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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
-----------------------
Form 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR THE FISCAL QUARTER ENDED JUNE 30, 1996, 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: 0-26952
SYNC RESEARCH, INC.
(Exact name of Registrant as specified in its charter)
Delaware 33-0676350
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
7 Studebaker
Irvine, CA 92718
(Address of principal executive offices)
Registrant's telephone number, including area code: (714) 588-2070
---------------------------------------------
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934, as amended (the "Exchange Act") 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
--- ---
As of July 15, 1996, 13,987,315 shares of the Registrant's Common Stock
were issued and outstanding.
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SYNC RESEARCH, INC.
INDEX
PAGE
Part I. Financial Information 3
Item 1. a) Condensed balance sheets at June 30, 1996 (unaudited)
and December 31, 1995 3
b) Condensed statements of operations (unaudited)
for the three-month and six-month periods
ended June 30, 1996 and June 30,1995 4
c) Condensed statements of cash flows (unaudited)
for the six-month periods ended
June 30, 1996 and June 30, 1995 5
d) Notes to condensed financial statements 6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8
Part II. Other Information 21
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PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
SYNC RESEARCH, INC.
CONDENSED BALANCE SHEETS
ASSETS
JUNE 30, DECEMBER 31,
1996 1995
-------------- --------------
(UNAUDITED)
Current assets:
Cash and cash equivalents $30,040,885 $48,924,912
Short-term investments 11,756,939 --
Accounts and other receivables, net 6,285,725 5,461,646
Inventories 4,565,093 3,689,237
Prepaid expenses and other current assets 657,556 304,122
-------------- --------------
-------------- --------------
Total current assets 53,306,198 58,379,917
Furniture, fixtures and equipment, net 1,808,064 1,222,709
Other assets 360,784 324,935
-------------- --------------
Total assets $55,475,046 $59,927,561
-------------- --------------
-------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued liabilities $3,094,297 $4,692,040
Bank borrowings and current maturities
of capitalized lease obligations 40,362 37,330
-------------- --------------
Total current liabilities 3,134,659 4,729,370
Capitalized lease obligations less current
maturities 154,450 145,128
Stockholders' equity:
Common stock, $.001 par value:
Authorized shares--15,000,000
Issued and outstanding shares-
13,977,225 at June 30, 1996
and 13,726,684 December 31, 1995 13,977 13,727
Additional paid-in capital 63,109,811 63,050,633
Deferred compensation (246,097) (421,002)
Accumulated deficit (10,691,754) (7,590,295)
-------------- --------------
Total stockholders' equity 52,185,937 55,053,063
-------------- --------------
Total liabilities and stockholders' equity $55,475,046 $59,927,561
-------------- --------------
-------------- --------------
See accompanying notes.
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SYNC RESEARCH, INC.
CONDENSED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1996 1995 1996 1995
------------ ------------ ------------ ------------
<S><C>
Net revenues $4,060,671 $5,266,729 $10,079,189 $9,452,771
Cost of sales 2,232,455 2,411,302 5,832,688 4,030,452
------------ ------------ ------------ ------------
Gross profit 1,828,216 2,855,427 4,246,501 5,422,319
Operating expenses:
Research and development 1,314,705 856,130 2,380,519 1,535,618
Selling and marketing 2,438,068 1,549,866 4,694,949 3,071,680
General and administrative 906,358 447,281 1,492,942 815,081
------------ ------------ ------------ ------------
Total operating expenses 4,659,131 2,853,277 8,568,410 5,422,379
------------ ------------ ------------ ------------
Operating income (loss) (2,830,915) 2,150 (4,321,909) (60)
Interest expense 16,771 20,758 36,926 42,751
Interest income 605,990 27,761 1,257,376 60,062
------------ ------------ ------------ ------------
Income (loss) before income taxes (2,241,696) 9,153 (3,101,459) 17,251
Provision for income taxes -- -- -- 1,556
------------ ------------ ------------ ------------
Net income (loss) ($2,241,696) $9,153 ($3,101,459) $15,695
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Net income (loss) per share ($0.161) $0.002 ($0.223) $0.003
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Shares used in computing net
income (loss) per share 13,963,471 5,337,413 13,904,472 5,314,035
------------ ------------ ------------ ------------
------------ ------------ ------------ ------------
Pro forma net income per share $0.001 $0.001
------------ ------------
------------ ------------
Shares used in computing pro forma
net income per share 12,940,653 12,917,275
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
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SYNC RESEARCH, INC.
CONDENSED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS ENDED JUNE 30,
CASH FLOWS FROM OPERATING ACTIVITIES 1996 1995
------------ ----------
<S> <C> <C>
Net income (loss) ($3,101,459) $15,695
Adjustments to reconcile net
income (loss) to net cash
provided by operating activities:
Depreciation and amortization 362,895 209,182
Provision for losses on accounts receivable 264,031 18,873
Deferred compensation expense 174,905 33,000
Changes in operating assets and liabilities (3,950,990) (821,458)
----------- ---------
Net cash used in operating activities (6,250,618) (544,708)
CASH FLOWS FROM INVESTING ACTIVITIES
Investments in marketable securities (11,756,939) --
Purchase of furniture, fixtures and equipment (916,715) (309,433)
----------- ----------
Net cash used in investing activities (12,673,654) (309,433)
CASH FLOWS FROM FINANCING ACTIVITIES
Payments on capitalized lease obligations (19,183) (39,911)
Proceeds from common stock options exercised 59,428 155,653
----------- ----------
Net cash provided by financing activities 40,245 115,742
----------- ----------
Net decrease in cash and cash equivalents (18,884,027) (738,399)
Cash and cash equivalents at beginning of period 48,924,912 4,220,618
----------- ----------
Cash and cash equivalents at end of period $30,040,885 $3,482,219
----------- ----------
----------- ----------
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Interest paid $36,780 $44,962
------------ ----------
------------ ----------
Income taxes paid $39,500 $1,556
------------ ----------
------------ ----------
</TABLE>
See accompanying notes.
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SYNC RESEARCH, INC.
NOTES TO CONDENSED FINANCIAL STATEMENTS
(UNAUDITED)
ITEM 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
1. BASIS OF PRESENTATION
The condensed balance sheets as of June 30, 1996, the condensed
statements of income for the three month and six month periods ended June 30,
1996 and 1995 and the condensed statements of cash flows for the six month
periods ended June 30, 1996 and 1995 have been prepared by Sync Research,
Inc. (the "Company") without audit. In the opinion of management, the
unaudited financial statements include all adjustments (consisting of normal
recurring adjustments) necessary to present fairly the financial position at
June 30, 1996, and the results of operations for the three-month and
six-month periods ended June 30, 1996 and 1995 and cash flows for the six
month periods ended June 30, 1996 and 1995. The condensed financial
statements should be read in conjunction with the audited financial
statements and notes thereto included in the Company's Annual Report on Form
10-K for the year ended December 31, 1995. The results of operations for the
three months and six months ended June 30, 1996 are not necessarily
indicative of the operating results to be expected for the full year.
2. MERGER
On June 27, 1996, the Company entered into an Agreement and Plan of
Reorganization with TyLink Corporation (TyLink), pursuant to which TyLink is
expected to be merged with and into a newly created subsidiary of the
Company. Under the agreement, the Company will issue a maximum of 2,780,000
shares of its common stock and will pay a maximum of $4 million for all of
the outstanding shares of TyLink capital stock. This business combination is
expected to be completed in the third quarter of 1996 and be accounted for as
a pooling of interests.
3. CASH, CASH EQUIVALENTS AND SHORT TERM INVESTMENTS
The Company invests its excess cash in money market funds and debt
instruments of U.S. corporations with strong credit ratings. The Company has
established guidelines with respect to the diversification and maturities in
order to maintain safety and liquidity. The Company considers all highly liquid
investments with an original maturity of three months or less to be cash
equivalents. The Company considers investments with original maturities between
three and twelve months to be short-term investments. Management determines the
appropriate classification of such securities at the time of purchase and
reevaluates such classification as of each balance sheet date. Based on its
intent, the Company's investments are classified as available-for-sale and are
carried at fair value, with unrealized gains and losses, net of tax, reported as
a separate component of stockholders' equity. The investments are adjusted for
amortization of premiums and discounts to maturity and such amortization is
included in interest income. Realized gains and losses and declines in value
judged to be other than temporary are determined based on the specific
identification method and are reported in the consolidated statements of
operations. There were no significant unrealized gains or losses at June 30,
1996.
4. INVENTORIES
Inventories consist primarily of computer hardware and components and
are stated at the lower of cost (first-in, first-out) or market as follows:
JUNE 30, DECEMBER 31,
1996 1995
----------- ------------
Raw Materials $1,810,298 $ 2,112,534
Work in Process 1,094,159 861,799
Finished Goods 1,660,636 714,904
----------- ------------
$ 4,565,093 $3,689,237
----------- ------------
----------- ------------
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5. IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS
On January 1, 1996, the Company adopted the FASB Statement of
Financial Accounting Standards No. 121 (SFAS 121), ACCOUNTING FOR THE IMPAIRMENT
OF LONG-LIVED ASSETS AND FOR LONG-LIVED ASSETS TO BE DISPOSED OF. The adoption
of SFAS 121 had no impact on the Company's financial condition or results of
operations.
In October 1995, Statement of Financial Accounting Standards No.
123, "Accounting for Stock-Based Compensation" (FAS 123) was issued and is
effective for 1996. The Company intends to continue to account for employee
stock options in accordance with APB Opinion No. 25 and will make the pro
forma disclosure required by FAS 123 in its annual financial statements for
1996, accordingly, the adoption of the standard will not have a material
effect on the Company's financial position or results of operations.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATION
The following discussion should be read in conjunction with the unaudited
condensed financial statements and notes thereto included in Part I--Item 1 of
this Quarterly Report. In addition, except for the historical statements
contained therein, the following discussion contains forward-looking statements.
The Company wishes to alert readers that the factors set forth in the Company's
Annual Report on Form 10-K for the year ended December 31, 1995, and in the
section of this Item 2 titled "Additional Factors That May Affect Future
Results," as well as other factors, could in the future affect, and in the past
have affected the Company's results. The Company's actual results for future
quarters could differ materially from those expressed in any forward looking
statements made by or on behalf of the Company.
OVERVIEW
Sync Research, Inc. ("Sync" or the "Company") is a wide-area network
("WAN") access company, providing internetworking solutions for International
Business Machines Corporation ("IBM") customers' wide-area networks. Sync
develops, markets and supports advanced networking products that adapt IBM
Systems Network Architecture ("SNA") networks to emerging switched WAN services
such as Frame Relay. Sync products also support the integration of the
installed-base SNA and emerging client/server network applications using these
new WAN services. Industry analysts have estimated that there are approximately
50,000 IBM SNA networks worldwide. In these networks, wide-area circuit costs
are significant. Frame Relay has emerged as a less expensive, more efficient,
direct substitute for such traditional leased-line connections. The market for
Frame Relay services and equipment is expected to exceed $5 billion in 1998, and
it is estimated that more than half of all data traffic on Frame Relay networks
in 1999 will be attributable to SNA. As a Frame Relay pioneer, the Company was
an early developer of SNA-over-Frame Relay solutions, which provided the basis
for its current product family. The Company believes it is a recognized leader
in SNA-centric networking solutions.
The Company has established strategic sales channels to its prospective
market through marketing and sales relationships with selected, leading
communications and networking companies. The Company intends to leverage its
expertise in SNA-based networks to develop additional channel partnerships and
other marketing relationships, while maintaining direct sales, marketing and
systems engineering activities in order to respond directly to end user needs
and to support the sales efforts of its channel partners.
PROPOSED ACQUISITION OF TYLINK CORPORATION
On June 27, 1996, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with TyLink Corporation ("TyLink"), pursuant
to which, if certain closing conditions are met, TyLink will be merged with
and into a subsidiary of the Company (the "Merger") and will become a
wholly-owned subsidiary of the Company. Pursuant to the Agreement, the
Company will indirectly acquire all of the outstanding shares of capital
stock of TyLink and assume all of the outstanding options to purchase TyLink
stock for a maximum consideration of 2,780,000 shares of Company Common Stock
(the "Merger Shares") and a maximum payment of $4 million to the holders of
TyLink Series B Preferred Stock. The consummation of the Merger is subject to
certain conditions to closing, including, but not limited to, the approval of
the TyLink stockholders. If all closing conditions are satisfied and no
termination event exists, it is expected that the Merger will be completed in
the third quarter. The Merger is expected to be accounted for as a pooling of
interests.
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TyLink is a supplier of network-manageable access products for wide area
digital networks. TyLink designs, manufactures, markets, and supports
stand-alone and central site digital access products that enable certain
applications (such as Internet access and local-area network ("LAN")
internetworking) to communicate over long distances using dedicated digital
networks or public carrier's frame relay or ISDN infrastructures.
There can be no assurance that the Merger will be consummated, or, if
consummated, that the operations and personnel of TyLink will be successfully
assimilated into the Company's business. The risks associated with the Merger
include the potential disruption of the respective ongoing businesses of TyLink
and the Company, the inability of the Company's management to maximize the
financial and strategic position of the combined entity through successful
incorporation of TyLink's personnel and clients, the inability to implement
uniform standards, controls, procedures and policies and the impairment of
relationships with existing employees and clients as a result of the Company's
integration of new management personnel. In addition, the combined entity will
incur significant expenses as a result of the negotiation and implementation of
the Merger. These factors could have a material adverse effect on the Company's
business, financial condition and operating results.
RESULTS OF OPERATIONS
NET REVENUES
The Company derives its revenues primarily from sales of advanced
wide-area networking products, which are recognized upon shipment. The
Company generally does not have any significant remaining obligations upon
shipment of its products. Product returns and sales allowances are provided
for at the date of sale. Service revenues from customer maintenance fees for
ongoing customer support and product updates, which have not been material to
date, are recognized ratably over the term of the maintenance period, which
is typically 12 months.
Net revenues for the second quarter of 1996 were $4.1 million, a decrease
of 23% from the net revenues of $5.3 million for the second quarter of 1995.
For the six months ended June 30, 1996, net revenues were $10.1 million or 7%
higher than the net revenues of $9.5 million in the same period in the prior
year. The lower net revenues for the second quarter ended June 30, 1996
reflect a slower-than-expected transition of IBM customers to frame relay, a
longer sales cycle on certain large transactions, and delays in the
development of relationships with major carrier partners. The increase in
net revenues in the six month period ended June 30, 1996 was primarily due to
increased acceptance of the Company's FrameNode products and overall growth
in sales to channel partners and other resellers, which was offset in part by
lower average selling prices. Sales to channel partners and other resellers
accounted for 90% of net revenues in the second quarter of 1996 and 88% of
net revenues in the six months ended June 30, 1996 as compared with 82% and
80%, respectively, in the comparable prior year periods. Sales of the
Company's FrameNode products represented approximately 35% of net revenues
for the second quarter of 1996 and 59% of net revenues for the six months
ended June 30, 1996 as compared to 31% and 28% for the comparable prior year
periods. Sales of the Company's older family of products, ConversionNode
(SDLC Conversion), represented 65% and 41% of net revenues in the three and
six months ended June 30, 1996, respectively, as compared to 69% and 72% in
the comparable prior year periods. On a forward looking basis, the Company
expects that average selling prices will continue to decline and that sales
through channel partners and other resellers will continue to account for a
substantial majority of net revenues, although the mix of channel partners
and other resellers may change from period to period. On a forward looking
basis, sales of the Company's FrameNode products are expected to grow as a
percentage of net revenues as the older ConversionNode product family
declines.
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GROSS PROFIT
Cost of sales primarily consists of purchased materials used in the
assembly of the Company's products and compensation paid to employees in the
Company's manufacturing organization.
Gross profit decreased to $1.8 million for the second quarter of 1996 from
$2.9 million in the second quarter of 1995, primarily because of lower net
revenues, lower average selling prices and lower margins earned on increased
sales through channel partners and other resellers, which were partially offset
by lower manufacturing costs. For the six months ended June 30, 1996, gross
profits decreased to $4.2 million as compared to $5.4 million in the prior year
period, primarily because of lower margins earned on increased sales to channel
partners and other resellers and lower average selling prices, which were
partially offset by increased net revenue and lower manufacturing costs.
Gross profit as a percentage of net sales decreased to 45% and 42% for the
three and six months ended June 30, 1996, respectively, as compared to 54% and
57% for the comparable prior year periods primarily because of increased sales
to channel partners and resellers and lower average prices, which were partially
offset by lower manufacturing costs.
OPERATING EXPENSES
Research and development expenses primarily consist of compensation paid
to personnel engaged in research and development, including consultants;
amounts paid for outside services; costs of materials utilized in the
development of hardware products, including prototype units; and license fees
and other payments to acquire rights to technology. The Company expenses all
research and development costs as incurred. Research and development
expenses increased in the three and six months ended June 30, 1996 to $1.3
million and $2.4 million, respectively, as compared to $0.9 million and $1.5
million in the comparable prior year periods. The increased expenses in both
the three and six months ended June 30, 1996 were primarily due to the
addition of personnel for the development of new products and the continued
enhancement of existing products. The Company believes that significant
research and development efforts are necessary in order for it to compete in
the evolving marketplace in which it operates. Accordingly, if the Company
is successful in hiring additional development engineers, research and
development expenditures are expected, on a forward looking basis, to
continue to increase in absolute dollars.
Selling and marketing expenses consist primarily of base and incentive
compensation paid to sales and marketing personnel, travel and related
expenses, and costs associated with promotional and trade show activities.
Selling and marketing expenses increased to $2.4 million for the second
quarter of 1996 and $4.7 million for the six months ended June 30, 1996 as
compared to $1.6 million and $3.1 million for the second quarter of 1995 and
six months ended June 30, 1995, respectively. The increased expenses
principally reflected increased hiring and personnel-related expenses
associated with the build-up of the channel sales organization.
General and administrative expenses consist primarily of compensation
paid to administrative personnel, payments to consultants and for
professional services, and costs incurred in recruiting senior management
personnel. General and administrative expenses increased to $0.9 million and
$1.5 million for the three and six months ended June 30, 1996, respectively,
as compared with $0.4 million and $0.8 million for the comparable prior year
periods in 1995. The increases were primarily due to increased hiring,
expenditures related to the negotiation of the agreement to acquire TyLink
Corporation and costs related to public company and investor relation
activities since the Company completed its initial public offering in
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November 1995. Regardless of whether the Merger is consummated, the Company
expects, on a forward looking basis, to incur significant merger-related
expenses in the third quarter of 1996, and, as a result, general and
administrative expenses will increase in the third quarter of 1996.
The Company recorded deferred compensation of $644,000 during 1995 for the
difference between the option exercise price or restricted stock price and the
deemed fair value of the Company's Common Stock for options granted and
restricted stock sold in 1995. The deferred compensation is being amortized to
operating expense and cost of sales over the related 48-month vesting period of
the shares and will, therefore, continue to have an adverse effect on the
Company's results of operations. Included in operating expenses and cost of
sales for the three and six months ended June 30, 1996 were $83,000 and $175,000
of such expenses, respectively, as compared to $26,000 and $33,000 for the
comparable prior year periods.
Net interest income was $0.6 million in the second quarter of 1996 and $1.2
million for the six months ended June 30, 1996 as compared to $7,000 and
$17,000, respectively, in the comparable prior year periods, as a result of
significantly higher cash balances from the Company's initial public offering in
November 1995.
INCOME TAXES
No tax provision was recorded in the first or second quarter of 1996
because of the Company's loss position. In the first quarter of 1995, a
provision of $1,556 was recorded to recognize federal and state alternative
minimum taxes. No tax provision was recorded in the second quarter of 1995.
As of December 31, 1995, the Company had approximately $5.7 million of net
operating loss carryforwards, which begin expiring in 2006, available to
offset future federal income tax liabilities. A valuation allowance has been
established for the entire deferred tax asset related to those net operating
losses. When realized, the federal and state tax benefits related to the
reversal of this valuation allowance will be applied to reduce income tax
expense, except for the portion of the net operating losses that relates to
the deductions for the exercise of non-qualified stock options, which will be
directly credited to additional paid in capital. There can be no assurance
that the Company will be able to utilize its net operating loss carryforwards
prior to their expiration.
LIQUIDITY AND CAPITAL RESOURCES
As of June 30, 1996, the Company's principal sources of liquidity consisted
of $30.0 million of cash and cash equivalents, $11.8 million of short-term
investments and a $3.0 million unsecured bank line of credit which expires
October 5, 1996, and bears interest at the bank's prime lending rate plus 0.5%
(9.0% at June 30, 1996). As of June 30, 1996, there were no outstanding
borrowings under this agreement.
During the six month period ended June 30, 1996, $11.8 million of the
Company's cash was invested in high grade commercial paper with maturities of
more than three months. Also, during the six months ended June 30, 1996,
cash utilized by operating activities was $6.3 million, compared to $0.5
million for the six months ended June 30, 1995. Cash utilized during the six
month period ended June, 30 1996 was due primarily to the Company's net loss,
a reduction in accounts payable and accrued liabilities, an increase in
inventory and an increase in accounts receivable of $3.1 million, $1.6
million, $0.9 million and $0.8 million, respectively. These changes
reflected the higher operating loss, lower level of purchasing and related
payables, higher levels of inventory and slower collections of accounts
receivable in the first six months of 1996. Capital expenditures during the
first six months of 1996 were $0.9 million, compared to $0.3 million for the
prior year period, which reflects an increase in staffing and the
establishment of improved hardware and software test capability.
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The Company has entered into a new seven year lease and will relocate its
primary operations during the fourth quarter of 1996. Therefore, the Company
expects, on a forward looking basis, that lease, operating and maintenance
costs will increase in future periods. In addition, the Company anticipates
that it will expend approximately $1.0 million for leasehold improvements
related to the facility.
The Company believes, on a forward looking basis, that available existing
cash, cash equivalents and short-term investments, together with its bank
facility and cash flows expected to be generated from operations, will be
sufficient to meet its anticipated working capital requirements for the
foreseeable future.
ADDITIONAL FACTORS THAT MAY AFFECT FUTURE RESULTS
The Company desires to take advantage of the "safe harbor" provisions of
the Private Securities Litigation Reform Act of 1995. Specifically, the Company
wishes to alert readers that, except for the historical information contained
herein, the above discussion under "Proposed Acquisition of TyLink Corporation,"
"Results of Operations" and "Liquidity and Capital Resources" constitutes
forward-looking statements that are dependent on certain risks and
uncertainties. These and other factors that may cause actual results to differ
materially from those expressed in any forward-looking statements made by or on
behalf of the Company are described below and in the Company's Annual Report on
Form 10-K for the year ended December 31, 1995, in the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Risk Factors."
HISTORY OF LOSSES; SIGNIFICANT FLUCTUATIONS IN OPERATING RESULTS; UNCERTAIN
PROFITABILITY
The Company experienced operating losses in fiscal years 1991, 1992, 1993,
and 1994, limited profitability in 1995 and operating losses for the quarters
ended March 31, 1996 and June 30, 1996. As of June 30, 1996, the Company had an
accumulated deficit of approximately $10.7 million. The Company has
experienced, and may in the future experience, significant fluctuations in
revenues and operating results from quarter to quarter and from year to year due
to a combination of factors. Factors that can cause the Company's revenues and
operating results to vary significantly from period to period include: the
timing of significant orders; competition and pricing in the industry; the
Company's success in developing, introducing and shipping new products;
increases in the length of the sales cycles for the Company's products; new
product introductions by the Company's competitors; announcements by IBM
relating to products, services or pricing relevant to the Company; production or
quality problems; changes in material costs; disruption in sources of supply;
and general economic conditions. In addition, revenues and gross margins may
fluctuate due to the mix of distribution channels employed and the mix of
products sold. For example, the Company generally realizes a higher gross
margin on direct sales than on sales through its channel partners and other
resellers. Accordingly, as channel partners and other resellers continue to
account for a substantial majority of the Company's net revenues, gross profit
as a percentage of net revenues may decline.
The Company's future revenues are difficult to predict. Revenues and
operating results in any quarter depend on the volume and timing of, and the
ability to fulfill, orders received within the quarter. In addition, sales of
the Company's products typically involve a sales cycle of several months from
the point of initial customer contact until receipt of the first system order.
There can be no assurance that average sales cycles will not increase in future
periods. Furthermore, due to the Company's focus on its channel partner
marketing strategy, the Company's revenues in any period are highly dependent
upon the sales efforts and success of Sync's channel partners and other
resellers, which are not within the control of the
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Company. There can be no assurance that the Company's channel partners and
other resellers will give a high priority to the marketing of the Company's
products as compared to competitive products or alternative networking solutions
or that Sync's channel partners and other resellers will continue to offer the
Company's products. A significant portion of the Company's expenses are
relatively fixed in advance, based in large part on the Company's forecasts of
future sales. If sales are below expectations in any given period, the adverse
effect of a shortfall in sales on the Company's operating results may be
magnified by the Company's inability to adjust spending to compensate for such
shortfall. The Company has in the past and may in the future reduce prices or
increase spending in response to competition or to pursue new product or market
opportunities. Accordingly, there can be no assurance that the Company will be
able to attain or sustain profitability on a quarterly or an annual basis. In
addition, it is possible that in some future quarter the Company's operating
results may be below the expectations of public market analysts and investors.
In such event, the price of the Company's Common Stock would likely be
materially and adversely affected.
DEPENDENCE ON THE IBM CUSTOMER BASE
The Company's products are targeted at the large installed base of IBM
customers utilizing SNA networks. These customers are likely to follow
recommendations from IBM with respect to products or services to support their
SNA networks. In 1994, IBM announced support for Frame Relay, and IBM's current
SNA and WAN products incorporate a Frame Relay interface, and a wide array of
Frame Relay switching and termination functions. In August 1995, the Company
entered into a cooperative marketing agreement with IBM. In March 1996, Sync
and IBM announced a new strategic relationship in which IBM will make available
Sync's FrameNode product family under the IBM logo. There can be no assurance
that IBM will continue to support Frame Relay, that IBM will not develop
SNA-over-Frame Relay products competitive with the Company's products, that
either the cooperative marketing arrangement or the new strategic relationship
between the Company and IBM will be successful, that IBM will not terminate the
cooperative marketing agreement or the new strategic relationship or that IBM
will not endorse the products of competitors or networking solutions not offered
by the Company. Any of these events could have a material adverse effect on the
Company's business, operating results and financial condition.
UNCERTAIN MARKET ACCEPTANCE OF FRAME RELAY FOR MISSION-CRITICAL
APPLICATIONS
The growth in the Company's net revenues in the first six months of 1996
relative to the first six months of 1995 was due in part to growth in sales of
Sync's FrameNode products, which enable SNA and client/server internetworking
over Frame Relay. The market for SNA-over-Frame Relay products is relatively
new and still evolving. The success of the Company and its channel partners in
generating significant sales of FrameNode products will depend in part on their
ability to educate end users about the benefits of the Company's technology and
convince end users to switch their mission-critical applications to Frame Relay.
In addition, broad acceptance of Frame Relay services will also depend upon the
tariffs for such services, which are determined by carriers. If the tariff
structure for dedicated leased lines becomes more favorable relative to tariffs
for a comparable network utilizing Frame Relay, the market for Frame Relay
networking products, such as FrameNode, could be adversely affected. There can
be no assurance that the market will adopt Frame Relay for mission-critical
applications to any significant extent. The failure of such adoption to occur
could have a material adverse effect on the Company's business, operating
results and financial condition.
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<PAGE>
UNCERTAIN MARKET ACCEPTANCE OF THE COMPANY'S PRODUCTS; PRODUCT
CONCENTRATION
The Company currently derives substantially all of its revenues from its
ConversionNode and FrameNode products and expects that revenues from these
products will continue to account for substantially all of its revenues for the
foreseeable future. Broad market acceptance of, and continuing demand for,
these products, especially FrameNode, is, therefore, critical to the Company's
future success. Factors that may affect the market acceptance of the Company's
products include the extent to which Frame Relay is adopted for mission-critical
applications, the availability and price of competing products and technologies,
announcements by IBM relating to products, services or pricing relevant to the
Company, the success of the sales efforts of the Company and its resellers and
tariff rates for carrier services. Moreover, the Company's operating history in
the WAN internetworking market and its resources are limited relative to those
of certain of its current and potential competitors. The Company's future
performance will also depend in part on the successful development, introduction
and market acceptance of new and enhanced products. Failure of the Company's
products to achieve market acceptance could have a material adverse effect on
the Company's business, operating results and financial condition.
DEPENDENCE ON CHANNEL PARTNERS AND OTHER RESELLERS
The Company is pursuing a channel partner sales and marketing strategy
focused on establishing marketing partnerships with selected communications and
networking companies, as well as carriers. The Company currently maintains
marketing and sales arrangements with selected, leading communications and
networking companies such as 3Com and NET and, most recently, IBM, as well as
carriers such as Sprint Corp., GTE Corp. CompuServe, Inc., Ameritech and MCI
Communications. The Company relies on its network of channel partners and other
resellers for a substantial majority of its revenues, including virtually all of
its sales outside of the United States. The Company's agreements with its
channel partners and other resellers do not restrict the sale of products that
compete with those of the Company. In addition, these agreements generally
provide for discounts based on expected or actual volumes of products purchased
or resold by the reseller in a given period, do not require minimum purchases,
prohibit distribution of certain products by the Company through certain
categories of third parties under certain conditions and provide manufacturing
rights and access to source code upon the occurrence of specified conditions or
defaults. The Company expects that certain of its channel partners may in the
future develop competitive products, and, if they do so, they may decide to
terminate their relationships with the Company. In addition, many of the
Company's resellers offer competitive products manufactured either by third
parties or by themselves. Furthermore, certain of the Company's channel
partners offer alternative solutions, designed by themselves or third parties,
for SNA internetworking or have pre-existing relationships with current or
potential competitors of the Company. There can be no assurance that the
Company's channel partners and other resellers will give a high priority to the
marketing of the Company's products as compared to competitive products or
alternative networking solutions or that Sync's channel partners and other
resellers will continue to offer the Company's products. Any reduction or delay
in sales of the Company's products by its channel partners could have a material
adverse effect on the Company's business, operating results and financial
condition.
The Company's channel partners and other resellers account, and are
expected to continue to account, for a substantial majority of the Company's net
revenues. Sales through channel partners and other resellers accounted for
84.9%, 72.8% and 64.8% of Sync's net revenues in 1995, 1994 and 1993,
respectively. Sales to 3Com accounted for 27.0% and 12.8% of the Company's net
revenues in 1995 and 1994, respectively. The Company believes the relative
amount of revenues derived from sales to 3Com will likely decline as competitive
products impact the conversion product business. During 1995, sales to
Cabletron accounted for 16.8% of the Company's net revenues, but sales to
Cabletron have declined substantially in 1996, and there can be no assurance
that sales to Cabletron will increase in the future. Each of the Company's
channel partners or other resellers can cease marketing the Company's products
at
-14-
<PAGE>
the reseller's option, under certain conditions, with limited notice and with
little or no penalty. There can be no assurance that the Company will retain
its current channel partners or other resellers or that it will be able to
recruit additional or replacement channel partners. The loss of one or more of
the Company's channel partners or other resellers could have a material adverse
effect on the Company's business, operating results and financial condition.
The Company generally realizes a higher gross margin on direct sales than on
sales through its channel partners and other resellers. Accordingly, as channel
partners and other resellers continue to account for a substantial majority of
the Company's net revenues, gross profit as a percentage of net revenues may
decline.
RAPID TECHNOLOGICAL CHANGE AND NEW PRODUCTS
The market for the Company's products is characterized by rapidly changing
technology, evolving industry standards and frequent new product introductions.
The Company's success will depend to a substantial degree upon its ability to
develop and introduce in a timely fashion enhancements to its existing products
and new products that meet changing customer requirements and emerging industry
standards. For example, the Company believes that the development of products
supporting asynchronous transfer mode ("ATM"), which many industry experts
expect to be the next generation networking standard, may be critical to the
Company's future success. The development of new, technologically advanced
products is a complex and uncertain process requiring high levels of innovation,
as well as the accurate anticipation of technological and market trends. There
can be no assurance that the Company will be able to identify, develop,
manufacture, market or support new products successfully, that such new products
will gain market acceptance or that the Company will be able to respond
effectively to technological changes, emerging industry standards or product
announcements by competitors. In addition, the Company has on occasion
experienced delays in the introduction of product enhancements and new products.
There can be no assurance that in the future the Company will be able to
introduce product enhancements or new products on a timely basis. Furthermore,
from time to time, the Company may announce new products, capabilities or
technologies that have the potential to replace or shorten the life cycle of the
Company's existing product offerings. There can be no assurance that
announcements of product enhancements or new product offerings will not cause
customers to defer purchasing existing Company products or cause resellers to
return products to the Company. Failure to introduce new products or product
enhancements effectively and on a timely basis, customer delays in purchasing
products in anticipation of new product introductions and any inability of the
Company to respond effectively to technological changes, emerging industry
standards or product announcements by competitors could have a material adverse
effect on the Company's business, operating results and financial condition.
PRODUCT ERRORS
Products as complex as those offered by the Company may contain undetected
software or hardware errors when first introduced or as new versions are
released. Such errors have occurred in the past, and there can be no assurance
that, despite testing by the Company and by current and potential customers,
errors will not be found in new or enhanced products after commencement of
commercial shipments. Moreover, there can be no assurance that once detected,
such errors can be corrected in a timely manner, if at all. Software errors may
take several months to correct, if they can be corrected at all, and hardware
errors may take even longer to rectify. The occurrence of such software or
hardware errors, as well as any delay in correcting them, could result in the
delay or loss of market acceptance of the Company's products, additional
warranty expense, diversion of engineering and other resources from the
Company's product development efforts or the loss of credibility with Sync's
channel partners and other resellers, any of which could have a material adverse
effect on the Company's business, operating results and financial condition.
-15-
<PAGE>
INTENSE COMPETITION
The market for communications products is intensely competitive and subject
to rapid technological change and emerging industry standards. The Company's
current competitors include LAN networking companies such as Cisco Systems, Inc.
("Cisco"), Hypercom Inc. ("Hypercom") and Motorola Information Systems Group,
Netlink, Inc. ("Netlink"), an internetworking company, carriers and other
providers of telecommunications equipment and services. Potential competitors
include other LAN networking companies, Frame Relay switching companies, IBM and
the Company's other channel partners. Certain of these companies, including
Cisco, Hypercom, Netlink and Bay Networks, Inc., have announced their intention
to target the SNA-over-Frame Relay market, and Cisco has recently introduced new
products for this market. Many of the Company's current and potential
competitors have longer operating histories and greater financial, technical,
sales, marketing and other resources, as well as greater name recognition and a
larger customer base, than the Company. As a result, they may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements or will be able to devote greater resources to the development,
promotion, sale and support of their products than the Company. Many also have
long-standing customer relationships with large enterprises that are part of the
Company's target market, and these relationships may make it more difficult to
complete sales of the Company's products to these enterprises. Furthermore, the
Company expects that certain of its channel partners will in the future develop
competitive products and may then decide to terminate their relationships with
the Company. Consequently, the Company expects to encounter increased
competition, particularly in the Frame Relay market. Increased competition
could result in significant price competition, reduced profit margins or loss of
market share, any of which could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company will be able to compete successfully in the future.
DEPENDENCE ON CONTRACT MANUFACTURERS
The Company's manufacturing operations consist primarily of materials
planning and procurement, light assembly, system integration, testing and
quality assurance. The Company subcontracts most component kitting and printed
circuit board assembly to companies that specialize in those services. In
addition, the Company has an arrangement with a contract manufacturer pursuant
to which the Company intends to outsource substantial portions of its
procurement, assembly and system integration operations. The Company expects to
enter into similar arrangements with other contract manufacturers. To date, the
Company has had only limited experience with the use of contract manufacturers.
There can be no assurance that these independent contract manufacturers will be
able to meet the Company's future requirements for manufactured products or that
such independent contract manufacturers will not experience quality problems in
manufacturing the Company's products. The inability of the Company's contract
manufacturers to provide the Company with adequate supplies of high quality
products could have a material adverse effect upon the Company's business,
operating results and financial condition. The loss of any of the Company's
contract manufacturers could cause a delay in Sync's ability to fulfill orders
while the Company identifies a replacement manufacturer. Such an event could
have a material adverse effect on the Company's business, operating results and
financial condition.
The Company's manufacturing procedures are designed to assure rapid
response to customer orders, but may in certain instances create a risk of
excess or inadequate inventory if orders do not match forecasts. The Company
increased manufacturing capacity in 1995 and 1996 through the expansion of its
relationships with contract manufacturers and internal manufacturing resources.
Any manufacturing delays, inability to increase manufacturing capacity as
required or failure to forecast accurately inventory
-16-
<PAGE>
requirements could have a material adverse effect on the Company's business,
operating results and financial condition.
DEPENDENCE ON SUPPLIERS
Certain key components used in the manufacture of the Company's products
are currently purchased only from single or limited sources. At present,
single-sourced components include programmable integrated circuits, other
selected integrated circuits and cables, custom-molded plastics and
custom-tooled sheet metal and limited-sourced components, including flash
memories, dynamic random access memories ("DRAMs"), printed circuit boards and
selected integrated circuits. The Company generally does not have long-term
agreements with any of these single or limited sources of supply. Any
interruption in the supply of any of these components, or the inability of the
Company to procure these components from alternate sources at acceptable prices
and within a reasonable time, could have a material adverse effect upon the
Company's business, operating results and financial condition. The Company uses
a rolling six-month forecast based on anticipated orders to determine its
general materials and manufacturing staffing requirements. Lead times for
materials and components ordered by the Company vary significantly and depend on
factors such as the specific supplier, contract terms and demand for a component
at a given time. If orders do not match forecasts, the Company may have excess
or inadequate inventory of certain materials and components. From time to time
the Company has experienced shortages of certain components and has paid
above-market prices to acquire such components on an accelerated basis or has
experienced delays in fulfilling orders while waiting to obtain the necessary
components. Such shortages may occur in the future and could have a material
adverse effect on the Company's business, operating results and financial
condition.
DEPENDENCE ON AND RISKS ASSOCIATED WITH INTERNATIONAL SALES
Sales to customers outside of the United States accounted for approximately
5.9%, 8.6%, 11.6% and 14.4% of the Company's net revenues in the six months
ended June 30, 1996 and in 1995, 1994 and 1993, respectively. However, these
percentages may understate sales of the Company's products to international end
users because certain of the Company's U.S.-based channel partners market the
Company's products abroad. Historically, the Company's international sales have
been conducted primarily through independent country-specific distributors. The
Company intends to market its products in foreign countries in the future
increasingly through its channel partners. Failure of these resellers to market
the Company's products internationally or the loss of any of these resellers
could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company's ability to increase
sales of its products to international end users may be limited if the carrier
services, such as Frame Relay, or protocols supported by the Company's products
are not widely adopted internationally. A number of additional risks are
inherent in international transactions. The Company's international sales
currently are U.S. dollar-denominated. As a result, an increase in the value of
the U.S. dollar relative to foreign currencies could make the Company's products
less competitive in international markets. International sales may also be
limited or disrupted by the imposition of governmental controls, export license
requirements, restrictions on the export of critical technology, currency
exchange fluctuations, political instability, trade restrictions and changes in
tariffs. In addition, sales in Europe and certain other parts of the world
typically are adversely affected in the third quarter of each year as many
customers and end users reduce their business activities during the summer
months. These international factors could have a material adverse effect on
future sales of the Company's products to international end users and,
consequently, the Company's business, operating results and financial condition.
-17-
<PAGE>
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company's future success depends, in part, upon its proprietary
technology. The Company does not hold any patents and currently relies on a
combination of contractual rights, trade secrets and copyright laws to establish
and protect its proprietary rights in its products. There can be no assurance
that the steps taken by the Company to protect its intellectual property will be
adequate to prevent misappropriation of its technology or that the Company's
competitors will not independently develop technologies that are substantially
equivalent or superior to the Company's technology. In the event that
protective measures are not successful, the Company's business, operating
results and financial condition could be materially and adversely affected. In
addition, the laws of some foreign countries do not protect the Company's
proprietary rights to the same extent as do the laws of the United States. The
Company is also subject to the risk of adverse claims and litigation alleging
infringement of intellectual property rights of others. There can be no
assurance that third parties will not assert infringement claims in the future
with respect to the Company's current or future products or that any such claims
will not require the Company to enter into license arrangements or result in
litigation, regardless of the merits of such claims. No assurance can be given
that any necessary licenses will be available or that, if available, such
licenses can be obtained on commercially reasonable terms. Should litigation
with respect to any such claims commence, such litigation could be extremely
expensive and time-consuming and could have a material adverse effect on the
Company's business, operating results and financial condition regardless of the
outcome of such litigation.
TARIFF AND REGULATORY MATTERS
Rates for public telecommunications services, including features and
capacity of such services, are governed by tariffs determined by carriers and
subject to regulatory approval. Future changes in these tariffs could have a
material effect on the Company's business. For example, should tariffs for
Frame Relay services increase in the future relative to tariffs for dedicated
leased lines, the cost-effectiveness of the Company's products could be reduced,
which could have a material adverse effect on the Company's business, operating
results and financial condition. In addition, the Company's products must meet
industry standards and receive certification for connection to certain public
telecommunications networks prior to their sale. In the United States, the
Company's products must comply with various regulations defined by the Federal
Communications Commission and Underwriters Laboratories. Internationally, the
Company's products must comply with standards established by telecommunications
authorities in various countries as well as with recommendations of the
Consultative Committee on International Telegraph and Telephony. In addition,
carriers require that equipment connected to their networks comply with their
own standards, which in part reflect their currently installed equipment. Some
public carriers have installed equipment that does not fully comply with current
industry standards, and this noncompliance must be addressed in the design of
the Company's products. Any future inability to obtain on a timely basis or
retain domestic or foreign regulatory approvals or certifications or to comply
with existing or evolving industry standards could have a material adverse
effect on the Company's business, operating results and financial condition.
MANAGEMENT OF EXPANDING OPERATIONS
The Company has recently experienced rapid growth and expansion, which has
placed, and will continue to place, a significant strain on its administrative,
operational and financial resources and increased demands on its systems and
controls. This growth has resulted in a continuing increase in the level of
responsibility for existing management personnel and the hiring of significant
new management personnel. For example, three of the Company's seven current
executive officers joined the Company in
-18-
<PAGE>
1995 and two in 1996: Roger Dorf, President and Chief Operating Officer;
Dominic Genovese, Vice President of Sales; Karen Ratta, Vice President of
Manufacturing; Nicholas Redding, Vice President of Engineering; and Ronald J.
Scioscia, Vice President of Finance and Administration and Chief Financial
Officer. The Company anticipates that any continued growth will require it to
recruit and hire a substantial number of new employees, particularly development
engineers. There can be no assurance that the Company will be successful in
hiring, integrating or retaining such personnel. The Company's ability to
manage its growth successfully will require the Company to continue to expand
and improve its operational, management and financial systems and controls. Any
inability of the Company to manage growth effectively, hire and integrate
necessary personnel or increase manufacturing capacity as required could have a
material adverse effect on the Company's business, results of operations and
financial condition.
DEPENDENCE ON KEY PERSONNEL
The Company's success depends, to a significant degree, upon the continued
contributions of its key management, sales, marketing, research and development
and manufacturing personnel, many of whom would be difficult to replace. The
Company does not have employment contracts with its key personnel and maintains
a key person life insurance policy only on John H. Rademaker, the Company's
Chief Executive Officer. The Company believes its future success will also
depend in large part upon its ability to attract and retain highly skilled
engineering, managerial, sales and marketing personnel, particularly development
engineers. Competition for such personnel is intense, and there can be no
assurance that the Company will be successful in attracting and retaining such
personnel. The loss of the services of any of the Company's key personnel, the
inability to attract or retain qualified personnel in the future or delays in
hiring required development engineers could have a material adverse effect on
the Company's business, operating results or financial condition.
GENERAL ECONOMIC CONDITIONS
Demand for the Company's products depends in large part on the overall
demand for communications and networking products, which has in the past and may
in the future fluctuate significantly based on numerous factors, including
capital spending levels and general economic conditions. There can be no
assurance that the Company will not experience a decline in demand for its
products due to general economic conditions. Any such decline could have a
material adverse effect on the Company's business, operating results and
financial condition.
CONTROL BY EXISTING STOCKHOLDERS; VOLATILITY OF STOCK PRICE
As of June 30, 1996, the Company's executive officers and directors,
together with entities affiliated with such individuals, beneficially owned
approximately 19% of the Company's Common Stock. Accordingly, these
stockholders may, as a practical matter, be able to control the election of a
majority of the Company's directors and the determination of all corporate
actions. This concentration of ownership could have the effect of delaying or
preventing a change in control of the Company.
Factors such as announcements of technological innovations or the
introduction of new products by the Company or its competitors, as well as
market conditions in the technology sector, may have a significant effect on the
market price of the Company's Common Stock. Furthermore, the stock market has
experienced volatility which has particularly affected the market prices of
equity securities of many high technology companies and which often has been
unrelated to the operating performance of such
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<PAGE>
companies. These market fluctuations may have an adverse effect on the price of
the Company's Common Stock.
ANTI-TAKEOVER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In addition, certain provisions
of the Company's charter documents, including provisions eliminating cumulative
voting, eliminating the ability of stockholders to take actions by written
consent and limiting the ability of stockholders to raise matters at a meeting
of stockholders without giving advance notice, may have the effect of delaying
or preventing a change in control or management of the Company, which could have
an adverse effect on the market price of the Company's Common Stock. Certain of
the Company's stock option and purchase plans provide for assumption of such
plans, or, alternatively, immediate vesting upon a change of control or similar
event. The Board of Directors has authority to issue up to 2,000,000 shares of
Preferred Stock and to fix the rights, preferences, privileges and restrictions,
including voting rights, of these shares without any further vote or action by
the stockholders. The rights of the holders of the Common Stock will be subject
to, and may be adversely affected by, the rights of the holders of any Preferred
Stock that may be issued in the future. The issuance of Preferred Stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire a majority of the outstanding voting stock of the
Company, thereby delaying, deferring or preventing a change in control of the
Company. Furthermore, such Preferred Stock may have other rights, including
economic rights senior to the Common Stock, and as a result, the issuance of
such Preferred Stock could have a material adverse effect on the market value of
the Common Stock. The Company has no present plan to issue shares of Preferred
Stock.
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<PAGE>
SYNC RESEARCH, INC.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
None.
ITEM 2. CHANGES IN SECURITIES
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On May 28, 1996, the Company held its annual meeting of stockholders. At
the annual meeting, the Company's stockholders approved the following matters by
the following votes:
1. Election of the following directors of the Company:
Nominee For Against Abstentions Broker Nonvotes
- - ------- --- ------- ----------- ---------------
Gregorio Reyes 12,165,641 28,833
Douglas C. Carlisle 12,176,641 17,833
Roger A. Dorf 12,156,641 37,833
Robert J. Finocchio, Jr. 10,752,191 1,442,283
Charles A. Haggerty 12,185,641 8,833
William J. Harding 12,185,641 8,833
William J. O'Meara 12,185,441 9,033
John H. Rademaker 12,156,641 37,833
2. Amendments to the Company's 1991 Stock Plan, among other things, to
increase the number of shares of Common Stock reserved for issuance thereunder
by 650,000 shares to an aggregate of 4,308,985 shares and to approve the maximum
number of options and stock purchase rights that may be issued in a fiscal year
to an employee, and to implement certain other changes resulting from applicable
law.
For Against Abstentions Broker Nonvotes
--- ------- ----------- ---------------
9,797,576 2,368,343 2,415 26,140
3. Ratification of the appointment of Ernst & Young LLP as the Company's
independent auditors for the fiscal year ending December 31, 1996.
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<PAGE>
For Against Abstentions Broker Nonvotes
--- ------- ----------- ---------------
12,189,575 2,949 1,950 --
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(A) EXHIBITS
2.1 Agreement and Plan of Reorganization dated June 27, 1996 between the
Company and TyLink Corporation.
4.1 Amended and Restated 1991 Stock Plan (amended on May 28, 1996) and
form of agreement thereunder.
10.19 Real estate lease dated May 30, 1996 between the Company and
Northwestern Mutual Life Insurance Company.
11.1 Computation of Earnings (Loss) Per Share.
27.1 Financial Data Schedule.
(B) REPORTS ON FORM, 8-K
No Reports on Form 8-K were filed during the quarter ended June 30, 1996.
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<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.
SYNC RESEARCH, INC.
By: /s/ Ronald J. Scioscia
------------------------------------
Ronald J. Scioscia
Vice President of Finance and
Administration and Chief Financial
Officer (Duly Authorized Signatory
and Principal Financial and
Accounting Officer)
Date: August 12, 1996
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<PAGE>
INDEX TO EXHIBITS
EXHIBIT
NUMBER DESCRIPTION
2.1 Agreement and Plan of Reorganization dated June 27, 1996 between the
Company and TyLink Corporation.
4.1 Amended and Restated 1991 Stock Plan (amended on May 28, 1996) and
form of agreement thereunder.
10.19 Real estate lease dated May 30, 1996 between the Company and The
Northwestern Mutual Life Insurance Company.
11.1 Computation of Earnings (Loss) Per Share.
27.1 Financial Data Schedule.
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<PAGE>
- - --------------------------------------------------------------------------------
AGREEMENT AND
PLAN OF REORGANIZATION
- - --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
SECTION PAGE
- - ------- ----
ARTICLE I - THE MERGER........................................................2
1.1 The Merger............................................................2
1.2 Effective Time; Closing...............................................2
1.3 Effect of the Merger..................................................2
1.4 Certificate of Incorporation; Bylaws..................................2
1.5 Directors and Officers................................................3
1.6 Effect on Capital Stock...............................................3
1.7 Dissenting Shares.....................................................6
1.8 Surrender of Certificates.............................................6
1.9 No Further Ownership Rights in Company Stock..........................8
1.10 Lost, Stolen or Destroyed Certificates...............................8
1.11 Tax Consequences and Accounting Treatment............................8
1.12 Taking of Necessary Action; Further Action...........................8
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF THE COMPANY....................8
2.1 Organization of the Company...........................................9
2.2 Company Capital Structure.............................................9
2.3 Subsidiaries.........................................................10
2.4 Authority............................................................10
2.5 Company Financial Statements.........................................10
2.6 No Undisclosed Liabilities...........................................11
2.7 No Changes...........................................................11
2.8 Taxes................................................................12
2.9 Restrictions on Business Activities..................................14
2.10 Title of Properties; Absence of Liens and Encumbrances; Condition of
Equipment...........................................................15
2.11 Intellectual Property...............................................15
2.12 Agreements, Contracts and Commitments...............................16
2.13 Interested Party Transactions.......................................18
2.14 Governmental Authorization..........................................18
2.15 Litigation..........................................................18
2.16 Accounts Receivable.................................................19
2.17 Minute Books........................................................19
2.18 Environmental and OSHA..............................................19
2.19 Labor Matters.......................................................20
2.20 Insurance...........................................................20
2.21 Compliance With Laws................................................20
2.22 Complete Copies of Materials........................................20
2.23 Hearing Notice and Proxy Statement..................................21
2.24 Employee Benefit Plans..............................................21
<PAGE>
2.25 No Commitments Regarding Future Products............................23
2.26 Third Party Consents................................................23
2.27 Brokers' and Finders' Fees..........................................23
2.28 Inventories.........................................................23
2.29 Representations Complete............................................24
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB........24
3.1 Organization; Standing and Power.....................................24
3.2 Capital Structure....................................................24
3.3 Authority............................................................25
3.4 SEC Documents; Parent Financial Statements...........................26
3.5 Broker's and Finders' Fees...........................................26
3.6 Hearing Notice and Proxy Statement...................................26
3.7 Securities Act Exemption.............................................26
3.8 No Material Adverse Change...........................................27
3.9 Agreements...........................................................27
3.10 Litigation..........................................................27
3.11 Representations Complete............................................27
ARTICLE IV - CONDUCT PRIOR TO THE EFFECTIVE TIME.............................27
4.1 Conduct of Business of the Company...................................27
4.2 No Solicitation......................................................30
4.3 Conduct of Business of Parent........................................30
ARTICLE V - ADDITIONAL AGREEMENTS............................................31
5.1 Stockholder Approval.................................................31
5.2 Access to Information................................................31
5.3 Confidentiality......................................................32
5.4 Expenses.............................................................32
5.5 Public Disclosure....................................................32
5.6 Pooling Accounting...................................................32
5.7 Consents.............................................................32
5.8 Affiliate Agreements.................................................32
5.9 FIRPTA...............................................................33
5.10 Legal Requirements..................................................33
5.11 Blue Sky Laws.......................................................33
5.12 Best Efforts; Additional Documents and Further Assurances...........33
5.13 Stock Options.......................................................33
5.14 Form S-8............................................................34
5.15 Updated Information Regarding Company Capitalization................34
ARTICLE VI - CONDITIONS TO THE MERGER........................................34
6.1 Conditions to Obligations of Each Party to Effect the Merger.........35
6.2 Additional Conditions to Obligations of Company......................36
6.3 Additional Conditions to the Obligations of Parent and Merger Sub....37
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ARTICLE VII - SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW.............38
7.1 Survival of Representations and Warranties...........................38
7.2 Escrow Arrangements..................................................38
7.3 Method of Asserting Claims...........................................40
7.4 Agent of the Shareholders; Power of Attorney.........................40
7.5 Adjustment to Escrow Number..........................................40
7.6 Indemnity by Parent..................................................41
ARTICLE VIII - TERMINATION, AMENDMENT AND WAIVER.............................41
8.1 Termination..........................................................41
8.2 Effect of Termination................................................42
8.3 Amendment............................................................42
8.4 Extension; Waiver....................................................42
ARTICLE IX - GENERAL PROVISIONS..............................................42
9.1 Notices..............................................................42
9.2 Interpretation.......................................................43
9.3 Counterparts.........................................................43
9.4 Miscellaneous........................................................44
9.5 Governing Law........................................................44
9.6 Rules of Construction................................................44
EXHIBIT A - FORM OF AFFILIATE AGREEMENT
EXHIBIT B-1 - FORM OF EMPLOYMENT AGREEMENT
EXHIBIT B-2 - FORM OF EMPLOYMENT AGREEMENT
EXHIBIT B-3 - FORM OF EMPLOYMENT AGREEMENT
EXHIBIT C - ESCROW AGREEMENT
EXHIBIT D-1 - FORM OF NONCOMPETITION AGREEMENT
EXHIBIT D-2 - FORM OF NONCOMPETITION AGREEMENT
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AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 27, 1996, among Sync Research, Inc., a Delaware
corporation ("Parent"), SR Acquisition Corp., a Delaware corporation ("Merger
Sub"), and a wholly owned subsidiary of Parent, and TyLink Corporation, a
Delaware corporation (the "Company").
RECITALS
A. The Boards of Directors of each of the Company, Parent and Merger Sub
believe it is in the best interests of each company and their respective
stockholders that the Company and Merger Sub combine into a single company
through the statutory merger of Merger Sub with and into the Company (the
"Merger") and, in furtherance thereof, have approved the Merger.
B. Pursuant to the Merger, among other things, the outstanding shares of
Common Stock, $.01 par value per share, of the Company, ("Company Common Stock")
and the Series A Preferred Stock, $.01 par value per share ("Company Series A
Preferred Stock"), of the Company shall be converted into shares of common
stock, $.001 par value per share, of Parent ("Parent Common Stock") and the
outstanding shares of Series B Preferred Stock, $.01 par value per share
("Company Series B Preferred Stock"), of the Company shall be converted into a
combination of shares of Parent Common Stock and cash in the manner and on the
terms set forth herein. Company Series A Preferred Stock and Company Series B
Preferred Stock are sometimes referred to herein collectively as "Company
Preferred Stock." Company Common Stock and Company Preferred Stock are
sometimes herein referred to collectively as "Company Stock."
C. The Company, Parent and Merger Sub desire to make certain
representations, warranties, covenants and other agreements in connection with
the Merger.
D. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "Code").
E. The parties intend that the Merger be treated as a pooling of
interests for accounting purposes.
F. The parties intend that the shares of Parent Common Stock to be issued
pursuant to the Merger shall be exempt securities pursuant to Section 3(a)(10)
of the Securities Act of 1933 as amended.
NOW, THEREFORE, in consideration of the mutual covenants, premises,
warranties and representations set forth herein, and for other good and valuable
consideration, the parties agree as follows:
<PAGE>
ARTICLE I
THE MERGER
1.1 THE MERGER. At the Effective Time (as defined in Section 1.2) and
subject to and upon the terms and conditions of this Agreement, the Certificate
of Merger to be prepared by the parties prior to the Effective Date (the
"Certificate of Merger") and the applicable provisions of the Delaware General
Corporation Law (the "Delaware Law"), Merger Sub shall be merged with and into
the Company, the separate corporate existence of Merger Sub shall cease and the
Company shall continue as the surviving corporation. The Company as the
surviving corporation after the Merger is hereinafter sometimes referred to as
the "Surviving Corporation."
1.2 EFFECTIVE TIME; CLOSING. As promptly as practicable after the
satisfaction or waiver of the conditions set forth in Article VI, the parties
hereto shall cause the Merger to be consummated by causing a properly executed
Certificate of Merger to be filed with the Secretary of State of the State of
Delaware in accordance with Delaware Law on the Closing Date (as defined below).
The Merger shall become effective upon such filing of the Certificate of Merger
(the time of such filing being hereinafter referred to as the "Effective Time").
The closing of the Merger (the "Closing") will take place as soon as practicable
on the first business day after satisfaction or waiver of the latest to occur of
the conditions set forth in Article VI hereto (the "Closing Date").
1.3 EFFECT OF THE MERGER. At the Effective Time, the effect of the Merger
shall be as provided in this Article I, the Certificate of Merger and the
applicable provisions of Delaware Law. Without limiting the generality of the
foregoing, and subject thereto, at the Effective Time all the property, rights,
privileges, powers and franchises of the Company and Merger Sub shall vest in
the Surviving Corporation, and all debts, liabilities and duties of the Company
and Merger Sub shall become the debts, liabilities and duties of the Surviving
Corporation.
1.4 CERTIFICATE OF INCORPORATION; BYLAWS.
(a) Unless otherwise determined by Parent prior to the Effective
Time, at the Effective Time , the Certificate of Incorporation of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Certificate of
Incorporation of the Surviving Corporation until thereafter amended as provided
by law and such Certificate of Incorporation; provided, however, that Article I
of the Certificate of Incorporation of the Surviving Corporation shall be
amended to read as follows: "The name of the corporation is Blue."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be the Bylaws of the Surviving Corporation until
thereafter amended as provided by law, the Certificate of Incorporation of the
Surviving Corporation and such Bylaws.
1.5 DIRECTORS AND OFFICERS. The directors of Merger Sub immediately prior
to the Effective Time shall be the initial directors of the Surviving
Corporation, each to hold office in accordance with the Certificate of
Incorporation and Bylaws of the Surviving Corporation, and the officers of
Merger Sub immediately prior to the Effective Time shall be the initial officers
of
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the Surviving Corporation, in each case until their respective successors are
duly elected or appointed and qualified.
1.6 EFFECT ON CAPITAL STOCK. At the Effective Time, by virtue of the
Merger and without any action on the part of Merger Sub, the Company or the
holders of any of the outstanding shares of the Company or Merger Sub:
(a) CONVERSION OF COMPANY COMMON STOCK. Each share of Company Common
Stock issued and outstanding immediately prior to the Effective Time (other than
any shares of Company Common Stock to be canceled pursuant to Section 1.6(d) and
any Dissenting Shares (as defined and to the extent provided in Section 1.7(a))
will be canceled and extinguished and be converted automatically into the right
to receive a number of shares of Parent Common Stock equal to the Common Stock
Conversion Ratio.
(b) CONVERSION OF COMPANY SERIES A PREFERRED STOCK. Each share of
Company Series A Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Company Series A Preferred Stock to be
canceled pursuant to Section 1.6(d) and any Dissenting Shares (as defined and to
the extent provided in Section 1.7(a)) will be canceled and extinguished and be
converted automatically into the right to receive a number of shares of Parent
Common Stock equal to the Series A Preferred Stock Conversion Ratio.
(c) CONVERSION OF COMPANY SERIES B PREFERRED STOCK. Each share of
Company Series B Preferred Stock issued and outstanding immediately prior to the
Effective Time (other than shares of Company Series B Preferred Stock to be
canceled pursuant to Section 1.6(d) and any Dissenting Shares (as defined and to
the extent provided in Section 1.7(a)) (i) shall be paid in cash the lesser of
(x) $1.5742 per share or (y) an amount, as determined by the Company, which,
after taking into account any cash or property to be paid with respect to
Dissenting Shares, to holders of fractional shares, or to any other stockholders
who receive cash or property for their Company Stock rather than Parent Common
Stock in the Merger, will not cause the holders of Company Stock in the
aggregate to fail to receive in the Merger Parent Common Stock in exchange for
Company Stock constituting control of Company as provided under
Section 368(a)(2)(E)(ii) of the Code (provided that the aggregate amount of cash
paid to all then issued and outstanding shares of Company Series B Preferred
Stock shall not exceed $4,000,000), and (ii) and will be canceled and
extinguished and converted automatically into the right to receive a number of
shares of Parent Common Stock equal to the Series B Preferred Stock Conversion
Ratio.
(d) CANCELLATION OF PARENT-OWNED AND MERGER SUB-OWNED STOCK. Each
share of Company Stock owned by Merger Sub, Parent or any direct or indirect
wholly owned subsidiary of Parent or of the Company immediately prior to the
Effective Time shall be canceled and extinguished without any conversion
thereof.
(e) CAPITAL STOCK OF MERGER SUB. Each share of Common Stock, no par
value, of Merger Sub issued and outstanding immediately prior to the Effective
Time shall be converted into and exchanged for one validly issued, fully paid
and nonassessable share of Common Stock, $.01 par value, of the Surviving
Corporation. Each stock certificate of Merger Sub evidencing
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ownership of any such shares shall continue to evidence ownership of such shares
of capital stock of the Surviving Corporation.
(f) ADJUSTMENTS TO CONVERSION RATIOS. The Conversion Ratios shall be
adjusted to reflect fully the effect of any stock split, reverse split, stock
dividend, reorganization, recapitalization or other like change (a
"Recapitalization Event") with respect to Parent Common Stock or Company Stock
occurring after the date hereof and prior to the Effective Time.
(g) FRACTIONAL SHARES. No fraction of a share of Parent Common Stock
will be issued, but in lieu thereof each holder of shares of Company Stock who
would otherwise be entitled to a fraction of a share of Parent Common Stock
(after aggregating all fractional shares of Parent Common Stock to be received
by such holder) shall receive from Parent an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the average last sale price of a share of Parent Common Stock for the ten
(10) most recent days that Parent Common Stock has traded ending on the trading
day immediately preceding the five (5) trading days immediately prior to the
Effective Time, as reported on the Nasdaq National Market.
(h) DEFINITIONS. For purposes of this Agreement, the following terms
shall have the definitions set forth below:
"Aggregate Stock Number" means the quotient obtained by dividing
(i) $41,700,000 by (ii) the Average Stock Price; provided, however, that the
Aggregate Stock Number shall in no event be greater than 2,780,000.
"Average Stock Price" means the average of the closing sale
prices of Parent Common Stock reported in the WALL STREET JOURNAL, on the basis
of information provided by the Nasdaq National Market for each of the ten
trading days immediately preceding the five trading days immediately preceding
(but not including) the Effective Time.
"Certificate Average Stock Price" means the average of the
closing sale prices of Parent Common Stock reported in the WALL STREET JOURNAL,
on the basis of information provided by the Nasdaq National Market for each of
the thirty trading days immediately preceding the three trading days immediately
preceding (but not including) the Effective Time
"Conversion Ratios" means the Common Stock Conversion Ratio and
the Series A and Series B Preferred Stock Conversion Ratios.
"Common Stock Conversion Ratio" means the amount equal to the
quotient obtained by dividing (i) the Aggregate Stock Number less the total
number of shares of Parent Common Stock to be issued upon the conversion of
Company Series A and Series B Preferred Stock pursuant to Sections 1.6 (b) and
(c) above by (ii) the Total Pre-Merger Common Stock Equivalents.
"Company Certificate of Incorporation" means the Certificate of
Incorporation of the Company, as amended and restated, immediately prior to the
Effective Time.
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"Escrow Number" means an amount equal to the product of (a) 0.1
and (b) an amount equal to (i) the total number of shares of Company Common
Stock outstanding immediately prior to the Effective Time multiplied by the
Common Stock Conversion Ratio plus (ii) the total number of shares of Company
Series A Preferred Stock outstanding immediately prior to the Effective Time
multiplied by the Series A Preferred Stock Conversion Ratio plus (iii) the total
number of shares of Company Series B Preferred Stock outstanding immediately
prior to the Effective Time multiplied by the Series B Preferred Stock
Conversion Ratio; provided that the Escrow Number is subject to adjustment
pursuant to Section 7.5 hereof.
"Merger Price" means the sum of (i) the aggregate amount of cash
to be paid to the holders of Company Series B Preferred Stock pursuant to
Section 1.6(c) above (the "Series B Cash") plus (ii) the product obtained by
multiplying the Aggregate Stock Number by the Average Stock Price; provided,
however, that in no event shall the Merger Price exceed $45,700,000.
"Series A Preferred Stock Conversion Ratio" means an amount equal
to the greater of (A) the quotient (such quotient, "the Series A Liquidation
Ratio") obtained by dividing (i) the sum of $1.00 (appropriately adjusted to
reflect the occurrence prior to the Closing Date of any event described in
Section 4(e)(iii), (iv) or (v) of Part II of Article Fourth of the Company
Certificate of Incorporation) and the accrued but unpaid dividends on one share
of Series A Preferred Stock computed as of the Closing Date (such sum the
"Series A Liquidation Preference") by (ii) Certificate Average Stock Price or
(B) the product of (i) the Common Stock Conversion Ratio, and (ii) $1.00 divided
by the then applicable Series A Conversion Price (as defined in the Company
Certificate of Incorporation).
"Series B Preferred Stock Conversion Ratio" means an amount equal
to the quotient (such quotient, the "Series B Liquidation Ratio") obtained by
dividing (A) the sum of $1.99135 (appropriately adjusted to reflect the
occurrence prior to the Closing Date of any event described in
Section 4(e)(iii), (iv) or (v) of Part II of Article Fourth of the Company
Certificate of Incorporation) and the accrued but unpaid dividends on one share
of Series B Preferred Stock computed as of the Closing Date (such sum, the
"Series B Liquidation Preference") LESS the amount of cash paid per share of
Company Series B Preferred Stock pursuant to Section 1.6(c) above by (B) the
Certificate Average Stock Price.
"Total Pre-Merger Common Stock Equivalents" means the total
number of shares of outstanding Company Common Stock immediately prior to the
Effective Time. For purposes of this definition, all shares of Company Common
Stock issuable upon exercise of options or upon conversion, exchange or exercise
of other securities or other rights outstanding immediately prior to the
Effective Time (regardless of whether then exercisable, convertible or
exchangeable and including shares issuable upon exercise of outstanding options
issued under the Company's 1994 Equity Incentive Plan (the "Company Stock Option
Plan"), notwithstanding that such options are being assumed or converted into
options for Parent Common Stock in accordance with Section 5.13), shall be
deemed outstanding; provided, however, that the shares of Common Stock issuable
upon conversion of the Company Series A and Series B Preferred Stock shall not
be deemed to be outstanding.
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1.7 DISSENTING SHARES.
(a) Notwithstanding any provision of this Agreement to the contrary,
any shares of capital stock of the Company held by a holder who has demanded and
perfected appraisal rights for such shares in accordance with Delaware Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted into or represent
a right to receive Parent Common Stock pursuant to Section 1.6, but the holder
thereof shall only be entitled to such rights as are granted by Delaware Law.
(b) Notwithstanding the provisions of subsection (a), if any holder
of Dissenting Shares shall effectively withdraw or lose (through failure to
perfect or otherwise) the right to appraisal, then, as of the later of the
Effective Time or the occurrence of such event, such holder's shares shall
automatically be converted into and represent only the right to receive the
shares of Parent Common Stock to which such stockholder would otherwise be
entitled under Section 1.6 (less the number of shares allocable to such
stockholder that have been deposited in the Escrow Fund in respect of such
shares of Company Stock pursuant to Section 1.8(a) and Article VII hereof) and
payment for fractional shares as provided in Section 1.6, without interest
thereon, upon surrender of the certificate representing such shares
(c) The Company shall give Parent (i) prompt notice of any written
demand received by the Company to require the Company to purchase shares of
Company Stock pursuant to Delaware Law and (ii) the opportunity to participate
in all negotiations and proceedings with respect to such demands. The Company
shall not, except with the prior written consent of Parent, voluntarily make any
payments with respect to any such demands or offer to settle or settle any such
demands.
1.8 SURRENDER OF CERTIFICATES.
(a) EXCHANGE AGENT. The First National Bank of Boston shall act as
exchange agent (the "Exchange Agent") in the Merger.
(b) PARENT TO PROVIDE COMMON STOCK. Promptly after the Effective
Time, Parent shall make available to the Exchange Agent for exchange in
accordance with this Article I the shares of Parent Common Stock issuable
pursuant to Section 1.6 in exchange for shares of Company Stock outstanding
immediately prior to the Effective Time, less such number of shares of Parent
Common Stock as are to be deposited into an escrow fund (the "Escrow Fund")
pursuant to the requirement of Article VII hereof.
(c) EXCHANGE PROCEDURES. Promptly after the Effective Time, the
Surviving Corporation shall cause to be mailed to each holder of record of a
certificate or certificates (the "Certificates") which immediately prior to the
Effective Time represented outstanding shares of Company Stock whose shares were
converted into the right to receive shares of Parent Common Stock pursuant to
Section 1.6, (i) a letter of transmittal (which shall specify that delivery
shall be effected, and risk of loss and title to the Certificates shall pass,
only upon delivery of the Certificates to the Exchange Agent and shall be in
such form and have such other provisions as Parent may reasonably specify) and
(ii) instructions for use in effecting the surrender of the
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Certificates in exchange for certificates representing shares of Parent Common
Stock. Upon surrender of a Certificate for cancellation to the Exchange Agent
or to such other agent or agents as may be appointed by Parent, together with
such letter of transmittal, duly completed and validly executed in accordance
with the instructions thereto, the holder of such Certificate shall be entitled
to receive in exchange therefor a certificate representing the number of whole
shares of Parent Common Stock (less the number of shares of Parent Common Stock
to be deposited in the Escrow Fund on such holder's behalf pursuant to
Article VII hereof) and payment in lieu of fractional shares which such holder
has the right to receive pursuant to Section 1.6, and the Certificate so
surrendered shall forthwith be canceled. As soon as practicable after the
Effective Time, and subject to and in accordance with the provisions of
Article VII hereof, Parent shall cause to be distributed to the Escrow Agent (as
defined in Article VII) a certificate or certificates representing that number
of shares of Parent Common Stock equal to the Escrow Number which shall be
registered in the name of the Escrow Agent. Such shares shall be beneficially
owned by the holders on whose behalf such shares were deposited in the Escrow
Fund and shall be available to compensate Parent for certain damages as provided
in Article VII. Until so surrendered, each outstanding certificate that, prior
to the Effective Time, represented shares of Company Stock will be deemed from
and after the Effective Time, for all corporate purposes, other than the payment
of dividends (except to the extent provided in Section 1.8(d) below), to
evidence the ownership of the number of full shares of Parent Common Stock into
which such shares of Company Stock shall have been so converted and the right to
receive an amount in cash in lieu of the issuance of any fractional shares in
accordance with Section 1.6.
(d) DISTRIBUTIONS WITH RESPECT TO UNEXCHANGED SHARES. No dividends
or other distributions declared or made after the Effective Time with respect to
Parent Common Stock with a record date after the Effective Time will be paid to
the holder of any unsurrendered Certificate with respect to the shares of Parent
Common Stock represented thereby until the holder of record of such Certificate
shall surrender such Certificate. Subject to applicable law, following
surrender of any such Certificate, there shall be paid to the record holder of
the certificates representing whole shares of Parent Common Stock issued in
exchange therefor, without interest, at the time of such surrender, the amount
of dividends or other distributions with a record date after the Effective Time
theretofore paid with respect to such whole shares of Parent Common Stock.
(e) TRANSFERS OF OWNERSHIP. If any certificate for shares of Parent
Common Stock is to be issued in a name other than that in which the certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Parent or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Parent Common Stock in any name other than that of the registered holder of the
certificate surrendered, or established to the satisfaction of Parent or any
agent designated by it that such tax has been paid or is not payable.
(f) NO LIABILITY. Notwithstanding anything to the contrary in this
Section 1.8, none of the Exchange Agent, the Surviving Corporation or any party
hereto shall be liable to a
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holder of shares of Parent Common Stock or Company Stock for any amount properly
paid to a public official pursuant to any applicable abandoned property, escheat
or similar law.
1.9 NO FURTHER OWNERSHIP RIGHTS IN COMPANY STOCK. All shares of Parent
Common Stock issued upon the surrender for exchange of shares of Company Stock
in accordance with the terms hereof (including any cash for Dissenting
Shareholders and fractional shares paid in respect thereof) shall be deemed to
have been issued in full satisfaction of all rights pertaining to such shares of
Company Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of Company Stock which were
outstanding immediately prior to the Effective Time. If, after the Effective
Time, Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.10 LOST, STOLEN OR DESTROYED CERTIFICATES. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of Parent Common Stock
and cash for fractional shares, if any, as may be required pursuant to Section
1.6; provided, however, that Parent may, in its discretion and as a condition
precedent to the issuance thereof require the owner of such lost, stolen or
destroyed certificates to deliver a bond in such sum as it may reasonably direct
as indemnity against any claim that may be made against Parent or the Exchange
Agent with respect to the certificates alleged to have been lost, stolen or
destroyed.
1.11 TAX CONSEQUENCES AND ACCOUNTING TREATMENT. It is intended by the
parties hereto that the Merger shall constitute a reorganization within the
meaning of Section 368 of the Internal Revenue Code of 1986, as amended, and
that the transaction be accounted for as a pooling of interests.
1.12 TAKING OF NECESSARY ACTION; FURTHER ACTION. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of the Company and Merger Sub, the officers and directors of the
Company and Merger Sub are fully authorized in the name of their respective
corporations or otherwise to take, and will take, all such lawful and necessary
action, so long as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company represents and warrants to Parent and Merger Sub, subject to
such qualifications and exceptions as are set forth in a disclosure letter
delivered prior to the date hereof (which disclosure letter shall specifically
identify the sections or subsections which are qualified by the information set
forth therein) signed by the Company and acknowledged by the Parent and Merger
Sub (the "Company Disclosure Letter"), as follows:
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2.1 ORGANIZATION OF THE COMPANY. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. The Company has the corporate power to own its property and to carry
on its business as now being conducted and as proposed to be conducted by the
Company. The Company is duly qualified to do business and in good standing as a
foreign corporation in each jurisdiction in which the failure to be so qualified
would have a Material Adverse Effect on the Company. For purposes of this
Agreement, a "Material Adverse Effect" when used with respect to any entity
means (a) a material adverse effect on the business, assets (including
intangible assets), liabilities, financial condition, results of operations or
prospects of such entity and its subsidiaries, if any, taken as a whole, or on
the ability of the Surviving Corporation following the Merger to continue the
business of the Company substantially as currently conducted or proposed to be
conducted (without the loss of any material rights), and (b) a material
impairment in the ability of such entity to perform any of its obligations under
this Agreement or to consummate the Merger. The Company has delivered a true
and correct copy of its Certificate of Incorporation and Bylaws (or similar
governing instruments), each as amended to date, to Parent or its counsel.
2.2 COMPANY CAPITAL STRUCTURE. The authorized capital stock of the
Company consists of Twenty Million (20,000,000) shares of Common Stock, $.01 par
value per share, Four Million Two Hundred Thousand (4,200,000) shares of
Series A Preferred Stock, $.01 par value per share and Two Million Six Hundred
Thousand (2,600,000) shares of Series B Preferred Stock, $.01 par value per
share. The Series A Conversion Price (as such term is defined in the Company's
Certificate of Incorporation) is $1.00, the Series B Conversion Price (as such
term is defined in the Company's Certificate of Incorporation) is $1.49135, each
share of Company Preferred Stock is convertible into one share of Company Common
Stock. As of the date hereof, there are 9,182,224, 4,184,751 and 2,540,820
shares of the Company Common Stock, Series A Preferred Stock and Series B
Preferred Stock, respectively, issued and outstanding held by the persons, and
in the amounts, set forth under Section 2.2 of the Company Disclosure Letter.
Such list of holders of Company Stock in the Company Disclosure Letter also
indicates how many shares of each holder were subject to repurchase upon
termination of employment as of the date hereof. All outstanding shares of
Company Stock are duly authorized, validly issued, fully paid and non-assessable
and not subject to preemptive rights or rights of first refusal created by
statute, the Certificate of Incorporation or Bylaws of the Company or any
agreement to which the Company is a party or by which it is bound. All
outstanding shares of Company Stock and all outstanding options or other rights
to purchase Company Stock have been issued in compliance with all federal and
state securities laws. The Company has reserved 3,968,224 shares of Company
Common Stock for issuance to employees and consultants pursuant to the Company
Stock Option Plan, of which 1,132,975 shares have been exercised, and 2,686,083
shares are subject to outstanding, unexercised options. Section 2.2 of the
Company Disclosure Letter also sets forth a true, correct and complete list of
all outstanding options for Company Stock (which, for each outstanding option,
sets forth the name of the holder of such option, the number of shares subject
to such option, the exercise price of such option, the number of shares as to
which such option is exercisable and, if the exercisability of such option will
be or is required to be accelerated in any way by the transactions contemplated
by this Agreement or for any other reason, an indication of the extent of such
acceleration). Such list also describes any repricing of options which has
taken place since the date of the Company's incorporation. Except as set forth
in Section 2.2 of the
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Company Disclosure Letter, there are no options, warrants, calls, rights,
commitments or agreements of any character to which the Company is a party or by
which it is bound obligating the Company to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of the Company or obligating the Company to grant,
extend, accelerate the vesting of, change the price of, or otherwise amend or
enter into any such option, warrant, call, right, commitment or agreement.
2.3 SUBSIDIARIES. The Company does not have and has never had any
subsidiaries or affiliated Companies and does not otherwise own and has never
otherwise owned any shares of stock or any interest in, or control of, directly
or indirectly, any other corporation, partnership, association, joint venture or
entity.
2.4 AUTHORITY. The Company has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action on the part of the Company, subject only to
the approval of the Merger and the other transactions contemplated hereby by the
Company's stockholders as contemplated by Section 6.1(a). This Agreement has
been duly executed and delivered by the Company and constitutes the valid and
binding obligation of the Company. The execution and delivery of this Agreement
by the Company does not, and the consummation of the transactions contemplated
hereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or loss of any
benefit under (i) any provision of the Certificate of Incorporation, as amended,
or Bylaws of the Company or (ii) any mortgage, indenture, lease, contract or
other agreement or instrument, permit, concession, franchise, license, judgment,
order, decree, statute, law, ordinance, rule or regulation applicable to the
Company or its properties or assets. No consent, approval, order or
authorization of, or registration, declaration or filing with, any court,
administrative agency or commission or other governmental or instrumentality
("Governmental Entity"), is required by or with respect to the Company in
connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby, except for (i) the filing of the Merger
Agreement with the Secretary of State of the State of Delaware, (ii) such
consents, approvals, orders, authorizations, registrations, declarations and
filings as may be required under applicable federal and state securities laws
and the laws of any foreign country, (iii) the fairness hearing referred to in
Section 5.1, and (iv) the qualification by permit pursuant to 25121 of the
California Corporate Securities Law of 1968, as amended.
2.5 COMPANY FINANCIAL STATEMENTS.
(a) The Company Disclosure Letter includes a true, correct and
complete copy of the Company's audited financial statements (balance sheets,
income statements and statements of cash flow) as of and for the fiscal years
ending March 31, 1996, 1995 and 1994 (collectively, the "Financial Statements").
The Financial Statements have been prepared in accordance with generally
accepted accounting principles applied on a basis consistent throughout the
periods indicated. The Financial Statements present fairly the financial
condition and operating results of
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the Company as of the dates and during the periods indicated therein. The
audited balance sheet of the Company as of March 31, 1996 is hereinafter
referred to as the "Company Balance Sheet."
(b) The Company's financial plan previously prepared by the Company
and delivered to Parent (the "Financial Plan"), entitled "Pro Forma Income
Statement 1997" was prepared in good faith, based on assumptions the Company
deems reasonable and were prepared for planning purposes, provided that no
assurances can be given that the Company will achieve the results projected
therein. The Company disclaims any representation regarding any projections,
other than the Financial Plan, with respect to its financial performance for any
period ending after March 31, 1996.
2.6 NO UNDISCLOSED LIABILITIES. There are no liabilities of the Company
of any kind whatsoever, whether accrued, contingent, absolute, determined,
determinable or otherwise, and there is no existing condition, situation or set
of circumstances which could reasonably be expected to result in such a
liability, other than: (i) liabilities disclosed or provided for in the Company
Balance Sheet; (ii) liabilities which individually or in the aggregate are not
material to the Company; (iii) liabilities under this Agreement or disclosed in
the Company Disclosure Letter and (iv) liabilities made or incurred since the
date of the Company Balance Sheet in the ordinary course of business and
consistent with past practices.
2.7 NO CHANGES. Since the date of the Company Balance Sheet there has not
been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of
business as conducted on that date;
(b) capital expenditure by the Company, in any individual amount
exceeding $20,000 or in the aggregate, exceeding $150,000;
(c) destruction, damage to, or loss of any assets (including, without
limitation, intangible assets) of the Company (whether or not covered by
insurance), either individually or in the aggregate, exceeding $50,000;
(d) material change in accounting methods or practices (including any
change in depreciation or amortization policies or rates, any change in policies
in making or reversing accruals, or any change in capitalization of software
development costs) by the Company;
(e) declaration, setting aside, or payment of a dividend or other
distribution in respect to the shares of the Company, or any direct or indirect
redemption, purchase or other acquisition by the Company of any of its shares,
other than repurchases of stock from former employees, director and consultants
in accordance with agreements in effect on the date of this Agreement providing
for the repurchase of shares at cost in connection with any termination of
service to the Company;
(f) increase in the salary or other compensation payable or to become
payable by the Company to any of its officers, directors or employees (other
than regularly scheduled increases for employees other than officers in the
ordinary course of business), or the declaration,
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payment, or commitment or obligation of any kind for the payment by the Company
of a bonus or other additional salary or compensation to any such person except
in connection with and pursuant to existing bonus plans;
(g) acquisition (other than as provided in Section 2.7(b)), sale or
transfer of any asset of the Company except in the ordinary course of business
and not in excess of $50,000;
(h) formation or termination of any material contract, agreement or
license (including any distribution agreement) to which the Company is a party
other than termination by the Company pursuant to the terms thereof;
(i) loan by the Company to any person or entity, or guaranty by the
Company of any loan, other than travel or similar advances made to employees in
connection with their employment duties;
(j) waiver or release of any right or claim of the Company, including
any write-off or other compromise of any account receivable of the Company, in
excess of $50,000 in the aggregate;
(k) other event or condition of any character that has or could
reasonably be expected to have a Material Adverse Effect on the Company;
(l) issuance, sale or redemption by the Company of any of its shares
or of any other of its securities, except repurchases of stock from former
employees, directors and consultants in accordance with agreements in effect on
the date of this Agreement providing for the repurchase of shares at cost in
connection with any termination of service to the Company;
(m) material change in policies for pricing or royalties set or
charged by the Company; or
(n) negotiations that have risen to the level of serious discussions
involving a member of the Key Group or agreement by the Company to do any of the
things described in the preceding clauses (a) through (n) (other than
negotiations with Parent and its representatives regarding the transactions
contemplated by this Agreement).
2.8 TAXES.
(a) For purposes of this Section 2.8 and other provisions of this
Agreement relating to Taxes, the following definitions shall apply:
(i) The term "Taxes" shall mean all taxes, however denominated,
including any interest, penalties or other additions to tax that may become
payable in respect thereof, (A) imposed by any federal, territorial, state,
local or foreign government or any agency or political subdivision of any such
government, which taxes shall include, without limiting the generality of the
foregoing, all income or profits taxes (including but not limited to, federal,
state and foreign income taxes), payroll and employee withholding taxes,
unemployment insurance contributions, social security taxes, sales and use
taxes, ad valorem taxes, excise taxes, franchise
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taxes, gross receipts taxes, business license taxes, occupation taxes, real and
personal property taxes, stamp taxes, environmental taxes, transfer taxes,
workers' compensation, Pension Benefit Guaranty Corporation premiums and other
governmental charges, and other obligations of the same or of a similar nature
to any of the foregoing, which are required to be paid, withheld or collected,
(B) any liability for the payment of amounts referred to in (A) as a result of
being a member of any affiliated, consolidated, combined or unitary group, or
(C) any liability for amounts referred to in (A) or (B) as a result of any
obligations to indemnify another person.
(ii) The term "Returns" shall mean all reports, estimates,
declarations of estimated tax, information statements and returns required to be
filed in connection with any Taxes, including information returns with respect
to backup withholding and other payments to third parties.
(b) All Returns required to be filed by or on behalf of Company have
been duly filed on a timely basis and such Returns are true, complete and
correct. All Taxes shown to be payable on such Returns or on subsequent
assessments with respect thereto, and all payments of estimated Taxes required
to be made by or on behalf of Company under Section 6655 of the Code or
comparable provisions of state, local or foreign law, have been paid in full on
a timely basis or have been accrued on the Financial Statements, and no other
Taxes are payable by Company with respect to items or periods covered by such
Returns (whether or not shown on or reportable on such Returns). Company has
withheld and paid over all Taxes required to have been withheld and paid over,
and complied with all information reporting and backup withholding in connection
with amounts paid or owing to any employee, creditor, independent contractor, or
other third party. There are no liens on any of the assets of Company with
respect to Taxes, other than liens for Taxes not yet due and payable or for
Taxes that Company is contesting in good faith through appropriate proceedings.
Company has no subsidiaries and has not at any time been (i) a member of an
affiliated group of corporations filing consolidated, combined or unitary income
or franchise tax returns, or (ii) a member of any partnership or joint venture
for a period for which the statue of limitations for any Tax potentially
applicable as a result of such membership has not expired.
(c) The amount of Company's liability for unpaid Taxes for all
periods through the date of the Financial Statements does not, in the aggregate,
exceed the amount of the current liability accruals for Taxes reflected on the
Financial Statements, and the Financial Statements properly accrue in accordance
with GAAP all liabilities for Taxes of Company payable after the date of the
Financial Statements attributable to transactions and events occurring prior to
such date. No liability for Taxes of Company has been incurred (or prior to
Closing will be incurred) since such date other than in the ordinary course of
business.
(d) Parent has been furnished by Company with true and complete
copies of (i) relevant portions of income tax audit reports, statements of
deficiencies, closing or other agreements received by or on behalf of Company
relating to Taxes, and (ii) all federal, state and foreign income or franchise
tax returns and state sales and use tax Returns for or including Company for all
periods ending on and after December 31, 1991.
(e) The Returns of or including Company have never been audited by a
government or taxing authority, nor is any such audit in process, threatened or,
to Company's
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knowledge, pending (either in writing or verbally, formally or informally). No
deficiencies exist or have been asserted (either in writing or verbally,
formally or informally) or are expected to be asserted with respect to Taxes of
Company, and Company has not received notice (either in writing or verbally,
formally or informally) nor does it expect to receive notice that it has not
filed a Return or paid Taxes required to be filed or paid. Company is not a
party to any action or proceeding for assessment or collection of Taxes, nor has
such event been asserted or threatened (either in writing or verbally, formally
or informally) against Company or any of its assets. No waiver or extension of
any statute of limitations is in effect with respect to Taxes or Returns of
Company. Company has disclosed on its federal and state income and franchise
tax returns all positions taken therein that could give rise to a substantial
understatement penalty within the meaning of Code Section 6662 or comparable
provisions of applicable state tax laws.
(f) Company is not (nor has it ever been) a party to any tax sharing
agreement.
(g) Company is not, nor has it been, a United States real property
holding corporation within the meaning of Section 897(c)(2) of the Code during
the applicable period specified in Section 897(c)(1)(A)(ii) of the Code.
Company is not a "consenting corporation" under Section 341(f) of the Code.
Company has not entered into any compensatory agreements with respect to the
performance of services which payment thereunder would result in a nondeductible
expense to Company pursuant to Section 280G of the Code or an excise tax to the
recipient of such payment pursuant to Section 4999 of the Code. Company has not
agreed to, nor is it required to make, any adjustment under Code Section 481(a)
by reason of, a change in accounting method, and Company will not otherwise have
any income reportable for a period ending after the Closing Date attributable to
a transaction or other event (e.g., an installment sale) occurring prior to the
Closing Date with respect to which Company received the economic benefit prior
to the Closing Date. Company is not, nor has it been, a "reporting corporation"
subject to the information reporting and record maintenance requirements of
Section 6038A and the regulations thereunder.
(h) Company does not have net operating losses currently subject to
limitation under Code Sections 382, except that Company's net operating losses
are subject to limitation under Code Section 382 to the extent set forth in a
memorandum dated June 18, 1996 prepared by Company's accountants and attached to
the Disclosure Schedule.
2.9 RESTRICTIONS ON BUSINESS ACTIVITIES. There is no agreement, judgment,
injunction, order or decree with, of or by any governmental authority, court or
arbitrator binding upon the Company which has or could be expected to have the
effect of materially prohibiting or impairing any business practice of the
Company, any acquisition of property by the Company or the conduct of business
by the Company as currently conducted or as currently proposed to be conducted.
2.10 TITLE OF PROPERTIES; ABSENCE OF LIENS AND ENCUMBRANCES; CONDITION OF
EQUIPMENT.
(a) The Company owns no real property. Section 2.10(a) of the
Company Disclosure Letter sets forth a true, correct and complete list of all
real property leased by the Company, the name of the lessor, the date of the
lease and each amendment thereto and the aggregate annual rental or other fee
payable under any such lease. All such leases are in good
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standing, valid and effective in accordance with their respective terms, and
there is not, under any of such leases, any other parties to such leases or any
existing default or event of default (or event which with notice or lapse of
time, or both, would constitute a default).
(b) The Company holds good and valid title to, or, in the case of
leased properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used in its business, free and
clear of any liens, charges, pledges, security interests or other encumbrances,
except as reflected in the Company Financial Statements, except for liens for
current taxes not yet due and payable and except for such imperfections of title
and encumbrances, if any, which are not substantial in character, amount or
extent, and which do not materially detract from the value, or interfere with
the present use, of the property subject thereto or affected thereby.
(c) Section 2.10(c) of the Company Disclosure Letter sets forth a
true, correct and complete list of all equipment (the "Equipment") owned or
leased by the Company, except individual pieces of equipment owned by the
Company with an individual value of less than $10,000. The Equipment is, taken
as a whole, (i) adequate for the conduct of the business of the Company
consistent with its past practice, (ii) suitable for the uses to which it is
currently employed, and (iii) in good operating condition except for ordinary
wear and tear.
2.11 INTELLECTUAL PROPERTY.
(a) The Company owns, or is licensed or otherwise entitled to use
rights to, all patents, trademarks, trade names, service marks, copyrights, and
any applications therefor, trade secrets, proprietary rights, processes,
technology, know-how, computer software programs or applications and tangible or
intangible proprietary information or material necessary for or in the business
of the Company as currently conducted or as currently proposed to be conducted
(the "Company Intellectual Property Rights"). Section 2.11(a) of the Company
Disclosure Letter sets forth a true, correct and complete list of all patents,
trademarks, registered copyrights, trade names and service marks, and any
applications therefor, included in the Company Intellectual Property Rights, and
specifies the jurisdictions in which each such Company Intellectual Property
Right has been issued or registered or in which an application for such issuance
and registration has been filed, including the respective registration or
application numbers and the names of all registered owners. Section 2.11(a) of
the Company Disclosure Letter sets forth a true, correct and complete list of
(i) any pending requests the Company has received to make any such registration,
including the identity of the requestor and the item requested to be so
registered, and the jurisdiction for which such request has been made and
(ii) all material licenses, sublicenses and other agreements as to which the
Company is a party and pursuant to which the Company or any other person is
authorized to use any Company Intellectual Property Right or other trade secret
material to the Company, and includes the identity of all parties thereto, a
description of the nature and subject matter thereof, the applicable royalty and
the term thereof. The Company is not, nor will it be as a result of the
execution and delivery of this Agreement or the performance of its obligations
hereunder, in violation of any license, sublicense or agreement described on
such list in the Company Disclosure Letter. The Company is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens or encumbrances), the Company Intellectual Property
Rights, and has sole and exclusive rights (and is not contractually
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obligated to pay any compensation to any third party in respect thereof) to the
use thereof or the material covered thereby in connection with the services or
products of the Company in respect of which the Company Intellectual Property
Rights are being used. No claims with respect to the Company Intellectual
Property Rights have been asserted or, to the best knowledge of the Company, are
threatened by any person nor, to the best of the Company's knowledge, is there
any valid grounds for any bona fide claims (i) to the effect that the
manufacture, sale, licensing or use of any product as now used, sold or licensed
or proposed for use, sale or license by the Company infringes on any copyright,
patent, trade mark, service mark or trade secret, (ii) against the use by the
Company of any trademarks, trade names, trade secrets, copyrights, patents,
technology, know-how or computer software programs and applications used in the
Company's business as currently conducted or as proposed to be conducted, or
(iii) challenging the ownership, validity or effectiveness of any of the Company
Intellectual Property Rights. All registered trademarks, service marks and
copyrights held by the Company are valid and subsisting in all material
respects. To the best knowledge of the Company, there is no unauthorized use,
infringement or misappropriation of any of the Company Intellectual Property
Rights by any third party, including any employee or former employee of the
Company. The Company has not been sued or charged as a defendant in any claim,
suit, action or proceeding which involves a claim of infringement of any
patents, trademarks, service marks, copyrights or violation of any trade secret
or other proprietary right of any third party and which has not been finally
terminated prior to the date hereof, nor does it have any knowledge of any such
charge or claim, and, to the best knowledge of the Company, there is not any
infringement liability with respect to, or infringement or violation by, the
Company of any patent, trademark, service mark, copyright, trade secret or other
proprietary right of another. There is no outstanding order, judgment, decree
or stipulation on the Company, and the Company is not party to any agreement,
restricting in any manner the licensing of the Company's products by the
Company. The Company has not entered into any agreement to indemnify any other
person against any charge of infringement of any Company Intellectual Property
Right other than intellectual property indemnity provided in the ordinary course
to purchasers of the Company's products. Each current and former employee of
and consultant to the Company has signed a Proprietary Rights and
Confidentiality Agreement in substantially the Company's standard form, a copy
of which has been provided to the Parent or its counsel.
2.12 AGREEMENTS, CONTRACTS AND COMMITMENTS. The Company does not have and
is not a party to:
(a) any collective bargaining agreements,
(b) any agreements that contain any unpaid severance liabilities or
obligations,
(c) any bonus, deferred compensation, incentive compensation,
pension, profit-sharing or retirement plans, or any other employee benefit plans
or arrangements,
(d) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or consulting or sales
commission agreement, contract or commitment with a firm or other organization,
not terminable by the Company on
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thirty days notice without liability, except to the extent general principles of
wrongful termination law may limit the Company's to ability terminate employees
at will,
(e) agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated (including the lapsing of repurchase rights under restricted stock
purchase agreements), by the occurrence of any of the transactions contemplated
by this Agreement or the value of any of the benefits of which will be
calculated on the basis of any of the transactions contemplated by this
Agreement,
(f) any fidelity or surety bond or completion bond,
(g) any lease of personal property having a value individually in
excess of $25,000,
(h) any agreement of indemnification or guaranty not entered into in
the ordinary course of business,
(i) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or compete
with any person,
(j) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $20,000,
(k) any agreement, contract or commitment relating to the disposition
or acquisition of assets not in the ordinary course of business or any ownership
interest in any corporation, partnership, joint venture or other business
enterprise,
(l) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (h) hereof,
(m) any purchase order or contract for the purchase of raw materials
involving $100,000 or more and other than in the ordinary course of business or
acquisition of assets other than inventory involving $50,000 or more,
(n) any contracts for construction of real property or any
improvements thereto,
(o) any distribution, joint marketing or development agreement, other
than non-exclusive end user, distributor and reseller agreements entered into in
the ordinary course of business, or
(p) any other agreement, contract or commitment which involves
$50,000 or more and is not cancelable without penalty within thirty (30) days.
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The Company has not breached, or received any claim or threat that it has
breached, any of the terms or conditions of any agreement, contract or
commitment listed or identified in the Company Disclosure Letter (under any
section or subsection thereof) in such manner as would permit any other party to
cancel or terminate the same. Each agreement, contract or commitment listed or
identified in the Company Disclosure Letter (under any section or subsection
thereof) is in full force and effect and, to the best of the Company's
knowledge, is a legal, binding and enforceable obligation for or against the
Company and, except as otherwise disclosed or defaults fully remedied or
resolved, is not subject to any default thereunder of which the Company has
knowledge by any party obligated to the Company pursuant thereto.
2.13 INTERESTED PARTY TRANSACTIONS. To the best knowledge of the Company,
no officer of the Company has or has had, directly or indirectly, (i) an
interest in any entity which furnished or sold, or furnishes or sells, services
or products which the Company furnishes or sells, or proposes to furnish or
sell, or (ii) any interest in any entity which purchases from or sells or
furnishes to, the Company, any goods or services, or (iii) a beneficial interest
in any contract or agreement required to be set forth in Section 2.12 of the
Company Disclosure Letter; provided, that ownership of no more than one percent
(1%) of the outstanding voting stock of a publicly traded corporation shall not
be deemed an "interest in any entity" for purposes of this Section 2.13; and
provided further that the ownership interest of an entity of which a director of
the Company is a director, officer or partner shall not be attributed to such
director.
2.14 GOVERNMENTAL AUTHORIZATION. Section 2.14 of the Company Disclosure
Letter sets forth a true, correct and complete list of each federal, state,
county, local or foreign governmental consent, license, permit, grant, or other
authorization issued to the Company that is material to the operation of its
business or the holding of any interest in any of its properties (herein
collectively referred to as "Company Authorizations"). The Company
Authorizations are in full force and effect and constitute all authorizations
required to permit the Company to operate or conduct its business or hold any
interest in its properties.
2.15 LITIGATION. Section 2.15 of the Company Disclosure Letter sets forth
a true, correct and complete list of all suits, actions and legal,
administrative, arbitration or other proceedings and governmental investigations
and all other claims pending or, to the Company's knowledge, threatened against
the Company which would have a Material Adverse Effect on the business of the
Company. None of such suits, actions, proceedings, investigations or claims
seeks to prevent the consummation of the Merger. There is no judgment, decree
or order enjoining the Company in respect of, or the effect of which is to
prohibit, any business practice or the acquisition of any property or the
conduct of business of the Company. Section 2.15 of the Company Disclosure
Letter sets forth a true, correct and complete list of all suits and legal
actions initiated by the Company.
2.16 ACCOUNTS RECEIVABLE. All receivables of the Company arose in the
ordinary course of business at the aggregate amounts thereof, and are carried at
values determined in accordance with generally accepted accounting principles
consistently applied (including provisions for doubtful accounts). To the best
knowledge of the Company, none of the receivables of the Company is subject to
any claim of offset, recoupment, setoff or counterclaim and there are no facts
or circumstances (whether asserted or unasserted) that would give rise to any
such claim.
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No receivables are contingent upon the performance by the Company of any
obligation or contract. No person has any lien, charge, pledge, security
interest or other encumbrance on any of such receivables and no agreement for
deduction or discount has been made with respect to any of such receivables.
2.17 MINUTE BOOKS. The minute books of the Company made available to
counsel for Parent contain complete and accurate minutes of all meetings of
directors (and any committee thereof) and stockholders or actions by written
consent since the time of incorporation of the Company.
2.18 ENVIRONMENTAL AND OSHA.
(a) HAZARDOUS MATERIAL. No material amount of any substance that is
regulated by any Governmental Entity or that has been designated by any
Governmental Entity to be radioactive, toxic, hazardous or otherwise a danger to
health or the environment, including, without limitation, PCBs, asbestos, urea-
formaldehyde and all substances listed pursuant to the United States
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended from time to time, and the United States Resource Recovery and
Conservation Act of 1976, as amended from time to time, and the regulations and
publications promulgated pursuant to said laws (a "Hazardous Material"), is
present as a result of the actions of the Company (or, to the best knowledge of
the Company, as a result of any actions of any third party or otherwise) in
violation of any law in effect on or before the Closing Date, in, on or under
any property, including the land and the improvements, ground water and surface
water thereof, that the Company has at any time owned, operated, occupied or
leased (collectively, "Company Property") to the best knowledge of the Company.
(b) HAZARDOUS MATERIALS ACTIVITIES. The Company has not transported,
stored, used, manufactured, disposed of, released or exposed its employees or
others to Hazardous Materials in violation of any law in effect on or before the
Closing Date, nor has the Company disposed of, transferred, sold or manufactured
any product containing a Hazardous Material (collectively "Hazardous Materials
Activities") in violation of the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended, the Resource Recovery and
Conservation Act of 1976, the Toxic Substances Control Act of 1976, and other
applicable state or federal acts (including the rules and regulations
thereunder) as in effect on or before the Closing Date.
(c) PERMITS. The Company currently holds no environmental approvals,
permits, licenses, clearances and consents and none are necessary for the
conduct of the Company's Hazardous Material Activities, if any, and other
business activities of the Company as such activities are currently being
conducted.
2.19 LABOR MATTERS. The Company has not received any notice from any
Governmental Entity, and to the best knowledge of the Company, there has not
been asserted before any Governmental Entity, any claim, action or proceeding to
which the Company is a party or involving the Company, and there is neither
pending nor, to the best knowledge of the Company, threatened any investigation
or hearing concerning the Company arising out of or based upon any
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currently applicable laws and regulations respecting employment, discrimination
in employment, terms and conditions of employment and wages and hours and
occupational safety and health employment practices. There are no pending
claims against the Company under any workers compensation plan or policy or for
long term disability. The Company has complied in all material respects with
all applicable provisions of the Consolidated Omnibus Budget Reconciliation Act
of 1985 and has no obligations with respect to any former employees or
qualifying beneficiaries thereunder. Section 2.19 of the Company Disclosure
Letter sets forth a true, correct and complete list of all current employees of
the Company and their current salary and vacation accruals.
2.20 INSURANCE. Section 2.20 of the Company Disclosure Letter sets forth a
true, correct and complete list of all insurance policies and fidelity bonds
covering the assets, business, equipment, properties operations, software errors
and omissions, employees, officers and directors of the Company and all claims
made under any insurance policy since April 10, 1991. There is no claim by the
Company pending under any of such policies or bonds as to which coverage has
been questioned, denied or disputed by the underwriters of such policies or
bonds. All premiums payable under all such policies and bonds have been paid
and the Company is otherwise in compliance with the terms of such policies and
bonds (or other policies and bonds providing substantially similar insurance
coverage). Such policies of insurance and bonds are of the type and in amounts
customarily carried by persons conducting businesses similar to those of the
Company. The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies.
2.21 COMPLIANCE WITH LAWS. The Company has complied in all material
respects with, is not in violation in any material respect of, and has not
received any notices of violation with respect to, any federal, state or local
statute, law or regulation with respect to the conduct of its business, or the
ownership or operation of its business, assets or properties.
2.22 COMPLETE COPIES OF MATERIALS. The Company has delivered or made
available true and complete copies of each document (or summaries of same that
are accurate and complete in all material respects) which has been requested by
Parent or its counsel and which is referenced in the Company Disclosure Letter.
2.23 HEARING NOTICE AND PROXY STATEMENT. At the time the notice (the
"Hearing Notice") of the hearing to be held by the California Commissioner of
Corporations to consider the terms, conditions and fairness of the transactions
contemplated hereby pursuant to Section 25142 of the California Law (the
"Hearing") shall be mailed to the holders of Company Stock, and at the time the
information statement to be delivered to holders of Company Stock in connection
with the solicitation of written consents or the stockholder meeting of Company
to vote on the Merger and the other transactions contemplated hereby (the "Proxy
Statement") shall be delivered to the holders of Company Stock, and at all times
subsequent to such dates up to and including the date of the stockholder meeting
and the date of the Effective Time, such Hearing Notice, with respect to
information (including all financial data) set forth therein with respect to the
Company or its Affiliates furnished to Parent by the Company for inclusion
therein, and such Proxy Statement, with respect to all information (other than
information with respect to Parent or its Affiliates furnished to the Company by
Parent for inclusion therein, as to which no representation or
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warranty is hereby made) set forth therein, respectively, will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements or information
contained therein, in the light of the circumstances under which such statements
are made, not misleading.
2.24 EMPLOYEE BENEFIT PLANS.
(a) Section 2.25(a) of the Company Disclosure Letter sets forth a
true, correct and complete list of all employee benefit plans (as defined in
Section 3(3) of the Employee Retirement Income Act of 1974, as amended
("ERISA")) and all bonus, stock option, stock purchase, incentive, deferred
compensation, supplemental retirement, severance and other similar fringe or
employee benefit plans, programs or arrangements, and any current or former
employment or executive compensation or severance agreements, written or
otherwise, for the benefit of, or relating to, any current or former employee of
the Company or any trade or business (whether or not incorporated) which is a
member or which is under common control with the Company (an "ERISA Affiliate")
within the meaning of Section 414 of the Code, or any subsidiary of the Company
(together, the "Employee Plans"), and a copy of each Employee Plan has been
provided to Parent.
(b) (i) The Company has identified to Parent all employee benefit
plans (as defined in Section 3(3) of ERISA) and all bonus, stock option, stock
purchase, incentive, deferred compensation, supplemental retirement, severance
and other similar fringe or employee benefit plans, programs or arrangements,
and any current or former employment or executive compensation or severance
agreements, written or otherwise, for the benefit of, or relating to, any
current or former employee of the Company or any trade or business (whether or
not incorporated) which is a member or which is under common control with the
Company (an "ERISA Affiliate ") within the meaning of Section 414 of the Code,
or any subsidiary of the Company (together, the "Employee Plans").
(ii) (A) None of the Employee Plans promises or provides retiree
medical or other retiree welfare benefits to any person except as required by
applicable law, including but not limited to COBRA;
(B) All Employee Plans are in compliance in all material
respects with the requirements prescribed by any and all applicable statutes
(including ERISA and the Code), orders, or governmental rules and regulations
currently in effect with respect thereto (including all applicable requirements
for notification to participants or beneficiaries or the Department of Labor,
Internal Revenue Service (the "IRS") or Secretary of the Treasury), and the
Company has performed all obligations required to be performed by it under, is
not in default under or violation of, and has no knowledge of any default or
violation by any other party to, any of the Employee Plans;
(C) Each Employee Plan intended to qualify under Section
401(a) of Code and each trust intended to qualify under Section 501(a) of the
Code either has received a favorable determination letter with respect to each
such Employee Plan from the IRS, has pending before the IRS an application for
such determination letter for each such Employee
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Plan or still has a remaining period of time under applicable Treasury
Regulations or IRS pronouncements in which to apply for such a determination
letter and to make any amendments necessary to obtain a favorable determination;
(D) No Employee Plan is or within the prior six (6) years
has been subject to, and the Company has not incurred or does not expect to
incur any liability under, Title IV of ERISA or Section 412 of the Code; and
(E) Nothing in any Employee Plan precludes or interferes
with Parents' ability to cause the Company to terminate (or consolidate, at
Parent's option) any Employee Plan after the Closing.
(iii) None of the following now exists or has existed within
the six-year period ending on the date hereof with respect to any Employee Plan:
(A) Any act or omission by the Company constituting a
violation of Section 402, 403, 404 or 405 of ERISA;
(B) Any act or omission by the Company which constitutes a
violation of Sections 406 and 407 of ERISA and is not exempted by Section 408 of
ERISA or which constitutes a violation of Section 4975(c) of the Code and is not
exempted by Section 4975(d) of the Code;
(C) Any act or omission by the Company constituting a
violation of Section 503, 510 or 511 of ERISA.
(D) Any act or omission by the Company which could give
rise to liability under Section 502 of ERISA or under Sections 4972 or 4975
through 4980 of the Code; or
(E) Any failure to file any Forms 5500 in a timely manner.
(iv) Each Employee Plan has been maintained in substantial
compliance with its terms, and all contributions, premiums or other payments due
from the Company or any of its subsidiaries to (or under) any such Employee Plan
have been fully paid or adequately provided for on the Financial Statements.
All accruals thereon (including, where appropriate, proportional accruals for
partial periods) have been made in accordance with generally accepted accounting
principles consistently applied on a reasonable basis. There has been no
amendment, written interpretation or announcement (whether or not written) by
the Company with respect to, or change in employee participation or coverage
under, any Employee Plan that would increase materially the expense of
maintaining such plans or arrangements, individually or in the aggregate, above
the level of expense incurred with respect thereto for the three month period
ended March 31, 1996.
(v) The Company has furnished to Parent or its counsel complete,
accurate and current copies of all Employee Plans and all amendments, documents,
correspondence and filings relating thereto, including but not limited to any
statements, filings,
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reports or returns filed with any governmental agency with respect to the
Employee Plans at any time within the three-year period ending on the date
hereof.
2.25 NO COMMITMENTS REGARDING FUTURE PRODUCTS. The Company has made no
sales to customers that are contingent upon providing future enhancements of
existing products, to add features not presently available on existing products
or to otherwise enhance the performance of its existing products (other than
beta or similar arrangements pursuant to which the Company's customers from time
to time test or evaluate the Company's products). The products the Company has
delivered to customers substantially comply with published specifications for
such products and the Company has not received material complaints from
customers about its products that to the Company's knowledge remain unresolved.
Section 2.25 of the Company Disclosure Letter accurately sets forth a complete
list of the Company's products in development (exclusive of mere enhancements to
and additional features for existing products).
2.26 THIRD PARTY CONSENTS. No consent or approval is needed from any third
party in order to effect the Merger, this Agreement or any of the transactions
contemplated hereby.
2.27 BROKERS' AND FINDERS' FEES. The Company has not incurred, nor will it
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement or
any transaction contemplated hereby except the fees payable by the Company to
Wessels, Arnold & Henderson LLC, as set forth in the agreement between such firm
and the Company listed in Section 2.27 of the Company Disclosure Letter.
2.28 INVENTORIES. As of the date hereof, the inventories of the Company,
whether finished goods, work in process or raw materials (including the
Inventory), shown on the Company Balance Sheet or thereafter acquired, after
giving effect to the inventory reserve on the Company Balance Sheet, are, all
items of a quality useable or saleable in the ordinary and usual course of the
business of Company as currently conducted. The values at which inventories are
carried reflect the inventory valuation policy of the Company which is
consistent with its past practice and in accordance with generally accepted
accounting principles applied on a consistent basis.
2.29 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by the Company nor any statement made in the Company Disclosure Letter,
when read together in their entirety, contains or will contain at the Effective
Time any untrue statement of a material fact, or omits or will omit at the
Effective Time to state any material fact necessary in order to make the
statements contained herein or therein, in the light of the circumstances under
which made, not misleading.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF PARENT AND MERGER SUB
The Parent and Merger Sub represent and warrant to the Company, subject to
such qualifications and exceptions as are set forth in a disclosure letter
delivered prior to the date
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hereof (which disclosure letter shall specifically identify the sections or
subsections which are qualified by the information set forth therein) signed by
the Parent and Merger Sub and acknowledged by the Company (the "Parent
Disclosure Letter"), as follows:
3.1 ORGANIZATION; STANDING AND POWER. Parent is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware. Merger Sub is a corporation duly organized, validly existing and in
good standing under the laws of the State of Delaware. Each of Parent and
Merger Sub has the corporate power to own its properties and to carry on its
business as now being conducted and is duly qualified to do business and is in
good standing in each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect on Parent. Parent has delivered a true and
correct copy of the Certificate of Incorporation and Bylaws of each of Parent
and Merger Sub, as amended to date, to the Company and its counsel.
3.2 CAPITAL STRUCTURE.
(a) The authorized stock of Parent consists of 50,000,000 shares of
Common Stock, $0.001 par value per share, of which 13, 924,450 shares were
issued and outstanding as of April 15, 1996, and 2,000,000 shares of Preferred
Stock, $0.001 par value per share, none of which are issued or outstanding. The
authorized capital stock of Merger Sub consists of 1,000 shares of Common Stock,
$0.001 par value per share, 1,000 shares of which, as of the date hereof, are
issued and outstanding and are held by Parent. All such shares have been duly
authorized, and all such issued and outstanding shares have been validly issued,
are fully paid and nonassessable, are not subject to any preemptive rights or
rights of first refusal under applicable law, the Certificate of Incorporation
or Bylaws of Parent or any agreement to which Parent is a party or by which it
is bound and are free of any liens or encumbrances other than any liens or
encumbrances created by or imposed upon the holders thereof. All outstanding
shares of Parent Common Stock and all outstanding options or other rights to
purchase Parent Common Stock have been issued in compliance with all federal and
state securities laws. Parent has also reserved (i) an aggregate of 4,308,985
shares of Common Stock issuable to employees and consultants pursuant to the
Parent's 1991 Stock Option Plan, (ii) an aggregate of 200,000 shares of Common
Stock issuable to employees pursuant to the Parent's 1995 Employee Stock
Purchase Plan and (iii) 100,000 shares of Common Stock issuable to non-employee
directors pursuant to the Parent's 1995 Directors' Stock Option Plan. Other
than pursuant to or under such Plans, there are no options, warrants, calls,
rights, commitments or agreements of any character to which Parent is a party or
by which it is bound obligating Parent to issue, deliver, sell, repurchase or
redeem, or cause to be issued, delivered, sold, repurchased or redeemed, any
shares of the capital stock of Parent or obligating Parent to grant, extend or
enter into any such option, warrant, call, right, commitment or agreement.
(b) The shares of Parent Common Stock to be issued pursuant to the
Merger will be duly authorized, validly issued, fully paid, and nonassessable,
and free of, and not subject to any preemptive rights or rights of first refusal
created by statute or the Certificate of Incorporation or Bylaws of Parent or
any agreement to which Parent prior to the Merger is a party or by which prior
to the Merger it is bound.
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3.3 AUTHORITY. Parent and Merger Sub have all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by its Board of Directors, which constitutes all necessary corporate action on
the part of Parent and Merger Sub. This Agreement has been duly executed and
delivered by Parent and Merger Sub and constitutes the valid and binding
obligation of Parent and Merger Sub. The execution and delivery of this
Agreement do not, and the consummation of the transactions contemplated hereby
will not, conflict with, or result in any violation of, or default (with or
without notice or lapse of time, or both), or give rise to a right of
termination, cancellation or acceleration of any obligation or to loss of a
benefit under (i) any provision of the Certificate of Incorporation or Bylaws of
Parent or Merger Sub or (ii) any material mortgage, indenture, lease, contract
or other agreement or instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to Parent or its properties or assets, other than any such conflicts,
violations, defaults, terminations, cancellations or accelerations which
individually or in aggregate would not have a Material Adverse Effect on the
Parent. No consent, approval, order or authorization of, or registration,
declaration or filing with, any Governmental Entity, is required by or with
respect to Parent or Merger Sub in connection with the execution and delivery of
this Agreement by Parent and Merger Sub or the consummation by Parent and Merger
Sub of the transactions contemplated hereby except for (i) the filing of the
Certificate of Merger with the Secretary of State of the State of Delaware,
(ii) such consents, approvals, orders, authorizations, registrations,
declarations and filings as may be required under applicable state and federal
securities laws and the laws of any foreign country, (iii) the fairness hearing
referred to in Section 3.1, (iv) the qualifications by permit pursuant to 25121
of the California Corporate Securities Law of 1968, as amended, and (v) such
other consents, authorizations, filings, approvals and registrations which if
not obtained or made would not have a Material Adverse Effect on the Parent or
Merger Sub.
3.4 SEC DOCUMENTS; PARENT FINANCIAL STATEMENTS. Parent has furnished the
Company with a true and complete copy of its Form 10-K for the fiscal year ended
December 31, 1995, its Form 10-Q for the quarter ended March 31, 1996 and its
proxy statement dated April 23, 1996 (collectively, the "SEC Documents"), which
Parent has filed under the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), with the Securities and Exchange Commission (the "SEC"). As of
their respective filing dates, the SEC Documents complied in all material
respects with the requirements of the Exchange Act and none of the SEC Documents
contained any untrue statement of a material fact or omitted to state a material
fact required to be stated therein or necessary to make the statements made
therein, in light of the circumstances in which they were made, not misleading,
except to the extent corrected by a document subsequently filed with the SEC and
provided to the Company prior to the date hereof. Parent has timely filed with
the SEC all reports required to be filed under Section 13, 14 and 15(d) of the
Exchange Act since November 9, 1995. The financial statements of Parent,
including the notes thereto, included in the SEC Documents (the "Parent
Financial Statements") comply as to form in all material respects with
applicable accounting requirements and with the published rules and regulations
of the SEC with respect thereto, have been prepared in accordance with generally
accepted accounting principles consistently applied (except as may be indicated
in the notes thereto or, in the case of unaudited statements, as permitted by
Form 10-Q of the SEC) and fairly present the consolidated
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financial position of Parent at the dates and during the periods indicated
therein (subject, in the case of unaudited statements, to normal recurring audit
adjustments that are not individually or in the aggregate, material). There has
been no material change in Parent's accounting policies except as described in
the notes to the Parent Financial Statements.
3.5 BROKER'S AND FINDERS' FEES. Parent has not incurred, and will not
incur, directly or indirectly, any liability for brokerage or finders' fees or
agents' commissions or any similar charges in connection with this Agreement,
the Merger or any transaction contemplated hereby, except the fees payable by
the Parent to Robertson, Stephens & Company, as set forth in the agreement
between the Company and Robertson, Stephens & Company dated June __, 1996.
3.6 HEARING NOTICE AND PROXY STATEMENT. At the time the Hearing Notice
shall be mailed to the holders of Company Stock, and at the time the Proxy
Statement shall be delivered to the holders of Company Stock, and at all times
subsequent to such dates up to and including the dates of the stockholder
meeting of the Company and the Effective Time, such Hearing Notice, with respect
to all information (other than information with respect to the Company or its
Affiliates furnished to Parent by the Company inclusion therein as to which no
representation or warranty is hereby made) set forth therein, and such Proxy
Statement, with respect to information regarding Parent or its Affiliates
furnished by Parent to the Company for inclusion therein, respectively, will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements or
information contained therein, in the light of the circumstances under which
such statements are made, not misleading.
3.7 SECURITIES ACT EXEMPTION. The Parent Common Stock to be issued
pursuant to this Agreement and the Merger Agreement will be exempt from the
registration requirements of the Securities Act by virtue of Section 3(a)(10)
thereunder.
3.8 NO MATERIAL ADVERSE CHANGE. Since March 31, 1996, Parent has
conducted its business in the ordinary course and there has not occurred, other
than has been disclosed to the Company and in reports filed by the Company with
the Securities and Exchange Commission or press releases (including the press
release to be issued by Parent immediately after the execution of this
Agreement): (i) any material adverse change in the business, assets (including
intangible assets), liabilities, financial condition, results of operations or
prospects of Parent and its subsidiaries, taken as a whole; (ii) any amendments
or changes in the Certificate of Incorporation or Bylaws of Parent; (iii) any
damage, destruction or loss, whether covered by insurance or not, materially and
adversely affecting the properties or business of Parent; or (iv) except in the
ordinary course of business, any sale of a material amount of real or personal
property (tangible or intangible) of Parent.
3.9 AGREEMENTS. The contracts listed on Schedule 3.9 to the Parent
Disclosure Letter hereto are in full force and effect as of the date hereof and
will be in full force and effect as of the Closing Date.
3.10 LITIGATION. As of the date of this Agreement, there is no action,
suit, proceeding, claim, arbitration or investigation pending, or to the best
knowledge of Parent, threatened, against Parent or Merger Sub which could have a
Material Adverse Effect on the business of the Parent
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or in any manner challenges or seeks to prevent, enjoin, alter or materially
delay the Merger or any of the other transactions contemplated by this
Agreement.
3.11 REPRESENTATIONS COMPLETE. None of the representations or warranties
made by Parent or Merger Sub nor any statement made by Parent or Merger Sub in
the Parent Disclosure Letter, when read together in their entirety, contains or
will contain at the Effective Time, any untrue statement of a material fact, or
omits or will omit at the Effective Time to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 CONDUCT OF BUSINESS OF THE COMPANY. During the period from the date
of this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Company agrees (except to the extent that
Parent shall otherwise consent in writing), to carry on its business in the
usual, regular and ordinary course in substantially the same manner as
heretofore conducted, and, to the extent consistent with such business, use all
reasonable efforts consistent with past practice and policies to preserve intact
the Company's present business organizations, keep available the services of its
present officers and key employees and preserve their relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, to the end that the Company's goodwill and ongoing
businesses shall be unimpaired at the Effective Time. The Company shall
promptly notify Parent of any event or occurrence or emergency not in the
ordinary course of business of the Company which could have a Material Adverse
Effect on the Company. Without limiting the generality of the foregoing, except
as expressly contemplated by this Agreement, the Company shall not, without the
prior consent of Parent:
(a) Except as required pursuant to existing contractual provisions of
options and restricted stock outstanding on the date hereof that are listed in
Section 2.2 of the Company Disclosure Letter, accelerate, amend or change the
period of exercisability of options or restricted stock granted under the
employee stock plans of the Company (including restricted stock purchase
agreements);
(b) Enter into any commitment or transaction to be performed over a
period longer than six months in duration or to purchase or agree to purchase
capital assets aggregating in excess of $50,000;
(c) Grant any severance or termination pay (i) to any director or
officer or (ii) to any other employee except (x) payments made pursuant to
standard written agreements in effect on the date hereof and as disclosed in
Section 2.12(b) of the Company Disclosure Letter or (y) in the case of employees
who do not have standard written agreements, payments of up to one months
salary;
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(d) Except for licenses granted to end-users pursuant to the
Company's standard license agreements, transfer to any person or entity any
rights to the Company's Intellectual Property Rights;
(e) Enter into or amend in any material respect any agreements
pursuant to which any other party is granted marketing or other rights of any
type or scope with respect to any products of the Company other than the
recruitment of new distributors and resellers by the Company in the ordinary
course of business consistent with past practice;
(f) Violate, amend or otherwise modify in any material respect the
terms of any of the contracts or agreements required to be listed in the Company
Disclosure Letter;
(g) Commence any litigation;
(h) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any of its capital stock or
options to acquire capital stock, or split, combine or reclassify any of its
capital stock or issue or authorize the issuance of any other securities in
respect of, in lieu of or in substitution for shares of capital stock of the
Company, or repurchase or otherwise acquire, directly or indirectly, any shares
of its capital stock or options to acquire capital stock except repurchases of
stock from former employees, directors and consultants in accordance with
agreements in effect on the date of the Agreement providing for the repurchase
of shares at cost in connection with any termination of service to the Company;
(i) Issue, deliver or sell or authorize or propose the issuance,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, other
than the issuance of shares of the Company Common Stock pursuant to the
conversion of Company Preferred Stock;
(j) Cause or permit any amendments to its Certificate of
Incorporation or Bylaws;
(k) Acquire or agree to acquire by merging or consolidating with, or
by purchasing a substantial portion of the assets of, or by any other manner,
any business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(l) Sell, lease, license or otherwise dispose, other than sales of
inventory in the ordinary course of business, of any of its properties or assets
which are material, individually or in the aggregate, to the business of the
Company;
(m) Incur any indebtedness for borrowed money (other than advances
under the Company's existing bank credit line) or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others;
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(n) Adopt or amend any employee benefit plan, or enter into any
employment contract, pay any special bonus or special remuneration to any
director or employee, or increase the salaries or wage rates of its employees
other than regularly scheduled increases for employees other than officers in
the ordinary course of business;
(o) Revalue any of its assets, including without limitation writing
down the value of inventory or writing off notes or accounts receivable other
than in the ordinary course of business consistent with past business practices;
(p) Pay, discharge or satisfy in an amount in excess of $25,000 in
any one case any claim, liability or obligation (absolute, accrued, asserted or
unasserted, contingent or otherwise), other than the payment, discharge or
satisfaction in the ordinary course of business of liabilities reflected or
reserved against in the Company Financial Statements (or the notes thereto) or
constituting a trade payable or operating expense incurred in the ordinary
course of business consistent with past practices since the last date of the
Company Financial Statements or otherwise permitted to be incurred pursuant to
this Section 4.1;
(q) Make or change any election in respect of Taxes, adopt or change
any accounting method in respect of Taxes, file any material Return or any
amendment to a material Return, enter into any closing agreement, settle any
claim or assessment in respect of Taxes, or consent to any extension or waiver
of the limitation period applicable to any claim or assessment in respect of
Taxes;
(r) Take or permit any action which would result in any share of
Company Preferred Stock being convertible into more or less than one share of
Company Common Stock; or
(s) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.l(a) through (r) above, or any action which
would make any of the representations, warranties or covenants of the Company
contained in this Agreement untrue or incorrect in any material respect or
prevent the Company; from performing or cause the Company not to perform its
covenants hereunder.
4.2 NO SOLICITATION. Prior to the Effective Time, the Company will not
(nor will the Company permit any of the Company's officers, directors,
stockholders affiliated with any officer or director or the Company's agents,
representatives or affiliates to) directly or indirectly, take any of the
following actions with any party other than Parent and its designees:
(a) solicit, encourage, initiate or participate (except to the extent
reasonably required by fiduciary obligations under existing law) in any
negotiations or discussions with respect to, any offer or proposal to acquire
all or substantially all of the Company's business and properties or to purchase
or acquire capital stock of the Company whether by merger, purchase of assets,
tender offer or otherwise (an "Acquisition"),
(b) except to the extent reasonably required by fiduciary obligations
under existing law, (i) disclose any information not customarily disclosed to
any person other than its
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attorneys or financial advisors or existing lenders or lessors under existing
contractual arrangements concerning the Company's business and properties or
afford to any person or entity access to its properties, books or records, or
(ii) assist or cooperate with any person to make any proposal to purchase all or
any part of the Company's capital stock or assets, other than licensing of
software in the ordinary course of business.
In the event the Company shall receive any such offer or proposal, directly
or indirectly, of the type referred to in clause (a) or (b)(ii) above, or any
request for disclosure or access pursuant to clause (b)(i) above, the Company
shall immediately inform Parent as to all material facts relating to any such
offer or proposal (including the identity of the party making such offer or
proposal and the specific terms thereof) and will cooperate with Parent by
furnishing any information it may reasonably request.
4.3 CONDUCT OF BUSINESS OF PARENT. During the period from the date of
this Agreement and continuing until the earlier of the termination of this
Agreement or the Effective Time, the Parent agrees (except to the extent that
the Company shall otherwise consent in writing) that Parent shall promptly
notify the Company of any event or occurrence or emergency which is not in the
ordinary course of business of Parent and which is material and adverse to the
business of Parent. Parent shall not without the prior consent of the Company
(i) amend its Certificate of Incorporation in any manner which would materially
adversely affect the rights of holders of Parent Common Stock, (ii) issue,
deliver or sell or authorize or propose the issuance, delivery or sale of, or
purchase or propose the purchase of, any shares of its capital stock of any
class or securities convertible into, or subscriptions, rights, warrants or
options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities, except
for the issuance of shares of its capital stock or options to purchase shares of
its capital stock (A) in connection with privately negotiated sales of stock
pursuant to corporate partnering arrangements in effect on the date hereof, or
(B) pursuant to stock option grants or exercises or other employee stock benefit
plans, (iii) take, or agree in writing or otherwise take, any action which would
make any of the representations, warranties or covenants of the Parent contained
in this Agreement untrue or incorrect or prevent the Parent from performing or
cause the Parent not to perform its covenants hereunder, or (iv) declare or pay
any cash dividends or make any other cash distributions in respect of any of its
capital stock, or repurchase or otherwise acquire, directly or indirectly any
shares of its capital stock (other than in connection with the repurchase of
stock from terminated employees).
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 STOCKHOLDER APPROVAL. The Company will duly call and hold a meeting
of its stockholders or solicit written consents for the purpose of approving the
Merger and the other transactions contemplated by the Agreement on the terms and
conditions set forth in this Agreement and the Merger Agreement, and in
connection therewith will comply fully with the pertinent provisions of the
applicable state laws relating to the calling and holding of such meetings of
stockholders for such purpose. It is contemplated that such stockholder meeting
will take place on or about August 29, 1996 or as soon as practicable
thereafter. The Parent will
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prepare as promptly as practicable in conjunction with the Company an
Application for Permit and Request for Hearing pursuant to Sections 25121 and
25142 of the California Corporations Code, including a proposed Hearing Notice
for use by the California Commissioner of Corporations in connection with the
Hearing, and the Company shall prepare an information statement for use in
connection with such Application and such stockholder meeting. Neither the
Company nor Parent shall distribute or use such Hearing Notice or Proxy
Statement other than for internal review unless the other party shall have
consented in writing to the information set forth in such document relating to
it. The Proxy Statement shall include the recommendation of the Board of
Directors of the Company in favor of the Merger which shall not be changed
unless the Board of Directors of the Company, upon receipt of a written opinion
from its outside counsel following receipt of a written proposal or offer for an
Acquisition, shall determine that failure so to change its recommendation would
constitute a breach of the Board's fiduciary duty under applicable law. The
Company shall use its best efforts to solicit from stockholders of the Company
proxies or written consents in favor of the Merger and shall take all other
action necessary or advisable to secure the vote or consent of its stockholders
required by Delaware Law to effect the Merger.
5.2 ACCESS TO INFORMATION. The Company shall afford Parent and its
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Effective Time to (a) all of the
Company's properties, books, contracts, commitments and records, and (b) all
other information concerning the business, properties and personnel of the
Company as Parent may reasonably request. The Company agrees to provide to
Parent and its accountants, counsel and other representatives copies of internal
financial statements promptly upon request. No information or knowledge
obtained in any investigation pursuant to this Section 5.2 shall affect or be
deemed to modify any representation or warranty contained herein or the
conditions to the obligations of the parties to consummate the Merger.
5.3 CONFIDENTIALITY. The parties acknowledge that Parent and the Company
have previously executed a Confidential Nondisclosure Agreement, which agreement
shall continue in effect in accordance with its terms.
5.4 EXPENSES. In the event the Merger is not consummated, and except as
otherwise provided in this Section, all costs and expenses incurred in
connection with this Agreement and the Merger shall be paid by the party
incurring such cost or expense. The transaction costs incurred or payable by
the Company in connection with this Agreement shall not exceed (i) $300,000 for
professional fees and expenses of the Company's counsel and accountants, based
on regular hourly rates and standard charges for related expenses and (ii) fees
and expenses of Wessels, Arnold & Henderson LLC pursuant to its engagement
letter with the Company referenced in the Company Disclosure Letter.
5.5 PUBLIC DISCLOSURE. Unless otherwise required by law, prior to the
Effective Time no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Parent and the Company prior to release; provided that such approval
shall not be unreasonably withheld; provided further that the foregoing
restriction shall be subject, in the case of Parent, to Parent's obligation to
comply with applicable securities laws.
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5.6 POOLING ACCOUNTING. Parent and the Company shall each use its best
efforts to cause the business combination to be effected by the Merger to be
accounted for as a pooling of interests. Each of Parent and the Company shall
use its best efforts to cause its Affiliates (as defined in Section 5.8) not to
take any action that would adversely affect the ability of Parent to account for
the business combination to the effected by the Merger as a pooling of
interests.
5.7 CONSENTS. Each of Parent and the Company shall promptly apply for or
otherwise seek, and use its best efforts to obtain, all consents and approvals
required to be obtained by it for the consummation of the Merger, and the
Company shall use its best efforts to obtain all consents, waivers and approvals
under any of the Company's agreements, contracts, licenses or leases in order to
preserve the benefits thereunder for the Surviving Corporation and otherwise in
connection with the Merger.
5.8 AFFILIATE AGREEMENTS. Prior to the Closing Date, the Company shall
deliver to Parent a written statement setting forth those persons who are, in
the Company's reasonable judgment, "affiliates" of the Company within the
meaning of Rule 145 ("Rule 145") (each such person, an "Affiliate") promulgated
under the Securities Act of 1933 as amended (the "Securities Act"). The Company
shall provide Parent such information and documents as Parent shall reasonably
request for purposes of reviewing such list. The Company shall use its best
efforts to deliver or cause to be delivered to Parent prior to the Closing Date
from each of the Affiliates of Company, an executed Affiliate Agreement in the
form attached hereto as EXHIBIT A. Parent and Merger Sub shall be entitled to
place appropriate legends on the certificates evidencing any Parent Common Stock
to be received by such Affiliates of the Company pursuant to the terms of this
Agreement, and to issue appropriate stop transfer instructions to the transfer
agent for Parent Common Stock, consistent with the terms of such Affiliate
Agreements.
5.9 FIRPTA. At the Closing, the Company shall deliver to Parent a
properly executed statement conforming to the requirements of Treasury
Regulation Sections 1.897-2(h)(1)(i) and 1.445-2(c)(3) and the Company further
agrees to provide the notification to the Internal Revenue Service required
pursuant to Treasury Regulation Section 1.897-2(h)(2).
5.10 LEGAL REQUIREMENTS. Each of Parent, Merger Sub and the Company will
take all reasonable actions necessary to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement and will promptly cooperate with
and furnish information to any party hereto in connection with any such
requirements imposed upon such other party in connection with the consummation
of the transactions, contemplated by this Agreement and will take all reasonable
actions necessary to obtain (and will cooperate with the other parties hereto in
obtaining) any consent, approval, order or authorization of, or any
registration, declaration or filing with, any Governmental Entity or other
person, required to be obtained or made in connection with the taking of any
action contemplated by this Agreement.
5.11 BLUE SKY LAWS. Parent shall use its best efforts to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of the Parent Common Stock pursuant hereto. The Company shall use its
reasonable efforts to assist Parent to comply with the
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securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of Parent Common Stock pursuant hereto.
5.12 BEST EFFORTS; ADDITIONAL DOCUMENTS AND FURTHER ASSURANCES. Each of
the parties to this Agreement shall use its best efforts to effectuate the
transactions contemplated hereby and cause to fulfill and cause to be fulfilled
the conditions to closing under this Agreement. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby. Parent will use its best
efforts to file all reports required to be filed under Section 13 or 15(d) of
the Exchange Act for the two years subsequent to the Effective Time.
5.13 STOCK OPTIONS.
(a) At the Effective Time, each outstanding option to purchase shares
of Company Common Stock (each a "Company Option") under the Company's Stock
Option Plan, whether vested or unvested will be assumed by Parent. Each Company
Option so assumed by Parent under this Agreement shall continue to have, and be
subject to, the same terms and conditions set forth in the Company's Stock
Option Plan and as provided in the respective option agreements immediately
prior to the Effective Time, except that (i) such Company Option will be
exercisable for that number of whole shares of Parent Common Stock equal to the
product of the number of shares of Company Common Stock that were issuable upon
exercise of such Company Option immediately prior to the Effective Time
multiplied by the Common Stock Conversion Ratio, rounded down to the nearest
whole number of shares of Parent Common Stock, and (ii) the per share exercise
price for the shares of Parent Common Stock issuable upon exercise of such
assumed Company Option will be equal to the quotient determined by dividing the
exercise price per share of Company Common Stock at which such Company Option
was exercisable immediately prior to the Effective Time by the Common Stock
Conversion Ratio, rounded up to the nearest whole cent, all in accordance with
the rules of Section 424(a) of the Code, and the regulations promulgated
thereunder, and such rules shall apply even with respect to options that are not
"incentive stock options" (within the meaning of Section 424 of the Code).
(b) After the Effective Time, Parent will issue to each holder of an
outstanding Company Option a document evidencing the foregoing assumption of
such Company Option by Parent.
(c) It is the intention of the parties that the Company Options
assumed by Parent qualify following the Effective Time as incentive stock
options as defined in Section 422 of the Code to the extent the Company Options
qualified as incentive stock options prior to the Effective Time.
5.14 FORM S-8. Parent will file a registration statement on Form S-8
covering shares of Parent Common Stock issuable upon exercise of Company Options
assumed pursuant to Section 5.13 as promptly as practicable after the Closing.
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5.15 UPDATED INFORMATION REGARDING COMPANY CAPITALIZATION. Immediately
prior to the Effective Time, the Company shall furnish to Parent true, correct
and complete information with respect to all of the matters covered by
Section 2.2 of this Agreement and Section 2.2 of the Company Disclosure Letter
updated through the delivery of such information, which information shall be
certified by the President and Chief Financial Officer of the Company on behalf
of the Company, and shall be in such detail as Parent shall reasonably request.
The certificate and information delivered pursuant to this Section 5.15 shall be
deemed for all purposes of this Agreement to be representations and warranties
made pursuant to this Agreement to the same extent as if set forth herein.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 CONDITIONS TO OBLIGATIONS OF EACH PARTY TO EFFECT THE MERGER. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) STOCKHOLDER APPROVAL. This Agreement and the Merger and other
transactions contemplated hereby (including, without limitation, the Affiliate
Agreements, the Non-Competition Agreements and the Employment Agreements), taken
together, shall have been approved and adopted by the requisite vote of the
stockholders of the Company, including (i) a majority of the outstanding shares
of Company Common Stock, (ii) 66-2/3% of the outstanding shares of Company
Series A Preferred Stock, and (iii) 66-2/3% of the outstanding shares of Company
Series B Preferred Stock.
(b) CALIFORNIA PERMIT. The California Commissioner of Corporations
shall have issued a permit qualifying the issuance of Parent Common Stock
pursuant to the Merger following a hearing related to the fairness of the Merger
conducted in accordance with and pursuant to Section 25142 of the California
Corporations Code.
(c) NO INJUNCTIONS OR RESTRAINTS; ILLEGALITY. No temporary
restraining order, preliminary or permanent injunction or other order issued by
any court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the Merger or limiting or restricting the
operation of the business of the Company following the Merger shall be in
effect; nor shall any proceeding brought by an administrative agency or
commission or other governmental authority or instrumentality, domestic or
foreign, seeking any of the foregoing be pending; nor shall there be any action
taken, or any statute, rule, regulation or order enacted, entered, enforced or
deemed applicable to the Merger, which makes the consummation of the Merger
illegal.
(d) EMPLOYMENT AGREEMENTS. Parent shall have entered into an
employment agreement with Douglas Antaya, John Duffy, Robert Heile, Richard
White, Michael Ricci, Tim Mangan and Richard Swee substantially in the form
attached hereto as EXHIBIT B-1, with David Splitz, Dale Magley, Keith Reynolds,
Ken Botelho, Christine Wilson and Jim McIntosh
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substantially in the form attached hereto as EXHIBIT B-2, and with Robert Degan
substantially in the form attached hereto as EXHIBIT B-3 (collectively, the
"Employment Agreements").
(e) APPROVAL. Parent, Company and Merger Sub shall have timely
obtained all necessary approvals from Governmental Entities.
(f) AFFILIATE AGREEMENTS. The Company and Parent shall have received
an executed Affiliate Agreement from each Affiliate of the Company.
(g) ESCROW AGREEMENT. Parent, Merger Sub, the Committee, as agent
for the former stockholders of the Company, and a financial entity or other
entity mutually agreed to by the parties (who the parties agree may be The First
National Bank of Boston), as escrow agent (the "Escrow Agent"), shall have
entered into an escrow agreement substantially in the form attached hereto as
EXHIBIT C (the "Escrow Agreement") hereto.
(h) NASDAQ LISTING. The shares of Parent Common Stock to be issued
in the Merger shall have been listed on the Nasdaq National Market System.
6.2 ADDITIONAL CONDITIONS TO OBLIGATIONS OF COMPANY. The obligations of
the Company to consummate and effect this Agreement and the transactions
contemplated hereby shall be subject to the satisfaction at or prior to the
Effective Time of each of the following conditions, any of which may be waived,
in writing, exclusively by the Company:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of Parent in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such representations
and warranties were made on and as of such time and Parent shall have performed
and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by it as
of the Effective Time.
(b) CERTIFICATE OF PARENT. The Company shall have been provided with
a certificate executed on behalf of Parent by its President and its Chief
Financial Officer to the effect that, as of the Effective Time:
(i) all representations and warranties made by Parent and Merger
Sub under this Agreement are true and correct in all material respects; and
(ii) all covenants, obligations and conditions of this Agreement
to be performed by Parent and Merger Sub on or before such date have been so
performed in all material respects.
(c) LEGAL OPINION. The Company shall have received a legal opinion
from Venture Law Group, A Professional Corporation, counsel to Parent, as to
the matters set forth in and in the form acceptable to the Company.
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(d) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, properties, liabilities, results of
operations or financial condition of Parent and its subsidiaries, taken as a
whole.
(e) TAX OPINION. The Company shall have received an opinion of
Palmer & Dodge LLP, counsel to the Company, dated the Closing Date, addressed to
the Company and its shareholders immediately before the Effective Time,
substantially to the effect that, on the basis of the facts and representations
set forth in such opinion, or set forth in writing elsewhere and referred to
therein, for federal income tax purposes the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Code and no gain or
loss will be recognized by the Company or its shareholders by reason of the
receipt of the shares of Parent Common Stock in the Merger (it being understood
that such opinion will not extend to cash payments in lieu of fractional share
interests and may not extend to shares of Parent Common Stock received by the
Company's shareholders who receive their Company Stock pursuant to stock options
or otherwise as compensation).
6.3 ADDITIONAL CONDITIONS TO THE OBLIGATIONS OF PARENT AND MERGER SUB.
The obligations of Parent and Merger Sub to consummate and effect this Agreement
and the transactions contemplated hereby shall be subject to the satisfaction at
or prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by Parent:
(a) REPRESENTATIONS, WARRANTIES AND COVENANTS. The representations
and warranties of the Company in this Agreement shall be true and correct in all
material respects on and as of the Effective Time as though such representations
and warranties were made on and as of such time and the Company shall have
performed and complied in all material respects with all covenants, obligations
and conditions of this Agreement required to be performed and complied with by
it as of the Effective Time.
(b) CERTIFICATE OF THE COMPANY. Parent shall have been provided with
a certificate executed on behalf of the Company by its President and Chief
Financial Officer to the effect that, as of Effective Time:
(i) all representations and warranties made by the Company under
this Agreement are true and correct in all material respects;
(ii) all covenants, obligations and conditions of this Agreement
to be performed by the Company on or before such date have been so performed in
all material respects.
(c) THIRD PARTY CONSENTS. Parent shall have been furnished with
evidence satisfactory to it of the consent or approval of those persons whose
consent or approval shall be required in order to assign the agreements listed
in the Company Disclosure Letter pursuant to Section 5.7 of this Agreement.
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(d) LEGAL OPINION. Parent shall have received a legal opinion from
Palmer & Dodge LLP, legal counsel to the Company, in the form acceptable to
Parent.
(e) NO MATERIAL ADVERSE CHANGE. There shall not have occurred any
material adverse change in the business, properties, liabilities, results of
operations or financial condition of the Company.
(f) DISSENTERS. Holders of not more than 5% of the outstanding
Company Common Stock, not more than 5% of the outstanding Company Series A
Preferred Stock and not more than 5% of the outstanding Company Series B
Preferred Stock shall have exercised, or shall continue to have the right to
exercise, appraisal rights with respect to the transactions contemplated by this
Agreement.
(g) NON-COMPETITION AGREEMENTS. Douglas Antaya, Robert Degan, Robert
Heile, John Duffy Richard Swee, Richard White, Michael Ricci and Tim Mangan
shall each have entered into and delivered a duly executed and binding Non-
Competition Agreement in substantially the form attached hereto as EXHIBIT D-1,
David Splitz, Dale Magley, Keith Reynolds, Christine Wilson, Ken Botelho and Jim
McIntosh shall each have entered into and delivered a duly executed and binding
Non-Competition Agreement in substantially the form attached hereto as EXHIBIT
D-2 , (collectively, the "Non-Competition Agreements").
(h) FAIRNESS OPINION. Parent shall have received a fairness opinion
with regard to the Merger from Robertson, Stephens & Company and such opinion
shall not have been withdrawn.
(i) NO STOCKHOLDER APPROVAL REQUIREMENT. The Parent shall not be
required under Delaware Law or rules of the National Association of Securities
Dealers Inc. to obtain stockholder approval with respect to the Merger in order
to comply with Section 5(i)(1)(c)(i) of Schedule D of the rules of the National
Association of Securities Dealers, Inc.
(k) OPINIONS OF ACCOUNTANTS. Parent shall have received the opinion
of Ernst & Young LLP, in the form previously delivered to the Parent, and no
conditions shall exist which preclude Parent's accounting for the Merger as of
the Closing Date as a pooling of interests.
(l) TAX OPINION. The Parent shall have received an opinion from
Venture Law Group, A Professional Corporation, legal counsel to the Parent, to
the effect that the Merger will be treated for Federal income tax purposes as a
tax-free reorganization within the meaning of Section 368(a) of the Code.
ARTICLE VII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; ESCROW
7.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All covenants to be
performed prior to the Effective Time, and all representations and warranties in
this Agreement or in any instrument delivered pursuant to this Agreement shall
survive the consummation of the Merger and continue until the earlier of (i) the
date the audit of Parent's financial statements for the year
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ending December 31, 1996 has been completed and Parent has received a signed
opinion from its independent auditors certifying such financial statements or
(ii) April 30, 1997 (the earlier of such dates being the "1996 Audit Date");
provided that if any claims for indemnification have been asserted with respect
to any such representations and warranties prior to the 1996 Audit Date, the
representations and warranties on which any such claims are based shall continue
in effect until final resolution of any claims. All covenants to be performed
after the Effective Time shall continue indefinitely.
7.2 ESCROW ARRANGEMENTS.
(a) ESCROW FUND. As soon as practicable after the Effective Time, a
portion of the Series B Cash and the shares of the Parent Common Stock to be
issued in the Merger equal to the Escrow Number (as defined in 1.6(h)) (plus any
additional New Shares (as defined below) as may be issued in respect thereof
after the Closing) (collectively, the "Escrow Shares"), without any act of any
stockholder of the Company, will be registered in the name of and will be
deposited with the Escrow Agent (as defined in Section 7.4 below)), such deposit
to constitute an escrow fund (the "Escrow Fund") to be governed by the terms set
forth herein and the Escrow Agreement (the "Escrow Agreement") attached hereto
as EXHIBIT C and at Parent's sole cost and expense. At the Effective Time of
the Merger, ten percent (10%) of the Series B Cash (the "Escrow Cash") and ten
percent (10%) of the shares of Parent Common Stock each stockholder is entitled
to receive in the Merger in exchange for Company Common Stock and Company
Preferred Stock shall be deposited by Parent into the Escrow Fund. The Escrow
Fund shall be available to compensate Parent and its affiliates for any claim,
loss, expense, liability or other damage, including reasonable attorneys' fees
(collectively, "Losses") that Parent or any of its affiliates has incurred or
reasonably anticipates incurring by reason of the Employment Claim (defined
below) or any breach at any time after the Effective Date by the Company of any
representation, warranty, covenant or agreement of the Company contained herein,
PROVIDED, HOWEVER, that no such compensation shall be payable unless and until
the amount of all Losses exceeds $200,000 in the aggregate, whereupon
compensation shall be payable for all such Losses without any deduction.
Notwithstanding anything to the contrary contained in the immediately preceding
sentence, Parent shall be compensated from the Escrow Fund for all Losses in
excess of $45,000 incurred by Parent for claims relating to or arising out of
the matter set forth in Section 2.15 of the Company Disclosure Letter (the
"Employment Claims"), at which time compensation shall be payable for all Losses
in excess of such amount relating to Employment Claims without deduction.
Nothing herein shall limit the liability of the Company for any breach of any
representation, warranty or covenant if the Merger does not close. Resort to
the Escrow Fund shall be made proportionately between the Escrow Cash and the
Escrow Shares and shall be the exclusive contractual remedy of Parent and its
affiliates for any such breaches and misrepresentations if the Merger does
close, and the maximum liability of any former holder of Company Stock for any
breach of a representation, warranty or covenant of the Company shall be limited
to the Escrow Cash and Escrow Shares in which such holder has an interest that
are held pursuant to the Escrow Agreement; provided, however, that nothing
herein shall limit any noncontractual remedy against any person or entity for
such person's or entity's fraud or intentional misrepresentation.
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(b) ESCROW PERIOD; DISTRIBUTION UPON TERMINATION OF ESCROW PERIODS.
Subject to the following requirements, the Escrow Fund shall remain in existence
until the 1996 Audit Date (the "Escrow Period"). Upon the expiration of such
Escrow Period, the Escrow Fund shall terminate with respect to all Escrow Cash
and Escrow Shares; provided, however, that the amount of Escrow Cash and the
number of Escrow Shares, which, in the reasonable judgment of Parent, subject to
the objection of the Agent and the subsequent arbitration of the in the matter
in the manner provided in the Escrow Agreement, are necessary to satisfy any
unsatisfied claims specified in any Officer's Certificate delivered to the
Escrow Agent prior to the expiration of such Escrow Period with respect to facts
and circumstances existing on or prior to the 1996 Audit Date shall remain in
the Escrow Fund (and the Escrow Fund shall remain in existence) until such
claims have been resolved. As soon as all such claims have been resolved, the
Escrow Agent shall deliver to the stockholders of the Company all Escrow Cash,
Parent Common Stock and other property remaining in the Escrow Fund and not
required to satisfy such claims. Deliveries of Escrow Cash and Parent Common
Stock and other property to the stockholders of the Company pursuant to this
Section 7.2(b) and the Escrow Agreement shall be made in proportion to their
respective original contributions to the Escrow Fund.
(c) DISTRIBUTIONS; VOTING.
(i) Any shares of Parent Common Stock or other equity securities
issued or distributed by Parent (including shares issued upon a stock split)
("New Shares") in respect of Parent Common Stock in the Escrow Fund which have
not been released from the Escrow Fund shall be added to the Escrow Fund and
become a part thereof. New Shares issued in respect of Parent Common Stock
which have been released from the Escrow Fund shall not be added to the Escrow
Fund, but shall be distributed to the holders thereof. When and if cash
dividends on Parent Common Stock in the Escrow Fund shall be declared and paid,
they shall not be added to the Escrow Fund, but shall be paid to those on whose
behalf such Parent Common Stock is held who, prior to the Merger, held Company
Common Stock.
(ii) Each stockholder of the Company shall have voting rights
with respect to the shares of Parent Common Stock contributed to the Escrow Fund
on behalf of such stockholder (and on any voting securities added to the Escrow
Fund in respect of such shares of Parent Common Stock) so long as such shares of
Parent Common Stock or other voting securities are held in the Escrow Fund. As
the record holder of such shares, the Escrow Agent shall vote such shares in
accordance with the instructions of the stockholders of the Company having the
beneficial interest therein and shall promptly deliver copies of all proxy
solicitation materials to such stockholder. Parent shall show the Parent Common
Stock contributed to the Escrow Fund as issued and outstanding on its balance
sheet.
7.3 METHOD OF ASSERTING CLAIMS. All claims for indemnification by the
Company and its affiliates pursuant to this Article VII shall be made in
accordance with the provisions of the Escrow Agreement.
7.4 AGENT OF THE SHAREHOLDERS; POWER OF ATTORNEY. In the event that the
Merger is approved, effective upon such vote, and without further act of any
stockholder, a committee (the "Committee") of Robert A. Degan, Thomas Smith and
Grant Behrman shall be appointed as
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agents and attorneys-in-fact (collectively, the "Agent") for each stockholder of
the Company (except such stockholders, if any, as shall have perfected their
dissenter rights under California Law), for and on behalf of stockholders of the
Company, to give and receive notices and communications, to enter into and
perform the Escrow Agreement, to authorize delivery to Parent of Parent Common
Stock or other property from the Escrow Fund in satisfaction of claims by
Parent, to object to such deliveries, to agree to, negotiate, enter into
settlements and compromises of, and demand arbitration and comply with orders of
courts and awards of arbitrators with respect to such claims, and to take all
actions necessary appropriate or in the judgment of Agent for the accomplishment
of the foregoing. The Agent shall act by vote or written action or consent of a
majority of the members of the Committee.
7.5 ADJUSTMENT TO ESCROW NUMBER. In the event that Parent pays out any
amounts to holders of Dissenting Shares with respect to such shares, the Escrow
Number shall be automatically reduced by the number of shares of Parent Common
Stock allocable to such Dissenting Shares. Upon certification by the Parent to
the Escrow Agent of such event, the shares of Parent Stock allocable to such
Dissenting Shares and any New Shares with respect thereto shall be promptly
returned to Parent.
7.6 INDEMNITY BY PARENT. Subsequent to the Effective Time, Parent agrees
to indemnify and hold harmless the holders of Company Stock outstanding
immediately prior to the Effective Time (the "Indemnified Parties") from and
against any Losses based upon, arising out of or otherwise in respect of any
material breach of any representation, warranty or covenant of Parent contained
herein or in any certificate delivered pursuant hereto, which breach becomes
known to Company and is asserted in writing to Parent on or before the 1996
Audit Date, at which date this indemnification provision shall terminate,
PROVIDED HOWEVER that no such compensation shall be payable unless and until the
amount of all Losses to the Indemnified Parties exceeds $200,000 in the
aggregate, whereupon compensation shall be payable for all such Losses without
any deduction.
ARTICLE VIII
TERMINATION, AMENDMENT AND WAIVER
8.1 TERMINATION. This Agreement may be terminated and the Merger
abandoned at any time prior to the Effective Time:
(a) by mutual written consent of the Company, Parent and Merger Sub;
(b) by Parent if (i) there has been a material breach of any
representation, warranty, covenant or agreement contained in this Agreement on
the part of the Company and such breach has not been cured within ten business
days after written notice to the Company or by the Closing Date, or (ii) there
shall be any final action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity, which would prohibit Parent's, the Company's or Surviving
Corporation's ownership or operation of all or a material portion of the
business of the Company, or Parent, the Company or
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the Surviving Corporation to dispose of or hold separate all or a material
portion of the business or assets of the Company or Parent as a result of the
Merger;
(c) by the Company if the fairness hearing and determination is not
completed favorably by August 9, 1996 or if there has been a material breach of
any representation, warranty, covenant or agreement contained in this Agreement
on the part of Parent or Merger Sub and such breach has not been cured within
ten days after written notice to Parent or by the Closing Date;
(d) by any party hereto if (i) the Closing has not occurred by
August 31, 1996; (ii) there shall be a final, non-appealable order of a federal
or state court in effect preventing consummation of the Merger; (iii) there
shall be any final action taken, or any statute, rule, regulation or order
enacted, promulgated or issued or deemed applicable to the Merger by any
Governmental Entity which would make consummation of the Merger illegal; or
(iv) if the Company's stockholders do not approve the Merger at the Company
stockholder meeting.
(e) by the Company, if the closing sale price of Parent Common Stock
reported in the WALL STREET JOURNAL, on the basis of information provided by the
Nasdaq National Market, is less than $7.00 per share (as adjusted for
Recapitalization Events) on the earlier of (i) August 30, 1996 or (ii) the date
which is two trading days immediately preceding (but not including) the
Effective Time.
Where action is taken to terminate this Agreement pursuant to this Section
8.1, it shall be sufficient for such action to be authorized by the Board of
Directors (as applicable) of the party taking such action.
8.2 EFFECT OF TERMINATION. In the event of termination of this Agreement
as provided in Section 8.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Parent, Merger Sub, the
Company or their respective officers, directors or stockholders, except to the
extent that such termination results from the breach by a party hereto of any of
its warranties, covenants or agreements set forth in this Agreement.
8.3 AMENDMENT. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto; provided that following approval of the Merger by the
stockholders of the Company, no amendment shall be made that by law requires the
further approval of such stockholders without obtaining such approval.
8.4 EXTENSION; WAIVER. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
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ARTICLE IX
GENERAL PROVISIONS
9.1 NOTICES. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or mailed by registered or certified mail (return receipt
requested) or sent via telecopy to the parties at the following addresses (or at
such other address for a party as shall be specified by like notice) provided,
however, that notices sent by mail will not be deemed given until received.
(a) If to Parent or Merger Sub, to:
Sync Research, Inc.
7 Studebaker
Irvine, CA 92718
Attention: President
with a copy to:
Venture Law Group, A Professional Corporation
2800 Sand Hill Road
Menlo Park, CA 94025
Attention: Mark A. Medearis, Esq.
(b) if to the Company, to:
TyLink Corporation
10 Commerce Way
Norton, MA 02766
Attention: President
with a copy to:
Palmer & Dodge LLP
One Beacon Street
Boston, MA 02108-3190
Attention: Nathaniel S. Gardiner, Esq.
9.2 INTERPRETATION. When a reference is made in this Agreement to
Exhibits, such reference shall be to an Exhibit to this Agreement unless
otherwise indicated. The words "include," "includes" and "including" when used
herein shall be deemed in each case to be followed by the words "without
limitation." The terms "to the best knowledge of the Company" or "to the
Company's best knowledge," or words to that effect refers to the best knowledge
of each member of Company's Board of Directors, Robert Degan, Richard Swee,
Robert F. Heile, Douglas M. Antaya, John J. Duffy, Christine Wilson and Timothy
Mangan (the "Key Group"), except that when such terms are used to qualify any
representation or warranty regarding or relating to the Company's intellectual
property in Section 2.11 hereof, such terms refer to the best
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knowledge of each member of the Key Group, as well as the best knowledge of each
of David Splitz, Matthew Murge, Dale Magley, Keith Reynolds, Ken Botelho and
James McIntosh. The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement.
9.3 COUNTERPARTS. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
9.4 MISCELLANEOUS. This Agreement and the documents and instruments and
other agreements among the parties hereto including all lists and statements
separately certified in writing by the Company or Parent (a) constitute the
entire agreement among the parties with respect to the subject matter hereof and
supersede all prior agreements and understandings, both written and oral, among
the parties with respect to the subject matter hereof, except for the
Confidential Nondisclosure Agreement between Parent and the Company, which shall
continue in full force and effect until the Closing and shall survive any
termination of this Agreement; (b) are not intended to confer upon any other
person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided.
9.5 GOVERNING LAW. This Agreement shall be governed in all respects,
including validity, interpretation and effect, by the laws of the State of
Delaware. All parties hereto agree to submit to the jurisdiction of the federal
and state courts of the State of Delaware, and further agree that service of
documents commencing any suit therein may be made as provided in Section 9.1.
9.6 RULES OF CONSTRUCTION. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
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IN WITNESS WHEREOF, Parent, Merger Sub and the Company have caused this
Agreement to be signed by themselves or their duly authorized respective
officers, all as of the date first written above.
SYNC RESEARCH, INC.
By:______________________________
Name:____________________________
Title:___________________________
TYLINK CORPORATION
By:______________________________
Name:____________________________
Title:___________________________
SR ACQUISITION CORP.
By:______________________________
Name:____________________________
Title:___________________________
SIGNATURE PAGE TO AGREEMENT AND PLAN OF REORGANIZATION
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
OMITTED EXHIBITS
The following exhibits to the Agreement and Plan of Reorganization have
been omitted pursuant to Item 601(b)(2) of the Act because the information
contained therein is either not material to an investment decision or is
otherwise disclosed in the Agreement and Plan of Reorganization. The Company
will furnish supplementally a copy of any omitted schedule to the Commission
upon request.
Exhibit A Form of Affiliate Agreement
Exhibit B-1 Form of Employment Agreement
Exhibit B-2 Form of Employment Agreement
Exhibit B-3 Form of Employment Agreement
Exhibit C Escrow Agreement
Exhibit D-1 Form of Noncompetition Agreement
Exhibit D-2 Form of Noncompetition Agreement
<PAGE>
SYNC RESEARCH, INC.
AMENDED AND RESTATED
1991 STOCK PLAN
Revised: APRIL 10, 1996
1. PURPOSES OF THE PLAN. The purposes of this Stock Plan are to attract
and retain the best available personnel for positions of substantial
responsibility, to provide additional incentive to Employees and Consultants of
the Company and its Subsidiaries and to promote the success of the Company's
business. Options granted under the Plan may be incentive stock options (as
defined under Section 422 of the Code) or non-statutory stock options, as
determined by the Administrator at the time of grant of an option and subject to
the applicable provisions of Section 422 of the Code, as amended, and the
regulations promulgated thereunder. Stock purchase rights may also be granted
under the Plan.
2. DEFINITIONS. As used herein, the following definitions shall apply:
(a) "ADMINISTRATOR" means the Board or any of its Committees
appointed pursuant to Section 4 of the Plan.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means the Committee appointed by the Board of
Directors in accordance with paragraph (a) of Section 4 of the Plan.
(e) "COMMON STOCK" means the Common Stock of the Company.
(f) "COMPANY" means Sync Research, Inc., a Delaware corporation.
(g) "CONSULTANT" means any person and any affiliate thereof,
including an advisor, who is engaged by the Company or any Parent or Subsidiary
to render services and is compensated for such services, provided however, that
the term Consultant shall not include Directors who are not compensated for
their services or are paid only a director's fee by the Company.
(h) "CONTINUOUS STATUS AS AN EMPLOYEE" means the absence of any
interruption or termination of the employment relationship by the Company or any
Subsidiary. Continuous Status as an Employee shall not be considered
interrupted in the case of: (i) sick leave; (ii) military leave; (iii) any
other leave of absence approved by the Administrator, provided that such leave
is for a period of not more than ninety (90) days, unless reemployment upon the
expiration of such leave is guaranteed by contract or statute, or unless
provided otherwise pursuant to Company policy adopted from time to time; or (iv)
in the case of transfers between locations of the Company or between the
Company, its Subsidiaries or its successor.
<PAGE>
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person, including officers and directors,
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a director's fee by the Company to a Director shall not be sufficient to
constitute "employment" of the Director by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system including without limitation the National
Market System of the National Association of Securities Dealers, Inc. Automated
Quotation ("NASDAQ") System, its Fair Market Value shall be the closing sales
price for such stock (or the closing bid, if no sales were reported, as quoted
on such exchange or system for the last market trading day prior to the time of
determination) as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is quoted on the NASDAQ System (but not
on the National Market System thereof) or regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean between the high bid and low asked prices for the Common Stock
or;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Administrator.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code, as
designated in the applicable written option agreement.
(n) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option, as designated in the applicable written
option agreement.
(o) "NAMED EXECUTIVE" shall mean any individual who, on the last day
of the Company's fiscal year, is the chief executive officer of the Company (or
is acting in such capacity) or among the four highest compensated officers of
the Company (other than the chief executive officer). Such officer status shall
be determined pursuant to the executive compensation disclosure rules under the
Exchange Act.
(p) "OPTION" means a stock option granted pursuant to the Plan.
(q) "OPTIONED STOCK" means the Common Stock subject to an Option or a
Stock Purchase Right.
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(r) "OPTIONEE" means an Employee or Consultant who receives an Option
or Stock Purchase Right.
(s) "PARENT" means a "parent corporation", whether now or hereafter
existing, as defined in Section 424(e) of the Code.
(t) "PLAN" means this 1991 Stock Plan.
(u) "RESTRICTED STOCK" means shares of Common Stock acquired pursuant
to a grant of a Stock Purchase Right under Section 12 below.
(v) "SHARE" means a share of the Common Stock, as adjusted in
accordance with Section 14 below.
(w) "STOCK PURCHASE RIGHT" means the right to purchase Common Stock
pursuant to Section 12 below.
(x) "SUBSIDIARY" means a "subsidiary corporation", whether now or
hereafter existing, as defined in Section 424(f) of the Code.
3. STOCK SUBJECT TO THE PLAN. Subject to the provisions of Section 14 of
the Plan, the maximum aggregate number of shares which may be optioned and sold
under the Plan is 4,308,985 shares of Common Stock (including 2,849,309 shares
issuable upon exercise of outstanding options, and 650,000 shares reserved for
future option grants, as of March 15, 1995. The shares may be authorized, but
unissued, or reacquired Common Stock.
If an Option should expire or become unexercisable for any reason
without having been exercised in full, the unpurchased Shares which were subject
thereto shall, unless the Plan shall have been terminated, become available for
future grant under the Plan.
4. ADMINISTRATION OF THE PLAN.
(a) COMPOSITION OF THE ADMINISTRATOR
(i) MULTIPLE ADMINISTRATIVE BODIES. If permitted by Rule 16b-
3, and by the legal requirements relating to the administration of incentive
stock option plans, if any, of applicable California corporate and securities
laws, of the Code and of any applicable stock exchange (collectively, the
"Applicable Laws"), the Plan may (but need not) by administered by different
administrative bodies with respect to Directors, Officers and Employees who are
neither Directors nor Officers.
(ii) ADMINISTRATION WITH RESPECT TO DIRECTORS AND OFFICERS.
With respect to grants of Options to Employees or Consultants who are also
Officers or Directors of the Company, the Plan shall be administered by (A) the
Board, if the Board may administer the Plan in compliance with Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary plan and
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Section 162(m) of the Code as it applies so as to qualify grants of Options to
Named Executives as performance-based compensation, or (B) a Committee
designated by the Board to administer the Plan, which Committee shall be
constituted in such a manner as to permit the Plan to comply with Rule 16b-3 as
it applies to a plan intended to qualify thereunder as a discretionary plan, to
qualify grants of Options to Named Executives as performance-based compensation
under Section 162(m) of the Code and to satisfy the Applicable Laws.
(iii) ADMINISTRATION WITH RESPECT TO OTHER PERSONS. With respect
to grants of Options to Employees or Consultants who are neither Directors nor
Officers of the Company, the Plan shall be administered by (A) the Board or (B)
a Committee designated by the Board, which Committee shall be constituted in
such a manner as to satisfy the Applicable Laws.
(iv) GENERAL. Once a Committee has been appointed pursuant to
subsection (ii) or (iii) of this Section 4(a), such Committee shall continue to
serve in its designated capacity until otherwise directed by the Board. From
time to time the Board may increase the size of any Committee and appoint
additional members thereof, remove members (with or without cause) and appoint
new members in substitution therefor, fill vacancies (however caused) and remove
all members of a Committee and thereafter directly administer the Plan, all to
the extent permitted by the Applicable Laws and, in the case of a Committee
appointed under subsection (ii), to the extent permitted by Rule 16b-3 as it
applies to a plan intended to qualify thereunder as a discretionary plan, and to
the extent required under Section 162(m) of the Code to qualify grants of
Options to Named Executives as performance-based compensation.
(b) POWERS OF THE ADMINISTRATOR. Subject to the provisions of the
Plan and in the case of a Committee, the specific duties delegated by the Board
to such Committee, and subject to the approval of any relevant authorities,
including the approval, if required, of any stock exchange upon which the Common
Stock is listed, the Administrator shall have the authority, in its discretion:
(i) to determine the Fair Market Value of the Common Stock, in
accordance with Section 2(k) of the Plan;
(ii) to select the Consultants and Employees to whom Options and
Stock Purchase Rights may from time to time be granted hereunder;
(iii) to determine whether and to what extent Options and Stock
Purchase Rights or any combination thereof are granted hereunder;
(iv) to determine the number of shares of Common Stock to be
covered by each such award granted hereunder;
(v) to approve forms of agreement for use under the Plan;
(vi) to determine the terms and conditions, not inconsistent with
the terms of the Plan, of any award granted hereunder;
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(vii) to determine whether and under what circumstances an
Option may be settled in cash under subsection 10(f) instead of Common Stock;
and
(viii) to determine the terms and restrictions applicable to
Stock Purchase Rights and the Restricted Stock purchased by exercising such
Stock Purchase Rights.
(c) EFFECT OF ADMINISTRATOR'S DECISION. All decisions,
determinations and interpretations of the Administrator shall be final and
binding on all Optionees and any other holders of any Options or Stock Purchase
Rights.
5. ELIGIBILITY.
(a) Nonstatutory Stock Options and Stock Purchase Rights may be
granted to Employees and Consultants. Incentive Stock Options may be granted
only to Employees. An Employee or Consultant who has been granted an Option or
Stock Purchase Right may, if he is otherwise eligible, be granted additional
Options or Stock Purchase Rights.
(b) Each Option shall be designated in the written option agreement
as either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designations, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Options designated as Incentive Stock
Options are exercisable for the first time by any Optionee during any calendar
year (under all plans of the Company or any Parent or Subsidiary) exceeds
$100,000, such excess Options shall be treated as Nonstatutory Stock Options.
(c) For purposes of Section 5(b), Incentive Stock Options shall be
taken into account in the order in which they were granted, and the Fair Market
Value of the Shares shall be determined as of the time the Option with respect
to such Shares is granted.
(d) The Plan shall not confer upon any Optionee any right with
respect to continuation of employment or consulting relationship with the
Company, nor shall it interfere in any way with his or her right or the
Company's right to terminate his or her employment or consulting relationship at
any time, with or without cause.
6. TERM OF PLAN. The Plan shall become effective upon the earlier to
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company as described in Section 20 of the Plan. It shall
continue in effect for a term of ten (10) years unless sooner terminated under
Section 16 of the Plan.
7. TERM OF OPTION. The term of each Option shall be the term stated in
the Option Agreement; provided, however, that the term shall be no more than ten
(10) years from the date of grant thereof. However, in the case of an Incentive
Stock Option granted to an Optionee who, at the time the Option is granted, owns
stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any Parent or Subsidiary, the term of the
Option shall be five (5) years from the date of grant thereof or such shorter
term as may be provided in the Option Agreement.
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8. LIMITATION OF GRANTS TO EMPLOYEES. Subject to adjustment as provided
in this Plan, the maximum number of Shares which may be subject to Options or
Stock Purchase Rights granted to any one Employee under this Plan for any fiscal
year of the Company shall be 525,000.
9. OPTION EXERCISE PRICE AND CONSIDERATION.
(a) The per share exercise price for the Shares to be issued pursuant
to exercise of an Option shall be such price as is determined by the Board, but
shall be subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time of the grant of
such Incentive Stock Option, owns stock representing more than ten percent (10%)
of the voting power of all classes of stock of the Company or any Parent or
Subsidiary, the per Share exercise price shall be no less than 110% of the Fair
Market Value per Share on the date of grant.
(B) granted to any Employee, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on the date of
grant.
(ii) In the case of a Nonstatutory Stock Option
(A) granted to a person who, at the time of the grant of
such Option, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
per Share exercise price shall be no less than 110% of the Fair Market Value per
Share on the date of the grant.
(B) granted to a person who, at the time of the grant of
such Option, is a Named Executive of the Company, the per share Exercise Price
shall be no less than 100% of the Fair Market Value on the date of grant;
(C) granted to any person other than a Named Executive, the
per Share exercise price shall be no less than 85% of the Fair Market Value per
Share on the date of grant.
(b) The consideration to be paid for the Shares to be issued upon
exercise of an Option, including the method of payment, shall be determined by
the Administrator (and, in the case of an Incentive Stock Option, shall be
determined at the time of grant) and may consist entirely of (1) cash, (2)
check, (3) promissory note, (4) other Shares which (x) in the case of Shares
acquired upon exercise of an Option either have been owned by the Optionee for
more than six months on the date of surrender or were not acquired, directly or
indirectly, from the Company, and (y) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised, (5) authorization from the Company to retain from the
total number of Shares as to which the Option is exercised that number of Shares
having a Fair Market Value on the date of exercise equal to the exercise price
for the total number of Shares as to which the Option is exercised, (6) delivery
of a properly executed exercise notice together with such other documentation
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as the Administrator and the broker, if applicable, shall require to effect an
exercise of the Option and delivery to the Company of the sale or loan proceeds
required to pay the exercise price, (7) by delivering an irrevocable
subscription agreement for the Shares which irrevocably obligates the option
holder to take and pay for the Shares not more than twelve months after the date
of delivery of the subscription agreement, (8) any combination of the foregoing
methods of payment, (9) or such other consideration and method of payment for
the issuance of Shares to the extent permitted under Applicable Laws. In making
its determination as to the type of consideration to accept, the Board shall
consider if acceptance of such consideration may be reasonably expected to
benefit the Company.
10. EXERCISE OF OPTION.
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
granted hereunder shall be exercisable at such times and under such conditions
as determined by the Board, including performance criteria with respect to the
Company and/or the Optionee, and as shall be permissible under the terms of the
Plan.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may, as authorized by the Board, consist of any
consideration and method of payment allowable under Section 9(b) of the Plan.
Until the issuance (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company) of the stock
certificate evidencing such Shares, no right to vote or receive dividends or any
other rights as a shareholder shall exist with respect to the Optioned Stock,
notwithstanding the exercise of the Option. The Company shall issue (or cause
to be issued) such stock certificate promptly upon exercise of the Option. No
adjustment will be made for a dividend or other right for which the record date
is prior to the date the stock certificate is issued, except as provided in
Section 14 of the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) TERMINATION OF EMPLOYMENT. In the event of termination of an
Optionee's consulting relationship or Continuous Status as an Employee with the
Company (as the case may be), such Optionee may, but only within such period of
time (not less than thirty (30) days) as determined by the Board, with such
determination in the case of an Incentive Stock Option being made at the time of
grant of the Option and not exceeding three (3) months after the date of such
termination (but in no event later than the expiration date of the term of such
Option as set forth in the Option Agreement), exercise his Option to the extent
that Optionee was entitled to exercise it at the date of such termination. To
the extent that Optionee was not entitled to exercise the Option at the date of
such termination, or if Optionee does not exercise such Option to the extent so
entitled within the time specified herein, the Option shall terminate.
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(c) DISABILITY OF OPTIONEE. Notwithstanding the provisions of
Section 10(b) above, in the event of termination of an Optionee's consulting
relationship or Continuous Status as an Employee as a result of his total and
permanent disability (as defined in Section 22(e)(3) of the Code), Optionee may,
but only within twelve (12) months from the date of such termination (but in no
event later than the expiration date of the term of such Option as set forth in
the Option Agreement), exercise the Option to the extent otherwise entitled to
exercise it at the date of such termination. To the extent that Optionee was
not entitled to exercise the Option at the date of termination, or if Optionee
does not exercise such Option to the extent so entitled within the time
specified herein, the Option shall terminate.
(d) DEATH OF OPTIONEE. In the event of the death of an Optionee, the
Option may be exercised, at any time within twelve (12) months following the
date of death (but in no event later than the expiration date of the term of
such Option as set forth in the Option Agreement), by the Optionee's estate or
by a person who acquired the right to exercise the Option by bequest or
inheritance, but only to the extent the Optionee was entitled to exercise the
Option at the date of death. To the extent that Optionee was not entitled to
exercise the Option at the date of termination, or if Optionee does not exercise
such Option to the extent so entitled within the time specified herein, the
Option shall terminate.
(e) RULE 16b-3. Options granted to persons subject to Section 16(b)
of the Exchange Act must comply with Rule 16b-3 and shall contain such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
(f) BUYOUT PROVISIONS. The Administrator may at any time offer to
buy out for a payment in cash or Shares, an Option previously granted, based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. NON-TRANSFERABILITY OF OPTIONS. An Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee.
12. STOCK PURCHASE RIGHTS.
(a) RIGHTS TO PURCHASE. Stock Purchase Rights may be issued either
alone, in addition to, or in tandem with other awards granted under the Plan
and/or cash awards made outside of the Plan. After the Administrator determines
that it will offer Stock Purchase Rights under the Plan, it shall advise the
offeree in writing of the terms, conditions and restrictions related to the
offer, including the number of Shares that such person shall be entitled to
purchase, the price to be paid (which price shall not be less than 85% of the
Fair Market Value of the Shares as of the date of the offer for Stock Purchase
Rights granted to employees who are not Named Executive Officers and not less
than 100% of the Fair Market Value of the Shares as of the date of the offer for
Stock Purchase Rights granted to employees who are Named Executive Officers),
and the time within which such
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person must accept such offer, which shall in no event exceed thirty (30) days
from the date upon which the Administrator made the determination to grant the
Stock Purchase Right. The offer shall be accepted by execution of a Restricted
Stock purchase agreement in the form determined by the Administrator. Shares
purchased pursuant to the grant of a Stock Purchase Right shall be referred to
herein as "Restricted Stock."
(b) REPURCHASE OPTION. Unless the Administrator determines
otherwise, the Restricted Stock purchase agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's employment with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock purchase agreement shall be the original price paid by the
purchaser and may be paid by cash or cancellation of purchase money indebtedness
of the purchaser to the Company. The repurchase option shall lapse at such rate
as the Committee may determine.
(c) OTHER PROVISIONS. The Restricted Stock purchase agreement shall
contain such other terms, provisions and conditions not inconsistent with the
Plan as may be determined by the Administrator in its sole discretion. In
addition, the provisions of Restricted Stock purchase agreements need not be the
same with respect to each purchaser.
(d) RIGHTS AS A STOCKHOLDER. Once the Stock Purchase Right is
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
13. STOCK WITHHOLDING TO SATISFY WITHHOLDING TAX OBLIGATIONS. At the
discretion of the Administrator, Optionees may satisfy withholding obligations
as provided in this paragraph. When an Optionee incurs tax liability in
connection with an Option or Stock Purchase Right, which tax liability is
subject to tax withholding under applicable tax laws, and the Optionee is
obligated to pay the Company an amount required to be withheld under applicable
tax laws, the Optionee may satisfy the withholding tax obligation by electing to
have the Company withhold from the Shares to be issued upon exercise of the
Option, or the Shares to be issued in connection with the Stock Purchase Right,
if any, that number of Shares having a Fair Market Value equal to the amount
required to be withheld. The Fair Market Value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
All elections by an Optionee to have Shares withheld for this purpose shall
be made in writing in a form acceptable to the Administrator and shall be
subject to the following restrictions:
(a) the election must be made on or prior to the applicable Tax Date;
(b) once made, the election shall be irrevocable as to the particular
Shares of the Option or Stock Purchase Right as to which the election is made;
(c) all elections shall be subject to the consent or disapproval of
the Administrator;
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(d) if the Optionee is subject to Rule 16b-3, the election must
comply with the applicable provisions of Rule 16b-3 and shall be subject to such
additional conditions or restrictions as may be required thereunder to qualify
for the maximum exemption from Section 16 of the Exchange Act with respect to
Plan transactions.
In the event the election to have Shares withheld is made by an Optionee
and the Tax Date is deferred under Section 83 of the Code because no election is
filed under Section 83(b) of the Code, the Optionee shall receive the full
number of Shares with respect to which the Option or Stock Purchase Right is
exercised but such Optionee shall be unconditionally obligated to tender back to
the Company the proper number of Shares on the Tax Date.
14. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION OR MERGER.
(a) CHANGES IN CAPITALIZATION. Subject to any required action by the
shareholders of the Company, the number of shares of Common Stock covered by
each outstanding Option or Stock Purchase Right, and the number of shares of
Common Stock which have been authorized for issuance under the Plan but as to
which no Options or Stock Purchase Rights have yet been granted or which have
been returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the maximum number of shares of Common Stock for which Options
may be granted to any employee under Section 8 of this plan and the price per
share of Common Stock covered by each such outstanding Option or Stock Purchase
Right, shall be proportionately adjusted for any increase or decrease in the
number of issued shares of Common Stock resulting from a stock split, reverse
stock split, stock dividend, combination or reclassification of the Common
Stock, or any other increase or decrease in the number of issued shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an Option or Stock Purchase Right.
(b) CORPORATE TRANSACTIONS. In the event of the proposed dissolution
or liquidation of the Company, the Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action, unless otherwise
provided by the Administrator. The Administrator may, in the exercise of its
sole discretion in such instances, declare that any Option or Stock Purchase
Right shall terminate as of a date fixed by the Administrator and give each
Optionee the right to exercise his or her Option or Stock Purchase Right as to
all or any part of the Optioned Stock, including Shares as to which the Option
would not otherwise be exercisable. In the event of a proposed sale of all or
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, the Option or Stock Purchase Right shall be
assumed or an equivalent Option or Stock Purchase Right shall be substituted by
such successor corporation or a parent or subsidiary of such successor
corporation, unless the Administrator determines, in lieu of such assumption or
substitution, that the Optionee shall have the right to exercise the Option or
Stock
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Purchase Right as to some or all of the Optioned Stock, including Shares as to
which the Option or Stock Purchase Right would not otherwise be exercisble. If
the Administrator makes an Option or Stock Purchase Right exercisable in lieu of
assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee that the Option or Stock Purchase Right
shall be exercisable for a period of fifteen (15) days from the date of such
notice, and the Option or Stock Purchase Right will terminate upon the
expiration of such period.
15. TIME OF GRANTING OPTIONS AND STOCK PURCHASE RIGHTS. The date of grant
of an Option or Stock Purchase Right shall, for all purposes, be the date on
which the Administrator makes the determination granting such Option or Stock
Purchase Right, or such other date as is determined by the Board. Notice of the
determination shall be given to each Employee or Consultant to whom an Option or
Stock Purchase Right is so granted within a reasonable time after the date of
such grant.
16. AMENDMENT AND TERMINATION OF THE PLAN.
(a) AMENDMENT AND TERMINATION. The Board may amend or terminate the
Plan from time to time in such respects as the Board may deem advisable;
provided that no amendment, alteration, suspension or discontinuation shall be
made which would impair the rights of any optionee under any grant theretofore
made, without his or her consent, and further that, the following revisions or
amendments shall require approval of the shareholders of the Company in the
manner described in Section 20 of the Plan:
(i) any increase in the number of Shares subject to the Plan,
other than in connection with an adjustment under Section 14 of the Plan:
(ii) any change in the designation of the class of persons
eligible to be granted Options;
(iii) any change in the limitation on grants to employees as
described in Section 8 of the Plan or other changes which would require
shareholder approval to qualify options granted hereunder as performance-based
compensation under Section 162(m) of the Code; or
(iv) if the Company has a class of equity securities registered
under Section 12 of the Exchange Act at the time of such revision or amendment,
any material increase in the benefits accruing to participants under the Plan.
In addition, to the extent necessary and desirable to comply with Rule
16b-3 under the Exchange Act or with Section 422 of the Code (or any other
applicable law or regulation, including the requirements of the NASD or an
established stock exchange), the Company shall obtain shareholder approval of
any Plan amendment in such a manner and to such a degree as required.
(b) EFFECT OF AMENDMENT OR TERMINATION. Any such amendment or
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated, unless mutually agreed otherwise between the
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Optionee and the Board, which agreement must be in writing and signed by the
Optionee and the Company.
17. CONDITIONS UPON ISSUANCE OF SHARES. Shares shall not be issued
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, and the requirements of any stock exchange upon which the Shares may
then be listed, and shall be further subject to the approval of counsel for the
Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
18. RESERVATION OF SHARES. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
The inability of the Company to obtain authority from any regulatory
body having jurisdiction, which authority is deemed by the Company's counsel to
be necessary to the lawful issuance and sale of any Shares hereunder, shall
relieve the Company of any liability in respect of the failure to issue or sell
such Shares as to which such requisite authority shall not have been obtained.
19. AGREEMENTS. Options and Stock Purchase Rights shall be evidenced by
written agreements in such form as the Board shall approve from time to time.
20. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
approval by the stockholders of the Company within twelve (12) months before
or after the date the Plan is adopted. Such stockholder approval shall be
obtained in the degree and manner required under applicable state and federal
law and the rules of any stock exchange upon which the Common Stock is listed
and, in particular, shall be solicited substantially in accordance with
Section 14(a) of the Exchange Act and the rules and regulations promulgated
thereunder.
21. INFORMATION TO OPTIONEES AND PURCHASERS. The Company shall provide to
each Optionee and to each individual who acquired Shares pursuant to the Plan,
during the period such Optionee or purchaser has one or more Options or Stock
Purchase Rights outstanding, and, in the case of an individual who acquired
Shares pursuant to the Plan, during the period such individual owns such Shares,
copies of all annual reports and other information which are provided to all
shareholders of the Company.
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SYNC RESEARCH, INC.
1991 STOCK PLAN
NOTICE OF STOCK OPTION GRANT
Optionee's Name and Address:
- - ---------------------------
- - ---------------------------
- - ---------------------------
You have been granted an option to purchase Common Stock of Sync Research,
Inc. (the "Company") as follows:
Grant Number
---------------------
Date of Grant
---------------------
Exercise Price Per Share $
---------------------
Total Number of Shares Granted
---------------------
Total Price of Shares Granted
---------------------
Type of Option: Incentive Stock Option
------
Nonstatutory Stock Option
------
Term/Expiration Date:
---------------------
Vesting Commencement Date:
---------------------
Exercise Schedule:
Subject to the terms of the attached Stock Option Agreement, the Option
shall become exercisable cumulatively, to the extent of 25% of the Shares
subject to the Option on the first anniversary of the Vesting Commencement Date,
and 1/48th of the Shares at the end of each month thereafter.
Termination Period:
The option may be exercised for a period of 60 days after termination of
employment or consulting relationship except as set out in Sections 7 and 8 of
the Stock Option Agreement (but in no event later than the Expiration Date).
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By your signature and the signature of the Company's representative below,
you and the Company agree that this option is granted under and governed by the
terms and conditions of the 1991 Stock Plan and the Stock Option Agreement, all
of which are attached and made a part of this document.
OPTIONEE: SYNC RESEARCH, INC.
By:
- - ------------------------------------ --------------------------------
Signature
Title:
- - ------------------------------------ -----------------------------
Print Name
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SYNC RESEARCH, INC.
1991 STOCK PLAN
STOCK OPTION AGREEMENT
1. GRANT OF OPTION. Sync Research, Inc., a Delaware corporation (the
"Company"), hereby grants to the Optionee named in the Notice of Grant (the
"Optionee"), an option (the "Option") to purchase a total number of shares of
Common Stock (the "Shares") set forth in the Notice of Grant, at the exercise
price per share set forth in the Notice of Grant (the "Exercise Price")
subject to the terms, definitions and provisions of the Sync Research, Inc.
1991 Stock Plan (the "Plan") adopted by the Company, which is incorporated
herein by reference. In the event of a conflict between the terms of the Plan
and the terms of this agreement (the "Agreement"), the terms of the Plan
shall govern. Unless otherwise defined herein, the terms used herein shall
have the same meanings defined in the Plan.
To the extent designated an Incentive Stock Option, this Option is
intended to qualify as an Incentive Stock Option as defined in Section 422 of
the Code, and, to the extent not so designated, this Option is intended to be
a Nonstatutory Stock Option.
2. EXERCISE OF OPTION. This Option shall be exercisable during its term
in accordance with the Exercise Schedule set out in the Notice of Grant and with
the provisions of Sections 9 and 10 of the Plan as follows:
(i) RIGHT TO EXERCISE.
(a) This Option may not be exercised for a fraction of a share.
(b) In the event of Optionee's death, disability or other
termination of employment, the exercisability of the Option is governed by
Sections 6, 7 and 8 below, subject to the limitations contained in subsection
2(i)(c) and (d).
(c) In no event may this Option be exercised after the date of
expiration of the term of this Option as set forth in the Notice of Grant.
(d) If designated an Incentive Stock Option in the Notice of
Grant, in the event that the Shares subject to this Option (and all other
Incentive Stock Options granted to Optionee by the Company or any Parent or
Subsidiary) that vest in any calendar year have an aggregate fair market
value (determined for each Share as of the Date of Grant of the Option
covering such Share) in excess of $100,000, the Shares in excess of
$100,000 shall be treated as subject to a Nonstatutory Stock Option, in
accordance with Section 5 of the Plan.
(ii) METHOD OF EXERCISE.
(a) This Option shall be exercisable by delivering to the
Company written notice of exercise (in the form attached as Exhibit A) which
shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised, and such other
representations and agreements as to the holder's investment intent with
respect to such Shares of Common Stock as may be required by the Company
pursuant to the provisions of the Plan. Such written notice shall be signed
by the Optionee and shall be delivered in person or by certified mail to the
Secretary of the Company. The written notice shall be accompanied by payment
of the Exercise Price. This Option shall be deemed to be exercised upon
receipt by the Company of such written notice accompanied by the Exercise
Price.
(b) As a condition to the exercise of this Option, Optionee
agrees to make adequate provisions for federal, state or other tax
withholding obligations, if any, which arise upon the exercise of the Option
or disposition of Shares, whether by withholding, direct payment, or
otherwise.
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<PAGE>
(c) No Shares will be issued pursuant to the exercise of an
Option unless such issuance and such exercise shall comply with all relevant
provisions of law and the requirements of any stock exchange upon which the
Shares may then be listed. Assuming such compliance, for income tax purposes
the Shares shall be considered transferred to the Optionee on the date on
which the Option is exercised with respect to such Shares.
3. OPTIONEE'S REPRESENTATIONS. In the event the Shares purchasable
pursuant to the exercise of this Option have not been registered under the
Securities Act of 1933, as amended (the "Securities Act"), at the time this
Option is exercised, Optionee shall, if required by the Company, concurrently
with the exercise of all or any portion of this Option, make the requisite
investment representations, a copy of which is available for Optionee's
review from the Company upon request.
4. METHOD OF PAYMENT. Payment of the Exercise Price shall be by any of
the following, or a combination thereof, at the election of the Optionee:
(i) cash; or
(ii) check; or
(iii) surrender of other Shares of Common Stock of the Company that
(A) either have been owned by the Optionee for more than six (6) months on
the date of surrender or were not acquired, directly or indirectly, from the
Company, and (B) have a Fair Market Value on the date of surrender equal to
the exercise price of the Shares as to which the Option is being exercised; or
(iv) authorization from the Company to retain from the total number
of Shares as to which the Option is exercised that number of Shares having a
Fair Market Value on the date of exercise equal to the exercise price for the
total number of Shares as to which the Option is exercised; or
(v) if there is a public market for the Shares and they are
registered under the Securities Act, delivery of a properly executed exercise
notice together with such other documentation as the Administrator and the
broker, if applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or aggregate loan proceeds required to
pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised (i) until
such time as the Plan has been approved by the stockholders of the Company, or
(ii) if the issuance of such Shares upon such exercise or the method of payment
of consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulation, including any rule under
Part 207 of Title 12 of the Code of Federal Regulations ("Regulation G") as
promulgated by the Federal Reserve Board. As a condition to the exercise of
this Option, the Company may require Optionee to make any representation and
warranty to the Company as may be required by any applicable law or regulation.
6. TERMINATION OF RELATIONSHIP. In the event of termination of
Optionee's consulting relationship or Continuous Status as an Employee with
the Company (as the case may be), Optionee may, to the extent otherwise so
entitled at the date of such termination (the "Termination Date"), exercise
this Option during the Termination Period set out in the Notice of Grant. To
the extent that Optionee was not entitled
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to exercise this Option at the date of such termination, or if Optionee does not
exercise this Option within the time specified herein, the Option shall
terminate.
7. DISABILITY OF OPTIONEE. Notwithstanding the provisions of Section 6
above, in the event of termination of Optionee's consulting relationship or
Continuous Status as an Employee as a result of total and permanent
disability (as defined in Section 22(e)(3) of the Code), Optionee may, but
only within six (6) months from the date of such termination (but in no event
later than the date of expiration of the term of this Option as set forth in
Section 10 below), exercise the Option to the extent otherwise so entitled at
the date of such termination. To the extent that Optionee was not entitled
to exercise the Option at the date of termination, or if Optionee does not
exercise such Option (to the extent otherwise so entitled) within the time
specified herein, the Option shall terminate.
8. DEATH OF OPTIONEE. In the event of the death of Optionee, the Option
may be exercised at any time within six (6) months following the date of death
(but in no event later than the date of expiration of the term of this Option as
set forth in Section 10 below), by Optionee's estate or by a person who acquired
the right to exercise the Option by bequest or inheritance, but only to the
extent the Optionee could exercise the Option at the date of death. To the
extent that Optionee was not entitled to exercise the Option at the date of
death, or if Optionee does not exercise such Option to the extent so entitled
with the time specified herein, the Option shall terminate.
9. NON-TRANSFERABILITY OF OPTION. This Option may not be transferred
in any manner otherwise than by will or by the laws of descent or
distribution and may be exercised during the lifetime of Optionee only by him
or her. The designation of a beneficiary does not constitute a transfer.
The terms of this Option shall be binding upon the executors, administrators,
heirs, and successors of the Optionee.
10. TERM OF OPTION. This Option may be exercised only within the term set
out in the Notice of Grant, and may be exercised during such term only in
accordance with the Plan and the terms of this Option. The limitations set out
in Section 7 of the Plan regarding Options designated as Incentive Stock Options
and Options granted to more than ten percent (10%) shareholders shall apply to
this Option.
11. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
exercising a nonstatutory Option, he or she will recognize income for tax
purposes in an amount equal to the excess of the then fair market value of the
Shares over the exercise price. However, the timing of this income recognition
may be deferred for up to six months if Optionee is subject to Section 16 of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If the
Optionee is an employee, the Company will be required to withhold from
Optionee's compensation, or collect from Optionee and pay to the applicable
taxing authorities an amount equal to a percentage of this compensation income.
Additionally, the Optionee may at some point be required to satisfy tax
withholding obligations with respect to the disqualifying disposition of an
Incentive Stock Option. The Optionee shall satisfy his or her tax withholding
obligation arising upon the exercise of this Option by one or some combination
of the following methods: (i) by cash payment, or (ii) out of Optionee's current
compensation, or (iii) if permitted by the Administrator, in its discretion, by
surrendering to the Company Shares which (a) in the case of Shares previously
acquired from the Company, have been owned by the Optionee for more than six
months on the date of surrender, and (b) have a fair market value on the date of
surrender equal to or less than Optionee's marginal
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<PAGE>
tax rate times the ordinary income recognized, (iv) by electing to have the
Company withhold from the Shares to be issued upon exercise of the Option that
number of Shares having a fair market value equal to the amount required to be
withheld. For this purpose, the fair market value of the Shares to be withheld
shall be determined on the date that the amount of tax to be withheld is to be
determined (the "Tax Date").
If the Optionee is subject to Section 16 of the Exchange Act (an
"Insider"), any surrender of previously owned Shares to satisfy tax withholding
obligations arising upon exercise of this Option must comply with the applicable
provisions of Rule 16b-3 promulgated under the Exchange Act ("Rule 16b-3") and
shall be subject to such additional conditions or restrictions as may be
required thereunder to qualify for the maximum exemption from Section 16 of the
Exchange Act with respect to Plan transactions.
All elections by an Optionee to have Shares withheld to satisfy tax
withholding obligations shall be made in writing in a form acceptable to the
Administrator and shall be subject to the following restrictions:
(i) the election must be made on or prior to the applicable Tax Date;
(ii) once made, the election shall be irrevocable as to the particular
Shares of the Option as to which the election is made;
(iii) all elections shall be subject to the consent or disapproval
of the Administrator;
(iv) if the Optionee is an Insider, the election must comply with the
applicable provisions of Rule 16b-3 and shall be subject to such additional
conditions or restrictions as may be required thereunder to qualify for the
maximum exemption from Section 16 of the Exchange Act with respect to Plan
transactions.
12. TAX CONSEQUENCES. Optionee acknowledges that he or she has read the
brief summary set forth below of certain federal tax consequences of exercise
of this Option and disposition of the Shares under the law in effect as of
the date of grant. THIS SUMMARY IS NECESSARILY INCOMPLETE, AND THE TAX
LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. OPTIONEE SHOULD CONSULT HIS OR
HER OWN TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE SHARES.
(i) EXERCISE OF ISO. If this Option qualifies as an ISO, there
will be no regular federal income tax liability upon the exercise of the
Option, although the excess, if any, of the fair market value of the Shares
on the date of exercise over the Exercise Price will be treated as an item of
alternative minimum taxable income for federal tax purposes and may subject
the Optionee here of to the alternative minimum tax in the year of exercise.
(ii) EXERCISE OF NONSTATUTORY STOCK OPTION. If this Option does not
qualify as an ISO, Optionee may incur regular federal income tax liability
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upon the exercise of the Option. The Optionee will be treated as having
received compensation income (taxable at ordinary income tax rates) equal to
the excess, if any, of the fair market value of the Shares on the date of
exercise over the Exercise Price. If Optionee is an employee of the Company,
the Company will be required to withhold from Optionee's compensation or
collect from Optionee and pay to the applicable taxing authorities an amount
equal to a percentage of this compensation income at the time of exercise.
(iii) DISPOSITION OF SHARES. If this Option is an Incentive
Stock Option and if Shares transferred pursuant to the Option are held for
more than one year after exercise and more than two years after the grant
date, any gain realized on disposition of the Shares will be treated as
long-term capital gain for federal income tax purposes. If Shares purchased
under an ISO are disposed of before the end of either of such two holding
periods, then any gain realized on such disposition will be treated as
compensation income (taxable at ordinary income rates) to the extent of the
excess, if any, of the lesser of (i) the fair market value of the Shares on
the date of exercise, or (ii) the sales price over the Exercise Price. If
this Option is a Nonstatutory Stock Option, then gain realized on the
disposition of Shares will be treated as long-term or short-term capital gain
depending on whether or not the disposition occurs more than one year after
the exercise date.
(iv) NOTICE OF DISQUALIFYING DISPOSITION OF ISO SHARES. If the
Option granted to Optionee herein is an ISO, and if Optionee sells or
otherwise disposes of any of the Shares acquired pursuant to the ISO on or
before the later of (1) the date two years after the Date of Grant, or (2)
the date one year after transfer of such Shares to Optionee upon exercise of
the Incentive Stock Option, the Optionee shall notify the Company in
writing within thirty (30) days after the date of such disposition.
Optionee agrees that Optionee may be subject to income tax withholding by the
Company on the compensation income recognized by the Optionee from the early
disposition by payment in cash or out of the current earnings paid to the
Optionee.
13. NO ADDITIONAL EMPLOYMENT RIGHTS. OPTIONEE ACKNOWLEDGES AND AGREES
THAT THE VESTING OF SHARES PURSUANT TO THE OPTION HEREOF IS EARNED ONLY BY
CONTINUING CONSULTANCY OR EMPLOYMENT AT THE WILL OF THE COMPANY (NOT THROUGH
THE ACT OF BEING HIRED, BEING GRANTED THIS OPTION OR ACQUIRING SHARES
HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
AGREEMENT, NOR IN THE COMPANY'S STOCK PLAN WHICH IS INCORPORATED HEREIN BY
REFERENCE, SHALL CONFER UPON OPTIONEE ANY RIGHT WITH RESPECT TO CONTINUATION
OF EMPLOYMENT OR CONSULTANCY BY THE COMPANY, NOR SHALL IT INTERFERE IN ANY
WAY WITH HIS OR HER RIGHT OR THE COMPANY'S RIGHT TO TERMINATE HIS OR HER
EMPLOYMENT OR CONSULTANCY AT ANY TIME, WITH OR WITHOUT CAUSE.
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Optionee acknowledges receipt of a copy of the Plan and represents that he
or she is familiar with the terms and provisions thereof, and hereby accepts
this Option subject to all of the terms and provisions thereof. Optionee has
reviewed the Plan and this Option in their entirety, has had an opportunity to
obtain the advice of counsel prior to executing this Option and fully
understands all provisions of the Option. Optionee hereby agrees to accept as
binding, conclusive and final all decisions or interpretations of the
Administrator upon any questions arising under the Plan or this Option.
14. SIGNATURE. This Agreement shall be deemed executed by the Company
and Optionee upon execution by such parties of the Notice of Grant attached
to this Agreement.
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EXHIBIT A
1991 STOCK PLAN
EXERCISE NOTICE
Sync Research, Inc.
- - ----------------------------
- - ----------------------------
Attention: Chief Financial Officer
1. EXERCISE OF OPTION. Effective as of today, ___________, 19__, the
undersigned ("Optionee") hereby elects to exercise Optionee's option to purchase
_________ shares of the Common Stock (the "Shares") of Sync Research, Inc. (the
"Company") under and pursuant to the Company's 1991 Stock Plan, as amended (the
"Plan") and the [ ] Incentive [ ] Nonstatutory Stock Option Agreement dated
________ (the "Option Agreement").
2. REPRESENTATIONS OF OPTIONEE. Optionee acknowledges that Optionee has
received, read and understood the Plan and the Option Agreement and agrees to
abide by and be bound by their terms and conditions. Optionee represents that
Optionee is purchasing the Shares for Optionee's own account for investment and
not with a view to, or for sale in connection with, a distribution of any of
such Shares.
3. COMPLIANCE WITH SECURITIES LAWS. Optionee understands and
acknowledges that the Shares may not have been registered under the Securities
Act of 1933, as amended (the "1933 Act"), and, notwithstanding any other
provision of the Option Agreement to the contrary, the exercise of any rights
to purchase any Shares is expressly conditioned upon compliance with the 1933
Act, all applicable state securities laws and all applicable requirements of any
stock exchange or over the counter market on which the Company's Common Stock
may be listed or traded at the time of exercise and transfer. Optionee agrees
to cooperate with the Company to ensure compliance with such laws.
4. FEDERAL RESTRICTIONS ON TRANSFER. Optionee understands that the
Shares may not have been registered under the 1933 Act and, in such event,
cannot be resold and must be held indefinitely unless they are registered under
the 1933 Act or unless an exemption from such registration is available and that
the certificate(s) representing the Shares may bear a legend to that effect.
Optionee understands that the Company is under no obligation to register the
Shares and that an exemption may not be available or may not permit Optionee to
transfer Shares in the amounts or at the times proposed by Optionee. Optionee
is familiar with the provisions of Rule 701 and Rule 144, each promulgated under
the 1933 Act, which, in substance, permit limited public resale of "restricted
securities" acquired, directly or indirectly from the issuer thereof, in a non-
public offering subject to the satisfaction of certain conditions. Rule 701
provides that if the issuer qualifies under Rule 701 at the time of the Closing,
such issuance will be exempt from
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registration under the 1933 Act. In the event the Company becomes subject to
the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, ninety (90) days thereafter the securities exempt under Rule 701 may be
resold, subject to the satisfaction of certain of the conditions specified by
Rule 144, including among other things: (1) the sale being made through a
broker in an unsolicited "broker's transaction" or in transactions directly with
a market maker (as said term is defined under the Securities Exchange Act of
1934); and, in the case of an affiliate, (2) the availability of certain public
information about the Company, and the amount of securities being sold during
any three month period not exceeding the limitations specified in Rule 144(e),
if applicable.
In the event that the Company does not qualify under Rule 701 at the time
of the Closing, then securities may be resold in certain limited circumstances
subject to the provisions of Rule 144, which requires among other things: (1)
the resale occurring not less than two years after the party has purchased, and
made full payment for, within the meaning of Rule 144, the securities to be
sold; and, in the case of an affiliate, or of a non-affiliate who has held the
securities less than three years, (2) the availability of certain public
information about the Company, (3) the sale being made through a broker in an
unsolicited "broker's transaction" or in transactions directly with a market
maker (as said term is defined under the Securities Exchange Act of 1934), and
(4) the amount of securities being sold during any three month period not
exceeding the specified limitations stated therein, if applicable.
Optionee further understands that in the event all of the applicable
requirements of Rule 701 or 144 are not satisfied, registration under the
Securities Act, compliance with Regulation A, or some other registration
exemption will be required. Purchaser understands that no assurances can be
given that any such other registration exemption will be available in such
event.
5. RIGHTS AS STOCKHOLDER. Until the stock certificate evidencing such
Shares is issued (as evidenced by the appropriate entry on the books of the
Company or of a duly authorized transfer agent of the Company), no right to vote
or receive dividends or any other rights as a stockholder shall exist with
respect to the optioned Stock, notwithstanding the exercise of the Option. The
Company shall issue (or cause to be issued) such stock certificate promptly
after the Option is exercised. No adjustment will be made for a dividend or
other right for which the record date is prior to the date the stock certificate
is issued, except as provided in Section 12 of the Plan.
Optionee shall enjoy rights as a stockholder until such time as Optionee
disposes of the Shares. Upon such exercise, Optionee shall have no further
rights as a holder of the Shares so purchased except the right to receive
payment for the Shares so purchased in accordance with the provisions of this
Agreement, and Optionee shall forthwith cause the certificate(s) evidencing the
Shares so purchased to be surrendered to the Company for transfer or
cancellation.
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6. RESTRICTIVE LEGENDS AND STOP-TRANSFER ORDERS.
(a) LEGENDS. Optionee understands and agrees that the Company shall
cause the legends set forth below or legends substantially equivalent thereto,
to the extent the Company determines such legends to be applicable, to be placed
upon any certificate(s) evidencing ownership of the Shares together with any
other legends that may be required by state or federal securities laws:
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE
SECURITIES UNDER SAID ACT OR AN OPINION OF COUNSEL FOR THE CORPORATION
THAT SUCH REGISTRATION IS NOT REQUIRED.
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY BE TRANSFERRED ONLY IN
ACCORDANCE WITH THE TERMS OF AN AGREEMENT BETWEEN THE COMPANY AND THE
SHAREHOLDER, A COPY OF WHICH IS ON FILE WITH THE SECRETARY OF THE
COMPANY.
(b) STOP-TRANSFER NOTICES. Optionee agrees that, in order to ensure
compliance with the restrictions referred to herein, the Company may issue
appropriate "stop transfer" instructions to its transfer agent, if any, and
that, if the Company transfers its own securities, it may make appropriate
notations to the same effect in its own records.
(c) REFUSAL TO TRANSFER. The Company shall not be required (i) to
transfer on its books any Shares that have been sold or otherwise transferred in
violation of any of the provisions of this Agreement or (ii) to treat as owner
of such Shares or to accord the right to vote or pay dividends to any purchaser
or other transferee to whom such Shares shall have been so transferred.
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7. SUCCESSORS AND ASSIGNS. The Company may assign any of its rights
under this Agreement to single or multiple assignees, and this Agreement shall
inure to the benefit of the successors and assigns of the Company. Subject to
the restrictions on transfer herein set forth, this Agreement shall be binding
upon Optionee and his or her heirs, executors, administrators, successors and
assigns.
8. INTERPRETATION. Any dispute regarding the interpretation of this
Agreement shall be submitted by Optionee or by the Company forthwith to the
Company's Board of Directors or the committee thereof that administers the Plan,
which shall review such dispute at its next regular meeting. The resolution of
such a dispute by the Board or committee shall be final and binding on the
Company and on Optionee.
9. GOVERNING LAW; SEVERABILITY. This Agreement shall be governed by and
construed in accordance with the laws of the State of California excluding that
body of law pertaining to conflicts of law. Should any provision of this
Agreement be determined by a court of law to be illegal or unenforceable, the
other provisions shall nevertheless remain effective and shall remain
enforceable.
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10. NOTICES. Any notice required or permitted hereunder shall be given in
writing and shall be deemed effectively given upon personal delivery or upon
deposit in the United States mail by certified mail, with postage and fees
prepaid, addressed to the other party at its address as shown below beneath its
signature, or to such other address as such party may designate in writing from
time to time to the other party.
11. FURTHER INSTRUMENTS. The parties agree to execute such further
instruments and to take such further action as may be reasonably necessary to
carry out the purposes and intent of this Agreement.
12. DELIVERY OF PAYMENT. Optionee herewith delivers to the Company the
full Exercise Price for the Shares.
13. ENTIRE AGREEMENT. The Plan and Notice of Grant/Option Agreement are
incorporated herein by reference. This Agreement, the Plan and the Notice of
Grant/Option Agreement constitute the entire agreement of the parties and
supersede in their entirety all prior undertakings and agreements of the Company
and Optionee with respect to the subject matter hereof, and is governed by
California law except for that body of law pertaining to conflict of laws.
Submitted By: Accepted By:
OPTIONEE: SYNC RESEARCH, INC.
By:
- - ------------------------------------- --------------------------------
Signature
Its:
-------------------------------
ADDRESS: ADDRESS:
----------------------------- ---------------------------
----------------------------- ---------------------------
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AIR AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-NET
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only, May
30, 1996, is made by and between THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
a Wisconsin corporation ("LESSOR") and SYNC RESEARCH, INC., a Delaware
corporation ("LESSEE"), (collectively the "PARTIES", or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 40 Parker located in the County of Orange, State
of California, and generally described as (describe briefly the nature of the
property) an approximate 50,205 square foot portion of a larger 70,205 square
foot corporate headquarters facility ("PREMISES"). (See Paragraph 2 for further
provisions.)
1.3 TERM: seven (7) years and -0- months ("ORIGINAL TERM") commencing
November 15, 1996 ("COMMENCEMENT DATE") and ending November 14, 2003
("EXPIRATION DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: See Paragraph 65 of Lease Addendum ("Early
Possession Date"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 BASE RENT: $35,997.00 per month ("BASE RENT"), payable on the first
(1) day of each month commencing November 12, 1996. (See Paragraph 4 for
further provisions).
[X] If this box is checked, there are provisions in this Lease for the Base
Rent to be adjusted. Also see Paragraph 50 of Lease Addendum.
1.6 BASE RENT Paid Upon Execution: $35,997.00 as Base Rent for the period
first (1st) month of Lease Term.
1.7 SECURITY DEPOSIT: $35,997.00 ("SECURITY DEPOSIT"). (See Paragraph 5
for further provisions.)
1.8 PERMITTED USE: development, manufacturing, assembly, distribution,
marketing and support of networking products and related office and warehouse
space. (See Paragraph 6 for further provisions.) Also See Paragraphs 51.1 and
51.2 of Lease Addendum.
1.9 INSURING PARTY: Lessor is the "INSURING PARTY". (See Paragraph 8 for
further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction and are
consented to by the Parties (check applicable boxes): Cushman & Wakefield of
California, Inc. represents
[X] Lessor exclusively ("LESSOR'S BROKER"); [] both Lessor and Lessee, and C.
B. Madison and The Staubach Company represents
[X] Lessee exclusively ("LESSEE'S BROKER"); [] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by ___________________________________________ ("GUARANTOR"). (See
Paragraph 37 for further provisions.)
<PAGE>
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 79 and Exhibits "A" - "C"; A: Site Plan &
Description of Restrictions; B: Space Plan; C: Environmental Questionnaire and
Disclosure Statement; all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases from
Lessor, the Premises, for the term, at the rental, and upon all of the terms,
covenants and conditions set forth in this Lease. Unless otherwise provided
herein, any statement of square footage set forth in this Lease, or that may
have been used in calculating rental, is an approximation which Lessor and
Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and free
of debris on the Commencement Date and warrants to Lessee that the existing
plumbing, fire sprinkler system, lighting, air conditioning, heating, and
loading doors, if any, in the Premises, other than those constructed by Lessee,
shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within one
hundred and eighty (180) days after the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.3 COMPLIANCE WITH COVENANTS, Restrictions and Building Code. Lessor
warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3(a)) made or to
be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within one
hundred and eighty (180) days following the Commencement Date, correction of
that non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it has
been advised by the Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical and fire sprinkler
systems, security, environmental aspects, compliance with Applicable Law, as
defined in Paragraph 6.3) and the present and future suitability of the Premises
for Lessee's intended use, (b) that Lessee has made such investigation as it
deems necessary with reference to such matters and assumes all responsibility
therefor as the same
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relate to Lessee's occupancy of the Premises and/or the term of this Lease, and
(c) that neither Lessor, nor any of Lessor's agents, has made any oral or
written representations or warranties with respect to the said matters other
than as set forth in this Lease. Except as is expressly provided in Paragraph
52.2 of the Lease Addendum, Lessor shall have no obligation after the
Commencement to comply with applicable requirements of the Americans with
Disabilities Act or similar state or federal requirements, or other building
codes and regulations.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of this
Lease areas specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the Premises
prior to the Commencement Date, the obligation to pay Base Rent and Real
Property Taxes shall be abated for the period of such early possession. All
other terms of this Lease, however, (including but not limited to the
obligations to pay insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease, or
the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to pay
rent or perform any other obligation of Lessee under the terms of this Lease
until Lessor delivers possession of the Premises to Lessee. If possession of the
Premises is not delivered to Lessee within sixty (60) days after the
Commencement Date, Lessee may, at its option, by notice in writing to Lessor
within ten (1O) days thereafter, cancel this Lease, in which event the Parties
shall be discharged from all obligations hereunder; provided, however, that if
such written notice by Lessee is not received by Lessor within said ten (1O) day
period, Lessee's right to cancel this Lease shall terminate and be of no further
force or effect. Except as may be otherwise provided, and regardless of when the
term actually commences, if possession is not tendered to Lessee when required
by this Lease and Lessee does not terminate this Lease, as aforesaid, the period
free of the obligation to pay Base Rent, if any, that Lessee would otherwise
have enjoyed shall run from the date of delivery of possession and continue for
a period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts, changes or omissions of
Lessee.
4. RENT. See Paragraphs 50.1 through 50.3 of Lease Addendum.
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<PAGE>
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution hereof
the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee fails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or retain
all or any portion of said Security Deposit for the payment of any amount due
Lessor or to reimburse or compensate Lessor for any liability, cost, expense,
loss or damage (including attorneys' fees) which Lessor may suffer or incur by
reason thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (1O) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Lessor shall not be required to keep all or
any part of the Security Deposit separate from its general accounts. Lessor
shall, at the expiration or earlier termination of the term hereof and after
Lessee has vacated the Premises, return to Lessee (or, at Lessor's option, to
the last assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be considered
to be held in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the purposes
set forth in Paragraph 1.8 and for no other purpose subject to all of the
covenants and restrictions set forth in this Lease. Lessee shall not use or
permit the use of the Premises in a manner that creates waste or a nuisance, or
that disturbs owners and/or occupants of, or causes damage to, neighboring
premises or properties. Lessor hereby agrees to not unreasonably withhold or
delay its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of the Lessee, its
assignees and subtenants, for a modification of said permitted purpose for which
the premises may be used or occupied, so long as the same will not impair the
structural integrity of the improvements on the Premises, the mechanical or
electrical systems therein, is not
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significantly more burdensome to the Premises and the improvements thereon, and
is otherwise permissible pursuant to this Paragraph 6. If Lessor elects to
withhold such consent, Lessor shall within five (5) business days give a written
notification of same, which notice shall include an explanation of Lessor's
reasonable objections to the change in use.
6.2 HAZARDOUS SUBSTANCES. See Paragraphs 59 and 60 of Lease Addendum.
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<PAGE>
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in this
Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently and
in a timely manner, comply with all "APPLICABLE LAW";' which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any manner
to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or not
reflecting a change in policy from any previously existing policy. Lessee shall,
within five (5) days after receipt of Lessor's written request, provide Lessor
with copies of all documents and information, including, but not limited to,
permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or the
Premises to comply with any Applicable Law.
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<PAGE>
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as defined in
paragraph 8.3(a)) shall have the right to enter the Premises at any time, in the
case of an emergency, and otherwise at reasonable times, for the purpose of
inspecting the condition of the premises and for verifying compliance by Lessee
with this Lease and all Applicable Laws (as defined in paragraph 6.3), and to
employ experts and/or consultants in connection therewith and/or to advise
Lessor with respect to Lessee's activities, including but not limited to the
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance or storage tank on or from the premises. The costs and
expenses of any such inspections shall be paid by the party requesting same,
unless a Default or Breach of this Lease, violation of Applicable Law, or a
contamination, caused or materially contributed to by Lessee is found to exist
or be imminent, or unless the inspection is requested or ordered by a
governmental authority as the result of any such existing or imminent violation
or contamination. In any such case, Lessee shall upon request reimburse Lessor
or Lessor's Lender, as the case may be, for the costs and expenses of such
inspections. (See Paragraph 79 of Lease Addendum.)
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's warranty as
to condition), 2.3 (Lessor's warranty as to compliance with covenants, etc.),
7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation), Lessee shall, at Lessee's sole cost and expense and at all
times, keep the Premises and every part thereof in good order, condition and
repair, structural and non-structural (whether or not such portion of the
Premises requiring repairs, or the means of repairing the same, are reasonably
or readily accessible to Lessee, and whether or not the need for such repairs
occurs as a result of Lessee's use, any prior use, the elements or the age of
such portion of the Premises), including, without limiting the generality of the
foregoing, all equipment or facilities serving the Premises, such as plumbing,
heating, air conditioning, ventilating, electrical, lighting facilities,
boilers, fired or unfired pressure vessels, fire sprinkler and/or standpipe and
hose or other automatic fire extinguishing system, including fire alarm and/or
smoke detection systems and equipment, fire hydrants, fixtures, walls (interior
and exterior), foundations, ceilings, roofs, floors, windows, doors, plate
glass, skylights landscaping, driveways, parking lots, fences, retaining walls,
signs, sidewalks and parkways located in, on, about, or adjacent to the
Premises. Lessee shall not cause or permit any Hazardous Substance to be spilled
or released in, on, under or about the Premises (including through the plumbing
or sanitary sewer system) and shall promptly, at Lessee's expense; take all
investigatory and/or remedial action reasonably recommended, whether or not
formally ordered or required, for the cleanup of any contamination of, and for
the maintenance, security and/or monitoring of the Premises, the elements
surrounding same, or neighboring properties, that was caused by Lessee, its
agents, employees, contractors or invitees, or pertaining to or involving any
Hazardous Substance and/or storage tank brought onto the Premises by or for
Lessee
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or under its control. Lessee, in keeping the Premises in good order, condition
and repair, shall exercise and perform good maintenance practices. Lessee's
obligations shall include restorations, replacements or renewals when necessary
to keep the Premises and all improvements thereon or a part thereof in good
order, condition and state of repair. See Paragraph 52.2 of Lease Addendum.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain contracts, with copies to Lessor, in customary form and substance for,
and with contractors specializing and experienced in, the inspection,
maintenance and service of the following equipment and improvements, if any,
located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (iv) landscaping and irrigation
systems, (v) roof covering and drain maintenance and (vi) asphalt and parking
lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Except for the warranties and agreements of
Lessor contained in Paragraphs 2.2 (relating to condition of the Premises), 2.3
(relating to compliance with covenants, restrictions and building code), 9
(relating to destruction of the Premises) and 14 (relating to condemnation
of the Premises), it is intended by the Parties hereto that Lessor have no
obligation, in any manner whatsoever, to repair and maintain the Premises, the
improvements located thereon, or the equipment therein, whether structural or
non structural, all of which obligations are intended to be that of the Lessee
under Paragraph 7.1 hereof. It is the intention of the Parties that the terms of
this Lease govern the respective obligations of the Parties as to maintenance
and repair of the Premises. Lessee and Lessor expressly waive the benefit of any
statute now or hereafter in effect to the extent it is inconsistent with the
terms of this Lease with respect to, or which affords Lessee the right to
terminate this Lease by reason of any needed repairs. See Paragraph 52.2 of
Lease Addendum. If Lessor should fail to perform any of Lessor's repair and
maintenance obligations hereunder, Lessee shall have the right to perform such
repair and/or maintenance obligations of Lessor, at Lessor's sole case and
expense, in which event Lessor shall reimburse Lessee the reasonable costs
thereof. Lessee shall in no event be entitled to set-off any such reimbursement
obligation against Base Rent or any other monetary obligations of Lessee
hereunder.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY INSTALLATIONS" is
used in this Lease to refer to all carpeting, window coverings, air lines, power
panels, electrical distribution, security, fire protection systems,
communication systems, lighting fixtures, heating, ventilating, and air
conditioning equipment, plumbing, and fencing in, on or about the Premises. The
term "TRADE FIXTURES" shall mean Lessee's machinery and equipment that can be
removed without doing material damage to the Premises. The term "ALTERATIONS"
shall mean any
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modification of the improvements on the Premises from that which are provided by
Lessor under the terms of this Lease, other than Utility Installations or Trade
Fixtures, whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR
UTILITY INSTALLATIONS" are defined as Alterations and/or Utility Installations
made by lessee that are not yet owned by Lessor as defined in Paragraph 7.4(a).
Lessee shall not make any Alterations or Utility Installations in, on, under or
about the Premises without Lessor's prior written consent. Lessee may, however,
make non-structural Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the outside, do not
involve puncturing, relocating or removing the roof or any existing walls, and
the cumulative cost thereof during the term of this Lease as extended does not
exceed $25,000,
(b) CONSENT. Any Alterations or Utility Installations that Lessee
shall desire to make and which require the consent of the Lessor shall be
presented to Lessor in written form with proposed detailed plans. All consents
given by Lessor, whether by virtue of Paragraph 7.3(a) or by subsequent specific
consent, shall be deemed conditioned upon: (i) Lessee's acquiring all applicable
permits required by governmental authorities, (ii) the furnishing of copies of
such permits together with a copy of the plans and specifications for the
Alteration or Utility Installation to Lessor prior to commencement of the work
thereon, and (iii) the compliance by Lessee with all conditions of said permits
in a prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and workmanlike
manner, with good and sufficient materials, and in compliance with all
Applicable Law. Lessee shall promptly upon completion thereof furnish Lessor
with as-built plans and specifications therefor. Lessor may (but without
obligation to do so) condition its consent to any requested Alteration or
Utility Installation that costs $10,000 or more upon Lessee's providing Lessor
with a lien and completion bond in an amount equal to one and one-half times the
estimated cost of such Alteration or Utility Installation and/or upon Lessee's
posting an additional Security Deposit with Lessor under Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for labor
or materials furnished or alleged to have been furnished to or for Lessee at or
for use on the Premises, which claims are or may be secured by any mechanics' or
materialmen's lien against the Premises or any interest therein. Lessee shall
give Lessor not less than ten (10) days' notice prior to the commencement of any
work in, on or about the Premises, and Lessor shall have the right to post
notices of non-responsibility in or on the Premises as provided by law. If
Lessee shall, in good faith, contest the validity of any such lien, claim or
demand, then Lessee shall, at its sole expense defend and protect itself, Lessor
and the Premises against the same and shall pay and satisfy any such adverse
judgment that may be rendered thereon before the enforcement thereof against the
Lessor or the Premises. If Lessor shall require, Lessee shall furnish to Lessor
a surety bond satisfactory to Lessor in an amount equal to one and one-half
times the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor may
require Lessee to pay
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Lessor's attorney's fees and costs in participating in such action if Lessor
shall decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their removal or
become the owner thereof as hereinafter provided in this Paragraph 7.4, all
Alterations and Utility Additions made to the Premises by Lessee shall be the
property of and owned by Lessee, but considered a part of the Premises. Lessor
may, at any time and at its option, elect in writing to Lessee to be the owner
of all or any specified part of the Lessee Owned Alterations and Utility
installations. Unless otherwise instructed per subparagraph 7.4(b) hereof, all
Lessee owned Alterations and Utility Installations shall, at the expiration or
earlier termination of this Lease, become the property of Lessor and remain upon
and be surrendered by Lessee with the Premises.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may require
that any or all Lessee Owned Alterations or Utility Installations be removed by
the expiration or earlier termination of this Lease, notwithstanding their
installation may have been consented to by Lessor. Lessor may require the
removal at any time of all or any part of any Lessee Owned Alterations or
Utility Installations made without the required consent of Lessor.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by the
end of the last day of the Lease term or any earlier termination date, with all
of the improvements, parts and surfaces thereof clean and free of debris and in
good operating order, condition and state of repair, ordinary wear and tear
excepted. "ORDINARY WEAR AND TEAR" shall not include any damage or deterioration
that would have been prevented by good maintenance practice or by Lessee
performing all of its obligations under this Lease. Except as otherwise agreed
or specified in writing by Lessor, the Premises, as surrendered, shall include
the Utility Installations. The obligation of Lessee shall include the repair of
any damage occasioned by the installation, maintenance or removal of Lessee's
Trade Fixtures, furnishings, equipment, and Alterations and/or Utility
installations, as well as the removal of any storage tank installed by or for
Lessee, and the removal, replacement, or remediation of any soil, material or
ground water contaminated by Lessee, all as may then be required by Applicable
Law and/or good service practice. Lessee's Trade Fixtures shall remain the
property of Lessee and shall be removed by Lessee subject to its obligation to
repair and restore the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT FOR INSURANCE. Regardless of whether the Lessor or Lessee is
the Insuring Party, Lessee shall pay for all insurance required under this
Paragraph 8 except to the extent of the cost attributable to liability insurance
carried by Lessor in excess of $1,000,000 per occurrence. Premiums for policy
periods commencing prior to or extending beyond the Lease term shall be prorated
to correspond to the Lease term. Payment shall be made by Lessee to Lessor
within ten (10) days following receipt of an invoice for any amount due.
8.2 LIABILITY INSURANCE.
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(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force during
the term of this Lease a Commercial General Liability policy of insurance
protecting Lessee and Lessor (as an additional insured) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the premises and
all areas appurtenant thereto. Such insurance shall be on an occurrence basis
providing single limit coverage in an amount not less than $1,000,000 per
occurrence naming the Lessor as an additional insured. In addition, Lessee
shall provide excess liability insurance with limits not less than $5,000,000.
These policies shall include coverage for liability assumed under this Lease as
an "INSURED CONTRACT" for the performance of Lessee's indemnity obligations
under this Lease. The limits of said insurance required by this Lease or as
carried by Lessee shall not, however, limit the liability of Lessee nor relieve
Lessee of any obligation hereunder. All insurance to be carried by Lessee shall
be primary to and not contributory with any similar insurance carried by Lessor,
whose insurance shall be considered excess insurance only.
(b) Carried By Lessor. In the event Lessor is the Insuring Party,
Lessor shall also maintain liability insurance described in Paragraph 8.2(a),
above, in addition to, and not in lieu of, the insurance required to be
maintained by Lessee. Lessee shall not be named as an additional insured
therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to the holders of any mortgages, deeds
of trustor ground leases on the premises ("LENDER(S)"), insuring loss or damage
to the Premises. The amount of such insurance shall be equal to the full
replacement cost of the Premises, as the same shall exist from time to time, or
the amount required by Lenders, but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the unique
nature or age of the improvements involved, such latter amount is less than full
replacement cost. If Lessor is the Insuring Party, however, Lessee Owned
Alterations and Utility Installations shall be insured by Lessee under Paragraph
8.4 rather than by Lessor. If the coverage is available and commercially
appropriate, such policy or policies shall insure against all risks of direct
physical loss or damage (except the perils of flood unless required by a
Lender), including Earthquake and coverage for any additional costs resulting
from debris removal and reasonable amounts of coverage for the enforcement of
any ordinance or law regulating the reconstruction or replacement of any
undamaged sections of the Premises required to be demolished or removed by
reason of the enforcement of any building, zoning, safety or land use laws as
the result of a covered cause of loss. Said policy or policies shall also
contain an agreed valuation provision in lieu of any coinsurance clause, waiver
of subrogation.
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If such insurance coverage has a deductible clause, the deductible amount shall
not exceed $1,000 per occurrence, and Lessee shall be liable for such deductible
amount in the event of an Insured Loss, as defined in Paragraph 9.1(c).
(b) RENTAL VALUE. The Insuring Party shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the full
rental and other charges payable by Lessee to Lessor under this Lease for one
(1) year (including all real estate taxes, insurance costs, and any scheduled
rental increases). Said insurance shall provide that in the event the Lease is
terminated by reason of an insured loss, the period of indemnity for such
coverage shall be extended beyond the date of the completion of repairs or
replacement of the Premises, to provide for one full year's loss of rental
revenues from the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any coinsurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period. Lessee shall be liable
for any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. If the Premises are part of a larger building,
or if the Premises are part of a group of buildings owned by Lessor which are
adjacent to the Premises, the Lessee shall pay for any increase in the premiums
for the property insurance of such building or buildings if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. If the Lessor is the Insuring Party, the
Lessor shall not be required to insure Lessee Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease. If Lessee is the Insuring Party, the policy
carried by Lessee under this Paragraph 8.3 shall insure Lessee Owned Alterations
and Utility Installations.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of Paragraph
8.5, Lessee at its cost shall either by separate policy or, at Lessor's option,
by endorsement to a policy already carried, maintain all risk property damage
insurance coverage on all of Lessee's personal property, Lessee Owned
Alterations and Utility Installations in, on, or about the Premises similar in
coverage to that carried by the Insuring party under Paragraph 8.3. Such
insurance shall be full replacement cost coverage with a deductible of not to
exceed $1,000 per occurrence. The proceeds from any such insurance shall be used
by Lessee for the replacement of personal property or the restoration of Lessee
Owned Alterations and Utility Installations. Lessee shall be the Insuring Party
with respect to the insurance required by this Paragraph 8.4 and shall provide
Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in companies
duly licensed to transact business in the state where the Premises are located,
and maintaining during the policy term a "GENERAL POLICYHOLDERS RATING" of at
least B+, V, or such other rating as may be
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required by a Lender having a lien on the Premises, as set forth in the most
current issue of "BEST'S INSURANCE GUIDE." Lessee shall not do or permit to be
done anything which shall invalidate the insurance policies referred to in this
Paragraph 8. If Lessee is the Insuring Party, Lessee shall cause to be delivered
to Lessor certified copies of policies of such insurance or certificates
evidencing the existence and amounts of such insurance with the insureds and
loss payable clauses as required by this Lease. No such policy shall be
cancelable or subject to modification except after thirty (30) days prior
written notice to Lessor. Lessee shall at least thirty (30) days prior to the
expiration of such policies, furnish Lessor with evidence of renewals or
"INSURANCE BINDERS" evidencing renewal thereof, or Lessor may order such
insurance and charge the cost thereof to Lessee, which amount shall be payable
by Lessee to Lessor upon demand. If the Insuring Party shall fail to procure and
maintain the insurance required to be carried by the Insuring Party under this
Paragraph 8, the other Party may, but shall not be required to, procure and
maintain the same, but at Lessee's expense.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or remedies,
Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve the other,
and waive their entire right to recover damages (whether in contract or in tort)
against the other, for loss of or damage to the Waiving Party's property arising
out of or incident to the perils required to be insured against under Paragraph
8. The effect of such releases and waivers of the right to recover damages shall
not be limited by the amount of insurance carried or required, or by any
deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's gross negligence and/or breach of
express warranties, Lessee shall indemnify, protect, defend and hold harmless
the Premises, Lessor and its agents, Lessor's master or ground lessor, partners
and Lenders, from and against any and all claims, loss of rents and/or damages,
costs, liens, judgments, penalties, permits, attorney's and consultant's fees,
expenses and/or liabilities arising out of, involving, or in dealing with, the
occupancy of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or invitees,
and out of any Default or Breach by Lessee in the performance in a timely manner
of any obligation on Lessee's part to be performed under this Lease. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not (in the
case of claims made against Lessor) litigated and/or reduced to judgment, and
whether well founded or not. In case any action or proceeding be brought against
Lessor by reason of any of the foregoing matters, Lessee upon notice from Lessor
shall defend the same at Lessee's expense by counsel reasonably satisfactory to
Lessor and Lessor shall cooperate with Lessee in such defense. Lessor need not
have first paid any such claim in order to be so indemnified. See Paragraph 75
of Lease Addendum.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for Lessor's gross
negligence and/or breach of express warranties, Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property of
Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the premises, whether such damage or injury is caused by or
results from fire, steam, electricity,
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gas, water or rain, or from the breakage, leakage, obstruction or other defects
of pipes, fire sprinklers, wires, appliances, plumbing, air conditioning or
lighting fixtures, or from any other cause, whether the said injury or damage
results from conditions arising upon the Premises or upon other portions of the
building of which the Premises are a part, or from other sources or places, and
regardless of whether the cause of such damage or injury or the means of
repairing the same is accessible or not. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall under
no circumstances be liable for injury to Lessee's business or for any loss of
income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to the
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than 50%
of the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction to
the Premises, other than Lessee Owned Alterations and Utility Installations the
repair cost of which damage or destruction is 50% or more of the then
Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to improvements on
the Premises, other than Lessee Owned Alterations and Utility Installations,
which was caused by an event required to be covered by the insurance described
in Paragraph 8.3(a), irrespective of any deductible amounts or coverage limits
involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild the
improvements owned by Lessor at the time of the occurrence to their condition
existing immediately prior thereto, including demolition, debris removal and
upgrading required by the operation of applicable building codes, ordinances or
laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 60 of the Lease Addendum, in, on, or
under the Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises partial Damage that is an
Insured Loss occurs, then Lessor shall, at Lessor's expense, repair such damage
(but not Lessee's Trade Fixtures or Lessee owned Alterations and Utility
Installations) as soon as reasonably possible and this Lease shall continue in
full force and effect; provided, however, that Lessee shall, at Lessor's
election, make the repair of any damage or destruction the total cost to repair
of which is $10,000 or less, and, in such event, Lessor shall make the insurance
proceeds available to Lessee on a reasonable basis for that purpose.
Notwithstanding the foregoing, if
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the required insurance was not in force or the insurance proceeds are not
sufficient to effect such repair, the Insuring Party shall promptly contribute
the shortage in proceeds including all deductibles as and when required to
complete said repairs. In the event, however, the shortage in proceeds was due
to the fact that, by reason of the unique nature of the improvements, full
replacement cost insurance coverage was not commercially reasonable and
available, Lessor shall have no obligation to pay for the shortage in insurance
proceeds or to fully restore the unique aspects of the Premises unless Lessee
provides Lessor with the funds to cover same, or adequate assurance thereof,
within ten (10) days following receipt of written notice of such shortage and
request therefor. If Lessor receives said funds or adequate assurance thereof
within said ten (10) day period, the party responsible for making the repairs
shall complete them as soon as reasonably possible and this Lease shall remain
in full force and effect. If Lessor does not receive such funds or assurance
within said period, Lessor may nevertheless elect by written notice to Lessee
within ten (10) days thereafter to make such restoration and repair as is
commercially reasonable with Lessor paying any shortage in proceeds, in which
case this Lease shall remain in full force and effect. If in such case Lessor
does not so elect, then this Lease shall terminate sixty (60) days following the
occurrence of the damage or destruction. Unless otherwise agreed, Lessee shall
in no event have any right to reimbursement from Lessor for any funds
contributed by Lessee to repair any such damage or destruction. Premises Partial
Damage due to flood or earthquake shall be subject to Paragraph 9.3 rather than
Paragraph 9.2, notwithstanding that there may be some insurance coverage, but
the net proceeds of any such insurance shall be made available for the repairs
if made by either Party.
9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage that is
not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease, Lessee
shall have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair of
such damage totally at Lessee's expense and without reimbursement from Lessor,
Lessee shall provide Lessor with the required funds or satisfactory assurance
thereof within thirty (30) days following Lessee's said commitment. In such
event this Lease shall continue in full force and effect, and Lessor shall
proceed to make such repairs as soon as reasonably possible and the required
funds are available. If Lessee does not give such notice and provide the funds
or assurance thereof within the times specified above, this Lease shall
terminate as of the date specified in Lessor's notice of termination.
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9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if a
Premises Total Destruction occurs (including any destruction required by any
authorized public authority), this Lease shall terminate sixty (60) days
following the date of such Premises Total Destruction, whether or not the damage
or destruction is an Insured Loss or was caused by a negligent or willful act of
Lessee. In the event, however, that the damage or destruction was caused by
Lessee, Lessor shall have the right to recover Lessor's damages from Lessee
except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6) months
of the term of this Lease there is damage for which the cost to repair exceeds
one (1) month's Base Rent, whether or not an Insured Loss, Lessor or Lessee at
such party's option, terminate this Lease effective sixty (60) days following
the date of occurrence of such damage by giving written notice to the other
party such party's election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then Lessee
may preserve this Lease by, within twenty (20) days following the occurrence of
the damage, or before the expiration of the time provided in such option for its
exercise, whichever is earlier ("EXERCISE PERIOD"), (i) exercising such option
and (ii) providing Lessor with any shortage in insurance proceeds (or adequate
assurance thereof) needed to make the repairs. If Lessee duly exercises such
option during said Exercise Period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor shall, at
Lessor's expense repair such damage as soon as reasonably possible and this
Lease shall continue in full force and effect. If Lessee fails to exercise such
option and provide such funds or assurance during said Exercise Period, then
Lessor may at Lessor's option terminate this Lease as of the expiration of said
sixty (60) day period following the occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within ten (10) days after the
expiration of the Exercise Period, notwithstanding any term or provision in the
grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2 (Partial Damage-
Insured and/or Paragraph 9.3 (Partial Damage - Uninsured Loss), whether or not
Lessor or Lessee repairs or restores the Premises, the Base Rent, Real Property
Taxes, insurance premiums, and other charges, if any, payable by Lessee
hereunder for the period during which such damage, its repair or the restoration
continues (not to exceed the period for which rental value insurance is required
under Paragraph 8.3(b)), shall be abated in proportion to the degree to which
Lessee's use of the Premises is impaired. Except for abatement of Base Rent,
Real Property Taxes, insurance premiums, and other charges, if any, as
aforesaid, all other obligations of Lessee hereunder shall be performed by
Lessee, and Lessee shall have no claim against Lessor for any damage suffered by
reason of any such repair or restoration, except for such damage as was caused
by the intentional misconduct or gross negligence of Lessor, its agents,
employees or contractors.
(b) If Lessor shall be obligated to repair or restore the Premises
under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the
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Premises within ninety (90) days after such obligation shall accrue and/or shall
not diligently continue making such repairs or restoration. Lessee may, at any
time prior to the commencement of such repair or restoration, or at such time
before completion thereof as work on said Repairs has ceased, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to Lessor
and such Lenders and such repair or restoration is not commenced or continued
within thirty (30) days after receipt of such notice, this Lease shall terminate
as of the date specified in said notice. If Lessor or a Lender commences the
repair or restoration of the Premises within thirty (30) days after receipt of
such notice, this Lease shall continue in full force and effect. "COMMENCE" as
used in this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance Condition
occurs, unless Lessee is legally responsible therefor (in which case Lessee
shall make the investigation and remediation thereof required by Applicable Law
and this Lease shall continue in full force and effect; but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option either (i) investigate
and remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to investigate
and remediate such condition exceeds twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater, give written notice to Lessee within
thirty (30) days after receipt by Lessor of knowledge of the occurrence of such
Hazardous Substance Condition of Lessor's desire to terminate this Lease as of
the date sixty (60) days following the giving of such notice. In the event
Lessor elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
investigation and remediation of such Hazardous Substance Condition totally at
Lessee's expense and without reimbursement from Lessor except to the extent of
an amount equal to twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater. Lessee shall provide Lessor with the funds required of
Lessee or satisfactory assurance thereof within thirty (30) days following
Lessee's said commitment. In such event this Lease shall continue in full force
and effect, and Lessor shall proceed to make such investigation and remediation
as soon as reasonably possible and the required funds are available. If Lessee
does not give such notice and provide the required funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination. If a Hazardous Substance Condition
occurs for which Lessee is not legally responsible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a). See Paragraph 79 of Lease Addendum.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease pursuant
to this Paragraph 9, an equitable adjustment shall be made concerning advance
Base Rent and any other advance payments made by
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Lessee to Lessor. Lessor shall, in addition, return to Lessee so much of
Lessee's Security Deposit as has not been, or is not then required to be, used
by Lessor under the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of this Lease
shall govern the effect of any damage to or destruction of the Premises with
respect to the termination of this Lease and hereby waive the provisions of any
present or future statute to the extent inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessee shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Premises during the term of this
Lease. Subject to Paragraph 10.1(b), all such payments shall be made at least
ten (10) days prior to the delinquency date of the applicable installment.
Lessee shall promptly furnish Lessor with satisfactory evidence that such taxes
have been paid. If any such taxes to be paid by Lessee shall cover any period of
time prior to or after the expiration or earlier termination of the term hereof,
Lessee's share of such taxes shall be equitably prorated to cover only the
period of time within the tax fiscal year this Lease is in effect, and Lessor
shall reimburse Lessee for any overpayment after such proration. If Lessee shall
fail to pay any Real Property Taxes required by this Lease to be paid by Lessee,
Lessor shall have the right to pay the same, and Lessee shall reimburse Lessor
therefor upon demand.
(b) ADVANCE PAYMENT. In order to insure payment when due and before
delinquency of any or all Real Property Taxes, Lessor reserves the right, at
Lessor's option, to estimate the current Real Property Taxes applicable to the
Premises, and to require such current year's Real Property Taxes to be paid in
advance to Lessor by Lessee, either: (i) in a lump sum amount equal to the
installment due, at least twenty (20) days prior to the applicable delinquency
date, or (ii) monthly in advance with the payment of the Base Rent. If Lessor
elects to require payment monthly in advance, the monthly payment shall be that
equal monthly amount which, over the number of months remaining before the month
in which the applicable tax installment would become delinquent (and without
interest thereon), would provide a fund large enough to fully discharge before
delinquency the estimated installment of taxes to be paid. When the actual
amount of the applicable tax bill is known, the amount of such equal monthly
advance payment shall be adjusted as required to provide the fund needed to pay
the applicable taxes before delinquency. If the amounts paid to Lessor by Lessee
under the provisions of this Paragraph are insufficient to discharge the
obligations of Lessee to pay such Real Property Taxes as the same become due,
Lessee shall pay to Lessor, upon Lessor's demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with other moneys of Lessor and shall not bear
interest. In the event of a Breach by Lessee in the performance of the
obligations of Lessee under this Lease, then any balance of funds paid to Lessor
under the provisions of this Paragraph may, subject to proration as provided in
Paragraph 10.1(a), at the option of Lessor, be treated as an additional Security
Deposit under Paragraph 5.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or
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assessment, general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Premises by any
authority having the direct or indirect power to tax, including any city, state
or federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom,
and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY TAXES"
shall also include any tax, fee, levy, assessment or charge, or any increase
therein, imposed by reason of events occurring, or changes in applicable law
taking effect, during the term of this Lease, including but not limited to a
change in the ownership of the Premises or in the improvements thereon, the
execution of this Lease, or any modification, amendment or transfer thereof, and
whether or not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall bean equitable proportion of the Real Property Taxes
for all of the land and improvements included within the tax parcel assessed,
such proportion to be determined by Lessor from the respective valuations
assigned in the assessor's work sheets or such other information as may be
reasonably available. Lessor's reasonable determination thereof, in good faith,
shall be conclusive.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to delinquency all
taxes assessed against and levied upon Lessee Owned Alterations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal property
of Lessee contained in the Premises or elsewhere. When possible, Lessee shall
cause its Trade Fixtures, furnishings, equipment and all other personal property
to be assessed and billed separately from the real property of Lessor. If any
of Lessee's said personal property shall be assessed with Lessor's real
property, Lessee shall pay Lessor the taxes attributable to Lessee within ten
(10) days after receipt of a written statement setting forth the taxes
applicable to Lessee's property or, at Lessor's option, as provided in Paragraph
10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and services supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
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13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in said
notice as rent due and payable to cure said Default. A "DEFAULT" is defined as a
failure by the Lessee to observe, comply with or perform any of the terms,
covenants, conditions or rules applicable to Lessee under this Lease. A "BREACH"
is defined as the occurrence of any one or more of the following Defaults, and,
where a grace period for cure after notice is specified herein, the failure by
Lessee to cure such Default prior to the expiration of the applicable grace
period, shall entitle Lessor to pursue the remedies set forth in Paragraphs 13.2
and/or 13.3:
(a) The vacating of the Premises without the intention to reoccupy
same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the failure
by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due, the failure by Lessee to provide Lessor with reasonable
evidence of insurance or surety bond required under this Lease, or the failure
of Lessee to fulfill any obligation under this Lease which endangers or
threatens life or property, where such failure continues for a period of three
(3) days following written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the failure
by Lessee to provide Lessor with reasonable written evidence (in duly executed
original form, if applicable) of (i) compliance with Applicable Law per
Paragraph 6.3; (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b); (iii) the recession of an unauthorized assignment or
subletting per Paragraph 12.1(b); (iv) a Tenancy Statement per Paragraphs 16 or
37; (v) the subordination or non-subordination of this Lease per Paragraph 30;
(vi) the guaranty of the performance of Lessee's obligations under this Lease if
required under Paragraphs 1.11 and 37; (vii) the execution of any document
requested under Paragraph 42 (easements); or (viii) any other documentation or
information which Lessor may reasonably require of Lessee under the terms of
this Lease, where any such failure continues for a period often (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof,
that are to be observed, complied with or performed by Lessee, other than those
described in subparagraphs (a), (b) or (c), above, where such Default continues
for a period of thirty (30) days after written notice thereof by or on behalf of
Lessor to Lessee; provided, however, that if the nature of Lessee's Default is
such that more than thirty (30) days are reasonably required for its cure, then
it
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shall not be deemed to be a Breach of this Lease by Lessee if Lessee commences
such cure within said thirty (30) day period and thereafter diligently
prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i) The making by
lessee of any general arrangement or assignment for the benefit of creditors;
(ii) Lessee's becoming a "DEBTOR" as defined in 11 U.S.C. Section 101 or any
successor statute thereto (unless, in the case of a petition filed against
Lessee, the same is dismissed within sixty (60) days); (iii) the appointment of
a trustee or receiver to take possession of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where possession
is not restored to Lessee within thirty (30) days; or (iv) the attachment,
execution or other judicial seizure of substantially all of Lessee's assets
located at the Premises or of Lessee's interest in this Lease, where such
seizure is not discharged within thirty (30) days; provided, however, in the
event that any provision of this subparagraph (e) is contrary to any applicable
law, such provision shall be of no force or effect, and not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement given to
Lessor by Lessee or any Guarantor of Lessee's obligations hereunder was
materially false.
(g) If the performance of Lessee's obligations under this Lease is
guaranteed: (i) the death of a guarantor, (ii) the termination of a guarantor's
liability with respect to this Lease other than in accordance with the terms of
such guaranty, (iii) a guarantor's becoming insolvent or the subject of a
bankruptcy filing, (iv) a guarantor's refusal to honor the guaranty, or (v) a
guarantor's breach of its guaranty obligation on an anticipatory breach basis,
and Lessee's failure, within sixty (60) days following written notice by or on
behalf of Lessor to Lessee of any such event, to provide Lessor with written
alternative assurance or security, which, when coupled with the then existing
resources of Lessee, equals or exceeds the combined financial resources of
Lessee and the guarantors that existed at the time of execution of this Lease.
13.2 REMEDIES: If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written notice
to Lessee (or in case of an emergency, without notice), Lessor may at its option
(but without obligation to do so), perform such duty or obligation on Lessee's
behalf, including but not limited to the obtaining of reasonably required bonds,
insurance policies, or governmental licenses, permits or approvals. The costs
and expenses of any such performance by Lessor shall be due and payable by
Lessee to Lessor upon invoice therefor. If any check given to Lessor by Lessee
shall not be honored by the bank upon which it is drawn, Lessor, at its option,
may require all future payments to be made under this Lease by Lessee to be made
only by cashier's check. In the event of a Breach of this Lease by Lessee, as
defined in Paragraph 13.1, with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may have by
reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease and the term hereof shall
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terminate and Lessee shall immediately surrender possession of the Premises to
Lessor. In such event Lessor shall be entitled to recover from Lessee: (i) the
worth at the time of the award of the unpaid rent which had been earned at the
time of termination; (ii) the worth at the time of award of the amount by which
the unpaid rent which would have been earned after termination until the time of
award exceeds the amount of such rental loss that the Lessee proves could have
been reasonably avoided; (iii) the worth at the time of award of the amount by
which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rental loss that the Lessee proves could be
reasonably avoided; and (iv) any other amount necessary to compensate Lessor for
all the detriment proximately caused by the Lessee's failure to perform its
obligations under this Lease or which in the ordinary course of things would be
likely to result therefrom, including but not limited to the cost of recovering
possession of the Premises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorneys' fees, and that
portion of the leasing commission and any unamortized tenant improvement
construction costs paid by Lessor applicable to the unexpired term of this
Lease. The worth at the time of award of the amount referred to in provision
(iii) of the prior sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco at the time of award
plus one percent (1%). Efforts by Lessor to mitigate damages caused by Lessee's
Default or Breach of this Lease shall not waive Lessor's right to recover
damages under this Paragraph. If termination of this Lease is obtained through
the provisional remedy of unlawful detainer, Lessor shall have the right to
recover in such proceeding the unpaid rent and damages as are recoverable
therein, or Lessor may reserve therein the right to recover all or any part
thereof in a separate suit for such rent and/or damages. If a notice and grace
period required under subparagraphs 13.1(b), (c) or (d) was not previously
given, a notice to pay rent or quit, or to perform or quit, as the case may be,
given to Lessee under any statute authorizing the forfeiture of leases for
unlawful detainer shall also constitute the applicable notice for grace period
purposes required by subparagraphs 13.1(b), (c) or (d). In such case, the
applicable grace period under subparagraphs 13.1(b), (c) or (d) and under the
unlawful detainer statute shall run concurrently after the one such statutory
notice, and the failure of Lessee to cure the Default within the greater of the
two such grace periods shall constitute both an unlawful detainer and a Breach
of this Lease entitling Lessor to the remedies provided for in this Lease and/or
by said statute.
(b) Continue the Lease and Lessee's right to possession in effect (in
California under California Civil Code Section 1951.4) after Lessee's Breach and
abandonment and recover the rent as it becomes due, provided Lessee has the
right to sublet or assign, subject only to reasonable limitations. See
Paragraphs 12 and 36 for the limitations on assignment and subletting which
limitations Lessee and Lessor agree are reasonable. Acts of maintenance or
preservation, efforts to relet the Premises, or the appointment of a receiver to
protect the Lessor's interest under the Lease, shall not constitute a
termination of the Lessee's right to possession.
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(c) Pursue any other remedy now or hereafter available to Lessor under
the laws or judicial decisions of the state wherein the Premises are located.
(d) The expiration or termination of this Lease and/or the termination
of Lessee's right to possession shall not relieve Lessee or Lessor from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor for
free or abated rent or other charges applicable to the Premises, or for the
giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS" shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in paragraph 13.1, any such
inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance by
Lessor of rent or the cure of the Breach which initiated the operation of this
Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by Lessee
to Lessor of rent and other sums due hereunder will cause Lessor to incur costs
not contemplated by this Lease, the exact amount of which will be extremely
difficult to ascertain. Such costs include, but are not limited to, processing
and accounting charges, and late charges which may be imposed upon Lessor by the
terms of any ground lease, mortgage or trust deed covering the Premises.
Accordingly, if any installment of rent or any other sum due from Lessee shall
not be received by Lessor or Lessor's designee within fifteen (15) days after
such amount shall be due, then, without any requirement for notice to Lessee,
Lessee shall pay to Lessor a late charge equal to six percent (6%) of such
overdue amount provided, however, if Lessee is fifteen (15) or more days late at
any time during any calendar year hereunder, then, for the remainder of such
calendar year, said late charge shall be due and payable if any installment of
Rent or other sum due from Lessee shall not be received by Lessor within five
(5) days from the date such amount shall be due. The parties hereby agree that
such late charge represents a fair and reasonable estimate of the costs Lessor
will incur by reason of late payment by Lessee. Acceptance of such late charge
by Lessor shall in no event constitute a waiver of Lessee's Default or Breach
with respect to such overdue amount, nor prevent Lessor from exercising any of
the other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1
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or any other provision of this Lease to the contrary, Base Rent shall, at
Lessor's option, become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this Lease
unless Lessor fails within a reasonable time to perform an obligation required
to be performed by Lessor. For purposes of this Paragraph 13.5, a reasonable
time shall in no event be less than thirty (30) days after receipt by Lessor,
and by the holders of any ground lease, mortgage or deed of trust covering the
premises whose name and address shall have been furnished Lessee in writing for
such purpose, of written notice specifying wherein such obligation of Lessor has
not been performed; provided, however, that if the nature of Lessor's obligation
is such that more than thirty (30) days after such notice are reasonably
required for its performance, then Lessor shall not be in breach of this Lease
if performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under the
power of eminent domain or sold under the threat of the exercise of said power
(all of which are herein called "CONDEMNATION"), this Lease shall terminate as
to the part so taken as of the date the condemning authority takes title or
possession, whichever first occurs. If more than ten percent (10%) of the floor
area of the Premises, or more than twenty-five percent (25%) of the land area
not occupied by any building, is taken by condemnation, Lessee may, at Lessee's
option, to be exercised in writing within ten (10) days after Lessor shall have
given Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken possession)
terminate this Lease as of the date the condemning authority takes such
possession. If Lessee does not terminate this Lease in accordance with the
foregoing, this Lease shall remain in full force and effect as to the portion of
the Premises remaining, except that the Base Rent shall be reduced in the same
proportion as the rentable floor area of the Premises taken bears to the total
rentable floor area of the building located on the Premises. No reduction of
Base Rent shall occur if the only portion of the Premises taken is land on which
there is no building, unless such taking encompasses parking spaces required in
order to satisfy any city or county parking ratios, or unless such taking
materially interferes with Lessee's use and enjoyment of the Premises. Any award
for the taking of all or any part of the Premises under the power of eminent
domain or any payment made under threat of the exercise of such power shall be
the property of Lessor, whether such award shall be made as compensation for
diminution in value of the leasehold or for the taking of the fee, or as
severance damages; provided, however, that Lessee shall be entitled to any
compensation separately awarded to Lessee for Lessee's relocation expenses
and/or loss of Lessee's Trade Fixtures. In the event that this Lease is not
terminated by reason of such condemnation, Lessor shall to the extent of its net
severance damages received, over and above the legal and other expenses incurred
by Lessor in the condemnation matter, repair any damage to the Premises caused
by such condemnation, except to the extent that Lessee has been reimbursed
therefor by the condemning authority. Lessee shall be responsible for the
payment of any amount in excess of such net severance damages required to
complete such repair.
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15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of this
Lease.
See Paragraphs 55 and 56 of Lease Addendum.
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17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the owner
or owners at the time in question of the fee title to the Premises, or, if this
is a sublease, of the Lessee's interest in the prior lease. In the event of a
transfer of Lessor's title or interest in the Premises or in this Lease, Lessor
shall deliver to the transferee or assignee (in cash or by credit) any unused
Security Deposit held by Lessor at the time of such transfer or assignment.
Except as provided in Paragraph 15, upon such transfer or assignment and
delivery of the Security Deposit, as aforesaid, the prior Lessor shall be
relieved of all liability with respect to the obligations and/or covenants under
this Lease thereafter to be performed by the Lessor. Subject to the foregoing,
the obligations and/or covenants in this Lease to be performed by the Lessor
shall be binding only upon the Lessor as hereinabove defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as determined
by a court of competent jurisdiction, shall in no way affect the validity of any
other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 12% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the performance of
all obligations to be performed or observed by the Parties under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the terms
of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains all
agreements between the Parties with respect to any matter mentioned herein, and
no other prior or contemporaneous agreement or
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understanding shall be effective. Lessor and Lessee each represents and warrants
to the Brokers that it has made, and is relying solely upon, its own
investigation as to the nature, quality, character and financial responsibility
of the other Party to this Lease and as to the nature, quality and character of
the Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes. Either
Party may by written notice to the other specify a different address for notice
purposes, except that upon Lessee's taking possession of the Premises, the
Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to be
given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate by
written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return receipt
requested, shall be deemed given on the date of delivery shown on the receipt
card, or if no delivery date is shown, the postmark thereon. If sent by regular
mail the notice shall be deemed given forty-eight (48) hours after the same is
addressed as required herein and mailed with postage prepaid. Notices delivered
by United States Express Mail or overnight courier that guarantees next day
delivery shall be deemed given twenty-four (24) hours after delivery of the same
to the United States Postal Service or courier. If any notice is transmitted by
facsimile transmission or similar means, the same shall be deemed served or
delivered upon telephone confirmation of receipt of the transmission thereof,
provided a copy is also delivered via delivery or mail. If notice is received on
a Sunday or legal holiday, it shall be deemed received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term, covenant
or condition hereof by Lessee, shall be deemed a waiver of any other term,
covenant or condition hereof, or of any subsequent Default or Breach by Lessee
of the same or of any other term, covenant or condition hereof. Lessor's consent
to, or approval of, any act shall not be deemed to render unnecessary the
obtaining of Lessor's consent to, or approval of, any subsequent or similar act
by Lessee, or be construed as the basis of an estoppel to enforce the provision
or provisions of this Lease requiring such consent. Regardless of Lessor's
knowledge of a Default or Breach at the time of accepting rent, the acceptance
of rent by Lessor shall not be a waiver of any preceding Default or Breach by
Lessee of any provision hereof, other than the failure of Lessee to pay the
particular rent so accepted. Any payment given Lessor by Lessee may be accepted
by Lessor on account of moneys or damages due Lessor, notwithstanding any
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qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before the
time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies at
law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed or
performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or other
hypothecation or security device (collectively, "SECURITY DEVICE"), now or
hereafter placed by Lessor upon the real property of which the Premises are a
part, to any and all advances made on the security thereof, and to all renewals,
modifications, consolidations, replacements and extensions thereof. Lessee
agrees that the Lenders holding any such Security Device shall have no duty,
liability or obligation to perform any of the obligations of Lessor under this
Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the cure
of said default before invoking any remedies Lessee may have by reason thereof.
If any Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to such
Security Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not: (i)
be liable for any act or omission of any prior
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lessor or with respect to events occurring prior to acquisition of ownership,
(ii) be subject to any offsets or defenses which Lessee might have against any
prior lessor, or (iii) be bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this Lease
shall be subject to receiving assurance (a "NONDISTURBANCE AGREEMENT") from the
Lender that Lessee's possession and this Lease, including any options to extend
the term hereof, will not be disturbed so long as Lessee is not in Breach hereof
and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30 shall be
effective without the execution of any further documents; provided, however,
that, upon written request from Lessor or a Lender in connection with a sale,
financing or refinancing of the Premises, Lessee and Lessor shall execute such
further writings as may be reasonably required to separately document any such
subordination or non-subordination, attornment and/or non-disturbance agreement
as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or proceeding to
enforce the terms hereof or declare rights hereunder, the Prevailing Party (as
hereafter defined) or Broker in any such proceeding, action, or appeal thereon,
shall be entitled to reasonable attorney's fees. Such fees may be awarded in the
same suit or recovered in a separate suit, whether or not such action or
proceeding is pursued to decision or judgment. The term, "PREVAILING PARTY"
shall include, without limitation, a Party or Broker who substantially obtains
or defeats the relief sought, as the case may be, whether by compromise,
settlement, judgment, or the abandonment by the other Party or Broker of its
claim or defense. The attorney's fees award shall not be computed in accordance
with any court fee schedule, but shall be such as to fully reimburse all
attorney's fees reasonably incurred. Lessor shall be entitled to attorney's
fees, costs and expenses incurred in the preparation and service of notices of
Default and consultations in connection therewith, whether or not a legal action
is subsequently commenced in connection with such Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for the purpose of showing the same
to prospective purchasers, lenders, or lessees, and making such alterations,
repairs, improvements or additions to the Premises or to the building of which
they are a part, as Lessor may reasonably deem necessary. Lessor may at any time
place on or about the Premises or building any ordinary "FOR SALE" signs and
Lessor may at any time during the last one hundred twenty (120) days of the term
hereof place on or about the Premises any ordinary "FOR LEASE" signs. All such
activities of Lessor shall be without abatement of rent or liability to Lessee,
except for any damage to Lessee's property or employees, or to the Premises,
caused by the intentional misconduct or gross negligence of Lessors.
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33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted, either
voluntarily or involuntarily, any auction upon the Premises without first having
obtained Lessor's prior written consent. Notwithstanding anything to the
contrary in this Lease, Lessor shall not be obligated to exercise any standard
of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof and the right to install, and
all revenues from the installation of, such advertising signs on the Premises,
including the roof, as do not unreasonably interfere with the conduct of
Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing by
Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for Breach
by Lessee, shall automatically terminate any sublease or lesser estate in the
Premises; provided, however, Lessor shall, in the event of any such surrender,
termination or cancellation, have the option to continue any one or all of any
existing subtenancies. Lessor's failure within ten (10) days following any such
event to make a written election to the contrary by written notice to the holder
of any such lesser interest, shall constitute Lessor's election to have such
event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise provided
herein, wherever in this Lease the consent of a Party is required to an act by
or for the other Party, such consent shall not be unreasonably withheld or
delayed. Lessor's actual reasonable costs and expenses (including but not
limited to architects', attorneys', engineers' or other consultants' fees)
incurred in the consideration of, or response to, a request by Lessee for any
Lessor consent pertaining to this Lease or the Premises, including but not
limited to consents to an assignment, a subletting or the presence or use of a
Hazardous Substance, practice or storage tank, shall be paid by Lessee to Lessor
upon receipt of an invoice and supporting documentation therefor. Subject to
Paragraph 12.2(e) (applicable to assignment or subletting), Lessor may, as a
condition to considering any such request by Lessee, require that Lessee deposit
with Lessor an amount of money (in addition to the Security Deposit held under
Paragraph 5) reasonably calculated by Lessor to represent the cost Lessor will
incur in considering and responding to Lessee's request. Except as otherwise
provided, any unused portion of said deposit shall be refunded to Lessee without
interest. Lessor's consent to any act, assignment of this Lease or subletting of
the Premises by Lessee shall not constitute an acknowledgment that no Default or
Breach by Lessee of this Lease exists, nor shall such consent be deemed a waiver
of any then existing Default or Breach, except as may be
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otherwise specifically stated in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease are
acknowledged by Lessee as being reasonable. The failure to specify herein any
particular condition to Lessor's consent shall not preclude the imposition by
Lessor at the time of consent of such further or other conditions as are then
reasonable with reference to the particular matter for which consent is being
given.
37. GUARANTOR.
37.1 If there are to be any Guarantors of this Lease per Paragraph 1.11,
the form of the guaranty to be executed by each such Guarantor shall be in the
form most recently published by the American Industrial Real Estate Association,
and each said Guarantor shall have the same obligations as Lessee under this
Lease, including but not limited to the obligation to provide the Tenancy
Statement and information called for by Paragraph 16.
37.2 It shall constitute a Default of the Lessee under this Lease if any
such Guarantor fails or refuses, upon reasonable request by Lessor to give: (a)
evidence of the due execution of the guaranty called for by this Lease,
including the authority of the Guarantor (and of the party signing on
Guarantor's behalf) to obligate such Guarantor on said guaranty, and including
in the case of a corporate Guarantor, a certified copy of a resolution of its
board of directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signature of the persons authorized to
sign on its behalf, (b) current financial statements of Guarantor as may from
time to time be requested by Lessor, (c) a Tenancy Statement, or (d) written
confirmation that the guaranty is still in effect.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises and
the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS. See Paragraph 58 of Lease Addendum.
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39.3 MULTIPLE OPTIONS. In the event that Lessee has any Multiple Options to
extend or renew this Lease, a later Option cannot be exercised unless the prior
Options to extend or renew this Lease have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option, notwithstanding
any provision in the grant of Option to the contrary: (i) during the period
commencing with the giving of any notice of Default under Paragraph 13.1 and
continuing until the noticed Default is cured, or (ii) during the period of time
any monetary obligation due Lessor from Lessee is unpaid (without regard to
whether notice thereof is given Lessee), or (iii) during the time Lessee is in
Breach of this Lease, or (iv) in the event that Lessor has given to Lessee three
(3) or more notices of Default under Paragraph 13.1, whether or not the Defaults
are cured, during the twelve (12) month period immediately preceding the
exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an option shall
terminate and be of no further force or effect, notwithstanding Lessee's due and
timely exercise of the Option, if, after such exercise and during the term of
this Lease, (i) Lessee fails to pay to Lessor a monetary obligation of Lessee
for a period of thirty (30) days after such obligation becomes due (without any
necessity of Lessor to give notice thereof to Lessee), or (ii) Lessor gives to
Lessee three (3) or more notices of Default under Paragraph 13.1 during any
twelve (12) month period, whether or not the Defaults are cured, or (iii) if
Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a group of buildings
controlled by Lessor, Lessee agrees that it will abide by, keep and observe all
reasonable rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred in
connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the
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protection of the Premises, Lessee, its agents and invitees and their property
from the acts of third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the Party against whom the obligation to pay the money is asserted shall
have the right to make payment "UNDER PROTEST" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay under the provisions of this
Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general or
limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease and the
typewritten or handwritten provisions shall be controlled by the typewritten or
handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and submission
of same to Lessee shall not be deemed an offer to lease to Lessee. This Lease is
not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
Parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the property
of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if more
than one person or entity is named herein as either Lessor or Lessee, the
obligations of such Multiple Parties shall be the joint and
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several responsibility of all persons or entities named herein as such Lessor or
Lessee.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY REASONABLE
AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH RESPECT TO THE
PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE
PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY LEGAL EFFECT OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS
TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT
PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM
THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
Executed at
--------------------------
on
-----------------------------------
by LESSOR:
THE NORTHWESTERN MUTUAL LIFE INSURANCE COMPANY,
a Wisconsin corporation
By
------------------------------------
Name Printed: Robert M. Ralls
Title Assistant Regional Manager
By
------------------------------------
Name Printed:
Title:
--------------------------------
Address: 611 West 6th Street, Suite 2100
Los Angeles, CA 90017
Tel. No. (213) 625-0481 Fax No.( )
--- -----------------
Executed at
---------------------------
on
------------------------------------
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by LESSEE:
SYNC RESEARCH, INC.
a Delaware corporation
Name Printed: Ronald J. Scioscia
Title: Vice President Finance,
Chief Financial Officer.
By
-----------------------------------
Name Printed:
-------------------------
Title:
--------------------------------
Address:
------------------------------
Tel. No. ( ) Fax No. ( )
--- ------------ --- ----------
NOTICE: These forms are often modified to meet changing requirements of law and
industry needs. Always write or call to make sure you are utilizing the most
current form: American Industrial Real Estate Association, 345 South Figueroa
Street, Suite M-1, Los Angeles, CA 90071. (213) 687-8777. Fax. No. (213)
687-8616.
Copyright 1990-By American Industrial Real Estate Association. All rights
reserved. No part of these works may be reproduced in any form without
permission In writing.
FORM 204N-R-12/91
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LEASE ADDENDUM
49. PREMISES SIZE. Lessor and Lessee acknowledge that they have
stipulated to the area of the Premises and that the actual size of such area is
not subject to dispute. Lessee agrees that Lessor shall have no liability in
the event that the size of the Premises is other than the amount specified and
Lessee shall have no right to terminate this Lease should such discrepancy be
discovered.
50. RENT.
50.1 BASE RENT. Lessee shall pay to Lessor for each calendar
month of the Term of the Lease, Base Rent in the amount of $35,997.00, subject
to adjustments as provided below, in advance, on the first (1st) day of each
calendar month, without abatement, deduction, claim, offset, prior notice or
demand. Base Rent and all other rent and charges for any period during the term
hereof which is less than one (1) full calendar month shall be prorated based
upon the actual number of days of the calendar month involved. Upon execution
of this Lease, Lessee shall pay to Lessor $35,997.00, to be applied toward Base
Rent for the first month of the Term hereof.
50.2 ADJUSTMENTS. The Base Rent shall be increased commencing as
of the first (1st) day of the twenty-fifth (25th) month and the first day of the
forty-ninth (49th) month of the Lease Term (each such date is referred to herein
as an "Adjustment Date") by the annual compounded percentage increase in the
United States Department of Labor, Bureau of Labor Statistics Consumer Price
Index for Urban wage Earners and Clerical Workers, Los Angeles-Anaheim-Riverside
Average, Subgroup "All Items", (1982-1984 = 100) (the "Index") between (i) as to
the first Adjustment Date, the last day of the month immediately preceding the
first day of the Lease Term, and the last day of the forty-eight (48th) month of
the Lease Term, and (ii) as to the second Adjustment Date, the last day of the
month immediately preceding the first Adjustment Date, and the last day of the
month immediately preceding the second Adjustment Date . Notwithstanding
anything to the contrary set forth above, in no event shall the increase in Base
Rent on any Adjustment Date be less than three percent (3%), nor more than six
percent (6%), compounded annually, of the Base Rent in effect on the last day of
the month preceding the applicable Adjustment Date.
50.3 NO PAYMENT TO LESSEE IF LESSEE IN DEFAULT. In the event of
any default by Lessee under any provision of this Lease, then notwithstanding
any provision of this Lease to the contrary which requires
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Lessor to make any payment to Lessee, Lessor shall not be obligated to make such
payment to Lessee, but may instead apply the amount of such payment as follows:
first, against Rent or Additional Rent past due; second, against any costs
incurred by Lessor to cure any default by Lessee; and third, the balance, if
any, shall be paid to Lessee.
51. USE OF THE PREMISES.
51.1 COMPLIANCE. Lessee acknowledges its lease of the Premises
is subject to all applicable zoning, municipal, county and state laws,
ordinances and regulations governing and regulating the use of the Premises, and
any covenants or restrictions of record, and accepts this Lease subject thereto
and to all matters disclosed thereby and by any exhibits attached hereto.
Lessee shall not use the Premises which will in any way conflict with any law,
statute, zoning restriction, ordinance or governmental law, rule, regulation or
requirement of any duly constituted public authority having jurisdiction over
the Premises now in force or which may hereafter by in force, or any covenants,
conditions, easements or restrictions now or hereafter encumbering the Premises.
Lessee shall not commit any public or private nuisance or any other act or thing
which might or would disturb the quiet enjoyment or any other Lessee of Lessor
or any occupant of nearby property. Lessee shall place no loads upon the
floors, walls or ceilings in excess of the maximum designed load specified by
Lessor or which may damage the building or outside areas; nor place any harmful
liquids in the drainage systems; nor dump or store waste materials, refuse or
other materials or allow such to remain outside the building, except in the
enclosed trash areas provided.
51.2 COMPLIANCE WITH GOVERNMENTAL REGULATIONS. Notwithstanding
anything to the contrary set forth in this Paragraph 6.3, if and to the extent
modifications or improvements to the structure of the Premises or any portion
thereof or to any fire prevention or other emergency system are deemed necessary
by any governmental authority or Applicable Law, Lessor shall, at its own cost
and expense make such modifications and improvements and Lessee shall cooperate
with Lessor in the making of any such modifications or improvements.
Notwithstanding the foregoing sentence, Lessor shall not be responsible for the
costs and expenses of such modifications or improvements in the event that such
improvements or modifications are required as the result of Lessee's use of the
Premises or conduct including, but not limited to, Lessee's alterations,
improvements or modifications of the Premises. In the event that any
alterations, modifications or improvements undertaken by either party pursuant
to this Section result in any interruption of the business of Lessee, Lessor
shall have no liability to Lessee for such interruption and Lessee shall be
limited to such business interruption insurance coverage, if any, as it may
elect to carry;
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provided, however, that Lessor shall use its best efforts to minimize any
interruption of Lessee's business when making such alterations, modifications or
improvements.
51.3 PARKING. During the entire Lease Term, Lessee shall have
the right to use all of the approximately 180 parking stalls associated with the
Premises as identified on Exhibit "A" hereto, of which 155 are exclusive stalls
and 25 are for use in common with other tenants. In addition, Lessee shall have
the right to designate up to fifteen percent (15%) of the approximately 155
exclusive parking stalls as visitor or reserved parking.
52. ALTERATIONS.
52.1 LESSEE IMPROVEMENTS. Lessee agrees to construct those
certain general purpose interior improvements to the Premises which are set
forth in that certain space plan to be mutually agreed upon by Lessor and Lessee
not later than June 13, 1996, and to be attached hereto as Exhibit "B" (the
"Improvements"). Landlord shall have the right to approve the building plans
and specifications for the Improvements prior to commencement of construction,
which approval shall not be unreasonably delayed or withheld. Lessor and Lessee
estimate that the cost of said Improvements will be approximately $600,000.00
(the "Construction Allowance"), which sum Lessor agrees to contribute to the
cost of said construction. The Construction Allowance may be used for all costs
associated with the construction of the Improvements, including without
limitation space planning, architectural and engineering fees, construction
supervision fees, the cost of sealing of tiled floor areas, and building
permits. Lessee shall have the right to negotiate a general conditions and fee
proposal with a general contractor of Lessee's selection, subject to Lessor's
reasonable approval. Said proposal may include building assessment, due
diligence review, budgeting, value engineering and scheduling. Lessee shall
have the right to utilize a design build approach for the mechanical,
electrical, plumbing, fire sprinkler and fire alarm systems. Lessee and its
general contractor will competitively bid all subcontractors' work in developing
a construction budget. Selection of final subcontractors shall be subject to
the reasonable approval of Lessor. Lessee shall be solely responsible for all
costs of said Improvements in excess of $600,000.00. Lessee shall complete
construction of said improvements to the Premises not later than November 15,
1996 (the date the Improvements are actually completed, whether such date is
before or after November 15, 1996, shall be referred to herein as the
"Construction Completion Date"). Any portion of said Construction Allowance
which has not been expended, or committed to be expended, by the Construction
Completion Date shall not carry over thereafter and shall no longer be available
for improvements to the Premises. The actual amount of
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the Construction Allowance shall be the lesser of $600,000.00 or such sum as has
been expended, or committed to be expended, on the Construction Completion Date.
Lessee shall not be required to remove any of the Improvements upon expiration
or earlier termination of the Lease.
52.2 CONDITION OF PREMISES. Lessor shall deliver the Premises
to Lessee with all building systems in proper working order, ready for
construction of the Improvements by Lessee in accordance with the space plan
attached hereto as Exhibit "B.". Lessor shall be responsible for the costs of
any Americans with Disability Act ("ADA") modifications, and roof and building
system repairs necessary to bring the Premises in compliance with all applicable
codes as of the Construction Completion Date. The costs to comply with any ADA
requirements in connection with any and all other or additional improvements to
be constructed by Lessee shall be paid solely and entirely by Lessee, which
costs may not be paid by Lessee from the Construction Allowance.
Notwithstanding anything to the contrary set forth at Sections 7.1 and 7.2 of
the Lease, Lessor shall be responsible for the maintenance of the basic building
systems (i.e., the HVAC, the electrical and fire safety system, and plumbing)
for the first (1st year) of the Lease Term, (ii) Lessee shall at all timers
thereafter be responsible for all such basic building systems. Lessor shall
assign any applicable contractor warranties in connection therewith. Not
withstanding anything to the contrary set forth at Sections 7.1 and 7.2 of the
Lease, Lessor shall also be responsible for the structural integrity of the
exterior walls and the foundation of the Premises for the entire Lease Term, and
shall be responsible for the maintenance and repair of the roof structure and
roof membrane of the Premises for the first year of the Lease Term only, after
which time Lessee shall have the sole responsibility for such maintenance and
repair. In the event the roof must be replaced at any time after the first year
of the Lease Term, Lessee shall only be responsible for its pro rata share of
the cost thereof, not to exceed the sum of $60,000, based upon the remaining
Lease Term (and option period, if exercised) and assuming a 15-year life for the
roof. In the event that the original Lease Term has not expired as of the date
that the roof must be replaced (and the option term was therefore not included
in determining Lessee's pro rata share of the cost thereof), and Lessee shall
thereafter exercise said option, the additional pro rata share of the cost of
the roof replacement, determined in the manner set forth above, but including
the option period, shall be due and payable in full not later than the first day
of the option period. Said $60,000 limitation shall not apply to any non-
capital expenses (determined in accordance with generally accepted accounting
principles) associated with roof repair. Lessee acknowledges and agrees that it
shall be responsible for its pro rata share of the costs of maintaining and
repairing common areas of the property of which the Premises are a part,
including without limitation parking areas, access drives, landscaping,
lighting, project signs, insurance premiums for common area, reserves for
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repairs and replacements, including painting of the Premises, and similar items
("Common Area Expenses"), for which Lessee shall pay monthly, at the same time
as Base Rent is due and payable. Lessee's pro rata share shall be that
percentage of such Common Area Expenses as is equal to the percentage of the
square footage of the Building of which the Premises are a part (i.e., 70,205
square feet) of the total square footage of all buildings in the project (i.e.,
408,502 square feet). Lessor shall deliver to Lessee within 120 days after the
expiration of each calendar year a reasonably detailed statement showing
Lessee's share of such Common Area Expenses incurred during the preceding year.
If Lessee's payments under this Paragraph during said preceding year exceed
Lessee's pro rata share as indicated on said statement, Lessee shall be credited
the amount of such over-payment against Lessee's share of Common Area Expenses
next becoming due. If Lessee's payments under this Paragraph during said
preceding year were less than Lessee's share thereof as indicated on said
statement, Lessee shall pay the Lessor the amount of the deficiency within ten
(10) days after delivery by Lessor to Lessee of said statement. Lessee shall
have the right, at Lessee's sole cost and expense, to audit such annual detailed
statement of Common Area Expenses, and all other items for which Lessee is
obligated to reimburse Lessor, including without limitation real property taxes
and insurance, at any time within six months following receipt thereof by
Lessee. If changes in environmental laws hereafter require a capital
expenditure with respect to any of the building systems, Lessee shall only be
responsible for its pro rata share of the cost thereof based upon the remaining
Lease Term (and option period, if exercised) and assuming a 15-year life for the
replaced building system. In the event that the original Lease Term has not
expired as of the date that the building system must be replaced (and the option
term was therefore not included in determining Lessee's pro rata share of the
cost thereof), and Lessee shall thereafter exercise said option, the additional
pro rata share of the cost of the building system replacement, determined in the
manner set forth above, but including the option period, shall be due and
payable in full not later than the first day of the option period.
53. SIGNS. All signs proposed to be placed on the Premises by Lessee
shall be subject to all requirements of applicable governmental authorities and
covenants, conditions, and restrictions of record. Lessee shall have no right
to maintain Lessee identification signs in any other location in, on or about
the Premises and shall not display or erect any other signs, displays or other
advertising materials that are visible from the exterior of the Premises. The
cost of the sign(s), including the installation, maintenance and removal thereof
shall be at Lessee's sole cost and expense. If Lessee fails to maintain its
sign(s), if Lessee fails to remove same upon termination of this Lease and
repair any damage caused by such removal , Lessor may do so at Lessee's expense.
Lessee shall reimburse Lessor for all costs incurred by
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Lessor to effect such removal, which amounts shall be deemed Additional Rent.
54. ASSIGNMENT AND SUBLETTING.
54.1 CONSENT REQUIRED. Lessee shall not, without the prior
written consent of Lessor, which consent shall not be unreasonably withheld,
assign, transfer, convey, mortgage, pledge, hypothecate or encumber this Lease
or any interest herein, sublease the Premises or any part thereof or any right
or privilege appurtenant thereto, or permit the use or occupancy of the Premises
by any other person other than Lessee and Lessee's representatives and invitees.
Each of the foregoing acts, transactions and events are sometimes referred to
herein as a "Transfer." The person in whose favor such Transfer is made is
sometimes referred to herein as a "Transferee." If Lessee shall complete any
Transfer without such consent the Transfer shall be void and shall constitute a
material default and breach of this Lease by Lessee. This Lease or any interest
herein shall not be assignable or otherwise transferable by operation of law, as
to the interest of Lessee, without the prior written consent of Lessor and any
such assignment or other Transfer shall be void and shall be a material default
and breach of the Lease by Lessee.
54.2 REQUEST FOR TRANSFER. If at any time during the Lease Term,
or any extension thereof, Lessee desires the consent of the Lessor to a Transfer
of this Lease, Lessee's request to Lessor for such consent shall be in writing
and shall include the information and documents described below, hereinafter
referred to as "Lessee's Request for Transfer". Lessee agrees to pay Lessor, as
Additional Rent, all expenses reasonably incurred by Lessor in reviewing any
information in order to determine whether consent to a requested Transfer should
be given (whether or not such consent is given) in an amount not to exceed
$500.00, including, but not limited to, costs and expenses incurred for credit
investigations, reasonable attorneys' fees and the costs of preparation of any
necessary documents. The information and documents to be included with Lessee's
Request for Transfer are as follows:
(a) A statement that Lessee requests consent to the
proposed Transfer and the type of Transfer proposed;
(b) The name of the proposed Transferee;
(c) The nature of the use or business to be carried on in
the Premises by the proposed Transferee;
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(d) A description of the area of the Premises to be covered
by the Transfer;
(e) The terms and provisions of the proposed Transfer
including a copy of the proposed document of Transfer and any other agreements
to be entered into concurrently therewith;
(f) Such financial information as Lessor may reasonably
request concerning the proposed Transferee; and
(g) To the extent that the proposed Transfer is other than
an assignment or sublease, the information described in (a) through (f) above
shall be modified to correspond to the type of Transfer for which consent is
requested.
54.3 LESSOR'S OPTION. Within twenty (20) days after Lessor's
receipt of Lessee's Request for Transfer, Lessor may, in its sole discretion,
exercise any one of the options described below by providing written notice to
Lessee of Lessor's election. If for any reason, Lessor fails to give Lessee
written notice of Lessor's election as authorized by this subparagraph 54.3
within the said twenty (20) day period, Lessor shall be deemed to have elected
to consent to the Transfer. The options available to Lessor are as follows:
(a) Consent to the requested Transfer (subject in all
circumstances to the provisions of subparagraph 54.5, whether or not so
expressly stated in the Notice to Lessee setting forth such consent); or
(b) Withhold consent to the requested Transfer.
54.4 LESSOR ENTITLED TO WITHHOLD CONSENT TO TRANSFER IN ITS
REASONABLE DISCRETION. Lessor shall not unreasonably withhold its consent to
any Transfer.
54.5 CONSENT GIVEN. Should Lessor consent to a Transfer, Lessor
may impose upon such Transfer all such reasonable conditions as Lessor may
desire, i.e., the following conditions:
(a) Lessee completing the negotiations for a valid and bona
fide Transfer to the Transferee identified in Lessee's Request for Transfer
within sixty (60) days after the date of Lessor's consent and such Transfer
being in accordance with all the terms and provisions contained in Lessee's
Request for Transfer. If for any reason this condition fails, any consent given
by Lessor shall be deemed of no force and effect and Lessee
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shall be required to again comply with all conditions of this Paragraph 58 as if
no consent had been given.
(b) Lessee delivering to Lessor, prior to the earlier of
the date the Transfer occurs or the date the Transferee takes possession of the
Premises or any part thereof, executed originals of the document of transfer and
any other agreement entered into in connection with such Transfer. If the
Transfer is by way of assignment, the form of assignment shall expressly state
that the Transferee assumes all of Lessee's obligations under this Lease. If
the Transfer is by way of sublease, the sublease shall expressly state that: It
is subject to the provisions of this Lease; it does not extend beyond the
Termination Date; the sublessee's right to transfer its interest in the sublease
is subject to Lessor's rights under this Paragraph 54.
(c) Lessee paying to Lessor as Additional Rent under this
Lease, without affecting or reducing any other obligations of Lessee under this
Lease, fifty percent (50%) of any sums of money or other economic consideration
(in excess of amounts due under the Lease) received by Lessee or to be received
by Lessee as result of such Transfer (but not any loan proceeds if the Transfer
is a bona fide loan), including, but not limited to: Bonuses, key money or the
like; any payment made to Lessee by the Transferee, however denominated,; and,
if the Transfer is a subletting, all rentals, whether so denominated or not
under the sublease, which exceed in the aggregate sums Lessee is to pay under
this Lease. All sums due Lessor pursuant to this subparagraph 54.5(c) shall,
provided the Transfer is a subletting, be prorated if the sublease covers less
than all of the Premises Area according to the ratio that the Premises area
transferred bears to the total Premises area. Notwithstanding the foregoing,
Lessee shall be entitled to deduct from such amounts payable to Lessor pursuant
to this Section such reasonable costs and expenses as Lessee actually incurs in
obtaining a Transferee, i.e., commissions paid to brokers in connection with
such transfer, advertising costs paid by Lessee in connection with such
Transfer, the cost of any improvements made by Lessee, of its cost, for the
Transferee, and similar items. Lessee shall be obligated, however, to provide
evidence to Lessor substantiating such costs and expenses to Lessor's reasonable
satisfaction.
54.6 TRANSFER TO A RELATED PARTY. Notwithstanding the provisions
of subparagraph 54.1, Lessee shall have the right without the consent of Lessor
but upon written notice to Lessor, to assign this Lease, or to sublease the
Premises or a portion thereof, to the following individuals and/or entities and
upon the following conditions:
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(a) To a general or limited partnership, if Lessee is a
general partner and owns not less than fifty-one percent (51%) of the beneficial
or ownership interests in the partnership and the partnership executes an
agreement in the form required by the Lessor assuming Lessee's obligations under
this Lease; and
(b) To a corporation, if Lessee (or a corporation which
owns all of the outstanding stock of Lessee) owns at least fifty-one percent
(51%) of the outstanding capital stock of the corporation and the transferee
corporation executes an agreement in the form required by Lessor assuming
Lessee's obligations under this Lease.
(c) to any person or entity that acquires all or
substantially all of Lessee's assets or capital stock; and
(d) To any entity with which Lessee merges, regardless of
whether Lessee is the Surviving entity.
So long as Lessee is a public company (or in the event of an initial public
offering if Lessee is not a public company), an assignment or sublet shall not
include, and Lessor's consent shall not be required for (i) any initial or
subsequent public offering by Lessee, or (ii) any sale or transfer of capital
stock of Lessee, or (iii) the sale or transfer of Lessee's stock to take Lessee
private.
54.7 NO RELEASE OF LIABILITY. No Transfer shall release Lessee
of its obligations to pay the Rent and to perform all the other obligations to
be performed by Lessee under this Lease. The acceptance of Rent by Lessor from
any person shall not be deemed to be the waiver by Lessor of any provision of
this Lease or to be a consent to any assignment or subletting. A consent to one
Transfer shall not be deemed to be a consent to any subsequent Transfer. In the
event of default by a Transferee in the performance of any of the terms of this
Lease, Lessor may proceed directly against Lessee without the necessity of
exhausting its remedies against the Transferee. If Lessee enters into a
sublease, with or without Lessor's consent, Lessee shall be deemed to have
immediately and irrevocably assigned to Lessor, as security for Lessee's
obligations under this Lease, all subrent or other sums due to Lessee under the
sublease, and Lessor, as assignee and as attorney-in-fact for Lessee, or a
receiver for Lessee appointed on Lessor's application, may collect such subrent
or other sums due and apply it towards Lessee's obligations under this Lease,
except, that, until the occurrence of an act of default by Lessee, Lessee shall
have the right to collect such subrent or other sums due. Lessor may, as a
condition to Lessor's consent to any proposed sublease, require Lessee and the
proposed sublessee to enter into an agreement with Lessor whereby the proposed
sublessee
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agrees: To pay subrent or all other sums due directly to Lessor upon notice
from Lessor of Lessee's default; not to pay subrent more than one month in
advance, and, notwithstanding Lessor's receipt of subrent or other sums due,
Lessor shall not be liable to the proposed sublessee for anything under the
sublease or under this Lease and Lessor may pursue any remedy available to it
under this Lease.
55. LESSEE STATEMENT. Lessee shall within ten (10) business days
following written request by Lessor execute and deliver to Lessor any documents,
including estoppel certificates, in a mutually acceptable form prepared by
Lessor which shall provide the following information:
(a) certifying that this Lease is unmodified and in full force
and effect or, if modified, stating the nature of such modification and
certifying that this Lease, as so modified, is in full force and effect and the
date to which the Rent and other charges are paid in advance, if any;
(b) acknowledging that there are not, to Lessee's knowledge, any
uncured defaults on the part of the Lessor or stating the nature of any uncured
defaults;
(c) certifying the current Rent amount and the amount and form
of Security Deposit on deposit with Lessor; and
(d) certifying to such other information as Lessor, Lessor's
agents, mortgagees, prospective mortgagees and purchasers may reasonably
request.
Lessee's failure to deliver an estoppel certificate within ten (10) business
days after delivery of Lessor's written request therefor shall be conclusive
upon Lessee:
(a) that this Lease is in full force and effect, without
modification except as may be represented by Lessor;
(b) that there are now no uncured defaults in Lessor's
performance;
(c) that not more than one (1) month's Rent has been paid in
advance; and
(d) that the other information requested by Lessor is correct as
stated in the form presented by Lessor.
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56. FINANCIAL INFORMATION. In addition to its obligations under
Paragraph 55, Lessee shall, upon Lessor's request, deliver to Lessor the current
financial statements of Lessee, and financial statements of the two (2) years
prior to the current financial statement's year, certified to be true, accurate
and completed by the chief financial officer of Lessee, including a balance
sheet and profit and loss statement for the most recent prior year, which
statements shall be prepared on an accrual basis and accurately and completely
reflect the financial condition of Lessee. Lessor agrees that it will keep such
financial statements confidential, except that Lessor shall have the right to
deliver the same to any proposed purchaser of the Premises, or any portion
thereof and to the mortgagees or beneficiaries of Lessor or such purchaser,
provided that such parties agree in writing to keep such statements
confidential. Lessor acknowledges and agrees that Lessee shall have satisfied
its obligations set forth in this Paragraph 56 upon delivery to Lessor of the
most recently filed annual (Form 10-K) and quarterly(Form 10-Q) reports
required to be filed by Lessee under applicable federal securities laws.
57. LESSEE'S REMEDIES. The obligations of Lessor do not constitute
the personal obligation of the individual partners, trustees, directors,
officers or shareholders of Lessor or its constituent partners. If Lessor shall
fail to perform any covenant, term or condition of this Lease upon Lessor's part
to be performed, Lessee shall be required to deliver to Lessor written notice of
the same. If, as a consequence of such default, Lessee shall recover a money
judgment against Lessor, such judgment shall be satisfied only out of the
proceeds of sale received upon execution of such judgment and levied thereon
against the right, title and interest of Lessor in the project of which the
Premises are a part and out of Rent or other income from such property
receivable by Lessor or out of consideration received by Lessor from the sale or
other disposition of all or any part of Lessor's right, title or interest in the
project of which the Premises are a part, and no action for any deficiency may
be sought or obtained by Lessee.
58. EXTENSION OPTION. Lessee is given the option to extend the Term
of this Lease on all of the terms and conditions of this Lease, except for rent,
for one five (5) year period (the "extended term") following the expiration of
the initial Term, by the giving of notice of the exercise of the option (the
"option notice") to Lessor at least six (6) months, but not more than nine (9)
months, before the expiration of the original term. Notwithstanding the above,
Lessee shall have no extension option if Lessee is in material default on the
date of giving the option notice, in which event the option notice shall be
totally ineffective, or if Lessee is in material default on the date the
extended term is to commence, in which event, at the election of Lessor, the
extended term shall not commence and this Lease shall expire at
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the end of the then effective term. The option granted to Lessee hereby may not
be separated from this Lease in any manner, by reservation or otherwise.
Base Rent for the first year of the option period shall be at ninety five
percent (95%) of the prevailing market rental rate in the area determined in the
manner described below, but in no event less than the Base Rent in effect at the
expiration of the original Lease Term.
The parties shall have thirty (30) days after Lessor receives the option
notice in which to agree on monthly Base Rent for the first year of the extended
term. If the parties are unable to agree on the minimum monthly Base Rent
within that period, then within ten (10) days after the expiration of that
period, each party, at its cost and by giving notice to the other party, shall
appoint a real estate appraiser with at least 5 years' full-time real estate
appraisal experience in the area in which the Premises are located to appraise
the Premises and set the prevailing market rental rate for the Premises as the
monthly Base Rent. If the two appraisers are appointed by the parties as stated
in this paragraph, they shall meet promptly and attempt to set monthly Base Rent
for the first year of the extended term. If they are unable to agree within
thirty (30) days after the second appraiser is appointed, they shall attempt to
appoint a third appraiser meeting the qualifications set forth above within ten
(10) days after the last day the two appraisers are given to set the Base Rent.
If they are unable to agree on a third appraiser, either of the parties to this
Lease by giving five (5) days notice to the other party may apply to the
presiding judge of the Superior Court of Orange County for the appointment of a
third appraiser who meets the qualifications set forth above. Each of the
parties shall bear one half of the cost of the third appraiser and all of the
cost of the appraiser appointed by said party.
Within thirty (30) days after the selection of the third appraiser, a
majority of the appraisers shall set the monthly Base Rent for the first month
of the extended term. If a majority of the appraisers are unable to set the
Base Rent within said 30-day period, the three appraisals shall be added
together and their total divided by three; the resulting quotient shall be the
Base Rent for the first year of the extended term. However, if the low
appraisal and/or the high appraisal are/is more than ten percent (10%) lower
and/or higher than the middle appraisal, the low and/or the high appraisal shall
be disregarded. If only one appraisal is disregarded, the average of the
remaining two appraisals shall be the new monthly Base Rent. If both the low
and high appraisal are disregarded, the middle appraisal shall be the monthly
Base Rent for the first year of the extended term.
After the new monthly Base Rent has been set for the first year of the
extended term, the appraisers shall immediately notify the parties. If the
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Lessee objects to the new monthly Base Rent, Lessee shall have the option to
have this Lease expire at the end of the existing term, provided that Lessee
pays all costs incurred in connection with the appraisal procedure. Lessee's
election to allow this Lease to terminate at the end of the existing term must
be exercised within ten (10) days after receipt of notice from the appraisers of
the new monthly Base Rent. If Lessee does not exercise this election within
said 10-day period, the term of this Lease shall be extended as provided in this
paragraph.
Base Rent during said option period shall be adjusted on the first day of
the twenty-fifth (25th) calendar month and on the first day of the forty-ninth
(49th) month following the commencement thereof (each an "Adjustment Date") to
reflect any increases in the Index between (i) as to the first Adjustment Date,
the last day of the month of the original Lease Term and the last day of the
month immediately preceding the Adjustment Date, and (ii) as to the second
Adjustment Date, the last day of the month immediately preceding the first
Adjustment Date and the last day of the month immediately preceding the second
Adjustment Date.
59. ENVIRONMENTAL QUESTIONNAIRE; DISCLOSURE. Prior to the execution
of this Lease, Lessee shall complete, execute and deliver to Lessor an
Environmental Questionnaire and Disclosure Statement (the "Environmental
Questionnaire") in the form of Exhibit "C", and Lessee shall certify to Lessor
all information contained in the Environmental Questionnaire as true and correct
to the best of Lessee's knowledge and belief. The completed Environmental
Questionnaire shall be deemed incorporated into this Lease for all purposes, and
Lessor shall be entitled to rely fully on the information contained therein. On
each anniversary of the Commencement Date (each such date is hereinafter
referred to as a "Disclosure Date"), until and including the first Disclosure
Date occurring after the expiration or sooner termination of this Lease, Lessee
shall disclose to Lessor upon request, in writing the names and amounts of all
Hazardous Substances, or any combination thereof, which were stored, generated,
used or disposed of on, under or about the Premises for the 12-month period
prior to and after each Disclosure Date, or which Lessee intends to store,
generate, use or dispose of on, under or about the Premises. At Lessor's
option, Lessee's disclosure obligations under this paragraph 59 shall include a
requirement that Lessee annually update, execute and deliver to Lessor the
Environmental Questionnaire, as the same may be modified by Lessor from time to
time.
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60. HAZARDOUS SUBSTANCES.
(a) The term "Hazardous Substance(s)" as used in the Lease, is defined as
follows: Any element, compound, mixture, solution, particle or substance, which
presents danger or potential danger for damage or injury to health, welfare or
to the environment including but not limited to:
(i) Those substances which are inherently or potentially radioactive,
explosive, ignitable, corrosive, reactive, carcinogenic or toxic and
(ii) those substances which have been recognized as dangerous or
potentially dangerous to health, welfare or to the environment by any federal,
municipal, state, county or other governmental or quasi-governmental authority
and/or any department or agency thereof.
(b) Tenant represents and warrants to Landlord that at all times during
the term of this Lease and any extensions or renewals thereof, Tenant shall:
(i) obtain Landlord's prior written consent, which consent shall be
granted or withheld in Landlord's sole discretion, to the manufacturing,
processing, distributing, using, producing, treating, storing,(above or below
ground level), disposing of, or allowing to be present (the "Presence") of any
Hazardous Substance in or about the Premises. In connection with each such
consent requested by Tenant, Tenant shall submit to Landlord a description,
including the composition, quantity and all other information requested by
Landlord concerning the proposed Presence of any Hazardous Substance.
Landlord's consent to the Presence of any Hazardous Substance may be deemed
given only by inclusion of a description of the composition and quantity of the
proposed Hazardous Substance on the Environmental Questionnaire and Disclosure
Statement attached as Exhibit "C" to this Lease. Any Hazardous Substance which
Landlord has agreed to the Presence thereof shall be deemed to be an Allowed
Substance for purposes of this Article. Landlord's consent to the Presence of
any Hazardous Substance at ant time during the Lease term or any renewal thereof
shall not waive the requirement of obtaining Landlord's consent to the
subsequent Presence of any other, or increased quantities of any Hazardous
Substance, such consent shall be deemed given only by amendment of Exhibit "C"
to this Lease;
(ii) refrain from (and prohibit others from) allowing the Presence of any
Hazardous Substance in or about the Premises which is not an Allowed Substance;
(iii) promptly comply at Tenant's own cost and expense with all laws,
orders, rules, regulations, certificates of occupancy, or other requirements, as
the same now exist or hereafter may be enacted, amended, or promulgated, of
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any federal, state, county, municipal, or other governmental or
quasi-governmental authorities and/or any department or agency thereof relating
to the Presence of Hazardous Substances in or about the Premises, whether or not
such substances are Allowed Substances.
(iv) at all times conduct, or caused to be conducted, maintenance on the
HVAC system equipment at the Premises in accordance with the requirements of all
applicable federal, state, and local laws and regulations. In the event of a
leak or other contamination of any Hazardous Substance from the HVAC system,
Tenant shall promptly repair such leak or other source of contamination from the
HVAC system in accordance with the requirements of such federal, state and local
laws and regulations, and in the time period required thereby.
(v) indemnify and hold Landlord, its agents and employees, harmless from
any and all demands, claims, causes of action, penalties, liabilities,
judgments, damages (including consequential damages) and expenses including
without limitation, court costs and reasonable attorney's fees incurred by
Landlord as a result of (a) Tenant's failure or delay in complying, to
Landlord's reasonable satisfaction, with the provisions of sections (b) (i) and
(ii), above; Tenant's failure or delay in properly with such law, order, rule,
regulation, certificate of occupancy or other requirement referred to in
subsections (b) (iii) and (iv), above, or (c) any adverse effect which results
from the presence of any Hazardous Substance in or about the Premises, whether
or not such Hazardous Substance is an allowed substance.. If any action or
proceeding is brought against Landlord, Landlord's agents or employees by reason
of any such claim, Tenant, upon notice from Landlord, will defend such claim at
Tenant's expense with counsel satisfactory to Landlord. This indemnification by
Tenant of Landlord shall survive the termination of the Lease;
(vi) promptly disclose to Landlord by delivering, in the manner prescribed
for delivery of notice in the Lease, a copy of any forms, submissions, notices,
reports or other written documentation (Communications) relating to the
presence of any Hazardous Substance in or about the Premises, whether such
Communications are delivered to Tenant or are requested of Tenant by any
federal, municipal, state, county or other government or quasi-governmental
authority and/or any department or agency thereof;
(vii) notwithstanding any other provisions of this Lease, (a) allow
Landlord, and Landlord's Agents, access and the right to enter and inspect the
Premises for the presence of any Hazardous Substance, whether or not such
Hazardous Substance is an Allowed Substance, at any time deemed reasonable by
Landlord, upon prior notice to Tenant, and (b) in the event a release of
Hazardous Substances occurs on or affects the Premises, Tenant shall permit
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Landlord or Landlord's Agents to enter the Premises at any time, without prior
notice, to inspect, monitor, take emergency or long term remedial action,
discharge Tenant's obligations hereunder if Tenant has failed to do so, or take
any other action to restore the Premises to its original condition.
(viii) compliance by Tenant with any provision of this Paragraph 60 shall
not be deemed a waiver of any other provision hereof. Without limiting the
foregoing, Landlord's consent to the presence of any Hazardous Substance shall
not relieve Tenant of its indemnity obligations under the terms of this
Paragraph 60.
Notwithstanding anything to the contrary set forth in the Paragraph 60, or any
other provision in this Addendum or the Lease, Lessee shall not have any
responsibility or liability for (i) existing violations of any Applicable Law
relating to the Premises, the Building, or the Land (the Premises, the Building
and the Land shall be collectively referred to herein as the "Property") as of
the date Lessee takes possession of the Premises, including, but not limited to,
violations of any building codes, laws relating to Hazardous Substances, and the
Americans with Disabilities Act of 1990, as amended from time to time, and any
similar or successor federal, state, or local laws (collectively, the "ADA")
(all of the foregoing laws are included within the term "Applicable Laws"), (ii)
any Hazardous Substances present in, on, under or about any part of the Property
as of the date Lessee takes possession of the Premises, or that were or are
brought into, onto, about, or under any part of the Property after the date
Lessee takes possession of the Premises, except for Hazardous Substances brought
onto the Property by Lessee or Lessee's agents, employees, contractors, or
invitees, or (iii) without limiting the generality of subparts (i) and (ii)
above, the cleanup, remediation, or removal of any Hazardous Substances present
in, on, under or about any part of the Property as of the date Lessee takes
possession of the Premises, or that were or are brought into, onto, bout, or
under any part of the Property after the date Lessee takes possession of the
Premises, except for Hazardous Substances brought onto the Property by Lessee or
Lessee's agents, employees, contractors, or invitees..
61. LEGAL ACTIONS. If the presence of any Hazardous Substances on,
under or about the Premises caused or permitted by Lessee, its agents,
employees, contractors or invitees, results in (i) injury to any person, or (ii)
injury to or any contamination of the Premises, Lessee, at its sole cost and
expense, shall promptly take all actions necessary to return the Premises to the
condition existing prior to the introduction of such Hazardous Substances to the
Premises and to remedy or repair any such injury of contamination.
Notwithstanding the foregoing, Lessee shall not, without Lessor's prior written
consent, take any remedial action in response to the presence of any Hazardous
Substances on, under or about the Premises, or
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enter into any settlement agreement, consent decree or other compromise with any
governmental agency with respect to any Hazardous Substances claims concerning
the Premises; provided, however, Lessor's prior written consent shall not be
necessary in the event that the presence of Hazardous Substances on, under or
about the Premises (i) poses an immediate threat to the health, safety or
welfare of any individual or (ii) is of such a nature that an immediate remedial
response is necessary and it is not practicable to obtain Lessor's consent
before taking such action.
62. ADDITIONAL BUILDING SPACE OPTION. Lessor agrees that during the
entire Lease Term, and any extension thereof, Lessor shall not lease or
otherwise permit the occupancy of the remaining 20,000 square feet of the
building ("Additional' Space") of which the Premises are a part. During the
entire Lease Term, and any extension thereof, Lessee shall have the option to
lease the Additional Space at a Base Rate of $0.50 per square foot, NNN,
together with such increase in said $0.50 per square foot determined as of the
date of occupancy thereof by reference to the Base Rent adjustment formula set
forth at Paragraph 50.2 0f this Lease Addendum. In the event that Lessee shall
elect to exercise this option, Lessor and Lessee shall enter into an amendment
to this Lease to incorporate said Additional Space. Notwithstanding the above,
Lessee shall have no Additional Space option if Lessee is in material default on
the date of giving the option notice, in which event the option notice shall be
totally ineffective. The option granted to Lessee hereby may not be separated
from this Lease in any manner, by reservation or otherwise.
63. REAL PROPERTY TAXES. Notwithstanding anything to the contrary
set forth at Section 10 of the Lease, Lessee shall not be responsible to pay any
increase in Real Property Taxes caused by a transfer or other change in
ownership of the Premises during the first (1st) three (3) years of the Lease
Term, and shall be responsible to pay only fifty percent (50%) of any such
increase in Real Property Taxes caused by a transfer or other change in
ownership of the Premises during the fourth (4th) or fifth (5th) year of the
Lease Term. Lessee shall be fully responsible for any increase in Real Property
Taxes caused by a transfer or other change in ownership of the Premises
occurring after the fifth (5th) year of the Lease Term.
64. NON-DISTURBANCE AND ATTORNMENT. At such time during the Lease
Term as Lessor shall elect to encumber the Premises with a deed of trust,
mortgage, or other form of security agreement, Lessor shall cause such trust
deed beneficiary or mortgagee to make an enter into a form of Non-Disturbance
and Attornment Agreement with Lessee in a commercially reasonable form
reasonable acceptable to Lessee and such beneficiary or mortgagee.
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65. EARLY OCCUPANCY. Lessee shall be entitled to enter and occupy
the Premises prior to the commencement of the Lease Term for the sole purpose of
constructing the Improvements and installing its equipment, furniture, fixtures
and related cabling. Such early occupancy shall be subject to all of the terms
and provisions of this Lease other than the payment of Rent and Real Property
Taxes.
66. NO RECORDATION. This Lease shall not be recorded.
67. FORCE MAJEURE. If either Lessor or Lessee cannot perform any of
its obligations (other than Lessee's obligation to pay Rent hereunder) due to
events beyond such party's control, the time provided for performing such
obligations shall be extended by a period of time equal to the duration of such
events. Events beyond a party's control include, but are not limited to, acts
of God, war, civil commotion, labor disputes, strikes, fire, flood or other
casualty, shortages of labor or material, government regulation or restriction
and weather conditions.
68. RELATIONSHIP OF PARTIES. Neither the method of computation of
rent nor any other provisions contained in this Lease nor any acts of the
parties shall be deemed or construed by the parties or by any third person to
create the relationship of principal and agent or of partnership or of joint
venture or of any association between Lessor and Lessee, other than the
relationship of Lessor and Lessee.
69. SINGULAR AND PLURAL. When required by the context of this Lease,
the singular shall include the plural, the plural shall include the singular,
and the masculine gender shall include the feminine and neuter gender.
70. CAPTIONS. The captions and titles of the Articles and
Paragraphs, are for convenience only and do not in any way define, limit or
construe the content of such Articles or Paragraphs and shall have not effect
on their interpretation.
_ 71. NO OFFER TO LEASE. The submission of this Lease to Lessee by
Lessor, its agent and/or real estate broker is solely for the purpose of
examination and negotiations and does not constitute an offer to lease, a
reservation of, or option for the Premises. If this Lease is acceptable to
Lessee, it should be executed and delivered to Lessor and shall thereafter be
deemed an offer by Lessee to lease the Premises upon the terms and conditions in
this Lease. Lessor shall not be bound by the terms and conditions of this Lease
until Lessor has fully executed and delivered this Lease to Lessee.
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72. SUBORDINATION, ATTORNMENT AND NON-DISTURBANCE. Subject to all
provisions contained in Sections 30.1, 30.2, 30.3 and 30.4 of the Lease, Lessor
shall request that any mortgagee or other lienholder with respect to the
Premises execute, a non-disturbance agreement which provides that Lessee's
possession of the Premises and Lessee's rights and privileges under the Lease,
and any extensions or renewals thereof, shall not be diminished or interfered
with by such mortgagee or other lienholder in the exercise of any of such
party's rights.
73. INTERRUPTION OF SERVICES. Lessor and Lessee acknowledge that any
services Lessor or others supply to the Premises, and access to the Premises
through the Common Areas, may be interrupted because of accidents, repairs,
alterations, improvements, force majeure or any other reason beyond the
reasonable control of Lessor. If any essential services (including, without
limitation, access, electricity and water) supplied to the Premises are
interrupted, and such interruption does not result from the negligence or
willful misconduct of Lessee and is the result of gross negligence or willful
misconduct on the part of Lessor, Lessee shall be entitled to an abatement of
rent proportional to the degree to which Lessee's use of the Premises is
impaired beginning on the first business day of the interruption. The abatement
shall end when the services are restored.
74. LIMITATION ON INDEMNITY. As set forth in Section 8.7 of the
Lease and notwithstanding anything to the contrary set forth in this Lease,
Lessee shall not be required to indemnify Lessor for damage, claims, costs or
expenses arising from the gross negligence or willful misconduct of Lessor, its
employees or agents.
75. LESSOR'S INDEMNITY. Except for Lessee's negligence and or breach
of express warranty, Lessor shall indemnify, protect, defend and hold harmless
Lessee from and against any and all Claims arising (i) out of willful misconduct
or gross negligence of Lessor, its agents or employees, (ii) out of any default
by Lessor in the performance in a timely manner of any obligation on Lessor's
part to be performed under this Lease, or (iii) the presence, release,
discharge, spill, removal, remediation, use, storage, disposal, transportation
or existence of any Hazardous Substances to, from, in, on, under, or about any
part of the Property brought onto the Property by Lessor, or Lessor's, agents,
employees, contractors, or invitees. Lessor's indemnity obligations set forth
in this Paragraph shall survive the expiration or earlier termination of this
Lease and the transfer of all or any portion of the Property by Lessor. The
foregoing shall include, but not be limited to, the defense or pursuit of any
claim or any action or proceeding involved therein, and whether or not litigated
and or reduced to judgment, and whether well founded or not. In case any action
or proceeding be brought against Lessee
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by reason of any of the foregoing matters, Lessor upon notice from Lessee shall
defend the same at Lessor's expense by counsel reasonably satisfactory to Lessee
and Lessee shall cooperate with Lessor in such defense. Lessee need not have
first paid any claim in order to be so indemnified.
76. CERTAIN REPRESENTATIONS AND WARRANTIES OF LESSOR.
Notwithstanding anything in this Lease to the contrary, Lessor represents and
warrants to Lessee, that (i) there are no liens, encumbrances, leases,
mortgages, deeds of trust or other matters encumbering or affecting Lessor's
right, title or interest in or to the Premises that will materially and
adversely affect Lessee's quite use and enjoyment of the Premises for which a
non-disturbance agreement has not been obtained, (ii) to Lessor's best
knowledge, the Premises and all improvements thereto are in compliance with
Applicable Laws and private use covenants, conditions, and restrictions, (iii)
to Lessor's best knowledge (without having conducting any investigation with
respect thereto), except as disclosed in that certain Environmental Assessment
O'Donnell Business Complex, Irvine, California, dated July 14, 1994 (the
"Environmental Assessment"), no underground or above-ground storage tanks or
surface impoundments are located on or under any part of the Property or any
adjacent property, (iv) except in compliance with Applicable Laws, and except as
disclosed in the Environmental Report, neither Lessor, nor to Lessor's best
knowledge (without having conducting any investigation with respect thereto),
any prior owner, operator, tenant or occupant of any part of the Property or any
adjacent property, has generated, used, treated, spilled, stored, transferred,
disposed, released or caused a threatened release in, at, under, into, from, to
or on any part of the Property of any Hazardous Substances, and (v) except as
may be disclosed in the Environmental Report, Lessor has not received any notice
or claim to the effect that either Lessor or any part of the Property or any
adjacent property is or may be liable to any governmental authority or private
party as a result of the release or threatened release of any Hazardous
Substances.
77. AMORTIZATION OF COSTS. All capital costs and expenses incurred by
Lessee pursuant to this Lease for items whose useful life will exceed the
then-remaining term of the Lease shall be shared by Lessee and Lessor so that
Lessee pays only the total cost or expense multiplied by a fraction the
numerator of which is the then-remaining term of the Lease and the denominator
of which is the useful life of the item. In the event that the original Lease
Term has not expired as of the date that a capital expenditure arises (and the
option term was therefore not included in determining Lessee's pro rata share
of the cost thereof), and Lessee shall thereafter exercise said option, the
additional pro rata share of the cost of the capital item, determined in the
manner set forth above, but including the
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option period, shall be due and payable in full not later than the first day of
the option period.
78. DAMAGE AND DESTRUCTION. Notwithstanding anything in this Lease
to the contrary, if, within 120 days from receipt of building permits, Lessor
does not make all repairs required by Paragraph 9 of the Lease and deliver
possession of the Premises to Lessee in a condition reasonably acceptable to
Lessee, then Lessee may terminate this Lease as of the date of the occurrence of
the damage or destruction by giving Lessor written notice not later than 10 days
following he expiration of said 120-day period. Lessor shall proceed diligently
and in good faith to obtain all required building permits and to repair the
Premises.
79. INVESTIGATION INDEMNITY. In the event Lessor shall exercise its
inspection and investigation rights pursuant to Paragraphs 6.4 and 9.7 of the
Lease, Lessor shall defend (with counsel reasonably acceptable to Lessee),
indemnify, and hold Lessee harmless from and against any and all claims, losses,
harm, costs, liabilities, damages and expenses (including, but not limited to,
attorneys' fees and court costs) arising, whether before or after the term of
this Lease, out of or in connection with any such inspection or investigation.
This indemnity obligation shall survive the expiration or earlier termination of
this Lease and the transfer of the Premises by Lessor.
THE NORTHWESTERN MUTUAL LIFE
INSURANCE COMPANY, a Wisconsin
corporation
BY:
----------------------------------
Robert M. Ralls, Assistant Regional
Manager
SYNC RESEARCH, INC., a Delaware
corporation
BY:
-----------------------------------
Name:
-----------------------------
Its:
-----------------------------
56
<PAGE>
SPACE PLAN
[To be attached later]
EXHIBIT "B"
57
<PAGE>
EXHIBIT "C"
58
<PAGE>
EXHIBIT 11.1
SYNC RESEARCH, INC.
COMPUTATION OF NET INCOME (LOSS) PER SHARE
NET INCOME (LOSS) PER SHARE:
- - ----------------------------
<TABLE>
Three Months ended Six Months ended
------------------------ ------------------------
June 30, June 30, June 30, June 30,
1996 1995 1996 1995
----------- ---------- ------------ ---------
<S> <C> <C> <C> <C>
Net income (loss) ($2,241,696) $ 9,153 ($3,101,459) $ 15,695
=========== ========== ============ =========
Calculation of shares outstanding for computing net income
(loss) per share:
Weighted average common and common equivalent shares outstanding
used in calculating net income (loss) per share in accordance
with generally accepted accounting principles 13,963,471 4,040,008 13,904,472 3,976,781
Adjustments to reflect requirements of the SEC in accordance
with SAB 83 -- 1,297,405 -- 1,337,254
----------- ---------- ------------ ---------
Shares used in computing net loss per share 13,963,471 5,337,413 13,904,472 5,314,035
=========== ========== ============ =========
Historical income (loss) per share ($0.16) $0.00 ($0.22) $0.00
=========== ========== ============ =========
</TABLE>
Pro forma net income per share
- - ------------------------------
<TABLE>
Three Months ended Six Months ended
June 30, June 30,
1995 1995
------------- -------------
<S> <C> <C>
Net income $ 9,153 $ 15,695
============= =============
Calculation of shares outstanding for computing net income per
share:
Weighted average common and common equivalent shares
outstanding used in calculating net income per share in
accordance with generally accepted accounting principles 4,040,008 3,976,781
Adjustments to reflect requirements of the SEC in accordance
with SAB 83 1,297,405 1,337,754
Adjustment to reflect the effects of the assumed conversion of
convertible preferred stock from date of issuance 7,603,240 7,603,240
------------- -------------
Shares used in computing pro forma net income per share 12,940,653 12,917,775
============= =============
Pro forma net income per share $0.00 $0.00
============= =============
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-1-1996
<PERIOD-END> JUN-30-1996
<CASH> 30,040,885
<SECURITIES> 11,756,939
<RECEIVABLES> 6,715,750
<ALLOWANCES> 430,025
<INVENTORY> 4,565,093
<CURRENT-ASSETS> 53,306,198
<PP&E> 3,546,887
<DEPRECIATION> 1,738,823
<TOTAL-ASSETS> 360,784
<CURRENT-LIABILITIES> 3,134,659
<BONDS> 194,812
0
0
<COMMON> 63,123,785
<OTHER-SE> (10,937,851)
<TOTAL-LIABILITY-AND-EQUITY> 55,475,046
<SALES> 10,079,189
<TOTAL-REVENUES> 10,079,189
<CGS> 5,832,688
<TOTAL-COSTS> 5,832,688
<OTHER-EXPENSES> 8,568,410
<LOSS-PROVISION> (264,031)
<INTEREST-EXPENSE> 1,220,450
<INCOME-PRETAX> (3,101,459)
<INCOME-TAX> 0
<INCOME-CONTINUING> (3,101,459)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (3,101,459)
<EPS-PRIMARY> (0.223)
<EPS-DILUTED> (0.223)
</TABLE>
