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As filed with the Securities and Exchange Commission on October 8, 1996
Registration No. 333-
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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POWERWAVE TECHNOLOGIES, INC.
(Exact name of registrant as specified in its charter)
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Delaware 3663 11-2723423
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification No.)
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2026 McGaw Avenue, Irvine, California 92614
(714) 757-0530
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
Bruce C. Edwards
President and Chief Executive Officer
Powerwave Technologies, Inc.
2026 McGaw Avenue
Irvine, California 92614
(714) 757-0530
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
Copies to:
Nick E. Yocca, Esq. Robert M. Mattson, Jr., Esq.
K.C. Schaaf, Esq. Tamara Powell Tate, Esq.
Michael H. Mulroy, Esq. Kristina M. Jodis, Esq.
Stradling, Yocca, Carlson & Rauth Morrison & Foerster LLP
a Professional Corporation 19900 MacArthur Boulevard, 12th Floor
660 Newport Center Drive, Suite 1600 Irvine, California 92612
Newport Beach, California 92660 (714) 251-7500
(714) 725-4000
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] ____________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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Title of each Proposed maximum
class of securities to be registered aggregate offering Amount of
price (1) registration fee (2)
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Common Stock ($.0001 par value)........ $26,910,000 $8,155.00
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(1) Includes 270,000 shares of Common Stock which may be purchased by the
Underwriters to cover over-allotments, if any.
(2) Estimated pursuant to Rule 457(o) solely for the purpose of calculating the
registration fee.
------------------------
The Registrant hereby amends this Registration Statement on such date
or dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
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INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION
__________, 1996
1,800,000 Shares
[logo]
POWERWAVE TECHNOLOGIES, INC.
COMMON STOCK
__________
All of the shares of Common Stock offered hereby are being sold by
Powerwave Technologies, Inc., a Delaware corporation ("Powerwave" or the
"Company"). Prior to the Offering, there has been no public market for the
Common Stock of the Company. It is currently estimated that the initial public
offering price of the Common Stock will be between $11.00 and $13.00 per share.
See "Underwriting" for the factors to be considered in determining the initial
public offering price. The Company's Common Stock has been approved for
quotation on the Nasdaq National Market under the symbol "PWAV."
__________
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK.
SEE "RISK FACTORS" BEGINNING ON PAGE 6.
__________
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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Per Share......................... $ $ $
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Total (3)......................... $ $ $
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(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting offering expenses estimated at $950,000 payable by the
Company.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
270,000 additional shares of Common Stock solely to cover over-allotments,
if any. To the extent that the option is exercised, the Underwriters will
offer the additional shares at the Price to Public shown above. If the
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ , $ and
$ , respectively. See "Underwriting."
____________
The shares of Common Stock are offered by the several Underwriters
subject to prior sale, when, as and if delivered to and accepted by them, and
subject to the right of the Underwriters to reject any order in whole or in
part. It is expected that delivery of the shares of Common Stock will be made at
the offices of Alex. Brown & Sons Incorporated, Baltimore, Maryland, on or about
_____, 1996.
Alex. Brown & Sons
Incorporated
UBS Securities
Wessels, Arnold & Henderson
THE DATE OF THIS PROSPECTUS IS , 1996
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[Graphic displaying difference between single channel RF power amplifier
using separate cavity filters and Company's multi-channel RF power
amplifier]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
<PAGE>
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more
detailed information and financial statements and notes thereto appearing
elsewhere in this Prospectus.
THE COMPANY
Powerwave designs, manufactures and markets ultra-linear radio
frequency ("RF") power amplifiers for use in the wireless communications market.
The Company's amplifiers, which are key components in wireless communications
networks, increase the signal strength of wireless transmissions while reducing
interference, or "noise." The reduction of noise enables wireless service
providers to offer improved service to subscribers by offering clearer call
connections with less interference. Increasing the signal strength of wireless
transmissions also improves service by reducing the number of interrupted or
dropped calls. Powerwave's RF power amplifiers achieve ultra-linearity at
increased levels of amplification through the application of "feedforward"
technology, which enables the Company's multi-channel power amplifiers to
significantly reduce RF interference thereby increasing the efficiency of the
wireless service provider's network.
Powerwave manufactures both single channel and multi-channel
amplifiers, with a primary focus on multi-channel products. Multi-channel
amplifiers integrate the functions of several power amplifiers and cavity
filters within a single unit, thereby reducing service providers' equipment and
maintenance costs and space requirements while providing increased call
capacity. The Company's products are currently being utilized in cellular base
stations in both digital and analog-based networks and the Company has recently
delivered initial prototype units for personal communications services ("PCS")
networks. The Company's products support a wide range of digital and analog
transmission protocols including CDMA, TDMA, GSM, FHMA, AMPS and TACS. The
Company also produces power amplifiers for the specialized mobile radio ("SMR")
market, which is characterized as a two-way radio market with devices commonly
utilized by police and emergency personnel and the business dispatch
marketplace. The Company also manufactures air-to-ground amplifiers used both in
ground stations and in commercial aircraft to amplify telephone transmissions
between airline passengers and ground-based network systems.
The Company began selling RF power amplifiers for use in analog
wireless networks in 1985. In 1995, the Company began selling multi-channel
ultra-linear amplifiers for installation in digital cellular base stations in
South Korea, and the Company believes that it is the leading supplier of
amplifiers to the South Korean market. South Korea is experiencing rapid
economic development and is one of the first countries to begin the process of
installing a nationwide digital cellular network. The Company's customers in the
South Korean market include Hyundai Electronics Industries Co. ("Hyundai"), LG
Information & Communications, Ltd. ("LGIC") and Samsung Electronics Co. Ltd.
("Samsung"). The Company also sells amplifiers domestically to numerous wireless
equipment suppliers, including ADC Kentrox Industries, Inc., AirNet
Communications Corp., In-Flight Phone Corp., Metawave Communications Corporation
and Phoenix Wireless Group, Inc.
The worldwide wireless communications market, which consists of
cellular, PCS, SMR, paging, air to ground and other applications, has
experienced significant growth in recent years. The growth in wireless
communications is largely attributable to increased affordability in consumer
equipment, such as cellular phones and pagers, more comprehensive service
coverage at lower prices and technological advancements which have resulted in
improved transmission quality and reliability. International growth has also
been driven by the build-out of cellular networks, including those designed to
serve as primary telephone systems in part due to inadequacies in existing
wireline infrastructures. As demand continues to grow for wireless
communications, many service providers either are switching from analog networks
to digital networks, which provide for a greater number of transmissions and
increased call quality over the same range of existing frequencies, or are
further upgrading the capacity of their existing analog networks.
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3
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Consumer demand for additional services, combined with capacity
constraints and other limitations of cellular networks, has also led to the
development of PCS, another form of wireless communications which utilizes a
higher frequency range and lower power than traditional cellular services. It is
anticipated that PCS applications will include voice communication, personal
messaging, mobile facsimile transmission and wireless computer networking. The
continued growth of wireless communications networks throughout the world along
with continued upgrading of existing analog systems is expected to result in
increased demand for wireless network infrastructure equipment, such as the
ultra-linear RF power amplifiers manufactured by the Company.
The Company's strategic objective is to be the leading third-party
supplier of high performance RF power amplifiers for use in both digital and
analog wireless networks worldwide. The Company's strategy includes the
following key elements: (i) provide leading technology to the RF amplifier
industry; (ii) leverage its position as a leading multi-channel amplifier
supplier; (iii) expand relationships with leading original equipment
manufacturers ("OEMs"); (iv) develop and market amplifier products for PCS
networks; (v) maintain commitment to quality, reliability and manufacturability;
and (vi) increase involvement in its customer product development process. The
Company intends to pursue each of these elements of its strategy by focusing its
core strengths on the global wireless communications market.
The Company was incorporated in Delaware in January 1985 under the
name Milcom International, Inc. and changed its name to Powerwave Technologies,
Inc. in June 1996. The Company's headquarters and principal place of business is
located at 2026 McGaw Avenue, Irvine, California 92614, and its telephone number
is (714) 757-0530.
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4
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THE OFFERING
Common Stock offered by the Company 1,800,000 shares
Common Stock to be outstanding after the Offering 15,862,500 shares(1)(2)
Use of proceeds The net proceeds of the Offering will be
used for capital expenditures, working
capital, new product development and other
general corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol PWAV
SUMMARY CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
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SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
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1993 1994 1995 1995 1996
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STATEMENT OF OPERATIONS DATA:
Net sales............................. $8,717 $22,861 $36,044 $11,573 $29,108
Cost of sales......................... 6,567 14,466 22,713 7,953 17,229
Gross profit.......................... 2,150 8,395 13,331 3,620 11,879
Operating expenses:
Sales and marketing.................. 387 570 1,557 565 2,159
Research and development............. 581 1,433 2,252 759 2,450
General and administrative........... 559 1,518 1,958 838 1,283
Total operating expenses.............. 1,527 3,521 5,767 2,162 5,892
Operating income...................... 623 4,874 7,564 1,458 5,987
Other income (expense)................ (5) (20) 32 7 179
Income before income taxes............ 618 4,854 7,596 1,465 6,166
Provision for income taxes............ 267 1,908 3,116 601 2,528
Net income............................ $ 351 $ 2,946 $ 4,480 $ 864 $ 3,638
Pro forma net income per
share (2)............................ $.30 $.25
Pro forma weighted average
common shares........................ 14,869 14,869
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JUNE 30,1996
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BALANCE SHEET DATA: ACTUAL PRO FORMA(2) AS ADJUSTED(2)(3)
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Working capital........................ $11,201 $11,201 $30,339
Total assets........................... 23,969 23,969 43,107
Long-term debt......................... 102 102 102
Total shareholders' equity (deficit)... (840) 14,558 33,696
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(1) Excludes 1,801,725 shares of Common Stock issuable upon exercise of
outstanding stock options as of June 30, 1996 at a weighted average
exercise price of $3.28 per share, the cancellation of options to purchase
6,750 shares of Common Stock after June 30, 1996 and the issuance of
options to purchase 28,425 shares of Common Stock issued subsequent to June
30, 1996. Under an agreement with the Company, certain shareholders have
agreed that, once the Company has issued an initial 1,170,000 shares of
Common Stock under the 1995 Stock Option Plan, any additional shares issued
under that Plan upon an option exercise will be coupled with a pro rata
redemption from those shareholders of an equal number of shares at a
redemption price equaling the option exercise price. See "Capitalization"
and "Management -- 1995 Stock Option Plan."
(2) Gives effect to the conversion of 3,375,900 shares of Series A Convertible
Preferred Stock into 5,063,850 shares of Common Stock upon the closing of
the Offering and the reversal of accrued dividends payable thereon. See
Note 2 of notes to the consolidated financial statements, "Capitalization,"
"Description of Capital Stock" and "Management--1995 Stock Option Plan."
(3) Adjusted to reflect the sale by the Company of 1,800,000 shares of Common
Stock at an assumed initial public offering price of $12.00 per share and
the application of the estimated net proceeds therefor. See "Use of
Proceeds," "Capitalization" and "Selected Financial Data."
Except as otherwise specified, all information in this Prospectus assumes
no exercise of the Underwriters' over-allotment option. See "Underwriting."
Except for the consolidated financial statements and as otherwise noted, all
information in this Prospectus has been adjusted to give effect to (i) the
conversion of all outstanding shares of Series A Convertible Preferred Stock
("Series A Preferred Stock") into Common Stock and the reversal of accrued
dividends payable thereon and (ii) a three-for-two stock split of the
outstanding shares of Common Stock, each of which will occur prior to or upon
completion of the Offering. See "Capitalization" and "Description of Capital
Stock."
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5
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RISK FACTORS
In addition to the other information in this Prospectus, the following
risk factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby. This
Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ materially from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus.
CUSTOMER CONCENTRATION
A small number of customers account for a substantial majority of the
Company's net sales. Although the Company is attempting to expand its customer
base, the Company expects that a limited number of customers will continue to
represent a substantial portion of the Company's net sales for the foreseeable
future. The Company believes that its future success depends upon its ability to
broaden its customer base. The Company's four largest customers include, in
alphabetical order, Hyundai, In-Flight Phone Corp. ("In-Flight"), LGIC and
Samsung. For the six months ended June 30, 1996, these customers, each of which
accounted for more than 10% of the Company's net sales, accounted for
approximately 81% of the Company's net sales in the aggregate. Hyundai, LGIC and
Samsung currently purchase products for implementation in the South Korean
digital cellular telephone network. The Company expects that sales to these
customers of products for use in the South Korean cellular network will decline
as that network nears completion, which is expected to occur in the next one to
two years. See "--Reliance upon South Korean Market and Growth of Wireless
Services Market." In-Flight purchases the Company's products for implementation
in an air-to-ground wireless network. As this network has been substantially
completed, the Company expects sales to In-Flight to decrease significantly in
future periods. Sales of power amplifiers to wireless infrastructure equipment
suppliers are expected to continue to account for a substantial majority of the
Company's product sales. A limited number of large OEMs account for a majority
of RF power amplifier purchasers in the wireless infrastructure market, and the
Company's success will be dependent upon its ability to establish and maintain
relationships with these types of customers. There can be no assurance that a
major customer will not reduce, delay or eliminate its purchases from the
Company, which could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, major customers also
have significant leverage and may attempt to change the terms, including
pricing, upon which the Company and such customers do business, thereby
adversely affecting the Company's business, results of operations and financial
condition. Further, one or more of these customers may determine to manufacture
amplifiers internally thus reducing or eliminating its purchases from the
Company and possibly becoming a direct competitor of the Company. See
"--Internal Amplifier Production Capabilities of OEMs." As a result, the
Company's success will depend on its ability to expand its customer base and, in
particular, to successfully market its products to OEMs for wireless networks.
The Company currently sells to its major customers under purchase
orders which are usually placed with short delivery requirements, although the
Company is attempting to negotiate long-term supply agreements with these
customers. As such, while the Company receives periodic order forecasts from its
major customers, such customers have no obligation to purchase the forecasted
amounts. Nonetheless, the Company maintains significant work-in-progress and raw
materials inventory as well as maintaining increased levels of technical
production staff to meet order forecasts. To the extent its major customers
purchase less than the forecasted amounts, the Company will have higher levels
of inventory than otherwise needed, increasing the risk of obsolescence, and the
Company will have increased levels of production staff to support such
forecasted orders. Such higher levels of inventory
6
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and increased employee levels would reduce the Company's liquidity and could
have a material adverse effect on the Company's results of operations and
financial condition. In addition, in the event the Company's major customers
desire to purchase products in excess of the forecasted amounts, the Company may
not have sufficient inventory or manufacturing capacity to fill such increased
orders, which could have a material adverse effect on the Company's
relationships and future business with its customers.
RELIANCE UPON SOUTH KOREAN MARKET AND GROWTH OF WIRELESS SERVICES MARKET
Three of the Company's customers, Hyundai, LGIC and Samsung,
collectively accounted for approximately 66% of the Company's net sales for the
first six months of 1996 and are expected to account for a higher percentage of
sales during the second half of 1996. These customers supply equipment for
implementation in the South Korean digital cellular telephone network. The delay
or termination of the South Korean digital cellular telephone network could have
a material adverse effect on the Company's business, results of operation and
financial condition. In addition, the Company believes that the South Korean
digital cellular network is more than 50% completed and the buildout phase of
this network will be completed over the next two years. Accordingly, the
Company's sales related to that network are anticipated to decrease
significantly over the same time period.
During fiscal 1995 and the first six months of 1996, Hyundai, LGIC and
Samsung purchased multi-channel linear RF power amplifiers for installation in
the buildout of the South Korean digital cellular network. These customers also
have begun marketing wireless infrastructure equipment for installation in
networks outside of the South Korean market. There can be no assurance that such
customers will be successful in obtaining new business outside of South Korea or
that, if successful, they will continue to purchase amplifiers from the Company.
Any significant decrease in the Company's sales of amplifiers to these
customers, without an offsetting increase in sales to other customers, would
have a material adverse effect on the Company's business, results of operations
and financial condition.
A substantial majority of the Company's revenues are derived from the
sale of RF power amplifiers for wireless communications networks, and the future
success of the Company depends to a considerable extent upon the continued
growth and increased availability of cellular and other wireless communications
services, including PCS, in the United States and internationally. There can be
no assurance that either subscriber use or the implementation of wireless
communications services will continue to grow, or that such factors will create
demand for the Company's products. The Company believes that continued growth in
the use of wireless communications services depends on significant reductions in
infrastructure capital equipment cost per subscriber and corresponding
reductions in wireless service pricing. While the Federal Communications
Commission ("FCC") has recently adopted regulations requiring local phone
companies to reduce the rates charged to cellular carriers for connection to
their wireline networks, it is anticipated that wireless service rates will
remain higher than rates charged by traditional wireline companies. In addition,
the growth of the wireless communications market is dependent upon both
developed countries, such as the United States, allowing continued deployment of
new networks and foreign countries deploying wireless communications networks as
opposed to constructing wireline infrastructures. Such foreign countries or
local government authorities may decline to construct wireless communications
systems, place moratoriums on building base stations or terminate or delay
construction of such systems for a variety of reasons, including environmental
issues, political unrest, economic downturns, the availability of favorable
pricing for other communications services or the availability and cost of
related equipment, in which event demand for the Company's products will be
similarly reduced or delayed, which would materially adversely affect the
Company's business, results of operations and financial condition.
7
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FLUCTUATIONS IN QUARTERLY RESULTS
The Company experiences, and expects to continue to experience,
significant fluctuations in sales and operating results from quarter to quarter.
Quarterly results fluctuate due to a number of factors, any of which could have
a material adverse effect on the Company's business, results of operations and
financial condition. In particular, the Company's quarterly results of
operations can vary due to the timing, cancellation, or rescheduling of customer
orders and shipments; variations in manufacturing capacities, efficiencies and
costs; the availability and cost of components; the timing, availability and
sale of new products by the Company; changes in the mix of products having
differing gross margins; warranty expenses; changes in average sales prices;
long sales cycles associated with the Company's products; and variations in
product development and other operating expenses. The Company's quarterly
revenues are also affected by volume discounts given to certain customers for
large volume purchases over a given period of time. In addition, the Company's
quarterly results of operations are influenced by competitive factors, including
pricing, availability and demand for the Company's and competing amplification
products. A large portion of the Company's expenses are fixed and difficult to
reduce in a short period of time. If net sales do not meet the Company's
expectations, the Company's fixed expenses would exacerbate the effect of such
net sales shortfall. Furthermore, announcements by the Company or its
competitors regarding new products and technologies could cause customers to
defer purchases of the Company's products. In addition, while the Company
receives periodic order forecasts from its major customers, such customers have
no binding obligation to purchase the forecasted amounts. See "--Customer
Concentration." Order deferrals and cancellations by the Company's customers,
declining average sales prices, delays in the Company's introduction of new
products and longer than anticipated sales cycles for the Company's products
have in the past adversely affected the Company's quarterly results of
operations. There can be no assurance that the Company will not experience such
effects in the future.
Due to the foregoing factors, the Company believes that period-to-
period comparisons of its operating results are not necessarily meaningful and
that such comparisons cannot be relied upon as indicators of future performance.
There can be no assurance that the Company will maintain its current
profitability in the future or that future revenues and operating results will
not be below the expectations of public market analysts and investors. In either
case, the price of the Company's Common Stock could be materially adversely
affected. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
COMPETITION
The wireless communications infrastructure equipment industry is
extremely competitive and is characterized by rapid technological change, new
product development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product. The principal elements of
competition in the Company's market include performance, functionality,
reliability, pricing, quality, the ability to design products which can be
efficiently manufactured in volume production, time-to-market delivery
capabilities and standards compliance. While the Company believes that overall
it competes favorably with respect to the foregoing elements, there can be no
assurance that it will be able to continue to do so.
Currently, the Company competes primarily with AML Communications,
Inc., Avantek (a division of Hewlett Packard), M/A-COM, Inc. (a subsidiary of
AMP, Inc.), Microwave Power Devices, Inc. and Spectrian Corporation, in addition
to the amplifier manufacturing operations captive within certain of the leading
wireless infrastructure OEMs. Certain of the Company's current and potential
competitors have significantly greater financial, technical, manufacturing,
sales, marketing and other
8
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resources than the Company and have achieved greater name recognition for their
existing products and technologies than has the Company.
The Company's success depends in part upon the rate at which OEM
customers incorporate the Company's products into their systems. The Company
believes that a substantial portion of the present worldwide production of
amplifiers is captive within the internal manufacturing operations of a small
number of wireless infrastructure OEMs and that these amplifiers are offered for
sale as part of their wireless systems. These OEMs include, among others, LM
Ericsson Telephone Company ("Ericsson"), Lucent Technologies Incorporated
("Lucent"), Motorola Corporation ("Motorola"), Nokia Corporation ("Nokia") and
Northern Telecom Limited ("Nortel"). In addition, Samsung, a significant
customer of the Company, manufactures power amplifiers in addition to purchasing
such components from the Company. The Company believes that these OEMs, as well
as other customers of the Company, continuously evaluate whether to manufacture
their own RF power amplifiers rather than purchase them from third-party vendors
such as the Company. These and other large manufacturers of wireless
infrastructure equipment could also determine to offer and sell their power
amplifiers to other OEMs or customers of the Company and compete directly with
the Company. In addition, these or other OEMs may enter into joint ventures or
strategic relationships with the Company's competitors, in which event the
Company's ability to sell products to such OEMs could be reduced or eliminated.
The Company has experienced significant price competition and expects
price competition in the sale of RF power amplifiers to increase. No assurance
can be given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features. The Company expects its competitors to
offer new and existing products at prices necessary to gain or retain market
share. Certain of the Company's competitors have substantial financial
resources, which may enable them to withstand sustained price competition or a
downturn in the market. There can be no assurance that the Company will be able
to compete successfully in the pricing of its products, or otherwise, in the
future. See "Business-- Competition."
RAPID TECHNOLOGICAL CHANGE; DEPENDENCE ON NEW PRODUCTS
The markets in which the Company and its customers compete are
characterized by rapidly changing technology, evolving industry standards and
communications protocols, and continuous improvements in products and services.
The Company's future success depends on its ability to enhance its current
products and to develop and introduce in a timely manner new products that keep
pace with technological developments, industry standards and communications
protocols, compete effectively on the basis of price and performance, adequately
address OEM customer and end-user customer requirements and achieve market
acceptance. The Company believes that to remain competitive in the future it
will need to continue to develop new products, which will require the investment
of significant financial resources in new product development. In this regard,
in anticipation of the deployment of PCS, the Company has invested significant
resources in developing RF power amplifiers for PCS networks. There can be no
assurance that the development of PCS networks will not be delayed or that the
Company's PCS-based products will be fully developed in time to be accepted for
use in PCS networks. There also can be no assurance that the Company's PCS-based
products, if developed, will achieve market acceptance, or be capable of being
manufactured at competitive prices in sufficient volumes. In the event the
Company's PCS-based products are not timely deployed or do not gain market
acceptance, the Company's business, results of operations and financial
condition could be materially adversely affected.
9
<PAGE>
The Company introduced a second-generation multi-channel linear RF
power amplifier for cellular base stations in August 1996 and intends to
introduce a new amplifier for PCS networks in the fourth quarter of 1996. Delays
in commencement of commercial shipments of these products may result in customer
dissatisfaction and delay or loss of product revenues, which could have a
material adverse effect on the Company's business, results of operations and
financial condition. No assurance can be given that the Company's product
development efforts will be successful, that its new products will achieve
customer acceptance or that its customers' products and services will achieve
market acceptance. If a significant number of development projects do not result
in manufacturable new products or product enhancements within anticipated time-
frames, the Company's business, results of operations and financial condition
could be materially adversely affected. Any failure by the Company to anticipate
or respond adequately to technological developments and customer requirements,
or any significant delays in product development, introduction or deliveries,
could result in a loss of competitiveness and reduced net sales. While the
Company maintains an active development program to attempt to improve its
product offerings, there can be no assurance that such efforts will be
successful or that other companies or institutions will not develop and
commercialize products based on new technologies that are superior in
performance or cost-effectiveness to the Company's products. There also can be
no assurance that the Company's products will not be rendered obsolete by the
introduction and acceptance of new communications protocols.
PROPRIETARY TECHNOLOGY; RISK OF THIRD-PARTY CLAIMS OF INFRINGEMENT
The Company relies primarily upon trade secrets to protect its
intellectual property. The Company generally enters into confidentiality and
non-disclosure agreements with its employees and limits access to and
distribution of its proprietary information. In addition, the Company is in the
process of applying for a U.S. patent for its proprietary implementation of
feedforward technology and regularly examines various aspects of its technology
for possible patent applications. The Company believes that its success depends
upon the knowledge and experience of its management and technical personnel and
its ability to market its existing products and to develop new products.
The Company's ability to compete successfully and achieve future
revenue growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others. There can
be no assurance that these measures will successfully protect the Company's
intellectual property or that the Company's intellectual property or proprietary
technology will not otherwise become known or be independently developed by
competitors. In addition, the laws of certain countries in which the Company's
products are or may be sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. The inability of the Company to protect its intellectual property and
proprietary technology could have a material adverse effect on its business,
results of operations and financial condition. As the number of patents,
copyrights and other intellectual property rights in the Company's industry
increases, and as the coverage of these rights and the functionability of the
products in the market further overlap, the Company believes that its products
may increasingly become the subject of infringement claims. The Company may in
the future be notified that it is infringing upon certain patent or other
intellectual property rights of others. Although the Company has not received
any such notification to date and there are no pending or threatened
intellectual property lawsuits against the Company, there can be no assurance
that such litigation or infringement claims will not occur in the future. Such
litigation or claims could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
results of operations and financial condition. A third party claiming
infringement may also be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company or its customers to
distribute, sell or import into the United States allegedly infringing products.
If it appears necessary or desirable, the Company may seek licenses under
patents or other rights from
10
<PAGE>
third parties covering intellectual property that the Company is allegedly
infringing. No assurance can be given, however, that any such licenses could be
obtained on terms acceptable to the Company, if at all. The failure to obtain
the necessary licenses or other rights could have a material adverse effect on
the Company's business, results of operations and financial condition.
RISKS OF DOING BUSINESS IN INTERNATIONAL MARKETS
For the fiscal years 1993, 1994 and 1995 and the six months ended June
30, 1996, international revenues accounted for approximately 8%, 9%, 67% and
69%, respectively, of the Company's net sales. The Company expects that
international revenues will continue to account for a significant percentage of
the Company's net sales for the foreseeable future. As a result, the Company is
subject to various risks, including a greater difficulty of administering
business globally, compliance with multiple and potentially conflicting
regulatory requirements such as export requirements, tariffs and other barriers,
differences in intellectual property protections, health and safety
requirements, difficulties in staffing and managing foreign operations, longer
accounts receivable cycles, currency fluctuations, repatriation of earnings,
export control restrictions, overlapping or differing tax structures, political
and economic instability and general trade restrictions. If any of these risks
materializes, it could have a material adverse effect on the Company's business,
results of operations and financial condition. In particular, a large portion of
the Company's existing customers and potential new customers are servicing new
markets in developing countries that may deploy wireless communication networks
as an alternative to the construction of a wireline infrastructure. Such
countries may decline to construct wireless communication systems, or
construction of such systems may be delayed for a variety of reasons, including
business and economic conditions and changes in economic stability due to
factors such as increased inflation and political turmoil. In recent years, a
majority of the Company's net sales resulted from the sale of products to a
small number of companies in South Korea, where future sales may be dependent
upon continuing favorable trade relations with the United States and a lack of
political conflicts with North Korea. Any significant change in United States
trade relations or the economic or political stability of foreign locations in
which the Company sells its products could have a material adverse effect on the
Company's business, results of operations and financial condition.
The Company's foreign sales are generally invoiced in U.S. dollars
and, accordingly, the Company does not currently engage in foreign currency
hedging transactions. However, as the Company continues to expand its
international operations, the Company may be paid in foreign currencies and
exposure to losses in foreign currency transactions may increase. The Company
may choose to limit such exposure by the purchase of forward foreign exchange
contracts or similar hedging strategies. There can be no assurance that any
currency hedging strategy would be successful in avoiding exchange-related
losses. In addition, if the relative value of the U.S. dollar in comparison to
the currency of the Company's foreign customers should increase, the resulting
effective price increase of the Company's products to such foreign customers
could result in decreased sales which could have a material adverse impact on
the Company's business, results of operations and financial condition.
INTERNAL AMPLIFIER PRODUCTION CAPABILITIES OF OEMS
Many of the leading wireless telecommunications infrastructure
equipment manufacturers internally manufacture their own RF power amplifiers and
the Company believes that its existing customers continuously evaluate whether
to manufacture their own amplifiers. In the event that such customers decide to
increase or shift completely to the internal manufacture of amplifiers, such
customers could eliminate or reduce their purchases of the Company's products.
There can be no assurance that the Company's current customers will continue to
rely, or expand their reliance, on the Company as an external source of supply
for their RF power amplifiers, or that other wireless telecommunications OEMs
11
<PAGE>
such as Lucent, Ericsson, Motorola, Nokia and Nortel will become and remain
customers of the Company. OEMs with internal manufacturing capabilities could
also sell amplifiers externally to other OEMs, thereby competing directly with
the Company. In addition, even if the Company were successful in selling its
products to these OEMs, it is anticipated that such OEMs would demand price and
other concessions based on their ability to manufacture amplifiers internally.
While the Company attempts to negotiate long-term supply contracts with its
customers, there can be no assurance that it will be able to enter into such
contracts on terms that are acceptable to the Company, if at all, or that
contracts will not be terminated on short notice. Any significant loss of sales
to current customers, not offset by sales to other customers, would have a
material adverse effect on the Company's business, results of operations and
financial condition.
The Company's customers and other wireless telecommunications
infrastructure equipment manufacturers are protective of their intellectual
property, which may contribute to certain manufacturers deciding to not seek RF
power amplifiers from external sources. While the Company takes measures to
ensure the confidentiality of intellectual property disclosed to the Company by
its customers or developed by the Company for such customers, the appearance of
a close working relationship with a particular customer may adversely affect the
Company's ability to establish or maintain a relationship with, or sell products
to, competitors of the particular customer. If, for any reason, the Company's
major customers decide to produce their RF power amplifiers internally, the
Company's business, results of operations and financial condition could be
materially adversely affected.
DECLINING AVERAGE SALES PRICES
The Company has experienced, and expects to continue to experience,
declining average sales prices for its products. Wireless infrastructure OEMs
have come under increasing price pressure from cellular service providers, which
in turn has resulted in downward pricing pressure on the Company's products. In
addition, competition among third-party suppliers has increased the downward
pricing pressure on the Company's products. Since wireless infrastructure OEMs
frequently negotiate supply arrangements far in advance of delivery dates, the
Company must often commit to price reductions for its products before it knows
how, or if, cost reductions can be obtained. In addition, average sales prices
are affected by price discounts negotiated for large volume purchases by certain
customers over a given period of time. To offset declining average sales prices,
the Company believes that in the near term it must achieve manufacturing cost
reductions, and in the longer term the Company must develop new products that
incorporate advanced features and can be manufactured at lower cost or sold at
higher average sales prices. If, however, the Company is unable to achieve such
cost reductions or product improvements, the Company's gross margins could
decline, and such decline could have a material adverse effect on the Company's
business, results of operations and financial condition.
NO ASSURANCE OF PRODUCT MANUFACTURABILITY, QUALITY OR RELIABILITY
Manufacturing the Company's products is an extremely complex process
and requires significant time and expertise to tune the products to meet
customers' specifications. The ability of the Company to cost-effectively
manufacture its RF power amplifier products in volume is substantially dependent
upon the Company's ability to tune these products to meet specifications in an
efficient manner. In this regard, the Company is dependent upon its staff of
trained technicians. If the Company is unable to design its products to minimize
the manual tuning process or if the Company were unable to attract additional
trained technicians or were to lose the services of a number of its trained
technicians, the Company's business, results of operations and financial
condition would be materially adversely affected. In addition, the Company has
in the past and may from time to time in the future experience quality problems
with its products. The Company has been required to replace certain components
in certain of its products
12
<PAGE>
in the past in accordance with warranty provisions under which the products were
sold. If such problems were to reoccur, the Company could experience increased
costs, delays in or cancellations or rescheduling of orders or deliveries and
product returns, any of which could damage relationships with current customers
and have a material adverse effect on the Company's business, results of
operations and financial condition. Such quality problems could also damage
relationships with prospective customers and, in particular, could limit the
Company's ability to market its products to larger OEMs, many of which
manufacture power amplifiers internally. See "--Internal Amplifier Production
Capabilities of OEMs."
MANAGEMENT OF GROWTH; DEPENDENCE UPON KEY PERSONNEL
The growth in the Company's business has placed, and is expected to
continue to place, a significant strain on the Company's management and
operations. The Company's ability to compete effectively and to manage future
expansion of its operations, if any, will require the Company to continue to
improve its financial and management controls, reporting systems and procedures
on a timely basis and effectively expand, train and manage its work force. In
particular, the Company must carefully manage production and inventory levels to
meet increasing product demand and new product introductions. Inaccuracies in
demand forecasts in the environment in which the Company operates can quickly
result in either insufficient or excessive inventories and disproportionate
overhead expenses. The Company plans to expand the geographic scope of its
customer base and operations. The Company also is in the process of implementing
a number of new financial and management controls, reporting systems and
procedures. In addition, many members of the Company's senior management have
recently joined the Company. The Company's President and Chief Executive Officer
joined the Company in February 1996, its Executive Vice President joined in
April 1996, its Vice President, Finance and Chief Financial Officer joined in
June 1996, and its Vice President, Engineering joined in July 1996. In addition
to its senior management, the Company has recently hired a significant number of
employees, including engineers, production technicians and sales and marketing
employees, and plans to further increase its total employee base. In the event
that the Company's new personnel are unable to work effectively as a team or
achieve desired levels of production, the Company's business, results of
operations and financial condition could be materially adversely affected. There
can be no assurance that the Company will be able to continue to attract and
retain qualified personnel necessary for the development of its business. The
Company's failure to manage growth effectively would have a material adverse
effect on the Company's business, operating results and financial condition. See
"Management."
Due to the specialized nature of the Company's business, the Company
is highly dependent on the continued services of, and on its ability to attract
and retain, qualified technical, marketing and managerial personnel. Competition
for such personnel is intense, and the loss of any of such persons, as well as
the failure to recruit and train additional technical personnel in a timely
manner, could have a material adverse effect on the Company's business, results
of operation and financial condition. In particular, the Company's success is
dependent upon the services of Alfonso G. Cordero, a founder of the Company and
its Chairman of the Board of Directors, and Ki Y. Nam, Vice President, New
Business Development. The loss of their services would materially adversely
affect the Company.
DEPENDENCE ON SINGLE SOURCES FOR KEY COMPONENTS
The Company currently procures certain components from single source
manufacturers due to unique component designs as well as certain quality and
performance requirements. In addition, in order to take advantage of volume
pricing discounts, the Company purchases certain customized components for its
power amplifiers from single sources. If such single-sourced components were to
become unavailable or were to become unavailable on terms satisfactory to the
Company, the Company would
13
<PAGE>
be required to purchase comparable components from other sources and "retune"
its products to function properly with the replacement components or to redesign
its products to use other components, either of which could result in a
disruption of the Company's production facility and delays in production and
delivery. If for any reason the Company could not obtain comparable replacement
components from other sources or could not expeditiously retune its products to
operate with the replacement components, or redesign its products to use other
components, the Company's business, results of operation and financial condition
could be adversely affected. In addition, if the Company were unable to obtain
sufficient quantities of components used in the manufacture of its RF power
amplifiers, resulting delays or reductions in product shipments could occur and
could have a material adverse effect on the Company's business, results of
operations and financial condition, including a material adverse effect on the
Company's relationships with its customers.
RISKS ASSOCIATED WITH DEVELOPING TECHNOLOGIES; PRODUCT LIABILITY
If wireless telecommunications systems or other systems or devices
that rely on or incorporate the Company's products are determined, perceived or
alleged to create a health risk, the Company could be named as a defendant, and
held liable, in product liability lawsuits commenced by individuals alleging
that the Company's products harmed them. The occurrence of any of such events
could have a material adverse effect on the Company's business, results of
operations and financial condition. Any alleged health or environmental risk
could also lead to a delay or prohibition against the installation of wireless
networks which could have a material adverse effect on the Company's business,
results of operations and financial condition. In addition, an inability to
maintain insurance at an acceptable cost or to otherwise protect against
potential product liability could inhibit the commercialization of the Company's
products and have a material adverse effect on the Company's business, results
of operations and financial condition. In addition, the installation of base
stations for wireless networks may be delayed or prohibited by various
environmental regulations. Any such delay or prohibition would have a material
adverse effect on the Company's business, results of operations and financial
condition.
ENVIRONMENTAL REGULATIONS
The Company is subject to a variety of local, state and federal
governmental regulations relating to the storage, discharge, handling, emission,
generation, manufacture and disposal of toxic or other hazardous substances used
to manufacture the Company's products. Certain of the Company's products are
also subject to regulation of emissions by the FCC and similar government
agencies. The Company believes that it is currently in compliance in all
material respects with such regulations and that it has obtained all necessary
environmental permits and licenses to conduct its business. The failure to
comply with current or future regulations could result in the imposition of
substantial fines on the Company, suspension of production, alteration of its
manufacturing processes or cessation of operations. Corrective action could
require the Company to acquire expensive remediation equipment or to incur
substantial expenses. Any failure by the Company to control the use, disposal,
removal or storage of, or to adequately restrict the discharge of, or assist in
the cleanup of, hazardous or toxic substances, could subject the Company to
significant liabilities, including joint and several liability under certain
statutes. The imposition of such liabilities could materially adversely affect
the Company's business, results of operations and financial condition. In
addition, the installation of base stations by wireless service providers may be
delayed or restricted by various environmental regulations, land use
restrictions and zoning ordinances. Any such delay or restriction could have a
material adverse effect on the Company' business, results of operations and
financial condition.
14
<PAGE>
GOVERNMENT REGULATION OF COMMUNICATIONS INDUSTRY
Radio frequency transmissions and emissions, and certain equipment
used in connection therewith, are regulated in the United States, Canada and
internationally. Regulatory approvals generally must be obtained by the Company
in connection with the manufacture and sale of its products, and by the
Company's customers to operate the Company's products. The FCC has proposed new
regulations that would impose more stringent radio frequency emissions standards
on the communications industry. There can be no assurance that if such proposed
regulations are adopted, the Company and its customers will not be required to
alter the manner in which radio signals are transmitted or otherwise alter the
equipment transmitting such signals, which could materially adversely affect the
Company's products and markets. The Company is also subject to regulatory
requirements in international markets where the Company is less prominent than
local competitors and has less opportunity to influence regulatory and standards
policies. The enactment by federal, state, local or international governments of
new laws or regulations or a change in the interpretation of existing
regulations could adversely affect the market for the Company's products.
Although recent deregulation of international communications industries along
with recent radio frequency spectrum allocations made by the FCC have increased
the potential demand for the Company's products by providing users of those
products with opportunities to establish new PCS networks, there can be no
assurance that the trend toward deregulation and current regulatory developments
favorable to the promotion of new and expanded wireless services will continue
or that other future regulatory changes will have a positive impact on the
Company. The increasing demand for wireless communications has exerted pressure
on regulatory bodies worldwide to adopt new standards for such products,
generally following extensive investigation and deliberation over competing
technologies. The delays inherent in this governmental approval process have in
the past caused, and may in the future cause, the cancellation, postponement or
rescheduling of the installation of communications systems by the Company's
customers. These delays could have a material adverse effect on the Company's
business, results of operations and financial condition.
POSSIBLE VOLATILITY OF STOCK PRICE
The stock market has from time to time experienced significant price
and volume fluctuations that are unrelated to the operating performance of
particular companies, and the market prices for securities of technology
companies have been especially volatile. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock. Factors such as
fluctuations in the Company's results of operations, failure of such results of
operations to meet the expectations of stock market analysts and investors,
change in stock market analyst recommendations regarding the Company, timing and
announcements of technological innovations or new products by the Company or its
competitors, developments with respect to patents and proprietary rights, timing
and announcements of developments related to the Company's customers, results of
operations of certain of the Company's competitors, government regulation,
political instability in countries in which the Company sells its products,
changes in the wireless communications industry generally and general market
conditions may have a significant adverse effect on the market price of the
Common Stock.
FUTURE CAPITAL REQUIREMENTS
The Company's future capital requirements will depend upon many
factors, including the development of new wireless communications networks, the
establishment and maintenance of adequate manufacturing facilities, the success
of the Company's research and development efforts, the expansion of the
Company's sales and marketing efforts and the status of competitive products.
The Company believes that the net proceeds from the Offering, together with
existing cash balances and funds expected to be generated from operations,
financings through equipment lease transactions and available lines of
15
<PAGE>
credit will be adequate to fund its operations for at least the 12 months
following the Offering. There can be no assurance, however, that the Company
will not require additional financing during such time. Further, there can be no
assurance that any additional financing will be available to the Company on
acceptable terms, or at all. If additional funds are raised by issuing equity
securities, further dilution to the existing shareholders could result. If
adequate funds are not available, the Company may be required to delay, scale
back or eliminate its research and development or manufacturing programs or
obtain funds through arrangements with partners or others that may require the
Company to relinquish rights to certain of its technologies or potential
products or other assets. Accordingly, the inability to obtain or difficulty in
obtaining such financing could have a material adverse effect on the Company's
business, results of operation and financial condition.
CONTROL BY DIRECTORS, OFFICERS AND AFFILIATED ENTITIES
The Company's directors, officers and entities affiliated with them
will, in the aggregate, beneficially own approximately 83% of the Company's
outstanding Common Stock following the completion of the Offering. These
shareholders, if acting together, would be able to control substantially all
matters requiring approval by the shareholders of the Company, including the
election of directors and the approval of mergers or other business combination
transactions. Such concentration of ownership could discourage or prevent a
change in control of the Company. See "Principal Shareholders."
NO PRIOR PUBLIC TRADING MARKET
Prior to the Offering there has been no public market for the Common
Stock, and there can be no assurance that an active trading market will develop
or, if one does develop, that it will be maintained. The initial public offering
price, which will be established by negotiations between the Company and the
representatives of the Underwriters, may not be indicative of prices that will
prevail in the trading market. See "Underwriting."
EFFECT OF CERTAIN CHARTER AND BYLAW PROVISIONS
Certain provisions of the Company's Amended and Restated Certificate
of Incorporation and Amended and Restated Bylaws may have the effect of making
it more difficult for a third party to acquire, or of discouraging a third party
from attempting to acquire, control of the Company. Such provisions could limit
the price that certain investors might be willing to pay in the future for
shares of the Company's Common Stock. The Company's Amended and Restated
Certificate of Incorporation allows the Company to issue up to 5,000,000 shares
of currently undesignated Preferred Stock, to determine the powers, preferences
and rights and the qualifications, limitations or restrictions granted to or
imposed on any unissued series of that Preferred Stock, and to fix the number of
shares constituting any such series and the designation of such series, without
any vote or future action by the shareholders. The Preferred Stock could be
issued with voting, liquidation, dividend and other rights superior to the
rights of the Common Stock. The Amended and Restated Certificate of
Incorporation also eliminates the ability of shareholders to call special
meetings. The Company's Amended and Restated Bylaws require advance notice to
nominate a director or take certain other actions. Such provisions may make it
more difficult for shareholders to take certain corporate actions and could have
the effect of delaying or preventing a change in control of the Company. In
addition, the Company has not elected to be excluded from the provisions of
Section 203 of the Delaware General Corporation Law, which imposes certain
limitations on transactions between a corporation and "interested" shareholders,
as defined in such provisions. See "Description of Capital Stock."
16
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Common Stock (including Common Stock issued upon the exercise
of outstanding options) in the public market after the Offering could materially
adversely affect the market price of the Common Stock. Such sales also might
make it more difficult for the Company to sell equity securities or equity-
related securities in the future at a time and price that the Company deems
acceptable, or at all. Upon the completion of the Offering, the Company will
have 15,862,500 shares of Common Stock outstanding. Of these outstanding shares
of Common Stock, the 1,800,000 shares sold in the Offering will be freely
tradable without restriction under the Securities Act of 1933, as amended (the
"Securities Act"), unless purchased by "affiliates" of the Company, as that term
is defined in Rule 144 under the Securities Act. The remaining shares of Common
Stock held by existing shareholders are "restricted securities" as that term is
defined in Rule 144 under the Securities Act, and were issued and sold by the
Company in reliance on exemptions from the registration requirements of the
Securities Act. These restricted shares may be sold in the public market only if
registered or pursuant to an exemption from registration, such as Rule 144,
144(k) or 701 under the Securities Act. Except for holders of an aggregate of
__________ shares of Common Stock, all holders of Common Stock have agreed,
pursuant to certain lock-up agreements, that they will not offer, sell, contract
to sell, grant any option to sell or otherwise dispose of, directly or
indirectly, any shares of Common Stock owned by them or that could be purchased
by them through the exercise of options to purchase Common Stock of the Company
for a period of 180 days after the date of this Prospectus without the prior
written consent of Alex. Brown & Sons Incorporated. Immediately after completion
of the Offering, an aggregate of _____ shares of Common Stock will become
available for sale in the public market, pursuant to Rule 144(k). Beginning 90
days after the completion of the Offering, _____ additional shares will be
eligible for sale in the public market pursuant to Rule 144 and Rule 701,
subject in certain cases to volume and other restrictions. Upon expiration of
the lock-up agreements, approximately _____ shares of Common Stock held by
existing shareholders will be eligible for sale without restriction pursuant to
Rule 144(k), and approximately _____ shares held by existing shareholders will
be eligible for sale subject to the volume and other restrictions of Rule 144
and Rule 701. As of __________, 1996, ______ shares were subject to outstanding
options to purchase Common Stock, of which _____ shares are subject to the lock-
up agreement described above. The Securities and Exchange Commission has
recently proposed reducing the initial Rule 144 holding period to one year and
the Rule 144(k) holding period to two years. There can be no assurance as to
when or whether such rule changes will be enacted. If enacted, such modification
will have a material effect on the time when shares of the Company's Common
Stock become eligible for resale. Following completion of the Offering,
13,950,000 shares will be entitled to certain demand and piggyback registration
rights upon termination of lock-up agreements. Any exercise of these
registration rights may cause the Company to incur substantial expense, could
impair the Company's ability to raise capital through the sale of its equity
securities and, if sold, could have an adverse effect on the market price of the
Common Stock. See "Description of Capital Stock --Registration Rights" and
"Shares Eligible for Future Sale."
BROAD DISCRETION OF MANAGEMENT TO ALLOCATE OFFERING PROCEEDS
The Company expects to utilize the net proceeds from the Offering to
fund capital expenditures, working capital, new product development and other
general corporate purposes. The Company may use a portion of the net proceeds
for acquisitions of complementary products, technologies or businesses. There
are currently no acquisitions either planned or under consideration by the
Company. The Company currently is not able to estimate precisely the allocation
of the proceeds among such uses, and the timing and amount of expenditures will
vary depending upon numerous factors. The Company's management will have broad
discretion to allocate the proceeds of the Offering and to determine the timing
of
17
<PAGE>
expenditures, and there can be no assurance that the net proceeds can or will be
invested to yield a significant return. See "Use of Proceeds."
DILUTION
The initial public offering price is substantially higher than the net
tangible book value per share of Common Stock. Investors purchasing shares of
Common Stock in the Offering will incur immediate and substantial net tangible
book value dilution of $9.88 per share. To the extent that options to purchase
the Company's Common Stock are exercised, there will be further dilution. See
"Dilution."
ABSENCE OF DIVIDENDS
The Company has never paid cash dividends on its Common Stock and does
not anticipate paying cash dividends in the foreseeable future. The Company's
bank credit agreement currently restricts the Company from paying cash dividends
without the prior written consent of the bank. See "Dividend Policy."
18
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 1,800,000 shares
of Common Stock offered by the Company hereby at an assumed offering price of
$12.00 per share are estimated to be $19,138,000 ($22,151,200 if the
Underwriters' over-allotment option is exercised in full).
The net proceeds will be used for capital expenditures, working
capital, new product development and other general corporate purposes. The
Company may use a portion of the net proceeds for acquisitions of complementary
products, technologies or businesses. However, no plans or agreements with
respect to any acquisition currently exist. The Company has made no commitments
of the proceeds, and management will have broad discretion in the application of
the proceeds. Pending such uses, the Company intends to invest the net proceeds
from the Offering in short-term, investment grade money-market instruments.
DIVIDEND POLICY
The Company anticipates that all future earnings will be retained to
finance future growth. The Company has not paid any dividends on its Common
Stock and does not anticipate paying any dividends on the Common Stock in the
foreseeable future. The Company's bank credit agreement currently restricts the
Company from paying cash dividends without the prior written consent of the
bank.
19
<PAGE>
CAPITALIZATION
The following table sets forth as of June 30, 1996 (i) the actual
capitalization of the Company; (ii) the pro forma capitalization of the Company
after giving effect to the conversion of all outstanding shares of Series A
Preferred Stock into shares of Common Stock at or prior to the closing of the
Offering and the reversal of accrued dividends payable thereon; and (iii) the
capitalization of the Company as adjusted to reflect the receipt of net proceeds
from the sale of 1,800,000 shares of Common Stock offered hereby at an assumed
initial public offering price of $12.00 per share and receipt of the net
proceeds therefrom. This table should be read in conjunction with the
consolidated financial statements and notes thereto included elsewhere in this
Prospectus. See "Selected Consolidated Financial Data."
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------------------------------------------
ACTUAL PRO FORMA(1)(2) AS ADJUSTED(3)
------------- --------------- --------------------
(in thousands)
<S> <C> <C> <C>
Long-term debt.......................... $ 102 $ 102 $ 102
Series A Convertible Preferred Stock,
$.0001 par value; 3,375,900 shares
authorized, 3,375,900 issued and
outstanding, actual; no shares
issued or outstanding, pro forma
or as adjusted........................ 14,498
Shareholders' equity:
Preferred Stock, $.0001 par value;
5,000,000 shares authorized and no
shares outstanding pro forma
and as adjusted
Common Stock, $.0001 par value; 20,000,000
shares authorized, 8,998,650 shares
issued and outstanding, actual;
14,062,500 shares issued and
outstanding, pro forma;
40,000,000 shares authorized and 15,862,500
shares outstanding,
as adjusted (2)............................. 771 15,269 34,407
Retained earnings.............................. 10,620 11,520 11,520
Less Treasury Stock at cost................. (12,231) (12,231) (12,231)
-------- -------- --------
Total shareholders' equity (deficit)........... (840) 14,558 33,696
-------- -------- --------
Total capitalization......................... $ 13,760 $ 14,660 $ 33,798
======== ======== ========
</TABLE>
- -----------------
(1) Excludes 1,801,725 shares of Common Stock issuable upon exercise of
outstanding stock options as of June 30, 1996 at a weighted average
exercise price of $3.28 per share, the cancellation of options to purchase
6,750 shares of Common Stock after June 30, 1996 and the issuance of
options to purchase 28,425 shares of Common Stock issued subsequent to June
30, 1996. Under an agreement with the Company, certain shareholders have
agreed that, once the Company has issued an initial 1,170,000 shares of
Common Stock under the 1995 Stock Option Plan, any additional shares issued
under that Plan upon an option exercise will be coupled with a pro rata
redemption from those shareholders of an equal number of shares at a
redemption price equaling the option exercise price. See "Management--1995
Stock Option Plan."
(2) Gives effect to the conversion of 3,375,900 shares of Series A Preferred
Stock into 5,063,850 shares of Common Stock upon the closing of the
Offering and the reversal of accrued dividends payable thereon. See Note 2
of notes to the consolidated financial statements, "Description of Capital
Stock" and "Management--1995 Stock Option Plan."
(3) Adjusted to reflect the sale by the Company of 1,800,000 shares of Common
Stock at an assumed initial public offering price of $12.00 per share and
the application of the estimated net proceeds therefor. See "Use of
Proceeds" and "Selected Financial Data."
20
<PAGE>
DILUTION
The pro forma net tangible book value of the Company as of June 30, 1996
was approximately $14,558,000, or approximately $1.04 per share. Pro forma net
tangible book value per share represents the amount of the Company's
shareholders' equity, less intangible assets, divided by 14,062,500 shares of
Common Stock outstanding after giving effect to the conversion of all the
outstanding shares of Series A Preferred Stock into Common Stock.
Pro forma net tangible book value dilution per share represents the
difference between the amount per share paid by purchasers of shares of Common
Stock in the Offering and the pro forma net tangible book value per share of
Common Stock immediately after completion of the Offering. After giving effect
to the sale of the 1,800,000 shares of Common Stock in the Offering at an
assumed initial public offering price of $12.00 per share, and deducting
underwriting discounts and commissions and estimated offering expenses payable
by the Company, the Company's pro forma net tangible book value at June 30,
1996, would have been $33,696,000, or $2.12 per share. This represents an
immediate increase in pro forma net tangible book value of $1.08 per share to
existing shareholders and an immediate dilution in pro forma net tangible book
value of $9.88 per share to new investors purchasing Common Stock in the
Offering, as illustrated in the following table:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share......................... $12.00
Pro forma net tangible book value per share as of June 30, 1996....... $1.04
Increase per share attributable to new investors...................... 1.08
-----
Pro forma net tangible book value per share after the Offering.......... 2.12
------
Pro forma net tangible book value dilution per share to new investors... $ 9.88
======
</TABLE>
The following table sets forth, on a pro forma basis as of June 30,
1996, the difference between the existing shareholders and the purchasers of
shares in the Offering (at an assumed price of $12.00 per share) with respect to
the number of shares purchased from the Company, the total consideration paid
and the average price per share paid.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration Average Price
-------------------- -----------------------
Number Percent Amount Percent Per Share
--------- -------- ---------- --------- ----------------
<S> <C> <C> <C> <C> <C>
Existing Shareholders 14,062,500 88.7% $15,269,000 41.4% $ 1.09
New Investors............. 1,800,000 11.3 21,600,000 58.6 $12.00
---------- ----- ----------- -----
Total................. 15,862,500 100.0% $36,869,000 100.0%
========== ===== =========== =====
</TABLE>
21
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated statements of operations data set forth below
for each of the years ended December 31, 1993, 1994 and 1995 and the balance
sheet data as of December 31, 1994 and 1995 are derived from the financial
statements of the Company audited by Deloitte & Touche LLP, independent
auditors, which are included elsewhere in this Prospectus. The selected balance
sheet data as of December 31, 1993 are derived from the Company's audited
balance sheet which is not included herein. The selected financial data with
respect to the Company's consolidated statements of operations for the years
ended December 31, 1991 and 1992 and the consolidated balance sheets as of
December 31, 1991 and 1992 are derived from the Company's unaudited consolidated
financial statements, which are not included herein. The selected consolidated
financial data with respect to the Company's consolidated statements of
operations for the six months ended June 30, 1995 and June 30, 1996 and the
consolidated balance sheets as of June 30, 1995 and June 30, 1996, are derived
from the Company's unaudited consolidated financial statements. The consolidated
unaudited financial statements have been prepared by the Company on a basis
consistent with the audited consolidated financial statements and include all
normal recurring adjustments necessary for a fair presentation of the
information. The results of operations for the fiscal six months ended June 30,
1996 are not necessarily indicative of the results to be expected for any
subsequent period. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the consolidated financial statements and related notes included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1991 1992 1993 1994 1995 1995 1996
----------- ------ ------- -------- ---------- ---------- --------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales............................ $2,802 $4,083 $8,717 $22,861 $36,044 $11,573 $29,108
Cost of sales........................ 1,912 2,928 6,567 14,466 22,713 7,953 17,229
------ ------ ------ ------- ------- ------- -------
Gross profit......................... 890 1,155 2,150 8,395 13,331 3,620 11,879
Operating expenses:
Sales and marketing................. 199 200 387 570 1,557 565 2,159
Research and development............ 125 380 581 1,433 2,252 759 2,450
General and administrative.......... 382 384 559 1,518 1,958 838 1,283
------ ------ ------ ------- ------- ------- -------
Total operating expenses............. 706 964 1,527 3,521 5,767 2,162 5,892
------ ------ ------ ------- ------- ------- -------
Operating income..................... 184 191 623 4,874 7,564 1,458 5,987
Other income (expense).......... (24) 6 (5) (20) 32 7 179
------ ------ ------ ------- ------- ------- -------
Income before income taxes........... 160 197 618 4,854 7,596 1,465 6,166
Provision for income taxes........... 51 35 267 1,908 3,116 601 2,528
------ ------ ------ ------- ------- ------- -------
Net income........................... $ 109 $ 162 $ 351 $ 2,946 $ 4,480 $ 864 $ 3,638
====== ====== ====== ======= ======= ======= =======
Pro forma net income per share (1)... $.30 $.25
======= =======
Pro forma weighted average
common shares (1).................... 14,869 14,869
</TABLE>
22
<PAGE>
<TABLE>
<CAPTION>
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
----------------------- --------------
1991 1992 1993 1994 1995 1995 1996
-------- -------- -------------- ---------- ---------- -------------- -------
BALANCE SHEET DATA: (IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Cash and cash equivalents........... $ 633 $ 396 $ 359 $3,030 $ 5,861 $ 513 $12,217
Working capital..................... 559 592 679 3,486 9,640 4,315 11,201
Total assets........................ 1,417 1,631 4,446 9,551 16,463 11,470 23,969
Long-term debt...................... 39 63 56 176 138 193 102
Total shareholders' equity
(1)(2)........................ 683 845 1,196 4,142 10,620 5,007 14,558
</TABLE>
____________________________
(1) Gives effect to the conversion of 3,375,900 of Series A Preferred
Stock into 5,036,850 shares of Common Stock upon the closing of the
Offering and the reversal of accrued dividends payable thereon. See
Note 2 of notes to the consolidated financial statements for
information regarding the calculation of pro forma net income per
share.
(2) Includes amounts attributable to Series A Preferred Stock and the
reversal of accrued dividends payable thereon.
23
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Powerwave designs, manufactures and markets ultra-linear RF power
amplifiers for use in the wireless communications market. The Company's
amplifiers, which are key components in wireless communications networks,
increase the signal strength of wireless transmissions while reducing
interference. The Company's amplifiers are currently being utilized in cellular
base stations and support a broad range of analog and digital transmission
protocols, including CDMA, TDMA, GSM, FHMA, AMPS and TACS. The Company also
produces power amplifiers for the SMR market and air-to-ground amplifiers used
in both ground stations and commercial aircraft. The Company's customer base
consists primarily of OEMs of wireless infrastructure equipment as well as
specialized equipment manufacturers and designers in various wireless
communications markets.
Powerwave was formed in 1985 to develop a line of high-power RF
amplifiers suitable for use with VHF/UHF, AM/FM transceivers. In addition, the
Company offered products for use in the SMR industry. For the next several
years, the Company continued product development in the land mobile radio
industry, broadening its product offerings and selling to a diversified customer
base.
In late 1994, Powerwave developed a multi-channel linear RF amplifier
which could be utilized in the transmission of radio signals for cellular base
stations. In 1995, the Company began supplying multi-channel RF linear
amplifiers for use in the deployment of a digital cellular network utilizing
CDMA technology in South Korea. In 1996, the Company commenced development of
amplifier products for PCS networks.
A small number of customers account for a substantial majority of the
Company's net sales. Although the Company is attempting to expand its customer
base, the Company expects that a limited number of customers will continue to
represent a substantial portion of the Company's net sales for the foreseeable
future. The Company believes that its future success depends upon its ability to
broaden its customer base. The Company's four largest customers include, in
alphabetical order, Hyundai, In-Flight, LGIC and Samsung. For the six months
ended June 30, 1996, these customers, each of which accounted for more than 10%
of the Company's net sales, accounted for approximately 81% of the Company's net
sales in the aggregate. In-Flight purchases the Company's products for
implementation in an air-to-ground wireless network. As this network has been
substantially completed, the Company expects sales to In-Flight to decrease
significantly in future periods. Sales of power amplifiers to wireless
infrastructure equipment suppliers are expected to continue to account for a
substantial majority of the Company's product sales. Hyundai, LGIC and Samsung
currently purchase products for implementation in the South Korean digital
cellular telephone network. The Company expects that sales to these customers of
products for use in the South Korean cellular network will decline as that
network nears completion, which is expected to occur in the next one to two
years. See "Risk Factors--Reliance upon South Korean Market and Growth of
Wireless Services Market." A limited number of large OEMs account for a majority
of RF power amplifier purchasers in this market, and the Company's success will
be dependent upon its ability to establish and maintain relationships with these
types of customers. There can be no assurance that a major customer will not
reduce, delay or eliminate its purchases from the Company, which could have a
material adverse effect on the Company's business, results of operations and
financial condition.
In recent periods, Powerwave's revenues have continued to increase
significantly, primarily as a result of increasing sales to a limited number of
customers supplying the South Korean marketplace.
24
<PAGE>
The Company is attempting to expand its customer base as it pursues additional
opportunities within the wireless infrastructure equipment market. The Company
has experienced, and expects to continue to experience, declining average sales
prices for its multi-channel amplifier products. Wireless infrastructure
equipment manufacturers have come under increasing price pressure from cellular
service providers, which in turn has resulted in downward pricing pressure on
the Company's products. Consequently, the Company believes that in order to
maintain or improve existing gross margins in the near term, it must achieve
manufacturing cost reductions, and in the long term it must develop new products
that incorporate advanced features and that command higher gross margins. The
Company has initiated actions that it believes will reduce its materials and
manufacturing costs and intends to continue to invest significant internal
resources in the development of its amplification products.
RESULTS OF OPERATIONS
The following table summarizes the Company's results of operations as a
percentage of net sales for the fiscal years ended December 31, 1993, 1994 and
1995 and the six-month periods ended June 30, 1995 and 1996.
<TABLE>
<CAPTION>
PERCENTAGE OF REVENUES
---------------------------------------
SIX MONTHS
YEAR ENDED DECEMBER 31, ENDED JUNE 30,
------------------------------------ ------------------
1993 1994 1995 1995 1996
---------- --------- ----------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF
OPERATIONS DATA:
Net sales................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................. 75.3 63.3 63.0 68.7 59.2
---- ----- ---- ----- ----
Gross profit.................. 24.7 36.7 37.0 31.3 40.8
Operating expenses:
Sales and marketing.......... 4.4 2.5 4.3 4.9 7.4
Research and development..... 6.7 6.3 6.3 6.6 8.4
General and administrative... 6.4 6.6 5.4 7.2 4.4
---- ----- ---- ----- ----
Total operating expenses...... 17.5 15.4 16.0 18.7 20.2
Operating income.............. 7.2 21.3 21.0 12.6 20.6
Other income (expense)........ (0.1) (0.1) 0.1 0.1 0.6
---- ----- ---- ----- ----
Income before income taxes.... 7.1 21.2 21.1 12.7 21.2
Provision for income taxes.... 3.1 8.3 8.7 5.2 8.7
---- ----- ---- ----- ----
Net income.................... 4.0% 12.9% 12.4% 7.5% 12.5%
===== ==== ===== ===== =====
</TABLE>
YEARS ENDED DECEMBER 31, 1993, 1994 AND 1995
Net Sales
The Company's net sales are primarily from the sale of RF power
amplifiers for use in wireless communications networks. The Company's revenues
increased 162.3% from $8.7 million in 1993 to $22.9 million in 1994 and
increased 57.7% to $36.0 million in 1995. The increase from 1993 to 1994 was
principally attributable to increased sales of a new generation SMR amplifier
product to a single customer. In 1994, three customers accounted for
approximately 65% of total revenues. For 1994, SMR and paging systems accounted
for approximately 56% of revenues, while air-to-ground amplifier sales accounted
for approximately 30% of revenues. The increase in revenues from 1994 to 1995
was principally attributable to the introduction of several new cellular multi-
channel linear RF power amplifier
25
<PAGE>
products. For 1995, multi-channel linear RF amplifiers accounted for
approximately 54% of revenues, while SMR and paging accounted for approximately
29% of revenues. Air-to-ground amplifiers reduced to 15% of revenues for the
year. The increase in multi-channel amplifier sales was largely attributable to
supplying the Company's South Korean customers for the implementation of the
digital cellular network in South Korea. During 1995, four customers accounted
for approximately 29%, 15%, 13% and 11%, respectively, of revenues.
For the fiscal years 1993, 1994 and 1995 international revenues
accounted for 8.0%, 8.7% and 67.1%, respectively, of the Company's net sales.
The Company expects that international revenues will continue to account for a
significant percentage of the Company's net sales for the foreseeable future. As
a result, the Company is subject to various risks, including a greater
difficulty of administering business globally, compliance with multiple and
potentially conflicting regulatory requirements such as export requirements,
tariffs and other barriers, differences in intellectual property protections,
health and safety requirements, difficulties in staffing and managing foreign
operations, longer accounts receivable cycles, currency fluctuations,
repatriation of earnings, export control restrictions, overlapping or differing
tax structures, political and economic instability and general trade
restrictions.
Gross Profit
Cost of sales consists primarily of raw materials, assembly and test
labor, overhead, warranty costs and royalties. Gross profit margins were 24.7%,
36.7% and 37.0% in 1993, 1994 and 1995, respectively. The gross profit margins
between 1993 and 1994 increased as manufacturing overhead was further absorbed
with increased sales of the same product line. The gross margins between 1994
and 1995 remained relatively flat primarily due to a decrease in average sales
prices on existing SMR products which were offset by a change in the sales mix
to new cellular multi-channel RF amplifier products, which have higher gross
margins. For a discussion of the effects of declining average sales prices on
the Company's business, see "Risk Factors--Declining Average Sales Prices." The
wireless communications infrastructure equipment industry is extremely
competitive and is characterized by rapid technological change, new product
development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product. Due to these competitive
pressures, the Company expects that the average sales prices of its products
will continue to decrease. Future pricing actions by the Company and its
competitors may adversely impact the Company's gross margins and profitability,
which could also result in decreased liquidity and adversely affect the
Company's business, results of operations and financial condition.
Operating Expenses
Sales and marketing expenses consist primarily of sales commissions,
salaries and other expenses for sales and marketing personnel, travel expenses
and trade shows. Sales and marketing expenses increased 47.4% from $0.4 million
in 1993 to $0.6 million in 1994 and increased by 173.1% to $1.6 million in 1995.
Sales and marketing expenses as a percentage of revenues were 4.4%, 2.5% and
4.3% in 1993, 1994 and 1995, respectively. The decrease in sales and marketing
expenses as a percentage of sales between 1993 and 1994 resulted from the
Company's decision to hold sales and marketing expenses relatively constant
while revenues were growing. The increase in sales and marketing expenses
between 1994 and 1995 was primarily attributable to increases in sales personnel
and sales commissions related to increased product sales.
Research and development expenses include ongoing amplifier design and
development expenses, as well as those design expenses associated with reducing
the cost and improving the manufacturability of existing amplifiers. Research
and development expenses increased by 146.6% from $0.6 million in
26
<PAGE>
1993 to $1.4 million in 1994 and increased by 57.2% to $2.3 million in 1995. The
increase in research and development expenses has been due to the Company's
continued commitment to new product development, which includes development
during 1994 and 1995 of multi-channel linear RF amplifiers for the cellular
marketplace. Research and development expenses as a percentage of revenues were
6.7%, 6.3% and 6.2% in 1993, 1994 and 1995, respectively. The increase in
expenses between 1993 and 1994 and 1994 and 1995 was primarily due to increased
personnel costs, materials costs related to design and development of product
prototypes, consulting costs and related overhead expenses.
General and administrative expenses consist primarily of salaries and
other expenses for management, finance, accounting and human resources. General
and administrative expenses increased by 171.4% from $0.6 million in 1993 to
$1.5 million in 1994 and increased by 29.0% to $2.0 million in 1995. General and
administrative expenses as a percentage of revenues were 6.4%, 6.6% and 5.4% in
1993, 1994 and 1995, respectively. The increase in general and administrative
expenses between 1993 and 1994 was primarily due to higher incentive payments in
1994 as opposed to 1993. General and administrative expenses increased from 1994
to 1995 due to increases in personnel and related labor costs.
Other Income (Expense)
The Company incurred net interest expense in 1993 and 1994 from the
use of capital lease financing to fund the Company's capital equipment
expenditures and working capital requirements. The Company generated net
interest income in 1995 as a result of excess working capital which was invested
in short-term money market instruments.
Provision for Income Taxes
The Company's effective tax rates were 43.1%, 39.3% and 41.0% for the
years ended December 31, 1993, 1994 and 1995, respectively.
SIX MONTHS ENDED JUNE 30, 1995 AND JUNE 30, 1996
Net Sales
Revenues increased by 151.5% from $11.6 million for the six months
ended June 30, 1995 to $29.1 million in the six months ended June 30, 1996. The
growth in revenue was primarily attributable to increased demand by the
Company's South Korean customers for multi-channel linear amplifiers, partially
offset by a decrease in sales volumes of SMR and paging amplifiers. For the
first six months of 1996, multi-channel linear amplifiers accounted for
approximately 72% of revenue, compared to approximately 21% for the first half
of 1995. SMR and paging amplifiers accounted for approximately 13% of revenue
for the first half of 1996, compared to approximately 46% of revenue for the
comparable period in 1995. Air-to-ground amplifiers accounted for approximately
15% of revenues in the first half of 1996, compared to approximately 27% in
1995. International sales accounted for 47.4% of revenues for the first six
months of 1995, compared with 69.4% for the first six months of 1996.
Gross Profit
The gross margin for the six months ended June 30, 1995 and June 30,
1996 as a percentage of revenue was 31.3% and 40.8%, respectively. The increase
in gross margins during the first six months of 1996 was primarily attributable
to reductions in manufacturing costs and a shift in sales mix to multi-channel
linear RF amplifiers which have higher gross margins.
27
<PAGE>
Operating Expenses
Sales and marketing expenses increased by 281.8% from $0.6 million for
the six months ended June 30, 1995 to $2.2 million for the six months ended June
30, 1996. Sales and marketing expenses as a percentage of sales were 4.9% and
7.4%, respectively. The increase in sales and marketing expenses was primarily
attributable to increases in the sales and marketing staff and sales commissions
related to increased product sales. The Company intends to increase its
investment in sales and marketing in future periods.
Research and development expenses increased by 223.0% from $0.8
million for the six months ended June 30, 1995 to $2.5 million for the six
months ended June 30, 1996. Research and development expenses as a percentage of
sales were 6.6% and 8.4%, respectively. The increase in research and development
expenses during the first six months of 1996 was primarily attributable to
increased staffing and associated engineering costs related to continued new
product development, including the Company's second generation multi-channel
linear amplifier for cellular networks, and ongoing product enhancements. During
the second quarter of 1996, the Company also began development work on amplifier
products for PCS networks. The Company intends to increase its investment in
research and development in future periods.
General and administrative expenses increased by 53.1% from $0.8
million for the six months ended June 30, 1995 to $1.3 million for the six
months ended June 30, 1996. General and administrative expenses as a percentage
of sales were 7.2% and 4.4%, respectively. The increase in general and
administrative expenses during the first six months of 1996 was primarily
attributable to increased staffing costs associated with supporting the
Company's increased revenues.
Provision for Income Taxes
The Company's effective tax rate was 41.0% for both the six month
periods ended June 30, 1995 and 1996.
28
<PAGE>
Quarterly Results of Operations
The following tables present unaudited quarterly financial information
for each quarter of fiscal 1994, 1995 and the first six months of 1996. The
information has been prepared by the Company on a basis consistent with the
Company's audited consolidated financial statements appearing elsewhere in this
Prospectus and includes all necessary adjustments, consisting only of normal
recurring adjustments, that management considers necessary for a fair
presentation of the unaudited quarterly results when read in conjunction with
the audited consolidated financial statements of the Company and the notes
thereto appearing elsewhere in this Prospectus. These operating results are not
necessarily indicative of results that may be expected for any subsequent
periods.
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------------------------------------
MAR. 31 JUNE 30 SEPT. 30 DEC. 31 MAR. 31 JUNE 30 SEPT. 30
1994 1994 1994 1994 1995 1995 1995
------- ------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $4,791 $6,469 $7,394 $4,207 $4,593 $6,980 $10,811
Cost of sales................ 3,095 4,101 4,510 2,760 3,337 4,616 6,601
------ ------ ------ ------ ------ ------ ------
Gross profit................. 1,696 2,368 2,884 1,447 1,256 2,364 4,210
Operating expenses:
Sales and marketing......... 119 159 150 142 227 338 448
Research and development.... 268 347 389 429 298 461 642
General and administrative.. 298 320 412 488 397 441 450
------ ------ ------ ------ ------ ------ -----
Total operating expenses..... 685 826 951 1,059 922 1,240 1,540
------ ------ ------ ------ ------ ------ -----
Operating income............. 1,011 1,542 1,933 388 334 1,124 2,670
Other income (expense)..... (9) (29) (6) 24 18 (11) (7)
------ ------ ------ ------ ------ ------ -----
Income before income taxes... 1,002 1,513 1,927 412 352 1,113 2,663
Provision for income taxes... 394 595 758 161 144 457 1,093
------ ------ ------ ------ ------ ------ -----
Net income................... $ 608 $ 918 $1,169 $ 251 $ 208 $ 656 $1,570
====== ======= ====== ====== ====== ====== ======
<CAPTION>
QUARTER ENDED
---------------------------
DEC. 31 MAR. 31 JUNE 30
1995 1996 1996
-------- -------- -------
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $13,660 $13,807 $15,301
Cost of sales................ 8,159 8,229 9,000
------- ------ ------
Gross profit................. 5,501 5,578 6,301
Operating expenses:
Sales and marketing......... 544 1,056 1,103
Research and development.... 851 1,075 1,375
General and administrative.. 670 612 671
------- ------ -------
Total operating expenses..... 2,065 2,743 3,149
------- ------ -------
3,436 2,835 3,152
Operating income............. 32 59 120
Other income (expense)..... ------- ------ -------
3,468 2,894 3,272
Income before income taxes... 1,422 1,186 1,342
Provision for income taxes... ------- ------ -------
$ 2,046 $1,708 $ 1,930
Net income................... ======= ====== =======
<CAPTION>
AS A PERCENTAGE OF NET SALES
----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales................ 64.6 63.4 61.0 65.6 72.7 66.1 61.1 59.7
------ ------ ------ ------ ------ ------ ------ -----
Gross profit................. 35.4 36.6 39.0 34.4 27.3 33.9 38.9 40.3
Operating expenses:
Sales and marketing......... 2.5 2.5 2.0 3.4 5.0 4.8 4.1 4.0
Research and development.... 5.6 5.4 5.3 10.2 6.5 6.6 5.9 6.2
General and administrative.. 6.2 4.9 5.6 11.6 8.6 6.3 4.2 4.9
------ ------ ------ ------ ------ ------ ----- -------
Total operating expenses..... 14.3 12.8 12.9 25.2 20.1 17.7 14.2 15.1
Operating income............. 21.1 23.8 26.1 9.2 7.2 16.2 24.7 25.2
Other income (expense)..... (0.2) (0.4) (0.1) 0.6 0.5 (0.3) (0.1) 0.2
------ ------ ------ ------ ------ ------ ----- -------
Income before income taxes... 20.9 23.4 26.0 9.8 7.7 15.9 24.6 25.4
Provision for income taxes... 8.2 9.2 10.3 3.8 3.2 6.5 10.1 10.4
------ ------ ------ ------ ------ ------ ----- -------
Net income................. 12.7% 14.2% 15.7% 6.0% 4.5% 9.4% 14.5% 15.0%
====== ====== ====== ====== ====== ====== ===== =======
<CAPTION>
AS A PERCENTAGE OF NET SALES
---------------------------------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................. 100.0% 100.0%
Cost of sales................ 59.6 58.8
------ ------
Gross profit................. 40.4 41.2
Operating expenses:
Sales and marketing......... 7.6 7.2
Research and development.... 7.8 9.0
General and administrative.. 4.4 4.4
------ -------
Total operating expenses..... 19.8 20.6
Operating income............. 20.6 20.6
Other income (expense)..... 0.4 0.8
------ -------
Income before income taxes... 21.0 21.4
Provision for income taxes... 8.6 8.8
------ -------
Net income................. 12.4% 12.6%
====== =======
</TABLE>
29
<PAGE>
The Company experiences, and expects to continue to experience,
significant fluctuations in sales and operating results from quarter to quarter.
Quarterly results fluctuate due to a number of factors, any of which could have
a material adverse effect on the Company's business, results of operations and
financial condition. In particular, the Company's quarterly results of
operations can vary due to the timing, cancellation, or rescheduling of customer
orders and shipments; variations in manufacturing capacities, efficiencies and
costs; the availability and cost of components; the timing, availability and
sale of new products by the Company; changes in the mix of products having
differing gross margins; warranty expenses; changes in average sales prices;
long sales cycles associated with the Company's products; and variations in
product development and other operating expenses. The Company's quarterly
revenues are also affected by volume discounts given to certain customers for
large volume purchases over a given period of time. In addition, the Company's
quarterly results of operations are influenced by competitive factors, including
pricing, availability and demand for the Company's and competing amplification
products. A large portion of the Company's expenses are fixed and difficult to
reduce in a short period of time. If net sales do not meet the Company's
expectations, the Company's fixed expenses would exacerbate the effect of such
net sales shortfall. Furthermore, announcements by the Company or its
competitors regarding new products and technologies could cause customers to
defer purchases of the Company's products. In addition, while the Company
receives periodic order forecasts from its major customers, such customers have
no binding obligation to purchase the forecasted amounts. See "Risk Factors--
Customer Concentration." Order deferrals and cancellations by the Company's
customers, declining average sales prices, delays in the Company's introduction
of new products and longer than anticipated sales cycles for the Company's
products have in the past adversely affected the Company's quarterly results of
operations. There can be no assurance that the Company will not experience such
effects in the future.
Due to the foregoing factors, the Company believes that period-to-
period comparisons of its operating results are not necessarily meaningful and
that such comparisons cannot be relied upon as indicators of future performance.
There can be no assurance that the Company will maintain its current
profitability in the future or that future revenues and operating results will
not be below the expectations of public market analysts and investors. In either
case, the price of the Company's Common Stock could be materially adversely
affected.
Net Sales
Revenues grew substantially over the ten-quarter period, with
significant quarter to quarter fluctuations. Fluctuations in revenues over the
four quarters of fiscal 1994 and the first two quarters of fiscal 1995 resulted
primarily from fluctuations in demand for SMR and air-to-ground amplifier
products. The increase in revenues in the final two quarters of fiscal 1995 and
the first two quarters of fiscal 1996 resulted primarily from increasing demand
for cellular multi-channel linear RF amplifier products. The increase in
revenues in the first two quarters of fiscal 1996 was partially offset by a
reduction in the average sales price of the Company's multi-channel linear RF
amplifier products.
Gross Profit
Gross profit margins ranged from 27.3% to 41.2% over the ten-quarter
period, with significant quarter to quarter fluctuations. Gross profit margins
decreased in the fourth quarter of fiscal 1994 and in the first two quarters of
fiscal 1995 primarily as a result of a decrease in revenue, as well as
manufacturing inefficiencies experienced in the introduction of a new amplifier.
The increases in gross margins from the second quarter of fiscal 1995 to the
second quarter of fiscal 1996 were primarily attributable to a shift in the
sales mix to multi-channel linear RF amplifiers, improved manufacturing
efficiencies and lower materials costs.
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Operating Expenses
Sales and marketing expenses grew over the ten-quarter period,
generally, with consistent increases quarter to quarter. The increases in sales
and marketing expenses were primarily a result of increased headcount and higher
sales commissions associated with the overall growth in revenue.
Research and development expenses grew substantially over the ten-
quarter period. The increases in research and development expenses were
primarily a result of increased headcount and associated development costs as
the Company staffed several cellular power amplifier development projects.
Research and development expenses decreased between the fourth quarter of fiscal
1994 and the first quarter of fiscal 1995 primarily as a result of a temporary
reduction in headcount due to a reduction in business activity and to lower
incentive compensation payments paid in fiscal 1995 as opposed to fiscal 1994.
General and administrative expenses generally grew consistently over
the ten-quarter period in support of increasing revenues. The increases in
general and administrative expenses were primarily a result of increased
headcount and associated labor costs. General and administrative expenses
decreased between the fourth quarter of fiscal 1994 and the first quarter of
fiscal 1995 as a result of a temporary reduction in headcount due to a reduction
in business activity and to lower incentive compensation payments paid in fiscal
1995 as opposed to fiscal 1994.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically financed its operations primarily through
a combination of cash on hand, cash provided from operations, equipment lease
financings, available borrowings under its bank line of credit and a private
equity offering. As of June 30, 1996, the Company had working capital of $11.2
million, including $12.2 million in cash and cash equivalents.
Cash provided by operations was approximately $.1 million, $3.7
million, $.9 million and $6.5 million in 1993, 1994, 1995, and in the six months
ended June 30,1996, respectively. Cash generated from operations in 1994 was
primarily due to improved profitability and reductions in accounts receivable.
Cash generated from operations in the six months ended June 30, 1996 was
primarily as a result of increased profitability, improved accounts receivable
and working capital management.
On October 10, 1995, the Company and certain shareholders entered into
a Stock Purchase Agreement with two venture capital fund investors in which the
Company sold a total of 3,375,900 shares of Series A Preferred Stock at an
aggregate price of $15 million. As part of these transactions, the Company
subsequently purchased 5,063,850 shares of its Common Stock from certain
shareholders for an aggregate price of $12.5 million. The Company received net
proceeds from this transaction of $2.0 million. The Series A Preferred Stock has
a dividend rate of twelve (12%) percent per annum, commencing January 1, 1996,
and payable upon the redemption or repurchase of such Series A Preferred Stock
or the conversion of such Series A Preferred Stock into Common Stock of the
Company after December 31, 1996. If the Company completes an underwritten public
offering pursuant to an effective registration statement under the Securities
Act on or before December 31, 1996, covering the offer and sale of Common Stock
for the account of the Company from which the aggregate net proceeds to the
Company exceed $15 million and in which the price per share is at least
$5.924346 per share, the dividend on the Series A Preferred Stock will not be
payable. The Series A Preferred Stock is convertible into shares of Common Stock
of the Company at a rate of one and one-half (1.5) shares of Common Stock for
each share of Series A Preferred Stock, adjusted for any accrued and unpaid
dividends.
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Capital expenditures were approximately $.4 million, $.2 million, $.5
million and $1.4 million in 1993, 1994, 1995 and in the six months ended June
30, 1996, respectively, of which approximately $77,000, $.2 million, $0 and $0,
respectively, were financed through capital leases. The Company relocated its
headquarters and manufacturing operations to a new leased facility in July 1996.
Leasehold improvements and capital expenditures associated with this facility
total approximately $2.0 million and should be completed during the third
quarter of 1996.
On May 30, 1996, the Company entered into a $5 million unsecured
committed revolving credit agreement with a maturity date of May 31, 1997. The
agreement allows the Company to borrow at the bank's reference rate. The Company
is required to pay a commitment fee equal to .125% per annum based on the
average daily unused portion of the facility. The fee is payable quarterly in
arrears. Under the terms of this credit facility, the Company is required to
maintain certain minimum working capital, net worth and financial ratios. As of
June 30, 1996, the full amount of the facility was available to the Company and
the Company has not utilized this facility.
The Company had cash and cash equivalents of $12.2 million at June 30,
1996, compared with $5.9 million at December 31, 1995. The Company regularly
reviews its cash funding requirements and attempts to meet those requirements
through a combination of cash on hand, cash provided by operations, available
borrowings under any credit facilities, financing through equipment lease
transactions, and possible future public or private debt and/or equity
offerings. The Company invests its excess cash in investment grade short-term
money market instruments.
The Company believes that the net proceeds from the Offering, together
with existing cash balances, funds expected to be generated from operations and
borrowings under its bank line of credit will provide the Company with
sufficient funds to finance its operations for at least the next 12 months. The
Company has utilized lease financing for the equipment used in its manufacturing
operations and expects to continue to do so in the future. The Company may
require additional funds to support its working capital requirements or for
other purposes and may seek to raise such additional funds through public or
private equity and/or debt financings or from other sources. No assurance can be
given that additional financing will be available or that, if available, such
financing will be obtainable on terms favorable to the Company or its
shareholders. See "Risk Factors--Future Capital Requirements."
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BUSINESS
Powerwave designs, manufactures and markets ultra-linear RF power
amplifiers for use in the wireless communications market. The Company's
amplifiers, which are key components in wireless communications networks,
increase the signal strength of wireless transmissions while reducing
interference, or "noise." The reduction of noise enables wireless service
providers to offer improved service to subscribers by offering clearer call
connections with less interference. Increasing the signal strength of wireless
transmissions also improves service by reducing the number of interrupted or
dropped calls. Powerwave's RF power amplifiers achieve ultra-linearity at
increased levels of amplification through the application of "feedforward"
technology which enables the Company's multi-channel power amplifiers to
significantly reduce RF interference thereby increasing the efficiency of the
wireless service provider's network.
Powerwave manufactures both single channel and multi-channel
amplifiers, with a focus on multi-channel products. Multi-channel amplifiers
integrate the functions of several power amplifiers and cavity filters within a
single unit, thereby reducing service providers' equipment and maintenance costs
and space requirements while providing increased call capacity. The Company's
products are currently being utilized in cellular base stations in both digital
and analog-based networks and the Company has recently delivered initial
prototype units for PCS networks. The Company's products support a wide range of
digital and analog transmission protocols including CDMA, TDMA, GSM, FHMA, AMPS
and TACS. See "-- Markets; Cellular and PCS." The Company also produces power
amplifiers for the SMR market, which is characterized as a two-way radio market
with devices commonly utilized by police and emergency personnel and the
business dispatch marketplace. The Company also manufactures air-to-ground
amplifiers used both in ground stations and in commercial aircraft to amplify
telephone transmissions between airline passengers and ground based network
systems.
The Company began selling RF power amplifiers for use in analog
wireless networks in 1985. In 1995, the Company began selling multi-channel
ultra-linear amplifiers for installation in digital cellular base stations in
South Korea, and the Company believes that it is the leading supplier of
amplifiers to the South Korean market. South Korea is experiencing rapid
economic development and is one of the first countries worldwide to begin the
process of installing a nationwide digital cellular network. The Company's
customers in the South Korean market include Hyundai, LGIC and Samsung. The
Company also sells amplifiers domestically to numerous wireless equipment
suppliers, including ADC Kentrox Industries, Inc., AirNet Communications Corp.,
In-Flight Phone Corp., Metawave Communications Corporation and Phoenix Wireless
Group, Inc.
INDUSTRY BACKGROUND
The worldwide wireless communications market, which consists of
cellular, PCS, SMR, paging, air to ground and other applications, has
experienced significant growth in recent years. According to the Cellular
Telephone Industry Association, the total number of worldwide subscribers for
cellular services, the leading sector of the wireless market, increased 59% from
54.5 million in 1994 to 86.8 million in 1995. The growth in wireless
communications is largely attributable to increased affordability in consumer
equipment, such as cellular phones and pagers, more comprehensive service
coverage at lower prices and technological advancements which have resulted in
improved transmission quality and reliability. International growth has also
been driven by the build-out of cellular networks, including those designed to
serve as primary telephone systems in part due to inadequacies in existing
wireline infrastructures.
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The continuing growth of the wireless communications market, and of
the cellular communications segment in particular, has resulted in the crowding
of transmissions within the available spectrum of radio frequencies. In the
United States, only 3% of the usable 4000 megahertz (MHz) of RF spectrum have
been allocated for cellular transmissions. As a result of the limited allocation
of frequencies and the related overcrowding of available bandwidths, service
providers are increasingly deploying digital networks which, by comparison to
analog networks, allow a greater number of transmissions over the same range of
frequencies. Digital networks, by converting voice transmissions into bits of
electronic information, are able to utilize the existing radio spectrum
allocated to cellular transmissions more efficiently and thereby increase the
call capacity of a given network. The implementation of digital networks, in
conjunction with continued growth and upgrading of analog networks, has resulted
in an increased demand for network infrastructure equipment.
Consumer demand for additional services, combined with capacity
constraints and other limitations of cellular networks, has also led to the
development of PCS, another form of wireless communications which utilizes a
higher frequency range. It is anticipated that PCS applications will include
voice communication, personal messaging, mobile facsimile transmission and
wireless computer networking. The Personal Communications Industry Association
estimates that by the end of the decade there will be approximately 100,000 PCS
cell sites in the United States servicing more than 15 million PCS users.
In 1995 and 1996, the United States government auctioned PCS frequency
licenses covering markets throughout the U.S. and its territories for an
aggregate purchase price of approximately $17.4 billion. This indicates the
scale of investment being made in the PCS market. The successful bidders
included AT&T Wireless PCS, Inc., PCS Primeco L.P., a consortium of Bell
Atlantic Corp., Nynex Corporation, Airtouch Communications, Inc. and US West,
Inc.; and Wireless Co., a consortium of Sprint Corp., TCI International, Inc.,
Comcast Corp., Cox Enterprises, Inc. and GTE Corporation.
CELLULAR AND PCS NETWORKS
Cellular networks use a number of base stations with high power
antennas to serve a geographical region. Each region is broken down into a
number of smaller geographical areas, or "cells." Each cell has its own base
station which uses wireless technology to receive subscribers calls and transmit
those calls through the wireline public switched telephone network ("PSTN").
Cellular networks operate within the 800 and 900 MHz bandwidths of the radio
spectrum. PCS networks operate in a substantially similar manner as cellular
networks, except that PCS networks operate at a higher range in the available RF
spectrum, at 1800 and 1900 MHz bandwidths. Transmissions at the higher
frequencies utilized by PCS networks have shorter transmission waves as compared
to cellular frequency transmissions, which limit the distances PCS transmissions
can travel without significant degradation. Signals travel farther at lower
frequencies and also penetrate into buildings and other obstacles better at the
lower frequencies. Therefore, PCS networks operating at the higher frequency
ranges will require smaller operating cells and more base stations than existing
cellular networks to cover the same total geographic region. Additionally, due
to the smaller geographical cell size utilized in PCS networks, PCS base
stations and telephones will operate at lower power levels as compared to
existing cellular networks.
Base stations contain a variety of sophisticated electronic equipment,
including RF power amplifiers, transceivers and oscillators. RF power
amplifiers, which are typically the most expensive base station components,
increase the signal strength of the incoming and outgoing transmissions which,
like all radio waves, weaken as transmission distances increase. Traditionally,
base station amplifiers were one of the primary sources of background noise, as
they amplified not only the main signal but the noise inherent in the signal as
well. Background noise, which is measured in decibels (dBc), distorts the
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transmission signal and may cause the signal to transmit outside of its
designated frequency, thereby possibly interfering with other transmissions and
resulting in interrupted and dropped calls. Current amplifier technology reduces
the background noise in the transmitted signal through the use of linearization
technology.
Linearity is the degree to which amplified signals remain within their
prescribed band of radio frequency with low distortion or interference with
adjacent channels. An amplifier's capacity to limit or reduce background noise
is dependent on its ability to amplify signals with high linearity. Ultra-linear
power amplifiers amplify a signal while significantly reducing the related
background noise, thus enabling cellular and PCS service providers to place more
signals within a given bandwidth and thereby accommodate a larger number of
subscribers on a network. Utilizing power amplifiers with high linearity is
therefore critical to service providers' ability to improve the efficiency and
increase the capacity of their systems.
In analog cellular networks, each base station is allocated a certain
number of frequency channels, each of which can carry only one call at a time.
As such, a base station can not transmit or receive more calls than it has
available channels at any given time. Originally, cellular base stations in
analog networks used single channel power amplifiers for each frequency channel
allocated to the cell. Many analog cellular networks now utilize a process known
as adaptive channel allocation in order to increase network capacity. In
adaptive channel allocation, which requires multi-channel amplifiers, unused
channels in cells are temporarily reallocated to augment more heavily utilized
adjacent cells. The signals are amplified simultaneously through a multi-channel
power amplifier which allows for the simultaneous amplification of all channels
within a base station. Multi-channel amplifiers require significantly higher
linearity than do single channel designs, but do not require separate, high-
maintenance, tunable cavity filters. By eliminating the need for separate cavity
filters for each channel, multi-channel amplifiers reduce overall deployment and
maintenance costs associated with base stations. While adaptive channel
allocation using multi-channel linear amplifiers has increased the capacity of
analog networks, many service providers still require additional capacity to
serve the increased flow of transmissions through their networks. This has led
many service providers to begin to move from analog networks to digital
networks.
In digital networks, calls are segmented and transmitted across the
entire bandwidth of allocated spectrum, rather than in single channels of that
spectrum. The calls are then reassembled when received at the base station or
cellular phone. While using the entire bandwidth of allocated spectrum results
in greater system capacity, there is a greater likelihood that even minimal
background noise will result in interrupted or dropped calls. Accordingly,
ultra-linear amplification is even more critical in digital networks than in
their analog counterparts.
While the core technologies related to linear amplification of
wireless transmissions are fairly well established, manufacturing reliable
ultra-linear RF power amplifiers in a repeatable, cost-effective manner remains
a difficult process. Due to the nature of RF signals, amplification can cause
frequency and phase variations in the transmission signal for a variety of
reasons, including the electromagnetic make-up of the amplifier's own
components. As such, the manufacturing process involves highly precise fine-
tuning of the amplifier's electronic components by skilled technicians.
The Company believes that the growth in demand for cellular services
and the deployment of PCS will result in increased demand for network
infrastructure equipment meeting more exacting specifications. This has created
a significant market opportunity for third-party RF power amplifier
manufacturers capable of producing highly reliable ultra-linear multi-channel RF
power amplifiers in a repeatable, cost-effective manner.
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THE POWERWAVE SOLUTION
Powerwave's focus on multi-channel power amplifiers and the experience
it has gained through the implementation of its products in digital cellular
networks have enabled the Company to develop substantial expertise in ultra-
linear multi-channel power amplifier technology. The Company has developed the
ability to manufacture ultra-linear multi-channel RF power amplifiers in a
standard, repeatable manner, thus allowing for increased production and
reliability. In addition, by obtaining components from numerous leading
technology companies, Powerwave is able to respond quickly and cost-effectively
to new transmission protocols and design specifications. The manufacturability
of the Company's existing multi-channel RF power amplifier design has allowed it
to increase its manufacturing productivity while reducing its product costs. The
Company believes that its ability to cost-effectively manufacture commercial
quantities of multi-channel RF power amplifiers represents a competitive
advantage over other third-party manufacturers of RF power amplifiers.
Powerwave's ultra-linear multi-channel RF power amplifiers utilize the
Company's implementation of feedforward technology to increase power and
linearity for cellular and PCS service providers. The ultra-linear, multi-
channel approach utilized by the Company in its amplifiers provides increased
transmission capacity as well as quality, thereby providing a highly reliable,
low maintenance product that reduces the providers' future operating costs. The
Company's products support multiple transmission protocols, including existing
analog protocols such as AMPS and TACS, as well as current digital protocols
including CDMA, TDMA, FHMA and GSM. The Company is committed to supporting all
widely accepted existing and future communication protocols.
STRATEGY
Powerwave's strategic objective is to be the leading third-party
supplier of high performance RF power amplifiers used in digital and analog
wireless networks worldwide. The Company's strategy includes the following key
elements:
PROVIDE LEADING TECHNOLOGY TO THE RF AMPLIFIER INDUSTRY. Powerwave
intends to continue to dedicate significant resources to the research and
development of new methods to improve amplifier performance, including methods
to reduce noise and increase power in the RF amplification process. The Company
believes that further reductions in noise may be attained through digital
processing, regulating amplifiers with software and other techniques, as well as
through continued improvements in traditional feedforward technology. The
Company also intends to focus its research and development resources on
increasing amplifier reliability and on methods to decrease the need to re-tune
amplifiers in the field. The Company is currently investigating several
technologies, including "smart" amplifier technologies which enable an amplifier
to re-tune itself automatically.
LEVERAGE POSITION AS LEADING MULTI-CHANNEL AMPLIFIER SUPPLIER.
Powerwave intends to continue to leverage its experience in supplying ultra-
linear multi-channel RF power amplifiers, especially for the South Korean
marketplace, and to penetrate other existing and emerging wireless markets. The
Company currently supplies its products to Hyundai, LGIC and Samsung and
believes that it is the leading supplier of multi-channel RF power amplifiers
being installed in the South Korean nationwide digital cellular network. The
Company is incorporating its technological expertise, manufacturing capability
and product implementation experience into its marketing and sales strategy
which targets new domestic and foreign customers. The Company's sales and
marketing strategy focuses on establishing relationships with customers through
a network of sales representatives selected on the basis of their contacts with
the Company's potential customers and knowledge of the wireless infrastructure
market. In addition, the
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Company intends to leverage its existing relationships with its South Korean
customers as they attempt to market their infrastructure equipment throughout
the world.
EXPAND RELATIONSHIPS WITH LEADING OEMS. Powerwave intends to continue
to develop new, and strengthen existing, relationships with the leading OEMs of
wireless base stations. Many leading OEMs, including Ericsson, Lucent and
Motorola, manufacture their own power amplifiers as opposed to purchasing such
equipment from third-party vendors such as the Company. Powerwave believes that
increased traffic flow on wireless networks and capacity limitations have
resulted in service providers making greater demands on OEMs' resources. As a
result, the Company believes that OEMs may increasingly consider purchasing
power amplifiers from third-party suppliers rather than devoting resources to
internal development and manufacturing of such components. The Company seeks to
provide cost effective amplifier solutions which will allow OEMs to more
efficiently utilize their research and development resources in other areas.
DEVELOP AND MARKET AMPLIFIER PRODUCTS FOR PCS NETWORKS. Powerwave
intends to develop PCS single and multi-channel RF power amplifier products and
utilize its network of sales representatives to market its PCS amplifiers to
customers domestically and worldwide. The successful bidders for PCS frequency
licenses are in the process of implementing PCS networks and are required to
have such networks operational within designated time frames in order to avoid
losing their frequency licenses. A limited number of test markets are currently
operational in the United States and network operators in Asia and Europe are
also moving forward with PCS technology. In the U.S., the Company believes that
PCS network operators and infrastructure manufacturers are currently conducting
product trials in order to validate technology and formulate future purchase
decisions.
MAINTAIN COMMITMENT TO QUALITY, RELIABILITY AND MANUFACTURABILITY.
Powerwave designs its amplifiers to be manufactured in commercial quantities in
a cost-effective manner while being built for high reliability and
effectiveness. The Company believes that its ability to design products for
volume manufacturing has been a competitive advantage in securing orders from
its customers and positions the Company to attract new customers. Historically,
power amplifiers have been difficult to manufacture in high volumes due to the
complexities of RF power technology. Powerwave believes that the
manufacturability of its products is enhanced by its strategy of purchasing
standardized components for integration into its power amplifiers from numerous
suppliers. By purchasing key components rather than internally manufacturing
component parts, the Company believes it can more readily respond to new
transmission protocols and customer specification demands. In addition, the
Company believes that its third-party sourcing strategy enables it to minimize
its capital investment in manufacturing facilities and focus its resources on
developing new products and improvements to existing products utilizing the best
suppliers available. The Company believes that its third-party sourcing strategy
allows it to bring the latest improvements in technology to market ahead of its
non-OEM competitors.
INCREASE INVOLVEMENT IN ITS CUSTOMER PRODUCT DEVELOPMENT PROCESS.
Powerwave intends to utilize technically-oriented marketing personnel to gain
early access to the product development processes of existing and potential
customers. By participating in a customer's product development, the Company
seeks to have its standard product specifications designed into the customer's
system, thereby ensuring sales to such customer and minimizing manufacturing
costs associated with product customization. Powerwave also intends to utilize
its marketing personnel to help direct its own product development. By
interfacing with infrastructure manufacturers and service providers, the
Company's marketing personnel gain substantial insight into user needs, cost
sensitivity and quality requirements. By introducing these concepts early in the
product development cycle, the Company believes it will be able to better serve
customer demand with quality products offered at competitive prices.
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MARKETS
Powerwave sells its RF power amplifier products primarily into the
following segments of the wireless communications market:
CELLULAR AND PCS. The traditional cellular communications market is
experiencing substantial growth. As a result of the limited allocation of
frequencies and the related overcrowding of available bandwidths, service
providers are increasingly deploying digital networks which, by comparison to
analog networks, allow a greater number of transmissions over the same range of
frequencies. Digital networks, by converting voice transmissions into bits of
electronic information, are able to utilize the existing radio spectrum
allocated to cellular transmissions more efficiently and thereby increase the
call capacity of a given network. The implementation of digital networks, in
conjunction with continued growth and upgrading of analog networks, has resulted
in an increased demand for network infrastructure equipment. In addition, as a
result of the recent FCC auction of radio spectrum allocated to PCS, leading
telecommunications companies such as AT&T, Bell Atlantic and Sprint and cable
systems operators such as Cox Enterprises and TCI International are beginning to
install PCS networks, which the Company anticipates will substantially increase
demand for ultra-linear RF power amplifiers. The Company's primary focus is on
the cellular and PCS markets and the Company currently derives a substantial
portion of its revenues from the cellular market.
The table below describes the various cellular and PCS transmission
protocols in use today.
MAJOR CELLULAR AND PCS TRANSMISSION PROTOCOLS
<TABLE>
<CAPTION>
DESCRIPTION REGION AND FREQUENCY
===================================================================================================
<S> <C> <C>
ANALOG AMPS = Advanced Mobile Phone Services North America & Asia - 800MHz
CELLULAR TACS = Total Access Communication System Europe & Asia - 900MHz
NMT = Nordic Mobile Telephone Europe & Asia - 900MHz
- ---------------------------------------------------------------------------------------------------
CDMA = Code Division Multiple Access North America & Asia - 800/900MHz
DIGITAL TDMA = Time Division Multiple Access North America & Asia - 800/450MHz
CELLULAR GSM = Global System for Mobile Communications Europe & Asia - 900MHz
FHMA = Frequency Hopping Multiple Access North America & Europe - 900MHz
PDC = Pacific Digital Cellular Japan - 800/1400MHz
- ---------------------------------------------------------------------------------------------------
PCS CDMA = Code Division Multiple Access North America & Asia - 1800/1900MHz
DCS-1800 = Digital Communications System Europe & Asia - 1800MHz
GSM = Global System for Mobile Communications North America & Asia - 1900MHz
PHS = Personal Handyphone System Japan - 1900MHz
===================================================================================================
</TABLE>
SPECIALIZED MOBILE RADIO. Powerwave has been manufacturing power
amplifiers for the SMR market since 1985. SMR is commonly associated with two-
way communications devices used by police and emergency personnel and the
business dispatch marketplace. While the domestic market has remained relatively
static in the past few years, the Company believes there are opportunities in
certain parts of the international market, where the installation of more
expensive cellular systems is not cost-justified. In addition, Motorola recently
introduced a two-way radio designed to compete with cellular phones. However,
there can be no assurance that Motorola's system will achieve commercial success
or, even if Motorola is successful, whether the Company will be able to sell
amplifiers into this market.
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The Company has also manufactured complete paging systems, including
transmitters. The paging market is dominated by a few large suppliers, and the
Company is no longer actively pursuing this market.
AIR-TO-GROUND COMMUNICATIONS. Powerwave also provides amplifiers that
are used to amplify telephone transmissions between commercial aircraft
passengers and the PSTN. While the Company continues to service this market,
sales opportunities within this market are limited.
PRODUCTS
Powerwave designs and manufactures both single channel and multi-
channel ultra-linear power amplifiers which are sold into the cellular and air-
to-ground markets. The single channel products sold into these markets include
the LP product series and the multi-channel products include the MCA product
series. The Company also designs and manufactures single channel power
amplifiers which are sold into the SMR and paging markets. The products sold
into these markets include the RF, LP, KW and LDA product series.
Powerwave's ultra-linear multi-channel amplifiers utilize a single
feed forward loop, which allows greater operating efficiency and requires
approximately 25% less electrical current than competing multi-loop designs. The
Company's amplifiers employ a microprocessor based feed-forward loop design
which results in better tracking between the pilot tone and the actual signal
and reduces interference. Powerwave's multi-channel design also utilizes an
actively switched output combiner (3 or 4 way), which allows any number of
amplifiers to be "hot-swapped" without a significant loss of power. This design
allows for true cold standby switching of a standby amplifier, thereby providing
network operators with a backup redundancy solution for even greater
reliability. The Company is also in the process of designing and testing both
single channel and multi-channel ultra-linear power amplifiers for the emerging
PCS marketplace.
MCA SERIES. The MCA Series offers ultra-linear multi-channel power
amplifier technology for CDMA, TDMA and GSM digital cellular systems positioned
between 800-960 MHz, as well as analog systems utilizing AMPS, TACS, ETACS and
SETACS protocols. The amplifiers are designed to be installed in racks of three
or four amplifiers. Smart combiner paralleling units allow both higher power as
well as system redundancy, which is the ability of the system to remain in
operation in the event of the failure of one or more of the paralleled
amplifiers. When combined, the units have "hot swap" capabilities whereby one
unit can be removed from the rack while all others remain in operation. All MCA
series multi-channel amplifiers provide remote status/fault monitoring
capabilities.
The MCA8000-250, which the Company believes is the leading amplifier
in South Korea's nationwide digital cellular system, produces 25 Watts (W)
average, 250W peak, power per channel with maximum distortion of-60dBc. Up to 4
units can be combined in parallel utilizing the Company's fully redundant smart
combiner racks for effective average power ratings of 20W, 45W, 70W, and 90W.
In August 1996, the Company introduced its second generation multi-
channel amplifier, the MCA9000-400 which produces 40W average, 400W peak, power
per channel with maximum distortion of -65dBc, while retaining its predecessor's
hot swap, paralleling, and redundancy capabilities. Generally, as compared to
the MCA 8000-250, one less amplifier can be used to achieve a similar power
rating, thus decreasing the effective cost per watt to the service operator.
Combining up to 3 units in a rack yields effective power ratings of 32W, 70W and
100W.
39
<PAGE>
Powerwave also offers within the MCA Series other standard linear
products including 40W Class A and 250W Class AB amplifiers which are used in
applications requiring reduced linearity or power.
PCS SERIES. The PCS Series will offer both single and multi-channel
amplifiers for use in PCS networks that operate in the international DCS-1800
frequency of 1.8 gigahertz (GHz) and the new United States PCS band at 1.9GHz.
Typical system applications include CDMA, TDMA, and GSM protocols with output
power ranging from 5W to 36W. The PCS Series of multi-channel amplifiers will
offer similar power combining, system redundancy, and remote status/fault
monitoring capabilities as the Company's MCA Series with output power ranging
from 10W to 100W and distortion of -60dBc.
RF SERIES. The RF Series is the Company's standard single channel
analog amplification product for SMR, paging, repeater and trunking
applications. These amplifiers operate in discreet bands within the 30 MHz to
960 MHz frequency range with input powers ranging from 10mW to 70W and produce
output powers ranging from 50W to 160W. These amplifiers have been designed for
simple installation and maintenance and are fully modular for quick and easy
field service.
LP SERIES. The LP Series is a single channel analog amplifier similar
to the Company's RF Series amplifiers, but in a smaller 5 1/4" format. The LP
Series is used in SMR, paging, repeater and trunking applications. These
amplifiers also operate in the 35 MHz to 960 MHz frequency range with input
powers ranging from 200mW to 20W and produce output power ranging from 30W to
60W.
KW SERIES. The KW Series provides single channel amplification for
analog and digital paging systems, SMR, repeaters and trunking. Amplifiers in
the KW Series operate in the frequency range of 35 to 960 MHz and are compatible
with most transmitters. These amplifiers operate with input powers ranging from
150mW to 40W and produce 250W, 320W or 450W of power output. Front panel
metering allows users to easily monitor forward and reflected RF power output
and many other critical functions. These units have hot swap capabilities and
can be combined to produce 750W, 1000W and 1500W of output.
LDA SERIES. The LDA Series provides broadband digital or analog
amplification as a "building block" in larger amplification systems or as a
stand-alone amplifier. The LDA Series products are used as a building block for
applications involving electronic counter measures ("ECM") and radar systems.
The products are also used as stand alone amplifiers for applications in
laboratory testing, medical research and multi-band transceivers and are
designed to operate in wide frequency ranges between 20MHz to 1GHz with output
powers ranging from 5W to 150W.
The Company's multi-channel power amplifiers range in price from
$5,000 to $12,000 per amplifier, based upon the specification requirements. The
Company's single channel amplifiers range in price from $1,000 to over $10,000
per amplifier depending upon product type and specifications. The Company also
sells racks to install and combine multiple amplifiers, ranging in price from
$1,000 to $5,000, depending upon specifications.
40
<PAGE>
The Company's primary products are summarized below:
- --------------------------------------------------------------------------------
Powerwave MULTI-CHANNEL Amplifier Configurations
================================================================================
<TABLE>
<CAPTION>
Product Avg. Power
Series Protocol Frequency (MHz) (Watts) Linearity (dBc)
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Cellular:
MCA CDMA 851-960 25-100 -65
MCA TDMA 851-960 25-100 -65
MCA GSM 851-960 30-90 -70
- --------------------------------------------------------------------------------
PCS:***
PCS CDMA 1805-1880 10-100 -60
PCS DCS-1800 TDMA 1805-1880 10-100 -60
PCS CDMA 1930-1990 10-100 -60
PCS TDMA 1930-1990 10-100 -60
- --------------------------------------------------------------------------------
Powerwave SINGLE CHANNEL Amplifier Configurations
- --------------------------------------------------------------------------
Product
Series Protocol Frequency (MHz) Avg. Power (Watts)
- --------------------------------------------------------------------------
Cellular:
LP CDMA 851-960 10-120
LP TDMA 851-960 10-120
LP GSM 851-960 10-120
- --------------------------------------------------------------------------
PCS:***
PCS CDMA 1805-1880 5-36
PCS TDMA 1805-1880
PCS CDMA 1930-1990 5-36
PCS TDMA 1930-1990
PCS GSM 1930-1990 25
- --------------------------------------------------------------------------
SMR/PAGING:
RF 30-960 50-160
LP 30-960 30-60
KW 30-960 250-450
LDA 20-1000 5-150
- --------------------------------------------------------------------------
</TABLE>
*** Products in development or prototype stage.
CUSTOMERS
The Company sells its products to a wide variety of customers
worldwide. During the six months ended June 30, 1996, sales to Hyundai, LGIC and
Samsung accounted for 66% of total sales and are expected to account for a
higher percentage of sales during the second half of 1996. Each of these
customers accounted for more than 10% of the Company's net sales in the period.
The loss of any of these customers, or a significant loss, reduction or
rescheduling of orders from any of these customers, could have a material
adverse effect on the Company's business, results of operations and financial
condition. Sales to In-Flight also accounted for more than 10% of total sales
for the six months ended June 30, 1996. See "Risk Factors--Customer
Concentration; and --Reliance upon South Korean Market and Growth of Wireless
Services Market."
41
<PAGE>
The Company also sells to a wide variety of wireless equipment
suppliers, including ADC Kentrox Industries, Inc., AirNet Communications Corp.,
In-Flight Phone Corp., GTE Airfone Corp., Metawave Communications Corporation,
Motorola Corporation, Phoenix Wireless Group, Inc. and Uniden Corporation.
MARKETING AND DISTRIBUTION, INTERNATIONAL SALES
Powerwave sells its products through a highly-technical direct sales
force and through independent sales representatives. Direct sales personnel are
assigned to geographic territories and, in addition to sales responsibilities,
manage networks of independent sales representatives within the United States.
The Company recently implemented a network of independent sales representatives
selected for their familiarity with potential customers of the Company and
knowledge of the wireless infrastructure market. Both the direct sales personnel
and independent sales representatives generate product sales, provide product
and customer service, and provide customer feed back for product development. In
addition, the sales personnel and independent sales representatives receive
support from the Company's marketing, product support and customer service
departments. As the Company's potential customer base expands, the Company
intends to further expand its network of independent sales representatives.
The Company's marketing efforts are focused on establishing and
developing long-term relationships with potential customers. Sales cycles for
certain of the Company's products, particularly its base station power
amplifiers are lengthy, typically ranging from 6 to 18 months. As is customary
in the industry, sales are made through standard purchase orders which can be
subject to cancellation, postponement or other types of delays. While certain
customers provide the Company with forecasted needs, they are not bound by such
forecasts and the Company does not recognize orders until actual purchase orders
are received from the customer.
International sales of the Company's products amounted to 8.0%, 8.7%,
67.1% and 69.4% of net sales for the years ended December 31, 1993, 1994 and
1995 and for the six month period ended June 30, 1996, respectively. Foreign
sales of some of the Company's products are subject to national security and
export regulations and may require the Company to obtain a permit or license. In
recent years, the Company has not experienced any material difficulty in
obtaining required permits or licenses. Foreign sales also subject the Company
to risks related to political upheaval and economic downturns in foreign
nations. In addition, the Company's foreign customers typically pay for the
Company's products with U.S. dollars. As such, a strengthening of the U.S.
dollar as compared to a foreign customer's local currency would effectively
increase the price of the Company's products for that customer, thereby making
the Company's products less attractive to such customers. See "Risk Factors--
Risks of Doing Business in International Markets."
The Company's warranties vary by product type and range from one to
three years. Warranty obligations and other maintenance services for the
Company's products are performed by the Company in California and Seoul, South
Korea. While the Company currently has one service employee located in South
Korea, it is in the process of increasing its South Korean based service
capabilities and will be utilizing its South Korean location to provide service
support for the Asian region.
PRODUCT DEVELOPMENT
Powerwave intends to continue to dedicate significant resources to the
research and development of new methods to improve amplifier performance,
including reduced noise and increased power in the RF amplification process. The
Company's development efforts also seek to reduce the cost and increase the
manufacturing efficiency of existing products. The Company's research and
development staff
42
<PAGE>
consisted of 43 people as of September 29, 1996. Expenditures for product
development amounted to approximately $.6 million in 1993, $1.4 million in 1994,
$2.3 million in 1995, and $2.5 million for the six months ended June 30, 1996.
The Company believes that further reductions in noise may be attained
through digital processing, regulating amplifiers with software and other
techniques, as well as through continued improvements in traditional feedforward
technology. The Company intends to continue to dedicate significant resources to
research and develop new methods to improve the performance of its existing
amplifiers for use in cellular networks and to develop a full line of amplifiers
for PCS networks.
COMPETITION
The wireless communications infrastructure equipment industry is
extremely competitive and is characterized by rapid technological change, new
product development and product obsolescence, evolving industry standards and
significant price erosion over the life of a product. The principal elements of
competition in the Company's market include performance, functionality,
reliability, pricing, quality, the ability to design products which can be
efficiently manufactured in volume production, time-to-market delivery
capabilities and standards compliance. While the Company believes that overall
it competes favorably with respect to the foregoing elements, there can be no
assurance that it will be able to continue to do so.
Currently, the Company competes primarily with AML Communications,
Inc., Avantek (a division of Hewlett Packard), M/A-COM, Inc. (a subsidiary of
AMP, Inc.), Microwave Power Devices, Inc. and Spectrian Corporation, in addition
to the amplifier manufacturing operations captive within certain of the leading
wireless infrastructure OEMs. Certain of the Company's current and potential
competitors have significantly greater financial, technical, manufacturing,
sales, marketing and other resources than the Company and have achieved greater
name recognition for their existing products and technologies than has the
Company.
The Company's success depends in part upon the rate at which OEM
customers incorporate the Company's products into their systems. The Company
believes that a substantial portion of the present worldwide production of
amplifiers is captive within the internal manufacturing operations of a small
number of wireless infrastructure OEMs and that these amplifiers are offered for
sale as part of their wireless systems. These OEMs include, among others,
Ericsson, Lucent, Motorola, Nokia and Nortel. In addition, Samsung, a
significant customer of the Company, manufactures power amplifiers in addition
to purchasing such components from the Company. The Company believes that these
OEMs, as well as other customers of the Company, continuously evaluate whether
to manufacture their own RF power amplifiers rather than purchase them from
third-party vendors such as the Company. These and other large manufacturers of
wireless infrastructure equipment could also determine to offer and sell their
power amplifiers to other OEMs or customers of the Company and compete directly
with the Company. In addition, these or other OEMs may enter into joint ventures
or strategic relationships with the Company's competitors, in which event the
Company's ability to sell products to such OEMs could be reduced or eliminated.
The Company has experienced significant price competition and expects
price competition in the sale of RF power amplifiers to increase. No assurance
can be given that the Company's competitors will not develop new technologies or
enhancements to existing products or introduce new products that will offer
superior price or performance features. The Company expects its competitors to
offer new and existing products at prices necessary to gain or retain market
share. Certain of the Company's competitors have substantial financial
resources, which may enable them to withstand sustained price
43
<PAGE>
competition or a downturn in the market better than the Company. There can be no
assurance that the Company will be able to compete successfully in the pricing
of its products, or otherwise, in the future.
BACKLOG
The Company's backlog of orders was approximately $18.8 million on
September 29, 1996 compared to approximately $18.1 on December 31, 1995. A
substantial portion of the backlog at September 29, 1996 is due to orders from
customers for the South Korean market. The Company includes its backlog all
accepted product purchase orders with respect to which a delivery schedule has
been specified for product shipment within six months. Product orders in the
Company's backlog are subject to changes in delivery schedules or to
cancellation at the option of the purchaser without significant penalty. The
Company regularly reviews its backlog of orders to ensure that it adequately
reflects product orders expected to be shipped within a six month period. The
Company makes adjustments as customer delivery schedules change as well as in
response to changes in the Company's production schedule. Accordingly, although
useful for scheduling production, backlog as of any particular date may not be a
reliable indicator of sales for any future period.
MANUFACTURING AND SUPPLIERS
In July 1996, the Company relocated to an expanded headquarters and
manufacturing facility in Irvine, California. The Company's manufacturing
process involves the assembly of numerous individual components, and precise
fine-tuning by technically oriented production personnel. The parts and
materials used by the Company consist primarily of printed circuit boards,
specialized subassemblies, fabricated housings, relays, and small electric
circuit components, such as integrated circuits, semiconductors, resistors and
capacitors. The Company manufactures products to fill firm orders and to meet
forecasts received from its major customers.
The Company continually attempts to reduce manufacturing costs while
retaining product quality. The Company purchases a significant quantity of its
materials and components from several suppliers through blanket purchase orders.
The Company acquires certain key components from single sources, but believes
alternative sources could be arranged if the Company were unable to continue to
procure such components from its current sources. If the Company were unable to
replace the supplier of these components in a timely fashion, its operating
results and financial condition could be materially adversely affected. In
recent years, the Company has experienced no significant difficulty in obtaining
necessary supplies.
The Company is currently in the process of attempting to qualify for
ISO 9001 certification, a uniform worldwide quality-control standard. Numerous
customers and potential customers throughout the world, particularly in Europe,
require that their suppliers be ISO certified. In addition, many such customers
require that their suppliers purchase components only from subcontractors that
are ISO certified. If the Company is unable to obtain its ISO certification, it
may have difficulty selling to customers who require an ISO certification. The
inability to sell to such customers could have adverse effect upon the Company's
operating results and financial condition.
INTELLECTUAL PROPERTY
The Company relies primarily upon trade secrets to protect its
intellectual property. The Company generally enters into confidentiality and
non-disclosure agreements with its employees and limits access to and
distribution of its proprietary information. In addition, the Company is in the
process of applying for a U.S. patent for its proprietary implementation of
feedforward technology and regularly
44
<PAGE>
examines various aspects of its technology for possible patent applications. The
Company believes that its success depends upon the knowledge and experience of
its management and technical personnel and its ability to market its existing
products and to develop new products.
The Company's ability to compete successfully and achieve future
revenue growth will depend, in part, on its ability to protect its proprietary
technology and operate without infringing upon the rights of others. There can
be no assurance that these measures will successfully protect the Company's
intellectual property or that the Company's intellectual property or proprietary
technology will not otherwise become known or be independently developed by
competitors. In addition, the laws of certain countries in which the Company's
products are or may be sold may not protect the Company's products and
intellectual property rights to the same extent as the laws of the United
States. The inability of the Company to protect its intellectual property and
proprietary technology could have a material adverse effect on its business,
results of operations and financial condition. As the number of patents,
copyrights and other intellectual property rights in the Company's industry
increases, and as the coverage of these rights and the functionability of the
products in the market further overlap, the Company believes that its products
may increasingly become the subject of infringement claims. The Company may in
the future be notified that it is infringing upon certain patent or other
intellectual property rights of others. Although the Company has not received
any such notification to date and there are no pending or threatened
intellectual property lawsuits against the Company, there can be no assurance
that such litigation or infringement claims will not occur in the future. Such
litigation or claims could result in substantial costs and diversion of
resources and could have a material adverse effect on the Company's business,
results of operations and financial condition. A third party claiming
infringement may also be able to obtain an injunction or other equitable relief,
which could effectively block the ability of the Company or its customers to
distribute, sell or import into the United States allegedly infringing products.
If it appears necessary or desirable, the Company may seek licenses under
patents or other rights from third parties covering intellectual property that
the Company is allegedly infringing. No assurance can be given, however, that
any such licenses could be obtained on terms acceptable to the Company, if at
all. The failure to obtain the necessary licenses or other rights could have a
material adverse effect on the Company's business, results of operations and
financial condition.
PROPERTIES
The Company's Irvine, California, headquarters and manufacturing
facility occupy an aggregate of approximately 78,000 square feet under a lease
expiring in 2006. The Company believes that its current facilities provide
adequate expansion capabilities for its operations. The Company is currently
subletting to an unrelated party approximately 27,000 square feet of additional
expansion space connected to its new facility. This space can be made available
to the Company when the existing sub-lease expires in April 1997.
EMPLOYEES
As of September 29, 1996, the Company had 239 full and part-time
employees, including 43 in research and development, 11 in sales and marketing
and 26 in corporate and administration. None of the Company's employees are
represented by a union. The Company believes that its relations with its
employees are good.
45
<PAGE>
LEGAL PROCEEDINGS
The Company is a party to ordinary disputes arising in the normal course of
business. The Company does not believe that the outcome of these matters will
have a material adverse effect on the Company's consolidated financial position
or results of operations.
MANAGEMENT
DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the Company's
directors and officers:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Alfonso G. Cordero (2)... 55 Chairman of the Board
Bruce C. Edwards......... 42 President, Chief Executive Officer and Director
Peter L. Manno........... 54 Executive Vice President
Mercy B. Cordero......... 47 Vice President, Administration
Kevin T. Michaels........ 38 Vice President, Finance, Chief Financial Officer and Secretary
Ki Y. Nam................ 36 Vice President, New Business Development
Richard D. Posner........ 53 Vice President, Engineering
Eric A. Tanner........... 36 Vice President, Operations
Mark D. Winters.......... 35 Vice President, Quality
Gregory M. Avis (1)...... 37 Director
David L. George (1)...... 43 Director
Eugene L. Goda (2)....... 60 Director
Rich Shapero (2)......... 48 Director
Sam Yau (1).............. 47 Director
</TABLE>
- ----------------------
(1) Member of Audit Committee of the Board of Directors.
(2) Member of Compensation Committee of the Board of Directors.
ALFONSO G. CORDERO, one of the founders of the Company, has served as a
director since the Company's inception. From June 1985 to January 1996, Mr.
Cordero served as Chief Executive Officer of the Company and currently serves as
Chairman of the Company. Mr. Cordero is married to Mercy B. Cordero, Vice
President, Administration.
BRUCE C. EDWARDS joined the Company in February 1996 as President and Chief
Executive Officer and Director. Mr. Edwards was Executive Vice President, Chief
Financial Officer and Director of AST Research, Inc., a personal computer
company, from July 1994 to December 1995 and Senior Vice President, Finance and
Chief Financial Officer of AST Research, Inc. from March 1988 to July 1994. Mr.
Edwards currently serves on the Board of Directors of Diamond Multimedia
Systems, Inc. and HMT Technology, Inc.
MERCY B. CORDERO has served as Vice President, Administration of the
Company since June 1985. From January 1985 to June 1985, Mrs. Cordero served as
President of the Company. Mrs. Cordero is married to Alfonso Cordero, Chairman
of the Company.
46
<PAGE>
PETER L. MANNO joined the Company in April 1996 as Executive Vice
President. Prior to joining the Company, Mr. Manno served as Corporate Vice
President, Sales and Marketing of M/A-Com Corporation, a wireless network
amplifier company, from February 1992 to April 1996. From August 1984 to
December 1991, Mr. Manno was Vice President of Sales and marketing for Avantek,
Inc., a wireless network amplifier company.
KEVIN T. MICHAELS joined the Company in June 1996 as Vice President,
Finance and Chief Financial Officer and was appointed Secretary in June 1996.
Prior to joining the Company, Mr. Michaels worked for AST Research, Inc. for
eight years, most recently as Vice President, Treasurer from October 1995. From
July 1991 to October 1995 Mr. Michaels was Treasurer of AST Research, Inc. and
from June 1986 to June 1991, he was Assistant Treasurer.
KI Y. NAM has served as Vice President, New Business Development of the
Company since November 1995 Mr. Nam has held various positions with the
Company, including Senior Engineer and Vice President, Engineering, since
joining the Company in April 1989.
RICHARD D. POSNER joined the Company in July 1996 as Vice President,
Engineering. Prior to joining the Company, Dr. Posner served as Vice President,
Engineering at Whittaker Electronic Systems, Inc., a telecommunications and
electronic equipment company, from February 1990 to June 1996. Prior to joining
Whittaker, Dr. Posner co-founded 3DBM Systems, Inc., where he served as Vice
President of Engineering.
ERIC A. TANNER has served as Vice President, Operations since June 1995.
Prior to joining the Company, Mr. Tanner was employed, from January 1986 to May
1995, in various managerial roles at Spectrian Corporation, a wireless network
amplifier company, in Mountain View, California. Mr. Tanner served as Director
of Manufacturing at Spectrian Corporation from January 1992 to May 1995. Prior
to his employment at Spectrian, Mr. Tanner was employed at Motorola Inc.'s RF
Power Device Group.
MARK D. WINTERS has served as Vice President, Quality of the Company since
June 1996. From May 1995 to June 1996, Mr. Winters served as Vice President,
Engineering of the Company. From July 1992 to May 1995, Mr. Winters was with E-
Systems, Inc., and served as Division Manager, Electronics Manufacturing. From
December 1989 to July 1992, he was with DSC Communications, Inc., a
telecommunications equipment company, serving as Manager, Manufacturing
Engineering.
GREGORY M. AVIS has been a member of the Company's Board of Directors since
October, 1995. Mr. Avis has been a managing partner of Summit Partners, a
venture capital investment firm, since January 1990. Mr. Avis also serves on the
Board of Directors of CMG Information Services, Inc. and Digital Link Corp.
DAVID L. GEORGE has been a member of the Company's Board of Directors since
November 1995. Mr. George has served as Executive Vice President of Unique
Technologies International, L.L.C., an SMR network company, since February 1994.
From November 1983 to February 1994, Mr. George served as Vice President,
Director of Operations, Commercial Division of Uniden America.
EUGENE L. GODA has been a member of the Company's Board of Directors since
November 1995. For the past year, Mr. Goda has been a consultant and private
investor. From October 1991 to October 1995, Mr. Goda served as CEO of
Simulation Sciences, Inc., a software company. From July 1989 to September
1991, he served as CEO of Meridian Software Systems.
47
<PAGE>
RICH SHAPERO has been a member of the Company's Board of Directors since
October 1995. Mr. Shapero has been a general partner of Crosspoint Venture
Partners, a venture capital investment firm, since April 1993. From January
1991 to June 1992, he served as Chief Operating Officer of Shiva Corporation, a
computer network company.
SAM YAU has been a member of the Company's Board of Directors since
November 1995. Mr. Yau has served as Chief Executive Officer of National
Education Corporation, an education training and supply company, since May 1995.
From May 1993 to November 1994, he served as Chief Operating Officer of
Advacare, Inc. and from May 1987 to May 1993 as Senior Vice President, Finance
and Administration of Archive Corporation (now part of Seagate Technologies,
Inc.). Mr. Yau currently serves on the Board of Directors of National Education
Corporation.
ELECTION OF DIRECTORS AND OFFICERS
Each member of the Company's Board of Directors was elected pursuant to a
Stockholders' Agreement dated October 10, 1995 (the "Stockholders' Agreement"),
by and among the Company and all shareholders of the Company on such date. The
Stockholders' Agreement contains a voting agreement for the election of
directors which expires on the closing of the Offering.
BOARD COMMITTEES AND COMPENSATION
The Audit Committee of the Board of Directors consists of Messrs. Avis,
George and Yau. The Audit Committee recommends to the Board of Directors the
independent public accountants to be selected to audit the Company's annual
financial statements and approves any special assignments given to such
accountants. The Audit Committee also reviews the planned scope of the annual
audit and the independent accountants' letter of comments and management's
response thereto, any major accounting changes made or contemplated and the
effectiveness and efficiency of the Company's internal accounting staff.
The Compensation Committee consists of Messrs. Cordero, Goda and Shapero.
The Compensation Committee establishes renumeration levels for executive
officers of the Company, reviews management organization and development and
reviews executive compensation and significant employee benefit programs.
The Company's directors receive $750 per meeting of Board of Directors.
Following consummation of the Offering, the Company's directors will receive
$1,500 per meeting of the Board of Directors. In addition, in connection with
their joining the Company's Board of Directors, Messrs. George, Goda and Yau
each were granted options to purchase 30,000 shares of Common Stock at an
exercise price of $2.47 per share under the 1995 Stock Option Plan.
1996 DIRECTOR STOCK OPTION PLAN
On October 7, 1996, the Company adopted the 1996 Stock Option Plan for
Directors (the "Director Plan") to be effective upon the completion of the
Offering. The Director Plan provides for the grant by the Company of options to
purchase up to an aggregate of 200,000 shares of Common Stock of the Company.
The Director Plan provides that each member of the Company's Board of Directors
who is not an employee or paid consultant of the Company automatically will be
eligible to receive options to purchase stock under the Director Plan. Pursuant
to the terms of the Director Plan, each director elected after the closing of
the Offering will be granted an initial option under the plan covering 30,000
shares of Common Stock, which option shall vest as to 25% of the shares over
four (4) years on
48
<PAGE>
the anniversary of the date of grant. Furthermore, on the closing of the
Offering, and on each anniversary date thereof, each director who shall have
been an eligible participant under the Director Plan for at least six (6) months
shall be granted an annual option under the Director Plan to purchase 5,000
shares of Common Stock, which option shall vest on the fourth anniversary of the
date of grant. The primary purposes of the Director Plan are to enhance the
Company's ability to attract and retain well-qualified persons for service as
directors and to provide incentives to such directors to continue their
associations with the Company. There are no options outstanding under the
Director Plan.
In the event of a merger of the Company with or into another corporation,
or a consolidation, acquisition of stock or assets or other change in control
transaction involving the Company, each option becomes exercisable in full,
unless such option is assumed by the successor corporation. In the event the
transaction is not approved by a majority of the "Continuing Directors" (as
defined in the Director Plan), each option becomes fully vested and exercisable
in full immediately prior to the consummation of such transaction, whether or
not assumed by the successor corporation.
EXECUTIVE COMPENSATION
Summary Compensation. The following table sets forth summary information
concerning compensation paid by, or accrued for services rendered to, the
Company in all capacities during the fiscal year ended December 31, 1995 to the
Company's Chairman, and the Company's other executive officer whose salary and
bonus exceeded $100,000 (the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
-------------------
NAME AND ALL OTHER
PRINCIPAL POSITION (1) SALARY BONUS COMPENSATION
- -------------------------- ------- -------- ------------
<S> <C> <C> <C>
Alfonso G. Cordero........ $85,000 $268,000 None
Chairman
Ki Y. Nam................. 85,000 125,000 None
Vice President, New
Business Development
</TABLE>
__________________
(1) Bruce C. Edwards joined the Company as President and Chief Executive
Officer on February 19, 1996 at an annual base salary of $135,000. Peter
Manno joined the Company as Executive Vice President on April 4, 1996 at a
base salary of $125,000 and an annual commission of $75,000. Although not
Named Executive Officers for the fiscal year ending December 31, 1995, the
Company anticipates that Mr. Edwards and Mr. Manno will each so qualify in
future years.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During the fiscal year ended December 31, 1995, the Company's Board of
Directors, prior to the formation of the Compensation Committee, established the
levels of compensation for the Company's executive officers. The following
executive officers, one of which is also a director of the Company, participated
in the deliberations of the Board regarding executive compensation that occurred
during the fiscal year ended December 31, 1995: Alfonso G. Cordero, Chairman
and Ki Y. Nam, Vice President, New Business Development.
49
<PAGE>
In October 1995, the Company entered into a Stock Purchase Agreement with
investors affiliated with Summit Partners and Crosspoint Venture Partners,
pursuant to which the Company issued to such investors 3,375,900 shares of
Series A Preferred Stock for an aggregate purchase price of $15 million.
Gregory M. Avis and Rich Shapero, both members of the Board of Directors of the
Company, are affiliated with Summit Partners and Crosspoint Venture Partners,
respectively. As part of these transactions, the Company subsequently purchased
5,063,850 shares of its Common Stock from certain shareholders, including
Alfonso G. Cordero and Ki Nam, for an aggregate purchase price of $12.5 million.
Alfonso G. Cordero, Ki Y. Nam and the holders of Common Stock issued upon
conversion of Series A Preferred Stock, are entitled to certain registration
rights. See "Description of Capital Stock-Registration Rights."
Pursuant to the Stockholders' Agreement, the Company and its then existing
shareholders (the "Founders") agreed that the Company would redeem from the
Founders, on a pro rata basis, one share of Common Stock for each share of
Common Stock in excess of 1,170,000 issued by the Company upon the exercise of a
Company stock option granted under the 1995 Plan at the exercise price for such
option. Effective immediately prior to the consummation of the Offering,
Stockholders and the Company agreed that this share redemption agreement applies
only to the exercise of options to purchase a total of 768,615 shares of the
Company's Common Stock. In connection with entering into the Stockholders'
Agreement, the Company amended the 1995 Stock Option Plan to provide that all
option grants in excess of 1,170,000 are subject to the approval of Alfonso G.
Cordero and to give Mr. Cordero the right to terminate the Plan. See "-1995
Stock Option Plan."
In August 1995, the Company entered into a Technology License Agreement
with Unique Wireless Developments, L.L.C., a Delaware limited liability company.
Under the agreement, the Company obtained exclusive rights to use certain
amplifier technology for the SMR market in exchange for certain royalties,
including a non-refundable (with certain exceptions) up front royalty totaling
$300,000 of which $250,000 has been paid. David L. George, a member of the Board
of Directors of the Company, is Executive Vice President of Unique Technologies
International, L.L.C., an affiliate of Unique Wireless Developments, L.L.C.
From November 1993 to June 1996, the Company leased its operating facility
from 17500 Gillette Avenue Associates, a California general partnership (the
"Partnership") owned by the holders of 98.5% of the Company's Common Stock prior
to the Offering (and the conversion of Series A Preferred Stock), including
Alfonso G. Cordero, an officer and director of the Company, and Ki Y. Nam, an
officer of the Company. The Company also guaranteed a loan to the Partnership,
the proceeds of which were used to purchase the real property and facility. In
July 1996, the Company relocated its operating facility and entered into a lease
with CNH, LLC, a California limited liability company (the "LLC") owned by the
holders of 82% of the Company's Common Stock prior to the Offering (and the
conversion of Series A Preferred Stock), including Messrs. Cordero and Nam. The
lease expires on July 15, 2006. In connection with entering into this lease,
the Company paid the LLC $1,000,000 in exchange for various improvements made to
the new facility. In addition, the Company has incurred approximately
$1,000,000 in leasehold improvements to the new facility.
The Company has entered into indemnification agreements with its directors,
certain officers and certain affiliated entities. Such agreements require the
Company to indemnify such individuals to the fullest extent permitted by
Delaware law. See "Limitations on Liability and Indemnification."
On December 4, 1995, the Company granted to each of David George, Eugene
Goda and Sam Yau options to purchase 30,000 shares of Common Stock at $2.47 per
share. On January 19, 1996, the Company granted to Bruce Edwards options to
purchase 450,000 shares of Common Stock at $2.67 per
50
<PAGE>
share. On March 4, 1996, the Company granted to Peter Manno options to purchase
300,000 shares of Common Stock at $2.67 per share. On June 10, 1996, the Company
granted to Kevin Michaels options to purchase 90,000 shares of Common Stock at
$4.67 per share.
The Company believes that all of the transactions set forth above were made
on terms no less favorable to the Company than could otherwise be obtained from
unaffiliated third parties.
1995 STOCK OPTION PLAN
The Company's 1995 Stock Option Plan (the "1995 Option Plan") was adopted
by the Company's shareholders and Board of Directors effective as of December 4,
1995 and provides for the granting of nonqualified stock options to purchase up
to 1,938,615 shares of the Company's Common Stock. Under the 1995 Option Plan,
shares of the Company's Common Stock may be granted to directors, officers and
employees of the Company. As of September 29, 1996, there were 1,823,400 options
outstanding under the 1995 Option Plan at a weighted average exercise price of
$3.31.
The 1995 Option Plan provides that the 1995 Option Plan itself and all
outstanding options shall terminate upon the occurrence of a consolidation or
merger in which the Company is not the surviving corporation, the sale of
substantially of all the Company's assets and certain other similar events, in
each case unless the 1995 Plan is assumed by the successor corporation.
Pursuant to the Stockholders' Agreement, certain shareholders of the
Company have agreed to have an equivalent number of their shares redeemed by the
Company if options to purchase in excess of 1,170,000 and up to an aggregate of
1,938,615 shares of the Company's Common Stock are exercised by any of the
option holders who acquire options under the Company's 1995 Stock Option Plan.
The Stockholders' Agreement provides that the redemption price shall equal the
exercise price for each applicable option. See "Compensation Committee
Interlocks and Insider Participation."
The 1995 Stock Option Plan provides that all option grants under the Plan
in excess of 1,050,000 are subject to the approval of Alfonso G. Cordero. In
addition, the Plan may be terminated at the discretion of Mr. Cordero.
1996 STOCK INCENTIVE PLAN
On October 7, 1996, the Company adopted the 1996 Stock Incentive Plan (the
"1996 Plan"), to be effective upon the completion of the Offering. The 1996
Plan covers an aggregate of 1,500,000 shares of Common Stock plus any shares
which are or become available for grant under the 1995 Plan. The 1996 Plan
provides for the granting of "incentive stock options," within the meaning of
Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonstatutory options and restricted stock grants to directors, officers,
employees and consultants of the Company, except that incentive stock options
may not be granted to non-employee directors or consultants. The purpose of the
1996 Plan is to provide participants with incentives which will encourage them
to acquire a proprietary interest in, and continue to provide services to, the
Company. The 1996 Plan is administered by the Board of Directors, which has
sole discretion and authority, consistent with the provisions of the 1996 Plan,
to determine which eligible participants will receive options, the time when
options will be granted, the terms of options granted and the number of shares
which will be subject to options granted under the 1996 Plan. There are no
options outstanding under the 1996 Plan.
In the event of a merger of the Company with or into another corporation,
or a consolidation, acquisition of stock or assets or other change in control
transaction involving the Company, each option
51
<PAGE>
becomes exercisable in full, unless such option is assumed by the successor
corporation. In the event the transaction is not approved by a majority of the
"Continuing Directors" (as defined in the 1996 Plan), each option becomes fully
vested and exercisable in full immediately prior to the consummation of such
transaction, whether or not assumed by the successor corporation.
EMPLOYEE STOCK PURCHASE PLAN
On October 7, 1996, the Company adopted the Employee Stock Purchase Plan
(the "Purchase Plan"), to be effective upon the completion of the Offering,
covering an aggregate of 500,000 shares of Common Stock. The Purchase Plan,
which is intended to qualify as an "employee stock purchase plan" under Section
423 of the Internal Revenue Code, will be implemented by six-month offerings
with purchases occurring at six month intervals commencing on the date of this
Prospectus. The Purchase Plan will be administered by the Board of Directors.
Employees will be eligible to participate if they are employed by the Company
for at least 30 hours per week and if they have been employed by the Company for
at least 180 days. The Purchase Plan permits eligible employees to purchase
Common Stock through payroll deductions, which may not exceed 15% of an
employee's compensation. The price of stock purchased under the Purchase Plan
will be 85% of the lower of the fair market value of the Common Stock at the
beginning of each six-month offering period or on the applicable purchase date.
Employees may end their participation in any offering period at any time during
such period, and participation ends automatically on termination of employment.
The Board may at any time amend or terminate the Purchase Plan, except that no
such amendment or termination may adversely affect options previously granted
under the Purchase Plan. There are no rights to purchase outstanding under the
Purchase Plan.
401(K) PLAN
The Company has adopted a Future Income Program Plan and Trust (the "401(k)
Plan") covering the Company's full-time employees located in the United States.
The 401(k) Plan is intended to qualify under Section 401(k) of the Code, so that
contributions to the 401(k) Plan by employees or by the Company, and the
investment earnings thereon, are not taxable to employees until withdrawn from
the 401(k) Plan, and so that contributions by the Company, if any, will be
deductible by the Company when made. Pursuant to the 401(k) Plan, employees may
elect to reduce their current compensation by up to 15% of their base salary,
subject to Internal Revenue Service limitations, and to have the amount of such
reduction contributed to the 401(k) Plan. The 401(k) Plan permits, but does not
require, additional matching contributions to the 401(k) Plan by the Company on
behalf of all participants in the 401(k) Plan. The Company may match up to 10%
of employee contributions. For fiscal 1995, the Company contributed $12,324 to
the plan.
LIMITATIONS ON DIRECTORS' LIABILITY AND INDEMNIFICATION
The Company's Amended and Restated Certificate of Incorporation limits the
liability of directors to the maximum extent permitted by Delaware law and the
Company's Amended and Restated Bylaws provide that the Company must indemnify
its directors and officers and may indemnify its other employees and agents to
the fullest extent permitted by law. The Company has entered into agreements to
indemnify its directors and executive officers. The Company believes that these
provisions and agreements are necessary to attract and retain qualified
directors and executive officers. At present, there is no pending litigation or
proceeding involving any director, officer, employee or agent of the Company
where indemnification will be required or permitted. The Company is not aware
of any threatened litigation or proceeding that might result in a claim for such
indemnification.
52
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of September 29, 1996 by
(i) each person (or group of affiliated persons) who is known by the Company to
own beneficially 5% or more of the Company's Common Stock, (ii) each of the
Company's directors, (iii) each of the Named Executive Officers, and (iv) all
directors and executive officers of the Company as a group. Unless otherwise
indicated, the persons named in the table have sole voting and investment power
with respect to all shares beneficially owned, subject to community property
laws where applicable.
<TABLE>
<CAPTION>
PERCENT OF TOTAL
----------------------
SHARES PERCENT PERCENT
BENEFICIALLY BEFORE AFTER
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNED OFFERING OFFERING(2)
- ------------------------------------------ ------------ -------- -----------
<S> <C> <C> <C>
Alfonso G. Cordero (3)................... 5,520,663 39.3% 34.8%
2026 McGaw Avenue
Irvine, California 92614
Summit Partners (4)....................... 4,304,272 30.6 27.1
499 Hamilton Avenue,
Suite 200
Palo Alto, California 94301
Gregory M. Avis (5)....................... 4,304,272 30.6 27.1
Ki Y. Nam (6)............................. 1,688,368 12.0 10.6
2026 McGaw Avenue
Irvine, California 92614
Crosspoint Ventures (7)................... 759,577 5.4 4.8
One First Street
Palo Alto, California 94022
Rich Shapero (8).......................... 759,577 5.4 4.8
Bruce C. Edwards.......................... 112,500 * *
Charles Florman (9)....................... 755,323 5.4 4.8
David L. George (10)...................... 7,500 * *
Eugene L. Goda (11)....................... 7,500 * *
Sam Yau (12).............................. 7,500 * *
All Executive Officers and
Directors as a Group
(8 persons)(13)......................... 12,407,880 88.1 78.1
</TABLE>
- -------------------
*Less than 1%
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock subject
to options or warrants currently exercisable, or exercisable within 60 days
of September 29, 1996, are deemed outstanding for computing the percentage
of the person holding such options or warrants but are not deemed
outstanding for computing the percentage of any other person. Except as
indicated by footnote and subject to community property laws where
applicable, to the knowledge of the Company the persons named in the table
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<PAGE>
have sole voting and investment power with respect to all shares of Common
Stock shown as beneficially owned by them.
(2) Assumes that the Underwriters' over-allotment option is not exercised.
(3) Includes 11,250 shares, consisting of options exercisable within 60 days of
September 30, 1996, owned by Mr. Cordero's spouse, an officer of the
Company. Mr. Cordero disclaims beneficial ownership of such shares. Also
includes 550,942 shares subject to redemption by the Company for shares of
Common Stock issued by the Company in excess of 1,170,000 pursuant to the
exercise of stock options under the 1995 Stock Option Plan. See "Management-
1995 Stock Option Plan."
(4) Includes 2,076,855 shares held by Summit Ventures IV, L.P., 2,076,855 shares
held by Summit Ventures III, L.P., and 150,562 shares held by Summit
Investors II, L.P. Voting power with respect to shares held by Summit
Ventures IV, L.P., Summit Ventures III, L.P. and Summit Investors II, L.P.
is held solely by Gregory M. Avis.
(5) Consists of shares held by Summit entities, of which Mr. Avis is a
designated representative and general partner. Mr. Avis disclaims beneficial
ownership of all shares held by Summit entities except to the extent of his
pecuniary interest therein.
(6) Includes 168,837 shares subject to redemption by the Company for shares of
Common Stock issued by the Company in excess of 1,170,000 shares of Common
Stock pursuant to the exercise of stock options under the 1995 Stock Option
Plan. See "Management-1995 Stock Option Plan."
(7) Includes 736,606 shares held by Crosspoint Ventures Partners 1993 and 22,971
shares held by Crosspoint Ventures Partners Entrepreneurs 1993. Voting power
with respect to shares held by Crosspoint Venture Partners 1993 and
Crosspoint Ventures Partners Entrepreneurs 1993 is held solely by Rich
Shapero.
(8) Consists of shares held by Crosspoint entities, of which Mr. Shapero is a
designated representative. Mr. Shapero disclaims beneficial ownership of all
shares held by Crosspoint entities except to the extent of his pecuniary
interest therein.
(9) Includes 75,532 shares subject to redemption by the Company for shares of
Common Stock issued by the Company in excess of 1,170,000 pursuant to the
exercise of stock options under the 1995 Stock Option Plan. See "Management-
1995 Stock Option Plan."
(10) Consists of options exercisable for 7,500 shares within 60 days of
September 29, 1996.
(11) Consists of options exercisable for 7,500 shares within 60 days of
September 29, 1996.
(12) Consists of options exercisable for 7,500 shares within 60 days of
September 29, 1996.
(13) Includes 11,250 shares owned by Mr. Cordero's spouse (see note 3), 719,779
shares subject to redemption by the Company (see notes 3, 6 and 9) and
options exercisable for 22,500 shares within 60 days of September 29, 1996
(see notes 10, 11 and 12).
54
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of the Offering the authorized capital stock of the
Company will consist of 40,000,000 shares of common stock, $.0001 par value
("Common Stock"), and 5,000,000 shares of preferred stock, $.0001 par value
("Preferred Stock").
COMMON STOCK
As of September 29, 1996, there were 8,998,650 shares of Common Stock
outstanding held of record by eight shareholders. There will be 15,862,500
shares of Common Stock outstanding after the sale of the shares of Common Stock
offered by the Company hereby.
Holders of Common Stock are entitled to one vote per share on all matters
to be voted upon by the shareholders. Subject to preferences that may be
applicable to the holders of outstanding shares of Preferred Stock, if any, the
holders of Common Stock are entitled to receive such lawful dividends as may be
declared by the Board of Directors. In the event of liquidation, dissolution or
winding up of the Company, and subject to the rights of the holders of
outstanding shares of Preferred Stock, if any, the holders of shares of Common
Stock shall be entitled to receive pro rata all of the remaining assets of the
Company available for distribution to its shareholders. There are no redemption
or sinking fund provisions applicable to the Common Stock. All outstanding
shares of Common Stock are fully paid and nonassessable, and shares of Common
Stock to be issued pursuant to the Offering shall be fully paid and
nonassessable.
PREFERRED STOCK
Effective upon the closing of the Offering, each issued and outstanding
share of Series A Preferred Stock will be converted into one and one-half (1.5)
shares of Common Stock. After the Series A Preferred Stock is converted and
retired, no shares of Preferred Stock will be outstanding.
Upon the closing of the Offering, the Board of Directors will have the
authority, without further action by the shareholders, to issue the authorized
shares of Preferred Stock in one or more series and to fix the rights,
preferences and privileges thereof, including voting rights, terms of
redemption, redemption prices, liquidation preferences, number of shares
constituting any series or the designation of such series, without further vote
or action by the shareholders. Although it presently has no intention to do so,
the Board of Directors, without shareholder approval, could issue Preferred
Stock with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. This provision may be deemed to have a
potential anti-takeover effect and the issuance of Preferred Stock in accordance
with such provision may delay or prevent a change of control of the Company.
See "Risk Factors-Effect of Certain Charter and Bylaw Provisions."
REGISTRATION RIGHTS
Under the terms of that certain Registration Rights Agreement, dated as of
October 10, 1995, among the Company and certain holders of its securities, after
the Offering and upon the expiration of the 180-day lock-up agreement with the
Underwriters, the holders of approximately 13,950,000 shares of Common Stock
will be entitled to certain rights with respect to the registration of such
shares under the Securities Act. Under the agreement, certain holders of
specified threshold amounts of "Registrable Securities" may demand that the
Company register their securities for resale under the Securities Act, in which
case all holders of their Registrable Securities may join in such demand
registration. In addition, if the Company proposes to register any of its
securities under the Securities Act, either for its own
55
<PAGE>
account or the action of other shareholders (other than the holders of
Registrable Securities), the holders of Registrable Securities are entitled to
notice of such registration and are entitled to include their Registrable
Securities therein. In either case, among other conditions and limitations, the
underwriters have the right to limit the number of Registrable Securities
included in any such registration. Certain holders of Registrable Securities
also may require the Company to register, at the expense of the Company, all or
a portion of their Registrable Securities on Form S-3 when such form becomes
available to the Company, subject to certain conditions and limitations.
DELAWARE LAW AND CERTAIN CHARTER PROVISIONS
The Company is subject to the provisions of Section 203 of the Delaware
General Corporation Law. In general, the statute prohibits a publicly-held
Delaware corporation from engaging in a "business combination" with an
"interested" shareholder for a period of three years after the date of the
transaction in which the person became an interested shareholder, unless either
(i) prior to the date at which the person becomes an interested shareholder, the
board of directors approves such transaction or business combination, (ii) the
shareholder acquires more than 85% of the outstanding voting stock of the
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of such transaction, or (iii)
the business combination is approved by the board of directors and by two-thirds
of the outstanding voting stock of the corporation (excluding shares held by the
interested shareholder) at a meeting of shareholders (and not by written
consent). A "business combination" includes a merger, asset sale or other
transaction resulting in a financial benefit to such interested shareholder.
For purposes of Section 203, an "interested" shareholder is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
Upon the closing of the Offering, the Company's Amended and Restated
Certificate of Incorporation will include a provision that allows the Board of
Directors to issue Preferred Stock in one or more series with such voting rights
and other provisions as the board of Directors may determine. The Amended and
Restated Certificate of Incorporation also will eliminate the ability of
shareholders to call special meetings and require advance notice to nominate a
director or take certain other actions. These provisions may be deemed to have
a potential anti-takeover effect and may delay or prevent a change of control of
the Company.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is U.S. Stock
Transfer Corporation.
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect prevailing market prices and adversely affect the
Company's ability to raise additional capital in the capital markets at a time
and price favorable to the Company. As described below, no shares currently
outstanding will be available for sale immediately after the Offering due to
certain legal restrictions on resale.
Upon completion of the Offering, the Company will have 15,862,500 shares of
Common Stock outstanding. Of these shares, the 1,800,000 shares sold in the
Offering will be freely tradeable without restriction or further registration
under the Securities Act of 1933, as amended (the "Securities Act"), unless they
are purchased by "affiliates" of the Company as that term is used under the
Securities Act. The remaining 14,062,500 shares held by existing shareholders
will be "restricted securities" as defined in Rule 144 under the Securities Act
("Restricted Shares"). Restricted Shares may be sold in the public market only
if registered or if they qualify for an exemption from registration under Rules
144, 144(k) or 701 promulgated under the Securities Act, which are summarized
below. Sales of Restricted Shares in the public market, or the availability of
such shares for sale, could adversely affect the market price of the Common
Stock.
All officers and directors and certain shareholders and option holders have
agreed with the Underwriters that they will not sell any Common Stock owned by
them for a period of 180 days after the effective date of the Offering without
the prior written consent of Alex. Brown & Sons Incorporated (the "180-day lock-
up"). _____ shares of Common Stock are subject to the 180-Day lock-up.
Immediately after completion of the Offering, an aggregate of _____ shares of
Common Stock will become available for sale in the public market, pursuant to
Rule 144(k). Beginning 90 days after completion of the Offering, an additional
_____ shares will be eligible for sale in the public market pursuant to Rule 144
and Rule 701, subject in certain cases to volume and other restrictions. Upon
the expiration of the 180-day lock-up (or earlier upon the consent of Alex.
Brown & Sons, Incorporated), _____ Restricted Shares (plus shares issuable upon
exercise of then vested outstanding options) will be eligible for immediate sale
in the public market in reliance on Rule 144(k) and _____ Restricted Shares will
become eligible for sale subject to the volume and other restrictions of Rule
144 and, in some cases, Rule 701.
In general, under Rule 144 as currently in effect, beginning 90 days after
the effective date of the Offering, any person (or persons whose shares are
aggregated) who has beneficially owned Restricted Shares for at least two years
is entitled to sell, within any three-month period, a number of shares that does
not exceed the greater of 1% of the then outstanding shares of the Company's
Common Stock (approximately 158,625 shares immediately after the Offering) or
the average weekly trading volume during the four calendar weeks preceding such
sale. Sales under Rule 144 are also subject to certain requirements as to the
manner of sale, notice and availability of current public information about the
Company. A person who is not an affiliate, has not been an affiliate within
three months prior to the sale and has beneficially owned the Restricted Shares
for a least three years is entitled to sell such shares under Rule 144(k) as
currently in effect without regard to any of the limitations described above.
In general, under Rule 701 as currently in effect, beginning 90 days after
the effective date of the Offering, certain shares issued upon exercise of
options granted by the Company prior to the date of this Prospectus will also be
available for sale in the public market. Any employee, officer or director of or
consultant to the Company who purchased his or her shares pursuant to a written
compensatory plan or contract may be entitled to rely on the resale provisions
of Rule 701. Rule 701 permits affiliates to sell their Rule 701 shares under
Rule 144 without complying with the holding period requirements of
57
<PAGE>
Rule 144. Rule 701 further provides that non-affiliates may sell such shares in
reliance on Rule 144 without having to comply with the public information,
volume limitation or notice provisions of Rule 144.
The Company intends to file a registration statement on Form S-8 under the
Act to register shares of Common Stock reserved for issuance under its stock
option plans, thus permitting the resale of shares issued under the plan by non-
affiliates in the public market without restriction under the Securities Act.
Such registration statement will become effective immediately upon filing which
is expected on or shortly after the closing of the Offering. As of the closing
of the Offering, options or rights to purchase _____ shares of Common Stock will
be outstanding under the Company's stock option plans, of which _____ shares are
subject to lock up agreements described above.
The Securities and Exchange Commission has recently proposed reducing the
Rule 144 holding period to one year and the Rule 144(k) holding period to two
years. There can be no assurance as to when or whether such rule changes will be
enacted. If enacted, such modification will have a material effect on the time
when shares of the Company's Common Stock become eligible for resale.
58
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the Underwriting Agreement, the
Underwriters named below (the "Underwriters"), through their Representatives,
Alex. Brown & Sons Incorporated, UBS Securities LLC and Wessels, Arnold &
Henderson, L.L.C. have severally agreed to purchase from the Company the
following respective numbers of shares of Common Stock at the initial public
offering price less the underwriting discounts and commissions set forth on the
cover page of this Prospectus:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
Alex. Brown & Sons Incorporated
UBS Securities LLC.
Wessels, Arnold & Henderson, L.L.C.
---------
Total 1,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will purchase all the shares of Common Stock offered hereby if any
of such shares are purchased.
The Company has been advised by the Representatives of the Underwriters
that the Underwriters propose to offer the shares of Common Stock to the public
at the initial public offering price set forth on the cover page of this
Prospectus and to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow,
a concession not in excess of $ per share to certain other dealers. After
the initial public offering, the offering price and other selling terms may be
changed by the Representatives of the Underwriters.
The Company has granted to the Underwriters an option, exercisable not
later than 30 days after the date of this Prospectus, to purchase up to 270,000
additional shares of Common Stock at the public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage thereof that the number of shares of Common Stock to be purchased by
it in the above table bears to 1,800,000, and the Company will be obligated,
pursuant to the option, to sell such shares to the Underwriters. The
Underwriters may exercise such option only to cover over-allotments made in
connection with the sale of Common Stock offered hereby. If purchased, the
Underwriters will offer such additional shares on the same terms as those on
which the 1,800,000 shares are being offered.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, as amended.
Shareholders of the Company, holding in the aggregate ____ shares of Common
Stock, have agreed not to offer, sell, contract to sell, or otherwise dispose of
any Common Stock for a period of 180 days after the date of this Prospectus
without the prior written consent of the Representatives of the Underwriters.
See "Shares Eligible for Future Sale."
The Representatives of the Underwriters have advised the Company that the
Underwriters do not intend to confirm sales to any account over which they
exercise discretionary authority.
59
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock
of the Company. Consequently, the initial public offering price for the Common
Stock will be determined by negotiation between the Company and the
Representatives of the Underwriters. The factors to be considered in such
negotiations include prevailing market conditions, the results of operations of
the Company in recent periods, the market capitalizations and stages of
development of other companies which the Company and the Representatives of the
Underwriters believe to be comparable to the Company, estimates of the business
potential of the Company, the present state of the Company's development and
other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company by Stradling, Yocca, Carlson & Rauth, a Professional
Corporation, Newport Beach, California. Certain legal matters will be passed
upon for the Underwriters by Morrison & Foerster LLP, Irvine, California.
EXPERTS
The consolidated financial statements and schedule of the Company as of
December 31, 1994 and 1995, and for each of the three years in the period ended
December 31, 1995, included in this Prospectus and elsewhere in the Registration
Statement have been audited by Deloitte & Touche LLP, independent auditors, as
stated in their reports appearing herein and elsewhere in the Registration
Statement, and are included in reliance upon the reports given upon their
authority as experts in accounting and auditing.
ADDITIONAL INFORMATION
A Registration Statement on Form S-1, including amendments thereto,
relating to the Common Stock offered hereby has been filed by the Company with
the Securities and Exchange Commission. This Prospectus does not contain all of
the information set forth in the Registration Statement and the exhibits and
schedules thereto. Statements contained in this Prospectus as to the contents
of any contract or other document referred to are not necessarily complete and
in each instance reference is made to the copy of such contract or other
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company and the Common Stock offered hereby, reference is made to
such Registration Statement, exhibits and schedules. A copy of the Registration
Statement may be inspected by anyone without charge at the public reference
facilities maintained by the Commission in Room 1024, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission located at
Seven World Trade Center, 13th Floor, New York, New York 10048 and Northwestern
Atrium Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies of all or any part of the Registration Statement may be obtained from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 and its public reference facilities in New York, New York
and Chicago, Illinois, upon the payment of the fees prescribed by the
Commission. The Registration Statement is also available through the
Commission's Website on the World Wide Web at the following address:
http://www.sec.gov.
60
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
----------------------
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Independent Auditors' Report.......................................... F-2
Consolidated Balance Sheets as of December 31, 1994 and 1995 and
June 30, 1996 (Unaudited).......................................... F-3
Consolidated Statements of Income for the years ended
December 31, 1993, 1994 and 1995 and the Six Months Ended
June 30, 1995 (Unaudited) and 1996 (Unaudited)..................... F-4
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 1993, 1994 and 1995 and the Six Months Ended
June 30, 1996 (Unaudited).......................................... F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1993, 1994 and 1995 and the Six Months Ended
June 30, 1995 (Unaudited) and 1996 (Unaudited)..................... F-6
Notes to Consolidated Financial Statements............................ F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Powerwave Technologies, Inc.:
We have audited the accompanying consolidated balance sheets of Powerwave
Technologies, Inc. (formerly Milcom International, Inc.) (the "Company") as of
December 31, 1994 and 1995, and the related consolidated statements of income,
shareholders' equity and of cash flows for each of the three years in the period
ended December 31, 1995. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of the Company as of December 31, 1994
and 1995 and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1995 in conformity with
generally accepted accounting principles.
Costa Mesa, California
April 8, 1996 (except for paragraph 14 of
Note 2 as to which the date is
October __, 1996)
The accompanying consolidated financial statements include the effects of a
stock split of the Company's Common Stock approved by the Company's Board of
Directors in October 1996, anticipated to be effective prior to the closing of
the Offering. The above opinion is in the form which will be signed by Deloitte
& Touche LLP upon consummation of the stock split, which is described in Note 2
of the notes to the consolidated financial statements, and assuming that, from
October 8, 1996 to the date of such stock split, no other events will have
occurred that would affect the accompanying consolidated financial statements
and notes thereto.
Deloitte & Touche LLP
Costa Mesa, California
October 8, 1996
F-2
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30, 1996
--------------------------- -----------------------------
1994 1995
----------- ------------- ------------- -------------
(Unaudited) PRO FORMA
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents.......................... $3,030,211 $ 5,860,785 $ 12,216,503
Short-term investments............................. 494,795
Accounts receivable, net of allowance
for doubtful accounts of $10,000,
$122,532 and $396,168 at
December 31, 1994, 1995 and
June 30, 1996, respectively..................... 1,428,224 3,103,990 2,387,751
Inventories........................................ 3,276,026 4,724,261 5,286,294
Income tax refund receivable....................... 609,550 370,689
Prepaid expenses and other current assets.......... 18,732 15,163 117,243
Deferred tax assets................................ 421,555 1,031,482 1,031,482
---------- ------------ ------------
Total current assets............................ 8,669,543 15,345,231 21,409,962
Property and equipment 1,262,168 1,800,078 3,172,018
Accumulated depreciation and amortization............ (380,355) (734,285) (975,848)
---------- ------------ ------------
Net property and equipment......................... 881,813 1,065,793 2,196,170
Other assets......................................... 52,299 362,603
------------ ------------
TOTAL ASSETS......................................... $9,551,356 $ 16,463,323 $ 23,968,735
========== ============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY:
Current Liabilities:
Accounts payable................................... $ 756,671 $ 3,508,098 $ 3,315,505 $ 3,315,505
Accrued expenses and other liabilities............. 1,937,821 2,080,446 4,926,589 4,926,589
Dividends payable.................................. 900,000
Due to shareholders................................ 90,000 50,000 1,000,000 1,000,000
Current portion of long-term debt.................. 93,765 66,824 66,824 66,824
Income taxes payable............................... 2,304,855
----------
Total current liabilities....................... 5,183,112 5,705,368 10,208,918 9,308,918
Other non-current liabilities...................... 50,000
Long-term debt..................................... 176,044 137,526 101,739 101,739
---------- ------------ ------------ ------------
Total liabilities.................................. 5,409,156 5,842,894 10,310,657 9,410,657
Commitments and contingency (Note 11):
Series A Convertible Preferred Stock (Note 6),
$.0001 par value; 3,375,900 and 3,375,900
shares authorized, issued and outstanding
at December 31, 1995 and June 30, 1996, (Note 6)
no pro forma shares at June 30, 1996............... 14,498,193 14,498,193
Shareholders' Equity (Deficit) (Notes 2, 6 and 9):
Preferred Stock, $.0001 par value;
5,000,000 shares authorized and no
shares outstanding.................................
Common Stock, $.0001 par value; 20,000,000
shares authorized; 13,950,000, 8,886,150
and 8,998,650 shares issued and
outstanding at December 31, 1994 and
1995 and June 30, 1996, 40,000,000 shares
authorized and 14,062,500 shares issued
pro forma at June 30, 1996......................... 740,000 471,380 771,380 15,269,573
Retained earnings.................................... 3,402,200 7,882,236 10,619,885 11,519,885
Less treasury stock at cost.......................... (12,231,380) (12,231,380) (12,231,380)
---------- ------------ ------------ ------------
Total shareholders' equity (deficit)............... 4,142,200 (3,877,764) (840,115) $ 14,558,078
========== ============ ============ ============
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY............................................. $9,551,356 $ 16,463,323 $ 23,968,735
========== ============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-3
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
---------------------------------------- -------------------------
1993 1994 1995 1995 1996
----------- ------------ ----------- ----------- -----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Net sales........................ $8,717,021 $22,860,634 $36,044,438 $11,573,389 $29,107,551
Cost of sales.................... 6,566,681 14,465,477 22,713,227 7,953,044 17,228,747
---------- ----------- ----------- ----------- -----------
Gross profit..................... 2,150,340 8,395,157 13,331,211 3,620,345 11,878,804
Operating expenses (Note 10):
Sales and marketing............ 386,981 570,276 1,557,282 565,436 2,158,570
Research and development....... 581,126 1,432,544 2,252,254 758,599 2,450,534
General and administrative..... 559,291 1,517,704 1,958,228 838,127 1,282,798
---------- ----------- ----------- ----------- -----------
Total operating expenses....... 1,527,398 3,520,524 5,767,764 2,162,162 5,891,902
---------- ----------- ----------- ----------- -----------
Operating income................. 622,942 4,874,633 7,563,447 1,458,183 5,986,902
Other income (expense)........... (5,298) (19,892) 32,237 7,497 178,606
---------- ----------- ----------- ----------- -----------
Income before income taxes....... 617,644 4,854,741 7,595,684 1,465,680 6,165,508
Provision for income taxes....... 266,419 1,908,406 3,115,648 601,202 2,527,861
---------- ----------- ----------- ----------- -----------
Net income....................... $ 351,225 $ 2,946,335 $ 4,480,036 $ 864,478 $ 3,637,649
========== =========== =========== =========== ===========
Pro forma net income per share... $ .30 $ .25
=========== ===========
Pro forma weighted average
common shares.................. 14,869 14,869
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-4
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK TREASURY STOCK SHAREHOLDERS'
------------------------ ------------------------- RETAINED EQUITY
SHARES AMOUNT SHARES AMOUNT EARNINGS (DEFICIT)
----------- ---------- --------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1993..... 13,950,000 $ 740,000 $ 104,640 $ 844,640
Net income..................... 351,225 351,225
---------- --------- ----------- ------------
Balance at December 31, 1993... 13,950,000 740,000 455,865 1,195,865
Net income..................... 2,946,335 2,946,335
---------- --------- ----------- ------------
Balance at December 31, 1994... 13,950,000 740,000 3,402,200 4,142,200
Repurchase of common stock
(Note 6):..................... (5,063,850) (268,620) 5,063,850 $(12,231,380) (12,500,000)
Net income..................... 4,480,036 4,480,036
---------- --------- --------- ------------ ----------- ------------
Balance at December 31, 1995... 8,886,150 471,380 5,063,850 (12,231,380) 7,882,236 (3,877,764)
Unaudited:
Issuance of Common Stock
related to the exercise
of stock options (Note 9)..... 112,500 300,000 300,000
Preferred Stock dividends
(Notes 2 and 6).............. (900,000) (900,000)
Net Income.................... 3,637,649 3,637,649
---------- --------- --------- ------------ ----------- ------------
Balance at June 30, 1996....... 8,998,650 $ 771,380 5,063,850 $(12,231,380) $10,619,885 $ (840,115)
========== ========= ========= ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-5
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED DECEMBER 31, JUNE 30,
------------------------------------------ --------------------------
1993 1994 1995 1995 1996
------------ ------------ ------------ ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income.................. $ 351,225 $ 2,946,335 $ 4,480,036 $ 864,478 $ 3,637,649
Adjustments to reconcile
net income to net cash
provided by (used in)
operating activities:
Depreciation and
amortization............... 108,758 166,597 353,929 124,636 241,563
Deferred income taxes....... 7,072 (399,127) (609,927)
Changes in assets and
liabilities:
Accounts receivable....... (1,974,571) 1,127,618 (1,675,766) (2,400,459) 711,963
Inventories............... (563,609) (2,350,424) (1,448,235) (1,838,230) (562,033)
Income tax refund
receivable............... (609,550) 238,861
Prepaid expenses and other
current assets............ (4,786) (5,694) (48,730) (95,174) (98,079)
Accounts payable.......... 1,847,761 (1,277,867) 2,066,914 2,268,790 491,920
Accrued expenses and
other liabilities....... 106,237 1,379,052 737,138 1,105,218 2,161,905
Other assets.............. (310,304)
Income taxes payable...... 232,471 2,072,384 (2,304,855) (2,898,797)
----------- ----------- ------------ -----------
Net cash provided by (used
in) operating activities... 110,558 3,658,874 940,954 (2,869,538) 6,513,445
CASH FLOWS FROM INVESTING
ACTIVITIES:
Purchase of property and
equipment.................. (415,818) (207,502) (537,909) (127,536) (1,371,940)
Sale (purchase) of
short-term investments..... (494,795) 494,795 494,795
----------- ------------ ----------- -----------
Net cash provided by (used
in) investing activities... (415,818) (702,297) (43,114) 367,259 (1,371,940)
CASH FLOWS FROM FINANCING
ACTIVITIES:
Principal payments on long-
term debt................. (4,272) (10,996) (65,459) (15,184) (35,787)
(Principal payments)
borrowings on debt......... 271,522 (273,884)
Increase in amounts due to
shareholders............... 950,000
Issuance of Preferred Stock. 14,498,193
Issuance of Common Stock.... 300,000
Preferred Stock dividend
payable.................... 900,000
Repurchase of Common Stock.. (12,500,000)
Preferred Stock dividends... (900,000)
----------- ----------- ------------ ----------- -----------
Net cash provided by (used
in) financing activities... 267,250 (284,880) 1,932,734 (15,184) 1,214,213
NET INCREASE (DECREASE) IN
CASH AND CASH EQUIVALENTS... (38,010) 2,671,697 2,830,574 (2,517,463) 6,355,718
CASH AND CASH EQUIVALENTS,
beginning................... 396,524 358,514 3,030,211 3,030,211 5,860,785
----------- ----------- ------------ ----------- -----------
CASH AND CASH EQUIVALENTS,
end......................... $ 358,514 $ 3,030,211 $ 5,860,785 $ 512,748 $12,216,503
----------- ----------- ------------ ----------- -----------
SUPPLEMENTAL CASH FLOW
INFORMATION:
Cash paid for:
Interest.................... 58,942 56,783 10,891 9,164
Income taxes................ $ 20,314 $ 235,149 $ 6,640,000 $ 3,525,000 $ 2,289,000
=========== =========== ============ =========== ===========
NONCASH ITEMS:
Acquisition of property
through capital lease....... $ 77,318 $ 248,141
=========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-6
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF OPERATIONS
Powerwave Technologies, Inc. (formerly Milcom International, Inc.)
(the "Company") is a Delaware corporation engaged in the design,
manufacture and sale of RF power amplifiers and related electronic
equipment for use in the wireless communications market. The Company
manufactures both single channel and multi-channel amplifiers, with a focus
on multi-channel products. The Company's products are currently being
utilized on cellular base stations in both digital and analog-based
networks. The Company's products support a wide range of digital and analog
transmission protocols. The Company also produces power amplifiers for the
SMR market, which is characterized as a two-way radio market with devices
commonly utilized by police and emergency personnel and the business
dispatch marketplace. The Company also manufactures air-to-ground
amplifiers.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The consolidated financial statements include the accounts of the
Company and its foreign sales corporation. All intercompany balances and
transactions have been eliminated in consolidation.
Unaudited Information
The information set forth in these consolidated financial statements
as of June 30, 1996 and for the six months ended June 30, 1995 and 1996 is
unaudited. This information reflects all adjustments, consisting only of
normal recurring adjustments, that, in the opinion of management, are
necessary to present fairly the financial position and results of
operations of the Company for these periods, results of operations for the
interim periods are not necessarily indicative of the results of operations
for the full fiscal year.
Fiscal Year
The Company operated on a calendar fiscal year basis through fiscal
1995. Commencing with fiscal year 1996, the Company has adopted a
conventional 52/53 week accounting fiscal year. The Company's fiscal year
ends on the Sunday closest to December 31st. Fiscal Year 1996 will end on
December 29, 1996.
Cash and Cash Equivalents
Cash and cash equivalents generally consist of cash, time deposits,
commercial paper, money market preferred stocks, money market funds and
other money market instruments. The Company invests its excess cash in
only investment grade money market instruments from a variety of industries
and, therefore, bears minimal risk. These securities all have original
maturity dates of three months or less. Such investments are stated at
cost, which approximates fair value, and are considered cash equivalents
for purposes of reporting cash flows.
Short-Term Investments
Short-term investments are valued at the lower of cost or market and
consist of certificates of deposit and marketable securities. The Company
adopted Statement of Financial Accounting Standards (SFAS) No. 115,
Accounting for Certain Investments in Debt and Equity Securities, as of
January 1, 1994.
F-7
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
This statement specifies the accounting treatment of the Company's
investments in equity securities based on the investment classifications
defined in the statement. The Company has classified the equity securities
as available for sale and, in accordance with SFAS No. 115, they have been
recorded at market value as of December 31, 1994. The market value
approximated the carrying amount at December 31, 1994. The Company did not
have short-term investments at December 31, 1995 or June 30, 1996.
Accounts Receivable
The Company performs ongoing credit evaluations of its customers and
generally does not require collateral. The Company maintains reserves for
potential credit losses and such losses have been within management's
expectations.
Inventories
Inventories are stated at the lower of cost, determined on a first-in
first-out basis, or market.
Property and Equipment
Property and equipment are stated at cost. The Company depreciates
these assets using the straight-line method over the estimated useful lives
of the various classes of assets, as follows:
<TABLE>
<S> <C>
Machinery and equipment 3 to 5 years
Office furniture and equipment 5 years
Leasehold improvements 7 to 10 years
Property under capital leases 3 to 5 years
</TABLE>
Fair Value of Financial Instruments
SFAS No. 107, Disclosures About Fair Value of Financial Instruments,
requires management to disclose the estimated fair value of certain assets
and liabilities defined by SFAS No. 107 as financial instruments.
Financial instruments are generally defined by SFAS No. 107 as cash or a
contractual obligation that both conveys to one entity a right to receive
cash or other financial instruments from another entity and imposes on the
other entity the obligation to deliver cash or other financial instruments
to the first entity. At December 31, 1995 and June 30, 1996, management
believes that the carrying amounts of cash, receivables and trade payables
approximate fair value because of the short maturity of these financial
instruments.
New Accounting Pronouncement
In October 1995, the Financial Accounting Standards Board issued SFAS
No. 123, Accounting for Stock-based Compensation, which requires adoption
of the disclosure provisions no later than years beginning after December
15, 1995 and adoption of the recognition and measurement provisions for
nonemployee transactions no later than after December 15, 1995. The new
standard defines a fair value method of accounting for stock options and
other equity instruments. Under the fair value method, compensation cost
is measured at the grant date based on the fair value of the award and is
recognized over the service period which is usually the vesting period.
Pursuant to the new accounting standard, companies are encouraged, but
are not required, to adopt the fair value method of accounting for employee
stock-based transactions. Companies are also permitted to continue to
account for such transactions under Accounting Principles Board Opinion No.
25, Accounting
F-8
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
for Stock Issued to Employees, but would be required to disclose in a note
to the financial statements pro forma net income and, if presented,
earnings per share as if the company had applied the new method of
accounting. The Company has determined that it will not change to the fair
value method and will continue to use Accounting Principle Board Opinion
No. 25 for measurement and recognition of employee stock based transactions
(Note 6).
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
Accounting for Income Taxes, which requires that the Company recognize
deferred tax liabilities and assets based on the differences between the
financial statement carrying amounts and the tax bases of assets and
liabilities, using enacted tax rates in effect in the years the differences
are expected to reverse. Deferred income tax benefits result from the
recognition of temporary differences between financial statement and income
tax reporting of income and expenses.
Revenue Recognition
The Company recognizes revenue from product sales at the time of
shipment. The Company also offers its customers, on a limited basis, a
right of return on sales and records an estimate of such returns at the
time of product delivery based on historical experience.
Stock Split
In October 1995, the Company's shareholders approved a 9,300 for one
stock split of the Company's Common Stock. The Company also changed the
number of common shares authorized from 1,000 shares to 20,000,000 shares
and the par value per share from $1 per share to $.0001 per share. All
Common Stock information included in the accompanying consolidated
financial statements has been restated to reflect such stock split.
In October 1996, the Company's Board of Directors approved a 3-for-2
stock split of the Company's Common Stock effective at or prior to the
closing of the Company's initial public offering ("IPO") and increased the
number of shares authorized Common Stock to 40,000,000. All share and per
share information relating to Common Stock and conversion amounts relating
to Series A Convertible Preferred Stock ("Series A Preferred Stock") and
stock options included in the accompanying consolidated financial
statements and footnotes have been restated to reflect the stock split for
all periods presented.
Pro Forma Net Income Per Share
Pro forma net income per share is computed by dividing net income by
the weighted average number of common and common equivalent shares
outstanding. Weighted average common and common equivalent shares include
Common Stock, stock options using the treasury stock method and the assumed
conversion of all outstanding shares of Series A Preferred Stock into
shares of Common Stock.
Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin Topic 4D, stock options granted during the twelve months prior to
the date of the initial filing of the Company's Form S-1 Registration
Statement have been included in the calculation of common equivalent shares
using the treasury stock method.
F-9
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Pro Forma Information
The Company is preparing for an IPO of its Common Stock which, upon
completion, will result in the conversion of all outstanding shares of
Series A Preferred Stock into shares of Common Stock (Note 6). The
accompanying pro forma information, which is unaudited, gives effect to the
conversion of all outstanding shares of Series A Preferred Stock into
Common Stock upon the closing of the IPO and the reversal of accrued
dividends payable of $900,000 at June 30, 1996 (Note 6).
Use of Estimates
The preparation of the consolidated financial statements in conformity
with generally accepted accounting principles necessarily requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reporting years. Actual
results could differ from those estimates.
Customer Concentrations and International Sales
The Company's product sales have historically been concentrated in a
small number of customers. During the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1995 and 1996, sales to three
customers (four customers for six months ended June 30, 1996) totaled
$4,675,900, $14,861,190, $20,741,883, $6,573,124 and $23,569,629 or 54%,
65%, 58%, 57% and 81% of net sales, respectively. The loss of, or
reduction in, sales to any such customers would have a material adverse
effect on the Company's business, operating results and financial
condition.
During the years ended December 31, 1993, 1994 and 1995 and the six
months ended June 30, 1995 and 1996, international sales, primarily to the
Asian market, were $696,400, $1,980,214, $24,202,747, $5,484,964 and
$20,213,782, respectively.
Supplier Concentrations
Certain of the Company's products utilize components that are
available in the short-term only from a single or a limited number of
sources. In addition, in order to take advantage of volume pricing
discounts, the Company purchases certain customized components for its
power amplifiers from single sources. Any inability to obtain single
sourced components in the amounts needed on a timely basis or at
commercially reasonable prices could result in delays in product
introductions or interruption in product shipments or increases in product
costs, which could have a material adverse effect on the Company's
business, operating results and financial condition until alternative
sources could be developed.
F-10
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. INVENTORIES
Inventories consist of the following at December 31, 1994 and 1995 and June
30, 1996:
<TABLE>
<CAPTION>
1994 1995 JUNE 30, 1996
---------- ---------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Parts and components............ $1,898,484 $2,646,063 $3,645,979
Work-in-process................. 1,338,525 1,695,172 855,650
Finished goods.................. 39,017 383,026 784,665
---------- ---------- ----------
Total........................... $3,276,026 $4,724,261 $5,286,294
========== ========== ==========
</TABLE>
4. PROPERTY AND EQUIPMENT
Property and equipment consist of the following at December 31, 1994 and
1995 and June 30, 1996:
<TABLE>
<CAPTION>
1994 1995 JUNE 30, 1996
----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.......... $ 835,117 $1,062,094 $1,440,838
Office furniture and equipment... 239,835 538,398 522,816
Leasehold improvements........... 187,216 199,586 199,586
Construction in progress......... 1,008,778
----------
1,262,168 1,800,078 3,172,018
---------- ---------- ----------
Less accumulated depreciation
and amortization............... (380,355) (734,285) (975,848)
---------- ---------- ----------
Net property and equipment....... $ 881,813 $1,065,793 $2,196,170
========== ========== ==========
</TABLE>
Included in property and equipment are assets under capital lease of
$351,801, $351,801 and $351,801 at December 31, 1994 and 1995 and June 30,
1996, respectively. Accumulated amortization of assets under capital lease
was $70,515, $140,875 and $176,055 at December 31, 1994 and 1995 and the
six months ended June 30, 1996, respectively. The $1,008,586 construction
in progress at June 30, 1996 relates to tenant improvements at the
Company's new headquarters facility.
5. FINANCING ARRANGEMENTS
The Company had a revolving line of credit of $3,000,000 secured by
substantially all of the Company's assets. The line of credit was
collateralized by machinery and equipment, inventory and accounts
receivable. Borrowings under the line bear interest at the bank's
reference rate plus .25% (8.5% at December 31, 1995). The line of credit
agreement contained covenants regarding certain financial statement
amounts, ratios and activities of the Company. At December 31, 1995, one
of the covenants was not met. The Company received a waiver related to
this covenant. The line of credit expired in May 1996.
On May 30, 1996, the Company entered into a new $5 million unsecured
revolving credit agreement. This agreement allows the Company to borrow at
the bank's reference rate (8.25% at June 30, 1996). The Company is
required to pay a commitment fee equal to .125% per annum based on the
average daily unused portion of the facility. The fee is payable quarterly
in arrears. The line of credit will expire on May 31, 1997. The credit
agreement contains covenants regarding certain financial statement amounts,
F-11
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
ratios and activities of the Company. At June 30, 1996, the Company was in
compliance with all covenants.
6. SHAREHOLDERS' EQUITY
Preferred Stock
Series A Preferred Stock shares are convertible, at the holder's
option, into shares of Common Stock on a 1 to 1.5 share basis. The
conversion ratio may be adjusted from time to time in the event of certain
diluting events. Conversion is automatic in the event of an initial public
offering of the Company's Common Stock meeting certain specified criteria
("Qualifying IPO"). Unless a Qualifying IPO has occurred, the holders of
the Series A Preferred Stock and any Common Stock issued upon conversion of
the Series A Preferred Stock can require that the Company repurchase such
securities upon a sale of substantially all the Company's assets, certain
mergers and corporate reorganizations, or in October 2001 (with a twelve-
month payout, if needed). Such repurchase would occur at the higher of fair
market value or the initial purchase price. Dividends on Series A Preferred
Stock are cumulative beginning in January 1996 and may be declared at the
discretion of the Board of Directors; however, such dividends will not
become payable if the Company completes a Qualifying IPO on or before
December 31, 1996. The dividend rate is 12% per annum. Series A Preferred
Stock shareholders have voting rights equal to the number of shares into
which the Series A Preferred Stock is convertible into Common Stock. In the
event of liquidation, dissolution or merger of the Company, each Series A
Preferred Stock shareholder has a liquidation preference equal to
approximately $4.44 per share of Series A Preferred Stock plus any declared
but unpaid dividends or cumulative dividends beginning in January 1996. As
of June 30, 1996, $900,000 of dividends payable had been accrued. Such
dividends will not be paid if the Company completes a Qualifying IPO on or
before December 31, 1996.
Each share of Series A Preferred Stock shall automatically be
converted into shares of Common Stock on a 1 to 1.5 basis on December 16,
2001 at a conversion price of approximately $2.96 per share subject to
certain adjustments. Because there is no mandatory redemption of the Series
A Preferred Stock, no accretion of additional amounts to the carrying
values of such Series A Preferred Stock was recorded.
Capital Transactions
During October 1995, the Company sold 3,375,900 shares of Series A
Preferred Stock at $4.44 per share and raised net proceeds of $14,498,193.
The Company then used a portion of the proceeds to repurchase 5,063,850
shares of the Company's Common Stock at $2.47 per share from the
shareholders. These shares are being held as treasury stock by the Company
as of December 31, 1995.
F-12
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
7. INCOME TAXES
The provision for income taxes for the years ended December 31, 1993, 1994
and 1995 and the six months ended June 30, 1996 consists of the following:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1993 1994 1995 JUNE 30, 1996
-------- ----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current:
Federal....................... $201,909 $1,800,618 $2,900,929 $2,152,863
State......................... 52,118 506,915 824,646 374,998
-------- ---------- ---------- ----------
Total current provision....... 254,027 2,307,533 3,725,575 2,527,861
Deferred - federal and state... 12,392 (399,127) (609,927)
-------- ---------- ----------
Provision for income taxes..... $266,419 $1,908,406 $3,115,648 $2,527,861
======== ========== ========== ==========
</TABLE>
The difference between income taxes provided in the financial statements
and as required by the federal statutory rate of 35% for the years ended
December 31, 1993, 1994 and 1995 and the six months ended June 30, 1996 is
as follows:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
1993 1994 1995 JUNE 30, 1996
-------- ----------- ----------- --------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Taxes at federal statutory...... $216,175 $1,699,159 $2,658,489 $2,157,928
State taxes, net of federal
benefit........................ 37,583 286,608 460,427 243,749
Accruals without tax effect..... 204,000 398,225
Foreign sales corporation tax
benefits....................... (159,205) (224,767)
Other........................... 12,661 (77,361) (48,063) (50,274)
-------- ---------- ---------- ----------
Provision for income taxes...... $266,419 $1,908,406 $3,115,648 $2,527,861
======== ========== ========== ==========
</TABLE>
At December 31, 1994 and 1995, the Company's net deferred tax asset was
comprised of the following major components:
<TABLE>
<CAPTION>
1994 1995
--------- ----------
<S> <C> <C>
Depreciation of property............. $(19,271) $ 2,434
Accruals and reserves................ 131,854 437,574
Costs capitalized into inventories... 148,356 362,452
State taxes.......................... 160,616 229,022
-------- ----------
Net deferred tax asset............... $421,555 $1,031,482
======== ==========
</TABLE>
The Company did not adjust its deferred tax asset during the six months
ended June 30, 1996 due to the immaterial effect on the financial
statements.
F-13
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. PROFIT-SHARING AND PENSION PLANS
The Company sponsors a 401(k) profit-sharing plan covering all eligible
employees. For the years ended December 31, 1993, 1994 and 1995, the Board
authorized $127,000, $270,000 and $340,000 in contributions to the profit-
sharing plan, respectively.
The 401(k) pension plan provides for Company matching participant
contributions up to a maximum of 10% of each participant's annual
contribution. Employee contributions are limited to 15% of base salary.
Contributions for the years ended December 31, 1993, 1994 and 1995 and the
six months ended June 30, 1995 and 1996 were $3,647, $9,594, $12,324,
$7,742 and $10,410, respectively.
9. STOCK OPTION PLANS
1995 Stock Option Plan - Effective December 4, 1995, the Company adopted
the 1995 Stock Option Plan (the "1995 Plan"), as amended, to permit
executive personnel, key employees and directors of the Company to
participate in ownership of the Company. The 1995 Plan is administered by
a committee consisting of two or more nonemployee directors and one
employee of the Company. Each option agreement includes a provision
requiring the optionee to consent to the terms of the agreement. The 1995
Plan provides for the grant of nonstatutory stock options under the
applicable provisions of the Internal Revenue Code. Options generally vest
at the rate of 25% on the first anniversary date and monthly thereafter.
Up to 1,938,615 shares of the Company's Common Stock were reserved for
issuance under the 1995 Plan. Under an agreement with the Company, certain
shareholders have agreed that, once the Company has issued an initial
1,170,000 shares of Common Stock under the 1995 Stock Option Plan, any
additional shares issued under that Plan upon an option exercise will be
coupled with a pro rata redemption from those shareholders of an equal
number of shares at a redemption price equaling the option exercise price.
The following table summarizes activity under the Option Plan:
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF PRICE PER OPTIONS
SHARES SHARE EXERCISABLE
---------- ------------ -----------
<S> <C> <C> <C>
Balance at January 1, 1995.....
Granted...................... 562,500 $ 2.47 69,675
--------- ------------ -------
Balance at December 31, 1995... 562,500 2.47 69,675
Unaudited:
Granted...................... 1,407,975 2.67- 4.66
Exercised.................... (112,500) 2.67
Cancelled.................... (56,250) 2.47
--------- ------------
Balance at June 30, 1996....... 1,801,725 $ 2.47-$4.66 153,220
========= ============ =======
</TABLE>
At June 30, 1996, 24,390 options were available for grant under the Option
Plan.
Subsequent to June 30, 1996, options to purchase 6,750 shares of Common
Stock were cancelled, and options to purchase 28,425 shares of Common Stock
at $4.66 per share were granted.
F-14
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1996 Stock Incentive Plan - On October 7, 1996 the Company adopted the 1996
Stock Incentive Plan (the "1996 Plan"), to be effective upon the completion
of the Company's planned initial public offering. The 1996 Plan covers an
aggregate of 1,500,000 shares of Common Stock plus any shares which are or
become available for grant under the 1995 Plan. The 1996 Plan provides for
the granting of "incentive stock options," within the meaning of Section
422 of the Internal Revenue Code of 1986, as amended (the "Code"),
nonstatutory options and restricted stock grants to directors, officers,
employees and consultants of the Company, except that incentive stock
options may not be granted to non-employee directors or consultants. The
purpose of the 1996 Plan is to provide participants with incentives which
will encourage them to acquire a proprietary interest in, and continue to
provide services to, the Company. The 1996 Plan is administered by the
Board of Directors, which has sole discretion and authority, consistent
with the provisions of the 1996 Plan, to determine which eligible
participants will receive options, the time when options will be granted,
the terms of options granted and the number of shares which will be subject
to options granted under the 1996 Plan. There are no options outstanding
under the 1996 Plan.
1996 Director Stock Option Plan - On October 7, 1996 the Company adopted
the 1996 Stock Option Plan for Directors (the "Director Plan"), to be
effective upon the completion of the Company's planned initial public
offering. The Director Plan provides for the grant by the Company of
options to purchase up to an aggregate of 200,000 shares of Common Stock of
the Company. The Director Plan provides that each member of the Company's
Board of Directors who is not an employee or paid consultant of the Company
automatically will be eligible to receive options to purchase stock under
the Director Plan. Pursuant to the terms of the Director Plan, each
director elected after the Company's initial public offering under the
Securities Act of 1933 (the "Offering Date") will be granted an initial
option under the plan covering 30,000 shares of Common Stock. Furthermore,
on the Offering Date, and on each anniversary date thereof, each director
who shall have been an eligible participant under the Director Plan for at
least six (6) months shall be granted an annual option under the Director
Plan to purchase 5,000 shares of Common Stock. There are no options
outstanding under the Director Plan.
Employee Stock Purchase Plan - On October 7, 1996 the Company adopted the
Employee Stock Purchase Plan (the "Purchase Plan"), to be effective upon
completion of the Company's planned initial public offering. The Purchase
Plan covers an aggregate of 500,000 shares of Common Stock. The Purchase
Plan, which is intended to qualify as an "employee stock purchase plan"
under Section 423 of the Internal Revenue Code, will be implemented by six-
month offerings with purchases occurring at six month intervals commencing
on the date of this Prospectus. The Purchase Plan will be administered by
the Compensation Committee. Employees will be eligible to participate if
they are employed by the Company for at least 30 hours per week and if they
have been employed by the Company for at least 180 days. The Purchase Plan
permits eligible employees to purchase Common Stock through payroll
deductions, which may not exceed 15% of an employee's compensation. The
price of stock purchased under the Purchase Plan will be 85% of the lower
of the fair market value of the Common Stock at the beginning of each six-
month offering period or on the applicable purchase date. Employees may
end their participation in any offering at any time during the offering
period, and participation ends automatically on termination of employment.
The Board may at any time amend or terminate the Purchase Plan, except that
no such amendment or termination may adversely affect options previously
granted under the Purchase Plan. There are no rights to purchase
outstanding under the Purchase Plan.
10. RELATED PARTY TRANSACTIONS
As of December 31, 1994 and 1995 and the six months ended June 30, 1995,
the
F-15
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Company had an outstanding unsecured note payable in the amount of $50,000
to a relative of the majority stockholder. The note bore interest at 8%,
matured in February 1996 and was repaid. As of June 30, 1996, the Company
had unsecured accounts payable to shareholders of $1,000,000 related to the
Company's new facility. The funds were required as part of the Company's
facility lease agreement and were used to fund tenant improvements at the
Company's new facility in Irvine, California.
As disclosed in Note 11, the Company leases its manufacturing and office
facility from certain of the Company's shareholders. Rent paid to the
shareholders was $160,320, $160,320, $166,728, $83,364 and $84,198 for the
years ended December 31, 1993, 1994 and 1995 and the six months ended June
30, 1995 and 1996, respectively.
In August 1995, the Company entered into a Technology License Agreement
with Unique Wireless Developments, L.L.C., a Delaware limited liability
company. Under the agreement, the Company obtained exclusive rights to use
certain amplifier technology for the SMR market in exchange for certain
royalties, including a non-refundable (with certain exceptions) up front
royalty totaling $300,000, of which $250,000 has been paid. A member of
the Board of Directors of the Company, is Executive Vice President of
Unique Technologies International, L.L.C., an affiliate of Unique Wireless
Developments, L.L.C. During the year ended December 31, 1995, the Company
expensed such royalty payment.
11. COMMITMENTS AND CONTINGENCY
The Company leased its former manufacturing and headquarters facility from
its shareholders. During July 1995, the Company moved from its previous
facility and into a new facility. The Company leases its new manufacturing
and headquarters facility from a limited liability company owned by three
of the Company's shareholders. The lease term commenced on July 15, 1996
and will continue for ten years. The Company has an option to purchase the
facility at fair market value during the lease term. The Company also
leases equipment from unrelated parties. Future minimum lease payments
required under operating leases and the present value of future minimum
lease payments for capital leases at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
COMMITMENT TO OPERATING CAPITALIZED
SHAREHOLDERS LEASES LEASES
------------- ---------- ------------
<S> <C> <C> <C>
Year ending December 31:
1996.................................. $ 168,592 $1,229,336 $ 88,200
1997.................................. 170,064 1,201,731 82,463
1998.................................. 170,064 1,199,936 48,402
1999.................................. 170,064 1,197,683 11,969
2000.................................. 170,064 1,195,461
Thereafter............................ 496,020
---------- ---------- --------
Total future minimum lease
payments.............................. $1,344,868 $6,024,147 231,034
========== ==========
Less amount representing interest....... (26,684)
--------
Present value of future minimum lease
payments.............................. 204,350
Less current portion.................... (66,824)
--------
$137,526
========
</TABLE>
Total rent expense was $78,725, $168,721, $173,142, $86,812 and $92,998 for
the years ended December 31, 1993, 1994 and 1995 and the six months ended
June 30, 1995 and 1996, respectively.
F-16
<PAGE>
POWERWAVE TECHNOLOGIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. ROYALTY AGREEMENT
The Company has a royalty agreement which requires payment of a 10%
commission on certain licensed products. Total royalty expense was
$387,061, $499,141, $338,075 and $280,500 for the years ended December 31,
1994 and 1995 and the six months ended June 30, 1995 and 1996,
respectively. For the years ended December 31, 1994 and 1995 and the six
months ended June 30, 1995 and 1996, sales of the related product
represented 17%, 14%, 32% and 10% of net sales, respectively. The final
payment required under the royalty agreement is due in October 1996.
13. OTHER INFORMATION
Accrued expenses and other liabilities consist of the following at December
31, 1994, 1995 and June 30, 1996:
<TABLE>
<CAPTION>
SIX
MONTHS
ENDED
JUNE 30,
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Accrued expenses and other liabilities:
Accrued warranty costs.................... $ 186,756 $ 480,000 $1,112,767
Accrued sales returns..................... 295,276 320,594 619,586
Accrued royalties......................... 280,559 149,021 188,000
Accrued payroll and employee benefits..... 1,166,578 755,828 1,927,187
Other accrued expenses.................... 8,652 375,003 1,079,049
---------- ---------- ----------
$1,937,821 $2,080,446 $4,926,589
========== ========== ==========
</TABLE>
F-17
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THE OFFERING MADE HEREBY TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS NOT CONTAINED IN THIS
PROSPECTUS AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR A
SOLICITATION OF AN OFFER TO BUY ANY OF THE SECURITIES OFFERED HEREBY TO ANY
PERSON OR BY ANYONE IN ANY JURISDICTION IN WHICH IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE
MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THE
INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE
HEREOF.
------------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................
Risk Factors..............................................................
Use of Proceeds...........................................................
Dividend Policy...........................................................
Capitalization............................................................
Dilution..................................................................
Selected Consolidated Financial Data......................................
Management's Discussion and Analysis of
Financial Condition and Results of Operations............................
Business..................................................................
Management................................................................
Certain Transactions......................................................
Principal Shareholders....................................................
Description of Capital Stock..............................................
Shares Eligible for Future Sale...........................................
Underwriting..............................................................
Legal Matters.............................................................
Experts...................................................................
Additional Information....................................................
Index to Consolidated Financial Statements................................
</TABLE>
--------------------
UNTIL __________, 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
1,800,000 Shares
[LOGO]
POWERWAVE TECHNOLOGIES,
INC.
COMMON STOCK
----------
PROSPECTUS
----------
Alex. Brown & Sons
Incorporated
UBS Securities
Wessels, Arnold & Henderson,
L.L.C.
________, 1996
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth all costs and expenses, other than
underwriting discounts and commissions, payable by the Company in connection
with the sale of the Common Stock being registered hereunder. All of the amounts
shown are estimates except for the SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
To be paid by
the Company
-------------
<S> <C>
SEC registration fee........................ $ 8,155
NASD filing fee............................. 3,191
Nasdaq National Market application fee...... 57,157
Printing expenses........................... 125,000
Legal fees and expenses..................... 200,000
Accounting fees and expenses................ 130,000
Blue sky fees and expenses.................. 15,000
Transfer agent and registrar fees........... 5,000
Directors and officers insurance premiums... 250,000
Miscellaneous............................... 156,497
--------
Total.................................... $950,000
========
</TABLE>
*To be filed by amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
(a) As permitted by the Delaware General Corporation Law, the Amended and
Restated Certificate of Incorporation of the Company (Exhibit 3.2 hereto)
eliminates the liability of directors to the Company or its shareholders for
monetary damages for breach of fiduciary duty as a directors, except to the
extent otherwise required by the Delaware General Corporation Law.
(b) The Amended and Restated Certificate of Incorporation provides that the
Company will indemnify each person who was or is made a party to any proceeding
by reason of the fact that such person is or was a director or officer of the
Company against all expense, liability and loss reasonably incurred or suffered
by such person in connection therewith to the fullest extent authorized by the
Delaware General Corporation Law. The Company's Amended and Restated Bylaws
(Exhibit 3.4 hereto) provide for a similar indemnity to directors and officers
of the Company to the fullest extent authorized by the Delaware General
Corporation Law.
(c) The Amended and Restated Certificate of Incorporation also gives the
Company the ability to enter into indemnification agreements with each of its
directors and officers. The Company has entered into indemnification agreements
with each of its directors and officers and with Summit Partners and Crosspoint
Venture Partners (Exhibit 10.13 hereto), which provide for the indemnification
of such persons against any an all expenses, judgments, fines, penalties and
amounts paid in settlement, to the fullest extent permitted by law.
II-1
<PAGE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Securities Act of 1933, as amended
(the "Act"):
(1) From time to time during the three years preceding the date hereof,
the Registrant issued nonqualified stock options to purchase Common Stock
pursuant to the Registrant's 1995 Stock Option (the "1995 Plan") to
officers, directors and employees of the Registrant. From inception through
June 30, 1996, 112,500 options to purchase Common Stock pursuant to the 1995
Plan were exercised for an aggregate exercise price of $300,000. Exemption
from the registration provisions of the Act is claimed, among other
exemptions, with respect to the grant of options referred to above, on the
basis that the grant of options did not involve a "sale" of securities and,
therefore, registration thereof was not required and, with respect to the
exercise of options referred to above, on the basis that such transactions
met the requirements of Rule 701 as promulgated under Section 3(b) of the
Act.
(2) On October 10, 1995, the Registrant issued 3,375,900 shares of
Series A Convertible Preferred Stock for an aggregate purchase price of
$15,000,000 pursuant to a Stock Purchase Agreement entered into as of
October 10, 1995 among the Company, Alfonso G. Cordero, Ki Y. Nam, Sussanne
Torretta, Charles Florman, Bill Doi, Arthur Cook, Thomas Ha, Ernest Johnson,
Summit Ventures IV, L.P., Summit Ventures III, L.P., Summit Investors II,
L.P., Crosspoint Venture Partners 1993 and Crosspoint Venture Partners
Entrepreneurs 1993. The foregoing transaction was completed without
registration under the Act in reliance upon Section 4(2) of the Act for
transactions not involving a public offering, among others, on the basis
that such transaction did not involve any public offering and the purchasers
were sophisticated with access to the kind of information registration would
provide. Broker commissions in the amount of $300,000 were paid in
connection with the foregoing transaction.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS
<TABLE>
<CAPTION>
Exhibit
No. Description
------- ------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.
3.2 Amended and Restated Certificate of Incorporation of the Company.*
3.3 Bylaws of the Company.
3.4 Amended and Restated Bylaws of the Company.*
4.1 Stockholders' Agreement, dated October 10, 1995, among the Company
and certain shareholders.
4.2 Amendment No. 1 to Stockholders' Agreement, dated _________, 1996,
among the Company and certain shareholders.*
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation.*
10.1 Milcom International, Inc. 1995 Stock Option Plan (the "1995
Plan").
10.2 Form of Stock Option Agreement for 1995 Plan.
10.3 Amendment No. 1 to 1995 Stock Option Plan.*
10.4 Powerwave Technologies, Inc. 1996 Stock Incentive Plan (the "1996
Plan").
10.5 Form of Stock Option Agreement for 1996 Plan.
10.6 Form of Restricted Stock Purchase Agreement for 1996 Plan
10.7 Powerwave Technologies, Inc. 1996 Director Stock Option Plan (the
"Director Plan").
10.8 Form of Stock Option Agreement for Director Plan.
10.9 Powerwave Technologies, Inc. Employee Stock Purchase Plan.
10.10 Series A Convertible Preferred Stock Purchase Agreement, dated
October 10, 1995, among the Company and certain shareholders.
10.11 Redemption Agreement, dated October 10, 1995, amount the Company
and certain shareholders.
10.12 Registration Rights Agreement, dated October 10, 1995, among the
Company, and certain shareholders.
10.13 Indemnification Agreement, dated October 10, 1995, between the
Company and certain shareholders.
10.14 Form of Indemnification Agreement.
10.15 Standard Industrial/Commercial Single-Tenant Lease, dated November
8, 1993, between the Company and 17500 Gillette Partnership.
10.16 Standard Industrial/Commercial Single-Tenant Lease-Net, dated July
1, 1996, between the Company and CNH, LLC, a California limited
liability company.
10.17 Business Loan Agreement, dated May 30, 1996 between the Company
and Bank of America.
10.18 Agreement, dated February 16, 1996, between the Company and LG
Information & Communications, Ltd (portions omitted pursuant to
Rule 406).
10.19 Agreement, dated July 20, 1995, between the Company and Samsung
Electronics (portions omitted pursuant to Rule 406).
10.20 Technology License Agreement, dated August 30, 1995, between the
Company and Unique Wireless Developments, L.L.C., a Delaware
limited liability company.
11.1 Statement regarding computation of pro forma net income per share.
21.1 Subsidiaries of the Registrant.
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (see Exhibit 5.1).*
23.2 Consent of Deloitte & Touche, LLP.
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.*
----
</TABLE>
* To be filed by amendment.
II-3
<PAGE>
(B) FINANCIAL STATEMENT SCHEDULES
Schedule II Valuation and Qualifying Accounts
ITEM 17. UNDERTAKINGS
The Company hereby undertakes to provide to the Underwriters at the closing
specified in the Underwriting Agreement certificates in such denominations and
registered in such names as required by the Underwriters to permit prompt
delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities (other
than the payment by the Company of expenses incurred or paid by a director,
officer or controlling person of the Company in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
The Company hereby undertakes that:
(1) For purposes of determining any liability under the Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Act shall be deemed to be part of this registration statement as of
the time it was declared effective.
(2) For the purpose of determining any liability under the Act, each post-
effective amendment that contains a form of prospectus shall be deemed to be a
new registration statement relating to the securities offered therein, and the
Offering of such securities at that time shall be deemed to be the initial bona
fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
State of California, on the 8th day of October, 1996.
POWERWAVE TECHNOLOGIES, INC.
By: /s/ Bruce C. Edwards
-------------------------------------
Bruce C. Edwards
President and Chief Executive Officer
POWER OF ATTORNEY
We, the undersigned directors and officers of Powerwave Technologies, Inc.,
do hereby constitute and appoint Bruce C. Edwards and Kevin T. Michaels or
either of them, our true and lawful attorneys and agents, to do any and all acts
and things in our name and behalf in our capacities as directors and officers
and to execute any and all instruments for us and in our names in the capacities
indicated below, which said attorneys and agents, or either of them, may deem
necessary or advisable to enable said corporation to comply with the Securities
Act of 1933, as amended, and any rules, regulations, and requirements of the
Securities and Exchange Commission, in connection with this Registration
Statement, including specifically, but without limitation, power and authority
to sign for us or any of us in our names and in the capacities indicated below,
any and all amendments (including post-effective amendments) to this
Registration Statement, or any related registration statement that is to be
effective upon filing pursuant to Rule 462(b) under the Securities Act of 1933,
as amended; and we do hereby ratify and confirm all that the said attorneys and
agents, or either of them, shall do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bruce C. Edwards President, Chief Executive October 8, 1996
- ------------------------- Officer and Director
Bruce C. Edwards (Principal Executive Officer)
/s/ Kevin T. Michaels Vice President, Finance and October 8, 1996
- ------------------------- Chief Financial Officer
Kevin T. Michaels (Principal Financial
and Principal Accounting Officer)
/s/ Alfonso G. Cordero Director October 8, 1996
- -------------------------
Alfonso G. Cordero
/s/ Gregory M. Avis Director October 8, 1996
- -------------------
Gregory M. Avis
/s/ Eugene L. Goda Director October 8, 1996
- ------------------
Eugene L. Goda
</TABLE>
II-5
<PAGE>
<TABLE>
<S> <C> <C>
/s/ David L. George Director October 8, 1996
- -------------------
David L. George
/s/ Rich Shapero Director October 8, 1996
- ----------------
Rich Shapero
/s/ Sam Yau Director October 8, 1996
- -----------
Sam Yau
</TABLE>
II-6
<PAGE>
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
BALANCE AT CHARGES TO BALANCE AT
BEGINNING OF COSTS AND END OF
DESCRIPTION PERIOD EXPENSES DEDUCTIONS PERIOD
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Year ended
December 31, 1995:
Allowance for doubtful
accounts............... $ 10,000 120,946 (8,414) $122,532
Inventory reserves....... $301,358 490,584 $791,942
Year ended
December 31, 1994:
Allowance for doubtful
accounts............... $ 10,000 $ 10,000
Inventory reserves....... $ 88,935 212,423 $301,358
</TABLE>
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NO. DESCRIPTION PAGE
- ------- ----------- ----
<S> <C> <C>
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation of the Company.............................
3.2 Amended and Restated Certificate of Incorporation of the Company*
3.3 Bylaws of the Company...................................................
3.4 Amended and Restated Bylaws of the Company*
4.1 Stockholders' Agreement, dated October 10, 1995, among the Company
and certain shareholders................................................
4.2 Amendment No. 1 to Stockholders' Agreement, dated _________, 1996,
among the Company and certain shareholders*
5.1 Opinion of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation*
10.1 Milcom International, Inc. 1995 Stock Option Plan (the "1995 Plan").....
10.2 Form of Stock Option Agreement for 1995 Plan............................
10.3 Amendment No. 1 to 1995 Stock Option Plan*
10.4 Powerwave Technologies, Inc. 1996 Stock Incentive Plan (the "1996
Plan")..................................................................
10.5 Form of Stock Option Agreement for 1996 Plan............................
10.6 Form of Restricted Stock Purchase Agreement for 1996 Plan...............
10.7 Powerwave Technologies, Inc. 1996 Director Stock
Option Plan (the "Director Plan").......................................
10.8 Form of Stock Option Agreement for Director Plan........................
10.9 Powerwave Technologies, Inc. Employee Stock Purchase Plan...............
10.10 Series A Convertible Preferred Stock Purchase Agreement, dated
October 10, 1995, among the Company and certain shareholders............
10.11 Redemption Agreement, dated October 10, 1995, amount the Company
and certain shareholders................................................
10.12 Registration Rights Agreement, dated October 10, 1995, among the
Company, and certain shareholders.......................................
10.13 Indemnification Agreement, dated October 10, 1995, between the
Company and certain shareholders........................................
10.14 Form of Indemnification Agreement.......................................
10.15 Standard Industrial/Commercial Single-Tenant Lease, dated November 8,
1993, between the Company and 17500 Gillette Partnership................
10.16 Standard Industrial/Commercial Single-Tenant Lease-Net, dated July 1,
1996, between the Company and CNH, LLC, a California limited liability
company.................................................................
10.17 Business Loan Agreement, dated May 30, 1996 between the Company
and Bank of America.....................................................
10.18 Agreement, dated February 16, 1996, between the Company and LG
Information & Communications, Ltd (portions omitted pursuant to Rule
406)....................................................................
10.19 Agreement, dated July 20, 1995, between the Company and Samsung
Electronics (portions omitted pursuant to Rule 406).....................
10.20 Technology License Agreement, dated August 30, 1995, between the
Company and Unique Wireless Developments, L.L.C., a Delaware limited
liability company.......................................................
11.1 Statement regarding computation of pro forma net income per share.......
21.1 Subsidiaries of the Registrant..........................................
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
23.1 Consent of Stradling, Yocca, Carlson & Rauth, a Professional
Corporation (see Exhibit 5.1)*
23.2 Consent of Deloitte & Touche, LLP.......................................
24.1 Power of Attorney (see page II-5).......................................
27.1 Financial Data Schedule*
</TABLE>
- ------------------------------
* To be filed by amendment.
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
MILCOM INTERNATIONAL, INC.
----------
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is
MILCOM INTERNATIONAL, INC.
SECOND: Its registered office is to be located at 306 South State
Street, in the City of Dover, in the County of Kent, in the State of Delaware.
The name of its registered agent at that address is the United States
Corporation Company.
THIRD: The purpose of the corporation is to engage in any lawful act
or activity for which corporations may be organized under the General
Corporation Law of Delaware.
FOURTH: The total number of shares of stock which the corporation is
authorized to issue is One Thousand (1,000) all of which are classified as
Common Stock with a par value of One Dollar ($1.00).
FIFTH: The name and address of the single incorporator are
John S. Hoenigmann 70 Pine Street, New York, N.Y. 10270
<PAGE>
SIXTH: The By-Laws of the corporation may be made, altered, amended,
changed, added to or repealed by the Board of Directors without the assent or
vote of the stockholders. Elections of directors need not be by ballot unless
the By-Laws so provide.
SEVENTH: The corporation shall, to the full extent permitted by
Section 145 of the Delaware General Corporation Law, as amended from time to
time, indemnify all persons whom it may indemnify pursuant thereto.
EIGHTH: The corporation reserves the right to amend, alter, change or
repeal any provision contained in this certificate in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on
stockholders, directors and officers are subject to this reserved power.
IN WITNESS WHEREOF, I have hereunto set my hand and seal, the 2nd day
of January , 1985.
/s/ John S. Hoenigmann (L.S.)
-------------------------------
John S. Hoenigmann
<PAGE>
CERTIFICATE OF AMENDMENT
OF
MILCOM INTERNATIONAL, INC.,
a Delaware corporation
MILCOM INTERNATIONAL, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify that:
(1) The Board of Directors of the Corporation, at a meeting duly held,
adopted resolutions proposing and declaring advisable the following amendments
to the Certificate of Incorporation of the Corporation:
RESOLVED, that ARTICLE FOURTH of the Certificate of Incorporation of
the corporation is hereby amended to read in full as follows:
"FOURTH:
------
A. CLASSES OF STOCK.
----------------
1. The Corporation is authorized to issue two classes of shares
designated respectively "Common Stock" and "Preferred Stock". The number of
shares of Common Stock is 20,000,000, $.0001 par value, and the number of
shares of Preferred Stock is 3,375,900, $.0001 par value. The Preferred
Stock shall be issued in series. The first such series shall be designated
Series A Preferred Stock and shall consist of 3,375,900 shares, $.0001 par
value. The Series A Preferred Stock is referred to hereinafter as the
"Preferred Stock."
2. Upon the filing of this Certificate of Amendment in the
office of the Secretary of State of the State of Delaware, all shares of
the Common Stock theretofore issued and outstanding or reserved for
issuance by the Corporation shall be cancelled, and nine thousand three
hundred shares of Common Stock will be issued or reserved for issuance, as
the case may be, for every share of Common Stock theretofore issued and
outstanding or reserved for issuance, as the case may be. The Common Stock
theretofore issued and outstanding or reserved for issuance by the
Corporation as of the date of such filing (the "Filing Date") will not be
recognized thereafter except for the purpose of causing such shares to be
exchanged, each for nine thousand three hundred shares of Common Stock.
Upon surrender of a holder's certificate or certificates evidencing shares
of the Common Stock outstanding on the Filing Date, the Corporation shall
issue to such holder a certificate or certificates evidencing the number of
whole shares of Common Stock issued in exchange therefor.
The Board of Directors is hereby authorized, except as to
matters fixed as to preferred shares as hereinafter stated in this ARTICLE
FOURTH, to determine or alter the rights, preferences, privileges and
restrictions granted to or imposed upon any wholly unissued series of
Preferred Stock and, within the limitations and restrictions stated in the
resolution or resolutions of the Board of Directors originally fixing the
number of shares
<PAGE>
constituting any series, to increase or decrease (but not below the number
of shares of such series then outstanding) the number of shares of such
series subsequent to the issue of shares of that series, and to determine
the designation of any series and to fix the number of shares of any
series.
B. RIGHTS, PREFERENCES AND RESTRICTIONS OF PREFERRED STOCK.
-------------------------------------------------------
The following is a statement of the designations, powers,
privileges, preferences and relative, participating, optional or other
special rights, and the qualifications, limitations or restrictions
relating to the Preferred Stock:
1. Dividends. When, as and if declared by the Board of
---------
Directors, the holders of the outstanding shares of the Preferred Stock
shall be entitled to receive, out of funds legally available therefor,
cumulative dividends, commencing on January 1, 1996, at the rate of twelve
percent per annum, and payable upon (i) redemption or other repurchase of
such Preferred Stock, (ii) liquidation, dissolution or winding up pursuant
to Section 2 hereof, (iii) upon the closing of the Corporation's first
underwritten public offering pursuant to an effective registration
statement under the Securities Act of 1933, as amended ("Securities Act"),
covering the offer and sale of Common Stock for the account of the
Corporation which offering is not a Qualified Public Offering, as defined
hereinafter ("Other Public Offering") or upon a Qualified Public Offering
as provided in Section 4(a)(ii) which is closed after December 31, 1996, or
(iv) upon conversion of the Preferred Stock as expressly provided in
Section 4(a), other than conversion pursuant to Section 4(a)(i) prior to
January 1, 1997 (in which case no dividend shall be payable) and other than
upon a Qualified Public Offering as provided in Section 4(a)(ii) which is
closed prior to January 1, 1997 (in which case no dividend shall be
payable. If and to the extent the Preferred Stock continues outstanding
after December 31, 1999, then the rate of the dividend thereafter shall be
at the rate of eight percent per annum. Upon the closing of a Qualified
Public Offering which is closed after December 31, 1996 or an Other Public
Offering closing at any time, the Corporation shall pay the accrued
dividends to the holders of the Preferred Stock, which accrued dividends
shall be paid, at the election of the holders of the Preferred Stock, in
either cash or by issuing a number of shares of Common Stock to the holders
of the Preferred Stock equal to the amount of the accrued dividends divided
by the per share price at which the Common Stock is offered to the public
in the Other Public Offering. No dividends may be declared or paid upon the
Common Stock of the Corporation so long as any shares of the Preferred
Stock remain outstanding.
2. Liquidation, Dissolution or Winding Up.
--------------------------------------
(a) Preference - Preferred Stock. In the event of any
----------------------------
liquidation, dissolution or winding up of the Corporation, whether
voluntary or involuntary holders of each share of Preferred Stock shall be
entitled to be paid out of the assets of the Corporation, whether such
assets are capital, surplus, or earnings, before any sums shall be paid or
any asset distributed among the holders of shares of Common Stock, an
amount equal to $4.44325958 per share of Preferred Stock, plus any accrued
but unpaid dividends. If the assets of the Corporation shall be
insufficient to permit the payment in full to the holders of the Preferred
Stock of the amount thus distributable, then the entire assets of the
Corporation
2
<PAGE>
available for such distribution shall be distributed ratably among the
holders of the Preferred Stock. After such payment shall have been made in
full to the holders of the Preferred Stock or funds necessary for such
payment shall have been set aside by the Corporation in trust for the
account of holders of the Preferred Stock so as to be available for such
payment, holders of the Preferred Stock shall be entitled to no further
participation in the distribution of the assets of the Corporation and
shall have no further rights of conversion, and the remaining assets
available for distribution shall be distributed ratably among the holders
of the Common Stock.
(b) A consolidation or merger (other than a consolidation or
merger in which the holders of voting securities of the Corporation
immediately before the consolidation or merger own (immediately after the
consolidation or merger) voting securities of the surviving or acquiring
corporation, or of a parent party of such surviving or acquiring
corporation, possessing more than 50% of the voting power of such surviving
or acquiring corporation or parent party) of the Corporation or a sale of
all or substantially all of the assets of the Corporation shall be regarded
as a liquidation, dissolution or winding up of the affairs of the
Corporation within the meaning of this Section 2.
(c) Each holder of Preferred Stock shall have the right to
elect the benefits of the provisions of Section 4(g) hereof in lieu of
receiving payment in liquidation, dissolution or winding up of the
Corporation pursuant to this Section 2. The election procedures shall be as
provided in Section 4(g) hereof.
(d) Whenever the distribution provided for herein shall be
paid in property other than cash, the value of such distribution shall be
the fair market value of such property as determined in good faith by the
Board of Directors of the Corporation.
3. Voting Power. Except as otherwise expressly provided in
------------
Section 6 hereof, or as required by law, each holder of Preferred Stock
shall be entitled to vote on all matters and shall be entitled to that
number of votes equal to the largest number of whole shares of Common Stock
into which such holder's shares of Preferred Stock could be converted,
pursuant to the provisions of Section 4 hereof, at the record date for the
determination of stockholders entitled to vote on such matter or, if no
such record date is established, at the date such vote is taken or any
written consent of shareholders is solicited. Except as otherwise expressly
provided herein or as required by law, the holders of shares of Preferred
Stock and Common Stock shall vote together as a class on all matters.
4. Conversion Rights. The holders of the Preferred Stock shall
-----------------
have the following conversion rights:
(a) General.
-------
(i) Subject to and in compliance with the provisions of
this Section 4, any shares of the Preferred Stock may, at the option of the
holder, be converted at any time or from time to time into fully-paid and
nonassessable shares (calculated as to each conversion to the largest whole
share) of Common Stock. The number of shares of Common Stock to which a
holder of Preferred Stock shall be entitled upon conversion shall be the
product obtained by multiplying the Applicable Conversion Rate (determined
as
3
<PAGE>
provided in Section 4(b)) by the number of shares of Preferred Stock being
converted together with payment of accrued but unpaid dividends either (i)
in cash or (ii) in shares of Common Stock by converting the accrued and
unpaid dividends at the then fair market value of such Common Stock as
determined in Section B.1. herein. The method of payment of the dividends
as provided in (i) and (ii) above shall be (a) in the case of conversion in
concurrence with an Other Public Offering, at the election of the holder of
the Preferred Stock, and (b) otherwise at the election of the Corporation,
with the fair market value determined as follows: (i) if the Common Stock
is publicly traded, the average over the preceding twenty (20) trading days
of the mean of the closing bid and asked prices on the over-the-counter
market as reported by NASDAQ, or, if then traded on a national securities
exchange or the National Market System, the average over the preceding
twenty (20) trading days of the mean of the high and low prices on the
principal national securities exchange the National Market System on which
it is so traded over the preceding twenty (20) trading days, and (ii) if
the Common Stock is not publicly traded, then as agreed upon by the
Corporation and a majority in interest of the holders of the Preferred
Stock. If no such agreement is reached within thirty (30) days, the fair
market value shall be determined by appraisal;
(ii) each share of Preferred Stock shall automatically
be converted into a number of shares of Common Stock equal to the product
obtained by multiplying the Applicable Conversion Rate determined as
provided in Section 4(b) by the number of shares of Preferred Stock being
converted concurrently upon the closing of a firm commitment underwritten
public offering of the Corporation's Common Stock pursuant to an effective
registration statement under the Securities Act, as amended, in which the
gross proceeds to the Corporation are $15,000,000, or more, and the price
per share is at least equal to the product of the then Applicable
Conversion Value multiplied by two ("Qualified Public Offering"), and then
payment of accrued but unpaid dividends are to be paid either (i) in cash
or (ii) in shares of Common Stock by converting the accrued and unpaid
dividends at the then fair market value of such Common Stock as determined
in Section 4.a.1. above.
(iii) each share of Preferred Stock shall automatically
be converted into a number of shares of Common Stock equal to the product
obtained by multiplying the Applicable Conversion Rate determined as
provided in Section 4(b) by the number of shares of Preferred Stock being
converted on December 16, 2001, if such Preferred Stock remains outstanding
on December 16, 2001.
(b) Applicable Conversion Rate. The conversion rate in
--------------------------
effect at any time (the "Applicable Conversion Rate") shall be the quotient
obtained by dividing $4.44325958, by the Applicable Conversion Value,
calculated as provided in Section 4(c).
(c) Applicable Conversion Value. The Applicable Conversion
---------------------------
Value in effect from time to time, except as adjusted in accordance with
Section 4(d) hereof, shall be $4.44325958.
4
<PAGE>
(d) Adjustments to Applicable Conversion Value.
------------------------------------------
(i) Upon Sale of Common Stock. If the Corporation shall
-------------------------
while there are any shares of Preferred Stock outstanding, issue or sell
shares of its Common Stock without consideration or at a price per share
less than the Applicable Conversion Value in effect immediately prior to
such issuance or sale, then in each such case such Applicable Conversion
Value upon each such issuance or sale, except as hereinafter provided,
shall be adjusted to an amount determined by multiplying the Applicable
Conversion Value by a fraction:
(A) the numerator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, plus (b) the number of shares of
Common Stock which the net aggregate consideration received by the
Corporation for the total number of such additional shares of Common Stock
so issued would purchase at the Applicable Conversion Value, and
(B) the denominator of which shall be (a) the number
of shares of Common Stock outstanding immediately prior to the issuance of
such additional shares of Common Stock, plus (b) the number of such
additional shares of Common Stock so issued.
The numerator and the denominator in Sections 4(d)(i)(A) and
(B) above, shall include the number of shares subject to issuance pursuant
to any convertible securities, including the Preferred Stock, as well as
any warrants, options, subscription rights or purchase rights then
outstanding.
To the extent that a portion of the Preferred Stock is
redeemed or otherwise repurchased, then the Applicable Conversion Value
shall be adjusted by excluding the number of shares which relate to
Preferred Stock redeemed from the numerator and denominator in Sections
4(d)(i)(A) and (B) so that the Applicable Conversion Value effective
immediately upon such redemption shall be equal to the Applicable
Conversion Value in effect at the time of issuance of the redeemed shares,
with such additional adjustments as would have been made to that Applicable
Conversion Value had the redeemed shares not been issued.
No adjustment shall be made under this subsection (d) until such
adjustment would cause the Applicable Conversion Value to be decreased (or
increased pursuant to the foregoing paragraph) by more than two percent
(2%), provided that any such adjustments shall be added to subsequent
adjustments.
The Corporation's issuance of up to an aggregate of
1,292,410 shares of Common Stock, or options exercisable therefor, net of
repurchase or expiration of such options, pursuant to any stock purchase or
stock option plan or other employee incentive program approved by the Board
of Directors to the Corporation's employees, directors, officers or
consultants shall not be deemed an issuance of additional shares of Common
Stock and shall have no effect on the calculations contemplated by this
Section 4(d) except as specifically otherwise set forth herein.
5
<PAGE>
The completion of a consolidation or merger in which the
holders of voting securities of the Corporation immediately before the
consolidation or merger own (immediately after the consolidation or merger)
voting securities of the surviving or acquiring corporation, or of a parent
party of such surviving or acquiring corporation, possessing more than 50%
of the voting power of such surviving or acquiring corporation or parent
party of the Corporation shall not be deemed an issuance of additional
shares of Common Stock and shall have no effect on the calculations
contemplated by this Section 4(d), except as specifically otherwise set
forth herein.
Except as discussed in the preceding paragraph, for the
purposes of this Section 4(d), the issuance of any warrants, options,
subscriptions or purchase rights with respect to shares of Common Stock and
the issuance of any securities convertible into or exchangeable for shares
of Common Stock (or the issuance of any warrants, options or any rights
with respect to such convertible or exchangeable securities) shall be
deemed an issuance at such time of such Common Stock if the Net
Consideration Per Share (as hereinafter determined) which may be received
by the Corporation for such Common Stock shall be less than the Applicable
Conversion Value at the time of such issuance. Any obligation, agreement or
undertaking to issue warrants, options, subscriptions or purchase rights at
any time in the future shall be deemed to be an issuance at the time such
obligation, agreement or undertaking is made or arises. No adjustment of
the Applicable Conversion Value shall be made under this Section 4(d) upon
the issuance of any shares of Common Stock which are issued pursuant to the
exercise of any warrants, options, subscriptions or purchase rights or
pursuant to the exercise of any conversion or exchange rights in any
convertible securities if any adjustment shall previously have been made
upon the issuance of any such warrants, options or subscriptions or
purchase rights or upon the issuance of any convertible securities (or upon
the issuance of any warrants, options or any rights therefor) as above
provided. Any adjustment of the Applicable Conversion Value with respect to
this paragraph which relates to warrants, options, subscriptions or
purchase rights with respect to shares of Common Stock shall be disregarded
if and when any of such warrants, options, subscriptions or purchase
rights expire or are cancelled without being exercised, so that the
Applicable Conversion Value effective immediately upon such cancellation or
expiration shall be equal to the Applicable Conversion Value in effect at
the time of the issuance of the expired or cancelled warrants, options,
subscriptions or purchase rights, with such additional adjustments as would
have been made to that Applicable Conversion Value had the expired or
cancelled warrants, options, subscriptions or purchase rights not been
issued. For purposes of this paragraph, the "Net Consideration Per Share"
which may be received by the Corporation shall be determined as follows:
(A) The "Net Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any, received by the
Corporation for the issuance of such warrants, options, subscriptions or
other purchase rights or convertible or exchangeable securities, plus the
minimum amount of consideration, if any, payable to the Corporation upon
exercise or conversion thereof, divided by the aggregate number of shares
of Common Stock that would be issued if all such warrants, options,
subscriptions or other purchase rights or convertible or exchangeable
securities were exercised, exchanged or converted.
6
<PAGE>
(B) The "Net Consideration Per Share" which may be
received by the Corporation shall be determined in each instance as of the
date of issuance of warrants, options, subscriptions or other purchase
rights or convertible or exchangeable securities without giving effect to
any possible future price adjustments or rate adjustments which may be
applicable with respect to such warrants, options, subscriptions or other
purchase rights or convertible or exchangeable securities.
For purposes of this Section 4(d), if a part or all of the
consideration received by the Corporation in connection with the issuance
of shares of Common Stock or the issuance of any of the securities
described in this Section 4(d) consists of property other than cash, the
value of such contribution shall be the fair market value of such property
as determined in good faith by the Board of Directors of the Corporation,
whereupon such value shall be given to such consideration and shall be
recorded on the books of the Corporation with respect to receipt of such
property.
This Section 4(d) shall not apply under any of the
circumstances which would constitute an Extraordinary Common Stock Event
(as hereinafter defined in Section 4(d)(ii)).
(ii) Upon the happening of an Extraordinary Common Stock
Event (as hereinafter defined), the Applicable Conversion Value (and all
other conversion values set forth in Section (d)(i) above) shall,
simultaneously with the happening of such Extraordinary Common Stock Event,
be adjusted by multiplying the then effective Applicable Conversion Value
by a fraction, the numerator of which shall be the number of shares of
Common Stock outstanding immediately prior to such Extraordinary Common
Stock Event and the denominator of which shall be the number of shares of
Common Stock outstanding immediately after such Extraordinary Common Stock
Event, and the product so obtained shall thereafter be the Applicable
Conversion Value. The Applicable Conversion Value, as so adjusted, shall be
readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
"Extraordinary Common Stock Event" shall mean (i) the
issue of additional shares of the Common Stock as a dividend or other
distribution on outstanding Common Stock, (ii) subdivision of outstanding
shares of Common Stock into a greater number of shares of the Common Stock,
or (iii) combination of outstanding shares of the Common Stock into a
smaller number of shares of the Common Stock.
(e) Dividends. In the event the Corporation shall make or
---------
issue, or fix a record date for the determination of holders of Common
Stock entitled to receive, a dividend or other distribution payable in
securities of the Corporation other than shares of Common Stock or in
assets (excluding cash dividends or distributions), then and in each such
event provision shall be made so that the holders of the Preferred Stock
shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the number of securities or such
other assets of the Corporation which they would have received had their
Preferred Stock been converted into Common Stock on the date of such event
and had they thereafter, during the period from the date of such event to
and including the Conversion Date (as that term is hereafter defined in
Section 4(i)), retained such securities or such other assets receivable by
them as aforesaid during such period,
7
<PAGE>
giving application to all adjustments called for during such period under
this Section 4 with respect to the rights of the holders of the Preferred
Stock.
(f) Recapitalization or Reclassification. If the Common
------------------------------------
Stock issuable upon the conversion of the Preferred Stock shall be changed
into the same or different number of shares of any class or classes of
stock of the Corporation, whether by recapitalization, reclassification or
otherwise (other than a subdivision or combination of shares or stock
dividend provided for elsewhere in this Section 4, or a reorganization,
merger, consolidation or sale of assets provided for elsewhere in this
Section 4), then and in each such event the holder of each share of
Preferred Stock shall have the right thereafter to convert such share into
the kind and amount of shares of stock and other securities and property
receivable upon such reorganization, reclassification or other change by
holders of the number of shares of Common Stock into which such share of
Preferred Stock might have been converted (taking into account all accrued
and unpaid dividends and interest with respect to such Preferred Stock)
immediately prior to such reorganization, reclassification or change, all
subject to further adjustment as provided herein.
(g) Capital Reorganization, Merger or Sale of Assets. If
------------------------------------------------
at any time or from time to time there shall be a capital reorganization of
the Common Stock (other than a subdivision, combination, reclassification
or exchange of shares provided for elsewhere in this Section 4) or a merger
or consolidation of the Corporation with or into another corporation, or
the sale of all or substantially all of the Corporation's properties and
assets to any other person, then, as a part of such reorganization, merger,
consolidation or sale, provision shall be made so that the holders of the
Preferred Stock shall thereafter be entitled to receive upon conversion of
the Preferred Stock, the number of shares of stock or other securities or
property of the Corporation, or of the successor corporation resulting from
such merger, consolidation or sale, to which a holder of Common Stock
issuable upon conversion would have been entitled on such capital
reorganization, merger, consolidation, or sale or an amount of cash
receivable as if the Preferred Stock had converted into shares of Common
Stock. In any such case, appropriate adjustment shall be made in the
application of the provisions of this Section 4 with respect to the rights
of the holders of the Preferred Stock after the reorganization, merger,
consolidation or sale to the end that the provisions of this Section 4
(including adjustment of the Applicable Conversion Value then in effect and
the number of shares purchasable upon conversion of the Preferred Stock)
shall be applicable after that event in as nearly equivalent a manner as
may be practicable.
Each holder of Preferred Stock upon the occurrence of a
capital reorganization, merger or consolidation of the Corporation, or the
sale of all or substantially all its assets and properties as such events
are more fully set forth in the first paragraph of this Section 4(g), shall
have the option of electing treatment of his shares of Preferred Stock
under either this Section 4(g) or Section 2 hereof by giving the
Corporation written notice of such election at least ten days prior to the
close of such transaction unless such holders received notice of
transaction less than 20 days prior to the close of such transaction, then
the notice of election shall be 10 days after such notice.
(h) Accountant's Certificate as to Adjustments. In each
------------------------------------------
case of an adjustment or readjustment of the Applicable Conversion Rate,
the Corporation will furnish each holder of Preferred Stock with a
certificate, prepared by its chief financial
8
<PAGE>
officer showing such adjustment or readjustment, and stating in detail the
facts upon which such adjustment or readjustment is based. Upon the request
of the holders of a majority of either series of the Preferred Stock, the
Corporation will cause its independent public accountants to confirm the
accuracy of such adjustment or readjustment.
(i) Exercise of Conversion Privilege. To exercise its
--------------------------------
conversion privilege, a holder of Preferred Stock shall surrender the
certificate or certificates representing the shares being converted to the
Corporation at its principal office, and shall give written notice to the
Corporation at that office that such holder elects to convert such shares.
Such notice shall also state the name or names (with address or addresses)
in which the certificate or certificates for shares of Common Stock
issuable upon such conversion shall be issued and shall reconfirm the
representations contained in Section 1.3(a) of the Stock Purchase Agreement
by and among the Corporation, the Investors named therein and the
Stockholders named therein dated as of October 10, 1995. The certificate or
certificates for shares of Preferred Stock surrendered for conversion shall
be accompanied by proper assignment thereof to the Corporation or in blank.
If the conversion occurs in connection with a Qualified Public Offering or
is automatically converted on December 16, 2001, the Corporation shall give
holders of Preferred Stock 15 days written notice of such conversion.
Except for the automatic conversions when the Conversion Date shall be
either (i) the closing date of the Qualified Public Offering or (ii)
December 16, 2001, as the case may be, the date when such written notice is
received by the Corporation, together with the certificate or certificates
representing the shares of Preferred Stock being converted, shall be the
"Conversion Date." As promptly as practicable, but in any event within 15
days after the Conversion Date, the Corporation shall issue and shall
deliver to the holder of the shares of Preferred Stock being converted such
certificate or certificates as it may request for the number of whole
shares of Common Stock issuable upon the conversion of such shares of
Preferred Stock in accordance with the provisions of this Section 4, and
cash in the amount of all accrued and unpaid dividends on such shares of
Preferred Stock up to and including the Conversion Date, provided such
conversion does not occur in connection with a Qualified Public Offering
closing on or before December 31, 1996 (in which case no dividends shall be
due and payable), and cash, as provided in Section 4(j), in respect of any
fraction of a share of Common Stock issuable upon such conversion. If the
conversion occurs in connection with a Qualified Public Offering which
closes on or before December 31, 1996, then the Corporation will not pay
accrued dividends nor convert such accrued dividends into Common Stock.
Such conversion shall be deemed to have been effected immediately prior to
the close of business on the Conversion Date, and at such time the rights
of the holder as holder of the converted shares of Preferred Stock shall
cease and the person or persons in whose name or names any certificate or
certificates for shares of Common Stock issuable upon such conversion shall
be deemed to have become the holder or holders of record of the shares of
Common Stock represented thereby.
(j) Cash in Lieu of Fractional Shares. No fractional shares
---------------------------------
of Common Stock or scrip representing fractional shares shall be issued
upon the conversion of shares of Preferred Stock. Instead of any fractional
shares of Common Stock which would otherwise be issuable upon conversion of
Preferred Stock, the Corporation shall pay to the holder of the shares of
Preferred Stock which were converted a cash adjustment in respect of such
fractional shares in an amount equal to the same fraction of the market
price per share of the Common Stock (as determined in a reasonable manner
prescribed by the Board
9
<PAGE>
of Directors) at the close of business on the Conversion Date. The
determination as to whether or not any fractional shares are issuable shall
be based upon the total number of shares of Preferred Stock being converted
at any one time by any holder thereof, not upon each share of Preferred
Stock being converted.
(k) Partial Conversion. In the event some but not all of
------------------
the shares of Preferred Stock represented by a certificate or certificates
surrendered by a holder are converted, the Corporation shall execute and
deliver to or on the order of the holder, at the expense of the
Corporation, a new certificate representing the number of shares of
Preferred Stock which were not converted.
(l) Reservation of Common Stock. The Corporation shall at
---------------------------
all times reserve and keep available out of its authorized but unissued
shares of Common Stock, solely for the purpose of effecting the conversion
of the shares of the Preferred Stock, such number of its shares of Common
Stock as shall from time to time be sufficient to effect the conversion of
all outstanding shares of the Preferred Stock, and if at any time the
number of authorized but unissued shares of Common Stock shall not be
sufficient to effect the conversion or all then outstanding shares of the
Preferred Stock, the Corporation shall take such corporate action as may be
necessary to increase its authorized but unissued shares of Common Stock to
such number of shares as shall be sufficient for such purpose.
5. No Reissuance of the Preferred Stock. No share or shares of
------------------------------------
the Preferred Stock acquired by the Corporation by reason of purchase,
conversion or otherwise shall be reissued. The Corporation may from time to
time take such appropriate corporate action as may be necessary to reduce
the authorized number of shares of the Preferred Stock accordingly.
6. Restrictions and Limitations.
----------------------------
(a) Except as expressly provided herein or as required by
law, so long as 400,000 shares of the Preferred Stock remain outstanding,
the Corporation shall not, and shall not permit any subsidiary (which shall
mean any corporation or trust of which the Corporation directly or
indirectly owns at the time more than 50% of the voting power of such
corporation or trust) to, without the vote or written consent by the
holders of at least a majority of the then outstanding shares of each
series of Preferred Stock, each share of Preferred Stock to be entitled to
one vote in each instance:
(i) Redeem, purchase or otherwise acquire for value (or
pay in to or set aside for a sinking fund for such purpose), any share or shares
of capital stock (except for those shares repurchased from officers, directors,
employees or consultants (i) under agreements requiring such persons to sell
such shares to the Corporation, at cost, on termination of their relationship
with the Corporation or its subsidiaries, and (ii) under that certain
Stockholders' Agreement dated October 10, 1995 between the Stockholders and the
Investors named therein and the Corporation);
(ii) Authorize or issue, or obligate itself to authorize
or issue, any other equity security senior to or on a parity with the existing
Preferred Stock as to liquidation preferences, conversion rights, voting rights
or otherwise; or
10
<PAGE>
(iii) Effect any sale, lease, assignment, transfer or
other conveyance of all or substantially all of the assets of the
Corporation or any materially active subsidiary thereof, or any
consolidation or merger involving the Corporation or any materially active
subsidiary thereof, or any reclassification or other change of stock, or
any recapitalization or any dissolution, liquidation or winding up of the
Corporation.
(b) The Corporation shall not amend its Certificate of
Incorporation without the approval by vote or written consent by the
holders of at least a majority of the then outstanding shares of the
Preferred Stock, each share of the Preferred Stock to be entitled to one
vote in each instance, if such amendment would change any of the rights,
preferences, privileges or limitations provided for herein for the benefit
of any shares of the Preferred Stock. Without limiting the generality of
the next preceding sentence, the Corporation will not amend its Certificate
of Incorporation without the approval by the holders of at least a majority
of the then outstanding shares of each series of Preferred Stock if such
amendment would:
(i) Change the relative seniority rights of the holders
of Preferred Stock as to the payment of dividends in relation to the
holders of any other capital stock of the Corporation; or
(ii) Reduce the amount payable to the holders of
Preferred Stock upon the voluntary or involuntary liquidation, dissolution
or winding up of the Corporation, or change the relative seniority of the
liquidation preferences of the holders of Preferred Stock to the rights
upon liquidation of the holders of any other capital stock of the
Corporation or change the dividend rights of the holders of the Preferred
Stock; or
(iii) Cancel or modify the conversion rights of the
holders of the Preferred Stock provided for in Section 4 herein.
7. No Dilution or Impairment. Except as expressly provided
-------------------------
herein, the Corporation will not, by amendment of its Certificate of
Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms of the Preferred Stock set forth herein,
but will at all times in good faith assist in the carrying out of all such
terms and in the taking of all such action as may be necessary or
appropriate in order to protect the rights of the holders of the Preferred
Stock against dilution or other impairment. Without limiting the generality
of the foregoing, the Corporation (a) will not increase the par value of
any shares of stock receivable on the conversion of the Preferred Stock
above the amount payable therefor on such conversion, (b) will take all
such action as may be necessary or appropriate in order that the
Corporation may validly and legally issue fully paid and non-assessable
shares of stock on the conversion of all Preferred Stock from time to time
outstanding, (c) will not issue any capital stock of any class which is
preferred as to dividends or as to the distribution of assets upon
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation, unless the rights of the holders thereof shall be limited to a
fixed sum or percentage of par value in respect of participation in
dividends and in any such distribution of assets, and (d) will not transfer
all or substantially all of its properties and assets to any other person
(corporate or otherwise), or consolidate with or merge into any other
person or permit any
11
<PAGE>
such person to consolidate with or merge into the Corporation (if the
Corporation is not the surviving person), unless such other person shall
expressly assume in writing and will be bound by all the terms of the
Preferred Stock set forth herein.
8. Notices of Record Date. In the event of (a) any taking by
----------------------
the Corporation of a record of the holders of any class of securities for
the purpose of determining the holders thereof who are entitled to receive
any dividend or other distribution, or any right to subscribe for, purchase
or otherwise acquire any shares of stock of any class or any other
securities or property, or to receive any other right, or
(a) any capital reorganization of the Corporation, any
reclassification or recapitalization of the capital stock of the
Corporation, any merger or consolidation of the Corporation, or any
transfer of all or substantially all of the assets of the Corporation to
any other corporation, or any other entity or person. or
(b) any voluntary or involuntary dissolution, liquidation or
winding up of the Corporation, then and in each such event the Corporation
shall mail or cause to be mailed to each holder of Preferred Stock a notice
specifying (i) the date on which any such record is to be taken for the
purpose of such dividend, distribution or right and a description of such
dividend, distribution or right, (ii) the date on which any such
reorganization, reclassification, recapitalization, transfer,
consolidation, merger, dissolution, liquidation or winding up is expected
to become effective, (iii) the time, if any, that is to be fixed, as to
when the holders of record of Common Stock (or other securities) shall be
entitled to exchange their shares of Common Stock (or other securities) for
securities or other property deliverable upon such reorganization,
reclassification, recapitalization, transfer, consolidation, merger,
dissolution, liquidation or winding up. Such notice shall be mailed at
least 30 days prior to the date specified in such notice on which such
action is to be taken.
(2) The foregoing amendments have been approved by written consent in
accordance with the provisions of Section 228 of the General Corporation Law of
the State of Delaware, and written notice of the adoption of the foregoing
amendments to the Certificate of Incorporation has been given as provided in
Section 228 of the General Corporation Law of the State of Delaware to every
stockholder entitled to such notice.
(3) The foregoing amendments have been duly adopted in accordance with the
applicable provisions of Sections 228 and 242 of the General Corporation Law of
the State of Delaware.
12
<PAGE>
IN WITNESS WHEREOF, Milcom International, Inc. has caused this Certificate
of Amendment to be signed by Alfonso G. Cordero, its President, and attested to
by Ki Nam, its Secretary, this 9th day of October, 1995.
MILCOM INTERNATIONAL, INC.
By: /s/ Alfonso G. Cordero
----------------------------
Alfonso G. Cordero, President
ATTEST:
BY: /s/ Ki Nam
-----------------------------
Ki Nam, Secretary
13
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
MILCOM INTERNATIONAL, INC.
Milcom International, Inc., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"), does
hereby certify as follows:
1. At a meeting of the Board of Directors of the Corporation held on
June 20, 1996 and by written consent of the stockholders of the Corporation
dated as of June 20, 1996, resolutions were duly adopted setting forth a
proposed amendment to Article FIRST of the Certificate of Incorporation of the
Corporation. The resolution setting forth the proposed amendment is as follows:
RESOLVED, that Article FIRST of the Certificate of Incorporation is hereby
amended in its entirety to read as follows:
"The name of the corporation is Powerwave Technologies, Inc."
2. The necessary number of issued and outstanding shares required by
statute were voted in favor of the amendment.
3. Such amendment was duly adopted in accordance with the provisions of
Sections 228 and 242 of the General Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, Milcom International, Inc. has caused this certificate
to be signed by Alfonso G. Cordero, its Chairman of the Board, this 24th day of
June, 1996.
MILCOM INTERNATIONAL, INC.
By: /s/ Alfonso G. Cordero
-------------------------------
Alfonso G. Cordero,
Chairman of the Board
<PAGE>
EXHIBIT 3.3
B Y - L A W S
OF
MILCOM INTERNATIONAL, INC.
(as amended)
----------------
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE.--The registered office shall be
established and maintained at the office of the United States Corporation
Company, in the City of Dover, in the County of Kent, in the State of Delaware,
and said corporation shall be the registered agent of this corporation in charge
thereof.
SECTION 2. OTHER OFFICES.--The corporation may have other offices,
either within or without the State of Delaware, at such place or places as the
Board of Directors may from time to time appoint or the business of the
corporation may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
SECTION 1. ANNUAL MEETINGS.--Annual meetings of stockholders for the
election of directors and for such other business as may be stated in the notice
of the meeting, shall be held at such place, either within or without the State
of Delaware, and at such time and date as the Board of Directors, by resolution,
shall determine and as set forth in the notice of the meeting. In the event the
Board of Directors fails to so determine the time, date and place of meeting,
the annual meeting of stockholders shall be held at the registered office of the
corporation in Delaware on
If the date of the annual meeting shall fall upon a legal holiday, the
meeting shall be held on the next succeeding business day. At each annual
meeting, the stockholders entitled to vote shall elect a Board of Directors and
they may transact such other corporate business as shall be stated in the notice
of the meeting.
SECTION 2. OTHER MEETINGS.--Meetings of stockholders for any purpose
other than the election of directors may be held at such time and place, within
or without the State of Delaware, as shall be stated in the notice of the
meeting.
SECTION 3. VOTING.--Each stockholder entitled to vote in accordance
with the terms of the Certificate of Incorporation and in accordance with the
provisions of these By-Laws shall be
<PAGE>
entitled to one vote, in person or by proxy, for each share of stock entitled to
vote held by such stockholder, but no proxy shall be voted after three years
from its date unless such proxy provides for a longer period. Upon the demand of
any stockholder, the vote for directors and the vote upon any question before
the meeting, shall be by ballot. All elections for directors shall be decided by
plurality vote; all other questions shall be decided by majority vote except as
otherwise provided by the Certificate of Incorporation or the laws of the State
of Delaware.
A complete list of the stockholders entitled to vote at the ensuing
election, arranged in alphabetical order, with the address of each, and the
number of shares held by each, shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours for a period of at least ten days prior to the meeting, either at a place
within the city where the meeting is to be held, which place shall be specified
in the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time and
place of the meeting during the whole time thereof, and may be inspected by any
stockholder who is present.
SECTION 4. QUORUM.--Except as otherwise required by law, by the
Certificate of Incorporation or by these By-Laws, the presence, in person or by
proxy, of stockholders holding a majority of the stock of the corporation
entitled to vote shall constitute a quorum at all meetings of the stockholders.
In case a quorum shall not be present at any meeting, a majority in interest of
the stockholders entitled to vote thereat, present in person or by proxy, shall
have power to adjourn the meeting from time to time, without notice other than
announcement at the meeting, until the requisite amount of stock entitled to
vote shall be present. At any such adjourned meeting at which the requisite
amount of stock entitled to vote shall be represented, any business may be
transacted which might have been transacted at the meeting as originally
noticed; but only those stockholders entitled to vote at the meeting as
originally noticed shall be entitled to vote at any adjournment or adjournments
thereof.
SECTION 5. SPECIAL MEETINGS.--Special meetings of the stockholders for
any purpose or purposes may be called by the President or Secretary, or by
resolution of the directors.
SECTION 6. NOTICE OF MEETINGS.--Written notice, stating the place,
date and time of the meeting, and the general nature of the business to be
considered, shall be given to each stockholder entitled to vote thereat at his
address as it appears on the records of the corporation, not less than ten nor
more than sixty days before the date of the meeting. No business other than that
stated in the notice shall be transacted at any meeting without the unanimous
consent of all the stockholders entitled to vote thereat.
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<PAGE>
SECTION 7. ACTION WITHOUT MEETING.--Unless otherwise provided by the
Certificate of Incorporation, any action required to be taken at any annual or
special meeting of stockholders, or any action which may be taken at any annual
or special meeting, may be taken without a meeting, without prior notice and
without a vote, if a consent in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and
voted. Prompt notice of the taking of the corporate action without a meeting by
less than unanimous written consent shall be given to those stockholders who
have not consented in writing.
ARTICLE III
DIRECTORS
SECTION 1. NUMBER AND TERM.--The number of directors shall be seven
(7). The directors shall be elected at the annual meeting of the stockholders
and each director shall be elected to serve until his or her successor shall be
elected and shall qualify. Directors need not be stockholders.
SECTION 2. RESIGNATIONS.--Any director, member of a committee or other
officer may resign at any time. Such resignation shall be made in writing, and
shall take effect at the time specified therein, and if no time be specified, at
the time of its receipt by the President or Secretary. The acceptance of a
resignation shall not be necessary to make it effective.
SECTION 3. VACANCIES.--If the office of any director, member of a
committee or other officer becomes vacant, the remaining directors in office,
though less than a quorum by a majority vote, may appoint any qualified person
to fill such vacancy, who shall hold office for the unexpired term and until his
successor shall be duly chosen.
SECTION 4. REMOVAL.--Except as hereinafter provided, any director or
directors may be removed either for or without cause at any time by the
affirmative vote of the holders of a majority of all the shares of stock
outstanding and entitled to vote, at a special meeting of the stockholders
called for the purpose and the vacancies thus created may be filled, at the
meeting held for the purpose of removal, by the affirmative vote of a majority
in interest of the stockholders entitled to vote.
Unless the Certificate of Incorporation otherwise provides,
stockholders may effect removal of a director who is a member of a classified
Board of Directors only for cause. If the Certificate of Incorporation provides
for cumulative voting and if less than the entire board is to be removed, no
director may be removed without cause if the votes cast against his removal
would be sufficient to elect him if then cumulatively voted at an
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<PAGE>
election of the entire board of directors, or, if there be classes of directors,
at an election of the class of directors of which he is a part.
If the holders of any class or series are entitled to elect one or
more directors by the provisions of the Certificate of Incorporation, these
provisions shall apply, in respect to the removal without cause of a director or
directors so elected, to the vote of the holders of the outstanding shares of
that class or series and not to the vote of the outstanding shares as a whole.
SECTION 5. INCREASE OF NUMBER.--The number of directors may be
increased by amendment of these By-Laws by the affirmative vote of a majority of
the directors, though less than a quorum, or, by the affirmative vote of a
majority in interest of the stockholders, at the annual meeting or at a special
meeting called for that purpose, and by like vote the additional directors may
be chosen at such meeting to hold office until the next annual election and
until their successors are elected and qualify.
SECTION 6. POWERS.--The Board of Directors shall exercise all of the
powers of the corporation except such as are by law, or by the Certificate of
Incorporation of the corporation or by these By-Laws conferred upon or reserved
to the stockholders.
SECTION 7. COMMITTEES.--The Board of Directors may, by resolution or
resolutions passed by a majority of the whole board, designate one or more
committees, each committee to consist of two or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. In the absence or disqualification of any member of
such committee or committees, the member or members thereof present at any
meeting and not disqualified from voting, whether or not he or they constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member.
Any such committee, to the extent provided in the resolution of the
Board of Directors, or in these By-Laws, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to amending the Certificate of
Incorporation, adopting an agreement of merger or consolidation, recommending to
the stockholders the sale, lease or exchange of all or substantially all of the
corporation's property and assets, recommending to the stockholders a
dissolution of the corporation or a revocation of a dissolution, or
-4-
<PAGE>
amending the By-Laws of the corporation; and, unless the resolution, these By-
Laws or the Certificate of Incorporation expressly so provide, no such committee
shall have the power or authority to declare a dividend or to authorize the
issuance of stock.
SECTION 8. MEETINGS.--The newly elected directors may hold their first
meeting for the purpose of organization and the transaction of business, if a
quorum be present, immediately after the annual meeting of the stockholders; or
the time and place of such meeting may be fixed by consent in writing of all the
directors.
Regular meetings of the directors may be held without notice at such
places and times as shall be determined from time to time by resolution of the
directors.
Special meetings of the board may be called by the President or by the
Secretary on the written request of any two directors on at least two days'
notice to each director and shall be held at such place or places as may be
determined by the directors, or as shall be stated in the call of the meeting.
Unless otherwise restricted by the Certificate of Incorporation or
these By-Laws, members of the Board of Directors, or any committee designated by
the Board of Directors, may participate in a meeting of the Board of Directors,
or any committee, by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and such participation in a meeting shall constitute presence in
person at the meeting.
SECTION 9. QUORUM.--A majority of the directors shall constitute a
quorum for the transaction of business. If at any meeting of the board there
shall be less than a quorum present, a majority of those present may adjourn the
meeting from time to time until a quorum is obtained, and no further notice
thereof need be given other than by announcement at the meeting which shall be
so adjourned.
SECTION 10. COMPENSATION.--Directors shall not receive any stated
salary for their services as directors or as members of committees, but by
resolution of the board a fixed fee and expenses of attendance may be allowed
for attendance at each meeting. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity as an
officer, agent or otherwise, and receiving compensation therefor.
SECTION 11. ACTION WITHOUT MEETING.--Any action required or permitted
to be taken at any meeting of the Board of Directors, or of any committee
thereof, may be taken without a meeting, if prior to such action a written
consent thereto is
-5-
<PAGE>
signed by all members of the board, or of such committee as the case may be, and
such written consent if filed with the minutes of proceedings of the board or
committee.
ARTICLE IV
OFFICERS
SECTION 1. OFFICERS.--The officers of the corporation shall be a
President, a Treasurer, and a Secretary, all of whom shall be elected by the
Board of Directors and who shall hold office until their successors are elected
and qualified. In addition, the Board of Directors may elect a Chairman, one or
more Vice-Presidents and such Assistant Secretaries and Assistant Treasurers as
they may deem proper. None of the officers of the corporation need be directors.
The officers shall be elected at the first meeting of the Board of Directors
after each annual meeting. More than two offices may be held by the same person.
SECTION 2. OTHER OFFICERS AND AGENTS.--The Board of Directors may
appoint such other officers and agents as it may deem advisable, who shall hold
their offices for such terms and shall exercise such powers and perform such
duties as shall be determined from time to time by the Board of Directors.
SECTION 3. CHAIRMAN.--The Chairman of the Board of Directors, if one
be elected shall preside at all meetings of the Board of Directors and he shall
have and perform such other duties as from time to time may be assigned to him
by the Board of Directors.
SECTION 4. PRESIDENT.--The President shall be the chief executive
officer of the corporation and shall have the general powers and duties of
supervision and management usually vested in the office of President of a
corporation. He shall preside at all meetings of the stockholders if present
thereat, and in the absence or non-election of the Chairman of the Board of
Directors, at all meetings of the Board of Directors, and shall have general
supervision, direction and control of the business of the corporation. Except as
the Board of Directors shall authorize the execution thereof in some other
manner, he shall execute bonds, mortgages and other contracts in behalf of the
corporation, and shall cause the seal to be affixed to any instrument requiring
it and when so affixed the seal shall be attested by the signature of the
Secretary or the Treasurer or an Assistant Secretary or an Assistant Treasurer.
SECTION 5. VICE-PRESIDENT.--Each Vice-President shall have such powers
and shall perform such duties as shall be assigned to him by the directors.
-6-
<PAGE>
SECTION 6. TREASURER.--The Treasurer shall have the custody of the
corporate funds and securities and shall keep full and accurate account of
receipts and disbursements in books belonging to the corporation. He shall
deposit all moneys and other valuables in the name and to the credit of the
corporation in such depositaries as may be designated by the Board of Directors.
The Treasurer shall disburse the funds of the corporation as may be
ordered by the Board of Directors, or the President, taking proper vouchers for
such disbursements. He shall render to the President and Board of Directors at
the regular meetings of the Board of Directors, or whenever they may request it,
an account of all his transactions as Treasurer and of the financial condition
of the corporation. If required by the Board of Directors, he shall give the
corporation a bond for the faithful discharge of his duties in such amount and
with such surety as the board shall prescribe.
SECTION 7. SECRETARY.--The Secretary shall give, or cause to be given,
notice of all meetings of stockholders and directors, and all other notices
required by law or by these By-Laws, and in case of his absence or refusal or
neglect so to do, any such notice may be given by any person thereunto directed
by the President, or by the directors, or stockholders, upon whose requisition
the meeting is called as provided in these By-Laws. He shall record all the
proceedings of the meetings of the corporation and of the directors in a book to
be kept for that purpose, and shall perform such other duties as may be assigned
to him by the directors or the President. He shall have custody of the seal of
the corporation and shall affix the same to all instruments requiring it, when
authorized by the directors or the President, and attest the same.
SECTION 8. ASSISTANT TREASURERS AND ASSISTANT SECRETARIES.--Assistant
Treasurers and Assistant Secretaries, if any, shall be elected and shall have
such powers and shall perform such duties as shall be assigned to them,
respectively, by the directors.
ARTICLE V
MISCELLANEOUS
SECTION 1. CERTIFICATES OF STOCK.--Certificate of stock, signed by the
Chairman or Vice Chairman of the Board of Directors, if they be elected,
President or Vice-President, and the Treasurer or an Assistant Treasurer, or
Secretary or an Assistant Secretary, shall be issued to each stockholder
certifying the number of shares owned by him in the corporation. Any of or all
the signatures may be facsimiles.
-7-
<PAGE>
SECTION 2. LOST CERTIFICATES.--A new certificate of stock may be
issued in the place of any certificate theretofore issued by the corporation,
alleged to have been lost or destroyed, and the directors may, in their
discretion, require the owner of the lost or destroyed certificate, or his legal
representatives, to give the corporation a bond, in such sum as they may direct,
not exceeding double the value of the stock, to indemnify the corporation
against any claim that may be made against it on account of the alleged loss of
any such certificate, or the issuance of any such new certificate.
SECTION 3. TRANSFER OF SHARES.--The shares of stock of the corporation
shall be transferable only upon its books by the holders thereof in person or by
their duly authorized attorneys or legal representatives, and upon such transfer
the old certificates shall be surrendered to the corporation by the delivery
thereof to the person in charge of the stock and transfer books and ledgers, or
to such other person as the directors may designate, by whom they shall be
cancelled, and new certificates shall thereupon be issued. A record shall be
made of each transfer and whenever a transfer shall be made for collateral
security, and not absolutely, it shall be so expressed in the entry of the
transfer.
SECTION 4. STOCKHOLDERS RECORD DATE.--In order that the corporation
may determine the stockholders entitled to notice of or to vote at any meeting
of stockholders or any adjournment thereof, or to express consent to corporate
action in writing without a meeting, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix, in
advance, a record date, which shall not be more than sixty nor less than ten
days before the date of such meeting, nor more than sixty days prior to any
other action. A determination of stockholders of record entitled to notice of or
to vote at a meeting of stockholders shall apply to any adjournment of the
meeting; provided, however, that the Board of Directors may fix a new record
date for the adjourned meeting.
SECTION 5. DIVIDENDS.--Subject to the provisions of the Certificate of
Incorporation, the Board of Directors may, out of funds legally available
therefor at any regular or special meeting, declare dividends upon the capital
stock of the corporation as and when they deem expedient. Before declaring any
dividend there may be set apart out of any funds of the corporation available
for dividends, such sum or sums as the directors from time to time in their
discretion deem proper for working capital or as a reserve fund to meet
contingencies or for equalizing dividends or for such other purposes as the
directors shall deem conducive to the interests of the corporation.
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<PAGE>
SECTION 6. SEAL.--The corporate seal shall be circular in form and
shall contain the name of the corporation, the year of its creation and the
words "CORPORATE SEAL DELAWARE." Said seal may be used by causing it or a
facsimile thereof to be impressed or affixed or reproduced or otherwise.
SECTION 7. FISCAL YEAR.--The fiscal year of the corporation shall be
determined by resolution of the Board of Directors.
SECTION 8. CHECKS.--All checks, drafts or other orders for the payment
of money, notes or other evidences of indebtedness issued in the name of the
corporation shall be signed by such officer or officers, agent or agents of the
corporation, and in such manner as shall be determined from time to time by
resolution of the Board of Directors.
SECTION 9. NOTICE AND WAIVER OF NOTICE.--Whenever any notice is
required by these By-Laws to be given, personal notice is not meant unless
expressly so stated, and any notice so required shall be deemed to be sufficient
if given by depositing the same in the United States mail, postage prepaid,
addressed to the person entitled thereto at his address as it appears on the
records of the corporation, and such notice shall be deemed to have been given
on the day of such mailing. Stockholders not entitled to vote shall not be
entitled to receive notice of any meetings except as otherwise provided by
Statute.
Whenever any notice whatever is required to be given under the
provisions of any law, or under the provisions of the Certificate of
Incorporation of the corporation or these By-Laws, a waiver thereof in writing,
signed by the person or persons entitled to said notice, whether before or after
the time stated therein, shall be deemed equivalent thereto.
ARTICLE VI
AMENDMENTS
These By-Laws may be altered or repealed and By-Laws may be made at
any annual meeting of the stockholders or at any special meeting thereof if
notice of the proposed alteration or repeal or By-Law or By-Laws to be made be
contained in the notice of such special meeting, by the affirmative vote of a
majority of the stock issued and outstanding and entitled to vote thereat, or by
the affirmative vote of a majority of the Board of Directors, at any regular
meeting of the Board of Directors, or at any special meeting of the Board of
Directors, if notice of the proposed alteration or repeal, or By-Law or By-Laws
to be made, be contained in the notice of such special meeting.
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<PAGE>
EXHIBIT 4.1
STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (this "Agreement") is made as of this 10th day
of October 1995, by and among MILCOM INTERNATIONAL, INC., a Delaware corporation
(the "Company"), the persons named as Investors in Exhibit A hereto (the
"Investors"), the persons named as Other Stockholders in Exhibit B hereto (the
"Stockholders").
R E C I T A L S
A. Pursuant to that certain Stock Purchase Agreement, dated as of October
10, 1995, between the Company, the Investors and the Stockholders named therein
(the "Purchase Agreement"), the Investors are, on the date hereof, acquiring
3,375,900 shares of the Company's Series A Preferred Stock, $.0001 par value per
share (the "Series A Preferred Stock") and the Stockholders are causing the
Company to redeem 3,375,900 shares of the Common Stock held by them of the
issued and outstanding Common Stock of the Company, $.0001 par value per share
(the "Common Stock").
B. The Common Stock and the Common Stock which may be acquired by
conversion of the Series A Preferred Stock is referred to collectively in this
Agreement as the "Voting Stock."
C. It is a condition to the obligations of the Investors under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof.
D. Capitalized terms not otherwise defined in this Agreement shall have
the meanings assigned to them in the Purchase Agreement.
AGREEMENT
In consideration of the foregoing and the agreements set forth below, the
parties agree with each other, as follows:
1. Designated Representatives of the Investors. The Investors will
-------------------------------------------
designate, in writing, representatives who shall be authorized to act on their
behalf with respect to all matters related to this Agreement (the "Designated
Representatives"). The Company shall be entitled to rely, without further
investigation, on the actions of the Designated Representatives. Summit
Ventures IV, L.P. shall designate a representative for the three Summit
partnerships and Crosspoint Venture Partners 1993 shall designate a
representative for the two Crosspoint partnerships. The Designated
Representatives will nominate the Investors' nominees for election to the Board
of Directors as described in Section 2 below. The right to participate in the
selection of nominees for election to the Board of Directors may be assigned by
any Investor to a transferee of any of the Voting Stock purchased by such
Investor except to an entity, or a person controlled by, under common control
with or controlling such entity, which is or may become a direct competitor of
the Company.
<PAGE>
2. Board of Directors. Upon request of the Designated Representative or
------------------
any Stockholder, the Board of Directors shall promptly, but in no event more
than 30 days from the date of the request, either: call a meeting of the
stockholders or solicit consents of stockholders for the election of directors.
The Stockholders and the Investors agree to take all action necessary
(including, without limitation, voting such number of shares of the Voting Stock
and any other shares of equity securities of the Company now owned or hereafter
acquired or controlled by them, calling special meetings of stockholders and
executing and delivering written consents) and to use their respective best
efforts as stockholders or directors of the Company to set the number of
directors of the Company at seven (7), and to elect a Board of Directors which
will consist of: (i) three directors designated by Alfonso Cordero and approved
by the then existing Board of Directors, which designees shall not be affiliated
with the Investors, the Company or the Stockholders, (ii) the new chief
executive officer of the Company (who shall be acceptable to the Designated
Representatives, Alfonso Cordero and Ki Nam) (iii) one director designated by
the Designated Representative of Summit Ventures IV, L.P., which initial
designee is Gregory M. Avis, (iv) one director designated by the Designated
Representative of Crosspoint Venture Partners 1993, which initial designee is
Rich Shapero and (v) Alfonso Cordero. Each director (including any replacement
director) shall continue to serve as a director unless he resigns or is replaced
pursuant to the terms of this Section 2. The party designating any member of
the Board of Directors shall have the right to remove such designee and
designate a replacement as pursuant to the terms of this Section 2. In the
event of any vacancy on the Board of Directors, each Stockholder and each
Investor covenants and agrees that it shall vote all of its Voting Stock in
accordance with the procedure described above in order to fill such vacancy.
The rights and obligations of all parties under this Section 2 shall
terminate on the first to occur of (i) the day immediately prior to the closing
of a Qualified Public Offering (as that term is defined in the Stock Purchase
Agreement), (ii) seven (7) years after the date hereof, or (iii) at any time at
which Investors hold fewer than 400,000 shares of Series A Preferred Stock.
3. Restrictions on Transfer of Shares.
----------------------------------
3.1. Rights of First Refusal.
-----------------------
(a) Any Stockholder (the "Selling Stockholder") who proposes to
sell, assign or otherwise transfer to a third party (the "Proposed Transferee")
pursuant to a bona fide offer any or all shares of Voting Stock, except as
provided in Section 3.3 below and except pursuant to any public offering, held
by him or her (the shares the Selling Stockholder proposes to sell, assign or
otherwise transfer being referred to herein as the "Offered Shares") shall
notify the Company and the Stockholders in writing, not less than forty (40)
days prior to the date upon which such sale, assignment or transfer is to take
place, of the name of the Proposed Transferee; the number of shares involved;
the purchase price or other consideration to be received by the Selling
Stockholder for such sale, assignment or transfer; and the terms and conditions
upon which such sale, assignment or transfer is to take place, including the
terms of any deferred payment for the Offered Shares (the "Stockholder Notice").
The Stockholder Notice shall further state that the Company, then the
Stockholders and finally the Investors may acquire all or any part of the
Offered Shares for the price and upon the terms, including deferred payment, set
forth therein in accordance with the provisions of this Agreement.
2
<PAGE>
The Company shall have twenty (20) days after receipt of the
Stockholder Notice in which to accept, in writing, the offer set forth therein
to purchase all or part of the Offered Shares. The Company's notice of its
acceptance or rejection of such offer (the "Company Notice") shall be delivered
to the Investors and the Stockholders at the same time it is delivered to the
Selling Stockholder. Notwithstanding anything contained in this Agreement, the
Purchase Agreement, or any exhibit thereto, if the Company shall accept such
offer, it shall have the right to purchase all the Offered Shares to which such
acceptance applies.
Any Offered Shares as to which the Company shall not have so
notified the Selling Stockholder, the Stockholders and the Investors of its
intention to purchase within such twenty-day period may be purchased by the
Stockholders as follows: each Stockholder shall have the right to purchase that
number of such Offered Shares as is determined by multiplying the total number
of such Offered Shares by a fraction, the numerator of which is the number of
Voting Shares owned or deemed to be owned by such Stockholder, and the
denominator of which is the number of Voting Shares owned or deemed to be owned
by all the Stockholders as a group. The Stockholders shall have ten (10) days
after receipt of the Company Notice in which to accept, in writing, the offer
set forth therein to purchase all or part of the Offered Shares. The
Stockholders' notice of their acceptance or rejection of such offer (the
"Stockholders Notice") shall be delivered to the Investors at the same time that
it is delivered to the Selling Stockholder. Notwithstanding anything contained
in this Agreement, the Purchase Agreement or any exhibit thereto, if the
Stockholders shall accept such offer, they shall have the right to purchase all
the Offered Shares to which such acceptance applies. If one or more of the
Stockholders does not so accept the offer for all such shares, the Company shall
notify each of the remaining Stockholders who shall have the right to acquire
the remaining Offered Shares, pro rata, in accordance with the number of Offered
Shares they agreed to purchase, or as they may otherwise determine among
themselves, such acceptance by the remaining Stockholders to be received by the
Selling Stockholder not less than fifteen (15) days prior to the proposed date
of sale, assignment or transfer to the Proposed Transferee as specified in the
Stockholder Notice.
Any Offered Shares as to which the Stockholders shall not
have so notified the Selling Stockholder and the Investors of their intention to
purchase within such ten-day period after receipt of the Company Notice may be
purchased by the Investors as follows: each Investor shall have the right to
purchase that number of such Offered Shares as is determined by multiplying the
total number of such Offered Shares by a fraction, the numerator of which is the
number of Voting Shares owned or deemed to be owned by such Investor, and the
denominator of which is the number of Voting Shares owned or deemed to be owned
by all the Investors as a group. Each Investor shall have ten days after receipt
of the Stockholders Notice in which to accept, in writing, the offer set forth
therein to purchase all or part of the Offered Shares. The Investors' notice of
their acceptance or rejection of such offer shall be delivered to the Selling
Stockholder and the Company. Notwithstanding anything contained in this
Agreement, the Stock Purchase Agreement, or any exhibit thereto, if the
Investors shall accept such offer, they shall have the right to purchase all the
Offered Shares to which such acceptance applies. If one or more of the Investors
does not so accept the offer for all such shares, the Company shall notify each
of the remaining Investors who shall have the right to acquire the remaining
Offered Shares, pro rata, in accordance with the number of Offered Shares they
agreed to purchase, or as they may otherwise determine among themselves, such
acceptance by the remaining Investors to be received by the Selling Stockholder
not less than two (2) days prior to the proposed date of sale, assignment or
transfer to the Proposed Transferee as specified in the Stockholder Notice.
3
<PAGE>
(b) Failure of the Company or any Investor or Stockholder to
exercise any option or to accept or reject an offer made to it under Section
3.1(a) in writing and within the time periods specified therein, shall be
conclusively deemed a rejection thereof. Payment for and transfer of the Offered
Shares to be purchased in accordance with Section 3.1(a) shall occur in the
manner specified in the Stockholder Notice on the date upon which the proposed
sale, transfer or assignment to the Proposed Transferee was to take place.
(c) In the event the consideration (other than cash or cash
equivalents), terms or conditions offered by the Proposed Transferee are such
that the Company, the Investors or Stockholders may not reasonably be required
to furnish the same consideration, terms or conditions, then the Company, the
Investors or Stockholders, may purchase the Offered Shares for a cash amount
determined by the Company's Board of Directors to be reasonably equivalent in
value to the consideration offered by the Proposed Transferee based on the
proposed terms and conditions.
(d) Subject to Section 3.2, if an offer to the Investors and
Stockholders is not accepted as provided in Section 3.1(a) as to all or part of
the Offered Shares or paid for as provided in Section 3.1(b), the Selling
Stockholder may thereafter, for a period of sixty (60) days from the date the
offer was finally rejected or deemed rejected, which shall be the fortieth day
following receipt by the Company of the Stockholder's Notice, sell, assign, or
otherwise transfer the Offered Shares not purchased by the Company, the
Investors and the Stockholders, to the Proposed Transferee upon the same terms
and conditions as set forth in the Stockholder Notice subject to any other
restrictions to such transfer which may still exist. Any Offered Shares may only
be sold, assigned or otherwise transferred to the Proposed Transferee if the
Proposed Transferee agrees to be bound by this Agreement.
(e) The failure of any Investor, Stockholder or Company to
exercise any option pursuant to this Section 3.1 shall not constitute a waiver
of any of the provisions of this Agreement with respect to any proposed
subsequent transfer of Voting Stock.
3.2. Tag-Along Rights. In addition to the rights granted to the
----------------
Investors in Section 3.1, except as set forth in Section 3.3 below, Investors
and the Stockholders will have the following additional rights as to certain
Offered Shares not sold to the Company, the Stockholders or the Investors
pursuant to Section 3.1 (the "Remaining Shares"): Each Investor and Stockholder
other then the Selling Stockholder will have the right to sell, on the terms and
to the Transferee described in the Stockholder Notice, a number of Offered
Shares multiplied by a fraction, the numerator of which will be the number of
shares of Voting Stock owned or deemed to be owned by such Investor or
Stockholder, and the denominator of which will be the sum of the number of
shares of Voting Stock owned or deemed to be owned by the Investors and all
Stockholders.
3.3. Permitted Transfers. Notwithstanding any other provision of this
-------------------
Section 3, a Stockholder may transfer shares of Voting Stock by gift or sale, or
upon death or permanent incapacity to his guardian, conservator, executor,
administrator, trustees or beneficiaries of his will, spouse, children,
stepchildren, grandchildren, parents, siblings or legal dependents, to a trust
of which the beneficiary or beneficiaries of the corpus and the income shall be
such a person or persons or the Stockholders, to a partnership of which the
partners shall be such a person or persons or the Stockholder or to another
Stockholder, without first offering such shares of Voting Stock to the Company,
the Stockholders or Investors pursuant to Section 3.1, or offering the Investors
and the Stockholders the right to participate in such transfer pursuant to
Section 3.2, provided that (i) such
4
<PAGE>
transferee agrees to become a party to this Agreement pursuant to Section 5.5,
and (ii) such transfer is exempt from registration under the Securities Act of
1933. In addition, the Stockholders may transfer the "Repurchase Shares" to the
Company pursuant to Section 4 hereof without first offering such shares to the
Company, Investors or any Stockholders pursuant to Section 3.1, or offering the
Investors or the Stockholders the right to participate in such transfer pursuant
to Section 3.2.
3.4. Invalid Transfers. Any sale, assignment or other transfer of
-----------------
Voting Stock by a Stockholder contrary to the provisions of this Section 3 shall
be null and void, and the transferee shall not be recognized by the Company as
the holder or owner of the shares of Voting Stock sold, assigned or transferred
for any purposes (including, without limitation, voting or dividend rights),
unless and until the Selling Stockholder has satisfied the requirements of this
Section 3 with respect to such sale, assignment or other transfer. The Selling
Stockholder shall provide the Company with written evidence that the
requirements of this Section 3 have been met (other than for transfers allowed
by Section 3.3 by delivery of a copy of the Stockholder Notice showing the date
it was delivered to the Company and showing that the transfer occurred more than
forty days and less than one hundred and ten days after such date) or waived by
the Company and all of the Investors prior to consummating any sale, assignment
or other transfer of shares of Voting Stock, and no shares of Voting Stock shall
be transferred on the books of the Company until such written evidence has been
received by the Company.
3.5. Termination of Rights. The provisions of this Section 3 shall
---------------------
terminate on the day immediately prior to the closing of a Qualified Public
Offering.
4. Transfers Upon Exercise of Certain Options.
------------------------------------------
Substantially concurrently herewith, the Company has established its
1995 Stock Option Plan (the "Plan") covering 1,292,410 shares of Common Stock.
The Company, the Investors and the Stockholders have agreed that the first
700,000 options exercised pursuant to the Plan (whether or not such options
represent the first 700,000 options granted under such plan) (the "Dilutive
Options") shall be equally dilutive to all such parties, and that the exercise
of any other options under the Plan (the "Non-Dilutive Options") shall only
dilute the holdings of the Stockholders.
Therefore, the parties acknowledge and agree that upon exercise of any
Non-Dilutive Option, the Stockholders shall sell to the Company, and the Company
shall purchase from the Stockholders, a number of shares of Common Stock equal
to the number of shares of Common Stock issued upon the exercise of such Non-
Dilutive Option (the "Repurchase Shares"). Each Stockholder shall sell to the
Company his or her pro rata share (based upon such Stockholder's percentage
ownership of Common Stock held by all Stockholders on the date hereof) of the
Repurchase Shares. The aggregate purchase price for the Repurchase Shares shall
be equal to the exercise price paid upon exercise of the Non-Dilutive Options
and shall be paid out to the Stockholders in proportion to the percentage of
Repurchase Shares sold by each Stockholder.
The aggregate 592,410 shares of Common Stock of the Stockholders which
initially are subject to becoming Repurchase Shares shall be represented by
separate stock certificates (each a "Repurchase Certificate" and together the
"Repurchase Certificates"). The Repurchase Certificates shall be held by the
Secretary of the Company (the "Corporate Secretary") until such time as all of
the Non-Dilutive Options have been exercised or lapsed (the "Termination Date").
Each Stockholder
5
<PAGE>
shall, substantially concurrently with the execution of this Agreement, execute
in favor of the Corporate Secretary a power of attorney pursuant to which the
Corporate Secretary shall have the power, upon exercise of a Non-Dilutive
Option, to execute on behalf of such Stockholder a stock power transferring the
appropriate number of shares of such Stockholder's Common Stock to the Company.
Each such power of attorney shall state that it is irrevocable until the
Termination Date, coupled with an interest and not to be affected by the
disability or incapacity of the Stockholder. If and when Non-Dilutive Options
are exercised, new Repurchase Certificates representing the shares of Common
Stock still subject to becoming Repurchase Shares shall be issued in the
respective names of the Stockholders and delivered to the Corporate Secretary to
be held pursuant to the terms of this Section 4. If and when Non-Dilutive
Options lapse or upon the cancellation of the portion of the Plan pertaining to
the Non-Dilutive Options (which cancellation may be effected in the sole
discretion of Al Cordero), (i) new Repurchase Certificates representing the
shares of Common Stock still subject to becoming Repurchase Shares shall be
issued in the respective names of the Stockholders and delivered to the
Corporate Secretary to be held pursuant to the terms of this Section 4 and (ii)
new stock certificates representing the shares of Common Stock no longer subject
to becoming Repurchase Shares shall be issued in the respective names of the
Stockholders and delivered to the Stockholders to be held pursuant to the other
terms of this Agreement. In recognition of the fact that issuance of stock
certificates on each lapse of Dilutive or Non-Dilutive Options may become
cumbersome, the Company may wait a reasonable period of time before issuing the
Repurchase Certificates and new stock certificates referenced in the immediately
preceding sentence.
5. Miscellaneous.
-------------
5.1. Legend. Each certificate representing Voting Stock owned by the
------
Stockholder shall state therein:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF A STOCKHOLDERS' AGREEMENT, DATED AS OF OCTOBER 10,
1995, BY AND AMONG THE COMPANY, THE STOCKHOLDERS AND INVESTORS NAMED
THEREIN, A COPY OF WHICH WILL BE FURNISHED BY THE COMPANY TO THE
HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
5.2. Notices. All notices or other communications required or
-------
permitted to be delivered hereunder shall be in writing signed by the party
giving the notice to the Company at 17500 Gillette Avenue, Irvine, California
92714-5610, Attention: President, with a copy to Gregory M. Avis, Summit
Partners, 499 Hamilton Avenue, Suite 200, Palo Alto, California 94301, and to
the other parties hereto at their respective addresses set forth in Exhibits A,
B and C to this Agreement. The Company, a Stockholder or an Investor may at any
time change the address to which notice to him shall be mailed by giving notice
of such change to the Company and to the other parties, and such notice shall be
deemed given when received by the other parties hereto.
5.3. Entire Agreement. This Agreement constitutes the entire
----------------
agreement of the parties with respect to the matters contemplated herein. This
Agreement supersedes any and all prior understandings as to the subject matter
of this Agreement. Without limitation of the foregoing, that certain Agreement
dated June 5, 1986 between the Company and certain of the Stockholders is hereby
mutually terminated and of no further force or effect.
6
<PAGE>
5.4. Amendments, Waivers and Consents. Any provision in this
--------------------------------
Agreement to the contrary notwithstanding, changes in or additions to this
Agreement may be made, and compliance with any covenant or provision herein set
forth may be omitted or waived, if the Company shall obtain consent thereto in
writing from persons holding or having the right to acquire more than 75% of (i)
the Series A Preferred Stock, (ii) the Voting Stock, and (iii) shares of Voting
Stock held by the Stockholders or their permitted transferees pursuant to
Section 3 hereof, and shall, in each such case, deliver copies of such consent
in writing to any holders who did not execute the same.
5.5. Binding Effect; Assignment. This Agreement shall be binding upon
--------------------------
and inure to the benefit of the personal representatives and successors of the
respective parties hereto, except that the Company shall not have the right to
assign its rights hereunder or any interest herein without obtaining the prior
written consent of the Investors in accordance with Section 4.4 hereof, and the
rights and interests of the Investors shall be assignable to transferees of the
Voting Stock.
5.6. General. The headings contained in this Agreement are for
-------
reference purposes only and shall not in any way affect the meaning or
interpretation of this Agreement. In this Agreement the singular includes the
plural, the plural the singular, the masculine gender includes the neuter,
masculine and feminine genders. This Agreement shall be governed by and
construed under the laws of the State of California.
5.7. Severability. If any provision of this Agreement shall be found
------------
by any court of competent jurisdiction to be invalid or unenforceable, the
parties hereby waive such provision to the extent that it is found to be invalid
or unenforceable. Such provision shall, to the maximum extent allowable by law,
be modified by such court so that it becomes enforceable, and, as modified,
shall be enforced as any other provision hereof, all the other provisions
hereof continuing in full force and effect.
5.8. Counterparts. This Agreement may be executed in counterparts,
------------
all of which together shall constitute one and the same instrument.
5.9. Attorneys' Fees. In the event of any controversy, claim or
---------------
dispute among the parties hereto arising out of or relating to this Agreement,
or breach hereof, the prevailing party shall be entitled to recover from the
losing party reasonable attorneys' fees, expenses and costs.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first above written.
COMPANY
MILCOM INTERNATIONAL, INC., a Delaware
Corporation
By: /s/ Alfonso G. Cordero
-----------------------------
Alfonso G. Cordero, President
7
<PAGE>
STOCKHOLDERS
/s/ Alfonso G. Cordero
---------------------------------------
Alfonso G. Cordero
/s/ Ki Nam
---------------------------------------
Ki Nam
/s/ Sussanne Torretta
---------------------------------------
Sussanne Torretta
/s/ Ernest Johnson
---------------------------------------
Ernest Johnson
/s/ Charles Florman
---------------------------------------
Charles Florman
/s/ Bill H. Doi
---------------------------------------
Bill H. Doi
/s/ Arthur Cook
---------------------------------------
Arthur Cook
/s/ Thomas Ha
---------------------------------------
Thomas Ha
INVESTORS
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., its General
Partner
By: Stamps, Woodsum & Co. IV, its General
Partner
By: /s/ Greg M. Avis
------------------------------------
General Partner
8
<PAGE>
SUMMIT VENTURES III, L.P.
By: Summit Partners III, L.P., its General
Partner
By: Stamps, Woodsum & Co. III, its General
Partner
By: /s/ Greg M. Avis
------------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Greg M. Avis
------------------------------------
General Partner
CROSSPOINT VENTURE PARTNERS 1993
By: /s/ Rich Shapero
------------------------------------
CROSSPOINT VENTURE PARTNERS
ENTREPRENEURS 1993
By: /s/ Rich Shapero
------------------------------------
9
<PAGE>
EXHIBIT A
---------
LIST OF INVESTORS
-----------------
Summit Ventures IV, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Summit Ventures III, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Summit Investors II, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Crosspoint Venture Partners 1993
One First Street
Los Altos, California 94022
Crosspoint Venture Partners Entrepreneurs 1993
One First Street
Los Altos, California 94022
10
<PAGE>
EXHIBIT B
---------
LIST OF STOCKHOLDERS
--------------------
Alfonso G. Cordero
26862 Windsor Drive
San Juan Capistrano, CA 92675
Ki Nam
18626 Grayland
Artesia, 90701
Sussanne Torretta
10121 Constitution Drive
Huntington Beach, CA 92646
Ernest Johnson
P.O. Box 7976
Newport Beach, CA 92660
Charles Florman
414A Main Street
Port Jefferson, NY 11777
Bill H. Doi
13802 Tustin East Drive
Tustin, CA 92680
Arthur Cook
55 Greenfield
Irvine, CA 92714
Thomas Ha
8392 Satinwood Circle
Westminster, CA 92683
11
<PAGE>
SPOUSAL CONSENT
I _______________, the spouse of _______________, one of the
Stockholders named in the foregoing Stockholders' Agreement dated October ___,
1995 (the "Agreement") acknowledge that I have reviewed and understand the
Agreement and the other transaction documents referred to therein expressly
including the Stock Purchase Agreement and the Redemption Agreement each of even
date therewith (the "Transaction Documents") and I hereby agree to be bound by
each and every term and condition of the Agreement and the Transaction Documents
to which my spouse is a party. I agree to sell any shares of Common Stock that
I may have in the Company or any interest therein including, but not limited to,
my community property interest in any of the shares of Common Stock on the terms
and conditions stated in the Agreement and any of the other Transaction
Documents. By my signature below, I hereby acknowledge that I have been advised
to, and have had the opportunity to, seek independent legal counsel with respect
to these matters.
I ACKNOWLEDGE THAT I HAVE BEEN ADVISED TO HAVE THE AGREEMENT REVIEWED
BY INDEPENDENT LEGAL COUNSEL AND TO CONSULT WITH SUCH COUNSEL REGARDING THE
PROVISIONS AND RESTRICTIONS OF THE AGREEMENT AND THE TRANSACTION DOCUMENTS AND
THEIR IMPACT ON ME. I ACKNOWLEDGE THAT I HAVE HAD FULL AND ADEQUATE OPPORTUNITY
TO HAVE THE AGREEMENT REVIEWED BY INDEPENDENT LEGAL COUNSEL AND TO DISCUSS THIS
AGREEMENT WITH SUCH COUNSEL.
Dated this _____ day of October, 1995.
________________________________
Signature
________________________________
Print Name
[Spousal Consent to Stockholders' Agreement]
12
<PAGE>
EXHIBIT 10.1
MILCOM INTERNATIONAL, INC.
1995 STOCK OPTION PLAN
1. PURPOSE.
-------
The Plan is intended to provide incentive to key employees and
directors of the Corporation and its Subsidiaries, to encourage proprietary
interest in the Corporation, to encourage such key employees to remain in the
employ of the Corporation and its Subsidiaries or such key directors to remain
in the service of the Corporation and its Subsidiaries, and to attract new
employees and directors with outstanding qualifications.
2. DEFINITIONS.
-----------
Unless otherwise defined herein or the context otherwise requires, the
capitalized terms used herein shall have the following meanings:
(a) "Act" shall mean the Securities Act of 1933, as amended.
---
(b) "Administrator" shall mean the Board or the Committee,
-------------
whichever shall be administering the Plan from time to time in the discretion of
the Board, as described in Section 4 of the Plan.
(c) "Board" shall mean the Board of Directors of the Corporation.
-----
(d) "Code" shall mean the Internal Revenue Code of 1986, as
----
amended.
(e) "Committee" shall mean the committee appointed by the Board
---------
in accordance with Section 4 of the Plan.
(f) "Common Stock" shall mean the Common Stock of the
------------
Corporation.
(g) "Cordero" shall mean Alfonso G. Cordero or his designee.
-------
(h) "Corporation" shall mean MILCOM INTERNATIONAL, INC., a
-----------
Delaware corporation.
<PAGE>
(i) "Disability" shall mean a medically determinable physical or
----------
mental impairment which has made an individual incapable of engaging in his
employment with the Corporation. A condition shall be considered a Disability
only if (i) it can be expected to result in death or has lasted or it can be
expected to last for a continuous period of not less than four (4) months, and
(ii) the Administrator has expressly determined that Disability exists.
(j) "Employee" shall mean an individual who is employed (within
--------
the meaning of Section 3401 of the Code and the regulations thereunder) by the
Corporation or a Subsidiary.
(k) "Exchange Act" shall mean the Securities Exchange Act of
------------
1934, as amended.
(1) "Exercise Price" shall mean the price per Share of Common
--------------
Stock, determined by the Administrator, at which an Option may be exercised.
(m) "Fair Market Value" shall mean the value of one (1) Share of
-----------------
Common Stock, determined as follows:
(i) If the Shares are traded on an exchange, the price at
which Shares traded at the close of business on the date of valuation;
(ii) If the Shares are traded over-the-counter on the NASDAQ
system, the mean between the bid and asked prices on-such system at the close of
business on the date of valuation; and
(iii) If neither clause (i) nor (ii) above applies, the fair
market value as determined by the Administrator in good faith; provided,
however, that in making such good faith determination, the Administrator shall
consider the earnings history, book value and prospects of the Corporation, and
the price at which Shares recently have been sold. Such determination shall be
conclusive and binding on all persons.
(n) "Nonstatutory Stock Option" shall mean an option not
-------------------------
described in Section 422(b) or 423(b) of the Code.
-2-
<PAGE>
(o) "Option" shall mean any stock option granted pursuant to the
------
Plan. An Option shall be granted on the date the Administrator takes the
necessary action to approve the grant. However, if the minutes or appropriate
resolutions of the Administrator provide that an Option is to be granted as of a
date in the future, the date of grant shall be that future date.
(p) "Option Agreement" shall mean a written stock option
----------------
agreement evidencing a particular Option.
(q) "Optionee" shall mean a Participant who has received an
--------
Option.
(r) "Participant" shall have the meaning assigned to it in
-----------
Section 5 hereof.
(s) "Plan" shall mean this MILCOM INTERNATIONAL, INC. 1995 Stock
----
Option Plan, as it may be amended from time to time.
(t) "Purchase Price" shall mean the Exercise Price multiplied by
--------------
the number of Shares with respect to which an Option is exercised.
(u) "Retirement" shall mean the voluntary cessation of
----------
employment by an Employee upon the attainment of age sixty-five (65) and the
completion of not less than twenty (20) years of service with the Corporation or
a Subsidiary.
(v) "Share" shall mean one share of common Stock, adjusted in
-----
accordance with Section 9 of the Plan (if applicable).
(w) "Subsidiary" shall mean any subsidiary corporation as
----------
defined in Section 425(f) of the Code.
3. EFFECTIVE DATE.
---------------
The Plan was adopted by the Board effective December 4, 1995, subject
to the approval of the Corporation's stockholders pursuant to Section 14 hereof.
-3-
<PAGE>
4. ADMINISTRATION.
--------------
The Plan shall be administered, in the discretion of the Board from
time to time, by the Board or by a Committee which shall be appointed by the
Board. The Board may from time to time remove members from, or add members to,
the Committee. Vacancies on the Committee, however caused, shall be filled by
the Board. The Committee shall be composed of disinterested directors, i.e.,
directors who have not, during the one year prior to service as an administrator
of the Plan and during the time of service as an administrator of the Plan, been
granted or awarded equity securities pursuant to the Plan or any other plan of
the Corporation or any of its affiliates, other than a plan which would not
negate such director's status as "disinterested" pursuant to Rule 16b-3
promulgated under the Exchange Act. There shall be at least two directors
serving on the Committee at any time. The Board shall appoint one of the members
of the Committee as Chairman. The Administrator shall hold meetings at such
times and places as it may determine. Acts of a majority of the Administrator at
which a quorum is present, or acts reduced to or approved in writing by the
unanimous consent of the members of the Administrator, shall be the valid acts
of the Administrator.
The Administrator shall from time to time at its discretion select the
Employees and directors who are to be granted Options and determine the number
of Shares to be subject to Options to be granted to each Optionee; provided,
--------
however, that at any time at which there are outstanding Options to purchase
- -------
700,000 or more Shares under the Plan, such selection and determination and the
terms of such grant shall be subject to the consent and approval of Cordero. A
Committee or Board member shall in no event participate in any determination
relating to Options held by or to be granted to such Committee or Board member.
The interpretation and construction by the Administrator of any provision of the
Plan or of any Option or Option Agreement shall be final. No member of the
Administrator shall be liable for any action or determination made in good faith
with respect to the Plan or any Option.
-4-
<PAGE>
5. PARTICIPATION.
-------------
(a) Eligibility.
-----------
The Optionees shall be such persons (collectively,
"Participants;" individually, a "Participant") as the Administrator may select
from among the following classes of persons:
(i) Employees (who may be officers, whether or not they are
directors); and
(ii) Directors of the Corporation or of a Subsidiary.
Notwithstanding provisions of the first paragraph of this Section
5(a), the Administrator may at any time or from time to time designate one or
more directors as being ineligible for selection as Participants in the Plan for
any period or periods of time.
(b) Ten-Percent Stockholders.
------------------------
A Participant who owns more than ten percent (10%) of the voting
power of outstanding stock of the Corporation, its parent or any of its
Subsidiaries shall not be eligible to receive an Option unless the Exercise
Price of the Shares subject to such Option is at least one hundred ten percent
(110%) of the Fair Market Value of such Shares on the date of grant.
(c) Stock ownership.
---------------
For purposes of Section 5(b) above, in determining stock
ownership, a Participant shall be considered as owning the stock owned, directly
or indirectly, by or for his or her brothers and sisters, spouse, ancestors and
lineal descendants. Stock owned, directly or indirectly, by or for a
corporation, partnership, estate or trust shall be considered as being owned
proportionately by or for its stockholders, partners or beneficiaries. Stock
with respect to which such Participant holds an Option shall not be counted.
(d) Outstanding Stock.
-----------------
-5-
<PAGE>
For purposes of Section 5(b) above, "outstanding stock" shall
include all stock actually issued and outstanding immediately after the grant of
the Option to the Optionee. "Outstanding stock" shall not include shares
authorized for issue under outstanding Options held by the Optionee or by any
other person.
6. STOCK.
-----
The stock subject to Options granted under the Plan shall be Shares of
the Corporation's authorized but unissued or reacquired Common Stock. The
aggregate number of Shares which may be issued upon exercise of Options under
the Plan shall not exceed One Million Two Hundred Ninety-Two Thousand Four
Hundred Ten (1,292,410). The number of Shares subject to Options outstanding at
any time shall not exceed the number of Shares remaining available for issuance
under the Plan. The limitations established by this Section 6 shall be subject
to adjustment in the manner provided in Section 9 hereof upon the occurrence of
an event specified in that Section.
7. TERMS AND CONDITIONS OF OPTIONS.
-------------------------------
(a) Stock Option Agreements.
-----------------------
Each Option shall be evidenced by an Option Agreement in such
form as the Administrator shall from time to time determine. Such Option
Agreement need not be identical but shall comply with and be subject to the
terms and conditions set forth in this Section 7.
(b) Nature of Option.
----------------
Each Option shall state that it is a Nonstatutory Stock Option.
(c) Number of Shares.
----------------
Each Option shall state the number of Shares to which it pertains
and shall provide for the adjustment thereof in accordance with the provisions
of Section 9 hereof.
-6-
<PAGE>
(d) Exercise Price.
--------------
Each Option shall state the Exercise Price. The Exercise Price in
the case of any Option shall not be less than eighty-five percent (85%) of the
Fair Market Value on the date of grant and, in the case of an Option granted to
an Optionee described in Section 5(b) hereof, shall not be less than one hundred
ten percent (110%) of the Fair Market Value on the date of grant.
(e) Medium and Time of Payment.
--------------------------
The Purchase Price shall be payable in full in cash or check upon
the exercise of the Option.
In the event the Corporation determines that it is required to
withhold state or Federal income tax or any other Federal, state or local tax a
result of the exercise of an Option, as a condition to the exercise thereof, an
Optionee must make arrangements satisfactory to the Corporation to enable it to
satisfy such withholding requirements before the Optionee shall be permitted to
exercise the Option.
(f) Term and Non-Transferability of Options.
---------------------------------------
Each Option shall state the time or times when all or part
thereof becomes exercisable. The vesting schedule of Options granted pursuant to
the Plan shall be determined by the Administrator in its sole discretion, but
shall provide for the right to exercise the Option at the rate of at least 20%
per year over five (5) years from the date of grant. No Option shall be
exercisable after the expiration of ten (10) years from the date it was granted.
During the lifetime of the Optionee, the Option shall be exercisable only by the
Optionee or the Optionee's guardian or legal representative and shall not be
assignable or transferable. In the event of the Optionee's death, the Option
shall not be transferable by the Optionee other than by will or the laws of
descent and distribution. Any other attempted alienation, assignment, pledge,
hypothecation, attachment, execution or similar process, whether voluntary or
involuntary, with respect to all or any part of any Option or right thereunder,
shall be null and void and, at the Corporation's option, shall cause all of the
Optionee's rights under the Option to terminate.
-7-
<PAGE>
(g) Cessation of Employment (Except by Death, Disability or
-------------------------------------------------------
Retirement).
- -----------
If an Optionee ceases to be an Employee for any reason other than
his death, Disability or Retirement, such Optionee shall have the right, subject
to the restrictions referred to in Section 7(f) above, to exercise the Option at
any time within ninety (90) days after cessation of employment, but, except as
otherwise provided in the applicable Option Agreement, only to the extent that,
at the date of cessation of employment, the Optionee's right to exercise such
Option had accrued pursuant to the terms of the applicable Option Agreement and
had not previously been exercised.
For purposes of this Section 7(g), the employment relationship
shall be treated as continuing intact while the Optionee is on military leave,
sick leave or other bona fide leave of absence (to be determined in the sole
discretion of the Administrator).
(h) Death of Optionee.
-----------------
If an Optionee dies while a Participant, or after ceasing to be a
Participant but during the period in which he could have exercised the Option
under this Section 7, and has not fully exercised the Option, then the Option
may be exercised in full, subject to the restrictions referred to in Section
7(f) above, at any time within one hundred eighty (180) days after the
Optionee's death by the executor or administrator of his estate or by any person
or persons who have acquired the Option directly from the Optionee by bequest or
inheritance, but, except as otherwise provided in the applicable Option
Agreement, only to the extent that, at the date of death, the Optionee's right
to exercise such Option had accrued and had not been forfeited pursuant to the
terms of the applicable Option Agreement and had not previously been exercised.
(i) Disability of Optionee.
----------------------
If an Optionee ceases to be an Employee by reason of Disability,
such Optionee shall have the right, subject to the restrictions referred to in
Section 7(f) above, to exercise the Option at any time within one hundred eighty
(180) days after such cessation of employment, but, except as provided in the
applicable Option Agreement, only to the extent that, at the date of such
cessation of
-8-
<PAGE>
employment, the Optionee's right to exercise such Option had accrued pursuant to
the terms of the applicable Option Agreement and had not previously been
exercised.
(j) Retirement of Optionee.
----------------------
If an Optionee ceases to be an Employee by reason of Retirement,
such Optionee shall have the right, subject to the restrictions referred to in
Section 7(f) above, to exercise the Option at any time within ninety (90) days
after cessation of employment, but only to the extent that, at the date of
cessation of employment, the Optionee's right to exercise such Option had
accrued pursuant to the terms of the applicable Option Agreement and had not
previously been exercised.
(k) Rights as a Stockholder.
-----------------------
No one shall have rights as a stockholder with respect to any
Shares covered by an Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as expressly provided in Section 9 hereof.
(l) Modification, Extension and Renewal of Options.
----------------------------------------------
Within the limitations of the Plan, the Administrator may modify
an Option, extend or renew outstanding Options or accept the cancellation of
outstanding Options (to the extent not previously exercised) for the granting of
new Options in substitution therefor. The foregoing notwithstanding, no
modification of an Option shall, without the consent of the Optionee, alter or
impair any rights or obligations under any Option previously granted.
(m) Restrictions on Shares.
----------------------
At the discretion of the Administrator, the Corporation may
reserve to itself, its assignee(s) or its stockholders, in an Option Agreement:
(i) a right of first refusal to purchase any Shares that an Optionee (or a
subsequent transferee) may propose to transfer to a third party; and (ii) a
right to repurchase any or all Shares held by an Optionee upon the Optionee's
cessation of employment or ser-
-9-
<PAGE>
vice with the Corporation or any of its Subsidiaries for any reason within a
specified time as determined by the Administrator at the time of grant, at a
price equal to the higher of the original Exercise Price or the Fair Market
Value on the date of Optionee's cessation of employment, exercisable within
ninety (90) days of Optionee's cessation of employment, but terminating if the
Corporation's Common Stock becomes publicly traded; provided, however,- that in
the event all or part of an Optionee's Option is vested but unexercised as of
ninety (90) days following such Optionee's cessation of employment, the
Corporation's option may be exercised by (A) having given notice to Optionee,
within ninety (90) days following Optionee's cessation of employment, of its
election to repurchase any Shares which are issued upon exercise of the Option
and (B) thereafter repur-chasing such Shares within 180 days following the
cessation of Optionee's employment. In the event the Corporation elects to
repurchase Shares under' this Section 7(m), the Corporation shall be entitled to
repurchase all, but not less than all, Shares issued upon exercise of such
Option, or, subject to the express written consent of Optionee, less than all
Shares issued upon exercise of the Option.
(n) Other Provisions.
----------------
An Option Agreement authorized under the Plan may contain such
other provisions not inconsistent with the terms of the Plan (including, without
limitation, restrictions upon the exercise of the Option) as the Administrator
shall deem advisable.
(o) Substitution of Options.
-----------------------
Notwithstanding any inconsistent provisions or limits under the
Plan, in the event the Corporation acquires (whether by purchase, merger or
otherwise) all or substantially all of outstanding capital stock or assets of
another corporation or of any reorganization or other transaction qualifying
under Section 424 of the Code, the Administrator may, in accordance with the
provisions of that Section, substitute options under the Plan for options under
the plan of the acquired company provided (i) the excess of the aggregate fair
market value of the shares subject to an option immediately after the
substitution over the aggregate option price of such shares is not more than the
similar excess immediately before such substitution and (ii) the new option does
not give persons additional benefits, including any extension of the exercise
period.
-10-
<PAGE>
(p) Information.
-----------
The Corporation shall provide financial statements of the
Corporation to each Optionee at least annually during the period such Optionee
holds any outstanding Option.
8. TERM OF PLAN.
------------
Options may be granted pursuant to the Plan until the expiration of
the Plan ten years after the effective date referred to in Section 3; provided,
--------
however, that after the grant of Options on the first 700,000 Shares under the
- -------
Plan, this Plan may be terminated with respect to any then ungranted Options at
the election of Cordero in his sole and absolute discretion.
9. EFFECT OF CERTAIN EVENTS.
------------------------
(a) Stock Splits and Dividends.
--------------------------
Subject to any required action by stockholders, the number of
Shares covered by the Plan as provided in Section 6. hereof, the number of
Shares covered by each outstanding Option and the Exercise Price thereof shall
be proportionately adjusted for any increase or decrease in the number of issued
Shares resulting from a subdivision or consolidation of Shares or the payment of
a stock dividend (but only if paid in Common Stock) or any other increase or
decrease in the number of issued Shares effected without receipt of
consideration by the Corporation.
(b) Merger, Sale of Assets, Liquidation.
-----------------------------------
Subject to any required action by stockholders, if the
Corporation shall merge with another corporation and the Corporation is the
surviving corporation in such merger and under the terms of such merger the
shares of Common Stock outstanding immediately prior to the merger remain
outstanding and unchanged, each outstanding Option shall continue to apply to
the Shares subject thereto and shall also pertain and apply to any additional
securities and other property, if any, to which a holder of the number of Shares
subject to the Option would have been entitled as a result of the merger. If the
Corporation sells substantially all of its assets or merges (other than a merger
of the type described in the immediately preceding sentence) or consolidates
with or into another corporation, this Plan and
-11-
<PAGE>
each Option shall terminate, but only after each Optionee (or the successor in
interest) has been given, for the period of twenty (20) days ending five (5)
days before the effective date of the sale, merger, or consolidation (or such
longer period as the Administrator may specify), the right to exercise any
unexpired Option or Options in full or in part, but only to the extent that, on
the date of such sale, disposition or merger, each Optionee's right to exercise
such Option or Options has accrued pursuant to the terms of the applicable
Option Agreement and has not previously been exercised. Any other dissolution or
liquidation of the Corporation shall cause each Option to terminate.
At the discretion of the Administrator, an Option exercised in
contemplation of the consummation of the sale of all or substantially all of the
assets of the Corporation or a merger (other than a merger of the type described
in the first sentence of the immediately preceding paragraph) or consolidation
of the Corporation with another corporation, may be conditioned upon such sale,
merger or consolidation becoming effective.
(c) Adjustment Determination.
------------------------
To the extent that the foregoing adjustments relate to securities
of the Corporation, such adjustments shall be made by the Administrator, whose
determination shall be conclusive and binding on all persons.
(d) Limitation on Rights.
--------------------
Except as expressly provided in this Section 9, the Optionee
shall have no rights by reason of any subdivision or consolidation of shares of
stock of any class, the payment of any stock dividend or any other increase or
decrease in the number of shares of stock of any class or by reason of any
dissolution, liquidation, merger or consolidation or spin-off of assets or stock
of another corporation, and any issue by the Corporation of shares of stock of
any class, or securities convertible into shares of stock of any class, shall
not affect, and no adjustment by reason thereof shall be made with respect to,
the number or Exercise Price of Shares subject to an Option. The grant of an
Option pursuant to the Plan shall not affect in any way the right or power of
the Corporation to make adjustments, reclassifi-cations, reorganizations or
changes of its capital or business structure, to merge or consolidate or to
dissolve,
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<PAGE>
liquidate, sell or transfer all or any part of its business or assets.
10. SECURITIES LAW REQUIREMENTS.
---------------------------
(a) Legality of Issuance.
--------------------
No Shares shall be issued upon the exercise of any Option unless
and until the Corporation has determined that:
(i) it and the Optionee have taken all actions required to
register the offer and sale of the Shares under the Act, or to perfect an
exemption from the registration requirements thereof;
(ii) any applicable listing requirement of any stock
exchange on which the Common Stock is listed has been satisfied; and
(iii) any other applicable provision of state or Federal law
has been satisfied.
(b) Restrictions on Transfer; Representations of Optionee;
------------------------------------------------------
Legends.
- -------
Regardless of whether the offering and sale of Shares under the
Plan has been registered under the Act or has been registered or qualified under
the securities laws of any state, the Corporation may impose restrictions upon
the sale, pledge or other transfer of such Shares (including the placement of
appropriate legends on stock certificates) if, in the judgment of the
Corporation and its counsel, such restrictions are necessary or desirable in
order to achieve compliance with the provisions of the Act, the securities laws
of any state or any other law. In the event that the sale of Shares under the
Plan is not registered under the Act but an exemption is available which
requires an investment representation or other representation, each Optionee
shall be required to represent that such Shares are being acquired for
investment, and not with a view to the sale or distribution thereof, and to make
such other representations as are deemed necessary or appropriate by the
Corporation and its counsel. Stock certificates evidencing Shares acquired under
the Plan pursuant to an unreg-istered transaction shall bear the following
restrictive legend and such other restrictive legends as are required or deemed
advisable under the provisions of any applicable law:
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<PAGE>
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE 'ACT'). ANY TRANSFER OR PLEDGE
OF SUCH SECURITIES WILL BE INVALID UNLESS A REGISTRATION STATEMENT
UNDER THE ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION OF
COUNSEL FOR THE ISSUER SUCH REGISTRATION IS UNNECESSARY IN ORDER FOR
SUCH TRANSFER OR PLEDGE TO COMPLY WITH THE ACT."
Any determination by the Corporation and its counsel in connection
with any of the matters set forth in this Section 10 shall be conclusive and
binding on all persons.
(c) Registration or Qualification of Securities.
-------------------------------------------
The Corporation may, but shall not be obligated to, register or
qualify the sale of Shares under the Act or any other applicable law. The
Corporation shall not be obligated to take any affirmative action in order to
cause the sale of Shares under the Plan to comply with any law.
(d) Exchange of Certificates.
------------------------
If, in the opinion of the Corporation and its counsel, any legend
placed on a stock certificate representing Shares sold under the Plan is no
longer required, the holder of such certificate shall be entitled to exchange
such certificate for a certificate representing the same number of Shares but
without such legend.
11. AMENDMENT OF THE PLAN.
---------------------
(a) Prior to the Grant of Options on 700,000 Shares.
-----------------------------------------------
The following provisions shall apply with respect to the Plan at
any time at which there outstanding Options on fewer than 700,000 Shares under
the Plan:
The Board may from time to time, with respect to any Shares
at the time not subject to Options, suspend or discontinue the Plan or
revise or amend it in any respect whatsoever except that, without the
approval of the Corporation's stockholders, no such revision or amendment
shall:
-14-
<PAGE>
(i) Materially increase the benefits accruing to
Participants under the Plan;
(ii) Increase the number of Shares which may be issued under
the Plan;
(iii) Change the designation in Section 5 hereof with
respect to the classes of persons eligible to receive Options; or
(iv) Amend this Section 11 to defeat its purpose.
(b) After the Grant of Options on 700,000 Shares.
--------------------------------------------
At any time at which there are outstanding Options to purchase
700,000 or more Shares under the Plan, Cordero may, in his sole and absolute
discretion, suspend or discontinue the Plan with respect to any then ungranted
Options, and the Board shall not otherwise revise or amend the Plan in any
respect whatsoever without the consent and approval of Cordero.
12. EXCHANGE ACT.
------------
If the Common Stock is registered under the Exchange Act, the Plan
shall be amended by the Board from time to time to the extent necessary or
advisable, in the judgment of the Board after having consulted with
Corporation's counsel, to enable Participants who are officers or directors of
the Corporation and who are generally subject to the duties established by
Section 16(a) or 16(b) of the Exchange Act ("Section 16 Requirements") with
respect to purchases and sales of equity securities of the Corporation, to
obtain the benefits of such exclusions or exemptions from the Sections 16
Requirements as may be established by the Securities and Exchange Commission
from time to time by rule, regulation, administrative order or interpretation
(whether such interpretation is made by such Commission or staff) with respect
to (i) the receipt of Options, (ii) the exercise, modification, extension,
cancellation, exchange, termination or expiration of Options, (iii) the purchase
of Common Stock upon the exercise of Options, and (iv) the sale of Common Stock
received upon the exercise of Options. Anything in the Plan to the contrary
notwithstanding, such amendments may be made without approval of the
Corporation's stockholders unless and to the extent that, in the judgment of the
Board after consulting with the Corporation's coun-
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<PAGE>
sel, stockholder approval of such an amendment is a prerequisite to effectuating
a desired exclusion or exemption from the Section 16 Requirements.
With respect to Participants who may be subject to the Section 16
Requirements, transactions under this Plan are intended to comply with all
applicable conditions of Rule 16b-3 or its successors under the Exchange Act. To
the extent any provision of the Plan or action by the Administrator fails to so
comply, it shall be deemed null and void, to the extent permitted by law and
deemed advisable by the Administrator.
13. APPLICATION OF FUNDS.
--------------------
The proceeds received by the Corporation from the sale of Common Stock
pursuant to the exercise of an Option will be used for general corporate
purposes.
14. APPROVAL OF DIRECTORS AND STOCKHOLDERS.
--------------------------------------
On December 4, 1995, this Plan was approved by (i) the holders of a
majority of the Corporation's shares of capital stock, and (ii) the
Corporation's Board of Directors.
MILCOM INTERNATIONAL, INC.,
a Delaware corporation
By: ________________________________
Its: _______________________________
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<PAGE>
EXHIBIT 10.2
MILCOM INTERNATIONAL, INC.
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT ("Agreement") is entered into as of the
______ day of _____________, 19__ between MILCOM INTERNATIONAL, INC., a Delaware
corporation (the "Corporation"), and __________________ (the "Optionee").
R E C I T A L S
- - - - - - - -
A. The Board of Directors of the Corporation (the "Board") has
established the Corporation's 1995 Stock Option Plan (the "Plan") in order to
provide key employees of the Corporation with a favorable opportunity to acquire
shares of the Corporation's common stock ("Stock").
B. The Board regards the Optionee as a key employee as contemplated
by the Plan and has determined that it would be in the best interests of the
Corporation and its stockholders to grant the option described in this Agreement
to the Optionee as an inducement to remain in the service of the Corporation,
and as an incentive for increasing efforts during such service.
NOW, THEREFORE, it is agreed as follows:
1. Definitions and Incorporation. Unless otherwise defined herein
-----------------------------
or the context otherwise requires, the capitalized terms used in this Agreement
shall have the meanings given to such terms in the Plan. The Plan is hereby
incorporated in and made a part of this Agreement as if fully set forth herein.
The Optionee hereby acknowledges that he has received a copy of the Plan.
2. Grant of Options. Pursuant to the Plan, the Corporation hereby
---------------
grants to the Optionee as of the date hereof the option to purchase all or any
part of an aggregate of ______________________ (__________) shares of Stock (the
"Option"), subject to adjustment in accordance with Section 9 of the Plan. The
Option is intended to be a Nonstatutory Stock Option. If the Corporation elects
to grant additional shares of Stock to the Optionee, the parties shall sign an
additional agreement.
<PAGE>
3. Option Price. The price to be paid for Stock upon exercise of
------------
the Option or any part thereof shall be Six Dollars ($6.00) (the "Exercise
Price").
4. Right to Exercise. Subject to the conditions set forth in this
-----------------
Agreement, the right to exercise the Option shall accrue in accordance with
Schedule 1 attached hereto and hereby made a part hereof.
5. Securities Law Requirements. No part of the Option shall be
---------------------------
exercised if counsel to the Corporation determines that any applicable
registration requirement under the Securities Act of 1933 (the "Act") or any
other applicable requirement of Federal or state law has not been met.
6. Term of option. The Option shall terminate in any event on the
--------------
earliest of (a) the _____ day of __________, at 11:59 P.M. California time, (b)
the expiration of the period described in Section 7 below, (c) the expiration of
the period described in Section 8 below or (d) the expiration of the period
described in Section 9 below. The Option shall also terminate as provided in the
Plan or elsewhere in this Agreement.
7. Exercise Following Cessation of Employment. If Optionee ceases
------------------------------------------
to be an Employee for any reason other than his death, Disability or Retirement,
such Optionee shall have the right, subject to the restrictions referred to in
Section 6. above, to exercise the Option at any time within ninety (90) days
after cessation of employment, but, except as otherwise provided herein, only to
the extent that, at the date of cessation of employment, the Optionee's right to
exercise such Option had vested in accordance with Schedule 1 and had not
previously been exercised.
8. Exercise Following Death or Disability. If the Optionee's
--------------------------------------
employment with the Corporation ceases by reason of the Optionee's death or
Disability, or if the Optionee dies after cessation of employment but while the
Option would have been exercisable hereunder, the Option (to the extent it is
vested in accordance with Schedule i at the time of cessation and not yet
exercised) may be exercised within one hundred eighty (180) days after the date
of the Optionee's death or cessation by reason of Disability. In the case of
death, the exercise may be made by his representative or by the person entitled
thereto under the Optionee's will or the laws of descent and distribution;
provided that such representative or such person consents in
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<PAGE>
writing to abide by and be subject to the terms of the Plan and this Agreement
and such writing is delivered to the President or Chairman of the Corporation.
9. Exercise Following Retirement. If the Optionee's employment with
-----------------------------
the Corporation ceases by reason of Retirement, the Option (to the extent it is
vested in accordance with Schedule I at the time of cessation and not yet
exercised) may be exercised within ninety (90) days after the date of the
Optionee's Retirement.
10. Time of Cessation of Service. For the purposes of this Agreement,
----------------------------
the Optionee's employment shall be deemed to have ceased on the date when the
Optionee's employment in fact ceased.
11. Nontransferability. The Option shall be exercisable during the
------------------
Optionee's lifetime only by the Optionee or the Optionee's guardian or legal
representative and shall be nontransferable, except that the Optionee may
transfer all or any part of the Option by will or by the laws of descent and
distribution. Except as otherwise provided herein, any attempted alienation,
assignment, pledge, hypothecation, attachment, execution or similar process,
whether voluntary or involuntary, with respect to all or any part of the Option
or any right thereunder, shall be null and void and, at the Corporation's
option, shall cause all of the Optionee's rights under this Agreement to
terminate.
12. Merger, Sale of Assets, Liquidation. Subject to any required
-----------------------------------
action by stockholders, if the Corporation shall merge with another company and
the Corporation is the surviving corporation in such merger and under the terms
of such merger the shares of common stock outstanding immediately prior to the
merger remain outstanding and unchanged, each outstanding Option shall continue
to apply to the Shares subject thereto and shall also pertain and apply to any
additional securities and other property, if any, to which a holder of the
number of Shares subject to the Option would have been entitled as a result of
the merger. If the Corporation sells substantially all of its assets or merges
(other than a merger of the type described in the immediately preceding
sentence) or consolidates with or into another corporation, the Option shall
terminate, but only after the Optionee (or the successor in interest) has been
given, for the period of twenty (20) days ending five (5) days before the
effective date of the sale, merger, or consolidation (or such longer period as
the Administrator may specify), the right to exercise any unexpired portion of
-3-
<PAGE>
the Option in full or in part, but only to the extent that, on the date of such
sale, disposition or merger, the Optionee's right to exercise the Option has
vested in accordance with Schedule 1 and has not previously been exercised. Any
other dissolution or liquidation of the Corporation shall cause the Options to
terminate.
13. Effect of Exercise. Upon exercise of all or any part of the
------------------
Option, the number of Shares subject to the Option under this Agreement shall be
reduced by the number of Shares with respect to which such exercise is made.
14. Exercise of Option. Optionee's Option may be exercised only upon
------------------
delivery to the Secretary, or other designated employee of the Corporation, of a
written notice of exercise. Such notice shall specify the number of Shares which
the Option is then being exercised and shall be accompanied by payment in cash
of the full purchase price. In the event the Option is being exercised by a
person other than the Optionee, such person must provide the Corporation with
proof of his/her right to exercise the Option and any other pertinent data as
the Corporation may deem necessary. The contemplated form of notice of exercise
is attached hereto as Exhibit "A."
15. Withholding Taxes. The Corporation will require the Optionee to
-----------------
deliver payment, upon exercise of the Option, of any withholding taxes (in
addition to the Purchase Price) with respect to the difference between the
Purchase Price and the Fair Market Value of the Stock acquired upon exercise, in
cash or some other form satisfactory to the Corporation.
16. Issuance of Shares. Subject to the foregoing conditions, the
------------------
Corporation, as soon as reasonably practicable after receipt of a proper notice
of exercise and without transfer or issue tax or other incidental expense to the
person exercising the Option, shall deliver to such person at the principal
office of the Corporation, or such other location as may be acceptable to the
Corporation and such person, one or more certificates for the Shares with
respect to which the Option is exercised. Such Shares shall be fully paid and
nonassessable and shall be issued in the name of such person.
-4-
<PAGE>
17. Restrictions on Shares.
----------------------
17.1 Right of First Refusal. In the event Optionee desires to
----------------------
transfer any Shares which he or she has purchased pursuant to this Agreement,
Optionee shall deliver to the Corporation written notice of his or her intention
to transfer such Shares (the "Notice") together with a copy of a signed and
binding offer by the proposed transferee. The Notice shall state the name and
address of the proposed transferee, the number of Shares to be transferred, the
price per Share, and the other terms of such transfer. For thirty (30) days
following delivery of the Notice, the Corporation shall have the option to
purchase all (but not less than a11) of the Shares proposed to be sold by
Optionee at the price and terms stated in the Notice. Such option is exercisable
by delivery of written notice to Optionee within such thirty (30) day period.
Any Shares not purchased by the Corporation may, for a period of sixty (60) days
commencing on the expiration of the Corporation's option to purchase such
Shares, be sold to the proposed transferee at the price and upon the terms
specified in the Notice. Shares which are not sold by Optionee within such sixty
(60) day period shall again become subject to the notice and option provisions
of this Section 17.1. Any transfer of Shares by Optionee or any successive
transferee shall be conditioned upon the transferee granting the Corporation a
right of first refusal under the terms set forth in this Section 17.1. The
Corporation's rights under this Section 17.1 shall terminate if the
Corporation's common stock becomes publicly traded.
18. Lock-Up. In the event that the Corporation files a registration
-------
statement with respect to an underwritten public offering under the Act in which
any class of the Corporation's equity securities is to be offered, the Optionee
shall not make any public sale or distribution of any shares of the Stock or any
of the Corporation's other equity securities, or of any securities convertible
into, or exchangeable or exercisable for such securities, during the period
beginning ninety (90) days prior to the filing of such registration statement
with the Securities and Exchange Commission and ending on such date after such
registration statement has become effective as shall be specified by the
managing underwriter of such public offering.
19. No Rights as to Service. Nothing in this Agreement shall be
-----------------------
construed to give any person the right to remain in the employ or service of the
Company or any Subsidiary or to affect the absolute and unqualified right of
-5-
<PAGE>
the Company and any Subsidiaries to terminate such person's employment or
service relationship at any time for any reason or no reason and with or without
cause or prior notice.
20. Rights as a Stockholder. Neither the Optionee nor any other
-----------------------
person entitled to exercise the Option shall have any rights as a stockholder of
the Corporation with respect to the Stock subject to the Option until a
certificate for such Shares has been issued to him following the exercise of the
Option.
21. Optionee's Right to Financial Statements. The Corporation shall
----------------------------------------
provide financial statements of the Corporation to the Optionee at least
annually during the period the Optionee holds any outstanding Option.
22. Investment Representation. This Option is granted to the Optionee
-------------------------
on the condition that all purchases of Shares will be for investment purposes,
and not with a view to resale or distribution, except pursuant to registration
or qualification pursuant to applicable state and Federal securities laws. Any
Shares issued under this Option shall be specifically subject to such
restrictive provisions as the Board may from time to time deem necessary in
order to fully comply with all applicable securities laws. The Optionee
understands that the Corporation is not presently taking actions to register the
shares to be obtained upon the exercise of the Options, is under no obligation
to do so, and has no present intention of doing so.
23. Notices. Any notice to the Corporation contemplated by this
-------
Agreement shall be in writing and shall be addressed to it in care of its
Secretary, or at such other address as the Corporation may specify in a notice
to the Optionee; and any notice to the Optionee shall be in writing and shall be
addressed to him or her at the address on file with the Corporation on the date
hereof or at such other address as he or she may hereafter designate in writing.
Notice shall be deemed to have been given upon receipt or, if sooner, five (5)
days after such notice has been deposited, postage prepaid, certified or
registered mail, return receipt requested, in the United States mail addressed
to the address specified in the immediately preceding sentence.
-6-
<PAGE>
24. Interpretation. The interpretation, construction, performance and
--------------
enforcement of this Agreement and of the Plan shall lie within the sole
discretion of the Administrator, and the Administrator's determinations shall be
conclusive and binding on all interested persons.
25. Arbitration. Any controversy or dispute regarding this Agreement
-----------
shall be settled by arbitration pursuant to the terms of this Section 24. The
arbitration shall proceed in accordance with the laws of the State of
California. Any party seeking arbitration shall give a written demand for
arbitration to the other parties by registered or certified mail. The demand
shall set forth a statement of the nature of the dispute, the amount involved,
and the remedies sought. No later than twenty (20) calendar days after the
demand for arbitration is served, the parties shall obtain an arbitrator through
the Judicial Arbitration and Mediation Service, Inc. As rules for the
arbitration, the arbitrator shall apply the provisions of Sections 1282 through
1284.2 of the California Code of Civil Procedure and the parties may pursue
discovery in accordance with California Code of Civil Procedure Section 1283.05.
No later than ten (10) days after the arbitrator is appointed, the arbitrator
shall schedule the arbitration for a hearing to commence on a mutually
convenient date. The hearing shall commence no later than one hundred twenty
(120) days after the arbitrator is appointed and shall continue from day to day
until completed. The arbitration award shall be final and binding regardless of
whether one of the parties fails or refuses to participate in the arbitration.
(Signature page follows)
-7-
<PAGE>
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement, in the case of the Corporation by its duly authorized officer, as of
the day and year first above written.
"Corporation"
MILCOM INTERNATIONAL, INC.,
a Delaware corporation
By:______________________________________
Its:_____________________________________
"Optionee"
_________________________________________
-8-
<PAGE>
EXHIBIT 10.4
POWERWAVE TECHNOLOGIES, INC.
1996 STOCK INCENTIVE PLAN
This 1996 STOCK INCENTIVE PLAN (the "Plan") is hereby established by
POWERWAVE TECHNOLOGIES, INC., a Delaware corporation (the "Company") effective
as of the date of effective date of the Company's first registration statement
filed under the Securities Act of 1993 (the "Effective Date").
ARTICLE 1.
PURPOSES OF THE PLAN
1.1 PURPOSES. The purposes of the Plan are (a) to enhance the Company's
ability to attract and retain the services of qualified employees and
consultants and other service providers upon whose judgment, initiative and
efforts the successful conduct and development of the Company's business largely
depends, and (b) to provide additional incentives to such persons or entities to
devote their utmost effort and skill to the advancement and betterment of the
Company, by providing them an opportunity to participate in the ownership of the
Company and thereby have an interest in the success and increased value of the
Company.
ARTICLE 2.
DEFINITIONS
For purposes of this Plan, the following terms shall have the meanings
indicated:
2.1 ADMINISTRATOR. "Administrator" means the Board or, if the Board
delegates responsibility for any matter to the Committee, the term Administrator
shall mean the Committee.
2.2 AFFILIATED COMPANY. "Affiliated Company" means any "parent
corporation" or "subsidiary corporation" of the Company, whether now existing or
hereafter created or acquired, as those terms are defined in Sections 424(e) and
424(f) of the Code, respectively.
2.3 BOARD. "Board" means the Board of Directors of the Company.
2.4 CHANGE IN CONTROL. "Change in Control" shall mean (i) the
acquisition, directly or indirectly, by any person or group (within the meaning
of Section 13(d)(3) of the Securities Exchange Act of 1934, as amended) of the
beneficial ownership of more than fifty percent (50%) of the outstanding
securities of the Company; (ii) a merger or consolidation in which the Company
is not the surviving entity, except for a transaction the principal purpose of
which is to change the state in which the Company is incorporated; (iii) the
sale, transfer or other disposition of all or substantially all of the assets of
the Company; (iv) a complete liquidation or dissolution of the
<PAGE>
Company; or (v) any reverse merger in which the Company is the surviving entity
but in which securities possessing more than fifty percent (50%) of the total
combined voting power of the Company's outstanding securities are transferred to
a person or persons different from the persons holding those securities
immediately prior to such merger.
2.5 CODE. "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
2.6 COMMITTEE. "Committee" means a committee of two or more members of
the Board appointed to administer the Plan, as set forth in Section 7.1 hereof.
2.7 COMMON STOCK. "Common Stock" means the Common Stock of the Company,
subject to adjustment pursuant to Section 4.2 hereof.
2.8 CONTINUING DIRECTOR. "Continuing Director" means any member of the
Board of Directors of the Company who was a member of the Board prior to the
effective date of the Plan, and any person who is subsequently elected to the
Board if such person is recommended or approved by a majority of the Continuing
Directors.
2.9 DISABILITY. "Disability" means permanent and total disability as
defined in Section 22(e)(3) of the Code. The Administrator's determination of a
Disability or the absence thereof shall be conclusive and binding on all
interested parties.
2.10 EXERCISE PRICE. "Exercise Price" means the purchase price per share
of Common Stock payable upon exercise of an Option.
2.11 FAIR MARKET VALUE. "Fair Market Value" on any given date means the
value of one share of Common Stock, determined as follows:
(a) If the Common Stock is then listed or admitted to trading on a
Nasdaq market system or a stock exchange which reports closing sale prices, the
Fair Market Value shall be the closing sale price on the date of valuation on
such Nasdaq market system or principal stock exchange on which the Common Stock
is then listed or admitted to trading, or, if no closing sale price is quoted on
such day, then the Fair Market Value shall be the closing sale price of the
Common Stock on such Nasdaq market system or such exchange on the next preceding
day on which a closing sale price is quoted.
(b) If the Common Stock is not then listed or admitted to trading on
a Nasdaq market system or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the average of the closing bid and asked prices
of the Common Stock in the over-the-counter market on the date of valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of evaluation, which determination shall be
conclusive and binding on all interested parties.
2.12 INCENTIVE OPTION. "Incentive Option" means any Option designated and
qualified as an "incentive stock option" as defined in Section 422 of the Code.
2.13 INCENTIVE OPTION AGREEMENT. "Incentive Option Agreement" means an
Option Agreement with respect to an Incentive Option.
2
<PAGE>
2.14 NASD DEALER. "NASD Dealer" means a broker-dealer that is a member of
the National Association of Securities Dealers, Inc.
2.15 NONQUALIFIED OPTION. "Nonqualified Option" means any Option that is
not an Incentive Option. To the extent that any Option designated as an
Incentive Option fails in whole or in part to qualify as an Incentive Option,
including, without limitation, for failure to meet the limitations applicable to
a 10% Shareholder or because it exceeds the annual limit provided for in Section
5.6 below, it shall to that extent constitute a Nonqualified Option.
2.16 NONQUALIFIED OPTION AGREEMENT. "Nonqualified Option Agreement" means
an Option Agreement with respect to a Nonqualified Option.
2.17 OFFEREE. "Offeree" means a Participant to whom a Right to Purchase
has been offered or who has acquired Restricted Stock under the Plan.
2.18 OPTION. "Option" means any option to purchase Common Stock granted
pursuant to the Plan.
2.19 OPTION AGREEMENT. "Option Agreement" means the written agreement
entered into between the Company and the Optionee with respect to an Option
granted under the Plan.
2.20 OPTIONEE. "Optionee" means a Participant who holds an Option.
2.21 PARTICIPANT. "Participant" means an individual or entity who holds
an Option, a Right to Purchase or Restricted Stock under the Plan.
2.22 PURCHASE PRICE. "Purchase Price" means the purchase price per share
of Restricted Stock payable upon acceptance of a Right to Purchase.
2.23 RESTRICTED STOCK. "Restricted Stock" means shares of Common Stock
issued pursuant to Article 6 hereof, subject to any restrictions and conditions
as are established pursuant to such Article 6.
2.24 RIGHT TO PURCHASE. "Right to Purchase" means a right to purchase
Restricted Stock granted to an Offeree pursuant to Article 6 hereof.
2.25 SERVICE PROVIDER. "Service Provider" means a consultant or other
person or entity who provides services to the Company or an Affiliated Company
and who the Administrator authorizes to become a Participant in the Plan.
2.26 STOCK PURCHASE AGREEMENT. "Stock Purchase Agreement" means the
written agreement entered into between the Company and the Offeree with respect
to a Right to Purchase offered under the Plan.
2.27 10% SHAREHOLDER. "10% Shareholder" means a person who, as of a
relevant date, owns or is deemed to own (by reason of the attribution rules
applicable under Section 424(d) of the Code) stock possessing more than 10% of
the total combined voting power of all classes of stock of the Company or of an
Affiliated Company.
3
<PAGE>
ARTICLE 3.
ELIGIBILITY
3.1 INCENTIVE OPTIONS. Officers and other key employees of the Company or
of an Affiliated Company (including members of the Board if they are employees
of the Company or of an Affiliated Company) are eligible to receive Incentive
Options under the Plan.
3.2 NONQUALIFIED OPTIONS AND RIGHTS TO PURCHASE. Officers and other key
employees of the Company or of an Affiliated Company, members of the Board
(whether or not employed by the Company or an Affiliated Company), and Service
Providers are eligible to receive Nonqualified Options or Rights to Purchase
under the Plan.
3.3 LIMITATION ON SHARES. In no event shall any Participant be granted
Rights to Purchase or Options in any one calendar year pursuant to which the
aggregate number of shares of Common Stock that may be acquired thereunder
exceeds 450,000 shares.
ARTICLE 4.
PLAN SHARES
4.1 SHARES SUBJECT TO THE PLAN. The total number of shares of Common
Stock which may be issued under the Plan shall be equal to 1,500,000 shares,
plus such number of additional shares as shall be available for grant under the
Company's 1995 Stock Option Plan, including shares underlying lapsed options
granted thereunder subject to adjustment as to the number and kind of shares
pursuant to Section 4.2 hereof. For purposes of this limitation, in the event
that (a) all or any portion of any Option or Right to Purchase granted or
offered under the Plan can no longer under any circumstances be exercised, or
(b) any shares of Common Stock are reacquired by the Company pursuant to an
Incentive Option Agreement, Nonqualified Option Agreement or Stock Purchase
Agreement, the shares of Common Stock allocable to the unexercised portion of
such Option or such Right to Purchase, or the shares so reacquired, shall again
be available for grant or issuance under the Plan.
4.2 CHANGES IN CAPITAL STRUCTURE. In the event that the outstanding
shares of Common Stock are hereafter increased or decreased or changed into or
exchanged for a different number or kind of shares or other securities of the
Company by reason of a recapitalization, stock split, combination of shares,
reclassification, stock dividend, or other change in the capital structure of
the Company, then appropriate adjustments shall be made by the Administrator to
the aggregate number and kind of shares subject to this Plan, and the number and
kind of shares and the price per share subject to outstanding Option Agreements,
Rights to Purchase and Stock Purchase Agreements in order to preserve, as nearly
as practical, but not to increase, the benefits to Participants.
4
<PAGE>
ARTICLE 5.
OPTIONS
5.1 OPTION AGREEMENT. Each Option granted pursuant to this Plan shall be
evidenced by an Option Agreement which shall specify the number of shares
subject thereto, the Exercise Price per share, and whether the Option is an
Incentive Option or Nonqualified Option. As soon as is practical following the
grant of an Option, an Option Agreement shall be duly executed and delivered by
or on behalf of the Company to the Optionee to whom such Option was granted.
Each Option Agreement shall be in such form and contain such additional terms
and conditions, not inconsistent with the provisions of this Plan, as the
Administrator shall, from time to time, deem desirable, including, without
limitation, the imposition of any rights of first refusal and resale obligations
upon any shares of Common Stock acquired pursuant to an Option Agreement. Each
Option Agreement may be different from each other Option Agreement.
5.2 EXERCISE PRICE. The Exercise Price per share of Common Stock covered
by each Option shall be determined by the Administrator, subject to the
following: (a) the Exercise Price of an Incentive Option shall not be less than
100% of Fair Market Value on the date the Incentive Option is granted, (b) the
Exercise Price of a Nonqualified Option shall not be less than 85% of Fair
Market Value on the date the Nonqualified Option is granted, and (c) if the
person to whom an Incentive Option is granted is a 10% Shareholder on the date
of grant, the Exercise Price shall not be less than 110% of Fair Market Value on
the date the Option is granted.
5.3 PAYMENT OF EXERCISE PRICE. Payment of the Exercise Price shall be
made upon exercise of an Option and may be made, in the discretion of the
Administrator, subject to any legal restrictions, by: (a) cash; (b) check; (c)
the surrender of shares of Common Stock owned by the Optionee that have been
held by the Optionee for at least six (6) months, which surrendered shares shall
be valued at Fair Market Value as of the date of such exercise; (d) the
Optionee's promissory note in a form and on terms acceptable to the
Administrator; (e) the cancellation of indebtedness of the Company to the
Optionee; (f) the waiver of compensation due or accrued to the Optionee for
services rendered; (g) provided that a public market for the Common Stock
exists, a "same day sale" commitment from the Optionee and an NASD Dealer
whereby the Optionee irrevocably elects to exercise the Option and to sell a
portion of the shares so purchased to pay for the Exercise Price and whereby the
NASD Dealer irrevocably commits upon receipt of such shares to forward the
Exercise Price directly to the Company; (h) provided that a public market for
the Common Stock exists, a "margin" commitment from the Optionee and an NASD
Dealer whereby the Optionee irrevocably elects to exercise the Option and to
pledge the shares so purchased to the NASD Dealer in a margin account as
security for a loan from the NASD Dealer in the amount of the Exercise Price,
and whereby the NASD Dealer irrevocably commits upon receipt of such shares to
forward the Exercise Price directly to the Company; or (i) any combination of
the foregoing methods of payment or any other consideration or method of payment
as shall be permitted by applicable corporate law.
5.4 TERM AND TERMINATION OF OPTIONS. The term and termination of each
Option shall be as fixed by the Administrator, but no Option may be exercisable
more than ten (10) years after the date it is granted. An Incentive Option
granted to a person who is a 10% Shareholder on the date of grant shall not be
exercisable more than five (5) years after the date it is granted.
5
<PAGE>
5.5 VESTING AND EXERCISE OF OPTIONS. Each Option shall vest and be
exercisable in one or more installments at such time or times and subject to
such conditions, including without limitation the achievement of specified
performance goals or objectives, as shall be determined by the Administrator.
5.6 ANNUAL LIMIT ON INCENTIVE OPTIONS. To the extent required for
"incentive stock option" treatment under Section 422 of the Code, the aggregate
Fair Market Value (determined as of the time of grant) of the Common Stock shall
not, with respect to which Incentive Options granted under this Plan and any
other plan of the Company or any Affiliated Company become exercisable for the
first time by an Optionee during any calendar year, exceed $100,000.
5.7 NONTRANSFERABILITY OF OPTIONS. No Option shall be assignable or
transferable except by will or the laws of descent and distribution, and during
the life of the Optionee shall be exercisable only by such Optionee; provided,
however, that, in the discretion of the Administrator, any Option may be
assigned or transferred in any manner which an "incentive stock option" is
permitted to be assigned or transferred under the Code.
5.8 RIGHTS AS SHAREHOLDER. An Optionee or permitted transferee of an
Option shall have no rights or privileges as a shareholder with respect to any
shares covered by an Option until such Option has been duly exercised and
certificates representing shares purchased upon such exercise have been issued
to such person.
ARTICLE 6.
RIGHTS TO PURCHASE
6.1 NATURE OF RIGHT TO PURCHASE. A Right to Purchase granted to an
Offeree entitles the Offeree to purchase, for a Purchase Price determined by the
Administrator, shares of Common Stock subject to such terms, restrictions and
conditions as the Administrator may determine at the time of grant ("Restricted
Stock"). Such conditions may include, but are not limited to, continued
employment or the achievement of specified performance goals or objectives.
6.2 ACCEPTANCE OF RIGHT TO PURCHASE. An Offeree shall have no rights with
respect to the Restricted Stock subject to a Right to Purchase unless the
Offeree shall have accepted the Right to Purchase within ten (10) days (or such
longer or shorter period as the Administrator may specify) following the grant
of the Right to Purchase by making payment of the full Purchase Price to the
Company in the manner set forth in Section 6.3 hereof and by executing and
delivering to the Company a Stock Purchase Agreement. Each Stock Purchase
Agreement shall be in such form, and shall set forth the Purchase Price and such
other terms, conditions and restrictions of the Restricted Stock, not
inconsistent with the provisions of this Plan, as the Administrator shall, from
time to time, deem desirable. Each Stock Purchase Agreement may be different
from each other Stock Purchase Agreement.
6.3 PAYMENT OF PURCHASE PRICE. Subject to any legal restrictions, payment
of the Purchase Price upon acceptance of a Right to Purchase Restricted Stock
may be made, in the discretion of the Administrator, by: (a) cash; (b) check;
(c) the surrender of shares of Common Stock owned by the Offeree that have been
held by the Offeree for at least six (6) months, which
6
<PAGE>
surrendered shares shall be valued at Fair Market Value as of the date of such
exercise; (d) the Offeree's promissory note in a form and on terms acceptable to
the Administrator; (e) the cancellation of indebtedness of the Company to the
Offeree; (f) the waiver of compensation due or accrued to the Offeree for
services rendered; or (g) any combination of the foregoing methods of payment or
any other consideration or method of payment as shall be permitted by applicable
corporate law.
6.4 RIGHTS AS A SHAREHOLDER. Upon complying with the provisions of
Section 6.2 hereof, an Offeree shall have the rights of a shareholder with
respect to the Restricted Stock purchased pursuant to the Right to Purchase,
including voting and dividend rights, subject to the terms, restrictions and
conditions as are set forth in the Stock Purchase Agreement. Unless the
Administrator shall determine otherwise, certificates evidencing shares of
Restricted Stock shall remain in the possession of the Company in accordance
with the terms of the Stock Purchase Agreement.
6.5 RESTRICTIONS. Shares of Restricted Stock may not be sold, assigned,
transferred, pledged or otherwise encumbered or disposed of except as
specifically provided in the Stock Purchase Agreement or by the Administrator.
In the event of termination of a Participant's employment, service as a director
of the Company or Service Provider status for any reason whatsoever (including
death or disability), the Stock Purchase Agreement may provide, in the
discretion of the Administrator, that the Company shall have the right,
exercisable at the discretion of the Administrator, to repurchase (i) at the
original Purchase Price, any shares of Restricted Stock which have not vested as
of the date of termination, and (ii) at Fair Market Value, any shares of
Restricted Stock which have vested as of such date, on such terms as may be
provided in the Stock Purchase Agreement.
6.6 VESTING OF RESTRICTED STOCK. The Stock Purchase Agreement shall
specify the date or dates, the performance goals or objectives which must be
achieved, and any other conditions on which the Restricted Stock may vest.
6.7 DIVIDENDS. If payment for shares of Restricted Stock is made by
promissory note, any cash dividends paid with respect to the Restricted Stock
may be applied, in the discretion of the Administrator, to repayment of such
note.
6.8 NONASSIGNABILITY OF RIGHTS. No Right to Purchase shall be assignable
or transferable except by will or the laws of descent and distribution or as
otherwise provided by the Administrator.
ARTICLE 7.
ADMINISTRATION OF THE PLAN
7.1 ADMINISTRATOR. Authority to control and manage the operation and
administration of the Plan shall be vested in the Board, which may delegate such
responsibilities in whole or in part to a committee consisting of two (2) or
more members of the Board (the "Committee"). Members of the Committee may be
appointed from time to time by, and shall serve at the pleasure of, the Board.
As used herein, the term "Administrator" means the Board or, with respect to any
matter
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<PAGE>
as to which responsibility has been delegated to the Committee, the term
Administrator shall mean the Committee.
7.2 POWERS OF THE ADMINISTRATOR. In addition to any other powers or
authority conferred upon the Administrator elsewhere in the Plan or by law, the
Administrator shall have full power and authority: (a) to determine the persons
to whom, and the time or times at which, Incentive Options or Nonqualified
Options shall be granted and Rights to Purchase shall be offered, the number of
shares to be represented by each Option and Right to Purchase and the
consideration to be received by the Company upon the exercise thereof; (b) to
interpret the Plan; (c) to create, amend or rescind rules and regulations
relating to the Plan; (d) to determine the terms, conditions and restrictions
contained in, and the form of, Option Agreements and Stock Purchase Agreements;
(e) to determine the identity or capacity of any persons who may be entitled to
exercise a Participant's rights under any Option or Right to Purchase under the
Plan; (f) to correct any defect or supply any omission or reconcile any
inconsistency in the Plan or in any Option Agreement or Stock Purchase
Agreement; (g) to accelerate the vesting of any Option or release or waive any
repurchase rights of the Company with respect to Restricted Stock; (h) to extend
the exercise date of any Option or acceptance date of any Right to Purchase; (i)
to provide for rights of first refusal and/or repurchase rights; (j) to amend
outstanding Option Agreements and Stock Purchase Agreements to provide for,
among other things, any change or modification which the Administrator could
have provided for upon the grant of an Option or Right to Purchase or in
furtherance of the powers provided for herein; and (k) to make all other
determinations necessary or advisable for the administration of the Plan, but
only to the extent not contrary to the express provisions of the Plan. Any
action, decision, interpretation or determination made in good faith by the
Administrator in the exercise of its authority conferred upon it under the Plan
shall be final and binding on the Company and all Participants.
7.3 LIMITATION ON LIABILITY. No employee of the Company or member of the
Board or Committee shall be subject to any liability with respect to duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any employee of the Company with duties under the Plan, who was
or is a party, or is threatened to be made a party, to any threatened, pending
or completed proceeding, whether civil, criminal, administrative or
investigative, by reason of such person's conduct in the performance of duties
under the Plan.
ARTICLE 8.
CHANGE IN CONTROL
8.1 CHANGE IN CONTROL. In the event of a Change in Control of the
Company, if the Change in Control is not approved by a majority of the
Continuing Directors, the Administrator shall cause written notice of the
proposed transaction to be given to all Participants not less than fifteen (15)
days prior to the anticipated effective date of the proposed transaction and,
concurrent with the effective date of the proposed transaction, all Options,
Rights of Purchase and Restricted Stock shall be accelerated and concurrent with
such date the holders of such Options and Rights to Purchase shall have the
right to exercise such Options and Rights of Purchase in respect to any or all
shares subject thereto. The
8
<PAGE>
Administrator in its discretion may, at any time an Option or Right to Purchase
is granted, or at any time thereafter (regardless of its acceleration or non-
acceleration), take one or more of the following actions: (A) provide for the
purchase of each Option or Right to Purchase for an amount of cash or other
property that could have been received upon the exercise of the Option or Right
to Purchase, (B) adjust the terms of the Options and Rights to Purchase in a
manner determined by the Administrator to reflect the Change in Control, (C)
cause the Options and Rights to Purchase to be continued or assumed, or new
rights substituted therefor, by the surviving or another entity, through the
continuance of the Plan and the continuation or assumption of outstanding
Options and Rights to Purchase, or the substitution for such Options and Rights
to Purchase of new options and new rights to purchase of comparable value
covering shares of a successor corporation, with appropriate adjustments as to
the number and kind of shares and Exercise Prices, in which event the Plan and
such Options and Rights to Purchase, or the new options and rights to purchase
substituted therefor, shall continue in the manner and under the terms so
provided or (D) make such other provision as the Administrator may consider
equitable. In the event of a Change in Control in which the Options and Rights
to Purchase are not continued, assumed or substituted therefor by the surviving
or another entity, regardless of whether such Change in Control is approved by a
majority of the Continuing Directors, the Options and Rights to Purchase shall
be accelerated and fully exercisable upon the effective date of the Change in
Control and the Administrator shall cause written notice of the proposed
transaction to be given to all Participants not less than fifteen (15) days
prior to the anticipated effective date of the proposed transaction. The
Administrator shall have the right, with respect to any specific Option, Right
to Purchase or Restricted Stock granted under the Plan, to provide that such
Options, Rights to Purchase or Restricted Stock shall be accelerated in any
event upon the effective date of the Change in Control.
ARTICLE 9.
AMENDMENT AND TERMINATION OF THE PLAN
9.1 AMENDMENTS. The Board may from time to time alter, amend, suspend or
terminate the Plan in such respects as the Board may deem advisable. No such
alteration, amendment, suspension or termination shall be made which shall
substantially affect or impair the rights of any Participant under an
outstanding Option Agreement or Stock Purchase Agreement without such
Participant's consent. The Board may alter or amend the Plan to comply with
requirements under the Code relating to Incentive Options or other types of
options which give Optionee more favorable tax treatment than that applicable to
Options granted under this Plan as of the date of its adoption. Upon any such
alteration or amendment, any outstanding Option granted hereunder may, if the
Administrator so determines and if permitted by applicable law, be subject to
the more favorable tax treatment afforded to an Optionee pursuant to such terms
and conditions.
9.2 PLAN TERMINATION. Unless the Plan shall theretofore have been
terminated, the Plan shall terminate on the tenth (10th) anniversary of the
Effective Date and no Options or Rights to Purchase may be granted under the
Plan thereafter, but Option Agreements, Stock Purchase Agreements and Rights to
Purchase then outstanding shall continue in effect in accordance with their
respective terms.
ARTICLE 10.
TAX WITHHOLDING
10.1 WITHHOLDING. The Company shall have the power to withhold, or
require a Participant to remit to the Company, an amount sufficient to satisfy
any applicable Federal, state, and local tax withholding requirements with
respect to any Options exercised or Restricted Stock
9
<PAGE>
issued under the Plan. To the extent permissible under applicable tax,
securities and other laws, the Administrator may, in its sole discretion and
upon such terms and conditions as it may deem appropriate, permit a Participant
to satisfy his or her obligation to pay any such tax, in whole or in part, up to
an amount determined on the basis of the highest marginal tax rate applicable to
such Participant, by (a) directing the Company to apply shares of Common Stock
to which the Participant is entitled as a result of the exercise of an Option or
as a result of the purchase of or lapse of restrictions on Restricted Stock or
(b) delivering to the Company shares of Common Stock owned by the Participant.
The shares of Common Stock so applied or delivered in satisfaction of the
Participant's tax withholding obligation shall be valued at their Fair Market
Value as of the date of measurement of the amount of income subject to
withholding.
ARTICLE 11.
MISCELLANEOUS
11.1 BENEFITS NOT ALIENABLE. Other than as provided above, benefits under
the Plan may not be assigned or alienated, whether voluntarily or involuntarily.
Any unauthorized attempt at assignment, transfer, pledge or other disposition
shall be without effect.
11.2 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Participant to be consideration for, or an
inducement to, or a condition of, the employment of any Participant. Nothing
contained in the Plan shall be deemed to give the right to any Participant to be
retained as an employee of the Company or any Affiliated Company or to interfere
with the right of the Company or any Affiliated Company to discharge any
Participant at any time.
11.3 APPLICATION OF FUNDS. The proceeds received by the Company from the
sale of Common Stock pursuant to Option Agreements and Stock Purchase
Agreements, except as otherwise provided herein, will be used for general
corporate purposes.
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EXHIBIT 10.5
POWERWAVE TECHNOLOGIES, INC.
STOCK OPTION AGREEMENT
TYPE OF OPTION (CHECK ONE): [ ] INCENTIVE [ ] NONQUALIFIED
This Stock Option Agreement (the "Agreement") is entered into as of
____________, 199_, by and between Powerwave Technologies, Inc., a Delaware
corporation (the "Company") and ___________________ (the "Optionee") pursuant to
the Company's 1996 Stock Incentive Plan (the "Plan").
1. GRANT OF OPTION. The Company hereby grants to Optionee an option (the
"Option") to purchase all or any portion of a total of ___________________
(______) shares (the "Shares") of the Common Stock of the Company at a purchase
price of $_______ per share (the "Exercise Price"), subject to the terms and
conditions set forth herein and the provisions of the Plan. If the box marked
"Incentive" above is checked, then this Option is intended to qualify as an
"incentive stock option" as defined in Section 422 of the Internal Revenue Code
of 1986, as amended (the "Code"). If this Option fails in whole or in part to
qualify as an incentive stock option, or if the box marked "Nonqualified" is
checked, then this Option shall to that extent constitute a nonqualified stock
option.
2. VESTING OF OPTION. The right to exercise this Option shall vest in
installments, and this Option shall be exercisable from time to time in whole or
in part as to any vested installment. The Optionee's right to exercise this
Option shall vest in ________ Shares on the first anniversary hereof, and
thereafter at the rate of________ Shares per month commencing on ___________,
199__, and, subject to the terms of this Agreement, continuing each month
thereafter and shall be fully vested as of _________________, 199__ when ______
Shares shall so vest.
No additional shares shall vest after the date of termination of Optionee's
"Continuous Service" (as defined in Section 3 below), but this Option shall
continue to be exercisable in accordance with Section 3 hereof with respect to
that number of shares that have vested as of the date of termination of
Optionee's Continuous Service. Notwithstanding the foregoing, immediately prior
to the consummation of a Change in Control (as defined in Section 10 below), the
vesting of this Option shall accelerate as if Optionee had held such Option for
a period two years longer than actually held.
3. TERM OF OPTION. Optionee's right to exercise this Option shall
terminate upon the first to occur of the following:
(a) the expiration of ten (10) years from the date of this Agreement;
(b) the expiration of three (3) months from the date of termination of
Optionee's Continuous Service if such termination occurs for any reason other
than permanent disability or death; provided, however, that if Optionee dies
during such three-month period the provisions of Section 3(d) below shall apply;
<PAGE>
(c) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to permanent disability
of the Optionee (as defined in Section 22(e)(3) of the Code);
(d) the expiration of one (1) year from the date of termination of
Optionee's Continuous Service if such termination is due to Optionee's death or
if death occurs during either the three-month or one-month period following
termination of Optionee's Continuous Service pursuant to Section 3(b) or 3(c)
above, as the case may be; or
(e) a Change in Control of the Company if such options are terminated
pursuant to Section 10.
As used herein, the term "Continuous Service" means (i) employment by
either the Company or any parent or subsidiary corporation of the Company, or by
a corporation or a parent or subsidiary of a corporation issuing or assuming a
stock option in a transaction to which Section 424(a) of the Code applies, which
is uninterrupted except for vacations, illness (except for permanent disability,
as defined in Section 22(e)(3) of the Code) or leaves of absence which are
approved in writing by the Company or any of such other employer corporations,
if applicable, (ii) service as a member of the Board of Directors of the
Company, or (iii) so long as Optionee is engaged as a consultant or service
provider to the Company or other corporation referred to in clause (i) above.
4. EXERCISE OF OPTION. On or after the vesting of any portion of this
Option in accordance with Section 2 above, and until termination of this Option
in accordance with Section 3 above, the portion of this Option which has vested
may be exercised in whole or in part by the Optionee (or, after Optionee's
death, by the successor designated in Section 5 below) upon delivery of the
following to the Company at its principal executive offices:
(a) a written notice of exercise which identifies this Agreement and
states the number of Shares then being purchased (but no fractional Shares may
be purchased);
(b) a check or cash in the amount of the Exercise Price (or payment of
the Exercise Price in such other form of lawful consideration as the
Administrator may approve from time to time under the provisions of Section 5.3
of the Plan);
(c) a check or cash in the amount reasonably requested by the Company
to satisfy the Company's withholding obligations under federal, state or other
applicable tax laws with respect to the taxable income, if any, recognized by
the Optionee in connection with the exercise of this Option (unless the Company
and Optionee shall have made other arrangements for deductions or withholding
from Optionee's wages, bonus or other compensation payable to Optionee, or by
the withholding of Shares issuable upon exercise of this Option or the delivery
of Shares owned by the Optionee in accordance with Section 10.1 of the Plan,
provided such arrangements satisfy the requirements of applicable tax laws); and
(d) a letter, if requested by the Company, in such form and substance
as the Company may require, setting forth the investment intent of the Optionee,
or person designated in Section 5 below, as the case may be.
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<PAGE>
5. DEATH OF OPTIONEE; NO ASSIGNMENT. The rights of the Optionee under
this Agreement may not be assigned or transferred except by will or by the laws
of descent and distribution, and may be exercised during the lifetime of the
Optionee only by such Optionee. Any attempt to sell, pledge, assign,
hypothecate, transfer or dispose of this Option in contravention of this
Agreement or the Plan shall be void and shall have no effect. If the Optionee's
Continuous Service terminates as a result of Optionee's death, and provided
Optionee's rights hereunder shall have vested pursuant to Section 2 hereof,
Optionee's legal representative, Optionee's legatee, or the person who acquired
the right to exercise this Option by reason of the death of the Optionee
(individually, a "Successor") shall succeed to the Optionee's rights and
obligations under this Agreement. After the death of the Optionee, only a
Successor may exercise this Option.
6. REPRESENTATIONS AND WARRANTIES OF OPTIONEE.
(a) Optionee represents and warrants that this Option is being
acquired by Optionee for Optionee's personal account, for investment purposes
only, and not with a view to the distribution, resale or other disposition
thereof.
(b) Optionee acknowledges that the Company may issue Shares upon the
exercise of the Option without registering such Shares under the Securities Act
of l933, as amended (the "Act"), on the basis of certain exemptions from such
registration requirement. Accordingly, Optionee agrees that Optionee's exercise
of the Option may be expressly conditioned upon Optionee's delivery to the
Company of an investment certificate including such representations and
undertakings as the Company may reasonably require in order to assure the
availability of such exemptions, including a representation that Optionee is
acquiring the Shares for investment and not with a present intention of selling
or otherwise disposing thereof and an agreement by Optionee that the
certificates evidencing the Shares may bear a legend indicating such non-
registration under the Act and the resulting restrictions on transfer. Optionee
acknowledges that, because Shares received upon exercise of an Option may be
unregistered, Optionee may be required to hold the Shares indefinitely unless
they are subsequently registered for resale under the Act or an exemption from
such registration is available.
(c) Optionee acknowledges receipt of a copy of the Plan and
understands that all rights and obligations connected with this Option are set
forth in this Agreement and in the Plan.
7. RESTRICTIVE LEGENDS. Optionee hereby acknowledges that federal
securities laws and the securities laws of the state in which Optionee resides
may require the placement of certain restrictive legends upon the Shares issued
upon exercise of this Option, and Optionee hereby consents to the placing of any
such legends upon certificates evidencing the Shares as the Company, or its
counsel, may deem necessary or advisable.
8. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. The Company agrees
to use its reasonable best efforts to obtain from any applicable regulatory
agency such authority or approval as may be required in order to issue and sell
the Shares to the Optionee pursuant to this Option. Inability of the Company to
obtain, from any such regulatory agency, authority or approval deemed by the
Company's counsel to be necessary for the lawful issuance and sale of the Shares
hereunder and under the Plan shall relieve the Company of any liability in
respect of the nonissuance or sale of such Shares as to which such requisite
authority or approval shall not have been obtained.
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<PAGE>
9. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the
outstanding Shares of Common Stock of the Company are hereafter increased or
decreased or changed into or exchanged for a different number or kind of shares
or other securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend or other change in the
capital structure of the Company, then appropriate adjustment shall be made by
the Administrator to the number of Shares subject to the unexercised portion of
this Option and to the Exercise Price per share, in order to preserve, as nearly
as practical, but not to increase, the benefits of the Optionee under this
Option, in accordance with the provisions of Section 4.2 of the Plan.
10. CHANGE IN CONTROL.
(a) In the event of a Change in Control (as defined below) of the
Company, if the Change in Control is not approved by a majority of the
Continuing Directors (as defined below), the Administrator shall cause written
notice of the proposed transaction to be given to Optionee not less than fifteen
(15) days prior to the anticipated effective date of the proposed transaction
and, concurrent with the effective date of the proposed transaction, this Option
shall be accelerated and concurrent with such date Optionee shall have the right
to exercise this Option in respect to any or all shares subject thereto. The
Administrator in its discretion may, at any time, (regardless of the
acceleration or non-acceleration of this Option), take one or more of the
following actions: (A) provide for the purchase of this Option for an amount of
cash or other property that could have been received upon the exercise of this
Option, (B) adjust the terms of this Option in a manner determined by the
Administrator to reflect the Change in Control, (C) cause this Option to be
continued or assumed, or new rights substituted therefor, by the surviving or
another entity, or (D) make such other provision as the Administrator may
consider equitable. In the event of a Change in Control in which this Option is
not continued, assumed or substituted therefor by the surviving or another
entity, regardless of whether such Change in Control is approved by a majority
of the Continuing Directors, this Option shall be accelerated and fully
exercisable upon the effective date of the Change in Control and the
Administrator shall cause written notice of the proposed transaction to be given
to Optionee not less than fifteen (15) days prior to the anticipated effective
date of the proposed transaction.
(b) "Change in Control" shall mean (i) the acquisition, directly or
indirectly, by any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) of the beneficial ownership of
more than fifty percent (50%) of the outstanding securities of the Company; (ii)
a merger or consolidation in which the Company is not the surviving entity,
except for a transaction the principal purpose of which is to change the state
in which the Company is incorporated; (iii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company; (iv) a
complete liquidation or dissolution of the Company; or (v) any reverse merger in
which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
merger.
(c) "Continuing Director" shall mean any member of the Board of
Directors of the Company who was a member of the Board prior to the effective
date of the Plan, and any person who is subsequently elected to the Board if
such person is recommended or approved by a majority of the Continuing
Directors.
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11. NO EMPLOYMENT CONTRACT CREATED. Neither the granting of this Option
nor the exercise hereof shall be construed as granting to the Optionee any right
with respect to continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will the Optionee's employment at any time (whether by dismissal, discharge
or otherwise), with or without cause, is specifically reserved, subject to any
other written employment agreement to which the Company and Optionee may be a
party.
12. RIGHTS AS SHAREHOLDER. The Optionee (or transferee of this option by
will or by the laws of descent and distribution) shall have no rights as a
shareholder with respect to any Shares covered by this Option until the date of
the issuance of a stock certificate or certificates to him or her for such
Shares, notwithstanding the exercise of this Option.
13. "MARKET STAND-OFF" AGREEMENT. Optionee agrees that, if requested by
the Company or the managing underwriter of any proposed public offering of the
Company's securities, Optionee will not sell or otherwise transfer or dispose of
any Shares held by Optionee without the prior written consent of the Company or
such underwriter, as the case may be, during such period of time, not to exceed
180 days following the effective date of the registration statement filed by the
Company with respect to such offering, as the Company or the underwriter may
specify.
14. INTERPRETATION. This Option is granted pursuant to the terms of the
Plan, and shall in all respects be interpreted in accordance therewith. The
Administrator shall interpret and construe this Option and the Plan, and any
action, decision, interpretation or determination made in good faith by the
Administrator shall be final and binding on the Company and the Optionee. As
used in this Agreement, the term "Administrator" shall refer to the committee of
the Board of Directors of the Company appointed to administer the Plan, and if
no such committee has been appointed, the term Administrator shall mean the
Board of Directors.
15. NOTICES. Any notice, demand or request required or permitted to be
given under this Agreement shall be in writing and shall be deemed given when
delivered personally or three (3) days after being deposited in the United
States mail, as certified or registered mail, with postage prepaid, and
addressed, if to the Company, at its principal place of business, Attention:
the Chief Financial Officer, and if to the Optionee, at Optionee's most recent
address as shown in the employment or stock records of the Company.
16. ANNUAL AND OTHER PERIODIC REPORTS. During the term of this Agreement,
the Company will furnish to the Optionee copies of all annual and other periodic
financial and informational reports that the Company distributes generally to
its shareholders.
17. SEVERABILITY. Should any provision or portion of this Agreement be
held to be unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
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<PAGE>
18. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original and all of which
together shall be deemed one instrument.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
"POWERWAVE TECHNOLOGIES, INC." "OPTIONEE"
By:_________________________________ ___________________________________
Its:________________________________ (Signature)
___________________________________
(Printed Name)
6
<PAGE>
EXHIBIT 10.6
POWERWAVE TECHNOLOGIES, INC.
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT (the "Agreement") is entered into
as of this ______ day of __________ , 19___, between ______________________
(hereinafter referred to as "Purchaser"), and POWERWAVE TECHNOLOGIES, INC., a
Delaware corporation (hereinafter referred to as the "Company"), pursuant to the
Company's 1996 Incentive Plan (the "Plan").
R E C I T A L S :
- - - - - - - -
A. Purchaser is an employee, director, consultant or other person who
provides services to the Company or a parent or subsidiary of the Company, as
those terms are defined in Sections 424(e) and 424(f) of the Internal Revenue
Code of 1986, as amended (a "Service Provider"), and in connection therewith has
rendered services for and on behalf of the Company.
B. The Company desires to issue shares of common stock to Purchaser
for the consideration set forth herein to provide an incentive for Purchaser to
remain a Service Provider of the Company and to exert added effort towards its
growth and success.
NOW, THEREFORE, in consideration of the mutual covenants hereinafter set
forth, and for other good and valuable consideration, the parties agree as
follows:
1. ISSUANCE OF SHARES. The Company hereby offers to issue to Purchaser
------------------
an aggregate of _____________ (_____ ) shares of the Common Stock, without par
value, of the Company (the "Shares") on the terms and conditions herein set
forth. Unless this offer is earlier revoked in writing by the Company, Purchaser
shall have ten (10) days from the date of the delivery of this Agreement to
Purchaser to accept the offer of the Company by executing and delivering to the
Company two copies of this Agreement, without condition or reservation of any
kind whatsoever, together with the consideration to be delivered by Purchaser
pursuant to Section 2 below.
2. CONSIDERATION. The purchase price for the Shares shall be $_____
-------------
per share, or $________ in the aggregate, which shall be paid by the delivery of
Purchaser's check payable to the Company.
3. VESTING OF SHARES. The Shares acquired hereunder shall vest and
-----------------
become "Vested Shares" as follows:
<PAGE>
<TABLE>
<CAPTION>
On or After: The Shares Shall Be Vested As To:
----------- --------------------------------
<S> <C>
(i) the first anniversary of this Agreement: ___% of the Shares
(ii) the second anniversary of this Agreement: an additional ___% of the Shares
(iii) the third anniversary of this Agreement: an additional ___% of the Shares
(iv) the fourth anniversary of this Agreement: an additional ___% of the Shares
</TABLE>
Shares which have not yet become vested are herein called "Unvested Shares." No
additional shares shall vest after the date of termination of Purchaser's
"Continuous Service" (as defined below). Notwithstanding the foregoing, the
Shares shall become immediately and fully vested immediately prior to the
consummation of a Change in Control that is not approved by a majority of the
Continuing Directors. As used herein, the term "Continuous Service" means (i)
employment by either the Company or any parent or subsidiary corporation of the
Company, which is uninterrupted except for vacations, illness (except for
permanent disability, as defined in Section 22(e)(3) of the Code) or leaves of
absence which are approved in writing by the Company or any of such other
employer corporations, if applicable, (ii) service as a member of the Board of
Directors of the Company, or (iii) so long as Purchaser is engaged as a
consultant or service provider to the Company.
4. RECONVEYANCE UPON TERMINATION OF SERVICE.
----------------------------------------
(a) RECONVEYANCE OPTION. If at any time prior to five (5) years from
-------------------
the date of issuance of the Shares (the "Grant Date"), Purchaser should cease to
be a Service Provider of the Company or a parent or its subsidiaries, for any
reason (hereinafter referred to as the "Termination Date"), the Company shall
have the option to acquire (hereinafter referred to as the "Reconveyance
Option") from Purchaser all or part of the unvested Shares.
(b) CONSIDERATION FOR RECONVEYANCE OPTION. The Company shall pay
-------------------------------------
Purchaser as consideration for the unvested Shares to be acquired upon exercise
of the Reconveyance Option the original purchase price paid by Purchaser.
(c) PROCEDURE FOR EXERCISE OF RECONVEYANCE OPTION. The Company shall
---------------------------------------------
have the right to exercise the Reconveyance Option by acquiring all or any part
of the Shares subject to the Reconveyance Option by delivery to Purchaser and/or
any other person obligated to transfer the Shares written notice of election to
purchase the Shares or any portion thereof within sixty (60) days following the
Termination Date. Such written notice shall indicate the number of Shares to be
purchased by the Company. In the event that the Company does not elect to
exercise the Reconveyance Option as to all or part of the Shares under the
provisions of this Section 4 by written notice to Purchaser within the period
specified above, the Reconveyance Option shall expire as to all Shares which the
Company has not elected to acquire.
(d) NOTIFICATION AND SETTLEMENT. In the event that the Company has
---------------------------
elected to exercise the Reconveyance Option as to part or all of the Shares
within the period described above, Purchaser or such other person shall deliver
to the Company certificate(s) representing the Shares to be acquired by the
Company within thirty (30) days following the date of the notice from the
Company. The Company shall deliver to Purchaser against delivery of the Shares,
checks of the Company payable to Purchaser and/or any other person obligated to
transfer the
2
<PAGE>
Shares in the aggregate amount of the purchase price to be paid as set forth in
paragraph (b) above.
(e) DEPOSIT OF UNVESTED SHARES. Purchaser shall deposit with the
--------------------------
Company certificates representing the unvested Shares, together with a duly
executed stock assignment separate from certificate in blank, which shall be
held by the Secretary of the Company. Purchaser shall be entitled to vote and
to receive dividends and distributions on all such deposited Shares.
(f) TERMINATION. The provisions of this Section 4 shall automatically
-----------
terminate and the Shares shall not be subject to the Reconveyance Option upon
the consummation of a Change in Control that is not approved by a majority of
the Continuing Directors. In the event of a Change in Control not so approved,
the provisions of this Section 4 shall likewise terminate upon the consummation
of such transaction unless provision is made in writing in connection with such
transaction for the continuance or assumption of this Agreement or the
substitution for this Agreement of a new agreement of comparable value covering
shares of a successor corporation, with appropriate adjustments as to the number
and kind of shares and the purchase price, in which event this Agreement or the
new agreement substituted therefor shall continue in the manner and under the
terms so provided. If such provision is not made in such transaction, then the
Administrator shall cause written notice of the proposed transaction to be given
to Purchaser not less than fifteen (15) days prior to the anticipated effective
date of the proposed transaction, and the Shares, if not already fully vested,
shall concurrent with and conditioned upon the effective date of the proposed
transaction, be accelerated and become fully vested at such time.
5. RIGHT OF FIRST REFUSAL.
----------------------
(a) The Shares acquired pursuant to this Agreement which are subject
to the Reconveyance Option may be sold by the Purchaser only in compliance with
the provisions of this Section 5, and subject in all cases to compliance with
the provisions of Section 6 hereof. Prior to any intended sale, Purchaser shall
first give written notice (the "Offer Notice") to the Company specifying (i) his
or her bona fide intention to sell or otherwise transfer such Shares, (ii) the
name and address of the proposed purchaser(s), (iii) the number of Shares the
Purchaser proposes to sell (the "Offered Shares"), (iv) the price for which he
or she proposes to sell the Offered Shares, and (v) all other material terms and
conditions of the proposed sale.
(b) Within 30 days after receipt of the Offer Notice, the Company or
its nominee(s) may elect to purchase all or any portion of the Offered Shares at
the price and on the terms and conditions set forth in the Offer Notice by
delivery of written notice (the "Acceptance Notice") to the Purchaser specifying
the number of Offered Shares that the Company or its nominee(s) elect to
purchase. Within 15 days after delivery of the Acceptance Notice to the
Purchaser, the Company and/or its nominee(s) shall deliver to the Purchaser a
check in the amount of the purchase price of the Offered Shares to be purchased
pursuant to this Section 5, against delivery by the Purchaser of a certificate
or certificates representing the Offered Shares to be purchased, duly endorsed
for transfer to the Company or such nominee(s), as the case may be. However,
(i) should the purchase price specified in the Offered Notice be payable in
property other than cash or evidences of indebtedness, the Company or its
nominee(s) shall have
3
<PAGE>
the right to pay the purchase price in the form of cash equal in amount to the
value of such property, and (ii) if there is no purchase price for the intended
disposition, the Company or its nominee(s) shall have the right to purchase any
or all of the Offered Shares for a purchase price in the form of cash equal in
amount to the value of such Offered Shares. If the Purchaser and the Company or
its nominee(s) cannot agree on such cash value within ten (10) days after the
Company's receipt of the Offer Notice, the valuation shall be made by an
appraiser of recognized standing selected by the Purchaser and the Company or
its nominee(s) or, if they cannot agree on an appraiser within ten (10) days
after the Company's receipt of such notice, each shall select an appraiser of
recognized standing and the two appraisers shall designate a third appraiser of
recognized standing, whose appraisal shall be determinative of such value.
(c) If the Company and/or its nominee(s) do not elect to purchase all
of the Offered Shares, the Purchaser shall be entitled to sell the balance of
the Offered Shares to the purchaser(s) named in the Offer Notice at the price
specified in the Offer Notice or at a higher price and on the terms and
conditions set forth in the Offer Notice; provided, however, that any such sale
or disposition must not be effected in contravention of the representations made
by the Purchaser in Section 6 of this Agreement. Such sale or other transfer
must be consummated within 60 days from the date of the Offer Notice and any
proposed sale after such 60-day period may be made only by again complying with
the procedures set forth in this Section 5.
(d) The Purchaser may transfer all or any portion of the Shares to a
trust established for the sole benefit of the Purchaser and/or his or her spouse
or children without such transfer being subject to the right of first refusal
set forth in this Section 5, provided that the Shares so transferred shall
remain subject to the terms and conditions of this Agreement and no further
transfer of such Shares may be made without complying with the provisions of
this Section 5.
(e) Any transferee of the Shares pursuant to this Section 5, shall
hold the Shares subject to the terms and conditions of this Agreement and no
further transfer of the Shares may be made without complying with the provisions
of this Section 5.
(f) Until such time as the Company's right of first refusal lapses and
ceases to have effect pursuant to the provisions of Section 5(e), the stock
certificates for the Shares purchased pursuant to this Agreement shall be
endorsed with the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE MAY NOT BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR ENCUMBERED, EXCEPT IN CONFORMITY WITH THE TERMS OF
A RESTRICTED STOCK PURCHASE AGREEMENT BETWEEN THE COMPANY AND THE
REGISTERED HOLDER OF THE SHARES (OR HIS PREDECESSOR IN INTEREST). SUCH
AGREEMENT GRANTS CERTAIN RIGHTS OF FIRST REFUSAL TO THE COMPANY (OR ITS
NOMINEE(S)) UPON THE SALE, ASSIGNMENT, TRANSFER, PLEDGE OR ENCUMBRANCE OF
THE SHARES. A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF
THE COMPANY.
6. ADJUSTMENTS UPON CHANGES IN CAPITAL STRUCTURE. In the event that the
---------------------------------------------
outstanding Shares of Common Stock of the Company are hereafter increased or
decreased or
4
<PAGE>
changed into or exchanged for a different number or kind of shares or other
securities of the Company by reason of a recapitalization, stock split,
combination of shares, reclassification, stock dividend, or other change in the
capital structure of the Company, then Purchaser shall be entitled to new or
additional or different shares of stock or securities, in order to preserve, as
nearly as practical, but not to increase, the benefits of Purchaser under this
Agreement, in accordance with the provisions of Section 4.2 of the Plan. Such
new, additional or different shares shall be deemed "Shares" for purposes of
this Agreement and subject to all of the terms and conditions hereof.
7. SHARES FREE AND CLEAR. All Shares purchased by the Company pursuant
---------------------
to this Agreement shall be delivered by Purchaser free and clear of all claims,
liens and encumbrances of every nature (except the provisions of this Agreement
and any conditions concerning the Shares relating to compliance with applicable
federal or state securities laws), and the purchaser thereof shall acquire full
and complete title and right to all of the shares, free and clear of any claims,
liens and encumbrances of every nature (again except for the provisions of this
Agreement and such securities laws).
8. LIMITATION OF COMPANY'S LIABILITY FOR NONISSUANCE. The Company agrees
-------------------------------------------------
to use its reasonable best efforts to obtain from any applicable regulatory
agency such authority or approval as may be required in order to issue and sell
the Shares to Purchaser pursuant to this Agreement. Inability of the Company to
obtain, from any such regulatory agency, authority or approval deemed by the
Company's counsel to be necessary for the lawful issuance and sale of the Shares
hereunder and under the Plan shall relieve the Company of any liability in
respect of the nonissuance or sale of such Shares as to which such requisite
authority or approval shall not have been obtained.
9. NOTICES. All notices, requests, consents and other communications
-------
hereunder shall be in writing and shall be deemed to have been duly given when
personally delivered or three (3) days after being mailed, by United States
certified or registered mail, prepaid, to the parties or their assignees at the
addresses set forth opposite their signatures below (or such other address as
shall be given in writing by either party to the other).
10. BINDING OBLIGATIONS. All covenants and agreements herein contained by
-------------------
or on behalf of any of the parties hereto shall bind and inure to the benefit of
the parties hereto and their permitted successors and assigns.
11. CAPTIONS AND SECTION HEADINGS. Captions and section headings used
-----------------------------
herein are for convenience only, and are not part of this Agreement and shall
not be used in construing it.
12. AMENDMENT. This Agreement may not be amended, waived, discharged, or
---------
terminated other than by written agreement of the parties.
13. ENTIRE AGREEMENT. This Agreement and the Plan constitute the entire
----------------
agreement between the parties with respect to the subject matter hereof and
supersede all prior or contemporaneous written or oral agreements and
understandings of the parties, either express or implied.
5
<PAGE>
14. ASSIGNMENT. No party hereto shall have the right, without the prior
----------
written consent of the other party, to sell, assign, mortgage, pledge or
otherwise transfer any interest or right created hereby. This Agreement is made
solely for the benefit of the parties hereto, and no other person, partnership,
association or corporation shall acquire or have any right under or by virtue of
this Agreement.
15. SEVERABILITY. Should any provision or portion of this Agreement be
------------
held to be unenforceable or invalid for any reason, the remaining provisions and
portions of this Agreement shall be unaffected by such holding.
16. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, all of which taken together shall constitute one agreement and any
party hereto may execute this Agreement by signing any such counterpart. This
Agreement shall be binding upon Purchaser and the Company at such time as the
Agreement, in counterpart or otherwise, is executed by Purchaser and the
Company.
17. APPLICABLE LAW. This Agreement shall be construed under, and enforced
--------------
in accordance with and governed by the laws of the State of California.
18. NO AGREEMENT TO EMPLOY. Nothing in this Agreement shall affect any
----------------------
right with respect to continuance of employment by the Company or any of its
subsidiaries. The right of the Company or any of its subsidiaries to terminate
at will the Purchaser's employment at any time (whether by dismissal, discharge
or otherwise), with or without cause, is specifically reserved, subject to any
other written employment agreement to which the Company and Purchaser may be a
party.
19. MARKET STANDOFF AGREEMENT. Optionee agrees in connection with any
-------------------------
registration of the Company's securities that, upon the request of the Company
or the underwriters managing any public offering of the Company's securities,
Optionee will not sell or otherwise dispose of any Purchased Shares without the
prior written consent of the Company or such underwriters, as the case may be,
for a period of time (not to exceed 180 days) from the effective date of such
registration as the Company or the underwriters may specify.
20. TAX ELECTIONS. Purchaser acknowledges that Purchaser has considered
-------------
the advisability of all tax elections in connection with the purchase of the
Shares hereunder, including the making of an election under Section 83(b) under
the Internal Revenue Code of 1986, as amended, and that the Company has no
responsibility for the making of any such election.
21. ATTORNEYS' FEES. If any party shall bring an action in law or equity
---------------
against another to enforce or interpret any of the terms, covenants and
provisions of this Agreement, the prevailing party in such action shall be
entitled to recover reasonable attorneys' fees and costs.
6
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
THE COMPANY:
POWERWAVE TECHNOLOGIES, INC.
By:
-----------------------------
Name:
---------------------------
Title:
--------------------------
PURCHASER:
---------------------------------
---------------------------------
(print name)
7
<PAGE>
CONSENT AND RATIFICATION OF SPOUSE
The undersigned, the spouse of _____________________, a party to the
attached Restricted Stock Purchase Agreement (the "Agreement"), dated as of
_______________, hereby consents to the execution of said Agreement by such
party; and ratifies, approves, confirms and adopts said Agreement, and agrees to
be bound by each and every term and condition thereof as if the undersigned had
been a signatory to said Agreement, with respect to the Shares (as defined in
the Agreement) made the subject of said Agreement in which the undersigned has
an interest, including any community property interest therein.
I also acknowledge that I have been advised to obtain independent counsel
to represent my interests with respect to this Agreement but that I have
declined to do so and I hereby expressly waive my right to such independent
counsel.
Date: _______________________ ______________________________
______________________________
(Print Name)
8
<PAGE>
EXHIBIT 10.7
POWERWAVE TECHNOLOGIES
1996 DIRECTOR STOCK OPTION PLAN
1. PURCHASE OF THE PLAN. The purpose of this 1996 Director Stock Option
--------------------
Plan is to attract and retain the best available personnel to serve as Outside
Directors of the Company.
All options granted hereunder shall be "non-statutory stock options."
2. DEFINITIONS. As used herein, the following definitions shall apply:
-----------
(a) "BOARD" means the Board of Directors of the Company.
-----
(b) "CHANGE IN CONTROL" means (i) the acquisition, directly or
indirectly, by any person or group (within the meaning of Section 13(d)(3) of
the Securities Exchange Act of 1934, as amended) of the beneficial ownership of
more than fifty percent (50%) of the outstanding securities of the Company; (ii)
a merger or consolidation in which the Company is not the surviving entity,
except for a transaction the principal purpose of which is to change the state
in which the Company is incorporated; (iii) the sale, transfer or other
disposition of all or substantially all of the assets of the Company; (iv) a
complete liquidation or dissolution of the Company; or (v) any reverse merger in
which the Company is the surviving entity but in which securities possessing
more than fifty percent (50%) of the total combined voting power of the
Company's outstanding securities are transferred to a person or persons
different from the persons holding those securities immediately prior to such
merger.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
----
(d) "COMMON STOCK" means the Common Stock of the Company.
------------
(e) "COMPANY" means Powerwave Technologies, Inc., a Delaware
-------
corporation.
(f) "CONTINUING DIRECTOR" means any member of the Board of Directors
of the Company who was a member of the Board prior to the effective date of the
Plan, recommended or approved by a majority of the
(g) "CONTINUOUS STATUS AS A DIRECTOR" means the absence of any
-------------------------------
interruption of termination of service as a Director.
(g) "DIRECTOR" means a member of the Board.
--------
(h) "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 shall not be sufficient in and of itself to
constitute "employment" by the Company.
(i) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
<PAGE>
(j) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "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, the Fair Market Value of a Share of Common Stock
shall be the closing sales price for such stock (or the closing bid, if no sales
were reported) as quoted on such system or exchange (or the exchange with the
greatest volume of trading in Common Stock) on the last market trading day prior
to the day of determination, as reported in the Wall Street Journal or such
other source as the Board 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, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; 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
Board.
(l) "OPTION" means a stock option granted pursuant to the Plan.
------
(m) "OPTIONED STOCK" means the Common Stock subject to an Option.
--------------
(n) "OPTIONEE" means an Outside Director who receives an Option.
--------
(o) "OUTSIDE DIRECTOR" means a Director who is not an Employee.
----------------
(p) "PARENT" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(q) "PLAN" means this 1996 Director Stock Option Plan.
----
(r) "SHARE" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(s) "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 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 200,000 Shares (the "Pool") of Common Stock. The Shares may be
authorized but unissued, or reacquired Common Stock.
2
<PAGE>
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 AND GRANTS OF OPTIONS UNDER THE PLAN.
------------------------------------------------------
(a) ADMINISTRATOR. Except as otherwise required herein, the Plan
-------------
shall be administered by the Board.
(b) PROCEDURE FOR GRANTS. The provisions set forth in this Section
--------------------
4(b) shall not be amended more than once every six months, other than to comply
with changes in the Code, the Employee Retirement Income Security Act of 1974,
as amended, or the rules thereunder. All grants of Options hereunder shall be
automatic and non-discretionary and shall be made strictly in accordance with
the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options granted to Outside Directors.
(ii) On the effective date of the Company's initial registration
statement under the Securities Act of 1933 (the "Offering Date"), and on each
anniversary date thereof during the term of this Plan, each Outside Director who
shall have been an Outside Director for at least six (6) months as of such date
shall automatically receive an Option to purchase 5,000 Shares (an "Annual
Grant"). In addition, each new Outside Director who shall first join the Board
on or after the Offering Date shall automatically be granted an Option to
purchase 30,000 Shares upon the date on which such person first becomes an
Outside Director, whether through election by the shareholders of the Company,
appointment by the Board to fill a vacancy, or termination of employment by the
Company while remaining as a Director (a "One-Time Grant").
(iii) The terms of each Option granted hereunder shall be as
follows:
(A) the term of the Option shall have five (5) years;
(B) the Option shall be exercisable only while the Outside
Director remains a Director of the Company, except as set forth in Section 8
hereof;
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Option;
(D) each One-Time Grant shall become exercisable in
installments cumulatively as to 25% of the Optioned Stock on each anniversary of
the date of grant, so that 100% of the Optioned Stock granted under any One-Time
Grant shall be exercisable four years after the date of grant of the Option,
assuming Continuous Status as a Director; and
3
<PAGE>
(E) each Annual Grant shall become exercisable in its
entirety on the fourth anniversary of the date of grant of the Option, assuming
Continuous Status as a Director.
(iv) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased upon exercise of Options to exceed the Pool, then
each such automatic grant shall be for that number of Shares determined by
dividing the total number of Shares remaining available for grant by the number
of Outside Directors entitled to receive Options on the grant date. No further
grants shall be made until such time, if any, as additional Shares become
available for grant under the Plan through action of the shareholders to
increase the number of Shares which may be issued under the Plan or through
cancellation or expiration of Options previously granted hereunder.
(c) POWERS OF THE BOARD. Subject to the provisions and restrictions
-------------------
of the Plan, the Board shall have the authority, in its discretion: (i) to
determine, upon review of relevant information and in accordance with Section
2(i) of the Plan, the Fair Market Value of the Common Stock; (ii) to interpret
the Plan; (iii) to prescribe, amend and rescind rules and regulations relating
to the Plan; (iv) to authorize any person to execute on behalf of the Company
any instrument required to effectuate the grant of an Option previously granted
hereunder; and (v) to make all other determinations deemed necessary or
advisable for the administration of the Plan.
(d) EFFECT OF BOARD'S DECISION. All decisions, determinations and
--------------------------
interpretations of the Board shall be final.
5. ELIGIBILITY. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4(b) hereof. An Outside Director who has been granted an Option may, if
he or she is otherwise eligible, be granted an additional Option or Options in
accordance with such provisions.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate his or her directorship at any time.
6. TERM OF PLAN. The Plan shall become effective upon the Offering Date
------------
and shall continue in effect until the tenth anniversary of the Offering Date,
unless sooner terminated under Section 12 of the Plan.
7. CONSIDERATION. 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 Board and may consist entirely of (i) cash; (ii) check; (iii)
promissory note; (iv) other shares which 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 and which, in the case of Shares acquired upon
exercise of an option, have been owned by the Optionee for more than 12 months
on the date of surrender; (v) delivery of a properly executed exercise notice
together with irrevocable
4
<PAGE>
instructions to a broker to promptly deliver to the Company the amount of sale
or loan proceeds required to pay the exercise price; (vi) delivery of an
irrevocable subscription agreement for the Shares which irrevocably obligates
the Optionee to take and pay for the Shares not more than 12 months after the
date of delivery of the subscription agreement; (vii) any combination of the
foregoing methods of payment; or (viii) such other consideration and method of
payment for the issuance of Shares to the extent permitted under applicable law.
8. EXERCISE OF OPTION.
------------------
(a) PROCEDURE FOR EXERCISE; RIGHTS AS A STOCKHOLDER. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4(b) hereof; provided, however, that no Options shall be exercisable until
stockholder approval of the Plan in accordance with Section 17 hereof has been
obtained.
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 consist of any consideration and method of payment
allowable under Section 7 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 stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
Optionee as soon as practicable after 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 10 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 CONTINUOUS STATUS AS A DIRECTOR. In the event an
----------------------------------------------
Optionee's Continuous Status as a Director terminates (other than upon the
Optionee's death or total and permanent disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within 90 days from the date of such termination, and only to the extent that
the Optionee was entitled to exercise it at the date of such termination (but in
no event later than the expiration of its five-year term). To the extent that
the Optionee was not entitled to exercise an Option at the date of such
termination, and to the extent that the Optionee does not exercise such Option
(to the extent otherwise so entitled) within the time specified herein, the
Option shall terminate.
(c) DISABILITY OF OPTIONEE. In the event Optionee's Continuous Status
----------------------
as a Director terminates as a result of total and permanent disability (as
defined in Section 22(e)(3) of the Code), the Optionee may exercise his or her
Option, but only within six months from the date of such termination, and only
to the extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the expiration of its five-year term).
To the extent
5
<PAGE>
that the Optionee was not entitled to exercise an Option at the date of
termination, or if he or she does not exercise such Option (to the extent
otherwise so entitled) within the time specified herein, the Option shall
terminate.
(d) DEATH OF OPTIONEE. In the event of an Optionee's death while a
-----------------
Director or within 90 days after ceasing to be a Director, the Optionee's estate
or a person who acquired the right to exercise the Option by bequest or
inheritance may exercise the Option, but only within one year following the date
of death, and only to the extent that the Optionee was entitled to exercise it
at the date of death (but in no event later than the expiration of its five-year
term). To the extent that the Optionee was not entitled to exercise an Option
at the date of death, and to the extent that the Optionee's estate or a person
who acquired the right to exercise such Option does not exercise such Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
9. NON-TRANSFERABILITY OF OPTIONS. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred or disposed of in any manner other than by
will, by the laws of descent or distribution or pursuant to a qualified domestic
relations order, and may be exercised, during the lifetime of the Optionee, only
by the Optionee or a permitted transferee.
10. ADJUSTMENTS.
-----------
(a) CHANGES IN CAPITALIZATION. In the event that the stock of the
-------------------------
Company is changed by reason of any stock split, reverse stock split,
recapitalization, or other change in the capital structure of the Company, or
converted into or exchanged for other securities as a result of any merger,
consolidation or reorganization, or in the event that the outstanding number of
shares of stock of the Company is increased through payment of a stock dividend,
appropriate proportionate adjustments shall be made in the number and class of
shares of stock subject to the Plan, the number and class of shares subject to
any Option outstanding under the Plan, and the exercise price of any such
outstanding Option; provided, however, that the Company shall not be required to
issue fractional shares as a result of any such adjustment. Any such adjustment
shall be made upon approval by the Board, whose determination shall be
conclusive. If there is any other change in the number or type of the
outstanding shares of stock of the Company, or of any other security into which
such stock shall have been changed or for which it shall have been exchanged,
and if the Board in its sole discretion determines that such change equitably
requires an adjustment shall be made in accordance with the determination of the
Board. No adjustments shall be required by reason of the issuance or sale by
the Company for cash or other consideration of additional shares of its stock or
securities convertible into or exchangeable for shares of its stock.
(b) CORPORATE TRANSACTIONS. New Options (substantially equivalent to
----------------------
the Options) may be substituted for the Options granted under the Plan, or the
Company's duties as to Options outstanding under the Plan may be assumed, by an
employer corporation other than the Company or by a parent or subsidiary of such
employer corporation, in connection with any merger, consolidation, acquisition
of assets or stock, separation, reorganization, liquidation or like occurrence
in which the Company is involved; provided, however, in the event such employer
corporation or parent or subsidiary of such employer corporation does not assume
the Options granted hereunder or substitute for such Options substantially
equivalent options, or if the Board determines, in its sole discretion, that
Options outstanding under the Plan should not
6
<PAGE>
then continue to be outstanding, the Options granted hereunder shall terminate
and thereupon become null and void (i) upon dissolution or liquidation of the
Company, acquisition, separation, or similar occurrence, or (ii) upon any
merger, consolidation or similar occurrence; provided, however, that each
Optionee shall be given notice of such dissolution, liquidation, merger,
consolidation, acquisition, separation or similar occurrence and shall have the
right, at any time prior to, but contingent upon the consummation of such
transaction, to exercise (x) any unexpired Options granted hereunder to the
extent they are then exercisable, and (y) in the case of a merger, consolidation
or similar occurrence Company is not the surviving corporation, those Options
which are not then; provided, further, that such exercise right shall not in any
event expire less than 30 days after the date notice of such transaction is sent
to the Optionee.
11. CHANGE IN CONTROL. In the event of a Change in Control of the
-----------------
Company, if the Change of Control is not approved by a majority of the
Continuing Directors, the Administrator shall cause written notice of the
proposed transaction to be given to all Optionees not less than fifteen (15)
days prior to the anticipated effective date of the proposed transaction and,
concurrent with the effective date of the proposed transaction, all Options
shall be accelerated and concurrent with such date the holders of such Options
shall have the right to exercise such Options in respect to any or all shares
subject thereto. The Administrator in its discretion may, at any time an Option
is granted, or at any time thereafter (regardless of its acceleration or non-
acceleration), take one or more of the following actions: (A) provide for the
purchase of each Option for an amount of cash or other property that could have
been received upon the exercise of the Option, (B) adjust the terms of the
Options in a manner determined by the Administrator to reflect the Change in
Control, (C) cause the Options to be continued or assumed, or new rights
substituted therefor, by the surviving or another entity, through the
continuance of the Plan and the continuation or assumption of outstanding
Options, or the substitution for such Options of new options of comparable value
covering shares of a successor corporation, with appropriate adjustments as to
the number and kind of shares and Exercise Prices, in which event the Plan and
such Options, or the new options substituted therefor, shall continue in the
manner and under the terms so provided or (D) make such other provision as the
Administrator may consider equitable. In the event of a Change in Control in
which the Options are not continued, assumed or substituted therefor by the
surviving or another entity, regardless of whether such Change in Control is
approved by a majority of the Continuing Directors, the Options shall be
accelerated and fully exercisable upon the effective date of the Change in
Control and the Administrator shall cause written notice of the proposed
transaction to be given to all Optionees not less than fifteen (15) days prior
to the anticipated effective date of the proposed transaction. The Administrator
shall have the right, with respect to any specific Option granted under the
Plan, to provide that such Options shall be accelerated in any event upon the
effective date of the Change of Control.
12. AMENDMENT AND TERMINATION OF THE PLAN.
-------------------------------------
(a) AMENDMENT AND TERMINATION. The Board may at any time amend,
-------------------------
alter, suspend or discontinue the Plan, but 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. In addition, to
the extent necessary and desirable to comply with any applicable law or
regulation, the Company shall obtain stockholder approval of any Plan amendment
in such a manner and to such a degree as may be required.
7
<PAGE>
(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.
13. TIME OF GRANTING OPTIONS. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4(b) hereof.
Notice of the determination shall be given to each Outside Director to whom an
Option is so granted within a reasonable time after the date of such grant.
14. 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, state securities laws and the requirements of any stock exchange or
market system 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.
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.
15. 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.
16. OPTION AGREEMENT. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
17. STOCKHOLDER APPROVAL. Continuance of the Plan shall be subject to
--------------------
approval by the stockholders of the Company at or prior to the first annual
meeting of stockholders held subsequent to the first granting of an Option
hereunder. Such stockholder approval shall be obtained in the degree and manner
appropriate under applicable state and federal law.
8
<PAGE>
EXHIBIT 10.8
POWERWAVE TECHNOLOGIES, INC.
DIRECTOR STOCK OPTION AGREEMENT
(ANNUAL GRANT)
Powerwave Technologies, Inc., a Delaware corporation (the "Company"), has
granted to ________________________________________ (the "Optionee"), an option
to purchase a total of 5,000 shares of the Company's Common Stock (the "Optioned
Stock"), at the price determined as provided herein, and in all respects subject
to the terms, definitions and provisions of the 1996 Director Stock Option Plan
(the "Plan") adopted by the Company which is incorporated herein by reference.
The terms defined in the Plan shall have the same defined meanings herein.
1. NATURE OF THE OPTION. This Option is a nonstatutory option and is not
--------------------
intended to qualify for any special tax benefits to the Optionee.
2. EXERCISE PRICE. The exercise price is $____________________ for each
--------------
share of Common Stock, which is 100% of the Fair Market Value of the Common
Stock as determined on the date of grant of this Option.
3. EXERCISE OF OPTION. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
(a) RIGHT TO EXERCISE.
-----------------
(i) This Option shall become exercisable as to 100% of the
optional stock on the forth anniversary of the date of grant; provided, however,
that in no event shall this Option be exercisable until stockholder approval of
the Plan has been obtained in accordance with Section 16 thereof.
(ii) This Option may not be exercised for a fraction of a share.
(iii) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Sections 6, 7 and 8 of this Agreement.
(b) METHOD OF EXERCISE. This Option shall be exercisable by written
------------------
notice 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, in the form attached to this Agreement as Exhibit A.
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.
<PAGE>
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:
(a) cash;
(b) check;
(c) surrender of other Shares of Common Stock of the Company which
(i) either have been owned by the Optionee for more than 12 months on the date
of surrender or were not acquired, directly or indirectly, from the Company, and
(ii) 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;
(d) delivery of a promissory note (the "Note") of Optionee in the
amount of the Exercise Price together with the execution and delivery by the
Optionee of the Security Agreement attached hereto as Exhibit B. The Note shall
be in the form attached hereto as Exhibit C, shall contain the terms and be
payable as set forth therein, shall bear interest at a rate no less than the
"applicable federal rate" prescribed under the Code and its regulations at the
time of purchase, and shall be secured by a pledge of the Shares purchased by
the Note pursuant to the Security Agreement; or
(e) delivery of a properly executed exercise notice together with
irrevocable instructions to a broker to promptly deliver to the Company the
amount of sale or loan proceeds required to pay the exercise price.
5. RESTRICTIONS ON EXERCISE. This Option may not be exercised 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 regulations, or if such issuance
would not comply with the requirements of any stock exchange or market system
upon which the Shares may then be listed. 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 CONTINUOUS STATUS AS A DIRECTOR. In the event
----------------------------------------------
Optionee's Continuous Status as a Director terminates (other than upon the
Optionee's death or permanent and total disability (as defined in Section
22(e)(3) of the Code)), the Optionee may exercise his or her Option, but only
within 30 days from the date of such termination, and only to the extent that
the Optionee was entitled to exercise it at the date of such termination (but in
no event later than the expiration of its five-year term). To the extent that
the Optionee was not entitled to exercise this Option at the date of such
termination, and to the extent that Optionee does not exercise this Option (to
the extent otherwise so entitled) within the time specified herein, the Option
shall terminate.
7. DISABILITY OF OPTIONEE. In the event Optionee's Continuous Status as
----------------------
a Director terminates as a result of his total and permanent disability (as
defined in Section 22(e)(3) of the Code), Optionee may exercise his or her
Option, but only within six months from the date of termination, and only to the
extent that the Optionee was entitled to exercise it at the date of such
termination (but in no event later than the date of expiration of its five-year
term). To the extent
2
<PAGE>
that Optionee was not entitled to exercise this Option at the date of
termination, and to the extent Optionee does not exercise this 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 Optionee's death while a
-----------------
Director, within 90 days after ceasing to be a Director because of a total and
permanent disability (as defined above) or after attainment of age 65, the
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance may exercise the Option, but only within one year
following the date of death, and only to the extent that the Optionee was
entitled to exercise it at the date of death (but in no event later than the
date of expiration of its five-year term). To the extent that Optionee was not
entitled to exercise this Option at the date of death, and to the extent
Optionee's estate or a person who acquired the right to exercise the Option by
bequest or inheritance does not exercise this Option (to the extent otherwise so
entitled) within 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, by the laws of descent or distribution or
pursuant to a qualified domestic relations order, and may be exercised during
the lifetime of Optionee only by the Optionee or a permitted transferee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
10. TERM OF OPTION. This Option may not be exercised more than five years
--------------
from the date of grant of this Option, and may be exercised during such term
only in accordance with the Plan and the terms of this Option.
11. TAXATION UPON EXERCISE OF OPTION. Optionee understands that, upon
--------------------------------
exercise of this Option, the Optionee will recognize income for tax purposes in
an amount equal to the excess of the then Fair Market Value of the Shares
purchased over the exercise price paid for such Shares. If the Optionee is
subject to Section 16(b) of the Securities Exchange Act of 1934, as amended, the
measurement and timing of such income may be deferred, and the Optionee is
advised to contact a tax advisor concerning the desirability of filing an 83(b)
election in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the date of exercise of the Option, to the extent
not included in income as described above, will be treated as capital gain or
loss.
DATE OF GRANT: ______________________________
POWERWAVE TECHNOLOGIES, INC., a Delaware
corporation
By:_____________________________________
Its:_________________________________
3
<PAGE>
The Optionee acknowledges receipt of a copy of the Plan, a copy of which is
annexed hereto, and represents that the Optionee is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. The Optionee hereby agrees to accept as binding,
conclusive and final all decisions or interpretations of the Board upon any
questions arising under the Plan.
Date: __________________
________________________________________
Optionee
4
<PAGE>
EXHIBIT A
---------
POWERWAVE TECHNOLOGIES, INC.
1996 DIRECTOR STOCK OPTION PLAN
EXERCISE NOTICE
Powerwave Technologies, Inc.
2026 McGaw Avenue
Irvine, California 92614
Attention: Secretary
1. Exercise of Option. Effective as of today, ______________, 199__, the
------------------
undersigned ("Purchaser") hereby elects to purchase ______ shares (the "Shares")
of the Common Stock of Powerwave Technologies, Inc. (the "Company") under and
pursuant to the 1996 Director Stock Option Plan (the "Plan") and the Director
Stock Option Agreement dated __________, 199__ (the "Option Agreement"). The
purchase price for the Shares shall be $___________, as required by the Option
Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. 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.
4. Rights as Stockholder. Subject to the terms and conditions of this
---------------------
Agreement, Optionee shall have all of the rights of a stockholder of the Company
with respect to the Shares from and after the date that Optionee delivers full
payment of the Exercise Price until such time as Optionee disposes of the
Shares.
5. Tax Consultation. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultants Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the 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 such
A-1
<PAGE>
agreement is governed by Delaware law except for that body of law pertaining to
conflict of laws.
Submitted by: Accepted by:
OPTIONEE POWERWAVE TECHNOLOGIES, INC.
____________________________________ By: __________________________________
Signature
____________________________________ Title: _______________________________
Print Name
Address: Address:
- ------- -------
____________________________________ 2026 McGaw Avenue
Irvine, California 92614
____________________________________
A-2
<PAGE>
EXHIBIT B
---------
SECURITY AGREEMENT
This Security Agreement is made as of ____________, 19__, between Powerwave
Technologies, Inc., a Delaware corporation ("Pledgee"), and ____________________
("Pledgor").
RECITALS:
Pursuant to Pledgor's election to purchase Shares under the Option
Agreement dated ___________, 199__ (the "Option"), between Pledgor and Pledgee
under Pledgee's 1996 Director Stock Option Plan, and Pledgor's election under
the terms of the Option to pay for such shares with Pledgor's promissory note
(the "Note"), Pledgor has purchased _________ shares of Pledgee's Common Stock
(the "Shares") at a price of $__________ per share, for a total purchase price
of $__________. The Note and the obligations thereunder are as set forth in
Exhibit C to the Option.
NOW, THEREFORE, it is agreed as follows:
1. Creation and Description of Security Interest. In consideration of
---------------------------------------------
the transfer of the Shares to Pledgor under the Option Agreement, Pledgor,
pursuant to the California Commercial Code, hereby pledges all of such Shares
(herein sometimes referred to as the "Collateral") represented by certificate
number ______________, duly endorsed in blank or with executed stock powers, and
herewith delivers said certificate to the Secretary of Pledgee ("Pledgeholder"),
who shall hold said certificate subject to the terms and conditions of this
Security Agreement.
The pledged stock (together with an executed blank stock assignment for use
in transferring all or a portion of the Shares to Pledgee if, as and when
required pursuant to this Security Agreement) shall be held by the Pledgeholder
as security for the repayment of the Note, and any extensions or renewals
thereof, to be executed by Pledgor pursuant to the terms of the Option, and the
Pledgeholder shall not encumber or dispose of such Shares except in accordance
with the provisions of this Security Agreement.
2. Pledgor's Representations and Covenants. To induce Pledgee to enter
---------------------------------------
into this Security Agreement, Pledgor represents and covenants to Pledgee, its
successors and assigns, as follows:
(a) Payment of Indebtedness. Pledgor will pay the principal sum of
-----------------------
the Note secured hereby, together with interest thereon, at the time and in the
manner provided in the Note.
(b) Encumbrances. The Shares are free of all other encumbrances,
------------
defenses and liens, and Pledgor will not further encumber the Shares without the
prior written consent of Pledgee.
B-1
<PAGE>
(c) Margin Regulations. In the event that Pledgee's Common Stock is
------------------
now or later becomes margin-listed by the Federal Reserve Board and Pledgee is
classified as a "lender" within the meaning of the regulations under Part 207 of
Title 12 of the Code of Federal Regulations ("Regulation G"), Pledgor agrees to
cooperate with Pledgee in making any amendments to the Note or providing any
additional collateral as may be necessary to comply with such regulations.
3. Voting Rights. During the term of this pledge and so long as all
-------------
payments of principal and interest are made as they become due under the terms
of the Note, Pledgor shall have the right to vote all of the Shares pledged
hereunder.
4. Stock Adjustments. In the event that during the term of the pledge
-----------------
any stock dividend, reclassification, readjustment or other changes are declared
or made in the capital structure of Pledgee, all new, substituted and additional
shares or other securities issued by reason of any such change shall be
delivered to and held by the Pledgee under the terms of this Security Agreement
in the same manner as the Shares originally pledged hereunder. In the event of
substitution of such securities, Pledgor, Pledgee and Pledgeholder shall
cooperate and execute such documents as are reasonable so as to provide for the
substitution of such Collateral and, upon such substitution, references to
"Shares" in this Security Agreement shall include the substituted shares of
capital stock of Pledgor as a result thereof.
5. Options and Rights. In the event that, during the term of this
------------------
pledge, subscription Options or other rights or options shall be issued in
connection with the pledged Shares, such rights, Options and options shall be
the property of Pledgor and, if exercised by Pledgor, all new stock or other
securities so acquired by Pledgor as it relates to the pledged Shares then held
by Pledgeholder shall be immediately delivered to Pledgeholder, to be held under
the terms of this Security Agreement in the same manner as the Shares pledged.
6. Default. Pledgor shall be deemed to be in default of the Note and of
---------
this Security Agreement in the event:
(a) Payment of principal or interest on the Note shall be delinquent
for a period of 10 days or more; or
(b) Pledgor fails to perform any of the covenants set forth in the
Option or contained in this Security Agreement for a period of 10 days after
written notice thereof from Pledgee.
In the case of an event of Default, as set forth above, Pledgee shall have
the right to accelerate payment of the Note upon notice to Pledgor, and Pledgee
shall thereafter be entitled to pursue its remedies under the California
Commercial Code.
7. Release of Collateral. Subject to any applicable contrary rules under
---------------------
Regulation G, there shall be released from this pledge a portion of the pledged
Shares held by Pledgeholder hereunder upon payments of the principal of the
Note. The number of the pledged Shares which shall be released shall be that
number of full Shares which bears the same proportion to the initial number of
Shares pledged hereunder as the payment of principal bears to the initial full
principal amount of the Note.
B-2
<PAGE>
8. Withdrawal or Substitution of Collateral. Pledgor shall not sell,
----------------------------------------
withdraw, pledge, substitute or otherwise dispose of all or any part of the
Collateral without the prior written consent of Pledgee.
9. Term. The within pledge of Shares shall continue until the payment of
----
all indebtedness secured hereby, at which time the remaining pledged stock shall
be promptly delivered to Pledgor, subject to the provisions for prior release of
a portion of the Collateral as provided in paragraph 7 above.
10. Insolvency. Pledgor agrees that if a bankruptcy or insolvency
----------
proceeding is instituted by or against it, if a receiver is appointed for the
property of Pledgor or if Pledgor makes an assignment for the benefit of
creditors, the entire amount unpaid on the Note shall become immediately due and
payable, and Pledgee may proceed as provided in the case of default.
11. Pledgeholder Liability. In the absence of willful or gross negligence,
----------------------
Pledgeholder shall not be liable to any party for any of Pledgeholder's acts, or
omissions to act, as Pledgeholder.
12. Invalidity of Particular Provisions. Pledgor and Pledgee agree that
-----------------------------------
the enforceability or invalidity of any provision or provisions of this Security
Agreement shall not render any other provision or provisions herein contained
unenforceable or invalid.
13. Successors or Assigns. Pledgor and Pledgee agree that all of the terms
---------------------
of this Security Agreement shall be binding on their respective successors and
assigns, and that the term "Pledgor" and the term "Pledgee" as used herein shall
be deemed to include, for all purposes, the respective designees, successors,
assigns, heirs, executors and administrators.
14. Governing Law. This Security Agreement shall be interpreted and
-------------
governed under the laws of the State of Delaware.
B-3
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"PLEDGOR" By:________________________________________
___________________________________________
Print Name
Address: ___________________________________________
___________________________________________
"PLEDGEE" POWERWAVE TECHNOLOGIES, INC.,
a Delaware corporation
By:________________________________________
Title:_____________________________________
"PLEDGEHOLDER" ___________________________________________
Secretary of Powerwave Technologies, Inc.
B-4
<PAGE>
EXHIBIT C
---------
INSTALLMENT NOTE
$____________________ Irvine, California
______________________,19__
FOR VALUE RECEIVED, _________________________ promises to pay to Powerwave
Technologies, Inc., a Delaware corporation (the "Company"), or order, the
principal sum of $______________, together with interest on the unpaid principal
hereof from the date hereof at the rate of ___% per annum, compounded
semiannually.
Principal and interest shall be due and payable on _____________, 199__.
Should the undersigned fail to make full payment of any installment of principal
or interest for a period of 10 days or more after the due date thereof, the
whole unpaid balance on this Note of principal and interest shall become
immediately due at the option of the holder of this Note. Payments of principal
and interest shall be made in lawful money of the United States of America.
The undersigned may at any time prepay all or any portion of the principal
or interest owing hereunder.
This Note is subject to the terms of the Option, dated as of _____________,
199__. This Note is secured by a pledge of the Company's Common Stock under the
terms of a Security Agreement of even date herewith and is subject to all the
provisions thereof.
In the event the undersigned shall cease to be a director of the Company
for any reason, this Note shall, at the option of the Company, be accelerated,
and the whole unpaid balance on this Note of principal and accrued interest
shall be immediately due and payable.
Should any action be instituted for the collection of this Note, the
reasonable costs and attorneys' fees therein of the holder shall be paid by the
undersigned.
___________________________________
___________________________________
C-1
<PAGE>
EXHIBIT 10.9
POWERWAVE TECHNOLOGIES, INC.
EMPLOYEE STOCK PURCHASE PLAN
This EMPLOYEE STOCK PURCHASE PLAN (the "Plan") is hereby established by
POWERWAVE TECHNOLOGIES, INC., a Delaware corporation (the "Company") effective
as of the effective date of the Company's first registration statement filed
under the Securities Act of 1933 (the "Effective Date").
ARTICLE I
PURPOSE OF THE PLAN
-------------------
1.1 PURPOSE. The Company has determined that it is in its best interest
-------
to provide incentives to attract and retain employees and to increase employee
morale by providing a program through which employees of the Company, and of
such of the Company's subsidiaries as the Company's Board of Directors (the
"Board of Directors") may from time to time designate (each a "Designated
Subsidiary", and collectively, "Designated Subsidiaries"), may acquire a
proprietary interest in the Company through the purchase of shares of the Common
Stock of the Company ("Company Stock"). The Plan is hereby established by the
Company to permit employees to subscribe for and purchase directly from the
Company shares of the Company Stock at a discount from the market price, and to
pay the purchase price in installments by payroll deductions. The Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code of 1986, as amended from time to time (the "Code").
The provisions of the Plan are to be construed in a matter consistent with the
requirements of Section 423 of the Code. The Plan is not intended to be an
employee benefit plan under the Employee Retirement Income Security Act of 1974,
and therefore is not required to comply with that Act.
ARTICLE II
DEFINITIONS
-----------
2.1 COMPENSATION. "Compensation" means the amount indicated on the Form
------------
W-2, including any elective deferrals with respect to a plan of the Company
qualified under either Section 125 or Section 401(a) of the Code, issued to an
employee by the Company.
2.2 EMPLOYEE. "Employee" means each person currently employed by the
--------
Company or any of its Designated Subsidiaries, any portion of whose income is
subject to withholding of income tax or for whom Social Security retirement
contributions are made by the Company or any Designated Subsidiary.
2.3 5% OWNER. "5% Owner" means an Employee who, immediately after the
--------
grant of any rights under the Plan, would own Company Stock or hold outstanding
options to purchase Company Stock possessing 5% or more of the total combined
voting power of all classes of stock of the Company. For purposes of this
Section, the ownership attribution rules of Code Section 425(d) shall apply.
<PAGE>
2.4 GRANT DATE. "Grant Date" means the first day of each Offering Period
----------
(July 1 and January 1) under the Plan. However, for the first Offering Period,
the Grant Date shall be the Effective Date.
2.5 PARTICIPANT. "Participant" means an Employee who has satisfied the
-----------
eligibility requirements of Section 3.1 and has become a participant in the Plan
in accordance with Section 3.2.
2.6 PLAN YEAR. "Plan Year" means the twelve consecutive month period
---------
ending on the last day of December.
2.7 OFFERING PERIOD. "Offering Period" means the six-month periods from
---------------
January 1 through June 30 and July 1 through December 31 of each Plan Year.
However, the first Offering Period shall commence on the Effective Date and end
June 30, 1997 regardless of whether such initial Offering Period is more or less
than six months.
2.8 PURCHASE DATE. "Purchase Date" means the last day of each Offering
-------------
Period (June 30 or December 31).
ARTICLE III
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 ELIGIBILITY. Each Employee of the Company, or any Designated
-----------
Subsidiary, who, on the Grant Date, is customarily engaged on a regularly-
scheduled basis of more than thirty (30) hours per week and who has been
employed for at least one hundred and eighty (180) days (or, for the initial
Offering Period only, such Employees who are employed on the Effective Date) in
the rendition of personal services to the Company, or any Designated Subsidiary,
may become a Participant in the Plan on the Grant Date coincident with or next
following his satisfaction of such requirements of employment with the Company
or any Designated Subsidiary.
3.2 PARTICIPATION. An Employee who has satisfied the eligibility
-------------
requirements of Section 3.1 may become a Participant in the Plan upon his
completion and delivery to the Human Resources Department of the Company of a
stock purchase agreement provided by the Company (the "Stock Purchase
Agreement") authorizing payroll deductions. Payroll deductions for a
Participant shall commence on the Grant Date coincident with or next following
the filing of the Participant's Stock Purchase Agreement and shall remain in
effect until revoked by the Participant by the filing of a notice of withdrawal
from the Plan under Article VIII or by the filing of a new Stock Purchase
Agreement providing for a change in the Participant's payroll deduction rate in
accordance with Section 5.2.
3.3 SPECIAL RULES. Under no circumstances shall:
-------------
(a) A 5% Owner be granted a right to purchase Company Stock under the
Plan;
(b) A Participant be entitled to purchase Company Stock under the Plan
which, when aggregated with all other employee stock purchase plans of the
Company, exceed an amount equal to the Aggregate Maximum. "Aggregate Maximum"
means an amount equal to $25,000 worth
2
<PAGE>
of Company Stock (determined using the fair market value of such Company Stock
at each applicable Grant Date) during each calendar year; or
(c) The number of shares of Company Stock purchasable by a Participant
on any Purchase Date exceed 5,000 shares, subject to periodic adjustments under
Section 10.4.
ARTICLE IV
OFFERING PERIODS
----------------
4.1 OFFERING PERIODS. The initial grant of the right to purchase Company
----------------
Stock under the Plan shall occur on the Effective Date and terminate on June 1,
1997. Thereafter, the Plan shall provide for Offering Periods commencing on
each Grant Date and terminating on the next following Purchase Date.
ARTICLE V
PAYROLL DEDUCTIONS
------------------
5.1 PARTICIPANT ELECTION. Upon completion of the Stock Purchase
--------------------
Agreement, each Participant shall designate the amount of payroll deductions to
be made from his or her paycheck to purchase Company Stock under the Plan. The
amount of payroll deductions shall be designated in whole percentages of
Compensation, not to exceed 20%. The amount so designated upon the Stock
Purchase Agreement shall be effective as of the next Grant Date and shall
continue until terminated or altered in accordance with Section 5.2 below.
5.2 CHANGES IN ELECTION. A Participant may terminate participation in the
-------------------
Plan at any time prior to the close of an Offering Period as provided in Article
VIII. A Participant may increase or decrease the rate of payroll deductions
once during each Offering Period by completing and delivering to the Human
Resources Department of the Company a new Stock Purchase Agreement setting forth
the desired change. A Participant may also terminate payroll deductions and
have accumulated deductions for the Offering Period applied to the purchase of
Company Stock as of the next Purchase Date by completing and delivering to the
Human Resources Department a new Stock Purchase Agreement setting forth the
desired change. Any change under this Section shall become effective on the
next payroll period (to the extent practical under the Company's payroll
practices) following the delivery of the new Stock Purchase Agreement.
5.3 PARTICIPANT ACCOUNTS. The Company shall establish and maintain a
--------------------
separate account ("Account") for each Participant. The amount of each
Participant's payroll deductions shall be credited to his Account. No interest
will be paid or allowed on amounts credited to a Participant's Account. All
payroll deductions received by the Company under the Plan are general corporate
assets of the Company and may be used by the Company for any corporate purpose.
The Company is not obligated to segregate such payroll deductions.
3
<PAGE>
ARTICLE VI
GRANT OF PURCHASE RIGHTS
------------------------
6.1 RIGHT TO PURCHASE SHARES. On each Grant Date, each Participant shall
------------------------
be granted a right to purchase at the price determined under Section 6.2 that
number of shares and partial shares of Company Stock that can be purchased or
issued by the Company based upon that price with the amounts held in his
Account, subject to the limits set forth in Section 3.3. In the event that there
are amounts held in a Participant's Account that are not used to purchase
Company Stock, such amounts shall remain in the Participant's Account and shall
be eligible to purchase Company Stock in any subsequent Offering Period.
6.2 PURCHASE PRICE. The purchase price for any Offering Period shall be
--------------
the lesser of:
(a) 85% of the Fair Market Value of Company Stock on the Grant Date;
or
(b) 85% of the Fair Market Value of Company Stock on the Purchase
Date.
6.3 FAIR MARKET VALUE. "Fair Market Value" means for the initial Grant
-----------------
Date (which is the Effective Date), the price per share at which the Common
Stock is to be sold to the public in the initial public offering of the Common
Stock. For any subsequent date thereafter, "Fair Market Value" shall mean the
value of one share of Company Stock, determined as follows:
(a) If the Company Stock is then listed or admitted to trading on the
Nasdaq National Market or a stock exchange which reports closing sale prices,
the Fair Market Value shall be the closing sale price on the date of valuation
on the Nasdaq National Market or principal stock exchange on which the Company
Stock is then listed or admitted to trading, or, if no closing sale price is
quoted or no sale takes place on such day, then the Fair Market Value shall be
the closing sale price of the Company Stock on the Nasdaq National Market or
such exchange on the next preceding day on which a sale occurred.
(b) If the Company Stock is not then listed or admitted to trading on
the Nasdaq National Market or a stock exchange which reports closing sale
prices, the Fair Market Value shall be the average of the closing bid and asked
prices of the Company Stock in the over-the-counter market on the date of
valuation.
(c) If neither (a) nor (b) is applicable as of the date of valuation,
then the Fair Market Value shall be determined by the Administrator in good
faith using any reasonable method of valuation, which determination shall be
conclusive and binding on all interested parties.
ARTICLE VII
PURCHASE OF STOCK
-----------------
7.1 PURCHASE OF COMPANY STOCK. Absent an election by the Participant to
-------------------------
terminate and have his or her Account returned, on each Purchase Date, the Plan
shall purchase on behalf of each Participant the maximum number of whole shares
of Company Stock at the purchase price determined under Section 6.2 above as can
be purchased with the amounts held in each Participant's Account. In the event
that there are amounts held in a Participant's Account that are not used to
4
<PAGE>
purchase Company Stock, all such amounts shall be held in the Participant's
Account and carried forward to the next Offering Period.
7.2 DELIVERY OF COMPANY STOCK.
-------------------------
(a) Company Stock acquired under the Plan shall be issued directly to
a contract administrator ("Administrator") engaged by the Company to administer
the Plan under Article IX. All Company Stock so issued ("Plan Held Stock")
shall be held in the name of the Administrator for the benefit of the Plan. The
Administrator shall maintain accounts for the benefit of the Participants which
shall reflect each Participant's interest in the Plan Held Stock. Such accounts
shall reflect the number of whole and partial shares of Company Stock that are
being held by the Administrator for the benefit of each Participant.
(b) Where Company Stock is issued under this paragraph, only full
shares of stock will be issued to a Participant. The time of issuance and
delivery of shares may be postponed for such period as may be necessary to
comply with the registration requirements under the Securities Act of 1933, as
amended, the listing requirements of any securities exchange on which the
Company Stock may then be listed, or the requirements under other laws or
regulations applicable to the issuance or sale of such shares.
ARTICLE VIII
WITHDRAWAL
----------
8.1 IN SERVICE WITHDRAWALS. At any time prior to the Purchase Date of an
----------------------
Offering Period, any Participant may withdraw the amounts held in his Account by
executing and delivering to the Human Resources Department for the Company
written notice of withdrawal on the form provided by the Company. In such a
case, the entire balance of the Participant's Account shall be paid to the
Participant, without interest, as soon as is practicable. Upon such
notification, the Participant shall cease to participate in the Plan for the
remainder of the Offering Period in which the notice is given. Any Employee who
has withdrawn under this Section shall be excluded from participation in the
Plan for the remainder of the Offering Period, but may then be reinstated as a
participant for a subsequent Offering Period by executing and delivering a new
Stock Purchase Agreement to the Human Resources Department of the Company.
8.2 TERMINATION OF EMPLOYMENT.
-------------------------
(a) In the event that a Participant's employment with the Company
terminates for any reason, the Participant shall cease to participate in the
Plan on the date of termination. As soon as is practical following the date of
termination, the entire balance of the Participant's Account shall be paid to
the Participant or his beneficiary, without interest.
(b) A Participant may file a written designation of a beneficiary who
is to receive any shares of Company Stock purchased under the Plan or any cash
from the Participant's Account in the event of his or her death subsequent to a
Purchase Date, but prior to delivery of such shares and cash. In addition, a
Participant may file a written designation of a beneficiary who is to receive
any cash from the Participant's Account under the Plan in the event of his death
prior to a Purchase Date under paragraph (a) above.
5
<PAGE>
(c) Any beneficiary designation under paragraph (b) above may be
changed by the Participant at any time by written notice. In the event of the
death of a Participant, the Committee may rely upon the most recent beneficiary
designation it has on file as being the appropriate beneficiary. In the event
of the death of a Participant where no valid beneficiary designation exists or
the beneficiary has predeceased the Participant, the Committee shall deliver any
cash or shares of Company Stock to the executor or administrator of the estate
of the Participant, or if no such executor or administrator has been appointed
to the knowledge of the Committee, the Committee, in its sole discretion, may
deliver such shares of Company Stock or cash to the spouse or any one or more
dependents or relatives of the Participant, or if no spouse, dependent or
relative is known to the Committee, then to such other person as the Committee
may designate.
ARTICLE IX
PLAN ADMINISTRATION
-------------------
9.1 PLAN ADMINISTRATION.
-------------------
(a) Authority to control and manage the operation and administration
of the Plan shall be vested in the Board of Directors (the "Board") for the
Company, or a committee ("Committee") thereof. The Board or Committee shall
have all powers necessary to supervise the administration of the Plan and
control its operations.
(b) In addition to any powers and authority conferred on the Board or
Committee elsewhere in the Plan or by law, the Board or the Committee shall have
the following powers and authority:
(i) To designate agents to carry out responsibilities relating to
the Plan;
(ii) To administer, interpret, construe and apply this Plan and to
answer all questions which may arise or which may be raised under this Plan by a
Participant, his beneficiary or any other person whatsoever;
(iii) To establish rules and procedures from time to time for the
conduct of its business and for the administration and effectuation of its
responsibilities under the Plan; and
(iv) To perform or cause to be performed such further acts as it
may deem to be necessary, appropriate, or convenient for the operation of the
Plan.
(c) Any action taken in good faith by the Board or Committee in the
exercise of authority conferred upon it by this Plan shall be conclusive and
binding upon a Participant and his beneficiaries. All discretionary powers
conferred upon the Board shall be absolute.
9.2 LIMITATION ON LIABILITY. No Employee of the Company nor member of the
-----------------------
Board or Committee shall be subject to any liability with respect to his duties
under the Plan unless the person acts fraudulently or in bad faith. To the
extent permitted by law, the Company shall indemnify each member of the Board or
Committee, and any other Employee of the Company with duties under the Plan who
was or is a party, or is threatened to be made a party, to any threatened,
pending or
6
<PAGE>
completed proceeding, whether civil, criminal, administrative, or investigative,
by reason of the person's conduct in the performance of his duties under the
Plan.
ARTICLE X
COMPANY STOCK
-------------
10.1 LIMITATIONS ON PURCHASE OF SHARES. The maximum number of shares of
---------------------------------
Company Stock that shall be made available for sale under the Plan shall be
500,000 shares, subject to adjustment under Section 10.4 below. The shares of
Company Stock to be sold to Participants under the Plan will be issued by the
Company. If the total number of shares of Company Stock that would otherwise be
issuable pursuant to rights granted pursuant to Section 6.1 of the Plan at the
Purchase Date exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available in as
uniform and equitable manner as is practicable. In such event, the Company shall
give written notice of such reduction of the number of shares to each
participant affected thereby and any unused payroll deductions shall be returned
to such participant if necessary.
10.2 VOTING COMPANY STOCK. The Participant will have no interest or
--------------------
voting right in shares to be purchased under Section 6.1 of the Plan until such
shares have been purchased.
10.3 REGISTRATION OF COMPANY STOCK. Shares to be delivered to a
-----------------------------
Participant under the Plan will be registered in the name of the Participant
unless designated otherwise by the Participant.
10.4 CHANGES IN CAPITALIZATION OF THE COMPANY. Subject to any required
----------------------------------------
action by the stockholders of the Company, the number of shares of Company Stock
covered by each right under the Plan which has not yet been exercised and the
number of shares of Company Stock which have been authorized for issuance under
the Plan but have not yet been placed under rights or which have been returned
to the Plan upon the cancellation of a right, as well as the Purchase Price per
share of Company Stock covered by each right under the Plan which has not yet
been exercised, shall be proportionately adjusted for any increase or decrease
in the number of issued shares of Company Stock resulting from a stock split,
stock dividend, spin-off, reorganization, recapitalization, merger,
consolidation, exchange of shares or the like. Such adjustment shall be made by
the Board of Directors for the Company, whose determination in that respect
shall be final, binding and conclusive. Except as expressly provided herein, no
issue 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 Company
Stock subject to any right granted hereunder.
10.5 MERGER OF COMPANY. In the event that the Company at any time
-----------------
proposes to merge into, consolidate with or enter into any other reorganization
pursuant to which the Company is not the surviving entity (including the sale of
substantially all of its assets or a "reverse" merger in which the Company is
the surviving entity), the Plan shall terminate, unless provision is made in
writing in connection with such transaction for the continuance of the Plan and
for the assumption of rights theretofore granted, or the substitution for such
rights of new rights covering the shares of a successor corporation, with
appropriate adjustments as to number and kind of shares and prices, in which
event the Plan and the rights theretofore granted or the new rights substituted
therefor, shall
7
<PAGE>
continue in the manner and under the terms so provided. If such provision is
not made in such transaction for the continuance of the Plan and the assumption
of rights theretofore granted or the substitution for such rights of new rights
covering the shares of a successor corporation, then the Board of Directors or
its committee shall cause written notice of the proposed transaction to be given
to the persons holding rights not less than 10 days prior to the anticipated
effective date of the proposed transaction, and, concurrent with the effective
date of the proposed transaction, such rights shall be exercised automatically
in accordance with Section 7.1 as if such effective date were a Purchase Date of
the applicable Offering Period unless a Participant withdraws from the Plan as
provided in Section 8.1.
ARTICLE XI
MISCELLANEOUS MATTERS
---------------------
11.1 AMENDMENT AND TERMINATION. The Plan shall terminate on June 30, 2007.
-------------------------
Since future conditions affecting the Company cannot be anticipated or foreseen,
the Company reserves the right to amend, modify, or terminate the Plan at any
time. Upon termination of the Plan, all benefits shall become payable
immediately. Notwithstanding the foregoing, no such amendment or termination
shall affect rights previously granted, nor may an amendment make any change in
any right previously granted which adversely affects the rights of any
Participant. In addition, no amendment may be made without prior approval of the
stockholders of the Company if such amendment would:
(a) Increase the number of shares of Company Stock that may be issued
under the Plan;
(b) Materially modify the requirements as to eligibility for
participation in the Plan; or
(c) Materially increase the benefits which accrue to Participants
under the Plan.
11.2 STOCKHOLDER APPROVAL. Continuance of the Plan and the effectiveness
--------------------
of any right granted hereunder shall be subject to approval by the stockholders
of the Company, within twelve months before or after the date the Plan is
adopted by the Board.
11.3 BENEFITS NOT ALIENABLE. Benefits under the Plan may not be assigned
----------------------
or alienated, whether voluntarily or involuntarily. Any attempt at assignment,
transfer, pledge or other disposition shall be without effect, except that the
Company may treat such act as an election to withdraw funds in accordance with
Article VIII.
11.4 NO ENLARGEMENT OF EMPLOYEE RIGHTS. This Plan is strictly a voluntary
---------------------------------
undertaking on the part of the Company and shall not be deemed to constitute a
contract between the Company and any Employee or to be consideration for, or an
inducement to, or a condition of, the employment of any Employee. Nothing
contained in the Plan shall be deemed to give the right to any Employee to be
retained in the employ of the Company or to interfere with the right of the
Company to discharge any Employee at any time.
8
<PAGE>
11.5 GOVERNING LAW. To the extent not preempted by Federal law, all legal
-------------
questions pertaining to the Plan shall be determined in accordance with the laws
of the State of Delaware.
11.6 NON-BUSINESS DAYS. When any act under the Plan is required to be
-----------------
performed on a day that falls on a Saturday, Sunday or legal holiday, that act
shall be performed on the next succeeding day which is not a Saturday, Sunday or
legal holiday. Notwithstanding the above, Fair Market Value shall be determined
in accordance with Section 6.3.
11.7 COMPLIANCE WITH SECURITIES LAWS. Notwithstanding any provision of the
-------------------------------
Plan, the Committee shall administer the Plan in such a way to ensure that the
Plan at all times complies with any requirements of Federal Securities Laws.
9
<PAGE>
EXHIBIT 10.10
STOCK PURCHASE AGREEMENT
DATED AS OF OCTOBER 10, 1995
BY AND AMONG
MILCOM INTERNATIONAL, INC.,
A DELAWARE CORPORATION,
AND
THE STOCKHOLDERS
AND
THE INVESTORS
<PAGE>
TABLE OF CONTENTS
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ARTICLE 1
PURCHASE AND SALE OF THE SHARES
1.1 The Preferred Stock.......................................................... 1
1.2 Closing...................................................................... 1
1.3 Representations and Warranties by the Investors.............................. 2
(a) Investment.............................................................. 2
(b) Authorization........................................................... 3
(c) Other................................................................... 3
1.4 Designated Representative of the Investors................................... 3
1.5 Use of Proceeds and Consent to Redemption.................................... 3
ARTICLE 2
CONDITIONS PRECEDENT TO INVESTORS' OBLIGATIONS
2.1 Representations and Warranties............................................... 4
2.2 Absence of Litigation........................................................ 4
2.3 Performance of Obligations................................................... 4
2.4 Documentation at Closing..................................................... 4
2.5 Material Adverse Change...................................................... 5
2.6 Due Diligence................................................................ 6
2.7 Consents, Waivers, etc....................................................... 6
2.8 Evidence of Payment.......................................................... 6
ARTICLE 3
CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS
3.1 Representations and Warranties............................................... 6
3.2 Absence of Litigation........................................................ 6
3.3 Performance of Obligations................................................... 6
3.4 Documentation at Closing..................................................... 7
3.5 Payment...................................................................... 7
3.6 Consents, Waivers, etc....................................................... 7
3.7 Cordero Elected to Serve as Chairman of the Board............................ 7
ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 Representations and Warranties of the Company................................ 8
(a) Organization and Standing of the Company and Subsidiaries............... 8
(b) Corporate Action........................................................ 8
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(c) Governmental Approvals.................................................. 8
(d) Litigation.............................................................. 8
(e) Compliance with Other Instruments....................................... 8
(f) Stock Ownership......................................................... 9
(g) Registration Rights..................................................... 9
(h) Securities Act of 1933.................................................. 9
(i) No Brokers or Finders................................................... 9
(j) Capitalization; Status of Capital Stock................................. 9
(k) Financial Statements.................................................... 10
(l) Absence of Changes...................................................... 10
(m) Good and Marketable Title............................................... 10
(n) Subsidiaries............................................................ 10
(o) Taxes and Tax Returns................................................... 10
(p) Insurance............................................................... 11
(q) Certain Transactions.................................................... 12
(r) Contracts and Commitments............................................... 12
(s) ERISA................................................................... 13
(t) Intellectual Property................................................... 14
(u) Environmental Matters................................................... 14
(v) Compliance with Laws.................................................... 14
(w) Margin Regulations; Use of Proceeds..................................... 15
(x) Disclosure.............................................................. 15
4.2 Representations and Warranties of the Stockholders........................... 15
(a) Litigation.............................................................. 15
(b) Stock Ownership......................................................... 15
(c) Registration Rights..................................................... 15
(d) No Brokers or Finders................................................... 16
(e) Capitalization; Status of Capital Stock................................. 16
(f) Financial Statements.................................................... 16
(g) Absence of Changes...................................................... 16
(h) Taxes and Tax Returns................................................... 17
(i) Contracts and Commitments............................................... 19
(j) Intellectual Property................................................... 20
(k) Environmental Matters................................................... 20
ARTICLE 5
COVENANTS OF THE COMPANY
5.1 Affirmative Covenants of the Company Other than Reporting Requirements....... 21
(a) Payment of Taxes and Trade Debt......................................... 21
(b) Maintenance of Insurance................................................ 21
(c) Preservation of Corporate Existence..................................... 21
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(d) Compliance with Laws.................................................... 22
(e) Keeping of Records and Books of Account................................. 22
(f) Maintenance of Properties, etc.......................................... 22
(g) Compensation............................................................ 22
(h) New Developments........................................................ 22
(i) Budgets and Board Approval.............................................. 23
(j) Employee Invention and Non-Disclosure Agreement......................... 23
(k) Financings.............................................................. 23
(l) Board of Directors; Indemnification..................................... 23
(m) Recruitment of Chief Executive Officer.................................. 23
5.2 Negative Covenants of the Company............................................ 24
(a) Merger, Sale of Assets, etc............................................. 24
(b) Maintenance of Ownership of Subsidiaries................................ 24
(c) Dealings with Affiliates and Others..................................... 24
(d) Change in Nature of Business............................................ 24
(e) Dividends............................................................... 25
(f) Agreements with Employees for the Purchase of Securities................ 25
(g) Issuances of Securities and Employee Stock Options...................... 25
5.3 Reporting Requirements....................................................... 25
5.4 Confidentiality.............................................................. 27
ARTICLE 6
OBLIGATIONS PENDING THE CLOSING
6.1 Access....................................................................... 27
6.2 Conduct of Company's Business................................................ 28
(a) Operation of Business................................................... 28
(b) Organization............................................................ 28
(c) Vendors................................................................. 28
(d) Insurance............................................................... 28
(e) Lawsuits, Claims........................................................ 28
(f) Certain Changes......................................................... 28
(g) Condition of Assets..................................................... 29
(h) Agreements.............................................................. 29
(i) Taxes................................................................... 29
(j) Dividends, etc.......................................................... 29
(k) Corporate Matters....................................................... 29
(l) Liabilities and Expenses................................................ 29
6.3 Consents..................................................................... 29
6.4 Notice of Breach............................................................. 30
6.5 Transfer of Shares........................................................... 30
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ARTICLE 7
OBLIGATIONS AT THE CLOSING
7.1 Exclusivity/Other Offers..................................................... 30
7.2 Other Deliveries............................................................. 30
ARTICLE 8
RIGHT TO PARTICIPATE IN FINANCINGS
8.1 Right of Participation....................................................... 30
8.2 Notice of Acceptance......................................................... 31
8.3 Conditions to Acceptance By Investor......................................... 31
(a) Permitted Sales of Refused Securities................................... 31
(b) Reduction in Amount of Offered Securities............................... 32
(c) Closing................................................................. 32
8.4 Further Sale................................................................. 32
8.5 Exceptions................................................................... 32
8.6 Assignment of Rights......................................................... 32
ARTICLE 9
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
ARTICLE 10
DEFINITIONS AND ACCOUNTING TERMS
10.1 Certain Defined Terms........................................................ 34
10.2 Accounting Terms............................................................. 36
ARTICLE 11
MISCELLANEOUS
11.1 No Waiver; Cumulative Remedies............................................... 36
11.2 Termination.................................................................. 36
11.3 No Liability................................................................. 37
11.4 No Stockholder Recision...................................................... 37
11.5 Waivers and Consents......................................................... 37
11.6 Addresses for Notices, etc................................................... 37
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(Continued)
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11.7 Costs, Expenses and Taxes.................................................. 38
11.8 Binding Effect; Assignment................................................. 39
11.9 Prior Agreements........................................................... 39
11.10 Severability............................................................... 39
11.11 Governing Law.............................................................. 39
11.12 Headings................................................................... 39
11.13 Counterparts............................................................... 39
11.14 Further Assurances......................................................... 39
11.15 Independent Counsel........................................................ 39
11.16 Confidentiality............................................................ 39
11.17 Press Release.............................................................. 39
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STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (the "Agreement") is made and entered into as
of October 10, 1995, by and among Alfonso G. Cordero, Ki Nam, Sussanne
Torretta, Charles Florman, Bill Doi, Arthur Cook, Thomas Ha and Ernest Johnson
(collectively the "Stockholders"), MILCOM INTERNATIONAL, INC., a Delaware
corporation (the "Company") and the persons listed on EXHIBIT 1.1A hereto (the
------------
"Investors").
R E C I T A L S
A. The Stockholders own all of the issued and outstanding shares of
capital stock of the Company.
B. The Company desires to sell to the Investors the shares of Series A
Preferred Stock listed opposite each Investors name on EXHIBIT 1.1A hereto (the
------------
"Shares").
C. As a condition to Investors executing this Agreement and the Investors
purchasing the Shares the Stockholders must execute this Agreement with respect
to Section 4.2 and Articles 2, 3, 7 and 9 herein.
NOW, THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
ARTICLE 1
PURCHASE AND SALE OF THE SHARES
1.1 THE PREFERRED STOCK. The Company has authorized the issuance, sale
and delivery of Three Million Three Hundred Seventy Five Thousand Nine Hundred
(3,375,900) shares of its Series A Convertible Preferred Stock, $.0001 par value
per share (the "Preferred Stock"), at a price of $4.44325958 per share or an
aggregate consideration of $15,000,000, to the Investors in the respective
amounts set forth in EXHIBIT 1.1A. The designation, rights, preferences and
------------
other terms and conditions relating to the Preferred Stock shall be as set forth
in EXHIBIT 1.1B hereto (the "Certificate of Amendment").
------------
1.2 CLOSING. The Company agrees to issue and sell to the Investors the
Preferred Stock, and subject to and in reliance upon the representations,
warranties, terms and conditions of this Agreement, the Investors, severally but
not jointly, agree to purchase, the Preferred Stock for the purchase price and
in the amounts set forth opposite their respective names in EXHIBIT 1.1A hereto.
------------
Such purchase and sale shall take place at a closing (the "Closing") to be held
at the offices of Stradling, Yocca, Carlson & Rauth, 660 Newport Center Drive,
Suite 1600, Newport Beach, California 92660-6441, on October 10, 1995, at 9:00
a.m., or on such other date and at such time as may be mutually agreed upon by
the parties. At the Closing, the Company will issue and deliver certificates
evidencing the Preferred Stock sold at the Closing, all in the amounts set forth
opposite their respective names in EXHIBIT 1.1A hereto and in such denominations
------------
as each such Investor shall
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specify, against wire transfers to the account of the Company or the delivery of
checks payable to the order of the Company in immediately available funds in
payment of the full purchase price for the Preferred Stock.
1.3 REPRESENTATIONS AND WARRANTIES BY THE INVESTORS.
(a) INVESTMENT. Each Investor, severally but not jointly, represents
that:
(i) Investor has been advised that the Shares have not been registered
under the Securities Act nor qualified under any state securities laws on the
ground, among others, that no distribution or public offering of the Shares is
to be effected, and that in this connection the Stockholders and the Company are
relying in part on the representations of Investors set forth herein.
(ii) It is Investor's intention to acquire the Shares for its own
account and that the Shares are being and will be acquired for the purpose of
investment and not with a view to distribution or resale thereof.
(iii) Each Investor is able to bear the economic risk of an investment
in the Shares acquired by it pursuant to this Agreement and can afford to
sustain a total loss on such investment.
(iv) Each Investor is an experienced and sophisticated investor, is
able to fend for itself in the transactions contemplated by this Agreement, and
has such knowledge and experience in financial and business matters that it is
capable of evaluating the risks and merits of acquiring the Shares. Each
Investor has had, during the course of this transaction and prior to its
purchase of the Shares, the opportunity to ask questions of, and receive answers
from, the Company and its management concerning the Company and the terms and
conditions of this Agreement. Each Investor hereby acknowledges that it or its
representatives have received all such information as it considers necessary for
evaluating the risks and merits of acquiring the Shares and for verifying the
accuracy of any information furnished to it or to which it had access. Each
Investor represents and warrants that the nature and amount of its investment in
connection with the purchase of the Shares is consistent with its investment
objectives, abilities and resources.
(v) Each Investor understands that there is no public market for the
Shares and that there may never be such a public market, and that even if a
market develops it may never be able to sell or dispose of the Shares and may
thus have to bear the risk of its investment for a substantial period of time,
or forever. Each Investor is aware that none of the Shares may be sold pursuant
to Rule 144 adopted under the Securities Act unless certain conditions have been
met and until Investors has held the Shares for at least two years. Among the
conditions required for use of Rule 144 is the availability of current
information to the public about the Company. Each Investor understands that the
Company has not made such information available and has no present plans to do
so.
(vi) Each Investor is an "accredited investor" for purposes of
Regulation D promulgated by the Securities and Exchange Commission under the
Securities Act and not counted as a "purchaser" for purposes of Section 25102(f)
of the California Corporate Securities Law of 1968.
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(vii) Investors acknowledge that the certificates representing the
Shares shall contain the following legend:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933 OR REGISTERED OR
QUALIFIED UNDER ANY STATE SECURITIES LAW; THEY HAVE BEEN ACQUIRED
BY THE HOLDER FOR INVESTMENT AND MAY NOT BE PLEDGED,
HYPOTHECATED, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT
AS MAY BE AUTHORIZED UNDER THE SECURITIES ACT OF 1933 AND THE
RULES AND REGULATIONS PROMULGATED THEREUNDER AND ANY APPLICABLE
STATE SECURITIES LAW.
(b) AUTHORIZATION. Each Investor, severally but not jointly, further
represents that:
(i) It has duly authorized, executed and delivered this Agreement and
any other agreements and instruments executed in connection herewith.
(ii) This Agreement and such other agreements and instruments
constitute the valid and binding obligations of Investor or Investors, as the
case may be, enforceable against it in accordance with their respective terms.
(iii) No consent or approval of any Person is required in connection
with the execution, delivery and performance of this Agreement and such other
agreements and instruments by Investor which has not heretofore been obtained.
(iv) Execution and performance of this Agreement shall not result in a
material default of other agreements or instruments by Investor.
(c) OTHER. Investors represent that no Person has or will have, as a
result of the transactions contemplated by this Agreement, any right, interest
or valid claim upon or against the Company, Investors or Stockholders for any
commission, fee or other compensation as a finder or broker because of any act
or omission by the Investors, and the Investors agree to indemnify and hold the
Stockholders harmless against any such commissions, fees or other compensation.
1.4 DESIGNATED REPRESENTATIVE OF THE INVESTORS. Investors will designate,
in writing, a representative who shall be authorized to act on behalf of
Investors with respect to all matters related to this Agreement and the
Stockholders and the Company shall be entitled to rely, without further
investigation, on the actions of the Designated Representative. Initially, the
Designated Representative for the Summit partnerships shall be Mr. Gregory M.
Avis and the Designated Representative for the Crosspoint partnerships shall be
Rich Shapero. The Designated Representative may be changed by a written
instrument executed by all of the Investors and provided to the Company and the
Stockholders pursuant to Section 11.5 hereof.
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1.5 USE OF PROCEEDS AND CONSENT TO REDEMPTION. The Company may use up to
Twelve Million Five Hundred Thousand Dollars ($12,500,000) of the proceeds from
the sale of the Preferred Stock to repurchase shares of Common Stock owned by
the Stockholders. The Investors hereby consent to the Company's redemption
pursuant to the terms of the Redemption Agreement of 3,375,900 shares of its
Common Stock from the Stockholders as listed on EXHIBIT 1.5 hereto for the
-----------
number of shares and for the aggregate redemption price set forth opposite each
Stockholder's name for an aggregate redemption price of up to Twelve Million
Five Hundred Dollars ($12,500,000). Remaining proceeds from the sale of the
Preferred Stock shall only be used for working capital purposes and to pay the
broker's fee to Nantucket Holding Company and the bonuses payable to employees
of the Company as listed in the Disclosure Letter.
ARTICLE 2
CONDITIONS PRECEDENT TO INVESTORS' OBLIGATIONS
The obligation of Investors to purchase and pay for the Shares at the
Closing is subject to the fulfillment, or the waiver by the Investors, at or
prior to the Closing, of each of the following conditions (provided that any
such waiver, to be effective, must be in writing and signed by the Investors):
2.1 REPRESENTATIONS AND WARRANTIES. Each of the representations and
warranties of the Company and the Stockholders set forth in Article 4 hereof
shall be true in all material respects on the date of the Closing.
2.2 ABSENCE OF LITIGATION. Absence of litigation, whether brought against
the Company, the Investors or any of the Stockholders, seeking to prevent the
consummation of the transactions contemplated by this Agreement, and no such
litigation shall have been threatened nor shall there be in effect any order
restraining or prohibiting the consummation of the transactions contemplated by
this Agreement nor any proceedings pending with respect thereto.
2.3 PERFORMANCE OF OBLIGATIONS. The Company and the Stockholders shall
have performed and complied, in all material respects, with all covenants,
conditions and obligations required by this Agreement to have been performed by
the Company and the Stockholders at or prior to the Closing.
2.4 DOCUMENTATION AT CLOSING. Investors shall have received prior to or
at the Closing all of the following, each in form and substance satisfactory to
the Investors and their special counsel, and all of the following events shall
have occurred prior to or simultaneous with the Closing hereunder:
(a) A copy of all charter documents of the Company and Subsidiaries
certified by the Secretary of their respective states of incorporation, a
certified copy of the resolutions of the Board of Directors and, if required,
the stockholders of the Company, evidencing approval of this Agreement, and
other matters contemplated hereby, a certified copy of the bylaws of the Company
and Subsidiaries, and certified copies of all documents evidencing other
necessary corporate or other action and governmental approvals, if any, with
respect to this Agreement and the Shares.
4
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(b) An opinion of Paul, Hastings, Janofsky & Walker, counsel for the
Company and the Stockholders, in the form set forth in EXHIBIT 2.4B.
------------
(c) A certificate of the Secretary or an Assistant Secretary of the
Company stating the names of the officers of the Company authorized to sign this
Agreement, the certificates for the Common Stock and the other documents or
certificates to be delivered pursuant to this Agreement by the Company or any of
its officers, together with the true signatures of such officers. The Investors
may conclusively rely on such certificate until they shall receive a further
certificate of the Secretary or Assistant Secretary of the Company cancelling or
amending the prior certificate and submitting the signatures of the officers
named in such further certificate.
(d) A certificate from the Chief Executive Officer of the Company
stating that the representations and warranties of the Company contained in
Article 4 hereof and otherwise made by the Company in writing in connection with
the transactions contemplated hereby are true and correct as of the date of
Closing, as if such representations and warranties were made on the date of
Closing and that all conditions required to be performed by the Company prior to
or at the Closing have been performed, and that no condition or event has
occurred or is continuing or will result from the execution and delivery of this
Agreement, which is a breach of a material term hereof or would constitute a
breach of a material term hereof but for the requirement that notice be given or
time elapse or both.
(e) Stock Certificates representing the Shares shall be delivered by
the Company on or prior to the Closing.
(f) A Stockholders' Agreement, in the form set forth in EXHIBIT 2.4F,
------------
shall have been executed and delivered by each of the parties thereto.
(g) A Repurchase Agreement in the form set forth in EXHIBIT 2.4G,
------------
shall have been executed and delivered by the Company.
(h) A Registration Rights Agreement, in the form set forth in EXHIBIT
-------
2.4H, shall have been executed and delivered by each of the parties thereto.
- ----
(i) An Indemnity Agreement, in the form set forth in EXHIBIT 2.4I,
------------
shall have been executed and delivered by the Company to each Investor and the
Investor's designee to the Board of Directors.
(j) A Redemption Agreement, in the form set forth in EXHIBIT 2.4J,
------------
shall have been separately executed by each of the Stockholders with the
Company.
2.5 MATERIAL ADVERSE CHANGE. There shall not have been, subsequent to the
balance sheet of the Company dated August 31, 1995, any material adverse change
in the financial condition of the business of the Company, or its assets,
liabilities, business, results of operations, prospects or customer, supplier or
employee relations, other than changes occurring in the normal course of the
business of the Company.
5
<PAGE>
2.6 DUE DILIGENCE. Investors and their representatives shall have
completed their business, legal and accounting due diligence investigation and
Investors shall be satisfied, in their sole discretion, with the results
thereof.
2.7 CONSENTS, WAIVERS, ETC. Prior to the Closing, Investors and the
Company shall have obtained all consents or waivers, if any, necessary to
execute and deliver this Agreement, issue the securities to Investors, purchase
the shares of Common Stock from the Stockholders and to carry out the
transactions contemplated hereby and thereby, and all such consents and waivers
shall be in full force and effect. All corporate and other action and
governmental filings necessary to effectuate the terms of this Agreement and
other agreements and instruments executed and delivered by the Company in
connection herewith shall have been made or taken, except for any post-sale
filing that may be required under federal and state securities laws. In
addition to the documents set forth above, the Company shall have provided the
Investors any other information or copies of documents that they may reasonably
request.
2.8 EVIDENCE OF PAYMENT. The Company shall deliver to Investors, evidence
satisfactory to Investors and its counsel that all fees due and owing to
Nantucket Holding Company have been paid or adequately provided for by the
Company and the Company undertakes to hold Investors harmless from any such
fees.
ARTICLE 3
CONDITIONS PRECEDENT TO COMPANY'S OBLIGATIONS
The obligations of the Company to consummate the issuance and sale of the
Shares to Investors at the Closing and of the Company and the Stockholders to
perform their other obligations under this Agreement shall be subject to the
fulfillment, or the waiver by the Company or the Stockholders, as the case may
be, at or prior to the Closing, of each of the following conditions (provided
that any such waiver, to be effective, must be in writing and signed by the
Company or the Stockholders):
3.1 REPRESENTATIONS AND WARRANTIES. The representations and warranties
made by the Investors in this Agreement shall have been true and correct at and
as of the date hereof, and they shall be true and correct at and as of the
Closing with the same force and effect as though made at and as of that time.
3.2 ABSENCE OF LITIGATION. Absence of litigation, whether brought against
the Company, the Investors or any of the Stockholders, seeking to prevent the
consummation of the transactions contemplated by this Agreement, and no such
litigation shall have been threatened nor shall there be in effect any order
restraining or prohibiting the consummation of the transactions contemplated by
this Agreement nor any proceedings pending with respect thereto.
3.3 PERFORMANCE OF OBLIGATIONS. Investors shall have performed and
complied, in all material respects, with all of their covenants, conditions and
obligations required by this Agreement to be performed or complied with by them
at or prior to the Closing.
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3.4 DOCUMENTATION AT CLOSING. The Company shall have received prior to or
at the Closing all of the following, each in form and substance satisfactory to
the Company and its counsel, and all of the following events shall have occurred
prior to or simultaneous with the Closing hereunder:
(a) Receipt from Investors of certificates, each dated as of the date
of Closing and signed by a partner of Investors certifying that (i) their
representations and warranties contained herein were true and correct as of the
Closing Date with the same force and effect as if such representations and
warranties had been made on the Closing Date, and (ii) they have performed and
complied in all material respects with all agreements, obligations, covenants
and conditions required to be performed or complied with by them pursuant hereto
on or prior to the Closing Date, except as may be waived in writing by the
Stockholders.
(b) A Stockholders' Agreement, in the form set forth in EXHIBIT 2.4F,
------------
shall have been executed by the parties named therein.
(c) A Repurchase Agreement, in the form set forth in EXHIBIT 2.4G,
------------
shall have been executed by the parties named therein.
(d) A Registration Rights Agreement, in the form set forth in EXHIBIT
-------
2.4H, shall have been executed by the parties named therein.
- ----
(e) An Indemnity Agreement, in the form set forth in EXHIBIT 2.4I,
------------
shall have been executed and delivered by the Company to each Investor and the
Investor's designee to the Board of Directors.
(f) A Redemption Agreement, in the form set forth in EXHIBIT 2.4J,
------------
shall have been executed by the Stockholders.
3.5 PAYMENT. Concurrently, the Stockholders shall receive payment in
full, from the Company for their shares of Common Stock, in the respective
amounts and in the form set forth in EXHIBIT 1.5 hereto and the Company shall
-----------
have received payment in full from the Investors for the Shares.
3.6 CONSENTS, WAIVERS, ETC. Prior to the Closing, Investors and the
Company shall have obtained all consents or waivers, if any, necessary to
execute and deliver this Agreement, issue the securities of Investors, to
purchase the Shares and to carry out the transactions contemplated hereby and
thereby, and all such consents and waivers shall be in full force and effect.
All corporate and other action and governmental filings necessary to effectuate
the terms of this Agreement and other agreements and instruments executed and
delivered by Investors and the Company in connection herewith shall have been
made or taken, except for any post-sale filing that may be required under
federal and state securities laws. In addition to the documents set forth
above, the Investors shall have provided the Company any other information or
copies of documents that they may reasonably request.
3.7 CORDERO ELECTED TO SERVE AS CHAIRMAN OF THE BOARD. At the Closing,
Mr. Cordero shall be elected to serve as Chairman of the Board of Directors of
the Company pursuant to the terms of the Stockholders' Agreement in the form set
forth in EXHIBIT 2.4F.
------------
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ARTICLE 4
REPRESENTATIONS AND WARRANTIES
4.1 REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company represents
and warrants to the Investors that:
(a) ORGANIZATION AND STANDING OF THE COMPANY AND SUBSIDIARIES. The
Company and each of its Subsidiaries, if any, is a duly organized and validly
existing corporation in good standing under the laws of the jurisdiction in
which it is organized and has all requisite corporate power and authority for
the ownership and operation of its properties and for the carrying on of its
business as now conducted and as now proposed to be conducted. The Company and
each of its Subsidiaries is duly licensed or qualified and in good standing as a
foreign corporation authorized to do business in all jurisdictions in which the
character of the property owned or leased, or the nature of the activities
conducted, by it makes such licensing or qualification necessary and where
failure to qualify would have a material adverse effect upon such corporation.
(b) CORPORATE ACTION. The Company has all necessary corporate power
and has taken all corporate action required to make all the provisions of this
Agreement, and any other agreements and instruments executed in connection
herewith, the valid and enforceable obligations of the Company.
(c) GOVERNMENTAL APPROVALS. No authorization, consent, approval,
license, exemption of or filing or registration with any court or governmental
department, commission, board, bureau, agency or instrumentality, domestic or
foreign, is or will be necessary for, or in connection with the execution or
delivery by the Company of, or for the performance by it of its obligations
under, this Agreement or the Certificate of Amendment except for filings to be
made, if any, to comply with exemptions from registration or qualification under
federal and state securities laws.
(d) LITIGATION. Except as disclosed on the Disclosure Letter, there
is no litigation or governmental proceeding or investigation pending nor, to the
best knowledge of the Company, threatened against the Company or its
Subsidiaries affecting any of their properties or assets, or, to the knowledge
of the Company, against any officer or key employee of the Company or its
Subsidiaries or the Stockholders that might result, either in any case or in the
aggregate, in any material adverse change in the business, operations, affairs
or conditions of the Company, its Subsidiaries or any of their properties or
assets taken as a whole, or that might call into question the validity of this
Agreement, any of the Shares, or any action taken or to be taken pursuant
hereto.
(e) COMPLIANCE WITH OTHER INSTRUMENTS. The Company and its
Subsidiaries are in compliance in all respects with the terms and provisions of
their certificates of incorporation or bylaws and in all material respects with
the terms and provisions of this Agreement and to the best of the Company's
knowledge, (i) except as set forth on the Disclosure Letter, in all material
respects with the terms and provisions of each mortgage, indenture, lease,
agreement and other instrument relating to obligations of the Company and its
Subsidiaries in excess of $25,000, individually or $100,000 in the aggregate,
and, (ii) of all judgments, decrees, governmental orders, statutes, rules or
regulations by which they are bound or to which their properties or assets are
subject. To the best
8
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of the Company's and its Subsidiaries' knowledge, there is no term or provision
in any of the foregoing documents and instruments that the Company believes are
likely to materially adversely affects the business, assets or financial
condition of the Company or its Subsidiaries. Neither the execution and
delivery of this Agreement or the Certificate of Amendment, nor the consummation
of any transaction contemplated hereby or thereby, has constituted or resulted
in or will constitute or result in a default or violation of any term or
provision in the certificates of incorporation or bylaws of the Company or its
Subsidiaries and to the best of the Company's and its Subsidiaries' knowledge,
has constituted or resulted in a default or violation of any term or provision
in any documents or instruments.
(f) STOCK OWNERSHIP. To the best of the Company's knowledge, the
Stockholders are, and at the Closing will be, the sole owners of record, and to
the Company's knowledge beneficially, of the shares of the Company's common
stock reflected in the Disclosure Letter, free and clear of all claims, liens,
encumbrances, security interests, pledges, options, charges, restrictions and
defects in title of any nature whatsoever, other than restrictions imposed by
federal and applicable state securities laws which do not constitute an
impediment to the transfer described in this Agreement. The Shares shall
constitute 100% of the issued and outstanding shares of capital stock of the
Company not otherwise owned beneficially and of record as of the Closing by
Investors.
(g) REGISTRATION RIGHTS. Except as provided in the Registration
Rights Agreement attached hereto as EXHIBIT 2.4H, no Person has demand or other
------------
rights to cause the Company to file any registration statement under the
Securities Act relating to any securities of the Company or any right to
participate in an offering of shares under any such registration statement.
(h) SECURITIES ACT OF 1933. The Company has complied with all
applicable federal and state securities laws in connection with the issuance and
sale of the Shares. Neither the Company nor anyone acting on its behalf has
offered or will offer to sell the Shares, or similar securities to, or solicit
offers with respect thereto from, or enter into any preliminary conversations or
negotiations relating thereto with, any Person, so as to bring the issuance and
sale of the Shares under the registration provisions of the Securities Act of
1933, as amended (the "Securities Act").
(i) NO BROKERS OR FINDERS. Except for the fees owed to Nantucket
Holding Company which shall be fully satisfied by the Company, the Company has
not taken any action nor failed to take any action and knows of no such act or
omission by any Person, which would give rise to any right, interest or valid
claim against or upon the Company for any commission, fee or other compensation
as a finder or broker as a result of the transactions contemplated by this
Agreement.
(j) CAPITALIZATION; STATUS OF CAPITAL STOCK. Immediately preceding
the Closing and the transaction described in Section 1.1, the Company will have
a total authorized capitalization consisting of 20,000,000 shares of Common
Stock, $.0001 par value, of which 9,300,000 shares are issued and outstanding
(the "Common Stock"), and 3,375,900 shares of Preferred Stock, none of which are
outstanding. A complete list of the shares of Common Stock currently issued and
outstanding and the names in which such shares are registered is set forth in
the Disclosure Letter. Except as set forth herein, or in the Disclosure Letter,
there are no options, warrants or rights to purchase shares of capital stock or
other securities authorized, issued or outstanding, nor is the Company obligated
in any other manner to issue shares of its capital stock or other securities.
The Common Stock constitutes 100% of the issued and outstanding shares of
capital stock of the Company as of the date hereof.
9
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(k) FINANCIAL STATEMENTS. The Financial Statements of the Company for
the year ended December 31, 1993 as reviewed by Singer, Lewak, Greenbaum &
Goldstein, for the year ended December 31, 1994, as audited by Deloitte &
Touche, LLP and the unaudited statement for the eight months ended August 31,
1995 (collectively, the "Financial Statements"), copies of which Financial
Statements, along with any officers reports, have heretofore been delivered to
Investors or their special counsel and are attached to the Disclosure Letter,
were prepared in accordance with generally accepted accounting principles
consistently applied throughout the periods involved, subject to year-end
adjustments which would not be materially adverse with respect to the Financial
Statements at and for the period ending August 31, 1995, and fairly present the
financial position and results of operations of the Company and Subsidiaries for
the periods covered.
(l) ABSENCE OF CHANGES. Except as set forth on the Disclosure Letter,
since August 31, 1995 there has not been any material and adverse change in the
business, properties, prospects, or financial condition of the Company; provided
that any statement set forth in the Disclosure Letter which describes any event
or condition of any type which excepts the representations and warranties of the
Company provided in this Agreement shall clearly refer to the section number of
such affected representations and warranties.
(m) GOOD AND MARKETABLE TITLE. Except for the Liens (as defined in
Section 4.2(g) (x)), the Company and Subsidiaries have good and marketable title
to, or a valid leasehold interest in, their tangible properties and assets in
each case free and clear of all liens, claims, security interests, charges and
encumbrances and have the right to use all the assets they presently use in the
operation of their businesses. The properties and assets of the Company and
Subsidiaries are in all material respects in condition and repair adequate to
continue to conduct the business as currently conducted.
(n) SUBSIDIARIES. Except for the corporations listed on the
Disclosure Letter hereto, the Company does not control, directly or indirectly,
any other corporation, association, partnership or other business entity or own
any shares of capital stock or other securities of any other Person.
(o) TAXES AND TAX RETURNS.
(i) Except as set forth on the Disclosure Letter: (i) the Company has
duly filed all Tax Returns (as hereinafter defined) which are required by law to
be filed by it; (ii) the Company has duly paid all Taxes (as hereafter defined)
due or claimed to be due from it (whether or not shown on any Tax Return), and
there are no assessments or claims for payment of Taxes now pending or, to the
best knowledge of the Company, threatened, nor is there any audit of the records
of the Company being made or, to the best of the Company's knowledge threatened
by any taxing authority; (iii) there are no facts or circumstances known to the
Company which could reasonably be expected to constitute a basis for assessments
or claims for the payment of additional Taxes with respect to such Tax Returns;
(iv) each Tax Return of the Company previously filed, or to be filed in the
future relating to any period up to the date of Closing, is or will be (as the
case may be) correct and complete in all respects; and (v) the Company is not
currently the beneficiary of any extension of time within which to file any Tax
Return. The amounts set up as provisions for Taxes, if any, on the December 31,
1994 and August 31, 1995 balance sheets of the Company included in the Financial
Statements are sufficient for the payment of all unpaid Taxes of the Company
accrued for or applicable to the periods ended on such date and all years and
periods prior thereto and for
10
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which the Company, at those dates, may have been liable. The Company has
properly withheld and paid, or accrued for payment, when due, to appropriate
state and/or federal authorities, all sales and use taxes, if any, and all
amounts required to be withheld from payments made to its employees, independent
contractors, creditors, stockholders, or other third parties and has also paid
all employment taxes as required under applicable laws.
(ii) The Company has not waived any statute of limitation in respect
of any taxes or assessments by any federal, state, county, local, foreign or
other taxing jurisdiction or agreed to any extension of time with respect to an
assessment or deficiency in any tax. The Company has not filed a consent under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code")
concerning collapsible corporations.
(iii) The Company has not made any payments, and is not obligated to
make any payments, nor is the Company a party to any agreement that under any
circumstances could obligate it to make any payments, that would not be
deductible under Section 280G of the Code. The Company has not 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. The Company is not a party to any tax allocation or tax sharing
agreement.
(iv) The Company (i) is not and never has been required to file a
consolidated or combined state or federal income Tax Return with any other
person or entity and (ii) is not liable for the Taxes of any person under Treas.
Reg. (S) 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract or otherwise.
(v) For purposes of this Agreement, the term "Tax" or "Taxes" means
any federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs duties, capital
stock, franchise profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
(vi) For purposes of this Agreement, the term "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(vii) The Company hereby makes no representations or warranties
regarding the tax effects of the transactions contemplated hereby on Investors,
the Company or the Stockholders. Each party has relied on its own advisors with
respect to such tax effects.
(p) INSURANCE. Included in the Disclosure Letter is a complete list
of all insurance policies currently maintained by the Company and Subsidiaries
and in effect, and, with respect to each of such policies, a general description
of the risks covered and claims insured; copies of all of such policies have
been furnished or made available to Investors. The Company deems its insurance
to be adequate for a business of the type of business of the Company.
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(q) CERTAIN TRANSACTIONS. Except as set forth in the Disclosure
Letter, the Company is not indebted, either directly or indirectly, to any of
the officers, directors, or stockholders of the Company, or, to their respective
spouses or children, in any amount whatsoever, other than for payment of salary
for services rendered and reasonable expenses, and none of said officers,
directors, stockholders or any members of their immediate families, are indebted
to the Company. None of the Stockholders, nor, to the knowledge of the Company,
any other Person, have any direct or indirect ownership interest in (other than
ownership interests of one percent (1%) or less in companies whose securities
are publicly traded), or any contractual relationship with, any firm,
corporation or other Person with which the Company is affiliated or with which
the Company has a business relationship, or any firm, corporation or other
Person which competes with the Company. None of the Stockholders, nor, to the
best knowledge of the Company, any other officer, director or, stockholder, or
any member of their immediate families, are, directly or indirectly, a party to
or otherwise an interested party with respect to any material contract with the
Company.
(r) CONTRACTS AND COMMITMENTS.
(i) Except as expressly contemplated by this Agreement, or as set
forth in the Disclosure Letter, as of the Closing neither the Company nor
Subsidiaries will be a party to, or bound by, any currently effective written
or oral:
(A) pension, profit sharing, stock option, employee stock purchase or
other plan providing for deferred, incentive or other compensation to employees
or any other employee benefit plan, or any contract with any labor union;
(B) contract for the employment of any officer, individual employee,
or other person or entity on a full-time, part-time, consulting or other basis
which, in any way, restricts or limits its right to terminate such contract at
will (but such schedule need not disclose the existence of any law, public
policy, or any oral discussions, or oral statements of policy which might,
under current law, be interpreted as imposing upon the Company any covenant of
good faith and fair dealing, or otherwise generally restrict the Company's
ability to terminate its employees other than on an "at-will" basis or within
sixty (60) days following delivery of a notice of termination);
(C) agreement or indenture relating to the borrowing of money or to
the mortgaging, pledging, transfer of a security interest, or otherwise placing
a lien on any material asset or material group of assets of the Company;
(D) guarantee of any obligation;
(E) lease or agreement under which it is the lessee of or holds or
operates any property, real or personal, owned by any other party; but there may
be excluded from such Schedule leases or agreements under which the aggregate
annual rental payments of the Company do not, in the aggregate, exceed $50,000;
(F) agreement or group of related agreements with the same party or
any group of parties who are affiliated, which requires an aggregate payment by
or to the Company in an amount in excess of (x) with respect to purchase or
sales orders in the ordinary course of business, $50,000, and (y) with respect
to any other contracts, $25,000;
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(G) warranty agreement of the Company with respect to services
provided or products sold, licensed or leased by the Company as seller, licensor
or lessor;
(H) contract or agreement prohibiting it from freely engaging in any
business or competing anywhere in the world; or
(I) any other agreement which in the best judgment of the Company is
material to its business.
(ii) The Company and Subsidiaries have performed in all material
respects all obligations required to be performed by them and are not in default
under, or in material breach of, or after due inquiry, in receipt of any claim
of default under or breach of, any material agreement, all of which are
described in the Disclosure Letter, to which any of them are a party or to which
their assets are subject; the Company has no present expectation or intention of
not fully performing all such obligations; the Company does not have any
knowledge of any material breach or anticipatory breach by the other parties to
any material contract or commitment which is required to be disclosed in the
Disclosure Letter; and to the best of the Company's knowledge none of the
Company or its Subsidiaries is a party to any contract or contracts which,
either individually or in the aggregate, are reasonably likely to result in a
material loss to the Company. To the best knowledge of the Company and the
Stockholders, there are no warranty claims or other uninsured claims under
completed contracts which might involve a material monetary liability which is
not reserved against in the Financial Statements.
(iii) None of the Stockholders nor, to the best knowledge of the
Company, any other officer of the Company or Subsidiaries, is a party to any
oral or written contract which prohibits, or materially restricts or limits his
performance of his duties or the fulfillment of his obligations as an employee
and an officer of the Company or Subsidiary.
(iv) A true and correct copy of each of the written contracts and a
description of the oral contracts which are referred to in the Disclosure
Letter, referred to above, together with all amendments, waivers or other
changes thereto, have been supplied to the Investors' special counsel, Messrs.
Stradling, Yocca, Carlson & Rauth.
(s) ERISA. Except as set forth in the Disclosure Letter, Company does
not have any (i) labor agreement to which it is a party, or by which it is
bound, including "employee pension benefit plans" as defined in Section 3(2) of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
("ERISA Plans"); (ii) employment, profit sharing, deferred compensation, bonus,
pension, retainer, consulting, retirement, welfare or incentive plan or contract
to which it is a party, or by which it is bound; (iii) written or other formal
personnel policies; or (iv) plan or agreement under which "fringe benefits"
(including, but not limited to, vacation plans or programs, sick leave plans or
programs, and related benefits) are afforded to its employees over and above
those usual and customary in the Company's industry. True and correct copies of
all such agreements have been delivered to Investors. The Internal Revenue
Service has issued a favorable determination letter with respect to each ERISA
Plan which has not been revoked or modified, and neither Alfonso Cordero nor
Company has any reason to believe that anything has occurred or any change or
amendment has been made which would adversely effect the qualification of the
ERISA Plan under Section 401 of the Internal Revenue Code of 1986 (the "Code")
or any of the trusts maintained pursuant thereto under Section 501 of the Code.
All contributions required by law to
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have been made under each ERISA Plan prior to the Closing Date shall have been
made. No event of the type set forth in Section 4403(b) of ERISA has occurred
and is continuing with respect to each ERISA Plan other than as may result from
the transactions contemplated hereby. There are no material claims,
investigations or lawsuits which had been asserted or instituted against the
assets of any of the trusts under each ERISA Plan and no reasonable basis for
any such claim or lawsuit exists. Each ERISA Plan has been maintained, operated
and administered in all material respects, in accordance with its terms and all
provisions of ERISA (including rules and regulations thereunder) and other
applicable laws.
(t) INTELLECTUAL PROPERTY. Except as set forth in the Disclosure
Letter, the Company and Subsidiaries have sufficient title to and ownership of,
or have sufficient licenses to, or to the best of the Company's knowledge can
obtain on terms which will not result in any material adverse effect on their
businesses, all necessary licenses, trademarks, service marks, tradenames,
copyrights, trade secrets, inventions, processes, designs, franchises, computer
software and other proprietary rights and to the best knowledge of the Company
all necessary patents necessary for their businesses as now conducted, or
proposed to be conducted, without any conflict with or infringement of the
rights of others; provided, however, the Company and the subsidiaries have
undertaken, or caused to be undertaken, only the searches as set forth on the
Disclosure Letter for third party intellectual property rights which might
affect their business as now conducted or proposed to be conducted. The
Disclosure Letter sets forth all inventions which are the subject of issued
patent letters or an application therefor, which are owned and used or held for
use by the Company or any of its Subsidiaries and which are material to the
business of the Company and its Subsidiaries taken as a whole. The Company and
its Subsidiaries have taken measures they deem reasonable to maintain the
confidentiality of the processes and formulae, research and development results
and other know-how of the Company or any of its Subsidiaries, the value of which
to the Company or such Subsidiary is contingent upon maintenance of the
confidentiality thereof. The Company has received no communication or notice
form any third party claimants that it or its Subsidiaries have violated, or, by
conducting their businesses as proposed, would violate, any of the patents,
licenses, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights of any other person or entity. The Company is not
aware of any third party which is infringing or violating any of the patents,
licenses, trademarks, service marks, tradenames, copyrights, trade secrets or
other proprietary rights of the Company or its Subsidiaries. Neither the
Company nor any of its Subsidiaries has granted any license or option or entered
into any agreement of any kind with respect to the use of their proprietary
information, other than licenses to and uses of their products made in the
ordinary course of their business.
(u) ENVIRONMENTAL MATTERS. The Company and its Subsidiaries have not,
contrary to applicable statutes and regulations, stored or disposed of, on,
under or about their premises hazardous materials. As used in this Agreement,
the term "hazardous materials" shall mean substances defined as "hazardous
substances" or "hazardous materials" or "toxic substances" in the Comprehensive
Environmental Response and Compensation Liability Act of 1980, as amended, 42
U.S.C., Section 9601, et seq.; The Hazardous Materials Transportation Act, 49
U.S.C., Section 1801, et seq.; The Resource Conservation Recovery Act, 42
U.S.C., Section 6901, et seq.; and those substances defined as hazardous wastes
or hazardous substances in any applicable California statutes or codes and any
regulations or publication promulgated pursuant to any of said laws or
regulations.
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(v) COMPLIANCE WITH LAWS. Except as disclosed in the Disclosure
Letter, the Company and its Subsidiaries have complied in all material respects
with all applicable United States' federal, state, municipal and other political
subdivision or governmental agency statutes, ordinances and regulations, and to
the best of their knowledge, the Company and its Subsidiaries have complied in
all material respects with all applicable foreign statutes, ordinances and
regulations and with all United States' federal statutes, ordinances and
regulations as they apply to doing business in other countries.
(w) MARGIN REGULATIONS; USE OF PROCEEDS. The Company neither owns nor
intends to acquire any "margin stock" as defined in Regulation G of the Board of
Governors of the Federal Reserve System (12 CFR 207).
(x) DISCLOSURE. No representation, warranty or statement by the
Company in this Agreement or in any written certificate required by this
Agreement to be furnished to the Investors or their counsel pursuant to this
Agreement contains or will contain any untrue statement of material fact or
taken together with all information furnished to Investors or their
representatives, omits or will omit to state a material fact necessary to make
the statements made herein or therein, in light of the circumstances under which
they were made, not misleading, it being understood that Investors have not
received or been provided with a "prospectus" (as defined in the Securities Act)
covering the Company.
4.2 REPRESENTATIONS AND WARRANTIES OF THE STOCKHOLDERS. Each Stockholder,
severally but not jointly with the Company or any other Stockholder, represents
and warrants to the Investors that:
(a) LITIGATION. Except as listed in the Disclosure Letter, to the
best knowledge of such Stockholder there is no litigation or governmental
proceeding or investigation pending or threatened against the Company or its
Subsidiaries affecting any of their properties or assets, or against any officer
or Key Employee of the Company or its Subsidiaries or the Stockholders that
might result, either in any case or in the aggregate, in any material adverse
change in the business, operations, affairs or conditions of the Company, its
Subsidiaries or any of their properties or assets taken as a whole, or that
might call into question the validity of this Agreement, any of the Shares, or
any action taken or to be taken pursuant hereto. Stockholder has not been
served nor has knowledge of another being served with a summons or other service
of process in which the Company or such Stockholder has been named in an action
which could have a material adverse effect upon the Company or its business.
(b) STOCK OWNERSHIP. Such Stockholder is, and at the Closing will be,
the sole owner, beneficially and of record, of the shares of the Company's
common stock reflected for such Stockholder in the Disclosure Letter, free and
clear of all claims, liens, encumbrances, security interests, pledges, options,
charges, restrictions and defects in title of any nature whatsoever, other than
restrictions imposed by federal and applicable state securities laws which do
not constitute an impediment to the transfer described in this Agreement. Such
Stockholder has not, and as of the Closing shall not have, granted or sold, and
such Stockholder is not, and at the time of Closing will not be, a party to any
agreement, commitment or understanding, written or oral, providing for the grant
or sale of, options or other rights to purchase or restricting the transfer of,
and such Stockholder is not, and at the Closing will not be, obligated to sell
or otherwise transfer, any of the shares of the Company's common stock to any
person or entity except to the Company.
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(c) REGISTRATION RIGHTS. Except as set forth in EXHIBIT 2.4H hereto,
------------
to Stockholders best knowledge no Person has demand or other rights to cause the
Company to file any registration statement under the Securities Act relating to
any securities of the Company or any right to participate in an offering of
shares under any such registration statement.
(d) NO BROKERS OR FINDERS. Except for Nantucket Holding Company,
whose fee shall be paid by the Company, such Stockholder has not taken any
action nor failed to take any action and knows of no such act or omission by the
Company, which would give rise to any right, interest or valid claim against or
upon the Company for any commission, fee or other compensation as a finder or
broker as a result of the transactions contemplated by this Agreement.
(e) CAPITALIZATION; STATUS OF CAPITAL STOCK. Immediately preceding
the Closing and the transaction described in Section 1.1, the Company will have
a total authorized capitalization consisting of 20,000,000 shares of Common
Stock, $.0001 par value, of which 9,300,000 shares are issued and outstanding,
and 3,375,900 shares of Preferred Stock, none of which are outstanding. A
complete list of the shares of Common Stock currently issued and outstanding and
the names in which such shares are registered is set forth in the Disclosure
Letter. Except as set forth herein, or in the Disclosure Letter, there are no
options, warrants or rights to purchase shares of capital stock or other
securities authorized, issued or outstanding, nor is the Company obligated in
any other manner to issue shares of its capital stock or other securities. The
Common Stock constitutes 100% of the issued and outstanding shares of capital
stock of the Company.
(f) FINANCIAL STATEMENTS. The Financial Statements fairly present
the financial position and results of operations of the Company and Subsidiaries
for the periods covered, have been prepared on a basis consistent throughout the
periods except as set forth on the Disclosure Letter and to such Stockholder's
knowledge were prepared in accordance with generally accepted accounting
principles consistently applied throughout the periods involved, subject to
year-end adjustments which would not be materially adverse with respect to the
Financial Statements at and for the period ending August 31, 1995.
(g) ABSENCE OF CHANGES. Except as set forth in the Disclosure Letter
to the best of the Stockholder's knowledge, since August 31, 1995:
(i) The Company and Subsidiaries have not entered into any material
transaction which was not in the ordinary course of their businesses.
(ii) There has been no materially adverse change in the condition
(financial or otherwise), business, properties, assets, or liabilities of the
Company and Subsidiaries other than changes in the ordinary course of their
businesses, none of which, individually or in the aggregate, has been materially
adverse.
(iii) There has been no damage to, destruction of, or loss of,
physical property of the Company and Subsidiaries (whether or not covered by
insurance) materially adversely affecting the business or operations of the
Company or Subsidiaries.
(iv) Except as contemplated herein, the Company and Subsidiaries have
not declared or paid any dividend or made any distribution on their capital
stock; redeemed, purchased or otherwise acquired any of their capital stock.
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(v) The Company and Subsidiaries have not received notice that there
has been a loss of, or material order cancellation by, any major customer of the
Company and Subsidiaries.
(vi) There has been no resignation or termination of employment of any
key officer or key employee of the Company or Subsidiaries and the Company does
not know of the impending resignation or termination of employment of any such
officer or employee.
(vii) There has been no organized labor dispute involving the Company
or Subsidiaries or any of their employees and none is pending or threatened.
(viii) There has been no material adverse change, except in the
ordinary course of their businesses, in the contingent obligations of the
Company or Subsidiaries, by way of guaranty, endorsement, indemnity, warranty,
or otherwise.
(ix) There have been no loans or guarantees made by the Company or
Subsidiaries to or for the benefit of their employees, officers or directors, or
any members of their immediate families, other than travel advances and other
advances made in the ordinary course of their businesses.
(x) The Company or Subsidiaries have not mortgaged, pledged,
transferred a security interest in, or subjected to lien any of their properties
or assets, except (a) liens for current taxes not yet delinquent, (b) liens
imposed by law and incurred in the ordinary course of business for obligations
not yet due to carriers, warehousemen, laborers, materialmen and the like, (c)
liens in respect of pledges or deposits under workers' compensation laws or
similar legislation, (d) minor defects in title which, individually or in the
aggregate, do not materially interfere with the use of such property, (e) liens
outstanding and in the aggregate less than $10,000, or (f) liens disclosed in
the Financial Statements or the notes thereto (collectively, the "Liens").
(xi) Other than in the ordinary course of business, the Company or
Subsidiaries have not sold, assigned or transferred any patents, trademarks,
copyrights, trade secrets or other valuable intangible assets, disclosed any
material proprietary confidential information to any Person other than the
Investors, their representatives or certain providers of professional services
in the ordinary course of business on a need-to-know basis.
(xii) There has been no other event or condition of any character
specifically relating to the Company or Subsidiaries which specifically pertains
to and materially adversely affects its business, properties or condition,
financial or otherwise.
(h) TAXES AND TAX RETURNS.
(i) Except as set forth in the Disclosure Letter: (i) the Company has
duly filed all Tax Returns (as hereinafter defined) which are required by law to
be filed by it; (ii) the Company has duly paid all Taxes (as hereafter defined)
due or claimed to be due from it (whether or not shown on any Tax Return), and
there are no assessments or claims for payment of Taxes now pending or, to the
best knowledge of the Stockholders, threatened, nor is there any audit of the
records of the Company being made or threatened by any taxing authority; (iii)
there are no facts or circumstances which could reasonably be expected to
constitute a basis for assessments or claims
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for the payment of additional Taxes with respect to such Tax Returns; (iv) each
Tax Return of the Company previously filed is correct and complete in all
respects; and (v) the Company is not currently the beneficiary of any extension
of time within which to file any Tax Return. The amounts set up as provisions
for Taxes, if any, on the December 31, 1994 and April 30, 1995 balance sheets of
the Company included in the Financial Statements are sufficient for the payment
of all unpaid Taxes of the Company accrued for or applicable to the periods
ended on such date and all years and periods prior thereto and for which the
Company, at those dates, may have been liable. The Company has properly
withheld and paid, or accrued for payment, when due, to appropriate state and/or
federal authorities, all sales and use taxes, if any, and all amounts required
to be withheld from payments made to its employees, independent contractors,
creditors, stockholders, or other third parties and has also paid all employment
taxes as required under applicable laws.
(ii) The Company has not waived any statute of limitation in respect
of any taxes or assessments by any federal, state, county, local, foreign or
other taxing jurisdiction or agreed to any extension of time with respect to an
assessment or deficiency in any tax. The Company has not filed a consent under
Section 341(f) of the Internal Revenue Code of 1986, as amended (the "Code")
concerning collapsible corporations.
(iii) The Company has not made any payments, and is not obligated to
make any payments, nor is the Company a party to any agreement that under any
circumstances could obligate it to make any payments, that would not be
deductible under Section 280G of the Code. The Company has not 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. The Company is not a party to any tax allocation or tax sharing
agreement.
(iv) The Company (i) is not and never has been required to file a
consolidated or combined state or federal income Tax Return with any other
person or entity and (ii) is not liable for the Taxes of any person under Treas.
Reg. (S) 1.1502-6 (or any similar provision of state, local, or foreign law), as
a transferee or successor, by contract or otherwise.
(v) For purposes of this Agreement, the term "Tax" or "Taxes" means
any federal, state, local, or foreign income, gross receipts, license, payroll,
employment, excise, severance, stamp, occupation, premium, windfall profits,
environmental (including taxes under Code Section 59A), customs duties, capital
stock, franchise profits, withholding, social security, unemployment,
disability, real property, personal property, sales, use, transfer,
registration, value added, alternative or add-on minimum, estimated, or other
tax of any kind whatsoever, including any interest, penalty, or addition
thereto, whether disputed or not.
(vi) For purposes of this Agreement, the term "Tax Return" means any
return, declaration, report, claim for refund, or information return or
statement relating to Taxes, including any schedule or attachment thereto, and
including any amendment thereof.
(vii) Such Stockholder hereby makes no representations or warranties
regarding the tax effects of the transactions contemplated hereby on Investors,
the Company or Investors. Each party has relied on its own advisors with respect
to such tax effects.
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(i) CONTRACTS AND COMMITMENTS.
(i) Except as expressly contemplated by this Agreement, or as set
forth in the Disclosure Letter, and to the best of such Stockholder's knowledge,
as of the Closing the Company, or Subsidiaries will not be a party to, or bound
by, any currently effective written or oral:
(A) pension, profit sharing, stock option, employee stock purchase or
other plan providing for deferred, incentive or other compensation to
employees or any other employee benefit plan, or any contract with any
labor union;
(B) contract for the employment of any officer, individual employee,
or other person or entity on a full-time, part-time, consulting or other
basis which, in any way, restricts or limits its right to terminate such
contract at will (but such schedule need not disclose the existence of any
law, public policy, or any oral discussions, or oral statements of policy
which might, under current law, be interpreted as imposing upon the Company
any covenant of good faith and fair dealing, or otherwise generally
restrict the Company's ability to terminate its employees other than on an
"at-will" basis or within sixty (60) days following delivery of a notice of
termination);
(C) agreement or indenture relating to the borrowing of money or to
the mortgaging, pledging, transfer of a security interest, or otherwise
placing a lien on any material asset or material group of assets of the
Company;
(D) guarantee of any obligation;
(E) lease or agreement under which it is the lessee of or holds or
operates any property, real or personal, owned by any other party; but
there may be excluded from such Schedule leases or agreements under which
the aggregate annual rental payments of the Company do not, in the
aggregate, exceed $50,000;
(F) agreement or group of related agreements with the same party or
any group of parties who are affiliated, which requires an aggregate
payment by or to the Company in an amount in excess of (x) with respect to
purchase or sales orders in the ordinary course of business, $100,000 and
(y) with respect to any other contracts, $25,000;
(G) warranty agreement of the Company with respect to services
provided or products sold, licensed or leased by the Company as seller,
licensor or lessor;
(H) contract or agreement prohibiting it from freely engaging in any
business or competing anywhere in the world; or
(I) any other agreement which is material to the Company's business.
(ii) Such Stockholder is not a party to any oral or written contract
which prohibits, or materially restricts or limits his performance of his or her
duties or the fulfillment of his or her obligations as an employee, director or
an officer of the Company or Subsidiary.
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(iii) Except as specifically anticipated by this Agreement and except
for their indemnity agreements as directors of the Company which shall survive
the Closing or as set forth in the Disclosure Letter, such Stockholders, his or
her family members or any Affiliate of such Stockholder is not a party to any
oral or written contract with the Company or a Subsidiary thereof.
(j) INTELLECTUAL PROPERTY. Except as set forth on the Disclosure
Letter hereto, to the best knowledge of Stockholder the Company and Subsidiaries
have sufficient title to and ownership of, or have sufficient licenses to, or
can obtain on terms which will not result in any material adverse effect on
their businesses, all necessary patents, licenses, trademarks, service marks,
tradenames, copyrights, trade secrets, inventions, processes, designs,
franchises, computer software and other proprietary rights necessary for their
businesses as now conducted, or proposed to be conducted, without any conflict
with or infringement of the rights of others; provided, however, the Company and
the subsidiaries have undertaken, or caused to be undertaken, only the searches
as set forth on the Disclosure Letter for third party intellectual property
rights which might affect their business as now conducted or proposed to be
conducted. The Disclosure Letter sets forth all inventions which are the
subject of issued patent letters or an application therefor, which are owned and
used or held for use by the Company or any of its Subsidiaries and which are
material to the business of the Company and its Subsidiaries taken as a whole.
The Company and its Subsidiaries have taken measures they deem reasonable to
maintain the confidentiality of the processes and formulae, research and
development results and other know-how of the Company or any of its
Subsidiaries, the value of which to the Company or such Subsidiary is contingent
upon maintenance of the confidentiality thereof. Neither Stockholder, nor to
the best knowledge of Stockholder has the Company received any communication or
notice from any third party claimants that the Company or its Subsidiaries have
violated, or, by conducting their businesses as proposed, would violate, any of
the patents, licenses, trademarks, service marks, tradenames, copyrights, trade
secrets or other proprietary rights of any other person or entity. Neither the
Company nor any of its Subsidiaries has granted any license or option or entered
into any agreement of any kind with respect to the use of their proprietary
information, other than licenses to and uses of their products made in the
ordinary course of their business.
(k) ENVIRONMENTAL MATTERS. To the best of such Stockholder's
knowledge, the Company and its Subsidiaries have not, contrary to applicable
statutes and regulations, stored or disposed of, on, under or about their
premises hazardous materials. As used in this Agreement, the term "hazardous
materials" shall mean substances defined as "hazardous substances" or "hazardous
materials" or "toxic substances" in the Comprehensive Environmental Response and
Compensation Liability Act of 1980, as amended, 42 U.S.C., Section 9601, et
seq.; The Hazardous Materials Transportation Act, 49 U.S.C., Section 1801, et
seq.; The Resource Conservation Recovery Act, 42 U.S.C., Section 6901, et seq.;
and those substances defined as hazardous wastes or hazardous substances in any
applicable California statutes or codes and any regulations or publication
promulgated pursuant to any of said laws or regulations.
Except as set forth above in Section 4.2, each Stockholder makes no
representations or warranties to any party in connection with this Agreement or
the transactions contemplated herein. Unless otherwise provided by the
Stockholders in a writing delivered to the Investors, the representations and
warranties of the Stockholders set forth in Section 4.2 shall be automatically
qualified or modified, to the extent and in the same manner, as any
corresponding representation or warranty of the Company set forth in Section 4.1
is qualified or modified prior to the Closing, as a consequence of limitations
thereto referenced in the closing certificate described
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in Section 2.4(d)(i) the Disclosure Letter or otherwise. Best knowledge for
purposes of this Section 4.2 is intended to indicate that no information that
would give the Stockholder current actual knowledge of the inaccuracy of such
statement has come to such Stockholder's attention. Information in the
possession of other employees, directors or officers of the Company shall only
be deemed received by a Stockholder if actually received by same and knowledge
of such information shall not simply be inferred from the fact that a
Stockholder is an officer, director, or stockholder of the Company.
ARTICLE 5
COVENANTS OF THE COMPANY
5.1 AFFIRMATIVE COVENANTS OF THE COMPANY OTHER THAN REPORTING
REQUIREMENTS. Without limiting any other covenants and provisions hereof, the
Company covenants and agrees that, after the Closing and for so long as shares
of Series A Preferred Stock remain outstanding, but no longer than such date as
a Qualified Public Offering shall have closed, the Company will perform and
observe the following covenants and provisions and will cause each Subsidiary to
perform and observe such of the following covenants and provisions as are
applicable to such Subsidiary, and will not, without approval of holders of
66.6% of the Series A Preferred Stock, amend or revise any terms of this Section
5.1:
(a) PAYMENT OF TAXES AND TRADE DEBT. Pay and discharge, and cause
each Subsidiary to pay and discharge, all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or business, or
upon any properties belonging to it, prior to the date on which penalties attach
thereto, and all lawful claims, which, if unpaid, might become a lien or charge
upon any properties of the Company or any Subsidiary, provided that neither the
Company nor any Subsidiary shall be required to pay any such tax, assessment,
charge, levy or claim that is being contested in good faith and by appropriate
proceedings if the Company or Subsidiary concerned shall have set aside on its
books adequate reserves with respect thereto as shall be determined by its Board
of Directors. Pay and cause each Subsidiary to pay, when due, or in conformity
with customary trade terms, all lease obligations, all trade debt, and all other
Indebtedness incident to the operations of the Company or its Subsidiaries,
except such as are being contested in good faith and by appropriate proceedings
if the Company or subsidiary concerned shall have set aside on its books
adequate reserves with respect thereto as shall be determined by its Board of
Directors.
(b) MAINTENANCE OF INSURANCE. Maintain, and cause each Subsidiary to
maintain, with responsible and reputable insurance companies or associations,
insurance in such amounts and covering such risks as is usually carried by
companies of similar size engaged in similar businesses and owning similar
properties in the same general areas in which the Company or such Subsidiary
operates, but in any event in amounts sufficient to allow the Company or
Subsidiary to replace any of their properties that might be damaged or destroyed
without additional expenditures by the Company or its Subsidiary except for
reasonable deductibles. Within sixty (60) days of the date of this Agreement,
the Company shall use all commercially reasonable efforts to obtain and
thereafter maintain term life insurance payable to the Company in the amount of
$1,000,000 each on the life of Alfonso G. Cordero, Ki Nam and, within sixty (60)
days of appointment, the newly appointed Chief Executive Officer.
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(c) PRESERVATION OF CORPORATE EXISTENCE. Preserve and maintain, and
cause each Subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each Subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
of its properties. Preserve and maintain, and cause each Subsidiary to preserve
and maintain, all material licenses and other rights to use patents, processes,
licenses, trademarks, trade names, inventions, intellectual property rights or
copyrights owned or possessed by it and necessary to the conduct of its
business.
(d) COMPLIANCE WITH LAWS. Comply, and cause each Subsidiary to
comply, in all material respects with all applicable laws, rules, regulations
and orders of any United States' federal or State governmental authority,
noncompliance with which could materially adversely affect its business or
condition, financial or otherwise, except non-compliance being contested in good
faith through appropriate proceedings so long as the Company shall have set up
sufficient reserves, if any, required under generally accepted accounting
principles with respect to such items. Use its best efforts to comply, and
cause each Subsidiary to comply, in all material respects with all applicable
foreign laws, rules, regulations and orders of any foreign governmental
authority, noncompliance with which could materially adversely affect its
business or condition, financial or otherwise, except non-compliance being
contested in good faith through appropriate proceedings so long as the Company
shall have set up sufficient reserves, if any, required under generally accepted
accounting principles with respect to such items.
(e) KEEPING OF RECORDS AND BOOKS OF ACCOUNT. Keep, and cause each
Subsidiary to keep, adequate records and books of account, in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company and
such Subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, obsolescence, amortization, taxes, bad debts and other
purposes in connection within its business shall be made.
(f) MAINTENANCE OF PROPERTIES, ETC. Maintain and preserve, and cause
each Subsidiary to maintain and preserve, all of its properties necessary or
useful in the proper conduct of its business, in repair, working order and
condition adequate for the conduct of the business of the Company as currently
conducted, ordinary wear and tear excepted.
(g) COMPENSATION. Prepare and submit to, and obtain the approval of,
the Compensation Committee of the Board of Directors (which shall consist of not
more than three members of the Board of Directors and of which one director
designated by Investors will be a member, one member of management will be a
member and the third member will be a director not employed by the Company and
not directly related to Investors) a compensation policy for its officers, which
shall contain guidelines for reasonable levels of salary and other employment
benefits, and which shall be periodically updated, and comply with such
compensation policy in making all compensation offers to new officers and
compensation changes to existing officers, of which all cash compensation and
equity compensation offers or changes shall be subject to the approval of the
Board of Directors.
(h) NEW DEVELOPMENTS. Cause all material technological or other
proprietary developments, inventions, discoveries or improvements by the
Company's or any Subsidiary's employees to be fully documented in accordance
with the prevailing appropriate industrial
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professional standards, cause all Key Employees and consultants of the Company
and each Subsidiary to execute appropriate patent assignment agreements to the
Company and, where possible and appropriate, in the judgment of the Board of
Directors, to file and prosecute United States and foreign patent applications
relating to and protecting such developments on behalf of the Company or such
Subsidiary.
(i) BUDGETS AND BOARD APPROVAL. Prior to the commencement of each
fiscal year, prepare and submit to, and obtain the approval of a majority of the
Board of Directors of a budget and operating plan for the upcoming fiscal year,
including projections or forecasts of capital and operating expenses, cash flow,
and profits and losses, all itemized in reasonable detail and obtain the
approval of such budget and plan not more than sixty (60) days following the end
of the prior fiscal year.
(j) EMPLOYEE INVENTION AND NON-DISCLOSURE AGREEMENT. Use its best
efforts to cause each officer, Key Employee, consultant and other personnel,
including employees, agents and contractors who have contributed to or
participated in the conception and development of the intellectual property on
behalf of the Company and all employees now or hereafter employed by the Company
or any Subsidiary promptly to execute an agreement substantially in the form of
EXHIBIT 5.1J hereto or in a form approved by the Board of Directors.
- ------------
(k) FINANCINGS. Promptly, fully and in detail, inform the Board of
Directors in advance of any commitments or contracts relating to financing of
any nature in which the Company pledges corporate assets, other than under
purchase money security interests secured only by the assets purchased with such
financing in the ordinary course of business.
(l) BOARD OF DIRECTORS; INDEMNIFICATION. The Board of Directors shall
consist of up to seven (7) directors. Summit Ventures IV, L.P. shall have the
right to appoint one designee to be elected to the Board, Crosspoint Venture
Partners 1993 shall have the right to appoint one designee to the Board and
Alfonso Cordero shall have the right to designate three designees to be elected
to the Board, each designee being subject to the then existing Board of
Directors approval all pursuant to the Stockholders' Agreement attached hereto
as EXHIBIT 2.4F. Alfonso Cordero shall be elected to the Board of Directors as
------------
Chairman of the Board. At such time as a Chief Executive Officer is appointed,
such officer shall be elected to the Board of Directors. The certificate of
incorporation or bylaws of the Company shall at all times provide for the
indemnification of the Board of Directors to the full extent provided by the law
of the jurisdiction in which the Company is organized and the Company shall
enter into an Indemnity Agreement with each Investor and the Investors' designee
in the form set forth in EXHIBIT 2.4J. The Company shall use all commercially
------------
reasonable efforts to obtain and maintain directors and officers liability
insurance with coverage and premium levels consistent with policies carried by
companies of similar size. The Company shall pay for reasonable travel and
living expenses of the members of the Board of Directors who are not employees
of the Company in attending meetings of the Board of Directors and committees
thereof and in conducting other business on behalf of the Company.
(m) RECRUITMENT OF CHIEF EXECUTIVE OFFICER. The Company shall use its
best efforts to recruit a Chief Executive Officer as soon as possible. The
Company shall establish an Executive Search Committee in connection with its
search and the Executive Search Committee shall be chaired by Mr. Cordero and
the Investors' designee shall be on such committee. The candidate for Chief
Executive Officer chosen by the Executive Search Committee shall be acceptable
to the
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Investors, Mr. Cordero and Mr. Nam prior to final appointment as the Chief
Executive Officer; provided, however, if the Company has not hired such Chief
Executive Officer by September 30, 1996, then the Designated Representative will
have the sole discretion to hire such officer.
5.2 NEGATIVE COVENANTS OF THE COMPANY. Without limiting any other
covenants and provisions hereof, the Company covenants and agrees that, after
the Closing and for so long as shares of Preferred Stock remain outstanding but
no longer than such date as a Qualified Public Offering has closed it will not
without the consent of the Designated Representative take the actions contained
in the following covenants and provisions, and will cause each Subsidiary to not
without the consent of the Designated Representative take actions contained in
the following covenants and provisions as are applicable to such Subsidiary, and
will not, without the approval of holders of 66.6% of the Series A Preferred
Stock, amend or revise any terms of this Section 5.2:
(a) MERGER, SALE OF ASSETS, ETC. Merge or consolidate with, or sell,
assign, lease or otherwise dispose of or voluntarily part with the control of
(whether in one transaction or in a series of transactions), a material portion
of its assets (whether now owned or hereinafter acquired) to any Person, or
permit any Subsidiary to do any of the foregoing, except for sales or other
dispositions of assets in the ordinary course of business and except that (1)
any Wholly-Owned Subsidiary may merge into or consolidate with or transfer
assets to any other Wholly-Owned Subsidiary, (2) any Wholly-Owned Subsidiary may
merge into or transfer assets to the Company, and (3) the Company may merge any
Person into it or otherwise acquire such Person so long as the Company is the
surviving entity, the holders of voting stock of the Company immediately prior
to such merger are the holders of more than 50% of the Company immediately
following such merger, such merger or acquisition does not result in the
violation of any of the provisions of this Agreement and no such violation
exists at the time of such merger or acquisition. The foregoing shall not
prohibit the Company or any Subsidiary from pledging or granting a security
interest in a material portion of its assets, provided that such transaction has
been approved by the Board of Directors of the Company.
(b) MAINTENANCE OF OWNERSHIP OF SUBSIDIARIES. Create any Subsidiary
that is not a Wholly-Owned Subsidiary, sell or otherwise dispose of any shares
of capital stock of any Subsidiary, except to the Company or another Subsidiary,
or permit any Subsidiary to issue, sell or otherwise dispose of any shares of
its capital stock or the capital stock of any Subsidiary except to the Company
or another Subsidiary; provided, however, that nothing herein contained shall
prevent any merger, consolidation or transfer of assets permitted by subsection
5.2(a).
(c) DEALINGS WITH AFFILIATES AND OTHERS. Except that the Company may
renew its lease of the real property including the Company's principal executive
offices at a then fair market rental and other market terms and conditions,
enter into any transaction, including, without limitation, any loans or
extensions of credit or royalty agreements, with any officer or director of the
Company or any officer or director of any Subsidiary or holder of any class of
capital stock of the Company, or any member of their respective immediate
families or any corporation or other entity directly or indirectly controlled by
one or more of such officers, directors or stockholders or members of their
immediate families (other than any such transactions in the ordinary course of
business which are in an amount not in excess of $10,000, loans for purchases of
Company securities by employees, officers, directors or consultants and housing
loans to officers and directors, so long as approved by a majority of the
disinterested members of the Board of Directors).
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(d) CHANGE IN NATURE OF BUSINESS. Make, or permit any Subsidiary to
make, any material change in the nature of its business as carried on at the
date hereof or as contemplated in written materials delivered to Investors prior
to the date hereof.
(e) DIVIDENDS. (i) Prior to a Qualified Public Offering, or (ii)
while the Preferred Stock is outstanding, declare or pay any dividends on any
class of the Company's or any Subsidiary's capital stock now or hereafter
outstanding (other than dividends on the Preferred Stock, dividends payable in
Common Stock or dividends payable by any Subsidiary either to the Company or to
another Subsidiary that is the parent of the paying Subsidiary), or purchase,
redeem (other than pursuant to the Redemption Agreement or the Escrow Agreement)
or otherwise acquire or retire any of the Company's or any Subsidiary's capital
stock of any class now or hereafter outstanding or otherwise return capital or
make distributions of assets to stockholders as such, other than (a) the
repurchase of capital stock of the Company or any Subsidiary pursuant to a
Stockholders' Agreement by and among Investors and certain other stockholders of
Investors, (b) repurchases of capital stock under other stock agreements
referred to in the Disclosure Letter and (c) repurchases of capital stock under
other agreements providing for the repurchase of Company stock from employees,
officers, directors or consultants on termination of their relationship with the
Company.
(f) AGREEMENTS WITH EMPLOYEES FOR THE PURCHASE OF SECURITIES. Without
approval of a majority of the disinterested members of the Board of Directors,
accelerate or terminate the vesting schedules under which restrictions on
transfer of capital stock of the Company lapse over a period of time with
respect to capital stock held by employees, officers or directors of the
Company, increase the number of shares currently available for exercise under
the Company's stock option plan or otherwise, or issue, sell or exchange, agree
to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange to officers, employees and/or consultants shares of Common Stock, or
options exercisable therefor, or options exercisable therefor, including options
outstanding on the date of this Agreement, (such number to be equitably adjusted
in the event of any stock split, combination, reclassification or other similar
event occurring on or after the date of this Agreement) except as issued at fair
market value, or granted with an exercise price equal to fair market value, at
the time of issuance or grant, to officers, employees or consultants of the
Company and any Subsidiary.
(g) ISSUANCES OF SECURITIES AND EMPLOYEE STOCK OPTIONS. Issue, sell
or exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange, (i) any equity security of the Company senior to or
on a parity with the Preferred Stock, (ii) any debt security of the Company that
by its terms is convertible into or exchangeable for any equity security of the
Company, or (iii) any option, warrant or other right to subscribe for, purchase
or otherwise acquire any equity security senior to or on a parity with the
Preferred Stock or any such debt security, except for (x) Common Stock issued as
a stock dividend to holders of Common Stock or upon any subdivision or
combination of shares of Common Stock, or (y) shares of Common Stock (or options
to purchase such stock) issued pursuant to stock plans or arrangements approved
by the Investors Designated Representatives.
5.3 REPORTING REQUIREMENTS. The Company will furnish the following to
each holder of the Preferred Stock and each holder who owns of record or
beneficially or has the right to acquire from the Company any Common Stock
pursuant to conversion of the Preferred Stock:
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(a) as soon as available and in any event within thirty (30) days
after the end of each fiscal month of the Company, Consolidated balance sheets
of the Company and its Subsidiaries as of the end of such month and Consolidated
statements of income and of statements of cash flow of the Company and its
Subsidiaries for the period ending with such month, setting forth in each case
in comparative form the corresponding figures for the corresponding period of
the prior fiscal year, all in reasonable detail and duly certified (subject to
year-end audit adjustments) by the chief executive officer or chief financial
officer of the Company as having been prepared in accordance with generally
accepted accounting principles consistently applied except for a lack of
customary year end disclosures and year end adjustments;
(b) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company, a copy of the annual audit
report for such year for the Company and its Subsidiaries, including therein
consolidated balance sheets of the Company and its Subsidiaries as of the end of
such fiscal year and consolidated statements of income and retained earnings and
of statements of cash flow of the Company and its Subsidiaries for such fiscal
year, setting forth in each case in comparative form the corresponding figures
for the preceding fiscal year, all duly certified by a "Big Six" independent
public accounting firm selected by the Company's Board of Directors;
(c) at the time of delivery of each monthly and annual statement, a
certificate, executed by the chief executive officer or chief financial officer
of the Company in the case of monthly statements, and the Company's independent
public accountants in the case of annual statements, stating that such officer
or accountants, as the case may be, has caused Sections 5.1(a) (insofar as it
relates to payment of federal and state income taxes), 5.2(b), 5.2(c), 5.2(f)
and 5.2(g) to be reviewed and has no knowledge of any default by the Company or
any Subsidiary in the performance or observance of any of the provisions of this
Agreement or, if such officer or accountant has such knowledge, specifying such
default and the nature thereof;
(d) promptly upon the request of any holder of at least 337,500 shares
of the Preferred Stock; any written report submitted to the Company by
independent public accountants in connection with an annual or interim audit of
the books of the Company and its Subsidiaries made by such accountants;
(e) promptly after the commencement thereof, notice of all actions,
suits and proceedings before any court or governmental department, commission,
board, bureau, agency or instrumentality, domestic or foreign, materially
affecting the Company and the Subsidiaries when considered as a whole;
(f) at least thirty (30) days prior to the commencement of each fiscal
year of the Company, a copy of the initial operating plan and budget provided
for in Section 5.1(i);
(g) to any holder of at least 337,500 shares of Preferred Stock; upon
request,copies of all materials provided to the committees of the Board of
Directors, and to any such holder or Person who is not a member of the Board of
Directors copies of all materials provided to the Board of Directors;
(h) promptly after sending, making available, or filing the same, all
reports and financial statements that the Company or any Subsidiary sends or
makes available to the stockholders
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of the Company or for documents publicly filed with the Securities and Exchange
Commission under the Exchange Act; and
(i) to any holder of at least 337,500 shares of the Preferred Stock;
upon request, copies of all materials provided to the committees of the Board of
Directors, and to any such holder or Person who is not a member of the Board of
Directors copies of all materials provided to the Board of Directors; all other
information respecting the business, properties or the condition or operations,
financial or otherwise, of the Company or any of its Subsidiaries that any
Investor may from time to time reasonably request.
Any person receiving the information distributed pursuant to
subsections (g) and (i) above agrees to hold such information in confidence to
the same extent that would be required of a member of the Company's Board of
Directors.
5.4 CONFIDENTIALITY. Any confidential information obtained by any holder
of the Subordinated Notes or the Preferred Stock pursuant to this Agreement
shall be treated as confidential and shall not be used other than as otherwise
contemplated hereby or disclosed to a third party without the consent of the
Board of Directors, except that such information shall not be deemed
confidential for the purpose of enforcement of this Agreement or valuation of
the Preferred Stock or Common Stock and except that any such holder may
otherwise disclose such information to its partners if such partners agree to be
bound by the restrictions contained in this Section 5.4. At the request of the
Board of Directors, any Person receiving any information pursuant to this
Agreement shall execute reasonable confidentiality agreements consistent with
this Section 5.4.
ARTICLE 6
OBLIGATIONS PENDING THE CLOSING
Between the date hereof and the Closing, unless this Agreement is
terminated sooner, pursuant to Section 11.2 hereof:
6.1 ACCESS. The Company shall give to Investors and their counsel,
accountants and other authorized representatives from and after the date of
execution of this Agreement, on prior request therefor from Investors or such
representatives, such access to the premises, employees, agents and consultants
of the Company, and such copies of the Company's financial statements, books and
records, and contracts and leases and other documentation, so as to enable
Investors to inspect and evaluate all aspects of the business and operations,
assets, operating results, financial condition, future prospects,
capitalization, ownership, and legal and regulatory affairs of the Company and
to verify the accuracy of the information heretofore furnished to Investors and
the representations and warranties made in this Agreement, by the Company and
the Stockholders with respect to the foregoing matters. The Stockholders agree
that they will take no action to prevent or delay the Company from furnishing
all information reasonably requested by Investors. Each Investor agrees to
conduct its review in a manner designed to minimize any disruption of the
Company's operations. All information and records obtained by Investors
pursuant to this Agreement shall be maintained as confidential prior to the
Closing and shall not be used other than in evaluating the transactions
contemplated herein or disclosed to any third party prior to the Closing
without the prior written consent of the Company, except (i) in response to
legal process, (ii) to the extent
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required to comply with applicable law, or (iii) to the extent disclosed to any
bank, finance company or other lender or investor in connection with the
financing of the transactions contemplated by this Agreement. Investors shall
not be obligated to maintain as confidential any information obtained from the
Company which is publicly available, readily available from public sources,
known to it at the time the information was disclosed, or which was rightly
obtained from a third party.
6.2 CONDUCT OF COMPANY'S BUSINESS. Unless the Designated Representative
gives his prior written consent for actions to be taken to the contrary, from
the date of this Agreement and until the Closing or termination of this
Agreement, whichever first occurs, the Company shall, and the Stockholders shall
take no action to prevent or delay the Company from being able to:
(a) OPERATION OF BUSINESS. Operate and conduct the Company's business
and operations diligently and only in the ordinary course of business consistent
with past practices. The Company shall not (i) incur any new indebtedness or
increase the amount due and owing to any lender for borrowed money, or (ii)
increase the compensation or benefits of any employee, independent contractor or
agent or adopt or amend any commission plan or arrangement or any employee
benefit plan or arrangement of any type which results or may result in an
increase in costs or liabilities thereunder of more than $5,000 per month, in
the aggregate, above those existing on the date hereof, or otherwise lend or
advance any sum or extend credit to any employee, director or stockholder or any
of their respective affiliates;
(b) ORGANIZATION. Preserve intact the Company's organization and use
its reasonable best efforts to retain all employees of and consultants to the
Company, commensurate with the requirements of the Company's business;
(c) VENDORS. Use its reasonable best efforts to retain the services
of all vendors, suppliers, agents and consultants used in the Company's
business, commensurate with the requirements of the Company's business;
(d) INSURANCE. Maintain insurance, including liability and errors and
omissions insurance, consistent with past practices and, unless comparable
insurance is substituted therefor or is not generally available to businesses of
the type conducted by the Company, not take any action to terminate or modify,
nor permit the lapse or termination of, the present insurance policies and
coverages of the Company as set forth in the Disclosure Letter;
(e) LAWSUITS, CLAIMS. Promptly notify Investors of, and if requested
by Investors, diligently defend against, all lawsuits, claims, proceedings or
investigations that are, or which any officers of the Company or any of the
Stockholders, as a result of events or circumstances actually known to them, has
reason to believe may be, threatened, brought, asserted or commenced against the
Company or any of its officers or directors, involving or affecting in any way
the Company's business or operations, or any of its assets, or the Shares or the
transactions contemplated hereby; and not settle any action or proceeding which
would materially and adversely affect the Company, its business, financial
condition or operating results and, not release, settle, compromise or
relinquish any claims, causes of action or rights involving more than $25,000
individually or $50,000 in the aggregate which the Company may have against any
other persons, including, without limitation, claims or rights to reimbursement
or payment for services rendered by the Company;
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(f) CERTAIN CHANGES. Not sell or otherwise dispose, or enter into any
agreement for the sale, of any of its assets or properties, except for sales of
inventory and obsolete equipment in the ordinary course of business and
consistent with past practices, and not permit or allow, or enter into any
agreements providing for or permitting, any of its assets or properties to be
subjected to any mortgage, security interest, pledge, option, lien, charge or
encumbrance other than liens or security interests in existence on the date
hereof and statutory liens to secure taxes that are not yet due and payable, all
of which are listed on the Disclosure Letter;
(g) CONDITION OF ASSETS. Maintain in good working order and
condition, ordinary wear and tear excepted, and in compliance in all material
respects with all applicable laws and regulations, all vehicles, machinery,
equipment, computers, furniture, fixtures, tools, and other tangible assets,
wherever located, that are used, leased or owned by the Company;
(h) AGREEMENTS. Observe and perform all terms, conditions, covenants
and obligations contained in all existing agreements between the Company and
third parties the violation of which would have, individually or in the
aggregate, a material adverse effect on the Company or its business, financial
condition, operating results or future prospects; and, except as required by any
existing agreements, not enter into any new agreements or transactions, or incur
any expenditures, liabilities or obligations, involving more than $25,000
individually or $50,000 in the aggregate, or renew, extend, amend or modify any
existing agreement involving any commitments, obligations, liabilities or
requiring any expenditures that would exceed $25,000 individually or $50,000 in
the aggregate; not take any action which would cause a breach or violation of or
default under any material agreement, lease, contract, or other written
instrument, commitment or arrangement, or under any permit, license, franchise,
judgement, writ or order, applicable to or affecting the Company or its
business, and promptly notify the Investors in writing of the occurrence of any
such breach or default; and not enter into any transaction with any stockholder,
director or officer or any person or entity related to or affiliated with any
such person;
(i) TAXES. Pay, when due, and prior to the imposition or assessment
of any interest, penalties or liens by reason of the non-payment of, all Taxes
(as defined in Section 4.1(o)(v) hereof) assessed against the Company, any of
its assets or its operations;
(j) DIVIDENDS, ETC. Except as contemplated by this Agreement not:
(i) declare or pay any dividends or make any distributions with respect to or
redeem any shares of the Company's capital stock; (ii) accelerate the payment of
or prepay any indebtedness or other obligations of the Company; (iii) approve or
effect any reclassification or recapitalization of the Company or its authorized
or outstanding shares; (iv) merge or consolidate the Company with or sell any of
its assets to a third party other than sales of assets in the ordinary course of
business and consistent with past practices; (v) approve or commence any
proceedings for the liquidation of the Company; or (vi) enter into any agreement
to do any of the foregoing;
(k) CORPORATE MATTERS. Except as expressly provided herein, not: (i)
amend in any manner the Certificate of Incorporation or Bylaws of the Company;
(ii) alter the composition or membership of the Company's Board of Directors;
(iii) except shares purchased upon exercise of outstanding options, authorize or
issue any shares of capital stock of any class or series; (iv) create or issue
any warrants, obligations, subscriptions, options, convertible securities or
other commitments under which any additional shares of the capital stock of any
class or other equity
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securities of the Company may be directly or indirectly authorized, issued or
transferred; or (v) agree to do any of the above; and
(l) LIABILITIES AND EXPENSES. Not create or incur (whether as
principal, surety or otherwise) any actual or contingent liabilities or expenses
other than liabilities and expenses incurred in the ordinary course of business
consistent with past practices.
6.3 CONSENTS. Each party to this Agreement shall use its reasonable best
efforts to obtain or cause to be obtained at the earliest practicable date, and
prior to the Closing, all consents, approvals and licenses, if any, which such
party requires to permit it to consummate the transactions contemplated hereby
without violating any material agreement, contract, instrument or applicable law
or regulation, license or permit, to which it is a party or to which it or its
assets are subject. The parties hereto shall cooperate with each other in their
efforts to obtain all such consents, approvals and licenses.
6.4 NOTICE OF BREACH. Each party to this Agreement will immediately give
notice to the other parties of the occurrence of any event, or the failure of
any event to occur, that results in a breach by it of any representation or
warranty or a failure by it to comply with or fulfill any covenant, condition or
agreement contained herein.
6.5 TRANSFER OF SHARES. The Stockholders shall have the right to transfer
some or all of the Shares to a corporation, partnership, limited liability
company, foundation, trust or other entity or arrangement controlled by them or
any of them, provided the transferee accepts all of the transferring
Stockholder's obligations hereunder (and obtains the benefit of all
Stockholders' limitations of liability set forth hereunder) and the transferring
Stockholder remains liable for performance of his, her or its obligations
hereunder.
ARTICLE 7
OBLIGATIONS AT THE CLOSING
7.1 EXCLUSIVITY/OTHER OFFERS. Unless and until this Agreement has been
terminated in accordance with Section 11.2 below, neither the Investors, the
Company nor the Stockholders, nor any of their respective representatives,
agents, officers, directors, stockholders, partners or employees, will solicit
or accept offers from, provide information or assistance to, or negotiate or
enter into any agreement or understanding (written or oral) with, any other
person or entity regarding (i) the sale, merger, initial public offering or
reorganization of the Company; (ii) the sale or other disposition of, or the
granting of any security interest, lien or encumbrance on, any of the Shares; or
(iii) any other transaction which would cause or result in any change, other
than of an immaterial nature, in or adversely affect the business or the
Preferred Stock or otherwise interfere with the consummation of the transactions
contemplated herein.
7.2 OTHER DELIVERIES. At the Closing, the parties hereto shall also
execute and deliver all agreements and instruments referred to in Articles 2, 3
and otherwise provided herein.
30
<PAGE>
ARTICLE 8
RIGHT TO PARTICIPATE IN FINANCINGS
8.1 RIGHT OF PARTICIPATION. Until the Company has completed a Qualified
Public Offering, the Company shall not issue, sell or exchange, agree to issue,
sell or exchange, or reserve or set aside for issuance, sale or exchange, for
cash or cash equivalents (i) any shares of Common Stock, (ii) any other equity
security of the Company, including, without limitation, shares of Preferred
Stock, (iii) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any equity security of the Company, or (iv) any Debt
Securities, unless in each such case the Company shall have first received an
unconditional bona fide offer from a third party to purchase such securities
(the "Offered Securities") and shall have offered to sell the Offered Securities
to the Investors as follows: the Company shall offer to sell to the Investors,
as a group, that number of the Offered Securities so that the Investors shall
retain their then existing equity percentage of the Company on a fully diluted
basis. For purposes of making this calculation, the Preferred Stock, and all
other outstanding convertible instruments, and options and warrants to purchase
common stock shall be deemed to be converted or exercised, issued and
outstanding shares of Common Stock of the Company.
The Company shall offer to sell to each Investor (a) that portion of
the Offered Securities as the aggregate number of shares of Common Stock
equivalents, including the Preferred Stock, then held by or issuable to such
Investor bears to the total number of outstanding shares of Common Stock of the
Company, plus all shares of Common Stock issuable upon exercise of warrants or
options or upon conversion of convertible securities of the Company (the "Basic
Amount"); and (b) any additional portion of the Offered Securities as such
Investors shall indicate it will purchase, but not to exceed the aggregate of
all the Basic Amounts should the other Investors subscribe for less than their
Basic Amounts (the "Undersubscription Amount"), at a price and on the other
terms specified by the Company in writing delivered to such Investor (the
"Offer"), and the Offer by its terms shall remain open and irrevocable for a
period of ten (10) days.
8.2 NOTICE OF ACCEPTANCE. Notice of each Investor's intention to accept,
in whole or in part, an Offer made pursuant to Section 8.1 shall be evidenced by
a writing signed by such Investor and delivered to the Company prior to the end
of the ten (10) day period of the Offer, setting forth the portion of the
Investor's Basic Amount that such Investor elects to purchase and, if such
Investor shall elect to purchase all of its Basic Amount, the Undersubscription
Amount that such Investor shall elect to purchase, if any (the "Notice of
Acceptance"). If the securities subscribed for by all Investors in the aggregate
are less than the total of all of the Basic Amounts, then each Investor who has
set forth an Undersubscription Amount in its Notice of Acceptance shall be
entitled to purchase, in addition to the Basic Amount subscribed for, the
Undersubscription Amount it has subscribed for; PROVIDED HOWEVER, that should
the Undersubscription Amounts subscribed for exceed the difference between the
Basic Amounts and the aggregate amount of the securities subscribed for (the
"Available Undersubscription Amount"), each Investor who has subscribed for any
Undersubscription Amount shall be entitled to purchase only that portion of the
Available Undersubscription Amount as the Undersubscription Amount subscribed
for by such Investors bears to the total Undersubscription Amounts subscribed
for by all Investors, subject to rounding by the Board of Directors to the
extent it reasonably deems necessary.
31
<PAGE>
8.3 CONDITIONS TO ACCEPTANCE BY INVESTOR.
(a) PERMITTED SALES OF REFUSED SECURITIES. The Company shall have
sixty (60) days from the expiration of the period set forth in Section 8.1 to
sell all or any part of such Offered Securities as to which a Notice of
Acceptance has not been given by the Investors (the "Refused Securities") to the
Person or Persons specified in the Offer, but only upon terms and conditions,
including, without limitation, unit price and interest rates, which are not more
favorable, in unit price and interest rates, in the aggregate, to such other
Person or Persons or less favorable to the Company than those set forth in the
Offer.
(b) REDUCTION IN AMOUNT OF OFFERED SECURITIES. In the event the
Company shall propose to sell less than all the Refused Securities (any such
sale to be in the manner and on the terms specified in Section 8.3(a) above),
then each Investor may, at its sole option and in its sole discretion, reduce
the number of, or other units of the Offered Securities specified in its
respective Notice of Acceptance to an amount that shall be not less than the
amount of the Offered Securities that the Investor elected to purchase pursuant
to Section 8.2 multiplied by a fraction, (i) the numerator of which shall be the
amount of Offered Securities the Company actually proposes to sell, and (ii) the
denominator of which shall be the amount of all originally Offered Securities.
In the event that any Investor so elects to reduce the number or amount of
Offered Securities specified in its respective Notice of Acceptance, the Company
may not sell or otherwise dispose of more than the reduced amount of the Offered
Securities until such securities have again been offered to the Investors in
accordance with Section 8.1.
(c) CLOSING. Upon the closing of the sale of securities by the
Company on the terms set forth in the Offer, to such other Person or Persons of
all or less than all the Offered Securities not being purchased by the
Investors, the Investors shall purchase from the Company, and the Company shall
sell to the Investors, the number of Offered Securities specified in the Notices
of Acceptance, as reduced pursuant to Section 8.3(b) if the Investors have so
elected, upon the terms and conditions specified in the Offer.
8.4 FURTHER SALE. In each case, any Offered Securities not purchased by
the Investors or other Persons in accordance with Section 8.3, such Offered
Securities may not be sold or otherwise disposed of until they are again offered
to the Investors under the procedures specified in Section 8.1, 8.2 and 8.3.
8.5 EXCEPTIONS. The rights of the Investors under this Article 8 shall not
apply to:
(a) Common Stock issued as a stock dividend to holders of Common Stock
or upon any subdivision or combination of shares of Common Stock,
(b) issuance of shares of Common Stock, or options exercisable
therefor, including options outstanding on the date of this Agreement (such
number to be equitably adjusted in the event of any stock split, combination,
reclassification or other similar event occurring on or after the date of this
Agreement) issuable to officers, directors or employees of the Company and any
Subsidiary pursuant to any stock option agreement or plan or stock purchase
agreement or plan approved by a vote of not less than a majority of the
disinterested members of the Board of Directors of the Company,
32
<PAGE>
(c) issuance of any shares of Common Stock in connection with an
acquisition or merger by the Company, or
(d) shares sold in a Qualified Public Offering.
8.6 ASSIGNMENT OF RIGHTS. An Investor may assign its rights hereunder in
connection with any transfer of the Preferred Stock. In addition, in the event
that the Company shall offer to sell any Offered Securities to the Investors
pursuant to the provisions of this Article 8, any Investor may assign its rights
to any Person, and such Person shall thereupon have all rights and obligations
of an Investor under this Article 8 with respect to such Offered Securities.
ARTICLE 9
NATURE AND SURVIVAL OF REPRESENTATIONS AND WARRANTIES
All representations and warranties made in this Agreement or any other
instrument or document delivered in connection herewith or therewith, shall
survive for a period commencing on the date of Closing and continuously for the
shorter of one year or the closing of a Qualified Public Offering with the
exception of (i) the representations and warranties made by the Investors in
Section 1.3, which shall survive indefinitely; (ii) the representations and
warranties made by the Company in Section 4.1(f) which shall survive
indefinitely; (iii) the representations and warranties made by the Company in
Section 4.1(o) and by the Stockholders in Section 4.2(h) shall survive four
years from the Closing Date; and (iv) the representations and warranties made by
the Stockholders in Section 4.2(b), which shall survive indefinitely.
Notwithstanding anything to the contrary in this Article 9 or elsewhere in
this Agreement, the Investors acknowledge and agree as follows:
(a) In any claim for breach of any representation or warranty which
may be brought against both the Company and the Stockholders, the Investors
shall proceed first against the Company, and only upon the exhaustion of actions
against the Company shall be Investors bring such claim against the
Stockholders;
(b) No Stockholder shall be liable for the breach of any
representation or warranty given to the Investors by any other Stockholder in
Section 4.2(b) hereof;
(c) The Stockholders shall be severally but not jointly liable for a
breach of any other of the representations and warranties of Section 4.2 other
than Section 4.2(b), provided, however, that each Stockholder shall only be
liable for the breach of such representation or warranty to the extent of his or
her pro rata share of the proven damages for such breach, such proration based
upon such Stockholder's ownership of the outstanding capital stock of the
Company immediately prior to the consummation of the transactions contemplated
hereby; and
(d) None of the Company or any Stockholder shall be liable for the
breach of any representation or warranty given pursuant to this Agreement unless
and until the aggregate amount of all Investor's losses arising out of such
breach exceed $50,000, whereupon such losses (excluding the first $50,000) may
be recovered; provided that, in any event, the maximum liability of (i) the
33
<PAGE>
Company for all such losses shall not exceed $15,000,000, and (ii) any
Stockholder for all such losses shall not exceed the after tax proceeds to such
Stockholder pursuant to the Redemption Agreement (less any recoveries from the
Company).
ARTICLE 10
DEFINITIONS AND ACCOUNTING TERMS
10.1 CERTAIN DEFINED TERMS. As used in this Agreement, the following terms
shall have the following meanings (such meanings to be equally applicable to
both the singular and plural forms of the terms defined):
"Affiliate" (and, with a correlative meaning, "Affiliated") shall
----------
mean, with respect to any Person, any other Person that directly, or through one
or more intermediaries, controls or is controlled by or is under common control
with such first Person, and, if such a Person is an individual, any member of
the immediate family of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with correlative meanings, "controlled by" and
"under common control with") shall mean possession, directly or indirectly, of
power to direct or cause the direction of management or policies (whether
through ownership of securities or partnership or other ownership interests, by
contract or otherwise), and "immediate family" shall mean parents, spouse and
children.
"Agreement" means this Stock Purchase Agreement as from time to time
amended and in effect between the parties.
"Any Public Offering" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of Common Stock for the
account of the Company.
"Board of Directors" shall mean the then present members of the Board
of Directors of the Company.
"Certificate of Amendment" shall refer to the certificate to be filed
with the Delaware Secretary of State which shall effect the amendment of the
Certificate of Incorporation thereby creating the Preferred Stock, a form of
which is attached hereto as EXHIBIT 1.1B.
------------
"Company" means and shall include Milcom International, Inc., a
Delaware corporation, and its successors and assigns.
"Common Stock" includes (a) the Company's Common Stock, $.0001 par
value, as authorized on the date of this Agreement, (b) any other capital stock
of any class or classes (however designated) of the Company, authorized on or
after the date hereof, the holders of which shall have the right, without
limitation as to amount, either to all or to a share of the balance of current
dividends and liquidating dividends after the payment of dividends and
distributions on any shares entitled to preference, and the holders of which
shall ordinarily, in the absence of contingencies, be entitled to vote for the
election of directors of the Company (even though the right so to vote has
34
<PAGE>
been suspended by the happening of such a contingency), and (c) any other
securities into which or for which any of the securities described in (a) or (b)
may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Consolidated" when used with reference to any term defined herein
shall mean that term as applied to the accounts of the Company and its
Subsidiaries consolidated in accordance with generally accepted accounting
principles after eliminating intercompany items and minority interests.
"Debt Securities" means and includes (i) any debt security of the
Company that by its terms is convertible into or exchangeable for any equity
security of the Company that is a combination of debt and equity, or (ii) any
option, warrant or other right to subscribe for, purchase or otherwise acquire
any such debt security of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal Agency then administering the
Exchange Act) thereunder, all as the same shall be in effect at the time.
"Indebtedness" means all obligations, contingent and otherwise, which
should, in accordance with generally accepted accounting principles consistently
applied, be classified upon the obligor's balance sheet as liabilities,
excluding any liabilities in respect of deferred federal or state income taxes,
but in any event including, without limitation, liabilities secured by any
mortgage on property owned or acquired subject to such mortgage, whether or not
the liability secured thereby shall have been assumed, and also including,
without limitation, (i) all guaranties, endorsements and other contingent
obligations in respect of Indebtedness of others, whether or not the same are or
should be so reflected in said balance sheet, except guaranties by endorsement
of negotiable instruments for deposit or collection or similar transactions in
the ordinary course of business and (ii) the present value of any lease payments
due under leases required to be capitalized in accordance with applicable
Statements of Financial Accounting Standards, determined by discounting all such
payments at the interest rate determined in accordance with applicable
Statements of Financial Accounting Standards.
"Investors" means and shall include the persons listed on EXHIBIT 1.1A
------------
hereto.
"Key Employee" means and includes the Chairman of the Board of
Directors, the President, any Vice-President, Chief Technical Officer and the
Chief Financial Officer of the Company or any Subsidiary, or any person who is
not an officer of the Company or any Subsidiary and is in charge of one or more
of the following functions: sales, marketing, production, or engineering and
technical development or any other position or employee so designated by the
Board of Directors of the Company or any employee with access to the
confidential information of the Company.
"Person" means an individual, corporation, partnership, joint venture,
trust, or unincorporated organization, or a government or any agency or
political subdivision thereof.
"Qualified Public Offering" means and includes the closing of an
underwritten public offering pursuant to an effective registration statement
under the Securities Act, covering the offer and sale of Common Stock for the
account of the Company from which the aggregate net proceeds
35
<PAGE>
to the Company exceed $15,000,000 and in which the price per share is at least
$8.886519 per share (such amount to be equitably adjusted whenever there shall
occur a stock split, combination, reclassification or other similar event
affecting the Common Stock).
"Securities Act" means the Securities Act of 1933, as amended, or any
similar Federal statute, and the rules and regulations of the Securities and
Exchange Commission (or of any other Federal agency then administering the
Securities Act) thereunder, all as the same shall be in effect at the time.
"Series A Preferred Stock" or "Preferred Stock" means the Series A
Preferred Stock of the Company as it exists following the filing of the
Certificate of Amendment.
"Subsidiary" or "Subsidiaries" means any corporation, 50% or more of
the outstanding voting stock of which shall at the time be owned by the Company
or by one or more Subsidiaries, or any other entity or enterprise, 50% or more
of the equity of which shall at the time be owned by the Company or by one or
more Subsidiaries.
"Wholly-Owned Subsidiary" or "Wholly-Owned Subsidiaries" means any
corporation, 100% of the outstanding voting stock of which shall at the time be
owned by the Company or by one or more Wholly-Owned Subsidiaries, or any other
entity or enterprise, 100% of the equity of which shall at the time be owned by
the Company or by one or more Wholly-Owned Subsidiaries.
10.2 ACCOUNTING TERMS.
All accounting terms not specifically defined herein shall be
construed in accordance with generally accepted accounting principles, and all
other financial data submitted pursuant to this Agreement shall be prepared and
calculated in accordance with such principles.
ARTICLE 11
MISCELLANEOUS
11.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay on the part of any
Investor, or any other holder of the Preferred Stock in exercising any right,
power or remedy hereunder shall operate as a waiver thereof; nor shall any
single or partial exercise of any such right, power or remedy preclude any other
or further exercise thereof or the exercise of any other right, power or remedy
hereunder. The remedies herein provided are cumulative and not exclusive of any
remedies provided by law.
11.2 TERMINATION. This Agreement may be terminated prior to the Closing (i)
by the mutual consent of the parties hereto; (ii) by the Stockholders if there
has been a material misrepresentation or material breach on the part of
Investors in the representations and warranties of Investors set forth herein,
which, if curable, has not been cured within 10 business days after notice
thereof by Stockholders; (iii) by Investors if there has been a material
misrepresentation or material breach on the part of the Company or the
Stockholders in the representations, warranties and covenants of Stockholders or
the Company set forth herein, which, if curable, has not been cured within 10
business days after notice thereof by Investors; (iv) by the Company and
36
<PAGE>
Stockholders upon delivery to Investors of a written notice if any event occurs
which renders impossible of satisfaction one or more of the conditions to the
Stockholders' and the Company's obligations contained in Article 3 hereof and
noncompliance is not waived by the Stockholders and the Company; (v) by
Investors upon delivery to the Stockholders and the Company of a written notice
if any event occurs which renders impossible of satisfaction one or more of the
conditions to Investors' obligations contained in Article 2 hereof and
noncompliance is not waived by Investors; and (vi) by anyone, if the Closing
does not occur by October 10, 1995 for any reason. Upon termination of this
Agreement, no party shall have any further obligations or liability hereunder.
Sections 11.2, 11.3, 11.7, 11.15, and 11.16 alone shall survive the termination
of this Agreement.
11.3 NO LIABILITY.
(a) No Stockholder shall have any obligation or liability with respect
to any of the covenants, obligations, representations or warranties of the
Company contained in this Agreement; and
(b) The Company shall have no obligation or liability with respect to
any of the covenants, obligations, representations or warranties of the
Stockholders contained in this Agreement
11.4 NO STOCKHOLDER RECISION. The Stockholders specifically waive any
rights to rescind any transaction contemplated by this Agreement.
11.5 WAIVERS AND CONSENTS. Any provision in this Agreement to the contrary
notwithstanding, changes in or additions to this Agreement may be made, and
compliance with any covenant or provision herein or therein set forth may be
omitted or waived, if the Company shall obtain consent thereto in writing from a
majority in interest of the Stockholders and from the Designated Representative.
Any waiver or consent may be given subject to satisfaction of conditions stated
therein and any waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
11.6 ADDRESSES FOR NOTICES, ETC. Any notices and other communications
required or permitted under this Agreement shall be effective if in writing and
delivered personally or sent by telecopier, Federal Express or registered or
certified mail, postage prepaid, addressed as follows:
If to the Stockholders, to:
c/o Alfonso Cordero
17500 Gillette Avenue
Irvine, California 92714
If to the Investors, to: the name and address set forth on EXHIBIT 1.1A hereto.
------------
with a copy to: Bruce Feuchter, Esq.
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, California 92660
Telecopier: (714) 725-4100
37
<PAGE>
If to the Company, to: Milcom International, Inc.
17500 Gillette Avenue
Irvine, California 92714-5610
with a copy to: William J. Simpson, Esq.
Paul, Hastings, Janofsky & Walker
695 Town Center Drive, Suite 1600
Costa Mesa, California 92626
Telecopier: (714) 979-1921
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date delivered, if delivered personally,
(b) two business days after being sent, if sent by Federal Express, (c) one
business day after being sent, if sent by telecopier with confirmation of good
transmission and receipt, and (d) three business days after being sent, if sent
by registered or certified mail. Each of the parties herewith shall be entitled
to specify another address by giving notice as aforesaid to each of the other
parties hereto.
11.7 COSTS, EXPENSES AND TAXES. The Company shall pay on demand all costs
and expenses of Investors in connection with the investigation, preparation,
execution and delivery of this Agreement, the Preferred Stock and other
instruments and documents to be delivered hereunder and the transactions
contemplated hereby and thereby, including the fees and out-of-pocket expenses
of Stradling, Yocca, Carlson & Rauth, counsel for Investors which amount shall
not exceed $50,000. After the Closing and for so long as the Preferred Stock
remains outstanding,the Company shall pay the reasonable fees and out-of-pocket
expenses of legal counsel, independent public accountants and other outside
experts reasonably retained by Investors in connection with the amendment or
enforcement of this Agreement and other instruments and documents to be
delivered hereunder or thereunder; provided, however, that if the transactions
contemplated by this Agreement are not completed for any reason, then the
Company shall not be responsible to pay any costs and expenses of Investors in
connection with the investigation, preparation, execution and delivery of this
Agreement and other instruments and documents to be delivered hereunder and the
transactions contemplated hereby and thereby and the Investors and Investors
shall not be responsible to pay any costs and expenses of the Company or the
Stockholders in connection with the investigation, preparation, execution and
delivery of this Agreement, the Securities and other instruments and documents
to be delivered hereunder and the transactions delivered hereby and thereby. In
addition, if the Closing occurs, the Company shall pay any and all stamp and
other taxes payable or determined to be payable in connection with the execution
and delivery of this Agreement, the Preferred Stock and other instruments and
documents to be delivered hereunder or thereunder and agrees to save Investors
harmless from and against any and all liabilities with respect to or resulting
from any delay in paying or omission to pay such taxes and filing fees.
11.8 BINDING EFFECT; ASSIGNMENT. This Agreement shall be binding upon and
inure to the benefit of the Company, the Stockholders and Investors and their
respective successors and assigns, except that no party shall have the right to
assign its rights hereunder or any interest herein without the prior written
consent of the other parties.
11.9 PRIOR AGREEMENTS. This Agreement constitutes the entire agreement
between the parties and supersedes any prior understandings or agreements
concerning the subject matter hereof.
38
<PAGE>
11.10 SEVERABILITY. The invalidity or unenforceability of any provision
hereto shall in no way affect the validity or enforceability of any other
provision.
11.11 GOVERNING LAW. This Agreement shall be governed by, and construed
in accordance with, the laws of the State of California.
11.12 HEADINGS. Article, Section and subsection headings in this
Agreement are included herein for convenience of reference only and shall not
constitute a part of this Agreement for any other purpose.
11.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
11.14 FURTHER ASSURANCES. From and after the date of this Agreement, upon
the request of the Investors, the Company and each Subsidiary shall execute and
deliver such instruments, documents and other writings as may be necessary or
desirable to confirm and carry out and to effectuate fully the intent and
purposes of this Agreement and the Securities.
11.15 INDEPENDENT COUNSEL. The Company has been represented by Paul,
Hastings, Janofsky & Walker in the negotiation and execution of this Agreement
and has relied on such counsel with respect to any matter relating hereto. The
Stockholders have been invited to have their own counsel review and negotiate
this Agreement and each Stockholder has obtained his or her own counsel or has
elected not to obtain counsel.
11.16 CONFIDENTIALITY. Until the date of Closing, any information
relating to the terms of this Agreement and the transactions contemplated hereby
shall be treated as confidential and shall not be disclosed, by any of the
parties hereto, to a third party without the consent of the Board of Directors
of the Company and the mutual consent of the Investors.
11.17 PRESS RELEASE. No party hereto shall release a press release
relating to this Agreement or any of the transactions or documents contemplated
hereby without first submitting a copy of such press release to the other
parties hereto and obtaining the prior approval of such other parties to any
such press release, which approval shall not be unreasonably withheld.
39
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
MILCOM INTERNATIONAL, INC., a Delaware
corporation
By: /s/ Alfonso G. Cordero
-------------------------------------
Alfonso G. Cordero, President
STOCKHOLDERS
/s/ Alfonso G. Cordero
-----------------------------------------
Alfonso G. Cordero
/s/ Ki Nam
-----------------------------------------
Ki Nam
/s/ Sussanne Torretta
-----------------------------------------
Sussanne Torretta
/s/ Charles Florman
-----------------------------------------
Charles Florman
/s/ Bill H. Doi
-----------------------------------------
Bill H. Doi
/s/ Arthur Cook
-----------------------------------------
Arthur Cook
/s/ Thomas Ha
-----------------------------------------
Thomas Ha
/s/ Ernest Johnson
-----------------------------------------
Ernest Johnson
40
<PAGE>
INVESTORS
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., its General Partner
By: Stamps, Woodsum & Co. IV, its General Partner
By: /s/ Greg M. Avis
-----------------------------------------------
General Partner
SUMMIT VENTURES III, L.P.
By: Summit Partners III, L.P., its General Partner
By: Stamps, Woodsum & Co. III, its General Partner
By: /s/ Greg M. Avis
-----------------------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Greg M. Avis
----------------------------------------------------
General Partner
CROSSPOINT VENTURE PARTNERS 1993
By: /s/ Rich Shapero
----------------------------------------------------
CROSSPOINT VENTURE PARTNERS
ENTREPRENEURS 1993
By: /s/ Rich Shapero
----------------------------------------------------
41
<PAGE>
EXHIBIT 1.1A
LIST OF INVESTORS
<TABLE>
<CAPTION>
Number of Amount of
Shares of Purchase Price
of Series A for Series A
Investor Name Preferred Stock Preferred Stock
- -------------------------------- --------------- ---------------
<S> <C> <C>
Summit Ventures IV, L.P. 1,384,570 $ 6,152,003.85
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Summit Ventures III, L.P. 1,384,570 6,152,003.85
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Summit Investors II, L.P. 100,375 445,992.30
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Crosspoint Venture Partners 1993 491,071 2,181,955.92
One First Street
Los Altos, California 94022
Crosspoint Venture Partners 15,314 68,044.08
Entrepreneurs 1993 --------- --------------
One First Street
Los Altos, California 94022 3,375,900 $15,000,000.00
</TABLE>
<PAGE>
EXHIBIT 1.5
<TABLE>
<CAPTION>
Number of Number of Total
Stockholders Shares Held Shares Sold Purchase Price
- --------------------------------- ----------- ----------- --------------
<S> <C> <C> <C>
Alfonso G. Cordero
26862 Windsor Drive
San Juan Capistrano, CA 92675 5,766,000 2,093,058 $7,750,000
Ki Nam
18626 Grayland
Artesia, CA 90701 1,767,000 641,421 2,375,000
Sussanne Torretta
10121 Constitution Drive
Huntington Beach, CA 92646 139,500 50,639 187,500
Ernest Johnson
P.O. Box 7976
Newport Beach, CA 92660 139,500 50,639 187,500
Charles Florman
414A Main Street
Port Jefferson, NY 11777 790,500 286,951 1,062,500
Bill H. Doi
13802 Tustin East Drive
Tustin, CA 92680 279,000 101,277 375,000
Arthur Cook
55 Greenfield
Irvine, CA 92714 232,500 84,397 312,500
Thomas Ha
8392 Satinwood Circle
Westminster, CA 92683 186,000 67,518 250,000
</TABLE>
<PAGE>
EXHIBIT 10.11
REDEMPTION AGREEMENT
THIS REDEMPTION AGREEMENT (the "Agreement"), dated as of October 10, 1995,
is entered into by and among MILCOM INTERNATIONAL, INC., a Delaware corporation
(the "Company") and each of the stockholders of the Company listed on Exhibit A
hereto (individually, a "Stockholder," and collectively, the "Stockholders").
R E C I T A L S
- - - - - - - -
A. The Company desires to repurchase from the Stockholders and the
Stockholders desire to sell to the Company shares of the Company's Common Stock
(the "Repurchased Shares"), as set forth herein.
B. It is a condition to the obligations of the Investors under the Stock
Purchase Agreement dated October 10, 1995 (the "Purchase Agreement") by and
among the Company, the Stockholders and the persons listed in Exhibit 1.1A
thereto (the "Investors") that this Agreement be executed by the parties hereto,
and the parties are willing to execute this Agreement and be bound by the
provisions hereof.
A G R E E M E N T
- - - - - - - - -
NOW THEREFORE, in consideration of the mutual promises and agreements
herein, and subject to the terms and conditions hereinafter set forth, the
parties hereby agree as follows:
1. REPURCHASE. Each of the Stockholders agrees to and does hereby sell,
transfer and convey the Repurchased Shares set forth opposite such Stockholder's
name on Exhibit A attached hereto, free and clear of all liens, claims and
---------
encumbrances, to the Company and the Company agrees to and does hereby purchase
such Repurchased Shares. In consideration of the sale and transfer of the
Repurchased Shares and in full payment therefor, the Company shall pay to the
Stockholders the aggregate purchase price of $12,500,000 cash (the "Repurchase
Price"), payable to the Stockholders in the respective amounts set forth on
Exhibit A attached hereto.
- ---------
2. DELIVERIES. Concurrently with the purchase and sale contemplated by
Section 1, the Stockholders shall deliver duly executed stock powers
transferring the respective amounts of the Repurchased Shares to the Company,
and the present outstanding certificates representing the Repurchased Shares
registered in the respective names of the Stockholders shall be cancelled and
returned to the Company's stock record book. Against delivery by Stockholders
of the stock certificates representing the Repurchased Shares, the Company shall
wire transfer the amount of the Repurchase Price for the Repurchased Shares to
each of the Stockholders as set forth on Exhibit A.
3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF STOCKHOLDERS. Each
Stockholder hereby represents and warrants to the Company as follows:
3.1 LEGAL POWER. Such Stockholder has the requisite legal power and
authority to enter into this Agreement, to deliver the Repurchased Shares and to
carry out and perform his or her obligations under the terms of this Agreement.
<PAGE>
3.2 TITLE TO SHARES. Such Stockholder is the owner of the respective
Repurchased Shares set forth opposite such Stockholder's name on Exhibit A
---------
hereto. Upon delivery of the Repurchased Shares and payment of the Repurchase
Price therefor, such Stockholder will convey to the Company valid and marketable
title to the Repurchased Shares, free and clear of any liens, encumbrances,
security agreements, equities, charges, restrictions and claims.
4. EFFECTIVENESS. As a condition to the effectiveness of this Agreement,
the Company, the Stockholders, and the Investors shall have closed the
acquisition of stock pursuant to the Purchase Agreement.
5. STOCKHOLDERS' INDEMNITY OF THE COMPANY. Each Stockholder shall
indemnify, protect, defend and hold free and harmless the Company from and
against all claims, losses, liabilities, damages, deficiencies, costs and
expenses, including attorneys', accountants' and expert witness' fees and the
costs and expenses, as incurred, of enforcing the indemnification (hereafter
"Damages") (including, without limitation, losses resulting from the defense,
settlement or compromise of a claim or demand or assessment) incurred by the
Company as a result of any breach by such Stockholder of any of his
representations, warranties or covenants contained in this Agreement.
IN WITNESS WHEREOF, the undersigned have executed this Agreement as of the
date first written above.
COMPANY:
MILCOM INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ ALFONSO G. CORDERO
-----------------------------------
Alfonso G. Cordero, President
STOCKHOLDERS:
/s/ ALFONSO G. CORDERO
---------------------------------------
Alfonso G. Cordero
/s/ KI NAM
---------------------------------------
Ki Nam
/s/ SUSSANNE TORRETTA
---------------------------------------
Sussanne Torretta
2
<PAGE>
/s/ CHARLES FLORMAN
---------------------------------------
Charles Florman
/s/ BILL H. DOI
---------------------------------------
Bill H. Doi
/s/ ARTHUR COOK
---------------------------------------
Arthur Cook
/s/ THOMAS HA
---------------------------------------
Thomas Ha
/s/ ERNEST JOHNSON
---------------------------------------
Ernest Johnson
3
<PAGE>
EXHIBIT 10.12
REGISTRATION RIGHTS AGREEMENT
THIS AGREEMENT entered into this 10th day of October, 1995 by and among
MILCOM INTERNATIONAL, INC., a Delaware corporation, (the "Company"), the persons
named as Investors on Exhibit A hereto (the "Investors") and the persons named
as Stockholders on Exhibit B hereto (the "Stockholders").
R E C I T A L S
- - - - - - - -
A. The Investors hold shares of the Company's Series A Preferred Stock
and may hold shares of Common Stock of the Company upon conversion of such
Preferred Stock, or any other shares of Common Stock acquired by the Investors
(such Common Stock, the "Investor Shares"), $.0001 par value per share.
B. The Stockholders hold an aggregate of 5,924,100 shares of the
Company's Common Stock (the "Stockholder Shares"), $.0001 par value per share,
and pursuant to the terms of a Stock Purchase Agreement, dated the date hereof
("Purchase Agreement") have agreed to enter this Agreement.
C. The execution and delivery of this Agreement is a condition to the
obligation of the Investors to complete the Purchase Agreement and the Company
desires to grant registration rights to the Investors and the Stockholders.
NOW, THEREFORE, in consideration of the mutual promises and covenants
herein contained, the Investors, the Stockholders and the Company agree as
follows:
REGISTRATION
1. DEFINITIONS
As used herein:
1.1 The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, and the declaration or ordering of
the effectiveness of such registration statement.
1.2 The term "Registrable Shares" means and includes the Investor Shares
and for purposes of Section 2.1 but not 2.2 or 2.3, the Stockholder Shares.
1.3 The term "Ownership Percentage" means and includes, with respect to
each holder of Registrable Shares requesting inclusion of Registrable Shares in
an offering pursuant to this Agreement, the number of Registrable Shares held by
such holder divided by the aggregate of (i) all Registrable Shares held by all
holders requesting registration in such offering and (ii) the total number of
all other securities entitled to registration pursuant to agreement with the
Company approved by the Board of Directors and held by others participating in
the underwriting.
<PAGE>
1.4 The term "Securities Act" means the Securities Act of 1933, as
amended.
2. REGISTRATION RIGHTS
2.1 "PIGGY BACK" REGISTRATION. If at any time the Company shall determine
to register under the Securities Act (including pursuant to a demand of any
stockholder of the Company exercising registration rights) any of its Common
Stock (except shares to be issued solely in connection with any acquisition of
any entity or business, shares issuable solely upon exercise of stock options,
or shares issuable solely pursuant to employee benefit plans), it shall send to
each holder of Registrable Shares written notice of such determination and, if
within ten (10) days after receipt of such notice, such holder shall so request
in writing, the Company shall use its best efforts to include in such
registration statement all or any part of the Registrable Shares that such
holder requests to be registered, except that if, in connection with any
offering involving an underwriting of Common Stock to be issued by the Company,
the managing underwriter shall impose a limitation on the number of shares of
Common Stock included in any such registration statement because, in its
judgment, such limitation is necessary to effect an orderly public distribution,
and such limitation is imposed as provided herein among, first, the Company in
an offering pursuant to a demand of any stockholder of the Company exercising
registration rights and, then, the holders of such Common Stock having an
incidental ("piggy back") right to include such Common Stock in the registration
statement as provided below, then, to the extent any Registrable Shares remain
available for registration after the underwriter's cut-back (the "Available
Shares"), the Company shall be obligated to include in such registration
statement, with respect to the requesting holder, only the product of (i) the
number of Available Shares and (ii) such holder's Ownership Percentage, as that
term is defined in Section 1.3. Notwithstanding the foregoing, such a reduction
or cut-back shall be made by the underwriter with respect to the holders of
Common Stock having "piggy back" rights to include such Common Stock in the
registration statement, as follows: the underwriter shall first reduce or cut-
back a pro rata number of the Stockholder Shares based on Stockholders'
respective Ownership Percentages which the Stockholders have requested for
inclusion hereunder until such time as the Investors have registered and sold a
number of shares of Common Stock the gross proceeds from which is $5,000,000,
thereafter the Investors and the Stockholders shall be cut-back a pro rata
number of shares in which the numerator is the number of shares of Common Stock
held by such holder of Registerable Shares and the denominator of which is all
the Registrable Shares hereunder. If Investors have not sold $5,000,000 of
gross proceeds of shares in a registered offering and to the extent that after
the reduction of shares offered by the Stockholders in the preceding sentence,
the underwriter determines that further reductions are necessary to effect an
orderly public distribution, the underwriter shall reduce the number of Investor
Shares available for registration hereunder, to the extent necessary on a pro
rata basis. Notwithstanding the foregoing, no such reduction shall be made with
respect to securities being offered by the Company for its own account if the
offering is not pursuant to a demand of any stockholder of the Company
exercising registration rights or by holders of securities who have requested
the Company to register such securities pursuant to a mandatory registration
obligation of the Company under Section 2.2 hereof. If any holder of
Registrable Shares disapproves of the terms of such underwriting, he may elect
to withdraw therefrom by written notice to the Company and the underwriter. No
incidental right under this Section 2.1 shall be construed to limit any
registration required under Section 2.2.
2.2 REQUIRED REGISTRATION. On any two occasions following the earlier of
two years from the date hereof or after the Company has completed Any Public
Offering as defined in the Purchase Agreement, one or more holders of at least
fifty percent (50%) of the Registrable Shares
2
<PAGE>
shall notify the Company in writing that it or they intend to offer or cause to
be offered for public sale at least twenty-five percent (25%) of the Registrable
Shares, the Company will so notify all holders of Registrable Shares (including
the Stockholders). Upon written request of any holder given within thirty (30)
days after the receipt by such holder from the Company of such notification, the
Company will use its best efforts to cause all or any part of the Registrable
Shares that may be requested by any holder thereof (including the holder or
holders giving the initial notice of intent to offer) to be registered under the
Securities Act as expeditiously as possible. Notwithstanding anything contained
in this Section 2.2 or Section 2.3 to the contrary, if the Company furnishes to
the holders of Registrable Shares requesting any registration pursuant to such
sections a certificate signed by the President of the Company stating that, in
the good faith judgment of the Board of Directors of the Company, such
registration would be detrimental to the Company and that it is in the best
interests of the Company to defer the filing of a registration statement, then
the Company shall have the right to defer the filing of a registration statement
with respect to such offering for a period of not more than 120 days from
receipt by the Company of the request by the initiating holder; PROVIDED,
HOWEVER, that the Company may not exercise such right more than two times, nor
may the Company exercise such right consecutively.
2.3 REGISTRATION ON FORM S-3. In addition to the rights provided to the
holders of Registrable Shares in Section 2.1 and Section 2.2 above, if the
registration of Registrable Shares under the Securities Act can be effected on
Form S-3 (or any similar form promulgated by the Securities and Exchange
Commission), the Company will promptly so notify each holder of Registrable
Shares and then will at any time thereafter, until the fifth anniversary of the
Company's first Qualified Public Offering as expeditiously as possible, use its
best efforts to effect qualification and registration under the Securities Act
on said Form S-3 of all or such portion of the Registrable Shares as the holder
or holders shall specify. Notwithstanding the foregoing, the Company shall not
be required to register a number of Stockholder Shares or Investor Shares on
Form S-3, pursuant to this Section 2.3, which would be less than one percent
(1%) of the then outstanding shares of the Company's Common Stock.
2.4 EFFECTIVENESS. The Company will use its best efforts to maintain the
effectiveness for up to ninety (90) days of any registration statement pursuant
to Section 2.2 or Section 2.3 hereof and from time to time will amend or
supplement such registration statement and the prospectus contained therein as
and to the extent necessary to comply with the Securities Act and any applicable
state securities statute or regulation.
2.5 INDEMNIFICATION OF HOLDERS OF REGISTRABLE SHARES. In the event that
the Company registers any of the Registrable Shares under the Securities Act,
the Company will indemnify and hold harmless each holder and each underwriter of
the Registrable Shares so registered (including any broker or dealer through
whom such shares may be sold) and each person, if any, who controls such holder
or any such underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages, expenses or liabilities,
joint or several, to which they or any of them become subject under the
Securities Act or under any other statute or at common law or otherwise, and,
except as hereinafter provided, will reimburse each such holder, each such
underwriter and each such controlling person, if any, for any legal or other
expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus
3
<PAGE>
or in the prospectus (or the registration statement or prospectus as from time
to time amended or supplemented by the Company) or arise out of or are based
upon the omission or alleged omission to state therein a material fact required
to be stated therein or necessary in order to make the statements therein not
misleading or any violation by the Company of any rule or regulation promulgated
under the Securities Act applicable to the Company and relating to action or
inaction required of the Company in connection with such registration, unless
such untrue statement or omission was made in such registration statement,
preliminary or amended, preliminary prospectus or prospectus in reliance upon
and in conformity with information furnished in writing to the Company in
connection therewith by such holder of Registrable Shares, any such underwriter
or any such controlling person expressly for use therein; PROVIDED, HOWEVER,
that the Company's obligations hereunder shall be limited to an amount equal to
the proceeds received by the Company pursuant to such registration. Promptly
after receipt by any holder of Registrable Shares, any underwriter or any
controlling person of notice of the commencement of any action in respect of
which indemnity may be sought against the Company, such holder of Registrable
Shares, or such underwriter or such controlling person, as the case may be, will
notify the Company in writing of the commencement thereof, and, subject to the
provisions hereinafter stated, the Company shall assume the defense of such
action (including the employment of counsel, who shall be counsel reasonably
satisfactory to such holder of Registrable Shares, such underwriter or such
controlling person, as the case may be), and the payment of expenses insofar as
such action shall relate to any alleged liability in respect of which indemnity
may be sought against the Company. Such holder of Registrable Shares, any such
underwriter or any such controlling person shall have the right to employ
separate counsel in any such action and to participate in the defense thereof
but the fees and expenses of such counsel shall not be at the expense of the
Company unless the employment of such counsel has been specifically authorized
by the Company. The Company shall not be liable to indemnify any person for any
settlement of any such action effected without the Company's consent. The
Company shall not, except with the approval of each party being indemnified
under this Section 2.5, consent to entry of any judgment or enter into any
settlement that does not include as an unconditional term thereof the giving by
the claimant or plaintiff to the parties being so indemnified of a release from
all liability in respect to such claim or litigation.
2.6 INDEMNIFICATION OF COMPANY. In the event that the Company registers
any of the Registrable Shares under the Securities Act, each holder of the
Registrable Shares so registered will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the registration
statement, each underwriter of the Registrable Shares so registered (including
any broker or dealer through whom any of such shares may be sold) and each
person, if any, who controls the Company within the meaning of Section 15 of the
Securities Act from and against any and all losses, claims, damages, expenses or
liabilities, joint or several, to which they or any of them may become subject
under the Securities Act or under any other statute or at common law or
otherwise, and, except as hereinafter provided, will reimburse the Company and
each such director, officer, underwriter or controlling person for any legal or
other expenses reasonably incurred by them or any of them in connection with
investigating or defending any actions whether or not resulting in any
liability, insofar as such losses, claims, damages, expenses, liabilities or
actions arise out of or are based upon any untrue statement or alleged untrue
statement of a material fact contained in the registration statement, in any
preliminary or amended preliminary prospectus or in the prospectus (or the
registration statement or prospectus as from time to time amended or
supplemented) or arise out of or are based upon the omission or alleged omission
to state therein a material fact required to be stated therein or necessary in
order to make the statements therein not misleading, but only insofar as any
such statement or omission was made in reliance upon and in
4
<PAGE>
conformity with information furnished in writing to the Company in connection
therewith by such holder of Registrable Shares, expressly for use therein;
PROVIDED, HOWEVER, that such holder's obligations hereunder shall be limited to
an amount equal to the proceeds to such holder of the Registrable Shares sold in
such registration. Promptly after receipt of notice of the commencement of any
action in respect of which indemnity may be sought against such holder of
Registrable Shares, the Company will notify such holder of Registrable Shares in
writing of the commencement thereof, and such holder of Registrable Shares
shall, subject to the provisions hereinafter stated, assume the defense of such
action (including the employment of counsel, who shall be counsel satisfactory
to the Company) and the payment of expenses insofar as such action shall relate
to the alleged liability in respect of which indemnity may be sought against
such holder of Registrable Shares. The Company and each such director, officer,
underwriter or controlling person shall have the right to employ separate
counsel in any such action and to participate in the defense thereof but the
fees and expenses of such counsel shall not be at the expense of such holder of
Registrable Shares unless employment of such counsel has been specifically
authorized by such holder of Registrable Shares. Notwithstanding the two
preceding sentences, if the action is one in which the Company may be obligated
to indemnify any holder of Registrable Shares pursuant to Section 2.5, the
Company shall have the right to assume the defense of such action, subject to
the right of such holders to participate therein as permitted by Section 2.5.
Such holder of Registrable Shares shall not be liable to indemnify any person
for any settlement of any such action effected without such holder's consent.
Such holder shall not, except with the approval of the Company, consent to entry
of any judgment or enter into any settlement that does not include as an
unconditional term thereof the giving by the claimant or plaintiff to the party
being so indemnified of a release from all liability in respect to such claim or
litigation.
2.7 EXCHANGE ACT REGISTRATION. The Company will use its best efforts to
file on a timely basis with the Securities and Exchange Commission all
information that the Commission may require under either of Section 13 or
Section 15(d) of the Exchange Act and, so long as it is required to file such
information, shall use its best efforts to take all action that may be required
as a condition to the availability of Rule 144 under the Securities Act (or any
successor exemptive rule hereinafter in effect) with respect to the Company's
Common Stock. The Company shall furnish to any holder of Registrable Shares
forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, (ii) a copy of the most
recent annual or quarterly report of the Company as filed with the Securities
and Exchange Commission, and (iii) any other reports and documents that a holder
may reasonably request in availing itself of any rule or regulation of the
Securities and Exchange Commission allowing a holder to sell any such
Registrable Shares without registration.
2.8 FURTHER OBLIGATIONS OF THE COMPANY. Whenever the Company is required
hereunder to register Registrable Shares, it agrees that it shall also do the
following:
(a) Furnish to each selling holder such copies of each preliminary and
final prospectus and any other documents that such holder may reasonably request
to facilitate the public offering of its Registrable Shares;
(b) Use its best efforts to register or qualify the Registrable Shares
to be registered pursuant to this Agreement under the applicable securities or
"blue sky" laws of such jurisdictions as any selling holder may reasonably
request; PROVIDED, HOWEVER, that the Company shall not be obligated to qualify
to do business in any jurisdiction where it is not then so qualified
5
<PAGE>
or to take any action that would subject it to the service of process in suits
other than those arising out of the offer or sale of the securities covered by
the registration statement in any jurisdiction where it is not then so subject;
(c) Furnish to each selling holder a copy of the signed:
(i) opinion of counsel for the Company, dated the effective date of
the registration statement;
(ii) "comfort" letters signed by the Company's independent public
accountants who have examined and reported on the Company's financial statements
included in the registration statement, to the extent permitted by the standards
of the American Institute of Certified Public Accountants, covering
substantially the same matters with respect to the registration statement (and
the prospectus included therein) and (in the case of the accountants "comfort"
letters) with respect to events subsequent to the date of the financial
statements, as are customarily covered in opinions of issuer's counsel and in
accountants' "comfort" letters delivered to the underwriters in underwritten
public offerings of securities, but only if and to the extent that the Company
is required to deliver or cause the delivery of such opinion or "comfort"
letters to the underwriters in an underwritten public offering of securities;
(d) Permit each selling holder or his counsel or other representatives
to inspect and copy such corporate documents and records as may reasonably be
requested by them; and
(e) Furnish to each selling holder, upon request, a copy of all
documents filed and all correspondence from or to the Securities and Exchange
Commission in connection with any such offering unless confidential treatment of
such information has been requested of the Securities and Exchange Commission.
2.9 EXPENSES. In the case of a registration under Sections 2.1, 2.2 or
2.3 the Company shall bear all costs and expenses of each such registration,
including, but not limited to, printing, legal and accounting expenses,
Securities and Exchange Commission filing fees and "blue sky" fees and expenses;
PROVIDED, HOWEVER, that the Company shall have no obligation to pay or otherwise
bear (i) any portion of the fees or disbursements of more than one counsel for
the selling holders of Registrable Shares in connection with the registration of
their Registrable Shares which counsel shall be the counsel chosen by Investors,
if Investors are selling in such offering, (ii) any portion of the underwriter's
commissions or discounts attributable to the Registrable Shares being offered
and sold by the holders of Registrable Shares, or (iii) any of such expenses if
the payment of such expenses by the Company is prohibited by the laws of a state
in which such offering is qualified and only to the extent so prohibited; and
PROVIDED FURTHER, that, in the event any registration under the Securities Act
is initiated by any holders of Registrable Shares pursuant to Sections 2.2 or
2.3 of this Agreement and such registration is thereafter withdrawn or
terminated by such holders for reasons other than the occurrence of one or more
events regarding the Company, which event or events may have a material adverse
affect upon the business or prospects of the Company, and such holders learn of
such event or events after the date of the demand for registration and prior to
the date of withdrawal or termination by them and such withdrawal or termination
occurs with reasonable promptness thereafter, then the Company shall have no
obligation to pay or otherwise bear any fees, expenses or other costs arising
out of or relating to such registration, unless, in the case of a
6
<PAGE>
registration under Section 2.2 hereof, such holders relinquish one of their
rights to demand registration under such section.
2.10 TRANSFER OF REGISTRATION RIGHTS. The registration rights of the
holders of Registrable Shares under this Agreement may be transferred by any
holder of Registrable Securities (i) by gift or sale, or upon death or permanent
incapacity to his guardian, conservator, executor, administrator, trustees or
beneficiaries of his will, spouse, children, stepchildren, grandchildren,
parents, siblings or legal dependents, to a trust of which the beneficiary or
beneficiaries of the corpus and the income shall be such a person or persons or
the holders of Registrable Shares, to a partnership of which the partners shall
be such a person or persons or the holder of Registrable Shares or to another
holder of Registrable Shares, and (ii) to any transferee of Registrable Shares
who after such transfer will hold 400,000 shares, or more.
2.11 NO SUPERIOR RIGHTS. The Company will not, without the consent of the
holders of 50% or more of the Registrable Shares, (including 50% of Registrable
Shares held by the Investors) grant registration rights to any Person that are
superior to the rights granted hereunder.
2.12 MARKET STAND-OFF AGREEMENT. Provided that all holders of Registrable
Shares are treated equally and all officers and directors of the Company are
also so bound, no holder of Registrable Shares shall, to the extent requested by
the Company or any managing underwriter of the Company, sell or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound)
any Registrable Shares during a period (the "Stand-Off Period") equal to 180
days following the effective date of a registration statement of the Company
filed under the Securities Act (or such shorter period as the Company or
managing underwriter may authorize) except for securities sold as part of the
offering covered by such registration statement in accordance with the
provisions of this Agreement. In order to enforce the foregoing covenant, the
Company may impose stock transfer restrictions with respect to the Registrable
Shares of each holder until the end of the Stand-Off Period.
3. ASSIGNABILITY
This Agreement shall be binding upon and inure to the benefit of the
respective heirs, successors and assigns of the parties hereto.
4. LAW
This Agreement shall be governed by and construed in accordance with the
laws of the State of California.
5. AMENDMENT
Any modification, amendment, or waiver of this Agreement or any provision
hereof shall be in writing and executed by holders of not less than 66 2/3
percent of the Registrable Shares (including the holders of no less than a
majority of the Management Shares); provided however, that no such modification,
amendment or waiver shall reduce the aforesaid percentage of Registrable Shares
without the consent of the record of beneficial holders of no less than 90
percent of the Registrable Shares.
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<PAGE>
6. CONFLICT
In the event of any conflict between the terms of this Agreement and the
Purchase Agreement, the terms of this Agreement shall control.
7. COUNTERPARTS
This Agreement may be executed in any number of counterparts, each of which
shall be an original, but all of which together shall constitute one instrument.
8. NOTICE
Any notices and other communications required or permitted under this
Agreement shall be effective if in writing and delivered personally or sent by
telecopier, Federal Express or registered or certified mail, postage prepaid,
addressed as follows:
If to the Investors, to: Summit Ventures IV, L.P.
Summit Ventures III, L.P., and
Summit Investors II, L.P.,
499 Hamilton Avenue, Suite 200
Palo Alto, California 94301
Telecopier: (415) 321-1188
Crosspoint Venture Partners 1993
Crosspoint Venture Partners Entrepreneurs 1993
One First Street
Los Altos, California 94022
with a copy to: Bruce Feuchter, Esq.
Stradling, Yocca, Carlson & Rauth
660 Newport Center Drive, Suite 1600
Newport Beach, CA 92660
Telecopier: (714) 725-4100
If to the Company, to: Milcom International, Inc.
17500 Gillette Avenue
Irvine, California 92714-5610
Telecopier: (714) 757-0941
with a copy to: William J. Simpson, Esq.
Paul, Hastings, Janofsky & Walker
695 Town Center Drive, Suite 1600
Costa Mesa, California 92626
Telecopier: (714) 979-1921
8
<PAGE>
If to the Stockholders, to: The names and addresses set forth on Exhibit B
---------
hereto.
with a copy to:
Unless otherwise specified herein, such notices or other communications
shall be deemed effective (a) on the date delivered, if delivered personally,
(b) two business days after being sent, if sent by Federal Express, (c) one
business day after being sent, if sent by telecopier with confirmation of good
transmission and receipt, and (d) three business days after being sent, if sent
by registered or certified mail. Each of the parties herewith shall be entitled
to specify another address by giving notice as aforesaid to each of the other
parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
COMPANY
MILCOM INTERNATIONAL, INC., a Delaware corporation
By: /s/ Alfonso G. Cordero
----------------------------------------------
Alfonso G. Cordero, President
INVESTORS
SUMMIT VENTURES III, L.P.
By: Summit Partners III, L.P., its General Partner
By: Stamps, Woodsum & Co. III, its General Partner
By: /s/ Greg M. Avis
----------------------------------------------
General Partner
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., its General Partner
By: Stamps, Woodsum & Co. IV, its General Partner
By: /s/ Greg M. Avis
----------------------------------------------
General Partner
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SUMMIT INVESTORS II, L.P.
By: /s/ Greg M. Avis
----------------------------------------------
General Partner
CROSSPOINT VENTURE PARTNERS 1993
By: /s/ Rich Shapero
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CROSSPOINT VENTURE PARTNERS
ENTREPRENEURS 1993
By: /s/ Rich Shapero
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STOCKHOLDERS
/s/ Alfonso G. Cordero
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Alfonso G. Cordero
/s/ Ki Nam
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Ki Nam
/s/ Sussanne Torretta
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Sussanne Torretta
/s/ Charles Florman
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Charles Florman
/s/ Bill H. Doi
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Bill H. Doi
/s/ Arthur Cook
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Arthur Cook
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/s/ Thomas Ha
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Thomas Ha
/s/ Ernest Johnson
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Ernest Johnson
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EXHIBIT A
LIST OF INVESTORS
Summit Ventures IV, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California
Summit Ventures III, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California
Summit Investors II, L.P.
499 Hamilton Avenue, Suite 200
Palo Alto, California
Crosspoint Venture Partners 1993
One First Street
Los Altos, California 94022
Crosspoint Venture Partners Entrepreneurs 1993
One First Street
Los Altos, California 94022
A-1
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EXHIBIT B
LIST OF STOCKHOLDERS
Alfonso G. Cordero
26862 Windsor Drive
San Juan Capistrano, CA 92675
Ki Nam
18626 Grayland
Artesia, CA 90701
Sussanne Torretta
10121 Constitution Drive
Huntington Beach, CA 92646
Charles Florman
414A Main Street
Port Jefferson, NY 11777
Bill H. Doi
13802 Tustin East Drive
Tustin, CA 92680
Arthur Cook
55 Greenfield
Irvine, CA 92714
Thomas Ha
8392 Satinwood Circle
Westminster, CA 92683
Ernest Johnson
P.O. Box 7976
Newport Beach, CA 92660
B-1
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EXHIBIT 10.13
MILCOM INTERNATIONAL, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the 10th
of October, 1995 by and between Milcom International, Inc. a Delaware
corporation (the "COMPANY") and the Indemnitees identified on the signature
pages hereto (collectively, the "INDEMNITEES").
R E C I T A L S
- - - - - - - -
A. The Company and Indemnitees recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitees further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitees do not regard the current protection available as adequate
under the present circumstances, and Indemnitees and other directors, officers,
employees, agents and fiduciaries of the Company may not be willing to continue
to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain the services of highly
qualified individuals, such as Indemnitees, to serve the Company and, in part,
in order to induce each Indemnitee to continue to provide services to the
Company and (ii) wishes to provide for the indemnification and advancing of
expenses to each Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that each Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify and hold
harmless each Indemnitee (including its respective directors, officers,
partners, employees and agents) and each person who controls any of them within
the meaning of Section 15 of Securities Act of 1933, as amended (the "Securities
Act"), or Section 20 of the Securities Exchange Act of 1934, as amended (the
"Exchange Act") to the fullest extent permitted by law if such Indemnitee was or
is or becomes a party to or witness or other participant in, or is threatened to
be made a party to or
<PAGE>
witness or other participant in, or is threatened to be made a party to or
witness or other participant in, any threatened, pending or completed action,
suit, proceeding or alternative dispute resolution mechanism, or any hearing,
inquiry or investigation that such Indemnitee in good faith believes might lead
to the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (hereinafter a "Claim") by reason of (or arising in part out of) any event
or occurrence related to the fact that Indemnitee is or was a director, officer,
employee, controlling person, agent or fiduciary of the Company, or any
subsidiary of the Company, or is or was serving at the request of the Company as
a director, officer, employee, controlling person, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of such Indemnitee while serving in such
capacity including, without limitation, any and all losses, claims, damages,
expenses and liabilities, joint or several (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit proceeding or any claim asserted) under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or other federal or state
statutory law or regulation, at common law or otherwise, which relate directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto
(hereinafter an "INDEMNIFICATION EVENT") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement (collectively, hereinafter
"EXPENSES"), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no
later than five days after written demand by the Indemnitee therefor is
presented to the Company.
(b) CONTRIBUTION. If the indemnification provided for in Section 1(a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
such Indemnitee thereunder, shall contribute to the amount paid or payable by
such Indemnitee as a result of such losses, claims, damages, expenses or
liabilities (i) in such proportion as is appropriate to reflect the relative
benefits received by the Company and the Indemnitees, or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of the Company and the
Indemnitees in connection with the action or inaction which resulted in such
losses, claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitees
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitees, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Indemnitees
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Indemnitees
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and the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission.
The Company and the Indemnitees agree that it would not be just and
equitable if contribution pursuant to this Section 1(b) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations referred to in the immediately
preceding paragraph. In connection with the registration of the Company's
securities, in no event shall an Indemnitee be required to contribute any amount
under this Section 1(b) in excess of the lesser of (i) that proportion of the
total of such losses, claims, damages or liabilities indemnified against equal
to the proportion of the total securities sold under such registration statement
which is being sold by such Indemnitee or (ii) the proceeds received by such
Indemnitee from its sale of securities under such registration statement. No
person found guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not found guilty of such fraudulent misrepresentation.
(c) SURVIVAL REGARDLESS OF INVESTIGATION. The indemnification and
contribution provided for in this Section 1 will remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnitees or any
officer, director, employee, agent or controlling person of the Indemnitees.
(d) CHANGE IN CONTROL. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
under this Agreement or any other agreement or under the Company's Certificate
of Incorporation or Bylaws as now or hereafter in effect, Independent Legal
Counsel (as defined in Section 10(d) hereof) shall be selected by the
Indemnitees and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitees as to whether and to what extent
Indemnitees would be permitted to be indemnified under applicable law. The
Company agrees to abide by such opinion and to pay the reasonable fees of the
Independent Legal Counsel referred to above and to fully indemnify such counsel
against any and all expenses (including attorneys' fees), claims, liabilities
and damages arising out of or relating to this Agreement or its engagement
pursuant hereto.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitees have been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in the defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, each Indemnitee
shall be indemnified against all Expenses incurred by such Indemnitee in
connection therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company shall advance all Expenses
incurred by Indemnitees. The advances to be made hereunder shall be paid by the
Company to Indemnitees as soon as practicable but in any event no later than
five days after written demand by such Indemnitees therefor to the Company.
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(b) NOTICE/COOPERATION BY INDEMNITEES. Indemnitees shall, as a
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitees for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitees). In addition, Indemnitees shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitees' power.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this Agreement,
the termination of any Claim by judgment, order, settlement (whether with or
without court approval) or conviction, or upon a plea of nolo contendere, or its
---------------
equivalent, shall not create a presumption that Indemnitees did not meet any
particular standard of conduct or have any particular belief or that a court has
determined that indemnification is not permitted by applicable law. In
connection with any determination as to whether any Indemnitee is entitled to be
indemnified hereunder, the burden of proof shall be on the Company to establish
that such Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the Company
of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitees, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated
hereunder to pay the Expenses of any Claim, the Company shall be entitled to
assume the defense of such Claim, with counsel approved by the applicable
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to such Indemnitee of written notice of its election to do so. After delivery
of such notice, approval of such counsel by the Indemnitee and the retention of
such counsel by the Company, the Company will not be liable to such Indemnitee
under this Agreement for any fees of counsel subsequently incurred by such
Indemnitee with respect to the same Claim; provided that, (i) the Indemnitee
shall have the right to employ such Indemnitee's counsel in any such Claim at
the Indemnitee's expense and (ii) if (A) the employment of counsel by the
Indemnitee has been previously authorized by the Company, (B) such Indemnitee
shall have reasonably concluded that there is a conflict of interest between the
Company and such Indemnitee in the conduct of any such defense, or (C) the
Company shall not continue to retain such counsel to defend such Claim, then the
fees and expenses of the Indemnitee's counsel shall be at the expense of the
Company. The Company shall have the right to conduct such defense as it sees
fit in its sole discretion, including the right to settle any claim against any
Indemnitee without the consent of such Indemnitee.
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify Indemnitees to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable
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law, statute or rule which expands the right of a Delaware corporation to
indemnify a member of its Board of Directors or an officer, employee, agent or
fiduciary, it is the intent of the parties hereto that Indemnitees shall enjoy
by this Agreement the greater benefits afforded by such change. In the event of
any change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitees may be entitled under
the Company's Certificate of Incorporation, its Bylaws, any agreement, any vote
of stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to each Indemnitee for any action such Indemnitee
took or did not take while serving in an indemnified capacity even though the
Indemnitee may have ceased to serve in such capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against any
Indemnitee to the extent such Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If any Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for any portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which such Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGEMENT. The Company and each Indemnitee acknowledge
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Each Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's rights under public policy to indemnify the Indemnitees.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, control persons, agents
or fiduciaries, Indemnitees shall be covered by such policies in such a manner
as to provide Indemnitees the same rights and benefits as are accorded to the
most favorably insured of the Company's directors, if such Indemnitee is a
director, or of the Company's officers, if such Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if such Indemnitee is not an officer or director but is a key
employee, agent, control person, or fiduciary.
8. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of the
this Agreement:
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(a) EXCLUDED ACTION OR OMISSIONS. To indemnify any Indemnitee for
such Indemnitee's acts, omissions or transactions from which the Indemnitee may
not be relieved of liability under applicable law;
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to any Indemnitee with respect to Claims initiated or brought voluntarily by
such Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings to establish or enforce a right to indemnify under this Agreement or
any other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) as otherwise
required under Section 145 of the Delaware General Corporation Law, regardless
of whether such Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) LACK OF GOOD FAITH. To indemnify any Indemnitee for any expenses
incurred by such Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction determines that each of the material assertions made by any
Indemnitee in such proceeding was not made in good faith or was frivolous; or
(d) CLAIMS UNDER SECTION 16(b). To indemnify any Indemnitee for
expenses and the payment of profits arising from the purchase and sale by such
Indemnitee of securities in violation of Section 16(b) of the Securities
Exchange Act of 1934, as amended or any similar successor statute.
9. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against any
Indemnitee, any Indemnitee's estate, spouse, heirs, executors or personal or
legal representatives after the expiration of two years from the date of accrual
of such cause of action, and any claim or cause of action of the Company shall
be extinguished and deemed released unless asserted by the timely filing of a
legal action within such two-year period; provided, however, that if any shorter
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period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify is directors, officers, employees, agents or fiduciaries,
so that if Indemnitee is or was a director, officer, employee, agent, control
person, or fiduciary of such constituent corporation, or is or was serving at
the request of such constituent corporation as a director, officer, employee,
control person, agent or fiduciary or another corporation, partnership, joint
venture, employee benefit plan, trust or other enterprise, each Indemnitee shall
stand in the same position under the provisions of this Agreement with respect
to the resulting or surviving corporation as each Indemnitee would have with
respect to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on any
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Indemnitee with respect to an employee benefit plan; and references to "serving
at the request of the Company" shall include any service as a director, office,
employee, agent or fiduciary of the Company which imposes duties on, or involves
services by, such director, officer, employee, agent or fiduciary with respect
to an employee benefit plan, its participants or its beneficiaries; and if any
Indemnitee acted in good faith and in a manner such Indemnitee reasonably
believed to be in the interest of the participants and beneficiaries of an
employee benefit plan, such Indemnitee shall be deemed to have acted in a manner
"not opposed to the best interests of the Company" as referred to in this
Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term in used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years, individuals who at the beginning of such period constitute
the Board of Directors of the Company and any new director whose election by the
Board of Directors or nomination for election by the Company's stockholders was
approved by a vote of at least two-thirds of the directors then still in office
who either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
a merger or consolidation of the Company with any other corporation other than a
merger or consolidation which would result in the Voting Securities of the
Company outstanding immediately prior thereto continuing to represent (either by
remaining outstanding or by being converted into Voting Securities of the
surviving entity) at least 80% of the total voting power represented by the
Voting Securities of the Company or such surviving entity outstanding
immediately after such merger or consolidation, or the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(d) hereof, who shall not have otherwise performed
services for the Company or any Indemnitee within the last three years (other
than with respect to matters concerning the right of any Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
11. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
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12. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to each Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether any Indemnitee continues to serve as a director, officer,
employee, agent, controlling person, or fiduciary of the Company or of any other
enterprise at the Company's request.
13. ATTORNEYS' FEES. In the event that any action is instituted by an
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by
such Indemnitee with respect to such action, regardless of whether such
Indemnitee is ultimately successful in such action, and shall be entitled to the
advancement of Expenses with respect to such action, unless, as a part of such
action, a court of competent jurisdiction over such action determines that each
of the material assertions made by such Indemnitee as a basis for such action
was not made in good faith or was frivolous. In the event of an action
instituted by or in the name of the Company under this Agreement to enforce or
interpret any of the terms of this Agreement, the Indemnitee shall be entitled
to be paid all Expenses incurred by such Indemnitee in defense of such action
(including costs and expenses incurred with respect to Indemnitee counterclaims
and cross-claims made in such action), and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court having jurisdiction over such action determines that each of such
Indemnitee's material defenses to such action was made in bad faith or was
frivolous.
14. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposited with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if deliverable by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitees, at
each Indemnitee's address as set forth beneath the Indemnitees' signatures to
this Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. CONSENT TO JURISDICTION. The Company and each Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
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16. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
17. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extend of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suite to enforce such rights.
19. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by all parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
20. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving any Indemnitee any right to be retained
in the employ of the Company or any of its subsidiaries.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
Milcom International, Inc.
a Delaware corporation
By: /s/ Alfonso G. Cordero
-----------------------------------------------
Title: President
-------------------------------------------
Address: 17500 Gillette Avenue
Irvine, California 92714
INDEMNITEES SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P., its General Partner
By: Stamps, Woodsum & Co. IV, its General Partner
By: /s/ Greg M. Avis
---------------------------------------------
General Partner
SUMMIT VENTURES III, L.P.
By: Summit Partners III, L.P., its General Partner
By: Stamps, Woodsum & Co. III, its General Partner
By: /s/ Greg M. Avis
---------------------------------------------
General Partner
SUMMIT INVESTORS II, L.P.
By: /s/ Greg M. Avis
---------------------------------------------
General Partner
CROSSPOINT VENTURE PARTNERS 1993
By: /s/ Rich Shapero
---------------------------------------------
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CROSSPOINT VENTURE PARTNERS
ENTREPRENEURS 1993
By: /s/ Rich Shapero
-------------------------------------------
/s/ Greg M. Avis
-------------------------------------------
/s/ Rich Shapero
-------------------------------------------
11
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EXHIBIT 10.14
POWERWAVE TECHNOLOGIES, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("AGREEMENT") is entered into as of the ____
day of _________, 199_, by and between Powerwave Technologies, Inc., a Delaware
corporation (the "COMPANY") and the Indemnitee identified on the signature page
hereto (the "INDEMNITEE").
RECITALS:
A. The Company and Indemnitee recognize the continued difficulty in
obtaining liability insurance for its directors, officers, employees, agents and
fiduciaries, the significant increases in the cost of such insurance and the
general reductions in the coverage of such insurance.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company (i) desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company and
(ii) wishes to provide for the indemnification and advancing of expenses to each
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations get forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) INDEMNIFICATION OF EXPENSES. The Company shall indemnify and hold
harmless Indemnitee (including its partners, employees and agents) to the
fullest extent permitted by law if Indemnitee was or is or becomes a party to or
witness other participant in, or is threatened to be made a party to or witness
or other participant in, any threatened, pending or completed action, suit,
proceeding or alternative dispute resolution mechanism, or any hearing, inquiry
or investigation that Indemnitee in good faith believes might lead to the
institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (hereinafter a "CLAIM") by reason of (or arising in part out of) any event
or occurrence related to the fact that Indemnitee is or was a director, officer,
employee, controlling person, agent or fiduciary of the Company, or any
subsidiary of
<PAGE>
the Company, or is or was serving at the request of the Company as a director,
officer, employee, controlling person, agent or fiduciary of another
corporation, partnership, joint venture, trust or other enterprise, or by reason
of any action or inaction on the part of Indemnitee while serving in such
capacity including, without limitation, any and all losses, claims, damages,
expenses and liabilities, joint or several (including any investigation, legal
and other expenses incurred in connection with, and any amount paid in
settlement of, any action, suit, proceeding or any claim asserted) under the
Securities Act of 1933, as amended (the "Securities Act"), the Securities
Exchange Act of 1934, as amended (the "Exchange Act") or other federal or state
statutory law or regulation, at common law or otherwise, which relate directly
or indirectly to the registration, purchase, sale or ownership of any securities
of the Company or to any fiduciary obligation owed with respect thereto
(hereinafter an "INDEMNIFICATION EVENT") against any and all expenses (including
attorneys' fees and all other costs, expenses and obligations incurred in
connection with investigating, defending a witness in or participating in
(including on appeal), or preparing to defend, be a witness in or participate
in, any such action, suit, proceeding, alternative dispute resolution mechanism,
hearing, inquiry or investigation), judgments, fines, penalties and amounts paid
in settlement (if such settlement is approved in advance by the Company, which
approval shall not be unreasonably withheld) of such Claim and any federal,
state, local or foreign taxes imposed on Indemnitee as a result of the actual or
deemed receipt of any payments under this Agreement (collectively, hereinafter
"EXPENSES"), including all interest, assessments and other charges paid or
payable in connection with or in respect of such Expenses. Such payment of
Expenses shall be made by the Company as soon as practicable but in any event no
later than five days after written demand by the Indemnitee therefor is
presented to the Company.
(b) CONTRIBUTION. If the indemnification provided for in Section (a)
above for any reason is held by a court of competent jurisdiction to be
unavailable to an Indemnitee in respect of any losses, claims, damages, expenses
or liabilities referred to therein, then the Company, in lieu of indemnifying
Indemnitee thereunder, shall contribute to the amount paid or payable by
Indemnitee as a result of such losses, claims, damages, expenses or liabilities
(i) in such proportion as is appropriate to reflect the relative benefits
received by the Company and the Indemnitee, or (ii) if the allocation provided
by clause (i) above is not permitted by applicable law, in such proportion as is
appropriate to reflect not only the relative benefits referred to in clause (i)
above but also the relative fault of the Company and the Indemnitee in
connection with the action or inaction which resulted in such losses, claims,
damages, expenses or liabilities, as well as any other relevant equitable
considerations. In connection with the registration of the Company's
securities, the relative benefits received by the Company and the Indemnitee
shall be deemed to be in the same respective proportions that the net proceeds
from the offering (before deducting expenses) received by the Company and the
Indemnitee, in each case as set forth in the table on the cover page of the
applicable prospectus, bear to the aggregate public offering price of the
securities so offered. The relative fault of the Company and the Indemnitee
shall be determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged omission
to state a material fact relates to information supplied by the Company or the
Indemnitee and the parties' relative intent, knowledge, access to information
and opportunity to correct or prevent such statement or omission.
The Company and the Indemnitee agree that it would not be just and
equitable if contribution pursuant to this Section 1(b) were determined by pro
rata or per capita allocation or by any other method of allocation which does
not take account of the equitable considerations
2
<PAGE>
referred to in the immediately preceding paragraph. In connection with the
registration of the Company's securities, in no event shall an Indemnitee be
required to contribute any amount under this Section 1(b) in excess of the
lesser of (i) that proportion of the total of such losses, claims, damages or
liabilities indemnified against equal to the proportion of the total securities
sold under such registration statement which is being sold by such Indemnitee or
(ii) the proceeds received by Indemnitee from its sale of securities under such
registration statement. No person found guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not found guilty of such fraudulent
misrepresentation.
(c) SURVIVAL REGARDLESS OF INVESTIGATION. The indemnification and
contribution provided for in this Section 1 will remain in full force and effect
regardless of any investigation made by or on behalf of the Indemnitee or any
officer, director, employee, agent or controlling person of the Indemnitee.
(d) CHANGE IN CONTROL. The Company agrees that if there is a Change
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitee to payments of Expenses
under this Agreement or any other agreement or under the Company's Certificate
of Incorporation or Bylaws as now or hereafter in effect, Independent Legal
Counsel (as defined in Section 10(d) hereof) shall be selected by the Indemnitee
and approved by the Company (which approval shall not be unreasonably withheld).
Such counsel, among other things, shall render its written opinion to the
Company and Indemnitee as to whether and to what extent Indemnitee would be
permitted to be indemnified under applicable law. The Company agrees to abide by
such opinion and to pay the reasonable fees of the Independent Legal Counsel
referred to above and to fully indemnify such counsel against any and all
expenses (including attorneys' fees), claims, liabilities and damages arising
out of or relating to this Agreement or its engagement pursuant hereto.
(e) MANDATORY PAYMENT OF EXPENSES. Notwithstanding any other
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee have been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in the defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. The Company agrees to pay all Expenses
incurred by Indemnitee in connection with any Indemnification Event in advance
of the final disposition thereof, provided that the Company has received an
undertaking by or on behalf of Indemnitee, substantially in the form attached
hereto as Exhibit A, to repay the amount so advanced to the extent that it is
---------
ultimately determined that Indemnitee is not entitled to be indemnified by the
Company under this Agreement or otherwise. The advances to be made hereunder
shall be paid by the Company to Indemnitee within twenty (20) days following
delivery of a written request therefor by Indemnitee to the Company.
3
<PAGE>
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a
condition precedent to Indemnitee's right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could he sought
under this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page of
this Agreement (or such other address as the Company shall designate in writing
to Indemnitee). In addition, Indemnitee shall give the Company such information
and cooperation as it may reasonably require and as shall be within Indemnitee's
power. Any indemnification provided for in Section 1 shall be made no later
than forty-five (45) days after receipt of the written request of Indemnitee.
(c) NO PRESUMPTIONS; BURDEN OF PROOF. For purposes of this
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In connection with any determination as to whether Indemnitee is entitled
to be indemnified hereunder, the burden of proof shall be on the Company to
establish that Indemnitee is not so entitled.
(d) NOTICE TO INSURERS. If, at the time of the receipt by the
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim, with counsel approved by the
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election to do so. After delivery of such
notice, approval of such counsel by the Indemnitee and the retention of such
counsel by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided, that (i) the Indemnitee shall have the
right to employ Indemnitee's counsel in any such Claim at the Indemnitee's
expense and (ii) if (A) the employment of counsel by the Indemnitee has been
previously authorized by the Company, (B) Indemnitee shall have reasonably
concluded that there is a conflict of interest between the Company and
Indemnitee in the conduct of any such defense or Indemnitee shall have any
defense to a Claim which is not available to the Company, or (C) the Company
shall not continue to retain such counsel to defend such Claim, then the fees
and expenses of the Indemnitee's counsel shall be at the expense of the Company.
The Company shall have the right to conduct such defense as it sees fit in its
sole discretion, including the right to settle any claim against Indemnitee
without the consent of such Indemnitee; provided that the consent of Indemnitee
shall be obtained if Indemnitee would incur any liability or suffer any material
detriment in connection with the proposed settlement.
4
<PAGE>
3. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. The Company hereby agrees to indemnify Indemnitee to the
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though the Indemnitee may
have ceased to serve in such capacity.
4. NO DUPLICATION OF PAYMENTS. The Company shall not be liable under
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent such Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any
provision of this Agreement to indemnification by the Company for any portion of
Expenses incurred in connection with any Claim, but not, however, for all of the
total amount thereof, the Company shall nevertheless indemnify Indemnitee for
the portion of such Expenses to which Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. The Company and Indemnitee acknowledge that in
certain instances, federal law or applicable public policy may prohibit the
Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of the
Company's rights under public policy to indemnify the Indemnitee.
7. LIABILITY INSURANCE. To the extent the Company maintains liability
insurance applicable to directors, officers, employees, control persons, agents
or fiduciaries, Indemnitee shall be covered by such policies in such a manner as
to provide Indemnitee the same rights and benefits as are accorded to the most
favorably insured of the Company's directors, if Indemnitee
5
<PAGE>
is a director, or of the Company's officers, if Indemnitee is not a director of
the Company but is an officer; or of the Company's key employees, agents or
fiduciaries, if Indemnitee is not an officer or director but is a key employee,
agent, control person, or fiduciary.
8. FAILURE TO INDEMNIFY.
(a) If a claim under this Agreement, or any statute, or under any
provision of the Company's Amended and Restated Certificate of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company, within
forty-five (45) days after a written request for Payment thereof has been
received by the Company, Indemnitee may, but need not, at any time thereafter
bring an action against the Company to recover the unpaid amount of the claim
and, subject to Section 7 of this Agreement, if successful in whole or in part,
Indemnitee shall also be entitled to be paid for the expense (including
attorneys' fees) of bringing such action.
(b) It shall be a defense to such action (other than an action brought
to enforce a claim for expenses incurred in connection with any action, suit or
proceeding in advance of its final disposition) that Indemnitee has not met the
standard of conduct which make it permissible under applicable law for the
Company to indemnify Indemnitee for the amount claimed, but the burden of
proving such defense shall be on the Company and Indemnitee shall be entitled to
receive interim payments of interim expenses pursuant to Section 2 hereof unless
and until such defense may be finally adjudicated by court order or judgment
from which no further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification, the question of
Indemnitee's right to indemnification shall be for the court to decide, and
neither the failure of the Company (including its board of directors,
independent legal counsel, or its stockholders) to have made a determination
that indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by applicable
law, nor an actual determination by the Company (including its board of
directors, any committee or subgroup of the board of directors, independent
legal counsel, or its stockholders) that Indemnitee has not met such applicable
standard of conduct, shall create a presumption that Indemnitee has or has not
met the applicable standard of conduct.
9. EXCEPTIONS. Any other provision herein to the contrary
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) EXCLUDED ACTION OR OMISSIONS. To indemnify Indemnitee for
Indemnitee's acts, omissions or transactions from which the Indemnitee may not
be relieved of liability under applicable law;
(b) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings to establish or enforce a right to indemnify under this Agreement or
any other agreement or insurance policy or under the Company's Certificate of
Incorporation or Bylaws now or hereafter in effect relating to Claims for
Indemnifiable Events, (ii) in specific cases if the Board of Directors has
approved the initiation or bringing of such Claim, or (iii) as otherwise
required under Section 145 of the Delaware General Corporation Law, regardless
of whether Indemnitee ultimately is determined
6
<PAGE>
to be entitled to such indemnification, advance expense payment or insurance
recovery, as the case may be;
(c) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended or any similar successor statute.
10. PERIOD OF LIMITATIONS. No legal action shall be brought and no cause
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date of accrual of
such cause of action, and any claim or cause of action of the Company shall be
extinguished and deemed released unless asserted by the timely filing of a legal
action within such two-year period; provided, however, that if any shorter
-----------------
period of limitations is otherwise applicable to any such cause of action, such
shorter period shall govern.
11. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent, control person, or fiduciary of such constituent corporation, or is or
was serving at the request of such constituent corporation as a director,
officer, employee, agent, control person or fiduciary, each Indemnitee shall
stand in the same position under the provisions of this Agreement with respect
to the resulting or surviving corporation as Indemnitee would have with respect
to such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a mariner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding
7
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indirectly by the stockholders of the Company in substantially the same
proportions as their ownership of stock of the Company, (A) who is or becomes
the beneficial owner, directly or indirectly, of securities of the Company
representing 10% or more of the combined voting power of the Company's then
outstanding Voting Securities, increases his beneficial ownership of such
securities by 5% or more over the percentage so owned by such person, or (B)
becomes the "beneficial owner" (as defined in Rule 13d-3 under said Act),
directly or indirectly, of securities of the Company representing more than 20%
of the total voting power represented by the Company's then outstanding Voting
Securities, (ii) during any period of two consecutive years, individuals who at
the beginning of such period constitute the Board of Directors of the Company
and any new director whose election by the Board of Directors or nomination for
election by the Company's stockholders was approved by a vote of at least two-
thirds of the directors then still in office who either were directors at the
beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority thereof,
or (iii) the stockholders of the Company approve a merger or consolidation of
the Company with any other corporation other than a merger or consolidation
which would result in the Voting Securities of the Company outstanding
immediately prior thereto continuing to represent (either by remaining
outstanding or by being converted into Voting Securities of the surviving
entity) at least 80% of the total voting power represented by the Voting
Securities of the Company or such surviving entity outstanding immediately after
such merger or consolidation, or the stockholders of the Company approve a plan
of complete liquidation of the Company or an agreement for the sale or
disposition by the Company of (in one transaction or a series of transactions)
all or substantially all of the Company's assets.
(d) for purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(d) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the right of Indemnitee under this Agreement,
or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, "Voting Securities" shall mean any
securities of the Company that vote generally in the election of directors.
12. COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall constitute an original.
13. BINDING EFFECT; SUCCESSORS AND ASSIGNS. This Agreement shall be
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no such succession had taken place. This Agreement shall
continue in effect with respect to Claims relating to Indemnifiable Events
regardless of whether Indemnitee continues to serve as a director, officer,
employee, agent, controlling person, or fiduciary of the Company or of any other
enterprise at the Company's request.
8
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14. ATTORNEYS' FEES. In the event that any action is instituted by
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, any Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, the Indemnitee shall be entitled to be paid all
Expenses incurred by Indemnitee in defense of such action (including costs and
expenses incurred with respect to Indemnitee counterclaims and cross-claims made
in such action), and shall be entitled to the advancement of Expenses with
respect to such action, unless, as a part of such action, a court having
jurisdiction over such action determines that each of Indemnitee's material
defenses to such action was made in bad faith or was frivolous.
15. NOTICE. All notices and other communications required or permitted
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day if deposited with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if deliverable by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
Indemnitee's address as set forth beneath the Indemnitee's signature to this
Agreement and if to the Company at the address or its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
16. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
17. SEVERABILITY. The provisions of this Agreement shall be severable in
the event that any of the provisions hereof (including any provision within a
single section, paragraph or sentence) are held by a court of competent
jurisdiction to be invalid, void or otherwise unenforceable, and the remaining
provisions shall remain enforceable to the fullest extent permitted by law.
Furthermore, to the fullest extent possible, the provisions of this Agreement
(including, without limitations, each portion of this Agreement containing any
provision held to be invalid, void or otherwise unenforceable, that is not
itself invalid, void or unenforceable) shall be construed so as to give effect
to the intent manifested by the provision held invalid, illegal or
unenforceable.
18. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
9
<PAGE>
19. SUBROGATION. In the event of payment under this Agreement, the
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
20. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless it is in writing signed
by all parties hereto. No waiver of any of the provisions of this Agreement
shall be deemed or shall constitute a waiver of any other provisions hereof
(whether or not similar) nor shall such waiver constitute a continuing waiver.
21. INTEGRATION AND ENTIRE AGREEMENT. This Agreement sets forth the
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
22. NO CONSTRUCTION AS EMPLOYMENT AGREEMENT. Nothing contained in this
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
[Signature page follows]
10
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
POWERWAVE TECHNOLOGIES, INC.,
a Delaware corporation
By:
-------------------------------------
Its: President and Chief Executive Officer
-------------------------------------
Address: 2026 McGaw Avenue
Irvine, California 92614
INDEMNITEE
Name:
-------------------------------------
Address:
----------------------------------
------------------------------------------
------------------------------------------
11
<PAGE>
EXHIBIT A
UNDERTAKING AGREEMENT
This UNDERTAKING AGREEMENT is made on ___________ __, 199_, between
POWERWAVE TECHNOLOGIES, INC., a Delaware corporation (the "Company") and
______________, an officer and/or member of the board of directors of the
Company ("Indemnitee").
WHEREAS, Indemnitee may become involved in investigations, claims, actions,
suits or proceedings which have arisen or may arise in the future as a result of
Indemnitee's service to the Company; and
WHEREAS, Indemnitee desires that the Company pay any and all expenses
(including, but not limited to, attorneys' fees and court costs) actually and
reasonably incurred by Indemnitee or on Indemnitee's behalf in defending or
investigating any such suits or claims and that such payment be made in advance
of the final disposition of such investigations, claims, actions, suits or
proceedings to the extent that Indemnitee has not been previously reimbursed by
insurance; and
WHEREAS, the Company is willing to make such payments but, in accordance
with Section 145 of the General Corporation Law of the State of Delaware, the
Company may make such payments only if it receives an undertaking to repay from
Indemnitee; and
WHEREAS, Indemnitee is willing to give such an undertaking;
NOW, THEREFORE, in consideration of the mutual promises contained herein,
the parties agree as follows:
1. In regard to any payments made by the Company to Indemnitee pursuant to
the terms of the Indemnification Agreement dated September 25, 1996, between the
Company and Indemnitee, Indemnitee hereby undertakes and agrees to repay to the
Company any and all amounts so paid promptly and in any event within thirty (30)
days after the disposition, including any appeals, of any litigation or
threatened litigation on account of which payments were made, but only to the
extent that Indemnitee is ultimately found not entitled to be indemnified by the
Company under the Indemnification Agreement, the Bylaws of the Company and
Section 145 of the General Corporation Law of the State of Delaware, or other
applicable law.
2. This Agreement shall not affect in any manner rights which Indemnitee
may have against the Company, any insurer or any other person to seek
indemnification for or reimbursement of any expenses referred to herein or any
judgment which may be rendered in any litigation or proceeding.
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
on the date first above written.
POWERWAVE TECHNOLOGIES, INC.,
a Delaware corporation
By:
-------------------------------------
Its: President and Chief Executive Officer
-------------------------------------
Address: 2026 McGaw Avenue
Irvine, California 92614
INDEMNITEE
------------------------------------------
Name:
-------------------------------------
A-2
<PAGE>
EXHIBIT 10.15
[LOGO OF 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,
November 8, 1993, is made by and between 17500 Gillette Partnership ("Lessor")
- ----------- -- ----------------------------
and Milcom International, Inc. ("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 17500 Gillette Avenue, Irvine located in the County of
-----------------------------
Orange State of California and generally described as (describe briefly the
- ------- ----------
nature of the property) a freestanding industrial building of approximately
-------------------------------------------------------
33,400 square feet ("Premises"). (See Paragraph 2 for further provisions.)
- ------------------
1.3 Term: 10 years and 0 months ("Original Term") commencing December 1,
--- --- ------------
1993 ("Commencement Date") and ending November 30, 2003 ("Expiration Date").
- ---- -----------------
(See Paragraph 3 for further provisions.)
1.4 Early Possession: ("Early Possession Date").
----------------------------
(See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $13,360.00 per month ("Base Rent"), payable on the 1st
------------ ------
day of each month commencing December, 1993.
--------------------------------------------------
(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.
1.6 Base Rent Paid Upon Execution: $13,360.00
------------
as Base Rent for the period December 1, 1993 - December 31, 1993.
---------------------------------------
1.7 Security Deposit: $13,360.00 ("Security Deposit"). (See Paragraph 5
------------
for further provisions.)
1.8 Permitted Use: Subject to Paragraph 6.1, any lawful use
------------------------------------------
(See Paragraph 6 for further provisions.)
- --------------------------------------
1.9 Insuring Party: Lessor is the "Insuring Party" unless otherwise stated
herein. (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):
None represents
- --------------------------------------------------------------------
[ ] Lessor exclusively ("Lessor's Broker"); [ ] both Lessor and Lessee, and
None represents
- --------------------------------------------------------------------
[ ] 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.)
- ---------------------
1.12 Addenda. Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 53 and Exhibits
---- ---- --------------------------------------
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 thirty
(30) 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 as 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 six (6)
months 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 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.
2.5 Lessee Prior Owner/Occupant. The warranties made by Lessor in this
Paragraph 2 shall be of no force or effect if immediately prior to the date set
forth in Paragraph 1.1 Lessee was the owner or occupant of the Premises. In such
event, Lessee shall, at Lessee's sole cost and expense, correct any
non-compliance of the Premises with said warranties.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as 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 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 Real Property Taxes and
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.
Initials
------
NET PAGE 1 ------
(c) 1990-American Industrial Real Estate Association FORM 204N-R-12/91
<PAGE>
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 (10) 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 (10)
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.
4.1 Base Rent. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
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 (10) days after written request therefor
deposit moneys with Lessor sufficient to restore said Security Deposit to the
full amount required by this Lease. Any time the Base Rent increases during the
term of this Lease, Lessee shall, upon written request from Lessor, deposit
additional moneys with Lessor sufficient to maintain the same ratio between the
Security Deposit and the Base Rent as those amounts are specified in the Basic
Provisions. 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 the occupy the Premises only for the purposes
set forth in Paragraph 1.8, or any other use which is comparable thereto, and
for no other purpose. 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, Lessees 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 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.
(a) Reportable Uses Require Consent. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either: (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but in compliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor
to any liability therefor. In addition, Lessor may (but without any obligation
to do so) condition its consent to the use or presence of any Hazardous
Substance, activity or storage tank by Lessee upon Lessee's giving Lessor such
additional assurances as Lessor, in its reasonable discretion, deems necessary
to protect itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to, the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) Duty to Inform Lessor. If Lessee knows, or has reasonable cause to
believe, that a Hazardous Substance, or a condition involving or resulting from
same, has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor. Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to, or received from, any
governmental authority or private party, or persons entering or occupying the
Premises, concerning the presence, spill, release, discharge of, or exposure to,
any Hazardous Substance or contamination in, on, or about the Premises,
including but not limited to all such documents as may be involved in any
Reportable Uses Involving the Premises.
(c) Indemnification. Lessee shall indemnify, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered by Lessee, and the cost of
investigation (including consultant's and attorney's fees and testing), removal,
remediation, restoration and/or abatement thereof, or of any contamination
therein involved, and shall survive the expiration or earlier termination of
this Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this Lease
with respect to Hazardous Substances or storage tanks, unless specifically so
agreed by Lessor in writing at the time of such agreement.
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.
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.
7. Maintenance; Repairs; Utility Installations; Trade Fixtures and Alternations.
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).
Initials
---------
<PAGE>
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 or materially
contributed to by Lessee, or pertaining to or involving any Hazardous Substance
and/or storage tank brought onto the Premises by or for Lessee 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. If Lessee occupies the Premises for seven (7) years or
more, Lessor may require Lessee to repaint the exterior of the buildings on the
Premises as reasonably required, but not more frequently than once every seven
(7) years.
(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 make
repairs at the expense of Lessor or to terminate this Lease by reason of any
needed repairs.
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 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 and/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 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.
(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 with an "Additional Insured-Managers or Lessors of Premises"
Endorsement and contain the "Amendment of the Pollution Exclusion" for damage
caused by heat, smoke or fumes from a hostile fire. The policy shall not contain
any intra-insured exclusions as between insured persons or organizations, but
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.
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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 trust or 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 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 the
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 and/or earthquake unless
required by a Lender), including 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, and inflation guard protection causing an increase in the annual
property insurance coverage amount be a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located. 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 the 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 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 be 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 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 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 cancellable 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 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.
8.8 Exemption of Lessor from Liability. 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, 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 6.2(a), 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 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 (except as to the deductible
which is Lessee's responsibility) 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
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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.
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 may, at
Lessor's option, terminate this Lease effective sixty (60) days following the
date of occurrence of such damage by giving written notice to Lessee of Lessor'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 10 (10) days after the expiration of
the Exercise Period, notwithstanding any term of 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), 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.
(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 Premises
within ninety (90) days after such obligation shall accrue, Lessee may,
at any time prior to the commencement of such repair or restoration, 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
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 responible, there shall be abatement of
Lessee's obligations under this Lease to the same extent as provided in
Paragraph 9.6(a) for a period of not to exceed twelve (12) months.
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 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 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 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 be an 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
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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.
12. Assignment and Subletting.
12.1 Lessor's Consent Required.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assignment") or sublet all or any part of Lessee's interest in this Lease or in
the Premises without Lessor's prior written consent given under and subject to
the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an assignment
requiring Lessor's consent. The transfer, on a cumulative basis, of twenty-five
percent (25%) or more of the voting control of Lessee shall constitute a change
in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a formal
assignment or hypothecation of this Lease or Lessee's assets occurs, which
results or will result in a reduction of the Net Worth of Lessee, as hereinafter
defined, by an amount equal to or greater than twenty-five percent (25%) of such
Net Worth of Lessee as it was represented to Lessor at the time of the execution
by Lessor of this Lease or at the time of the most recent assignment to which
Lessor has consented, or as it exists immediately prior to said transaction or
transactions constituting such reduction, at whichever time said Net Worth of
Lessee was or is greater, shall be considered an assignment of this Lease by
Lessee to which Lessor may reasonably withhold its consent. "Net Worth of
Lessee" for purposes of this Lease shall be the net worth of Lessee (excluding
any guarantors) established under generally accepted accounting principles
consistently applied.
(d) An assignment or subletting of Lessee's interest in this Lease
without Lessor's specific prior written consent shall, at Lessor's option, be a
Default curable after notice per Paragraph 13.1(c), or a noncurable Breach
without the necessity of any notice and grace period. If Lessor elects to treat
such unconsented to assignment or subletting as a noncurable Breach, Lessor
shall have the right to either: (i) terminate this Lease, or (ii) upon thirty
(30) days written notice ("Lessor's Notice"), increase the monthly Base Rent to
fair market rental value or one hundred ten percent (110%) of the Base Rent then
in effect, whichever is greater. Pending determination of the new fair market
rental value, if disputed by Lessee, Lessee shall pay the amount set forth in
Lessor's Notice, with any overpayment credited against the next installment(s)
of Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon the
determination thereof. Further, in the event of such Breach and market value
adjustment, (i) the purchase price of any option to purchase the Premises held
by Lessee shall be subject to similar adjustment to the then fair market value
(without the Lease being considered an encumbrance or any deduction for
depreciation or obsolescence, and considering the Premises at its highest and
best use and in good condition), or one hundred ten percent (110%) of the price
previously in effect, whichever is greater, (ii) any index-oriented rental or
price adjustment formulas contained in this Lease shall be adjusted to require
that the base index be determined with reference to the index applicable to the
time of such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 Terms and Conditions Applicable to Assignment and Subletting.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee. However,
Lessor may consent to subsequent sublettings and assignments of the sublease or
any amendments or modifications thereto without notifying Lessee or anyone else
liable on the Lease or sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
sublease.
(d) In the event of any Default or Breach of Lessee's obligations under
this Lease. Lessor may proceed directly against Lessee, any Guarantors or any
one else responsible for the performance of the Lessee's obligations under this
Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be in
writing, accompanied by information relevant to Lessor's determination as to the
financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $1,000 or ten percent (10%) of the current monthly Base Rent,
whichever is greater, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublease under, this Lease shall, by reason of
accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
(g) The occurrence of a transaction described in Paragraph 12.1(c) shall
give Lessor the right (but not the obligation) to require the the Security
Deposit be increased to an amount equal to six (6) times the then monthly
Base Rent, and Lessor may make the actual receipt by Lessor of the amount
required to establish such Security Deposit a condition to Lessor's consent to
such transaction.
(h) Lessor, as a condition to giving its consent to any assignment or
subletting, may require that the amount and adjustment structure of the rent
payable under this Lease be adjusted to what is then the market value and/or
adjustment structure for property similar to the Premises as then constituted.
12.3 Additional Terms and Conditions Applicable to Subletting. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease, to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) in the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so, may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease;
provided, however, Lessor shall not be liable for any prepaid rents or security
deposit paid by such sublessee to such sublessor or for any other prior Defaults
or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
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"
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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 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 recission 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 of ten (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
to 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 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. (S)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 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 terminations
(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 that 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 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 rental 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 losses 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 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 subleting 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.
(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 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 conditions 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 wich 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 five (5) days afte 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. 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 later charge is payable hereunder, whether or not
collected, for three (3) consecutive installments of Base Rent, then
notwithstanding Paragraph 4.1 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
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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. Any award for the laking 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 laking 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.
15. Broker's Fee.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes of
this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay to
said Brokers jointly, or in such separate shares as they may mutually designate
in writing, a fee as set forth in a separate written agreement between Lessor
and said Brokers (or in the event there is no separate written agreement
between Lessor and said Brokers, the sum of $ ) for brokerage
services rendered by said Brokers to Lessor in this transaction.
15.3 Unless Lessor and Brokers have otherwise agreed in writing, Lessor
further agrees that: (a) if Lessee exercises any Option (as defined in Paragraph
39.1) or any Option subsequently granted which is substantially similar
to an Option granted to Lessee in this Lease, or (b) if Lessee acquires
any rights to the Premises or other premises described in this Lease which
are substantially similar to what Lessee would have acquired had an Option
herein granted to Lessee been exercised, or (c) if Lessee remains in possession
of the Premises, with the consent of Lessor, after the expiration of the
term of this Lease after having failed to exercise an Option, or (d) if
said Brokers are the procuring cause of any other lease or sale entered
into between the Parties pertaining to the Premises and/or any adjacent
property in which Lessor has an interest, or (e) if Base Rent is increased,
whether by agreement or operation of an escalation clause herein, then as
to any of said transactions, Lessor shall pay said Brokers a fee in accordance
with the schedule of said Brokers in effect at the time of the execution
of this Lease.
15.4 Any buyer or transferee of Lessor's interest in this Lease, whether
such transfer is by agreement or by operation or law, shall be deemed to
have assumed Lessor's obligation under this Paragraph 15. Each Broker shall
be a third party beneficiary of the provisions of this Paragraph 15 to the
extent of its interest in any commission arising from this Lease and may
enforce that right directly against Lessor and its successors.
15.5 Lessee and Lessor each represent and warrant to the other that
it has had no dealings with any person, firm, broker or finder (other than
the Brokers, if any named in Paragraph 1.10) in connection with the negotiation
of this Lease and/or the consummation of the transaction contemplated hereby,
and that no broker or other person, firm or entity other than said named
Brokers is entitled to any commission or finder's fee in connection with
said transaction. Lessee and Lessor do each hereby agree to indemnify, protect,
defend and hold the other harmless from and against liability for compensation
or charges which may be claimed by any such unnamed broker, finder or other
similar party by reason of any dealings or actions of the indemnifying Party,
including any costs, expenses, attorneys' fees reasonably incurred with
respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, indicated in Paragraph 1.10.
16. Tenancy Statement.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in
forms similar to the then most current "Tenancy Statement" form published
by the American Industrial Real Estate Association, plus such additional
information, confirmation and/or statements as may be reasonably requested
by the Requesting Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any
potential lender or purchaser designated by Lessor such financial statements
of Lessee and such Guarantors as may be reasonably required by such lender
or purchaser, including but not limited to Lessee's financial statements
for the past three (3) years. All such financial statements shall be received
by Lessor and such lender or purchaser in confidence and shall be used only
for the purposes herein set forth.
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 or 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 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 be 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 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 of 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.
Initials
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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 trusts, 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 of or omission of any prior 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 "NON-DISTURBANCE 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 judgement. 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 only 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.
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 elective 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 cost 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 acknowledgement 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 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.
39.1 DEFINITION. As used in this Paragraph 39 the word "Option" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the Premises,
or the right to purchase other property of Lessor, or the right of first refusal
to purchase other property of Lessor, or the right of first offer to purchase
other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is in
full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as part of any assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease in
any manner, by reservation or otherwise.
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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 OF 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 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 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, mapes 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 a time a dispute shall arise as to any
amount of 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 suite 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 several
responsibility of all persons or entities named herein as such Lessor or Lessee.
See attached Paragraphs 49 - 53.
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 TO 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.
SEE ATTACHED SIGNATURE BLOCK
<TABLE>
<S> <C>
Executed at _________________________________ Executed at _________________________________
on __________________________________________ on __________________________________________
by LESSOR: by LESSEE:
_____________________________________________ _____________________________________________
_____________________________________________ _____________________________________________
By___________________________________________ By___________________________________________
Name Printed:________________________________ Name Printed:________________________________
Title:_______________________________________ Title:_______________________________________
By___________________________________________ By___________________________________________
Name Printed:________________________________ Name Printed:________________________________
Title:_______________________________________ Title:_______________________________________
Address:_____________________________________ Address:_____________________________________
_____________________________________________ _____________________________________________
Tel. No. (___)_________Fax No. (___)_________ Tel. No. (___)_________Fax No. (___)_________
</TABLE>
NET PAGE 10
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.
(C) Copyright 1990--By American Industrial Real Estate Association. All rights
reserved.
<PAGE>
EXHIBIT 10.16
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, July 1,
1996 is made by and between CNH, LLC, a California limited liability company
("Lessor") and Powerwave Technologies, 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 2026 McGaw Avenue located in the County of Orange, State
of California, and generally described as (describe briefly the nature of the
property) All of an approximately 105,120 square foot freestanding industrial
building, as shown on Exhibit A and the land underlying such building legally
described on Exhibit B attached hereto ("Premises"). (See Paragraph 2 for
further provisions.)
1.3 Term: Ten (10) years and 0 months ("Original Term") commencing July 16,
1996 ("Commencement Date") and ending July 15, 2006 ("Expiration Date"). (See
Paragraph 3 for further provisions.)
1.4 Early Possession: ("Early Possession
Date"). (See Paragraphs 3.2 and 3.3 for further provisions.)
1.5 Base Rent: $58,687.20 per month ("Base Rent"), payable on the first (1st)
day of each month commencing August 1, 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.
1.6 Base Rent Paid Upon Execution: $29,343.60 as Base Rent for the period
July 16, 1996 - July 31, 1996.
1.7 Security Deposit: $58,687.20 ("Security Deposit"). (See Paragraph 5 for
further provisions.)
1.8 Permitted Use: Designing, manufacturing, assembling, warehousing,
distributing and shipping of electronic devices. (See Paragraph 6 for further
provisions.)
1.9 Insuring Party: Lessee 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):
none represents
[ ] Lessor exclusively ("Lessor's Broker"); [ ] both Lessor and Lessee, and
none represents
[ ] Lessee exclusively ("Lessee's Broker"); [ ] both Lessee and Lessor. (See
Paragraph 15 for further provisions.)
1.12 Addends: Attached hereto is an Addendum or Addenda consisting of
Paragraphs 49 through 64, and Exhibits A, B and C 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, 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, 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.
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, 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.
3. Term.
3.1 Term. The Commencement Date, Expiration Date and Original Term of this
Lease are as specified in Paragraph 1.3.
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4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other rent or
charges, as the same may be adjusted from time to time, to be received by Lessor
in lawful money of the United States, without offset or deduction, on or before
the day on which it is due under the terms of this Lease. Base Rent and all
other rent and charges for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual number
of days of the calendar month involved. Payment of Base Rent and other charges
shall be made to Lessor at its address stated herein or to such other persons or
at such other addresses as Lessor may from time to time designate in writing to
Lessee.
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 (10) 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, 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 or 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. or any other use which is comparable thereto, and
for no other purpose. 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 of properties. Lessor
hereby agrees to not unreasonably withhold or delay its consent to any written
request by Lessee, Lessees 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 therin, is
not 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.
(a) REPORTABLE USES REQUIRE CONSENT. The term "Hazardous Substance" as
used in this Lease shall mean any product, substance, chemical, material or
waste whose presence, nature, quantity and/or intensity of existence, use,
manufacture, disposal, transportation, spill, release or effect, either by
itself or in combination with other materials expected to be on the Premises, is
either (i) potentially injurious to the public health, safety or welfare, the
environment or the Premises, (ii) regulated or monitored by any governmental
authority, or (iii) a basis for liability of Lessor to any governmental agency
or third party under any applicable statute or common law theory. Hazardous
Substance shall include, but not be limited to, hydrocarbons, petroleum,
gasoline, crude oil or any products, by-products or fractions thereof. Lessee
shall not engage in any activity in, on or about the Premises which constitutes
a Reportable Use (as hereinafter defined) of Hazardous Substances without the
express prior written consent of Lessor and compliance in a timely manner (at
Lessee's sole cost and expense) with all Applicable Law (as defined in Paragraph
6.3). "Reportable Use" shall mean (i) the installation or use of any above or
below ground storage tank, (ii) the generation, possession, storage, use,
transportation, or disposal of a Hazardous Substance that requires a permit
from, or with respect to which a report, notice, registration or business plan
is required to be filed with, any governmental authority. Reportable Use shall
also include Lessee's being responsible for the presence in, on or about the
Premises of a Hazardous Substance with respect to which any Applicable Law
requires that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but incompliance with all Applicable Law, use any
ordinary and customary materials reasonably required to be used by Lessee in the
normal course of Lessee's business permitted on the Premises, so long as such
use is not a Reportable Use and does not expose the Premises or neighboring
properties to any meaningful risk of contamination or damage or expose Lessor to
any liability therefor. In addition, Lessor may (but without any obligation to
do so) condition its consent to the use or presence of any Hazardous Substance,
activity or storage tank by Lessee upon Lessee's giving Lessor such additional
assurances as Lessor, in its reasonable discretion, deems necessary to protect
itself, the public, the Premises and the environment against damage,
contamination or injury and/or liability therefrom or therefor, including, but
not limited to the installation (and removal on or before Lease expiration or
earlier termination) of reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows or has reasonable cause to
believe that a Hazardous Substance or a condition involving or resulting from
same has come to be located in, on, under or about the Premises, other than as
previously consented to by Lessor. Lessee shall immediately give written notice
of such fact to Lessor. Lessee shall also immediately give Lessor a copy of any
statement, report, notice, registration, application, permit, business plan,
license, claim, action or proceeding given to or received from, any governmental
authority or private party, or persons entering or occupying the Premises,
concerning the presence, spill, release, discharge of or exposure to any
Hazardous Substance or contamination in, on, or about the Premises, including
but not limited to all such documents as may be involved in any Reportable Uses
involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnity, protect, defend and hold
Lessor, its agents, employees, lenders and ground lessor, if any, and the
Premises, harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, permits and
attorney's and consultant's fees arising out of or involving any Hazardous
Substance or storage tank brought onto the Premises by or for Lessee or under
Lessee's control. Lessee's obligations under this Paragraph 6 shall include, but
not be limited to, the effects of any contamination or injury to person,
property or the environment created or suffered "(provided, however, with
respect to contamination or injuries suffered by Lessee, Lessee shall only be
liable as provided in this Paragraph 6.2(c) to the extent Lessee can reasonably
prevent such contamination or injury)" by Lessee, and the cost of investigation
(including consultant's and attorney's fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein involved,
and shall survive the expiration or earlier termination of this Lease. No
termination, cancellation or release agreement entered into by Lessor and Lessee
shall release Lessee from its obligations under this Lease with respect to
Hazardous Substances or storage tanks, unless specifically so agreed by Lessor
in writing at the time of such agreement.
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 restriction 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,
application, 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.
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 "upon at
least one (1) business day's prior notice" 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 by Lessee. 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 inspection.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES; AND ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraph 2.2 (Lessor's warranty as to
condition). 2.3 (Lessor's warranty as to compliance with covenants, etc).
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7.2 (Lessor's obligations to repair), 9 (damage and destruction), and 14
(condemnation). Lessee shall, at Lessee's sole cost and expense ?????, 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, 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 "(with respect to any spill or release of Hazardous
Substances permitted by Lessee. Lessee shall only be liable as provided in this
Paragraph 7.2 to the extent Lessee voluntarily and affirmatively permits such
spill or release)" 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 or materially contributed to by Lessee,
or pertaining to or involving any Hazardous Substance and/or storage tank
brought onto the Premises by or for Lessee 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. If Lessee occupies the Premises for seven (7) years or more, Lessor may
require Lessee to repaint the exterior of the buildings on the Premises as
reasonably required, but not more frequently than once every seven (7) years.
(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
make repairs at the expense of Lessor or to terminate this Lease by reason of
any needed repairs.
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 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 Alterations and 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 $100,000.00.
(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 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.
(b) 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. Lessee is the Insuring Party, and Lessee shall pay
for all insurance required under this Paragraph 8. 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.
(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 with
an "Additional Insured--Managers or Lessors of Premises" Endorsement and contain
the "Amendment of the Pollution Exclusion" for damage caused by heat, smoke or
fumes from a hostile fire. The policy shall not contain any intra-insured
exclusions as between insured persons or organizations, but 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.
- ------------
* (at Lessor's sole cost and expense)
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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
and Lessee with loss payable to Lessor, Lessee and to the holders of any
mortgages, deeds of trust or 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 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 and/or earthquake unless
required by a Lender) "and, if so required by a lender, Lessor shall have used
its best efforts to negotiate with such lender not to require such flood and/or
earthquake insurance" including 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,
and inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted U.S.
Department of Labor Consumer Price Index for All Urban Consumers for the city
nearest to where the Premises are located. If such insurance coverage has a
deductible clause, the deductible amount shall not exceed $75,000 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.
(d) Tenant's Improvements. 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 insurance coverage on all
of Lessee's personal property. Lessee Owned Alternations and Utility
Installation 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 $75,000 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 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. 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 cancellable 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 breach of this lease, negligence and/or
breach of express warranties, Lessee shall indemnity, 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.
8.8 Exemption of Lessor from Liability. "Except for the gross negligence or
intentional misconduct of Lessor and its officers, directors, employees, agents,
contractors and representatives," 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, 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 either party's negligence or breach
of this Lease neither party shall under any circumstances be liable for injury
to the other party'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 Alternations 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 of 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 6.2(a), 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 the required insurance was not in force Lessee
shall on; the insurance proceeds are not sufficient to effect such repair, the
Lessor shall promptly contribute the shortage in proceeds (except as to the
deductible which is Lessee's responsibility) 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
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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 an provide the funds or assurance thereof
within the times specified above, this Lease shall terminate as of the date of
such damage.
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 may, at
its option, terminate this Lease the date of occurrence of such damage by giving
written notice to the other Party of its 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) "if the damage is caused by a loss
that is not an Insured Loss," providing Lessor with 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 for 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
either party may at its option terminate this Lease as of the occurrence of such
damage by giving written notice to the other party of its 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), "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 to the extent caused by the
acts or omissions of Lessor or its officers, directors, employees, agents,
contractors and representatives."
(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 Premises within ninety (90)
days after such obligation shall accrue "and diligently continue making such
repairs or restoration," Lessee may, at any time prior to the commencement of
such repair or restoration, 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 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), then either (i) Lessee may 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 the twelve (12) times the then monthly Base Rent or $100,000,
whichever is greater "then either Lessor or Lessee may" give written notice
within thirty (30) days after receipt by it of knowledge of the occurrence of
such Hazardous Substance Condition of its 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) for a period of not to exceed twelve (12) months.
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 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 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.
10.2 Definition of "Real Property Taxes." As used herein, the term "Real
Property Taxes" shall include any form of real estate or 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, the execution of this Lease, or any modification, amendment or transfer
thereof, and whether or not contemplated by the Parties"; provided, however,
that in no event shall Lessee be obligated for any increase in Real Property
Taxes caused by a change in ownership of the Premises or the improvements
thereon, or the construction of new improvements or the alteration of existing
improvements (except to the extent done by or for the benefit of Lessee."
10.3 Joint Assessment. If the Premises are not separately assessed, Lessee's
liability shall be an 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
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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
Leasee'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.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively "assignment")
or sublet all or any part of Lessee's interest in this Lease or in the Premises
without Lessor's prior written consent given under and subject to the terms of
Paragraph 36.
(b) Lessee's remedy for any breach of this Paragraph 12.1 by Lessor
shall be limited to compensatory damages and injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting shall
not: (i) be effective without the express written assumption by such assignee or
sublessee of the obligations of Lessee under this Lease, (ii) release Lessee of
any obligations hereunder, or (iii) alter the primary liability of Lessee for
the payment of Base Rent and other sums due Lessor hereunder or for the
performance of any other obligations to be performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's obligations
from any person other than Lessee pending approval or disapproval of an
assignment. Neither a delay in the approval or disapproval of such assignment
nor the acceptance of any rent or performance shall constitute a waiver or
estoppel of Lessor's right to exercise its remedies for the Default or Breach by
Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting by Lessee or to
any subsequent or successive assignment or subletting by the sublessee.
However, Lessor may consent to subsequent sublettings and assignments of the
sublease or any amendments or modifications thereto without notifying Lessee or
anyone else liable on the Lease or sublease and without obtaining their consent,
and such action shall not relieve such persons from liability under this Lease
or sublease.
(d) In the event of any Default or Breach of Lessee's obligations
under this Lease, Lessor may proceed directly against Lessee, any Guarantors or
any one else responsible for the performance of the Lessee's obligations under
this Lease, including the sublessee, without first exhausting Lessor's remedies
against any other person or entity responsible therefor to Lessor, or any
security held by Lessor or Lessee.
(e) Each request for consent to an assignment or subletting shall be
in writing, accompanied by information relevant to Lessor's determination as to
the financial and operational responsibility and appropriateness of the proposed
assignee or sublessee, including but not limited to the intended use and/or
required modification of the Premises, if any, together with a non-refundable
deposit of $500, as reasonable consideration for Lessor's considering and
processing the request for consent. Lessee agrees to provide Lessor with such
other or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed, for the
benefit of Lessor, to have assumed and agreed to conform and comply with each
and every term, covenant, condition and obligation herein to be observed or
performed by Lessee during the term of said assignment or sublease, other than
such obligations as are contrary to or inconsistent with provisions of an
assignment or sublease to which Lessor has specifically consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The following
terms and conditions shall apply to any subletting by Lessee of all or any part
of the Premises and shall be deemed included in all subleases under this Lease
whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of Lessee's
interest in all rentals and income arising from any sublease of all or a portion
of the Premises heretofore or hereafter made by Lessee, and Lessor may collect
such rent and income and apply same toward Lessee's obligations under this
Lease; provided, however, that until a Breach (as defined in Paragraph 13.1)
shall occur in the performance of Lessee's obligations under this Lease, Lessee
may, except as otherwise provided in this Lease, receive, collect and enjoy the
rents accruing under such sublease. Lessor shall not, by reason of this or any
other assignment of such sublease to Lessor, nor by reason of the collection of
the rents from a sublessee, be deemed liable to the sublessee for any failure of
Lessee to perform and comply with any of Lessee's obligations to such sublessee
under such sublease. Lessee hereby irrevocably authorizes and directs any such
sublessee, upon receipt of a written notice from Lessor stating that a Breach
exists in the performance of Lessee's obligations under this Lease to pay to
Lessor the rents and other charges due and to become due under the sublease.
Sublessee shall rely upon any such statement and request from Lessor and shall
pay such rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice from or
claim from Lessee to the contrary. Lessee shall have no right or claim against
said sublessee, or, until the Breach has been cured, against Lessor, for any
such rents and other charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any obligation
to do so may require any sublessee to attorn to Lessor, in which event Lessor
shall undertake the obligations of the sublessor under such sublease from the
time of the exercise of said option to the expiration of such sublease,
provided, however, Lessor shall not be liable for any prepaid rents or security
deposits paid by such sublessee to such sublessor or for any other prior
Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or Breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
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"
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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.
(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 surely 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 6.6, (ii) the inspection, maintenance and service contracts required
under Paragraph 7.1(b), (iii) the recission 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 execution of any document requested under Paragraph 42 (assements), 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 of ten (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 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. (S) 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.
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 duly 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 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 Promises, expenses of reletting, including necessary
renovation and alteration of the Premises, reasonable attorney's fees, and that
portion of the leasing commission paid by Lessor applicable to the unexpired
terms 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 35 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.
(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.
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 ten (10) 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. 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
waive 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 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 (3) 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 Lessor 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 is 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.
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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. A reduction of Base
Rent shall also occur if the only portion of the Premises taken is land on which
there is no building to the extent Lessee's parking or access for the Premises
is reduced. 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, and provided further that in
the event a portion of the Premises is taken, then Lessee shall be entitled to
the portion of Lessor's award calculated by multiplying the percentage of the
Premises taken by the unamortized portion of Lessee's $1,000,000 contribution to
the Lessor Improvements (such $1,000,000 will be amortized over a ten (10) year
period). 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.
16. TENANCY STATEMENT.
16.1 Each Party (as "Responding Party") shall within ten (10) days after
written notice from the other Party (the "Requesting Party") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "Tenancy Statement" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 If Lessor desires to finance, refinance, or sell the Premises, any
part thereof, or the building of which the Premises are a part, Lessee shall
deliver to any potential lender or purchaser designated by Lessor such regularly
prepared financial statements of Lessee as may be reasonably required by such
lender or purchaser, including but not limited to Lessee's financial statements
for the past three (3) years. All such financial statements shall be received by
Lessor and such lender or purchaser in confidence and shall be used only for the
purposes herein set forth.
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 the 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 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
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.
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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 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 "NON-DISTURBANCE 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. Lessor represents to Lessee
that there are no lenders or ground lessors which have rights in 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 upon one (1) business day's prior
notice 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.
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 elective 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 acknowledgement that no Default
or Breach by Lessee of this Lease exists, nor shall such consent by deemed a
waiver of any then existing Default or Breach, except as may be 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. Text Deleted]
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.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to renew
this Lease or to extend or renew any lease that Lessee has on other property of
Lessor; (b) the right of first refusal to lease the Premises or the right of
first offer to lease the Premises or the right of first refusal to lease other
property of Lessor or the right of first offer to lease other property of
Lessor; (c) the right to purchase the Premises, or the right of first refusal
to purchase the Premises, or the right of first offer to purchase the Premises,
or the right to purchase other property of Lessor, or the right of first refusal
to purchase other property of Lessor, or the right of first offer to purchase
other property of Lessor.
39.2 OPTIONS NOT PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease may be voluntarily or involuntarily assigned or exercised
by any person or entity other than the original Lessee. The Options, if any,
herein granted to Lessee are not assignable, separately or apart from this
Lease and no Option may be separated from this Lease in any manner, by
reservation or otherwise.
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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 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, mapes 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 of 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 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 AT 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.
<TABLE>
<S> <C>
Executed at Irvine, CA Executed at Irvine, CA
---------------------------------- ----------------------------------
on July 16, 1996 on July 16, 1996
------------------------------------------- -------------------------------------------
by LESSOR: by LESSEE:
CNH, LLC, a California limited liability Powerwave Technologies, Inc.,
- --------------------------------------------- ---------------------------------------------
company a Delaware corporation
- --------------------------------------------- ---------------------------------------------
By /s/ Alfonso G. Cordero By /s/ Bruce Edwards
------------------------------------------- -------------------------------------------
Name Printed: Alfonso G. Cordero Name Printed: Bruce Edwards
-------------------------------- --------------------------------
Title: Managing Partner Title: Chief Executive Officer
--------------------------------------- ---------------------------------------
By By /s/ Kevin T. Michaels
------------------------------------------- -------------------------------------------
Name Printed: Name Printed: Kevin T. Michaels
-------------------------------- --------------------------------
Title: Title: Chief Financial Officer
--------------------------------------- ---------------------------------------
Address: 2026 McGaw Avenue Address: 2026 McGaw Avenue
------------------------------------- -------------------------------------
Irvine, CA 92714 Irvine, CA 92714
- --------------------------------------------- ---------------------------------------------
Tel. No. (___)_________Fax No. (___)_________ Tel. No. (___)_________Fax No. (___)_________
</TABLE>
NET PAGE 10
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.
(C) 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
<PAGE>
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE -- NET
DATED JULY 1, 1996 ("LEASE")
BY AND BETWEEN CNH, LLC ("LESSOR")
AND POWERWAVE TECHNOLOGIES, INC. ("LESSEE")
Sections 49 through 64 are hereby incorporated into the Lease and made a
part thereof as though fully set forth at length therein. To the extent any of
the provisions of Sections 49 through 64 of this Lease, or any of the riders
attached to this Lease, conflict with any pre-printed portions of this Lease,
the provisions of Sections 49 through 64 of this Lease and the riders attached
thereto shall control.
49. Basic Rent Adjustment. The Basic Rent will be increased on the first day
---------------------
of each year of the term commencing July 1, 1998 (an "Adjustment Date") to
reflect any increases in the U.S. Department of Labor, Bureau of Labor
Statistics, Consumer Price Index, All Urban Consumers, All Items (1982 - 84 =
100), Los Angeles - Anaheim - Riverside Area (the "Index") in accordance with
the following:
The increased Basic Rent to become effective on any Adjustment Date will be
determined by multiplying the Basic Rent in effect immediately prior to the
Adjustment Date by a fraction, the numerator of which is the most recently
published Index prior to the Adjustment Date and the denominator of which is the
most recently published Index prior to the Commencement Date or the last prior
Adjustment Date, as the case may be; provided, however, that the percentage
increase in the Basic Rent on any Adjustment Date will not be greater than six
percent (6%) or less than three percent (3%) of the Basic Rent in effect
immediately prior to such Adjustment Date.
If the Index is discontinued or revised, or is published less frequently
than is the practice as of the date hereof, then Lessor may adopt a reasonable
substitute index or procedure which reasonably reflects consumer prices.
50. Tenant Allowance. On or before the Commencement Date, Lessor shall, at its
----------------
sole cost and expense (except as provided in this Paragraph), construct such
improvements to the Premises as previously agreed to by the parties (the "Lessor
Improvements"). Upon execution of this Lease, Lessee shall pay to Lessor the sum
of $1,000,000 constituting Lessee's total contribution for the Lessor
Improvements.
51. Option to Purchase. Lessor hereby grants to Lessee an option to purchase
------------------
"Lessee's Parcel" (as hereinafter defined in Section 61) ("Option"), on the
following terms and conditions:
(a) The Option may be exercised by written notice to Lessor at any time
during the term of this Lease after the Land has been subdivided
pursuant to Section 61 but not later than ninety (90) days prior to
the end of the term of this Lease ("Option Period").
(b) The provisions of Paragraph 39, including the provision relating to
default of Lessee set forth in Paragraph 39.4 of this Lease, are
conditions of this Option.
1
<PAGE>
(c) The purchase price to be paid by Lessee to Lessor for the Lessee's
Parcel ("Purchase Price") shall be the fair market value of the
Lessee's Parcel as of the date of the exercise of the Option. The
Purchase Price will be determined by appraisal. Within five (5) days
after the date of the exercise of the Option, Lessor and Lessee will
attempt to agree on a single MAI appraiser with at least ten years
experience in appraising industrial properties in Irvine, California
(a "Qualified Appraiser"). If the parties are unable to agree on a
single Qualified Appraiser within such five (5) day period, each party
will appoint a Qualified Appraiser to determine the fair market value
of the Lessee's Parcel. Each such Qualified Appraiser will submit its
determination of fair market value to both parties within twenty (20)
days after his or her selection. If the difference between the two
determinations is ten percent (10%) or less of the higher of the two
determinations, then the average between the two determinations will
establish the fair market value. If the difference between the two
Qualified Appraisers' determinations is greater than ten percent (10%)
then, within five (5) days of the date the second determination is
submitted to the parties, the two Qualified Appraisers will designate
a third Qualified Appraiser. The sole responsibility of the third
Qualified Appraiser will be to determine which of the determinations
made by the first two Qualified Appraisers is most accurate. The third
Qualified Appraiser has no right to propose a middle ground or any
modification of either of the determinations made by the first two
Qualified Appraisers. The third Qualified Appraiser's choice will be
submitted to the parties within twenty (20) days after his or her
selection. Such determination will bind both of the parties and will
establish the Purchase Price. If a single Qualified Appraiser is
selected, each party will pay one-half of the fees and expenses of
such Qualified Appraiser. Otherwise, each party will pay the fees and
expenses of the Qualified Appraiser selected by it and one-half
of the fees and expenses of the third Qualified Appraiser.
(d) Within ten (10) days of the date the Option is exercised, Lessor and
Lessee shall open an escrow at a mutually agreeable escrow company and
escrow holder shall prepare escrow instructions on the normal and
usual escrow forms then used by such escrow holder, as follows:
(i) The Purchase Price shall be as established pursuant to
subparagraph (c) above.
(ii) Escrow shall close on the date as established in subparagraph
(e) below.
(iii) Lessor shall convey to Lessee title to the Lessee's Parcel
subject only to (A) any mortgages or deeds of trust of record
which Lessee elects to assume, in which event the outstanding
balance of the debt that such instruments secure shall
constitute a credit against the Purchase Price, and (B) all
easements, encumbrances and restrictions of record set forth on
Schedule 1 attached hereto and all other easements encumbrances
----------
and restrictions either created or approved by Lessee. Any
monetary liens and encumbrances, except those which Lessee
elects to assume, shall be removed prior to close of escrow at
the expense of Lessor.
2
<PAGE>
(iv) Escrow fees and closing costs shall be shared equally.
(v) Interest, if any, and rents will be prorated to the close of
escrow.
(vi) The cost of a standard title insurance policy to be issued to
Lessee shall be paid by Lessor. If Lessee elects to have an
extended coverage policy, the incremental cost therefor will
be paid by Lessee.
(vii) All real estate transfer taxes shall be paid by Lessor.
(e) If Lessee exercises the Option, the transfer of title to Lessee and
the payment of the Purchase Price to Lessor shall occur within sixty
(60) days after the date of exercise of and until that time the terms
of this Lease shall remain in full force and effect.
52. Memorandum of Lease. The parties will execute and acknowledge, and cause
-------------------
to be recorded in the Official Records of Orange County, a short form
memorandum of this Lease in the form attached hereto as Exhibit C.
---------
53. Assignment and Subletting. Lessor hereby consents to the sublease of
-------------------------
approximately 27,360 square feet of the building on the Premises to Mead
Instruments. Provided that Lessee also remains liable under this Lease, Lessee
may, upon written notice to Lessor, but without obtaining Lessor's consent,
without constituting a default under this Lease, and without triggering any
recapture or termination rights in favor of Lessor, further assign this Lease
or sublet all or any portion of the Premises to (i) any entity formed by Lessee,
provided that Lessee owns or beneficially controls a majority of the outstanding
ownership interest in such entity, (ii) any parent or subsidiary entity of
Lessee, (iii) any person or entity that acquires all or substantially all of
Lessee's assets, or (iv) any entity with which Lessee merges, regardless of
whether Lessee is the surviving entity. In addition, an assignment or sublet
shall not include, and Lessor's consent shall not be required for, any sale or
other transfer of any shares of Lessee's capital stock, including but not
limited to, (i) any initial or subsequent public offering by Lessee, or (ii) if
Lessee is a public company, the sale or transfer of Lessee's stock to take
Lessee private.
54. Limitations on Lessee's Liability. Unless caused by Lessee, Lessee shall
---------------------------------
not have any responsibility or liability for (i) violations of any Applicable
Law relating to the Premises existing as of the Commencement Date, including,
but not limited to, violations of any building codes, laws relating to Hazardous
Substances, and the Americans with Disabilities Act of 1990, 42 U.S.C. (S) (S)
12101 et seq. and 47 U.S.C. (S) (S) 225 et seq. as amended from time to
time, any 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 Premises as of the Commencement Date or that were or are brought into, onto,
about, or under any part of the Premises after the Commencement Date, except for
Hazardous Substances brought onto the Premises by Lessee or Lessee's agents,
employees, tenants, invitees or contractors, (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
Premises as of the Commencement Date or that were or are brought into, onto,
about, or under any part of the Premises after the Commencement Date, except for
Hazardous Substances brought onto the Premises by Lessee or Lessee's agents,
3
<PAGE>
employees, tenants, invitees or contractors, or (iv) any condition existing as
of the Commencement Date, including, but not limited to, any defect in the
Premises.
55. Lessor's Indemnity. Lessor shall defend (with counsel reasonably
------------------
acceptable to Lessee), indemnify and hold harmless Lessee and its officers,
directors, shareholders, subsidiaries, employees, agents and representatives
from and against any and all claims, actions, lawsuits (including, but not
limited to, governmental and third-party claims, actions and lawsuits), losses,
harm, costs (including, but not limited to, court costs, cots of appeal, and
cleanup, removal and remediation costs associated with any Hazardous Substances)
liabilities, contribution claims, damages and expenses including, but not
limited to, attorneys' fees and court costs, arising, whether before or after
the expiration or earlier termination of this Lease, out of or in connection
with (i) any act or omission of Lessor or Lessor's employees, agents,
representatives, or contractors, (ii) any breach of this Lease by Lessor, (iii)
Lessor's failure to remedy, as required by this Lease, the failure of the
Premises, any buildings, structures or other improvements included therein
(including, but not limited to, the Lessor Improvements), or any building
systems included therein to be in good condition and repair, and in compliance
with all Applicable Laws as of the Commencement Date, (iv) the existence of any
underground or above-ground storage tank or surface impoundment located on or
under any part of the Premises as of the Commencement Date, (v) 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 Premises other than Hazardous Substances brought, or
knowingly permitted to be brought (with a reasonable ability to stop such
bringing), onto the Premises by Lessee or its employees, agents, tenants,
invitees or representatives. 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 Premises by Lessor.
56. Amortization of Costs. All costs and expenses incurred, by either Lessee
---------------------
directly or by Lessor that are reimbursed by Lessee pursuant to the terms of
this Lease, for capital expenses whose useful life will exceed the
then-remaining term of this Lease shall be defined as "Capital Expenses".
Lessee and Lessor shall share such Capital Expenses such that Lessee shall only
pay or reimburse Lessor for the portion of such Capital Expenses calculated by
multiplying the Capital Expense by a fraction the numerator of which is the
remaining term of the Lease as of the date of the Capital Expense and the
denominator of which is the useful life of the item as of the date of the
Capital Expense.
57. Damage and Destruction. If, within 180 days from receipt of all required
----------------------
building permits, Lessor does not make all repairs required by Paragraph 9 of
this 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 at any time up to 30 days after the 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.
58. Alterations. Lessor hereby agrees that in no event shall Lessee be
-----------
obligated to remove the Lessor Improvements or any of the alterations,
improvements or additions being made to the Premises by Lessee in connection
with Lessee's initial occupancy of the Premises, if any (collectively, "Tenant's
Initial Alterations") upon expiration or earlier termination of this Lease.
Lessor also agrees that Lessee may, at Lessee's election, remove all or any of
Tenant's Initial
4
<PAGE>
Alterations at any time prior to the expiration or earlier termination of this
Lease. As to future Alterations and Utility Installations made to the Premises
by Lessee, Lessee shall only be obligated to remove such Alterations or Utility
Installations if Lessor, at the time Lessor grants its consent therefor, states
in writing that they must be removed upon expiration or earlier termination of
this Lease. For Alterations and Utility Installations for which Lessor's consent
is not required by the terms of this Lease, Lessor may require Lessee to remove
such Alterations and Utility Installations upon expiration or earlier
termination of this Lease; provided, however, Lessee may at any time ask for a
written statement from Lessor stating whether or not such Alterations and
Utility Installations must be removed upon expiration or earlier termination of
this Lease and Lessee shall not be required to remove such Alterations and
Utility Installations for which Lessor states in such written notice that
removal will not be required. Lessee may, at Lessee's election, upon expiration
or earlier termination of this Lease, remove all Alterations, Utility
Installations and Trade Fixtures installed in the Premises by Lessee; provided,
however, that as to Alterations and Utility Installations, unless Lessor informs
Lessee in writing prior to the time Lessee makes any Alteration or Utility
Installations that Lessee may remove them upon expiration or earlier termination
of the Lease, then Lessee shall have no right to remove such Alterations or
Utility Installations upon expiration or earlier termination of the Lease. All
Alterations and Utility Installations not removed by Lessee upon expiration or
earlier termination of this Lease shall become Lessor's property.
59. Inspection. At any time within sixty (60) days after the date Lessee takes
----------
possession of the Premises, Lessee or Lessee's employees, agents, inspectors or
contractors shall inspect the Premises for defects and violations of Applicable
Law, and shall make a punchlist of items needing corrective action. If Lessor
does not make the corrective actions and repair the items on Lessee's punchlist
to Lessee's reasonable satisfaction within thirty (30) days of Lessor's receipt
of Lessee's punchlist, Lessee shall have the right, at Lessee's election, to
either (i) terminate this Lease, or (ii) take the corrective actions or make the
necessary repairs and Lessor will be liable for the cost thereof. To the extent
Lessee does not include, in any punchlist given to Lessor within said sixty (60)
day period, any patent defect or violation of Applicable Law, neither Lessor nor
Lessee shall have any liability for such defect or violation. As to any latent
defects or violations of Applicable Law not discovered by Lessee during its
inspection done pursuant to this Paragraph, Lessor shall, within thirty (30)
days of Lessor's receipt of Lessee's punchlist describing such latent defects,
which may be given by Lessee at any time during the term of this Lease, as
extended, correct and repair such latent defects to Lessee's reasonable
satisfaction. If Lessor does not correct and repair such latent defects as
required by this Paragraph, then Lessee shall have the right, at Lessee's
election, to either (i) terminate this Lease, but only if such latent defect is
material, or (ii) take the corrective actions or make the necessary repairs and
to deduct the cost of said actions and repairs from the Base Rent.
60. Parking. Lessee shall have the unrestricted right to use all parking
-------
spaces included within the Premises and may designate or reserve any such spaces
for particular uses or persons.
61. Subdivision of Land.
-------------------
(a) With reference to Paragraph 1.2, the land underlying the 105,120
square foot free standing industrial building and described on Exhibit B
consists of approximately 7.9 acres (the "Land"). Lessor intends to divide the
Land into two legal parcels as more particularly shown on Exhibit D attached
hereto. Lessor shall have the right to so subdivide the Land without Lessee's
5
<PAGE>
consent, but on thirty (30) days prior written notice to Lessee; provided,
however, that upon such subdivision (i) the portion of the subdivided Land that
contains the existing building as of the date of this Lease which is to be
occupied by Lessee ("Lessee's Parcel") shall be no less than 5.3 acres, (ii) the
remaining portion of the Land ("Lessor's Parcel") shall no longer be included
within the definition of "Premises" for purposes of this Lease, and (iii) all
obligations of Lessee and Lessor under this Lease shall apply only to Lessee's
Parcel.
(b) Prior to the subdivision of the Land, Lessee shall pay 100% of the real
property taxes attributable to the improvements and 67% of the real property
taxes attributable to the Land. Lessor shall pay 33% of the real property taxes
attributable to the Land within ten (10) days of demand therefor from Lessee.
There shall be no allocation between Lessor and Lessee prior to the subdivision
for insurance and utilities. Following the subdivision, Lessor shall be solely
responsible for taxes, insurance and utilities with respect to the Lessor's
Parcel and Lessee shall be solely responsible for taxes, insurance and utilities
with respect to the Lessee's Parcel.
(c) The Premises are subject to that certain Declaration Establishing
Easements and Maintenance Obligations, dated December 1, 1989, recorded in the
Official Records of Orange County, California, as Document No. 89-654043, as
amended. Lessor, as owner of Parcel 1 thereunder, and the owner of Parcels 2 and
6 thereunder, entered into that certain Agreement Re Easements dated January 23,
1996 and recorded in the Official Records of Orange County on January 30, 1996,
as Document No. 19660044103. Lessor agrees that, both before and after the
subdivision, Lessor shall be solely responsible for any and all costs that may
be charged to the Land pursuant to such documents.
(d) When the Land is subdivided, the Lessor's Parcel and the Lessee's
Parcel will share a common access to the Land from McGaw Avenue as shown on
Exhibit D. Lessee agrees to cooperate (at Lessor's sole cost and expense) as may
be reasonably required to effect the subdivision of the Land, including, without
limitation, the execution of a reciprocal access agreement, as may be required
with respect to the common driveway, and an amendment to the Memorandum of Lease
to substitute the legal description of Lessee's Parcel for the legal description
of the Premises.
(e) Prior to the subdivision of the Land, Lessee shall have no right to
use the Lessor's Parcel for purposes other than parking of vehicles without
Lessor's prior written consent, which shall not be unreasonably withheld or
delayed.
6
<PAGE>
62. Lessee's Indemnities. All of Lessee's indemnity obligations set forth in
--------------------
the Lease shall include a defense obligation with counsel reasonably acceptable
to Lessor.
AGREED AND ACCEPTED:
LESSOR: LESSEE:
CNH, LLC, POWERWAVE TECHNOLOGIES, INC.,
a California limited liability a Delaware corporation
company
By: /s/ Alfonso G. Cordero By: /s/ Bruce Edwards
-------------------------------- --------------------------------
Name: Alfonso G. Cordero Name: Bruce Edwards
------------------------------ ------------------------------
Title: Managing Partner Title: Chief Executive Officer
----------------------------- -----------------------------
By: /s/ Kevin T. Michaels
--------------------------------
Name: Kevin T. Michaels
------------------------------
Title: Chief Financial Officer
-----------------------------
7
<PAGE>
SCHEDULE 1
[TO BE INSERTED BY LESSOR]
<PAGE>
EXHIBIT A
DRAWING OF PREMISES
-------------------
[TO BE INSERTED BY LESSOR]
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
-----------------
Parcel 1 in City of Irvine, County of Orange, State of California as shown on a
map filed in book 111, page 33 and 34 of Parcel Maps, in the office of the
County Recorder of said County.
EXCEPT all oil, oil rights, minerals, mineral rights, natural gas rights, and
other hydrocarbons by whatsoever name known, that may be within or under the
Parcel of land hereinabove described, together with the perpetual right of
drilling, mining, exploring and operating therefor and storing in and removing
the same from said land or any other land, including the right to whipstock or
directionally drill and mine from lands other than those hereinabove described,
oil or gas wells, tunnels and shafts into, through or across the subsurface of
the land hereinabove described, and to bottom such whipstocked or directionally
drilled wells, tunnels and shafts under and beneath or beyond the exterior
limits thereof, and to redrill, retunnel, equip, maintain, and repair, deepen,
and operate any such wells or mines without, however, the right to drill, mine,
store, explore and operate through the surface or the upper 500 feet of the
subsurface of the land hereinabove described, as reserved in the deed from
Irvine Industrial Complex, a corporation, recorded September 6, 1972, in book
10311, page 928, Official Records.
<PAGE>
EXHIBIT C
FORM OF MEMORANDUM OF LEASE
---------------------------
RECORDING REQUESTED BY )
AND WHEN RECORDED )
MAIL TO: )
)
PAUL, HASTINGS, )
JANOFSKY & WALKER )
695 Town Center Drive )
Seventeenth Floor )
Costs Mesa, CA 92626-1924 )
Attn: Janet Toll Davidson, Esq. )
________________________________________________________________________________
[Space above for recorder.]
MEMORANDUM OF LEASE
This Memorandum of Lease, dated as of July 1, 1996, is entered into by and
between CNH, LLC, a California limited liability company ("Lessor") and
POWERWAVE TECHNOLOGIES, INC., a Delaware corporation ("Lessee").
WITNESSETH:
Lessor and Lessee have entered into a Standard Industrial/Commercial
Single-Tenant Lease -- Net (the "Lease") dated July 1, 1996 whereby Lessor has
leased to Lessee certain "Premises" described in the Lease located at 2026 McGaw
Avenue in the City of Irvine, County of Orange, State of California, the legal
description of which is set forth on Exhibit "A" attached hereto (the
"Property"). The Lease contains provisions and rights, some of which are as
follows:
1. Term. The term of the Lease is for a period of ten (10) years
----
commencing on July 16, 1996. The term of the Lease is subject to early
termination upon the occurrence of certain events as set forth in the Lease.
2. Option to Purchase. The Lease grants to Lessee an option to purchase
------------------
a portion of the Property pursuant to the terms set forth in the Lease.
3. Successors. The covenants, conditions and agreements made and entered
----------
into by the parties hereto shall be binding upon and inure to the benefit of
their respective representatives, successors and assigns.
4. Incorporation of Lease. All terms and condition of the Lease are
----------------------
hereby incorporated herein by reference as if fully set forth herein.
<PAGE>
5. Conflicts with Lease. This Memorandum of Lease is solely for notice
--------------------
and recording purposes and shall not be construed to alter, modify, expand,
diminish or supplement the provisions of the Lease. In the event of any
inconsistencies between the provisions of this Memorandum of Lease and the
provisions of the Lease, the provisions of the Lease shall govern.
IN WITNESS WHEREOF, the Memorandum of Lease has been duly executed by the
parties hereto on the day and year first above written.
Lessor:
CNH, LLC,
a California limited liability company
By:_____________________________________
Alfonso G. Cordero
Lessee:
POWERWAVE TECHNOLOGIES, INC.,
a Delaware corporation
By:_____________________________________
Name:___________________________________
Title:__________________________________
By:_____________________________________
Name:___________________________________
Title:__________________________________
2
<PAGE>
RECORDING REQUESTED BY )
AND WHEN RECORDED )
MAIL TO: )
)
PAUL, HASTINGS, )
JANOFSKY & WALKER )
695 Town Center Drive )
Seventeenth Floor )
Costs Mesa, CA 92626-1924 )
Attn: Janet Toll Davidson, Esq. )
________________________________________________________________________________
[Space above for recorder.]
MEMORANDUM OF LEASE
This Memorandum of Lease, dated as of July 1, 1996, is entered into by and
between CNH, LLC, a California limited liability company ("Lessor") and
POWERWAVE TECHNOLOGIES, INC., a Delaware corporation ("Lessee").
WITNESSETH:
Lessor and Lessee have entered into a Standard Industrial/Commercial
Single-Tenant Lease -- Net (the "Lease") dated July 1, 1996 whereby Lessor has
leased to Lessee certain "Premises" described in the Lease located at 2026 McGaw
Avenue in the City of Irvine, County of Orange, State of California, the legal
description of which is set forth on Exhibit "A" attached hereto (the
"Property"). The Lease contains provisions and rights, some of which are as
follows:
1. Term. The term of the Lease is for a period of ten (10) years
----
commencing on July 16, 1996. The term of the Lease is subject to early
termination upon the occurrence of certain events as set forth in the Lease.
2. Option to Purchase. The Lease grants to Lessee an option to purchase
------------------
a portion of the Property pursuant to the terms set forth in the Lease.
3. Successors. The covenants, conditions and agreements made and entered
----------
into by the parties hereto shall be binding upon and inure to the benefit of
their respective representatives, successors and assigns.
4. Incorporation of Lease. All terms and condition of the Lease are
----------------------
hereby incorporated herein by reference as if fully set forth herein.
5. Conflicts with Lease. This Memorandum of Lease is solely for notice
--------------------
and recording purposes and shall not be construed to alter, modify, expand,
diminish or supplement
<PAGE>
the provisions of the Lease. In the event of any inconsistencies between the
provisions of this Memorandum of Lease and the provisions of the Lease, the
provisions of the Lease shall govern.
IN WITNESS WHEREOF, the Memorandum of Lease has been duly executed by the
parties hereto on the day and year first above written.
Lessor:
CNH, LLC,
a California limited liability company
By: /s/ Alfonso G. Cordero
-----------------------------------
Alfonso G. Cordero
Lessee:
POWERWAVE TECHNOLOGIES, INC.,
a Delaware corporation
By: /s/ Bruce Edwards
-----------------------------------
Name: Bruce Edwards
---------------------------------
Title: Chief Executive Officer
--------------------------------
By: /s/ Kevin T. Michaels
-----------------------------------
Name: Kevin T. Michaels
---------------------------------
Title: Chief Financial Officer
--------------------------------
2
<PAGE>
EXHIBIT A
LEGAL DESCRIPTION
-----------------
Parcel 1 in the City of Irvine, County of Orange, State of California as shown
on a map filed in book 111, page 33 and 34 of Parcel Maps, in the office of the
County Recorder of said County.
EXCEPT all oil, oil rights, minerals, mineral rights, natural gas rights, and
other hydrocarbons by whatsoever name known, that may be within or under the
Parcel of land hereinabove described, together with the perpetual right of
drilling, mining, exploring and operating therefor and storing in and removing
the same from said land or any other land, including the right to whipstock or
directionally drill and mine from lands other than those hereinabove described,
oil or gas wells, tunnels and shafts into, through or across the subsurface of
the land hereinabove described, and to bottom such whipstocked or directionally
drilled wells, tunnels and shafts under and beneath or beyond the exterior
limits thereof, and to redrill, retunnel, equip, maintain, repair, deepen,
and operate any such wells or mines without, however, the right to drill, mine,
store, explore and operate through the surface or the upper 500 feet of the
subsurface of the land hereinabove described, as reserved in the deed from
Irvine Industrial Complex, a corporation, recorded September 6, 1972, in book
10311, page 928, Official Records.
<PAGE>
EXHIBIT 10.17
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[LOGO OF BANK OF AMERICA BUSINESS LOAN AGREEMENT
BANK OF NATIONAL TRUST AND SAVINGS ASSOCIATION
AMERICA]
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This Agreement dated as of May 30, 1996, is between Bank of America National
Trust and Savings Association (the "Bank") and Milcom International, Inc. (the
"Borrower").
1. LINE OF CREDIT AMOUNT AND TERMS
1.1 LINE OF CREDIT AMOUNT.
(a) During the availability period described below, the Bank will provide a
line of credit to the Borrower. The amount of the line of credit (the
"Commitment") is Five Million Dollars ($5,000,000).
(b) This is a revolving line of credit. During the availability period, the
Borrower may repay principal amounts and reborrow them.
(c) The Borrower agrees not to permit the outstanding principal balance of the
line of credit, to exceed the Commitment.
1.2 AVAILABILITY PERIOD. The line of credit is available between the date of
this Agreement and May 31, 1997 (the "Expiration Date") unless the Borrower is
in default.
1.3 INTEREST RATE.
(a) Unless the Borrower elects an optional interest rate as described below,
the interest rate is the Bank's Reference Rate.
(b) The Reference Rate is the rate of interest publicly announced from time to
time by the Bank in San Francisco, California, as its Reference Rate. The
Reference Rate is set by the Bank based on various factors, including the
Bank's costs and desired return, general economic conditions and other
factors, and is used as a reference point for pricing some loans. The Bank
may price loans to its customers at, above, or below the Reference Rate.
Any change in the Reference Rate shall take effect at the opening of
business on the day specified in the public announcement of a change in the
Bank's Reference Rate.
1.4 REPAYMENT TERMS.
(a) The Borrower will pay interest on June 1, 1996, and then monthly thereafter
until payment in full of any principal outstanding under this line of
credit.
(b) The Borrower will repay in full all principal and any unpaid interest or
other charges outstanding under this line of credit no later than the
Expiration Date.
(c) Any amount bearing interest at an optional interest rate (as described
below) may be repaid at the end of the applicable interest period, which
shall be no later than the Expiration Date.
1.5 OPTIONAL INTEREST RATES. Instead of the interest rate based on the Bank's
Reference Rate, the Borrower may elect to have all or portions of the line of
credit (during the availability period) bear interest at the rate(s) described
below during an interest period agreed to by the Bank and the Borrower. Each
interest rate is a rate per year. Interest will be paid on the last day of each
interest period, and on the first day each month during the interest period. At
the end of any interest period, the interest rate will revert to the rate based
on the Reference Rate, unless the Borrower has designated another optional
interest rate for the portion.
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<PAGE>
1.6 FIXED RATE. The Borrower may elect to have all or portions of the principal
balance of the line of credit bear interest at the Fixed Rate, subject to the
following requirements:
(a) The "Fixed Rate" means the fixed interest rate the Bank and the Borrower
agree will apply to the portion during the applicable interest period.
(b) The interest period during which the Fixed Rate will be in effect will be
no shorter than 30 days and no longer than one year.
(c) Each Fixed Rate portion will be for an amount not less than Five Hundred
Thousand Dollars ($500,000).
(d) The Borrower may not elect a Fixed Rate with respect to any portion of the
principal balance of the line of credit which is scheduled to be repaid
before the last day of the applicable interest period.
(e) Any portion of the principal balance of the line of credit already bearing
interest at the Fixed Rate will not be converted to a different rate during
its interest period.
(f) Each prepayment of a Fixed Rate portion, whether voluntary, by reason of
acceleration or otherwise, will be accompanied by the amount of accrued
interest on the amount prepaid, and a prepayment fee equal to the amount
(if any) by which
(i) the additional interest which would have been payable on the amount
prepaid had it not been paid until the last day of the interest
period, exceeds
(ii) the interest which Would have been recoverable by the Bank by placing
the amount prepaid on deposit in the certificate of deposit market
for a period starting on the date on which it was prepaid and ending
on the last day of the interest period for such portion.
2. FEES AND EXPENSES
2.1 UNUSED COMMITMENT FEE. The Borrower agrees to pay a fee on any difference
between the Commitment and the amount of credit it actually uses, determined by
the Weighted average loan balance maintained during the specified period. The
fee will be calculated at .125% per year. This fee is due quarterly in arrears
until the expiration of the availability period.
2.2 EXPENSES. The Borrower agrees to reimburse the Bank for any expenses it
incurs in the preparation of this Agreement and any agreement or instrument
required by this Agreement. Expenses include, but are not limited to, reasonable
attorneys' fees, including any allocated costs of the Bank's in-house counsel.
3. DISBURSEMENTS, PAYMENTS AND COSTS
3.1 REQUESTS FOR CREDIT. Each request for an extension of credit will be made
in writing in a manner acceptable to the Bank, or by another means acceptable to
the Bank.
3.2 DISBURSEMENTS AND PAYMENTS. Each disbursement by the Bank and each payment
by the Borrower will be:
(a) made at the Bank's branch (or other location) selected by the Bank from
time to time;
(b) made for the account of the Bank's branch selected by the Bank from time to
time;
(c) made in immediately available funds, or such other type of funds selected
by the Bank;
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<PAGE>
(d) evidenced by records kept by the Bank. In addition, the Bank may, at its
discretion, require the Borrower to sign one or more promissory notes.
3.3 TELEPHONE AUTHORIZATION.
(a) The Bank may honor telephone instructions for advances or repayments given
by any one of the individuals authorized to sign loan agreements on behalf
of the Borrower, or any other individual designated by any one of such
authorized signers.
(b) Advances will be deposited in and repayments will be withdrawn from the
Borrower's account number 09326-00675, or such other of the Borrower's
accounts with the Bank as designated in writing by the Borrower.
(c) The Borrower indemnifies and excuses the Bank (including its officers,
employees, and agents) from all liability, loss, and costs in connection
with any act resulting from telephone instructions it reasonably believes
are made by any individual authorized by the Borrower to give such
instructions. This indemnity and excuse will survive this Agreement.
3.4 DIRECT DEBIT.
(a) The Borrower agrees that interest and any fees will be deducted
automatically on the due date from checking account number 09326-00675, or
such other of the Borrower's accounts with the Bank as designated in
writing by the Borrower.
(b) The Bank will debit the account on the dates the payments become due. If a
due date does not fall on a banking day, the Bank will debit the account on
the first banking day following the due date.
(c) The Borrower will maintain sufficient funds in the account on the dates the
Bank enters debits authorized by this Agreement. If there are insufficient
funds in the account on the date the Bank enters any debit authorized by
this Agreement, the debit will be reversed.
3.5 BANKING DAYS. Unless otherwise provided in this Agreement, a banking day is
a day other than a Saturday or a Sunday on which the Bank is open for business
in California. All payments and disbursements which would be due on a day which
is not a banking day will be due on the next banking day. All payments received
on a day which is not a banking day will be applied to the credit on the next
banking day.
3.6 TAXES. The Borrower will not deduct any taxes from any payments it makes to
the Bank. If any government authority imposes any taxes on any payments made by
the Borrower, the Borrower will pay the taxes and will also pay to the Bank, at
the time interest is paid, any additional amount which the Bank specifies as
necessary to preserve the after-tax yield the Bank would have received if such
taxes had not been imposed. Upon request by the Bank, the Borrower will confirm
that it has paid the taxes by giving the Bank official tax receipts (or
notarized copies) within 30 days after the due date. However, the Borrower will
not pay the Bank's net income taxes.
3.7 ADDITIONAL COSTS. The Borrower will pay the Bank, on demand, for the Bank's
costs or losses arising from any statute or regulation, or any request or
requirement of a regulatory agency which is applicable to all national banks or
a class of all national banks. The costs and losses will be allocated to the
loan in a manner determined by the Bank, using any reasonable method. The costs
include the following:
(a) any reserve or deposit requirements; and
(b) any capital requirements relating to the Bank's assets and commitments for
credit.
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<PAGE>
3.8 INTEREST CALCULATION. Except as otherwise stated in this Agreement, all
interest and fees, if any, will be computed on the basis of a 360-day year and
the actual number of days elapsed. This results in more interest or a higher fee
than if a 365-day year is used.
3.9 INTEREST ON LATE PAYMENTS. At the Bank's sole option in each instance, any
amount not paid when due under this Agreement (including interest) shall bear
interest from the due date at the Bank's Reference Rate plus two (2.00)
percentage points. This may result in compounding of interest.
3.10 DEFAULT RATE. Upon the occurrence and during the continuation of any
default under this Agreement, advances under this Agreement will at the option
of the Bank bear interest at a rate per annum which is three (3.00) percentage
points higher than the rate of interest otherwise provided under this Agreement.
This will not constitute a waiver of any default.
4. CONDITIONS
The Bank must receive the following items, in form and content acceptable to the
Bank, before it is required to extend any credit to the Borrower under this
Agreement:
4.1 AUTHORIZATIONS. Evidence that the execution, delivery and performance by
the Borrower (and any guarantor) of this Agreement and any instrument or
agreement required under this Agreement have been duly authorized.
4.2 OTHER ITEMS. Any other items that the Bank reasonably requires.
5. REPRESENTATIONS AND WARRANTIES
When the Borrower signs this Agreement, and until the Bank is repaid in full,
the Borrower makes the following representations and warranties. Each request
for an extension of credit constitutes a renewed representation.
5.1 ORGANIZATION OF BORROWER. The Borrower is a corporation duly formed and
existing under the laws of the state where organized.
5.2 AUTHORIZATION. This Agreement, and any instrument or agreement required
hereunder, are within the Borrower's powers, have been duly authorized, and do
not conflict with any of its organizational papers.
5.3 ENFORCEABLE AGREEMENT. This Agreement is a legal, valid and binding
agreement of the Borrower, enforceable against the Borrower in accordance with
its terms, and any instrument or agreement required hereunder, when executed and
delivered, will be similarly legal, valid, binding and enforceable.
5.4 GOOD STANDING. In each state in which the Borrower does business, it is
properly licensed, in good standing, and, where required, in compliance with
fictitious name statutes.
5.5 NO CONFLICTS. This Agreement does not conflict with any law, agreement, or
obligation by which the Borrower is bound.
5.6 FINANCIAL INFORMATION. All financial and other information that has been or
will be supplied to the Bank is:
(a) sufficiently complete to give the Bank accurate knowledge of the Borrower's
(and any guarantor's) financial condition.
(b) in form and content required by the Bank.
(c) in compliance with all government regulations that apply.
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-4-
<PAGE>
5.7 LAWSUITS. There is no lawsuit, tax claim or other dispute pending or
threatened against the Borrower, which, if lost, would materially impair the
Borrower's financial condition or ability to repay the loan, except as have been
disclosed in writing to the Bank.
5.8 PERMITS, FRANCHISES. The Borrower possesses all permits, memberships,
franchises, contracts and licenses required and all trademark rights, trade name
rights, patent rights and fictitious name rights necessary to enable it to
conduct the business in which it is now engaged.
5.9 OTHER OBLIGATIONS. The Borrower is not in default on any obligation for
borrowed money, any purchase money obligation or any other material lease,
commitment, contract, instrument or obligation.
5.10 INCOME TAX RETURNS. The Borrower has no knowledge of any pending
assessments or adjustments of its income tax for any year except as have been
disclosed in writing to the Bank.
5.11 NO EVENT OF DEFAULT. There is no event which is, or with notice or lapse of
time or both would be, a default under this Agreement.
5.12 ERISA PLANS.
(a) The Borrower has fulfilled its obligations, if any, under the minimum
funding standards of ERISA and the Code with respect to each Plan and is in
compliance in all material respects with the presently applicable
provisions of ERISA and the Code, and has not incurred any liability with
respect to any Plan under Title IV of ERISA.
(b) No reportable event has occurred under Section 4043(b) of ERISA for which
the PBGC requires 30 day notice.
(c) No action by the Borrower to terminate or withdraw from any Plan has been
taken and no notice of intent to terminate a Plan has been filed under
Section 4041 of ERISA.
(d) No proceeding has been commenced with respect to a Plan under Section 4042
of ERISA, and no event has occurred or condition exists which might
constitute grounds for the commencement of such a proceeding.
(e) The following terms have the meanings indicated for purposes of this
Agreement:
(i) "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
(ii) "ERISA" means the Employee Retirement Income Act of 1974, as amended
from time to time.
(iii) "PBGC" means the Pension Benefit Guaranty Corporation established
pursuant to Subtitle A of Title IV of ERISA.
(iv) "Plan" means any employee pension benefit plan maintained or
contributed to by the Borrower and insured by the Pension Benefit
Guaranty Corporation under Title IV of ERISA.
5.13 LOCATION OF BORROWER. The Borrower's place of business (or, if the Borrower
has more than one place of business, its chief executive office) is located at
the address listed under the Borrower's signature on this Agreement.
6. COVENANTS
The Borrower agrees, so long as credit is available under this Agreement and
until the Bank is repaid in full:
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-5-
<PAGE>
6.1 USE OF PROCEEDS. To use the proceeds of the credit only for financing
current account growth, short term working capital needs and support tax
payments.
6.2 FINANCIAL INFORMATION. To provide the following financial information and
statements and such additional information as requested by the Bank from time to
time:
(a) Within 120 days of the Borrower's fiscal year end, the Borrower's annual
financial statements. These financial statements must be audited (with an
unqualified opinion) by a Certified Public Accountant ("CPA") acceptable to
the Bank.
(b) Within 45 days of the period's end, the Borrower's quarterly financial
statements. These financial statements may be Borrower prepared.
6.3 QUICK RATIO. To maintain a ratio of quick assets to current liabilities of
at least 1.00:1.0.
"Quick assets" means cash, short-term cash investments, net trade receivables
and marketable securities not classified as long-term investments.
6.4 TOTAL LIABILITIES TO TANGIBLE NET WORTH RATIO. To maintain a ratio of total
liabilities to tangible net worth not exceeding 1.00:1.0.
"Total liabilities" means the sum of current liabilities plus long term
liabilities.
"Tangible net worth" means the gross book value of the Borrower's assets
(excluding goodwill, patents, trademarks, trade names, organization expense,
treasury stock, unamortized debt discount and expense, deferred research and
development costs, deferred marketing expenses, and other like intangibles) less
total liabilities, including but not limited to accrued and deferred income
taxes, and any reserves against assets.
6.5 LIMITATION ON LOSSES. Not to incur a net loss before taxes and
extraordinary items in any fiscal quarter, with the exception of the fourth
quarter which can incur a net loss after adjustments to include bonuses and
profit sharing with a year-to-date operating and net profit.
6.6 OTHER DEBTS. Not to have outstanding or incur any direct or contingent
debts or lease obligations (other than those to the Bank), or become liable for
the debts of others without the Bank's written consent. This does not prohibit:
(a) Acquiring goods, supplies, or merchandise on normal trade credit.
(b) Endorsing negotiable instruments received in the usual course of business.
(c) Obtaining surety bonds in the usual course of business.
(d) Lease obligations or purchase money transactions with vendors for business
purposes which do not exceed a total principal amount of Four Million
Dollars ($4,000,000) outstanding at any one time.
6.7 OTHER LIENS. Not to create, assume, or allow any security interest or lien
(including judicial liens) on property the Borrower now or later owns including
but not limited to all of the Borrower's accounts receivables and inventory now
owned or hereafter acquired, except:
(a) Deeds of trust and security agreements in favor of the Bank.
(b) Liens for taxes not yet due.
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<PAGE>
(c) Additional purchase money security interests in personal property acquired
after the date of this Agreement if the total principal amount of debts
secured by such liens does not exceed the amount shown in Paragraph 6.6 (d)
above.
6.8 CAPITAL EXPENDITURES. Not to spend or incur obligations (including the
total amount of any capital leases) for more than Four Million Dollars
($4,000,000) 'in any single fiscal year to acquire fixed or capital assets.
6.9 DIVIDENDS. Not to, without the Bank's written consent, declare or pay any
dividends on any of its shares, except:
(a) dividends payable on its preferred stock in an aggregate amount not to
exceed One Million Eight Hundred Thousand Dollars ($1,800,000), in any
fiscal year.
6.10 CHANGE OF OWNERSHIP. Not to cause, permit, or suffer any change, direct or
indirect, in the Borrower's capital ownership, unless such change is the results
of the exercise of stock options or equity financing.
6.11 OUT OF DEBT PERIOD. To repay any advances in full, and not to draw any
additional advances on its revolving line of credit, for a period of at least 30
consecutive days in each line-year. "Line-year" means the period between the
date of this Agreement and May 31, 1997, and each subsequent one-year period (if
any),
6.12 NOTICES TO BANK. To promptly notify the Bank in writing of:
(a) any lawsuit over One Million Dollars ($1,000,000) against the Borrower (or
any guarantor).
(b) any substantial dispute between the Borrower (or any guarantor) and any
government authority.
(c) any failure to comply with this Agreement.
(d) any material adverse change in the Borrower's (or any guarantor's)
financial condition or operations.
(e) any change in the Borrower's name, legal structure, place of business, or
chief executive office if the Borrower has more than one place of business.
6.13 BOOKS AND RECORDS. To maintain adequate books and records.
6.14 AUDITS. To allow the Bank and its agents to inspect the Borrower's
properties and examine, audit and make copies of books and records at any
reasonable time. If any of the Borrowers properties, books or records are in the
possession of a third party, the Borrower authorizes that third party to permit
the Bank or its agents to have access to perform inspections or audits and to
respond to the Bank's requests for information concerning such properties, books
and records.
6.15 COMPLIANCE WITH LAWS. To comply with the laws (including any fictitious
name statute), regulations, and orders of any government body with authority
over the Borrower's business.
6.16 PRESERVATION OF RIGHTS. To maintain and preserve all rights, privileges,
and franchises the Borrower now has.
6.17 MAINTENANCE OF PROPERTIES. To make any repairs, renewals, or replacements
to keep the Borrower's properties in good working condition.
6.18 COOPERATION. To take any reasonable action requested by the Bank to carry
out the intent of this Agreement.
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<PAGE>
6.19 INSURANCE.
(a) GENERAL BUSINESS INSURANCE. To maintain insurance as is usual for the
business it is in.
(b) EVIDENCE OF INSURANCE. Upon the request of the Bank, to deliver to the
Bank a copy of each insurance policy, or, if permitted by the Bank, a
certificate of insurance listing all insurance in force.
6.20 ADDITIONAL NEGATIVE COVENANTS. Not to, without the Bank's written consent:
(a) engage in any business activities substantially different from the
Borrower's present business.
(b) liquidate or dissolve the Borrower's business.
(c) enter into any consolidation, pool, joint venture, syndicate, or other
combination.
(d) lease, or dispose of all or a substantial part of the Borrower's business
or the Borrower's assets.
(e) merge with or acquire or purchase a business or its assets for a
consideration, including assumption of debt, in excess of Five Million
Dollars ($5,000,000) in the aggregate.
(f) for any merger/acquisition transaction, Borrower shall deliver to the Bank,
a compliance certificate duly executed by the chief financial officer of
the Borrower, stating that no default has occurred or would occur after
giving effect to such merger or acquisition under this Agreement.
(g) sell or otherwise dispose of any assets for less than fair market value, or
enter into any sale and leaseback agreement covering any of its fixed or
capital assets in excess of Two Hundred Fifty Thousand Dollars ($250,000)
in the aggregate.
6.21 ERISA PLANS. To give prompt written notice to the Bank of:
(a) The occurrence of any reportable event under Section 4043(b) of ERISA for
which the PBGC requires 30 day notice.
(b) Any action by the Borrower to terminate or withdraw from a Plan or the
filing of any notice of intent to terminate under Section 4041 of ERISA.
(c) Any notice of noncompliance made with respect to a Plan under Section 4041
(b) of ERISA.
(d) The commencement of any proceeding with respect to a Plan under Section
4042 of ERISA.
7. HAZARDOUS WASTE INDEMNIFICATION
The Borrower will indemnify and hold harmless the Bank from any loss or
liability directly or indirectly arising out of the use, generation,
manufacture, production, storage, release, threatened release, discharge,
disposal or presence of a hazardous substance. This indemnity will apply whether
the hazardous substance is on, under or about the Borrower's property or
operations or property leased to the Borrower. The indemnity includes but is not
limited to attorneys' fees (including the reasonable estimate of the allocated
cost of in-house counsel and staff). The indemnity extends to the Bank, its
parent, subsidiaries and all of their directors, officers, employees, agents,
successors, attorneys and assigns. For these purposes, the term "hazardous
substances" means any substance which is or becomes designated as "hazardous" or
"toxic" under any federal, state or local law. This indemnity will survive
repayment of the Borrower's obligations to the Bank.
8. DEFAULT
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<PAGE>
If any of the following events occur, the Bank may do one or more of the
following: declare the Borrower in default, stop making any additional credit
available to the Borrower, and require the Borrower to repay its entire debt
immediately and without prior notice. If an event of default occurs under the
paragraph entitled "Bankruptcy," below, with respect to the Borrower, then the
entire debt outstanding under this Agreement will automatically be due
immediately.
8.1 FAILURE TO PAY. The Borrower fails to make a payment under this Agreement
when due.
8.2 FALSE INFORMATION. The Borrower has given the Bank false or misleading
information or representations.
8.3 BANKRUPTCY. The Borrower (or any guarantor) files a bankruptcy petition, a
bankruptcy petition is filed against the Borrower (or any guarantor) , or the
Borrower (or any guarantor) makes a general assignment for the benefit of
creditors.
8.4 RECEIVERS. A receiver or similar official is appointed for the Borrower's
(or any guarantor's) business, or the business is terminated.
8.5 LAWSUITS. Any lawsuit or lawsuits are filed on behalf of one or more trade
creditors against the Borrower in an aggregate amount of One Million Dollars
($1,000,000) or more in excess of any insurance coverage.
8.6 JUDGMENTS. Any judgments or arbitration awards are entered against the
Borrower (or any guarantor), or the Borrower (or any guarantor) enters into any
settlement agreements with respect to any litigation or arbitration, in an
aggregate amount of One Million Dollars ($1,000,000) or more in excess of any
insurance coverage.
8.7 GOVERNMENT ACTION. Any government authority takes action that the Bank
believes materially adversely affects the Borrower's (or any guarantors)
financial condition or ability to repay.
8.8 MATERIAL ADVERSE CHANGE. A material adverse change occurs in the Borrower's
(or any guarantor's) financial condition, properties or prospects, or ability to
repay the loan.
8.9 CROSS-DEFAULT. Any default occurs under any agreement in connection with
any credit the Borrower (or any guarantor) has obtained from anyone else or
which the Borrower (or any guarantor) has guaranteed.
8.10 OTHER BANK AGREEMENTS. The Borrower (or any guarantor) fails to meet the
conditions of, or fails to perform any obligation under any other agreement the
Borrower (or any guarantor) has with the Bank or any affiliate of the Bank.
8.11 ERISA PLANS. The occurrence of any one or more of the following events with
respect to the Borrower, provided such event or events could reasonably be
expected, in the judgment of the Bank, to subject the Borrower to any tax,
penalty or liability (or any combination of the foregoing) which, in the
aggregate, could have a material adverse effect on the financial condition of
the Borrower with respect to a Plan:
(a) A reportable event shall occur with respect to a Plan which is, in the
reasonable judgment of the Bank likely to result in the termination of such
Plan for purposes of Title IV of ERISA.
(b) Any Plan termination (or commencement of proceedings to terminate a Plan)
or the Borrower's full or partial withdrawal from a Plan.
8.12 OTHER BREACH UNDER AGREEMENT. The Borrower fails to meet the conditions of,
or fails to perform any obligation under, any term of this Agreement not
specifically referred to in this Article.
9. ENFORCING THIS AGREEMENT; MISCELLANEOUS
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9.1 GAAP. Except as otherwise stated in this Agreement, all financial
information provided to the Bank and all financial covenants will be made under
generally accepted accounting principles, consistently applied.
9.2 CALIFORNIA LAW. This Agreement is governed by California law.
9.3 SUCCESSORS AND ASSIGNS. This Agreement is binding on the Borrower's and the
Bank's Successors and assignees. The Borrower agrees that it may not assign this
Agreement without the Bank's prior consent. The Bank may sell participations in
or assign this loan, and may exchange financial information about the Borrower
with actual or potential participants or assignees. If a participation is sold
or the loan is assigned, the purchaser will have the right of set-off against
the Borrower.
9.4 ARBITRATION.
(a) This paragraph concerns the resolution of any controversies or claims
between the Borrower and the Bank, including but not limited to those that
arise from.
(i) This Agreement (including any renewals, extensions or modifications
of this Agreement);
(ii) Any document, agreement or procedure related to or delivered in
connection with this Agreement;
(iii) Any violation of this Agreement; or
(iv) Any claims for damages resulting from any business conducted between
the Borrower and the Bank, including claims for injury to persons,
property or business interests (torts).
(b) At the request of the Borrower or the Bank, any such controversies or
claims will be settled by arbitration in accordance with the United States
Arbitration Act, The United States Arbitration Act will apply even though
this Agreement provides that it is governed by California law.
(c) Arbitration proceedings will be administered by the American Arbitration
Association and will be subject to its commercial rules of arbitration.
(d) For purposes of the application of the statute of limitations, the filing
of an arbitration pursuant to this paragraph is the equivalent of the
filing of a lawsuit, and any claim or controversy which may be arbitrated
under this paragraph is subject to any applicable statute of limitations.
The arbitrators will have the authority to decide whether any such claim or
controversy is barred by the statute of limitations and, if so, to dismiss
the arbitration on that basis.
(e) If there is a dispute as to whether an issue is arbitrable, the arbitrators
will have the authority to resolve any such dispute.
(f) The decision that results from an arbitration proceeding may be submitted
to any authorized court of law to be confirmed and enforced.
(g) The procedure described above will not apply if the controversy or claim,
at the time of the proposed submission to arbitration, arises from or
relates to an obligation to the Bank secured by real property located in
California. In this case, both the Borrower and the Bank must consent to
submission of the claim or controversy to arbitration. if both parties do
not consent to arbitration, the controversy or claim Will be settled as
follows:
(i) The Borrower and the Bank will designate a referee (or a panel of
referees) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in
Association-sponsored proceedings;
- --------------------------------------------------------------------------------
-10-
<PAGE>
(ii) The designated referee (or the panel of referees) will be appointed
by a court as provided in California Code of Civil Procedure Section
638 and the following related sections;
(iii) The referee (or the presiding referee of the panel) will be an active
attorney or a retired judge; and
(iv) The award that results from the decision of the referee (or the
panel) will be entered as a judgment in the court that appointed the
referee, in accordance with the provisions of California Code of
Civil Procedure Sections 644 and 645.
(h) This provision does not limit the right of the Borrower or the Bank to:
(i) exercise self-help remedies such as setoff;
(ii) foreclose against or sell any real or personal property collateral;
or
(iii) act in a court of law, before, during or after the arbitration
proceeding to obtain:
(A) an interim remedy; and/or
(B) additional or supplementary remedies.
(i) The pursuit of or a successful action for interim, additional or
supplementary remedies, -or the filing of a court action, does not
constitute a waiver of the right of the Borrower or the Bank, including the
suing party, to submit the controversy or claim to arbitration if the other
party contests the lawsuit. However, if the controversy or claim arises
from or relates to an obligation to the Bank which is secured by real
property located in California at the time of the proposed submission to
arbitration, this right is limited according to the provision above
requiring the consent of both the Borrower and the Bank to seek resolution
through arbitration.
(j) If the Bank forecloses against any real property securing this Agreement,
the Bank has the option to exercise the power of sale under the deed of
trust or mortgage, or to proceed by judicial foreclosure.
9.5 SEVERABILITY; WAIVERS. If any part of this Agreement is not enforceable,
the rest of the Agreement may be enforced. The Bank retains all rights, even if
it makes a loan after default. If the Bank waives a default, it may enforce a
later default. Any consent or waiver under this Agreement must be in writing.
9.6 ADMINISTRATION COSTS. The Borrower shall pay the Bank for all reasonable
costs incurred by the Bank in connection with administering this Agreement.
9.7 ATTORNEYS' FEES. The Borrower shall reimburse the Bank for any reasonable
costs and attorneys' fees incurred by the Bank in connection with the
enforcement or preservation of any rights or remedies under this Agreement and
any other documents executed in connection with this Agreement, and including
any amendment, waiver, "workout" or restructuring under this Agreement. In the
event of a lawsuit or arbitration proceeding, the prevailing party is entitled
to recover costs and reasonable attorneys' fees incurred in connection with the
lawsuit or arbitration proceeding, as determined by the court or arbitrator. As
used in this paragraph, "attorneys' fees" includes the allocated costs of in-
house counsel.
9.8 ONE AGREEMENT. This Agreement and any related security or other agreements
required by this Agreement, collectively:
(a) represent the sum of the understandings and agreements between the Bank and
the Borrower concerning this credit; and
(b) replace any prior oral or written agreements between the Bank and the
Borrower concerning this credit; and
- --------------------------------------------------------------------------------
-11-
<PAGE>
(c) are intended by the Bank and the Borrower as the final, complete and
exclusive statement of the terms agreed to by them.
In the event of any conflict between this Agreement and any other agreements
required by this Agreement, this Agreement will prevail.
9.9 NOTICES. All notices required under this Agreement shall be personally
delivered or sent by first class, mail, postage prepaid, to the addresses on the
signature page of this Agreement, or to such other addresses as the Bank and the
Borrower may specify from time to time in writing.
9.10 HEADINGS. Article and paragraph headings are for reference only and shall
not affect the interpretation or meaning of any provisions of this Agreement.
9.11 COUNTERPARTS. This Agreement may be executed in as many counterparts as
necessary or convenient, and by the different parties on separate counterparts
each of which, when so executed, shall be deemed an original but all such
counterparts shall constitute but one and the same agreement.
9.12 PRIOR AGREEMENT SUPERSEDED. This Agreement supersedes the Business Loan
Agreement entered into as of June 28, 1995, between the Bank and the Borrower,
and any credit outstanding thereunder shall be deemed to be outstanding under
this Agreement.
This Agreement is executed as of the date stated at the top of the first page.
[LOGO OF BANK OF AMERICA]
BANK OF AMERICA
NATIONAL TRUST AND SAVINGS ASSOCIATION MILCOM INTERNATIONAL, INC.
X /s/ David M. Surch X /s/ Bruce Edwards
---------------------- -------------------------------
BY: DAVID M. SURCH BY: BRUCE EDWARDS
TITLE: VICE PRESIDENT TITLE: CHIEF EXECUTIVE OFFICER AND
PRESIDENT
ADDRESS WHERE NOTICES TO THE BANK ADDRESS WHERE NOTICES TO THE BORROWER
ARE TO BE SENT: ARE TO BE SENT:
300 South Harbor Boulevard 17500 Gillette Avenue
Anaheim, California 92805 Irvine, California 92714-5610
- --------------------------------------------------------------------------------
-12-
<PAGE>
EXHIBIT 10.18
This Agreement is Made by and between:
MILCOM INTERNATIONAL (hereinafter referred to as "MILCOM"), a United States
Corporation duly organized and existing under the laws of the State of Delaware,
having its principal Place of business at 17500 Gillette Avenue, Irvine, CA
92714.
and
LG Information & Communications, Ltd. (hereinafter referred to as LGIC), a
Korean Corporation duly organized and existing under the laws of Korea, having
its principal place of business at LG Twin Tower, 20 Yoido-dong, Youngdungpogu,
Seoul, 150-721, Republic of Korea.
MILCOM and LGIC (hereinafter referred to as 'the parties') agree as follows:
Article 1 - Scope of the Agreement
----------------------
LGIC hereby agrees to purchase from MILCOM the Products under the terms and
conditions set forth in this agreement. (hereinafter referred to as the
"Agreement".)
Article 2 - Product Definition
------------------
The term "Products" shall mean all Linear RF power amplifiers (P/N
MCA8000-250-3) and LPA Frame (P/N MCR4000-3) developed specifically for this
Agreement and hereinafter manufactured, along with modifications or improvements
therein.
Article 3 - Price and Payment
-----------------
3.1 The Parties have agreed to the following price schedule:
1) For (confidential treatment requested pursuant to Rule 406)
Multi-Channel amplifiers (LPA)
(confidential treatment requested pursuant to Rule 406) each
2) For Frames (Any quantity)
(confidential treatment requested pursuant to Rule 406) each
3.2 The price is F.O.B. U.S.A., California
<PAGE>
3.3 LGIC shall pay for the Products upon delivery via Letter of Credit.
3.4 Terms & conditions in force for P.O. E3C50733 will be in effect for the
term of this contract.
3.5 In the event that LGIC is unable to place releases for (confidential
treatment requested pursuant to Rule 406) LPA's within twelve (15) months
of the commencement date of the agreement for complete shipment within six
(6) months after the termination date of the agreement, then the price per
LPA will be adjusted per the following pricing schedule:
Quantity Price
-------- -----
(confidential treatment requested pursuant to Rule 406)
Milcom will bill back the difference between the (confidential treatment
requested pursuant to Rule 406) piece price and the actual quantity
ordered. LGIC to issue a payment for the bill back invoice within thirty
(30) after receipt of the invoice.
3.6 In the event that LGIC places purchase orders in excess of (confidential
treatment requested pursuant to Rule 406) LPA's then Milcom will refund the
difference based on the schedule and terms listed in 3.5 above.
Article 4 - Duration
--------
4.1 The term of this Agreement is for a period of fifteen (15) months and
commences on February 16, 1996, and terminates on May 16, 1997 for releases
only.
4.2 Either party may change the terms and conditions of the Agreement by mutual
written consent.
4.3 The duration of this contract may be extended by mutual written consent.
Article 5 - Ordering Procedure
------------------
5.1 All orders placed under this Agreement shall be bound by the terms and
conditions of the Agreement. Each Purchase order issued by LGIC must
specify the quantity, LGIC's part number and required delivery date(s) for
all Products to be delivered pursuant to the Agreement.
<PAGE>
5.2 All Purchase orders must be placed directly with MILCOM and must be
acknowledged by MILCOM within five (5) working days of issuance. The Orders
shall become effective after issuance of the acknowledgment by MILCOM.
5.3 Minimum release quantity is 200 pieces except the last release.
Article 6 - Delivery
--------
6.1 The delivery of the Products (hereinafter referred as "Delivery") is
understood as the handing over of Products by MILCOM at MILCOM's premises
to the first common carrier designated by LGIC.
A detailed shipping schedule will reflect the requirements of the parties,
and will be decided upon for each Purchase Order.
6.2 For the purpose of the Agreement the term "Force Majeure" covers the
following issues: acts of god, acts of war, acts of civil or military
authority, fire, flood, explosion, earthquake, windstorm or any other
condition beyond the control of MILCOM.
6.3 Capacity Planning Both parties agree to reference normal lead time for
planning production schedules; this lead time to be routinely updated.
Article 7 - Rescheduling Delivery
---------------------
7.1 LGIC may, by written notice to MILCOM reschedule delivery without charge at
any time more than ninety (90) days prior to scheduled delivery of released
product.
Article 8 - New Products
------------
8.1 In the event that MILCOM develops, during the period of the Agreement, new
product(s) to replace the Products LGIC currently procures then LGIC has
the right to phase out the Products during a mutually agreed period.
Thereafter, LGIC shall purchase the new products under the same terms and
conditions as those contained in the Agreement. The prices of new products
shall be negotiated by the Parties and settled in a written amendment
signed by both Parties and attached to the Agreement.
<PAGE>
8.2 Modified Products
-----------------
Milcom agrees to give a written notice to LGIC of all significant
modification(s) affecting mechanical form or fit changes per the outline
drawing of the LPA or Frame; and modification(s) affecting the function and
or electrical performance of the LPA per the Product specification,
interface, or cost of maintenance of the Products, and at least 60 days
before said modification(s) are implemented in the manufacturing line.
LGIC shall within one month from the receipt of this written notice notify
MILCOM of its rejection of said modifications. Otherwise such
modifications shall be considered as accepted by LGIC. If such
modifications are rejected, the Agreement will terminate, however, LGIC
shall be entitled to place a last bulk order on the unmodified Products
within three (3) months from receipt of the written notice.
8.3 MILCOM agrees to send a copy of all ECN's (Engineering Change Notices) to
LGIC and define whether they are Major or Minor. Major changes require
LGIC approval prior to implementation while Minor changes are for
information only. Administrative changes do not require a copy of the ECN
to be sent to LGIC.
9.0 Quality Assurance
-----------------
9.1 Prior to all Delivery MILCOM shall submit the Products to a reliable
testing procedure to insure that the Products are in compliance with
specifications.
9.2 LGIC reserves the right to verify, at Milcom's premises and upon prior
written request, the observance of the quality assurance requirements.
Should the audit require so, MILCOM will assist LGIC by putting staff,
measuring equipment, inspection data, etc., at its disposal.
<PAGE>
Article 10 - Warranty
--------
10.1 MILCOM warrants the Products delivered under this Agreement to be free
from defects in material, design and workmanship during a standard
warranty period of (confidential treatment requested pursuant to Rule 406)
from U.S. shipping date.
In the event of breach of warranty notified to MILCOM, MILCOM shall repair
or replace the defective products at its own premises, which shall be
LGIC's sole and exclusive remedy for such breach.
LGIC bears all expenses incurred in shipping such products to the
designated repair center of MILCOM in Korea.
MILCOM bears all expenses incurred in shipping the repaired or replaced
products from the repair center to LGIC and/or to LGIC's port of entry,
unless such products were not defective. In which case LGIC bears
reasonable expenses incurred in returning the products to them.
10.2 With respect to repair of products after the expiration of the
(confidential treatment requested pursuant to Rule 406) warranty period
specified above, MILCOM agrees to provide repair service at LGIC's
expenses at MILCOM's Korean facility or at our facilities in Irvine, Ca.
10.3 MILCOM MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, except as stated above, and MILCOM
shall have no responsibility or liability under this Agreement for any
special, or consequential damages including loss of profits, incurred or
suffered by LGIC or others, even if supplier has been advised of the
possibility at such damages.
10.4 Subject to a five (5) day early-warning note from LGIC to MILCOM, the
turn-around time for replacement of defective Products is fifteen (15)
working days after arrival at Milcom's repair center.
The contractual warranty discontinues as of Milcom's shipping date and
re-starts upon receipt by LGIC of a replacement Product. The warranty
period shall be extended just for the period which is consumed to repair
or replace the defective Product.
10.5 In order to ensure that the operation proceeds smoothly, the repair
facility must have a sufficient quantity of extra units on hand, in order
to replace any defective units during and after installation and
operation.
10.6 Tampering with or the removal of any warranty seal voids the contractual
warranty requirement.
<PAGE>
Article 11 - Repair
------
11.1 MILCOM shall maintain repair facilities in Seoul, Korea, immediately for
the convenience of LGIC.
11.2 The purpose of this facility is to accommodate units that can be cured on
sight. If a defective unit cannot be cured in the repair facility, it
will be returned to MILCOM.
11.3 If an LPA becomes defective in the field, it must be cured or replaced
within 48 (forty eight) hours. Otherwise, it will be returned to MILCOM.
Milcom will maintain a minimum of five (5) spare LPA units at its repair
facility in Korea. After a spare until has been issued to LGIC and after
the returned unit is repaired, LGIC will return the spare unit from the
field within forty-eight (48) hours after notification to LGIC's Field
Repair Maintenance facility.
11.4 For a period of (confidential treatment requested pursuant to Rule 406)
years after termination of the warranty period, thus a total minimum of
(confidential treatment requested pursuant to Rule 406) years product
support.
MILCOM shall sell to LGIC otherwise make available any specialized
equipment, assembly and or test procedures, and spare parts for purchase
and other items as necessary to repair and maintain the Products, at the
current market prices.
Article 12 - Documentation
-------------
12.1 MILCOM shall supply, free of charge, to LGIC the available technical
documentation, with respect to Products; i.e., an operating and
installation manual for basic operating, installation and maintenance of
the Products. This documentation shall be supplied in English.
<PAGE>
Article 13- Data and Property Rights
------------------------
13.1 All technical and commercial data provided under the Agreement must be
kept secret to the extent required to be disclosed in the normal course of
business EXCEPT as provided solely for use by LGIC with the Products and
may not be used for any other purpose. No rights to any intellectual
property residing in the Products or any data furnished thereunder are
granted except by specific written permission by an authorized
representative of MILCOM.
13.2 Neither party shall, without prior written consent to the other party,
transfer any right or obligations or information or publicity resulting
from the Agreement.
Article 14- Termination
-----------
14.1 The Agreement shall continue in full force and effect until terminated as
Provided herein.
Article 15- Notices
-------
HERE executed by MILCOM and LGIC all notices or information shall be sent
to the following address:
If to MILCOM: MILCOM INTERNATIONAL, INC.
17500 Gillette Avenue,
Irvine, California 92714 U.S.A.
Tel: (1) 714-757-0530
Fax: (1) 714-757-0941
If to LGIC: LG Information & Communications, Ltd.
LG Twin Towers
20, Yoido-dong, Youngdungpo-gu
Seoul, 150-721, Korea PO Box 744
Tel: 82-2-3777-2975
Fax: 82-2-3777-2798
<PAGE>
Article 16 - Entire Agreement
----------------
16.1 No understanding or representation which would have the affect of altering
any term obligation or condition hereof shall bind either party unless
incorporated herein. This Agreement shall only be amended by written
agreement signed by both parties.
16.2 No failure of either party to enforce any provisions of the Agreement
shall be construed as a waiver of such party thereafter to enforce the
same.
16.3 Any difficulties or uncertainties in Interpretation arising from
contradictory provisions existing in the Agreement shall be solved solely
by reference to the Agreement.
Article 17 - Specification of LPA
--------------------
17.1 The attached specification is the governing document for all
specifications agreed to by both parties.
Article 18 - Training
--------
18.1 MILCOM will provide training of two (2) LGIC personnel at MILCOM's
facilities in Irvine for a period of two (2) weeks. The expenses for
traveling, hotel, and other expenses to be incurred by LGIC.
IN WITNESS THEREOF THE PARTIES HERETO HAVE THIS AGREEMENT CONCLUDED BY THEIR
DULY AUTHORIZED REPRESENTATIVES AS OF THE EFFECTIVE DATE SET FORTH BELOW.
This Agreement has been made in duplicate and each of the parties has taken one
original.
LG Information & Communication., LTD MILCOM INTERNATIONAL INC.
BY: /s/ K.D. LIM BY: /s/ ALFONSO G. CORDERO
------------------------------ ---------------------------
Its: General Manager Its: President
------------------------------ ---------------------------
9
<PAGE>
EXHIBIT 10.19
TABLE OF CONTENTS
Article 1 Scope of the Agreement
Article 2 Product Definition
Article 3 Price and Payment
Article 4 Duration
Article 5 Ordering Procedure
Article 6 Delivery
Article 7 Rescheduling Delivery and Reconfiguration
Article 8 Other Products, New Products, Modified Products
Article 9 Quality Assurance
Article 10 Warranty
Article 11 Repair
Article 12 Documentation
Article 13 Data and Property Rights
Article 14 Training
Article 15 Termination
Article 16 Notices
Article 17 Entire Agreement
Article 18 Arbitration
Article 19 Governing Law
<PAGE>
This Agreement is made by and between:
MILCOM INTERNATIONAL (hereinafter referred to as "MILCOM"), a United States
Corporation duly organized and existing under the laws of the State of Delaware,
having its principal place of business at 17500 Gillette Avenue, Irvine, CA
92714.
and
Samsung Electronics (hereinafter referred to as SEC), a Korean Corporation duly
organized and existing under the laws of Korea, having its principal place of
business at 259 Gongdan Dong, Gumi City, Kyung-Buk, Republic of Korea.
WITNESSTH
---------
MILCOM and SEC (hereinafter referred to as 'the parties') agree as follows:
Article 1- Scope of the Agreement
----------------------
SEC hereby agrees to purchase from MILCOM and MILCOM hereby agrees to sell to
SEC the Products under the terms and conditions set forth in this agreement.
(hereinafter referred to as the "Agreement".)
Article 2- Product Definition
------------------
The term "Products" shall mean all Linear RF power amplifiers (P/N MCA8000-250)
and LPA Frame (P/N MCR4000-1) developed specifically for this Agreement and
hereinafter manufactured, along with modifications or improvements therein by
MILCOM and sold to SEC.
Article 3- Price and Payment
-----------------
3.1 Pricing Agreement for future business.
3.1a Time Frame Starting: July 20, 1995
Ending: July 20, 1996
<PAGE>
3.1b Purchase orders to be placed on a quarterly basis
3.1c SEC to provide six (6) months visibility on future
requirements; by the end of each calendar quarter
a) First three (3) months Purchase Order
b) Second three (3) months Forecast
c) SEC to supply monthly forecast updates
d) After July 20, 1996 To be agreed by both parties.
Price
-----
(confidential treatment requested pursuant to Rule 406)
3.2 The price is F.O.B. (according to the incoterms of the International
Chamber of Commerce published in 1990) at the MILCOM'S premises in
Irvine, CAlifornia, U.S.A.
MILCOM assures that at the date of the Agreement, the above price is
ADD equal to or less than the selling price to its most favored customer
for same products of the same quantity.
3.3 SEC shall pay for the Products upon Delivery (as "Delivery" is defined in
clause 6.1 below) by way net 30 days by means of S.E.A. in SAN JOSE.
R. Hunter and Esmond Kim to resolve the issue of freight Forward Costs currently
being absorbed by Milcom; this cost should be incurred by SEC.
Article 4 - Duration
--------
4.1 This agreement shall begin on July 20, 1995 specified in Article 3.1 and
the expiration date of the Agreement will be in effect until the Parties
have completed all dealings with each other.
4.2 Both Parties may change their terms and conditions of the Agreement by
mutual written consent.
Article 5 - Ordering Procedure
------------------
5.1 All orders placed under this Agreement shall be bound by the terms and
conditions of the Agreement.
<PAGE>
Each Purchase order issued by SEC must specify the quantity, SEC's code
number and required delivery date(s) for all Products to be delivered
pursuant to the Agreement.
5.2 All Purchase orders must be placed directly with MILCOM and must be
acknowledged by MILCOM within fifteen (15) days of issuance and subject to
the terms and conditions of this Agreement. The Orders shall become
effective after issuance of the acknowledgment by MILCOM.
5.3 SEC to provide a six (6) month rolling quarterly forecast assuming twelve
(12) week lead time.
Article 6 - Delivery
--------
6.1 The delivery of the Products (hereinafter referred as "Delivery") is
understood as the handing over of Products by MILCOM at MILCOM'S premises
to the first common carrier designated by SEC.
A detailed shipping schedule will reflect the requirements of the parties,
and will be decided upon for each P.O.
6.2 In the event that delivery is delayed beyond the due date then, save
Insofar as MILCOM is relived of such delay by reason of Force Majeure as
defined in Article 6.3 below or to the extent orders significantly exceed
SEC forecasts. SEC may claim reimbursement of the invoiced price of the
Products that are delayed.
The reimbursement may amount to 0.1% (one tenth percent) of the invoiced
price per started business day beyond a grace period of two weeks after the
Initial Delivery date, and shall not exceed 5% (five percent) of the
invoiced price.
This clause in effect per the most recent schedule agreed to by both
parties.
6.3 For the purpose of the Agreement the term "Force Majeure" covers the
following issues: acts of god, acts of war, acts of civil or military
authority, fire, flood, explosion, earthquake, windstorm or any other
condition beyond the control of MILCOM.
6.4 In the absence of SEC's specific instructions concerning transportation,
MILCOM may choose the carrier, with the cost of transportation being
invoiced to SEC by the carrier. SEC shall indemnify and shall hold MILCOM
harmless from and against all claims, and actions of the carrier.
<PAGE>
SEC shall bear all liabilities in respect of the carrier. SEC undertakes
in particular to pay the costs of transportation according to the agreed
terms.
6.5 Title and risk of loss or damages shall pass to SEC upon Delivery of the
Products.
Article 7 - Rescheduling Delivery and Reconfiguration
-----------------------------------------
7.1 SEC may, by written notice to MILCOM reschedule delivery or change
configuration without charge at any time more than 45 (forty five) days
prior to scheduled delivery.
7.2 Deliveries may be rescheduled for a delay of not greater than 45 (five)
days beyond the original date.
Article 8 - Other Products, New Products, Modified Products
-----------------------------------------------
8.1 Other Products
--------------
The Agreement may be amended by the parties to include other products
manufactured by MILCOM which shall be purchased by SEC under the same terms
and conditions as those contained in the Agreement. The prices of other
products shall be negotiated by the parties and settled in a written
amendment signed by both Parties and attached to the Agreement.
8.2 New Products
------------
In the event that MILCOM develops, during the period of the Agreement, new
product(s) to replace the Products SEC has the right to phase out the
Products during a mutually agreed period. Thereafter, SEC shall purchase
the new products under the same terms and conditions as those contained in
the Agreement. The prices of new products shall be negotiated by the
Parties and settled in a written amendment signed by both Parties and
attached to the Agreement.
8.3 Modified Products
-----------------
Milcom agrees to give a written notice to SEC of all significant
modification(s) affecting mechanical form or fit changes per the outline
drawing of the LPA; and modification(s) affecting the function and or
electrical performance of the LPA per the Product specification, interface,
<PAGE>
or cost of maintenance of the Products, and at least 60 days before
said modification(s) are implemented in the manufacturing line.
SEC shall within one month from the receipt of this written notice notify
MILCOM of its rejection of said modifications. Otherwise such
modifications shall be considered as accepted by SEC. If such
modifications are rejected, the Agreement will terminate any future
obligations of the parties to sell/purchase products, however. SEC shall
be entitled to place a last bulk order on the unmodified Products within
3 (three) months from receipt of the written notice.
8.3.1 MILCOM agrees to send a copy of all ECN'S (Engineering Change Notices) to
SEC and define whether they are Major or Minor. Major changes require SEC
approval prior to implementation while Minor changes are for information
only. Administrative changes do not require a copy of the ECN to be sent
to SEC.
Article 9 - Quality Assurance
----------------
9.1 Prior to all Delivery MILCOM shall submit the Products to a reliable
testing procedure to insure that the Products are in compliance with
specifications.
9.2 SEC reserves the right to verify, at MILCOM'S premises and upon prior
written request, the observance of the quality assurance requirements.
Should the audit require so, MILCOM will assist SEC by putting staff,
measuring equipment, inspection data, etc., at its disposal.
9.3 SEC agrees to provide incoming inspection test results on a timely basis
to provide feedback to MILCOM, thus to provide timely feedback and
correlation of our results.
Article 10 - Warranty
--------
10.1 MILCOM warrants the Products delivered under this Agreement to be free
from defects in material, design and workmanship during a standard
warranty period of (confidential treatment requested pursuant to Rule
406) from delivery.
<PAGE>
Any defects shall be notified to MILCOM within 3 (three) weeks after such
defects occur.
In the event of breach of warranty notified to MILCOM, MILCOM shall repair
or replace the defective products at its own premises, which shall be
SEC's sole and exclusive remedy for such breach.
MILCOM shall bear all expenses incurred in shipping such products to the
designated repair center of MILCOM.
MILCOM shall bear all expenses incurred in shipping the repaired or
replaced products to SEC's port of entry, unless such products were not
defective. In which case SEC bears reasonable expenses incurred in
returning the products to them.
10.2 With respect to repair of products after the expiration of the
(confidential treatment requested pursuant to Rule 406) warranty period
specified above, MILCOM agrees to provide repair service at SEC's
expenses, subject to separate negotiations which will be formalized in a
separate SERVICE AGREEMENT.
10.3 MILCOM MAKES NO WARRANTIES, EXPRESS OR IMPLIED, INCLUDING MERCHANTABILITY
AND FITNESS FOR A PARTICULAR PURPOSE, except as stated above, and MILCOM
shall have no responsibility or liability under this Agreement for any
special, or consequential damages including loss of profits, incurred or
suffered by the SEC or others.
10.4 Subject to a five (5) day early-warning note from SEC to MILCOM, the turn-
around time for replacement of defective Products is 15 (fifteen) working
days after arrival at MILCOM'S repair center.
The contractual warranty discontinues as of MILCOM'S shipping date and
re-starts upon receipt by SEC of a replacement Product.
The warranty period shall be extended just for the period which is
consumed to repair or replace the defective Product.
10.6 In order to ensure that the operation proceeds smoothly, the repair
facility must have a sufficient quantity of extra units on hand, in order
to replace any defective units during and after installation and
operation.
The warranty is unalienable to any third parties without SEC's and
MILCOM'S consent.
<PAGE>
10.7 Warranty Seals: Tampering with or the removal of any warranty seal voids
the contractual warranty requirement.
Article 11 - Repair
------
11.1 MILCOM shall maintain repair facilities in Korea immediately for the
convenience of SEC.
11.2 The purpose of this facility is to accommodate units that can be cured on
sight. If a defective unit cannot be cured in the repair facility, it will
be returned to MILCOM.
11.3 If an LPA becomes defective in the STI field, it must be cured or replaced
within 48 (forty eight) hours. Otherwise, it will be returned to MILCOM,
Milcom will maintain a minimum of five (5) spare LPA units at its repair
facility in Korea. After a spare unit has been issued to SEC and after the
returned unit is repaired, SEC will return the spare unit from the field
within forty-eight (48) hours after notification to SEC's Field Repair
Maintenance facility.
11.4 MILCOM will provide and schedule a qualified engineer to visit SEC's
factory on a monthly or on an as needed basis per our meeting notes of
July 20, 1995. In addition, MILCOM presented a repair facility start-up
schedule on June 28, 1995. Projected timing is late in 1995.
11.5 For SEC's security purposes, no contracted representative or agent of
MILCOM (in Korea) can act as a Sales rep and in any capacity at MILCOM's
repair facility in Korea.
11.6 For a period of (confidential treatment requested pursuant to Rule 406)
after termination of the Agreement MILCOM shall continue to maintain
facilities for the repair and will make improvements and updates
available (where applicable) under the terms of Article 9.
MILCOM shall sell to SEC or otherwise make available any specialized
equipment needed to repair and maintain the Products, at the market price
for similar equipment.
Article 12 - Documentation
-------------
12.1 MILCOM will supply, free of charge, to SEC, an Operating manual, with
respect to the LPA and Frame products. These manuals will provide for
basic operating and set-up procedures, and incoming test procedures. This
documentation will be provided in English.
<PAGE>
12.2 To the extent available, additional technical documentation may be
provided to SEC against separate invoicing.
Article 13 - Data and Property Rights
------------------------
13.1 All technical and commercial data provided under the Agreement must be
kept secret to the extent required to be disclosed in the normal course of
business except as provided solely for use by SEC with the Products and
may not be used for any other purpose. No rights to any intellectual
property residing in the Products or any data furnished thereunder are
granted except by specific written permission by an authorized
representative of MILCOM.
13.2 Neither party shall, without prior written consent to the other party,
transfer any right or obligation or information or publicity resulting
from the Agreement.
13.3 SEC may not undertake the manufacture of same amplifier for use in the
same final system utilizing MILCOM technology.
Article 14 - Training
--------
14.1 As part of this Agreement, MILCOM shall offer two (2) weeks training in
the theory and testing of the Product for four (4) SEC engineers. All
repairs will be at the repair facility in Korea or at the MILCOM facility
in Irvine, Calif.
14.2 Instruction shall be given in the English Language at MILCOM's factory
premises in Irvine, California. All transportation, room and board
expenses shall be for the account of SEC. If additional training time is
required, SEC will compensate MILCOM at a mutually agreeable rate.
Article 15 - Termination
-----------
15.1 The Agreement shall continue in full force and effect until terminated as
Provided herein.
15.2 Notwithstanding Article 15.3, this Agreement shall terminate immediately
and as of right upon written notice to the other party in case the other
party goes into liquidation or has a receiver appointed or in case MILCOM
terminates the Agreement under Article 8.3 above.
<PAGE>
15.3 Either party may terminate the Agreement as of right, upon written notice
to the other party if such party defaults in its obligations under the
Agreement and such default is not cured within a Period of 30 (thirty)
days after the date of written notice thereof is given in particular in
the following case:
- Failure of SEC to timely pay Under the terms of Article 3.3 above.
- Failure of SEC to comply with the same terms of Article 8.3 above.
The Agreement shall be terminated automatically after the notice period
has expired without cure.
Article 16 - Notices
-------
Here executed by MILCOM and SEC all notices or information shall be sent to the
following address:
If to MILCOM: MILCOM INTERNATIONAL, INC.
17500 Gillette Avenue
Irvine, California 92714 U.S.A.
Tel: (1) 714-757-0530
Fax: (1) 714-757-0941
If to SEC SAMSUNG ELECTRONICS
6th FL, Samsung Main BD.
250, 2-Ka, Taepyung-Ro, Chung-Ku,
Seoul, Korea
Tel (82) 2-726-3699
Fax (82) 2-726-3688
Article 17 - Entire Agreement
----------------
17.1 No understanding or representation which would have the affect of altering
any term obligation or condition hereof shall bind either party unless
incorporated herein. This Agreement shall only be amended by written
agreement signed by both parties.
17.2 No failure of either party to enforce any provisions of the Agreement
shall be construed as a waiver of such party thereafter to enforce the
same.
<PAGE>
17.3 Any difficulties or uncertainties in interpretation arising from
contradictory provisions existing in the Agreement shall be solved solely
by reference to the Agreement.
Article 18 - Arbitration
-----------
18.1 All disputes, controversy arising out of or in connection with this
Agreement shall be settled by mutual consultation between SEC and MILCOM,
in good faith as soon as possible, but failing an amicable settlement
shall be settled finally by arbitration. Such arbitration shall be
conducted in County of respondent, in accordance with the Commercial
Arbitration Rules of the International Chamber of Commerce. The
arbitration award shall be final and binding. Cost of the arbitration,
including reasonable attorney's fees up to US$10,000.00 of the prevailing
party, shall be borne by and paid for by the non-prevailing party.
Article 19 - Governing Law
-------------
19.1 This agreement shall be construed under and governed by the laws of
Republic of Korea
IN WITNESS THEREOF THE PARTIES HERETO HAVE THIS AGREEMENT CONCLUDED BY THEIR
DULY AUTHORIZED REPRESENTATIVES AS OF THE EFFECTIVE DATE SET FORTH BELOW.
This Agreement has been made in duplicate and each of the parties has taken one
original.
SAMSUNG ELECTRONICS CO., LTD. MILCOM INTERNATIONAL INC.
BY: /s/ J.Y. KWON BY: /s/ ALFONSO G. CORDERO
------------------------- --------------------------
Its: G. Manager Its: General Manager
------------------------- --------------------------
<PAGE>
EXHIBIT 10.20
TECHNOLOGY LICENSE AGREEMENT
THIS AGREEMENT (the "License Agreement") is made this 30th day of
August, 1995 (the "Effective Date"), by and between Milcom International Corp.,
a United States company, with its principal place of business at 17500 Gillette
Avenue, Irvine, California 92714-5610 ("Milcom") and Unique Wireless
Developments, L.L.C., a Delaware limited liability company with principal
offices at 8336 Sterling Street, Irving, Texas 75063 ("UWD").
RECITALS
--------
A. WHEREAS, UWD has developed and owns or has rights to certain
technology relating to the design, structure and operation of a wireless
communications link between mobile and/or fixed radio transceivers; and
B. WHEREAS, Milcom is engaged in the development, manufacture and sale of
high-powered radio amplifiers; and
C. WHEREAS, Milcom will be providing UWD with two prototypes of an
amplifier compatible with UWD's Dynamic Channel Multi-carrier Architecture
("DCMA") technology; and
D. WHEREAS, Milcom wishes to obtain a license from UWD to manufacture and
sell such amplifiers and UWD wishes to grant such license on the terms and
conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual covenants and conditions set
forth below, the parties hereto agree as follows:
1. Definitions
-----------
In addition to certain terms defined on first use herein, the following
terms shall have the following meanings:
1.1 "Base Station Amplifier Technology" shall mean any Confidential
---------------------------------
Information provided by UWD to Milcom in connection with the development of
Compatible Amplifiers.
1.2 "Compatible Amplifiers" shall mean any device that can be used with
---------------------
UWD's DCMA technology for application in the Land Mobile Radio (LMR) industry
regardless of frequency and provides direct frequency up-conversion of baseband
quadrature modulated inputs together with the RF Amplification necessary to
boost the output signal to any required level.
1.3 "Confidential Information" shall mean all ideas and information of any
------------------------
kind, whether in written, oral, graphical, machine-readable or other form,
whether or not marked or identified as confidential or proprietary, which are
disclosed or made available by either party hereto to the other, which the
1
<PAGE>
disclosing party desires to protect against unrestricted disclosure or
competitive use and which relate to the disclosing party's technology, know-how,
technical data, products, software, works of authorship, assets, operations,
contractual relationships, plans or any other aspect of its business. Without
limiting the generality of the foregoing, Milcom acknowledges that information
relating to or comprising the Base Station Amplifier Technology shall be the
Confidential Information of UWD.
1.4 "Commencement Date" shall mean the first day of the first month in
-----------------
which Milcom sells a Compatible Amplifier.
1.5 "Licensed Trademarks" shall mean the trademarks of UWD listed on
-------------------
Exhibit A as may be amended from time to time.
1.6 "Net Sales" shall mean the gross amount billed by Milcom for all sales
---------
or other dispositions of Compatible Amplifiers (the "gross sales price"), less
credit for the following (to the extent reflected in the gross sales price,
actually incurred by Milcom and appropriately documented);
(a) Trade or quantity discounts actually allowed and taken in such
amounts as are customary in the trade;
(b) Transportation and delivery charges, including insurance
premiums, prepaid or allowed; and
(c) Governmental sales taxes, use taxes and tariff duties imposed
directly on sales of Compatible Amplifiers, provided
Milcom's price is reduced thereby, but not franchise, income, or
other taxes of any kind.
No deduction shall be made for commissions, whether to third parties or to
employees of Milcom. If Milcom uses any Compatible Amplifier itself, or sells
or otherwise disposes of any Compatible Amplifier other than in a bona fide
arm's length sale (including, without limitation, for promotional purposes), the
Compatible Amplifier shall be deemed to have been sold for purposes of the
foregoing and the "gross sales price" shall be deemed to be Milcom's then
current price to dealers for the Compatible Amplifier. In the case of any sale
or other disposition, Compatible Amplifiers shall be considered sold for
purposes of the foregoing when shipped or when the price is invoiced or
otherwise charged, whichever is earlier.
1.7 "Stand-Alone Compatible Amplifiers" shall mean Compatible Amplifiers
---------------------------------
manufactured by a company that does not manufacture base station and terminal
equipment that can be used with Compatible Amplifiers.
2
<PAGE>
1.8 "Territory" shall mean the countries listed on the attached Exhibit B.
---------
2. License Rights.
--------------
2.1 License Grant to Milcom. On the terms and subject to the conditions
-----------------------
set forth herein, UWD hereby grants to Milcom:
(a) beginning on the Effective Date and for a period that ends on the
earlier of (i) two years after Commencement Date or (ii) the date by which
Milcom has achieved a total of $6,000,000 in Net Sales of Compatible Amplifiers,
an exclusive license in the Territory to use UWD technology pertaining to
Compatible Amplifiers, including applicable patents, trade secrets, and know-
how, to manufacture, use and sell Stand-Alone Compatible Amplifiers; and
(b) beginning at the end of the period set forth in Section 2.1(a)
and continuing on a perpetual basis thereafter, a non-exclusive license in the
Territory to use UWD technology pertaining to Compatible Amplifiers, including
applicable patents, trade secrets, and know-how, to manufacture, use and sell
Stand-Alone Compatible Amplifiers;
(c) during the term of the licenses set forth in subsection 2.1(a)
and (b) hereof, a non-exclusive license in the Territory to use any applicable
Licensed Trademarks in connection with the sale or advertising of Compatible
Amplifiers manufactured and sold by Milcom.
2.2 Certain License Limitations.
---------------------------
(a) Nothing herein shall be construed as granting Milcom, by
implication, estoppel or otherwise, any license or other right under any patent
or other intellectual property right of UWD, except for the licenses expressly
granted in Section 2.1.
(b) Milcom's rights hereunder are limited to the Territory, and
Milcom shall not, directly or indirectly, manufacture, market, promote,
distribute, sell or use any Compatible Amplifiers outside the Territory or for
use outside the Territory. Milcom shall promptly inform UWD of all inquiries
relating to Compatible Amplifiers from outside the Territory or for use outside
the Territory. UWD in its sole discretion may pursue such inquiries itself or
through others or may permit Milcom to pursue such inquiries.
(c) All Compatible Amplifiers marketed and sold by Milcom shall bear
the appropriate Licensed Trademark(s) in visible and legible form, at least as
prominent as any trademarks of Milcom, except as otherwise provided in the last
sentence of this paragraph. In advance of any use of the Licensed Trademarks on
any Compatible Amplifier or in connection with any advertising,
3
<PAGE>
marketing, instructional or other material, Milcom shall furnish UWD a sample
for its review and approval. Milcom agrees that all Compatible Amplifiers
manufactured, distributed or sold under any Licensed Trademark shall meet or
exceed the standards of quality established from time to time by UWD, and that
neither the Licensed Trademarks nor any confusingly similar marks shall be used
in connection with any goods or services other than the Compatible Amplifiers.
UWD shall have the right to inspect Milcom's Compatible Amplifiers and premises
upon reasonable notice to ensure compliance with the foregoing requirements.
All rights in the Licensed Trademarks shall remain at all times the sole
property of UWD, and all use of the Licensed Trademarks shall inure to the
benefit of UWD. Milcom agrees to assist in such registration of the Licensed
Trademarks in countries in the Territory in the name of UWD and such
registration of Milcom as a user of the Licensed Trademarks as UWD may
reasonably request from time to time, at UWD's expense. Whenever Milcom uses the
Licensed Trademarks in any manner, Milcom shall indicate UWD's ownership thereof
and shall comply with any marking or notice requirements under applicable law.
In the event Milcom breaches any of the provisions of this Section 2.2(c), in
addition to any other rights or remedies, UWD may terminate the license under
Section 2.1(c) to use the Licensed Trademarks. If either Milcom or UWD
reasonably believes that any use of a Licensed Trademark otherwise required by
this paragraph will infringe any trademark or similar rights of any third party,
then such party shall notify the other and UWD, at this election, shall modify
such Licensed Trademark for such use so that it is not infringing or shall
permit such marketing or sale without the use of such Licensed Trademark.
3. Royalties and Taxes.
-------------------
3.1 Royalties.
---------
(a) In partial consideration for the rights and licenses granted
herein by UWD, Milcom agrees to pay to UWD during the License Term a royalty on
Net Sales in the following amount:
(i) for the first $6,000,000 of Net Sales, a non-refundable up
front royalty payment of $300,000, payable as follows:
<TABLE>
<CAPTION>
Date Payment Amount
---- --------------
<S> <C>
August 31, 1995 $100,000
September 17, 1995 $ 50,000
October 17, 1995 $ 50,000
November 1, 1995 $ 50,000
December 1, 1995 $ 50,000
</TABLE>
No portion of said up front royalty shall be refundable for any reason other
than the reasons set forth in the second sentence of Section 3.1(b) hereof.
4
<PAGE>
(ii) for Net sales from $6,000,001 through $12,000,000, Milcom
shall pay a non-refundable, up front royalty of $300,000, payable in six equal
monthly installments beginning on the date Net Sales exceed $6,000,000.
(iii) for Net Sales in excess of $12,000,000, Milcom shall pay a
royalty equal to the lowest royalty paid by a licensee of UWD in a position
similar to that of Milcom for similar quantities and similar terms and
conditions, but in no event more than the following:
<TABLE>
<CAPTION>
Prepayment
Net Sales Royalty Rate Royalty Rate
--------- ------------ ------------
<S> <C> <C>
$12,000,001-$24,000,000 7.0% 6.3%
$24,000,001-$36,000,000 6.0% 5.4%
In excess of $36,000,000 5.0% 4.5%
</TABLE>
The royalty payable pursuant to this subsection (iii) shall be payable as
provided in Section 3.1(c) below unless the royalty on each additional
$6,000,000 increment of Net Sales is prepaid in 6 equal monthly installments
beginning on the date that Net Sales exceeded the previous $6,000,000 increment
(any such prepayment would entitle Milcom to the Prepayment Royalty Rate
referenced above).
(b) In the event that UWD licenses a company to manufacture base
stations and terminal equipment that can be used with Compatible Amplifiers and,
as condition of accepting such license, said company requires the right to
manufacture Compatible Amplifiers, nothing in this License Agreement shall be
deemed to prohibit UWD from granting such licenses in that Milcom's exclusivity
extends only to the manufacturers of Stand-Alone Compatible Amplifiers.
However, in the event that all radio systems utilizing the technology compatible
with the Compatible Amplifiers are manufactured by companies that manufacture
their own Compatible Amplifiers and, as a consequence, there is no market for
Milcom's Compatible Amplifiers, then UWD will refund the sum of $300,000 minus
5% of Milcom's Net Sales.
(c) Running royalties shall be payable by Milcom to UWD for each
calendar quarter during the License Term, on or before the thirtieth (30th) day
following the end of such calendar quarter.
(d) All payments due under this Article 3 shall be made by Milcom
within the United States in U.S. dollars, by check drawn on, or wire transfer
from, a U.S. bank account.
(e) In calculating royalties due on Net Sales made in any foreign
currency, conversion to U.S. dollars shall be at the rate of exchange published
in The Wall Street Journal (or alternative publication mutually agreed by the
parties) for the business day closest to the end of the quarter with respect to
which such royalties are due.
5
<PAGE>
3.2 Taxes. In addition to any other amounts due hereunder, Milcom shall
-----
pay all foreign, federal, state, municipal and other governmental excise, sales,
use, property, customs, import, value added, gross receipts and other taxes,
fees, levies and duties of any nature now in force or enacted in the future that
are assessed upon or with respect to the use, manufacture or sale of Compatible
Amplifiers, any payments made or owing hereunder, or otherwise arising in
connection with this License Agreement or any transactions contemplated hereby,
but excluding United States taxes based on UWD's net income. If Milcom is
required by the law of any country to make any deduction, or withhold from any
sum payable to UWD by Milcom hereunder, then the sum payable by Milcom upon
which the deduction or withholding is based shall be increased to the extent
necessary to ensure that, after such deduction or withholding, UWD receives and
retains, free from liability for such deduction or withholding, a net amount
equal to the amount UWD would have received and retained in the absence of such
required deduction or withholding.
4. Reports, Payments and Accounting.
--------------------------------
4.1 Sales Reports. Within thirty (30) days after the end of each calendar
-------------
quarter, Milcom shall deliver a written report certified by a responsible
corporate officer (the "Sales Report") describing in detail the manner in which
the amount credited against the up front royalty or payable as running royalty
was calculated, and separately stating gross sales by Milcom by country, as well
as any permitted amounts deducted in calculating Net Sales. Each Sales Report
also shall set forth all Compatible Amplifiers used by Milcom itself or sold or
otherwise disposed of other than in a bona fide arms' length sale. Milcom shall
provide such additional information concerning the calculation of royalties and
other data in the Sales Reports as UWD may reasonably request from time to time.
4.2 Records; Audit. Milcom agrees to make and maintain detailed, accurate
--------------
books, records and accounts containing the information required to calculate the
royalties due to UWD and to verify the accuracy and completeness of the Sales
Reports and Milcom's compliance with its other obligations hereunder, and to
keep such books, records and accounts for a period of three (3) years after the
relevant reporting period. During the term of this License Agreement and for a
period of two (2) years thereafter, UWD shall have the right from time to time
to audit, through any reputable certified public accounting firm selected by
UWD, such books, records, accounts and customer invoices and other supporting
documentation of Milcom, in order to verify the amount of royalties due, the
Sales Report and Milcom's compliance with this License Agreement. UWD shall
provide Milcom at least ten (10) days' prior written notice of its election to
conduct such an audit. Milcom shall assist the representatives of UWD in
conducting such audit, without charge, and shall make such documents available
for inspection and copying and shall make such
6
<PAGE>
personnel available for interviews as may be reasonably necessary to allow UWD
or its representative to perform the audit.
UWD agrees to make and maintain detailed, accurate books, records and accounts
containing the information required to calculate the royalty rates charged to
UWD's licensees and to verify that UWD is charging Milcom the royalty rate
required by this agreement and to keep such books, records and accounts for a
period of three (3) years after the relevant royalty period. During the term of
this License Agreement (after Net Sales have reached $12,000,000) and for a
period of two (2) years thereafter, Milcom shall have the right to from time to
time to audit, through a reputable certified public accounting firm selected by
Milcom, such books, records and accounts and other supporting documentation of
UWD, in order to verify that UWD is charging Milcom the royalty rate required by
this agreement. Milcom shall provide UWD at least ten (10) day's prior written
notice of its election to conduct such an audit. UWD shall assist the
representatives of Milcom in conducting such audit, without charge, and shall
make such documents available for inspection and copying and shall make such
personnel available for interviews as may be reasonably necessary to allow
Milcom or its representatives to perform the audit.
4.3 Audit Expenses. If any audit by UWD reveals that Milcom has
--------------
underpaid UWD (or taken credits against the up front royalty) by an amount equal
to or greater than ten percent (10%) of the amounts owed (or the amounts that
should have been credited) with respect to any reporting period, and that such
underpayment was deliberate, then Milcom shall bear all expenses reasonably
incurred by UWD in connection with the audit. Any underpayment revealed by the
audit shall be paid to UWD by Milcom within ten (10) days of receipt from UWD of
notice of such underpayment.
If any audit by Milcom reveals that UWD has overcharged Milcom by an amount
equal to or greater than ten percent (10%) of the amount owed and that such
overcharge was deliberate, then UWD shall bear all expenses reasonably incurred
by Milcom in connection with the audit. Any overpayment revealed by the audit
shall be paid to Milcom within ten (10) days of receipt from Milcom of notice of
such overpayment.
5. Ownership.
---------
Milcom acknowledges and agrees that UWD is and shall remain the sole and
exclusive owner of the Base Station Amplifier Technology, and all patents,
know-how, trade secrets, Licensed Trademarks, and documentation provided or
licensed pursuant to this License Agreement and that Milcom acquires no rights
in or to any of the foregoing, other than the license rights specifically
granted herein.
7
<PAGE>
6. Certain Obligations of Milcom.
-----------------------------
6.1 Marketing. During the period of exclusivity, Milcom shall use its
---------
best efforts to manufacture, promote and sell Compatible Amplifiers in the
Territory. During the period of non-exclusivity, Milcom shall use reasonable
efforts to manufacture, promote and sell Compatible Amplifiers in the Territory.
6.2 Support. Milcom shall provide the purchasers of the Compatible
-------
Amplifiers sold by Milcom with competent maintenance, support and service for
such Compatible Amplifiers through qualified personnel.
6.3 Reports. Milcom shall furnish UWD with reports at least
-------
semi-annually summarizing its marketing and support activities with respect to
Statements of Work, and shall respond to such reasonable inquiries concerning
such activities as UWD may make from time to time.
6.4 Intellectual Property Notices. Milcom agrees to apply, in legible
-----------------------------
form, the label "DC/MA Compatible Product Produced and Sold under License from
Unique Wireless Developments, L.L.C." to all Compatible Amplifiers sold by it.
In addition, Milcom shall (i) mark all Compatible Amplifiers and their
containers in accordance with the patent and other intellectual property marking
laws and regulations, if any, of the jurisdictions in which such Compatible
Amplifiers are manufactured, used or sold, and notify UWD in writing prior to
the initial instance of any such marking, and (ii) comply with all reasonable
requests by UWD regarding other notices to protect UWD's intellectual property
rights.
6.5 Notice of Violation. If Milcom becomes aware of any infringement or
-------------------
violation of any UWD patent, Licensed Trademark or other UWD intellectual
property right by any third party (including, without limitation, any customer),
Milcom shall promptly notify UWD and shall cooperate reasonably with UWD, at
UWD's request and expense, to terminate or remedy such infringement or
violation.
6.6 Compliance With Certain Laws. If any filing with or notice to any
----------------------------
governmental authority, or any government approval of this License Agreement, is
required to make this License Agreement effective or to make UWD's rights
hereunder enforceable or otherwise to protect UWD's proprietary rights
hereunder, or to permit Milcom to perform any of its obligations hereunder,
Milcom shall promptly so notify UWD in writing and, at UWD's request, Milcom
shall promptly, at UWD's expense, take all actions required to make such filing,
give such notice or obtain such approval. Milcom shall keep UWD currently
informed of its efforts in this regard. Without limitation of the foregoing,
Milcom shall comply with the United States Foreign Corrupt Practices Act, and
shall indemnify UWD from any failure to comply with or violation of such Act by
Milcom. Milcom, at its expense, shall obtain and maintain
8
<PAGE>
in effect all permits, licenses and other consents necessary to the conduct of
its activities hereunder.
6.7 Actions Concerning Licensed Trademarks. Milcom shall not contest or
--------------------------------------
take any action that would jeopardize or diminish UWD's exclusive rights in the
Licensed Trademarks, and, if Milcom should acquire any interest therein, it
shall promptly assign and convey such interest and associated goodwill to UWD.
7. Limited Warranties; Disclaimers; Limitations.
--------------------------------------------
7.1 Authority. Each party represents to the other that it has full
---------
corporate power and authority to enter into this License Agreement and to carry
out the provisions hereof.
7.2 No Conflicts. UWD represents and warrants that is has the legal right
------------
to grant the licenses granted herein, and that it has no other outstanding
agreements or obligations inconsistent with the terms and provisions of this
License Agreement.
7.3 Disclaimer. EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, UWD
---------- ---------
MAKES NO REPRESENTATIONS OR WARRANTIES OF ANY KIND, WHETHER EXPRESS, IMPLIED, OR
ARISING BY CUSTOM OR TRADE USAGE, WITH RESPECT TO THE COMPATIBLE AMPLIFIERS,
LICENSED PATENTS, LICENSED KNOW-HOW, LICENSED TRADEMARKS, DOCUMENTATION, OR ANY
SERVICES, MATERIALS OR RIGHTS PROVIDED HEREUNDER, OR OTHERWISE IN CONNECTION
WITH THIS LICENSE AGREEMENT. WITHOUT LIMITING THE FOREGOING, UWD EXPRESSLY
DISCLAIMS ANY IMPLIED WARRANTY OR REPRESENTATION (i) AS TO THE VALIDITY OR SCOPE
OF ANY LICENSED PATENTS, (ii) THAT ANY COMPATIBLE AMPLIFIER, OR ITS DEVELOPMENT,
MANUFACTURE, MARKETING, SALE, DISPOSITION OR USE, OR ANY ACTIVITIES OF MILCOM
CONTEMPLATED BY THIS LICENSE AGREEMENT, WILL BE FREE FROM INFRINGEMENT OF ANY
PATENT, COPYRIGHT, TRADEMARK OR OTHER RIGHTS OF ANY THIRD PARTY, (iii) AS TO
THE QUALITY OR PERFORMANCE OF ANY COMPATIBLE AMPLIFIER MADE UNDER THIS LICENSE
AGREEMENT, OR (iv) OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.
7.4 Limitations of Liability. UNDER NO CIRCUMSTANCES SHALL MILCOM BE
------------------------
ENTITLED TO RECOVER FROM UWD ANY INCIDENTAL, CONSEQUENTIAL, INDIRECT, SPECIAL
OR PUNITIVE DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR LOSS OF
BUSINESS, LOSS OF PROFITS OR LOSS OF USE), WHETHER BASED ON CONTRACT, TORT
(INCLUDING NEGLIGENCE), OR ANY OTHER CAUSE OF ACTION RELATING TO THE COMPATIBLE
AMPLIFIERS, LICENSED PATENTS, LICENSED KNOW-HOW, LICENSED TRADEMARKS,
DOCUMENTATION, OR ANY SERVICES, MATERIALS OR RIGHTS PROVIDED HEREUNDER, OR
OTHERWISE RELATING TO THIS LICENSE AGREEMENT, EVEN IF UWD HAS BEEN INFORMED OR
SHOULD KNOW OF THE POSSIBILITY OF SUCH DAMAGES. EXCEPT WITH RESPECT TO ANY CLAIM
OF INFRINGEMENT COVERED BY SECTION 8.1, IN NO EVENT SHALL THE LIABILITY OF UWD
(WHETHER BASED ON CONTRACT, TORT (INCLUDING NEGLIGENCE) OR ANY OTHER CAUSE OF
ACTION) EXCEED THE AGGREGATE AMOUNT OF ROYALTIES ACTUALLY RECEIVED BY UWD
PURSUANT TO SECTION 3.1.
9
<PAGE>
7.5 Certain Additional Limitations. In connection with all sales or other
------------------------------
dispositions of Compatible Amplifiers by Milcom, Milcom shall expressly extend
all limitations of liability benefitting UWD so that they also cover and benefit
UWD's licensors and suppliers.
8. Indemnification; Insurance.
--------------------------
8.1 Indemnification. Milcom shall indemnify and hold UWD harmless from
---------------
and against any and all claims, demands, actions, losses, liabilities, damages
and expenses (including, without limitation, reasonable attorneys' fees)
(collectively, "Losses") that arise out of or are incurred in connection with
Milcom's development or manufacture of any Compatible Amplifiers or the
marketing, distribution, sale, disposition or use by anyone (including, without
limitation, Milcom, its agents, resellers, and end users) of any such Compatible
Amplifiers or provision by anyone of any related services; provided, however,
in no event shall Milcom be required to indemnify or hold UWD harmless from and
against any Losses that arise our of a) any wrongful or negligent act or
omission of UWD or its agents or representatives b) any claim of infringement
for which Milcom is entitled to indemnification pursuant to the second paragraph
of this Section 8.1. The foregoing shall include, subject to the limitation set
forth in the immediately preceding sentence, without limitation, indemnifciation
of UWD by Milcom against all Losses that arise out of or are incurred in
connection with (i) any representation, warranty or agreement that is made by
Milcom (or any of its agents or resellers) to or with any reseller, end user or
other third party with respect to such Compatible Amplifier or service that
otherwise arises out of any such transaction, or (ii) any claim that any such
Compatible Amplifier or part thereof is defective (whether in design, materials,
workmanship or otherwise) or that otherwise relates to any attribute, condition
or failure of any such Compatible Amplifier, including, without limitation, any
claim of product liability (whether brought in tort, warranty, strict liability
or other form of action) or negligence.
UWD shall indemnify and hold Milcom harmles from and against any and all Losses
that arise out of or are incurred in connection with any wrongful or negligent
act or omission of UWD or its agents or representatives. In addition, UWD hereby
agrees to defend or settle, at its own expense, any claim made against Milcom
that Milcom's use, within the scope of this License Agreement, of the Base
Station Amplifier Technology infringes any patent, copyright, trade secret, or
other proprietary right of any third party, and shall indemnify Milcom and hold
it harmless against any final judgment, including an award of reasonable
attorney's fees, which may be awarded against Milcom as a result of the
foregoing; provided that Milcom shall give UWD prompt written notice of such
claim and shall provide UWD with all reasonable cooperation and information in
Milcom's possession and sole control over the defense and settlement of any such
claim.
10
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8.2 Insurance. Milcom will procure and maintain at its expense
---------
comprehensive general liability insurance with a reputable insurer in the
amounts of not less than $2,000,000 per incident and $2,000,000 annual
aggregate. Such comprehensive general liability insurance will (a) provide
product liability coverage, (b) provide broad form contractual liability
coverage extending to Milcom's indemnification under Section 8.1, (c) contain no
products or completed operations exclusions, (d) be in occurrence form, (e) name
UWD as an additional insured, and (f) be primary, and any applicable insurance
maintained by UWD will be excess and non-contributing. Milcom will maintain such
insurance during (i) the period that any product or service relating to, or
developed pursuant to, this License Agreement is being distributed, sold or
provided by Milcom, and (ii) ten years after the end of the period referred to
in clause (i). Milcom will provide UWD with written evidence of such insurance
upon request of UWD, and will provide UWD with written notice at least thirty
(30) days prior to any cancellation, non-renewal, reduction or other material
change in such insurance.
9. Termination.
-----------
9.1 License Term. This License Agreement shall continue in full force
------------
and effect from the Effective Date until terminated pursuant to this section 9
("License Term").
9.2 Termination by Either Party. Notwithstanding anything herein to the
---------------------------
contrary, each party shall have the right, in addition and without prejudice to
any other rights or remedies, to terminate this License Agreement if:
(a) the other party fails to pay any sum of money when due hereunder
or commits any material breach of the terms hereof which, in the case of a
breach capable of remedy, shall not have been remedied within (i) ten (10) days
in the case of nonpayment, or (ii) thirty (30) days in the event of any other
breach, of the receipt by the party in default of notice specifying the breach
and requiring its remedy; or
(b) the other shall dissolve, liquidate, or cease to carry on
business operations.
9.3 Termination by UWD. Without limiting any other rights or remedies of
------------------
UWD, UWD may at its option terminate this License Agreement by giving written
notice to Milcom upon the occurrence of any of the following events:
(a) Milcom becomes insolvent or unable to pay its debts generally as
they mature;
(b) Milcom makes a general assignment for the benefit of creditors;
11
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(c) Milcom is adjudicated bankrupt under any involuntary petition for
bankruptcy or similar proceeding;
(d) Milcom files a petition in bankruptcy or a petition or answer
seeking a reorganization, arrangement with creditors or composition or other
similar relief under the bankruptcy laws of the United States or under any other
similar law applicable to Milcom; or
(e) Milcom consents to the appointment of a trustee or receiver for
Milcom or any part of its property.
9.4 Effect of Termination.
---------------------
(a) Upon any expiration or termination of this License Agreement, all
rights and licenses granted to Milcom hereunder shall terminate.
(b) No expiration or termination of this License Agreement shall
relieve Milcom of any obligation to pay amounts due as a result of any
transaction prior to the date of expiration or termination (including royalties
on Net Sales through such date) nor affect any other rights or liabilities of
the parties which may have accrued prior to the date of expiration or
termination. Notwithstanding anything herein to the contrary, upon any
expiration or termination of this License Agreement, the provisions of Sections
3.2, 4.2, 4.3, 5, 7.3, 7.4, 7.5, 8.1, 8.2, 9.4, and all of Articles 10 and 11
shall survive such expiration or termination and continue in effect.
10. Confidential Information.
------------------------
10.1 Confidentiality Obligation. Each party shall hold in confidence any
--------------------------
Confidential Information disclosed by the other or otherwise obtained by such
party as a result of activities contemplated by this License Agreement, and each
party shall protect the confidentiality thereof with the same degree of care
that it exercises with respect to its own information of a like nature, but in
no event less than reasonable care. Access to Confidential Information must be
restricted to the receiving party's employees, who, in each case, need to have
access to carry out a permitted use and are bound in writing to maintain the
confidentiality of such Confidential Information. The Confidential Information,
and all copies of part or all thereof, shall be and remain the exclusive
property of the disclosing party, and the receiving party shall acquire only
such rights as are expressly set forth under the terms and conditions of this
License Agreement and only for so long as such rights are in effect.
10.2 Exceptions. Notwithstanding any provisions contained herein concerning
----------
nondisclosure and non-use of the Confidential Information, the obligations of
Section 10.1 and 10.3 shall not
12
<PAGE>
apply to any portion of the Confidential Information which the receiving party
can demonstrate by legally sufficient evidence:
(a) now or hereafter, through no act or failure to act on the part of
the receiving party, becomes generally known in the electronics industry;
(b) is known to the receiving party at the time of receiving such
Confidential Information without an obligation of confidentiality;
(c) is hereafter furnished to the receiving party by a third party as
a matter of right without restriction on disclosure;
(d) is independently developed by the receiving party without use of
any Confidential Information received from the other; or
(e) is disclosed in response to a valid order of a court or other
governmental body or any political subdivision thereof; provided, however, that
the party making the disclosure pursuant to such an order shall promptly give
notice to the other party and make a reasonable effort to obtain a protective
order requiring that Confidential Information so disclosed be used only for the
purposes for which the order was issued.
10.3 Limitation on Use. Except as provided in this License Agreement, a
-----------------
receiving party shall not use, make, have made, distribute or disclose any
copies of the Confidential Information, in whole or in part, without the prior
written authorization of the disclosing party.
10.4 Termination. Subject to any surviving license rights as determined by
-----------
Section 9.4, each party shall, upon termination of this License Agreement,
immediately discontinue use of the other's Confidential Information. Within a
reasonable time after termination of this License Agreement, but in no event
later than thirty (30) days thereafter, all materials containing such
Confidential Information shall be returned by the receiving party or destroyed
with the disclosing party's written consent, except that the receiving party may
retain a copy of any Confidential Information that is reasonably necessary to
its exercise of any such surviving license right. An officer of the receiving
party shall certify in writing to the disclosing party that the receiving party
has complied with the obligations of this Section 10.4.
10.5 Survival. Notwithstanding any termination of this License Agreement
--------
the obligations set forth in this Article 10 shall survive any termination of
this License Agreement.
13
<PAGE>
11. Miscellaneous.
-------------
11.1 Governing Law. This License Agreement shall be governed by and
-------------
construed in accordance with the substantive laws of the State of Delaware,
without regard to its principles of conflicts of laws. Any dispute arising
hereunder or concerning any transaction contemplated hereby shall be resolved
only in a state or federal court located in the State of Delaware, and each of
the parties hereby agrees to submit itself to the exclusive jurisdiction and
venue of such courts for such purposes. The United Nations Convention on
Contracts for the International Sale of Goods shall not apply to this License
Agreement. The English language version of this License Agreement shall be the
official text hereof, despite translations or interpretation of this License
Agreement in other languages.
11.2 Attorneys' Fees. In the event of any legal action to enforce the
---------------
terms and conditions of this License Agreement, the prevailing party in any such
action shall be entitled to its costs and expenses, including reasonable
attorneys' fees, expended in enforcing its rights hereunder.
11.3 Notices. All notices and requests required or authorized hereunder
-------
shall be made in writing, shall be effective upon receipt, and shall be
sufficiently given if personally delivered or if sent by courier or certified
mail, return receipt requested, addressed to the President of the party entitled
or required to receive such notice at the address for such party set forth at
the outset hereof, or such other address as such party may specify by such
notice.
11.4 Complete Agreement. This License Agreement and the Exhibits hereto
------------------
constitute and express the final, complete and exclusive agreement and
understanding between the parties with respect to their subject matter and
supersede all previous communications, representations or agreements, whether
written or oral, with respect to the subject matter hereof.
11.5 Export Administration. Where applicable, Milcom shall comply, at its
---------------------
own expense, with the export control laws of the United States of America and
relevant regulations issued by the United States Department of Commerce and
Department of State.
11.6 Independent Contractors. Milcom and UWD are independent contractors
-----------------------
and are not, and shall not represent themselves as, principal and agent,
partners or joint venturers. Neither party shall attempt to act, or represent
itself as having the power, to bind the other or create any obligation on behalf
of the other. Each party shall assume complete responsibility for obligations
under federal and state employers' liability, worker's compensation, social
security, unemployment insurance, tax withholding, occupational safety and
health administration laws and other federal, state and local laws and all
United Kingdom, Canadian and other non-U.S. laws with respect to itself.
14
<PAGE>
11.7 Amendment; Waiver. This License Agreement may not be modified,
-----------------
amended, rescinded, canceled or waived, in whole or part, except by a written
instrument signed by the parties; provided, that any unilateral undertaking or
waiver made by one party in favor of the other shall be enforceable if
undertaken in a writing signed by the party to be charged with the undertaking
or waiver. No delay or omission by either party hereto in exercising any right
or power occurring upon any noncompliance or default by the other party with
respect to any of the terms of this License Agreement will impair any such right
or power or be construed to be a waiver thereof. A waiver by either of the
parties hereto of any of the covenants, conditions or agreements to be performed
by the other will not be construed to be a waiver of any succeeding breach
thereof or of any other covenant, condition or agreement herein contained.
11.8 Severability. Whenever possible, each provision of this License
------------
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law. If any provision of this License Agreement is determined to be
invalid or unenforceable, it shall be deemed stricken and the remainder of the
License Agreement shall continue in full force and effect. If practicable, the
parties shall negotiate in good faith to replace the severed provision by a
mutually acceptable valid, legal and enforceable provision that reflects the
intentions of the parties underlying the severed provision.
11.9 Force Majeure. The failure of any party hereunder to perform any
-------------
obligation otherwise due (except for the payment of moneys due hereunder) as a
result of governmental action, law, order or regulation, or as a result of war,
act of public enemy, strike or other labor disturbance, fire, flood, act of God
or other causes of like kind beyond the reasonable control of such party, shall
be excused for so long as said cause exists to the extent such failure is caused
by such event.
11.10 Captions. The captions herein have been inserted solely for
--------
convenience of reference and in no way define or limit the scope or substance of
any provision of this License Agreement.
11.11 Meaning of Certain Terms. As used in this License Agreement,
------------------------
"herein" and "hereof" shall refer to this License Agreement as a whole, and
"including" shall mean "including but not limited to." All dollar amounts
stated herein are expressed in United States dollars. All references herein to
Sections shall be deemed to refer to Sections of this License Agreement unless
specified to the contrary.
11.12 Counterparts. This License Agreement may be executed in
------------
counterparts with the same force and effect as if each of the signatories had
executed the same instrument.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereunder have executed this License
Agreement as of this 30th day of August, 1995.
UNIQUE WIRELESS MILCOM INTERNATIONAL CORP.
DEVELOPMENTS, L.L.C.
BY: /s/ STEVEN E. FULFORD BY: /s/ ALFONSO G. CORDERO
----------------------- -----------------------
TITLE: PRESIDENT TITLE: CEO
-------------------- --------------------
16
<PAGE>
EXHIBIT A
Licensed Trademarks
The following trademarks of UWD are the Licensed Trademarks:
DC/MA
DCMA
DYNAMIC CHANNEL/MULTI-CARRIER ARCHITECTURE
17
<PAGE>
EXHIBIT B
Territory
The Territory shall consist of the following countries:
The entire world except those countries to which the Base Station Amplifier
Technology cannot be exported pursuant to U.S. Export Administration laws or
regulations.
18
<PAGE>
EXHIBIT 11.1
COMPUTATION OF PRO FORMA NET INCOME PER SHARE
<TABLE>
<CAPTION>
EPS CALCULATION AS OF 12/31/95
- ------------------------------
<S> <C> <C>
Shares issued and outstanding........... 8,998,650
Preferred shares converted upon IPO..... 5,063,850
-----------
Pro forma shares outstanding............ 14,062,500
Options issued within one year of IPO... 1,057,500
Proceeds................................ $ 3,013,050
Assumed buyback price................... $ 12.00
-----------
Shares bought back...................... 251,088
Common equivalent shares................ 806,412
-----------
Total weighted average Common Shares.... 14,868,912
Net income at December 31, 1995......... 4,480,036
-----------
Pro forma net income per share.......... $ 0.30
===========
<CAPTION>
EPS CALCULATION AS OF 6/30/96
- ----------------------------------------
<S> <C> <C>
Shares issued and outstanding........... 8,998,650
Preferred shares converted upon IPO..... 5,063,850
Pro forma shares outstanding............ 14,062,500
Options issues within one year of IPO... 1,057,500
Proceeds................................ $ 3,013,050
Assumed buyback price................... $ 12.00
-----------
Shares bought back...................... 251,088
Common equivalent shares................ 806,412
-----------
Total weighted average common shares.... 14,868,912
Net income at June 30, 1996............. 3,637,649
-----------
Proforma net income per share........... $ 0.25
===========
</TABLE>
<PAGE>
EXHIBIT 21.1
(Subsidiaries)
1. Milcom International V.I., Inc., the Virgin Islands
2. Milcom International, Inc., a Delaware corporation
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
To the Board of Directors and Shareholders of
Powerwave Technologies, Inc.
We consent to the use in this Registration Statement of Powerwave Technologies,
Inc. on Form S-1 of our report dated April 8, 1996 (except for paragraph 14 of
Note 2, for which the date is October __, 1996), appearing in the Prospectus,
which is a part of this Registration Statement, and to the references to us
under the heading "Selected Consolidated Financial Data" and "Experts" in such
Prospectus.
Our audits of the financial statements referred to in our aforementioned report
also included the financial statement schedule of Powerwave Technologies, Inc.,
listed in Item 16. This financial statement schedule is the responsibility of
the Company's management. Our responsibility is to express an opinion based on
our audits. In our opinion, such financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly,
in all material respects, the information set forth therein.
DELOITTE & TOUCHE LLP
Costa Mesa, California
October 8, 1996
