal of this agreement.
D. Distributor shall pay or promptly reimburse EST for all property, sales,
use and other taxes or duties imposed on EST with respect to this Agreement
and payments made hereunder, including any withholding taxes withheld on
payments made to EST hereunder, but excluding taxes based on EST net
income.
E Distributor shall cause true and accurate books of account and records
relating to the Products to be kept in such detail as to enable EST to
ascertain what fees are due hereunder, and all such books and records shall
be open to inspection and audit by EST or its duly authorized
representatives at all reasonable times during regular business hours, but
not more than twice in any single calendar year. In the event such audit
discloses any breach of this Agreement, Distributor shall pay the full cost
of the audit, in addition to other damages and rights available to EST as
the result of such breach.
F. For each end-user under a support services agreement, Distributor agrees to
pay to EST the applicable annual fee specified in ESTs Support Price List
then in effect, minus the discount set forth in Schedule C. Said fees are
due and payable by Distributor within thirty (30) calendar days from the
acceptance of a support services contract from the end-user.
6. TERM
This Agreement shall enter into effect on the date set forth above and shall
have an initial term of two years (730 days) from such date. Said initial term
shall be automatically renewed for successive terms of one year (365 days) each,
unless either party notifies the other in writing at least sixty (60) calendar
days prior to the date of expiration of the term in effect, of its election that
the Agreement not be renewed. This Agreement shall be interpreted as a definite
term Agreement.
5
<PAGE>
7. TERMINATION
Either party may terminate this Agreement upon written notice if the other party
breaches any of its basic obligations hereunder and fails to cure such breach
within thirty (30) calendar days from the date of written notice given by the
other party identifying such breach.
Either party may terminate this Agreement immediately upon written notice if the
other party (i) becomes bankrupt or insolvent, or files a petition therefor,
(ii) makes an assignment for the benefit of its creditors; (iii) enters
proceedings for winding up or dissolution; (iv) is dissolved; (v) is
nationalized or is subject to the expropriation of all or substantially all of
its business or assets. EST may terminate this Agreement upon written notice in
the event that Distributor changes ownership either by sale, acquisition, merger
or other reason.
8. CONSEQUENCES OF TERMINATION
Upon the termination of this Agreement: (i) all orders submitted by Distributor
and not accepted by EST on or before the date of termination shall be canceled
or accepted at the sole option of EST; (iii) Distributor shall return all lists,
catalogs, samples, and promotional literature and Products furnished to it by
EST and any and all copies thereof; and (iii) EST shall not be liable to
Distributor for, and Distributor hereby expressly waives any claims for, extra-
contractual compensation or damages of any kind whatsoever in connection with
this agreement or its termination, expiration or modification, whether on
account of the loss by Distributor of anticipated profits or of expenditures,
investments or commitments made in connection with the establishment,
development or maintenance of Distributors business or for any cause whatsoever.
Sections 3I, 5, 8, 10, 11, 14, 15, and 16 shall survive the termination,
expiration or cancellation of this agreement.
9. NOTICES
All communication between parties shall be made by E-mail, facsimile, telex,
cable, or regular airmail. Notices concerning termination or alleged breaches
hereof shall be made by registered mail, return receipt requested. Notices are
to be addressed to:
EST:
- ----
6
<PAGE>
President
Embedded Support Tools Corp.
120 Royall Street
Canton, MA 02021, USA.
DeSeCAM:
- --------
M. Mogens Stender
DeSeCAM
Frederiksvaerksgade 23 D,
DK- 3400 Hilleroed
DENMARK
10. CONFIDENTIALITY
Distributor understands and recognizes the confidential and proprietary nature
of the Products and related business and technical information, which may be
furnished from time to time to Distributor by EST under this Agreement. Except
that Distributor may ship Products to licensed end-users as provided by Section
3 above, Distributor shall not disclose, provide or otherwise make available the
Products or related information to any person other than Distributor employees
who have a need to know, without EST prior written consent, and shall use the
same only for purposes consistent with this Agreement. Distributor agrees to
take all the necessary steps to safeguard the proprietary and confidential
nature of the Products and related information and to ensure that no
unauthorized person has access to the Products and related information and that
no unauthorized copy, in whole or part, in any form, is made. Distributor
further agrees, at EST request, to assist EST in protecting the same against
unlawful appropriation by third parties.
The obligations of this Article do not apply to information that has become part
of the public domain through no fault of Distributor.
11. WARRANTIES
The only warranties which shall be granted by EST with respect to the Products
licensed to end-users within and for installation in the Territory, shall be
those expressly set forth in the EST Software License Agreements, Hardware
Product Users' Manual and Schedule F of this Agreement. IN NO EVENT SHALL ANY
SUCH WARRANTIES OR ANY WARRANTIES, EXPRESS OR IMPLIED,
7
<PAGE>
INCLUDING WITHOUT LIMITATION, WARRANTIES OR MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE BE DEEMED TO HAVE BEEN EXTENDED TO DISTRIBUTOR.
12. PATENT AND COPYRIGHT INDEMNIFICATIONS
EST will defend at its own expense any action brought against Distributor to the
extent it is based on a claim that an unmodified Product used by an end-user
within the scope of the EST Software License Agreement infringes a United States
patent or copyright. EST will pay any costs, damages and attorney fees finally
awarded against Distributor in such action which are attributable to such claim
provided EST is given prompt written notice of the claim, information,
assistance, and authority over the control of the defense and/or settlement of
the same. In the event that the Product becomes or, in EST opinion, is likely to
become the subject of a claim of infringement, EST may, at its option, secure
Distributor's and any licensed end-users' right to continue using the Product,
replace or modify the Product to make it non-infringing or remove the Product
and refund the license fee paid by Distributor thereof as depreciated or
amortized over the lifetime of the Product as established by EST in its sole
discretion. EST shall have no liability for any claim or patent copyright
infringement based upon the use of a combination of the Product with programs or
data not supplied by EST where the Product alone would not constitute an
infringement. THE FOREGOING STATES THE ENTIRE LIABILITY OF EST WITH RESPECTS TO
INFRINGEMENT OF ANY COPYRIGHTS OR PATENTS OR OTHER PROPRIETARY RIGHTS BY THE
PRODUCTS OR ANY PART THEREOF.
13. SUPPORT SERVICES
A. EST shall provide Distributor support services, which are equivalent to
those normally provided to EST's end-user customers for the Products as
follows:
1. EST will use its reasonable efforts to correct deviations from the
Products' published specifications current at the time of shipment to
Distributor, within reasonable time of written notification from
Distributor of the deviation, such notification to include the
specific version number and parts list number of the Product that
showed the deviation and a complete and accurate description of the
deviation.
2. EST will provide Distributor updates, enhancements and documentation
of known deviations to the Products as generally made available by EST
to its customers under support services agreements with EST.
8
<PAGE>
3. EST will provide Distributor with reasonable telephone consultations
regarding the use and functionality of the Products.
B. Distributor agrees that it will provide support services for the Products
to its licensed end-users in accordance with ESTs standard practices as set
forth in Section 13A above, provided that the end user has entered into a
support services agreement with Distributor. In no event shall Distributor
distribute support services provided by EST to an end-user who is not under
a support services agreement with Distributor and for which Distributor has
not paid EST a support services fee.
C. EST will make its best effort to enable Distributor to carry out local
repairs to EST hardware products including in-warranty repairs. This will
include the supply by EST, at reasonable cost, of critical parts to enable
Distributor to maintain a local inventory. EST agrees to reimburse
Distributor for any parts used for in-warranty repairs. In the event that R
is agreed that a hardware product should be returned to EST for repair or
replacement, EST will make all reasonable effort to carry out the repair or
send a replacement within (3) weeks of receiving the returned unit at its
place of business in the USA.
D. All communication from EST, including manuals and technical support
documents, shall be in English.
E. Distributor shall provide the first line of support to its customers such
as installation and operation assistance. For support issues requiring the
assistance of EST, Distributor shall use the standard EST procedure and
forms then in effect for documenting and communicating the support issues
to EST.
F. EST shall have no obligation under this Section 13 to provide support
services for Product(s) altered or modified without EST prior written
consent; problems resulting from equipment malfunction or created by causes
within Distributors or its owner's control; and, at EST option, Product(s)
that have been superseded by a new release for more than six (6) months.
G. Distributor shall, on a quarterly basis, provide EST with a record of all
end-users to which Distributor is providing support services.
H. Distributor will grant EST, reasonable access to any unique software,
equipment or information required by EST in carrying out its obligations
under Section 13A.
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<PAGE>
14. GOVERNING LAW
The laws of the Commonwealth of Massachusetts, United States of America shall
apply to any interpretation of the terms and conditions of this Agreement.
15. LIMITATION OF LIABILITY
DISTRIBUTOR AGREES THAT EST's LIABILITY, IF ANY, IN ANY ACTION REGARDLESS OF
FORM SHALL NOT EXCEED THE PAYMENTS MADE HEREUNDER BY DISTRIBUTOR TO EST. IN NO
EVENT SHALL EST BE LIABLE FOR ANY INDIRECT, INCIDENTAL OR CONSEQUENTIAL DAMAGES
EVEN IF IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES OR FOR CLAIMS BY
THIRD PARTIES. DISTRIBUTOR AGREES TO INDEMNIFY AND HOLD EST HARMLESS FROM AND
AGAINST ANY SUIT, CLAIM, EXPENSE, LOSS OR LIABILITY (INCLUDING BUT NOT LIMITED
TO COUNSEL FEES AND EXPENSE) ARISING FROM THE ACT, OMISSION OR NEGLIGENCE OF
DISTRIBUTOR.
16. FOREIGN RESHIPMENT LIABILITY
This Agreement is made subject to any laws, regulations, orders or other
restrictions on export from the United States of America of controlled
commodities, technical data or information about such commodities or data, which
may be imposed from time to time by the Government of the United States of
America. Distributor will not export, directly or indirectly, any of the
Products or information pertaining thereto to any country for which the
Government of the United States or any agency thereof requires an export license
or other government approval or written assurance at the time of export without
first obtaining such license, approval or assurance and shall indemnify EST for
any failure to do so.
17. FORCE MAJEURE
EST will incur no liability arising out of any delay in delivery or non-delivery
of any Products or Support Services due to a force majeure. A force majeure is
defined as any circumstances beyond the reasonable control of EST including, but
not limited to, fire, floods, earthquakes, fuel shortages, acts of nature, war,
or acts of any Government.
18. DISPUTES
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<PAGE>
Any controversy or claim out of or pertaining to this Agreement or breach
thereof shall be resolved by arbitration in accordance with the rules of the
American Arbitration Association, then in effect, at the office of the American
Arbitration Association located closest to EST's corporate address, and the
decision rendered by the American Arbitration Association shall be final and
binding upon both parties and judgment upon such decision may be entered in any
court of competent jurisdiction. Neither party shall be precluded hereby from
seeking provisional remedies in the courts of any jurisdiction, including but
not limited to temporary restraining orders and preliminary injunctions to
protect its right and interest, but such shall not be sought as a means to avoid
or stay any arbitration. Neither party shall institute a proceeding hereunder
unless, at least thirty (30) calendar days prior thereto, such party shall have
provided to the other party written notice of its intent to do so and the
grounds therefor.
19. ASSIGNMENT
Distributor shall not assign or transfer this Agreement or any of its rights or
obligations hereunder, including assignment or transfer to a Successor Company,
without the prior written consent of EST. EST may assign, transfer or delegate
any of its rights or obligations hereunder to any affiliated or subsidiary
company of EST or any company acquiring all or substantially all of the assets
of Embedded Support Tools Corp.
20. WAIVER
A waiver of any breach or acceptance of any order inconsistent with the terms of
this Agreement, or the making of deliveries pursuant to such order, shall effect
no modification of this Agreement. No waiver of any provision of this Agreement
shall be effective unless made in writing. Any waiver of any breach of any
provision of this Agreement shall not constitute a waiver of any subsequent
breach of the same of any other provision of the Agreement.
21. SEVERABILITY
In the event that any provision of this Agreement is declared invalid or becomes
unlawful in its operation, such provision shall be deemed to be omitted and
shall not affect that validity or enforceability of any of the other provisions.
22. RELATIONSHIP
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Distributor shall perform its work as an independent contractor and not as an
employee, agent, or partner of EST. Distributor shall have no right or authority
to enter into any contracts in the name of, or for the account of EST, nor to
assume or create any obligation or liability of any kind, expressed or implied,
on behalf of EST, and shall not take any action which has the effect of creating
the appearance of its having such authority.
23. ENTIRE AGREEMENT
This Agreement, including the attached Schedules A, B, C, and D, contains the
entire Agreement of the parties hereto. No verbal or oral statements or
representations by either party shall in any way modify, add to, delete or
otherwise amend this Agreement. This Agreement may be changed only by a writing
signed by authorized representatives of the parties hereto.
Agreed to by:
Embedded Support Tools Corp. DeSeCAM
Signature: ___________________________ Signature: ___________________________
Name: ________________________________ Name: ________________________________
Title: _______________________________ Title: _______________________________
Date: ________________________________ Date: ________________________________
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SCHEDULE A
TERRITORY
Territory:
1. Denmark
2.
3.
Initials:
EST: _____________________ DeSeCAM: ___________________
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SCHEDULE B
PRODUCTS
Products: (Non-Exclusive for Term of this Agreement)
1. ALL PRODUCTS DEVELOPED, MANUFACTURED AND THE OWNERSHIP RIGHTS TO WHICH ARE
THE PROPERTY OF EST.
2.
3.
4.
5.
6.
Initials:
EST: ________________________ DeSeCAM: __________________________
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SCHEDULE C
DISTRIBUTOR DISCOUNTS FOR
PRODUCTS AND SUPPORT SERVICES
1. Distributor Discount for Products
---------------------------------
EST grants to the Distributor a discount off the International Price
List (IPL) of 40%. All prices billed to the Distributor by EST shall
be those in effect when the Distributor places the order, regardless
of the selling price quoted by the Distributor to the end-user.
2. Distributor Discount for Support Services
Distributor will receive a 40% discount on all standard EST's Support
Services Contracts sold during the period of this contract. Support
Services Contract prices are calculated in accordance with the current
EST price list (IPL) in effect when the Distributor places the order.
Initials:
EST: ___________________________ DeSeCAM: _________________________
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Exhibit 23.2
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in this Registration Statement on Form S-1 of
our reports dated August 5, 1999, except as to the information presented in
Note 13, for which the date is December 22, 1999, relating to the consolidated
financial statements and financial statement schedule of Embedded Support Tools
Corporation, which appear in such Registration Statement. We also consent to
the reference to us under the heading "Experts" in such prospectus.
PricewaterhouseCoopers LLP
Boston, Massachusetts
February 2, 2000
