<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
-----------
FORM 10-QSB
[x] Quarterly Report Pursuant to Section
13 or 15(d) of the Securities Exchange
Act of 1934
For the Quarterly Period Ended September 30, 1999
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the Transition Period from ____________ to ____________
Commission File Number: 33-93994
MANGOSOFT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Nevada 87-0543565
------------------------------- ----------------------
(State or other jurisdiction of (IRS Employer ID. No.)
incorporation or organization)
1500 West Park Drive, Suite 190
Westborough, MA 01581
---------------------------------------- ---------
(Address of principal executive offices) (Zip code)
Registrant's telephone number, including area code: (508) 871-7397
First American Clock Co., 953 East South, Salt Lake City, Utah 84106
--------------------------------------------------------------------
(Former name and former address, if changed since last report)
Check whether the issuer (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past
90 days.
Yes x No
---- ----
State the number of shares outstanding of each of the issuer's classes of common
equity, as of the latest practicable date:
Common Stock 19,883,998 Shares
------------ -----------------
$.001 Par Value (Outstanding on November 19, 1999)
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARIES
(A Development Stage Company)
INDEX TO FORM 10-QSB
PART I. FINANCIAL INFORMATION
<TABLE>
<S> <C>
ITEM 1--Financial Statements:
Condensed Consolidated Statements of Operations for the three months ended September 30, 1999 and 1998....... 1
Condensed Consolidated Statements of Operations for the nine months ended September 30, 1999 and 1998........ 2
Condensed Consolidated Balance Sheets as of September 30, 1999 and December 31, 1998......................... 3
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 1999 and 1998........ 4
Notes to Condensed Consolidated Financial Statements......................................................... 5
ITEM 2--Management's Discussion and Analysis of Financial Condition and Results of Operations................ 12
PART II. OTHER INFORMATION
ITEM 1--Legal Proceedings.................................................................................... 20
ITEM 2--Changes in Securities and Use of Proceeds............................................................ 20
ITEM 3--Defaults Upon Securities............................................................................. 20
ITEM 4--Submission of Matters to a Vote of Security Holders.................................................. 20
ITEM 5--Other Information.................................................................................... 21
ITEM 6--Exhibits and Reports on Form 8-K..................................................................... 21
Signatures................................................................................................... 22
</TABLE>
i
<PAGE>
PART I. FINANCIAL INFORMATION
MANGOSOFT, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
Three Months Ended September 30,
--------------------------------
1999 1998
----------- -----------
Revenues .................................... $ 27,775 $ 1,138
Costs and expenses:
Cost of revenues .......................... -- 4,486
Research and development .................. 1,280,537 1,618,116
Selling and marketing ..................... 155,326 243,134
General and administrative ................ 438,293 905,586
----------- -----------
Loss from operations ........................ (1,846,381) (2,770,184)
Interest income ............................. 625 16,311
Other expenses:
Interest expense to related parties ....... (116,186) --
Other interest expense .................... (4,865) (22,238)
----------- -----------
Total other expenses .............. (121,051) (22,238)
----------- -----------
Net loss .................................... (1,966,807) (2,776,111)
Dividends accrued on preferred stock ........ 471,231 658,422
----------- -----------
Net loss applicable to common shares ........ $(2,438,038) $(3,434,533)
=========== ===========
Net loss per common share ................... $ (0.32) $ (2.18)
=========== ===========
Shares used in computing net loss per
Common share ................................ 7,678,000 1,575,000
=========== ===========
The accompanying notes are an integral part of these condensed
consolidated financial statements.
1
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended September 30,
------------------------------- Cumulative Since
1999 1998 Inception
---- ---- ---------
<S> <C> <C> <C>
Revenues ................................... $ 35,678 $ 308,260 $ 343,938
Costs and expenses:
Cost of revenues ......................... 275 91,529 91,804
Research and development ................. 3,385,874 5,241,567 21,950,442
Selling and marketing .................... 198,509 2,586,971 9,285,179
General and administrative ............... 1,513,025 2,433,533 10,016,,733
Consulting fee to related parties ........ -- 350,000 647,795
----------- ------------ ------------
Loss from operations ....................... (5,062,005) (10,395,340) (41,648,015)
Interest income ............................ 3,896 163,478 568,972
Other expenses:
Interest expense to related parties ...... (359,128) -- (378,854)
Other interest expense ................... (4,865) (30,175) (54,372)
----------- ------------ ------------
Total other expenses ............. (363,993) (30,175) (433,226)
----------- ------------ ------------
Net loss ................................... (5,422,102) (10,262,037) (41,512,269)
Dividends accrued on preferred stock ....... 1,884,923 1,976,063 6,604,024
----------- ------------ ------------
Net loss applicable to common shares ....... $(7,307,025) $(12,238,100) $(48,116,293)
=========== ============ ============
Net loss per common share .................. $ (2.02) $ (7.77)
=========== ============
Shares used in computing net loss per
Common share ............................ 3,609,333 1,575,000
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
2
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
September 30, 1999 December 31, 1998
------------------ -----------------
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and cash equivalents ............................ $ 2,319,040 $ 232,637
Accounts receivable .................................. 15,821 9,458
Inventory ............................................ -- 275
Prepaid insurance .................................... 173,475 --
Other current assets ................................. 4,650 3,591
------------ ------------
Total current assets ............................ 2,512,986 245,961
PROPERTY AND EQUIPMENT--Net ............................... 188,678 206,264
DEPOSITS AND OTHER ASSETS ................................. 59,320 5,943
------------ ------------
TOTAL ................................................ $ 2,760,984 $ 458,168
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Short-term debt ...................................... $ 157,265 $ 750,000
Short-term debt to related parties ................... -- 2,000,000
Accrued expenses to related parties .................. 747,795 647,795
Accounts payable ..................................... 1,851,779 1,768,456
Accrued payroll ...................................... 287,584 142,834
Accrued merger costs ................................. 300,000 --
Other accrued expenses ............................... 394,086 424,172
Deferred revenue ..................................... 11,401 19,160
------------ ------------
Total current liabilities ....................... 3,749,910 5,752,417
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK:
Redeemable convertible preferred stock, Series C ..... -- 10,536,748
Redeemable convertible preferred stock, Series D ..... -- 7,193,384
Redeemable convertible preferred stock, Series E ..... -- 14,233,546
------------ ------------
Total redeemable preferred stock ................ -- 31,963,678
------------ ------------
STOCKHOLDERS' EQUITY (DEFICIENCY):
Convertible preferred stock, Series A ................ -- 22,500
Convertible preferred stock, Series B ................ -- 7,500
Common stock ......................................... 19,884 761
Additional paid-in capital ........................... 43,586,903 --
Deficit accumulated during development stage ......... (44,595,713) (37,288,688)
------------ ------------
Total stockholders' equity (deficiency) ......... (988,926) (37,257,927)
------------ ------------
TOTAL ..................................................... $ 2,760,984 $ 458,168
============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARIES
(A Development Stage Company)
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited, in thousands)
<TABLE>
<CAPTION>
Nine Months Ended September 30, Cumulative Since
1999 1998 Inception
---- ---- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss .................................................................. $ (5,422,102) $(10,262,037) $(41,512,269)
Adjustments to reconcile net loss to net cash used in operating
Activities:
Depreciation and amortization ........................................ 82,662 499,010 2,018,476
Stock-based compensation ............................................. 349,963 -- 467,409
Loss on disposal of equipment ......................................... -- -- 71,942
Change in assets and liabilities:
Accounts receivable ............................................... (6,363) 140,063 (15,821)
Inventory ......................................................... 275 62,358 --
Prepaid insurance and other current assets ........................ (17,269) 68,280 (20,860)
Deposits and other assets ......................................... (53,377) 172,172 (59,320)
Accrued expenses to related parties ............................... -- 350,000 647,795
Accounts payable .................................................. 83,323 (802,379) 1,851,779
Accrued payroll ................................................... 144,750 76,952 287,584
Other accrued expenses ............................................ (2,640) 43,023 394,086
Deferred revenue .................................................. (7,759) (130,361) 11,401
------------ ------------ ------------
Total adjustments .......................................... 573,565 479,118 (5,654,471)
------------ ------------ ------------
Net cash used in operating activities ...................... (4,848,537) (9,782,919) (35,857,798)
CASH FLOWS FROM INVESTING ACTIVITIES:
Expenditures for property and equipment .............................. (65,076) (158,216) (2,291,845)
Net cash acquired in merger .......................................... 16 -- 16
Proceeds from sale of fixed assets ................................... -- 12,749
------------ ------------ ------------
Net cash used in investing activities ...................... (65,060) (158,216) (2,279,080)
------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from (repayments of) short-term debt .................... (750,000) 750,000 --
Proceeds from issuance of short-term-debt to related parties ......... 4,000,000 -- 6,000,000
Issuance of common stock in connection with merger ................... 3,750,000 -- 3,750,000
Net proceeds from sale of redeemable convertible Preferred stock ..... -- 203,837 27,244,577
Net proceeds from sale of convertible preferred stock ................ -- -- 3,460,591
Net proceeds from sale of common stock ............................... -- -- 750
------------ ------------ ------------
Net cash provided from financing activities ................ 7,000,000 953,837 40,455,918
------------ ------------ ------------
NET INCREASE (DECREASE) IN CASH AND EQUIVALENTS ........................... 2,086,403 (8,987,298) 2,319,040
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD ............................ 232,637 9,366,392 --
------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF PERIOD .................................. $ 2,319,040 $ 379,094 $ 2,319,040
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
MANGOSOFT, INC. AND SUBSIDIARIES
(A Development Stage Company)
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS
MangoSoft, Inc. and subsidiaries (a development stage company) ("the
Company") develops and markets advanced software technology to simplify,
expand and integrate networking and pooled use of computer resources. It is
engaged in a single operating segment of the computer software industry.
The Company is considered to be a development stage company since it
has not generated significant revenues from products that have been
developed to date. The Company is subject to a number of risks similar to
those of other companies in an early stage of development. Principal among
these risks are dependencies on key individuals, competition from other
substitute products and larger companies, the successful development and
marketing of its products and the need to obtain adequate additional
financing necessary to fund future operations.
The Company, without audit, has prepared the accompanying condensed
consolidated financial statements. In the opinion of management, these
unaudited interim condensed consolidated financial statements furnished
herein reflect all adjustments, which in the opinion of management are of a
normal recurring nature, necessary to fairly state MangoSoft, Inc. and
subsidiaries' financial position, cash flows and the results of operations
for the periods presented and have been prepared on a basis substantially
consistent with the audited financial statements as at December 31, 1998.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted. Accordingly, these unaudited
interim condensed consolidated financial statements should be read in
conjunction with the Company's Form 8-K.
The results of operations for the interim periods are not necessarily
indicative of the results of operations to be expected for the fiscal year.
2. MERGER TRANSACTION AND BASIS OF PRESENTATION
On September 7, 1999, MangoMerger Corp. ("MangoMerger"), a wholly-owned
subsidiary of First American Clock Co. ("First American"), merged (the
"Merger") with and into MangoSoft Corporation ("MangoSoft"), pursuant to
an Agreement and Plan of Merger (the "Merger Agreement") dated August 27,
1999. Following the Merger, the business to be conducted by First American
was the business conducted by MangoSoft prior to the Merger. In conjunction
with the Merger, First American changed its name to MangoSoft, Inc.
("MangoSoft, Inc."), which is the legal acquirer and surviving legal
entity.
Pursuant to the Merger Agreement, MangoSoft, Inc. issued 6,008,998
shares of its authorized but unissued common stock to the former MangoSoft
common and preferred stockholders. In addition, substantially all
outstanding options and warrants to purchase MangoSoft common stock were
terminated and new options and warrants to purchase MangoSoft, Inc. common
stock were issued in their place. Furthermore, promissory notes in the
aggregate of $6,377,409 (including principal and accrued interest) held by
creditors of MangoSoft were converted into an aggregate of 9,000,000 shares
of MangoSoft, Inc. common stock.
At the time of the Merger, the common shares issued to the former
MangoSoft stockholders represented approximately 55.21% of the outstanding
MangoSoft, Inc. common stock, enabling the former MangoSoft stockholders to
retain voting and operating control of the Company. The merger transaction
has been accounted for under the purchase method of accounting and was
treated as a reverse acquisition as the shareholders of MangoSoft received
the larger portion of the voting interests in the combined enterprise.
Therefore, for accounting purposes, MangoSoft is deemed to have acquired
MangoSoft, Inc. Accordingly, the assets and
5
<PAGE>
liabilities of MangoSoft, Inc. were adjusted to reflect their fair market
values at the Merger date. Estimated merger costs of $.3 million have been
accrued at September 30, 1999.
Since the accounting applied differs from the legal form of the merger,
the 1998 financial information presented herein represents only the
financial results of MangoSoft. The 1999 financial information presented in
the Condensed Consolidated Statements of Operations and the Condensed
Consolidated Statements of Cash Flows represents the results of MangoSoft
for the periods stated and includes the financial results of MangoSoft,
Inc. for only the post-merger period ended September 30, 1999. The
Condensed Consolidated Balance Sheet as of September 30, 1999 represents
the combined balance sheet of the merged entity at that date while the
Condensed Consolidated Balance Sheet as of December 31, 1998 represents
MangoSoft only.
Pro Forma Disclosure - The following table represents the unaudited pro
forma results of operations for the nine months ended September 30, 1999
and 1998 assuming the Merger had occurred on December 31, 1997, the
beginning of the earliest period presented in the accompanying condensed
consolidated financial statements. These pro forma results have been
prepared for comparative purposes only and are not necessarily indicative
of what would have occurred had the Merger occurred at that date or of
results which may occur in the future.
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
-------------
1999 1998
---- ----
<S> <C> <C>
Revenue $ 35,678 $ 308,260
Loss from operations (5,062,543) (10,398,980)
Net loss (5,063,512) (10,265,677)
Net loss applicable to common shares (5,063,512) (10,265,677)
----------- ------------
Net loss per common share $ (0.31) $ (1.35)
=========== ============
Shares used in computing net loss per common
Share 16,550,665 7,610,219
</TABLE>
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation - As described in Note 2, MangoSoft, Inc.
completed a merger transaction on September 7, 1999 that has been
accounted for as a reverse acquisition. Accordingly, the Company's
consolidated financial statements for periods prior to September 7, 1999
represent those of its subsidiary, MangoSoft Corporation, which is
considered to be the acquirer for accounting purposes. The consolidated
financial statements for periods subsequent to September 7, 1999 include
the accounts of MangoSoft, Inc. and its wholly owned subsidiaries after
the elimination of all significant intercompany balances.
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 reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the balance sheet dates. Estimates include such items as
reserves for estimated product returns and allowances, useful lives of
other assets, property and equipment, and accrued liabilities. Actual
results could differ from those estimates.
Revenue Recognition - Revenue is recognized when earned. The Company
sells its products primarily through distributors. Revenue from
off-the-shelf product sales is recognized upon resale by the distributors.
Revenue from products licensed to original equipment manufacturers ("OEMs")
is recognized when OEMs ship licensed products. Provisions are recorded for
estimated product returns and allowances. Of the total products shipped by
the Company, $11,401 was not resold by the distributors at September 30,
1999.
Cash and Equivalents - Cash and equivalents include cash on hand, cash
deposited with banks and highly liquid debt securities with remaining
maturities of ninety days or less when purchased.
Inventory - Inventory is stated at a lower of cost or market using the
first-in, first-out method. Inventory consists of costs associated and
packaging of software
6
<PAGE>
Property and Equipment - Property and equipment are recorded at cost.
Depreciation and amortization are provided using the straight-line method
over the estimated useful lives (one to five years) of the related assets.
Software Development Costs - Costs incurred prior to technological
feasibility of the Company's software products are expensed as research and
development costs. Certain costs incurred after technological feasibility
has been established are capitalized. In 1999 and 1998, no such costs were
capitalized.
Income Taxes - The Company accounts for income taxes under Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income
Taxes." This Statement requires recognition of deferred tax liabilities and
assets for the expected future tax consequences of events that have been
included in the Company's consolidated financial statements or tax returns.
Deferred tax liabilities and assets are determined based on the difference
between the financial statement carrying amounts and tax bases of existing
assets and liabilities, using enacted tax rates in effect in the year(s) in
which the differences are expected to reverse.
Stock-Based Compensation - As permitted by SFAS No. 123, "Accounting
for Stock-Based Compensation," the Company accounts for stock-based
compensation using the intrinsic value method in accordance with Accounting
Principles Board ("APB") Opinion No. 25, "Accounting for Stock Issued to
Employees."
Net Loss Per Common Share - The Company calculates basic and diluted
earnings (loss) per share in accordance with SFAS No. 128, "Earnings Per
Share". Basic earnings per common share is computed by dividing net
earnings available to common stockholders by the weighted average number of
common shares outstanding during the period. Diluted earnings per common
share includes the weighted average number of common shares outstanding and
gives effect to potentially dilutive common shares such as options,
warrants and convertible debt and preferred stock outstanding.
Although MangoSoft, Inc. is the surviving legal entity after the
Merger, for accounting purposes the Merger is treated as a reverse
acquisition of MangoSoft, Inc. by MangoSoft. Therefore, only the historical
net loss of MangoSoft is included in the condensed consolidated financial
statements of the Company for all periods prior to the merger. However, for
purposes of computing earnings per share, the weighted average number of
outstanding shares and potentially dilutive securities of MangoSoft, Inc.
is used for periods prior to the Merger.
Net loss per common share for the three and nine months ended September
30, 1999 and 1998 is based only on the weighted average number of shares
of common stock outstanding. Basic and diluted loss per common share are
the same for all periods presented as potentially dilutive securities,
including options, warrants, convertible notes and preferred stock have not
been included in the calculation of the net loss per common share as their
effect is antidilutive.
Comprehensive Income - Comprehensive income (loss) is equal to net
income (loss) for the three and nine months ended September 30, 1999 and
1998.
Future Adoption of Accounting Pronouncements - In June 1998, the
Financial Accounting Standards Board issued SFAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities." SFAS No. 133 establishes
accounting and reporting standards for derivative instruments, including
certain derivative instruments embedded in other contracts, and for hedging
activities. The provisions of SFAS No. 133 are effective for periods
beginning after June 15, 2000. The Company is currently evaluating the
effect SFAS No. 133 will have on the Company's financial position and
results of operations. The Company will adopt this accounting standard on
January 1, 2001, as required.
7
<PAGE>
<TABLE>
<CAPTION>
Nine Months Ended
September 30, Cumulative
------------------------ Since
1999 1998 Inception
---- ---- ----------
<S> <C> <C> <C>
Supplemental Cash Flow Information
Cash paid during the period for interest ........................ $ 11,102 $ 25,487 $ 80,335
Non Cash Financing Activities
Merger-related transactions:
Conversion of redeemable convertible preferred stock to
Common stock .......................................... $33,848,617 $ -- $33,848,617
Conversion of convertible preferred stock to common
Stock ................................................. 30,000 -- 30,000
Conversion of 12% convertible notes to common stock ......... 6,000,000 -- 6,000,000
Stock-based compensation .................................... 349,963 -- 467,409
Conversion of related party accrued interest to
common stock .......................................... 27,462 -- --
Purchase of treasury stock .................................. 100,000 -- 100,000
Accrued merger costs ........................................ 300,000 -- 300,000
Merger costs paid for with common stock ..................... 500,000 -- 500,000
Issuance of note to finance prepaid insurance .................... 157,265 -- 157,265
Accretion of redeemable convertible preferred stock .............. 1,884,923 1,976,063 6,604,024
Conversion of accounts payable to common stock ................... -- 90,000 --
</TABLE>
4. FUNDING OF OPERATIONS
The accompanying financial statements have been prepared on a going
concern basis, which contemplates the realization of assets and the
satisfaction of liabilities in the normal course of business. As shown in
the financial statements during the nine months ended September 30, 1999
and 1998, and cumulative since inception, the Company incurred net losses
of $5,422,102, $10,262,037 and $41,512,269, respectively, and at September
30, 1999, a substantial portion of it's accounts payable were past due.
These factors, among others, raise substantial doubt about the Company's
ability to continue as a going concern. Based upon the Company's present
financial position, management believes that the Company has sufficient
capital to fund operations through January 2000.
The financial statements do not include any adjustments relating to the
recoverability and classification of liabilities that might be necessary
should the Company be unable to continue as a going concern. The Company's
continuation as a going concern is dependent upon its ability to generate
sufficient cash flow to meet its obligations on a timely basis, to comply
with the terms of its financing agreements, to obtain additional financing,
and ultimately to attain profitability. During 1999, management expects to
continue to reduce operating expenses, consolidate operations, and seek
additional equity and debt financing. Management expects to further develop
markets for the Company's product by establishing license and contractual
agreements with OEMs (Original Equipment Manufacturers).
5. SHORT-TERM DEBT
Short-term debt consisted of the following at:
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---- ----
<S> <C> <C>
Notes payable to insurance company..... $ 157,265 $ --
Equipment term loan due to bank........ -- 750,000
Notes payable to related parties....... -- 2,000,000
--------- -----------
Total............................ $ 157,265 $ 2,750,000
========= ===========
</TABLE>
On May 28, 1998, the Company entered into a $1,250,000 financing
agreement with a bank. The financing consisted of a $750,000 equipment term
loan and a $500,000 revolving loan. Advances against the revolving
8
<PAGE>
loan were based on a percentage of eligible accounts receivable. Interest
was charged at the bank's prime rate plus 1/2%. Borrowings outstanding were
collateralized by substantially all of the Company's assets. The financing
agreement contained financial and non-financial covenants including a
prohibition for further indebtedness, and the Company was not in compliance
with its financial covenants as of December 31, 1998. In connection with
the February 1999 issuance of 12% Secondary Secured Convertible Notes (the
"Notes") by the Company, the $750,000 in borrowings, plus accrued interest,
was paid in full and the financing agreement was terminated.
In October 1998, the Company entered into financing agreements with two
stockholders to provide $2,000,000 of financing through the issuance of
demand notes. Unpaid amounts under the notes bear interest at 8%. The
amounts outstanding under these financing agreements were converted into
the Notes in February 1999.
The Company issued $4,000,000 in Notes in February 1999, including
$2,000,000 from conversion of the demand notes payable to the two
stockholders. An additional $2,000,000 in Notes were issued during the
year. Subject to a 365-day extension at the option of the Company under
certain conditions, the Notes were due 182 days from their issue date. The
Notes were secured by substantially all of the Company's assets and were
convertible into common stock under several options. A portion of the
proceeds received on the issuance of the Notes was used to repay the
amounts owing under the term loan. The $6,000,000 in Notes plus the related
accrued interest was converted into MangoSoft, Inc. common stock in
connection with the merger transaction described in Note 2.
In September 1999, the Company executed a note payable to an insurance
company to finance the payment of its Directors and Officers Liability
Insurance premium. The note carries interest at 8.5% per annum and is due
in nine monthly installments, with a final maturity on June 3, 2000.
6. REDEEMABLE CONVERTIBLE PREFERRED STOCK
MangoSoft Corporation
At December 31, 1998, MangoSoft had 1,500,000 authorized, issued
and outstanding shares of Series C Redeemable Convertible Preferred Stock,
$.01 par value (the "Series C Preferred Stock") with a liquidation
preference of $9 million; 1,000,000 authorized, 799,751 issued and
outstanding shares of Series D Convertible Preferred Stock, $.01 par value
(the "Series D Preferred Stock") with a liquidation preference of $8
million; and 1,450,000 authorized, issued and outstanding shares of Series
E Convertible Preferred Stock, $.01 par value (the "Series E Preferred
Stock") with a liquidation preference of $13.05 million (collectively, the
"Redeemable Preferred Stock").
Holders of the Redeemable Preferred Stock have the right and option to
convert the preferred shares, at any time, into shares of common stock.
Each share of Redeemable Preferred Stock will initially convert into one
share of common stock, subject to adjustments for stock splits,
combinations, stock dividends and distributions. The Redeemable Preferred
Stock has voting rights equal to the number of shares of common stock into
which it is convertible. Under certain events, including a public offering
of the common stock or approval by a certain percentage of each class of
the holders, the Redeemable Preferred Stock will automatically convert
into common stock.
In addition, the holders of the redeemable preferred stock are entitled
to receive preference to the holders of the common stock in the event of
liquidation. On June 15, 2001, MangoSoft may be required, at the option of
the holders of a majority of the then outstanding Series C, Series D and
Series E Preferred Stock, to redeem 33 1/3% of the outstanding shares of
the Series C, Series D and Series E Preferred Stock, and 50% and 100% of
all outstanding shares on the first and second anniversaries from June 15,
2001, respectively.
In connection with the merger transaction in September 1999, as
described in Note 2, all shares of MangoSoft Redeemable Preferred Stock
were converted into common stock of MangoSoft, Inc.
9
<PAGE>
7. STOCKHOLDERS' EQUITY (DEFICIENCY)
MangoSoft, Inc.
Common stock - At September 30, 1999, the Company had authorized
100,000,000 shares of $.001 common stock, of which 19,883,998 shares were
issued and outstanding, and 3,500,000 shares are reserved for issuance
pursuant to the Company's 1999 Incentive Compensation Plan.
Stock Options - In connection with the Merger, the Company adopted the
1999 Incentive Compensation Plan. The Plan, as amended, provides for the
issuance of up to 3,500,000 shares of common stock to employees, officers,
directors and consultants in the form of nonqualified and incentive stock
options, restricted stock grants or other stock-based awards, including
stock appreciation rights. The stock options are exercisable as specified
at the date of grant and expire no later than ten years from the date of
grant. The exercise price of the option is not less than the fair market
value at the date of grant.
The following table sets forth information regarding the options
outstanding at September 30, 1999:
<TABLE>
<CAPTION>
Average Average Number Price of
Exercise Number of Exercise Remaining Currently Currently
Price Shares Price Life Exercisable Exercisable
----- ------ ----- ---- ----------- -----------
<S> <C> <C> <C> <C> <C>
$1.25 2,982,832 $1.25 10 Years 2,492,695 $1.25
</TABLE>
Pro Forma Disclosure - As discussed in Note 3, the Company uses the
intrinsic value method to measure compensation expense associated with
grants of stock options. Had the Company used the fair value method of
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation," to measure compensation, the reported net loss
for the nine months ended September 30, 1999 would have been $5,776,504.
For purposes of calculating the pro forma effects on net loss, the fair
value of options on their grant date was measured using the Black-Scholes
Model with a risk-free interest rate of 6.0%, an expected option life of
two years, no dividends and a volatility of 5%. Options granted during the
nine months ended September 30, 1999 had a weighted average grant date fair
value of $0.14.
MangoSoft Corporation
Convertible Preferred Stock - At December 31, 1998, the MangoSoft had
2,250,000 authorized, issued and outstanding shares of Series A Convertible
Preferred Stock, $.01 par value (the "Series A Preferred Stock") and
750,002 authorized, issued and outstanding shares of Series B Convertible
Preferred Stock, $.01 par value (the "Series B Preferred Stock")
(collectively, the "Convertible Preferred Stock").
Holders of the Convertible Preferred Stock have the right and option to
convert the preferred shares, at any time, into shares of common stock.
Each share of Convertible Preferred Stock will initially convert into one
share of common stock. The conversion rate will be adjusted for stock
splits, combinations, stock dividends and distributions. The Convertible
Preferred Stock has voting rights equal to the number of shares of common
stock into which it is convertible, and a preference over the holders of
the common stock in the event of liquidation. In the event of a public
offering of the common stock or upon written notice of at least 51% of all
the then outstanding shares, the Series A Preferred Stock and Series B
Preferred Stock will automatically convert into common stock at the
applicable conversion rate.
Common Stock - At December 31, 1998, MangoSoft had authorized
25,000,000 shares of $.001 par value common stock (the "common stock"), of
which 761,250 shares were issued and outstanding; 2,250,000 shares are
reserved for issuance upon conversion of the Series A Preferred Stock;
750,002 shares are reserved for issuance upon conversion of the Series B
Preferred Stock; 1,500,000 shares are reserved for issuance upon conversion
of the Series C Preferred Stock; 799,751 shares are reserved for issuance
upon conversion of the Series D Preferred Stock; 1,450,000 shares are
reserved for issuance upon conversion of the Series E Preferred
10
<PAGE>
Stock; 180,000 shares are reserved for issuance upon exercise of
outstanding common stock warrants; and 2,000,000 shares are reserved for
issuance pursuant to the Company's 1995 Stock Plan.
In connection with the merger in September 1999, as described in Note
2, all shares of MangoSoft common stock and Convertible Preferred Stock
were converted into common stock of MangoSoft, Inc. In addition,
substantially all outstanding options and warrants to purchase MangoSoft
common stock were terminated and new options to purchase MangoSoft, Inc.
common stock were issued in their place.
8. COMMITMENTS AND CONTINGENCIES
The Company has a cancelable operating lease for office space, which
expires in 2001. The Company also leases various office equipment under
operating leases. Total rent expense was approximately $ 413,488 and
$509,820 for the nine months ended September 30, 1999 and 1998,
respectively. Future minimum rental payments under the cancelable operating
lease are $252,000 for the year ending December 31, 1999.
On August 30, 1999, one of the Company's shareholders filed suit in
Orange County (CA) Superior Court alleging damages for fraud in the sale of
securities under both Federal and California State law, and seeking a
rescission of the purchase agreement. The shareholder seeks damages in the
amount of $50,000, plus interest. On October 22, 1999, the matter was
removed to Federal Court following a petition by the Company. The Company
has answered the complaint, denied all material allegations and asserted
various affirmative defenses. Discovery has not commenced. In the judgement
of management, this litigation will not have a material adverse effect on
the Company's business and results of operations, although there can be no
assurance as to the ultimate outcome of this matter.
9. TRANSACTIONS WITH STOCKHOLDERS
Notes Payable - As discussed in Note 5, the Company received $2,000,000
of financing in 1998 from two stockholders. The demand notes, including
accrued interest thereon, were converted into 12% Secondary Secured
Convertible Notes (the "Notes") in February 1999. In connection with the
Merger, the Notes, including accrued interest, were converted into
MangoSoft, Inc. common stock.
Administrative Services - During 1998, a stockholder provided
administrative assistance to the Company. Amounts expensed and accrued for
such services approximated $647,795 and are included as an accrued expense
in the accompanying balance sheets.
Repurchase of Common Stock - In connection with the Merger, MangoSoft
agreed to repurchase 200,000 shares of common stock from one of its
stockholders for $100,000. The shares of common stock have been reacquired
and the amount owed of $100,000 has been reflected as an accrued liability.
10. GEOGRAPHIC SALES INFORMATION AND MAJOR CUSTOMERS
The Company's sales by geographic area were approximately 88% in Japan
and 12% in North America in both the nine months ended September 30, 1999
and 1998. One customer accounted for 88% of the 1999 sales and another
customer accounted for approximately 88% of the sales in 1998.
11
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
The discussion below assumes that the Company can continue to do
business on a going concern basis, which contemplates the realization of
assets and the satisfaction of liabilities in the normal course of
business. As shown in the financial statements, during the nine month ended
September 30, 1999 and 1998, and cumulative since inception, the Company
incurred net losses of $5,422,102, $10,262,037 and $41,512,269,
respectively, and at September 30, 1999, a substantial portion of it's
accounts payable were past due. These factors, among others, raise
substantial doubt about the Company's ability to continue as a going
concern.
In addition, the financial statements do not include any adjustments
relating to the recoverability and classification of liabilities that might
be necessary should the Company be unable to continue as a going concern.
The Company's continuation as a going concern is dependent upon its ability
to generate sufficient cash flow to meet its obligations on a timely basis,
to comply with the terms of its financing agreements, to obtain additional
financing, and ultimately to attain profitability. During the remainder of
1999, management expects to continue to reduce operating expenses,
consolidate operations, and seek additional equity and debt financing.
Management also seeks to further develop markets for the Company's product
by establishing license and contractual agreements with OEMs (Original
Equipment Manufacturers).
On September 7, 1999, MangoMerger, a wholly-owned subsidiary of
First American, merged (the "Merger") with and into MangoSoft, pursuant to
an Agreement and Plan of Merger (the "Merger Agreement"), dated August 27,
1999. Following the Merger the business to be conducted by First American
was the business conducted by MangoSoft prior to the Merger. In
conjunction with the Merger, First American changed its name to MangoSoft,
Inc. ("MangoSoft, Inc."), which is the legal acquirer and surviving legal
entity. As a result of the Merger, the Company's Common Stock is included
for trading on the Over-the-Counter Electronic Bulletin Board (the
"OTCBB"). The Company does not intend to maintain its listing on the OTCBB,
which would require it to register its Common Stock under Federal
Securities laws by mid-December 1999. See "-- Risk Factors-Expected
Delisting."
The accounting applied in the Merger differs from the legal form.
Accordingly, the Company's consolidated financial statements for periods
prior to September 7, 1999, represent only the operating results and
financial position of its operating subsidiary, MangoSoft. The consolidated
financial statements for periods subsequent to September 7, 1999, reflect
the combined operating results and financial position of MangoSoft, Inc.
and MangoSoft. See Note 2 to the Unaudited Condensed Consolidated
Financial Statements.
The Company develops and markets advanced software technology to
simplify, expand and integrate networking and pooled use of computer
resources. The Company is considered to be a development stage company
since it has not generated significant revenues from the products that have
been developed-to-date. The Company is subject to a number of risks similar
to those of other companies in an early stage of development. Principal
among these risks are dependencies on key individuals, competition from
other substitute products and larger companies, the successful development
and marketing of its products and the need to obtain adequate additional
financing necessary to fund future operations. See "-Risk Factors."
12
<PAGE>
Management's Discussion and Analysis of Financial Condition and
Results of Operations contains trend analysis and other forward-looking
statements. Actual results could differ materially from those set forth in
the forward-looking statements as a result of factors set forth elsewhere
herein, including under "--Risk Factors." This discussion should be
read in conjunction with the accompanying condensed consolidated financial
statements for the periods specified and the associated notes. Further
reference should be made to the Company's Form 8-K filed with the
Securities and Exchange Commission in September 1999.
Results of Operations - Three Months Ended September 30, 1999 and 1998
Revenue increased to $27,775 in 1999 from $1,138 in 1998 due to
increased sales and marketing efforts. Revenue in the same period last year
suffered due to a product recall in the summer of 1998, and management's
decision to defer sales and marketing efforts until the product was
improved.
Cost of revenues decreased to $0 from $4,486 as the Company's
software products in 1999 were delivered via e-mail over the Internet.
Accordingly, the Company incurred no disk replication costs.
Operating expenses decreased 32.2% to $1,874,156 from $ 2,766,836 due
to the corporate reorganization discussed in Liquidity and Capital
Resources. The reorganization included changing the sales distribution
channel from a retail approach to value added resellers, consolidating
corporate functions and reducing total personnel.
A summary of the expense reductions is as follows:
<TABLE>
<CAPTION>
Three Months Ended September 30, Increase (Decrease)
-------------------------------- -------------------
1999 1998 $ Amount %
---- ---- -------- ---
<S> <C> <C> <C> <C>
Research and development $1,280,537 $1,618,116 $(337,579) (20.9)
Selling and marketing 155,326 243,134 (87,808) (36.1)
General and administrative 438,293 905,586 (467,293) (51.6)
---------- ---------- --------- -----
Total $1,874,156 $2,766,836 $(892,680) (32.2)
========== ========== ========= =====
</TABLE>
The loss from operations decreased 33.3% due primarily to the corporate
restructuring in the fourth quarter of 1998 and resulting lower operating
costs.
Interest expense increased due to the issuance of $6 million in the 12%
Secondary Secured Convertible Notes in February 1999, offset by savings
from repayment of the bank debt.
The net loss decreased 29.1% to $1,966,807 from $2,776,111 due to the
lower operating costs, offset by higher interest expense.
Results of Operations - Nine Months Ended September 30, 1999 and 1998
Revenue decreased from $308,260 in the nine months ended September 30,
1998 to $35,678 in the nine months ended September 30, 1999, due to the
Company's decision to defer sales and marketing efforts in the latter half
of 1998 and early 1999, and focus on improving the product. A single
customer, Hitachi, Ltd., represented 88% of the 1999 revenue, while
another customer, Nippon Telephone & Telegraph, represented approximately
88% of the 1998 revenue.
Cost of revenues decreased to $275 from $91,529 due to the lower level
of revenue. In addition, the 1999 products sold were delivered via e-mail
over the Internet and the Company incurred no disk replication costs.
Operating expenses decreased 52.0% to $5,097,408 from $10,612,071 due
to the corporate reorganization discussed in "--Liquidity and Capital
Resources." The reorganization included changing the sales distribution
channel from a retail approach to value added resellers, consolidating
corporate functions and reducing total personnel.
13
<PAGE>
A summary of the expense reductions is as follows:
<TABLE>
<CAPTION>
Nine Months Ended September 30, Increase (Decrease)
------------------------------- -------------------
1999 1998 $ Amount %
---- ---- -------- ---
<S> <C> <C> <C> <C>
Research and development $3,385,874 $ 5,241,567 $(1,855,693) (35.4)
Selling and marketing 198,509 2,586,971 (2,388,462) (92.3)
General and administrative 1,513,025 2,783,533 (1,270,508) (45.6)
---------- ----------- ----------- -----
Total $5,097,408 $10,612,071 $(5,514,663) (52.0)
========== =========== =========== =====
</TABLE>
The loss from operations decreased 51.3% due primarily to the corporate
restructuring in the fourth quarter of 1998 and resulting lower operating
costs.
Interest expense increased due to the issuance of $6 million in the 12%
Convertible Notes in February 1999, offset by savings from repayment of the
bank debt. Interest income decreased due to the use of the proceeds from
issuance of the Series E Preferred Stock in 1998.
The net loss decreased 47.1% to $5,422,102 from $10,262,037 due to the
lower operating costs and interest income, offset by higher interest
expense.
Liquidity and Capital Resources
MangoSoft was formed in June 1995. Through August 1999, MangoSoft
has raised approximately $38 million in financing from the placement of
private debt and equity securities, as follows:
<TABLE>
<CAPTION>
Date Description $ Millions
---- ----------- ----------
<S> <C> <C>
August 1995 Convertible preferred stock, Series A $ 1.5
December 1995 Convertible preferred stock, Series B 2.0
June 1996 Redeemable convertible preferred stock, Series C 9.0
April 1997 Redeemable convertible preferred stock, Series D 6.4
February 1998 Redeemable convertible preferred stock, Series E 13.1
February 1999 12% Secondary Secured Convertible Notes 6.0
-----
Total $38.0
=====
</TABLE>
In addition to the above, MangoSoft has, at times, depended upon bank
debt and loans from stockholders and Directors to meet interim financing
needs. Bank debt of $750,000, incurred to purchase capital equipment,
was repaid using proceeds received from issuance of the 12% Secondary
Secured Convertible Notes (the "12% Notes"). Borrowing from stockholders
and directors has generally been refinanced with new debt instruments or
converted to additional equity. At September 30, 1999, an additional $3.6
million in financing was provided through accounts payable, accrued
expenses and other trade credit, a significant portion of which was past
due.
The proceeds raised from these financings have been used in the
development of the Company's current products with approximately $22
million invested in research and development. An additional $9 million was
spent on sales and marketing, principally due to an earlier attempt to
distribute products through traditional retail software channels. This
strategy subsequently was discontinued due to the resellers' inability to
deliver complete peer to peer network installation to end customers. The
remaining $11 million in proceeds have been used for working capital and
general corporate purposes.
To date, product sales have provided a minor source of revenues. From
inception through September 30, 1999, MangoSoft generated $.4 million in
sales and incurred cumulative net losses of $41.5 million, including losses
of $5.4 million and $10.3 million for the nine months ended September 30,
1999 and 1998, respectively. In the fourth quarter of 1998, MangoSoft
significantly modified its operations in an effort to reduce its operating
14
<PAGE>
costs and net losses. The modifications included changing the sales
distribution channel from a retail approach to value added resellers,
consolidating corporate functions and reducing total personnel.
At September 30, 1999, the Company had a cash balance of $2.3 million
due to a $3.75 million sale of MangoSoft, Inc. common stock just prior to
the merger. The Company had working capital deficits of $1.2 million at
September 30, 1999 and $5.5 million at December 31, 1998. The working
capital deficit at December 31, 1998 included $2 million in stockholder and
director loans and $.7 million in other financing from related parties. The
$2 million in loans were converted into a like amount of the 12% Notes in
February 1999. The 12% Notes, including accrued interest of $377,409, were
subsequently converted into MangoSoft, Inc. common stock in connection with
the merger.
The Company will require additional financing to continue operations
beyond mid-January 2000. Although the Company has been successful in
raising past financing, there can be no assurance that any additional
financing will be available to the Company on commercially reasonable
terms, or at all. Any inability to obtain additional financing when needed
will have a material adverse effect on the Company, requiring the Company
to significantly curtail or possibly cease its operations. In addition, any
additional equity financing may involve substantial dilution to the
interests of the Company's then existing shareholders.
Plan of Operation - Next 12 Months
During the period immediately preceding the Merger, the Company reached
agreements with creditors representing approximately $2.0 million in older
trade payables and accrued expenses, and with the related parties owed $.7
million. Terms of these agreements range from six (6) to eighteen (18)
months and some include a reduction of the obligation. These renegotiations
will allow the Company to continue operations through December 1999 with
its existing cash of $2.3 million. The Company will require additional
financing to continue operations beyond mid-January 2000 and has
undertaken to raise an additional $10.0 million in equity. Management
believes that, if such funds are raised, they will satisfy cash
requirements through the year 2000. There can be no assurance that the
Company will secure this additional financing.
The Company plans to continue development of new products based upon
its core, patented technology during the next 12 months. This is expected
to include enhancements to the Company's existing products as well as
development of an Internet-based product. The number of employees could
increase over the next twelve months by as much as 30%. The most
significant area of increase would be in sales and marketing with lesser
increases in engineering and administration. Asset purchases are expected
primarily to equip newer employees as well as update the engineering
development equipment. It is not anticipated that the purchase of new
assets will be a significant financial expenditure.
Risk Factors
Limited Operating History and History of Substantial Operating Losses
The Company's current operations substantially commenced in May 1997.
Accordingly, the Company's prospects must be evaluated in light of the
problems, expenses, delays and complications normally encountered with any
early stage business. The Company has a history of substantial operating
losses since inception (June 1995) and has an accumulated deficit of
approximately $37.3 million as of December 31, 1998 and $44.6 million as of
September 30, 1999. For its fiscal years ended December 31, 1998, 1997 and
1996, the Company's losses from operations were $13.1 million, $15.8
million and $6.1 million, respectively. Such losses have resulted primarily
from costs incurred in research and development activities, the
establishment of an initial sales and marketing force, and general and
administrative expenses. The Company expects to incur additional operating
losses over the foreseeable future and expects cumulative losses to
increase substantially as the Company's
15
<PAGE>
marketing, sales, and research and development efforts expand. The Company
is currently experiencing cash flow difficulties primarily because its
current expenses exceed its current revenues.
Need for Expanded Market Acceptance of the Company's Products;
Concentration of Revenue
The Company's 1998 product revenues, approximately $308,260, had been
derived primarily from sales of the prior versions of its Medley product
through the Company's relationship with SVA. The Company expects to derive
a substantial majority of its revenues in the foreseeable future from the
sale of CacheLink, its updated Medley product, and MIND, neither of which
has previously been marketed by the Company. Accordingly, the Company's
future financial performance will depend on the growth in demand for and
acceptance of new software products. As is typical in new and evolving
markets, demand for and market acceptance of products are subject to a high
level of uncertainty. The Company has limited experience in commercially
providing software products and services and the Company's MIND product is
still only a prototype and will not be available for commercial sale until
at least the second quarter of 2000. In addition, the small business market
is relatively young and there are few proven products. There can be no
assurance that the Company will generate business from these products or
that its market acceptance will increase. If these markets fail to develop,
develop more slowly than expected or attract new competitors, or if the
Company's products do not achieve market acceptance, the Company's
business, financial condition and results of operations will be materially
and adversely affected. In addition, the loss of SVA as a reseller could
have a material affect on the Company's business financial condition and
results of operations.
Expected Delisting
The Company does not intend to maintain its listing on the
OTCBB, which would require it to register its Common Stock under Federal
Securities laws by mid-December 1999. For the Common Stock to thereafter be
included for trading on the National Quotation Bureau "Pink Sheets,"
a market-maker must make certain filings with the National Quotation
Bureau. There can be no assurance that any such filings will be made or
that if made, the Common Stock will be accepted for inclusion into the
"Pink Sheets." Even if included, a trading market may not develop or be
sustained. Regardless, since there may not be a trading market for the
Common Stock, investors may not be able to liquidate their investment.
Uncertain Adoption of Internet as a Medium of Commerce and Communications
and Dependence on the Internet
Demand and market acceptance for recently introduced services and
products like those offered by the Company are subject to a high level of
uncertainty. The use of the Internet in marketing and advertising and
otherwise, particularly by those individuals and enterprises that have
historically relied upon traditional means of marketing and advertising,
generally requires the acceptance of a new way of conducting business and
exchanging information. Enterprises that have already invested substantial
resources in other means of conducting business and exchanging information
may be particularly reluctant or slow to adopt a new strategy that may make
their existing resources and infrastructure less useful. There can be no
assurance that the market for the Company's products will develop and if it
fails to develop, develops more slowly than expected or becomes saturated
with competitors, or if the Company's products do not achieve market
acceptance, the Company's business, operating results and financial
conditions will be materially adversely affected.
The Company's ability to derive revenues will also depend upon a robust
industry and the infrastructure for providing Internet access and carrying
Internet traffic. The Internet may not prove to be a viable commercial
marketplace because of inadequate development of the necessary
infrastructure or timely development of complementary products, such as
high speed modems. Moreover, other critical issues concerning the
commercial use of the Internet (including security, reliability, cost,
ease-of-use, access, and quality of service) remain unresolved and may
impact the growth of Internet use. Because global commerce and online
exchange of information on the Internet and other similar open WANs are new
and evolving, it is difficult to predict with any assurance whether the
Internet will prove to be and remain a viable commercial marketplace. If
the infrastructure necessary to support the Internet's commercial viability
is not developed, or if the Internet does not become a viable marketplace,
the Company's business, operating results and financial condition would be
materially and adversely affected.
Intellectual Property; Changing Technology; Potential Infringement
The Company owns trademarks on "CacheLink," "Medley," "Mango,"
"MangoSoft," "Pool" and "Pooling." In addition, the Company has been
granted two patents and one Notification of Allowance and has applied for
six other patents. There can be no assurance, however, that the patents
will be issued, and if issued, there can be no certainty that claims
allowed in any such patents would provide competitive advantages or
protection for the Company's products, or that such claims will not be
successfully challenged by competitors. The Company considers certain
elements of its software and its Pooling technology to be proprietary. The
16
<PAGE>
Company relies on a combination of trade secrets, copyright and trademark
law, contractual provisions, confidentiality agreements and certain
technology and security measures to protect its proprietary intellectual
property, technology and know-how.
The Company's business is subject to rapid changes in technology
including potential introduction of competing products and services which
could have a material adverse impact on the Company's business. There are
existing hardware-based file server and web caching products that could be
used as the basis for the development of technology that would be directly
competitive with the technology employed by the Company. In addition, there
can be no assurance that research and development by others will not render
the Company's technology obsolete or uncompetitive. Furthermore, in a
technology-based industry, there can be no assurance that a claim of patent
or other infringement will not be made against the Company. While the
Company is not aware of any such claims, no infringement studies have been
conducted on behalf of the Company.
Despite the Company's efforts to protect its proprietary rights,
existing copyright, trademark, patent and trade secret laws afford only
limited protection. Moreover, effective protection of copyrights, trade
secrets, trademarks and other proprietary rights may be unavailable or
limited in certain foreign countries and territories. There can be no
assurance that these domestic and foreign laws, in combination with the
steps taken by the Company to guard its proprietary rights, will be
adequate to prevent misappropriation of its technology or other proprietary
rights.
Regulatory Acceptance of the Company's Technology; Government Regulation,
Legal Uncertainties and Regulatory Policy Risks
The Company is not currently subject to direct regulation by any
government agency, other than regulations applicable to businesses
generally. However, due to the increasing media attention focused on the
Internet, it is possible that a number of laws and regulations may be
adopted with respect to the Internet, covering issues such as user privacy,
and pricing and characteristics and quality of products and services. The
adoption of any such laws or regulations may decrease the growth of the
Internet, which could in turn decrease the demand for the Company's
products and increase the Company's cost of doing business or cause the
Company to modify its operations, or otherwise have an adverse effect on
the Company's business, operating results and financial condition.
Moreover, the applicability to the Internet of existing laws governing
issues such as property ownership, libel and personal privacy is uncertain.
The Company cannot predict the impact, if any, that future regulation or
regulatory changes may have on its business.
Competition; No Substantial Barriers to Entry into the Company's Business;
Price Erosion
The markets for the Company's products are characterized by rapid
technological change, evolving industry standards, customer demands and
intense competition. The Company competes with a number of large public and
private companies, including many large computer and software designers
which have created technologies and products that perform similar and/or
competing functions to those of the Company's products. The Company also
competes with hardware providers that have bundled in a certain level of
networking functionality on top of the hardware, all-in-one Internet access
solutions and virtual office workspace offerings.
17
<PAGE>
Many of the Company's competitors have greater resources, including
more extensive facilities, larger research and development teams, more
experienced marketing teams, greater capital resources and equipment, and
the ability to offer a broader range of services than the Company. As a
result, the Company's ability to remain competitive will depend in
significant part upon it being able to successfully and continually develop
and introduce, in a timely and cost-effective manner, enhancements to
existing products in response to both evolving demands of the marketplace
and competitive product offerings. In addition, over a long-term period,
the Company's ability to remain competitive will depend in significant part
upon its ability to develop and introduce, in a timely and cost-effective
manner, new products to expand and diversify the Company's product
offerings. There can be no assurance that the Company will be successful in
developing and introducing, in a timely and cost-effective way, any
enhancements or extension for existing products or any new products. In
addition, there can be assurance that the competitors of the Company will
not achieve technological advances that provide a competitive advantage
over the Company's products or that make such products obsolete.
Management of Growth; Dependence on Key Personnel and Ability to Attract
New Personnel
Even if the Company successfully generates significant revenue growth,
there can be no assurance that the Company will effectively develop and
implement systems, procedures or controls adequate to support the Company's
operations or that management will be able to achieve the rapid execution
necessary to fully exploit the opportunity for the Company's products. To
manage its business and any growth, the Company must continue to implement
and improve its operational and financial systems and continue to expand,
train and manage its employees. In particular, management believes that the
Company will need to hire additional employees. If the Company is unable to
manage growth effectively, the Company's business, operating results and
financial condition will be materially affected. The success of the Company
is dependent upon the efforts of Scott H. Davis, the Company's Vice
President and Chief Technology Officer; Robert E. Parsons, the Company's
Chief Financial Officer; and James M. Stark, the Company's Vice President
of Sales and Marketing. The loss of Mr. Davis, Mr. Parsons or Mr. Stark, or
of any of the Company's senior management, could delay or prevent the
Company from achieving its objectives. The Company is also highly dependent
upon its ability to continue to attract and retain additional management
and technical personnel because of the specialized nature of the Company's
business. Competition for such qualified personnel is intense, and there
can be no assurance that the Company will be able to retain existing
personnel or attract, assimilate or retain additional qualified personnel
necessary for the development of its business. The inability of the Company
to attract and retain qualified personnel would have a material adverse
effect on the Company's business, financial condition and results of
operations.
Risk of Errors or Failure in Software Products
Complex products such as CacheLink and Medley, or any new product which
may be developed by the Company in the future, may contain errors,
failures, bugs or defects, particularly when first introduced, and as
updates, upgrades and new versions are released. The introduction by the
Company of products with errors, failures, bugs, defects or otherwise with
reliability, quality or compatibility problems could result in adverse
publicity, product returns, reduced orders, uncollectible accounts
receivable, delays in collecting accounts receivable, product redevelopment
costs, loss of or delay in market acceptance of the Company's products, or
claims by the customer or others against the Company. Alleviating such
problems could require significant expenditures of capital and resources by
the Company's customers. Errors, failures, bugs or defects in the Company's
products could have a material adverse effect on the Company's business,
financial condition and results of operations.
No Dividends
The Company intends to retain any future earnings to finance its
operations and does not intend to pay dividends.
18
<PAGE>
Concentration of Share Ownership
The Company's directors and officers, together with entities affiliated
with them, beneficially own approximately 22% of the Company's capital
stock, including all outstanding options, warrants or other convertible
securities to purchase shares of the Company's Common Stock. These
stockholders, acting as a group, may continue to have significant influence
over the outcome of all matters submitted to the stockholders for approval,
including the election of a majority of the Company's Board of Directors
and the determination of all corporate actions after this Offering. The
voting power of these stockholders could also have the effect of delaying
or preventing a change in control of the Company. Such influence by
management could have the effect of discouraging others from attempting to
take-over the Company thereby increasing the likelihood that the market
price of the Common Stock will not reflect a premium for control.
Year 2000 Compliance
Many existing computer programs use only two digits, rather than four,
to represent a year. The Year 2000 ("Y2K") problem arises because
date-sensitive software or hardware written or developed in this fashion
may not be able to distinguish between 1900 and 2000, and programs written
in this manner that perform arithmetic operations, comparisons or sorting
of date fields may yield incorrect results when processing a Y2K date. The
Y2K problem could potentially cause system failures or miscalculations that
could disrupt operations.
The Company recently completed a review, which included testing, of the
Company's computer systems. This review of internal financial and
information technology systems was completed in the fourth quarter of 1998.
The Company has evaluated and prioritized the problems, which are not
considered significant.
The Company intends to continuously identify and prioritize critical
vendors and suppliers and communicate with them about their plans and
progress in addressing their Y2K problems. The Company has implemented a
policy to exclude the use of any vendors which are not Y2K compliant.
Based on the efforts described above, the Company currently believes
that its systems are Y2K compliant. However, there can be no assurance that
all Y2K problems have been successfully identified, or that the necessary
corrective actions were taken. Failure to successfully identify and
remediate such Y2K problems in a timely manner could have material adverse
effect on the Company's results of operations, financial position or cash
flow.
As of September 30, 1999, the Company had not incurred significant
costs related to the Y2K problem, and does not expect to do so in the
future. Overall, the Company anticipates that incremental costs to the
Company related to the Y2K problem will not exceed $50,000, but there
can be no assurance that such costs will not be greater than anticipated.
Registration Rights of Other Securityholders-Potential Costs to the
Company; Adverse Effects on Future Financing and Stock Price
Pursuant to the merger agreement by and among the Company and First
American, the Company is obligated to use reasonable efforts to file a
registration statement relating to the resale of up to 33% of the shares
of the Company's Common Stock sold in a Rule 506 Offering completed in
August of 1999 and 300,000 shares of the Company's Common Stock held by
the Placement Agent from that offering. The Company is obligated to use its
best efforts to have such registration statement declared effective as soon
as practicable after filing with the Securities Exchange Commission and
shall keep such registration statement effective for a period of at least
one year. These registration rights could result in substantial future
expense to the Company and could adversely affect any future equity or debt
financing. Furthermore, the sale of Common Stock held by or issuable to the
holders of registration rights, or even the potential of such sales, could
have an adverse effect on the market price of the Common Stock.
19
<PAGE>
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On August 30, 1999, one of the Company's shareholders filed suit in
Orange County (CA) Superior Court alleging damages for fraud in the sale of
securities under both federal and California state law seeking a rescission
of the purchase agreement governing such sale of securities. The
shareholder seeks damages in the amount of $50,000, plus interest. On
October 22, 1999, the matter was removed to Federal Court, following a
petition by the Company.
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
In conjunction with the merger (the "Merger") of MangoMerger, a
wholly-owned subsidiary of First American, with and into MangoSoft,
pursuant to an Agreement and Plan of Merger, dated August 27, 1999, on
September 7, 1999, the Company issued 9,000,000 shares of Common Stock to
former noteholders of MangoSoft in exchange for the termination of
promissory notes in the aggregate amount of $6,000,000, plus accrued
interest. In connection with the issuance of such stock, the Company
relied on the statutory exemption provided by Section 4(2) of the
Securities Act of 1933, as amended (the "Act"), because the issuances did
not involve public offering.
In conjunction with the Merger, on September 7, 1999 the Company issued
options to purchase an aggregate of 120,000 shares of Common Stock at an
exercise price of $1.25 per share to former warrantholders of MangoSoft in
exchange for the termination of existing warrants. In addition, on
September 7, 1999, the Company issued options to purchase an aggregate of
1,397,268 shares of Common Stock at an exercise price of $1.25 per share to
former optionees of MangoSoft in exchange for the termination of existing
options. In connection with the issuances of such options, the Company
relied on the statutory exemption provided by Section 4(2) of the Act
because the issuances did not involve public offerings.
In conjunction with the Merger, on September 7, 1999 the Company issued
an aggregate of 6,008,998 shares of Common Stock to former holders of
capital stock of MangoSoft in exchange for capital stock of the MangoSoft.
In connection with the issuance of such stock, the Company relied on the
statutory exemption provided by Section 4(2) of the Act because the
issuance did not involve public offerings.
In conjunction with the Merger, on September 7, 1999 the Company issued
an aggregate of 4,875,000 shares of Common Stock to accredited investors
pursuant to Rule 506 of Regulation D, promulgated under the Act, because
the issuances did not involve public offerings.
ITEM 3. DEFAULTS UPON SECURITIES
Not applicable.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 2, 1999, MangoSoft provided to its stockholders an
information statement and merger consent solicitation in order to obtain
the consent of at least a majority of its stockholders to enter into the
Merger. On August 26, 1999, MangoSoft provided to its stockholders a
supplemental information statement and merger consent solicitation in order
to obtain the consent of at least a majority of its stockholders to enter
into the Merger. On August 30, 1999, MangoSoft obtained the consent of a
majority of its stockholders to enter into the Merger.
On September 1, 1999, MangoSoft provided a supplemental information
statement and merger consent solicitation to holders of debt of MangoSoft
in connection with the exchange of notes of MangoSoft for shares of Common
Stock of the Company. The Company obtained the unanimous consent of all
debt holders of MangoSoft on September 7, 1999.
20
<PAGE>
On August 13, 1999, First American obtained the unanimous written
consent of its shareholders, authorizing a forward stock split, the
Merger, the name change of the Company, the adoption of the Company's 1999
Incentive Compensation Plan, and the election of Dale Vincent, Craig D.
Goldman, Dr. Ira Goldstein, Paul C. O'Brien, Selig Zises and Ravi Singh to
serve as directors of the Company following the Merger.
ITEM 5. OTHER INFORMATION
Not applicable.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
2.1* Agreement and Plan of Merger by and among First American,
MangoSoft and MangoMerger, dated as of August 27, 1999 (filed
without exhibits or schedules) (filed as Exhibit 2.1 to Form
8-K filed September 21, 1999)
3.1* Certificate of Amendment to the Articles of Incorporation of
First American, as filed with the Secretary of State of the
State of Nevada on September 7, 1999 (filed as Exhibit 4.2 to
Form 8-K filed September 21, 1999)
3.2 By-laws of the Company (formerly by-laws of MangoMerger).**
10 Lease of Westborough Office Park Building Five, dated November
10, 1995.**
11 Statement regarding computation of net loss per common
share.**
20.1 Merger Consent Solicitation and Information Statement, dated
August 2 1999.**
20.2 Supplement to Merger Consent Solicitation and Information
Statement, dated August 26, 1999.**
20.3 Supplement to Merger Consent Solicitation and Information
Statement, dated September 1, 1999.**
27 Financial Data Schedule
- ----------
* Exhibits designated with an asterisk (*) have previously been
filed with the Commission and are incorporated by reference to
the document referenced in parentheticals following the
description of such exhibits.
** Filed herewith.
(b) Reports on Form 8-K
The Registrant filed a report on Form 8-K on September 21, 1999, which
reported that MangoMerger, merged with and into MangoSoft, as provided
for in that certain Agreement and Plan of Merger, dated August 27, 1999
between First American, MangoMerger and MangoSoft, effective as of
September 7, 1999, pursuant to a Certificate of Merger filed with the
Secretary of State of Delaware on that date. In conjunction with the
Merger, First American changed its name to "MangoSoft, Inc."
21
<PAGE>
SIGNATURES
Pursuant to the requirements 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.
November 19, 1999 MANGOSOFT, INC.
/s/ Robert Parsons
----------------------------------------
Robert Parsons, Chief Financial Officer
(Principal Financial and Accounting
Officer)
22
<PAGE>
Exhibit 3.2
SCHEDULE
By-Laws of Mangomerger:
ATTACHED
<PAGE>
BY-LAWS
OF
MANGOMERGER CORP.
ARTICLE I - OFFICES
Section 1. AGENT: The registered office of the corporation in the State
of Delaware shall be at 1013 Centre Road, Wilmington, Delaware 19805-1297.
The registered agent in charge thereof shall be CSC Networks.
Section 2. OTHER OFFICES: The corporation may also have offices at such
other places as the Board of Directors may from time to time appoint or the
business of the corporation may require.
ARTICLE II - SEAL
Section 1. DESCRIPTION: A corporate seal, if adopted by the Board of
Directors, shall have inscribed thereon the name of the corporation, the year of
its organization and the words "Corporate Seal, Delaware".
ARTICLE III - STOCKHOLDERS' MEETINGS
Section 1. LOCATION: Meetings of stockholders shall be held at the
registered office of the corporation in this state or at such place, either
within or without this state, as may be selected from time to time by the Board
of Directors.
Section 2. ANNUAL MEETINGS: The annual meeting of the stockholders
shall be held on such date as is determined by the Board of Directors for the
purpose of electing directors and for the transaction of such other business as
may properly be brought before the meeting.
Section 3. ELECTION OF DIRECTORS: Elections of the directors of the
corporation shall be by written ballot.
Section 4. SPECIAL MEETINGS: Special meetings of the stockholders may
be called at any time by the President, or the Board of Directors, or
stockholders entitled to cast at least one-fifth of the votes which all
stockholders are entitled to cast at the particular meeting. At any time, upon
written request of any person or persons who have duly called a special meeting,
it shall be the duty of the Secretary to fix the date of the meeting, to be held
not more than sixty days after receipt of the request, and to give due
<PAGE>
notice thereof. If the Secretary shall neglect or refuse to fix the date of the
meeting and give notice thereof, the person or persons calling the meeting may
do so.
Business transacted at all special meetings shall be confined to the
objects stated in the call and matters germane thereto, unless all stockholders
entitled to vote are present and consent.
Written notice of a special meeting of stockholders stating the time
and place and object thereof, shall be given to each stockholder entitled to
vote thereat at least ten days before such meeting, unless a greater period of
notice is required by statute in a particular case.
Section 5. QUORUM: A majority of the outstanding shares of the
corporation entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of stockholders. If a majority of the
outstanding shares entitled to vote is represented at a meeting, a majority of
the shares so represented may adjourn the meeting from time to time without
further notice. At such adjourned meeting at which a quorum shall be present or
represented, any business may be transacted which might have been transacted at
the meeting as originally noticed. The stockholders present at a duly organized
meeting may continue to transact business until adjournment, notwithstanding the
withdrawal of enough stockholders to leave less than a quorum.
Section 6. PROXIES: Each stockholder entitled to vote at a meeting of
stockholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period.
A duly executed proxy shall be irrevocable if it states that it is
irrevocable and if, and only as long as, it is coupled with an interest
sufficient in law to support an irrevocable power. A proxy may be made
irrevocable regardless of whether the interest with which it is coupled is an
interest in the stock itself or an interest in the corporation generally. All
proxies shall be filed with the Secretary of the meeting before being voted
upon.
Section 7. NOTICE OF MEETINGS: Whenever stockholders are required or
permitted to take any action at a meeting, a written notice of the meeting shall
be given which shall state the place, date and hour of the meeting, and, in the
case of a special meeting, the purpose or purposes for which the meeting is
called.
Unless otherwise provided by law, written notice of any meeting shall
be given not less than ten nor more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting.
2
<PAGE>
Section 8. CONSENT IN LIEU OF MEETINGS: Any action required to be taken
at any annual or special meeting of stockholders of a corporation, or any action
which may be taken at any annual or special meeting of such stockholders, may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum number of votes that would be
necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Prompt notice of the taking of
the corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
Section 9. LIST OF STOCKHOLDERS: The officer who has charge of the
stock ledger of the corporation shall prepare and make, at least ten days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. No share of stock upon which any installment is due and unpaid
shall be voted at any meeting. The list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, any may be inspected by any
stockholder who is present.
ARTICLE IV - DIRECTORS
Section 1. NUMBER: The business and affairs of this corporation shall
be managed by its Board of Directors, no less than one in number or such other
minimum number as is required by law. The directors need not be residents of
this state or stockholders in the corporation. They shall be elected by the
stockholders of the corporation or in the case of a vacancy by remaining
directors, and each director shall be elected for the term of one year, and
until his successor shall be elected and shall qualify or until his earlier
resignation or removal.
Section 2. REGULAR MEETINGS: Regular meetings of the Board shall be
held without notice other than this by-law immediately after, and at the same
place as, the annual meeting of stockholders. The directors may provide, by
resolution, the time and place for the holding of additional regular meetings
without other notice than such resolution.
3
<PAGE>
Section 3. SPECIAL MEETINGS: Special Meetings of the Board may be
called by the President or any director upon two day notice. The person or
persons authorized to call special meetings of the directors may fix the place
for holding any special meeting of the directors called by them.
Section 4. QUORUM: A majority of the total number of directors shall
constitute a quorum for the transaction of business.
Section 5. CONSENT IN LIEU OF MEETING: Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting if all members of the Board or
committee, as the case may be, consent thereto in writing, and the writing or
writings are filed with the minutes of proceedings of the Board or committee.
The Board of Directors may hold its meetings, and have an office or offices,
outside of this state.
Section 6. CONFERENCE TELEPHONE: One or more directors may participate
in a meeting of the Board, of a committee of the Board or of the stockholders,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other;
participation in this manner shall constitute presence in person at such
meeting.
Section 7. COMPENSATION: Directors as such, shall not receive any
stated salary for their services, but by resolution of the Board, a fixed sum
and expenses of attendance, if any, may be allowed for attendance at each
regular or special meeting of the Board PROVIDED, that nothing herein contained
shall be construed to preclude any director from serving the corporation in any
other capacity and receiving compensation therefor.
Section 8. REMOVAL: Any director or the entire Board of Directors may
be removed, with or without cause, by the holders of a majority of the shared
then entitled to vote at an election of directors, except that when cumulative
voting is permitted, if less than the entire Board is to be removed, no director
may be removed without cause if the votes cast against his removal would be
sufficient to elect him if then cumulatively voted at an election of the entire
Board of Directors, or, if there be classes of directors, at an election of the
class of directors of which he is a part.
ARTICLE V - OFFICERS
Section 1. NUMBER: The executive officers of the corporation shall be
chosen by the directors and shall be a President, Secretary and Treasurer. The
Board of Directors may also choose a Chairman, one or more Vice Presidents and
such other officers as it shall deem necessary. Any number of offices may be
held by the same person.
4
<PAGE>
Section 2. SALARIES: Salaries of all officers and agents of the
corporation shall be fixed by the Board of Directors.
Section 3. TERM OF OFFICE: The officers of the corporation shall hold
office for one year and until their successors are chosen and have qualified.
Any officer or agent elected or appointed by the Board may be removed by the
Board of Directors whenever in its judgment the best interest of the corporation
will be served thereby.
Section 4. PRESIDENT: The President shall be the chief executive
officer of the corporation; he shall preside at all meetings of the stockholders
and directors; he shall have general and active management of the business of
the corporation, shall see that all orders and resolutions of the Board are
carried into effect, subject, however, to the right of the directors to delegate
any specific powers, except such as may be by statute exclusively conferred on
the President, to any other officer or officers of the corporation. He shall
execute bonds, mortgages and other contracts requiring a seal, under the seal of
the corporation. He shall be EX-OFFICIO a member of all committees, and shall
have the general power and duties of supervision and management usually vested
in the office of President of a corporation.
Section 5. SECRETARY: The Secretary shall attend all sessions of the
Board and all meetings of the stockholders and act as clerk thereof, and record
all the votes of the corporation and the minutes of all its transactions in a
book to be kept for that purpose, and shall perform like duties for all
committees of the Board of Directors when required. He shall give, or cause to
be given, notice of all meetings of the stockholders and of the Board of
Directors, and shall perform such other duties as may be prescribed by the Board
of Directors or President, and under whose supervision he shall be. He shall
keep in safe custody the corporate seal of the corporation, and when authorized
by the Board, affix the same to any instrument requiring it.
Section 6. TREASURER: The Treasurer shall have custody of the corporate
funds and securities and shall keep full and accurate accounts of receipts and
disbursements in books belonging to the corporation, and shall keep the moneys
of the corporation in a separate account to the credit of the corporation. He
shall disburse the funds of the corporation as may be ordered by the Board,
taking proper vouchers for such disbursements, and shall render to the President
and directors, at the regular meetings of the Board, or whenever they may
require it, an account of all his transactions as Treasures and of the financial
condition of the corporation.
ARTICLE VI - VACANCIES
Section 1. NEW APPOINTMENTS: Any vacancy occurring in any office of the
corporation by death, resignation, removal or otherwise, shall be filled by the
Board of Directors. Vacancies and newly created directorships resulting from any
increase in the
5
<PAGE>
authorized number of directors may be filled by a majority of the directors then
in office, although less than a quorum, or by a sole remaining director. If at
any time, by reason of death or resignation or other cause, the corporation
should have no directors in office, then any officer or any stockholder or an
executor, administrator, trustee or guardian of a stockholder, or other
fiduciary entrusted with like responsibility for the person or estate of a
stockholder, may call a special meeting of stockholders in accordance with the
provisions of these By-Laws.
Section 2. RESIGNATIONS EFFECTIVE AT FUTURE DATE: When one or more
directors shall resign from the Board, effective at a future date, a majority of
the directors then in office, including those who have so resigned, shall have
power to fill such vacancy or vacancies, the vote thereon to take effect when
such resignation or resignations shall become effective,
ARTICLE VII - CORPORATE RECORDS
Section 1. CERTIFICATES: Any stockholder of record, in person or by
attorney or other agent, shall, upon written demand under oath stating the
purpose thereof, have the right during the usual hours for business to inspect
for any proper purpose the corporation's stock ledger, a list of its
stockholders, and its other books and records, and to make copies or extracts
therefrom. A proper purpose shall mean a purpose reasonably related to such
person's interest as a stockholder. In every instance where an attorney or other
agent shall be the person who seeks the right to inspection, the demand under
oath shall be accompanied by a power of attorney or such other writing which
authorizes the attorney or other agent to so act on behalf of the stockholder.
The demand under oath shall be directed to the corporation at its registered
office in this state or at its principal place of business.
ARTICLE VIII - STOCK CERTIFICATES, DIVIDENDS, ETC.
Section 1. CERTIFICATES: The stock certificates of the corporation
shall be numbered and registered in the share ledger and transfer books of the
corporation as they are issued. They shall bear the corporate seal and shall be
signed by the President or Vice-President and Secretary, Assistant Secretary or
Treasurer.
Section 2. TRANSFERS: Transfers of shares shall be made on the books of
the corporation upon surrender of the certificates therefor, endorsed by the
person named in the certificate or by attorney, lawfully constituted in writing.
No transfer shall be made which is inconsistent with law.
Section 3. LOST CERTIFICATE: The corporation may issue a new
certificate of stock in the place of any certificate theretofore signed by it,
alleged to have been lost, stolen or destroyed, and the corporation may require
the owner of the lost, stolen or destroyed certificate, or his legal
representative to give the corporation a bond sufficient
6
<PAGE>
to indemnify it against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 4. RECORD DATE: In order that the corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, the Board of Directors may fix, in advance, a record date,
which shall not be more than sixty nor less than ten days before the date of
such meeting, nor more than sixty days prior to any other action. If no record
date is fixed:
(a) The record date for determining stockholders entitled to notice of
or to vote at a meeting of stockholders shall be at the close of business on the
day next preceding the day on which notice is given, or, if notice is waived, at
the close of business on the day next preceding the day on which the meeting is
held.
(b) The record date for determining stockholders entitled to express
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is necessary, shall be the day on which the first
written consent is expressed.
(c) The record date for determining stockholders for any other purpose
shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto.
(d) A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
Section 5. DIVIDENDS: The Board of Directors may declare and pay
dividends upon the outstanding shares of the corporation, from time to time and
to such extent as they deem advisable, in the manner and upon the terms and
conditions provided by statute and the Certificate of Incorporation.
Section 6. RESERVES: Before payment of any dividends there may be set
aside out of the net profits of the corporation such sum or sums as the
directors, from time to time, in their absolute discretion, think proper as a
reserve fund to meet contingencies, or for equalizing dividends, or for
repairing or maintaining any property of the corporation, or for such other
purposes as the directors shall think conducive to the interests of the
corporation, and the directors may abolish any such reserve in the manner in
which it was created.
7
<PAGE>
ARTICLE IX - MISCELLANEOUS PROVISIONS
Section 1. CHECKS: All checks or demands for money and notes of the
corporation shall be signed by such officer or officers as the Board of
Directors may from time to time designate.
Section 2. FISCAL YEAR: The fiscal year shall begin on the first day of
January or as otherwise determined by the Board of Directors.
Section 3. NOTICE: Whenever written notice is required to be given to
any person, it may be given to such person, either personally or by sending a
copy thereof through the mail, or by telegram, charges prepaid, to his address
appearing on the books of the corporation, or supplied by him to the corporation
for the purpose of notice. If the notice is sent by mail or by telegraph, it
shall be deemed to have been given to the person entitled thereto when deposited
in the United States mail or with a telegraph office for transmission to such
person. Such notice shall specify the place, day and hour of the meeting and, in
the case of a special meeting of stockholders, the general nature of the
business to be transacted.
Section 4. WAIVER OF NOTICE: Whenever any written notice is required by
statute, or by the Certificate or the By-Laws of this corporation a waiver
thereof in writing, signed by the person or persons entitled to such notice,
whether before or after the time stated therein, shall be deemed equivalent to
the giving of such notice. Except in the case of a special meeting of
stockholders, neither the business to be transacted at nor the purpose of the
meeting need be specified in the waiver of notice of such meeting. Attendance of
a person either in person or by proxy, at any meeting shall constitute a waiver
of notice of such meeting, except where a person attends a meeting for the
express purpose of objecting to the transaction of any business because the
meeting was not lawfully called or convened.
Section 5. DISALLOWED COMPENSATION: Any payments made to an officer of
employee of the corporation such as salary, commission, bonus, interest, rent,
travel or entertainment expense incurred by him, which shall be disallowed in
whole or in part as a deductible expense by the Internal Revenue Service, shall
be reimbursed by such officer or employee to the corporation to the full extent
of such disallowance. It shall be the duty of the directors, as a Board, to
enforce payment of each such amount disallowed. In lieu of payment by the
officer or employee, subject to the determination of the directors,
proportionate amounts may be withheld from his future compensation payments
until the amount owed to the corporation has been recovered.
Section 6. RESIGNATIONS: Any director or other officer may resign at
any time, such resignation to be in writing and to take effect from the time of
its receipt by the corporation, unless some time be fixed in the resignation and
then from that date. The acceptance of a resignation shall not be required to
make it effective.
8
<PAGE>
ARTICLE X - ANNUAL STATEMENT
Section 1. PRESENTATION: The President and the Board of Directors shall
present at each annual meeting a full and complete statement of the business and
affairs of the corporation for the preceding year. Such statement shall be
prepared and presented in whatever manner the Board of Directors shall deem
advisable and need not be verified by a Certified Public Accountant.
ARTICLE XI - INDEMNIFICATION AND INSURANCE:
Section 1. (a) RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party or is involved in any action, suit
or proceeding, whether civil, criminal, administrative or investigative
(hereinafter a "proceeding"), by reason of the fact that he or she, or a person
of whom he or she is the legal representative, is or was a director or officer,
of the Corporation or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged action
in an official capacity as a director, officer, employee or agent or in any
other capacity while serving as a director, officer, employee or agent, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the extent
that such amendment permits the Corporation to provide broader indemnification
rights than said law permitted the Corporation to provide prior to such
amendment), against all expense, liability and loss (including attorneys' fees,
judgments, fines, ERISA excise taxes or penalties and amounts paid or to be paid
in settlement) reasonably incurred or suffered by such person in connection
therewith and such indemnification shall continue as to a person who has ceased
to be a director, officer, employee or agent and shall inure to the benefit of
his or her heirs, executors and administrators; provided, however, that, except
as provided in paragraph (b) hereof, the Corporation shall indemnify any such
person seeking indemnification in connection with a proceeding (or part thereof)
initiated by such person only if such proceeding (or part thereof) was
authorized by the Board of Directors of the Corporation. The right to
indemnification conferred in this Section shall be a contract right and shall
include the right to be paid by the Corporation the expenses incurred in
defending any such proceeding in advance of its final disposition; provided,
however, that, if the Delaware General Corporation Law requires, the payment of
such expenses incurred by a director or officer in his or her capacity as a
director or officer (and not in any other capacity in which service was or is
rendered by such person while a director or officer, including, without
limitation, service to an employee benefit plan) in advance
9
<PAGE>
of the final disposition of a proceeding, shall be made only upon delivery to
the corporation of an undertaking, by or on behalf of such director or officer,
to repay all amounts so advanced if it shall ultimately be determined that such
director or officer is not entitled to be indemnified under this Section or
otherwise. The Corporation may, by action of its Board of Directors, provide
indemnification to employees and agents of the Corporation with the same scope
and effect as the foregoing indemnification of directors and officers.
(b) RIGHT OF CLAIMANT TO BRING SUIT:
If a claim under paragraph (a) of this Section is not paid in full by
the Corporation within thirty days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required undertaking,
if any is required, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the Delaware
General Corporation law for the Corporation to indemnify the claimant for the
amount claimed, but the burden of proving such defense shall be on the
Corporation. Neither the failure of the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) to have made a
determination prior to the commencement of such action that indemnification of
the claimant is proper in the circumstances because he or she has met the
applicable standard of conduct set forth in the Delaware General Corporation
Law, nor an actual determination by the Corporation (including its Board of
Directors, independent legal counsel, or its stockholders) that the claimant has
not met such applicable standard or conduct, shall be a defense to the action or
create a presumption that the claimant has not met the applicable standard or
conduct.
(c) Notwithstanding any limitation to the contrary contained in
sub-paragraphs (a) and 8(b) of this section, the corporation shall, to the
fullest extent permitted by Section 145 of the General Corporation Law of the
State of Delaware, as the same may be amended and supplemented, indemnify any
and all persons whom it shall have power to indemnify under said section from
and against any and all of the expenses, liabilities or other matters referred
to in or covered by said section, and the indemnification provided for herein
shall not be deemed exclusive of any other rights to which those indemnified may
be entitled under any By-law, agreement, vote of stockholders or disinterested
Directors or otherwise, both as to action in his official capacity and as to
action in another capacity while holding such office, and shall continue as to a
person who has ceased to be director, officer, employee or agent and shall inure
to the benefit of the heirs, executors and administrators of such a person.
10
<PAGE>
(d) INSURANCE:
The Corporation may maintain insurance, at its expense, to protect
itself and any director, officer, employee or agent of the Corporation or
another corporation, partnership, joint venture, trust or other enterprise
against any such expense, liability or loss, whether or not the Corporation
would have the power to indemnify such person against such expense, liability or
loss under the Delaware General Corporation Law.
ARTICLE XII - AMENDMENTS
Section 1. VOTE: These By-Laws may be amended or repealed by the vote
of directors.
/s/ Mick Jardine
------------------------------------
Mick Jardine, Secretary
Dated: August 18, 1999
11
<PAGE>
Revised 12/14/95
TENANT: CacheLink Corp.
LEASE OF
WESTBOROUGH OFFICE PARK
BUILDING FIVE
1500 West Park Drive
Westborough, Massachusetts
TABLE OF CONTENTS
ARTICLE
NUMBER TITLE PAGE
I. DEFINITIONS 1
II. PREMISES AND APPURTENANT RIGHTS 3
III. BASIC RENT 5
IV. COMMENCEMENT AND CONDITION 7
V. USE OF PREMISES 10
VI. ASSIGNMENT AND SUBLETTING 12
VII. RESPONSIBILITY FOR REPAIRS AND CONDITION OF
PREMISES; SERVICES TO BE FURNISHED BY LANDLORD 14
VIII. REAL ESTATE TAXES 16
IX. OPERATING EXPENSES 18
X. INDEMNITY AND PUBLIC LIABILITY INSURANCE 19
XI. LANDLORD'S ACCESS TO PREMISES 22
XII. FIRE, EMINENT DOMAIN, ETC. 22
XIII. DEFAULT 24
XIV. MISCELLANEOUS PROVISIONS 27
14.1 Extra Hazardous Use 27
14.2 Waiver 27
14.3 Covenant of Quiet Enjoyment 28
14.4 Landlord's Liability 28
14.5 Transfer of Title 29
<PAGE>
14.6 Rules and Regulations 29
14.7 Additional Charges 30
14.8 Invalidity of Particular Provisions 30
14.9 Provisions Binding, Etc. 30
14.10 Notices 30
14.11 When Lease Becomes Binding 31
14.12 Paragraph Headings 31
14.13 Rights of Mortgagee or Ground Lessor 31
14.14 Status Report 33
14.15 Remedying Defaults 33
14.16 Holding Over 33
14.17 Waiver of Subrogation 33
14.18 Surrender of Premises 34
14.19 Brokerage 34
14.20 Governing Law 34
EXHIBIT OC (Operating Costs)
EXHIBIT FP (Floor Plan)
EXHIBIT LP (Tenant's Layout Plan)
EXHIBIT LC (Letter of Credit)
EXHIBIT DC (Landlord's Draft and Certificate)
EXHIBIT B (Building Interior Finish Standards)
EXHIBIT C (Building Services)
EXHIBIT A (Description of Land Parcel)
EXHIBIT GL (Ground Lease)
EXHIBIT I (Payment Schedule for $173,500 Loan -
3-Year Term @ 10% Interest)
<PAGE>
LEASE
THIS INSTRUMENT IS A LEASE, dated as of November 10, 1995 in which
the Landlord and the Tenant are the parties hereinafter named, and which
relates to space in the building (the "Building") known as Building Five
in the Westborough Office Park located at 1500 West Park Drive, Westborough,
Massachusetts. The parties to this instrument hereby agree with each other as
follows:
ARTICLE I
DEFINITIONS
1.1 INTRODUCTION. The capitalized terms used in this Lease and listed in
this Article I shall have the definitions set forth in Section 1.2 and
1.3 below.
1.2 BASIC DATA.
Landlord: Westborough Associates Building Five Limited
Partnership, a Massachusetts limited partnership
Landlord's Original Address: c/o Robert Elder Associates, 50
Milk Street, Boston, MA 02109
Tenant: CacheLink Corp.
Tenant's Original Address: 1500 West Park Drive, Suite 360,
Westborough, Massachusetts 01581
Basic Rent: $209,745.00 ($15.33 per square foot of Premises
Rentable Area per annum) plus $42,551 ($3.11/s.f./yr) for amortization
of special leasehold improvements. Both of the above rates may be
adjusted and/or abated pursuant to Section 2.1.
Premises Rentable Area: Agreed to be 13,682 square feet.
Permitted Uses: General Office
Escalation Factor: 18.02%, as computed in accordance with the
Escalation Factor Computation.
Construction Completion Date: January 31, 1996
Tenant's Layout Plan: A plan dated November 27, 1995 and
attached to this Lease as Exhibit LP.
<PAGE>
Intial Term: Three (3) years commencing on the Commencement Date and
expiring at the close of the day immediately preceding the third anniversary of
the Commencement Date, except that if the Commencement Date shall be other than
the first day of the calendar month, the expiration of the Initial Term shall be
at the close of the day on the last day of the calendar month in which such
anniversary shall fall.
Base Operating Expenses: Actual Operating Expenses
for calendar year 1995
Base Taxes: $81,000
Broker: Leggat McCall/Grubb & Ellis, Inc.
The Codman Company, Inc.
1.3 ADDITIONAL DEFINITIONS.
Agent: Leggat McCall Properties Management, Inc.
1700 West Park Drive
Westborough, MA 01581
Building Rentable Area: Agreed to be 79,912 s.f.
Business Days: All days except Saturday, Sunday, New Year's Day,
President's Birthday, Patriot's Day, Memorial Day, Independence Day, Labor Day,
Columbus Day, Veterans Day, Thanksgiving Day, Christmas Day (and the following
day when any such day occurs on Sunday) and such other days that Tenant
presently or in the future recognizes as holidays for Tenant's general office
staff.
Commencement Date: As defined in Section 4.1.
Default of Tenant: As defined in Section 13.1.
Escalation Charges: The amounts payable by Tenant under Section 8.1 and
9.2 on account of Taxes and Operating Expenses.
Escalation Factor Computation: Premises Rentable Area divided by 95% of
Building Rentable Area.
Force Majeure: Collectively and individually, strike or other labor
trouble, fire and other casualty, governmental pre-emption of priorities or
other controls in connection with a national or other public emergency or
shortages of fuel, supplies of labor resulting therefrom, or any other cause,
whether similar or dissimilar, beyond Landlord's reasonable control.
Initial Public Liability Insurance: $1,000,000 per occurrence (combined
single limit) for property damage, bodily injury or death.
-2-
<PAGE>
Land Parcel: The parcel of land in Westborough, Massachusetts, upon
which the Building is situated, shown as Lot 6 and Lot 6.1 on a certain plan
entitled "Compiled Plan of Land in Westborough, Massachusetts, (Worcester
County), Scale 1" = 50', dated April 19, 1988, by The BSC Group - Worcester,
Inc., 33 Waldo Street, Worcester, Massachusetts," which parcel is more
particularly described on Exhibit A attached to this Lease.
Landlord's Work: As defined in Section 4.2.
Office Park: The entire development known as Westborough Office Park in
which the Building is located and situated on approximately 137.9 acres of land
located at West Park Drive and Streets, Westborough, Massachusetts.
Operating Expenses: As defined in Section 9.1 and Exhibit OC.
Operating Year: As defined in Section 9.1.
Premises: A portion of the first floor of the Building as shown on
Exhibit FP annexed hereto.
Premises Useable Area: The carpetable area within the Premises.
Property: The Building and the Land Parcel (including all driveways,
parking areas and sidewalks).
Substantial Completion Date: As defined in Section 4.2(b).
Tax Year: As defined in Section 8.1.
Taxes: As defined in Section 8.1.
Tenant's Delay: As defined in Section 4.4.
Tenant's Removable Property: As defined in Section 5.2.
Term of this Lease: The Initial Term and any extension thereof in
accordance with the provisions hereof.
ARTICLE II
PREMISES AND APPURTENANT RIGHTS
2.1 LEASE OF PREMISES. Landlord hereby demises and leases to Tenant, and
Tenant hereby accepts from Landlord, the Premises for the Term of this
Lease and upon the terms and conditions set forth in this Lease.
-3-
<PAGE>
2.2 APPURTENANT RIGHTS AND RESERVATIONS. (a) Tenant shall have, as
appurtenant to the Premises, the non-exclusive right to use, and permit
its employees, agents, contractors and invitees to use in common with
others entitled thereto; the entrances, exits, roads and walkways of
the Office Park necessary for access to the Building, the parking areas
and walkways on the Land Parcel, the loading facilities serving the
Building, the lobbies, hallways, stairways, elevators and walkways
necessary for access to the Premises, and if the portion of the
Premises on any floor includes less than the entire floor, the common
toilets, corridors and elevator lobby of such floor (collectively, the
"Common Areas"); but such rights shall always be subject to reasonable
rules and regulations from time to time established by Landlord
pursuant to Section 14.6 and to the right of Landlord to designate and
change from time to time areas and facilities so to be used; provided,
however, Landlord shall not (i) reduce the number of parking spaces on
the Property below the number existing as of the date of this Lease,
(ii) eliminate any common restroom located on the same floor as any
portion of the Premises, or (iii) materially interfere with access to
such parking areas, the Building or the Premises. Tenant and its
employees, agents, contractors and invitees shall have the right to use
(on a non-exclusive basis) parking spaces in the parking areas
immediately adjacent to the Building totaling at least four parking
spaces per 1,000 square feet of Premises Rentable Area.
(b) Excepted and excluded from the Premises are the ceiling, floor,
perimeter walls and exterior windows, except the inner sufaces of each
thereof, and any space in the Premises used (as of the date of this
Lease) for shafts, stacks, conduits, fan rooms, ducts, electric or
other utilities, but the entry doors (and related glass and finish
work) to the Premises are a part thereof. Tenant agrees that Landlord
shall have the right to place in the Premises (but in such location and
manner as to avoid interference with Tenant's use of the Premises)
interior storm windows, sub control devices, utility lines, equipment,
stacks, pipes, conduits, ducts and the like. Tenant shall install and
maintain, as Landlord may require, proper access panels in any hung
ceilings or walls as may be installed by Tenant in the Premises to
afford access to any facilities above the ceiling or within or behind
the walls.
2.3 EXPANSION RIGHT. If at any time during the term of this Lease, rental
space in the Building becomes available for lease, Landlord covenants
to first offer such space to Tenant at the then prevailing market
rental rate in Westborough Office Park. Before offering such available
space to any other tenant, Landlord shall give to Tenant a written
offer stating the date on which such space will become available for
lease by Tenant and the
-4-
<PAGE>
Landlord's calculation of the then prevailing market rental rate.
Tenant shall have ten (10) days from receipt of such offer to respond
to Landlord's notice. If Tenant fails to respond within the ten (10)
day period, the right of Tenant to take such space becomes void.
2.4 LETTER OF CREDIT. Tenant agrees to provide to Landlord at the time of
execution of this Lease a Letter of Credit from a bank acceptable to
Landlord (Landlord hereby acknowledging that Fleet Bank is acceptable)
in the initial amount of $173,500 in a form substantially similar to
the form attached to this Lease as Exhibit LC. The Landlord shall be
the sole beneficiary of the Letter of Credit. The amount of the Letter
of Credit will be reduced to $120,319 on the first anniversary of the
Commencement Date and to $63,152 on the second anniversary of the
Commencement Date.
Landlord shall be permitted to draw on the Letter of Credit in the
amounts hereinafter provided if (i) there shall occur a Default of
Tenant relating to the failure of Tenant to pay Basic Rent due under
this Lease and such Default of Tenant shall continue uncured after the
giving of any applicable notice and the expiration of any applicable
grace period and (ii) Landlord shall deliver to the bank issuing the
Letter of Credit a certificate, in the form attached to this Lease as
Exhibit DC (or a substantially similar form used by the issuing bank),
certifying to the occurrence of a Default of Tenant relating to the
failure of Tenant to pay Basic Rent due under this Lease, which Default
of Tenant continued uncured after the giving of any applicable notice
and the expiration of any applicable grace period.
If there shall occur a Default of Tenant relating to the failure of
Tenant to pay basic rent due under this Lease and such Default of
Tenant shall continue uncured after the giving of notice and the
expiration of any applicable grace period, and Landlord does not act to
terminate the Lease, Landlord shall have the right to apply all or any
portion of the Security Deposit as necessary to cure such Default of
Tenant. Landlord shall also be permitted to draw the entire amount
payable under the Letter of Credit if Tenant fails to provide to
Landlord a substitute Letter of Credit, satisfying the conditions of
this Section 2.4, within 30 days after receiving from Fleet Bank of
Massachusetts, N.A. notice of its intention not to renew the Letter
of Credit issued by Fleet Bank of Massachusetts, N.A. in connection
with this Lease. If Landlord so draws the amount payable under the
Letter of Credit on account of such non-renewal, Landlord shall
deposit the amount so drawn (the "Security Deposit") in a segregated
interest-bearing escrow account. On the first anniversary of the
Commencement Date, Landlord shall return to Tenant any balance of the
Security
-5-
<PAGE>
Deposit in excess of $120,319; on the second anniversary of the
Commencement Date, Landlord shall return to Tenant any balance of the
Security Deposit in excess of $63,152. If any balance of the Security
Deposit remains at the end of the Term of this Lease, Landlord shall
return such balance to Tenant within 30 days after the end of the Term
of this Lease.
ARTICLE III
BASIC RENT
3.1 PAYMENT. (a) Tenant agrees to pay to Landlord, or as directed by
Landlord, commencing on the Commencement Date without offset, abatement
(except as provided in Section 12.1), deduction or demand, except as
otherwise specified in this Lease, rent at an annual rate equal to the
Basic Rent. Such Basic Rent shall be payable in equal monthly
installments, in advance, on the first day of each and every calendar
month during the Term of this Lease, at Landlord's Original Address, or
at such other place as Landlord shall from time to time designate by
notice, in lawful money of the United States. Until notice of some other
designation is given, Basic Rent and all other charges for which
provision is herein made shall be paid by remittance payable to the
Landlord, and all remittance so received as aforesaid, or by any
susequently designated recipient, shall be treated as a payment to
Landlord. In the event that any installment of Basic Rent is not paid
when due, and such failure shall continue for five Business Days afer
written notice to Tenant from Landlord, Tenant shall pay, in addition to
any Escalation Charges or other additional charges due under this Lease,
at Landlord's request an administrative fee equal to 1% of the overdue
payment.
(b) The monthly installment of Basic Rent for any partial month shall be
prorated on a daily basis. If the Commencement Date shall be other than
the first day of a calendar month, the first payment which Tenant shall
make to Landlord shall be equal to such prorated amount of the monthly
installment of Basic Rent for the partial month from the first day on
which Tenant must pay Basic Rent to the last day of the month in which
such date occurs plus the installment of Basic Rent for the succeeding
calendar month. If the last day of the Term of this Lease shall be other
than the last day of a calendar month, the last monthly payment of Basic
Rent shall be equal to such prorated amount of the monthly installment
of Basic Rent for such partial calendar month at the end of the Term of
this Lease.
-6-
<PAGE>
ARTICLE IV
COMMENCEMENT AND CONDITION
4.1 COMMENCEMENT DATE. The Commencement Date shall be the last to occur of:
(a) the Construction Completion Date without giving effect to any
extension of same arising solely out of a Tenant's Delay, or
(b) the day following the Substantial Completion Date.
4.2 PREPARATION OF THE PREMISES. (a) Landlord shall exercise all reasonable
effort to complete Landlord's Work (as hereinafter defined) before the
Construction Completion Date. "Landlord's Work" shall include the
construction, installations and other work necessary to prepare the
Premises for Tenant's occupancy according to Tenant's Layout Plan
attached to this Lease as Exhibit LP, and the Building Interior Finish
Standards attached to this Lease as Exhibit B, including without
limitation the installation of building standard carpeting chosen by
Tenant in the area delineated on the Floor Plan attached to this Lease
as Exhibit FP and the installation of thirty-three new office doors and
sidelights. Landlord shall perform Landlord's Work in a good and
workmanlike manner and in compliance with all laws. Landlord represents
and warrants to Tenant that, as of the Substantial Completion Date, the
Premises and the Building shall comply with all applicable laws,
including without limitation the Americans with Disabilities Act of
1990, as amended, and that Tenant may lawfully occupy the Premises for
the conduct of its business. Tenant shall have no claim against
Landlord for failure so to complete Landlord's Work except the right to
terminate this Lease in accordance with Section 4.2(c).
(b) The Premises shall be deemed ready for occupancy on the first day
(the "Substantial Completion Date") as of which (i) a final Certificate
of Occupancy has been issued with respect to the Premises and (ii)
Landlord's Work has been completed except for Punch List Items. "Punch
List Items" shall include only those items of work (and, if applicable,
adjustment of equipment and fixtures) which (x) can be completed after
Tenant's occupancy of the Premises without causing material
interference with Tenant's use of the Premises or the conduct of
Tenant's business in the Premises, and (y) are capable of being
completed within 30 days after the Substantial Completion Date.
Landlord shall complete all Punch List Items within 30 days after the
Substantial Completion Date. Tenant shall give Landlord reasonable
access to the Premises at reasonable times for the purpose of
completing the Punch List Items;
-7-
<PAGE>
provided, however, Landlord shall not cause or permit a material
interference with Tenant's use of the Premises or the conduct of
Tenant's business on the Premises.
(c) If the Substantial Completion Date has not occurred by February 15,
1996, (as it may be extended pursuant to Section 4.4), Tenant shall
have the right to terminate this Lease by giving notice to Landlord of
Tenant's desire so to do; and this Lease shall cease and come to an end
without further liability or obligation on the part of either party
thirty (30) days after the giving of such notice, unless, within such
30-day period, the Substantial Completion Date shall occur in which
case Tenant's election to terminate shall be void; and such right of
termination shall be Tenant's sole and exclusive remedy at law or in
equity for Landlord's failure so to complete such Work within such
time.
4.3 CONCLUSIVENESS OF LANDLORD'S PERFORMANCE. Except for latent defects in
Landlord's Work and any defects of which Tenant shall have given
Landlord notice, not later than the end of the second full calendar
month next beginning after the Commencement Date, Tenant shall have no
claim that Landlord has failed to perform any of Landlord's Work.
Except for Landlord's Work and except as otherwise set forth in this
Lease, the Premises are being leased in their condition "as-is" without
representation or warranty by Landlord. Tenant acknowledges that it has
inspected the Premises and Common Areas of the Building and, except for
Landlord's Work and except as otherwise set forth in this Lease, has
found the same satisfactory.
4.4 TENANT'S DELAYS. (a) If a delay shall occur in the Substantial
Completion Date solely as the result of:
(i) any request by Tenant that Landlord delay in the
commencement or completion of Landlord's Work for any reason;
(ii) any material change by Tenant in any of Tenant's Layout
Plan; or
(iii) any other act or omission of Tenant or its officers,
agents, servants or contractors outside of the ordinary scope
of Tenant's performance of its obligations under this Lease;
then the Substantial Completion Date shall be deemed to occur
on the date it would otherwise have occurred but for such
delay.
(b) The delays referred to in paragraph (a) are herein referred to
collectively and individually as "Tenant's Delay".
(c) The Construction Completion Date shall automatically be extended
for the period of any delays
-8-
<PAGE>
caused by Tenant's Delay(s) or Force Majeure.
4.5 RENEWAL OPTION. Provided, that Tenant is not then in default of any of
the Tenant's obligations stated in this Lease, Tenant may renew the
Lease for one (1) additional period of three (3) years (the "Renewal
Term") by giving written notice to Landlord not later than six (6)
months prior to the end of the Initial Term. During the Renewal Term,
the terms and conditions of this Lease shall remain in effect, except
that the Basic Rent will be at 95% of the then fair market rental rate
prevailing in Westborough Office Park at the time that Tenant gives
notice to Landlord. Upon written request by Tenant not more than twelve
months before the end of the Initial Term, Landlord shall, within ten
days of such request, give Tenant a written statement of the Basic Rent
for the renewal term, as calculated by Landlord. The deadline for
Tenant to exercise its renewal rights under this Section 4.5 shall be
extended by one day for each day after such ten-day period that
Landlord shall fail to deliver such statement of the Basic Rent to
Tenant.
4.6 EARLY TERMINATION RIGHT. In the event that Tenant requires expansion
space and Landlord cannot provide such space in the Building, Tenant
may terminate the Lease at the end of the 18th calendar month of the
Initial Term by giving written notice to Landlord not later than the
end of the 12th calendar month of the Initial Term along with a payment
of $131,750. The payment shall accompany Tenant's notice of
termination. If Tenant exercises its right to terminate this Lease, all
payments of Basic Rent, additional rent and other charges due under
this Lease shall be prorated as of the effective date of such
termination, and all other obligations of Landlord and Tenant shall
cease as though the Termination date were the date of the ordinary
expiration of the Term of this Lease.
4.7 EARLY OCCUPANCY. Notwithstanding any contrary provision of this Lease,
on December 15, 1995, Landlord shall deliver to Tenant possession of
those portions of the Premises shown as the cross-hatched area of
"Existing carpet" on the floor plan attached to this Lease as Exhibit
FP, and Tenant shall have the right to use and occupy such
cross-hatched area for all Permitted Uses. If Tenant chooses to occupy
all or any protion of such space on December 15, 1995 or any date
thereafter up until the Substantial Completion Date, Tenant shall pay
rent at a rate of $1.50/s.f. of rentable area in those portions of such
cross-hatched space actually occupied by Tenant per month of occupancy
prior to substantial Completion Date. In the event that a partial month
is involved, the rental rate of $1.50/s.f./month shall be prorated.
Landlord shall permit Tenant and its employees, agents and contractors
to enter the Premises before the Commencement Date to install Tenant's
-9-
<PAGE>
electrical, wiring and telecommunications systems and other trade
fixtures and equipment in the Premises in preparation of Tenant's use
and occupancy of the Premises under this Lease.
ARTICLE V
USE OF PREMISES
5.1 PERMITTED USE. (a) Tenant agrees that the Premises shall be used and
occupied by Tenant only for Permitted Uses.
(b) Tenant agrees to conform to the following provisions during the
Term of this Lease:
(i) Tenant shall cause all freight to be delivered to or
removed from the Building and the premises in accordance with
reasonable rules and regulations established by Landlord under
Section 14.6 of this Lease;
(ii) Tenant will not place on the exterior of the Premises
(including both interior and exterior surfaces of doors and
interior surfaces of windows) or on any part of the Building
outside the Premises or at any location in the Office Park,
any signs, symbol, advertisement or the like visible to public
view outside of the Premises. Landlord will not unreasonably
withhold consent for signs or lettering on the entry doors to
the Premises provided such signs conform to building standards
adopted by Landlord and Tenant has submitted to Landlord a
plan or sketch of the sign to be placed on such entry doors.
Landlord agrees, however, to maintain a tenant directory in
the lobby of the Building in which Tenant shall be entitled to
have one (1) insertion identifying Tenant's name and the
location of the Premises in the Building. If space is
available on the tenant directory, Tenant may request that
Landlord place additional insertions naming Tenant's personnel
on such tenant directory, provided that Tenant shall pay a fee
assessed by Landlord for each such additional insertion.
(iii) Tenant shall not perform any act or carry on any
practice which may injure the Premises, or any other part of
the Building or Office Park, or cause any offensive odors or
loud noises or constitute a nuisance or a menace to any other
tenant or tenants or other persons in the Building or Office
Park;
(iv) Tenant shall, in its use of the Premises, comply with the
requirements of all applicable governmental laws, rules and
regulations;
-10-
<PAGE>
(V) Tenant shall continuously throughout the Term of this
Lease occupy the Premises for Permitted Uses.
5.2 INSTALLATIONS AND ALTERATIONS BY TENANT. (a) Tenant may make
non-structural alterations, additions or improvements in or to the
Premises provided that, with respect to any alterations, additions or
improvements costing more than $5,000 in any one instance ("Significant
Alterations"), Tenant has first obtained Landlord's prior written
consent, which shall not be unreasonably withheld, delayed or
conditioned. Any such alterations, additions or improvements shall (i)
with respect to Significant Alterations, be in accordance with complete
plans and specifications approved by Landlord, which approval shall not
be unreasonably withheld, delayed or conditioned, (ii) be performed in
a good and workmanlike manner and in compliance with all applicable
laws, (iii) with respect to Significant Alterations, be made only by
contractors or mechanics approved by Landlord, which approval shall not
be unreasonably withheld, delayed or conditioned, (iv) be at Tenant's
sole expense, and (v) except for Tenant's Removable Property (as
hereinafter defined) and as otherwise agreed by Landlord and Tenant,
become part of the Premises and the property of Landlord.
Tenant may request the agreement of Landlord if at any time during the
Term Tenant wishes to make an alteration that Tenant believes to be a
part of Tenant's Removable Property, Landlord shall respond within five
(5) business days to Tenant's request.
Under no circumstances shall Tenant make any structural alterations to
the Premises.
(b) All articles of personal property and all trade and business
fixtures, machinery and equipment and furniture owned or installed by
Tenant in the Premises ("Tenant's Removable Property") shall remain the
Property of Tenant and may be removed by Tenant at any time prior to
the expiration of this Lease, provided that Tenant, at its expense,
shall repair any damage to the Building caused by such removal.
(c) Notice is hereby given that Landlord shall not be liable for any
labor or materials furnished or to be furnished to Tenant upon credit,
and that no mechanic's or other lien for any such labor or materials
shall attach to or affect the reversion or other estate or interest of
Landlord in and to the Premises. Whenever and as often as any
mechanic's lien shall have been filed against the Property or the
Office Park based upon any act or interest of Tenant or of anyone
claiming through Tenant, Tenant shall take such action by bonding,
deposit or payment as will remove or satisfy the lien within ten days
after Tenant receives notice of such lien.
-11-
<PAGE>
ARTICLE VI
ASSIGNMENT AND SUBLETTING
6.1 PROHIBITION. (a) Tenant covenants and agrees that whether voluntarily,
involuntarily, by operation of law or otherwise, except as expressly
permitted by paragraphs (b) and (c) of this Section, neither this Lease
nor the term and estate hereby granted, nor any interest herein or
therein, will be assigned, mortgaged, pledged, encumbered or otherwise
transferred and that neither the Premises nor any part thereof will be
encumbered in any manner by reason of any act or omission on the part
of Tenant, or use or occupied or permitted to be used or occupied, by
anyone other than Tenant, or for any use or purpose other than a
Permitted Use, or the subject (which term, without limitation, shall
include granting of concessions, licenses and the like) in whole or in
part, or be offered or advertised for assignment or subletting.
(b) Tenant shall be allowed to sublet during the Term of this Lease any
portion of the Premises provided Landlord consents in writing in
advance to such subletting. Landlord agrees not to withhold its consent
to any subletting during the Term, provided that Tenant requests such
consent in a writing which shall include the particular terms of the
proposed sublet, and provided that (i) during the term of the sublet
Tenant shall continue to occupy a portion of the Premises; (ii) at the
time of Tenant's request Tenant is not in default under this Lease;
(iii) Landlord, in its reasonable discretion, determines that the
reputation, business, proposed use of the Premises by, and financial
responsibility of, the proposed sublessee is satisfactory to
Landlord; (iv) such sublease shall be in writing and its form shall be
subject to the reasonable approval of the Landlord; (v) such sublease
shall be subject and subordinate to this Lease, any ground lease of the
Land Parcel or Building or both, and any first mortgage of the Land
Parcel or Building or both; (vi) anything contained in the foregoing
provisions of this section to the contrary notwithstanding, neither
Tenant nor any other person having an interest in the possession, use
occupancy or utilization of the Premises shall enter into any lease,
sublease, license, concession or other agreement for use, occupancy or
utilization of space in the Premises which provides for rental or other
payment for such use, occupancy or utilization based, in whole or in
part, on the net income or profits derived by any person from the
premises leased, used, occupied, or utilized (other than an amount
based on a fixed percentage or percentages of receipts or sales), and
any such purported lease, sublease, license, concession or other
agreement shall be absolutely void and ineffective as a conveyance of
-12-
<PAGE>
any right or interest in the possession, use occupancy or utilization
of any part of the Premises; (vii) no right shall exist on the part of
the sublessee to sublet further the sublet premises; (viii) such
sublessee shall expressly assume all the obligations of this Lease on
Tenant's part to be performed as to the sublet space; (ix) such
consent, if given, shall not release Tenant of any of its obligations
(including, without limitation, its obligations to pay rent) under this
Lease and Tenant's liability after any such subletting shall be as to
the subject space joint and several with the sublessee; and (x) Tenant
shall reimburse Landlord promptly as additional rent for reasonable
legal and other expenses incurred by Landlord in connection with any
request by Tenant for consent to any such sublet. A consent to one
subletting to any person or entity shall not be deemed to be a consent
to any subsequent subletting.
In the event that Tenant shall during the Term desire to sublet all or
any portion of the Premises such that after the commencement of such
sublet Tenant or any Affiliate (as hereinafter defined) shall no longer
be occupying any portion of the Premises, Tenant shall by advance
notice to Landlord disclose all of the material terms of such proposed
sublet and in such notice also offer the entire Premises back to
Landlord, subject to any sublets previously in effect and approved by
Landlord as provided in this paragraph (b). If Landlord elects to
accept such offer, Landlord shall so notify Tenant within fifteen (15)
days of the date of the aforesaid notice by Tenant, and this Lease
shall end on that date selected by Landlord which shall be not less
than thirty (30) nor more than ninety (90) days after the date of said
notice by Landlord to Tenant. On or prior to such termination date
Tenant shall pay to Landlord the Basic Rent and all other charges
accrued under this Lease through such termination date. In the event
that Landlord does not exercise such election within the time period
above provided for, Tenant shall be permitted to enter into the
proposed sublease provided that Tenant is not then in default under
this Lease and provided that the conditions set forth in clauses (iii)
through (x) of the next preceding paragraph are satisfied.
(c) Notwithstanding any contrary provision of this Article VI, Tenant
shall have the right, without prior notice to Landlord and without
Landlord's consent or approval, to assign this Lease or sublet any
portion of the Premises to any corporation, partnership or other
business organization controlling, controlled by, or under common
control with, Tenant, or in connection with the merger or consolidation
of Tenant or the sale of all or substantially all of Tenant's assets
(any such assignee or sublessee being an "Affiliate"); provided that
(i) after the consummation of any such assignment
-13-
<PAGE>
or Sublease, the Affiliate agrees directly with Landlord, by written
instrument in form reasonably satisfactory to Landlord, to be bound by
all the obligations of Tenant hereunder including, without limitation,
the covenant against further assignment and subletting except as
expressly permitted hereunder, and (ii) no such transfer shall relieve
Tenant or in the event of a transfer of partnership interests, any of
the transferring partners from its or their obligations hereunder and
Tenant shall remain fully and primarily liable to Landlord therefor.
(d) If this Lease be assigned, or if the Premises or any part thereof
be sublet or occupied by anyone other than Tenant or an Affiliate,
Landlord may, at any time after a Default of Tenant, collect rent and
other charges from the assignee, subtenant, or occupant, and apply the
net amount collected to the rent and other charges due under this
Lease, but no such assignment, subletting, occupancy or collection
shall be deemed the acceptance of the assignee, subtenant or occupant
as a tenant or a release of the original named Tenant from the further
performance by the original named Tenant hereunder. No assignment or
subletting, or occupancy shall affect Permitted Uses. No assignment or
subletting hereunder shall relieve Tenant from its obligations
hereunder and Tenant shall remain fully and primarily liable therefor.
ARTICLE VII
RESPONSIBILITY FOR REPAIRS AND CONDITION OF PREMISES;
SERVICES TO BE FURNISHED BY LANDLORD
7.1 LANDLORD REPAIRS. (a) Except as otherwise provided in this Lease,
Landlord agrees to keep in good order, condition and repair and in
compliance with all laws the roof, public areas, Common Areas, exterior
walls (including interior glass) and structure and systems of the
Building (including all plumbing, mechanical and electrical systems
installed by Landlord), except that Landlord shall in no event be
responsible to Tenant for the repair of glass in the Premises, the
doors (or related glass and finish work) leading to the Premises, or
any condition in the Premises or the Building caused by any act or
neglect of Tenant, its invitees or contractors. The fact that Landlord
is repsonsible for the foregoing repairs shall not be construed so as
to prohibit the cost thereof from being included in Operating Expenses
to the extent provided on Exhibit OC. Landlord shall not be responsible
to make any improvements or repairs to the Building other than as
expressed in this Section 7.1 provided, unless expressly provided
otherwise in this Lease.
-14-
<PAGE>
(b) Landlord shall never be liable for any failure to make repairs
which Landlord has undertaken to make under the provisions of this
Section 7.1 or elsewhere in this Lease, unless Tenant has given notice
to Landlord of the need to make such repairs, and Landlord has failed
to commence to make such repairs within a reasonable time after receipt
of such notice, or fails to proceed with reasonable diligence to
complete such repairs.
7.2 TENANT'S AGREEMENT. (a) Tenant will keep neat and clean and maintain
the Premises in as good order, condition and repair as exists as of the
Commencement Date, excepting only those repairs for which Landlord is
responsible under the terms of this Lease, reasonable wear and tear of
the Premises, and damage by fire or other casualty and as a consequence
of the exercise of the power of eminent domain. Without limitation,
Tenant shall continually during the Term of this Lease maintain the
Premises in accordance with all laws, codes and ordinances from time to
time in effect and all directives, rules and regulations of the proper
officers of governmental agencies having jurisdiction, and of the
applicable board of fire underwriters, to the extent such laws, codes,
ordinances, rules and regulations relate to Tenant's use and occupancy
of the Premises, and shall, at Tenant's own expense, obtain all
permits, licenses and the like required by applicable law in connection
with Tenant's use of the Premises. Subject to the waiver of subrogation
under Section 14.18, Tenant shall be responsible for the cost of
repairs which may be made necessary by reason of damage to the Property
or the Office Park caused by any act or negligence of Tenant, or its
contractors or invitees (including any damage by fire or any other
casualty arising therefrom).
(b) If repairs are required to be made by Tenant pursuant to the terms
hereof, Landlord may give Tenant written notice of such repairs, and if
Tenant refuses or neglects to commence such repairs and complete the
same within 30 days of receiving such notice, Landlord may (but shall
not be required to do so) make or cause such repairs to be made (the
provisions of Section 14.19 being applicable to the costs thereof).
7.3 FLOOR LOAD - HEAVY MACHINERY. (a) Tenant shall not place a load upon
any floor in the Premises exceeding a live load of 100 pounds per
square foot of floor area. Business machines and mechanical equipment
shall be placed and maintained by Tenant at Tenant's expense in
settings sufficient, in Landlord's reasonable judgment, to absorb and
prevent vibration, noise and annoyance. Tenant shall not move any safe,
heavy machinery, heavy
-15-
<PAGE>
equipment, freight, bulky matter or fixtures into or out of the
Building without Landlord's prior consent, which consent may include a
requirement to provide insurance, naming Landlord as an insured, in
such amounts as Landlord may deem reasonable.
(b) If any such safe, machinery, equipment, freight, bulky matter or
fixtures requires special handling, Tenant agrees to employ only
persons holding a Master Rigger's License to do such work, and that all
work in connection therewith shall comply with applicable laws and
regulations. Any such moving shall be at the sole risk and hazard of
Tenant, and Tenant will exonerate, indemnify and save Landlord harmless
against and from any liability, loss, injury, claim or suit resulting
directly or indirectly from such moving.
7.4 BUILDING SERVICES. Landlord shall provide the building services set
forth in Exhibit C.
ARTICLE VIII
REAL ESTATE TAXES
8.1 PAYMENTS ON ACCOUNT OF REAL ESTATE TAXES. (a) For the purposes of this
Article, the term "Tax Year" shall mean the twelve-month period
commencing on the July 1 immediately preceding the Commencement Date
and each twelve-month period thereafter commencing during the Term of
this Lease; and the term "Taxes" shall mean real estate taxes assessed
with respect to the Property for any Tax Year.
(b) In the event that for any reason, Taxes during any Tax Year shall
exceed Base Taxes, Tenant shall pay to Landlord, as an Escalation
Charge, an amount equal to (i) the excess of Taxes over Base Taxes for
such year, multiplied by (ii) the Escalation Factor; provided, however,
with respect to any Tax Year in which the Commencement Date falls or
the Term of this Lease ends, Taxes shall be prorated on a daily basis
for the number of days in such Tax Year within the Term of this Lease.
(c) Estimated payments by Tenant on account of Taxes shall be made
monthly and at the time and in the fashion provided in Article III for
the payment of Basic Rent. The monthly amount so to be paid to Landlord
shall be sufficient to provide Landlord by the time real estate tax
payments are due a sum equal to Tenant's required payments, as
reasonably estimated by Landlord from time to time based on the then
most current tax bills, on account of Taxes for the then current Tax
Year. Promptly after receipt by Landlord of bills for such Taxes,
Landlord shall advise Tenant of the amount of the current Taxes and the
computation of Tenant's payment on account thereof.
-16-
<PAGE>
If estimated payments theretofor made by Tenant for the Tax Year
covered by such bills exceed the required payments on account thereof
for such Year, Landlord shall credit the amount of overpayment against
subsequent obligations of Tenant on account of Taxes (or refund such
overpayment if the Term of this Lease has ended and Tenant has no
further obligation to Landlord); but if the required payments on
account thereof for such Year are greater than estimated payments
theretofor made on account thereof for such Year, Tenant shall make
payment to Landlord within thirty (30) days after being so advised by
Landlord.
8.2 ABATEMENT. If Landlord shall receive any tax refund or reimbursement of
Taxes or sum in lieu thereof with respect to any Tax Year, then out of
any balance remaining thereof after deducting Landlord's expenses
reasonably incurred in obtaining such refund, Landlord shall pay to
Tenant, an amount equal to such refund or reimbursement or sum in lieu
thereof (exclusive of any interest) multiplied by the Escalation
Factor; provided, that in no event, shall Tenant be entitled to receive
more than the payments made by Tenant on account of Taxes for such Tax
Year pursuant to paragraph (b) of Section 8.1 or to receive any
payments or abatement of Basic Rent if Taxes for any year are less than
Base Taxes or Base Taxes are abated.
8.3 ALTERNATE TAXES. (a) If some method or type of taxation shall replace
the current method of assessment of real estate taxes in whole or part,
or the type thereof, or if additional types of taxes are imposed upon
the Property, or Landlord's interest in the Property to supplement real
estate taxes due to legal limits imposed thereon, Tenant agrees that
Tenant shall pay its proportionate share of the same as an additional
charge computed in a fashion consistent with the method of computation
herein provided, to the end that Tenant's share thereof shall be, to
the maximum extent practicable, comparable to that which Tenant would
bear under the foregoing provisions.
(b) If a tax (other than a Federal or State net income tax) is assessed
on account of the rents or other charges payable by Tenant to Landlord
under this Lease, Tenant agrees to pay the same as an additional charge
within ten (10) days after the billing therefor, unless applicable law
prohibits the payment of such tax by Tenant.
-17-
<PAGE>
ARTICLE IX
OPERATING EXPENSES
9.1 DEFINITIONS. For the purpose of this Article, the following terms shall
have the following respective meanings:
Operating Year: Each calendar year in which any part of the Term of
this Lease shall fall.
Operating Expenses: The aggregate costs or expenses reasonably incurred
by Landlord with respect to the operation, administration, cleaning,
repair, maintenance and management of the Property (including a
proportionate share of any common area expenses of the Office Park)
including, without limitation, those items enumerated in Exhibit OC
annexed hereto, and subject to the exclusions and limitation set forth
in Exhibit OC, provided that, if during any portion of the Operating
Year for which Operating Expenses are being computed, the Building was
not operated, or less than all of Building Rentable Area was occupied
by tenants or if Landlord is not supplying all tenants with the
services being supplied hereunder, actual Operating Expenses incurred
shall be reasonably extrapolated by Landlord on an item by item basis
to the estimated Operating Expenses that would have been incurred if
the Building were 95% occupied for such Year and such services were
being supplied to all tenants, and such extrapolated amount shall, for
the purposes hereof, be deemed to be the Operating Expenses for such
Year.
9.2 TENANT'S PAYMENTS. (a) In the event that Operating Expenses for any
Operating Year shall exceed Base Operating Expenses, Tenant shall pay
to Landlord, as an Escalation Charge, an amount equal to (i) the excess
of the Operating Expenses for such Operating Year over and above Base
Operating Expenses, multiplied by (ii) the Escalation Factor; provided,
however, with respect to any Operating Year in which the Commencement
Date falls or the Term of this Lease ends, such amount shall be
prorated on a daily basis for the number of days in such Operating Year
within the Term of this Lease.
(b) Estimated payments by Tenant on account of Operating Expenses shall
be made monthly and at the time and in the fashion provided in Article
III for the payment of Basic Rent. The monthly amount so to be paid to
Landlord shall be sufficient to provide Landlord by the end of each
Operating Year a sum equal to Tenant's required payments, as reasonably
estimated by Landlord from time to time during each Operating Year, on
account of Operating Expenses for such Operating Year. Within ninety
(90) days after the end of each Operating Year, Landlord shall submit
to Tenant a reasonably detailed accounting of Operating Expenses for
such Year and an
-18-
<PAGE>
updated estimate for the current Operating Year, together with
reasonable supporting documentation, and Landlord shall certify to the
accuracy thereof. If estimated payments theretofor made for such Year
by Tenant exceed Tenant's required payment on account thereof for such
Year, according to such statement, Landlord shall credit the amount of
overpayment against subsequent obligations of Tenant with respect to
Operating Expenses (or refund such overpayment if the Term of this
Lease has ended and Tenant has no further obligation to Landlord); but,
if the required payments on account thereof for such Year are greater
than the estimated payments (if any) theretofor made on account thereof
for such Year, Tenant shall make payment to Landlord within thirty (30)
days after being so advised by Landlord.
(c) Tenant and its employees, attorneys, accountants and consultants
shall have the right, from time to time, to review and investigate
Landlord's books and records concerning Taxes and Operating Expenses.
Any such accounting by Landlord shall be binding and conclusive upon
Tenant unless within ninety (90) days after the giving by Landlord of
such accounting Tenant shall notify Landlord that Tenant disputes the
correctness of such accounting, specifying the particular respects in
which the accounting is claimed to be incorrect. If such dispute has
not been settled by agreement, either party may submit the dispute to
arbitration in accordance with the commercial arbitration rules of the
American Arbitration Association within one-hundred eighty (180) days
after giving of such accounting. The decision of the arbitrators shall
be final and binding on Landlord and Tenant and judgment thereon may be
entered in any court of competent jurisdiction. Pending resolution by
agreement or arbitrators, Tenant shall make any payment shown to be due
by such accounting without prejudice to Tenant's position. If the
dispute shall be resolved in Tenant's favor, Landlord shall forthwith
pay to Tenant the amount of Tenant's overpayment.
ARTICLE X
INDEMNITY AND PUBLIC LIABILITY INSURANCE
10.1 TENANT'S INDEMNITY. To the maximum extent this agreement may be made
effective according to law, Tenant agrees to indemnify and save
harmless Landlord from and against all claims of whatever nature
arising: (i) from any accident, injury or damage whatsoever caused to
any person, or to the property of any person, in the Premises; or (ii)
from any accident, injury or damage occurring outside of the Premises
but in the Office Park, where such accident, damage or injury results
from
-19-
<PAGE>
the negligence or willful misconduct of Tenant or Tenant's agents or
employees or independent contractors and, in either case, occurring
after the date of this Lease, until the end of the Term of this Lease,
and for so long thereafter as Tenant may occupy the Premises or any
part thereof. This indemnity and hold harmless agreement shall include
indemnity against all costs, expenses and liabilities incurred in, or
in connection with, any such claim or proceeding brought thereon, and
the defense thereof, including, without limitation, reasonable
attorneys' fees, at both the trial and appellate levels.
10.2 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force
from the date upon which Tenant first enters the Premises for any
reason, throughout the Term of this Lease, and thereafter so long as
Tenant is in occupancy of any part of the Premises, a policy of
commercial general liability and property damage insurance (including
broad form contractual liability, independent contractor's hazard and
completed operations coverage) under which Landlord, and Tenant are
named as insureds, and under which the insurer agrees to indemnify and
hold Landlord harmless from and against all cost, expense and/or
liability arising out of or based upon any and all claims, accidents,
injuries and damages set forth in Section 10.1. Each such policy shall
be non-cancellable and non-amendable with respect to Landlord, without
thirty (30) days prior notice to Landlord and shall be in at least the
amounts of the Initial Public Liability Insurance specified in Section
1.3 and a duplicate original or certificate thereof shall be delivered
to Landlord.
10.3 TENANT'S RISK. To the maximum extent this agreement may be made
effective according to law, Tenant agrees to use and occupy the
Premises and to use such other portions of the Property and the Office
Park as Tenant is herein given the right to use at Tenant's own risk;
and Landlord shall have no responsibility or liability for any loss of
or damage to Tenant's Removable Property or for any inconvenience,
annoyance, interruption or injury to business arising from Landlord's
making any repairs or changes which Landlord is permitted by this
Lease, or required by law, to make in or to any portion of the Premises
or other sections of the Property, or the Office Park, or in or to the
fixtures, equipment or appurtenances thereof; provided, however, (i)
Landlord and its agents, employees and contractors shall not materially
interfere with Tenant's use of, and business operations at, the
Premises, and (ii) Landlord shall have responsibility and liability for
any such loss, damage, inconvenience, annoyance, interruption or injury
arising out of negligence or willful misconduct of Landlord or its
employees, agents or contractors. The provisions of this Section shall
be applicable from and after the execution of this Lease and until the
end of
-20-
<PAGE>
the negligence or willful misconduct of Tenant or Tenant's agents or
employees or independent contractors and, in either case, occurring
after the date of this Lease, until the end of the Term of this Lease,
and for so long thereafter as Tenant may occupy the Premises or any
part thereof. This indemnity and hold harmless agreement shall include
indemnity against all costs, expenses and liabilities incurred in, or
in connection with, any such claim or proceeding brought thereon, and
the defense thereof, including, without limitation, reasonable
attorneys' fees, at both the trial and appellate levels.
10.2 PUBLIC LIABILITY INSURANCE. Tenant agrees to maintain in full force
from the date upon which Tenant first enters the Premises for any
reason, throughout the Term of this Lease, and thereafter so long as
Tenant is in occupancy of any part of the Premises, a policy of
commercial general liability and property damage insurance (including
broad form contractual liability, independent contractor's hazard and
completed operations coverage) under which Landlord, and Tenant are
named as insureds, and under which the insurer agrees to indemnify and
hold Landlord harmless from and against all cost, expense and/or
liability arising out of or based upon any and all claims, accidents,
injuries and damages set forth in Section 10.1. Each such policy shall
be non-cancellable and non-amendable with respect to Landlord, without
thirty (30) days prior notice to Landlord and shall be in at least the
amounts of the Initial Public Liability Insurance specified in Section
1.3 and a duplicate original or certificate thereof shall be delivered
to Landlord.
10.3 TENANT'S RISK. To the maximum extent this agreement may be made
effective according to law, Tenant agrees to use and occupy the
Premises and to use such other portions of the Property and the Office
Park as Tenant is herein given the right to use at Tenant's own risk;
and Landlord shall have no responsibility or liability for any loss of
or damage to Tenant's Removable Property or for any inconvenience,
annoyance, interruption or injury to business arising from Landlord's
making any repairs or changes which Landlord is permitted by this
Lease, or required by law, to make in or to any portion of the Premises
or other sections of the Property, or the Office Park, or in or to the
fixtures, equipment or appurtenances thereof; provided, however, (i)
Landlord and its agents, employees and contractors shall not materially
interfere with Tenant's use of, and business operations at, the
Premises, and (ii) Landlord shall have responsibility and liability for
any such loss, damage, inconvenience, annoyance, interruption or injury
arising out of negligence or willful misconduct of Landlord or its
employees, agents or contractors. The provisions of this Section shall
be applicable from and after the execution of this Lease and until the
end of
-20-
<PAGE>
the Term of this Lease, and during such further period as Tenant may
use or be in occupancy of any part of the Premises or of the Building.
10.4 INJURY CAUSED BY THIRD PARTIES. To the maximum extent this agreement
may be made effective according to law, Tenant agrees that Landlord
shall not be responsible or liable to Tenant, or to those claiming by,
through or under Tenant, for any loss or damage that may be occasioned
by or through the acts or omissions of persons occupying adjoining
premises or any part of the premises adjacent to or connecting with the
Premises or any part of the Property or Office Park or otherwise.
10.5 LANDLORD'S INSURANCE. Landlord shall (i) keep the Property insured
against loss or damage by fire or other casualty on an "All Risk"
basis, with extended coverage endorsements customary for office
buildings in the area of the Property, and meeting all co-insurance
requirements, and such other insurance as the then holder of any
mortgage or ground lease encumbering the Property shall require, in
amounts not less than the full replacement value of the Property, and
(ii) obtain and maintain in force and effect commercial general
liability insurance in an amount not less than $3,000,000 per
occurrence and in the general aggregate, or such greater amount as is
required by the holder of any mortgage or ground lease encumbering the
Property, and (iii) provide a waiver of subrogation as provided in
Section 14.18.
-21-
<PAGE>
ARTICLE XI
LANDLORD'S ACCESS TO PREMISES
11.1 LANDLORD'S RIGHTS. Landlord shall have the right, upon reasonable
advance notice to Tenant (except in an emergency), to enter the
Premises at all reasonable business hours for the purpose of
inspections or making repairs to the same, and Landlord shall also have
the right, upon reasonable advance notice to make access available at
all reasonable business hours to prospective or existing mortgagees,
purchasers or, during the last six months of the Term of this Lease,
tenants of any part of the Property. In exercising such right of access
under this Section 11.1, Landlord shall not materially interfere with
Tenants use of the Premises and shall comply with Tenant's reasonable
security requirements.
ARTICLE XII
FIRE, EMINENT DOMAIN, ETC.
12.1 ABATEMENT OF RENT. If the Premises shall be damaged by fire or
casualty, Basic Rent and Escalaton Charges payable by Tenant shall
abate equitably for the period in which, by reason of such damage,
there is substantial interference with Tenant's use of the Premises,
having regard to the extent to which Tenant may be required to
discontinue Tenant's use of all or a portion of the Premises, but such
abatement or reduction shall end if and when Landlord shall have
substantially restored the Premises (excluding any Tenant's Removal
Property) to the condition in which they were prior to such damage. If
the Premises shall be affected by any exercise of the power of eminent
domain, Basic Rent and Escalation Charges payable by Tenant shall be
justly and equitably abated and reduced according to the nature and
extent of the loss of use thereof suffered by Tenant.
12.2 RIGHT OF TERMINATION. If the Premises or the Building are substantially
damaged by fire or casualty (the term "substantially damaged" meaning
damage of such a character that the same cannot, in ordinary course,
reasonably be expected to be repaired within ninety (90) days from the
time that repair work would commence), or if any part of the Building
or of the access thereto is taken by any exercise of the right of
eminent domain, then Landlord shall have the right to terminate this
Lease (even if Landlord's entire interest in the Premises may have been
divested) by giving notice of Landlord's election so to do within
thirty (30) days after the occurrence of such casualty or the effective
-22-
<PAGE>
date of such taking, whereupon this Lease shall terminate thirty (30)
days after the date of such notice with the same force and effect as if
such date were the date originally established as the expiration date
hereof. If (i) the Premises are substantially damaged by fire or
casualty or (ii) any part of the Premises or access thereto is taken by
eminent domain, then Tenant shall have the right to terminate this
Lease by giving written notice to Landlord, whereupon this Lease shall
terminate on the date set forth in such notice, which date shall not be
less than 30 or more than 90 days after the date of such notice. The
term "substantially damaged" as used above means damage of such a
character that the same cannot, in ordinary course, reasonably be
expected to be repaired within ninety (90) days from the time that
repair work would commence.
12.3 RESTORATION. If this Lease shall not be terminated pursuant to Section
12.2, Landlord shall thereafter use due diligence to restore the
Premises (excluding any Tenant's Removal Property) to proper condition
for Tenant's use and occupation, provided that Landlord's obligation
shall be limited to the amount of insurance proceeds available therfor.
If, for any reason, such restoration shall not be substantially
completed within six months after the date of casualty. Tenant shall
have the right to terminate this Lease by giving notice to Landlord
thereof within thirty (30) days after the expiration of such period.
Upon the giving of such notice, this Lease shall cease and come to an
end without further liability or obligation on the part of either party
unless, with such 30-day period, Landlord substantially completes such
restoration. Such right of termination shall be Tenant's sole and
exclusive remedy at law or in equity for Landlord's failure so to
complete such restoration.
12.4 AWARD. Landlord shall have and hereby reserves and excepts, and Tenant
hereby grants and assigns to Landlord all rights to recover for damages
to the Property and the leasehold interest hereby created, and to
compensation accrued or hereafter to accrue by reason of such taking,
damage or destruction, and by way of confirming the foregoing, Tenant
hereby grants and assigns, and covenants with Landlord to grant and
assign to Landlord, all rights to such damages or compensation, and
covenants to deliver such further assignments and assurances therof as
Landlord may from time to time request. Nothing contained herein shall
be construed to prevent Tenant from prosecuting in any condemnation
proceedings a claim for the vlaue of any of Tenant's Removable Property
installed in the Premises by Tenant at Tenant's expense and for
relocation expenses, provided that such action shall not affect the
amount of compensation otherwise recoverable by Landlord from the
taking authority.
-23-
<PAGE>
ARTICLE XIII
DEFAULT
13.1 TENANT'S DEFAULT. (a) If at any time subsequent to the date of this
Lease any one or more of the following events (herein referred to as a
"Default of Tenant") shall happen:
(i) Tenant shall fail to pay the Basic Rent, Escalation
Charges or other charges hereunder when due and such failure
shall continue for five (5) full Business Days after written
notice to Tenant from Landlord; or
(ii) Tenant shall neglect or fail to perform or observe any
other covenant herein contained on Tenant's part to be
performed or observed and Tenant shall fail to remedy the same
within thirty (30) days after notice to Tenant satisfying such
neglect or failure, or if such failure is of such a nature
that Tenant cannot reasonably remedy the same within such
thirty (30) day period, Tenant shall fail to commence promptly
to remedy the same and to prosecute such remedy to completion
with diligence and continuity; or
(iii) Tenant's leasehold interest in the Premises shall be
taken on execution of by other process of law directed against
Tenant; or
(iv) Tenant shall make an assignment for the benefit of
creditors or shall file a voluntary petition in bankruptcy or
shall be adjudicated bankrupt or insolvent, or shall file any
petition or answer seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution or similar
relief for itself under any present or future Federal, State
or other statute, law or regulation for the relief of debtors,
or shall seek or consent to or acquiesce in the appointment of
any trustee, receiver or liquidator of Tenant or of all or any
substantial part of its properties, or shall admit in writing
its inability to pay its debts generally as they become due;
or
(v) A petition shall be filed against Tenant in bankruptcy or
under any other law seeking any reorganization, arrangement,
composition, readjustment, liquidation, dissolution, or
similar relief under any present or future Federal, State or
other statute, law or regulation and shall remain undismissed
or unstayed for an aggregate of sixty (60) days (whether or
not consecutive), or if any debtor in possession (whether or
not Tenant)
-24-
<PAGE>
trustee, receiver or liquidator of Tenant or of all or any
substantial part of its properties or of the Premises shall be
appointed without the consent or acquiescence of Tenant and
such appointment shall remain unvacated or unstayed for an
aggregate of sixty (60) days (whether or not consecutive); or
then in any such case Landlord may terminate this Lease by notice to
Tenant, specifying a date not less than ten (10) days after the giving
of such notice on which this Lease shall terminate and this Lease shall
come to an end on the date specified therein as fully and completely as
if such date were the date herein originally fixed for the expiration
of the Term of this Lease and Tenant will then quit and surrender the
Premises to Landlord, but Tenant shall remain liable as hereinafter
provided.
(b) If this Lease shall have been terminated as provided in this
Article, or if any execution or attachment shall be issued against
Tenant or any of Tenant's property whereupon the Premises shall be
taken or occupied by someone other than Tenant, than Landlord may,
without notice, re-enter the Premises, by summary proceedings, and
remove and dispossess Tenant and all other persons and any and all
property from the same, as if this Lease had not been made.
(c) In the event of any termination, Tenant shall pay the Basic Rent,
Escalation Charges and other sums payable hereunder up to the time of
such termination, and thereafter Tenant, until the end of what would
have been the Term of this Lease in the absence of such termination,
and whether or not the Premises shall have been relet, shall be liable
to Landlord for, and shall pay to Landlord, as current damages, the
Basic Rent, Escalation Charges and other sums which would be payable
hereunder if such termination had not occurred, less the net proceeds,
if any, of any reletting of the Premises, after deducting all
reasonable out-of-pocket expenses in connection with such reletting,
including, without limitation, all repossession costs, brokerage
commissions, legal expenses, attorneys' fees, advertising, alteration
costs and expenses of preparation for such reletting. Tenant shall pay
such current damages to Landlord monthly on the days which the Basic
Rent would have been payable hereunder as if this Lease had not been
terminated.
-25-
<PAGE>
In lieu of receiving any damages under the preceding paragraph, in the
event of a termination of this Lease due to a Default of Tenant,
Landlord may elect (by written notice to Tenant at any time after such
termination) to recover, as liquidated damages the Final Payment (as
hereinafter defined). As of the Commencement Date, the "Final Payment"
shall be $173,500, but as of the first day of each calendar month after
the Commencement Date, the Final Payment shall be the amount shown in
attached Exhibit I for the month in which Landlord gives such notice to
Tenant. Landlord and Tenant agree that the calculation of Landlord's
actual damages would be difficult, and thus have agreed on the
aforesaid liquidated damages as reasonable liquidated damages and not
as a penalty.
(d) In case of any Default by Tenant, re-entry, expiration and
dispossession by summary proceedings or otherwise, Landlord (i) shall
use reasonable efforts to relet the Premises or any part or parts
thereof, either in the name of Landlord or otherwise, for a term or
terms which may at Landlord's option be equal to or less than or exceed
the period which would otherwise have constituted the balance of the
Term of this Lease and may grant reasonable concessions or free rent to
the extent that Landlord considers advisable and necessary to relet the
same and (ii) may make such reasonable alterations, repairs and
decorations in the Premises as Landlord in its reasonable judgment
considers advisable and necessary for the purpose of reletting the
Premises; and the making of such alterations, repairs and decorations
shall not operate or be construed to release Tenant from liability
hereunder as aforesaid.
-26-
<PAGE>
(e) The specified remedies to which Landlord may resort hereunder are
not intended to be exclusive of any remedies or means of redress to
which Landlord may at any time be entitled lawfully, and Landlord may
invoke any remedy (including the remedy of specific performance)
allowed at law or in equity as if specific remedies were not herein
provided for.
(f) All reasonable, out-of-pocket costs and expenses incurred by or on
behalf of Landlord (including, without limitation, attorneys' fees and
expenses) in enforcing its rights hereunder or occasioned by any
Default of Tenant shall be paid by Tenant.
13.2 LANDLORD'S DEFAULT. Landlord shall in no event be in default in the
performance of any of the Landlord's obligations hereunder unless and
until Landlord shall have failed to perform such obligations within
thirty (30) days, or such additional time as is reasonably required to
correct any such default, after notice by Tenant to Landlord specifying
wherein Landlord has failed to perform any such obligations.
-27-
<PAGE>
ARTICLE XIV
MISCELLANEOUS PROVISIONS
14.1 HAZARDOUS MATERIALS. Tenant shall not (either with or without
negligence) cause or permit the escape, disposal or release of any
biologically or chemically active or other hazardous substances, or
materials. Tenant shall not allow the storage or use of such substances
or materials in any manner not sanctioned by law or by the highest
standards prevailing in the industry for the storage and use of such
substances or materials, nor allow to be brought into the Project any
such materials of substances except to use in the ordinary course of
Tenant's business, and then only after written notice is given to
Landlord of the identity of such substances or materials. Without
limitation, hazardous substances and materials shall include those
described in the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, 42 U.S.C. Section 9601 et seq., the
Resource Conservation and Recovery Act, as amended, 42 U.S.C. Section
6901 et seq., any applicable state or local laws and the regulations
adopted under these acts. If any lender or governmental agency shall
ever require testing to ascertain whether or not there has been any
release of hazardous materials, then the reasonable costs thereof shall
be reimbursed by Tenant to Landlord upon demand as additional charges
if such requirement applies to the Premises. In addition, Tenant shall
execute affidavits, representations and the like from time to time at
Landlord's request concerning Tenant's best knowledge and belief
regarding the presence of hazardous substances of materials on the
Premises. In all events, Tenant shall indemnify Landlord in the manner
elsewhere provided in this lease from any release of hazardous
materials on the Premises occurring while Tenant is in possession, or
elsewhere if caused by Tenant or persons acting under Tenant. The
within covenants shall survive the expiration or earlier termination of
the Lease term.
14.2 WAIVER. (a) Failure on the part of Landlord or Tenant to complain of
any action or non-action on the part of the other, no matter how long
the same may continue, shall never be a waiver by Tenant or Landlord,
respectively, of any of the other's rights hereunder. Further, no
waiver at any time of any of the provisions hereof by Landlord or
Tenant shall be construed as a waiver of any of the other provisions
hereof, and a waiver at any time of any of the provisions hereof shall
not be construed as a waiver at any subsequent time of the same
provisions. The consent or approval of Landlord or Tenant to or of any
action by the other requiring such consent or approval shall not be
construed to waive or render unnecessary Landlord's or Tenant's consent
or approval to or of any subsequent similar act by the other.
-28-
<PAGE>
(b) No payment by Tenant, or acceptance by Landlord, of a lesser amount
than shall be due from Tenant to Landlord shall be treated otherwise
than as a payment on account of the earliest installment of any payment
due from Tenant under the provisions hereof. The acceptance by Landlord
of a check for a lesser amount with an endorsement or statement
thereon, or upon any letter accompanying such check, that such lesser
amount is payment in full, shall be given no effect, and Landlord may
accept such check without prejudice to any other rights or remedies
which Landlord may have against Tenant.
14.3 COVENANT OF QUIET ENJOYMENT. Tenant,subject to the terms and provisions
of this Lease, on payment of the basic Rent and Escalation Charges and
observing, keeping and performing all of the other terms and provisions
of this Lease on Tenant's part to be observed, kept and performed,
shall lawfully, peaceably and quietly have, hold, occupy and enjoy the
Premises during the term hereof, without hindrance or ejection by any
persons lawfully claiming under Landlord to have title to the Premises
superior to Tenant; the foregoing covenant of quiet enjoyment is in
lieu of any other covenant, express or implied.
14.4 LANDLORD'S LIABILITY. (a) Tenant specifically agrees to look solely to
Landlord's then equity interest in the Property at the time owned, for
recovery of any judgment from Landlord; it being specifically agreed
that Landlord (original or successor) shall never be personally liable
for any such judgment, or for the payment of any monetary obligation to
Tenant. The provision contained in the foregoing sentence is not
intended to, and shall not, limit any right that Tenant might otherwise
have to obtain injunction relief against Landlord or Landlord's
successors in interest, or to take any action not involving the
personal liability of Landlord (original or successor) to respond in
monetary damages from Landlord's assets other than Landlord's equity
interest in the Property.
(b) With respect to any services or utilities to be furnished by
Landlord to Tenant, Landlord shall in no event be liable for failure to
furnish the same when prevented from doing so by strike, lockout,
breakdown, accident, order or regulation of or any governmental
authority, or failure of supply, or failure whenever and for so long as
may be necessary by reason of the making of repairs or changes which
Landlord is required or is permitted by this Lease or by law to make or
in good faith deems necessary (provided Landlord shall not materially
disturb Tenant's use of the Premises or the operation of the Tenant's
business) or inability by the
-29-
<PAGE>
exercise of reasonable diligence to obtain supplies, parts or employees
necessary to furnish such services, or because of war or other
emergency, or for any other cause beyond Landlord's reasonable control,
or for any cause due to any act or neglect of Tenant or Tenant's
servants, agents, employees, licensees or any person claiming by,
through or under Tenant, nor shall any such failure give rise to any
claim in Tenant's favor that Tenant has been evicted, either
constructively or actually, partially or wholly; provided, however,
Landlord shall use reasonable efforts to restore any interrupted
services or utilities as quickly as possible; and provided, further,
that Landlord shall be liable for the negligence or willful misconduct
of Landlord or its employees, agents or contractors.
(c) In no event shall Landlord ever be liable to Tenant for any loss of
business or any other indirect or consequential damages suffered by
Tenant from whatever cause.
(d) With respect to any repairs, installations, or restoration which
are required or permitted to be made by Landlord, the same may be made
during normal business hours and Landlord shall have no liability for
damages to Tenant for inconvenience, annoyance, interruption, or loss
or damage to Tenant's business arising therefrom; provided, however,
Landlord shall not materially disturb Tenant's use of the Premises or
the operation of Tenant's business; provided, further, Landlord shall
in any event be liable for the negligence or willful misconduct of
Landlord or its agents, employees or contractors.
14.5 TRANSFER OF TITLE. In the event of any transfer of title to the
property by Landlord, Landlord shall thereafter be entirely freed and
relieved from the performance and observance of all future covenants
and obligations under this Lease, from and after such time of the
transfer of title, except for the claims of Tenant against Landlord
arising out of the events occurring prior to such transfer. Such
successor Landlord shall not be liable or responsible for any acts or
omissions of Landlord occurring prior to such transfer. The successor
Landlord shall be responsible from and after the date of such transfer
for the performance of all future covenants and obligations under this
Lease.
14.6 RULES AND REGULATIONS. Tenant shall abide by rules and regulations from
time to time established by Landlord, it being agreed that such rules
and regulations will be established and applied by Landlord in a
non-discriminatory fashion, such that all rules and
-30-
<PAGE>
regulations shall be generally applicable to other tenants of the
Building. Landlord agrees to use reasonable efforts to insure that any
such rules and regulations are uniformly enforced. In the event that
there shall be a conflict between such rules and regulations and the
provisions of this Lease, the provisions of this Lease shall control.
Such rules and regulations shall not require Tenant to incur greater
financial obligations with respect to the occupancy of the Premises.
14.7 ADDITIONAL CHARGES. If Tenant shall fail to pay when due any sums under
this Lease designated as an Escalation Charge or additional charge,
Landlord shall have the same rights and remedies as Landlord has
hereunder for failure to pay Basic Rent.
14.8 INVALIDITY OF PARTICULAR PROVISIONS. If any term or provision of this
Lease, or the application thereof to any person or circumstance shall,
to any extent, be invalid or unenforceable, the remainder of this
Lease, or the application of such term or provision to persons or
circumstances other than those as to which it is held invalid or
unenforceable, shall not be affected thereby and each term and
provision of this Lease shall be valid and be enforced to the fullest
extent permitted by law.
14.9 PROVISIONS BINDING, ETC. Except as herein otherwise provided, the terms
hereof shall be binding upon and shall inure to the benefit of the
successors and assigns, respectively, of Landlord and Tenant and, if
Tenant shall be an individual, upon and to his heirs, executors,
administrators, successors and assigns. Each term and each provision of
this Lease to be performed by Tenant shall be construed to be both a
covenant and a condition. The reference contained to successors and
assigns of Tenant is not intended to constitute a consent to assignment
by Tenant, but has reference only to those instances in which Landlord
may later give consent to a particular assignment if required by
Article VI hereof.
14.10 NOTICES. Whenever, by the terms of this Lease, notices shall or may be
given either to Landlord or to Tenant, such notice shall be in writing
and shall be sent by registered or certified mail, postage prepaid:
If intended for Landlord, addressed to Landlord at Landlord's Original
Address (or to such other address or addresses as may from time to time
hereafter be designated by Landlord by like notice).
-31-
<PAGE>
If intended for Tenant, addressed to Tenant at Tenant's Original
Address until the Commencement Date and thereafter to the Premises,
with a copy to Testa, Hurwitz & Thibeault, 125 High Street, Boston, MA
02110 Attention: Real Estate Department (or to such other address or
addresses as may from time to time hereafter be designated by Tenant by
like notice).
All such notices shall be effective three days after being deposited in
the United States Mail within the continental United States, provided
that the same are received in ordinary course at the address to which
the same were sent.
14.11 WHEN LEASE BECOMES BINDING. The submission of this document for
examination and negotiation does not constitute an offer to lease, or a
reservation of, or option for, the Premises, and this document shall
become effective and binding only upon the execution and delivery
hereof by both Landlord and Tenant. All negotiations, considerations,
representations and understandings between Landlord and Tenant are
incorporated herein and this Lease expressly supercedes any proposals
or other written documents relating hereto. This Lease may be modified
or altered only by written agreement between Landlord and Tenant, and
no act or omission of any employee or agent of Landlord shall alter,
change or modify any of the provisions hereof.
14.12 PARAGRAPH HEADINGS. The paragraph headings throughout this instrument
are for convenience and reference only, and the words contained therein
shall in no way be held to explain, modify, amplify or aid in the
interpretation, construction or meanings of the provisions of this
Lease.
14.13 RIGHTS OF MORTGAGEE OR GROUND LESSOR. Landlord shall provide Tenant
with a written agreement (a "Non-Disturbance Agreement") from the
holder of any mortgage and the lessor under any ground lease affecting
the Premises to the effect that, if such holder forecloses such
mortgage, or such ground lessor terminates such ground lease, or either
such holder or such ground lessor otherwise exercises their respective
rights, such holder or ground lessor shall recognize Tenant's rights
under this Lease and shall not disturb Tenant's occupancy of the
Premises. Provided Tenant receives a Non-Disturbance Agreement from
each such holder or lessor, this Lease shall be subordinate to the
first mortgage or ground lease from time to time encumbering the
Premises, whether executed and delivered prior to or subsequent to the
date of this Lease, if the holder of such mortgage or ground lease
shall so elect. If this Lease is subordinate to the first mortgage or
ground lease and the holder thereof (or successor) shall
-32-
<PAGE>
succeed to the interest of Landlord, Tenant shall attorn to such holder
and this Lease shall continue in full force and effect between such
holder under the terms of Tenant's Non-Disturbance Agreement with such
holder, (or successor) and Tenant. Tenant further agrees to execute
such instruments which would cause the first mortgage to be subordinate
to the Lease, as such holder of the mortgage may request.
Landlord represents and warrants to Tenant that:
(i) Landlord is the holder of the lessee's interest under the
Lease Agreement (the "Ground Lease") between WRC Properties,
Inc., a Delaware corporation ("Ground Lessor"), and Landlord,
dated April 29, 1988, a short form of which has been recorded
with the Worcester County Worcester District of Deeds (the
"Registry") at Book 11630, Page 21.
(ii) To the best of Landlord's knowledge, Ground Lessor is the
present holder of the lessor's interest under the Ground
Lease.
(iii) The Ground Lease is in full force and has not been amended,
modified, revoked or terminated, except by instruments
attached to this Lease as Exhibit GL.
(iv) The copy of the Ground Lease attached to this Lease as Exhibit
GL is a complete and accurate copy of the Ground Lease, which
represents the entire agreement between Landlord and Ground
Lessor with respect to the Property.
(v) Neither Landlord nor, to the best of Landlord's knowledge,
Ground Lessor as Exhibit GL is in default under the Ground
Lease, nor has any event occurred which, after any applicable
notice or the expiration of any applicable grace period, would
become a default under the Ground Lease by Landlord or, to the
best of Landlord's knowledge, Ground Lessor.
(vi) All rent, additional rent, and other charges due under the
Ground Lease have been paid through November, 1995.
(vii) To the best of Landlord's knowledge, the only mortgage
encumbering the Property is a Security Agreement and Leasehold
Mortgage Deed from Landlord to Teachers Insurance and Annuity
Association of America, a New York corporation ("Teachers"),
dated May 24, 1989, and recorded with the Registry at Book
12116, page 158, as amended by a Mortgage Supplement,
Modification and
-33-
<PAGE>
Amendment and Supplement, Amendment and Modification of
Assignment of Lessor's Interest in Lease(s) Agreement dated as
of June 1, 1991, and recorded with the Registry at Book 13627.
Page 47 (collectively, the "Mortgagee").
(viii) To the best of Landlord's knowledge, Teachers is the present
holder of the Mortgage.
(ix) Landlord is not in default under the Mortgage, nor has any
event occurred which, after any applicable notice or the
expiration of any applicable grace period, would become a
default under the Mortgage.
14.14 STATUS REPORT. Recognizing that both parties may find it necessary to
establish to third parties, such as accountants, banks, mortgagees,
ground lessors, or the like, the then current status of performance
hereunder, either party, on the request of the other made from time to
time, will within ten (10) days furnish to Landlord, or the holder of
any mortgage or ground lease encumbering the Premises, or to Tenant, as
the case may be, a statement (to the best of such party's knowledge) of
the status of any matter pertaining to this Lease, including, without
limitation, acknowledgements that (or the extent to which) each party
is in compliance with its obligations under the terms of this Lease.
14.15 REMEDYING DEFAULTS. Landlord shall have the right (after written notice
to Tenant and the expiration of any applicable grace period), but shall
not be required, to pay such reasonable sums or do any reasonable act
which requires the expenditure of monies which may be necessary or
appropriate by reason of a Default of Tenant and in the event of the
exercise of such right by Landlord, Tenant agrees to pay to Landlord
forthwith upon demand all such sums, together with interest thereon at
a rate equal to 3% over the prime rate in effect from time to time at
the First National Bank of Boston as an additional charge. Any payment
of Basic Rent, Escalation Charges or other sums payable hereunder not
paid when due (after written notice to Tenant and the expiration of any
applicable grace period) shall, at the option of Landlord, bear
interest at a rate equal to 3% over the prime rate in effect at the
First National Bank of Boston from the due date thereof and shall be
payable forthwith on demand by Landlord, as an additional charge.
14.16 HOLDING OVER. Any holding over by Tenant after the expiration of the
Term of this Lease shall be treated as a daily tenancy at sufferance at
a rate equal to 1-1/2 times the Basic Rent in effect at the expiration
of the Term of this Lease plus Escalation Charges and other charges
herein provided (prorated on a daily basis). Tenant shall also pay to
Landlord all damages, direct
-34-
<PAGE>
and/or indirect, sustained by reason of any such holding over.
Otherwise, such holding over shall be on the terms and conditions set
forth in this Lease as far as applicable.
14.17 WAIVER OF SUBBROGATION. Insofar as, and to the extent that, the
following provision may be effective without invalidating or making it
impossibe to secure insurance coverage obtainable from responsible
insurance companies doing business in the locality in which the
Property is located (even though extra premium may result therefrom),
Landlord and Tenant mutually agree that any property damage insurance
carried by either shall provide for the waiver by the insurance carrier
of any right of subrogation against the other, and they further
mutually agree that, with respect to any damage to property, the loss
from which is covered by insurance then being carried by them,
respectively, the one carrying such insurance and suffering such loss
releases the other of and from any and all liability with respect to
such loss to the extent of the insurance proceeds paid with respect
thereto.
14.18 SURRENDER OF PREMISES. Upon the expiration or earlier termination of
the Term of this Lease, Tenant shall peaceably quit and surrender to
Landlord the Premises in neat and clean condition and in as good order,
condition and repair as existed as of the Commencement Date, together
with all alterations, additions and improvements (other than Tenant's
Removable Property), which may have been made or installed in, on or to
the Premises prior to or during the Term of this Lease, excepting only
ordinary wear and use, eminent domain and damage by fire or other
casualty for which, under other provisions of this Lease, Tenant has no
responsibility of repair or restoration. Tenant shall remove all of
Tenant's Removable Property and shall repair any damages to the
Premises or the Building caused by such removal. Any Tenant's Removable
Property which shall remain in the Building or on the Premises after
the expiration or termination of the Term of this Lease shall be deemed
conclusively to have been abandoned, and either may be retained by
Landlord as its property or may be disposed of in such manner as
Landlord may see fit, at Tenant's sole cost and expense.
14.19 BROKERAGE. Tenant and Landlord warrant and represent that neither party
has dealt with any broker in connection with the consummation of this
Lease other than Broker, and, in the event of any brokerage claims
against Landlord predicated upon prior dealings with Tenant, Tenant
agrees to defend same and indemnify Landlord against any such claim
(except any claim by Broker). In the event of any brokerage claims
against the Tenant predicated upon prior dealings with Landlord,
Landlord agrees to defend same and indemnify Tenant against any such
claim (except any claim by Broker).
-35-
<PAGE>
14.20 GOVERNING LAW: This Lease shall be governed exclusively by the
provisions hereof and by the laws of the Commonwealth of Massachusetts,
as the same may from time to time exist.
IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be
duly executed, under seal, by persons hereunto duly authorized, in multiple
copies, each to be considered an original hereof, as of the date first set forth
above.
LANDLORD: Westborough Associates
Building Five Limited Partnership,
a Massachusetts limited partnership
By: Robert C. Elder d/b/a Robert
Elder Associates, its general
partner
By: /s/ Robert C. Elder
------------------------------
Robert C. Elder
TENANT: CacheLink Corp.
Attest: By: /s/ Michael S. Wyzgo
------------------------ ------------------------------
Clerk Michael S. Wyzgo, VP Finance
-36-
<PAGE>
EXHIBIT 11
MANGOSOFT, INC. AND SUBSIDIARIES
(A Development Stage Company)
Computation of Net Loss Per Common Share
Three and Nine Months Ended September 30, 1999 and 1998
(unaudited)
<TABLE>
<CAPTION>
Three Months Ended
------------------
1999 1998
---- ----
<S> <C> <C>
BASIC NET PER COMMON SHARE:
Net loss applicable to common shares as reported ....................... $(2,438,038) $(3,434,533)
Weighted average number of common shares outstanding:
Common Stock ...................................................... 7,678,000 1,575,000
----------- -----------
Basic net loss per common share ................................... $ (0.32) $ (2.18)
=========== ===========
DILUTED NET LOSS PER COMMON SHARE:
Net loss applicable to common shares as reported ....................... $(2,438,038) $(3,434,533)
Weighted average number of common shares outstanding:
Common Stock ...................................................... 7,678,000 1,575,000
Effect of common stock equivalents ................................ -- --
----------- -----------
Total ........................................................ 7,678,000 1,575,000
=========== ===========
Diluted net loss per common share ................................. $ (0.32) $ (2.18)
=========== ===========
<CAPTION>
Nine Months Ended
-----------------
1999 1998
---- ----
<S> <C> <C>
BASIC NET LOSS PER COMMON SHARE:
Net loss applicable to common shares as reported ....................... $(7,307,025) $(12,238,100)
Weighted average number of common shares outstanding:
Common Stock ...................................................... 3,609,333 1,575,000
----------- -----------
Basic net loss per common share ................................... $ (2.02) $ (7.77)
=========== ============
DILUTED NET LOSS PER COMMON SHARE:
Net loss applicable to common shares as reported ....................... $(7,307,025) $(12,238,100)
Weighted average number of common shares outstanding:
Common Stock ...................................................... 3,609,333 1,575,000
Effect of common stock equivalents ................................ -- --
----------- -----------
Total ........................................................ 3,609,333 1,575,000
=========== ===========
Diluted net loss per common share ................................. $ (2.02) $ (7.77)
=========== ============
</TABLE>
<PAGE>
Exhibit 20.1
MANGOSOFT CORPORATION
MERGER CONSENT SOLICITATION
AND
INFORMATION STATEMENT
August 2, 1999
To the Stockholders
to MangoSoft Corporation
Ladies and Gentlemen:
MangoSoft Corporation ("Mango"), a Delaware corporation, of which you
own shares of capital stock, intends to enter into an Agreement and Plan of
Merger (the "Merger Agreement") with First American Clock Co., a publicly-traded
Nevada corporation ("Parent"), and its wholly-owned subsidiary, MangoMerger
Corp., a Delaware corporation ("Merger-Sub") pursuant to which Mango shall merge
(the "Merger") into a Merger-Sub and your shares will be converted into shares
common stock of Parent as described herein. At the closing of the Merger, and as
a condition thereof, Parent shall have raised at least $3.75 million. In
addition to this new capital, the Board of Mango believes that by merging with a
public shell, the new company will have greater access to future capital. A copy
of the most recent draft of the Merger Agreement is attached hereto as Exhibit A
for your review. Mango is providing this Merger Consent Solicitation and
Information Statement to all stockholders of Mango who are holders of record as
of July 30, 1999 in order to obtain the required consent to the Merger.
I. Summary of Terms of the Merger Agreement.
Under the Merger Agreement, Merger-Sub will merge (the "Merger") with
and into Mango and the holders of Mango capital stock will receive shares of
common stock of Parent (the "Parent Common Stock") in exchange for the
outstanding shares of capital stock of Mango, which includes all common stock of
Mango as well as shares of Series A, B, C, D, and E convertible preferred stock
of Mango, (collectively, the "Mango Capital Stock"). In addition, immediately
following the Merger $6,000,000 aggregate principal amount of 12% Senior Secured
Convertible Notes issued by Mango (the "Mango Debt") in connection with Mango's
most recent short term financing will be exchanged for shares of Parent Common
Stock.
<PAGE>
As previously reported, Mango has retained Punk, Ziegel & Company to
raise additional capital on behalf of the surviving entity, however, there can
be no assurance that such funds will be raised.
All of Mango's existing options and warrants shall be canceled. A new
Parent option plan will be established. New options will be issued to existing
employees and three new directors/advisors who will be added to the Board of
Parent.
The Board of Directors (the "Board") of Mango has approved the Merger
transaction and declared it to be advisable and in the best interests of Mango.
II. Exchange of Mango Capital Stock and Mango Debt for Parent Common Stock.
As a result of the Merger, Parent will issue to the current holders of
Mango Capital Stock an aggregate of six million (6,000,000) shares of Parent
Common Stock at the conversion rates set forth in the table below. Each share of
Parent Common Stock will be voting and will be entitled to a dividend if
declared by the Board of Directors of the surviving entity.
Conversion of Mango Capital Stock into Parent Common Stock
Number of Shares
of Parent Common Number of Shares of
Stock into Which Parent Common
Classes of Mango Shares Each One Share Stock into Which
Capital Stock Outstanding Shall Convert Class shall Convert
------------- ----------- ------------- -------------------
Common Stock 511,250 0.17990 91,972
Series A Preferred Stock 2,250,000 0.17990 404,767
Series B Preferred Stock 750,000 0.17990 134,923
Series C Preferred Stock 1,500,000 1.13288 1,699,319
Series D Preferred Stock 799,751 1.50673 1,205,008
Series E Preferred Stock 1,450,000 1.69932 2,464,012
2
<PAGE>
In addition, following the Merger Parent will issue nine million
(9,000,000) shares of Parent Common Stock in exchange for the Mango Debt. In
connection therewith, the Mango Debt shall be released.
Accordingly, following the completion of the merger, the capitalization
of the surviving entity shall be as follows:
Shares Held in Percentage Ownership of
Group Surviving Entity Surviving Entity
----- ---------------- ----------------
Original Parent Stockholders 4,875,020 24.53%
Former Mango Stockholders 6,000,000 30.19%
Former Mango Debt Holders 9,000,000 45.28%
Total 19,875,020 100.00%
The shares of Parent Common Stock that you will receive in exchange for
shares of Mango Capital Stock will be restricted securities pursuant to Rule 144
("Rule 144") of the Securities Act of 1933, as amended (the "Securities Act"),
and may not be sold, unless registered under the Securities Act, except in
compliance with Rule 144, which provides that a person holding restricted
securities for a period of one (1) year may publicly sell in brokerage
transactions at an amount equal to one percent (1%) of then outstanding Parent
Common Stock every three (3) months or, if greater, a percentage of the shares
publicly traded during a designated period. Accordingly, each share of Parent
Common Stock that you receive in this transaction will bear a legend as follows:
"The shares represented by this certificate have not been registered under the
Securities Act of 1933, as amended, not under any state securities law. Such
shares may not be pledged, sold, assigned, hypothecated or otherwise transferred
until (i) a registration statement with respect hereto is effective under the
Act and any applicable state securities law or (ii) the company receives an
opinion of counsel to the company or counsel to the holder of such securities,
which counsel and opinion are reasonably satisfactory to the company, that such
securities may be pledged, sold, assigned, hypothecated, or transferred without
an effective registration statement under the act and applicable state
securities laws."
As a result of the Merger, your holding period for purposes of Rule 144
will restart. Unless registered under the Securities Act, your shares of Parent
Common Stock will be subject to a stop transfer order. Information regarding
what steps will be taken to register, under the Securities Act, certain shares
of Parent Common Stock issued to you in exchange for your Mango Capital Stock is
contained in Section III below.
3
<PAGE>
III. Registration Rights.
As described in Section VII below, the effectiveness of the Merger will
result in the termination of any agreements you may have with Mango to register
any shares, under the Securities Act, of Mango Capital Stock you own. However,
subject to the completion of an audit and the preparation and delivery of
audited financial statements, the Parent will use reasonable efforts to file,
within 180 days after the closing date, a registration statement with the
Securities and Exchange Commission relating to 25% of Parent Common Stock held
by each former holder of Mango Capital Stock and Mango Debt.
IV. Lock-ups.
Mango is also requesting that you sign a lock-up consent in the form
attached as Exhibit B. Because of the need for additional capital following the
Merger, Parent will need to raise additional funds. The attached consent
provides that from now through December 31, 2000 you will execute any reasonable
lock-up requested by Parent in connection with future financings.
V. Information about Parent.
Attached as Exhibit C is a copy of Parent's Annual Report for the
period ending December 31, 1998. The Annual Report has been attached in order to
provide you with information about the Parent to assist you in making an
informed decision.
VI. Appraisal Rights.
In the event you decide not to sign the enclosed Written Consent of
Stockholders (the "Consent"), and the Merger is approved by a majority of
stockholders of Mango, you will be entitled to an appraisal by a Court of
Chancery of the fair market value of your shares, pursuant to Section 262(d)(2)
("Section 262") of the General Corporation Law of the State of Delaware.
Attached as Exhibit D is a copy of Section 262 for your reference.
VII. Prior Agreements.
Approval of the Merger Agreement by a majority of the stockholders of
Mango, and effectiveness of the Merger, will terminate the Third Amended and
Restated Registration Rights Agreement, dated October 23, 1997, and the Third
Amended and Restated Preemptive Rights Agreement, dated December 19, 1997, each
by and among Mango and each of holder of all series of preferred stock of Mango,
any amendments thereto, and any prior agreements related to subject matters
thereof, and Parent shall not be bound by the terms of any such agreements.
4
<PAGE>
In addition, approval of the Merger Agreement by a majority of the stockholders
of Mango and the effectiveness of the Merger, will terminate any rights you may
be entitled to pursuant to any prior agreements or documents relating to your
securities, including but not limited to, the above-referenced agreements and
the Amended and Restated Certificate of Incorporation of Mango, as filed with
the Secretary of State of the State of Delaware.
This Information Statement does not constitute investment advice with
respect to Mango or the terms of the Merger Agreement. You may wish to consult
with independent counsel regarding the terms of the Merger Agreement.
Approval of the majority of the Mango stockholders will allow the
Merger to be consummated. If you decide to vote in favor of the Merger, please
execute the enclosed Consent where indicated and return a signed copy of the
Consent at your earliest convenience, but no later than August 10, 1999, by
overnight mail or facsimile to:
Camhy Karlinsky & Stein LLP
1740 Broadway - 16th Floor
New York, New York 10019
Attn: Douglas N. Bernstein, Esq.
Fax (212) 977-8389.
Kindly retain copies of the executed documents for your records.
If you have any questions regarding this transaction, please call Tim
Keenan, Treasurer of Mango, at 212-872-9680.
5
<PAGE>
Exhibit 20.2
SUPPLEMENT TO THE
MERGER CONSENT SOLICITATION
AND
INFORMATION STATEMENT
OF
MANGOSOFT CORPORATION
Dated: August 26, 1999
This Supplement supplements and amends the Merger Consent Solicitation
and Information Statement of MangoSoft Corporation (the "Company"), dated August
2, 1999 (the "Memorandum"), regarding the Company's solicitation of your consent
to approve its merger contemplated by an Agreement and Plan of Merger (the
"Merger Agreement") with First American Clock Co., a publicly-traded Nevada
corporation ("Parent"), and its wholly-owned subsidiary, MangoMerger Corp., a
Delaware corporation ("Merger-Sub"). All capitalized terms used herein not
otherwise defined shall have the meanings ascribed to them in the Memorandum,
which is attached hereto for your convenience.
Pursuant to the Merger Agreement, Mango shall merge into the Merger-Sub
and your shares of capital stock of the Company will be converted into shares of
common stock of Parent as described in the Memorandum. This consent solicitation
is being made due to a substantive change to the terms of the Merger described
in the Memorandum. Mango is providing this Supplement to all stockholders of
Mango who were holders of record as of July 30, 1999, regardless of whether they
previously consented to the Merger, so that they may make a new decision based
upon the terms of the Merger as amended. Stockholders are encouraged to review
the Memorandum and this Supplement prior to executing the enclosed action by
written consent in the space set forth to indicate their approval of the Merger.
As described in the Memorandum, the Merger Agreement requires the
Parent to raise $3.75 million as a condition to closing. The Company has been
advised by counsel to the Parent that it was unable to raise the $3.75 million
without eliminating the registration rights relating to the Parent stock that
you will receive in the Merger that were described in Section III of the
Memorandum. Therefore, as a condition to that financing, which the Company has
been advised has been consummated, the Parent represented to its investors that
the holders of Mango Capital Stock would not have any registration rights in
respect of Parent stock issued to them in connection with the Merger.
Accordingly, Section III of the Memorandum is hereby amended by deleting the
second sentence thereof and Section II is amended by deleting the last sentence
of the last paragraph thereof. Other holders of 2,300,000 shares of Parent stock
will, however, retain their registration rights.
Since you will not have any registration rights relating to Parent
stock that you will receive in exchange for shares of Mango Capital Stock, such
Stock will be restricted securities
<PAGE>
pursuant to Rule 144 of the Securities Act and may not be sold, unless
registered under the Securities Act, except in compliance with Rule 144, which
provides that a person holding restricted securities for a period of one (1)
year may publicly sell in brokerage transactions at an amount equal to one
percent (1%) of the then outstanding Parent Common Stock every three (3) months
or, if greater, a percentage of the shares publicly traded during a designated
period. Accordingly, each share of Parent Common Stock that you receive in this
transaction will bear a legend as follows: "The shares represented by this
certificate have not been registered under the Securities Act of 1933, as
amended, not under any state securities law. Such shares may not be pledged,
sold, assigned, hypothecated or otherwise transferred until (i) a registration
statement with respect hereto is effective under the Act and any applicable
state securities law or (ii) the company receives an opinion of counsel to the
company or counsel to the holder of such securities, which counsel and opinion
are reasonably satisfactory to the company, that such securities may be pledged,
sold, assigned, hypothecated, or transferred without an effective registration
statement under the act and applicable state securities laws."
The Supplement does not constitute investment advice with respect to
Mango or the terms of the Merger Agreement. You may wish to consult with
independent counsel regarding the terms of the Merger Agreement and the changes
thereto as described herein.
Approval of the majority of each class of Mango stockholders will allow
the Merger to be consummated. As a result of the elimination of registration
rights described herein, your approval is necessary even if you previously voted
in favor of the Merger. If you decide to vote in favor of the Merger after
having considered the change in terms described herein, please execute the
enclosed action by written consent where indicated, signifying your approval of
the Merger, and return a signed copy at your earliest convenience, but no later
than August 31, 1999, by facsimile transmission to:
Tim Keenan at (212) 872-9690
Kindly retain copies of the executed documents for your records.
If you have any questions regarding this transaction, please call Tim
Keenan, Treasurer of Mango, at 212-872-0680.
2
<PAGE>
Exhibit 20.3
SUPPLEMENT TO THE
MERGER CONSENT SOLICITATION
AND
INFORMATION STATEMENT
OF
MANGOSOFT CORPORATION
Dated: September 1, 1999
This Supplement supplements and amends the Merger Consent Solicitation
and Information Statement of MangoSoft Corporation ("Mango"), dated August 13,
1999 (the "Memorandum"), regarding the Company's solicitation of your consent
to approve its merger contemplated by an Agreement and Plan of Merger (the
"Merger Agreement") with First American Clock Co., a publicly-traded Nevada
corporation ("Parent"), and its wholly-owned subsidiary, MangoMerger Corp., a
Delaware corporation ("Merger-Sub"), to agree to exchange your Mango Debt for
Parent Common Stock issued immediately after the Merger, and to terminate all
other agreements between holders of Mango Debt and Mango. All capitalized terms
used herein not otherwise defined shall have the meanings ascribed to them in
the Memorandum, which is attached hereto for your convenience.
The consent solicitation is being made due to a substantive change to
the terms of the Merger described in the Memorandum. Mango is providing this
Supplement to all holders of Mango Debt, regardless of whether they previously
consented to the Merger, so that they may make a new decision based upon the
terms of the Merger as amended. Holders of Mango Debt are encouraged to review
the Memorandum and this Supplement prior to executing the enclosed Merger
Consent and Debt Exchange in the space set forth to indicated their approval of
the Merger and the other matters addressed therein.
In connection with the Merger, the registration rights afforded to
Palisade Private Partnership, L.P. ("Palisade") in respect of Parent Common
Stock to be received by it immediately following the Merger, have been modified
as follows. The Merger Agreement requires the Parent to use reasonable efforts
to register under the Securities Act one-third of Parent stock received by
Palisade in exchange for Mango Debt within 180 days following the consummation
of the Merger and to keep such registration statement effective until all
registered shares of Parent Common Stock have been sold or otherwise transferred
by the holders of Mango Debt. Notwithstanding the foregoing, upon Parent's
written request, Palisade will agree not to sell any Parent Common Stock
pursuant to the registration statement covering such stock (a "Lock-Up") during
a period within the period commencing on the effective date of the Merger and
ending on the first anniversary thereof (the "Lock-Up Period") if, at the time
of Parent's request for a Lock-Up (i) Parent, through a registered broker dealer
acting as a financial advisor (the "Financial Advisor"), is actively engaged in
raising financing, and (ii) in such Financial Advisor's opinion, which opinion
shall be evidenced in writing, the
<PAGE>
sale of such shares would materially impair the financing efforts. For purposes
of (i) above, the phrase "actively engaged in raising financing" shall mean that
(a) the Financial Advisor has been retained by Parent to raise financing for
Parent, (b) a private placement memorandum or prospectus is being prepared and
is completed within 30 days of the retention, (c) potential investors have been
identified, and (d) Parent and/or the Financial Advisor are in active
discussions with such persons concerning a potential investment in Parent.
Parent shall not be entitled to request more than two Lock-Ups during the
Lock-Up Period. In addition, the Lock-Up (x) shall terminate and shall have no
further effect immediately upon the termination of any financing efforts
previously having necessitated the Lock-Up, and (y) shall not restrict the sale
of any shares of Parent Common Stock issued to holders of Mango Debt (other than
pursuant to a registration statement) whether pursuant to Rule 144 under the
Securities Act or otherwise.
This Supplement does not constitute investment advice with respect to
Mango or the terms of the Merger Agreement. You may wish to consult with
independent counsel regarding the terms of the Merger Agreement and the changes
thereto as described herein.
Approval of the majority of the Mango stockholders and the requisite
holders of Mango Debt will allow the Merger to be consummated. Please execute
the enclosed Merger Consent and Debt Exchange Notice where indicated and return
a signed copy of the documents at your earliest convenience, but no later than
August 31, 1999, by facsimile to:
Tim Keenan at (212) 872-9690
Kindly retain copies of the executed document for your records.
If you have any questions regarding this transaction, please call Tim
Keenan, Treasurer of Mango, at 212-872-9680.
2
<PAGE>
MANGOSOFT CORPORATION
MERGER CONSENT AND DEBT EXCHANGE
The undersigned, being the registered holders of $6,000,000 of 12%
Senior Secured Convertible Notes of MangoSoft Corporation, a Delaware
Corporation (the "Company"), issued commencing February 11, 1999 (the "Notes")
do hereby agree as follows:
A. The undersigned holders of the Notes consent to and approve an
Agreement and Plan of Merger (the "Merger Agreement") among the Company, First
American Clock Co., a Nevada Corporation, and its wholly-owned subsidiary, Mango
Merger Corp., a Delaware corporation ("Merger-Sub"), pursuant to which the
Company shall merge with Merger-Sub, substantially in the form described in the
Information Statement dated August 13, 1999 (the "Information Statement"), as
supplemented by the Supplement to the Merger Consent Solicitation and
Information Statement of the Company, dated September 1, 1999, with such changes
as the proper officer or officers deem appropriate.
2. The undersigned holders of the Notes hereby irrevocably agree to,
and hereby request that, immediately following the effectiveness of the Merger,
the Notes held by the undersigned be exchanged for common stock of First
American Clock Co. in accordance with the terms of the Information Statement,
the Supplement thereto dated September 1, 1999, and the Merger Agreement, so
that for each $1,000 of Notes held by the undersigned 1,500 shares of common
stock of First American Clock Co. shall be issued to the undersigned in the name
of the undersigned and that the Notes held by the undersigned shall be canceled.
3. The undersigned, by signing this Merger Consent and Debt Exchange,
acknowledges that effectiveness of the Merger, and the exchange of the Notes,
will terminate all provisions of the following documents delivered to the
undersigned and/or Palisade Private Partnership. LP as agent for all of the
holders of the Notes (the "Agent"): (i) the 12% Senior Secured Convertible Note
issued to the undersigned, including the sale bonus provision contained in
section 1.6 thereof; (ii) the Subscription Agreement and Investment
Representation between the undersigned and the Company, including the
registration rights provisions contained in section 4 thereof; (iii) the
MangoSoft Corporation First Priority Security Agreement, dated February 11,
1999, between the Company and the Agent; (iv) the Patent Collateral Security and
Pledge Agreement, dated February 11, 1999, between the Company and the Agent;
and (v) the Trademark Collateral Security and Pledge Agreement, dated February
11, 1999, between the Company and the Agent (collectively, the "Debt
Documents"). The undersigned covenants and agrees to execute any documents that
may be required to further evidence the termination of any lien or security
interest created by the Debt Documents. The undersigned understands and
acknowledges that First American Clock Co. shall not be bound by the terms of
any such Debt Documents, any amendments thereto, or any other agreement between
the undersigned and the Company.
3
<PAGE>
This Consent and Debt Exchange may be signed in any number of
counterparts and by facsimile.
IN WITNESS WHEREOF, the undersigned have executed this Consent and
Debt Exchange as of this 7th day of September, 1999.
PALISADE PRIVATE PARTNERSHIP, L.P.
Individually, and as Agent for the holders of the Notes
By: Palisade Private Holdings, LLC., General Partners
By: /s/ Mark S. Hoffman By: /s/ Matthew Chasin
----------------------- -----------------------
Name: Mark S. Hoffman Name: Matthew Chasin
Title: Member
By: /s/ Jerry Chasen By: /s/ Eugene Melnick
----------------------- -----------------------
Name: Jerry Chasen Name: Eugene Melnick
By: /s/ Steven Lockwood By: /s/ Jay Zises
----------------------- -----------------------
Name: Steven Lockwood Name: Jay Zises
By: /s/ Barry Peters By: /s/ Seymour Zises
----------------------- -----------------------
Name: Barry Peters Name: Seymour Zises
By: /s/ Selig Zises
-----------------------
Name: Selig Zises
* The signature hereof by an authorized officer of Palisade represents
Palisade's agreement to be subject to the lock-up provisions set forth to the
Supplement to the Merger Consent Solicitation and Information Statement, dated
September 1, 1999.
4
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JUL-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,319,040
<SECURITIES> 0
<RECEIVABLES> 69,050
<ALLOWANCES> 53,229
<INVENTORY> 0
<CURRENT-ASSETS> 2,512,986
<PP&E> 2,086,331
<DEPRECIATION> 1,897,653
<TOTAL-ASSETS> 2,760,984
<CURRENT-LIABILITIES> 3,749,910
<BONDS> 0
0
0
<COMMON> 19,884
<OTHER-SE> (1,008,810)
<TOTAL-LIABILITY-AND-EQUITY> 2,760,984
<SALES> 35,678
<TOTAL-REVENUES> 35,678
<CGS> 275
<TOTAL-COSTS> 5,097,683
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 363,993
<INCOME-PRETAX> (5,422,102)
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (5,422,102)
<EPS-BASIC> (2.02)
<EPS-DILUTED> (2.02)
</TABLE>
