<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 30, 1996
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
PROCOM TECHNOLOGY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<S> <C> <C>
CALIFORNIA 3577 33-0268063
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
2181 DUPONT DRIVE, IRVINE, CALIFORNIA 92715
(714) 852-1000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICE)
------------------------
FREDERICK JUDD
VICE PRESIDENT, FINANCE AND GENERAL COUNSEL
PROCOM TECHNOLOGY, INC.
2181 DUPONT DRIVE, IRVINE, CALIFORNIA 92715
(714) 852-1000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
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J. JAY HERRON, ESQ. LAIRD H. SIMONS III, ESQ.
KEVIN BAKER, ESQ. EILEEN DUFFY ROBINETT, ESQ.
CHRISTOPHER R. DI MAURO, ESQ. MELISSA H. SAYER, ESQ.
O'MELVENY & MYERS LLP FENWICK & WEST LLP
610 NEWPORT CENTER DRIVE, SUITE 1700 TWO PALO ALTO SQUARE
NEWPORT BEACH, CALIFORNIA 92660 PALO ALTO, CALIFORNIA 94306
(714) 760-9600 (415) 494-0600
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
------------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]________________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]________________
CALCULATION OF REGISTRATION FEE
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<CAPTION>
PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
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<S> <C> <C>
Common Stock, no par value.................. $38,266,250 $11,596
</TABLE>
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(1) Estimated solely for purposes of determining the registration fee pursuant
to Rule 457(a) under the Securities Act of 1933, 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.
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<PAGE> 2
Information contained herein is subject to completion or amendment. A
registration statement relating to these securities has been filed with the
Securities and Exchange Commission. These securities may not be sold nor
may offers to buy be accepted prior to the time the registration statement
becomes effective. This prospectus shall not constitute an offer to sell or
the solicitation of an offer to buy nor shall there be any sale of these
securities in any State in which such offer, solicitation or sale would be
unlawful prior to registration or qualification under the securities laws
of any such State.
SUBJECT TO COMPLETION, DATED OCTOBER 30, 1996
3,025,000 SHARES
[LOGO]
COMMON STOCK
Of the 3,025,000 shares of Common Stock offered hereby, 2,000,000 shares
are being sold by Procom Technology, Inc. (the "Company") and 1,025,000 shares
are being sold by the Selling Shareholders. The Company will not receive any
proceeds from the sale of the shares by the Selling Shareholders. See "Principal
and Selling Shareholders."
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 will be between $9.00 and $11.00 per share. See "Underwriting" for a
discussion of factors considered in determining the initial public offering
price. Application has been made to have the Common Stock approved for quotation
on the Nasdaq National Market under the symbol "PRCM."
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. SEE "RISK FACTORS"
COMMENCING ON PAGE 5 FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE 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.
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<CAPTION>
Proceeds to
Price to Underwriting Proceeds to Selling
Public Discount(1) Company(2) Shareholders
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<S> <C> <C> <C> <C>
Per Share......................... $ $ $ $
Total(3).......................... $ $ $ $
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(1) See "Underwriting" for information concerning indemnification of the
Underwriters and other matters.
(2) Before deducting expenses payable by the Company, estimated at $780,000.
(3) Certain Selling Shareholders have granted to the Underwriters a 30-day
option to purchase up to 453,750 additional shares of Common Stock 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 $ and the Proceeds to Selling Shareholders will total
$ . See "Underwriting."
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and 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 NEEDHAM & COMPANY, INC.
, 1996
<PAGE> 3
PROCOM TECHNOLOGY
INTELLIGENT STORAGE FOR THE ENTERPRISE(TM)
[Photographs of various CD-ROM and computer storage peripherals, some of which
are displayed indicating connectivity to networks. The photographs bear the
following captions: "Procom's family of CD-ROM networking systems providing
multi-protocol, mixed topology and up to 30x performance," "Procom's family of
hard disk drive upgrade solutions," "Procom's family of notebook hard disk drive
upgrade solutions," "Procom's family of digitial linear tape backup solutions,"
"Procom's family of LANForce Systems providing high performance, fault tolerant
RAID solutions" and "Procom Technology -- Intelligent Storage For The
Enterprise(TM)"]
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK OF
THE COMPANY AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN
MARKET. SUCH TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, OR
OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE DISCONTINUED AT ANY TIME.
2
<PAGE> 4
PROSPECTUS SUMMARY
The following summary information is qualified in its entirety by the more
detailed information, including "Risk Factors" and Consolidated Financial
Statements and notes thereto, appearing elsewhere in this Prospectus.
THE COMPANY
Procom Technology, Inc. ("Procom" or the "Company") designs, manufactures
and markets enterprise-wide data storage and information access solutions that
are compatible with all major hardware platforms, operating systems and network
protocols. The Company has become a leading provider of CD-ROM servers and
arrays as a result of its extensive distribution channels as well as the
scalability, performance, ease of use and multi-protocol support of its
products. The Company provides end users with disk drive upgrades for servers,
desktop and notebook computers and also provides high performance, fault
tolerant RAID solutions (Redundant Array of Independent Disks) and tape backup
subsystems. The Company utilizes computer resellers, value-added resellers
("VARs") and distributors to sell its products to a wide variety of end users,
including Fortune 500 corporations, governmental agencies and financial and
educational institutions.
Recognizing the growing demand for fast and reliable access to large
volumes of information increasingly stored on CD-ROM media across
enterprise-wide networks, the Company introduced the first of its CD server and
array products in early 1994. These products enable a large number of network
users to simultaneously access computer data stored on multiple CD-ROMs. The
Company has recently introduced its CD FORCE server, which provides plug and
play compatibility with most popular operating systems and network topologies
and improves functionality by relieving the network operating system from the
burden of managing requests for access to information stored on CD-ROMs. The CD
FORCE server incorporates Procom's CD FORCE software, which manages network
connectivity and access to information contained on CD-ROMs. The Company has
continued to improve the capacity and performance of its product offerings,
which include the Company's recently introduced Hyper CD-30x server, which is
capable of providing access to up to 40 gigabytes of information (63 CDs) with
30x data transfer rates. The Company has experienced rapid growth in sales of
its CD servers and arrays to end users such as law and accounting firms,
educational and governmental entities, and other companies and organizations
that require frequent access to large amounts of information stored on CD-ROMs.
The Company first developed its expertise in computer data storage products
by providing upgrade storage solutions for desktop computers. Since that time,
the Company has expanded its product offerings to provide upgrade and
replacement disk drive products for notebook computers and servers, which have
become more popular in recent years as client/server computing has proliferated.
The Company's disk drive upgrades allow users to utilize their existing hardware
for longer periods of time, thereby extending the life of their initial
investment. The Company's RAID products provide high performance, fault tolerant
storage of over one terabyte of data for large network information databases.
The key elements of the Company's strategy include the following: (i)
developing additional network storage products incorporating the Company's
proprietary storage management software; (ii) accessing end users in key
vertical markets by leveraging relationships with computer resellers, VARs and
distributors; (iii) expanding relationships with key component suppliers in
order to enable the Company to anticipate and respond to technological
developments; and (iv) delivering timely storage solutions compatible with all
major operating systems and network topologies.
The Company's CD servers and arrays can be configured for Unix, Novell
NetWare, IBM OS/2 Warp, Windows NT, Windows 95, Windows 3.1 and Macintosh OS,
while supporting different topologies such as Ethernet, FDDI, Fast Ethernet and
Token Ring. The Company's high-capacity storage subsystems will support varying
RAID levels to meet virtually any network or operating system storage
requirements. The Company's major customers include Vanstar Corporation, Entex
Corporation, Inacom and Intelligent Electronics, and end users include
Microsoft, Ernst & Young, Federal Express, Prudential Insurance and Bank One.
3
<PAGE> 5
THE OFFERING
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<S> <C>
Common Stock offered by the Company............. 2,000,000 shares
Common Stock offered by the Selling
Shareholders.................................. 1,025,000 shares
Common Stock to be outstanding after the
offering...................................... 11,000,000 shares(1)
Use of proceeds................................. Repayment of outstanding debt
(approximately $3.5 million at October 25,
1996), approximately $300,000 to acquire
capital equipment to increase production
capacity and the remainder for general
corporate purposes, including working
capital.
Proposed Nasdaq National Market symbol.......... PRCM
</TABLE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
YEARS ENDED
---------------------------------------------------
JULY JULY JULY JULY JULY
31, 30, 29, 28, 26,
1992 1993 1994 1995 1996
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<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales............................................ $42,898 $41,726 $34,502 $44,660 $73,456
Gross profit......................................... 8,869 9,453 7,315 11,802 21,967
Income (loss) before income taxes.................... 860 906 (1,130) 1,137 4,649
Net income (loss).................................... 575 609 (773) 723 2,849
Net income (loss) per share(2)....................... $ 0.06 $ 0.07 $ (0.08) $ 0.08 $ 0.31
Weighted average number of shares(2)................. 9,167 9,167 9,167 9,167 9,167
</TABLE>
<TABLE>
<CAPTION>
JULY 26, 1996
--------------------------
ACTUAL AS ADJUSTED(3)
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CONSOLIDATED BALANCE SHEET DATA:
Cash....................................................................... $ 793 $ 14,128
Working capital............................................................ 4,632 22,152
Total assets............................................................... 21,112 35,747
Line of credit............................................................. 4,185 --
Long-term obligations...................................................... -- --
Total shareholders' equity................................................. 5,136 22,956
</TABLE>
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(1) Based on shares outstanding as of October 25, 1996. Excludes an aggregate of
278,700 shares of Common Stock issuable upon the exercise of stock options
outstanding as of October 25, 1996 at a weighted average exercise price of
$3.64 per share and an aggregate of 261,300 additional shares of Common
Stock reserved for future issuance under the Company's 1995 Stock Option
Plan.
(2) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of net income (loss) per share.
(3) Adjusted to give effect to the sale of shares offered by the Company hereby
at an assumed initial public offering price of $10.00 per share, after
deducting the estimated underwriting discount and offering expenses, and the
application of the net proceeds therefrom. See "Use of Proceeds" and
"Underwriting."
------------------------
The Company was organized as a California corporation in 1987. The
Company's executive offices are located at 2181 Dupont Drive, Irvine, California
92715, and its telephone number is (714) 852-1000.
------------------------
Unless otherwise indicated, the information in this Prospectus (i) assumes
an initial public offering price of $10.00 per share of Common Stock, (ii)
assumes no exercise of the Underwriters' over-allotment option, and (iii)
reflects the effect of a 10,000-for-1 stock split, which occurred on September
15, 1995, and a 3-for-1 stock split which will occur on or prior to the
effectiveness of the Registration Statement of which this Prospectus forms a
part. This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
4
<PAGE> 6
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before purchasing the shares of Common Stock offered hereby.
POTENTIAL FLUCTUATIONS IN FUTURE RESULTS OF OPERATIONS
The Company's results of operations have in the past varied significantly
and are likely in the future to vary significantly as a result of a number of
factors, including the mix of products sold, the volume and timing of orders
received during the period, the timing of new product introductions by the
Company and its competitors, product line maturation, the impact of price
competition on the Company's average selling prices, the availability and
pricing of components for the Company's products, changes in distribution
channel mix and product returns or price protection charges from customers. Many
of these factors are beyond the Company's control. Although the Company has
experienced growth in sales in recent periods, there can be no assurance that
the Company will experience growth in the future or be profitable on an
operating basis in any future period. In addition, due to the short product life
cycles that characterize the Company's markets, a significant percentage of the
Company's sales each quarter may result from new products or product
enhancements introduced in that quarter. Since the Company relies on new
products and product enhancements for a significant percentage of sales, failure
to continue to develop and introduce new products and product enhancements or
failure of these products or product enhancements to achieve market acceptance
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company also has historically
capitalized on short-term market opportunities for volume purchases of certain
components at favorable prices. For example, in the quarter ended July 26, 1996,
the Company capitalized on a one-time opportunity to purchase a significant
volume of high capacity disk drive upgrade products at below market prices,
which resulted in a price advantage to the Company that enhanced the Company's
sales and results of operations for that quarter. There can be no assurance that
the Company will be able to capitalize on such opportunities in the future. In
addition, the Company's fiscal second quarter sales have historically remained
relatively flat due primarily to heavy reseller participation in trade shows
that detract from reseller selling efforts, end user budget constraints that
restrict end user purchases, and a higher than average number of holidays during
that quarter.
The volume and timing of orders received during a quarter are difficult to
forecast. Customers generally order on an as-needed basis and, accordingly, the
Company historically has operated with a relatively small backlog.
Notwithstanding the difficulty in forecasting future sales and the relatively
small level of backlog at any given time, the Company generally must plan
production, order components and undertake its development, sales and marketing
activities and other commitments months in advance. Accordingly, any shortfall
in sales in a given quarter may disproportionately affect the Company's results
of operations due to relatively fixed short-term expenses. Due to the foregoing
factors, the Company believes that period-to-period comparisons of its results
are not necessarily meaningful and should not be relied upon as indicators of
future performance. Further, it is likely that in some future quarter or
quarters the Company's net sales or results of operations will be below the
expectations of public market analysts and investors. In such event, the price
of the Common Stock could be materially adversely affected.
Historically, the Company's gross margins have experienced significant
volatility. The Company's gross margins vary significantly by product line, and,
therefore, the Company's overall gross margin varies with the mix of products
sold by the Company. The Company's markets are also characterized by intense
competition and declining average unit selling prices over the course of the
typical historical six to twelve month life cycle of individual products. In
addition, the Company's gross margins may be adversely affected by availability
and price increases associated with key products and components from the
Company's suppliers, some of which have been in short supply, and inventory
obsolescence resulting from older generation products or the unexpected
discontinuance of third party components. Finally, the Company's gross margins
may vary with the mix of its distribution channels and general economic
conditions. Accordingly, the Company's margins may decline in the future from
the levels experienced in recent quarters. See "Risk Factors -- Component
5
<PAGE> 7
Shortages; Reliance on Sole or Limited Source Suppliers" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
SUBSTANTIAL COMPETITION
The markets for the Company's products are intensely competitive. In each
of its primary product lines, the Company competes with a large number of disk
drive manufacturers, computer resellers, VARs and distributors. Some of the
Company's vendors also sell competing products to distributors, which then sell
these products to the Company's customers. Many of the Company's current and
potential competitors have significantly greater market presence, name
recognition and financial and technical resources than the Company, and many
have longstanding positions and established brand names in their respective
markets. In addition, certain of the Company's current and potential competitors
possess competitive cost advantages due to a number of factors, including lower
taxes and substantially lower costs of labor associated with international
operations. Finally, manufacturers of disk drives such as Seagate Technology,
Inc., IBM, Quantum Corporation and Western Digital Corporation, and
manufacturers of CD-ROM drives, such as Toshiba America Information Systems,
Inc. ("Toshiba"), NEC and Plextor Corporation, may in the future become more
direct competitors of the Company to the extent that such manufacturers elect to
expand into the disk drive upgrade market or the CD server and array market.
The Company's primary competitors in the CD server and array market consist
of (i) CD array manufacturers such as Microtest Inc., Meridian Data, Inc. and
Micro Design, Inc., which also furnish CD-ROM management software with their CD
array products, (ii) a number of hardware aggregators, computer resellers and
VARs that sell CD server products directly to end users and (iii) various CD
server and array manufacturers.
The Company's primary competitors in the disk drive upgrade market are (i)
computer manufacturers that also market and sell storage upgrades, such as IBM,
Compaq Computer Corporation, ("Compaq") and Hewlett-Packard Company
("Hewlett-Packard"), (ii) companies that specialize in reselling replacement or
increased capacity storage disk drives, such as Storage Dimensions, Inc. or
Ameriquest Technologies Inc. and (iii) various national distributors of third
party upgrade drives such as Ingram Micro Inc., Merisel Inc. and Tech Data
Corporation.
The Company's primary competitors in the RAID product market are (i)
computer manufacturers, such as IBM, Compaq and Hewlett-Packard, which generally
focus on providing storage upgrades for their products and (ii) companies that
sell storage solutions directly to end users, such as EMC and StorageTek. These
direct sales competitors historically have focused their efforts on sales of
high capacity storage products in the mainframe and minicomputer environments.
In addition, the Company competes with many smaller enterprises that provide and
sell unique solutions to various computer users.
The Company's success depends to a great extent on its ability to continue
to develop products that incorporate new and rapidly evolving technologies to
provide network users cost-effective data storage and information access
solutions. However, to the extent that disk drive storage or information access
products become more of a commodity, price competition among both computer
manufacturers and suppliers of disk drives and CD-ROM drives may result in the
availability of such storage and access at a low cost. These factors could
create increased competition for the Company's products, which could cause the
Company to experience reduced gross profit margins on its products and could
have a material adverse effect on the Company's business, financial condition
and results of operations. The Company believes that the principal competitive
factors in the Company's markets are product reliability, price/value
relationship, product features and performance, brand name recognition, trade
periodical reviews, time to market with new features and products, industry
relationships, ease of installation and use, the quality of distribution
channels, product quality, technical support and customer service. See
"Business -- Competition."
RAPID TECHNOLOGICAL CHANGE; SHORT PRODUCT LIFE CYCLES
The market for the Company's products is characterized by frequent new
product introductions and rapid product obsolescence. These factors typically
result in short product life cycles, historically ranging from six to
6
<PAGE> 8
twelve months. For example, the data transfer rate of CD-ROM products has
increased rapidly, resulting in the introduction of four, eight, ten and twelve
speed CD-ROMs. Similar technological advances have been made with regard to disk
drive storage capabilities and other performance standards. Each new product
cycle presents new opportunities for current or prospective competitors of the
Company to gain market share. The Company must continually monitor industry
trends in selecting new technologies and features to incorporate into its
products. If the Company is unable to introduce new products successfully on a
timely basis, the Company's sales could be adversely affected. Any such failure
also could impair the Company's brand name and the Company's ability to command
the attention and loyalty of computer resellers, VARs and distributors in future
periods. Moreover, because short product life cycles are accompanied by long
lead times for many components of the Company's products, the Company may be
unable to reduce or increase production in response to unexpected demand.
The Company's ability to introduce new products in a timely manner is
heavily dependent on its ability to develop or purchase firmware and software
drivers for its CD-ROM and disk drive products. While the Company endeavors to
work with its component suppliers to plan for the timing of introduction of new
components and to develop the associated firmware and software, unforeseen
design issues or other factors that delay introduction of these products could
adversely affect the Company's ability to ship new products. In addition, third
party suppliers may not employ adequate testing and quality assurance
procedures, resulting in the receipt by the Company of defective components.
This could require the Company to find replacement components or wait for the
resolution of the problem, either of which could delay the Company's ability to
bring products to market and have a material adverse effect on the Company's
business, financial condition and results of operations. The Company's business
also will be adversely affected if new disk drives, CD-ROM drives or other
components that it selects from among those offered by its various vendors do
not perform favorably on a cost or performance basis compared to competing
products. In addition, products and technologies developed by competitors may
render the Company's products and technologies noncompetitive or obsolete.
Finally, advances in network and on-line technology and development of new,
higher-capacity storage media such as Digital Video Disc ("DVD") may result in a
reduction or replacement of CD-ROM as a data storage and information access
medium. If the Company is unable to adapt to these and other technological
advances by developing new products, the Company's financial performance would
be materially adversely affected. See "Business -- Research and Development."
The Company has historically experienced steep declines in sales, prices
and gross margins toward the end of the life cycles of its products, the precise
timing of which is difficult to predict. Historically, as the Company has
planned and implemented new products, it has experienced unexpected reductions
in sales and gross margins of older generation products as customers have
anticipated new products. These reductions have in the past given and could
continue to give rise to charges for obsolete or excess inventory, returns of
older generation products by computer resellers, VARs and distributors or
substantial price protection charges. See "-- Customer Concentration;
Distribution Strategy Risks; Inventory Protection." For example, in fiscal 1994,
the Company incurred losses when it discontinued sales of CD-ROM multimedia kits
to mass merchants and distributors. From time to time, the Company has
experienced and may in the future experience inventory obsolescence resulting
from the unexpected discontinuance of third party components, such as disk
drives, included in the Company's products. To the extent the Company is
unsuccessful in managing product transitions, it may have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON CD SERVERS AND ARRAYS
Sales of CD servers and arrays accounted for approximately 31% and 49% of
the Company's net sales for fiscal 1995 and fiscal 1996, respectively. The
widespread use of CD-ROM as a data storage and information access medium is
relatively recent, and there can be no assurance that another technology will
not replace CD-ROM as a widely accepted data storage and information access
medium, or that there will be widespread acceptance or continuing growth of CD
servers and arrays in general, or of the Company's CD servers and arrays in
particular. In addition, if on-line services (such as Westlaw and Lexis/Nexis)
become more cost-effective and develop user friendly methods of accessing
information, they may have an adverse impact on the
7
<PAGE> 9
use of CD-ROM as an information storage medium. Furthermore, the successful
development and marketing of DVD would enable end users to store significantly
more data than currently stored on a CD used with the Company's products.
Accordingly, even if the Company were able to adapt its products to incorporate
DVD technology, the number of servers and arrays required by end users may
decline compared to current levels. Finally, even if the CD server and array
market continues to grow, there can be no assurance that the Company will be
able to maintain its market share or its gross margins in that market.
The Company currently incorporates software with many of its CD servers and
arrays, which allows a network to manage effectively direct access to
information contained on CD-ROMs by network users. The Company ships CD servers
and arrays both with CD-ROM network data access management software from third
party vendors and with recently introduced, internally developed CD-ROM network
data access management software. The Company's internally developed software is
not presently available on all major hardware platforms, and of the Company's CD
servers and arrays shipped to date that contain CD-ROM network data access
management software, substantially all included third party software. In
addition, the Company historically has focused its efforts on hardware
development and does not have substantial experience in the development, testing
and marketing of CD-ROM network data access management software. Given the high
percentage of the Company's sales that are derived from CD servers and arrays,
the failure to secure from a third party effective CD-ROM network data access
management software, or the failure of the Company to continue the development
and marketing of its internally developed software, could have a material
adverse effect on the Company's business, financial condition and results of
operations. See "Business -- Products and Technology."
COMPONENT SHORTAGES; RELIANCE ON SOLE OR LIMITED SOURCE SUPPLIERS
The Company depends on sole or limited source suppliers for certain key
components used in its products, particularly disk and CD-ROM drives. In recent
years, these components have been in short supply and frequently on allocation
by manufacturers, and the Company's size may place it at a competitive
disadvantage during such periods relative to larger competitors. Although the
Company maintains ongoing efforts to obtain adequate supplies of components,
there can be no assurances that the Company will obtain adequate supplies or
obtain such supplies at cost levels that would not adversely affect the
Company's gross margins. The Company has no guaranteed supply arrangements with
any of its sole or limited source suppliers and customarily purchases sole or
limited source components pursuant to purchase orders placed from time to time
in the ordinary course of business. Moreover, the Company's suppliers may, from
time to time, experience production shortfalls or interruptions that impair the
supply of components to the Company. Component shortages are likely to continue,
and there can be no assurance that such shortages will not adversely affect the
Company's business, financial condition and results of operations. Conversely,
in its attempt to counter actual or perceived component shortages, the Company
may overpurchase certain components, resulting in excess inventory and reducing
the Company's liquidity or, in the event of inventory obsolescence or a decline
in the market value of such inventory, causing inventory write-offs that could
materially adversely affect the Company's business, financial condition and
results of operations. See "-- Rapid Technological Change; Short Product Life
Cycles."
The Company relies on a small number of suppliers to continue to develop,
introduce and manufacture disk drives, CD-ROM drives and other components that
incorporate new technologies and features that compete favorably in
functionality and price with the offerings of other disk drive and CD-ROM
manufacturers, including competitors of the Company. The Company's dependence on
these sole or limited source suppliers, and the risks associated with any delay
or shortfall in supply, are exacerbated by the short life cycles that
characterize the Company's products. Any delay in the introduction by or
availability of disk drives or CD-ROM drives from the Company's suppliers or the
failure of such suppliers to provide functionality and performance on a cost
effective basis could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, it is possible that
the technology of the components the Company uses in manufacturing its products
will be rendered undesirable or obsolete by the components of other suppliers.
The Company would then be forced to establish relationships with new suppliers,
which could
8
<PAGE> 10
delay or preclude the Company from bringing competitive products to market and
have a material adverse effect on the Company's business, financial condition
and results of operations.
The Company also relies on a network of independent subcontractors to
supply certain custom components manufactured to the Company's specifications.
This network consists of a number of small firms with limited financial
resources. While the Company utilizes several firms to mitigate the risk of
business interruption, it is possible that several vendors could simultaneously
experience problems with production or financial stability, which could have a
material adverse effect on the Company's business, financial condition and
results of operations. See "Business -- Manufacturing."
CUSTOMER CONCENTRATION; DISTRIBUTION STRATEGY RISKS; INVENTORY PROTECTION
The Company sells its products primarily to a domestic and international
network of computer resellers, VARs and distributors, and the Company's success
depends on the continued viability and financial stability of its customer base.
During the last two fiscal years, the Company has increased its reliance on
sales to large hardware aggregators, computer resellers and VARs (including
large corporate consultants) while reducing its use of mass merchants. During
fiscal 1995 and fiscal 1996, combined net sales to Vanstar Corporation and
Intelligent Electronics totalled approximately 17.6% and 18.1%, respectively, of
net sales. In addition, as of July 26, 1996, the Company held accounts
receivable from Intelligent Electronics and Vanstar totalling approximately $2.5
million. If the Company were to experience difficulty in collecting these
accounts receivable, due to the failure of either or both of these customers or
otherwise, it could have a material adverse effect on the Company's business,
financial condition and results of operations. In addition, a loss of either or
both of these customers could materially and adversely affect the Company's net
sales.
The Company must continually develop and maintain relationships with its
key computer resellers, VARs and distributors. Due to the rapid changes in the
computer industry and the methods by which end users purchase computer products,
there can be no assurance that the Company will be successful in developing and
maintaining an effective distribution system. The computer distribution and
computer retail industries historically have been characterized by rapid change,
including periods of widespread financial difficulties and consolidation and the
emergence of alternative distribution channels. The loss of, or reduction in
sales to, the Company's key customers could have a material adverse effect on
the Company's business, financial condition and results of operations. The
Company's computer resellers, VARs and distributors generally offer products of
several different companies, including products competitive with the Company's
products. Accordingly, there is a risk that these computer resellers, VARs and
distributors may give higher priority to products of other suppliers and may
reduce their efforts to sell the Company's products. Although since fiscal 1994
the Company has relied on computer resellers and VARs as its primary domestic
sales channels, the Company recently entered into an agreement with Tech Data
Corporation, a computer products distributor, to sell the Company's products
nationally. An increased use of distributors to sell the Company's products,
whether domestically or through increased international sales (which are
generally made through distributors), could adversely affect the Company's gross
margins as sales to distributors are typically made at slightly lower average
prices than sales to computer resellers and VARs.
The Company frequently grants limited rights to customers to return
products purchased from the Company in exchange for new purchases and also
provides price protection to its customers. The short product life cycles of the
Company's products and the difficulty in predicting future sales increase the
risk that new product introductions, price reductions by the Company or its
competitors or other factors affecting the markets for the Company's products
could result in significant product returns. In addition, new product
introductions by the Company's suppliers or its competitors, or other market
factors, may require the Company to reduce prices in a manner or at a time that
gives rise to significant price protection charges. The Company estimates
product returns and potential price protection charges based on historical
experience and accrues reserves therefor. However, these accruals may prove to
be insufficient, and unanticipated future returns and price protection charges
could have a material adverse effect on the Company's business, financial
condition and results of operations, particularly in light of the rapid product
obsolescence that often occurs during product transitions. See "-- Rapid
Technological Change; Short Product Life Cycles," "Manage-
9
<PAGE> 11
ment's Discussion and Analysis of Financial Condition and Results of Operations"
and "Business -- Sales and Marketing."
INTELLECTUAL PROPERTY RIGHTS
The Company relies primarily on a combination of copyright and trade secret
protections and confidentiality agreements to establish and protect its
intellectual property rights. The Company has no patent protection for its
current product lines. There can be no assurance that the Company's measures to
protect its intellectual property rights will deter or prevent unauthorized use
of the Company's technology. In addition, the laws of certain foreign countries
may not protect the Company's intellectual property rights to the same extent as
the laws of the United States. The Company's inability to protect its
proprietary rights in the United States or internationally may have a material
adverse effect on the Company's business, financial condition and results of
operations.
Claims by third parties that the Company's current or future products,
procedures or processes infringe upon their intellectual property rights may
have a material adverse effect on the Company. The Company does not normally
perform any formal surveys or studies relating to whether its products or
processes infringe upon the intellectual property rights of others, and it would
be difficult to establish whether a given product or process infringes upon the
intellectual property rights of others. Intellectual property litigation is
complex and expensive, and the outcome of such litigation is difficult to
predict. Any future litigation, regardless of outcome, may result in substantial
expense to the Company and significant diversion of the efforts of the Company's
management and technical personnel. An adverse determination in any such
litigation may subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from such parties, if licenses to such
rights could be obtained, or require the Company to cease using such technology.
There can be no assurance that if such licenses were obtainable, they would be
obtainable at costs reasonable to the Company. If forced to cease using such
technology, there can be no assurance that the Company would be able to develop
or obtain alternate technology. Accordingly, an adverse determination in a
judicial or administrative proceeding, changes in patent or copyright laws or
failure of the Company to obtain necessary licenses may prevent the Company from
manufacturing, using or selling certain of its products or processes, which may
have a material adverse effect on the Company's financial condition and results
of operations. In May 1995, Compaq made certain infringement and other claims
against the Company and obtained an injunction prohibiting the Company's use of
a small string of software code contained in certain of the Company's disk drive
products. Although the Company has rewritten the infringing code and settled the
lawsuit, the lawsuit required substantial management time, significant
expenditures for legal fees and costs and a one-time settlement payment and
ongoing royalty payments to Compaq for these products. See "Business --
Intellectual Property."
MANAGEMENT OF CHANGE
In recent years, the Company has expanded the overall size of its business
and scope of its operations, including research and development, marketing,
technical support and sales and distribution. The Company has recently increased
its number of employees from 137 to 175 during fiscal 1996, increased the
breadth of its CD server and array product line, enlarged the scope of its
international operations and increased its marketing and product development
expenditures. The expansion of the Company's business and product lines has
required significant investments in infrastructure and systems. Managing this
change has presented numerous challenges, including hiring and retaining key
employees, integrating or changing management information systems and
coordinating suppliers. The Company's future success will depend in large
measure on its ability to implement sufficient operating, manufacturing and
financial procedures and controls successfully, to improve coordination among
different operating functions, to strengthen management information and
telecommunications systems and to continue to hire qualified personnel in all
areas. There can be no assurance that the Company will manage these activities
and implement these additional systems and controls successfully, and any
failure to do so could have a material adverse effect upon the Company's
business, financial condition and results of operations. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
10
<PAGE> 12
RISKS OF INTERNATIONAL SALES AND OPERATIONS
The Company's international sales accounted for approximately 14% and 11%
of the Company's net sales for fiscal 1995 and 1996, respectively. During fiscal
1996, the Company added independent sales representatives in Canada, France and
Germany, and it plans to add additional foreign sales representatives in the
future. The Company's international sales and operations are subject to a number
of risks generally associated with international operations, including export
regulations, government imposed restrictions on the purchase of technological
equipment, import and export duties and restrictions, the logistical
difficulties of managing multinational operations, potentially adverse tax
consequences and lower gross margins associated with the increased proportion of
international sales made to distributors. While all of the Company's sales are
denominated in U.S. dollars, fluctuations in currency exchange rates could cause
the Company's products to become relatively more expensive to end users in a
particular country, leading to a reduction of sales in that country. The Company
may also experience competition specific to a given local market. In addition,
the Company's business may be adversely affected by seasonal sales declines in
Europe, which typically occur during the summer months. Because the Company has
operations in different countries, the Company's management must address the
difficulty of merging geographically disparate operations as well as differences
in regulatory environments, cultures and time zones. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Business -- Sales and Marketing."
WARRANTY EXPOSURE
The Company's primary warranty efforts consist of accepting defective
products from customers and either repairing them or returning the defective
component to the original manufacturer for repair or replacement during the
applicable warranty period. The Company generally protects itself by extending
to its customers a warranty that corresponds to the warranty provided to the
Company by its suppliers. However, if a supplier were to fail to meet its
warranty obligations, the Company would be forced to assume responsibility for
warranties on all components manufactured by that supplier. Such an event could
have a material adverse effect on the Company's business, financial condition
and results of operations. See "Business -- Sales and Marketing."
DEPENDENCE ON KEY PERSONNEL
The Company's success depends to a significant extent upon the continued
service of its executive officers and other key management and technical
personnel. In particular, the Company relies on the services of its four
founders, Messrs. Razmjoo, Alaghband, Aydin and Shahrestany (the "Founders").
The loss of any of these individuals or other management or technical personnel
may have a material adverse effect on the Company's operations, including the
ability to establish and strengthen strategic relationships, its ability to open
new offices successfully, its ability to adapt its products to changes in
technology and its ability to attract and retain technical personnel and other
employees, the competition for which is intense. The Company maintains
employment agreements with each of the Founders, but does not maintain
key-person life insurance policies on the lives of these individuals. See
"Business -- Employees" and "Management."
FUTURE CAPITAL REQUIREMENTS
The Company's business plan will require significant amounts of working
capital. While the Company has funded its growth historically through working
capital loans and internally generated funds, there can be no assurance that the
proceeds of this offering, together with available cash, bank lines of credit
and cash from operations, will be sufficient to satisfy the Company's
anticipated cash requirements. If additional funds are required, the Company's
operations may need to be significantly curtailed or the Company could be forced
to obtain financing on terms that cause the Company's business, financial
condition and results of operations to be adversely affected.
The Company may expand its product lines through the acquisition of
complementary businesses, products and technologies. However, the Company has no
present plans, agreements or commitments to make any such acquisitions.
Acquisitions involve numerous risks, including difficulties in the assimilation
of
11
<PAGE> 13
operations and products, the ability to manage geographically remote units, the
diversion of management's attention from other business concerns, the risks of
entering markets in which the Company has little or no experience or expertise
and the potential loss of key employees of any acquired companies. In addition,
acquisitions may involve the expenditure of significant funds. The Company's
management has no prior experience in managing acquisitions. There can be no
assurance that any acquisition would result in long-term benefits to the Company
or that management would be able to manage effectively the acquired business.
See "Use of Proceeds," "Capitalization" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
CONCENTRATION OF SHARE OWNERSHIP AND CONTROL OF COMPANY
Upon completion of this offering, the Founders of the Company will
beneficially own approximately 72.5% of the Company's outstanding Common Stock
(68.4% if the Underwriters' over-allotment option is exercised in full).
Accordingly, the Founders will, acting together, have sufficient voting power to
control the outcome of all corporate matters submitted to the vote of
shareholders, including election of most or all directors, proxy contests,
mergers, tender offers, open-market purchase programs and other purchases of the
Company's Common Stock that could give shareholders of the Company the
opportunity to realize a premium over the then prevailing market price for their
shares of Common Stock. See "Principal and Selling Shareholders."
BROAD MANAGEMENT DISCRETION IN ALLOCATION OF PROCEEDS
The Company expects to use a substantial portion of the net proceeds of
this offering for general corporate purposes, including capital expenditures and
working capital, but has not yet identified specific uses for such proceeds. The
Company's management will retain broad discretion as to the allocation of the
proceeds of this Offering. The failure of management to apply such funds
effectively could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Use of Proceeds."
ANTI-TAKEOVER PROTECTIONS
The Company's Articles of Incorporation provide for authorized but unissued
Preferred Stock, the terms of which may be fixed by the Board of Directors, and
eliminate cumulative voting and provide for a classified Board of Directors once
the Company has 800 shareholders of record on the record date of the first
annual meeting of shareholders. The Company's Bylaws establish advance notice
requirements for shareholder proposals and director nominations, subject to
certain exceptions. These provisions could have the effect of delaying,
deterring or preventing a change in control of the Company. See "Description of
Capital Stock -- Certain Anti-Takeover Effects."
NO PRIOR MARKET; VOLATILITY OF STOCK PRICE
The initial public offering price will be determined by negotiations among
the Company, the Selling Shareholders and the Representatives of the
Underwriters. Prior to this Offering, there has been no public market for the
Common Stock, and, although the Company has applied for listing of the Common
Stock on the Nasdaq National Market, there can be no assurance that an active
public market for the Common Stock will develop or be sustained after this
Offering.
The Company believes that factors such as announcements of developments
related to the Company's business, fluctuations in the Company's operating
results, general conditions in the data storage and information access markets
served by the Company or in the worldwide economy, an outbreak of hostilities, a
shortfall in sales or net income compared to securities analysts' expectations,
announcements of technological innovations or new data storage and information
access products or enhancements by the Company or its competitors, developments
in patents or other intellectual property rights and developments in the
Company's relationships with its customers, suppliers, computer resellers, VARs
and distributors could cause the price of the Company's Common Stock to
fluctuate, perhaps substantially. In addition, in recent years the stock
12
<PAGE> 14
market in general, and the market for shares of technology companies and of
small capitalization companies in particular, have experienced extreme price
fluctuations, which have often been unrelated or disproportionate to the
operating performance of the affected companies. There can be no assurance that
the market price of the Company's Common Stock will not experience such
fluctuations. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE
Sales of Common Stock in the public market after this Offering could
adversely affect the market price of the Common Stock. Unless purchased by an
affiliate of the Company, the 3,025,000 shares of Common Stock to be sold in
this Offering will be freely transferable without restriction. All of the
Company's existing shareholders, who will hold 7,975,000 shares of Common Stock
after this offering, have agreed that they will not, without the consent of
Montgomery Securities, sell or otherwise dispose of any equity securities of the
Company for a period of 180 days following the effective date of this offering.
Upon expiration of the lock-up agreements with Montgomery Securities,
substantially all of such shares will be eligible for resale subject to the
limitations of Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). In general, under Rule 144 as currently in effect, a
person who has beneficially owned shares for at least two years 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 1% of the number of shares of Common Stock then outstanding
(approximately 110,000 shares immediately after this offering) or, if greater, a
number based on average weekly trading volume of the Common Stock. Such sales
are also subject to certain notice requirements and to the availability of
current public information about the Company. The Securities and Exchange
Commission has proposed to reduce each of these Rule 144 holding periods by one
year. The Founders, who will hold 7,975,000 shares of Common Stock (7,521,250
shares if the Underwriters' over-allotment option is exercised in full) after
this Offering, are entitled to certain demand and "piggy back" registration
rights with respect to the registration of such shares for offer or sale to the
public. In addition, the Company intends to register with the Securities and
Exchange Commission a total of 540,000 shares of Common Stock reserved for
issuance under the 1995 Stock Option Plan as soon as practicable following the
date of this Prospectus, of which approximately 57,000 shares of Common Stock
subject to vested options will be eligible for resale upon the expiration of
lock-up agreements 180 days following the effective date of this Offering. Any
shares subject to lock-up agreements may be released at any time without notice
by Montgomery Securities. Sales of substantial amounts of shares in the public
market may adversely affect the market price of the Company's Common Stock. See
"Shares Eligible For Future Sale."
ABSENCE OF DIVIDENDS
The Company has never declared or paid dividends on its Common Stock and
does not anticipate declaring or paying any cash dividends in the foreseeable
future. See "Dividend Policy."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of the Common Stock offered hereby will incur immediate and
substantial dilution of $7.91 in the net tangible book value per share of Common
Stock. Additional dilution will occur when existing optionholders exercise their
options. See "Dilution."
13
<PAGE> 15
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company hereby at an assumed initial public offering price of
$10.00 per share, after deducting the estimated underwriting discount and
offering expenses, are estimated to be approximately $17,820,000. The Company
will not receive any portion of the proceeds from the sale of shares of Common
Stock by the Selling Shareholders.
The Company intends to use a portion of the net proceeds from this Offering
to repay all outstanding short-term debt under its line of credit (approximately
$3.5 million at October 25, 1996), approximately $300,000 to acquire capital
equipment to increase production capacity and the remainder for general
corporate purposes, including working capital. The short-term debt which will be
repaid bears interest at the lender's prime rate (8.25% at October 25, 1996)
plus 1.5%. The initial term of the line of credit expires on November 29, 1996,
but automatically renews for successive one year periods unless terminated by
either party within a specified period in advance of the automatic renewal date.
A portion of the net proceeds also may be used for the acquisition of
businesses, products and technologies that are complementary to those of the
Company. The Company has no present plans, agreements or commitments to make any
acquisitions. While the Company may enter into discussions with acquisition
candidates in the future, no assurances can be given that any such acquisitions
will ultimately be consummated. Pending such uses, the Company expects to invest
the net proceeds in short-term, interest-bearing, investment grade obligations.
See "Capitalization."
DIVIDEND POLICY
The Company has never declared or paid dividends on its Common Stock. The
Company's line of credit prohibits the payment of cash dividends on the Common
Stock without prior lender approval. The Company currently intends to retain any
future earnings for use in its business and does not anticipate paying any cash
dividends on its Common Stock in the foreseeable future.
14
<PAGE> 16
CAPITALIZATION
The following table sets forth the capitalization of the Company as of July
26, 1996 and as adjusted for the sale of the shares of Common Stock offered by
the Company hereby at an assumed offering price of $10.00 per share and the
application by the Company of the estimated net proceeds therefrom (after
deducting the estimated underwriting discount and offering expenses).
<TABLE>
<CAPTION>
JULY 26, 1996
----------------------
ACTUAL AS ADJUSTED
------ -----------
(IN THOUSANDS)
<S> <C> <C>
Line of credit......................................................... $4,185 $ --
====== ======
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized;
none issued and outstanding, actual and as adjusted............... -- --
Common stock, no par value; 65,000,000 shares authorized, 9,000,000
shares issued and outstanding actual; 11,000,000 shares issued and
outstanding, as adjusted(1)....................................... 3 17,823
Retained earnings.................................................... 5,133 5,133
------ ------
Total shareholders' equity........................................ 5,136 22,956
------ ------
Total capitalization......................................... $5,136 $22,956
====== ======
</TABLE>
- ---------------
(1) Excludes 227,700 shares of Common Stock issuable upon exercise of options
outstanding as of July 26, 1996 at a weighted average exercise price of
$2.68 and an aggregate of 312,300 additional shares reserved for future
issuance as of such date under the Company's 1995 Stock Option Plan. See
"Management -- Employee Benefit Plans."
15
<PAGE> 17
DILUTION
As of July 26, 1996, the Company had a net tangible book value of
$5,136,000, or $0.57 per share of Common Stock. Net tangible book value per
share is determined by dividing the net tangible book value of the Company
(total tangible assets less total liabilities) by the number of shares of Common
Stock outstanding as of July 26, 1996. After giving effect to the sale by the
Company of the shares of Common Stock offered by the Company hereby at an
assumed initial public offering price per share of $10.00 and (after deducting
the estimated underwriting discount and offering expenses), the Company's net
tangible book value as of July 26, 1996 would have been $22,956,000 or $2.09 per
share of Common Stock. This represents an immediate increase in net tangible
book value of $1.52 per share to existing shareholders and an immediate dilution
of $7.91 per share to new investors purchasing shares in the Offering. The
following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $10.00
Net tangible book value per share before the Offering............. $0.57
Increase per share attributable to new investors.................. 1.52
-----
Pro forma net tangible book value per share after the Offering...... 2.09
------
Dilution per share to new investors............................... $ 7.91
======
</TABLE>
The following table sets forth on a pro forma basis, as of July 26, 1996,
the relative investments of all existing shareholders and new investors
purchasing shares of Common Stock from the Company in the Offering. The
calculations are based on an assumed initial public offering price of $10.00 per
share.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
--------------------- ---------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders(1)....... 9,000,000 81.8% $ 3,000 --% $ --
New investors.................. 2,000,000 18.2 20,000,000 100.0 10.00
----- ----- ------ -----
Total........................ 11,000,000 100.0% $20,003,000 100.0%
===== ===== ====== =====
</TABLE>
- ---------------
(1) Sales by the Selling Shareholders in the Offering will reduce the number of
shares held by existing shareholders to 7,975,000 shares, or 72.5% of the
total shares of Common Stock outstanding (7,521,250 shares, or 68.4% of the
total shares of Common Stock if the Underwriters' over-allotment option is
exercised in full), and will increase the number of shares held by new
investors to 3,025,000 shares, or 27.5% of the total shares of Common Stock
outstanding (3,478,750 shares, or 31.6% of the total shares of Common Stock
if the Underwriters' over-allotment option is exercised in full) after the
Offering.
The foregoing table excludes an aggregate of 278,700 shares of Common Stock
issuable upon the exercise of stock options outstanding as of October 25, 1996
at a weighted average exercise price of $3.64 per share and an aggregate of
261,300 additional shares of Common Stock reserved for future issuance as of
such date under the Company's 1995 Stock Option Plan. To the extent that any
options of the Company are exercised, there will be further dilution to new
investors. See "Management -- Employee Benefit Plans" and "Principal and Selling
Shareholders."
16
<PAGE> 18
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data of the Company set forth below
should be read in conjunction with the Consolidated Financial Statements of the
Company, including the notes thereto, and Management's Discussion and Analysis
of Financial Condition and Results of Operations included elsewhere herein. The
Company utilizes a fiscal year ending on the Friday nearest July 31. The
selected consolidated financial data as of July 28, 1995 and July 26, 1996 and
for the two years in the period ended July 26, 1996 are derived from the
consolidated financial statements of the Company audited by Arthur Andersen LLP,
independent public accountants, whose report appears elsewhere in the
Prospectus. The remaining selected consolidated financial data are derived from
the audited consolidated financial statements of the Company not included
herein. Historical results are not necessarily indicative of results to be
expected in the future.
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------------------------
JULY 31, JULY 30, JULY 29, JULY 28, JULY 26,
1992 1993 1994 1995 1996
--------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Net sales................................ $ 42,898 $ 41,726 $ 34,502 $ 44,660 $ 73,456
Cost of sales............................ 34,029 32,273 27,187 32,858 51,489
------- ------- ------- ------- -------
Gross profit........................... 8,869 9,453 7,315 11,802 21,967
Selling, general and administrative
expenses............................... 7,045 7,293 6,902 9,362 15,401
Research and development expenses........ 886 1,014 983 1,108 1,635
Loss on closure of German subsidiary..... -- -- 409 -- --
------- ------- ------- ------- -------
Operating income (loss)................ 938 1,145 (979) 1,332 4,931
Interest expense......................... (91) (195) (151) (195) (282)
Other income (expense), net.............. 13 (44) -- -- --
------- ------- ------- ------- -------
Income (loss) before income taxes...... 860 906 (1,130) 1,137 4,649
Provision (benefit) for income taxes..... 285 297 (357) 414 1,800
------- ------- ------- ------- -------
Net income (loss)...................... $ 575 $ 609 $ (773) $ 723 $ 2,849
======= ======= ======= ======= =======
Net income (loss) per share(1)........... $ 0.06 $ 0.07 $ (0.08) $ 0.08 $ 0.31
======= ======= ======= ======= =======
Weighted average number of shares(1)..... 9,167 9,167 9,167 9,167 9,167
======= ======= ======= ======= =======
</TABLE>
<TABLE>
<CAPTION>
JULY JULY JULY JULY JULY
31, 30, 29, 28, 26,
1992 1993 1994 1995 1996
------ ------ ------ ------- ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED BALANCE SHEET DATA:
Cash...................................... $ 24 $ 57 $ 211 $ 212 $ 793
Working capital........................... 1,285 1,911 1,275 1,868 4,632
Total assets.............................. 8,230 9,072 7,638 11,011 21,112
Line of credit............................ 1,909 2,868 1,679 1,484 4,185
Long-term obligations..................... -- -- -- 34 --
Total shareholders' equity................ 1,729 2,338 1,564 2,287 5,136
</TABLE>
- ------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of net income (loss) per share.
17
<PAGE> 19
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
OVERVIEW
The Company was formed in 1987. Its first product was a 5 1/4 inch floppy
disk drive for the IBM PS/2 personal computer. At the time, IBM was shipping the
PS/2 with only a 3 1/2 inch floppy disk drive, although the software and data of
most computer users were still stored on 5 1/4 inch formats. The Company
subsequently began producing aftermarket disk drive upgrade products for
computer products sold by other manufacturers, and such upgrade products
continue to be an important area of focus of the Company's business. In 1990,
the Company developed and began selling CD-ROM multimedia kits, consisting of a
CD-ROM drive, a sound card, software drivers and various CD-ROM software titles.
The Company initially achieved rapid growth in the sales of multimedia kits to
mass merchants and national distributors. However, in fiscal 1994, the Company
began to experience significant losses on sales of its multimedia kits due to
high return rates, high product support costs and rapid price erosion that
resulted both in decreased margins on initial sales and in losses on unsold
inventory and returned products. Accordingly, in early fiscal 1994, the Company
began to phase out sales of multimedia kits, and in fiscal 1995 it discontinued
sales of these kits. Sales of multimedia kits declined from 27% of net sales in
fiscal 1994 to 4% of net sales in fiscal 1995. Additionally, the Company
incurred a one-time charge to operations of $409,000 in fiscal 1994 related to
the closure of its German sales office. These factors contributed to the
Company's net loss for fiscal 1994.
In fiscal 1994, the Company introduced its CD server and array product line
while continuing to provide a broad line of disk drive upgrade products. In
addition, during fiscal 1994, the Company began utilizing computer resellers and
VARs as its primary sales channel instead of mass merchants and national
distributors. During fiscal 1995, the Company experienced rapid growth in sales
of its CD servers and arrays, and also commenced shipment of its first RAID
arrays and fault tolerant, high performance storage servers. Sales of hard disk
drive upgrade products, CD servers and arrays, and RAID and tape backup
subsystem products represented 70%, 3% and 0% of net sales in fiscal 1994, and
60%, 31% and 5% of net sales in fiscal 1995. During fiscal 1996, sales of CD
servers and arrays increased more rapidly than sales of the Company's other
product lines. As a result, in fiscal 1996, sales of CD servers and arrays
represented 49% of net sales, while sales of hard disk drive upgrade products
and RAID and tape backup subsystem products represented 48% and 3% of net sales,
respectively. See "Business -- Products and Technology -- Products Under
Development."
The Company generally records sales upon product shipment. The Company
presently maintains agreements with many of its computer resellers, VARs and
distributors that allow limited returns (including stock balancing) and price
protection privileges. The Company has in the past experienced high return
rates. During fiscal 1996, customer returns and price protection charges
represented approximately 12% of gross sales. The Company maintains reserves for
anticipated returns (including stock balancing) and price protection privileges.
Under a product evaluation program established by the Company, computer
resellers, VARs, distributors and end users generally are able to purchase
products on a trial basis and return the products within a specified period if
they are not satisfied. Evaluation units are not recorded as sales until the
customer has issued a purchase order.
Historically, the Company's gross margins have experienced significant
volatility. The Company's gross margins vary significantly by product line, and,
therefore, the Company's overall gross margin varies with the mix of products
sold by the Company. For example, low capacity disk drive subsystems generally
result in lower gross margins than CD servers and arrays. As sales of CD servers
and arrays have become a larger percentage of the Company's total sales, the
Company has experienced a corresponding increase in its overall gross margins.
From fiscal 1994 to fiscal 1996, sales of CD servers and arrays grew from
approximately 3% to 49% of net sales, contributing to an improvement in the
Company's gross margin from approximately 21.2% to 29.9%. The Company's markets
are also characterized by intense competition and declining average unit
18
<PAGE> 20
selling prices as products mature over the course of a historically typical six
to twelve month life cycle of individual products. In addition, the Company's
gross margins may be adversely affected by availability and price increases
associated with key products and components from the Company's suppliers, some
of which have been in short supply, and inventory obsolescence resulting from
older generation products or the unexpected discontinuance of third party
components. Finally, the Company's margins vary with the mix of its distribution
channels and with general economic conditions. For any of the foregoing reasons,
the Company's overall margin could decline in the future from the levels
experienced in recent quarters. See "Risk Factors -- Potential Fluctuations in
Future Operating Result," "-- Component Shortages; Reliance on Sole or Limited
Source Suppliers" and "-- Rapid Technological Change; Short Product Life
Cycles."
RESULTS OF OPERATIONS
The following table sets forth the Company's statement of operations data
as a percentage of net sales for the periods indicated.
<TABLE>
<CAPTION>
YEARS ENDED
----------------------------------
JULY 29, JULY 28, JULY 26,
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales........................................................ 100.0% 100.0% 100.0%
Cost of sales.................................................... 78.8 73.6 70.1
----- ----- -----
Gross profit................................................... 21.2 26.4 29.9
Selling, general and administrative expenses..................... 20.0 20.9 21.0
Research and development expenses................................ 2.8 2.5 2.2
Loss on closure of German subsidiary............................. 1.2 -- --
----- ----- -----
Operating income (loss)........................................ (2.8) 3.0 6.7
Interest expense................................................. 0.4 0.4 0.4
----- ----- -----
Income (loss) before income taxes.............................. (3.2) 2.6 6.3
Provision (benefit) for income taxes............................. (1.0) 1.0 2.5
----- ----- -----
Net income (loss).............................................. (2.2)% 1.6% 3.9%
===== ===== =====
</TABLE>
Net Sales
The following table sets forth the net sales and percentages of net sales
represented by each of the Company's product lines.
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------
JULY JULY JULY
29, 28, 26,
1994 1995 1996
------- ------- -------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
NET SALES DATA:
CD servers and arrays......................................... $ 1,108 $14,060 $35,985
Disk drive upgrade products................................... 24,082 26,644 35,432
RAID and tape backup subsystem products....................... -- 2,185 2,039
Multimedia kits............................................... 9,312 1,771 --
------ ------ ------
Total............................................... $34,502 $44,660 $73,456
====== ====== ======
PERCENTAGE OF NET SALES DATA:
CD servers and arrays......................................... 3% 31% 49%
Disk drive upgrade products................................... 70 60 48
RAID and tape backup system products.......................... -- 5 3
Multimedia kits............................................... 27 4 --
------ ------ ------
Total............................................... 100% 100% 100%
====== ====== ======
</TABLE>
19
<PAGE> 21
Net sales increased 29.4% from $34.5 million in fiscal 1994 to $44.7
million in fiscal 1995 and increased an additional 64.5% to $73.5 million in
fiscal 1996. Net sales increased from fiscal 1994 to fiscal 1995 primarily as a
result of increased sales of the Company's CD servers and arrays and, to a
lesser extent, increased sales of its disk drive upgrade products and initial
sales of its RAID products, which were partially offset by decreased sales of
its CD-ROM multimedia kits that were discontinued in fiscal 1995. Net sales
increased from fiscal 1995 to fiscal 1996 primarily as a result of increased
sales of CD servers and arrays (including sales of higher performance CD
servers) and, to a lesser extent, increased sales of hard disk drive upgrade
products.
International sales, primarily to European customers and secondarily to
Middle Eastern, Latin American and Pacific Rim customers, were $6.5 million,
$6.2 million and $8.4 million, and accounted for approximately 19%, 14% and 11%
of net sales for fiscal 1994, 1995 and 1996, respectively. International sales
remained essentially constant for fiscal 1995 compared to fiscal 1994 as
increased sales of hard disk drive upgrade products were offset by decreased
sales of CD-ROM multimedia kits. International sales increased by 35.6% from
fiscal 1995 to fiscal 1996 primarily as a result of increased sales of CD-ROM
servers and arrays. See "Risk Factors -- Risk of International Sales and
Operations."
Gross Profit
The Company's gross profit totalled $7.3 million, $11.8 million and $22.0
million during fiscal 1994, 1995 and 1996, respectively. The Company's gross
margin increased from 21.2% in fiscal 1994 to 26.4% in fiscal 1995, due
primarily to a shift in product mix toward higher margin CD servers and arrays
and a decrease in the losses associated with the discontinuance of sales of the
Company's CD-ROM multi-media kits. During fiscal 1996, gross margin further
increased to approximately 29.9% due primarily to a continuing shift in product
mix toward higher margin CD servers and arrays as well as an increase in gross
margins for the Company's CD servers and arrays, and to a lesser extent from an
increase in gross margins on the Company's hard disk drive upgrade and RAID
products.
Selling, General and Administrative Expenses
Selling, general and administrative expenses increased 35.6% from $6.9
million in fiscal 1994 to $9.4 million in fiscal 1995 and further increased
64.5% to $15.4 million in fiscal 1996. These expenses represented 20.0%, 20.9%
and 21.0% of net sales in fiscal 1994, 1995 and 1996, respectively. The increase
from fiscal 1994 to fiscal 1995 was due primarily to an increase in various
marketing and advertising programs to promote sales of the Company's CD servers
and arrays and RAID subsystems in vertical niche markets, as well as increases
in staffing to support the Company's growth. The increase from fiscal 1995 to
fiscal 1996 was due primarily to increased marketing expenses associated with
advertising, direct mail and channel telemarketing, as well as increases in
sales commissions and general and administrative staffing necessary to support
the Company's growth. Selling, general and administrative expenses for fiscal
1995 and 1996 included $0.9 million and $2.9 million, respectively, for bonuses
for executive officers. The Company anticipates that the dollar amount of its
selling, general and administrative expenses will increase as the Company
continues to expand its efforts to penetrate certain sales channels and regions
and continues to strengthen management information and telecommunications
systems.
Research and Development Expenses
Research and development expenses, consisting primarily of personnel
expenses, increased 12.7% from $1.0 million in fiscal 1994 to $1.1 million in
fiscal 1995 and further increased 47.6% to $1.6 million in fiscal 1996. These
expenses represented 2.8%, 2.5% and 2.2% of net sales in fiscal 1994, 1995 and
1996, respectively. The slight dollar increase from fiscal 1994 to fiscal 1995
resulted primarily from the Company's enhanced efforts to develop its CD server
and array product lines and RAID subsystems. This increase was largely offset by
the Company's discontinuation of its development efforts for its CD-ROM
multimedia kit business. The dollar increase from fiscal 1995 to fiscal 1996 was
due primarily to the Company's expanded efforts to develop new CD servers and
RAID products and to develop CD FORCE, a CD-ROM network server incorporating
Procom's proprietary software data access management system. The Company
anticipates that the dollar amount of its research and development expenses will
increase, and also may increase as a percentage of net
20
<PAGE> 22
sales, with the addition of dedicated engineering resources to develop new
product categories to insure that the Company's products are compatible with a
wide range of hardware platforms and network topologies and to further develop
MESA, the Company's proprietary client/server management storage architecture.
In addition, the Company intends to continue to update software drivers to
ensure that the Company's CD servers and arrays function with a variety of
hardware platforms and network operating systems. To date, all of the Company's
software development costs have been expensed as incurred, as the impact of
capitalizing software costs under Financial Accounting Standard No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased or Otherwise
Marketed" would have been immaterial to the Company's financial statements.
Loss on Closure of German Subsidiary
The Company incurred a one-time charge to operations of $409,000 related to
the closure of its German sales office during fiscal 1994. The Company formed
its German subsidiary in fiscal 1993 to support its increasing European sales
and marketing efforts primarily related to sales of CD-ROM multimedia kits.
However, the Company closed its German office in April 1994 due to the
subsidiary's lack of profitability resulting from higher average general and
administrative costs, slower realization of sales than anticipated and a lower
gross margin product mix. During fiscal 1995, the Company completed the
liquidation of the subsidiary's assets.
Interest Expense
The Company maintains a working capital line of credit to support its
accounts receivable and inventory levels. Interest expense increased from
$151,000 in fiscal 1994 to $195,000 in fiscal 1995 as the Company's sales, and
resulting accounts receivable and inventory levels, increased. Interest expense
further increased to $282,000 for fiscal 1996 as the Company utilized its
available credit lines to support further increases in accounts receivables and
inventory levels.
Income Taxes
The Company's effective tax rates were (31.6)%, 36.4% and 38.7% for fiscal
1994, 1995 and 1996, respectively. In fiscal 1994, the Company utilized net
operating losses to reduce its state income tax rate below the statutory level.
For fiscal 1995 and 1996, the Company's effective tax rate approximated federal
and state statutory rates, with moderate reductions due to the Company's use of
a foreign sales corporation ("FSC"). For fiscal 1994 and 1995, the Company
received benefits from the research and experimentation credit, while the fiscal
1996 benefit was significantly reduced due to legislation which temporarily
denied the credit. See Note 4 of Notes to Consolidated Financial Statements.
The Company adopted Statement of Financial Accounting Standard No. 109,
"Accounting for Income Taxes," on July 28, 1994. The cumulative effect of the
adoption as of July 28, 1994 was immaterial and, as a result, the Company did
not restate any prior financial statements.
21
<PAGE> 23
QUARTERLY INFORMATION
The following tables set forth certain unaudited financial information in
dollars and as a percentage of net sales for the eight quarters of fiscal 1995
and 1996. The Company believes that all necessary adjustments, consisting only
of normal recurring accruals, have been included in the amounts stated below to
present fairly the selected quarterly information when read in conjunction with
the Consolidated Financial Statements and the notes thereto included elsewhere
herein. The operating results for any quarter are not necessarily indicative of
results for any subsequent period or for the entire fiscal year.
The Company operates under thirteen week quarters that end on the Friday
closest to the calendar quarter end. As a result, a fiscal quarter may not end
on the same day as the calendar quarter end.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
OCTOBER 28, JANUARY 27, APRIL 28, JULY 28, OCTOBER 27, JANUARY 26, APRIL 26, JULY 26,
1994 1995 1995 1995 1995 1996 1996 1996
----------- ----------- --------- -------- ----------- ----------- --------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $ 9,048 $10,040 $12,121 $ 13,451 $15,275 $15,801 $17,775 $ 24,605
Cost of sales........... 6,701 7,213 9,100 9,844 11,133 10,948 12,263 17,145
------ ------- ------- ------- ------- ------- ------- -------
Gross profit.......... 2,347 2,827 3,021 3,607 4,142 4,853 5,512 7,460
------ ------- ------- ------- ------- ------- ------- -------
Selling, general and
administrative........ 1,851 2,255 2,350 2,906 2,875 3,333 3,829 5,364
Research and
development........... 210 226 325 347 292 386 459 498
------ ------- ------- ------- ------- ------- ------- -------
Operating income...... 286 346 346 354 975 1,134 1,224 1,598
Interest expense........ 40 58 56 41 60 61 51 110
------ ------- ------- ------- ------- ------- ------- -------
Income before income
taxes............... 246 288 290 313 915 1,073 1,173 1,488
Provision for income
taxes................. 91 105 104 114 356 418 457 569
------ ------- ------- ------- ------- ------- ------- -------
Net income............ $ 155 $ 183 $ 186 $ 199 $ 559 $ 655 $ 716 $ 919
====== ======= ======= ======= ======= ======= ======= =======
Net income per share.... $ 0.02 $ 0.02 $ 0.02 $ 0.02 $ 0.06 $ 0.07 $ 0.08 $ 0.10
====== ======= ======= ======= ======= ======= ======= =======
Weighted average number
of shares(1).......... 9,167 9,167 9,167 9,167 9,167 9,167 9,167 9,167
====== ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ------------------
(1) See Note 1 of Notes to Consolidated Financial Statements for a description
of the computation of net income (loss) per share.
The following table sets forth certain unaudited quarterly financial
information of the Company for the eight quarters of fiscal 1995 and 1996
expressed as a percentage of net sales.
<TABLE>
<CAPTION>
QUARTERS ENDED
---------------------------------------------------------------------------------------------------
OCTOBER 28, JANUARY 27, APRIL 28, JULY 28, OCTOBER 27, JANUARY 26, APRIL 26, JULY 26,
1994 1995 1995 1995 1995 1996 1996 1996
----------- ----------- --------- -------- ----------- ----------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales............ 74.1 71.8 75.1 73.2 72.9 69.3 69.0 69.7
----- ----- ----- ----- ----- ----- ----- -----
Gross profit........... 25.9 28.2 24.9 26.8 27.1 30.7 31.0 30.3
----- ----- ----- ----- ----- ----- ----- -----
Selling, general and
administrative......... 20.4 22.5 19.4 21.6 18.8 21.1 21.5 21.8
Research and
development............ 2.3 2.3 2.7 2.6 1.9 2.4 2.6 2.0
----- ----- ----- ----- ----- ----- ----- -----
Operating income....... 3.2 3.4 2.8 2.6 6.4 7.2 6.9 6.5
Interest expense......... 0.5 0.6 0.4 0.3 0.4 0.4 0.3 0.5
----- ----- ----- ----- ----- ----- ----- -----
Income before income
taxes................ 2.7 2.8 2.4 2.3 6.0 6.8 6.6 6.0
Provision for income
taxes.................. 1.0 1.0 0.9 0.8 2.3 2.6 2.6 2.3
----- ----- ----- ----- ----- ----- ----- -----
Net income............... 1.7% 1.8% 1.5% 1.5% 3.7% 4.2% 4.0% 3.7%
===== ===== ===== ===== ===== ===== ===== =====
</TABLE>
The Company's net sales have increased every quarter for the eight quarters
of fiscal 1995 and 1996. The increased sales have resulted primarily from
increased shipments of CD servers and arrays and higher capacity
22
<PAGE> 24
disk drive upgrade products. Sales of CD servers and arrays as a percentage of
the Company's net sales increased from 32% during the first fiscal quarter of
fiscal 1995 to 42% in the fourth quarter of fiscal 1996. In addition to seasonal
factors that generally contribute to a relatively flat second fiscal quarter,
the Company believes that its net sales for the second quarter of fiscal 1996
were adversely impacted by inclement weather and the federal government
shutdown, which restricted federal purchasing due to budgetary uncertainty and
the absence of federal purchasing decision-makers. The 38.4% increase in net
sales for the fourth quarter of fiscal 1996 over the third quarter of fiscal
1996 was due primarily to increased sales of CD servers and arrays, combined
with a significant increase in sales of high capacity storage upgrade products
as the Company capitalized on unique market opportunities.
Gross margin ranged from 24.9% for the third quarter of fiscal 1995 to
31.0% for the third quarter of fiscal 1996. Fluctuations in gross margin
resulted from variations in revenue mix from sales of higher margin CD servers
and arrays and RAID products, and sales of lower margin medium capacity disk
drive storage products. Certain other factors which contribute to decreases in
the Company's gross margins include the lower margins generated by sales of
products near the end of their life cycles and increased international sales,
which generally involve slightly lower average unit sales prices as a result of
the increased use of distributors rather than computer resellers or VARs.
Selling, general and administrative expenses ranged from 18.8% of net sales
in the first quarter of fiscal 1996 to 22.5% of net sales in the second quarter
of fiscal 1995. While selling, general and administrative expenses have
generally increased, fluctuations in these expenses as a percentage of net sales
have resulted primarily from varying levels of net sales and seasonal variations
in marketing, advertising and trade show expenditures.
Research and development expenses ranged from 1.9% of net sales in the
first quarter of fiscal 1996 to 2.7% of net sales in the third quarter of fiscal
1995. Research and development expense levels fluctuated quarterly depending
primarily on the size of the Company's engineering staff, as well as the number
and nature of projects under development during any given quarter.
The Company's results of operations have in the past varied significantly
and are likely in the future to vary significantly as a result of a number of
factors, including the mix of products sold, the volume and timing of orders
received during the period, the timing of new product introductions by the
Company and its competitors, product line maturation, the impact of price
competition on the Company's average selling prices, the availability and
pricing of components for the Company's products, changes in distribution
channel mix and product returns or price protection charges from customers. Many
of these factors are beyond the Company's control. Although the Company has
experienced growth in sales in recent periods, there can be no assurance that
the Company will experience growth in the future or be profitable on an
operating basis in any future period. In addition, due to the short product life
cycles that characterize the Company's markets, a significant percentage of the
Company's sales each quarter may result from new products or product
enhancements introduced in that quarter. Since the Company relies on new
products and product enhancements for a significant percentage of sales, failure
to continue to develop and introduce new products and product enhancements or
failure of these products or product enhancements to achieve market acceptance
could have a material adverse effect on the Company's business, financial
condition and results of operations. The Company also has historically
capitalized on short-term market opportunities for volume purchases of certain
components at favorable prices. For example, in the quarter ended July 26, 1996,
the Company capitalized on a one-time opportunity to purchase a significant
volume of high capacity disk drive upgrade products at below market prices,
which resulted in a price advantage to the Company that enhanced the Company's
sales and results of operations for that quarter. There can be no assurance that
the Company will be able to capitalize on such opportunities in the future. In
addition, the Company's fiscal second quarter sales have historically remained
relatively flat due primarily to heavy reseller participation in trade shows
that detract from reseller selling efforts, end user budget constraints that
restrict end user purchases, and a higher than average number of holidays during
that quarter.
LIQUIDITY AND CAPITAL RESOURCES
The Company was founded with minimal capital and has never raised
additional equity funds. For the past three fiscal years, the Company has
satisfied its operating cash requirements principally through net
23
<PAGE> 25
income, supplemented by periodic borrowings of funds under its working capital
line of credit and increases in accounts payable and accrued expenses. Net cash
provided by operating activities was $1.4 million and $0.4 million in fiscal
1994 and fiscal 1995, respectively, and net cash used in operating activities
was $1.7 million in fiscal 1996. In fiscal 1994, net cash provided by operating
activities was provided primarily by a decrease in accounts receivable and an
increase in accounts payable, partially offset by the Company's net loss for the
year. In fiscal 1995, net cash provided by operating activities resulted
primarily from an increase in accounts payable and accrued expenses, together
with the Company's net income, offset in part by increases in inventories and
accounts receivable. In fiscal 1996, net cash provided by operating activities
resulted primarily from increases in inventories and accounts receivable, offset
in part by the Company's net income and increases in accounts payable and
accrued expenses. During fiscal 1994 and 1995, the Company used $1.2 million and
$0.2 million, respectively, to repay net borrowings under its line of credit,
and, during fiscal 1996, the Company borrowed $2.7 million, net of repayments,
to finance operations and purchase $0.4 million of property and equipment.
In November 1994, the Company instituted a revolving line of credit with
Finova Capital ("Finova"). The facility was amended in November 1995 to provide
the Company with up to $6.0 million in working capital, based upon the Company's
accounts receivable and inventory levels. Finova also makes available to the
Company various flooring commitments pursuant to which the Company may finance
the purchase of up to $7.0 million in inventory from certain of the Company's
vendors who have credit arrangements with Finova. As of July 26, 1996, there was
approximately $4.2 million outstanding under the credit facility, and $4.5
million outstanding under the flooring arrangements. The agreement governing the
credit facility requires the Company to maintain certain financial covenants,
minimum levels of tangible net worth and minimum levels of liquidity. As of July
26, 1996, the Company was in material compliance with the covenants of the
Finova line of credit. The line is secured by substantially all of the assets of
the Company. The initial term of the line of credit expires on November 29,
1996, but automatically renews for successive one year periods unless terminated
by either party within a specified period in advance of the automatic renewal
date. See Note 5 of Notes to Consolidated Financial Statements.
As of July 26, 1996, the Company had cash balances of $0.8 million and $1.8
million of availability under its line of credit. The Company believes that the
cash proceeds from this offering, together with existing cash balances and
available credit under its existing line of credit, will be sufficient to meet
anticipated cash requirements for at least the next twelve months. In the event
the Company's plans require more capital than is presently anticipated, the
Company's remaining cash balances may be consumed and additional sources of
liquidity such as debt or equity financings may be required to meet working
capital needs. There can be no assurance that additional capital beyond the
amounts currently forecasted by the Company will not be required nor that any
such required additional capital will be available on reasonable terms, if at
all, at such time or times as required by the Company.
RECENT ACCOUNTING PRONOUNCEMENTS
During March 1995, the Financial Accounting Standards Board issued
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of," which requires the Company to review for
impairment of long-lived assets, certain identifiable intangibles and goodwill
related to those assets whenever events or changes in circumstances indicate
that the carrying amount of an asset may not be recoverable. In certain
situations, an impairment loss should be recognized under the statement. The
Company's adoption of the statement will be effective for fiscal 1997. The
Company has studied the implications of the statement, and based on its initial
evaluation, does not expect it to have a material impact on the Company's
financial condition and results of operations.
During October 1995, the Financial Accounting Standards Board issued
Statement No. 123 ("SFAS No. 123"), "Accounting for Stock-Based Compensation,"
which establishes a fair value based method of accounting for stock-based
compensation plans under the statement. The Company is currently following the
requirements of APB Opinion No. 25, "Accounting for Stock Issued to Employees."
The Company plans to adopt SFAS No. 123 during fiscal 1997 utilizing the
disclosure alternative under the statement.
24
<PAGE> 26
BUSINESS
This Prospectus contains forward-looking statements which involve risks and
uncertainties. The Company's actual results may differ significantly from the
results discussed in the forward-looking statements. Factors that might cause
such a difference include, but are not limited to, those discussed in "Risk
Factors."
Procom designs, manufactures and markets enterprise-wide data storage and
information access solutions that are compatible with all major hardware
platforms, network protocols and operating systems. The Company believes it is
currently a leader in the market for CD-ROM servers and arrays due to its
extensive distribution channels as well as the scalability, performance, ease of
use and multi-protocol support of its products. The Company provides end users
with disk drive upgrades for servers, desktops and notebook computers and also
provides high performance, fault tolerant RAID solutions and tape backup
subsystems. The Company utilizes computer resellers, VARs and distributors to
sell its products to a wide variety of end users, including Fortune 500
corporations, governmental agencies, and financial and educational institutions.
BACKGROUND
In recent years, there has been a significant migration to client/server
and network computing. Today's networks are much larger and more complex than
early networks, often consisting of multiple servers (application servers, file
servers, database servers and communications servers) and hundreds or even
thousands of desktop clients manufactured by a number of different vendors.
These servers and clients may utilize a number of different operating systems,
including Unix, Novell NetWare, IBM OS/2 Warp, Windows NT, Windows 95, Windows
3.1 and Macintosh OS. The distributed nature of these networks, together with
the increased use of computers throughout organizations to create and store
files, has resulted in an increase in the amount and dispersion of critical data
across the clients and servers on these networks.
As the size of networks and the amount of information used and stored on
those networks have increased, access to such data has become increasingly
important to end users. Users increasingly rely on the information resident on
networks and PCs, such as customer databases, inventory records, sales tracking
reports and research reference materials, for the effective accomplishment of
daily business activities. As a result, end users must have real-time access to
secure and reliable network data, regardless of the location of such data, and
the supporting operating system. These factors have made it complicated to
access information stored on networks.
The increase in the size of networks has been accompanied by concurrent
increases in the size and complexity of computer data and files. Application
software developers continue to introduce software packages that increasingly
incorporate features which require large amounts of storage, such as graphics,
video and sound. For example, a minute of uncompressed full motion video and
sound could require 1,800 megabytes of storage. Similarly, the size and
complexity of images stored and manipulated using document imaging systems have
intensified network storage requirements. Further, the increasing popularity of
the Internet as a means of communication and a medium by which to access and
distribute information has contributed to the demand for increased storage, as
users download a wide variety of complex data from the Internet.
Organizations evaluating alternatives for additional storage capacity must
consider a number of factors, including total cost of ownership, capacity,
access time, security, reliability and the ability to integrate such additional
storage into an existing network. The cost of ownership includes not only the
initial cost of a storage system but also the expenses associated with the
ongoing administration of the network. Administrative costs associated with
network data storage have increased as networks have grown more complex and
systems administrators have been required to monitor storage systems that
support multiple operating systems and multiple applications across numerous
clients.
In response to increased demand for cost-effective storage of different
types of information, a variety of storage media have been developed, including
hard disk, magnetic tape and CD-ROM. Hard disk storage is a popular means of
storing and accessing large amounts of information that is continually changing.
Hard disk storage provides rapid access time, but is a relatively expensive
storage medium and is easily erased. Magnetic
25
<PAGE> 27
tape is the least expensive storage medium, but has the slowest access times.
Magnetic tape is therefore ideal for backing up large amounts of information
that is only expected to be accessed infrequently.
CD-ROM technology emerged in the early 1980s as a cost-effective method by
which to store and distribute large amounts of information. A single CD can
store approximately 650 megabytes of information, the same amount which could be
contained on over 100,000 pages of paper. In addition, CD-ROMs offer data
reliability and security, as they cannot be altered or erased, are not
susceptible to data loss when computer systems fail and have a life expectancy
of 50 to 100 years. Since CD-ROMs cannot be erased or written over, however,
they are not suitable for storage situations in which information must be
continually updated and altered. However, for organizations that require
periodic distribution of written material, such as law reference books, parts
lists, catalogues or manuals, CD-ROMs are much more cost-effective and practical
than paper-based documents. The proliferation of network computing and the rapid
increase in CD-ROMs as a means of information distribution and storage have
fueled demand for CD-ROM systems that provide network wide access.
RAID storage systems have developed in response to demand for increased
data storage, performance, security, reliability, fault tolerance and
availability, as well as for constant access. RAID is a method for allocating
data across several hard disk drives and allowing a server microprocessor to
access those drives simultaneously, thus increasing system storage and
input/output performance. In addition, lost data on any drive can be recreated
using special RAID algorithms, thus ensuring the immediate availability of RAID
protected data even in the event of a disk drive failure.
The increase in the importance and volume of stored, complex data has
increased demand for secure and reliable methods of storage that allow for
efficient and cost-effective protection and management of such data. These
factors have also increased demand for total storage solutions that can quickly
and efficiently provide access to large volumes of data resident on a variety of
clients and servers running different operating environments, as well as data
generated by a wide range of applications. In addition, users are increasingly
demanding solutions comprised of not only hardware for cost-effective storage of
and access to large amounts of secure and reliable information, but also
software that manages information flow and reduces the high costs of network
storage administration.
PROCOM SOLUTION
The Company provides a wide range of products designed to address the data
storage and information access requirements of client/server computing
environments. The Company's CD servers and arrays, disk drive upgrades, and RAID
and tape backup subsystems are easy to install and use and have a relatively low
overall cost of ownership. Procom's CD servers and arrays address the expanding
use of CD-ROM as a distribution medium by providing clients with simultaneous
access to up to 63 CD-ROMs at 30x speed. The Company's disk drive upgrades allow
users to utilize their existing hardware for longer periods of time, thereby
extending the life of their initial investment. The Company's RAID and tape
backup subsystems provide high performance, fault tolerant storage of over a
terabyte of data for large network information databases.
The Company's recently introduced CD FORCE CD-ROM network server
incorporates an embedded operating system that centralizes data access
management services, thereby reducing administrative costs. This embedded
operating system is based on the Company's managed enterprise storage
architecture ("MESA"). MESA's operating system software allows for non-intrusive
plug and play compatibility with most popular network operating systems,
allowing products incorporating the MESA architecture to be installed by simply
connecting one cable to the network. The central processing unit contained in
each MESA-equipped server allows the server to manage and process data without
burdening the network server. See "-- Products and Technology -- Products Under
Development."
The core elements of the Company's solution include:
Broad Product Line. The Company supplies a wide range of products with a
variety of prices, storage capacities, access times, storage media,
hardware/software combinations and levels of redundancy. The
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<PAGE> 28
Company's products are designed to meet a broad spectrum of end user data
storage and information access needs and range from disk drive storage upgrade
products to the Company's recently introduced Hyper CD-30x module, a CD-ROM and
hard disk combination, which the Company believes has the fastest CD-ROM access
time and data transfer rates available. The Company's broad range of products
allows its computer reseller and VAR customers to utilize Procom as a single
source to satisfy the storage requirements of a wide range of end users, thereby
reducing the need for multiple vendors.
Modular and Scalable Design. The Company's products are designed to address
the evolving data storage and information access requirements of enterprise-wide
computing environments. Procom's products are modular and can be linked together
to accommodate a customer's expanding data storage and information access
requirements.
Ease of Installation and Use. The Company's data storage and information
access solutions have been designed for ease of installation, configuration and
use in a variety of client/server networks. Many of the Company's CD servers and
arrays can be added to computer networks by simply attaching them as nodes to
existing network cabling. The Company's recently introduced CD FORCE server
contains a graphical user interface that facilitates end user access to
information contained on CD-ROMs.
Reduced Cost of Ownership. Procom incorporates a number of features into
its products that reduce the costs associated with both the installation of its
products and the down-time of networks and storage systems. The Company's
products include numerous fault tolerant features, such as redundant and
hot-swappable power supplies and fans and hot-swappable disk and CD-ROM drives
that allow users to repair a damaged drive without interrupting the operation of
the network. The Company's CD-ROM and RAID products include features that reduce
administrative costs for network administrators by providing remote management
and notification of actual or potential system or component failures, and its
RAID products also provide automatic reconstruction of data and easy adjustment
of RAID levels. In addition, the operating system software incorporated into the
Company's MESA architecture is designed to further reduce administrative costs
by centralizing network data storage management.
Multi-platform, Multi-protocol Support. Procom's products are compatible
with a wide range of client networks and operating systems, including Unix,
Novell NetWare, IBM OS/2 Warp, Windows NT, Windows 95, Windows 3.1 and Macintosh
OS. In addition, the Company's products support multiple network topologies such
as Ethernet, FDDI, Fast Ethernet and Token Ring. This compatibility allows
customers to implement the Company's storage solutions in a broad range of
enterprise-wide computing environments.
BUSINESS STRATEGY
The Company's objective is to provide products that fulfill customers'
evolving needs for data storage and information access products across all major
computers and operating systems. The key elements of the Company's strategy to
achieve this objective are as follows:
Develop Additional Network Storage Products. The Company is focused on
developing server products that will enable networks to provide and manage
additional storage capacity more efficiently. These products will share many of
the design characteristics of the Company's current CD FORCE network server,
integrating a high performance central processing unit, network interface card
and Procom's proprietary embedded operating system software, and will be
designed to allow users on the network to store and access information more
quickly. The Company plans to develop additional storage management software and
to introduce additional servers that will utilize a variety of storage media,
including hard disks (with RAID functionality) and magnetic tape, which can be
attached directly to and will be compatible with a wide variety of network
environments.
Enhance Reseller Relationships. The Company focuses its marketing efforts
on developing an awareness of the Company's data storage and information access
solutions with various computer resellers, VARs and distributors of its
products. These relationships provide the Company with indirect access to and
improved visibility among large corporations and other institutional end users.
The computer resellers, VARs and
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<PAGE> 29
distributors also function as a sales force for the Company, allowing the
Company to reach a large number of end users without incurring the significant
expenditures associated with a direct sales force, and provide ongoing service
for the Company's storage systems. The Company intends to sell a broader range
of its products and services to these existing customers.
Target Vertical Markets. The Company promotes higher levels of sales of its
CD servers and arrays through its channel partners by targeting a portion of its
marketing efforts to specific end users that require enterprise-wide access to
information published on CD-ROM, such as law and accounting firms, educational
organizations, medical service providers and governmental agencies. The Company
employs a similar strategy with regard to the sale of its high capacity RAID
solutions by targeting its marketing efforts to end users with large information
storage and access requirements, such as companies that have recently migrated
from mainframe computer systems to personal computer networks, video-on-demand
providers and companies developing electronic imaging applications. The Company
intends to continue to target these vertical markets in the future.
Expand Strategic Relationships. The Company seeks to expand its
relationships with the primary suppliers of components of its products,
including drive manufacturers such as Seagate Technology, Inc. and Toshiba and
network software operating system developers such as Novell, Inc. and Microsoft
Corporation. These relationships provide the Company with early access to
information regarding future product releases and technological developments
that allow the Company to anticipate and respond to market opportunities. The
Company also collaborates with manufacturers regarding the design of many
components that the Company ultimately incorporates into its data storage and
information access products. In addition, the Company maintains relationships
with content providers, such as legal publishers and video suppliers. These
relationships provide the Company with opportunities to receive free publicity
and promotion within niche end user markets when content providers utilize
Procom data storage and information access systems in conjunction with the
display of their own products at trade shows and other marketing events.
Finally, the Company also maintains informal relationships with certain end
users of its products that enable the Company to learn of and respond to
changing end user needs. The Company intends to expand its relationships with
suppliers and manufacturers, content providers and end users in the future.
Deliver Timely Solutions. The Company believes that its focus on
cost-effective data storage and information access allows it to remain a
technology leader. The Company has focused on responding quickly to and
capitalizing on demands for specialized data storage and information access
products. The Company anticipates that additional market opportunities will
arise as demand for data storage and information access products continues to
increase, and the Company intends to maintain an organizational structure that
will allow it to quickly respond to these opportunities if they develop.
PRODUCTS AND TECHNOLOGY
The Company's principal product lines are CD servers and arrays, disk drive
upgrade products and RAID and tape backup subsystems. These product lines
accounted for approximately 31%, 60% and 5%, respectively, of the Company's net
sales in fiscal 1995, and approximately 49%, 48% and 3%, respectively, of the
Company's net sales in fiscal 1996. Many of the Company's products are offered
in a variety of storage capacities and performance levels and, as a result, are
sold at varying prices. See "Risk Factors -- Dependence on CD Servers and
Arrays."
CD Servers and Arrays
The Company's CD servers and arrays provide an efficient method by which to
store and share large amounts of information across a network. The Company's CD
servers and arrays are available in a variety of plug and play configurations,
from four to 63 CD drives, and can be configured with either 4x or 8x CD-ROM
drives. In addition, the Company has recently introduced its Hyper CD-30x
module, a CD-ROM and hard disk combination, which allows 30x data transfer
speeds and is based on proprietary technology licensed to the Company. Several
CD arrays also are available as servers, configured at the Company's factory
with specified hardware and software. The Company provides each CD server and
array with optional software drivers for
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<PAGE> 30
Unix, Novell NetWare, IBM OS/2 Warp, Windows NT, Windows 95, Windows 3.1, and
Macintosh OS. Many of the Company's CD servers and arrays contain the Company's
built-in "Smart SCSI CD" board, which maps up to seven CD drives to a single
SCSI ID, thereby allowing additional CD servers and arrays to be added to a
network. The Company's recently released CD FORCE Server incorporates the
Company's MESA architecture and is designed to (i) provide plug and play
compatibility with most popular network operating systems, (ii) function without
burdening the network server and (iii) provide cross/multi-platform
compatibility. The Company's internally developed CD-ROM network data access
management software is not presently available on all major hardware platforms,
and of the Company's CD servers and arrays shipped to date that contain network
data management software, substantially all included third-party software. See
"Risk Factors -- Dependence on CD Servers and Arrays." In addition, by working
with CD manufacturers and component suppliers, the Company has developed special
enclosures to provide security for the CDs and prevent their loss, theft or
damage.
Certain information with respect to the Company's primary CD servers and
arrays is set forth below:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE
PRODUCT LINE KEY FEATURES RETAIL PRICE
- ---------------------------------------------------------------------------------------------
CDT Array - Allows up to 13GB of information to be distributed $3,900-$21,300
over a network via 7, 14 or 21 CD-ROMs.
- Requires no hardware installation.
- Ethernet or Token Ring network connectivity.
- ---------------------------------------------------------------------------------------------
CDT Server - Allows up to 13GB of information to be distributed $12,000-$25,500
over a network via 14 or 21 CD-ROMs.
- Requires no hardware installation.
- In addition to Ethernet and Token Ring connectivity,
CDT Servers support most popular network connectivity.
- Includes CD-ROM management software for most popular
network platforms.
- Includes embedded Pentium-based server to improve
overall performance.
- ---------------------------------------------------------------------------------------------
CDRAX - Allows up to 40GB of information on CD-ROM to be $75,000
distributed over a network.
- Provides simultaneous access to up to 63 CD-ROMs.
- Requires no hardware installation.
- In addition to Ethernet and Token Ring connectivity,
CDRAX supports other popular network connectivity.
- Contains hot swappable CD-ROM drives and redundant
power supplies and fans.
- Includes CD-ROM management software for most popular
network platforms.
- Includes embedded Pentium-based server to improve
overall performance.
- ---------------------------------------------------------------------------------------------
</TABLE>
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<PAGE> 31
The Company has recently introduced the following products:
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE RETAIL
PRODUCT LINE KEY FEATURES PRICE
- ---------------------------------------------------------------------------------------------
Hyper CD-30x Module - Provides access time as low as 10.5 ms and $13,300-$77,000
data transfer rate of 4,500KB/sec.
- Includes intelligent SCSI adapter designed
to migrate CD-ROM images onto the embedded
FAST-SCSI hard drive, providing 30x
performance.
- Supports most operating systems.
- Allows up to 41GB of information to be
distributed over a network via 12, 18 and 63
CD-ROMs.
- ---------------------------------------------------------------------------------------------
CD FORCE 14, 21 and 63 - Enables cross-platform CD-ROM access by $9,700-$72,500
embedding Procom's proprietary storage
management software within its CD Servers.
- Provides direct connect features to
heterogeneous networking environments.
- Operates independently of the network
operating system.
- Includes scalable architecture and
multi-protocol access.
- Allows up to 41GB of information to be
distributed over a network via 12, 18 and 63
CD-ROMs.
- Provides advanced security and metering
options.
- Includes embedded Pentium-based server to
improve overall performance.
- Supports Ethernet, Fast Ethernet, FDDI and
Token Ring connectivity.
- Available in 4x, 8x and 30x configurations.
- ---------------------------------------------------------------------------------------------
</TABLE>
The Company also produces CD-ROM publishing and recording packages as part
of its strategy to capitalize on the use of CD-ROM as a popular information
storage medium for a number of industries. Procom's internal and external
CD-Recorders are designed to meet the archiving needs of desktop computer users.
Disk Drive Upgrades
The Company remains committed to supplying products that enhance the
performance and capacity of notebook and desktop computers, as well as network
servers. The addition of a single high-capacity hard disk drive subsystem to a
network server adds several gigabytes of storage capacity and improves overall
speed and performance. A complete installation kit is included with each hard
disk drive for easy integration. Several hard disk drives can be combined to
enable data to be spanned, striped or mirrored in a variety of configurations.
Due to the increase in the popularity of notebook computers, sales of the
Company's ATOM notebook upgrade drive kits have increased to 14% of net sales in
fiscal 1996 from 9% in fiscal 1995.
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<PAGE> 32
Certain information with respect to the Company's hard disk drive storage
upgrade products is set forth below:
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE
PRODUCT LINE KEY FEATURES RETAIL PRICE
- -----------------------------------------------------------------------------------------------
ATOM - Includes internal 2.5 inch IDE hard drives. $350-$1,100
- Ranges in capacity from 540MB to 2.1GB.
- Equipped with all necessary components required for
installation.
- Compatible with most popular notebook computers.
- -----------------------------------------------------------------------------------------------
SI - High-performance internal FAST SCSI hard drives. $250-$2,850
- Ranges in capacity from 540MB to 9GB.
- Equipped with all necessary components required for
installation.
- Compatible with most desktop computers, workstations and
servers.
- -----------------------------------------------------------------------------------------------
MD - High-performance external FAST SCSI hard drives. $380-$5,890
- Ranges in capacity from 540MB to 18GB.
- Equipped with all necessary components required for
installation.
- Compatible with most workstations and servers.
- -----------------------------------------------------------------------------------------------
PR-IDE - Includes Internal 3.5 inch IDE hard drives with software. $250-$550
- Ranges in capacity from 540MB to 2.5GB.
- Equipped with all necessary components required for
installation.
- Compatible with most desktop computers and workstations.
- -----------------------------------------------------------------------------------------------
</TABLE>
The Company also offers CD-ROM drives for stand-alone desktop applications
and a variety of other storage peripheral products.
RAID and Tape Backup Subsystems
The Company's RAID products present a solution to the storage and
input/output ("I/O") speed, capacity and reliability challenges presented by
network computing. RAID is a method of distributing data in stripes across
several hard disk drives, allowing the microprocessor to access those drives
simultaneously, thus increasing storage system I/O performance. RAID solutions
generally reduce bottlenecks that occur in non-RAID environments when multiple
users access data simultaneously. In addition, RAID configurations can provide a
high degree of fault tolerance because they continuously calculate and store a
unique parity, using logic to accompany each data stripe. If any drive fails,
the remaining drives in the system may use the parity value to reconstruct the
data on the failed drive, thus ensuring the immediate availability of RAID
protected data even in the event of a disk drive failure.
RAID is available in several levels that differ in the ways they allocate
data for storage and achieve fault tolerance. End users of RAID products select
the appropriate RAID level depending on overall cost and performance for their
particular requirements. Often, the user's actual application will dictate the
appropriate level of data access, fault tolerance and redundancy desired. For
example, applications such as on-line processing of financial transactions
require instantaneous access to multiple disks, while multimedia or video-
on-demand applications generally require single-user access, but at a
significantly higher data transfer rate. The Company offers RAID products for
all commonly used RAID levels for most hardware platforms and network
environments. In addition, the Company also designs and sells tape backup
storage solutions for a variety of computing environments to provide an
additional level of protection for mission-critical data.
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<PAGE> 33
Certain information with respect to the Company's high capacity fault
tolerant RAID and tape storage systems is set forth below:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
APPROXIMATE
PRODUCT KEY FEATURES RETAIL PRICE
- ----------------------------------------------------------------------------------------------
LANForce - Provides storage capacities up to 56GB. $11,800-$22,700
- Includes redundant components to reduce system
failures.
- Operating system independent.
- Hardware-based RAID solution frees host computer
from RAID management tasks.
- Supports varying levels of RAID.
- Offers optional cache memory to increase I/O
performance.
- ----------------------------------------------------------------------------------------------
RAID Rax - Provides all LANForce features. $70,000-$145,000
- Provides storage capacity from 50GB to over 1
terabyte.
- Available in rack-mounted configuration that
allows flexibility for expansion as storage needs
increase.
- Accommodates both 3.5 inch and 5.25 inch drive
shuttles concurrently.
- Accepts multiple host inputs.
- ----------------------------------------------------------------------------------------------
DLT Tape Drive - Digital linear tape backup up to 280GB. $8,500-$16,900
- Provides cost-effective method of unattended
backup.
- Compatible with most major backup software.
- ----------------------------------------------------------------------------------------------
</TABLE>
Products Under Development
The Company's product development priorities are aimed at meeting the
growing market demand for complete storage solutions that are capable of
addressing the evolving needs and challenges associated with distributed network
computing. Current product development efforts focus on developing and
integrating the Company's own proprietary software as a value-added component of
the Company's complete storage solutions. The Company is continuing to enhance
MESA, to address the growing complexity of network data storage management that
has resulted from increases in heterogeneous network computing environments and
the amount and complexity of data. The MESA client/server storage management
architecture incorporates an embedded operating system designed to centralize
data storage management services, and thereby reduce administrative costs
associated with data storage management. MESA's operating system software
furnishes it with non-intrusive plug and play compatibility with most popular
network operating systems, allowing products incorporating the MESA architecture
to be installed by simply connecting one cable to the network. The
multi-platform support provided by MESA enables client workstations to use their
own operating systems and still benefit from the functionality of MESA without
any additional software. The central processing unit contained in each
MESA-equipped server is designed to allow the server to manage and process data
without burdening the network server. MESA is being designed to provide a
cost-effective storage management solution that supports heterogenous
client/server computing environments, is scalable to support networks and allows
clients using multiple operating systems to access simultaneously a single
storage system. MESA-equipped products enable systems administrators to manage
CD storage systems and are being designed to manage other storage systems either
locally or remotely and provide administrators with the ability to monitor and
restrict access by end users within the network. The Company's recently released
CD FORCE server incorporates the Company's MESA architecture and is designed to
centralize data management storage services for information contained on CD-ROM.
See "-- CD Servers and Arrays." No assurances can be given, however, that the
Company will be successful in any of its product development efforts or that,
even if
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<PAGE> 34
successfully developed, the Company's products will achieve timely market
acceptance. See "Risk Factors -- Rapid Technological Change; Short Product Life
Cycles."
CUSTOMERS AND APPLICATIONS
The Company sells its products principally to computer resellers, VARs and
distributors, which in turn sell to end users of the Company's products. During
fiscal 1995 and 1996, combined sales to Vanstar Corporation and Intelligent
Electronics totalled approximately 17.6% and 18.1%, respectively, of net sales.
The loss of either or both of these customers could have a material adverse
effect on the Company's business, financial condition and results of operations.
See "Risk Factors -- Customer Concentration; Distribution Strategy Risks."
End users of the Company's products include Fortune 500 corporations,
government agencies and financial and educational institutions. The following
table lists certain end users of the Company's products.
<TABLE>
<S> <C> <C>
INDUSTRIAL GOVERNMENT LEGAL AND ACCOUNTING
Arco Executive Office of the Cravath Swaine & Moore
Chevron USA President Weil Gotschal Manges
Exxon US Department of Defense Ernst & Young
Mitsubishi Los Angeles City Attorney Price Waterhouse
Lockheed Los Angeles County Sheriff Clark Hill PLC
Gilette U.S. Public Defender
Veterans Administration
EDUCATION TELECOMMUNICATIONS TECHNOLOGY
George Washington AT&T EDS
University MCI Honeywell
Harvard University Pacific Bell IBM
UCLA US West Microsoft
UC Davis Law School Southwestern Bell Wang
Sybase
ENTERTAINMENT FINANCIAL SERVICES
20th Century Fox Bank One
Walt Disney Pictures Prudential
(Buena Vista Studios) Union Bank
Warner Communications
</TABLE>
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<PAGE> 35
SALES AND MARKETING
The Company's strategy is to deploy a comprehensive sales, marketing and
support infrastructure to meet the data storage and access requirements of users
of complex client/server networks, both in the U.S. and internationally. The
Company uses multiple distribution channels to reach end user customers. In the
United States, the Company has agreements with and sells its products through
domestic computer aggregators such as Intelligent Electronics Inc. and Inacom
Corporation, as well as smaller independent VARs and computer resellers. The
Company also sells its products to computer resellers that function as corporate
computer consultants to large corporations, educational institutions and
governmental agencies, and maintains sales agreements with many of these
consultants. These corporate computer consultants include AmeriData, Inc.,
Electronic Data Systems Corporation, Entex Information Services, Vanstar
Corporation and others. Often these entities, and many of the Company's other
customers, consult with end users of the Company's products in business and
government, and then incorporate the Company's products into larger overall
enterprise solutions. The Company recently reached an agreement with Tech Data
Corporation, a computer products distributor, to sell the Company's products
nationally. Outside the United States, the Company's products are sold through
approximately 40 major distributors in a number of countries throughout the
world. See "Risk Factors -- Customer Concentration; Distribution Strategy Risks;
Inventory Protection."
The Company has agreements with many of its computer resellers, VARs and
distributors relating to purchases of the Company's products. These agreements
do not provide the Company with any guaranteed levels of purchases. The Company
frequently grants limited rights to customers to return products purchased from
the Company in exchange for new purchases and also provides price protection to
its customers. The short product life cycles of the Company's products and the
difficulty in predicting future sales increase the risk that new product
introductions, price reductions by the Company or its competitors or other
factors affecting the personal computer and upgrade storage industries could
result in significant product returns. In addition, new product introductions by
the Company's suppliers or its competitors or other market factors may require
the Company to reduce prices in a manner or at a time that gives rise to
significant price protection charges. The Company estimates returns and
potential price protection charges based on historical experience and accrues
reserves therefor. However, these accruals may prove insufficient, and future
returns and price protection charges may have a material adverse effect on the
Company's business, financial condition and results of operations, particularly
in light of the rapid product obsolescence that often occurs during product
transitions. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
Historically, the Company enjoyed a relatively short sales cycle due to the
low cost of its disk drive upgrade products. The typical sales cycle, from the
time an end user contacted a reseller to the shipment by the Company of the
desired product, often took less than one week. However, as the Company's
product mix has shifted to increasingly complex and higher priced data storage
and information access solutions, the Company's sales cycle has lengthened
significantly. Because Procom's CD servers and arrays and RAID storage and
access systems often represent a significant expenditure for end users, these
users frequently require the approval of several individuals within their
organization before placing purchase orders. In addition, the complexity of the
Company's storage and RAID storage access solutions often require the Company to
demonstrate its products for end users, further lengthening the sales cycle. In
response to increasing demand from end users, the Company has instituted an
evaluation program that provides for a specified period in which end users may
install and evaluate the Company's products. Evaluation units are not booked as
revenue until the Company receives a purchase order at the end of such trial
period. During fiscal 1996, approximately 52% of evaluation units were purchased
at the end of their trial period.
The Company maintains a sales and sales support staff that at July 26, 1996
consisted of 49 people, substantially all of whom were located at the Company's
principal offices in Irvine, California. The Company's sales are made to
computer resellers, VARs and distributors through telemarketing efforts by sales
representatives. The Company has recently hired its first U.S. field sales
representative and is considering the implementation of a field sales force in
various cities throughout the U.S. In addition, the Company has recently added
independent sales representatives in Canada, France and Germany. The field sales
representatives provide, among other things, regional technical support for
customers, perform product demonstrations and, where desirable, accompany
computer resellers and VARs on sales calls with end users. The Company
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<PAGE> 36
intends to expand the number of its international sales representatives. The
Company also intends to add additional international distributors in targeted
countries and is developing joint marketing relationships with certain
distributors. For fiscal 1995 and 1996, international sales represented
approximately 14% and 11%, respectively, of the Company's net sales. See "Risk
Factors -- Risks of International Sales and Operations."
The Company's marketing group, as of July 26, 1996, consisted of 13 persons
engaged in a number of activities designed to help the Company achieve better
market recognition and ultimately increased sales. This group's responsibilities
include (i) advertising in magazines targeted to specific markets, (ii)
conducting various promotional programs with the Company's computer resellers,
VARs and distributors, including cooperative advertising arrangements and
special programs where employees of the Company's computer resellers, VARs and
distributors can earn cash awards for their efforts in recommending or selling
the Company's products to end users, (iii) coordinating the Company's
participation in various trade shows, including COMDEX and specific vertical
applications shows such as LegalTech and (iv) cooperating with publishers and
authors of industry magazines in the testing and review of the Company's
products since market acceptance of each new generation of products is
influenced significantly by reviews in leading computer industry magazines and
related awards.
CUSTOMER SERVICE AND SUPPORT
The Company employs engineers and technicians who work closely with the
Company's sales personnel to assist computer resellers, VARs and distributors
and end users with pre- and post-sales support matters, as well as to provide
customers with technical support, education, training and consulting services.
The Company's customer service and technical support staff at July 26, 1996
consisted of approximately seven people located in Irvine, California. Customer
service personnel provide customer service through software driver updates,
upgrade programs and warranty service. Technical support personnel assist end
users and distributors by telephone, facsimile and on-line services, including
24-hour bulletin board services and World Wide Web sites, in the installation,
configuration and use of the Company's products. The Company also relies on its
computer resellers, VARs and distributors to provide technical support and
service. In November 1995, the Company signed an agreement with Siemens Nixdorf
Information Systems, a national provider of computer technical services
("Siemens"), to provide on-site installation and service to end users of its
high capacity CD servers and arrays. By contracting with Siemens, which has many
offices located throughout the U.S., the Company believes it should be able to
offer a rapid response to end user technical problems throughout the country.
The Company expects that its return rates resulting from technical problems will
decrease as Siemens field representatives demonstrate effective installation and
service methods at customer sites. The Company offers warranties on its products
ranging from one to five years. The Company's primary warranty efforts consist
of accepting defective products from customers and either repairing them or
returning the defective component to the original manufacturer for repair or
replacement during the applicable warranty period. The Company generally
protects itself by extending to its customers a warranty that corresponds to the
warranty provided to the Company by its suppliers. However, if a supplier were
to fail to meet its warranty obligations, the Company would be forced to assume
responsibility for warranties on all components manufactured by that supplier.
Such an event could have a material adverse effect on the Company's business,
financial condition and results of operations. See "Risk Factors -- Warranty
Exposure."
RESEARCH AND DEVELOPMENT
The Company believes that continued investment in research and development
is critical to the Company's ability to continue to introduce, on a timely basis
and at competitive prices, new and enhanced products incorporating the latest
technology and addressing emerging market needs. The Company's research and
development staff consisted of 33 employees as of July 26, 1996, which includes
software and hardware engineers and software quality assurance technicians.
Research and development expenses, primarily consisting of personnel expenses,
were $1.0 million, $1.1 million and $1.6 million in fiscal 1994, 1995 and 1996,
respectively, constituting 2.8%, 2.5% and 2.2% of net sales, respectively. The
Company anticipates that the dollar amount of its research and development
expenses will increase and that such expenses also may increase as a percentage
of net sales with the addition of dedicated engineering resources and personnel
to develop new
35
<PAGE> 37
product categories, to ensure that the Company's products are compatible with a
wide range of hardware platforms and network topologies, and to develop
additional software associated with the Company's MESA architecture, allowing
the Company to develop servers that support not only CD-ROM, but also hard disk
drive and magnetic tape storage media. The Company's hardware and software
engineers are engaged in ongoing development of new storage subsystems that
offer increasing storage capacity and compatibility with an expanding base of
computer networks and operating systems. See "-- Products and Technology --
Products Under Development." There can be no assurance that the Company's
development efforts will be successful, or that the Company will be able to
introduce competitive new products in a timely manner.
The market for the Company's products is characterized by frequent new
product introductions and rapid product obsolescence. These factors typically
result in short product life cycles, historically ranging from six to twelve
months. For example, the data transfer rate of CD-ROM products has increased
rapidly, resulting in the introduction of four, eight, ten and twelve speed
CD-ROMs. Similar technological advances have been made with regard to disk drive
storage capabilities and other performance standards. Each new product cycle
presents new opportunities for current or prospective competitors of the Company
to gain market share. The Company must continually monitor industry trends in
selecting new technologies and features to incorporate into its products. If the
Company is unable to successfully introduce new products on a timely basis, the
Company's sales could be adversely affected. Any such failure also could impair
the Company's brand name and the Company's ability to command the attention and
loyalty of computer resellers, VARs and distributors in future periods.
Moreover, because short product life cycles are accompanied by long lead times
for many components of the Company's products, the Company may be unable to
reduce or increase production in response to unexpected demand.
The Company's ability to introduce new products in a timely manner is
heavily dependent on its ability to develop or purchase firmware and software
drivers for its CD-ROM and disk drive products to interface effectively with
host networks and operating systems. While the Company endeavors to work with
its component suppliers to plan for the timing of introduction of new components
and to develop the associated firmware and software, unforeseen design issues or
other factors that delay introduction of these products could adversely affect
the Company's ability to ship new products. In addition, third party suppliers
may not employ the same testing and quality assurance procedures as the Company,
resulting in the receipt by the Company of defective components. This could
require the Company to find replacement components or wait for the resolution of
the problem, either of which could delay the Company's ability to bring products
to market and have a material adverse effect on the Company's business,
financial condition and results of operations. The Company's business also will
be adversely affected if new disk, CD-ROM drives or other components that it
selects from among those offered by its various vendors do not perform favorably
on a cost or performance basis compared to competing products. In addition,
products and technologies developed by competitors may render the Company's
products and technologies noncompetitive or obsolete. Finally, advances in
network and on-line technology and development of new, higher-capacity storage
media such as DVD may result in a reduction or replacement of CD-ROM as a data
storage and information access medium. If the Company is unable to adapt to
these and other technological advances by developing new products, the Company's
financial performance would be adversely affected. See "Risk
Factors -- Substantial Competition" and "-- Rapid Technological Change; Short
Product Life Cycles."
MANUFACTURING
The Company's primary manufacturing activities, located at the Company's
headquarters in Irvine, California, consist of testing, assembling and
integrating components to form data storage and information access subsystems.
The Company has historically operated without a material backlog. The Company
generally purchases the major components of such subsystems (hard disk drives,
CD-ROM drives or tape drives) based on historical requirements and forecasted
needs to provide it with two to three weeks of inventory. Some of the Company's
products require printed circuit boards, the assembly of which the Company often
subcontracts to third party vendors. The Company's CD servers and arrays
generally require a special housing of either metal or plastic, and the Company
contracts with third party vendors for the manufacture of those housing units.
The Company performs quality assurance testing on most of its products
36
<PAGE> 38
and subjects third-party supplied components to testing and evaluation before
including such components in the Company's product offerings. The Company
packages the assembled hard disk drives, CD-ROM drives and tape backup drives
with software, manuals and additional hardware components, which it generally
purchases from third party suppliers. The Company relies on a network of
independent subcontractors to supply certain custom components manufactured to
the Company's specifications. This network consists of a number of small firms
with limited financial resources. While the Company utilizes several firms to
mitigate the risk of business interruption, it is possible that several vendors
could simultaneously experience problems with production or financial stability,
which could have a material adverse effect on the Company's business, financial
condition and results of operations.
The Company depends on sole or limited source suppliers for certain key
components used in its products, particularly disk and CD-ROM drives. In recent
years, these components have been in short supply and frequently on allocation
by manufacturers, and the Company's size may place it at a competitive
disadvantage during such periods relative to larger competitors. Although the
Company maintains ongoing efforts to obtain adequate supplies of components,
there can be no assurances that the Company will obtain adequate supplies or
obtain such supplies at cost levels that would not adversely affect the
Company's gross margins. The Company has no guaranteed supply arrangements with
any of its sole or limited source suppliers and customarily purchases sole or
limited source components pursuant to purchase orders placed from time to time
in the ordinary course of business. Moreover, the Company's suppliers may, from
time to time, experience production shortfalls or interruptions that impair the
supply of components to the Company. Component shortages are likely to continue,
and there can be no assurance that such shortages will not adversely affect the
Company's business, financial condition and results of operations. Conversely,
in its attempt to counter actual or perceived component shortages, the Company
may overpurchase certain components, resulting in excess inventory and reducing
the Company's liquidity or, in the event of inventory obsolescence or a decline
in the market value of such inventory, causing inventory write-offs that could
materially adversely affect the Company's business, financial condition and
results of operations.
The Company relies on a small number of suppliers to continue to develop,
introduce and manufacture disk drives, CD-ROM drives and other components that
incorporate new technologies and features that compete favorably in
functionality and price with the offerings of other disk drive and CD-ROM
manufacturers, including competitors of the Company. The Company's dependence on
these sole or limited source suppliers, and the risks associated with any delay
or shortfall in supply, are exacerbated by the short life cycles that
characterize the Company's products. Any delay in the introduction by or
availability of disk drives or CD-ROM drives from the Company's suppliers or the
failure of such suppliers to provide functionality and performance on a cost
effective basis could have a material adverse effect on the Company's business,
financial condition and results of operations. Furthermore, it is possible that
the technology of the components the Company uses in manufacturing its products
will be rendered undesirable or obsolete by the components of other suppliers.
The Company would then be forced to establish relationships with new suppliers,
which could delay or preclude the Company from bringing competitive products to
market and have a material adverse effect on the Company's business, financial
condition and results of operations. See "Risk Factors -- Component Shortages;
Reliance on Sole or Limited Source Suppliers."
COMPETITION
The markets for the Company's products are intensely competitive. In each
of its primary product lines, the Company competes with a large number of disk
drive manufacturers, computer resellers, VARs and distributors. Some of the
Company's vendors also sell competing products to distributors, which then sell
these products to the Company's customers. Many of the Company's current and
potential competitors have significantly greater market presence, name
recognition and financial and technical resources than the Company, and many
have longstanding positions and established brand names in their respective
markets. In addition, certain of the Company's current and potential competitors
possess competitive cost advantages due to a number of factors, including lower
taxes and substantially lower costs of labor associated with international
operations. Finally, manufacturers of disk drives such as Seagate Technology
Inc., IBM, Quantum Corporation and Western Digital Corporation, and
manufacturers of CD-ROM drives, such as
37
<PAGE> 39
Toshiba, NEC Corporation and Plextor Corporation, may in the future become more
direct competitors of the Company to the extent that such manufacturers elect to
expand into the disk drive upgrade market or the CD server and array market.
The Company's primary competitors in the CD server and array market consist
of (i) CD array manufacturers such as Microtest, Inc., Meridian Data, Inc. and
Micro Design, Inc., which also furnish CD-ROM management software with their CD
array products, (ii) a number of hardware aggregators, computer resellers and
VARs that sell CD server products directly to end users, and (iii) various CD
server and array manufacturers. The Company believes that it competes
effectively in the CD server and array market by maintaining relationships with
computer resellers and VARs that possess key relationships with decision makers
at end users, while at the same time developing brand name identity through end
user marketing and advertisements.
The Company's primary competitors in the disk drive upgrade market are (i)
computer manufacturers that also market and sell storage upgrades, such as IBM,
Compaq and Hewlett-Packard, (ii) companies that specialize in reselling
replacement or increased capacity storage disk drives, such as Storage
Dimensions, Inc. or Ameriquest Technologies, Inc., and (iii) various national
distributors of third party upgrade drives such as Ingram Micro, Inc., Merisel,
Inc. and Tech Data Corporation. The Company believes it competes effectively
against each of these three classes of competitors in the disk drive upgrade
market by offering a broad range of reasonably priced storage upgrade products
to its computer resellers, VARs and distributors throughout the U.S. and
worldwide.
The Company's primary competitors in the RAID product market are (i)
computer manufacturers, such as IBM, Compaq and Hewlett-Packard, which generally
focus on providing storage upgrades for their products and (iii) companies that
sell storage solutions directly to end users, such as EMC Corporation and
StorageTek. These direct sales competitors historically have focused their
efforts on sales of high capacity storage products in the mainframe and
minicomputer environments. In addition, the Company competes with many smaller
enterprises that provide and sell unique solutions to various computer users.
The Company believes that its relationships with computer resellers, VARs and
distributors provide it with a competitive advantage over those manufacturers
that have in the past sold high capacity storage systems directly to end users.
The Company's success depends to a great extent on its ability to continue
to develop products that incorporate new and rapidly evolving technologies to
provide network users cost-effective data storage and information access
solutions. However, to the extent that disk drive storage or information access
products become more of a commodity, price competition among both computer
manufacturers and suppliers of disk drives and CD-ROM drives may result in the
availability of such storage and access at a low cost. These factors could
create increased competition for the Company's products which could cause the
Company to experience reduced gross profit margins on its products and could
have a material adverse effect on the Company's business, financial condition
and result of operations. The Company believes that the principal competitive
factors in the Company's markets are product reliability, price/value
relationship, product features and performance, brand name recognition, trade
periodical reviews, time to market with new features and products, industry
relationships, ease of installation and use, the quality of distribution
channels, product quality, technical support and customer service.
The Company believes that its brand name recognition allows the Company to
remain competitive in the network storage solutions aftermarket and the CD
server and array markets, and that the Company generally competes effectively
with respect to the other competitive factors enumerated above. See "Risk
Factors -- Substantial Competition" and "-- Rapid Technological Change; Short
Product Life Cycles."
INTELLECTUAL PROPERTY
The Company relies primarily on a combination of copyright and trade secret
protections and confidentiality agreements to establish and protect its
intellectual property rights. The Company has no patent protection for its
current product line. There can be no assurance that the Company's measures to
protect its intellectual property rights will deter or prevent unauthorized use
of the Company's technology. In addition,
38
<PAGE> 40
the laws of certain foreign countries may not protect the Company's intellectual
property rights to the same extent as the laws of the United States. The
Company's inability to protect its proprietary rights in the United States or
internationally may have a material adverse effect on the Company's business,
financial condition and results of operations.
Claims by third parties that the Company's current or future products,
procedures or processes infringe upon their intellectual property rights may
have a material adverse effect on the Company. The Company does not normally
perform any formal surveys or studies relating to whether its products or
processes infringe upon the intellectual property rights of others, and it would
be difficult to establish whether a given product or process infringes upon the
intellectual property rights of others. Intellectual property litigation is
complex and expensive, and the outcome of such litigation is difficult to
predict. Any future litigation, regardless of outcome, may result in substantial
expense to the Company and significant diversion of the efforts of the Company's
management and technical personnel. An adverse determination in any such
litigation may subject the Company to significant liabilities to third parties,
require disputed rights to be licensed from such parties, if licenses to such
rights could be obtained, or require the Company to cease using such technology.
There can be no assurance that if such licenses were obtainable, they would be
obtainable at costs reasonable to the Company. If forced to cease using such
technology, there can be no assurance that the Company would be able to develop
or obtain alternate technology. Accordingly, an adverse determination in a
judicial or administrative proceeding, changes in patent or copyright laws or
failure of the Company to obtain necessary licenses may prevent the Company from
manufacturing, using or selling certain of its products or processes, which may
have a material adverse effect on the Company's financial condition and results
of operations. In May 1995, Compaq made certain infringement and other claims
against the Company and obtained an injunction prohibiting the Company's use of
a small string of software code contained in certain of the Company's disk drive
products. Although the Company has rewritten the infringing code and settled the
lawsuit, the lawsuit required substantial management time, significant
expenditures for legal fees and costs and a one-time settlement payment and
ongoing royalty payments to Compaq for these products. See "Risk
Factors -- Intellectual Property Rights."
EMPLOYEES
As of July 26, 1996, the Company had 175 full-time employees, 52 of whom
were engaged in manufacturing (including testing, quality assurance and
materials functions), 33 in development engineering, 62 in sales and marketing,
7 in customer service and technical support, and 21 in finance and
administration. The Company's employees are not represented by any collective
bargaining agreements, and the Company has never experienced a work stoppage.
The Company believes that its employee relations are good. The Company's success
depends to a significant extent upon the continued service of its executive
officers and other key management and technical personnel. See "Risk
Factors -- Dependence on Key Personnel."
FACILITIES
The Company leases approximately 81,000 square feet of space in Irvine,
California for its corporate offices and operations. The property is leased by
the Company under a lease expiring in July 1998. The Company has an option to
extend the lease for one additional year. The Company believes that its existing
facilities will be adequate to meet its facilities requirements through July
1998.
39
<PAGE> 41
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company as of October 25, 1996
were as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------ --- ----------------------------------------------------------------
<S> <C> <C>
Alex Razmjoo 34 Chairman of the Board, President and Chief Executive Officer
Frank Alaghband 33 Executive Vice President, Operations, and Director
Alex Aydin 34 Executive Vice President, Finance and Administration, and
Director
Nick Shahrestany 33 Executive Vice President, Marketing and Information Technology
and Director
Frederick Judd 38 Vice President, Finance and General Counsel
Richard W. Ormond 44 Vice President, Marketing and Corporate Relations
Sam Inman(1)(2) 45 Director
Sam Yau(1)(2) 47 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
All directors hold office until the next annual meeting of shareholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Board of Directors (the "Board") and are appointed annually,
subject to the terms of their employment agreements. There are no family
relationships between the executive officers or directors of the Company.
Mr. Razmjoo is one of the Company founders and has served as its Chairman
of the Board, President and Chief Executive Officer since 1987. From 1984 to
1987, Mr. Razmjoo served as Director of Engineering of CMS Enhancements, Inc. He
received a B.S. degree in Electrical Engineering in 1984 from the University of
California, Irvine.
Mr. Alaghband is one of the Company founders and has served as its
Executive Vice President, Operations and as a director since 1987. From 1984 to
1987, Mr. Alaghband served as a Systems Engineer in the Computer Systems
Division of McDonnell Douglas. He received a B.S. degree in Electrical
Engineering in 1984 from the University of California, Irvine.
Mr. Aydin is one of the Company's founders and has served as the Company's
Executive Vice President, Finance and Administration and as a director since
1987. From December 1984 to August 1987, Mr. Aydin served as a Product
Development Engineer for Toshiba America, Inc. He received dual B.S. degrees in
Electrical Engineering and Biological Sciences in 1984 from the University of
California, Irvine and a M.S. degree in Biomedical Engineering in 1985 from
California State University, Long Beach.
Mr. Shahrestany is one of the Company founders and has served as its
Executive Vice President, Marketing and Information Technology and as a director
since 1987. From 1985 to 1987, Mr. Shahrestany served as Regional Sales Manager
of CMS Enhancements, Inc. He received a B.S. degree in Biological Sciences with
a minor in Electrical Engineering in 1984 from the University of California,
Irvine.
Mr. Judd has served as the Company's Vice President, Finance and General
Counsel since joining the Company in November 1993. Mr. Judd was General Counsel
for CMS Enhancements, Inc. from February 1992 to November 1993. From April 1987
to February 1992, Mr. Judd served as the Chief Financial Officer and Treasurer
of CMS Enhancements, Inc. Mr. Judd received a B.S. degree in Accounting in 1980
from Arizona State University and a J.D. degree in April 1985 from Brigham Young
University. Mr. Judd is a certified public accountant and is licensed to
practice law in California and Arizona.
Mr. Ormond has served as the Company's Vice President, Sales and Marketing
since October 1996. Mr. Ormond was a principal of Regis McKenna, Incorporated, a
management consulting company, from
40
<PAGE> 42
October 1990 to October 1996. He received a B.A. in 1974 from the University of
Notre Dame, and an M.B.A. in 1977 from the University of Southern California.
Mr. Inman has served as a director since October 1996. Mr. Inman has been
the Chief Executive Officer of Centura Software Corp. since January 1996. Mr.
Inman served as President and Chief Operating Officer of Centura Software Corp.
from April 1995 until January 1996. Immediately prior to joining Centura
Software Corp., Mr. Inman served as an independent consultant to a number of
high technology companies from 1994 until April 1995. Mr. Inman served as
President and Chief Operating Officer of Ingram Micro Inc., a worldwide
distributor of microcomputer products, from 1993 to 1994. Prior to assuming this
position, Mr. Inman served as President of IBM's Personal Computer Company for
the Americas from July 1992 to September 1993, President of IBM's National
Distribution Division from March 1991 to July 1992, Director for IBM's
Enterprise Systems Marketing Division from November 1988 to March 1991, and
prior to this he served in various other positions within IBM. Mr. Inman
received a B.S. degree in Mathematics from Purdue University.
Mr. Yau has served as a director since October 1996. Mr. Yau has been a
director and the President and Chief Executive Officer of National Education
Corporation, a provider of proprietary educational programs, since May 1995.
From May 1993 to November 1994, Mr. Yau was the Chief Operating Officer of
Advacare, Inc., a medical management company. From May 1987 to May 1993, Mr. Yau
was the Senior Vice President of Finance and Administration of Archive
Corporation, now part of Seagate Technologies Inc., a computer storage company.
He is a director of Steck Vaughn Publishing Corporation and Milcom International
Inc. Mr. Yau received a B.S. degree in Economics from the University of Hong
Kong and an M.B.A. from the University of Chicago.
BOARD COMMITTEES
The Board formed a Compensation Committee and an Audit Committee in October
1996. Each committee is comprised of Messrs. Yau and Inman, the outside
directors of the Company. Prior to such date, there were no committees of the
Board. The Compensation Committee makes recommendations to the Board concerning
salaries and incentive compensation for the Company's officers and employees and
administers the Company's 1995 Stock Option Plan. The Audit Committee reviews
the results and scope of the audit and other accounting-related services and
evaluates the Company's internal audit and control functions.
DIRECTOR COMPENSATION
Directors who are not compensated as employees of or consultants to the
Company receive a $6,000 annual retainer fee and a fee of $2,000 per board
meeting and $500 for any committee meeting that does not occur on the same day
as a Board meeting, and reimbursement of expenses incurred in attending Board
meetings. In October 1996, Messrs. Yau and Inman were granted stock options
under the 1995 Stock Option Plan to purchase 9,000 shares of the Company's
Common Stock with an exercise price equal to $8.33 per share.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Compensation Committee of the Board consists of Messrs. Yau and Inman.
No member of the Compensation Committee or executive officer of the Company has
a relationship that constitutes an interlocking relationship with executive
officers or directors of another entity.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company has adopted provisions in its Articles of Incorporation that
limit the liability of its directors for monetary damages arising from a breach
of their fiduciary duties as directors to the fullest extent permitted by the
California Corporations Code. The Company's Bylaws provide that the Company must
indemnify its directors and officers to the fullest extent permitted by the
California Corporations Code. The Company also has entered into indemnification
agreements with its executive officers and directors and has obtained officer
and director liability insurance with respect to certain liabilities. See
"Description of Capital Stock -- Limitation of Liability of Directors and
Indemnification of Directors and Officers."
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<PAGE> 43
EXECUTIVE COMPENSATION
The following table shows the compensation paid by the Company during
fiscal 1996 to each of the Company's executive officers (collectively, the
"Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION ------------
--------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($)(1) OPTIONS(#) COMPENSATION($)(2)
- ------------------------------- -------- -------- ------------------ ------------ ------------------
<S> <C> <C> <C> <C> <C>
Alex Razmjoo................... $191,250 $737,500 $5,101 -- $7,470
Chairman, President and CEO
Frank Alaghband................ 191,250 737,500 9,959 -- 7,470
EVP-Operations
Alex Aydin..................... 191,250 712,500 4,217 -- 7,470
EVP-Finance & Admin
Nick Shahrestany............... 191,250 717,500 6,580 -- 8,160
EVP-Marketing
Frederick Judd................. 84,000 42,927 -- 9,600 --
VP-Finance & General
Counsel
</TABLE>
- ---------------
(1) Reimbursement of various personal expenses included in the executive
officer's taxable income and, in the case of Mr. Alaghband, the portion of
certain car lease payments considered as personal.
(2) Represents life insurance premiums paid by the Company.
The Company granted no stock options and no stock options were exercised
through the end of fiscal 1995. The following table summarizes option grants
during fiscal 1996 to each of the Named Executive Officers:
OPTION GRANTS IN FISCAL 1996
<TABLE>
<CAPTION>
POTENTIAL
INDIVIDUAL GRANTS REALIZABLE VALUE AT
---------------------------------------------------------------- ASSUMED ANNUAL
PERCENT OF RATES OF STOCK
NUMBER OF TOTAL OPTIONS PRICE APPRECIATION
SECURITIES GRANTED FOR OPTION TERM(2)
UNDERLYING OPTIONS EMPLOYEES IN EXERCISE EXPIRATION -------------------
NAME GRANTED(#) FISCAL 1996(%) PRICE ($/SH) DATE 5% 10%
- ----------------------- ------------------ --------------- ------------ ---------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Alex Razmjoo........... -- -- -- -- -- --
Frank Alaghband........ -- -- -- -- -- --
Alex Aydin............. -- -- -- -- -- --
Nick Shahrestany....... -- -- -- -- -- --
Frederick Judd......... 9,600(1) 4.2% $ 2.50 9/15/05 $132,384 $225,024
</TABLE>
- ---------------
(1) The option vests in 25% installments on each anniversary of the date of
grant. In November 1993, Mr. Judd was also granted an option by Mr. Aydin to
purchase 90,000 shares of the Company's Common Stock owned by Mr. Aydin. The
exercise price of the option is $0.35 per share, which was the estimated
fair market value of the Company's Common Stock on the date of grant.
(2) This column shows the hypothetical gains or "option spreads" of the options
granted based on both the fair market value of the Common Stock for
financial reporting purposes and assumed annual compound stock appreciation
rates of 5% and 10% over the full 10-year term of the options. The 5% and
10% assumed rates of appreciation are mandated by the rules of the
Securities and Exchange Commission and do not represent the Company's
estimate or projection of future Common Stock prices. The gains shown are
net of the option exercise price, but do not include deductions for taxes or
other expenses associated with the exercise of the option or the sale of the
underlying shares. The actual gains, if any, on the exercises of stock
options will depend on the future performance of the Common Stock, the
option holder's continued employment through the option period, and the date
on which the options are exercised.
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<PAGE> 44
The following table summarizes the value of options held at July 26, 1996
by the Named Executive Officers. There were no options exercised by the Named
Executive Officers during the fiscal year ended July 26, 1996.
YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY
OPTIONS AT OPTIONS AT
JULY 26, 1996 (#) JULY 26, 1996 ($)(1)
--------------------------- ---------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------------------------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Alex Razmjoo..................................... -- -- -- --
Frank Alaghband.................................. -- -- -- --
Alex Aydin....................................... -- -- -- --
Nick Shahrestany................................. -- -- -- --
Frederick Judd................................... -- 9,600 -- $25,632
</TABLE>
- ---------------
(1) The amounts set forth represent the difference between the estimated fair
market value of $5.17 per share as of July 26, 1996 and the exercise price
of the options, multiplied by the applicable number of shares underlying
the options.
EMPLOYEE BENEFIT PLANS
1995 Stock Option Plan
In September 1995, the Board adopted and the Company's shareholders
approved the 1995 Stock Option Plan, as amended (the "1995 Plan"), and reserved
540,000 shares of Common Stock for issuance thereunder. The 1995 Plan provides
for the grant to employees of the Company of incentive stock options within the
meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the
"Code"), and for the grant to employees, directors, vendors and consultants of
the Company of nonstatutory stock options. As of October 25, 1996, options to
purchase an aggregate of 278,700 shares were outstanding under the 1995 Plan
(49,614 of which were vested), and an aggregate of 261,300 additional shares
remained available for additional grants.
The 1995 Plan may be administered by the Board or a committee approved by
the Board in a manner that complies with Rule 16b-3 promulgated under the
Securities Act. Currently, the 1995 Plan is administered by the Compensation
Committee of the Board, which determines the terms of options granted
thereunder, including the exercise price, number of shares subject to the option
and vesting schedule. Options and rights granted under the 1995 Plan are not
transferable other than by will or the laws of descent or distribution, and each
option or right is exercisable during the lifetime of the recipient only by such
person. Options that are outstanding under the 1995 Plan will remain outstanding
until they are exercised or they expire in accordance with these terms. The
exercise price of all incentive stock options granted under the 1995 Plan must
be at least equal to the fair market value of a share of Common Stock on the
date of grant. With respect to any participant who owns stock possessing more
than 10% of the voting power of all classes of stock of the Company, the
exercise price of any incentive stock option granted must equal at least 110% of
the fair market value on the grant date and the maximum term of the option must
not exceed five years. The term of all other options granted under the 1995 Plan
may not exceed ten years. In the event the shareholders of the Company approve
certain mergers or consolidations, or the sale of substantially all of the
business assets of the Company or certain persons other than beneficial owners
of greater than 5% of the then outstanding voting power become the beneficial
owner of more than 50% of the voting power of the Company, unless prior to such
event the Board determines that there shall be either no acceleration of limited
acceleration of awards, each option outstanding under the 1995 Plan will become
immediately exercisable.
43
<PAGE> 45
401(k) Plan
Effective August 1992, the Company adopted a tax deferred savings plan (the
"401(k) Plan") that covers all full-time employees over the age of 21 with more
than one year of service. An employee may contribute to the 401(k) Plan from 1%
to 15% of his or her pretax compensation not to exceed in any given year the
maximum amount allowable under Internal Revenue Service regulations. At the
discretion of the Board, the Company may elect to match up to 100% of an
employee's contributions to the 401(k) Plan. The Company is not obligated to
make matching contributions, but has done so in the past on a discretionary
basis. The rates of pre-tax contributions may be reduced with respect to highly
compensated employees, as defined in the Code, so that the 401(k) Plan will
comply with Section 401(k) of the Code. Pre-tax contributions are allocated to
each employee's individual account, which is invested in selected investment
alternatives according to the direction of the employee. An employee's pre-tax
contributions are fully vested and nonforfeitable at all times, while employer
contributions to an employee's account vest over a four-year period. An employee
may also borrow from his or her account. All vested benefits are generally
distributed to employees upon termination of employment. See Note 8 of Notes to
Consolidated Financial Statements.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with Messrs. Razmjoo, Alaghband,
Aydin and Shahrestany. Each employment agreement has a three-year term with an
automatic renewal provision which provides that the agreement will perpetually
maintain a three-year term unless terminated. Pursuant to the agreements, each
officer receives an annual salary of not less than $225,000, subject to annual
increases of not less than the annual increase in the consumer price index. Each
officer is also entitled to receive an annual bonus based on the Company's
performance, awarded at the discretion of the Board. Each officer is entitled to
receive a monthly automobile allowance of $750 and reimbursement of business
expenses. The Company is required to maintain a life insurance policy of $1
million for the benefit of each officer, and each officer is entitled to
participate in the other benefit programs of the Company available to its
executive officers. Each officer is entitled to an annual tax preparation
allowance of $1,000. If the Company terminates an officer's employment without
Cause (as defined in the employment agreement) or the officer terminates his
employment for Good Reason (as defined in the employment agreement), the Company
is obligated to provide certain benefits to the terminated officer, including
paying the officer 35 months base salary, subject to Internal Revenue Code
restrictions.
On November 15, 1993, Mr. Judd joined the Company as Vice President,
Finance and General Counsel. Pursuant to the Company's employment agreement with
Mr. Judd, Mr. Judd's base salary is $84,000, and Mr. Judd can qualify for
performance-based bonuses of up to $32,000 per year which may be adjusted in the
future.
44
<PAGE> 46
CERTAIN TRANSACTIONS
The Company made product sales totaling $411,000 and $398,000 to an entity
owned by a relative of Mr. Razmjoo during fiscal 1994 and 1995, respectively. At
July 29, 1994, the Company had accounts receivable from this related party of
$323,000. As a result of an Executive Order issued in May 1995 related to
transactions with Iranian companies, the Company determined that amounts owed by
this entity might not be collectible in the near future and, accordingly, during
fiscal 1995, wrote off the outstanding balances owed to the Company by this
entity of approximately $251,000. As a result, at July 28, 1995, the Company had
no account receivable from this entity.
In fiscal 1995, the Company purchased $38,000 of CD-ROM software products
and $128,000 of software programming services from, and made cash advances
totalling $159,000 to, Softbit, Inc., an entity that is 90 percent owned by the
Founders and of which each of the Founders is a director and officer. At July
28, 1994 and July 28, 1995, the Company had a net receivable of $80,000 and
$181,000, respectively, from this entity. During fiscal 1996, the Company made
cash advances of approximately $93,000 to the entity, sold products valued at
approximately $2,000 to the entity and incurred expenses of approximately
$25,000 on behalf of the entity. At July 26, 1996, the Company had a net
receivable of $301,000 from the entity, and due to the financial position of the
entity, the Company determined that the receivable was uncollectible and wrote
off the entire amount.
The Company has entered into indemnification agreements with each of its
directors and executive officers. These agreements require the Company to
indemnify such individuals for certain liabilities to which they may be subject
as a result of their affiliation with the Company, to the fullest extent allowed
by law.
The Company has adopted a policy that transactions between the Company and
its officers, directors or other affiliates which involve more than $60,000
annually shall be submitted to the Audit Committee for approval.
45
<PAGE> 47
PRINCIPAL AND SELLING SHAREHOLDERS
The following table sets forth certain information regarding beneficial
ownership of the Company's Common Stock as of October 25, 1996, and as adjusted
to give effect to the sale of shares offered hereby, (i) by each person who is
known by the Company to own beneficially 5% or more of the outstanding shares of
Common Stock, (ii) each of the Company's directors, (iii) each of the Named
Executive Officers, (iv) all directors and executive officers as a group and (v)
each Selling Shareholder. Except as indicated in the footnotes to the table, the
persons named in the table have sole voting and investment power with respect to
all shares of Common Stock shown as beneficially owned by them, subject to
community property laws where applicable.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY SHARES BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING NUMBER OF OFFERING(1)
----------------------- SHARES -----------------------
BENEFICIAL OWNER NUMBER PERCENT(2) BEING OFFERED(1) NUMBER PERCENT(2)
- ----------------------------------- --------- ---------- ---------------- --------- ----------
<S> <C> <C> <C> <C> <C>
Alex Razmjoo(3)(4)(5).............. 2,250,000 25% 250,000 2,000,000 18.2%
2181 Dupont
Irvine, California 92715
Frank Alaghband(3)(4)(5)........... 2,250,000 25% 250,000 2,000,000 18.2%
2181 Dupont
Irvine, California 92715
Alex Aydin(3)(4)(5)(6)............. 2,250,000 25% 250,000 1,975,000(6) 18.0%
2181 Dupont
Irvine, California 92715
Nick Shahrestany(3)(4)(5).......... 2,250,000 25% 250,000 2,000,000 18.2%
2181 Dupont
Irvine, California 92715
Frederick Judd(4)(5)(7)(8)......... 92,400 1% 25,000 67,400 *
Samuel Inman(3).................... -- -- -- -- --
Samuel Yau(3)...................... -- -- -- -- --
All directors and executive 9,002,400 100% 1,025,000 7,977,400 72.5%
officers as a group (8
persons)(8)......................
</TABLE>
- ---------------
* Less than one percent.
(1) Assumes no exercise of the Underwriters' over-allotment option. If the
Underwriters' over-allotment option is exercised in full, Mr. Aydin will
sell an additional 113,430 shares of Common Stock and each of Messrs.
Razmjoo, Alaghband and Shahrestany will sell an additional 113,440 shares of
Common Stock.
(2) Percentage calculation is based upon 9,000,000 shares outstanding as of
October 25, 1996 (or 11,000,000 shares following the Offering, based on the
proposed issuance of 2,000,000 shares by the Company in the Offering).
(3) A director of the Company.
(4) An officer of the Company.
(5) Includes shares given to various family members, the voting rights of which
were retained by the donor.
(6) Reflects the number of shares being sold by Mr. Aydin in the Offering and
the sale of 25,000 shares by Mr. Judd in the Offering, which shares he
acquired upon partial exercise of the option described in footnote (7)
below. In addition, the number of shares owned after the Offering reflects
65,000 shares of Common Stock owned by Mr. Aydin that remain subject to the
option.
(7) Represents an option granted to Mr. Judd by Mr. Aydin to acquire 90,000
shares of Common Stock owned by Mr. Aydin, which option is presently
exercisable in full.
(8) Includes 2,400 shares of Common Stock subject to vested options.
46
<PAGE> 48
DESCRIPTION OF CAPITAL STOCK
Effective upon the closing of this Offering, the authorized capital stock
of the Company will consist of 65,000,000 shares of Common Stock, no par value,
and 10,000,000 shares of Preferred Stock, no par value.
COMMON STOCK
Holders of Common Stock are entitled to receive such dividends as may from
time to time be declared by the Board out of funds legally available therefor.
Holders of Common Stock are entitled to one vote per share on all matters on
which they are entitled to vote other than the election of directors, in which
event, until the Company becomes a listed corporation as defined below, any
holder may demand cumulative voting. See "-- Certain Anti-Takeover
Effects -- Classified Board of Directors" and "-- No Cumulative Voting." Holders
of Common Stock have no preemptive, conversion, redemption or sinking funds
rights. In the event of a liquidation, dissolution or winding-up of the Company,
holders of Common Stock are entitled to share equally and ratably in the assets
of the Company, if any, remaining after the payment of all debts and liabilities
of the Company and the liquidation preference of any outstanding Preferred
Stock. The outstanding shares of Common Stock are, and the shares of Common
Stock offered by the Company hereby when issued will be, fully paid and
nonassessable. The rights, preferences and privileges of holders of Common Stock
are subject to any series of Preferred Stock that the Company may issue in the
future.
PREFERRED STOCK
The Board 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 and other rights, qualifications, limitations
and restrictions thereof, including the dividend rate, conversion rights, voting
rights, redemption price and liquidation preference, and to fix the number of
shares to be included in any such series. Any Preferred Stock so issued may rank
senior to the Common Stock with respect to the payment of dividends or amounts
upon liquidation, dissolution or winding-up, or both. In addition, any such
shares of Preferred Stock may have class or series voting rights. Issuances of
Preferred Stock, while providing the Company with flexibility in connection with
general corporate purposes, may, among other things, have an adverse effect on
the rights of holders of Common Stock, may have the effect of delaying,
deterring or preventing a change in control of the Company without further
action by the shareholders, may discourage bids for the Company's Common Stock
at a premium over the market price of the Common Stock, and may adversely affect
the market price and the voting and other rights of the holders of Common Stock.
At present, the Company has no plans to issue any shares of Preferred Stock.
REGISTRATION RIGHTS
After this Offering, the Founders will be entitled, upon expiration of the
lockup agreements with the Underwriters, to certain rights with respect to the
registration of their shares under the Securities Act. Under the terms of the
Registration Rights Agreement to which each Founder is a party, if the Company
proposes to register any of its securities under the Securities Act, either for
its own account or for the account of others, the Founders, as the holders of
7,975,000 (assuming the consummation of this Offering and no exercise of the
Underwriters' over-allotment option) shares of Common Stock, are entitled,
subject to certain limitations and exceptions, to notice of such registration
and are entitled to include shares of their Common Stock therein. In addition,
at any time after the first anniversary of the Company's initial public offering
and the Company becomes eligible to file registration statements on Form S-3
under the Securities Act, each Founder may, no more often than once during any
12-month period, request that the Company file a registration statement on Form
S-3 with respect to shares of his Common Stock, and the Company is required to
use its best efforts to effect such registration, subject to certain conditions
and limitations. In general, all fees, costs and expenses of such registration
will be borne by the Founders.
47
<PAGE> 49
LIMITATION OF LIABILITY OF DIRECTORS AND INDEMNIFICATION OF DIRECTORS AND
OFFICERS
The California General Corporation Law (the "Law") provides that California
corporations may include provisions in their articles of incorporation relieving
directors of monetary liability for breach of their fiduciary duties as
directors, except for the liability of a director resulting from (i) any
transaction from which the director derives an improper personal benefit, (ii)
acts or omissions involving intentional misconduct or a knowing and culpable
violation of law, (iii) acts or omissions that a director believes to be
contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iv) acts or
omissions constituting an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Company or its shareholders, (v) acts
or omissions showing a reckless disregard for the director's duty to the Company
or its shareholders in circumstances in which the director was aware or should
have been aware, in the ordinary course of performing a director's duties, of a
risk of serious injury to the Company or its shareholders, (vi) any improper
transaction between a director and the Company in which the director has a
material financial interest or (vii) the making of an illegal distribution to
shareholders or an illegal loan or guaranty. In addition, the Company may not
indemnify directors and officers in circumstances in which indemnification is
expressly prohibited by Section 317 of the Law. The Company's Articles of
Incorporation provide that the Company's directors are not liable to the Company
or its shareholders for monetary damages for breach of their fiduciary duties to
the fullest extent permitted by California law. Such limitation of liability
does not affect the availability of equitable remedies such as injunctive relief
or rescission. The Bylaws of the Company (the "Bylaws") provide that the Company
will indemnify its directors and officers to the fullest extent permitted by
California law, including circumstances in which indemnification is otherwise
discretionary under California law, subject to certain limitations for actions
initiated by the director or officer, settlements not approved by the Company,
losses covered by the directors' and officers' liability insurance policy
maintained by the Company and judgments for an accounting of profits pursuant to
Section 16(b) of the Securities Exchange Act of 1934 and similar laws.
The inclusion of the above provisions in the Company's Articles of
Incorporation and Bylaws may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter shareholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted the Company and its shareholders. This provision does not affect a
director's responsibilities under certain other laws such as the federal
securities laws or state or federal environmental laws. At present, there is no
litigation or proceeding pending involving a director of the Company pursuant to
which indemnification is being sought, nor is the Company aware of any
threatened litigation that might result in claims for indemnification by any
director.
The Company has entered into indemnification agreements with its directors
and executive officers that require the Company to indemnify such directors and
officers to the fullest extent permitted by applicable provisions of law
provided that any settlement of a third party action against a director or
officer is approved by the Company, and subject to limitations for actions
initiated by the director or officer, penalties paid by insurance and violations
of Section 16(b) of the Securities Exchange Act of 1934, as amended, and similar
laws. The agreements contain provisions that are broader in some respects than
the specific indemnification provisions contained in the California Corporations
Code. The indemnification agreements may require the Company, among other
things, to indemnify its officers and directors against certain liabilities that
may arise by reason of their status or service as directors or executive
officers (other than liabilities arising from willful misconduct of a culpable
nature), to advance their expenses incurred as a result of any proceeding
against them as to which they could be indemnified and to obtain directors' and
officers' insurance, if available on reasonable terms. The Company has obtained
directors' and officers' liability insurance with respect to liabilities arising
out of certain matters, including matters arising under the Securities Act. The
Company believes the foregoing provisions are necessary to attract and retain
qualified persons as directors and executive officers.
48
<PAGE> 50
CERTAIN ANTI-TAKEOVER EFFECTS
The provisions of the Articles of Incorporation and the Company's Bylaws
summarized in the succeeding paragraphs may be deemed to have anti-takeover
effects and may delay, deter or prevent a tender offer or takeover attempt that
a shareholder might consider to be in such shareholder's best interest,
including those attempts that might result in a premium over the market price
for the shares held by shareholders.
Classified Board of Directors. The Articles of Incorporation and Bylaws
provide that when the Company becomes a "listed corporation" as defined below,
as long as the size of the Board is at least six but less than nine directors,
the Board will be divided into two classes of directors with each class serving
staggered two-year terms and, if the number of directors is increased to nine or
more, the Board will be divided into three classes serving staggered three-year
terms. The Company will be deemed a "listed corporation" on the record date of
the first annual meeting of shareholders at which the Company has at least 800
shareholders, as calculated in accordance with the California Corporations Code.
The classification of the Board may discourage a third party from making a
tender offer or otherwise attempting to obtain control of the Company and may
maintain the incumbency of the directors, as a classified Board generally makes
it more difficult for shareholders to replace a majority of the directors.
No Cumulative Voting. The Articles of Incorporation and Bylaws provide
that, when the Company becomes a "listed corporation," cumulative voting will be
eliminated. Without cumulative voting, which entitles a holder of Common Stock
to cast a number of votes for each share held by such holder equal to the number
of directors to be elected, the holders of a majority of the shares present or
represented at an annual meeting of shareholders will be able to elect all of
the directors to be elected at that meeting. Consequently, the elimination of
cumulative voting may make a change in control of the Company more difficult by
denying minority shareholders representation on the Board.
Advance Notice Requirements for Shareholder Proposals and Director
Nominations. The Bylaws establish advance notice procedures with regard to
shareholder proposals and the nomination, other than by or at the direction of
the Board or a committee thereof, of candidates for election as directors. The
Company may, subject to compliance with Securities and Exchange Commission rules
and regulations regarding proxy solicitation, reject a shareholder proposal or
nomination that is not made in accordance with such procedures.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Common Stock is U.S. Stock
Transfer Corporation.
LISTING
Application has been made to have the Company's Common Stock approved for
quotation on the Nasdaq National Market under the trading symbol "PRCM."
49
<PAGE> 51
SHARES ELIGIBLE FOR FUTURE SALE
Sales of substantial amounts of Common Stock in the public market could
adversely affect the market price of the Common Stock and could impair the
Company's future ability to raise capital through the sale of its equity
securities. Upon the closing of this Offering, the Company will have outstanding
11,000,000 shares of Common Stock. Of these shares, the 3,025,000 shares sold in
this Offering will be freely tradeable without restriction under the Securities
Act, unless purchased by "affiliates" of the Company.
The remaining 7,975,000 shares of Common Stock held by existing
shareholders will be "restricted" shares under the Securities Act (the
"Restricted Shares"). Upon the expiration of lock-up agreements between each
shareholder and the Underwriters, which will occur 180 days after the effective
date of this Prospectus (the "Effective Date"), all 7,975,000 Restricted Shares
will become eligible for sale, subject to the volume limitations described
below.
At October 25, 1996, an aggregate of 278,700 shares of Common Stock are
subject to outstanding options. A total of 49,614 shares subject to options are
vested as of the date of this Prospectus and an aggregate of 261,300 additional
shares are reserved for future issuance pursuant to the Company's 1995 Stock
Option Plan. The Company plans to file Registration Statement on Form S-8 to
register the shares of Common Stock issuable pursuant to the 1995 Stock Option
Plan. Approximately 57,000 shares of Common Stock subject to vested options will
be eligible for resale upon the expiration of lock-up agreements 180 days
following the Effective Date. Accordingly, shares of Common Stock issued under
the 1995 Stock Option Plan will be available for sale in the public market upon
vesting of such shares, subject to certain volume limitations under Rule 144
with respect to affiliates.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned Restricted Shares for at
least two years, will be entitled to sell in any three-month period a number of
shares that does not exceed the greater of: (i) 1% of the number of shares of
Common Stock then outstanding (approximately 110,000 shares immediately after
this Offering) or (ii) the average weekly trading volume of the Company's Common
Stock in the Nasdaq National Market during the four calendar weeks immediately
preceding the date on which notice of the sale is filed with the Securities and
Exchange Commission. Sales pursuant to Rule 144 are subject to certain
requirements relating to manner of sale, notice and availability of current
public information about the Company. A person (or persons whose shares are
aggregated) who is not deemed to have been an affiliate of the Company at any
time during the 90 days immediately preceding the sale and who has beneficially
owned Restricted Shares for at least three years is entitled to sell such shares
pursuant to Rule 144(k) without regard to the limitations and requirements
described above. The Securities and Exchange Commission has recently proposed to
reduce the Rule 144 holding periods. If enacted, such modification could have an
impact on the timing of when shares of Common Stock become eligible for resale.
All of the Company's shareholders have agreed with Montgomery Securities
that until 180 days after the effective date of this Prospectus they will not
sell, offer to sell, contract to sell or otherwise sell, dispose of, loan,
pledge or grant any rights with respect to any shares of Common Stock, any
options or grants to purchase shares of Common Stock, or any securities
convertible or exchangeable for shares of Common Stock owned directly by such
holders or with respect to which they have power of disposition. The Company has
also agreed not to sell, offer to sell, contract to sell, grant any option to
purchase or otherwise dispose of any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock or any rights
to acquire Common Stock for a period of 180 days after the Effective Date
without the prior written consent of Montgomery Securities, subject to certain
limited exceptions including grants of options and sales of shares under 1995
Stock Option Plan. The lock-up agreements with Montgomery Securities may be
released at any time as to all or any portion of the shares subject to such
agreements at the sole discretion of Montgomery Securities.
50
<PAGE> 52
UNDERWRITING
The underwriters named below (the "Underwriters"), represented by
Montgomery Securities and Needham & Company, Inc. (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
Shareholders the number of shares of 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
UNDERWRITER SHARES
----------- ---------
<S> <C>
Montgomery Securities........................................
Needham & Company, Inc.......................................
---------
Total.............................................. 3,025,000
=========
</TABLE>
The Representatives have advised the Company that the Underwriters
initially propose to offer the 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 reallow, 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 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 Selling Shareholders have granted an option to the Underwriters,
exercisable during the 30-day period after the date of this Prospectus, to
purchase up to a maximum of 453,750 additional shares of Common Stock to cover
over-allotments, if any, at the same price per share as the initial shares to be
purchased by the Underwriters. To the extent the Underwriters exercise this
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase such additional shares in approximately the same
proportion as set forth in the above table. The Underwriters may purchase such
shares only to cover over-allotments made in connection with this Offering.
All holders of Common Stock prior to this Offering have agreed, subject to
certain limited exceptions, not to sell or offer to sell or otherwise dispose of
the shares of Common Stock currently held by them, any options to purchase any
shares of Common Stock or any securities convertible into or exchangeable for
any shares of Common Stock for a period of 180 days after the date of this
Prospectus without the prior written consent of Montgomery Securities.
Montgomery Securities may, in its sole discretion and at any time without
notice, release all or any portion of the securities subject to these lock-up
agreements. In addition, the Company has agreed that for a period of 180 days
after the date of this Prospectus it will not, without the consent of Montgomery
Securities, issue offer, sell, grant options to purchase or otherwise dispose of
any equity securities or securities convertible into or exchangeable for equity
securities, except under the 1995 Stock Option Plan.
The Underwriting Agreement provides that the Company and the Selling
Shareholders will indemnify the Underwriters and their controlling persons
against certain liabilities, including civil liabilities under the Securities
Act, or will contribute to payments the Underwriters may be required to make in
respect thereof.
The Representatives have advised the Company that the Underwriters will not
confirm sales to any accounts over which they exercise discretionary authority
in excess of 5% of the number of shares of Common Stock offered hereby.
Prior to this Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price has been determined
through negotiations among the Company, the Selling Shareholders and the
Representatives. Among the factors considered in such negotiations were the
history of, and prospects for, the Company and the industry in which it
competes, an assessment of the Company management, its past and present
operations and financial performance, the prospects for future earnings of the
Company, the present state of the Company's development, the general condition
of the securities markets at the time of the
51
<PAGE> 53
Offering, the market prices of and demand for publicly traded common stocks of
comparable companies in recent periods and other factors deemed relevant.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby will be passed
upon for the Company and any Selling Shareholders by O'Melveny & Myers LLP,
Newport Beach, California. Certain legal matters will be passed upon for the
Underwriters by Fenwick & West LLP, Palo Alto, California.
EXPERTS
The consolidated balance sheets as of July 28, 1995 and July 26, 1996 and
the consolidated statements of operations and retained earnings and cash flows
for each of the two years in the period ended July 26, 1996 included in this
Prospectus and the related financial statement schedule included elsewhere in
the Registration Statement have been included herein in reliance on the report
of Arthur Andersen LLP ("Arthur Andersen"), independent accountants, given on
the authority of that firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
Effective July 24, 1995, Arthur Andersen was engaged as the principal
independent accountants for the Company to replace the Company's prior
accounting firm, which was dismissed effective the same date. The decision to
change independent accountants was approved by the Board. In connection with the
audit of fiscal 1994, there were no disagreements with the prior accounting firm
on any matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not resolved
to the satisfaction of the firm would have caused the firm to make reference to
the matter in its report. The audit report of the prior accounting firm on the
consolidated financial statements of the Company as of and for the year ended
July 29, 1994 did not contain any adverse opinion or disclaimer of opinion, nor
was it qualified or modified as to uncertainty, audit scope or accounting
principles. During fiscal 1994 and through July 24, 1995, there were no
reportable events. During the two fiscal years and the subsequent interim period
preceding the engagement of Arthur Andersen, the Company had not consulted with
Arthur Andersen on items that were or should have been subject to SAS 50 or
concerned the subject matter of a disagreement or reportable event with the
prior accounting firm.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission") a Registration Statement on Form S-1 (together with all
amendments, exhibits and schedule thereto, "Registration Statement"), of which
this Prospectus forms a part, covering the Common Stock to be sold pursuant to
the Offering. As permitted by the rules and regulations of the Commission, this
Prospectus omits certain information, exhibits and undertakings and the schedule
contained in the Registration Statement. Such additional information, exhibits,
undertakings and schedule can be inspected at and obtained from the Commission
at the public reference facilities maintained by the Commission at Room 1024,
450 Fifth Street, N.W., Judiciary Plaza, Washington, D.C. 20549 and at certain
regional offices of the Commission located at Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and 13th Floor, 7 World
Trade Center, New York, New York, 10048. Copies of such material can be obtained
from the Public Reference Section of the Commission, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 at prescribed rates. For additional
information with respect to the Company, the Common Stock and related matters
and documents, reference is made to the Registration Statement and the exhibits
thereto. Statements contained herein concerning any such document are not
necessarily complete and, in each instance, reference is made to the copy of
such document filed as an exhibit to the Registration Statement. Each such
statement is qualified in its entirety by such reference. The Commission
maintains a Web site that contains reports, proxy and information statements and
other information regarding registrants that file electronically with the
Commission at http://www.sec.gov.
52
<PAGE> 54
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Report of Independent Public Accountants.............................................. F-2
Consolidated Financial Statements(1):
Consolidated Balance Sheets........................................................... F-3
Consolidated Statements of Operations................................................. F-4
Consolidated Statement of Shareholders' Equity........................................ F-5
Consolidated Statements of Cash Flows................................................. F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
- ------------------
(1) The financial statements of the Company for the year ended July 29, 1994
were audited by an accounting firm whose report on such financial statements
has not been and will not be included herein. The accounting firm was
dismissed by the Company in July 1995, and the accounting firm has informed
the Company that the firm has adopted a policy against consenting to the
inclusion in a registration statement of its report pertaining to a
privately held company that is no longer a client of the firm at the time of
the filing of the registration statement. As disclosed in the prospectus,
the decision to change independent accountants was approved by the Company's
Board of Directors, and there were no disagreements with the firm on any
matter of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures, which disagreements if not
resolved to the satisfaction of the firm would have caused the firm to make
reference to the matter in its report. The firm's report did not contain any
adverse opinion or disclaimer of opinion, nor was it qualified or modified
as to uncertainty, audit scope or accounting principles, and during the
period of the firm's retention, there were no reportable events. In
addition, during the two fiscal years and the subsequent interim period
preceding the engagement of Arthur Andersen, the Company had not consulted
with Arthur Andersen on items that were or should have been subject to SAS
50 or concerned the subject matter of a disagreement or reportable event
with the former accounting firm. Arthur Andersen is in the process of
re-auditing the 1994 financial statements and expects to complete promptly
the audit. The Company will not circulate preliminary prospectuses until the
audit has been completed by Arthur Andersen and an amendment to the
Registration Statement has been filed to include Arthur Andersen's report in
the preliminary prospectus.
F-1
<PAGE> 55
After the stock split discussed in Note 11 to Procom Technology, Inc's
consolidated financial statements is effected, we expect to be in a position to
render the following report.
ARTHUR ANDERSEN LLP
Orange County, California
September 17, 1996
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Procom Technology, Inc.:
We have audited the accompanying consolidated balance sheets of Procom
Technology, Inc. (a California corporation) and subsidiary (the "Company") as of
July 28, 1995 and July 26, 1996, and the related consolidated statements of
operations, shareholders' equity and cash flows for each of the two years in the
period ended July 26, 1996. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Procom Technology, Inc. and
subsidiary as of July 28, 1995 and July 26, 1996, and the results of their
operations and their cash flows for each of the two years in the period ended
July 26, 1996 in conformity with generally accepted accounting principles.
Orange County, California
September 17, 1996
(except with respect to the
matter discussed in Note 11,
as to which the date is
, 1996)
F-2
<PAGE> 56
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
JULY 28, JULY 26,
1995 1996
----------- -----------
<S> <C> <C>
Current assets:
Cash............................................................ $ 212,000 $ 793,000
Accounts receivable, less allowance for doubtful accounts and
sales returns of $179,000 and $373,000, respectively......... 5,507,000 9,234,000
Inventories, net................................................ 4,296,000 9,760,000
Deferred income taxes........................................... 359,000 605,000
Prepaid expenses................................................ 166,000 204,000
Other current assets............................................ 18,000 12,000
----------- -----------
Total current assets.................................... 10,558,000 20,608,000
Property and equipment, net....................................... 239,000 476,000
Other assets...................................................... 214,000 28,000
----------- -----------
Total assets............................................ $11,011,000 $21,112,000
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Line of credit.................................................. $ 1,484,000 $ 4,185,000
Accounts payable................................................ 5,530,000 8,254,000
Accrued expenses and other current liabilities.................. 513,000 801,000
Accrued compensation............................................ 1,085,000 2,266,000
Capital lease obligations....................................... 8,000 34,000
Income taxes payable............................................ 70,000 436,000
----------- -----------
Total current liabilities............................... 8,690,000 15,976,000
Capital lease obligations, less current portion................... 34,000 --
----------- -----------
Total liabilities....................................... 8,724,000 15,976,000
----------- -----------
Commitments and contingencies
Shareholders' equity:
Preferred stock, no par value; 10,000,000 shares authorized,
no shares issued and outstanding............................. -- --
Common stock, no par value; 65,000,000 shares authorized,
9,000,000 shares issued and outstanding...................... 3,000 3,000
Retained earnings............................................... 2,284,000 5,133,000
----------- -----------
Total shareholders' equity.............................. 2,287,000 5,136,000
----------- -----------
Total liabilities and shareholders' equity........................ $11,011,000 $21,112,000
=========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE> 57
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEARS ENDED
-------------------------------------------
JULY 29, JULY 28, JULY 26,
1994 1995 1996
----------- ----------- -----------
<S> <C> <C> <C>
Net sales........................................... $34,502,000 $44,660,000 $73,456,000
Cost of sales....................................... 27,187,000 32,858,000 51,489,000
----------- ----------- -----------
Gross profit................................... 7,315,000 11,802,000 21,967,000
Selling, general and administrative expenses........ 6,902,000 9,362,000 15,401,000
Research and development expenses................... 983,000 1,108,000 1,635,000
Loss on closure of German subsidiary................ 409,000 -- --
----------- ----------- -----------
Operating income (loss)........................ (979,000) 1,332,000 4,931,000
Interest expense.................................... 151,000 195,000 282,000
----------- ----------- -----------
Income (loss) before income taxes................. (1,130,000) 1,137,000 4,649,000
Provision (benefit) for income taxes................ (357,000) 414,000 1,800,000
----------- ----------- -----------
Net income (loss).............................. $ (773,000) $ 723,000 $ 2,849,000
=========== =========== ===========
Net income (loss) per share......................... $ (0.08) $ 0.08 $ 0.31
=========== =========== ===========
Weighted average number of shares................... 9,166,725 9,166,725 9,166,725
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 58
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
-------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
--------- ------ ---------- ----------
<S> <C> <C> <C> <C>
Balance at July 30, 1993...................... 9,000,000 $3,000 $2,334,000 $2,337,000
Net loss.................................... -- -- (773,000) (773,000)
--------- ------ ---------- ----------
Balance at July 29, 1994...................... 9,000,000 3,000 1,561,000 1,564,000
Net income.................................. -- -- 723,000 723,000
--------- ------ ---------- ----------
Balance at July 28, 1995...................... 9,000,000 3,000 2,284,000 2,287,000
Net income.................................. -- -- 2,849,000 2,849,000
--------- ------ ---------- ----------
Balance at July 26, 1996...................... 9,000,000 $3,000 $5,133,000 $5,136,000
========= ====== ========== ==========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 59
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEARS ENDED
------------------------------------------
JULY 29, JULY 28, JULY 26,
1994 1995 1996
------------ ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).................................. $ (773,000) $ 723,000 $ 2,849,000
Adjustments to reconcile net income (loss) to
net cash provided by (used in) operating
activities:
Depreciation and amortization................. 220,000 235,000 194,000
Changes in assets and liabilities:
Accounts receivable........................ 1,535,000 (1,457,000) (3,727,000)
Inventories................................ 334,000 (2,048,000) (5,464,000)
Deferred income taxes...................... (67,000) (18,000) (246,000)
Prepaid expenses........................... (2,000) (128,000) (38,000)
Income tax refund receivable............... (274,000) 274,000 --
Other current assets....................... (93,000) 129,000 6,000
Other assets............................... 7,000 (180,000) 186,000
Accounts payable........................... 596,000 1,616,000 2,724,000
Accrued expenses........................... (15,000) 1,175,000 1,469,000
Income taxes payable....................... (24,000) 70,000 366,000
----------- ----------- -----------
Net cash provided by (used in)
operating activities................ 1,444,000 391,000 (1,681,000)
----------- ----------- -----------
Cash flows from investing activities:
Purchase of property and equipment................. (71,000) (179,000) (431,000)
----------- ----------- -----------
Cash flows from financing activities:
Principal payments for capital lease obligations... (29,000) (16,000) (8,000)
Borrowings on line of credit....................... 34,919,000 43,771,000 64,825,000
Payments made on line of credit.................... (36,108,000) (43,966,000) (62,124,000)
----------- ----------- -----------
Net cash provided by (used in)
financing activities................ (1,218,000) (211,000) 2,693,000
----------- ----------- -----------
Increase in cash................................ 155,000 1,000 581,000
Cash at beginning of year............................ 56,000 211,000 212,000
----------- ----------- -----------
Cash at end of year.................................. $ 211,000 $ 212,000 $ 793,000
=========== =========== ===========
Supplemental disclosures of cash flow information:
Cash paid during the year for:
Interest........................................ $ 161,000 $ 170,000 $ 248,000
Income taxes.................................... 3,000 360,000 1,472,000
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 60
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
Procom Technology, Inc. (the "Company") was incorporated in California in
1987. The Company designs, manufactures and markets enterprise-wide data storage
and information access solutions that are compatible with all major hardware
platforms, network protocols and operating systems.
Principles of Consolidation
The consolidated financial statements include the accounts of Procom
Technology, Inc. and its wholly-owned subsidiary, Procom Technology FSC, a
foreign sales corporation. All significant intercompany transactions have been
eliminated in consolidation.
Fiscal Year
The Company's fiscal year ends on the Friday of, or nearest to, July 31.
Fiscal 1994, 1995 and 1996 each had 52 weeks.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable
The allowance for doubtful accounts and sales returns includes management's
estimate of the amount expected to be lost on specific accounts and for losses
on other as yet unidentified accounts included in accounts receivable. In
estimating the potential losses and returns on specific accounts, management
relies on in-house prepared analyses and review of other available information.
In estimating the allowance component for unidentified losses and returns,
management relies on historical experience. The amounts the Company will
ultimately realize could differ materially in the near term from the amounts
assumed in arriving at the allowance for doubtful accounts and sales returns in
the accompanying financial statements.
Inventories
Inventories are valued at the lower of cost (on a first-in, first-out
(FIFO) basis) or market. Allowances for obsolete inventory are based on
management's estimate of the amount considered obsolete based on specific
reviews of inventory items. In estimating the allowance, management relies on
its knowledge of the industry (including technological and design changes) as
well as its current inventory levels. The amounts the Company will ultimately
realize could differ materially in the near term from amounts estimated by
management.
Property and Equipment
Property and equipment are stated at cost. Depreciation is calculated using
the straight-line method over the respective estimated useful lives of the
assets, which range from three to seven years. Leasehold improvements and assets
under capital leases are amortized using the straight-line method over the
lesser of the lease term or the estimated useful life of the assets.
Expenditures for major renewals and betterments are capitalized, while
minor replacements, maintenance and repairs that do not extend the assets' lives
are charged to operations as incurred. Upon sale or disposition,
F-7
<PAGE> 61
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
the cost and related accumulated depreciation are removed from the Company's
accounts and any gain or loss is included in the statement of operations.
Income Taxes
The Company reports certain expenses differently for financial and tax
reporting purposes and, accordingly, provides for the related deferred income
taxes. Income taxes are accounted for under the liability method in accordance
with Statement of Financial Accounting Standards No. 109.
Revenue Recognition
The Company recognizes revenue from product sales upon shipment. The
Company has established a program that, under specified conditions, enables
distributors and resellers to return products to the Company for credit against
additional purchases or, in the event the Company reduces its selling prices, to
receive credits for the reduction in selling price. The amount of potential
product returns, including returns under the Company's warranty program, and
credits for selling price reductions are estimated and provided for in the
period of the sale.
Research and Development Costs
Costs and expenses that can be clearly identified as research and
development, including software development costs, are charged to research and
development expenses as incurred.
Concentration of Credit Risk
Three customers accounted for approximately 30% and 36% of the Company's
total accounts receivable on July 28, 1995 and July 26, 1996, respectively, and
one customer accounted for approximately 14% and 9% of the Company's net sales
for fiscal 1995 and 1996, respectively. The loss of any one of the Company's
significant customers could have an adverse effect on the Company's business.
Export sales as a percentage of net sales amounted to 19%, 14% and 11% for
fiscal years 1994, 1995 and 1996, respectively.
Impact of Recent Accounting Pronouncements
Effective in fiscal 1997, the Company will be required to adopt Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-lived Assets and Long-lived Assets to be Disposed of" and SFAS No. 123,
"Accounting for Stock Based Compensation." The Company plans to adopt SFAS No.
123 during fiscal 1997 utilizing the disclosure alternative under the Statement.
The impact of the adoption of these pronouncements is not expected to be
material to the Company's financial position or results of operations.
Net income (loss) per share
Net income (loss) per share has been computed using the weighted average
number of shares of common stock outstanding during the periods. Pursuant to the
requirements of the Securities and Exchange Commission, options granted under
the Company's stock option plan (see Note 10) at prices below the expected
initial public offering price have been included in the Company's net income
(loss) per share calculation as if they had been outstanding for all periods
presented (using the treasury stock method and utilizing an initial public
offering price of $10 per share).
F-8
<PAGE> 62
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
2. INVENTORIES
A summary of inventories is as follows:
<TABLE>
<CAPTION>
JULY 28, JULY 26,
1995 1996
---------- ----------
<S> <C> <C>
Raw materials....................................... $2,988,000 $6,960,000
Work-in-process..................................... 383,000 496,000
Finished goods...................................... 925,000 2,304,000
---------- ----------
$4,296,000 $9,760,000
========== ==========
</TABLE>
3. PROPERTY AND EQUIPMENT
A summary of property and equipment is as follows:
<TABLE>
<CAPTION>
JULY 28, JULY 26,
1995 1996
---------- -----------
<S> <C> <C>
Computer equipment................................. $ 381,000 $ 552,000
Furniture and fixtures............................. 401,000 466,000
Office equipment................................... 302,000 490,000
Vehicles........................................... 82,000 82,000
Leasehold improvements............................. 71,000 77,000
---------- -----------
1,237,000 1,667,000
Less accumulated depreciation...................... (998,000) (1,191,000)
---------- -----------
Total.................................... $ 239,000 $ 476,000
========== ===========
</TABLE>
Depreciation and amortization expense for fiscal 1994, 1995 and 1996
totaled $220,000, $235,000 and $194,000, respectively.
4. INCOME TAXES
The components of the provision (benefit) for income taxes for fiscal 1994,
1995 and 1996 are summarized as follows:
<TABLE>
<CAPTION>
1994 1995 1996
--------- -------- ----------
<S> <C> <C> <C>
Current:
Federal................................ $(308,000) $379,000 $1,612,000
State.................................. 18,000 53,000 434,000
--------- -------- ----------
(290,000) 432,000 2,046,000
--------- -------- ----------
Deferred:
Federal................................ (46,000) (15,000) (223,000)
State.................................. (21,000) (3,000) (23,000)
--------- -------- ----------
(67,000) (18,000) (246,000)
--------- -------- ----------
Provision (benefit) for income taxes..... $(357,000) $414,000 $1,800,000
========= ======== ==========
</TABLE>
F-9
<PAGE> 63
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Components of the Company's deferred income tax provision are presented
below:
<TABLE>
<CAPTION>
FISCAL YEAR
---------------------
1995 1996
-------- --------
<S> <C> <C>
State tax payments..................................... $ (7,000) $137,000
Depreciation........................................... 35,000 (3,000)
Inventory reserves..................................... 18,000 36,000
Reserves for bad debts and returns..................... (41,000) 102,000
Other.................................................. 13,000 (26,000)
-------- --------
Deferred income tax provision.......................... $ 18,000 $246,000
======== ========
</TABLE>
The following table reconciles the federal statutory income tax rate to the
effective tax rate of the provision (benefit) for income taxes.
<TABLE>
<CAPTION>
FISCAL YEAR
-------------------------
1994 1995 1996
----- ---- -----
<S> <C> <C> <C>
Federal statutory income tax rate................... (34.0)% 34.0% 34.0%
State income taxes, net of federal benefit.......... (6.3) 6.3 6.1
Foreign sales benefit............................... -- (3.4) (1.1)
Research and development tax credit................. (0.5) (2.0) (0.6)
Unused prior year loss carryforwards and
assessments....................................... 7.8 -- --
Other............................................... 1.4 1.5 0.3
----- ---- ----
Effective tax rate................................ (31.6)% 36.4% 38.7%
===== ==== ====
</TABLE>
Deferred tax assets are summarized below:
<TABLE>
<CAPTION>
JULY 28, JULY 26,
1995 1996
-------- --------
<S> <C> <C>
Deferred tax assets:
State tax payments................................... $ 34,000 $171,000
Depreciation......................................... 71,000 68,000
Inventory reserves................................... 85,000 121,000
Reserves for bad debts and returns................... 99,000 201,000
Other................................................ 70,000 44,000
-------- --------
Deferred income taxes............................. $359,000 $605,000
======== ========
</TABLE>
5. LINE OF CREDIT
The Company has established a revolving line of credit with an
institutional lender. The line is based on a percentage of the Company's
eligible accounts receivable and inventory, up to a maximum of $6,000,000.
The line of credit accrues certain commitment fees, unused facility fees,
and interest on outstanding amounts at the lender's prime rate (8.25% at July
26, 1996) plus 1.5%. The initial term of the line of credit expires on November
29, 1996, but automatically renews for successive one year periods unless
terminated by either party within a specified period in advance of the automatic
renewal date. The line also provides that the Company may purchase up to
$7,000,000 of products from various manufacturers pursuant to a flooring
agreement. The combined line of credit contains restrictive covenants that,
among other provisions, require compliance with certain financial covenants,
including the maintenance of working capital of at least $500,000.
F-10
<PAGE> 64
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The combined line of credit is collateralized by all the assets of the Company
and is guaranteed by the shareholders of the Company. At July 28, 1995 and July
26, 1996, the Company owed $1,484,000 and $4,185,000 under the line of credit
and $2,875,000 and $4,464,000, which is included in accounts payable, under the
flooring agreements, respectively (see Note 6).
6. COMMITMENTS AND CONTINGENCIES
Lease Commitments
The Company leases a facility under a noncancellable operating lease that
expires in fiscal 1998. The facility lease contains an option to extend the
lease under the same terms for four months.
Future minimum lease payments at July 26, 1996, under these leases were as
follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASE LEASE
------- --------
<S> <C> <C>
Fiscal year ending:
1997............................................ $35,000 $450,000
1998............................................ -- 412,500
------- --------
Total minimum lease payments.................... 35,000 $862,500
========
Less, amounts representing interest............. 1,000
-------
Present value of future minimum capital lease
obligations................................... $34,000
=======
</TABLE>
Rent expense was $395,000, $425,000 and $398,000 for fiscal 1994, 1995 and
1996, respectively.
Flooring Agreements
As is customary in the computer reseller industry, the Company is
contingently liable at July 26, 1996 under the terms of repurchase agreements
with several financial institutions providing inventory financing for dealers of
the Company's products. The contingent liability under these agreements
approximates the amount financed, reduced by the resale value of any products
that may be repurchased, and the risk of loss is spread over several dealers and
financial institutions. Losses under these agreements have been immaterial in
the past.
Litigation
The Company is involved solely in routine litigation arising in the
ordinary course of its business. While the outcome of litigation cannot be
predicted with certainty, the Company believes that none of the pending
litigation will have a material adverse effect on the Company's financial
position or results of operations.
Employment Agreements
The Company has employment agreements with the Company's President and
three Executive Vice Presidents. Each agreement is for a three year term with an
automatic renewal provision which provides that the agreement will perpetually
maintain a three-year term unless terminated. Each agreement contains severance
provisions that require the payment of 35 months of base salary in the event of
the termination of the covered executives. Should all four executives be
terminated, the aggregate commitment arising under the severance provisions
would be approximately $2.6 million and, in addition, the Company is obligated
to pay a pro rata portion of the bonus the executive would have received for the
year in which he is terminated.
F-11
<PAGE> 65
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
7. RELATED PARTY TRANSACTIONS
The Company made product sales totaling $411,000 and $398,000 to an entity
owned by a relative of one of the Company's stockholders during fiscal 1994 and
1995, respectively. At July 29, 1994, the Company had accounts receivable from
this related party of $323,000. As a result of an Executive Order issued in May
1995 related to transactions with Iranian companies, the Company determined that
amounts owed by this entity might not be collectible in the near future and,
accordingly, during fiscal 1995, wrote off the outstanding balances owed the
Company by this entity of approximately $251,000. There were no transactions
with this entity in fiscal 1996.
At July 28, 1995, the Company had a net receivable of $181,000, from an
entity 90 percent of which is owned by the Company's four shareholders. During
fiscal 1996, the Company made cash advances of approximately $93,000 to the
entity. In addition, during fiscal 1996, the Company sold products valued at
approximately $2,000 to the entity, and incurred other expenses of approximately
$25,000 on behalf of the entity. At July 26, 1996, the Company had a net
receivable of $301,000 from the entity, and due to the financial position of the
entity, the Company determined that the receivable was uncollectible and wrote
off the entire amount.
8. RETIREMENT PLAN
The Company has a defined contribution plan covering substantially all
full-time employees with more than one year of service. Each participant can
elect to contribute up to 15% of his or her annual compensation. While employer
contributions to the plan are discretionary, during fiscal 1994, 1995 and 1996,
the Company elected to make matching contributions equivalent to between 38% and
50% of the first 4% of the employee's contribution. Total expense for fiscal
1994, 1995 and 1996 was $16,000, $21,000 and $47,000, respectively.
9. LOSS ON CLOSURE OF GERMAN SUBSIDIARY
During fiscal 1993, the Company formed a subsidiary in West Germany. During
fiscal 1994, the Company made cash advances, and shipped products, to the German
subsidiary totaling $550,000. Due to a lack of profitability, management decided
to terminate this operation in April 1994. The Company has recorded the loss on
closure of this subsidiary in its consolidated financial statements at July 29,
1994. During fiscal 1995, the Company completed the liquidation of the German
subsidiary's assets.
10. STOCK SPLIT AND STOCK OPTION PLAN
In September 1995, the shareholders of the Company approved a stock split,
whereby each shareholder was issued 10,000 shares of common stock for each share
held. See Note 11.
During November 1993, options to purchase 90,000 shares of common stock at
the estimated fair market value on the date of grant were granted by a principal
shareholder to an officer of the Company in connection with the officer's
employment. In addition, during fiscal 1996, the Company instituted the 1995
Stock Option Plan (the "1995 Plan") for its key employees and reserved 540,000
shares for grant under the 1995 Plan. Pursuant to the terms of the 1995 Plan,
options to purchase the Company's common stock may be granted with exercise
prices equal to the fair market value of the stock on the date of grant. Options
granted vest over a period of four years.
F-12
<PAGE> 66
PROCOM TECHNOLOGY, INC. AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The following table sets forth options authorized, granted and outstanding
during fiscal 1996 under the 1995 Plan:
<TABLE>
<CAPTION>
AUTHORIZED OUTSTANDING AVERAGE
FOR GRANT OPTIONS PRICE
---------- ----------- -----------
<S> <C> <C> <C>
Balances, July 28, 1995............. -- --
Institution of the 1995 Plan...... 540,000 --
Options granted................... (235,050) 235,050 $2.50-$4.50
Options cancelled................. 7,350 (7,350) $2.50
------- ------
Balances, July 26, 1996............. 312,300 227,700 $2.50-$4.50
======= ======
</TABLE>
11. SUBSEQUENT EVENT
Subsequent to the stock split described in Note 10, on ,
1996, the shareholders of the Company approved a stock split, whereby each
shareholder was issued three shares of common stock for each common share held.
All share and per share amounts have been restated to give retroactive effect to
this stock split as well as the stock split described in Note 10.
F-13
<PAGE> 67
[PHOTOGRAPH OF CD-ROM AND GRAPHIC DISPLAYING NETWORK CONNECTIVITY BEARING THE
FOLLOWING CAPTIONS: "CD FORCE - THE POWER TO SEAMLESSLY NETWORK CDS(TM),"
"ENTERPRISE WIDE CD-ROM NETWORKING SOFTWARE," "UNIX -- NOVELL NETWARE -- IBM
OS/2 WARP -- WINDOWS NT -- WINDOWS 95 -- WINDOWS 3.1 -- MACINTOSH OS,"
"MESA(TM) -- MANAGED ENTERPRISE STORAGE ARCHITECTURE(TM)" AND "PROCOM
TECHNOLOGY -- INTELLIGENT STORAGE FOR THE ENTERPRISE(TM)."]
<PAGE> 68
- ------------------------------------------------------------
- ------------------------------------------------------------
No dealer, salesperson or other person has been authorized to give any
information or to make any representation not contained in this Prospectus in
connection with the offer made in this Prospectus and, if given or made, such
information or representation must not be relied upon as having been authorized
by the Company, the Underwriters or the Selling Shareholders. This Prospectus
does not constitute an offer to sell or solicitation of an offer to buy any of
the securities offered hereby by anyone in any jurisdiction in which the person
making such offer or solicitation is not qualified to do so or to anyone to whom
it is unlawful to make such offer or solicitation. Neither the delivery of this
Prospectus nor any sale made hereunder shall under any circumstances create any
implication that the affairs of the Company since the date hereof or the
information herein is correct as of any time subsequent to the date of this
Prospectus.
---------------------------------
TABLE OF CONTENTS
---------------------------------
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary........................ 3
Risk Factors.............................. 5
Use of Proceeds........................... 14
Dividend Policy........................... 14
Capitalization............................ 15
Dilution.................................. 16
Selected Consolidated Financial
Information............................. 17
Management's Discussion and Analysis of
Financial Condition and Results of
Operations.............................. 18
Business.................................. 25
Management................................ 40
Certain Transactions...................... 45
Principal and Selling Shareholders........ 46
Description of Capital Stock.............. 47
Shares Eligible for Future Sale........... 50
Underwriting.............................. 51
Legal Matters............................. 52
Experts................................... 52
Change in Accountants..................... 52
Additional Information.................... 52
Index to Consolidated Financial
Statements.............................. F-1
</TABLE>
------------------------
Until , 1996 (25 days after the date of this
Prospectus), all dealers effecting transactions
in the registered securities, whether or not participating in this distribution,
may be required to deliver a Prospectus. This delivery requirement 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.
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
3,025,000 SHARES
[LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
MONTGOMERY SECURITIES
NEEDHAM & COMPANY, INC.
, 1996
- ------------------------------------------------------------
- ------------------------------------------------------------
<PAGE> 69
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the expenses, other than underwriting
discounts and commissions, payable in connection with the issuance and
distribution of the Common Stock being registered, all of which will be paid by
the Company. All amounts are estimates except the Securities and Exchange
Commission registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<S> <C> <C>
Securities and Exchange Commission registration fee.............. $ 11,596
NASD filing fee.................................................. 4,327
Nasdaq National Market listing fee............................... 45,000
Accounting fees and expenses..................................... 120,000
Legal fees and expenses.......................................... 250,000
Blue Sky qualification fees and expenses......................... 7,000
Printing and engraving expenses.................................. 100,000
Transfer agent and registrar fees................................ 3,000
D&O Insurance.................................................... 200,000
Road Show expenses............................................... 30,000
Miscellaneous.................................................... 9,077
--------
Total.................................................. $780,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
The California General Corporation Law provides that California
corporations may include provisions in their articles of incorporation relieving
directors of monetary liability for breach of their fiduciary duties as
directors, except for the liability of a director resulting from (i) any
transaction from which the director derives an improper personal benefit, (ii)
acts or omissions involving intentional misconduct or a knowing and culpable
violation of law, (iii) acts or omissions that a director believes to be
contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iv) acts or
omissions constituting an unexcused pattern of inattention that amounts to an
abdication of the director's duty to the Company or its shareholders, (v) acts
or omissions showing a reckless disregard for the director's duty to the Company
or its shareholders in circumstances in which the director was aware or should
have been aware, in the ordinary course of performing a director's duties, of a
risk of serious injury to the Company or its shareholders, (vi) any improper
transaction between a director and the Company in which the director has a
material financial interest (Section 310) or (vii) the making of an illegal
distribution to shareholders or an illegal loan or guaranty (Section 316). The
Company's Articles of Incorporation provide that the Company's directors are not
liable to the Company or its shareholders for monetary damages for breach of
their fiduciary duties to the fullest extent permitted by California law. Such
limitation of liability does not affect the availability of equitable remedies
such as injunctive relief or rescission. The Bylaws of the Company (the
"Bylaws") provide that the Company will indemnify its directors and officers to
the fullest extent permitted by California law, including circumstances in which
indemnification is otherwise discretionary under California law, subject to
certain limitations for actions initiated by the director or officer,
settlements not approved by the Company, losses covered by the directors' and
officers' liability insurance policy maintained by the Company and judgments for
an accounting of profits pursuant to Section 16(b) of the Securities Exchange
Act of 1934 and similar laws. In addition, the Company may not indemnify
directors and officers in circumstances in which indemnification is expressly
prohibited by Section 317 of the Law.
The Company has entered into indemnification agreements with certain of its
directors and officers that require the Company to indemnify such directors and
officers to the fullest extent permitted by applicable provisions of law,
provided that any settlement of a third party action against a director or
officer is approved
II-1
<PAGE> 70
by the Company, and subject to limitations for actions initiated by the director
or officer, penalties paid by insurance and violations of Section 16(b) of the
Securities Exchange Act of 1934, as amended, and similar laws. The agreements
contain provisions that are broader in some respects than the specific
indemnification provisions contained in the California Corporations Code. The
indemnification agreements may require the Company, among other things, to
indemnify its officers and directors against certain liabilities that may arise
by reason of their status or service as directors or executive officers (other
than liabilities arising from willful misconduct of a culpable nature), to
advance their expenses incurred as a result of any proceeding against them as to
which they could be indemnified and to obtain directors' and officers'
insurance, if available on reasonable terms. The Company has obtained directors'
and officers' liability insurance with respect to liabilities arising out of
certain matters, including matters arising under the Securities Act.
The inclusion of the above provisions in the Company's Articles of
Incorporation and Bylaws may have the effect of reducing the likelihood of
derivative litigation against directors and may discourage or deter shareholders
or management from bringing a lawsuit against directors for breach of their duty
of care, even though such an action, if successful, might otherwise have
benefitted the Company and its shareholders. This provision does not affect a
director's responsibilities under certain other laws such as the federal
securities laws or state or federal environmental laws. At present, there is no
litigation or proceeding pending involving a director of the Company pursuant to
which indemnification is being sought, nor is the Company aware of any
threatened litigation that might result in claims for indemnification by any
director.
The Form of Underwriting Agreement filed as Exhibit 1.1 to this
Registration Statement provides for indemnification by the Underwriters of the
Company and its directors and officers for certain liabilities arising under the
Securities Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following is a summary of transactions by the Company during the last
three years preceding the date hereof involving sales of the Company's
securities that were not registered under the Act:
From time to time during the three years preceding the date hereof,
the Registrant issued stock options to purchase a total of shares of Common
Stock pursuant to the Registrant's 1995 Stock Option Plan (the "1995 Plan")
to officers and employees of the Registrant. During the period referred to
above, no options granted pursuant to 1995 Plan were exercised. Exemption
from the registration provisions of the Act is claimed with respect to the
grant of options referred to above, on the basis that the grant of options
did not involve a "sale" of securities and, therefore, registration thereof
was not required.
II-2
<PAGE> 71
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ------- -------------------------------------------------------------------------------------
<C> <S>
1.1* Form of Underwriting Agreement
3.1 Articles of Incorporation of the Company, as amended
3.2 Amended and Restated Articles of Incorporation of the Company to be effective on or
prior to the effectiveness of the Registration Statement
3.3 Bylaws of the Company, as amended
3.4 Amended and Restated Bylaws of the Company to be effective on or prior to the
effectiveness of the Registration Statement
5.1* Opinion of O'Melveny & Myers
10.1 Form of Indemnity Agreement between the Company and each of its executive officers
and directors
10.2 Procom Technology, Inc. 1995 Stock Option Plan
10.3 Amended and Restated Executive Employment Agreement, dated as of October 28, 1996,
between the Company and Alex Razmjoo
10.4 Amended and Restated Executive Employment Agreement, dated as of October 28, 1996,
between the Company and Frank Alaghband
10.5 Amended and Restated Executive Employment Agreement, dated as of October 28, 1996,
between the Company and Alex Aydin
10.6 Amended and Restated Executive Employment Agreement, dated as of October 28, 1996,
between the Company and Nick Shahrestany
10.7 Form of Registration Rights Agreement
10.8 Lease, dated February 10, 1992, between 2181 Dupont Associates and the Company, as
amended
11.1 Statement re: Computation of Earnings Per Share
16.1* Letter re Change in Certifying Accountant
21.1 List of Subsidiaries
23.1 Consent of Arthur Andersen LLP
23.3* Consent of O'Melveny & Myers (included in Exhibit 5.1)
27.1 Financial Data Schedule
</TABLE>
- ---------------
* To be filed by amendment
(b) FINANCIAL STATEMENT SCHEDULE AND REPORT OF INDEPENDENT AUDITOR.
Report of Arthur Andersen LLP
Set forth below is the financial statement schedule included as part of the
Registration Statement:
Schedule II
All other schedules are omitted because they are not required, are not
applicable, or the information is included in the Consolidated Financial
Statements or notes thereto.
II-3
<PAGE> 72
ITEM 17. UNDERTAKINGS
(a) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.
(b) 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 hereunder, 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.
(c) The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities
Act, the information omitted from the form of prospectus filed as part of a
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 the
registration statement as of the time it was declared effective.
(2) 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.
II-4
<PAGE> 73
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
Registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Irvine,
County of Orange, State of California, on the 30th day of October, 1996.
PROCOM TECHNOLOGY, INC.
By: /s/ Alex Razmjoo
--------------------------------------
Alex Razmjoo
Chairman, President and
Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed below by the following persons in
the capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------------------------------- ------------------------------------------ -----------------
<C> <S> <C>
/s/ Alex Razmjoo Chairman of the Board, President and Chief October 30, 1996
- --------------------------------- Executive Officer (Principal Executive
Alex Razmjoo Officer)
/s/ Alex Aydin Executive Vice President, Finance and October 30, 1996
- --------------------------------- Administration (Principal Financial
Alex Aydin Officer)
/s/ Frederick Judd Vice President, Finance and General October 30, 1996
- --------------------------------- Counsel (Principal Accounting Officer)
Frederick Judd
/s/ Frank Alaghband Director October 30, 1996
- ---------------------------------
Frank Alaghband
/s/ Nick Shahrestany Director October 30, 1996
- ---------------------------------
Nick Shahrestany
Director October , 1996
- ---------------------------------
Samuel Inman
Director October , 1996
- ---------------------------------
Samuel Yau
</TABLE>
II-5
<PAGE> 74
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
The Board of Directors
Procom Technology, Inc.:
We have audited in accordance with generally accepted auditing standards, the
consolidated financial statements of Procom Technology, Inc. and subsidiary as
of, and for the years ended, July 28, 1995 and July 26, 1996, which financial
statements are included in this registration statement, and have issued our
report thereon dated September 17, 1996. Our audits were made for the purpose of
forming an opinion on the basic financial statements taken as a whole. The
schedule listed in Item 16(b) herein is presented for purposes of complying with
the Securities and Exchange Commissions rules and is not part of the basic
financial statements. The information in the schedule pertaining to the years
ended July 28, 1995 and July 26, 1996 has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly state in all material respects the financial data required to be
set forth therein in relation to the basic financial statements taken as a
whole.
ARTHUR ANDERSEN LLP
Orange County, California
September 17, 1996
II-6
<PAGE> 75
SCHEDULE II
PROCOM TECHNOLOGY, INC. AND SUBSIDIARIES
<TABLE>
<CAPTION>
COL. C
------------------------
COL. B ADDITIONS COL. E
------------ ------------------------ ---------
COL. A BALANCE AT CHARGED TO CHARGED TO COL. D BALANCE
- ------------------------------------------- BEGINNING OF COSTS AND OTHER ----------- AT END
DESCRIPTION PERIOD EXPENSES ACCOUNTS DEDUCTIONS OF PERIOD
- ------------------------------------------- ------------ ---------- ---------- ----------- ---------
<S> <C> <C> <C> <C> <C>
Year ended July 28, 1995:
Allowance for doubtful accounts and sales
returns................................ $260,000 $1,714,000 -- $(1,795,000) $ 179,000
Allowance for excess and obsolete
inventory.............................. $ 80,000 $ 467,000 -- $ (477,000) $ 70,000
Year ended July 26, 1996:
Allowance for doubtful accounts and sales
returns................................ $179,000 $2,678,000 -- $(2,484,000) $ 373,000
Allowance for excess and obsolete
inventory.............................. $ 70,000 $ 284,000 -- $ (199,000) $ 155,000
</TABLE>
II-7
<PAGE> 76
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBER
NUMBER DESCRIPTION PAGE
- ------- -------------------------------------------------------------------------- ------------
<C> <S> <C>
1.1* Form of Underwriting Agreement............................................
3.1 Articles of Incorporation of the Company, as amended......................
3.2 Amended and Restated Articles of Incorporation of the Company to be
effective on or prior to the effectiveness of the Registration
Statement.................................................................
3.3 Bylaws of the Company, as amended.........................................
3.4 Amended and Restated Bylaws of the Company to be effective on or prior to
the effectiveness of the Registration Statement...........................
5.1* Opinion of O'Melveny & Myers..............................................
10.1 Form of Indemnity Agreement between the Company and each of its executive
officers and directors....................................................
10.2 Procom Technology, Inc. 1995 Stock Option Plan............................
10.3 Amended and Restated Executive Employment Agreement, dated as of October
28, 1996, between the Company and Alex Razmjoo............................
10.4 Amended and Restated Executive Employment Agreement, dated as of October
28, 1996, between the Company and Frank Alaghband.........................
10.5 Amended and Restated Executive Employment Agreement, dated as of October
28, 1996, between the Company and Alex Aydin..............................
10.6 Amended and Restated Executive Employment Agreement, dated as of October
28, 1996, between the Company and Nick Shahrestany........................
10.7 Form of Registration Rights Agreement.....................................
10.8 Lease, dated February 10, 1992, between 2181 Dupont Associates and the
Company, as amended.......................................................
11.1 Statement re: Computation of Earnings Per Share...........................
16.1* Letter re Change in Certifying Accountant.................................
21.1 List of Subsidiaries......................................................
23.1 Consent of Arthur Andersen LLP............................................
23.3* Consent of O'Melveny & Myers (included in Exhibit 5.1)....................
27.1 Financial Data Schedule...................................................
</TABLE>
- ---------------
* To be filed by amendment
<PAGE> 1
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
PROCOM TECHNOLOGY, INC.
I.
The name of this corporation is:
PROCOM TECHNOLOGY, INC.
II.
The purpose of this corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General Corporation
Law of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the California
Corporations Code.
III.
The name and address in the State of California of the corporation's
initial agent for the service of process is: Steven R. Young, 4000 MacArthur
Boulevard, Suite 7500, Newport Beach, California 92660.
IV.
The corporation is authorized to issue only one class of shares of
stock and the total number of shares which the corporation is authorized to
issue is One Thousand (1,000).
Dated this 10th day of August, 1987.
/s/ STEVEN R. YOUNG
------------------------
Steven R. Young
Incorporator
I hereby declare that I am the person whom executed the foregoing
Articles of Incorporation, which execution is my act and deed.
/s/ STEVEN R. YOUNG
------------------------
Steven R. Young
Incorporator
<PAGE> 2
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
PROCOM TECHNOLOGY, INC.
Alireza Razmjookhah and Frank Alaghband certify that:
1. They are the duly elected and acting President and Secretary,
respectively, of Procom Technology, Inc., a California corporation.
2. Article IV of the Articles of Incorporation of this corporation
is hereby amended to read as follows:
"This corporation is authorized to issue only one class of
shares of stock, designated 'Common Stock', and the number
of shares of Common Stock authorized to be issued is
10,000,000, having a par value of $.001 per share. Upon the
amendment of this Article IV to read as hereinabove set
forth, each outstanding share of Common Stock shall thereby
be split up and converted into 10,000 shares of Common Stock."
3. The foregoing amendment of the Articles of Incorporation has
been duly approved by the Board of Directors of this corporation in accordance
with Section 902 of the Corporations Code.
4. The foregoing amendment of the Articles of Incorporation has
been duly approved by the required vote of the shareholders in accordance with
Section 902 of the Corporations Code. The total number of outstanding shares of
Common Stock of the corporation is 300. The number of shares voting in favor of
the amendment equaled or exceed the vote required. The percentage vote required
was more than 50%.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
Dated: September 18, 1995.
/s/ Alireza Razmjookhah
----------------------------------
Alireza Razmjookhah, President
/s/ Frank Alaghband
----------------------------------
Frank Alaghband, Secretary
-1-
A 468287
ENDORSED
FILED
In the office of the Secretary of State
of the State of California
NOV 8 1995
/s/ Bill Jones
BILL JONES, Secretary of State
<PAGE> 1
EXHIBIT 3.2
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
PROCOM TECHNOLOGY, INC.
Alex Razm'joo and Frank Alaghband hereby certify that:
1. They are the President and Secretary, respectively, of Procom Technology,
Inc., a California corporation.
2. The Articles of Incorporation of this corporation are amended and restated in
their entirety to read as follows:
"NAME
ONE: The name of the corporation is:
Procom Technology, Inc.
PURPOSE
TWO: The purpose of the corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the
trust company business or the practice of a profession permitted to be
incorporated by the California Corporations Code.
AUTHORIZED SHARES
THREE: The corporation shall have authority to issue seventy-five
million (75,000,000) shares of stock, consisting of sixty-five million
(65,000,000) shares of common stock, no par value per share (the
"Common Stock"), and ten million (10,000,000) shares of preferred
stock, no par value per share (the "Preferred Stock").
The Board of Directors is authorized to fix by resolution the
designations, powers, preferences and relative, participating, optional
or other special rights (including voting rights, if any, and
conversion rights, if any), and qualifications, limitations or
restrictions thereof, of any such series of Preferred Stock, and the
number of shares constituting any such series, or all or any of them;
and to increase or decrease the number of shares of any series
subsequent to the issue of shares of that series, but not below the
number of such shares then outstanding. Except as
<PAGE> 2
otherwise provided (i) by law, (ii) by these Articles of Incorporation
as amended from time to time, or (iii) by resolutions of the Board of
Directors fixing the powers and preferences of any class or series of
shares as to which the Board of Directors has been expressly vested
with authority to fix the powers and preferences, (a) the Common Stock
shall possess the full voting power of the Corporation and (b) the
number of authorized shares of any class or classes of stock may be
increased or decreased (but not below the number of shares thereof then
outstanding) by the affirmative vote of the holders of a majority of
the stock of the Corporation entitled to vote.
Upon the filing in the Office of the Secretary of State of
California of these Amended and Restated Articles of Incorporation,
each issued and outstanding share of Common Stock shall thereby and
thereupon be reclassified as and changed into three shares of Common
Stock. Each holder of Common Stock shall be entitled to receive such
number of shares of Common Stock resulting from such stock split.
NO CUMULATIVE VOTING
FOUR: No holder of any class of stock of the corporation shall be
entitled to cumulate votes at any election of directors of this
corporation. This provision shall become effective only when this
corporation becomes a listed corporation within the meaning of Section
301.5 of the California General Corporation Law.
ELECTION AND TERM OF DIRECTORS
FIVE: This provision shall become effective only when this corporation
becomes a listed corporation within the meaning of Section 301.5 of the
General Corporation Law of California.
In the event that the authorized number of directors shall be
fixed with at least six (6) but less than nine (9) directors, the Board
of Directors shall be divided into two classes, designated Class I and
Class II, effective as of the first annual meeting following the date
that this corporation becomes a listed corporation within the meaning
of Section 301.5 of the General Corporation Law of California (the
"Initial Annual Meeting"). Each class shall consist of one-half of the
directors or as close an approximation as possible. The initial term of
office of the directors of Class I shall expire at the annual meeting
to be held during the fiscal year following the Initial Annual Meeting,
and the initial term of office of the directors of Class II shall
expire at the annual meeting to be held during the second fiscal year
following the Initial Annual Meeting. At each annual meeting,
commencing with the first annual meeting following the Initial Annual
Meeting, each of the successors to the directors of the class whose
term shall have expired at such annual meeting shall be elected for a
term running until the second annual meeting next succeeding his or her
election and until his or her successor shall have been duly elected
and qualified.
2
<PAGE> 3
In the event that the authorized number of directors shall be
fixed at nine (9) or more, the Board of Directors shall be divided into
three classes, designated Class I, Class II and Class III, effective as
of the first annual meeting coinciding with or following the division
into three classes (the "Effective Date"). Each class shall consist of
one-third of the directors or as close an approximation as possible.
The initial term of office of the directors of Class I shall expire at
the annual meeting to be held during the first fiscal year following
the Effective Date, the initial term of office of the directors of
Class II shall expire at the annual meeting to be held during second
fiscal year following the Effective Date and the initial term of office
of the directors of Class III shall expire at the annual meeting to be
held during the third fiscal year following the Effective Date. At each
annual meeting, commencing with the first annual meeting following the
Effective Date, each of the successors to the directors of the class
whose term shall have expired at such annual meeting shall be elected
for a term running until the third annual meeting next succeeding his
or her election and until his or her successor shall have been duly
elected and qualified.
Notwithstanding the rule that the classes shall be as nearly
equal in number of directors as possible, in the event of any change in
the authorized number of directors, each director then continuing to
serve as such shall nevertheless continue as a director of the class of
which he or she is a member until the expiration of his or her current
term, or his or her prior death, resignation or removal.
At each annual election, the directors chosen to succeed those
whose terms then expire shall be of the same class as the directors
they succeed, unless, by reason of any intervening changes in the
authorized number of directors, the Board of Directors shall designate
one or more directorships whose terms then expire as directorships of
another class in order more nearly to achieve equality of number of
directors among the classes.
This provision only may be amended or repealed by the approval
of the Board of Directors and the outstanding shares (as defined in
Section 152 of the General Corporation Law of California) voting as a
single class, notwithstanding Section 903 of the General Corporation
Law of California.
DIRECTOR LIABILITY
SIX: The liability of the directors of the corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
INDEMNIFICATION OF AGENTS
SEVEN: The corporation is authorized to provide indemnification of
agents (as defined in Section 317 of the General Corporation Law of
California) to the fullest extent
3
<PAGE> 4
permissible under California law, in excess of that indemnification
otherwise permitted by Section 317 of the General Corporation Law of
California."
3. The foregoing amendment and restatement of Articles of Incorporation has been
duly approved by the Board of Directors of this corporation.
4. The foregoing amendment and restatement of Articles of Incorporation has been
duly approved by the required vote of the shareholders of this corporation in
accordance with Sections 902 and 903 of the General Corporation Law of
California. The total number of outstanding shares of each class and series
entitled to vote with respect to the foregoing amendment and restatement of
articles of incorporation was 3,000,000 shares of Common Stock. There are no
shares outstanding of Preferred Stock of this corporation of any class or
series. The number of shares voting in favor of the foregoing amendment and
restatement equaled or exceeded the vote required. The percentage vote required
was a majority of the outstanding shares of Common Stock and Preferred Stock
voting together as a single class.
We further declare under penalty of perjury under the laws of the State
of California that the matters set forth in this certificate are true and
correct of our own knowledge.
DATED: October ___, 1996
_________________
Alex Razmjoo
President
_________________
Frank Alaghband
Secretary
4
<PAGE> 1
EXHIBIT 3.3
BYLAWS OF
PROCOM TECHNOLOGY, INC.
a California corporation
ARTICLE I
OFFICES
Section 1. PRINCIPAL OFFICE. The board of directors may fix the
location of the principal executive office of the corporation at any place
within or outside the State of California. Subject to the foregoing sentence,
the principal executive office of the corporation shall be 3100 Airway Drive,
Suite 128, Costa Mesa, California 92626.
Section 2. OTHER OFFICES. The board of directors may at any time
establish, or may designate an officer of the corporation to establish, branch
or subordinate offices at any place or places where the corporation is qualified
to do business.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 1. PLACE OF MEETINGS. Meetings of shareholders shall be held at
any place within or outside the State of California designated by the board of
directors. In the absence of any such designation, Shareholders' meetings shall
be held at the principal executive office of the corporation.
Section 2. ANNUAL MEETING. The annual meeting of shareholders shall be
held each year on a date and at a time designated by the board of directors. At
each annual meeting, directors shall be elected, and any other proper business
may be transacted.
Section 3. SPECIAL MEETING. A special meeting of the shareholders may
be called at any time by the board of directors, or by the chairman of the
board, or by the president, or by one or more shareholders holding shares in the
aggregate entitled to cast not less than ten percent (10%) of the votes at that
meeting.
If a special meeting is called by any person or persons other
than the board of directors, the request shall be in writing, specifying the
time of such meeting and the general nature of the business proposed to be
transacted, and shall be
<PAGE> 2
delivered personally or sent by registered mail or by telegraphic or other
facsimile transmission to the chairman of the board, the president, any vice
president, or the secretary of the corporation. The officer receiving the
request shall cause notice to be promptly given to the shareholders entitled to
vote, in accordance with the provisions of Sections 4 and 5 of this Article II,
that a meeting will be held at the time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after the receipt of the request. If the notice is not given within twenty
(20) days after receipt of the request, the person or persons requesting the
meeting may give the notice. Nothing contained in this paragraph of this Section
3 shall be construed as limiting, fixing or affecting the time when a meeting of
shareholders called by action of the board of directors may be held.
Section 4. NOTICE OF SHAREHOLDERS' MEETINGS. All notices of meetings of
shareholders shall be sent or otherwise given in accordance with Section 5 of
this Article II not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date and hour of the
meeting and (i) in the case of a special meeting, the general nature of the
business to be transacted, or (ii) in the case of the annual meeting, those
matters which the board of directors, at the time of giving the notice, intends
to present for action by the shareholders. The notice of any meeting at which
directors are to be elected shall include the name of any nominee or nominees
whom, at the time of the notice, management intends to present for election.
If action is proposed to be taken at any meeting for approval
of (i) a contract or transaction in which a director has a direct or indirect
financial interest, pursuant to Section 310 of the Corporations Code of
California, (ii) an amendment of the Articles of Incorporation, pursuant to
Section 902 of that Code, (ii) a reorganization of the corporation, pursuant to
Section 1201 of that Code, (iv) a voluntary dissolution of the corporation,
pursuant to Section 1900 of that code, or (v) a distribution in dissolution
other than in accordance with the rights of outstanding preferred shares,
pursuant to Section 2007 of that Code, the notice shall also state the general
nature of that proposal.
Section 5. MANNER OF GIVING NOTICES AFFIDAVIT OF NOTICE. Notice of any
meeting of shareholders shall be given either personally or by first class mail
or telegraphic or other written communication, charges prepaid, addressed to the
shareholder at the address of that shareholder appearing on the books of the
corporation or given by the shareholder to the corporation for the purpose of
notice. If no such address appears on the corporation's books or is given,
notice shall be deemed to have been given if sent to that shareholder by first
class mail or telegraphic or other written communication to either that
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shareholder's business address or to the corporation's principal executive
office, or if published at least once in a newspaper of general circulation in
the county where the corporation's office is located. Notice shall be deemed to
have been given at the time when delivered personally or deposited in the mail
or sent by telegram or other means of written communication.
If any notice addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice to the shareholder
at that address, such notice and all future notices or reports shall be deemed
to have been duly given without further mailing if these shall be available to
the shareholder on written demand of the shareholder at the principal executive
office of the corporation for a period of one (1) year from the date of the
giving of the notice.
An affidavit of the mailing or other means of giving any
notice of any shareholders' meeting shall be executed by the secretary,
assistant secretary, or any transfer agent of the corporation giving the notice
or, in the case of a special shareholders' meeting, by any person entitled to
give notice thereof pursuant to Section 3 of this Article II, and shall be filed
and maintained in the minute book of the corporation.
Section 6. QUORUM. The presence in person or by proxy of the holders of
a majority of the shares entitled to vote at any meeting of shareholders shall
constitute a quorum for the transaction of business, the shareholders present at
a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 7. ADJOURNED MEETING; NOTICE. Any shareholders' meeting, annual
or special, whether or not a quorum is present, may be adjourned from time to
time by the vote of a majority of the shares represented at that meeting, either
in person or by proxy, but in the absence of a quorum, no other business may be
transacted at that meeting, except as provided in Section 6 of this Article II.
When any meeting of shareholders, either annual or special, is
adjourned to another time or place, notice need not be given of the adjourned
meeting if the time and place are announced at a meeting at which the
adjournment is taken, unless a new record date for the adjourned meeting is
fixed, or unless the adjournment is for more than forty-five (45) days from the
date set for the original meeting, in which case the board of directors shall
act a new record date. Notice of any such
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adjourned meeting shall be given to each shareholder of record entitled to vote
at the adjourned meeting in accordance with the provisions of Sections 4 and 5
of this Article II. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
Section 8. VOTING. The shareholders entitled to vote at any meeting of
shareholders shall be determined in accordance with the provisions of Section 11
of this Article II, subject to the provisions of Sections 702 to 704, inclusive,
of the Corporations Code of California (relating to voting shares held by a
fiduciary, in the name of a corporation, or in joint ownership). The
shareholders' vote may be by voice vote or by ballots provided, however, that
any election for directors must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than elections of directors,
any shareholder may vote part of the shares in favor of the proposal and refrain
from voting the remaining shares or vote them against the proposal, but, if the
shareholder fails to specify the number of shares which the shareholder is
voting affirmatively, it will be conclusively presumed that the shareholders'
approving vote is with respect to all shares that the shareholder is entitled to
vote. If a quorum is present, the affirmative vote of the majority of the shares
represented at the meeting and entitled to vote on any matter (other than the
election of directors) shall be the act of the shareholders, unless the vote of
a greater number or voting by classes is required by California General
Corporation Law of by the Articles of Incorporation.
At a shareholders' meeting at which directors are to be
elected, no shareholder shall be entitled to cumulate votes (i.e., cast for any
one or more candidates a number of votes greater than the number of
shareholders' shares) unless the candidates' names have been placed in
nomination prior to commencement of the voting and a shareholder has given
notice prior to commencement of the voting of the shareholder's intention to
Cumulate votes. If any shareholder has given such a notice, then every
shareholder entitled to vote may cumulate votes for candidates in nomination and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which that shareholder's shares are
entitled, to distribute the shareholder's votes on the same principle among any
or all of the candidates, as the shareholder thinks fit. The candidates
receiving the highest number of votes, up to the number of directors to be
elected, shall be elected.
Section 9. WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transaction of any meeting of shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy, and if, either before or after the meeting, each
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person entitled to vote, who was not present in person or by proxy, signs a
written waiver of notice or a consent to a holding of the meeting, or an
approval of the minutes. The waiver of notice or consent need not specify either
the business to be transacted or the purpose of any annual or special meeting of
shareholders, except that, if action is taken or proposed to be taken for
approval of any of those matters specified in the second paragraph of Section of
this Article II, the waiver of notice or consent shall state the general nature
of the proposal. All such waivers, consents or approval shall be filed with the
corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a
waiver of notice of that meeting, except when the person objects, at the
beginning of the meeting, to the transaction of any business because the meeting
is not lawfully called or convened, and except that attendance at a meeting is
not a waiver of any right to object to the consideration of matters not included
in the notice of the meeting if that objection is expressly made at the meeting.
Section 10. SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any annual or special meeting of shareholders
may be taken without a meeting and without prior notice, if a consent in
writing, setting forth the action so taken, is signed by the holders of
outstanding shares having not less than the minimum number of votes that would
be necessary to authorize or take that action at a meeting at which all shares
entitled to vote thereon were present and voted. In the case of election of
directors, such consent shall be effective only if signed by the holders of all
outstanding shares entitled to vote for the election of directory provided,
however, that a director may be elected at any time to fill a vacancy on the
board of directors. All such consents shall be filed with the secretary of the
corporation and shall be maintained in the corporate records. Any shareholder
giving a written consent, or the shareholder's proxy holders, or a transferee of
the shares or a personal representative of the shareholder or their respective
proxy holders, may revoke the consent by a writing received by the secretary of
the corporation before written consents of the number of shares required to
authorize the proposed action have been filed with the secretary.
If the consents of all shareholders entitled to vote have not
been solicited in writing, and if the unanimous written consent of all such
shareholders shall not have been received, the secretary shall give promptly
notice of the corporate action approved by the shareholders without a meeting.
This notice shall be given in the manner specified in Section 5 of this Article
II. In the case of approval of (i) contracts or transactions in which a director
has a direct or indirect financial interest, pursuant to Section 310 of the
Corporations Code of California, (ii) indemnification of agents of the
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corporation, pursuant to Section 317 of that Code, (iii) a reorganization of the
corporation, pursuant to Section 1201 of that Code, and (iv) a distribution in
dissolution other than in accordance with the rights of outstanding preferred
shares, pursuant to Section 2007 of that Code, the notice shall be given at
least ten (10) days before the consummation of any action authorized by that
approval.
Section 11. RECORD DATE FOR SHAREHOLDER NOTICE VOTING, AND GIVING
CONSENTS. For purposes of determining the shareholders entitled to notice of any
meeting or to vote or entitled to give consent to corporate action without a
meeting, the board of directors may fix, in advance, a record date which shall
not be more than sixty (60) days nor less than ten (10) days before the date of
any such meeting nor more than sixty (60) days before any such action without a
meeting, and in this event only shareholders of record on the date so fixed are
entitled to notice and to vote or to give consents, as the case may be,
notwithstanding any transfer of any shares on the book" of the corporation after
the record date, except as otherwise provided in the California General
Corporation Law.
If the board of directors does not so fix a record date:
(a) The record date for determining shareholders
entitled to notice of or to vote at a meeting of shareholder shall be at the
close of business on the business day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the business day next
preceding the day on which the meeting is held.
(b) The record date for determining shareholders
entitled to give consent to corporate action in writing without a meeting, (i)
when no prior action by the board has been taken, shall be the day on which the
first written consent is given, or (ii) when prior action of the board has been
taken, shall be at the close of business on the date on which the board adopts
the resolution relating to that action, or the sixtieth (60th) day before the
date of such other action, whichever is later.
Section 12. PROXIES. Every person entitled to vote for directors or on
any other matter shall have the right to do so either in person or by one or
more agents authorized by a written proxy signed by the person and filed with
the secretary of the corporation or made available for inspection by the
shareholders at any shareholders' meeting. A proxy shall be deemed signed if the
shareholder's name is placed on the proxy (whether by manual signature,
typewriting, telegraphic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy which does not state
that it is irrevocable shall continue in full force and effect unless (i)
revoked by the person executing it, before the vote pursuant to
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that proxy, by a writing delivered to the corporation stating that the proxy is
revoked, or by a subsequent proxy executed by, or attendance at the meeting and
voting in person by, the person executing the proxy; or (ii) written notice of
the death or incapacity of the maker of that proxy is received by the
corporation before the vote pursuant to that proxy in counted: provided,
however, that no proxy shall be valid after the expiration of eleven (11) months
from the date of the proxy, unless otherwise provided in the proxy. The
revocability of a proxy that states on its face that it is irrevocable shall be
governed by the provisions of Sections 705(e) and 705(f) of the Corporations
Code of California.
Section 13. INSPECTORS OF ELECTION. Before any meeting of shareholders,
the board of directors may appoint any persons other than nominees for officiate
act an inspectors of election at the meeting or its adjournment. If no
inspectors of election are so appointed, the chairman of the meeting may, and on
the request of any shareholder or a shareholder's proxy shall, appoint
inspectors of election at the meeting. The number of inspectors shall be either
one (1) or three (3). If inspectors are appointed at a meeting on the request of
one (1) or more shareholders or proxies, the holders of a majority of shares or
their proxies present at the meeting shall determine whether one (1) or three
(3) inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and upon
the request of any shareholder or a shareholder's proxy shall, appoint a person
to fill that vacancy.
These inspectors shall:
(a) Determine the number of shares outstanding and
the voting power of each, the shares represented at the meeting,
the existence of a quorum, and the authenticity, validity, and
effect of proxies;
(b) Receive votes, ballots, or consents;
(c) Hear and determine all challenges and
questions in any way arising in connection with the right to
vote;
(d) Count and tabulate all votes or consents;
(e) Determine when the polls shall close,
(f) Determine the result, and
(g) Do any other acts that may be proper to
conduct the election or vote with fairness to all shareholders.
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ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the California General
Corporation Law and any limitations in the articles of incorporation and these
bylaws relating to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
Without prejudice to these general powers, and subject to the
same limitations, the directors shall have the power to:
(a) Select and remove all officers, agents, and
employees of the corporation: prescribe any powers and duties for them that are
consistent with law, with the articles of incorporation, and with these bylaws;
fix their compensation; and require from them security for faithful service.
(b) Change the principal executive office or the
principal business office in the State of California from one location to
another; cause the corporation to be qualified to do business in any other
state, territory, dependency, or country and conduct business within or without
the State of California and designate any place within or without the State of
California for the holding of any shareholders' meeting, or meetings, including
annual meetings.
(c) Adopt, make and use a corporate seal; prescribe
the forms of certificates of stock, and alter the form of the seal and
certificates.
(d) Authorize the issuance of shares of stock of
the corporation on any lawful terms, in consideration of money paid, labor done,
and services actually rendered, debts or securities cancelled, or tangible or
intangible property actually received.
(e) Borrow money and incur indebtedness on behalf
of the corporation, and cause to be executed and delivered for the corporation's
purposes, in the corporate name, promissory notes, bonds, debentures, deeds of
trust, mortgages, pledges, hypothecations, and other evidences of debt and
securities.
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The authorized number
of directors shall be THREE (3) until changed by a duly adopted amendment to the
articles of incorporation or by an amendment to this bylaw adopted by the vote
or written consent of holders of a majority of the outstanding shares entitled
to vote.
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Section 3. ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall be
elected at each annual meeting of the shareholders to hold office until the next
annual meeting. Each director, including a director elected to fill a vacancy,
shall hold office until the expiration of the term for which elected and until a
successor has been elected and qualified.
Section 4. VACANCIES. Vacancies in the board of directors may be filled
by a majority of the remaining directors, though less than a quorum, or by a
sole remaining director, except that a vacancy created by the removal of a
director by the vote or written consent of the shareholders or by court order
may be filled only by the vote of a majority of the Shares entitled to vote
represented at a duly held meeting at which a quorum is present, or by the
written consent of holders of a majority of the outstanding shares entitled to
vote. Each director so elected shall hold office until the next annual meeting
of the shareholders and until a successor has been elected and qualified.
A vacancy or vacancies in the board of directors shall be
deemed to exist in the event of the death, resignation, or removal of any
director, or if the board of directors by resolution declares vacant the office
of a director who has been declared of unsound mind by an order of court or
convicted or a felony, or if the authorized number of directors is increased, or
if the shareholders fail, at any meeting of shareholders at which any director
or directors are elected, to elect the number of directors to be voted for at
that meeting.
The shareholders may elect a director or directors at any time
to fill any vacancy or vacancies not filled by the directors, but any such
election by written consent shall require the consent of a majority of the
outstanding shares entitled to vote.
Any director may resign effective on giving written notice to
the chairman of the board, the president, the secretary, or the board of
directors, unless the notice specifies a later time for that resignation to
become effective. If the resignation of a director is effective at a future
time, the board of directors may elect a successor to take office when the
resignation becomes effective.
No reduction of the authorized number of directors shall have
the effect of removing any director before that director's term of office
expires.
Section 5. PLACE OF MEETINGS AND MEETING BY TELEPHONE. Regular meetings
or the board of directors may be held at any place within or outside the State
of California that has been designated from time to time by resolution of the
board. In the absence of such a designation, regular meetings shall be held at
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the principal executive office of the corporation. Special meetings of the board
shall be held at any place within or outside the State of California that has
been designated in the notice of the meeting or, if not stated in the notice or
there is no notice, at the principal executive office of the corporation. Any
meeting, regular or special may be held by conference telephone or similar
communication equipment, so long as all directors participating in the meeting
can hear one another, and all such directors shall be deemed to be present in
person at the meeting.
Section 6. ANNUAL MEETING. Immediately following each annual meeting of
the shareholders, the board of director shall hold a regular meeting for the
purpose or organization, any desired election of officers, and the transaction
of other business. Notice of this meeting shall not be required,
Section 7. OTHER REGULAR MEETINGS. Other regular meetings of the board
of directors may be held without notice and without call at such time as fixed
by the board of directors.
Section 8. SPECIAL MEETINGS. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board or the president or any vice president or the secretary or any two
directors.
Notice of the time and place of special meetings shall be
delivered personally or by telephone to each director or sent by first class
mail or telegram, charges prepaid, addressed to each director at the director's
address as it is shown on the records of the corporation. In case the notice is
mailed, it shall be deposited in the United States mail at least four (4) days
before the time of the holding of the meeting, in case the notice is delivered
personally, or by telephone or telegram, it shall be delivered personally or by
telephone or to the telegraph company at least forty-eight (48) hours before the
time of the holding of the meeting. Any oral notice given personally or by
telephone may be communicated either to the director or to a person at the (or
a) business office of the director who the person giving the notice has reason
to believe will promptly communicate it to the director. The notice need not
specify the purpose of the meeting nor the place if the meeting is to be held at
the principal executive office of the corporation.
Section 9. QUORUM. A majority of the authorized number of directors
shall constitute a quorum for the transaction of business, except to adjourn as
provided in Section 11 of this Article III. Every act or decision done or made
by a majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the board of directors, subject to
the provisions of Section 310 of the corporations Code of California (as to
approval of contracts or transactions in which a director has a direct or
indirect material financial
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interest), Section 311 of that Code (as to appointment of committees), and
Section 317(e) of that Code (as to indemnification of directors). A meeting at
which a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is approved by
at least a majority of the required quorum for that meeting.
Section 10. WAIVER OF NOTICE. The transaction of any meeting of the
board of directors, however called and noticed or wherever held, shall be as
valid as though had at a meeting duly held after regular call and notice if a
quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes. The waiver of notice or consent need not
specify the purpose of the meeting. All such waivers, consents, and approval
shall be filed with the corporation (24) hours, in which came notice of the time
and place shall be given before the time of the adjourned meeting, in the manner
specified in Section 8 of this Article III, to the directors who were not
present at the time of the adjournment.
Section 11. ADJOURNMENT. A majority of the directors present, whether
or not constituting a quorum, may adjourn any meeting to another time and place.
Section 12. NOTICE OF ADJOURNMENT. Notice of the time and place of
holding an adjourned meeting need not be given, unless the meeting is adjourned
for more than twenty-four (24) hours, in which case notice of the time and place
shall be given before the time of the adjourned meeting, in the manner specified
in Section 8 of this Article III, to the directors who were not present at the
time of the adjournment.
Section 13. ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the board of directors may be taken without a meeting, if all
members of the board shall individually or collectively consent in writing to
that action. Such action by written consent shall have the same force and effect
as a unanimous vote of the board of directors. Such written consent or consents
shall be filed with the minutes of the proceedings of the board.
Section 14. FEES AND COMPENSATION OF DIRECTORS, Directors and members
of the committees may receive such compensation, if any, for their services, and
such reimbursement of expenses, as may be fixed or determined by resolution of
the board of directors. This Section 14 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise, and receiving compensation for those services.
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ARTICLE IV
COMMITTEES
Section 1. COMMITTEES OF DIRECTORS. The board of directors may, by
resolution adopted by a majority of the authorized number of directors,
designate one or more committees, each consisting of two or more directors, to
serve at the pleasure of the board. The board may designate one or more
directors as alternate members of any committee, who may replace any absent
member at any meeting of the committee. Any committee, to the extent provided in
the resolution of the board, shall have all the authority of the board, except
with respect to:
(a) The approval of any action which, under the General
Corporation Law of California, also requires shareholders' approval or approval
of the outstanding shares;
(b) The filling of vacancies on the board of directors or in
any committee;
(c) The fixing of compensation of the directors for serving on
the board or on any committees;
(d) The amendment or repeal of bylaws of the adoption of new
bylaws;
(e) The amendment or repeal of any resolution of the board of
directors which by its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation,
except at a rate or in a periodic amount or within a price range determined by
the board of directors; or
(g) The appointment of any other committees of the board of
directors or the members of these committees.
Section 2. MEETINGS AND ACTION OF COMMITTEES. Meetings and action of
committees shall be governed by, and held and taken in accordance with, the
provisions of Article III of these bylaws, Section 5 (place of meetings and
meeting by telephone), 6 & 7 (meetings), 8 (special meetings and notice), 9
(quorum), 10 (waiver of notice), 11 (adjournment), 12 (notice of adjournment),
and 13 (action without meeting), with such changes in the context of those
bylaws as are necessary to substitute the committee and its members for the
board of directors and its members, except that the time of regular meetings of
committees may be determined either by resolution of the board of directors or
by resolution of the committee: special meetings of committees may also be
called by resolution of the board of directors, and notice of special meetings
of committees shall also be given to all alternate members, who shall have the
right to attend all
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meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
bylaws.
ARTICLE V
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
president, treasurer and secretary. The corporation may also have, at the
discretion of the board of directors, a chairman of the board, one or more vice
presidents, one or more assistant secretaries, one or more treasurers, and such
other officers as may be appointed in accordance with the provisions of Section
3 of this Article V. Any number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article V, shall be chosen by the board of
directors, and each shall serve at the pleasure of the board, subject to the
rights, if any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The board of directors may appoint,
and may empower the president to appoint, such other officers as the business of
the corporation may require, each of whom shall hold office of such period, have
such authority and perform such duties as are provided in the bylaws or as the
board of directors from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Subject to the rights,
if any, of an officer under any contract of employment, any officer may be
removed, either with or without cause, by the board of directors, at any regular
or special meeting of the board, or except in case of an officer chosen by the
board of directors, by any officer upon whom such power of removal may be
conferred by the board of directors.
Any officer may resign at any time by giving written notice to
the corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; and, unless otherwise
specified in that notice, the acceptance of the resignation shall not be
necessary to make it effective. Any resignation is without prejudice to the
rights, if any, of the corporation under any contract to which the officer is a
party.
Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these bylaws for regular appointments to that
office.
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Section 6. CHAIRMAN OF THE BOARD. The chairman of the board, if such an
officer be elected, shall, if present, preside at meetings of the board of
directors and exercise and perform such other powers and duties as may be from
time to time assigned to him by the board of directors or prescribed by the
bylaws. If there is no president, the chairman of the board shall in addition be
the chief executive officer of the corporation and shall have the powers and
duties prescribed in Section 7 of this Article V.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the board of directors to the chairman of the board, if there be
such an officer, the president shall be the chief executive officer of the
corporation and shall, subject to the control of the board of directors, have
general supervision, direction, and control of the business and the officers of
the corporation. He shall preside at all meetings of the shareholders and, in
the absence of the chairman of the board, or if there be none, at all meetings
of the board of directors. He shall have the general powers and duties of
management usually vested in the office of president of a corporation, and shall
have such other powers and duties as may be prescribed by the board of directors
or the bylaws.
Section 8. VICE PRESIDENTS. In the absence or disability of the
president, the vice presidents, if any, in order of their rank as fixed by the
board of directors, or, it not ranked, a vice president designated by the board
of directors, shall perform all the duties of the president, and when so acting
shall have all the powers of, and be subject to all the restrictions upon, the
president. The vice presidents shall have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by the
board of directors or the bylaws, and the president, or the chairman of the
board.
Section 9. SECRETARY. The secretary shall keep or cause to be kept, at
the principal executive office or such other place as the board of directors may
direct, a book of minutes of all meetings and actions of the directors,
committees of directors, and shareholders, with the time and place of holding,
whether regular or special, and, if special, how authorized, the notice given,
the names of those present at directors' meetings or committee meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings.
The secretary shall keep, or cause to be kept, at the
principal executive office or at the office of the corporation's transfer agent
or registrar, an determined by resolution of the board of directors, a share
register, or a duplicate share register, showing the names of all shareholders
and their addresses, the number of classes of shares held by each, the number
and date of certificates issued for the same, and the
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<PAGE> 15
number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of the shareholders and of the board of directors required by the
bylaws or by law to be given and shall keep the seal of the corporation, if one
be adopted, in save custody, and shall have such other powers and perform such
other duties as may be prescribed by the board of directors or by the bylaws.
Section 10. CHIEF FINANCIAL OFFICER (TREASURER). The chief financial
officer (treasurer) shall keep and maintain, or cause to be kept and maintained,
adequate and correct books and records of accounts of the properties and
business transactions of the corporation, including accounts of its assets,
liabilities, receipts, disbursements, gains, losses, capital, retained earnings,
and shares. The books of account shall at all reasonable times be open to
inspection by any director.
The chief financial officer (treasurer) shall deposit all
moneys and other valuables in the name and to the credit of the corporation with
such depositaries as may be designated by the board of directors. He shall
disburse the funds of the corporation as may be ordered by the board of
directors. He shall disburse the funds of the corporation as may be ordered by
the board of directors, shall render to the president and directors, whenever
they request it, an account of all of his transactions as chief financial
officer and of the financial condition of the corporation, and shall have other
powers and perform such other duties as may be prescribed by the board of
directors or the bylaws.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
The corporation shall have the authority to, and hereby does, to the
maximum extent permitted by the California General Corporation Law, indemnify
each of its agents against expenses, judgments, fines, settlements and other
amounts actually and reasonably incurred in connection with any proceeding
arising by reason of the fact any such person is or was an agent of the
corporation. For purposes of this Section, an "agent" of the corporation
includes any person who is or was a director, officer, employee, or other 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, or was a director, officer, employee, or
agent of a corporation which was a predecessor corporation of the corporation or
of another enterprise at the request of such predecessor corporation.
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ARTICLE VII
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the board of directors, a record of its shareholders, giving the
names and addresses of all shareholders and the number and class of shares held
by each shareholder.
A shareholder or shareholders of the corporation holding at
least five percent (5%) in the aggregate of the outstanding voting shares of the
corporation may (i) inspect and copy the records of shareholders' names and
addresses and shareholdings during usual business hours on five (5) days' prior
written demand on the corporation, and (ii) obtain from the transfer agent of
the corporation, on written demand and on the tender of such transfer agent's
usual charges for such list, a list of shareholders' names and addresses, who
are entitled to vote for the election of directors, and their shareholdings, as
of the most recent record date for which that list has been compiled or as of
the date specified by the shareholder after the date of demand. This list shall
be made available to any such shareholder by the transfer agent on or before the
later of five (5) days after the demand is received or the date specified in the
demand an the date which the list is to be compiled. The record of shareholders
shall also be open to inspection on the written demand of any shareholder or
holder of a voting trust certificate, at any time during usual business hours,
for a purpose reasonably related to the holder's interests as a shareholder or
as the holder of a voting trust certificate. Any inspection and copying under
this Section 1 may be made in person or by an agent or attorney of the
shareholder or holder of a voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office, or if its principal executive office is
not in the State of California, at its principal business office in this state,
the original or a copy of the bylaws as amended to date, which shall be open to
inspection by the shareholders at all reasonable times during office hours. If
the principal executive office of the corporation is outside the State of
California and the corporation has no principal business office in this state,
the Secretary shall, upon the written request of any shareholder, furnish to
that shareholder a copy of the bylaws as amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of
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proceedings of the shareholders and the board of directors and any committee or
committees of the board of directors shall be kept at such place or places
designated by the board of directors, or, in the absence of such designation, at
the principal executive office of the corporation. The minutes shall be kept
either in written form or any other form capable of being converted into written
form. The minutes and accounting books and records shall be open to inspection
upon the written demand of any shareholder or holder of a voting trust
certificate, at any reasonable related to the holder of a certificate. The
inspection may be made in person or by an agent or attorney, and shall include
the right to copy and make extracts. These rights of inspection shall extend to
the records of each subsidiary corporation of the corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records, and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may by made in
person or by an agent or attorney and the right of inspection includes the right
to copy and make extracts of documents.
Section 5. ANNUAL REPORT TO SHAREHOLDERS. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the board of directors from issuing annual or other periodic reports
to the shareholders of the corporation as they consider appropriate.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each Quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for twelve
(12) months and each such statement shall be exhibited at all reasonable times
to any shareholder demanding an examination of any such statement or a copy
shall be mailed to any such shareholder.
If a shareholder or shareholders holding at least five percent
(5%) of the outstanding shares of any class of stock of the corporation makes a
written request to the corporation for an income statement of the corporation
for a three-month, six-month or nine-month period of the then current fiscal
year ended more than thirty (30) days before the date of the request, and
balance sheet of the corporation as of the end of that period, the chief
financial officer shall cause that statement to be prepared, if not already
prepared, and shall deliver personally or mail that statement or statements to
the person making the request within thirty (30) days after the receipt of the
request.
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The corporation shall also, on the written request of any
shareholder, mail to the shareholder a copy of the last annual, semi-annual or
quarterly income statement which it has prepared, and a balance sheet as of the
end of that period.
The quarterly income statements and balance sheets referred to
in this section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation ox the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation
shall, within 90 days after filing the original articles and annually
thereafter, file with the Secretary of State of the State of California, on the
prescribed form, a statement setting forth the authorized number of directors,
the names and complete business or residence addresses of all incumbent
directors, the names and complete business or residence addresses of the chief
executive officer, secretary, and chief financial officer, the street address of
the principal business activity of the corporation, together with the
designation of the agent of the corporation for the purpose of service of
process, all in compliance with section 1502 of the Corporations Code of
California.
ARTICLE VIII
GENERAL CORPORATE MATTERS
Section 1. RECORD DATE FOR PURPOSES OTHER THAN NOTICE AND VOTING. For
purposes of determining the shareholders 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 other lawful action (other than action by
shareholders by written consent without a meeting), the board of directors may
fix, in advance, a record date, which shall not be more than sixty (60) days
before any such action, and in that case only shareholders of record on the date
so flied are entitled to receive the dividend, distribution or allotment of
rights to exercise the rights, as the case may be, notwithstanding any transfer
of any shares on the books of the corporation after the record date so fixed,
except as otherwise provided in the California General Corporation Law.
If the board of directors does not so fix a record date, the
record date for determining shareholders for any such purpose shall be at the
close of business on the day on which the board adopts the applicable resolution
or the sixtieth (6Oth) day before the date of that action, whichever is later.
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Section 2. CHECKS, DRAFTS, EVIDENCES OR INDEBTEDNESS. All checks,
drafts, or other orders for payment of money, notes, or other evidences of
indebtedness, issued in the name of or payable to the corporation, shall be
signed or endorsed by such person or persons and in such manner as, from time to
time, shall be determined by resolution of the board of directors.
Section 3. CORPORATE CONTRACTS AND INSTRUMENTS: HOW EXECUTED. The board
of directors, except as otherwise provided in these bylaws, may authorize any
officer or officers, agent or agents, to enter into any contract or execute any
instrument in the name of and on behalf of the corporation, and this authority
may be general or confined to specific instances; and, unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent, or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
Section 4. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of these shares are fully paid, and the board of directors
may authorize the issuance of certificates or shares as partly paid provided
that these certificates shall state the amount of the consideration to be paid
for them and the amount paid. All certificates shall be signed in the name of
the corporation by the chairman of the board or vice chairman of the board of
the president or vice president and by the-chief financial officer or an
assistant treasurer or the secretary or any assistant secretary, certifying the
number of shares and the class or series of shares owned by the shareholder. Any
or all of the signatures on the certificate may be facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed on a certificate shall have ceased to be that officer,
transfer agent, or registrar before that certificate is issued, it may be issued
by the corporation with the same effect as if that person were an officer,
transfer agent, or registrar at the date of issue.
Section 5. LOST CERTIFICATE. Except as provided in this Section 5, no
new certificate for shares shall be issued to replace an old certificate unless
the latter is surrendered to the corporation and cancelled at the same time. The
board of directors may, in case any share certificate or certificate for any
security is lost, stolen, or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the board may require, including
provision for indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft, or destruction
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of the certificate or the issuance of the replacement certificate.
Section 6. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The chairman
of the board, the president, or any vice president, or any other person
authorized by resolution of the board of director" or by any of the foregoing
designated officers, is authorized to vote on behalf of the corporation any and
all shares of any other corporation or corporations, foreign or domestic,
standing in the name of the corporation. The authority granted to these officers
to vote or represent on behalf of the corporation any and all shares held by the
corporation in any other corporation or corporations may be exercised by any of
these officers in person or by any person authorized to do so by a proxy duly
executed by these officers.
Section 7. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
California General Corporation Law shall govern the construction of these
bylaws. Without limiting the generality of this provision, the singular number
includes the plural, the plural number includes the singular, and the term
"person" includes both a corporation and a natural person.
ARTICLE IX
AMENDMENTS
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these bylaws may be amended or repealed by the vote or written consent of
holders of a majority of the outstanding shares entitled to vote; provided,
however, that if the articles of incorporation of the corporation set forth the
number of authorized directors of the corporation, the authorized number of
directors may be changed only by an amendment of the articles of incorporation.
Section 2. AMENDMENT BY DIRECTORS. Subject to the rights of the
shareholders as provided in Section 1 of this Article IX, to adopt, amend, or
repeal bylaws, bylaws may be adopted, amended or repealed by the board of
directors, provided, however, that the board of directors may adopt a bylaw or
amendment of a bylaw changing the authorized number of directors within the
limits specified in the articles of incorporation or in Section 2 of Article III
of these bylaws.
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CERTIFICATE OF SECRETARY
The undersigned certifies:
(l) That the undersigned is the duly elected and acting secretary of
PROCOM TECHNOLOGY INC., a California corporation; and
(2) That the foregoing bylaws constitute the bylaws of said corporation
as duly adopted by unanimous written consent in lieu of the first meeting of the
Board of Directors on the 9th day of February, 1988.
IN WITNESS WHEREOF, I have hereunto subscribed my name this 9th day of
February, 1988.
/s/ FARROKH ALAGHBAND
------------------------
FARROKH ALAGHBAND,
Secretary
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FIRST AMENDMENT
TO THE BYLAWS
OF
PROCOM TECHNOLOGY, INC.
Section 2 of Article III is hereby amended to read as
follows:
Section 2. NUMBER AND QUALIFICATION OF DIRECTORS. The
authorized number of directors shall be FOUR (4) until changed
by a duly adopted amendment to the articles of incorporation
or by an amendment to this bylaw adopted by the vote or
written consent of holders of a majority of the outstanding
shares entitled to vote.
All other provisions of the Bylaws remain in full force and
effect.
CERTIFICATE OF THE SECRETARY
OF PROCOM TECHNOLOGY, INC.
I certify that I am the duly elected and acting Secretary of
said corporation and that the foregoing amendment to the Bylaws was duly adopted
by the Board of Directors of the corporation by unanimous written consent on
January 5, 1989.
/s/ FRANK ALAGHBAND
---------------------------------
Frank Alaghband, Secretary
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EXHIBIT 3.4
AMENDED AND RESTATED
BYLAWS
PROCOM TECHNOLOGY, INC.
a California Corporation
ARTICLE I
Offices
Section 1. Principal Executive Office. The principal executive
office of the corporation is hereby fixed and located at 2181 Dupont Drive,
Irvine, California 92715. The Board of Directors is hereby granted full power
and authority to change the principal executive office from one location to
another. Any such change shall be noted on the Bylaws by the secretary, opposite
this section, or this section may be amended to state the new location.
Section 2. Other Offices. Other business offices may
at any time be established by the Board of Directors at any place
or places where the corporation is qualified to do business.
ARTICLE II
Meetings of Shareholders
Section 1. Place of Meetings. All annual or other meetings of
shareholders shall be held at the principal executive office of the corporation,
or at any other place within or without the State of California which may be
designated by the Board of Directors.
Section 2. Annual Meetings. The annual meetings of shareholders
shall be held on such dates and at such times as shall be designated by the
Board of Directors and stated in the notice of the meeting given to each
shareholder as provided below. At such meetings, directors shall be elected,
reports of the affairs of the corporation shall be considered, and any other
business may be transacted which is within the powers of the shareholders.
Written notice of each annual meeting shall be given to each shareholder
entitled to vote, either personally or by mail or other means of written
communication, charges prepaid, addressed to such shareholder at its address
appearing on the books of the corporation or given to the corporation for the
purpose of notice. If any notice or report addressed to the shareholder at the
address of such shareholder appearing on the books of the corporation is
returned to the corporation by the United States Postal Service marked to
indicate that the United States Postal Service is unable to deliver the notice
or report
<PAGE> 2
to the shareholder at such address, all future notices or reports shall be
deemed to have been duly given without further mailing if the same shall be
available for the shareholder upon written demand of the shareholder at the
principal executive office of the corporation for a period of one year from the
date of the giving of the notice or report to all other shareholders. If a
shareholder gives no address, notice shall be deemed to have been given if sent
by mail or other means of written communication addressed to the place where the
principal executive office of the corporation is situated, or if published at
least once in some newspaper of general circulation in the county in which the
principal executive office is located.
All such notices shall be given to each shareholder entitled thereto
not less than ten (10) days nor more than sixty (60) days before each annual
meeting. Any such notice shall be deemed to have been given at the time when
delivered personally of deposited in the mail or sent by other means of written
communication. An affidavit of mailing of any such notice in accordance with the
foregoing provisions, executed by the secretary, assistant secretary or any
transfer agent of the corporation, shall be prima facie evidence of the giving
of the notice.
Such notices shall specify:
(a) the place, the date, and the hour of such meeting;
(b) those matters which the Board, at the time of the mailing
of the notice, intends to present for action by the shareholders at the
meeting;
(c) if directors are to be elected, the names of nominees
intended at the time of the notice to be presented by management for
election;
(d) the general nature of a proposal, if any, to take action
with respect to approval of (i) a contract or other transaction with an
interested director, (ii) amendment of the Articles of Incorporation,
(iii) a reorganization of the corporation as defined in Section 181 of the
California General Corporation Law, (iv) voluntary dissolution of the
corporation, or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, if any; and
(e) such other matters, if any, as may be expressly required
by statute.
Section 3. Special Meetings. Special meetings of the shareholders
for the purpose of taking any action permitted by the shareholders under the
General Corporation Law and the
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Articles of Incorporation of this corporation, may be called at any time by the
Board of Directors, the Chairman of the Board, the Chief Executive Officer or
President, or by one or more shareholders entitled to cast not less than ten
percent (10%) of the votes at the meeting. Upon request in writing that a
special meeting of shareholders be called for any proper purpose, directed to
the chairman of the Board, president, vice president or secretary by any person
(other than the Board) entitled to call a special meeting of shareholders, the
officer forthwith shall cause notice to be given to shareholders entitled to
vote that a meeting will be held at a time requested by the person or persons
calling the meeting, not less than thirty-five (35) nor more than sixty (60)
days after receipt of the request. Except in special cases where other express
provision is made by statute, notice of such special meetings shall be given in
the same manner as for the annual meeting of shareholders. In addition to the
matters required by items (a) and, if applicable, (c) of the preceding Section ,
notice of any special meeting shall specify the general nature of the business
to be transacted, and no other business may be transacted at such meeting.
Section 4. Quorum. The presence in person or by proxy of the persons
entitled to vote a majority of the shares at any meeting shall constitute a
quorum for the transaction of business at that meeting. The shareholders present
at a duly called or held meeting at which a quorum is present may continue to do
business until adjournment, notwithstanding the withdrawal of enough
shareholders to leave less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the shares required to
constitute a quorum.
Section 5. Adjourned Meeting and Notice Thereof. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares, the holders of which
are either present in person or by proxy thereat, but in the absence of a quorum
no other business may be transacted at such meeting, except as provided in
Section 4 above. When any shareholders' meeting, either annual or special, is
adjourned for forty-five days or more, or if after adjournment a new record date
is fixed for the adjourned meeting, notice of the adjourned meeting shall be
given as in the case of an original meeting. Except as provided above, it shall
not be necessary to give any notice of the time and place of the adjourned
meeting or of the business to be transacted thereat, other than by announcement
of the time and place of the adjourned meeting at the meeting at which the
adjournment is taken.
Section 6. Voting. Unless a record date for voting purposes be fixed
as provided in Section 1 of Article V of these Bylaws, then, subject to the
provisions of Sections 702 and 704, inclusive, of the Corporations Code of
California (relating to voting of shares held by a fiduciary, in the name of a
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corporation, or in joint ownership) only persons in whose names shares entitled
to vote stand on the stock records of the corporation at the close of business
on the business day next preceding the day on which notice of the meeting is
given or if such notice is waived, at the close of business on the business day
next preceding the day on which the meeting of shareholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date for such
meeting. Such vote may be viva voce or by ballot; provided, however, that all
elections for directors must be by ballot upon demand made by a shareholder at
any election and before the voting begins. If a quorum is present, except with
respect to election of directors, the affirmative vote of the majority of the
shares represented at the meeting and entitled to vote on any matter shall be
the act of the shareholders, unless the vote of a greater number or voting by
classes is required by the General Corporation Law or the Articles of
Incorporation.
Section 7. No Cumulative Voting. No holder of any class of stock of
this corporation shall be entitled to cumulate votes at any election of
directors of this corporation. This provision shall become effective only when
this corporation becomes a listed corporation within the meaning of Section
301.5 of the California General Corporation Law.
Section 8. Validation of Defective Called or Noticed Meetings. The
transactions of any meeting of shareholders, either annual or special, however
called and noticed, shall be as valid as though had at a meeting duly held after
regular call and notice, if a quorum be present either in person or by proxy,
and if, whether before or after the meeting, each of the persons entitled to
vote, not present in person or by proxy, or who, though present, has, at the
beginning of the meeting, properly objected to the transaction of any business
thereat because the meeting was not lawfully called or convened, or to
particular matters of business legally required to be included in the notice,
but not so included, signs a written waiver of notice, or a consent to the
holding of such meeting, or an approval of the minutes thereof. All such
waivers, consents or approvals shall be filed with the corporate records or made
a part of the minutes of the meeting.
Section 9. Proxies. Every person entitled to vote shall have the
right to do so whether in person or by one or more agents authorized by a
written proxy executed by such person or such person's duly authorized agent and
filed with the secretary of the corporation. Any proxy duly executed is not
revoked and continues in full force and effect until (i) an instrument revoking
it or a duly executed proxy bearing a later date is filed with the secretary of
the corporation prior to the vote pursuant thereto, (ii) the person executing
the proxy attends the meeting and votes in person, or (iii) written notice of
the death or incapacity of the maker of the proxy is received by the
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corporation before the vote pursuant thereto is counted; provided that no proxy
shall be valid after the expiration of eleven (11) months from the date of its
execution, unless the person executing it specifies therein the length of time
for which such proxy is to continue in force.
Section 10. Inspectors of Election. In advance of any meeting of
shareholders, the Board of Directors may appoint any person other than nominees
for office as inspectors of election to act at such meeting or any adjournment
thereof. If inspectors of election be not so appointed, the chairman of any such
meeting may, on the request of any shareholder or its proxy, shall make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares represented in person or by proxy shall
determine whether one or three inspectors are to be appointed. In case any
person appointed as inspector fails to appear or fails or refuses to act, the
vacancy may, and on the request of any shareholder or a shareholder's proxy
shall, be filled by appointment by the Board of Directors in advance of the
meeting, or at the meeting by the chairman of the meeting.
The duties of such inspectors shall be as prescribed by Section 707
of the General Corporation Law and shall include determining the number of
shares outstanding and the voting power of each, the shares represented at the
meeting, the existence of a quorum, the authenticity, validity and effect of
proxies; receiving votes or ballots; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes; determining when the polls close; determining the result;
and such acts as may be proper to conduct the election or vote with fairness to
all shareholders. In the determination of the validity and effect of proxies,
the dates contained on the forms of proxy shall presumptively determine the
order of execution of the proxies, regardless of the postmark dates on the
envelopes in which they are mailed.
The inspectors of election shall perform their duties impartially,
in good faith, to the best of their ability and as expeditiously as is
practical. If there be three inspectors of election, the decision, act or
certificate of a majority is effective in all respects as the decision, act or
certificate of all. Any report or certificate made by the inspectors of election
is prima facie evidence of the facts stated therein.
Section 11. Notice of Business. At any meeting of shareholders, only
such business shall be conducted as shall have been brought before the meeting
(a) by or at the direction of the Board of Directors, (b) in accordance with
Rule 14a-8 under the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), or (c) by any shareholder of the corporation who was a
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shareholder of record at the time of giving of notice provided for in this
bylaw, who is entitled to vote at the meeting and who complies with the notice
procedures set forth in this bylaw. For business to be properly brought before a
meeting by a shareholder pursuant to clause (c) of this bylaw, the shareholder
must have given timely notice thereof in writing to the Secretary of the
corporation and such other business must otherwise be a proper matter for
shareholder action. To be timely, a shareholder's notice shall be delivered to
the Secretary at the principal executive offices of the Corporation not later
than the close of business on the 60th day nor earlier than the close of
business on the 90th day prior to the meeting; provided, however, that if less
than 70 days' notice of the date of the meeting is given by the corporation,
notice by the shareholder to be timely must be so delivered no later than the
10th day following the day on which public announcement of the date of such
meeting is first made by the corporation. In no event shall the public
announcement of an adjournment of a meeting commence a new time period for the
giving of a shareholder's notice as described above. Such shareholder's notice
shall set forth (i) as to any business that the shareholder proposes to bring
before the meeting, a brief description of the business desired to be brought
before the meeting, the reasons for conducting such business at the meeting and
any material interest in such business of such shareholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (ii) as to the
shareholder giving the notice and the beneficial owner, if any, on whose behalf
the proposal is made (x) the name and address of such shareholder, as they
appear on the corporation's books, and of such beneficial owner and (y) the
class and number of shares of stock of the corporation which are owned
beneficially and of record by such shareholder and such beneficial owner. If
notice has not been given pursuant to this Section, the chairman of the meeting
may declare to the meeting that the proposed business was not properly brought
before the meeting, and such business may not be transacted at the meeting. The
foregoing provisions of this Section do not relieve any shareholder of any
obligation to comply with all applicable requirements of the Exchange Act and
rules and regulations thereunder. For purposes of these bylaws, "public
announcement" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or comparable national news service or in a
document publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
Section 12. Nomination of Directors. At any meeting of shareholders,
a person may be a candidate for election to the Board only if such person is
nominated (a) by or at the direction of the Board, (b) by any nominating
committee or person appointed by the Board, or (c) by a shareholder of record
entitled to vote at such meeting who complies with the notice procedures set
forth in this Section and has given timely notice of such nomination in writing
to the Secretary of the corporation. To be timely, a
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shareholder's notice shall be delivered to the Secretary at the principal
executive offices of the corporation not later than the close of business on the
60th day nor earlier than the close of business on the 90th day prior to the
meeting; provided, however, that if less than 70 days notice of the date of the
meeting is given by the corporation, notice by the shareholder to be timely must
be so delivered no later than the 10th day following the day on which public
announcement of the date of such meeting is first made by the corporation. In no
event shall the public announcement of an adjournment of an annual meeting
commence a new time period for the giving of a shareholder's notice as described
above. Such shareholder's notice shall set forth as to each person whom the
shareholder proposes to nominate for election or reelection as a director all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors in an election contest, or is
otherwise required, in each case pursuant to Regulation 14A under the Exchange
Act and Rule 14a-11 thereunder (including such person's written consent to being
named in the proxy statement as a nominee and to serving as a director if
elected). The corporation may require such other information to be furnished
respecting any proposed nominee as may be reasonably necessary to determine
whether the proposed nominee has, or represents, interests which are opposed to
or in conflict with the interests of the corporation. No person shall be
eligible for election as a director at any meeting unless nominated in
accordance with this Section .
ARTICLE III
Directors
Section 1. Powers. Subject to limitations of the Articles of
Incorporation and the California General Corporation Law as to action to be
authorized or approved by the shareholders, and subject to the duties of
directors as prescribed by these Bylaws, all corporate powers shall be exercised
by or under the authority of, and the business and affairs of the corporation
shall be controlled by, the Board of Directors. Without prejudice to such
general powers, but subject to the same limitations, it is hereby expressly
declared that the directors shall have the following powers, to wit:
First - To select and remove all the officers, agents and employees
of the corporation, prescribe such powers and duties for them as may not be
inconsistent with law, with the Articles of Incorporation or these Bylaws, fix
their compensation and require from them security for faithful service.
Second - To conduct, manage and control the affairs and business of
the corporation, and to make such rules and
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regulations therefor not inconsistent with law, or with the Articles of
Incorporation or these Bylaws, as they may deem best.
Third - To change the principal executive office and principal
office for the transaction of business of the corporation from one location to
another as provided in Article I, Section 1, hereof; to fix and locate from time
to time one or more subsidiary offices of the corporation within or without the
State of California, as provided in Article I, Section 2, hereof; to designate
any place within or without the State of California for the holding of any
shareholders' meeting or meetings; and to adopt, make and use a corporate seal,
and to prescribe the forms of certificates of stock, and to alter the form of
such seal and of such certificates from time to time, as in their judgment they
may deem best, provided such seal and such certificates shall at all times
comply with the provisions of law.
Fourth - To authorize the issue of shares of stock of the
corporation from time to time, upon such terms as may be lawful.
Fifth - To borrow money and incur indebtedness for the purposes of
the corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
Sixth - By resolution adopted by a majority of the authorized number
of directors, to designate an executive and other committees, each consisting of
two or more directors, to serve at the pleasure of the Board, and to prescribe
the manner in which proceedings of such committees shall be conducted. Unless
the Board of Directors shall otherwise prescribe the manner of proceedings of
any such committee, meetings of such committee may be regularly scheduled in
advance and may be called at any time by any two members thereof; otherwise, the
provisions of these Bylaws with respect to notice and conduct of meetings of the
Board shall govern. Any such committee, to the extent provided in a resolution
of the Board, shall have all of the authority of the Board, except with respect
to:
(i) the approval of any action for which the General Corporation Law
or the Articles of Incorporation also require shareholder approval;
(ii) the filling of vacancies on the Board or in any committee;
(iii) the fixing of compensation of the directors for serving on the
Board or on any committee;
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(iv) the adoption, amendment or repeal of bylaws;
(v) the amendment or repeal of any resolution of the Board;
(vi) any distribution to the shareholders, except at a rate or in a
periodic amount or within a price range determined by the Board;
(vii) the appointment of other committees of the Board or the
members thereof.
Section 2. Number and Qualification of Directors. The authorized
number of directors shall be not less than five (5) nor more than nine (9) until
changed by Amendment of the Articles of Incorporation or by a Bylaw duly adopted
by approval of the outstanding shares. The exact number of directors shall be
fixed, within the limits specified, by amendment of the next sentence duly
adopted either by the Board of Directors or the shareholders. The exact number
of directors shall be six (6) until changed as provided in this Section 2.
Section 3. Election and Term of Office. This section shall become
effective only when this corporation becomes a listed corporation within the
meaning of Section 301.5 of the California General Corporation Law.
In the event that the authorized number of directors shall be fixed
with at least six (6) but less than nine (9) directors, the Board of Directors
shall be divided into two classes, designated Class I and Class II, effective as
of the first annual meeting following the effective date of this Bylaw (the
"Initial Annual Meeting"). Each class shall consist of one-half of the directors
or as close an approximation as possible. The initial term of office of the
directors of Class I shall expire at the annual meeting to be held during the
fiscal year following the Initial Annual Meeting, and the initial term of office
of the directors of Class II shall expire at the annual meeting to be held
during the second fiscal year following the Initial Annual Meeting. At each
annual meeting, commencing with the first annual meeting following the Initial
Annual Meeting, each of the successors to the directors of the class whose term
shall have expired at such annual meeting shall be elected for a term running
until the second annual meeting next succeeding his or her election and until
his or her successor shall have been duly elected and qualified.
In the event that the authorized number of directors shall be fixed
at nine (9) or more, the Board of Directors shall be divided into three classes,
designated Class I, Class II and Class III, effective as of the first annual
meeting coinciding with or following the division into three classes (the
"Effective Date"). Each class shall consist of one-third of the directors
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or as close an approximation as possible. The initial term of office of the
directors of Class I shall expire at the annual meeting to be held during the
first fiscal year following the Effective Date, the initial term of office of
the directors of Class II shall expire at the annual meeting to be held during
second fiscal year following the Effective Date and the initial term of office
of the directors of Class III shall expire at the annual meeting to be held
during the third fiscal year following the Effective Date. At each annual
meeting, commencing with the first annual meeting following the Effective Date,
each of the successors to the directors of the class whose term shall have
expired at such annual meeting shall be elected for a term running until the
third annual meeting next succeeding his or her election and until his or her
successor shall have been duly elected qualified.
Notwithstanding the rule that the classes shall be as nearly equal
in number of directors as possible, in the event of any change in the authorized
number of directors, each director then continuing to serve as such shall
nevertheless continue as a director of the class of which he or she is a member
until the expiration of his or her current term, or his or her prior death,
resignation or removal.
At each annual election, the directors chosen to succeed those whose
terms then expire shall be of the same class as the directors they succeed,
unless, by reason of any intervening changes in the authorized number of
directors, the Board of Directors shall designate one or more directorships
whose term then expires as directorships of another class in order more nearly
to achieve equality of number of directors among the classes.
This section only may be amended or repealed by the approval of the
Board of Directors and the outstanding shares (as defined in Section 152 of the
California General Corporation Law) voting as a single class, notwithstanding
Section 903 of the California General Corporation Law.
Section 4. Vacancies. A vacancy in the Board of Directors shall be
deemed to exist in the case of the death, resignation or removal of any
director, if a director has been declared of unsound mind by order of court or
convicted of a felony, if the authorized number of directors be increased, or if
the shareholders fail, at any annual or special meeting of shareholders at which
any director or directors are elected, to elect the full authorized number of
directors to be voted for at that meeting. No reduction of the authorized number
of directors shall have the effect of removing any director prior to the
expiration of his or her term of office.
Subject to any provision contained in the Articles of
Incorporation, vacancies in the Board of Directors, except for a
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vacancy created by the removal of a director, may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining director;
and each director so elected shall hold office until his or her successor is
elected at an annual or special meeting of the shareholders. Subject to any
provision contained in the Articles of Incorporation, a vacancy in the Board of
Directors created by the removal of a director may only be filled by the vote of
a majority of the shares entitled to vote represented at a duly held meeting at
which a quorum is present.
Subject to any provision contained in the Articles of Incorporation,
the shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. Any such election shall
require the vote of a majority of the shares entitled to vote represented at a
duly held meeting at which a quorum is present.
Any director may resign effective upon giving written notice to the
chairman of the Board, the president, the secretary of the Board or the Board of
Directors of the corporation, unless the notice specifies a later time for the
effectiveness of such resignation. If the Board of Directors accepts the
resignation of a director tendered to take effect at a future time, the Board
or, subject to any provision contained in the Articles of Incorporation, the
shareholders shall have the power to elect a successor to take office when the
resignation is to become effective.
Section 5. Place of Meeting. Regular meetings of the Board of
Directors shall be held at any place within or without the State of California
which has been designated from time to time by resolution of the Board or by
written consent of all members of the Board. In the absence of such designation,
regular meetings shall be hold at the principal executive office of the
corporation. Special meetings of the Board may be held either at a place so
designated or at the principal executive office of the corporation.
Section 6. Organization Meeting. Immediately following each annual
meeting of shareholders, the Board of Directors shall hold a regular meeting at
the place of said annual meeting or at such other place as shall be fixed by the
Board, for the purpose of organization of the newly elected Board, election of
officers, and the transaction of other business. Call and notice of such
meetings are hereby dispensed with.
Section 7. Other Regular Meetings. Other regular meetings of the
Board of Directors shall be hold without call as provided in a resolution
adopted by the Board from time to time; provided, however, should said day fall
upon a legal holiday, then said meeting shall be held at the same time on the
next day
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thereafter ensuing which is a full business day. Notice of all such regular
meetings of the Board of Directors is hereby dispensed with.
Section 8. Special Meetings. Special meetings of the Board of
Directors for any purpose or purposes may be called at any time by the chairman
of the Board, the president, any vice president or the secretary, or by any two
directors, or by one or more shareholders holding not less than 25% of any
series of Preferred Stock of the corporation.
Written notice of the time and place of special meetings shall be
delivered personally to each director or communicated to each director by
telephone or by telegraph or mail, charges prepaid, addressed to him or her at
his or her address as it is shown upon the records of the corporation or, if it
is not so shown on such records or is not readily ascertainable, at the place at
which meetings of the directors are regularly held. In case such notice is
mailed or telegraphed, it shall be deposited in the United States mail or
delivered to the telegraph company in the place in which the principal executive
office of the corporation is located at least forty-eight (48) hours prior to
the time of the holding of the meeting. In case such notice is delivered,
personally or by telephone, as above provided, it shall be so delivered at least
twenty-four (24) hours prior to the time of the holding of the meeting. Such
mailing, telegraphing or delivery, personally or by telephone, as above
provided, shall be due, legal and personal notice to each such director.
Section 9. Action Without a Meeting. Any action by the Board of
Directors may be taken without a meeting if all members of the Board shall
individually or collectively consent in writing to such action. Such written
consent or consents shall be filed with the minutes of the proceedings of the
Board and shall have the same force and effect as a unanimous vote of such
directors at a meeting duly called and held.
Section 10. Action at a Meeting: Quorum and Required Vote. Presence
of a majority of the authorized number of directors at a meeting of the Board of
Directors constitutes a quorum for the transaction of business, except as
hereinafter provided. Members of the Board may participate in a meeting through
use of conference telephone or similar communications equipment, so long as all
members participating in such meeting can hear one another. Participation in a
meeting as permitted in the preceding sentence constitutes presence in person at
such meeting.
Every act or decision done or made by a majority of the directors at
a meeting duly hold at which a quorum is present shall be regarded as the act of
the Board of Directors, unless a greater number, or the same number after
disqualifying one or
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more directors from voting, is required by law, by the Articles of
Incorporation, or by these Bylaws. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of
directors, provided that any action taken is approved by at least a majority of
the required quorum for such meeting.
Section 11. Validation of Defectively Called or Noticed Meetings.
The transactions of any meeting of the Board of Directors, however called or
noticed or wherever held, shall be as valid as though had at a meeting duly held
after regular call and notice, if a quorum is present and if, either before or
after the meeting, each of the directors not present or who, though present,
has, prior to the meeting or at its commencement, protested the lack of proper
notice, signs a written waiver of notice or a consent to holding such meeting or
an approval of the minutes thereof. All such waivers, consents or approvals
shall be filed with the corporate records or made a part of the minutes of the
meeting.
Section 12. Adjournment. A quorum of the directors may adjourn any
directors' meeting to meet again at a stated day and hour; provided, however,
that in the absence of a quorum a majority of the directors present at any
directors' meeting, either regular or special, may adjourn from time to time
until the time fixed for the next regular meeting of the Board.
Section 13. Notice of Adjournment. If the meeting is adjourned for
more than twenty-four (24) hours, notice of any adjournment to another time or
place shall be given prior to the time of the adjourned meeting to the directors
who were not present at the time of adjournment. Otherwise, notice of the time
and place of holding an adjourned meeting need not be given to absent directors
if the time and place be fixed at the meeting adjourned.
Section 14. Fees and Compensation. Directors and members of
committees may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board of Directors.
Section 15. Indemnification of Directors, Officers, Employees and
Other Agents.
(a) Indemnification of Directors and Officers. Each person who was
or is a party or is threatened to be made a party to or is involved in any
threatened, pending or completed action, suit or proceeding, formal or
informal, whether brought in the name of the corporation or otherwise and
whether of a civil, criminal, administrative or investigative nature
(hereinafter a "proceeding"), by reason of the fact that he or she, or a
person of whom he or she is the legal representative, is or was a director
or officer of
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the corporation or is or was serving at the request of the corporation as
a director, officer, employee or agent of another corporation or of a
partnership, joint venture, trust or other enterprise, including service
with respect to employee benefit plans, whether the basis of such
proceeding is an alleged action or inaction in an official capacity or in
any other capacity while serving as a director or officer, shall, subject
to the terms of any agreement between the corporation and such person, be
indemnified and held harmless by the corporation to the fullest extent
permissible under California law and the corporation's Articles of
Incorporation, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith, and such
indemnification shall continue as to a person who has ceased to be a
director or officer and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that (a) the corporation
shall indemnify any such person seeking indemnification in connection with
a proceeding (or part thereof) initiated by such person only if such
proceeding (or part thereof) was authorized by the Board of the
corporation, (b) the corporation shall indemnify any such person seeking
indemnification in connection with a proceeding (or part thereof) other
than a proceeding by or in the name of the corporation to procure a
judgment in its favor only if any settlement of such a proceeding is
approved in writing by the corporation, (c) no such person shall be
indemnified (i) except to the extent that the aggregate of losses to be
indemnified exceeds the amount of such losses for which the director or
officer is paid pursuant to any directors' and officers' liability
insurance policy maintained by the corporation; (ii) on account of any
suit in which judgment is rendered against such person for an accounting
of profits made from the purchase or sale by such person of securities of
the corporation pursuant to the provisions of Section 16(b) of the
Securities Exchange Act of 1934 and amendments thereto or similar
provisions of any federal state or local statutory law; (iii) if a court
of competent jurisdiction finally determines that any indemnification
hereunder is unlawful; and (iv) as to circumstances in which indemnity is
expressly prohibited by the Law, and (d) no such person shall be
indemnified with regard to any action brought by or in the right of the
corporation for breach of duty to the corporation and its shareholders (i)
for acts or omissions involving intentional misconduct or knowing and
culpable violation of law; (ii) for acts or omissions that the director or
officer believes to be contrary to the best interests of the corporation
or its shareholders or that involve the absence of good faith on the part
of the director or officer; (iii) for any transaction from which the
director or officer
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derived an improper personal benefit; (iv) for acts or omissions that show
a reckless disregard for the director's or officer's duty to the
corporation or its shareholders in circumstances in which the director or
officer was aware, or should have been aware, in the ordinary course of
performing his or her duties, of a risk of serious injury to the
corporation or its shareholders; (v) for acts or omissions that constitute
an unexcused pattern of inattention that amounts to an abdication of the
director's or officer's duties to the corporation or its shareholders; and
(vi) for costs, charges, expenses, liabilities and losses arising under
Section 310 or 316 of the General Corporation Law of California (the
"Law"). The right to indemnification conferred in this Section 15 shall be
a contract right and shall include the right to be paid by the corporation
expenses incurred in defending any proceeding in advance of its final
disposition; provided, however, that if the Law permits the payment of
such expenses incurred by a director or officer in his or her capacity as
a director or officer (and not in any other capacity in which service was
or is rendered by such person while a director or officer, including,
without limitation, service to an employee benefit plan) in advance of the
final disposition of a proceeding, such advances shall be made only upon
delivery to the corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts to the corporation if it shall
be ultimately determined that such person is not entitled to be
indemnified.
(b) Indemnification of Employees and Agents. A person who was or is
a party or is threatened to be made a party to or is involved in any
proceeding by reason of the fact that he or she is or was an employee or
agent of the corporation or is or was serving at the request of the
corporation as an employee or agent of another enterprise, including
service with respect to employee benefit plans, whether the basis of such
action is an alleged action or inaction in an official capacity or in any
other capacity while serving as an employee or agent, may, subject to the
terms of any agreement between the corporation and such person, be
indemnified and held harmless by the corporation to the fullest extent
permitted by California law and the corporation's Articles of
Incorporation, against all costs, charges, expenses, liabilities and
losses (including attorneys' fees, judgments, fines, ERISA excise taxes or
penalties and amounts paid or to be paid in settlement) reasonably
incurred or suffered by such person in connection therewith. The
immediately preceding sentence is not intended to be and shall not be
considered to confer a contract right on any employee or agent (other than
directors and officers) of the corporation.
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(c) Right of Directors and Officers to Bring Suit. If a claim under
Paragraph (a) of this Section 15 is not paid in full by the corporation
within 30 days after a written claim has been received by the corporation,
the claimant may at any time thereafter bring suit against the corporation
to recover the unpaid amount of the claim and, if successful in whole or
in part, the claimant shall also be entitled to be paid the expense of
prosecuting such claim. Neither the failure of the corporation (including
its Board of Directors, independent legal counsel, or its shareholders) to
have made a determination prior to the commencement of such action that
indemnification of the claimant is permissible in the circumstances
because he or she has met the applicable standard of conduct, if any, nor
an actual determination by the corporation (including its Board of
Directors, independent legal counsel, or its shareholders) that the
claimant has not met the applicable standard of conduct, shall be a
defense to the action or create a presumption for the purpose of an action
that the claimant has not met the applicable standard of conduct.
(d) Successful Defense. Notwithstanding any other provision of this
Section 15, to the extent that a director or officer has been successful
on the merits or otherwise (including the dismissal of an action without
prejudice or the settlement of a proceeding or action without admission of
liability) in defense of any proceeding referred to in paragraph (a) of
this Section 15 or in defense of any claim, issue or matter therein, he or
she shall be indemnified against expenses (including attorneys' fees)
actually and reasonably incurred in connection therewith.
(e) Non-Exclusivity of Rights. The right to indemnification provided
by this Section 15 shall not be exclusive of any other right which any
person may have or hereafter acquire under any statute, bylaw, agreement,
vote of shareholders or disinterested directors or otherwise.
(f) Insurance. The corporation may maintain insurance, at its
expense, to protect itself and any director, officer, employee or agent of
the corporation or another corporation, partnership, joint venture, trust
or other enterprise against any expense, liability or loss, whether or not
the corporation would have the power to indemnify such person against such
expense, liability or loss under the Law.
(g) Expenses as a Witness. To the extent that any director or
officer of the corporation is by reason of such position, or a position
with another entity at the request of the corporation, a witness in any
action, suit or proceeding, he or she shall be indemnified against all
costs
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and expenses actually and reasonably incurred by him or her on his or her
behalf in connection therewith.
(h) Indemnity Agreements. The corporation may enter into agreements
with any director, officer, employee or agent of the corporation providing
for indemnification to the fullest extent permissible under the Law and
the corporation's Articles of Incorporation.
(i) Separability. Each and every paragraph, sentence, term and
provision of this Section 15 is separate and distinct so that if any
paragraph, sentence, term or provision hereof shall be held to be invalid
or unenforceable for any reason, such invalidity or unenforceability shall
not affect the validity or enforceability of any other paragraph,
sentence, term or provision hereof. To the extent required, any paragraph,
sentence, term or provision of this Section 15 may be modified by a court
of competent jurisdiction to preserve its validity and to provide the
claimant with, subject to the limitations set forth in this Section 15 and
any agreement between the corporation and claimant, the broadest possible
indemnification permitted under applicable law.
(j) Effect of Repeal or modification. Any repeal or modification of
this Section 15 shall not adversely affect any right of indemnification of
a director or officer existing at the time of such repeal or modification
with respect to any action or omission occurring prior to such repeal or
modification.
ARTICLE IV
Officers
Section 1. Officers. The officers of the corporation shall be a
president, a secretary and a treasurer. The corporation may also have, at the
discretion of the Board of Directors, a Chairman of the Board, one or more vice
presidents, one or more assistant secretaries, one or more assistant treasurers,
and such other officers as may be appointed in accordance with the provisions of
Section 3 of this Article. One person may hold two or more offices, except that
the offices of president and secretary shall not be held by the same person.
Section 2. Election. The officers of the corporation, except such
officers as may be appointed in accordance with the provisions of Section 3 or
Section 5 of this Article, shall be chosen annually by the Board of Directors,
and each shall hold office until he or she shall resign or shall be removed or
otherwise disqualified to serve, or his or her successor shall be elected and
qualified.
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Section 3. Subordinate Officers, Etc. The Board of Directors may
appoint, and may empower the president to appoint, such other officers as the
business of the corporation my require, each of whom shall hold office, for such
period, have such authority and perform such duties as are provided in these
Bylaws or as the Board of Directors may from time to time determine.
Section 4. Removal and Resignation. Any officer may be removed,
either with or without cause, by the Board of Directors, at any regular or
special meeting thereof, or, except in case of an officer chosen by the Board of
Directors, by any officer upon whom such power of removal may be conferred by
the Board of Directors (subject, in each case, to the rights, if any, of an
officer under any contract of employment).
Any officer may resign at any time by giving written notice to the
Board of Directors or the president, or to the secretary of the corporation,
without prejudice, however, to the rights, if any, of the corporation under any
contract to which the officer is a party. Any such resignation shall take effect
at the date of receipt of such notice or at any time specified therein. Unless
otherwise specified therein, acceptance of such resignation shall not be
necessary to make it effective.
Section 5. Vacancies. A vacancy in any office because of death,
resignation, removal, disqualification or any other cause shall be filled in the
manner prescribed in these Bylaws for regular appointments to such office.
Section 6. Chairman of the Board. The Chairman of the Board, if
there shall be such an officer, shall, if present, preside at all meetings of
the Board of Directors and exercise and perform such other powers and duties as
may be from time to time assigned by the Board of Directors or prescribed by
these Bylaws.
Section 7. President. Subject to such supervisory powers, if any, as
may be given by the Board of Directors to the Chairman of the Board, if there
shall be such an officer, the president shall be the chief executive officer of
the corporation and shall, subject to the control of the Board of Directors,
have general supervision, direction and control of the business and affairs of
the corporation. The president shall preside at all meetings of the shareholders
and, in the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board of Directors. The president shall be ex officio a member
of all the standing committees, including the executive committee, if any, and
shall have the general powers and duties of management usually vested in the
office of president of a corporation, and shall have such other powers and
duties as may be prescribed by these Bylaws or the Board of Directors.
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Section 8. Vice President. In the absence or disability of the
president, the vice presidents in order of their rank as fixed by the Board of
Directors or, if not ranked, the vice president designated by the Board of
Directors, shall perform all the duties of the president, and when so acting
shall have such other powers and perform such other duties as from time to time
may be prescribed for them respectively by the Board of Directors or these
Bylaws.
Section 9. Secretary. The secretary shall record or cause to be
recorded, and shall keep or cause to be kept, at the principal executive office
and such other place as the Board of Directors may order, a book of minutes of
actions taken at all meetings of directors and shareholders, with the time and
place of holding, whether regular or special, and, if special, how authorized,
the notice given thereof, the names of those present at directors' meetings, the
number of shares present or represented at shareholders' meetings, and the
proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal
executive office or at the office of the corporation's transfer agent, a share
register, or a duplicate share register, showing the names of the shareholders
and their addresses, the number and classes of shares held by each, the number
and date of certificates issued for the same, and the number and date of
cancellation of every certificate surrendered for cancellation.
The secretary shall give, or cause to be given, notice of all
meetings of shareholders and of the Board of Directors required by these Bylaws
or by law to be given, and shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board of Directors or these Bylaws.
Section 10. Treasurer. The treasurer shall be the chief financial
officer of the corporation and shall keep and maintain, or cause to be kept and
maintained, adequate and correct accounts of the properties and business
transactions of the corporation, including accounts of its assets, liabilities,
receipts, disbursements, gains, losses, capital, surplus and shares. Any
surplus, including earned surplus, paid-in surplus, and surplus arising from a
reduction of stated capital, shall be classified according to source and shown
in a separate account. The books of account shall at all reasonable times be
open to inspection by any director.
The treasurer shall deposit all monies and other valuables in the
name and to the credit of the corporation with such depositories as may be
designated by the Board of Directors. The treasurer shall disburse the funds of
the corporation as may be ordered by the Board of Directors, shall render to the
president and directors, whenever they request it, an account of
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all his or her transactions as treasurer and of the financial condition of the
corporation, and shall have such other powers and perform such other duties as
may be prescribed by the Board of Directors or these Bylaws.
ARTICLE V
Miscellaneous
Section 1. Record Date. The Board of Directors may fix a time in the
future as a record date for the determination of the shareholders entitled to
notice of and to vote at any meeting of shareholders, to receive any report, to
receive any dividend or distribution, or any allotment of rights, or to exercise
rights in respect to any change, conversion or exchange of shares. The record
date so fixed shall be not more than sixty (60) days nor less than ten (10) days
prior to the date of any meeting, nor more than sixty (60) days prior to any
other event for the purposes of which it is fixed. When a record date is so
fixed, only shareholders of record on that date are entitled to notice of and to
vote at any such meeting, to receive any report, to receive a dividend,
distribution or allotment of rights, or to exercise the rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date, except as otherwise may be provided in the Articles of
Incorporation or these Bylaws.
Section 2. Inspection of Corporate Records. The accounting books and
records, the record of shareholders, and minutes of proceedings of the
shareholders and of the Board of Directors and committees of the Board of this
corporation and any subsidiary of this corporation shall be open to inspection
upon the written demand on the corporation of any shareholder or the holder of a
voting trust certificate at any reasonable time during regular business hours,
for a purpose reasonably related to such holder's interests as a shareholder or
as the holder of such voting trust certificate. Such inspection by a shareholder
or holder of a voting trust certificate may be made in person or by agent or
attorney, and the right of inspection includes the right to copy and make
extracts.
A shareholder or shareholders holding at least five percent (5%) in
the aggregate of the outstanding voting shares of the corporation or who hold at
least one percent (1%) of such voting shares and have filed a Schedule 14B with
the United States Securities and Exchange Commission relating to the election of
directors of the corporation shall have (in person, or by agent or attorney) the
right to inspect and copy the record of shareholders' names and addresses and
shareholdings during usual business hours upon five (5) business days' prior
written demand upon the corporation, and to obtain from the transfer agent for
the corporation, if there be one, upon written demand
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and upon the tender of its usual charges, a list of the shareholders' names and
addresses who are entitled to vote for the election of directors, and their
shareholdings, as of the most recent record date for which it has been compiled
or as of a date subsequent to the date of demand specified by the shareholder
therein. The list shall be made available on or before the later of five (5)
business days after receipt of the demand or the date specified therein as of
which the list is to be compiled.
Every director shall have the absolute right at any reasonable time
to inspect and copy all books, records and documents of every kind and to
inspect the physical properties of the corporation. Such inspection by a
director may be made in person or by agent or attorney, and the right of
inspection includes the right to copy and make extracts.
Section 3. Checks, Drafts, Etc. All checks, drafts or other orders
for the payment of money, notes or other evidences of indebtedness, issued in
the name of or payable to this corporation, shall be signed or endorsed by such
person or persons and in such manner as, from time to time, shall be determined
by resolution of the Board of Directors.
Section 4. Annual Report to Shareholders. The annual report to
shareholders referred to in Section 1501 of the California General Corporation
Law is expressly waived, but nothing herein shall be interpreted as prohibiting
the Board from issuing annual or other periodic reports to the shareholders.
A shareholder of shareholders holding at least five percent (5%) of
the outstanding shares of any class of stock of the corporation may make a
written request to the corporation for an income statement of the corporation
for the three-month, six-month or nine-month period of the current fiscal year
ended more than thirty (30) days prior to the date of the request and a balance
sheet of the corporation as of the end of any such period, and, in addition, if
no annual report for the last fiscal year containing an income statement and
balance sheet for and as of the end of such fiscal year has been sent to
shareholders, such an income statement and balance sheet for the prior fiscal
year. The corporation shall use its best efforts to deliver the statement or
statements requested to the person making such request within thirty days after
the receipt thereof. A copy of any such statements shall be kept on file in the
principal executive office of the corporation for twelve (12) months, and they
shall be exhibited at all reasonable times to any shareholder demanding an
examination of them or a copy thereof shall be mailed to such shareholder.
The corporation shall, upon the written request of any shareholder,
mail to the shareholder a copy of the last annual, semi-annual or quarterly
income statement which it has prepared,
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together with a balance sheet as of the and of the same period. The financial
statements referred to in this Section shall be accompanied by the report
thereon, if there be any, of any independent accountants engaged by the
corporation in respect thereof or, if there be no such report, the certificate
of an authorized officer of the corporation that such financial statements were
prepared without audit from the books and records of the corporation.
Section 5. Certificates for Shares. Every holder of shares in the
corporation shall be entitled to have a certificate signed in the name of the
corporation by the chairman or vice chairman of the Board or the president or
any vice president and by the chief financial officer or an assistant treasurer
or the secretary or any assistant secretary, certifying the number of shares and
the class or series of shares owned by the shareholder. Any of the signatures on
the certificate may be facsimile, provided that in such event at least one
signature, including that of either officer or the corporation's registrar or
transfer agent, if any, shall be manually signed. 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 an officer, transfer agent or
registrar before such certificate is issued, it may nevertheless be issued by
the corporation with the same effect as if such person were an officer, transfer
agent or registrar at the date of issue. Any such certificate shall also contain
such legend or other statement as may be required by Section 418 of the General
Corporation Law, the Corporate Securities Law of 1968, the federal securities
laws, these Bylaws, and any agreement between the corporation and the issuee
thereof.
Certificates for shares may be issued prior to full payment under
such restrictions and for such purposes as the Board of Directors or these
Bylaws may provide; provided, however, that any such certificate so issued prior
to full payment shall state on the face thereof the amount remaining unpaid and
the terms of payment thereof.
No new certificate for shares shall be issued in lieu of an old
certificate unless the latter is surrendered and cancelled at the same time;
provided, however, that a new certificate will be issued without surrender and
cancellation of the old certificate if (1) the old certificate is lost,
apparently destroyed or wrongfully taken; (2) the request for issuance of a new
certificate is made within a reasonable time after the owner of the old
certificate has notice of its loss, destruction or theft; (3) the request for
issuance of a new certificate is made prior to the receipt of notice by the
corporation that the old certificate has been acquired by a bona fide purchaser;
(4) the owner of the old certificate files a sufficient indemnity bond with or
provides other adequate security to the corporation; and (5) the owner satisfies
any
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other reasonable requirements imposed by the corporation. In the event of the
issuance of a new certificate, the rights and liabilities of the corporation,
and of the holders of the old and new certificates, shall be governed by the
provisions of Sections 8104 and 8405 of the California Uniform Commercial Code.
Section 6. Representation of Shares of other Corporations. The
president or any vice president and the secretary or any assistant secretary of
this corporation are authorized to vote, represent and exercise on behalf of
this corporation all rights incident to any and all shares of any other
corporation or corporations standing in the name of this corporation. The
authority granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
Section 7. Inspection of Bylaws. The corporation shall keep in its
principal executive office in California, or, if its principal executive office
is not in California, then at its principal business office in California (or
otherwise provide upon written request of any shareholder) the original or a
copy of these Bylaws as amended or otherwise altered to date, certified by the
secretary of the corporation, which shall be open to inspection by the
shareholders at all reasonable times during office hours.
Section 8. Construction and Definitions. Unless the context
otherwise requires, the general provisions, rules of construction and
definitions contained in the California General Corporations Law shall govern
the construction of these Bylaws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the singular
includes the plural and the plural number includes the singular, and the term
"person" includes a corporation or other entity as well as a natural person.
ARTICLE VI
Amendments
Section 1. Power of Shareholders. New bylaws may be adopted or these
Bylaws may be amended or repealed by the affirmative vote of a majority of the
outstanding shares entitled to vote, except as otherwise provided by law or by
the Articles of Incorporation.
Section 2. Power of Directors. Subject to the right of the
shareholders as provided in Section 1 of this Article VI to adopt, amend or
repeal bylaws, bylaws, other than a bylaw or
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amendment thereof increasing or decreasing the range of the authorized number of
directors or changing Article III, Section 3, may, except as otherwise provided
by law or the Articles of Incorporation, be adopted, amended or repealed by the
Board of Directors.
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CERTIFICATE OF SECRETARY
OF
PROCOM TECHNOLOGY, INC.,
A CALIFORNIA CORPORATION
I hereby certify that I am the duly elected and acting Secretary of
Procom Technology, Inc., a California corporation, and that the foregoing
Bylaws, comprising 22 pages, constitute the Bylaws of said corporation as duly
adopted by the Board of Directors of Procom Technology, Inc. on October __,
1996.
IN WITNESS WHEREOF, I have hereunto subscribed my name this ____ day
of October, 1996.
-----------------------------
Frank Alaghband
Secretary
<PAGE> 1
EXHIBIT 10.1
FORM OF INDEMNITY AGREEMENT
This Indemnity Agreement (this "Agreement") is made as of October ___,
1996 by and between Procom Technology, Inc., a California corporation (the
"Company"), and _____________________ (the "Indemnitee"), a director and officer
of the Company.
BACKGROUND
A. The Indemnitee has agreed to serve as a director and officer of the
Company and in such capacities will render valuable services to the Company.
B. The Company has investigated the availability and sufficiency of
liability insurance and California statutory indemnification provisions to
provide its directors and officers with adequate protection against various
legal risks and potential liabilities to which directors and officers are
subject due to their positions with the Company and has concluded that insurance
and statutory provisions may provide inadequate and unacceptable protection to
certain individuals requested to serve as its directors and officers.
C. In order to induce and encourage highly experienced and capable
persons such as the Indemnitee to serve as directors and officers of the
Company, the Board of Directors has determined, after due consideration and
investigation of the terms and provisions of this Agreement and the various
other options available to the Company and the Indemnitee in lieu of this
Agreement, that this Agreement is not only reasonable and prudent but also
necessary to promote and ensure the best interests of the Company and its
shareholders.
AGREEMENT
In consideration of the services of the Indemnitee and in order to
induce the Indemnitee to serve as a director and officer of the Company, the
Company and the Indemnitee agree as follows:
SECTION 1. DEFINITIONS
As used in this Agreement:
(a) A "Change in Control" shall be deemed to have occurred if (i)
during any period of two consecutive years, individuals who at the beginning of
the two year period constitute the Board of Directors of the Company and any new
director whose election by the Board of Directors or nomination
<PAGE> 2
for election by the Company's shareholders was approved by a vote of at least
two-thirds (2/3) of the directors then still in office who either were directors
at the beginning of the period or whose election or nomination for election was
previously so approved, cease for any reason to constitute a majority of the
Board of Directors, or (ii) the shareholders of the Company approve a merger or
consolidation of the Company with any other corporation, other than a merger or
consolidation which would result in the voting securities of the Company
outstanding immediately prior to such a merger or consolidation continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least 50% of the total voting power
represented by the voting securities of the Company or the surviving entity
outstanding immediately after the merger or consolidation, or the shareholders
of the Company approve a plan of complete liquidation of the Company or an
agreement for the sale or disposition by the Company (in one transaction or a
series of transactions) of all or substantially all the Company's assets.
(b) The term "Expenses" includes, without limitation, attorneys'
fees, disbursements and retainers, accounting and witness fees, travel and
deposition costs, expenses of investigations, judicial or administrative
proceedings or appeals, amounts paid in settlement by or on behalf of
Indemnitee, and any expenses of establishing a right to indemnification,
pursuant to this Agreement or otherwise, including reasonable compensation for
time spent by the Indemnitee in connection with the investigation, defense or
appeal of a Proceeding or action for indemnification for which he is not
otherwise compensated by the Company or any third party. The term "Expenses"
does not include the amount of judgments, fines, penalties or ERISA excise taxes
actually levied against the Indemnitee.
(c) The term "Proceeding" shall include any threatened, pending or
completed action, suit or proceeding, whether brought by or in the name of the
Company or otherwise and whether of a civil, criminal or administrative or
investigative nature, by reason of the fact that the Indemnitee is or was a
director or officer of the Company, or is or was serving at the request of the
Company as a director, officer, employee or agent of another enterprise, whether
or not he or she is serving in such capacity at the time any liability or
Expense is incurred for which indemnification or reimbursement is to be provided
under this Agreement.
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<PAGE> 3
SECTION 2. INDEMNIFICATION
2.1 INDEMNIFICATION IN THIRD PARTY ACTIONS
The Company shall indemnify the Indemnitee in accordance with the
provisions of this subsection 2.1 if the Indemnitee is a party to or threatened
to be made a party to or otherwise involved in any Proceeding (other than a
Proceeding by or in the name of the Corporation to procure a judgment in its
favor), by reason of the fact that the Indemnitee is or was a director or
officer of the Company, or is or was serving at the request of the Company as a
director, officer, employee or agent of another enterprise against all Expenses,
judgments, fines, penalties and ERISA excise taxes actually and reasonably
incurred by the Indemnitee in connection with the defense or settlement of the
Proceeding, to the fullest extent permitted by applicable law; provided that any
settlement shall be approved in writing by the Company.
2.2 INDEMNIFICATION IN PROCEEDINGS BY OR IN THE NAME OF THE COMPANY
The Company shall indemnify the Indemnitee in accordance with the
provisions of this subsection 2.2 if the Indemnitee is a party to or threatened
to be made a party to or otherwise involved in any Proceeding by or in the name
of the Company to procure a judgment in its favor by reason of the fact that
Indemnitee was or is a director or officer of the Company, or is or was serving
at the request of the Company as a director, officer, employee or agent of
another enterprise, against all Expenses actually and reasonably incurred by
Indemnitee in connection with the defense or settlement of the Proceeding, to
the fullest extent permitted by applicable law.
2.3 PARTIAL INDEMNIFICATION
If the Indemnitee is entitled under any provision of this Agreement to
indemnification by the Company for some or a portion of, but not the total
amount of, the Expenses, judgments, fines, penalties or ERISA excise taxes
actually and reasonably incurred by him in the investigation, defense, appeal or
settlement of any Proceeding, the Company shall nevertheless indemnify the
Indemnitee for the portion of the Expenses, judgments, fines, penalties or ERISA
excise taxes to which the Indemnitee is entitled.
2.4 INDEMNIFICATION HEREUNDER NOT EXCLUSIVE
The indemnification provided by this Agreement shall not be deemed
exclusive of any other rights to which the Indemnitee may be entitled under the
Articles of Incorporation, the Bylaws, any agreement, any vote of shareholders
or disinterested directors, applicable law or otherwise, both as to
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action in his official capacity and as to action in another capacity on behalf
of the Company while holding office.
2.5 INDEMNIFICATION OF EXPENSES OF SUCCESSFUL PARTY
Notwithstanding any other provisions of this Agreement, to the extent
that the Indemnitee has been successful in defense of any Proceeding or in
defense of any claim, issue or matter in the Proceeding, on the merits or
otherwise, including the dismissal of a Proceeding without prejudice, the
Indemnitee shall be indemnified against all Expenses incurred in connection
therewith to the fullest extent permitted by applicable law.
SECTION 3. PRESUMPTIONS
3.1 PRESUMPTION REGARDING STANDARD OF CONDUCT
The Indemnitee shall be conclusively presumed to have met the relevant
standards of conduct as defined by applicable law for indemnification pursuant
to this Agreement, unless a determination that the Indemnitee has not met the
relevant standards is made by (i) the shareholders of the Company by majority
vote, or (ii) in a written opinion by independent legal counsel, selection of
whom has been approved by the Indemnitee in writing.
3.2 DETERMINATION OF RIGHT TO INDEMNIFICATION
If a claim under this Agreement is not paid by the Company within 30
days of receipt of written request from the Indemnitee, the right to
indemnification as provided by this Agreement shall be enforceable by the
Indemnitee in any court of competent jurisdiction. The burden of proving by
clear and convincing evidence that indemnification or advances are not
appropriate shall be on the Company. Neither the failure of the directors or
shareholders of the Company or independent legal counsel to have made a
determination prior to the commencement of the action that indemnification or
advances are proper in the circumstances because the Indemnitee has met the
applicable standard of conduct, nor an actual determination by the directors or
shareholders of the Company or independent legal counsel that the Indemnitee has
not met the applicable standard of conduct, shall be a defense to the action or
create a presumption that the Indemnitee has not met the applicable standard of
conduct.
The Indemnitee's Expenses incurred in connection with any Proceeding
concerning his right to indemnification or advances in whole or in part pursuant
to this Agreement also shall be indemnified by the Company regardless of the
outcome of the Proceeding, unless a court of competent jurisdiction determines
that each of the material assertions made by the Indemnitee in the Proceeding
was not made in good faith or was frivolous.
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<PAGE> 5
SECTION 4. ADVANCES OF EXPENSES
The Expenses incurred by the Indemnitee in any Proceeding shall be paid
promptly by the Company in advance of the final disposition of the Proceeding at
the written request of the Indemnitee to the fullest extent permitted by
applicable law; provided that if applicable law requires an undertaking, the
Indemnitee shall undertake in writing to repay the amount advanced to the extent
that it is ultimately determined that the Indemnitee is not entitled to
indemnification.
SECTION 5. CHANGE IN CONTROL
The Company agrees that if there is a Change in Control of the Company
(other than a Change in Control which has been approved by a majority of the
Company's Board of Directors who were directors immediately prior to the Change
in Control), then with respect to all matters thereafter arising concerning the
rights of Indemnitee to indemnity payments and Expense advances under this
Agreement or any other agreement, the Company's Articles of Incorporation, or
the Company's Bylaws in effect relating to claims for indemnifiable events, the
Company shall seek legal advice only from independent counsel selected by
Indemnitee and approved by the Company (which approval shall not be unreasonably
withheld), and who has not otherwise performed services for the Company or
Indemnitee within the last five years (other than in connection with such
matters)("Special Independent Counsel"). The Special Independent Counsel, among
other things, shall render its written opinion to the Company and Indemnitee as
to whether and to what extent the Indemnitee would be permitted to be
indemnified under applicable law. The Company agrees to pay the reasonable fees
of the Special Independent Counsel and may fully indemnify the Special
Independent Counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement.
SECTION 6. INDEMNIFICATION PROCEDURE
6.1 NOTICE
Promptly after receipt by the Indemnitee of notice of the commencement
of any Proceeding, the Indemnitee will, if a claim is to be made against the
Company under this Agreement, notify the Company of the commencement of the
Proceeding. The omission to notify the Company will not relieve it from any
liability which it may have to the Indemnitee otherwise than under this
Agreement.
6.2 COMPANY PARTICIPATION
With respect to any Proceeding for which indemnification is requested,
the Company will be entitled to participate in the Proceeding at its own expense
and, except as
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otherwise provided below, to the extent that it may wish, the Company may assume
the defense of the Proceeding, with counsel reasonably satisfactory to the
Indemnitee. After notice from the Company to the Indemnitee of its election to
assume the defense of a Proceeding, during the Company's good faith active
defense, the Company will not be liable to the Indemnitee under this Agreement
for any legal or other expenses subsequently incurred by the Indemnitee in
connection with the defense of the Proceeding, other than reasonable costs of
investigation or as otherwise provided below. The Company shall not settle any
Proceeding in any manner which would impose any penalty or limitation on the
Indemnitee without the Indemnitee's written consent. The Indemnitee shall have
the right to employ his counsel in any Proceeding but the fees and expenses of
the counsel incurred after notice from the Company of its assumption of the
defense of the Proceeding shall be at the expense of the Indemnitee, unless (i)
the employment of counsel by the Indemnitee has been authorized by the Company,
(ii) the Indemnitee shall have reasonably concluded that there may be a conflict
of interest between the Company and the Indemnitee in the conduct of the defense
of a Proceeding, or (iii) the Company shall not in fact have employed counsel to
assume the defense of a Proceeding, in each of which cases the reasonable fees
and expenses of the Indemnitee's counsel shall be at the expense of the Company.
The Company shall not be entitled to assume the defense of any Proceeding
brought by or on behalf of the Company or as to which the Indemnitee has made
the conclusion that there may be a conflict of interest between the Company and
the Indemnitee.
SECTION 7. LIMITATIONS ON INDEMNIFICATION
No payments pursuant to this Agreement shall be made by the Company:
(a) to indemnify or advance Expenses to the Indemnitee with respect to
Proceedings initiated or brought voluntarily by the Indemnitee and not by way of
defense, except with respect to Proceedings brought to establish or enforce a
right to indemnification under this Agreement or any other statute or law or
otherwise as required under applicable law, but the indemnification or
advancement of Expenses may be provided by the Company in specific cases if the
Board of Directors finds it to be appropriate;
(b) to indemnify the Indemnitee for any Expenses, judgements, fines,
penalties or ERISA excise taxes for which payment is actually made to the
Indemnitee under a valid and collectible insurance policy, except in respect of
any excess beyond the amount of payment under the insurance;
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<PAGE> 7
(c) to indemnify the Indemnitee for any Expenses, judgements, fines or
penalties sustained in any Proceeding for an accounting of profits made from the
purchase or sale by Indemnitee of securities of the Company pursuant to the
provisions of Section 16(b) of the Securities Exchange Act of 1934, the rules
and regulations promulgated thereunder and amendments thereto or similar
provisions of any federal, state or local statutory law;
(d) to indemnify the Indemnitee for any Expenses, judgements, fines,
penalties or ERISA excise taxes resulting from Indemnitee's conduct which is
finally adjudged to have been willful misconduct, knowingly fraudulent or
deliberately dishonest; or
(e) if a court of competent jurisdiction shall finally determine that
any indemnification hereunder is unlawful.
SECTION 8. MAINTENANCE OF LIABILITY INSURANCE
8.1 AFFIRMATIVE COVENANT OF THE COMPANY
The Company covenants and agrees that, as long as the Indemnitee shall
continue to serve as a director or officer of the Company and thereafter so long
as the Indemnitee shall be subject to any possible Proceeding, the Company,
subject to subsection 8.3 of this Agreement, shall promptly obtain and maintain
in full force and effect directors' and officers' liability insurance ("D&O
Insurance") in reasonable amounts from established and reputable insurers.
8.2 INDEMNITEE NAMED AS INSURED
In all D&O Insurance policies, the Indemnitee shall be named as an
insured in a manner that provides the Indemnitee the same rights and benefits as
are accorded to the most favorably insured of the Company's directors and
officers.
8.3 EXEMPTION FROM MAINTENANCE OF INSURANCE
Notwithstanding the foregoing, the Company shall have no obligation to
obtain or maintain D&O Insurance if the Company determines in its sole
discretion that insurance is not reasonably available, the premium costs are, in
its opinion, disproportionate to the amount of coverage provided, the coverage
provided by insurance is so limited by exclusions that it provides an
insufficient benefit, or the Indemnitee is covered by similar insurance
maintained by a subsidiary of the Company.
7
<PAGE> 8
SECTION 9. MISCELLANEOUS
9.1 SUCCESSORS AND ASSIGNS
This Agreement shall be binding upon, and shall inure to the benefit of
the Indemnitee and his heirs, personal representatives and assigns, and the
Company and its successors and assigns.
9.2 SEVERABILITY
Each provision of this Agreement is a separate and distinct agreement
and independent of the others, so that if any provision of this Agreement shall
be held to be invalid or unenforceable for any reason, the invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions of this Agreement. To the extent required, any provision of this
Agreement may be modified by a court of competent jurisdiction to preserve its
validity and to provide the Indemnitee with the broadest possible
indemnification permitted under applicable law.
9.3 SAVINGS CLAUSE
If this Agreement or any portion of it is invalidated on any ground by
any court of competent jurisdiction, then the Company shall nevertheless
indemnify Indemnitee as to Expenses, judgments, fines, penalties or ERISA excise
taxes with respect to any Proceeding to the fullest extent permitted by any
applicable portion of this Agreement that shall not have been invalidated or by
any other applicable law.
9.4 INTERPRETATION; GOVERNING LAW
This Agreement shall be construed as a whole and in accordance with its
fair meaning. Headings are for convenience only and shall not be used in
construing meaning. This Agreement shall be governed and interpreted in
accordance with the laws of the State of California, without regard to the
conflicts of laws principles thereof.
9.5 AMENDMENTS
No amendment, waiver, modification, termination or cancellation of this
Agreement shall be effective unless in writing signed by the party against whom
enforcement is sought. The indemnification rights afforded to the Indemnitee by
this Agreement are contract rights and may not be diminished, eliminated or
otherwise affected by amendments to the Company's Certificate of Incorporation,
Bylaws or agreements including D&O Insurance policies.
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9.6 COUNTERPARTS
This Agreement may be executed in one or more counterparts, all of
which shall be considered one and the same agreement and shall become effective
when one or more counterparts have been signed by each party and delivered to
the other.
9.7 NOTICES
Any notice required to be given under this Agreement shall be directed
to Procom Technology, Inc. at 2181 Dupont Drive, Irvine, California 92715,
Attention: President and to Indemnitee at the address set forth below or to
another address as either shall designate in writing.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
INDEMNITEE
____________________________________
Name: ___________________________
Address: ___________________________
___________________________
___________________________
___________________________
PROCOM TECHNOLOGY, INC.,
a California corporation
By: ________________________________
Name: ___________________________
Title: ___________________________
9
<PAGE> 1
Exhibit 10.2
PROCOM TECHNOLOGY, INC.
1995 STOCK OPTION PLAN
1. PURPOSE. The purpose of this Plan is to promote the success of the
Corporation by providing an additional means to attract, motivate and retain key
personnel, consultants, advisors and knowledgeable directors through the grant
of Options that provide added long term incentives for high levels of
performance and for significant efforts to improve the financial performance of
the Corporation.
2. DEFINITIONS.
(a) "Board" shall mean the Board of Directors of the Corporation.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
(c) "Committee" shall mean a committee, if any, appointed by the
Board in accordance with Section 4 of this Plan.
(d) "Common Stock" shall mean the Common Stock, par value $0.001
share, of the Corporation.
(e) "Corporation" shall mean Procom Technology, Inc., a California
corporation.
(f) "Disability" shall mean the condition of an Employee who is, in
the judgment of the Board or the Committee, unable to engage in any substantial
gainful activity by reason of any medically determinable physical or mental
impairment which can be expected to result in death or which has lasted or can
be expected to last for a continuous period of not less than twelve months.
(g) "Effective Date" shall have the meaning given such term in
Section 3 hereof.
(h) "Employee" shall mean an individual who is employed (within the
meaning of Code Section 3401(c) and the regulations thereunder) by the
Corporation or a Subsidiary.
(i) "Event" shall mean any of the following:
(1) approval by the shareholders of the Corporation of an
agreement to merge or consolidate, or otherwise reorganize, with or
into one or more entities other than Subsidiaries, as a result of which
less than 50%
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of the outstanding voting securities of the surviving or resulting
entity are, or are to be, owned by former shareholders of the
Corporation;
(2) approval by the shareholders of the Corporation of the sale
of all or substantially all of the Corporation's business assets to a
person or entity which is not a Subsidiary; or
(3) any "person" (as such term is used in Sections 13(d) and
14(d) of the Exchange Act, but excluding (x) any person described in
and satisfying the conditions of Rule 13d-1(b)(1) thereunder and (y)
any person having beneficial ownership of more than 5% of the
outstanding voting power at the time of adoption of this Plan) becomes
the "beneficial owner" (as defined in Rule 13d-3 under the Exchange
Act), directly or indirectly, of securities of the Corporation
representing more than 50% of the combined voting power of the
Corporation's then outstanding securities entitled to then vote
generally in the election of directors of the Corporation.
(j) "Exchange Act" shall mean the Securities and Exchange Act of
1934, as amended.
(k) "Exercise Price" shall mean the price per Share of Common Stock,
determined by the Board or the Committee, at which an Option may be exercised.
(l) "Fair Market value" shall mean the value of one Share of Common
Stock, determined as follows:
(1) If the Shares are traded on an exchange, the price at which
Shares traded at the close of business on the date of valuation;
(2) If the Shares are traded over-the-counter on the NASDAQ
System, the closing price if one is available, or the mean between the
bid and asked prices on said System at the close of business on the
date of valuation; and
(3) If neither (1) nor (2) applies, the fair market value as
determined by the Board or the Committee in good faith. Such
determination shall be conclusive and binding on all persons.
(m) "Incentive Stock Option" shall mean an option described in
Section 422(b) of the Code.
(n) "Nonstatutory Stock Option" shall mean an option not described
in Section 422(b), 423(b) or 424(b) of the Code.
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(o) "Option" shall mean an option to purchase Common Stock under
this Plan. An Option shall be designated by the Committee as a Nonstatutory
Stock Option or an Incentive Stock Option.
(p) "Optionee" shall mean an employee who has received an Option.
(q) "Plan" shall mean the Procom Technology, Inc. 1995 Stock Option
Plan, as it may be amended from time to time.
(r) "Purchase Price" shall mean the Exercise Price multiplied by the
number of Shares with respect to which an Option is exercised.
(s) "Retirement" shall mean the voluntary termination of employment
by an Employee upon the attainment of age sixty-five and the completion of not
less than twenty years of service with the Corporation or a Subsidiary.
(t) "Share" shall mean one share of Common Stock, adjusted in
accordance with Section 10 of this Plan (if applicable).
(u) "Subsidiary" shall mean any corporation at least fifty percent
of the total combined voting power of which is owned by the Corporation or by
another Subsidiary.
3. EFFECTIVE DATE. This Plan was adopted by the Board and approved by
the Corporation's shareholders as of September 15, 1995, which is the effective
date of this Plan (the "Effective Date").
4. ADMINISTRATION. This Plan shall be administered by the Board, or by
a committee appointed by the Board which shall consist of not less than two
members (either entity acting in such capacity being hereafter referred to as
the "Committee"). The Board shall appoint one of the members of the Committee,
if there be one, as Chairman of the Committee. The Committee shall hold meetings
at such times and places as it may determine. Acts of a majority of the
Committee at which a quorum is present, or acts reduced to or approved in
writing by a majority of the members of the Committee, shall be the valid acts
of the Committee. The Committee shall from time to time at its discretion select
the Plan participants, the number of Shares to be granted to each Optionee (no
more than 100,000 options may be granted hereunder to any person during any
twelve month period) and designate such Options as Incentive Stock Options or
Nonstatutory Stock Options, except that no Incentive Stock Option may be granted
to a non-Employee director or a non-Employee consultant. A member of the
Committee shall in no event participate in any determination relating to Options
held by or to be granted to such Committee member. The interpretation and
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<PAGE> 4
construction by the Committee of any provision of this Plan or of any Option
granted hereunder shall be final. No member of the Committee shall be liable for
any action or determination made in good faith with respect to this Plan or any
Option granted hereunder.
5. PARTICIPATION.
(a) Eligibility. The Optionees shall be such persons as the
Committee may select from among the following classes of persons, subject to the
terms and conditions of (b) below:
(1) Employees of the Corporation or of a Subsidiary (who may be
officers, whether or not they are directors);
(2) Directors of the Corporation or of a Subsidiary; and
(3) Consultants, vendors, customers and others expected to
provide significant services to the Corporation or a Subsidiary.
Solely for purposes of this Plan, an Optionee who is a director or a
consultant, vendor, customer or other provider of significant services to the
Corporation or a Subsidiary shall be deemed to be an Employee, and service as a
director, consultant, vendor, customer or other provider of significant services
to the Corporation or a Subsidiary shall, solely for purposes of this Plan, be
deemed to be employment, except that no Incentive Stock Option may be granted to
a non-Employee director or non-Employee consultant, vendor, customer or other
provider of significant services to the Corporation or a Subsidiary.
(b) Ten-Percent Shareholders. An Employee who owns more than ten
percent of the total combined voting power of all classes of outstanding stock
of the Corporation, its parent or any of its Subsidiaries shall not be eligible
to receive an Incentive Stock Option unless (i) the Exercise Price of the Shares
subject to such Option is at least 110% of the Fair Market value of such Shares
on the date of grant and (ii) such Option by its terms is not exercisable after
the expiration of five years from the date of grant.
(c) Stock Ownership. For purposes of (b) above, in determining stock
ownership, an Employee shall be considered as owning the stock owned, directly
or indirectly, by or for his brothers, sisters, spouses, ancestors and lineal
descendants. Stock owned, directly or indirectly, by or for a corporation,
partnership, estate or trust shall be considered as being owned proportionately
by or for its shareholders, partners or
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beneficiaries. Stock with respect to which such Employee holds an Option shall
not be counted.
(d) Outstanding Stock. For purposes of (b) above, "outstanding
stock" shall include all stock actually issued and outstanding immediately after
the grant of the Option to the Optionee. "Outstanding stock" shall not include
shares authorized for issue under outstanding Options held by the Optionee or by
any other person.
6. STOCK. The stock subject to Options granted under this Plan shall be
Shares of the Corporation's authorized but unissued or reacquired Common Stock.
The aggregate number of Shares which may be issued upon exercise of Options
under this Plan shall not exceed 180,000 shares. The number of Shares subject to
Options outstanding at any time shall not exceed the number of Shares remaining
available for issuance under this Plan. If any outstanding Option for any reason
expires or is terminated, the Shares allocable to the unexercised portion of
such Option may again be made subject to any Option. The limitations established
by this Section 6 shall be subject to adjustment in the manner provided in
Section 10 hereof upon the occurrence of an event specified therein.
7. TERMS AND CONDITIONS OF OPTIONS.
(a) Stock Option Agreements. Options shall be evidenced by written
stock option agreements in such form as the Committee shall from time to time
determine. Such agreements shall comply with and be subject to the terms and
conditions set forth below.
(b) Number of Shares. Each Option shall state the number of Shares
to which it pertains and shall provide for the adjustment thereof in accordance
with the provisions of Section 10 hereof.
(c) Exercise Price. Each Option shall state the Exercise Price. The
Exercise Price in the case of any Incentive Stock Option shall not be less than
the Fair Market Value on the date of grant and, in the case of any Incentive
Stock Option granted to an Optionee described in Section 5(b) hereof, shall not
be less than 110% of the Fair Market Value on the date of grant. The Exercise
Price in the case of any Nonstatutory Stock Option shall not be less than 85% of
the Fair Market Value on the date of grant.
(d) Medium and Time of Payment. The Purchase Price shall be payable
in full in United States dollars upon the exercise of the Option; provided,
however, that if the applicable Option Agreement so provides the Purchase Price
may be paid (i) by the surrender of Shares in good form for transfer, owned by
the person exercising the Option and having a Fair Market Value
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<PAGE> 6
on the date of exercise equal to the Purchase Price, or in any combination of
cash and Shares, as long as the sum of the cash so paid and the Fair Market
Value of the Shares so surrendered equal the Purchase Price, (ii) by
cancellation of indebtedness owed by the Corporation to the Optionee, (iii) with
a full recourse promissory note executed by the Optionee or (iv) any combination
of the foregoing. The interest rate and other terms and conditions of such note
shall be determined by the Committee. The Committee may, if it desires, require
that the Optionee pledge his or her Shares to the Corporation for the purpose of
securing the payment of such note and require that the stock certificate(s)
representing such Shares shall not be released to the Optionee until such note
has been paid in full. If the Corporation determines that it is required to
withhold state or federal income tax as a result of the exercise of an Option,
as a condition to the exercise thereof, an Employee may be required to make
arrangements satisfactory to the Corporation to enable it to satisfy such
withholding requirements.
(e) Term and Nontransferability of Options. Each Option shall state
the time or times, and the conditions upon which, all or part thereof becomes
exercisable. No Option shall be exercisable after the expiration of ten years
from the date it was granted, and no Incentive Stock Option granted to an
Optionee described in Section 5(b) hereof shall be exercisable after the
expiration of five years from the date it was granted. During the lifetime of
the Optionee, the Option shall be exercisable only by the Optionee and shall not
be assignable or transferable. In the event of the Optionee's death, the Option
shall not be transferable by the Optionee other than by will or the laws of
descent and distribution.
(f) Termination of Employment, Except by Death, Disability or
Retirement. If an Optionee ceases to be an Employee for any reason other than
his or her death, Disability or Retirement, such Optionee shall have the right,
subject to the restrictions of (e) above, to exercise the Option at any time
within thirty days after termination of employment, but only to the extent that,
at the date of termination of employment, the Optionee's right to exercise such
Option had vested pursuant to the terms of the applicable option agreement and
had not previously been exercised; provided, however, that if the Optionee was
terminated for cause (as defined in the applicable option agreement) any Option
not exercised in full prior to such termination shall be canceled. For this
purpose, the employment relationship shall be treated as continuing intact while
the Optionee is on military leave, sick leave or other bona fide leave of
absence (to be determined in the sole discretion of the Committee). The
foregoing notwithstanding, (i) in the case of an Incentive Stock Option,
employment shall not be deemed to continue beyond ninety days after the
Optionee's reemployment rights are guaranteed by statute or by contract, and
(ii) in the case of a Nonstatutory Stock Option, the Committee may extend or
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<PAGE> 7
otherwise modify the period of time specified herein during which the Option may
be exercised following termination of Optionee's employment.
(g) Death of Optionee. If an Optionee dies while an Employee, or
after ceasing to be an Employee but during the period while he or she could have
exercised the Option under this Section 7, and has not fully exercised the
Option, then the Option may be exercised in full, subject to the restrictions of
(e) above, at any time within three months after the Optionee's death, by the
executors or administrators of his or her estate or by any person or persons who
have acquired the Option directly from the Optionee by bequest or inheritance,
but only to the extent that, at the date of death, the Optionee's right to
exercise such Option had accrued and had not been forfeited pursuant to the
terms of the applicable Option Agreement and had not previously been exercised.
The foregoing notwithstanding, in the case of a Nonstatutory Stock Option, the
Committee may extend or otherwise modify the period of time specified herein
during which the Option may be exercised following termination of Optionee's
employment, or amend an Incentive Stock Option to convert it into a Nonstatutory
Stock Option with an extended term.
(h) Disability of Optionee. If an Optionee ceases to be an Employee
by reason of Disability, such Optionee shall have the right, subject to the
restrictions of (e) above, to exercise the Option at any time within three
months after termination of employment, but only to the extent that, at the date
of termination of employment, the Optionee's right to exercise such Option had
accrued pursuant to the terms of the applicable option agreement and had not
previously been exercised. The foregoing notwithstanding, in the case of a
Nonstatutory Stock Option, the Committee may extend or otherwise modify the
period of time specified herein during which the Option may be exercised
following termination of Optionee's employment, or amend an Incentive Stock
Option to convert it into a Nonstatutory Stock Option with an extended term.
(i) Retirement of Optionee. If an Optionee ceases to be an Employee
by reason of Retirement, such Optionee shall have the right, subject to the
restrictions of (e) above, to exercise the Option at any time within twelve
months after termination of employment, but only to the extent that, at the date
of termination of employment, the Optionee's right to exercise such Option had
accrued pursuant to the terms of the applicable option agreement and had not
previously been exercised. The foregoing notwithstanding, in the case of a
Nonstatutory Stock Option, the Committee may extend or otherwise modify the
period of time specified herein during which the Option may be exercised
following termination of Optionee's employment, or amend an Incentive Stock
Option to convert it into a Nonstatutory Stock Option with an extended term.
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<PAGE> 8
(j) Rights as a Shareholder. An Optionee, or a transferee of an
Optionee, shall have no rights as a shareholder with respect to any Shares
covered by his or her Option until the date of the issuance of a stock
certificate for such Shares. No adjustment shall be made for dividends (ordinary
or extraordinary, whether in cash, securities or other property), distributions
or other rights for which the record date is prior to the date such stock
certificate is issued, except as provided in Section 10 hereof.
(k) Modification, Extension and Renewal of Option. Within the
limitations of this Plan, the Committee may modify, extend, renew or reprice
outstanding Options or accept the cancellation of outstanding Options (to the
extent not previously exercised) for the granting of new Options with, if
desired, lower exercise prices, in substitution therefor. The foregoing
notwithstanding, no modification of an Option shall, without the consent of the
Optionee, alter or impair any rights or obligations under any Option previously
granted.
(l) Other Provisions. The stock option agreements authorized under
this Plan may contain such other provisions not inconsistent with the terms of
this Plan (including, without limitation, restrictions upon the exercise of the
Option) as the Committee deems advisable.
8. LIMITATION ON VALUE OF EXERCISABLE SHARES. In the case of Incentive
Stock Options granted hereunder, the aggregate Fair Market Value (determined as
of the date of the grant thereof) of the Shares with respect to which Incentive
Stock Options become exercisable by any employee of the Corporation for the
first time during any calendar year (under this Plan and all other plans
maintained by the Corporation, its parent or its Subsidiaries) shall not exceed
$100,000.
9. TERM OF PLAN. Options may be granted pursuant to this Plan until the
expiration of ten years from the effective date of this Plan.
10. RECAPITALIZATIONS. Subject to any required action by shareholders,
the number of Shares covered by this Plan as provided in Section 6 hereof, the
number of Shares covered by each outstanding Option and the Exercise Price
thereof shall be proportionately adjusted for any increase or decrease in the
number of issued Shares resulting from a subdivision or consolidation of Shares
or the payment of a stock dividend (but only of Common Stock) or any other
increase or decrease in the number of issued Shares effected without receipt of
consideration by the Corporation. Subject to any required action by
shareholders, if the Corporation is the surviving corporation in any merger or
consolidation, each outstanding Option shall apply to the securities to which a
holder of the number of Shares subject to the Option would have been entitled in
the merger or
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consolidation. To the extent that the foregoing adjustments relate to securities
of the Corporation, such adjustments shall be made by the Committee, whose
determination shall be conclusive and binding on all persons. Except as
expressly provided in this Section 10, the Optionee shall have no rights by
reason of subdivision or consolidation of shares of stock of any class, the
payment of any stock dividend or any other increase or decrease in the number of
shares of stock of any class or by reason of any dissolution, liquidation,
merger or consolidation or spin-off of assets or stock of another corporation,
and any issue by the Corporation of shares of stock of any class, or securities
convertible into shares of stock of any class, shall not affect, and no
adjustment by reason thereof shall be made with respect to, the number or
Exercise Price of Shares subject to an Option. The grant of an Option pursuant
to this Plan shall not affect in any way the right or power of the Corporation
to make adjustments, reclassifications, reorganizations or changes to its
capital or business structure, to merge or consolidate or to dissolve,
liquidate, sell or transfer all or any part of its business assets.
11. SECURITIES LAW REQUIREMENTS.
(a) Legality of Issuance. The issuance of any Shares upon the
exercise of any Option and the grant of any Option shall be contingent upon the
following:
(1) the Corporation and the Optionee shall have taken all
actions required to register the Shares under the Securities Act of
1933, as amended (the "Act"), and to qualify the Option and the Shares
under any and all applicable state securities or "blue sky" laws or
regulations, or to perfect an exemption from the respective
registration and qualification requirements thereof;
(2) any applicable listing requirement of any stock exchange on
which the Common Stock is listed shall have been satisfied; and
(3) any other applicable provision of state or federal law shall
have been satisfied.
(b) Restrictions on Transfer. Regardless of whether the offering and
sale of Shares under this Plan has been registered under the Act or has been
registered or qualified under the securities laws of any state, the Corporation
may impose restrictions on the sale, pledge or other transfer of such Shares
(including the placement of appropriate legends on stock certificates) if, in
the judgment of the Corporation and its counsel, such restrictions are necessary
or desirable in order to achieve compliance with the provisions of the Act, the
securities laws of any state or any other law. In the event that the sale of
Shares under this Plan is not registered under the Act but an
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exemption is available which requires an investment representation or other
representation, each Optionee shall be required to represent that such Shares
are being acquired for investment, and not with a view to the sale or
distribution thereof, and to make such other representations as are deemed
necessary or appropriate by the Corporation and its counsel. Any determination
by the Corporation and its counsel in connection with any of the matters set
forth in this Section 11 shall be conclusive and binding on all persons. Stock
certificates evidencing Shares acquired under this Plan pursuant to an
unregistered transaction shall bear the following restrictive legend and such
other restrictive legends as are required or deemed advisable under the
provisions of any applicable law.
"THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE "ACT"). ANY TRANSFER OF SUCH SECURITIES
WILL BE INVALID UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT AS TO
SUCH TRANSFER OR IN THE OPINION OF COUNSEL FOR THE ISSUER SUCH REGISTRATION IS
UNNECESSARY IN ORDER FOR SUCH TRANSFER TO COMPLY WITH THE ACT."
(c) Registration or Qualification of Securities. The Corporation
may, but shall not be obligated to register or qualify the issuance of Options
and/or the sale of Shares under the Act or any other applicable law. The
Corporation shall not be obligated to take any affirmative action in order to
cause the issuance of Options or the sale of Shares under this Plan to comply
with any law.
(d) Exchange of Certificates. If, in the opinion of the Corporation
and its counsel, any legend placed on a stock certificate representing shares
sold under this Plan is no longer required, the holder of such certificate shall
be entitled to exchange such certificate for a certificate representing the same
number of Shares but lacking such legend.
12. AMENDMENT OF THIS PLAN. The Board may from time to time, with
respect to any Shares at the time not subject to Options, suspend or discontinue
this Plan or revise or amend it in any respect whatsoever except that, without
the approval of the Corporation's shareholders, no such revision or amendment
shall:
(a) Increase the number of Shares subject to this Plan;
(b) Change the designation in Section 5 hereof with respect to the
classes of persons eligible to receive Options;
(c) Amend this Section 12 to defeat its purpose.
13. ACCELERATION OF OPTIONS. Unless prior to an Event the Board
determines that, upon its occurrence, there shall be no
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acceleration of Options or determines those selected Options which shall be
accelerated and the extent to which they shall be accelerated, upon the
occurrence of an Event each Option shall become immediately exercisable to the
full extent theretofore not exercisable; subject, however, to compliance with
applicable regulatory requirements, including, without limitation, Rule 16b- 3
promulgated by the Commission pursuant to the Exchange Act and Section 422 of
the Code. For purposes of this section only, the Board shall mean the Board as
constituted immediately prior to the Event.
14. EXECUTION. To record the adoption of this Plan in the form set
forth above by the Board as of the Effective Date, the Corporation has caused
this Plan to be executed in the name and on behalf of the Corporation where
provided below by an officer of the Corporation thereunto duly authorized.
PROCOM TECHNOLOGY, INC.,
a California corporation
By: _______________________
Its:_______________________
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Exhibit 10.3
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement ("Agreement")
is dated as of October 28, 1996, between Procom Technology, Inc., a California
corporation (the "Company"), and Alex Razm'joo (the "Executive").
WITNESSETH:
WHEREAS, the Company believes that the Executive is a valued employee
of the Company and wishes to ensure his continued employment with the Company
and document the terms of the Executive's employment by the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its shareholders to reinforce and encourage the
continued attention and dedication of certain key members of the Company's
management, including the Executive, to their assigned duties without
distraction in uncertain circumstances arising from the possibility of a change
in control of the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its shareholders to minimize the personal
considerations of certain key members of management in their evaluation of any
potential change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on the implementation of a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, taking into account the foregoing and in consideration
of the mutual promises and conditions contained herein, the parties hereto agree
as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company employs the Executive and the Executive
hereby accepts employment as the President and Chairman of the Board of the
Company upon the terms and conditions hereinafter set forth.
<PAGE> 2
1.2 Term. The employment of the Executive by the Company under the
terms and conditions of this Agreement will commence on the date hereof and
continue for a period of three (3) years ("Employment Term"). Commencing on the
first anniversary of the date hereof, the Employment Term shall be extended on a
daily basis such that the remaining term shall at all times be three (3) full
years.
1.3 Executive Duties. As the Company's President and Chairman of the
Board, the Executive shall perform such duties as are requested by and shall
report directly to the Company's Board of Directors. The Executive agrees to
devote his full business time (with allowances for vacations and sick leave) and
attention and best efforts to the affairs of the Company and its subsidiaries
and affiliates during the Employment Term.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Annual Salary. During the Employment Term, the Company shall pay to
the Executive a base salary at the initial rate of not less than Two Hundred
Twenty-Five Thousand ($225,000) per year, payable in substantially equal
semimonthly installments. The Company will review annually and may, in the
discretion of the Board of Directors, increase such base salary in light of the
Executive's performance, inflation in cost of living or other factors. The
Company also shall pay to the Executive an annual incentive compensation bonus
to be calculated and paid as set forth on Exhibit A. For purposes of this
Agreement, the Executive's annual base salary and annual incentive compensation
bonus collectively shall be referred to herein as his "Annual Salary."
2.2 Benefits. During the Employment Term, the Executive shall be
eligible for participation in and covered by any and all such performance,
bonus, profit sharing, incentive, stock option, and other compensation plans and
such medical, dental, disability, life, and other insurance plans and such other
benefits generally available to other employees of the Company in similar
employment positions, on the same terms as such employees, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"Company Benefit Plans").
2.2.1 The Company shall maintain for the Executive during the term
of this Agreement a life insurance policy of not less than One Million Dollars
($1,000,000). In addition, the Company shall provide to the Executive a One
Thousand Dollar ($1,000) annual tax preparation allowance.
2.3 Reimbursement of Expenses. The Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses of travel,
entertainment and
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living expenses while away from home on business at the request of, or in the
service of, the Company, provided that such expenses are incurred and accounted
for in accordance with the policies and procedures established by the Company.
2.4 Automobile Allowance. The Company shall provide the Executive with
an automobile allowance in the amount of Seven Hundred Fifty Dollars ($750) per
month as reimbursement to the Executive of costs and expenses incurred by the
Executive for the purchase or lease and maintenance and operation of an
automobile for use by the Executive in the performance of the Executive's duties
hereunder. Such automobile allowance shall be paid in substantially equal
semi-monthly installments.
2.5 Vacation and Holidays. The Executive shall be entitled to an annual
vacation leave of four (4) weeks at full pay or such greater vacation benefits
as may be provided for by the Company's vacation policies applicable to senior
executives of the Company. Any unused vacation time may be accumulated and
carried over from one year to the next; provided, however, if any vacation time
would otherwise be carried over for a second year, the Executive may, at his
option, elect not to have such vacation time carried over but may instead
request the Company to compensate the Executive for such vacation time by paying
the Executive for such time at the Executive's then current base salary rate.
Except to the extent that accumulated vacation time is paid off by the Company
as described above, none of the accumulated vacation time will be lost for any
reason. Executive shall be entitled to such holidays as are established by the
Company for all employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive will not during Executive's employment
by the Company or thereafter at any time disclose, directly or indirectly, to
any person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's business, operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other subject matter pertaining to the
business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly deliver
to the Company on termination of Executive's employment with the Company,
whether or not for Cause and whatever the reason, or at any time the Company may
so request,
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all memoranda, notes, records, reports, manuals, drawings, blueprints,
Confidential Information and any other documents of a confidential nature
belonging to the Company, including all copies of such materials which Executive
may then possess or have under Executive's control. Upon termination of
Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company, and for a period of two (2) years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of two (2) years following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's obligations
not to disclose or use Confidential Information and to refrain from the
solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this
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Agreement and the termination of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 Definitions. For purposes of this Article IV, the following
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his or her duties; (iii) willful misconduct by
the Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless (x)
the Executive first shall have received at least 30 days written notice setting
forth the reasons for the Company's intention to terminate or take other action
and shall have been provided an opportunity to appear, accompanied by counsel,
and be heard before the Board of Directors; (y) after such appearance before the
Board, the Board of Directors shall have duly adopted by a majority of the
Directors of the Company then in office, and shall have provided to the
Executive a certified resolution finding that in the good faith opinion of such
Directors the Executive was guilty of conduct constituting Cause, as set forth
above, and specifying the particulars thereof in detail; and (z) the Executive
shall have failed to cure or remedy the event constituting Cause within 30 days
after the Executive's receipt of such certified resolution from the Board of
Directors.
(b) Disability. "Disability" shall mean a physical or mental
incapacity as a result of which the Executive becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to three (3) consecutive months excepted). A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and the Executive or, in the event of the Executive's
incapacity to designate a doctor, the Executive's legal representative. In the
absence of
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agreement between the Company and the Executive, each party shall nominate a
qualified medical doctor and the two doctors so nominated shall select a third
doctor, who shall make the determination as to Disability.
(c) Good Reason. "Good Reason" shall mean each of the following:
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's office or position of
employment as contemplated herein, or any removal of the Executive from or
failure to re-elect the Executive, without the Executive's consent, to a
position of employment consistent with the position and status of Executive as
set forth herein; (ii) a reduction by the Company, without the Executive's
consent, in the Executive's annual base salary as it may exist from time to
time; (iii) a failure by the Company, without the Executive's consent, to
continue any Company Benefit Plans in which the Executive presently is entitled
to participate, as the same may be modified from time to time; (iv) a failure,
without the Executive's consent, by the Company to continue the Executive as a
participant in any Company Benefit Plans on at least the same basis as he
presently participates in such plans; (v) the requirement by the Company,
without Executive's consent, that the Executive be based anywhere other than
within 50 miles of the Executive's present office location, except for required
travel on the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
4.2 Termination by Company. The Executive's employment hereunder may be
terminated by the Company immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Severance Benefits Received Upon Termination.
(a) If (i) at any time the Executive's employment is terminated by
the Company for Cause, or (ii) at any time the Executive's employment is
terminated by the Executive without Good Reason, the Company shall pay the
Executive his base salary
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through the end of the month during which such termination occurs (or at the
Executive's election, the rate in effect on the first day of the month preceding
the month in which the date of termination occurs) plus credit for any accrued
vacation and the Company shall thereafter have no further obligations under this
Agreement to the Executive or his or her dependents, beneficiaries or estate;
provided, however, that the Company will continue to honor any obligations that
may have been accrued under then existing Company Benefit Plans or any other
agreements or arrangements applicable to the Executive.
(b) If (i) at any time the Executive's employment is terminated by
the Company without Cause, or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) pay to the Executive within four business days following
the date of termination his monthly base salary in effect on the date of the
termination through the end of the month during which such termination occurs,
plus payment for any vacation earned but not taken; and
(2) pay to the Executive as severance pay in a lump sum, in
cash, within seven business days following the date of termination, an amount
equal to (i) the Executive's monthly base salary in effect on the date of
termination, multiplied by (ii) thirty-five (35) months; provided, however, that
if the lump sum severance payment under this Section 4.3(b)(2), either alone or
together with other payments which the Executive has the right to receive from
the Company, would constitute a "excess parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")),
such lump sum severance payment shall be reduced to the largest amount as will
result in no portion of the lump sum severance payment under this Article III
being subject to the excise tax imposed by Section 4999 of the Code. The
determination of any reduction in the lump sum severance payment under this
Section 4.3(b)(2) pursuant to the foregoing proviso shall be made by the
Company's independent auditors in good faith and such determination shall be
conclusive and binding on the Executive and the Company;
(3) pay to the Executive a sum equal to (i) one-twelfth of the
Executive's annual compensation bonus for the entirety of the year in which the
termination occurs, multiplied by (ii) the number of months or portion thereof
the Executive was employed by the Company during the year in which the
termination occurs. The Company shall make such incentive compensation bonus
payment to the Executive concurrently with its payment of bonuses to other
executives of the Company; and
(4) maintain, at the Company's expense, in full force and
effect, for the Executive's continued benefit until the earlier of (i) two years
after the date of termination or (ii) the Executive's commencement of full time
employment with
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a new employer, all life insurance, medical, health and accident, and disability
plans, programs or arrangements in which the Executive was entitled to
participate immediately prior to the date of termination, provided that the
Executive's continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the Executive's
participation in any such plan or program is barred, the Company shall arrange
to provide the Executive with benefits substantially similar to those which the
Executive was entitled to receive under such plans or programs. Subsequent
health insurance benefits will be in accordance with COBRA.
4.4 No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination, or
otherwise (except as provided in Section 4.3(b)(3)).
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Assumption of Obligations. The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the effectiveness of
any such succession or assignment shall be a material breach of this Agreement.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor or assign to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Article V or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law. If at any time during the term of this Agreement the
Executive is employed by any corporation a majority of the voting securities of
which is then owned by the Company, "Company" as used in this Agreement shall in
addition include
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such employer. In such event, the Company agrees that it shall pay or shall
cause such employer to pay any amounts owed to the Executive pursuant to this
Agreement.
5.2 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts are still payable to him
or her hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: Procom Technology, Inc.
2181 Dupont Drive
Irvine, California 92715
Attn: Frederick Judd
If to the Executive: Mr. Alex Razm'joo
12 Salzburg
Newport Beach, CA 92660
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6.2 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
6.4 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any
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other provision of this Agreement, which shall remain in full force and effect.
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.6 Legal Fees and Expenses. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
6.7 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect to such terms as are
included in this Agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.8 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties, and obligations hereunder may not assigned or
delegated by any party without the prior written consent of the other party.
Notwithstanding the foregoing provisions of this Section 6.8, the Company may
assign or delegate its rights, duties, and obligations hereunder to any person
or entity which succeeds to all or substantially all of the business of the
Company through merger, consolidation, reorganization, or other business
combination or by acquisition of all or substantially all of the assets of the
Company; provided that such person assumes the Company's obligations under this
Agreement in accordance with Section 5.1.
6.9 Arbitration. Any controversy, dispute, claim or other matter in
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
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(a) Notice of the demand for arbitration shall be filed in writing
with the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) The costs and fees of the arbitration shall be allocated by the
arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PROCOM TECHNOLOGY, INC.,
a California corporation
By: ALEX AYDIN
----------------------------
Its: Executive Vice President,
Finance and Administration
---------------------------
EXECUTIVE
/s/ ALEX RAZMJOO
-------------------------------
Alex Razmjoo
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EXHIBIT A
ANNUAL INCENTIVE COMPENSATION BONUS
As set forth in Section 2.1 of the Agreement, the Executive shall
receive from the Company an annual incentive compensation bonus which shall be
part of the Executive's Annual Salary. The amount of the annual incentive
compensation bonus will be determined by the Board of Directors (after
consultation with, or based upon the recommendations of, the Compensation
Committee of the Board of Directors, if any such committee exists).
The amount of the Executive's annual incentive bonus shall be based
upon attainment by the Company of mutually agreed upon financial objectives.
Accordingly, if all of the mutually agreed-upon financial objectives are
attained, the Executive will receive an annual incentive compensation bonus
equal to a percentage of the Executive's base salary during the applicable
fiscal year. Should the Company not attain all of the relevant financial
objectives, the Board of Directors shall use its discretion (after consultation
with, or based upon the recommendations of, the Compensation Committee of the
Board of Directors, if any such committee exists) in determining the amount of
the Executive's annual incentive compensation bonus. The annual incentive
compensation bonus calculation shall be made promptly after preparation of the
Company's audited financial statements are completed following each of the
Company's fiscal years. The Company agrees to use its best efforts to complete
the audit of its financial statements so as to permit payment of this annual
incentive compensation bonus within ninety (90) days of the Company's fiscal
year end.
A-1
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Exhibit 10.4
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement ("Agreement")
is dated as of October 28, 1996, between Procom Technology, Inc., a California
corporation (the "Company"), and Frank Alaghband (the "Executive").
WITNESSETH:
WHEREAS, the Company believes that the Executive is a valued employee
of the Company and wishes to ensure his continued employment with the Company
and document the terms of the Executive's employment by the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its shareholders to reinforce and encourage the
continued attention and dedication of certain key members of the Company's
management, including the Executive, to their assigned duties without
distraction in uncertain circumstances arising from the possibility of a change
in control of the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its shareholders to minimize the personal
considerations of certain key members of management in their evaluation of any
potential change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on the implementation of a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, taking into account the foregoing and in consideration
of the mutual promises and conditions contained herein, the parties hereto agree
as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company employs the Executive and the Executive
hereby accepts employment as the Executive Vice President, Operations of the
Company upon the terms and conditions hereinafter set forth.
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1.2 Term. The employment of the Executive by the Company under the
terms and conditions of this Agreement will commence on the date hereof and
continue for a period of three (3) years ("Employment Term"). Commencing on the
first anniversary of the date hereof, the Employment Term shall be extended on a
daily basis such that the remaining term shall at all times be three (3) full
years.
1.3 Executive Duties. As the Company's Executive Vice President,
Operations, the Executive shall perform such duties as are requested by and
shall report directly to the Company's Board of Directors. The Executive agrees
to devote his full business time (with allowances for vacations and sick leave)
and attention and best efforts to the affairs of the Company and its
subsidiaries and affiliates during the Employment Term.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Annual Salary. During the Employment Term, the Company shall pay to
the Executive a base salary at the initial rate of not less than Two Hundred
Twenty-Five Thousand ($225,000) per year, payable in substantially equal
semimonthly installments. The Company will review annually and may, in the
discretion of the Board of Directors, increase such base salary in light of the
Executive's performance, inflation in cost of living or other factors. The
Company also shall pay to the Executive an annual incentive compensation bonus
to be calculated and paid as set forth on Exhibit A. For purposes of this
Agreement, the Executive's annual base salary and annual incentive compensation
bonus collectively shall be referred to herein as his "Annual Salary."
2.2 Benefits. During the Employment Term, the Executive shall be
eligible for participation in and covered by any and all such performance,
bonus, profit sharing, incentive, stock option, and other compensation plans and
such medical, dental, disability, life, and other insurance plans and such other
benefits generally available to other employees of the Company in similar
employment positions, on the same terms as such employees, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"Company Benefit Plans").
2.2.1 The Company shall maintain for the Executive during the term
of this Agreement a life insurance policy of not less than One Million Dollars
($1,000,000). In addition, the Company shall provide to the Executive a One
Thousand Dollar ($1,000) annual tax preparation allowance.
2.3 Reimbursement of Expenses. The Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses of travel,
entertainment and
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living expenses while away from home on business at the request of, or in the
service of, the Company, provided that such expenses are incurred and accounted
for in accordance with the policies and procedures established by the Company.
2.4 Automobile Allowance. The Company shall provide the Executive
with an automobile allowance in the amount of Seven Hundred Fifty Dollars ($750)
per month as reimbursement to the Executive of costs and expenses incurred by
the Executive for the purchase or lease and maintenance and operation of an
automobile for use by the Executive in the performance of the Executive's duties
hereunder. Such automobile allowance shall be paid in substantially equal
semi-monthly installments.
2.5 Vacation and Holidays. The Executive shall be entitled to an
annual vacation leave of four (4) weeks at full pay or such greater vacation
benefits as may be provided for by the Company's vacation policies applicable to
senior executives of the Company. Any unused vacation time may be accumulated
and carried over from one year to the next; provided, however, if any vacation
time would otherwise be carried over for a second year, the Executive may, at
his option, elect not to have such vacation time carried over but may instead
request the Company to compensate the Executive for such vacation time by paying
the Executive for such time at the Executive's then current base salary rate.
Except to the extent that accumulated vacation time is paid off by the Company
as described above, none of the accumulated vacation time will be lost for any
reason. Executive shall be entitled to such holidays as are established by the
Company for all employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive will not during Executive's
employment by the Company or thereafter at any time disclose, directly or
indirectly, to any person or entity or use for Executive's own benefit any trade
secrets or confidential information relating to the Company's business,
operations, marketing data, business plans, strategies, employees, negotiations
and contracts with other companies, or any other subject matter pertaining to
the business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly
deliver to the Company on termination of Executive's employment with the
Company, whether or not for Cause and whatever the reason, or at any time the
Company may so request,
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all memoranda, notes, records, reports, manuals, drawings, blueprints,
Confidential Information and any other documents of a confidential nature
belonging to the Company, including all copies of such materials which Executive
may then possess or have under Executive's control. Upon termination of
Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company, and for a period of two (2) years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of two (2) years following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's obligations
not to disclose or use Confidential Information and to refrain from the
solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this
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Agreement and the termination of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 Definitions. For purposes of this Article IV, the following
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his or her duties; (iii) willful misconduct by
the Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless (x)
the Executive first shall have received at least 30 days written notice setting
forth the reasons for the Company's intention to terminate or take other action
and shall have been provided an opportunity to appear, accompanied by counsel,
and be heard before the Board of Directors; (y) after such appearance before the
Board, the Board of Directors shall have duly adopted by a majority of the
Directors of the Company then in office, and shall have provided to the
Executive a certified resolution finding that in the good faith opinion of such
Directors the Executive was guilty of conduct constituting Cause, as set forth
above, and specifying the particulars thereof in detail; and (z) the Executive
shall have failed to cure or remedy the event constituting Cause within 30 days
after the Executive's receipt of such certified resolution from the Board of
Directors.
(b) Disability. "Disability" shall mean a physical or mental
incapacity as a result of which the Executive becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to three (3) consecutive months excepted). A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and the Executive or, in the event of the Executive's
incapacity to designate a doctor, the Executive's legal representative. In the
absence of
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agreement between the Company and the Executive, each party shall nominate a
qualified medical doctor and the two doctors so nominated shall select a third
doctor, who shall make the determination as to Disability.
(c) Good Reason. "Good Reason" shall mean each of the following:
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's office or position of
employment as contemplated herein, or any removal of the Executive from or
failure to re-elect the Executive, without the Executive's consent, to a
position of employment consistent with the position and status of Executive as
set forth herein; (ii) a reduction by the Company, without the Executive's
consent, in the Executive's annual base salary as it may exist from time to
time; (iii) a failure by the Company, without the Executive's consent, to
continue any Company Benefit Plans in which the Executive presently is entitled
to participate, as the same may be modified from time to time; (iv) a failure,
without the Executive's consent, by the Company to continue the Executive as a
participant in any Company Benefit Plans on at least the same basis as he
presently participates in such plans; (v) the requirement by the Company,
without Executive's consent, that the Executive be based anywhere other than
within 50 miles of the Executive's present office location, except for required
travel on the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
4.2 Termination by Company. The Executive's employment hereunder may be
terminated by the Company immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Severance Benefits Received Upon Termination.
(a) If (i) at any time the Executive's employment is terminated by
the Company for Cause, or (ii) at any time the Executive's employment is
terminated by the Executive without Good Reason, the Company shall pay the
Executive his base salary
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through the end of the month during which such termination occurs (or at the
Executive's election, the rate in effect on the first day of the month preceding
the month in which the date of termination occurs) plus credit for any accrued
vacation and the Company shall thereafter have no further obligations under this
Agreement to the Executive or his or her dependents, beneficiaries or estate;
provided, however, that the Company will continue to honor any obligations that
may have been accrued under then existing Company Benefit Plans or any other
agreements or arrangements applicable to the Executive.
(b) If (i) at any time the Executive's employment is terminated by
the Company without Cause, or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) pay to the Executive within four business days following
the date of termination his monthly base salary in effect on the date of the
termination through the end of the month during which such termination occurs,
plus payment for any vacation earned but not taken; and
(2) pay to the Executive as severance pay in a lump sum, in
cash, within seven business days following the date of termination, an amount
equal to (i) the Executive's monthly base salary in effect on the date of
termination, multiplied by (ii) thirty-five (35) months; provided, however, that
if the lump sum severance payment under this Section 4.3(b)(2), either alone or
together with other payments which the Executive has the right to receive from
the Company, would constitute a "excess parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")),
such lump sum severance payment shall be reduced to the largest amount as will
result in no portion of the lump sum severance payment under this Article III
being subject to the excise tax imposed by Section 4999 of the Code. The
determination of any reduction in the lump sum severance payment under this
Section 4.3(b)(2) pursuant to the foregoing proviso shall be made by the
Company's independent auditors in good faith and such determination shall be
conclusive and binding on the Executive and the Company;
(3) pay to the Executive a sum equal to (i) one-twelfth of the
Executive's annual compensation bonus for the entirety of the year in which the
termination occurs, multiplied by (ii) the number of months or portion thereof
the Executive was employed by the Company during the year in which the
termination occurs. The Company shall make such incentive compensation bonus
payment to the Executive concurrently with its payment of bonuses to other
executives of the Company; and
(4) maintain, at the Company's expense, in full force and
effect, for the Executive's continued benefit until the earlier of (i) two years
after the date of termination or (ii) the Executive's commencement of full time
employment with
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a new employer, all life insurance, medical, health and accident, and disability
plans, programs or arrangements in which the Executive was entitled to
participate immediately prior to the date of termination, provided that the
Executive's continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the Executive's
participation in any such plan or program is barred, the Company shall arrange
to provide the Executive with benefits substantially similar to those which the
Executive was entitled to receive under such plans or programs. Subsequent
health insurance benefits will be in accordance with COBRA.
4.4 No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination, or
otherwise (except as provided in Section 4.3(b)(3)).
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Assumption of Obligations. The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the effectiveness of
any such succession or assignment shall be a material breach of this Agreement.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor or assign to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Article V or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law. If at any time during the term of this Agreement the
Executive is employed by any corporation a majority of the voting securities of
which is then owned by the Company, "Company" as used in this Agreement shall in
addition include
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such employer. In such event, the Company agrees that it shall pay or shall
cause such employer to pay any amounts owed to the Executive pursuant to this
Agreement.
5.2 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts are still payable to him
or her hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: Procom Technology, Inc.
2181 Dupont Drive
Irvine, California 92715
Attn: Frederick Judd
If to the Executive: Mr. Frank Alaghband
2807 Harborview Drive
Corona Del Mar, CA 92625
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6.2 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
6.4 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any
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other provision of this Agreement, which shall remain in full force and effect.
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.6 Legal Fees and Expenses. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
6.7 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect to such terms as are
included in this Agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.8 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties, and obligations hereunder may not assigned or
delegated by any party without the prior written consent of the other party.
Notwithstanding the foregoing provisions of this Section 6.8, the Company may
assign or delegate its rights, duties, and obligations hereunder to any person
or entity which succeeds to all or substantially all of the business of the
Company through merger, consolidation, reorganization, or other business
combination or by acquisition of all or substantially all of the assets of the
Company; provided that such person assumes the Company's obligations under this
Agreement in accordance with Section 5.1.
6.9 Arbitration. Any controversy, dispute, claim or other matter in
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
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(a) Notice of the demand for arbitration shall be filed in writing
with the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) The costs and fees of the arbitration shall be allocated by the
arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PROCOM TECHNOLOGY, INC.,
a California corporation
By: ALEX RAZMJOO
---------------------------
Its: President and Chief
Executive Officer
--------------------------
EXECUTIVE
/s/ FRANK ALAGHBAND
------------------------------
Frank Alaghband
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EXHIBIT A
ANNUAL INCENTIVE COMPENSATION BONUS
As set forth in Section 2.1 of the Agreement, the Executive shall
receive from the Company an annual incentive compensation bonus which shall be
part of the Executive's Annual Salary. The amount of the annual incentive
compensation bonus will be determined by the Board of Directors (after
consultation with, or based upon the recommendations of, the Compensation
Committee of the Board of Directors, if any such committee exists).
The amount of the Executive's annual incentive bonus shall be based
upon attainment by the Company of mutually agreed upon financial objectives.
Accordingly, if all of the mutually agreed-upon financial objectives are
attained, the Executive will receive an annual incentive compensation bonus
equal to a percentage of the Executive's base salary during the applicable
fiscal year. Should the Company not attain all of the relevant financial
objectives, the Board of Directors shall use its discretion (after consultation
with, or based upon the recommendations of, the Compensation Committee of the
Board of Directors, if any such committee exists) in determining the amount of
the Executive's annual incentive compensation bonus. The annual incentive
compensation bonus calculation shall be made promptly after preparation of the
Company's audited financial statements are completed following each of the
Company's fiscal years. The Company agrees to use its best efforts to complete
the audit of its financial statements so as to permit payment of this annual
incentive compensation bonus within ninety (90) days of the Company's fiscal
year end.
A-1
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Exhibit 10.5
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement ("Agreement")
is dated as of October 28, 1996, between Procom Technology, Inc., a California
corporation (the "Company"), and Alex Aydin (the "Executive").
WITNESSETH:
WHEREAS, the Company believes that the Executive is a valued employee
of the Company and wishes to ensure his continued employment with the Company
and document the terms of the Executive's employment by the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its shareholders to reinforce and encourage the
continued attention and dedication of certain key members of the Company's
management, including the Executive, to their assigned duties without
distraction in uncertain circumstances arising from the possibility of a change
in control of the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its shareholders to minimize the personal
considerations of certain key members of management in their evaluation of any
potential change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on the implementation of a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, taking into account the foregoing and in consideration
of the mutual promises and conditions contained herein, the parties hereto agree
as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company employs the Executive and the Executive
hereby accepts employment as the Executive Vice President, Finance of the
Company upon the terms and conditions hereinafter set forth.
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1.2 Term. The employment of the Executive by the Company under the
terms and conditions of this Agreement will commence on the date hereof and
continue for a period of three (3) years ("Employment Term"). Commencing on the
first anniversary of the date hereof, the Employment Term shall be extended on a
daily basis such that the remaining term shall at all times be three (3) full
years.
1.3 Executive Duties. As the Company's Executive Vice President,
Finance, Executive shall perform such duties as are requested by and shall
report directly to the Company's Board of Directors. The Executive agrees to
devote his full business time (with allowances for vacations and sick leave) and
attention and best efforts to the affairs of the Company and its subsidiaries
and affiliates during the Employment Term.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Annual Salary. During the Employment Term, the Company shall pay to
the Executive a base salary at the initial rate of not less than Two Hundred
Twenty-Five Thousand ($225,000) per year, payable in substantially equal
semimonthly installments. The Company will review annually and may, in the
discretion of the Board of Directors, increase such base salary in light of the
Executive's performance, inflation in cost of living or other factors. The
Company also shall pay to the Executive an annual incentive compensation bonus
to be calculated and paid as set forth on Exhibit A. For purposes of this
Agreement, the Executive's annual base salary and annual incentive compensation
bonus collectively shall be referred to herein as his "Annual Salary."
2.2 Benefits. During the Employment Term, the Executive shall be
eligible for participation in and covered by any and all such performance,
bonus, profit sharing, incentive, stock option, and other compensation plans and
such medical, dental, disability, life, and other insurance plans and such other
benefits generally available to other employees of the Company in similar
employment positions, on the same terms as such employees, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"Company Benefit Plans").
2.2.1 The Company shall maintain for the Executive during the term
of this Agreement a life insurance policy of not less than One Million Dollars
($1,000,000). In addition, the Company shall provide to the Executive a One
Thousand Dollar ($1,000) annual tax preparation allowance.
2.3 Reimbursement of Expenses. The Executive shall be entitled to
receive prompt reimbursement of all reasonable
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expenses incurred by the Executive in performing services hereunder, including
all expenses of travel, entertainment and living expenses while away from home
on business at the request of, or in the service of, the Company, provided that
such expenses are incurred and accounted for in accordance with the policies and
procedures established by the Company.
2.4 Automobile Allowance. The Company shall provide the Executive with
an automobile allowance in the amount of Seven Hundred Fifty Dollars ($750) per
month as reimbursement to the Executive of costs and expenses incurred by the
Executive for the purchase or lease and maintenance and operation of an
automobile for use by the Executive in the performance of the Executive's duties
hereunder. Such automobile allowance shall be paid in substantially equal
semi-monthly installments.
2.5 Vacation and Holidays. The Executive shall be entitled to an annual
vacation leave of four (4) weeks at full pay or such greater vacation benefits
as may be provided for by the Company's vacation policies applicable to senior
executives of the Company. Any unused vacation time may be accumulated and
carried over from one year to the next; provided, however, if any vacation time
would otherwise be carried over for a second year, the Executive may, at his
option, elect not to have such vacation time carried over but may instead
request the Company to compensate the Executive for such vacation time by paying
the Executive for such time at the Executive's then current base salary rate.
Except to the extent that accumulated vacation time is paid off by the Company
as described above, none of the accumulated vacation time will be lost for any
reason. Executive shall be entitled to such holidays as are established by the
Company for all employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive will not during Executive's employment
by the Company or thereafter at any time disclose, directly or indirectly, to
any person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's business, operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other subject matter pertaining to the
business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
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3.2 Return of Confidential Material. Executive shall promptly deliver
to the Company on termination of Executive's employment with the Company,
whether or not for Cause and whatever the reason, or at any time the Company may
so request, all memoranda, notes, records, reports, manuals, drawings,
blueprints, Confidential Information and any other documents of a confidential
nature belonging to the Company, including all copies of such materials which
Executive may then possess or have under Executive's control. Upon termination
of Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company, and for a period of two (2) years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of two (2) years following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's obligations
not to disclose or use Confidential Information and to refrain from the
solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or
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remedies created by applicable law relating to misappropriation or theft of
trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this Agreement and the termination of
Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 Definitions. For purposes of this Article IV, the following
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his or her duties; (iii) willful misconduct by
the Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless (x)
the Executive first shall have received at least 30 days written notice setting
forth the reasons for the Company's intention to terminate or take other action
and shall have been provided an opportunity to appear, accompanied by counsel,
and be heard before the Board of Directors; (y) after such appearance before the
Board, the Board of Directors shall have duly adopted by a majority of the
Directors of the Company then in office, and shall have provided to the
Executive a certified resolution finding that in the good faith opinion of such
Directors the Executive was guilty of conduct constituting Cause, as set forth
above, and specifying the particulars thereof in detail; and (z) the Executive
shall have failed to cure or remedy the event constituting Cause within 30 days
after the Executive's receipt of such certified resolution from the Board of
Directors.
(b) Disability. "Disability" shall mean a physical or mental
incapacity as a result of which the Executive
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becomes unable to continue the proper performance of his duties hereunder
(reasonable absences because of sickness for up to three (3) consecutive months
excepted). A determination of Disability shall be subject to the certification
of a qualified medical doctor agreed to by the Company and the Executive or, in
the event of the Executive's incapacity to designate a doctor, the Executive's
legal representative. In the absence of agreement between the Company and the
Executive, each party shall nominate a qualified medical doctor and the two
doctors so nominated shall select a third doctor, who shall make the
determination as to Disability.
(c) Good Reason. "Good Reason" shall mean each of the following:
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's office or position of
employment as contemplated herein, or any removal of the Executive from or
failure to re-elect the Executive, without the Executive's consent, to a
position of employment consistent with the position and status of Executive as
set forth herein; (ii) a reduction by the Company, without the Executive's
consent, in the Executive's annual base salary as it may exist from time to
time; (iii) a failure by the Company, without the Executive's consent, to
continue any Company Benefit Plans in which the Executive presently is entitled
to participate, as the same may be modified from time to time; (iv) a failure,
without the Executive's consent, by the Company to continue the Executive as a
participant in any Company Benefit Plans on at least the same basis as he
presently participates in such plans; (v) the requirement by the Company,
without Executive's consent, that the Executive be based anywhere other than
within 50 miles of the Executive's present office location, except for required
travel on the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
4.2 Termination by Company. The Executive's employment hereunder may be
terminated by the Company immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written
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notice of termination; however, the Company may elect to have Executive leave
the Company immediately.
4.3 Severance Benefits Received Upon Termination.
(a) If (i) at any time the Executive's employment is terminated by
the Company for Cause, or (ii) at any time the Executive's employment is
terminated by the Executive without Good Reason, the Company shall pay the
Executive his base salary through the end of the month during which such
termination occurs (or at the Executive's election, the rate in effect on the
first day of the month preceding the month in which the date of termination
occurs) plus credit for any accrued vacation and the Company shall thereafter
have no further obligations under this Agreement to the Executive or his or her
dependents, beneficiaries or estate; provided, however, that the Company will
continue to honor any obligations that may have been accrued under then existing
Company Benefit Plans or any other agreements or arrangements applicable to the
Executive.
(b) If (i) at any time the Executive's employment is terminated by
the Company without Cause, or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) pay to the Executive within four business days following
the date of termination his monthly base salary in effect on the date of the
termination through the end of the month during which such termination occurs,
plus payment for any vacation earned but not taken; and
(2) pay to the Executive as severance pay in a lump sum, in
cash, within seven business days following the date of termination, an amount
equal to (i) the Executive's monthly base salary in effect on the date of
termination, multiplied by (ii) thirty-five (35) months; provided, however, that
if the lump sum severance payment under this Section 4.3(b)(2), either alone or
together with other payments which the Executive has the right to receive from
the Company, would constitute a "excess parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")),
such lump sum severance payment shall be reduced to the largest amount as will
result in no portion of the lump sum severance payment under this Article III
being subject to the excise tax imposed by Section 4999 of the Code. The
determination of any reduction in the lump sum severance payment under this
Section 4.3(b)(2) pursuant to the foregoing proviso shall be made by the
Company's independent auditors in good faith and such determination shall be
conclusive and binding on the Executive and the Company;
(3) pay to the Executive a sum equal to (i) one-twelfth of the
Executive's annual compensation bonus for the
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entirety of the year in which the termination occurs, multiplied by (ii) the
number of months or portion thereof the Executive was employed by the Company
during the year in which the termination occurs. The Company shall make such
incentive compensation bonus payment to the Executive concurrently with its
payment of bonuses to other executives of the Company; and
(4) maintain, at the Company's expense, in full force and
effect, for the Executive's continued benefit until the earlier of (i) two years
after the date of termination or (ii) the Executive's commencement of full time
employment with a new employer, all life insurance, medical, health and
accident, and disability plans, programs or arrangements in which the Executive
was entitled to participate immediately prior to the date of termination,
provided that the Executive's continued participation is possible under the
general terms and provisions of such plans and programs. In the event that the
Executive's participation in any such plan or program is barred, the Company
shall arrange to provide the Executive with benefits substantially similar to
those which the Executive was entitled to receive under such plans or programs.
Subsequent health insurance benefits will be in accordance with COBRA.
4.4 No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination, or
otherwise (except as provided in Section 4.3(b)(3)).
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Assumption of Obligations. The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the
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Company would be required to perform it if no such succession or assignment had
taken place. Any failure of the Company to obtain such agreement prior to the
effectiveness of any such succession or assignment shall be a material breach of
this Agreement. As used in this Agreement, "Company" shall mean the Company as
hereinbefore defined and any successor or assign to its business and/or assets
as aforesaid which executes and delivers the agreement provided for in this
Article V or which otherwise becomes bound by all the terms and provisions of
this Agreement by operation of law. If at any time during the term of this
Agreement the Executive is employed by any corporation a majority of the voting
securities of which is then owned by the Company, "Company" as used in this
Agreement shall in addition include such employer. In such event, the Company
agrees that it shall pay or shall cause such employer to pay any amounts owed to
the Executive pursuant to this Agreement.
5.2 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts are still payable to him
or her hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: Procom Technology, Inc.
2181 Dupont Drive
Irvine, California 92715
Attn: Frederick Judd
If to the Executive: Mr. Alex Aydin
418 Villa Point
Newport Beach, CA 92660
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6.2 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and
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the Company. No waiver by either party hereto at any time of any breach by the
other party hereto of, or compliance with, any condition or provision of this
Agreement to be performed by such other party shall be deemed a waiver of
similar or dissimilar provisions or conditions at the same or at any prior or
subsequent time.
6.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
6.4 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any other provision of this Agreement, which shall
remain in full force and effect.
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.6 Legal Fees and Expenses. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
6.7 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect to such terms as are
included in this Agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.8 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties, and obligations hereunder may not assigned or
delegated by any party without the prior written consent of the other party.
Notwithstanding the foregoing provisions of this Section 6.8, the Company may
assign or delegate its rights, duties, and obligations hereunder to any person
or entity which succeeds to all or substantially all of the business of the
Company through
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merger, consolidation, reorganization, or other business combination or by
acquisition of all or substantially all of the assets of the Company; provided
that such person assumes the Company's obligations under this Agreement in
accordance with Section 5.1.
6.9 Arbitration. Any controversy, dispute, claim or other matter in
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
(a) Notice of the demand for arbitration shall be filed in writing
with the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) The costs and fees of the arbitration shall be allocated by the
arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PROCOM TECHNOLOGY, INC.,
a California corporation
By: ALEX RAZMJOO
---------------------------
Its: President and Chief
Executive Officer
--------------------------
EXECUTIVE
/s/ ALEX AYDIN
------------------------------
Alex Aydin
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EXHIBIT A
ANNUAL INCENTIVE COMPENSATION BONUS
As set forth in Section 2.1 of the Agreement, the Executive shall
receive from the Company an annual incentive compensation bonus which shall be
part of the Executive's Annual Salary. The amount of the annual incentive
compensation bonus will be determined by the Board of Directors (after
consultation with, or based upon the recommendations of, the Compensation
Committee of the Board of Directors, if any such committee exists).
The amount of the Executive's annual incentive bonus shall be based
upon attainment by the Company of mutually agreed upon financial objectives.
Accordingly, if all of the mutually agreed-upon financial objectives are
attained, the Executive will receive an annual incentive compensation bonus
equal to a percentage of the Executive's base salary during the applicable
fiscal year. Should the Company not attain all of the relevant financial
objectives, the Board of Directors shall use its discretion (after consultation
with, or based upon the recommendations of, the Compensation Committee of the
Board of Directors, if any such committee exists) in determining the amount of
the Executive's annual incentive compensation bonus. The annual incentive
compensation bonus calculation shall be made promptly after preparation of the
Company's audited financial statements are completed following each of the
Company's fiscal years. The Company agrees to use its best efforts to complete
the audit of its financial statements so as to permit payment of this annual
incentive compensation bonus within ninety (90) days of the Company's fiscal
year end.
A-1
<PAGE> 1
Exhibit 10.6
AMENDED AND RESTATED
EXECUTIVE EMPLOYMENT AGREEMENT
This Amended and Restated Executive Employment Agreement ("Agreement")
is dated as of October 28, 1996, between Procom Technology, Inc., a California
corporation (the "Company"), and Nick Shahrestany (the "Executive").
WITNESSETH:
WHEREAS, the Company believes that the Executive is a valued employee
of the Company and wishes to ensure his continued employment with the Company
and document the terms of the Executive's employment by the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its shareholders to reinforce and encourage the
continued attention and dedication of certain key members of the Company's
management, including the Executive, to their assigned duties without
distraction in uncertain circumstances arising from the possibility of a change
in control of the Company.
WHEREAS, the Company also has determined that it is in the best
interests of the Company and its shareholders to minimize the personal
considerations of certain key members of management in their evaluation of any
potential change in control of the Company.
WHEREAS, the Company has determined that the loss of the Executive's
services would have a detrimental effect on the implementation of a change in
control of the Company (in the event the Company determines to effect such a
change in control of the Company).
NOW, THEREFORE, taking into account the foregoing and in consideration
of the mutual promises and conditions contained herein, the parties hereto agree
as follows:
ARTICLE I
EMPLOYMENT
1.1 Employment. The Company employs the Executive and the Executive
hereby accepts employment as the Executive Vice President, Sales & Marketing of
the Company upon the terms and conditions hereinafter set forth.
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1.2 Term. The employment of the Executive by the Company under the
terms and conditions of this Agreement will commence on the date hereof and
continue for a period of three (3) years ("Employment Term"). Commencing on the
first anniversary of the date hereof, the Employment Term shall be extended on a
daily basis such that the remaining term shall at all times be three (3) full
years.
1.3 Executive Duties. As the Company's Executive Vice President, Sales
& Marketing, the Executive shall perform such duties as are requested by and
shall report directly to the Company's Board of Directors. The Executive agrees
to devote his full business time (with allowances for vacations and sick leave)
and attention and best efforts to the affairs of the Company and its
subsidiaries and affiliates during the Employment Term.
ARTICLE II
COMPENSATION AND BENEFITS
2.1 Annual Salary. During the Employment Term, the Company shall pay to
the Executive a base salary at the initial rate of not less than Two Hundred
Twenty-Five Thousand ($225,000) per year, payable in substantially equal
semimonthly installments. The Company will review annually and may, in the
discretion of the Board of Directors, increase such base salary in light of the
Executive's performance, inflation in cost of living or other factors. The
Company also shall pay to the Executive an annual incentive compensation bonus
to be calculated and paid as set forth on Exhibit A. For purposes of this
Agreement, the Executive's annual base salary and annual incentive compensation
bonus collectively shall be referred to herein as his "Annual Salary."
2.2 Benefits. During the Employment Term, the Executive shall be
eligible for participation in and covered by any and all such performance,
bonus, profit sharing, incentive, stock option, and other compensation plans and
such medical, dental, disability, life, and other insurance plans and such other
benefits generally available to other employees of the Company in similar
employment positions, on the same terms as such employees, subject to meeting
applicable eligibility requirements (collectively referred to herein as the
"Company Benefit Plans").
2.2.1 The Company shall maintain for the Executive during the term
of this Agreement a life insurance policy of not less than One Million Dollars
($1,000,000). In addition, the Company shall provide to the Executive a One
Thousand Dollar ($1,000) annual tax preparation allowance.
2.3 Reimbursement of Expenses. The Executive shall be entitled to
receive prompt reimbursement of all reasonable expenses incurred by the
Executive in performing services hereunder, including all expenses of travel,
entertainment and
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living expenses while away from home on business at the request of, or in the
service of, the Company, provided that such expenses are incurred and accounted
for in accordance with the policies and procedures established by the Company.
2.4 Automobile Allowance. The Company shall provide the Executive with
an automobile allowance in the amount of Seven Hundred Fifty Dollars ($750) per
month as reimbursement to the Executive of costs and expenses incurred by the
Executive for the purchase or lease and maintenance and operation of an
automobile for use by the Executive in the performance of the Executive's duties
hereunder. Such automobile allowance shall be paid in substantially equal
semi-monthly installments.
2.5 Vacation and Holidays. The Executive shall be entitled to an annual
vacation leave of four (4) weeks at full pay or such greater vacation benefits
as may be provided for by the Company's vacation policies applicable to senior
executives of the Company. Any unused vacation time may be accumulated and
carried over from one year to the next; provided, however, if any vacation time
would otherwise be carried over for a second year, the Executive may, at his
option, elect not to have such vacation time carried over but may instead
request the Company to compensate the Executive for such vacation time by paying
the Executive for such time at the Executive's then current base salary rate.
Except to the extent that accumulated vacation time is paid off by the Company
as described above, none of the accumulated vacation time will be lost for any
reason. Executive shall be entitled to such holidays as are established by the
Company for all employees.
ARTICLE III
CONFIDENTIALITY AND NONDISCLOSURE
3.1 Confidentiality. Executive will not during Executive's employment
by the Company or thereafter at any time disclose, directly or indirectly, to
any person or entity or use for Executive's own benefit any trade secrets or
confidential information relating to the Company's business, operations,
marketing data, business plans, strategies, employees, negotiations and
contracts with other companies, or any other subject matter pertaining to the
business of the Company or any of its clients, customers, consultants, or
licensees, known, learned, or acquired by Executive during the period of
Executive's employment by the Company (collectively "Confidential Information"),
except as may be necessary in the ordinary course of performing Executive's
particular duties as an employee of the Company.
3.2 Return of Confidential Material. Executive shall promptly deliver
to the Company on termination of Executive's employment with the Company,
whether or not for Cause and whatever the reason, or at any time the Company may
so request,
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all memoranda, notes, records, reports, manuals, drawings, blueprints,
Confidential Information and any other documents of a confidential nature
belonging to the Company, including all copies of such materials which Executive
may then possess or have under Executive's control. Upon termination of
Executive's employment by the Company, Executive shall not take any document,
data, or other material of any nature containing or pertaining to the
proprietary information of the Company.
3.3 Prohibition on Solicitation of Customers. During the term of
Executive's employment with the Company, and for a period of two (2) years
thereafter, Executive shall not, directly or indirectly, either for Executive or
for any other person or entity, solicit any person or entity to terminate such
person's or entity's contractual and/or business relationship with the Company,
nor shall Executive interfere with or disrupt or attempt to interfere with or
disrupt any such relationship. None of the foregoing shall be deemed a waiver of
any and all rights and remedies the Company may have under applicable law.
3.4 Prohibition on Solicitation of Employees, Agents or Independent
Contractors After Termination. During the term of Executive's employment with
the Company and for a period of two (2) years following the termination of
Executive's employment with the Company, Executive will not solicit any of the
employees, agents, or independent contractors of the Company to leave the employ
of the Company for a competitive company or business. However, Executive may
solicit any employee, agent or independent contractor who voluntarily terminates
his or her employment with the Company after a period of 120 days have elapsed
since the termination date of such employee, agent or independent contractor.
None of the foregoing shall be deemed a waiver of any and all rights and
remedies the Company may have under applicable law.
3.5 Right to Injunctive and Equitable Relief. Executive's obligations
not to disclose or use Confidential Information and to refrain from the
solicitations described in this Article III are of a special and unique
character which gives them a peculiar value. The Company cannot be reasonably or
adequately compensated for damages in an action at law in the event Executive
breaches such obligations. Therefore, Executive expressly agrees that the
Company shall be entitled to injunctive and other equitable relief without bond
or other security in the event of such breach in addition to any other rights or
remedies which the Company may possess or be entitled to pursue. Furthermore,
the obligations of Executive and the rights and remedies of the Company under
this Article III are cumulative and in addition to, and not in lieu of, any
obligations, rights, or remedies created by applicable law relating to
misappropriation or theft of trade secrets or Confidential Information.
3.6 Survival of Obligations. Executive agrees that the terms of this
Article III shall survive the term of this
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Agreement and the termination of Executive's employment by the Company.
ARTICLE IV
TERMINATION
4.1 Definitions. For purposes of this Article IV, the following
definitions shall be applicable to the terms set forth below:
(a) Cause. "Cause" shall mean only the following: (i) the
Executive's death or Disability; (ii) the willful and continued failure by the
Executive to substantially perform his duties hereunder (other than such failure
resulting from the Executive's incapacity due to physical or mental illness)
after demand for substantial performance is delivered by the Company that
specifically identifies the manner in which the Company believes the Executive
has not substantially performed his or her duties; (iii) willful misconduct by
the Executive which is materially injurious to the Company; (iv) conviction of a
felony under the laws of the State of California; (v) habitual drunkenness by
the Executive; or (vi) a willful, material breach of this Agreement by the
Executive. For purposes of this Agreement, no act, or failure to act, on the
Executive's part shall be considered "willful" unless done, or omitted to be
done, by the Executive in bad faith and without a reasonable belief that such
action or omission by the Executive was in the best interests of the Company.
Notwithstanding anything to the contrary in the foregoing, no termination or
other action shall be considered to be for Cause under this Agreement unless (x)
the Executive first shall have received at least 30 days written notice setting
forth the reasons for the Company's intention to terminate or take other action
and shall have been provided an opportunity to appear, accompanied by counsel,
and be heard before the Board of Directors; (y) after such appearance before the
Board, the Board of Directors shall have duly adopted by a majority of the
Directors of the Company then in office, and shall have provided to the
Executive a certified resolution finding that in the good faith opinion of such
Directors the Executive was guilty of conduct constituting Cause, as set forth
above, and specifying the particulars thereof in detail; and (z) the Executive
shall have failed to cure or remedy the event constituting Cause within 30 days
after the Executive's receipt of such certified resolution from the Board of
Directors.
(b) Disability. "Disability" shall mean a physical or mental
incapacity as a result of which the Executive becomes unable to continue the
proper performance of his duties hereunder (reasonable absences because of
sickness for up to three (3) consecutive months excepted). A determination of
Disability shall be subject to the certification of a qualified medical doctor
agreed to by the Company and the Executive or, in the event of the Executive's
incapacity to designate a doctor, the Executive's legal representative. In the
absence of
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agreement between the Company and the Executive, each party shall nominate a
qualified medical doctor and the two doctors so nominated shall select a third
doctor, who shall make the determination as to Disability.
(c) Good Reason. "Good Reason" shall mean each of the following:
(i) the failure of the Company to vest the Executive, without the Executive's
consent, with the powers and authority of the Executive's office or position of
employment as contemplated herein, or any removal of the Executive from or
failure to re-elect the Executive, without the Executive's consent, to a
position of employment consistent with the position and status of Executive as
set forth herein; (ii) a reduction by the Company, without the Executive's
consent, in the Executive's annual base salary as it may exist from time to
time; (iii) a failure by the Company, without the Executive's consent, to
continue any Company Benefit Plans in which the Executive presently is entitled
to participate, as the same may be modified from time to time; (iv) a failure,
without the Executive's consent, by the Company to continue the Executive as a
participant in any Company Benefit Plans on at least the same basis as he
presently participates in such plans; (v) the requirement by the Company,
without Executive's consent, that the Executive be based anywhere other than
within 50 miles of the Executive's present office location, except for required
travel on the Company's business to an extent substantially consistent with the
Executive's present business travel obligations; (vi) a failure by the Company
to comply with any material provisions of this Agreement which has not been
cured within thirty (30) days after notice of such noncompliance has been given
by the Executive to the Company, or if such failure is not capable of being
cured in such time, a cure shall not have been diligently initiated by the
Company within such thirty-day period; or (vii) a failure by the Company to
obtain from any successor, before the succession takes place, an agreement to
assume and perform this Agreement; provided, however, that any of the foregoing
actions shall not be considered to be Good Reason if such action is undertaken
by the Company for Cause.
4.2 Termination by Company. The Executive's employment hereunder may be
terminated by the Company immediately for Cause. Subject to the other provisions
contained in this Agreement, the Company may terminate this Agreement for any
reason other than Cause upon thirty (30) days' written notice to Executive. The
effective date of termination ("Effective Date") shall be considered to be
thirty (30) days subsequent to written notice of termination; however, the
Company may elect to have Executive leave the Company immediately.
4.3 Severance Benefits Received Upon Termination.
(a) If (i) at any time the Executive's employment is terminated by
the Company for Cause, or (ii) at any time the Executive's employment is
terminated by the Executive without Good Reason, the Company shall pay the
Executive his base salary
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through the end of the month during which such termination occurs (or at the
Executive's election, the rate in effect on the first day of the month preceding
the month in which the date of termination occurs) plus credit for any accrued
vacation and the Company shall thereafter have no further obligations under this
Agreement to the Executive or his or her dependents, beneficiaries or estate;
provided, however, that the Company will continue to honor any obligations that
may have been accrued under then existing Company Benefit Plans or any other
agreements or arrangements applicable to the Executive.
(b) If (i) at any time the Executive's employment is terminated by
the Company without Cause, or (ii) at any time the Executive's employment is
terminated by the Executive for Good Reason, then the Company shall:
(1) pay to the Executive within four business days following
the date of termination his monthly base salary in effect on the date of the
termination through the end of the month during which such termination occurs,
plus payment for any vacation earned but not taken; and
(2) pay to the Executive as severance pay in a lump sum, in
cash, within seven business days following the date of termination, an amount
equal to (i) the Executive's monthly base salary in effect on the date of
termination, multiplied by (ii) thirty-five (35) months; provided, however, that
if the lump sum severance payment under this Section 4.3(b)(2), either alone or
together with other payments which the Executive has the right to receive from
the Company, would constitute a "excess parachute payment" (as defined in
Section 280G of the Internal Revenue Code of 1986, as amended (the "Code")),
such lump sum severance payment shall be reduced to the largest amount as will
result in no portion of the lump sum severance payment under this Article III
being subject to the excise tax imposed by Section 4999 of the Code. The
determination of any reduction in the lump sum severance payment under this
Section 4.3(b)(2) pursuant to the foregoing proviso shall be made by the
Company's independent auditors in good faith and such determination shall be
conclusive and binding on the Executive and the Company;
(3) pay to the Executive a sum equal to (i) one-twelfth of the
Executive's annual compensation bonus for the entirety of the year in which the
termination occurs, multiplied by (ii) the number of months or portion thereof
the Executive was employed by the Company during the year in which the
termination occurs. The Company shall make such incentive compensation bonus
payment to the Executive concurrently with its payment of bonuses to other
executives of the Company; and
(4) maintain, at the Company's expense, in full force and
effect, for the Executive's continued benefit until the earlier of (i) two years
after the date of termination or (ii) the Executive's commencement of full time
employment with
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a new employer, all life insurance, medical, health and accident, and disability
plans, programs or arrangements in which the Executive was entitled to
participate immediately prior to the date of termination, provided that the
Executive's continued participation is possible under the general terms and
provisions of such plans and programs. In the event that the Executive's
participation in any such plan or program is barred, the Company shall arrange
to provide the Executive with benefits substantially similar to those which the
Executive was entitled to receive under such plans or programs. Subsequent
health insurance benefits will be in accordance with COBRA.
4.4 No Obligation to Mitigate Damages; No Effect on Other Contractual
Rights.
(a) The Executive shall not be required to mitigate damages or the
amount of any payment provided for under this Agreement by seeking other
employment or otherwise, nor shall the amount of any payment provided for under
this Agreement be reduced by any compensation earned by the Executive as the
result of employment by another employer after the date of termination, or
otherwise (except as provided in Section 4.3(b)(3)).
(b) The provisions of this Agreement, and any payment or benefit
provided for hereunder, shall not reduce any amounts otherwise payable, or in
any way diminish the Executive's existing rights, or rights which would accrue
solely as a result of the passage of time, under any Company Benefit Plan,
employment agreement or other contract, plan or arrangement.
ARTICLE V
ASSUMPTION OF OBLIGATIONS BY SUCCESSOR TO COMPANY
5.1 Assumption of Obligations. The Company will require any successor
or assign (whether direct or indirect, by purchase, merger, consolidation or
otherwise) to all or substantially all of the business and/or assets of the
Company, by agreement in form and substance satisfactory to the Executive,
expressly, absolutely and unconditionally to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform it if no such succession or assignment had taken place. Any
failure of the Company to obtain such agreement prior to the effectiveness of
any such succession or assignment shall be a material breach of this Agreement.
As used in this Agreement, "Company" shall mean the Company as hereinbefore
defined and any successor or assign to its business and/or assets as aforesaid
which executes and delivers the agreement provided for in this Article V or
which otherwise becomes bound by all the terms and provisions of this Agreement
by operation of law. If at any time during the term of this Agreement the
Executive is employed by any corporation a majority of the voting securities of
which is then owned by the Company, "Company" as used in this Agreement shall in
addition include
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such employer. In such event, the Company agrees that it shall pay or shall
cause such employer to pay any amounts owed to the Executive pursuant to this
Agreement.
5.2 Beneficial Interests. This Agreement shall inure to the benefit of
and be enforceable by the Executive's personal and legal representatives,
executors, administrators, successors, heirs, distributees, devisees and
legatees. If the Executive should die while any amounts are still payable to him
or her hereunder, all such amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of this Agreement to the Executive's devisee,
legatee, or other designee or, if there be no such designee, to the Executive's
estate.
ARTICLE VI
GENERAL PROVISIONS
6.1 Notice. For purposes of this Agreement, notices and all other
communications provided for in the Agreement shall be in writing and shall be
deemed to have been duly given when delivered or mailed by United States
registered mail, return receipt requested, postage prepaid, as follows:
If to the Company: Procom Technology, Inc.
2181 Dupont Drive
Irvine, California 92715
Attn: Frederick Judd
If to the Executive: Mr. Nick Shahrestany
16 Vienna
Newport Beach, CA 92660
or such other address as either party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall be
effective only upon receipt.
6.2 No Waivers. No provision of this Agreement may be modified, waived
or discharged unless such waiver, modification or discharge is agreed to in
writing signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
6.4 Severability or Partial Invalidity. The invalidity or
unenforceability of any provisions of this Agreement shall not affect the
validity or enforceability of any
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other provision of this Agreement, which shall remain in full force and effect.
6.5 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original but all of which
together will constitute one and the same instrument.
6.6 Legal Fees and Expenses. Should any party institute any action or
proceeding to enforce this Agreement or any provision hereof, or for damages by
reason of any alleged breach of this Agreement or of any provision hereof, or
for a declaration of rights hereunder, the prevailing party in any such action
or proceeding shall be entitled to receive from the other party all costs and
expenses, including reasonable attorneys' fees, incurred by the prevailing party
in connection with such action or proceeding.
6.7 Entire Agreement. This Agreement constitutes the entire agreement
of the parties and supersedes all prior written or oral and all contemporaneous
oral agreements, understandings, and negotiations between the parties with
respect to the subject matter hereof. This Agreement is intended by the parties
as the final expression of their agreement with respect to such terms as are
included in this Agreement and may not be contradicted by evidence of any prior
or contemporaneous agreement. The parties further intend that this Agreement
constitutes the complete and exclusive statement of its terms and that no
extrinsic evidence may be introduced in any judicial proceeding involving this
Agreement.
6.8 Assignment. Subject to the provisions of Article V hereof, this
Agreement and the rights, duties, and obligations hereunder may not assigned or
delegated by any party without the prior written consent of the other party.
Notwithstanding the foregoing provisions of this Section 6.8, the Company may
assign or delegate its rights, duties, and obligations hereunder to any person
or entity which succeeds to all or substantially all of the business of the
Company through merger, consolidation, reorganization, or other business
combination or by acquisition of all or substantially all of the assets of the
Company; provided that such person assumes the Company's obligations under this
Agreement in accordance with Section 5.1.
6.9 Arbitration. Any controversy, dispute, claim or other matter in
question arising out of or relating to this Agreement shall be settled, at the
request of either party, by binding arbitration in accordance with the
Commercial Arbitration Rules of the American Arbitration Association ("AAA"),
and judgement upon the award rendered by the arbitrators may be entered in any
court having jurisdiction thereof, subject to the following terms, conditions
and exceptions:
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(a) Notice of the demand for arbitration shall be filed in writing
with the other party and with the AAA. There shall be a panel of three (3)
arbitrators whose selection shall be made in accordance with the procedures then
existing for the selection of such arbitrators by the AAA.
(b) Reasonable discovery shall be allowed in arbitration.
(c) The costs and fees of the arbitration shall be allocated by the
arbitrators.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
PROCOM TECHNOLOGY, INC.,
a California corporation
By: ALEX RAZMJOO
---------------------------
Its: President and Chief
Executive Officer
--------------------------
EXECUTIVE
/s/ NICK SHAHRESTANY
------------------------------
Nick Shahrestany
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EXHIBIT A
ANNUAL INCENTIVE COMPENSATION BONUS
As set forth in Section 2.1 of the Agreement, the Executive shall
receive from the Company an annual incentive compensation bonus which shall be
part of the Executive's Annual Salary. The amount of the annual incentive
compensation bonus will be determined by the Board of Directors (after
consultation with, or based upon the recommendations of, the Compensation
Committee of the Board of Directors, if any such committee exists).
The amount of the Executive's annual incentive bonus shall be based
upon attainment by the Company of mutually agreed upon financial objectives.
Accordingly, if all of the mutually agreed-upon financial objectives are
attained, the Executive will receive an annual incentive compensation bonus
equal to a percentage of the Executive's base salary during the applicable
fiscal year. Should the Company not attain all of the relevant financial
objectives, the Board of Directors shall use its discretion (after consultation
with, or based upon the recommendations of, the Compensation Committee of the
Board of Directors, if any such committee exists) in determining the amount of
the Executive's annual incentive compensation bonus. The annual incentive
compensation bonus calculation shall be made promptly after preparation of the
Company's audited financial statements are completed following each of the
Company's fiscal years. The Company agrees to use its best efforts to complete
the audit of its financial statements so as to permit payment of this annual
incentive compensation bonus within ninety (90) days of the Company's fiscal
year end.
A-1
<PAGE> 1
EXHIBIT 10.7
FORM OF REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") which
shall be effective as of October 29, 1996, is made and entered into by and among
Procom Technology, Inc., a California corporation (the "Company"), and each of
the investors/shareholders identified on the signature page hereto (each an
"Investor" and collectively the "Investors").
RECITALS
WHEREAS, the Investor are shareholders of the Company; and
WHEREAS, in order to induce the Investors to enter into
certain lock-up agreements in connection with the Company's proposed initial
public offering, the Company has agreed to provide the registration rights set
forth in this Agreement with respect to the "Registrable Securities" (as such
term is defined in Section 1);
NOW, THEREFORE, in consideration of the foregoing premises and
the mutual covenants and agreements herein contained, the parties, intending to
be legally bound, hereby agree as follows:
1. Definitions. For purposes of this Agreement:
(a) the term "Common Stock" means the Company's
authorized voting common stock and any class of securities issued in
exchange for the Common Stock or into which the Common Stock is
converted;
(b) the term "Holder" means any Investor owning of
record Registrable Securities but shall not include any assignee
thereof;
(c) the term "Registrable Securities" means: (i) the
Common Stock owned by each of the Investors as of the date hereof, and
(ii) any Common Stock of the Company issued as a dividend or other
distribution with respect to, or in exchange for or in replacement of,
such Common Stock;
(d) the term "Registration Expenses" means all
expenses incurred by the Company in complying with Sections 2 and 12
hereof, including, without limitation, all registration and filing
fees, underwriters' expense allowances (but not including
non-accountable
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or other fixed percentage allowances), printing expenses, fees and
disbursements of counsel for the Company and one counsel for the
Investors as a group, blue sky fees and expenses, and the expense of
any special audits incident to or required by any such registration
(but not including the compensation of regular employees of the Company
which shall be paid in any event by the Company);
(e) the terms "register," "registered" and
"registration" refer to a registration effected by preparing and filing
a registration statement or similar document in compliance with the
1933 Act, and the declaration or ordering of the effectiveness of such
registration statement or document by the Securities and Exchange
Commission;
(f) the term "Selling Expenses" means all
underwriting discounts and selling commissions applicable to the sale
of Registrable Securities, and all non-accountable underwriters'
expense allowances that constitute a fixed percentage of the proceeds
of the offering or of the offering price; and
(g) the number of shares of Registrable Securities
"then outstanding" shall be the number of shares of Common Stock
outstanding which are Registrable Securities.
2. Piggy-back Registration Rights. If, at any time the Company
proposes to register (including for this purpose a registration effected by the
Company for shareholders other than the Holders) any of its securities under the
1933 Act in connection with the public offering of such securities solely for
cash the Company shall, each such time, promptly give each Holder written notice
of such registration together with a list of the jurisdictions in which the
Company intends to attempt to qualify such securities under applicable state
securities laws. Upon the written request of any Holder given within 10 days
after written notice from the Company in accordance with Section 15, the Company
shall, subject to the provisions of Section 6 (in the case of an underwritten
offering), cause to be registered under the 1933 Act all of the Registrable
Securities that each such Holder has requested to be registered; provided,
however, in the event and to the extent such a Holder may freely sell his
Registrable Securities without registration under the 1933 Act without regard to
any restrictions set forth in Rule 144 under the 1933 Act and the person
acquiring the securities does not acquire "restricted Securities" within the
meaning of
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<PAGE> 3
Rule 144, the Company may elect not to register such Registrable Securities.
3. Obligations of the Company. Whenever required under this
Agreement to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Securities and Exchange
Commission ("SEC") a registration statement with respect to such
Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of
the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to one
year unless all Registrable Securities to be distributed pursuant to
such registration statement have been sold prior to the expiration of
such one-year period;
(b) Prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in
connection with such registration statement as may be necessary to
comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement;
(c) Furnish to the Holders such numbers of copies of
a prospectus, including a preliminary prospectus, in conformity with
the requirements of the 1933 Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them;
(d) Use its best efforts to register and qualify the
securities covered by such registration statement under the securities
laws of such jurisdictions as the Company believes shall be reasonably
appropriate for the distribution of the securities covered by the
registration statement and such jurisdictions as the Holders
participating in the offering shall reasonably request, provided that
the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general
consent to service of process in any such jurisdiction, and further
provided that (anything in this Agreement to the contrary
notwithstanding with respect to the bearing of expenses) if any
jurisdiction in which the securities shall be qualified shall require
that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders and
provided there is
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no exemption from such requirement by reason of the Company's
obligation to pay such expenses pursuant to the foregoing provisions of
this Section 3, such expenses shall be payable by the selling Holders
pro rata, to the extent required by such jurisdiction; and
(e) In the event of any underwritten public offering,
enter into and perform its obligations under an underwriting agreement
with terms generally satisfactory to the managing underwriter of such
offering. Each Holder participating in such underwriting shall also
enter into and perform its obligations under such an agreement.
4. Furnish Information. It shall be a condition precedent to
the obligations of the Company to take any action pursuant to this Agreement
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to effect the registration
of their Registrable Securities. In that connection, each selling Holder shall
be required to represent to the Company that all such information which is given
is both complete and accurate in all material respects.
5. Expenses of Registration. All Registration Expenses
incurred in connection with any registration, qualification or compliance
pursuant to this Agreement shall be borne by the Company except that
Registration Expenses incurred by the Company in complying a request for any
registration made under Section 12 hereof shall be borne by the Holders of the
securities so registered pro rata on the basis of the number of shares so
registered, and in all cases all Selling Expenses shall be borne by the Holders
of the securities so registered pro rata on the basis of the number of shares so
registered.
6. Underwriting Requirements. The right of any Holder to
"piggyback" in an underwritten public offering of the Company's securities
pursuant to Section 2 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company and any other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for underwriting by the Company.
Notwithstanding any other provision of Section 2 and this Section 6, if the
underwriter determines that marketing factors require a limita-
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tion of the number of shares to be underwritten the underwriter may exclude some
or all of the Registrable Securities from such registration and underwriting,
provided that the Holders are allowed to participate in the offering in the same
proportion (based on the total number of securities held by such Holders at the
time of filing of the registration statement) as any other shareholder of the
Company existing as of the date of this Agreement participating in the offering.
Any reduction in the number of Registrable Securities included in such
registration shall be borne equally by the Holders as a group pro rata based on
the number of shares held by such Holders at the time of filing of the
registration statement. If any Holder disapproves of the terms of any such
underwriting, it may elect to withdraw therefrom by written notice to the
Company and the underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from such registration.
7. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Agreement.
8. Indemnification. If any Registrable Securities are
included in a registration statement under this Agreement:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the officers, directors and
partners of each Holder, any underwriter (as defined in the 1933 Act)
for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the 1933 Act or the Securities
Exchange Act of 1934, as amended (the "1934 Act"), against any losses,
claims, damages, or liabilities (joint or several) to which they or any
of them may become subject under the 1933 Act, the 1934 Act or any
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise from or are based
upon any of the following statements, omissions or violations
(collectively a "Violation") (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading; or
(iii) any violation or alleged violation by the Company of the 1933
Act, the 1934 Act, any state
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<PAGE> 6
securities law or any rule or regulation promulgated under the 1933
Act, the 1934 Act or any state securities law, each as applicable to
the subject registration statement; and the Company will reimburse each
such Holder, officer, director or partner, underwriter or controlling
person for any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 8 shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if
such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, or
action to the extent that it arises from or is based upon a violation
which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration
statement, each person, if any, who controls the Company within the
meaning of the 1933 Act, any underwriter (within the meaning of the
1933 Act) for the Company, any person who controls such underwriter,
any other Holder selling securities in such registration statement or
any of its directors or officers or any person who controls such Holder
against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
or underwriter or other such Holder or director, officer or controlling
person may become subject, under the 1933 Act, the 1934 Act or any
other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise from or are based
upon any Violation, in each case to the extent (and only to the extent)
that such Violation occurs in reliance upon and in conformity with
written information furnished by such Holder expressly for use in
connection with such registration; and each such Holder will reimburse
any legal or other expenses reasonably incurred by the Company or any
such director, officer, controlling person, underwriter or controlling
person, other Holder, officer, director or controlling person in
connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity
agreement contained in this Section 8 shall not apply to amounts paid
in settlement
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<PAGE> 7
of any such loss, claim damage, liability or action if such settlement
is effected without the consent of the Holder which consent shall not
be unreasonably withheld; provided, that in no event shall any
indemnity under this Section 8(b) exceed the gross proceeds from the
offering received by the Holder.
(c) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for
in this Section 8 is applicable but for any reason is held to be
unavailable from the Company or any Holder, the Company and the Holders
participating in the registration shall contribute to the aggregate
losses, claims, damages and liabilities (including any investigation,
legal and other expenses incurred in connection with, and any amount
paid in settlement of, any action, suit or proceeding or any claims
asserted) to which the Company and the participating Holders may be
subject in such proportion so that the participating Holders are
responsible for that portion of the foregoing amount represented by the
ratio of the proceeds received by the participating Holders in the
offering to the total proceeds received from the offering by the
Company and all selling shareholders (other than participating Holders)
and the Company shall be responsible for the portion represented by the
ratio of proceeds received by the Company to the total proceeds
received by the Company and all selling shareholders (other than
participating Holders); provided, however, that no person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any person
who was not guilty of such fraudulent misrepresentation. For purposes
of this Section 8(c), each person, if any, who controls the Company or
any Holder within the meaning of the Securities Act, each officer of
the Company who shall have signed the registration statement and each
director of the Company shall have the same rights to contribution as
the Company.
(d) No settlement of any action in which the Holders
participating in a registration are defendants shall be effected
without the prior written consent of such Holders unless (i) the
obligations of the Company for indemnification or contribution pursuant
to this Agreement survive and are not extinguished by reason of the
settlement and remain in full force and effect under applicable federal
and state laws, rules, regulations and orders or (ii) all claims and
actions against the participating Holders and each person who controls
a participating holder within the meaning of Section 14 of the
Securities Act or Section 20 of the
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Exchange Act are extinguished by the settlement and the indemnifying
party obtains a full release of all claims and actions against the
participating Holders and each such control person, which release shall
be to the reasonable satisfaction of the participating Holders.
(e) Promptly after receipt by an indemnified party
under this Section 8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party
under this Section 8, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires,
jointly with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel selected by the indemnifying party or
parties and reasonably acceptable to the indemnified party; provided,
however, that an indemnified party shall have the right to retain its
own counsel, with the fees and expenses to be paid by the indemnifying
party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual
or potential differing interests between such indemnified party and any
other party represented by such counsel in such proceeding (and
provided further that all indemnified parties similarly situated shall
be represented jointly by a single counsel). The failure to notify an
indemnifying party within a reasonable time of the commencement of any
such action, to the extent prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 8, but the omission so to notify
the indemnifying party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 8.
(f) The obligations of the Company and the Holders
under this Section 8 shall survive through the completion of any
offering of Registrable Securities in a registration statement made
under the terms of this Agreement and otherwise.
9. Reports Under Securities Exchange Act of 1934. With a view
of making available to the Holders the benefits of Rule 144 promulgated under
the 1933 Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
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<PAGE> 9
(a) use its best efforts to make and keep public
information available, as those terms are understood and defined in
SEC Rule 144, at all times;
(b) use its best efforts to file with the SEC in a
timely manner all reports and other documents required of the Company
under the 1933 Act and the 1934 Act;
(c) furnish to any Holder so long as the Holder owns
any Registrable Securities, forthwith upon request: (i) a written
statement by the Company that it has complied with the reporting
requirements of Rule 144, the 1933 Act and the 1934 Act or that it
qualifies as a Registrant where securities may be resold pursuant to
Form S-3; (ii) a copy of the most recent annual or quarterly report of
the Company and all other reports and documents filed by the Company
with the SEC; and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC
which permits the selling of any such securities without registration;
and
(d) take such action as is necessary to enable the
Holders to use Form S-3 for the sale of their Registrable Securities.
10. Assignment of Registration Rights. The registration rights
provided for hereunder may not be assigned by operation of law or otherwise and
shall not succeed to any future owner of the Registrable Securities.
11. "Market Stand-off" Agreement. Each Holder hereby agrees
that it shall not, to the extent requested by the Company and an underwriter of
Common Stock (or other securities) of the Company, sell or otherwise transfer or
dispose of any Registrable Securities or any interest therein in a market or
other transaction during the 180-day period following the effective date of any
registration statement of the Company filed under the 1933 Act (other than a
registration form relating to: (a) a registration of a stock option, stock
purchase or compensation or incentive plan or of stock issued or issuable
pursuant to any such plan, or a dividend investment plan; (b) a registration of
securities proposed to be issued in exchange for securities or assets of or in
connection with a merger or consolidation with, another corporation; or (c) a
registration of securities proposed to be issued in exchange for other
securities of the Company).
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect
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to the Registrable Securities of each Holder (and the shares or securities of
every other person subject to the foregoing restriction) until the end of such
180-day period.
12. Form S-3 Registration. If the Company shall receive, at
any time after the first anniversary of the Company's initial public offering
and the Company is at that time eligible for use of S-3 with respect to
secondary stock sales by its shareholders, a request or requests from the
Initiating Holders that the Company effect a registration on Form S-3 (or any
similar successor form) and any related qualification or compliance with respect
to all or a part of the Registrable Securities owned by such Holder or Holders,
the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other
Holders; and
(b) as soon as practicable, effect such registration
and all such qualifications and compliance as may be so requested and
as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any other Holder or Holders joining in such
request as are specified in a written request given within 15 days
after receipt of such written notice from the Company; provided,
however, that the Company shall not be obligated to effect any such
registration, qualification or compliance pursuant to this Section 12:
(i) if the Company is not qualified as a registrant entitled to use
Form S-3 (or the applicable successor form); or (ii) if the Holders,
together with the holders of any other securities of the Company
entitled to inclusion in such registration, propose to sell Registrable
Securities and any other securities at an aggregate price to the public
of less than $2,500,000; or (iii) if the Company has, within the
12-month period preceding the date of such request, already effected
one registrations on Form S-3 (or applicable successor form) for the
Holders pursuant to this Section 12; or (iv) in any particular
jurisdiction in which the Company would be required to qualify to do
business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
Notwithstanding the foregoing, if the Company shall furnish to
a Holder or Holders requesting S-3 registration, a certificate signed by the
President of the Company stating that in the good faith judgment of the Board
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<PAGE> 11
of Directors it would be detrimental to the Company for a registration statement
to be filed in the near future, then the Company's obligation to use its best
efforts to file a registration statement shall be deferred for a period not to
exceed 180 days; provided, however, that the Company shall not obtain such a
deferral more than once in any 12-month period. Subject to the foregoing, the
Company shall file a registration statement covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Initiating Holders.
13. Remedies. Except as provided in Section 7 of this
Agreement, each Holder of Registrable Securities, in addition to being entitled
to exercise all rights granted by law, including recovery of damages, will be
entitled to specific performance of its 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 of law would be adequate.
14. Amendments and Waivers. The provisions of this Agreement,
including the provisions of this sentence, may not be amended, modified or
supplemented, and waivers or consents to departures from the provisions hereof
may not be given, unless the Company has obtained the written consent of Holders
of at least a majority of the then outstanding Registrable Securities.
Notwithstanding the foregoing, a waiver or consent to departure from the
provisions hereof with respect to a matter which relates exclusively to the
rights of Holders of Registrable Securities whose securities are being sold
pursuant to a registration statement and which does not directly or indirectly
affect the rights of other holders of Registrable Securities may be given by the
holders of a majority of the Registrable Securities being sold; provided,
however, that the provisions of this sentence may not be amended, modified or
supplemented except in accordance with the provisions of the immediately
preceding sentence.
15. Notices. All notices, demands and requests required by
this Agreement shall be in writing and shall be deemed to have been given for
all purposes (a) upon personal delivery, (b) one day after being sent, when sent
by professional overnight courier service from and to locations within the
continental United States, (c) five days after posting when sent by registered
or certified mail, or (d) on the date of transmission when sent by telegram,
telegraph, telex or telecopier, addressed to the Company or an Investor at its
address set forth on the signature pages hereof. Any party hereto may from time
to time by notice in writing
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served upon the others as provided herein, designate a different mailing address
or a different person to which such notices or demands are thereafter to be
addressed or delivered.
16. Successors and Assigns. This Agreement shall inure to the
benefit of and be binding upon the successors and assigns of the Company.
Investors may not assign their rights hereunder without the express written
consent of the Company.
17. Counterparts. This Agreement may be executed in separate
counterparts, each of which shall be deemed to be an original, and when
executed, separately or together, shall constitute a single original instrument,
effective in the same manner as if the parties hereto had executed one and the
same instrument.
18. Captions. Captions are provided herein for convenience
only and they are not to serve as a basis for interpretation or construction of
this Agreement, nor as evidence of the intention of the parties hereto.
19. Cross-References. All cross-references in this Agreement,
unless specifically directed to another agreement or document, refer to
provisions within this Agreement.
20. Governing Law. This Agreement shall be governed by and
construed in accordance with, the laws of the State of Nevada, without reference
to conflicts of laws provisions.
21. Severability. The provisions of this Agreement are
severable. The invalidity, in whole or in part, of any provision of this
Agreement shall not affect the validity or enforceability of any other of its
provisions. If one or more provisions hereof shall be declared invalid or
unenforceable, the remaining provisions shall remain in full force and effect
and shall be construed in the broadest possible manner to effectuate the
purposes hereof. The parties further agree to replace such void or unenforceable
provisions of this Agreement with valid and enforceable provisions which will
achieve, to the extent possible, the economic, business and other purposes of
the void or unenforceable provisions.
22. Entire Agreement. This Agreement is intended by the
parties hereto to be the final expression of their agreement and constitutes and
embodies the entire agreement and understanding between the parties hereto with
regard to the subject matter hereof and is a complete and exclusive statement of
the terms and conditions thereof, and shall
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<PAGE> 13
supersede any and all prior oral and written correspondence, conversations,
negotiations, agreements and understandings relating to the same subject matter.
23. Attorneys' Fees. In any action at law or in equity to
enforce any of the provisions or rights under this Agreement, the unsuccessful
party to such litigation, as determined by the court in a final judgement or
decree, shall pay the successful party all costs, expenses and reasonable
attorney's fees, as set by the court and not by a jury, incurred by the
successful party (including, without limitation, costs, expenses and fees on any
appeal).
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IN WITNESS WHEREOF, the parties hereto have executed this
Registration Rights Agreement with the intent and agreement that the same shall
be effective as of the day and year first above written.
THE COMPANY:
PROCOM TECHNOLOGY, INC.,
a California Corporation
2181 Dupont Drive
Irvine, California 92715
By:_____________________________________
THE INVESTORS:
ALEX RAZM'JOO
c/o Procom Technology, Inc.
2181 Dupont Drive
Irvine, California 92715
By:_____________________________________
FRANK ALAGHBAND
c/o Procom Technology, Inc.
2181 Dupont Drive
Irvine, California 92715
By:_____________________________________
ALEX AYDIN
c/o Procom Technology, Inc.
2181 Dupont Drive
Irvine, California 92715
By:_____________________________________
NICK SHAHRESTANY
c/o Procom Technology, Inc.
2181 Dupont Drive
Irvine, California 92715
By:_____________________________________
<PAGE> 1
EXHIBIT 10.8
[LOGO] AMERICAN INDUSTRIAL REAL ESTATE ASSOCIATION
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE-GROSS
(Do not use this form for Multi-Tenant Property)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, February 10, 1992, is made by and between 2181 Dupont Associates, a
California Limited Partnership ("LESSOR") and Procom Technology, Inc., a
California Corporation ("LESSEE"), (collectively the "PARTIES," or individually
a "PARTY").
1.2 PREMISES: That certain real property, including improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known by the street address of 2181 Dupont Drive, Irvine, located in the County
of Orange, State of California, and generally described as (describe briefly
the nature of the property) an approximately 63,000 square foot portion of an
approximately 81,000 square foot freestanding industrial facility located on
tax assessor's parcel #445-112-08 (See Exhibit A) ("PREMISES"). (See Paragraph
2 for further provisions.)
1.3 TERM: Three (3) years and one (1) months ("ORIGINAL TERM")
commencing April 1, 1992 ("COMMENCEMENT DATE") and ending April 30, 1995
("EXPIRATION DATE"). (See Paragraph 3 for further provisions.)
1.4 EARLY POSSESSION: Upon mutual execution of lease documents
("Early Possession Date"). (See Paragraphs 3.2 and 3.3 for further
provisions.)
1.5 BASE RENT: $28,000.00 per month ("BASE RENT"), payable on the
first (1st) day of each month commencing April 1, 1992 (See Paragraph 4 for
further provisions.)
[X] If this box is checked, there are provisions in this Lease for the
Base Rent to be adjusted.
1.6 BASE RENT PAID UPON EXECUTION: $28,000.00 as Base Rent for the
period April 1, 1992 - April 30, 1992.
1.7 SECURITY DEPOSIT: $28,000.00 ("SECURITY DEPOSIT"). (See
Paragraph 5 for further provisions.)
1.8 PERMITTED USE: General office, assembly, warehousing, and
distributing of computer related products. (See Paragraph 6 for further
provisions.)
1.9 INSURING PARTY: Lessor is the "INSURING PARTY." 1992 is the
"BASE PREMIUM." (See Paragraph 8 for further provisions.)
1.10 REAL ESTATE BROKERS: The following real estate brokers
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
Hensley Realty Corporation (not participating in commissions - See Section 15)
represents [X] Lessor exclusively ("LESSOR'S BROKER"); [ ] both Lessor and
Lessee, and Lee & Associates - Mr. Chris Coyte and Mr. Jim Snyder represents
[X] Lessee exclusively ("LESSEE'S BROKER"); [ ] both Lessee and Lessor.
(See Paragraph 15 for further provisions.)
1.11 GUARANTOR. The obligations of the Lessee under this Lease are
to be guaranteed by N/A ("GUARANTOR").
1.12 ADDENDA. Attached hereto is an Addendum or Addenda consisting
of Paragraphs 49 through 58 and Exhibits A all of which constitute a part of
this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all of
the terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of square footage set forth in this Lease, or
that may have been used in calculating rental, is an approximation which Lessor
and Lessee agree is reasonable and the rental based thereon is not subject to
revision whether or not the actual square footage is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean
and free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, fire sprinkler system, lighting, air conditioning, heating,
and loading doors, if any, in the Premises, other than those constructed by
Lessee, shall be in good operating condition on the Commencement Date. If a
non-compliance with said warranty exists as of the Commencement Date, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty days after
the Commencement Date, correction of that non-compliance shall be the
obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants to Lessee that the improvements on the Premises comply with all
applicable covenants or restrictions of record and applicable building codes,
regulations and ordinances in effect on the Commencement Date. Said warranty
does not apply to the use to which Lessee will put the Premises or to any
Alterations or Utility Installations (as defined in Paragraph 7.3 (a)) made or
to be made by Lessee. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided in this Lease, promptly after receipt of
written notice from Lessee setting forth with specificity the nature and extent
of such non-compliance, rectify the same at Lessor's expense. It Lessee does
not give Lessor written notice of a non-compliance with this warranty within
six (6) months following the Commencement Date, correction of that
non-compliance shall be the obligation of Lessee at Lessee's sole cost and
expense.
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that
it has been advised by the Brokers to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and fire
sprinkler systems, security, environmental aspects, compliance with Applicable
Law, as defined in Paragraph 6.3) and the present and future suitability of the
Premises for Lessee's intended use , (b) that Lessee has made such
investigation as it deems necessary with reference to such matters and assumes
all responsibility therefor as the same relate to Lessee's occupancy of the
Premises and/or the term of this Lease, and (c) that neither Lessor, nor any of
Lessor's agents, has made any oral or written representations or warranties
with respect to the said matters other than as set forth in this Lease.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original
Term of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent shall
be abated for the period of such early possession. All other terms of this
Lease, however, (including but not limited to the obligations to pay Real
Property Taxes and insurance premiums and to maintain the Premises) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
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3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee as agreed herein by the Early Possession
Date, if one is specified in Paragraph 1.4, or, if no Early Possession Date is
specified, by the Commencement Date, Lessor shall not be subject to any
liability therefor, nor shall such failure affect the validity of this Lease,
or the obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated to
pay rent or perform any other obligation of Lessee under the terms of this
Lease until Lessor delivers possession of the Premises to Lessee. If
possession of the Premises is not delivered to Lessee within sixty (60) days
after the Commencement Date, Lessee may, at its option, by notice in writing to
Lessor within ten (10) days thereafter, cancel this Lease, in which event the
Parties shall be discharged from all obligations hereunder; provided, however,
that if such written notice by Lessee is not received by Lessor within said ten
(10) day period, Lessee's right to cancel this Lease shall terminate and be of
no further force or effect. Except as may be otherwise provided, and
regardless of when the term actually commences, if possession is not tendered
to Lessee when required by this Lease and Lessee does not terminate this Lease,
as aforesaid, the period free of the obligation to pay Base Rent, it any, that
Lessee would otherwise have enjoyed shall run from the date of delivery of
possession and continue for a period equal to what Lessee would otherwise have
enjoyed under the terms hereof, but minus any days of delay caused by the acts,
changes or omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall cause payment of Base Rent and other
rent or charges, as the same may be adjusted from time to time, to be received
by Lessor in lawful money of the United States, without offset or deduction, on
or before the day on which it is due under the terms of this Lease. Base Rent
and all other rent and charges for any period during the term hereof which is
for less than one (1) full calendar month shall be prorated based upon the
actual number of days of the calendar month involved, Payment of Base Rent and
other charges shall be made to Lessor at its address stated herein or to such
other persons or at such other addresses as Lessor may from time to time
designate in writing to Lessee.
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit set forth in Paragraph 1.7 as security for Lessee's
faithful performance of Lessee's obligations under this Lease. If Lessee tails
to pay Base Rent or other rent or charges due hereunder, or otherwise Defaults
under this Lease (as defined in Paragraph 13.1), Lessor may use, apply or
retain all or any portion of said Security Deposit for the payment of any
amount due Lessor or to reimburse or compensate Lessor for any liability, cost,
expense, loss or damage (including attorneys' fees) which Lessor may suffer or
incur by reason thereof. If Lessor uses or applies all or any portion of said
Security Deposit. Lessee shall within ten (10) days after written request
therefor deposit moneys with Lessor sufficient to restore said Security Deposit
to the full amount required by this Lease. Any time the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from Lessor,
deposit additional moneys with Lessor sufficient to maintain the same ratio
between the Security Deposit and the Base Rent as those amounts are specified
in the Basic Provisions. Lessor shall not be required to keep all or any part
of the Security Deposit separate from its general accounts. Lessor shall, at
the expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the Security
Deposit not used or applied by Lessor. Unless otherwise expressly agreed in
writing by Lessor, no part of the Security Deposit shall be considered to be
field in trust, to bear interest or other increment for its use, or to be
prepayment for any moneys to be paid by Lessee under this Lease.
6. USE.
6.1 USE. Lessee shall use and occupy the Premises only for the
purposes set forth in Paragraph 1.8, or any other use which is comparable
thereto, and for no other purpose. Lessee shall not use or permit the use of
the Premises in a manner that creates waste or a nuisance, or that disturbs
owners and/or occupants of, or causes damage to, neighboring premises or
properties.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance, chemical,
material or waste whose presence, nature, quantity and/or intensity of
existence, use, manufacture, disposal, transportation, spill, release or
effect, either by itself or in combination with other materials expected to be
on the Premises, is either: (i) potentially injurious to the public health,
safety or welfare, the environment or the Premises, (ii) regulated or monitored
by any governmental authority, or (iii) a basis for liability of Lessor to any
governmental agency or third party under any applicable statute or common law
theory. Hazardous Substance shall include, but not be limited to,
hydrocarbons, petroleum, gasoline, crude oil or any products, by-products or
fractions thereof. Lessee shall not engage in any activity in, on or about the
Premises which constitutes a Reportable Use (as hereinafter defined) of
Hazardous Substances without the express prior written consent of Lessor and
compliance in a timely manner (at Lessee's sole cost and expense) with all
Applicable Law (as defined in Paragraph 6.3). "REPORTABLE USE" shall mean (i)
the installation or use of any above or below ground storage tank, (ii) the
generation, possession, storage, use, transportation, or disposal of a
Hazardous Substance that requires a permit from, or with respect to which a
report, notice, registration or business plan is required to be filed with, any
governmental authority. Reportable Use shall also include Lessee's being
responsible for the presence in, on or about the Premises of a Hazardous
Substance with respect to which any Applicable Law requires that a notice be
given to persons entering or occupying the Premises or neighboring properties.
Notwithstanding the foregoing, Lessee may, without Lessor's prior consent, but
in compliance with all Applicable Law, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of Lessee's
business permitted on the Premises, so long as such use is not a Reportable Use
and does not expose the Premises or neighboring properties to any meaningful
risk of contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its
consent to the use or presence of any Hazardous Substance, activity or storage
tank by Lessee upon Lessee's giving Lessor such additional assurances as
Lessor, in its reasonable discretion, deems necessary to protect itself, the
public, the Premises and the environment against damage, contamination or
injury and/or liability therefrom or therefor, including, but not limited to,
the installation (and removal on or before Lease expiration or earlier
termination) of reasonably necessary protective modifications to the Premises
(such as concrete encasements) and/or the deposit of an additional Security
Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has
reasonable cause to believe, that a Hazardous Substance, or a condition
involving or resulting from same, has come to be located in, on, under or about
the Premises, other than as previously consented to by Lessor, Lessee shall
immediately give written notice of such fact to Lessor. Lessee shall also
immediately give Lessor a copy of any statement, report, notice, registration,
application, permit, business plan, license, claim, action or proceeding given
to, or received from, any governmental authority or private party, or persons
entering or occupying the Premises, concerning the presence, spill, release,
discharge of, or exposure to, any Hazardous Substance or contamination in, on,
or about the Premises, including but not limited to all such documents as may
be involved in any Reportable Uses involving the Premises.
(c) INDEMNIFICATION. Lessee shall indemnify, protect,
defend and hold Lessor, its agents, employees, lenders and ground lessor, if
any, and the Premises, harmless from and against any and all loss of rents
and/or damages, liabilities, judgments, costs, claims, liens, expenses,
penalties, permits and attorney's and consultant's fees arising out of or
involving any Hazardous Substance or storage tank brought onto the Premises by
or for Lessee or under Lessee's control. Lessee's obligations under this
Paragraph 6 shall include, but not be limited to, the effects of any
contamination or injury to person, property or the environment created or
suffered by Lessee, and the cost of investigation (including consultant's and
attorney's fees and testing), removal, remediation, restoration and/or
abatement thereof, or of any contamination therein involved, and shall survive
the expiration or earlier termination of this Lease. No termination,
cancellation or release agreement entered into by Lessor and Lessee shall
release Lessee from its obligations under this Lease with respect to Hazardous
Substances or storage tanks, unless specifically so agreed by Lessor in writing
at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH LAW. Except as otherwise provided in
this Lease, Lessee, shall, at Lessee's sole cost and expense, fully, diligently
and in a timely manner, comply with all "APPLICABLE LAW," which term is used in
this Lease to include all laws, rules, regulations, ordinances, directives,
covenants, easements and restrictions of record, permits, the requirements of
any applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to (i)
industrial hygiene, (ii) environmental conditions on, in, under or about the
Premises, including soil and groundwater conditions, and (iii) the use,
generation, manufacture, production, installation, maintenance, removal,
transportation, storage, spill or release of any Hazardous Substance or storage
tank), now in effect or which may hereafter come into effect, and whether or
not reflecting a change in policy from any previously existing policy. Lessee
shall, within five (5) days after receipt of Lessor's written request, provide
Lessor with copies of all documents and information, including, but not limited
to, permits, registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Law specified by Lessor, and
shall immediately upon receipt, notify Lessor in writing (with copies of any
documents involved) of any threatened or actual claim, notice, citation,
warning, complaint or report pertaining to or involving failure by Lessee or
the Premises to comply with any Applicable Law.
6.4 INSPECTION; COMPLIANCE. Lessor and Lessor's Lender(s) (as
defined in Paragraph 8.3(a)) shall have the right to enter the Premises at any
time, in the case of an emergency, and otherwise at reasonable times, for the
purpose of inspecting the condition of the Premises and for verifying
compliance by Lessee with this Lease and all Applicable Laws (as defined in
Paragraph 6.3), and to employ experts and/or consultants in connection
therewith and/or to advise Lessor with respect to Lessee's activities,
including but not limited to the installation, operation, use, monitoring,
maintenance, or removal of any Hazardous Substance or storage tank on or from
the Premises. The costs and expenses of any such inspections shall be paid by
the party requesting same, unless a Default or Breach of this Lease, violation
of Applicable Law, or a contamination, caused or materially contributed to by
Lessee is found to exist or be imminent, or unless the inspection is requested
or ordered by a governmental authority as the result of any such existing or
imminent violation or contamination. In any such case, Lessee shall upon
request reimburse Lessor or Lessor's Lender, as the case may be, for the costs
and expenses of such inspections.
7. MAINTENANCE; REPAIRS; UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Lessor's
warranty as to condition), 2.3 (Lessor's warranty as to compliance with
covenants, etc), 7.2 (Lessor's obligations to repair), 9 (damage and
destruction), and 14 (condemnation), Lessee shall, at Lessee's sole cost and
expense and at all times, keep the Premises and every part thereof in good
order, condition and repair, (whether or not such portion of the Premises
requiring repair, or the means of repairing the same, are reasonably or readily
accessible to Lessee, and whether or not the need for such repairs occurs as
a result of Lessee's use,
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any prior use, the elements or the age of such portion of the Premises),
including, without limiting the generality of the foregoing, all equipment or
facilities serving the Premises, such as plumbing, heating, air conditioning,
ventilating, electrical, lighting facilities, boilers, fired or unfired
pressure vessels, fire sprinkler and/or standpipe and hose or other automatic
fire extinguishing system, including fire alarm and/or smoke detection systems
and equipment, fire hydrants, fixtures, walls (interior and exterior),
ceilings, floors, windows, doors, plate glass, skylights, landscaping,
driveways, parking lots, fences, retaining walls, signs, sidewalks and parkways
located in, on, about, or adjacent to the Premises, but excluding foundations,
the exterior roof and the structural aspects of the Premises. Lessee shall not
cause or permit any Hazardous Substance to be spilled or released in, on, under
or about the Premises (including through the plumbing or sanitary sewer system)
and shall promptly, at Lessee's expense, take all investigatory and/or remedial
action reasonably recommended, whether or not formally ordered or required, for
the cleanup of any contamination of, and for the maintenance, security and/or
monitoring of, the Premises, the elements surrounding same, or neighboring
properties, that was caused or materially contributed to by Lessee, or
pertaining to or involving any Hazardous Substance and/or storage tank brought
onto the Premises by or for Lessee or under its control. Lessee, in keeping
the Premises in good order, condition and repair, shall exercise and perform
good maintenance practices. Lessee's obligations shall include restorations,
replacements or renewals when necessary to keep the Premises and all
improvements thereon or a part thereof in good order, condition and state of
repair.
(b) Lessee shall, at Lessee's sole cost and expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in, the
inspection, maintenance and service of the following equipment and improvements,
if any, located on the Premises: (i) heating, air conditioning and ventilation
equipment, (ii) boiler, fired or unfired pressure vessels, (iii) fire sprinkler
and/or standpipe and hose or other automatic fire extinguishing systems,
including fire alarm and/or smoke detection, (See Section 57) (v) roof covering
and drain maintenance and (vi) asphalt and parking lot maintenance.
7.2 LESSOR'S OBLIGATIONS. Upon receipt of written notice of the
need for such repairs and subject to Paragraph 13.5, Lessor shall, at Lessor's
expense keep the foundations, exterior roof heating, ventilating and air
conditioning equipment and systems and structural aspects of the Premises in
good order, condition and repair including repair of roof leaks. Lessor shall
not, however, be obligated to paint the exterior surface of the exterior walls
or to maintain the windows, doors or plate glass or the interior surface of
exterior walls. Lessor shall not, in any event, have any obligation to make any
repairs until Lessor receives written notice of the need for such repairs. It
is the intention of the Parties that the terms of this Lease govern the
respective obligations of the Parties as to maintenance and repair of the
Premises. Lessee and Lessor expressly waive the benefit of any statute now or
hereafter in effect to the extent it is inconsistent with the terms of this
Lease with respect to, or which affords Lessee the right to make repairs at the
expense of Lessor or to terminate this Lease by reason of, any needed repairs.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all carpeting, window
coverings, air lines, power panels, electrical distribution, security, fire
protection systems, communication systems, lighting fixtures, heating,
ventilating, and air conditioning equipment, plumbing, and fencing in, on or
about the Premises. The term "TRADE FIXTURES" shall mean Lessee's machinery and
equipment that can be removed without doing material damage to the Premises.
The term "ALTERATIONS" shall mean any modification of the improvements on the
Premises from that which are provided by Lessor under the terms of this Lease,
other than Utility Installations or Trade Fixtures, whether by addition or
deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY INSTALLATIONS" are defined
as Alterations and/or Utility Installations made by Lessee that are not yet
owned by Lessor as defined in Paragraph 7.4(a). Lessee shall not make any
Alterations or Utility Installations in, on, under or about the Premises without
Lessor's prior written consent. Lessee may, however, make non-structural
Alterations and/or Utility Installations to the interior of the Premises
(excluding the roof), as long as they are not visible from the outside, do not
involve puncturing, relocating or removing the roof or any existing walls, and
cumulative cost thereof during the term of this Lease as extended does not
exceed $50,000.00.
(b) CONSENT. Any Alterations or Utility Installations
that Lessee shall desire to make and which require the consent of the Lessor
shall be presented to Lessor in written form with proposed detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon: (i) Lessee's
acquiring all applicable permits required by governmental authorities, (ii) the
furnishing of copies of such permits together with a copy of the plans and
specifications for the Alteration or Utility Installation to Lessor prior to
commencement of the work thereon, and (iii) the compliance by Lessee with all
conditions of said permits in a prompt and expeditious manner. Any Alterations
or Utility Installations by Lessee during the term of this Lease shall be done
in a good and workmanlike manner, with good and sufficient materials, and in
compliance with all Applicable Law. Lessee shall promptly upon completion
thereof furnish Lessor with as-built plans and specifications therefor. Lessor
may (but without obligation to do so) condition its consent to any requested
Alteration or Utility Installation that costs $10,000 or more upon Lessee's
providing Lessor with a lien and completion bond in an amount equal to one and
one-half times the estimated cost of such Alteration or Utility Installation
and/or upon Lessee's posting an additional Security Deposit with Lessor under
Paragraph 36 hereof.
(c) INDEMNIFICATION. Lessee shall pay, when due, all
claims for labor or materials furnished or alleged to have been furnished to or
for Lessee at or for use on the Premises, which claims are or may be secured by
any mechanics' or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice prior to
the commencement of any work in, on or about the Premises, and Lessor shall
have the right to post notices of non-responsibility in or on the Premises as
provided by law. If Lessee shall, in good faith, contest the validity of any
such lien, claim or demand, then Lessee shall, at its sole expense defend and
protect itself, Lessor and the Premises against the same and shall pay and
satisfy any such adverse judgment that may be rendered thereon before the
enforcement thereof against the Lessor or the Premises. If Lessor shall
require, Lessee shall furnish to Lessor a surety bond satisfactory to Lessor in
an amount equal to one and one-half times the amount of such contested lien
claim or demand, indemnifying Lessor against liability for the same, as
required by law for the holding of the Premises free from the effect of such
lien or claim. In addition, Lessor may require Lessee to pay Lessor's
attorney's fees and costs in participating in such action if Lessor shall
decide it is to its best interest to do so.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(c) SURRENDER/RESTORATION. Lessee shall surrender the
Premises by the end of the last day of the Lease term or any earlier
termination date, with all of the improvements, parts and surfaces thereof
clean and free of debris and in good operating order, condition and state of
repair, ordinary wear and tear excepted. "ORDINARY WEAR AND TEAR" shall not
include any damage or deterioration that would have been prevented by good
maintenance practice or by Lessee performing all of its obligations under this
Lease. Except as otherwise agreed or specified in writing by Lessor, the
Premises, as surrendered, shall include the Utility Installations. The
obligation of Lessee shall include the repair of any damage occasioned by the
installation, maintenance or removal of Lessee's Trade Fixtures, furnishings,
equipment, and Alterations and/or Utility Installations, as well as the removal
of any storage tank installed by or for Lessee, and the removal, replacement,
or remediation of any soil, material or ground water contaminated by Lessee,
all as may then be required by Applicable Law and/or good practice. Lessee's
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee subject to its obligation to repair and restore the Premises per this
Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
(a) Lessee shall pay to Lessor any insurance cost
increase ("INSURANCE COST INCREASE") occurring during the term of this Lease.
"INSURANCE COST INCREASE" is defined as any increase in the actual cost of the
insurance required under Paragraphs 8.2(b), 8.3(a) and 8.3(b). ("REQUIRED
INSURANCE"), over and above the Base Premium, as hereinafter defined,
calculated on an annual basis. "INSURANCE COST INCREASE" shall include, but
not be limited to, increases resulting from the nature of Lessee's occupancy,
any act or omission of Lessee, requirements of the holder of a mortgage or deed
of trust covering the Premises, increased valuation of the Premises, and/or a
premium rate increase. If the parties insert a dollar amount in Paragraph 1.9,
such amount shall be considered the "BASE PREMIUM." In lieu thereof, if the
Premises have been previously occupied, the "BASE PREMIUM" shall be the annual
premium applicable to the most recent occupancy. If the Premises have never
been occupied, the "BASE PREMIUM" shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term, assuming the most nominal use possible of the Premises. In no event,
however, shall Lessee be responsible for any portion of the premium cost
attributable to liability insurance coverage in excess of $1,000,000 procured
under Paragraph 8.2(b) (Liability Insurance Carried By Lessor).
(b) Lessee shall pay any such Insurance Cost Increase to
Lessor within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the Insurance
policies maintained hereunder cover other property besides the Premises.
Lessor shall also deliver to Lessee a statement of the amount of such Insurance
Cost Increase attributable only to the Premises showing in reasonable detail
the manner in which such amount was computed. Premiums for policy periods
commencing prior to, or extending beyond, the term of this Lease shall be
prorated to coincide with the corresponding Commencement or Expiration of the
Lease term.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in
force during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee and Lessor (as an additional insured) against
claims for bodily injury, personal injury and property damage based upon,
involving or arising out of the ownership, use, occupancy or maintenance of the
Premises and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$1,000,000 per occurrence with an "Additional Insured-Managers or Lessors of
Premises" Endorsement and contain the "Amendment of the Pollution Exclusion"
for damage caused by heat, smoke or fumes from a hostile fire. The policy
shall not contain any intra-insured exclusions as between insured persons or
organizations, but shall include coverage for liability assumed under this
Lease as an "insured contract" for the performance of Lessee's indemnity
obligations under this Lease. The limits of said insurance required by this
Lease or
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as carried by Lessee shall not, however, limit the liability of Lessee nor
relieve Lessee of any obligation hereunder. All insurance to be carried by
Lessee shall be primary to and not contributory with any similar insurance
carried by Lessor, whose insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. In the event Lessor is the
Insuring Party, Lessor shall also maintain liability insurance described in
Paragraph 8.2(a), above, in addition to, and not in lieu of, the insurance
required to be maintained by Lessee. Lessee shall not be named as an
additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall
obtain and keep in force during the term of this Lease a policy or policies in
the name of Lessor, with loss payable to Lessor and to the holders of any
mortgages, deeds of trust or ground leases on the Premises ("LENDER(S)"),
insuring loss or damage to the Premises. The amount of such insurance shall be
equal to the full replacement cost of the Premises, as the same shall exist from
time to time, or the amount required by Lenders, but in no event more than the
commercially reasonable and available insurable value thereof if, by reason of
the unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Lessee Owned Alterations and Utility
Installations shall be insured by Lessee under Paragraph 8.4. If the coverage is
available and commercially appropriate, such policy or policies shall insure
against all risks of direct physical loss or damage, including coverage for any
additional costs resulting from debris removal and reasonable amounts of
coverage for the enforcement of any ordinance or law regulating the
reconstruction or replacement of any undamaged sections of the Premises required
to be demolished or removed by reason of the enforcement of any building,
zoning, safety or land use laws as the result of a covered cause of loss, but
not including plate glass insurance. Said policy or policies shall also contain
an agreed valuation provision in lieu of any coinsurance clause, waiver of
subrogation, and inflation guard protection causing an increase in the annual
property insurance coverage amount by a factor of not less than the adjusted
U.S. Department of Labor Consumer Price Index for All Urban Consumers for the
city nearest to where the Premises are located.
(b) RENTAL VALUE. Lessor shall, in addition, obtain and
keep in force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and Lender(s), insuring the loss of the
full rental and other charges payable by Lessee to Lessor under this Lease for
one (1) year (including all real estate taxes, insurance costs, and any
scheduled rental increases). Said insurance shall provide that in the event
the Lease is terminated by reason of an insured loss, the period of indemnity
for such coverage shall be extended beyond the date of the completion of
repairs or replacement of the Premises, to provide for one full year's loss of
rental revenues from the date of any such loss. Said insurance shall contain
an agreed valuation provision in lieu of any coinsurance clause, and the amount
of coverage shall be adjusted annually to reflect the projected rental income,
property taxes, insurance premium costs and other expenses, if any, otherwise
payable by Lessee, for the next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a
larger building, or if the Premises are part of a group of buildings owned by
Lessor which are adjacent to the Premises, the Lessee shall pay for any
increase in the premiums for the property insurance of such building or
buildings if said increase is caused by Lessee's acts, omissions, use or
occupancy of the Premises.
(d) TENANT'S IMPROVEMENTS. Since Lessor is the Insuring
Party, the Lessor shall not be required to insure Lessee Owned Alterations and
Utility Installations unless the item in question has become the property of
Lessor under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain insurance
coverage on all of Lessee's personal property, Lessee Owned Alterations and
Utility Installations in, on, or about the Premises similar in coverage to that
carried by the Insuring Party under Paragraph 8.3. Such insurance shall be full
replacement cost coverage with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property or the restoration of Lessee Owned
Alterations and Utility Installations. Lessee shall be the Insuring Party with
respect to the insurance required by this Paragraph 8.4 and shall provide
Lessor with written evidence that such insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the Premises
are located, and maintaining during the policy term a "General Policyholders
Rating" of at least B+, V, or such other rating as may be required by a Lender
having a lien on the Premises, as set forth in the most current issue of
"Best's Insurance Guide" Lessee shall not do or permit to be done anything
which shall invalidate the insurance policies referred to in this Paragraph 8.
Lessee shall cause to be delivered to Lessor certified copies of, or
certificates evidencing the existence and amounts of, the insurance, and with
the additional insureds, required under Paragraphs 8.2(a) and 8.4. No such
policy shall be cancellable or subject to modification except after thirty (30)
days prior written notice to Lessor. Lessee shall at least thirty (30) days
prior to the expiration of such policies, furnish Lessor with evidence of
renewals or "insurance binders" evidencing renewal thereof, or Lessor may order
such insurance and charge the cost thereof to Lessee, which amount shall be
payable by Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor ("WAIVING PARTY") each hereby release and relieve
the other, and waive their entire right to recover damages (whether in contract
or in tort) against the other, for loss of or damage to the Waiving Party's
property arising out of or incident to the perils required to be insured
against under Paragraph 8. The effect of such releases and waivers of the right
to recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto.
8.7 INDEMNITY. Except for Lessor's negligence and/or breach of
this Lease's express warranties, Lessee shall indemnify, protect, defend and
hold harmless the Premises, Lessor and its agents, Lessor's master or ground
lessor, partners and Lenders, from and against any and all claims, loss of rents
and/or damages, costs, liens, judgments, penalties, permits, attorney's and
consultant's fees, expenses and/or liabilities arising out of, involving, or in
dealing with, the occupancy of the Premises by Lessee, the conduct of Lessee's
business, any act, omission or neglect of Lessee, its agents, contractors,
employees or invitees, and out of any Default or Breach by Lessee in the
performance in a timely manner of any obligation on Lessee's part to be
performed under this Lease. The foregoing shall include, but not be limited to,
the defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment, and whether well founded or not. In case
any action or proceeding be brought against Lessor by reason of any of the
foregoing matters, Lessee upon notice from Lessor shall defend the same at
Lessee's expense by counsel reasonably satisfactory to Lessor and Lessor shall
cooperate with Lessee in such defense. Lessor need not have first paid any such
claim in order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be
liable for injury or damage to the person or goods, wares, merchandise or other
property of Lessee, Lessee's employees, contractors, invitees, customers, or
any other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or from
the breakage, leakage, obstruction or other defects of pipes, fire sprinklers,
wires, appliances, plumbing, air conditioning or lighting fixtures, or from any
other cause, whether the said injury or damage results from conditions arising
upon the Premises or upon other portions of the building of which the Premises
are a part, or from other sources or places, and regardless of whether the
cause of such damage or injury or the means of repairing the same is accessible
or not. Lessor shall not be liable for any damages arising from any act or
neglect of any other tenant of Lessor.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or
destruction to the improvements on the Premises, other than Lessee Owned
Alterations and Utility Installations, the repair cost of which damage or
destruction is less than 50% of the then Replacement Cost of the Premises
immediately prior to such damage or destruction, excluding from such
calculation the value of the land and Lessee Owned Alterations and Utility
Installations.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee Owned Alterations and Utility
Installations the repair cost of which damage or destruction is 50% or more of
the then Replacement Cost of the Premises immediately prior to such damage or
destruction, excluding from such calculation the value of the land and Lessee
Owned Alterations and Utility Installations.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on the Premises, other than Lessee Owned Alterations and Utility
Installations, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a), irrespective of any deductible amounts
or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or
rebuild the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building codes,
ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the
occurrence or discovery of a condition involving the presence of, or a
contamination by, a Hazardous Substance as defined in Paragraph 6.2(a), in, on,
or under the Premises.
9.2 PARTIAL DAMAGE-INSURED LOSS. If a Premises Partial Damage
that is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect. Notwithstanding the foregoing, if the
required insurance was not in force or the insurance proceeds are not
sufficient to effect such repair, the Insuring Party shall promptly contribute
the shortage in proceeds as and when required to complete said repairs. In the
event, however, the shortage in proceeds was due to the fact that, by reason of
the unique nature of the improvements, full replacement cost insurance coverage
was not commercially reasonable and available, Lessor shall have no obligation
to pay for the shortage in insurance proceeds or to fully restore the unique
aspects of the Premises unless Lessee provides Lessor with the funds to cover
same, or adequate assurance thereof, within ten (10) days following receipt of
written notice of such shortage and request therefor. If Lessor receives said
funds or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possible and this Lease shall remain in full force and effect. If Lessor does
not receive such funds or assurance within said period, Lessor may nevertheless
elect by written notice to Lessee within ten (10) days thereafter to make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect, If in such case Lessor does not so elect, then this Lease shall
terminate sixty (60) days following the occurrence of the damage or
destruction. Unless otherwise agreed, Lessee shall in no event have any right
to reimbursement from Lessor for any funds contributed by Lessee to repair any
such damage or destruction. Premises Partial Damage due to flood or earthquake
shall be subject to Paragraph 9.3 rattler than Paragraph 9.2, notwithstanding
that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.
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9.3 PARTIAL DAMAGE-UNINSURED LOSS. If a Premises Partial Damage
that is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which event Lessee shall make the repairs at Lessee's expense and
this Lease shall continue in full force and effect, but subject to Lessor's
rights under Paragraph 13), Lessor may at Lessor's option, either: (i) repair
such damage as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such damage of Lessor's desire to terminate this Lease as of the
date sixty (60) days following the giving of such notice. In the event Lessor
elects to give such notice of Lessor's intention to terminate this Lease,
Lessee shall have the right within ten (10) days after the receipt of such
notice to give written notice to Lessor of Lessee's commitment to pay for the
repair of such damage totally at Lessee's expense and without reimbursement
from Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following Lessee's said
commitment. In such event this Lease shall continue in full force and effect,
and Lessor shall proceed to make such repairs as soon as reasonably possible
and the required funds are available. It Lessee does not give such notice and
provide the funds or assurance thereof within the times specified above, this
Lease shall terminate as of the date specified in Lessor's notice of
termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision
hereof, if a Premises Total Destruction occurs (including any destruction
required by any authorized public authority), this Lease shall terminate sixty
(60) days following the date of such Premises Total Destruction, whether or not
the damage or destruction is an Insured Loss or was caused by a negligent or
willful act of Lessee. In the event, however, that the damage or destruction
was caused by Lessee, Lessor shall have the right to recover Lessor's damages
from Lessee except as released and waived in Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six
(6) months of the term of this Lease there is damage for which the cost to
repair exceeds one (1) month's Base Rent, whether or not an Insured Loss,
Lessor may, at Lessor's option, terminate this Lease effective sixty (60) days
following the date of occurrence of such damage by giving written notice to
Lessee of Lessor's election to do so within thirty (30) days after the date of
occurrence of such damage. Provided, however, if Lessee at that time has an
exercisable option to extend this Lease or to purchase the Premises, then
Lessee may preserve this Lease by, within twenty (20) days following the
occurrence of the damage, or before the expiration of the time provided in such
option for its exercise, whichever is earlier ("EXERCISE PERIOD"), (i)
exercising such option and (ii) providing Lessor with any shortage in insurance
proceeds (or adequate assurance thereof) needed to make the repairs. If Lessee
duly exercises such option during said Exercise Period and provides Lessor with
funds (or adequate assurance thereof) to cover any shortage in insurance
proceeds, Lessor shall, at Lessor's expense repair such damage as soon as
reasonably possible and this Lease shall continue in full force and effect. If
Lessee fails to exercise such option and provide such funds or assurance during
said Exercise Period, then Lessor may at Lessor's option terminate this Lease
as of the expiration of said sixty (60) day period following the occurrence of
such damage by giving written notice to Lessee of Lessor's election to do so
within ten (10) days after the expiration of the Exercise Period,
notwithstanding any term or provision in the grant of option to the contrary.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of damage described in Paragraph 9.2
(Partial Damage-Insured), whether or not Lessor or Lessee repairs or restores
the Premises, the Base Rent, Real Property Taxes, insurance premiums, and other
charges, if any, payable by Lessee hereunder for the period during which such
damage, its repair or the restoration continues (not to exceed the period for
which rental value insurance is required under Paragraph 8.3(b)), shall be
abated in proportion to the degree to which Lessee's use of the Premises is
impaired. Except for abatement of Base Rent, Real Property Taxes, insurance
premiums, and other charges, if any, as aforesaid, all other obligations of
Lessee hereunder shall be performed by Lessee, and Lessee shall have no claim
against Lessor for any damage suffered by reason of any such repair or
restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence, in a
substantial and meaningful way, the repair or restoration of the Premises
within ninety (90) days after such obligation shall accrue, Lessee may, at any
time prior to the commencement of such repair or restoration, give written
notice to Lessor and to any Lenders of which Lessee has actual notice of
Lessee's election to terminate this Lease on a date not less than sixty (60)
days following the giving of such notice. If Lessee gives such notice to
Lessor and such Lenders and such repair or restoration is not commenced within
thirty (30) days after receipt of such notice, this Lease shall terminate as of
the date specified in said notice. If Lessor or a Lender commences the repair
or restoration of the Premises within thirty (30) days after receipt of such
notice, this Lease shall continue in full force and effect. "COMMENCE" as used
in this Paragraph shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which case
Lessee shall make the investigation and remediation thereof required by
Applicable Law and this Lease shall continue in full force and effect, but
subject to Lessor's rights under Paragraph 13), Lessor may at Lessor's option
either (i) investigate and remediate such Hazardous Substance Condition, if
required, as soon as reasonably possible at Lessor's expense, in which event
this Lease shall continue in full force and effect, or (ii) if the estimated
cost to investigate and remediate such condition exceeds twelve (12) times the
then monthly Base Rent or $100,000, whichever is greater, give written notice
to Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the giving of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten (10)
days after the receipt of such notice to give written notice to Lessor of
Lessee's commitment to pay for the investigation and remediation of such
Hazardous Substance Condition totally at Lessee's expense and without
reimbursement from Lessor except to the extent of an amount equal to twelve
(12) times the then monthly Base Rent or $100,000, whichever is greater.
Lessee shall provide Lessor with the funds required of Lessee or satisfactory
assurance thereof within thirty (30) days following Lessee's said commitment.
In such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as reasonably
possible and the required funds are available. If Lessee does not give such
notice and provide the required funds or assurance thereof within the times
specified above, this Lease shall terminate as of the date specified in
Lessor's notice of termination. If a Hazardous Substance Condition occurs for
which Lessee is not legally responsible, there shall be abatement of Lessee's
obligations under this Lease to the same extent as provided in Paragraph 9.6(a)
for a period of not to exceed twelve months.
9.8 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, an equitable adjustment shall be made concerning
advance Base Rent and any other advance payments made by Lessee to Lessor.
Lessor shall, in addition, return to Lessee so much of Lessee's Security
Deposit as has not been, or is not then required to be, used by Lessor under
the terms of this Lease.
9.9 WAIVE STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises with respect to the termination of this Lease and hereby waive the
provisions of any present or future statute to the extent inconsistent
herewith.
10. REAL PROPERTY TAXES.
10.1 (a) PAYMENT OF TAXES. Lessor shall pay the Real Property
Taxes, as defined in Paragraph 10.2, applicable to the Premises. (See Section
52.)
(c) ADDITIONAL IMPROVEMENTS. Notwithstanding Paragraph 10.1(a)
hereof, Lessee shall pay to Lessor upon demand therefor the entirety of any
increase in Real Property Taxes assessed by reason of Alterations or Utility
Installations placed upon the Premises by Lessee or at Lessee's request.
10.2 DEFINITION OF "REAL PROPERTY TAXES." As used herein, the term
"REAL PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee, commercial
rental tax, improvement bond or bonds, levy or tax (other than inheritance,
personal income or estate taxes) imposed upon the Premises by any authority
having the direct or indirect power to tax, including any city, state or
federal government, or any school, agricultural, sanitary, fire, street,
drainage or other improvement district thereof, levied against any legal or
equitable interest of Lessor in the Premises or in the real property of which
the Premises are a part, Lessor's right to rent or other income therefrom.
and/or Lessor's business of leasing the Premises. The term "REAL PROPERTY
TAXES" shall also include any tax, fee, levy, assessment or charge, or any
increase therein, imposed by reason of events occurring, or changes in
applicable law taking effect, during the term of this Lease, including but not
limited to a change in the ownership of the Premises or in the improvements
thereon, the execution of this Lease, or any modification, amendment or
transfer thereof, and whether or not contemplated by the Parties.
10.3 JOINT ASSESSMENT. If the Premises are not separately
assessed, Lessee's liability shall be an equitable proportion of the Real
Property Taxes for all of the land and improvements included within the tax
parcel assessed, such proportion to be determined by Lessor from the respective
valuations assigned in the assessor's work sheets or such other information as
may be reasonably available. Lessor's reasonable determination thereof, in
good faith, shall be conclusive.
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10.4 PERSONAL PROPERTY TAXES. Lessee shall pay prior to
delinquency all taxes assessed against and levied upon Lessee Owned
Alterations, Utility Installations, Trade Fixtures, furnishings, equipment and
all personal property of Lessee contained in the Premises or elsewhere. When
possible, Lessee shall cause its Trade Fixtures, furnishings, equipment and all
other personal property to be assessed and billed separately from the real
property of Lessor. If any of Lessee's said personal property shall be
assessed with Lessor's real property, Lessee shall pay Lessor the taxes
attributable to Lessee within ten (10) days after receipt of a written
statement setting forth the taxes applicable to Lessee's property or, at
Lessor's option, as provided in Paragraph 10.1(b).
11. UTILITIES. Lessee shall pay for all water, gas, heat, light,
power, telephone, trash disposal and other utilities and services supplied to
the Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered with other premises.
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law
assign, transfer, mortgage or otherwise transfer or encumber (collectively.
"ASSIGNMENT") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and subject
to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative basis, of
fifty (50%) percent or more of the voting control of Lessee shall constitute a
change in control for this purpose.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a
noncurable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unconsented to assignment or subletting as a
noncurable Breach, Lessor shall have the right to either: (i) terminate this
Lease, or (ii) upon thirty (30) days written notice ("Lessor's Notice"),
increase the monthly Base Rent to fair market rental value or one hundred ten
percent (110%) of the Base Rent then in effect, whichever is greater. Pending
determination of the new fair market rental value, if disputed by Lessee,
Lessee shall pay the amount set forth in Lessor's Notice, with any overpayment
credited against the next installment(s) of Base Rent coming due, and any
underpayment for the period retroactively to the effective date of the
adjustment being due and payable immediately upon the determination thereof.
Further, in the event of such Breach and market value adjustment, (i) the
purchase price of any option to purchase the Premises held by Lessee shall be
subject to similar adjustment to the then fair market value (without the Lease
being considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises at its highest and best use and in
good condition), or one hundred ten percent (110%) of the price previously in
effect, whichever is greater, (ii) any index-oriented rental or price
adjustment formulas contained in this Lease shall be adjusted to require that
the base index be determined with reference to the index applicable to the time
of such adjustment, and (iii) any fixed rental adjustments scheduled during the
remainder of the Lease term shall be increased in the same ratio as the new
market rental bears to the Base Rent in effect immediately prior to the market
value adjustment.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or
subletting shall not: (i) be effective without the express written assumption
by such assignee or sublessee of the obligations of Lessee under this Lease,
(ii) release Lessee of any obligations hereunder, or (iii) alter the primary
liability of Lessee for the payment of Base Rent and other sums due Lessor
hereunder or for the performance of any other obligations to be performed by
Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or disapproval
of an assignment. Neither a delay in the approval or disapproval of such
assignment nor the acceptance of any rent or performance shall constitute a
waiver or estoppel of Lessor's right to exercise its remedies for the Default
or Breach by Lessee of any of the terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting
shall not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
sublessee. However, Lessor may consent to subsequent sublettings and
assignments of the sublease or any amendments or modifications thereto without
notifying Lessee or anyone else liable on the Lease or sublease and without
obtaining their consent, and such action shall not relieve such persons from
liability under this Lease or sublease.
(d) In the event of any Default or Breach of Lessee's
obligations under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or any one else responsible for the performance of the Lessee's
obligations under this Lease, including the sublessee, without first exhausting
Lessor's remedies against any other person or entity responsible therefor to
Lessor, or any security held by Lessor or Lessee.
(e) Each request for consent to an assignment or
subletting shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises, if
any, together with a non-refundable deposit of $1,000 or ten percent (10%) of
the current monthly Base Rent, whichever is less, as reasonable consideration
for Lessor's considering and processing the request for consent. Lessee agrees
to provide Lessor with such other or additional information and/or
documentation as may be reasonably requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease
shall, by reason of accepting such assignment or entering into such sublease,
be deemed, for the benefit of Lessor, to have assumed and agreed to conform and
comply with each and every term, covenant, condition and obligation herein to
be observed or performed by Lessee during the term of said assignment or
sublease, other than such obligations as are contrary to or inconsistent with
provisions of an assignment or sublease to which Lessor has specifically
consented in writing.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of all
or any part of the Premises and shall be deemed included in all subleases under
this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of all or
a portion of the Premises heretofore or hereafter made by Lessee, and Lessor
may collect such rent and income and apply same toward Lessee's obligations
under this Lease; provided, however, that until a Breach (as defined in
Paragraph 13.1) shall occur in the performance of Lessee's obligations under
this Lease, Lessee may, except as otherwise provided in this Lease, receive,
collect and enjoy the rents accruing under such sublease. Lessor shall not, by
reason of this or any other assignment of such sublease to Lessor, nor by
reason of the collection of the rents from a sublessee, be deemed liable to the
sublessee for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such sublease. Lessee hereby irrevocably
authorizes and directs any such sublessee, upon receipt of a written notice
from Lessor stating that a Breach exists in the performance of Lessee's
obligations under this Lease, to pay to Lessor the rents and other charges due
and to become due under the sublease. Sublessee shall rely upon any such
statement and request from Lessor and shall pay such rents and other charges to
Lessor without any obligation or right to inquire as to whether such Breach
exists and notwithstanding any notice from or claim from Lessee to the
contrary. Lessee shall have no right or claim against said sublessee, or,
until the Breach has been cured, against Lessor, for any such rents and other
charges so paid by said sublessee to Lessor.
(b) In the event of a Breach by Lessee in the performance
of its obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in which
event Lessor shall undertake the obligations of the sublessor under such
sublease from the time of the exercise of said option to the expiration of such
sublease; provided, however, Lessor shall not be liable for any prepaid rents
or security deposit paid by such sublessee to such sublessor or for any other
prior Defaults or Breaches of such sublessor under such sublease.
(c) Any matter or thing requiring the consent of the
sublessor under a sublease shall also require the consent of Lessor herein.
(d) No sublessee shall further assign or sublet all or
any part of the Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default
or Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such notice.
The sublessee shall have a right of reimbursement and offset from and against
Lessee for any such Defaults cured by the sublessee.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney
is consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such occurrence
for legal services and costs in the preparation and service of a notice of
Default, and that Lessor may include the cost of such services and costs in
said notice as rent due and payable to cure said Default. A "DEFAULT" is
defined as a failure by the Lessee to observe, comply with or perform any of
the terms, covenants, conditions or rules applicable to Lessee under this
Lease. A "BREACH" is defined as the occurrence of any one or more of the
following Defaults, and, where a grace period for cure after notice is
specified herein, the failure by Lessee to cure such Default prior to the
expiration of the applicable grace period, and shall entitle Lessor to pursue
the remedies set forth in Paragraphs 13.2 and/or 13.3.
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
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(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent or any other monetary payment
required to be made by Lessee hereunder, whether to Lessor or to a third party,
as and when due and within three (3) days of written demand the failure by
Lessee to provide Lessor with reasonable evidence of insurance or surety bond
required under this Lease, or the failure of Lessee to fulfill any obligation
under this Lease which endangers or threatens life or property, where such
failure continues for a period of three (3) days following written notice
thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease,
the failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with applicable
law per Paragraph 6.3, (ii) the inspection, maintenance and service contracts
required under Paragraph 7.1(b), (iii) the recission of an unauthorized
assignment or subletting per Paragraph 12.1(b), (iv) a Tenancy Statement per
Paragraphs 16 or 37, (v) the subordination or non-subordination of this Lease
per Paragraph 30, (vi) the guaranty of the performance of Lessee's obligations
under this Lease if required under Paragraphs 1.11 and 37, (vii) the execution
of any document requested under Paragraph 42 (easements), or (viii) any other
documentation or information which Lessor may reasonably require of Lessee
under the terms of this Lease, where any such failure continues for a period of
ten (10) days following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the terms, covenants,
conditions or provisions of this Lease, or of the rules adopted under Paragraph
40 hereof, that are to be observed, complied with or performed by Lessee, other
than those described in subparagraphs (a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice thereof
by or on behalf of Lessor to Lessee; provided, however, that if the nature of
Lessee's Default is such that more than thirty (30) days are reasonably
required for its cure, then it shall not be deemed to be a Breach of this Lease
by Lessee if Lessee commences such cure within said thirty (30) day period and
thereafter diligently prosecutes such cure to completion.
(e) The occurrence of any of the following events: (i)
The making by Lessee of any general arrangement or assignment for the benefit
of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S.C. Section
101 or any successor statute thereto (unless, in the case of a petition filed
against Lessee, the same is dismissed within sixty (60) days); (iii) the
appointment of a trustee or receiver to take possession of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where possession is not restored to Lessee within thirty (30) days; or (iv) the
attachment, execution or other judicial seizure of substantially all of
Lessee's assets located at the Premises or of Lessee's interest in this Lease,
where such seizure is not discharged within thirty (30) days; provided,
however, in the event that any provision of this subparagraph (e) is contrary
to any applicable law, such provision shall be of no force or effect, and not
affect the validity of the remaining provisions.
(f) The discovery by Lessor that any financial statement
given to Lessor by Lessee or any Guarantor of Lessee's obligations hereunder
was materially false.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may at
its option (but without obligation to do so), perform such duty or obligation
on Lessee's behalf, including but not limited to the obtaining of reasonably
required bonds, insurance policies, or governmental licenses, permits or
approvals. The costs and expenses of any such performance by Lessor shall be
due and payable by Lessee to Lessor upon invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made under this
Lease by Lessee to be made only by cashier's check. In the event of a Breach
of this Lease by Lessee, as defined in Paragraph 13.1, with or without further
notice or demand, and without limiting Lessor in the exercise of any right or
remedy which Lessor may have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the
Premises by any lawful means, in which case this Lease and the term hereof
shall terminate and Lessee shall immediately surrender possession of the
Premises to Lessor. In such event Lessor shall be entitled to recover from
Lessee: (i) the worth at the time of the award of the unpaid rent which had
been earned at the time of termination; (ii) the worth at the time of award of
the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss that
the Lessee proves could have been reasonably avoided; (iii) the worth at the
time of award of the amount by which the unpaid rent for the balance of the
term after the time of award exceeds the amount of such rental loss that the
Lessee proves could be reasonably avoided; and (iv) any other amount necessary
to compensate Lessor for all the detriment proximately caused by the Lessee's
failure to perform its obligations under this Lease or which in the ordinary
course of things would be likely to result therefrom, including but not limited
to the cost of recovering possession of the Premises, expenses of reletting,
including necessary renovation and alteration of the Premises, reasonable
attorneys' fees, and that portion of the leasing commission paid by Lessor
applicable to the unexpired term of this Lease. The worth at the time of award
of the amount referred to in provision (iii) of the prior sentence shall be
computed by discounting such amount at the discount rate of the Federal Reserve
Bank of San Francisco at the time of award plus one percent. Efforts by Lessor
to mitigate damages caused by Lessee's Default or Breach of this Lease shall
not waive Lessor's right to recover damages under this Paragraph. If
termination of this Lease is obtained through the provisional remedy of
unlawful detainer, Lessor shall have the right to recover in such proceeding
the unpaid rent and damages as are recoverable therein, or Lessor may reserve
therein the right to recover all or any part thereof in a separate suit for
such rent and/or damages. If a notice and grace period required under
subparagraphs 13.1(b), (c) or (d) was not previously given, a notice to pay
rent or quit, or to perform or quit, as the case may be, given to Lessee under
any statute authorizing the forfeiture of leases for unlawful detainer shall
also constitute the applicable notice for grace period purposes required by
subparagraphs 13.1(b), (c) or (d). In such case, the applicable grace period
under subparagraphs 13.1(b), (c) or (d) and under the unlawful detainer statute
shall run concurrently after the one such statutory notice, and the failure of
Lessee to cure the Default within the greater of the two such grace periods
shall constitute both an unlawful detainer and a Breach of this Lease entitling
Lessor to the remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession
in effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and abandonment and recover the rent as it becomes due,
provided Lessee has the right to sublet or assign, subject only to reasonable
limitations. See Paragraphs 12 and 36 for the limitations on assignment and
subletting which limitations Lessee and Lessor agree are reasonable. Acts of
maintenance or preservation, efforts to relet the Premises, or the appointment
of a receiver to protect the Lessor's interest under the Lease, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to
Lessor under the laws or judicial decisions of the state wherein the Premises
are located.
(d) The expiration or termination of this Lease and/or
the termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters occurring
or accruing during the term hereof or by reason of Lessee's occupancy of the
Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by
Lessor for free or abated rent or other charges applicable to the Premises, or
for the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of which
concessions are hereinafter referred to as "INDUCEMENT PROVISIONS," shall be
deemed conditioned upon Lessee's full and faithful performance of all of the
terms, covenants and conditions of this Lease to be performed or observed by
Lessee during the term hereof as the same may be extended. Upon the occurrence
of a Breach of this Lease by Lessee, as defined in Paragraph 13.1, any such
Inducement Provision shall automatically be deemed deleted from this Lease and
of no further force or effect, and any rent, other charge, bonus, inducement or
consideration theretofore abated, given or paid by Lessor under such an
Inducement Provision shall be immediately due and payable by Lessee to Lessor,
and recoverable by Lessor as additional rent due under this Lease,
notwithstanding any subsequent cure of said Breach by Lessee. The acceptance
by Lessor of rent or the cure of the Breach which initiated the operation of
this Paragraph shall not be deemed a waiver by Lessor of the provisions of this
Paragraph unless specifically so stated in writing by Lessor at the time of
such acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will be
extremely difficult to ascertain. Such costs include, but are not limited to,
processing and accounting charges, and late charges which may be imposed upon
Lessor by the terms of any ground lease, mortgage or trust deed covering the
Premises. Accordingly, if any installment of rent or any other sum due from
Lessee shall not be received by Lessor or Lessor's designee within five (5)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a late charge equal to six percent (6%)
of such overdue amount. The parties hereby agree that such late charge
represents a fair and reasonable estimate of the costs Lessor will incur by
reason of late payment by Lessee. Acceptance of such late charge by Lessor
shall in no event constitute a waiver of Lessee's Default or Breach with
respect to such overdue amount, nor prevent Lessor from exercising any of the
other rights and remedies granted hereunder. In the event that a late charge
is payable hereunder, whether or not collected, for three (3) consecutive
installments of Base Rent, then notwithstanding Paragraph 4.1 or any other
provision of this Lease to the contrary, Base Rent shall, at Lessor's option,
become due and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of
this Lease unless Lessor fails within a reasonable time to perform an
obligation required to be performed by Lessor. For purposes of this Paragraph
13.5, a reasonable time shall in no event be less than thirty (30) days after
receipt by Lessor, and by the holders of any ground lease, mortgage or deed of
trust covering the Premises whose name and address shall have been furnished
Lessee in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligation is such that more than thirty (30) days after
such notice are reasonably required for its performance, then Lessor shall not
be in breach of this Lease if performance is commenced within such thirty (30)
day period and thereafter diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of said
power (all of which are herein called "CONDEMNATION"), this Lease shall
terminate as to the part so taken as of the date the condemning authority takes
title or possession, whichever first occurs. If more than ten percent (10%) of
the floor area of the Premises, or more than twenty-five percent (25%) of the
land area not occupied by any building, is taken by condemnation, Lessee may,
at Lessee's option, to be exercised in writing within ten (10) days after
Lessor shall have given Lessee written notice of such taking (or in the absence
of such notice, within ten (10) days after the condemning authority shall
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have taken possession) terminate this Lease as of the date the condemning
authority takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and effect
as to the portion of the Premises remaining, except that the Base Rent shall be
reduced in the same proportion as the rentable floor area of the Premises taken
bears to the total rentable floor area of the building located on the Premises.
No reduction of Base Rent shall occur if the only portion of the Premises taken
is land on which there is no building. Any award for the taking of all or any
part of the Premises under the power of eminent domain or any payment made
under threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution in value of the
leasehold or for the taking of the fee, or as severance damages; provided,
however, that Lessee shall be entitled to any compensation, separately awarded
to Lessee for Lessee's relocation expenses and/or loss of Lessee's Trade
Fixtures. In the event that this Lease is not terminated by reason of such
condemnation, Lessor shall to the extent of its net severance damages received,
over and above the legal and other expenses incurred by Lessor in the
condemnation matter, repair any damage to the Premises caused by such
condemnation, except to the extent that Lessee has been reimbursed therefor by
the condemning authority. Lessee shall be responsible for the payment of any
amount in excess of such net severance damages required to complete such
repair.
15. BROKER'S FEE.
15.1 The Brokers named in Paragraph 1.10 are the procuring causes
of this Lease.
15.2 Upon execution of this Lease by both Parties, Lessor shall pay
to Lee & Associates (Brokers) or in such separate shares as they may mutually
designate in writing, a fee as set forth in a separate written agreement between
Lessor and said Brokers (or in the event there is no separate written agreement
between Lessor and said Brokers, the sum of $50,000.00 for brokerage services
rendered by said Brokers to Lessor in this transaction.
15.5 Lessee and Lessor each represent and warrant to the other that
it has had no dealings with any person, firm, broker or finder (other than the
Brokers, if any named in Paragraph 1.10) in connection with the negotiation of
this Lease and/or the consummation of the transaction contemplated hereby, and
that no broker or other person, firm or entity other than said named Brokers is
entitled to any commission or finder's fee in connection with said transaction.
Lessee and Lessor do each hereby agree to indemnify, protect, defend and hold
the other harmless from and against liability for compensation or charges which
may be claimed by any such unnamed broker, finder or other similar party by
reason of any dealings or actions of the indemnifying Party, including any
costs, expenses, attorneys' fees reasonably incurred with respect thereto.
15.6 Lessor and Lessee hereby consent to and approve all agency
relationships, including any dual agencies, Indicated in Paragraph 1.10.
16. TENANCY STATEMENT.
16.1 Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "TENANCY STATEMENT" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requesting
Party.
16.2 It Lessor desires to finance, refinance, or sell the Premises,
any part thereof, or the building of which the Premises are a part, Lessee and
all Guarantors of Lessee's performance hereunder shall deliver to any potential
lender or purchaser designated by Lessor such financial statements of Lessee
and such Guarantors as may be reasonably required by such lender or purchaser,
including but not limited to Lessee's financial statements for the past three
(3) years. All such financial statements shall be received by Lessor and such
lender or purchaser in confidence and shall be used only for the purposes
herein set forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or,
if this is a sublease, of the lessee's interest in the prior lease. In the
event of a transfer of Lessor's title or interest in the Premises or in this
Lease, Lessor shall deliver to the transferee or assignee (in cash or by
credit) any unused Security Deposit held by Lessor at the time of such transfer
or assignment. Except as provided in Paragraph 15, upon such transfer or
assignment and delivery of the Security Deposit, as aforesaid, the prior Lessor
shall be relieved of all liability with respect to the obligations and/or
covenants under this Lease thereafter to be performed by the Lessor. Subject
to the foregoing, the obligations and/or covenants in this Lease to be
performed by the Lessor shall be binding only upon the Lessor as hereinabove
defined.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within thirty (30)
days following the date on which it was due, shall bear interest from the
thirty-first (31st) day after it was due at the rate of 10% per annum, but not
exceeding the maximum rate allowed by law, in addition to the late charge
provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties under
this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under the
terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned herein,
and no other prior or contemporaneous agreement or understanding shall be
effective. Lessor and Lessee each represents and warrants to the Brokers that
it has made, and is relying solely upon, its own investigation as to the
nature, quality, character and financial responsibility of the other Party to
this Lease and as to the nature, quality and character of the Premises.
Brokers have no responsibility with respect thereto or with respect to any
default or breach hereof by either Party.
23. NOTICES.
23.1 All notices required or permitted by this Lease shall be in
writing and may be delivered in person (by hand or by messenger or courier
service) or may be sent by regular, certified or registered mail or U.S. Postal
Service Express Mail, with postage prepaid, or by facsimile transmission, and
shall be deemed sufficiently given if served in a manner specified in this
Paragraph 23. The addresses noted adjacent to a Party's signature on this
Lease shall be that Party's address for delivery or mailing of notice purposes.
Either Party may by written notice to the other specify a different address for
notice purposes, except that upon Lessee's taking possession of the Premises,
the Premises shall constitute Lessee's address for the purpose of mailing or
delivering notices to Lessee. A copy of all notices required or permitted to
be given to Lessor hereunder shall be concurrently transmitted to such party or
parties at such addresses as Lessor may from time to time hereafter designate
by written notice to Lessee.
23.2 Any notice sent by registered or certified mail, return
receipt requested, shall be deemed given on the date of delivery shown on the
receipt card, or if no delivery date is shown, the postmark thereon. If sent
by regular mail the notice shall be deemed given forty-eight (48) hours after
the same is addressed as required herein and mailed with postage prepaid.
Notices delivered by United States Express Mail or overnight courier that
guarantees next day delivery shall be deemed given twenty-four (24) hours after
delivery of the same to the United States Postal Service or courier. If any
notice is transmitted by facsimile transmission or similar means, the same
shall be deemed served or delivered upon telephone confirmation of receipt of
the transmission thereof, provided a copy is also delivered via delivery or
mail. It notice is received on a Sunday or legal holiday, it shall be deemed
received on the next business day.
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. Regardless of Lessor's knowledge of a Default or Breach at the time
of accepting rent, the acceptance of rent by Lessor shall not be a waiver of
any preceding Default or Breach by Lessee of any provision hereof, other than
the failure of Lessee to pay the particular rent so accepted. Any payment
given Lessor by Lessee may be accepted by Lessor on account of moneys or
damages due Lessor, notwithstanding any qualifying statements or conditions
made by Lessee in connection therewith, which such statements and/or conditions
shall be of no force or effect whatsoever unless specifically agreed to in
writing by Lessor at or before the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of this
Lease for recording purposes. The Party requesting recordation shall be
responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination of
this Lease.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other remedies
at law or in equity.
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28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
parties, their personal representatives, successors and assigns and be governed
by the laws of the State in which the Premises are located. Any litigation
between the Parties hereto concerning this Lease shall be initiated in the
county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall
be subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"), now
or hereafter placed by Lessor upon the real property of which the Premises are
a part, to any and all advances made on the security thereof, and to all
renewals, modifications, consolidations, replacements and extensions thereof.
Lessee agrees that the Lenders holding any such Security Device shall have no
duty, liability or obligation to perform any of the obligations of Lessor under
this Lease, but that in the event of Lessor's default with respect to any such
obligation, Lessee will give any Lender whose name and address have been
furnished Lessee in writing for such purpose notice of Lessor's default and
allow such Lender thirty (30) days following receipt of such notice for the
cure of said default before invoking any remedies Lessee may have by reason
thereof. If any Lender shall elect to have this Lease and/or any Option
granted hereby superior to the lien of its Security Device and shall give
written notice thereof to Lessee, this Lease and such Options shall be deemed
prior to such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of
Paragraph 30.3, Lessee agrees to attorn to a Lender or any other party who
acquires ownership of the Premises by reason of a foreclosure of a Security
Device, and that in the event of such foreclosure, such new owner shall not:
(i) be liable for any act or omission of any prior lessor or with respect to
events occurring prior to acquisition of ownership, (ii) be subject to any
offsets or defenses which Lessee might have against any prior lessor, or (iii)
be bound by prepayment of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered
into by Lessor after the execution of this Lease, Lessee's subordination of
this Lease shall be subject to receiving assurance (a "NON-DISTURBANCE
AGREEMENT") from the Lender that Lessee's possession and this Lease, including
any options to extend the term hereof, will not be disturbed so long as Lessee
is not in Breach hereof and attorns to the record owner of the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents; provided,
however, that, upon written request from Lessor or a Lender in connection with
a sale, financing or refinancing of the Premises, Lessee and Lessor shall
execute such further writings as may be reasonably required to separately
document any such subordination or non-subordination, attornment and/or
non-disturbance agreement as is provided for herein.
31. ATTORNEY'S FEES. If any Party or Broker brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) or Broker in any such proceeding,
action, or appeal thereon, shall be entitled to reasonable attorney's fees.
Such fees may be awarded in the same suit or recovered in a separate suit,
whether or not such action or proceeding is pursued to decision or judgment.
The term, "PREVAILING PARTY" shall include, without limitation, a Party or
Broker who substantially obtains or defeats the relief sought, as the case may
be, whether by compromise, settlement, judgment, or the abandonment by the
other Party or Broker of its claim or defense. The attorney's fee award shall
not be computed in accordance with any court fee schedule, but shall be such as
to fully reimburse all attorney's fees reasonably incurred. Lessor shall be
entitled to attorney's fees, costs and expenses incurred in the preparation and
service of notices of Default and consultations In connection therewith,
whether or not a legal action is subsequently commenced in connection with such
Default or resulting Breach.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's
agents shall have the right to enter the Premises at any time, in the case of
an emergency, and otherwise at reasonable times for the purpose of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises or to the
building of which they are a part, as Lessor may reasonably deem necessary.
Lessor may at any time place on or about the Premises or building any ordinary
"For Sale" signs and Lessor may at any time during the last one hundred twenty
(120) days of the term hereof place on or about the Premises any ordinary "For
Lease" signs. All such activities of Lessor shall be without abatement of rent
or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without
first having obtained Lessor's prior written consent. Notwithstanding anything
to the contrary in this Lease, Lessor shall not be obligated to exercise any
standard of reasonableness in determining whether to grant such consent.
34. SIGNS. Lessee shall not place any sign upon the Premises, except that
Lessee may, with Lessor's prior written consent, install (but not on the roof)
such signs as are reasonably required to advertise Lessee's own business. The
installation of any sign on the Premises by or for Lessee shall be subject to
the provisions of Paragraph 7 (Maintenance, Repairs, Utility Installations,
Trade Fixtures and Alterations). Unless otherwise expressly agreed herein,
Lessor reserves all rights to the use of the roof arid the right to install,
and all revenues from the installation of, such advertising signs on the
Premises, including the roof, as do not unreasonably interfere with the conduct
of Lessee's business.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing
by Lessor, the voluntary or other surrender of this Lease by Lessee, the mutual
termination or cancellation hereof, or a termination hereof by Lessor for
Breach by Lessee, shall automatically terminate any sublease or lesser estate
in the Premises; provided, however, Lessor shall, in the event of any such
surrender, termination or cancellation, have the option to continue any one or
all of any existing subtenancies. Lessor's failure within ten (10) days
following any such event to make a written election to the contrary by written
notice to the holder of any such lesser interest, shall constitute Lessor's
election to have such event constitute the termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as
otherwise provided herein, wherever in this Lease the consent of a Party is
required to an act by or for the other Party, such consent shall not be
unreasonably withheld or delayed. Lessor's actual reasonable costs and
expenses (including but not limited to architects', attorneys', engineers' or
other consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent pertaining to this Lease or the
Premises, including but not limited to consents to an assignment, a subletting
or the presence or use of a Hazardous Substance, practice or storage tank,
shall be paid by Lessee to Lessor upon receipt of an invoice and supporting
documentation therefor. Subject to Paragraph 12.2(e) (applicable to assignment
or subletting), Lessor may, as a condition to considering any such request by
Lessee, require that Lessee deposit with Lessor an amount of money (in addition
to the Security Deposit held under Paragraph 5) reasonably calculated by Lessor
to represent the cost Lessor will incur in considering and responding to
Lessee's request. Except as otherwise provided, any unused portion of said
deposit shall be refunded to Lessee without interest. Lessor's consent to any
act, assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this Lease
exists, nor shall such consent be deemed a waiver of any then existing Default
or Breach, except as may be otherwise specifically stated in writing by Lessor
at the time of such consent.
(b) All conditions to Lessor's consent authorized by this
Lease are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
imposition by Lessor at the time of consent of such further or other conditions
as are then reasonable with reference to the particular matter for which
consent is being given.
38. QUIET POSSESSION. Upon payment by Lessee of the rent for the Premises
and the observance and performance of all of the covenants, conditions and
provisions on Lessee's part to be observed and performed under this Lease,
Lessee shall have quiet possession of the Premises for the entire term hereof
subject to all of the provisions of this Lease.
39. OPTIONS.
39.1 DEFINITION. As used in this Paragraph 39 the word "OPTION"
has the following meaning: (a) the right to extend the term of this Lease or to
renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal to lease the Premises or the
right of first offer to lease the Premises or the right of first refusal to
lease other property of Lessor or the right of first offer to lease other
property of Lessor; (c) the right to purchase the Premises, or the right of
first refusal to purchase the Premises, or the right of first offer to purchase
the Premises, or the right to purchase other property of Lessor, or the right
of first refusal to purchase other property of Lessor, or the right of first
offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph 1.1
hereof, and cannot be voluntarily or involuntarily assigned or exercised by any
person or entity other than said original Lessee while the original Lessee is
in full and actual possession of the Premises and without the intention of
thereafter assigning or subletting. The Options, if any, herein granted to
Lessee are not assignable, either as a part of an assignment of this Lease or
separately or apart therefrom, and no Option may be separated from this Lease
in any manner, by reservation or otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly
exercised.
Initials ____
____
PAGE 9
<PAGE> 10
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary: (i)
during the period commencing with the giving of any notice of Default under
Paragraph 13.1 and continuing until the noticed Default is cured, or (ii)
during the period of time any monetary obligation due Lessor from Lessee is
unpaid (without regard to whether notice thereof is given Lessee), or (iii)
during the time Lessee is in Breach of this Lease, or (iv) in the event that
Lessor has given to Lessee three (3) or more notices of Default under Paragraph
13.1, whether or not the Defaults are cured, during the twelve (12) month
period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be
exercised shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an
Option shall terminate and be of no further force or effect, notwithstanding
Lessee's due and timely exercise of the Option, if, after such exercise and
during the term of this Lease, (i) Lessee fails to pay to Lessor a monetary
obligation of Lessee for a period of thirty (30) days after such obligation
becomes due (without any necessity of Lessor to give notice thereof to Lessee),
or (ii) Lessor gives to Lessee three or more notices of Default under Paragraph
13.1 during any twelve month period, whether or not the Defaults are cured, or
(iii) if Lessee commits a Breach of this Lease.
40. MULTIPLE BUILDINGS. If the Premises are part of a multiple tenant
building, Lessee agrees that it will abide by, keep and observe all reasonable
rules and regulations which Lessor may make from time to time for the
management, safety, care, and cleanliness of the grounds, the parking and
unloading of vehicles and the preservation of good order, as well as for the
convenience of other occupants or tenants of such other buildings and their
invitees, and that Lessee will pay its fair share of common expenses incurred
in connection therewith.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts of
third parties.
42. RESERVATIONS. Lessor reserves to itself the right, from time to time,
to grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary, and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money is
asserted shall have the right to make payment "under protest" and such payment
shall not be regarded as a voluntary payment and there shall survive the right
on the part of said Party to institute suit for recovery of such sum. If it
shall be adjudged that there was no legal obligation on the part of said Party
to pay such sum or any part thereof, said Party shall be entitled to recover
such sum or so much thereof as it was not legally required to pay under the
provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of such
entity represents and warrants that he or she is duly authorized to execute and
deliver this Lease on its behalf. If Lessee is a corporation, trust or
partnership, Lessee shall, within thirty (30) days after request by Lessor,
deliver to Lessor evidence satisfactory to Lessor of such authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by Lessor or Lessor's agent and
submission of same to Lessee shall not be deemed an offer to lease to Lessee.
This Lease is not intended to be binding until executed by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The parties shall amend
this Lease from time to time to reflect any adjustments that are made to the
Base Rent or other rent payable under this Lease. As long as they do not
materially change Lessee's obligations hereunder, Lessee agrees to make such
reasonable non-monetary modifications to this Lease as may be reasonably
required by an institutional, insurance company, or pension plan Lender in
connection with the obtaining of normal financing or refinancing of the
property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee, the
obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
See Addendum 49 - 58 attached hereto and made a part thereof.
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM AND
PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW THEIR
INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE THAT, AT THE
TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE COMMERCIALLY
REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND LESSEE WITH
RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR SUBMISSION
TO YOUR ATTORNEY FOR HIS APPROVAL. FURTHER, EXPERTS SHOULD BE
CONSULTED TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE
PRESENCE OF ASBESTOS, STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKER(S) OR THEIR
AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT, OR TAX
CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT RELATES; THE
PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN COUNSEL AS TO
THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE SUBJECT PROPERTY
IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN ATTORNEY FROM THE
STATE WHERE THE PROPERTY IS LOCATED SHOULD BE CONSULTED.
The parties hereto have executed this Lease at the place on the dates specified
above to their respective signatures.
SET NEW
<TABLE>
<S> <C>
Executed at Newport Beach Executed at Costa Mesa
--------------------------------------------- ---------------------------------------------
on on Feb 11, 1992
------------------------------------------------------ ------------------------------------------------------
by LESSOR: by LESSEE:
2181 Dupont Associates, a California Limited Procom Technology, Inc, a California
- --------------------------------------------------------- ---------------------------------------------------------
Partnership Corporation
- --------------------------------------------------------- ---------------------------------------------------------
By /s/ RICHARD N. DICK By /s/ ALEX AYDIN
------------------------------------------------------ ------------------------------------------------------
Name Printed: Mr. Richard N. Dick Name Printed: Mr. Alex Aydin
------------------------------------------- -------------------------------------------
Title: Managing General Partner Title: Chief Financial Officer
-------------------------------------------------- --------------------------------------------------
By SEE ATTACHED SIGNATURE PAGE By
------------------------------------------------------ ------------------------------------------------------
Name Printed: Name Printed:
------------------------------------------- -------------------------------------------
Title: Title:
-------------------------------------------------- --------------------------------------------------
Address: Address:
------------------------------------------------ ------------------------------------------------
- --------------------------------------------------------- ---------------------------------------------------------
Tel. No. ( ) Fax No. ( ) Tel. No. ( ) Fax No. ( )
------ ------------- --- ------------- ------ ------------- --- -------------
</TABLE>
NOTICE: These forms are often modified to meet changing requirements of law
and industry needs. Always write or call to make sure you are
utilizing the most current form: American Industrial Real Estate
Association, 345 South Figueroa Street, Suite M-1, Los Angeles, CA
90071 (213) 687-6777. Fax No. (213) 687-8616.
(C) Copyright 1990--By American Industrial Real Estate Association. All
rights reserved. No part of these works may be reproduced in any form without
permission in writing.
FORM 105G-3/90
<PAGE> 11
LESSOR:
2181 DUPONT ASSOCIATES,
a California Limited Partnership
By: /s/ RICHARD N. DICK
-------------------------------
Richard N. Dick,
Managing General Partner
By: SOD Partners, a California general
partnership, General Partner
By: /s/ DONALD S. GRANT
-------------------------------
Donald S. Grant, Special
Co-Trustee of the J. And
P. O'Donnell Revocable Trust
dated October 20, 1982, Partner
By: /s/ VIRGINIA L. S. BECK
--------------------------------
Virginia L. S. Beck, Special
Co-Trustee of the Lee Sammis
Irrevocable Trust dated
March 4, 1991, Partner
<PAGE> 12
ADDENDUM TO THAT CERTAIN LEASE DATED FEBRUARY 10, 1992 BY AND
BETWEEN 2181 DUPONT ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP
(HEREIN CALLED LESSOR) AND PROCOM TECHNOLOGY, INC, A CALIFORNIA
CORPORATION (HEREIN CALLED LESSEE) FOR THAT REAL PROPERTY
COMMONLY KNOWN AS 2181 DUPONT DRIVE, IRVINE, CALIFORNIA.
49. BASE RENT SCHEDULE:
<TABLE>
<CAPTION>
Months Monthly Rent
------ ------------
<S> <C>
1-12 $28,000 per month Industrial Gross
13-24 $33,000 per month Industrial Gross
25-36 $35,250 per month Industrial Gross
37 $ 0.00 per month Industrial Gross
</TABLE>
50. TENANT IMPROVEMENTS: Lessee shall be granted, by Lessor, a Tenant
Improvement Allowance in the amount of $10,000.00 to be used at Lessee's
discretion. Said Tenant Improvement Allowance shall be due within seven (7)
days of Lessee's written notification to Lessor of Lessee's desire to
appropriate such funds to facilitate needed Tenant Improvements.
Lessor, at its sole cost and expense and prior to the lease Commencement Date
described in Section 1.3 of this Lease, shall re-carpet (re-tile) and re-paint
the existing office areas using identical materials and finishes to those that
exist in the reception area of the facility.
Lessor, at it's sole cost and expense, shall raise the warehouse lighting
contained in "Area One" in attached Exhibit A to the maximum allowable level.
Additionally, the Lessor shall remove the ducting for the heating, ventilating
and air-conditioning system in "Area One" of Exhibit A, except for the ducting
presently servicing the cafeteria/office area.
51. BUILDING IDENTITY: Lessor shall remove the existing signage on the
facade of the building and the lettering on the monument sign and provide those
areas for Lessee's new signing which shall be approved by Lessor.
Lessee may, at it's sole cost and option, install it's signage on the building
and have nonexclusive use to the existing monument sign. The size, style and
type of the signs permitted shall be subject to the declaration of Covenants,
Considerations, and Restriction's (CC&R's) and all applicable laws, regulations
and ordinances of the City of Irvine and shall also be consistent with the sign
criteria of the project. Lessee shall be responsible for the maintenance and
removal of Lessee's signs.
52. PROPERTY TAXES: Lessor shall pay Real Property Taxes applicable to the
Premises during the initial Lease Term.
If Lessee exercises it's Option to Extend defined in Section 55 of this Lease,
Lessee shall pay, in addition to rent, during the Extended Term, the amount, if
any, by which the Real Property Taxes applicable to the Premises increased over
the 1991-92 base year taxes when the initial lease Commencement Date occurred.
53. CONDITION OF PREMISES: Per the provisions of Section 7.1(b), Lessee
shall pay for the periodic and normal maintenance of the heating, ventilating
and air-conditioning system(s) on the Premises.
Lessor shall pay for extended repair and/or replacement of the existing
heating, ventilating and air-conditioning system(s).
54. HAZARDOUS WASTE AND ASBESTOS: Any hazardous materials and/or asbestos
shall be removed prior to commencement of construction of Tenant Improvements
and shall be and remain Lessor's full liability. Lessee shall only be liable
for those materials brought on the premises by Lessee, its agents, vendors or
associates, and Lessor shall indemnify Lessee for all liability arising from
other hazardous materials previously or currently on the premises, or brought
on the premises by past tenants or person.
PAGE 11
<PAGE> 13
55. OPTION TO EXTEND: Lessor hereby grants Lessee an Option to Extend the
term of this Lease for a one (1) year period commencing when the prior term
expires upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives, on a
date which is prior to the date that the option period would
commence (if exercised) by at least six (6) and not more than
nine (9) months, a written notice of the exercise of the
option to extend this lease for said additional term, time
being of the essence. If said notification of the exercise of
said option is not so given and received, this option shall
automatically expire;
(ii) The provisions of paragraph 39, including the provision
relating to the default of Lessee set forth in paragraph 39.4
of this Lease are conditions of this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this Option shall apply;
(iv) The monthly rent for each month of the option period shall be
$48,000 per month, Industrial Gross and the Premises Area
shall be increased to the entire facility consisting of
approximately 81,000 square feet.
56. PRIOR ENTRY: Lessor consents to the entry of Lessee into and upon the
premises prior to the commencement date of this Lease for the purpose of
cleaning, repairing, furnishing and decorating. Prior to the commencement date
of this Lease and during the period Lessor has consented to Lessee's entry into
and upon the premises, Lessee shall indemnify and hold harmless Lessor from and
against any and all claims arising from Lessee's use of the premises, or from
the conduct of Lessee's business or from any activity, work or things done,
permitted or suffered by Lessee in or about the premises or elsewhere and shall
further indemnify and hold harmless Lessor from and against any and all claims
arising from any negligence of the Lessee, or any of Lessee's agents,
contractors, or employees, and from and against all costs, attorney's fees,
expenses and liabilities incurred in the defense of any such claim or any
action or proceeding brought hereon; and in case any action or proceeding be
brought against Lessor by reasons of any such claim, Lessee upon notice from
Lessor shall defend the same at Lessee's expense by counsel satisfactory to
Lessor. Lessee, as a material part of the consideration to Lessor, hereby
assumes all risk of damage to property, which includes all plate glass and
doors, or any injury to persons, in or upon or against the premises arising
from any cause and Lessee hereby waives all claims in respect thereof against
Lessor. If Lessee enters the premises pursuant to this paragraph, he does so
as a mere licensee of Lessor and without any right or color of right
whatsoever, it being agreed and understood that Lessee's right of possession
does not arise until Lessor tenders possession of premises in accordance with
the terms and conditions of this Lease.
57. MULTI-TENANT BUILDING: Because Lessee's Premises is part of a larger
building, the Common Area Maintenance and other costs shall be prorated between
the various lessees occupying the Property. Lessee's share of the building
costs shall be 84% (63,000 sq. ft. 75,000 sq. ft.) Said costs shall include the
following:
ELECTRICITY: It is contemplated that Lessor will lease the remaining
approximately 13,000 sq. ft. of space in the building to another lessee.
Lessee shall pay the electrical bill for the entire property and bill Lessor
for the prorata amount estimated for the use that occupies the 13,000 sq. ft.
space. An electrical consultant shall be retained to make the estimate of
usage in said excess area, or if possible, the area shall be separately metered
by a house meter.
LANDSCAPING: Lessor, at it's sole cost and expense, shall maintain the
building landscaping at the level that currently exists.
PAGE 2
<PAGE> 14
58. CONSULT YOUR ATTORNEY: All negotiations and agreements are merged
within the above-referenced lease agreement, and there are no oral agreements
or implied covenants by the owner, employees, or agents thereof. The party(s)
acknowledge that this agreement may have been filled in by Lee & Associates
(hereinafter "Broker"), for submission by you to your attorney for approval; as
such, all parties are advised and encouraged by Broker to contact their
attorneys to answer any questions that may exist prior to the execution of same.
Any financial statements, information, reports, materials, etc., provided to
Broker, and submitted by Broker to Lessor and/or Lessee, are so provided
without any independent investigation by Broker; as such, Broker assumes no
responsibility for the accuracy of same. Any verification, credit check, etc.,
are the sole responsibility of the owner.
No warranties, recommendations, or representations are made by Broker as to the
accuracy, the legal sufficiency, legal effect, or tax consequences of the
above-referenced.
59. BUILDING EXPANSION: Lessor shall have the right during the entire term
of this lease to develop an additional industrial building at the rear of the
property not to exceed 20,000 square feet.
LESSOR: LESSEE:
2181 Dupont Associates, Procom Technology, Inc.,
a California Partnership A California Corporation
By: RICHARD N. DICK By: [SIG]
-------------------------- --------------------------------
Richard N. Dick
Managing General Partner Title: Executive Vice President
----------------------------
SOD Partners, a California general
partnership, General Partner
By: DONALD S. GRANT
---------------------------------
Donald S. Grant, Special Co-
Trustee of the J. and P. O'Donnell
Revocable Trust dated October 20,
1982, Partner
By: VIRGINIA L. S. BECK
----------------------------------
Virginia L. S. Beck, Special Co-
Trustee of the Lee Sammis
Irrevocable Trust dated
March 4, 1991, Partner
PAGE 13
<PAGE> 15
2181 DUPONT DRIVE
EXHIBIT A
Lease dated February 10, 1992
Lessor: 2181 Dupont Associates, a California Limited Partnership
Lessee: Procom Technology, Inc., a California Corporation
<PAGE> 16
FIRST AMENDMENT TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE - GROSS
(EXTENSION OF TERM)
THIS FIRST AMENDMENT TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT
LEASE - GROSS ("Amendment"), dated as of March 15, 1995, is entered into by and
between 2181 DUPONT ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP ("Landlord"),
and PROCOM TECHNOLOGY, INC., a California corporation ("Tenant"), with
reference to the following recitals:
RECITALS
A. Landlord and Tenant entered into that certain Standard
Industrial/Commercial Single-Tenant Lease - Gross dated as of February 10, 1992
("Lease"), concerning certain premises located at 2181 Dupont Drive, Irvine,
California 92715 ("Premises"). The capitalized terms used and not otherwise
defined herein shall have the same definitions as set forth in the Lease.
B. Landlord and Tenant now desire to modify the Lease to extend
the Term, all upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and for
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Landlord and Tenant hereby agree that the Lease shall be modified
and/or supplemented as follows:
1. EXTENSION OF TERM. Commencing May 1, 1995, the Term of the
Lease is hereby extended on a month to month basis, terminable by either party
upon ninety (90) days prior written notice to the other party.
2. MONTHLY RENT. Notwithstanding any provision of the Lease, (a)
commencing April 1, 1995, Tenant shall pay to Landlord at such place as
Landlord may designate, without deduction, offset, prior notice or demand, a
monthly Base Rent of Thirty-Five Thousand Two Hundred Fifty Dollars
($35,250.00) in lawful money of the United States, and (b) although Tenant
shall not receive any free rent for April, 1995, the monthly Base Rent for the
final thirty (30) days of the Term shall be waived so long as Tenant is not in
Breach or Default of the Lease or this Amendment.
3. TERMINATION OF OPTION TO EXTEND, EXPANSION RIGHT. Sections 55
and 59 of the Lease are hereby deleted in their entirety.
4. GENERAL.
(a) Effect of Amendment; Ratification. Except to the
extent the Lease is modified by this Amendment, the terms and
provisions of the Lease shall remain unmodified and in full force and
effect. In the event of conflict between the terms of the Lease and
the terms of this Amendment, the terms of this Amendment shall
prevail.
(b) Attorneys' Fees. The provisions of the Lease
respecting payment of attorney's fees shall also apply to this
Amendment.
<PAGE> 17
(c) Counterparts. If this Amendment is executed in
counterparts, each counterpart shall be deemed an original.
(d) Authority to Execute Amendment. Each individual
executing this Amendment on behalf of a corporation or partnership
represents that he or she is duly authorized to execute and deliver
this Amendment on behalf of the corporation or partnership and that
this Amendment is binding upon the corporation or partnership in
accordance with its terms.
(e) Governing Law. This Amendment and any enforcement of
the agreements and modifications set forth above shall be governed by
and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
"Landlord" 2181 DUPONT ASSOCIATES, A
CALIFORNIA LIMITED PARTNERSHIP
By: /s/ RICHARD N. DICK
--------------------------------
Richard N. Dick, Managing
General Partner
By: SOD Partners, a California
general partnership, General
Partner
By: /s/ JOHN D. O'DONNELL
---------------------------
John D. O'Donnell,
Trustee of the J. and P.
O'Donnell Revocable Trust
dated October 20, 1982,
Partner
By: /s/ JANICE ROSENQUIST
---------------------------
Janice Rosenquist,
Trustee of the
Lee Sammis Irrevocable
Trust dated March 4,
1991, Partner
"Tenant" PROCOM TECHNOLOGY, INC., a
California corporation
By: /SIG/
--------------------------------
Its EVP
-----------------------------
By:
--------------------------------
Its
-----------------------------
-2-
<PAGE> 18
SECOND AMENDMENT TO STANDARD INDUSTRIAL/COMMERCIAL
SINGLE-TENANT LEASE - GROSS
(Extension of Term)
THIS SECOND AMENDMENT TO STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT
LEASE - GROSS ("Amendment"), dated as of May 18, 1995, is entered into by and
between 2181 DUPONT ASSOCIATES, A CALIFORNIA LIMITED PARTNERSHIP ("Lessor"),
and PROCOM TECHNOLOGY, INC., a California corporation ("Lessee"), with
reference to the following recitals:
RECITALS
A. Lessor and Lessee entered into that certain Standard
Industrial/Commercial Single-Tenant Lease - Gross dated as of February 10,
1992, as amended by that certain First Amendment to Standard
Industrial/Commercial Single-Tenant Lease - Gross dated as of March 15, 1995
(collectively, the "Lease"), concerning certain premises located at 2181 Dupont
Drive, Irvine, California 92715 ("Premises"). The capitalized terms used and
not otherwise defined herein shall have the same definitions as set forth in
the Lease.
B. Lessor and Lessee now desire to modify the Lease to further
extend the Term, all upon the terms and conditions set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and for
other valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Lessor and Lessee hereby agree that the Lease shall be modified
and/or supplemented as follows:
1. EXTENSION OF TERM. The Term of the Lease is hereby extended
commencing June 1, 1995 through and including July 31, 1998.
2. FURTHER EXTENSION OPTION. Upon the expiration of the extended
Term of the Lease, provided no Breach or Default by Lessee has occurred and is
continuing, Lessee shall have the option to further extend the Term of the
Lease for an additional four (4) months, so long as (i) Lessee provides to
Lessor written notice of its intent to exercise such further extension option
not less than one hundred twenty (120) days prior to the expiration of the
extended Term, and (ii) during any such further extension period, all of the
terms and provisions of the Lease shall be and remain in full force and effect,
as amended by this Amendment, except that Monthly Rent shall be increased
during such further extended Term to an amount equal to Forty-Three Thousand
One Hundred Twenty-Five Dollars ($43,125.00) per month.
3. MONTHLY RENT. Notwithstanding any provision of the Lease,
Monthly Rent for each month of the extended Term shall be as follows:
(a) June, 1995 and July, 1995 shall be at Thirty-Five
Thousand Two Hundred Fifty Dollars ($35,250.00) per month;
(b) Commencing August 1, 1995 through and including the
expiration of the extended Term, Thirty-Seven Thousand Five Hundred
Dollars ($37,500.00) per month;
(c) Notwithstanding the foregoing, provided Tenant is not
in Breach or Default of the Lease or this Amendment, Monthly Rent for
January, 1997 shall be waived.
<PAGE> 19
All Monthly Rent hereunder shall be due on or before the first (1st) calendar
day of each calendar month, made payable to Lessor at such place as Lessor may
designate, without deduction, offset, prior notice or demand, in lawful money
of the United States. Throughout the extended Term, Lessee shall also continue
to pay all other amounts required to be paid by Lessee under the Lease.
4. HVAC MAINTENANCE. Throughout the extended Term of the Lease,
Lessee shall, at Lessee's expense, enter into and maintain at all times an HVAC
preventative maintenance service contract with Conditioned Air Technicians
providing the services as described in EXHIBIT "1" attached hereto, or with
such other reputable service contractor and/or on such other terms and
conditions as may be approved by Lessor in its sole discretion.
Notwithstanding such HVAC preventative maintenance contract, Lessor shall bear
the expense of any repairs and replacement of all or any portion of the HVAC
system serving the Building, unless such repair or replacement is due to any
act or omission of Lessee, its sublessees, employees, agents or contractors, in
which event Lessee shall bear the expense of such repair and/or replacement.
5. LIMITED REFURBISHMENT. Promptly following August 1, 1995,
Lessor shall complete, at Lessor's expense, the following limited refurbishment
work at the Premises:
(a) Replace carpet in the general office areas of the
premises on an as needed basis.
(b) Enlarge the reception area to include the office on
the right side thereof, and thereafter re-carpet and repaint the
reception area;
(c) Secure, repaint and re-carpet the 1,000 square foot
office in the rear warehouse area of the Premises and provide a new
entrance door to said office; and
(d) Provide-touch-up painting on an as-needed basis in
the general office areas of the Premises.
All such painting and carpeting shall be done by contractors chosen by Lessor,
and shall be undertaken using Lessor's then-standard style, make, grade and
color of paint and carpeting. Other than such limited refurbishment, Lessor
shall have no obligation to do any other improvement work at the Premises.
6. SUBLEASING. Lessor hereby approves a sublease between Lessee
and Hughes Data Corporation for the rear twelve thousand (12,000) square foot
portion of the Premises, including warehouse and one (1) office. Such approval
shall not (i) relieve Lessee from any liability, obligation or responsibility
under the Lease, or (ii) constitute a waiver of Lessor's right to approve any
other proposed sublease of all or any portion of the Premises in accordance
with Section 12 of the Lease, or (iii) affect or diminish any of Lessor's
rights under Section 12 of the Lease with respect to the approved sublease with
Hughes Data Corporation or with respect to any other future sublease of all or
any portion of the Premises which may be approved by Lessor pursuant to said
Section 12; all of which rights of Lessor and obligations of Lessee are hereby
reserved and preserved. In no event shall Hughes Data Corporation or any other
future sublessee of all or any portion of the Premises have any right of
occupancy of all or any portion of the Premises beyond the expiration or
earlier termination of the Term of the Lease.
7. GENERAL.
(a) Effect of Amendment; Ratification. Except to the
extent the Lease is modified by this Amendment, the terms and
provisions of the Lease shall remain unmodified
-2-
<PAGE> 20
and in full force and effect. In the event of conflict between the
terms of the Lease and the terms of this Amendment, the terms of this
Amendment shall prevail.
(b) Attorneys' Fees. The provisions of the Lease
respecting payment of attorney's fees shall also apply to this
Amendment.
(c) Counterparts. If this Amendment is executed in
counterparts, each counterpart shall be deemed an original.
(d) Authority to Execute Amendment. Each individual
executing this Amendment on behalf of a corporation or partnership
represents that he or she is duly authorized to execute and deliver
this Amendment on behalf of the corporation or partnership and that
this Amendment is binding upon the corporation or partnership in
accordance with its terms.
(e) Governing Law. This Amendment and any enforcement of
the agreements and modifications set forth above shall be governed by
and construed in accordance with the laws of the State of California.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
"Lessor" 2181 DUPONT ASSOCIATES, A
CALIFORNIA LIMITED PARTNERSHIP
By: /s/ RICHARD N. DICK
--------------------------------
Richard N. Dick, Managing
General Partner
By: SOD Partners, a California
general partnership, General
Partner
By: /s/ JOHN D. O'DONNELL
-------------------------------
John D. O'Donnell,
Trustee of the J. and P.
O'Donnell Revocable Trust
dated October 20, 1982,
Partner
[SIGNATURES CONTINUED] By: /s/ JANICE ROSENQUIST
-------------------------------
Janice Rosenquist, Co-Trustee
of the Lee Sammis Irrevocable
Trust dated March 4, 1991,
Partner
-3-
<PAGE> 21
"Lessee" PROCOM TECHNOLOGY, INC., a
California corporation
By: /SIG/
--------------------------------
Its EVP
-----------------------------
By: /SIG/
--------------------------------
Its
-----------------------------
-4-
<PAGE> 22
[CONDITIONED AIR TECHNICIANS LOGO]
Air Conditioning and Refrigeration Contractors Lic. #563781
Page 1 of 2
MAINTENANCE SERVICE AGREEMENT
I/We: Procom Technology
2181 Dupont Drive
Irvine, CA 92715
Attention: Libby Harris
(714) 852-1000
Request maintenance as a preventive measure for our Heating-Air
Conditioning-Ventilating equipment.
Conditioned Air Technicians shall inspect the equipment at least 12 times per
year and perform the usual service operation for preventive maintenance on a
regularly scheduled basis. This servicing shall be of good practice and
workmanship and in the manner recommended by the manufacturer. Conditioned Air
Technicians shall furnish necessary skilled technicians, testing equipment,
tools and other devices necessary to carry out proper maintenance.
The following items shall be inspected and performed:
1. Check, clean or replace filters.
2. Lubricate fan and motor bearings as required.
3. Check and adjust all belts.
4. Check electrical wiring and connections.
5. Check voltage and amperage for each load.
6. Check all control operations including safety.
7. Visually check for refrigerant leaks.
8. Check for excessive vibration or noise.
9. Check drains from coils.
10. Check for clean evaporator and condenser coils.
11. Check complete heating cycle.
12. Check complete cooling cycle.
13. Check thermostat.
14. Light clean-up around units.
It is understood that this maintenance service shall be performed only during
regular working hours, scheduled at the option to the maintenance contractor.
2650 Walnut Ave., Suite A, Tustin, CA 92680 o (714) 544-0494 o
FAX (714) 544-0459
<PAGE> 23
Page 2 of 2
Emergency service shall be extra to this agreement, billed at the prevailing
rate, plus parts.
Conditioned Air Technicians shall endeavor to answer all requests for service
within the same day, provided overtime is not involved, unless overtime is
agreeable.
This agreement may be cancelled by either party by giving Thirty (30) days
written notice.
This agreement covers the following pieces of equipment:
1. Carrier M#50DD054600AA Serial # K689552 - UNIT #1
2. Carrier M#48DD016B Serial # K688012 - UNIT #2
3. Carrier M#50DD046600XC Serial # A795254 - UNIT #4
4. Carrier M#48DD024 Serial # K689539 - UNIT #5
5. Carrier M#50DD044600XC Serial # A795255 - UNIT #6
6. BARD M#P60 Serial # 117454 - UNIT #8
For the sum of $240.00 per month, plus parts and filters, payable as service
rendered. 10% off all parts and filters.
The above amount is subject to review at anniversary. A Thirty (30) day
written notice will be given if any change is found necessary.
Dated this Thirteenth Day of May 1995.
Contractor: Owner or Purchaser:
CONDITIONED AIR TECHNICIANS PROCOM TECHNOLOGY
-------------------------------
Name
2181 DUPONT DRIVE
-------------------------------
Address
/s/ SCOTT S. BYINGTON 5-13-95 /SIG/ 5/8/95
- -------------------------------- -------------------------------
Scott S. Byington / Date Authorized Signature / Date
Service to Start: June 1995
-------------------
Month
<PAGE> 1
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
1994 1995 1996
---------- ---------- ----------
<S> <C> <C> <C>
Net income (loss)...................................... $ (773,000) $ 723,000 $2,849,000
========= ========= =========
Shares outstanding..................................... 9,000,000 9,000,000 9,000,000
Net incremental shares from assumed exercise of options
using the treasury stock method...................... 166,725 166,725 166,725
--------- --------- ---------
Total shares used in computation of EPS................ 9,166,725 9,166,725 9,166,725
========= ========= =========
Earnings per share..................................... $ (0.08) $ 0.08 $ 0.31
========= ========= =========
</TABLE>
<PAGE> 1
EXHIBIT 21.1
LIST OF SUBSIDIARIES
Procom FSC, Inc., a U.S. Virgin Islands Corporation
<PAGE> 1
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports (and all references to our Firm) included in or made part of this
registration statement.
ARTHUR ANDERSEN LLP
Orange County, California
October 29, 1996
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
AUDITED CONSOLIDATED FINANCIAL DATA OF THE COMPANY AS OF JULY 26, 1996 AND FOR
THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL DATA.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-26-1996
<PERIOD-START> JUL-29-1995
<PERIOD-END> JUL-26-1996
<EXCHANGE-RATE> 1
<CASH> 793
<SECURITIES> 0
<RECEIVABLES> 9,234
<ALLOWANCES> 373
<INVENTORY> 9,760
<CURRENT-ASSETS> 20,608
<PP&E> 476
<DEPRECIATION> 1,191
<TOTAL-ASSETS> 21,112
<CURRENT-LIABILITIES> 15,976
<BONDS> 0
0
0
<COMMON> 3
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 21,112
<SALES> 73,456
<TOTAL-REVENUES> 73,456
<CGS> 51,489
<TOTAL-COSTS> 51,489
<OTHER-EXPENSES> 17,036
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 282
<INCOME-PRETAX> 4,649
<INCOME-TAX> 1,800
<INCOME-CONTINUING> 2,849
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,849
<EPS-PRIMARY> .31
<EPS-DILUTED> .31
</TABLE>
