<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 11, 1996
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
LARSCOM INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C> <C>
DELAWARE 3661 94-2362692
(State or other jurisdiction (Primary standard industrial (I.R.S. Employer
of incorporation or classification code number) Identification
organization) No.)
</TABLE>
4600 PATRICK HENRY DRIVE
SANTA CLARA, CA 95054
(408) 988-6600
(Address, including zip code and telephone number, including area code, of
registrant's principal executive offices)
--------------------------
DEBORAH M. SOON
PRESIDENT AND CHIEF EXECUTIVE OFFICER
LARSCOM INCORPORATED
4600 PATRICK HENRY DRIVE
SANTA CLARA, CA 95054
(408) 988-6600
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
<TABLE>
<S> <C>
W. LESLIE DUFFY, ESQ. JEFFREY D. SAPER, ESQ.
CAHILL GORDON & REINDEL HOWARD S. ZEPRUN, ESQ.
80 PINE STREET WILSON SONSINI GOODRICH & ROSATI
NEW YORK, NY 10005 PROFESSIONAL CORPORATION
(212) 701-3000 650 PAGE MILL ROAD
PALO ALTO, CA 94304-1050
(415) 493-9300
</TABLE>
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the Registration Statement becomes effective.
--------------------------
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box. / /
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, other than securities offered only in connection with dividend or interest
reinvestment plans, 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. /X/
--------------------------
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
AMOUNT TO BE OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES TO BE REGISTERED REGISTERED(1) PER SHARE(2) PRICE(2) REGISTRATION FEE
<S> <C> <C> <C> <C>
Class A Common Stock
(par value $0.01 per share)................... 8,050,000 shares $14.00 $112,700,000 $34,152
</TABLE>
(1) Includes 1,050,000 shares of Class A Common Stock which the Underwriters
have the option to purchase to cover over-allotments, if any.
(2) Estimated solely for the purpose of calculating the registration fee
pursuant to Rule 457(a) under the Securities Act, as amended.
--------------------------
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.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
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.
<PAGE>
SUBJECT TO COMPLETION, DATED OCTOBER 11, 1996
7,000,000 SHARES
[LOGO]
CLASS A COMMON STOCK
OF THE 7,000,000 SHARES OF CLASS A COMMON STOCK OFFERED HEREBY, 5,800,000
SHARES ARE BEING SOLD BY LARSCOM INCORPORATED, A DELAWARE CORPORATION ("LARSCOM"
OR THE "COMPANY"), AND 1,200,000 SHARES ARE BEING SOLD BY AXEL JOHNSON INC., A
DELAWARE CORPORATION ("AXEL JOHNSON" OR THE "SELLING STOCKHOLDER"). THE COMPANY
WILL NOT RECEIVE ANY PROCEEDS FROM THE SALE OF SHARES BY THE SELLING
STOCKHOLDER. SEE "PRINCIPAL AND SELLING STOCKHOLDER" AND "RELATIONSHIP BETWEEN
THE COMPANY AND AXEL JOHNSON."
THE COMPANY'S COMMON STOCK CONSISTS OF CLASS A COMMON STOCK AND CLASS B
COMMON STOCK. THE RIGHTS, PREFERENCES AND PRIVILEGES OF EACH CLASS OF COMMON
STOCK ARE IDENTICAL IN ALL RESPECTS EXCEPT FOR VOTING RIGHTS. EACH SHARE OF
CLASS A COMMON STOCK ENTITLES ITS HOLDER TO ONE VOTE AND EACH SHARE OF CLASS B
COMMON STOCK ENTITLES ITS HOLDER TO FOUR VOTES FOR EACH SHARE OF CLASS A COMMON
STOCK INTO WHICH CLASS B COMMON STOCK IS CONVERTIBLE. THE CLASS B COMMON STOCK
IS CONVERTIBLE INTO CLASS A COMMON STOCK ON A SHARE-FOR-SHARE BASIS, SUBJECT TO
ADJUSTMENT FOR STOCK DIVIDENDS, STOCK SPLITS, SUBDIVISIONS OR COMBINATIONS. SEE
"PRINCIPAL AND SELLING STOCKHOLDER" AND "DESCRIPTION OF CAPITAL STOCK."
PRIOR TO THIS 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 CLASS A COMMON STOCK WILL BE BETWEEN $12.00 AND $14.00 PER SHARE. SEE
"UNDERWRITING" FOR A DISCUSSION OF THE FACTORS TO BE CONSIDERED IN DETERMINING
THE INITIAL PUBLIC OFFERING PRICE. THE COMPANY HAS APPLIED TO HAVE THE CLASS A
COMMON STOCK APPROVED FOR QUOTATION ON THE NASDAQ NATIONAL MARKET UNDER THE
SYMBOL "LARS."
PRIOR TO THIS OFFERING, AXEL JOHNSON OWNS 100% OF THE OUTSTANDING SHARES OF
THE COMPANY'S COMMON STOCK, AND UPON COMPLETION OF THIS OFFERING, WILL OWN 100%
OF THE COMPANY'S OUTSTANDING CLASS B COMMON STOCK, REPRESENTING 60.5% OF THE
TOTAL OUTSTANDING COMMON STOCK ON A SHARE-FOR-SHARE BASIS AND 85.9% OF THE TOTAL
VOTING POWER OF THE OUTSTANDING COMMON STOCK. SEE "PRINCIPAL AND SELLING
STOCKHOLDER" AND "RELATIONSHIP BETWEEN THE COMPANY AND AXEL JOHNSON."
SEE "RISK FACTORS" COMMENCING ON PAGE 7 FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY PROSPECTIVE PURCHASERS OF THE CLASS A COMMON STOCK
OFFERED HEREBY.
---------------------
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.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
PROCEEDS TO
PRICE TO UNDERWRITING PROCEEDS TO SELLING
PUBLIC DISCOUNT (1) COMPANY (2) STOCKHOLDER
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
PER SHARE................... $ $ $ $
TOTAL (3)................... $ $ $ $
- --------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------
</TABLE>
(1) SEE "UNDERWRITING" FOR INFORMATION CONCERNING INDEMNIFICATION OF THE
UNDERWRITERS AND OTHER MATTERS.
(2) BEFORE DEDUCTING EXPENSES PAYABLE BY THE COMPANY ESTIMATED AT $1,500,000.
(3) THE COMPANY AND THE SELLING STOCKHOLDER HAVE GRANTED TO THE UNDERWRITERS A
30-DAY OPTION TO PURCHASE UP TO 350,000 AND 700,000 ADDITIONAL SHARES OF
CLASS A COMMON STOCK, RESPECTIVELY, SOLELY TO COVER OVER-ALLOTMENTS, IF ANY.
IF THE UNDERWRITERS EXERCISE THIS OPTION IN FULL, THE PRICE TO PUBLIC WILL
TOTAL $ , THE UNDERWRITING DISCOUNT WILL TOTAL $ , THE PROCEEDS TO
COMPANY WILL TOTAL $ AND THE PROCEEDS TO SELLING STOCKHOLDER WILL TOTAL
$ . SEE "UNDERWRITING."
THE SHARES OF CLASS A COMMON STOCK ARE OFFERED BY THE SEVERAL UNDERWRITERS
NAMED HEREIN SUBJECT TO RECEIPT AND ACCEPTANCE BY THEM AND SUBJECT TO THEIR
RIGHT TO REJECT ANY ORDER IN WHOLE OR IN PART. IT IS EXPECTED THAT DELIVERY OF
THE CERTIFICATES REPRESENTING SUCH SHARES WILL BE MADE AGAINST PAYMENT THEREFOR
AT THE OFFICE OF MONTGOMERY SECURITIES ON OR ABOUT , 1996.
------------------------------
MONTGOMERY SECURITIES
COWEN & COMPANY
PUNK, ZIEGEL & KNOELL
, 1996
<PAGE>
[CHART]
Set forth here, under the title Global Internetworking Solutions, is a
full-page graphic representation of the networking functions, capabilities, and
interrelationships of Larscom's primary products. The Larscom wordmark appears
above the title at the top of the page. At the upper and lower center of the
diagram are two representations of clouds labeled Digital Network and ATM
Network, respectively. The Digital Network cloud represents public and/or
private wide area networks using circuit-based (i.e., time division
multiplexing, or TDM) digital transmission technologies including full and
fractional T1, E1, T3, and E3. The ATM Network cloud represents public and/or
private wide area networks using cell-based Asynchronous Transfer Mode (ATM)
digital transmission technologies. These are the two broad classes of networks
in which Larscom products are deployed.
Around the two network clouds are triangular and rectangular representations
of Larscom products, labeled Access-T45, Access-T, Orion 4000, Orion 4000/5,
Orion 400 Orion 800, and EtherSpan. On the outside of the product
representations (relative to the central clouds) are various labeled icons
representing network applications served by the Larscom products. Lines
interconnecting the network application icons and the Larscom product
representations indicate the physical connections between user and Larscom
equipment, and are labeled to indicate the type of connection. Lines
interconnecting the Larscom product representations and the network clouds
indicate the access connections between Larscom equipment and the wide area
networks, and are labeled to indicate the type of access facility.
The Larscom products represented at the top left and right of the diagram
are Access-T45 units. These are connected by a line labeled Clear Channel T3,
which passes through the Digital Network cloud. At each Access-T45, a host
computer is connected through channel extension equipment to the Access-T45 via
a HSSI connection and a router is connected to the Access-T45. This portion of
the diagram represents the multiplexing of two applications for end-to-end
telecommunication via a clear channel T3 link.
Below the Access-T45 on the left side of the diagram there are two Larscom
product representations connected directly to the network clouds: an Orion
4000/5, connected to the Digital Network cloud by three parallel lines
representing E1 facilities; and an Orion 4000, connected to the Digital Network
cloud by three parallel lines representing E1 facilities and one line
representing a T3 facility, and to the ATM Network cloud by one line
representing a T3 facility. Host computer, router, and video device icons with
connecting lines to the Orion 4000/5 represent the three applications served by
the Orion 4000/5; these applications telecommunicate with applications connected
to the Orion 4000 immediately below via the Digital Network, employing three E1
links. Applications served by the latter Orion 4000 include a multi-port router,
an ATM switch, a T1 PBX, and an aggregation of low-speed circuits multiplexed to
T1s by an Orion 800, as well as a host computer, a router, and a video device
multiplexed to T1s by an Orion 4000/5. A T3 connection to the ATM network cloud
represents the network link employed by the ATM switch; the other applications
are internetworked via the T3 and E1 connections to the Digital Network cloud.
Below the Access-T45 on the right side of the diagram are three Larscom
product representations connected directly to the network clouds: a Mega-T,
connected to the Digital Network cloud by four parallel lines representing
inverse-multiplexed T1 facilities; an Orion 4000, connected to the Digital
Network cloud by one line representing a T3 facility; and another Orion 4000,
connected to the ATM Network cloud by one line representing a T3 facility, and
connected to the Orion 4000 above by one line representing a private T3
facility. On the non-network side, the Mega-T is connected to an EtherSpan,
which serves a 10Base-T LAN connection represented by a line labeled 10Base-T;
another EtherSpan is shown connecting a labeled icon of a 10Base-T Ethernet
switch to the non-network side of the Orion 4000 below the Mega-T. These two
EtherSpan portions of the diagram represent remote LAN interconnection, with a
four-T1 channel providing the path through the Digital Network cloud between the
Mega-T and the Orion 4000. In addition to the EtherSpan-served remote LAN
connection, applications served by the Orion 4000 include a T1 PBX and an
aggregation of low-speed circuits multiplexed to T1s by an Orion 400, as well as
a PBX, a router, and a video device multiplexed to a T3 by the Orion 4000 in the
lower right corner of the diagram. All of the applications served by the former
Orion 4000 are multiplexed to a single T3 line for connection to the Digital
Network cloud; separation and distribution of the individual applications to
different sites (i.e., different Larscom products in the diagram) are performed
by switches and other devices within the fabric of the Digital Network. The
Orion 4000 in the lower right also supports an ATM switch via a UNI connection
on its non-network side. This ATM switch internetworks with the ATM switch at
the left side of the diagram via T3 connections and the ATM Network cloud.
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE CLASS A COMMON
STOCK OF THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE
OPEN MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY SHOULD BE READ IN CONJUNCTION WITH, AND IS QUALIFIED
IN ITS ENTIRETY BY, THE MORE DETAILED INFORMATION, INCLUDING "RISK FACTORS" AND
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO, APPEARING ELSEWHERE IN
THIS PROSPECTUS. AS USED IN THIS PROSPECTUS, THE TERMS "LARSCOM" AND THE
"COMPANY" INCLUDE LARSCOM INCORPORATED AND ITS SUBSIDIARY, UNLESS THE CONTEXT
OTHERWISE INDICATES. THE DISCUSSION IN THIS PROSPECTUS CONTAINS FORWARD-LOOKING
STATEMENTS WHICH INCLUDE RISKS AND UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS
COULD DIFFER MATERIALLY FROM THOSE DISCUSSED IN THIS PROSPECTUS. FACTORS THAT
COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE DISCUSSED IN THE
SECTIONS ENTITLED "RISK FACTORS," "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS," AS WELL AS THOSE
DISCUSSED ELSEWHERE IN THIS PROSPECTUS. UNLESS OTHERWISE INDICATED, THE
INFORMATION PRESENTED IN THIS PROSPECTUS ASSUMES (I) NO EXERCISE OF THE
UNDERWRITERS' OVER-ALLOTMENT OPTION, (II) THE AMENDMENT AND RESTATEMENT OF THE
COMPANY'S CERTIFICATE OF INCORPORATION PRIOR TO CONSUMMATION OF THIS OFFERING,
PURSUANT TO WHICH EACH OUTSTANDING SHARE OF COMMON STOCK SHALL BE CONVERTED INTO
1,190 SHARES OF CLASS B COMMON STOCK AND AN AGGREGATE OF 100,000,000 SHARES OF
CLASS A COMMON STOCK SHALL BE AUTHORIZED (THE "RECAPITALIZATION") AND (III) THE
CONVERSION BY AXEL JOHNSON OF 1,200,000 SHARES OF CLASS B COMMON STOCK INTO
1,200,000 SHARES OF CLASS A COMMON STOCK TO BE SOLD HEREUNDER. CERTAIN TECHNICAL
TERMS AND ACRONYMS USED IN THIS PROSPECTUS ARE DEFINED IN THE "GLOSSARY OF
TERMS" BEGINNING ON PAGE 57.
Larscom develops, manufactures and markets a broad range of high speed
global internetworking solutions for network service providers ("NSPs") and
corporate users. Larscom's products provide access to fractional T1, E1, T1/E1,
frame relay, fractional T3/E3, channelized T3 services and Clear Channel ATM
("CCA") inverse multiplexing, with clear channel T3, ISDN, IMA and ATM under
development. Larscom's newest families of products, the Orion 200 and Orion
4000, were designed with modular hardware and downloadable software to provide
the Company's customers with the flexibility to increase network capacity and
add services in a rapid and cost-effective manner. In the broadband market, for
example, the Orion 4000 is unique in its ability to accommodate both the
emerging cell-based ATM network connectivity and traditional circuit-based TDM
connectivity within the same architecture and to accommodate bandwidth needs
that range from a single T1 or E1 circuit to 155 Mbps.
The proliferation of personal computers, the increased demand for local area
networks ("LANs") that connect computing resources within an enterprise and the
increased demand for wide area networks ("WANs") that permit interconnection of
computing resources across wide geographic areas, have created dramatic growth
in the demand for capacity and high speed access. More recently, this demand has
been further fueled by the growth in Internet usage among both individuals and
businesses, as well as the emergence of more bandwidth-intensive applications
such as video and imaging. As such, NSPs and corporate users require equipment
that supports a broad range of services, operates reliably and consistently in
all major markets across the globe, and bridges the technology gap between
current circuit-based TDM technology and the emerging cell-based ATM
environment. Larscom addresses these needs with a broad range of products which
provide affordable network access for multiple speeds and standards.
The Company strives to be a global leader in providing flexible, dependable,
high speed internetworking solutions that allow its customers to connect high
speed applications economically across WANs and that enable NSPs to introduce
new services rapidly and economically. In order to achieve this objective, the
Company intends to expand relationships with major customers, to expand its
customer base by broadening distribution channels and to capitalize on its
innovative technology. The Company's expansion of its relationships with major
customers provides it with advanced insight into the evolving needs of
customers, which allows it to anticipate new technology requirements. The
Company also seeks to extend its market presence domestically through the
development of alternative distribution channels and to expand its international
sales and support organization to complement existing and new distribution
relationships. Furthermore, the Company seeks to build upon its strength in
technology innovation to ensure that its products remain in the forefront of the
broadband and digital access markets.
3
<PAGE>
The Company sells its products in the U.S. primarily through its direct
sales organization and through OEMs, value added resellers ("VARs") and systems
integrators. Internationally, the Company markets its products through
distribution arrangements with VARs and systems integrators. The Company
provides onsite services via arrangements with a number of service partners
worldwide and provides technical applications assistance as well as customer and
distributor product maintenance, installation and training. The Company's
customers principally consist of NSPs, Fortune 500 corporations, systems
integrators, VARs and federal, state and local government agencies. The
Company's largest customers include MCI, IBM/Advantis, UUNET and AT&T.
RELATIONSHIP WITH AXEL JOHNSON
Axel Johnson currently owns 100% of the Company's outstanding Common Stock.
Upon consummation of this Offering, assuming no exercise of the Underwriters'
over-allotment option, Axel Johnson will own 100% of the Company's outstanding
Class B Common Stock, representing 60.5% of the total outstanding Common Stock
on a share-for-share basis and 85.9% of the total voting power of the
outstanding Common Stock. Axel Johnson will not own any shares of Class A Common
Stock. See "Principal and Selling Stockholder." As a result of its ownership
interest, Axel Johnson will be able to control the vote on most matters
submitted to stockholders, including the election of directors and the approval
of extraordinary corporate transactions. The Company and Axel Johnson have
entered into a number of agreements for the purpose of defining their ongoing
relationship. While these agreements will continue to provide the Company with
certain services, the Company is only entitled to the ongoing assistance of Axel
Johnson for a limited time and it may not receive such services beyond the terms
of the agreements. See "Risk Factors--Control by and Relationship with Axel
Johnson," "--No Recent Independent Operating History" and "Relationship Between
the Company and Axel Johnson."
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Class A Common Stock offered by the Company.......... 5,800,000 shares
Class A Common Stock offered by the Selling
Stockholder........................................ 1,200,000 shares
Common Stock to be outstanding after this Offering:
Class A Common Stock............................... 7,000,000 shares (1)
Class B Common Stock............................... 10,700,000 shares
Total............................................ 17,700,000 shares (1)
Use of proceeds...................................... For repayment of $25.0 million of
indebtedness to the Selling
Stockholder and general corporate
purposes, including working capital.
The Company will not receive any of
the proceeds from the sale of Common
Stock by the Selling Stockholder.
See "Use of Proceeds."
Voting rights........................................ The Class A Common Stock and Class B
Common Stock vote as a single class
with respect to all matters
submitted to a vote of stockholders,
with each share of Class A Common
Stock entitled to one vote and each
share of Class B Common Stock
entitled to four votes for each
share of Class A Common Stock into
which Class B Common Stock is
convertible. The Class B Common
Stock is convertible into Class A
Common Stock on a share-for-share
basis, subject to adjustment for
stock dividends, stock splits,
subdivisions or combinations.
Proposed Nasdaq National Market symbol............... LARS
</TABLE>
- ------------------------
(1) Excludes (i) 205,000 shares of Class A Common Stock reserved for issuance
pursuant to the Stock Option Plan for Non-Employee Directors, of which
options to purchase an aggregate of 36,000 shares shall be granted upon
consummation of this Offering and no other options are outstanding, (ii)
2,485,000 shares of Class A Common Stock reserved for issuance pursuant to
the Stock Incentive Plan, of which options to purchase an aggregate of
1,300,000 shares shall be granted upon consummation of this Offering and no
other options are outstanding, and of which 23,555 shares of Class A Common
Stock will be issued upon consummation of this Offering to officers of the
Company in connection with the termination of the Company's participation in
the Selling Stockholder's existing long-term incentive plan and (iii)
310,000 shares of Class A Common Stock reserved for issuance pursuant to the
Stock Purchase Plan, none of which has been issued to date. See
"Management."
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues................................................. $ 39,035 $ 36,550 $ 48,663 $ 23,198 $ 30,624
Gross profit............................................. 24,046 21,513 27,516 13,547 16,864
Income from operations................................... 4,148 1,425 4,611 2,147 4,324
Net income............................................... 2,295 661 2,529 1,179 2,506
Pro forma net income per share (1)....................... $ 0.18 $ 0.18
Shares used to compute pro forma
net income per share (1)............................... 14,013 14,013
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------------
PRO FORMA
AS ADJUSTED
ACTUAL PRO FORMA (2) (3)
--------- -------------- --------------
<S> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)........................................... $ 13,889 $ (11,111) $ 57,511
Total assets........................................................ 31,959 31,959 75,581
Note payable to Axel Johnson........................................ -- 25,000 --
Total stockholders' equity (deficit)................................ 20,742 (4,258) 64,364
</TABLE>
- ------------------------
(1) See Note 1 of Notes to the Consolidated Financial Statements for an
explanation of the determination of shares used to compute pro forma net
income per share.
(2) Pro forma at June 30, 1996 reflects the declaration in August 1996 of the
$25.0 million dividend to Axel Johnson. See "Capitalization."
(3) Adjusted to reflect the receipt of the estimated net proceeds from the sale
of 5,800,000 shares of Class A Common Stock offered by the Company hereby at
an assumed initial public offering price of $13.00 per share and the payment
of the $25.0 million note payable to Axel Johnson. See "Use of Proceeds" and
"Capitalization."
------------------------
The Company was originally incorporated in California on January 16, 1970
and was reincorporated in Delaware on June 13, 1989. The principal executive
offices of the Company are located at 4600 Patrick Henry Drive, Santa Clara,
California 95054, and the Company's telephone number is (408) 988-6600.
6
<PAGE>
RISK FACTORS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH BELOW AND
ELSEWHERE IN THIS PROSPECTUS. IN ADDITION TO THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, THE FOLLOWING FACTORS SHOULD BE CAREFULLY CONSIDERED IN
EVALUATING THE COMPANY'S BUSINESS BEFORE PURCHASING SHARES OF CLASS A COMMON
STOCK OFFERED HEREBY.
NO RECENT INDEPENDENT OPERATING HISTORY
The Company has been a wholly-owned subsidiary of Axel Johnson since 1987
and, accordingly, has had no recent independent operating history. Following
this Offering, the Company will be required to further develop financial,
management, administrative and other resources previously provided by Axel
Johnson which are necessary to operate successfully as an independent public
company. Although the Company and Axel Johnson have entered into several
agreements that are intended to ease the Company's transition to an independent
public company, there can be no assurance that the Company will be able to
manage this transition or to develop these independent resources successfully.
Although the Company will have access, subject to certain conditions, to a $15.0
million credit facility provided by Axel Johnson, there can be no assurance that
alternative sources of financing will be available upon the expiration or
termination of such facility or that additional sources of funding will be
available on terms favorable to the Company if the Company's borrowing
requirements exceed the amount of the facility. See "--Control by and
Relationship with Axel Johnson" and "Relationship Between the Company and Axel
Johnson."
FLUCTUATIONS IN QUARTERLY OPERATING RESULTS; ABSENCE OF SIGNIFICANT BACKLOG
The Company's operating results have fluctuated significantly in the past
and may fluctuate in the future on a quarterly and annual basis as a result of a
number of factors, many of which are beyond the Company's control. In 1995, the
Company experienced a shift in the purchasing behavior of its customers which
resulted in higher second and third quarter sales relative to fourth quarter
sales. These purchasing patterns and resulting cyclicality could continue in the
future. Moreover, the Company's sales historically have been concentrated in a
small number of customers. Therefore, sales for a given quarter may depend to a
significant degree upon product shipments to a limited number of customers.
Sales to individual large customers are often related to the customer's specific
equipment deployment projects, the timing of which are subject to change on
limited notice. The Company has experienced both acceleration and slowdown in
orders related to such projects, causing changes in the sales level of a given
quarter relative to both the preceding and subsequent quarters. For example,
since 1994 sales to MCI, IBM/Advantis, AT&T and other current customers have
occasionally varied by $1.0 million or more from quarter to quarter. Since most
of the Company's sales are in the form of large orders with short delivery times
to a limited number of customers, the Company's ability to predict revenues is
limited. In addition, announcements by the Company or its competitors of new
products and technologies could cause customers to defer purchases of the
Company's existing products. In the event that anticipated orders from major
customers fail to materialize, or delivery schedules are deferred or canceled as
a result of the above factors or other unanticipated factors, the Company's
business and operating results could be materially adversely affected. As a
result, the Company believes that period-to-period comparisons of its operating
results are not necessarily meaningful and should not be relied upon as
indicative of future performance.
The Company's backlog at any point in time is typically limited.
Accordingly, sales in any quarter are largely dependent on orders received
during that quarter. Furthermore, the Company's agreements with its customers
typically provide that they may change delivery schedules and cancel orders
within specified timeframes, typically up to 30 days prior to the scheduled
shipment date, without penalty. The Company's customers have in the past built,
and may in the future build, significant inventory in order to facilitate more
rapid deployment of anticipated major projects or for other reasons. Decisions
by such customers to
7
<PAGE>
reduce their inventory levels could lead to reductions in purchases from the
Company. Therefore, customer decisions to delay delivery, cancel orders or
reduce purchases could have a material adverse effect on the Company's business
and operating results.
The Company's gross margin is affected by a number of factors, including
product mix, product pricing, cost of components and manufacturing costs. For
example, a price reduction of a particular product in response to competitive
pressure which is not offset by a reduction in production costs or by sales of
other products with higher gross margins would decrease the Company's overall
gross margin and could have a material adverse effect on the Company's business
and operating results. The Company's anticipated increase in overall spending in
future periods in order to pursue new market opportunities may also affect
operating margins. The Company establishes its expenditure levels for product
development and other operating expenses based on projected sales levels and
margins, however, expenses are relatively fixed in the short term. Accordingly,
if sales are below expectations in any given period, the adverse impact of the
revenue shortfall on the Company's operating results may be greater due to the
Company's inability to adjust spending in the short term to compensate for the
shortfall.
Results in any period could also be affected by changes in market demand,
competitive market conditions, market acceptance of new or existing products,
the cost and availability of components, the mix of the Company's customer base
and sales channels, the mix of products sold, sales promotion activities by the
Company, the Company's ability to expand its sales and marketing organization
effectively, the Company's ability to attract and retain key technical and
managerial employees and general economic conditions. Due to all of the
foregoing factors, the Company's operating results in one or more future periods
may be subject to significant fluctuations. In the event this results in the
Company's financial performance being below the expectations of public market
analysts and investors, the price of the Company's Class A Common Stock could be
materially adversely affected. See "--Customer Concentration," "--Dependence on
Component Availability and Key Suppliers" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CONTROL BY AND RELATIONSHIP WITH AXEL JOHNSON
Upon consummation of this Offering, the Company's capital stock will consist
of Class A Common Stock and Class B Common Stock. Holders of Class A Common
Stock are entitled to one vote per share and holders of Class B Common Stock are
entitled to four votes per share, subject to adjustment. The Class B Common
Stock is convertible into Class A Common Stock on a share-for-share basis,
subject to adjustment. Upon the consummation of this Offering, Axel Johnson will
own 100% of the outstanding Class B Common Stock and none of the outstanding
Class A Common Stock. As a result, Axel Johnson will have sufficient voting
power to control the direction and policies of the Company, including mergers,
consolidations, the sale of all or substantially all of the assets of the
Company and the election of the Board of Directors of the Company, and to
prevent or cause a change in control of the Company. Such control may have the
effect of discouraging certain types of transactions involving an actual or
potential change of control of the Company, including transactions in which the
holders of Class A Common Stock might otherwise receive a premium for their
shares over the then-current market price. See "Principal and Selling
Stockholder" and "Description of Capital Stock."
Historically, the Company has derived certain benefits from being a
subsidiary of Axel Johnson. Effective upon the consummation of this Offering,
the relationship between the Company and Axel Johnson will be defined pursuant
to several transitional agreements. Because of the complexity of the various
agreements between the Company and Axel Johnson, there can be no assurance that
such agreements, or the transactions provided for therein, will be effected on
terms at least as favorable to the Company as could have been obtained from
unaffiliated third parties. While these agreements will continue to provide the
Company with certain benefits, the Company is only entitled to the ongoing
assistance of Axel Johnson for a limited time and it may not enjoy benefits from
its relationship with Axel Johnson beyond the term of the agreements, including
benefits derived from Axel Johnson's reputation
8
<PAGE>
and credit support. There can be no assurance that the Company, upon termination
of such assistance from Axel Johnson, will be able to develop such services
internally or to obtain arrangements from third parties to replace such services
upon favorable terms, if at all. See "--No Recent Independent Operating History"
and "Relationship Between the Company and Axel Johnson."
BENEFIT OF TRANSACTION TO EXISTING STOCKHOLDER
This Offering will provide substantial benefits to the existing stockholder
of the Company, Axel Johnson. Axel Johnson will benefit from the sale of
approximately $15.6 million of Class A Common Stock in this Offering, based upon
an assumed initial public offering price of $13.00 per share. In addition, the
Company will use approximately $25.0 million of its net proceeds from this
Offering to repay indebtedness to Axel Johnson. Axel Johnson will also benefit
from the creation of a public market for the Class A Common Stock into which the
Class B Common Stock held by it after consummation of this Offering is
convertible. Upon the closing of this Offering, the shares of Class A Common
Stock into which the Class B Common Stock then held by Axel Johnson would be
convertible, will have an aggregate market value of approximately $139.1
million, based upon an assumed initial public offering price of $13.00 per share
of Class A Common Stock. See "Relationship Between the Company and Axel
Johnson."
CERTAIN ANTI-TAKEOVER EFFECTS
Upon consummation of this Offering, 60.5% of the outstanding Common Stock
owned and 85.9% of the outstanding voting power will be controlled by Axel
Johnson (55.4% and 83.3%, respectively, if the Underwriters' over-allotment
option is exercised in full). Voting control by Axel Johnson may discourage
certain types of transactions involving an actual or potential change of control
of the Company, including transactions in which the holders of the Company's
Class A Common Stock might receive a premium for their shares over the
prevailing market price of the Class A Common Stock. In addition, the authorized
but unissued capital stock of the Company includes 5,000,000 shares of preferred
stock (the "Preferred Stock"). The Board of Directors is authorized to provide
for the issuance of Preferred Stock in one or more series and to fix the
designations, preferences, powers and relative, participating, optional or other
rights and restrictions thereof. Accordingly, the Company may issue a series of
Preferred Stock in the future that will have preference over the Common Stock
with respect to the payment of dividends and upon liquidation, dissolution or
winding up or which could otherwise adversely affect holders of the Common Stock
or discourage or make difficult any attempt to obtain control of the Company.
See "--Control By and Relationship with Axel Johnson," "Description of Capital
Stock--Preferred Stock" and "Principal and Selling Stockholder."
CUSTOMER CONCENTRATION
A small number of customers has accounted for a majority of the Company's
revenues in each of the past several years. In the six months ended June 30,
1996, MCI and IBM/Advantis accounted for 21.5% and 12.3% of the Company's
revenues, respectively, and the Company's top five customers accounted for 50.6%
of the Company's revenues. In 1995, MCI and IBM/Advantis accounted for 17.9% and
13.7% of the Company's revenues, respectively, and the Company's top five
customers accounted for 48.1% of the Company's revenues. The Company's customers
are not contractually obligated to purchase any quantity of products in any
particular period, and product sales to major customers have varied widely from
quarter to quarter and year to year. There can be no assurance that the
Company's current customers will continue to place orders with the Company, that
orders by existing customers will continue at the levels of previous periods or
that the Company will be able to obtain orders from new customers. Loss of, or a
material reduction in orders by, one or more of the Company's major customers
could have a material adverse effect on the Company's business and operating
results. See "--Fluctuations in Quarterly Operating Results; Absence of
Significant Backlog," "Management's Discussion and Analysis of Financial
Condition and Results of Operations," "Business--Customers" and "--Marketing and
Sales."
9
<PAGE>
DEPENDENCE ON RECENTLY INTRODUCED PRODUCTS AND PRODUCTS UNDER DEVELOPMENT
The Company's future operating results are highly dependent on continuing
market acceptance of the Company's newest products, particularly in the
broadband area. Broadband products represented 24.5% of revenues in the six
months ended June 30, 1996 and are expected to continue to increase as a
percentage of overall revenues. There can be no assurance that these products or
any future products will continue to achieve widespread market acceptance. In
addition, the Company has in the past experienced delays in the development of
new products and the enhancement of existing products, and such delays may occur
in the future. The Company's potential inability to develop and introduce new
products or versions in a timely manner, due to resource constraints or
technological or other reasons, or to achieve timely and widespread market
acceptance of its new products or releases could have a material adverse effect
on the Company's business and operating results.
COMPETITION
The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the future in both broadband and
digital access markets. In the broadband market, the Company competes primarily
with Digital Link, ADC Kentrox, RAD Data Communications and OnStream Networks
(for which an acquisition by 3Com was recently announced). In the digital access
market, the Company competes against traditional CSU/DSU vendors, such as ADC
Kentrox, Verilink and Digital Link, and relatively newer entrants to the market
such as ADTRAN and TxPort. The Company believes that its ability to compete
successfully depends upon a number of factors, including timely development of
new products and features, product quality and performance, price, announcements
by competitors, experienced sales, marketing and service organizations and
evolving industry standards. The Company believes that it generally competes
favorably in these areas. However, certain competitors have more broadly
developed distribution channels and are further along in certain emerging
technologies, such as ATM and SONET. In addition, the Company's digital access
products could be adversely affected by the integration of WAN functionality
into switches and routers, by the entry of LAN equipment vendors into the
Company's markets, or by the requirement for alternate methods of performance
monitoring for services such as frame relay. There can be no assurance that the
Company will be able to continue to compete successfully with existing or new
competitors. See "Business--Competition."
RISKS ASSOCIATED WITH ENTRY INTO INTERNATIONAL MARKETS
The Company has had minimal sales to international customers to date, and
has had little experience in international markets. The Company is seeking to
expand its presence outside the U.S., which will require significant management
attention and financial resources. The conduct of business outside the U.S. is
subject to certain risks, including unexpected changes in regulatory
requirements and tariffs, difficulties in staffing and managing foreign
operations, longer payment cycles, greater difficulty in accounts receivable
collection, currency fluctuations, expropriation and potentially adverse tax
consequences. In addition, in order to sell its products internationally, the
Company must meet standards established by telecommunications authorities in
various countries, as well as recommendations of the International
Telecommunications Union. A delay in obtaining, or the failure to obtain,
certification of its products in countries outside the U.S. could deny or
preclude the Company's marketing and sales efforts in such countries, which
could have a material adverse effect on the Company's business and operating
results. See "Business-- Marketing and Sales" and "--Strategy."
MANAGEMENT OF EXPANDING OPERATIONS
The growth in the Company's business has placed a significant strain on the
Company's personnel, management and other resources, and is expected to continue
to do so. In order to manage any future expansion effectively, the Company must
attract, train, motivate and manage new employees successfully, integrate new
management and employees into its overall operations and continue to improve its
10
<PAGE>
operational, financial and management systems, particularly as the Company
transitions from services provided to date by Axel Johnson. Availability of
qualified sales and technical personnel is limited, and competition for
experienced sales and technical personnel in the telecommunications equipment
industry is intense. Moreover, the Company expects to increase significantly the
size of its domestic and international sales support staff and expand the scope
of its sales and marketing activities. The Company's failure to manage any
expansion effectively, including the above factors, could have a material
adverse effect on the Company's business and operating results. See "--Control
by and Relationship with Axel Johnson," "--Dependence on Key Personnel" and
"Business--Strategy."
DEPENDENCE ON KEY PERSONNEL
The Company's future success will depend to a large extent on the continued
contributions of its executive officers and key management, sales and technical
personnel. The Company's executive officers and key management, sales and
technical personnel would be difficult to replace. The Company also believes
that its future success will depend in large part on its ability to attract and
retain additional key employees. Competition for such personnel in the
telecommunications equipment industry is intense, and there can be no assurance
that the Company will be successful in attracting and retaining such personnel.
The loss of the services of one or more of the Company's executive officers or
key personnel or the inability to continue to attract qualified personnel could
delay product development cycles or otherwise have a material adverse effect on
the Company's business and operating results. See "Business-- Employees" and
"Management."
DEPENDENCE ON COMPONENT AVAILABILITY AND KEY SUPPLIERS
On-time delivery of the Company's products depends upon the availability of
components and subsystems used in its products. The Company depends upon its
suppliers to manufacture, assemble and deliver components in a timely and
satisfactory manner. The Company obtains several components and licenses certain
embedded software from single sources. The Company generally does not have any
long-term contracts with such suppliers. There can be no assurance that these
suppliers will continue to be able and willing to meet the Company's
requirements. Any significant interruption in the supply or degradation in the
quality of any such item could have a material adverse effect on the Company's
business and operating results.
Purchase orders from the Company's customers frequently require delivery
quickly after placement of the order. The Company maintains a supply of finished
goods inventories at its manufacturing facility, as well as safety stocks of
critical components, in order to respond quickly to customer needs. However,
there can be no assurance that interrupted or delayed supplies of key components
will not occur which could have a material adverse effect on the Company's
business and operating results. The Company uses internal forecasts to determine
its general materials and components requirements. Lead times for materials and
components may vary significantly, and depend on factors such as specific
supplier performance, contract terms and general market demand for components.
If orders vary from forecasts, the Company may experience excess or inadequate
inventory of certain materials and components. From time to time, the Company
has experienced shortages and supplier allocations of certain components,
resulting in delays in fulfillment of customer orders. Such shortages and
allocations could have a material adverse effect on the Company's business and
operating results. See "--Fluctuations in Quarterly Operating Results; Absence
of Significant Backlog," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Business--Manufacturing and Quality
Assurance."
RAPID TECHNOLOGICAL CHANGE
The telecommunications equipment industry is characterized by rapidly
changing technologies and frequent new product introductions. The rapid
development of new technologies increases the risk that current or new
competitors could develop products that would reduce the competitiveness of the
Company's products. The Company's success will depend to a substantial degree
upon its ability to respond
11
<PAGE>
to changes in technology and customer requirements. This will require the timely
selection, development and marketing of new products and enhancements on a
cost-effective basis. There can be no assurance that the Company will be
successful in developing, introducing or managing the transition to new or
enhanced products or that any such products will be responsive to technological
changes or will gain market acceptance. If the Company were to be unsuccessful
or to incur significant delays in developing and introducing such new products
or enhancements, the Company's business and operating results could be
materially adversely affected. See "--Dependence on Recently Introduced Products
and Products Under Development" and "Business--Research and Development."
COMPLIANCE WITH REGULATIONS AND EVOLVING INDUSTRY STANDARDS
The market for the Company's products is characterized by the need to meet a
significant number of communications regulations and standards, some of which
are evolving as new technologies are deployed. In the U.S., the Company's
products must comply with various regulations defined by the Federal
Communications Commission and standards established by Underwriters
Laboratories, as well as industry standards established by various
organizations. As standards for new services such as ATM evolve, the Company may
be required to modify its existing products or develop and support new versions
of its products. The failure of the Company's products to comply, or delays in
compliance, with the various existing and evolving industry standards could
delay introduction of the Company's products, which in turn could have a
material adverse effect on the Company's business and operating results.
Government regulatory policies are likely to continue to have a major impact
on the pricing of existing as well as new public network services and therefore
are expected to affect demand for such services and the telecommunications
products that support such services. For example, tariff rates, whether
determined by NSPs or in response to regulatory directives, may affect the cost
effectiveness of deploying communication services. Such policies may also affect
demand for telecommunications equipment, including the Company's products.
RISKS ASSOCIATED WITH POTENTIAL ACQUISITIONS
An important element of the Company's strategy is to review acquisition
prospects that would complement its existing product offerings, augment its
market coverage, enhance its technological capabilities or offer growth
opportunities. The Company has no current agreements or negotiations underway
with respect to any such acquisitions. Future acquisitions by the Company could
result in potentially dilutive issuances of equity securities and/or the
incurrence of debt and the assumption of contingent liabilities, any of which
could have a material adverse effect on the Company's business and operating
results and/or the price of the Company's Class A Common Stock. In this regard,
as a result of the ownership interest of Axel Johnson in the Company, the
Company will not be able to use pooling of interests accounting for any future
acquisition. Accordingly, such acquisitions could result in amortization of
goodwill and other charges (including the immediate write-off of purchased
research and development in process) typically associated with purchase
accounting. Acquisitions entail numerous risks, including difficulties in the
assimilation of acquired operations, technologies and products, diversion of
management's attention to other business concerns, risks of entering markets in
which the Company has limited or no prior experience and potential loss of key
employees of acquired organizations. The Company's management has limited prior
experience in assimilating acquired organizations. No assurance can be given as
to the ability of the Company to successfully integrate any businesses,
products, technologies or personnel that might be acquired in the future, and
the failure of the Company to do so could have a material adverse effect on the
Company's business and operating results. See "Use of Proceeds" and
"Business--Strategy."
MANAGEMENT'S DISCRETION AS TO USE OF UNALLOCATED NET PROCEEDS
The Company has designated only limited specific uses, other than general
corporate and working capital purposes, for the net proceeds of this Offering.
After repayment of indebtedness to the Selling
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<PAGE>
Stockholder, an aggregate of $43.6 million of net proceeds will be available for
general corporate purposes, including working capital and capital expenditures,
as well as potential acquisitions. Consequently, the Board of Directors and
management of the Company will have broad discretion in the use of a significant
portion of the net proceeds of this Offering. See "Use of Proceeds."
RISK OF THIRD-PARTY CLAIMS OF INFRINGEMENT
The telecommunications equipment industry is characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies that are important to the Company. In addition, since patent
applications in the U.S. are not publicly disclosed until the patent is issued,
applications may have been filed by competitors of the Company which could
relate to the Company's products. The Company may receive communications from
third parties in the future asserting that the Company's products infringe or
may infringe on the proprietary rights of such third parties. In its
distribution agreements, the Company typically agrees to indemnify its customers
for any expenses or liabilities, resulting from claimed infringements of
patents, trademarks or copyrights of third parties. In the event of litigation
to determine the validity of any third-party claims, such litigation, whether or
not determined in favor of the Company, could result in significant expense to
the Company and divert the efforts of the Company's technical and management
personnel. In the event of an adverse ruling in such litigation, the Company
might be required to discontinue the use and sale of infringing products, expend
significant resources to develop non-infringing technology or obtain licenses
from third parties. There can be no assurance that licenses from third parties
would be available on acceptable terms, if at all. A successful claim against
the Company and the failure of the Company to develop or license a substitute
technology could have a material adverse effect on the Company's business and
operating results. See "Business--Proprietary Rights."
LIMITED PROTECTION OF INTELLECTUAL PROPERTY; PROPRIETARY INFORMATION
The Company relies upon a combination of trade secrets, contractual
restrictions, copyrights, trademark laws and patents to establish and protect
proprietary rights in its products and technologies. Although the Company has
been issued only one U.S. patent to date, it believes that the success of its
business depends primarily on its proprietary technology, information and
processes and know-how, rather than patents. Much of the Company's proprietary
information and technology is not patented and may not be patentable. There can
be no assurance that the Company will be able to protect its technology or that
competitors will not be able to develop similar technology independently. The
Company has entered into confidentiality and invention assignment agreements
with all of its employees, and enters into non-disclosure agreements with its
suppliers, distributors and appropriate customers so as to limit access to and
disclosure of its proprietary information. There can be no assurance that these
statutory and contractual arrangements will deter misappropriation of the
Company's technologies or discourage independent third-party development of
similar technologies. In the event such arrangements are insufficient, the
Company's business and operating results could be materially adversely affected.
See "Business--Proprietary Rights."
NO PRIOR MARKET; STOCK PRICE VOLATILITY
Prior to this Offering, there has been no public market for the Company's
Common Stock. The initial public offering price will be determined by
negotiations among the Company, the Selling Stockholder and the representatives
of the Underwriters. There can be no assurance that an active public market for
the Class A Common Stock will develop or be sustained after this Offering or
that the market price of the Class A Common Stock will not decline below the
initial public offering price. The trading price of the Company's Class A Common
Stock could be subject to wide fluctuations in response to quarter to quarter
variations in operating results, announcements of technological innovations or
new products by the Company or its competitors, developments with respect to
patents or proprietary rights, general conditions
13
<PAGE>
in the telecommunications industry, changes in earnings estimates by analysts,
or other events or factors. In addition, the stock market has experienced
extreme price and volume fluctuations which have particularly affected the
market prices of many technology companies and which have often been unrelated
to the operating performances of such companies. The Company's revenues or
operating results in future quarters may be below the expectations of public
market securities analysts and investors. In such event, the price of the
Company's Class A Common Stock would likely decline, perhaps substantially.
These Company-specific factors or broad market fluctuations may materially
adversely affect the market price of the Company's Class A Common Stock. See
"--Fluctuations in Quarterly Operating Results; Absence of Significant Backlog"
and "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Class A Common Stock (including shares
issuable upon conversion of outstanding Class B Common Stock) in the public
market after this Offering may materially adversely affect prevailing market
prices for the Class A Common Stock and could impair the Company's ability to
raise capital in the future through the sale of its equity securities. Upon the
consummation of this Offering, the Company will have 7,023,555 shares of Class A
Common Stock and 10,700,000 shares of Class B Common Stock outstanding. Of these
shares, 7,000,000 shares of Class A Common Stock offered hereby will be freely
tradeable without restriction under the Securities Act of 1933, as amended (the
"Securities Act"). The remaining 23,555 shares of Class A Common Stock and
10,700,000 shares of Class B Common Stock are "restricted shares" within the
meaning of the Securities Act (the "Restricted Shares") and will be eligible for
sale in the public market beginning 180 days and 240 days, respectively, after
the date of this Prospectus, pursuant to Rule 144 ("Rule 144") promulgated under
the Securities Act and the expiration of certain lock-up agreements entered into
between the Underwriters and the holders of such Restricted Shares. Of such
Restricted Shares, 10,700,000 shares of Class B Common Stock will be subject to
certain volume limitations and other resale restrictions pursuant to Rule 144.
In addition, the Company intends to file a Registration Statement on Form S-8
("Form S-8") under the Securities Act after the effective date of this Offering
to register 3,000,000 shares of Class A Common Stock issuable upon the exercise
of stock options or stock purchase rights to be granted under the Company's
stock plans, which includes 23,555 shares of Class A Common Stock issued in
connection with the termination of the Company's participation in the Selling
Stockholder's existing long-term incentive plan. Such shares of Class A Common
Stock issued pursuant to these plans after the effective dates of registration
statements will be available for sale in the public market, subject to
expiration of the lock-up agreements with the Underwriters. Furthermore,
pursuant to the terms of a registration rights agreement, the holders of
10,700,000 shares of Class B Common Stock has demand and/or incidental, or
"piggyback," registration rights, permitting such holder, in the case of demand
registration rights, to request on three occasions (subject to certain
limitations) that such shares be registered for resale under the Securities Act
at the Company's expense, in certain registration statements filed by the
Company. No prediction can be made as to the effect, if any, that sales of
shares of Class A Common Stock (including Class A Common Stock issuable on
conversion of Class B Common Stock) or even the availability of such shares for
sale will have on the market prices prevailing from time to time. See "Shares
Eligible for Future Sale" and "Underwriting."
DILUTION TO PURCHASERS IN OFFERING
Purchasers of the Class A Common Stock will experience immediate and
substantial dilution in net tangible book value per share of the Class A Common
Stock from the initial public offering price per share. See "Dilution."
NO ANTICIPATED DIVIDENDS
The Company does not anticipate paying dividends in the foreseeable future.
See "Dividend Policy."
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<PAGE>
USE OF PROCEEDS
The net proceeds from the sale of the Class A Common Stock offered hereby,
after deducting estimated offering expenses and the underwriting discount
payable by the Company, are estimated to be approximately $68.6 million.
The Company will use $25.0 million of such proceeds to repay indebtedness
owed to Axel Johnson under a promissory note, which currently bears interest at
7.5% per annum. The balance of the net proceeds will be used for general
corporate purposes, including working capital. A portion of such proceeds may
also be used for acquisitions of complementary technologies or businesses,
although no negotiations for such transactions are currently in process. See
"Risk Factors--Management's Discretion as to Use of Unallocated Net Proceeds"
and "Relationship Between the Company and Axel Johnson."
DIVIDEND POLICY
The Company currently intends to retain its earnings to finance future
growth and therefore does not anticipate paying any cash dividends in the
foreseeable future. The declaration and payment of dividends, if any, will be
subject to the discretion of the Company's Board of Directors and will depend on
the Company's earnings, capital requirements, financial condition, statutory
restrictions and other factors deemed to be relevant by the Board of Directors.
See "Risk Factors--No Anticipated Dividends."
15
<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of the Company as of June
30, 1996 (i) after giving effect to the Recapitalization, (ii) on a pro forma
basis to reflect a $25.0 million dividend declared to the Selling Stockholder in
August 1996 and (iii) on a pro forma as adjusted basis to reflect the sale by
the Company and the Selling Stockholder of the 5,800,000 and 1,200,000 shares,
respectively, of Class A Common Stock offered hereby and the receipt and
application by the Company of the estimated net proceeds therefrom (after
deducting the underwriting discount and estimated offering expenses at an
assumed initial public offering price of $13.00, including the payment of the
$25.0 million note payable to Axel Johnson). The capitalization information set
forth in the table below is qualified by the more detailed Consolidated
Financial Statements and Notes thereto appearing elsewhere in this Prospectus
and should be read in conjunction with such Consolidated Financial Statements
and Notes.
<TABLE>
<CAPTION>
JUNE 30, 1996
-----------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
--------- ----------- -----------
(IN THOUSANDS, EXCEPT SHARE DATA)
<S> <C> <C> <C>
Note payable to Selling Stockholder............................................ $ -- $ 25,000 $ --
Stockholders' equity:
Preferred Stock, $0.01 par value; 5,000,000 shares authorized; no shares
issued and outstanding, actual, pro forma and pro forma as adjusted........ -- -- --
Class A Common Stock, $0.01 par value; 100,000,000 shares authorized; no
shares issued and outstanding, actual and pro forma; and 7,000,000 shares
issued and outstanding, pro forma as adjusted (1).......................... -- -- 70
Class B Common Stock, $0.01 par value; 11,900,000 shares authorized;
11,900,000 shares issued and outstanding, actual and pro forma; and
10,700,000 shares issued and outstanding, pro forma as adjusted (2)........ 119 119 107
Additional paid-in capital................................................... 13,171 13,171 81,735
Retained earnings (accumulated deficit)...................................... 7,452 (17,548) (17,548)
--------- ----------- -----------
Total stockholders' equity (deficit)....................................... 20,742 (4,258) 64,364
--------- ----------- -----------
Total capitalization..................................................... $ 20,742 $ 20,742 $ 64,364
--------- ----------- -----------
--------- ----------- -----------
</TABLE>
- ------------------------
(1) Excludes (i) 205,000 shares of Class A Common Stock reserved for issuance
pursuant to the Stock Option Plan for Non-Employee Directors, of which
options to purchase an aggregate of 36,000 shares shall be granted upon
consummation of this Offering and no other options are outstanding, (ii)
2,485,000 shares of Class A Common Stock reserved for issuance pursuant to
the Stock Incentive Plan, of which options to purchase an aggregate of
1,300,000 shares shall be granted upon consummation of this Offering and no
other options are outstanding, and of which 23,555 shares of Class A Common
Stock will be issued upon consummation of this Offering to officers of the
Company in connection with the termination of the Company's participation in
the Selling Stockholder's existing long-term incentive plan and (iii)
310,000 shares of Class A Common Stock reserved for issuance pursuant to the
Stock Purchase Plan, none of which has been issued to date. See
"Management."
(2) Reflects the conversion by the Selling Shareholder of 1,200,000 shares of
Class B Common Stock into 1,200,000 shares of Class A Common Stock
immediately prior to this Offering.
16
<PAGE>
DILUTION
The pro forma net tangible book value (deficit) of the Company's Common
Stock at June 30, 1996, after giving effect to the $25.0 million dividend to the
Selling Stockholder was $(4.3) million, or $(0.36) per share. Pro forma net
tangible book value (deficit) per share represents the amount of total tangible
assets less total liabilities, divided by the number of shares of Common Stock
outstanding. After giving effect to the sale by the Company of 5,800,000 shares
of Class A Common Stock offered hereby (at an assumed initial public offering
price of $13.00 per share and after deduction of estimated underwriting
discounts and estimated offering expenses payable by the Company), the Company's
pro forma net tangible book value at June 30, 1996 would have been $64.4
million, or $3.64 per share of Common Stock. This represents an immediate
dilution in net tangible book value of $9.36 per share to new investors
purchasing shares in this Offering. Dilution is determined by subtracting pro
forma net tangible book value per share after this Offering from the amount of
cash paid by a new investor for a share of Class A Common Stock. The following
table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share............................. $ 13.00
Pro forma net tangible book value (deficit) per share before
Offering........................................................... $ (0.36)
Increase per share attributable to new investors.................... 4.00
---------
Pro forma net tangible book value per share after Offering.......... 3.64
---------
Dilution per share to new investors................................. $ 9.36
---------
---------
</TABLE>
The following table sets forth, on a pro forma basis at June 30, 1996, the
number of shares of Common Stock purchased from the Company, the total
consideration paid and the average price per share paid by the Selling
Stockholder and by new public investors calculated based on the assumptions set
forth in the preceding paragraph (assuming the sale by the Company of 5,800,000
shares at a price of $13.00 per share, before deduction of underwriting discount
and offering expenses payable by the Company):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
------------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------------ ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C>
Selling Stockholder................ 11,900,000(1) 67.2% $ 13,290,000(2) 15.0% $ 1.12
New public investors............... 5,800,000 32.8 75,400,000 85.0 13.00
------------ ----- ------------- -----
Total........................ 17,700,000 100.0 % $ 88,690,000 100.0 %
------------ ----- ------------- -----
------------ ----- ------------- -----
</TABLE>
- ------------------------
(1) The conversion of 1,200,000 shares of Class B Common Stock into, and the
subsequent sale of, 1,200,000 shares of Class A Common Stock in this
Offering by the Selling Stockholder will reduce the number of shares held by
the Selling Stockholder to 10,700,000 shares of Class B Common Stock or
60.5% of the total number of shares of Common Stock to be outstanding after
this Offering, and will increase the number of shares held by new public
investors to 7,000,000 shares of Class A Common Stock or 39.5% of the total
number of shares of Common Stock to be outstanding after this Offering. See
"Principal and Selling Stockholder."
(2) Does not reflect the $25.0 million dividend declared to the Selling
Stockholder.
17
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated statement of operations data for the
three years in the period ended December 31, 1995 and the consolidated balance
sheet data as of December 31, 1994 and 1995 have been derived from the Company's
Consolidated Financial Statements, included elsewhere in this Prospectus, which
have been audited by Price Waterhouse LLP, independent accountants. The selected
consolidated statement of operations data for the years ended December 31, 1991
and 1992 and for the six months ended June 30, 1995 and the selected
consolidated balance sheet data as of December 31, 1991, 1992 and 1993 and June
30, 1996 have been derived from unaudited consolidated financial statements of
the Company. The unaudited consolidated financial statements have been prepared
on a basis consistent with the Company's audited financial statements and, in
the opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary to present fairly the Company's consolidated
financial position and results of operations for the periods presented. The
historical results are not necessarily indicative of future operating results.
The data set forth below is qualified by reference to, and should be read in
conjunction with, "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements and the
related Notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
----------------------------------------------------- ----------------------
1991 1992 1993 1994 1995 1995 1996
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Revenues.................................... $ 27,529 $ 33,502 $ 39,035 $ 36,550 $ 48,663 $ 23,198 $ 30,624
Cost of revenues............................ 13,393 13,654 14,989 15,037 21,147 9,651 13,760
--------- --------- --------- --------- --------- --------- -----------
Gross profit............................ 14,136 19,848 24,046 21,513 27,516 13,547 16,864
--------- --------- --------- --------- --------- --------- -----------
Operating expenses:
Research and development.................. 3,508 5,458 6,269 6,703 7,143 3,756 3,631
Selling, general and administrative....... 9,725 11,752 13,629 13,385 15,762 7,644 8,909
--------- --------- --------- --------- --------- --------- -----------
Total operating expenses................ 13,233 17,210 19,898 20,088 22,905 11,400 12,540
--------- --------- --------- --------- --------- --------- -----------
Income from operations...................... 903 2,638 4,148 1,425 4,611 2,147 4,324
Interest income............................. -- 2 -- 9 3 3 --
--------- --------- --------- --------- --------- --------- -----------
Income before income taxes.................. 903 2,640 4,148 1,434 4,614 2,150 4,324
Provision for income taxes.................. 544 1,260 1,853 773 2,085 971 1,818
--------- --------- --------- --------- --------- --------- -----------
Net income.................................. $ 359 $ 1,380 $ 2,295 $ 661 $ 2,529 $ 1,179 $ 2,506
--------- --------- --------- --------- --------- --------- -----------
--------- --------- --------- --------- --------- --------- -----------
Pro forma net income per share (1).......... $ 0.18 $ 0.18
Shares used to compute pro forma
net income per share (1).................. 14,013 14,013
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, ----------------------
----------------------------------------------------- PRO
1991 1992 1993 1994 1995 ACTUAL FORMA(2)
--------- --------- --------- --------- --------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Working capital (deficit)................... $ 5,528 $ 6,426 $ 7,620 $ 7,520 $ 8,605 $ 13,889 $ (11,111)
Note payable to Axel Johnson................ -- -- -- -- -- -- 25,000
Total assets................................ 16,889 18,670 19,526 21,772 25,739 31,959 31,959
Total stockholders' equity (deficit)........ 11,372 12,757 15,046 15,707 18,236 20,742 (4,258)
</TABLE>
- ------------------------
(1) See Note 1 of Notes to the Consolidated Financial Statements for an
explanation of the determination of shares used to compute pro forma net
income per share.
(2) Pro forma at June 30, 1996 reflects the declaration in August 1996 of the
$25.0 million dividend to Axel Johnson. See "Capitalization."
18
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
OVERVIEW
Over the past several years, Larscom has transitioned its business from
supplying single purpose T1 and fractional T1 ("FT1") wide area network customer
premises equipment ("CPE") to Fortune 500 corporations, to providing high speed
network access platform solutions predominantly to network service providers
("NSPs"). From 1986 through 1991, Larscom engaged primarily in the development,
marketing and support of T1 CSU/DSUs and T1 diagnostic equipment. In October
1991, the Company acquired T3 Technologies Inc. ("T3T"), a broadband products
company. The first broadband products developed by Larscom after the acquisition
of T3T were the Access-T45, one of the first T3 DSUs, and the Mega-T, the first
multiple T1 inverse multiplexer. Since then, the Company has invested
significant resources in developing a suite of broadband capabilities for the
Orion 4000 platform. Sales related to the Company's broadband
products--Access-T45, EtherSpan, Mega-T and Orion 4000--represented 11.8% and
24.6% of total revenues in 1995 and the six months ended June 30, 1996,
respectively. The Company believes that sales of broadband products, including
recently developed modules, will represent an increasing percentage of future
sales. See "Risk Factors--Dependence on Recently Introduced Products and
Products Under Development."
A small number of customers, consisting of NSPs and resellers, have
accounted for a majority of the Company's revenues in each of the past several
years. Sales to the Company's top five customers accounted for 41.0%, 48.1%, and
50.6% of revenues in 1994, 1995 and the six months ended June 30, 1996,
respectively. Sales to NSPs and resellers are often difficult to forecast due to
a relatively long sales cycle and acceleration or delays in the timing of
specific projects for which the NSP or reseller is acquiring equipment. The
Company has experienced fluctuations in both annual and quarterly revenues due
to the timing of receipt of customer orders as well as decisions from time to
time by major customers to cease marketing, purchasing and reselling the
Company's products. For example, from 1993 to 1994, the Company experienced
revenue shortfall when three of the Company's larger customers significantly
reduced their order rates of T1 CSUs and DSUs. The decrease in revenues from
1993 to 1994 was also due to the sale of one of the Company's product lines.
Since the Company continues to have significant sales to a small number of
customers, similar sales fluctuations may occur in the future. In addition,
starting in 1994, the Company experienced and may continue to experience price
pressures in its digital access product line, which resulted and may continue to
result in decreasing gross margins. See "Risk Factors-- Customer Concentration"
and "--Fluctuations in Quarterly Operating Results; Absence of Significant
Backlog".
The Company sells its products primarily through a direct sales force and to
a lesser extent through a variety of resellers, including OEMs, VARs, systems
integrators and distributors. Sales outside the U.S. have not been significant
to date.
19
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth the percentage of revenues represented by
certain items in the Company's consolidated statement of operations for the
periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEARS ENDED DECEMBER 31,
JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues............................................................... 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues....................................................... 38.4 41.1 43.5 41.6 44.9
--------- --------- --------- --------- ---------
Gross margin......................................................... 61.6 58.9 56.5 58.4 55.1
--------- --------- --------- --------- ---------
Operating expenses:
Research and development............................................. 16.1 18.4 14.6 16.2 11.9
Selling, general and administrative.................................. 34.9 36.6 32.4 32.9 29.1
--------- --------- --------- --------- ---------
Total operating expenses......................................... 51.0 55.0 47.0 49.1 41.0
--------- --------- --------- --------- ---------
Income before income taxes............................................. 10.6 3.9 9.5 9.3 14.1
Provision for income taxes............................................. 4.7 2.1 4.3 4.2 5.9
--------- --------- --------- --------- ---------
Net income............................................................. 5.9% 1.8% 5.2% 5.1% 8.2%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
SIX MONTHS ENDED JUNE 30, 1996 COMPARED TO SIX MONTHS ENDED JUNE 30, 1995
REVENUES. Revenues increased 32.0% to $30.6 million in the six months ended
June 30, 1996 from $23.2 million in the six months ended June 30, 1995. The
increase in revenues reflected increased sales across the Company's product
lines, particularly sales of broadband products such as the Access-T45 and Orion
4000 to NSPs. Sales to NSPs increased to 59.7% of revenues in the six months
ended June 30, 1996 from 51.2% of revenues in the six months ended June 30,
1995. Sales to the top five customers represented 50.6% and 50.8% of revenues
for the periods ended June 30, 1996 and 1995, respectively.
GROSS PROFIT. As a percentage of revenues, gross profit declined to 55.1%
in the six months ended June 30, 1996 from 58.4% in the six months ended June
30, 1995. This decrease was primarily the result of lower average unit selling
prices of digital access products, partially offset by increased sales of higher
margin broadband products. The Company is continuing to seek to increase
broadband product sales and to reduce costs of its broadband products as well as
of its digital access products. There can be no assurance that such efforts will
be sufficient to offset the expected continued decline in the average selling
prices of digital access products.
RESEARCH AND DEVELOPMENT. Research and development expenses remained
relatively flat in the six months ended June 30, 1996 compared to the six months
ended June 30, 1995. As a percentage of revenues, research and development
expenses declined to 11.9% in the six months ended June 30, 1996 from 16.2% in
the six months ended June 30, 1995 due to increased unit sales. The Company
believes that a continued commitment to research and development, in particular
to broadband products and emerging technologies in response to customer demands,
will be required to remain competitive. Accordingly, the Company is increasing
its engineering staff and anticipates that its research and development expenses
will increase in absolute dollars.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 16.5% to $8.9 million in the six months ended June 30, 1996
from $7.6 million in the six months ended June 30, 1995. As a percentage of
revenues, selling, general and administrative expenses declined to 29.1% in the
six months ended June 30, 1996 from 32.9% in the six months ended June 30, 1995.
The increase in absolute dollars was due to additional personnel costs
associated with expansion of the Company's sales and marketing resources, as
well as higher selling expenses associated with higher revenues. Selling,
general
20
<PAGE>
and administrative expenses included the amortization of goodwill of
approximately $237,000 and $494,000 for the six months ended June 30, 1996 and
1995, respectively, related to the acquisition of Larscom by Axel Johnson in
1987 and the acquisition of T3T by Larscom in 1991. Goodwill relating to these
acquisitions will be fully amortized by September 1996. Selling, general and
administrative expenses also include a charge from Axel Johnson for legal,
accounting, tax, treasury and administrative services. Axel Johnson will
continue to provide these services subsequent to this Offering for a
transitional period. See "Relationship Between the Company and Axel Johnson."
For the six months ended June 30, 1996 and 1995, these charges were
approximately $264,000 and $275,000, respectively. The Company anticipates
selling, general and administrative expenses to increase in absolute dollars in
the future as a result of the Company's continued investments in the expansion
of its sales, service and support organizations and development of its
distribution channels, particularly outside the United States, as well as the
legal, accounting, human resources and administrative expenses associated with
being a public company.
PROVISION FOR INCOME TAXES. The effective tax rates of 42.0% and 45.2% for
the six months ended June 30, 1996, and 1995, differed from the federal
statutory rates as a result of non-deductible goodwill amortization and state
taxes, offset in part by research and development tax credits. The effective tax
rate decreased in the six months ended June 30, 1996 as the non-deductible items
constituted a relatively lower percentage of pre-tax income during that period.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO THE YEAR ENDED DECEMBER 31, 1994
REVENUES. Revenues increased 33.1% to $48.7 million in 1995 from $36.6
million in 1994. This increase was primarily due to an increase in digital
access product unit sales. Broadband product unit sales increased to a lesser
extent. Sales to NSPs increased to 47.5% of revenues in 1995 from 40.5% of
revenues in 1994. Sales to the top five customers represented 48.1% and 41.0% of
revenues in 1995 and 1994, respectively.
GROSS PROFIT. As a percentage of revenues, gross margin declined to 56.5%
in 1995 from 58.9% in 1994. This decrease was due primarily to price pressures
in the digital access market, partially offset by the increase in sales of
higher gross profit broadband products.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$7.1 million in 1995 from $6.7 million in 1994. Research and development efforts
in 1995 continued to focus on broadband products and technologies. The increase
was primarily due to higher costs associated with development of the broadband
product line. As a percentage of revenues, research and development expenses
decreased to 14.6% in 1995 from 18.3% in 1994 due to increased unit sales.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 17.8% to $15.8 million in 1995 from $13.4 million in 1994. As
a percentage of revenues, selling, general and administrative expenses declined
to 32.4% in 1995 from 36.6% in 1994. The increase in absolute dollars was due to
the additional personnel and increased incentive compensation costs required to
generate and support an increased sales force. Selling, general and
administrative expenses each year include the amortization of goodwill of
approximately $1.0 million. Selling, general and administrative expenses also
included charges by Axel Johnson of $549,000 and $526,000 in 1995 and 1994,
respectively.
PROVISION FOR INCOME TAXES. The effective tax rates of 45.2% in 1995 and
53.9% in 1994 differed from the federal statutory rates as a result of
non-deductible goodwill amortization and state taxes, offset in part by research
and development tax credits. The effective tax rate decreased in 1995 as the
non-deductible items constituted a relatively lower percentage of pre-tax income
during that period.
YEAR ENDED DECEMBER 31, 1994 COMPARED TO THE YEAR ENDED DECEMBER 31, 1993
REVENUES. The Company's revenues declined 6.4% to $36.6 million in 1994
from $39.0 million in 1993. This decrease was primarily the result of a decline
in revenues from the sales of digital access
21
<PAGE>
products as well as the sale of the Company's analog alarm product line in 1993.
The decline in digital access product revenues was primarily the result of a
reduction in orders from certain major customers, one of which reduced unit
purchases due to completion of its internal network and the others of which
commenced production of their own digital access products. This decline was
partially offset by an increase in broadband product revenues. Sales to the
Company's top five customers in 1994 and 1993 were 41.0% and 38.3% of revenues,
respectively.
GROSS PROFIT. As a percentage of revenues, gross profit declined to 58.9%
in 1994 from 61.6% in 1993, primarily due to lower average selling prices of
digital access products.
RESEARCH AND DEVELOPMENT. Research and development expenses increased to
$6.7 million in 1994 from $6.3 million in 1993 due to increased costs associated
with the development of the broadband product line. As a percentage of revenues,
research and development expenses increased to 18.4%, from 16.1% in 1993, as a
result of the decline in revenues.
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses remained relatively flat in 1994, decreasing $244,000 to $13.4 million.
As a percentage of revenues, selling, general and administrative expenses
increased to 36.6% in 1994 from 34.9% in 1993. The decrease in absolute dollars
was due to lower incentive compensation associated with lower revenues, offset
by the additional costs associated with high turnover as well as with the
increased salaries required to attract qualified personnel into the sales
organization. Selling, general and administrative expenses include the
amortization of goodwill of approximately $1.0 million. Selling, general and
administrative expenses also included charges by Axel Johnson of $526,000 and
$491,000 in 1994 and 1993, respectively.
PROVISION FOR INCOME TAXES. The effective tax rates of 53.9% in 1994 and
44.7% in 1993 differed from the federal statutory rates as a result of
non-deductible goodwill amortization and state taxes, offset in part by research
and development tax credits. The effective tax rate increased in 1994 as the
non-deductible items constituted a relatively higher percentage of pre-tax
income during that period.
22
<PAGE>
QUARTERLY RESULTS OF OPERATIONS
The following tables present the Company's consolidated results of
operations for each of the last six quarters and the percentage relationship of
certain items to revenues for the respective periods. The information for each
of these quarters is prepared on the same basis as the audited Consolidated
Financial Statements of the Company appearing elsewhere in this Prospectus. In
the opinion of management, all necessary adjustments (consisting only of normal
recurring adjustments) have been included to present fairly the unaudited
consolidated 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 quarterly results of operations are not
necessarily indicative of the results for future quarters.
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
--------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C>
Revenues........................................ $ 10,458 $ 12,740 $ 13,456 $ 12,009 $ 11,848 $ 18,776
Cost of revenues................................ 4,208 5,443 5,861 5,635 5,426 8,334
--------- --------- --------- --------- --------- ---------
Gross profit.................................. 6,250 7,297 7,595 6,374 6,422 10,442
--------- --------- --------- --------- --------- ---------
Operating expenses:
Research and development...................... 1,876 1,880 1,791 1,596 1,756 1,875
Selling, general and administrative........... 3,658 3,986 4,124 3,994 4,060 4,849
--------- --------- --------- --------- --------- ---------
Total operating expenses.................. 5,534 5,866 5,915 5,590 5,816 6,724
--------- --------- --------- --------- --------- ---------
Income from operations.......................... 716 1,431 1,680 784 606 3,718
Interest income................................. 3 -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Income before income taxes...................... 719 1,431 1,680 784 606 3,718
Provision for income taxes...................... 325 646 759 355 255 1,563
--------- --------- --------- --------- --------- ---------
Net income...................................... $ 394 $ 785 $ 921 $ 429 $ 351 $ 2,155
--------- --------- --------- --------- --------- ---------
--------- --------- --------- --------- --------- ---------
</TABLE>
<TABLE>
<CAPTION>
QUARTERS ENDED
----------------------------------------------------------------------------
MAR. 31, JUNE 30, SEPT. 30, DEC. 31, MAR. 31, JUNE 30,
1995 1995 1995 1995 1996 1996
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Revenues................................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of revenues......................... 40.2 42.7 43.6 46.9 45.8 44.4
----------- ----------- ----------- ----------- ----------- -----------
Gross margin........................... 59.8 57.3 56.4 53.1 54.2 55.6
----------- ----------- ----------- ----------- ----------- -----------
Operating expenses:
Research and development............... 17.9 14.7 13.3 13.3 14.8 10.0
Selling, general and administrative.... 35.0 31.3 30.6 33.3 34.3 25.8
----------- ----------- ----------- ----------- ----------- -----------
Total operating expenses........... 52.9 46.0 43.9 46.6 49.1 35.8
----------- ----------- ----------- ----------- ----------- -----------
Income before income taxes............... 6.9 11.3 12.5 6.5 5.1 19.8
Provision for income taxes............... 3.1 5.1 5.7 2.9 2.1 8.3
----------- ----------- ----------- ----------- ----------- -----------
Net income............................... 3.8% 6.2% 6.8% 3.6% 3.0% 11.5%
----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- -----------
</TABLE>
23
<PAGE>
The Company's operating results have fluctuated significantly in the past
and may fluctuate in the future on a quarterly and annual basis as a result of a
number of factors, many of which are beyond the Company's control.
In 1995, the Company experienced a shift in the purchasing behavior of its
customers which resulted in higher second and third quarter sales relative to
fourth quarter sales. These purchasing patterns and resulting cyclicality could
continue in the future. Moreover, the Company's sales historically have been
concentrated in a small number of customers. Therefore, sales for a given
quarter may depend to a significant degree upon product shipments to a limited
number of customers. Sales to individual large customers are often related to
the customer's specific equipment deployment projects, the timing of which is
subject to change on limited notice. The Company has experienced both
acceleration and slowdown in orders related to such projects, causing changes in
the sales level of a given quarter relative to both the preceding and subsequent
quarters. For example, since 1994 sales to MCI, IBM/Advantis, AT&T and other
current customers have occasionally varied by $1.0 million or more from quarter
to quarter. Since most of the Company's sales are in the form of large orders
with short delivery times to a limited number of customers, the Company's
ability to predict revenues is limited. In addition, announcements by the
Company or its competitors of new products and technologies could cause
customers to defer purchases of the Company's existing products. In the event
that anticipated orders from major customers fail to materialize, or delivery
schedules are deferred or canceled as a result of the above factors or other
unanticipated factors, the Company's business and operating results could be
materially and adversely affected.
The Company's backlog at the beginning of each quarter typically is limited.
Accordingly, sales in any quarter are largely dependent on orders received in
that quarter. Customer decisions to delay delivery, cancel or reduce its
purchases could cause fluctuations in the Company's operating results and could
have a material adverse effect on the Company's business and operating results
in the period.
The Company's revenues increased sequentially in the first three quarters of
1995 and decreased in the fourth quarter of 1995 and first quarter of 1996, for
the reasons outlined above. Revenues increased significantly in the second
quarter of 1996 primarily as a result of increased sales to the Company's
largest NSP customers. Revenues in the third quarter of 1996 are expected to be
relatively flat as compared to revenues in the second quarter, as the Company
believes that the rate of growth in the second quarter was unusually high.
Gross margins declined throughout 1995 due to pricing pressures in the
digital access market. On a quarterly basis, from the fourth quarter of 1995
through the second quarter of 1996, gross margins increased due to higher margin
broadband sales. The pricing pressure in the digital access market has continued
on a quarterly basis in 1996 and is expected to continue. The Company is
continuing to seek to increase broadband product sales and to reduce costs of
its broadband products as well as of its digital access products. There can be
no assurance that such efforts will be sufficient to offset the decreases in the
average unit selling prices of the digital access products.
Research and development expenses remained relatively flat from the first
quarter of 1995 to the third quarter of 1995 and decreased in the fourth quarter
due primarily to lower material costs related to the development of certain
modules of the Orion 4000. The increase in research and development expenses in
the first two quarters of 1996 was due primarily to certification costs as well
as an increase in personnel. The Company expects that its research and
development expenses will continue to increase in absolute dollars. Selling,
general and administrative expenses have fluctuated from quarter to quarter as a
result of incentive compensation associated with the fluctuation in quarterly
revenues and increased personnel to generate and support the higher level of
revenues. Selling, general and administrative expenses are expected to increase
in absolute dollars in the future for the reasons outlined above.
Due to all of the foregoing factors, the Company's operating results in one
or more future periods may be subject to significant fluctuations. In the event
this results in the Company's financial performance
24
<PAGE>
being below the expectations of public market analysts and investors, the price
of the Company's Class A Common Stock could be materially adversely affected.
The Company believes that period-to-period comparisons of its operating results
are not neccessarily meaningful and should not be relied upon as indicative of
future performance.
LIQUIDITY AND CAPITAL RESOURCES
Since its acquisition by Axel Johnson in 1987, the Company has met its
operating and capital requirements primarily from cash flow from operations and
advances from Axel Johnson.
The Company's operating activities generated $4.0 million in cash in 1995,
primarily as a result of net income, offset by increases in accounts receivable
and inventories. Operating activities consumed $1.6 million in cash in the six
months ended June 30, 1996, as a result of increased accounts receivable and
inventories, partially offset by an increase in accounts payable.
At June 30, 1996, the Company had $13.9 million working capital including
$32,000 of cash. Upon completion of this Offering, the Company will have an
aggregate of $43.7 million in cash, based on balances at June 30, 1996 and the
expected application of the net proceeds of this Offering. In addition, the
Company has a revolving line of credit for up to $15.0 million from Axel
Johnson. See "Relationship Between the Company and Axel Johnson--Credit
Agreement."
The Company's working capital was $7.5 million at December 31, 1994, $8.6
million at December 31, 1995 and $13.9 million at June 30, 1996. The increase in
working capital principally reflects the higher levels of receivables and
inventories resulting from the higher revenues, offset by higher payables and
accrued expenses. Capital expenditures in 1995 and the six months ended June 30,
1996 were $2.1 million and $1.2 million, respectively. These expenditures were
principally for the acquisitions of computers, software and test equipment. The
Company expects capital expenditures to increase over the next several years as
it expands its operations.
The Company believes that the net proceeds from this Offering, together with
the Company's line of credit and funds generated from operations, will provide
adequate liquidity to meet the Company's operating and capital requirements at
least through 1997. However, there can be no assurance that future events, such
as the potential use of cash to fund acquisitions, will not require the Company
to seek additional capital at an earlier date or, if so required, that adequate
capital will be available on terms acceptable to the Company, or at all.
25
<PAGE>
BUSINESS
THIS PROSPECTUS CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF THE FEDERAL SECURITIES LAWS. ACTUAL RESULTS AND THE TIMING OF CERTAIN
EVENTS COULD DIFFER MATERIALLY FROM THOSE PROJECTED IN THE FORWARD-LOOKING
STATEMENTS DUE TO A NUMBER OF FACTORS, INCLUDING THOSE SET FORTH UNDER "RISK
FACTORS" AND ELSEWHERE IN THIS PROSPECTUS.
Larscom develops, manufactures and markets a broad range of high speed
global internetworking solutions for NSPs and corporate users. Larscom's
products provide access to fractional T1, E1, T1/E1, frame relay, fractional
T3/E3, channelized T3 services and CCA inverse multiplexing, with clear channel
T3, ISDN, IMA and ATM under development. Larscom's newest families of products,
the Orion 200 and Orion 4000, were designed with modular hardware and
downloadable software to provide the Company's customers with the flexibility to
increase network capacity and add services in a rapid and cost-effective manner.
INDUSTRY OVERVIEW
The proliferation of personal computers and the continuing need of users to
disseminate and share information, oftentimes across an enterprise and from
remote locations, have created increased demand for both LANs which connect
computing resources within an enterprise and WANs which permit interconnection
across wide geographic areas. As networks extend beyond the enterprise and reach
around the world, demand for WAN capacity and higher speed WAN access has grown
dramatically. More recently, this demand has been further fueled by the growth
in Internet usage among both individuals ("consumer use") and businesses, as
well as the emergence of more bandwidth-intensive applications such as video and
imaging.
The increased demand for WAN speed and capacity has been accompanied by
increased complexity in available network services. In addition to dedicated
56/64 kbps and T1/FT1 services, both private and public frame relay, ISDN basic
rate and primary rate and ATM are available. This large variety of services has
also been coupled with an esclation in the variety and complexity of LAN
technology (10 Mbps Ethernet, 100 Mbps Ethernet, FDDI, switched Ethernet and
Gigabit Ethernet). ATM, in particular, adds complexity to network demands. As an
alternative to current circuit-based (or TDM) services, ATM is a new cell-based
service which allows corporate users and NSPs to combine all types of
traffic--data, voice, video and image--across the same network. ATM is expected
to become more widely available as standards evolve. Since it utilizes
cell-based technology rather than traditional circuit-based TDM technology, ATM
poses significant network hardware and software challenges. To date, ATM has
been deployed in local area and campus network environments, as some
corporations have elected to base their next generation network architecture on
ATM. Although NSPs have yet to use the technology widely to transport ATM
traffic, they have used ATM as a backbone technology to offer other services
such as frame relay.
As a result of both the increased demand for WAN capacity and the complexity
and continuing evolution of service offerings, businesses have been
transitioning from the use of private WANs dedicated to individual businesses to
greater use of public WANs maintained by NSPs. As this transition occurs, NSPs
are being asked to provide an increasing variety of transmission services and
network management services. In addition, corporate users in many cases are
requiring NSPs to assume full responsibility for operation and monitoring of the
network and to guarantee certain levels of service.
NSPs and corporate users require equipment that supports higher bandwidth
than provided by common T1 and E1 services. In addition, NSPs and corporate
users increasingly are seeking a solution that bridges the technology gap by
providing connectivity to both the currently ubiquitous TDM network environment
and the emerging ATM environment without requiring that one technology be
dropped in favor of the other. Moreover, many businesses need to operate on a
global basis with networks that cross international boundaries. Furthermore,
NSPs and corporate users require the ability to add more services
26
<PAGE>
and high speed applications in a rapid and affordable manner. Accordingly, NSPs
and corporate users require telecommunications equipment that supports a broad
range of services and that will operate reliably, flexibly and consistently in
all the required countries. The complexity and variety of services and products
have prompted both NSPs and corporate users alike to consolidate their
purchasing activity by using fewer vendors who offer reliable and affordable
equipment throughout the world.
WAN services are expected to continue to exhibit rapid growth, which in
turn, should result in increased demand for broadband and digital access
products. According to industry analysts, T1 and T3 service connections are
projected to grow at compounded annual growth rates ("CAGR") of approximately
11% and 27%, respectively, between 1995 and 1999. During the same period, the
number of business Internet users is projected to grow at a CAGR of
approximately 19%. Also, during the same period, frame relay service is expected
to grow at a CAGR of approximately 73% and ATM services are expected to grow at
a CAGR of 99%, but from a much smaller base.
THE LARSCOM SOLUTION
The Company's broad range of product offerings provides access to both ATM
and TDM services across a variety of international standards at speeds ranging
from 56 kbps to 155 Mbps. The Company's products have modular architectures that
simplify the provisioning of new services by NSPs and lower the cost for large
corporate users of obtaining additional bandwidth.
BRIDGING THE TECHNOLOGY GAP. To address the gap between emerging and
existing technologies, in particular between ATM and TDM, the Company has
developed a broad range of network communications products that provide its
corporate customers with reliable and flexible network access. The Company
offers its NSP customers easily deployable, well managed solutions to provision
new network services quickly. In the broadband market, for example, the Orion
4000 is unique in its ability to accommodate both ATM and TDM network
connectivity within the same multiplexing architecture. The Orion 4000 can also
accommodate bandwidth needs that range from a single T1 or E1 circuit to 155
Mbps.
BRIDGING THE BANDWIDTH GAP. Through its Mega-T and Orion 4000 products,
Larscom pioneered the use of multiple T1 and E1 inverse multiplexing, which
enables users to achieve higher bandwidth capacity than offered by a single T1
line, thereby bridging the bandwidth gap between T1 and T3. Fractional T3
service, provided in this manner, allows the NSP to leverage the existing
T1-based infrastructure and provides the corporate user with ready access to
affordable and ubiquitous high speed bandwidth.
SCALEABILITY AND MODULARITY. The Company has incorporated flexibility and
modularity into its products as network complexity and bandwidth increase, as
industry standards evolve and as NSPs and corporate users seek to meet multiple
needs. The Company's upgradeable software and plug-in modules enable NSPs to add
services rapidly and cost-effectively as demand changes and industry standards
evolve.
RELIABILITY AND QUALITY. The Company has earned a strong reputation for the
quality of its products, as well as its responsive service. The Company's
products are manufactured to meet the highest standards of reliability and
quality, including intensive system level testing in development and
manufacturing. Larscom has responded to its customers' needs by providing
telecommunications equipment that operates reliably and consistently across the
globe. Orion 200 and Orion 4000 platforms are designed, tested and certified for
use in major international markets. The Company was the first in its industry
segment to become ISO 9001 certified and was among the first companies in
California to receive this certification.
CUSTOMER SERVICE AND SUPPORT. The Company offers real-time service and
support through various stages of the customer relationship. The Company's
service and support function begins by working closely with customers at the
product definition and design stage. To meet its customers' unpredictable
purchasing patterns, the Company's sales and operations departments are
organized to respond quickly to short lead-time orders. Finally, Larscom
provides post-sale service and support of its products through technical
consulting, installation assistance and maintenance.
27
<PAGE>
STRATEGY
Larscom's objective is to be a global leader in providing flexible,
dependable high speed internetworking solutions that allow its customers to
connect high speed applications economically across WANs and to enable NSPs to
introduce new service offerings rapidly and economically. The key elements of
the Company's strategy are as follows:
EXPAND RELATIONSHIPS WITH MAJOR CUSTOMERS. The Company seeks to capitalize
on the strong relationships it has with NSPs and other telecommunication
leaders, including major companies such as AT&T, MCI, IBM/Advantis, MFS
Communications and UUNET. These relationships provide the Company with advanced
insight into the evolving needs of customers and allow the Company to anticipate
new technology requirements. The Orion 200 and Orion 4000 product families were
designed specifically to meet the demands of its major customers. Both product
families provide solutions that accommodate legacy services and equipment, as
well as emerging ATM and other high speed customer networking applications.
Additionally, the Company's major customers prefer to purchase the majority of
their network access solutions from a single vendor. The Company seeks to
capitalize on these purchasing patterns by continuing to broaden and enhance its
current product lines, as well as to develop next generation broadband and
digital access products.
EXPAND CUSTOMER BASE BY BROADENING DISTRIBUTION CHANNELS. The Company seeks
to continue the expansion of its customer base through both direct and alternate
distribution channels. Developments in broadband and digital access platforms
will continue to be handled by a direct sales organization experienced in
systems-level sales. Additionally, the Company seeks to extend its market reach
to the Fortune 2000 corporations in the U.S. through the development of
alternate distribution channels and supporting services. In international
markets, the Company is seeking to develop partnerships with international NSPs
and to develop its own sales and support organization to complement existing
distributor relationships.
CAPITALIZE ON INNOVATIVE TECHNOLOGY. The Company seeks to build upon its
strength in technology innovation, complemented by its intimate knowledge of its
customers, to ensure that Larscom's products remain in the forefront of the
broadband and digital access markets. In the broadband market, the Company has
pioneered both fractional T3 and, with the Orion 4000, integrated ATM and TDM
technologies. In the digital access market, the Company has introduced the Orion
200 family of products to address the need to serve U.S. T1 lines and
international E1 lines and to accommodate T1/E1 conversion. The early
participation of the Company's engineering team with its customers in product
definition and the Company's ability to leverage its knowledge of digital access
technology are key factors in market acceptance and in bringing new products to
market in a timely fashion.
GROW THROUGH ACQUISITIONS. The Company seeks to broaden its product
offerings, address emerging markets and expand its distribution channels in part
through strategic acquisitions of complementary businesses and technologies. The
Company has no current agreements or negotiations underway with respect to any
such acquisitions.
CONTINUE COMMITMENT TO PRODUCT QUALITY AND CUSTOMER SERVICE. The Company
seeks to differentiate itself from competitors through the quality of its
products and customer service. The Company offers distinctive service products
that can be tailored for specific customers. In addition, the Company works
closely with customers to provide technical consulting, trouble-shooting,
maintenance, installation assistance, and training. The Company seeks to
continue to reduce production cycle times and product costs through its
commitments to product quality and customer service.
PRODUCTS
The Company's principal products consist of broadband access solutions such
as the Orion 4000 family of products and digital access solutions such as the
Orion 200 and Access-T families of products.
28
<PAGE>
Broadband products address transmission speeds greater than 2 Mbps and digital
access products address speeds less than 2 Mbps. The Company's principal product
platforms feature modular software and hardware which can be adapted to changing
industry standards and customer needs. The products can be upgraded in the
field, for new features or standards, by downloading new software. In addition,
several of the products are designed to permit ready addition of modules to
provide new functions or interfaces. This provides an NSP or corporate user with
the components necessary to architect an entire system to interconnect multiple
locations in a cost-effective and manageable network. The following diagram
illustrates the breadth of the Company's products:
LARSCOM'S PRODUCT MIX
[CHART]
Set forth here, under the heading Larscom's Balanced Product Mix, is a large
horizontally-oriented rectangle divided into four equal-sized quadrants, on
which Larscom products are arranged to indicate product interrelationships in
terms of bandwidth/network types and cost/features. To the left of the rectangle
are a pair of labels: T3/FT3, E3/FE3, and above, which applies to the top pair
of quadrants; and T1, E1, and below, which applies to the bottom pair of
quadrants. Below the rectangle are another pair of labels: Lower Price, which
applies to the left pair of quadrants; and Greater Features, which applies to
the right pair of quadrants. A diagonal broken line divides the large rectangle
from top left to bottom right into two basic product classes, with labels above
the rectangle designating the left portion as Digital Access and the right
portion as Broadband. Within the rectangle are various-sized ovals labeled with
Larscom product names or product types. In the lower left quadrant, to the left
of the broken line (indicating T1/E1, and below; Lower Price; and Digital Access
product class), are five ovals, arranged from lower left to upper right and
labeled, in order, as follows: T1 CSUs, T1/E1 CSU/DSUs, Split-T, Access-T, Orion
200. At the upper right portion of the upper left quadrant, to the right of the
broken line (indicating T3/FT3, E3/FE3, and above; Lower Price; and Broadband
product class), is one oval labeled Access-T45. An oval labeled Mega-T is
positioned spanning the border in the lower portion of the top quadrants, to the
right of the broken line (indicating T3/FT3, E3/FE3, and above; a middle
position between Lower Cost and Greater Features; and Broadband product class).
Over the right three-quarters of the upper right quadrant is the largest oval,
labeled Orion 4000; its position indicates T3/FT3, E3/FE3, and above; Greater
Features, and Broadband product class. The last oval is labeled Etherspan and
spans the border between the upper and lower right quadrants, indicating
bandwidths from T1/E1 to FT3/FE3; Greater Features; and Broadband product class.
BROADBAND PRODUCTS
Larscom entered the broadband market in 1991 with the acquisition of T3
Technologies, Inc. Larscom's broadband product line consists of a range of
products that include the Orion 4000 broadband access multiplexer, a family of
inverse multiplexers and a single function T3 DSU.
ORION 4000. The Orion 4000 is a highly versatile broadband access
multiplexer with a unique WAN access architecture that handles both ATM and TDM
traffic on a dual, redundant, 155 Mbps bus structure. The Orion 4000
accommodates data applications operating at speeds from 1.54 Mbps up to 50 Mbps,
as well as network connections that range from T1 or E1 to 155 Mbps. The Orion
4000 is designed to enable different functionality to be added in a modular and
cost effective fashion. It is available in both 5-slot and 12-slot shelf
configurations, both of which have met the requirements of CE (European Union
certification) for international markets. The Orion 4000 is distinctive in the
role that it can play in hybrid networks (TDM networks with ATM applications)
and in providing an economic migration path from TDM to ATM, thereby ensuring
legacy equipment investment protection.
In a TDM environment, the Orion 4000 is able to support full and fractional
T3 networks. Its T1 and E1 inverse multiplexing modules, introduced in 1994 and
1995, respectively, provide transparent channels
29
<PAGE>
for applications such as LAN interconnection or video transmission. The T3mux
and Tmux modules, introduced in 1995, provide greater flexibility in
transporting T1 circuits across the network. They can be used to consolidate
several fractional T3 applications onto a single T3 circuit and combine T1
traffic from a digital PBX or a T1 multiplexer with inverse multiplexed data.
The following diagram illustrates inverse multiplexing through the Orion 4000
and the Mega-T (as described below) in a hub and spoke configuration that allows
centralized network nodes to serve units at dispersed sites:
INVERSE MULTIPLEXING
Orion 4000 and Mega-T in a hub and spoke configuration
use inverse multiplexing to carry data over conventional
T1 circuits and channelized, redundant T3 facilities.
[CHART]
Set forth here, under the heading Inverse Multiplexing, is a network diagram
illustrating how inverse multiplexing is employed by Larscom Mega-T and Orion
4000 products in a hub-and-spoke internetwork architecture. A central cloud,
labeled Carrier Network, represents a generic digital network based on a T1/T3
fabric. At the far left are four boxes label DTE and representing a user's Data
Terminal Equipment. At the far right are four identical labeled boxes. Each DTE
on the left communicates with the corresponding DTE on the right as indicated by
the connections illustrated in the diagram. The upper-left DTE is connected to
the point of a triangle labeled Mega-T by a line labeled 6 Mbps; four lines from
the base of the triangle, labeled T1s, connect to a circle with a cross in it,
located within the Carrier Network cloud and representing a network switch. This
portion of the diagram indicates an application using 6 Mbps of bandwidth being
connected to the carrier network via a Larscom Mega-T and 4 inverse-multiplexed
T1 access lines. The second DTE on the left is connected to the carrier network
in the same manner as the first. The third and fourth are connected similarly,
but with a 12 Mbps connection to an Orion 4000/5 and eight inverse-multiplexed
T1s providing access to switches in the Carrier Network.
On the right side, all four DTE boxes are connected by single lines to an
Orion 4000. The connecting lines, the top two labeled 6 Mbps and the bottom two
labeled 12 Mbps, connect to a box within the Orion 4000 box which is labeled T1
IMUXES and which represents T1 IMUX modules which are part of the Orion 4000. A
total of 24 lines labeled T1s (grouped 4-4-8-8 in correspondence with the DTE
speeds of 6-6-12-12 mbps) connect the box labeled T1 IMUXES to another box
within the Orion 4000, the latter labeled T3 MUXES and representing a pair of
redundant T3 MUX modules which are part of the Orion 4000. Two parallel lines,
labeled T3 (primary and redundant backup), connect the T3 MUXES box to a
circle-and-cross icon within the Carrier Network cloud. This part of the diagram
shows how multi-megabit applications are inverse-multiplexed onto T1s by Orion
4000 T1 IMUX modules, then multiplexed into channelized T3 circuits by Orion
4000 T3 MUX modules for connection to a switch within the Carrier Network. The
placement of the switch icons within the Carrier Network cloud indicates that
switch interconnections are purely a function of the fabric of the carrier
network.
A caption beneath the heading (Inverse Multiplexing) at the top of the
diagram states: Orion 4000 in a hub-and-spoke configuration uses inverse
multiplexing to carry data over conventional T1 circuits and channelized,
redundant T3 facilities.
ORION 4000 MODULES UNDER DEVELOPMENT. The next step in the evolution of the
Orion 4000's TDM capability is the development of a clear channel T3 module,
which will increase the bandwidth available for applications to 44 Mbps. This
will be a single-slot module that, in addition to a clear channel T3 interface,
will offer four DTE ports supporting HSD and HSSI connections and a combination
of eight T1 ports and four multiplexer channels.
The Company's CCA inverse multiplexer is expected to commence commercial
volume shipments in early 1997. The first in a series of modules will provide a
45 Mbps UNI (User-to-Network Interface) connection to up to eight T1 circuits.
CCA will allow NSPs and corporate users to pass ATM traffic between local and
campus environments using inverse multiplexing of regular T1 or E1 circuits. The
CCA modules will provide buffering and rate adaptation to match application
speeds to network facilities. The Company is developing ATM modules (network and
data interfaces) for the Orion 4000, which will be able to connect LAN data
traffic to public or private ATM networks. The following diagram illustrates
CCA:
30
<PAGE>
CLEAR CHANNEL ATM
Orion 4000 connects industry standard
DS3 UNI across conventional TDM networks.
[CHART]
Set forth here, under the heading Clear Channel ATM, is a network diagram
illustrating the way Larscom's Orion 4000 product is used to implement Clear
Channel ATM WAN connections over standard TDM circuits. A central cloud, labeled
TDM Network, represents a generic digital network based on a T1/T3 fabric.
Around the network cloud are boxes labeled Orion 4000 and representing Larscom
Orion 4000 Broadband Access Multiplexers. At the far left of the diagram are two
boxes, labeled ATM Switch and ATM-Equipped Server respectively, each of which is
connected via a broad line labeled ATM DS3 UNI to a separate box within the
Orion 4000 box which is labeled Clear Channel ATM MUX. This represents two
different types of ATM devices connected to a pair of ATM IMUX modules within
the Orion 4000 which multiplexes the NxT1 channels produced by the IMUX modules
onto a single T3. A line between the Orion 4000 box and the TDM Network cloud is
labeled FT3 and represents fractional T3 access to the TDM network.
On the right side of the diagram are two boxes labeled Orion 4000. Each
contains one box labeled Clear Channel ATM IMUX. A box labeled ATM Router is
connected via a broad line labeled ATM DS3 UNI to the ATM IMUX box within the
top right Orion 4000. A box labeled ATM Switch is connected via a broad line
labeled ATM DS3 UNI to the ATM IMUX box within the bottom right Orion 4000. Each
of these Orion 4000 boxes connected by a pair of parallel lines labeled NxT1;
three dots lined up vertically between each pair of lines indicate an indefinite
number of T1 circuits connecting each Orion 4000 to the TDM Network cloud. The
connection of the three Orion 4000 sites to the TDM Network cloud indicates that
the three sites are internetworked via TDM circuits.
A caption beneath the heading (Clear Channel ATM) at the top of the diagram
states: Orion 4000 connects industry standard DS3 UNI across conventional TDM
Networks.
OTHER BROADBAND PRODUCTS. The Mega-T, introduced in 1993, is the first
inverse multiplexer to bridge the bandwidth gap between T1 and T3. It provides
affordable access to greater-than-T1 bandwidth for high speed applications,
deriving a data channel of up to 6 Mbps from four T1 circuits. Larscom's
patented inverse multiplexing algorithm, used for both the Mega-T and Orion
4000, handles alignment of the individual T1s and allows for differential delay
between individual T1s. This algorithm also allows the data transmission rate to
be lowered should individual T1 circuits fail and to be raised when the circuits
are restored. The Mega-T shares with the Orion 4000 the unique ability to
identify individual T1 circuits, thereby simplifying trouble-shooting. The
Mega-T is primarily used for high speed LAN internetworking, as well as frame
relay network access above T1 speed and broadcast quality digital video.
The Access-T45, introduced in 1992, is a dual-port, 45 Mbps DSU that
provides a clear channel T3 network interface. It is used for very high speed
LAN internetworking, for Internet access and backbones and for channel
extension. The Access-T45 allocates bandwidth in increments of 3 Mbps, a
functionality which has been used by some Internet service providers ("ISPs") to
control bandwidth assignment for their customers. In addition, it is capable of
scrambling LAN data in a manner which ensures the successful receipt of
transmitted data. The following diagram illustrates how the Access-T45 and the
Orion 4000 are used by ISPs:
31
<PAGE>
[CHART]
Set forth here, under the heading Larscom Access-T45 and Orion 4000 Connect
the Internet, is a network diagram illustrating the way Larscom's Access-T45 and
Orion 4000 products are used in an Internet service backbone spanning the United
States. A caption beneath the heading states: ISPs rely on Larscom's broadband
products to provision services and relieve bandwidth congestion.
An outline map of the United States is used as the background for the
diagram. Boxes labeled Access-T45 overlay the map at locations corresponding to
the following cities, with labels identifying the cities: Seattle, Santa Clara,
Chicago, Boston, New York City, Newark. Boxes labeled Orion 4000 overlay the map
at locations corresponding to the following cities, with labels identifying the
cities: San Diego, Houston, Atlanta, Miami. Boxes labeled Access-T45 and Orion
4000 overlay the map at locations corresponding to the following cities, with
labels identifying the cities: Los Angeles, Dallas/Fort Worth, Washington, D.C.
Three different types of lines interconnect the boxes, corresponding to the
actual bandwidth employed between an individual pair of sites: T3 (45 Mbps), 9
Mbps, or 6 Mbps. Thick lines representing T3s connect boxes as follows: Seattle
to Santa Clara, Seattle to Chicago, Santa Clara to Washington D.C., Chicago to
Dallas/Fort Worth, Chicago to New York, New York to Boston, New York to Newark,
Boston to Washington D.C., Newark to Washington D.C. Thin lines with thick
dashes representing 9 Mbps links connect boxes as follows: Los Angeles to
Dallas/Fort Worth, Dallas/Fort Worth to Houston, Dallas/Fort Worth to Atlanta,
Atlanta to Washington D.C. Thin lines representing 6 Mbps links connect boxes as
follows: Los Angeles to San Diego, San Diego to Houston, Houston to Miami. A
legend at the bottom of the diagram indicates the network speed corresponding to
each of the three line styles.
EtherSpan, introduced in 1996, is an advanced Ethernet bridge that can
handle a sustained data rate of 10 Mbps. It offers cost-effective, high speed
WAN connectivity for Ethernet LANs, with one 10Base-T Ethernet LAN port and a
single WAN port that utilizes either HSD or HSSI standards.
DIGITAL ACCESS PRODUCTS
Larscom entered the digital access market in 1986 with emphasis on
performance monitoring of T1 lines. Larscom's pioneering efforts to deliver an
advanced network diagnostic system within a CSU resulted in its TNDS (T1 Network
Diagnostic System) product line. The advanced performance monitoring
capabilities, which were featured in the first TNDS and enhanced and
complemented in subsequent CSU and CSU/DSU products, continue to be a hallmark
of Larscom throughout its product lines.
ORION 200 FAMILY. The Orion 200 family, introduced in 1994, is an advanced
T1 and E1 access multiplexer that can accommodate from two to eight data ports
and two network ports. Its primary application is for LAN interconnection, often
coupled with digital PBX traffic, as well as video conferencing. The Orion 200
family can operate in both T1 and E1 networks, and can also perform conversion
between T1 and E1 standards. The Orion 200 family is a platform with replaceable
network interface modules which can provide other capabilities in the future
including ISDN network interface modules.
32
<PAGE>
OTHER DIGITAL ACCESS PRODUCTS. The Access-T family, introduced in 1991, is
a series of T1/FT1 CSU/ DSUs. The primary use of the Access-T family is for LAN
interconnection, often coupled with the multiplexing of digital PBX traffic onto
a single T1/FT1 circuit. The Access-T 1500, a shelf-based version introduced in
1992, utilizes a hub and spoke architecture that allows centralized network
nodes to serve units at dispersed sites and to concentrate traffic in a single
location where network hubs are constrained for space. In 1996, the
Access-T100S, a low cost, smaller version of a single-port Access-T, was
introduced, allowing the Company to respond to downward price pressure in the
digital access market.
The Split-T, introduced in 1990, is a stand-alone T1/FT1 CSU/DSU. It has a
front panel that incorporates an LCD user interface for local configuration and
is primarily used for LAN interconnection and digital PBX traffic.
In addition, Larscom offers a family of T1 CSU products, introduced in 1986,
centered on the TNDS family of fully featured T1 CSUs. These products offer a T1
network interface with advanced performance monitoring and diagnostic
capabilities.
CUSTOMERS
The Company's customers principally consist of NSPs, including ISPs, Fortune
500 corporations, systems integrators, VARs and federal, state and local
government agencies. The following table sets forth certain Larscom customers:
REPRESENTATIVE LARSCOM CUSTOMERS
<TABLE>
<CAPTION>
NSPS
- ---------------------------------
<S>
AT&T
Bell Atlantic
British Telecom
Cable & Wireless
GST InterNet
IBM/Advantis
Korea Telecom
MCI
MFS Communications
Unisource
UUNET
<CAPTION>
OEMS
- ---------------------------------
<S>
N.E.T.
Racal-Datacom
<CAPTION>
CORPORATE USERS
- ---------------------------------
<S>
Chase Manhattan Bank
Federal Express
Hewlett Packard
Pacific Gas & Electric
Bank of America
Burlington Northern
Lockheed Martin
Kaiser Permanente
<CAPTION>
SYSTEMS INTEGRATORS/VARS
- ---------------------------------
<S>
Computer Sciences Corp.
Data Comm Systems
Inter Net
Progressive Telecom
</TABLE>
In 1993, 1994, 1995 and the six months ended June 30, 1996, NSPs represented
38.9%, 40.5%, 47.5% and 59.7%, respectively, of total revenues. The Company's
customers constituting more than 10% of the
33
<PAGE>
Company's revenues and the percentage of total revenues represented by sales to
such customers for 1993, 1994, 1995 and the six months ended June 30, 1996 are
set forth below:
<TABLE>
<CAPTION>
% OF TOTAL REVENUES
-------------------------------------------------------
YEARS ENDED
DECEMBER 31, SIX MONTHS
------------------------------------- ENDED
CUSTOMER 1993 1994 1995 JUNE 30, 1996
- ------------------------------------------------------------ ----------- ----------- ----------- ----------------
<S> <C> <C> <C> <C>
MCI......................................................... 13.0% 15.3% 17.9% 21.5%
IBM/Advantis................................................ * * 13.7% 12.3%
</TABLE>
- ------------------------
* Less than 10%
The future success of the Company will continue to depend on future purchase
orders from the NSPs in general, and from MCI and IBM/Advantis, in particular.
MARKETING AND SALES
The Company sells its products in the U.S. primarily through its direct
sales organization, with products also being sold through OEMs, VARs and systems
integrators. The Company markets its products internationally through
non-exclusive distribution agreements with VARs and systems integrators. The
Company's field sales organization and distributors receive support from various
internal groups. Such support includes periodic intensive product and technology
training, network applications design and regular communications about
competitive offerings and announcements. In addition, the engineering
organization may participate in key sales calls to discuss product and network
architecture considerations for future network needs or to host in-depth
technical product demonstrations. In the U.S. and Europe, customers and
distributors also receive in-country post-sale support from the Company's
service partners who include Racal-Datacom, Netcom Solutions and ND Networks.
NSPs require that products undergo extensive lab testing and field trials
prior to their deployment in the network. Accordingly, the Company is
continually submitting successive generations of its current products as well as
new products to its customers for evaluation and approval. Additionally,
international NSPs require products to meet country-specific certification
standards for safety, emissions and network connectivity. The length of the
various approval processes is affected by a number of factors, including the
complexity of the product involved, the priorities of the customer, budgets and
regulatory issues.
The Company's backlog at any point in time is typically limited.
Accordingly, sales in any quarter are largely dependent on orders received
during that quarter. Furthermore, the Company's agreements with its customers
typically provide that they may change delivery schedules and cancel orders
within specified timeframes, typically up to 30 days prior to the scheduled
shipment date, without penalty. The Company's customers have in the past built,
and may in the future build, significant inventory in order to facilitate more
rapid deployment of anticipated major projects or for other reasons. Decisions
by such customers to reduce their inventory levels could lead to reductions in
purchases from the Company.
CUSTOMER SERVICE AND SUPPORT
The Company's products are required to meet rigorous standards imposed by
both customers and established internal product quality assurance testing
procedures. The Company has service contracts with most of its major customers,
and provides on-site service via arrangements with a number of service partners
worldwide such as Racal-Datacom and Netcom Solutions in the U.S. and ND Networks
in Europe. These contracts typically establish response time and level of
service commitments, with penalties for non-performance. Larscom maintains a
24-hours, 7-days-a-week technical assistance support center, and provides
on-site support with contracted response times, plus a wide range of repair
programs. The Company also provides technical applications assistance, as well
as customer and distributor product maintenance and installation training.
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The Company seeks to resolve the majority of field problems through remote
diagnostics before any field personnel are dispatched. Customer calls that
cannot be handled by first-level support technicians, either over the telephone
or via remote diagnostic trouble-shooting, are routed to contracted service
partners and/or Company support personnel for a field dispatch to the customer
site.
All of the Company's products carry a two-year warranty, which generally
covers defects in materials and workmanship. For the past five years, the
Company's warranty expenses have been relatively insignificant. See
"--Manufacturing and Quality Assurance."
RESEARCH AND DEVELOPMENT
Larscom believes that its future success depends on its ability to maintain
technological leadership through timely enhancements of existing products and
development of new products that meet customer needs. During 1993, 1994, 1995
and the six months ended June 30, 1996, total research and development expenses
were $6.3 million, $6.7 million, $7.1 million and $3.6 million, respectively.
The Company's research and development programs are focused on its modular
platforms (the Orion 4000 family, the Orion 200 family and the Access-T family),
which allow new technologies to be incorporated and new services supported
through incremental modules. In the short term, the Company will develop new
modules for the Orion 4000 that integrate ATM with inverse multiplexing and for
the Orion 200 family that incorporate ISDN. In the future, the Company intends
to extend the international capabilities of its products and to address
additional broadband technology such as SONET/SDH.
The rapid development of new technologies increases the risk that current or
new competitors could develop products that would reduce the competitiveness of
the Company's products. The Company's success will depend to a substantial
degree upon its ability to respond to changes in technology and customer
requirements. This will require the timely selection, development and marketing
of new products and enhancements on a cost-effective basis. The development of
new, technologically advanced products is a complex and uncertain process,
requiring high levels of innovation. For the network access market, expertise is
required in the general areas of telephony, data networking, network management,
as well as specific technologies such as ISDN, ATM and SONET. Further, the
telecommunications industry is characterized by the need to design products
which meet industry standards for safety, immunity, emissions and network
connection. Such industry standards are often changing or incomplete as new and
emerging technologies and service offerings are introduced by NSPs. As a result,
there is a potential for product development delay due to the need for
compliance with new or modified standards. The introduction of new and enhanced
products also requires that the Company manages transitions from older products
in order to minimize disruptions in customer orders, avoid excess inventory of
old products and ensure that adequate supplies of new products can be delivered
to meet customer orders. There can be no assurance that the Company will be
successful in developing, introducing or managing the transition to new or
enhanced products or that any such products will be responsive to technological
changes or will gain acceptance in the market. The Company's business and
operating results could be materially adversely affected if the Company were to
be unsuccessful, or to incur significant delays, in developing and introducing
such new products or enhancements.
MANUFACTURING AND QUALITY ASSURANCE
The Company's manufacturing operations consist of materials procurement,
assembly of final product based on printed circuit boards manufactured by a
third party contract manufacturer, product testing and inspection and system
configuration for shipment. The Company has maintained a long-term relationship
with its contract manufacturer, which has allowed the Company to implement total
quality control in the entire manufacturing process, including
statistically-monitored process control programs. The Company uses automated
functional product testing to remain flexible to customers' needs while
maintaining control of the quality of the manufacturing process. During 1996,
the Company has increased its emphasis on
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<PAGE>
aggressively monitoring software quality in its products by implementing
automated system test programs that verify product performance concurrent with
product development and prior to product release. The Company was the first in
its industry segment to become ISO 9001 certified and was among the first
companies in California to receive this certification.
On-time delivery of the Company's products is dependent upon the
availability of quality components used in its products. The Company purchases
parts and components for assembly from a variety of pre-approved suppliers
through a worldwide procurement sourcing program. The Company attempts to manage
risks through developing alternate sources and by maintaining quality
relationships with its suppliers. To date, the Company has been able to obtain
adequate supplies of required components in a timely manner from existing
sources or, when necessary, from alternate sources. The Company does acquire
certain components from sole sources, either to achieve economies of scale or
because of proprietary technical features designed into the Company's products.
Sole sourced components come from suppliers such as Xilinx, VLSI, Brooktree and
Vicor. A substantial portion of the Company's shipments in any fiscal period
relate to orders for certain products received in that period. To meet this
demand, the Company maintains a supply of finished goods inventories at its
manufacturing facility, including safety stocks of critical components. In
addition, a significant percentage of the Company's orders are shipped within
three business days. However, there can be no assurance that interrupted or
delayed supplies of key components will not occur which could have a material
adverse effect on the Company's business and operating results.
The Company maintains a comprehensive quality control program. However,
complex products such as those offered by the Company may contain undetected
errors or failures when first introduced or as new versions are released.
Despite testing by the Company and its customers, there can be no assurance that
existing or future products based upon the Orion 4000 architecture or other
technologies will not contain undetected errors or failures when first
introduced or as new versions are released. The Company's standard limited
warranty for the Orion 4000 products is two years. Since the Company's Orion
4000 products are new, with limited time in service, the Company cannot predict
the level of warranty claims that it will experience for these products. Such
errors or failures could result in warranty returns in excess of those
historically experienced by the Company and have a material adverse effect on
the Company's business and operating results.
COMPETITION
The markets for the Company's products are intensely competitive and the
Company expects competition to increase in the future. In the broadband market,
the Company competes primarily with Digital Link, ADC Kentrox, RAD Data
Communications and OnStream Networks (for which an acquisition by 3Com was
recently announced). In the digital access market, the Company competes against
traditional CSU/DSU vendors, such as ADC Kentrox, Verilink and Digital Link, and
relatively newer entrants to the market such as ADTRAN and TxPort. The Company
competes to a lesser extent with other telecommunications equipment companies.
The key competitive factors in the Company's market include timely
development of new products and features, product quality and performance,
price, announcements by competitors, experienced sales, marketing and service
organizations and evolving industry standards.
In the broadband market, the Company believes that it competes favorably due
to the wide functionality of its products and its superior customer service and
support. In particular, the Orion 4000 platform has a unique WAN access
architecture that accommodates both ATM and TDM technology, providing
flexibility for hybrid networks. Also, the Orion 4000, in conjunction with the
Mega-T and Access-T45, provides cost-effective and competitively distinctive hub
and spoke concentration. However, sales of the Company's broadband products
could be adversely affected by a significant increase in availability of public
ATM services since some competitors could be better positioned at this time to
support public ATM
36
<PAGE>
service. Some of the Company's competitors have developed partnerships with
third parties for joint marketing or development efforts that could place the
Company at a relative disadvantage.
In the digital access market, the Company believes that it competes
favorably due to its commitment to reliability, service and support. Since price
is increasingly important, the Company will provide competitively priced
products such as the recently announced Access-T100S. However, some of the
Company's competitors are more advanced in developing indirect sales channels
and this may be a disadvantage to the Company's sales of digital access
products. The Company's digital access products could also be materially
adversely affected by the integration of CSU/DSU functionality into switches and
routers, by the entry of LAN equipment vendors into the Company's markets, or by
the requirement for alternative methods of performance monitoring for services
such as frame relay. There is also a risk to the digital access market generally
from new technologies that could displace some parts of the T1/E1 CSU/ DSU
product line. For example, ADSL and HDSL are subscriber loop technologies that
can enable service providers to deploy T1/FT1 services. Since ISDN has made some
headway in providing economic sub-rate and back-up connectivity options, the
Company has already taken steps to incorporate ISDN into its Orion 200 family.
These new technologies may ultimately enlarge the total addressable market for
digital access products and services.
The Company believes that it generally competes favorably in these areas.
However, there can be no assurance that the Company will be able to continue to
compete successfully with its existing or new competitors.
PROPRIETARY RIGHTS
The telecommunications equipment industry is characterized by the existence
of a large number of patents and frequent litigation based on allegations of
patent infringement. From time to time, third parties may assert exclusive
patent, copyright, trademark and other intellectual property rights to
technologies that are important to the Company. The Company has not conducted a
formal patent search relating to the technology used in its products, due in
part to the high cost and limited benefits of a formal search. In addition,
since patent applications in the U.S. are not publicly disclosed until the
patent is issued, applications may have been filed by competitors of the Company
which could relate to the Company's products. Software comprises a substantial
portion of the technology in the Company's products. The scope of protection
accorded to patents covering software-related inventions is evolving and is
subject to a degree of uncertainty which may increase the risk and cost to the
Company if the Company discovers third party patents related to its software
products or if such patents are asserted against the Company in the future. The
Company may receive communications from third parties in the future asserting
that the Company's products infringe or may infringe on the proprietary rights
of such third parties. In its distribution agreements, the Company typically
agrees to indemnify its customers for any expenses or liabilities, resulting
from claimed infringements of patents, trademarks or copyrights of third
parties. In the event of litigation to determine the validity of any third-party
claims, such litigation, whether or not determined in favor of the Company,
could result in significant expense to the Company and divert the efforts of the
Company's technical and management personnel. In the event of an adverse ruling
in such litigation, the Company might be required to discontinue the use and
sale of infringing products, expend significant resources to develop
non-infringing technology or obtain licenses from third parties. There can be no
assurance that licenses from third parties would be available on acceptable
terms, if at all. A successful claim against the Company and the failure of the
Company to develop or license a substitute technology could have a material
adverse effect on the Company's business and operating results. In addition, the
laws of certain foreign countries in which the Company's products are or may be
developed, manufactured or sold may not protect the Company's products or
intellectual property rights to the same extent as do the laws of the U.S. and
thus make the possibility of misappropriation of the Company's technology and
products more likely.
37
<PAGE>
EMPLOYEES
As of June 30, 1996, the Company had 219 full-time employees of whom 60 were
primarily engaged in research and development, 54 in manufacturing and quality
control, 51 in marketing and sales, 25 in customer service and 29 in
administration and finance. The Company also employed a total of 17 temporary
and contract personnel. None of the Company's employees is represented by a
collective bargaining agreement nor has the Company ever experienced any work
stoppage. The Company believes its relationship with its employees is good.
PROPERTIES
The Company leases approximately 66,000 square feet of office, development
and manufacturing space in facilities in Santa Clara, California (approximately
50,000 square feet) and Research Triangle Park, North Carolina (approximately
16,000 square feet). The Company has a 33.3% ownership interest in the Santa
Clara facility. The current lease for the Santa Clara facility expires in
January 1998. The current lease for the Research Triangle Park facility expires
in June 2001 and the Company has an option to extend the lease for an additional
three years. The Company believes that its existing facilities are adequate to
meet its needs for the immediate future and that future growth can be
accommodated by leasing additional or alternate space near its current
facilities.
LEGAL PROCEEDINGS
America OnLine, Inc. ("AOL") has opposed Larscom's application for federal
trademark registration of its logo, alleging that Larscom's design mark is
similar to an AOL mark and that Larscom is attempting to register its mark for
goods and services related to certain AOL goods and services. The Company does
not believe the resolution of this opposition will have a material adverse
effect on the Company's business and operating results. The Company is not
involved in any other proceeding the outcome of which could have a material
adverse effect on its business and operating results.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ----------------------------------------- --- -------------------------------------------------------
<S> <C> <C>
Deborah M. Soon.......................... 44 President, Chief Executive Officer and Director
Bruce D. Horn............................ 45 Vice President, Finance and Chief Financial Officer
Jeffrey W. Reedy......................... 38 Vice President, Engineering
Paul A. Strudwick........................ 44 Vice President, Marketing
George M. Donohoe........................ 59 Vice President, Sales
William H. Cory.......................... 43 Vice President, Operations
Signe S. Gates........................... 46 Secretary and Director
Paul E. Graf............................. 52 Chairman of the Board (2)
Harvey L. Poppel......................... 58 Director (1)(2)
Joseph F. Smorada........................ 49 Director
</TABLE>
- ------------------------
(1) Member of Audit Committee.
(2) Member of Compensation Committee.
DEBORAH M. SOON has served as President and Chief Executive Officer of the
Company since July 1994. Previously, she served as Vice President of Marketing
and Sales from June 1993 to June 1994, as Vice President of Marketing from
January 1991 to May 1993, and as Director of Marketing from May 1990 to December
1990. Prior to joining the Company, Ms. Soon held management positions in
engineering, marketing and sales with AT&T, Prime Computers, BBN Communications
Corporation and Data Architects Systems Inc. Ms. Soon earned a B.A. in
Mathematics from the University of California, San Diego and an M.B.A. from the
Harvard Graduate School of Business. She has also completed special
undergraduate studies at Cambridge University in England.
BRUCE D. HORN has served as Vice President of Finance and Chief Financial
Officer of the Company since January 1993. Previously, he served as Director of
Finance and Chief Financial Officer from March 1991 to December 1992. Prior to
joining the Company, Mr. Horn was Director of Finance at Insystems, Inc. and
Corporate Controller at Anicon, Inc. Mr. Horn earned an M.B.A. in Finance from
California State University, Hayward, and a B.A. in Accounting from the
University of Northern Iowa.
JEFFREY W. REEDY has served as Vice President of Engineering of the Company
since August 1994. Previously, he served as Vice President/Division Manager from
January 1993 to August 1994, and Director of Engineering from November 1991 to
January 1993. Prior to November 1991, Mr. Reedy was the Co-founder and Vice
President of Engineering at T3 Technologies (which was acquired by the Company
in 1991). Mr. Reedy earned a B.S.E. in Electrical Engineering and Computer
Science from Duke University and an M.S.E.E. from Stanford University.
PAUL A. STRUDWICK has served as Vice President of Marketing of the Company
since August 1994. Previously, he served as Director of Product Management from
March 1992 to August 1994. Prior to joining the Company, he was Product
Management/Marketing Consultant for PolyCom, Inc. from October 1991 to February
1992. Prior to October 1991, he was Director of Product Line Management with
Northern Telecom, Inc. and held a number of positions with Bell-Northern
Research in Canada. Mr. Strudwick earned a B.Sc. from the University of Sussex
in England.
GEORGE M. DONOHOE has served as Vice President of Sales of the Company since
August 1994. Previously, he served as Director of Telco Sales from April 1994 to
August 1994 and Western Region Sales Manager from November 1993 to March 1994.
Prior to joining the Company, Mr. Donohoe was Director of LAN Product Sales at
Teleglobe from February 1993 to October 1993, and Vice President of Sales at
39
<PAGE>
Halley Systems from December 1989 to January 1993. Other professional
affiliations include Luxcom, Infinet, Honeywell Information Systems and IBM. Mr.
Donohoe earned a B.S. in Industrial Engineering and Management Sciences from the
University of South Dakota.
WILLIAM H. CORY has served as Vice President of Operations of the Company
since February 1990. Prior to joining the Company, Mr. Cory was Director of
Quality Assurance for Verilink, Vice President for Wyken Technology, Director of
Quality Assurance for Compression Labs., Inc. and Manager of Quality Assurance
for Drivetec Inc. Mr. Cory earned a B.S. in Industrial Engineering and
Management Science from Northwestern University.
SIGNE S. GATES has served as the Secretary of the Company since April 1996.
Ms. Gates has served as Vice President, General Counsel and Corporate Secretary
of Axel Johnson since April 1996. Prior to joining Axel Johnson, Ms. Gates
served as Assistant General Counsel of General Signal Corporation from 1991 to
March 1996. Previously, she held the position of Senior Attorney at General
Signal Corporation. Ms. Gates earned a B.A. in English from Susquehanna
University and a J.D. from The University of Michigan Law School.
PAUL E. GRAF has served as Chairman of the Board of Directors of the Company
since June 1990.
Mr. Graf has served as President and Chief Executive Officer for Axel Johnson
since 1989. Prior to joining Axel Johnson, Mr. Graf held various senior
executive positions with Schroders, a venture capital company, Conrac
Corporation, and Texas Instruments. Mr. Graf earned a B.S. in Electrical
Engineering from Rensselear Polytechnic Institute, and an M.B.A. from Boston
University.
HARVEY L. POPPEL has served as Managing Director at Broadview Associates
L.L.C. since January 1995, and President of Poptech, Inc. since 1984.
Previously, he was Senior Vice President, Board Member and Managing Officer of
the Information Industry Practice at Booz, Allen & Hamilton and managed
communications software development at both Western Union and Westinghouse
Electric. Mr. Poppel holds an M.S. and a B.S. from Rensselear Polytechnic
Institute.
JOSEPH F. SMORADA has served as a Director of the Company since June 1992.
Mr. Smorada has served as Senior Vice President and Chief Financial Officer of
Axel Johnson since April 1992. Prior to joining Axel Johnson, Mr. Smorada was
Senior Vice President and Chief Financial Officer for Lone Star Industries from
September 1988 to April 1992. Prior to 1988, Mr. Smorada also held senior
executive positions with Conrac Corporation and Continental Group, Inc. Mr.
Smorada earned a B.A. in Economics from California University of Pennsylvania.
All directors hold office until the next annual meeting of stockholders and
until their successors have been elected and qualified or upon their earlier
resignation or removal. Officers are appointed to serve at the discretion of the
Board of Directors.
DIRECTOR COMPENSATION
Directors currently receive no cash compensation for their services, but are
reimbursed for all reasonable expenses incurred in attending Board and Committee
meetings. Beginning January 1, 1997, each director who is not an employee of the
Company or Axel Johnson will receive fees of $6,000 per year plus $1,000 for
attendance at each set of meetings of the Board of Directors and any of its
Committees combined. In addition, upon consummation of this Offering, each
director who is not an employee of the Company or Axel Johnson will receive
under the Stock Option Plan for Non-Employee Directors (i) a grant of options to
purchase an aggregate of 18,000 shares of Class A Common Stock of the Company at
the initial public offering price, which options will vest in three equal
installments on the date of each of the three annual meetings of stockholders
next following such grant and (ii) an annual grant of options, commencing in
1997, following each annual meeting of stockholders, to purchase 6,000 shares of
Class A Common Stock of the Company at the fair market value, as determined on
the date of grant, which options
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will vest on the date of the third anniversary of the annual meeting of
stockholders next following such grant. See "--Stock Plans."
BOARD COMMITTEES
The Board of Directors has a Compensation Committee and an Audit Committee.
The Compensation Committee reviews and determines the salaries and bonuses of
the Company's executive officers and administers the Stock Purchase Plan. The
Compensation Committee also administers the Stock Incentive Plan unless the
Board elects to be the administrator of that plan. The Compensation Committee
currently consists of Messrs. Graf and Poppel. The Audit Committee recommends
the appointment of auditors and oversees the accounting and audit functions of
the Company. The Audit Committee currently consists of Mr. Poppel.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Mr. Graf is the Chief Executive Officer of Axel Johnson, the controlling
stockholder and owner of 100% of the Class B Common Stock of the Company. See
"Relationship Between the Company and Axel Johnson." No other interlocking
relationship exists between the Company's Board of Directors or Compensation
Committee and the board of directors or compensation committee of any other
company.
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EXECUTIVE COMPENSATION
The following table sets forth information concerning the annual cash
compensation for services in all capacities to the Company for the year ended
December 31, 1995, of the Company's chief executive officer and the other
executive officers of the Company (collectively, the "named executive
officers"):
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM
------------------------------ INCENTIVE ALL OTHER
SALARY BONUS(1) PLAN(2) COMPENSATION(3)(4)
-------------- -------------- ---------- ------------------
<S> <C> <C> <C> <C>
Deborah M. Soon
President and Chief Executive Officer $ 154,824 $ 120,000 $ 27,875 $ 8,876
Bruce D. Horn
Vice President, Finance and Chief
Financial Officer 102,838 39,664 -- 3,702
Jeffrey W. Reedy
Vice President, Engineering 100,884 76,308(5) -- 3,358
Paul A. Strudwick
Vice President, Marketing 101,509 39,664 -- 3,654
George M. Donohoe
Vice President, Sales 166,822(6) 39,670 -- 7,330
William H. Cory
Vice President, Operations 109,142 55,105 22,300 3,929
</TABLE>
- ------------------------
(1) Represents the bonus earned in 1995 and paid out in 1996.
(2) Represents cash amounts received under the Axel Johnson Inc. Long-Term
Incentive Plan for the 1993 through 1995 period which was paid out in 1996.
See "--Axel Johnson Inc. Long-Term Incentive Plan."
(3) Represents the value of the Company match in the Axel Johnson Inc. Thrift
Plan and, with respect to Ms. Soon and Mr. Donohoe, an automobile allowance
of $5,546 and $4,004, respectively.
(4) The Company did not issue restricted stock or grant stock options or SARs in
1995.
(5) Includes an amount of $21,202 representing a bonus (related to the
acquisition of T3T) based on a percentage of sales of certain products.
(6) Includes sales commissions of $84,026.
STOCK PLANS
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS. The Stock Option Plan for
Non-Employee Directors (the "Directors Option Plan") is intended to provide a
means to attract and retain qualified non-employee directors for the Company.
The Directors Option Plan is administered by either the Board of Directors or
the Compensation Committee of the Company which consists of two or more
directors appointed from time to time by the Board (in either case, the
"Administrator"). The Administrator has the full and final authority to make all
administrative determinations required by the Directors Option Plan.
An aggregate of 205,000 shares of Class A Common Stock has been reserved for
issuance under the Directors Option Plan, subject to adjustment in the event of
certain capital changes. Each non-employee director of the Company (which
director shall not include employees of either Larscom or Axel Johnson) is
entitled to receive, upon first becoming a director, an option to purchase an
aggregate of 18,000 shares of Class A Common Stock. The options expire one year
after termination of Board service or 10 years after the date of grant and have
an exercise price equal to the fair market value of the date of grant. The
initial
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<PAGE>
grants under the Directors Option Plan will be made upon the consummation of
this Offering and at the offering price. One-third of the options become
exercisable each year on the date of the annual meeting of stockholders. The
first third of the options becomes fully exercisable on the date of the first
annual meeting of stockholders following the date of grant. In addition, under
the Directors Option Plan, every year each non-employee director will receive an
annual option grant to purchase 6,000 shares of Class A Common Stock at the fair
market value on the date of grant, with each grant being made on the date of the
annual meeting of stockholders each year. Such options vest on the date of the
third annual meeting of stockholders next following the date of grant. The
exercisability of the options will be accelerated in the event of a change in
control of the Company.
STOCK INCENTIVE PLAN. The Stock Incentive Plan is primarily intended to
provide competitive incentives that will attract, retain, motivate and reward
employees of the Company. The Stock Incentive Plan allows for grants of
incentive stock options, non-qualified stock options, SARs and stock bonus
awards, which may, but need not, be performance unit awards or restricted stock
awards. The Stock Incentive Plan is administered by either the Board of
Directors or the Compensation Committee of the Company (in either case, the
"Administrator"). The Administrator has the full and final authority to select
employees and consultants to whom awards under the Stock Incentive Plan ("Stock
Incentives") may be granted and to administer the Stock Incentive Plan. The
Board may provide for the Stock Incentive Plan to be administered by the Board
with respect to some employees and consultants and by a committee of the Board
with respect to other employees and consultants. The exercisability, vesting and
payment of awards will be accelerated in the event of a change in control of the
Company.
An aggregate of 2,485,000 shares of Class A Common Stock has been reserved
for issuance under the Stock Incentive Plan, subject to adjustment in the event
of certain capital changes, which includes 23,555 shares of Class A Common Stock
to be granted to officers of the Company pursuant to the termination of the
Company's participation in the Axel Johnson long-term incentive plan. Shares
subject to Stock Incentives which are forfeited, canceled, exchanged or
surrendered or which are settled in cash or otherwise terminated without a
distribution of shares of Class A Common Stock will be available for further
Stock Incentives.
Under the Stock Incentive Plan, all employees, including directors of the
Company who are employees, and consultants are eligible to participate; however,
Incentive Stock Options (as defined in the Stock Incentive Plan) may only be
granted to employees. Subject to adjustment as provided in the Stock Incentive
Plan, grants of options or SARs to eligible employees or consultants are limited
to a certain number during a calendar year.
Upon consummation of this Offering, the Administrator will grant stock
options to purchase an aggregate of 1,300,000 shares of Class A Common Stock to
approximately 226 employees and consultants of the Company. The options will
have an exercise price equal to the offering price of Class A Common Stock
pursuant to this Offering. The Company intends that each of the foregoing
options, subject to acceleration under certain circumstances, will become
exercisable in five annual installments over a five-year period after this
Offering.
STOCK PURCHASE PLAN. The Stock Purchase Plan, which is administered by the
Compensation Committee of the Board of Directors of the Company, provides
eligible (substantially all full-time) employees of the Company and its
subsidiaries with the opportunity to buy a total of 310,000 shares of Class A
Common Stock from the Company at a discount and on a tax-favored basis. The
Stock Purchase Plan will initially consist of six-month offering periods,
provided that the initial offering period will commence on the date of this
Offering and end on July 31, 1997. The Compensation Committee has the full and
final authority to determine when each offering period will begin, as well as
the duration of each offering period, which may not exceed 27 months. Unless the
Compensation Committee establishes a higher price, the purchase price per share
will be the lesser of 85% of the fair market value of Class A Common Stock at
the beginning or the ending of the offering period. The Stock Purchase Plan
terminates on the earlier of its termination by the Board or until all the
shares authorized under the Stock Purchase Plan have been issued.
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<PAGE>
An aggregate of 310,000 shares of Class A Common Stock has been reserved for
issuance under the Stock Purchase Plan, subject to adjustment in the event of
certain capital changes. The maximum amount which any employee may contribute to
the Stock Purchase Plan in any offering period is 10% of such employee's total
compensation for such offering period. The maximum number of shares which each
eligible employee may purchase in any offering period under the Stock Purchase
Plan is equal to the maximum employee contribution in such offering period
divided by 85% of the fair market value of a share of Class A Common Stock on
the first day or last day of such offering period, whichever is lower. However,
no participant may acquire rights to purchase more than 1,000 shares of Class A
Common Stock per offering period, unless the Compensation Committee establishes
a higher or lower amount for the offering period.
ANNUAL BONUS PLAN
Employees of the Company above a specified salary grade participate in an
Annual Bonus Plan (the "Annual Bonus Plan"). Participants are eligible to
receive incentive cash bonus awards based on a combination of individual and
Company performance standards. The goals of the Annual Bonus Plan are to reward
and encourage individual accomplishment and focus senior management on
objectives that improve the intrinsic value of the Company. The "target" payment
under the Annual Bonus Plan is based upon performance and varies by salary
grade. Payments can range from 0% to 300% of the "target" level depending on the
Company's performance against an established goal. The Compensation Committee of
the Company establishes the performance targets and associated formulas for
awards under the Annual Bonus Plan.
AXEL JOHNSON INC. LONG-TERM INCENTIVE PLAN
Eligible executives of the Company have historically participated in the
Axel Johnson Inc. Long-Term Incentive Plan (the "Long-Term Incentive Plan").
This Long-Term Incentive Plan will be eliminated for Larscom employees upon
consummation of this Offering. The goal of the Long-Term Incentive Plan has been
to focus executives on producing superior long-term returns for the Company over
a period longer than one year. The Compensation Committee the Axel Johnson's
Board of Directors selected the participants and established the performance
targets and associated formulas for awards under the Long-Term Incentive Plan.
The length of performance cycles under the Long-Term Incentive Plan have varied
from three to five years and performance awards have historically been paid in
cash at the end of each performance cycle. Certain executives of the Company are
also participants in an alternative long-term incentive plan for the 1994 to
1996 performance cycle based on higher performance levels which, if met, would
provide stock awards in lieu of both the regular Long-Term Incentive Plan
payment and the 1996 Annual Bonus Plan. Upon the discontinuation of the
Long-Term Incentive Plan upon consummation of this Offering, participating
executives will receive a pro rata payment for all open cycles in the form of
either cash or stock. The estimated values of the cash or stock to be paid in
settlement upon consummation of this Offering are as follows:
ESTIMATED LONG-TERM INCENTIVE PLAN PAYOUTS
<TABLE>
<CAPTION>
TO BE PAID
IN CASH TO BE PAID IN STOCK
-------------- ------------------------------
NAME 1994-1996 PLAN 1995-1999 PLAN 1996-2000 PLAN
- ------------------------------------------------------- -------------- -------------- --------------
<S> <C> <C> <C>
Deborah M. Soon........................................ $ 33,000 $ 74,800 $ 47,685
Bruce D. Horn.......................................... -- 14,025 10,597
Jeffrey W. Reedy....................................... 16,500 32,725 18,544
Paul A. Strudwick...................................... -- 23,375 15,895
George M. Donohoe...................................... -- 18,700 13,246
William H. Cory........................................ 22,000 23,375 13,246
</TABLE>
44
<PAGE>
AXEL JOHNSON INC. THRIFT PLAN
The Company's full-time employees or part-time employees who work more than
1,000 hours in a calendar year are eligible to participate in the Axel Johnson
Inc. Thrift Plan (the "Thrift Plan"). The Thrift Plan is intended to qualify
under Section 401(k) of the Internal Revenue Code of 1986, as amended (the
"Code"). Employees may elect to defer their eligible current compensation up to
the statutorily and Thrift Plan prescribed limits and have the amount of such
deferral contributed to the Thrift Plan. Employees may also elect to make
contributions on an after-tax basis to the Thrift Plan up to the statutorily and
Thrift Plan prescribed limits. A Company match of employee contributions up to
the Thrift Plan prescribed limit also is contributed to the Thrift Plan and
becomes the employee's upon vesting. The trustee under the Thrift Plan, at the
direction of participants with regard to their particular contributions and
Company match, invests the assets of the Thrift Plan in any of nine investment
options.
AXEL JOHNSON INC. RETIREMENT PLAN AND RETIREMENT RESTORATION PLAN
The Company's full-time employees over age 21 or part-time employees over
age 21 who work more than 1,000 hours in a calendar year are eligible to
participate in the Axel Johnson Inc. Retirement Plan (the "Retirement Plan").
The Retirement Plan is intended to qualify under the Code and is non-
contributory. Employees who retire or terminate as vested participants are
entitled to receive retirement benefits, usually beginning at the normal
retirement age of 65, computed under a final average pay formula and may select
either a single life annuity or one of several equivalent forms of the benefit
at retirement. The Retirement Plan also provides benefits for employees electing
early retirement from ages 55 to 64. If such an election is made, the benefits
may be reduced to reflect the longer interval over which benefits will be paid.
To the extent benefits cannot be provided under the Retirement Plan due to the
limitations imposed by Sections 415 and 401(a)(17) of the Code, they will be
provided by the Axel Johnson Inc. Retirement Restoration Plan (the "Restoration
Plan"), a supplemental unfunded benefit plan which is not qualified under the
Code.
The following table shows estimated annual pension benefits payable under
the single life annuity form to officers and other key employees of the Company
assuming retirement on December 31, 1995, at age 65 under the provisions of the
Retirement Plan and the Restoration Plan currently in effect:
<TABLE>
<CAPTION>
BENEFITS BASED ON SERVICE OF
PENSIONABLE -------------------------------------------------------------------------------
COMPENSATION 5 YEARS 10 YEARS 15 YEARS 20 YEARS 25 YEARS 30 YEARS 35 YEARS
- -------------------------------- --------- --------- --------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
$100,000........................ $ 7,000 $ 14,000 $ 21,000 $ 28,000 $ 35,000 $ 42,000 $ 49,000
150,000........................ 11,000 21,000 32,000 43,000 54,000 64,000 75,000
200,000........................ 14,000 29,000 43,000 58,000 72,000 87,000 101,000
250,000........................ 18,000 36,000 55,000 73,000 91,000 109,000 128,000
300,000........................ 22,000 44,000 66,000 88,000 110,000 132,000 154,000
350,000........................ 26,000 51,000 77,000 103,000 129,000 154,000 180,000
400,000........................ 29,000 59,000 88,000 118,000 147,000 177,000 206,000
</TABLE>
Pensionable compensation represents one-fifth of the highest consecutive 60
months of the total of base salary plus bonus plus commissions. As of December
31, 1995, the full years of service credited under both retirement plans for the
following individuals were: Ms. Soon, 5; Mr. Horn, 4; Mr. Reedy, 7; Mr.
Strudwick, 3; Mr. Donohoe, 2; and Mr. Cory, 5.
45
<PAGE>
RELATIONSHIP BETWEEN THE COMPANY AND AXEL JOHNSON
Prior to this Offering, the Company has been a wholly-owned subsidiary of
Axel Johnson. As the sole stockholder, Axel Johnson was responsible for
providing the Company with financial, management, administrative and other
resources. Furthermore, Axel Johnson had maintained substantial control over the
day-to-day operations of the Company. Accordingly, the Company has had no recent
history of operating as an independent entity.
Prior to this Offering, Axel Johnson provided the Company with significant
management functions and services, including treasury, accounting, tax, internal
audit, legal, human resources and other support services. The Company was
charged and/or allocated expenses of $491,000, $526,000 and $549,000 for the
years ended December 31, 1993, 1994 and 1995, respectively, and $275,000 and
$264,000 for the six months ended June 30, 1995 and 1996, respectively. The
costs of these services have been directly charged and/or allocated using
methods that the Company's management believes are reasonable. Such charges and
allocations are not necessarily indicative of the costs the Company would have
incurred to obtain these services had it been a separate entity. Neither Axel
Johnson nor the Company has conducted any study or obtained any estimates from
third parties to determine what the cost of obtaining such services from third
parties may have been. See Note 3 to the Consolidated Financial Statements.
The Company is obligated to utilize a portion of the proceeds of this
Offering to repay $25.0 million of indebtedness to Axel Johnson under a note
issued in August 1996 in connection with the declaration of a dividend to Axel
Johnson. Such note bears interest at a rate of 7.5% per annum. See "Use of
Proceeds."
The Company and Axel Johnson have entered into a number of agreements for
the purpose of defining the ongoing relationship between them. These agreements
were negotiated in the context of a parent-subsidiary relationship and therefore
are not the result of negotiations between independent parties. It is the
intention of the Company and Axel Johnson that such agreements and the
transactions provided for therein, taken as a whole, should accommodate the
parties' interests in a manner that is fair to both parties, while continuing
certain mutually beneficial joint arrangements. However, because of the
complexity of the various relationships between the Company and Axel Johnson,
there can be no assurance that each of such agreements, or the transactions
provided for therein, will be effected on terms at least as favorable to the
Company as could have been obtained from unaffiliated third parties. The
agreements summarized in this section have been filed as exhibits to the
Registration Statement of which this Prospectus forms a part, and the following
summaries are qualified in their entirety by reference to the agreements as
filed. While these agreements will provide the Company with certain benefits,
the Company is only entitled to the ongoing assistance of Axel Johnson for a
limited time and it may not enjoy benefits from its relationship with Axel
Johnson beyond the term of the agreements. There can be no assurance that the
Company upon termination of such assistance from Axel Johnson will be able to
provide adequately such services internally or obtain favorable arrangements
from third parties to replace such services. See "Risk Factors--No Recent
Independent Operating History" and "--Control by and Relationship with Axel
Johnson."
Additional or modified arrangements and transactions may be entered into by
the Company, Axel Johnson upon consummation of this Offering. Any such future
arrangements and transactions will be determined through negotiation between the
Company and Axel Johnson. The Company has adopted a policy that all future
agreements between the Company and Axel Johnson will be on terms that the
Company believes are no less favorable to the Company than the terms the Company
believes would be available from unaffiliated parties. In that regard, the
Company intends to follow the procedures provided by the Delaware General
Corporation Law (the "DGCL") which include a vote to affirm any such future
agreements by a majority of the Company's directors who are not employees of
Axel Johnson (even though such directors may be less than a quorum). There can
be no assurance that any such arrangements or transactions will be the same as
that which would be negotiated between independent parties.
46
<PAGE>
The following is a summary of certain prospective arrangements between the
Company and Axel Johnson that will become effective upon consummation of this
Offering.
ADMINISTRATIVE SERVICES AGREEMENT
The Company and Axel Johnson will enter into an administrative services
agreement (the "Services Agreement") upon consummation of this Offering,
pursuant to which Axel Johnson will continue to provide limited services to the
Company, including treasury, accounting, tax, internal audit, legal and human
resource functions.
Each service under the Services Agreement is provided for a period of two
years. However, to the extent legally permissible, the Company may terminate any
individual service or all services that it receives under the Services Agreement
at any time upon 45 days prior written notice. Otherwise, the Services Agreement
shall terminate upon the earlier of, among other things, (i) two years after the
consummation of this Offering or (ii) the date which Axel Johnson owns less than
50% of the voting control of the Company; provided, however, that if such
reduction in voting control results from a sale or transfer of Class B Common
Stock by Axel Johnson, the services shall continue to be provided for a period
of 90 days thereafter. Prior to the second anniversary of the consummation of
this Offering, the Company may unilaterally extend the period during which Axel
Johnson provides any service for an additional twelve months by providing Axel
Johnson at least 45 prior days written notice. The Company is obligated to take
all steps necessary to obtain its own administrative and support services prior
to the termination of the Services Agreement.
The Company will be obligated to pay fees established in the Services
Agreement based upon the type and amount of services rendered. It is estimated
that Axel Johnson will charge an initial annual fee of approximately $622,000
for all of the services that it will initially provide under the Services
Agreement. In addition, the Company will reimburse Axel Johnson for any
out-of-pocket expenses it incurs in connection with providing the services.
TAX SHARING AGREEMENT
The Company and Axel Johnson will enter into a tax sharing agreement (the
"Tax Sharing Agreement") upon the consummation of this Offering, pursuant to
which the Company will make a payment to Axel Johnson, or Axel Johnson will make
a payment to the Company, as appropriate, of an amount in respect of taxes shown
as due attributable to the operations of the Company on the consolidated federal
income tax return filed along with Axel Johnson for the short period commencing
on January 1, 1996 and ending on the date on which the Company ceases to be a
member of the Axel Johnson consolidated group. For the post-offering period, the
Company may file combined state income tax returns with Axel Johnson or its
subsidiaries, pursuant to which appropriate payments will be made by or to the
Company. Axel Johnson will indemnify the Company from liability for certain
matters, including, net of corresponding tax benefits, any federal, state or
local income or other taxes attributable to any affiliated or combined group of
which the Company is a member for any period ending after this Offering. The
Company will indemnify Axel Johnson and its subsidiaries from liability for
certain matters, including any federal, state or local income or other taxes
attributable to the operations of the Company upon consummation of this
Offering. After the consummation of this Offering, the Company will make its own
tax filings.
CREDIT AGREEMENT
The Company and Axel Johnson will enter into a credit agreement (the "Credit
Agreement") upon the consummation of this Offering, pursuant to which Axel
Johnson has agreed to provide a revolving credit/working capital facility (the
"Credit Facility") to the Company in an aggregate amount of up to $15.0 million.
The Credit Facility has a term of 24 months, and any loans thereunder will bear
interest during each calendar quarter at a rate per annum equal to the sum of
the three-month London Interbank Offered
47
<PAGE>
Rate (LIBOR), as quoted in the Wall Street Journal, plus two percent (2.0%),
initially on the date when the initial loan is made, and adjusted thereafter on
the first business day of each calendar quarter. Larscom shall pay a commitment
fee equal to one-half of one percent (0.5%) per annum on the average daily
unused portion of the aggregate amount of the loan to Axel Johnson, on each
August 31, November 30, February 28 and May 31 during the term of the Credit
Agreement and upon termination of the Credit Agreement. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources."
The Credit Agreement contains various representations, covenants and events
of default typical for financing of a similar size and nature. The Credit
Agreement also permits Axel Johnson to require a mandatory prepayment of all, or
a portion of all outstanding loans and to terminate the Credit Agreement in the
event that Axel Johnson (i) owns less than the majority of the outstanding
voting stock of Larscom and (ii) nominates less than a majority of the persons
to be elected to the Board of Directors of Larscom. See "Risk Factors--No Recent
Independent Operating History" and "Risk Factors--Control by and Relationship
with Axel Johnson."
48
<PAGE>
PRINCIPAL AND SELLING STOCKHOLDER
Axel Johnson currently owns all of the outstanding shares of Common Stock of
the Company. Upon completion of this Offering, Axel Johnson will own 100% of the
Class B Common Stock representing 60.5% of the total outstanding Common Stock on
a share-for-share basis and will control 85.9% of the total voting power of the
outstanding Common Stock. Axel Johnson will not own any shares of Class A Common
Stock. As a result of its ownership interest, Axel Johnson will be able to
control the vote on most matters submitted to stockholders, including the
election of directors and the approval of extraordinary corporate transactions.
See "Risk Factors--Control by and Relationship with Axel Johnson."
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock at the date hereof and adjusted to
reflect the consummation of this Offering by (i) Axel Johnson, (ii) the
Company's named executive officers, (iii) each of the Company's directors and
(iv) all officers and directors as a group. The officers of the Company are
expected to have sole voting and investment power with respect to all shares of
Class A Common Stock beneficially owned by them.
The following table gives effect to (i) the Recapitalization, pursuant to
which each share of the Common Stock of the Company then outstanding was
exchanged for 1,190 shares of Class B Common Stock and (ii) the conversion of
1,200,000 shares of Class B Common Stock into 1,200,000 shares of Class A Common
Stock:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED SHARES BENEFICIALLY OWNED
PRIOR TO OFFERING SHARES OF AFTER OFFERING (1)
----------------------------------------- CLASS A -----------------------------------------
NUMBER OF NUMBER OF PERCENT OF COMMON NUMBER OF NUMBER OF PERCENT OF
NAME AND CLASS A CLASS B TOTAL VOTING STOCK CLASS A CLASS B TOTAL VOTING
ADDRESS(2) SHARES SHARES POWER OFFERED(1) SHARES SHARES POWER
- -------------------------- ----------- ----------- --------------- ----------- ----------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Axel Johnson Inc.......... 1,200,000 10,700,000 100% 1,200,000 -- 10,700,000 85.9%
300 Atlantic Street
Stamford, Connecticut
06901-3530
Deborah M. Soon........... -- -- -- -- 9,422 -- *
Bruce D. Horn............. -- -- -- -- 1,894 -- *
Jeffrey W. Reedy.......... -- -- -- -- 3,944 -- *
Paul A. Strudwick......... -- -- -- -- 3,021 -- *
George M. Donohoe......... -- -- -- -- 2,457 -- *
William H. Cory........... -- -- -- -- 2,817 -- *
Signe S. Gates............ -- -- -- -- -- -- *
Paul E. Graf.............. -- -- -- -- -- -- *
Harvey L. Poppel.......... -- -- -- -- -- -- *
Joseph F. Smorada......... -- -- -- -- -- -- *
All directors and
executive officers as a
group
(10 persons)............. -- -- -- -- 23,555 -- *
</TABLE>
- ------------------------
* Less than 1%
(1) Assumes no exercise of the Underwriters' over-allotment option to purchase
up to 350,000 shares and 700,000 shares from the Company and the Selling
Stockholder, respectively.
(2) The address of all executive officers and directors is Larscom Incorporated,
4600 Patrick Henry Drive, Santa Clara, California 95054.
49
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, 11,900,000 shares of Class B Common Stock and 5,000,000
million shares of Preferred Stock, each with a par value of $0.01. After the
consummation of this Offering, 7,023,555 shares of Class A Common Stock and
10,700,000 shares of Class B Common Stock will be issued and outstanding.
The following description of the capital stock of the Company and certain
provisions of the Company's Amended and Restated Certificate of Incorporation
and Amended By-laws is a summary and is qualified in its entirety by the
provisions of the Amended and Restated Certificate of Incorporation and Amended
By-laws, which have been filed as exhibits to the Company's Registration
Statement, of which this Prospectus is a part.
COMMON STOCK
DIVIDENDS. Holders of record of shares of Common Stock are entitled to
receive such dividends when, if and as may be declared by the Board of Directors
out of funds legally available for such purposes. No dividends (other than a
dividend payable solely in shares of Class A Common Stock) may be declared or
paid on any share of Class A Common Stock, unless such dividend, is
simultaneously declared or paid on each share of Class B Common Stock equal to
the amount which would have been payable with respect to such shares of Class B
Common Stock had such shares been converted into Class A Common Stock
immediately prior to the record date of such dividend. No dividends (other than
a dividend payable solely in shares of Class B Common Stock) may be declared or
paid on any share of Class B Common Stock, unless a similar dividend is
simultaneously declared or paid on each share of Class A Common Stock. Stock
dividends and distributions paid in shares of Class A Common Stock may only be
declared and paid to the holders of Class A Common Stock.
VOTING RIGHTS. Upon consummation of this Offering, holders of Class A
Common Stock are entitled to one vote per share and holders of Class B Common
Stock are entitled to four votes per share, subject to adjustment to preserve
the initial voting ratio. Holders of shares of Common Stock will vote as a
single class on all matters submitted to a vote of stockholders, except as
otherwise required by law.
CONVERTIBILITY. Each share of Class B Common Stock is convertible, at the
option of its holder, into one share of Class A Common Stock at any time,
subject to adjustment for stock dividends, stock splits, subdivisions or
combinations with respect to the shares of Class A Common Stock. The shares of
Class A Common Stock are not convertible into shares of Class B Common Stock.
LIQUIDATION RIGHTS. Upon liquidation, dissolution or winding up of the
Company, the holders of Class A Common Stock are entitled to share ratably with
the holders of Class B Common Stock in all assets available for distributions
after payment in full to creditors, subject to adjustment for stock dividends,
stock splits, subdivisions or combinations with respect to Class A Common Stock.
OTHER PROVISIONS. The holders of Common Stock are not entitled to
preemptive or subscription rights. In any merger, consolidation or business
combination, the consideration to be received per share by holders of Class A
Common Stock must be identical to that received by holders of Class B Common
Stock on an as converted basis.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
Preferred Stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights, conversion
rights, voting rights, terms of redemption, liquidation preferences, sinking
fund terms and the number of shares constituting any series or the designation
of such series, without any further vote or action by stockholders. The issuance
of Preferred Stock could adversely affect the voting power of holders of Common
Stock and the likelihood that such holders will receive dividend payments and
payments upon
50
<PAGE>
liquidation and could have the effect of delaying, deferring or preventing a
change in control of the Company. The Company has no present plan to issue any
shares of Preferred Stock.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Amended and Restated Certificate of Incorporation contains
provisions (i) eliminating the personal liability of its directors, officers,
employees and other agents for monetary damages resulting from breaches of their
fiduciary duty to the fullest extent permitted by the law and (ii) indemnifying
its directors and officers to the fullest extent permitted by the DGCL. These
provisions in the Amended and Restated Certificate of Incorporation do not
eliminate the duty of care and, in appropriate circumstances, equitable remedies
such as an injunction or other forms of non-monetary relief would remain
available under Delaware law. Each director will continue to be subject to
liability for breach of a director's duty of loyalty to the Company or its
stockholders, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit and for improper distributions to
stockholders. These provisions also do not affect a director's responsibilities
under any other laws, such as the federal securities laws or state or federal
environmental laws.
The Company's Amended and Restated Certificate of Incorporation and Amended
By-laws also permit the Company to secure insurance on behalf of any person it
is required or permitted to indemnify for any liability arising out of his or
her actions in such capacity, regardless of whether Delaware law would permit
indemnification. The Company maintains liability insurance for its directors and
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 and the Company is not aware of any other threatened
litigation or proceeding that might result in a claim for such indemnification.
ANTITAKEOVER EFFECTS OF PROVISIONS OF AMENDED AND RESTATED CERTIFICATE OF
INCORPORATION,
AMENDED BY-LAWS AND DELAWARE LAW
The Company's Amended and Restated Certificate of Incorporation or Amended
By-laws, as applicable, among other things, (i) require stockholders to follow
an advance notification procedure for stockholder nominations of candidates to
the Board of Directors and for new business to be conducted at stockholder
meetings, and (ii) provide that the Board of Directors, without action by the
stockholders, may issue and fix the rights and preferences of shares of
Preferred Stock. These provisions may have the effect of delaying, deferring or
preventing a change of control of the Company without further action by the
stockholders, may discourage bids for the Class A Common Stock at a premium over
the market price of the Class A Common Stock, may adversely affect the market
price of, and the voting and other rights of, the holders of the Class A Common
Stock and could have the effect of discouraging certain attempts to acquire the
Company or remove incumbent management or members of the Company's Board of
Directors even if some or a majority of the Company's stockholders deemed such
an attempt to be in their best interests. Furthermore, after this Offering, Axel
Johnson will have 85.9% of the voting control of the Company. Voting control by
Axel Johnson may discourage certain types of transactions involving an actual or
potential change of control of the Company, including transactions in which the
holders of the Company's Class A Common Stock might receive a premium for their
shares over the prevailing market price of the Class A Common Stock.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Class A Common Stock is The Bank of
New York.
LISTING
The Company has applied to have the Class A Common Stock approved for
quotation on the Nasdaq National Market under the symbol "LARS."
51
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Upon the consummation of this Offering, the Company will have outstanding an
aggregate of 7,023,555 shares of Class A Common Stock (8,073,555 if the
Underwriters' over-allotment option is exercised in full) and 10,700,000 shares
of Class B Common Stock. Of the total outstanding shares of Common Stock,
7,000,000 shares of Class A Common Stock sold in this Offering will be freely
tradable without restriction or further registration under the Securities Act,
unless purchased by "affiliates" of the Company, as that term is defined in Rule
144 under the Securities Act (which sales would be subject to certain volume
limitations and other restrictions described below).
The remaining 23,555 shares of Class A Common Stock and 10,700,000 shares of
Class B Common Stock held by existing stockholders upon completion of this
Offering will be "restricted securities" as that term is defined in Rule 144
under the Securities Act. In general, under Rule 144 as currently in effect, a
person (or persons whose shares are aggregated), including an affiliate, who has
beneficially owned shares for at least two years (including, if the shares are
transferred, the holding period of any prior owner except an affiliate) is
entitled to sell in "broker's transactions" or to market makers, within any
three-month period commencing 90 days after the date of this Prospectus, a
number of shares that does not exceed the greater of (i) 1% of the then
outstanding shares of such class of the Common Stock (approximately 70,236
shares immediately after this Offering) or (ii) generally, the average weekly
trading volume in such class of the Common Stock during the four calendar weeks
preceding the filing of Form 144 with respect to such sale, and subject to
certain other limitations and restrictions. In addition, a person who is not
deemed to have been an affiliate of the Company at any time during the three
months preceding a sale, and who has beneficially owned the shares proposed to
be sold for at least three years, would be entitled to sell such shares under
Rule 144(k) without regard to the volume and other requirements described above.
Shares of Common Stock that would otherwise be deemed "restricted securities"
could be sold at any time through an effective registration statement relating
to such shares of Common Stock.
Approximately 23,555 and 10,700,000 Restricted Shares will be eligible for
sale in the public market beginning 180 days and 240 days, respectively, after
the effective date of this Offering, pursuant to Rule 144 and the expiration of
certain lock-up agreements entered into between the Underwriters and the holders
of such Restricted Shares. Of such Restricted Shares, approximately 10,700,000
shares will be subject to certain volume limitations and other resale
restrictions pursuant to Rule 144. In addition, the Company intends to file a
Registration Statement on Form S-8 after the effective date of this Offering to
register 3,000,000 shares of Class A Common Stock issuable upon the exercise of
stock options or stock purchase rights to be granted under the Company's stock
plans, which includes 23,555 shares of Class A Common Stock issued in connection
with the termination of the Company's participation in the Selling Stockholder's
existing long-term incentive plan. Such shares of Class A Common Stock issued
pursuant to these plans after the effective dates of registration statements
will be available for sale in the public market, subject to expiration of the
lock-up agreements with the Underwriters. See "Management--Stock Plans."
The Company and its directors and executive officers have agreed, subject to
certain exceptions, 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 Montgomery Securities. The Selling
Stockholder has agreed, subject to certain exceptions, not to offer, sell,
consent to sell or otherwise dispose of any Common Stock for a period of 240
days after the date of this Prospectus without the prior written consent of
Montgomery Securities.
REGISTRATION RIGHTS
Pursuant to registration rights agreement (the "Registration Rights
Agreement"), between Axel Johnson and the Company, to be entered into upon the
consummation of this Offering, Axel Johnson and its affiliates (the "Holder")
will be entitled to certain rights with respect to the registration of
10,700,000
52
<PAGE>
shares of Class B Common Stock they hold under the Securities Act. Subject to
certain limitations (including a minimum registration of at least 10% of its
shares), the Holder has the right to require the Company to register the sale of
all or part of the shares it holds under the Securities Act (a "Demand
Registration"). The Holder will be entitled to request an aggregate of three
Demand Registrations, one per twelve-month period during each of the three
twelve-month periods immediately following 240 days from the consummation of
this Offering. The Holder is also entitled to include the shares of Class B
Common Stock it holds in a registered offering of securities by the Company for
its own account, subject to certain conditions and restrictions. The Company
will pay all expenses associated with a registration of shares of Class A Common
Stock converted from Class B Common Stock by the Holder pursuant to the
Registration Rights Agreement, other than underwriting discounts and
commissions, Holder's out-of-pocket expenses or underwriters' counsel fees and
disbursements, if any, relating to such shares. In addition, the Registration
Rights Agreement contains certain indemnification provisions (i) by the Company
for the benefit of the Holder as well as any potential underwriter and (ii) by
the Holder for the benefit of the Company and related persons. Axel Johnson and
its assignees may transfer its registration rights under the Registration Rights
Agreement without the prior approval of the Company. The Registration Rights
Agreement also provides that while Axel Johnson owns 50% or more of the voting
power of the Company's Common Stock, the Company may not grant registration
rights to any other person without Axel Johnson's prior consent. Axel Johnson
has no current intention to exercise its registration rights under the
Registration Rights Agreement.
Prior to this Offering, there has not been any public market for either
class of the Common Stock. No prediction can be made as to the effect, if any,
that market sales of shares or the availability of shares for sale will have on
the market price prevailing from time to time. Sales of substantial additional
amounts of Class A Common Stock in the public market, or the perception that
such sales occur, could materially adversely affect the prevailing market price
of the Class A Common Stock.
53
<PAGE>
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by Montgomery
Securities, Cowen & Company and Punk, Ziegel & Knoell, L.P. (the
"Representatives"), have severally agreed, subject to the terms and conditions
set forth in the Underwriting Agreement, to purchase from the Company and the
Selling Stockholder the number of shares of Class A Common Stock indicated below
opposite their respective names at the initial public offering price less the
underwriting discount set forth on the cover page of this Prospectus. The
Underwriting Agreement provides that the obligations of the Underwriters are
subject to certain conditions precedent and that the Underwriters are committed
to purchase all of such shares, if any are purchased.
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
CLASS A COMMON
UNDERWRITER STOCK
- ------------------------------------------------------------------------------ --------------
<S> <C>
Montgomery Securities.........................................................
Cowen & Company...............................................................
Punk, Ziegel & Knoell, L.P....................................................
--------------
Total....................................................................... 7,000,000
--------------
--------------
</TABLE>
The Representatives have advised the Company and the Selling Stockholder
that the Underwriters initially propose to offer the Class A Common Stock to the
public on the terms set forth on the cover page of this Prospectus. The
Underwriters may allow to selected dealers a concession of not more than $
per share; and the Underwriters may allow, and such dealers may allow, a
concession of not more than per share to certain other dealers. After the
initial public offering, the offering price and other selling terms may be
changed by the Representatives. The Class A Common Stock is offered subject to
receipt and acceptance by the Underwriters, and to certain other conditions,
including the right to reject orders in whole or in part.
The Company and the Selling Stockholder have granted to the Underwriters an
option, exercisable for 30 calendar days after the date of this Prospectus, to
purchase up to an aggregate of 350,000 and 700,000 additional shares of Class A
Common Stock, respectively, solely to cover over-allotments, if any. If the
Underwriters exercise their over-allotment option, the Underwriters have
severally agreed, subject to certain conditions, to purchase approximately the
same percentage thereof that the number of shares to be purchased by each of
them, as shown in the foregoing table, bears to the 7,000,000 shares of Class A
Common Stock offered hereby. The Underwriters may exercise such option only to
cover over-allotments in connection with the sale of the 7,000,000 shares of
Class A Common Stock.
The Company and its executive officers and directors have agreed not to
offer, sell, contract to sell or dispose of any Common Stock for a period of 180
days after the date of this Prospectus without the prior written consent of
Montgomery Securities, except for securities issued pursuant to its stock option
and stock purchase plans and upon the exercise of outstanding options. The
Selling Stockholder has agreed, subject to certain exceptions, not to offer,
sell, contract to sell or dispose of any shares of Common Stock or securities
convertible into or exchangeable for any shares of Common Stock, for a period of
240 days after the date of this Prospectus, without the prior written consent of
Montgomery Securities. See "Shares Eligible for Future Sale."
54
<PAGE>
The Representatives have informed the Company that they do not intend to
confirm sales to discretionary accounts by the Underwriters in excess of 5.0% of
the total number of shares of Class A Common Stock offered by them.
Prior to this Offering, there has been no public market for the Class A
Common Stock. The initial public offering price will be negotiated among the
Company and the Representatives. Among the factors to be considered in
determining the initial public offering price of the Class A Common Stock, in
addition to prevailing market conditions, are the Company's historical
performance, estimates of the business potential and earnings prospects of the
Company, an assessment of the Company's management and the consideration of the
above factors in relation to market valuation of companies in related
businesses.
The Underwriting Agreement provides that the Company and Selling Stockholder
have agreed to indemnify the several Underwriters and their controlling persons
against certain liabilities, including liabilities under the Securities Act.
55
<PAGE>
LEGAL MATTERS
The validity of the shares of Class A Common Stock offered hereby will be
passed upon for the Company and the Selling Stockholder by Cahill Gordon &
Reindel (a partnership including a professional corporation), New York, New
York. Certain legal matters in connection with this Offering will be passed upon
for the Underwriters by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements of the Company for each of the three
years in the period ended December 31, 1995, and included in this Prospectus
have been so included in reliance on the report of Price Waterhouse LLP,
independent accountants, given on the authority of said firm as experts in
auditing and accounting.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), a Registration Statement on Form S-1 under the Securities Act of
1933 with respect to the Class A Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. For further information with respect to
the Company and such Class A Common Stock, reference is made to the Registration
Statement and the exhibits and schedules filed as a part thereof. Statements
contained in this Prospectus as to the contents of any contract or any other
document referred to are not necessarily complete, and, in each instance, if
such contract or document is filed as an exhibit, reference is made to the copy
of such contract or document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference to such
exhibit. The Registration Statement, including exhibits and schedules thereto,
may be inspected without charge at the public reference facilities maintained by
the Commission at Room 1024, Judicuary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the Commission's regional offices at Northwestern
Atrium Center, 500 West Madison Street, Room 1400, Chicago, IL 60661, and 7
World Trade Center, Suite 1300, New York, NY 10048. Copies of such material can
also be obtained from the Public Reference Section of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission
maintains a World Wide Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the site is http://www.sec.gov.
56
<PAGE>
GLOSSARY OF TERMS
ACCESS-T -- A Larscom T1/FT1 CSU/DSU product line that provides from one to four
ports for multiplexing serial data from customer equipment and transports it
across a T1 WAN facility. Also includes a shelf-based version allowing Larscom
to offer hub and spoke solutions.
ACCESS-T45 -- A Larscom product that connects one or two high-speed serial
applications to a clear-channel T3 facility.
ADSL (ASYMMETRIC DIGITAL SUBSCRIBER LINE) -- A transmission facility using
existing copper wire (as in a telephone subscriber's local loop) to transmit
downstream at 1.5 to 6 Mbps and upstream at lower rates (e.g., 384 kbps).
ATM (ASYNCHRONOUS TRANSFER MODE) -- A cell-based, fast-packet technology that
provides a protocol for transmitting voice and data over high-speed networks.
Standards for ATM are developed and codified by an industry group, the ATM
FORUM.
BACKBONE -- The top (highest-bandwidth) level in a hierarchical network, to
which subnetworks and LANs are connected and over which they intercommunicate.
BANDWIDTH -- The maximum amount of data that can flow across a network segment.
Bandwidth is generally measured in kilobits (thousands of bits), Megabits
(million of bits), or Gigabits (billions of bits) per second, which are
abbreviated kbps, Mbps, and Gbps, respectively.
BRIDGE -- A device that connects two or more physical LANs and forwards packets
between them.
BROADBAND -- Transmission at greater than 2 Mbps, i.e., greater than the T1 or
E1 rate.
BUFFERING -- The process of storing a large amount of data within a
communication device to allow variations in receive and transmit speeds.
BUS -- A shared electronic pathway used for communication between devices or
parts of a device, such as multiplexer modules.
CCA -- See CLEAR CHANNEL ATM.
CE CERTIFICATION MARK -- An indication that a product has been tested and
approved for sale within 15 European countries. These countries currently
include Austria, Belgium, Denmark, Finland, France, Germany, Greece, Ireland,
Italy, Luxembourg, Netherlands, Portugal, Spain, Sweden and the United Kingdom.
CELL-BASED TRAFFIC -- Communication between network sites based on
individually-addressed packets or cells of data, which are independently routed
through the network. As opposed to CIRCUIT-BASED TRAFFIC.
CHANNELIZED VS. CLEAR CHANNEL TRANSMISSION -- A transmission link which is
divided into multiple "channels" capable of transporting separate lower-rate
traffic streams is referred to as CHANNELIZED. A transmission link which
transports only a single traffic stream is referred to as a CLEAR CHANNEL.
CLEAR CHANNEL ATM (CCA) -- Clear Channel ATM is Larscom's term for bit-based
inverse multiplexing of ATM traffic. CCA provides an immediately-available
alternative to the cell-based inverse multiplexing under development by the ATM
Forum (see IMA).
CIRCUIT-BASED TRAFFIC -- Communication between two network sites based on a
temporary or permanent circuit being established between the two sites. As
opposed to CELL-BASED TRAFFIC.
57
<PAGE>
CPE (CUSTOMER PREMISE EQUIPMENT) -- Network equipment--such as modems,
multiplexers, CSUs and routers--located at the customer's site.
CSU (CHANNEL SERVICE UNIT) -- A device necessary to connect customer T1 (or E1)
equipment to a carrier's T1 (or E1) service.
DIFFERENTIAL DELAY -- The difference in transit time between data taking
separate transmission paths--for example, inverse-multiplexed T1s employing
different routes through T1 networks.
DOWNLOADABLE SOFTWARE -- Operating software which can be upgraded over telephone
and/or Internet connections.
DTE (DATA TERMINAL EQUIPMENT) -- Devices, such as multiplexers, PBXs, front-end
processors, computers, terminals and LAN routers, which function as the source
of a transmitted digital signal and the destination of a received digital
signal.
DS1, DS3 -- See T1, T3.
DSU (DIGITAL SERVICE UNIT) -- A device that interfaces RS232, V.35, or other
terminal interface protocols to T1, T3 or other digital telephone signals.
EL, E3 -- The primary digital transmission systems defined by the CCITT and used
today in Europe, parts of the Pacific Rim and Latin America. Roughly analogous
to the North American T1 and T3 transmission systems, E1 and E3 operate at 2.048
Mbps and 34.368 Mbps, respectively.
ETHERNET -- The most commonly-used LAN protocol, typically operating at 10 Mbps
over twisted-pair wiring referred to as 10Base-T. Newer iterations of Ethernet
use speeds of 100 Mbps and approximately 1 Gigabit as well as switching between
LAN segments.
ETHERSPAN -- Larscom's Ethernet bridge, which in combination with a Larscom DSU
connects a 10 Mbps Ethernet LAN to a WAN service at up to the full speed of the
LAN. Used for remote LAN connections at or near the LAN speed.
FDDI (FIBER DISTRIBUTED DATA INTERFACE) -- A networking technology employing
fiber optic cables, a token ring topology and transmission rates up to 100 Mbps.
FE1, FE3, FT1, FT3 -- See FRACTIONAL SERVICES.
FRACTIONAL SERVICES -- Communications channels which are subrates of standard
digital service offerings such as T1, E1, T3 and E3 (designated FT1, FE1, FT3
and FE3, respectively).
FRAME RELAY -- A multiplexing data service based on fast transport of formatted
information frames, without flow control or error correction. Currently, the
most popular way of providing variable-bandwidth WAN services.
HDSL (HIGH-SPEED DIGITAL SUBSCRIBER LINE) -- A transmission facility using
existing copper wire (as in the LOCAL LOOP) to transmit at 1.5 Mbps over two
pairs or 768 kbps over one pair.
HSD (HIGH-SPEED DATA) -- A type of data interface, normally employing
industry-standard V.35 or EIA530 electrical connections and typically used for
speeds up to 6 Mbps.
HSSI (HIGH-SPEED SERIAL INTERFACE) -- A type of data interface capable of speeds
up to 40 Mbps or more.
HUB AND SPOKE -- An architecture in which central high-capacity devices (hubs)
serve multiple, geographically disperse lower-capacity devices (spokes).
58
<PAGE>
IMA (INVERSE MULTIPLEXING FOR ATM) -- The cell-based inverse multiplexing
standard currently under development by the ATM Forum.
INVERSE MULTIPLEXING -- Combining the bandwidth of two or more communications
circuits into a single communication channel.
INVERSE-MULTIPLEXED ATM (IMA) -- The cell-by-cell inverse multiplexing standard
currently being defined by the ATM FORUM.
ISDN (INTEGRATED SERVICES DIGITAL NETWORK) -- An evolving set of standards for a
digital network carrying both voice and data communications. PRI (PRIMARY RATE
INTERFACE) is the lowest-speed ISDN interface (144 kbps), intended for use on
the local (subscriber) loop. PRI operates at T1 or E1 rates (or subrates). BISDN
(BROADBAND ISDN) refers to ISDN at speeds higher than the PRI rate. ATM is a
BISDN service.
ISP (INTERNET SERVICE PROVIDER) -- A commercial entity which leases connections
to the Internet.
ITU (INTERNATIONAL TELECOMMUNICATIONS UNION) -- An organization that recommends
telecommunications and data communications interconnection standards.
LEGACY -- A term denoting "holdover" equipment, applications, structures, etc.,
from an earlier network or other implementation.
LOW-SPEED SERVICES -- Data services operating at 56 or 64 kbps, or at subrates
thereof.
MAN (METROPOLITAN AREA NETWORK) -- A technology evolved from local-area network
designs that is optimized for network distances over 50 km, speeds more than 100
Mbps and diverse forms of information (voice, data, image, video).
MEGA-T -- Larscom's multiple T1 inverse multiplexer provides a multi-megabit
communication channel equivalent to fractional T3 (FT3) channel.
MULTIPLEXER (MUX) -- A device that combines (multiplexes) input from two or more
terminals, computer ports, or other multiplexers, and transmits the combined
data stream over one high-speed channel. At the receiving end, the high-speed
channel is de-multiplexed by another multiplexer.
NSP (NETWORK SERVICE PROVIDER) -- A commercial entity providing
telecommunication services to end-users (e.g., Interexchange Carriers, Local
Exchange Carriers, Regional Bell Operating Companies, Internet Service Providers
and Alternate Carriers)
NXT1, NXE1 -- A multi-megabit transmission link created by inverse-multiplexing
separate T1 or E1 links.
ORION 200/400/800 FAMILY -- Larscom's global access multiplexer family for full
and fractional T1 and E1 networks.
ORION 4000 -- Larscom's flagship product, a modular broadband access multiplexer
platform with a unique WAN access architecture that handles both cell-based
(ATM) and circuit-based (TDM) traffic.
PBX (PRIVATE BRANCH EXCHANGE) -- A telephone exchange serving an individual
organization and having connections to a public telephone exchange.
PUBLIC VS. PRIVATE NETWORKS/CIRCUITS -- A public network or circuit is owned by
an NSP and leased to private users. A private network or circuit is owned by the
user.
REDUNDANT -- A relationship of dual network devices or facilities in which one
device or facility functions as a backup for the other.
59
<PAGE>
ROUTER -- A combination of hardware and software that allows the connection of
two or more subnetworks.
SDH (SYNCHRONOUS DIGITAL HIERARCHY) -- The international structure of optical
transmission standards, corresponding to the U.S. SONET standards. SDH starts at
the 155 Mbps level and increases in 155-Mbps multiples.
SHELF-LEVEL PRODUCT -- A type of product employing a chassis or shelf in which
multiple modules may be installed. A shelf-level product typically allows
greater capacity and flexibility in a smaller physical space.
SONET (SYNCHRONOUS OPTICAL NETWORK) -- A standard for the multiplexing and
transmission of broadband information in optical form, so that low-speed
components of the optical channel can be easily extracted. Operates from 51.84
Mbps (OC-1) and 155 Mbps (OC-3), to 622 Mbps (OC-12) and beyond.
SPLIT-T -- Larscom's pioneering fractional T1 DSU, allowing users to channelize
serial applications in
specific DS0s within a T1.
SWITCHING -- The establishment of communication paths through a network
dynamically set up and taken down on request. As opposed to dedicated
facilities, permanent end-to-end connections which cannot be dynamically
changed.
T1, T3 -- Digital transmission systems with data capacities of 1.544 and 44.736
Mbps, respectively; also known as Digital Signal Levels 1 and 3 (DS1 and DS3).
T1 and T3 are part of the digital telephone network hierarchy used in North
America. A T1 incorporates 24 standard voice channels (DS0s). A T3 incorporates
28 T1s.
T1/E1 CONVERSION -- The process of converting voice-frequency encoding signals
and analog-to-digital encoding schemes between T1 and E1 networks.
TDM (TIME-DIVISION MULTIPLEXING) -- The technique used in the currently-dominant
circuit-based networks to channelize transmission links by dedicating time slots
within the data stream to the individual channels. For example, the 24 DS0s that
make up a T1 (DS1) are created by dividing the data stream into 8-bit time slots
and dedicating specific time slots to specific DS0s.
TNDS (T1 NETWORK DIAGNOSTIC SYSTEM) -- Larscom's multi-line T1 CSU system, which
brought a new level of centralized CSU-based network performance management to
T1 network users.
UNI (USER-TO-NETWORK INTERFACE) -- Any of a class of interfaces applicable to
user equipment connecting to ATM networks.
60
<PAGE>
LARSCOM INCORPORATED
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Accountants.......................................................................... F-2
Consolidated Financial Statements:
Balance Sheets as of December 31, 1994 and 1995 and June 30, 1996 (unaudited)............................ F-3
Statements of Operations for the Years Ended December 31, 1993, 1994 and 1995 and for the Six Months
Ended June 30, 1995 (unaudited) and 1996 (unaudited)................................................... F-4
Statements of Cash Flows for the Years Ended December 31, 1993, 1994 and 1995
and for the Six Months Ended June 30, 1995 (unaudited) and 1996 (unaudited)............................ F-5
Statements of Stockholder's Equity for the Years Ended December 31, 1993, 1994 and 1995 and for the Six
Months Ended June 30, 1996 (unaudited)................................................................. F-6
Notes to Consolidated Financial Statements................................................................. F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholder of
Larscom Incorporated
The recapitalization and stock split in connection therewith described in
Note 1 to the consolidated financial statements have not been consummated at
October 10, 1996. When they have been consummated, we will be in a position to
furnish the following report:
"In our opinion, the accompanying consolidated balance sheets and
the related consolidated statements of operations, of cash flows and of
stockholder's equity present fairly, in all material respects, the
financial position of Larscom Incorporated (a wholly-owned subsidiary of
Axel Johnson Inc.) and its subsidiary at 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. 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 of these statements in accordance with generally
accepted auditing standards which require that we plan and perform the
audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above."
PRICE WATERHOUSE LLP
San Jose, California
October 10, 1996
F-2
<PAGE>
LARSCOM INCORPORATED
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
JUNE 30, 1996
DECEMBER 31, ------------------------
-------------------- PRO FORMA
1994 1995 ACTUAL (NOTE 1)
--------- --------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
Current assets:
Cash............................................................ $ 94 $ 30 $ 32 $ 32
Accounts receivable, net........................................ 4,975 6,424 11,009 11,009
Inventories..................................................... 6,187 7,250 11,413 11,413
Deferred income taxes........................................... 1,273 1,415 1,738 1,738
Prepaid expenses and other current assets....................... 489 412 361 361
--------- --------- ----------- -----------
Total current assets...................................... 13,018 15,531 24,553 24,553
Property and equipment, net....................................... 3,806 4,358 4,566 4,566
Due from Axel Johnson............................................. 3,175 5,186 2,452 2,452
Intangible assets, net............................................ 1,635 526 250 250
Other assets...................................................... 138 138 138 138
--------- --------- ----------- -----------
Total assets.............................................. $ 21,772 $ 25,739 $ 31,959 $ 31,959
--------- --------- ----------- -----------
--------- --------- ----------- -----------
LIABILITIES AND STOCKHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................ $ 2,183 $ 2,416 $ 5,279 $ 5,279
Accrued expenses and other current liabilities.................. 3,315 4,510 5,385 5,385
Note payable to Axel Johnson.................................... -- -- -- 25,000
--------- --------- ----------- -----------
Total current liabilities................................. 5,498 6,926 10,664 35,664
--------- --------- ----------- -----------
Deferred income taxes............................................. 567 577 553 553
Commitments and contingencies (Notes 7 and 8)
Stockholder's equity (deficit):
Preferred Stock, $0.01 par value, 5,000,000 shares authorized,
no shares issued or outstanding............................... -- -- -- --
Class A Common Stock, $0.01 par value, 100,000,000 shares
authorized, no shares issued and outstanding.................. -- -- -- --
Class B Common Stock, $0.01 par value, 11,900,000 shares
authorized, issued and outstanding............................ 119 119 119 119
Additional paid-in-capital...................................... 13,171 13,171 13,171 13,171
Retained earnings (accumulated deficit)......................... 2,417 4,946 7,452 (17,548)
--------- --------- ----------- -----------
Total stockholder's equity (deficit)...................... 15,707 18,236 20,742 (4,258)
--------- --------- ----------- -----------
Total liabilities and stockholder's equity (deficit)...... $ 21,772 $ 25,739 $ 31,959 $ 31,959
--------- --------- ----------- -----------
--------- --------- ----------- -----------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
LARSCOM INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues................................................... $ 39,035 $ 36,550 $ 48,663 $ 23,198 $ 30,624
Cost of revenues........................................... 14,989 15,037 21,147 9,651 13,760
--------- --------- --------- --------- ---------
Gross profit............................................. 24,046 21,513 27,516 13,547 16,864
--------- --------- --------- --------- ---------
Operating expenses:
Research and development................................. 6,269 6,703 7,143 3,756 3,631
Selling, general and administrative...................... 13,629 13,385 15,762 7,644 8,909
--------- --------- --------- --------- ---------
Total operating expenses............................. 19,898 20,088 22,905 11,400 12,540
--------- --------- --------- --------- ---------
Income from operations..................................... 4,148 1,425 4,611 2,147 4,324
Interest income............................................ -- 9 3 3 --
--------- --------- --------- --------- ---------
Income before income taxes................................. 4,148 1,434 4,614 2,150 4,324
Provision for income taxes................................. 1,853 773 2,085 971 1,818
--------- --------- --------- --------- ---------
Net income................................................. $ 2,295 $ 661 $ 2,529 $ 1,179 $ 2,506
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma net income per share (unaudited)................. $ 0.18 $ 0.18
Shares used to compute pro forma net income per share
(unaudited).............................................. 14,013 14,013
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
LARSCOM INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED
YEARS ENDED DECEMBER 31, JUNE 30,
------------------------------- --------------------
1993 1994 1995 1995 1996
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income............................................ $ 2,295 $ 661 $ 2,529 $ 1,179 $ 2,506
Adjustments to reconcile net income
to net cash provided by (used for)
operating activities:
Depreciation........................................ 1,312 1,516 1,535 750 971
Amortization........................................ 1,150 1,109 1,109 554 276
Deferred income taxes............................... (143) (126) (132) -- (347)
Changes in assets and liabilities:
Accounts receivable............................... (1,264) 386 (1,449) (822) (4,585)
Inventories....................................... 283 (1,078) (1,063) (1,292) (4,163)
Prepaid expenses and other current assets......... (301) 82 77 (233) 51
Accounts payable.................................. (216) 983 233 695 2,863
Accrued expenses and other
current liabilities............................. 415 (594) 1,195 279 875
--------- --------- --------- --------- ---------
Net cash provided by (used for) operating
activities.................................... 3,531 2,939 4,034 1,110 (1,553)
--------- --------- --------- --------- ---------
Cash flows from investing activities used for the
purchase of property and equipment.................... (1,926) (1,407) (2,087) (828) (1,179)
--------- --------- --------- --------- ---------
Cash flows from financing activities related to advances
from (repayments to) Axel Johnson..................... (1,585) (1,721) (2,011) (342) 2,734
--------- --------- --------- --------- ---------
Increase (decrease) in cash............................. 20 (189) (64) (60) 2
Cash at beginning of period............................. 263 283 94 94 30
--------- --------- --------- --------- ---------
Cash at end of period................................... $ 283 $ 94 $ 30 $ 34 $ 32
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
LARSCOM INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
CLASS B
COMMON STOCK ADDITIONAL TOTAL
---------------------- PAID-IN RETAINED EARNINGS STOCKHOLDER'S
SHARES AMOUNT CAPITAL (ACCUMULATED DEFICIT) EQUITY
--------- ----------- ----------- --------------------- ------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1992.................. 11,900 $ 119 $ 13,171 $ (539) $ 12,751
Net income.................................... -- -- -- 2,295 2,295
--------- ----- ----------- ------ ------------
Balance at December 31, 1993.................. 11,900 119 13,171 1,756 15,046
Net income.................................... -- -- -- 661 661
--------- ----- ----------- ------ ------------
Balance at December 31, 1994.................. 11,900 119 13,171 2,417 15,707
--------- ----- ----------- ------ ------------
Net income.................................... -- -- -- 2,529 2,529
--------- ----- ----------- ------ ------------
Balance at December 31, 1995.................. 11,900 119 13,171 4,946 18,236
Net income (unaudited)........................ -- -- -- 2,506 2,506
--------- ----- ----------- ------ ------------
Balance at June 30, 1996 (unaudited).......... 11,900 $ 119 $ 13,171 $ 7,452 $ 20,742
--------- ----- ----------- ------ ------------
--------- ----- ----------- ------ ------------
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
Larscom Incorporated (the "Company") is a wholly-owned subsidiary of Axel
Johnson Inc. ("Axel Johnson"). The Company was acquired by Axel Johnson in
December 1987 in a business combination accounted for as a purchase. On the date
of acquisition, the financial position of the Company was adjusted to the fair
value of assets acquired and liabilities assumed by Axel Johnson. All
adjustments to the Company's financial position by Axel Johnson at the date of
acquisition have been pushed down to the Company's financial statements.
The Company develops, manufactures and markets a broad range of high speed,
global internetworking solutions for network service providers and corporate
users. The Company operates in one industry segment.
THE RECAPITALIZATION
In October 1996, the Company's Board of Directors approved a plan to
recapitalize the Company to be effected prior to a proposed initial public
offering (the "Offering") by authorizing (i) Class A Common Stock consisting of
100,000,000 shares, (ii) Class B Common Stock consisting of 11,900,000 shares
and (iii) 5,000,000 shares of undesignated Preferred Stock. Additionally, the
Company's existing Common Stock will be reclassified as Class B Common Stock and
a 1,190-to-one stock split of the Class B Common Stock will be effected. The
accompanying consolidated financial statements have been restated to reflect the
recapitalization and the stock split in all periods presented.
In August 1996, the Company declared a dividend of $25.0 million to Axel
Johnson evidenced by an interest bearing promissory note. (See Note 9.) The
unaudited pro forma effect of this transaction has been reflected on the
accompanying consolidated balance sheet at June 30, 1996.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiary. All material intercompany transactions and
balances have been eliminated in consolidation. The Company's investment in a
less than 50% owned entity is accounted for using the equity method.
MANAGEMENT ESTIMATES AND ASSUMPTIONS
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
CASH
The Company participates in Axel Johnson's centralized cash management
system. In general, the cash funding requirements of the Company have been met
by, and substantially all cash generated by the Company has been transferred to,
Axel Johnson. Subsequent to the Offering, the Company will continue to
participate in Axel Johnson's centralized cash management system on a
transitional basis until it establishes its own separate centralized cash
management system. Average daily net balances owed to Axel Johnson will incur
interest at the same rate as set forth in the Line of Credit Agreement. (See
Note 9.) Average daily net balances due from Axel Johnson will earn interest at
the average rate earned by Axel
F-7
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
Johnson on its investments. Proceeds of the Offering will be deposited in a
separate account of the Company.
REVENUE RECOGNITION
Revenue from product sales is recognized upon shipment of the product. The
Company, in general, does not grant a right of return to its customers.
The following table summarizes the percentage of total sales for customers
accounting for more than 10% of the Company's sales:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
<S> <C> <C> <C>
MCI............................................................ 13.0% 15.3% 17.9%
IBM/Advantis................................................... 13.7%
</TABLE>
INVENTORIES
Inventories are stated at the lower of cost, determined using the first-in
first-out method, or market.
INTANGIBLE ASSETS
Purchased identifiable intangible assets are amortized using the
straight-line method over their estimated useful lives of five to ten years.
Goodwill, representing the excess of purchase price over the fair value of net
assets acquired is amortized over periods ranging from five to eight years on a
straight-line basis. At each balance sheet date, a review is performed by
management to ascertain whether intangibles have been impaired based on several
criteria, including, but not limited to, revenue trends, undiscounted operating
cash flows and other operating factors.
On January 1, 1996, the Company adopted Statement of Financial Accounting
Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and
Long-Lived Assets to be Disposed Of." This statement established accounting
standards for the impairment of long lived assets, certain identifiable
intangibles and goodwill. The adoption of this statement had no effect on the
Company's financial position or results of operations.
PROPERTY AND EQUIPMENT
Property and equipment are recorded at cost. Depreciation and amortization
are computed using the straight-line method based upon the estimated useful
lives of the assets, which range from three to five years. Leasehold
improvements are amortized using the straight-line method based upon the shorter
of the estimated useful lives, or the lease term of the respective assets, if
applicable.
CONCENTRATIONS OF CREDIT RISK
Financial instruments which subject the Company to concentrations of credit
risk consist primarily of accounts receivable. The Company's accounts receivable
is derived from sales to customers primarily in the United States. The Company
performs ongoing credit evaluations of its customers, and generally requires no
collateral from its customers. The Company maintains reserves for potential
credit losses, and to date
F-8
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
has not experienced any material losses. At December 31, 1994 and 1995,
receivables from two customers represented 20.6% and 10.2%, and 22.9% and 11.5%,
respectively, of gross accounts receivable.
RESEARCH AND DEVELOPMENT
All research and development costs, including the software development costs
discussed below, are charged to expense as incurred.
SOFTWARE DEVELOPMENT COSTS
Software development costs incurred prior to establishment of technological
feasibility are expensed as research and development costs. Costs incurred
subsequent to the establishment of technological feasibility, and prior to the
general release of the product to the public, were not significant for all
periods presented and accordingly have been expensed.
WARRANTY
The Company generally provides a two-year warranty for its products. A
provision for the estimated cost of warranty is recorded at the time revenue is
recognized.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their financial statement reported amounts. Current tax expense
has been determined as if the Company was a separate taxpayer. Income taxes
currently payable are deemed to have been remitted by the Company to Axel
Johnson in the period that the liability arose. Income taxes currently
receivable are deemed to have been received by the Company from Axel Johnson in
the period that a refund could have been recognized by the Company had the
Company been a separate taxpayer. The Company has entered into an income tax
sharing agreement with Axel Johnson effective upon the consummation of the
Offering, pursuant to which either the Company or Axel Johnson, as appropriate,
will make a payment to the other, an amount in respect of income taxes
attributable to the Company for the period from January 1, 1996 to the date on
which the Company ceases to be a member of the Axel Johnson consolidated group.
After the consummation of the Offering, the Company will make its own tax
filings.
PENSIONS
Axel Johnson has a noncontributory funded defined benefit pension plan and
an unfunded retirement restoration plan covering substantially all the Company's
employees. The cost of these plans has been allocated to the Company based on
the compensation of the Company's employees. Amounts so allocated are not
necessarily indicative of the pension cost that would have been incurred if the
Company maintained its own benefit plans.
Pension cost allocated to the Company is recorded in the "Due from Axel
Johnson" balance. The Company's exposure to retirement benefits is limited to
the cost so allocated.
F-9
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 1--THE COMPANY AND A SUMMARY OF ITS SIGNIFICANT ACCOUNTING POLICIES:
(CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
For all financial instruments, including accounts receivable, accounts
payable, accrued expenses and other liabilities, the carrying value is
considered to approximate fair value due to the relatively short maturities of
the respective instruments.
PRO FORMA NET INCOME PER SHARE
Pro forma net income per share is computed using the weighted average number
of shares of common stock outstanding during the period. The weighted average
number of shares of common stock also includes a number of common shares,
calculated using the assumed net proceeds per share of common stock in the
proposed Offering, which would be required to pay the $25.0 million dividend to
Axel Johnson. Net income per share for periods prior to 1995 has not been
presented as such presentation is not meaningful.
INTERIM RESULTS (UNAUDITED)
The accompanying consolidated balance sheet at June 30, 1996, the
consolidated statements of operations and cash flows for the six months ended
June 30, 1995 and June 30, 1996 and the consolidated statement of stockholders'
equity for the six months ended June 30, 1996 are unaudited. In the opinion of
management, these statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting of
only normal recurring adjustments, necessary for the fair statement of the
results for such six month periods. The data disclosed in the Notes to the
Consolidated Financial Statements as of such dates and for these periods are
unaudited.
F-10
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
DECEMBER 31, JUNE 30,
-------------------- 1996
1994 1995 (UNAUDITED)
--------- --------- -----------
(IN THOUSANDS)
<S> <C> <C> <C>
Accounts receivable:
Gross accounts receivable.......................................... $ 5,035 $ 6,514
Less: Allowance for doubtful accounts.............................. (60) (90)
--------- ---------
$ 4,975 $ 6,424
--------- ---------
--------- ---------
Inventories:
Raw materials...................................................... $ 1,714 $ 1,338 $ 2,258
Work-in-process.................................................... 2,823 3,834 5,437
Finished goods..................................................... 1,650 2,078 3,718
--------- --------- -----------
$ 6,187 $ 7,250 $ 11,413
--------- --------- -----------
--------- --------- -----------
Property and equipment:
Machinery and equipment............................................ $ 4,621 $ 5,848
Computers and software............................................. 2,708 3,486
Leasehold improvements............................................. 922 647
Furniture and fixtures............................................. 622 979
--------- ---------
8,873 10,960
Less: Accumulated depreciation..................................... (5,067) (6,602)
--------- ---------
$ 3,806 $ 4,358
--------- ---------
--------- ---------
Intangible assets:
Goodwill........................................................... $ 6,481 $ 6,481
Other intangible assets............................................ 1,013 1,013
--------- ---------
7,494 7,494
Less: Accumulated amortization..................................... (5,859) (6,968)
--------- ---------
$ 1,635 $ 526
--------- ---------
--------- ---------
Accrued expenses and other current liabilities:
Accrued compensation............................................... $ 1,517 $ 2,687
Accrual for contractual matters (See Note 8)....................... 663 757
Other current liabilities.......................................... 1,135 1,066
--------- ---------
$ 3,315 $ 4,510
--------- ---------
--------- ---------
</TABLE>
F-11
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 3--RELATED PARTY TRANSACTIONS:
TRANSACTIONS WITH AXEL JOHNSON
Related party transactions with Axel Johnson not disclosed elsewhere in the
consolidated financial statements are as follows:
DUE FROM AXEL JOHNSON
Amounts due from Axel Johnson consist of cash remittances made by the
Company to Axel Johnson from its operating bank accounts offset by cash advances
to the Company from Axel Johnson for purchases of property and equipment,
acquisitions, current income tax liabilities and fluctuating working capital
needs. Neither Axel Johnson nor the Company has charged interest on the balances
due.
EMPLOYEE BENEFIT PROGRAMS
The Company participates in various employee benefit programs which are
sponsored by Axel Johnson. These programs include medical, dental and life
insurance and workers' compensation. The Company reimburses Axel Johnson for its
proportionate cost of these programs based on historical experience and relative
headcount. The costs reimbursed to Axel Johnson include costs for reported
claims, as well as incurred but not reported claims. The Company recorded
expense related to the reimbursement of these costs of approximately $532,000,
$652,000 and $534,000 in 1993, 1994 and 1995, respectively. The costs are
charged to cost of revenues, research and development expenses and selling,
general and administrative expenses based on the relative aggregate compensation
of the employees in each of these categories. The Company believes the
allocation by Axel Johnson of the proportionate cost is reasonable but is not
necessarily indicative of the costs that would have been incurred had the
Company maintained its own benefit plans.
ADMINISTRATIVE SERVICES
Axel Johnson provides limited services to the Company, including certain
treasury, accounting, tax, internal audit, legal and human resources functions.
The costs of these functions have been allocated to the Company based on
estimates of actual costs incurred. Management believes that such allocations
are reasonable. Such charges and allocations are not necessarily indicative of
the costs that would have been incurred if the Company had been a separate
entity. The allocated costs of these services amounting to $491,000, $526,000
and $549,000 in 1993, 1994 and 1995, respectively, have been included in
selling, general and administrative expenses in the consolidated statements of
operations. The Company will enter into a transitional administrative services
agreement with Axel Johnson effective upon consummation of the Offering,
pursuant to which Axel Johnson will continue to provide the services outlined
above for an initial annual fee of $622,000.
LARVAN LEASE
The Company leases its principal facilities from Larvan Properties
("Larvan"), a general partnership in which the Company owns a one-third
interest. The Company paid $275,000, $278,000 and $278,000 in rent expense to
Larvan and earned partnership income of $27,000, $46,000 and $36,000 in 1993,
1994 and 1995, respectively.
F-12
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 4--CAPITAL STOCK:
The authorized capital stock of the Company consists of 100,000,000 shares
of Class A Common Stock, 11,900,000 shares of Class B Common Stock and 5,000,000
shares of Preferred Stock, each with a par value of $0.01 per share.
COMMON STOCK
DIVIDENDS
Holders of Common Stock are entitled to receive such dividends when, if and
as may be declared by the Board of Directors out of funds legally available for
such purposes. No dividends may be declared or paid on any share of any class of
Common Stock, unless such dividends, at the same rate per share on an as
converted basis, are simultaneously declared or paid on each share of the other
class of Common Stock.
VOTING RIGHTS
Holders of Class A Common Stock are entitled to one vote per share and
holders of Class B Common Stock are entitled to four votes for each share of
Class A Common Stock into which the Class B Common Stock is convertible. Holders
of shares of Common Stock will vote as a single class on all matters submitted
to a vote of stockholders, except as otherwise required by law.
CONVERTIBILITY
Each share of Class B Common Stock is convertible, at the option of its
holder, into one share of Class A Common Stock at any time, subject to
adjustment for stock dividends, stock splits, subdivisions or combinations with
respect to the Class A Common Stock. The shares of Class A Common Stock are not
convertible into shares of Class B Common Stock.
LIQUIDATION RIGHTS
Upon liquidation, dissolution or winding up of the Company, the holders of
Class A Common Stock are entitled to share ratably on an as converted basis with
the holders of Class B Common Stock in all assets available for distributions
after payment in full to creditors.
OTHER PROVISIONS
The holders of Common Stock are not entitled to preemptive or subscription
rights. In any merger, consolidation or business combination, the consideration
to be received per share by holders of Class A Common Stock must be identical to
that received by holders of Class B Common Stock on an as converted basis.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000
undesignated shares of Preferred Stock in one or more series and to fix the
rights, preferences, privileges and restrictions thereof, including dividend
rights, conversion rights, voting rights, terms of redemption, liquidation
preferences, sinking fund terms and the number of shares constituting any series
or the designation of such series, without any further vote or action by
stockholders.
F-13
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES:
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal........................................................ $ 1,586 $ 764 $ 1,782
State.......................................................... 410 135 435
--------- --------- ---------
1,996 899 2,217
--------- --------- ---------
Deferred:
Federal........................................................ (117) (149) (63)
State.......................................................... (26) 23 (69)
--------- --------- ---------
(143) (126) (132)
--------- --------- ---------
Provision for income taxes....................................... $ 1,853 $ 773 $ 2,085
--------- --------- ---------
--------- --------- ---------
</TABLE>
The following is a reconciliation of the U.S. federal income tax rate to the
Company's effective income tax rate:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------------
1993 1994 1995
----------- ----------- -----------
<S> <C> <C> <C>
Provision at statutory rate................................... 34.0% 34.0% 34.0%
State income taxes, net of federal tax benefits............... 6.1 7.3 5.2
Research and development credits.............................. (3.4) (11.6) (1.9)
Non-deductible goodwill amortization.......................... 7.7 22.2 6.9
Other......................................................... 0.3 2.0 1.0
----- ----- -----
Effective rate................................................ 44.7% 53.9% 45.2%
----- ----- -----
----- ----- -----
</TABLE>
For the six months ended June 30, 1996, an overall effective rate of 42.0%
was used which reflects the Company's estimate of the effective rate for the
year ending December 31, 1996. The difference between the effective rate of
42.0% and the U.S. federal income tax rate of 34.0% reflects primarily the tax
effects of non-deductible goodwill amortization and state income taxes.
F-14
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 5--INCOME TAXES: (CONTINUED)
Deferred tax assets (liabilities) are comprised of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------
1994 1995
--------- ---------
(IN THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Accrued expenses......................................................... $ 872 $ 1,051
Reserves................................................................. 385 347
Other.................................................................... 16 17
--------- ---------
$ 1,273 $ 1,415
--------- ---------
--------- ---------
Deferred tax liabilities:
Depreciation and amortization............................................ (554) (513)
Other.................................................................... (13) (64)
--------- ---------
$ (567) $ (577)
--------- ---------
--------- ---------
</TABLE>
NOTE 6--RETIREMENT PLANS:
THRIFT PLAN
The Company participates in the Axel Johnson Inc. Thrift Plan (the "Thrift
Plan") qualified under Section 401(k) of the Internal Revenue Code. The Thrift
Plan allows employees to defer up to 16% of their compensation not to exceed the
amount allowed by the applicable Internal Revenue Service guidelines. The
Company matches 60% of employee contributions made on a pre-tax basis and 30% of
employee contributions made on a post-tax basis, subject to a maximum of 6% of
total eligible employee compensation. Company contributions vest ratably over
five years of service or two years of plan participation, whichever occurs
first. Contributions by the Company under the Thrift Plan amounted to $247,000,
$297,000 and $345,000 in 1993, 1994 and 1995, respectively.
PENSION PLAN
The Company's employees participate in a noncontributory defined benefit
pension plan sponsored by Axel Johnson. Benefits under the plan are based on
years of service and employees' compensation. The plan's assets are invested
principally in equity and fixed-income securities. It is Axel Johnson's policy
to satisfy the minimum funding requirements of the Employee Retirement Income
Security Act of 1974 (ERISA).
Net periodic pension cost was determined by measuring the Projected Benefit
Obligation ("PBO") for the Company's employees using a discount rate of 7.4%,
8.3% and 8.5%, and an assumed long-term rate of compensation of 5.0%, 4.0% and
5.3% in 1993, 1994 and 1995, respectively. The PBO for such employees was
determined using a discount rate of 8.5% and 7.3% at December 31, 1994 and 1995,
respectively. The PBO so measured was $2,504,000 and $3,566,000 at December 31,
1994 and 1995, respectively.
Certain elements of pension cost, including expected return on assets (which
was 9% in 1993, 1994 and 1995), and net amortization, were allocated based on
the relationship of the PBO for the Company to
F-15
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 6--RETIREMENT PLANS: (CONTINUED)
the total PBO of the defined benefit pension plan. The elements of pension cost
allocated to the Company using this method were:
<TABLE>
<CAPTION>
YEARS ENDED DECEMBER 31,
-------------------------------
1993 1994 1995
--------- --------- ---------
(IN THOUSANDS)
<S> <C> <C> <C>
Service cost........................................................ $ 433 $ 504 $ 496
Interest cost....................................................... 160 192 245
Net amortization.................................................... (6) (3) (7)
Expected return on assets........................................... (133) (173) (213)
--------- --------- ---------
Net periodic pension cost....................................... $ 454 $ 520 $ 521
--------- --------- ---------
--------- --------- ---------
</TABLE>
The Company's employees also are eligible to participate in the Axel Johnson
retirement restoration plan. This plan is for employees whose benefits under the
defined benefit pension plans are reduced due to limitation under federal tax
laws. The Company's pension expense for this plan, using the same methodology as
described above, was $0, $33,000 and $32,000 in 1993, 1994 and 1995,
respectively. The projected benefit obligation at December 31, 1994 and 1995 was
$118,000 and $150,000, respectively.
NOTE 7--LEASES:
The Company leases its primary facilities from a related party under a lease
which expires in January 1998. (See Note 3.) Total rent expense in 1993, 1994
and 1995 was $557,000, $585,000 and $515,000, respectively. Future annual
minimum lease payments under all noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
AMOUNT
-------------
(IN
THOUSANDS)
<S> <C>
Years ending December 31,
1996......................................................................... $ 438
1997......................................................................... 448
1998......................................................................... 171
1999......................................................................... 142
2000 and thereafter.......................................................... 210
------
$ 1,409
------
------
</TABLE>
NOTE 8--COMMITMENTS AND CONTINGENCIES:
The Company is one of the guarantors of a $150.0 million revolving line of
credit and a $50.0 million term loan obtained by Axel Johnson. Axel Johnson
expects to obtain the release of such guarantees on behalf of the Company prior
to the consummation of the Offering.
The Company has a potential unasserted claim relating to its pricing under
certain product supply contracts. Management has made an assessment of this
matter which involves numerous complex issues. Although a possibility exists
that the ultimate resolution could reach $1.3 million or more, management
believes, after consultation with its outside advisors, that the Company's
likely exposure for this matter is $800,000, which includes estimated fees and
associated costs, and the Company has established a reserve for this amount. In
management's opinion, the ultimate resolution of this matter will not have a
material
F-16
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 8--COMMITMENTS AND CONTINGENCIES: (CONTINUED)
adverse effect on the Company's financial position or results of operations. The
Company recorded expenses of $238,000, $100,000, $94,000 and $43,000 in 1993,
1994, 1995 and the six months ended June 30, 1996, respectively, and had
accruals related to the potential unasserted claim of $663,000, $757,000 and
$800,000 at December 31, 1994, December 31, 1995 and June 30, 1996,
respectively.
In its distribution agreements, the Company typically agrees to indemnify
its customers for any expenses or liabilities resulting from claimed
infringements of patents, trademarks or copyrights of third parties.
NOTE 9--SUBSEQUENT EVENTS:
PROMISSORY NOTE
In August 1996, the Company declared a dividend of $25.0 million, evidenced
by a note payable to Axel Johnson, bearing interest at 7.5% per annum, payable
semi-annually. The principal amount is repayable on the earlier of August 22,
1999 or the occurrence of any of the following events: (i) the Company's total
stockholders' equity equals or exceeds $40.0 million or (ii) the Company sells
all or substantially all of its assets or (iii) Axel Johnson nominates less than
a majority of the persons to be elected to the Board of Directors.
PROPOSED INITIAL PUBLIC OFFERING (UNAUDITED)
In October 1996, the Company intends to file a Registration Statement
related to the sale of 7,000,000 shares of Class A Common Stock to underwriters
for sale to the public of which 5,800,000 shares are being sold by the Company
and 1,200,000 shares are being sold by Axel Johnson. Following completion of
such Offering, Axel Johnson will continue to own approximately 60.5% of the
Company's total outstanding Common Stock. It is expected that the Offering will
trigger payment of the promissory note to Axel Johnson, as discussed above.
EMPLOYEE STOCK PURCHASE PLAN
Effective October 1996, the Company's Board of Directors adopted an Employee
Stock Purchase Plan (the "Purchase Plan"), for which 310,000 shares of Class A
Common Stock have been reserved for issuance. Eligible employees can have up to
10% of their total compensation withheld to be used to purchase shares of the
Class A Common Stock on specified dates determined by the Board of Directors.
The price of Class A Common Stock purchased under the Purchase Plan will be
equal to 85% of the lower of the fair market value of the Class A Common Stock
on the first or last date of each offering period or a higher price if specified
by the Board of Directors. The Purchase Plan will become effective upon the
closing of the Offering.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
In October 1996, the Company adopted a Stock Option Plan for Non-Employee
Directors (the "Directors' Plan") and reserved a total of 205,000 shares of the
Company's Class A Common Stock for issuance thereunder. The Directors' Plan
provides for the grant of stock options pursuant to an automatic grant mechanism
to members of the Board of Directors who are not employees of the Company or of
Axel Johnson. Each non-employee director will receive an initial grant, upon
first becoming a director (or, in the case of current non-employee directors,
upon consummation of the Offering), to purchase a total of
F-17
<PAGE>
LARSCOM INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
NOTE 9--SUBSEQUENT EVENTS: (CONTINUED)
18,000 shares of Class A Common Stock, and each year thereafter will receive an
option to purchase a total of 6,000 shares of Class A Common Stock. Each option
is granted at an exercise price equal to fair market value on date of grant.
Each initial grant vests in three equal annual occurrences, and each annual
grant vests in full on the three years following the date of grant. Options
expire one year after termination of Board Service or ten years after the date
of grant and vest over approximately a three year period. The Directors Plan
will become effective upon the closing of the Offering.
STOCK INCENTIVE PLAN
In October 1996, the Company's Board of Directors approved a Stock Incentive
Plan (the "Incentive Plan") for which 2,485,000 shares of Class A Common Stock
have been reserved for issuance thereunder. The Incentive Plan which will become
effective upon the closing of the Offering, provides for the grant of incentive
stock options, non-qualified stock options, stock appreciation rights and stock
bonus awards to employees or eligible consultants. The Incentive Plan is
administered by the Compensation Committee of the Board of Directors (the
"Administrator"). With respect to any participant who owns stock possessing more
than ten percent of the voting power of all classes of the Company's outstanding
capital stock (a 10% stockholder), the exercise price of any incentive stock
option granted must equal 110% of the fair market value on the grant date. The
exercise price of incentive stock options for all other employees shall be no
less than 100% of the fair market value per share on the date of the grant. The
maximum term of an option granted under the Incentive Plan may not exceed ten
years from the date of grant (five years in the case of an incentive stock
option granted to a 10% stockholder). Upon the consummation of the Offering,
stock options to purchase an aggregate of 1,300,000 shares of Class A Common
Stock will be granted at the Offering price. These options, subject to
acceleration under certain circumstances, will become exercisable in five annual
installments over a five year period after the Offering.
LINE OF CREDIT AGREEMENT
The Company and Axel Johnson will enter into a credit agreement upon the
consummation of the Offering, pursuant to which Axel Johnson has agreed to
provide a revolving credit/working capital facility (the "Credit Agreement") to
the Company in an aggregate amount of up to $15.0 million. The Credit Agreement
has a term of 24 months, and any loans thereunder bear interest during each
calendar quarter at a rate per annum equal to the sum of the three month London
Interbank Offered Rate (LIBOR), plus 2.0% initially on the date when the loan is
made and adjusted thereafter on the first business day of each calendar quarter.
Additionally, the Company will be required to pay a commitment fee of 0.5% per
annum on the unused portion of the Credit Agreement. The Company will be
required to maintain compliance with certain covenants under the Credit
Agreement.
F-18
<PAGE>
[CHART]
Set forth here, under the title Customer Applications, are two separate
diagrams illustrating applications of Larscom products. Each diagram is in a
separate outline box. The Larscom wordmark appears above the title at the top of
the page.
The upper diagram is labeled Digital Network Microwave--Broadband WAN at the
bottom within the outline box. A map of the states of INDIANA, KENTUCKY, OHIO,
W. VIRGINIA, and VIRGINIA (so labeled) serves as the background for the diagram.
Arranged across the map are six boxes labeled Orion 4000 and also containing one
of the following place indications (clockwise from top right): Canton OH;
Roanoke, VA; Charleston, WV; Columbus, OH; Fort Wayne, IN; Cook Nuclear Plant.
There are also seven boxes labeled ATM Switch. Six of these are associated with
the individual Orion 4000 boxes, and each is connected to its associated Orion
4000 box by a single line. The seventh ATM Switch box is located between the
Orion 4000 boxes labeled Charleston, WV and Columbus, OH, and is labeled
Ashland, KY below the box; it is connected by one line each to the ATM switch
boxes associated with the three Orion 4000 boxes labeled Canton, OH, Charleston,
WV, and Columbus, OH. An additional line connects the two Orion 4000 boxes
labeled Canton, OH and Charleston, WV.
The following lines are labeled 4 T1s via Digital Microwave: ATM Switch to
associated Orion 4000 box labeled Cook Nuclear Plant; Orion 4000 box labeled
Cook Nuclear Plant to Orion 4000 box labeled Canton, OH: Orion 4000 box labeled
Canton, OH to Orion 4000 box labeled Roanoke, VA; Orion 4000 box labeled Canton,
OH to Orion 4000 box labeled Charleston, WV; Orion 4000 box labeled Columbus, OH
to Orion 4000 box labeled Fort Wayne, IN. The following lines are labeled Leased
T3: ATM Switch labeled Ashland, KY to ATM Switch associated with Orion 4000 box
labeled Cook Nuclear Plant; ATM Switch associated with Orion 4000 box labeled
Roanoke, VA to ATM Switch associated wtih Orion 4000 box labeled Charleston, WV.
The following lines are labeled Leased T3: ATM Switch labeled Ashland, KY to ATM
Switch associated with Orion 4000 box labeled Columbus, OH; ATM Switch labeled
Ashland, KY to ATM Switch associated with Orion 4000 box labeled Charleston, WV.
The lower diagram is labeled European University Network -- NORDUNet at the
bottom within the outline box. A map of Scandinavia serves as the background for
the diagram, at the center of which is a representation of a cloud labeled
Network. At each of the four corners of the diagram is a box labeled Orion
4000/5 outside, each associated with a small small box labeled Router to which
it is connected by a single short line. Each Orion 4000/5 and router combination
is labeled with a city name: Helsinki in the upper right, Stockholm in the lower
right, Copenhagen in the lower left, and Oslo in the upper left. The Orion
4000/5 labeled Oslo is connected to the Network cloud by four parallel lines
labeled E1s. The Orion 40000/5 boxes labeled Helsinki and Copenhagen are
connected to the Network cloud in exactly the same manner. The Orion 4000/5
labeled Stockholm is connected to an associated unlabeled box by three sets of
four parallel lines labeled E1s; the unlabeled box is in turn connected to the
Network cloud by two parallel lines labeled E3s (redundant). The diagram
represents an internetwork in which each of the Oslo, Helsinki, and Copenhagen
sites is linked to the Stockholm site by a 4xE1 channel.
<PAGE>
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE 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, THE SELLING STOCKHOLDER OR ANY OF THE UNDERWRITERS.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A SOLICITATION OF AN
OFFER TO BUY, ANY SECURITIES OTHER THAN THE SHARES OF CLASS A COMMON STOCK TO
WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY
JURISDICTION WHERE SUCH AN OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATES ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR 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........................................................ 3
RISK FACTORS.............................................................. 7
USE OF PROCEEDS........................................................... 15
DIVIDEND POLICY........................................................... 15
CAPITALIZATION............................................................ 16
DILUTION.................................................................. 17
SELECTED CONSOLIDATED FINANCIAL DATA...................................... 18
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.............................................................. 19
BUSINESS.................................................................. 20
MANAGEMENT................................................................ 39
RELATIONSHIP BETWEEN THE COMPANY AND AXEL JOHNSON......................... 46
PRINCIPAL AND SELLING STOCKHOLDER......................................... 49
DESCRIPTION OF CAPITAL STOCK.............................................. 50
SHARES ELIGIBLE FOR FUTURE SALE........................................... 52
UNDERWRITING.............................................................. 54
LEGAL MATTERS............................................................. 56
EXPERTS................................................................... 56
ADDITIONAL INFORMATION.................................................... 56
GLOSSARY OF TERMS......................................................... 57
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS................................ F-1
</TABLE>
----------------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE CLASS A COMMON STOCK OFFERED HEREBY,
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.
7,000,000 SHARES
[LOGO]
CLASS A COMMON STOCK
-----------------
PROSPECTUS
-----------------
MONTGOMERY SECURITIES
COWEN & COMPANY
PUNK, ZIEGEL & KNOELL
, 1996
- ----------------------------------------------
----------------------------------------------
- ----------------------------------------------
----------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable in connection with the sale of
the Class A Common Stock being registered. All amounts are estimates except the
SEC registration fee and the NASD filing fee.
<TABLE>
<CAPTION>
<S> <C>
SEC Registration Fee............................................ $ 34,152
NASD Filing Fee................................................. 11,770
Nasdaq NMS Fees................................................. 50,000
Printing Expenses............................................... 200,000
Legal Fees and Expenses......................................... 400,000
Accounting Fees and Expenses.................................... 350,000
D&O Liability Insurance......................................... 250,000
Blue Sky Fees and Expenses...................................... 7,500
Transfer Agent, Custodial and Registrar Fees.................... 7,500
Miscellaneous................................................... 189,078
----------
Total......................................................... $1,500,000
----------
----------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the DGCL authorizes a court to award, or a corporation's
Board of Directors to grant, indemnity to directors and officers in terms
sufficiently broad to permit such indemnification under certain circumstances
for liabilities (including reimbursement for expenses incurred) arising under
the Securities Act of 1933, as amended (the "Securities Act"). Article Ninth of
the Registrant's Amended and Restated Articles of Incorporation (Exhibit 3.2
hereto) and Article VI of the Registrant's Amended By-laws (Exhibit 3.4 hereto)
will provide for indemnification of its directors, officers, employees, and
other agents to the maximum extent permitted by the DGCL. Reference is also made
to Section 11 of the Underwriting Agreement contained in Exhibit 1.1 hereto,
which provides for the indemnification of officers, directors, and controlling
persons of the Registrant against certain liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
Not applicable.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of the
Registrant
3.3 By-laws of the Registrant
3.4 Form of Amended By-laws of the Registrant
5.1* Opinion of Cahill Gordon & Reindel (a partnership including a
professional corporation)
10.1 Form of Larscom Incorporated Stock Option Plan For Non-Employee
Directors
10.2 Form of Larscom Incorporated Stock Incentive Plan
10.3 Form of Larscom Incorporated Stock Purchase Plan
10.4 Lease Agreement between Larvan Properties and the Company
10.5 Partnership Agreement among Vanderson Construction, Donn H. Byrne,
John D. Brady, Thomas J. Cunningham, Jr. and the Company
10.6 Form of Services Agreement between Axel Johnson and the Company
10.7 Form of Credit Agreement between Axel Johnson and the Company
10.8 Form of Tax Sharing Agreement between Axel Johnson and the Company
10.9 Note between Axel Johnson and the Company dated August 23, 1996
10.10 Form of Registration Rights Agreement between Axel Johnson and the
Company
11.1 Statement re computation of per share earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2* Consent of Cahill Gordon & Reindel (included in Exhibit 5.1)
24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
(b) Financial Statement Schedules
Report of Independent Auditors on Financial Statement Schedule.
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
ITEM 17. UNDERTAKINGS
The undersigned registrant hereby undertakes:
(1) That for purposes of determining any liability under the Securities
Act, the information omitted from the form of Prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4)
or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
II-2
<PAGE>
(2) That for purposes of determining any liability under the Securities
Act, each post-effective amendment that contains a form of prospectus shall
be deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
(3) 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.
(4) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-3
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF PALO ALTO, STATE OF
CALIFORNIA, ON THE 11TH DAY OF OCTOBER, 1996.
LARSCOM INCORPORATED
By: /s/ DEBORAH M. SOON
----------------------------------
Deborah M. Soon
PRESIDENT AND CHIEF EXECUTIVE
OFFICER
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS IN THE
CAPACITIES AND ON THE DATES INDICATED:
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
* Officer, and Director
- ------------------------------ (Chief Executive October 11, 1996
Deborah M. Soon Officer)
Vice President, Finance
* and Chief Financial
- ------------------------------ Officer (Chief Financial October 11, 1996
Bruce D. Horn Officer and Principal
Accounting Officer)
*
- ------------------------------ Director October 11, 1996
Signe S. Gates
*
- ------------------------------ Director October 11, 1996
Paul E. Graf
*
- ------------------------------ Director October 11, 1996
Harvey L. Poppel
*
- ------------------------------ Director October 11, 1996
Joseph F. Smorada
*Pursuant to Power of Attorney
filed with the Commission as
Exhibit 24.1
/s/ DEBORAH M. SOON
- ------------------------------ Attorney-in-Fact October 11, 1996
Deborah M. Soon
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Certificate of Incorporation of the Registrant
3.2 Form of Amended and Restated Certificate of Incorporation of the Registrant
3.3 By-laws of the Registrant
3.4 Form of Amended By-laws of the Registrant
5.1* Opinion of Cahill Gordon & Reindel (a partnership including a professional
corporation)
10.1 Form of Larscom Incorporated Stock Option Plan For Non-Employee Directors
10.2 Form of Larscom Incorporated Stock Incentive Plan
10.3 Form of Larscom Incorporated Stock Purchase Plan
10.4 Lease Agreement between Larvan Properties and the Company
10.5 Partnership Agreement among Vanderson Construction, Donn H. Byrne, John D. Brady,
Thomas J. Cunningham, Jr. and the Company
10.6 Form of Services Agreement between Axel Johnson and the Company
10.7 Form of Credit Agreement between Axel Johnson and the Company
10.8 Form of Tax Sharing Agreement between Axel Johnson and the Company
10.9 Note between Axel Johnson and the Company dated August 23, 1996
10.10 Form of Registration Rights Agreement between Axel Johnson and the Company
11.1 Statement re computation of per share earnings
21.1 Subsidiaries of the Registrant
23.1 Consent of Price Waterhouse LLP
23.2* Consent of Cahill Gordon & Reindel (included in Exhibit 5.1)
24.1 Power of Attorney
27.1 Financial Data Schedule
</TABLE>
- ------------------------
* To be filed by amendment.
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
LARSE CORPORATION
LARSE CORPORATION, a corporation organized and existing under the laws
of the State of Delaware (the "Corporation"), pursuant to the provisions of the
General Corporation Law of the State of Delaware, DOES HEREBY CERTIFY as
follows:
FIRST: The Certificate of Incorporation of the Corporation is hereby
amended by deleting Article First thereof in its present form and substituting
therefor a new Article First in the following form:
FIRST: The name of the Corporation is Larscom Incorporated (the
"Corporation").
SECOND: The amendment to the Certificate of Incorporation of the
Corporation set forth in this Certificate of Amendment has been duly adopted in
accordance with the applicable provisions of Section 242 of the General
Corporation Law of the State of Delaware, (a) the Board of Directors of the
Corporation having duly adopted a resolution setting forth such amendment and
declaring its advisability and (b) in lieu of a meeting and vote of
stockholders, the holders of all of the shares of capital
<PAGE>
-2-
stock of the Corporation entitled to vote thereon, having duly consented in
writing to the adoption of such amendment in accordance with Section 228(f) of
the General Corporation Law of the State of Delaware.
THIRD: The capital of the Corporation will not be reduced under or by
reason of the amendment to its Certificate of Incorporation set forth in this
Certificate of Amendment.
FOURTH: This Certificate of Amendment shall be effective on the 23rd
day of August, 1993.
IN WITNESS WHEREOF, the Corporation has caused its corporate seal to
be hereunto affixed and this Certificate of Amendment to be signed by James
Mongiello, its President and attested by Elizabeth V. Macias, its Assistant
Secretary this 11th day of August, 1993.
LARSE CORPORATION
James Mongiello
------------------------------
ATTEST:
Elizabeth V. Macias
- ------------------------------
Assistant Secretary
<PAGE>
CERTIFICATE OF INCORPORATION
OF
LARSE CORPORATION
THE UNDERSIGNED, for the purpose of forming a Corporation pursuant to
the provisions of the General Corporation Law of the State of Delaware, does
hereby certify as follows:
FIRST: The name of the Corporation is Larse Corporation.
SECOND: The address of the Corporation's registered office in the
State of Delaware is 1209 Orange Street, City of Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust 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 the State of Delaware.
FOURTH: The total number of shares of capital stock which the
Corporation shall have authority to issue is Ten Thousand (10,000) shares of
common stock, $1.00 par value per share.
<PAGE>
-2-
FIFTH: The name and address of the sole incorporator of the
Corporation is Susan Blanchard-Bologna, 110 East 59th Street, New York, N.Y.
10022.
SIXTH: The original by-laws of the Corporation shall be adopted by
the incorporator. Thereafter the Board of Directors of the Corporation may
make, alter, amend or repeal the by-laws of the Corporation.
SEVENTH: Subject to the provisions of the General Corporation Law of
the State of Delaware, the number of directors of the Corporation shall be fixed
and may be altered from time to time as may provided in the by-laws. In case of
any increase in the number of directors, the additional directors shall be
elected by the stockholders at an annual or special meeting, as shall be
provided in the by-laws.
EIGHTH: The Corporation shall indemnify to the full extent authorized
by law any person made or threatened to be made a party to an action or
proceeding, whether criminal, civil, administrative or investigative, by reason
of the fact that he, his testator or intestate is or was a director, officer or
employee of the Corporation or serves or served any other enterprise as a
director, officer or employee at the request of the Corporation or any
predecessor of the Corporation.
<PAGE>
-3-
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, as the same exists or hereafter may be amended, or (iv) for any transaction
from which the director derived an improper personal benefit.
NINTH: Except as otherwise required by the laws of the State of
Delaware, the stockholders and directors shall have the power to hold their
meetings and to keep the books, documents and papers of the Corporation outside
of the State of Delaware, and the Corporation shall have the power to have one
or more offices within or without the State of Delaware, at such places as may
from time to time be designated by the by-laws or by resolution of stockholders
or directors.
TENTH: The Corporation reserves the right to amend, alter, change or
repeal any provision contained in this Certificate of Incorporation, in the
manner now or hereafter prescribed by statute, and all rights conferred upon
stockholders herein are granted subject to this reservation.
<PAGE>
-4-
I, the undersigned, being the incorporator hereinbefore named, for the
purpose of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, do make this certificate, hereby declaring and certifying
that this is my act and deed and the facts herein stated are true, and
accordingly hereunto set my hand this 7th day of June, 1989.
LARSE CORPORATION
By:/s/ Susan Blanchard-Bologna
------------------------------
Name: Susan Blanchard-Bologna
Title: Incorporator
<PAGE>
FORM OF AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
LARSCOM INCORPORATED
THE UNDERSIGNED, certifies that she is the President and Chief
Executive Officer of Larscom Incorporated, a Delaware corporation (the
"Corporation"), and does certify as follows:
The date of filing of the original Certificate of Incorporation of the
Corporation with the Secretary of State of the State of Delaware was June 13,
1989. The original name of the Corporation was "Larse Corporation."
This Amended and Restated Certificate of Incorporation has been duly
adopted in accordance with the applicable provisions of Sections 242 and 245 of
the General Corporation Law of the State of Delaware (the "GCL").
The text of the Certificate of Incorporation of the Corporation, as
amended and restated, shall read in its entirety as follows:
FIRST: The name of the Corporation is Larscom Incorporated.
SECOND: The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, City of Wilmington, County of New Castle,
Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
<PAGE>
THIRD: The purpose of the Corporation is to engage in any lawful act or
activity for which corporations may be organized under the GCL.
FOURTH: The total number of shares of stock which the Corporation shall have
authority to issue is One Hundred Sixteen Million Nine Hundred Thousand
(116,900,000), consisting of Five Million (5,000,000) shares of preferred stock
with a par value of $0.01 per share (the "Preferred Stock") and One Hundred
Eleven Million Nine Hundred Thousand (111,900,000) shares of common stock with a
par value of $0.01 per share (the "Common Stock").
(A) Shares of Preferred Stock of the Corporation may be issued from
time to time in one or more classes or series, each of which class or series
shall have such distinctive designation or title as shall be fixed by the Board
of Directors prior to the issuance of any shares thereof. Each such class or
series of Preferred Stock shall have such voting powers (full or limited) or no
voting powers, such preferences and relative participating, optional or other
special rights, relative ranking and such qualifications, limitations or
restrictions, as shall be stated in such resolution or resolutions providing for
the issue of such class or series of Preferred Stock as may be adopted from time
to time by the Board of Directors prior to the issuance of any shares thereof
pursuant to the authority hereby expressly vested in it, all in accordance with
the laws of the State of Delaware.
(B) Of the One Hundred Eleven Million Nine Hundred Thousand
(111,900,000) shares of Common Stock, the Corporation shall have authority to
issue One Hundred Million (100,000,000) shares of Class A Common Stock with a
par value of $0.01 per share (the "Class A Common Stock"), and Eleven
-2-
<PAGE>
Million Nine Hundred Thousand (11,900,000) shares of Class B Common Stock with a
par value of $0.01 per share (the "Class B Common Stock"). The Class A Common
Stock and Class B Common Stock shall be identical in all respects and shall have
equal rights and privileges, except as otherwise provided in this Article
Fourth.
(1) DIVIDENDS. Subject to the provisions of any outstanding class or
series of Preferred Stock, dividends may be paid on either or both the
Class A Common Stock and Class B Common Stock as and when declared by the
Board of Directors of the Corporation out of any funds of the Corporation
legally available for the payment of dividends, except that so long as any
shares of each class of Common Stock are outstanding:
(a) No dividend (other than a dividend payable solely in shares
of Class A Common Stock) shall be declared or paid on shares of Class
A Common Stock unless simultaneously therewith a dividend is payable
on shares of Class B Common Stock in an amount per share of Class B
Common Stock equal to the amount which would have been payable had
such share of Class B Common Stock been converted into Class A Common
Stock immediately prior to the record date for such dividend.
(b) No dividend shall be declared or paid on shares of Class B
Common Stock unless a dividend, in accordance with paragraph (1)(a)
above, is paid on shares of Class A Common Stock.
-3-
<PAGE>
(c) Dividends of Common Stock declared and paid on Class A
Common Stock shall be payable solely in shares of Class A Common
Stock. No dividends of Common Stock shall be declared or paid on
Class B Common Stock.
(2) LIQUIDATION. Subject to the provisions of any outstanding class
or series of Preferred Stock, upon any liquidation, dissolution or winding
up of the affairs of the Corporation (voluntary or involuntary), the assets
of the Corporation shall be divided between the holders of Class A Common
Stock and the holders of Class B Common Stock in such proportion so that
the Class A Stockholders shall be allocated a fraction of such assets, the
numerator of which shall be the number of shares of Class A Common Stock
outstanding and the denominator of which shall be the number of shares of
Class A Common Stock outstanding if all of the shares of Class B Common
Stock had been converted into shares of Class A Common Stock immediately
prior to such liquidation. The remainder of the assets shall be allocated
to the holders of Class B Common Stock. Neither the consolidation nor the
merger of the Corporation with or into another corporation or corporations,
nor a reorganization of the Corporation alone, nor the sale or transfer by
the Corporation of all or any part of its assets, shall be deemed to be a
liquidation, dissolution or winding up of the Corporation for the purposes
of this subparagraph (2).
(3) VOTING. Except in cases where pursuant to the GCL, the holders
of shares of Class A Common Stock and Class B Common Stock shall be
entitled to vote as separate classes, they shall vote together as a single
class, provided that (a) the holders of shares of
-4-
<PAGE>
Class A Common Stock shall have one vote per share of Class A Common Stock
held and (b) the holders of shares of Class B Common Stock shall have the
number of votes per share of Class B Common Stock equal to the result of
multiplying (x) four by (y) the number of shares of Class A Common Stock
into which a share of Class B Common Stock is convertible immediately prior
to the then record date for determining stockholders entitled to vote or
consent. Without limiting the generality of the foregoing, the number of
authorized (but not outstanding) shares of Class A Common Stock may be
increased or decreased by the affirmative vote or consent of the holders of
shares of Common Stock possessing a majority of the votes represented by
the outstanding shares of Class A Common Stock and Class B Common Stock
voting as a single class entitled to vote at such meeting or to express
consent to corporate action in writing without a meeting. Whenever such
holders are entitled pursuant to the GCL to vote as separate classes,
holders of Class A Common Stock voting as a separate class shall be
entitled to one vote per share of Class A Common Stock held and holders of
Class B Common Stock voting as a separate class shall be entitled to one
vote per share of Class B Common Stock held.
(4) OPTIONAL CONVERSION OF SHARES. Subject to adjustment as
hereinafter provided in this paragraph (4), each share of Class B Common
Stock may at any time be converted, at the option of the holder thereof,
into one fully paid and nonassessable (unless otherwise provided in the
GCL, as from time to time in effect) share of Class A Common Stock. If the
Company:
-5-
<PAGE>
(i) pays a dividend or makes a distribution on its Class A
Common Stock in shares of its Class A Common Stock;
(ii) subdivides its outstanding shares of Class A Common Stock
into a greater number of shares; or
(iii) combines its outstanding shares of Class A Common Stock
into a smaller number of shares;
then the number of shares of Class A Common Stock into which each share of
Class B Common Stock may be converted shall be adjusted to equal that
number of shares of Class A Common Stock which a holder of each share of
Class B Common Stock would have owned immediately following such action had
such holder exercised its conversion privilege immediately prior to such
action. The adjustment shall become effective immediately after the record
date in the case of a dividend or distribution and immediately after the
effective date in the case of a subdivision or combination.
Such right shall be exercised by the surrender of the certificate
representing such shares of Class B Common Stock to be converted at the
office of the Corporation.
(5) RECLASSIFICATION. Neither the Class A Common Stock nor the Class
B Common Stock may be consolidated, reclassified or otherwise changed
unless contemporaneously therewith the other class of Common Stock is
consolidated, reclassified or otherwise changed in the same proportion and
in the same manner.
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<PAGE>
FIFTH: Upon this Amended and Restated Certificate of Incorporation becoming
effective pursuant to the GCL (the "Effective Time"), each share of the
Corporation's common stock, par value $1.00 per share (the "Old Common Stock"),
issued and outstanding immediately prior to the Effective Time, will be
automatically reclassified as and converted into 1,190 shares of Class B Common
Stock. Any stock certificate that, immediately prior to the Effective Time,
represented shares of the Old Common Stock will, from and after the Effective
Time, automatically and without the necessity of presenting the same for
exchange, represent the number of shares of Class B Common Stock as equals the
sum obtained by multiplying the number of shares of Old Common Stock represented
by such certificate immediately prior to the Effective Time by 1,190.
SIXTH: The incorporator of the Corporation is Susan Blanchard-Bologna.
SEVENTH: The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute, and all
rights conferred upon stockholders herein are granted subject to this
reservation. The Board of Directors of the Corporation is authorized to make,
alter, amend or repeal the By-Laws of the Corporation by resolution adopted by
the affirmative vote of a majority of the whole Board. Stockholders may not
make, adopt, alter, amend, change or repeal the By-Laws except, subject to the
terms of any outstanding class or series of Preferred Stock, upon the
affirmative vote of the holders of the shares of Common Stock possessing a
majority of the votes represented by the outstanding shares of Class A Common
Stock and Class B Common Stock voting as a single class
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<PAGE>
entitled to vote at such meeting or to express consent to corporate action in
writing without a meeting.
EIGHTH: No director of the Corporation shall be liable to the Corporation or
its stockholders for monetary damages for breach of fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Corporation or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation of
law, (iii) under Section 174 of the GCL or (iv) for any transaction from which
the director derived an improper personal benefit. No amendment to or repeal of
this Article EIGHTH shall apply to or have any effect on the liability or
alleged liability of any director of the Corporation for or with respect to any
acts or omissions of such director occurring prior to such amendment or repeal.
If the GCL is amended hereafter to further limit the liability of a director,
then the liability of a director of the Corporation shall be further limited to
the fullest extent permitted by the GCL, as so amended.
NINTH: The Corporation shall indemnify each person who is or was or has agreed
to become a director or officer of the Corporation, and may, at its option,
indemnify any other person who is or was or has agreed to become an employee or
agent of the Corporation or who is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, to the fullest extent
permitted by Section 145 of the GCL, as the same may be amended or supplemented,
against all expenses and liabilities (including, but not limited to, counsel
fees) reasonably incurred by or imposed upon such person in connection with any
proceeding to which he or she may be made a party, or in which he or she may
become
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<PAGE>
involved, by reason of his or her being or having been a director, officer,
employee or agent of the Corporation, or any settlement thereof, whether or not
he or she is a director, officer, employee or agent at the time such expenses
are incurred or liability incurred, except in such cases where the director,
officer, employee or agent is adjudged guilty of willful misfeasance or
malfeasance in the performance of his or her duties; provided that in the event
of a settlement the indemnification herein shall apply only when the Board of
Directors approves such settlement and reimbursement as being for the best
interests of the Corporation. Without limiting the generality or the effect of
the foregoing, the Corporation may adopt By-Laws, or enter into one or more
agreements with any person, which provide for indemnification greater or
different than that provided in this Article NINTH or the GCL and the foregoing
right of indemnification shall be in addition to and not exclusive of all other
rights to which such director, officer, employee or agent may be entitled.
The Corporation may purchase insurance on behalf of any person who is a
director, officer, employee or agent of the Corporation, or is or was serving
at the request of the Corporation as a director, officer, employee or agent of
another corporation, partnership, joint venture, trust or other enterprise
against any liability asserted by him or her and incurred by him or her in any
such capacity, or arising out of his or her status as such, whether or not the
Corporation would have the power or the obligation to indemnify him or her
against such liability under the provisions of this Article NINTH.
TENTH: The Corporation expressly elects not to be governed by Section 203 of
the GCL.
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<PAGE>
ELEVENTH: Except as otherwise required by the laws of the State of Delaware,
the stockholders and directors shall have the power to hold their meetings and
to keep the books, documents and papers of the Corporation outside of the State
of Delaware, and the Corporation shall have the power to have one or more
offices within or without the State of Delaware, at such places as may from time
to time be designated by the By-Laws or by resolution of the stockholders or
directors.
TWELFTH: The election of directors need not be by written ballot unless the
By-Laws shall so provide.
THIRTEENTH: Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for this Corporation under
the provisions of Section 291 of the GCL or on the application of trustees in
dissolution or of any receiver or receivers appointed for this Corporation under
the provisions of Section 279 of the GCL, order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of this
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of this Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of this Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the
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<PAGE>
said application has been made, be binding on all the creditors or class of
creditors, and/or on all the stockholders or class of stockholders, of this
Corporation, as the case may be, and also on this Corporation.
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<PAGE>
IN WITNESS WHEREOF, the Corporation has caused this Amended and
Restated Certificate of Incorporation to be signed by its duly authorized
officer this _____ day of October, 1996.
-----------------------------------
Name: Deborah M. Soon
Title: President and Chief
Executive Officer
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<PAGE>
BY-LAWS
of
LARSCOM INCORPORATED
ARTICLE I.
STOCKHOLDERS
Section 1.1. - ANNUAL MEETINGS. An annual meeting of stockholders
shall be held for the election of directors at such date, time and place,
either within or without the State of Delaware, as may be designated by
resolution of the Board of Directors from time to time. Any other proper
business may be transacted at the annual meeting.
Section 1.2. - SPECIAL MEETINGS. Special meetings of stockholders
may be called at any time by the Chairman of the Board, if any, the Vice
Chairman of the Board, if any, the President, any Vice President, or the
Board of Directors to be held at such time and place either within or without
the State of Delaware as may be stated in the notice of the meeting. A
special meeting of stockholders shall be called by the President or Secretary
upon the written request, stating the purpose or purposes of the meeting, of
stockholders of a majority of the issued and outstanding stock of any class
entitled to vote at such meeting.
<PAGE>
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Section 1.3. - NOTICE OF MEETINGS. Whenever stockholders are
required or permitted to take any action at a meeting, a written notice of
the meeting shall be given which shall state the place, date and hour of the
meeting, and, in the case of a special meeting, the purpose or purposes for
which the meeting is called. Unless otherwise provided by law, the
certificate of incorporation or these by-laws the written notice of any
meeting shall be given not less than ten nor more than sixty days before the
date of the meeting to each stockholder entitled to vote at such meeting. If
mailed, such notice shall be deemed to be given when deposited in the mail,
postage prepaid, directed to the stockholder at his address as it appears on
the records of the corporation.
Section 1.4. - ADJOURNMENTS. Any meeting of stockholders, annual or
special, may adjourn from time to time to reconvene at the same or some other
place, and notice need not be given of any such adjourned meeting if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At the adjourned meeting the corporation may transact any business
which might have been transacted at the original meeting. If the adjournment
is for more than seven days, or if after the adjournment a new record date is
fixed for the adjourned meeting, a notice of the adjourned meeting shall be
<PAGE>
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given to each stockholder of record entitled to vote at the meeting.
Section 1.5. - QUORUM. Except as otherwise provided by law, the
certificate of incorporation or these by-laws, at each meeting of
stockholders the presence in person or by proxy of the holders of a majority
of the outstanding shares of each class of stock entitled to vote at the
meeting shall constitute a quorum. In the absence of a quorum the
stockholders so present may, by majority vote, adjourn the meeting from time
to time in the manner provided by Section 1.4 of these by-laws until a quorum
shall attend. Shares of its own stock belonging to the corporation or to
another corporation, if a majority of the shares entitled to vote in the
election of directors of such other corporation is held, directly or
indirectly, by the corporation, shall neither be entitled to vote nor be
counted for quorum purposes; provided, however, that the foregoing shall not
limit the right of any corporation to vote stock, including but not limited
to its own stock, held by it in a fiduciary capacity.
Section 1.6. - ORGANIZATION. Meetings of stockholders shall be
presided over by the Chairman of the Board, if any, or in his absence by the
Vice Chairman of the Board, if any, or in his absence by the President, or in
the absence of the foregoing persons by a chairman designated by the Board of
Directors, or in
<PAGE>
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the absence of such designation by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 1.7. - VOTING PROXIES. Unless otherwise provided by the
certificate of incorporation, each stockholder entitled to vote at any
meeting of stockholders shall be entitled to one vote for each share of stock
held by him which has voting power on the matter in question. Each
stockholder entitled to vote at a meeting of stockholders or to express
consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him by proxy, but no such
proxy shall be voted or acted upon after three years from its date, unless
the proxy provides for a longer period. A duly executed proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or another duly executed proxy bearing a later
date with the Secretary of the corporation. Voting at meetings of
stockholders need not be by written ballot and need not be conducted by
inspectors of election unless the holders of a majority of the outstanding
shares of all classes of
<PAGE>
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stock entitled to vote thereon present in person or by proxy at such meeting
shall so determine. At all meetings of stockholders for the election of
directors a plurality of the votes cast shall be sufficient to elect. All
other elections and questions shall, unless otherwise provided by law, the
certificate of incorporation or these by-laws, be decided by the vote of the
holders of a majority of the outstanding shares of all classes of stock
entitled to vote thereon present in person or by proxy at the meeting
provided that (except as otherwise required by law or by the certificate of
incorporation) the Board of Directors may require a larger vote upon any
election or question.
Section 1.8. - FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF
RECORD. 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 a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors and which record date:
(1) in the case of determination of stockholders entitled to vote
<PAGE>
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at any meeting of stockholders or determination thereof, shall, unless
otherwise required by law, not be more than sixty nor less than ten days
before the date of such meeting; (2) in the case of determination of
stockholders entitled to express consent to corporate action in writing
without a meeting, shall not be more than ten days from the date upon which
the resolution fixing the record date is adopted by the Board of Directors;
and (3) in the case of any other action, shall not be more than sixty days
prior to such other action. If no record date is fixed: (1) the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held; (2)
the record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting when no prior action of the
Board of Directors is required by law, shall be the first date on which a
signed written consent setting forth the action taken or proposed to be taken
is delivered to the corporation in accordance with applicable law, or, if
prior action by the Board of Directors is required by law, shall be at the
close of business on the day on which the Board of Directors adopts the
resolution taking such prior action; and (3) the record date for determining
stockholders for any other purpose
<PAGE>
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shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. 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 1.9. - LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
shall prepare and make, at least ten days before every meeting of
stockholders, a complete list of the stockholders entitled to vote at the
meeting, arranged in alphabetical order, and showing the address of each
stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in
the notice of the meeting, or, if not so specified, at the place where the
meeting is to be held. The list shall also be produced and kept at the time
and place of the meeting during the whole time thereof and may be inspected
by any stockholder who is present. Upon the willful neglect or refusal of
the directors to produce such a list at any meeting for the election of
directors, they shall be ineligible for election to any office at such
<PAGE>
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meeting. The stock ledger shall be the only evidence as to who are the
stockholders entitled to examine the stock ledger, the list of stockholders
or the books of the corporation, or to vote in person or by proxy at any
meeting of stockholders or to express consent to a corporate action in
writing without a meeting.
Section 1.10. - CONSENT OF STOCKHOLDERS IN LIEU OF MEETING. Unless
otherwise restricted by the certificate of incorporation, any action required
or permitted to be taken at any annual or special meeting of the stockholders
may be taken without a meeting, without prior notice and without a vote, if a
consent in writing, setting forth the action so taken, shall be signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing.
<PAGE>
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ARTICLE II.
BOARD OF DIRECTORS
Section 2.1. - NUMBER OF QUALIFICATIONS. The Board of Directors
shall consist of not less than three members, the number thereof above such
limit to be the number of directors elected at each annual meeting of
stockholders at which directors are elected or such other number as the
stockholders shall designate from time to time. Directors need not be
stockholders.
Section 2.2. - ELECTION; RESIGNATION; RENEWAL; VACANCIES. At each
annual meeting, the stockholders shall elect directors, each to hold office
until the next succeeding annual meeting or until his successor is elected
and qualified or until his earlier resignation or removal. Any director may
resign at any time upon written notice to the corporation. Any one or more
directors may be removed at any time with or without cause by the affirmative
vote of the stockholders holding at least a majority of the outstanding
voting stock at any special meeting called for that purpose. Any vacancy in
the Board of Directors occurring for any cause shall be filled by a majority
of the Board of Directors then in office, although less than a quorum. Any
such vacancies may also be filled upon the vote of the stockholders at a
meeting called or convened for that purpose, provided such purpose is
included in the notice or waiver of notice of such
<PAGE>
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meeting as one of the purposes thereof and each director so elected shall
hold office until the expiration of the term of office of the director whom
he has replaced or until his successor is elected and qualified.
Section 2.3. - REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware and at such times as the Board of Directors may from time to time
determine, and if so determined notices thereof need not be given.
Section 2.4. - SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board, if any, by the Vice
Chairman of the Board, if any, by the President or by any two members of the
Board of Directors. Reasonable notice thereof shall be given by the person or
persons calling the meeting.
Section 2.5. - TELEPHONIC MEETINGS PERMITTED. Members of the Board
of Directors, or any committee designated by the Board of Directors may
participate in a meeting thereof by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and participation in a meeting pursuant to this
by-law shall constitute presence in person at such meeting.
<PAGE>
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Section 2.6. - QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of
the Board of Directors a majority of the whole Board of Directors shall
constitute a quorum for the transaction of business, but less than a quorum
may adjourn a meeting; provided, however, that if the President or Chairman
of the Board, if any, shall be present, then three persons (or one-third of
the entire Board, if such number is more than three) shall constitute a
quorum. Except in cases in which the certificate of incorporation or these
by-laws otherwise provide, the vote of a majority of the directors present at
a meeting at which a quorum is present shall be the act of the Board of
Directors.
Section 2.7. - ORGANIZATION. Meetings of the Board of Directors
shall be presided over by the Chairman of the Board, if any, or in his
absence by the Vice Chairman of the Board, if any, or in his absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8. - INFORMAL ACTION BY DIRECTORS. Unless otherwise
restricted by the certificate of incorporation or these by-laws, any action
required or permitted to be taken at any meeting of the Board of Directors,
or of any committee thereof,
<PAGE>
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may be taken without a meeting if all members of the Board of Directors or
such committee, as the case may be, consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or such committee.
ARTICLE III.
COMMITTEES
Section 3.1. - COMMITTEES. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate
one or more committees, each committee to consist of one or more of the
directors of the corporation. The Board of Directors 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. A majority
shall constitute a quorum, and in every case the affirmative vote of a
majority of all the members of any committee shall be necessary for the
adoption of any resolution. Any such committee, to the extent provided in
the resolution of the Board of Directors 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 power or authority
<PAGE>
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in reference to amending the certificate of incorporation of the corporation,
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 dissolution, or amending
these by-laws; and, unless the resolution expressly so provides, no such
committee shall have the power or authority to declare a dividend or to
authorize the issuance of stock.
Section 3.2. - COMMITTEE RULES. Unless the Board of Directors
otherwise provides, each committee designated by the Board of Directors may
make, alter and repeal rules for the conduct of its business. In the absence
of such rules each committee shall conduct its business in the same manner as
the Board of Directors conducts its business pursuant to Article II of these
by-laws.
ARTICLE IV.
OFFICERS
Section 4.1. - OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL; VACANCIES. The Board of Directors shall elect a
President and Secretary, and it may, if it so determines, choose a Chairman
of the Board and a Vice
<PAGE>
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Chairman of the Board from among its members. The Board of Directors may
also choose a Vice Chairman of the corporation, an Executive Vice President,
one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer
and one or more Assistant Treasurers. Each officer shall hold office until
the first meeting of the Board of Directors after the annual meeting of
stockholders next succeeding his election, or until his successor is elected
and qualified or until his earlier resignation or removal. Any officer may
resign at any time upon written notice to the corporation. A majority of the
Board of Directors may, at a meeting called for such purpose, remove any
officer with or without cause at any time, but such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
corporation. Any number of offices may be held by the same person. Any
vacancy occurring in any office of the corporation by death, resignation,
removal or otherwise may be filled for the unexpired portion of the term by
the Board of Directors at any regular or special meeting.
Section 4.2. - CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall act in any advisory capacity to the other officers of the
corporation in connection with matters of policy and shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall
be present. He shall have and may exercise such powers as are, from time to
<PAGE>
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time, assigned to him by the Board of Directors and as may be provided by law.
Section 4.3. - VICE-CHAIRMAN OF THE BOARD. In the absence of the
Chairman of the Board, the Vice-Chairman of the Board, if any, shall perform
all duties and may exercise all the powers of the Chairman of the Board and
shall preside at all meetings of the Board of Director and of the
stockholders at which he shall be present. He shall have and may exercise
such powers as are, from time to time, assigned by the Board of Directors and
as may be provided by law.
Section 4.4. - PRESIDENT. In the absence of the Chairman of the
Board and Vice Chairman of the Board, the President shall preside at all
meetings of the Board of Directors and of the stockholders at which he shall
be present; he shall be the chief executive officer and, subject to the
approval of the Board of Directors, shall have general charge and supervision
of the business of the corporation; and, in general, he shall perform all
duties incident to the office of president of a corporation and such other
duties as, from time to time, may be assigned to him by the Board of
Directors or as may be provided by law.
Section 4.5. - VICE PRESIDENTS. At the request of the President, or
in his absence or inability to act, the Vice
<PAGE>
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President or Vice Presidents shall perform the duties and exercise the
functions of the President, and when so acting shall have the powers of the
President. If there be more than one Vice President, the Board of Directors
may give any of them such further designation as it considers desirable and
may determine which one or more of the Vice Presidents shall perform any of
such duties or exercise any of such functions; or if such determination is
not made by the Board of Directors, the President may make such
determination; otherwise the Vice Presidents, in order of seniority, shall
perform such other duties as may be assigned to him or them by the Board of
Directors or the President or as may be provided by law.
Section 4.6. - SECRETARY. Subject to the approval of the Board of
Directors, the Secretary, or such other officer as shall be designated by the
Chairman of the Board, the Vice Chairman of the Board or the President, shall
record all the proceedings of the meetings of the stockholders and directors
and of any committees in a book to be kept for that purpose; he shall see
that all notices are duly given in accordance with the provisions of these
by-laws or as required by law; he shall be custodian of the records of the
corporation; he shall see that the corporate seal is affixed to all documents
the execution of which, on behalf of the corporation, under its seal, is duly
authorized, and when so affixed may attest the same; and, in
<PAGE>
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general, he shall perform all duties incident to the office of secretary of a
corporation, and such other duties as, from time to time, may be assigned to
him by the Board of Directors or the President or as may be provided by law.
Section 4.7. - TREASURER. Subject to the approval of the Board of
Directors, the Treasurer shall have charge of and be responsible for all
funds, securities, receipts and disbursements of the corporation, and shall
deposit or cause to be deposited, in the name of the corporation, all moneys
or other valuable effects in such banks, trust companies or other
depositories as shall, from time to time, be selected by or under authority
of the Board of Directors, he shall keep or cause to be kept full and
accurate records of all receipts and disbursements in books of the
corporation and shall render to the President and to the Board of Directors,
whenever requested, an account of the financial condition of the corporation;
and, in general, he shall perform all the duties incident to the office of
treasurer of a corporation, and such other duties as may be assigned to him
by the Board of Directors or the President or as may be provided by law.
Section 4.8. - OTHER OFFICERS. The Board of Directors may from time
to time appoint such other officers, agents or
<PAGE>
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employees as it shall deem necessary and may delegate to them such powers and
duties as it may deem desirable.
Section 4.9. - BOARD. The Board of Directors shall have power to
require any officer of the corporation to give bond for the faithful
discharge of their duties, in such form and with such surety or sureties as
the Board of Directors may deem desirable.
ARTICLE V.
STOCK
Section 5.1. - CERTIFICATES. Every holder of stock shall be
entitled to have a certificate signed by or in the name of the corporation by
the Chairman or Vice Chairman of the Board of Directors, if any, or the
President or a Vice President, and by the Treasurer or an Assistant
Treasurer, or the Secretary or an Assistant Secretary, of the corporation,
certifying the number of shares owned by him in the corporation. If such
certificate is countersigned (1) by a transfer agent other than the
corporation or its employee, or (2) by a registrar other than the corporation
or its employee, any other signature on the certificate may be a facsimile.
In case any officer, transfer agent, or registrar who has signed or whose
facsimile signature has been placed upon a certificate shall have ceased to
be such
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officer, transfer agent, or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he were such
officer, transfer agent, or registrar as the date of issue.
Section 5.2. - LOST, STOLEN OR DESTROYED STOCK CERTIFICATES;
ISSUANCE OF NEW CERTIFICATES. The corporation may issue a new certificate of
stock in place of any certificate theretofore issued by it, alleged to have
been lost, stolen or destroyed, and the corporation may require the owner of
the lost, stolen or destroyed certificate, or his legal representative, to
give the corporation a bond sufficient to indemnify it against any claim that
may be made against it on account of the alleged loss, theft or destruction
of any such certificate or the issuance of such new certificate.
Section 5.3. - TRANSFER. The Board of Directors shall have power
and authority to make such rules and regulations as they may deem expedient
concerning the issue, registration and transfer of stock certificates.
ARTICLE VI.
MISCELLANEOUS
Section 6.1. - DIVIDENDS. Dividends upon the stock of the
corporation, subject to the provisions of the certificate of
<PAGE>
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incorporation, if any, may be declared by the Board of Directors at any
regular or special meeting, pursuant to law. Dividends may be paid in cash,
bonds, in property, or in shares of stock, subject to the provisions of the
certificate of incorporation.
Section 6.2. - RESERVES. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the directors from time to time, in their absolute discretion,
think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purposes as the directors shall think
conducive to the interest of the corporation, and the directors may modify or
abolish any such reserve.
Section 6.3. - CALENDAR YEAR. From the first day of January to the
thirty-first day of December of each year, unless otherwise determined by
resolution of the Board of Directors.
Section 6.4. - CHECKS. All checks or demands for money and notes of
the corporation shall be signed by such officer or officers of such other
person or persons as the Board of Directors may from time to time designate.
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Section 6.5. - CORPORATE SEAL. The seal of the corporation shall be
circular in form, with the name of the corporation in the circumference and
in the words and figures "Corporate Seal - 1989 - Delaware" in the center.
Section 6.6. - AMENDMENTS. These by-laws may be added to, altered,
amended or repealed at any regular meeting of the Board of Directors, but the
stockholders may make additional by-laws and may alter and repeal and any
by-laws whether adopted by them or otherwise.
Section 6.7. - OFFICES. The principle office in the state of
Delaware shall be located at 1209 Orange Street in the city of Wilmington,
County of New Castle, State of Delaware. The corporation may also have
offices at such other places both within and without the State of Delaware as
the Board of Directors may from time to time determine or the business of the
corporation may require.
Section 6.8. - FORM OF RECORDS. Any records maintained by the
corporation in the regular course of its business, including its stock
ledger, books of account, and minute books, may be kept on, or be in the form
of, punch cards, magnetic tape, photographs, microphotographs, or any other
information storage device, provided that the records so kept can be
converted into clearly legible form within a reasonable time. The corporation
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shall so convert any records so kept upon the request of any person entitled
to inspect the same.
Section 6.9. - WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS,
DIRECTORS AND COMMITTEES. Any written waiver of notice, signed by the person
entitled to notice, whether before or after the time started therein, shall
be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends
a meeting for the express purpose of objecting at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the stockholders,
directors, or members of a committee of directors need be specified in any
written waiver of notice.
Section 6.10. - INDEMNIFICATION OF DIRECTORS, OFFICERS, AND
EMPLOYEES. A corporation may indemnify any person who was or is a party or
is threatened to be made a party to any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of the corporation) by
reason of the fact that he is or was a director, officer, employee or agent
of the corporation, or is or was serving at the request of the corporation as
a director, officer, employee or agent or another
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corporation, or partnership, joint venture, trust or other enterprise,
against expenses (including attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with
such action, suit or proceeding if he acted in good faith and in a manner he
reasonably believed to be in or not opposed to the best interests of the
corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. The termination of any
action, suit or proceeding by judgment, order, settlement, conviction, or
upon a plea of nolo contendere or its equivalent, shall not, of itself,
create a presumption that the person did not act in good faith and in a
manner which he reasonably believed to be in or not opposed to the best
interests of the corporation, and with respect to any criminal action or
proceeding, had reasonable cause to believe that his conduct was unlawful.
ARTICLE VII.
RESTRICTIONS ON STOCK TRANSFERS
Section 7.1. - RESTRICTION. Without the consent of the other
stockholders of the corporation, no holder of shares of capital stock of the
corporation shall sell, assign, transfer or in any manner dispose of any
shares of stock of the corporation
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held by him without compliance with the terms of this Article VII.
Section 7.2. - OPTION. In the event that any stockholder of the
corporation desires to sell, assign, transfer or otherwise dispose of any
stock of the corporation, he shall give notice in writing of such desire to
the corporation and to each of the other stockholders of record of the
corporation and such notice shall specify the total number of shares of stock
which such stockholder desires to sell, assign, transfer or otherwise dispose
of. Promptly upon receipt of such notice, the corporation and such selling
stockholder shall each appoint an arbitrator to determine the fair value of
such stock. In the event that the two arbitrators fail to agree on such fair
value they shall appoint a third arbitrator and the price thereafter fixed by
a majority of such three arbitrators shall be final and binding. In the event
that the two arbitrators fail to agree on such fair value they shall appoint
a third arbitrator and the price thereafter fixed by a majority of such three
arbitrators shall be final and binding. In the event that the selling
stockholder and the other stockholders are able to agree among themselves
upon a fair value of such stock, the appointment of arbitrators hereunder may
be waived. The value of such stock, either fixed by the arbitrators or as
agreed upon as herein
<PAGE>
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provided, is hereinafter referred to as the "option price" of the stock.
When the option price has been determined, a written notice of such
determination shall forthwith be sent by the selling stockholder to the other
stockholders of the corporation. Upon the giving by a selling stockholder of
the notice with respect to the determination of the option price, each of the
remaining stockholders shall have an option, exercisable within thirty days
from the receipt of such notice, such pro rata portion being based upon the
ratio of the number of shares of stock of the corporation then owned of
record by such stockholder to the aggregate of all outstanding shares less
the number owned by the selling stockholder. Each stockholder possessing
such an option shall notify the other stockholders, other than the selling
stockholder, within twenty days after the receipt of the notice as to the
option price. To the extent that any stockholder does not elect to exercise
his option, in whole or in part, the options of the remaining stockholder
shall be increased proportionately.
Any such option shall be exercised by giving written notice to that
effect to the selling stockholder or his executor, administrator or other
legal representative, addressed to the address thereof appearing on the books
of the corporation, unless
<PAGE>
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a different address was specified in any notice received from such selling
stockholder, which notice shall specify the number of shares with respect to
which the option is being exercised. Payment for any stock with respect to
which such an option has been exercised shall be made at the office of the
corporation within ten days from the date of the exercise of the option. In
the event that payment for any such stock is not made within the period
herein provided, the selling stockholder shall notify the other stockholders
who shall, within a further period of ten days after receipt of such notice
have the right to purchase proportionately any such shares with respect to
which payment was not duly made. Any shares subject to any option arising
hereunder and with respect to which such option is not exercised or which,
after the exercise of such option shall not be purchased in accordance with
the terms hereof shall thereafter be free of all restrictions imposed by this
Article VII and may thenceforth be transferred free from any such
restrictions.
Section 7.3. - DEATH. In the event of the death of any stockholder,
his legal representations shall be deemed to be a selling stockholder with
the meaning of Section 7.2 and shall within ninety days of such death give
the first notice required of a selling stockholder by Section 7.2 and
thereafter take all other action required by such section.
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Section 7.4. - PLEDGE. No shares of capital stock of the
corporation during the time that they are subject to the restrictions imposed
by this Article VII shall be hypothecated or pledged.
Section 7.5. - TRANSFERS AND DIVIDENDS. The corporation may refuse
to transfer on its books any stock sold, assigned, transferred or otherwise
disposed of in violation of the provisions of this Article VII and may
withhold dividends upon any such stock.
Section 7.6. - LEGEND. Each stock certificate representing shares
subject to the restrictions on transfer imposed by this Article VII shall
have stamped, typed or printed thereon an appropriate legend to the effect
that restrictions upon the sale, assignment, transfer, pledge, hypothecation
or other disposition of the shares of stock evidenced by such certificate are
imposed by the by-laws of the corporation.
Section 7.7. - LEGAL REPRESENTATION. The restrictions imposed by
this Article VII shall be binding upon the heirs, administrators, executors,
assigns or transferees of any stockholder. No sale, assignment, transfer or
other disposition of any shares of stock of the corporation may be made in
violation of the provisions of this Article VII by any trustee in bankruptcy,
receiver, conservator or other legal representative
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acting for any stockholder of the corporation, it being intended that the
restrictions of this Article VII shall apply to all transfers whether
occurring by operation of law or otherwise.
<PAGE>
FORM OF AMENDED
BY-LAWS
OF
LARSCOM INCORPORATED
ARTICLE I
STOCKHOLDERS
Section 1.1 ANNUAL MEETINGS. An annual meeting of stockholders shall
be held for the election of directors at such date, time and place, either
within or without the State of Delaware, as may be designated by resolution of
the Board of Directors from time to time. Any other proper business may be
transacted at the annual meeting.
Section 1.2 SPECIAL MEETINGS. Special meetings of stockholders may
be called at any time by the Chairman of the Board, if any, the Vice Chairman of
the Board, if any, the President, any Vice President, or the Board of Directors
to be held at such time and place either within or without the State of Delaware
as may be stated in the notice of the meeting. A special meeting of
stockholders shall be called by the President or Secretary upon the written
request, stating the purpose or purposes of the meeting, of stockholders of a
majority of the voting power of the outstanding shares of the Corporation
entitled to vote at such meeting.
Section 1.3 NOTICE OF MEETINGS. Whenever stockholders are required
or permitted to take any action at a meeting, a written notice of the meeting
shall be given which shall state the place, date and hour of the meeting, and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise provided by law, the amended and restated
certificate of incorporation or these by-laws, the written notice of any meeting
shall be given not less than ten or more than sixty days before the date of the
meeting to each stockholder entitled to vote at such meeting. If mailed, such
notice shall be deemed to be given when deposited in the mail, postage prepaid,
directed to the stockholder at the address as it appears on the records of the
Corporation.
Section 1.4 ADJOURNMENTS. Any meetings of stockholders, annual or
special, may adjourn from time to time to
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reconvene at the same or some other place, and notice need not be given of any
such adjourned meeting if the time and place thereof are announced at the
meeting at which the adjournment is taken. At the adjourned meeting any
business may be transacted which might have been transacted at the original
meeting. If the adjournment is for more than seven days, of if after the
adjournment a new record date is fixed for the adjourned meeting, a notice of
the adjourned meeting shall be given to each stockholder of record entitled to
vote at the meeting.
Section 1.5 PROPOSALS OF STOCKHOLDERS. At any meeting of the
stockholders, only such business shall be conducted as shall have been properly
brought before such meeting. To be properly brought before an annual meeting
business must be (1) specified in the notice of meeting (or any supplement
thereto) given by or at the direction of the Board of Directors, (2) otherwise
properly brought before the meeting by or at the direction of the Board of
Directors or (3) otherwise properly brought before the meeting by a stockholder.
For business to be properly brought before an annual meeting by a stockholder,
the stockholder must have given timely notice thereof in writing to the
Secretary of the Corporation. To be timely, a stockholder's notice must be
received not less than sixty days nor more than ninety days prior to the first
anniversary of the preceding year's annual meeting; provided, however, that in
the event that the date of the annual meeting is advanced by more than thirty
days or delayed by more than sixty days from such anniversary, notice by the
stockholder to be timely must be so received not earlier than the ninetieth day
prior to such annual meeting and not later than the close of business on the
later of (1) the sixtieth day prior to such annual meeting or (2) the tenth day
following the date on which notice of the date of the annual meeting was mailed
or public disclosure thereof was made, whichever first occurs. For purposes of
calculating the first such notice period following adoption of these by-laws,
the 1996 annual meeting shall be deemed to have occurred on April 30, 1996.
Each such notice shall set forth as to each matter the stockholder proposes to
bring before the annual meeting: (a) a brief description of the business
desired to be brought before the annual meeting and the reasons for conducting
such business at the meeting, (b) the name and address, as they appear on the
Corporation's books, of the stockholder proposing such business, (c) the class,
series and number of shares of the Corporation which are beneficially owned by
the stockholder and (d) any material interest of the stockholder in such
business. To be properly brought before a special meeting, business must be (i)
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specified in the notice of meeting (or any supplement thereto) given by or at
the direction of the Board of Directors or (ii) otherwise properly brought
before the meeting by or at the direction of the Board of Directors.
Section 1.6 QUORUM. Except as otherwise provided by law, the amended
and restated certificate of incorporation or these by-laws, at each meeting of
stockholders the presence in person or by proxy of the holders of a majority of
the voting power of the outstanding shares of the Corporation entitled to vote
at the meeting shall constitute a quorum, except that when specified business is
to be voted on by a class or series voting as a class, the holders of a majority
of the voting power of the shares of such class or series shall constitute a
quorum for such business. In the absence of a quorum the stockholders so
present may, by majority vote, adjourn the meeting from time to time in the
manner provided by Section 1.4 of these by-laws until a quorum shall attend.
Shares of its own stock belonging to the Corporation or to another corporation,
if a majority of the shares entitled to vote in the election of directors of
such other corporation is held, directly or indirectly, by the Corporation,
shall neither be entitled to vote nor be counted for quorum purposes; provided,
however, that the foregoing shall not limit the right of any Corporation to vote
stock, including but not limited to its own stock, held by it in a fiduciary
capacity.
Section 1.7 ORGANIZATION. Meetings of stockholders shall be presided
over by the Chairman of the Board, if any, or in his absence by the Vice
Chairman of the Board, if any, or in his absence by the President, or in the
absence of the foregoing persons by a chairman designated by the Board of
Directors, or in the absence of such designation by a chairman chosen at the
meeting. The Secretary shall act as secretary of the meeting, but in his
absence the chairman of the meeting may appoint any person to act as secretary
of the meeting.
Section 1.8 VOTING. (a) At any meeting of stockholders, every
stockholder having the right to vote shall be entitled to vote in person or by
proxy. Except as otherwise provided by law or the amended and restated
certificate of incorporation or a resolution of the Board of Directors creating
a series or class of capital stock of the Corporation, each stockholder of
record shall be entitled to one (1) vote for each share of Class A Common Stock
registered in his or her name on the books of the Corporation and each
stockholder of record shall be entitled to four (4) votes for each share of
Class B Common
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Stock registered in his or her name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and except
as otherwise provided by law or the amended and restated certificate of
incorporation, all other matters shall be determined by a vote of a majority of
the voting power present in person or by proxy and voting on such other matters.
Section 1.9 FIXING DATE FOR DETERMINATION OF STOCKHOLDERS OF RECORD.
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 a record date, which record date shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which record date: (1) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or determination
thereof, shall, unless otherwise required by law, not be more than sixty nor
less than ten days before the date of such meeting; (2) in the case of
determination of stockholders entitled to express consent to corporate action in
writing without a meeting, shall not be more than ten days from the date upon
which the resolution fixing the record date is adopted by the Board of
Directors; and (3) in the case of any other action, shall not be more than sixty
days prior to such other action. If no record date is fixed: (1) the record
date for determining stockholders entitled to notice of or to vote at a meeting
of stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or if notice is waived, at the close of business
on the date next preceding the day on which the meeting is held; (2) the record
date for determining stockholders entitled to express consent to corporate
action in writing without a meeting when no prior action of the Board of
Directors is required by law, shall be the first date on which a signed written
consent setting forth the action taken or proposed to be taken is delivered to
the corporation in accordance with applicable law, or, if prior action by the
Board of Directors is required by law, shall be at the close of business on the
day on which the Board of Directors adopts the resolution taking such prior
action; and (3) the record date for determining stockholders for any other
purpose
<PAGE>
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shall be at the close of business on the day on which the Board of Directors
adopts the resolution relating thereto. 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 1.10 LIST OF STOCKHOLDERS ENTITLED TO VOTE. The Secretary
shall prepare and make, at least ten days before every meeting of stockholders,
a complete list of the stockholders entitled to vote at the meeting, arranged in
alphabetical order, and showing the address of each stockholder and the number
of shares registered in the name of each stockholder. Such list shall be open
to the examination of any stockholder, for any purpose germane to the meeting,
during ordinary business hours, for a period of at least ten days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present. Upon the
willful neglect or refusal of the directors to produce such a list at any
meeting for the election of directors, they shall be ineligible for election to
any office at such meeting. The stock ledger shall be the only evidence as to
who are the stockholders entitled to examine the stock ledger, the list of
stockholders or the books of the Corporation, or to vote in person or by proxy
at any meeting of stockholders or to express consent to a corporate action in
writing without a meeting.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1 NUMBER OF QUALIFICATIONS. The business and affairs of
the Corporation shall be managed by or under the direction of a Board of
Directors consisting of such number of directors as is determined from time to
time by resolution adopted by affirmative vote of a majority of the entire
Board of Directors; provided, however, that in no event shall the number of
directors be less than three or more than ten. Directors need not be
stockholders.
Section 2.2 ELECTION; RESIGNATION; REMOVAL; VACANCIES.
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At each annual meeting, the stockholders, subject to the restrictions set forth
in this Section 2.2, shall elect directors, each to hold office until the next
succeeding annual meeting or until his or her successor is elected and qualified
or until his or her earlier resignation or removal. Any director may resign at
any time upon written notice to the Corporation. Any vacancy in the Board of
Directors occurring for any cause shall be filled by a majority of the Board of
Directors then in office, although less than a quorum. Any such vacancies may
also be filled upon the vote of the stockholders at a meeting called or convened
for that purpose, provided such purpose is included in the notice of such
meeting as one of the purposes thereof and each director so elected shall hold
office until the expiration of the term of office of the director whom he or she
has replaced or until his or her successor is elected and qualified. Any
stockholder entitled to vote in the election of directors generally may nominate
one or more persons for election as directors at an annual meeting only pursuant
to the Corporation's notice of such meeting or if written notice of such
stockholder's intent to make such nomination or nominations has been received by
the Secretary of the Corporation not less than sixty nor more than ninety days
prior to the first anniversary of the preceding year's annual meeting; provided,
however, that in the event that the date of the annual meeting is advanced by
more than thirty days or delayed by more than sixty days from such anniversary,
notice by the stockholder to be timely must be so received not earlier than the
ninetieth day prior to such annual meeting and not later than the close of
business on the later of (1) the sixtieth day prior to such annual meeting or
(2) the tenth day following the day on which notice of the date of the annual
meeting was mailed or public disclosure thereof was made by the Corporation,
whichever first occurs. For purposes of calculating the first such notice
period following adoption of these by-laws, the 1996 annual meeting shall be
deemed to have occurred on April 30, 1996. Each such notice shall set forth:
(a) the name and address of the stockholder who intends to make the nomination
and of the person or persons to be nominated; (b) a representation that the
stockholder is a holder of record of stock of the Corporation entitled to vote
at such meeting and intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice; (c) a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) relating to the
nomination or nominations; (d) the class and number of shares of the Corporation
which are beneficially owned by such stockholder and
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the person to be nominated as of the date of such stockholder's notice may be
any other stockholder known by such stockholder to be supporting such nominees
as of the date of such stockholder's notice; (e) such other information
regarding each nominee proposed by such stockholder as would be required to be
included in a proxy statement filed pursuant to the proxy rules of the
Securities and Exchange Commission; and (f) the consent of each nominee to serve
as a director of the Corporation if so elected.
Section 2.3 REGULAR MEETINGS. Regular meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware and at such times as the Board of Directors may from time to time
determine, and if so determined notices thereof need not be given.
Section 2.4 SPECIAL MEETINGS. Special meetings of the Board of
Directors may be held at any time or place within or without the State of
Delaware whenever called by the Chairman of the Board or President on two (2)
days' notice to each director in accordance with Article IV. Special meetings
shall be called by the Chairman of the Board, President or Secretary in like
manner and on like notice on the written request of four (4) directors or one-
half (1/2) of the number of directors, whichever is less.
Section 2.5 TELEPHONIC MEETINGS PERMITTED. Members of the Board of
Directors, or any committee designated by the Board of Directors may participate
in a meeting thereof by means of conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in a meeting pursuant to this by-law shall
constitute presence in person at such meeting.
Section 2.6 QUORUM; VOTE REQUIRED FOR ACTION. At all meetings of the
Board of Directors a majority of the whole Board of Directors shall constitute a
quorum for the transaction of business, but less than a quorum may adjourn a
meeting; provided, however, that if the President or Chairman of the Board, if
any, shall be present, then three persons (or one-third of the entire Board, if
such number is more than three) shall constitute a quorum. Except in cases in
which the amended and restated certificate of incorporation or these by-laws
otherwise provide, the vote of a majority of the directors present at a meeting
at which a quorum is present shall be the act of the Board of Directors.
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Section 2.7 ORGANIZATION. Meetings of the Board of Directors shall
be presided over by the Chairman of the Board, or in his or her absence by the
President, or in their absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8 INFORMAL ACTION BY DIRECTORS. Unless otherwise
restricted by the amended and restated certificate of incorporation or these
by-laws, any action required or permitted to be taken at any meeting of the
Board of Directors, or of any committee thereof, may be taken without a meeting
if all members of the Board of Directors or such committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the Board of Directors or such committee.
Section 2.9 COMPENSATION. The Board may from time to time, in its
discretion, fix the amount, if any, which shall be payable to members of the
Board of Directors for attendance at the meetings of the Board of Directors or
of a committee thereof.
ARTICLE III
COMMITTEES
Section 3.1 EXECUTIVE COMMITTEE. The Board of Directors may appoint
any Executive Committee consisting of not less than 3 directors, one of whom
shall be designated as Chairman of the Executive Committee.
Section 3.2 POWERS. The Executive Committee shall have and may
exercise those powers of the Board of Directors as may from time to time be
granted to it by the Board of Directors.
Section 3.3 PROCEDURE; MEETINGS. The Executive Committee shall fix
its own rules of procedure and shall meet at such times and at such place or
places as may be provided by such rules. The Executive Committee shall keep
regular minutes of its meetings and deliver such minutes to the Board of
Directors. The Chairman of the Executive Committee, or, in his or her absence,
a member of the Executive Committee chosen by a majority of the members present,
shall preside at meetings of the Executive Committee and another member thereof
chosen by the Executive Committee shall act as Secretary of the Executive
Committee.
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Section 3.4 QUORUM. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the members thereof shall be required for any action of the
Executive Committee.
Section 3.5 OTHER COMMITTEES. The Board of Directors may appoint
such other committee or committees as it shall deem advisable and with such
functions and duties as the Board of Directors shall prescribe.
Section 3.6 VACANCIES; CHANGES; DISCHARGE. The Board of Directors
shall have the power at any time to fill vacancies in, to change the membership
of, and to discharge, any such committee.
Section 3.7 COMPENSATION. Members of any committee shall be entitled
to such compensation for their services as members of any such committee and to
such reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any
member may waive compensation for any meeting.
Section 3.8 ACTION BY CONSENT. Any action required or permitted to
be taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if written consent to such action is signed by all members of
the committee and such written consent is filed with the minutes of its
proceedings.
ARTICLE IV
NOTICES
Section 4.1 FORM; DELIVERY. Whenever, under the provisions of law,
the amended and restated certificate of incorporation or these by-laws, notice
is required to be given to any director or stockholder, it shall not be
construed to mean personal notice unless otherwise specifically provided, but
such notice may be given by regular or overnight mail, addressed to such
director or stockholder, at his or her address as it appears on the records of
the Corporation, with postage thereon prepaid. Notices given by regular mail
shall be deemed to be given at the time they are deposited in the United States
mail. Notice to a director may also be given personally, by telegram sent to
his or her address as it appears on the records of the Corporation, by
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facsimile (with a machine-generated confirmation) or by telephone.
Section 4.2 WAIVER. Whenever any notice is required to be given
under the provisions of law, the amended and restated certificate of
incorporation or these by-laws, a written waiver thereof, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed to be equivalent to such notice. In addition, any
stockholder who attends a meeting of stockholders in person, or is represented
at such meeting by proxy, without protesting prior to the conclusion of the
meeting the lack of notice thereof to him or her, or any director who attends a
meeting of the Board of Directors without protesting, prior to the commencement
of the meeting, such lack of notice, shall be conclusively deemed to have waived
notice of such meeting.
ARTICLE V
OFFICERS
Section 5.1 OFFICERS; ELECTION; QUALIFICATIONS; TERM OF OFFICE;
RESIGNATION; REMOVAL, VACANCIES. The Board of Directors shall elect a President
and Secretary, and it may, if it so determines, choose a Chairman of the Board
and a Vice Chairman of the Board from among its members. The Board of Directors
may also choose a Vice Chairman of the Corporation, an Executive Vice President,
one or more Vice Presidents, one or more Assistant Secretaries, a Treasurer and
one or more Assistant Treasurers. Each officer shall hold office until the
first meeting of the Board of Directors after the annual meeting of stockholders
next succeeding his election, or until his successor is elected and qualified or
until his or her earlier resignation or removal. Any officer may resign at any
time upon written notice to the Corporation. A majority of the Board of
Directors may, at a meeting called for such purpose, remove any officer with or
without cause at any time, but such removal shall be without prejudice to the
contractual rights of such officer, if any, with the Corporation. Any number of
offices may be held by the same person. Any vacancy occurring in any office of
the Corporation by death, resignation, removal or otherwise may be filled for
the unexpired portion of the term by the Board of Directors at any regular or
special meeting.
Section 5.2 CHAIRMAN OF THE BOARD. The Chairman of the Board, if
any, shall act in an advisory capacity to the other
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officers of the Corporation in connection with matters of policy and shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present. He or she shall have and may exercise such powers as
are, from time to time, assigned to him or her by the Board of Directors and as
may be provided by law.
Section 5.3 VICE-CHAIRMAN OF THE BOARD. In the absence of the
Chairman of the Board, the Vice-Chairman of the Board, if any, shall perform all
duties and may exercise all the powers of the Chairman of the Board and shall
preside at all meetings of the Board of Directors and of the stockholders at
which he shall be present. He or she shall have and may exercise such powers as
are, from time to time, assigned by the Board of Directors and as may be
provided by law.
Section 5.4 PRESIDENT. In the absence of the Chairman of the Board
and Vice Chairman of the Board, the President shall preside at all meetings of
the Board of Directors and of the stockholders at which he shall be present. He
or she shall be the chief executive officer and, subject to the approval of the
Board of Directors, shall have general charge and supervision of the business of
the corporation; and, in general, he or she shall perform all duties incident to
the office of president of a corporation and such other duties as, from time to
time, may be assigned to him or her by the Board of Directors or as may be
provided by law.
Section 5.5 VICE PRESIDENTS. At the request of the President, or in
his or her absence or inability to act, the Vice President or Vice Presidents
shall perform the duties and exercise the functions of the President, and when
so acting shall have the powers of the President. If there is more than one
Vice President, the Board of Directors may give any of them such further
designation as it considers desirable and may determine which one or more of the
Vice Presidents shall perform any of such duties or exercise any of such
functions; or if such determination is not made by the Board of Directors, the
President may make such determination; otherwise the Vice Presidents, in order
of seniority, shall perform such other duties as may be assigned to him or them
by the Board of Directors or the President or as may be provided by law.
Section 5.6 SECRETARY. Subject to the approval of the Board of
Directors, the Secretary, or such other officer as shall be designated by the
Chairman of the Board, the Vice Chairman of
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the Board or the President, shall record all the proceedings of the meetings of
the stockholders and directors and of any committees in a book to be kept for
that purpose; he or she shall see that all notices are duly given in accordance
with the provisions of these by-laws or as required by law; he or she shall be
custodian of the records of the Corporation; he or she shall see that the
corporate seal is affixed to all documents the execution of which, on behalf of
the Corporation, under its seal, is duly authorized, and when so affixed may
attest the same; and, in general, he or she shall perform all duties incident to
the office of secretary of a corporation, and such other duties as, from time to
time, may be assigned to him or her by the Board of Directors or the President
or as may be provided by law.
Section 5.7 TREASURER. Subject to the approval of the Board of
Directors, the Treasurer shall have charge of and be responsible for all funds,
securities, receipts and disbursements of the Corporation, and shall deposit or
cause to be deposited, in the name of the Corporation, all moneys or other
valuable effects in such banks, trust companies or other depositories as shall,
from time to time, be selected by or under authority of the Board of Directors,
he or she shall keep or cause to be kept full and accurate records of all
receipts and disbursements in books of the Corporation and shall render to the
President and to the Board of Directors, whenever requested, an account of the
financial condition of the Corporation; and, in general, he or she shall perform
all the duties incident to the office of treasurer of a corporation, and such
other duties as may be assigned to him or her by the Board of Directors or the
President or as may be provided by law.
Section 5.8 OTHER OFFICERS. The Board of Directors may from time to
time appoint such other officers, agents or employees as it shall deem necessary
and may delegate to them such powers and duties as it may deem desirable.
Section 5.9 BOND. The Board of Directors shall have power to require
any officer of the Corporation to give bond for the faithful discharge of their
duties, in such form and with such surety or sureties as the Board of Directors
may deem desirable.
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ARTICLE VI
INDEMNIFICATION OF OFFICERS AND DIRECTORS
Section 6.1 ACTION, OTHER THAN BY OR IN THE RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party or is
threatened to be made a party to any threatened, pending or completed action,
suit or proceeding or investigation, whether civil, criminal or administrative,
and whether external or internal to the Corporation (other than a judicial
action or suit brought by or in the right of the Corporation) by reason of the
fact that he or she is or was a director or officer of the Corporation, or that,
being or having been such a director or officer, he or she is or was serving at
the request of the Corporation as a director or officer of another corporation,
partnership, joint venture, trust or other enterprise (all such persons being
referred to hereafter as an "Agent"), against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with such action, suit or proceeding, or
any appeal thereof, if he or she acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Corporation, and with respect to any criminal action or proceeding, had no
reasonable cause to believe his or her conduct was unlawful. The termination of
any action, suit or proceeding whether by judgment, order, settlement,
conviction, or upon a plea of NOLO CONTENDERE or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, that he or she had reasonable cause to believe that his or her
conduct was unlawful. This Article may, at the Corporation's option, apply to
other agents and employees of the Corporation.
Section 6.2 ACTION, BY OR IN THE RIGHT OF THE CORPORATION. The
Corporation shall indemnify any person who was or is a party or is threatened to
be made a party to any threatened, pending or completed judicial action or suit
brought by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he or she is or was an Agent (as defined above)
against expenses (including attorneys' fees) actually and reasonably incurred by
him or her in connection with the defense, settlement or appeal of such action
or suit if he or she acted in good faith and in a manner he or she reasonably
<PAGE>
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believed to be in or not opposed to the best interests of the Corporation,
except that no indemnification shall be made in respect of any claim, issue or
matter as to which such person shall have been adjudged to be liable for gross
negligence or misconduct in the performance of his or her duty to the
Corporation unless and only to the extent that the Court of Chancery or the
court in which such action or suit was brought shall determine upon application
that, despite the adjudication of liability but in view of all the circumstances
of the case, such person is fairly and reasonably entitled to indemnity for such
expenses which the Court of Chancery or other such court shall deem proper.
Section 6.3 DETERMINATION OF RIGHT OF INDEMNIFICATION. No
indemnification under Section 6.1 or 6.2 of this Article VI (unless ordered by a
court) shall be made by the Corporation if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote consisting of
directors who were not parties to such action, suit or proceedings, even though
less than a quorum, or (ii) if there are no such directors or if such directors
so direct, by independent legal counsel in a written opinion, or (iii) by the
stockholders, that such person did not act in good faith and in a manner that
such person reasonably believed to be in or not opposed to the best interests of
the Corporation, or, with respect to any criminal proceeding, that such person
believed or had reasonable cause to believe that his or her conduct was
unlawful.
Section 6.4 INDEMNIFICATION AGAINST EXPENSES OF SUCCESSFUL PARTY.
Notwithstanding the other provisions of this Article, to the extent that an
Agent has been successful on the merits or otherwise, including the dismissal
of an action without prejudice or the settlement of an action without admission
of liability, in defense of any action, suit or proceeding or in defense of any
claim, issue or matter therein, or on appeal from any such proceeding, action,
claim or matter, such Agent shall be indemnified against all expenses actually
and reasonably incurred in connection therewith.
Section 6.5 ADVANCES OF EXPENSES. Except as limited by Section 6.6
of this Article, expenses incurred in defending any civil, criminal,
administrative or investigative action, suit or proceeding or investigation or
any appeal therein shall be paid by the Corporation in advance of the final
disposition of such matter, if the Agent shall undertake to repay such amount in
the event that it is ultimately determined, as provided herein,
<PAGE>
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that such person is not entitled to indemnification. Notwithstanding the
foregoing, no advance shall be made by the Corporation if a determination is
reasonably and promptly made by the Board of Directors by a majority vote of
disinterested directors, or (if there are no such directors or such directors so
direct) by independent legal counsel in a written opinion that, based upon the
facts known to the Board or counsel at the time such determination is made, such
person did not act in good faith and in a manner that such person believed to be
in or not opposed to the best interests of the Corporation or, with respect to
any criminal proceeding, that such person believed or had reasonable cause to
believe his or her conduct was unlawful. In no event shall any advance be made
in instances where the Board of Directors or independent legal counsel
reasonably determines that such person deliberately breached his or her duty to
the Corporation or its stockholders.
Section 6.6 RIGHT OF AGENT TO INDEMNIFICATION UPON APPLICATION;
PROCEDURE UPON APPLICATION. Any indemnification under Sections 6.1, 6.2, and
6.4, or advance under Section 6.5 of this Article shall be made promptly, and in
any event within ninety days, upon the written request of the Agent, unless with
respect to applications under Section 6.1, 6.2, or 6.5, a determination is
reasonably and promptly made by the Board of Directors by a majority vote of
disinterested directors that such Agent acted in a manner set forth in such
Sections as to justify the Corporation's not indemnifying or making an advance
to the Agent. In the event there are no such disinterested directors, the Board
of Directors shall promptly direct that independent legal counsel shall decide
whether the Agent acted in the manner set forth in such Sections as to justify
the Corporation's not indemnifying or making an advance to the Agent. The right
to indemnification or advances as granted by this Article shall be enforceable
by the Agent in any court of competent jurisdiction, if the Board or independent
legal counsel denies the claim, in whole or in part, or if no disposition of
such claim is made within ninety days. The Agent's expenses incurred in
connection with successfully establishing his or her right to indemnification,
in whole or in part, in any such proceeding shall also be indemnified by the
Corporation.
Section 6.7 CONTRIBUTION. In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Article is held by a court of competent jurisdiction to be unavailable to an
indemnitee in whole or part, the Corporation shall, in such an event, after
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taking into account, among other things, contributions by other directors and
officers of the Corporation pursuant to indemnification agreements or otherwise,
and in the absence of personal enrichment, acts of intentional fraud or
dishonesty or criminal conduct on the part of the Agent, contribute to the
payment of Agent's losses to the extent that, after other contributions are
taken into account, such losses exceed: (i) in the case of a director of the
Corporation or any of its subsidiaries who is not an officer of the Corporation
or any of such subsidiaries, the amount of fees paid to him or her for serving
as a director during the 12 months preceding the commencement of the suit,
proceeding or investigation; or (ii) in the case of a director of the
Corporation or any of its subsidiaries who is also an officer of the Corporation
or any of such subsidiaries, the amount set forth in clause (i) plus 5% of the
aggregate cash compensation paid to said director for such office(s) during the
12 months preceding the commencement of the suit, proceeding or investigation;
or (iii) in the case of an officer of the Corporation or any of its
subsidiaries, 5% of the aggregate cash compensation paid to such officer for
service in such office(s) during the 12 months preceding the commencement of
such suit, proceeding or investigation.
Section 6.8 OTHER RIGHTS AND REMEDIES. The indemnification provided
by this Article shall not be deemed exclusive of, and shall not affect, any
other rights to which an Agent seeking indemnification may be entitled under any
bylaws, agreement, vote of stockholders or disinterested directors or otherwise,
both as to action in his or her official capacity and as to action in another
capacity while holding such office, and shall continue as to a person who has
ceased to be an Agent and shall inure to the benefit of the heirs, executors and
administrators of such a person. All rights to indemnification under this
Article shall be deemed to be provided by a contract between the Corporation and
the agent who serves in such capacity at any time while these bylaws and other
relevant provisions of the General Corporation Law and other applicable law, if
any, are in effect. Any repeal or modification thereof shall not affect any
rights or obligations then existing.
Section 6.9 INSURANCE. Upon resolution passed by the Board, the
Corporation may purchase and maintain insurance on behalf of any person who is
or was an Agent against any liability asserted against him or her and incurred
by him or her in such capacity, or arising out of his or her status as such,
whether or not the Corporation would have the power to indemnify him or her
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against such liability under the provisions of this Article. The Corporation
may create a trust fund, grant a security interest or use other means
(including, without limitation, a letter of credit) to ensure the payment of
such sums as may become necessary to effect indemnification as provided herein.
Section 6.10 CONSTITUENT CORPORATIONS. For the purposes of this
Article, references to "the Corporation" include all constituent corporations
absorbed in a consolidation or merger as well as the resulting or surviving
corporation, so that any person who is or was a director or officer of such a
constituent corporation or who, being or having been such a director or officer,
is or was serving at the request of such constituent corporation as a director
or officer shall stand in the same position under the provisions of this Article
with respect to the resulting or surviving corporation as he or she would if he
or she had served the resulting or surviving corporation in the same capacity.
Section 6.11 OTHER ENTERPRISES, FINES, AND SERVING AT THE
CORPORATION'S REQUEST. For purposes of this Article, references to "other
enterprises" in Section 6.1 and 6.7 shall include employee benefit plans;
references to "fines" shall include any excise taxes assessed on a person with
respect to any employee benefit plan; and references to "serving at the request
of the Corporation" shall include any service by Agent as a director or officer
of the Corporation which imposes duties on, or involves services by, such Agent
with respect to any employee benefit plan, its participants, or beneficiaries;
and a person who acted in good faith and in a manner he or she reasonably
believed to be in the interests of the participants and beneficiaries of an
employee benefit plan shall be deemed to have acted in a manner "not opposed to
the best interests of the Corporation" as referred to in this Article.
Section 6.12 SAVINGS CLAUSE. If this Article or any portion thereof
shall be invalidated on any ground by any court of competent jurisdiction, then
the Corporation shall nevertheless indemnify each Agent as to expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
with respect to any action, suit, appeal, proceeding or investigation, whether
civil, criminal or administrative, and whether internal or external, including a
grand jury proceeding and an action or suit brought by or in the right of the
Corporation, to the full extent permitted by any applicable
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portion of this Article that shall not have been invalidated, or by any other
applicable law.
ARTICLE VII
STOCK
Section 7.1 CERTIFICATES. Every holder of stock shall be entitled to
have a certificate signed by or in the name of the corporation by the Chairman
or Vice Chairman of the Board of Directors, if any, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by him or her in the corporation. If such certificate is countersigned
(1) by a transfer agent other than the Corporation or its employee, or (2) by a
registrar other than the Corporation or its employee, any other signature on the
certificate may be a facsimile. In case any officer, transfer agent, or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent, or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if he or she were such officer, transfer agent, or registrar as
the date of issue.
Section 7.2 LOST, STOLEN OR DESTROYED STOCK CERTIFICATES; ISSUANCE OF
NEW CERTIFICATES. The Corporation may issue a new certificate of stock in place
of any certificate theretofore issued by it, alleged to have been lost, stolen
or destroyed, and the Corporation may require the owner of the lost, stolen or
destroyed certificate, or his legal representative, to give the Corporation a
bond sufficient to indemnify it against any claim that may be made against it on
account of the alleged loss, theft or destruction of any such certificate or the
issuance of such new certificate.
Section 7.3 TRANSFER. The Board of Directors shall have power and
authority to make such rules and regulations as they may deem expedient
concerning the issue, registration and transfer of stock certificates.
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VIII
GENERAL PROVISIONS
Section 8.1 DIVIDENDS. Dividends upon the stock of the Corporation,
subject to the provisions of the amended and restated certificate of
incorporation, if any, may be declared by the Board of Directors at any regular
or special meeting, pursuant to law. Dividends may be paid in cash, bonds, in
property, or in shares of stock, subject to the provisions of the amended and
restated certificate of incorporation.
Section 8.2 RESERVES. Before payment of any dividend, there may be
set aside out of any funds of the corporation available for dividends such sum
or sums as the directors from time to time, in their absolute discretion think
proper as a reserve or reserves to meet contingencies, or for equalizing
dividends, or for repairing or maintaining any property of the Corporation, or
for such other purposes as the directors shall think conducive to the interest
of the Corporation, and the directors may modify or abolish any such reserve.
Section 8.3 FISCAL YEAR. The fiscal year of the Corporation shall
begin on the first day of January and end on the thirtyfirst day of December of
each calendar year, unless otherwise determined by resolution of the Board of
Directors.
Section 8.4 CORPORATE SEAL. The seal of the Corporation shall have
inscribed thereon the name of the Corporation, the year of its incorporation and
the words "Corporate Seal, Delaware."
Section 8.5 AMENDMENTS. These bylaws may be added to, altered,
amended or repealed at any regular meeting of the Board of Directors, but the
stockholders may make additional bylaws and may alter and repeal any bylaws
whether adopted by them or otherwise.
Section 8.6 OFFICES. The principle office in the State of Delaware
shall be located at 1209 Orange Street in the City of Wilmington, County of New
Castle, State of Delaware. The Corporation may also have offices at such other
places both within and without the State of Delaware as the Board of Directors
may from time to time determine or the business of the corporation may require.
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Section 8.7 FORM OF RECORDS. Any records maintained by the
Corporation in the regular course of its business, including its stock ledger,
books of account, and minute books, may be kept on, or be in the form of, punch
cards, magnetic tape, photographs, microphotographs, or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 8.8 WAIVER OF NOTICE OF MEETINGS OF STOCKHOLDERS, DIRECTORS
AND COMMITTEES. Any written waiver of notice, signed by the person entitled to
notice, whether before or after the time stated therein shall be deemed
equivalent to notice. Attendance of a person at a meeting shall constitute a
waiver of notice of such meeting, except when the person attends a meeting for
the express purpose of objecting at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors, or members of a
committee of directors need be specified in any written waiver of notice.
<PAGE>
LARSCOM INCORPORATED
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. PURPOSE. The purpose of the Plan is to enhance the Company's ability to
attract and retain qualified non-employee directors and to encourage them to
increase their proprietary interest in the Company.
2. DEFINITIONS.
(a) "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
(b) "Change in Control" means any of the following:
(i) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act), other than (A) Axel Johnson Inc. or an affiliate of Axel
Johnson Inc., (B) the Company, (C) a Subsidiary, (D) an employee benefit plan of
the Company or a Subsidiary, or (E) any person acting on behalf of the Company,
a Subsidiary, Axel Johnson Inc. or an affiliate of Axel Johnson Inc. in a
distribution of stock to the public, becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting Securities
representing (I) more than thirty percent of the combined voting power of the
then outstanding Voting Securities, and (II) more than the combined voting power
of the then outstanding Voting Securities beneficially owned (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, by Axel Johnson Inc. and
its affiliates;
(ii) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company or a
Subsidiary, reverse split of any class of Voting Securities, or an acquisition
of securities or assets by the Company or a Subsidiary, or consummation of any
such transaction if stockholder approval is not obtained, other than (A) any
such transaction in which the holders of outstanding Voting Securities
immediately prior to the transaction receive (or, in the case of a transaction
involving a Subsidiary and not the Company, retain), with respect to such Voting
Securities, voting securities of the surviving or transferee entity representing
more than 60 percent of the total voting power outstanding immediately after
such transaction, with the voting power of each such continuing holder relative
to other such continuing holders not substantially altered in the transaction,
or (B) any such transaction which would result in a Related Party beneficially
owning more than 50 percent of the voting securities of the surviving entity
outstanding immediately after such transaction;
(iii) 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 all or
<PAGE>
substantially all of the Company's assets other than any such transaction which
would result in a Related Party owning or acquiring more than 50 percent of the
assets owned by the Company immediately prior to the transaction; or
(iv) the persons who were members of the Board of Directors
immediately before a tender or exchange offer for shares of Common Stock by any
person other than Axel Johnson Inc. or an affiliate of Axel Johnson Inc., the
Company or a Subsidiary, or before a merger of the Company, consolidation of the
Company, or contested election of the Board of Directors, or before any
combination of such transactions, cease to constitute a majority of the Board of
Directors as a result of such transaction or transactions.
For purposes of this paragraph 2(c) and any other provision of the Plan, the
term "affiliate" shall have the meaning set forth in Rule 12b-2 under the
Exchange Act, 17 C.F.R. section 240.12b-2; the term "Related Party" shall mean
(A) a Subsidiary, (B) an employee or group of employees of the Company or any
Subsidiary, (C) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary, (D) a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportion as their ownership of Voting Securities, or (E) Axel Johnson
Inc. or an affiliate of Axel Johnson Inc.; and the term "Voting Securities"
shall mean any securities of the Company which carry the right to vote generally
in the election of directors.
(c) "Common Stock" means common stock of the Company, par value $___ per
share.
(d) "Company" means Larscom Incorporated, a Delaware corporation.
(e) "Compensation Committee" means the committee of the Board which is
administering the Plan pursuant to section 4 below or, if the Plan is being
administered by the Board pursuant to such section, the Board.
(f) "Eligible Director" means a member of the Board who is not an
employee of the Company, any Subsidiary or Axel Johnson Inc., including any
director of Axel Johnson Inc. who is such a member of the Board.
(g) "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
(h) "Fair Market Value" on a particular date means as follows:
2
<PAGE>
(i) If shares of Common Stock are listed or admitted to trading on
such date on the New York Stock Exchange, the mean between the high and low
sales prices of a share of Common Stock in consolidated trading as reported for
such date in the WALL STREET JOURNAL; or
(ii) If shares of Common Stock are not listed or admitted to trading
on the New York Stock Exchange but are listed or admitted to trading on another
national exchange, the mean between the high and low sales prices of a share of
Common Stock in consolidated trading as reported for such date in the WALL
STREET JOURNAL with regard to securities listed or admitted to trading on such
national exchange; or
(iii) If shares of Common Stock are not listed or admitted to
trading on any national exchange, the mean between the high and low sales prices
of a share of Common Stock as reported for such date in the WALL STREET JOURNAL
with regard to NASDAQ issues or, if Shares are publicly traded on such date but
NASDAQ prices are not quoted for such date in the WALL STREET JOURNAL, the mean
of the closing bid and asked prices of a share of Common Stock on such date as
furnished by a professional market maker making a market in shares of Common
Stock; or
(iv) If in (i), (ii) or (iii) above, as applicable, there were no
sales on such date reported as provided above, the respective prices on the most
recent prior day on which sales were so reported.
(i) "Initial Public Offering" means an initial public offering in the
United States of America of shares of Common Stock, which for purposes of the
Plan shall be deemed to occur on the first date, if any, on which such shares
are sold to the public in the United States of America pursuant to a
registration statement under the Securities Act of 1933, as amended.
(j) "Plan" means the Larscom Incorporated Stock Option Plan for Non-
Employee Directors set forth in these pages, as amended from time to time.
(k) "Secretary" means the Secretary of the Company serving from time to
time.
(l) "SEC Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission promulgated under the Exchange Act, as such rule or any successor
rule may be in effect from time to time.
3
<PAGE>
(m) "Subsidiary" means a corporation or other form of business association
of which shares (or other ownership interests) having more than 50% of the
voting power are, or in the future become, owned or controlled, directly or
indirectly, by the Company.
3. SHARES SUBJECT TO THE PLAN. Subject to adjustment as provided in section
7, the total number of shares of Common Stock for which options may be granted
under the Plan shall be ___________ shares of Common Stock. Such shares may be
authorized but unissued shares, treasury shares, including shares purchased in
the open market or in private transactions, shares issued or transferred to, or
otherwise acquired by, a grantor trust pursuant to the next sentence, or a
combination of each, as the Compensation Committee may from time to time
determine. The Compensation Committee may (but need not) provide at any time or
from time to time (including without limitation upon or in contemplation of a
Change in Control) for a number of shares of Common Stock, equal to the number
of such shares subject to options then outstanding under this Plan, to be issued
or transferred to, or acquired by, a grantor trust for the purpose of satisfying
the Company's obligations under such options, and, unless prohibited by
applicable law, such shares held in trust shall be considered authorized and
issued shares with full dividend and voting rights, notwithstanding that the
options to which such shares relate may not be exercisable at that time. If any
option granted under the Plan expires or terminates for any reason without
having been exercised in full, the shares subject to, but not delivered under,
such option may become available for the grant of other options under the Plan.
If a participant pays the purchase price of shares subject to an option by
surrendering shares of Common Stock in accordance with the provisions of section
6.5(c) below, the number of shares surrendered shall be added back to the number
of shares available for issuance or transfer under the Plan so that the maximum
number of shares that may be issued or transferred under the Plan pursuant to
this section 3 shall have been charged only for the net number of shares issued
or transferred by the Company pursuant to the Option exercise.
4. ADMINISTRATION OF THE PLAN. The Plan shall be administered by a committee
of the Board consisting of two or more directors appointed from time to time by
the Board, unless the Board determines that the Plan should be administered by
the Board, in which case it shall be administered by the Board. Unless the
Board determines otherwise, any committee administering the Plan shall be
comprised solely of "Non-Employee Directors" within the meaning of SEC Rule 16b-
3. Subject to the terms of the Plan, the Compensation Committee shall have the
power to administer, interpret and construe the Plan, to determine all questions
arising thereunder, and to adopt and amend such rules and regulations for
administering the Plan as the Compensation Committee deems desirable. Any
interpretation by the Compensation Committee of the terms and provisions of the
Plan and any instrument issued thereunder, and its administration thereof, and
all action taken by the Compensation
4
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Committee pursuant to the Plan, shall be final, binding and conclusive on the
Company, its stockholders, Subsidiaries, all participants, and upon their
respective successors and assigns, and upon all other persons claiming under or
through any of them.
5. PARTICIPATION IN THE PLAN. Only Eligible Directors shall participate in
the Plan.
6. OPTION TERMS.
All options granted under the Plan shall be nonstatutory options not intended to
qualify as incentive stock options under Section 422 of the Internal Revenue
Code of 1986, as amended. Each option granted under the Plan and the issuance
of shares thereunder shall be subject to the following terms and conditions:
6.1 OPTION INSTRUMENTS. Each option granted under the Plan shall be evidenced
by a written instrument duly executed on behalf of the Company and dated as of
the applicable date of grant. Each such instrument shall be signed on behalf of
the Company by an officer or officers delegated such authority by the
Compensation Committee using either manual or facsimile signature. Each such
instrument shall comply with and be subject to the terms and conditions of the
Plan. Any such instrument may contain such other terms, provisions and
conditions not inconsistent with the Plan as may be determined by the
Compensation Committee.
6.2 OPTION GRANTS. If and when an Initial Public Offering occurs, each person
who is then an Eligible Director shall hereby be granted, on the date on which
such Initial Public Offering occurs, an option to purchase _____ shares of
Common Stock from the Company at the price at which shares are sold to the
public in the Initial Public Offering. Immediately following each annual
meeting of stockholders of the Company, commencing with the first annual meeting
after the Initial Public Offering and continuing with each annual meeting
thereafter until the Plan is terminated or expires pursuant to section 8 or 9
below, each person who is then an Eligible Director shall hereby be granted, on
the date of such annual meeting, an option to purchase ____ shares of Common
Stock from the Company, unless such option is the first option to be granted to
such person under this Plan, in which case such person shall hereby be granted,
on such date, an option to purchase ____ shares of Common Stock from the
Company. The price at which the shares may be purchased under any option
granted pursuant to the preceding sentence shall be equal to the Fair Market
Value of the shares on the date on which such option is granted.
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6.3 TERM OF OPTION AND LIMITATIONS ON RIGHT TO EXERCISE.
(a) Except as otherwise provided in sections 6.3(b), (c) and (d)
below, an option may be exercised at any time for all or from time to time for
any part of the shares which are subject to purchase under the option, before
the tenth anniversary of the date on which the option was granted. If not
sooner exercised or terminated pursuant to the preceding sentence or the other
provisions of this section 6.3, an option shall expire on the tenth anniversary
of the date on which it was granted.
(b) (i) An option which is the first option to be granted to a
participant under this Plan may not be exercised (A) with respect to any of the
shares subject to the option until the participant shall have served on the
Board of Directors during the period extending from the date of grant of the
option to the date of the first annual meeting of stockholders next following
the date of grant of the option, nor (B) with respect to more than one-third of
the shares subject to the option until the participant shall have served on the
Board of Directors during the period extending from the date of grant of the
option to the date of the second annual meeting of stockholders next following
the date of grant of the option, nor (C) with respect to more than two-thirds of
the shares subject to the option until the participant shall have served on the
Board of Directors during the period extending from the date of grant of the
option to the date of the third annual meeting of stockholders next following
the date of grant of the option.
(ii) An option which is not the first option to be granted to the
participant under this Plan may not be exercised in whole or in part unless and
until the participant shall have served on the Board of Directors during the
period extending from the date of grant of the option to the date of the third
annual meeting of stockholders next following the date of grant of the option.
(iii) On the date (if any) on which a Change in Control occurs,
the preceding provisions of this section 6.3(b) shall cease to apply to any
option that is outstanding and that would be fully exercisable on such date were
it not for such provisions, but, in the case of an option which was granted less
than six months before such Change in Control occurs, only if the participant
agrees in writing (if requested in writing by the Compensation Committee to do
so in advance of such Change in Control) to remain on the Board at least through
the date which is six months after the date on which such option was granted
with the same compensation and indemnification rights as immediately before the
Change in Control.
(c) If and to the extent that any option is outstanding and exercisable
pursuant to the provisions of sections 6.3(a) and 6.3(b) above on the date on
which a participant's service
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on the Board of Directors terminates for any reason other than cause (which for
purposes of this Plan shall mean cause within the meaning of the Company's by-
laws or, in the absence of a by-law provision regarding cause, within the
meaning of subsection 141(k) of the Delaware General Corporation Law), such
option shall terminate one year after such termination of Board service;
provided that if the participant dies during such one year period after
termination of Board service, such option shall terminate one year after the
participant's death, and, provided further, that in no event shall any option be
exercisable after the tenth anniversary of the date on which it was granted. If
and to the extent that any option is outstanding but not exercisable pursuant to
the provisions of sections 6.3(a) and 6.3(b) above on the date of termination of
Board service for any reason other than cause, such option shall terminate upon
such termination of Board service. If and to the extent that any option is
outstanding on the date (if any) on which a participant's service on the Board
of Directors terminates for cause, such option, whether or not otherwise
exercisable pursuant to the provisions of sections 6.3(a) and 6.3(b) above,
shall terminate upon such termination of Board service.
(d) An option may not be exercised for fewer than fifty shares unless
fewer than fifty shares remain subject to the option at the time, in which case
the option may not be exercised for less than the full balance of the shares
that remain subject to the option at the time.
(e) The Company's obligation to issue or transfer shares of Common
Stock pursuant to the exercise of any option under this Plan shall be subject to
the condition that such issuance or transfer would not, in the opinion of the
Compensation Committee, cause any impairment of the Company's capital or
constitute a breach of or cause the Company to be in violation of any covenant,
warranty or representation made by the Company in any credit agreement to which
the Company is a party.
6.4 TIME AND MANNER OF OPTION EXERCISE. An option shall be considered
exercised if and when written notice, signed by the person exercising the option
and stating the number of shares with respect to which the option is being
exercised, is received by the Secretary on a form approved for this purpose by
the Compensation Committee, accompanied by full payment of the option exercise
price in one or more of the forms described in section 6.5 below for the number
of shares to be purchased. No option may at any time be exercised with respect
to a fractional share.
6.5 PAYMENT OF EXERCISE PRICE. The option exercise price may be paid in whole
or in part (a) in cash, (b) by bank-certified check, cashier's check, or
personal check subject to collection, (c) in whole shares of Common Stock valued
at their Fair Market Value on the
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date of exercise, provided that such shares have been held by the participant
for at least six months before the date of exercise or satisfy such other
requirement(s) as the Compensation Committee may impose, or (d) by delivering to
the Company a properly executed exercise notice together with irrevocable
instructions to a stockbroker that the Compensation Committee determines satisfy
the provisions of section 220.3(e)(4) (or a successor provision) of Regulation T
promulgated by the Board of Governors of the Federal Reserve System.
6.6 EXERCISE AFTER DEATH. Following the death of a participant, any options
that were exercisable at the time of the participant's death may be exercised
prior to their expiration or termination pursuant to the provisions of sections
6.3(a) and (c) above by the participant's beneficiary designated pursuant to the
provision of section 6.7 below or, if no such beneficiary has been designated or
survives the participant, by the participant's estate or the person or persons
to whom the options passed by will or the laws of descent and distribution.
6.7 TRANSFERABILITY. Options granted under the Plan shall not be transferable
otherwise than by will or the laws of descent and distribution and, during the
lifetime of the participant, shall be exercisable only by him or his legal
representative. Notwithstanding the foregoing, a participant may designate a
beneficiary to whom the participant's options shall pass in the event of the
participant's death, provided that (a) such beneficiary is designated in writing
on a form approved for that purpose by the Compensation Committee, (b) such form
is received by the Secretary prior to the participant's death, and (c) the
Compensation Committee consents to any beneficiary so designated.
6.8 REGULATORY APPROVAL AND COMPLIANCE. Any provision of the Plan to the
contrary notwithstanding, no option shall be exercisable unless and until the
Company (a) obtains the approval of all regulatory bodies whose approval the
Compensation Committee may deem necessary or desirable, and (b) complies with
all legal requirements deemed applicable by the Compensation Committee, nor may
any Option be exercised unless and until the person exercising the Option
supplies the Company with such documentation as the Compensation Committee may
deem necessary or advisable to establish the identity of such person and such
person's entitlement to exercise the Option.
7. CAPITAL ADJUSTMENTS. The aggregate number and class of shares subject to
issuance and transfer under the Plan, the number and class of shares with
respect to which options may be granted to each Eligible Director under the Plan
as provided in section 6, the number and class of shares subject to each
outstanding option, and the exercise price per share specified in each such
option, shall be appropriately adjusted by the Compensation Committee in the
event of stock dividends, stock splits, spinoffs or other distributions of
assets (other than normal cash dividends), recapitalizations, reorganizations,
mergers, consolidations, exchanges or other changes in corporate structure or
capitalization.
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8. EFFECTIVE DATE AND DURATION OF PLAN. The Plan shall become effective if
and when the stockholders of the Company approve it either (a) at a duly held
stockholders' meeting or (b) by written consent, in accordance with any
applicable provisions of Delaware law. If the Plan is not so approved by
stockholders, the Plan shall be null, void and of no force or effect. If so
approved, the Plan shall remain in effect until all shares authorized to be
issued or transferred hereunder have been exhausted or until the Plan is sooner
terminated by the Board of Directors, and shall continue in effect thereafter
with respect to any options outstanding at the time of such termination. In no
event shall any options be granted hereunder unless an Initial Public Offering
occurs.
9. AMENDMENT AND TERMINATION OF THE PLAN. The Plan may be amended by the
Board of Directors, without shareholder approval, at any time and in any
respect, unless shareholder approval of the amendment in question is required
under Delaware law, any national securities exchange or system on which shares
of Common Stock are then listed or reported, by any regulatory body having
jurisdiction with respect to the Plan, or under any other applicable laws, rules
or regulations. The Plan may also be terminated at any time by the Board of
Directors. Any provision of this section 9 to the contrary notwithstanding, no
amendment or termination of the Plan shall adversely affect any option granted
prior to the date of such amendment or termination without the written consent
of the participant.
10. GENERAL PROVISIONS.
(a) No provision of the Plan or of any instrument issued pursuant to the
Plan shall be deemed to confer upon any person any right to continue as a
director of or to be associated in any other way with the Company for any period
of time or at any particular rate of compensation.
(b) No person shall have any rights as a stockholder of the Company with
respect to any shares optioned to him under the Plan until such shares are
issued or transferred to him.
(c) All expenses of adopting and administering the Plan shall be borne by
the Company, and none of such expenses shall be charged to any participant.
(d) The use of the masculine gender shall also include within its meaning
the feminine. The use of the singular shall include within its meaning the
plural and vice versa.
(e) By accepting any benefits under the Plan, each participant, and each
person claiming under or through him, shall be conclusively deemed to have
indicated his acceptance and ratification of, and consent to, all provisions of
the Plan and any action or decision under
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<PAGE>
the Plan by the Company, its agents and employees, and the Board of Directors
and the Compensation Committee.
(f) The Plan shall be governed by and construed under the laws of the
State of Delaware without giving effect to the principles of conflicts of laws
of that State.
(g) The Plan is intended to be "a plan pursuant to which the terms and
conditions of each transaction are fixed in advance" within the meaning of Note
(3) to SEC Rule 16b-3, and option grants under the Plan are intended to qualify
for exemption under paragraph (d) of SEC Rule 16b-3. Every provision of the
Plan shall be administered, interpreted and construed to carry out such
intentions, and any provision that cannot be so administered, interpreted and
construed shall to that extent be disregarded.
***
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LARSCOM INCORPORATED
STOCK INCENTIVE PLAN
1. PURPOSES.
The primary purposes of this Plan are (a) to enable the Company to provide
competitive incentives that will attract, retain, motivate and reward Employees,
and (b) to enable the Company to give Employees an interest parallel to the
interests of the Company's shareholders generally.
2. DEFINITIONS.
Unless otherwise required by the context, the following terms, when used in
this Plan, shall have the meanings set forth in this Section 2.
(a) "Beneficiary" means a person or entity (including a trust or estate),
designated in writing by a Participant on such forms and in accordance with such
terms and conditions as the Compensation Committee may prescribe, to whom the
Participant's rights under the Plan shall pass in the event of the death of the
Participant.
(b) "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
(c) "Change in Control" means any of the following:
(i) any person (as such term is used in Sections 13(d) and 14(d)(2)
of the Exchange Act), other than (A) Axel Johnson Inc. or an affiliate of Axel
Johnson Inc., (B) the Company, (C) a Subsidiary, (D) an employee benefit plan of
the Company or a Subsidiary, or (E) any person acting on behalf of the Company,
a Subsidiary, Axel Johnson Inc. or an affiliate of Axel Johnson Inc. in a
distribution of stock to the public, becomes the beneficial owner (as defined in
Rule 13d-3 under the Exchange Act), directly or indirectly, of Voting Securities
representing (I) more than thirty percent of the combined voting power of the
then outstanding Voting Securities, and (II) more than the combined voting power
of the then outstanding Voting Securities beneficially owned (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, by Axel Johnson Inc. and
its affiliates;
(ii) the stockholders of the Company approve a merger,
consolidation, recapitalization or reorganization of the Company or a
Subsidiary, reverse split of any class of Voting Securities, or an acquisition
of securities or
<PAGE>
assets by the Company or a Subsidiary, or consummation of any such transaction
if stockholder approval is not obtained, other than (A) any such transaction in
which the holders of outstanding Voting Securities immediately prior to the
transaction receive (or, in the case of a transaction involving a Subsidiary and
not the Company, retain), with respect to such Voting Securities, voting
securities of the surviving or transferee entity representing more than 60
percent of the total voting power outstanding immediately after such
transaction, with the voting power of each such continuing holder relative to
other such continuing holders not substantially altered in the transaction, or
(B) any such transaction which would result in a Related Party beneficially
owning more than 50 percent of the voting securities of the surviving entity
outstanding immediately after such transaction;
(iii) 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 all or substantially all of the Company's assets other than
any such transaction which would result in a Related Party owning or acquiring
more than 50 percent of the assets owned by the Company immediately prior to the
transaction; or
(iv) the persons who were members of the Board of Directors
immediately before a tender or exchange offer for shares of Common Stock by any
person other than Axel Johnson Inc. or an affiliate of Axel Johnson Inc., the
Company or a Subsidiary, or before a merger of the Company, consolidation of the
Company, or contested election of the Board of Directors, or before any
combination of such transactions, cease to constitute a majority of the Board of
Directors as a result of such transaction or transactions.
For purposes of this paragraph 2(c) and any other provision of the Plan, the
term "affiliate" shall have the meaning set forth in Rule 12b-2 under the
Exchange Act, 17 C.F.R. section 240.12b-2; the term "Related Party" shall mean
(A) a Subsidiary, (B) an employee or group of employees of the Company or any
Subsidiary, (C) a trustee or other fiduciary holding securities under an
employee benefit plan of the Company or any Subsidiary, (D) a corporation owned
directly or indirectly by the stockholders of the Company in substantially the
same proportion as their ownership of Voting Securities, or (E) Axel Johnson
Inc. or an affiliate of Axel Johnson Inc.; and the term "Voting Securities"
shall mean any securities of the Company which carry the right to vote generally
in the election of directors.
(d) "Code" means the Internal Revenue Code of 1986, as amended and in
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effect from time to time. References to a particular section of the Code shall
include references to any related Treasury Regulations and to successor
provisions.
(e) "Common Stock" means common stock, par value $___ per share, of the
Company.
(f) "Company" means Larscom Incorporated, a Delaware corporation.
(g) "Compensation Committee" means the committee of the Board which is
administering the Plan pursuant to paragraph 11(a) below or, if and to the
extent that the Plan is being administered by the Board pursuant to paragraph
11(a), the Board.
(h) "Consultant" means any consultant or advisor who is not an Employee
and who renders services to or on behalf of the Company or a Subsidiary, other
than services as a member of the Board or services in connection with the offer
or sale of securities in a capital-raising transaction, and includes a member of
the Board, an employee of Axel Johnson Inc. or a former Employee who is such a
consultant or advisor.
(i) "Employee" means an employee of the Company or a Subsidiary, including
an officer or director who is such an employee. An Employee shall not cease to
be an Employee in the case of (i) any leave of absence approved by the Company,
or (ii) transfers between locations of the Company or between the Company, any
Subsidiary, or any successor. For purposes of Incentive Stock Options, no such
leave may exceed ninety days, unless reemployment upon expiration of such leave
is guaranteed by statute or contract. If reemployment upon expiration of a
leave of absence approved by the Company is not so guaranteed, on the 91st day
of such leave any Incentive Stock Option held by the optionee shall cease to be
treated as an Incentive Stock Option and shall be treated as a Non-Qualified
Stock Option.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(k) "Fair Market Value" on a particular date means as follows:
(i) If shares of Common Stock are listed or admitted to trading on
such date on the New York Stock Exchange, the mean between the high and low
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sales prices of a share of Common Stock in consolidated trading as reported for
such date in the WALL STREET JOURNAL; or
(ii) If shares of Common Stock are not listed or admitted to trading
on the New York Stock Exchange but are listed or admitted to trading on another
national exchange, the mean between the high and low sales prices of a share of
Common Stock in consolidated trading as reported for such date in the WALL
STREET JOURNAL with regard to securities listed or admitted to trading on such
national exchange; or
(iii) If shares of Common Stock are not listed or admitted to
trading on any national exchange, the mean between the high and low sales prices
of a share of Common Stock as reported for such date in the WALL STREET JOURNAL
with regard to NASDAQ issues or, if shares of Common Stock are publicly traded
on such date but NASDAQ prices are not quoted for such date in the WALL STREET
JOURNAL, the mean of the closing bid and asked prices of a share of Common Stock
on such date as furnished by a professional market maker making a market in
shares of Common Stock; or
(iv) If in (i), (ii) or (iii) above, as applicable, there were no
sales on such date reported as provided above, the respective prices on the most
recent prior day on which sales were so reported;
provided that "Fair Market Value" on the date on which an Initial Public
Offering occurs shall mean the price at which shares of Common Stock are sold to
the public in such Initial Public Offering. In the case of an Incentive Stock
Option, if the foregoing method of determining fair market value should be
inconsistent with section 422 of the Code, "Fair Market Value" shall be
determined by the Compensation Committee in a manner consistent with such
section of the Code and shall mean the value as so determined.
(l) "Incentive Stock Option" means an option, including an Option as the
context may require, which the company granting the option intends to qualify
for the tax treatment applicable to incentive stock options under section 422 of
the Code.
(m) "Initial Public Offering" means an initial public offering in the
United States of America of shares of Common Stock, which for purposes of the
Plan shall be deemed to occur on the first date, if any, on which such shares
are sold to the
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public in the United States of America pursuant to a registration statement
under the Securities Act of 1933, as amended.
(n) "Non-Qualified Stock Option" means an option, including an Option as
the context may require, which the company granting the option does not intend
to qualify for the tax treatment applicable to incentive stock options under
section 422 of the Code.
(o) "Option" means an option granted under this Plan to purchase shares of
Common Stock. Options may be Incentive Stock Options or Non-Qualified Stock
Options.
(p) "Participant" means an Employee or Consultant who has been granted a
Stock Incentive.
(q) "Performance Unit Award" means a number of shares of Common Stock or
an amount of money determined by reference to the Fair Market Value of shares of
Common Stock, or a combination of each, that will be distributed in the future
if continued employment and/or other performance objectives or contingencies
specified by the Compensation Committee are attained. Such other performance
objectives may include, without limitation, corporate, divisional or business
unit financial or operating performance measures and such other contingencies
may include the Participant's depositing with the Company, acquiring or
retaining for stipulated time periods specified amounts of Common Stock. The
amount of a Performance Unit Award that is payable in shares of Common Stock may
but need not be determined by reference to the Fair Market Value of shares of
Common Stock.
(r) "Plan" means the Larscom Incorporated Stock Incentive Plan set forth
in these pages, as amended from time to time.
(s) "Restricted Stock Award" means shares of Common Stock which are issued
or transferred to a Participant under section 5 below and which will become free
of restrictions specified by the Compensation Committee if continued employment
and/or other performance objectives or contingencies specified by the
Compensation Committee are attained. Such other performance objectives may
include, without limitation, corporate, divisional or business unit financial or
operating performance measures and such other contingencies may include the
Participant's depositing with the Company, acquiring or retaining for stipulated
time
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periods specified amounts of Common Stock.
(t) "SEC Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission promulgated under the Exchange Act, as such rule or any successor
rule may be in effect from time to time.
(u) "Section 16 Person" means a person subject to section 16(b) of the
Exchange Act with respect to transactions involving equity securities of the
Company.
(v) "Service Provider" means an Employee or Consultant.
(w) "Stock Appreciation Right" means a right granted under section 7
below.
(x) "Stock Bonus Award" means shares of Common Stock or an amount of money
which is determined by reference to the Fair Market Value of shares of Common
Stock, or a combination of each, which are distributed to a Participant or which
the Compensation Committee agrees to distribute in the future to a Participant
in lieu of, or as a supplement to, any other compensation that may have been
earned by services rendered prior to the date the distribution is made. The
amount of a Stock Bonus Award that is payable in shares of Common Stock may but
need not be determined by reference to the Fair Market Value of shares of Common
Stock. Performance Unit Awards and Restricted Stock Awards are specific types
of Stock Bonus Awards.
(y) "Stock Incentive" means an award granted under this Plan in one of the
forms provided for in Section 3.
(z) "Subsidiary" means a corporation or other form of business association
of which shares (or other ownership interests) having more than 50% of the
voting power are, or in the future become, owned or controlled, directly or
indirectly, by the Company; provided, however, that in the case of an Incentive
Stock Option, the term "Subsidiary" shall mean a Subsidiary (as defined by the
preceding clause) which is also a "subsidiary corporation" as defined in section
424(f) of the Code.
3. GRANTS OF STOCK INCENTIVES.
(a) Subject to the provisions of the Plan, the Compensation Committee may
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at any time, or from time to time, grant any of the following Stock Incentives
to any Employee or Consultant:
(i) Incentive Stock Options;
(ii) Non-Qualified Stock Options;
(iii) Stock Appreciation Rights; and
(iv) Stock Bonus Awards, which may but need not be Performance Unit
Awards or Restricted Stock Awards;
provided that, any provision of the Plan (including this paragraph 3(a)) to the
contrary notwithstanding, the Compensation Committee may grant Incentive Stock
Options only to Employees.
(b) After a Stock Incentive has been granted,
(i) the Compensation Committee may waive any term or condition
thereof that could have been excluded from such Stock Incentive when it was
granted, and
(ii) with the written consent of the affected Participant, may
amend any Stock Incentive after it has been granted to include (or exclude) any
provision which could have been included in (or excluded from) such Stock
Incentive when it was granted,
and in either case (i) or (ii) above no additional consideration need be
received by the Company in exchange for such waiver or amendment.
(c) The Compensation Committee may (but need not) grant any Stock
Incentive linked to another Stock Incentive. Linked Stock Incentives may be
granted as either alternatives or supplements to one another. The terms and
conditions of any such linked Stock Incentives shall be determined by the
Compensation Committee, subject to the provisions of the Plan.
4. STOCK SUBJECT TO THE PLAN.
(a) Subject to the provisions below of paragraph 4(c) and of section 9,
the
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<PAGE>
maximum number of shares of Common Stock which may be issued or transferred
pursuant to Stock Incentives is _________ shares of Common Stock and the maximum
number of shares of Common Stock with respect to which Options or Stock
Appreciation Rights may be granted during any calendar year to any Employee or
Consultant is ________________ shares of Common Stock.
(b) Such shares may be authorized but unissued shares of Common Stock,
shares of Common Stock held in the treasury, whether acquired by the Company
specifically for use under this Plan or otherwise, or shares issued or
transferred to, or otherwise acquired by, a trust pursuant to paragraph 12(d)
below, as the Compensation Committee may from time to time determine, provided,
however, that any shares acquired or held by the Company for the purposes of
this Plan shall, unless and until issued or transferred to a trust pursuant to
paragraph 12(d) below or to a Participant in accordance with the terms and
conditions of a Stock Incentive, be and at all times remain authorized but
unissued shares or treasury shares (as the case may be), irrespective of whether
such shares are entered in a special account for purposes of this Plan, and
shall be available for any corporate purpose.
(c) If any shares of Common Stock subject to a Stock Incentive shall not
be issued or transferred to a Participant and shall cease to be issuable or
transferable to a Participant because of the termination, expiration or
cancellation, in whole or in part, of such Stock Incentive or for any other
reason, or if any such shares shall, after issuance or transfer, be reacquired
by the Company because of the Participant's failure to comply with the terms and
conditions of a Stock Incentive or for any other reason, the shares not so
issued or transferred, or the shares so reacquired by the Company, as the case
may be, shall no longer be charged against the limitations provided for in
paragraph (a) above of this section 4 and may again be made subject to Stock
Incentives. If a Participant pays the purchase price of shares subject to an
Option by surrendering shares of Common Stock in accordance with the provisions
of paragraph 6(b)(iv) below, the number of shares surrendered shall be added
back to the number of shares available for issuance or transfer under the Plan
so that the maximum number of shares that may be issued or transferred under the
Plan pursuant to paragraph 4(a) above shall have been charged only for the net
number of shares issued or transferred pursuant to the Option exercise;
provided, however, that none of the surrendered shares shall be available for
issuance as Incentive Stock Options.
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5. STOCK BONUS AWARDS, PERFORMANCE UNIT AWARDS AND RESTRICTED STOCK AWARDS.
Stock Bonus Awards, Performance Unit Awards and Restricted Stock Awards
shall be subject to the following provisions:
(a) An Employee or Consultant may be granted a Stock Bonus Award,
Performance Unit Award or Restricted Stock Award whether or not he is eligible
to receive similar or dissimilar incentive compensation under any other plan or
arrangement of the Company.
(b) An amount of money determined by reference to the Fair Market Value of
shares of Common Stock may be distributed, and shares of Common Stock subject to
a Stock Bonus Award may be issued or transferred, to a Participant at the time
such Award is granted, or at any time subsequent thereto, or in installments
from time to time, and subject to such terms and conditions, as the Compensation
Committee shall determine. In the event that any such distribution, issuance or
transfer shall be made to the Participant after such Award is granted, the
Compensation Committee may but need not provide for payment to such Participant,
either in cash or shares of Common Stock, from time to time or at the time or
times such money shall be distributed or shares shall be issued or transferred
to such Participant, of amounts equal to the dividends which would have been
payable to such Participant if shares had been issued or transferred to such
Participant in satisfaction of such Award at the time such Award was granted.
(c) Any Stock Bonus Award, Performance Unit Award or Restricted Stock
Award may, in the discretion of the Compensation Committee, be settled in cash,
on each date on which shares would otherwise have been delivered or become
unrestricted, in an amount equal to the Fair Market Value on such date of the
shares which would otherwise have been delivered or become unrestricted; and the
number of shares for which such cash payment is made shall be added back to the
maximum number of shares available for use under the Plan.
(d) Stock Bonus Awards, Performance Unit Awards and Restricted Stock
Awards shall be subject to such terms and conditions, including, without
limitation, restrictions on the sale or other disposition of the shares issued
or transferred pursuant to such Award, and conditions calling for forfeiture of
the Award or the shares issued or transferred pursuant thereto in designated
circumstances, as the Compensation Committee shall determine; provided, however,
that upon the issuance or transfer of shares to a Participant pursuant to any
such Award, the
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recipient shall, with respect to such shares, be and become a shareholder of the
Company fully entitled to receive dividends, to vote and to exercise all other
rights of a shareholder except to the extent otherwise provided in the Award.
All or any portion of a Stock Bonus Award may but need not be made in the form
of a Performance Unit Award or a Restricted Stock Award.
(e) Each Stock Bonus Award, Performance Unit Award and Restricted Stock
Award shall be evidenced by a written instrument in such form as the
Compensation Committee shall determine, signed by a representative of the
Company duly authorized to do so, provided that such instrument is consistent
with this Plan and incorporates it by reference.
6. STOCK OPTIONS.
Options shall be subject to the following provisions:
(a) Subject to the provisions of section 9, the purchase price of each
share subject to an Incentive Stock Option shall be not less than 100% of the
Fair Market Value of a share of Common Stock on the date the Incentive Stock
Option is granted (or in the case of any optionee who, at the time such
Incentive Stock Option is granted, owns stock possessing more than 10 percent of
the total combined voting power of all classes of stock of his employer
corporation or of its parent or subsidiary corporation, not less than 110% of
the Fair Market Value of a share of Common Stock on the date the Incentive Stock
Option is granted) and the purchase price of each share subject to a Non-
Qualified Stock Option shall be not less than 100% of the Fair Market Value of a
share of Common Stock on the date the Non-Qualified Stock Option is granted.
Subject to the foregoing limitations, the purchase price per share may, if the
Compensation Committee so provides at the time of grant of an Option, be indexed
to the increase or decrease in an index specified by the Compensation Committee.
(b) The purchase price of shares subject to an Option may be paid in whole
or in part (i) in cash, (ii) by bank-certified, cashier's or personal check
subject to collection, (iii) if so provided in the Option and subject to such
terms and conditions as the Compensation Committee may impose, by delivering to
the Company a properly executed exercise notice together with irrevocable
instructions to a stockbroker that the Compensation Committee determines satisfy
the provisions of section 220.3(e)(4) (or a successor provision) of Regulation T
promulgated by the Board of Governors of the Federal Reserve System, or (iv) if
so provided in the
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Option and subject to such terms and conditions as are specified in the Option,
in shares of Common Stock or other property surrendered to the Company.
Property for purposes of this paragraph shall include an obligation of the
Company unless prohibited by applicable law. Shares of Common Stock thus
surrendered shall be valued at their Fair Market Value on the date of exercise.
Any such other property thus surrendered shall be valued at its fair market
value on any reasonable basis established or approved by the Compensation
Committee.
(c) Options may be granted for such lawful consideration, including money
or other property, tangible or intangible, or labor or services received or to
be received by the Company, as the Compensation Committee may determine when the
Option is granted. Property for purposes of the preceding sentence shall
include an obligation of the Company unless prohibited by applicable law.
Subject to the foregoing and the other provisions of this section 6, each Option
may be exercisable in full at the time of grant or may become exercisable in one
or more installments, at such time or times and subject to satisfaction of such
terms and conditions as the Compensation Committee may determine. The
Compensation Committee may at any time accelerate the date on which an Option
becomes exercisable, and no additional consideration need be received by the
Company in exchange for such acceleration. Unless otherwise provided in the
Option, an Option, to the extent it becomes exercisable, may be exercised at any
time in whole or in part until the expiration or termination of the Option.
(d) Each Option shall be exercisable during the lifetime of the optionee
only by him or his guardian or legal representative, and after death only by his
Beneficiary or, absent a Beneficiary, by his estate or by a person who acquired
the right to exercise the Option by will or the laws of descent and
distribution; provided that any Incentive Stock Option may be exercisable after
death by a Beneficiary only if such exercise would be, in the opinion of the
Compensation Committee, permissible under and consistent with section 422 of the
Code. Each Option shall expire at such time or times as the Compensation
Committee may determine, provided that notwithstanding any other provision of
this Plan, (i) no Option shall be exercisable after the tenth anniversary of the
date on which the Option was granted, and (ii) no Incentive Stock Option which
is granted to any optionee who, at the time such Option is granted, owns stock
possessing more than 10 percent of the total combined voting power of all
classes of stock of his employer corporation or of its parent or subsidiary
corporation, shall be exercisable after the expiration of five (5) years from
the date such Option is granted. If an Option is granted for a term of less
than ten years, the Compensation Committee may, at any time prior to the
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expiration of the Option, extend its term for a period ending not later than on
the tenth anniversary of the date on which the Option was granted, and no
additional consideration need be received by the Company in exchange for such
extension. The Compensation Committee may but need not provide for an Option to
be exercisable after termination of employment until its fixed expiration date
(or until an earlier date or specified event occurs).
(e) An Option may, but need not, be an Incentive Stock Option. All shares
of Common Stock which may be made subject to Stock Incentives under this Plan
may be made subject to Incentive Stock Options; provided that the aggregate Fair
Market Value (determined as of the time the option is granted) of the stock with
respect to which Incentive Stock Options may be exercisable for the first time
by any Employee during any calendar year (under all plans, including this Plan,
of his employer corporation and its parent and subsidiary corporations) shall
not exceed $100,000 or such other amount as may apply under the Code. To the
extent that the aggregate Fair Market Value (determined as of the time the
option is granted) of the stock with respect to which Options which the
Compensation Committee intends to qualify as Incentive Stock Options are
exercisable for the first time by any Employee during any calendar year (under
all plans, including this Plan, of his employer corporation and its parent and
subsidiary corporations) exceeds $100,000 or such other amount as may apply
under the Code, such Options shall be treated as Non-Qualified Stock Options.
For purposes of this paragraph 6(e), Incentive Stock Options shall be taken into
account in the order in which they were granted.
(f) Each Option shall be evidenced by a written instrument, signed by
a representative of the Company duly authorized to do so, which shall contain
such terms and conditions, and shall be in such form, as the Compensation
Committee shall determine, provided the instrument is consistent with this Plan
and incorporates it by reference. An Option, if so approved by the Compensation
Committee, may include terms, conditions, restrictions and limitations in
addition to those provided for in this Plan including, without limitation, terms
and conditions providing for the transfer or issuance of shares, on exercise of
an Option, which may be non-transferable and forfeitable to the Company in
designated circumstances, or for the delivery of shares purchased pursuant to
the exercise of an Option to be deferred until a specified date or dates after
the date of exercise at the election of the Participant or the Compensation
Committee.
(g) The Compensation Committee may specify, at the time of grant of an
Incentive Stock Option or at or after the time of grant of a Non-Qualified Stock
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Option, that a Participant shall be granted a new Non-Qualified Stock Option (a
"New Option") if and when (i) such Participant exercises all or part of an
Option, including a previously granted New Option, (an "Original Option") by
surrendering shares of Common Stock already owned by him in full or partial
payment of the option price under such Original Option, or (ii) shares of Common
Stock are surrendered or withheld to satisfy tax obligations incident to the
exercise of such Original Option. All New Options shall be subject to the
availability of shares of Common Stock under the Plan at the time of such
exercise. A New Option may cover a number of shares of Common Stock up to the
number of shares of Common Stock surrendered in payment of the option price
under such Original Option and/or used to satisfy any tax obligation incident to
the exercise of such Original Option. Each New Option shall have an option
price equal to the Fair Market Value of the Common Stock on the date of grant of
the New Option and shall expire on the stated expiration date of the Original
Option. The date of grant of a New Option shall be the date on which the
exercise of the Original Option resulted in the grant of such New Option. A New
Option shall be exercisable at any time and from time to time from or after the
date of grant of the New Option (or as the Compensation Committee in its sole
discretion shall otherwise specify in the written instrument evidencing the New
Option). The written instrument evidencing a New Option shall contain such
other terms and conditions, which may include a restriction on the
transferability of the Common Stock received upon the exercise of the Original
Option or New Option, as the Compensation Committee in its sole discretion may
deem desirable.
(h) No Participant shall make any elective contribution or employee
contribution to the Plan (within the meaning of Treasury Regulation section
1.401(k)-1(d)(2)(iv)(B)(4)) during the balance of the calendar year after the
Participant's receipt of a hardship distribution from a plan of the Company or a
related party within the provisions of Code sections 414(b), (c), (m) or (o)
containing a cash or deferred arrangement under section 401(k) of the Code, or
during the following calendar year. The preceding sentence shall not apply if
and to the extent that the Compensation Committee determines it is not necessary
to qualify any such plan as a cash or deferred arrangement under section 401(k)
of the Code.
(i) No option shall be exercisable unless and until the Company (i)
obtains the approval of all regulatory bodies whose approval the Compensation
Committee may deem necessary or desirable, and (ii) complies with all legal
requirements deemed applicable by the Compensation Committee.
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(j) An Option shall be considered exercised if and when written
notice, signed by the person exercising the Option and stating the number of
shares with respect to which the Option is being exercised, is received by the
Corporate Secretary on a properly completed form approved for this purpose by
the Compensation Committee, accompanied by full payment of the Option exercise
price in one or more of the forms authorized by the Compensation Committee and
described in section 6(b) above for the number of shares to be purchased. No
Option may be exercised unless and until the person exercising the Option
supplies the Company with such documentation as the Compensation Committee may
deem necessary or advisable to establish the identity of such person and such
person's entitlement to exercise the Option. No Option may at any time be
exercised with respect to a fractional share.
7. STOCK APPRECIATION RIGHTS.
Stock Appreciation Rights shall be subject to such terms and conditions,
not inconsistent with the Plan, as shall from time to time be determined by the
Compensation Committee and to the following terms and conditions:
(a) Stock Appreciation Rights may be granted in connection with all or any
part of an Option, either at the time of the grant of such Option or at any time
thereafter during the term of the Option (in either case, "Linked Stock
Appreciation Rights"), or may be granted without reference to an Option ("Free-
Standing Stock Appreciation Rights").
(b) Linked Stock Appreciation Rights may be granted either as an
alternative or a supplement to a specified Option (the "related" Option). Each
Linked Stock Appreciation Right that is granted as an alternative to an Option
(an "Alternative Stock Appreciation Right") shall entitle the holder to receive
the amount determined pursuant to section 7(e) below if and when the holder
surrenders a related Option to purchase one share of Common Stock that is then
exercisable. Each Linked Stock Appreciation Right that is granted as a
supplement to an Option (a "Supplemental Stock Appreciation Right") shall
entitle the holder to receive the amount determined pursuant to section 7(e)
below if and when the holder purchases a share under the related Option.
(c) Stock Appreciation Rights may be granted for such lawful
consideration, including money or other property, tangible or intangible, or
labor or services received or to be received by the Company, as the Compensation
Committee may
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determine when the Rights are granted. Property for purposes of the preceding
sentence shall include an obligation of the Company unless prohibited by
applicable law. Subject to the foregoing and the other provisions of this
section 7, Stock Appreciation Rights may be exercisable in full at the time of
grant or may become exercisable in one or more installments and at such time or
times, as the Compensation Committee may determine. The Compensation Committee
may at any time accelerate the date on which Stock Appreciation Rights become
exercisable, and no additional consideration need be received by the Company in
exchange for such acceleration. Unless otherwise provided in the Stock
Appreciation Rights, Stock Appreciation Rights, to the extent they become
exercisable, may be exercised at any time in whole or in part until they expire
or terminate.
(d) No Free-Standing Stock Appreciation Right shall be exercisable after
the tenth anniversary of the date it was granted, and no Linked Stock
Appreciation Right shall be exercisable after the related Option ceases to be
exercisable. If the Compensation Committee grants a Stock Appreciation Right
for a lesser term than that permitted by the preceding sentence, the
Compensation Committee may, at any time prior to its expiration, extend its term
to the maximum term permitted by the preceding sentence, and no additional
consideration need be received by the Company in exchange for such extension.
The Compensation Committee may but need not provide for Stock Appreciation
Rights to be exercisable after termination of employment until they expire
pursuant to the first sentence of this paragraph 7(d) (or until an earlier date
or specified event occurs).
(e) Upon exercise of Stock Appreciation Rights, the holder thereof shall
be entitled to receive cash or shares of Common Stock or a combination of each,
as the Compensation Committee may provide, equal to the amount by which the Fair
Market Value of a share of Common Stock on the date of such exercise exceeds the
Base Price of the Stock Appreciation Rights, multiplied by the number of Stock
Appreciation Rights exercised; provided that in no event shall a fractional
share be issued. In the case of Alternative Stock Appreciation Rights, the Base
Price shall not be less than the price at which shares may be purchased under
the related Option. In the case of Supplemental Stock Appreciation Rights and
Free-Standing Stock Appreciation Rights, the Base Price shall not be less than
the Fair Market Value of a share of Common Stock on the date the Rights were
granted.
(f) The maximum number of shares available for use under the Plan
shall be charged only for the number of shares which are actually issued or
transferred in
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settlement of Stock Appreciation Rights. In the case of an exercise of an
Alternative Stock Appreciation Right, if the number of shares of Common Stock
previously charged against the maximum number of shares available for use under
the Plan on account of the surrendered portion of the Option exceeds the number
of shares (if any) actually issued or transferred pursuant to such surrender,
the excess shall be added back to the number of shares available for use under
the Plan.
(g) Stock Appreciation Rights shall be exercisable during the life of the
Participant only by him or his guardian or legal representative, and after death
only by his Beneficiary or, absent a Beneficiary, by his estate or by a person
who acquired the Stock Appreciation Rights by will or the laws of descent and
distribution.
(h) Each Stock Appreciation Right shall be evidenced by a written
instrument, which shall contain such terms and conditions, and shall be in such
form, as the Compensation Committee shall determine, provided the instrument is
consistent with the Plan and incorporates it by reference.
8. CERTAIN CHANGE IN CONTROL, TERMINATION OF EMPLOYMENT AND DISABILITY
PROVISIONS.
Notwithstanding any provision of the Plan to the contrary, any Stock
Incentive which is outstanding but not yet exercisable, vested or payable at the
time of a Change in Control shall become exercisable, vested and payable at that
time; provided that if such Change in Control occurs less than six months after
the date on which such Stock Incentive was granted and if the consideration for
which such Stock Incentive was granted consisted in whole or in part of future
services, then such Stock Incentive shall become exercisable, vested and payable
at the time of such Change in Control only if the Participant agrees in writing
(if requested to do so by the Compensation Committee in writing before such
Change in Control) to remain in the employ or service of the Company or a
Subsidiary at least through the date which is six months after the date such
Stock Incentive was granted with the same employment or service status (i.e.,
Employee or Consultant) and substantially the same, title, duties, authority,
reporting relationships and compensation as on the day immediately preceding the
Change in Control. Any Option affected by the preceding sentence shall remain
exercisable until it expires or terminates pursuant to its terms and conditions.
Subject to the foregoing provisions of this section 8, the Compensation
Committee may at any time, and subject to such terms and conditions as it may
impose:
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(a) authorize the holder of an Option or Stock Appreciation Right to
exercise the Option or Stock Appreciation Right following the termination of the
Participant's employment or service with or on behalf of the Company and its
Subsidiaries, or following the Participant's disability, whether or not the
Option or Stock Appreciation Right would otherwise be exercisable following such
event, provided that in no event may an Option or Stock Appreciation Right be
exercised after the expiration of its term;
(b) grant Options and Stock Appreciation Rights which become exercisable
only in the event of a Change in Control;
(c) authorize a Stock Bonus Award, Performance Unit Award or Restricted
Stock Award to become non-forfeitable, fully earned and payable upon or
following (i) the termination of the Participant's employment or service with or
on behalf of the Company and its Subsidiaries, or (ii) the Participant's
disability, whether or not the Award would otherwise become non-forfeitable,
fully earned and payable upon or following such event;
(d) grant Stock Bonus Awards, Performance Unit Awards and Restricted Stock
Awards which become non-forfeitable, fully earned and payable only in the event
of a Change in Control; and
(e) provide in advance or at the time of a Change in Control for cash to
be paid in settlement of any Option, Stock Appreciation Right, Stock Bonus
Award, Performance Unit Award or Restricted Stock Award in the event of a Change
in Control, either at the election of the Participant or at the election of the
Compensation Committee.
For purposes of this section 8, the term "disability" means an accident or
physical or mental illness which prevents, or which the Compensation Committee
expects to prevent, the Participant from substantially performing his duties and
responsibilities as an Employee or Consultant for at least six months
(consecutive or non-consecutive) in any 12-month period.
9. ADJUSTMENT PROVISIONS.
In the event that any recapitalization, or reclassification, split-up or
consolidation of shares of Common Stock shall be effected, or the outstanding
shares of Common Stock shall be, in connection with a merger or consolidation of
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the Company or a sale by the Company of all or a part of its assets, exchanged
for a different number or class of shares of stock or other securities or
property of the Company or any other entity or person, or a record date for
determination of holders of Common Stock entitled to receive a dividend or other
distribution payable in Common Stock or other property (other than normal cash
dividends) shall occur, (a) the number and class of shares or other securities
or property that may be issued or transferred pursuant to Stock Incentives
thereafter granted or that may be optioned or awarded under the Plan to any
Participant, (b) the number and class of shares or other securities or property
that may be issued or transferred under outstanding Stock Incentives, (c) the
purchase price to be paid per share under outstanding and future Stock
Incentives, and (d) the price to be paid per share by the Company or a
Subsidiary for shares or other securities or property issued or transferred
pursuant to Stock Incentives which are subject to a right of the Company or a
Subsidiary to reacquire such shares or other securities or property, shall in
each case be equitably adjusted; provided that with respect to Incentive Stock
Options any such adjustments shall comply with sections 422 and 424 of the Code.
10. EFFECTIVE DATE AND DURATION OF PLAN.
The Plan shall be effective when it is approved by the Board of Directors,
provided that the shareholder or shareholders of the Company thereafter approve
it within one year of that date. If the Plan is not so approved by the
shareholder or shareholders, the Plan (and any Stock Incentive granted
thereunder) shall be null, void and of no force or effect. If so approved, the
Plan shall remain in effect, and Stock Incentives may be granted, until Stock
Incentives have been granted with respect to all shares authorized to be issued
or transferred hereunder or until the Plan is sooner terminated by the Board of
Directors, and shall continue in effect thereafter with respect to any Stock
Incentives outstanding at that time. In no event shall an Incentive Stock
Option be granted under the Plan more than ten (10) years from the date the Plan
is adopted by the Board, or the date the Plan is approved by the shareholder or
shareholders of the Company, whichever is earlier.
11. ADMINISTRATION.
(a) The Plan shall be administered by a committee of the Board consisting
of two or more directors appointed from time to time by the Board, unless the
Board determines that the Plan should be administered by the Board, in which
case it shall be administered by the Board. Unless the Board determines
otherwise, any committee administering the Plan shall be comprised solely of
"outside directors"
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within the meaning of Section 162(m)(4)(C)(i) of the Code and "Non-Employee
Directors" within the meaning of SEC Rule 16b-3. Subject to the foregoing
provisions of this paragraph, the Board may provide for the Plan to be
administered by the Board with respect to some Service Providers and by a
committee of the Board with respect to other Service Providers or to be
administered by different committees of the Board with respect to different
Service Providers.
(b) The Compensation Committee may establish such rules and regulations,
not inconsistent with the provisions of the Plan, as it may deem necessary for
the proper administration of the Plan, and may amend or revoke any rule or
regulation so established. The Compensation Committee shall, subject to the
provisions of the Plan, have full power to interpret, administer and construe
the Plan and any instruments issued under the Plan and full authority to make
all determinations and decisions thereunder including without limitation the
authority to (i) select the Participants in the Plan, (ii) determine when Stock
Incentives shall be granted, (iii) determine the number of shares to be made
subject to each Stock Incentive, (iv) determine the type of Stock Incentive to
grant, and (v) determine the terms and conditions of each Stock Incentive,
including the exercise price, in the case of an Option. The interpretation by
the Compensation Committee of the terms and provisions of the Plan and any
instrument issued thereunder, and its administration thereof, and all action
taken by the Compensation Committee, shall be final, binding and conclusive on
the Company, its stockholders, Subsidiaries, all Participants, Consultants and
Employees, and upon their respective Beneficiaries, successors and assigns, and
upon all other persons claiming under or through any of them.
(c) Members of the Board of Directors and members of the Compensation
Committee acting under this Plan shall be fully protected in relying in good
faith upon the advice of counsel and shall incur no liability except for gross
or willful misconduct in the performance of their duties.
12. GENERAL PROVISIONS.
(a) Any provision of the Plan to the contrary notwithstanding, any
derivative security issued under the Plan (within the meaning of SEC Rule 16a-
1(c), 17 CFR section 240.16a-1(c)), including without limitation any Option or
Stock Appreciation Right, shall not be transferable by the Participant other
than by will or the laws of descent and distribution or to a Beneficiary
designated by the Participant. Any purported transfer of an Incentive Stock
Option to a Beneficiary shall be effective only if such transfer is, in the
opinion of the Compensation
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Committee, permissible under and consistent with section 422 of the Code.
Notwithstanding the foregoing provisions of this paragraph 12(a) and the first
sentence of paragraph 6(d) above, if (and only if) the following conditions are
satisfied a Participant may transfer during his lifetime any Stock Incentive
granted under this Plan, other than an Incentive Stock Option or any other Stock
Incentive that is linked to an Incentive Stock Option, to members of his
immediate family (defined as his children, grandchildren and spouse, including
children and grandchildren by adoption or marriage, and including minors) or to
one or more trusts for the benefit of such family members or partnerships in
which such family members are the only partners: (i) the instrument evidencing
such Stock Incentive expressly provides (or is amended to provide) for such
lifetime transfers; (ii) the Participant does not receive any consideration for
the transfer; (iii) after any such lifetime transfer the transferred Stock
Incentive continues to be subject to the same terms and conditions that were
applicable to such Stock Incentive immediately prior to its transfer (except
that such transferred Stock Incentive is not further transferable by the donee
INTER VIVOS), (iv) at no time after any lifetime transfer of an Option shall the
donee be entitled to exercise such transferred Option if, or to an extent that,
the Participant (or, in the event of the Participant's death, the Participant's
Beneficiary or the person or persons to whom the Option would have been
transferred by will or the laws of descent and distribution in the absence of
any lifetime transfer) would not have been entitled to exercise it at such time
had the Option not been transferred during the lifetime of the Participant, (v)
the Compensation Committee approves the transfer to each donee before or after
the Stock Incentive is transferred, and (vi) any additional terms and conditions
which the Compensation Committee may require to be satisfied in connection with
the transfer are satisfied.
(b) Nothing in this Plan or in any instrument executed pursuant hereto
shall confer upon any person any right to continue in the employment or service
of the Company or a Subsidiary, or shall affect the right of the Company or a
Subsidiary to terminate the employment or service of any person at any time with
or without cause.
(c) No shares of Common Stock shall be issued or transferred pursuant to a
Stock Incentive unless and until all legal requirements applicable to the
issuance or transfer of such shares have, in the opinion of the Compensation
Committee, been satisfied. Any such issuance or transfer shall be contingent
upon the person acquiring the shares giving the Company any assurances the
Compensation Committee may deem necessary or desirable to assure compliance with
all applicable
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legal requirements.
(d) No person (individually or as a member of a group) and no Beneficiary
or other person claiming under or through him, shall have any right, title or
interest in or to any shares of Common Stock (i) issued or transferred to, or
acquired by, a trust, (ii) allocated, or (iii) reserved for the purposes of this
Plan, or subject to any Stock Incentive, except as to such shares of Common
Stock, if any, as shall have been issued or transferred to him. The
Compensation Committee may (but need not) provide at any time or from time to
time (including without limitation upon or in contemplation of a Change in
Control) for a number of shares of Common Stock, equal to the number of such
shares subject to Stock Incentives then outstanding, to be issued or transferred
to, or acquired by, a trust (including but not limited to a grantor trust) for
the purpose of satisfying the Company's obligations under such Stock Incentives,
and, unless prohibited by applicable law, such shares held in trust shall be
considered authorized and issued shares with full dividend and voting rights,
notwithstanding that the Stock Incentives to which such shares relate shall not
have been exercised or may not be exercisable or vested at that time.
(e) The Company and its Subsidiaries may make such provisions as they may
deem appropriate for the withholding of any taxes which they determine they are
required to withhold in connection with any Stock Incentive. Without limiting
the foregoing, the Compensation Committee may, subject to such terms and
conditions as it may impose, permit or require any withholding tax obligation
arising in connection with the grant, exercise, vesting, distribution or payment
of any Stock Incentive to be satisfied in whole or in part, with or without the
consent of the Participant, by having the Company withhold all or any part of
the shares of Common Stock that vest or would otherwise be distributed at such
time. Any shares so withheld shall be valued at their Fair Market Value on the
date of such withholding.
(f) Nothing in this Plan is intended to be a substitute for, or shall
preclude or limit the establishment or continuation of, any other plan, practice
or arrangement for the payment of compensation or fringe benefits to directors,
officers, employees or consultants generally, or to any class or group of such
persons, which the Company or any Subsidiary now has or may hereafter lawfully
put into effect, including, without limitation, any incentive compensation,
retirement, pension, group insurance, stock purchase, stock bonus or stock
option plan.
(g) Any provision of the Plan to the contrary notwithstanding: (i) the
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Compensation Committee may impose such conditions on any Stock Incentive as it
may determine, on the advice of counsel, are necessary or desirable to satisfy
any exemption from Section 16 of the Exchange Act for which the Compensation
Committee intends transactions by or with respect to Section 16 Persons to
qualify, including without limitation SEC Rule 16b-3; (ii) transactions by or
with respect to Section 16 Persons shall comply with any applicable conditions
of SEC Rule 16b-3 unless the Compensation Committee determines otherwise; (iii)
transactions by or with respect to persons whose remuneration would not be
deductible by the Company but for compliance with the provisions of Section
162(m)(4)(C) of the Code shall conform to the requirements of Section
162(m)(4)(C) of the Code unless the Compensation Committee determines otherwise;
(iv) the Plan is intended to give the Compensation Committee the authority to
grant awards that qualify as performance-based compensation under Code Section
162(m)(4)(C) as well as awards that do not so qualify; and (v) any provision of
the Plan that would prevent the Compensation Committee from exercising the
authority referred to in clause (iv) above or that would prevent an award that
the Compensation Committee intends to qualify as performance-based compensation
under Code Section 162(m)(4)(C) from so qualifying or that would prevent any
transaction by or with respect to a Section 16 Person from qualifying for any
exemption from Section 16 of the Exchange Act for which the Compensation
Committee intends such transaction to qualify (including SEC Rule 16b-3), shall
be administered, interpreted and construed to carry out such intention and any
provision that cannot be so administered, interpreted and construed shall to
that extent be disregarded.
(h) By accepting any benefits under the Plan, each Participant, and each
person claiming under or through him, shall be conclusively deemed to have
indicated his acceptance and ratification of, and consent to, all provisions of
the Plan and any action or decision under the Plan by the Company, its agents
and employees, and the Board of Directors and the Compensation Committee.
(i) The validity, construction, interpretation and administration of
the Plan and of any determinations or decisions made thereunder, and the rights
of all persons having or claiming to have any interest therein or thereunder,
shall be governed by, and determined exclusively in accordance with, the laws of
the State of Delaware, but without giving effect to the principles of conflicts
of laws thereof. Without limiting the generality of the foregoing, the period
within which any action arising under or in connection with the Plan must be
commenced, shall be governed by the laws of the State of Delaware, without
giving effect to the principles of conflicts of laws thereof, irrespective of
the place where the act or omission
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complained of took place and of the residence of any party to such action and
irrespective of the place where the action may be brought.
(j) The use of the masculine gender shall also include within its
meaning the feminine. The use of the singular shall include within its meaning
the plural and vice versa.
13. AMENDMENT AND TERMINATION.
The Plan may be amended by the Board of Directors, without shareholder
approval, at any time and in any respect, unless shareholder approval of the
amendment in question is required under Delaware law, the Code (including
without limitation Code section 162(m)(4) and Code section 422, including
Proposed Treasury Regulation section 1.422A(b)(iv)), any national securities
exchange or system on which shares of Common Stock are then listed or reported,
by any regulatory body having jurisdiction with respect to the Plan, or under
any other applicable laws, rules or regulations. The Plan may also be
terminated at any time by the Board of Directors. No amendment or termination
of this Plan shall adversely affect any Stock Incentive granted prior to the
date of such amendment or termination without the written consent of the
Participant.
***
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Draft of October 7, 1996
LARSCOM INCORPORATED
EMPLOYEE STOCK PURCHASE PLAN
1. PURPOSE.
The purpose of this Plan is to provide eligible employees the opportunity
to purchase Common Stock on a basis that qualifies for the tax treatment
prescribed by section 423 of the Code.
2. DEFINITIONS.
The following terms, when used in the Plan, shall have the following
meanings:
(a) "Board" or "Board of Directors" means the Board of Directors of the
Company, as constituted from time to time.
(b) "Code" means the Internal Revenue Code of 1986, as amended from time
to time. References to the Code or to a particular section of the Code shall
include references to any related Treasury Regulations and rulings and to
successor provisions.
(c) "Committee" means the committee appointed by the Board of Directors to
administer the Plan pursuant to the provisions of section 3(a) below.
(d) "Common Stock" means common stock, par value $___ per share, of the
Company.
(e) "Company" means Larscom Incorporated, a Delaware corporation.
(f) "Exchange Act" means the Securities Exchange Act of 1934, as amended
from time to time.
(g) "Fair Market Value" on a particular date means as follows:
(i) If shares of Common Stock are listed or admitted to trading on
such date on the New York Stock Exchange, the mean between the high and low
sales prices of a share of Common Stock in consolidated trading as reported for
such date in the WALL STREET JOURNAL; or
(ii) If shares of Common Stock are not listed or admitted to trading
on the New York Stock Exchange but are listed or admitted to trading on another
<PAGE>
national exchange, the mean between the high and low sales prices of a share of
Common Stock in consolidated trading as reported for such date in the WALL
STREET JOURNAL with regard to securities listed or admitted to trading on such
national exchange; or
(iii) If shares of Common Stock are not listed or admitted to
trading on any national exchange, the mean between the high and low sales prices
of a share of Common Stock as reported for such date in the WALL STREET JOURNAL
with regard to NASDAQ issues or, if shares of Common Stock are publicly traded
on such date but NASDAQ prices are not quoted for such date in the WALL STREET
JOURNAL, the mean of the closing bid and asked prices of a share of Common Stock
on such date as furnished by a professional market maker making a market in
shares of Common Stock; or
(iv) If in (i), (ii) or (iii) above, as applicable, there were no
sales on such date reported as provided above, the respective prices on the most
recent prior day on which sales were so reported;
provided that "Fair Market Value" on the date on which an Initial Public
Offering occurs shall mean the price at which shares of Common Stock are sold to
the public in such Initial Public Offering. If the foregoing method of
determining fair market value should be inconsistent with section 423 of the
Code, "Fair Market Value" shall be determined by the Committee in a manner
consistent with such section of the Code and shall mean the value as so
determined.
(h) "Initial Public Offering" means an initial public offering in the
United States of America of shares of Common Stock, which for purposes of the
Plan shall be deemed to occur on the first date, if any, on which such shares
are sold to the public in the United States of America pursuant to a
registration statement under the Securities Act of 1933, as amended.
(i) "Offering" means a period, designated by the Committee in accordance
with the provisions of section 6 of the Plan, on the first day of which options
will be granted to eligible employees pursuant to section 8(a) of the Plan and
on the last day of which such options will be deemed exercised or will expire,
as applicable, in accordance with section 8(b) of the Plan.
(j) "Participant" or "Participating Employee" means an employee of the
Company or a Participating Subsidiary who is eligible to participate in an
Offering under the Plan pursuant to section 5 below and who elects to
participate in such
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Offering in accordance with section 6 below.
(k) "Participating Subsidiary" means, with respect to an Offering under
the Plan, a Subsidiary the employees of which are authorized by the Committee as
provided in section 5 below to participate in such Offering.
(l) "Plan" means the Larscom Incorporated Employee Stock Purchase Plan set
forth in these pages, as amended from time to time.
(m) "SEC Rule 16b-3" means Rule 16b-3 of the Securities and Exchange
Commission promulgated under the Exchange Act, as such rule or any successor
rule may be in effect from time to time.
(n) "Section 16 Person" means a person subject to section 16(b) of the
Exchange Act with respect to transactions involving equity securities of the
Company.
(o) "Subsidiary" means a subsidiary as defined in section 424(f) of the
Code, including a corporation which becomes such a subsidiary in the future.
(p) "Total Compensation" means, with respect to any Offering, an
employee's gross salary, overtime pay, bonuses and commissions paid in payroll
periods that end during, or coincident with the end of, such Offering, including
any of the foregoing that would have been paid to such employee in such payroll
periods but for the employee's election to contribute such compensation to a
plan qualified under section 401(k) of the Code or a cafeteria plan under Code
section 125.
3. ADMINISTRATION.
(a) The Plan shall be administered by a committee of the Board consisting
of two or more directors appointed from time to time by the Board.
(b) Subject to the provisions of the Plan, the powers of the Committee
shall include having the authority, in its discretion, to:
(i) define, prescribe, amend and rescind rules, regulations,
procedures, terms and conditions relating to the Plan; and
(ii) interpret, administer and construe the Plan and make all other
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determinations necessary or advisable for the administration of the Plan,
including but not limited to correcting defects, reconciling inconsistencies and
resolving ambiguities.
(c) The interpretation by the Committee of the terms and conditions of the
Plan, and its administration of the Plan, and all action taken by the Committee,
shall be final, binding and conclusive on the Company, its stockholders,
Subsidiaries, all Participants and employees, and upon their respective
successors and assigns, and upon all other persons claiming under or through any
of them.
(d) Members of the Board and members of the Committee acting under this
Plan shall be fully protected in relying in good faith upon the advice of
counsel and shall incur no liability except for gross or willful misconduct in
the performance of their duties.
4. STOCK SUBJECT TO THE PLAN.
(a) Subject to paragraph (c) below, the aggregate number of shares of
Common Stock which may be sold under the Plan is __________ shares of Common
Stock.
(b) If the number of shares of Common Stock that Participating Employees
become entitled to purchase is greater than the number of shares of Common Stock
that are offered in a particular Offering or that remain available under the
Plan, the available shares of Common Stock shall be allocated by the Committee
among such Participating Employees in such manner as it deems fair and
equitable.
(c) In the event of any change in the Common Stock, through
recapitalization, merger, consolidation, stock dividend or split, combination or
exchange of shares, spinoff or otherwise, the Committee may make such equitable
adjustments in the Plan and the then outstanding Offerings as it deems necessary
and appropriate including, but not limited to, changing the number of shares of
Common Stock reserved under the Plan, and the purchase price of shares in the
current Offering; provided that any such adjustments shall be consistent with
sections 423 and 424 of the Code.
(d) Shares of Common Stock which are to be delivered under the Plan may be
obtained by the Company from its treasury, by purchasing such shares on the open
market or from private sources, or by issuing authorized but unissued
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shares of its Common Stock. Shares of authorized but unissued Common Stock may
not be delivered under the Plan if the purchase price thereof is less than the
par value (if any) of the Common Stock at the time. The Committee may (but need
not) provide at any time or from time to time (including without limitation upon
or in contemplation of a change in control) for a number of shares of Common
Stock equal in number to the number of shares then subject to options under this
Plan to be issued or transferred to, or acquired by, a trust (including but not
limited to a grantor trust) for the purpose of satisfying the Company's
obligations under such options, and, unless prohibited by applicable law, such
shares held in trust shall be considered authorized and issued shares with full
dividend and voting rights, notwithstanding that the options to which such
shares relate might not be exercisable at the time. No fractional shares of
Common Stock shall be issued or sold under the Plan.
5. ELIGIBILITY.
All employees of the Company and any Subsidiaries designated by the
Committee from time to time will be eligible to participate in the Plan, in
accordance with and subject to such rules and regulations as the Committee may
prescribe; provided, however, that (a) such rules shall neither permit nor deny
participation in the Plan contrary to the requirements of the Code (including
but not limited to section 423(b)(3), (4) and (8) thereof), (b) no employee
shall be eligible to participate in the Plan if his or her customary employment
is 20 hours or less per week or for not more than 5 months in any calendar year,
unless the Committee determines otherwise on a uniform and non-discriminatory
basis, (c) the Committee may (but need not) in its discretion exclude employees
who have been employed by the Company or a participating Subsidiary less than
two years and/or highly compensated employees within the meaning of section
414(q) of the Code from being eligible to participate in the Plan or any
Offering, and (d) no employee may be granted an option under the Plan if such
employee, immediately after the option is granted, owns stock possessing 5% or
more of the total combined voting power or value of all classes of stock of his
employer corporation or any parent or subsidiary corporation (within the meaning
of section 423(b)(3) of the Code). For purposes of the preceding sentence, the
rules of section 424(d) of the Code shall apply in determining the stock
ownership of an employee, and stock which the employee may purchase under
outstanding options (whether or not such options qualify for the special tax
treatment afforded by Code section 421(a)) shall be treated as stock owned by
the employee; and (d) all participating employees shall have the same rights and
privileges except as otherwise permitted by section 423(b)(5) of the Code.
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<PAGE>
6. OFFERINGS; PARTICIPATION.
The Company may make Offerings of up to 27 months' duration each, to
eligible employees to purchase shares of Common Stock under the Plan, until all
shares authorized to be delivered under the Plan have been exhausted or until
the Plan is sooner terminated by the Board. Subject to the preceding sentence,
the number, commencement date and duration of any Offerings shall be determined
by the Committee in its sole discretion; provided that, unless the Committee
determines otherwise, (a) the first Offering shall commence on the date of the
Company's Initial Public Offering and shall terminate on (and include) the next
succeeding July 31, and (b) a new Offering shall commence on each August 1 and
February 1 after the termination of the first Offering and shall terminate on
(and include) the day immediately preceding the day on which the next Offering
commences. The duration of any Offering need not be the same as the duration of
any other Offering, and more than one Offering may commence or terminate on the
same date if the Committee so provides. Subject to such rules, procedures and
forms as the Committee may prescribe, an eligible employee may elect to
participate in an Offering at such time(s) as the Committee may permit by
authorizing a payroll deduction for such purpose of up to a maximum of ten
percent of his Total Compensation with respect to such Offering or such lesser
amount as the Committee may prescribe. The Committee may (but need not) permit
employee contributions to be made by means other than payroll deductions,
provided that in no event shall an employee's contributions (excluding interest,
if any, credited pursuant to section 7(a) below) from all sources in any
Offering exceed ten percent of his Total Compensation with respect to such
Offering or such lesser amount as the Committee may prescribe. The Committee
may at any time suspend or accelerate the completion of an Offering if required
by law or deemed by the Committee to be in the best interests of the Company,
including in the event of a change in ownership or control of the Company or any
Subsidiary.
7. PAYROLL DEDUCTIONS.
(a) The Company will maintain payroll deduction accounts on its books for
all Participating Employees, and may (but need not) credit such accounts with
interest if (and only if) the Committee so directs at such rate (if any) as the
Committee may prescribe. All employee contributions and any interest thereon
which the Committee may authorize in accordance with the preceding sentence
shall be credited to such accounts. Employee contributions and any interest
credited to the payroll deduction accounts of Participating Employees need not
be segregated from other corporate funds and may be used for any corporate
purpose.
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(b) At such times as the Committee may permit and subject to such rules,
procedures and forms as the Committee may prescribe, a Participating Employee
may increase, decrease or suspend his payroll deduction during an Offering, or
may withdraw the balance of his or her payroll deduction account and thereby
withdraw from participation in an Offering. However, an employee may at any
time waive in writing the right or privilege to decrease or suspend his payroll
deductions or withdraw from participation in a particular Offering for a period
of at least six months. Any such waiver shall be irrevocable with respect to
the period ending six months after the employee files a superseding written
revocation of such waiver with the Company.
(c) No employee shall make any elective contribution or employee
contribution to the Plan (within the meaning of Treasury Regulation section
1.401(k)-1(d)(2)(iv)(B)(4)) during the balance of the calendar year after the
employee's receipt of a hardship distribution from a plan of the Company or a
related party within the provisions of Code section 414(b), (c), (m) or (o)
containing a cash or deferred arrangement under section 401(k) of the Code, or
during the following calendar year. The foregoing sentence shall not apply if
and to the extent the Committee determines it is not necessary to qualify any
such plan as a cash or deferred arrangement under section 401(k) of the Code.
(d) Any balance remaining in an employee's payroll deduction account after
shares have been purchased in an Offering pursuant to section 8(b) below will be
carried forward into the employee's payroll deduction account for the following
Offering (if any). In no event will the balance carried forward be equal to or
greater than the purchase price of one share of Common Stock as determined under
section 8(c) below. Any excess shall be refunded to the Participant. Upon
termination of the Plan, all amounts in the accounts of Participating Employees
shall be carried forward into their payroll deduction accounts under a successor
plan, if any, or refunded to them, as the Committee may decide.
(e) In the event of the termination of a Participating Employee's
employment for any reason, his or her participation in any Offering under the
Plan shall cease, no further amounts shall be deducted pursuant to the Plan and
the balance in the employee's account shall be paid as soon as practicable
following such termination of employment to the employee, or, in the event of
the employee's death, to the employee's beneficiary under the Company's basic
group life insurance program.
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<PAGE>
8. PURCHASE; LIMITATIONS.
(a) Subject to section 5 above and within the limitations of section 8(d)
below, each person who is an eligible employee of the Company or a Participating
Subsidiary on the first day of an Offering under the Plan is hereby granted an
option, on the first day of such Offering, to purchase a number of whole shares
of Common Stock at the end of such Offering determined by dividing ten percent
(or such lesser percentage as may be specified by the Committee as the maximum
employee contribution percentage in such Offering) of such employee's Total
Compensation with respect to such Offering, plus such interest (if any) as the
Committee may authorize to be credited during such Offering in accordance with
section 7(a) above, by 85 percent of the Fair Market Value of a share of Common
Stock on the first date of such Offering or on the last date of such Offering,
whichever is lower, provided that in no event shall the number of shares of
Common Stock that may be purchased under any such option exceed __________
shares or such higher or lower number of whole shares as the Committee may have
specified in advance of such Offering as the maximum amount of stock which may
be purchased by an employee in such Offering. The purchase price of such shares
under such options shall be determined in accordance with section 8(c) below.
The Company's obligation to sell and deliver Common Stock in any Offering or
pursuant to any such option shall be subject to the approval of any governmental
authority whose approval the Committee determines it is necessary or advisable
to obtain in connection with the authorization, issuance, offer or sale of such
Common Stock.
(b) As of the last day of the Offering, the payroll deduction account of
each Participating Employee shall be totalled. Subject to the provisions of
section 7(b) above and 8(d) below, if such account contains sufficient funds as
of that date to purchase one or more whole shares of Common Stock at the price
determined under section 8(c) below, the Participating Employee shall be
conclusively deemed to have exercised the option granted pursuant to section
8(a) above for as many whole shares of Common Stock as the amount of his payroll
deduction account (including any contributions made by means other than payroll
deductions and including any interest credited to the account) at the end of the
Offering can purchase (but in no event for more than the total number of shares
that are subject to the option); such employee's account will be charged for the
amount of the purchase and for all purposes under the Plan the employee will be
deemed to have acquired the shares on that date; and either a stock certificate
representing such shares will be issued to him or her, or the Company's
registrar will make an entry on its books and records evidencing that such
shares have
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been duly issued or transferred as of that date, as the Committee may direct.
Notwithstanding any provision of the Plan to the contrary, the Committee may but
need not permit fractional shares to be purchased under the Plan. Any option
granted pursuant to section 8(a) above which is not deemed exercised as of the
last day of the Offering in accordance with the foregoing provisions of this
section 8(b) shall expire on that date.
(c) Unless the Committee determines before the first day of an Offering
that a higher price that complies with section 423 of the Code shall apply, the
price at which shares of Common Stock may be purchased under each option granted
pursuant to section 8(a) above shall be the lesser of (i) an amount equal to 85
percent of the Fair Market Value of the Common Stock at the time such option is
granted, or (ii) an amount equal to 85 percent of the Fair Market Value of the
Common Stock at the time such option is exercised.
(d) In addition to any other limitations set forth in the Plan, no
employee may be granted an option under the Plan which permits his rights to
purchase stock under the Plan, and any other stock purchase plan of his employer
corporation and its parent and subsidiary corporations that is qualified under
section 423 of the Code, to accrue at a rate which exceeds $25,000 of the Fair
Market Value of such stock (determined at the time such option is granted) for
each calendar year in which the option is outstanding at any time. The
Committee may further limit the amount of Common Stock which may be purchased by
any employee during an Offering in accordance with section 423(b)(5) of the
Code.
9. NO TRANSFER.
(a) No option, right or benefit under the Plan (including any derivative
security within the meaning of SEC Rule 16a-1(c), 17 CFR section 240.16a-1(c))
may be transferred by any employee, whether by will, the laws of descent and
distribution, or otherwise, and all options, rights and benefits under the Plan
may be exercised during an employee's lifetime only by such employee.
(b) Book entry accounts and certificates for shares of Common Stock
purchased under the Plan may be maintained or registered, as the case may be,
only in the name of the Participating Employee or, if such employee so indicates
on his or her payroll deduction authorization form, in his or her name jointly
with a member of his or her family, with right of survivorship. A Participating
Employee who is a resident of a jurisdiction which does not recognize such a
joint tenancy may have book entry accounts maintained and certificates
registered in the
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employee's name as tenant in common with a member of the employee's family,
without right of survivorship.
10. EFFECTIVE DATE AND DURATION OF PLAN.
The Plan shall become effective when adopted by the Board, provided that
the stockholders of the Company approve it within 12 months thereafter. If not
so approved by shareholders, the Plan shall be null, void and of no force or
effect. If so approved, the Plan shall remain in effect until all shares
authorized to be issued or transferred hereunder have been exhausted or until
the Plan is sooner terminated by the Board of Directors, and may continue in
effect thereafter with respect to any options outstanding at the time of such
termination if the Board of Directors so provides.
11. AMENDMENT AND TERMINATION OF THE PLAN.
The Plan may be amended by the Board of Directors, without shareholder
approval, at any time and in any respect, unless shareholder approval of the
amendment in question is required under Delaware law, the Code (including
without limitation Code section 423 and Treasury Regulation section 1.423-
2(c)(4) thereunder), any national securities exchange or system on which the
Common Stock is then listed or reported, by any regulatory body having
jurisdiction with respect to the Plan, or under any other applicable laws, rules
or regulations. The Plan may also be terminated at any time by the Board of
Directors.
12. GENERAL PROVISIONS.
(a) Nothing contained in this Plan shall be deemed to confer upon any
person any right to continue as an employee of or to be associated in any other
way with the Company for any period of time or at any particular rate of
compensation.
(b) No person shall have any rights as a stockholder of the Company with
respect to any shares optioned under the Plan until such shares are issued or
transferred to him or her.
(c) All expenses of adopting and administering the Plan shall be borne by
the Company, and none of such expenses shall be charged to any employee.
(d) The Plan shall be governed by and construed under the laws of the
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State of Delaware, without giving effect to the principles of conflicts of laws
of that State.
(e) The Plan and each Offering under the Plan is intended to qualify as an
"employee stock purchase plan" within the meaning of section 423 of the Code.
Transactions under the Plan by or with respect to Section 16 Persons are also
intended to qualify for exemption under SEC Rule 16b-3, unless the Committee
specifically determines otherwise. Every provision of the Plan shall be
administered, interpreted and construed to carry out those intentions, and, any
provision of the Plan to the contrary notwithstanding, any provision that cannot
be so administered, interpreted and construed shall to that extent be
disregarded.
***
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INDUSTRIAL LEASE
-NET-NET-NET-
1. PARTIES. This Lease, dated for reference purposes
only, July 13, 1977 is made by and between Larvan Properties, A
General Partnership (herein called "Landlord") and Larse
Corporation A California Corporation (herein called "Tenant").
2. PREMISES. Landlord hereby leases to Tenant and
Tenant leases from Landlord for the term, at the rental, and upon
all of the conditions set forth herein, that certain real
property situated in the City of Santa Clara, County of Santa
Clara, State of California commonly known as Patrick Henry Drive,
Santa Clara, California and described as Approximately 30,094
square feet of a 49,837 square foot building to be constructed on
Parcel #17 of Marriott Business Park and further identified in
Exhibit "A" on the attached hereto. Said real property,
including the land and all improvements thereon, is herein called
"the Premises".
3. TERM.
3.1 TERM. The term of this Lease shall be for ten (10)
years, commencing on December 1, 1977 and ending on December 31,
1987 unless sooner terminated pursuant to any provision hereof.
3.2 DELAY IN COMMENCEMENT. Notwithstanding said
commencement date, if for any reason Landlord cannot deliver
possession of the Premises to Tenant on said date, Landlord shall
not be subject to any liability therefor, nor shall such failure
affect the validity of this Lease or the obligations of Tenant
hereunder or extend the term hereof, but in such case Tenant
shall not be obligated to pay rent until possession of the
premises is tendered to Tenant; provided, however, that if
Landlord shall not have delivered possession of the Premises
within ninety (90) days from said commencement date, Tenant may,
at Tenant's option, by notice in writing to Landlord within ten
(10) days thereafter, cancel this Lease. If Landlord shall not
have delivered possession of the Premises within one (1) year
from said commencement date, Landlord may, by notice in writing
to the Tenant within (10) days thereafter, cancel the Lease. If
either party cancels as hereinabove provided, Landlord shall
return any monies previously deposited by Tenant and the parties
shall be discharged from all obligations hereunder.
3.3 EARLY POSSESSION. In the event that Landlord shall
permit Tenant to occupy the Premises prior to the commencement
date of the term, such occupancy shall be subject to all of the
provisions of this Lease. Said early possession shall not
advance the termination date of this Lease.
3.4 DELIVERY OF POSSESSION. Tenant shall be deemed to
have taken possession of the Premises when any of the following
occur: (a) Landlord delivers possession of the Premises to
Tenant and a Certificate of Occupancy is granted by the proper
governmental agency, or (b) upon a Certificate from the
Landlord's architect or contractor that the Premises are ready
for occupancy.
4. RENT.
4.1 Tenant shall pay to Landlord as rent for the
Premises equal monthly installments of Eight Thousand One Hundred
Twenty-Five and no/100 ($8,125.00) Dollars, in advance, on the
first day of each month of the term hereof. Tenant shall pay
Landlord upon the execution hereof the sum of Eight Thousand One
Hundred Twenty-Five and no/100 ($8,125.00) Dollars as rent for
the period from December 1, 1977, through December 31, 1977 the
total rental for the lease term being $975,000.00. Rent for any
period during the term hereof which is less than one month shall
be a pro rata portion of the monthly installment. Rent shall be
payable without notice or demand and without any deduction,
offset, or abatement in lawful money of the United States of
America to Landlord at the address stated herein or to such other
persons or at such other places as Landlord may designate in
writing.
4.2 ADDITIONAL CHARGES. This Lease is what is commonly
called a "net lease", it being understood that Landlord shall
receive the rent set forth in Article 4.1 free and clear of any
and all impositions, taxes, real estate taxes, liens, charges or
expenses of any nature whatsoever in connection with the
ownership and operation of the Premises. In addition to the rent
reserved by Article 4.1, Tenant shall pay to the parties
respectively entitled thereto all impositions, insurance
premiums, operating charges, maintenance charges, construction
costs, and any other charges, costs and expenses which arise or
may be contemplated under any provisions of this Lease during the
term hereof. All of such charges, costs and expenses shall
constitute additional charges, and upon the failure of Tenant to
pay any of such costs, charges or expenses, Landlord shall have
the same right and remedies as otherwise provided in this Lease
for the failure of Tenant to pay rent. It is the intention of
the parties hereto that this lease shall not be terminable for
any reason by the Tenant and that the Tenant shall in no event be
entitled to any abatement of or reduction in rent payable
hereunder, except as herein expressly provided. Any present or
future law to the contrary shall not alter this agreement of the
parties.
5. SECURITY DEPOSIT. Tenant shall deposit with
Landlord upon execution hereof the sum of Eight Thousand One
Hundred Twenty Five (8,125.00) Dollars as security for Tenant's
faithful performance of Tenant's obligations hereunder. If
Tenant's fails to pay rent or other charges due hereunder, or
otherwise defaults with respect to any provision of this Lease,
Landlord may use, apply or retain all or any portion of said
deposit for the payment of any rent or other charge in default or
for the payment of any other sum to which Landlord may become
obligated by reason of Tenant's default, or to compensate
Landlord for any loss or damage which Landlord may suffer
thereby. If Landlord uses or applies all or any portion of said
deposit, Tenant shall within (10) days after written demand
therefor deposit cash with Landlord in an amount sufficient to
restore said deposit to the full amount hereinabove stated and
Tenant's failure to do so shall be a breach of this Lease, and
Landlord may at his option terminate this Lease. Landlord shall
not be required to keep said deposit separate from its general
accounts. If Tenant performs all of Tenant's obligations
hereunder, said deposit or so much thereof as had not theretofore
been applied by Landlord, shall be returned, without payment of
interest or other increment for its use, to Tenant (or, at
Landlord's option, to the last assignee, if any of Tenant's
interest hereunder) within fifteen (15) days after the expiration
of the term hereof, or after Tenant has vacated the Premises,
whichever is later.
6. USE.
6.1 USE. The Premises shall be used and occupied only
for manufacturing of electronics products and other legal related
uses.
6.2 COMPLIANCE WITH LAW. Tenant shall, at Tenant's
expense, comply promptly with all applicable statutes,
ordinances, rules, regulations, orders and requirements in effect
during the term or any part of the term hereof regulating the use
by Tenant of the Premises. Tenant shall not use or permit the
use of the Premises in any manner that will tend to create waste
or a nuisance, or, if there shall be more than one tenant of the
building containing the Premises, which shall tend to
unreasonably disturb such other tenants.
6.3 CONDITION OF PREMISES. Tenant hereby accepts the
Premises in their condition existing as of the date of the
possession hereunder, subject to all applicable zoning,
municipal, county and state laws, ordinances and regulations
governing and regulation the use of the Premises, and accepts
this lease subject thereto and to all matters disclosed thereby
and by any exhibits attached hereto. Tenant acknowledges that
neither Landlord nor Tenant's agent has made any representation
or warranty as to the suitability of the Premises for the conduct
of Tenant's business.
6.4 INSURANCE CANCELLATION. Notwithstanding the
provisions of Article 6.1 hereinabove, no use shall be made or
permitted to be made of the Premises nor acts done which will
cause the cancellation of any insurance policy covering said
Premises or any building of which the Premises may be a part, and
if Tenant's use of the Premises causes an increase in said
insurance rates Tenant shall pay any such increase.
6.5 LANDLORD'S RULES AND REGULATIONS. Tenant shall
faithfully observe and comply with the rules and regulations that
Landlord shall from time to time promulgate. A copy of said
rules and regulations is attached hereto. Landlord reserves the
right from time to time to make all reasonable modifications to
said rules and regulations. The additions and modifications to
those rules and regulations shall be binding upon Tenant upon
delivery of a copy of them to Tenant. Landlord shall not be
responsible to Tenant for the nonperformance of any of said rules
and regulations by any other tenants or occupants.
7. MAINTENANCE, REPAIRS AND ALTERATIONS.
7.1 SURRENDER. On the last day of the term hereof, or
on any sooner termination, Tenant shall surrender the Premises to
Landlord in good condition, broom clean, ordinary wear and tear
excepted. Tenant shall repair any damage to the Premises
occasioned by its use thereof, or by the removal of Tenant's
trade fixtures, furnishings and equipment pursuant to Article
7.4(c), which repair shall include the patching and filing of
holes and repair of structural damage.
7.2 LANDLORD'S RIGHTS. If Tenant fails to perform
Tenant's obligations under this Article 7 or Article 2.1 Landlord
may at its option (but shall not be required to) enter upon the
Premises, after ten (10) days' prior written notice to Tenant,
and put the same in good order, condition and repair, and the
cost thereof together with interest thereon at the rate of ten
(10%) percent per annum shall become due and payable as
additional rental to Landlord together with Tenant's next rental
installment.
7.3 ALTERATIONS AND ADDITIONS.
(a) Tenant shall not, without Landlord's prior written consent,
make any alterations, improvements, or additions in, on or about
the Premises, except for non-structural alterations not exceeding
$1,000 in cost. As a condition to giving such consent, Landlord
may require that Tenant remove any such alterations,
improvements, additions or utility installations at the
expiration of the term, and to restore the Premises to their
prior condition.
(b) Before commencing any work relating to alterations,
additions and improvements affecting the Premises, Tenant shall
notify Landlord in writing of the expected date of commencement
thereof. Landlord shall then have the right at any time and from
time to time to post and maintain on the Premises such notices as
Landlord reasonably deems necessary to protect the Premises and
Landlord from mechanics' liens, materialmen's liens or any other
liens. In any event, Tenant shall pay, when due, all claims for
labor or material furnished to or for Tenant at or for use in the
Premises. Tenant shall not permit any mechanics' or
materialmen's liens to be levied against the Premises for any
labor or material furnished to Tenant or claimed to have been
furnished to Tenant or to Tenant's agents or contractors in
connection with work of any character performed or claimed to
have been performed on the Premises by or at the direction of
Tenant.
(c) Unless Landlord requires their removal, as set
forth in Article 7.4(a), all alterations, improvements or
additions which may be made on the Premises, shall become the
property of Landlord and remain upon and be surrendered with the
Premises at the expiration of the term. Notwithstanding the
provisions of this Article 7.4(c). Tenant's machinery,
equipment and other trade fixtures other than than which is
affixed to the Premises so that it cannot be removed without
material damage to the Premises, shall remain the property of
Tenant and may be removed by Tenant subject to the provisions of
Article 7.2.
8. INSURANCE INDEMNITY.
8.1 INSURING PARTY. As used in this Article 8, the
term "insuring party" shall mean the party who has the obligation
to obtain the insurance required hereunder. The insuring party
in this case shall be designated in Article 20. Whether the
insuring party is the Landlord or the Tenant, Tenant shall, at
additional rent for the Premises, pay the cost of all insurance
required hereunder. If Landlord is the insuring party Tenant
shall, within ten (10) days following demand by Landlord,
reimburse Landlord for the cost of the insurance so obtained.
8.2 LIABILITY INSURANCE. The Tenant shall obtain and
keep in force during the term of this Lease a policy of
comprehensive public liability insurance insuring Landlord and
Tenant against any liability arising out of the ownership, use,
occupancy or maintenance of the Premises and all areas
appurtenant thereto. Such insurance shall be in an amount of not
less than $300,000 for injury to or death of one person in any
one accident or occurrence and in an amount of not less than
$500,000 for injury to or death of more than one person in any
one accident or occurrence. Such insurance shall further insure
Landlord and Tenant against liability for property damage of at
least $50,000. The limits of said insurance shall not, however,
limit the liability of Tenant hereunder. In the event that the
Premises constitute a part of a larger property said insurance
shall have a Landlord's Protective Liability endorsement attached
thereto. If the Tenant shall fail to protect and maintain said
insurance the Landlord may, but shall not be required to, procure
and maintain the same, but at the expense of Tenant.
8.3 PROPERTY INSURANCE. The insuring party shall
obtain and keep in force during the term of this Lease a policy
or policies of insurance covering loss or damage to the Premises,
in the amount of the full replacement value thereof, providing
protection against all perils included within the classification
of fire, extended coverage, vandalism, malicious mischief,
special extended perils (all risk) and sprinkler leakage. Said
insurance shall provide for payment for loss thereunder to
Landlord or to the holder of a first mortgage or deed of trust on
the Premises. If the insuring party shall fail to procure and
maintain said insurance the other party may, but shall not be
required to, procure and maintain the same said insurance the
other party may, but shall not be required to, procure and
maintain the same, but at the expense of Tenant.
8.4 INSURANCE POLICIES. Insurance required hereunder
shall be in companies rated A+, AAA or better in "Best's
Insurance Guide". The insuring party shall deliver prior to
possession to the other party copies of policies of such
insurance or certificates evidencing the existence and amount of
such insurance with loss payable clauses satisfactory to
Landlord. No such policy shall be cancellable or subject to
reduction of coverage or other modification except after ten (10)
days' prior written notice to Landlord. If Tenant is the
insuring party, Tenant shall, within ten (10) days prior to the
expiration of such policies, furnish Landlord with renewals or
"binders" thereof, or landlord may order such insurance and
charge the cost thereof to Tenant, which amount shall be payable
by tenant upon demand. Tenant shall not do or permit to be done
anything which shall invalidate the insurance policies referred
to in Article 8.3. Tenant shall forthwith, upon Landlord's
demand, reimburse Landlord for any additional premiums
attributable to any act or omission or operation of Tenant
causing such increase in the cost of insurance. If Landlord is
the insuring party, and if the insurance policies maintained
hereunder cover other improvements in addition to the Premises,
Landlord shall deliver to Tenant a written statement setting
forth the amount of any such insurance cost increase and showing
in reasonable detail the manner in which it has been computed.
8.5 WAIVER OF SUBROGATION. Tenant and Landlord each
waives any and all rights of recovery against the other, or
against the officers, employees, agents and representatives of
the other, for loss of or damage to such waiving party or its
property of others under its control, where such loss or damage
is insured against under any insurance policy in force at the
time of such loss or damage. Tenant and Landlord shall, upon
obtaining the policies of insurance required hereunder, give
notice to the insurance carriers that the foregoing mutual waiver
of subrogation is contained in this Lease.
8.6 HOLD HARMLESS. Tenant shall indemnify, defend and
hold Landlord harmless from any and all claims arising from
Tenant's use of the Premises or from the conduct of its business
or from any activity, work or things which may be permitted or
suffered by Tenant in or about the Premises and shall further
indemnify, defend and hold Landlord harmless from and against any
and all claims arising from any breach or default in the
performance of any obligation on Tenant's part to be performed
under the provision of this Lease or arising from any negligence
of Tenant or any of its agents, contractors, employees or
invitees and from any and all costs, attorneys' fees, expenses
and liabilities incurred in the defense of any such claim or any
action or proceeding brought thereon Tenant hereby assumes all
risk of damage to property or injury to persons in or about the
Premises from any cause, and Tenant hereby waives all claims in
respect thereof against Landlord, excepting where said damage
arises out of negligence of Landlord.
8.7 EXEMPTION OF LANDLORD FROM LIABILITY. Tenant
hereby agrees that Landlord shall not be liable for injury to
Tenant's business or any loss of income therefrom or for damage
in the goods, wages, merchandise or other property of Tenant,
Tenant's employees, invitees, customers, or any other person in
or about the Premises, nor, unless through its negligence shall
Landlord be liable for injury to the person of Tenant, Tenant's
employees, agents or contractors and invitees, whether such
damage or injury is caused by or results from fire, steam,
electricity, gas, water or rain, or from the breakage,
obstruction or other defects of pipes, sprinklers, wires,
appliances, plumbing, air conditioning or lighting fixtures, or
from any other cause, whether the said damage or injury 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
inaccessible to Landlord or Tenant. Landlord shall not be liable
for any damages arising from any act or neglect of any other
tenant, if any, of the building in which the Premises are
located.
9. DAMAGE OR DESTRUCTION.
9..1 In the event the improvements on the Premises are
damaged or destroyed, partially or totally, from any cause
whatsoever, whether or not each damage or destruction is covered
by any insurance required to be maintained under Article B, the
Tenant shall repair, restore, and rebuild the Premises to their
condition existing immediately prior to such damage or
destruction and this Lease shall continue in full force and
effect. Such repair, restoration and rebuilding (all of which
are herein called the "repair") shall be commenced within a
reasonable time after such damage or destruction and shall be
diligently prosecuted to completion. There shall be no abatement
of rent or of any other obligation of Tenant hereunder by reason
of such damage or destruction. The proceeds of any insurance
maintained under Article 8.3 shall be made available to Tenant
for payment of the cost and expense of the repair, provided,
however, that such proceeds may be made available to Tenant
subject to reasonable conditions including, but not limited to,
architect's certification of costs and retention of a percentage
of such proceeds pending final notice of completion. In the
event that such proceeds are not made available to Tenant within
ninety (90) days after such damage or destruction. Tenant shall
have the option for thirty (30) days commencing on the expiration
of such ninety (90) day period of cancelling this Lease. If
Tenant shall exercise such option, Tenant shall have no further
obligation hereunder and shall have no further claim against
Landlord; provided, however, that Landlord shall return to Tenant
so much of tenant's security deposit as has not theretofore been
applied by Landlord. Tenant shall exercise such option by
written notice to Landlord within said thirty (30) day period.
In the event that the insurance proceeds are insufficient to
cover the cost of the repair, then any amount in excess thereof
required to complete the repair shall be paid by Tenant.
9..2 DAMAGE NEAR END OF TERM. If the Premises are
partially destroyed or damaged during the last six (6) months of
the term of this Lease, Landlord may, at Landlord's option,
cancel and terminate this Lease as of the date of occurrence of
such damage by giving written notice to Tenant of Landlord's
election to do so within thirty (30) days after the date of
occurrence of such damage.
9..3 PRORATIONS. Upon termination of this Lease
pursuant to this Article 9, a pro rata adjustment of rent based
upon a thirty (30) day month shall be made. Landlord shall, in
addition, return to Tenant so much of Tenant's security deposit
as has not theretofore been applied by Landlord.
101. REAL PROPERTY TAXES.
101.1PAYMENT OF TAXES. Tenant shall pay all real
property taxes applicable to the Premises during the term of this
Lease. All such payments shall be made at least ten (10) days
prior to the delinquency date of such payment. Tenant shall
promptly furnish Landlord with satisfactory evidence that such
taxes have been paid. If any such taxes paid by Tenant shall
cover any period of the time prior to or after the expiration of
the term hereof, Tenant's share of such taxes shall be equitably
prorated to cover only the period of time within the tax fiscal
year during which this Lease shall be in effect, and Landlord
shall reimburse Tenant to the extent required. If Tenant shall
fail to pay any such taxes, Landlord shall have the right to pay
the same, in which case Tenant shall repay such amount to
Landlord with Tenant's next rent installment together with
interest at the rate of ten (10%) percent per annum.
101.2DEFINITION OF "REAL PROPERTY" TAXES. As used
herein, the term "real property tax" shall include any form of
assessment, license fee, rent tax, levy, penalty, or tax (other
than inheritance or estate taxes), imposed by any authority
having the direct or indirect power to tax, including any city,
county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement district thereof, as
against any legal or equitable interest of Landlord in the
Premises or in the real property of which the Premises are a
part, as against Landlord's right to rent or other income
therefrom, or as against Landlord's business of leasing the
Premises, and, Tenant shall pay any and all charges and fees
which may be imposed by the EPA or other similar governmental
regulations or authorities.
101.3 JOINT ASSESSMENT. If the Premises are not
separately assessed, Tenant'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 Landlord from the respective
valuations assigned in the assessor's work sheets or such other
information as may be reasonably available. Landlord's
reasonable determination thereof, in good faith, shall be
conclusive.
101.4 PERSONAL PROPERTY TAXES.
(a) Tenant shall pay prior to delinquency all taxes assessed
against and levied upon leasehold improvements, trade fixtures,
furnishings, equipment and all other personal property of Tenant
contained in the Premises or elsewhere. Tenant shall cause said
leasehold improvements, trade fixtures, furnishings, equipment
and all other personal property to be assessed and billed
separately from the real property of Landlord.
(b) If any of Tenant's said personal property shall be
assessed with Landlord's real property, Tenant shall pay Landlord
the taxes attributable to Tenant within ten (10) days after
receipt of a written statement setting forth the taxes applicable
to Tenant's property.
11. COMMON AREAS. When, in fact, there are Common Areas, then
the following shall apply:
11.1DEFINITIONS. The phrase "Common Areas" means all
areas and facilities outside the Premises that are provided and
designated for general use and convenience of Tenant and other
tenants and their respective officers, agents and employees,
customers and invitees. Common Areas include (but are not
limited to) pedestrian sidewalks, landscaped areas, roadways,
parking areas and railroad tracks, if any. Landlord reserves the
right from time to time to make changes in the shape, size,
location, number and extent of the land and improvements
constituting the Common Areas. Landlord may designate from time
to time additional parcels of land for use as a part thereof, and
any additional land so designated by Landlord for such use shall
be included until such designation is revoked by Landlord.
11.2 MAINTENANCE. During the term of this Lease,
Landlord shall operate, manage and maintain the Common Areas so
that they are clean and free from accumulations of debris, filth,
rubbish and garbage. The manner in which such Common Areas shall
be so maintained, and the expenditures for such maintenance,
shall be at the sole discretion of Landlord, and the use of the
Common Areas shall be subject to such reasonable regulations and
changes therein as Landlord shall make from time to time,
including (but not by way of limitation) the right to close from
time to time, if necessary, all or any portion of the Common
Areas to such extent as may be legally sufficient, in the opinion
of Landlord's counsel, to prevent a dedication thereof or the
accrual of rights of any person or of the public therein, or to
close temporarily all or any portion of such Common Areas for
such purposes.
11.3 TENANT'S RIGHTS AND OBLIGATIONS. Landlord hereby
grants to Tenant, during the term of this Lease, the license to
use, for the benefit of Tenant and its officers, agents,
employees, customers and invitees, in common with the others
entitled to such use, the Common Areas as they from time to time
exist, subject to the rights, powers and privileges herein
reserved to Landlord. Storage, either permanent or temporary, of
any materials, supplies or equipment in the Common Areas is
strictly prohibited. Should Tenant violate this provision of the
Lease, then in such event, Landlord may, at his option, either
terminate this Lease or, without notice to Tenant, remove said
materials, supplies or equipment from the Common Areas and place
such items in storage, the cost thereof to be reimbursed by
Tenant within ten (10) days from receipt of a statement submitted
by Landlord. All subsequent costs in connection with the storage
of said items shall be paid to Landlord by Tenant as accrued.
Failure of Tenant to pay these charges within ten (10) days from
receipt of statement shall constitute a breach of this Lease.
Tenant and its officers, agents, employees, customers and
invitees shall park their motor vehicles only in areas designated
by Landlord for that purpose from time to time. Tenant shall not
at any time park or permit the parking of motor vehicles,
belonging to it or to others, so as to interfere with the
pedestrian sidewalks, roadways and loading areas, or in any
portion of the parking areas not designed by Landlord for such
use by Tenant. Tenant agrees that receiving and shipping of
goods and merchandise and all removal of refuse shall be made
only by way of the loading areas constituting part of the
Premises. Tenant shall repair, at its cost, all deteriorations
or damages to the Common Areas, occasioned by its lack of
ordinary care.
11.4 CONSTRUCTION. Landlord, while engaged in
constructing improvements or making repairs or alterations in or
about the Premises or in their vicinity, shall have the right to
make reasonable use of the Common Areas.
12. UTILITIES. Tenant shall pay for all water, gas,
heat, light, power, telephone and other utilities and services
supplied to the Premises, together with any taxes thereon. If
any such services are not separately metered to Tenant, Tenant
shall pay a reasonable proportion to be determined by Landlord of
all charges jointly metered with other premises.
13. ASSIGNMENT AND SUBLETTING.
13.1 LANDLORD'S CONSENT REQUIRED. Tenant shall not
voluntarily or by operation of law assign, transfer, mortgage,
sublet or otherwise transfer or encumber all or any part of
Tenant's interest in this Lease or in the Premises without
Landlord's prior written consent, which Landlord shall not
unreasonably withhold. Any attempted assignment, transfer,
mortgage, encumbrance or subletting without such consent shall be
void and shall constitute a breach of the Lease. Any transfer of
Tenant's interest in this Lease or in the Premises from Tenant by
merger, consolidation or liquidation or by any subsequent change
in the ownership of thirty (30%) percent or more of the capital
stock of Tenant shall be deemed a prohibited assignment within
the meaning of this Article 13.
13.2 NO RELEASE OF TENANT. Regardless of Landlord's
consent, no subletting or assignment shall release Tenant of
Tenant's obligation to pay the rent and to perform all other
obligations to be performed by Tenant hereunder for the term of
this Lease. The acceptance of rent by Landlord from any other
person shall not be deemed to be a waiver by Landlord of any
provision hereof. Consent to one assignment or subletting shall
not be deemed consent to any subsequent assignment or subletting.
14. DEFAULTS; REMEDIES.
14.1 DEFAULTS. The occurrences of any one or more of
the following events shall constitute a default and breach of
this Lease by Tenant:
(a) The vacating or abandonment of the Premises by Tenant.
(b) The failure by Tenant to make any payment of rent or any
other payment required to be made by Tenant hereunder, at and
when due, where such failure shall continue for a period of three
(3) days after written notice thereof from Landlord to Tenant.
(c) The failure by Tenant to observe or perform any of the
covenants, conditions or provisions of this Lease to be observed
or performed by Tenant, other than described in Paragraph (b)
above, where such failure shall continue for a period of thirty
(30) days after written notice thereof from Landlord to Tenant;
provided, however, that if the nature of Tenant's defaults is
such that more than thirty (30) days are reasonably required for
its cure, then Tenant shall not be deemed to be in default if
Tenant commenced such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(d) (i) The making by Tenant of any general assignment, or
general arrangement for the benefit of creditors; (ii) the filing
by or against Tenant of a petition to have Tenant adjudged a
bankrupt or a petition for reorganization or arrangement under
any law relating to bankruptcy (unless, in the case of a petition
filed against Tenant, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Tenant's assets located at the
Premises or of Tenant's interest in this Lease, where possession
is not restored to Tenant within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially
all of Tenant's assets located at the Premises or of Tenant's
interest in this Lease, where such seizure is not discharged
within thirty (30) days.
14.2 REMEDIES IN DEFAULT. In the event of any such
default or breach by Tenant, Landlord may, at any time
thereafter, with or without notice or demand and without limiting
Landlord in the exercise of any right or remedy which Landlord
may have by reason of such default or breach:
(a) Terminate Tenant's right to possession of the Premises
by any unlawful means, in which case this Lease shall terminate
and Tenant shall immediately surrender possession of the Premises
to Landlord. In such event Landlord shall be entitled to recover
from Tenant all damages incurred by Landlord by reason of
Tenant's default, 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 attorney's fees, and any real estate commission
actually paid; the worth at the time of award by the court having
jurisdiction thereof of the amount by which the unpaid rent for
the balance of the term after the time of such award exceeds the
amount of such rental loss for the same period that Tenant proves
could be reasonably avoided; and that portion of the leasing
commission paid by Landlord applicable to the unexpired term of
this Lease. Unpaid installments of rent or other sums shall bear
interest from the date due at the rate of ten (10%) per annum.
In the event Tenant shall have abandoned the Premises, Landlord
shall have the option of (i) retaking possession of the Premises
and recovering from Tenant the amount specified in this Article
14.2(a), or (ii) proceeding under Article 14.2(b).
(b) Maintain Tenant's right to possession, in which case
this Lease shall continue in effect whether or not Tenant shall
have abandoned the Premises. In such event, Landlord shall be
entitled to enforce all of Landlord's rights and remedies under
this Lease, including the right to recover the rent as it becomes
due hereunder.
(c) Pursue any other remedy now or hereafter available to
Landlord under the laws or judicial decisions of the State in
which the Premises are located.
14.3 DEFAULT BY LANDLORD. Landlord shall not be in
default unless Landlord fails to perform obligations required of
Landlord within a reasonable time, but in no event later than
thirty (30) days after written notice by Tenant to Landlord and
to the holder of any first mortgage or deed of trust covering the
Premises whose name and address shall have theretofore been
furnished to Tenant in writing, specifying wherein Landlord has
failed to perform such obligation; provided, however, that if the
nature of Landlord's obligation is such that more than thirty
(30) days are required for performance, then Landlord shall not
be in default if Landlord commences performance within such
thirty (30) day period and thereafter diligently prosecutes the
same to completion.
14.4 LATE CHARGES. Tenant hereby acknowledges that
late payment by Tenant to Landlord of rent and other sums due
hereunder will cause Landlord 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 by Landlord by the terms of any mortgage or trust deed
covering the Premises. Accordingly, if any installment of rent
or any other sum due from Tenant shall not be received by
Landlord or Landlord's designee within ten (10) days after
written notice that said amount is past due, then Tenant shall
pay to Landlord a late charge equal to ten (10%) percent of such
overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the cost Landlord
will incur by reason of late payment by Tenant. Acceptance of
such late charge by Landlord shall in no event constitute a
waiver of Tenant's default with respect to such overdue amount,
nor prevent Landlord from exercising any of the other rights and
remedies granted hereunder.
15. CONDEMNATION. If the Premises or any portion
thereof are taken under the power of eminent domain, or sold by
Landlord under the threat of the exercise of said power (all of
which is herein referred to as "condemnation"), this Lease shall
terminate as to the part so taken as of the date the condemning
authority takes title or possession, whichever occurs first. If
more than twenty-five (25%) percent of the floor area of any
buildings on the Premises, or more than twenty-five (25%) percent
of the land area of the Premises not covered with buildings, is
taken by condemnation, either Landlord or Tenant may terminate
this Lease as of the date the condemning authority takes
possession by notice in writing of such election within twenty
(20) days after Landlord shall have notified Tenant of the taking
or, in the absence of such notice, then within twenty (20) days
after the condemning authority shall have taken place.
If this Lease is not terminated by either Landlord or
Tenant then it shall remain in full force and effect as to the
portion of the Premises remaining, provided the rental shall be
reduced in proportion to the floor area of the buildings taken
within the Premises as bears to the total floor area of all
buildings located on the Premises. In the event this Lease is
not so terminated then Landlord agrees, at Landlord's sole cost,
to as soon as reasonably possible restore the Premises to a
complete unit of like quality and character as existed prior to
the condemnation. All awards for the taking of any part of the
Premises or any payment made under the threat of the exercise of
power and eminent domain shall be the property of Landlord,
whether made as compensation for diminution of value of the
leasehold or for the taking of the fee or as severance damages,
provided, however, that Tenant shall be entitled to any award for
loss of or damage to Tenant's trade fixtures and removable
personal property.
16. GENERAL PROVISIONS.
16.1 Offset Statement.
(a) Tenant shall at any time upon not less than ten
(10) days' prior written notice from Landlord execute,
acknowledge and deliver to Landlord a statement in writing
(i) certifying that this Lease is unmodified and in full force
and effect (or, if modified, stating the nature of such
modification and certifying that this Lease, as so modified, is
in full force and effect) and the date to which the rent,
security deposit and other charges are paid in advance, if any,
and (ii) acknowledging that there are not, to Tenant's knowledge,
any uncured defaults on the part of Landlord hereunder, or
specifying such defaults, if any, which are claimed. Any such
statement may be conclusively relied upon by any prospective
purchaser or encumbrancer of the Premises.
(b) Tenant's failure to deliver such statement within
such time shall be conclusive upon Tenant (i) that this Lease is
in full force and effect, without modification except as may be
represented by Landlord, (ii) that there are no uncured defaults
in Landlord's performance, and (iii) that not more than one (1)
month's rent has been paid in advance.
(c) If Landlord desires to finance or refinance the
Premises, or any part thereof, Tenant hereby agrees to deliver to
any lender designated by Landlord such financial statements of
Tenant as may be reasonably required by such lender. Such
statements shall include the past three (3) years' financial
statements of Tenant. All such financial statements shall be
received by Landlord in confidence and shall be used only for the
purposes herein set forth.
16.2 LANDLORD'S INTERESTS. The term "Landlord" as used
herein shall mean only the owner or owners at the time in
question of the fee title or a tenant's interest in a ground
lease of the Premises. In the event of any transfer of such
title or interest, Landlord herein named (and in case of any
subsequent transfers the then grantor) shall be relieved from and
after the date of such transfer of all liability as respects
Landlord's obligations thereafter to be performed, provided that
any funds in the hands of Landlord or the then grantor at the
time of such transfer, in which Tenant has an interest, shall be
delivered to the grantee. The obligations contained in this
Lease to be performed by Landlord shall, subject as aforesaid, be
binding on Landlord's successors and assigns, only during their
respective periods of ownership.
16.3 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.
16.4 INTEREST ON PAST DUE OBLIGATIONS. Except as
expressly herein provided, any amount due to Landlord not paid
when due shall bear interest at ten (10%) percent per annum from
the date due. Payment of such interest shall not excuse or cure
any default by Tenant under this Lease.
16.5 TIME OF ESSENCE. Time is of the essence.
16.6 CAPTIONS. Article and paragraph captions are not
a part hereof.
16.7 INCORPORATION OF PRIOR AGREEMENTS; AMENDMENTS.
This Lease contains all agreements of the parties with respect to
any matter mentioned herein. No prior agreement or understanding
pertaining to any such matter shall be effective. This Lease may
be modified in writing only, signed by the parties in interest at
the time of the modification.
16.8 WAIVERS. No waiver by Landlord of any provision
hereof shall be deemed a waiver of any other provision hereof or
of any subsequent breach by Tenant of the same or any other
provision. Landlord's consent to or approval of any act shall
not be deemed to render unnecessary the obtaining of Landlord's
consent to or approval of any subsequent act by Tenant. The
acceptance of rent hereunder by Landlord shall not be a waiver of
any preceding breach by Tenant of any provision hereof, other
than the failure of Tenant to pay the particular rent so
accepted, regardless of Landlord's knowledge of such preceding
breach at the time of acceptance of such rent.
16.9 RECORDING. Tenant shall not record this Lease.
Any such recordation shall be a breach under this Lease.
16.10 HOLDING OVER. If Tenant remains in possession of
the Premises or any part thereof after the expiration of the term
hereof with the express written consent of Landlord, such
occupancy shall be a tenancy from month to month at a rental in
the amount of the last monthly rental plus all other charges
payable hereunder, and upon the terms hereof applicable to
month-to-month tenancy.
16.11 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.
16.12 COVENANTS AND CONDITIONS. Each provision of this
Lease performable by Tenant shall be deemed both a covenant and a
condition.
16.13 BINDING EFFECT; CHOICE OF LAW. Subject to any
provisions hereof restricting assignment or subletting by Tenant
and subject to the provisions of Article 16.2, this Lease shall
bind the parties, their personal representatives, successors and
assigns. This Lease shall be governed by the laws of the state
where the Premises are located.
16.14 SUBORDINATION.
(a) This Lease, at Landlord's option, shall be
subordinate to any ground lease, mortgage, deed of trust or any
other hypothecation for security now or hereafter placed upon the
real property of which the Premises are a part and to any and all
advances made on the security thereof and to all renewals,
modifications, consolidations, replacements and extensions
thereof. Notwithstanding such subordination, Tenant's right to
quiet possession of the Premises shall not be disturbed if Tenant
is not in default and so long as Tenant shall pay the rent and
observe and perform all of the provisions of this Lease, unless
this Lease is otherwise terminated pursuant to its terms. If any
mortgage, trustee or ground lessor shall elect to have this Lease
prior to the lien of its mortgage, deed of trust or ground lease,
and shall give written notice thereof to Tenant, this Lease shall
be deemed prior to such mortgage, deed of trust or ground lease,
whether this Lease is dated prior or subsequent to the date of
said mortgage, deed of trust or ground lease or the date of
recording thereof.
(b) Tenant agrees to execute any documents required to
effectuate such subordination or to make this Lease prior to the
lien of any mortgage, deed of trust or ground lease, as the case
may be, and, failing to do so within ten (10) days after written
consent, does hereby make, constitute and irrevocably appoint
Landlord as Tenant's attorney-in-fact, and in Tenant's name,
place and stead, to do so.
16.15 ATTORNEY'S FEES. If either party named herein
brings an action to enforce the terms hereof or declare rights
hereunder, the prevailing party in any such action, on trial or
appeal, shall be entitled to his reasonable attorney's fees to be
paid by the losing party as fixed by the court.
16.16 LANDLORD'S ACCESS. Landlord and Landlord's
agents shall have the right to enter the Premises at reasonable
times for the purpose of inspecting the same, showing the same to
prospective purchasers or lenders, and making such alterations,
repairs, improvements or additions to the Premises or to the
building of which they are a part as Landlord may deem necessary
or desirable. Landlord may at any time place on or about the
Premises any ordinary "For Sale" signs and Landlord 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 Sale or
Lease" signs, all without rebate of rent or liability to Tenant.
16.17 AUCTIONS. Tenant shall not place any auction
sign upon the Premises or conduct any auction thereon without
Landlord's prior written consent.
16.18 MERGER. The voluntary or other surrender of this
Lease by Tenant, or a mutual cancellation thereof, shall not work
a merger, and shall, at the option of Landlord, terminate all or
any existing subtenancies or may, at the option of Landlord,
operate as an assignment to Landlord of any or all of such
subtenancies.
16.19 CORPORATE AUTHORITY. If Tenant is a corporation,
each individual executing this Lease on behalf of said
corporation represents and warrants that he is duly authorized to
execute and deliver this Lease on behalf of said corporation in
accordance with a duly adopted resolution of the Board of
Directors of said corporation or in accordance with the By-laws
of said corporation, and that this Lease is binding upon said
corporation in accordance with its terms.
16.20 LANDLORD'S LIABILITY. If Landlord is a limited
partnership, the liability of the partners of the Landlord
pursuant to this Lease shall be limited to the assets of the
partnership; and Tenant, its successors and assigns hereby waive
all rights to proceed against any of the partners, or the
officers, shareholders or directors of any corporate partner of
Landlord except to the extent of their interest in the
partnership. The term "Landlord," as used in this Article, shall
mean only the owner or owners at the time in question of the fee
title or its interest in a ground lease of the Premises, and in
the event of any transfer of such title or interest, Landlord
herein named (and in case of any subsequent transfers the then
grantor) shall be relieved from and after the date of such
transfer of all liability as respects Landlord's obligations
thereafter to be performed, provided that any funds in the hands
of Landlord or the then grantor at the time of such transfer, in
which Tenant has an interest, shall be delivered to the grantee.
The obligations contained in this Lease to be performed by
Landlord shall, subject as aforesaid, be binding on Landlord's
successors and assigns, only during their respective periods of
ownership.
17. PERFORMANCE BOND. At any time Tenant either
desires to or is required to make any repairs, alterations,
additions, improvements or utility installation thereon, pursuant
to Articles 7.5 or 9.2 herein, or otherwise, Landlord may at his
sole option require Tenant, at Tenant's sole cost and expense, to
obtain and provide to Landlord a lien and completion bond or
letter of credit or other guarantee acceptable to Landlord in an
amount equal to one and one-half (1 1/2) times the estimated cost
of such improvements, to insure Landlord against liability for
mechanics' and materialmen's liens and to insure completion of
the work.
18. BROKERS. The parties hereto acknowledge that
____________ were the real estate brokers that represented the
parties herein, and that no other commissions are due to any
brokers whatsoever, other than the above-named brokers.
19. NOTICE. Whenever under this Lease provision is
made for any demand, notice or declaration of any kind or where
it is deemed desirable or necessary by either party to give or
serve any such notice, demand or declaration to the other party,
it shall be in writing and served either personally or sent by
United States mail, postage prepaid, addressed at the addresses
set forth hereinbelow
To Landlord at 1345 VANDER WAY, SAN JOSE, CALIFORNIA
To Tenant at 1070 E. MEADOW CIRCLE, PALO ALTO
CALIFORNIA 94303
20. Insuring Party. The insuring party under this Lease shall
be the Landlord.
ADDENDUM:
Paragraphs 21 - 27 attached hereto are hereby
incorporated into this Lease.
The parties hereto have executed this Lease at the
place and on the dates specified immediately adjacent to their
respective signatures.
Executed at San Jose, California Larvan Properties, A General
on 13th July, 1977 Partnership
By
By
"LANDLORD"
Executed at Palo Alto, California Larse Corporation
on 13th July, 1977 By
By
"TENANT"
If this Lease has been filled in or has been prepared for
submission to your attorney for his approval. No representation
or recommendation is made to the real estate broker or the agents
or employees as to the legal sufficiency, legal effect, or the
consequences of this Lease or the transaction related thereto.
21. MAINTENANCE. The Tenant shall during the term of this
Lease, keep in good order, condition and repair, the premises and
every part thereof, and all adjacent sidewalk and landscape,
driveways, parking lots and signs located at the areas which are
adjacent to and included with the premises. Landlord shall incur
no expense, nor have any obligation of any kind whatsoever, in
connection with maintenance of the premises except for roof and
side walk structural maintenance. Landlord's obligations shall
be limited to the structural aspects of the roof, the walls, the
foundations, underground water and utility services, up to their
distribution points within the main structure and is specifically
excluded from responsibility for the cosmetic aspects of any of
the aforementioned. The Tenant expressly waives the benefits of
any statute now or hereinafter in effect which would otherwise
afford Tenant the right to make repairs at Landlord's expense, or
to terminate this Lease because of Landlord's failure to keep the
premises in good order, condition or repair.
22. RENTAL INCREASES. Said monthly rental shall be
subject to adjustment in the 61st month of the lease term and
each five (5) years thereafter, throughout the remainder of the
term and extensions hereof in the manner hereinafter set forth:
The Consumer Price Index for all commodities as published by the
United States Department of Labor, Bureau of Labor Statistics,
San Francisco Bay Area, for said anniversary date shall be
compared with said Index as of the rental commencement date. The
percentage of any increase in the Index as of said anniversary
date over the Index as of the rental commencement date shall be
multiplied by the monthly rental of Eight Thousand One Hundred
Twenty-Five ($8,125) Dollars, ("Base Rental"), and the product
shall be added to said monthly rental and that total shall be the
monthly rental payable commencing with said anniversary date and
for the ensuing five (5) years until the next such anniversary
date provided, however, in no event shall said rental increase
exceed 5% per year or a total of 17.6% for any five year period.
In no event shall said monthly rental for the demised premises
decrease below the Base Rental. Additionally, the Base Rental
for the expansion area will be established upon exercising the
Option to Expand (Paragraph 24 hereto) and shall not decrease
below said Base Rental. For the purpose of this Lease, if in the
future, said Index be changed so that the base five (5) year
differs from that used as of the rental commencement date, it
shall be converted to the base year as of the commencement date.
In the event said Index is discontinued or revised during the
term of this lease, such other governmental Index or computation
with which it is replaced shall be the basis of the
recomputation.
23. OPTION TO EXTEND WITH COST-OF-LIVING. Landlord
grants to Tenant an Option to Extend the term of this Lease for
two successive five (5) year periods at the termination of the
term stated herein, at a rental to be determined in accordance
with Rental Increases, Paragraph #22, and subject to all of the
other terms, covenants, and conditions hereinabove contained;
provided Tenant is not in default in the performance of any of
the terms and conditions of this Lease upon the commencement of
said extended term, and Tenant has given to Landlord ninety (90)
days prior to the expiration of this lease term written notice of
his intention to exercise said Option.
24. OPTION TO EXPAND. In the event that Tenant shall
not be in default in the performance of any terms or conditions
of the Lease, then upon notification to Landlord, Tenant shall
have the Option to Expand the demised premises to include the
entire 49,837 square foot facility. Tenant agrees to provide
Landlord with written notice of this intention to expand during
the time of the thirty-sixth (36th) month through the
forty-second (42nd) month (time window) following the signing of
this Lease Agreement. Said Option to Expand "time window" may be
adjusted to a later period subject to mutual agreement of the
Landlord and Tenant. In consideration of this option and
potential limited tenancy, it is agreed, as of January 1, 1978
that:
24-A Tenant will pay the rent differential, if any, between the
budget rent commensurate with the limited tenant's
improvements and the limited tenant's contract rent that may
be a direct result of said limited tenancy.
24-B That during the periods when the expansion area is not
leased and vacant, Tenant will pay to Landlord a rental of
$.02 per square foot per month for that amount of square
footage remaining vacant.
25. OCCUPANCY DATE. Landlord agrees that as soon as
it can reasonably be done following the execution of the Lease,
Landlord shall commence and diligently prosecute to completion
the construction of the one-story building herein described.
Said construction will be done in all respects in a good and
workmanlike manner to the end that such work will commence upon
receipt by Vanderson Construction, Inc., of a building permit
issued by the City of Santa Clara and be completed no later than
four and one-half months from receipt of said permit, provided
there is no delay occasioned by Acts of God, fire, storm or other
causes beyond the control of Landlord. In any such event,
completion of the building shall be extended for the period of
such delay, and the commencement date of the Lease shall be the
first day of the month following the month in which Lessor
delivers possession of said premises to Tenant, Landlord agrees
to a $100 per day penalty to be paid to Lessee for each day of
delay beyond the completion date herein stated.
26. ARBITRATION. If Landlord and Tenant are unable to
agree upon the letter of this agreement, then the subject for
determination shall be promptly submitted to arbitration. Each
party hereto will select an arbitrator of experience and
competence in real estate and said arbitrators shall meet. If
the two arbitrators do not agree, they shall select a third
qualified arbitrator. Said third Arbitrator shall act as an
umpire between the arbitrators selected by the parties hereto,
and his decision, made in concert with either one or both, or
individually if unable to agree with either of them, shall be
final and binding. The determination shall be signed by both
parties and shall thereupon become a part of this lease.
27. EFFECTIVENESS CONDITION. The effectiveness of
this Lease is expressly conditioned upon Landlord on Landlord's
assignee receiving a building permit and other necessary
approvals and permits preliminary to construction of the building
to be constructed on Parcel #17 of Marriott Business Park within
forty-five (45) days from the execution hereof. Should such
condition not be met, then this Lease shall terminate and neither
party shall have any rights or obligations hereunder.
EXHIBIT A
PROPERTY DESCRIPTION
ADDENDUM #1
In accordance with Paragraph 24 to the Lease Agreement
("The Lease") dated July 13, 1977, by and between Larvan
Properties, a General Partnership ("Landlord") and Larse
Corporation, a California Corporation ("Tenant") and if that
Tenant is not in default of any of the terms and conditions of
The Lease, Landlord hereby grants to Tenant and Tenant hereby
accepts from Landlord the expansion of the demised premises as
described in Paragraph 2 to The Lease to include the adjacent
19,743 square feet resulting in a total demised premise of
approximately 49,837 square feet.
Landlord and Tenant hereby agreed that monthly rental
rate for the 19,743 square feet shall be $.31 per square foot net
or $6,120.00 per month commencing with June 1, 1981 and
continuing through May 31, 1983. It is agreed by the parties
hereto that this rate is the "Base Rental" referred to in
Paragraph 22 to The Lease. Total rental due by Tenant as of June
1, 1981 and continuing through May 31, 1983 is $14,245.00. It is
further understood that the rental for the expansion areas for
the period June 1, 1983 through December 31, 1987 shall be
increased to a negotiated amount. Said negotiated rental shall
be determined during the period March 1 - June 1, 1983. Rental
increases for the initial 30,094 square feet shall be in
accordance with Paragraph 22 to The Lease. Tenant hereby agrees
to pay to Landlord a security deposit in the amount of Six
Thousand One Hundred Twenty ($6,120.00) Dollars in accordance
with Paragraph 5 to The Lease.
Executed at San Jose, California Larvan Properties, A General
Partnership
on 22nd June, 1981
BY
BY
Landlord
Larse Corporation
BY
ADDENDUM #2
TERM OF LEASE ON EXPANSION AREA
Landlord and Tenant hereby agree to extend the term of
Tenant's Lease on Expansion Area, negotiated and agreed to in
Addendum #1 to the Lease Agreement dated July 13, 1977, by and
between Larvan Properties ("Landlord") and Larse Corporation
("Tenant") from a May 31, 1983 termination date to a September 2,
1983 termination date. All other terms and conditions of the
Lease and Addendum #1 remain unchanged.
Executed at San Jose, California LARVAN PROPERTIES
on Sept. 2, 1981 BY
BY
BY
LARSE CORPORATION
BY
ADDENDUM #3
In accordance with Paragraph 24 to the Lease Agreement
("Lease") dated July 13, 1977, by and between Larvan Properties,
a General Partnership ("Landlord") and Larse Corporation, a
California Corporation ("Tenant") and since the Tenant is not in
default of any of the terms and conditions of the Lease, Landlord
hereby grants to Tenant and Tenant hereby accepts from Landlord
the expansion of the demised premises as described in Paragraph 2
to the Lease to include the adjacent 19,743 square feet resulting
in a total demised premise of approximately 49,837 square feet.
1) The term of this Addendum shall be from February
1, 1984 through January 31, 1988, and all other provisions of the
Lease shall be applicable including the Option to Extend with
Cost of Living, Paragraph 23.
2) The rental rate for the entire demised premise of
approximately 49,837 square feet shall be $16,752 per month for
the period from February 1, 1984 through January 31, 1988. It is
agreed by the parties hereto that this rate is the "Base Rental"
referred to in Paragraph 22 to the Lease.
3) The Tenant shall pay to the Landlord the one-time
sum of seven thousand, four hundred, four and 00/100 dollars
($7,404.00) to compensate the Landlord for the Cost of Living
clause on the original Tenant space, the application of the Cost
of Living clause for the expansion space, less a rental
overpayment made by the Tenant.
4) The Tenant shall have the right to sublease the
premises in accordance with the terms and conditions of the
Lease.
5) The parties hereto further agree to delete the
provisions of Paragraph 24, sub A and Paragraph 24, sub B.
Executed at San Jose, California Larvan Properties
on January 5, 1984, BY
BY
BY
Larse Corporation
BY
ADDENDUM #4 (10/12/89)
In accordance with Paragraph 23 to the Lease Agreement
("Lease") dated July 13, 1977, by and between Larvan Properties,
a General Partnership ("Landlord") and Larse Corporation, a
California Corporation ("Tenant") and since the Tenant is not in
default of any of the terms and conditions of the Lease, Landlord
hereby grants to Tenant and Tenant hereby accepts from Landlord
the extension of the Lease for the demised premises of
approximately 49,837 square feet for a period of five (5) years.
1) The term of this Addendum shall be from February
1, 1988 through January 31, 1993, and all other provisions of the
Lease shall be applicable.
2) The rental rate for the entire demised premise of
approximately 49,837 square feet shall be $19,700.35 per month
for the period from February 1, 1988 through January 31, 1993.
It is agreed by the parties hereto that this rate is the "Base
Rental" referred to in Paragraph 22 to the Lease.
3) The Tenant shall have the right to sublease the
premises in accordance with the terms and conditions of the
Lease.
Executed at San Jose, California LARVAN PROPERTIES
on October 12, 1987 By:
Name:
LARSE CORPORATION By:
By: Name:
By:
Name:
ADDENDUM #5
TO THAT LEASE DATED JULY 13, 1977 AND ADDENDA 1, 2, 3 & 4
In accordance with Paragraph 23 to the Lease Agreement
("Lease") dated July 13, 1977, by and between Larvan Properties,
a General Partnership ("Landlord") and Larse Corporation, a
California Corporation ("Tenant"), and since the Tenant is not in
default of any of the terms and conditions of the Lease, Landlord
hereby grants to Tenant and Tenant hereby accepts from Landlord
the extension of the Lease for the demised premises of
approximately 49,837 square feet for a period of five (5) years.
1) The term of this Addendum shall be from February
1, 1993 through January 31, 1998, and all other provisions of the
Lease shall be applicable.
2) The base rental for the entire demised premise of
approximately 49,837 square feet shall be $23,167.61 per month
for the period from February 1, 1993 through January 31, 1998.
Executed at Santa Clara, California on April 16, 1993
TENANT: LANDLORD:
LARSE CORPORATION LARVAN PROPERTIES
By: VANDERSON CONSTRUCTION, INC.
James Mongiello
President By:
George F. Van Sickle
LARSE CORPORATION
By:
James Mongiello,
President
Thomas J. Cunningham, Jr.
Donn H. Byrne
Joyce S. Byrne
John Brady
<PAGE>
ARTICLES OF PARTNERSHIP
LARSE CORPORATION, a California corporation, VANDERSON CONSTRUCTION, a
California corporation, DONN H. BYRNE, JOHN D. BRADY, THOMAS J. CUNNINGHAM, JR.,
______________ and ___________________________ voluntarily associate themselves
together as General Partners pursuant to the terms and conditions set forth in
these Articles of Partnership.
ARTICLE I.
NATURE OF PARTNERSHIP.
1.01 TYPE OF BUSINESS. This Partnership is formed for the purpose of
acquiring, owning, developing and operating the land commonly known as Parcel
Number 17 of Marriott Business Park, said property being more specifically
identified in Exhibit "A" attached hereto and the construction thereon of
buildings and related improvements. The Partnership shall engage in no other
business, nor shall it acquire any additional real property without the written
consent of all of the Partners and an appropriate amendment to this Partnership
Agreement.
1.02 NAME OF PARTNERSHIP. The name of the Partnership shall be LARVAN
PROPERTIES.
<PAGE>
-2-
1.03 TERM OF PARTNERSHIP. The term of the Partnership shall be for a
period of twenty-five (25) years from the date of this Agreement unless sooner
terminated as herein provided.
1.04 PLACE OF BUSINESS. The principal place of business of the
Partnership shall be at 1345 Vander Way, San Jose, California 95112 or at such
other place or places as may from time to time be agreed on by a majority in
interest of the Partners.
1.05 LAW OF FORMATION AND GOVERNING LAW. This Partnership shall be
governed by the Uniform Partnership Act as adopted by the State of California
which shall be controlling for all matters relating to the formation, operation,
dissolution, and liquidation of the Partnership unless otherwise provided
herein.
ARTICLE II.
FINANCIAL.
2.01 INITIAL CASH CONTRIBUTION. The initial cash contribution of the
partnership shall be as follows:
Larse Corporation $________
Vanderson Construction $________
Donn H. Byrne $________
John D. Brady $________
<PAGE>
-3-
Thomas J. Cunningham, Jr. $________
___________________________ $________
___________________________ $________
TOTAL INITIAL CASH
CONTRIBUTION $________
2.02 OWNERSHIP INTEREST. Each of the Partners shall have an ownership
interest in the capital of the Partnership for any capital in excess of the
initial contributions shown in paragraph 2.01 above, in the percentages shown
next to each Partner's signature on the signature page hereof. Such percentages
of ownership shall be stated in decimal equivalents rounded to four places, the
total of which shall equal 1.000.
2.03 CALLS FOR ADDITIONAL CAPITAL. Whenever it is determined by the
written agreement of the Partners holding at least two-thirds (2/3) of the
ownership interest in the Partnership that the Partnership's capital is or
presently is likely to become insufficient for the conduct of its business,
those Partners may, by written notice to all Partners, call for additional
contributions to capital. Such contributions shall be payable in cash no later
than the date specified in the notice and no sooner than twenty (20) days after
the notice is given. Each Partner shall be liable to the Partnership for his
share of the aggregate contributions duly called for under this paragraph. Each
Partner's share of such required additional contribution to capital shall be in
the same proportion as his
<PAGE>
-4-
interest in ownership of the Partnership without regard to the cash
contributions of the parties reflected in paragraph 2.01.
2.04 FAILURE TO CONTRIBUTE. If any Partner or Partners fail to pay any
contribution to the Partnership capital at the time and in the form and amount
required by paragraph 2.03 hereof, the Partnership shall not dissolve or
terminate, but shall continue as a Partnership. The Partnership shall promptly
give written notice to all Partners of the failure of a Partner to make payment,
specifying the amount not paid. Any or all of the remaining Partners who have
made their contribution shall be entitled to elect, by giving written notice of
election to the Partnership within ten (10) days after the Partnership gives
notice of the default, to make the contribution of the Partner or Partners who
failed to make the required contribution. If more than one Partner elects to
make the contribution of the defaulting Partner or Partners, each shall share in
the contribution in the same proportion that their respective ownership
percentages as provided in paragraph 2.02 bears to the total of all ownership
percentages of the Partners electing to make the contribution(s) for the
defaulting Partner or Partners. From and after the time the non-defaulting
Partner(s) makes the required contribution of a defaulting Partner(s), each
Partner's interest in the capital of the partnership shall be in the same
proportion that the
<PAGE>
-5-
aggregate contributions to the capital of the Partnership made by such Partner
from the commencement of the Partnership bears to the aggregate contributions
made by all Partners to the capital of the Partnership from the commencement of
the Partnership.
2.05 WITHDRAWAL OF CAPITAL. No portion of the capital of the Partnership
may be withdrawn at any time without the express written consent of the Partners
holding at least two-thirds (2/3) of the ownership interest in the Partnership.
2.06 INTEREST ON CAPITAL. No Partner shall be entitled to interest on his
contributions to the capital of the Partnership.
2.07 LOANS TO PARTNERSHIP. No Partner may loan or advance money to the
Partnership without the written consent of a majority in interest of the
remaining Partners. Any such loan by a Partner to the Partnership shall be
separately entered on the books of the Partnership as a loan to the Partnership,
shall bear interest at such rate as may be agreed on by the lending Partner and
a majority of the remaining Partners, and shall be evidenced by a promissory
note delivered to the lending Partner and executed in the name of the
Partnership by a majority of the remaining Partners.
<PAGE>
-6-
2.08 BOOKS OF ACCOUNT. Complete and accurate accounts of all transactions
of the Partnership shall be kept in proper books, and each Partner shall enter,
or cause to be entered therein, a full and accurate account of all his
transactions on behalf of the Partnership.
2.09 INSPECTION OF BOOKS. The books of account and other records of the
Partnership shall, at all times, be kept in the principal place of business of
the Partnership, and each of the Partners shall at all times have access to and
may inspect and copy any of them.
2.10 METHOD OF ACCOUNTING. The books of account of the Partnership shall
be kept on a cash basis.
2.11 FISCAL YEAR. The fiscal year of the Partnership shall end on the
31st day of December of each year.
2.12 ACCOUNTINGS. The Partnership will provide each Partner with
quarterly statements of operations. In addition, as soon after the close of
each fiscal year as is reasonably practicable, a full and accurate inventory and
accounting shall be made of the affairs of the Partnership as of the close of
such fiscal year. On such accounting being made, the net profit or net loss
sustained by the Partnership during such fiscal year shall be ascertained and
credited or debited, as
<PAGE>
-7-
the case may be, in the books of account of the Partnership to the respective
Partners in the proportions specified in Paragraph 2.14 of these Articles.
2.13 DEFINITION OF PROFITS AND LOSSES. The term "net profits" and "net
losses" as used in these Articles shall mean the net profits and net losses of
the Partnership as determined for federal income tax purposes and to the extent
possible in accordance with generally accepted accounting principles for each
accounting period provided for in these Articles.
2.14 PROFITS AND LOSSES. The net profits or net losses of the Partnership
shall be credited or charged, as the case may be, to the Partners in accordance
with the ownership percentages designated on the signature page of these
Articles, or such percentages as the same may be altered in accordance with
Paragraph 2.04.
2.15 SPECIAL ALLOCATION. Upon a sale of the real property owned by the
Partnership, a special allocation of income shall be made to the following
partners in the amounts shown:
Larse Corporation $________
Vanderson Construction $________
Donn H. Byrne $________
John D. Brady $________
Thomas J. Cunningham, Jr. $________
___________________________ $________
<PAGE>
-8-
___________________________ $________
The foregoing allocation is to be made in the event of any sale of the property
regardless of whether the sale transaction results in a profit or loss. This
allocation shall be deemed a guaranteed payment as provided in Section 704 of
the Internal Revenue Code of 1954, as amended.
2.16 CAPITAL ACCOUNTS. An individual capital account shall be maintained
for each Partner consisting of his initial cash contribution under
paragraph 2.01, plus any additional contributions to the Partnership capital
made pursuant to paragraphs 2.03 and 2.04 and any other provision of these
Articles.
2.17 INCOME ACCOUNTS. An individual income account shall be maintained
for each Partner. At the end of each fiscal year, each Partner's share of the
net profits or net losses of the Partnership shall be credited or debited to and
his withdrawals during such fiscal year deducted from, his income account.
After such amounts have been credited or debited to and deducted from a
Partner's account, any balance or deficit remaining in such account shall be
treated as a loan to or from the Partnership payable on demand with interest at
the then prime rate established by Bank of America, NT&SA, San Francisco,
California (not to exceed ten percent (10%), and
<PAGE>
-9-
shall not be transferred to or charged against such Partner's capital account.
Said interest shall start accruing at the end of each fiscal year, on any
balance or deficit remaining. At the election of the Partners holding at least
two-thirds (2/3) of the ownership interest in the Partnership, any credit in the
income account may be paid to the Partners at the end of the fiscal year of the
Partnership.
2.18 BANK ACCOUNTS. All funds of the Partnership shall be deposited in
accounts in the name of the Partnership at Bank of America, NT&SA, Santa Clara
Main Office, or such other place or places as may from time to time be selected
by vote of the Partners holding at least two-thirds (2/3) of the ownership
interest in the Partnership; provided, however, such institution shall be a bank
or savings and loan chartered by an appropriate Federal or State banking agency.
All withdrawals from any such account or accounts shall be made only by check or
other written instrument signed by such person or persons as shall be designated
by the Partners holding at least two-thirds (2/3) of the ownership interest in
the Partnership.
<PAGE>
-10-
ARTICLE III.
RIGHTS AND DUTIES OF PARTNERS
3.01 TIME DEVOTED TO PARTNERSHIP. Each Partner shall devote such time as
is necessary to the business of the Partnership. Consistent with the foregoing,
each Partner may individually or in association with one or more Partners engage
in any one or more related or unrelated business activities. Nothing in this
Agreement or in law shall be construed as an obligation on the part of any
Partner to present any real estate or other investment opportunities to the
Partnership, nor shall it preclude any Partner from acquiring or holding real
estate or other investments for his individual account.
Each Partner acknowledges that some of the Partners hereunder are real
estate brokers and/or real estate salesmen and are acquiring the Partnership
interests hereunder as an individual investor and for his own account.
3.02 SALARIES. No Partner shall be entitled to any salary or other
compensation for his services in an about the Partnership business, except as
may be expressly agreed upon in writing, signed by the Partners holding at least
two-thirds (2/3) of the ownership interest in the Partnership. Should any
salary by paid as set forth herein to any Partner, the amount
<PAGE>
-11-
of salary so paid shall be considered an expense of the Partnership, to be
charged against the gross income of the Partnership in arriving at net income
and shall not be considered a draw or other advance against the amount of net
income available to said Partner. Nothing set forth in this paragraph shall be
deemed to preclude any company employing one or more Partners from collecting
commissions for services rendered to the Partnership in leasing or selling the
property pursuant to separate agreement for commissions between said company and
the Partnership.
3.03 DRAWS. Each Partner shall be entitled to withdraw from the funds of
the Partnership such sums per month for his own use as may from time to time be
agreed upon in writing by the Partners holding at least two-thirds (2/3) of the
ownership interest in the Partnership. Each such withdrawal by a Partner shall
be charged against his share of the net profits of the Partnership for the
fiscal year in which made. If the total of such withdrawals by any Partner
during any such fiscal year exceeds his then share of the net profits for such
year, the Partner shall be entitled to no further withdrawals until such
deficiency has been repaid to the Partnership. The limitation on the amount of
such withdrawals contained in this paragraph may be increased or decreased at
<PAGE>
-12-
any time by the Partners holding at least two-thirds (2/3) of the ownership
interest in the Partnership.
3.04 MANAGEMENT AND MANAGEMENT COMMITTEE. Each Partner shall have a voice
in the management and conduct of the Partnership business. Any differences
arising among the Partners as to ordinary matters connected with the Partnership
business shall be decided by a majority in interest of the Partners as
determined by the percentage ownership interests designated on the signature
page of these Articles or such percentages as the same may be altered in
accordance with paragraph 2.04. No act in contravention of these Articles,
however, may be legally done without the consent in writing of all the Partners.
Notwithstanding the above, the Partnership may from time to time, as a matter of
convenience, employ a property management firm to control and be responsible for
the day-to-day operations of the Partnership. A majority in interest of the
partners shall select the property management firm. The duties and
responsibilities of said property management firm and its reimbursement rate for
these services shall be identified in a separate agreement.
All matters not consistent with the day-to-day operations shall be decided
by the vote of the Partners holding at least two-thirds (2/3) of the ownership
interest in the
<PAGE>
-13-
Partnership. Should any Partner insist in writing that a matter involves
decisions not in the ordinary day-to-day operation of the business, the
resolution of that decision shall be made by the Partners holding at least
two-thirds (2/3) of the ownership interest in the Partnership.
3.05 POWER TO INCUR LIABILITIES. No Partner shall have authority to bind
the Partnership in making contracts and incurring obligations in the name of and
on the credit of the Partnership in the ordinary course of the Partnership
business without the written consent of the Partners holding at least two-thirds
(2/3) of the ownership interest in the Partnership. Any Partner who incurs an
obligation in excess of Two Thousand Dollars ($2,000) in the name and on the
credit of the Partnership in violation of this provision may be held
individually liable by the other Partners for the entire amount of the
obligation thus incurred.
3.06 REIMBURSEMENT OF EXPENSES AND INDEMNITY AGAINST PERSONAL LIABILITY.
The Partnership shall indemnify a Partner for payments made and personal
liabilities and expenses reasonably incurred by him in the ordinary and proper
conduct of the Partnership business or for the preservation of the Partnership
business or property. The Partnership shall carry liability insurance for the
Partners. Such insurance and the
<PAGE>
-14-
amount of coverage needed shall be as determined by the Partners holding at
least two-thirds (2/3) of the ownership interest in the Partnership. Except to
the extent that the Partnership is insured against liability, the Partner(s)
guilty of negligence or wrongdoing shall reimburse the Partnership for damages
sustained by it as a result of such negligence or wrongdoing.
3.07 PROHIBITED ACTS. No Partner shall do any of the following acts in
the ordinary course and proper conduct of the Partnership business without the
consent of all other Partners:
(a) Loan any Partnership funds;
(b) Incur any obligations in the name or on the credit of the Partnership
except as provided in paragraph 3.05 above;
(c) Incur any other obligations in the name or on the credit of the
Partnership except in the ordinary course of the Partnership business.
(d) Execute any document on behalf of the Partnership wherein the
Partnership becomes a guarantor, surety, or endorser for any other person. Any
loss sustained by the Partnership because of the breach of this paragraph by
<PAGE>
-15-
any Partner shall be deducted from such Partner's share of the net profits of
the Partnership, or if the net profits of the Partnership for the fiscal year in
which the breach occurred be insufficient, from such Partner's capital interest
in the Partnership.
(e) Attempt to withdraw, dissolve or terminate the Partnership except in
accordance with the terms and provisions of this Agreement.
3.08 PERSONAL DEBTS. Each Partner shall pay and discharge as they become
due his separate obligations, and indemnify and hold harmless the other Partners
and the Partnership from all costs, claims and demands in relation thereto,
including but not limited to, attorney fees incurred in the defense of any such
personal obligations.
3.09 ASSIGNMENT OF INTEREST. No Partner shall sell, assign, mortgage,
hypothecate or encumber his interest in the Partnership, nor shall he attempt by
court proceedings or otherwise to dissolve the Partnership without first
complying with the requirements of Article IV hereof.
<PAGE>
-16-
ARTICLE IV.
ASSIGNMENTS AND TRANSFER OF A PARTNER'S INTEREST.
4.01 TRANSFERS.
(a) INDIVIDUAL PARTNERS. Any Partner shall be free to sell, transfer,
assign, give or bequeath his or her Partnership interest to any immediate family
member or to any trust or other entity which is established for the benefit of
one or more immediate family members, or which is owned at least fifty-one
percent (51%) by one or more family members, provided that the transferee or
transferees of said interest execute appropriate documentation agreeing to
become Partners of this Partnership and agreeing to be bound by all the terms
and conditions contained herein, including the restrictions on transfer of
Partnership interests, and provided further that at the election of a majority
in interest of non-transferring Partners or at the request of the transferee of
said interest, this Partnership MAY be amended to provide that the interest so
transferred shall become a limited partnership interest.
(b) CORPORATE PARTNERS. Any corporate Partner shall be free to sell,
transfer, assign or otherwise dispose of its interest to: (1) any corporation
in an unbroken chain of corporations of which the corporate Partner is a party
if at
<PAGE>
-17-
the time of the transfer each corporation in said chain, other than the last in
that chain, own stock possessing eighty percent (80%) or more of the total
combined voting power of all classes of stock in one of the other corporations
in the chain or (2) to an employee, shareholder, or entity which is created for
the purpose of, or primarily dedicated to, holding of assets as a fringe benefit
or incentive for the employees of any Partner, provided that the transferee or
transferees of said interest execute appropriate documentation agreeing to
become Partners of this Partnership and agreeing to be bound by all the terms
and conditions contained herein, including the restrictions on transfer of
Partnership interests, and provided further that at the election of a majority
in interest of non-transferring Partners or at the request of the transferee of
said interest, this Partnership MAY be amended to provide that the interest so
transferred shall become a limited partnership interest.
4.02 RIGHT OF FIRST REFUSAL IN ALL OTHER INSTANCES. In all other
instances, except as set forth in paragraph 4.01 hereof, before any Partner may
pledge, transfer, assign, bequeath, give or sell his interest in the Partnership
or attempt to dissolve the Partnership, he shall first submit a written offer to
sell such interest, containing the price and terms, to the remaining Partners.
The remaining Partners shall have
<PAGE>
-18-
forty-five (45) days from the receipt of said offer to notify the transferor
Partner whether or not each Partner wishes to acquire his pro rata interest of
the offered Partnership share on the same terms and conditions as the written
offer. Should any Partner not wish to acquire his pro rata interest, the
remaining Partners shall be entitled to acquire, pro rata, the unsubscribed
portion. Unless one or more Partners agree to acquire the entire interest
offered, the Partner wishing to sell or transfer his interest shall be free to
do so for a period of forty-five (45) days to said non-Partner third party;
provided, however, that the sale or transfer must be on the same terms and
conditions as the offer to the remaining Partners and the transferee of said
interest agrees to become a signatory to this Partnership Agreement and be bound
by the terms and conditions hereof, including but not limited to, the
restrictions on transfer as set forth in this Article IV.
4.03 BANKRUPTCY, INSANITY OR CHARGING ORDER. The remaining Partners may,
by service of a written notice stating the effective date thereof on both the
Partner and on the trustee, receiver or debtor in possession in bankruptcy of
such Partner, or the judgment creditor of such Partner who has obtained a
charging order against his interest, terminate the interest in the Partnership
of any Partner:
<PAGE>
-19-
(a) Who shall have been adjudged a bankrupt pursuant to a petition in
bankruptcy filed by or against him under the Bankruptcy Act of the United
States.
(b) Who shall have filed or filed against him a petition under any chapter
of the Bankruptcy Act.
(c) Against whose interest in the Partnership an attachment has been
levied or a charging order issued and said attachment or charging order has not
been removed within thirty (30) days after it is issued.
In said event, the remaining Partners shall have the option to dissolve
this Partnership or to acquire pro rata the interest of the terminated Partner
in accordance with the provisions of paragraphs 4.06 and 4.07 hereof.
4.04 WITHDRAWAL OF A PARTNER. Any Partner may voluntarily withdraw from
the Partnership by giving all other Partners at least sixty (60) days' written
notice of his intention to do so. In said event, the remaining Partners shall
have the option to dissolve this Partnership or to acquire pro rata the interest
of the terminated Partner in accordance with the provisions of 4.06 and 4.07
hereof; provided, however, that a majority in interest of the remaining Partners
agree to said withdrawal.
<PAGE>
-20-
4.05 DEATH OF A PARTNER. The death of a Partner shall not terminate this
Partnership. The interest of the deceased Partner may be transferred pursuant
to paragraph 4.01 or acquired (as provided for a withdrawing Partner in
paragraph 4.04). In the event that the recipient of a deceased Partner's
interest does not elect to withdraw from the Partnership, then at the election
of a majority in interest of non-transferring Partners or at the request of the
transferee of said interest, this Partnership Agreement may be amended to
provide that the interest so transferred shall become a limited Partnership
interest.
4.06 ESTABLISHED VALUE. The value of a Partner's interest in the
Partnership for purposes of this Agreement ("Established Value") shall be based
on the value of the Partnership, which shall be determined as follows:
(a) Within ninety (90) days after the end of each fiscal year of the
Partnership, the Partners holding at least two-thirds (2/3) of the ownership
interest of the Partnership, after due consideration of all factors they deem
relevant, determine the Partnership's value by written agreement of the Partners
and that value shall remain in effect for the purposes of this Agreement from
the date of that written determination until the next such written
determination, and shall be binding
<PAGE>
-21-
upon each of the Partners, his heirs, successors, executors, administrators,
trustees and assigns, except as otherwise provided in paragraph (b) below. The
valuation shall be entered on Exhibit "B" and all Partners shall initial the
entry.
(b) The value determined in paragraph 4.06 shall be not less than the book
value of the Partnership equity nor in excess of the Partnership equity as
determined by substituting the market value of the real property in place of the
book value of the real property as reflected in the most current financial
statement of the Partnership.
(c) If the valuation established pursuant to subparagraphs (a) and (b)
above is more than two (2) years old at the time of an event requiring valuation
of a Partnership interest, the Partnership shall attempt to establish a current
valuation.
Should the Partners be unable to agree on an Established Value, the matter
shall be settled in accordance with the provisions of paragraph 5.12 hereof.
4.07 PURCHASE OF INTEREST. From the date of the notice as provided in
paragraphs 4.03 and 4.04 of this Article IV, or upon the death of a Partner, the
terminated, with
<PAGE>
-22-
drawing or deceased Partner shall be considered a vendor to the Partnership of
his interest in the Partnership at a price equal to his percentage ownership of
the Established Value, as determined pursuant to paragraph 4.06, minus fifteen
percent (15%). The fifteen percent (15%) discount utilized herein is agreeable
to all of the Partners as their reasonable estimate of the cost of borrowing
money, additional legal and accounting fees, and a margin of error in the
determination of the Established Value because of the forced sale nature of the
transaction, and is not construed and is not to be construed by the parties as a
penalty.
Within forty-five (45) days of the remaining Partners' election to purchase
the interest of a terminated, withdrawing or deceased Partner's interest, each
Partner shall deliver to the terminated or withdrawing Partner, or the estate of
a deceased Partner his pro rata portion of the purchase price as follows:
(a) Twenty-five percent (25%) in cash; and
(b) The balance of the purchase price shall be represented by a promissory
note providing for equal monthly installments of principal and interest
(interest at seven and one-half percent (7.5%) simple) over a period of five (5)
years.
<PAGE>
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4.08 ASSUMPTION OF PARTNERSHIP OBLIGATIONS. On any purchase and
liquidation of a Partnership interest being made as provided in this Article,
transferee of said interest shall assume the transferor's interest in the
Partnership obligations and shall protect and indemnify the withdrawing or
terminated Partner, the personal representative and estate of a deceased
Partner, and the property of any such withdrawing, deceased or terminated
Partner from liability for any such obligations.
4.09 PUBLICATION OF NOTICE. On any purchase and liquidation of a
Partnership interest being made as provided in this Article, the remaining
Partners shall, at their own costs and expenses, as soon as reasonably
practicable after giving notice of the termination of interest in the
Partnership or of exercise of their option to purchase such interest, cause to
be prepared, published, filed and served all such notices as may be required by
law to protect the withdrawing, or terminated Partner and the personal
representative and estate of a deceased Partner from liability for future
obligations of the Partnership business.
4.10 DISSOLUTION WITH OR WITHOUT SALE. On dissolution of the Partnership
other than as provided in this Article IV, the affairs of the Partnership shall
be wound up, the assets liquidated, the debts paid, and the remaining funds
<PAGE>
-24-
used (1) to repay each Partner for the amount then standing in this capital
account; and (2) the balance, if any, shall be divided among the Partners in
accordance with their respective percentages of ownership.
ARTICLE V.
MISCELLANEOUS.
5.01 NOTICES. Any and all notices between the parties hereto provided for
or permitted under these Articles or by law shall be in writing and shall be
deemed duly served when personally delivered to a Partner, or in lieu of such
personal services, when deposited in the United States mail, certified, postage
prepaid, addressed to such Partner at the address of the principal place of
business of the Partnership.
5.02 CONSENTS AND AGREEMENTS. Any and all consents and agreements
provided for or permitted by these Articles shall be in writing and a signed
copy thereof shall be filed and kept with the books of the Partnership.
5.03 ATTORNEY'S FEES. Should any litigation be commenced between the
parties hereto or their personal representatives concerning any provision of
these Articles or the rights and duties of any person in relation thereto, the
party or parties prevailing in such litigation shall be
<PAGE>
-25-
entitled, in addition to such other relief as may be granted, to a reasonable
sum as and for their or his attorney's fees in such litigation which shall be
determined by the court in such litigation or in a separate action brought for
that purpose.
5.04 AMENDMENTS. This Agreement may be amended only by the vote or
written consent of the Partners holding not less than sixty-five percent (65%)
in interest of the Partnership.
5.05 CAPTIONS AND PRONOUNS. Any titles or captions of paragraphs
contained in this Agreement are for convenience only and shall not be deemed a
part of the context of this Agreement. All pronouns and any variations thereof
shall be deemed to refer to the masculine, feminine, neuter, singular or plural
as identification of the person or persons, firm or firms, corporation or
corporations may require.
5.06 BINDING EFFECT. Except as otherwise herein provided, this Agreement
shall be binding upon and inure to the benefit of the parties hereto, their
heirs, executors, administrators, successors and all persons hereafter having an
interest in the Partnership, whether as assignees, admitted Partners or
otherwise.
5.07 ENTIRE AGREEMENT. This Agreement contains the entire understanding
between the parties and supersedes any
<PAGE>
-26-
prior understandings or agreements between them respecting the within subject
matter. There are no representations, agreements, arrangements or understanding
of prior date, oral or written, between or among the parties hereto relating to
the subject matter of this Agreement which are not fully expressed herein. This
Agreement shall be governed by and construed in accordance with the laws of the
State of California.
5.08 NEW PARTNERS. The Partnership shall not dissolve when new Partners
are admitted. New Partners can be admitted by amendment to this Agreement.
5.09 TAX ELECTION. In the event of the death of any Partner or of the
death of a spouse of any Partner at a time when the Partnership shall not have
already made the election provided in Section 743 of the Internal Revenue Code
of 1954 to adjust the basis of the Partnership property, the estate of such
deceased Partner or such surviving spouse, as the case may be, shall be entitled
to determine whether the Partnership shall make such election and the remaining
Partners shall abide by such determination.
5.10 TIME. Time is of the essence for the performance of each term,
covenant and condition contained in this Agreement.
<PAGE>
-27-
5.11 EXECUTION. Any executed copy of this Agreement shall be deemed an
original for all purposes.
5.12 DISPUTES. In the event that the Partners cannot reach agreement on
any of the matters relating to the provisions of this Agreement, such dispute
shall be submitted to arbitration in accordance with the then prevailing rules
of the American Arbitration Association. The costs of such arbitration shall be
borne one-half (1/2) by the Partnership and one-half (1/2) by the Partner or
Partners adverse to the Partners holding a majority of the ownership interest in
the Partnership.
LARSE CORPORATION
a California corporation
Percentage Interest
----------------
By
---------------------------------
By
---------------------------------
VANDERSON CONSTRUCTION
a California corporation
Percentage Interest
By
---------------------------------
By
---------------------------------
<PAGE>
-28-
Percentage Interest
----------------
-----------------------------------
DONN H. BYRNE
Percentage Interest
----------------
-----------------------------------
JOHN D. BRADY
Percentage Interest
----------------
-----------------------------------
THOMAS J. CUNNINGHAM, JR.
Percentage Interest
----------------
-----------------------------------
Percentage Interest
----------------
-----------------------------------
<PAGE>
PROPERTY DESCRIPTION
[Map]
<PAGE>
ESTABLISHED VALUE
The total value of the partnership is agreed to be as follows:
1. Date_______________________ Larse Corporation_______________________
Valuation__________________ Vanderson Construction__________________
Donn H. Byrne___________________________
John D. Brady___________________________
Thomas J. Cunningham, Jr._______________
________________________________________
________________________________________
2. Date_______________________ Larse Corporation_______________________
Valuation__________________ Vanderson Construction__________________
Donn H. Byrne___________________________
John D. Brady___________________________
Thomas J. Cunningham, Jr._______________
________________________________________
________________________________________
3. Date_______________________ Larse Corporation_______________________
Valuation__________________ Vanderson Construction__________________
Donn H. Byrne___________________________
John D. Brady___________________________
Thomas J. Cunningham, Jr._______________
________________________________________
________________________________________
4. Date_______________________ Larse Corporation_______________________
Valuation__________________ Vanderson Construction__________________
Donn H. Byrne___________________________
John D. Brady___________________________
Thomas J. Cunningham, Jr._______________
________________________________________
________________________________________
5. Date_______________________ Larse Corporation_______________________
Valuation__________________ Vanderson Construction__________________
Donn H. Byrne___________________________
John D. Brady___________________________
Thomas J. Cunningham, Jr._______________
________________________________________
________________________________________
6. Date_______________________ Larse Corporation_______________________
Valuation__________________ Vanderson Construction__________________
Donn H. Byrne___________________________
John D. Brady___________________________
Thomas J. Cunningham, Jr._______________
________________________________________
________________________________________
<PAGE>
-2-
7. Date_______________________ Larse Corporation_______________________
Valuation__________________ Vanderson Construction__________________
Donn H. Byrne___________________________
John D. Brady___________________________
Thomas J. Cunningham, Jr._______________
________________________________________
________________________________________
<PAGE>
ADMINISTRATIVE SERVICES AGREEMENT
THIS AGREEMENT, entered into as of the day of , 1996,
by and between Axel Johnson Inc., a Delaware corporation, with its principal
place of business at 300 Atlantic Street, Stamford, Connecticut 06901-3530,
("AJI") and Larscom Incorporated, a Delaware corporation, with its principal
place of business at 4600 Patrick Henry, Santa Clara, California 95054,
("Larscom"), (AJI and Larscom are at times referred to herein individually as
"Party" and collectively as "Parties");
Subject to the terms, conditions, covenants and provisions of this
Agreement, AJI and Larscom mutually covenant and agree as follows:
ARTICLE 1.
SERVICES PROVIDED
1.01 ADMINISTRATIVE AND SUPPORT SERVICES. During the term of this
Agreement upon the terms and subject to the conditions set forth in this
Agreement, AJI will provide to Larscom each of those administrative and support
services listed in Exhibit A, which is attached to and made part of this
Agreement, (hereinafter referred to individually as a "Support Service", and
collectively as the "Support Services").
<PAGE>
-2-
1.02 PERSONNEL. (a) In providing the Support Services, AJI, as it
deems necessary or appropriate in its discretion, may (i) use such personnel of
AJI or its affiliates, and (ii) utilize the services of third parties to the
extent such third party services are routinely utilized to provide similar
services to other AJI businesses or are reasonably necessary for the efficient
performance of any of such Support Services; provided, however, that if Larscom
is not satisfied with the quality or level of such Support Services, Larscom may
notify AJI and the Parties shall promptly attempt to resolve Larscom's concerns
in good faith.
(b) Larscom agrees that it will cooperate with AJI in the provision
of the Support Services.
1.03 LEVEL OF SUPPORT SERVICES. (a) AJI shall perform the Support
Services exercising the same degree of care as it exercises in performing the
same or similar services for its own account, with priority equal to that
provided to its own other affiliates, subsidiaries or divisions. Nothing in
this Agreement shall require AJI to favor Larscom's business over the businesses
of any of its other affiliates, subsidiaries nor divisions.
(b) Unless otherwise specifically set forth in Exhibit A or by AJI's
prior written consent, it is the
<PAGE>
-3-
intention of the Parties that Larscom's use of any Support Service that Larscom
elects to use shall not be higher than the level of use required by Larscom's
business prior to the Effective Date. In no event shall Larscom be entitled to
any new service of AJI without the prior written consent of AJI, which consent
may be withheld by AJI for any or no reason in its sole and absolute discretion.
In no event shall Larscom be entitled to increase its use of any of the Support
Services above the level of use specified in this Agreement without the prior
written consent of AJI (which consent shall not be unreasonably withheld, taking
into consideration the availability of AJI personnel and Larscom's needs).
(c) AJI shall not be required to provide Larscom Support Services
other than those defined and described in this Agreement, special studies,
support of new systems design and implementations, training, or the like, or the
advantage of systems, equipment, facilities, training or improvements procured,
obtained or made after the Effective Date by AJI unless, upon request by
Larscom, AJI elects to provide such service.
(d) In addition to being subject to the terms and conditions of this
Agreement for the provision of the Support Services, Larscom agrees that the
Support Services provided by
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third parties shall be subject to the terms and conditions of any agreements
between AJI and such third parties; provided, however, that at Larscom's
request, AJI will permit Larscom an opportunity to review any such third party
agreements to the extent that AJI is permitted to do so without a breach of its
confidentiality obligations to such third parties.
(e) With respect to any Support Service involving an AJI employee
benefit plan, AJI and Larscom agree that, in the event of a conflict between the
terms of this Agreement and the relevant plan document, the latter shall
prevail.
1.04 LIMITATION OF LIABILITY AND WARRANTY. (a) In the absence of
gross negligence or reckless or willful misconduct on AJI's part, and whether or
not it is negligent, AJI shall not be liable for any claims, liabilities,
damages, losses, costs, expenses (including, but not limited to, settlements,
judgments, court costs and reasonable attorneys' fees), fines and penalties,
arising out of any actual or alleged injury, loss or damage of any nature
whatsoever in providing or failing to provide the Support Services to Larscom.
In no event shall AJI be liable for any damages caused by Larscom's
failure to perform Larscom's responsibilities hereunder. Except as set forth in
Paragraph 5.01, AJI
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will not be liable to Larscom for (i) any act or omission of any other entity
(other than due to a default by AJI in any agreement between AJI and such other
entity furnishing any Support Service), or (ii) lost, altered or destroyed data
in providing any Support Service or (iii) for any interruption of any Support
Services relating to computer or telecommunications services. Notwithstanding
anything to the contrary herein, in the event AJI commits an error with respect
to or incorrectly performs or fails to perform any Support Service, at Larscom's
request, AJI shall use the same level of performance as set forth in Section
1.03 hereof, to correct such error, or re-perform or perform such Support
Service; provided, that AJI shall have no obligation to recreate any lost or
destroyed data to the extent the same cannot be cured by the re-performance of
the Support Service in question. If Larscom suffers any loss or damage arising
out of this Agreement which was caused by the gross negligence or reckless or
willful misconduct of AJI, AJI's sole liability to Larscom shall be to properly
and timely perform the Support Service(s) in question at no additional cost to
Larscom and to pay Larscom for any and all losses or damages suffered by
Larscom.
(b) NOTWITHSTANDING ANYTHING TO THE CONTRARY CONTAINED HEREIN OR AT
LAW OR IN EQUITY, IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR PUNITIVE,
SPECIAL, INDIRECT,
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INCIDENTAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION, DAMAGES FOR
LOSS OF BUSINESS PROFITS, BUSINESS INTERRUPTION OR ANY OTHER LOSS) ARISING FROM
OR RELATING TO ANY CLAIM MADE UNDER THIS AGREEMENT OR REGARDING THE PROVISION OF
OR THE FAILURE TO PROVIDE THE SUPPORT SERVICES, EVEN IF THE OTHER PARTY HAS BEEN
ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.
1.05 NO OBLIGATION TO CONTINUE TO USE SERVICES. Larscom shall have no
obligation to continue to use any or all of the Support Services or any subset
thereof, that AJI is providing to Larscom by giving AJI at least forty-five (45)
days advance written notice of its desire to eliminate any or all Support
Services; provided, that Larscom may not discontinue use of any Support Service
relating to an AJI employee benefit plan unless the AJI Board of Directors has
agreed to such discontinuation.
1.06 AJI ACCESS. To the extent reasonably required for AJI personnel
to perform the Support Services, Larscom shall provide AJI personnel with
reasonable access to its employees, books and records, equipment, office space,
plants, telecommunications and computer equipment and systems, and any other
areas and equipment.
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ARTICLE 2.
COMPENSATION
2.01 CONSIDERATION AJI. (a) As consideration for the Support
Services, Larscom shall pay to AJI the price specified for each Support Service
as set forth in Exhibit A. If Larscom uses some, but not all, subsets of a
Support Service, the price for such Support Service shall be reduced in
proportion to the reduction of Larscom's usage of such Support Service. On the
first anniversary of the Effective Date, as hereinafter defined, such prices
shall increase three percent (3%). Consideration for any higher level of, or
new, Support Service which AJI consents to provide pursuant to Paragraph 1.03(b)
or (c) shall be mutually agreed by Larscom and AJI.
(b) In addition to the payment described in subparagraph (a) above,
Larscom shall reimburse to AJI an amount equal to the sum of (i) all of the out-
of-pocket payments, if any, incurred by AJI to obtain consents from such third
parties to permit AJI to provide any Support Service to Larscom hereunder, plus
(ii) any out-of-pocket payment by AJI on behalf of Larscom.
2.02 TAXES. Any taxes (other than income taxes) assessed on the
provision of the Support Services shall be paid by Larscom.
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2.03 INVOICES. Unless otherwise provided in Exhibit A, AJI will
submit to Larscom monthly invoices describing (a) all Support Services provided
to Larscom, and (b) those out-of-pocket payments described in Paragraph 2.01(b)
incurred during such month. Such monthly invoices will usually be issued by the
fifteenth day of the month following the month in which services are provided.
Each invoice shall include a summary list of the previously agreed upon Support
Service for which there are fixed dollar fees, together with documentation
supporting each of the invoiced amounts that are not covered by the fixed fee
agreements. The total of this list and supporting detail will equal the invoice
total, and will be provided with the invoice. All invoices shall be sent to
Larscom at the following address or to such other address as Larscom shall have
specified by notice in writing to Larscom:
Larscom Incorporated
4600 Patrick Henry Drive
Santa Clara, California 95054
Attention: Vice President, Finance
2.04 PAYMENT OF INVOICES. (a) Payment of all invoices submitted shall
be made, at AJI's discretion, by check payable to AJI or by electronic funds
transmission in U.S. Dollars, without any offset or deduction of any nature
whatsoever, except if Larscom gives notice to AJI that is has a reasonable basis
for a dispute regarding a fee charged or
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service provided hereunder, within thirty (30) days of the invoice date. All
payments shall be made to the account set forth in written instructions by AJI
from time to time.
(b) Upon receipt of a notice of a dispute as provided in paragraph
2.04(a), the Parties shall use reasonable efforts to resolve such dispute. So
long as both Parties are negotiating the dispute in good faith, this Agreement
will continue in full force and effect but either Party may terminate the
service affected in the event the other Party ceases negotiating the dispute in
good faith. Otherwise, if any payment is not paid when due, AJI shall have the
right, without any liability to Larscom, or anyone claiming by or through
Larscom, upon ten (10) days written notice to cease providing the Support
Service(s) for which payment has not been made, which right may be exercised by
AJI in its sole and absolute discretion, until it receives such payment;
provided, that this right shall not affect AJI's ability to terminate this
Agreement as hereinafter set forth; and provided further, that with respect to a
Support Service involving an AJI employee benefit plan, this right shall be
subject to the terms of the plan document. Further, any payment that is not
paid when due shall be subject to interest at the rate of fifteen percent (15%)
per annum unless waived in writing by an officer of AJI. The foregoing remedies
of AJI shall be in addition to,
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and not in lieu of, any and all remedies available at equity and in law.
ARTICLE 3.
CONFIDENTIALITY
3.01 (i)OBLIGATION. (a) In addition to any obligations of
confidentiality pursuant to other agreements between the Parties, without the
prior written consent of the other Party, (i) any confidential information
received by it from the other Party during the provision of the Support
Services, including, without limitation, information which is not related to the
Support Services; provided such information is marked confidential, or if
provided orally, such information is reduced to writing and marked as
confidential within thirty (30) days of disclosure; and (ii) the specific terms,
conditions and information contained in this Agreement and any attachment
hereto.
(b) Each party agrees that it shall use the confidential information
received by it from the other Party only in connection with the provision or
receipt of the Support Services, and for no other purpose whatsoever.
(c) For the purposes of this Agreement, confidential information
shall not include information:
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(i) which is or becomes part of the public domain other than through
breach of this Agreement or through the fault of the receiving Party;
(ii) which is or becomes available to the receiving Party from a
source other than the disclosing Party, which source has, to the knowledge
of the receiving Party, no obligation of confidentiality to the disclosing
Party in respect thereof;
(iii) which is required to be disclosed by law or governmental
order;
(iv) the disclosure of which is mutually agreed to by the Parties;
(v) which has been independently developed by the other Party without
reference to the confidential information; or
(vi) which was known to the receiving Party prior to receipt of the
confidential information, as shown by its prior written records (which for
AJI were not records of Larscom's business prior to the date hereof).
3.02 EFFECTIVENESS. The foregoing obligations of confidentiality
shall be in effect during the term of this Agreement and any extensions thereof
and for a period of five (5) years after the termination or expiration of this
Agreement.
3.03 CARE AND INADVERTENT DISCLOSURE. With respect to any
confidential information, each Party agrees as follows:
(a) it shall use the same degree of care in safeguarding said
information as it uses to safeguard its own information which must be held in
confidence; and
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(b) upon the discovery of any disclosure or unauthorized use of said
information, or upon obtaining notice of such a disclosure or use from the other
Party, it shall take all necessary actions to prevent any further disclosure or
unauthorized use, and, subject to the provisions of Paragraph 1.04, such other
Party shall be entitled to pursue any other remedy which may be available to it.
ARTICLE 4.
TERM AND TERMINATION
4.01 TERM. This Agreement shall become effective on the Closing Date
of the initial public offering of the Class A Common Stock of Larscom
("Effective Date") and shall remain in force until the earliest occurrence of
the following events: (a) a date twenty-four (24) months after the Closing Date
(the "Time Period") or (b) until AJI's voting control of Larscom falls below
fifty (50%); PROVIDED, HOWEVER, that if such reduction of AJI's voting control
results from AJI's sale, transfer or other disposition of Class B Common Stock
held by AJI, then this Agreement shall remain in full force and effect for the
90 day period immediately following the occurrence of such event or (c) all of
the Support Services are eliminated by Larscom in accordance with Paragraph 1.05
above, at which time this Agreement shall automatically terminate upon the
payment of all amounts then due or (d) this Agreement is earlier terminated
under Paragraph 4.03 or 6.11 hereof.
4.02 EXTENSION. In the event that this Agreement is not terminated
pursuant to clauses (b), (c) and (d) of the first sentence of Paragraph 4.01,
Larscom may extend the Time Period for an additional twelve (12) months by
giving AJI at least forty-five (45) days
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prior written notice prior to the end of the Time Period.
4.03 DEFAULTS. (a) If either Party (hereafter called the "Defaulting
Party") shall fail to perform or default in the performance of any of its
obligations under this Agreement (other than as described in subparagraph (b)
below), the other Party (hereinafter called the "Non-Defaulting Party") may give
written notice to the Defaulting Party specifying the nature of such failure or
default and stating that the Non-Defaulting Party intends to terminate this
Agreement if such failure or default is not cured within forty-five (45) days of
such written notice. If any failure or default so specified is not cured within
such forty-five (45) day period, the Non-Defaulting Party may elect to
immediately terminate this Agreement. Such termination shall be effective upon
giving a written notice of termination from the Non-Defaulting Party to the
Defaulting Party and shall be without prejudice to any other remedy which may be
available to the Non-Defaulting Party against the Defaulting Party.
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(b) Either Party may immediately terminate this Agreement by a
written notice to the other without any prior notice upon the occurrence of any
of the following events:
(i) the other Party enters into proceedings in bankruptcy or
insolvency;
(ii) the other Party shall make an assignment for benefit of
creditors;
(iii) a petition shall be filed against the other Party under a
bankruptcy law, a corporate reorganization law, or any other law for relief
of debtors (or similar law in purpose or effect); or
(iv) the other Party enters into liquidation or dissolution
proceedings.
4.04 LARSCOM'S ADMINISTRATIVE AND SUPPORT SERVICES. (a) Larscom
acknowledges that AJI is providing the Support Services as an accommodation to
Larscom to allow Larscom a transitional period of time to obtain its own
administrative and support services. During the term of this Agreement, Larscom
agrees that it shall take all steps necessary to obtain its own administrative
and support services prior to the expiration of the Time Period.
(b) Larscom specifically agrees and acknowledges that AJI's
obligations to provide the Support Services shall immediately cease upon the
termination of this Agreement, unless extended in accordance with Section 4.02.
Upon the cessation of AJI's obligation to provide any Support Service,
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Larscom shall immediately cease using, directly or indirectly, such Support
Service (including, without limitation, any and all AJI software or third party
software provided through AJI, telecommunications services or equipment, or
computer systems or equipment).
(c) AJI SHALL HAVE NO LIABILITY OF ANY KIND OR NATURE WHATSOEVER
(INCLUDING, WITHOUT LIMITATION, INDIRECT, CONSEQUENTIAL, SPECIAL SUPPORT,
INCIDENTAL OR PUNITIVE DAMAGES) TO LARSCOM, OR TO ANYONE CLAIMING BY OR THROUGH
LARSCOM, FOR AJI'S CEASING TO PROVIDE ANY SUPPORT SERVICE UPON THE EXPIRATION OF
THE TIME PERIOD (AND ANY EXTENSION THEREOF IN ACCORDANCE WITH SECTION 4.02) FOR
SUCH SUPPORT SERVICE OR THE TERMINATION OF THIS AGREEMENT. LARSCOM SHALL HOLD
AJI HARMLESS AND WAIVES ANY AND ALL RIGHTS, AT LAW OR IN EQUITY, THAT IT MAY
HAVE TO BRING ANY SUIT, INCLUDING, BUT NOT LIMITED TO, INJUNCTIVE RELIEF, OR TO
ANY CLAIMS, DAMAGES, LOSSES, COSTS (INCLUDING ATTORNEY FEES), ACTIONS, OR
LIABILITY AGAINST AJI OR ITS OFFICERS, DIRECTORS, EMPLOYEES, AGENTS, ASSIGNEES,
SUBSIDIARIES OR AFFILIATES ARISING OUT OF AJI'S CEASING TO PROVIDE ANY SUPPORT
SERVICE UPON THE EXPIRATION OF THE TIME PERIOD (AND ANY EXTENSION THEREOF IN
ACCORDANCE WITH SECTION 4.02) OR THE TERMINATION OF THIS AGREEMENT IN ACCORDANCE
WITH ITS TERMS.
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4.05 SURVIVAL OF CERTAIN OBLIGATIONS. The following obligations shall
survive the termination of this Agreement: (a) the obligations of each Party
under Articles 1.03(e), 3, 4 and 5, and (b) AJI's right to receive the
compensation for the Support Services provided, and reimbursement of the
payments described in Paragraph 2.01 above incurred, prior to the effective date
of termination.
ARTICLE 5.
INDEMNITIES
5.01 INDEMNITY BY AJI. Subject to the limitations set forth in
Paragraph 1.04 above, AJI shall indemnify, defend and hold Larscom harmless
against any and all claims, liabilities, damages, losses, costs, expenses
(including, but not limited to settlements, judgments, court costs and
reasonable attorneys' fees), fines and penalties arising out of any actual
injury, loss or damages of any nature whatsoever (including, without limitation,
loss of or damage to property, or damage to the environment) due or relating to
the provision of or failure to provide the Support Services, if and only if such
amounts are a direct result of the gross negligence or reckless or willful
misconduct of the personnel of AJI or its affiliates and/or any third parties
utilized by AJI to provide the Support Services to Larscom.
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5.02 INDEMNITY BY LARSCOM. Larscom shall indemnify, defend and hold
AJI harmless against any and all claims, liabilities, damages, losses, costs,
expenses (including, but not limited to, settlements, judgments, court costs and
reasonable attorneys' fees), fines and penalties arising out of any actual
injury, loss or damage of any nature whatsoever (including, without limitation,
loss of or damage to property, or damage to the environment) due or relating to
receiving or using the Support Services, if and only if such amounts are the
direct result of the gross negligence or reckless or willful misconduct of the
personnel of Larscom and/or any contract personnel or third parties whom Larscom
has assigned to assist AJI in providing the Support Services to Larscom.
5.03 TERM OF INDEMNITY. The indemnities contained in this Article
shall survive for a period of five (5) years after the termination of this
Agreement.
ARTICLE 6.
MISCELLANEOUS
6.01 AMENDMENTS. This Agreement shall not be amended or modified
except in a writing signed by the Parties.
6.02 SUCCESSORS AND ASSIGNMENT. This Agreement shall be binding upon
and inure to the benefit of the Parties hereto and their respective successors
and permitted assigns.
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No Party shall assign this Agreement or any rights herein without the prior
written consent of the other Party, which consent may not be unreasonably
withheld.
6.03 MERGER. All understandings, representations, warranties and
agreements, if any, heretofore existing between the Parties regarding the
Support Services are merged into this Agreement, including Exhibit A attached
hereto, which fully and completely express the agreement of the Parties with
respect to the subject matter hereof. The Parties have entered into this
Agreement after adequate investigation with neither Party relying upon any
statement or representation not contained in this Agreement, or Exhibit A.
6.04 NOTICES. All notices, consents, requests, approvals, and other
communications provided for or required herein, and all legal process in regard
thereto, must be in writing and shall be deemed validly given, made or served,
(a) when delivered personally or sent by telecopy to the facsimile number
indicated below with a required confirmation copy sent in accordance with
subparagraph (c) below; or (b) on the next business day after delivery to a
nationally recognized express delivery service with instructions and payment for
overnight delivery; or (c) on the third day after deposited in any depository
regularly maintained by the United States Postal
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service, postage prepaid, certified or registered mail, return receipt
requested, addressed to the following address or to such other address as the
Party to be notified shall have specified to the other Party in accordance with
this paragraph:
If to AJI:
Axel Johnson Inc.
300 Atlantic Street
Stamford, Connecticut 06901-3552
Attention: Senior Vice President
and Chief Financial Officer
Facsimile: (203) 326-5282
If to Larscom:
Larscom Incorporated
4600 Patrick Henry Drive
Santa Clara, California 95054
Attention: Vice President Finance
Facsimile: (408) 986-8336
6.05 GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
6.06 HEADINGS. The various headings used in this Agreement are for
convenience only and are not to be used in interpreting the text of the Articles
or Paragraphs in which they appear or to which they relate.
6.07 SEVERABILITY. Wherever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law. If
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any portion of this Agreement is declared invalid or unenforceable for any
reason in any jurisdiction, such declaration shall have no effect upon the
remaining portions of this Agreement or on the validity or enforceability of the
offending portion in any other situation or in any other jurisdiction.
6.08 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, and all of which shall
constitute one and the same instrument.
6.09 RIGHTS OF THE PARTIES. Nothing expressed or implied in this
Agreement is intended or will be construed to confer upon or give any person or
entity, other than the Parities and their respective subsidiaries and
affiliates, any rights or remedies under or by reason of this Agreement or any
transaction contemplated hereby.
6.10 RESERVATION OF RIGHTS. Either Party's waiver of any of its
remedies afforded hereunder or at law is without prejudice and shall not operate
to waive any other remedies which that Party shall have available to it, nor
shall such waiver operate to waive the Party's rights to any remedies due to a
future breach, whether of a similar or different nature.
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6.11 FORCE MAJEURE. Any failure or omission by a Party in the
performance of any obligation under this Agreement shall not be deemed a breach
of this Agreement or create any liability, if the same arises from any cause or
causes beyond the control of such Party, including, but not limited to, the
following, which, for purposes of this Agreement shall be regarded as beyond the
control of each of the Parties hereto: acts of God, fire, storm, flood,
earthquake, governmental regulation or direction, acts of the public enemy, war,
rebellion, insurrection, riot, invasion, strike or lockout; provided, however,
that such Party shall promptly resume the performance whenever such causes are
removed. Notwithstanding the foregoing, if such Party cannot perform under this
Agreement for a period of forty-five (45) days due to such cause or causes,
either Party may immediately terminate this Agreement by providing written
notice to the other Party.
6.12 RELATIONSHIP OF THE PARTIES. It is expressly understood and
agreed that in rendering the Support Services hereunder, AJI is acting as an
independent contractor and that this Agreement does not constitute either Party
as an employee, agent or other representative of the other Party for any purpose
whatsoever. Except as set forth herein, neither Party has the right or
authority to enter into any contract, warranty, guarantee or other undertaking
in the name or for the
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account of the other Party, or to assume or create any obligation or liability
of any kind, express or implied, on behalf of the other Party, or to bind the
other Party in any manner whatsoever, or to hold itself out as having any right,
power or authority to create any such obligation or liability on behalf of the
other or to bind the other Party in any manner whatsoever (except as to any
actions by either Party at the express written request and direction of the
other Party).
6.13 WAIVER OF JURY TRIAL AND CONSENT TO JURISDICTION. EACH PARTY
HEREBY (a) WAIVES ANY AND ALL RIGHTS IT MAY HAVE TO A JURY TRIAL IN CONNECTION
WITH ANY MATTER OR RIGHT ARISING UNDER THIS AGREEMENT OR RELATING TO THE SUPPORT
SERVICES, (b) CONSENTS TO THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL
COURT WITHIN THE STATE OF NEW YORK AND IRREVOCABLY AGREES THAT ALL ACTIONS OR
PROCEEDINGS ARISING UNDER OR RELATING TO THIS AGREEMENT OR THE SUPPORT SERVICES
SHALL BE LITIGATED IN ANY SUCH COURT, AND (c) WAIVES ANY OBJECTION WHICH IT MAY
HAVE BASED UPON IMPROPER VENUE OR FORUM NON CONVENIENS TO THE CONDUCT OF ANY
PROCEEDINGS IN ANY SUCH COURT.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Administrative
Services Agreement to be executed the day and year first above written.
AXEL JOHNSON INC.
By:
---------------------------------------
Name:
Title:
LARSCOM INCORPORATED
By:
-------------------------------------
Name:
Title:
<PAGE>
Exhibit A-(1)
SERVICE AGREEMENT
TAX SUPPORT
DESCRIPTION OF SERVICE:
1. TAX COMPLIANCE. Manage and coordinate the preparation of Larscom's
income and franchise tax including:
* Separate company Federal Form 1120 and all accompanying forms and
schedules.
* 14 state income and franchise tax returns.
* Maintenance and utilization of tax compliance software to facilitate
preparation of company tax returns.
2. TAX ACCOUNTING. Determine tax accounts and footnotes for financial
statement purposes including:
* Computation of federal state and current and deferred tax provisions
and tax reserves.
* Preparation of financial statement footnotes.
* Presentation of above to outside auditors for review and sign off.
3. TAX AUDITS. Manage and coordinate all federal and state income and
franchise tax audits with regard to:
* Strategy, issues, exposure, presentation, documentation.
* Written responses, protests, appeals.
* State questionnaires.
Advise, as needed, on sales and use tax audits as well as other miscellaneous
tax audits. Represent Larscom before federal, state and local tax authorities.
5. TAX RESEARCH AND PLANNING. Identify tax planning opportunities,
research tax issues and implement strategies with regard to:
* Tax credits, restructuring, state nexus, etc.
* Tax legislation/rulings.
PRICE OF SERVICE: $95,000 per annum
<PAGE>
Exhibit A-(2)
SERVICE AGREEMENT
ACCOUNTING SUPPORT
DESCRIPTION OF SERVICE:
1. Review monthly, quarterly and annual financial results for proper
classification and recording of transactions.
2. Assist Larscom in satisfying financial reporting requirements of a
public company.
3. Provide analyses and/or evaluations of material transactions,
including without limitation acquisitions, divestitures and capital
appropriations.
4. Obtain car rental contract on favorable terms.
PRICE OF SERVICE: $60,000 per annum
<PAGE>
Exhibit A-(3)
SERVICE AGREEMENT
INTERNAL AUDIT SUPPORT
DESCRIPTION OF SERVICE:
1. Planning and performing operational audits of Larscom consisting of
rotation audit cycles focused on revenues, expenditures or production.
2. Preparation of audit reports, including recommendations, for
presentation to the managements of Larscom and Axel Johnson Inc., the Audit
Committees of the Boards of Directors of Larscom and AJI, and outside auditors.
3. Provide assistance with respect to due diligence for mergers,
acquisitions and divestitures.
PRICE OF SERVICE: $52,000 per annum.
<PAGE>
Exhibit A-(4)
SERVICE AGREEMENT
TREASURY SERVICES
DESCRIPTION OF SERVICE:
1. FINANCING. Study and recommend capital structure; identify and
evaluate alternative financing vehicles; identify and evaluate vendors from whom
to obtain financing; negotiate financing contracts; administer financing
contracts; negotiate amendments, etc. as needed; consult on various financing
issues.
2. CASH MANAGEMENT. Design and implement cash management system;
concentrate all collected cash and fund disbursements daily; consult on cash
management matters.
3. INSURANCE. Define risks to be insured; obtain insurance coverages.
4. CREDIT AND COLLECTION MANAGEMENT. Advise on proper procedure; monitor
compliance with corporate policy. Purchase and administer Dun and Bradstreet
contract of credit information.
5. COMPANY CARS. Negotiate company car leases.
6. GENERAL. Advise on various matters, such as foreign exchange.
PRICE OF SERVICE: $105,000 per annum
<PAGE>
Exhibit A-(5)
SERVICE AGREEMENT
HUMAN RESOURCES SERVICES
DESCRIPTION OF SERVICE:
1. Management of Qualified Plans - Retirement (RP) and Thrift (TP) and
Health & Welfare Plans (H&W) - Medical, Dental, Vision, Flex, Life and Long-Term
Disability, including:
* Process and correspond with retirees and deferred vesteds (RP).
* Process new entrants, loans, withdrawals, terminations (TP).
* Process monthly contribution and loan data (TP).
* Assist in data collection (RP).
* Determine FAS 87 cost and contribution requirement (RP).
* Perform non-discrimination testing (TP).
* Develop investment education programs for employees (TP).
* With Administrative Committee, review Plan fund choices, asset
performance and allocation (RP/TP).
* Assist with open enrollment (H&W).
* Process monthly contributions and confirm enrollment with carriers
(H&W).
* Determine annual premium payments (H&W).
* Provide ongoing analysis of claims experience and health care reserves
(H&W).
* Review and update contract with administrators (H&W).
* Prepare information for financials and Summary Annual Reports.
* File forms with government - 5500, PBGC and related forms.
* Prepare and update Plan text and file for determination letter as
necessary.
* Interpret Plan provisions, resolve problems.
* Prepare Summary Plan Descriptions and develop communications as
necessary.
* Interface with consultants, legal counsel, trustees, etc.
* Provide forms, programs, processes and direction for local benefit
advising.
* Design plan as necessary to meet Company and employee needs.
<PAGE>
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2. Surveys
* Develop and implement employees survey as appropriate, generally on a
biannual basis consistent with rest of AJI.
* Provide recommendations and analysis of result in context of entire
Company and databank.
3. Compensation
* Provide consulting/staff support as requested in areas of executive
and telecommunications salary and incentive programs.
* Provide guidelines for annual merit budget.
4. Training and Development
* Development of AJI executive education programs for executives at
which selected executives may participate.
* Provide lending library of training tapes of training materials.
* Organize AJI HR conference as appropriate for all AJI companies,
including Larscom.
5. HRIS
* Provide and maintain First Resource system.
6. Employee Relations
* Develop HR policy for all AJI, including Larscom.
* Troubleshoot and consult in all human resources areas.
PRICE OF SERVICE: $205,000 per annum
NOTE: Currently, Larscom will continue to participate in and be covered by
AJI's benefit and pension plans as appropriate. Larscom agrees to reimburse AJI
for the cost of the benefits received by Larscom's employees.
<PAGE>
Exhibit A-(7)
SERVICE AGREEMENT
LEGAL SERVICES
DESCRIPTION OF SERVICE:
1. Provide legal counsel with respect to the full range of commercial
legal matters, including without limitation contract drafting, negotiation and
interpretation; employment law; environmental law; Uniform Commercial Code;
antitrust; mergers and acquisitions; and claims and dispute resolution.
2. Perform corporate recordkeeping and support.
3. Retain and manage outside counsel with expertise in litigation
intellectual property, securities law and environmental law.
PRICE OF SERVICE: $105,000 per annum
<PAGE>
CREDIT AGREEMENT
AGREEMENT as of October , 1996 by and between Axel Johnson Inc., a
Delaware corporation ("Axel Johnson"), and Larscom Incorporated, a Delaware
corporation ("Larscom").
WITNESS
WHEREAS, Larscom needs, from time to time, monies for general
corporate needs, including, but not limited to, possible acquisitions and
expansions; and
WHEREAS, Axel Johnson desires to make available such monies to Larscom
as Larscom may, from time to time, request.
NOW, THEREFORE, in consideration of the mutual covenants herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto agree as follows:
1. EXPENSES. Larscom agrees to pay any and all expenses incurred by
Axel Johnson as a result of this Agreement which are directly attributable to
Larscom.
2. THE LOANS. Subject to and upon the terms and conditions herein
set forth, Axel Johnson agrees to loan on a revolving basis (the "Loan" or
"Loans") to Larscom, at any time and from time to time, such sums as Larscom may
request, in multiples
<PAGE>
-2-
of One Hundred Thousand Dollars ($100,000) and not to exceed at any time
outstanding the aggregate principal sum of Fifteen Million Dollars ($15,000,000)
(the "Aggregate Amount"). Subject to the terms hereof, Loans may be repaid and
reborrowed hereunder from time to time. All Loan requests shall be in writing.
3. THE NOTE. All Loans made by Axel Johnson shall be evidenced by a
promissory note (the "Note") dated the date of the first borrowing hereunder,
which date shall be no earlier than five (5) business days after receipt by Axel
Johnson of a Loan request, duly executed by Larscom and payable to Axel Johnson,
substantially in the form of Exhibit A annexed hereto with blanks appropriately
completed in conformity herewith. The date and amount of each Loan made by Axel
Johnson and of each repayment of principal thereof received by Axel Johnson,
shall be recorded by Axel Johnson on the schedule attached to the Note, and the
aggregate unpaid principal amount shown on such schedule shall be conclusive
evidence absent demonstrable error of the principal amount owing and unpaid on
such Note. The failure to record any such amount on such schedule shall not,
however, limit or otherwise affect the obligations of Larscom hereunder or under
the Note to repay the principal amount of the Loans together with all interest
accruing thereon or any other amount owing hereunder. Each Loan shall be due
and payable upon
<PAGE>
-3-
(i) the last day of the Term, as defined in Section 14, or (ii) such earlier
date as the Loans may be accelerated pursuant to Section 10.
4. FEES AND INTEREST. The loans shall bear interest during each
calendar quarter at a rate per annum equal to the sum of (a) the three-month
London Interbank Offered Rate ("LIBOR"), as quoted in the "Money Rates" section
of the Wall Street Journal initially on the date when the initial Loan is made,
and adjusted thereafter on the first business day of each calendar quarter, plus
(b) two percent (2%). Further, in consideration of making funds available to
Larscom, Larscom shall pay to Axel Johnson, on each August 31, November 30,
February 28 and May 31 during the Term, and upon termination of this Agreement,
a commitment fee equal to one-half of one percent (0.5%) per annum on the
average daily unused portion of the Aggregate Amount during the preceding
quarter or portion thereof. The commitment fee shall be computed on the basis
of the actual number of days elapsed in a year of 360 days. In the event Axel
Johnson shall be required to pay a higher commitment fee for its own line of
credit, then such fees charged to Larscom shall increase identically. Axel
Johnson shall provide Larscom prior written notice of such increase. Interest
accrued with respect to each Loan shall be payable on the last day of each
calendar quarter commencing with the first such date to occur after the date
<PAGE>
-4-
of such Loan, upon any prepayment (to the extent accrued thereon), at maturity
and after maturity on demand.
5. REPRESENTATIONS AND WARRANTIES OF LARSCOM. In order to induce
Axel Johnson to enter into this Agreement and to make the Loans to Larscom,
Larscom hereby represents and warrants to Axel Johnson as of the date of this
Agreement and thereafter on the Effective Date and each date as required by
Section 6 that the following statements are true, correct and complete:
(a) ORGANIZATION; CORPORATE POWERS. Larscom (i) is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and (ii) has all requisite corporate power
and authority to conduct its business as presently conducted.
(b) AUTHORITY. Larscom has the requisite corporate power and
authority to execute, deliver and perform this Agreement, the Note and each
Loan. The execution, delivery and performance, as the case may be, of each
of this Agreement, the Note and each Loan has been duly approved by
Larscom's Board of Directors, in accordance with its Articles of
Incorporation and Bylaws, and such approvals have not been rescinded,
revoked or modified in any manner. This Agreement is, and the Note, when
executed and delivered, will be legal,
<PAGE>
-5-
valid and binding obligations of Larscom, in accordance with their terms.
(c) NO CONFLICT. The execution, delivery and performance of
each of this Agreement, does not, and the Note when executed and delivered
will not, (i) conflict with the Articles of Incorporation or Bylaws of
Larscom, or (ii) conflict with, result in a breach of or constitute (with
or without notice or lapse of time or both) a default under any contract
binding upon Larscom, which conflict, breach or default would have a
material adverse effect on the operations or financial condition of
Larscom.
(d) FINANCIAL POSITION. No material adverse change in the
financial condition or the results of operations of Larscom has occurred
since December 31, 1995.
(e) LITIGATION; ADVERSE EFFECTS. There is no action, suit,
audit, proceeding, investigation or arbitration pending or, to the
knowledge of Larscom, threatened against Larscom that has had or is
reasonably likely to have a material adverse effect on the operations or
financial condition of Larscom.
6. CONDITIONS OF BORROWING. The obligation of Axel Johnson to make
any Loan requested to be made by it is subject to
<PAGE>
-6-
the following conditions precedent as of the date on which such Loan is to be
made:
(a) REPRESENTATIONS AND WARRANTIES. As of such date, both
immediately before and after giving effect to the Loan to be made, all of
the representations and warranties of Larscom contained in Section 5 shall
be true and correct on and as of such date.
(b) NO DEFAULT. No Event of Default shall have occurred and be
continuing or would result from the making of the requested Loan.
Each submission by Larscom to Axel Johnson of a loan request, and each
acceptance by Larscom of the proceeds of each Loan made, shall constitute a
representation and warranty by Larscom as of the funding date of such Loan that
all the conditions contained in this Section 6 have been satisfied.
7. VOLUNTARY PREPAYMENTS. Larscom shall have the right at any time
and from time to time to prepay any or all of the then outstanding Loans in
whole or in part without premium or penalty. Any partial payment shall be
allocated first to interest and the balance, if any, to principal. Larscom
shall, upon at least four (4) business days' prior written notice, have the
right, at any time and from time to time during the Term, to terminate in whole
<PAGE>
-7-
or permanently reduce in part the Aggregate Amount; provided, that such
termination or reduction shall have been approved by Larscom's Board of
Directors; and provided further, that Larscom shall have made whatever payments
may be required to reduce the aggregate amount of the Loans outstanding to an
amount equal to or less than the Aggregate Amount as reduced or terminated. Any
notice of termination or reduction given under this Section 7 shall specify the
date (which shall be a business day) of such termination or reduction and, with
respect to a partial reduction, the aggregate principal amount thereof.
8. PURPOSE. The proceeds of all Loans made hereunder shall be used
by Larscom for its general corporate purposes, which may include (without
limiting the generality of the permitted uses) expansions and acquisitions.
9. AFFIRMATIVE COVENANTS. Larscom covenants and agrees that, so
long as this Agreement shall remain in effect or the principal of or interest on
any Loan, any fees or any other expenses or amounts payable under this Agreement
shall be unpaid, unless Axel Johnson shall otherwise consent in writing,
Larscom will, and will cause each of its subsidiaries to:
(a) Do or cause to be done all things necessary to preserve, renew
and keep in full force and effect its legal existence.
<PAGE>
-8-
(b) Do or cause to be done all things necessary to obtain, preserve,
renew, extend and keep in full force and effect the rights, licenses,
permits, franchises, authorizations, patents, copyrights, trademarks and
trade names material to the conduct of its business; maintain and operate
such business in substantially the manner in which it is presently
conducted and operated; comply in all material respects with all applicable
laws, rules, regulations and orders of any federal, state or local court or
governmental agency, authority, instrumentality or regulatory body
("Governmental Authority") whether now in effect or hereafter enacted; and
at all times maintain and preserve all property material to the conduct of
such business and keep such property in good repair, working order and
condition and from time to time make, or cause to be made, all needful and
proper repairs, renewals, additions, improvements and replacements thereto
necessary in order that the business carried on in connection therewith may
be properly conducted at all times.
(c) Keep its insurable properties adequately insured at all times by
financially sound and reputable insurers; maintain such other insurance, to
such extent and against such risks, including fire and other risks insured
against by extended coverage, as is customary with companies in the same or
similar businesses, including public liability insurance
<PAGE>
-9-
against claims for personal injury or death or property damage
occurring upon, in, about or in connection with the use of any properties
owned, occupied or controlled by it; and maintain such other insurance as
may be required by law.
(d) Pay all its indebtedness and other obligations promptly and in
accordance with their terms and pay and discharge promptly when due all
taxes, assessments and governmental charges or levies imposed upon it or
upon its income or profits or in respect of its property, before the same
shall become delinquent or in default, as well as all lawful and valid
claims for labor, materials and supplies or otherwise which, if unpaid,
might give rise to a lien upon such properties or any part thereof;
PROVIDED, HOWEVER, that such payment and discharge shall not be required
with respect to any such tax, assessment, charge, levy or claim so long as
the validity or amount thereof shall be contested in good faith by
appropriate proceedings and Larscom shall have set aside on its books
adequate reserves with respect thereto.
(e) Furnish to Axel Johnson:
(i) within 90 days after the end of each fiscal year, its
audited consolidated balance sheets and related statements of income
and cash flow, showing the financial condition of Larscom and its
consolidated
<PAGE>
-10-
subsidiaries as of the close of such fiscal year and the results of
its operations and the operations of such subsidiaries during such
year, all audited by Price Waterhouse LLP or other independent public
accountants of recognized national standing acceptable to Axel Johnson
and accompanied by an opinion of such accountants (which shall not be
qualified in any material respect) to the effect that such
consolidated financial statements fairly present the financial
condition and results of operations of Larscom on a consolidated basis
in accordance with generally accepted accounting principles ("GAAP")
consistently applied;
(ii) within 45 days after the end of each of the first three
fiscal quarters of each fiscal year, its unaudited consolidated
balance sheets and related statements of income and cash flow,
showing the financial condition of Larscom and its consolidated
subsidiaries as of the close of such fiscal quarter and the results of
its operations and the operations of such subsidiaries during such
fiscal quarter and the then-elapsed portion of the fiscal year, all
certified by its chief financial officer as fairly presenting the
financial condition and results of operations of Larscom on a
consolidated basis
<PAGE>
-11-
in accordance with GAAP consistently applied, subject to normal
year-end audit adjustments;
(iii) concurrently with any delivery of financial statements
under (i) or (ii) above, a certificate of the accounting firm or chief
financial officer opining on or certifying to such statements (which
certificate, when furnished by an accounting firm, may be limited to
accounting matters and disclaim responsibility for legal
interpretations) certifying that no Event of Default (as hereinafter
defined) has occurred or, if such an Event of Default has occurred,
specifying the nature and extent thereof and any corrective action
taken or proposed to be taken with respect thereto;
(iv) promptly after the same become publicly available, copies of
all periodic and other reports, proxy statements and other materials
filed by it with the Securities and Exchange Commission, or with any
Governmental Authority succeeding to any or all the functions of said
Commission, or with any national securities exchange, or distributed
to its shareholders, as the case may be; and
(v) promptly, from time to time, such other information
regarding the operations, business affairs
<PAGE>
-12-
and financial condition of Larscom or any of its subsidiaries, or
compliance with the terms of any agreement or loan document, as Axel
Johnson may reasonably request.
(f) Furnish to Axel Johnson prompt written notice of the following:
(i) any Event of Default specifying the nature and extent
thereof and the corrective action (if any) proposed to be taken with
respect thereto;
(ii) the filing or commencement of, or any threat or notice of
intention of any person to file or commence, any action, suit or
proceeding, whether at law or in equity or by or before any
Governmental Authority, against Larscom or any subsidiary thereof
which, if adversely determined, could result in a material adverse
effect to Larscom; and
(iii) any development that has resulted in, or could
reasonably be anticipated to result in, a material adverse effect to
Larscom.
(g) Comply in all material respects with the applicable provisions of
the Employee Retirement Income Security Act of 1974, as amended ("ERISA")
and furnish to Axel Johnson (i) as
<PAGE>
-13-
soon as possible, and in any event within 30 days after any officer of
Larscom or any ERISA Affiliate either knows or has reason to know that any
reportable event (as defined by ERISA) has occurred that alone or together
with any other reportable event could reasonably be expected to result in
liability of Larscom to the Pension Benefit Guaranty Corporation ("PBGC")
in an aggregate amount exceeding $1,000,000, a statement of a Larscom
officer setting forth details as to such reportable event and the action
proposed to be taken with respect thereto, together with a copy of the
notice, if any, of such reportable event given to the PBGC, (ii) promptly
after receipt thereof, a copy of any notice Larscom or any ERISA Affiliate
may receive from the PBGC relating to the intention of the PBGC to
terminate any ERISA plan or plans (other than a plan maintained by an
ERISA Affiliate which is considered an ERISA Affiliate only pursuant to
subsection (m) or (o) of Section 414 of the Internal Revenue Code) or to
appoint a trustee to administer any ERISA plan or plans, (iii) within 10
days after the due date for filing with the PBGC pursuant to Section 412(n)
of the Internal Revenue Code of a notice of failure to make a required
installment or other payment with respect to an ERISA plan, a statement of
a Larscom officer setting forth details as to such failure and the action
proposed to be taken with respect thereto, together with a
<PAGE>
-14-
copy of such notice given to the PBGC, and (iv) promptly and in any event
within 30 days after receipt thereof by Larscom or any ERISA Affiliate from
the sponsor of a Multiemployer Plan, a copy of each notice received by
Larscom or any ERISA Affiliate concerning (A) the imposition of Withdrawal
Liability in excess of $100,000 or (B) a determination that a Multiemployer
Plan is, or is expected to be, terminated or in reorganization, in each
case within the meaning of Title IV of ERISA. All capitalized terms not
defined in this subsection shall have the same meaning as may be contained
in ERISA.
(h) Maintain all financial records in accordance with GAAP
consistently applied and permit Axel Johnson to visit and inspect the
financial records and the properties of Larscom or any subsidiary at
reasonable times as often as requested and to make extracts from and copies
of such financial records, and permit Axel Johnson to discuss the affairs,
finances and condition of Larscom or any subsidiary with the officers
thereof and independent accountants therefor.
(i) Use the proceeds of the Loans for the purposes set forth in
Section 8 of this Agreement.
(j) If an Event of Default, as defined in Section 10 of this
Agreement, shall, in the opinion of Axel Johnson, occur
<PAGE>
-15-
and be continuing, within 5 days of demand by Axel Johnson, furnish such
collateral as Axel Johnson shall require to secure the prompt payment and
performance of Larscom or any of its subsidiaries under this Agreement.
10. EVENTS OF DEFAULT. Any of the following shall be an Event of
Default of Larscom on a Loan or Note:
(a) The default by Larscom in the due and punctual payment of any
principal or interest payment on a Note, if it continues unremedied for 5
business days.
(b) Larscom becomes insolvent or admits in writing its inability to
pay its debts as they mature; or applies for, consents to, or acquiesces
in the appointment of a trustee or receiver for any of its properties; or
in the absence of an application, consent or acquiescence, a trustee or
receiver is appointed for Larscom or for a substantial portion of its
property and is not discharged within 30 days; or any bankruptcy,
reorganization, debt arrangement or other proceeding under any bankruptcy
or insolvency law, or any liquidation or dissolution proceeding, is
instituted by or against Larscom and remains for 30 days undismissed or is
consented or acquiesced to by Larscom.
<PAGE>
-16-
(c) Any warranty, certification or opinion made herein or made in
connection with any Note is untrue in any material respect, or Larscom
fails to materially perform or carry out any covenant made herein or made
in connection with any Note.
(d) There is a material adverse change in Larscom's financial
condition from its financial condition on the date of a Note.
(e) Larscom sells all or substantially all of its assets.
If any Event of Default shall occur and be continuing, Axel Johnson,
upon notice to Larscom, may terminate the Note (if it has not theretofore been
terminated), cease making Loans hereunder, and/or declare, in whole, or from
time to time, in part, the principal of and interest on the Loans and all other
amounts owing hereunder to be, and the Loans and such other amounts shall
thereupon and to that extent become, due and payable.
11. MANDATORY PREPAYMENTS. If Axel Johnson owns less than the
majority of the outstanding voting stock of Larscom or less than a majority of
the directors of Larscom are persons who were nominated by Axel Johnson for
election to the Board of Directors of Larscom, Axel Johnson, upon not less than
90 days prior written notice, may cease making
<PAGE>
-17-
Loans hereunder, and/or require, in whole, or from time to time, in part, the
principal of and interest on the Loans and all other amounts hereunder to be
prepaid without premium or penalty.
12. GOVERNING LAW. This Agreement and the rights and obligations of
the parties hereunder and under the Notes shall be construed in accordance with,
and be governed by, the law of the State of New York without regard to
principles of conflicts of law.
13. NOTICES. All notices required or permitted by this Agreement
shall be by certified or registered mail, return receipt requested, or by next
day delivery service, addressed as follows or to such other address as a party
may designate in writing:
If to Larscom: Larscom Incorporated
6500 Patrick Henry Drive
Santa Clara, CA 95054
Attn: Vice President-Finance/
Chief Financial Officer
If to Axel Johnson: Axel Johnson Inc.
300 Atlantic Street
Stamford, CT 06901-3530
Attn: Treasurer
14. ASSIGNMENT; TERM. This Agreement shall be binding upon the
successors and assigns of the parties hereto. However, this Agreement may not
be assigned by either party, whether in whole or in part, without the prior
written consent of the other party.
<PAGE>
-18-
The term of this Agreement (the "Term") commences on the Closing Date
of the initial public offering of common shares of Larscom (the "Effective
Date") and terminates on the second anniversary of the Effective Date.
Notwithstanding the foregoing, all provisions of this Agreement which relate to,
are connected with, or apply to, a Loan or the Note shall survive such
termination.
<PAGE>
-19-
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their respective duly authorized officers as
of the date first above written.
LARSCOM INCORPORATED
By:
--------------------------------------
AXEL JOHNSON INC.
By:
--------------------------------------
<PAGE>
-20-
EXHIBIT A
NOTE
$____________________________ ___________, 1996
The undersigned, for value received, promises to pay to the order of
Axel Johnson Inc. on or before the expiration of the Term, as defined in the
Credit Agreement referred to below, the principal sum of ______________ Dollars
or, if less, the aggregate unpaid principal amount of all Loans made by the
payee to the undersigned pursuant to the Credit Agreement (as hereinafter
defined) as shown on Schedule A attached hereto (and any continuation thereof),
together, from time to time, with interest on the unpaid principal amount hereof
from time to time outstanding as provided in Section 4 of the Credit Agreement
hereinafter referred to (but in no event higher than the maximum rate permitted
by applicable law).
Payments of both principal and interest are to be made by Fed Wire
transfer of immediately available funds of the United States of America to:
Chase Manhattan Bank, N.A.
New York, New York
Account No. 910-2-602175
ABA Number 021000021
In favor of Axel Johnson Inc.
This Note evidences indebtedness incurred under, and is subject to the
terms and provisions of, a Credit Agreement dated as of September __, 1996,
(and, all further amendments thereto, if any) between the undersigned and the
payee to which Credit Agreement reference is made for a statement of said terms
and provisions, including those under which this Note may be paid, or may be
declared to be due and payable, prior to its due date.
This Note is made under and governed by the internal laws of the State
of New York.
LARSCOM INCORPORATED
By:
---------------------------------------
Title:
------------------------------------
<PAGE>
SCHEDULE A
Amount Amount of Principal Amount of
of Loan Principal Balance Applicable Interest
Made Prepaid Remaining Rate of Paid This Notation
Date This Date This Date Unpaid Interest Date Made By
- ---- --------- --------- --------- ---------- --------- ---------
<PAGE>
TAX SHARING AGREEMENT
THIS TAX SHARING AGREEMENT is entered into as of
___________, 1996 by and between AXEL JOHNSON INC., a Delaware corporation
("PARENT") and LARSCOM INCORPORATED, a Delaware corporation ("LARSCOM").
WHEREAS, the Parent owns not less than 80 percent of the equity and
voting interests of Larscom;
WHEREAS, Parent and Larscom are members of an affiliated group of
corporations (within the meaning of Section 1504(a) of the Code) of which Parent
is the common parent;
WHEREAS, Parent and Larscom desire, to the extent permitted by the
Code and the regulations promulgated thereunder, to be included in the filing of
consolidated Federal income tax returns on behalf of the Parent Group;
WHEREAS, Parent and Larscom acknowledges that such consolidated return
may be included in the consolidated Federal income tax return on behalf of Lexa
International Corporation, the parent of the Parent Group (the "Lexa Return");
and
WHEREAS, Parent and Larscom desire to participate, to the extent
permitted by applicable state or local law, in
<PAGE>
-2-
combined, consolidated or unitary state and local income tax returns if so
requested by Parent.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein, the parties agree as follows:
1. DEFINITIONS
1.1. For purposes of this Agreement, the terms set forth below shall be
defined as follows:
1.1.1 "CODE" shall mean the Internal Revenue Code of 1986, as amended
from time to time (including any successor statute).
1.1.2 "CONSOLIDATED U.S. TAX LIABILITY" shall mean all taxes shown on
the Federal Return as filed (including any amended return), or as revised by
administrative or judicial determination or redetermination. For purposes of
this definition, "taxes" shall mean all corporate income taxes imposed by the
Code on the Parent Group (including minimum or alternative minimum taxes), as
reduced by all offsets and credits allowed by the Code.
1.1.3 "FEDERAL RETURN" shall mean the part of the Lexa Return that is
the consolidated corporation income tax
<PAGE>
-3-
return filed on behalf of the Parent Group pursuant to Section 1501 of the Code.
1.1.4 "PARENT GROUP" shall mean Parent and all corporations (whether
now existing or hereafter formed or acquired) that have consented or are
required to join with Parent (or any successor common parent corporation) in
filing the Federal Return or any state or local combined, consolidated or
unitary tax return.
1.1.5 "SUBSIDIARY" shall mean each corporation other than Parent that
is at any time includible in the Parent Group for such period of time as it is
includible in the Parent Group. Larscom is a Subsidiary.
1.1.6 "TAXES PAYABLE" shall, with respect to a Subsidiary, mean (i)
the federal income tax liability of such Subsidiary and (ii) the state or local
income or franchise tax liability of any Subsidiary payable in connection with
any combined, consolidated or unitary tax return, in both cases as determined
under paragraph 4 of this Agreement.
1.2. Other terms used in this Agreement shall have the meanings ascribed to
them in the Code, and the regulations and rulings issued thereunder, as from
time to time in effect. Except as otherwise provided herein, this Agreement
shall be
<PAGE>
-4-
interpreted in accordance with the Code and the regulations and rulings issued
thereunder then in effect.
2. EFFECTIVE DATE AND OTHER AGREEMENTS
2.1. EFFECTIVE DATE. Except as otherwise provided in this Agreement, this
Agreement is applicable for all taxable periods ending after the date hereof.
2.2. PRIOR AGREEMENTS. This Agreement shall supersede all prior agreements
and understandings, if any, concerning tax sharing between Parent and Larscom.
3. MATTERS CONCERNING THE FEDERAL RETURN
3.1. AGREEMENT TO FILE THE FEDERAL RETURN. Unless this Agreement is
terminated as provided in paragraph 8 hereof, Larscom agrees to join with Parent
in filing the Federal Return for each taxable year for which it is eligible to
do so under the Code.
3.2. FILING THE FEDERAL RETURN. Parent shall file, or cause to be filed,
the Federal Return, and any amended returns, for each taxable year in accordance
with the Code and regulations promulgated thereunder.
3.3. PAYMENT OF TAXES. For each taxable period, Parent shall timely pay or
discharge, or cause to be timely paid or
<PAGE>
-5-
discharged, the Consolidated U.S. Tax Liability for such taxable period and any
estimated taxes due with respect to such taxable period.
3.4. DECISIONS AND ACTIONS INCIDENTAL TO FILING THE FEDERAL RETURN.
Larscom irrevocably appoints Parent to be its sole and exclusive agent and
attorney-in-fact to the maximum extent permitted under the Code, duly authorized
to act on its behalf in all matters relating to the Federal Return (including
any refunds thereunder) for each taxable year, and agrees that Parent shall in
its sole discretion make any and all decisions and take any and all actions
(including the execution of documents) incidental to preparing and filing the
Federal Return for each taxable year, including, but not limited to, the right
(a) to determine (i) the manner in which the Federal Return shall be prepared
and filed, including, without limitation, the manner in which any item of
income, gain, loss, deduction or credit shall be reported and whether any
amended returns shall be filed, (ii) whether any filing extensions may be
requested and (iii) the elections that will be made by any member of the Parent
Group; (b) to contest, compromise or settle any adjustment or deficiency
proposed, asserted or assessed as a result of any audit of the Federal Return;
(c) to file, prosecute, compromise or settle any claim for refund; and (d) to
determine whether any refunds to which the Parent Group
<PAGE>
-6-
may be entitled shall be paid by way of refund or credited against the tax
liability for the Parent Group.
Larscom further agrees to (a) furnish to Parent in a timely manner any
and all information and documents requested by Parent in order to carry out the
provisions of this Agreement (including for purposes of preparing the Federal
Return); (b) cooperate with Parent in executing and filing any return,
statement, election, or consent provided for in the Code, and the regulations
and rulings issued thereunder; (c) take such action as Parent may request,
including, but not limited to, the filing of requests for extension of time
within which to file tax returns; and (d) cooperate in connection with any
refund claim, audit, administrative, judicial or other proceeding.
Notwithstanding the foregoing, Federal Returns and State Returns filed
on behalf of Larscom shall be subject to Larscom's prior review and acceptance.
3.5. CERTAIN EXPENSES. Larscom shall reimburse Parent for its pro rata
share of all legal and accounting expenses incurred by Parent in the course of
the conduct of any audit or contest regarding the Consolidated U.S. Tax
Liability, and for all expenses incurred by Parent in the course of any
litigation relating thereto. With respect to each such expense, the pro
<PAGE>
-7-
rata share of Larscom shall be determined by Parent in its sole discretion based
on Larscom's share of the tax liability giving rise to such expense.
With respect to any audit or contest regarding any other tax liability
of Larscom and any litigation relating thereto, Larscom shall reimburse Parent
for all legal, accounting and other expenses incurred by Parent.
4. TAX CALCULATION
4.1. TAX SHARING. Taxes Payable for Larscom under this Agreement shall be
determined as if Larscom had filed a separate return on a stand-alone basis for
each taxable year (or part thereof) during which Larscom was a member of the
Parent Group, and assuming that any excess net operating losses, capital losses,
investment tax credits, general business credits, foreign tax credits and other
income offsets or tax credits available for such taxable year can be carried
forward or carried back.
4.2. SUBSIDIARY TAXES PAYABLE. Larscom shall pay to Parent the amount of
the estimated Taxes Payable for any taxable year as determined in accordance
with paragraph 4.1 hereof by March 31 of the following year. If the amount of
the estimated Taxes Payable is negative due to Larscom's losses or
<PAGE>
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other tax benefits, the Parent shall pay to Subsidiary such amount, pursuant to
paragraph 4.6 hereof; provided, that such losses or other tax benefits can be
used by Larscom on a stand-alone basis. If the amount of any estimated Taxes
Payable which are paid by Larscom to Parent for any taxable year are greater or
less than the Taxes Payable of Larscom for such taxable year as recomputed under
paragraph 4.5, Parent shall credit such excess (without interest) to, or deduct
such deficiency (without interest) from, as the case may be, Larscom's Taxes
Payable for the next taxable year.
4.3. CHANGES IN TAXES PAYABLE. The amount of Taxes Payable described in
this Section 4 shall be recomputed whenever necessary to reflect adjustments
from, among other things, (a) a revision, adjustment or redetermination arising
from any administrative or judicial determination; (b) the filing of an amended
return; (c) the filing of a claim for refund; or (d) the carryback of any unused
net operating loss, capital loss, investment tax credit, general business
credit, foreign tax credit or other income offset or tax credit that becomes
available for such taxable year. The changes to Taxes Payable (including any
interest and penalties attributable thereto) so recomputed shall be credited
(without interest) to, or deducted (without interest) from, as the case may be,
Larscom's Taxes Payable for the next taxable year.
<PAGE>
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4.4. STATE INCOME TAXES. In the event Larscom is included in a combined,
consolidated or unitary state or local income or franchise tax return (a "State
Return") with Parent or any other subsidiary in the Parent Group (the "Filing
Corporation"), (a) Parent or the Filing Corporation shall file, or cause to be
filed, such returns or reports, pay, or cause to be paid, the taxes, and make
decisions and take actions incidental to the filing of any such returns on a
jurisdiction-by-jurisdiction basis in a manner consistent with the approach
provided with respect to the Federal Return by this Agreement, and (b)
principles analogous to those set forth herein for the payment of Consolidated
U.S. Tax Liability and refunds thereof, and for determination of Larscom's Taxes
Payable, shall be used to determine its respective share of such taxes.
4.5. COMPUTATION OF TAXES. Computations of estimated Taxes Payable as
described in paragraphs 4.2 and 4.4 above shall be made quarterly by Parent.
When the Federal Return and the state returns for each year have been filed by,
or on behalf of, Parent (or, with respect to state returns, other applicable
Filing Corporation), Parent shall recompute the Taxes Payable based on the tax
returns as filed.
<PAGE>
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4.6. TAX PAYMENTS
4.6.1 Any payment required to be made under this Agreement by Larscom
to Parent shall be made first by reducing the amount of any account payable of
Parent to Larscom created under subparagraph 4.6.2 hereof.
4.6.2 Any payment required to be made hereunder by Parent to Larscom
shall be made in accordance with paragraph 4.2, 4.3 or 4.4 by entering or
increasing an account payable of Parent to Larscom on the books of account of
Parent.
4.6.3 Any account payable created under this paragraph from Parent to
Larscom shall be due on such date as Larscom ceases to be a member of the Parent
Group.
5. ADJUDICATIONS
In any audit, conference, or other proceeding with the Internal
Revenue Service or the relevant state or local taxing authorities, or in any
judicial proceeding concerning the determination of the Federal income tax
liabilities of the Parent Group (or a Subsidiary) or the state or local tax
liability of any combined, consolidated or unitary group including Parent (or a
Subsidiary), Parent or the applicable Subsidiary shall be represented by persons
selected by Parent. The settlement of any issues relating to such proceeding
shall
<PAGE>
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be in the sole discretion of Parent, and Larscom hereby appoints Parent as its
agent for the purpose of proposing and concluding any such settlement.
6. EFFECT OF THIS AGREEMENT
This Agreement shall determine the liability of Parent and Larscom to
each other as to the matters provided for herein, whether or not such
determination is effective for purposes of the Code or state or local revenue
laws (and regardless of the actual method for allocating federal income tax
liabilities for purposes of calculating earnings and profits specified in
Treasury Regulations Sections 1.1552-1(a) and 1.1502-33(d)(2) elected, or deemed
elected, by the Parent Group), financial reporting purposes or other purposes.
7. COUNTERPARTS
This Agreement may be executed in counterparts, each of which shall be
deemed to be an original, but all of which together shall constitute one and the
same instrument.
8. TERMINATION
8.1. This Agreement shall continue in effect unless and until Larscom
ceases to be a member of the Parent Group.
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8.2. If Larscom ceases to be a member of the Parent Group, this Agreement
shall cease to apply to any income, loss, deductions or credits of Larscom after
it ceases to be a member of the Parent Group.
8.3. The termination of this Agreement as hereinabove provided shall not
affect the rights or obligations of either party arising hereunder with respect
to pre-termination taxable years, or any transaction entered into prior to the
effective date of such termination, including, but not limited to, any right or
obligation recorded in an intercompany account, or as a loan between the
parties.
9. WAIVER
Except as specifically provided elsewhere in this Agreement, Parent
and Larscom hereby waive (a) any failure or delay on the part of the other in
asserting or enforcing any right it may have at any time under this Agreement
and (b) any notice of presentment, demand for payment, notice of nonpayment or
default, protest and notice of protest and all other notices to which it might
be entitled by law in connection with any obligation of one party to the other.
<PAGE>
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10. NEW GROUP MEMBERS
If, at any time while a member of the Parent Group, Larscom acquires
or creates one or more subsidiary corporations that are, under Section 1504 of
the Code, includible corporations of the Parent Group, such subsidiary
corporations shall be subject to this Agreement, and shall promptly deliver an
appropriate instrument evidencing the amendment of this Agreement to include
any such corporation as a signatory hereto. Larscom hereby designates and
appoints Parent as its agent and attorney-in-fact to amend this Agreement to
that effect.
11. RESOLUTION OF DISPUTES
Any dispute or ambiguity concerning the amount of any payment provided
for under this Agreement shall be resolved, in a manner consistent with the
principles and procedures set forth in this Agreement, by an internationally
recognized accounting firm (a so-called "Big-Six" accounting firm) or law firm
jointly selected by the parties hereto. The judgment of such firm shall be
conclusive and binding upon each of the parties to this Agreement. The firm's
fees and expenses shall be paid by the party whose position does not prevail in
such dispute.
<PAGE>
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12. MISCELLANEOUS
12.1. SUCCESSORS. This Agreement shall be binding upon, and shall inure to
the benefit of, the parties hereto and their respective successors and assigns.
12.2. GOVERNING LAW. This Agreement and all rights and obligations
hereunder shall be governed by and construed and enforced in accordance with
the laws of the State of New York without regard to principles of conflicts of
laws.
12.3. AMENDMENT. This Agreement may not be amended or supplemented except
by an instrument in writing signed by the parties.
12.4. HEADINGS. All headings herein are for convenience of reference only
and shall be disregarded in the interpretation hereof.
<PAGE>
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IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed on this day of , 1996.
AXEL JOHNSON INC.
By:
---------------------------------------
Title:
------------------------------------
LARSCOM INCORPORATED
By:
---------------------------------------
Title:
------------------------------------
<PAGE>
PROMISSORY NOTE
$25,000,000 Santa Clara, California
August 23, 1996
FOR VALUE RECEIVED, LARSCOM INCORPORATED, a Delaware corporation with
a principal place of business at 4600 Patrick Henry Drive, Santa Clara,
California 95054-1817 (the "Borrower"), promises to pay to Axel Johnson Inc.
(the "Company"), by FedWire transfer of immediately available funds to the
account hereinafter designated, the principal sum of Twenty-five Million Dollars
($25,000,000), plus interest. Interest shall accrue on the principal balance
outstanding from time to time, from the date hereof until the whole of this Note
(including principal and interest) has been paid, at the rate of seven and
one-half percent (7.5%) per annum. Interest on this Note shall be computed on
the basis of a year of three hundred sixty-five (365) days and the actual number
of days elapsed.
This Note has been executed and delivered subject to the following
terms and conditions:
a. The principal of this Note constitutes the dividend declared and
payable by the Borrower to the Company, the sole shareholder of the Borrower,
pursuant to resolutions of even date herewith adopted by the Board of Directors
of the Borrower.
b. The principal shall be payable on the third anniversary of the
date of this Note, unless and until any of the following events shall occur:
(i) the equity of the Borrower equals Forty Million Dollars ($40,000,000), or
(ii) the Borrower sells all or substantially all of its assets, or (iii) less
than the majority of the Directors of the Borrower are persons who were
nominated by the Company for election to the Board of Directors of the
Borrower. In any such event, the whole of this Note, both principal and
accrued and unpaid interest, shall be immediately due and payable upon the
Company's demand.
Accrued interest shall be payable semiannually, on the last day of each
succeeding December and June until this Note shall be paid in full.
Notwithstanding the foregoing, whenever any payment on this Note shall be stated
to be due on a day that is not a business day in the States of New York and
California, such payment shall be made on the next succeeding business day and
such extension of time shall be included in the computation of the interest
payable on this Note. For the purpose of this Note, the term "business day"
shall mean any day other than a Saturday, a Sunday or any day which is a legal
holiday under the laws of the States of New York and California or is a day in
which banking institutions located in the States of New York and California are
authorized or are required by law or other governmental action to close.
Payments shall be made to the following account, unless otherwise designated in
writing by the
<PAGE>
Company to the Borrower:
Chase Manhattan Bank, N.A.
New York, New York
Account 910-2-602175
ABA Number 021000021
In favor of Axel Johnson Inc.
This Note shall be paid without claim of set-off, counterclaim or deductions of
any nature or for any cause whatsoever.
c. In the event that any principal is not paid when due, interest
shall thereafter accrue on the balance outstanding from time to time at the rate
of eleven percent (11%) per annum. If this Note or interest hereon is not paid
when due, or suit is brought, the Borrower, and each endorser, guarantor, and
any other person who is now or may hereafter become primarily or secondarily
liable for the payment of this Note or any portion thereof, agree to pay all
costs of collection, including reasonable attorneys' fees and disbursements,
incident to the enforcement, protection or preservation of any right or claim of
the Company under this Note, any guaranty of the debt hereunder or any security
interest which may hereafter secure the debt hereunder. In the event of any
bankruptcy or similar proceedings, costs of collection shall include all costs
and attorneys' fees incurred in connection with such proceedings, including the
fees of counsel for attendance at meetings of creditors or other committees.
d. This Note may be prepaid in whole or in part at any time and from
time to time without premium or penalty; provided, that any partial payment
shall be allocated first to interest and the balance, if any, to principal.
e. Borrower and each endorser, guarantor and any other person who is
now or may hereafter become primarily or secondarily liable for the payment of
this Note or any portion hereof, waives notice, presentment, notice of dishonor
and protest or demand in connection with the delivery, acceptance, performance,
default or enforcement of this Note.
f. Borrower acknowledges receipt of a copy of this Note.
g. This Note shall be governed by the laws of the State of New York.
LARSCOM INCORPORATED
By: /s/ Deborah M. Soon
--------------------------------
Its: President & CEO
-------------------------------
<PAGE>
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made and
entered into as of , 1996, by and between LARSCOM INCORPORATED, a
Delaware corporation (the "Company"), and AXEL JOHNSON INC., a Delaware
corporation ("AJI").
WHEREAS, this Agreement is made in connection with the registration
under the Securities Act for sale to the public by AJI of shares of Class A
Common Stock of the Company pursuant to a registration statement on Form S-1 and
any amendments thereto originally filed with the SEC on , 1996 (File
No. 333- ) (the "Initial Public Offering");
WHEREAS, prior to the Initial Public Offering, AJI owned 100% of the
issued and outstanding shares of Common Stock of the Company and upon
consummation of the Initial Public Offering, assuming no exercise of the
Overallotment Option, AJI will own approximately % of the outstanding Common
Stock; and
WHEREAS, the Company and AJI desire to enter into this Agreement
pursuant to which AJI, or any Affiliate of AJI that may acquire shares of Common
Stock of the Company from AJI, has the right to cause the Company, upon request,
to register with the SEC an offering and sale of shares of Common Stock of the
Company owned by AJI or any such Affiliate, subject to the terms of this
Agreement.
NOW, THEREFORE, in consideration of the premises and the agreements
herein contained, the parties of this Agreement agree as follows:
1. DEFINITIONS
As used in this Agreement, the capitalized terms shall have the
meanings set forth in the prospectus for the Initial Public Offering, unless
otherwise expressly set forth herein.
ADVICE: See the last paragraph of Section 5 hereof.
AFFILIATE: Any Person controlling or controlled by or under direct or
indirect common control with AJI; PROVIDED, that in no event shall the Company
be treated as an Affiliate of AJI, nor shall any Person directly or indirectly
controlled by the Company (including, without
<PAGE>
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limitation, its officers, directors and employees) as a result of such Person's
relationship with the Company be treated as an Affiliate of AJI. For the
purposes of this definition, "control" means the power to direct the management
and policies of a Person, directly or indirectly, through the ownership of
securities, by contract or otherwise, and the terms "controlling" and
"controlled" have meanings correlative to the foregoing.
AGENT: Any Person authorized to act and who acts on behalf of AJI or
any Affiliate of AJI with respect to the transactions contemplated by the
Agreement.
COMMON STOCK: Shares of the Company's Class A Common Stock, par value
$.01 per share, and Class B Common Stock, par value $.01 which is convertible
into Class A Common Stock, as the same may be constituted from time to time.
COMPANY NOTICE: See Section 4 hereof.
DEMAND REGISTRATION: See Section 3(a) hereof.
EXCHANGE ACT: The Securities Exchange Act of 1934, as amended, and
the rules and regulations thereunder, as in effect from time to time.
INITIAL PUBLIC OFFERING: See Recitals.
OVERALLOTMENT OPTION: The option granted to the underwriters of the
Initial Public Offering by AJI and Larscom, respectively to purchase up to an
additional and shares, respectively, of Common Stock.
PERSON: An individual, partnership, corporation, trust or
unincorporated organization, or a government or agency or political subdivision
thereof.
PIGGYBACK NOTICE: See Section 4 hereof.
PIGGYBACK REGISTRATION STATEMENT: See Section 4.
PROSPECTUS: The prospectus included in any Registration Statement, as
amended or supplemented by any prospectus supplement with respect to the terms
of the offering of any portion of the Registrable Securities covered by the
Registration Statement and all other
<PAGE>
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amendments and supplements to the Prospectus, including post-effective
amendments and all material incorporated by reference in such Prospectus.
REGISTRATION EXPENSES: See Section 6 hereof.
REGISTRABLE SECURITIES: (i) The Shares and (ii) any securities issued
or issuable with respect to the Shares by way of a stock dividend or stock split
or in connection with a combination of shares, recapitalization, merger,
consolidation or other reorganization, until such Shares or other securities are
not Restricted Securities as defined in Section 2(a); PROVIDED, HOWEVER, that
Shares sold pursuant to the Overallotment Option shall not be Registrable
Securities.
REGISTRATION STATEMENT: Any registration statement of the Company
which covers Registrable Securities pursuant to the provisions of this
Agreement, including (i) the Prospectus, (ii) amendments and supplements to such
Registration Statement, (iii) post-effective amendments, (iv) all exhibits and
all material incorporated by reference in such Registration Statement, (v) any
registration statement pursuant to a Demand Registration and (vi) any Piggyback
Registration Statement.
RESTRICTED SECURITIES: The Registrable Securities upon original
issuance thereof, subject to the provisions of Section 2(a) hereof.
SECURITIES ACT: The Securities Act of 1933, as amended from time to
time.
SEC: The Securities and Exchange Commission.
SHARES: The shares of Common Stock held by AJI as of ,
1996.
UNDERWRITTEN OFFERING: The offering and sale of securities of the
Company covered by any Registration Statement pursuant to a firm commitment
underwriting to an underwriter at a fixed price for reoffering or pursuant to
agency or best efforts arrangements with an underwriter.
Unless the context otherwise requires: (i) "or" is not exclusive; and
(ii) words in the singular include the plural and in the plural include the
singular.
<PAGE>
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2. SECURITIES SUBJECT TO THIS AGREEMENT
(a) REGISTRABLE SECURITIES. The securities entitled to the benefits
of this Agreement are the Registrable Securities but, with respect to any
particular Registrable Security, only so long as such security continues to be
a Restricted Security. A Registrable Security ceases to be a Restricted
Security when (i) it has been effectively registered under the Securities Act
and disposed of in accordance with the Registration Statement covering it,
(ii) it has been distributed pursuant to Rule 144 (or any similar provisions
then in force) under the Securities Act, (iii) it has otherwise been transferred
and a new certificate or other evidence or ownership for it not bearing a legend
restricting transfer under the Securities Act and not subject to any stop
transfer order has been delivered by or on behalf of the Company and no other
restriction on transfer exists or (iv) it ceases to be outstanding.
(b) HOLDERS OF REGISTRABLE SECURITIES. Any reference herein to a
"Holder" or "Holders" of Registrable Securities shall mean AJI or any other
Person to whom AJI has transferred any of the Registrable Securities. A Holder
shall be deemed to be a holder of Registrable Securities whenever it owns
Registrable Securities or securities which are convertible into or exercisable
for Registrable Securities whether or not such conversion or exercise has
actually been effected and disregarding any legal restrictions upon such
conversion or exercise.
3. DEMAND REGISTRATION
(a) REQUESTS FOR REGISTRATION. At any time after 240 days from the
date of closing of the Initial Public Offering, a Holder may make a written
request for registration with the SEC under and in accordance with the
provisions of the Securities Act of all or part of the Registrable Securities (a
"Demand Registration"). All requests made pursuant to this Section 3(a) shall
specify the number of Registrable Securities to be registered and the intended
methods of disposition thereof. All such requests shall be delivered to the
Company in accordance with the provisions of Section 8(d) of this Agreement.
(b) NUMBER OF, AND LIMITATIONS ON, REGISTRATIONS. The Holders will
be entitled to request an aggregate of three Demand Registrations, one per
twelve-month period during each of the three twelve-month periods immediately
following
<PAGE>
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240 days from the date of closing of the Initial Public Offering. The Company
will not be obligated to register any Registrable Securities pursuant to such a
Demand Registration unless there is requested to be included in such
registration at least 10% of the Registrable Securities then outstanding or, if
such number of shares represents less than 10% of the Shares, all of the
Registrable Securities then outstanding.
(c) SELECTION OF UNDERWRITERS. If any of the Registrable Securities
covered by a Demand Registration are to be sold in an underwritten offering, or
in a best efforts underwritten offering, the investment banker or investment
bankers and manager or managers that will administer the offering will be
selected by the Holders.
(d) The Company shall not grant to any Person any right to demand
registration or piggyback registration of any securities of the Company in
respect of a Demand Registration made pursuant to this Section 3.
4. PIGGYBACK REGISTRATION RIGHTS
REQUESTS FOR PIGGYBACK REGISTRATION. The Company covenants and agrees
with each Holder that in the event the Company proposes to file at any time and
from time to time after 240 days from the date of closing of the Initial Public
Offering a registration statement on any form for the general registration of
securities under the Securities Act with respect to the offering of any class of
security other than in connection with an offering solely to the Company's
employees pursuant to a registration statement on Form S-8 under the Securities
Act or an offering pursuant to a registration statement on Form S-4 under the
Securities Act, or any successor forms thereto (a "Piggyback Registration
Statement"), then the Company shall in each such case give written notice (a
"Company Notice") of such proposed filing to each Holder so that the Company
Notice is received by each Holder at least twenty (20) business days before the
anticipated filing date, and such notice shall offer to each Holder the
opportunity to include in such Piggyback Registration Statement such number of
Registrable Securities as each may request. Notwithstanding the foregoing, the
Company shall not be obligated to register the Registrable Securities of any
Holder (i) unless there shall have been received by the Company, within ten (10)
business days of receipt of the Company Notice by such Holder, written notice (a
"Piggyback Notice") from such Holder, which notice shall set forth the number of
Registrable Securities to be so included, or (ii) such Registrable Securities
can be
<PAGE>
-6-
transferred without registration in accordance with the Rule 144 under the
Securities Act or any other exemption from the registration provisions thereof
(other than Rule 144A).
The Company shall use its reasonable best efforts to cause the
underwriter of a proposed offering, if any, to permit the Holders holding
Registrable Securities requested to be included in the Piggyback Registration
Statement to include such Registrable Securities in the proposed offering on
terms and conditions at least as favorable to the Holders holding such
Registrable Securities as those offered with respect to the other securities of
the Company included therein. Notwithstanding the foregoing, if any underwriter
shall advise the Company in writing that, in its opinion, the distribution of
the Registrable Securities requested to be included in the Piggyback
Registration Statement concurrently with the securities being registered by the
Company would materially adversely affect the distribution of such securities by
the Company, then (i) if the securities being offered by the Company include
Common Stock (other than shares of Common Stock issuable on the conversion or
exchange of other securities then being offered), the Holders holding such
Registrable Securities shall delay their offering and sale for such period, not
to exceed ninety (90) calendar days, as such underwriter shall request, or
(ii) if the securities being offered by the Company do not include Common Stock,
the Holders holding such Registrable Securities shall withdraw their offering
and sale, as such underwriter shall request; PROVIDED, that the Holders holding
such Registrable Securities shall have no obligation to delay or withdraw if the
offering includes a secondary offering of any securities other than such
Registrable Securities. In the event of the delay described in clause (i) in
the preceding sentence, the Company shall file such supplements and
post-effective amendments, and take any such other steps as may be necessary to
permit such Holders to make their proposed offering and sale for a period of
ninety (90) calendar days immediately following the end of such period of delay.
5. REGISTRATION PROCEDURES
Whenever a Holder has requested that any Registrable Securities be
registered pursuant to this Agreement, the Company will promptly take all such
actions as may be necessary or desirable to permit the sale of such Registrable
Securities in accordance with the intended method or methods of disposition
thereof, and pursuant thereto the Company will promptly:
<PAGE>
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(a) with respect to a request for a Demand Registration, use its best
efforts to prepare and file with the SEC, not later than 60 days after receipt
of such request (which 60-day period may be extended by the Company for up to an
additional 30 days if at the time of such request the Company is engaged to a
significant extent in negotiations looking toward its participation in a
material merger, acquisition or other form of business combination and if, by
reason of such negotiations, the Company is not in a position to timely prepare
and file the Registration Statement) a Registration Statement on a form for
which the Company then qualifies which is satisfactory to the Company and the
Holders (unless the offering is made on an underwritten basis, including on a
best efforts underwriting basis, in which event the managing underwriter or
underwriters shall determine the form to be used) and which form shall be
available for the sale of the Registrable Securities in accordance with the
intended method or methods of distribution thereof, and use its best efforts to
cause such Registration Statement to become effective; the Company shall not
file any Registration Statement pursuant to Section 3 or any amendment thereto
or any Prospectus or any supplement thereto (including such documents
incorporated by reference) to which the Holders or the underwriters, if any,
shall reasonably object in light of the requirements of the Securities Act or
any other applicable laws or regulations;
(b) before filing a Registration Statement or Prospectus or any
amendments or supplements thereto (excluding documents to be incorporated by
reference therein filed after the effectiveness of the Registration Statement),
the Company will, five business days prior to filing, furnish to the Holders and
the underwriters, if any, copies of all such documents in substantially the form
proposed to be filed (including documents incorporated therein by reference), to
enable the Holders and the underwriters, if any, to review such documents prior
to the filing thereof, and the Company shall make such reasonable changes
thereto (including changes to documents incorporated by reference) as may be
reasonably requested by the Holders and the managing underwriter or
underwriters, if any;
(c) prepare and file with the SEC such amendments and post-effective
amendments to the Registration Statement as may be necessary to keep the
Registration Statement continuously effective for a period of not less than
180 days or such longer period as is required for the intended method of
distribution, or such shorter period which will terminate when
<PAGE>
-8-
all Registrable Securities covered by such Registration Statement have been sold
or withdrawn; cause the Prospectus to be supplemented by any required Prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 under the
Securities Act; and comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such Registration
Statement during the applicable period in accordance with the intended methods
of disposition by the Holders thereof set forth in such Registration Statement
or supplement to the Prospectus;
(d) notify the Holders and the managing underwriters, if any,
promptly, and confirm such advice in writing, (1) when the Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (2) of any request by the SEC for amendments or
supplements to the Registration Statement or the Prospectus or for additional
information, (3) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation of any proceedings
for that purpose, (4) if at any time the representations and warranties of the
Company contemplated by paragraph (o) below cease to be true and correct, (5) of
the receipt by the Company of any notification with respect to the suspension of
the qualification of the Registrable Securities for sale in any jurisdiction or
the initiation or threatening of any proceeding for such purpose, and (6) of the
happening of any event which makes any statement made in the Registration
Statement, the Prospectus or any document incorporated therein by reference
untrue or which requires the making of any changes in the Registration
Statement, the Prospectus or any document incorporated therein by reference in
order to make the statements therein not misleading, so that, in the case of the
Registration Statement, it will not contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary to make the statements therein, not misleading, and that in the case
of the Prospectus, it will not contain any untrue statement of a material fact
or omit to state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances under which they were
made, not misleading;
(e) make every reasonable effort to obtain the withdrawal of any
order suspending the effectiveness of the Registration Statement at the earliest
possible moment;
<PAGE>
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(f) as promptly as practicable after the filing with the SEC of any
document which is incorporated by reference into the Registration Statement or
the Prospectus (after initial filing of the Registration Statement) provide
copies of such document to counsel to the Holders and to the managing
underwriters, if any;
(g) furnish to the Holders and each managing underwriter, if any,
without charge, at least one signed copy of the Registration Statement and any
post-effective amendment thereto, including financial statements and schedules,
all documents incorporated therein by reference and all exhibits (including
those incorporated by reference) and a reasonable number of conformed copies of
all such documents;
(h) deliver to the Holders and the underwriters, if any, as many
copies of the Prospectus (including each preliminary prospectus) and any
amendment or supplement thereto as such Persons may reasonably request; the
Company consents to the use of the Prospectus or any amendment or supplement
thereto by the Holders and the underwriters, if any, in connection with the
offering and sale of the Registrable Securities covered by the Prospectus or any
amendment or supplement thereto;
(i) prior to the date on which the Registration Statement is declared
effective, use its best efforts to register or qualify or cooperate with the
Holders and the underwriters, if any, and their respective counsel in connection
with the registration or qualification (or exemption from such registration or
qualification) of such Registrable Securities for offer and sale under the
securities or blue sky laws of such jurisdictions as any seller or underwriter
reasonably requests in writing and do any and all other acts or things necessary
or advisable to enable the disposition in such jurisdictions of the Registrable
Securities covered by the Registration Statement; PROVIDED, that the Company
will not be required to qualify generally to do business in any jurisdiction
where it is not then so qualified or to take any action which would subject it
to general service of process in any such jurisdiction where it is not then so
subject;
(j) cooperate with the Holders and the managing underwriters, if any,
to facilitate the timely preparation and delivery of certificates representing
Registrable Securities to be sold and not bearing any restrictive legends; and
enable such Registrable Securities to be in such denominations and registered in
such names as the managing underwriters, if any,
<PAGE>
-10-
or the Holders may request at least two business days prior to any such sale of
Registrable Securities;
(k) use its best efforts to cause the Registrable Securities covered
by the Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriters, if any, to consummate the disposition of
such Registrable Securities;
(l) upon the occurrence of any event contemplated by paragraph (d)(6)
above, prepare a supplement or post-effective amendment to the Registration
Statement or the Prospectus or any document incorporated therein by reference or
file any other required document so that, as thereafter delivered to the
purchasers of the Registrable Securities, the Prospectus will not contain an
untrue statement of a material fact or omit to state any material fact
necessary to make the statements therein, in light of the circumstances under
which they were made, not misleading;
(m) use its best efforts to cause all Registrable Securities covered
by the Registration Statement to be listed on each securities exchange or
authorized to be quoted on the National Association of Securities Dealers
Automated Quotation ("NASDAQ") National Market if similar securities issued by
the Company are then so listed or authorized, if requested by the Holders or the
managing underwriters, if any;
(n) provide a transfer agent and registrar for all Registrable
Securities;
(o) enter into such agreements (including an underwriting agreement)
and take all such other actions in connection therewith as the Holders or the
managing underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities;
<PAGE>
-11-
(p) make available for inspection during normal business hours by the
Holders, any underwriter participating in any disposition pursuant to such
Registration Statement, and any attorney, accountant or other agent retained by
any such Holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors and employees to supply all information reasonably requested
by any such Holder, underwriter, attorney, accountant or agent in connection
with such Registration Statement; PROVIDED, that any records, information or
documents that are designated by the Company in writing as confidential shall be
kept confidential by such Persons;
(q) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC, and make generally available to its security
holders, earnings statements satisfying the provisions of Section 11(a) of the
Securities Act, no later than 45 days after the end of any 12-month period
(1) commencing at the end of any fiscal quarter in which Registrable Securities
are sold to underwriters in a firm or best efforts underwriting offering, and
(2) beginning with the first month of the Company's first fiscal quarter
<PAGE>
-12-
commencing after the effective date of the Registration Statement, which
statements shall cover said 12-month periods.
The Company may require the Holders to furnish to the Company such
information and documents regarding the distribution of the Registrable
Securities and the Holders as the Company may from time to time reasonably
request in writing.
The Holders each agree by acquisition of such Registrable Securities
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 5(d)(6) hereof, such Holder will forthwith
discontinue disposition of Registrable Securities until such Holder's receipt of
the copies of the supplemented or amended Prospectus contemplated by
Section 5(1) hereof, or until it is advised in writing (the "Advice") by the
Company that the use of the Prospectus may be resumed, and has received copies
of any additional or supplemental filings which are incorporated by reference in
the Prospectus, and, if so directed by the Company, each Holder will, or will
request the underwriters (if any) to, deliver to the Company (at the Company's
expense) all copies, other than permanent file copies then in such Holder's
possession, of the Prospectus covering such Registrable Securities current at
the time of receipt of such notice. If the Company shall give such notice, the
time periods mentioned in Section 5(c) hereof shall be extended by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 5(d)(6) to and including the date when the Holders shall
have received the copies of the supplemented or amended prospectus contemplated
by Section 5(1) hereof or the Advice.
6. REGISTRATION EXPENSES
Except as otherwise provided herein, all expenses incident to the
Company's performance of or compliance with this Agreement will be borne by the
Company, whether or not a Registration Statement is filed or becomes effective,
including, without limitation, all registration and filing fees, including with
respect to filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD") fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel for the underwriters, if any, in connection with blue sky qualifications
of the Registrable Securities and determination of their eligibility for
investment under the laws of such jurisdictions as the managing underwriters or
<PAGE>
-13-
holders of a majority of the Registrable Securities being sold may designate),
printing expenses, messenger, telephone and delivery expenses, and fees and
disbursements of counsel for the Company and of all independent certified public
accountants (including the expenses of any special audit and "cold comfort"
letters required by or incident to such performance), the fees and expenses
incurred in connection with the listing of the securities to be registered on
any securities exchange or authorized to be quoted on NASDAQ, the reasonable
fees and expenses of any special experts retained by the Holders or by the
Company at the request of the managing underwriters in connection with such
registration and fees and expenses of other Persons retained by the Holders
(including, without limitation, any qualified independent underwriter or other
independent appraiser participating pursuant to the Bylaws of the NASD) (all
such expenses being herein called "Registration Expenses"). The Company shall
also pay its internal expenses (including, without limitation, all salaries and
expenses of its officers and employees performing legal or accounting duties)
and the expense of any annual audit, which are not "Registration Expenses" for
purposes of this Agreement. In no event shall the Company be liable for the
payment of any discounts or commissions of underwriters, selling brokers, dealer
managers or similar industry professionals relating to the distribution of the
Registrable Securities or any related fees and disbursements of counsel retained
by the Holders (if any). Each Holder shall be liable for the cost and expense
of the time spent by its officers, employees and Agents incurred in connection
with the registration of Registrable Securities owned by it.
7. INDEMNIFICATION
(a) INDEMNIFICATION BY COMPANY. The Company will indemnify and hold
harmless, to the full extent permitted by law, each Holder, its officers and
directors, their Agents and each Person who controls each such Holder (within
the meaning of the Securities Act) against all losses, claims, damages,
liabilities and expenses to which any such Person may be subject, under the
Securities Act or otherwise, and reimburse all such Persons for any legal or
other expenses incurred with investigating or defending against any such losses,
claims, damages or liabilities, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue or alleged untrue
statement of a material fact contained in a Registration Statement, Prospectus
or preliminary prospectus or any omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the
<PAGE>
-14-
statements therein not misleading, except insofar as the same arise out of or
are based upon an untrue statement of a material fact or omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, which statement or omission is made therein in reliance upon and
in conformity with information furnished in writing to the Company by such
Holder, expressly for use therein. The Company will also indemnify
underwriters, selling brokers, dealer managers and similar securities industry
professionals participating in the distribution, their officers and directors
and each Person who controls such Persons (within the meaning of the Securities
Act) to the same extent as provided above with respect to the indemnification of
each Holder of Registrable Securities.
(b) INDEMNIFICATION BY HOLDERS. Each Holder will, severally and not
jointly, indemnify and hold harmless, to the full extent permitted by law, the
Company, its directors and officers and each Person who controls the Company
(within the meaning of the Securities Act) against any losses, claims, damages,
liabilities and expenses to which any such Person may be subject, under the
Securities Act or otherwise, insofar as such losses, claims, damages or
liabilities arise out of or are based upon any untrue or alleged untrue
statement of a material fact contained in a Registration Statement or Prospectus
or preliminary prospectus or any omission or alleged omission of a material
fact required to be stated therein or necessary to make the statements therein
not misleading, to the extent, but only if and to the extent, that such untrue
or alleged untrue statement or omission or alleged omission is made therein in
reliance upon and in conformity with the information furnished in writing by
such Holder specifically for inclusion therein. In no event shall the liability
of a Holder hereunder be greater in amount than the dollar amount of the net
proceeds received by such Holder upon the sale of the Registrable Securities
giving rise to such indemnification obligation, unless such liability arises
out of or is based on willful conduct by such Holder. The Company shall be
entitled to receive indemnities from underwriters, selling brokers, dealer
managers and similar securities industry professionals participating in the
distribution, to the same extent as provided above with respect to information
so furnished in writing by such Persons.
(c) CONDUCT OF INDEMNIFICATION PROCEEDINGS. Any Person entitled to
indemnification hereunder will (i) give prompt notice to the indemnifying party
of any claim with respect to which it seeks indemnification and (ii) unless, in
such indemnified party's reasonable judgment, a conflict of interest may exist
between such indemnified and indemnifying
<PAGE>
-15-
parties with respect to such claim, permit such indemnifying party to assume at
its own expense the defense of such claim. The indemnified party shall have the
right to participate in the conduct of such defense by the indemnifying party
provided that it will pay for the fees of its own counsel. Whether or not such
defense is assumed by the indemnifying party, the indemnifying party will not be
subject to any liability for any settlement made without its consent (but such
consent will not be unreasonably withheld). No indemnifying party will consent
to entry into any judgment or enter into any settlement which does not include
as an unconditional term thereof the giving of the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel for all parties indemnified by such indemnifying party
with respect to such claim, unless in the reasonable judgment of any indemnified
party and any other of such indemnified parties with respect to such claim, in
which event the indemnifying party shall be obligated to pay the fees and
expenses of such additional counsel or counsels.
(d) CONTRIBUTION. If the indemnification provided for in
Section 7(a) or 7(b) is unavailable or insufficient to hold harmless an
indemnified party, then each indemnifying party in lieu of indemnifying such
indemnified party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, liabilities, claims or damages
referred to in Section 7(a) or 7(b) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and any
indemnified party on the other hand in connection with the statements or
omissions which resulted in such losses, liabilities, claims or damages. The
relative fault 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 initially
supplied or developed by the indemnifying party or such indemnified party and
the parties' relative intent, knowledge, access to information and opportunity
to correct such untrue statement or omission. The amount paid by an indemnified
party as a result of the losses, liabilities, claims or damages referred to in
the first sentence of this Section 7(d) shall be deemed to include any legal or
other expenses reasonably incurred by such indemnified party in connection with
investigating or defending any action or claim which is the subject of this
Section 7(d). No person guilty of fraudulent misrepresentation (within the
<PAGE>
-16-
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation.
8. FUTURE RESTRICTIONS ON GRANTS REGISTRATION RIGHTS
For such time that AJI owns 50% or more of the voting power of the
Company's Common Stock, the Company shall not grant registration rights to any
other Person without the prior written consent of AJI.
9. MISCELLANEOUS
(a) REMEDIES. AJI and any Affiliate of AJI shall each be entitled to
exercise all rights provided herein or granted by law, including recovery of
damages, and each will be entitled to specific performance of their rights under
this Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive the defense in any action for
specific performance that a remedy at law would be adequate.
(b) NO INCONSISTENT AGREEMENTS. The Company will not on or after the
date of this Agreement enter into any agreement with respect to its securities
which is inconsistent with the rights granted to AJI and any Affiliate of AJI in
this Agreement or otherwise conflicts with the provisions hereof. The Company
has not previously entered into any agreement with respect to its securities
granting any registration rights to any Person.
(c) AMENDMENTS. The Company and AJI may only amend, modify or
supplement this Agreement in such manner as may be agreed upon by both of them
in writing signed by an officer of each party.
(d) WAIVERS. The Company and AJI may only extend the time for, or
waive the performance of, any of the obligations of the other or waive
compliance by the other with any of the covenants or conditions contained in
this Agreement in writing signed by an officer of such party.
(e) NOTICES. Any notice, request, instruction or other document to
be given hereunder shall be in writing and delivered personally or sent by
telecopy or prepaid overnight courier, if to the Company, addressed to the
attention of Deborah M. Soon, President and Chief Executive Officer, Larscom
<PAGE>
-17-
Incorporated, 4600 Patrick Henry Drive, Santa Clara, CA 95054, Telecopy Number
408-986-8336; and if to AJI, addressed to the attention of Paul Graf, President
and Chief Executive Officer, Axel Johnson Inc., 300 Atlantic Street, Stamford,
CT 06904-3522, Telecopy Number 203-326-5282, with a copy to Signe S. Gates, Vice
President, General Counsel and Secretary, Axel Johnson Inc., 300 Atlantic
Street, Stamford, CT 06904-3522, Telecopy Number 203-326-5282. Any notice or
other communication transmitted in accordance with this Section 8(e) shall for
all purposes of this Agreement be treated as given or effective, if personally
delivered, upon receipt, or, if sent by courier, upon the earlier of receipt or
the end of the business day following the date of delivery to such courier, or,
if telecopied, upon transmission and confirmation of receipt.
(f) ENTIRE AGREEMENT. This Agreement embodies the entire agreement
between the parties and any and all prior oral or written agreements,
representations or warranties, contracts, understandings, correspondence,
conversations, and memoranda, whether written or oral, between the Company and
AJI or between any agents, representatives, parents, subsidiaries, affiliates,
predecessors in interest or successors in interest, with respect to the subject
matter hereof, are merged herein and replaced hereby.
(g) ASSIGNABILITY; THIRD-PARTY RIGHTS. Neither this Agreement nor
any of the parties' rights hereunder shall be assignable by any party hereto
without the prior written consent of the other party. In the event that any
such assignment is made, this Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors and
assigns. Nothing in this Agreement, express or implied, shall be deemed to
confer upon any other person any rights or remedies under, or by reason of, this
Agreement.
(h) GOVERNING LAW. This Agreement shall be construed in accordance
with the laws of the State of Delaware without giving effect to principles of
conflict of laws. Both parties consent to the jurisdiction of all state and
federal courts of record situated in the State of Delaware. Service of process
upon either party shall be deemed, in every respect, effective upon such party
if made by prepaid registered or certified mail, return receipt requested, or if
personally delivered against receipt to the address set forth in Section 8(e) or
to such other address as a party may designate in writing to the other.
<PAGE>
-18-
(i) HEADINGS; DEFINITIONS. The section and other headings contained
in this Agreement are for reference purposes only and shall not in any way
affect the meaning or interpretation of this Agreement. Wherever in this
Agreement words indicating the plural number appear, such words shall be
considered as words indicating the singular number and vice versa where the
context indicates the propriety of such use.
(j) COUNTERPARTS. This Agreement may be executed in counterparts,
each of which when so executed shall be deemed to be an original, and all such
counterparts shall together constitute but one and the same instrument.
<PAGE>
-19-
REGISTRATION RIGHTS AGREEMENT
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
LARSCOM INCORPORATED
By: ____________________________
Name:
Title:
AXEL JOHNSON INC.
By: ____________________________
Name:
Title:
<PAGE>
EXHIBIT 11.1
LARSCOM INCORPORATED
STATEMENT REGARDING COMPUTATION OF PRO FORMA NET INCOME PER SHARE (1)
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, 1996 1995
-------------- --------------
<S> <C> <C>
Net income........................................ $ 2,506 $ 2,529
Weighted average shares outstanding:
Class A Common Stock............................ 11,900 11,900
Additional shares that would be used to pay
the $25.0 million dividend to Axel Johnson
(2)........................................... 2,113 2,113
------- -------
Shares used to compute pro forma net income per
share........................................... 14,013 14,013
------- -------
------- -------
Pro forma net income per share (unaudited)........ $ 0.18 $ 0.18
</TABLE>
- ------------------------
(1) This Exhibit should be read in conjunction with Note 1 of Notes to
Consolidated Financial Statements.
(2) Calculated using the assumed net proceeds of $11.83 per share of common
stock in this Offering.
<PAGE>
EXHIBIT 21.1
LIST OF SUBSIDIARY
Name Place of Incorporation % Ownership
- --------------- ---------------------- -----------
Larscom Limited England and Wales 100%
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated October 10, 1996,
relating to the financial statements of Larscom Incorporated, which appears in
such Prospectus. We also consent to the references to us under the headings
"Experts" and "Selected Consolidated Financial Data" in such Prospectus.
However, it should be noted that Price Waterhouse LLP has not prepared or
certified such "Selected Consolidated Financial Data."
PRICE WATERHOUSE LLP
San Jose, California
October 10, 1996
<PAGE>
EXHIBIT 24.1
LARSCOM INCORPORATED
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Deborah M. Soon and Paul Graf, and each of
them acting individually, as his attorney-in-fact, each with full power of
substitution, for him and any and all capacities, to sign any and all amendments
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratify and confirming our signatures as they may be signed by
our said attorney to any and all amendments to said Registration Statement.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
/s/ DEBORAH M. SOON Officer, and Director
- ------------------------------ (Chief Executive October 11, 1996
Deborah M. Soon Officer)
Vice President, Finance
and Chief Financial
- ------------------------------ Officer (Chief Financial , 1996
Bruce D. Horn Officer and Principal
Accounting Officer)
- ------------------------------ Director , 1996
Signe S. Gates
- ------------------------------ Director , 1996
Paul E. Graf
- ------------------------------ Director , 1996
Harvey L. Poppel
- ------------------------------ Director , 1996
Joseph F. Smorada
<PAGE>
EXHIBIT 24.1
LARSCOM INCORPORATED
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Deborah M. Soon and Paul Graf, and each of
them acting individually, as his attorney-in-fact, each with full power of
substitution, for him and any and all capacities, to sign any and all amendments
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratify and confirming our signatures as they may be signed by
our said attorney to any and all amendments to said Registration Statement.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
Officer, and Director
- ------------------------------ (Chief Executive , 1996
Deborah M. Soon Officer)
Vice President, Finance
/s/ BRUCE D. HORN and Chief Financial
- ------------------------------ Officer (Chief Financial October 11, 1996
Bruce D. Horn Officer and Principal
Accounting Officer)
- ------------------------------ Director , 1996
Signe S. Gates
- ------------------------------ Director , 1996
Paul E. Graf
- ------------------------------ Director , 1996
Harvey L. Poppel
- ------------------------------ Director , 1996
Joseph F. Smorada
<PAGE>
EXHIBIT 24.1
LARSCOM INCORPORATED
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Deborah M. Soon and Paul Graf, and each of
them acting individually, as his attorney-in-fact, each with full power of
substitution, for him and any and all capacities, to sign any and all amendments
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratify and confirming our signatures as they may be signed by
our said attorney to any and all amendments to said Registration Statement.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
Officer, and Director
- ------------------------------ (Chief Executive , 1996
Deborah M. Soon Officer)
Vice President, Finance
and Chief Financial
- ------------------------------ Officer (Chief Financial , 1996
Bruce D. Horn Officer and Principal
Accounting Officer)
/s/ SIGNE S. GATES
- ------------------------------ Director October 11, 1996
Signe S. Gates
- ------------------------------ Director , 1996
Paul E. Graf
- ------------------------------ Director , 1996
Harvey L. Poppel
- ------------------------------ Director , 1996
Joseph F. Smorada
<PAGE>
EXHIBIT 24.1
LARSCOM INCORPORATED
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Deborah M. Soon and Paul Graf, and each of
them acting individually, as his attorney-in-fact, each with full power of
substitution, for him and any and all capacities, to sign any and all amendments
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratify and confirming our signatures as they may be signed by
our said attorney to any and all amendments to said Registration Statement.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
Officer, and Director
- ------------------------------ (Chief Executive , 1996
Deborah M. Soon Officer)
Vice President, Finance
and Chief Financial
- ------------------------------ Officer (Chief Financial , 1996
Bruce D. Horn Officer and Principal
Accounting Officer)
- ------------------------------ Director , 1996
Signe S. Gates
/s/ PAUL E. GRAF
- ------------------------------ Director October 11, 1996
Paul E. Graf
- ------------------------------ Director , 1996
Harvey L. Poppel
- ------------------------------ Director , 1996
Joseph F. Smorada
<PAGE>
EXHIBIT 24.1
LARSCOM INCORPORATED
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Deborah M. Soon and Paul Graf, and each of
them acting individually, as his attorney-in-fact, each with full power of
substitution, for him and any and all capacities, to sign any and all amendments
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratify and confirming our signatures as they may be signed by
our said attorney to any and all amendments to said Registration Statement.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
Officer, and Director
- ------------------------------ (Chief Executive , 1996
Deborah M. Soon Officer)
Vice President, Finance
and Chief Financial
- ------------------------------ Officer (Chief Financial , 1996
Bruce D. Horn Officer and Principal
Accounting Officer)
- ------------------------------ Director , 1996
Signe S. Gates
- ------------------------------ Director , 1996
Paul E. Graf
/s/ HARVEY L. POPPEL
- ------------------------------ Director October 11, 1996
Harvey L. Poppel
- ------------------------------ Director , 1996
Joseph F. Smorada
<PAGE>
EXHIBIT 24.1
LARSCOM INCORPORATED
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Deborah M. Soon and Paul Graf, and each of
them acting individually, as his attorney-in-fact, each with full power of
substitution, for him and any and all capacities, to sign any and all amendments
to this Registration Statement, and to file the same, with exhibits thereto and
other documents in connection therewith, with the Securities and Exchange
Commission, hereby ratify and confirming our signatures as they may be signed by
our said attorney to any and all amendments to said Registration Statement.
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
President, Chief Executive
Officer, and Director
- ------------------------------ (Chief Executive , 1996
Deborah M. Soon Officer)
Vice President, Finance
and Chief Financial
- ------------------------------ Officer (Chief Financial , 1996
Bruce D. Horn Officer and Principal
Accounting Officer)
- ------------------------------ Director , 1996
Signe S. Gates
- ------------------------------ Director , 1996
Paul E. Graf
- ------------------------------ Director , 1996
Harvey L. Poppel
/s/ JOSEPH F. SMORADA
- ------------------------------ Director October 11, 1996
Joseph F. Smorada
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS FOUND ON PAGES F-3 TO F-6 OF THE COMPANY'S
FORM S-1 REGISTRATION STATEMENT, AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE
TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<CASH> 32
<SECURITIES> 0
<RECEIVABLES> 11,139
<ALLOWANCES> 130
<INVENTORY> 11,413
<CURRENT-ASSETS> 24,553
<PP&E> 12,138
<DEPRECIATION> 7,572
<TOTAL-ASSETS> 31,959
<CURRENT-LIABILITIES> 10,664
<BONDS> 0
0
0
<COMMON> 119
<OTHER-SE> 13,171
<TOTAL-LIABILITY-AND-EQUITY> 31,959
<SALES> 30,624
<TOTAL-REVENUES> 30,624
<CGS> 13,760
<TOTAL-COSTS> 13,760
<OTHER-EXPENSES> 12,540
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 4,324
<INCOME-TAX> 1,818
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,506
<EPS-PRIMARY> 0.18
<EPS-DILUTED> 0
</TABLE>
