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Securities And Exchange Commission
Washington, D. C. 20549
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FORM 10
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GENERAL FORM FOR REGISTRATION OF SECURITIES
PURSUANT TO SECTION 12(b) OR 12(g) OF
THE SECURITIES EXCHANGE ACT OF 1934
ITERATED SYSTEMS, INC.
(exact name of registrant specified in its charter)
GEORGIA 58-1741516
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3525 PIEDMONT ROAD
SEVEN PIEDMONT CENTER
SUITE 600 30305-1530
ATLANTA, GEORGIA (zip code)
(Address of principal executive offices)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (404) 264-8000
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Securities registered pursuant to Section 12(b) of the Act:
None
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Securities registered pursuant to Section 12(g) of the Act:
Title of each class
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Common Stock, par value $.01 per share
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ITEM 1. BUSINESS.
GENERAL
Iterated develops, licenses and markets digital still image and video
science technology based upon its emerging Imaging Systems Architecture (ISA),
to original equipment manufacturers (OEM's) seeking innovative, high performance
solutions to problems arising from the convergence of the content,
communications and computer markets.
The Company was founded in 1987 by Dr. Michael Barnsley and Dr. Alan Sloan,
who at that time were tenured members of the mathematics faculty at the Georgia
Institute of Technology. Their early work was based on the discovery that real-
world images could be generated by plotting fractal equations. An early
experiment produced the Iterated Systems fern logo from only a few bits of data,
using a fractal process known as an Iterated Function System.
Iterated's initial products provided fractal image compression and included
its Fractal Imager. Iterated's fractal compression products, based on Dr.
Barnsley's patented Fractal Transform algorithm method (which was assigned to
Iterated), store and display fractal-compressed images in Microsoft's Encarta
CD-ROM encyclopedia, the Great Artists CD-ROM series, and other CD-ROM and
screen saver titles.
Iterated developed its ClearFusion, ClearVideo, ClearVideo Live and Fractal
Viewer applications to meet the demand for high quality, easy to download images
and video on the Internet. By working with companies such as Progressive
Networks, Terran Interactive, The Altimira Group and Microsoft, Iterated's video
products work with various standard applications and video formats.
Iterated's technologies are based upon the Company's research and
development expertise in digital image science and fractal-based mathematics
that have evolved over more than ten years in the digital image business.
Through Iterated's ongoing research, the Company expects to continue to evolve
its Imaging Systems Architecture and to develop software products and new
technologies for incorporation by OEMs into end user products.
The Company was organized under the laws of the State of Georgia on May
28, 1987. On May 20, 1991, Iterated Systems Limited was incorporated in the
United Kingdom as a wholly-owned subsidiary of the Company to function as the
Company's European sales office.
INDUSTRY TRENDS
The Company believes there are three concurrent events creating instability
and opportunity for information based companies searching for imaging solutions.
These are the convergence of the content, communications and computer markets,
the advancement of digital media, and the demand for more features,
applications, and user options.
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Convergence. Alliances between companies like Microsoft and NBC, and MCI
and NewsCorp, illustrate the convergence of content, communications and computer
markets. Frequent mergers occur among companies in the related industries of
telecommunications, cable TV, and Internet services. The Company believes that
computing and television giants will compete to deliver television programming
to computer screens and the Internet to television screens. Converging
industries will require image and video technologies that can cross over from
their traditional formats and delivery systems to their new partners.
The Digital Age. The Company believes that the final days of analog media
are here, heralding the fruition of a digital age. The Company anticipates that
digital still image and video cameras, digital scanners, and digital high-
definition television (HDTV) will be only a few of the consumer products in high
demand in the digital age. The Company also believes that content producers will
need entire workflow systems, including production-quality digital scanners,
cameras, and printing presses; digital editing and broadcasting studios; and
digital distribution systems for news, entertainment, and games. As a result,
in the Company's view, tremendous opportunity exists for new digital image
science technologies to replace traditional analog methods.
Feature Demand. The Company believes consumer and professional users of
technology products will demand the new features and flexibility that digital
images and video can offer. Already, the desire to transmit photographs over the
Internet has caused photo processors to offer digitization and output to
diskette. As digital image and video data become more prevalent, the Company
expects that the possibilities for using and reusing data will multiply, along
with the products needed in the marketplace.
THE COMPANY'S STRATEGY FOR THE DIGITAL AGE
The Company's strategy is to continue developing component technologies for
OEMs seeking to provide enhanced quality digital images at faster speeds. Taking
advantage of its core competencies, the Company sees significant potential in
providing digital imaging science components in a range of vertical markets
across the converging image industries. During the last year the Company has
evolved a business plan to take advantage of the changes in the digital imaging
industry.
IMAGING SYSTEMS ARCHITECTURE
Evolving from over ten years of digital image science research, the Company
is continuing to develop its ISA from which component products will be
constructed. By building its components from one foundation, the Company plans
to offer individual solutions for its customers and an entire suite of
compatible and complementary products that the Company believes can
significantly advance digital imaging.
The ISA is the technological basis for the Company's development and its
objectives are:
. To provide a common foundation for the development of component
technology products.
. To bring digital quality to entire workflows. The Company expects that
acceptable digital solutions must apply to the entire workflow, from
creation of original content to viewing by the end-user. Users are expected
to demand digital quality and capabilities at all steps in the process,
with easy transitions between the steps. For example, content should be
easy to digitize and should be editable without format conversion.
. To unify converging technologies. Within the converging imaging
industries, demand is expected to increase for technologies that converge
in a like manner. Image and video data formats and the tools which
manipulate them should be designed with the expectation that end-users will
want to use the same data for multiple purposes and will demand the same
features across platforms and applications.
. To be adaptable to rapid change in unstable markets. New market demands
and new technologies are expected to cause the Company's technologies to
change. The Company believes that its technical strategy must be flexible
and integrated while extending existing standards in the marketplace.
The ISA offers the following technology features:
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. Resolution-on-demand is a feature of fractal encoding which can be the
basis for technical solutions to eliminate or reduce the need to redigitize
data at multiple resolutions. Using the Company's patented compression
methods, an image can be efficiently stored in terms of its internal
similarities and not in terms of a pixel grid. Therefore, one encoded image
could be rendered to many sizes and resolutions for screen display,
downloading over networks, and printing on a laser printer or a high-
quality printing press. In this case, no additional content creation
(reformatting or redigitizing) is needed because one master image serves
many purposes. Images retain quality with minimal compromises for smaller
file size.
. Bandwidth scalability makes it possible to transmit or deliver data with
quality, subject to bandwidth limitations. As new imaging technologies are
developed, they are expected to employ a wider range of bandwidths to
transmit data. The Company believes that the Internet already demonstrates
a need for specially prepared and reduced image content to meet bandwidth
constraints. The Company's data types are scalable to varying bandwidths
in most cases. One image file can generally be transmitted at many data
rates, preserving image quality.
. Variable Loss Encoding is one of the Company's technologies allowing
original images to be reconstructed after decompression. This technology
is designed to meet the end-user's demand for high-quality viewing of
images.
The overall benefit of the ISA is multi-purpose image representation. ISA
permits image representation throughout the content creation, editing,
transmission, and viewing processes of the digital imaging workflow. This
technology can also be used on various devices, with different outputs, rendered
at differing resolutions, and delivered at various bandwidths.
MARKETS AND APPLICATIONS
The Company's primary target customers are OEMs seeking to improve their
competitive position and time to market by incorporating the Company's
technology into the OEM's own workflows and products. The Company seeks to build
relationships with large systems vendors with substantial stakes in one or more
segments of the emerging digital convergence markets, with the intent of
licensing components of the ISA to these vendors. This strategy is intended to
accomplish the following:
. Improve target customer's competitive positions within existing market
segments.
. Enable the creation of new market segments.
One of the Company's goals is to generate recurring royalties and license
fees from its OEMs. In some cases, the Company may receive non-recurring
engineering fees or fees for shared-risk development.
Although the ISA has applications in a variety of markets, the Company has
identified three specific Line of Business initiatives with associated target
markets. These initiatives represent both near-term and long-term prospects:
<TABLE>
<CAPTION>
MARKET ENTRY POINT INITIAL PRODUCT
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<S> <C> <C>
Graphic Arts Large image handling Adobe Photoshop plug-in
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Digital Photography Sensor enhancement and image CCD array interpolator and low
scaling cost printer devices
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Digital Video for High Quality VHS video at sub-MPEG rates Digital Video for ADSL/xDSL and
applications Advertising and training cable modem delivery
- -----------------------------------------------------------------------------------------------------------
</TABLE>
Each of these opportunities is discussed in the following sections.
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GRAPHIC ARTS
The graphic arts industry consists primarily of independent pre-press
shops, advertising agencies, design firms, stock houses, and printers, all
preparing digital content. Massive and complex digital image files are
transmitted physically between stock houses, design firms, the pre-press house,
and the printer. The work often occurs under tight deadlines with large
penalties for missed deadlines (e.g., if the finished ad is not delivered to the
magazine on time, the client is billed for the space even though the ad will not
run).
The graphic arts workflow can be substantially improved by applying
components of the ISA family of still image handling technologies collectively
known as STiNG. Using STiNG, graphic arts professionals may experience the
following improvements in process and workflow over their current practices:
. Image asset management allows the integration of traditional graphic
arts workflows with Internet publishing workflows. By storing just one
image users may re-purpose that image for higher and lower resolution
applications. For example, the same image may be used in low resolution on
a Web site, in medium resolution on a printed brochure, and in high
resolution on a poster. In this example, one image is used three times for
very different applications, whereas three images would be needed in the
current system. Using a single image provides savings in time, space, and
money.
. Fractal-based image enlargement technology enables users to create very
large, high-quality images, such as posters, to meet the demanding
standards of the corporate advertising world.
. Smaller image files will facilitate the transmission of images over
existing digital networks like the Internet. Stock houses and advertising
agencies could more efficiently send images to clients. (Existing
compression techniques enable image transfers over networks, but often
quality is sacrificed for file size.)
DIGITAL PHOTOGRAPHY
Digital still image cameras for widespread consumer use did not exist two
years ago. One year ago they were expensive curiosity items for early adopters.
Now they are available at price points which rival those of their film-based
predecessors. However, the quality of the output images is still inferior to
comparably priced film cameras. The Company believes that quality must improve
before digital cameras will have a significant market share. The Company's KLiCK
family of digital photography technology is expected to provide substantial
quality enhancements over current methods while maintaining or reducing the
overall cost of the digital camera. Output images are improved by embedding the
image enhancement step into the camera. The Company believes that this strategy
is important for two reasons:
. The earlier in the image workflow that information is digitized in a
high quality form, the greater the opportunity to maintain high quality
throughout the life of the image (editing, re-use, re-edit, etc.); and
. It opens up a new set of devices as targets for the Company's technology
as well as a new set of potential customers for this technology.
Incorporation of KliCK technology in digital cameras provides the Company
with the opportunity to add value to the entire digital image workflow. Certain
components of the architecture are suitable for inclusion in the camera itself.
The Company believes that other components can enhance image quality during the
downstream process of editing, transmission, and output/printing.
DIGITAL VIDEO FOR HIGH QUALITY APPLICATIONS
The main challenge facing the digital video world is the delivery of video
to the digital advertising, educational/training, and entertainment markets that
meets or exceeds the quality of its analog predecessors. It is also difficult to
work within the technical and economic constraints of existing network
infrastructures and other delivery mechanisms, such as Direct Broadcast
Satellite (DBS).
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The Company believes that consumer demand will require television quality
video and the Company has applied its ISA to meet this demand. The Iterated ViO
family of digital video technology is designed to deliver entertainment-quality
digital video over communications bandwidths that are substantially lower in
capacity than those required by the traditional approaches incorporating MPEG.
There are many applications that potentially fall under the entertainment
video umbrella, but the Company believes the following to be the most promising
because it appears that significant funding may be committed to these
initiatives:
. Telecommunications and Regional Bell Operating Companies (RBOCs):
companies providing analog voice and data to consumers through fiber-optic
or wireless cable. Telephone companies, including RBOCs, are aggressively
investing in technology to compete with satellite and cable companies for
provision of video services directly to the consumer. RBOCs are using
wireless cable and ADSL (Asynchronous Digital Subscriber Line) to compete
with the cable companies.
. Cable companies: companies providing analog content via coaxial cables
to local cable companies which direct the analog signal to consumers. Given
intense competition from DBS, cable companies are evaluating technology
investments for conversion to digital services.
. Corporate communications: companies that desire to use digital video to
communicate to remote locations, i.e., distance learning. Systems
integration providers typically supply Fortune 500 corporations with the
tools and services needed for the implementation of these applications.
. DBS companies: companies providing digital content via satellites
directly to the consumer (also known as DTH: Digital To Home).
. Advertising on the Internet: companies that provide digital video
advertisements to Internet Service Providers for insertion into programming
and distribution to the consumer through high speed digital access such as
xDSL and cable modems.
COMPETITION
The Company has classified competition to its ISA-based strategy into three
categories: (1) single solution component providers; (2) product and system
providers; and (3) international standards.
Single Solution Component Providers. Many competitors are focused on
providing single solutions based on compression technology for video and still
images. Many of these competitors offer solutions to specific problems in the
area of compression/decompression.
Product and System Providers. Many companies outside the compression and
image science markets are developing image-based products and systems such as
digital printers, scanners, cameras, and editors. Historically, many of these
companies have funded certain image-related development work internally. The
Company believes that global market pressures and rapid technology change
provide the Company with an opportunity to develop business relationships with
companies in this category which are seeking to develop unique image products in
their respective markets.
International Standards. To date many companies have used products based
on international standards such as MPEG and JPEG. These standards are widely
accepted and generally available, some at low or no cost to the user. To
overcome the competition of standards, the Company must provide technology
solutions with enhanced value to offset or be compatible with the broad
acceptance of existing standards. The Company believes that (i) its ISA will
provide enhanced value, and (ii) the current standards will undergo substantial
modification and replacement to keep up with technological changes and the
Company can develop compatible OEM solutions. When such modifications and
replacements occur, the Company believes it may have an opportunity to propose
that the Company's technology be included in the standardization process.
Moreover, because of available computation power from PCs, the Company believes
that it may become increasingly possible to make its ISA compatible with
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international standards. In addition, the Company believes there are significant
opportunities where standards are not considered to be a dominant factor, such
as in the Company's current digital photography effort.
RESEARCH AND DEVELOPMENT/PATENTS
During 1995, 1996 and 1997 the Company has spent $8,685,000, $8,966,000 and
$8,261,000 respectively in the research and development of new technologies,
refining and improving its technologies and the customization of its
technologies to the needs of specific customers. The Company expects that
continued significant expenditures in this area will be necessary to
successfully introduce new products and improve its core technology and no
assurances can be made that these development efforts will be successful.
Consistent with its emphasis on research and development, the Company
maintains an aggressive patent filing program. To date, the Company holds six
issued U.S. patents with expiration dates from 2009-2015, holds an exclusive
license to a seventh issued U.S. patent expiring in 2007, and has received
notices of allowance of claims on four additional pending applications.
Since March 1995, the Company has filed a total of 21 new U.S. patent
applications, and several are under preparation. To date, international
applications corresponding to certain of the new U.S. applications have been
filed utilizing the Patent Cooperation Treaty (PCT) procedure, which generally
requires that PCT applications be filed within one year of the original national
filing.
The Company's patents and patent applications are intended to provide a
degree of patent protection of the Company's technology as applied to products
developed under the Company's ISA, particularly as applied in the area of real
time video codecs, store and forward video codecs and still image codecs. The
markets for these lossy Codecs are highly competitive, and the Company believes
that its research and development efforts and resulting patents are essential to
an effective market presence. In addition to its research and development of
lossy codec products, the Company is pursuing advanced research in the area of
lossless codecs, and has filed certain relevant patent applications.
RECENT CHANGES TO BUSINESS PLAN
The Company's current strategies and business direction, including the
decision to focus its primary efforts on the development of OEM relationships
for its technology, were developed during the first half of 1997 based on
internal and external factors affecting the Company and recent market
conditions. Prior to that time one of its significant focuses was for the
development of software products to be sold to end users for use on the
Internet. Developments in that market lead the Company to believe that its
expertise is better suited to developing and delivering its technology to OEMs
for inclusion in their products. As a result of this shift, during 1997 the
Company experienced a significant reduction and restructuring in its workforce.
The Company expects its business plans to continue to evolve based on
competitive forces and the ongoing need to generate new and innovative products
on a continual basis. These external market factors make estimates of product
acceptance and financial performance of the Company difficult to predict, and in
response thereto the Company expects to be required to make ongoing revisions to
its business plan.
HISTORY WITH MCI
In September 1994 the Company entered into a Development and License
Agreement (the "1994 MCI Agreement") with MCI Telecommunications Corporation
("MCI") to provide for development of certain advanced compression technology
for use in telecommunications applications. MCI paid the Company approximately
$36,000,000 over the next three years for development of specific technology and
the exclusive rights to use and sublicense specified technology in
telecommunications markets until September 1997. Further, the 1994 MCI
Agreement provides for the Company and MCI to share in revenues generated by the
license of specified technology during and after the term of the 1994 MCI
Agreement. The 1994 MCI Agreement provides MCI the right to continue to
exclusively license specific technology developed by the Company for MCI under
the 1994 MCI Agreement in telecommunications markets after September 1997.
After September 1997, MCI's exclusive right to use in telecommunications markets
certain technology not developed for MCI under the 1994 MCI Agreement required
payment of additional license fees which were not paid. Except for certain
provisions, notably
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MCI's continued license rights described above and provisions relating to
limitation of liability, revenue sharing and confidentiality, the 1994 MCI
Agreement expired in September 1997. MCI and the Company have engaged in
discussions which resulted in differing interpretations of various material
provisions of the 1994 MCI Agreement. If the parties are not successful in
resolving these matters, then issues regarding the 1994 MCI Agreement could
result in an arbitration proceeding between the Company and MCI.
EMPLOYEES
The Company currently has approximately 77 full time employees based in its
offices in Atlanta, Georgia and Reading, England. The Company also makes
extensive use of independent contractors to fulfill short term specialized
needs.
RISK FACTORS THAT MAY AFFECT FUTURE RESULTS
History of Operating Losses and Accumulated Deficit. The Company was
organized in 1987 and has incurred net operating losses since 1991. The Company
had an accumulated deficit at December 31, 1997 of approximately $11,436,000.
The Company will require significant increases in revenues to cover projected
development, selling, marketing and other operating costs and to achieve a
profitable level of operations, and there can be no assurance as to when or if
such increases in revenues will be achieved.
Revenues from 1994 MCI Agreement. During the period from September 1994
until September 1997, approximately 84% of the Company's revenues were derived
from MCI under the 1994 MCI Agreement. Due to the expiration of the 1994 MCI
Agreement in September 1997, the Company's revenues have decreased dramatically
and no assurance can be made that the Company will be successful in replacing
revenues at this level in the near term.
Dependence on Emerging Markets. Currently, only a limited number of
applications incorporating the Company's products or technologies are in
commercial production. The Company has derived substantially all of its product
revenues to date from sales of products for these applications and sales of
products for development, trials and early deployment of applications that are
not yet commercially available or are not yet in volume production. The
Company's ability to generate significant revenues will be dependent on the
development of new opportunities for digital images in the computer and
photography markets and/or the adoption of the Company's technologies by
producers and users of such images. The potential size of these new market
opportunities and the timing of their development are uncertain.
Factors Affecting Operating Results; Potential Fluctuations in Quarterly
Results. The Company's quarterly operating results have in the past and may in
the future vary significantly depending on factors such as revenue from software
sales, the timing of new product and service announcements, market acceptance of
new and enhanced versions of the Company's products, the size and timing of
significant orders, changes in operating expenses, changes in Company strategy,
and general economic factors. The Company has limited or no control over many
of these factors. The Company operates with virtually no services or software
product order backlog because its services are purchased on demand and its
software products typically are shipped shortly after orders are received. As a
result, revenues in any quarter are substantially dependent on the quantity of
purchases of services requested and product orders received in that quarter.
Quarterly revenues also are difficult to forecast because the market for the
Company's products is evolving and the Company's revenues in any period are
significantly affected by the announcements and product offerings of the
Company's competitors as well as alternative technologies. As a result, the
Company believes that period-to-period comparisons of its results of operations
are not necessarily meaningful and should not be relied upon as indications of
future performance.
Dependence on New Product Development; Rapid Technological Change. The
Company's operating results will depend to a significant extent on its ability
to successfully introduce new products and improve its core technology on a
timely basis and/or reduce costs of existing products. As a result, the Company
believes that continued significant expenditures for research and development
will be required in the future. There can be no assurance that new products
will be successfully developed or will achieve market acceptance.
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Competition. The development and marketing of digital image products and
technologies is extremely competitive. Many of the companies developing and
marketing competitive technologies have competitive advantages over the Company,
including established positions in the market, brand name recognition,
established ties with OEMs, and the use of industry standards for digital
compression and decompression such as MPEG and JPEG which can be obtained at
little or no cost to the user. Further, there can be no assurance that the
Company's competitors will not succeed in developing products or technologies
that are more effective than those being developed by the Company or that would
render the Company's products and technologies obsolete. In addition, many of
the Company's competitors have substantially greater financial, technical,
marketing and human resources capabilities than the Company.
Substantial Continuing Capital Needs; Uncertainty of Additional Funding.
The Company anticipates that, in order to maintain a competitive position in its
market, it will have to expend substantial resources to continue research and
development relating to potential applications and new technologies and expand
its sales, marketing and distribution activities. There can be no assurance
that the Company will be able to generate internally the funds necessary to
continue such research and development efforts or to expand sales and marketing
activities, or that additional funds from outside sources will be available for
such purposes.
Dependence on Management. The Company is substantially dependent upon the
efforts and abilities of its officers, directors and certain key employees. The
loss or unavailability to the Company of any of its executive officers, or any
of its directors or key employees could have a material adverse effect upon the
Company. The Company has employment agreements with certain key employees. The
Company does not maintain key man life insurance policies on any of its key
employees. As a result, the Company's operations could be adversely affected
upon the death of any of its key employees.
International Operations. The Company believes that its continued growth
and profitability may require increasing its international revenues.
International operations are subject to inherent risks, including the impact of
possible recessionary environments in economies outside the U.S., changes in
legal and regulatory requirements, changes in tariffs, currency exchange
fluctuations, reduced protection for intellectual property rights in some
countries, potentially adverse tax consequences and political and economic
instability. There can be no assurance that the Company will be able to sustain
or increase international revenue, or that the factors listed above will not
have a material impact on the Company's international operations. This
expansion will require financial resources and significant management attention.
Dependence on Patents and Proprietary Rights. The Company's ability to
compete effectively will depend in part on its ability to maintain the
proprietary nature of its technology through a combination of copyright, patent
and trade secret protection and contractual provisions and non-disclosure
agreements. Competition in the Company's market is intense and there can be no
assurance that the Company's competitors will not independently develop or
obtain patents on technologies that are substantially equivalent or superior to
the Company's technology. The Company could incur substantial costs in
defending itself in patent infringement lawsuits brought by others and in
prosecuting patent infringement lawsuits against third party infringers. The
Company also relies on trade secrets and proprietary know-how that it seeks to
protect, in part, by non-disclosure agreements with its employees, suppliers,
consultants and potential strategic partners and customers. There can be no
assurance that these agreements will not be breached, that the Company will have
adequate remedies for any such breach or that the Company's trade secrets and
proprietary know-how will not otherwise become known or be independently
developed by competitors.
FORWARD-LOOKING STATEMENTS - CAUTIONARY STATEMENTS
The discussions herein contain trend information and other forward-looking
statements that involve a number of risks and uncertainties. The actual results
of Iterated Systems, Inc. and its wholly owned subsidiary, Iterated Systems
Limited (collectively, the "Company" or "Iterated"), could differ materially
from its historical results of operations and those discussed in the forward-
looking statements. The forward-looking statements are based on the beliefs of
the Company's management as well as assumptions made by and information
currently available to the Company's management. When used herein, the words
"anticipate," "believe," "estimate," "expect" and "intend" and words or phrases
of similar import, as they relate to the Company or the Company's management,
are intended to identify forward-looking statements. The forward-looking
statements should be read in light of these factors and the factors identified
in "Item 1. Business" and in "Item 2. Financial Information--Management's
Discussion and Analysis of Financial Condition and Results of Operations." All
references to year periods refer to the Company's fiscal years ended December
31, 1997.
ITEM 2. FINANCIAL INFORMATION
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below under the captions
"Consolidated Statement of Operations Data" and "Consolidated Balance Sheet
Data" are derived from the consolidated financial statements of the Company,
which financial statements have been audited by Ernst & Young LLP, independent
auditors, whose report appears elsewhere herein.
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The selected consolidated financial data set forth below is qualified in
its entirety by, and should be read in conjunction with, "Management's
Discussion and Analysis of Financial Condition and Results of Operations," the
Consolidated Financial Statements, the notes thereto and the other financial
information included elsewhere herein.
<TABLE>
<CAPTION>
Years Ended December 31,
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1993 1994 1995 1996 1997
-------- -------- -------- -------- --------
CONSOLIDATED STATEMENT OF OPERATIONS
DATA: (In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C> <C>
Total Revenues $ 6,837 $ 8,385 $14,430 $15,558 $ 9,471
Operating loss (826) (1,218) (612) (1,701) (6,551)
Net loss (783) (1,190) (509) (1,606) (6,329)
Basic and diluted net loss per share (.08) (0.11) (0.05) (0.15) (0.56)
of common stock
Weighted average common 10,323 10,421 10,501 10,564 11,320
shares outstanding
CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents and short- $ 2,485 $ 3,034 $ 6,281 $ 4,151 $17,633
term investments
Total assets 3,852 4,468 10,032 7,487 19,775
Non-current liabilities 0 66 1,429 208 54
Stockholders' equity 3,162 2,689 2,514 3,211 18,716
</TABLE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
OVERVIEW
Historically, the Company has derived its revenues from development fees
and exclusive license fees, packaged software products and related revenues, as
well as other OEM license and contract revenues. The Company expects that
revenues from packaged software products will decline in the future as business
efforts are focused on developing relationships with OEM's whose competitive
position and time to market would be positively impacted by using the Company's
technology in their own products. During 1997, the Company reduced its workforce
to focus on a more effective implementation of this OEM market strategy. If this
plan is successful, the Company believes that a majority of its future revenues
will be derived from license fees and recurring royalties from its OEM
relationships. In some cases, the Company expects to generate non-recurring
development fees or fees for shared risk development from its OEM relationships.
FINANCIAL CONDITION
In an initial public offering on September 29, 1997 on the Oslo Stock
Exchange in Norway, the Company sold 2,040,000 shares of its common stock, par
value $.01 per share (the "Common Stock") resulting in net proceeds of
approximately $18,600,000 to the Company, and certain shareholders sold 710,300
shares of Common Stock at approximately $10 per share.
The Company has not registered any securities with the U.S Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"). Securities of the Company may not be offered for sale or sold
in the U.S., or to or for the account or benefit of any "U.S. person" (as
defined in the Securities Act), unless the securities are registered under the
Securities Act or an exemption from such registration requirements is available.
9
<PAGE>
At December 31, 1997, the Company had cash, cash equivalents and short-term
investments in excess of $17,000,000 and shareholders' equity in excess of
$18,000,000.
In 1996 and 1997, the Company used cash in operating activities of
$2,727,000 and $7,511,000, respectively. In 1996, the use of cash reflects a
reduction in deferred revenue of $2,557,000. In 1997, the use of cash reflects
a reduction in deferred revenue of $2,552,000.
In 1996 and 1997, the Company used cash in investing activities of
$1,142,000 and $10,445,000, respectively. In 1996, cash used in investing
activities was used primarily for the purchase of property and equipment and in
1997 cash was primarily used for the purchase of short term investments with the
proceeds from the Company's initial public offering.
In 1996 and 1997, the Company had cash provided by financing activities of
$1,739,000 and $21,439,000, respectively. In 1996, cash provided by financing
activities was primarily attributable to the proceeds from the issuance of
$2,000,000 of common stock to Mitsubishi Corporation and its affiliates. In
1997, cash provided by financing activities was primarily attributable to
borrowings of $3,000,000 under the shareholder credit facility described below
and $18,600,000 net proceeds from the Company's initial public offering.
On June 30, 1997, the Company amended the Bridge Financing Credit Facility
(the "Credit Facility") with Mosvold Farsund AS ("Mosvold"), one of its
shareholders. The amended Credit Facility allowed the Company to borrow up to
$6,000,000 ($3,000,000 at December 31, 1997) from Mosvold until June 30, 1998,
at which time the Company can convert any outstanding balance into a four year
term loan. During the second quarter of 1997, the Company borrowed $3,000,000
from Mosvold under this financing agreement. During the fourth quarter of 1997,
Mosvold exercised its option to convert the $3,000,000 in outstanding borrowings
into 300,000 shares of the Company's Common Stock at $10 per share. As a
result, there are currently no outstanding borrowings under the Credit Facility
and an available amount of credit thereunder of $3,000,000 which the Company may
borrow at any time until June 30, 1998.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997 COMPARED TO YEAR ENDED DECEMBER 31, 1996
Revenues. Total revenues decreased 39.1% to $9,471,000 in 1997 compared to
$15,558,000 in 1996. The decrease in revenues is mainly due to MCI making its
final development fee payment in 1997 under the 1994 MCI Agreement (discussed
previously under "Item 1--Business--History with MCI"). In addition, during
1996, the Company executed a one-time sale of custom built decompression
hardware boards resulting in $1,484,000 of revenue being recognized.
Cost of Product Revenues and Inventory Writedowns. Cost of product
revenues decreased 86.1% to $128,000 in 1997 from $923,000 in 1996. The decrease
from 1996 to 1997 is the result of the one-time sale of custom built
decompression hardware boards discussed above. Cost of product revenues from
this transaction amounted to $685,000 in 1996.
In 1996, there was an inventory writedown relating to the Company's older
compression accelerator hardware boards to net realizable value in the amount of
$238,000.
Sales and Marketing. Sales and marketing expenses decreased 3.0% to
$4,993,000 in 1997 from $5,146,000 in 1996. Sales and marketing workforce
reductions in the third quarter of 1997 offset the higher levels of staffing
during the first six months of 1997, and resulted in slightly lower expenses for
1997.
Research, Development and Engineering. Research, development and
engineering expenses decreased 7.9% to $8,261,000 in 1997 from $8,966,000 in
1996. The decrease is primarily the result of the workforce reductions discussed
previously.
General and Administrative. General and administrative expenses increased
32.9% to $2,640,000 in 1997 from $1,986,000 in 1996. The increase is due to
charges the Company recorded in the fourth quarter of 1997. Major
10
<PAGE>
components of the charges include a $399,000 write-off of uncollectible accounts
receivable from a single customer.
Interest Income. Interest income increased 107.0% to $396,000 in 1997 from
$191,000 in 1996. The increase is due to the higher levels of interest on cash
equivalents and short-term investments the Company experienced during 1997 as a
result of the proceeds from the initial public offering of Common Stock.
Interest Expense. Interest expense increased 104.7% to $176,000 in 1997
from $86,000 in 1996. The increase in 1997 is due to interest expense on the
$3,000,000 in outstanding borrowings under the Mosvold Credit Facility. Prior to
its conversion to equity in October 1997, interest expense on these borrowings
amounted to $112,000.
YEAR ENDED DECEMBER 31, 1996 COMPARED TO YEAR ENDED DECEMBER 31, 1995
Revenues. Total revenues increased 7.8% to $15,558,000 in 1996 from
$14,430,000 in 1995. The increase in revenue reflects the $1,484,000 one-time
sale of custom built decompression hardware boards discussed previously.
Development and license fee revenues recognized under the 1994 MCI Agreement
amounted to $12,673,000 in 1996 and $12,775,000 in 1995, representing 81% and
89% of total revenues for those years, respectively.
Cost of product revenues and inventory writedowns. Cost of product
revenues increased 234.4% to $923,000 in 1996 from $276,000 in 1995. The
increase in cost of product revenues is the result of the $685,000 cost
associated with the one-time sale of custom built decompression hardware boards
discussed previously.
During 1995, the Company recorded reserves totaling $380,000 to reduce the
carrying value of certain inventory items and to reflect inventory purchase
commitments in excess of net realizable value. During 1996, the Company reserved
an additional $238,000 for the remaining hardware boards.
Sales and Marketing. Sales and marketing expenses increased 49.8% to
$5,146,000 in 1996 from $3,435,000 in 1995. The increase is attributable to
hiring of additional marketing personnel and expanded advertising, public
relations and trade show activities.
Research, Development and Engineering. Research, development and
engineering expenses increased 3.2% to $8,966,000 in 1996 from $8,685,000 in
1995. The primary components of the increase were salaries and other personnel
costs, contract labor for independent contractors and recruiting and hiring
expenses.
General and Administrative. General and administrative expenses decreased
12.4% to $1,986,000 in 1996 from $2,267,000 in 1995. In 1995, the Company had
bad debt expense charges in the amount of $123,000. As sales of packaged
software products declined in 1996, bad debt expense decreased accordingly to
$29,000. In 1995, the Company moved to a new office location and incurred
additional administrative expenses in conjunction with the move.
IMPACT OF YEAR 2000
The Company recognizes the need to ensure its operations will not be
adversely impacted by year 2000 software failures. The Company intends to take
the actions necessary to ensure that systems and applications will recognize and
process the year 2000 and beyond. The Company does not expect the year 2000
issue to be reasonably likely to affect its future financial results, or cause
its reported financial information not to be necessarily indicative of future
operating results or future financial condition. Further, the Company does not
believe that the year 2000 issues will materially affect the Company's products,
services or competitive position.
SOFTWARE REVENUE RECOGNITION
In October 1997, the American Institute of Certified Public Accountants
issued Statement of Position 97-2 ("SOP 97-2"), Software Revenue Recognition, to
clarify guidance on applying generally accepted accounting
11
<PAGE>
principles to software transactions and to provide guidance on when revenue
should be recognized and in what amounts for licensing, selling, leasing, or
otherwise marketing computer software. The Company adopted SOP 97-2 during 1997.
Such adoption had no effect on the Company's methods of recognizing revenue.
EARNINGS PER SHARE OF COMMON STOCK
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, Earnings Per Share ("Statement 128"), which establishes
standards for computing and presenting earnings per share ("EPS") for entities
with publicly held common stock or potential common stock. Statement 128
requires the presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. The Company adopted
Statement 128 in 1997 and, in accordance with the requirements thereof, restated
its net loss per share for all prior periods. The effect of adoption was not
material to the accompanying consolidated financial statements. Net loss per
share of common stock is computed based on the weighted average number of shares
outstanding during each period.
COMPREHENSIVE INCOME
In June 1997, the FASB issued Statement No. 130, Reporting Comprehensive
Income ("Statement 130"), which establishes standards for reporting and display
of comprehensive income and its components (revenues, expenses, gains and
losses) in financial statements. Statement 130 is effective for fiscal years
beginning after December 15, 1997. The Company will adopt Statement 130 during
1998 and does not expect the effect of such adoption to be material to its
consolidated financial statements.
BUSINESS SEGMENTS
In June 1997, the FASB also issued Statement No. 131, Disclosures about
Segments of an Enterprise and Related Information ("Statement 131"), which
establishes standards for the way public business enterprises report information
about operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Statement 131 is effective for financial statements for
periods beginning after December 15, 1997. The Company will adopt Statement 131
during 1998 and does not expect the effect of such adoption to be material to
its consolidated financial statements.
INFLATION
The effects of inflation on the Company's operations were not significant
during the periods presented in the consolidated financial statements, and the
effects thereof are not considered to be of significance in the future.
Generally, throughout the periods discussed above, the changes in revenue have
resulted primarily from fluctuations in sales levels, rather than price
increases.
ITEM 3. PROPERTIES.
The Company leases approximately 30,000 square feet of office space in
Atlanta, Georgia for its corporate, sales and development operations. The lease
runs through April 30, 2000.
The Company also leases approximately 3,000 square feet of office space
near Reading, England for its European office. The lease runs through June 27,
2012 with an option to terminate in June 2007.
The aggregate monthly rental for these leased offices and facilities is
currently approximately $47,000, and the Company's management believes that
these facilities are adequate for its intended activities in the foreseeable
future.
12
<PAGE>
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
The following table sets forth, as of February 28, 1998, the beneficial
ownership of the Company's outstanding Common Stock of (i) each person known by
the Company to own beneficially more than 5% of the Company's outstanding Common
Stock, (ii) each executive officer of the Company, (iii) each director of the
Company, and (iv) all executive officers and directors as a group:
<TABLE>
<CAPTION>
Common Stock Beneficially Owned(2)
-----------------------------------------------------------------
Name and Address of Number of Shares of
Beneficial Owners (1) Common Stock Percentage of Class
- ----------------------------------------------- --------------------------- ---------------------------------
<S> <C> <C>
John C. Bacon(3) 65,000 *
John R. Festa(4) 706,000 5.1
Michael F. Barnsley(5) 1,317,700 9.9
Alan D. Sloan(5) 3,390,000 25.6
Terje Mikalsen(6) 1,915,730 14.6
Asmund R. Slogedal(7) 80,000 *
James D. Robinson, III(8) 60,000 *
Diane Barnsley 799,900 6.1
Haines H. Hargrett 0 *
Deborah N. Gable(9) 20,000 *
Ruth Mednikow(9) 20,000 *
David G. Gibson(10) 16,667 *
Burton M. Smith(10) 16,667 *
Fidulex Management Inc. 796,300 6.1
Tharald Brovig 896,950 6.8
Mosvold Farsund Invest AS(6) 1,915,730 14.6
All executive officers and directors
as a group (12 persons) 7,607,764 53.0
- ----------------
</TABLE>
* Less than 1% of the outstanding Common Stock
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Except as indicated by
footnote, the persons named in the table above have sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by them. Percentage of beneficial ownership is based on
13,109,225 shares of Common Stock outstanding as of February 28, 1998. The
business address of each beneficial owner other than Ms. Barnsley, Fidulex
Management Inc., Mosvold Farsund Invest AS and Mr. Brovig is c/o Iterated
Systems, Inc., Seven Piedmont Center, Suite 600, 3525 Piedmont Road,
Atlanta, Georgia 30305-1530. The business address of Ms. Barnsley is 2153
Allaire Lane, Atlanta, Georgia 30345. The business address of Fidulex
Management Inc. is 1, Places Des Florentins, 1204 Geneva, Switzerland,
Attention: M. Allegro. The business address of Mosvold Farsund Invest AS is
P.B. 113, 4551 Farsund, Norway. The business address of Mr. Brovig is
Radhusgt. 5b, 0151 Oslo, Norway.
(2) Includes shares of Common Stock subject to options which may be exercised
within 60 days of February 28, 1998. Such shares are deemed to be
outstanding for the purposes of computing the percentage ownership of the
individual holding such shares, but are not deemed outstanding for purposes
of computing the percentage of any other person shown in the table.
(3) Includes options to purchase 65,000 shares of Common Stock.
(4) Includes options to purchase 706,000 shares of Common Stock.
(5) Includes options to purchase 150,000 shares of Common Stock.
(6) Includes 1,322,230 shares held by Mosvold Farsund Invest AS and 493,500
shares held by Mega Pacific International, Ltd. Mr. Mikalsen owns a
controlling interest in each of Mosvold Farsund Invest AS and Mega Pacific
International, Ltd. Also includes 100,000 shares issuable upon exercise of
a warrant held by Mosvold Farsund Invest A.S.
(7) Includes options to purchase 30,000 shares of Common Stock.
(8) Includes options to purchase 60,000 shares of Common Stock.
(9) Includes options to purchase 20,000 shares of Common Stock.
(10) Includes options to purchase 16,667 shares of Common Stock.
13
<PAGE>
ITEM 5. DIRECTORS AND OFFICERS.
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
John C. Bacon 52 President, Chief Executive Officer and Director
John R. Festa 46 Director and Vice Chairman of the Board of Directors
Michael F. Barnsley 51 Executive Vice President and Director
Alan D. Sloan 52 Executive Vice President and Director
Haines H. Hargrett 55 Chief Financial Officer
Deborah N. Gable 43 Vice President, Human Resources
Ruth Mednikow 43 Vice President, Product Development
David G. Gibson 40 Vice President, Sales
Burton M. Smith 42 Vice President, Marketing
Asmund R. Slogedal 59 Director and Chairman of the Board of Directors
Terje Mikalsen 57 Director
James D. Robinson, III 61 Director
</TABLE>
JOHN C. BACON has served as President and Chief Executive Officer of the Company
since February 1998. He joined the Company in March 1997 as Senior Vice
President/General Manager and in August 1997 was named Executive Vice President
and Chief Operating Officer. Mr. Bacon obtained a BSIE degree from Georgia
Institute of Technology and has performed graduate and advanced management
development work at Georgia State University, Harvard Business School and the
Wharton School of Business.
JOHN R. FESTA served as President, Chief Executive Officer and a director of the
Company from May 1994 until February 1998. From 1984 until May 1994, Mr. Festa
served as President, Chief Executive Officer and Chairman of BUYPASS
Corporation, a financial transaction processing services company. Mr. Festa
attended Valparaiso University.
DR. MICHAEL F. BARNSLEY co-founded the Company in 1987 and served as Chief
Executive Officer until becoming Executive Vice President, Science and
Technology in May 1994. From 1979 until founding the Company, Dr. Barnsley was a
mathematics professor at the Georgia Institute of Technology. Dr. Barnsley holds
a degree in mathematics from Oxford University in England and a Ph.D. in
theoretical chemistry from the University of Wisconsin.
DR. ALAN D. SLOAN co-founded the Company in 1987 and served as President until
becoming Executive Vice President, Strategic Business Development in May 1994.
Dr. Sloan obtained a BA in mathematics from the Massachusetts Institute of
Technology and a Ph.D. in mathematics from Cornell University.
HAINES H. HARGRETT has served as Chief Financial Officer of the Company since
September 1997. From 1994 to 1997 he was Chief Financial Officer/Treasurer of
Medifax, Inc., a high technology medical transcription company. From 1992 to
1994 he was Chief Financial Officer for Park `N Fly, Inc., a company involved in
developing and managing parking facilities near major city airports. Mr.
Hargrett holds an A.B. in Economics from Duke University and an MBA in Finance
from Indiana University.
DEBORAH N. GABLE has served as Vice President, Human Resources of the Company
since February 1995. From 1985 until 1995, Ms. Gable served as Vice President of
Human Resources of COIN Dealership Systems and as Director of Human Resources of
The Reynolds and Reynolds Company, a turnkey computer systems company, after its
acquisition of COIN Dealership Systems. Ms. Gable obtained a bachelor's degree
in business and behavioral sciences from Lewis University.
RUTH MEDNIKOW has served as Vice President, Product Development/Engineering of
the Company since October 1995 and as Vice President Strategic Projects from
November 1994 until October 1995. Ms. Mednikow was Vice President Systems
Architecture Planning and Operations for BUYPASS Corporation from 1991 to 1994.
Ms. Mednikow attended Miami Dade University.
14
<PAGE>
DAVID GIBSON has served as Vice President, Sales since February 1998. He served
as Director of OEM Sales of the Company from August 1997 to February 1998. From
July 1995 to August 1997, Mr. Gibson served as Regional Sales Manager for the
Company. From June 1986 to July 1995, Mr. Gibson held various sales, marketing
and business management positions with Integraph Corporation. Mr. Gibson has a
BS degree in Engineering from Tennessee Technological University.
BURTON SMITH has served as Vice President, Marketing since February 1998. He
served as Director of Marketing of the Company since June 1997. From July 1995
to June 1997, Mr. Smith served as Regional Sales Manager for the Company. From
February 1984 to July 1995, Mr. Smith held various sales and marketing positions
with Integraph Corporation. Mr. Smith has a Bachelor of EE degree from the
Georgia Institute of Technology.
ASMUND R. SLOGEDAL has served as Chairman of the Board of Directors since August
1991. He served as the Company's Chief Financial Officer from May 1991 until
September 1994. Mr. Slogedal has been a partner in the Norway-based venture
capital firm Teknoinvest Management AS since 1989. Mr. Slogedal is a director
of Mosvold Farsund AS, a Norwegian shipping and investment company, a director
of Tandberg Data ASA and serves on the board of several other Norwegian and
U.S.-based technology companies. Mr. Slogedal holds a B.S. degree in
engineering from Purdue University.
TERJE MIKALSEN joined the company as a director in April 1996. Mr. Mikalsen is
Chairman of Mosvold Farsund Group, which has 45% ownership of Teknoinvest
Management AS. He is a director of Mega Pacific Group, a Hong Kong-based
investment company. Mr. Mikalsen is also an outside director of Norwegian Cruise
Line, Ltd. (US-based) and its parent company, NCL Holding ASA (Norway-based).
Mr. Mikalsen formerly held the position of Chairman of the following publicly
traded companies: Norsk Data AS until 1993; Hafslund Nycomed ASA until 1996, and
Maritime Hydraulics AS until 1987, and holds several other directorships. He is
also a member of the Norwegian Government's Advisory Board on industrial
policies and the Norwegian Technical Scientific Academy and Norsk Investorforum,
an association of Norwegian private investors. Mr. Mikalsen holds a Master of
Science degree from Norges Tekniske Hoyskole.
JAMES D. ROBINSON III became a director of the Company in November 1994. Mr.
Robinson is Chairman and Chief Executive Officer of RRE Investors, LLC, a
private venture investment firm, and Chairman of Violy Byorum & Partners
Holdings, LLC, a private firm specializing in financial advisory and investment
banking activities in Latin America. From 1970 until 1993 he held various
senior management positions with American Express Company, including Chairman
and Chief Executive Officer from 1977 until 1993. Mr. Robinson presently serves
as a director of Bristol-Myers Squibb Company, The Coca-Cola Company, First Data
Corporation, Union Pacific Corporation, Cambridge Technology Partners and The
Coleman Company. Mr. Robinson holds a bachelor's degree in science and
technology from the Georgia Institute of Technology and a master's degree in
business administration from Harvard Business School.
All directors hold office until the next annual meeting of shareholders of the
Company and until their successors have been elected and qualified. The
Company's non-employee directors receive no cash compensation, but are
reimbursed for their out-of-pocket expenses and are eligible for stock option
grants under the Company's 1994 Directors Stock Option Plan.
Each officer serves at the discretion of the Board of Directors. There are no
family relationships among any of the directors or officers of the Company.
15
<PAGE>
ITEM 6. EXECUTIVE COMPENSATION
The following table sets forth certain summary information with respect to
the compensation earned for services rendered by the Company's Chief Executive
Officer and the other four most highly compensated executive officers of the
Company (collectively, the "Named Executive Officers") for the fiscal years
ended December 31, 1997, 1996 and 1995.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual Compensation Awards
--------------------------- ------------
All Other
Name and Principal Position Year Salary($) Bonus($)(1) Options(#) Compensation(2)
- ---------------------------- ---- --------- ------------ ---------- ---------------
<S> <C> <C> <C> <C> <C>
John R. Festa(3) 1997 $300,000 $150,000 124,100 $ 0
President, Chief Executive 1996 291,667 0 200,000(4) 0
Officer and Director 1995 286,458 0 0 0
John C. Bacon(5)
Executive Vice President 1997 $141,121 $ 0 300,000 $ 0
and Chief Operating 1996 0 0 0 0
Officer 1995 0 0 0 0
Michael F. Barnsley 1997 $243,750 $ 0 0 $ 0
Executive Vice President 1996 275,000 255,000 0 0
and Director 1995 286,458 137,500 0 0
Alan D. Sloan 1997 $243,750 $ 0 0 $ 0
Executive Vice President 1996 275,000 75,000 0 0
and Director 1995 286,458 275,000 0 0
David G. Gibson 1997 $154,583 $ 0 30,000 $ 0
Director of OEM Sales 1996 125,000 0 0 0
1995 44,263 0 10,000 48,741(6)
- ---------------
</TABLE>
(1) Bonuses were for services rendered in the prior fiscal year except with
respect to the bonus paid to Mr. Festa during 1997 which was payable for
services during 1997.
(2) In accordance with the rules of the Securities and Exchange Commission,
other compensation in the form of perquisites and other personal benefits
has been omitted because such perquisites and other personal benefits
constituted less than the lesser of $50,000 or 10% of the total annual
salary and bonus for the Named Executive Officer for such year.
(3) Mr. Festa served as President and Chief Executive Officer until February
1998.
(4) Options were forfeited in 1997 in conjunction with new grant of 124,100
options.
(5) Mr. Bacon joined the Company in March 1997 and was named the Company's
President and Chief Executive Officer in February 1998.
(6) Consists of reimbursement to Mr. Gibson for certain relocation-related
expenses.
16
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth information concerning options granted to
the Named Executive Officers during the year ended December 31, 1997:
<TABLE>
<CAPTION>
Individual Grants
-------------------------------------------------------------------------------------------------------
Number of Percent of
Securities Total
Underlying Granted to Exercise or Potential Realizable
Options Employees Base Price Expiration Value(4)
Executive Officer Granted Fiscal Year Per Share (1) Date 5% 10%
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
John R. Festa 124,100(2) 22.4 $ 7.40 12/31/04 $ 373,857 $ 871,245
John C. Bacon 195,000(3) 35.5 10.00 3/1/07 1,226,345 3,107,798
105,000(3) 19.0 10.00 8/14/07 660,339 1,673,430
Michael F. Barnsley 0 0 -- -- -- --
Alan D. Sloan 0 0 -- -- -- --
David G. Gibson 30,000(3) 5.4 10.00 6/1/07 188,668 478,123
</TABLE>
___________________________
(1) These options were granted with an exercise price equal to the fair market
value of the Common Stock on the date of grant as determined by the Board of
Directors.
(2) Grant becomes exercisable on the first anniversary of the date of grant.
Vesting may be accelerated upon the occurrence of certain events.
(3) Grants become exercisable in equal installments on the first three
anniversaries of the date of grant. Vesting may be accelerated upon the
occurrence of certain events.
(4) This column shows the hypothetical gain or option spreads of the options
granted based on assumed annual compound stock appreciation rates of 5% and
10% over the full terms of the options. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Securities and Exchange
Commission and do not represent the Company's estimate or projection of
future Common Stock prices.
OPTION EXERCISES IN LAST FISCAL YEAR AND YEAR-END OPTION VALUES
The following table sets forth the aggregate dollar value of all options
exercised and the total number of unexercised options held, on December 31,
1997, by the Named Executive Officers:
<TABLE>
<CAPTION>
Number of Securities Underlying Value of Unexercised
Unexercised Options at In-the-Money Options at
Shares December 31, 1997 December 31, 1997(1)
Acquired Value -------------------------------- ---------------------------
Executive Officer on Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
- --------------------- ----------- -------- --------------- -------------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C>
John C. Bacon 0 0 0 300,000 $ 0 $ 0
John R. Festa 0 0 706,000 124,000 1,792,103 0
Michael F. Barnsley 0 0 150,000 0 210,000 0
Alan D. Sloan 0 0 150,000 0 210,000 0
David G. Gibson 0 0 6,667 3,333 9,334 4,666
</TABLE>
___________________________
(1) The closing price for the Company's Common Stock as reported by the Oslo
Stock Exchange on December 31, 1997 was $7.40. Value is calculated on the
basis of the difference between the option exercise price and $7.40,
multiplied by the number of shares of Common Stock underlying the option.
17
<PAGE>
EMPLOYEE BENEFIT AND STOCK OPTION PLANS
Description of 1994 Employee Plan. In 1992, the Company approved a stock
option plan which became effective December 2, 1992 and reserved shares for
future issuance. The plan was replaced by the 1994 Amended and Restated Stock
Option Plan (the "1994 Employee Plan"). The purpose of the 1994 Employee Plan
is to provide incentives for employees and key persons to promote the success of
the Company and to enhance the Company's ability to attract and retain the
services of such persons. Options granted under the 1994 Employee Plan may be
either (i) options intended to qualify as "incentive stock options" under
Section 422 of the Code, or (ii) non-qualified stock options. Stock options may
be granted under the 1994 Employee Plan for all employees and key persons of the
Company or of any subsidiary or parent of the Company. The 1994 Employee Plan is
administered by the Board of Directors or by a Compensation Committee, in whole
or in part, as delegated by the Board. The Board of Directors has the authority
to determine exercise prices applicable to the options, the eligible employees
or key persons to whom options may be granted, the number of shares of Common
Stock subject to each option, and the extent to which options may be
exercisable. Options granted under the 1994 Employee Plan generally vest over
three or four years. No option is transferable by the optionee other than by
will or the laws of descent and distribution or as a bona fide gift and each
option is exercisable during the lifetime of the optionee only by such optionee
or donee.
Any incentive stock option that is granted under the 1994 Employee Plan may
not be granted at a price less than the fair market value of the Company's
Common Stock on the date of grant (or less than 110% of fair market value in the
case of holders of 10% or more of the total combined voting power of all classes
of stock of the Company or a subsidiary or parent of the Company). Non-qualified
stock options may be granted at the exercise price established by the Board of
Directors, which may be less than the fair market value of the Company stock on
the date of grant.
Each option granted under the 1994 Employee Plan is exercisable for a
period not to exceed ten years from the date of grant (or, with respect to
incentive stock options, five years in the case of a holder of more than 10% of
the total combined power of all classes of stock of the Company or of a
subsidiary or parent of the Company) and shall lapse upon expiration of such
period, or earlier after a designated period of time following termination of
the recipient's employment with the Company, or as determined by the Board of
Directors.
On February 12, 1998, the Board of Directors approved the grant of an
option, effective February 16, 1998, to John C. Bacon, the Company's President
and Chief Executive Officer, to purchase 1,000,000 shares of Common Stock
subject to the approval of an amendment (the "Amendment") to the 1994 Employee
Plan to increase the number of shares reserved for issuance under the plan. The
Amendment was adopted by the Board of Directors in February 1998 and approved by
the shareholders at the Company's annual meeting of shareholders on April 15,
1998, increasing the number of shares of Common Stock reserved for issuance
under the 1994 Employee Plan from 2,400,000 shares to 3,400,000 shares. The
table below provides information regarding the dollar value and the number of
shares underlying awards granted to Mr. Bacon under the 1994 Employee Plan.
<TABLE>
<CAPTION>
Dollar Value of Shares Underlying Number of Shares Underlying Stock
Name and Position Stock Options ($)(1) Options
- ------------------------------------ --------------------------------- ---------------------------------
<S> <C> <C>
John C. Bacon,
President and $400,000 1,000,000
Chief Executive Officer
- --------------------
</TABLE>
(1) Based upon the closing sale price of the Company's Common Stock of $7.66 per
share as reported on the Oslo Stock Exchange on February 28, 1998, less the
exercise price of the options granted.
Description of Non-Employee Director Plan. In 1994, the Company approved
the 1994 Directors Stock Option Plan (the "Directors Plan"). The purposes of
the Directors Plan are to enhance the Company's ability to attract and retain
the services of experienced and knowledgeable non-employee directors and to
encourage such directors to acquire an increased proprietary interest in the
Company. Stock options may be granted under the Directors Plan to any director
who is not an employee of the Company or a parent or subsidiary. The Directors
Plan
18
<PAGE>
is administered by the Board of Directors or by a Compensation Committee, in
whole or in part, as delegated by the Board. The Board of Directors has the
authority to determine exercise prices applicable to the options, the number of
shares of Common Stock subject to each option, and the extent to which options
may be exercisable. Options granted under the Directors Plan generally vest over
three years. No option is transferable by the optionee other than by will or the
laws of descent and distribution or as a bona fide gift and each option is
exercisable during the lifetime of the optionee only by such optionee or donee.
Options granted under the Directors Plan are non-qualified stock options
and may be granted at the exercise price established by the Board of Directors,
which may be less than the fair market value of the Company stock on the date of
grant.
Each option granted under the Directors Plan is exercisable for a period
not to exceed ten years from the date of grant and shall lapse upon the earlier
of the expiration of such period or 90 days after termination of the recipient's
service as a member of the Board of Directors.
An aggregate of 180,000 shares of Common Stock are reserved for issuance
under the Directors Plan.
EMPLOYMENT CONTRACTS AND TERMINATION AND CHANGE-IN-CONTROL ARRANGEMENTS
On February 16, 1998, the Company entered into an employment agreement with
Mr. Bacon who serves as the President and Chief Executive Officer of the
Company. The employment agreement provides for a base salary of $285,000 per
annum. Pursuant to the agreement, Mr. Bacon was granted stock options pursuant
to the Company's 1994 Employee Plan for 500,000 shares, vesting ratably over a
three year period at the exercise price per share of the Company's Common Stock
equal to the closing price of the Company's Common Stock traded on the Oslo
Stock Exchange as of the date of the agreement. In addition, pursuant to the
agreement, Mr. Bacon was granted options for a number of shares vesting upon the
first to occur of the closing of a public sale of Common Stock by the Company
under certain circumstances (the "Offering Closing Date"), a Change in Control
(as defined in the agreement) or completion of seven years of continuous service
following the date of the agreement. Pursuant to the agreement, Mr. Bacon was
also granted options to purchase an additional number of shares vesting upon the
first to occur of either 180 days after the Offering Closing Date, or after
completion of seven years of continuous service following the date of the
agreement. The agreement further provides that Mr. Bacon is entitled to receive
a cash bonus on the first to occur of either the Offering Closing Date or a
Change in Control. The term of the employment agreement is three years. If the
Company terminates Mr. Bacon's employment without cause, the Company would be
required to continue to pay Mr. Bacon an amount equal to his monthly salary at
the then current rate for a period of 18 months.
On February 16, 1998, the Company entered into an Executive Severance
Agreement with Mr. Festa which supersedes and cancels his prior employment
agreement. Pursuant to the Executive Severance Agreement, Mr. Festa agreed to
serve as the Vice Chairman of the Board of Directors and a Special Advisor to
the Company for a two-year period for an annual base salary of $150,000. Mr.
Festa also agreed to forfeit 218,300 options granted to him as of December 31,
1997 and received a new grant of 124,100 non-qualified stock options exercisable
at the price as of the date of the agreement on the Oslo Stock Exchange, vesting
in full one year after the date of the Agreement with a term of seven years,
subject to the terms of the Company's 1994 Amended and Restated Stock Option
Plan. Mr. Festa also received, upon the signing of the agreement, a bonus in
the amount of $150,000 for service in 1997. The agreement further provides that
the Company will pay up to $400 per month for a leased automobile for Mr.
Festa's use during the term of the agreement, and, as additional compensation,
an amount which, after deducting federal and state income taxes, would equal the
amount which the Company would contribute as a "matching contribution" to Mr.
Festa's account under the Company's 401(k) plan, assuming that Mr. Festa was
still an active participant in the plan and elected to defer $833.33 in
compensation each month under the plan. The agreement contains covenants
restricting disclosure of confidential information and non-competition and non-
solicitation covenants. Pursuant to the agreement, if Mr. Festa's employment is
terminated without cause, the Company would be required to continue to pay Mr.
Festa the annual salary and benefits set forth in the agreement for the
remainder of the stated term of the agreement.
In May 1994, the Company entered into employment agreements with Drs.
Barnsley and Sloan, who each serve as executive officers of the Company. Under
the terms of their respective employment agreements, if the
19
<PAGE>
Company terminates the employment of Drs. Barnsley or Sloan for any reason,
other than for cause, the Company will be required to continue the payment of
their base salaries for a period of two years from the date of termination. The
terms of the employment agreements as amended in 1996 with Drs. Barnsley and
Sloan provide for a reduction in each individual's base annual salary to
$150,000 in the event the Company completes a public offering of shares of the
Company's Common Stock in which each individual is permitted to sell shares
owned by him, provided the public offering is completed before March 28, 1999.
This offering was completed on September 29, 1997 and thus the annual base
salaries thereafter payable to Drs. Barnsley and Sloan have been reduced as
provided above.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
On May 31, 1996, the Company entered into a credit agreement (the "Credit
Facility") with Mosvold Farsund Invest AS ("Mosvold"), which established a
$6,000,000 revolving line of credit (the "Revolving Facility"). Mosvold is a
Norwegian corporation controlled by Mr. Mikalsen, a director of the Company.
Advances under the Revolving Facility must be made in $3,000,000 increments with
30 days advance notice required. As of February 28, 1998, the Company had no
outstanding borrowings under the Revolving Facility. Outstanding borrowings
under the Revolving Facility accrue interest payable monthly at an annual rate
equal to NationsBank of Georgia N.A. prime lending rate plus 1%. The Company is
obligated to pay a quarterly commitment fee equal to .75% of the unused portion
of the Revolving Facility. Prior to the repayment of any principal by the
Company under the Revolving Facility, Mosvold has the right to elect to convert
the amount of principal being repaid into shares of the Company's Common Stock
at a price of $10.00 per share.
From June 30, 1998, the Company, at its option, may convert any outstanding
balance under the Revolving Facility to a term loan (the "Term Facility"). The
Term Facility would accrue simple interest at an annual rate equal to
NationsBank of Georgia N.A. prime lending rate plus 2.5%. Payments of principal
plus accrued interest under the Term Facility in 16 quarterly installments is
required, commencing on September 30, 1998. Prior to the payment of any
principal under the Term Facility, Mosvold has the right to elect to convert the
amount of principal being repaid into shares of the Company's Common Stock at a
price of $9.00 per share.
If the Company issues any of its securities to a third party who is not an
existing shareholder for an amount that exceeds the greater of $2,000,000 or the
amount of principal then outstanding under the Credit Facility, then following a
demand by Mosvold, the Company would be required to request an advance of funds
under the Credit Facility in an amount equal to the funds received from such
third party, subject to the $6,000,000 aggregate limit under the Credit
Facility.
In connection with the establishment of the Credit Facility, the Company
issued to Mosvold a warrant to acquire up to 100,000 shares of the Company's
Common Stock at a price of $10.00 per share until May 31, 1999. The Credit
Facility restricts the Company from incurring additional bank financing in
excess of $500,000.
On June 9, 1997, the Company borrowed $3,000,000 under the Credit Facility.
On October 31, 1997, Mosvold exercised the option to convert those borrowings
into 300,000 shares of the Company's Common Stock at $10 per share. The Company
paid Mosvold $112,000 in interest on the outstanding borrowings during 1997 and
$32,000 and $26,000 for commitment fees not borrowed during 1996 and 1997,
respectively. Under the Credit Facility, the Company currently may borrow up to
$3,000,000.
Pursuant to an agreement between the Company and Teknoinvest Management AS
("Teknoinvest"), the Company pays an annual consulting fee to Teknoinvest in the
amount of $15,000. Teknoinvest is a Norwegian corporation controlled by Mr.
Mikalsen, a director of the Company.
ITEM 8. LEGAL PROCEEDINGS
The nature of the Company's business exposes it to the risk of lawsuits for
damages or penalties relating to, among other things, breach of contract,
employment disputes and copyright, trademark or patent infringement. The Company
is not currently a party to any pending material litigation.
20
<PAGE>
ITEM 9. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANT'S COMMON EQUITY AND
RELATED SHAREHOLDER MATTERS.
The Company's Common Stock had been traded on the Oslo Stock Exchange under
the symbol "ITR" since October 1,1997. Prior to that time there was no
established market for the shares. The Company has not registered any
securities with the United States Securities and Exchange Commission.
Securities of the Company may not be offered for sale or sold in the US or to or
for the account or benefit of any U.S. person unless the securities are
registered or an exemption from registration requirements is available.
The price per share reflected in the table below represents the range of
low and high closing sale prices for the Company's Common Stock as reported by
the Oslo Stock Exchange for the periods indicated:
FISCAL PERIOD HIGH PRICE LOW PRICE
- ------------------- ---------- ---------
10/01/97 - 12/31/97 $13.92 $6.86
01/01/98 - 02/28/98 $ 9.23 $5.98
The closing sale price of the Company's Common Stock as reported by the
Oslo Stock Exchange on February 28, 1998 was U.S. $7.66.
The number of shareholders of record of the Company's Common Stock as of
February 28, 1998, was approximately 780.
The Company currently has 3,090,350 options and warrants outstanding to
acquire Common Stock of the Company, of which 1,400,376 are currently
exercisable.
The Company has never paid cash dividends on its capital stock. The
Company currently intends to retain any earnings for use in the business and
does not anticipate paying any cash dividends in the foreseeable future.
ITEM 10. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the Company has issued the securities set
forth below which were not registered under the Securities Act:
(i) On December 21, 1995, the Company issued to William Douglas Withers a
total of 5,200 shares of the Company's Common Stock for $6.02 per share, in
connection with Mr. Withers' services as a consultant to the Company. The
issuance of the shares to Mr. Withers was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof as a private transaction not
involving a public distribution.
(ii) On May 31, 1996, the Company issued to Mosvold Farsund Invest AS
("Mosvold") a revolving credit promissory note (the "Mosvold Note"). In
addition, the Company issued to Mosvold a three-year warrant to acquire up to
100,000 shares of the Company's Common Stock at an exercise price of $10.00 per
share, in connection with the establishment of the Credit Facility. The
issuance of the warrant to Mosvold was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof as a private transaction not
involving a public distribution.
(iii) On September 26, 1996, the Company issued an aggregate of 200,000
shares of its Common Stock for $10.00 per share in a private placement to
Mitsubishi Electric Corporation, Mitsubishi Corporation, Mitsubishi
International Corporation and CSK Corporation. This issuance was exempt from
registration under the Securities Act pursuant to Section 4(2) thereof and
Regulations D and/or S promulgated thereunder.
(iv) On April 22, 1997, the Company issued to Barent S. Wagar a total of
2,700 shares of its Common Stock for $10.00 per share, in connection with Mr.
Wagar's services as a consultant to the Company. This issuance
21
<PAGE>
was exempt from registration under the Securities Act pursuant to Section 4(2)
thereof as a private transaction not involving a public distribution.
(v) On September 29, 1997, the Company issued 10,630,224 shares of its
Common Stock in connection with the completion of a stock reclassification
whereby each outstanding share of common stock was reclassified into 100 shares
of Common Stock. This issuance was exempt from registration under the
Securities Act pursuant to Section 4(2) thereof as a private transaction not
involving a public distribution.
(vi) On September 3, 1997, the Company issued 2,040,000 shares of its
Common Stock for the equivalent of $10.00 per share in an offshore transaction
to investors predominantly in Norway. Elcon Securities AS served as lead
manager for the transaction and DnB Markets and Christiania Markets served as
co-managers. The underwriting discount or commission paid to Elcon Securities
AS, DnB Markets and Christiania Markets by the Company totaled $1,326,000. This
issuance was exempt from registration under the Securities Act pursuant to
Regulations S promulgated thereunder as a sale of securities outside the United
States.
(vii) On October 31, 1997, the Company issued 300,000 shares of its Common
Stock to Mosvold for $10.00 per share, upon the conversion of the outstanding
balance on that date under the Mosvold Note. This issuance was exempt from
registration under the Securities Act pursuant to Regulations S promulgated
thereunder as a sale of securities outside the United States.
(viii) Since April 30, 1995, the Company has issued stock options to
purchase an aggregate of 2,249,600 shares of its Common Stock under the 1994
Employee Plan and the Directors Plan (together with the 1994 Employee Plan, the
"Plans"), at a weighted average exercise price of $8.25 per share. Of these
options, 409,750 have expired or been exercised. As of February 28, 1998,
13,100 shares of Common Stock at an average weighted exercise price of $8.00 per
share have been issued upon exercise of options granted under the Plans since
April 30, 1995. Such shares of Common Stock issued pursuant to options granted
under the Plans were exempt from registration under the Securities Act pursuant
to Section 4(2) thereof and Rule 701 promulgated thereunder.
ITEM 11. DESCRIPTION OF REGISTRANT'S SECURITIES TO BE REGISTERED.
COMMON STOCK
The Company is authorized to issue 20,000,000 shares of common stock, par
value $.01 per share, of which 13,109,225 shares are issued and outstanding as
of February 28, 1998. All shares of common stock have equal rights and
privileges with respect to voting, liquidation and dividend rights. Each share
of common stock entitles the holder thereof (i) to one non-cumulative vote for
each share held of record on all matters submitted to a vote of the
stockholders; (ii) to participate equally and to receive any and all such
dividends as may be declared by the Board of Directors out of funds legally
available therefor; and (iii) to participate pro rata in any distribution of
assets available for distribution upon liquidation of the Company. Stockholders
of the Company have no preemptive rights to acquire additional shares of common
stock or any other securities. All outstanding shares of common stock are fully
paid and non-assessable. The shares of the Company's common stock are
uncertificated.
PREFERRED STOCK
The Company does not have any preferred stock authorized or issued.
WARRANTS TO PURCHASE COMMON STOCK
In connection with the Credit Facility with Mosvold, which established a
$6,000,000 revolving line of credit, the Company issued to Mosvold a warrant to
acquire up to 100,000 shares of the Company's Common Stock at a price of $10 per
share until May 31, 1999.
ITEM 12. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The Company's Amended and Restated Articles of Incorporation eliminate the
personal liability of directors to the Company or its shareholders for monetary
damages for breaches of such directors' duty of care or
22
<PAGE>
other duties as a director, except with respect to liability for (i) any
appropriation, in violation of the director's duties, of any business
opportunity of the Company, (ii) acts or omissions that involve intentional
misconduct or a knowing violation of law, (iii) liability under Section 14-2-832
(or any successor provision or redesignation thereof) of the Georgia Business
Corporation Code, or (iv) any transaction from which the director received an
improper personal benefit. In addition, the Company's Restated Bylaws provide
broad indemnification rights to (i) directors, and (ii) officers, employees, or
agents of the Company as directed by the directors. These provisions of the
Amended and Restated Articles of Incorporation and Restated Bylaws will limit
the remedies available to a shareholder who is dissatisfied with a decision of
the Board of Directors that is protected by these provisions.
ITEM 13. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Company's Consolidated Financial Statements for the years ended
December 31, 1995, 1996 and 1997 are filed as exhibits to this Registration
Statement.
ITEM 14. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
There have been no changes in or disagreements with accountants on
accounting and financial disclosures.
ITEM 15. FINANCIAL STATEMENTS AND EXHIBITS
(a) The following documents are filed as part of this report:
Consolidated Financial Statements
Included at the page indicated are the Consolidated Financial Statements of
the Company, with Notes, and the related report of the Company's independent
auditors thereon.
Item Page
- ---- ---------
Consolidated Financial Statements at December 31, 1996 and 1997
and for the Years Ended December 31, 1995, 1996 and 1997
Report of Independent Auditors F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations F-3
Consolidated Statements of Shareholders' Equity F-4
Consolidated Statements of Cash Flows F-5
Notes to Consolidated Financial Statements F-6 - 15
(b) Exhibits. The following exhibits are filed as part of this report on
Form 10.
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------
3.1 Amended and Restated Articles of Incorporation of the Registrant
3.2 Restated Bylaws of the Registrant
23
<PAGE>
EXHIBIT
NUMBER DESCRIPTION
- ------- ----------------------------------------------------------------
4.1 Warrant for the Purchase of Shares of Common Stock of the Registrant
issued to Mosvold Farsund Invest AS dated May 31, 1996
10.1 Loan Agreement between Mosvold Farsund Invest AS and the Registrant,
dated May 31, 1996, as amended June 30, 1997
10.2 Lease between California State Teachers' Retirement System and the
Registrant dated January 31, 1995 for premises situated at 3525
Piedmont Road, N.E., Seven Piedmont Center, Suite 600, Atlanta,
Georgia 30305
10.3 Lease between T.A. Fisher & Sons Limited and Iterated Systems Limited
dated June 27, 1997 relating to land and office buildings forming
Unit No. 32 at Wellington Business Park, Dukes Ride, Crowthorne,
Berkshire.
10.4 Amended and Restated Executive Employment Agreement between the
Registrant and John C. Bacon, dated as of February 16, 1998
10.5 Executive Severance Agreement between the Registrant and John R.
Festa, dated as of February 16, 1998
10.6 Employment Agreement between the Registrant and Michael F. Barnsley,
dated May 1, 1994, as amended
10.7 Employment Agreement between the Registrant and Alan D. Sloan, dated
May 1, 1994, as amended
10.8 Iterated Systems, Inc. 1994 Amended and Restated Stock Option Plan
10.9 Iterated Systems, Inc. Amended and Restated 1994 Directors Stock
Option Plan
21 Subsidiaries of the Registrant
27.1 Financial Data Schedule
99.1 Schedule II - Valuation and Qualifying Accounts
24
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Iterated Systems, Inc.
We have audited the accompanying consolidated balance sheets of Iterated
Systems, Inc. as of December 31, 1997 and 1996, and the related consolidated
statements of operations, shareholders' equity and cash flows for each of the
three years in the period ended December 31, 1997. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Iterated Systems, Inc. at December 31, 1997 and 1996, and the consolidated
results of its operations and its cash flows for each of the three years in the
period ended December 31, 1997 in conformity with generally accepted accounting
principles.
/s/ Ernst & Young LLP
Atlanta, Georgia
January 16, 1998
F-1
<PAGE>
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
---------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 4,150,834 $ 7,633,283
Short-term investments - 9,999,420
Accounts receivable, net of reserves for doubtful accounts
of $9,000 in 1997 and $70,000 in 1996 390,848 490,818
Receivables from employees 21,049 4,849
Inventory, net of reserve for obsolescence of $581,000 in 1996 24,396 8,275
Prepaid expenses and other assets 472,767 360,752
---------------------------
Total current assets 5,059,894 18,497,397
Property and equipment:
Computer equipment and purchased software 3,631,909 3,836,507
Furniture and equipment 464,649 366,084
Leasehold improvements 124,002 134,398
---------------------------
4,220,560 4,336,989
Accumulated depreciation and amortization (1,959,544) (3,103,756)
---------------------------
2,261,016 1,233,233
Other assets 165,960 44,464
---------------------------
Total assets $ 7,486,870 $19,775,094
===========================
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
----------------------------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 310,087 $ 206,321
Accrued expenses 866,623 639,461
Deferred revenue 2,557,126 5,126
Current maturities of long-term debt 138,487 80,784
Current portion of capitalized lease obligations 160,709 38,829
Other 34,572 34,572
----------------------------
Total current liabilities 4,067,604 1,005,093
Non-current liabilities:
Long-term debt 80,784 -
Capitalized lease obligations 43,704 4,874
Other 83,549 48,977
Shareholders' equity:
Common stock, $.01 par value:
Authorized shares - 20,000,000
Issued and outstanding shares - 13,102,025 in 1997
and 10,714,600 in 1996 107,146 131,020
Additional paid-in capital 8,193,984 30,012,720
Accumulated deficit (5,107,385) (11,436,434)
Currency translation adjustments 17,484 8,844
----------------------------
Total shareholders' equity 3,211,229 18,716,150
----------------------------
Total liabilities and shareholders' equity $ 7,486,870 $ 19,775,094
============================
</TABLE>
See accompanying notes.
F-2
<PAGE>
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
-----------------------------------------
<S> <C> <C> <C>
Revenues:
Development fees and exclusive license fees $12,835,082 $13,253,918 $ 8,829,000
Software products and related revenues 1,164,904 1,951,337 391,588
Other license and contract revenues 430,504 353,004 250,575
-----------------------------------------
14,430,490 15,558,259 9,471,163
Costs and expenses:
Costs of product revenues 276,099 923,253 128,392
Sales and marketing 3,434,709 5,145,754 4,993,471
Research, development and engineering 8,684,687 8,965,758 8,260,615
General and administrative 2,266,663 1,986,449 2,640,183
Inventory writedowns 380,105 238,000 -
-----------------------------------------
15,042,263 17,259,214 16,022,661
-----------------------------------------
Operating loss (611,773) (1,700,955) (6,551,498)
Other income (expense):
Interest income 173,506 191,266 395,927
Interest expense (57,485) (86,129) (176,464)
Foreign currency exchange gain (loss) (13,111) (10,652) 2,986
-----------------------------------------
Net loss $ (508,863) $(1,606,470) $(6,329,049)
=========================================
Basic and diluted net loss per share of common stock $(.05) $(.15) $(.56)
=========================================
Weighted average number of shares of common stock outstanding 10,500,800 10,563,500 11,319,600
=========================================
</TABLE>
See accompanying notes.
F-3
<PAGE>
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL CURRENCY
---------------------- PAID-IN ACCUMULATED TRANSLATION
SHARES AMOUNT CAPITAL DEFICIT ADJUSTMENTS TOTAL
------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1995 10,495,200 $104,952 $ 5,592,777 $ (2,992,052) $(16,279) $ 2,689,398
Net loss - - - (508,863) - (508,863)
Currency translation adjustments - - - - 11,654 11,654
Issuance of common stock 5,700 57 31,229 - - 31,286
Exercise of stock options 8,500 85 3,190 - - 3,275
Compensation related to options for 726,500
shares of common stock - - 287,233 - - 287,233
------------------------------------------------------------------------------
Balance at December 31, 1995 10,509,400 105,094 5,914,429 (3,500,915) (4,625) 2,513,983
Net loss - - - (1,606,470) - (1,606,470)
Currency translation adjustments - - - - 22,109 22,109
Issuance of common stock 200,000 2,000 1,996,634 - - 1,998,634
Exercise of stock options 5,200 52 4,605 - - 4,657
Compensation related to options for 714,200
shares of common stock - - 278,316 - - 278,316
------------------------------------------------------------------------------
Balance at December 31, 1996 10,714,600 107,146 8,193,984 (5,107,385) 17,484 3,211,229
Net loss - - - (6,329,049) - (6,329,049)
Currency translation adjustments - - - - (8,640) (8,640)
Initial public offering of stock, net of
$1,821,000 of offering costs 2,040,000 20,400 18,558,746 - - 18,579,146
Conversion of note payable to stockholder to
common stock 300,000 3,000 2,997,000 - - 3,000,000
Issuance of common stock 2,600 26 25,974 - - 26,000
Exercise of stock options 44,825 448 132,211 - - 132,659
Compensation related to options for 570,200
shares of common stock 104,805 - - 104,805
------------------------------------------------------------------------------
Balance at December 31, 1997 13,102,025 $131,020 $30,012,720 $(11,436,434) $ 8,844 $18,716,150
==============================================================================
</TABLE>
See accompanying notes.
F-4
<PAGE>
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
-------------------------------------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net loss $ (508,863) $(1,606,470) $ (6,329,049)
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation and amortization 822,204 1,285,317 1,468,109
(Gain) loss on sales of property and equipment (4,094) 832 (180)
Compensatory stock options 287,233 278,316 104,805
Foreign currency transaction (gain) loss 13,111 10,652 (2,986)
Changes in operating assets and liabilities:
Accounts receivable 199,896 (143,249) (100,761)
Receivables from employees (327,348) 311,744 16,200
Inventory (231,022) 249,480 15,789
Prepaid expenses and other (350,361) (125,879) 240,418
Accounts payable 62,433 (57,162) (102,219)
Accrued expenses 414,324 (338,959) (234,842)
Deferred revenue 4,510,384 (2,557,433) (2,552,000)
Other liabilities 152,693 (34,572) (34,572)
-------------------------------------------
Net cash provided by (used in) operating activities 5,040,590 (2,727,383) (7,511,288)
INVESTING ACTIVITIES
Purchases of property and equipment (2,443,883) (1,158,042) (445,971)
Proceeds from sale of property and equipment 20,881 15,797 400
Purchases of short-term investments - - (9,999,420)
-------------------------------------------
Net cash used in investing activities (2,423,002) (1,142,245) (10,444,991)
FINANCING ACTIVITIES
Proceeds from note payable to stockholder - - 3,000,000
Proceeds from note payable to bank 415,461 - -
Payments on note payable to bank (57,703) (138,487) (138,487)
Proceeds from capital leases 343,513 12,500 -
Principal payments on capital lease obligations (105,792) (138,191) (160,710)
Proceeds on initial public offering of common stock - - 18,579,146
Issuance of common stock 34,561 2,003,291 158,659
-------------------------------------------
Net cash provided by financing activities 630,040 1,739,113 21,438,608
Effect of exchange rate fluctuation on cash (255) 416 120
-------------------------------------------
Increase (decrease) in cash and cash equivalents 3,247,373 (2,130,099) 3,482,449
Cash and cash equivalents at beginning of year 3,033,560 6,280,933 4,150,834
-------------------------------------------
Cash and cash equivalents at end of year $ 6,280,933 $ 4,150,834 $ 7,633,283
===========================================
Non-cash items
Conversion of proceeds on note payable to
stockholder to common stock $ - $ - $ 3,000,000
===========================================
</TABLE>
See accompanying notes.
F-5
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1997
1. DESCRIPTION OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF BUSINESS
Iterated Systems, Inc. (the "Company") develops and markets patented digital
image science technology based upon its emerging Imaging Systems Architecture
(ISA), to original equipment manufacturers (OEM's) needing innovative, high
performance solutions that improve customer satisfaction while making workflows
faster and more efficient.
Iterated's patented technologies are based upon the Company's research and
development expertise in digital image science and fractal-based mathematics
that have evolved over more than ten years in the digital image business. The
industry in which the Company operates is subject to rapid technological change.
INITIAL PUBLIC OFFERING
In September 1997 the Company sold 2,040,000 shares of common stock in an
initial public offering at $10.00 per share on the Oslo Stock Exchange in
Norway.
The Company has not registered any securities with the United States ("U.S.")
Securities and Exchange Commission. Securities of the Company may not be
offered for sale or sold in the U.S., or to or for the account or benefit of any
"U.S. person" unless the securities are registered or an exemption from the
registration requirements is available.
STOCK SPLIT
On September 2, 1997: (a) the Company's Board of Directors agreed to effect a
100 for 1 stock split in the form of a stock dividend and to increase the number
of authorized shares of common stock from 10,000,000 shares to 20,000,000
shares, effective September 3, 1997; and (b) the Company's shareholders approved
such Board actions. All share and per share amounts have been adjusted in the
accompanying consolidated financial statements to reflect such stock split.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company and
its wholly-owned United Kingdom subsidiary, Iterated Systems, Limited ("ISL").
Significant intercompany accounts and transactions have been eliminated in
consolidation.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less when purchased to be cash equivalents.
SHORT-TERM INVESTMENTS
The Company's short-term investments are classified as held-to-maturity and are
stated at cost. These investments mature within one year and the carrying
amount reported in the balance sheets for these investments approximates their
fair value.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
using the first-in, first-out method. Market is defined as net realizable
value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. Depreciation and amortization
expense is calculated over the estimated useful lives of the related assets
(three to seven years) using the straight line method for financial reporting
purposes. Amortization of assets recorded under capital leases is included with
depreciation and amortization expense.
F-6
<PAGE>
SOFTWARE REVENUE RECOGNITION
In October 1997 the American Institute of Certified Public Accountants ("AICPA")
issued Statement of Position 97-2 ("SOP 97-2") to clarify guidance on applying
generally accepted accounting principles to software transactions and to provide
guidance on when revenue should be recognized and in what amounts for licensing,
selling, leasing, or otherwise marketing computer software. The Company adopted
SOP 97-2 during 1997. Such adoption had no effect on the Company's methods of
recognizing revenue.
Development fees and contract revenues are recognized based on the Company's
estimate of the percentage of completion using actual costs incurred as a
percentage of expected total costs of individual development agreements or
contracts. Exclusive license fees are recognized over the exclusivity period,
if applicable.
Revenues from the sale of hardware and packaged software products are recognized
upon the shipment of the products to the customers.
The Company's revenues are derived from a variety of customers including a large
telecommunications company. The telecommunications company (see Note 7)
accounted for 89%, 81% and 75% of the Company's revenues during 1995, 1996 and
1997, respectively. There were no amounts outstanding from this customer at
December 31, 1997.
ADVERTISING COSTS
Advertising costs are expensed in the period incurred. Such costs amounted to
$187,000, $299,000, and $132,000 during 1995, 1996 and 1997, respectively.
RESEARCH AND DEVELOPMENT AND PATENT COSTS
Research and development expenditures which include patent application and
issuance costs are expensed when incurred.
INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for tax purposes. Such amounts are measured using
enacted tax rates and laws that are expected to be in effect when the
differences reverse.
FOREIGN CURRENCY TRANSLATION
ISL considers the British pound to be its functional currency. The Company
considers its functional currency to be the U.S. dollar. ISL's assets and
liabilities are translated at year-end rates of exchange and its revenues and
expenses are translated at the average rates of exchange during the year.
Gains and losses resulting from currency translation are accumulated as a
separate component of shareholders' equity. Gains and losses resulting from
foreign currency transactions are included in the determination of net loss.
NET LOSS PER SHARE OF COMMON STOCK
In February 1997 the Financial Accounting Standards Board ("FASB") issued
Statement No. 128 Earnings Per Share ("Statement 128") which establishes
standards for computing and presenting earnings per share ("EPS") for entities
with publicly held common stock or potential common stock. Statement 128
requires the presentation of basic and diluted EPS on the face of the income
statement for all entities with complex capital structures. The Company adopted
Statement 128 in 1997 and, in accordance with the requirements thereof, restated
its net loss per share for all prior periods. The effect of adoption was not
material to the accompanying consolidated financial statements. Net loss per
share of common stock is computed based on the weighted average number of shares
outstanding during the year.
ACCOUNTING FOR THE IMPAIRMENT OF LONG-LIVED ASSETS
In March 1995 the FASB issued Statement No. 121, Accounting for the Impairment
of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("Statement
121"), which requires impairment losses to be recorded on long-lived assets used
in operations when indicators of impairment are present and the undiscounted
cash flows estimated to be generated by those assets are less than the assets'
carrying amounts. Statement 121 also addresses the accounting for long-lived
assets that are expected to be disposed of. The Company adopted Statement 121
as of January 1, 1996. The effect of such adoption was not material to the
accompanying consolidated financial statements.
F-7
<PAGE>
EMPLOYEE STOCK OPTIONS
In October 1995 the FASB issued Statement No. 123, Accounting for Stock-Based
Compensation ("Statement 123"). Under Statement 123, the Company may continue
following previously existing accounting rules or adopt a new fair value method
of valuing stock-based awards to employees. The Company elected to continue
following the existing accounting rules under Accounting Principles Board
Opinion No. 25,
Accounting for Stock Issued to Employees ("APB 25"), and related Interpretations
in accounting for its employee stock options. The pro forma effect on the
accompanying consolidated statements of operations of adopting Statement 123 is
presented in Note 8.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
In June 1997 the FASB issued Statement No. 130 Reporting Comprehensive Income
("Statement 130") which establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains, and losses)
in financial statements. Statement 130 is effective for fiscal years beginning
after December 15, 1997. The Company will adopt Statement 130 in 1998 and does
not expect the effect of such adoption to be material to its consolidated
financial statements.
In June 1997 the FASB also issued Statement No. 131 Disclosures about Segments
of an Enterprise and Related Information ("Statement 131") which establishes
standards for the way public business enterprises report information about
operating segments in annual financial statements and requires that those
enterprises report selected information about operating segments in interim
financial reports issued to shareholders. Operating segments are components of
an enterprise about which separate financial information is available that is
evaluated regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance. Statement 131 also establishes
standards for related disclosures about products and services, geographic areas,
and major customers. Statement 131 is effective for financial statements for
periods beginning after December 15, 1997. The Company will adopt Statement 131
in 1998 and does not expect the effect of adoption to be material to its
consolidated financial statements.
2. FINANCIAL INSTRUMENTS
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and cash equivalents,
short-term investments and trade accounts receivable.
The Company maintains cash and cash equivalents and certain other financial
instruments with various financial institutions. Company policy is designed to
limit exposure at any one institution. Certain investments are in excess of
Federal Deposit Insurance Corporation ("FDIC") guaranteed amounts. The Company
performs periodic evaluations of the relative credit standing of those financial
institutions which are considered in the Company's investment strategy.
The carrying amounts reported in the balance sheet for cash and cash
equivalents, short-term investments, accounts receivable, accounts payable and
notes payable approximate their estimated fair values.
3. INVENTORY
During 1995 the Company upgraded certain of its software products. The upgraded
software operates in such a way that, when used in conjunction with recently
available personal computer central processors and operating systems, the
Company's older hardware products are unnecessary for fully functional
operation. Accordingly, during 1995, the Company recorded reserves totaling
$380,000 to reduce the carrying value of certain inventory items and to reflect
inventory purchase commitments in excess of net realizable value. The Company
reserved an additional $238,000 during 1996. Inventory and reserves associated
with the Company's older hardware products were written off during 1997.
4. LONG-TERM DEBT AND CREDIT FACILITY
Long-term debt consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
---------------------------------------
<S> <C> <C>
Note payable to a bank through July 1998
at approximately $12,000 per month, plus
interest at prime (8.5% at December 31,
1997); secured by certain computer equipment $ 219,000 $ 81,000
Less current portion (138,000) (81,000)
---------------------------------------
$ 81,000 $ -
=======================================
</TABLE>
On May 31, 1996 the Company entered into a Bridge Financing Credit Facility (the
"Agreement") with one of its shareholders (the "Lender"). The Agreement was
amended on June 30, 1997, and the borrowing term, public offering provisions and
F-8
<PAGE>
conversion date were extended to June 30, 1998 (previously May 31, 1997). The
Credit Facility allows the Company to borrow up to $6,000,000 ($3,000,000 at
December 31, 1997) at prime plus 1% (9.5% at December 31, 1997) from the Lender
until June 30, 1998 without collateral. In addition, the Lender received a
warrant to purchase 100,000 shares of the Company's common stock at $10 per
share. The warrant expires on May 31, 1999. Company borrowings under the
Credit Facility do not have to be repaid prior to the due date unless there is a
public offering of the Company's stock prior to June 30, 1998. In such event,
the Lender has an option to convert such borrowings into shares of the Company's
common stock at $10 per share in lieu of accepting the Company's repayment. If
borrowings are outstanding at June 30, 1998 and there has not been a public
offering of the Company's common stock, such borrowings convert to a three-year
term note. At the time of conversion to a three-year term note, the Lender is
entitled to secure the note with collateral to be negotiated at that time.
After conversion to a term note, the Lender may at any time covert the unpaid
balance into shares of the Company's common stock at $9 per share.
On June 9, 1997, the Company borrowed $3,000,000 under the Agreement. On
October 31, 1997, the Lender exercised the option to convert those borrowings
into 300,000 shares of the Company's common stock at $10 per share. The Company
paid the Lender $112,000 in interest on the outstanding borrowings during 1997
and $32,000 and $26,000 for commitment fees on amounts not borrowed during 1996
and 1997, respectively.
5. CAPITALIZED LEASE OBLIGATIONS
Property and equipment includes the following amounts for leases that have been
capitalized:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
-----------------------------------
<S> <C> <C>
Telephone equipment $ 108,000 $ 108,000
Computer equipment 340,000 340,000
-----------------------------------
448,000 448,000
Less accumulated amortization (277,000) (426,000)
$ 171,000 $ 22,000
===================================
</TABLE>
Amortization of leased assets is included in depreciation and amortization
expense. The telephone equipment provides for a bargain purchase option at the
end of the lease (May, 1998), while the computer equipment lease provides for a
series of one month extensions at the end of the current term (January, 1998).
Future minimum lease payments under capital leases consist of the following at
December 31, 1997:
<TABLE>
<S> <C>
1998 $ 42,000
1999 5,000
--------
Total minimum lease payments 47,000
Less amounts representing interest (3,000)
--------
Present value of net minimum lease payments 44,000
Less current portion (39,000)
--------
$ 5,000
========
</TABLE>
6. OPERATING LEASES
The Company leases certain office equipment and office space under
noncancellable agreements. The office equipment lease provides for an extension
of the lease term at fair rental value or a purchase option at fair market
value. The office space lease provides for a five year extension with rent
escalation clauses linked to the Consumer Price Index. Rent expense under all
operating leases approximated $755,000, $727,000 and $695,000 during 1995, 1996,
and 1997, respectively.
During 1995 the Company relocated its principal offices and subleased its former
office space to new tenants. The 1995 rent expense included $172,000 to cover
the remaining lease obligation of such former office space, net of expected
sublease and related income of $359,000, through November 30, 1996.
Future minimum lease payments under noncancellable operating leases, with
initial lease terms of at least one year at the time of inception, are as
follows at December 31, 1997:
<TABLE>
<S> <C>
1998 $ 714,000
1999 707,000
2000 395,000
2001 89,000
2002 and after 934,000
----------
$2,839,000
==========
</TABLE>
F-9
<PAGE>
7. SIGNIFICANT CONTRACTS
In 1994 the Company entered into a Development and License Agreement (the
"Agreement") with a major international telecommunications company (the
"Licensee") to provide for further development of certain advanced compression
technology for use in telecommunications applications. The Licensee supplied
significant funding for development and had certain exclusive rights until
September 1997 for specified modules in telecommunications markets. The
Agreement provided for the Company and the Licensee to share in revenues
generated by the sale of such telecommunications modules. The Agreement gives
the Licensee certain rights to continue exclusive licensing of specific
technology components in telecommunications markets after September 1997. Some
of these rights require payment of additional exclusivity licensing fees while
others do not. During 1995, 1996, and 1997 the Company recognized $10,975,000,
$10,873,000, and $5,752,000, respectively, in development fee revenues and
$1,800,000, $1,800,000, and $1,350,000, respectively, in exclusive license fee
revenues under the contract. Except for certain provisions, notably with
respect to the continuing licensing of specific technology components referred
to above, the Agreement expired in September 1997.
The Licensee and the Company have engaged in discussions which resulted in
differing interpretations of various material provisions of the Agreement. If
the parties are not successful in resolving these matters, then issues regarding
the Agreement could result in an arbitration proceeding between the Licensee and
the Company. In the opinion of management, the most likely resolution of these
matters will not have a material adverse effect on the Company's consolidated
financial position.
8. STOCK OPTION PLANS
In 1992 the Company approved a stock option plan and reserved 450,000 shares of
common stock for future issuance. This plan was amended by the 1994 Amended and
Restated Stock Option Plan (the "Plan") and the number of shares issuable under
the Plan was increased to 1,750,000. During 1995, 1996 and 1997, the number of
shares issuable under the Plan was further increased to 2,000,000, 2,200,000,
and 2,400,000, respectively. Options may be granted only to employees of the
Company. The options may be issued as incentive or nonqualified stock options.
The terms and conditions of options granted under the Plan, including the number
of shares, the exercise price and the time at which such options become
exercisable are determined by the Board of Directors. The terms of options
granted under the Plan may not exceed 10 years.
The Company granted options as to 515,000, 311,000 and 553,100 shares under the
Plan at exercise prices ranging from $6 to $8 during 1995, $10 during 1996, and
ranging from $7.40 to $10 during 1997. Options as to 707,700 shares granted in
1994 resulted in $257,000, $248,000 and $80,000 of compensation expense during
1995, 1996 and 1997, respectively. This expense relates to the aggregate
difference between the estimated fair market values of the shares at the date of
the grant and the exercise prices which is being expensed over the vesting
period.
Options as to 398,025 shares are available for future grants under the Plan at
December 31, 1997.
During 1994 the Company adopted a Directors Stock Option Plan and reserved
180,000 shares for awards to non-employee directors joining the Board during or
after November 1994. Such options are intended to take the place of cash
compensation to such directors. Options granted under this plan vest over a
three-year period. The Company granted options as to 25,000 and 15,000 shares
at exercise prices of $6 and $10 in 1995 and 1996, respectively. Grants issued
under the plan resulted in $30,000, $30,000 and $25,000 of compensation expense
during 1995, 1996 and 1997, respectively, which relates to the aggregate
difference between the estimated fair market values of the shares at the dates
of grant and the exercise prices which is being expensed over the vesting
period.
A summary of stock option activity under both of the above-described plans
follows:
F-10
<PAGE>
<TABLE>
<CAPTION>
NUMBER PRICE WEIGHTED -
OF SHARES PER SHARE AVERAGE PRICE
--------------------------------------
<S> <C> <C> <C>
Outstanding options at January 1, 1995 1,435,100 $.32- $ 6 $5.04
Options granted 540,500 6- 8 7.11
Options exercised (8,500) .32- 6 .39
Options canceled (119,200) .32- 6 5.22
-----------
Outstanding options at December 31, 1995 1,847,900 .32- 8 5.66
Options granted 326,000 10 10
Options exercised (5,200) .32- 6 .82
Options canceled (39,500) 6- 10 8
-----------
Outstanding options at December 31, 1996 2,129,200 .32- 10 6.29
Options granted 553,100 7.40- 10 9.42
Options exercised (44,825) .32- 8 2.96
Options canceled (634,725) .32- 10 7.79
-----------
Outstanding options at December 31, 1997 2,002,750 .32- 10 6.76
===========
Exercisable options at December 31, 1997 1,298,317 .32- 10 5.43
===========
</TABLE>
F-11
<PAGE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------- ----------------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICES NUMBER OUTSTANDING LIFE EXERCISE PRICE NUMBER EXERCISABLE EXERCISE PRICE
- ------------------------------------- ------------------------ ------------------ -------------------- ------------------
<S> <C> <C> <C> <C> <C>
$ .32 51,000 6 $ .32 51,000 $ .32
4.50 60,000 3 4.50 40,000 4.50
4.83 707,700 7 4.83 487,000 4.83
6 720,000 6 6 420,400 6
8 267,500 9 8 67,400 8
10 323,000 10 - - -
--------- ---------
2,129,200 8 6.29 1,065,800 5.27
========= =========
</TABLE>
The following table summarizes information concerning outstanding and
exercisable options at December 31, 1997:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
- -------------------------------------------------------------------------------------- ----------------------------------------
WEIGHTED AVERAGE WEIGHTED WEIGHTED
REMAINING CONTRACTUAL AVERAGE AVERAGE
EXERCISE PRICES NUMBER OUTSTANDING LIFE EXERCISE PRICE NUMBER EXERCISABLE EXERCISE PRICE
- ------------------------------------- ------------------------ ------------------ -------------------- ------------------
<S> <C> <C> <C> <C> <C>
$ .32 11,900 5 $ .32 11,900 $ .32
4.50 60,000 2 4.50 60,000 4.50
4.83 689,400 6 4.83 689,400 4.83
6 467,600 5 6 445,934 6
7.40 124,100 10 - - -
8 148,750 8 8 71,000 8
10 501,000 9 10 20,083 10
--------- ---------
2,002,750 7 6.76 1,298,317 5.43
========= =========
</TABLE>
The Company has elected to follow APB 25 and related Interpretations in
accounting for its employee stock options because, as discussed below, the
alternative fair value accounting provided for under Statement 123 requires use
of option valuation models that were not developed for use in valuing employee
stock options. Under APB 25, when the exercise price of the Company's stock
options equals or exceeds the market price of the underlying stock on the date
of grant, no compensation expense is recognized.
Pro forma information regarding net income is required by Statement 123, which
also requires that the information be determined as if the Company has accounted
for its employee stock options granted subsequent to December 31, 1994 under the
fair value method. The fair values for these options were estimated at the
dates of grant using the minimum value method prior to the Company's Initial
Public Offering in September 1997 and the Black-Scholes method thereafter, with
the following weighted-average assumptions for 1995, 1996 and 1997; risk-free
interest rates of 6.40%, 6.36% and 6.20%, respectively; no dividend yield;
volatility of .01 prior to the effective date of the Company's Initial Public
Offering in September 1997 and .421, thereafter; and a weighted-average expected
life of the options of 5 years.
For purposes of pro forma disclosures, the estimated fair values of the options
are amortized to expense over the options' vesting periods. The Company's pro
forma information, assuming Statement 123 had been adopted, is as follows:
F-12
<PAGE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
1995 1996 1997
--------------------------------------------------
<S> <C> <C> <C>
Pro forma net loss $(638,000) $(1,866,000) $(6,755,000)
Pro forma basic and diluted net loss per
share of common stock (.06) (.18) (.60)
</TABLE>
The weighted-average fair values of options granted for the years ended December
31, 1995 and 1996 and 1997 were $2.14, $2.52 and $2.90, respectively. Since
Statement 123 is applicable only to options granted subsequent to December 31,
1994, its pro forma effect will not be fully reflected until 1999.
9. SEGMENT INFORMATION
The net assets of the foreign operations exclude intercompany accounts payable
to the Company (for which settlement is not planned or anticipated in the
foreseeable future).
<TABLE>
<CAPTION>
Year ended December 31
1995 1996 1997
---------------------------------------
<S> <C> <C> <C>
OPERATING REVENUE
United States $13,783,000 $15,462,000 $ 9,425,000
United Kingdom 647,000 96,000 46,000
---------------------------------------
Total $14,430,000 $15,558,000 $ 9,471,000
=======================================
NET LOSS
United States $ 28,000 $ 973,000 $ 5,511,000
United Kingdom 481,000 633,000 818,000
---------------------------------------
Total $ 509,000 $ 1,606,000 $ 6,329,000
=======================================
IDENTIFIABLE ASSETS, NET
United States $ 2,427,000 $ 3,144,000 $18,550,000
United Kingdom 87,000 67,000 166,000
---------------------------------------
Total $ 2,514,000 $ 3,211,000 $18,716,000
=======================================
</TABLE>
10. SIGNIFICANT EMPLOYMENT AGREEMENTS
In 1994 the Company entered into employment agreements with its two co-founders,
who each serve as Executive Vice Presidents. The agreements provide for: (a) a
grant of stock options; (b) ongoing annual base salaries; (c) salary
continuation rights in the event of employment termination under certain
circumstances; and (d) possible performance-based cash bonuses each year through
1996. Total charges to expense for cash bonuses under these two agreements
amounted to $330,000 in 1995. No such amounts were charged to expense in 1996
or 1997. Prior to the issuance of the 1995 consolidated financial statements,
each Executive Vice President agreed to a future reduction in annual base
salary, which became effective upon the Company's completion of an Initial
Public Offering of common stock in September 1997.
In 1994 the Company also entered into an employment agreement with the
President/Chief Executive Officer. This agreement included a grant of options
as to 724,300 shares of common stock at exercise prices ranging from $4.83 to $6
per share. Options as to 137,500 of the shares were to vest on the earlier of
eight years from date of grant or the successful completion of certain
performance-based criteria during the three year period following the date of
grant. The remaining options vested over a period of three years from the date
of grant. Compensation expense related to these options aggregated $257,000,
$248,000 and $80,000 during 1995, 1996 and 1997, respectively (see Note 8). The
President/CEO was also entitled to receive a specified bonus in the event of a
change in control of the Company and retain salary continuation rights in the
event of employment termination under certain circumstances.
In December 1997, the Company restated the employment agreement with the
President/Chief Executive Officer. The restated agreement acknowledges his
request to relinquish the President/Chief Executive Officer titles and to become
the Vice-Chairman of the Company's Board of Directors together with: a) a
reduction of base salary to reflect his advisory role; b) an additional grant of
124,100 stock options; c) and a performance-based cash bonus in the amount of
$150,000 which was paid in 1997. The restated agreement also provides for the
immediate vesting of options as to 706,000 shares of common stock previously
granted and the forfeiture of options as to 218,300 shares of common stock
previously granted.
11. INCOME TAXES
The Company and ISL file income tax returns in the United States and the United
Kingdom, respectively.
F-13
<PAGE>
11. INCOME TAXES (CONTINUED)
At December 31, 1996 and December 31, 1997 the Company has net operating loss
carryforwards in the United States of $3,120,000 and $11,941,000, respectively,
which begin expiring in 2007. In addition, at December 31, 1996 and December
31, 1997 the Company has $720,000 and $920,000, respectively, of research and
development credits available for offset against future United States income
taxes which expire in 2007 through 2011. The utilization of net operating loss
carryforwards to offset future taxable income may be limited due to any future
changes in ownership of the Company.
At December 31, 1996 and December 31, 1997 ISL has net operating loss
carryforwards in the United Kingdom of (Pounds)1,011,000 ($1,592,000) and
(Pounds)1,600,000 ($2,633,000), respectively, which are available for offset
against future United Kingdom taxable income.
For financial reporting purposes, a valuation allowance has been recognized to
reduce the net deferred tax assets to zero due to uncertainties with respect to
the Company's ability to generate taxable income in the future sufficient to
realize the benefit of such deferred income tax assets.
The Company's deferred income tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
DECEMBER 31
1996 1997
-----------------------------------
<S> <C> <C>
Deferred income tax liabilities:
Tax over book depreciation $ 77,000 $ -
Prepaid insurance 13,000 19,000
-----------------------------------
Total deferred income tax liabilities 90,000 19,000
Deferred income tax assets:
Book over tax depreciation - 158,000
Research and development credits 720,000 920,000
Allowance for bad debts 22,000 3,000
Inventory reserve 220,000 -
Net operating loss carryforwards-U.S. 1,186,000 4,538,000
Net operating loss carryforwards-U.K. 525,000 869,000
Compensatory stock options 335,000 266,000
Deferred revenue 1,345,000 2,000
Alternative minimum tax credit 115,000 115,000
Bonuses - 10,000
-----------------------------------
Total deferred income tax assets 4,468,000 6,881,000
Valuation allowance for deferred income tax assets
4,378,000 6,862,000
-----------------------------------
Net deferred income tax assets 90,000 19,000
-----------------------------------
Net deferred income taxes $ - $ -
===================================
</TABLE>
12. RETIREMENT PLAN
The Company maintains a defined contribution plan (the "401(k) Plan") covering
all employees. The Company makes matching contributions equal to 50% of
eligible employees' contributions, up to 4% of the employees' compensation. The
Company expensed $90,000, $102,000, and $102,000 during 1995, 1996 and 1997,
respectively, related to this plan.
13. LITIGATION
The Company is involved in certain litigation arising in the ordinary course of
business. In the opinion of management, the ultimate resolution of these matters
will not have a material adverse effect on the Company's consolidated financial
position or results of operations.
14. EQUITY INVESTMENT
During 1996 an international general trading company and certain of its
associated companies made an equity investment in the Company. The total
investment amounted to approximately $2,000,000 in exchange for which the
Company issued 200,000 shares of the Company's common stock.
15. YEAR 2000 DATE CONVERSION (UNAUDITED)
The Company recognizes the need to ensure its operations will not be adversely
impacted by year 2000 software failures. The Company intends to take the
actions necessary to ensure that systems and applications will recognize and
process the year 2000
F-14
<PAGE>
and beyond. The Company does not expect the cost of year 2000 compliance to be
material to its consolidated financial statements.
SHARE MARKET VALUE
The company's shares of common stock have been traded on the Norwegian Stock
Exchange under the symbol ITR since October 1,1997. Prior to that time the
shares were not traded on any public market or exchange.
Quarter Ended December 31,1997
High $13.92
Low 6.86
The Company has not registered any securities with the United States Securities
and Exchange Commission under the Securities Act of 1933, as amended. Securities
of the Company may not be offered for sale or sold in the U.S., or to or for the
account or benefit of any "U.S. person" (as defined in the Securities Act),
unless the securities are registered under the Securities Act or an exemption
from such registration requirements is available.
F-15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 12 of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
ITERATED SYSTEMS, INC.
By: /s/ John C. Bacon
------------------
John C. Bacon
President and
Chief Executive Officer
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
ITERATED SYSTEMS, INC.
Pursuant to Sections 14-2-1001 and 14-2-1003 of the Georgia Business
Corporation Code, Iterated Systems, Inc. hereby amends and restates its Articles
of Incorporation in their entirety and substitutes the following in lieu
thereof:
The Amended and Restated Articles of Incorporation were adopted by the Board
of Directors and Shareholders on September 2, 1997.
ARTICLE ONE
NAME
----
The name of the corporation is Iterated Systems, Inc.
ARTICLE TWO
CAPITALIZATION
--------------
The corporation shall have authority, exercisable by its Board of Directors,
to issue up to 20,000,000 shares of common stock, $0.01 par value per share.
ARTICLE THREE
LIMITATION ON DIRECTOR LIABILITY
--------------------------------
No director of the corporation shall be personally liable to the corporation
or its shareholders for monetary damages for breach of the duty of care or any
other duty as a director, except that such liability shall not be eliminated
for:
(i) any appropriation, in violation of the director's duties, of any
business opportunity of the corporation;
(ii) acts or omissions that involve intentional misconduct or a knowing
violation of law;
(iii) liability under Section 14-2-832 (or any successor provision or
redesignation thereof) of the Georgia Business Corporation Code (the
"Code"); and
(iv) any transaction from which the director received an improper
personal benefit.
If at any time the Code shall have been amended to authorize the further
elimination or limitation of the liability of a director, then the liability of
each director of the corporation shall be eliminated or limited to the fullest
extent permitted by the Code, as so amended, without further action by the
shareholders, unless the provisions of the Code, as amended, require further
action by the shareholders.
<PAGE>
Any repeal or modification of the foregoing provisions of this Article Three
shall not adversely affect the elimination or limitation of liability or alleged
liability pursuant hereto of any director of the corporation for or with respect
to any alleged act or omission of the director occurring prior to such a repeal
or modification.
IN WITNESS WHEREOF, the undersigned executes these Amended and Restated
Articles of Incorporation on September 2, 1997.
/s/ John R. Festa
--------------------
John R. Festa
President and Chief Executive Officer
-2-
<PAGE>
EXHIBIT 3.2
As Amended September 3, 1997
RESTATED BYLAWS
OF
ITERATED SYSTEMS, INC.
_______________________________________________________________________________
References in these Restated Bylaws (these "Bylaws") to "Articles of
Incorporation" are to the Articles of Incorporation of ITERATED SYSTEMS, INC., a
Georgia corporation (the "Corporation"), as amended and restated from time to
time.
All of these Bylaws are subject to contrary provisions, if any, of the
Articles of Incorporation (including provisions designating the preferences,
limitations, and relative rights of any class or series of shares), the Georgia
Business Corporation Code (the "Code"), and other applicable law, as in effect
on and after the effective date of these Bylaws. References in these Bylaws to
"Sections" shall refer to sections of the Bylaws, unless otherwise indicated.
________________________________________________________________________________
ARTICLE ONE
OFFICE
1.1 REGISTERED OFFICE AND AGENT. The Corporation shall maintain a
---------------------------
registered office and shall have a registered agent whose business office is the
same as the registered office.
1.2 PRINCIPAL OFFICE. The principal office of the Corporation shall be
----------------
at the place designated in the Corporation's annual registration with the
Georgia Secretary of State.
1.3 OTHER OFFICES. In addition to its registered office and principal
-------------
office, the Corporation may have offices at other locations either in or outside
the State of Georgia.
ARTICLE TWO
SHAREHOLDERS' MEETINGS
2.1 PLACE OF MEETINGS. Meetings of the Corporation's shareholders may
-----------------
be held at any location inside or outside the State of Georgia designated by the
Board of Directors or any other person or persons who properly call the meeting,
or if the Board of Directors or such other person or persons do not specify a
location, at the Corporation's principal office.
2.2 ANNUAL MEETINGS. The Corporation shall hold an annual meeting of
---------------
shareholders, at a time determined by the Board of Directors, to elect directors
and to transact any business that properly may come before the meeting. The
annual meeting may be combined with any other meeting of shareholders, whether
annual or special.
2.3 SPECIAL MEETINGS. Special meetings of shareholders of one or more
----------------
classes or series of the Corporation's shares may be called at any time by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
the President, and shall be called by the Corporation upon the written request
(in compliance with applicable requirements of the Code) of the holders of
shares representing not less than twenty-five percent (25%) or more of the votes
entitled to be cast on each issue proposed to be considered at the special
meeting. The business that may be transacted at any special meeting of
shareholders shall be limited to that proposed in the notice of the special
meeting given in accordance with Section 2.4 (including related or incidental
matters that may be necessary or appropriate to effectuate the proposed
business).
2.4 NOTICE OF MEETINGS. In accordance with Section 9.5 and subject to
------------------
waiver by a shareholder pursuant to Section 2.5, the Corporation shall give
written notice of the date, time,
<PAGE>
and place of each annual and special shareholders' meeting no fewer than 10 days
nor more than 60 days before the meeting date to each shareholder of record
entitled to vote at the meeting. The notice of an annual meeting need not state
the purpose of the meeting unless these Bylaws require otherwise. The notice of
a special meeting shall state the purpose for which the meeting is called. If
an annual or special shareholders' meeting is adjourned to a different date,
time, or location, the Corporation shall give shareholders notice of the new
date, time, or location of the adjourned meeting, unless a quorum of
shareholders was present at the meeting and information regarding the
adjournment was announced before the meeting was adjourned; provided, however,
-------- -------
that if a new record date is or must be fixed in accordance with Section 7.6,
the Corporation must give notice of the adjourned meeting to all shareholders of
record as of the new record date who are entitled to vote at the adjourned
meeting.
2.5 WAIVER OF NOTICE. A shareholder may waive any notice required by
----------------
the Code, the Articles of Incorporation, or these Bylaws, before or after the
date and time of the matter to which the notice relates, by delivering to the
Corporation a written waiver of notice signed by the shareholder entitled to the
notice. In addition, a shareholder's attendance at a meeting shall be (a) a
waiver of objection to lack of notice or defective notice of the meeting unless
the shareholder at the beginning of the meeting objects to holding the meeting
or transacting business at the meeting, and (b) a waiver of objection to
consideration of a particular matter at the meeting that is not within the
purpose stated in the meeting notice, unless the shareholder objects to
considering the matter when it is presented. Except as otherwise required by
the Code, neither the purpose of nor the business transacted at the meeting
need be specified in any waiver.
2.6 VOTING GROUP; QUORUM; VOTE REQUIRED TO ACT. (a) Unless otherwise
------------------------------------------
required by the Code or the Articles of Incorporation, all classes or series of
the Corporation's shares entitled to vote generally on a matter shall for that
purpose be considered a single voting group (a "Voting Group"). If either the
Articles of Incorporation or the Code requires separate voting by two or more
Voting Groups on a matter, action on that matter is taken only when voted upon
by each such Voting Group separately. At all meetings of shareholders, any
Voting Group entitled to vote on a matter may take action on the matter only if
a quorum of that Voting Group exists at the meeting, and if a quorum exists, the
Voting Group may take action on the matter notwithstanding the absence of a
quorum of any other Voting Group that may be entitled to vote separately on the
matter. Unless the Articles of Incorporation, these Bylaws, or the Code
provides otherwise, the presence (in person or by proxy) of shares representing
a majority of votes entitled to be cast on a matter by a Voting Group shall
constitute a quorum of that Voting Group with regard to that matter. Once a
share is present at any meeting other than solely to object to holding the
meeting or transacting business at the meeting, the share shall be deemed
present for quorum purposes for the remainder of the meeting and for any
adjournments of that meeting, unless a new record date for the adjourned meeting
is or must be set pursuant to Section 7.6 of these Bylaws.
(b) Except as provided in Section 3.4, if a quorum exists, action on a
matter by a Voting Group is approved by that Voting Group if the votes cast
within the Voting Group favoring the action exceed the votes cast opposing the
action, unless the Articles of Incorporation, a provision of these Bylaws that
has been adopted pursuant to Section 14-2-1021 of the Code (or any successor
provision), or the Code requires a greater number of affirmative votes.
2.7 VOTING OF SHARES. Unless otherwise required by the Code or the
----------------
Articles of Incorporation, each outstanding share of any class or series having
voting rights shall be entitled to one vote on each matter that is submitted to
a vote of shareholders.
2.8 PROXIES. A shareholder entitled to vote on a matter may vote in
-------
person or by proxy pursuant to an appointment executed in writing by the
shareholder or by his or her attorney-in-fact. An appointment of a proxy shall
be valid for 11 months from the date of its execution, unless a longer or
shorter period is expressly stated in the proxy.
2.9 PRESIDING OFFICER. Except as otherwise provided in this Section
-----------------
2.9, the Chairman of the Board, and in his or her absence or disability the
Chief Executive Officer, and in his or her absence or disability the President,
shall preside at every shareholders' meeting (and any adjournment thereof) as
its chairman, if either of them is present and willing to serve. If neither the
Chairman of the Board, nor the Chief Executive Officer nor the President is
present and willing to serve as chairman of the meeting, and if the Chairman of
the Board has not designated another person who is present and willing to serve,
then a majority of the Corporation's directors present at the meeting shall be
entitled to designate a person to serve as chairman. If no director of the
-2-
<PAGE>
Corporation is present at the meeting or if a majority of the directors who are
present cannot be established, then a chairman of the meeting shall be selected
by a majority vote of (a) the shares present at the meeting that would be
entitled to vote in an election of directors, or (b) if no such shares are
present at the meeting, then the shares present at the meeting comprising the
Voting Group with the largest number of shares present at the meeting and
entitled to vote on a matter properly proposed to be considered at the meeting.
The chairman of the meeting may designate other persons to assist with the
meeting.
2.10 ADJOURNMENTS. At any meeting of shareholders (including an
------------
adjourned meeting), a majority of shares of any Voting Group present and
entitled to vote at the meeting (whether or not those shares constitute a
quorum) may adjourn the meeting, but only with respect to that Voting Group, to
reconvene at a specific time and place. If more than one Voting Group is
present and entitled to vote on a matter at the meeting, then the meeting may be
continued with respect to any such Voting Group that does not vote to adjourn as
provided above, and such Voting Group may proceed to vote on any matter to which
it is otherwise entitled to do so; provided, however, that if (a) more than one
-------- -------
Voting Group is required to take action on a matter at the meeting and (b) any
one of those Voting Groups votes to adjourn the meeting (in accordance with the
preceding sentence), then the action shall not be deemed to have been taken
until the requisite vote of any adjourned Voting Group is obtained at its
reconvened meeting. The only business that may be transacted at any reconvened
meeting is business that could have been transacted at the meeting that was
adjourned, unless further notice of the adjourned meeting has been given in
compliance with the requirements for a special meeting that specifies the
additional purpose or purposes for which the meeting is called. Nothing
contained in this Section 2.10 shall be deemed or otherwise construed to limit
any lawful authority of the chairman of a meeting to adjourn the meeting.
2.11 CONDUCT OF THE MEETING. At any meeting of shareholders, the chairman
----------------------
of the meeting shall be entitled to establish the rules of order governing the
conduct of business at the meeting.
2.12 ACTION OF SHAREHOLDERS WITHOUT A MEETING. Action required or
----------------------------------------
permitted to be taken at a meeting of shareholders may be taken without a
meeting if the action is taken by all shareholders entitled to vote on the
action or, if permitted by the Articles of Incorporation, by persons who would
be entitled to vote at a meeting shares having voting power to cast the
requisite number of votes (or numbers, in the case of voting by groups) that
would be necessary to authorize or take the action at a meeting at which all
shareholders entitled to vote were present and voted. The action must be
evidenced by one or more written consents describing the action taken, signed by
shareholders entitled to take action without a meeting, and delivered to the
Corporation for inclusion in the minutes or filing with the corporate records.
Where required by Section 14-2-704 or other applicable provision of the Code,
the Corporation shall provide shareholders with written notice of actions taken
without a meeting.
2.13 MATTERS CONSIDERED AT ANNUAL MEETINGS. Notwithstanding anything to
-------------------------------------
the contrary in these Bylaws, the only business that may be conducted at an
annual meeting of shareholders shall be business brought before the meeting (a)
by or at the direction of the Board of Directors prior to the meeting, (b) by or
at the direction of the Chairman of the Board, the Chief Executive Officer or
the President, or (c) by a shareholder of the Corporation who is entitled to
vote with respect to the business and who complies with the notice procedures
set forth in this Section 2.13. For business to be brought properly before an
annual meeting by a shareholder, the shareholder must have given timely notice
of the business in writing to the Secretary of the Corporation. To be timely, a
shareholder's notice must be delivered or mailed to and received at the
principal offices of the Corporation, not less than 60 days before the date of
the meeting at which the director(s) are to be elected or the proposal is to be
considered; however, if less than 70 days notice or prior public disclosure of
the date of the scheduled meeting is given or made, notice by the shareholder,
to be timely, must be delivered or received not later than the close of business
on the tenth day following the earlier of the day on which notice of the date of
the meeting is mailed to shareholders or public disclosure of the date of such
meeting is made. A shareholder's notice to the Secretary shall set forth a
brief description of each matter of business the shareholder proposes to bring
before the meeting and the reasons for conducting that business at the meeting;
the name, as it appears on the Corporation's books, and address of the
shareholder proposing the business; the series or class and number of shares of
the Corporation's capital stock that are beneficially owned by the shareholder;
and any material interest of the shareholder in the proposed business. The
chairman of the meeting shall have the discretion to declare to the meeting that
any business proposed by a shareholder to be considered at the meeting is out of
order and that such business shall not be transacted at the meeting if (i) the
--
chairman concludes that the matter has been proposed in a manner inconsistent
with this Section 2.13 or (ii) the chairman concludes that the subject matter of
the proposed business is inappropriate for consideration by the shareholders at
the meeting.
-3-
<PAGE>
ARTICLE THREE
BOARD OF DIRECTORS
3.1 GENERAL POWERS. All corporate powers shall be exercised by or under
--------------
the authority of, and the business and affairs of the Corporation shall be
managed by, the Board of Directors, subject to any limitation set forth in the
Articles of Incorporation, in bylaws approved by the shareholders, or in
agreements among all the shareholders that are otherwise lawful.
3.2 NUMBER, ELECTION AND TERM OF OFFICE. The number of directors of the
-----------------------------------
Corporation shall be fixed by resolution of the Board of Directors or of the
shareholders from time to time and, until otherwise determined, shall be two
(2); provided, however, that no decrease in the number of directors shall have
-------- -------
the effect of shortening the term of an incumbent director. Except as provided
elsewhere in this Section 3.2 and in Section 3.4, the directors shall be elected
at each annual meeting of shareholders, or at a special meeting of shareholders
called for purposes that include the election of directors, by a plurality of
the votes cast by the shares entitled to vote and present at the meeting.
Despite the expiration of a director's term, he or she shall continue to serve
until his or her successor, if there is to be any, has been elected and has
qualified.
3.3 REMOVAL OF DIRECTORS. The entire Board of Directors or any
--------------------
individual director may be removed, with or without cause, by the shareholders,
provided that Directors elected by a particular Voting Group may be removed only
by the shareholders in that Voting Group. Removal action may be taken only at a
shareholder's meeting for which notice of the removal action has been given. A
removed director's successor, if any, may be elected at the same meeting to
serve the unexpired term.
3.4 VACANCIES. A vacancy occurring in the Board of Directors may only be
---------
filled by the shareholders; provided that a vacancy for a director elected by a
particular Voting Group may be filled only by the shareholders in that Voting
Group.
3.5 COMPENSATION. Directors may receive such compensation for their
------------
services as directors as may be fixed by the Board of Directors from time to
time, subject to approval by the shareholders. A director may also serve the
Corporation in one or more capacities other than that of director and receive
compensation for services rendered in those other capacities.
3.6 COMMITTEES OF THE BOARD OF DIRECTORS. The Board of Directors may
------------------------------------
designate from among its members an executive committee or one or more other
standing or ad hoc committees, each consisting of one or more directors, who
serve at the pleasure of the Board of Directors. Subject to the limitations
imposed by the Code, each committee shall have the authority set forth in the
resolution establishing the committee or in any other resolution of the Board of
Directors specifying, enlarging, or limiting the authority of the committee.
3.7 QUALIFICATION OF DIRECTORS. No person elected to serve as a
--------------------------
director of the Corporation shall assume office and begin serving unless and
until duly qualified to serve, as determined by reference to the Code, the
Articles of Incorporation, and any further eligibility requirements established
in these Bylaws.
3.8 CERTAIN NOMINATION REQUIREMENTS. No person may be nominated for
-------------------------------
election as a director at any annual or special meeting of shareholders unless
(a) the nomination has been or is being made pursuant to a recommendation or
approval of the Board of Directors of the Corporation or a properly constituted
committee of the Board of Directors previously delegated authority to recommend
or approve nominees for director; (b) the person is nominated by a shareholder
of the Corporation who is entitled to vote for the election of the nominee at
the subject meeting, and the nominating shareholder has furnished written notice
to the Secretary of the Corporation, at the Corporation's principal office, not
less than 10 days before the date of the meeting at which the director(s) are to
be elected or the proposal is to be considered; however, if less than 30 days
notice or prior public disclosure of the date of the scheduled meeting is given
or made, notice by the shareholder, to be timely, must be delivered or received
not later than the close of business on the tenth day following the earlier of
the day on which notice of the date of the meeting is mailed to shareholders or
public
-4-
<PAGE>
disclosure of the date of such meeting is made and the notice (i) sets forth
with respect to the person to be nominated his or her name, age, business and
residence addresses, principal business or occupation during the past five
years, any affiliation with or material interest in the Corporation or any
transaction involving the Corporation, and any affiliation with or material
interest in any person or entity having an interest materially adverse to the
Corporation, and (ii) is accompanied by the sworn or certified statement of the
shareholder that the nominee has consented to being nominated and that the
shareholder believes the nominee will stand for election and will serve if
elected; or (c) (i) the person is nominated to replace a person previously
identified as a proposed nominee (in accordance with the provisions of subpart
(b) of this Section 3.8) who has since become unable or unwilling to be
nominated or to serve if elected, (ii) the shareholder who furnished such
previous identification makes the replacement nomination and delivers to the
Secretary of the Corporation (at the time of or prior to making the replacement
nomination) an affidavit or other sworn statement affirming that the shareholder
had no reason to believe the original nominee would be so unable or unwilling,
and (iii) such shareholder also furnishes in writing to the Secretary of the
Corporation (at the time of or prior to making the replacement nomination) the
same type of information about the replacement nominee as required by subpart
(b) of this Section 3.8 to have been furnished about the original nominee. The
chairman of any meeting of shareholders at which one or more directors are to be
elected, for good cause shown and with proper regard for the orderly conduct of
business at the meeting, may waive in whole or in part the operation of this
Section 3.8.
ARTICLE FOUR
MEETINGS OF THE BOARD OF DIRECTORS
4.1 REGULAR MEETINGS. A regular meeting of the Board of Directors shall
----------------
be held in conjunction with each annual meeting of shareholders. In addition,
the Board of Directors may, by prior resolution, hold regular meetings at other
times.
4.2 SPECIAL MEETINGS. Special meetings of the Board of Directors may be
----------------
called by or at the request of the Chairman of the Board, the Chief Executive
Officer, the President, or any director in office at that time.
4.3 PLACE OF MEETINGS. Directors may hold their meetings at any place
-----------------
in or outside the State of Georgia that the Board of Directors may establish
from time to time.
4.4 NOTICE OF MEETINGS. Directors need not be provided with notice of
------------------
any regular meeting of the Board of Directors. Unless waived in accordance with
Section 4.10, the Corporation shall give at least two days' notice to each
director of the date, time, and place of each special meeting. Notice of a
meeting shall be deemed to have been given to any director in attendance at any
prior meeting at which the date, time, and place of the subsequent meeting was
announced.
4.5 QUORUM. At meetings of the Board of Directors, the greater of (a)
------
a majority of the directors then in office, or (b) one-third of the number of
directors fixed in accordance with these Bylaws shall constitute a quorum for
the transaction of business.
4.6 VOTE REQUIRED FOR ACTION. If a quorum is present when a vote is
------------------------
taken, the vote of a majority of the directors present at the time of the vote
will be the act of the Board of Directors, unless the vote of a greater number
is required by the Code, the Articles of Incorporation, or these Bylaws. A
director who is present at a meeting of the Board of Directors when corporate
action is taken is deemed to have assented to the action taken unless (a) he or
she objects at the beginning of the meeting (or promptly upon his or her
arrival) to holding the meeting or transacting business at it; (b) his or her
dissent or abstention from the action taken is entered in the minutes of the
meeting; or (c) he or she delivers written notice of dissent or abstention to
the presiding officer of the meeting before its adjournment or to the
Corporation immediately after adjournment of the meeting. The right of dissent
or abstention is not available to a director who votes in favor of the action
taken.
4.7 PARTICIPATION BY CONFERENCE TELEPHONE. Members of the Board of
-------------------------------------
Directors may participate in a meeting of the Board by means of conference
telephone or similar communications equipment through which all persons
participating may hear and speak to each other. Participation in a meeting
pursuant to this Section 4.7 shall constitute presence in person at the meeting.
4.8 ACTION BY DIRECTORS WITHOUT A MEETING. Any action required or
-------------------------------------
permitted to be taken at any meeting of the Board of Directors may be taken
without a meeting if a written consent, describing the action taken, is signed
-5-
<PAGE>
by each director and delivered to the Corporation for inclusion in the minutes
or filing with the corporate records. The consent may be executed in
counterpart, and shall have the same force and effect as a unanimous vote of the
Board of Directors at a duly convened meeting.
4.9 ADJOURNMENTS. A meeting of the Board of Directors, whether or not
------------
a quorum is present, may be adjourned by a majority of the directors present to
reconvene at a specific time and place. It shall not be necessary to give
notice to the directors of the reconvened meeting or of the business to be
transacted, other than by announcement at the meeting that was adjourned, unless
a quorum was not present at the meeting that was adjourned, in which case notice
shall be given to directors in the same manner as for a special meeting. At any
such reconvened meeting at which a quorum is present, any business may be
transacted that could have been transacted at the meeting that was adjourned.
4.10 WAIVER OF NOTICE. A director may waive any notice required by the
----------------
Code, the Articles of Incorporation, or these Bylaws before or after the date
and time of the matter to which the notice relates, by a written waiver signed
by the director and delivered to the Corporation for inclusion in the minutes or
filing with the corporate records. Attendance by a director at a meeting shall
constitute waiver of notice of the meeting, except where a director at the
beginning of the meeting (or promptly upon his or her arrival) objects to
holding the meeting or to transacting business at the meeting and does not
thereafter vote for or assent to action taken at the meeting.
ARTICLE FIVE
OFFICERS
5.1 OFFICES. The officers of the Corporation shall consist of a
-------
President, a Secretary, and a Treasurer, and may include a Chief Executive
Officer separate from the President, each of whom shall be elected or appointed
by the Board of Directors. The Board of Directors may also elect a Chairman of
the Board from among its members. The Board of Directors from time to time may,
or may authorize the Chief Executive Officer or the President to, create and
establish the duties of other offices and may, or may authorize the Chief
Executive Officer or the President to, elect or appoint, or authorize specific
senior officers to appoint, the persons who shall hold such other offices,
including one or more Vice Presidents (including Executive Vice Presidents,
Senior Vice Presidents, Assistant Vice Presidents, and the like), one or more
Assistant Secretaries, and one or more Assistant Treasurers. Whether or not so
provided by the Board of Directors, the Chairman of the Board, the Chief
Executive Officer or the President may appoint one or more Assistant
Secretaries, and one or more Assistant Treasurers. Any two or more offices may
be held by the same person.
5.2 TERM. Each officer shall serve at the pleasure of the Board of
----
Directors (or, if appointed by the Chief Executive Officer, the President, or a
senior officer pursuant to this Article Five, at the pleasure of the Board of
Directors, the Chief Executive Officer, the President, or the senior officer
authorized to have appointed the officer) until his or her death, resignation,
or removal, or until his or her replacement is elected or appointed in
accordance with this Article Five.
5.3 COMPENSATION. The compensation of all officers of the Corporation
------------
shall be fixed by the Board of Directors or by a committee or officer appointed
by the Board of Directors. Officers may serve without compensation.
5.4 REMOVAL. All officers (regardless of how elected or appointed) may
-------
be removed, with or without cause, by the Board of Directors, and any officer
appointed by the Chief Executive Officer, the President, or another senior
officer may also be removed, with or without cause, by the Chief Executive
Officer, the President, or by any senior officer authorized to have appointed
the officer to be removed. Removal will be without prejudice to the contract
rights, if any, of the person removed, but shall be effective notwithstanding
any damage claim that may result from infringement of such contract rights.
5.5 CHAIRMAN OF THE BOARD. The Chairman of the Board (if there be one)
---------------------
shall preside at and serve as chairman of meetings of the shareholders and of
the Board of Directors (unless another person is selected under Section 2.9 to
act as chairman). The Chairman of the Board shall perform other duties and have
other authority as may from time to time be delegated by the Board of Directors.
-6-
<PAGE>
5.6 CHIEF EXECUTIVE OFFICER. The Chief Executive Officer shall be
-----------------------
charged with the general and active management of the Corporation, shall see
that all orders and resolutions of the Board of Directors are carried into
effect, shall have the authority to select and appoint employees and agents of
the Corporation, and shall, in the absence or disability of the Chairman of the
Board, perform the duties and exercise the powers of the Chairman of the Board.
The Chief Executive Officer shall perform any other duties and have any other
authority as may be delegated from time to time by the Board of Directors, and
shall be subject to the limitations fixed from time to time by the Board of
Directors.
5.7 PRESIDENT. If there shall be no separate Chief Executive Officer of
---------
the Corporation, then the President shall be the chief executive officer of the
Corporation and shall have all the duties and authority given under these Bylaws
to the Chief Executive Officer. If there shall be no Chief Operating Officer
separately elected or appointed, then the President shall be the chief operating
officer of the Corporation and shall, subject to the authority of the Chief
Executive Officer, have responsibility for the conduct and general supervision
of the business operations of the Corporation. The President shall perform such
other duties and have such other authority as may from time to time be delegated
by the Board of Directors or the Chief Executive Officer. In the absence or
disability of the Chief Executive Officer, the President shall perform the
duties and exercise the powers of the Chief Executive Officer.
5.8 VICE PRESIDENTS. The Vice President (if there be one) shall, in the
---------------
absence or disability of the President, perform the duties and exercise the
powers of the President, whether the duties and powers are specified in these
Bylaws or otherwise. If the Corporation has more than one Vice President, the
one designated by the Board of Directors or the Chief Executive Officer (in that
order of precedence) shall act in the event of the absence or disability of the
President. Vice Presidents shall perform any other duties and have any other
authority as from time to time may be delegated by the Board of Directors, the
Chief Executive Officer, or the President.
5.9 SECRETARY. The Secretary shall be responsible for preparing minutes
---------
of the meetings of shareholders, directors, and committees of directors and for
authenticating records of the Corporation. The Secretary or any Assistant
Secretary shall have authority to give all notices required by law or these
Bylaws. The Secretary shall be responsible for the custody of the corporate
books, records, contracts, and other documents. The Secretary or any Assistant
Secretary may affix the corporate seal to any lawfully executed documents
requiring it, may attest to the signature of any officer of the Corporation, and
shall sign any instrument that requires the Secretary's signature. The
Secretary or any Assistant Secretary shall perform any other duties and have any
other authority as from time to time may be delegated by the Board of Directors,
the Chief Executive Officer, or the President.
5.10 TREASURER. Unless otherwise provided by the Board of Directors, the
---------
Treasurer shall be responsible for the custody of all funds and securities
belonging to the Corporation and for the receipt, deposit, or disbursement of
these funds and securities under the direction of the Board of Directors. The
Treasurer shall cause full and true accounts of all receipts and disbursements
to be maintained and shall make reports of these receipts and disbursements to
the Board of Directors, the Chief Executive Officer and President upon request.
The Treasurer or Assistant Treasurer shall perform any other duties and have any
other authority as from time to time may be delegated by the Board of Directors,
the Chief Executive Officer, or the President.
ARTICLE SIX
DISTRIBUTIONS AND DIVIDENDS
Unless the Articles of Incorporation provide otherwise, the Board of
Directors, from time to time in its discretion, may authorize or declare
distributions or share dividends in accordance with the Code.
ARTICLE SEVEN
SHARES
7.1 SHARE CERTIFICATES. The Board of Directors shall determine whether
------------------
the interest of each shareholder in the Corporation shall be evidenced by a
certificate or certificates representing shares of the Corporation or by
electronic account maintained by the Corporation's transfer agent or registrar.
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<PAGE>
In the event the Board of Directors determines that the shares shall be
represented by a certificate, such certificate shall be in such form as the
Board of Directors from time to time may adopt in accordance with the Code.
Share certificates shall be in registered form and shall indicate the date of
issue, the name of the Corporation, that the Corporation is organized under the
laws of the State of Georgia, the name of the shareholder, and the number and
class of shares and designation of the series, if any, represented by the
certificate. Each certificate shall be signed by the President or a Vice
President (or in lieu thereof, by the Chairman of the Board or Chief Executive
Officer, if there be one) and may be signed by the Secretary or an Assistant
Secretary; provided, however, that where the certificate is signed (either
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manually or by facsimile) by a transfer agent, or registered by a registrar, the
signatures of those officers may be facsimiles.
7.2 RIGHTS OF CORPORATION WITH RESPECT TO REGISTERED OWNERS. Prior to
-------------------------------------------------------
due presentation for transfer of registration of its shares, the Corporation may
treat the registered owner of the shares (or the beneficial owner of the shares
to the extent of any rights granted by a nominee certificate on file with the
Corporation pursuant to any procedure that may be established by the Corporation
in accordance with the Code) as the person exclusively entitled to vote the
shares, to receive any dividend or other distribution with respect to the
shares, and for all other purposes; and the Corporation shall not be bound to
recognize any equitable or other claim to or interest in the shares on the part
of any other person, whether or not it has express or other notice of such a
claim or interest, except as otherwise provided by law.
7.3 TRANSFERS OF SHARES. Transfers of shares shall be made upon the books
-------------------
of the Corporation kept by the Corporation or by the transfer agent designated
to transfer the shares, only upon direction of the person named in the
certificate or by an attorney lawfully constituted in writing. If the shares of
the Corporation are represented by a certificate or certificates, then before a
new certificate is issued, the old certificate shall be surrendered for
cancellation or, in the case of a certificate alleged to have been lost, stolen,
or destroyed, the provisions of Section 7.5 of these Bylaws shall have been
complied with.
7.4 DUTY OF CORPORATION TO REGISTER TRANSFER. Notwithstanding any of
----------------------------------------
the provisions of Section 7.3 of these Bylaws, the Corporation is under a duty
to register the transfer of its shares only if: (a) the share certificate is
endorsed by the appropriate person or persons; (b) reasonable assurance is given
that each required endorsement is genuine and effective; (c) the Corporation has
no duty to inquire into adverse claims or has discharged any such duty; (d) any
applicable law relating to the collection of taxes has been complied with; (e)
the transfer is in fact rightful or is to a bona fide purchaser; and (f) the
transfer is in compliance with applicable provisions of any transfer
restrictions of which the Corporation shall have notice.
7.5 LOST, STOLEN, OR DESTROYED CERTIFICATES. Any person claiming a
---------------------------------------
share certificate to be lost, stolen, or destroyed shall make an affidavit or
affirmation of this claim in such a manner as the Corporation may require and
shall, if the Corporation requires, give the Corporation a bond of indemnity in
form and amount, and with one or more sureties satisfactory to the Corporation,
as the Corporation may require, whereupon an appropriate new certificate may be
issued in lieu of the one alleged to have been lost, stolen or destroyed.
7.6 FIXING OF RECORD DATE. For the purpose of determining shareholders
---------------------
(a) entitled to notice of or to vote at any meeting of shareholders or, if
necessary, any adjournment thereof, (b) entitled to receive payment of any
distribution or dividend, or (c) for any other proper purpose, the Board of
Directors may fix in advance a date as the record date. The record date may not
be more than 70 days (and, in the case of a notice to shareholders of a
shareholders' meeting, not less than 10 days) prior to the date on which the
particular action, requiring the determination of shareholders, is to be taken.
A separate record date may be established for each Voting Group entitled to vote
separately on a matter at a meeting. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply to any
adjournment of the meeting, unless the Board of Directors shall fix a new record
date for the reconvened meeting, which it must do if the meeting is adjourned to
a date more than 120 days after the date fixed for the original meeting.
7.7 RECORD DATE IF NONE FIXED. If no record date is fixed as provided in
-------------------------
Section 7.6, then the record date for any determination of shareholders that may
be proper or required by law shall be, as appropriate, the date on which notice
of a shareholders' meeting is mailed, the date on which the Board of Directors
adopts a resolution declaring a dividend or authorizing a distribution, or the
date on which any other action is taken that requires a determination of
shareholders.
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<PAGE>
ARTICLE EIGHT
INDEMNIFICATION
8.1 INDEMNIFICATION OF DIRECTORS. The Corporation shall indemnify and
----------------------------
hold harmless any director of the Corporation (an "Indemnified Person") who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed action, suit, or proceeding, whether civil, criminal,
administrative, or investigative, whether formal or informal, including any
action or suit by or in the right of the Corporation (for purposes of this
Article Eight, collectively, a "Proceeding") because he or she is or was a
director, officer, employee, or agent of the Corporation, against any judgment,
settlement, penalty, fine, or reasonable expenses (including, but not limited
to, attorneys' fees and disbursements, court costs, and expert witness fees)
incurred with respect to the Proceeding (for purposes of this Article Eight, a
"Liability"), provided, however, that no indemnification shall be made for: (a)
any appropriation by a director, in violation of the director's duties, of any
business opportunity of the corporation; (b) any acts or omissions of a director
that involve intentional misconduct or a knowing violation of law; (c) the types
of liability set forth in Code Section 14-2-832; or (d) any transaction from
which the director received an improper personal benefit.
8.2 INDEMNIFICATION OF OTHERS. The Board of Directors shall have the
-------------------------
power to cause the Corporation to provide to officers, employees, and agents of
the Corporation all or any part of the right to indemnification permitted for
such persons by appropriate provisions of the Code. Persons to be indemnified
may be identified by position or name, and the right of indemnification may be
different for each of the persons identified. Each officer, employee, or agent
of the Corporation so identified shall be an "Indemnified Person" for purposes
of the provisions of this Article Eight.
8.3 OTHER ORGANIZATIONS. The Corporation shall provide to each director,
-------------------
and the Board of Directors shall have the power to cause the Corporation to
provide to any officer, employee, or agent, of the Corporation who is or was
serving at the Corporation's request as a director, officer, partner, trustee,
employee, or agent of another corporation, partnership, joint venture, trust,
employee benefit plan, or other enterprise all or any part of the right to
indemnification and other rights of the type provided under Sections 8.1, 8.2,
8.4, and 8.10 of this Article Eight (subject to the conditions, limitations, and
obligations specified in those Sections) permitted for such persons by
appropriate provisions of the Code. Persons to be indemnified may be identified
by position or name, and the right of indemnification may be different for each
of the persons identified. Each person so identified shall be an "Indemnified
Person" for purposes of the provisions of this Article Eight.
8.4 ADVANCES. Expenses (including, but not limited to, attorneys' fees
--------
and disbursements, court costs, and expert witness fees) incurred by an
Indemnified Person in defending any Proceeding of the kind described in Sections
8.1 or 8.3, as to an Indemnified Person who is a director of the Corporation, or
in Sections 8.2 or 8.3, as to other Indemnified Persons, if the Board of
Directors has specified that advancement of expenses be made available to any
such Indemnified Person, shall be paid by the Corporation in advance of the
final disposition of such Proceeding as set forth herein. The Corporation shall
promptly pay the amount of such expenses to the Indemnified Person, but in no
event later than 10 days following the Indemnified Person's delivery to the
Corporation of a written request for an advance pursuant to this Section 8.4,
together with a reasonable accounting of such expenses; provided, however, that
-------- -------
the Indemnified Person shall furnish the Corporation a written affirmation of
his or her good faith belief that he or she has met the applicable standard of
conduct and a written undertaking and agreement to repay to the Corporation any
advances made pursuant to this Section 8.4 if it shall be determined that the
Indemnified Person is not entitled to be indemnified by the Corporation
for such amounts. The Corporation may make the advances contemplated by this
Section 8.4 regardless of the Indemnified Person's financial ability to make
repayment. Any advances and undertakings to repay pursuant to this Section 8.4
may be unsecured and interest-free.
8.5 NON-EXCLUSIVITY. Subject to any applicable limitation imposed by
---------------
the Code or the Articles of Incorporation, the indemnification and advancement
of expenses provided by or granted pursuant to this Article Eight shall not be
exclusive of any other rights to which a person seeking indemnification or
advancement of expenses may be entitled under any provision of the Articles of
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<PAGE>
Incorporation, or any Bylaw, resolution, or agreement specifically or in general
terms approved or ratified by the affirmative vote of holders of a majority of
the shares entitled to be voted thereon.
8.6 INSURANCE. The Corporation shall have the power to purchase and
---------
maintain insurance on behalf of any person who is or was a director, officer,
employee, or agent of the Corporation, or who, while serving in such a capacity,
is also or was also serving at the request of the Corporation as a director,
officer, trustee, partner, employee, or agent of any corporation, partnership,
joint venture, trust, employee benefit plan, or other enterprise, against any
Liability that may be asserted against or incurred by him or her in any such
capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power to indemnify him or her against such liability
under the provisions of this Article Eight.
8.7 NOTICE. If the Corporation indemnifies or advances expenses to a
------
director under any of Sections 14-2-851 through 14-2-854 of the Code in
connection with a Proceeding by or in the right of the Corporation, the
Corporation shall, to the extent required by Section 14-2-1621 or any other
applicable provision of the Code, report the indemnification or advance in
writing to the shareholders with or before the notice of the next shareholders'
meeting.
8.8 SECURITY. The Corporation may designate certain of its assets as
--------
collateral, provide self-insurance, establish one or more indemnification
trusts, or otherwise secure or facilitate its ability to meet its obligations
under this Article Eight, or under any indemnification agreement or plan of
indemnification adopted and entered into in accordance with the provisions of
this Article Eight, as the Board of Directors deems appropriate.
8.9 AMENDMENT. Any amendment to this Article Eight that limits or
---------
otherwise adversely affects the right of indemnification, advancement of
expenses, or other rights of any Indemnified Person hereunder shall, as to such
Indemnified Person, apply only to Proceedings based on actions, events, or
omissions (collectively, "Post Amendment Events") occurring after such amendment
and after delivery of notice of such amendment to the Indemnified Person so
affected. Any Indemnified Person shall, as to any Proceeding based on actions,
events, or omissions occurring prior to the date of receipt of such notice, be
entitled to the right of indemnification, advancement of expenses, and other
rights under this Article Eight to the same extent as if such provisions had
continued as part of the Bylaws of the Corporation without such amendment. This
Section 8.9 cannot be altered, amended, or repealed in a manner effective as to
any Indemnified Person (except as to Post Amendment Events) without the prior
written consent of such Indemnified Person.
8.10 AGREEMENTS. The provisions of this Article Eight shall be deemed to
----------
constitute an agreement between the Corporation and each Indemnified Person
hereunder. In addition to the rights provided in this Article Eight, the
Corporation shall have the power, upon authorization by the Board of Directors,
to enter into an agreement or agreements providing to any Indemnified Person
indemnification rights substantially similar to those provided in this Article
Eight.
8.11 CONTINUING BENEFITS. The rights of indemnification and advancement
-------------------
of expenses permitted or authorized by this Article Eight shall, unless
otherwise provided when such rights are granted or conferred, continue as to a
person who has ceased to be a director, officer, employee, or agent and shall
inure to the benefit of the heirs, executors, and administrators of such person.
8.12 SUCCESSORS. For purposes of this Article Eight, the term
----------
"Corporation" shall include any corporation, joint venture, trust, partnership,
or unincorporated business association that is the successor to all or
substantially all of the business or assets of this Corporation, as a result of
merger, consolidation, sale, liquidation, or otherwise, and any such successor
shall be liable to the persons indemnified under this Article Eight on the same
terms and conditions and to the same extent as this Corporation.
8.13 SEVERABILITY. Each of the Sections of this Article Eight, and each
------------
of the clauses set forth herein, shall be deemed separate and independent, and
should any part of any such Section or clause be declared invalid or
unenforceable by any court of competent jurisdiction, such invalidity or
unenforceability shall in no way render invalid or unenforceable any other part
thereof or any separate Section or clause of this Article Eight that is not
declared invalid or unenforceable.
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<PAGE>
8.14 ADDITIONAL INDEMNIFICATION. In addition to the specific
--------------------------
indemnification rights set forth herein, the Corporation shall indemnify each of
its directors and such of its officers as have been designated by the Board of
Directors to the full extent permitted by action of the Board of Directors
without shareholder approval under the Code or other laws of the State of
Georgia as in effect from time to time.
ARTICLE NINE
MISCELLANEOUS
9.1 INSPECTION OF BOOKS AND RECORDS. The Board of Directors shall have
-------------------------------
the power to determine which accounts, books, and records of the Corporation
shall be available for shareholders to inspect or copy, except for those books
and records required by the Code to be made available upon compliance by a
shareholder with applicable requirements, and shall have the power to fix
reasonable rules and regulations (including confidentiality restrictions and
procedures) not in conflict with applicable law for the inspection and copying
of accounts, books, and records that by law or by determination of the Board of
Directors are made available. Unless required by the Code or otherwise provided
by the Board of Directors, a shareholder of the Corporation holding less than
two percent of the total shares of the Corporation then outstanding shall have
no right to inspect the books and records of the Corporation.
9.2 FISCAL YEAR. The Board of Directors is authorized to fix the fiscal
-----------
year of the Corporation and to change the fiscal year from time to time as it
deems appropriate.
9.3 CORPORATE SEAL. The corporate seal will be in such form as the Board
--------------
of Directors may from time to time determine. The Board of Directors may
authorize the use of one or more facsimile forms of the corporate seal. The
corporate seal need not be used unless its use is required by law, by these
Bylaws, or by the Articles of Incorporation.
9.4 ANNUAL STATEMENTS. Not later than four months after the close of
-----------------
each fiscal year, and in any case prior to the next annual meeting of
shareholders, the Corporation shall prepare (a) a balance sheet showing in
reasonable detail the financial condition of the Corporation as of the close of
its fiscal year, and (b) a profit and loss statement showing the results of its
operations during its fiscal year. Upon receipt of written request, the
Corporation promptly shall mail to any shareholder of record a copy of the most
recent such balance sheet and profit and loss statement, in such form and with
such information as the Code may require.
9.5 NOTICE. (a) Whenever these Bylaws require notice to be given to
------
any shareholder or to any director, the notice may be given by mail, in person,
by courier delivery, by telephone, or by telecopier, telegraph, or similar
electronic means. Whenever notice is given to a shareholder or director by
mail, the notice shall be sent by depositing the notice in a post office or
letter box in a postage-prepaid, sealed envelope addressed to the shareholder or
director at his or her address as it appears on the books of the Corporation.
Any such written notice given by mail shall be effective: (i) if given to
shareholders, at the time the same is deposited in the United States mail; and
(ii) in all other cases, at the earliest of (x) when received or when delivered,
properly addressed, to the addressee's last known principal place of business or
residence, (y) five days after its deposit in the mail, as evidenced by the
postmark, if mailed with first-class postage prepaid and correctly addressed, or
(z) on the date shown on the return receipt, if sent by registered or certified
mail, return receipt requested, and the receipt is signed by or on behalf of the
addressee. Whenever notice is given to a shareholder or director by any means
other than mail, the notice shall be deemed given when received.
(b) In calculating time periods for notice, when a period of time measured
in days, weeks, months, years, or other measurement of time is prescribed for
the exercise of any privilege or the discharge of any duty, the first day shall
not be counted but the last day shall be counted.
ARTICLE TEN
AMENDMENTS
Except as otherwise provided below or under the Code, the Board of
Directors shall have the power to alter, amend, or repeal these Bylaws or adopt
new Bylaws. Notwithstanding any other provision of these Bylaws, the
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<PAGE>
Corporation's Articles of Incorporation or law, neither Section 2.3, 2.13 or
3.8, nor Article Eight hereof nor this Article Ten may be amended or repealed
except upon the affirmative vote of holders of at least a majority of the total
number of votes of the then outstanding shares of capital stock of the Company
that are entitled to vote generally in the election of directors, voting
together as a single class. Any Bylaws adopted by the Board of Directors may be
altered, amended, or repealed, and new Bylaws adopted, by the shareholders. The
shareholders may prescribe in adopting any Bylaw or Bylaws that the Bylaw or
Bylaws so adopted shall not be altered, amended, or repealed by the Board of
Directors.
Dated: September 2, 1997.
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<PAGE>
EXHIBIT 4.1
THE SECURITIES REPRESENTED BY THIS WARRANT AND ISSUABLE UPON EXERCISE
HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED
(THE "1933 ACT"), OR UNDER THE PROVISIONS OF ANY APPLICABLE STATE SECURITIES
LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED HOLDER HEREOF FOR PURPOSES OF
INVESTMENT AND IN RELIANCE ON STATUTORY EXEMPTIONS UNDER THE 1933 ACT, AND UNDER
ANY APPLICABLE STATE SECURITIES LAWS, INCLUDING UNDER SECTION 10-5-9(13) OF THE
GEORGIA SECURITIES ACT OF 1973, AS AMENDED. THESE SECURITIES AND THE SECURITIES
ISSUED UPON EXERCISE HEREOF MAY NOT BE SOLD, PLEDGED, TRANSFERRED OR ASSIGNED,
NOR MAY THIS WARRANT BE EXERCISED, EXCEPT IN A TRANSACTION WHICH IS EXEMPT UNDER
PROVISIONS OF THE 1933 ACT AND ANY APPLICABLE STATE SECURITIES LAWS OR PURSUANT
TO AN EFFECTIVE REGISTRATION STATEMENT; AND IN THE CASE OF AN EXEMPTION, ONLY IF
THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT
SUCH TRANSACTION DOES NOT REQUIRE REGISTRATION OF ANY SUCH SECURITIES. IN
ADDITION TO OTHER RESTRICTIONS ON TRANSFER, NEITHER THIS WARRANT NOR THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE TRANSFERRED INTO THE UNITED
STATES OR TO A U.S. PERSON (AS DEFINED IN REGULATION S) FOR A PERIOD OF ONE YEAR
AFTER THE ORIGINAL DATE OF ISSUANCE HEREOF.
WARRANT
FOR THE PURCHASE OF
SHARES OF COMMON STOCK OF
ITERATED SYSTEMS, INC.
May 31, 1996
For value received, Iterated Systems, Inc., a Georgia Company (the
"Company"), hereby grants Mosvold Farsund Invest A.S. (the "Grantee"), subject
to the terms and conditions hereinafter set forth, the right to purchase at any
time, or from time to time, on or before 5 p.m., Atlanta time, on May 31, 1999
(the "Expiration Date"), up to an aggregate of 1,000 shares of the Company's
common stock, $.01 par value per share (the "Common Stock"), from the Company at
a price of $1,000 per share (the "Exercise Price"), and to receive a certificate
or certificates for the shares so purchased, upon presentation and surrender to
the Company of this Warrant, with the Subscription Form attached as Exhibit A
---------
duly executed, and accompanied by payment of the Exercise Price with respect to
each share purchased in cash or other immediately available funds. Shares
purchased or purchasable through exercise of this Warrant are referred to as
"Warrant Stock".
The Company covenants and agrees that all Warrant Stock which may be
delivered upon the exercise of this Warrant will, upon delivery, be free from
all taxes, liens, and charges with respect to the purchase thereof hereunder.
The Grantee may exercise the purchase rights hereunder in whole at any
time or in part from time to time prior to the Expiration Date; provided,
--------
however, that there shall not have occurred and be continuing a breach by
- -------
Mosvold Farsund Invest A.S. or any transferee or assignee of this Warrant of any
obligation under the Loan Agreement of even date herewith or the Revolving
Credit Promissory Note or Term Promissory Note contemplated thereby (the
<PAGE>
"Credit Documents"), or any termination of any of the Credit Documents as a
result of any breach by any of such parties.
In case of the purchase of less than all the shares of Warrant Stock
purchasable under this Warrant, the Company shall cancel this Warrant upon the
surrender hereof and shall execute and deliver a new Warrant of like tenor and
date for the balance of the shares purchasable hereunder. The number of shares
purchasable upon the exercise of this Warrant and the Exercise Price per share
shall be subject to adjustment from time to time as set forth in the Loan
Agreement. The Company agrees at all times to reserve or hold available a
sufficient number of shares of Common Stock to cover the number of shares of
Warrant Stock issuable upon the exercise of this Warrant.
This Warrant shall not entitle the holder hereof to any voting rights
or other rights as a shareholder of the Company, or to any other rights
whatsoever except the rights herein expressed and such as are set forth, and no
dividends shall be payable or accrue in respect to this Warrant or the interest
represented hereby or the Warrant Stock until or unless, and except to the
extent that, this Warrant shall be exercised.
This Warrant is exchangeable upon the surrender hereof by the
registered owner to the Company for new Warrants of like tenor and date
representing in the aggregate the right to purchase the number of shares of
Warrant Stock purchasable hereunder, each of such new Warrants to represent the
right to purchase such number of shares as shall be designated by the registered
owner at the time of such surrender.
The Grantee hereby acknowledges that neither this Warrant nor any of
the securities that may be acquired upon exercise of this Warrant have been
registered under the 1933 Act or under the securities laws of any state, country
or other jurisdiction. The Grantee acknowledges that the issuance of the
Warrant Stock upon exercise of this Warrant is subject to applicable federal and
state securities (or other) laws requiring registration, qualification or
approval of governmental authorities before such securities may be validly
issued or delivered. The Grantee acknowledges that it is not acquiring the
Warrant or the Warrant Stock for the account or benefit of: (i) any natural
person resident in the United States; (ii) any partnership or corporation
organized or incorporated under the laws of the United States, its territories
or possessions or any state or the District of Columbia; (iii) any estate of
which any executor or administrator is a U.S. Person; (iv) any trust of which
any trustee is a U. S. Person; (v) any agency or branch of a foreign entity
located in the United States; (vi) any non-discretionary account or similar
account (other than an estate or trust) held by a "dealer" (as defined in the
Federal Act) or other fiduciary for the benefit or account of a U.S. Person;
(vii) any discretionary account or similar account (other than an estate or
trust) held by a "dealer" (as defined in the Federal Act) or other professional
fiduciary organized, incorporated, or (if an individual) resident in the United
States; or (viii) any partnership or corporation organized or incorporated under
the laws of any foreign jurisdiction by a U. S. Person principally for the
purpose of investing in securities not registered under the Federal Act unless
it is organized or incorporated, and owned, by Accredited Investors (as defined
in Rule 501(a) under the Federal Act) who are not natural persons, estates or
trusts (any of (i) through (viii) above are defined herein as a "U.S. Person").
In addition to the restrictions on transfer set forth herein, the Grantee agrees
that it will not transfer the Warrant or any of the
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<PAGE>
Warrant Stock into the United States or to a U. S. person (as defined in
Regulation S) for a period of one year after the date hereof. The holder hereof
agrees that the issuance of securities upon exercise hereof shall be deferred
until exemptions from registration or qualification shall have been obtained;
and it is further agreed that the Company shall have no other obligation or
liability to the holder hereof for nonissuance of such securities except to
return the Warrant surrendered and to refund to the holder hereof any
consideration tendered in respect of the Exercise Price. With respect to any
such securities, this Warrant may not be exercised by, and securities shall not
be issued to, any holder in any state or jurisdiction in which such exercise
would be unlawful. The restrictions imposed by this paragraph upon the exercise
of this Warrant shall cease and terminate as to any particular shares of Warrant
Stock (i) when such securities shall have been effectively registered under the
1933 Act and all applicable securities laws and disposed of in accordance with
the registration statement covering such securities, or (ii) when, in the
opinion of counsel for the holder thereof, which counsel shall be satisfactory
to the Company, such opinion to be concurred in by counsel to the Company, such
restrictions are no longer required in order to insure compliance with the
Federal Act and all applicable securities laws. Any shares issued upon exercise
of this Warrant shall bear the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 OR UNDER THE PROVISIONS OF APPLICABLE
STATE OR OTHER SECURITIES LAWS, BUT HAVE BEEN ACQUIRED BY THE REGISTERED
OWNER HEREOF OR PURSUANT TO STATUTORY EXEMPTIONS UNDER THE SECURITIES ACT
OF 1933, SECTION 10-5-9(13) OF THE GEORGIA SECURITIES ACT OF 1973 AND OTHER
APPLICABLE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED BY THE
HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED, HYPOTHECATED, SOLD,
TRANSFERRED, OR OTHERWISE DISPOSED OF EXCEPT AS MAY BE AUTHORIZED UNDER THE
SECURITIES ACT OF 1933, REGULATION S THEREUNDER, THE APPLICABLE LAWS OF ANY
STATE OR OTHER JURISDICTION, AND THE RULES AND REGULATIONS PROMULGATED
THEREUNDER. THESE SECURITIES MAY NOT BE TRANSFERRED INTO THE UNITED STATES
OR TO A U.S. PERSON (AS DEFINED IN REGULATION S) FOR A PERIOD OF ONE YEAR
AFTER THE ORIGINAL DATE OF ISSUANCE HEREOF.
This Warrant and all rights hereunder are nontransferable by the
registered owner hereof except as provided in the Loan Agreement. Any permitted
transfer by the registered owner hereof shall be made in person or by duly
authorized attorney on the books of the Company upon execution of an assignment
in the form of Exhibit B attached hereto. The Company may deem and treat the
---------
registered owner of this Warrant at any time as the absolute owner hereof for
all purposes and shall not be affected by any notice to the contrary.
-3-
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed by the
signatures of its duly authorized officers and the corporate seal hereunto
affixed.
ITERATED SYSTEMS, INC.
Attest:
/s/ Neal W. McEwen By: /s/ John R. Festa
- ------------------ -----------------
Neal W. McEwen John R. Festa
Secretary President and Chief Executive Officer
[CORPORATE SEAL]
BY SIGNING BELOW, THE GRANTEE ACCEPTS THIS WARRANT AND ACKNOWLEDGES THAT THE
COMPANY IS MATERIALLY RELYING ON THE FOREGOING REPRESENTATIONS AND COVENANTS OF
THE GRANTEE, AND THAT THE COMPANY WOULD NOT ISSUE THIS WARRANT ABSENT SUCH
REPRESENTATIONS AND COVENANTS.
MOSVOLD FARSUND INVEST A.S.
By: /s/ Geir B. Larsen
-------------------------------
Name: Geir B. Larsen
Title: President
Date:
-4-
<PAGE>
EXHIBIT A
TO
WARRANT
SUBSCRIPTION FORM
(To be executed by the registered holder to exercise the rights to purchase
Warrant Stock.)
The undersigned hereby irrevocably subscribes for ________ shares of Warrant
Stock pursuant to and in accordance with the terms and conditions of the
attached Warrant, and herewith makes payment of $_________ therefor, and
requests that a certificate for such shares be issued in the name of the
undersigned, and, if such number of shares shall not be all of the shares
purchasable hereunder, that a new Warrant of like tenor for the balance of the
remaining shares purchasable hereunder be issued in the name of the undersigned.
MOSVOLD FARSUND INVEST A.S.
By:
--------------------------------
Name:
Title:
<PAGE>
EXHIBIT B
TO
WARRANT
ASSIGNMENT
(To be executed by the registered holder to effect a permitted transfer of the
Warrant.)
For value received the undersigned hereby sells, assigns, and transfers unto
_____________________________________________________ the attached Warrant and
the rights represented thereby to purchase shares of common stock of the Company
in accordance with the terms and conditions thereof, and does hereby irrevocably
constitute and appoint _______________________________________ attorney to
transfer this Warrant on the books of the Company, with full power of
substitution.
MOSVOLD FARSUND INVEST A.S.
By:
-----------------------------
Name:
Title:
<PAGE>
EXHIBIT 10.1
LOAN AGREEMENT
THIS LOAN AGREEMENT (this "Agreement") is made and entered into as of the
31st day of May 1996, by and between Iterated Systems, Inc., a Georgia
corporation (the "Company"), and Mosvold Farsund Invest A.S. (the "Lender").
PREAMBLE
The Company and the Lender are entering into this Agreement for the purpose
of establishing a one-year revolving credit facility which may be converted into
a three-year term loan. This Agreement establishes the conditions upon which
the Company may access the facility, the conditions under which the Lender may
convert any outstanding borrowings into an investment in common stock of the
Company, certain compensation to the Lender for establishing the credit facility
and other relevant provisions.
NOW, THEREFORE, in consideration of the premises hereof, the mutual
covenants and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Revolving Credit Facility. The Lender hereby agrees to loan to the
-------------------------
Company up to $6,000,000, in one or more advances, pursuant to the terms and
conditions of a Revolving Credit Promissory Note in the form attached hereto as
Exhibit A (the "Revolving Note"). Advances under the Revolving Note shall be
- ---------
made by the Lender upon thirty days prior notice from the Company and in
increments of $3,000,000 or whole multiples thereof, or such lesser amount as is
then available for advancement under the Revolving Note. The Company shall give
the Lender five days notice of any payment of outstanding principal under the
Revolving Note (each, a "Revolving Payment Notice"). Principal amounts repaid
under the Revolving Note shall be available for readvancement to the Company
thereunder.
2. Term Loan. The Lender hereby agrees to loan to the Company, upon
---------
expiration of the revolving credit facility pursuant to paragraph 1 above and at
the election of the Company, an amount equal to the outstanding principal
balance thereunder pursuant to the terms and conditions of a Term Promissory
Note in the form attached hereto as Exhibit B (the "Term Note"). The Company
---------
shall give the Lender five days notice of any payment of outstanding principal
under the Term Note other than a scheduled principal payment prescribed by the
Term Note (each, a "Term Payment Notice"). The Term Note shall be secured by
collateral to be determined by good faith negotiation between the Company and
the Lender at the time of advancement under the Term Note, provided that if the
parties have not agreed upon the collateral for the Term Note within sixty days
after the effective date of the election by the Company to borrow pursuant to
the Term Note, such failure shall be deemed to be a default which may, upon the
notice and subject to the terms of paragraph 10 hereof, become a Default.
<PAGE>
3. Conversion Rights.
-----------------
(a) Upon receipt of a Revolving Payment Notice, the Lender may, within
five days, elect to convert the amount of principal being repaid pursuant to
such notice into shares of the common stock, $.01 par value (the "Common
Stock"), of the Company at a price of $1,000 per share (the "Revolving
Conversion Price"), as it may be adjusted from time to time pursuant to
paragraph 5 hereof.
(b) At the end of any calendar quarter during the term of the Term
Note, including any calendar quarter end as to which a Term Payment Notice has
been given, the Lender may by notice given on or before the last day of such
calendar quarter elect to convert the entire outstanding principal balance of
the Term Note, prior to the application of any payments of principal on the date
of such quarter end, into shares of the Common Stock at a price of $900 per
share (the "Term Conversion Price"), as it may be adjusted from time to time
pursuant to paragraph 5 hereof.
4. Warrant. As partial consideration for the Lender's commitments
-------
hereunder, the Company will issue to the Lender a Warrant to purchase 1,000
shares of the Common Stock at a price of $1,000 per share in the form attached
hereto as Exhibit C (the "Warrant").
---------
5. Adjustments for Stock Splits, Reclassifications, and Certain Issuances.
----------------------------------------------------------------------
(a) If the outstanding shares of the Common Stock are changed into or
exchanged for a different number or kind of shares or other securities of the
Company or a successor by reason of merger, consolidation, reorganization,
recapitalization, reclassification, combination, exchange of shares, or stock
split, or if a stock dividend or other distribution of securities or property
(other than cash) shall be made with respect to the outstanding shares of the
Common Stock (hereinafter, a "Capitalization Event"), then the Revolving
Conversion Price, the Term Conversion Price, the kind of shares or other
securities issuable upon exercise of the conversion rights set forth in
paragraph 3 and the Warrant, and the exercise price of the Warrant shall be
proportionately adjusted so that the number and kind of shares or other
securities to be received under such conversion rights and Warrant after such
Capitalization Event are the same as that which would have been held following
the Capitalization Event had a similar right of conversion or Warrant been
exercised immediately prior to the Capitalization Event.
(b) If during the term of the Revolving Note or the Term Note the
Company shall issue or sell to any person any shares of the Common Stock for a
consideration per share less than the Revolving Conversion Price or Term
Conversion Price, respectively, then in effect, including the issuance of any
equity security which is convertible into shares of the Common Stock for a
consideration per share less than the Revolving Conversion Price or Term
Conversion Price, respectively, then in effect, the Revolving Conversion Price
and/or the Term Conversion Price, as applicable, shall be adjusted to equal the
consideration per share of the Common Stock in such transaction. All
calculations of the consideration per share of the Common Stock shall be in
cash, with the value of any non-cash property to be delivered determined by the
Board of Directors.
-2-
<PAGE>
(c) Notwithstanding the provisions of subparagraphs (a) and (b) above,
no fractional shares of the Common Stock shall be issued upon the exercise of
the Warrant or the conversions provided by paragraph 3, and the Company shall
pay the Lender cash equal to the fair market value of such fractional shares in
lieu of their issuance.
6. Mandatory Credit Facility Draws. If during the term of the Revolving
-------------------------------
Note the Company shall issue equity securities to one or more persons who are
not existing shareholders of the Company for an aggregate consideration which
exceeds the greater of $2,000,000 or the amount of principle then outstanding
under the Revolving Note, then the Company shall request, five days after
written demand therefor by the Lender, an advance under the Revolving Note
(subject to the $6,000,000 aggregate limit thereunder, but not subject to the
$3,000,000 minimum advance requirement, which shall not apply for these
purposes) in an amount such that the aggregate principle outstanding under the
Revolving Note after such advance is equal to the aggregate consideration
received for such equity securities, and the Lender shall make such advance
within thirty days of such request.
7. Initial Public Offering. Within thirty days following the closing of the
-----------------------
Company's initial public offering (if any) during the term of the Revolving Note
or the Term Note, the Company shall repay all outstanding indebtedness under the
Revolving Note or the Term Note, as applicable. The Company shall be deemed to
have given the appropriate Revolving Payment Notice or Term Payment Notice, as
applicable, with respect to any such repayment. The Lender shall be entitled to
exercise its conversion rights pursuant to paragraph 3 hereof with respect to
the principal portion of such repayment; provided, however, that if requested by
-------- -------
the Company or the underwriters of such initial public offering, the Lender
shall at least ninety days prior to the closing of such initial public offering
(or such shorter period of time as the Company may agree) provide a written
election either to exercise or to waive such conversion right so that the
Company may disclose whether such conversion right will be exercised or waived
in the preliminary prospectus used in the offering.
8. Commitment Fee. The Company shall pay the Lender at the end of each
--------------
calendar quarter (beginning June 30, 1996) during the term of the Revolving Note
a fee equal to the product of (a) the average daily balance during such calendar
quarter of the unused portion of the $6,000,000 credit commitment provided in
paragraph 1, (b) 0.75% (75 basis points), and (c) the number of days in the
calendar quarter divided by 365.
9. Representations, Warranties and Covenants.
-----------------------------------------
(a) By the Company. The Company is a corporation duly organized and
--------------
existing under the laws of the state of Georgia and has the corporate power and
authority to carry on its business as and where now conducted. The Company has
the corporate power and authority necessary to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action of the Company. The authorized
capital
-3-
<PAGE>
stock of the Company consists of 1,000,000 shares of the Common Stock, of which
105099 shares are issued and outstanding. All of the issued and outstanding
shares of the Common Stock are duly and validly issued and are fully paid and
nonassessable. The Company shall not incur any indebtedness in excess of
$500,000 other than the indebtedness to the Lender hereunder, indebtedness in
existence on the date hereof (or any renewals, refinancings or extensions
thereof), and indebtedness all or a portion of the proceeds of which are used to
repay the entire outstanding balance under the Revolving Note or the Term Note
(whichever shall then be outstanding). The Company shall not grant any
registration rights with respect to shares of its Common Stock to any person
unless it also grants similar registration rights to the Lender.
(b) By the Lender. The Lender is a corporation duly organized and
-------------
existing under the laws of the country of Norway and has the corporate and legal
power and authority necessary to execute, deliver and perform its obligations
under this Agreement and to consummate the transactions contemplated hereby. The
execution, delivery and performance of this Agreement and the consummation of
the transactions contemplated hereby have been duly and validly authorized by
all necessary corporate action of the Lender. The Lender has not authorized any
person to act as broker, finder or in any other similar capacity in connection
with the transactions contemplated by this Agreement. The Lender acknowledges
that the Warrant and the shares of the Common Stock issuable thereunder and
pursuant to the conversion rights set forth in paragraph 3 hereof have not been
registered under any state (or other) securities laws or under the Securities
Act of 1933, as amended (the "Federal Act"), in reliance, in the case of the
Federal Act, on exemptions contained in Regulation S promulgated thereunder, and
agrees that it will not (i) transfer the Warrant or any of such shares, or any
interest therein, except pursuant to an effective registration statement under
the applicable state and other securities laws and the Federal Act or in a
transaction which is exempt under such applicable state and other securities
laws and the Federal Act, or (ii) make any transfer which will cause the
issuance of the Warrant or any of such shares by the Company to be unlawful or
violative of any statute or regulation. The Lender warrants and represents that
it is not a citizen or resident of, or entity organized or chartered under the
laws of, the United States or any of its territories, possessions or political
subdivisions, nor does it have any offices in the United States, directors,
shareholders, officers, or employees residing in the United States or any of its
territories, possessions or political subdivisions, or who are citizens of the
United States or any of its territories, possessions or political subdivisions.
The Lender acknowledges that its execution of this Agreement has taken place
outside the United States and it is not acquiring any securities hereunder for
the account or benefit of: (i) any natural person resident in the United States;
(ii) any partnership or corporation organized or incorporated under the laws of
the United States, its territories or possessions or any state or the District
of Columbia; (iii) any estate of which any executor or administrator is a U.S.
Person; (iv) any trust of which any trustee is a U. S. Person; (v) any agency or
branch of a foreign entity located in the United States; (vi) any non-
discretionary account or similar account (other than an estate or trust) held by
a "dealer" (as defined in the Federal Act) or other fiduciary for the benefit or
account of a U.S. Person; (vii) any discretionary account or similar account
(other than an estate or trust) held by a "dealer" (as defined in the Federal
Act) or other professional fiduciary organized, incorporated, or (if an
individual) resident in the United States; or (viii) any partnership or
corporation organized or incorporated under the laws of any foreign jurisdiction
by a U. S. Person principally for the purpose of investing in securities not
registered under the
-4-
<PAGE>
Federal Act unless it is organized or incorporated, and owned, by Accredited
Investors (as defined in Rule 501(a) under the Federal Act) who are not natural
persons, estates or trusts (any of (i) through (viii) above are defined herein
as a "U.S. Person"). In addition to the restrictions on transfer set forth
herein, the Lender also agrees that it will not transfer any of such securities
into the United States or to a U. S. person (as defined in Regulation S) for a
period of one year after the date of their issuance to Lender. The Lender
warrants and represents that any shares of the Common Stock that it acquires
will be acquired solely for its own account, to hold for investment, with no
present intention of dividing its participation with others or reselling or
otherwise participating, directly or indirectly, in a distribution of such
shares.
10. Default; Remedies. A "Default" shall exist if any of the following
-----------------
occurs and is not remedied (i) in the case of events described in clause (a)
below, within 15 days after notice from the Lender to the Company thereof, and
(ii) in the case of events described in clauses (b) through (h) below or
elsewhere in this Agreement, within 30 days after notice from the Lender to the
Company thereof: (a) failure of the Company punctually to make any payment of
any amount payable under the Revolving Note or the Term Note, whether at
maturity, or at a date fixed for any prepayment or partial prepayment, or by
acceleration, or otherwise; (b) any statement, representation, or warranty of
the Company made in this Agreement or the Warrant shall be false or misleading
in any material respect as of the date made; (c) failure of the Company
punctually and fully to comply with any of its covenants in this Agreement or
the Warrant; (e) if the Company becomes insolvent as defined in the Georgia
Uniform Commercial Code or makes an assignment for the benefit of creditors; or
if any action is brought by the Company seeking dissolution of the Company or
liquidation of its assets or seeking the appointment of a trustee, interim
trustee, receiver, or other custodian for any of its property; or if the Company
commences a voluntary case under the Federal Bankruptcy Code; or if any
reorganization or arrangement proceeding is instituted by the Company for the
settlement, readjustment, composition or extension of any of its debts upon any
terms; or if any action or petition is otherwise brought by the Company seeking
similar relief or alleging that it is insolvent or unable to pay its debts as
they mature; (g) the Company is in default on indebtedness to another person,
the amount of such indebtedness exceeds $250,000 and the acceleration of the
maturity of such indebtedness would have a material adverse effect upon the
Company; or (h) more than 80% of the outstanding shares of Common Stock of the
Company shall no longer be held by shareholders of the Company on the date of
this Agreement or a sale of all or substantially all of the assets of the
Company unless waived in writing by the Lender. Upon the occurrence of a
Default, the Lender shall be entitled to declare any of the amounts owed by the
Company under the Revolving Note or the Term Note due and payable, whereupon
they immediately will become due and payable without presentment, demand, notice
or protest of any kind (all of which are expressly waived by the Company) and to
exercise any and all rights and remedies available to it with respect to the
collateral for the Term Note as shall be provided in the security agreement or
other document establishing the Lender's rights in such collateral, at law, in
equity or otherwise until all indebtedness of the Company to Lender secured by
such collateral is repaid.
-5-
<PAGE>
11. Miscellaneous. All notices or other communications which are
-------------
required or permitted hereunder shall be in writing and sufficient if delivered
(i) personally, (ii) by registered or certified mail, postage prepaid or (iii)
by a recognized courier service to the persons at the addresses set forth below
(or at such other address as may be provided hereunder), and shall be deemed to
have been delivered as of the date so delivered or transmitted:
The Company: Iterated Systems, Inc.
Seven Piedmont Center, Suite 600
3525 Piedmont Road
Atlanta, Georgia 30305
Attention: President
With copy
to counsel: Morris Manning & Martin, L.L.P.
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attention: John C. Yates, Esq.
The Lender: Mosvold Farsund Invest A.S.
P.O. Box 113
4551 Farsund, Norway
Attention: Geir Larsen,
Chief Executive Officer
Each party shall bear the expenses incurred by it or on its behalf in connection
with the transactions contemplated by this Agreement; provided, however, that
-------- -------
the Company shall reimburse the Lender for up to $10,000 of its legal and
related expenses incurred in connection therewith, and the Company shall be
liable for any reasonable attorneys fees actually incurred by the Lender in
enforcing this Agreement, the Revolving Note, the Term Note or the Warrant upon
a default by the Company of its obligations thereunder. This Agreement,
together with the Revolving Note, the Term Note and the Warrant, contain the
entire agreement among the parties with respect to the transactions contemplated
hereby, and supersede all prior arrangements or understandings with respect
thereto, written or oral. This Agreement shall inure to the benefit of and be
binding upon the Company's and the Lender's successors and any permitted
assignee of this Agreement, the Revolving Note, the Term Note or the Warrant.
This Agreement, the Revolving Note, the Term Note and the Warrant shall not be
assigned by the Lender without the prior written consent of the Company;
provided, however, that the Lender may sell participations in the Revolving
- -------- -------
Note, the Term Note and the Warrant to not more than four other persons
(including indirect participants), each of whom must be an existing shareholder
of the Company provided that no such participation shall relieve the Lender of
its obligations under this Agreement, including without limitation its
obligations under paragraphs 1 and 2 hereof, and provided further, that the
-------- -------
Lender may assign this Agreement, the Revolving Note, the Term Note or the
Warrant to an Affiliate of Mosvold Farsund Invest A.S. without the prior written
consent of the Company subject to the condition that Mosvold Farsund Invest A.S.
remain liable for the performance of all of the obligations of the Lender and
its assigns thereunder. For purposes of the foregoing sentence, "Affiliate"
shall have the meaning given such term in Rule 144(a)(1) promulgated under the
Securities Act of 1933, as amended. This Agreement shall be governed by and
construed in accordance with the laws of the State of Georgia except to the
extent United
-6-
<PAGE>
States federal law shall be applicable. This Agreement may be executed in one
or more counterparts, each of which shall constitute one and the same
instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
sealed and delivered by their duly authorized officers as of the date first
written above.
ITERATED SYSTEMS, INC.
Attest:
/s/ Neal W. McEwen By: /s/ John R. Festa
- ------------------ --------------------------------------
Neal W. McEwen John R. Festa
Secretary President and Chief Executive Officer
[CORPORATE SEAL]
MOSVOLD FARSUND INVEST A.S.
By: /s/ Geir B. Larsen
-------------------------------------
Name: Geir B. Larsen
Title: President
-7-
<PAGE>
REVOLVING CREDIT PROMISSORY NOTE
$6,000,000 MAY 31, 1996
FOR VALUE RECEIVED, the undersigned, Iterated Systems, Inc., a Georgia
corporation (the "Borrower"), promises to pay to Mosvold Farsund Invest A.S.
(the "Lender"), at P.O. Box 113, 4551 Farsund, Norway (or at such other place as
the Lender may designate in writing to the Borrower), in lawful money of the
United States of America, the principal sum of Six Million Dollars ($6,000,000),
or such lesser amount as shall be advanced hereunder, plus interest as
hereinafter provided.
This Note is the Revolving Credit Promissory Note made and given as described
in that certain Loan Agreement dated as of May 31, 1996, between the Borrower
and the Lender (the "Loan Agreement"). In the event of any inconsistency
between this Note and the Loan Agreement, this Note shall control. The Borrower
shall be entitled to borrow funds hereunder pursuant to the terms and conditions
of the Loan Agreement. This Note may be assigned only as provided in the Loan
Agreement.
The Borrower promises to pay interest on the unpaid principal amount
outstanding hereunder (the "Loan"), at a simple interest rate per annum equal to
the Prime Rate Basis. "Prime Rate Basis" shall mean, on any day, a simple
interest rate per annum equal to the rate of interest published as the "Prime
Rate" as of the last business day of the full calendar month preceding such day
by NationsBank N.A. (South), or any successor institution, plus 100 basis points
(1%). Interest shall accrue on any amount past due hereunder at a rate equal to
two percent (2%) per annum in excess of the interest rate otherwise payable
hereunder. All such interest shall be due and payable on demand.
Interest under this Note shall be due and payable monthly in arrears on the
last day of each calendar month, commencing June 30, 1996, and continuing to be
due on the last day of each calendar month thereafter until this Note is paid in
full. Interest shall also be due and payable when this Note shall become due
(whether at maturity, by reason of acceleration or otherwise). After default,
interest shall also be due and payable upon demand from time to time by the
Lender.
The entire outstanding principal balance of the indebtedness evidenced by this
Note, together with all accrued and unpaid interest, shall be due and payable on
May 31, 1997; provided, however, that the Borrower shall be entitled to convert
-------- -------
the entire outstanding principal balance evidenced by this Note into a term loan
as provided in the Loan Agreement. Subject to the Lender's rights of conversion
pursuant to the Loan Agreement, the Borrower may repay all or any part of the
outstanding principal balance hereunder at any time and from time to time, and
shall be obligated to prepay all of the outstanding principal balance hereunder
upon the events and in the manner specified in the Loan Agreement.
<PAGE>
In no event shall the amount of interest due or payable hereunder exceed the
maximum rate of interest allowed by applicable law, and in the event any such
payment is inadvertently paid by the Borrower or inadvertently received by the
Lender, then such excess sum shall be credited as a payment of principal, unless
the Borrower shall notify the Lender, in writing, that the Borrower elects to
have such excess sum returned to it forthwith. It is the express intent hereof
that the Borrower not pay and the Lender not receive, directly or indirectly, in
any manner whatsoever, interest in excess of that which may be lawfully paid by
the Borrower under applicable law.
The Borrower hereby waives presentment for payment, demand, notice of non-
payment or dishonor, protest and notice of protest, or any other notice of any
kind with respect thereto.
Time is of the essence of this Note.
This Note shall be deemed to be made pursuant to the laws of the State of
Georgia.
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed, sealed, and delivered this Note, as of the day and year first above
written.
ITERATED SYSTEMS, INC.
By: /s/ John R. Festa
-------------------------------------
John R. Festa
President and Chief Executive Officer
Attest: /s/ Neal W. McEwen
----------------------------------
Neal W. McEwen
Secretary
[CORPORATE SEAL]
<PAGE>
SCHEDULE TO REVOLVING CREDIT PROMISSORY NOTE
<TABLE>
<CAPTION>
Amount of Amount of
Principal Principal Unpaid Principal Name of Person
Date Advance Prepaid Balance Making Notation
- -------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
/ / $ $
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
FIRST AMENDMENT TO LOAN AGREEMENT
This FIRST AMENDMENT TO LOAN AGREEMENT (the "First Amendment'') is made and
entered into this 30th day of June, 1997, by and between Iterated Systems, Inc.,
a Georgia corporation (the "Company"), and Mosvold Farsund Invest A.S. (the
"Lender").
R E C I T A L S
A. The Company and the Lender are parties to that certain Loan Agreement,
dated May 31, 1996 (the "Loan Agreement").
B. The Company and the Lender desire to amend certain terms of the Loan
Agreement.
A G R E E M E N T
NOW, THEREFORE, in consideration of the premises hereof, the mutual
covenants and conditions set forth herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto, intending to be legally bound, hereby agree as follows:
1. Paragraph 9(a) of the Loan Agreement is hereby superseded and replaced
in its entirety by the following:
(a) By the Company. The Company is a corporation duly organized and
--------------
existing under the laws of the state of Georgia and has the corporate power and
authority to carry on its business as and where now conducted. The Company has
the corporate power and authority necessary to execute, deliver and perform its
obligations under this Agreement and to consummate the transactions contemplated
hereby. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby have been duly and validly
authorized by all necessary corporate action of the Company. The authorized
capital stock of the Company consists of 1,000,000 shares of the Common Stock,
of which 107,174 shares are issued and outstanding. All of the issued and
outstanding shares of the Common Stock are duly and validly issued and are fully
paid and nonassessable. The Company shall not incur any indebtedness other than
the indebtedness to the Lender hereunder, indebtedness in existence on the date
hereof (or any renewals, refinancings or extensions thereof), accounts payable
and similar indebtedness incurred and liquidated in the normal course of
business, and indebtedness all or a portion of the proceeds of which are used to
repay the entire outstanding balance under the Revolving Note or the Term Note
(whichever shall then be outstanding). The Company shall not grant any
registration rights with respect to shares of its Common Stock to any person
unless it also grants similar registration rights to the Lender. Without the
prior written consent of the Lender, the Company shall not create, or permit the
creation of, any pledge, lien or other encumbrance upon any of its assets that
are material to the operations of its business other than (i) liens imposed by
law, (ii) liens that secure purchase money indebtedness and that do not encumber
any property other than the property acquired with the proceeds of such
<PAGE>
indebtedness, and (iii) liens securing the payment of taxes not yet due and
payable or being contested in good faith by appropriate proceedings.
3. Exhibit A to the Loan Agreement is hereby superseded and replaced in
---------
its entirety by Exhibit A attached hereto. Contemporaneous with the execution
of this First Amendment, the Company shall execute and deliver to the Lender an
Amended and Restated Revolving Credit Promissory Note in the form of Exhibit A,
---------
and the Lender shall deliver to the Company the Original Revolving Credit
Promissory Note (as defined below) marked "canceled." The "Original Revolving
Credit Promissory Note" refers to the Revolving Credit Promissory Note, dated
May 31, 1996, executed and delivered by the Company in connection with the
execution of the Loan Agreement.
4. Exhibit B to the Loan Agreement is hereby superseded and replaced in
---------
its entirety by Exhibit B attached hereto.
---------
5. All terms, covenants and conditions of the Loan Agreement not expressly
amended by this First Amendment shall be and remain unchanged and in full force
and effect. Capitalized terms utilized in this First Amendment and not defined
herein shall have the meanings attributed to them in the Loan Agreement.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed,
sealed and delivered by their duly authorized officers as of the date first
written above.
ITERATED SYSTEMS, INC.
Attest:
/s/ Troy Goers By: /s/ John R. Festa
---------------------- --------------------------
John R. Festa
President and Chief Executive Officer
[CORPORATE SEAL]
MOSVOLD FARSUND INVEST A.S.
By: /s/ Geir B. Larsen
---------------------------
Name: Geir B. Larsen
Title: President
-2-
<PAGE>
EXHIBIT A
TO LOAN AGREEMENT
AMENDED AND RESTATED REVOLVING CREDIT PROMISSORY NOTE
$6,000,000 JUNE 30, 1997
FOR VALUE RECEIVED, the undersigned, Iterated Systems, Inc., a Georgia
corporation (the "Borrower"), promises to pay to Mosvold Farsund Invest A.S.
(the "Lender"), at P.O. Box 113, 4551 Farsund, Norway (or at such other place as
the Lender may designate in writing to the Borrower), in lawful money of the
United States of America, the principal sum of Six Million Dollars ($6,000,000),
or such lesser amount as shall be advanced hereunder, plus interest as
hereinafter provided.
This Note amends and restates in its entirety the Revolving Credit Promissory
Note made and given as described in that certain Loan Agreement dated as of May
31, 1996, between the Borrower and the Lender (the "Original Loan Agreement").
This Note is made and given pursuant to the terms of that certain First
Amendment to Loan Agreement, dated June 30, 1997 (the "First Amendment"). The
Original Loan Agreement as amended by the First Amendment is referred to herein
as the "Loan Agreement." In the event of any inconsistency between this Note
and the Loan Agreement, this Note shall control. The Borrower shall be entitled
to borrow funds hereunder pursuant to the terms and conditions of the Loan
Agreement. This Note may be assigned only as provided in the Loan Agreement.
The Borrower promises to pay interest on the unpaid principal amount
outstanding hereunder (the "Loan"), at a simple interest rate per annum equal to
the Prime Rate Basis. "Prime Rate Basis" shall mean, on any day, a simple
interest rate per annum equal to the rate of interest published as the "Prime
Rate" as of the last business day of the full calendar month preceding such day
by NationsBank N.A. (South), or any successor institution, plus 100 basis points
(1%). Interest shall accrue on any amount past due hereunder at a rate equal to
two percent (2%) per annum in excess of the interest rate otherwise payable
hereunder. All such interest shall be due and payable on demand.
Interest under this Note shall be due and payable monthly in arrears on the
last day of each calendar month, commencing June 30, 1996, and continuing to be
due on the last day of each calendar month thereafter until this Note is paid in
full. Interest shall also be due and payable when this Note shall become due
(whether at maturity, by reason of acceleration or otherwise). After default,
interest shall also be due and payable upon demand from time to time by the
Lender.
The entire outstanding principal balance of the indebtedness evidenced by this
Note, together with all accrued and unpaid interest, shall be due and payable on
June 30, 1998; provided, however, that the Borrower shall be entitled to convert
-------- -------
the entire outstanding principal balance evidenced by this Note into a term loan
as provided in the Loan Agreement. Subject to
-3-
<PAGE>
the Lender's rights of conversion pursuant to the Loan Agreement, the Borrower
may repay all or any part of the outstanding principal balance hereunder at any
time and from time to time, and shall be obligated to prepay all of the
outstanding principal balance hereunder upon the events and in the manner
specified in the Loan Agreement.
In no event shall the amount of interest due or payable hereunder exceed the
maximum rate of interest allowed by applicable law, and in the event any such
payment is inadvertently paid by the Borrower or inadvertently received by the
Lender, then such excess sum shall be credited as a payment of principal, unless
the Borrower shall notify the Lender, in writing, that the Borrower elects to
have such excess sum returned to it forthwith. It is the express intent hereof
that the Borrower not pay and the Lender not receive, directly or indirectly, in
any manner whatsoever, interest in excess of that which may be lawfully paid by
the Borrower under applicable law.
The Borrower hereby waives presentment for payment, demand, notice of non-
payment or dishonor, protest and notice of protest, or any other notice of any
kind with respect thereto.
Time is of the essence of this Note.
This Note shall be deemed to be made pursuant to the laws of the State of
Georgia.
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed, sealed, and delivered this Note, as of the day and year first above
written.
ITERATED SYSTEMS, INC.
By: /s/ John R. Festa
-------------------------------
John R. Festa
President and Chief Executive Officer
Attest: /s/ Troy Goers
---------------------------
[CORPORATE SEAL]
-4-
<PAGE>
SCHEDULE TO REVOLVING CREDIT PROMISSORY NOTE
<TABLE>
<CAPTION>
Amount of Amount of
Principal Principal Unpaid Principal Name of Person
Date Advance Prepaid Balance Making Notation
- ---------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
6/9/97 $3,000,000 $3,000,000
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------
</TABLE>
-5-
<PAGE>
EXHIBIT B
TO LOAN AGREEMENT
TERM PROMISSORY NOTE
____________$ ___________, 199__
FOR VALUE RECEIVED, the undersigned, Iterated Systems, Inc., a Georgia
corporation (the "Borrower"), promises to pay to Mosvold Farsund Invest A.S.
(the "Lender"), at P.O. Box 113, 4551 Farsund, Norway (or at such other place as
the Lender may designate in writing to the Borrower), in lawful money of the
United States of America, the principal sum of _____________________________
______________________________________________ ($___________), plus interest
as hereinafter provided.
This Note is the Term Promissory Note made and given as described in that
certain Loan Agreement dated as of May 31, 1996, between the Borrower and the
Lender, as amended by that certain First Amendment to Loan Agreement, dated June
___, 1997 (the "Loan Agreement"). In the event of any inconsistency between
this Note and the Loan Agreement, this Note shall control. The Borrower shall
be entitled to borrow funds hereunder pursuant to the terms and conditions of
the Loan Agreement. This Note may be assigned only as provided in the Loan
Agreement.
The Borrower promises to pay interest on the unpaid principal amount
outstanding hereunder (the "Loan"), at a simple interest rate per annum equal to
the Prime Rate Basis. "Prime Rate Basis" shall mean, on any day, a simple
interest rate per annum equal to the rate of interest published as the "Prime
Rate" as of the last business day of the full calendar month preceding such day
by NationsBank N.A. (South), or any successor institution, plus 250 basis points
(2.5%). Interest shall accrue on any amount past due hereunder at a rate equal
to two percent (2%) per annum in excess of the interest rate otherwise payable
hereunder. All such interest shall be due and payable on demand.
Interest under this Note shall be due and payable quarterly in arrears on the
last day of each calendar quarter, commencing June 30, 1998, and continuing to
be due on the last day of each calendar quarter thereafter until this Note is
paid in full. Interest shall also be due and payable when this Note shall
become due (whether at maturity, by reason of acceleration or otherwise). After
default, interest shall also be due and payable upon demand from time to time by
the Lender.
Commencing September 30, 1998, and continuing on each March 31, June 30,
September 30, December 31 thereafter, the indebtedness evidenced by this Note
shall be due and payable in 15 consecutive quarterly installments of principal,
each in the amount of 1/16th of the principal balance outstanding hereunder on
June 29, 1998, plus all accrued and unpaid interest as hereinabove provided.
The entire outstanding balance of the indebtedness evidenced by this Note,
together with all accrued and unpaid interest, shall be due and payable in a
16th and final
-6-
<PAGE>
installment on June 30, 2002. Subject to the Lender's rights of conversion
pursuant to the Loan Agreement, the Borrower may prepay all or any part of the
outstanding principal balance hereunder at the end of any calendar quarter, and
shall be obligated to prepay all of the outstanding principal balance hereunder
upon the events and in the manner specified in the Loan Agreement. The Lender
shall be obligated to convert the entire outstanding principal balance hereunder
into common stock of the Borrower upon the events and in the manner specified in
the Loan Agreement.
In no event shall the amount of interest due or payable hereunder exceed the
maximum rate of interest allowed by applicable law, and in the event any such
payment is inadvertently paid by the Borrower or inadvertently received by the
Lender, then such excess sum shall be credited as a payment of principal, unless
the Borrower shall notify the Lender, in writing, that the Borrower elects to
have such excess sum returned to it forthwith. It is the express intent hereof
that the Borrower not pay and the Lender not receive, directly or indirectly, in
any manner whatsoever, interest in excess of that which may be lawfully paid by
the Borrower under applicable law.
The Borrower hereby waives presentment for payment, demand, notice of non-
payment or dishonor, protest and notice of protest, or any other notice of any
kind with respect thereto.
Time is of the essence of this Note.
This Note shall be deemed to be made pursuant to the laws of the State of
Georgia.
IN WITNESS WHEREOF, the duly authorized officers of the Borrower have
executed, sealed, and delivered this Note, as of the day and year first above
written.
ITERATED SYSTEMS, INC.
By:
-------------------------------------
John R. Festa
President and Chief Executive Officer
Attest:
---------------------------------
[CORPORATE SEAL]
-7-
<PAGE>
This ALLONGE is made the 1st day of May, 1997, to modify that certain
Revolving Credit Promissory Note, dated May 31, 1996, in the original principal
amount of Six Million Dollars ($6,000,000) or such lesser amount as shall be
advanced thereunder (the "Note"), executed by Iterated Systems, Inc., a Georgia
corporation ("Maker") and payable to the order of Mosvold Farsund Invest A.S.
(the "Lender").
The Note is hereby modified to reflect that the entire outstanding
principal balance of the indebtedness evidenced by the Note, together with all
accrued and unpaid interest, shall be due and payable on July 1, 1997.
MAKER:
ITERATED SYSTEMS, INC.
By: /s/ John R. Festa
-----------------
John R. Festa, President and Chief
Executive Officer
LENDER:
MOSVOLD FARSUND INVEST A.S.
By: /s/ (Illegible)
---------------
<PAGE>
EXHIBIT 10.2
PIEDMONT CENTER
THIS LEASE, made as of the 31st day of January, 1995, by and between
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM first party, (herein called
"Lessor"); and ITERATED SYSTEMS, INC., a Georgia Corporation second party,
(herein called "Lessee").
WITNESSETH:
PREMISES
1. Lessor does hereby rent and lease to the Lessee Suite 600, Seven Piedmont
Center (hereinafter called the "Premises") in the building (hereinafter called
the "Building") situated at: 3525 Piedmont Road, N. E., Atlanta, Georgia
30305, consisting of approximately 20,048 rentable square feet as shown outlined
in red on Exhibit "A" attached hereto and made a part hereof. No easements are
included in this Lease, including without limitation, easements for light, air
and view.
TERM
2. This Lease shall be for a term (hereinafter called the Term"), commencing on
May 1, 1995 and ending on the last day of the calendar month which is 5 years
and 0 months following the commencement date. Notwithstanding the foregoing,
(a) if Lessee takes occupancy of the Premises prior to the aforesaid
commencement date, then the Term shall commence on the date of said occupancy,
and (b) if Lessor does not deliver to Lessee possession of the Premises on or
before the aforesaid commencement date (and such delay in delivery of possession
of the Premises is not attributable to any failure of Lessee to fully and
punctually perform Lessee's obligations as set forth in this Lease), then the
Term of this Lease shall not commence until Lessor delivers to Lessee notice
that the Premises are available for occupancy by Lessee and the date set forth
in such notice shall establish the commencement date.
RENTAL
3. Lessee shall pay to Lessor (or to Lessor's designee as set forth by written
notice from Lessor to Lessee), at the address set forth in Paragraph 21 of this
Lease, without any prior demand, offsets or deductions, the sum of $330,792.00
per annum as fixed rent (hereinafter, together with any adjustments as
hereinbelow provided, called "Base Rental") in equal monthly installments of
$27,566.00 per month (subject to adjustment as hereinbelow provided) in
advance, on the first day of each calendar month during the Term of this Lease.
Base Rental, together with all "additional rent" and other sums payable by
Lessee as herein provided (hereinafter collectively called "Rent") shall be
payable at Lessor's office or at such other place as Lessor may from time to
time designate in writing to Lessee. In the event the Term does not commence on
the first day of a calendar month or end on the last day of a calendar month,
the
<PAGE>
Base Rental for such fractional month shall be proportionately reduced.
a. As used herein, the term "Adjustment Date" shall mean each January 1
occurring during the Term commencing with the year 1996 , and the term "Adjusted
Base Rental" shall mean the Base Rental in effect immediately prior to the
adjustment to said Base Rental occurring as of such Adjustment Date. The Base
Rental shall be adjusted effective as of each Adjustment Date to reflect such
increases, if any, as are reflected by changes in the "All-Items" figures in the
"Consumer Price Index - U.S. City Average for All Urban Consumers" (1984=100) of
the Bureau of Labor Statistics of the United States Department of Labor. As of
each Adjustment Date the Base Rental shall be adjusted to that amount determined
by dividing Adjusted Base Rental by the index number published in the issue of
"Monthly Labor Review" for the second December preceding each annual Adjustment
Date and subsequently multiplying that amount by the index number published in
the "Monthly Labor Review" for the December immediately preceding such
Adjustment Date. If the "Consumer Price Index" published by the Bureau of Labor
Statistics is discontinued, then the "Consumer Price Index" published by the
United States Department of Commerce shall be used (with proper adjustment), and
if the Department of Commerce Index is discontinued then the parties shall, in
good faith, agree on a suitable substitute. In no event shall the Base Rental
payable hereunder be reduced by any such adjustment. Lessor shall endeavor to
notify Lessee of the adjustments to Base Rental as soon as practicable following
each Adjustment Date and Lessee shall continue to pay Base Rental otherwise in
effect under this Lease until Lessor shall notify Lessee of such adjustment to
Base Rental. Within thirty (30) days following Lessor's notification of the
adjustment to Base Rental in accordance with this paragraph, Lessee shall pay to
Lessor the difference between the Base Rental actually paid by Lessee since the
last preceding Adjustment Date and accrued but unpaid Base Rental owed in
accordance with the terms of this paragraph. The obligation of Lessee under the
last preceding sentence hereof shall survive the expiration or earlier
termination of this Lease. See Exhibit 'C", paragraph 1.
b. As used herein, the term "taxes" shall include every type of tax,
charge or impost assessed against the real estate and improvements upon and
within which the Premises are located, or upon the operation of such real estate
and improvements, excepting only income taxes imposed upon Lessor. In addition
to Base Rental, Lessee agrees to pay, as additional rent, 4.091 % (the
percentage is determined by dividing the rentable square feet of the Premises by
the total rentable square feet in said improvements, i.e., 490,000 rentable
square feet) of the amount, if any, of any increase in taxes on said real estate
and improvements for the current calendar year over taxes on said real estate
and improvements for the year 1995, prorated as may be necessary based upon the
amount ' of the Term occurring during the calendar year involved. Lessor shall
notify Lessee in writing of Lessee's pro rata share of such increase in taxes,
if any, and Lessee agrees to pay Lessor, within thirty (30) days thereafter,
Lessee's share as additional rent hereunder. The obligations of Lessee under
this Paragraph 3.b. shall survive the expiration or earlier termination of this
Lease.
USE
4. The Premises shall be used for office purposes and no other. The Premises
shall not be used for any illegal purposes; nor in violation of any law or
regulation of any governmental body, nor in any manner to create any nuisance or
trespass; nor in any manner which could result in a
2
<PAGE>
cancellation of the insurance or an increase in the rate of insurance on the
Premises.
LESSEE'S ACCEPTANCE
5. Except as may be set forth in Exhibit "D" ("Leasehold Improvements")
attached hereto, Lessee accepts the Premises in their present condition and as
suited for the use intended by Lessee, and Lessor shall not be required to make
any repairs or improvements to the Premises, other than structural repairs
necessary for safety and tenantability. Taking possession of the Premises by
Lessee shall be evidence that Lessee has accepted the Premises in ":as is"
condition, subject only to the substantial completion of any items covered in
any punch list agreed upon in writing by Lessor and Lessee within thirty (30)
days after occupancy of the Premises by Lessee.
LESSEE'S CARE; INSURANCE
6. Lessee shall repair partitions and all glass and plate glass included within
or forming the Premises. Lessee shall be liable for and hold Lessor harmless in
respect of damage or injury to the Premises, or the person on property of the
Lessee, or the person or property of Lessor's other tenants, or any one else,
if due to the act or neglect of Lessee or any one in Lessee's control or employ.
Lessee shall at once report to Lessor any such defective condition known to
Lessee which Lessor is required to repair [F1]. All personal property owned by
Lessee, or by any of Lessee's employees or visitors, which is located upon the
Premised or the real property and improvements upon and within which the
Premises are located (including, without limitation, parking lots) shall be at
the risk of the Lessee only, and Lessor shall not be liable for any damage
thereto or theft thereof. [F2]
Lessee shall maintain in full force and effect throughout the Term
comprehensive liability and "all risk" property damage insurance for Lessee's
property located within the Premises in amounts and [F3]. Such policies shall
name Lessor, and such other parties as Lessor may designate, as additional
insureds; shall contain endorsements providing that such policies cannot be
materially modified or cancelled except after thirty (30) days prior written
notice to Lessor; and, shall contain such other provisions as Lessor may, in the
exercise of its discretion, deem necessary or appropriate. Lessee shall deliver
to Lessor certificates or other evidence satisfactory to Lessor confirming the
existence of such insurance coverage on or before the commencement date of the
Term and at such other times as Lessor may reasonable request.
INSPECTIONS
7. Lessor may enter the Premises at reasonable hours: to exhibit same to
prospective purchasers, mortgagees or tenants; to inspect the Premises to see
that Lessee is complying with all Lessee's obligations hereunder; and to make
repairs required of Lessor under the terms hereof or repairs or modifications to
any adjoining space. [F4]
3
<PAGE>
DEFAULT; REMEDIES
8. Without limiting the other provisions of this Lease, the occurrence of any
of the following shall constitute an "event of default" under this Lease: (A)
any Rent is not paid within ten (10) days after written notice by Lessor to
Lessee that the Rent is due and unpaid; [F5] or (B) the premises shall be
deserted or vacated; or (C) Lessee shall fail to comply with any term,
provision, condition or covenant of this Lease other than the payment of Rent,
or any of the Rules and Regulations now or hereafter established for the
government of the Building, and shall not cure such failure within thirty (30)
days after written notice to Lessee of such failure to comply; or (D) any
petition is filed by or against Lessee under any section or chapter of the
National Bankruptcy Act, as amended; [F6] or (E) Lessee shall be come insolvent
or make a transfer in fraud of creditors; or (F) Lessee shall make an
assignment for benefit of creditors; or (G) a receiver is appointed for a
substantial part of the assets of Lessee; or (H) the leasehold interest of
Lessee, or any portion thereof, is levied on under execution. Specifically
notwithstanding any provision for notice and cure afforded Lessee by virtue of
this paragraph, Lessor shall have no obligation to notify Lessee of any
violations by Lessee of the terms of this Lease on more than two (2) occasions
during any twelve month period nor on more than ten (10) occasions during the
Term, and an event of default shall be deemed to have occurred hereunder in such
circumstances without the necessity of any prior notice by Lessor or opportunity
to cure for Lessee.
Upon the occurrence of an event of default, in addition to and not in
limitation of any other right or remedy available to Lessor at law or in equity,
Lessor shall have the option at any time thereafter to:
(1) Terminate this Lease (but Lessee shall nevertheless remain liable for
damages as hereinafter set forth), in which event Lessee shall immediately
surrender the Premises to Lessor, but if Lessee shall fail to so do, Lessor
may, without further notice and without prejudice to any other remedy
Lessor may have for possession or arrearages in Rent, enter upon the
Premises and expel or remove Lessee and Lessee's effects, by force if
necessary, without being liable to prosecution or any claim for damages
therefor. Upon any such termination Lessee shall pay to Lessor all Rent
due and payable to the date upon which this Lease shall have been
terminated, and Lessor shall be entitled to recover from Lessee, and Lessee
shall pay to Lessor, on demand, as and for liquidated and agreed final
damages and not as a penalty, a sum equal to the amount by which the Base
Rental and additional rent payable for the period which otherwise would
have constituted the unexpired portion of the Term (conclusively presuming
the additional rent to be the same as was payable for the year immediately
preceding such termination) exceeds the fair and reasonable rental value of
the Premises for the same period, both discounted at the rate of seven
percent per annum to present worth. In determining the fair and reasonable
rental value of the Premises, the rental realized by any relet, if such
reletting be accomplished by Lessor within a reasonable time after
termination of this Lease or after Lessor regains possession of the
Premises, shall be deemed prima facie to be the rental value. [F7]
(2) Reenter the Premises, without notice, either by summary proceedings or by
any other action or proceeding or by force if necessary (without being
liable for any claim for damages therefor), and repossess the Premises and
dispossess Lessee and any other persons from the Premises. Lessor at any
time thereafter may relet the Premises, or any part thereof, in the name of
Lessor or as agent for Lessee, for a term or terms which may. at Lessor's
option, be less than or exceed the period of the remainder of the Term, and
at such rent or rental or upon such other
4
<PAGE>
conditions, which may include concessions as Lessor, in its sole
discretion, shall determine. Lessor shall receive the rents from such
reletting and shall apply the same. first, to pay such expenses as Lessor
may have incurred in connection with reentering, ejecting. removing.
dispossessing, reletting, altering, repairing, redecorating, subdividing or
otherwise preparing the Premises for reletting, including without
limitation brokerage and attorney's fees and expenses: second. to the
payment of any indebtedness other than Rent charges and other sums due
hereunder from Lessee to Lessor; and the residue, if any, shall apply to
the fulfillment of the terms, covenants and conditions of Lessee hereunder,
and Lessee hereby waives all claims to the surplus, if any. Lessee shall
be, and hereby agrees to be, liable for and to pay Lessor any deficiency
between the Rents, charges and other sums reserved hereunder (conclusively
presuming that additional rent is the same as payable for the year
immediately preceding such re-entry) and the net rentals, as aforesaid, of
relet, if any, for each month of the period which would otherwise have
constituted the balance of the Term. Lessee hereby agrees to pay such
deficiency in monthly installments on the date specified in this Lease for
the payment of Base Rental, and any suit or proceeding brought to collect a
deficiency for any month shall not prejudice or preclude in any way the
right of Lessor to collect a deficiency for any subsequent month b),
similar suit or proceeding. Lessor shall in no event be liable in any
manner whatsoever for the failure to relet the Premises or, in the event of
such reletting, for failure to collect the rents reserved thereunder. No
such re-entry or taking possession of the Premises by Lessor .,hall be
construed as an election on its part to terminate this Lease unless Lessor
gives written notice to Lessee of such intention to so terminate this
Lease.
(3) As agent for Lessee, Lessor, without thereby waiving such default and
without liability to Lessee in connection therewith, may, but shall not be
obligated to, cure any default of Lessee in the performance by Lessee of
any of the terms of this Lease on Lessee's part to be performed. Lessor
may enter the Premises at any time to cure any default without any
liability to Lessee. Lessee shall reimburse Lessor immediately upon demand
for any expenses which Lessor may incur in effecting compliance with this
Lease on behalf of Lessee.
PERSONALTY OF LESSEE
9. If Lessee shall not remove all its effects from said Premises at any
termination of this Lease, Lessor may, at its option, remove all or part of said
effects in any manner that Lessor shall choose and store the same without
liability to Lessee for loss thereof, and Lessee shall reimburse Lessor on
demand for all expenses incurred in such removal and also storage of said
effects [F8], and upon any termination of this Lease or re-entry by Lessor upon
the Premises in accordance with Paragraph 8 hereof wherein Lessee shall be
liable in any amount to Lessor, Lessor may, at its option, without notice, take
possession of said property and effects and sell at public or private sale all
or part of said property and effects for such price as Lessor may deem best and
apply the proceeds of such sale to any amounts due under this Lease from Lessee
to Lessor, including the expenses of the removal and sale.
5
<PAGE>
POSSESSION
10. If the Lease is executed before the Premises herein become ready for
occupancy and Lessor cannot deliver possession of the Premises by the time the
Term is fixed herein to begin, this Lease shall not be void or voidable (except
as hereinbelow provided) and Lessee waives any claim for damages due to such
delay. In the event Lessor fails to deliver the Premises to Lessee for
occupancy before ninety (90) days after the commencement date set forth in
Paragraph 2 of this Lease due to reasons other than the fault of Lessee, then
Lessee shall have the right and option to terminate this Lease as Lessee's sole
and exclusive remedy against Lessor. [F9]
SERVICES
11. Provided Lessee has not abandoned the Premises and there exists no event
of default on behalf of Lessee, Lessor shall furnish to the Premises the
following services in the following amounts:
(a) Janitorial services on Monday through Friday inclusive, but excepting
legal holidays; [F10]
(b) Electricity in the Premises on a level suitable for normal office use,
including usual and normal small office machines and similar equipment using 110
volt current, and lighting of the Premises to building standard light levels
produced by building standard fluorescent lighting fixtures (Lessee being
obligated to pay for replacement of all light bulbs including excluding
fluorescent tubes); [F11]
(c) Seasonal air conditioning and heating on Monday through Friday
inclusive, with legal holidays excepted, from 8:00 a.m. to 5:00 p.m. 6:00 p.m.;
Saturday 8:00 a.m. - 12:00 p.m. Lessor reserves the right to prohibit
installation within the Premises of equipment using electricity in amounts
greater than the amounts provided, including, but is not limited to, electric
heaters.
In no event shall Lessee's use of electric current exceed the capacity of
existing feeders to the Building, risers, wiring installations or other
facilities which serve utilities to the Premises. Lessor further reserves the
right to prohibit the installation of any additional equipment unless and until
arrangements are made by Lessee, acceptable to Lessor, to install supplementary
air conditioning equipment on the Premises at Lessee's cost and expense. Any
cost of operation and maintenance of such additional equipment or supplementary
air conditioning services incurred by Lessor shall be paid by Lessee to Lessor
as additional rent on the monthly rental payment date set forth in this Lease
for Base Rental. Should Lessee desire heating or air conditioning at times when
such services are not furnished by Lessor under the terms of this Lease, Lessor
will furnish such services as requested by Lessee upon reasonable advance notice
from Lessee, and Lessee shall pay to Lessor the currently established charges
for such services as additional rent on demand. Lessor shall not be liable for
any damages directly or indirectly resulting form the installation, use, or
interruption of use of utilities or the furnishing of services referred to in
this paragraph where such interruption results from circumstances beyond
Lessor's reasonable control or from interruptions made necessary by repairs and
maintenance being undertaken by Lessor.
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SUBLETTING AND ASSIGNMENTS
12. Lessee shall not voluntarily or by operation of law, assign, transfer,
hypothecate or otherwise encumber this Lease, or any interest herein, and shall
not sublet nor permit the use by others of the Premises or any part thereof
without first obtaining in each instance Lessor's prior written consent, which
consent Lessor shall be entitled to withhold in its sole discretion. Lessor's
consent to one assignment, sublease, transfer or hypothecation shall not be
deemed consent to any other or further assignment, sublease, transfer or
hypothecation. Any such assignment, sublease, transfer or hypothecation without
Lessor's prior written consent shall be void and shall constitute an immediate
event of default under this Lease. No acceptance by Lessor of any rent or any
other sum of money from any assignee, subleases or other category of transferee
shall release Lessee from any of its obligations hereunder or be deemed to
constitute Lessor's consent to any assignment, sublease, transfer or
hypothecation. In the event Lessee shall desire to assign this Lease or sublet
the Premises or any part thereof, Lessee shall give Lessor written note at least
thirty (30) days in advance of the date on which Lessee desires to make such
assignment or sublease, which notice shall specify: (a) the name and business
of the proposed assignee or subleases, (b) reasonably detailed character and
financial reference for the proposed assignee or subleases (including a recent
certified financial statement), (c) the amount and location of space in the
Premises affected, (d) the proposed effective date and duration of the
subletting or assignment, and (e) the proposed rental and all other
consideration to be paid to Lessee by such subleases or assignee. Lessor shall
then have a period of ninety (90) days following receipt of such notice within
which to notify Lessee in writing that Lessor elects, at its option (1) to
terminate this lease as to the space so affected as of the date so specified by
Lessee, in which event Lessee will on that date surrender to Lessor possession
of the affected space and thereafter be relieved of all further obligations to
pay Rent hereunder as to such space; or (2) to permit Lessee to assign or sublet
such space, in which event any rent payable by subleases to Lessee in excess of
the rental rate of this Lease [F12] shall be deemed additional rent owed by
Lessee to Lessor under this Lease in the same manner that Lessee pays Base
Rental hereunder and in addition thereto (similarly, any sums payable by any
proposed assignee to Lessee in consideration of an assignment of Lessee's
interest in this Lease which are properly allocable to such assignment (as
determined by Lessor in its sole discretion based upon reasonable attribution
methods] shall be payable by Lessee to Lessor as additional rent and in
consideration of Lessor's consent to such assignment); or (3) to withhold
consent to Lessee's assignment of sublease of such space and to continue this
Lease in full force and effect as to the entire Premises. If Lessor shall elect
to terminate this Lease as aforesaid, Lessee shall notify Lessor in writing
within ten (10) days thereafter of Lessee's intention to either refrain from
such assignment, subletting or transfer or to accept the termination of this
Lease. If Lessee advises Lessor it intends to refrain from such assignment,
subletting or transfer, then Lessor's right to terminate this Lease as aforesaid
shall be null and void in such instance. If Lessee fails to so notify Lessor
within said 10-day period, then Lessee will be deemed to have accepted such
termination of this Lease and, upon any such termination, Lessor shall have the
right to enter into a direct Lease with Lessee's proposed assignee, subleases or
other transferee. In no event whatsoever shall (x) Lessee sublet, assign or
otherwise endeavor to transfer any interest of Lessee in this Lease to any other
tenant of space in Piedmont Center, (y) Lessee in writing, advertise or
otherwise publicize in any way the availability of all or any part of the
Premises at a rental rate which is less than the rate for which Lessor is then
offering any other space in the Building or any other improvements of which the
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Building and Premises form a part, and (z) any advertisement or other
publication for subletting or assignment state the name (as distinguished from
the address) of the Building.
DESTRUCTION OR DAMAGE
13. Should the Premises or Building be so damaged by fire or other cause,
without fault or neglect of Lessee, to the extent, as determined by Lessor in
its sole discretion, that rebuilding or repairs cannot be completed within one
hundred twenty (120) days from the date of the fire or such other cause of
damage, then either Lessor or Lessee may terminate this Lease, in which event
Rent shall be abated from the date of such damage or destruction. However, if
the damage or destruction is such that rebuilding or repairs can be completed
within one hundred twenty (120) days as so determined by Lessor, then Lessor
covenants and agrees to make such repairs with reasonable promptness and
dispatch, and to allow Lessee an abatement in the Rent for such time as the
Premises is untenantable or proportionately for such portion of the Premises as
shag be untenantable, and Lessee covenants and agrees that the terms of this
Lease shall not be otherwise affected. Lessee acknowledges and agrees that in
no event shah Lessor have any obligation to repair or restore any of Lessee's
furnishings, fixtures or equipment brought upon the Premises by or on behalf of
Lessee. [F13]
CONDEMNATIONS
14. If the whole or any material part of the Premises shall be taken or
condemned by any competent authority, then, and in that event, the Term of this
Lease shall cease and terminate from the date when the possession of the part so
taken shall be required for such use or purpose and the entire amount of the
condemnation award shall be paid to Lessor (excepting only any portion of such
award designated for moving expenses). If the whole or any material part of the
Building shall be taken or condemned by any competent authority (regardless of
whether or not any portion of the Premises shall be so taken or condemned),
Lessor shall have the right to terminate this Lease upon notice to Lessee.
ALTERATIONS AND IMPROVEMENTS
15. Lessee will make no alterations in, or additions to, the Premises without
first obtaining Lessor's written consent. All erections, additions, fixtures
and improvements, whether temporary or permanent in character (except only
movable office furniture and equipment of Lessee), made in or upon the Premises,
either by the Lessee or the Lessor, shall be Lessor's property, and shall remain
upon said Premises at the termination of the Term by lapse of time or otherwise,
without compensation to Lessee. As a condition to granting consent to the
making of such alterations or additions, Lessor may impose such requirements as
Lessor may in its sole discretion deem reasonable or necessary including, by way
of illustration and not Mutation, requirements as to the manner in which or time
at which such work is performed, the design of such alterations or additions,
the quality of materials and workmanship utilized in making such alterations or
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additions, and the selection of the contractor who shall perform the work
required to complete such alterations or additions.
ATTORNEYS' FEES; LATE PAYMENTS
16. [F14] Any installment of Rent delinquent for more than ten (10) days shall
bear interest at the rate of twelve percent (12%) per annum, after as well as
before judgment, from the date due until paid.
RULES AND REGULATIONS
17. The rules and regulations attached to this Lease as Exhibit "B" shall be
and are hereby made an integral part of this Lease. Lessee, its contractors,
servants and agents, will perform and abide by said rules and regulations, and
any amendments or additions to said rules And regulations as may be made from
time to time by Lessor, upon notice to Lessee, for the safety, care, cleanliness
and preservation of good order in the Building.
NO ESTATE
18. This contract shall create the relationship of landlord and tenant between
Lessor and Lessee; no estate shall pass out of Lessor; Lessee has only a
usufruct, not subject to levy and sale.
HOLDING OVER
19. If Lessee remains in possession of the Premises after expiration of the
Term, with Lessor's acquiescence and without any distinct agreement of the
parties, then Lessee by virtue of this paragraph shall become a tenant from
month-to-month at a monthly base rent, payable in advance, in an amount equal to
150% the amount of Base Rental payable for the last month of the Term and
otherwise subject to all of the conditions and covenants of-this Lease as though
this Lease had originally been a month-to-month tenancy. In no event shall
there be a renewal of this Lease by operation of law, and any such month-to-
month tenancy may be terminated by either Lessor or Lessee by giving thirty (30)
days written notice to the other. Specifically notwithstanding the foregoing,
if Lessee shall remain in possession of the Premises as a holdover tenant
without the acquiescence of Lessor or otherwise in violation of the terms and
provisions of this Lease, in addition to any other rights and remedies available
to Lessor, Lessor shall have the inundate right to reenter and take possession
of the Premises.
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SURRENDER OF PREMISES
20. At termination of this Lease, Lessee shall surrender the Premises (and all
keys to the Premises) to Lessor in good condition, natural wear and tear only
excepted. Any property of Lessee left upon the Premises at the termination of
this Lease shall be deemed abandoned by Lessee, and Lessor may thereafter use or
dispose of such property as Lessor sees fit without obligation to Lessee.
Lessee shall reimburse Lessor on demand for Lessor's costs and expenses in
removing and disposing of such property, and Lessee shall further indemnify and
hold Lessor free and harmless from any liability, claim or expense suffered or
incurred by Lessor in connection with the removal or disposal of such property.
[F15]
NOTICES
21. [F16] Any notice given by Lessee to Lessor under this Lease shall be in
writing, effective only when received by Lessor at Lessor's address hereinbelow
set forth. Unless Lessor otherwise notifies Lessee, all Rent payable by Lessee
to Lessor and any notice given by Lessee to Lessor shall be delivered to Lessor
at the following address:
Suite 515, Two Piedmont Center, Atlanta, Georgia 30305 - Also, see Exhibit
"E"
Either party may, by written notice to the other, specify a different address
for notice purposes, except that Lessor may in any event use the Premises as
proper and sufficient for service of dispossessory or distraint proceedings and
notice of an event of default.
PARTIES
22. "Lessor" as used in this Lease shall include first party, its
representatives, assigns and successors-in-title to the Premises. It is
understood and agreed that the term "Lessor", as used in this Lease, means only
the owner (or the Lessee under a superior lease) from time to time of the
Building so that in the event of any sale, the Lessor as transferor shall be
relieved of all covenants and obligation of Lessor hereunder and Lessee shall
attorn to any successor Lessor hereunder. "Lessee" shall include second party,
its representatives, and if this Lease shall be validly assigned or sublet,
shall include also Lessee's assignees or sublessees, as to the Premises covered
by such assignment or sublease. "Lessor" and "Lessee" include male and female,
singular and plural, corporation, partnership or individual.
CHANGE OF PREMISES
23. [DELETED]
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ADVANCE RENTAL
24. Upon execution of this Lease, Lessee shall pay to Lessor, as security for
the full and punctual performance by Lessee of all of the terms of this Lease,
the sum of $27,566.00, which unless otherwise applied, shall be used in payment
or reduction of Base Rental due under this Lease for the first calendar month of
the Term. In the event Lessee defaults in the performance of any of the terms
of this Lease, including the payment of Rent, Lessor may use, apply or retain
the whole or any part of said sum so deposited to the extent required for the
payment of any Rent or for any such other sum which lessor may expend or may be
required to expend by reason of Lessee's default.
SUBORDINATION
25. This Lease and all rights of Lessee hereunder are and shall be inferior and
subordinate to any mortgage, deed to secure debt, deed of trust or other
instrument in the nature thereof which may now or hereafter affect Lessor's
interest in the Premises or Building, and to any modifications, renewals,
consolidations, extensions or replacements of any such security instrument.
This paragraph shall be self-operative, and no further instrument of
subordination shall be required by the holder of any such security instrument.
Lessee shall, however, execute, acknowledge and deliver to Lessor or the holder
of any such security instrument, upon demand and without expense, any and all
instruments that may be requested by Lessor for the purpose of subordinating
this Lease and the rights of Lessee hereunder to the rights and interests of the
holder of such security instrument and for any and all purposes reasonable
related thereto. In the event the holder of any such security instrument or
purchaser at foreclosure or power of sale shall hereafter succeed to the rights
of Lessor under this Lease, whether by foreclosure or other means, Lessee shall
attorn to and recognize same as the successor Lessor under this Lease and shall
promptly execute and deliver any instrument that may be necessary to evidence
such attornment.
ESTOPPEL CERTFICATES
26. Lessee shall at any time and from time to time, upon not less than ten (10)
business days prior written notice from Lessor, execute, acknowledge and deliver
to Lessor, or Lessor's designee, a statement in writing (a) certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating the
nature of such modification), (b) stating that Lessee has accepted occupancy of
the Premises, (c) specifying the dates to which rent, and other amounts due
hereunder have been paid, and (d) certifying that there are no existing defaults
on the part of Lessor hereunder and that Lessee has no defenses or offsets
against the enforcement of this Lease or specifying such defaults, defenses or
offsets if any are claimed.
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EXCULPATION
27. Lessor's obligations and liability to Lessee with respect to this Lease
shall be listed solely to Lessor's interest in the Building, and neither Lessor,
not any of the representatives, partners, officers, directors or shareholders of
Lessor, shall have any personal liability whatsoever with respect to this Lease
or Lessor's obligations hereunder.
QUIET POSSESSION
28. Upon Lessee's paying the Rent reserved hereunder and observing and
performing all of the covenants, conditions and provisions on Lessee's part to
be observed and performed hereunder, Lessee shall have quiet possession of the
Premises for the Term hereof, subject to all of the terms and provisions of this
Lease.
HAZARDOUS SUBSTANCES
29. Lessee hereby represents, warrants, covenants and agrees not to bring or
permit to be brought upon the Premises or any portion thereof, any substances or
materials (hereinafter collectively called "Hazardous Substances"), the
generation. handling, manufacturing, treatment, storage, use, transportation or
discharge of which is regulated by any state, federal or local law or
regulation. Lessee hereby indemnifies and shall hold Lessor harmless from and
against any claim, liability, expense or damage imposed upon Lessor by any
person, entity or governmental body whatsoever arising out of any claims,
action, administrative proceedings, judgments, damages, penalties, fines and
costs, including, without limitation, attorneys' fees, costs of investigation or
settlement, that arise directly or indirectly from or in connection with the
presence, release or suspected release of any Hazardous Substances at, on or
about the Premises as a result of any action or omission of Lessee. The terms
and provisions of this paragraph shall survive the expiration or earlier
termination of this Lease.
NON-LIABILITY AND INDEMNIFICATION
30. Unless due solely to the gross negligence or willful misconduct of Lessor
or its agents, neither Lessor nor Lessor's agents shall be Cable to Lessee or
Lessee's agent, contractors or visitors, and Lessee shall and does hereby
indemnify and hold Lessor harmless from and against any and all loss, cost,
liability, claim, damage or expense (including, without limitation, reasonable
attorneys' fees, court costs and costs of investigation) incurred in connection
with or arising from (a) any default by Lessee in the performance of any of the
terms and provisions of this Lease on Lessee's part to be performed; (b)
Lessee's use and occupancy of the Premises; or (c) any acts, sessions or
negligence of Lessee or any such person in or about the Premises. Lessee, and
all those claiming by, through or under Lessee, shall store their property in
and shall occupy and use the Premises and all portions of the Building and
related improvements solely at their own risk. Lessee and all those claiming or
entering the Premises by, through or under Lessee hereby release Lessor, to the
full extent permitted by law, from all claims of every kind,
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including, without limitation, personal injury, property damage, loss or other
damages occurring by theft or mysterious disappearance, or business
interruption, unless caused by or due to the gross negligence or willful
misconduct of Lessor.
ENTIRE AGREEMENT, ETC.
31. This Lease contains the entire agreement of the parties and no
representations or agreements, oral or otherwise, between the parties not
embodied herein shall be of any force or effect. No failure of Lessor to
exercise any power given Lessor hereunder, or to insist upon strict compliance
by Lessee of any obligation hereunder, and no custom or practice of the parties
at variance with the terms hereof, shall constitute a waiver of Lessor's right
to demand exact compliance with the terms hereof. The submission by Lessor to
Lessee of this Lease in draft form shall be deemed submitted for discussion
only, shall have no binding force or effect, and shall not constitute an option
to Lessee. This Lease may be executed in one or more counterparts, each of
which shall be deemed an original, and all of which shall constitute one and the
same instrument. This Lease shall be governed by the laws of the State of
Georgia. Lessee shall not record this Lease nor any memorandum hereof.
TIME OF ESSENCE
32. Time is of the essence of this Lease.
EXHIBITS
33. The exhibits referred to in this Lease and identified below are attached to
this Lease and by reference made a Part hereof:
Exhibit "A", "A-1" & "A-2" Floor Plan of Premises Exhibit "F" - Special
Exhibit "A", "B" Rules and Regulations Stipulations
Exhibit "A", "C" Special Stipulations
Exhibit "A", "D", "D-1" & "D-2" Leasehold Improvements
Exhibit "A", "E" Lease Rider No. 1
SPECIAL STIPULATIONS
34. Insofar as the special stipulations, if any, set forth on Exhibit "C" or
"F" conflict with any of the provisions of this Lease, said special stipulations
shall control.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals,
the day and year first above written.
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Signed, sealed and delivered by Lessor in the presence of:
"LESSOR"
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM
Equitable Real Estate Investment Management, Inc. as Advisor
By: /s/ William F. Virant, Vice President
Signed, Sealed and delivered by Lessee in the presence of:
Witness: /s/ (Illegible)
Notary Public: /s/ Martha L. Althafer
(NOTARY SEAL)
"LESSEE"
ITERATED SYSTEMS, INC., a Georgia Corporation
By: /s/ John R. Festa, President
Attest: /s/ Alan D. Sloan
Witness: /s/ (Illegible)
Notary Public: /s/ Mary E. Reagle
(NOTARY SEAL)
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EXHIBIT "A"
SUITE 600
SIX & SEVENTH FLOOR PLAN
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EXHIBIT "A-1"
RIGHT OF FIRST REFUSAL AREA
SIXTH & SEVENTH FLOOR PLAN
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EXHIBIT "A-2"
OPTION AREA #1 AND #2
SIXTH & SEVENTH FLOOR PLAN
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EXHIBIT "B"
BUILDING REGULATIONS
(Which are referred to in the within Lease and made a part thereof)
To insure minimization of inconvenience to tenants and to maintain the interior
space in the best possible condition, Lessee shall comply with the following
Building Regulations:
1. The sidewalks, entry passages, corridors, halls, elevators and stairways
shall not be obstructed by Lessee (including Lessee's agents, contractors and
visitors), nor used by them for any purpose other than those of ingress and
egress. The floors, skylights and windows that reflect or admit light into any
place in the Building shall not be covered or obstructed by Lessee. The water
closets and other water apparatus shall not be used for any purpose other than
those for which they were constructed, and no sweepings, rubbish, or other
obstructing substances shall be thrown therein.
2. No advertisement, sign, or other notice shall be inscribed, painted or
affixed by Lessee on any part of the outside or inside of the Premises or any
portion of the Building and related improvements, except only upon the interior
doors and windows of the Premises when permitted by Lessor in writing. All such
advertisements, signs or other notices shall be of such order, size and style,
and at such places as shall be designated by Lessor. Exterior signs on doors
will be provided for Lessee by Lessor, the cost of signs to be charged to and
paid for by Lessee. Lessee will not distribute, display or place any handbills,
bumper stickers or other advertisement or notice in any area of the Building and
related improvements.
3. Nothing shall be thrown by Lessee out of the windows or doors, or down the
passages or skylights of the Building. No rooms shall be occupied or used as
sleeping or lodging apartments at any time.
4. Lessee shall not employ any persons other than the janitors of Lessor (who
will be provided with pass-keys into the Premises) for the purpose of cleaning
or taking charge of said Premises. Lessee shall not change or instill any
additional locks or security systems in the Premises without Lessor's written
consent. It is understood and agreed that Lessor shall not be responsible to
Lessee for any loss of property from the Premises, however occurring, or for any
damage done to the furniture or other effects of Lessee by the janitor or any
of its employees.
5. No animals, birds, bicycles or other vehicles shall be allowed in the
offices, halls, corridors, elevators or elsewhere in the Building.
6. No painting shall be done, nor shall any alterations be made, to any part of
the Building or Premises by putting up or changing any partitions, doors, or
windows, nor shall there be any nailing, boring or screwing into the woodwork or
plastering, nor shall either any cabling be installed in or about the Premises
or any connection be made to the electric wires or electric mixtures, without
the consent in writing on each occasion of Lessor. All glass, locks and
trimmings in or upon the doors and windows of the Building and the Premises
shall be kept whole and. when any part thereof shall be broken, the same shall
be immediately replaced or repaired and put in order tinder the direction and to
the satisfaction of Lessor, and shall be left whole and in good repair. Lessee
shall not injure, overload or deface the Building, the Premises,
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or any improvements included in either, nor allow upon the Premises any noxious,
noisy, or offensive business. Lessee shall not change or remove blinds or other
window coverings without lessor's consent.
7. Lessee shall not (without Lessor's written consent) put up or operate any
steam engine, boiler, machinery or stove upon the Premises, or carry on any
mechanical business therein, nor do any cooking therein (excepting microwave
cooking), or use or allow to be used upon the Premises oil. burning fluids,
camphene. gasoline or kerosene for heating, warming or lighting. No article
deemed extra hazardous on account of fire and no explosives, fire arms or
weapons shall be brought into said Premises or Building. No offensive gases or
liquids will be permitted. Lessee shall not generate, store, handle or
otherwise deal with any hazardous or toxic waste, substance or material, or any
oil or pesticide, upon any portion of the Building and related property.
8. If tenants require electrical wiring for any electrical device, such wiring
shall be done by Lessor's approved electrician only, and no outside wiring men
shall be allowed to do work of this kind unless by written permission of Lessor.
[F17]
9. Lessor will post on the directory of its Building one name to be designated
by Lessee at no charge. All additional names which Lessee shall desire put upon
said directory must be first consented to by Lessor, and if so approved, a
charge will be made for such additional listing as prescribed by Lessor to be
paid to Lessor by Lessee.
10. Lessor, and its agents and contractors, shall have the right to enter the
Premises at all reasonable hours for the purpose of making any repairs,
alterations, or additions which it shall deem necessary for the safety,
preservation, or improvement of the Building, and Lessor shall be allowed to
take all material into and upon such Premises that may be required to make such
repairs, improvements, any additions, or any alterations for the benefit of
Lessee without in any way being deemed or held guilty of an eviction of Lessee
or other liability to Lessee; and the rent reserved shall in no way abate while
said repairs, alterations, or additions are being made; and Lessee shill not be
entitled to maintain a set-off of counterclaim for damage against Lessor by
reason of loss or interruption to the business of Lessee because of the
prosecution of any such work. All repairs, decorations. additions and
improvements shall be done during ordinary business hours, or, if any such work
is at the request of Lessee to be done (hiring any other hours, Lessee shall pay
for all overtime costs. In cases of emergency, Lessor, its agents and
contractors, shall have the right to enter the Premises at any time, with force
if necessary.
11. [DELETED]
12. All moves (whether moving into or out of the Premises) and deliveries of
large furniture or equipment shall be coordinated through Lessor's management
offices, and Lessee shall advise Lessor at least two (2) working days prior to
truck arrival. Lessee shall provide Lessor such information (including the
completion of Lessor's standard moving questionnaires) as Lessor requires to
coordinate such moves or deliveries, and Lessee (together with Lessee's agents
and contractors) will comply with Lessor's guidelines and instructions in the
work associated with such moves or deliveries. All moving and delivery
companies shall provide Lessor certificates of insurance evidencing the
existence of property damage and liability insurance in amounts
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acceptable to Lessor. All moves shall be made after 6:00 p.m. Friday and prior
to 8:00 a.m. Monday. Lessee shall be responsible for any damages to the
Premises, Building and related Improvements occurring from such move or
delivery, and shall ensure that proper precautions are undertaken to avoid any
such damage. Lessee shall provide Lessor the forwarding address of Lessee prior
to any move out. A representative of Lessor shall have the right to be at, and
to supervise, all moves and deliveries.
13. No load shall be placed on the floor of the Premises which exceeds
Lessor's prescribed load limits. All equipment of Lessee will be kept and
operated by Lessee free of abnormal noise and vibrations which may transmit to
any part of the Building or beyond the confines of the Premises. No odors or
vapors will be permitted or caused to emanate from the Premises.
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EXHIBIT "C"
SPECIAL STIPULATIONS
1. Rental Escalation. For the purposes of paragraph 3(a), the adjustment to
base rental shall be equal to sixty seven percent (67%) of the annual increase
in the Consumer Price Index ("CPI"). The annual increase in "CPI" shall not
exceed eight and one-half percent (8.5%). The maximum annual adjustment to Base
Rental therefore shall be 5.7% (i.e. 67% of 8.5%).
Any percentage increase in the Base Rental that is prescribed for a period that
is less than a full calendar year shall be pro rated as may be necessary.
2. Continuous Right of First Refusal. Provided Lessee is not in default under
the terms and conditions of this Agreement and Lessee has not sublet more than
50% of it's Premises, Lessor hereby agrees to provide Lessee with a continuous
First Right of Refusal to lease any and all space that is or may from time to
time become available on the Sixth Floors of Buildings Six and Seven as shown
outlined in blue on the attached floor plan known as Exhibit "A-1" attached
hereto and by this reference made a part hereof (the "First Refusal Space").
Lessor shall not lease any portion of the First Refusal Space before giving
notice to Lessee and complying with the requirements of this section even if
that portion of the First Refusal Space has been leased in compliance with this
agreement previously, during the term of this Lease. If Lessee desires to lease
the First Refusal Space (or any portion thereof) and said space is available for
lease, Lessee shall notify Lessor of its intent to lease said space under the
terms and conditions set forth herein. Further, Lessor shall notify Lessee upon
receiving any bona fide offer to lease the First Refusal Space (or any portion
thereof) from a third party describing the portion of the First Refusal Space
the offer affects, including a floor plan. Upon notification from Lessor that
it has a third party bona fide offer to lease all or part of the First Refusal
Space, even if that portion of the First Refusal Space has been previously
leased to another party in compliance with this section, Lessee shall have five
(5) business days after receipt of the notice and floor plan to respond to
Lessor in writing as to its intent regarding said space. Should Lessee fail to
respond in writing within said five (5) business day period, it shall be deemed
to have waived its rights herein. Should Lessee exercise its right of refusal,
the rental rate for said space shall be the adjusted base rental rate Lessee is
paying at the time of exercising the option as described above. Provided that
there is not less than eighteen (18) months of lease term remaining, Lessor
shall provide a portion of the $8.00 per rentable square foot Tenant Improvement
Allowance provided for in Paragraph 1, Exhibit "D", pro rated based on the
number of months remaining on the term of this Lease at the time of the
commencement of the expansion, which shall be used for construction of the
expansion space improvements. Should Lessee exercise its right herein. it shall
expand by no less than 1,000 rentable square feet and the commencement date for
such expansion shall be no later than sixty (60) days from the date Lessee gives
notice of its intent to exercise said option. Upon the expiration of any lease
with a third party for any portion of the First Refusal Space or in the event a
third party does not enter into a lease for such space then Lessee's First Right
of Refusal shall again be applicable to such space upon the conditions set forth
herein. Notwithstanding anything herein to the contrary, if the First Refusal
Space (or any portion thereof) is occupied by an existing tenant who offers to
renew its existing lease or if Lessor receives a bona fide third party offer to
lease the First Refusal Space (or any portion thereof), then, in order for
Lessee to exercise its Right of First Refusal on the referenced First Refusal
Space, Lessee must lease, as a minimum, the amount of space contained in the
bona fide offer by
21
<PAGE>
the existing tenant or third party.
3. Option to Lease. Provided Lessee is not in default under the terms and
conditions of this Agreement, Lessor hereby agrees to provide an option to lease
up to an additional 9,973 rentable square feet contiguous to the Premised in
Building Seven (the "Option Space") for one (1) year subsequent to the
commencement date of this Lease ("First Option Period"). The Option Space is
shown on Exhibit "A-2" attached hereto and made a part hereof. Lessee may
exercise its option at any time during the First Option Period by giving Lessor
written notice of its intent to exercise said option; provided however, notice
shall be given no later than January 1, 1996. Should Lessee not exercise said
option within the first year of lease term, such option area shall be reduced by
4,973 rentable square feet and the option on the remaining 5,000 rentable square
feet shall be available for an additional one (1) year period ("Second Option
Period"). Lessee may exercise its option at any time during the Second Option
Period by giving Lessor written notice of its intent to exercise said options;
provided however, notice shall be given no later than January 1, 1997. The
rental rate for said option space shall be the then existing adjusted base
rental rate being paid by Lessee at that time of exercising the opt' ion.
Should Lessee exercise its right herein, the Lease term shall be extended such
that there shall be five (5) years of lease term on the entire Premises front
the Commencement Date of the lease amendment for such expansion. Lessor shall
provide an allowance of $8.00 per rentable square foot of expansion area for
costs associated with preparing the expanded Premises for occupancy.
4. Renewal Option. Provided Lessee is not in default under the terms and
conditions of this Lease and has not sublet more than 50% of the Premises, on
the expiration date of this Lease, Lessee I shall have the option to renew this
Lease at a mutually acceptable rate for one additional five (5) year term
provided Lessee has given one hundred eighty, (180) days prior written notice to
Lessor. The rental rate for this additional Lease term shall not exceed one
hundred fifteen percent (115%) of Lessee's then current ad listed base rental
rate and shall not be less than Lessee's then current adjusted base rental rate.
5. Authority and Compliance of Lessor. Lessor represents and warrants that:
(i) Lessor owns fee simple title to the Building presently clear of all deed to
secure debt, and Lessor is fully authorized to execute the Lease and grant the
rights to Lessee pursuant to the terms of the Lease; (ii) to the best of
Lessor's knowledge, the Permitted Use of the Premises described in the Lease is
in full compliance with all laws, statutes, regulations, ordinances and other
governmental requirements applicable to the premises and the Project; (iii) to
the best of the knowledge of Lessor, there is no asbestos within the Premises or
the Building. If the Permitted Use of the Premises described in the Lease is
not in full compliance with all laws, statutes, regulations, ordinances and
other governmental requirements applicable to the Premises and the Building upon
occupancy, then Lessee shall not be obligated to pay for any work required to so
comply.
6. Total Square Footage of Premises. If the amount of rentable square feet of
the Premises set forth in Section 1, the amount of rentable square feet of all
of the Buildings known as Buildings Five, Six, Seven and Eight set forth in
Section 3.b and the calculation of the rental amounts and the Lessee's
proportionate share of liability for taxes pursuant to Section 3.b are not
accurate then Lessor and Lessee shall adjust the rental amounts and Lessee's
proportionate share of liability for taxes.
22
<PAGE>
7. Definition of Premises. The "Premises" as used herein is the area bounded
by the finished ceiling, concrete floor and the perimeter demising walls shown
on the plan attached to the Lease, including in the Premises the finished
ceiling, carpets, floor tiles and the studs and sheet rock of the demising walls
of tile Premises, however the tenant improvements to be completed by Lessor
pursuant to the provisions of this Lease may, include Work in areas outside the
Premises to the extent specified in this Lease. Lessor shall maintain and keep
in good repair the plumbing, electrical, mechanical, heating, ventilating and
air conditioning systems in the Building and tile Premises and maintain the
common areas in a manner consistent with other Class A buildings in the Buckhead
area, except that after Lessor delivers the Supplemental Air Conditioning Unit
described in the Tenant Improvement Exhibits in good and Working condition for
use by Lessee, Lessee shall thereafter be solely responsible for the repair and
maintenance of the Supplemental Air Conditioning Unit.
8. Security. Lessor shall continue to provide through out the term of the
Lease the same or better security services and traffic control as Lessor
provides as of the date of this Lease and security personnel shall be available
upon telephone request to escort any employees of Lessee after normal business
hours from the Premises to that employee's automobile.
9. Permitted Use Of Space. The permitted use set forth in Section 4 of the
Lease shall also allow use of the Premises for storage, duplication, circuit
board assemblage and other preparation of computer hardware products and
computer software products and all related support and maintenance of computers,
equipment and software, provided that such assemblage does not materially
disturb the quiet enjoyment of another tenant and so long as any associated
electrical usage does not exceed the normal Building standards for office usage.
10. Lessor's Insurance. Lessor shall maintain general liability and casualty
insurance coverage on the Building and its contents and improvements as
necessary to fully insure and protect such interest, provided however that
Lessor shall not be obligated to insure any of the furniture, equipment and
other property placed in the Premises. Lessor shall provide certificates of
insurance proving Lessor's insurance coverage promptly upon Lessee's written
request.
11. Subletting and Assignments. Notwithstanding anything in Section 12 to the
contrary, Lessor shall not unreasonably withhold or delay its consent to an
assignment, subletting or transfer of the Lease. The Lessee shall be entitled
to assign the Lease to: (i) Lessee's parent corporation; (ii) a wholly owned
subsidiary of Lessee; (iii) any corporation in which Lessee or its parent owns
fifty percent (50%) or more of the outstanding stock; (iv) a consolidation or
merger of Lessee with its parent or subsidiary corporations; or (v) a
corporation to which substantially, all of the assets of the Lessee may be
transferred. If an assignee of Lessee's rights and obligations hereunder is as
creditworthy as Lessee or more creditworthy then Lessee shall be released from
further obligations hereunder, otherwise Lessee shall remain obligated hereunder
after any such assignment.
12. Condemnation Proceeds. Notwithstanding anything in Section 14 to the
contrary, Lessee shall be entitled to retain all condemnation proceeds and other
sums which are separately awarded to Lessee in the event of a condemnation of
the Premises and the Building.
23
<PAGE>
13. Contractors. Lessee shall be entitled to choose contractors from a list of
Lessor's approved contractors that contains at least six (6) contractors in
order to perform additional improvements and alterations during the term that
have been approved by Lessor pursuant to Section 15, which consent shall not be
unreasonably withheld.
14. Removal of Equipment. Notwithstanding anything in Section 15 to the
contrary, Lessee shall be entitled to remove all telephone, computer and other
equipment from the Premises even if it is affixed to the Premises. Lessee shall
not remove fixtures or improvements which are a part of the Premises.
15. Rules and Regulations, Notwithstanding anything herein to the contrary in
Section 17, Lessor shall uniformly enforce the Rules and Regulations.
16. Non-Disturbance Agreement. Lessor shall make its best efforts to obtain
from the holder of any indebtedness secured by a deed to secure debt encumbering
the building and land of which the Premises is a part (existing or future)
("Mortgage") such Lender's agreement that in event of foreclosure under such
Mortgage (or conveyance in lieu thereof), the purchaser or new owner shall not
disturb Lessee's occupancy hereunder and shall honor and recognize this Lease,
so long as the same is not in default. In the event of the foreclosure of any
such Mortgage by voluntary agreement or otherwise, or the commencement of any
Judicial or non-judicial actions seeking such foreclosure, Lessee, upon request,
shall attorn to and recognize the grantee of a voluntary conveyance in lieu of
foreclosure or the purchaser in foreclosure as Lessee's Lessor under this Lease.
Lessee agrees to execute and deliver at any time upon request of such holder of
a Mortgage, purchaser or their successors, any reasonable instrument to further
evidence such attornment.
17. Equipment. Notwithstanding anything in Section 29 to the contrary, Lessee
shall be entitled to bring into the Premises any normal office and business
equipment and other materials that are commonly used in offices in Atlanta.
18. Signage. At such time that Lessee occupies 40,000 rentable square feet
or more, it shall have the right to install plaque signage on the plaque
monument sign located at the entrance of Building One through Four and Fourteen
Piedmont Center provided: (1) there is an appropriate vacant area per the
design of the monument sign; (2) Lessor approves the design size and placement
of the sign; (3) Lessee directly pays for all costs associated with the sign and
its placement.
19. Roof Rights. Lessee shall have the right to install and maintain up to
three (3) satellite dishes, not to exceed six (6) feet in diameter or antennas
not to exceed six (6) feet in height. The monthly charge for placement of this
equipment shall be $50,00 per month per dish or antenna. By installing this
equipment on the roof, Lessee assumes full responsibility for any costs
associated with damage that is caused or contributed to by its installation to
the structure in its entirety. At the termination of Lessee's lease, it shall
be responsible for the cost of the removal of any of the above referenced
equipment and for any costs associated with the repair of the roof structure
which results form the equipment being in place or its subsequent removal.
20. Parking. Lessee is entitled to four (4) non-reserved parking spaces for
every 1,000 usable
24
<PAGE>
square feet in the Premises from time to time at no charge for the term of the
Lease, including renewals.
21. HVAC. After hours HVAC usage is presently charged at $35.00 per hour per
floor per building. Such rate is subject to reasonable change at Lessor's
discretion.
22. Broker. William Leonard & Co. has represented the interests of the
Lessee in this transaction and shall be paid a commission by the Lessor pursuant
to a separate agreement.
23. Waiver of Subrogation. In the event either Lessor or Lessee sustains a
loss by reason of fire or other casualty which is covered by a fire and extended
coverage or insurance policy, and such fire or other casualty is caused in whole
or in part by acts or omission of the other party, its agents, employees,
licensees or invitees, then the party incurring such loss agrees to look solely
to its fire and extended coverage insurance proceeds (if any), and such party
shall have no right of action against the other party to this Lease, its agents,
employees, licensees, or invitees of such party, and no third party shall have
any right by way of assignment, subrogation, or otherwise.
24. Lessor will use its best efforts to maintain consistent and continuous
utility services to the premises that is satisfactory for normal office usage
and needs.
25
<PAGE>
EXHIBIT "D"
LEASEHOLD IMPROVEMENTS
1. Lessor presents the Premises to Lessee in its existing condition. Further,
Lessor shall contribute $8.00 per rentable square foot ($160,384.00) as an
allowance for costs associated with preparing the Premises for occupancy. An
estimate sheet for construction costs is attached as Exhibit "D-1". The floor
plan corresponding to said estimate sheet is attached as Exhibit "D-2". Lessor
shall obtain competitive bids for such work excepting mechanical work and, at
Lessee's option, reduce or modify the amount and type of tenant improvement to
reduce the cost. Any costs incurred in preparing the Premises for occupancy
that exceed said allowance shall be the sole responsibility of Lessee and shall
be remitted to Lessor upon submittal of an appropriate invoice. Lessor shall
pay to Lessee up to $3.00 per rentable square foot of any unused portion of said
allowance for moving expenses and costs associated with relocating to the
Premises.
2. In addition to the other allowances provided for herein, Lessor hereby
agrees to pay to Lessee an additional allowance equal to $7.50 per rentable
square foot of initial leased space in the Premises to be used at Lessee's
discretion. Such sums payable to Lessee shall not be reduced. Such sum shall
be paid to Lessee within thirty (30) days of Lessee taking occupancy of the
Premises. Such additional allowance shall not be available to Lessee under any
expansion options or rights which may be exercised.
26
<PAGE>
Exhibit "D-1"
PIEDMONT CENTER
ESTIMATE SHEET
DATE: JANUARY 31, 1996 LOCATION: 600/7
JOB NAME: ITERATED SYSTEMS USABLE SQ. FT.: 17900
ESTIMATOR: JIM HUDSON CONTRACTOR: PIEDMONT CENTER
<TABLE>
<CAPTION>
DESCRIPTION UM QUANTITY TOTAL.
<S> <C> <C> <C>
DEMOLITION
REMOVE WALLS LF 602 $6,542.24
DOORS EA 10 $ 549.33
CARPET SQY 1,989 $3,602.58
CEILING D 1 $ 603.75
ELEC. - CODE COMPLIANCE LS 1 $1,207.50
SF
- -------------------------------------------------------------------------------------------
PARTITIONS
INTERIOR - 9' LF 102 $2,463.30
INSULATION (DEMISING WALLS) LF 32 $ 231.84
EA 12 $ 507.15
WALL PATCHING LF 5 $ 603.75
GLASS WALL - RELOCATE EA 2 $ 422.63
CASED OPENING/HMF
- -------------------------------------------------------------------------------------------
DOORS
PASSAGE SETS EA 3 $ 362.29
3' X 9' WALNUT ENTRANCE EA 3 $1,449.00
REWORK AND RELOCATE
RELOCATE DOOR EA 3 $ 362.35
- --------------------------------------------------------------------------------------------
FINISHES
CARPET 36 OZ. YDS 2,333 $33,805.17
BASE LF 3,606 7
PAINTING WALLS SF 32,049 $ 3,918.83
PAINTING DOORS INTERIOR EA 59 $14,742.54
PAINTING DOORS ENTRANCE EA 3 4
PAINTING SOFFIT LF 375 $ 3,918.34
CEILING -REMOVE & REPLACE SF 2,090 $ 199.24
LS 1 $ 452.81
CORRIDOR REPAIR LS $ 4,416.43
REFINISH HARDWOOD $ 1,207.50
FLOOR $ 2,052.75
- --------------------------------------------------------------------------------------------
MILLWORK
============================================================================================
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C> <C>
BASE CABINETS LF 11 $2,523.68
WALL CABINETS LF 10 $1,207.50
REWORK RECEPTION DESK LS 1 $1,052.75
- -------------------------------------------------------------------------------------------
ELECTRICAL
WATER HEATER HOOK UP EA 1 $ 332.06
RELOCATE FIXTURES EA 30 $1,811.29
FIXTURES ON EMERGENCY CRT EA 2 $ 326.03
DUPLEX WALL OUTLETS EA 20 $1,328.25
DATA WALL OUTLETS EA 12 $ 434.70
S.P. SWITCHES EA 3 199.24
EA 6 $1,014.30
TELEPHONE FLOOR OUTLETS
- -------------------------------------------------------------------------------------------
MISCELLANEOUS
BALANCE HVAC SF 17,900 $ 1,513.00
CONSTRUCTION CLEAN UP SF 17,900 $ 4,322.85
PLUMBING EA 1 $ 3,320.63
PREPARATION OF PLANS SF 17,900 $15,129.98
TELE-BOARD 4X8 EA 2 8
SPRINKLERS EA 10 $ 205.28
FIRE EXTINGUISHER EA 6 $ 1,811.25
PERMIT (ALLOWANCE) LS 1 $ 543.38
$ 470.93
- -------------------------------------------------------------------------------------------
SUB-TOTAL $122,162.22
22
- -------------------------------------------------------------------------------------------
CONTINGENCY 10% $12,216.22
2
- -------------------------------------------------------------------------------------------
TOTAL CONSTRUCTION COSTS $134,378.48
48
- -------------------------------------------------------------------------------------------
</TABLE>
- -NOTE - The above prices are based on preliminary drawings from Hendrick
Associates dated October 27, 1994, and direction from Steve Dils and are subject
to change based on final construction drawings.
QUALIFICATIONS
- - It is assumed that Life/Safety devices are existing
- - Sprinkler allowance is for new construction areas only.
- - Relocate raised flooring $7.00 per u.s.f. (Net add)
- - New ramp $72.00 per u.s.f. (Net add)
- - Rails $72.00 per l.f. (Net add)
28
<PAGE>
EXHIBIT "D-2"
FLOOR PLAN
29
<PAGE>
EXHIBIT "E"
LEASE RIDER NO. I
1. Notwithstanding anything to the contrary expressly or impliedly contained in
this Lease, there shall be absolutely no personal liability of any person, firm,
partnership, association, or other entity who constitutes Lessor, under or with
respect to any of the terms, covenants, conditions or provisions of this Lease,
or of any violation hereof, and Lessee shall, subject to the rights of any
mortgagees, other fee owners and ground lessors, look solely to the interest of
Lessor in the building for the satisfaction of each and every claim and remedy
of Lessee in the event of any default or violation whatever by Lessor hereunder;
such exculpation of personal liability is absolute and without any exception or
modification whatever, now or hereafter, except by a written instrument
modifying this paragraph.
2. NOTICES: Any notice, consent or demand required to be given to the Lessor
shall be sent by registered or certified mail, return receipt requested to the
following address (or to such other or further addresses as the Lessor may
designate by like notice):
California State Teachers' Retirement System
7667 Folsom Boulevard, Room 101
Sacramento, California 95826
Attn: Mal Kangas
Investment Officer
Real Estate
With Copy To: Equitable Real Estate Investment
Management, Inc.
1150 Lake Hearn Drive, N.E.
Suite 600
Atlanta, GA 30342-1522
Attn: William F. Virant
Senior Vice President
30
<PAGE>
EXHIBIT "F"
1. The following shall be inserted in Section 6 of the Lease immediately after
the word "repair" in the 4th line of the first paragraph: "and Lessee shall be
responsible for direct damages caused by Lessee's failure to report such
condition."
2. At the end of the first paragraph of Section 6, the following shall be
inserted: "Provided that Lessee is not responsible for liabilities resulting
from the gross negligence or willful misconduct of Lessor or its employees or
agents."
3. In the second paragraph of Section 6, after the words "in amounts and", the
following shall be inserted: "with companies rated at least "A-" by Best's
Insurance Reports."
4. Notwithstanding anything In Section 7 of the Lease and Paragraph 10 of the
Rules and Regulations to the contrary Lessor shall take all reasonable actions
to protect and maintain the confidentiality of Lessee's confidential information
and trade secrets and Lessor shall prevent any access by Lessor or its agents
and contractors to the Premises from interfering with the operation of Lessee's
business.
5. In the third line of Section 8, after the words "deserted or vacated", the
following shall be inserted: "at a time that Lessee is in default for failure
to pay rent due herein"
6. In the sixth line of Section 9, after the Words "as amended", the following
shall be inserted: "provided that the institution of an involuntary bankruptcy
petition against Lessee shall not constitute a default or event of default
hereunder unless that action is not dismissed within one hundred twenty (120)
days after filing"
7. At the end of the last sentence of Section 8(1), the following shall be
inserted: "provided the new lease is for a term of at least one (I ) year and
the new Lessee is a bona fide third party."
8. Following the words "said effects" in the third line of Section 9 the
Following shall be inserted:
"The Lessor agrees to subordinate its statutory Lessor's lien to any lender of
Lessee upon request from Lessee. Otherwise, Lessor shall be entitled to all
statutory landlord's lien rights"
9. At the end of the last sentence of Section 10, the following shall be
inserted-. "in which case all sums paid by Lessee to Lessor shall be promptly
returned to Lessee so long as Lessor has received approved construction
documents by February 15, 1995."
10. At the end of Section 11 (a), the following shall be inserted: "When used
herein "legal holidays" shall include the following: New Year's Day, Memorial
Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day or the
appropriate day, on which the holiday is observed."
11. The following shall be inserted in the last line of 11 (b) after the word
"tubes);"; "which
31
<PAGE>
shall be the responsibility of Lessor."
12. In the forth line of paragraph 12 on the third page of the lease after the
Word "lease", the following shall be inserted: "net of costs associated with
subleasing the premises including but not limited to free rent and commission ".
13. At the end of the last sentence of Section 13, the following shall be
inserted: "but in such instance, Lessor shall be obligated to repair and restore
all other portions of the Premised, including all walls, wall coverings,
carpets, ceilings, electrical, heating, ventilating, and air conditioning
equipment and other utility services, connections and wiring previously located
in the Premises."
14. For the first sentence of Section 16, the following shall be inserted: "In
any action involving a dispute arising from the obligations of the parties
hereto the prevailing party shall be entitled to recover reasonable actual
attorney's fees from the other party.
15. At the end of paragraph 20, the following shall be added: "but only if
such property remains on the premises for five (5) business days after notice is
given by Lessor that the property is subject to removal and loss. Notice to be
given at the addresses specified in Exhibit F, paragraph 16."
16. The first sentence of Section 21 has been deleted in its entirety and
restated as follows: "Notices required or permitted hereunder or given to Lessee
pursuant to this Lease of the obligations hereunder shall be given by mailing
the notice addressed to the address set forth below by certified mail return
receipt requested postage prepaid and such notice shall be deemed to have been
given hereunder three (3) business days after the notice is deposited into the
U.S. Mail."
Seven Piedmont Center and F. Lawrence Street
Suite 600 Morris, Manning & Martin
Atlanta, Georgia 30305 3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
Attention: President
17. At the end of the first sentence of paragraph 8, Exhibit "B", the
Following shall be inserted: "Lessee shall obtain Installation of all telephonic
wiring in compliance with applicable codes. No boring or cutting into concrete
for Wiring shall be done unless approved by Lessor."
32
<PAGE>
FIRST AMENDMENT TO LEASE
THE FIRST AMENDMENT TO LEASE, made as of this 31st day of January, 1995, by and
between California State Teachers' Retirement System (herein called "Lessor");
and ITERATED SYSTEMS, INC. a Georgia Corporation (herein called "Lessee").
WITNESSETH
WHEREAS, Lessor and Lessee entered into a Lease dated January 31, 1995 for the
Premises known as Suite 600, Seven Piedmont Center, 3525 Piedmont Road, N.E.,
Atlanta, Georgia, 30305; and
WHEREAS, Lessor and Lessee mutually desire to amend the Lease.
NOW, THEREFORE, incorporating the foregoing recital of facts and in
consideration of the sum of TEN DOLLARS ($10.00) in hand paid by each party to
the other and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, Lessor and Lessee hereby covenant and agree to
amend the Lease in the following respects only:
1. Notwithstanding anything contained in the Lease, in addition to the option
rights granted in Paragraph 3 of Exhibit "C" of the Lease, Lessee shall have the
option by giving Lessor written notice on or before February 15, 1995, to expand
the Premises up to an additional 3,000 rentable square feet of contiguous space
located in Option Area #2 as described on Exhibit "A-2" of the Lease ("Expanded
Space") under the same terms and conditions as the original Lease including the
following.
a. The Rental Rate shall be $16.50/RSF and escalate in accordance with
Paragraph 3 of the Lease and subject to Exhibit "C", Paragraph 1;
b. The lease term for this expansion space shall commence with and shall be
coterminous with the Term stated in the Lease. Rent for the Expanded Space shall
commence upon the later of (i) completion of the Expanded Space tenant
improvements; or (ii) commencement of the rent for the entire Premises;
c. Lessor shall provide Lessee with a construction allowance equal to $8.00/RSF
for any expansion space and any unused portion of said allowance (up to
$3.00/RSF) shall be paid to Lessee for moving expenses and costs associated with
relocating to the Premises.
d. Lessor hereby agrees to pay to Lessee an additional allowance equal to
$7.50/RSF of expansion space, to be used at Lessee's discretion. Such sums
payable to Lessee shall not be reduced. Such sum shall be paid to Lessee within
thirty (30) days of Lessee taking occupancy of the Premises.
2. Except as modified hereby, the Lease shall continue in fall force and effect
and is ratified and confirmed by Lessor and Lessee.
33
<PAGE>
3. This First Amendment to Lease shall bind and inure to the benefit of Lessor
and Lessee and their successors and assigns under the Lease.
IN WITNESS WHEREOF, the parties herein have hereunto set their hands and seals
and have caused the First Amendment to Lease to be executed in their respective
names and on their behalf by duly authorized officers, the day and year first
above written.
LESSOR:
CALIFORNIA STATE TEACHERS' RETIREMENT SYSTEM
Equitable Real Estate Investment Management, Inc., as Advisor
Signed, sealed and delivered by Lessor in the
By: /s/ William F. Virant, Vice President
Signed, sealed and delivered by Lessor in the presence of:
Witness: /s/ (Illegible)
Notary Public: /s/ Martha L. Althafer
(NOTARY SEAL)
"LESSEE"
ITERATED SYSTEMS, INC., a Georgia Corporation
By: /s/ John R. Festa, President
Attest: /s/ Alan D. Sloan
Witness: /s/ (Illegible)
Notary Public: /s/ Mary E. Reagle
(NOTARY SEAL)
34
<PAGE>
EXHIBIT 10.3
DATED 27 June 1997
COUNTERPART
LEASE
Relating to land and office buildings
forming Unit No 32 at
Wellington Business Park
Dukes Ride, Crowthorne
Berkshire
between
T A FISHER & SONS LIMITED
and
ITERATED SYSTEMS LIMITED
PARK NELSON
1 BELL YARD
LONDON WC2A 2JP
TEL: 0171 404 4191
FAX: 0171 405 4266
REF: 241 JRB SEW
<PAGE>
LEASE: DATED 27 June 1997
1. PARTICULARS
1.1 The Landlord: T.A. FISHER & SONS LIMITED whose registered office is at
Windmill House Victoria Road Mortimer near Reading RG7 3DF
1.2 The Tenant: ITERATED SYSTEMS LIMITED whose registered office is at Apex
Plaza, Forbury Road, Reading, Berkshire RG1 lYE
1.3. The Management Company: WELLINGTON PARK MANAGEMENT LIMITED whose
registered office is also at Victoria Road aforesaid
1.4 The Estate: The Landlord's Development known as Wellington Business Park
Dukes Ride Crowthorne Berkshire which is for identification purposes only
shown edged blue on Plan No.1 hereto annexed the freehold interest in which is
in part owned by the Landlord and in part owned by the Management Company
1.5 The Premises: The building erected on the Estate and forming Unit No.32
within Group A of the said Development more particularly described in the 1st
Schedule hereto
1.6 The Registered Transfers: Transfers respectively dated the 31st December
1990, the 4th July 1992 and 29th June 1994 and 26th April 1995 all of which are
made between the Landlord (1) and the Management Company (2) and are transfers
of those parts of the Estate which are intended to become Common Parts for the
benefit of all occupiers of the Estate
1.7 Term: Fifteen years from the date hereof
1.8 Rent Commencement Date: The expiry of 3 months from the date hereof
1.9 Initial Rent: (Pounds)53,869.00 per annum
1.10 Review Dates: The 17th day of August in the years 2002, and 2007,
1.11 Interest Rate: Four per cent above the Base Rate of Lloyds Bank Plc or
its successors in business from time to time
1.12 Decorating Years: (a) External: in every 3rd and in the last year of the
Term
(b) Internal: in the 5th and the last year of the Term
1.13 Insurance Rent: Such sums as shall from time to time be payable by the
Landlord as a premium or premiums for the insurances effected or to be effected
in pursuance of Clause 7 hereof
<PAGE>
1.14 Service Charge: The sums payable in accordance with clauses 2.2 and 4(c)
hereof in respect of the gross internal area of the Premises
(currently square metres)
1.15 Permitted User: The use specified in paragraph 2.1 of the 4th Schedule or
such other use as the Landlord may permit under paragraph 2.2 of that Schedule
1.16 Guarantor: Iterated Systems Inc. of Suite 600, 7 Piedmont Centre, 3525
Piedmont Road, Atlanta GA 3035-1350 Georgia, U.S.A. and any Guarantor under the
terms of this Lease
1.17 Term Commencement date: The date hereof
2. DEFINITIONS
2.1 The terms defined in this clause and in the Particulars shall for all
purposes of this Lease have the meanings specified.
2.2 "Rent" means the rent ascertained in accordance with the 3rd Schedule and
Insurance Rent means the sum payable in accordance with clause 7.3 and Service
Charge means the yearly sum (due quarterly in advance) which is payable in
respect of the Premises by virtue of the Registered Transfers subject to the
proviso contained in paragraph 1.14 of the Particulars and the term 'Rent" does
not include the Insurance Rent or Service Charge but the term t1Rentst' includes
Rent Insurance Rent and Service Charge
2.3 "Pipes" means pipes sewers drains mains ducts conduits gutters watercourses
wire cables channels subways flues and all other conducting media including any
fixings louvres cowls and other covers
2.4 "Interest" means interest on the sums in question during the period from
the date on which the payment is due to the date of receiving payment in cleared
funds, both before and after any judgment, at the Interest Rate then prevailing
or should the Base Rate referred to in clause 1.11 cease to exist, such other
rate of interest as is most closely comparable with the Interest Rate to be
agreed between the parties or in default of agreement to be determined by a
person appointed by the President of the Law Society (acting as an expert and
not as an arbitrator)
2.5 "the Planning Acts" means the Town and Country Planning Act 1990 and all
statutes regulations and orders included by virtue of clause 3.12
2.6 "Insured Risk" means the risks described in Clause 7.1(1 )(a) hereof and
any other risk against which the Landlord shall have covenanted to insure
hereunder or at the time
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of the damage or destruction in question have effected insurance
2.7 "the Operational Covenants" means the covenants set out in the 4th Schedule
2.8 the 1954 Act" means Part II of the Landlord and Tenant Act 1954
2.9 "neighboring property" means any land or buildings (whether already or
hereafter? to be erected and whether belonging to the Landlord or otherwise)
contiguous adjacent adjoining opposite or near to the Premises
2.10 "the Surveyor" means such professionally qualified Surveyor as the
Landlord may from time to time reasonably and properly nominate as the Surveyor
in respect of matters relating to the Premises (who may be a person employed by
or otherwise connected with the Landlord)
2.11 "Development" has the meaning given by Section 55 of the Town and Country
Planning Act 1990
2.12 This lease is a new tenancy within the meaning of section 1 of the
Landlord & Tenant (Covenants) Act 1995
3. INTERPRETATION
3.1 The expressions "the Landlord" and "the Tenant" wherever the context so
admits include their respective successors in title
3.2 Where the Landlord or the Tenant or any guarantor for the time being are
two or more individuals the terms "the Landlord" "the Tenant" and "the
Guarantor" include the plural number and obligations expressed or implied to be
made by or with such party are deemed to be made by or with such individuals
jointly and severally and where the context so permits such references shall
also apply to any one or more members of such association of individuals
3.3 Words importing the one gender include both other genders and words
importing the singular include the plural and vice versa
3.4 The expression "the Term" includes any period of holding over or extension
or continuance thereof whether by statute or common law and elsewhere in this
Lease the said expression includes such period where the context so admits
3.5 References to "the last year of the Term" include the final year of the
Term if the same shall determine otherwise than by effluxion of the time and
references to "the expiration of the Term" include such sooner determination of
the Term
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3.6 References to any right of the Landlord to have access to the Premises
shall be construed as extending to the Landlord's agents professional advisers
contractors workmen and others so authorised
3.7 References to "the Premises" in the absence of any provision to the
contrary include each and every part thereof together with the appurtenances
thereto and all additions alterations and improvements thereto and all Landlords
fixtures and fitting and plant machinery and equipment belonging to the Landlord
which are now or hereafter in or about the same
3.8 Any covenants by the Tenant not to do an act or thing shall be deemed to
include an obligation not knowingly to permit such act or thing to be done and
to use its reasonable endeavours to prevent such act or thing being done by a
third party
3.9 Whenever the consent or approval of the Landlord is required or requested
in relation to this Lease, such provisions shall be construed as also requiring
the consent or approval of any mortgagee of the Premises where the same shall be
required provided that the Landlord shall use its best endeavours to obtain the
consent of such mortgagee without unreasonable delay)
3.10 References to "consent of the Landlord" or words to similar effect mean a
consent in writing signed by or on behalf of the Landlord and to "approved" and
"authorised" or words to similar effect mean (as the case may be) approved or
authorised in writing by or on behalf of the Landlord
3.11 The terms "the parties" or "party" shall mean the Landlord and/or the
Tenant (as defined in Clause 3.1 hereof)
3.12 Any reference to a specific statute includes any statutory extension or
modification or re-enactment of such statute and any regulations or orders made
thereunder any general reference to "statute" or "statutes" includes any
regulations or orders made thereunder
3.13 The paragraph headings and marginal notes do not form part of this Lease
and shall not be taken into account in its construction or interpretation
4. DEMISE
The Landlord DEMISES to the Tenant the Premises TOGETHER with the rights
specified in Part 1 of the 2nd Schedule but EXCEPTING AND RESERVING to the
Landlord the rights specified in Part 2 of the 2nd Schedule TO HOLD the Premises
unto the Tenant for the Term SUBJECT TO the matters contained or referred to in
the
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documents specified in the 5th Schedule insofar as much matters affect the
Premises YIELDING AND PAYING to the Landlord:-
(a) the Rent, payable without any deduction by equal quarterly payments in
advance on the usual quarter days in every year, and proportionately for
any period of less than a year, the first such payment being a
proportionate sum in respect of the period from and including the Rent
Commencement Date to and including the day before the quarter day next
thereafter to be paid on the Rent Commencement Date, (the period prior to
the Rent Commencement Date being Rent free) and
(b) by way of further rent, the Insurance Rent payable within 7 days of written
demand in accordance with clause 7.3
(c) by way of further rent, the Service Charge (the first such payment to be a
fair and reasonable estimate by the Surveyor of the proportion due from and
including the date hereof until and including the quarter day next
thereafter to be paid forthwith)
5. THE TENANT COVENANTS with the Landlord:-
Rent
5.1.1 To pay the Rents on the days and in the manner set out in clause 4
5.1.2 If so required in writing by the Landlord to make such payments by
Banker's Order or Credit Transfer to any Bank in Great Britain and account that
the Landlord may from time to time nominate in writing
Outgoings and VAT
5.2 To pay and to indemnify the Landlord against:
(a) all rates (including uniform business rates) taxes assessments duties
charges impositions outgoings and obligations whatsoever which are now or during
the Term shall be charged assessed or imposed upon the Premises or upon the
owner or occupier of them whether parliamentary parochial or otherwise and
whether or not of a capital or non-recurring nature (and even though of a wholly
novel character) but excluding any payable by the Landlord in respect of the
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receipt of Rents or other payment made by the Tenant under this Lease or any
payable by the Landlord which was occasioned' by any Development or by any
disposition in dealing with or ownership of the Landlord's reversionary interest
in the Premises the Estate or the receipt of Rents in respect thereof
(b) Value Added Tax (or any tax of a similar nature that may be substituted for
it or levied in addition to it) properly chargeable (whether as the result of an
election by the Landlord or otherwise) in respect of any Rents or other payment
made by the Tenant under any of the provisions of or in connection with this
Lease or (insofar as the Landlord cannot recoup the same as an input credit)
incurred by the Landlord upon any payment made by the Landlord where the Tenant
agrees to reimburse the Landlord for such payment
Electricity, Gas and Other Services consumed
5.3 To pay to the suppliers and to indemnify the Landlord against all charges
for electricity gas and other services consumed or used at the Premises
(including meter rents) during the Term
Repair and Redecoration
5.4.1. To keep the whole of the Premises and all appurtenances and additions
thereto including (but not limited to) all roofs foundations structural and non
structural walls and partitions and any Pipes exclusively serving the same and
all plate and other glass and all plant and machinery and all fixtures and
fittings therein in good and substantial repair and in good decorative condition
and clean throughout the Term and if necessary for the purpose of carrying out
such repair (but not further or otherwise) then to rebuild renew or replace the
Premises or any part thereof and if the same affects the structure or exterior
of the Premises the Tenant will (unless the Landlord otherwise reasonably
requires) renew or replace the same in accordance with plans elevations sections
and specifications previously approved in writing by the Landlord (such approval
not to be unreasonably withheld or delayed) and in any event with good and
substantial materials and in a good and workmanlike manner (damage by any of the
Insured Risks excepted save to the extent that the insurance effected by the
Landlord shall be vitiated by any act or omission of the Tenant or anyone at the
Premises expressly or by implication with the Tenant's authority) and to keep
any part of the Premises which shall not be built upon in a clean and tidy
condition
5.4.2 To replace from time to time in good and workmanlike manner and with good
quality materials the Landlord's fixtures, fittings and appurtenances in the
Premises which become beyond repair at any time during or immediately prior to
the expiration of the Term
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5.4.3 So far as reasonably possible to keep all Pipes in the Premises
protected from frost where appropriate and keep the same cleansed and maintained
free from obstruction
5.4.4 Once in the year 2000 and every three years thereafter and also in the
last three months of the Term howsoever determined but not more than once in any
one year period) to paint with two coats of good quality paint or otherwise
cover with an appropriate protective and decorative finish all such parts of the
outside of the Premises as are usually or ought to be so painted or covered All
such works to be carried out in a good and workmanlike manner with good quality
materials and colour to be previously approved in writing by the Landlord (such
approval not to be unreasonably refused or delayed)
5.4.5 Once in the year 2002 and every five years thereafter and also in the
last three months of the Term howsoever determined (but not more than once in
any one year period) to paint with good quality paint or otherwise cover with an
appropriate protective and decorative finish all such parts of the inside of the
Premises as are usually or ought to be so painted or covered All such works to
be carried out in a good and workmanlike manner with good quality materials and
in the last year of the Term of a design material and colour to be previously
approved in writing by the Landlord (such approval not to be unreasonably
refused or delayed)
Alterations and Additions or Rebuilding
5.5.1 Not to commit or knowingly permit or suffer waste (including ameliorating
waste), on or at the Premises
5.5.2 Not to build erect construct or place any new or additional building or
structure on the Premises including (without prejudice to the generality of the
foregoing) any hut shed garage cycle shelter store caravan house on wheels or
any temporary or movable building or structure
5.5.3 Not at any time during the Term to make any structural alterations or
additions to the Premises whether internally or externally not to cut injure
maim or remove any of the walls beams columns or other structural parts of the
Premises or make any change in or to the existing design or appearance of the
Premises whether externally or internally PROVIDED that the Tenant may from time
to time without the consent of the Landlord but and subject to all necessary
planning and Building Regulation approval and Fire Officer's consent having been
first obtained and produced to the Landlord carry out non-structural internal
alterations which are not hereby expressly prohibited including (but not limited
to) the installation and removal of internal partitions which do not materially
adversely affect the operation or effectiveness of any air conditioning or
heating systems within the Premises
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5.5.4 To remove any additions alterations or improvements made to the Premises
at the expiration of the Term if so reasonably requested by the Landlord in
writing at least three months prior to the expiration of the Term and to make
good any part or parts of the Premises which may be damaged by such removal
5.5.5. Not to cut injure or remove nor, except in accordance with clauses 5.5.3
and
5.5.4, make any connection with the Pipes serving the Premises either
exclusively or in conjunction with other premises
5.5.6 To make connection with those Pipes that serve the Premises only in
accordance with the standards laid down from time to time by the relevant supply
authority and no appliance other than that for which the installation is
designed shall be connected to it
Statutory Obligations
5.6.1. At all times during the Term at the Tenant's own expense to observe and
comply in all material respects with the provisions and requirements of any and
every enactment (which expression in this covenant includes as well any and
every Act of Parliament already or hereafter 'to be passed as any and every
notice direction order regulation bye-law rule and condition already or
hereafter to be made under or in pursuance of or deriving effect from any such
Act) or prescribed or required by a public local or other authority so far as
they relate to or affect the Premises or the lessee thereof or any additions or
improvements thereto or the user thereof for any purposes or the employment
therein of any person or persons or any fixtures machinery plant or chattels for
the time being affixed thereto or being thereupon or used for the purposes
thereof
5.6.2 Save in respect of the construction of the building on the Premises
undertaken by the Landlord to execute as soon as reasonably practicable all
works and provide and maintain all arrangements which by or under any enactment
or by any Government Department Local Authority or other Public Authority or
duly authorised officer or court of competent jurisdiction acting under or in
pursuance of any enactment are or may be directed or required to be executed
provided or maintained at any time during the Term upon or in respect of the
Premises or any additions or improvements thereto or in respect of any user
thereof or employment therein of any person or persons or fixtures machinery
plant or chattels and whether by the landlord or tenant thereof
5.6.3 To indemnify the Landlord at all times during the Term against all proper
and reasonable costs charges and expenses of or incidental to the execution of
any works or the provision or maintenance of any arrangements so directed or
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required as aforesaid in respect of the Premises and not at any time during the
Term to do or omit or suffer to be done or omitted in or about the Premises any
act or thing by reason of which the Landlord may under any enactment incur or
have imposed upon it or become liable to pay any penalty damages compensation
costs charges or expenses
5.6.4 To pay to the Landlord within 7 days of a written demand a due and fair
proportion (to be determined by the Surveyor acting reasonably in all the
circumstances) of all proper and reasonable costs charges and expenses
(including Surveyors' Architects' and other professional advisers' fees)
properly and reasonably incurred by the Landlord of or incidental to complying
with all provisions and requirements of any and every enactment prescribed or
required by any public local or other authority in relation to the Premises
Access of Landlord and Notice to Repair
5.7.1 To permit the Landlord at all reasonable times by prior appointment (save
in the case of emergency) to enter upon the Premises for the purpose of:
(a) ascertaining that the covenants and conditions of this Lease on the part of
the Tenant have been observed and performed, and
(b) viewing the state of repair and condition of the Premises, and
(c) giving to the Tenant (or leaving upon the Premises) a written notice
specifying any repairs cleaning maintenance or painting that the Tenant has
failed to execute in breach of the terms hereof and to request the Tenant
expeditiously to execute the same
5.7.2 If within three months of the service of such a notice the Tenant shall
not have commenced and be proceeding diligently with the execution of the work
referred to in the notice to permit the Landlord to enter the Premises to
execute such work as may be reasonably necessary to comply with the notice and
to pay to the Landlord the cost of so doing and all expenses reasonably and
properly incurred by the Landlord (including legal costs and surveyor's fees)
within fourteen days of a written demand subject to the Landlord and/or its
agents doing as little damage to the Premises as is reasonably possible and
forthwith making good any damage so caused
Alienation
5.8.1 The Tenant will not assign transfer underlet or part with or share the
possession or occupation of the whole or any part of the Premises in any way
whatsoever except only that the Tenant may with the written consent of the
Landlord (which consent shall not unreasonably be withheld or delayed and shall
if granted be by deed of licence containing the covenants referred to in
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paragraph 5.8.2 of this sub-clause and such other provisions as the Landlord may
reasonably require):
(i) assign the Premises as a whole or
(ii) underlet the Premises as a whole or a whole floor or floors of the Premises
in either case at the higher of the passing rent or the market rent and
without taking any fine or premium and being subject to rent reviews not
less frequently than as provided for in this Lease and in any event at the
same times as herein provided
and PROVIDED THAT:-
the Landlord may withhold its consent to an application by the Tenant for
licence to assign in accordance with this lease if the conditions and criteria
set out in this proviso (which conditions are specified for the purposes of
section 19(1A) of the Landlord and Tenant Act 1927 are not met that:
(1) at the time of the assignment there are no arrears of Rent due to the
Landlord under the terms of the Lease; and
(2) the Tenant making the application for Consent to Assign shall if the
Landlord reasonably so requires enter into an Authorised Guarantee
Agreement in favour of the Landlord in such form as the Landlord shall
reasonably require
(3) in the reasonable opinion of the Landlord the proposed assignee is of
sufficient financial standing to enable it to comply with the Tenant's
covenants in the Lease
5.8.2 The Tenant will not assign transfer or underlet part with or share the
possession or occupation of the Premises otherwise than in accordance with the
foregoing paragraphs of this sub-clause and after first obtaining the consent of
the Landlord in accordance with clause 5.8.1 by deed of licence as aforesaid
prepared by the Landlord's solicitors in such manner that:
(i) in the case of an assignment the intended assignee will (jointly and
severally if there be more than one intended assignee) covenant directly
with the Landlord to pay the Rents hereby reserved and to perform and
observe the covenants and conditions on the part of the Tenant herein
contained (including this present covenant) in the same manner as if such
covenants and conditions were therein repeated in extenso and
(ii) in the case of an underlease the intended underlessee will jointly and
severally if there be more than one intended underlessee) covenant directly
with the Landlord to observe and perform the covenants and conditions by
the Tenant herein contained in so far as they relate to the premises
underlet (except the covenants to pay the Rents reserved and to yield up
the Premises at the expiration of the Term but in all other respects so far
as they are capable of being observed and performed by an underlessee)
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including similar covenants not to further underlet or part with or share
the possession or occupation of the Premises and not to assign the whole of
the same without such consent as aforesaid
5.8.3 In any application to the Landlord for written consent under sub-clause
5.8.1(i) and (ii) the Tenant shall supply such details of the proposed assignee
or under-lessee as the Landlord shall reasonably require (including where
available a copy of its latest audited accounts or other information reasonably
satisfactory to the Landlord) and shall if reasonably so required in the case of
a proposed assignment to a private company offer the guarantee of persons or
parties whose names and addresses shall also be supplied with corresponding
information as to the financial position of such persons or parties and
the Tenant shall also in connection with any such application as aforesaid
procure that the proposed assignee or under-lessee (as the case may be) provide
three references including a Banker's reference in respect of the proposed
assignee or such alternative security as shall be reasonably acceptable to the
Landlord
5.8.4 Within one calendar month next after the making thereof without any
demand from the Landlord the Tenant will produce for registration by the
Landlord's solicitors a certified true copy of all assignments mortgages charges
transfers underleases tenancy agreements probates of wills letters of
administration assents and other dispositions which during the Term shall be
made in respect of the Premises or any part thereof or any estate or interest
therein howsoever remote or inferior and will leave the same with the Landlord
for that purpose and will pay the Landlord's solicitors reasonable and proper
fees for the registration of every such document
5.8.5 The Tenant will from time to time on written demand during the Term
furnish the Landlord with such particulars of all derivative interests of or in
the Premises or any part thereof howsoever remote or inferior including
particulars of the rent or rents payable in respect of such derivative interests
and such further particulars as the Landlord may reasonably require in respect
thereof
5.8.6 The Tenant will not without the previous consent in writing of the
Landlord (which consent shall not be unreasonably withheld or delayed) grant any
consent or approval under or any variation or release or amendment to any
underlease nor exercise any power to extend the same
5.8.7 The Tenant will take all such steps as are commercially appropriate to
enforce the performance and observance by every such underlessee of the Premises
all covenants to be imposed in accordance with the provisions hereof and shall
not at any time either expressly or by implication waive any breach thereof by
any such underlessee or assignee of such underlessee or a guarantor for the
same.
5.8.8. Any underletting permitted under this lease shall be outside the
security of tenure provisions of the Landlord & Tenant Act 1954 ss24-28 as
amended and shall be at a rent which is the higher of the market rent or the
passing rent at that time or at the time of any review
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Nuisance etc. and Residential Restrictions
5.9.1 Not to do (or permit or suffer to remain upon the Premises) anything
which may be or become or cause a nuisance injury or damage to the Landlord or
its tenants or the occupiers of adjacent or neighbouring premises or to the
neighbourhood or any public local or other authorities
5.9.2 Not to use the Premises for a sale by auction or for any dangerous
noxious noisy or offensive trade or business nor for any illegal or immoral act
or purpose
5.9.3 Not to allow any person to sleep on any part of the Premises or to use
the Premises or any part thereof for residential purposes or keep any animal
fish reptile or bird thereon
5.9.4 If the Landlord shall abate any nuisance which the Tenant is under duty
to abate the Tenant shall pay all costs charges and expenses reasonably and
properly incurred in abating such nuisance and executing all such works as may
be necessary for abating such nuisance whether or not required in obedience to a
notice served by any local or other authority or by any other person entitled to
require the nuisance to be abated
Landlord's Costs
5.10 To pay to the Landlord all reasonable and proper costs fees charges
disbursements and expenses (including without prejudice to the generality of the
foregoing those payable to Counsel Solicitors Architects Surveyors Engineers
Consultants and Bailiffs) properly and reasonably incurred by the Landlord in
relation to:-
(a) every application made by the Tenant for a consent or licence required or
made necessary by the provisions of this Lease whether the same be granted
or refused (unless the consent or licence is unreasonably refused or
withheld) or proffered subject to any lawful qualification or condition or
whether the application be withdrawn
(b) any proceedings or contemplated proceedings relating to the Premises
(including the preparation and service of a notice) under Section 146 or
147 of the Law of Property Act 1925 notwithstanding that forfeiture is
avoided otherwise than by relief granted by the Court
(c) the recovery or attempted recovery of arrears of Rent or other sums due
from the Tenant, and
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(d) any steps taken in connection with the preparation and service of a
Schedule of Dilapidations during or within two months after the expiration
of the Term
Planning Acts
5.11.1 To comply with the provisions and requirements of the Planning Acts,
whether as to the Permitted User or otherwise, and to indemnify during the Term
and keep the Landlord indemnified against all liability whatsoever including
costs and expenses reasonably and properly incurred by the Landlord in respect
of any contravention by the Tenant
5.11.2 At the expense of the Tenant to obtain all planning permissions and to
serve all such notices as may be required for the carrying out of any operations
or user of the Premises by the Tenant which may constitute Development provided
that no application for planning permission shall be made without the previous
consent of the Landlord such consent not to be unreasonably withheld or delayed
in any case where the application for any implementation of such planning
permission will not create or give rise to any tax or other fiscal liability for
the Landlord or where the Tenant provides an indemnity against such liability to
the satisfaction of the Landlord or will not materially adversely affect in any
way the remainder of the Estate or the Landlord's reversionary interest in the
Premises
5.11.3 Subject only to any statutory direction to the contrary to pay and
satisfy any charge or levy that may hereafter be imposed under the Planning Acts
in respect of the carrying out or maintenance of any such operations or the
commencement or continuance of any such user
5.11.4 Notwithstanding any consent which may be granted by the Landlord under
this Lease not to carry out or make any alteration or addition to the Premises
or any change of use thereof until all necessary notices under the Planning Acts
have been served and all necessary permissions under the Planning Acts have been
obtained the Landlord has acknowledged that every necessary planning permission
is acceptable to it (such acknowledgement not to be unreasonably withheld or
delayed) the Landlord being entitled to refuse to acknowledge its acceptance of
a planning permission on the grounds that any condition contained in it, or
anything omitted from it, or the period referred to in it, would be materially
prejudicial to the Landlord's reversionary interest in the Premises whether
during or following the expiration of the Term:-
5.11.5 Unless the Landlord shall otherwise direct to carry out and complete
before the expiration of the Term:-
(a) any works stipulated to be carried out to the Premises by a date subsequent
to such expiration as a condition of any planning permission granted for
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any Development and begun by the Tenant before the expiration of the Term
and
(1,) any Development begun by the Tenant upon the Premises in respect of which
the Landlord shall or may be or become liable for any charge or levy under
the Planning Acts or otherwise
5.11.6 In any case where a planning permission is granted subject to conditions
and if the Landlord reasonably so requires to provide security for the
compliance with such conditions and not to implement the planning permission
until the security has been provided
Plans Documents and Information and Forwarding Notices
5.12 Within fourteen days of the receipt of notice of the same to give full
particulars to the Landlord of any permission direction notice or order or
proposal for the same relevant to the Premises or to, the use or condition
thereof (including (without limitation) any proposal for alteration of the
Valuation List under the General Rate Act 1967) made given or issued to the
Tenant or the occupier of the Premises by a Government Department Local or
Public Authority and if so required by the Landlord to produce such permission
notice order or proposal to the Landlord and also without delay to take all
reasonable or necessary steps to comply therewith
Indemnities
5.13 To be responsible for and during the Term to keep the Landlord fully
indemnified against all damage damages losses reasonable costs expenses actions
demands proceedings claims and liabilities made against or suffered or incurred
by the Landlord arising directly or indirectly out of:-
(a) any act omission or negligence of the Tenant or any persons at the Premises
with the Tenant's authority or
(b) any breach or non observance by the Tenant of the covenants conditions or
other provisions of this Lease
(c) the carrying out by the Tenant of any works on the Premises or any part
thereof or any change by the Tenant in the use made of the Premises or any
part thereof
Re-letting Boards
5.14 To permit the Landlord at any time by prior agreed appointment (which
shall not be unreasonably denied) during the last six months of the Term to
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enter upon the Premises and affix and retain upon any reasonable part of the
Premises so as not to cause undue inconvenience to the Tenant a notice for re-
letting the same and during such period to permit persons with written authority
of the Landlord or its agent at reasonable times of the day by prior agreed
appointment to view the Premises
Rights of Light and Encroachments
5.15.1 Not to stop-up darken or obstruct any windows or light belonging to the
Premises
5.15.2 Not to permit any new window light opening doorway path passage drain or
other encroachment or easement to be made or acquired to the detriment of the
Premises and if the same or any of them shall be made or acquired or attempted
to be made or acquired to give notice to the Landlord as soon as possible after
the Tenant becomes aware of the same and at the request and cost of the Landlord
to adopt such means as it may reasonably require or deem proper for preventing
any such encroachment or the acquisition of any such easement
Yield Up
5.16 At the expiration of the term to yield up the Premises in repair and in
accordance with the terms of this Lease to give up all keys of the Premises to
the Landlord and to remove all lettering and signs erected by the Tenant in upon
or near the Premises and forthwith to make good any damage caused by such
removal
Interest on Arrears
5.17.1 If the Tenant shall fail to pay all or any part of the Rents or any
other sum due under this Lease within fourteen days of the same becoming due
(but with the exception of the Rents no sum shall be deemed to have become due
until the same has been lawfully demanded by the Landlord) the Tenant shall pay
the Landlord Interest on the Rents or other sum in accordance with clause 2.4
hereof and such Interest shall be deemed to be Rent due to the Landlord but
shall not itself bear Interest
5.17.2 Nothing in the preceding clause shall entitle the Tenant to withhold or
delay any payment of the Rents or any other sum due under this Lease after the
date upon which it falls due or in any way prejudice affect or derogate from the
rights of the Landlord in relation to the said non-payment including but without
prejudice to the generality of the foregoing) under the proviso for re-entry
contained in this Lease
Notices
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5.18.
To ensure that at all times the Landlord or their agents and the local police
force have written notice of the name, home address and home telephone number of
a keyholder of the Premises
Sale of Reversion etc.
5.19 To permit upon reasonable notice at any time during the Term prospective
purchasers of or dealers in or agents instructed in connection with the sale of
the Landlord's reversion or of any interest superior to the Term to view the
Premises by prior agreed appointment (which shall not be unreasonably denied)
without interruption providing the same are authorised in writing by the
Landlord or its agents and cause as little inconvenience as reasonably possible
to the Tenant's trade or business
Defective Premises
5.20 As soon as possible after becoming aware of the same to give notice to the
Landlord of any defect in the Premises which might give rise to an obligation
upon the Landlord to do or refrain from doing any act or thing in order to
comply with the provisions of this Lease or the duty of care imposed on the
Landlord pursuant to the Defective Premises Act 1972 or otherwise and to keep
the Landlord fully indemnified from and against all loss or liability claims or
demands arising from any failure to give such notice and at all times to display
and maintain all notices which the Landlord may from time to time reasonably
require to be displayed at the Premises
Landlord's rights
5.21 To permit the Landlord at all times during the Term to exercise without
interruption or interference any of the rights granted or reserved to it by
virtue of the provisions of this Lease
Operational Covenants
5.22 To observe and perform the Operational Covenants
Freehold Title etc.
5.23 To observe and perform all the obligations (other than those arising under
any registered charge or similar encumbrance) referred to in the Charges
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Register of title number B~60648 as disclosed by office copies dated 10th
February 1997 insofar as the same relate to or affect the Premises and to keep
the Landlord and the Management Company fully indemnified against all losses
costs claims demands or liabilities arising out of any future breach or non-
performance thereof by the Tenant its servants agents or visitors
6. THE LANDLORD'S COVENANTS with the Tenant:-
TO permit the Tenant peaceably and quietly to hold and enjoy the Premises
without any lawful interruption or disturbance from or by the Landlord or any
person claiming under or in trust for the Landlord
7. INSURANCE
The Landlord and the Tenant HEREBY MUTUALLY COVENANT with each other and agree
as follows:-
(1) that the Landlord will at all times during the Term (save to the extent
that such insurance shall be vitiated or the insurance monies shall be
irrecoverable in whole or in part by reason of any act neglect default or
omission of the Tenant or its servants agents or licensees) insure and keep
insured with such insurance office or underwriters of good repute as the
Landlord shall from time to time reasonably select
(a) the Premises against loss or damage by fire storm tempest earthquake
lightning explosion riot civil commotion malicious damage subsidence heave
landslip and impact by vehicles (including trains) and by aircraft and
articles dropped therefrom flood damage bursting and overflowing of water
pipes and tanks and such other risks (whether or not in the nature of the
foregoing) as either the Landlord or the Tenant may from time to time
reasonably require to insure against in the full reinstatement cost of the
Premises including the cost of demolition and site clearance (subject to
normal excesses) together with professional fees (including architects' and
surveyors' fees) and three years loss of rent and Value Added Tax on those
amounts to the extent applicable and to the extent that the Landlord may
not be able to recover that Value Added Tax from H.M. Customs and Excise
(b) any plant in the Premises comprising boilers connected piping and radiators
hot water storage vessels and motors and pumps associated with boiler plant
and any other plant which the Landlord may reasonably require to be
included against the risks of breakdown accidental damage explosion or
collapse as may be appropriate to the class of plant and such other risks
as the Landlord or the Tenant may from time to time reasonably decide to
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insure against and for such sum as the Landlord shall from time to time
reasonably consider sufficient (subject to normal excesses) such insurance
to provide for periodical inspection to be arranged by the insurers
(c) the Landlord against any public liability or third party risks relating to
the Premises as the Landlord shall from time to time reasonably require
(2) PROVIDED ALWAYS that the sum insured under either paragraph (a) or
paragraph (b) of this sub-clause shall not be less than any amount notified
by the Tenant to the Landlord under sub-clause 7.2 of this clause
7.2. That the Tenant may from time to time by notice in writing sent by
registered post or recorded delivery to the Landlord at the Landlord's
registered office require the Landlord to increase the amount for which the
Premises or the plant referred to in sub-clause 7. 1(l)(b) of this clause (if
any) are insured and that the Landlord will within ten days after the date upon
which such notice is actually received in the Landlord's registered office
effect such increase accordingly
7.3 The Tenant shall pay the Insurance Rent on the date hereof for the period
from and including the Rent Commencement Date to the day before the next policy
renewal date and thereafter the Tenant shall pay the Insurance Rent within 7
days of written demand (which may be made not more than seven days in advance of
the next following policy renewal date)
7.4 That in the case of destruction or damage of the Premises from any Insured
Risk or the failure of any plant referred to in sub-clause 7. l(l)(b) of this
clause (from whatsoever cause) the Landlord and the Tenant shall apply all
monies received by virtue of any insurance (except monies received for fees and
loss of rent) as far as the same shall extend in so reinstating restoring and
rebuilding the Premises and/or the plant (as the case may be) and in case the
same shall be insufficient for that purpose the Landlord shall make up that
deficiency out of its own resources and unless such deficiency is a direct
result of the Tenant's own act neglect or default in which case the Tenant shall
make up that deficiency out of its own resources
7.5 Without prejudice to the generality of the foregoing it is agreed that the
Tenant will make up out of its own monies any reduction or shortfall in the
insurance monies as a direct result of any breach by the Tenant of the Tenant's
repairing covenants herein contained
7.6 The Tenant will at its own expense comply with all such requirements as may
from time to time reasonably be made by the insurers as a condition of the
continuation or renewal of any relevant insurance relating to the Premises
7.7 In the event of the Premises or any part thereof at any time during the
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Term being damaged or destroyed by whatever cause so as to be unfit for
occupation and use or incapable of reasonable access then the Rents hereby
reserved or a fair proportion thereof according to the nature and extent of the
damage sustained shall (unless payment of the policy monies shall be withheld in
whole or in part by reason of any act default or neglect of the Tenant or its
servants agents or licensees) be suspended until the Premises shall again be
rendered fit for occupation and use or capable of reasonable access and in case
of any difference between the Landlord and the Tenant as to the amount or period
of such suspension as aforesaid the same shall be referred to the sole
arbitration of an arbitrator to be nominated upon the application of either the
Landlord or the Tenant by the President or failing him the most senior officer
available of the Royal Institution of Chartered Surveyors
7.8 (a) That if any competent authority shall lawfully refuse permission for
or otherwise lawfully prevent any rebuilding or reinstatement of the Premises or
the same shall be otherwise frustrated or prove impossible or impracticable all
relevant insurance monies (so far as unapplied as aforesaid) shall (subject and
without prejudice to the rights of any other interested parties) be held upon
trust for the Landlord and the Tenant absolutely
(b) If the Premises shall not have been reinstated so that they are fit for
occupation and use within 33 months of the date of damage or destruction then
either party may within 3 months thereafter by serving 3 months notice determine
this Lease
7.9 If at any time and so long as the Landlord is itself an insurance company
or a company in the same group of companies as an insurance company the Landlord
shall (but without prejudice to the generality of its powers under the
foregoing provisions of this clause) be entitled subject to such insurance
company being of good repute to effect or keep on foot in its own office or in
the office of any other company in such group any policy of insurance which the
Landlord is under the provisions of this Lease required or authorised to effect
or keep on foot and the premiums charged by the Landlord or such other company
for effecting or keeping on foot such insurance shall for the purpose of any
covenant by the Tenant to pay or contribute towards the cost of insurance be
deemed to have been paid by the Landlord on the first day of the period of
insurance to which the relevant premium relates
7.10 The Landlord shall be deemed to have fulfilled its responsibility under
this Lease as to insurance notwithstanding that the insurance for the time being
in force is subject to exclusions excesses and conditions which are usually
required by the insurers and which cannot be omitted on reasonable terms and
(without prejudice to the generality of the foregoing) the Landlord shall not be
responsible for effecting any insurance under the provisions hereinbefore
contained against a peril which is for the time being uninsurable or which can
only be insured at a premium which in the view of the Landlord (acting
reasonably) is excessive and which the Tenant agrees is excessive (such
agreement not to be unreasonably withheld)
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7.11 The Tenant covenants with the Landlord:-
(a) to comply with all the reasonable requirements and recommendations of the
insurers
(b) not to do or omit anything that could cause any policy of insurance on the
Premises to become void or voidable wholly or in part nor (unless the
Tenant shall have previously notified the Landlord and have agreed to pay
the increased premium) anything whereby additional insurance premiums may
become payable
(c) not to store or bring onto the Premises any article substance or liquid of
a specially combustible inflammable or explosive nature and to comply with
the requirements and recommendations of the fire authority as to fire
precautions relating to the Premises
(d) to give notice to the Landlord forthwith upon the happening of any event
which might materially affect any insurance policy relating to the Premises
(e) to pay to the Landlord within 7 days of written demand the reasonable and
proper cost of any independent valuation of the Premises required by the
Insurers for Insurance purposes but not more than once in any three years
unless there are reasonable grounds for so doing)
(f) if at any time the Tenant shall be entitled to the benefit of any insurance
on the Premises which is not effected or maintained in pursuance of any
obligation herein contained to apply all monies received by virtue of such
insurance in making good the loss or damage in respect of which the same
shall have been received
7.12 The Landlord covenants with the Tenant in relation to the effected by the
Landlord pursuant to Clause 7.1 to:
(a) produce to the Tenant on demand a copy of the premium renewal receipt
(b) procure that the interest of the Tenant and any mortgagee is noted or
endorsed on the policy policy of insurance policy and the last
(c) produce to the Tenant on demand written confirmation from the insurers that
they have agreed to waive all rights of subrogation against the Tenant
8. THE MANAGEMENT COMPANY covenants with the Tenant:-
8.1 To observe and perform the Restrictive Covenants (defined in the Registered
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Transfers) insofar as they relate to the Transferred Property
8.2 To observe and perform the Management Covenants (as defined in the
Registered Transfers) such observance and performance to be carried out at all
times in a manner which it reasonably considers to be in the interest of good
estate management and in the interest of the Estate as a whole
9. PROVISOS
Re-entry
9.1 If at any time during the Term:
(a) the Rent (or any of them or any part thereof) shall be in arrear and unpaid
for 21 days after becoming payable (whether formally demanded or not), or
(b) there shall be any material breach non-performance or non-observance by the
Tenant of any of the covenants and conditions on the part of the Tenant
contained in this Lease, or
(c) the Tenant being an individual (or being more than one individual any one
or more of them) becomes bankrupt or (being a company) enters into
liquidation whether compulsory or voluntary (save for the purpose of
amalgamation or reconstruction of a solvent company) or has a receiver
appointed of its undertaking or (in either case) enters into an arrangement
or composition for the benefit of its creditors the Landlord may at any
time thereafter (and notwithstanding the waiver of any previous right of
re-entry) re-enter the Premises of any part thereof in the name of the
whole and thereupon the Term shall absolutely cease and determine but
without prejudice to any rights or remedies which may then have accrued to
either party against the other in respect of any antecedent breach
(including the breach in relation to which re-entry is made) of any of the
covenants and conditions contained in this Lease
Floor Area
9.2 For all purposes in relation to this Lease the Net or Gross Internal Area
of the Premises are to be measured in accordance with the R.I.C.S. Code of
Measuring Practice Fourth Edition November 1993 or any subsequent amendment or
substitution thereof.
Effect of Waiver
9.3.1. Each of the Tenant's covenants shall remain in full force both at law
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and in equity notwithstanding that the Landlord shall have waived or released
temporarily any such covenant or waived or released temporarily or permanently
revocably or irrevocably a similar covenant or similar covenants affecting other
adjoining or neighbouring premises belonging to the Landlord
9.3.2. Notwithstanding the acceptance of or demand for rent by the Landlord or
any agent of the Landlord with knowledge of a breach of any of the covenants on
the part of the Tenant herein contained the Landlord's right to forfeit this
Lease on the ground of such breach shall remain in force and the Tenant shall
not in any proceedings for forfeiture be entitled to rely upon any such
acceptance or demand as aforesaid as a defence
Rights Easements etc.
9.4 The operation of Section 62 of the Law of Property Act 1925 shall be
excluded from this Lease and the only rights granted to the Tenant are those
expressly set out or referred to in this Lease and the Tenant shall not during
the Term (whether by virtue of this Lease or otherwise) acquire or become
entitled by any means whatsoever to, any other easement from or over or
affecting the remainder of the Estate or any other land or premises now or at
any time hereafter belonging to the Landlord and not comprised in
this Lease
Representations
9.5 The Tenant acknowledges that this Lease has not been entered into in
reliance wholly or partly on any statement or representation made by or on
behalf of the Landlord except any such statement or representation that is
expressly set out in this Lease or has been made by the Landlord's Solicitors to
the Tenant's Solicitors in writing
Licences etc. Under Hand
9.6 Whilst the Landlord is a limited company or other corporation all licences
consents approvals and notices required or permitted to be given by the Landlord
shall be deemed sufficient if given under the hand of a Director the Secretary
or other duly authorised officer of the Landlord
Tenant's Property
9.7 If after the Tenant has vacated the Premises on the expiry or sooner
determination of the Term any property of the Tenant remains in or on the
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Premises and the Tenant fails to remove it within seven days after being
requested in writing by the Landlord so to do or if after using its best
endeavours the Landlord is unable to make such a request to the Tenant within
fourteen days from the first attempt so made by the Landlord:
(a) the Landlord may as the agent of the Tenant sell such property provided
that the Tenant will indemnify the Landlord against any liability incurred
by it to any third party whose property shall have been sold by the
Landlord in the bona fide mistaken belief (which shall be presumed unless
the contrary be proved) that such property belonged to the Tenant
(b) if the Landlord having used its best endeavours is unable to locate the
Tenant the Landlord shall be entitled to retain the said proceeds of sale
absolutely unless the Tenant shall claim the same within six months of the
date upon which the Tenant vacated the Premises, and
(c) the Tenant shall indemnify the Landlord against any damage occasioned to
the building or any adjacent or neighbouring premises of the Landlord and
any proper actions claims proceedings costs expenses and demands made
against the Landlord which are directly caused by the presence of the
property in or on the Premises
Service of Notices
9.8 The provisions of section 196 Law of Property Act 1925 as amended by the
Recorded Delivery Service Act 1962 shall apply to the giving and service of all
notices and documents under or in connection with this Lease except that Section
196 shall be deemed to be amended as follows: the final words of Section 196
(4)" and that service.... be delivered" shall be deleted and there shall be
substituted; "....and that service shall be deemed to be made on the third
Working Day after the registered letter has been posted, "Working Day" meaning
any day from Monday to Friday (inclusive) other than Christmas Day Good Friday
and any statutory bank holiday"
9.9 This Lease shall be SUPPLEMENTAL to the Registered Transfers and in
particular the definitions of all words and phrases therein contained shall
wherever the context so permits in relation to the Schedules hereto also apply
to this Lease as if the same had been repeated herein in extenso
10. OPTION TO DETERMINE
IT IS HEREBY AGREED AND DECLARED that the Tenant has the option to determine
this Lease on the tenth anniversary of the Term Commencement Date by serving
upon the Landlord not less than six months prior written notice to that effect
without prejudice to any claim by either party against the other in respect of
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any breach of any of the covenants on their respective parts herein
11. GUARANTOR
The Guarantor in consideration of this Lease being granted by the Landlord at
the instance and request of the Guarantor HEREBY COVENANTS with and guarantees
to the Landlord as set out in the Fifth Schedule hereto
12. THE GOVERNING LAW
The Law of England shall apply with regard to all matters concerning this Lease.
IN WITNESS whereof the parties have duly executed this Instrument as a Deed the
day and year first before written
FIRST SCHEDULE
The Premises
"The Premises" means ALL THAT land (including 9 car parking spaces) and the
building erected thereon comprising Unit Number 32 within Group A on the Estate
the extent of which is for identification purposes only shown edged red on the
Plan No.2 hereto annexed TOGETHER with the benefit of any rights but SUBJECT to
all exceptions and reservations covenants conditions agreements and declarations
contained or mentioned in the Landlord's said Registered Title B~60648 as
disclosed by copy register entries dated 10th February 1997 insofar as they
relate to or affect the Premises and including:-
(a) all Tenant's additions and improvements to the Premises
(b) all the Landlord's fixtures and fittings now in or upon or which shall from
time to time be in or upon the Premises (whether originally affixed or
fastened to or upon the same or otherwise) except any such fixtures
installed by the Tenant and
(c) any Pipes that exclusively serve the Premises
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SECOND SCHEDULE
Part 1 - Rights Granted
The rights as incident or appurtenant to the occupation of the Premises hereby
granted by the Landlord in the following terms:-
(a) The benefit of the Subjective Easements reserved out of the Registered
Transfers so far as the same can relate to or are capable of benefiting the
Premises
(b) The benefit of all rights and easements reserved out of any previous or
future lease of or transfer of the title to any of the units so far as the
same can relate to or are capable of benefiting the Premises
(c) The supply of Services through the Conducting Media now or within the
Perpetuity Period (in each case as defined in the Registered Transfers)
laid or to be laid in under or over any part of the remainder of the Estate
now belonging to the Landlord or the Management Company (hereinafter
referred to as "the Rest of the Development") and intended to serve the
Premises and/or any other land
(d) The right to enter upon the Rest of the Development (but not any buildings
erected thereon) without thereby causing any material interference or
disturbance with the use and enjoyment of the same in order to deal with
the Premises and any Conducting Media in on or over the same
(e) All rights of support now subsisting from the Rest of the Development (to
the extent that such support now exists) and all existing or intended
rights to the overhang of eaves gutters downspouts and similar services and
all necessary rights to maintain foundations within or under the Rest of
the Development
(f) A right of way at all times and for all purposes with or without vehicles
over and along the roadways on the Estate
PROVIDED that the person or persons exercising any of the rights of entry
hereinbefore granted shall cause as little damage and interference as reasonably
possible and make good all physical damage thereby occasioned as soon as
practically possible
SECOND SCHEDULE
Part 2 - Exceptions and Reservations
Exceptions and Reservations out of this demise as incident or appurtenant to the
ownership and occupation of the remainder of the Estate and each and every part
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thereof in the following terms:
(a) The Supply of Services through the Conducting Media now or within the
Perpetuity Period laid or to be laid in or under or over the Premises and
intended to serve the remainder of the Estate and/or other land whether
jointly or exclusively
(b) the right to enter upon the Premises but not any buildings erected thereon)
without thereby causing any material interference or disturbance with the
use and enjoyment of the same by the Tenant in order to deal with any part
of the Units and/or the Conducting Media and/or the remainder of the Estate
PROVIDED that the person or persons exercising any rights of entry
hereinbefore reserved shall cause as little damage and interference to the
Premises as possible and make good all physical damage thereby occasioned
to the Tenant's reasonable satisfaction as soon as practically possible
(c) All rights of support now subsisting from the Premises (to the extent that
such support now exists) for the benefit of the remainder of the Estate and
any buildings roads or other structures now or hereafter to be erected or
constructed thereon within the Perpetuity Period and all existing rights to
the overhang of eaves gutters downspouts and similar services and all
necessary rights to maintain foundations within or under the Premises
(d) For the Landlord (as developer) or its successors in title the right during
the first six months of the term to enter upon the Premises for the purpose
of carrying out and completing the construction of any of the other units
on the remainder of the Estate PROVIDED that the person or persons
exercising any rights of entry hereinbefore reserved shall cause as little
damage and interference to the Premises as possible and make good all
physical damage thereby occasioned to the Tenant's reasonable satisfaction
as soon as practically possible
THIRD SCHEDULE
Rent Review
1.1 The terms defined in this paragraph shall for all purposes of this Schedule
have the meanings specified
1.2 "Review Period" means the period between any Review Date specified in
paragraph 1.10 of the Particulars of this Lease and the expiry of the Term;
1.3 "the Assumptions" mean the following assumptions at the relevant Review
Date:
(a) that all the accommodation within the Premises is fully carpeted or
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otherwise appropriately covered and that no work has been carried out on
the Premises by or with the consent of the Tenant its subtenants or their
predecessors in title during the Term which had diminished the rental value
of the Premises and if the Premises have been destroyed or damaged that
they have been fully restored,
(b) that the Premises are available to let by a willing Landlord to a willing
tenant without a premium but with vacant possessi6n and subject to the
provisions of this Lease (other than the amount of the Rent but including
the provisions for rent review at similar intervals as those in this Lease)
for a term of ten years and subject also to the provisions of the 1954 Act,
and
(c) that the covenants contained in this Lease on the part of the Tenant have
been fully performed and observed;
1.4 "the Disregarded Matters" mean:
(a) any effect on rent of the fact that the Tenant, its sub-tenant or their
respective predecessors in title have been in occupation of the Premises,
(b) any goodwill attached to the Premises by reason of the carrying on at the
Premises of the business of the Tenant its sub-tenants, or their
predecessors in title in their respective businesses,
(c) any increase in rental value of the Premises attributable to the existence
at the relevant Review Date of any improvement to the Premises which has
been carried out (with the consent of the Landlord where required) by the
Tenant its sub-tenants or their respective predecessors in title during the
Term or during any period of occupation prior thereto arising out of any
agreement to grant such term
1.5 "the Revised Rent" means the open market rental value of the Premises
current at the Review Date taking into account the Assumptions and disregarding
the Disregarded Matters
1.6 "the President" means the respective President for the time being of either
(a) the Royal Institution of Chartered Surveyors or (1,) the Incorporated
Society of Valuers and Auctioneers or the respective successors in title to each
such body, the duly appointed deputy of such President, or any person authorised
by such President to make appointments on his behalf
1.7 "the Independent Expert" means a person (being a Surveyor who customarily
practices in regard to property which is substantially similar in type and
nature to the Premises and who is acquainted with the market in the area in
which the Premises are situate) appointed by agreement between the parties or in
default of agreement within fourteen days of one party giving notice to the
other of its nomination or nominations then nominated by the President on the
application of either party or both of them jointly made not earlier than six
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months before the Review Date or at any time thereafter (Provided that if there
shall be any dispute or difference as to which President has made the nomination
then the first in time shall apply and if it is not clear as to which is the
first in time then the Landlord's application shall prevail)
2. The Rent shall be:
(a) until the Review Date the Initial Rent specified in paragraph 1.9 of the
Particulars of this Lease, and
(b) during the Review Period, a rent equal to the Rent payable under this Lease
immediately prior thereto or the Revised Rent whichever shall be the
greater
3. The Revised Rent for the Review Period may be agreed in writing at any time
between the parties or (in the absence of agreement) determined not earlier than
the Review Date by the Independent Expert
4. The Independent Expert shall be requested to:-
(a) act as an expert and not as an arbitrator
(b) take into account any written submission received by him (and also sent to
the other party) within 20 days of his appointment and also that other
party's written comments thereon received by him within 45 days of his
appointment
(c) not have to hear oral submissions
(d) determine the Revised Rent in accordance with his own independent judgement
(e) make an award as to liability for the cost of such reference which shall be
final and binding upon the parties
(f) be discharged if he shall die unduly delay or become unwilling unfit or
incapable of acting and if for these or any other reason the President
shall upon the application of either party by notice in writing elect in
his absolute discretion to discharge him and appoint another Independent
Expert in his place
5. When the Revised Rent shall have been ascertained in accordance with this
Schedule, memoranda thereof shall be signed by or on behalf of the parties and
annexed to this Lease and its counterpart and the parties shall bear their own
costs in respect of this
6. If the Revised Rent payable on and from the Review Date has not been
ascertained by the Review Date Rent shall continue to be payable at the rate
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previously payable (such payments being on account of the Rent for the Review
Period) and within 7 days of the Revised Rent being ascertained (that is to say
the date when the same has been agreed between the parties or the date of the
Independent Expert's award) the Tenant shall pay to the Landlord any shortfall
between (a) what would have been paid on the Review Date and on any subsequent
Rent payment days had the Revised Rent been determined on the Review Date and
(1,) the payments made by the Tenant on account (together with Interest on such
shortfall at 4% below the Interest Rate for the period from the date upon which
every such instalment was due up to the date of payment of the said shortfall)
FOURTH SCHEDULE
The Operational Covenants
1. Repair etc. and Decoration
1.1 To clean the windows and other glass in the exterior of the Premises both
internally and externally throughout the Term when reasonably necessary
1.2 To maintain the carpets and other floor coverings in the Premises in a
clean condition and to replace them as often as may be necessary including
carpets of a suitable colour and quality for office use in the Premises
1.3 To keep the Premises sufficiently supplied and equipped with all fire
fighting and extinguishing appliances from time to time required by law or by
the Local or other competent Authority or reasonably required by the Landlord or
the insurers and to maintain the same to their reasonable satisfaction and such
appliances shall be open to inspection and also not to obstruct or permit or
suffer to be obstructed the access to or means of working such appliances or the
means of escape from the Premises in the case of fire
2. User
2.1 Not to use the Premises except for the purpose of high quality offices
and/or other premises comprised within Class B 1 of the Town and Country
Planning (Use Classes) Order 1987
2.2 Not to use the Premises for any other purpose without the Landlord's
consent such consent not to be unreasonably withheld but subject nevertheless to
Clause 5.11.4 hereof)
2.3 Not to use the car parking spaces forming part of the Premises for any
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purpose other than the parking during the Tenant's normal business hours of
private and light industrial motor vehicles
3. Aerial Signs and Advertisements
3.1 Not without the consent of the Landlord (such consent not to be
unreasonably withheld or delayed) to erect any pole mast or wire (whether in
connection with telegraphic telephonic radio or television communication or
otherwise) upon any part of the outside of the Premises
3.2 Not without the consent of the Landlord to affix or to exhibit on the
outside of the Premises or to or through any window of the Premises any placard
sign notice fascia board or advertisement except the approved sign referred to
in paragraph 3.3. of this Schedule
3.3 At all times to display and maintain a suitable sign showing the Tenant's
trading name and business (and in the event of any approved sub letting of part
of the Premises a similar sign relating to that sub lessee) of a size design and
materials and in a position (within the recessed panel in the brickwork of the
Premises) previously approved in writing by the Landlord (such approval not to
be unreasonably withheld or delayed)
3.4 In respect of any matter so approved by the Landlord pursuant to this
clause the Tenant will comply with any reasonable direction given by the
Landlord's Insurers as to the insurance of anything so annexed or affixed to the
exterior of the Premises and will reimburse to the Landlord within 7 days of
written demand being made any additional insurance premium payable by the
Landlord therefor and pending any such insurance will keep the Landlord fully
indemnified against all claims or liabilities in any way relating to such
annexation or affixation and the Tenant will not stand or place or deposit any
goods articles or things for display sale or otherwise outside any part of the
Premises
4. Keep Tidy
4.1 Not to cause any land roads passage or pavement abutting on the Premises to
become obstructed untidy or in a dirty condition and not to carry out any works
or other operations outside the building upon the Premises
4.2 Not to bring or keep or suffer to be brought or kept stored (except in an
authorised bin store which the Tenant is hereby granted the right to use)
stacked or laid out upon any land within the Premises or the curtilage thereto
any materials equipment plant bins crates cartons boxes or receptacles for waste
or any other item which is or might become untidy unclean unsightly or in any
way detrimental to the amenity of the area generally
30
<PAGE>
4.3 Not to deposit or permit to be deposited any waste rubbish or refuse on any
part of the land within the Premises or the curtilage thereto and to place or
deposit all waste rubbish or refuse only in suitable receptacles and within the
area set aside for the purpose and to arrange for the removal of all waste
materials and rubbish which the local authority shall not dispose of
5. Roof and Floor Weighting
5.1 Not without the consent in writing of the Landlord (such consent not to be
unreasonably withheld or delayed) to:
(a) suspend any weight from the portal frames stanchions or purlins of the
Premises or use the same for the storage of goods or place any weight on
them unless the same are suitably strengthened, or
(b) have on the Premises any safes machinery goods or other articles which
shall be unduly noisy or which may strain or damage the Premises or cause
dangerous vibrations
5.2 On any application by the Tenant for the Landlord's consent under paragraph
5.1 the Tenant shall make available to the Landlord a report by the Tenant's
expert in relation to the floor loading proposed by the Tenant
6. Unloading and Parking and Obstruction of Access
6.1 Not to unload any goods or materials from vehicles and convey the same into
the Premises except through the approved entrance or entrances provided for the
purpose and not to cause congestion of the adjoining areas or inconvenience to
any other user of them
6.2 No road forecourt passageway or other area leading to or giving access to
the Premises shall be damaged or obstructed or used in such manner as to cause
in the reasonable opinion of the Landlord any nuisance damage or annoyance and
to comply with any reasonable directions and regulations of the Management
Company made from time to time with regard to the use thereof
7. Electricity Supply
Not to cause allow or suffer the electricity supply to the Premises to become
overloaded
8. Discharge into Pipes
Not to discharge into any of the Pipes serving the Premises or any other
property any oil grease or other deleterious matter or any substance which is a
source of danger to the drainage system of the Premises or such other property
or part thereof and not to cause or permit any excessive discharge which shall
create or contribute to an overload of the system
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<PAGE>
9. Prohibited Uses
9.1 Not to use the Premises for any business connected with the Motor Trade or
for any public meeting exhibition or entertainment or as a hotel club or
amusement arcade or permit any musical instrument radio television or other
sound emitting equipment to be operated so as to be audible from outside the
Premises
9.2 Not to engage in any works or other operations or permit or store on the
Property any goods or other articles which may by reason of smell infection or
radioactivity affect any other goods or articles (of whatever kind and however
sensitive) elsewhere upon the Estate or generate an excessive degree of noise
and/or dust which may constitute a breach of the planning consent
FIFTH SCHEDULE
Guarantee provisions
1. That the Tenant will at all times during the Term pay the Rents and all
other sums covenanted to be paid by the Tenant at the respective times and in
the manner appointed for payment thereof and also will duly perform and observe
and keep the several covenants stipulations and conditions on the part of the
Tenant to be performed and observed and kept and that the Guarantor will pay and
make good to the Landlord all losses costs and expenses sustained by the
Landlord through the default of the Tenant in respect of any of the before-
mentioned matters PROVIDED ALWAYS that any neglect or forbearance of the
Landlord in endeavouring to obtain payment of the Rents and other sums as and
when the same shall become due or any delay on the part of the Landlord to take
any steps to enforce performance or observance of the said several covenants
stipulations and conditions shall not release or in any way lessen or affect the
liability of the Guarantor under the guarantee on the part of the Guarantor
hereinbefore contained
2. That if the Tenant being an individual shall become bankrupt or if the
Tenant for the time being is a company and shall enter into liquidation and the
Tenant's trustee in bankruptcy or the Liquidator of the Tenant shall disclaim
this Lease and if the Landlord shall within three months after such disclaimer
by notice require the Guarantor or the Guarantor's personal representatives or
assigns to accept a lease of the Premises for a term commensurate with the
residue which if there had been no disclaimer would have remained of the Term at
the same Rents and under the like covenants conditions provisions agreements and
declarations as are reserved by and contained in this Lease (the said new lease
and the rights and liabilities thereunder to take effect from the date of the
32
<PAGE>
said disclaimer) then and in such case the Guarantor or the Guarantor's personal
representatives or assigns shall accept such lease accordingly and execute a
counterpart thereof and pay the Landlord's solicitors' costs and disbursements
of and incidental thereto
3. This guarantee shall enure for the benefit of the successors and assigns of
the Landlord under this Lease without the necessity for any assignment of the
benefit thereof permit any excessive discharge which shall create or contribute
to an overload of the system
4. This guarantee is also to take effect immediately on the assignment of the
Lease to the Tenant under clause 5.8 hereof and is to remain in force so long as
and to the extent that the Tenant is not released by law from liability for the
Tenant's covenants in the Lease
5. In the context of these guarantee provisions reference to the Tenant are to
the assignee only (in its capacity as Tenant) with respect to whom this
guarantee is given
THE COMMON SEAL of ITERATED SYSTEMS LIMITED was hereunto affixed in the presence
of:-
Director /s/ John R. Festa
Secretary /s/ P. Burgess
SIGNED SEALED AND DELIVERED in the presence of:
Witness /s/ Neal W. McEwen, Notary Public
ITERATED SYSTEMS, INC. a Georgia Corporation
By: /s/ Deborah N. Gable (Seal)
By: /s/ John R. Festa as ISI (GUARANTOR)
33
<PAGE>
Plan No. 1 - Overall Site Layout
34
<PAGE>
Plan No. 2 - Conveyance Plan
35
<PAGE>
EXHIBIT 10.4
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
ITERATED SYSTEMS, INC.
AND
JOHN C. BACON
EFFECTIVE AS OF FEBRUARY 16, 1998
1
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TABLE OF CONTENTS
EXECUTIVE EMPLOYMENT AGREEMENT
SECTION PAGE NO.
- ------- --------
1. Background................................................ 1
2. Definitions............................................... 1
3. Employment................................................ 3
4. Responsibilities.......................................... 3
5. Compensation.............................................. 3
6. Termination............................................... 4
7. Proprietary Information................................... 5
8. Ownership................................................. 6
9. Exclusive Service and Non-Competition Covenant............ 6
10. Covenant Not to Hire...................................... 7
11. Non-Solicitation.......................................... 7
12. Equitable Relief.......................................... 7
13. Severability.............................................. 7
14. Attorneys' Fees........................................... 7
15. Headings.................................................. 8
16. Arbitration............................................... 8
17. Notices................................................... 8
18. General Provisions........................................ 9
19. Entire Agreement.......................................... 9
EXHIBIT A - Duties of Employee
EXHIBIT B - Bonus Arrangement
EXHIBIT C - 1994 Amended and Restated Stock Option Plan
EXHIBIT D - Stock Option Terms
EXHIBIT E - Additional Benefits
<PAGE>
AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT
THIS AMENDED AND RESTATED EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement")
is entered into by and between ITERATED SYSTEMS, INC., a Georgia corporation
with its principal offices at Suite 600 - Seven Piedmont Center, 3525 Piedmont
Road, Atlanta, Georgia 30305 (the "the Company") and JOHN C. BACON
("Employee"), an individual, and shall be effective on the Effective Date, as
defined below.
NOW, THEREFORE, in consideration of the premises and the mutual covenants
and agreements of the parties hereto, the parties do hereby covenant and agree
as follows:
1. BACKGROUND.
A. The Company is engaged in the business of (i) research and development
in the area of fractal geometry and dynamical systems, (ii) application of the
results from such research and development in the compression, transmission,
storage and decompression of images using computer technology, and (iii) design,
development, marketing and distribution of products and services which embody or
relate to the compression, transmission, storage and decompression of images.
B. The Company desires to secure and retain the services of Employee in
the office and in the capacities to be designated pursuant to Subsection 4A.
hereof, and Employee desires to engage in the full and active employ of the
Company in accordance with the terms and conditions herein set forth, and the
Company desires to retain Employee's valuable skills and services for the
benefit of the Company.
2. DEFINITIONS.
As used in this Agreement and the Exhibits, the following terms shall have
the meaning as set forth below, and the parties hereto agree to be bound by the
provisions hereof:
A. AREA means the geographic area of the United States and Canada in which
operations are performed, supervised, or assisted in by Employee on behalf of
the Company as of and after the Effective Date while Employee is employed by the
Company.
B. BOARD OF DIRECTORS means the Board of Directors of the Company.
C. BUSINESS OF THE COMPANY means (i) research and development in the area
of fractal geometry and dynamical systems, (ii) application of the results from
such research and development in the compression, transmission, storage and
decompression of images using computer technology, and (iii) the design,
development, marketing and distribution of products and services which embody or
relate to the compression, transmission, storage and decompression of images.
D. CHANGE IN CONTROL has the meaning set forth in EXHIBIT D, Section 5.
E. COMPANY means Iterated Systems, Inc. and its successors.
F. CONTINUOUS SERVICE means a period of continuous performance of services
by Employee for the Company or its successor, as determined by the Board of
Directors.
G. EFFECTIVE DATE means February 16, 1998.
<PAGE>
H. OFFERING means the closing of a public sale of common stock by the
Company within twenty-four (24) months after the Effective Date resulting in (i)
the Company having an aggregate market capitalization in an amount of at least
$250 million as determined by the Board of Directors based only on the then
current issued and outstanding common stock of the Company, and (ii) a payment
of proceeds to the Company in an amount of at least $20 million, each as a
result of a filing of a registration statement by the Company declared effective
by the U.S. Securities and Exchange Commission ("SEC") with respect to an
underwritten firm commitment offering of the Company's common stock and the
listing thereof on a nationally recognized stock exchange in the U.S.; the
filing of a Form 10 with the SEC shall not constitute an Offering.
I. OFFERING CLOSING DATE means the date on which the net proceeds of an
Offering are paid in full to the Company.
J. PERMANENT DISABILITY means a physical or mental condition which renders
Employee incapable of performing his regular duties hereunder for a period of
ninety (90) consecutive days as reasonably determined by the Board of Directors.
K. PLAN means the Company's 1994 Amended and Restated Stock Option Plan.
L. TERM means the period from the Effective Date and continuing until
three (3) years thereafter, unless the Agreement is earlier terminated for any
reason as set forth herein. This Agreement may be extended beyond the Term upon
written agreement by each party.
M. TERMINATION WITH CAUSE means the termination of this Agreement and
the employment relationship of Employee with the Company, only for the
following:
(i) Theft or embezzlement by Employee with regard to property of the
Company;
(ii) Continued gross neglect by Employee in fulfilling his duties as set
forth in this Agreement, after written notification from the Board of
Directors of such gross neglect, setting forth in detail the matters
involved and Employee's failure to cure the problem resulting in such gross
neglect within thirty (30) days after receipt of notice by Employee from
the Company;
(iii) Death or Permanent Disability of Employee;
(iv) Actual fraud or other material acts of dishonesty in conducting the
Company's business or in the fulfillment by Employee of his assigned
responsibilities; the destruction of any material amount of the Company's
property willfully or through Employee's gross neglect; or the unauthorized
disclosure of any information constituting Confidential Information which
disclosure has a material adverse impact on the financial condition of the
Company, or a Trade Secret, but not including general statements regarding
the Company and its business which do not include Trade Secrets or
Confidential Information, to any person, business or entity in violation of
Section 7; or
(v) A violation or other failure of Employee to perform in accordance
with any material provision of any written agreement with the Company or to
perform in accordance with the reasonable directives imposed upon him by
the Board of Directors, if such violation or other
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<PAGE>
failure is not cured within thirty (30) days after receipt of notice by
Employee from the Company.
N. TERMINATION WITHOUT CAUSE means a termination by the Company of this
Agreement and the employment relationship of Employee with the Company which is
not a Termination With Cause or a Voluntary Termination, but not including the
expiration of this Agreement.
O. VOLUNTARY TERMINATION means unilateral termination by Employee of his
employment with the Company prior to the end of the Term; provided that Employee
shall not be considered to have unilaterally terminated his employment with the
Company, even though such termination is initiated by Employee, if such
termination occurs following: (i) a breach of a material term of this Agreement
by the Company, which is not cured by the Company within thirty (30) days after
receipt by the Company of notice from Employee, or (ii) any relocation to which
Employee has not agreed to an office of the Company located more than thirty-
five (35) miles from the city limits of Atlanta, Georgia.
3. EMPLOYMENT. Subject to the terms and conditions hereof, the Company, through
its Board of Directors, agrees to employ Employee in the office of Chief
Executive Officer and President of the Company, and Employee agrees to accept
such employment and office upon the terms and conditions set forth herein.
4. RESPONSIBILITIES.
A. Commencing as of the Effective Date and during the Term, Employee shall
assume the responsibilities, perform the duties, and exercise the powers as
directed by the Board of Directors (which are presently described on EXHIBIT A).
B. In performing the duties and exercising the powers as set forth in this
Agreement, Employee agrees and acknowledges to act in a professional, ethical
and business like manner at all times and under all circumstances in which
Employee may be representing or acting on behalf of the Company. Employee also
agrees to comply with and follow all codes of conduct and other provisions
included in any employee handbook distributed by the Company.
5. COMPENSATION. The Company shall pay, and Employee agrees to accept, as full
and complete compensation for services to be rendered hereunder during the Term,
the remuneration described below:
A. MONTHLY SALARY. The Company shall pay Employee a base monthly salary
as of the Effective Date of Twenty Three Thousand Seven Hundred and Fifty
Dollars ($23,750.00) per month ("Monthly Salary"), subject to increases which,
if granted, shall be effective and in such amounts as the Board of Directors in
its sole discretion may deem appropriate. Monthly Salary shall be payable
according to the customary payroll practices of the Company.
B. BONUS. The Company shall pay Employee the bonus in accordance with the
terms and conditions set forth on EXHIBIT B hereof.
C. STOCK OPTIONS. Employee will be granted stock options in accordance
with the Company's 1994 Amended and Restated Stock Option Plan as set forth in
EXHIBIT C (the "Plan") subject to the restrictions and rights set forth in the
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Plan and shareholder approval of an increase in the number of shares reserved
under the Plan from 2,400,000 to 3,400,000, according to the stock option terms
set forth on EXHIBIT D.
D. INSURANCE AND BENEFITS.
(i) The Company shall allow Employee to participate in or receive benefits
under all employee and executive benefit plans or arrangements
maintained by the Company all at the highest level that is available
through the Company to other senior officers of the Company subject to
the same terms and conditions as generally apply to such other senior
officers.
(ii) Employee shall be entitled to all holidays recognized by the Company
and vacation time as are generally available to other senior officers
of the Company, with continuing payment of all compensation as set
forth herein. Employee shall be reimbursed by the Company for all
necessary and reasonable expenses incurred on behalf of the Company in
accordance with then current reimbursement policies of the Company.
(iii) Employee shall receive the additional benefits set forth in EXHIBIT E.
E. FORM OF CURRENCY. All amounts set forth in this Agreement are
designated in U.S. dollars.
6. TERMINATION.
A. During the Term, this Agreement may be terminated, subject to the
terms, conditions and obligations hereof, by any of the following events:
(i) Written agreement by each party expressed in a single document
signed by both the Company and Employee;
(ii) Voluntary Termination by Employee;
(ii) Death of Employee;
(iii) Termination Without Cause; or
(iv) Termination With Cause.
B. If the Company elects in its discretion to terminate the employment of
Employee at any time in such a manner as constitutes a Termination Without
Cause, then the Company shall be required to continue to pay Employee an amount
equal to Employee's Monthly Salary at then current rate for a period of eighteen
(18) months ("Severance Payment"). The Severance Payment shall be payable to
Employee in accordance with the Company's standard pay periods and shall be
subject to all applicable withholdings, or, in the Company's sole discretion, in
a lump sum equal to the Severance Payment. The foregoing shall constitute the
sole and exclusive liability of the Company for a Termination Without Cause.
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<PAGE>
C. The obligations of Employee under Sections 7, 8, 9, 10, and 11
shall survive termination or expiration of this Agreement for any reason. The
obligations of the Company under Section 6B., to the extent applicable, shall
also survive such termination.
D. Upon termination of employment for any reason, Employee shall return
immediately to the Company all documents, property, and other records of the
Company, and all copies thereof, and all Property, within Employee's possession,
custody or control, including but not limited to any materials containing any
Trade Secrets or Confidential Information or any portion thereof.
7. PROPRIETARY INFORMATION.
A. In performance of services under this Agreement, Employee may have
access to:
(i) information in any form (written, oral or electronic) of the Company
or a third party providing information to the Company under
obligations of non-disclosure which derives economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain
economic value from its disclosure or use, and is the subject of
efforts that are reasonable under the circumstances to maintain its
secrecy (referred to herein as "Trade Secrets" or, individually, as a
"Trade Secret"); or
(ii) information in any form (written, oral or electronic) of the Company
or a third party providing information to the Company under
obligations of non-disclosure which does not rise to the level of a
Trade Secret, but is valuable to the Company or a third party
providing such information to the Company and treated as confidential
by the Company or a third party providing such information to the
Company (referred to herein as "Confidential Information").
B. Employee acknowledges and agrees that with respect to Trade Secrets
and Confidential Information provided to or obtained by Employee (hereinafter
collectively the "Proprietary Information"):
(i) that the Proprietary Information is and shall remain the exclusive
property of the Company or a third party providing such information to the
Company;
(ii) to use the Proprietary Information exclusively for the purpose of
fulfilling the obligations under this Agreement;
(iii)to return the Proprietary Information, and any copies thereof, in
his possession or under his control, to the Company upon request of the
Company, or expiration or termination of this Agreement for any reason; and
(iv) to hold the Proprietary Information in confidence and not to copy,
publish, or disclose to others or allow any other party to copy, publish,
or disclose to others, in any form, any Proprietary Information without the
prior written approval of an authorized representative of the Company.
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<PAGE>
C. The obligations and restrictions set forth in Subsection 7B(iv) above
shall survive expiration or termination of this Agreement, for any reason, and
shall remain in full force and effect as follows:
(i) as to Trade Secrets, for so long as such information remains subject
to protection under applicable law;
(ii) as to Confidential Information, for a period of three (3) years after
expiration or termination of this Agreement for any reason.
D. The obligations set forth in this Section 7 shall not apply or shall
terminate with respect to any particular portion of the Proprietary Information
which:
(i) was in Employee's possession, free of any obligation of confidence,
prior to his receipt from the Company;
(ii) is in the public domain at the time the Company communicates it to
Employee, or becomes available to the public through no breach of this
Agreement by Employee; or
(iii) is received by Employee independently and in good faith from a third
party lawfully in possession thereof and having no obligation to keep such
information confidential.
E. The confidentiality, property, and proprietary rights protections
available in this Agreement are in addition to, and not exclusive of, any and
all other rights, including those provided under copyright, corporate officer or
director fiduciary duties, and trade secret and confidential information laws
and under the Georgia Trade Secrets Act.
8. OWNERSHIP. Employee agrees and acknowledges that all works of authorship and
inventions, including but not limited to products, goods, know-how, Trade
Secrets and Confidential Information, and any improvements, modifications,
enhancements, derivative works, and/or revisions to existing products, goods,
know-how, Trade Secrets and/or Confidential Information, in any form and in
whatever stage of creation or development, arising out of or resulting from, or
in connection with, the services provided by Employee to the Company under this
Agreement or at any time prior to the Effective Date (collectively, the
"Property"), as they now exist and are currently used by the Company or
otherwise, or as they may exist in the future or have existed in the past, are
works made for hire and shall be the sole and exclusive property of the Company.
Employee hereby transfers and assigns to the Company any and all right, title
and interest in the Property, in whatever form, including all worldwide
copyrights, patents, trade secrets, moral rights and confidential and
proprietary rights therein and agrees to execute such documents as the Company
may reasonably request for the purpose of effectuating the rights of the Company
herein.
9. EXCLUSIVE SERVICE AND NON-COMPETITION COVENANT. Employee covenants and agrees
that during his employment with the Company and for a period of two (2) years
following the termination or expiration of his employment with the Company for
any reason, Employee shall not, anywhere within the Area, engage in any one or
more of the activities set forth on EXHIBIT A ("Duties of Employee") attached
hereto and in effect as of the Effective Date in which
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Employee is engaged during the two (2) year period (or the period of time
Employee has been employed by the Company, if shorter) prior to the termination
or expiration of this Agreement, on behalf of any person, firm, corporation or
entity engaged in the Business of the Company, if the Company is engaged in such
business on the date of termination or expiration.
10. COVENANT NOT TO HIRE. Employee agrees that Employee will not, for a period
of two (2) years after termination or expiration of employment with the Company
for any reason, solicit for employment, attempt to employ or affirmatively
assist any other person or entity in employing or soliciting for employment any
person employed by the Company.
11. NON-SOLICITATION. Employee agrees that during his employment with the
Company and during the period of two (2) years immediately following cessation
of Employee's employment with the Company for any reason, Employee shall not, on
Employee's own behalf or on behalf of any person, firm, partnership,
association, corporation or business organization, entity or enterprise,
solicit, contact, call upon, communicate with or attempt to communicate with,
any customer or prospect of the Company, or any representative of any customer
or prospect of the Company, with a view to selling or providing any product,
equipment, or service competitive with any product, equipment or service sold or
provided or under development by the Company during the period of two (2) years
(or the period of time Employee has been employed by the Company, if shorter)
immediately preceding cessation of Employee's employment with the Company,
provided that the restrictions set forth in this Section 11 shall apply only to
customers or prospects of the Company, or representatives of customers or
prospects of the Company, with which Employee had contact during such two (2)
year period (or the period of time Employee has been employed by the Company, if
shorter).
12. EQUITABLE RELIEF. The parties to this Agreement acknowledge that a breach by
Employee of any of the terms or conditions of Sections 7, 8, 9, 10 or 11 of this
Agreement will result in irrevocable harm to the Company and that the remedies
at law for such breach may not adequately compensate the Company for damages
suffered. Accordingly, Employee agrees that in the event of such breach, the
Company shall be entitled to injunctive relief or such other equitable remedy as
a court of competent jurisdiction may provide. Nothing contained herein will be
construed to limit the Company's right to any remedies at law, including the
recovery of damages for breach of this Agreement.
13. SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, such holdings shall not
affect the enforceability of any other provision of this Agreement, and all
other provisions shall continue in full force and effect.
14. ATTORNEYS' FEES. If a dispute between the parties arises in connection with
this Agreement, the prevailing party as determined through arbitration or final
judgment of a court of competent jurisdiction (which arbitration or judgment is
not subject to further appeal due to the passage of time or otherwise) shall be
entitled to reimbursement from the other party for reasonable attorneys' fees
and expenses incurred by the prevailing party in connection with the resolution
of the dispute.
15. HEADINGS. The headings of the several paragraphs in this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
16. ARBITRATION. Other than controversies or claims arising out of or relating
to the covenants contained in Sections 7, 8, 9, 10 and 11 hereof, any
controversy or claim arising out of or relating to this Agreement shall be
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settled by arbitration in accordance with the Commercial Arbitration Rules
("Rules") of the American Arbitration Association ("AAA"). Arbitration shall be
initiated by a party by giving notice in the manner set forth herein to the
other party of its intention to arbitrate, which notice shall contain a
statement setting forth the nature of the dispute, the amount claimed, if any,
and the remedy sought. The initiating party shall then file a copy or copies of
the notice as set forth under the Rules. Atlanta, Georgia shall be the location
where the arbitration is held. The parties shall agree upon and appoint three
(3) arbitrators in accordance with the Rules within twenty (20) days of the
effective date of notice of arbitration; however, if the parties fail to make
such designation within twenty (20) days, the AAA shall make the appointment.
The determinations of such arbitrators will be final and binding upon the
parties to the arbitration, and judgment upon the award rendered by the
arbitrators may be entered in any such court having jurisdiction, or application
may be made to such court for a judicial acceptance of the award and an order of
enforcement, as the case may be. The arbitrators shall apply the laws of the
State of Georgia as to both substantive and procedural questions.
17. NOTICES. All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
delivered if (i) delivered personally; (ii) mailed by certified mail, return
receipt requested, with proper postage prepaid; or (iii) delivered by recognized
courier contracting for same day or next day delivery with signed receipt
acknowledgment to:
(a) To the Company:
Iterated Systems, Inc.
Suite 600 - Seven Piedmont Center
3525 Piedmont Road
Atlanta, Georgia 30305-1530
Attention: Chairman of the Board of Directors
With a copy to:
John C. Yates, Esq.
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
(b) To Employee:
John C. Bacon
425 Overview NW
Atlanta, Georgia 30327
or at such other address as the parties hereto may have last designated by
notice to the other parties. Any item delivered personally or by recognized
courier contracting for same day or next day delivery shall be deemed delivered
on the date of delivery. Any item mailed by certified mail shall be deemed to
have been delivered on the date evidenced on the return receipt.
18. GENERAL PROVISIONS. This Agreement shall be governed by and construed under
the laws of the State of Georgia, without giving effect to its conflict of law
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principles. The terms of this Agreement shall be binding upon and inure to the
benefit of the Company and its successors and assigns. Neither party may assign
his or its rights and obligations under this Agreement to any other party.
19. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties hereto, and except as otherwise provided in this Agreement, supersedes
and cancels all previous and contemporaneous written and oral agreements,
including the Employment Agreement dated March 1, 1997 between the Company and
Employee and any and all amendments thereto. No amendment or modification of
this Agreement shall be valid or binding unless in writing and signed by the
party to be bound.
IN WITNESS WHEREOF, the parties hereto have affixed their seals and
executed this Agreement effective as of the Effective Date.
ITERATED SYSTEMS, INC.
/s/ Alan D. Sloan
----------------------------------
By: Alan D. Sloan
---------------------------
Title: Executive Vice President
------------------------
Date: 3/12/98
-------------------------
EMPLOYEE:
/s/ John C. Bacon
----------------------------------
JOHN C. BACON, Individually
Date: 9 March, 1998
---------------------------
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EXHIBIT A
TO AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
WITH JOHN C. BACON
Duties of Employee
------------------
The following duties of Employee may be modified, reduced or revised by the
Board of Directors in its discretion and upon providing notice to Employee:
1. Manage the daily business and affairs of the Company.
2. Exercise general supervision and administration over all daily affairs
of the Company with power to make and execute all contracts, leases and other
documents or instruments in the conduct of the regular and ordinary business of
the Company, subject to and unless otherwise directed by the Board of Directors.
3. Exercise general supervision over other officers and agents of the
Company.
4. Ensure that all orders and resolutions of the Board of Directors are
carried into effect.
5. Formulate and implement business plans of the Company as approved by
the Board of Directors.
6. Do and perform all such other acts as specified in the Bylaws of the
Company or as directed by the Board of Directors of the Company.
7. Comply with all policies, restrictions and procedures adopted by the
Company or the Board of Directors relating to the sale or purchase of securities
of the Company including all U.S. and Norwegian rules and regulations relating
thereto.
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<PAGE>
EXHIBIT B
TO AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
WITH JOHN C. BACON
Bonus Arrangement
-----------------
1. Cash Bonus. Pursuant to Section 5B., the Company shall pay Employee a
-----------
cash bonus in the amount of $500,000 ("Cash Bonus") within thirty (30) days
after the first to occur of either:
(a) the Offering Closing Date; or
(b) a Change in Control.
2. Termination. The obligations of the Company to pay any bonuses or
-----------
grant any options as set forth in this Agreement shall terminate in all respects
upon termination of this Agreement for any reason. Employee shall not be
entitled to any bonus payment or option grant as set forth above unless Employee
is employed by the Company as of the date on which the applicable bonus or
option grant is to be made as set forth in this Agreement.
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<PAGE>
EXHIBIT C
TO EXECUTIVE EMPLOYMENT AGREEMENT
WITH JOHN C. BACON
1994 Amended and Restated Stock Option Plan
-------------------------------------------
[Attached to original]
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<PAGE>
EXHIBIT D
TO AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
WITH JOHN C. BACON
Stock Option Terms
------------------
1. OPTION GRANT NO. 1.
Subject to the terms of the Plan, the Company shall grant Employee options
to purchase common stock of the Company on the following terms:
(a) Date of Grant: Effective Date
(b) Exercise Price Per Share: The exercise price per share of the
Company's common stock shall equal $7.26, the closing price on the Effective
Date of the Company's common stock traded on the Oslo Stock Exchange.
(c) Term of Option: 10 years from the Effective Date
(d) Shares Subject to Option and Vesting: 500,000 vesting during
Employee's employment with Company as follows:
(i) 166,667 options vesting on February 16, 1999, of which 13,774
options will be designated as incentive stock options, as such term is defined
in Section 422 of the Internal Revenue Code of 1986, as amended ("ISOs");
(ii) an additional 166,667 options vesting on February 16, 2000,
of which 13, 774 options will be designated as ISOs;
(iii) an additional 166,666 options vesting on February 16, 2001,
of which 13, 774 options will be designated as ISOs.
These options shall vest on a Change of Control, defined as set forth below.
2. OPTION GRANT NO. 2.
Subject to the terms of the Plan, the Company shall grant Employee options
to purchase common stock of the Company according to the following terms:
(a) Date of Grant: Effective Date
(b) Exercise Price Per Share: The option exercise price per share of
the Company's common stock shall equal the closing price on the Effective Date
of the Company's common stock traded on the Oslo Stock Exchange.
(c) Term of Option: 10 years from the Effective Date
(d) Shares Subject to Option and Vesting: 250,000 options shall vest
during Employee's employment with Company upon the first to occur of the
following:
(i) the Offering Closing Date;
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<PAGE>
(ii) a Change in Control; or
(iii) Employee completing seven (7) years of Continuous Service
following the Effective Date.
3. OPTION GRANT NO. 3.
Subject to the terms of the Plan, the Company shall grant Employee options
to purchase common stock of the Company according to the following terms:
(a) Date of Grant: Effective Date
(b) Exercise Price Per Share: The option exercise price per share of
the Company's common stock shall equal the closing price on the Effective Date
of the Company's common stock traded on the Oslo Stock Exchange.
(c) Term of Option: 10 years from the Effective Date
(d) Shares Subject to Option and Vesting: 250,000 options shall
vest during Employee's employment with Company upon the first to occur
of the following:
(i) one hundred and eighty (180) days after the Offering
Closing Date;
(ii) Employee completing seven (7) years of Continuous Service
following the Effective Date; or
(iii) a Change in Control.
4. If for any reason the Company is prohibited by applicable corporate or
securities laws from granting the options as set forth above or on the date as
set forth therein, then the obligation of the Company shall be effective as of
the first day on which such prohibition lapses or is no longer in effect.
5. For purposes of this Agreement, a "Change in Control" means the closing
of a transaction during the Term in which the Company's then current
shareholders owning the then currently issued and outstanding shares of common
stock receive consideration valued at $250 million or greater as determined by
the Board of Directors and where:
(a) the beneficial ownership of ninety percent (90%) or more of the
then current issued and outstanding common stock of the Company (or other
securities having generally the right to vote for election of the Board of
Directors) shall be sold, assigned or otherwise transferred to one party, other
than an existing shareholder or optionholder of the Company, whether by sale or
issuance of common stock or other securities or otherwise; or
(b) the Company shall sell, assign or otherwise transfer assets (but
other than stock or other securities of subsidiaries or the grant of license to
intangible assets in the ordinary course of business) having a fair market value
of ninety percent (90%) or more of the total value of the assets of the Company
to one party, other than an existing shareholder or optionholder of the Company
or a majority-held subsidiary of the Company.
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<PAGE>
Notwithstanding the above, the following shall not constitute a "Change in
Control" as used herein:
(i) with respect to subsection (b) above only, any conveyance,
transfer or grant to an entity of a collateral assignment of
security title to or security interest in any goods, accounts,
inventory, general intangibles or other assets of the Company or
any of its subsidiaries to secure the obligations of the Company
or any of its subsidiaries to such entity or entities, or the
exercise of any rights or remedies by such entity after a default
of corporate indebtedness; or
(ii) any corporate reorganization where the resulting corporate
entity or entities are controlled by a majority in interest of
the then current shareholders of the Company.
6. For purposes of this Agreement, a "Change of Control" means any
transaction or series of related transactions occurring within a ninety (90) day
period, whereby (i) the beneficial ownership of fifty percent (50%) or more of
the then outstanding Common Stock of the Company (or other securities having
generally the right to vote for election of the Board) shall be sold, assigned
or otherwise transferred to one party, other than an existing shareholder or
optionholder of the Company, whether by sale or issuance of common stock or
other securities or otherwise, or (ii) the Company shall sell, assign or
otherwise transfer assets (but other than stock or other securities of
subsidiaries or the grant of licenses to intangible assets in the ordinary
course of business) having a fair market value of fifty percent (50%) or more of
the total value of the assets of the Company to one party, other than an
existing shareholder or optionholder of the Company or a majority-held
subsidiary of the Company. Notwithstanding the above, the following shall not
constitute a "Change of Control" as used herein: (a) the closing of an
underwritten offering of the Company's Common Stock following the declaration of
effectiveness by the SEC under the Securities Act of 1933, as amended,
("Offering"), (b) the closing of an offering of Shares in any amount by the
Company on the Oslo Stock Exchange, or (c) with respect to subsection (ii) above
only, any conveyance, transfer or grant to an entity of a collateral assignment
of security title to or security interest in any goods, accounts, inventory,
general intangibles or other assets of the Company or any of its subsidiaries to
secure the obligations of the Company or any of its subsidiaries to such entity
or entities, or the exercise of any rights or remedies by such entity after a
default of corporate indebtedness, or (c) any corporate reorganization where the
resulting corporate entity or entities are controlled by a majority in interest
of the then current shareholders of the Company.
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<PAGE>
EXHIBIT E
TO EXECUTIVE EMPLOYMENT AGREEMENT
WITH JOHN C. BACON
Additional Benefits
-------------------
During the Term, Employee shall receive an automobile allowance of $800.00
per month and membership in the Buckhead Club (or such other club as may be
mutually agreeable to Employee and the Board of Directors).
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<PAGE>
EXHIBIT 10.5
EXECUTIVE SEVERANCE AGREEMENT
BETWEEN
ITERATED SYSTEMS, INC.
AND
JOHN R. FESTA
EFFECTIVE
FEBRUARY 16, 1998
1
<PAGE>
TABLE OF CONTENTS
EXECUTIVE SEVERANCE AGREEMENT
PARAGRAPH PAGE NO.
- --------- --------
1. Background...................................................... 1
2. Definitions..................................................... 2
3. Employment...................................................... 4
4. Responsibilities................................................ 4
5. Compensation.................................................... 4
6. Termination..................................................... 5
7. Proprietary Information......................................... 5
8. Ownership....................................................... 6
9. Exclusive Service and Non-Competition Covenant.................. 7
10. Covenant Not to Hire............................................ 7
11. Non-Solicitation................................................ 7
12. Severability.................................................... 7
13. Attorneys' Fees................................................. 7
14. Headings........................................................ 8
15. Notices......................................................... 8
16. General Provisions.............................................. 8
17. Entire Agreement................................................ 8
EXHIBIT A Duties of Employee
EXHIBIT B Stock Option Grant
EXHIBIT C Existing Stock Options for John R. Festa as of December 31, 1997
EXHIBIT D Insurance, Benefits and Reimbursements
<PAGE>
EXECUTIVE SEVERANCE AGREEMENT
THIS EXECUTIVE SEVERANCE AGREEMENT (the "Agreement") is dated the 31st
day of December, 1997 and is entered into by and between ITERATED SYSTEMS, INC.,
a Georgia corporation with its principal offices at Suite 600 -- Seven Piedmont
Center, 3525 Piedmont Road, Atlanta, Georgia 30305-1530 (the "Company"), and
JOHN R. FESTA ("Employee"), an individual, and shall be effective on the
Effective Date, as defined below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties hereto, the parties do hereby covenant
and agree as follows:
1. BACKGROUND.
A. The Company is engaged in the business of (i) research and
development in the area of fractal geometry and dynamical systems, and (ii)
application of the results from such research and development in the
compression, transmission, storage and decompression of images using computer
technology, and (iii) design, development, marketing and distribution of
products and services which embody or relate to the compression, transmission,
storage and decompression of images.
B. Employee has served as the Company's Chief Executive Officer and
has requested, after many years of service, to reduce his time commitment to the
Company and to resign as Chief Executive Officer.
C. The Company is willing to honor Employee's request and desires to
secure and retain the services of Employee in the more limited capacities set
forth below for a period of two years, and such services are considered by the
Company to be valuable with regard to its business.
D. The Company and Employee previously entered into an Amended and
Restated Executive Employment Agreement effective May 2, 1994 (the "Prior
Agreement") which shall remain in effect until the Effective Date, and Employee
agrees to continue to perform thereunder until the Effective Date. The parties
desire to enter into a new relationship as set forth in this Agreement, as of
the Effective Date. On the Effective Date, this Agreement shall supersede and
cancel the Prior Agreement, which shall thereafter be deemed terminated by
mutual agreement of the parties and be of no further force or effect.
E. Employee agrees and acknowledges that as of the date of this
Agreement, the Company has performed all of its responsibilities and
obligations, and paid all amounts due and owing, to or for the benefit of
Employee, under the Prior Agreement and otherwise, and Employee releases the
Company from any and all claims, liabilities, and causes of action, known or
unknown, suspected or unsuspected, that Employee had, has, or may have with
respect to the Prior Agreement, his employment by the Company, or otherwise,
arising by law or in equity as of the date hereof.
F. Further, the Company and Employee agree and acknowledge that the
stock options currently owned by Employee are specified at EXHIBIT C, and
Employee agrees and acknowledges that he has no right, entitlement or interest
of any kind in or to any other securities of the Company, including stock or
options, except as set forth in EXHIBITS B AND C hereto.
<PAGE>
2. DEFINITIONS.
As used in this Agreement and the Exhibits, the following terms shall
have the meaning as set forth below, and the parties hereto agree to be bound by
the provisions hereof:
A. AREA means the geographic area of the United States, Canada and
the countries currently comprising the European Community which is the area in
which operations are performed, supervised, or assisted in by Employee on behalf
of the Company.
B. BOARD OF DIRECTORS means the Board of Directors of the Company.
C. BUSINESS OF THE COMPANY encompasses and means the following
elements as an integrated process: (i) research and development in the area of
fractal geometry and dynamical systems, and (ii) application of the results from
such research and development in the compression, transmission, storage and
decompression of images using computer technology, and (iii) design,
development, marketing and distribution of products and services which embody or
relate to the compression, transmission, storage and decompression of images.
D. COMPANY means Iterated Systems, Inc. and its successors.
E. EFFECTIVE DATE means February 16, 1998.
F. PERMANENT DISABILITY means a physical or mental condition which
renders Employee incapable of performing his regular duties hereunder for a
period of ninety (90) consecutive days. In the event of any disagreement
between Employee and the Company as to whether Employee is suffering from
Permanent Disability, the determination of Employee's Permanent Disability shall
be made by one or more board certified licensed physicians practicing the
specialty of medicine applicable to Employee's disorder in the Atlanta
metropolitan area in accordance with the provisions of this Subsection 2F. If
either the Company or Employee desires to initiate the procedure provided in
this Subsection, such party (the "Initiating Party") shall deliver written
notice to the other party (the "Responding Party") in accordance with the
provisions of this Agreement specifying that the Initiating Party desires to
proceed with a medical examination and the procedures specified in this Section.
Such notice shall include the name, address and telephone number of the
physician selected by the Initiating Party (the "Disability Examination
Notice"). If the Responding Party fails within thirty (30) days after the
receipt of the Disability Examination Notice to designate a physician meeting
the standards specified herein, the physician designated by the Initiating Party
in the Disability Examination Notice shall make the determination of Permanent
Disability as provided in this Section. If the Responding Party by written
notice notifies the Initiating Party within thirty (30) days of the receipt by
the Responding Party of the Disability Examination Notice by notice specifying
the physician selected by the Responding Party for purposes of this Section,
then each of the two physicians as so designated by the respective parties shall
each examine Employee. Examinations shall be made by each such physician within
fifteen (15) days of such physician's respective designation. Each physician
shall render a written report as to whether Employee is in such physician's
opinion suffering Permanent Disability. If the two physicians agree on the
status of Employee for purposes of this Subsection, such determination shall be
conclusive and dispositive for all purposes of this Subsection. If the two
physicians cannot agree, the two physicians shall jointly select a third
physician meeting the standards specified in this Subsection within ten (10)
days after the later report of the two physicians is submitted. The third
physician shall render a written report on the status of Employee within five
(5) days of selection and such report shall be dispositive for purposes of this
Subsection. For purposes of this Subsection 2F, Employee agrees that he shall
promptly submit to such examinations and tests as such physicians shall
reasonably request for purposes of making a determination of Permanent
Disability as provided herein. Failure or refusal of the Company to
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<PAGE>
designate a licensed physician to make a determination of Permanent Disability
as required in accordance with this Section or of Employee to submit to the
examination as required by this Subsection shall constitute a conclusive
admission by the Company or Employee, as appropriate, that Employee is suffering
from a Permanent Disability as provided herein.
G. TERM means the period from the Effective Date and continuing until
two (2) years thereafter, unless the Agreement is earlier terminated for any
reason as set forth herein. This Agreement may be extended beyond the Term upon
mutual written agreement of the parties.
H. TERMINATION WITH CAUSE means the termination of this Agreement and
the employment relationship of Employee with the Company, only for the
following:
(i) Theft or embezzlement by Employee with regard to property of the
Company;
(ii) Continued gross neglect by Employee in fulfilling his duties as
set forth in this Agreement , after written notification from the Board
of Directors of such gross neglect, setting forth in detail the matters
involved and Employee's failure to cure the problem resulting in such
gross neglect within thirty (30) days of receipt of notice by Employee
by the Company;
(iii) Death or Permanent Disability of Employee;
(iv) Actual fraud or other material acts of dishonesty in conducting
the Company's business or in the fulfillment by Employee of his
assigned responsibilities; the destruction of any material amount of
the Company's property willfully or through Employee's gross neglect;
or the unauthorized disclosure of any information constituting
Confidential Information which disclosure has a material adverse impact
on the financial condition of the Company, or a Trade Secret, but not
including general statements regarding the Company and its business
which do not include Trade Secrets or Confidential Information, to any
person, business or entity in violation of Section 7; or
(v) A violation or other failure of Employee to perform in accordance
with any material provision of any written agreement with the Company
or to perform in accordance with the reasonable directives imposed upon
him by the Board of Directors of the Company, if such violation or
other failure is not cured within thirty (30) days of receipt of notice
by Employee from the Company.
I. TERMINATION WITHOUT CAUSE means a termination by the Company of
this Agreement and the employment relationship of Employee with the Company
which is not a Termination With Cause or a Voluntary Termination, but not
including the expiration of this Agreement.
J. VOLUNTARY TERMINATION means unilateral termination by Employee of
his employment with the Company prior to the end of the Term; provided that
Employee shall not be considered to have unilaterally terminated his employment
with the Company, even though such termination is initiated by Employee, if such
termination occurs following: (i) a breach of a material term of this Agreement
by the Company, which is not cured by the Company within thirty (30) days from
receipt by the Company of notice from Employee, or (ii) any relocation to which
Employee has not agreed to an office of the Company located more than thirty-
five (35) miles from the city limits of Atlanta, Georgia.
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<PAGE>
3. EMPLOYMENT. The Company, through its Board of Directors, agrees to employ
Employee in accordance with the provisions of this Agreement, and Employee
agrees to accept such employment upon the terms and conditions set forth herein.
4. RESPONSIBILITIES.
A. Pursuant to this Agreement, Employee shall assume the
responsibilities and perform the duties of the Vice Chairman of the Board of
Directors and Special Advisor, as specified by the Board of Directors or the
Chief Executive Officer, consistent with the responsibilities and duties
described in EXHIBIT A hereto.
B. Employee agrees to serve as a member of the Board of Directors for
the period during which he is elected as such by the shareholders of the
Company, provided the Company shall have no obligation to elect Employee to the
Board of Directors. In the event the Company, in its sole discretion, decides
to eliminate or reduce the scope of its current directors' and officers'
liability insurance coverage, the Company will notify Employee, and Employee may
elect to remain on the Board of Directors or resign therefrom, provided any such
resignation shall not by itself constitute a Voluntary Termination or a
Termination Without Cause and the Company shall be required to continue to pay
Employee the Annual Salary and provide the benefits set forth in Section 5E. for
the remainder of the Term, subject to Employee's continued compliance with the
remaining terms of this Agreement. Employee also agrees to comply with all
policies, restrictions and procedures adopted by the Company or the Board of
Directors relating to the sale or purchase of securities by the Company,
including the terms of the Lock-up Agreement and any other agreements entered
into by Employee in connection with the Company's public offering of securities
on the Oslo Stock Exchange.
5. COMPENSATION. The Company shall pay, and Employee agrees to accept, as full
and complete compensation for services to be rendered hereunder during the Term,
the remuneration described below:
A. ANNUAL SALARY. The Company shall pay Employee a base annual
salary as of the Effective Date of One Hundred Fifty Thousand Dollars
($150,000.00) per year ("Base Salary"). Base Salary shall be payable according
to the customary payroll practices of the Company.
B. NON-QUALIFIED STOCK OPTIONS. Employee is granted stock options in
accordance with the Company's 1994 Amended and Restated Stock Option Plan (the
"Plan") as approved by the shareholders of the Company subject to the
restrictions and rights set forth in the Plan and the Stock Option Grant,
attached hereto as EXHIBIT B.
C. 1997 BONUS. On the signing of this Agreement by both parties,
the Company shall pay Employee a bonus in the amount of One Hundred Fifty
Thousand Dollars ($150,000.00) for service in 1997, subject to normal employment
withholdings and deductions.
D. CAR LEASE. Employee shall receive use of an automobile during
the Term, which shall be leased by the Company, as reasonably determined by the
Board of Directors, in an amount of at least $400.00 per month.
E. ADDITIONAL COMPENSATION. At the end of each month of the Term, the
Company shall pay Employee, as additional compensation, an amount which, after
deducting federal and state income taxes, would equal the amount which the
Company would contribute as a "matching contribution" to Employee's account
under the Company's 401(k) plan, assuming that Employee was still an active
participant in the plan and elected to defer $833.33 in compensation each month
under the plan. F. INSURANCE, BENEFITS AND REIMBURSEMENTS. During the Term,
Employee shall be entitled to participate in the insurance plans and to receive
those benefits and reimbursements set forth on EXHIBIT D.
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<PAGE>
6. TERMINATION.
A. This Agreement will commence on the Effective Date and shall
continue during the Term unless terminated as set forth herein.
B. During the Term, this Agreement may be terminated, subject to the
terms, conditions and obligations hereof, by any of the following events:
(i) Mutual written agreement expressed in a single document signed
by both the Company and Employee;
(ii) Voluntary Termination by Employee;
(ii) Death of Employee;
(iii) Termination Without Cause; or
(iv) Termination With Cause.
C. If the Company elects in its discretion to terminate the employment of
Employee at any time in such a manner as constitutes a Termination Without
Cause, then the Company shall be required to continue to pay Employee the Annual
Salary and provide the benefits set forth in Section 5E., for the remainder of
the Term. The foregoing shall constitute the sole and exclusive liability of
the Company for a Termination Without Cause.
D. During the Term if Employee obtains or is extended by another any
employee benefits or insurance coverage at least comparable (as reasonably
determined by the parties) to any of the benefits or coverage to be provided by
the Company as set forth herein, then Employee shall immediately notify the
Company and the Company shall thereafter no longer be required to provide the
comparable benefit or coverage as set forth herein.
E. The obligations of Employee under Sections 7, 8 , 9 10 and 11 shall
survive termination or expiration of this Agreement for any reason. The
obligations of the Company under Section 6C., to the extent applicable, shall
also survive such termination.
7. PROPRIETARY INFORMATION.
A. In performance of services under this Agreement, Employee may have
access to:
(i) information which derives economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure
or use, and is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy (hereinafter "Trade Secrets" or
"Trade Secret"); or
(ii) information which does not rise to the level of a Trade Secret, but is
valuable to the Company and provided in confidence to Employee (hereinafter
"Confidential Information").
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<PAGE>
B. Employee acknowledges and agrees that with respect to Trade Secrets and
Confidential Information provided to or obtained by Employee (hereinafter
collectively the "Proprietary Information"):
(i) that the Proprietary Information is and shall remain the exclusive
property of the Company;
(ii) to use the Proprietary Information exclusively for the purpose of
fulfilling the obligations under this Agreement;
(iii) to return the Proprietary Information, and any copies thereof, in
his possession or under his control, to the Company upon request of the
Company, or expiration or termination of this Agreement for any reason; and
(iv) to hold the Proprietary Information in confidence and not to copy,
publish, or disclose to others or allow any other party to copy, publish,
or disclose to others, in any form, any Proprietary Information without the
prior written approval of the Board of Directors, except in furtherance of
Employee's performance of his duties on behalf of the Company and subject
to the recipient of such Proprietary Information agreeing to hold such
information in confidence.
C. The obligations and restrictions set forth in Subsection 7B(iv) above
shall survive expiration or termination of this Agreement, for any reason, and
shall remain in full force and effect as follows:
(i) as to Trade Secrets, for so long as such information remains subject
to protection under applicable law;
(ii) as to Confidential Information, for a period of three (3) years after
expiration or termination of this Agreement for any reason.
D. The obligations set forth in this Section 7 shall not apply or shall
terminate with respect to any particular portion of the Proprietary Information
which:
(i) was in Employee's possession, free of any obligation of confidence,
prior to his receipt from the Company;
(ii) is in the public domain at the time the Company communicates it to
Employee, or becomes available to the public through no breach of this
Agreement by Employee; or
(iii) is received by Employee independently and in good faith from a third
party lawfully in possession thereof and having no obligation to keep such
information confidential.
E. The confidentiality, property, and proprietary rights protections
available in this Agreement are in addition to, and not exclusive of, any and
all other corporate rights, including those provided under copyright, corporate
officer or director fiduciary duties, and trade secret and confidential
information laws.
8. OWNERSHIP. Employee agrees and acknowledges that all works of authorship
and inventions, including but not limited to products, goods, know-how, Trade
Secrets and Confidential Information, and any improvements, modifications,
enhancements, derivative works, and/or revisions to existing products, goods,
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<PAGE>
know-how, Trade Secrets and/or Confidential Information, in any form and in
whatever stage of creation or development, arising out of or resulting from, or
in connection with, the services provided by Employee to the Company under this
Agreement (collectively, the "Property"), as they now exist and are currently
used by the Company or otherwise, or as they may exist in the future, are works
made for hire and shall be the sole and exclusive property of the Company.
Employee hereby transfers and assigns to the Company any and all right, title
and interest in the Property, in whatever form, including all worldwide
copyrights, patents, trade secrets, moral rights, and confidential and
proprietary rights therein and agrees to execute such documents as the Company
may reasonably request for the purpose of effectuating the rights of the Company
herein. Notwithstanding the foregoing, the Company agrees that Employee may
write and publish books or other similar publications, on whatever media,
provided (i) Employee does not disclose any Trade Secrets or Confidential
Information of the Company or take any actions which may have an adverse impact
on the Company's ability to protect such information, and (ii) Employee
continues to perform his responsibilities on behalf of the Company. In the event
such responsibilities are not so performed and Employee does not correct such
nonperformance after notice by the Company and thirty (30) days in which to cure
such nonperformance, Employee may be terminated by the Company in a Termination
With Cause. The Company acknowledges that the writing of books and publications
does not currently constitute a business opportunity of the Company as of the
Effective Date.
9. EXCLUSIVE SERVICE AND NON-COMPETITION COVENANT. Employee covenants and
agrees during the Term that Employee shall not, anywhere within the Area, on
behalf of any person, firm, corporation or entity involved or engaged in the
Business of the Company ("Competing Business") (i) serve as an employee,
officer, consultant or independent contractor in any one or more of the
activities set forth at EXHIBIT A ("Duties of Employee") in which Employee is or
has been engaged on behalf of the Company during the Term or during the two (2)
year period prior to the Effective Date, or (ii) serve as a member of the Board
of Directors (or comparable governing body) of any such Competing Business.
10. COVENANT NOT TO HIRE. Employee agrees that Employee will not, for a period
of two (2) years after termination of employment with the Company for any
reason, solicit for employment, attempt to employ or affirmatively assist any
other person or entity in employing or soliciting for employment any person
employed by the Company.
11. NON-SOLICITATION. Employee agrees that during the period of two (2) years
immediately following cessation of Employee's employment with the Company for
any reason, Employee shall not, on Employee's own behalf or on behalf of any
person, firm, partnership, association, corporation or business organization,
entity or enterprise solicit, contact, call upon, communicate with or attempt to
communicate with, any customer or prospect of the Company, or any representative
of any customer or prospect of the Company, with a view to forming a joint
venture or similar relationship, selling or providing any product, equipment, or
service competitive or potentially competitive with any technology, product,
equipment or service sold or provided or under development by the Company during
the period of two (2) years immediately preceding cessation of Employee's
employment with the Company, provided that the restrictions set forth in this
Section 11 shall apply only to customers or prospects of the Company, or
representatives of customers or prospects of the Company with which Employee has
had contact during such two (2) year period.
12. SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, such holdings shall not
affect the enforceability of any other provision of this Agreement, and all
other provisions shall continue in full force and effect.
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<PAGE>
13. ATTORNEYS' FEES. If a dispute between the parties arises in connection
with this Agreement, each party hereunder shall bear its own fees and expenses
incurred in connection with the resolution of the dispute.
14. HEADINGS. The headings of the several paragraphs in this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
15. NOTICES. All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
delivered if (i) delivered personally; (ii) mailed by certified mail, return
receipt requested, with proper postage prepaid; or (iii) delivered by recognized
courier contracting for same day or next day delivery with signed receipt
acknowledgment to:
(a) To the Company:
Iterated Systems, Inc.
Suite 600 - Seven Piedmont Center
3525 Piedmont Road
Atlanta, Georgia 30305-1530
Attention: Chief Executive Officer
With a copy to:
John C. Yates, Esq.
Morris, Manning & Martin, LLP
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
(b) To Employee:
John R. Festa
1255 Mt. Paran Road
Atlanta, Georgia 30327
With a copy to:
Alexander W. Patterson, Esq.
Alston & Bird
One Atlantic Center
1201 West Peachtree Street, N.E.
Atlanta, Georgia 30309-3424
or at such other address as the parties hereto may have last designated by
notice to the other parties. Any item delivered personally or by recognized
courier contracting for same day or next day delivery shall be deemed delivered
on the date of delivery. Any item mailed shall be deemed to have been delivered
on the date evidenced on the return receipt.
16. GENERAL PROVISIONS. This Agreement shall be governed by and construed
under the laws of the State of Georgia, without giving effect to its conflict of
law principles. The terms of this Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns. Neither party may
assign his or its rights and obligations under this Agreement to any other
party.
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<PAGE>
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties hereto, and except as otherwise provided in this Agreement, supersedes
and cancels all previous and contemporaneous written and oral agreements,
including the Prior Agreement between the Company and Employee and amendments
thereto. No amendment or modification of this Agreement shall be valid or
binding unless in writing and signed by the party to be bound.
IN WITNESS WHEREOF, the parties hereto have affixed their seals and
executed this Agreement effective as of the date first above written.
COMPANY:
ITERATED SYSTEMS, INC.
By: /s/ Alan D. Sloan
------------------------
Title: Executive Vice President
------------------------
Date: 1/26/98
------------------------
EMPLOYEE:
/s/ John R. Festa
---------------------------------
JOHN R. FESTA, individually
Date: 2/4/98
------------------------
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<PAGE>
EXHIBIT A
TO EXECUTIVE SEVERANCE AGREEMENT
WITH JOHN R. FESTA
DUTIES OF EMPLOYEE
The following duties of Employee may be modified or revised by the Board of
Directors in its discretion and upon providing notice to Employee, provided
these duties may not be increased unless otherwise agreed by Employee.
Notwithstanding anything herein to the contrary, Employee is only required to
make himself available to perform these duties up to fourteen (14) hours a week
during the Term as required by the Company.
1. Attend all meetings of the Shareholders and Board of Directors of the
Company, as long as Employee is a Director of the Company.
2. Identify business opportunities for the Company and perform associated
negotiations, as requested by the Board of Directors or the Chief Executive
Officer.
3. Assist in formulating or implementing business plans of the Company, as
requested by the Board of Directors or the Chief Executive Officer.
4. Do and perform all such other acts in an advisory capacity as requested by
the Board of Directors or the Chief Executive Officer.
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<PAGE>
EXHIBIT B
TO EXECUTIVE SEVERANCE AGREEMENT
WITH JOHN R. FESTA
STOCK OPTION GRANT
124,100 non-qualified stock options to be granted by the Company with a grant
date as of the date of this Agreement at the current price on the Oslo Stock
Exchange as of the date of this Agreement, vesting in full one (1) year after
the date of this Agreement and with a term of seven (7) years and subject to
the terms of the Company's 1994 Amended and Restated Stock Option Plan.
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<PAGE>
EXHIBIT C
TO EXECUTIVE SEVERANCE AGREEMENT
WITH JOHN R. FESTA
EXISTING STOCK OPTION GRANTS FOR JOHN R. FESTA AS OF DECEMBER 31, 1997
. 137,500 options granted on 5/2/94 at $4.83, of which 119,200 are
deemed to be vested and the balance of 18,300 have been forfeited
in all respects forever.
. 16,600 options granted on 5/2/94 at $6.00, of which all are
currently vested.
. 570,200 options granted on 5/2/94 at $4.83, of which all are
currently vested.
. 200,000 options granted on 6/26/96 at $10.00, of which all
200,000 options have been forfeited in all respects forever.
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<PAGE>
EXHIBIT D
TO EXECUTIVE SEVERANCE AGREEMENT
WITH JOHN R. FESTA
INSURANCE, BENEFITS AND REIMBURSEMENTS
1. Employee shall be entitled to participate in and receive benefits
under the Company's group health insurance plans, including medical, dental and
vision coverage (continuing coverage in effect as of the Effective Date). Once
the Term ceases, Employee will be eligible for COBRA continuation benefits, as
may be provided by law.
2. Employee shall be entitled to all holidays recognized by the
Company, and vacation time as reasonably determined by the Board of Directors.
Employee shall be reimbursed by the Company for all necessary and reasonable
expenses incurred on behalf of the Company in accordance with the then current
reimbursement policies of the Company.
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<PAGE>
EXHIBIT 10.6
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
ITERATED SYSTEMS, INC.
AND
MICHAEL F. BARNSLEY
DATED
MAY 1, 1994
<PAGE>
TABLE OF CONTENTS
EXECUTIVE EMPLOYMENT AGREEMENT
PARAGRAPH PAGE NO.
- --------- --------
1. Background........................................ 1
2. Definitions....................................... 1
3. Employment........................................ 3
4. Responsibilities.................................. 3
5. Compensation...................................... 4
6. Termination....................................... 6
7. Proprietary Information........................... 6
8. Ownership......................................... 8
9. Exclusive Service and Non-Competition Covenant.... 8
10. Covenant Not to Hire.............................. 8
11. Non-Solicitation.................................. 8
12. Severability...................................... 9
13. Attorneys' Fees................................... 9
14. Headings.......................................... 9
15. Notices........................................... 9
16. General Provisions................................ 10
17. Entire Agreement.................................. 10
EXHIBIT A - Duties of Employee
EXHIBIT B - Performance Goals of Employee
Exhibit C - Stock Option Grant
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into
this 1st day of May, 1994 by and between ITERATED SYSTEMS, INC., a Georgia
corporation with its principal offices at 5550-A Peachtree Parkway, Suite 650,
Norcross, Georgia 30092 (the "Company") and MICHAEL F. BARNSLEY ("Employee"),
an individual, and shall be effective on the Effective Date, as defined below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties hereto, the parties do hereby covenant
and agree as follows:
1. BACKGROUND.
A. The Company is engaged in the business of (i) research and
development in the area of fractal geometry and dynamical systems, (ii)
application of the results from such research and development in the
compression, transmission, storage and decompression of images using computer
technology, and (iii) design, development, marketing and distribution of
products and services which embody or relate to the compression, transmission,
storage and decompression of images.
B. Employee has been serving as Chief Executive Officer of the
Company, the Company desires to secure and retain the services of Employee in
the office and in the capacities to be designated pursuant to Subsection 4A
hereof, and Employee desires to continue in the full and active employ of the
Company in accordance with the terms and conditions herein set forth, and the
Company desires to retain Employee's valuable skills and services for the
benefit of the Company.
2. DEFINITIONS.
As used in this Agreement and the Exhibits, the following terms shall
have the meaning as set forth below, and the parties hereto agree to be bound by
the provisions hereof:
A. AREA means the geographic area of the United States, Canada and
the countries currently comprising the European Community which is the area in
which operations are performed, supervised, or assisted in by Employee on behalf
of the Company, both as of the date hereof and as are anticipated to be
conducted throughout the Term.
B. BOARD OF DIRECTORS means the Board of Directors of the Company.
C. BUSINESS OF THE COMPANY means the (i) research and development in
the area of fractal geometry and dynamical systems, (ii) application of the
results from such research and development in the compression, transmission,
storage and decompression of images using computer technology, and (iii) design,
development, marketing and distribution of products and services which embody or
relate to the compression, transmission, storage and decompression of images.
D. COMPANY means Iterated Systems, Inc. and its successors.
E. EFFECTIVE DATE means the date this Agreement is executed by both
parties.
F. PERMANENT DISABILITY means a physical or mental condition which
renders Employee incapable of performing his regular duties hereunder for a
period of ninety (90) consecutive days. In the event of any disagreement
between Employee and the Company as to whether Employee is suffering
<PAGE>
from Permanent Disability, the determination of Employee's Permanent Disability
shall be made by one or more board certified licensed physicians practicing the
specialty of medicine applicable to Employee's disorder in the Atlanta
metropolitan area in accordance with the provisions of this Subsection 2F. If
either the Company or Employee desires to initiate the procedure provided in
this Subsection, such party (the "Initiating Party") shall deliver written
notice to the other party (the "Responding Party") in accordance with the
provisions of this Agreement specifying that the Initiating Party desires to
proceed with a medical examination and the procedures specified in this Section.
Such notice shall include the name, address and telephone number of the
physician selected by the Initiating Party (the "Disability Examination
Notice"). If the Responding Party fails within thirty (30) days after the
receipt of the Disability Examination Notice to designate a physician meeting
the standards specified herein, the physician designated by the Initiating Party
in the Disability Examination Notice shall make the determination of Permanent
Disability as provided in this Section. If the Responding Party by written
notice notifies the Initiating Party within thirty (30) days of the receipt by
the Responding Party of the Disability Examination Notice by notice specifying
the physician selected by the Responding Party for purposes of this Section,
then each of the two physicians as so designated by the respective parties shall
each examine Employee. Examinations shall be made by each such physician within
five (5) days of such physician's respective designation. Each physician shall
render a written report as to whether Employee is in such physician's opinion
suffering Permanent Disability. If the two physicians agree on the status of
Employee for purposes of this Subsection, such determination shall be conclusive
and dispositive for all purposes of this Subsection. If the two physicians
cannot agree, the two physicians shall jointly select a third physician meeting
the standards specified in this Subsection within ten (10) days after the later
report of the two physicians is submitted. The third physician shall render a
written report on the status of Employee within five (5) days of selection and
such report shall be dispositive for purposes of this Subsection. For purposes
of this Subsection 2F, Employee agrees that he shall promptly submit to such
examinations and tests as such physicians shall reasonably request for purposes
of making a determination of Permanent Disability as provided herein. Failure
or refusal of the Company to designate a licensed physician to make a
determination of Permanent Disability as required in accordance with this
Section or of Employee to submit to the examination as required by this
Subsection shall constitute a conclusive admission by the Company or Employee,
as appropriate, that Employee is suffering from a Permanent Disability as
provided herein.
G. SEVERANCE AMOUNT shall have the meaning as set forth in
Section 5E.
H. TERM means the term of this Agreement, unless the Agreement is
earlier terminated for any reason as set forth herein.
I. TERMINATION DATE means the following: (i) with respect to
Termination With Cause other then under Subsections 2J(ii) and 2J(v), the date
the Company notifies Employee in writing of the actions described in Subsection
2J, and the termination of this Agreement based thereon, or with respect to
Termination With Cause pursuant to 2J(ii) or 2J(v) the date which is thirty (30)
days after written notice of violation to Employee pursuant to Subsections 2J
(ii) or (v) if such action or inaction is not cured by Employee; (ii) with
respect to the death of Employee, the date of his death; (iii) with respect to
Termination Without Cause, the date on which the Company gives Employee notice
of Termination Without Cause; and (iv) with respect to Voluntary Termination,
the date on which Employee unilaterally terminates his employment relationship
with the Company.
J. TERMINATION WITH CAUSE means the termination of this Agreement and
the employment relationship of Employee with the Company, only for the
following:
(i) Theft or embezzlement by Employee with regard to property of the
Company;
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<PAGE>
(ii) Continued gross neglect by Employee in fulfilling his duties as set
forth on EXHIBIT A hereof or excessive unauthorized absenteeism, after
written notification from the Board of Directors of such neglect, setting
forth in detail the matters involved and Employee's failure to cure the
problem resulting in such neglect within thirty (30) days of receipt of
notice by Employee from the Company;
(iii) Death or Permanent Disability of Employee;
(iv) Actual fraud or other material acts of dishonesty in conducting the
Company's business or in the fulfillment by Employee of his assigned
responsibilities; the destruction of any material amount of the Company's
property willfully or through Employee's gross neglect; or the unauthorized
disclosure of any information constituting Confidential Information (and
having a material adverse impact on the financial condition of the Company)
or a Trade Secret (but not including general statements regarding the
Company and its business which do not include Trade Secrets or Confidential
Information) to any person, business or entity in violation of Section 7;
or
(v) A violation or other failure of Employee to perform in accordance
with any material provision of any written agreement with the Company or to
perform in accordance with the duties set forth on EXHIBIT A, as may be
revised or modified in accordance with provisions of Subsection 4A, if such
violation or other failure is not cured within thirty (30) days of receipt
of notice by Employee from the Company.
K. TERMINATION WITHOUT CAUSE means a termination by the Company of
this Agreement and the employment relationship of Employee with the Company
which is not a Termination With Cause or a Voluntary Termination, but not
including the mutual agreement of the parties to terminate this Agreement.
L. TRIGGERING EVENT means a termination of Employee's employment by
the Company during the Term due to a Termination Without Cause.
M. VOLUNTARY TERMINATION means unilateral termination by Employee of
his employment with the Company prior to the end of the Term and in the absence
of a Triggering Event.
3. EMPLOYMENT. The Company, through its Board of Directors, agrees to employ
Employee in accordance with the provisions of this Agreement, and Employee
agrees to accept such employment and office upon the terms and conditions set
forth herein.
4. RESPONSIBILITIES.
A. Pursuant to this Agreement, Employee shall assume the duties and
exercise the powers described at EXHIBIT A, until such time as his
responsibilities, duties and powers may be revised or modified (i) to reduce the
scope of Employee's duties specified on EXHIBIT A in the sole discretion of the
Chief Executive Officer or the Board of Directors of the Company, with written
notice provided to employee thereof, or (ii) to increase the scope of Employee's
duties specified on EXHIBIT A as may be mutually agreed in writing by (a) the
Board of Directors, or the Chief Executive Officer of the Company and (b)
Employee. At no time during the Term shall Employee's principal place of
employment on behalf of the Company be moved by the Company from any county
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<PAGE>
other than Gwinnett, Dekalb, Fulton, Rockdale, Clayton and Cobb ("Metropolitan
Area") nor shall Employee be required to travel out of the Metropolitan Area in
excess of travel required while Employee served as Chief Executive Officer of
the Company.
B. During the Term, Employee agrees to assume such responsibilities,
perform such duties, and exercise such powers as the Board of Directors may
reasonably request or delegate.
5. COMPENSATION. The Company shall pay, and Employee agrees to accept, as full
and complete compensation for services to be rendered hereunder during the Term,
the remuneration described below:
A. ANNUAL SALARY. The Company shall pay Employee a base annual
salary as of the Effective Date of Two Hundred Seventy-Five Thousand Dollars
($275,000.00) per year ("Base Salary"), subject to annual increases which, if
granted, shall be effective on the first day of the Company's fiscal year, as
the Board of Directors in its sole discretion may deem appropriate. Base Salary
shall be payable according to the customary payroll practices of the Company,
but at least on a monthly basis.
B. CASH BONUS AWARD. The Company shall pay Employee an annual cash
bonus of Two Hundred Seventy-Five Thousand Dollars ($275,000) each year over a
three (3) year period, for an aggregate cash bonus award of Eight Hundred
Twenty-Five Thousand Dollars ($825,000), payable only upon satisfaction in full
of the specified performance goals described on EXHIBIT B hereof and in
consideration of the continued employment of the Employee. On the Effective
Date, One Hundred Thirty-Seven Thousand Five Hundred Dollars ($137,500) shall be
deemed fully earned and payable to Employee as the first payment under this
Section 5B; all subsequent payments, if any, will be paid no later than ninety
(90) days after the completion of each respective bonus period in accordance
with EXHIBIT B. In the event of termination, Employee shall receive all bonus
amounts earned by Employee as of the date of termination.
C. NON-QUALIFIED STOCK OPTIONS. Employee is granted a stock option
in accordance with the Company's 1994 Amended and Restated Stock Option Plan
(the "Plan") as approved by the shareholders of the Company subject to the
restrictions and rights set forth in the Plan and the Stock Option Grant
attached hereto as EXHIBIT C.
D. INITIAL PUBLIC OFFERING BONUS. Employee shall be entitled to
receive a One Million Dollar ($1,000,000) bonus, payable in $.01 par value
common stock ("Common Stock") of the Company within thirty (30) days after the
closing of an underwritten offering of Common Stock (the "Offering") following
the declaration of effectiveness by the Securities and Exchange Commission
("SEC") of a registration statement, provided (i) the Offering is closed within
two (2) years from the Effective Date, and (ii) the market value of the Company,
determined by taking the product of the number of shares issued and outstanding
as of the closing of the Offering multiplied by the initial offering price
included in the Registration Statement declared effective by the SEC is equal to
or greater than Two Hundred Fifty Million Dollars ($250,000,000). Any Common
Stock granted in accordance with the terms of this Section 5D shall be valued at
the initial offering price included in the Registration Statement declared
effective by the SEC. As a condition to the receipt of Common Stock hereunder,
and if requested by the underwriter(s) of the Company's Common Stock, Employee
shall agree not to sell, offer to sell, grant any option for the sale of, or
otherwise dispose of, any of the Common Stock or other securities received
hereunder for a period of time reasonably specified by the underwriter(s).
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<PAGE>
E. SEVERANCE AMOUNT.
(i) Upon the occurrence of a Triggering Event, Employee shall be entitled
to receive the Severance Amount, as defined below. Employee shall receive
an amount equal to two (2) years of his Base Salary (as determined on the
date of the Triggering Event) as the Severance Amount, which shall be
payable in equal installments beginning on the date of termination of
employment, and shall continue to be paid for an additional twenty-three
(23) month period thereafter according to the Company's payroll practices
and procedures in effect at the time of the Triggering Event, but at least
on a monthly basis. The obligation of the Company under this Subsection
5E(i) shall be the sole and exclusive obligation of the Company to Employee
upon the occurrence of a Triggering Event.
(ii) If the aggregate present value (determined as of the date of a change
of control in accordance with the provisions of Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor section
thereof, and the regulations and rulings thereunder ("Section 280G")) of
any payments to Employee in the nature of compensation which are contingent
on a change in ownership or effective control of the Company or in the
ownership of a substantial portion of the assets of the Company (the
"Aggregate Severance") would result in a parachute payment (as determined
under Section 280G), then the Aggregate Severance paid to Employee shall
not be greater than an amount equal to 2.99 multiplied by Employee's base
amount (as determined under Section 280G) for the base period (as
determined under Section 280G). In the event the Aggregate Severance is
required to be reduced pursuant to this Section 5E(ii), Employee shall be
entitled to determine which portions of the Aggregate Severance are to be
reduced so that the Aggregate Severance satisfies the limit in the
preceding sentence. Any controversy or claim between the Company and
Employee over any aspect of the determination of the amount of Aggregate
Severance, whether the Aggregate Severance results in a parachute payment
(as determined under Section 280G), or which portions of the Aggregate
Severance need to be reduced so that the above limit is satisfied shall be
determined by arbitration in accordance with Section 5F herein.
Notwithstanding the provisions of this Subsection 5E(ii), in no event shall
the Severance Amount received by Employee be less than Five Hundred Fifty
Thousand Dollars ($550,000).
F. ARBITRATION. Any controversy or claim arising out of or relating
to whether termination of Employee's employment is due to a Triggering Event, or
is a Termination With Cause, a Termination Without Cause, or a Voluntary
Termination as provided herein, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules ("Rules") of the American Arbitration
Association ("AAA"). Arbitration shall be initiated by a party by giving notice
in the manner set forth herein to the other party of its intention to arbitrate,
which notice shall contain a statement setting forth the nature of the dispute,
the amount claimed, if any, and the remedy sought. The initiating party shall
then file a copy or copies of the notice as set forth under the Rules. Atlanta,
Georgia shall be the location where the arbitration is held. The parties shall
agree upon and appoint three (3) arbitrators in accordance with the Rules within
twenty (20) days of the effective date of notice of arbitration; however, if the
parties fail to make such designation within twenty (20) days, the AAA shall
make the appointment. The determinations of such arbitrators will be final and
binding upon the parties to the arbitration, and judgment upon the award
rendered by the arbitrators may be entered in any such court having
jurisdiction, or application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be. The arbitrators
shall apply the laws of the State of Georgia as to both substantive and
procedural questions.
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<PAGE>
G. INSURANCE AND BENEFITS.
(i) The Company shall allow Employee to participate in or receive
benefits under all employee and executive benefit plans or arrangements
maintained by the Company all at the highest level that is available
through the Company to other senior officers of the Company subject to the
same terms and conditions as apply to such other senior officers.
(ii) Employee shall be entitled to all holidays recognized by the Company
and vacation time as are available to other senior officers of the Company,
with continuing payment of all compensation as set forth herein. Employee
shall be reimbursed by the Company for all necessary and reasonable
expenses incurred on behalf of the Company in accordance with the then-
current reimbursement policies of the Company.
(iii) In the event of a termination of Employee's employment with the
Company as a result of a Triggering Event, Employee shall be entitled to
continue to receive the health and disability insurance benefits (at the
highest level of such insurance benefits within the twelve (12) month
period prior to such event) for a twenty-four (24) month period following
the Triggering Event; provided, however, that in the event the Company is
legally prohibited from providing a specified insurance benefit after
termination of employment, it shall provide Employee the economic
equivalent thereof.
6. TERMINATION.
A. This Agreement will commence on the Effective Date and shall continue
unless terminated as set forth herein.
B. During the Term this Agreement may be terminated subject to the
terms, conditions and obligations hereof, by any of the following events:
(i) Mutual written agreement expressed in a single document signed
by both the Company and Employee;
(ii) Voluntary Termination by Employee;
(iii) Death of Employee;
(iv) Termination Without Cause; or
(v) Termination With Cause.
Upon termination for any of the foregoing reasons, Employee shall continue to
render services and shall be paid his Base Salary and benefits up to the
Termination Date.
D. The obligations of Employee under Sections 7, 8, 9, 10 and 11
shall survive termination or expiration of this Agreement. The obligations of
the Company under Sections 5 and 9 that by their terms are to be paid or to
continue after termination of this Agreement, shall also survive such
termination.
7. PROPRIETARY INFORMATION.
A. In performance of services under this Agreement, Employee may
have access to:
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<PAGE>
(i) information which derives economic value, actual or potential, from
not being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure
or use, and is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy (hereinafter "Trade Secrets" or
"Trade Secret"); or
(ii) information which does not rise to the level of a Trade Secret, but
is valuable to the Company and provided in confidence to Employee
(hereinafter "Confidential Information").
B. Employee acknowledges and agrees that with respect to Trade
Secrets and Confidential Information provided to or obtained by Employee
(hereinafter collectively the "Proprietary Information"):
(i) that the Proprietary Information is and shall remain the exclusive
property of the Company;
(ii) to use the Proprietary Information exclusively for the purpose of
fulfilling the obligations under this Agreement;
(iii) to return the Proprietary Information, and any copies thereof, in
his possession or under his control, to the Company upon request of the
Company, or expiration or termination of this Agreement for any reason; and
(iv) to hold the Proprietary Information in confidence and not to copy,
publish, or disclose to others or allow any other party to copy, publish,
or disclose to others, in any form, any Proprietary Information without the
prior written approval of an authorized representative of the Company,
except in furtherance of Employee's performance of his duties on behalf of
the Company and subject to the recipient of such Proprietary Information
agreeing to hold such information in confidence.
C. The obligations and restrictions set forth in Subsection 7B(iv)
above shall survive expiration or termination of this Agreement, for any reason,
and shall remain in full force and effect as follows:
(i) as to Trade Secrets, for so long as such information remains subject
to protection under applicable law;
(ii) as to Confidential Information, for a period of three (3) years after
expiration or termination of this Agreement for any reason.
D. The obligations set forth in this Section 7 shall not apply or
shall terminate with respect to any particular portion of the Proprietary
Information which:
(i) was in Employee's possession, free of any obligation of confidence,
prior to his receipt from the Company;
(ii) is in the public domain at the time the Company communicates it to
Employee, or becomes available to the public through no breach of this
Agreement by Employee;
(iii) is received by Employee independently and in good faith from a third
party lawfully in possession thereof and having no obligation to keep such
information confidential; or
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<PAGE>
(iv) is ordered to be disclosed by a court of competent jurisdiction after
notice is provided to the Company.
E. The confidentiality, property, and proprietary rights protections
available in this Agreement are in addition to, and not exclusive of, any and
all other corporate rights, including those provided under copyright, corporate
officer or director fiduciary duties, and trade secret and confidential
information laws.
8. OWNERSHIP. Employee agrees and acknowledges that all works of authorship
and inventions, including but not limited to products, goods, know-how, Trade
Secrets and Confidential Information, and any improvements, modifications,
enhancements, derivative works, and/or revisions to existing products, goods,
know-how, Trade Secrets and/or Confidential Information, in any form and in
whatever stage of creation or development, arising out of or resulting from, or
in connection with, the services provided by Employee to the Company under this
Agreement or at any time prior to the Effective Date (collectively, the
"Property"), as they now exist and are currently used by the Company or
otherwise, or as they may exist in the future or have existed in the past, are
works made for hire and shall be the sole and exclusive property of the Company.
Employee hereby transfers and assigns to the Company any and all right, title
and interest in the Property, in whatever form, including all worldwide
copyrights, patents, trade secrets, moral rights and confidential and
proprietary rights therein and agrees to execute such documents as the Company
may reasonably request for the purpose of effectuating the rights of the Company
herein. Notwithstanding the foregoing, the Company agrees that Employee may
write and publish books or other similar publications, on whatever media,
provided (i) Employee does not disclose any Trade Secrets or Confidential
Information of the Company or take any actions which may have an adverse impact
on the Company's ability to protect such information, and (ii) Employee
continues to perform his responsibilities on behalf of the Company. In the
event such responsibilities are not so performed and Employee does not correct
such nonperformance after notice by the Company and thirty (30) days in which to
cure such nonperformance, Employee may be terminated by the Company in a
Termination With Cause.
9. EXCLUSIVE SERVICE AND NON-COMPETITION COVENANT. Employee covenants and
agrees for a period of two (2) years following the termination of his employment
with the Company for any reason, Employee shall not, anywhere within the Area,
engage in any one or more of the activities set forth at EXHIBIT A ("Duties of
Employee") in which Employee is engaged during the two (2) year period prior to
the termination or expiration of this Agreement, on behalf of any person, firm,
corporation or entity engaged in the Business of the Company. Following a
Termination Without Cause, if the Company fails to make a payment due under
Subsection 5E after notice of non-payment by Employee to the Company and failure
of the Company to cure within thirty (30) days of the receipt of such notice,
this exclusive service and non-competition covenant shall terminate. Nothing in
this Section 9 shall preclude Employee from accepting a teaching and/or research
and development position with an academic or non-profit organization immediately
after termination of his employment, so long as such position is not competitive
in any manner with the Business of the Company.
10. COVENANT NOT TO HIRE. Employee agrees that Employee will not, for a period
of two (2) years after termination of employment with the Company for any
reason, solicit for employment, attempt to employ or affirmatively assist any
other person or entity in employing or soliciting for employment any person
employed by the Company.
11. NON-SOLICITATION. Employee agrees that during the period of two (2) years
immediately following cessation of Employee's employment with the Company for
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<PAGE>
any reason, Employee shall not, on Employee's own behalf or on behalf of any
person, firm, partnership, association, corporation or business organization,
entity or enterprise solicit, contact, call upon, communicate with or attempt to
communicate with, any customer or prospect of the Company, or any representative
of any customer or prospect of the Company, with a view to forming a joint
venture or similar relationship, selling or providing any product, equipment, or
service competitive or potentially competitive with any technology, product,
equipment or service sold or provided or under development by the Company during
the period of two (2) years immediately preceding cessation of Employee's
employment with the Company, provided that the restrictions set forth in this
Section 11 shall apply only to customers or prospects of the Company, or
representatives of customers or prospects of the Company with which Employee has
had contact during such two (2) year period.
12. SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, such holdings shall not
affect the enforceability of any other provision of this Agreement, and all
other provisions shall continue in full force and effect.
13. ATTORNEYS' FEES. If a dispute between the parties arises in connection
with this Agreement, the prevailing party as determined through arbitration or
final judgment of a court of competent jurisdiction (which arbitration or
judgment is not subject to further appeal due to the passage of time or
otherwise) shall be entitled to reimbursement from the other party for
reasonable attorneys' fees and expenses incurred by the prevailing party in
connection with the resolution of the dispute.
14. HEADINGS. The headings of the several paragraphs in this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
15. NOTICES. All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
delivered if (i) delivered personally; (ii) mailed by certified mail, return
receipt requested, with proper postage prepaid; or (iii) delivered by recognized
courier contracting for same day or next day delivery with signed receipt
acknowledgment to:
(a) To the Company:
Iterated Systems, Inc.
2500-A Peachtree Parkway
Suite 650
Norcross, Georgia 30092
Attention: President
With a copy to:
John C. Yates, Esq.
Morris, Manning & Martin
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
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<PAGE>
(b) To Employee:
Michael F. Barnsley
335 Pennbrooke Trace
Duluth, GA 30136
With a copy to:
Roberts, Isaf & Summers
500 North Park Twin Center
Suite 1100
1100 Abernathy Road, N.E.
Atlanta, Georgia 30328
Attn.: George Heberton, Esq.
or at such other address as the parties hereto may have last designated by
notice to the other parties. Any item delivered personally or by recognized
courier contracting for same day or next day delivery shall be deemed delivered
on the date of delivery. Any item mailed shall be deemed to have been delivered
on the date evidenced on the return receipt.
16. GENERAL PROVISIONS. This Agreement shall be governed by and construed
under the laws of the State of Georgia, without giving effect to its conflict of
law principles. The terms of this Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns. Neither party may
assign his or its rights and obligations under this Agreement to any other
party.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties hereto, and except as otherwise provided in this Agreement, supersedes
and cancels all previous and contemporaneous written and oral agreements,
including all prior employment agreements between the Company and Employee and
amendments thereto. No amendment or modification of this Agreement shall be
valid or binding unless in writing and signed by the party to be bound.
IN WITNESS WHEREOF, the parties hereto have affixed their seals and
executed this Agreement effective as of the date first above written.
ITERATED SYSTEMS, INC.
By: /s/ Asmund R. Slogedal
----------------------
Title: Chairman
--------
Date: May 1, 1994
-----------
EMPLOYEE:
/s/ Michael F. Barnsley (SEAL)
-----------------------------------
MICHAEL F. BARNSLEY, Individually
Date: May 1, 1994
-----------
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<PAGE>
EXHIBIT A
TO EXECUTIVE EMPLOYMENT AGREEMENT
WITH MICHAEL F. BARNSLEY
DATED: MAY 1, 1994
Duties of Employee
------------------
The parties agree and acknowledge that the duties set forth below accurately
reflect the current duties and responsibilities of Employee as of the Effective
Date, subject to future revision as set forth in Section 4A of the Agreement.
Duties
1. Plan, conduct and direct the research and development activities of the
Commercial Division of the Company.
2. Manage the sales and marketing activities and personnel of the Commercial
Division of the Company.
3. Identify the business opportunities for the Company and perform associated
negotiations as directed by the Board of Directors or Chief Executive Officer of
the Company.
4. Formulate and implement business plans of the Company as approved by the
Board of Directors or directed by the Chief Executive Officer of the Company.
5. Manage specific internal and external projects as approved by the Board of
Directors or directed by the Chief Executive Officer of the Company.
Initials: __________
__________
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<PAGE>
EXHIBIT B
TO EXECUTIVE EMPLOYMENT AGREEMENT
WITH MICHAEL F. BARNSLEY
DATED: MAY 1, 1994
Performance Goals of Employee and Payment Schedule
--------------------------------------------------
The parties to this Agreement agree to negotiate in good faith to establish
mutually acceptable performance goals, to be consistent with the performance
goals included in the original unamended version of the Employment Agreement
contemplated to be entered into between the Company and John R. Festa in his
capacity as Chief Executive Officer of the Company. Such mutually acceptable
performance goals shall be included as EXHIBIT B hereof.
Initials: __________
__________
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<PAGE>
EXHIBIT C
TO EXECUTIVE EMPLOYMENT AGREEMENT
WITH MICHAEL F. BARNSLEY
DATED: MAY 1, 1994
Stock Option Grant
------------------
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<PAGE>
SECOND ADDENDUM TO EXECUTIVE EMPLOYMENT AGREEMENT
BY AND BETWEEN ITERATED SYSTEMS, INC. AND MICHAEL F. BARNSLEY
DATED MAY 1, 1994
RECITALS
--------
Dr. Michael F. Barnsley has entered into an Executive Employment Agreement,
dated May 1, 1994, as amended by an Addendum dated March 28, 1996 (the
"Agreement"), by and between Dr. Barnsley and Iterated Systems, Inc. (the
"Company").
In Section 5B. of the Agreement, the Company has agreed to pay Dr. Barnsley
a cash bonus based upon the attainment of certain performance goals to be
established by the Board of Directors of the Company.
Dr. Barnsley has largely achieved the performance goals established by the
Board of Directors for the 1995 fiscal year.
Dr. Barnsley has voluntarily agreed for the benefit of the Company to the
bonus payments as set forth herein as full and complete satisfaction by the
Company of its obligation to pay any cash bonus due under Section 5B of the
Agreement for the 1995 fiscal year to Dr. Barnsley pursuant to the Agreement.
Now, Therefore, Dr. Barnsley and the Company agree as follows:
1. PAYMENT OF 1995 PERFORMANCE BONUS. The Company shall pay, and Dr.
Barnsley agrees to accept, the amount of Two Hundred Fifty-Five Thousand and
No/100 Dollars ($255,000.00) ("Final Bonus") as full and final satisfaction of
any and all obligations of the Company to Dr. Barnsley for any bonus amounts or
the balance of any other compensation of any kind due to him under the Agreement
or otherwise for the 1995 fiscal year of the Company. The Company agrees to
indemnify Dr. Barnsley against any tax liability, penalties or interest incurred
by him as a direct result of his agreement hereby to accept the Final Bonus
amount set forth above as full and final satisfaction of all obligations for and
his agreement hereby to release the Company from any liability for any cash
bonus amount under Section 5B. for fiscal year 1995. The foregoing indemnity
shall not apply to federal and state income taxes due by Dr. Barnsley with
respect to the actual amount of the Final Bonus amount set forth above or any
other compensation or payments of any kind made by or on behalf of Dr. Barnsley.
2. AMENDMENT UPON INITIAL PUBLIC OFFERING. Effective only upon the
effective date of a registration statement for an initial public offering of
securities of the Company filed with a governmental authority ("Effective
Registration Date"), Section 5A. of the Agreement shall be amended to provide
for a new base annual salary (in substitution for the Base Salary set forth in
Section 5A.) of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00) (to
be defined as the "Base Salary" for all purposes in the Agreement and this
Second Addendum from and after the Effective Registration Date). In the event
and only in the event that the Effective Registration Date occurs on or prior to
December 31, 1996, Section 5B. of the Agreement shall be amended to provide that
Dr. Barnsley shall have an opportunity to earn an annual bonus for the 1996
fiscal year of the Company of up to fifty percent (50%) of the Base Salary,
based on performance goals to be established by the Board of Directors, in
substitution for any and all other bonus awards, compensation or payments under
Section 5B. of the Agreement. This Section 2 is conditioned upon and shall only
be effective upon (i) the completion within thirty-six (36) months from the date
of this Second Addendum of a public offering of the Company's securities at a
Market Value of $100 million or more, in which the Company receives proceeds
therefrom of at least $5 million dollars, and (ii) the exercise by the Company
of its best efforts to obtain the approval of the underwriters to allow Dr.
Barnsley to sell in the
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<PAGE>
initial public offering up to twelve and one-half percent (12 1/2%) of his
shares of the Company's common stock which are owned directly by him of record
as of the date of the filing of the registration statement. As used herein,
"Market Value" means the value determined by multiplying the number of shares of
the Company's common stock outstanding immediately prior to the public offering
by the final price to the public per share in such offering. The parties
acknowledge that the Company shall not be in violation or breach of this
section, the Agreement or this Second Addendum if for any reason Dr. Barnsley is
unable to sell up to twelve and one-half percent (12 1/2%) of the shares of the
Company's common stock directly owned by him of record as of the date of the
filing of the registration statement.
This Addendum shall be attached to the Agreement and will amend its terms.
If any conflict exists between the Agreement and this Addendum, this Addendum
shall control the terms between the parties.
ITERATED SYSTEMS, INC.
/s/ John R. Festa /s/ Michael F. Barnsley
- ------------------------------- ---------------------------------------
By: John R. Festa MICHAEL F. BARNSLEY
--------------------------
Title: President
-----------------------
Date: 4/9/96 Date: 3/28/96
------------------------ ---------------------------------------
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<PAGE>
EXHIBIT 10.7
================================================================================
EXECUTIVE EMPLOYMENT AGREEMENT
BETWEEN
ITERATED SYSTEMS, INC.
AND
ALAN D. SLOAN
DATED
MAY 1, 1994
================================================================================
<PAGE>
TABLE OF CONTENTS
EXECUTIVE EMPLOYMENT AGREEMENT
<TABLE>
<CAPTION>
PARAGRAPH PAGE NO.
- --------- --------
<S> <C> <C>
1. Background.................................... 1
2. Definitions................................... 1
3. Employment.................................... 3
4. Responsibilities.............................. 3
5. Compensation.................................. 4
6. Termination................................... 6
7. Proprietary Information....................... 6
8. Ownership..................................... 8
9. Exclusive Service and Non-Competition Covenant 8
10 Covenant Not to Hire.......................... 8
11 Non-Solicitation.............................. 8
12 Severability.................................. 9
13 Attorneys' Fees............................... 9
14 Headings...................................... 9
15 Notices....................................... 9
16 General Provisions............................ 10
17 Entire Agreement.............................. 10
</TABLE>
EXHIBIT A - Duties of Employee
EXHIBIT B - Performance Goals of Employee
EXHIBIT C - Stock Option Grant
<PAGE>
EXECUTIVE EMPLOYMENT AGREEMENT
THIS EXECUTIVE EMPLOYMENT AGREEMENT (the "Agreement") is entered into
this 1st day of May, 1994 by and between ITERATED SYSTEMS, INC., a Georgia
corporation with its principal offices at 5550-A Peachtree Parkway, Suite 650,
Norcross, Georgia 30092 (the "Company") and ALAN D. SLOAN ("Employee"), an
individual, and shall be effective on the Effective Date, as defined below.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements of the parties hereto, the parties do hereby covenant
and agree as follows:
1. BACKGROUND.
A. The Company is engaged in the business of (i) research and
development in the area of fractal geometry and dynamical systems, (ii)
application of the results from such research and development in the
compression, transmission, storage and decompression of images using computer
technology, and (iii) design, development, marketing and distribution of
products and services which embody or relate to the compression, transmission,
storage and decompression of images.
B. Employee has been serving as President and Treasurer of the
Company, the Company desires to secure and retain the services of Employee in
the office and in the capacities to be designated pursuant to Subsection 4A
hereof, and Employee desires to continue in the full and active employ of the
Company in accordance with the terms and conditions herein set forth, and the
Company desires to retain Employee's valuable skills and services for the
benefit of the Company.
2. DEFINITIONS.
As used in this Agreement and the Exhibits, the following terms shall
have the meaning as set forth below, and the parties hereto agree to be bound by
the provisions hereof:
A. AREA means the geographic area of the United States, Canada and
the countries currently comprising the European Community which is the area in
which operations are performed, supervised, or assisted in by Employee on behalf
of the Company, both as of the date hereof and as are anticipated to be
conducted throughout the Term.
B. BOARD OF DIRECTORS means the Board of Directors of the Company.
C. BUSINESS OF THE COMPANY means the (i) research and development in
the area of fractal geometry and dynamical systems, (ii) application of the
results from such research and development in the compression, transmission,
storage and decompression of images using computer technology, and (iii) design,
development, marketing and distribution of products and services which embody or
relate to the compression, transmission, storage and decompression of images.
D. COMPANY means Iterated Systems, Inc. and its successors.
E. EFFECTIVE DATE means the date this Agreement is executed by both
parties.
<PAGE>
F. PERMANENT DISABILITY means a physical or mental condition which
renders Employee incapable of performing his regular duties hereunder for a
period of ninety (90) consecutive days. In the event of any disagreement between
Employee and the Company as to whether Employee is suffering from Permanent
Disability, the determination of Employee's Permanent Disability shall be made
by one or more board certified licensed physicians practicing the specialty of
medicine applicable to Employee's disorder in the Atlanta metropolitan area in
accordance with the provisions of this Subsection 2F. If either the Company or
Employee desires to initiate the procedure provided in this Subsection, such
party (the "Initiating Party") shall deliver written notice to the other party
(the "Responding Party") in accordance with the provisions of this Agreement
specifying that the Initiating Party desires to proceed with a medical
examination and the procedures specified in this Section. Such notice shall
include the name, address and telephone number of the physician selected by the
Initiating Party (the "Disability Examination Notice"). If the Responding Party
fails within thirty (30) days after the receipt of the Disability Examination
Notice to designate a physician meeting the standards specified herein, the
physician designated by the Initiating Party in the Disability Examination
Notice shall make the determination of Permanent Disability as provided in this
Section. If the Responding Party by written notice notifies the Initiating Party
within thirty (30) days of the receipt by the Responding Party of the Disability
Examination Notice by notice specifying the physician selected by the Responding
Party for purposes of this Section, then each of the two physicians as so
designated by the respective parties shall each examine Employee. Examinations
shall be made by each such physician within five (5) days of such physician's
respective designation. Each physician shall render a written report as to
whether Employee is in such physician's opinion suffering Permanent Disability.
If the two physicians agree on the status of Employee for purposes of this
Subsection, such determination shall be conclusive and dispositive for all
purposes of this Subsection. If the two physicians cannot agree, the two
physicians shall jointly select a third physician meeting the standards
specified in this Subsection within ten (10) days after the later report of the
two physicians is submitted. The third physician shall render a written report
on the status of Employee within five (5) days of selection and such report
shall be dispositive for purposes of this Subsection. For purposes of this
Subsection 2F, Employee agrees that he shall promptly submit to such
examinations and tests as such physicians shall reasonably request for purposes
of making a determination of Permanent Disability as provided herein. Failure or
refusal of the Company to designate a licensed physician to make a determination
of Permanent Disability as required in accordance with this Section or of
Employee to submit to the examination as required by this Subsection shall
constitute a conclusive admission by the Company or Employee, as appropriate,
that Employee is suffering from a Permanent Disability as provided herein.
G. SEVERANCE AMOUNT shall have the meaning as set forth in
Section 5E.
H. TERM means the term of this Agreement, unless the Agreement is
earlier terminated for any reason as set forth herein.
I. TERMINATION DATE means the following: (i) with respect to
Termination With Cause other then under Subsections 2J(ii) and 2J(v), the date
the Company notifies Employee in writing of the actions described in Subsection
2J, and the termination of this Agreement based thereon, or with respect to
Termination With Cause pursuant to 2J(ii) or 2J(v) the date which is thirty (30)
days after written notice of violation to Employee pursuant to Subsections 2J
(ii) or (v) if such action or inaction is not cured by Employee; (ii) with
respect to the death of Employee, the date of his death; (iii) with respect to
Termination Without Cause, the date on which the Company gives Employee notice
of Termination Without Cause; and (iv) with respect to Voluntary Termination,
the date on which Employee unilaterally terminates his employment relationship
with the Company.
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<PAGE>
J. TERMINATION WITH CAUSE means the termination of this Agreement and the
employment relationship of Employee with the Company, only for the following:
(i) Theft or embezzlement by Employee with regard to property of the
Company;
(ii) Continued gross neglect by Employee in fulfilling his duties as set
forth on EXHIBIT A hereof or excessive unauthorized absenteeism, after
written notification from the Board of Directors of such neglect, setting
forth in detail the matters involved and Employee's failure to cure the
problem resulting in such neglect within thirty (30) days of receipt of
notice by Employee from the Company;
(iii) Death or Permanent Disability of Employee;
(iv) Actual fraud or other material acts of dishonesty in conducting the
Company's business or in the fulfillment by Employee of his assigned
responsibilities; the destruction of any material amount of the Company's
property willfully or through Employee's gross neglect; or the unauthorized
disclosure of any information constituting Confidential Information (and
having a material adverse impact on the financial condition of the Company)
or a Trade Secret (but not including general statements regarding the
Company and its business) which do not include Trade Secrets or
Confidential Information) to any person, business or entity in violation of
Section 7; or
(v) A violation or other failure of Employee to perform in accordance with
any material provision of any written agreement with the Company or to
perform in accordance with the duties set forth on EXHIBIT A, as may be
revised or modified in accordance with provisions of Subsection 4A, if such
violation or other failure is not cured within thirty (30) days of receipt
of notice by Employee from the Company.
K. TERMINATION WITHOUT CAUSE means a termination by the Company of this
Agreement and the employment relationship of Employee with the Company
which is not a Termination With Cause or a Voluntary Termination, but not
including the mutual agreement of the parties to terminate this Agreement.
L. TRIGGERING EVENT means a termination of Employee's employment by
the Company during the Term due to a Termination Without Cause.
M. VOLUNTARY TERMINATION means unilateral termination by Employee of
his employment with the Company prior to the end of the Term and in the absence
of a Triggering Event.
3. EMPLOYMENT. The Company, through its Board of Directors, agrees to employ
Employee in accordance with the provisions of this Agreement, and Employee
agrees to accept such employment and office upon the terms and conditions set
forth herein.
4. RESPONSIBILITIES.
A. Pursuant to this Agreement, Employee shall assume the duties and
exercise the powers described at EXHIBIT A, until such time as his
responsibilities, duties and powers may be revised or modified (i) to reduce the
scope of Employee's duties specified on EXHIBIT A in the sole discretion of the
Chief Executive Officer or the Board of Directors of the Company, with written
notice provided to
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<PAGE>
Employee thereof, or (ii) to increase the scope of Employee's duties specified
on EXHIBIT A as may be mutually agreed in writing by (a) the Board of Directors
or the Chief Executive Officer of the Company and (b) Employee. At no time
during the Term shall Employee's principal place of employment on behalf of the
Company be moved by the Company from any county other than Gwinnett, Dekalb,
Fulton, Rockdale, Clayton and Cobb ("Metropolitan Area") , nor shall Employee be
required to travel out of the Metropolitan Area in excess of travel required
while Employee served as President and Treasurer of the Company.
B. During the Term, Employee agrees to assume such responsibilities,
perform such duties, and exercise such powers as the Board of Directors may
request or delegate, in its sole discretion.
5. COMPENSATION. The Company shall pay, and Employee agrees to accept, as full
and complete compensation for services to be rendered hereunder during the Term,
the remuneration described below:
A. ANNUAL SALARY. The Company shall pay Employee a base annual salary
as of the Effective Date of Two Hundred Seventy-Five Thousand Dollars
($275,000.00) per year ("Base Salary"), subject to annual increases which, if
granted, shall be effective on the first day of the Company's fiscal year, as
the Board of Directors in its sole discretion may deem appropriate. Base Salary
shall be payable according to the customary payroll practices of the Company, at
least on a monthly basis.
B. CASH BONUS AWARD. The Company shall pay Employee an annual cash
bonus of Two Hundred Seventy-Five Thousand Dollars ($275,000) each year over a
three (3) year period, for an aggregate cash bonus award of Eight Hundred
Twenty-Five Thousand Dollars ($825,000), payable only upon satisfaction in full
of the specified performance goals described on EXHIBIT B hereof and in
consideration of the continued employment of the Employee. All payments, if
any, will be paid no later than ninety (90) days after the completion of each
respective bonus period in accordance with EXHIBIT B. In the event of
termination, Employee shall receive all bonus amounts earned by Employee as of
the date of termination.
C. NON-QUALIFIED STOCK OPTIONS. Employee is granted a stock option
in accordance with the Company's 1994 Amended and Restated Stock Option Plan
(the "Plan") as approved by the shareholders of the Company subject to the
restrictions and rights set forth in the Plan and the Stock Option Grant
attached hereto as EXHIBIT C.
D. INITIAL PUBLIC OFFERING BONUS. Employee shall be entitled to
receive a One Million Dollar ($1,000,000) bonus, payable in $.01 par value
common stock ("Common Stock") of the Company within thirty (30) days after the
closing of an underwritten offering of Common Stock (the "Offering") following
the declaration of effectiveness by the Securities and Exchange Commission
("SEC") of a registration statement, provided (i) the Offering is closed within
two (2) years from the Effective Date, and (ii) the market value of the Company,
determined by taking the product of the number of shares issued and outstanding
as of the closing of the Offering multiplied by the initial offering price
included in included in the Registration Statement declared effective by the SEC
is equal to or greater than Two Hundred Fifty Million Dollars ($250,000,000).
Any Common Stock granted in accordance with the terms of this Section 5D shall
be valued at the initial offering price included in the Registration Statement
declared effective by the SEC. As a condition to the receipt of Common Stock
hereunder, and if requested by the underwriter(s) of the Company's Common Stock,
Employee shall agree not to sell, offer to sell, grant any option for the sale
of, or otherwise dispose of, any of the Common Stock or other securities
received hereunder for a period of time reasonably specified by the
underwriter(s).
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<PAGE>
E. SEVERANCE AMOUNT.
(i) Upon the occurrence of a Triggering Event, Employee shall be entitled
to receive the Severance Amount, as defined below. Employee shall receive
an amount equal to two (2) years of his Base Salary (as determined on the
date of the Triggering Event) as the Severance Amount, which shall be
payable in equal installments beginning on the date of termination of
employment, and shall continue to be paid for an additional twenty-three
(23) month period thereafter according to the Company's payroll practices
and procedures in effect at the time of the Triggering Event, but at least
on a monthly basis. The obligation of the Company under this Subsection
5E(i) shall be the sole and exclusive obligation of the Company to Employee
upon the occurrence of a Triggering Event.
(ii) If the aggregate present value (determined as of the date of a change
of control in accordance with the provisions of Section 280G of the
Internal Revenue Code of 1986, as amended, or any successor section
thereof, and the regulations and rulings thereunder ("Section 280G")) of
any payments to Employee in the nature of compensation which are contingent
on a change in ownership or effective control of the Company or in the
ownership of a substantial portion of the assets of the Company (the
"Aggregate Severance") would result in a parachute payment (as determined
under Section 280G), then the Aggregate Severance paid to Employee shall
not be greater than an amount equal to 2.99 multiplied by Employee's base
amount (as determined under Section 280G) for the base period (as
determined under Section 280G). In the event the Aggregate Severance is
required to be reduced pursuant to this Section 5E(ii), Employee shall be
entitled to determine which portions of the Aggregate Severance are to be
reduced so that the Aggregate Severance satisfies the limit in the
preceding sentence. Any controversy or claim between the Company and
Employee over any aspect of the determination of the amount of Aggregate
Severance, whether the Aggregate Severance results in a parachute payment
(as determined under Section 280G), or which portions of the Aggregate
Severance need to be reduced so that the above limit is satisfied shall be
determined by arbitration in accordance with Section 5F herein.
Notwithstanding the provisions of this Subsection 5E(ii), in no event shall
the Severance Amount received by Employee be less than Five Hundred Fifty
Thousand Dollars ($550,000).
F. ARBITRATION. Any controversy or claim arising out of or relating
to whether termination of Employee's employment is due to a Triggering Event, or
is a Termination With Cause, a Termination Without Cause, or a Voluntary
Termination as provided herein, shall be settled by arbitration in accordance
with the Commercial Arbitration Rules ("Rules") of the American Arbitration
Association ("AAA"). Arbitration shall be initiated by a party by giving notice
in the manner set forth herein to the other party of its intention to arbitrate,
which notice shall contain a statement setting forth the nature of the dispute,
the amount claimed, if any, and the remedy sought. The initiating party shall
then file a copy or copies of the notice as set forth under the Rules. Atlanta,
Georgia shall be the location where the arbitration is held. The parties shall
agree upon and appoint three (3) arbitrators in accordance with the Rules within
twenty (20) days of the effective date of notice of arbitration; however, if the
parties fail to make such designation within twenty (20) days, the AAA shall
make the appointment. The determinations of such arbitrators will be final and
binding upon the parties to the arbitration, and judgment upon the award
rendered by the arbitrators may be entered in any such court having
jurisdiction, or application may be made to such court for a judicial acceptance
of the award and an order of enforcement, as the case may be. The arbitrators
shall apply the laws of the State of Georgia as to both substantive and
procedural questions.
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<PAGE>
G. INSURANCE AND BENEFITS.
(i) The Company shall allow Employee to participate in or receive benefits
under all employee and executive benefit plans or arrangements maintained
by the Company all at the highest level that is available through the
Company to other senior officers of the Company subject to the same terms
and conditions as apply to such other senior officers.
(ii) Employee shall be entitled to all holidays recognized by the Company
and vacation time as are available to other senior officers of the Company,
with continuing payment of all compensation as set forth herein. Employee
shall be reimbursed by the Company for all necessary and reasonable
expenses incurred on behalf of the Company in accordance with the then-
current reimbursement policies of the Company.
(iii) In the event of a termination of Employee's employment with the
Company as a result of a Triggering Event, Employee shall be entitled to
continue to receive the health and disability insurance benefits (at the
highest level of such insurance benefits within the twelve (12) month
period prior to such event) for a twenty-four (24) month period following
the Triggering Event; provided, however, that in the event the Company is
legally prohibited from providing a specified insurance benefit after
termination of employment, it shall provide Employee the economic
equivalent thereof.
6. TERMINATION.
A. This Agreement will commence on the Effective Date and shall continue
unless terminated as set forth herein.
B. During the Term this Agreement may be terminated subject to the
terms, conditions and obligations hereof, by any of the following events:
(i) Mutual written agreement expressed in a single document signed by
both the Company and Employee;
(ii) Voluntary Termination by Employee;
(iii) Death of Employee;
(iv) Termination Without Cause; or
(v) Termination With Cause.
Upon termination for any of the foregoing reasons, Employee shall continue to
render services and shall be paid his Base Salary and benefits up to the
Termination Date.
D. The obligations of Employee under Sections 7, 8, 9, 10 and 11
shall survive termination or expiration of this Agreement. The obligations of
the Company under Sections 5 and 9 that by their terms are to be paid or to
continue after termination of this Agreement, shall also survive such
termination.
-6-
<PAGE>
7. PROPRIETARY INFORMATION.
A. In performance of services under this Agreement, Employee may have
access to:
(i) information which derives economic value, actual or potential, from not
being generally known to, and not being readily ascertainable by proper
means by, other persons who can obtain economic value from its disclosure
or use, and is the subject of efforts that are reasonable under the
circumstances to maintain its secrecy (hereinafter "Trade Secrets" or
"Trade Secret"); or
(ii) information which does not rise to the level of a Trade Secret, but is
valuable to the Company and provided in confidence to Employee (hereinafter
"Confidential Information").
B. Employee acknowledges and agrees that with respect to Trade
Secrets and Confidential Information provided to or obtained by Employee
(hereinafter collectively the "Proprietary Information"):
(i) that the Proprietary Information is and shall remain the exclusive
property of the Company;
(ii) to use the Proprietary Information exclusively for the purpose of
fulfilling the obligations under this Agreement;
(iii) to return the Proprietary Information, and any copies thereof, in
his possession or under his control, to the Company upon request of the
Company, or expiration or termination of this Agreement for any reason; and
(iv) to hold the Proprietary Information in confidence and not to copy,
publish, or disclose to others or allow any other party to copy, publish,
or disclose to others, in any form, any Proprietary Information without the
prior written approval of an authorized representative of the Company,
except in furtherance of Employee's performance of his duties on behalf of
the Company and subject to the recipient of such Proprietary Information
agreeing to hold such information in confidence.
C. The obligations and restrictions set forth in Subsection 7B(iv)
above shall survive expiration or termination of this Agreement, for any reason,
and shall remain in full force and effect as follows:
(i) as to Trade Secrets, for so long as such information remains subject to
protection under applicable law;
(ii) as to Confidential Information, for a period of three (3) years after
expiration or termination of this Agreement for any reason.
D. The obligations set forth in this Section 7 shall not apply or
shall terminate with respect to any particular portion of the Proprietary
Information which:
(i) was in Employee's possession, free of any obligation of confidence,
prior to his receipt from the Company;
-7-
<PAGE>
(ii) is in the public domain at the time the Company communicates it to
Employee, or becomes available to the public through no breach of this
Agreement by Employee;
(iii) is received by Employee independently and in good faith from a third
party lawfully in possession thereof and having no obligation to keep such
information confidential; or
(iv) is ordered to be disclosed by a court of competent jurisdiction after
notice is provided to the Company.
E. The confidentiality, property, and proprietary rights protections
available in this Agreement are in addition to, and not exclusive of, any and
all other corporate rights, including those provided under copyright, corporate
officer or director fiduciary duties, and trade secret and confidential
information laws.
8. OWNERSHIP. Employee agrees and acknowledges that all works of authorship
and inventions, including but not limited to products, goods, know-how, Trade
Secrets and Confidential Information, and any improvements, modifications,
enhancements, derivative works, and/or revisions to existing products, goods,
know-how, Trade Secrets and/or Confidential Information, in any form and in
whatever stage of creation or development, arising out of or resulting from, or
in connection with, the services provided by Employee to the Company under this
Agreement or at any time prior to the Effective Date (collectively, the
"Property"), as they now exist and are currently used by the Company or
otherwise, or as they may exist in the future or have existed in the past, are
works made for hire and shall be the sole and exclusive property of the Company.
Employee hereby transfers and assigns to the Company any and all right, title
and interest in the Property, in whatever form, including all worldwide
copyrights, patents, trade secrets, moral rights and confidential and
proprietary rights therein and agrees to execute such documents as the Company
may reasonably request for the purpose of effectuating the rights of the Company
herein. Notwithstanding the foregoing, the Company agrees that Employee may
write and publish books or other similar publications, on whatever media,
provided (i) Employee does not disclose any Trade Secrets or Confidential
Information of the Company or take any actions which may have an adverse impact
on the Company's ability to protect such information, and (ii) Employee
continues to perform his responsibilities on behalf of the Company. In the
event such responsibilities are not so performed and Employee does not correct
such nonperformance after notice by the Company and thirty (30) days in which to
cure such nonperformance, Employee may be terminated by the Company in a
Termination With Cause.
9. EXCLUSIVE SERVICE AND NON-COMPETITION COVENANT. Employee covenants and
agrees for a period of two (2) years following the termination of his employment
with the Company for any reason, Employee shall not, anywhere within the Area,
engage in any one or more of the activities set forth at EXHIBIT A ("Duties of
Employee") in which Employee is engaged during the two (2) year period prior to
the termination or expiration of this Agreement, on behalf of any person, firm,
corporation or entity engaged in the Business of the Company. Following a
Termination Without Cause, if the Company fails to make a payment due under
Subsection 5E after notice of non-payment by the Employee to the Company and
failure of the Company to cure within thirty (30) days of the receipt of such
notice, this exclusive service and non-competition covenant shall terminate.
Nothing in this Section 9 shall preclude Employee from accepting a teaching
and/or research and development position with an academic or non-profit
organization immediately after termination of his employment, so long as such
position is not competitive in any manner with the Business of the Company.
-8-
<PAGE>
10. COVENANT NOT TO HIRE. Employee agrees that Employee will not, for a period
of two (2) years after termination of employment with the Company for any
reason, solicit for employment, attempt to employ or affirmatively assist any
other person or entity in employing or soliciting for employment any person
employed by the Company.
11. NON-SOLICITATION. Employee agrees that during the period of two (2) years
immediately following cessation of Employee's employment with the Company for
any reason, Employee shall not, on Employee's own behalf or on behalf of any
person, firm, partnership, association, corporation or business organization,
entity or enterprise solicit, contact, call upon, communicate with or attempt to
communicate with, any customer or prospect of the Company, or any representative
of any customer or prospect of the Company, with a view to forming a joint
venture or similar relationship, selling or providing any product, equipment, or
service competitive or potentially competitive with any technology, product,
equipment or service sold or provided or under development by the Company during
the period of two (2) years immediately preceding cessation of Employee's
employment with the Company, provided that the restrictions set forth in this
Section 11 shall apply only to customers or prospects of the Company, or
representatives of customers or prospects of the Company with which Employee has
had contact during such two (2) year period.
12. SEVERABILITY. If any provision of this Agreement is held to be invalid or
unenforceable by any court of competent jurisdiction, such holdings shall not
affect the enforceability of any other provision of this Agreement, and all
other provisions shall continue in full force and effect.
13. ATTORNEYS' FEES. If a dispute between the parties arises in connection
with this Agreement, the prevailing party as determined through arbitration or
final judgment of a court of competent jurisdiction (which arbitration or
judgment is not subject to further appeal due to the passage of time or
otherwise) shall be entitled to reimbursement from the other party for
reasonable attorneys' fees and expenses incurred by the prevailing party in
connection with the resolution of the dispute.
14. HEADINGS. The headings of the several paragraphs in this Agreement are
inserted for convenience of reference only and are not intended to affect the
meaning or interpretation of this Agreement.
15. NOTICES. All notices, consents, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given or
delivered if (i) delivered personally; (ii) mailed by certified mail, return
receipt requested, with proper postage prepaid; or (iii) delivered by recognized
courier contracting for same day or next day delivery with signed receipt
acknowledgment to:
(a) To the Company:
Iterated Systems, Inc.
2500-A Peachtree Parkway
Suite 650
Norcross, Georgia 30092
Attention: President
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<PAGE>
With a copy to:
John C. Yates, Esq.
Morris, Manning & Martin
1600 Atlanta Financial Center
3343 Peachtree Road, N.E.
Atlanta, Georgia 30326
(b) To Employee:
Alan D. Sloan
1266 Holly Lane N.E.
Atlanta, Georgia 30329
or at such other address as the parties hereto may have last designated by
notice to the other parties. Any item delivered personally or by recognized
courier contracting for same day or next day delivery shall be deemed delivered
on the date of delivery. Any item mailed shall be deemed to have been delivered
on the date evidenced on the return receipt.
16. GENERAL PROVISIONS. This Agreement shall be governed by and construed
under the laws of the State of Georgia, without giving effect to its conflict of
law principles. The terms of this Agreement shall be binding upon and inure to
the benefit of the Company and its successors and assigns. Neither party may
assign his or its rights and obligations under this Agreement to any other
party.
17. ENTIRE AGREEMENT. This Agreement contains the entire agreement between the
parties hereto, and except as otherwise provided in this Agreement, supersedes
and cancels all previous and contemporaneous written and oral agreements,
including all prior employment agreements between the Company and Employee and
amendments thereto. No amendment or modification of this Agreement shall be
valid or binding unless in writing and signed by the party to be bound.
IN WITNESS WHEREOF, the parties hereto have affixed their seals and
executed this Agreement effective as of the date first above written.
ITERATED SYSTEMS, INC.
By: Asmund R. Slogedal
-----------------------------------------
Title: Chairman
-----------------------------------------
Date: May 1, 1994
-----------------------------------------
EMPLOYEE:
/s/ Alan D. Sloan
------------------------------------------------
ALAN D. SLOAN, Individually
Date: 5/1/94
-----------------------------------------
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<PAGE>
EXHIBIT A
TO EXECUTIVE EMPLOYMENT AGREEMENT
WITH ALAN D. SLOAN
DATED: MAY 1, 1994
Duties of Employee
------------------
The parties agree and acknowledge that the duties set forth below accurately
reflect the current duties and responsibilities of Employee as of the Effective
Date, subject to future revision as set forth in Section 4A of the Agreement.
Duties
1. Plan, conduct and direct the research and development activities of the
Government Division of the Company.
2. Manage the sales and marketing activities and personnel of the Government
Division of the Company.
3. Identify the business opportunities for the Company and perform associated
negotiations as directed by the Board of Directors or Chief Executive Officer of
the Company.
4. Formulate and implement business plans of the Company as approved by the
Board of Directors or directed by the Chief Executive Officer of the Company.
5. Manage specific internal and external projects as approved by the Board of
Directors or directed by the Chief Executive Officer of the Company.
Initials: __________
__________
<PAGE>
EXHIBIT B
TO EXECUTIVE EMPLOYMENT AGREEMENT
WITH ALAN D. SLOAN
DATED: MAY 1, 1994
Performance Goals of Employee and Payment Schedule
--------------------------------------------------
The parties to this Agreement agree to negotiate in good faith to establish
mutually acceptable performance goals, to be consistent with the performance
goals included in the original unamended version of the Employment Agreement
contemplated to be entered into between the Company and John R. Festa in his
capacity as Chief Executive Officer of the Company. Such mutually acceptable
performance goals shall be included as EXHIBIT B hereof.
Initials: __________
__________
<PAGE>
EXHIBIT C
TO EXECUTIVE EMPLOYMENT AGREEMENT
WITH ALAN D. SLOAN
DATED: MAY 1, 1994
Stock Option Grant
------------------
<PAGE>
SECOND ADDENDUM TO EXECUTIVE EMPLOYMENT AGREEMENT
BY AND BETWEEN ITERATED SYSTEMS, INC. AND ALAN D. SLOAN
DATED MAY 1, 1994
RECITALS
--------
Dr. Alan D. Sloan has entered into an Executive Employment Agreement, dated
May 1, 1994, as amended by an Addendum dated March 28, 1996 (the "Agreement"),
by and between Dr. Sloan and Iterated Systems, Inc. (the "Company").
In Section 5B. of the Agreement, the Company has agreed to pay Dr. Sloan a
cash bonus based upon the attainment of certain performance goals to be
established by the Board of Directors of the Company.
Dr. Sloan has largely achieved the performance goals established by the
Board of Directors for the 1995 fiscal year.
Dr. Sloan has voluntarily agreed for the benefit of the Company to the
bonus payments as set forth herein as full and complete satisfaction by the
Company of its obligation to pay any cash bonus due under Section 5B of the
Agreement for the 1995 fiscal year to Dr. Sloan pursuant to the Agreement.
Now, Therefore, Dr. Sloan and the Company agree as follows:
1. PAYMENT OF 1995 PERFORMANCE BONUS. The Company shall pay, and Dr.
---------------------------------
Sloan agrees to accept, the amount of Seventy-Five Thousand and No/100 Dollars
($75,000.00) ("Final Bonus") as full and final satisfaction of any and all
obligations of the Company to Dr. Sloan for any bonus amounts or the balance of
any other compensation of any kind due to him under the Agreement or otherwise
for the 1995 fiscal year of the Company. The Company agrees to indemnify Dr.
Sloan against any tax liability, penalties or interest incurred by him as a
direct result of his agreement hereby to accept the Final Bonus amount set forth
above as full and final satisfaction of all obligations for and his agreement
hereby to release the Company from any liability for any cash bonus amount under
Section 5B. for fiscal year 1995. The foregoing indemnity shall not apply to
federal and state income taxes due by Dr. Sloan with respect to the actual
amount of the Final Bonus amount set forth above or any other compensation or
payments of any kind made by or on behalf of Dr. Sloan.
2. AMENDMENT UPON INITIAL PUBLIC OFFERING. Effective only upon the
--------------------------------------
effective date of a registration statement for an initial public offering of
securities of the Company filed with a governmental authority ("Effective
Registration Date"), Section 5A. of the Agreement shall be amended to provide
for a new base annual salary (in substitution for the Base Salary set forth in
Section 5A.) of One Hundred Fifty Thousand and No/100 Dollars ($150,000.00) (to
be defined as the "Base Salary" for all purposes in the Agreement and this
Second Addendum from and after the Effective Registration Date). In the event
and only in the event that the Effective Registration Date occurs on or prior to
December 31, 1996, Section 5B. of the Agreement shall be amended to provide that
Dr. Sloan shall have an opportunity to earn an annual bonus for the 1996 fiscal
year of the Company of up to fifty percent (50%) of the Base Salary, based on
performance goals to be established by the Board of Directors, in substitution
for any and all other bonus awards, compensation or payments under Section 5B.
of the Agreement. This Section 2 is conditioned upon and shall only be
effective upon (i) the completion within thirty-six (36) months from the date of
this Second Addendum of a public offering of the Company's securities at a
Market Value of $100 million or more, in which the Company receives proceeds
therefrom of at least $5 million dollars, and (ii) the exercise by the Company
of its best efforts to obtain the approval of the underwriters to allow Dr.
Sloan to sell in the initial public offering up to twelve and one-half percent
(12 1/2%) of his shares of the Company's common stock which are owned directly
by him of record as of the date of the filing of the registration statement. As
used
-14-
<PAGE>
herein, "Market Value" means the value determined by multiplying the number of
shares of the Company's common stock outstanding immediately prior to the public
offering by the final price to the public per share in such offering. The
parties acknowledge that the Company shall not be in violation or breach of this
section, the Agreement or this Second Addendum if for any reason Dr. Sloan is
unable to sell up to twelve and one-half percent (12 1/2%) of the shares of the
Company's common stock directly owned by him of record as of the date of the
filing of the registration statement.
This Addendum shall be attached to the Agreement and will amend its terms.
If any conflict exists between the Agreement and this Addendum, this Addendum
shall control the terms between the parties.
ITERATED SYSTEMS, INC.
/s/ John R. Festa /s/ Alan D. Sloan
----------------- -----------------
By: John R. Festa ALAN D. SLOAN
-------------
Title: President
---------
Date: 4/9/96 Date: 3/28/96
------ -------
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<PAGE>
EXHIBIT 10.8
ITERATED SYSTEMS, INC.
1994 AMENDED AND RESTATED STOCK OPTION PLAN
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company by
granting Options to purchase Shares to: (i) Employees in order (a) to attract
and retain Employees, (b) to provide an additional incentive to each Employee to
work to increase the value of Shares and (c) to provide each Employee with a
stake in the future of the Company which corresponds to the stake of each of the
Company's shareholders; and (ii) Key Persons who have rendered valuable services
to the Company and to provide such Key Persons with a stake in the future of the
Company which corresponds to each of the Company's shareholders.
SECTION 2.
DEFINITIONS
Each term set forth in this Section shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.
2.1. Board means the Board of Directors of the Company.
-----
2.2. Code means the Internal Revenue Code of 1986, as amended.
----
2.3. Committee means the Committee appointed under Section 5 by the
---------
Board.
2.4. Common Stock means the $.01 par value voting common stock of the
------------
Company.
2.5. Company means Iterated Systems, Inc., a Georgia corporation, and any
-------
successor to such organization.
2.6. Employee means an employee of the Company, a Subsidiary or a Parent.
--------
2.7. Exchange Act means the Securities Exchange Act of 1934, as amended.
------------
2.8. Fair Market Value means the price which the Board acting in good
-----------------
faith determines through any reasonable valuation method that a Share might
change hands between a willing buyer and a willing seller, neither being under
any compulsion to buy or sell and both having reasonable knowledge of the
relevant facts.
2.9 ISO means an option granted under this Plan to purchase Shares which
---
is intended by the Company to satisfy the requirements of Section 422 of the
Code as an incentive stock option.
2.10. Key Person means (i) a member of the Board who is not an Employee,
----------
(ii) a consultant, distributor or other person who has rendered valuable
services to the Company, a Subsidiary or a Parent, (iii) a person who has
incurred, or is willing to incur, financial risk in the form of guaranteeing or
acting as co-obligor with respect to debts or other obligations of the Company,
or (iv) a person who has extended credit to the Company. Key Persons are not
limited to individuals and, subject to the preceding definition, may include
corporations, partnerships, associations and other entities.
<PAGE>
2.11. Non-ISO means an option granted under this Plan to purchase Shares
-------
which is not intended by the Company to satisfy the requirements of Section 422
of the Code.
2.12. Option means an ISO or a Non-ISO.
------
2.13. Option Price means the price which shall be paid to purchase one
------------
(1) Share upon the exercise of and Option granted under this Plan.
2.14. Optionee means the grantee of an Option.
--------
2.15. Parent means any corporation which is a parent of the Company
------
within the meaning of Section 424(e) of the Code.
2.16. Plan means the Iterated Systems, Inc. 1994 Amended and Restated
----
Stock Option Plan, as amended from time to time, which plan is an amendment and
restatement of the Iterated Systems, Inc. 1992 Stock Option Plan.
2.17. Share means a share of the Common Stock of the Company.
-----
2.18. Stock Option Grant means the written agreement or instrument which
------------------
sets forth the terms of an Option granted to an Employee or Key Person under
this Plan.
2.19. Subsidiary means any corporation which is a subsidiary corporation
----------
of the Company within the meaning of Section 424(f) of the Code.
2.20. Surrendered Shares means the Shares described in Section 11.2 which
------------------
(in lieu of being purchased) are surrendered for cash or Shares, or for a
combination of cash and Shares, in accordance with Section 11.
2.21. Ten Percent Shareholder means a person who owns (after taking into
-----------------------
account the attribution rules of Section 424(d) of the Code) more than ten
percent (10%) of the total combined voting power of all classes of shares of
either the Company, a Subsidiary or a Parent.
SECTION 3.
SHARES SUBJECT TO OPTIONS
The total number of Shares that may be issued pursuant to ISO's or Non-
ISO's granted under the Plan shall not, in the aggregate, exceed seventeen
thousand five hundred (17,500) as adjusted below and pursuant to Section 14.
Such Shares shall be reserved to the extent that the Company deems appropriate
from authorized but unissued Shares and from Shares which have been reacquired
by the Company. Furthermore, any Shares subject to an Option granted hereunder
which remain after the cancellation, expiration or exchange of such Option or
option shall again become available for use under this Plan, but any Surrendered
Shares which remain after the surrender of an Option under Section 11 shall not
again become available for use under this Plan.
-2-
<PAGE>
SECTION 4.
EFFECTIVE DATE
The effective date of this amendment and restatement of the Plan shall be
May 1, 1994, provided that the shareholders of the Company approve this Plan
within twelve (12) months after such effective date for issuing ISO's. If such
effective date comes before such shareholder approval, any Options granted under
this Plan before the date of such approval automatically shall be granted
subject to such approval. The original effective date of the Iterated Systems,
Inc. 1992 Stock Option Plan was December 2, 1992.
SECTION 5.
ADMINISTRATION
This Plan shall be administered by the Board. The Board, acting in its
absolute discretion, shall exercise such powers and take such action as
expressly called for under this Plan. The Board shall have the power to
interpret this Plan and, subject to Section 16, to take such other action in the
administration and operation of the Plan as it deems equitable under the
circumstances. The Board's actions shall be binding on the Company, on either
affected Employee or Key Person, and on each other person directly or indirectly
affected by such action.
The Board may delegate its authority under the Plan, in whole or in part,
to a Committee appointed by the Board consisting of not less than three (3)
members. The Committee (if appointed) shall act according to the policies and
procedures set forth in the Plan and to those policies and procedures
established by the Board, and the Committee shall have such powers and
responsibilities as are set forth by the Board. Reference to the Board in this
Plan shall specifically include reference to the Committee where the Board has
delegated it authority to the Committee, and any action by the Committee
pursuant to a delegation of authority by the Board shall be deemed an action by
the Board under the Plan. Notwithstanding the above, the Board may assume the
powers and responsibilities granted to the Committee at any time, in whole or in
part.
SECTION 6.
ELIGIBILITY
Except as provided below, only Employees shall be eligible for the grant of
Options under this Plan, but no Employee shall have the right to be granted an
Option under this Plan merely as a result of his or her status as an Employee.
Key Persons may be eligible, subject to written approval by the Board, for the
grant of Options under this Plan, but only if the Key Person has provided
valuable services to the Company, a Subsidiary or a Parent and only if the
Option granted to such Key Person is a Non-ISO.
SECTION 7.
GRANT OF OPTIONS
The Board, in its absolute discretion, shall grant Options under this Plan
from time to time to purchase Shares and shall have the right to grant new
Options in exchange for outstanding Options. The Committee, if appointed, and
acting pursuant to the procedures established by the Board, may either grant
Options under the Plan or recommend to the Board that Options be granted under
the Plan. Options shall be granted to Employees or Key Persons selected by the
Board and neither the Board nor the Committee (if appointed) shall be under any
-3-
<PAGE>
obligation whatsoever to grant Options to all Employees or Key Persons or to
grant all Options subject to the same terms and conditions. Each grant of an
Option shall be evidenced by a Stock Option Grant, and each Stock Option Grant
shall:
1. specify whether the Option is an ISO or Non-ISO; and
2. incorporate such other terms and conditions as the Board, acting in
its absolute discretion, deems consistent with the terms of this Plan,
including (without limitation) a restriction on the number of Shares
subject to the Option which first become exercisable or subject to
surrender during any calendar year.
In determining Employee(s) or Key Person(s) to whom an Option shall be
granted and the number of Shares to be covered by such Option, the Board may
take into account the recommendations of the President of the Company and its
other officers, the duties of the Employee or Key Person, the present and
potential contributions of the Employee or Key Person to the success of the
Company, the anticipated number of years of service remaining before the
attainment by the Employee of retirement age, and other factors deemed relevant
by the Board, in its sole discretion, in connection with accomplishing the
purpose of this Plan. An Employee or Key Person who has been granted an Option
to purchase Shares of the Company, whether under this Plan or otherwise, may be
granted one or more additional Options.
If the Board grants and ISO and a Non-ISO to an Employee on the same date,
the right of the Employee to exercise or surrender one such Option shall not be
conditioned on his or her failure to exercise or surrender the other such
Option.
SECTION 8.
OPTION PRICE
If an Option is an ISO, the Option Price for each Share subject to such
Option shall be no less than the Fair Market Value of a Share on the date such
Option is granted or, if such Option is granted to a Ten Percent Shareholder,
the Option Price for each Share subject to such Option shall be no less than
110% of the Fair Market Value of a Share on the date such Option is granted. If
an Option is a Non-ISO, the Option Price for each Share shall be no less than
the minimum price required by applicable state law or by the Company's governing
instrument or $0.01, whichever price is greater. The Option Price shall be
payable in full upon the exercise of any Option, and a Stock Option Grant at the
discretion of the Board can provide for the payment of the Option Price either
in cash or in Shares acceptable to the Board or in any combination of cash and
Shares acceptable to the Board. Any payment made in Shares shall be treated as
equal to the Fair Market Value of such Shares on the date the properly endorsed
certificate for such Shares is delivered to the Board (or to its delegate).
Notwithstanding the above, and in the sole discretion of the Board, an
Option may be exercised as to a portion or all (as determined by the Board) of
the number of Shares specified in the Stock Option Grant by delivery to the
Company of a promissory note to be executed by the Optionee. The promissory
note shall include, along with such other terms and conditions as the Board
shall determine, provisions in a form approved by the Board under which (1) the
balance of the aggregate purchase price shall be payable in equal installments
over such period and shall bear interest at such rate (which shall not be less
than the prime bank loan rate as determined by the Board) as the Board shall
approve, and (2) the Optionee shall be personally liable for payment of the
unpaid principal balance and all accrued but unpaid interest.
-4-
<PAGE>
SECTION 9.
EXERCISE PERIOD
Each Option granted under this Plan shall be exercisable in whole or in
part at such time or times as set forth in the related Stock Option Grant, but
no Stock Option Grant shall:
1. make an Option exercisable before the date such Option is granted or;
2. make an Option exercisable after the earlier of:
(a) the date such Option is exercised in full; or
(b) the date which is the tenth (10th) anniversary of the date such
Option is granted, if such Option is a Non-ISO or an ISO granted
to a non-Ten Percent Shareholder, or the date which is the fifth
(5th) anniversary of the date such Option is granted, if such
Option is an ISO granted to a Ten Percent Shareholder.
A Stock Option Grant may provide for the exercise of an Option after the
employment of an Employee or Key Person has terminated for any reason
whatsoever, including death or disability.
SECTION 10.
NONTRANSFERABILITY
No Option granted under this Plan shall be transferable by an Employee or
Key Person other than by will or by the laws of descent and distribution, and
such Option shall be exercisable during an Employee's or Key Person's lifetime
only by the Employee or Key Person, as the case may be. The person or persons
to whom an Option is transferred by will or by the laws of descent and
distribution thereafter shall be treated as the Employee or Key Person.
SECTION 11.
SURRENDER OF OPTIONS
11.1. General Rule. The Board acting in its absolute discretion may
------------
incorporate a provision in a Stock Option Grant to allow an Employee or Key
Person to surrender his or her Option in whole or in part in lieu of the
exercise in whole or in part of that Option on any date that:
1. the Fair Market Value of the Shares subject to such Option
exceeds the Option Price for such Shares; and
2. the Option to purchase such Shares is otherwise exercisable.
11.2. Procedure. The surrender of an Option in whole or in part shall be
---------
effected by the delivery of the Stock Option Grant to the Board (or to its
delegate) together with a statement signed by the Employee or Key Person which
specifies the number of Shares ("Surrendered Shares") as to which the Employee
or Key Person surrenders his or her Option and how he or she desires payment be
made for such Surrendered Shares.
11.3. Payment. An Employee or Key Person in exchange for his or her
-------
Surrendered Shares shall receive a payment in cash or in Shares, or in a
combination of cash and Shares, equal in amount on the date such surrender is
effected to the excess of the Fair Market Value of the Surrendered Shares on
such date over the Option Price for the Surrendered Shares. The Board acting in
its absolute discretion can approve or disapprove an Employee's or Key Person's
-5-
<PAGE>
request for payment in whole or in part in cash and can make that payment in
cash or in such combination of cash and Shares as the Board deems appropriate. A
request for payment only in Shares shall be approved and made in Shares to the
extent payment can be made in whole shares of Shares and (at the Board's
discretion) in cash in lieu of any fractional Shares.
11.4. Restrictions. Any Stock Option Grant which incorporates a provision
------------
to allow an Employee or Key Person to surrender his or her Option in whole or in
part also shall incorporate such additional restrictions on the exercise or
surrender of such Option as the Board deems necessary to satisfy the conditions
to the exemption under Rule 16b-3 (or any successor exemption) to Section 16(b)
of the Exchange Act.
SECTION 12.
SECURITIES REGISTRATION
Each Stock Option may provide that, upon the receipt of Shares as a result
of the surrender or exercise of an Option, the Employee or Key Person shall, if
so requested by the Company, hold such Shares for investment and not with a view
of resale or distribution to the public and, if so requested by the Company,
shall deliver to the Company a written statement of satisfactory to the Company
to that effect. Each Stock Option Grant also may provide that, if so requested
by the Company, the Employee or Key Person shall make a written representation
to the Company that he or she will not sell or offer to sell any of such Shares
unless a registration statement shall be in effect with respect to such Shares
under the Securities Act of 1933, as amended ("1933 Act") any applicable state
securities law or unless he or she shall have furnished to the Company an
opinion, in form and substance satisfactory to the Company, or legal counsel
acceptable to the Company, that such registration is not required. Certificates
representing the Shares transferred upon the exercise or surrender of an Option
granted under this Plan may at the discretion of the Company bear a legend to
the effect that such Shares have not been registered under the 1933 Act or any
applicable state securities law that such Shares may not be sold or offered for
sale in the absence of an effective registration statement as to such Shares
under the 1933 Act and any applicable state securities law or an opinion, in
form and substance satisfactory to the Company, of legal counsel acceptable to
the Company, that such registration is not required.
SECTION 13.
LIFE OF PLAN
No Option shall be granted under this Plan on or after the earlier of:
1. the tenth (10th) anniversary of the original effective date of the
Plan (as set forth in Section 4 of this Plan), in which event this
Plan otherwise thereafter shall continue in effect until all
outstanding Options have been surrendered or exercised in full or no
longer are exercisable; or
2. the date on which all of the Shares reserved under Section 3 of this
Plan have (as a result of the surrender or exercise of Options granted
under this Plan) been issued or no longer are available for use under
this Plan, in which event this Plan also shall terminate on such date.
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<PAGE>
SECTION 14.
ADJUSTMENT
The number of Shares reserved under Section 3 of this Plan and the number
of Shares subject to Options granted under this Plan and the Option Price of
such Options shall be adjusted by the Board in an equitable manner to reflect
any change in the capitalization of the Company, including, but not limited to,
such changes as stock dividends or stock splits. Furthermore, the Board shall
have the right to adjust (in a manner which satisfies the requirements of
Section 424(a) of the Code) the number of Shares reserved under Section 3 of
this Plan and the number of Shares subject to Options granted under this Plan
and the Option Price of such Options in the event of any corporate transaction
described in Section 424(a) of the Code which provides for the substitution or
assumption of such Options. If any adjustment under this Section 14 creates a
fractional Share or a right to acquire a fractional Share, such fractional
Shares shall be disregarded and the number of Shares reserved under this Plan
and the number subject to any Options granted under this Plan shall be the next
lower number of Shares, rounding all fractions downward. An adjustment made
under this Section 14 by the Board shall be conclusive and binding on all
affected persons and, further, shall not constitute an increase in the number of
Shares reserved under Section 3 of this Plan.
SECTION 15.
SALE OR MERGER OF THE COMPANY
If the Company agrees to sell substantially all of its assets for cash or
property or for a combination of cash and property or agrees to any merger,
consolidation, reorganization, division or other transaction in which Shares are
converted into another security or into the right to receive securities or
property and such agreement does not provide for the assumption or substitution
of the Options granted under this Plan, each Option at the direction and
discretion of the Board, or as is otherwise provided in the Option Agreements,
may be canceled unilaterally by the Company in exchange for the whole Shares
(or, subject to satisfying the conditions to the exemption under Rule 16b-3 or
any successor exemption to Section 16(b) of the Exchange Act, or the whole
Shares and the cash in lieu of a fractional Share) which each Employee or Key
Person otherwise would receive if he or she had the right to surrender his or
her outstanding Option in full under Section 11 of this Plan and he or she
exercised that right exclusively for Shares on a date fixed by the Board which
comes before such sale or other corporate transaction.
SECTION 16.
AMENDMENT OR TERMINATION
This Plan may be amended by the Board from time to time to the extent that
the Board deems necessary or appropriate; provided, however, no such amendment
shall be made absent the approval of the shareholders of the Company (1) to
increase the number of Shares reserved under Section 3, except as set forth in
Section 14, (2) to extend the maximum life of the Plan under Section 13 or the
maximum exercise period under Section 9, (3) to decrease the minimum Option
Price under Section 8, or (4) to change the designation of Employees or Key
Persons eligible for Options under Section 6. The Board also may suspend the
granting of Options under this Plan at any time and may terminate this Plan at
any time; provided, however, the Company shall not have the right to modify,
amend or cancel any Option granted before such suspension or termination unless
(i) the Employee or Key Person consents in writing to such modification,
amendment or cancellation, or (ii) there is a dissolution or liquidation of the
Company or a transaction described in Section 14 or Section 15 of this Plan.
-7-
<PAGE>
SECTION 17.
MISCELLANEOUS
17.1. Shareholder Rights. No Employee or Key Person shall have any rights
------------------
as a shareholder of the Company as a result of the grant of an Option to him or
to her under this Plan or his or her exercise or surrender of such Option
pending the actual delivery of Shares subject to such Option to such Employee or
Key Person.
17.2. No Contract of Employment. The grant of an Option to an Employee or
-------------------------
Key Person under this Plan shall not constitute a contract of employment or
other association with the Company, and shall not confer on an Employee or Key
Person any rights upon his or her termination of employment or other association
with the Company, in addition to those rights, if any expressly set forth in the
Stock Option Grant which evidences his or her Option.
17.3. Withholding. The exercise or surrender of any Option granted under
-----------
this Plan shall constitute an Employee's or Key Person's full and complete
consent to whatever action the Board directs to satisfy the federal and state
tax withholding requirements, if any, which the Board in its discretion deems
applicable to such exercise or surrender.
17.4 Transfer. The transfer of an Employee between or among the Company,
--------
a Subsidiary or a Parent shall not be treated as a termination of his or her
employment under this Plan.
17.5. Construction. This Plan shall be construed under the laws of the
------------
State of Georgia.
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<PAGE>
AMENDMENT TO THE
ITERATED SYSTEMS, INC.
1994 AMENDED AND RESTATED STOCK OPTION PLAN
This Amendment to the Iterated Systems, Inc, 1994 Amended and Restated
Stock Option Plan (the "Amendment") is made effective as of the 6th day of May,
1997 by Iterated Systems, Inc., a corporation organized and existing under the
laws of the State of Georgia (the "Company");
W I T N E S S E T H:
-------------------
Whereas, the Company has previously adopted, and currently maintains, the
Iterated Systems, Inc. 1994 Amended and Restated Stock Option Plan (the
"Plan"), under which optionees may be granted stock options to purchase shares
of the $.01 par value per share common stock of the Company; and
Whereas, the Company has determined that it is in its best interests to
amend the provisions of the Plan relating to the transferability of stock
options granted under the Plan;
Now, Therefore, the Plan is hereby amended, effective as of May 6, 1997, by
deleting Section 10 of the Plan in its entirety and substituting the following:
"An ISO granted under this Plan shall not be transferable or assignable
except by will or by the laws of descent and distribution and shall be
exercisable, during the Participant's lifetime, only by the Participant, or
in the event of the disability of the Participant, by the legal
representative of the Participant. A Non-ISO may be transferred, but only
as a bona fide gift, to one or more members of the Optionee's family or to
a trust for the benefit of one or more family members, in which case the
transferee shall be subject to all provisions of the Plan and the Stock
Option Grant provided by the Company in connection with the exercise of the
Option and purchase of Shares. In the event of such a gift, the Optionee
shall promptly notify the Board of such transfer and deliver to the Board
such written documentation as the Board may in its discretion request,
including, without limitation, the written acknowledgment of the donee that
the donee is subject to the provisions of the Plan and the Stock Option
Grant."
Except as specifically amended herein, the Plan shall remain in full force
and effect as prior to this Amendment.
In Witness Whereof, the Company has caused this Amendment to be executed
effective as of the day and year first above written.
ITERATED SYSTEMS, INC.
/s/ John R. Festa
------------------------------
John R. Festa, President
and Chief Executive Officer
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<PAGE>
AMENDMENTS TO THE ITERATED SYSTEMS, INC.
1994 AMENDED AND RESTATED STOCK OPTION PLAN
The Iterated Systems, Inc. 1994 Amended and Restated Stock Option Plan (the
"Plan") is hereby amended in the following respects, effective April 15, 1998:
1.
The first sentence of Section 3 of the Plan is deleted in its entirety, and
the following new first sentence is substituted therefor:
The total number of Shares that may be issued pursuant to ISO's or Non-
ISO's granted under the Plan shall not, in the aggregate, exceed three
million four hundred thousand (3,400,000), as adjusted below and pursuant
to Section 14.
2.
Section 5 of the Plan is deleted in its entirety, and the following new
Section 5 is substituted therefor:
This Plan shall be administered by the Board, except as otherwise
provided in this Section. The Board, acting in its absolute discretion,
shall exercise such powers and take such action as expressly called for
under this Plan. The Board shall have the power to interpret this Plan
and, subject to Section 16, to take such other action in the administration
and operation of the Plan as it deems equitable under the circumstances.
The Board's actions shall be binding on the Company, on each affected
Employee or Key Person, and on each other person directly or indirectly
affected by such action.
Notwithstanding the foregoing, the Board shall delegate its authority
to grant Options to persons who are "covered employees" under Section
162(m) of the Code ("Covered Employees"), to a Committee appointed by the
Board consisting of at least two members, all of whom shall be non-employee
directors within the meaning of Rule 16b-3 promulgated under the Exchange
Act. The Board may delegate to such Committee its authority, in whole or
part, with respect to other matters under this Plan, including without
limitation its authority to grant Options to insiders, including directors,
officers and holders of ten percent of more of the Company's outstanding
stock, to whom the short-swing profits provisions of Section 16(b) of the
Exchange Act apply. The Committee shall act according to the policies and
procedures set forth in the Plan and as established by the Board, and the
Committee shall have such powers and responsibilities as are set forth by
the Board. Reference to the Board in this Plan shall specifically include
reference to the Committee where the Board has delegated its authority to
the Committee, and any action by the Committee pursuant to a delegation of
authority by the Board shall be deemed an action by the Board under the
Plan,
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<PAGE>
except with respect to grants of Options to Covered Employees.
Notwithstanding the above, the Board may assume the powers and
responsibilities granted to the Committee at any time, in whole or in part,
except the authority delegated to the Committee with respect to the
granting of Options to Covered Employees.
3.
Section 7 of the Plan is amended by adding the following final paragraph:
In any twelve-month period, no Employee shall be granted Options to
purchase more than 1,000,000 Shares, and any purported grant in violation
of this provision shall be void.
The foregoing Amendments were approved by the Board of Directors on
March 9, 1998 and by the Shareholders on April 15, 1998.
/s/ Haines H. Hargrett
--------------------------
Corporate Secretary
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<PAGE>
EXHIBIT 10.9
ITERATED SYSTEMS, INC.
AMENDED AND RESTATED
1994 DIRECTORS STOCK OPTION PLAN
--------------------------------
SECTION 1.
PURPOSE
The purpose of this Plan is to promote the interests of the Company and its
stockholders by strengthening the Company's ability to attract and retain the
services of experienced and knowledgeable non-employee directors and by
encouraging such directors to acquire an increased proprietary interest in the
Company.
SECTION 2.
DEFINITIONS
Each term set forth in this Section shall have the meaning set forth
opposite such term for purposes of this Plan and, for purposes of such
definitions, the singular shall include the plural and the plural shall include
the singular.
2.1. Annual Meeting shall mean the annual meeting of the Company's
--------------
stockholders as described in the Company's Bylaws and as referenced therein as
an "annual meeting."
2.2. Board means the Board of Directors of the Company.
-----
2.3. Code means the Internal Revenue Code of 1986, as amended.
----
2.4. Committee means the committee of the Board appointed pursuant to
---------
Section 5.
2.5. Common Stock means the voting common stock, par value $.01 per
------------
share, of the Company.
2.6. Company means Iterated Systems, Inc., a Georgia corporation, and
-------
any successor to such organization.
2.7. Eligible Director means an individual who is a director of the
-----------------
Company and who is not an employee of the Company or a Parent or Subsidiary.
2.8. Exchange Act means the Securities Exchange Act of 1934, as
------------
amended.
2.9. Fair Market Value means the price as determined below on the last
-----------------
business day immediately preceding the date of valuation:
(a) The closing sales price per Share, regular way, or in the
absence thereof, the mean of the last reported bid and asked quotations, on such
date on the exchange having the greatest volume of trading in the Shares during
the thirty (30) day period preceding such date (or, if such exchange was not
open for trading on such date, the next preceding date on which it was open); or
<PAGE>
(b) If there is no price as specified in (a) the final reported
sales price per share, or, if not reported, the mean of the closing high bid and
low asked prices in the over-the-counter market for the Shares as reported by
the National Association of Securities Dealers Automatic Quotation System, or,
if not so reported, then as reported by the National Quotation Bureau
Incorporated, or, if such organization is not in existence, by an organization
providing similar services, on such date (or, if such date is not a date for
which such system or organization generally provides reports, then on the next
preceding date for which it does so); or
(c) If there also is no price as specified in (b), the price per
Share determined by the Committee by reference to bid-and-asked quotations for
the Shares provided by members of an association of brokers and dealers
registered pursuant to Section 15(b) of the Exchange Act, which members make a
market in the Shares, for such recent dates as the Committee shall determine to
be appropriate for fairly determining current market value; or
(d) If there also is no price as specified in (c), an amount per
Share determined in good faith by the Board based on such relevant facts, which
may include opinions of independent experts, as may be available to the Board.
2.10. Option means an option granted under this Plan to purchase
------
Shares; all Options granted under this Plan are intended by the Company to be
nonqualified options which are not entitled to special tax treatment under, and
do not satisfy the requirements of, Code Section 422.
2.11. Option Price means the price which shall be paid to purchase one
------------
(1) Share.
2.12. Optionee means the grantee of an Option.
--------
2.13. Parent means any corporation which is a "parent" of the Company
------
within the meaning of Code Section 424(e).
2.14. Permanent and Total Disability means the circumstance in which an
------------------------------
individual is unable to engage in any substantial gainful activity by reason of
any medically determinable physical or mental impairment which can be expected
to result in death or which has lasted or can be expected to last for a
continuous period of not less than 12 months.
2.15. Plan means the Iterated Systems, Inc. 1994 Directors Stock
----
Option Plan, as amended and restated from time to time.
2.16. Share means a share of the Common Stock of the Company.
-----
2.17. Stock Option Grant means the written agreement or instrument
------------------
which sets forth the terms of an Option granted to an Eligible Director under
this Plan.
2.18. Subsidiary means any corporation which is a "subsidiary" of the
----------
Company within the meaning of Code Section 424(f).
SECTION 3.
SHARES SUBJECT TO OPTIONS
3.1 Shares Reserved for Issue. Subject to any antidilution adjustment
-------------------------
pursuant to Section 3.2, the maximum number of Shares that may be subject to
Options granted hereunder shall not exceed eighteen hundred (1,800). Shares
issued pursuant to the exercise of an Option may be either authorized and
-2-
<PAGE>
unissued Shares or Shares issued and subsequently acquired by the Company. The
Shares covered by any unexercised portion of an Option that has terminated for
any reason (except as may be adjusted under Section 3.2) may again be optioned
or awarded under the Plan, and such Shares shall not be considered as having
been optioned or issued in computing the number of Shares remaining available to
be subject to Options granted hereunder.
3.2 Antidilution.
------------
(a) In the event that the outstanding Shares are changed into or
exchanged for a different number or kind or shares or other securities of the
Company by reason of merger, consolidation, reorganization, recapitalization,
reclassification, combination or exchange of shares, stock split or stock
dividend, or in the event that any spin-off, spin-out or other distribution of
assets materially affects the price of the Company's stock:
(i) The aggregate number and kind of Shares for which Options
may be granted hereunder shall be adjusted proportionately by the Committee; and
(ii) The number of Shares subject to each outstanding Option,
and the Option Price of each such outstanding Option, shall be adjusted
proportionately by the Committee.
(b) If the Company shall be a party to any reorganization in which
it does not survive, involving a merger, consolidation, or acquisition of the
stock or substantially all of the assets of the Company, the Committee, in its
discretion, may:
(i) Notwithstanding other provisions hereof, declare that any
and all Options granted under the Plan shall become exercisable immediately
notwithstanding the provisions of the respective Stock Option Grants regarding
exercisability, and that all such Options shall terminate a specified period of
time after the Committee gives written notice of the immediate right to exercise
all such Options and of the decision to terminate all Options not exercised
within such period; and/or
(ii) Notify all Optionees that any and all Options granted
under the Plan shall be assumed by the successor corporation or substituted on
an equitable basis with options or restricted stock issued by the successor
corporation; and/or
(iii) Notwithstanding other provisions hereof, declare that any
and all Options granted under the Plan shall terminate after a specified period
of time following the date on which the Company gives notice of the termination
of any such Options.
(c) If the Company is to be liquidated or dissolved in connection
with a reorganization described in Section 3.2(b), the provisions of such
Section shall apply. Notwithstanding any other provisions hereof, in all other
instances of the adoption of a plan of dissolution or liquidation of the
Company, the Committee may, in its discretion, declare that any and all then
remaining unvested Shares subject to Options under the Plan shall become
immediately exercisable, and shall cause every such Option outstanding under the
Plan to terminate to the extent not exercised prior to the adoption of the plan
of dissolution or liquidation by the stockholders. Notwithstanding other
provisions hereof, the Committee may , in its discretion, declare that all
Options granted under the Plan shall terminate prior to the adoption of the plan
of dissolution or liquidation by the Stockholders.
(d) The adjustments described in Sections 3.2(a) through 3.2(c),
and the manner of their application, shall be determined solely by the
Committee, in its sole discretion, and any such adjustment may provide for the
elimination or redemption of fractional share interests. The adjustments
-3-
<PAGE>
required under this Section shall apply to any successors of the Company and
shall be made regardless of the number or type of successive events requiring
such adjustments.
SECTION 4.
EFFECTIVE DATE AND DURATION OF PLAN
The effective date of this Plan shall be the date it is adopted by the
Board, provided the stockholders of the Company approve this Plan within twelve
(12) months after such effective date. If such effective date comes before such
stockholder approval, any Options granted under this Plan before the date of
such approval shall be granted subject to such approval. The Plan shall
continue in effect until it is terminated by action of the Board or the
Company's stockholders, but such termination shall not affect the terms of any
Options then outstanding.
SECTION 5.
ADMINISTRATION
This Plan shall be administered by the Board, provided the grant of options
under the Plan, and the amount and nature of the awards, shall be as described
in Section 7. The Board, acting in its absolute discretion, shall exercise such
powers and take such action as expressly called for under this Plan to be
exercised by the Board or the Committee, unless specifically delegated by the
Board to the Committee as specified below. The Board shall have the power to
interpret this Plan and, subject to Section 8, to take such other action in the
administration and operation of the Plan as it deems equitable under the
circumstances. The Board's actions shall be binding on the Company, on each
affected Eligible Director, and on each other person directly or indirectly
affected by such action.
The Board may delegate its authority under the Plan, in whole or in part,
to a Committee appointed by the Board consisting of not fewer than two (2)
members, which members shall be directors of the Company who, during their
tenure on the Committee, (a) are not officers or otherwise employed by the
Company or a Parent or a Subsidiary, (b) do not receive compensation directly or
indirectly from the Company or a Parent or a Subsidiary for services rendered as
a consultant or in any capacity other than as a director, except for an amount
for which disclosure would not be required pursuant to Item 404(a) of Regulation
S-K promulgated by the Securities and Exchange Commission, (c) do not possess an
interest in any other transaction for which disclosure would be required under
Item 404(a) of Regulation S-K, and (d) are not engaged in a business
relationship for which disclosure would be required pursuant to Item 404(b) of
Regulation S-K. The Committee (if appointed) shall act according to the
policies and procedures set forth in the Plan and to those policies and
procedures established by the Board, and the Committee shall have such powers
and responsibilities as are set forth by the Board. Reference to the Board in
this Plan shall specifically include reference to the Committee where the Board
has delegated its authority to the Committee, and any action by the Committee
pursuant to a delegation of authority by the Board shall be deemed an action by
the Board under the Plan. Notwithstanding the above, the Board may assume the
powers and responsibilities granted to the Committee at any time, in whole or in
part.
SECTION 6.
PARTICIPATION
Each Eligible Director shall be entitled to participate in the Plan and
shall be eligible to receive those grants of Options, if any, which shall be
awarded to such Eligible Director pursuant to the terms and conditions of
Section 7. Mere service as a director shall not entitle any Eligible Director
to the grant of any Options under the Plan.
-4-
<PAGE>
SECTION 7.
TERMS, CONDITIONS AND FORMS OF OPTIONS
7.1 Grant of Options. The Board (or the Committee, if the Board so
----------------
authorizes), shall determine, in its sole discretion, (a) which Eligible
Directors, if any, shall be granted Options under the Plan, (b) the Option
price, vesting schedule and such other terms and conditions relating to such
Options as the Board (or the Committee ) may deem appropriate. Eligible
Directors shall not be entitled to any payment of cash hereunder in lieu of
receiving Options. In no event shall an Eligible Director vote on any Board or
Committee resolution or action granting or refusing to grant, any Options to the
Eligible Director or otherwise relating to conditions of the granting of Options
to the Eligible Director.
7.2 Option Price. The Option Price for each Option shall be the Fair
------------
Market Value of the Common Stock on the last business day preceding the date
that the Option is granted or such other price as may be established by the
members of the Board excluding the Eligible Directors.
7.3 Vesting of Options. Each Option granted under the Plan during 1994
------------------
shall vest in accordance with Schedule "A" attached hereto. For purposes of the
------------
Plan, that portion of an Option which is vested may be exercised by the Optionee
according to the terms and conditions of the Plan. Options granted after 1994
shall vest according to such vesting schedule as the Board (or the Committee, if
so authorized) shall deem appropriate in its sole discretion. The Board (or the
Committee) may adopt different vesting schedules with respect to different
Eligible Directors and any Options granted pursuant to the Plan.
7.4 Term of Option. Each Option granted under the Plan shall set
--------------
forth an expiration date thereof, which date shall be the day immediately
preceding the tenth anniversary of the date of grant of such Option.
Notwithstanding the expiration date set forth in the Option, all Options shall
terminate and expire upon the first to occur of the following events:
(a) The day which is thirty (30) days following the date of the
Optionee's termination of service as a member of the Board for any reason (other
than death or Permanent and Total Disability), including, without limitation,
(i) his or her retirement due to age in accordance with Company policy, or (ii)
a sale of substantially all of the Company's assets for cash or property or for
a combination of cash and property, or any merger, consolidation,
reorganization, division or other transaction in which Shares are converted into
another security or into the right to receive securities or property; provided,
however, that, in the event of any such sale, merger, consolidation,
reorganization, division or other transaction, the Company may, in its sole
discretion, provide for the assumption or substitution of any Options granted
under the Plan in such form and manner as set forth in the Stock Option Grant;
(b) The day which is ninety (90) days following the date of the
Optionee's termination of service as a member of the Board due to his or her
death or Permanent and Total Disability; or
(c) The expiration date of the Option.
Unless the Board (or, if authorized, the Committee) shall in its sole
discretion determine differently, the termination of service of an Optionee as a
member of the Board for any reason shall not accelerate or otherwise affect the
number of Shares with respect to which an Option may be exercised, and such
Option may only be exercised with respect to that number of Shares which could
have been purchased under the Option had the Option been exercised by the
-5-
<PAGE>
Optionee on the date that such Optionee ceased to be a member of the Board for
any reason.
7.5 Time and Manner of Option Exercise. Any vested and exercisable
----------------------------------
Option is exercisable in whole or in part at any time or from time to time prior
to the expiration of an Option by giving written notice, signed by the person
exercising the Option, to the Company, stating the number of Shares with respect
to which the Option is being exercised, accompanied by payment in full of the
Option Price for the number of Shares to be purchased. The date upon which the
Company's Secretary or Treasurer shall have received both such notice and
payment shall be the date of exercise of the Option as to the number of Shares
described by the Optionee. No Option may be exercised at any time with respect
to a fractional share. Any Option of a deceased Optionee may be exercised, to
the extent vested on such Optionee's death, by the estate of such Optionee or by
a person or persons whom the Optionee has designated in writing filed with the
Company, or, if no such designation has been made, by the person or persons to
whom the Optionee's rights have passed by will or the laws of descent and
distribution.
7.6 Payment of Exercise Price. Except as otherwise provided herein,
-------------------------
payment of the Option Price may be in cash, by cashier's check, by personal
check, or by promissory note of the Optionee in such form as designated by the
Company and signed by the Optionee (which signature shall be notarized or
guaranteed). The Committee may also provide in a Stock Option Grant that, in
lieu of cash, all or any portion of the Option Price may be paid by tendering to
the Company shares of Common Stock duly endorsed for transfer and owned by the
Optionee, to be credited against the Option Price at the fair market value of
such Shares on the date of exercise.
7.7 Transferability. The right of any Optionee to exercise an Option
---------------
granted under the Plan shall, during the lifetime of such Optionee, be
exercisable only by such Optionee or by a person who obtained such Option
pursuant to a qualified domestic relations order as defined by the Code, or
Title I of the Employee Retirement Income Security Act of 1974, as amended, or
the rules thereunder (a "QDRO"), and shall not be assignable or transferable by
such Optionee other than by will or by the laws of descent and distribution or
by a QDRO.
7.8 Limitation of Rights.
--------------------
(a) Limitation as to Shares. Neither the recipient of an Option
-----------------------
under the Plan nor an Optionee's successor or successors in interest shall have
any rights as a stockholder of the Company with respect to any Shares subject to
an Option granted to such person until the date of issuance of a stock
certificate for such Shares.
(b) Limitation as to Directorship. Neither the Plan, nor the
-----------------------------
granting of an Option, nor any other action taken pursuant to the Plan shall
constitute or be evidence of any agreement or understanding, express or implied,
that an Eligible Director has a right to continue as a member of the Board for
any period of time or at any particular rate of compensation.
(c) Regulatory Approval and Compliance. The Company shall not be
----------------------------------
required to issue any certificate or certificates for Shares upon the exercise
of an Option granted under the Plan or to record as a holder of record of Shares
the name of the individual exercising an Option under the Plan, without
obtaining to the complete satisfaction of the Board the approval of all
regulatory bodies deemed necessary by the Board and without complying, to the
Board's complete satisfaction, with all rules and regulations under federal,
state, or local law deemed applicable by the Board. In addition, with respect to
persons subject to Section 16 of the Exchange Act, transactions under this Plan
are intended to comply with all applicable conditions of Rule 16b-3 or its
successors under the Exchange Act. To the extent any provision of the Plan or
-6-
<PAGE>
action by the Committee fail to comply, it shall deemed null and void, to the
extent permitted by law and deemed advisable by the Committee or the Board.
SECTION 8.
TERMINATION AND AMENDMENT OF PLAN
The Board may amend, terminate or suspend the Plan at any time, in its sole
and absolute discretion; provided, however, that no amendment shall be made
without the approval of the Company's stockholders that would (a) materially
increase the number of Shares that may be issued under the Plan; (b) materially
modify the requirements as to eligibility for participation in the Plan, or (c)
otherwise materially increase the benefits accruing to participants under the
Plan.
SECTION 9.
MISCELLANEOUS
9.1 Withholding. The exercise or surrender of any Option granted under
-----------
this Plan shall constitute the Optionee's full and complete consent to whatever
action the Committee directs to satisfy the federal and state tax withholding
requirements, if any, which the Committee in its discretion deems applicable to
such exercise or surrender. In addition to and at the time of payment of the
Option Price, the Optionee shall pay to the Company in cash the full amount of
any federal, state and local income, employment or other taxes required to be
withheld from the income of such Optionee as a result of such exercise;
provided, however, that in the discretion of the Committee any Stock Option
Grant may provide that all or any portion of such tax obligations, together with
additional taxes not exceeding the actual additional taxes to be owed by the
Optionee as a result of such exercise, may, upon the irrevocable election of the
Optionee, be paid by tendering to the Company whole shares of Common Stock duly
endorsed for transfer and owned by the Optionee, or by authorizing the Company
to withhold Shares otherwise issuable upon exercise of the Option, in either
case in that number of Shares having a Fair Market Value on the date of exercise
equal to the amount of such taxes thereby being paid, in all cases subject to
such restrictions as the Committee may from time to time determine, including
any such restrictions as may be necessary or appropriate to satisfy the
conditions of the exemption set forth in Rule 16b-3 under the Exchange Act.
9.2 Construction. This Plan shall be construed under the laws of the
------------
State of Georgia.
9.3 Effective Date. The effective date of this Amended and Restated
--------------
1994 Directors Stock Option Plan shall be as of January 1, 1996.
-7-
<PAGE>
SCHEDULE A
VESTING
Each Option granted under the Plan prior to the end of 1994 shall vest as
provided below. All Options granted after 1994 shall vest according to vesting
schedules adopted from time to time by the Board (or, if authorized, the
Committee) in its discretion.
For purposes of the Plan, that portion of an Option which is vested may be
exercised by the Optionee according to the terms and conditions of the Plan.
Three Year Vesting: For Options granted during 1994 only, Optionee may
------------------
exercise the number of Shares set forth below only after Optionee has completed
the following periods of continuous service of the Board following the date of
grant:
(a) After twelve (12) months of service on the Board, up to thirty
three and one third percent (33 1/3%) of the Option Shares;
(b) After twenty four (24) months of service on the Board, up to
sixty six and two thirds percent (66 2/3%) of the Option Shares: and
(c) After thirty six (36) months of service on the Board, up to one
hundred percent (100%) of the Option Shares.
-8-
<PAGE>
AMENDMENT TO THE
ITERATED SYSTEMS, INC.
AMENDED AND RESTATED 1994 DIRECTORS STOCK OPTION PLAN
This Amendment to the Iterated Systems, Inc, Amended and Restated 1994
Directors Stock Option Plan (the "Amendment") is made effective as of the 6th
day of May, 1997 by Iterated Systems, Inc., a corporation organized and existing
under the laws of the State of Georgia (the "Company");
W I T N E S S E T H:
-------------------
Whereas, the Company has previously adopted, and currently maintains, the
Iterated Systems, Inc. Amended and Restated 1994 Directors Stock Option Plan
(the "Plan"), under which optionees may be granted stock options to purchase
shares of the $.01 par value per share common stock of the Company; and
Whereas, the Company has determined that it is in its best interests to
amend the provisions of the Plan relating to the transferability of stock
options granted under the Plan and to the termination and amendment of the Plan;
Now, Therefore, the Plan is hereby amended, effective as of May 6, 1997, as
follows:
1. By deleting Section 7.7 of the Plan in its entirety and substituting
the following:
"7.7 Transferability. Except as provided in this Section 7.7, the
---------------
right of any Optionee to exercise an Option granted under the Plan shall,
during the lifetime of such Optionee, be exercisable only by such Optionee
or by a person who obtained such Option pursuant to a qualified domestic
relations order as defined by the Code, or Title I of the Employee
Retirement Income Security Act of 1974, as amended, or the rules thereunder
(a "QDRO"). An Option may be transferred, but only as a bona fide gift, to
one or more members of the Optionee's family or to a trust for the benefit
of one or more family members, in which case the transferee shall be
subject to all provisions of the Plan and the Stock Option Grant provided
by the Company in connection with the exercise of the Option and purchase
of Shares. In the event of such a gift, the Optionee shall promptly notify
the Board of such transfer and deliver to the Board such written
documentation as the Board may in its discretion request, including,
without limitation, the written acknowledgment of the donee that the donee
is subject to the provisions of the Plan and the Stock Option Grant."
2. By deleting Section 8 of the Plan in its entirety and substituting the
following:
"The Board may amend, terminate or suspend the Plan at any time, in
its sole and absolute discretion."
Except as specifically amended herein, the Plan shall remain in full force
and effect as prior to this Amendment.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed
effective as of the day and year first above written.
ITERATED SYSTEMS, INC.
/s/ John R. Festa
-----------------
John R. Festa, President and Chief
Executive Officer
-9-
<PAGE>
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
Iterated Systems Limited, a corporation formed under the laws of the
United Kingdom.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C>
<PERIOD-TYPE> YEAR YEAR YEAR
<FISCAL-YEAR-END> DEC-31-1995 DEC-31-1996 DEC-31-1997
<PERIOD-START> JAN-01-1995 JAN-01-1996 JAN-01-1997
<PERIOD-END> DEC-31-1995 DEC-31-1996 DEC-01-1997
<CASH> 6,280,933 4,150,834 7,633,283
<SECURITIES> 0 0 9,999,420
<RECEIVABLES> 316,538 460,932 499,690
<ALLOWANCES> (70,998) (70,084) (8,872)
<INVENTORY> 288,049 24,396 8,275
<CURRENT-ASSETS> 7,403,135 5,059,894 18,497,397
<PP&E> 3,635,629 4,220,560 4,336,989
<DEPRECIATION> (1,240,515) (1,959,544) (3,103,756)
<TOTAL-ASSETS> 10,031,800 7,86,870 19,775,094
<CURRENT-LIABILITIES> 6,088,511 4,067,604 1,005,093
<BONDS> 411,185 124,488 4,874
0 0 0
0 0 0
<COMMON> 105,094 107,146 131,020
<OTHER-SE> 2,408,889 3,104,083 18,585,130
<TOTAL-LIABILITY-AND-EQUITY> 10,031,800 7,486,870 19,775,094
<SALES> 1,164,904 1,951,337 391,588
<TOTAL-REVENUES> 14,430,490 15,558,259 9,471,163
<CGS> 276,099 923,253 128,392
<TOTAL-COSTS> 9,064,792 9,203,758 8,260,615
<OTHER-EXPENSES> 5,701,372 7,132,203 7,633,654
<LOSS-PROVISION> 123,315 28,857 398,465
<INTEREST-EXPENSE> 57,485 86,129 176,464
<INCOME-PRETAX> (508,863) (1,606,470) (6,329,049)
<INCOME-TAX> 0 0 0
<INCOME-CONTINUING> 0 0 0
<DISCONTINUED> 0 0 0
<EXTRAORDINARY> 0 0 0
<CHANGES> 0 0 0
<NET-INCOME> (508,863) (1,606,470) (6,329,049)
<EPS-PRIMARY> (0.05) (0.15) (0.56)
<EPS-DILUTED> (0.05) (0.15) (0.56)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1996 DEC-31-1996 DEC-31-1996
<PERIOD-START> JAN-01-1996 APR-01-1996 JUL-01-1996 OCT-01-1996
<PERIOD-END> MAR-31-1996 JUN-30-1996 SEP-30-1996 DEC-31-1996
<CASH> 5,937,278 3,300,448 5,065,272 4,150,834
<SECURITIES> 0 0 0 0
<RECEIVABLES> 420,175 365,234 407,830 460,932
<ALLOWANCES> (62,080) (62,541) (69,496) (70,084)
<INVENTORY> 404,080 647,017 41,884 24,396
<CURRENT-ASSETS> 7,365,555 4,900,135 5,952,792 5,059,894
<PP&E> 4,082,466 4,316,295 4,633,881 4,220,560
<DEPRECIATION> (1,538,104) (1,850,323) (2,180,107) (1,959,544)
<TOTAL-ASSETS> 10,142,485 7,597,691 8,637,166 7,486,870
<CURRENT-LIABILITIES> 4,628,840 4,598,533 4,882,215 4,067,604
<BONDS> 339,145 265,878 191,339 124,488
0 0 0 0
0 0 0 0
<COMMON> 105,094 105,095 107,151 107,146
<OTHER-SE> 4,059,928 2,077,350 3,364,269 3,104,083
<TOTAL-LIABILITY-AND-EQUITY> 10,142,485 7,597,691 8,637,166 7,486,870
<SALES> 62,113 53,159 1,507,072 328,993
<TOTAL-REVENUES> 5,085,848 2,496,482 4,061,343 3,194,586
<CGS> 30,078 26,217 689,606 176,722
<TOTAL-COSTS> 2,473,422 2,666,397 2,354,796 1,709,143
<OTHER-EXPENSES> 1,776,861 1,886,457 1,805,878 1,663,007
<LOSS-PROVISION> 0 460 7,332 21,065
<INTEREST-EXPENSE> 17,858 19,557 25,232 23,482
<INCOME-PRETAX> 1,544,817 (2,034,585) (771,855) (344,847)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> 1,544,817 (2,034,585) (771,855) (344,847)
<EPS-PRIMARY> 0.15 (0.20) (0.07) (0.03)
<EPS-DILUTED> 0.15 (0.20) (0.07) (0.03)
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C> <C> <C> <C>
<PERIOD-TYPE> 3-MOS 3-MOS 3-MOS 3-MOS
<FISCAL-YEAR-END> DEC-31-1997 DEC-31-1997 DEC-31-1997 DEC-31-1997
<PERIOD-START> JAN-01-1997 APR-01-1997 JUL-01-1997 OCT-01-1997
<PERIOD-END> MAR-31-1997 JUN-30-1997 SEP-30-1997 DEC-31-1997
<CASH> 3,321,999 4,604,024 10,023,944 7,633,283
<SECURITIES> 0 0 9,999,420 9,999,420
<RECEIVABLES> 121,438 541,812 583,656 499,690
<ALLOWANCES> (45,960) (39,660) (35,478) (8,872)
<INVENTORY> 17,654 19,163 13,714 8,275
<CURRENT-ASSETS> 397,581 384,944 20,913,929 18,497,397
<PP&E> 4,354,560 11,605 4,564,969 4,336,989
<DEPRECIATION> (2,283,624) (2,620,028) (2,953,507) (3,103,756)
<TOTAL-ASSETS> 6,038,271 7,533,767 22,569,945 19,775,094
<CURRENT-LIABILITIES> 4,029,264 6,795,805 4,146,239 1,005,093
<BONDS> 71,626 18,564 5,971 4,874
0 0 0 0
0 0 0 0
<COMMON> 107,146 107,174 127,776 131,020
<OTHER-SE> 1,755,329 545,961 18,232,339 18,585,130
<TOTAL-LIABILITY-AND-EQUITY> 6,038,271 7,533,767 22,569,945 19,775,094
<SALES> 136,032 114,836 105,318 35,402
<TOTAL-REVENUES> 3,028,350 3,018,242 2,570,599 853,972
<CGS> 61,304 48,285 11,692 7,111
<TOTAL-COSTS> 2,378,553 2,352,914 1,945,781 1,583,367
<OTHER-EXPENSES> 2,017,236 1,881,316 1,556,151 2,178,951
<LOSS-PROVISION> (10,521) 1,333 1,763 405,890
<INTEREST-EXPENSE> 21,593 35,174 84,599 35,098
<INCOME-PRETAX> (1,408,850) (1,263,643) (978,699) (2,677,857)
<INCOME-TAX> 0 0 0 0
<INCOME-CONTINUING> 0 0 0 0
<DISCONTINUED> 0 0 0 0
<EXTRAORDINARY> 0 0 0 0
<CHANGES> 0 0 0 0
<NET-INCOME> (1,408,850) (1,263,643) (978,699) (2,677,857)
<EPS-PRIMARY> (0.13) (0.12) (0.09) (0.21)
<EPS-DILUTED> (0.13) (0.12) (0.09) (0.21)
</TABLE>
<PAGE>
EXHIBIT 99.1
ITERATED SYSTEMS, INC.
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
VALUATION AND QUALIFYING ACCOUNTS WHICH ARE DEDUCTED IN THE
BALANCE SHEET FROM THE ASSETS TO WHICH THEY APPLY
<TABLE>
<CAPTION>
Additions
----------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Period Expenses Accounts(1) Deductions Period
--------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Allowance for doubtful
accounts:
Year Ended:
December 31, 1997 $ 70 $399 $ -- $(460) $ 9
December 31, 1996 71 29 -- (30) 70
December 31, 1995 119 123 95 (266) 71
Additions
----------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Period Expenses Accounts(1) Deductions Period
--------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Reserve for inventory
obsolescence:
Year Ended:
December 31, 1997 $ 581 $ -- $ -- $(581) $ --
December 31, 1996 380 238 -- (37) 581
December 31, 1995 -- 380 -- -- 380
Additions
----------------------------
Balance at Charged to Charged to Balance at
Beginning of Costs and Other End of
Period Expenses Accounts(1) Deductions Period
--------------- ------------- ----------- ---------- ------------
<S> <C> <C> <C> <C> <C>
Valuation allowance for deferred
income tax assets:
Year Ended:
December 31, 1997 $4,378 $ -- $2,484 $ -- $6,862
December 31, 1996 3,425 -- 953 -- 4,378
December 31, 1995 3,453 -- -- (28) 3,425
- ----------------------------------
</TABLE>
1 Reflects charges against software products and related revenues for product
returns.
