<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 21, 1997
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
STORAGE DIMENSIONS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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DELAWARE 3572 77-0324887
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
STORAGE DIMENSIONS, INC.
1656 MCCARTHY BLVD.
MILPITAS, CA 95035
(408) 954-0710
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
GENE E. BOWLES, JR.
EXECUTIVE VICE PRESIDENT
STORAGE DIMENSIONS, INC.
1656 MCCARTHY BLVD.
MILPITAS, CA 95035
(408) 954-0710
(NAME, ADDRESS, INCLUDING ZIP CODE AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
AGENT FOR SERVICE)
------------------------
Copies to:
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KENNETH M. SIEGEL, ESQ. GREGORY M. GALLO, ESQ.
TAMARA G. MATTISON, ESQ. JAMES M. KOSHLAND, ESQ.
VICTOR H. SIM, ESQ. DOUGLAS J. RENERT, ESQ.
WILSON SONSINI GOODRICH & ROSATI, GRAY CARY WARE & FREIDENRICH,
PROFESSIONAL CORPORATION A PROFESSIONAL CORPORATION
650 PAGE MILL ROAD 400 HAMILTON AVENUE
PALO ALTO, CA 94304 PALO ALTO, CA 94301
(415) 493-9300 (415) 328-6561
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
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. [ ]
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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. [ ]
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CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM
PROPOSED MAXIMUM AGGREGATE AMOUNT OF
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO OFFERING PRICE OFFERING REGISTRATION
TO BE REGISTERED BE REGISTERED(1) PER SECURITY(2) PRICE(2) FEE
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Common Stock, $0.005 par value.......... 4,370,000 shares $10.50 $45,885,000 $13,905
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</TABLE>
(1) Includes 570,000 shares which the Underwriters have options to purchase to
cover over-allotments, if any.
(2) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457.
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 JANUARY 21, 1997
PROSPECTUS
3,800,000 SHARES
LOGO
COMMON STOCK
------------------------
Of the 3,800,000 shares of Common Stock offered hereby, 2,700,000 shares
are being sold by Storage Dimensions, Inc. ("Storage Dimensions" or the
"Company") and 1,100,000 shares are being sold by certain
stockholders (the "Selling Stockholders"). See "Principal and Selling
Stockholders." The Company will not receive any of the proceeds from the sale of
shares by the Selling Stockholders.
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 $8.50 and $10.50 per share. See "Underwriting" for
information relating to the factors to be considered in determining the initial
public offering price. Application has been made to have the Common Stock listed
on the Nasdaq National Market under the symbol "STDM."
------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 6 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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UNDERWRITING PROCEEDS TO
PRICE TO DISCOUNTS AND PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS
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Per Share $ $ $ $
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Total(3) $ $ $ $
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</TABLE>
(1) For information regarding indemnification of the Underwriters, see
"Underwriting."
(2) Before deducting estimated expenses of the offering of $950,000, payable by
the Company.
(3) The Selling Stockholders have granted to the Underwriters 30-day options to
purchase up to 570,000 additional shares of Common Stock solely to cover
over-allotments, if any. See "Underwriting." If such options are exercised
in full, the total Price to Public, Underwriting Discounts and Commissions
and Proceeds to Selling Stockholders will be $ , $ and
$ , respectively.
------------------------
The shares of Common Stock are being offered by the several Underwriters
named herein, subject to prior sale, when, as and if accepted by them and
subject to certain conditions. It is expected that certificates for the shares
of Common Stock offered hereby will be available for delivery on or about
, 1997, at the office of Smith Barney Inc., 333 West 34th Street,
New York, New York 10001.
------------------------
SMITH BARNEY INC. SALOMON BROTHERS INC
, 1997
<PAGE> 3
[ARTWORK]
[PICTURES OF DISK AND TAPE STORAGE PRODUCTS]
ARTWORK CAPTIONS
1. Storage Dimensions offers a broad family of high-availability disk and tape
storage solutions for networks utilizing PC-LAN (Intel-based) servers, with
an emphasis on servers utilizing the Windows NT and NetWare operating
systems. The Company has developed an extensive library of proprietary
software which allows it to bring new technologies to the market quickly and
efficiently, while providing capabilities and features that differentiate the
Company's products from those of its competitors. Storage Dimensions'
products have won numerous industry awards in product comparisons and
editorial reviews.
2. The Company's SuperFlex and MegaFlex products provide redundancy and
fault-tolerance in a modular and scalable architecture, for deployment as
single, stand-alone units or higher capacity, multi-unit systems.
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
[GRAPHIC OF A "TYPICAL" CLIENT/SERVER NETWORK]
ARTWORK CAPTIONS
1. Networks employing the client/server architecture provide information and
computing resources to an organization's users (the "clients") by means of
shared computer servers (the "servers"). Storage Dimensions' products are
designed for deployment in a wide range of server applications typically
found within the client/server enterprise networks of large corporations,
institutions and government agencies.
2. Storage Dimensions' SuperFlex and MegaFlex disk storage products are
engineered to provide redundancy and fault-tolerance for critical components
such as disk drives, power supplies and cooling systems. Redundant components
are easily serviced and hot-swappable, to allow replacement by end-user
service personnel while the system remains on-line. Moreover, the Company's
storage management software is designed to provide ease of installation and
use, robust management of failure conditions, remote monitoring, automatic
notification of failure events, and on-line diagnostic and trouble-shooting
support.
To complement its disk products, Storage Dimensions has engineered a family
of high-speed, high-reliability tape backup systems that are designed to
address the challenges of backing up increasing amounts of data in
ever-shortening time periods. These tape products are developed and tested to
be easily integrated and fully compatible with the Company's storage systems.
The Company supplies external storage systems that are easily integrated with
the computer systems from a broad range of manufacturers. This cross-platform
capability affords significant economic advantages to end-users who have
heterogeneous and dynamic network environments, by letting them standardize
on a single external storage system that can be easily reconfigured and
redeployed as requirements change, as compared to the internal storage which
is dedicated to a specific manufacturer's server.
<PAGE> 5
PROSPECTUS SUMMARY
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth under "Risk Factors" and elsewhere in this Prospectus.
The following summary is qualified in its entirety by the more detailed
information and the financial statements and notes thereto appearing elsewhere
in this Prospectus.
THE COMPANY
Storage Dimensions designs, manufactures, markets and supports
high-performance data storage systems for open systems network applications.
Storage Dimensions currently focuses on the Intel-based local area network
market (the "PC-LAN market") by developing and marketing a broad family of disk
and tape storage systems that are designed to satisfy the high-performance,
fault-tolerance and high-availability requirements of its customers while at the
same time reducing life-cycle cost of ownership. The Company's products combine
its proprietary software with industry-standard hardware, such as disk drives,
tape drives and RAID (Redundant Arrays of Independent Disks) controllers, which
allows the Company to leverage the product development and manufacturing
capabilities and efficiencies of industry OEM manufacturers and to offer its
customers products that take advantage of what the Company believes to be the
best technology available. Storage Dimensions' products have won numerous
industry awards in product comparisons and editorial reviews. As the leading
independent supplier of high capacity RAID storage systems for the PC-LAN
market, Storage Dimensions believes that it is well-positioned to take advantage
of new opportunities being created by the projected growth in the PC-LAN market,
in particular the market for systems utilizing Microsoft Windows NT ("Windows
NT") and Novell NetWare ("NetWare").
The increased use of network computing to support business-critical
enterprise applications is fueling rapid demand growth for network disk storage
systems incorporating high performance, fault tolerance and high availability.
In addition, capacity requirements for network storage are accelerating due to
the deployment of data-intensive new applications, such as relational databases,
decision support systems, the Internet and intranets, video/multimedia and
document management. The Company believes that these factors will also increase
the demand for tape backup systems, which provide additional protection against
data loss in the event of various system malfunctions. While these factors are
driving the overall expansion of network storage, the PC-LAN storage market is
expected to grow disproportionately due, in part, to the deployment of
Intel-based servers using Pentium and Pentium Pro microprocessors, which offer
the computing power of RISC-based architectures at a significantly lower cost.
International Data Corporation ("IDC") projects that the U.S. market for PC-LAN
storage systems employing RAID technology will grow from $1.4 billion in 1995 to
$6.0 billion in 2000, a compound annual growth rate of 34%. These trends are
reinforced by the rapid adoption of the Windows NT operating system, which is
increasingly being used in mid-range database and application servers instead of
UNIX operating systems. IDC projects that the U.S. market for PC-LAN RAID
storage systems running on Windows NT servers will grow from $0.3 billion in
1995 to $2.1 billion in 2000, a compound annual growth rate of 50%.
Storage Dimensions' objective is to leverage its position as the leading
independent supplier of PC-LAN storage systems to capitalize on opportunities
presented by the projected growth in this market. Key elements of the Company's
strategy include the following: (i) focus on developing and marketing products
for the PC-LAN storage systems market, primarily for Windows NT and NetWare
applications; (ii) support customers' transition to Windows NT by designing
products that can be used in heterogeneous and dynamic network environments;
(iii) leverage proprietary systems integration software to bring new products
and features to market quickly; (iv) incorporate leading edge hardware in new
products through close relationships with key suppliers of storage system
components and technologies; (v) differentiate its products through proprietary
storage management software; (vi) provide comprehensive, proactive and
responsive customer service and support programs to end-user customers; and
(vii) leverage prior field sales and channel investments by maintaining both a
direct sales force and reseller distribution channels.
3
<PAGE> 6
The Company sells its products through a field sales force located in 15
domestic sales offices. In addition, the Company maintains multi-tiered
distribution channels comprised of distributors, national computer dealers,
systems integrators and VARs. Smaller customers have ready access to its
products through these indirect sales channels, and larger customers have the
option of sourcing directly from the Company or from a number of alternate
channels. Storage Dimensions' end-user customers include a broad range of
Fortune 1000 companies, including Cabletron Systems, Inc., the Centers for
Disease Control and Prevention, CNA Financial Corporation, Fleet Financial
Group, Inc., The Gap, Inc., Gateway 2000, MCI Telecommunications Corporation,
Pfizer Inc., The Southern Company and 3Com Corporation, as well as other major
corporations, institutions and governmental agencies.
The Company was incorporated in the State of Delaware in November 1992. In
an acquisition effected on December 26, 1992 (the "Acquisition"), the Company
acquired the assets and assumed the liabilities of the "Storage Dimensions"
subsidiary of Maxtor Corporation ("Maxtor") for an aggregate purchase price of
$21.4 million. References herein to the "Predecessor" are references to the
Storage Dimensions subsidiary of Maxtor prior to the Acquisition. The Company's
address is 1656 McCarthy Boulevard, Milpitas, California 95035 and its telephone
number is (408) 954-0710.
"Storage Dimensions" and "LANStor" are registered trademarks of the
Company. This Prospectus also contains trademarks of other companies.
THE OFFERING
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Common Stock to be offered by:
The Company........................................ 2,700,000 shares
The Selling Stockholders........................... 1,100,000 shares
Common Stock to be outstanding after the offering.... 7,836,623 shares(1)
Use of proceeds...................................... For repayment of outstanding debt and for
working capital and other general corporate
purposes. See "Use of Proceeds."
Proposed Nasdaq National Market symbol............... STDM
</TABLE>
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(1) Based on the number of shares outstanding as of December 31, 1996. Excludes
481,754 shares of Common Stock issuable upon exercise of stock options
outstanding as of December 31, 1996. See "Management -- Employee Stock
Plans" and Notes 6 and 7 of the Notes to Consolidated Financial Statements.
------------------------
Except as set forth in the consolidated financial statements or as
otherwise indicated, all information in this Prospectus (i) reflects the
conversion of all of the Company's outstanding shares of Preferred Stock into
shares of Common Stock, which will occur automatically upon the closing of this
offering, (ii) reflects a one-for-four reverse stock split of the Company's
Common Stock to be effected prior to the completion of this offering, and (iii)
assumes that the Underwriters' over-allotment options are not exercised. See
"Description of Capital Stock," "Underwriting," and Notes 6 and 11 of Notes to
Consolidated Financial Statements. The Company operates and reports financial
results on a fifty-two/fifty-three week fiscal year cycle ending on the Saturday
nearest December 31. The Company also follows a five-four-four week quarterly
cycle. For convenience, the Company has presented its fiscal years as ending on
December 31 and its fiscal quarters as ending on March 31, June 30, September 30
and December 31. See Note 1 of Notes to Consolidated Financial Statements.
4
<PAGE> 7
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ ----------------------------------------------------------------------------
NINE QUARTER ENDED
MONTHS YEAR ENDED --------------------------------------
ENDED DECEMBER 31, JUNE DEC.
DECEMBER 31, ---------------------------------- MARCH 31, 30, SEPT. 30, 31,
1992 1993 1994 1995 1996 1996 1996 1996 1996
------------ ------- ------- ------- ------- --------- ------- --------- -------
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CONSOLIDATED STATEMENT OF
OPERATIONS DATA:
Net sales:
Enterprise and OEM...... $ 8,764 $22,706 $40,088 $52,475 $69,873 $14,899 $17,795 $18,174 $19,005
Desktop................. 53,421 42,662 21,136 7,683 2,437 1,033 524 320 560
------- ------- ------- ------- ------- ------- ------- ------- -------
Total net sales....... 62,185 65,368 61,224 60,158 72,310 15,932 18,319 18,494 19,565
------- ------- ------- ------- ------- ------- ------- ------- -------
Gross profit.............. 18,807 17,128 19,226 22,988 26,983 5,820 6,525 7,014 7,624
------- ------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing..... 9,040 10,108 10,662 13,344 14,081 3,130 3,492 3,507 3,952
Research and
development........... 2,943 3,623 4,339 5,377 5,872 1,340 1,409 1,616 1,507
General and
administrative........ 3,067 6,986 3,293 3,390 3,644 876 902 927 939
Advisory fee(1)......... -- 340 362 360 729 91 91 91 456
------- ------- ------- ------- ------- ------- ------- ------- -------
Total operating
expenses............ 15,050 21,057 18,656 22,471 24,326 5,437 5,894 6,141 6,854
------- ------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from
operations.............. 3,757 (3,929) 570 517 2,657 383 631 873 770
Net income (loss)......... 2,301 (5,527) (437) (636) 1,370 119 271 550 430
Net income per share(2)... 0.25 0.02 0.05 0.10 0.08
Pro forma net income(3)... 2,121 285 499 736 601
Pro forma net income per
share(3)................ 0.32 0.04 0.08 0.11 0.09
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, 1996
------------------------
ACTUAL AS ADJUSTED(4)
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents...................................................... $ 1,682 $ 15,224
Working capital................................................................ 2,513 25,418
Total assets................................................................... 22,898 36,441
Short-term borrowings.......................................................... 9,629 267
Accumulated deficit............................................................ (5,230) (5,230)
Total stockholders' equity..................................................... 4,628 27,533
</TABLE>
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(1) Represents an advisory fee paid to Capital Partners, Inc. ("Capital
Partners") pursuant to an Investment Advisory Services Agreement (the
"Advisory Agreement") between the Company and Capital Partners. The Advisory
Agreement was terminated in December 1996. The 1996 amount includes a
one-time termination payment of $360,000. See "Certain Transactions."
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net income per share.
(3) The pro forma information gives effect to the sale by the Company of that
number of shares of Common Stock sufficient to generate net assets equal to
the amount of the debt to be paid from the proceeds of this offering, and
the repayment of such debt, all as if the offering and debt repayment had
occurred at the beginning of the period. See "Use of Proceeds" and "Certain
Transactions."
(4) Adjusted to reflect the sale of 2,700,000 shares of Common Stock by the
Company hereby at an assumed initial public offering price of $9.50 share,
after deducting estimated underwriting discounts and commissions and
offering expenses payable by the Company and the application of the
estimated net proceeds therefrom, including the use of approximately $9.4
million to repay amounts owed under a bank line of credit and a note payable
to Maxtor. See "Use of Proceeds" and "Capitalization."
5
<PAGE> 8
RISK FACTORS
This Prospectus contains forward-looking statements that involve risks and
uncertainties. The Company's actual results could differ materially from those
anticipated in these forward-looking statements as a result of certain factors,
including those set forth in the following risk factors and elsewhere in this
Prospectus. In evaluating the Company's business, prospective investors should
consider carefully the following factors in addition to the other information
set forth in this Prospectus.
HISTORY OF OPERATING LOSSES; POTENTIAL FLUCTUATIONS IN QUARTERLY RESULTS
The Company was organized in December 1992 as the result of a management
buyout of the Storage Dimensions subsidiary of Maxtor. The Company had an
accumulated deficit of $5.2 million as of December 31, 1996. While the Company
generated net income in 1996, it incurred losses in each of 1993, 1994 and 1995.
There can be no assurance that the Company will remain profitable on a quarterly
or annual basis.
The Company's quarterly operating results have in the past varied and may
in the future vary significantly depending on a number of factors, including:
the level of competition; the size, timing, cancellation or rescheduling of
significant orders; product configuration and mix; market acceptance of new
products and product enhancements; new product announcements or introductions by
the Company's competitors; deferrals of customer orders in anticipation of new
products or product enhancements; changes in pricing by the Company or its
competitors; the impact of price protection measures and return privileges
granted by the Company to its distributors and VARs; the ability of the Company
to develop, introduce and market new products and product enhancements on a
timely basis; hardware component costs and availability, particularly with
respect to hardware components obtained from sole sources; hardware supply
constraints; the Company's success in expanding its sales and marketing
programs; technological changes in the network storage system market, in
particular the PC-LAN storage system market; the mix of sales among the
Company's sales channels; levels of expenditures on research and development;
changes in Company strategy; personnel changes; general economic trends and
other factors. In addition, the Company has experienced modest seasonality in
the past, with sales in the first quarter declining somewhat from the level
achieved in the fourth quarter of the prior year. The Company expects this trend
to continue in future periods and, as a result, expects net sales and results of
operations for the first quarter of 1997 to decrease from the levels achieved in
the fourth quarter of 1996. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
Sales for any future quarter are not predictable with any significant
degree of certainty. The Company generally operates with limited order backlog
because its products typically are shipped shortly after orders are received. As
a result, sales in any quarter are generally dependent on orders booked and
shipped in that quarter. Sales are also difficult to forecast because the PC-LAN
storage system market is rapidly evolving and the Company's sales cycles vary
substantially from customer to customer. The Company's customers generally have
the right to cancel orders at any time and to return the Company's products for
a refund. The cancellation of orders already placed and the return of products
could have a material adverse effect on the Company's operating results in any
quarter. Due to the typical timing of customer orders, the Company often ships
products representing a significant portion of its net sales for a quarter
during the last month of that quarter. Any significant deferral of these sales
could have a material adverse effect on the Company's results of operations in
any particular quarter. To the extent that the Company completes significant
sales earlier than expected, operating results for subsequent quarters may be
adversely affected. The Company's expense levels are based, in part, on its
expectations as to future sales. As a result, if sales levels are below
expectations, net income may be disproportionately affected.
Over the past several years, the Company has transitioned its focus from
desktop subsystem products to enterprise RAID products for use primarily in
PC-LAN network applications. As a result, the Company has become increasingly
dependent on the market for these products and on its ability to compete
successfully in this market. Although the Company has experienced growth in its
net sales of enterprise and OEM products in recent periods, the Company's net
sales from its desktop products have declined during the same periods. There can
be no assurance that the Company will continue to experience sales growth with
respect to its
6
<PAGE> 9
enterprise and OEM products in future periods. Due to all of the foregoing
factors, the Company believes that period-to-period comparisons of its results
of operations are not necessarily meaningful and should not be relied upon as an
indicator of future performance. It is possible that in some future quarter the
Company's operating results may be below the expectations of public market
analysts and investors. In such event, the price of the Company's Common Stock
would likely be materially and adversely affected. See "Selected Consolidated
Financial Data" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations."
RELIANCE ON KEY CUSTOMERS AND INDIRECT DISTRIBUTION CHANNELS
The Company sells its products through a direct sales force and through
multi-tiered distribution channels. Approximately 70% of the Company's sales in
1996 were made through its indirect sales channels. In 1996, the Company's top
ten customers, of which eight were distributors or VARs, accounted for
approximately 50% of the Company's total net sales. In particular, Xerox
Corporation ("Xerox"), an OEM customer, and Tech Data Corporation ("Tech Data"),
a distributor, accounted for approximately 13% and 8% of the Company's 1996
total net sales, respectively. In 1995, the Company's top ten customers, of
which eight were distributors or VARs, accounted for approximately 51% of its
total net sales, and Tech Data and Xerox accounted for approximately 15% and 11%
of the Company's total net sales, respectively. The Company expects that a high
percentage of its sales for the foreseeable future will be through indirect
channels and to a limited number of customers. There can be no assurance that
orders from existing customers will continue at their historical levels, or that
the Company will be able to obtain orders from new customers. The Company
generally has not entered into long-term volume purchase contracts with its
customers, and the Company's customers generally have certain rights to extend
or to delay the shipment of their orders. The Company provides price protection
to distributors such that, if the Company reduces the price of its products,
distributors are entitled to a credit for the difference between the new,
reduced price and the price they previously paid for products which are held in
the distributor's inventory at the time of the price reduction. As a result,
price reductions could have an immediate material adverse effect on the
Company's results of operations, depending upon distributor inventory levels at
the time of the price reduction. The Company's distributors and VARs may also
carry competing product lines and could reduce or discontinue sales of the
Company's products, which could have a material adverse effect on the Company's
operating results. Although the Company believes that it provides adequate
allowances for product returns, there can be no assurance that actual returns
will not exceed recorded allowances which could have a material adverse effect
on its operating results. In addition, there can be no assurance that existing
end-user customers will not purchase their network storage equipment from the
manufacturer that provides their network computing systems and, as a result,
reduce or eliminate purchases from the Company. The loss of one or more of the
Company's current customers, particularly a principal customer, or cancellation
or rescheduling of orders already placed, could materially and adversely affect
the Company's business, operating results or financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON NEW PRODUCTS; RAPID TECHNOLOGICAL CHANGE
The network storage system market is characterized by rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards. The introduction of products embodying new technologies and
increased storage capacities by the Company's competitors and the emergence of
new industry standards could render the Company's existing products obsolete and
unmarketable. The Company's future success will depend upon its ability to
develop and to introduce new products with increasing storage capabilities
(including new software releases and enhancements) on a timely basis that keep
pace with technological developments and emerging industry standards and address
the increasingly sophisticated needs of its customers. The Company intends to
begin shipping its entry level storage system product (RAIDPro) in the first
half of 1997 and its new intelligent storage server product in the second half
of 1997. There can be no assurance that the Company will be successful in
developing and releasing these two new products on its current schedule or at
all, or that these products will achieve market acceptance. The failure of the
Company to achieve significant net sales from these two products could have a
material adverse effect on the Company's business, operating results or
financial condition. There can be no assurance that the
7
<PAGE> 10
Company will be successful in developing and marketing any other products that
respond to technological changes or evolving industry standards, that the
Company will not experience difficulties that could delay or prevent the
successful development, introduction and marketing of new products, or that its
new products will adequately meet the requirements of the marketplace and
achieve market acceptance. If the Company is unable, for technological or other
reasons, to develop and introduce new products, in particular those for use with
Windows NT, in a timely manner in response to changing market conditions or
customer requirements, the Company's business, operating results and financial
condition will be materially and adversely affected.
Network storage system products like those offered by the Company may
contain undetected software errors or failures when first introduced or as new
versions are released. There can be no assurance that, despite testing by the
Company and by current and potential customers, errors will not be found in new
products after commencement of commercial shipments, resulting in a loss of or
delay in market acceptance, which could have a material adverse effect on the
Company's business, operating results or financial condition. The Company's
standard warranty provides that if the system does not function to published
specifications the Company will repair or replace the defective component
without charge. Although to date the Company's suppliers of hardware components
have generally covered the warranty costs associated with such components, there
can be no assurance that such manufacturers will continue to be willing or able
to cover such costs, and their failure to do so would result in such costs being
borne by the Company. There can be no assurance that the Company's warranty
costs will not be significant in the future. Significant warranty costs,
particularly those that exceed reserves, could have a material adverse effect on
the Company's business, operating results or financial condition.
The Company's agreements with its customers typically contain provisions
intended to limit the Company's exposure to potential product liability claims.
It is possible that the limitation of liability provisions contained in the
Company's agreements may not be effective. Although the Company has not received
any product liability claims to date, the sale and support of products by the
Company and the incorporation of products from other companies may entail the
risk of such claims. A successful product liability claim against the Company
could have a material adverse effect on the Company's business, operating
results or financial condition.
DEPENDENCE ON GROWTH IN THE PC-LAN MARKET
Most of the Company's products address the PC-LAN market, in particular
NetWare and Windows NT applications. The Company currently intends to continue
to focus its development and marketing efforts on PC-LAN storage system
applications. While the Company may in the future evaluate opportunities outside
its target markets, no such products are currently under development. To date, a
significant portion of the Company's net sales have been derived from sales of
products for use with NetWare applications. The Company's future financial
performance will depend in large part on continued growth in the PC-LAN market,
in particular NetWare and Windows NT applications. There can be no assurance
that NetWare and Windows NT will remain the leading operating systems in the
PC-LAN market, or that the PC-LAN market will grow at rates currently
anticipated, or at all. If the PC-LAN market fails to grow or grows more slowly
than anticipated, or if PC-LAN storage systems based on emerging standards other
than NetWare or Windows NT and other standards adopted by the Company become
increasingly accepted by the market, the Company's business, operating results
and financial condition would be materially and adversely affected. During
recent years, segments of the computer industry have experienced significant
economic downturns characterized by decreased product demand, production
overcapacity, price erosion, work slowdowns and layoffs. The Company's
operations may in the future experience substantial fluctuations from period to
period as a consequence of such industry patterns, general economic conditions
affecting the timing of orders from major customers and other factors affecting
capital spending. There can be no assurance that such factors will not have a
material adverse effect on the Company's business, operating results or
financial condition. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
8
<PAGE> 11
COMPETITION
The network storage system market is intensely competitive. The Company
competes primarily in the PC-LAN server storage market and experiences the
greatest competition from traditional suppliers of PC-LAN network servers, such
as Compaq Corporation ("Compaq"), Hewlett-Packard Company ("Hewlett-Packard")
and International Business Machines Corporation ("IBM"), who market storage
systems as part of their complete computer systems. Storage Dimensions also
competes against independent storage system suppliers to the PC-LAN server
market, including DEC Storage Works, MTI Technology, Procom Technology, Inc. and
StreamLogic Corporation. In addition, providers of storage for the mainframe or
UNIX-based markets, such as Auspex Systems, Inc., Data General Corporation, EMC
Corporation, Network Appliance, Inc., Storage Computer, Inc. and Symbios Logic,
Inc., could develop and market products that address the PC-LAN storage systems
market, and in particular Windows NT applications. Many of the Company's current
and potential competitors have significantly greater financial, technical,
marketing, purchasing and other resources than the Company, and as a result, may
be able to respond more quickly to new or emerging technologies and changes in
customer requirements, to devote greater resources to the development, promotion
and sale of products than can the Company, or to deliver competitive products at
a lower end-user price. The Company also expects that competition will increase
as a result of industry consolidations. Current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced operating margins and loss of market share, any of which
could have a material adverse effect on the Company's business, operating
results or financial condition.
The Company believes that the principal competitive factors affecting its
market include: fault-tolerant reliability, performance, ease of use,
scalability, configurability, price and customer service and support. There can
be no assurance that the Company will be able to successfully incorporate these
factors into its products and to compete against current or future competitors
or that competitive pressures faced by the Company will not materially and
adversely affect its business, operating results or financial condition. See
"Business -- Competition."
DEPENDENCE ON LIMITED NUMBER OF SUPPLIERS OF HIGH QUALITY COMPONENTS
The Company relies upon a limited number of suppliers of several key
components utilized in the assembly of the Company's products. For example, the
Company purchases disk drives primarily from Seagate Technology, Inc.
("Seagate") and Micropolis Corporation ("Micropolis"), DLT tape drives
exclusively from Quantum Corporation ("Quantum") and DGR (Dynamic Growth and
Reconfiguration) RAID controllers exclusively from American Megatrends, Inc.
("American Megatrends"). The Company's reliance on its suppliers involves
several risks, including: an inadequate supply of required components; price
increases; late deliveries; and poor component quality. These risks are
particularly significant with respect to suppliers of disk drives because, in
order to meet product performance requirements, the Company must obtain disk
drives with extremely high quality and capacity. In addition, there is currently
a significant market demand for disk drives, tape drives and RAID controllers,
and from time to time the Company may experience component shortages, selective
supply allocations and increased prices of such components. Although to date the
Company has been able to purchase its requirements of such components, there can
be no assurance that the Company will be able to obtain its full requirements of
such components in the future or that prices of such components will not
increase. In addition, there can be no assurance that problems with respect to
yield and quality of such components and timeliness of deliveries will not
occur. Disruption or termination of the supply of these components could delay
shipments of the Company's products and could have a material adverse effect on
the Company's business, operating results or financial condition. Such delays
could also damage relationships with current and prospective customers. See
"Business -- Manufacturing."
In the past, due to the Company's quality requirements, the Company has
experienced delays in the shipments of its new products principally due to an
inability to qualify component parts from disk drive manufacturers and other
suppliers, resulting in delay or loss of product sales. The Company has
currently
9
<PAGE> 12
qualified disk drives manufactured by Seagate and Micropolis, tape drives from
Quantum, and RAID controllers from Mylex Corporation ("Mylex") and American
Megatrends. Although these delays in the past have not had a material adverse
effect upon the Company's business, operating results or financial condition,
there can be no assurance that in the future any such delays would not have such
a material adverse effect.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
Storage Dimensions' success depends significantly upon its proprietary
technology. The Company currently relies on a combination of copyright and
trademark laws, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company has registered
its Storage Dimensions and LANStor trademarks and will continue to evaluate the
registration of additional trademarks as appropriate. The Company generally
enters into confidentiality agreements with its employees and with key vendors
and suppliers. The Company currently has one U.S. patent application pending
associated with the object-oriented layered architecture of its RAIDFlex array
management software. There can be no assurance that this patent will eventually
be issued, that the Company will develop proprietary products or technologies
that are patentable, that any patent issued in the future will provide the
Company with any competitive advantages or will not be challenged by third
parties, or that the patents of others will not have a material adverse effect
on the Company's ability to do business. The Company believes that the rapidly
changing technology in the computer storage industry makes the Company's success
dependent more on the technical competence and creative skills of its personnel
than on any patents it may be able to obtain.
There has also been substantial litigation in the computer industry
regarding intellectual property rights, and litigation may be necessary to
protect the Company's proprietary technology. The Company has from time to time
received claims that it is infringing third parties' intellectual property
rights, and there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. The Company expects that companies in
the storage system market will increasingly be subject to infringement claims as
the number of products and competitors in the Company's target markets grows.
Any such claims or litigation may be time-consuming and costly, cause product
shipment delays, require the Company to redesign its products or require the
Company to enter into royalty or licensing agreements, any of which could have a
material adverse effect on the Company's business, operating results or
financial condition. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy aspects of the Company's
products or to obtain and use information that the Company regards as
proprietary. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Company's means of protecting its proprietary
rights will be adequate or that the Company's competitors will not independently
develop similar technology, duplicate the Company's products or design around
patents issued to the Company or other intellectual property rights of the
Company. See "Business -- Proprietary Technology and Intellectual Property."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends in significant part upon the
continued service of its key technical and senior management personnel. The
Company provides incentives such as salary, benefits and option grants (which
are typically subject to vesting over four years) to attract and retain
qualified employees. The loss of the services of one or more of the Company's
officers or other key employees could have a material adverse effect on the
Company's business, operating results or financial condition. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical and management personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key technical and management employees or that it can attract, assimilate or
retain other highly qualified technical and management personnel in the future.
See "Business -- Employees" and "Management."
10
<PAGE> 13
NO PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE
Prior to this offering there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market for the
Common Stock will develop or be sustained after this offering. The initial
public offering price will be determined by negotiation among the Company, the
Selling Stockholders and the Underwriters based upon several factors, and may
not be indicative of future market prices. See "Underwriting" for information
relating to the factors to be used in determining the initial public offering
price. The trading price of the Company's Common Stock could be subject to wide
fluctuations in response to a number of factors, including quarterly variations
in operating results, announcements of technological innovations or new
products, applications or product enhancements by the Company or its
competitors, changes in financial estimates by securities analysts and other
events. In addition, the stock market has experienced volatility that has
particularly affected the market prices of equity securities of many high
technology companies and that often has been unrelated or disproportionate to
the operating performance of such companies. These broad market fluctuations may
adversely affect the market price of the Company's Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Sales of a substantial number of shares of Common Stock after this offering
could adversely affect the market price of the Company's Common Stock and could
impair the Company's ability to raise capital through the sale of equity
securities. Upon completion of this offering, the Company will have outstanding
7,836,623 shares of Common Stock, assuming no exercise of options outstanding as
of December 31, 1996. Of these shares, the 3,800,000 shares offered hereby
(4,370,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act ("Rule 144") described below. The remaining 4,036,623 shares of
Common Stock outstanding upon completion of this offering are "restricted
securities" as that term is defined in Rule 144. All of these shares are subject
to Lock-Up Agreements (described below); accordingly, none of these shares will
be eligible for immediate sale upon commencement of this offering. Upon
expiration of the Lock-Up Agreements (which occurs on the date 180 days after
commencement of this offering), an aggregate of 254,132 shares will become
eligible for sale without restriction pursuant to Rule 144(k) or Rule 701 under
the Securities Act and approximately 3,782,491 additional shares will be
eligible for sale subject to the volume and manner of sale restrictions of Rule
144. See "Shares Eligible for Future Sale." Holders of an aggregate of 3,706,623
shares will have the right to require the Company to register such shares for
sale under the Securities Act. See "Description of Capital Stock -- Registration
Rights."
CONCENTRATION OF STOCK OWNERSHIP
Upon completion of this offering, the Company's executive officers and
directors, together with their affiliates, will beneficially own approximately
49.3% of the Company's outstanding shares of Common Stock. Accordingly, these
stockholders, if acting together, will continue to be able to exert significant
influence on the election of the Company's directors, the approval of mergers
and other change in control transactions involving the Company and the
determination of other corporate actions requiring stockholder approval,
regardless of how other stockholders of the Company may vote. See "Management,"
"Principal and Selling Stockholders" and "Description of Capital Stock."
ANTI-TAKEOVER PROVISIONS
Certain provisions of the Company's Certificate of Incorporation, as
amended and restated, and Bylaws, as amended, Delaware law and the Company's
indemnification agreements with certain officers and directors of the Company
may be deemed to have an anti-takeover effect. Such provisions may delay, defer
or prevent a tender offer or takeover attempt that a stockholder might consider
to be in that stockholder's best interests, including attempts that might result
in a premium over the market price for the shares held by stockholders.
11
<PAGE> 14
The Company's Board of Directors may issue additional shares of Common
Stock or establish one or more classes or series of Preferred Stock, having the
number of shares (up to 10,000,000), designations, relative voting rights,
dividend rates, liquidation and other rights, preferences and limitations as
determined by the Board of Directors without stockholder approval. The Company's
Certificate of Incorporation, as amended and restated, and Bylaws, as amended,
also contain a number of provisions that could impede a takeover or change in
control of the Company, including but not limited to the elimination of
stockholders' ability to take action by written consent and a fair price
requirement.
In addition, the Company is subject to the anti-takeover provisions of
Section 203 of the Delaware General Corporation Law. In general, the statute
prohibits a publicly-held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless the business combination is approved in a prescribed manner.
Each of the foregoing provisions gives the Board of Directors, acting
without stockholder approval, the ability to prevent, or render more difficult
or costly, the completion of a takeover transaction that stockholders might view
as being in their best interests. See "Description of Capital
Stock -- Anti-Takeover Provisions."
DILUTION
Investors participating in this offering will incur immediate, substantial
dilution. To the extent outstanding options to purchase the Company's Common
Stock are exercised, there will be further dilution. See "Dilution."
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,700,000 shares of
Common Stock being offered by the Company hereby, based on an assumed initial
public offering price of $9.50 per share and after deducting estimated
underwriting discounts and commissions and offering expenses payable by the
Company, are estimated to be approximately $22.9 million. The Company will not
receive any proceeds from the sale of shares by the Selling Stockholders. The
Company expects to use the net proceeds from this offering to repay indebtedness
under the Company's revolving line of credit facility ($5.8 million outstanding
as of December 31, 1996) and $3.6 million owed to Maxtor under a subordinated
note dated December 26, 1992 (the "Maxtor Note"), and for general corporate
purposes, including working capital and capital expenditures. The line of credit
expires in May 1998 and bears interest at the rate of prime plus 1% (9.25% as of
December 31, 1996). Amounts owed under the Maxtor Note bear interest at 12%. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and "Certain Transactions." A portion of the net proceeds may also
be used to acquire or invest in complementary businesses or products or to
obtain the right to use complementary technologies. The Company has no present
plans, agreements or commitments and is not currently engaged in any
negotiations with respect to any such transactions. Pending use of the net
proceeds for the above purposes, the Company intends to invest such funds in
short-term, interest-bearing, investment grade obligations.
DIVIDEND POLICY
The Company has never paid cash dividends on its Common Stock or other
securities. The Company currently anticipates that it will retain all of its
future earnings for use in the expansion and operation of its business and does
not anticipate paying any cash dividends in the foreseeable future.
12
<PAGE> 15
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
December 31, 1996 and such capitalization as adjusted to give effect to the
conversion of the Company's Preferred Stock into Common Stock and the sale by
the Company of the 2,700,000 shares of Common Stock offered by the Company
hereby at an assumed initial public offering price of $9.50 per share (after
deducting estimated underwriting discounts and commissions and offering
expenses) and the application of net proceeds to the Company.
<TABLE>
<CAPTION>
DECEMBER 31, 1996
-----------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS,
EXCEPT SHARE DATA)
<S> <C> <C>
Short-term borrowings(1)....................................... $ 9,629 $ 267
======= =======
Stockholders' equity:
Preferred Stock, $0.005 par value; 13,850,000 shares
authorized, 13,849,670 shares issued and outstanding,
actual(2); 10,000,000 shares authorized, none issued and
outstanding, as adjusted.................................. $ 69 $ --
Common Stock, $0.005 par value; 22,500,000 shares authorized,
1,674,212 shares issued and outstanding, actual;
40,000,000 shares authorized, 7,836,623 shares issued and
outstanding, as adjusted(3)............................... 8 39
Additional paid-in capital................................... 10,267 33,210
Deferred compensation........................................ (486) (486)
Accumulated deficit.......................................... (5,230) (5,230)
------- -------
Total stockholders' equity................................ 4,628 27,533
------- -------
Total capitalization................................. $ 4,628 $27,533
======= =======
</TABLE>
- ---------------
(1) See Notes 2 and 4 of Notes to Consolidated Financial Statements.
(2) Upon completion of this offering, each four outstanding shares of Preferred
Stock will automatically convert into one share of Common Stock.
(3) As of December 31, 1996, there were options outstanding to purchase an
aggregate of 481,754 shares of Common Stock at a weighted average exercise
price of $0.55 per share and 1,024,586 shares were reserved for future
issuance under the Company's employee stock plans. See
"Management -- Employee Stock Plans" and Note 7 of Notes to Consolidated
Financial Statements.
13
<PAGE> 16
DILUTION
The net tangible book value of the Company as of December 31, 1996 was
$4,628,000 or $.90 per common equivalent share. 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 common
equivalent shares outstanding at that date. After giving effect to the sale by
the Company of the 2,700,000 shares of Common Stock offered hereby (at an
assumed initial public offering price of $9.50 per share and after deduction of
estimated underwriting discounts and commissions and offering expenses payable
by the Company), the Company's pro forma net tangible book value at December 31,
1996 would have been $27,533,000 or $3.51 per share. This represents an
immediate increase in net tangible book value to existing stockholders of $2.61
per share and an immediate dilution to new investors of $5.99 per share. The
following table illustrates the per share dilution:
<TABLE>
<S> <C> <C>
Initial public offering price per share...................................... 9.50
Net tangible book value per share as of December 31, 1996.................. $ .90
Increase in net tangible book value per share attributable to new
investors............................................................... 2.61
-----
Pro forma net tangible book value per share after the offering............... 3.51
-----
Dilution per share to new investors.......................................... $5.99
=====
</TABLE>
The following table sets forth on a pro forma basis as of December 31, 1996
the difference between the number of shares of Common Stock purchased from the
Company, the total consideration paid, and the average price per share paid by
existing stockholders and by the new investors (before deduction of estimated
underwriting discounts and commissions and offering expenses):
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
--------------------- ----------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders(1).......... 5,136,623 65.5% $ 9,599,000 27.2% $1.87
New investors(1).................. 2,700,000 34.5% 25,650,000 72.8 9.50
--------- ------ ----------- ------
Total................... 7,836,623 100.0% $35,249,000 100.0%
========= ====== =========== ======
</TABLE>
- ---------------
(1) Sales of shares of Common Stock by Selling Stockholders in this offering
will reduce the number of shares of Common Stock held by existing
stockholders to 4,036,623 shares or 51.5% of the shares of Common Stock
outstanding and will increase the number of shares of Common Stock held by
new investors to 3,800,000 shares or 48.5% of the shares of Common Stock
outstanding after this offering. See "Principal and Selling Stockholders."
The foregoing table assumes no exercise of the Underwriters' over-allotment
option and no exercise of stock options outstanding at December 31, 1996. As of
December 31, 1996, there were options outstanding to purchase a total of 481,754
shares of Common Stock at a weighted average exercise price of $0.55 per share
and 1,024,586 shares were reserved for grant of future options under the
Company's option plans. To the extent that any of these options are exercised,
there will be further dilution to new investors. See "Capitalization,"
"Management -- Employee Stock Plans" and Notes 6 and 7 of Notes to Consolidated
Financial Statements.
14
<PAGE> 17
SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with the Company's Consolidated Financial Statements and Notes
thereto and "Management's Discussion and Analysis of Financial Condition and
Results of Operations" included elsewhere herein. The consolidated statement of
operations data for the years ended December 31, 1994, 1995 and 1996 and the
consolidated balance sheet data as of December 31, 1995 and 1996 are derived
from consolidated financial statements of the Company that have been audited by
Price Waterhouse LLP, independent accountants, and are included elsewhere in
this Prospectus. The consolidated statement of operations data for the nine
months ended December 31, 1992 and the fiscal year ended December 31, 1993 and
the balance sheet data as of December 31, 1992, 1993 and 1994 are derived from
the audited consolidated financial statements of the Company that are not
included herein. The historical results are not necessarily indicative of the
results of operations to be expected in the future.
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------ -------------------------------------
NINE MONTHS
ENDED YEAR ENDED DECEMBER 31,
DECEMBER 31, -------------------------------------
1992 1993 1994 1995 1996
------------ ------- ------- ------- -------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales:
Enterprise and OEM................................... $ 8,764 $22,706 $40,088 $52,475 $69,873
Desktop.............................................. 53,421 42,662 21,136 7,683 2,437
------- ------- ------- ------- -------
Total net sales............................... 62,185 65,368 61,224 60,158 72,310
Cost of sales.......................................... 43,378 48,240 41,998 37,170 45,327
------- ------- ------- ------- -------
Gross profit........................................... 18,807 17,128 19,226 22,988 26,983
------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.................................. 9,040 10,108 10,662 13,344 14,081
Research and development............................. 2,943 3,623 4,339 5,377 5,872
General and administrative........................... 3,067 6,986 3,293 3,390 3,644
Advisory fee(1)...................................... -- 340 362 360 729
------- ------- ------- ------- -------
Total operating expenses...................... 15,050 21,057 18,656 22,471 24,326
------- ------- ------- ------- -------
Income (loss) from operations.......................... 3,757 (3,929) 570 517 2,657
Other income (expense), net............................ (46) (997) (983) (1,123) (1,155)
------- ------- ------- ------- -------
Income before provision for income taxes............... 3,711 (4,926) (413) (606) 1,502
Provision for income taxes............................. 1,410 601 24 30 132
------- ------- ------- ------- -------
Net income (loss)...................................... $ 2,301 $(5,527) $ (437) $ (636) $ 1,370
======= ======= ======= ======= =======
Net income per share(2)................................ $ 0.25
=======
Weighted average common and common equivalent shares
outstanding(2)....................................... 5,529
=======
Pro forma net income(3)................................ $ 2,121
=======
Pro forma net income per share(2)(3)................... $ 0.32
=======
Pro forma shares outstanding(3)........................ 6,589
=======
</TABLE>
<TABLE>
<CAPTION>
COMPANY
-------------------------------------
PREDECESSOR
------------ DECEMBER 31,
DECEMBER 31, -------------------------------------
1992 1993 1994 1995 1996
------------ ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 4,257 $ 502 $ 470 $ 363 $ 1,682
Working capital........................................ 12,512 1,952 2,680 543 2,513
Total assets........................................... 27,633 18,332 18,001 19,751 22,898
Long-term debt, less current portion................... -- 2,667 2,800 -- --
Total stockholders' equity............................. 16,203 3,580 3,331 2,862 4,628
</TABLE>
- ---------------
(1) Represents an advisory fee paid to Capital Partners pursuant to the Advisory
Agreement. The Advisory Agreement was terminated in December 1996. The 1996
amount includes a one-time termination payment of $360,000. See "Certain
Transactions."
(2) See Note 1 of Notes to Consolidated Financial Statements for an explanation
of shares used in computing net income per share.
(3) The pro forma information gives effect to the sale by the Company of that
number of shares of Common Stock sufficient to generate net assets equal to
the amount of the debt to be paid from the proceeds of this offering, and
the repayment of such debt, all as if the offering and debt repayment had
occurred at the beginning of the period. See "Use of Proceeds" and "Certain
Transactions."
15
<PAGE> 18
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following Management's Discussion and Analysis of Financial Condition
and Results of Operations contains forward-looking statements that involve risks
and uncertainties. The Company's actual results could differ materially from
those anticipated in these forward-looking statements as a result of certain
factors, including those set forth in this section as well as those discussed
under the caption "Risk Factors" elsewhere in this Prospectus.
OVERVIEW
The Company was formed in late 1992 to acquire the assets of the "Storage
Dimensions" subsidiary of Maxtor for an aggregate of $21.4 million. The
Acquisition, which was completed in December 1992, was financed through equity
investments in the Company made by Capital Partners and its affiliates
(collectively, the "Capital Partners Group"), by certain members of management
and by Maxtor. A portion of the purchase price was also funded through bank
borrowings and through a subordinated term loan in the principal amount of $4
million payable to Maxtor. The note payable to Maxtor was originally due
December 31, 1995 but the maturity date was extended to the earlier to occur of
the completion of this offering or May 10, 1997. A portion of the proceeds of
this offering will be used to repay the remaining balance due to Maxtor.
Prior to the Acquisition, the Predecessor was primarily engaged in
designing, manufacturing and selling high volume storage products that attached
to PCs and Macintosh computers and low-end servers. These desktop products
generally incorporated Maxtor disk drives. As part of its strategy to develop a
business that could successfully operate independently from Maxtor and would
generate higher gross margins, during 1992 the Predecessor began to sell RAID
products targeted at the enterprise storage markets. For the nine months ended
December 31, 1992, desktop and enterprise/OEM product sales represented 85.9%
and 14.1%, respectively, of total net sales. In furtherance of its long-term
strategy, the transition was accelerated following the Acquisition such that, in
1994 enterprise/OEM product sales represented a majority of total net sales and,
for the year ended December 31, 1996, enterprise/OEM product sales grew to 96.6%
of total net sales. As the mix shifted from desktop products to enterprise/OEM
products, the gross margins improved from 26% in 1993 to 37% in 1996. The
Company does not expect sales of desktop products to represent a material
portion of its net sales in future periods.
The transition from desktop storage to enterprise RAID storage products
required a significant investment in research and development, sales and
marketing, and operations. To implement this transition, the Company
significantly enhanced its infrastructure and employee expertise during 1994,
1995 and 1996, and operating expenses increased from 32% of sales in 1993 to 34%
in 1996. The largest single expense associated with this transition was the
staffing of a direct end-user sales organization starting in the third quarter
of 1994.
The absorption of fixed manufacturing overhead suffered during the
transition from desktop to enterprise/OEM products as manufacturing volume
decreased and RAID systems required more sophisticated and time consuming
integration and test processes. The sale of the Company's Macintosh product line
in 1994 further reduced volume and exacerbated the unfavorable overhead
absorption situation. By the end of 1995 and continuing through 1996, the higher
manufacturing volumes of the Company's RAID enterprise/OEM products resulted in
greater overhead absorption and reductions in the per-unit manufacturing costs
of such products. At the end of 1996, the Company had significant excess
manufacturing capacity remaining. As a result, if manufacturing volumes were to
increase, the Company would expect to achieve further economies of scale and
lower per-unit manufacturing costs.
Revenue from product sales is recognized upon shipment. Net sales reflect
the invoiced amount for goods shipped less reserves for estimated returns. The
Company provides price protection to its distributors such that, if the Company
reduces the price of its products, distributors are entitled to a credit for the
difference between the new, reduced price and the price they previously paid for
products which are held in the distributor's inventory at the time of the price
reduction. As a result, price reductions could have a material
16
<PAGE> 19
adverse effect on results of operations, depending upon distributor inventory
levels at the time of the price reduction.
Storage Dimensions utilizes a direct sales force to penetrate major new
accounts, to create demand for its products, and to secure repeat business from
existing customers. Storage Dimensions also maintains reseller distribution
channels that facilitate procurement of the Company's products by small and
medium-sized end-users, producing incremental revenues from its marketing, sales
and promotional efforts. In addition, certain large customers prefer to source
through the reseller channels as part of their overall network equipment
sourcing and integration strategy. Therefore, the Company's resellers also
fulfill some large customer orders that were generated by the Company's direct
sales force. With its basic field sales organization and distribution channels
in place, the Company believes that it can generate additional sales at a lower
incremental selling cost, and intends to expand its field sales operations to
further leverage its current investment.
In connection with the Acquisition, the Company entered into the Advisory
Agreement with Capital Partners pursuant to which Capital Partners provided
advisory services to the Company. The Company paid $362,000 in 1994, $360,000 in
1995 and $729,000 in 1996 pursuant to the Advisory Agreement. The 1996 amount
includes a one-time payment of $360,000 paid by the Company in connection with
termination of the Advisory Agreement by mutual agreement in December 1996. The
foregoing amounts comprise the "Advisory Fee" expense item in the Company
Financial Statements. See "Certain Transactions."
During 1996, the Company agreed to issue an option to a consultant (the
"Consultant Option") pursuant to which the consultant will be entitled to
purchase up to 25,000 shares of Common Stock at an exercise price of $0.20 per
share. Rights under the Consultant Option are contingent upon successful
completion of this offering. The Company expects to record a compensation charge
in the first quarter of 1997 of approximately $233,000, which represents the
estimated value of the option as of the date it becomes exercisable (assuming an
initial public offering price of $9.50 per share). Such amount will be included
in general and administrative expenses in the period the option becomes
exercisable.
RESULTS OF OPERATIONS
The following table sets forth certain items from the Company's
consolidated statement of operations as a percentage of net sales for the
periods indicated:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales:
Enterprise and OEM............................ 65.5% 87.2% 96.6%
Desktop....................................... 34.5 12.8 3.4
----- ----- -----
Total net sales....................... 100.0% 100.0% 100.0%
===== ===== =====
Cost of sales................................... 68.6 61.8 62.7
----- ----- -----
Gross profit.................................... 31.4 38.2 37.3
----- ----- -----
Operating expenses:
Sales and marketing........................... 17.4 22.2 19.5
Research and development...................... 7.1 8.9 8.1
General and administrative.................... 5.4 5.6 5.0
Advisory fee.................................. 0.6 0.6 1.0
----- ----- -----
Total operating expenses.............. 30.5 37.3 33.6
----- ----- -----
Income from operations.......................... 0.9 0.9 3.7
----- ----- -----
Other income (expense), net..................... (1.6) (1.9) (1.6)
----- ----- -----
Income (loss) before provision for income
taxes......................................... (0.7) (1.0) 2.1
Provision for income taxes...................... -- -- 0.2
----- ----- -----
Net income(loss)................................ (0.7)% (1.0)% 1.9%
===== ===== =====
Pro forma net income............................ 2.9%
=====
</TABLE>
17
<PAGE> 20
1996 COMPARED TO 1995
Net Sales. Net sales increased 20.2% to $72.3 million in 1996, compared to
$60.2 million during 1995. Sales of enterprise/OEM products and desktop products
represented 96.6% and 3.4%, respectively, of total net sales in 1996 compared to
87.2% and 12.8%, respectively, in 1995, reflecting the continued shift in the
Company's product strategy toward these newer products. Net enterprise/OEM
product sales increased 33.1% to $69.8 million in 1996 compared to $52.5 million
in 1995. This increase resulted primarily from increased sales of previously
existing products and sales of products introduced in late 1995 and in 1996,
including: products incorporating dynamic growth and reconfigurability ("DGR")
features; enterprise storage products for Windows NT-based environments; and new
products incorporating 9 gigabyte disk drives. The level of sales to the
Company's primary OEM customer also increased in 1996. The Company believes that
these increases in sales are attributable, at least in part, to the Company's
increase of its sales staff in late 1994 and early 1995 which became more
productive in 1996. Desktop product sales decreased 68.0% to $2.5 million in
1996 compared to $7.7 million in 1995. The Company does not expect sales of
desktop products to represent a material portion of its total net sales in
future periods.
Gross Profit. Gross profit for 1996 was $27.0 million, or 37.3% of net
sales, compared to $23.0 million, or 38.2% of net sales in 1995. The decrease in
gross profit as a percentage of net sales in 1996 was primarily attributable to
pricing pressures in the market for products using 4 gigabyte disk drives during
the first half of 1996, as well as a relative increase in OEM sales which
generally carry lower gross profit margins than enterprise products. The adverse
effects of these factors were partially offset by the overall increase in sales
of enterprise products which tend to carry higher gross margins, manufacturing
efficiencies resulting from the higher level of sales of enterprise/OEM products
and the elimination from the Company's desktop product line of certain
lower-margin, commodity-like products. The Company's gross margin has been and
will continue to be affected by a variety of factors, including: competition;
product configuration; the mix of direct versus indirect sales; the mix of
desktop, enterprise and OEM products sold in any given period; the availability
of new products and product enhancements which tend to carry higher gross
margins than older products; and the cost and availability of components.
Sales and Marketing. Sales and marketing expenses consist primarily of
salaries and commissions, advertising and promotional costs and customer service
and support expenses. Sales and marketing expenses for 1996 totaled $14.1
million, or 19.5% of net sales, compared to $13.3 million, or 22.2% of net sales
in 1995. Sales and marketing expense in 1996 in absolute amount was relatively
flat compared to 1995 as the Company did not significantly increase its sales
staff during most of 1996. The decrease in sales and marketing expense as a
percentage of net sales in 1996 resulted from increased productivity of the
sales and marketing organization. In late 1996, the Company again began to
expand its sales organization which will result in an increase in sales and
marketing expenses in absolute amount. There can be no assurance that there will
be a proportional increase in net sales and, as a result, sales and marketing
expenses as a percentage of net sales are expected to fluctuate in future
periods.
Research and Development. Research and development expenses consist
primarily of employee compensation, prototype expenses and fees paid to outside
consultants. To date no software development costs have been capitalized.
Research and development expenses for 1996 totaled $5.9 million, or 8.1% of net
sales, compared to $5.4 million, or 8.9% of net sales in 1995. The increase in
research and development spending in absolute amount during 1996 was primarily a
result of increased staffing levels necessary to support continued development
of RAID products, primarily for the enterprise storage environment. The decrease
as a percentage of net sales was a result of the more rapid increase in the
level of sales in 1996 as compared to research and development spending. The
Company believes that significant and continued investments in research and
development will be required to remain competitive and expects that these
expenditures will increase in absolute dollars in future periods and to
fluctuate as a percentage of net sales.
General and Administrative. General and administrative expenses consist
primarily of compensation expenses for employees performing the Company's
administrative functions. General and administrative expenses for 1996 totaled
$3.6 million, or 5.0% of net sales, compared to $3.4 million, or 5.6% of net
sales in 1995. General and administrative expenses increased in absolute amount
primarily as a result of consulting
18
<PAGE> 21
costs associated with strategic planning activities. The Company believes that
it will incur additional general and administrative expenses associated with
operating as a public company.
Advisory Fee. The advisory fees consist of amounts payable to Capital
Partners pursuant to the Advisory Agreement. Advisory fees totaled $729,000, or
1.0% of net sales in 1996, compared to $360,000, or 0.6% of net sales in 1995.
The 1996 amount includes a one-time payment of $360,000 made in connection with
termination of the Advisory Agreement. No further advisory fees will be payable
under the Advisory Agreement. See "Certain Transactions."
Other Income (Expense), Net. Other income (expense), net consists primarily
of interest payments on outstanding debt. Other income (expense), net was an
expense of $1.2 million in 1996, up from an expense of $1.1 million in 1995. The
difference primarily represents a one time charge relating to the refinancing of
the Company's revolving line of credit during 1996. Other income (expense), net
in future periods is expected to benefit from the investment of the proceeds of
this offering as well as the reduction in debt following the offering. See "Use
of Proceeds."
Income Taxes. Income tax expenses incurred in 1995 and 1996 consist of
federal alternative minimum taxes and California minimum franchise taxes and
taxes paid outside the United States. Operating loss carryforwards generated
during recent periods when the Company was not profitable were virtually
exhausted as of December 31, 1996, and the Company expects future profits, if
any, to be fully taxable. See Note 5 of Notes to the Consolidated Financial
Statements.
1995 COMPARED TO 1994
Net Sales. Net sales decreased 1.7% to $60.2 million in 1995, compared to
$61.2 million during 1994. Sales decreased primarily due to a 63% decrease in
sales of desktop products, partially offset by a 30% increase in sales of
enterprise/OEM products. Enterprise/OEM products accounted for 87.2% of the net
sales in 1995, up from 65.5% of net sales in 1994.
Gross Profit. Gross profit for 1995 was $23.0 million, or 38.2% of net
sales, compared to $19.2 million, or 31.4% of net sales in 1994. The increase in
gross profit as a percentage of net sales in 1995 was primarily attributable to
a favorable sales mix of higher-end enterprise systems included in
enterprise/OEM product revenues partially offset by an unfavorable mix in sales
of lower margin desktop products included in desktop product revenues in the
period.
Sales and Marketing. Sales and marketing expenses for 1995 totaled $13.3
million, or 22.2% of net sales, compared to $10.7 million, or 17.4% of net sales
in 1994. Sales and marketing expenses increased in absolute amount and as a
percent of net sales in 1995 primarily as a result of the Company's efforts to
build its sales and marketing organization to support the transition from
indirect to direct sales efforts.
Research and Development. Research and development expenses for 1995
totaled $5.4 million, or 8.9% of net sales, compared to $4.3 million, or 7.1% of
net sales in 1994. The increase in research and development spending in both
absolute amount and as a percentage of net sales during 1995 was primarily a
result of development activities related to the Company's RAID products.
General and Administrative. General and administrative expenses for 1995
totaled $3.4 million, or 5.6% of net sales, compared to $3.3 million, or 5.4% of
net sales in 1994. General and administrative expenses in both absolute amount
and as a percentage of net sales were relatively flat from 1994 to 1995 as
management responded to flat overall sales levels.
Advisory Fee. Advisory fees totaled $360,000 and $362,000 in 1995 and 1994,
respectively, and constituted 0.6% of net sales in both years.
Other Income (Expense), Net. Other income (expense), net was an expense of
$1.1 million in 1995, up from an expense of $983,000 in 1994. The increase in
1995 was primarily attributable to higher average loan balances during the year
as well as an increased interest rate on the loan payable to Maxtor. See
"Certain Transactions."
Income Taxes. Due to the Company's operating losses, income taxes in 1994
and 1995 were minimal.
19
<PAGE> 22
QUARTERLY RESULTS OF OPERATIONS
The following tables present certain unaudited consolidated statement of
operations data for each of the eight quarters in the two years ended December
31, 1996, as well as such data expressed as a percentage of the Company's net
sales for the periods indicated. This data has been derived from unaudited
consolidated financial statements and has been prepared on the same basis as the
Company's audited Consolidated Financial Statements which appear elsewhere in
this Prospectus. In the opinion of the Company's management, this data includes
all adjustments (consisting only of normal recurring adjustments) necessary for
a fair presentation of such data.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------------------------------------------------------------------
1995 1996
--------------------------------------------- ---------------------------------------------
MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31,
1995 1995 1995 1995 1996 1996 1996 1996
--------- --------- --------- --------- --------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED STATEMENT OF OPERATIONS DATA:
Net sales:
Enterprise and OEM............... $11,806 $12,624 $13,088 $14,957 $14,899 $17,795 $18,174 $19,005
Desktop.......................... 3,282 1,560 1,542 1,299 1,033 524 320 560
------- ------- ------- ------- ------- ------- ------- -------
Total net sales............ 15,088 14,184 14,630 16,256 15,932 18,319 18,494 19,565
Cost of sales...................... 9,442 8,787 8,841 10,100 10,112 11,794 11,480 11,941
------- ------- ------- ------- ------- ------- ------- -------
Gross profit....................... 5,646 5,397 5,789 6,156 5,820 6,525 7,014 7,624
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.............. 3,359 3,283 3,347 3,355 3,130 3,492 3,507 3,952
Research and development......... 1,217 1,373 1,343 1,444 1,340 1,409 1,616 1,507
General and administrative....... 892 818 826 854 876 902 927 939
Advisory fee..................... 91 88 91 90 91 91 91 456
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses... 5,559 5,562 5,607 5,743 5,437 5,894 6,141 6,854
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations...... 87 (165) 182 413 383 631 873 770
Other income (expense), net........ (269) (315) (280) (259) (255) (351) (286) (263)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for
income taxes..................... (182) (480) (98) 154 128 280 587 507
Provision for income taxes......... 0 6 5 19 9 9 37 77
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................. $ (182) $ (486) $ (103) $ 135 $ 119 $ 271 $ 550 $ 430
======= ======= ======= ======= ======= ======= ======= =======
Net income per share............... $ 0.02 $ 0.05 $ 0.10 $ 0.08
======= ======= ======= =======
Shares used in per share
calculations..................... 5,496 5,496 5,562 5,572
======= ======= ======= =======
AS A PERCENTAGE OF REVENUES:
Net sales:
Enterprise and OEM............... 78.2% 89.0% 89.5% 92.0% 93.5% 97.1% 98.3% 97.1%
Desktop.......................... 21.8 11.0 10.5 8.0 6.5 2.9 1.7 2.9
------- ------- ------- ------- ------- ------- ------- -------
Total net sales............ 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales...................... 62.6 62.0 60.4 62.1 63.5 64.4 62.1 61.0
------- ------- ------- ------- ------- ------- ------- -------
Gross profit....................... 37.4 38.0 39.6 37.9 36.5 35.6 37.9 39.0
------- ------- ------- ------- ------- ------- ------- -------
Operating expenses:
Sales and marketing.............. 22.3 23.1 22.9 20.6 19.6 19.1 19.0 20.2
Research and development......... 8.1 9.7 9.2 8.9 8.4 7.7 8.7 7.7
General and administrative....... 5.9 5.8 5.6 5.3 5.5 4.9 5.0 4.8
Advisory fee..................... 0.6 0.6 0.6 0.6 0.6 0.5 0.5 2.3
------- ------- ------- ------- ------- ------- ------- -------
Total operating expenses... 36.9 39.2 38.3 35.4 34.1 32.2 33.2 35.0
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) from operations...... 0.5 (1.2) 1.3 2.5 2.4 3.4 4.7 4.0
Other income (expense), net........ (1.8) (2.2) (1.9) (1.6) (1.6) (1.9) (1.5) (1.3)
------- ------- ------- ------- ------- ------- ------- -------
Income (loss) before provision for
income taxes..................... (1.3) (3.4) (0.6) 0.9 0.8 1.5 3.2 2.7
Provision for income taxes......... 0.0 0.0 0.0 0.1 0.1 0.0 0.2 0.4
------- ------- ------- ------- ------- ------- ------- -------
Net income (loss).................. (1.3)% (3.4)% (0.6)% 0.8% 0.7% 1.5% 3.0% 2.3%
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
20
<PAGE> 23
The Company's results of operations over the eight quarters ending December
1996 reflect growing revenue in each quarter for enterprise/OEM products except
for the first quarter of 1996. The first quarter of 1996 was impacted by pricing
pressures for 4 gigabyte drives and followed a quarter with unusually large OEM
sales. Desktop product revenues declined throughout the period as the Company's
shift toward enterprise/OEM products continued, with the exception of the fourth
quarter of 1996 when such revenues increased somewhat as a result of the Company
taking an opportunistic order for desktop products during such quarter.
Enterprise/OEM products rose from 78.2% of net sales in the first quarter of
1995 to a high of 98.3% of net sales in the third quarter of 1996.
Overall margins were relatively constant during the period. In 1995 the
Company was one of the first manufacturers to introduce the 4 gigabyte disk
drive in a RAID product. The higher gross margin of these drives facilitated an
increase in total gross margins to a high point of 39.6% in the third quarter of
1995. A downward trend started, however, in the fourth quarter of 1995 as lower
margin OEM business grew and competitive pressures from other market entrants
negatively impacted prices for 4 gigabyte products. This
pressure continued through the second quarter of 1996, with an overall drop of
4.0% in gross margin points in that nine month period. Partially offsetting
these effects were continued improvements in manufacturing efficiencies,
including higher absorption of fixed costs. In the second half of 1996, overall
industry demand for storage has held prices firm. Further manufacturing
efficiencies and the introduction of new RAID products utilizing new
technologies, including DGR and 9 gigabyte disk drives, fueled further
improvements in gross margin.
Sales and marketing expenses in absolute amount were relatively flat during
this period following an increase in sales staff in late 1994. In early 1996
there was a temporary drop in marketing headcount and a curtailment of trade
show and advertising expenses. Overall productivity improvements in the sales
and marketing organizations have driven sales and marketing expenses as a
percentage of net sales down from a high of 23.1% in the second quarter of 1995
to a low of 19.0% in the third quarter of 1996. In late 1996, the Company again
began to expand its sales organization, and sales and marketing expenses as a
percentage of net sales increased to 20.2% in the fourth quarter of 1996. This
expansion is expected to result in further increases in sales and marketing
expenses in absolute amount. There can be no assurance that there will be a
proportional increase in net sales and, as a result, sales and marketing
expenses as a percentage of net sales are expected to fluctuate in future
periods.
Research and development expenses increased in absolute amount over the
eight quarter period as the Company implemented new projects related to the
development of its RAID product line. Both software and hardware development
capabilities were strengthened. With the growth in revenue levels, research and
development expenses as a percentage of net sales has fallen from a high of 9.7%
in the second quarter of 1995 to 7.7% in the fourth quarter of 1996.
General and administrative expenses have been relatively constant in
absolute amount over the eight quarters, except for the increased expenses
associated with corporate development and financing activities in 1996. Overall
general and administrative headcount has fluctuated slightly, but in the fourth
quarter of 1996 was below the average level of 1995. These expenses as a
percentage of net sales have ranged from a low of 4.8% in the fourth quarter of
1996 to a high of 5.9% in the first quarter of 1995.
Advisory fees were relatively constant in absolute amount during each
quarter except the fourth quarter of 1996 which included an additional $360,000
associated with termination of the Advisory Agreement.
Income taxes during the period were relatively low due to the availability
of operating loss carryforwards from prior periods to offset income. The
operating loss carryforwards were virtually exhausted as of December 31, 1996,
and the Company expects future profits, if any, to be fully taxable.
The Company's quarterly operating results have in the past varied and may
in the future vary significantly depending on a number of factors, including the
level of competition; the size, timing, cancellation or rescheduling of
significant orders; product configuration and mix; market acceptance of new
products and product enhancements; new product announcements or introductions by
the Company's competitors; deferrals of customer orders in anticipation of new
products or product enhancements; changes in pricing by the
21
<PAGE> 24
Company or its competitors; the impact of price protection measures and return
privileges granted by the Company to its distributors and VARs; the ability of
the Company to develop, introduce and market new products and product
enhancements on a timely basis; hardware component costs and availability,
particularly with respect to hardware components obtained from sole sources;
hardware supply constraints; the Company's success in expanding its sales and
marketing programs; technological changes in the network storage system market,
in particular the PC-LAN storage system market; the mix of sales among the
Company's sales channels; levels of expenditures on research and development;
changes in Company strategy; personnel changes; general economic trends and
other factors. In addition, the Company has experienced modest seasonality in
the past, with sales in the first quarter declining somewhat from the level
achieved in the fourth quarter of the prior year. The Company expects this trend
to continue in future periods and, as a result, expects net sales and results of
operations for the first quarter of 1997 to decrease from the levels achieved in
the fourth quarter of 1996.
Sales for any future quarter are not predictable with any significant
degree of certainty. The Company generally operates with limited order backlog
because its products typically are shipped shortly after orders are received. As
a result, sales in any quarter are generally dependent on orders booked and
shipped in that quarter. Sales are also difficult to forecast because the PC-LAN
storage system market is rapidly evolving and the Company's sales cycles vary
substantially from customer to customer. The Company's customers generally have
the right to cancel orders at any time and to return the Company's products for
a refund. The cancellation of orders already placed and the return of products
could have a material adverse effect on the Company's operating results in any
quarter. Due to the typical timing of customer orders, the Company often ships
products representing a significant portion of its net sales for a quarter
during the last month of that quarter. Any significant deferral of these sales
could have a material adverse effect on the Company's results of operations in
any particular quarter. To the extent that the Company completes significant
sales earlier than expected, operating results for subsequent quarters may be
adversely affected. The Company's expense levels are based, in part, on its
expectations as to future sales. As a result, if sales levels are below
expectations, net income may be disproportionately affected.
Over the past several years, the Company has transitioned its focus from
desktop subsystem products to enterprise RAID products for use primarily in
PC-LAN network applications. As a result, the Company has become increasingly
dependent on the market for these products and in its ability to compete
successfully in this market. Although the Company has experienced growth in its
net sales of enterprise and OEM products in recent periods, the Company's net
sales from its desktop products have declined during the same periods. There can
be no assurance that the Company will experience similar sales growth, if any,
with respect to its enterprise and OEM products in future periods. Due to all of
the foregoing factors, the Company believes that period-to-period comparisons of
its results of operations are not necessarily meaningful and should not be
relied upon as an indicator of future performance. It is possible that in some
future quarter the Company's operating results may be below the expectations of
public market analysts and investors. In such event, the price of the Company's
Common Stock would likely be materially and adversely affected.
LIQUIDITY AND CAPITAL RESOURCES
As of December 31, 1996, the Company's working capital increased to $2.5
million, up from $543,000 at December 31, 1995. The increase in working capital
was primarily attributable to a combination of the contribution of cash
generated by profitable operations in 1996 and close management of assets during
the year. Net accounts receivable increased to $11.9 million at December 31,
1996, compared to $9.6 million at December 31, 1995, as a result of the higher
sales volume in 1996. Inventories decreased to $6.3 million at December 31,
1996, down from $6.9 million at December 31, 1995. Throughout 1996, the Company
worked to reduce inventory levels through closer work with key suppliers and
careful material planning. These results have been partly offset by a decision
to stock key disk drives at the end of 1996 to offset the risk of potential
supply shortages. Accounts payable decreased to $5.1 million at December 31,
1996, compared to $6.2 million at December 1995. The higher level of accounts
payable at the end of 1995 was a result of longer payment cycles due to lower
available cash balances at that time.
22
<PAGE> 25
The Company has an $11 million revolving line of credit expiring in May
1998. The borrowings under the line of credit bear interest at the rate of prime
plus 1% (9.25% at December 31, 1996). Borrowings are secured by all the
Company's assets. Borrowings outstanding under the line of credit were $5.8
million at December 31, 1996 and, as of such date, $4.5 million was available
for additional borrowings. There are no financial covenants in the line of
credit. In connection with the Acquisition, the Company delivered to Maxtor the
Maxtor Note in the principal amount of $4 million. Due to cash constraints,
principal payments under the Maxtor Note were deferred, and did not commence
until the third quarter of 1996. As of December 31, 1996, $3.6 million in
principal amount remained outstanding under the Maxtor Note. The Company intends
to use a portion of the proceeds of this offering to repay the Maxtor Note and
to reduce the outstanding balance under its revolving line of credit. See "Use
of Proceeds" and "Certain Transactions."
The Company presently expects that the proceeds of this offering, together
with cash generated from operations should be sufficient to meet its operating
and capital requirements for at least twelve months. The Company may, however,
need additional capital prior to that time. There can be no assurance that
additional capital will be available to the Company on favorable terms or at
all.
23
<PAGE> 26
BUSINESS
Storage Dimensions designs, manufactures, markets and supports
high-performance data storage systems for open systems network applications.
Storage Dimensions currently focuses on the PC-LAN market by developing and
marketing a broad family of disk and tape storage systems that are designed to
satisfy the high-performance, fault-tolerance and high-availability requirements
of its customers while at the same time reducing life-cycle cost of ownership.
The Company's products combine its proprietary software with industry-standard
hardware, such as disk drives, tape drives and RAID controllers, which allows
the Company to leverage the product development and manufacturing capabilities
and efficiencies of industry OEM manufacturers and to offer its customers
products that take advantage of what the Company believes to be the best
technology available. Storage Dimensions' products have won numerous industry
awards in product comparisons and editorial reviews. As the leading independent
supplier of high capacity RAID storage systems for the PC-LAN market, Storage
Dimensions believes that it is well-positioned to take advantage of new
opportunities being created by the projected growth in the PC-LAN market, in
particular the market for systems utilizing Windows NT and NetWare.
INDUSTRY BACKGROUND
The increased use of network computing to support business-critical
enterprise applications is fueling rapid demand growth for network disk storage
systems incorporating high performance, fault tolerance and high availability.
In addition, capacity requirements for network storage are accelerating, due to
the deployment of data-intensive new applications, such as relational databases,
decision support systems, the Internet and intranets, video/multimedia and
document management. The Company believes that these factors will also increase
the demand for high-speed network tape backup, which provides additional
protection against data loss in the event of various system malfunctions.
RAID technology has facilitated this rapid expansion of network storage.
Traditionally, storage fault-tolerance was achieved using a technique called
mirroring, which involves the recording of duplicate data records on redundant
disks. Although effective, mirroring is an expensive means to protect against
data loss. In 1987, a team of researchers at the University of California at
Berkeley defined the concept of RAID, which utilizes parity algorithms to
achieve data redundancy at a significantly lower cost than mirroring. The
subsequent widespread implementation of RAID technology has removed a major
barrier to the proliferation of network computing by providing a cost-effective
method for achieving high storage reliability in enterprise network
applications.
Historically, enterprise computing products have been categorized into
three general markets: (1) proprietary/mainframe systems, (2) RISC-based UNIX
multiuser systems, and (3) Intel-based local area networks ("PC-LAN market"). In
each of these markets, independent third-party suppliers have emerged to offer
advanced storage systems as alternatives to the storage systems offered by the
computer manufacturers themselves. To maximize their probability for success,
these independent storage system suppliers have generally focused on
opportunities within one of the three specific markets and tailored their
business, marketing and sales strategies accordingly. As a result, the markets
for storage systems are not monolithic in nature, but, rather, each of the three
markets is unique with its own principal competitors. Moreover, it is often
difficult for an industry participant to move from one market to another without
implementing major changes in business strategy that can undermine its
competitiveness in its original target market.
Among the three principal enterprise computing markets, the PC-LAN market
is experiencing the fastest growth, according to IDC. The PC-LAN market emerged
in the late 1980s with the proliferation of desktop PCs and the development of
network operating systems (such as NetWare) that could efficiently tie PC's
together for resource and information sharing. This expansion is now being
fueled by the deployment of Intel-based servers using Pentium and Pentium Pro
microprocessors, which offer the computing power of RISC-based architectures at
a significantly lower cost. IDC projects that the U.S. market for PC-LAN storage
systems employing RAID technology will grow from $1.4 billion in 1995 to $6.0
billion in 2000, a compound annual growth rate of 34%. These trends are further
reinforced by the rapid adoption of the Windows NT operating system, which is
increasingly being used in mid-range database and application servers instead of
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<PAGE> 27
UNIX operating systems. IDC further projects that the U.S. market for PC-LAN
RAID storage systems running on Windows NT servers will grow from $0.3 billion
in 1995 to $2.1 billion in 2000, a compound annual growth rate of 50%.
One of the key issues facing end-users of PC-LAN networks is the ongoing
cost of network maintenance and administration. For example, the Gartner Group
has estimated that the purchase price of hardware and software comprises only
20% of the five-year cost of network ownership. The remaining 80% of a network's
life-cycle cost of ownership consists of other associated expenses, such as
downtime, troubleshooting, repair, administration, training and user support.
With respect to network storage, there are many opportunities for the storage
system software to assist the end-user in lowering the life-cycle cost of
ownership, by providing useful functionality such as ease of installation, ease
of reconfiguration, robust management of failure conditions, remote monitoring
and alerting, diagnostic and troubleshooting support and ease of repair.
Moreover, as enterprises adopt the latest generation networking
technologies to achieve higher levels of performance and reliability, complex
issues can arise surrounding integration of new system components into the
existing environment. For example, storage systems provided by server
manufacturers oftentimes are mounted internally to the server, are not
compatible with other manufacturers' servers, and cannot be readily migrated to
new servers or operating systems as requirements change. In such cases, the
adoption of new technologies, such as Pentium Pro-based servers and Windows NT,
can result in the premature, technological obsolescence of existing network
storage investments. On the other hand, these costs can be significantly reduced
by utilizing a server-independent storage system that is designed for use in a
heterogenous environment, supporting a range of servers and operating systems.
Therefore, to achieve the objective of minimizing the life-cycle cost of
network storage, end-users need comprehensive storage solutions that incorporate
a number of features in addition to RAID fault-tolerance including: (1) high
availability with minimum system downtime (planned and unplanned); (2)
complementary high-performance tape backup solutions; (3) easy network storage
management and administration; (4) cross-platform support for heterogeneous
network hardware and environments; and (5) a comprehensive customer service and
support program. Many suppliers today offer only a portion of these features.
THE STORAGE DIMENSIONS' SOLUTION
Storage Dimensions currently focuses on the PC-LAN storage system market by
developing and marketing a comprehensive family of disk and tape storage systems
that are designed to satisfy the high-performance, fault-tolerance and
high-availability requirements of its customers while at the same time reducing
life-cycle cost of ownership. The Company's solution combines its proprietary
software with industry-standard hardware, such as disk drives, tape drives and
RAID controllers, which allows the Company to leverage the product development
and manufacturing capabilities and efficiencies of industry OEM manufacturers
and to offer its customers products that take advantage of what the Company
believes to be the best technology available. The Company provides a complete,
integrated solution for the PC-LAN storage system market by offering the
following features:
High availability with minimum system downtime. Storage Dimensions'
SuperFlex disk storage products are engineered to provide redundancy and
fault-tolerance for critical components such as disk drives, power supplies and
cooling systems. Redundant components are easily serviced and hot-swappable, to
allow replacement by end-user service personnel while the system remains online.
Moreover, the storage management software is designed to provide robust
management of failure conditions, remote monitoring, automatic notification of
failure events and online diagnostic and troubleshooting support.
Complementary high-performance tape back-up solutions. To complement its
disk products, Storage Dimensions has engineered a family of high-speed,
high-reliability tape backup systems that are designed to address the challenges
of backing up increasing amounts of data in ever-shortening time periods. These
tape products are developed and tested to be easily integrated and fully
compatible with the Company's storage systems. In addition, these products are
marketed on a stand-alone basis for use with other manufacturers' disk storage
systems.
Easy network storage management and administration. Storage Dimensions
engineers its integration software to make its disk storage systems easy to
install, use, reconfigure, troubleshoot and administer. In
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<PAGE> 28
addition, for the NetWare and Windows NT environments, the Company has developed
VantagePoint network storage management software that provides remote
monitoring, problem alerting, configuration documentation and performance
measurement of multiple storage systems from a single network console.
Cross-platform support for heterogeneous network hardware. Storage
Dimensions designs external storage systems that are easily integrated with the
computer systems from a broad range of manufacturers. This cross-platform
capability affords significant economic advantages to end-users who have
heterogeneous and dynamic network environments by letting them standardize on a
single external storage system that can be easily reconfigured and redeployed as
requirements change, as compared to internal storage which is dedicated to a
specific manufacturer's server. Thus, as application needs evolve over time and
new generation servers are procured, the Company's storage systems can be
readily migrated and resized to meet changing circumstances instead of being
prematurely obsoleted. In particular, the Company's products are engineered to
support a seamless transition to Windows NT, without the need to prematurely
retire storage systems originally purchased to support NetWare or other network
operating systems. This provides important investment protection in the network
environment, where the capital expenditures on storage systems are often equal
to or greater than those spent on servers.
A comprehensive customer service and support program. The Company also
provides a complementary suite of service and support programs targeted at
lowering the maintenance cost of its storage systems, including an artificial
intelligence knowledge base that helps the Company provide fast and accurate
diagnosis of technical problems, 24-hour access to technical support and
replacement parts, overnight replacement of failed components and comprehensive
site agreements.
COMPANY STRATEGY
Storage Dimensions' objective is to leverage its position as the leading
independent supplier of PC-LAN storage systems to capitalize on opportunities
presented by the projected growth in this market. The Company believes it is in
a unique position to capitalize on the significant growth projected for RAID
network storage for PC-LAN servers, and in particular, networks using Windows NT
for fileservers, database servers, the Internet and intranet communications
servers and dedicated applications servers. Key elements of the Company's
strategy include the following:
Focus on products for PC-LAN storage systems market. The Company will
continue to concentrate its engineering and development efforts on designing
storage system products that are compatible with both NetWare, the current
leading LAN operating system, and Windows NT, a newly emerging industry standard
that is expected to become widely accepted by the year 2000. The Company strives
to leverage its existing customer base of major corporations, institutions and
government agencies, many of whom are expected to expand their PC-LAN
implementations, particularly through the adoption of Windows NT, within the
next five years.
Support customers' transition to Windows NT. Storage Dimensions will
continue to design products that can be used in heterogeneous and dynamic
network environments, thus allowing its customers to standardize on a single
storage system that can be easily reconfigured and redeployed as requirements
change. In particular, the Company will continue to focus its product
development efforts on providing an easy, seamless transition to Windows NT,
without the need to obsolete or retire prior investments in Storage Dimensions'
disk and tape storage systems.
Leverage proprietary systems integration software. Storage Dimensions has
developed an extensive, object-oriented software library which it uses to
quickly integrate new hardware products into its storage systems. The Company's
strategy is to continue to expand its software library by adding new features
and functionality in an incremental manner, building on its earlier investments,
and to leverage this library to bring new products and features to market
quickly.
Incorporate leading edge hardware in new products. The Company will
continue to combine leading edge hardware with its proprietary software to
produce state-of-the-art storage solutions for the PC-LAN storage systems
market. The Company also strives to develop and maintain close relationships
with key
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<PAGE> 29
suppliers of storage system components and technologies, such as American
Megatrends, Cheyenne Software, Inc. ("Cheyenne"), Micropolis, Mylex, Seagate,
The Qualix Group, Inc. ("Qualix") and Quantum, which the Company believes
enables it to quickly introduce new products that incorporate the latest
technological advances.
Differentiate through proprietary storage management software. Storage
Dimensions has developed VantagePoint, a network storage management software
program that allows remote monitoring and oversight of multiple storage systems
on the network from a single central console. The Company believes that
efficient network management differentiates its products from those of its
competitors and intends to continue to enhance its network management product
offerings.
Differentiate through customer service and support. The Company believes
that comprehensive, proactive and responsive customer service and support are
essential to be a market leader in the PC-LAN storage system market, and it
intends to continue to enhance its service and support programs. The Company has
already made, and intends to continue to make in the future, major investments
in customer service and support, in order to offer a wide range of service and
support options to its customers.
Leverage field sales and channel investments. Storage Dimensions utilizes a
direct sales force to penetrate major new accounts, to create demand for its
products and to secure repeat business from existing customers. Storage
Dimensions also maintains reseller distribution channels that facilitate
procurement of the Company's products by small and medium-sized end-users,
producing incremental revenues from its marketing, sales and promotional
efforts. With its basic field sales organization and distribution channels in
place, the Company believes that it can generate additional sales at a lower
incremental selling cost, and intends to expand its field sales operations to
further leverage its current investment.
PRODUCTS
Storage Dimensions develops and markets a broad and integrated family of
disk and tape storage systems that are designed to satisfy the high-performance,
fault-tolerance and high-availability requirements of its customers while at the
same time reducing life-cycle cost of ownership. The Company's SuperFlex disk
storage products are designed and engineered to incorporate leading edge
features and capabilities relative to the storage products offered by computer
and server manufacturers, to minimize system downtime and to support easy
integration with a broad range of server platforms and operating systems. While
the Company's products are generally developed for use with Windows NT and
NetWare operating systems, certain of the Company's products are also compatible
with other operating systems, including Sun Solaris, IBM AIX and IBM OS/2
operating systems.
To complement its disk products, Storage Dimensions has engineered a family
of high-speed, high-reliability tape backup systems that are designed to address
the challenges of backing up increasing amounts of data in ever-shortening time
periods. These tape products are developed and tested to be easily integrated
and fully compatible with the Company's disk storage systems. In addition, the
Company offers tape backup products as stand-alone products to back up data
maintained on other manufacturers' disk storage systems. To facilitate easy
network administration, the Company has developed VantagePoint, a network
storage management software program that allows remote monitoring and oversight
of multiple storage systems on the network from a single central console. The
Company believes that its products are differentiated from competitive products
based on functionality, performance, ease of use and lower life-cycle cost of
ownership.
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<PAGE> 30
Current Products. The following table summarizes the Company's current product
offerings:
<TABLE>
<S> <C> <C> <C> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------------
TYPICAL
OPERATING DATE OF CAPACITY END USER
SYSTEMS DATE OF LATEST RANGE LIST
PRODUCT DESCRIPTION SUPPORTED INTRODUCTION GENERATION (GIGABYTES) PRICE(1)
- ------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
DISK PRODUCTS
- ------------------------------------------------------------------------------------------------------------------
SuperFlex 2000 For mirroring and non-RAID NetWare, NT, September October 6-63(2) $6,330 - 24,370
Disk Array applications OS/2, Solaris, 1994 1996
AIX
- ------------------------------------------------------------------------------------------------------------------
SuperFlex 3000 RAID applications using NetWare, NT, September December 6-63(2) $7,660 - 25,700
Disk Array host-based controller OS/2 1994 1996
- ------------------------------------------------------------------------------------------------------------------
SuperFlex 3000 Host-based RAID with NetWare, NT, May October 6-63(2) $8,150 - 25,870
with DGR Disk Dynamic Growth and OS/2 1996 1996
Array Reconfiguration
- ------------------------------------------------------------------------------------------------------------------
SuperFlex 4000 RAID applications using NetWare, NT, September September 6-63(2) $9,140 - 27,170
Disk Array embedded bridge controller OS/2, Solaris, 1994 1996
AIX
- ------------------------------------------------------------------------------------------------------------------
SuperFlex 5000 Dual redundant RAID NetWare, NT, October November 6-63(2) $16,040 - 33,760
Disk Array controllers (embedded) OS/2, Solaris 1996 1996
- ------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
TAPE PRODUCTS
- ------------------------------------------------------------------------------------------------------------------
SuperFlex DAT 7 DAT Tape Drives with NetWare, NT September N/A 24-56(2) $7,550 - 13,310
TapeArray parallel data streaming 1994
- ------------------------------------------------------------------------------------------------------------------
MegaFlex DLT 4 DLT Tape Drives with NetWare, NT May N/A 120-140(2) $19,430 - 25,040
TapeArray parallel streaming and data 1995
redundancy
- ------------------------------------------------------------------------------------------------------------------
4700 DLT Tape Single drive, seven NetWare, NT, December N/A 280 $11,720
Library cartridge tape library Solaris, AIX 1995
- ------------------------------------------------------------------------------------------------------------------
DLT Tape Backup Stand-alone DLT Tape NetWare, NT, October June 30-40 $3,620 - 5,590
Subsystem Solaris, AIX 1995 1996
- ------------------------------------------------------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------------------
OTHER
- ------------------------------------------------------------------------------------------------------------------
VantagePoint Network Storage Management NetWare, NT December July N/A $930
Software 1995 1992
- ------------------------------------------------------------------------------------------------------------------
XStor Tape For document input to Xerox SCO UNIX August N/A 5 N/A
Storage System Docutech Printing System 1992
(OEM product)
- ------------------------------------------------------------------------------------------------------------------
</TABLE>
- ---------------
(1) The list prices set forth above represent the per unit list prices to
corporate customers for volume purchases. Actual prices paid by customers
vary depending on the source and the volume of units purchased.
(2) Larger systems can be readily constructed by integrating multiple units into
a single system.
Storage Dimensions has developed, and will continue to enhance, its
existing extensive proprietary object-oriented software library. This library
enables the Company to quickly integrate new hardware technologies to bring new
products to market in a rapid and cost-effective manner. Storage Dimensions'
software library supports a range of operating systems with a minimum of
additional software investment. For example, the advanced SuperFlex 4000 and
5000 products incorporate the Company's proprietary RAIDFlex disk array
management software, which was specifically engineered to facilitate
cross-platform support and to require only a minimal portion of the underlying
code to be rewritten to adapt it to a new operating system. Similarly, the
Company can adapt RAIDFlex software to manage a new generation RAID controller
by modifying only
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<PAGE> 31
the section of the code that deals with controller-specific algorithms and
instruction sets. The Company has a U.S. patent application pending associated
with the object-oriented, layered architecture of its RAIDFlex array management
software.
The Company's products utilize its proprietary software to incorporate
leading edge hardware features and capabilities relative to the storage products
offered by computer and server manufacturers, with design features specifically
engineered to minimize system downtime and to support easy integration and
administration. For example, in May 1996, the Company introduced the SuperFlex
3000 with DGR. The DGR feature provides the ability to both expand and
reconfigure a RAID array without taking the system off-line, therefore
significantly reducing the time, effort and cost of managing RAID storage in
typical corporate network environments. SuperFlex with DGR won LAN Times' "Best
of LAN Times" (1997) and PC Week's "Analyst's Choice" (1996) awards. In
addition, the Company became one of the first suppliers of network storage
systems to incorporate the new generation 9 gigabyte disk drives in their
products when it began shipping the first of such products in September 1996.
Storage Dimensions' products have won numerous other awards, including:
INFOWorld's "Hot Products" (1997); LAN Times' "Best of LAN Times" (1996);
Computer Technology Review's "Editor's Choice" (1995); LAN Magazine's "Disk
Array Product of the Year" (1995); and Networld+Interop's "Best of Show" (1995).
Products Under Development.
The Company is currently completing development of a low-cost storage
system (RAIDPro), which provides DGR functionality in a new, small form-factor
enclosure. Unlike the SuperFlex product line, which sells at a price premium
over server-internal storage, RAIDPro has been designed to provide external,
independent storage for low-end servers at a price directly competitive with the
internal storage marketed by server vendors. This product is targeted at a major
new market for the Company consisting of departmental and branch servers, that
the SuperFlex product line did not effectively address. The Company is also
developing an intelligent storage server product that is expected to provide
shared storage for a cluster of network servers using a common operating system,
with support for automatic server failover and integrated tape backup. The
Company currently intends to begin shipping its low-cost RAIDPro product in the
first half of 1997 and its new intelligent storage server product in the second
half of 1997. There can be no assurance that the Company will be successful in
developing and releasing these two new products on its current schedule or at
all, or that these products will achieve market acceptance. The failure of the
Company to achieve significant net sales from these two products could have a
material adverse effect on the Company's business, operating results or
financial condition.
The Company intends to continue to design its mainstream products to be
compatible with both Windows NT and NetWare and selected products to be
compatible with Sun Solaris, IBM AIX and IBM OS/2 operating systems. In
particular, the Company has focused, and expects to continue to focus, its
product development efforts on providing an easy, seamless transition to Windows
NT, without the need to obsolete or retire its prior investments in Storage
Dimensions' disk storage systems. As a result of the Company's efforts, most of
the Company's current disk and tape systems can be, and the Company intends that
its future products will be able to be, migrated between NetWare and Windows NT
by simply installing the Company's software upgrade. This greatly simplifies the
purchasing decision for customers in the process of migrating to Windows NT and
for those considering such a change in the future.
If the Company is unable, for technological or other reasons, to develop
and introduce new products, in particular those for use with Windows NT, in a
timely manner in response to changing market conditions or customer
requirements, the Company's business, operating results and financial condition
will be materially and adversely affected. In addition, there can also be no
assurance that the Company will be successful in developing and marketing any
other products that respond to technological changes or evolving industry
standards, that the Company will not experience difficulties that could delay or
prevent the successful development, introduction and marketing of new products,
or that its new products will adequately meet the requirements of the
marketplace and achieve market acceptance. See "-- Research and Development."
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<PAGE> 32
CUSTOMERS AND APPLICATIONS
Storage Dimensions markets its products primarily to large corporations,
institutions and government agencies for use in business-critical network server
applications that require high-reliability and non-stop operation. The Company
has successfully placed major installations in a broad cross-section of
enterprises, encompassing a range of mainstream computing applications. The
following table lists each end user of the Company's products that the Company
believes (based on direct sales data and data supplied by independent resellers
and distributors) to have purchased at least $100,000 of the Company's products
since January 1, 1995:
BANKING
American National Bank & Trust Co. of Chicago
Federal National Mortgage Association
First National Bank of Chicago
Fleet Financial Group
Home Savings of America, FSB
KeyCorp
National City Bank, Kentucky
Northern Trust Bank of Arizona, N.A.
People's Bank
Standard Federal Bank
FINANCIAL SERVICES
Arthur Andersen & Co., S.C.
Bear Stearns & Co., Inc.
Bloomberg L.P.
CNA Financial Corporation
Donaldson, Lufkin & Jenrette, Inc.
Dow Jones & Company, Inc.
Instinet Corporation
KPMG Peat Marwick LLP
Neuberger & Berman
Prudential Securities Inc.
Scudder, Stevens & Clark, Inc.
Salomon Brothers Inc
The Life Insurance Co. of Virginia
William M. Mercer Companies, Inc.
TECHNOLOGY
Adobe Systems Incorporated
Applied Materials Inc.
Cabletron Systems Incorporated
Candle Corporation
Cheyenne Software, Inc.
CIDCO Inc.
Cisco Systems Inc.
Comdisco, Inc.
Computer Curriculum Corp.
D&B Software
Gateway 2000
Great Plains Software
Iomega Corporation
The Learning Company
3Com Corporation
Macromedia
Rockwell International Corp.
Symantec Corporation
Unisys Corporation
U.S. Robotics Corp.
Xilinx Inc.
CONSUMER & RETAIL
Borders, Inc.
The Gap, Inc.
Great A&P Tea Co.
Guess?, Inc.
K-Mart Corporation
Quaker Oats Co.
Safeway Inc.
Wal-Mart Stores, Inc.
UTILITIES
Entergy Corporation
Southern California Edison
Southern New England Power
The Southern Company Co.
Wisconsin Electric Power Co.
GOVERNMENT*
Atomic Energy Agency (International)
Bureau of Reclamation
Centers for Disease Control and Prevention
Civil Aviation Authority (U.K.)
Defense Logistics Agency
Department of Defense
Department of Energy
Department of the Air Force
Department of the Navy
Environmental Protection Agency
Medicare Fraud Agency
Naval Surface Warfare Center
Foreign Office (U.K.)
United States Postal Service
30
<PAGE> 33
COMMUNICATIONS
American Portable Telecom Inc.
Cherry Communications
Excel Communications, Inc.
J.J. Keller & Associates, Inc.
MCI Telecommunications Corporation
Metrocall, Inc.
Nynex Corporation
Premier Communications
Radio Stockholm
The Southern New England Telephone Company
OTHER
Goose Creek School District
Great Western Publishing, Inc.
HCIA, Inc.
Hoffman-LaRoche Inc.
The Mead Corporation
Mobil Oil Corp.
Muzak, L.P.
Pfizer Inc.
Western International Media Corporation
West Publishing Company
- ---------------
* U.S. Government agencies unless otherwise indicated.
Representative examples of applications of the Company's products include
the following:
Cabletron Systems, Incorporated. Cabletron Systems, Incorporated
("Cabletron") is a New Hampshire-based supplier of networking products, with
1995 revenues exceeding $1 billion. Cabletron initially evaluated the Storage
Dimensions SuperFlex 4000 systems to upgrade their NetWare-based PC-LAN servers,
which provide business-critical 7x24 file, print and mail services for over
2,400 users. With these applications at stake, high availability and short
backup windows were critical buying criteria. Cabletron also wished to simplify
its network management and maintenance requirements by standardizing on a single
storage vendor, rather than dealing with the storage products from multiple
server vendors. After evaluating the available alternatives, Cabletron purchased
several SuperFlex 4000 disk array systems to support its NetWare servers. In
addition, they selected the MegaFlex DLT4000 TapeArray for high-speed backup
after running bench-marking tests which demonstrated significant throughput
improvements over their existing solution. Following their favorable experience
with the NetWare server rollout, Cabletron subsequently evaluated and selected
the SuperFlex 4000 system for their Sun-based database applications under
Solaris 2.4. Commonality of spares and reduced support costs were cited as
important factors in this follow-on decision.
3Com Corporation. Based in Silicon Valley, 3Com Corporation ("3Com")
designs and markets a broad range of networking products for open systems
networks, with annual revenues exceeding $2 billion. 3Com's initial experience
with Storage Dimensions and its products began in 1995 with their purchase of
several MegaFlex DLT TapeArrays for use in backing up high capacity NetWare
servers at its corporate headquarters. Subsequently, 3Com evaluated and
standardized on the Storage Dimensions DLT4000 tape backup system for PC-LAN
servers in field offices worldwide, citing its favorable experiences with
Storage Dimensions' customer service and technical support as important factors
in the decision process. Most recently, in the process of changing PC-LAN server
vendors, 3Com became more aware of the shortcomings and inflexibilities
associated with purchasing internal LAN storage that is tied to a specific
manufacturer's CPUs. Seeking a RAID storage solution that can be readily
migrated to new platforms as requirements change, 3Com has recently standardized
on the Storage Dimensions SuperFlex 3000 with DGR for PC-LAN servers installed
at major company sites. In addition to its platform independence, the SuperFlex
3000 with DGR offered key ease of use characteristics, due to its support of
dynamic growth and reconfiguration. Also important was the SuperFlex 3000's
seamless support of both NetWare and Windows NT, because 3Com plans to continue
using both operating systems for PC-LAN applications.
In 1996, Xerox Corporation accounted for approximately 13% of total net
sales. In 1995, Xerox accounted for approximately 11% of net sales and Tech Data
for approximately 15% net sales. In 1994, Tech Data accounted for approximately
12% of sales. Xerox is the Company's primary OEM customer and Tech Data is a
distributor.
SALES AND MARKETING
Storage Dimensions has implemented both a direct sales force and reseller
distribution channels in order to provide broad market penetration for its
products. Historically, the Company marketed its products to end-users through
indirect reseller channels, including distributors, national computer dealers,
system integrators
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<PAGE> 34
and VARs. In 1994, the Company recruited and deployed a direct field sales
organization in order to more effectively pursue large corporate and
institutional sales opportunities in the United States. As of December 31, 1996,
the U.S. field sales organization consisted of 30 sales professionals located in
15 geographical markets, including Boston, New York, Washington D.C., Atlanta,
Detroit, Chicago, Minneapolis, Dallas, Los Angeles and the San Francisco Bay
Area. The Company utilizes its direct sales force to penetrate major new
accounts, to create demand for its products and to secure repeat business from
existing customers.
The Company also maintains indirect reseller channels to facilitate
procurement of the Company's products by small and medium-sized end-users,
producing incremental revenues from its marketing, sales, and promotional
efforts that would otherwise be lost. In addition, certain large customers
prefer to source through the reseller channels as part of their overall network
equipment sourcing and integration strategy. Storage Dimensions has developed
pricing structures and field sales commission plans that are designed to
minimize sales channel conflicts and, as a result, is able to benefit from
significantly higher revenues than if only a direct sales model were deployed.
The Company believes that this two-pronged sales strategy provides meaningful
competitive advantage over competitors who only provide products directly to
end-user customers. In a recent survey by LAN Magazine of the largest 100 LAN
resellers in the United States, Storage Dimensions was the independent storage
systems supplier mentioned most often as the preferred provider of both disk
array and tape backup products.
With its domestic field sales organization and reseller distribution
channels in place, the Company plans to generate additional sales at a lower
incremental cost by systematically expanding its field sales operation in terms
of both staffing and geographical presence. Internationally, the Company relies
primarily on local distributors and maintains a sales and service office in
London, England to support its European distributors.
To support its field sales organization, in 1995 the Company established a
telemarketing department located in its Milpitas headquarters location for
processing new leads, qualifying new prospects, identifying active projects and
initiating appointments for field sales personnel to visit new customers.
Specifically, the telemarketing department focuses on identifying large new
sales opportunities and on facilitating a smooth hand-off of these opportunities
to the field sales personnel. The telemarketing department also works closely
with the marketing communications department to identify lead sources and
develop promotional programs that are most effective in developing target
opportunities.
In 1995, Storage Dimensions implemented a trade-in program called
FlexCredit, which provides a significant trade-in credit on used disk and tape
drives, from both Storage Dimensions and other selected manufacturers, toward
the purchase of new products from the Company. FlexCredit is another example of
Storage Dimensions' strategy to lower the cost of ownership of network storage,
and the Company believes the program has been instrumental in both retaining
existing customers and capturing new ones. Storage Dimensions maintains an
active presence in the used storage equipment market such that FlexCredit
trade-ins can be recycled at nominal economic cost to the Company.
CUSTOMER SERVICE AND SUPPORT
The Company believes that its ability to provide comprehensive, proactive
and responsive support is an important element in penetrating new customer
accounts and in securing repeat business from existing customers. The Company is
committed to providing superior customer service and support aimed at
simplifying installation, reducing field failures, minimizing system downtime
and streamlining administration. For example, beginning in 1992, the Company
undertook a major investment in an "artificial intelligence" knowledge base,
called TechConnect, to facilitate the timely and accurate diagnosis of customer
field problems and to enable the Company to recommend solutions with the highest
probability of success, with reporting capabilities to provide feedback on the
most common problems experienced by end-users of the Company's products.
Although accessed primarily by Storage Dimensions technical support personnel,
the TechConnect system is also accessible by the Company's customers 24 hours a
day, through the Internet, in the event any customer wishes to access solution
documents directly.
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<PAGE> 35
Historically, service revenues have not comprised a significant portion of
the Company's sales. In 1996, the Company began an aggressive program to develop
value-added service contracts designed to achieve a lower life-cycle cost of
ownership for its customers. The following represent the Company's primary
service programs currently available:
7x24 Priority Service and Parts. For an annual site fee, the Company
provides priority access to technical support personnel during business
hours and access within 20 minutes via a pager after hours. In addition,
the Company provides replacement of failed parts 24 hours-a-day by
counter-to-counter air freight with courier delivery.
Tape Maintenance. For an annual fee per tape drive, the Company will
provide for overnight shipment of a replacement unit for drives that fail
and are not covered by the Company's or manufacturer's standard warranty.
TechAssist Emergency Off-Hours Support. For a one-time fee, the
Company provides access to technical support personnel after hours to
customers who need emergency help, but have not contracted for the 7x24
Priority Service.
FlexGuard Premium Site Support. FlexGuard bundles optional services
into comprehensive site service and support arrangements to meet the
special needs of large organizations.
In addition to the above services, the Company provides telephone support
during business hours free of charge.
The Company supports and administers the pass-through of standard
warranties from its OEM component vendors which run from one to five years. In
addition, the Company provides a three year warranty on the system as a whole. A
customer may also contract for an extended warranty from the Company on
components whose factory warranty has expired. In the United States, defective
components are replaced overnight, in advance of the receipt of the failed part,
as a standard practice. Although to date the Company's suppliers of hardware
components have covered the warranty costs associated with such components,
there can be no assurance that such manufacturers will continue to be willing or
able to cover such costs, and their failure to do so would result in such costs
being borne by the Company. There can be no assurance that warranty costs to the
Company will not be significant in the future, which could have a material
adverse effect on the Company's business, operating results or financial
condition.
RESEARCH AND DEVELOPMENT
To date, Storage Dimensions has made substantial investments in research
and development, particularly in the areas of fault-tolerant RAID systems
integration and storage management software. The Company's solution combines its
proprietary software and industry-standard hardware to produce integrated RAID
fault-tolerant storage solutions, with companion high-performance tape backup.
Storage Dimensions has developed an extensive, object-oriented software library
which it uses to quickly integrate new hardware products into its storage
systems. The Company's strategy is to continue to expand its software library by
adding new features and functionality in an incremental manner, building on its
earlier investments, and to leverage this library to bring new products and
features to market quickly.
The Company's engineering design teams work cross-functionally with
marketing managers, applications engineers and customers to develop products and
product enhancements. Computer input/output standards are maintained and an
extensive disk drive and controller board qualification program monitors
industry-standard components to ensure the quality and performance when
integrated into the Company's storage system products. The Company also strives
to develop and maintain close relationships with key suppliers of storage system
components and technologies, such as American Megatrends, Cheyenne, Micropolis,
Mylex, Seagate, Qualix and Quantum, which the Company believes enables it to
quickly introduce new products that incorporate the latest technological
advances.
The Company's expenses for research and development for fiscal years 1994,
1995 and 1996 were $4.3 million, $5.4 million and $5.9 million, respectively. As
of December 31, 1996, the Company had 41
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<PAGE> 36
regular full-time employees engaged in research and development activities, of
which 18 were specifically focused on software development, test and
qualification.
The network storage system market is characterized by rapid technological
change, changing customer needs, frequent new product introductions and evolving
industry standards. The introduction of products embodying new technologies and
increased storage capacities and the emergence of new industry standards could
render the Company's existing products obsolete and unmarketable. The Company's
future success will depend upon its ability to develop and to introduce new
products with increasing storage capabilities (including new software releases
and enhancements) on a timely basis that keep pace with technological
developments and emerging industry standards and address the increasingly
sophisticated needs of its customers. There can be no assurance that the Company
will be successful in developing and marketing any new products that respond to
technological changes or evolving industry standards, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of new products, or that its new products will
adequately meet the requirements of the marketplace and achieve market
acceptance. In addition, network storage system products like those offered by
the Company may contain undetected software errors or failures when first
introduced or as new versions are released. There can be no assurance that,
despite testing by the Company and by current and potential customers, errors
will not be found in new products after commencement of commercial shipments,
resulting in a loss of or delay in market acceptance, which could have a
material adverse effect on the Company's business, operating results or
financial condition.
MANUFACTURING
Storage Dimensions' manufacturing operations, located in Milpitas,
California, consist primarily of assembly and integration of the Company's
proprietary software and enclosures with industry-standard components, such as
disk drives, tape drives, and RAID controllers, from its suppliers. The
assembled units are then subjected to a systems-level test to ensure performance
to specification in the anticipated end-user computing environment. The
Company's manufacturing operations have been ISO 9002 certified, an
international quality standard. The Company strives to develop close
relationships with its suppliers, exchanging critical information and
implementing joint corrective action programs to maximize the quality of its
components, to reduce costs and inventory investments and to create flexibility
for rapid capacity expansion when required. The Company believes that its
current facilities and capital equipment will be adequate to meet its
manufacturing needs in the foreseeable future.
The Company relies upon a limited number of suppliers of several key
components utilized in the assembly of the Company's products. For example, the
Company purchases disk drives primarily from Seagate and Micropolis, DLT tape
drives exclusively from Quantum and DGR RAID controllers exclusively from
American Megatrends. The Company's reliance on its suppliers involves several
risks, including: an inadequate supply of required components; price increases;
late deliveries; and poor component quality. These risks are particularly
significant with respect to suppliers of disk drives because, in order to meet
product performance requirements, the Company must obtain disk drives with
extremely high quality and capacity. In addition, there is currently a
significant market demand for disk drives, tape drives and RAID controllers, and
from time to time the Company may experience component shortages, selective
supply allocations and increased prices of such components. Although to date the
Company has been able to purchase its requirements of such components, there can
be no assurance that the Company will be able to obtain its full requirements of
such components in the future or that prices of such components will not
increase. In addition, there can be no assurance that problems with respect to
yield and quality of such components and timeliness of deliveries will not
occur. Disruption or termination of the supply of these components could delay
shipments of the Company's products and could have a material adverse effect on
the Company's business, operating results or financial condition. Such delays
could also damage relationships with current and prospective customers. In
addition, in the past, due to the Company's quality requirements, the Company
has experienced delays in the shipments of its new products principally due to
an inability to qualify component parts from disk drive manufacturers and other
suppliers, resulting in delay or loss of product sales. The Company has
currently qualified disk drives manufactured by Seagate and Micropolis, tape
drives from
34
<PAGE> 37
Quantum, and RAID controllers from Mylex and American Megatrends. Although these
delays in the past have not had a material adverse effect upon the Company's
business, operating results or financial condition, there can be no assurance
that in the future any such delays would not have such a material adverse
effect.
COMPETITION
The network storage system market is intensely competitive. The Company
competes primarily in the PC-LAN storage systems market and experiences the
greatest competition from traditional suppliers of PC-LAN network servers, such
as Compaq, Hewlett-Packard and IBM, who market storage systems as part of their
complete computer systems. Storage Dimensions also competes against independent
storage system suppliers to the PC-LAN server market, including DEC Storage
Works, MTI Technology, Procom Technology, Inc. and StreamLogic Corporation. In
addition, providers of storage for the mainframe or UNIX-based markets, such as
Auspex Systems, Inc., Data General Corporation, EMC Corporation, Network
Appliance, Inc., Storage Computer, Inc. and Symbios Logic, Inc. could develop
and market products that address the PC-LAN storage systems market, and in
particular Windows NT applications. Many of the Company's current and potential
competitors have significantly greater financial, technical, marketing,
purchasing and other resources than the Company, and as a result, may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, to devote greater resources to the development, promotion and sale
of products than can the Company, or to deliver competitive products at a lower
end-user price. The Company also expects that competition will increase as a
result of industry consolidations. Current and potential competitors have
established or may establish cooperative relationships among themselves or with
third parties to increase the ability of their products to address the needs of
the Company's prospective customers. Accordingly, it is possible that new
competitors or alliances among competitors may emerge and rapidly acquire
significant market share. Increased competition is likely to result in price
reductions, reduced operating margins and loss of market share, any of which
could have a material adverse effect on the Company's business, operating
results or financial condition.
The Company believes that the principal competitive factors affecting its
market include: fault-tolerant reliability, performance, ease of use,
scalability, configurability, price and customer service and support. There can
be no assurance that the Company will be able to successfully incorporate these
factors into its products and to compete against current or future competitors
or that competitive pressures faced by the Company will not materially and
adversely affect its business, operating results or financial condition.
PROPRIETARY TECHNOLOGY AND INTELLECTUAL PROPERTY
Storage Dimensions' success depends significantly upon its proprietary
technology. The Company currently relies on a combination of copyright and
trademark laws, trade secrets, confidentiality agreements and contractual
provisions to protect its proprietary rights. The Company seeks to protect its
software, documentation and other written materials under trade secret and
copyright laws, which afford only limited protection. The Company has registered
its Storage Dimensions and LANStor trademarks and will continue to evaluate the
registration of additional trademarks as appropriate. The Company generally
enters into confidentiality agreements with its employees and with key vendors
and suppliers. The Company currently has one U.S. patent application pending
associated with the object-oriented layered architecture of its RAIDFlex array
management software. There can be no assurance that this patent will eventually
be issued, that the Company will develop proprietary products or technologies
that are patentable, that any patent issued in the future will provide the
Company with any competitive advantages or will not be challenged by third
parties, or that the patents of others will not have a material adverse effect
on the Company's ability to do business. The Company believes that the rapidly
changing technology in the computer storage industry makes the Company's success
dependent more on the technical competence and creative skills of its personnel
than on any patents it may be able to obtain.
There has also been substantial litigation in the computer industry
regarding intellectual property rights, and litigation may be necessary to
protect the Company's proprietary technology. The Company has from time to time
received claims that it is infringing third parties' intellectual property
rights, and there can be no assurance that third parties will not in the future
claim infringement by the Company with respect to current or future products,
trademarks or other proprietary rights. The Company expects that companies in
the storage system market will increasingly be subject to infringement claims as
the number of products and competitors
35
<PAGE> 38
in the Company's target markets grows. Any such claims or litigation may be
time-consuming and costly, cause product shipment delays, require the Company to
redesign its products or require the Company to enter into royalty or licensing
agreements, any of which could have a material adverse effect on the Company's
business, operating results or financial condition. Despite the Company's
efforts to protect its proprietary rights, unauthorized parties may attempt to
copy aspects of the Company's products or to obtain and use information that the
Company regards as proprietary. In addition, the laws of some foreign countries
do not protect proprietary rights to as great an extent as do the laws of the
United States. There can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology, duplicate the Company's products
or design around patents issued to the Company or other intellectual property
rights of the Company.
EMPLOYEES
As of December 31, 1996, Storage Dimensions had a total of 215 regular
full-time employees, of which 41 were engaged in engineering, research and
development; 95 in marketing, sales, and customer support; 47 in manufacturing;
and 32 in general management and administration. In addition, the Company had a
total of 6 part-time and 10 temporary employees as of December 31, 1996. None of
the Company's employees is represented by a labor union. The Company has
experienced no work stoppages and believes that its employee relations are good.
The Company's future performance depends in significant part upon the
continued service of its key technical and senior management personnel. The
Company provides incentives such as salary, benefits and option grants (which
are typically subject to vesting over four years) to attract and retain
qualified employees. The loss of the services of one or more of the Company's
officers or other key employees could have a material adverse effect on the
Company's business, operating results or financial condition. The Company's
future success also depends on its continuing ability to attract and retain
highly qualified technical and management personnel. Competition for such
personnel is intense, and there can be no assurance that the Company can retain
its key technical and management employees or that it can attract, assimilate or
retain other highly qualified technical and management personnel in the future.
FACILITIES
Storage Dimensions' principal administrative, sales, marketing,
manufacturing and research and development facility is located in approximately
80,000 square feet of space in Milpitas, California. This facility is leased
through December 6, 1998. The Company leases other sales offices throughout the
U.S., as well as a European operations site in London, U.K. The Company believes
that its existing facilities are adequate for its current needs.
LEGAL PROCEEDINGS
The Company is not party to any material legal proceedings.
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<PAGE> 39
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
December 31, 1996, are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------- --- --------------------------------------------------------
<S> <C> <C>
David A. Eeg................... 52 President, Chief Executive Officer and Director
Gene E. Bowles, Jr............. 49 Executive Vice President, Marketing & Customer Service
and Director
Robert E. Bylin................ 54 Senior Vice President, Finance and Chief Financial
Officer
Frederick J. Berkowitz......... 39 Vice President, Systems Engineering
James M. Canter................ 33 Vice President, Software Engineering
Ted Chen....................... 44 Vice President, Marketing
Ralph Ciarlanti III............ 37 Vice President, Operations
Kenneth D. Epstein............. 41 Vice President, North American Sales
Brian D. Fitzgerald............ 52 Chairman of the Board
A. George Gebauer.............. 63 Vice Chairman of the Board
Dr. Chong Sup Park............. 48 Director
</TABLE>
DAVID A. EEG, a founder of the Company, has served as President and Chief
Executive Officer of the Company since the Company's inception in December 1992
and served as a Director since January 1993. From December 1985 to December
1992, Mr. Eeg served as President and Chief Executive Officer of the
Predecessor, which was an independent company from its formation in December
1985 and was acquired by, and became a wholly-owned subsidiary of, Maxtor in
1987. Mr. Eeg's career spans more than 25 years in the computer peripherals
industry and includes executive level positions in firms ranging from start-ups
to large corporations including Atasi, a disk drive manufacturing company,
Shugart Associates, a disk storage company, and Control Data Corporation, a
computer manufacturing company.
GENE E. BOWLES, JR., a founder of the Company, has served the Company as an
Executive Vice President with various responsibilities since December 1992, is
currently Executive Vice President, Marketing and Customer Service and has
served as Secretary and a Director since January 1993. From December 1985 to
December 1992, Mr. Bowles served as an Executive Officer of the Predecessor,
most recently as Executive Vice President, Sales, Marketing and Customer
Service. Mr. Bowles has also been a member of the Advisory Committee to the
Board of Directors of Qualix since 1991. Prior management experience includes 15
years at companies such as Atasi, a disk drive manufacturing company, Texas
Instruments, an electronic products company, and Caterpillar, Inc., a heavy
machinery company. Mr. Bowles holds a B.S.E. in Industrial Engineering from the
University of Michigan, an M.S. in Engineering Management from Northeastern
University and an M.B.A. from Stanford University, Graduate School of Business.
ROBERT E. BYLIN has served as Senior Vice President, Finance and Chief
Financial Officer of the Company since August 1994, and from December 1992 to
August 1994, as the Company's Vice President, Finance and Chief Financial
Officer. Mr. Bylin also served as a Director of the Company from August 1994 to
January 1997. From March 1991 to December 1992, Mr. Bylin served as Vice
President, Finance and Chief Financial Officer of the Predecessor. In addition,
Mr. Bylin served as a Director for the Financial Executives Institute, Santa
Clara Valley Chapter, from 1993 to 1995, and as a Director of Technology Federal
Credit Union since 1986. Prior to joining the Predecessor, Mr. Bylin was Vice
President of Finance and Administration for Memorex Computer Supplies, a
computer media and peripherals company, from 1987 until March 1991. Mr. Bylin
holds a B.S. in Mathematics from Trinity College and an M.B.A. from the Harvard
Graduate School of Business.
FREDERICK J. BERKOWITZ has served as Vice President, Systems Engineering of
the Company since November 1996. From October 1990 to October 1996, Mr.
Berkowitz served as the Director of Platform Development at Hal Computer
Systems, a network computer system company. Mr. Berkowitz holds a B.S. in
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<PAGE> 40
Electrical Engineering from Union College and an M.S. in Computer Information
and Control Engineering from the University of Michigan.
JAMES M. CANTER has served as Vice President, Software Engineering of the
Company since March 1996, and has held various software engineering positions at
the Company since December 1992. From February 1988 to December 1992, Mr. Canter
held various software engineering positions at the Predecessor. From 1985 to
1988, Mr. Canter was Product Development Manager for TW Technologies, a supplier
of peripheral storage subsystems. Mr. Canter holds a B.S. in Microbiology from
Arizona State University.
TED CHEN has served as Vice President, Marketing of the Company since July
1995, and from January 1995 to July 1995, as the Company's Vice President, Unix
Marketing. From January 1993 to January 1995, Mr. Chen was the Director,
Marketing at Lynx Real-Time Systems, a software development company, and from
July 1981 to December 1992 he held various marketing positions at
Hewlett-Packard Company, a computer company, most recently as Marketing Manager.
Mr. Chen holds a B.S. and M.S. in Electrical Engineering from Cornell University
and an M.B.A. from the Harvard Graduate School of Business.
RALPH CIARLANTI III has served as Vice President, Operations of the Company
since November 1995, and, from December 1992 to October 1995, held various
manufacturing positions at the Company. From June 1992 to September 1992, Mr.
Ciarlanti was the Senior Quality Engineer of the Predecessor and from October
1992 to December 1992, Mr. Ciarlanti was the Manager of Quality Assurance of the
Predecessor. From July 1987 to June 1992, Mr. Ciarlanti served as the
Peripherals Supplier Quality Manager at Tandem Computers Incorporated, a
computer manufacturing company. Mr. Ciarlanti holds an A.S. in Computer
Technology from San Jose City College.
KENNETH D. EPSTEIN has served as Vice President, Sales of the Company since
July 1996 and from December 1994 to June 1996, as the Company's Director, OEM
sales. From October 1993 to December 1994 Mr. Epstein was the Vice President,
Sales at Maximum Strategy, a computer storage system company, and the Regional
Director, Sales at QMS, Inc., a computer printer company, from February 1987 to
September 1993. Mr. Epstein holds a B.S. in Business Administration from the
University of Colorado.
BRIAN D. FITZGERALD has served as Chairman of the Board since inception of
the Company in December 1992. Mr. Fitzgerald formed Capital Partners and Capital
Partners I, L.P. in 1982 and has since been the former's President and a General
Partner of the latter. Capital Partners acts as a diversified investment holding
and operating company. Capital Partners(R) is a registered trademark that
describes the overall group of Capital Partners(R) entities. Mr. Fitzgerald and
Mr. Gebauer formed Capital Partners II, L.P. in 1990. Capital Partners I,
Capital Partners II and related entities hold majority ownership positions and
various officer and director positions in seven other businesses in diversified
industries. From 1977 to 1982, Mr. Fitzgerald was a General Partner of
Industrial Capital Group and from 1974 to 1977 served as strategic planning
manager and corporate staff consultant at General Electric Company. Mr.
Fitzgerald was formerly a Director of Bryant Universal Roofing, Inc., a private
corporation which filed for bankruptcy in April 1996 under Chapter 11 of the
U.S. Bankruptcy Code. Mr. Fitzgerald is also the Chairman of the Board of
Security Capital Corporation, a public company, a position he has held since
July 1990, and is a director of a number of privately held companies. Mr.
Fitzgerald holds an A.B. degree from Princeton University and an M.B.A. from the
Harvard Graduate School of Business.
A. GEORGE GEBAUER has served as Vice Chairman of the Board since inception
of the Company in December 1992. Mr. Gebauer joined Capital Partners in July
1986 and is currently its Vice President. From 1980 to 1986, Mr. Gebauer served
as Director of Corporate Development at Axel Johnson, Inc., a diversified
holding company. In addition, since 1990 Mr. Gebauer has served as the
President, Treasurer and a Director of Security Capital Corporation. Mr. Gebauer
was formerly a Director of Bryant Universal Roofing, Inc., a private corporation
which filed for bankruptcy in April 1996 under Chapter 11 of the U.S. Bankruptcy
Code. In addition, Mr. Gebauer was formerly a Director and Executive Officer of
Alpha Modular Systems, Inc. a privately-held California corporation which had an
involuntary petition under Chapter 7 of the U.S. Bankruptcy Code filed against
it in March 1994 by certain of its creditors in the United States Bankruptcy
Court for the Central District of California. Mr. Gebauer also serves as
Director of a number of privately held
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<PAGE> 41
companies. Mr. Gebauer holds a B.A. in Chemistry from Amherst College, an M.S.
in Chemical Engineering from M.I.T. and an M.B.A. from Rutgers University.
CHONG SUP PARK has served as a Director of the Company since August 1996.
Dr. Park is the President of Hyundai Electronics America, an electronics
company, where he has been employed since September 1996, and, since July 1996,
has also served as the Vice Chairman of Maxtor Corporation, a disk drive
manufacturer. Dr. Park was the President of Maxtor Corporation from February
1995 to June 1996, the President of Axil Computer Inc., a workstation
manufacturing company, from July 1993 to January 1995, the Executive Vice
President at Ernst & Young Consulting, Inc., a public accounting firm, from
April 1992 to June 1993, and the Senior Vice President of Hyundai Electronics
Company Limited from January 1990 to March 1992. Dr. Park holds a B.A. in
Management from Yonsei University, an M.A. in Management from Seoul National
University, an M.B.A. from the University of Chicago and a Doctorate in
Management from Nova Southwestern University.
Dr. Park was nominated and elected to the Board of Directors pursuant to a
Stockholders Agreement (the "Stockholders Agreement") dated as of December 26,
1992 by and among the Company, Gene E. Bowles, Jr., David A. Eeg, members of the
Capital Partners Group, Maxtor, and certain other management investors. The
provisions of the Stockholders Agreement relating to election of directors
terminate upon the closing of this offering.
All directors hold office until the next annual meeting of stockholders or
until their successors have been elected and qualified. Officers serve at the
discretion of the Company's Board of Directors. There are no family
relationships between any of the directors or executive officers of the Company.
BOARD COMMITTEES
In December 1996, the Board established an Audit Committee, a Compensation
Committee, a Nonofficer Stock Option Committee and an Executive Committee. The
Audit Committee, currently comprised of directors A. George Gebauer and C.S.
Park, recommends to the Board of Directors the engagement of the Company's
independent accountants, reviews with such accountants the plan, scope and
results of their examination of the consolidated financial statements and
determines the independence of such accountants. The Compensation Committee,
currently comprised of directors A. George Gebauer and C.S. Park, reviews and
makes recommendations to the Board of Directors regarding all forms of
compensation to be provided to the executive officers, directors and consultants
to the Company. The Nonofficer Stock Option Committee, currently comprised of
directors Gene E. Bowles, Jr. and David A. Eeg, is authorized to grant stock
options to nonofficer employees of the Company within certain guidelines
determined from time to time by the Compensation Committee or the Board of
Directors. The Executive Committee, currently comprised of Directors David A.
Eeg, Brian D. Fitzgerald and C.S. Park, provides Board guidance to management
between meetings of the full board.
DIRECTOR COMPENSATION
Beginning January 1, 1997, nonemployee members of the Company's Board of
Directors receive an annual fee of $16,000 plus $1,000 for each board meeting
attended in person for their services as directors. Prior to that time,
directors did not receive compensation for services as directors. The Company's
1996 Stock Plan provides that options may be granted to nonemployee directors of
the Company. See "-- Employee Stock Plans -- 1996 Stock Plan."
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Company's Board of
Directors or Compensation Committee and the board of directors or compensation
committee of any other company, nor has any such interlocking relationship
existed in the past.
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<PAGE> 42
EMPLOYMENT AGREEMENTS
Concurrent with the Acquisition in December 1992, the Company entered into
employment agreements with each of Messrs. Eeg, Bowles and Bylin. The employment
agreements provided for an initial term of three years, with automatic renewals
for successive one-year terms unless renewal is declined by either party. The
employment agreements may be terminated at any time by the employee or by the
Company by proper notice. The employment agreements provide that Messrs. Eeg,
Bowles and Bylin may not compete with the Company during the term of their
employment with the Company and, at the option of the Company and conditioned
upon the Company continuing to make salary payments, such agreements not to
compete may be extended for a period of up to two years post termination. In the
event that a covered employee is terminated without cause, the Company is
required to make severance payments for up to one year equal to then current
salary, and may elect to make such payments for up to an additional year. In the
event that a covered employee is terminated with cause, the Company may elect to
make severance payments for up to two years. In either event, the noncompetition
agreement remains in effect for the period during which the severance payments
are being made.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Certificate of Incorporation, as amended and restated, limits
the liability of directors to the maximum extent permitted by Delaware law.
Delaware law provides that directors of a corporation will not be personally
liable for monetary damages for breach of their fiduciary duties as directors
except for liability arising out of (i) a breach of their duty of loyalty to the
corporation or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payments of dividends or unlawful stock repurchases or redemptions as
provided in Section 174 of the Delaware General Corporation Law, or (iv) any
transaction from which the director derived an improper personal benefit.
The Company's charter documents provide that the Company shall indemnify
its officers, directors and agents to the fullest extent permitted by law,
including those circumstances where indemnification would otherwise be
discretionary. The Company believes that indemnification under its charter
documents covers at least negligence or gross negligence on the part of
indemnified parties. The Company has entered into indemnification agreements
with each of its directors and officers which may, in some cases, be broader
than the specific indemnification provisions contained in the Delaware General
Corporation Law. The indemnification agreements may require the Company, among
other things, to indemnify each director and officer against certain liabilities
that may arise by reason of their status or service as directors or officers
(other than liabilities arising from willful misconduct of a culpable nature)
and to advance such persons' expenses incurred as a result of any proceeding
against him or her as to which such person could be indemnified.
At the present time, there is no pending litigation or proceeding involving
a director, officer, employee or other agent of the Company in which
indemnification would be required or permitted. The Company is not aware of any
threatened litigation or proceeding that could result in a claim for such
indemnification.
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EXECUTIVE COMPENSATION
Summary Compensation Table. The following table sets forth all compensation
awarded to, earned by, or paid for services rendered to the Company in all
capacities during the year ended December 31, 1996 for (i) the Company's Chief
Executive Officer and (ii) the Company's four most highly compensated other
executive officers whose salary and bonus for such year exceeded $100,000 (the
"Named Executive Officers").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
ANNUAL COMPENSATION SECURITIES
---------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION SALARY ($) BONUS ($) OPTIONS (#) COMPENSATION ($)(1)
- -------------------------------------------- ---------- --------- ------------ -------------------
<S> <C> <C> <C> <C>
David A. Eeg, President and CEO............. 282,068 16,753 -- 8,315
Gene E. Bowles, Jr., Executive Vice
President, Marketing and Customer
Service................................... 220,237 13,615 -- 7,398
Robert E. Bylin, Senior Vice President,
Finance & CFO............................. 156,132 13,360 -- 3,872
Ted Chen, Vice President, Marketing......... 135,015 9,525 10,000 11,297
Kenneth D. Epstein, Vice President, North
American Sales............................ 92,292 6,100 9,375 65,950
</TABLE>
- ---------------
(1) Includes car allowances, sales commissions, group life insurance and
long-term disability insurance.
Option Grants During 1996. The following table sets forth for each of the
Named Executive Officers certain information concerning stock options granted
during 1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF STOCK
SECURITIES PERCENT OF TOTAL PRICE APPRECIATION
UNDERLYING OPTIONS GRANTED EXERCISE FOR OPTION TERM(3)
OPTIONS TO EMPLOYEES IN PRICE EXPIRATION -------------------
NAME GRANTED(1) 1996 PER SHARE DATE(2) 5% ($) 10% ($)
- --------------------------------- ---------- ---------------- --------- ---------- ------ -------
<S> <C> <C> <C> <C> <C> <C>
David A. Eeg..................... -- -- -- -- -- --
Gene E. Bowles, Jr. ............. -- -- -- -- -- --
Robert E. Bylin.................. -- -- -- -- -- --
Ted Chen......................... 10,000 4.8% $1.00 8/06/06 6,289 15,937
Kenneth D. Epstein............... 9,375 4.5% $1.00 8/06/06 5,896 14,491
</TABLE>
- ---------------
(1) Options generally have a ten year term, and vest at the rate of 1/8 of the
shares six months from the vesting start date and the balance monthly over
the succeeding 42 months.
(2) Options may terminate before their expiration dates if the optionee's status
as an employee or consultant is terminated or upon the optionee's death or
disability prior to such date.
(3) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the Securities and Exchange Commission and do not
represent the Company's estimate or projection of the Company's future
Common Stock prices. The actual value realized may be greater or less than
the potential realizable values set forth in the table.
41
<PAGE> 44
Aggregate Option Exercises in 1996 and Year-End Option Values. The
following table sets forth for each of the Named Executive Officers certain
information concerning options exercised during 1996 and the number of shares
subject to both exercisable and unexercisable stock options as of December 31,
1996. The following table also sets forth the value of unexercised
"in-the-money" options held at December 31, 1996.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES UNDERLYING VALUE OF UNEXERCISED
NUMBER OF VALUE REALIZED UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
SHARES (MARKET PRICE AT DECEMBER 31, 1996 DECEMBER 31, 1996(1)
ACQUIRED ON EXERCISE LESS --------------------------- ---------------------------
NAME EXERCISE EXERCISE PRICE) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- ------------------------- ----------- ---------------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
David A. Eeg............. -- $ -- 61,198 1,302 $ 477,344 $10,156
Gene E. Bowles, Jr....... -- -- 61,198 1,302 477,344 10,156
Robert E. Bylin.......... 29,843 101,466(2) 3,388 6,768 26,426 52,794
Ted Chen................. -- -- 4,374 15,626 34,117 113,883
Kenneth D. Epstein....... -- -- 1,484 11,016 11,575 78,425
</TABLE>
- ---------------
(1) Calculated by determining the difference between the fair market value of
the securities underlying the option at December 31, 1996 ($8.00 per share
as determined by the Board of Directors by reference to an independent
appraisal of the Common Stock) and the exercise price of the Named Executive
Officer's option.
(2) No public market existed for the Company's Common Stock during 1996. The
value realized represents the estimated value of shares of Common Stock
determined as of the date of exercise by reference to an independent
appraisal of the Company's Common Stock, less the option exercise price.
EMPLOYEE STOCK PLANS
1993 STOCK PLAN
The Company's 1993 Stock Plan (the "1993 Plan"), which provides for the
grant of 555,555 shares of Common Stock, was approved by the Company's Board of
Directors and stockholders on June 11, 1993. As of December 31, 1996, options to
purchase 456,754 shares were outstanding under the 1993 Plan and 24,586 shares
of Common Stock remained available for issuance under the 1993 Plan. The terms
of the 1993 Plan are substantially similar to those of the 1996 Stock Plan
described below.
1996 STOCK PLAN
The Company's 1996 Stock Plan (the "1996 Plan") provides for the granting
to employees of incentive stock options within the meaning of Section 422 of the
Internal Revenue Code of 1986, as amended (the "Internal Revenue Code"), and for
the granting to employees and consultants of nonstatutory stock options. The
1996 Plan was approved by the Board of Directors in November 1996 (which
approval was conditioned upon completion of this offering) and by the
stockholders in January 1997. Unless terminated sooner, the 1996 Plan will
terminate automatically in November 2006. A total of 1,000,000 shares of Common
Stock have been reserved for issuance pursuant to the 1996 Plan.
The 1996 Plan may be administered by the Board of Directors or a committee
of the Board (the "Committee"), which Committee shall, in the case of options
intended to qualify as "performance-based compensation" within the meaning of
Section 162(m) of the Internal Revenue Code, consist of two or more "outside
directors" within the meaning of Section 162(m) of the Internal Revenue Code.
The Committee has the power to determine the terms of the options granted,
including the exercise price, the number of shares subject to each option, the
exercisability thereof, and the form of consideration payable upon such
exercise. In addition, the Committee has the authority to amend, suspend or
terminate the 1996 Plan, provided that no such action may affect any share of
Common Stock previously issued and sold or any option previously granted under
the 1996 Plan.
Options granted under the 1996 Plan are not generally transferable by the
optionee, and each option is exercisable during the lifetime of the optionee
only by such optionee. Options granted under the 1996 Plan
42
<PAGE> 45
must generally be exercised within three months of the end of optionee's status
as an employee or consultant of the Company, or within twelve months after such
optionee's termination by death or disability, but in no event later than the
expiration of the option's ten year term. The exercise price of options granted
under the 1996 Plan is determined by the Committee, but with respect to
nonstatutory stock options intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Internal Revenue Code,
the exercise price must at least be equal to the fair market value of the Common
Stock on the date of grant. The term of other options granted under the 1996
Plan may not exceed ten years.
The 1996 Plan provides that in the event of a merger of the Company with or
into another corporation, a sale of substantially all of the Company's assets or
a like transaction involving the Company, each option shall be assumed or an
equivalent option substituted by the successor corporation. If the outstanding
options are not assumed or substituted as described in the preceding sentence,
the Committee shall provide for the Optionee to have the right to exercise the
option as to all of the optioned stock, including shares as to which it would
not otherwise be exercisable. If the Administrator makes an option exercisable
in full in the event of a merger or sale of assets, the Administrator shall
notify the optionee that the option shall be fully exercisable for a specified
period from the date of such notice, and the option will terminate upon the
expiration of such period.
During 1996, the Company agreed to grant to a consultant of the Company,
upon the completion of this offering, an option to acquire 25,000 shares of
Common Stock at an exercise price of $0.20 per share. Such option, when issued,
will be fully vested and exercisable and will have a two-year term.
1996 EMPLOYEE STOCK PURCHASE PLAN
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
approved by the Board of Directors in November 1996 (which approval was
conditioned upon completion of this offering) and by the stockholders in January
1997. A total of 200,000 shares of Common Stock has been reserved for issuance
under the Purchase Plan. The Purchase Plan, which is intended to qualify under
Section 423 of the Internal Revenue Code, has two six-month offering periods
each year beginning on the first trading day on or after February 15 and August
15, respectively, except for the first such offering period which commences on
the first trading day on or after the effective date of this offering and ends
on the last trading day on or before August 14, 1997. The Purchase Plan is
administered by the Board of Directors or by a committee appointed by the Board.
Employees are eligible to participate if they are customarily employed by the
Company or any participating subsidiary for at least 20 hours per week and more
than five months in any calendar year. The Purchase Plan permits eligible
employees to purchase Common Stock through payroll deductions of up to 15% of an
employee's compensation (including commissions, overtime and other bonuses and
incentive compensation), up to a maximum of $7,500 per offering period. The
Board of Directors intends to review the percentage and maximum withholding
levels on at least an annual basis, and to increase or decrease such levels as
it deems appropriate. The price of stock purchased under the Purchase Plan is
85% of the lower of the fair market value of the Common Stock at the beginning
or at the end of each offering period. Employees may end their participation at
any time during an offering period, and they will be paid their payroll
deductions to date. Participation ends automatically upon termination of
employment with the Company.
Rights granted under the Purchase Plan are not transferable by a
participant other than by will, the laws of descent and distribution, or as
otherwise provided under the Purchase Plan. The Purchase Plan provides that, in
the event of a merger of the Company with or into another corporation or a sale
of all or substantially all of the Company's assets, the Board of Directors
shall shorten the offering period then in progress (so that employees' rights to
purchase stock under the Plan are exercised prior to the merger or sale of
assets). The Purchase Plan will terminate in 2006. The Board of Directors has
the authority to amend or terminate the Purchase Plan, except that no such
action may adversely affect any outstanding rights to purchase stock under the
Purchase Plan.
401(K) PLAN
The Company has a 401(k) Plan, pursuant to which eligible employees may
elect to reduce their current salary by up to the statutorily prescribed annual
limit ($9,500 in 1996) and have the amount of such reduction
43
<PAGE> 46
contributed to the 401(k) Plan. The Company matches employee contributions to
the 401(k) Plan at the rate of 50% of the employee's contribution up to a
specified limit. The 401(k) Plan is intended to qualify under Section 401 of the
Internal Revenue Code so that contributions by participants to the 401(k) Plan,
and income earned on plan contributions, are not taxable to participants until
withdrawn from the 401(k) Plan.
CERTAIN TRANSACTIONS
In connection with the Acquisition, the Company issued to Maxtor the Maxtor
Note, which had a principal amount of $4 million. The Maxtor Note bears interest
at the rate of 8% per annum during the first year, 10% per annum during the
second year and 12% per annum for the remaining term. The Maxtor Note was
originally due on December 26, 1995 but the due date was subsequently extended
to the earlier to occur of the completion of this offering or May 10, 1997.
During 1994, 1995 and 1996, the Company paid to Maxtor $400,000, $482,042 and
$469,377, respectively, in interest payments under the Maxtor Note. The Company
also paid $400,000 of principal in the third quarter of 1996 under the Maxtor
Note. The Company will pay the remaining outstanding principal together with
unpaid interest with a portion of the proceeds of this offering. In addition,
during 1994 and 1995, the Company purchased goods (principally rigid magnetic
and optical disk drives) from Maxtor and its affiliates totaling $1,400,000 and
$69,000, respectively. The Company did not purchase any goods from Maxtor during
1996.
In connection with the Acquisition in December 1992, the Company entered
into the Advisory Agreement with Capital Partners. Capital Partners, together
with its affiliates, is the holder of a majority of the Company's outstanding
voting stock. Directors Fitzgerald and Gebauer are officers of Capital Partners.
During 1994, 1995 and 1996, the Company paid to Capital Partners $362,000,
$360,000 and $729,000, respectively, pursuant to the Advisory Agreement. The
1996 amount includes a one-time payment of $360,000 paid by the Company in
connection with termination of the Advisory Agreement by mutual agreement in
December 1996.
In 1996, the Company loaned David Bultman, its Senior Vice President of
Engineering at the time, amounts totalling $90,000. Mr. Bultman is no longer
employed with the Company. The remaining balance of Mr. Bultman's loan was
$25,183 at December 31, 1996.
All future transactions, including loans, between the Company and its
officers, directors and principal stockholders and their affiliates will be
approved by a majority of the Board of Directors, including a majority of the
independent and disinterested directors of the Board of Directors, and will be
on terms no less favorable to the Company than could be obtained from
unaffiliated third parties.
44
<PAGE> 47
PRINCIPAL AND SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock as of December 31, 1996 and
as adjusted to reflect the sale of the Common Stock offered hereby for (i) each
person or entity who is known by the Company to beneficially own five percent or
more of the outstanding Common Stock of the Company prior to this offering, (ii)
each of the Company's directors, (iii) each of the Named Executive Officers, and
(iv) all directors and executive officers of the Company as a group.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED PRIOR TO SHARES BENEFICIALLY
OFFERING NUMBER OF OWNED AFTER OFFERING
---------------------- SHARES -------------------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT(1) OFFERED NUMBER PERCENT(1)(2)
- ---------------------------------------- --------- ---------- --------- --------- -------------
<S> <C> <C> <C> <C> <C>
5% STOCKHOLDERS
Capital Partners Group(3)............... 2,900,623 56.5% 708,950 2,191,673 28.0%
Maxtor Corporation...................... 1,600,000 31.1 391,050 1,208,950 15.4
OFFICERS & DIRECTORS
David A. Eeg(4)......................... 200,625 3.9 -- 200,625 2.5
Gene E. Bowles, Jr.(4).................. 200,625 3.9 -- 200,625 2.5
Robert E. Bylin(5)...................... 72,885 1.4 -- 72,885 *
James M. Canter(6)...................... 20,279 * -- 20,279 *
Ted Chen(7)............................. 12,416 * -- 12,416 *
Brian D. Fitzgerald(3).................. 2,900,623 56.5 708,950 2,191,673 28.0
A. George Gebauer(3).................... -- -- -- -- --
Chong Sup Park(8)....................... 1,600,000 31.1 391,050 1,208,950 15.4
All directors and executive officers as
a group (11 persons)(9)............... 5,044,170 95.2 1,100,000 3,944,170 49.3
</TABLE>
- ---------------
* Less than 1%.
(1) Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission. In computing the number of shares
beneficially owned by a person and the percentage ownership of that person,
shares of Common Stock subject to options held by that person that are
currently exercisable or exercisable within 60 days of December 31, 1996 are
deemed outstanding. Such shares, however, are not deemed outstanding for the
purpose of computing the percentage ownership of each other person. Except
as indicated in the footnotes to this table and pursuant to applicable
community property laws, each stockholder named in the table has sole voting
and investment power with respect to the shares set forth opposite such
stockholder's name.
(2) Assumes no exercise of Underwriters' over-allotment option.
(3) Represents 1,676,440 shares held by CP Acquisition, L.P. No. 4A, 926,790
shares held by CP Acquisition, L.P. No. 4B, 3,612 shares held by Capital
Partners, Inc., and 293,781 shares held by FGS, Inc. Of the 708,950 shares
to be sold by the Capital Partners Group, 409,743 will be sold by CP
Acquisition, L.P. No. 4A, 226,520 shares will be sold by CP Acquisition,
L.P. No. 4B, 883 shares will be sold by Capital Partners, Inc. and 71,804
shares will be sold by FGS, Inc. The following affiliated entities are
included in "Capital Partners Group": (a) CP Acquisition, L.P. No. 4A, a
Delaware limited partnership; (b) CP Acquisition, L.P. No. 4B, a Delaware
limited partnership; (c) Capital Partners, Inc., a Connecticut corporation,
of which Brian D. Fitzgerald is the sole stockholder, an officer and a
Director and A. George Gebauer is an officer; and (d) FGS, Inc., a Delaware
corporation, of which Mr. Fitzgerald is the controlling stockholder, an
officer and a Director and Mr. Gebauer is an officer and a Director. Mr.
Fitzgerald may be deemed to beneficially own the shares held by the entities
comprising the Capital Partners Group. Mr. Gebauer disclaims beneficial
ownership of shares held by the entities comprising the Capital Partners
Group.
45
<PAGE> 48
(4) Includes options to purchase 62,500 shares of Common Stock exercisable at or
within 60 days of December 31, 1996.
(5) Includes options to purchase 4,792 shares of Common Stock exercisable at or
within 60 days of December 31, 1996.
(6) Includes options to purchase 16,029 shares of Common Stock exercisable at or
within 60 days of December 31, 1996.
(7) Includes options to purchase 6,041 shares of Common Stock exercisable at or
within 60 days of December 31, 1996.
(8) Represents shares held by Maxtor. Dr. Park is President of Hyundai
Electronics America, the parent of Maxtor and Vice Chairman of the Board of
Maxtor.
(9) Includes shares held by the Capital Partners Group and Maxtor, as well as
options to purchase an aggregate of 161,679 shares at or within 60 days of
December 31, 1996. See notes 3 through 8 above.
DESCRIPTION OF CAPITAL STOCK
At the consummation of this offering, the authorized capital stock of the
Company will consist of 40,000,000 shares of Common Stock, $0.005 par value, and
10,000,000 shares of Preferred Stock, $0.005 par value, after giving effect to
the conversion of outstanding Preferred Stock into Common Stock upon
consummation of this offering.
COMMON STOCK
As of December 31, 1996, there were 5,136,623 shares of Common Stock
outstanding (after giving effect to the conversion of all Preferred Stock) held
of record by approximately 50 stockholders. Holders of Common Stock are entitled
to one vote per share on all matters to be voted upon by the stockholders.
Subject to preferences that may be applicable to any outstanding Preferred
Stock, the holders of Common Stock are entitled to receive ratably such
dividends, if any, as may be declared from time to time by the Board of
Directors out of funds legally available therefor. See "Dividend Policy." In the
event of a liquidation, dissolution or winding up of the Company, the holders of
Common Stock are entitled to share ratably in all assets remaining after payment
of liabilities, subject to prior liquidation rights of Preferred Stock, if any,
then outstanding. The Common Stock has no preemptive or conversion rights or
other subscription rights. There are no redemption or sinking fund provisions
applicable to the Common Stock. All outstanding shares of Common Stock are fully
paid and non-assessable, and the shares of Common Stock to be outstanding upon
consummation of the offering will be fully paid and non-assessable.
PREFERRED STOCK
Upon the closing of this offering, 10,000,000 shares of undesignated
Preferred Stock will be authorized, and no shares will be outstanding. The Board
of Directors has the authority to issue the shares of Preferred Stock in one or
more series and to fix the rights, preferences, privileges and restrictions
granted to or imposed upon any unissued shares of Preferred Stock and to fix the
number of shares constituting any series and the designations of such series,
without any further vote or action by the stockholders. Although it presently
has no intention to do so, the Board of Directors, without stockholder approval,
can issue Preferred Stock with voting and conversion rights which could
adversely affect the voting power of the holders of Common Stock. The issuance
of Preferred Stock may have the effect of delaying, deferring or preventing a
change in control of the Company.
REGISTRATION RIGHTS
Upon the closing of this offering, the holders or their permitted
transferees ("Holders") of approximately 3,706,623 shares of Common Stock will
be entitled to certain rights with respect to the registration of such shares
under the Securities Act. If the Company proposes to register any of its
securities under the Securities
46
<PAGE> 49
Act, either for its own account or for the account of other security holders,
the holders will be entitled to notice of the registration and will be entitled
to include, at the Company's expense, shares therein. In addition, certain of
the Holders may require the Company at its own expense, on not more than two
occasions, to file a registration statement under the Securities Act, with
respect to their shares of Common Stock, and the Company is required to use its
best efforts to effect such registration, subject to certain conditions and
limitations. Further, the Holders may require the Company, at its expense, to
register their shares of Common Stock on a Registration Statement on Form S-3,
when such form becomes available to the Company, subject to certain conditions
and limitations.
TRANSFER AGENT AND REGISTRAR
The Transfer Agent and Registrar for the Company's Common Stock is
________________.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this offering, the Company will have outstanding
7,836,623 shares of Common Stock, assuming no exercise of options outstanding as
of December 31, 1996. Of these shares, the 3,800,000 shares offered hereby
(4,370,000 shares if the Underwriters' over-allotment option is exercised in
full) will be freely tradeable without restriction or further registration under
the Securities Act of 1933, as amended (the "Securities Act"), unless purchased
by "affiliates" of the Company as that term is defined in Rule 144 under the
Securities Act ("Rule 144") described below. The remaining 4,036,623 shares of
Common Stock outstanding upon completion of this offering are "restricted
securities" as that term is defined in Rule 144. All of these shares are subject
to Lock-Up Agreements (described below). Of these shares none will be eligible
for immediate sale upon commencement of the offering. Upon expiration of the
Lock-Up Agreement (as described below), an aggregate of 254,132 shares will
become immediately eligible for sale without restriction pursuant to Rule 144(k)
or Rule 701 under the Securities Act ("Rule 701") (described below), and
approximately 3,782,491 additional shares will be eligible for sale subject to
the timing, volume and manner of sale restrictions of Rule 144.
In general, under Rule 144 as currently in effect, a person (or persons
whose shares are aggregated) who has beneficially owned shares for at least two
years (including the holding period of any prior owner except an affiliate from
whom such shares were purchased) is entitled to sell in "broker's transactions"
or to market makers, within any three-month period commencing 90 days after the
date of this Prospectus, a number of shares that does not exceed the greater of
(i) one percent of the number of shares of Common Stock then outstanding
(approximately 78,000 shares immediately after this offering) or (ii) generally,
the average weekly trading volume in the Common Stock during the four calendar
weeks preceding the required filing of a Form 144 with respect to such sale.
Sales under Rule 144 are generally subject to the availability of current public
information about the Company. Under Rule 144(k), a person who is not deemed to
have been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned the shares proposed to be sold for at least
three years (including the holding period of any prior owner other than an
affiliate from whom such shares were purchased), is entitled to sell such shares
without having to comply with the manner of sale, public information, volume
limitation or notice provisions of Rule 144. Under Rule 701, persons who
purchase shares upon exercise of options granted prior to the effective date of
this offering are entitled to sell such shares 90 days after the effective date
of this offering in reliance on Rule 144, without having to comply with the
holding period requirements of Rule 144 and, in the case of non-affiliates,
without having to comply with the public information, volume limitation or
notice provisions of Rule 144.
Pursuant to the Lock-Up Agreements, the Company and certain stockholders
(including the Selling Stockholders) owning upon completion of this offering, in
the aggregate, 4,036,623 shares of Common Stock and certain holders of stock
options have agreed not to, directly or indirectly, offer, sell, offer to sell,
contract to sell, grant any option to purchase or otherwise sell or dispose of
(or announce any offer, sale, offer of sale, contract of sale, grant of any
option to purchase or other sale or disposition of) any shares of Common Stock
(including shares issuable under options exercisable during the lock-up period
described below) or any securities convertible into or exercisable or
exchangeable therefor (except for shares of Common Stock they
47
<PAGE> 50
may acquire in the public market), until 180 days after the date of this
Prospectus without the prior written consent of Smith Barney Inc., on behalf of
the Underwriters.
As soon as practicable after the date of this Prospectus, the Company
intends to file registration statements on Form S-8 covering an aggregate of
approximately 1,225,000 shares of Common Stock that have been reserved for
issuance under its employee stock option plans and purchase plans thus
permitting the resale of such shares in the public market without restriction
under the Securities Act.
Prior to this offering, there has not been any public market for the Common
Stock. Future sales of substantial amounts of Common Stock in the public market
could adversely affect the prevailing market prices and impair the Company's
ability to raise capital through the sale of equity securities.
48
<PAGE> 51
UNDERWRITING
Under the terms and subject to the conditions contained in the Underwriting
Agreement, each Underwriter named below has severally agreed to purchase, and
the Company has agreed to sell to such Underwriter, the number of shares of
Common Stock set forth opposite the name of such Underwriter below:
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------------------------------------------------------------ ----------
<S> <C>
Smith Barney Inc..................................................
Salomon Brothers Inc..............................................
---------
Total................................................... 3,800,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters to pay for and accept delivery of the shares of Common Stock are
subject to approval of certain legal matters by counsel and to certain other
conditions. The Underwriters are obligated to take and pay for all of the shares
of Common Stock offered hereby (other than those covered by the over-allotment
options described below) if any such shares of Common Stock are taken.
The Underwriters, for whom Smith Barney Inc. and Salomon Brothers Inc are
acting as the Representatives, propose to offer part of the shares of Common
Stock directly to the public at the public offering price set forth on the cover
page of this Prospectus and part of such shares of Common Stock to certain
dealers at a price that represents a concession not in excess of $ per
share under the price to public. The Underwriters may allow, and such dealers
may reallow, a concession not in excess of $ per share of Common Stock
to certain other dealers. After the initial offering of the shares to the
public, the public offering price and such consessions may be changed by the
Representatives. The Representatives have advised the Company that the
Underwriters do not intend to confirm any shares to any accounts over which they
exercise discretionary control.
The Company, the officers and directors of the Company, the Selling
Stockholders, and certain other stockholders of the Company designated by the
Representatives, have agreed that, for a period of 180 days from the date of
this Prospectus, they will not, without the prior written consent of the
Representatives, offer, sell, contract to sell, or otherwise dispose of, any
shares of Common Stock of the Company or any securities convertible into, or
exercisable or exchangeable for, Common Stock of the Company.
The Selling Stockholders have granted to the Underwriters options,
exercisable for thirty days from the date of this Prospectus, to purchase up to
an aggregate 570,000 additional shares of Common Stock at the price to public
set forth on the cover page of this Prospectus minus the underwriting discounts
and commissions. See "Principal and Selling Stockholders." The Underwriters may
exercise such options solely for the purpose of covering over-allotments, if
any, in connection with the offering of the shares offered hereby. To the extent
such options are exercised, each Underwriter will be obligated, subject to
certain conditions, to purchase approximately the same percentage of such
additional shares as the number of shares set forth opposite each Underwriter's
name in the preceding table bears to the total number of shares listed in such
table.
The Company and the Underwriters have agreed to indemnify each other
against certain liabilities, including liabilities under the Securities Act of
1933, as amended.
49
<PAGE> 52
PRICING OF THE OFFERING
Prior to this offering, there has been no public market for the Company's
Common Stock. The initial public offering price will be determined by
negotiation between the Company, the Selling Stockholders and the
Representatives. Among the factors to be considered in determining the initial
public offering price will be the history of and prospects for the Company's
business and the industry in which it competes, an assessment of the Company's
management and the present state of the Company's development, the past and
present revenues and earnings of the Company, the prospects for growth of the
Company's revenues and earnings, the current state of the economy in the United
States and the current level of economic activity in the industry in which the
Company competes and in related or comparable industries, and currently
prevailing conditions in the securities market, including current market
valuations of publicly traded companies which are comparable to the Company.
LEGAL MATTERS
Certain legal matters with respect to the legality of the issuance of the
shares of Common Stock offered hereby will be passed upon for the Company by
Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo Alto,
California. Certain legal matters in connection with this offering will be
passed upon for the Underwriters by Gray Cary Ware & Freidenrich, a Professional
Corporation, Palo Alto, California.
EXPERTS
The consolidated financial statements as of December 31, 1995 and 1996 and
for each of the three years in the period ended December 31, 1996 included in
this Prospectus have been so included in reliance on the report of Price
Waterhouse LLP, independent accountants, given on the authority of said firm as
experts in accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission (the
"Commission"), Washington, D.C. 20549, a Registration Statement on Form S-1
under the Securities Act with respect to the shares of Common Stock offered
hereby. This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Certain items are
omitted in accordance with the rules and regulations of the Commission. For
further information with respect to the Company and the Common Stock offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed therewith. Statements contained in this Prospectus as to the
contents of any contract or any other document referred to are not necessarily
complete, and, in each instance, reference is made to the copy of such contract,
or other document filed as an exhibit to the Registration Statement, each such
statement being qualified in all respects by such reference. A copy of the
Registration Statement, and the exhibits and schedules thereto, may be inspected
without charge at the public reference facilities maintained by the Commission
in Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
Commission's regional offices located at the Northwestern Atrium Center, 500
West Madison Street, Suite 1400, Chicago, Illinois 60661 and Seven World Trade
Center, 13th Floor, New York, New York 10048, and copies of all or any part of
the Registration Statement may be obtained from such offices upon the payment of
the fees prescribed by the Commission. The Commission maintains a World Wide Web
site (http://www.sec.gov) that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
50
<PAGE> 53
STORAGE DIMENSIONS, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Report of Independent Accountants..................................................... F-2
Consolidated Balance Sheet as of December 31, 1995 and 1996........................... F-3
Consolidated Statement of Operations for the years ended December 31, 1994, 1995 and
1996................................................................................ F-4
Consolidated Statement of Stockholders' Equity for the years ended December 31, 1994,
1995 and 1996....................................................................... F-5
Consolidated Statement of Cash Flows for the years ended December 31, 1994, 1995 and
1996................................................................................ F-6
Notes to Consolidated Financial Statements............................................ F-7
</TABLE>
F-1
<PAGE> 54
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Storage Dimensions, Inc.
In our opinion, the accompanying consolidated balance sheet and the related
consolidated statements of operations, stockholders' equity and cash flows
present fairly, in all material respects, the financial position of Storage
Dimensions, Inc. and its subsidiaries at December 31, 1995 and 1996, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1996, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
San Jose, California
January 16, 1997
F-2
<PAGE> 55
STORAGE DIMENSIONS, INC.
CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1995 1996
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................... $ 363 $ 1,682
Accounts receivable, net........................................... 9,646 11,939
Inventories........................................................ 6,915 6,304
Prepaid expenses and other assets.................................. 508 858
-------- --------
Total current assets....................................... 17,432 20,783
Property and equipment, net.......................................... 2,319 2,115
-------- --------
Total assets............................................... $ 19,751 $ 22,898
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................................... $ 6,241 $ 5,061
Accrued liabilities................................................ 2,811 3,580
Short-term borrowings.............................................. 3,837 6,029
Short-term debt from stockholder................................... 4,000 3,600
-------- --------
Total current liabilities.................................. 16,889 18,270
-------- --------
Commitments (Note 10)
Stockholders' equity:
Series A Convertible Preferred Stock, $0.005 par value, 13,850
shares authorized; 13,734 and 13,850 shares issued and
outstanding..................................................... 69 69
Common Stock, $0.005 par value, 40,000 shares authorized; 1,608 and
1,674 shares issued and outstanding............................. 8 8
Additional paid-in capital......................................... 9,385 10,267
Deferred stock compensation........................................ -- (486)
Accumulated deficit................................................ (6,600) (5,230)
-------- --------
Total stockholders' equity................................. 2,862 4,628
-------- --------
Total liabilities and stockholders' equity................. $ 19,751 $ 22,898
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE> 56
STORAGE DIMENSIONS, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1994 1995 1996
-------- -------- --------
<S> <C> <C> <C>
Net sales:
Enterprise and OEM..................................... $ 40,088 $ 52,475 $ 69,873
Desktop................................................ 21,136 7,683 2,437
-------- -------- --------
61,224 60,158 72,310
Cost of goods sold....................................... 41,998 37,170 45,327
-------- -------- --------
Gross profit............................................. 19,226 22,988 26,983
-------- -------- --------
Operating expenses:
Sales and marketing.................................... 10,662 13,344 14,081
Research and development............................... 4,339 5,377 5,872
General and administrative............................. 3,293 3,390 3,644
Advisory fee payable to related party.................. 362 360 729
-------- -------- --------
18,656 22,471 24,326
-------- -------- --------
Income from operations................................... 570 517 2,657
Interest expense......................................... (583) (641) (686)
Related party interest expense........................... (400) (482) (469)
-------- -------- --------
Income (loss) before provision for income taxes.......... (413) (606) 1,502
Provision for income taxes............................... 24 30 132
-------- -------- --------
Net income (loss)........................................ $ (437) $ (636) $ 1,370
======== ======== ========
Net income per share..................................... $ 0.25
========
Shares used in per share calculation..................... 5,529
========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE> 57
STORAGE DIMENSIONS, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
SERIES A
CONVERTIBLE
PREFERRED STOCK COMMON STOCK ADDITIONAL DEFERRED TOTAL
--------------- --------------- PAID-IN STOCK ACCUMULATED STOCKHOLDERS'
SHARES AMOUNTS SHARES AMOUNTS CAPITAL COMPENSATION DEFICIT EQUITY
------ ------- ------ ------- ---------- ------------ ----------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance at December 31, 1993........ 13,132 $66 1,600 $ 8 $ 9,033 $ -- $(5,527) $ 3,580
Issuance of Series A Convertible
Preferred Stock to employees...... 474 2 -- -- 276 -- -- 278
Redemption of Series A Convertible
Preferred Stock................... (153) (1) -- -- (89) -- -- (90)
Net loss............................ -- -- -- -- -- -- (437) (437)
----- --- ----- ------- ----- ------- ------
--
Balance at December 31, 1994........ 13,453 67 1,600 9,220 -- (5,964) 3,331
8
Issuance of Series A Convertible
Preferred Stock to employees...... 341 2 -- 199 -- -- 201
--
Redemption of Series A Convertible
Preferred Stock................... (60) -- -- (35) -- -- (35)
--
Common Stock options exercised...... -- -- 8 1 -- -- 1
--
Net loss............................ -- -- -- -- -- (636) (636)
--
----- --- ----- ------- ----- ------- ------
--
Balance at December 31, 1995........ 13,734 69 1,608 9,385 -- (6,600) 2,862
8
Issuance of Series A Convertible
Preferred Stock to employees...... 383 2 -- 490 -- -- 492
--
Redemption of Series A Convertible
Preferred Stock................... (267) (2) -- (155) -- -- (157)
--
Common Stock options exercised,
net............................... -- -- 66 7 -- -- 7
--
Deferred Stock compensation from
stock options..................... -- -- -- 540 (540) -- --
--
Amortization of deferred stock
compensation...................... -- -- -- -- 54 -- 54
--
Net income.......................... -- -- -- -- -- 1,370 1,370
--
----- --- ----- ------- ----- ------- ------
--
Balance at December 31, 1996........ 13,850 $69 1,674 $ 10,267 $ (486) $(5,230) $ 4,628
$ 8
===== === ===== ======= ===== ======= ======
==
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE> 58
STORAGE DIMENSIONS, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------
1994 1995 1996
------- ------- -------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss)........................................... $ (437) $ (636) $ 1,370
Adjustments to reconcile net income (loss) to cash provided
by operating activities:
Depreciation and amortization............................ 2,024 2,495 1,147
Compensation expense from stock and stock options........ -- -- 259
Changes in assets and liabilities:
Accounts receivable.................................... (250) (1,141) (2,293)
Inventory.............................................. (239) (2,106) 611
Prepaid expenses and other assets...................... 95 258 (350)
Accounts payable....................................... (426) 2,158 (1,180)
Accrued liabilities.................................... 456 (118) 769
------- ------- -------
Net cash provided by operating activities........... 1,223 910 333
------- ------- -------
Cash flows from investing activities:
Acquisition of property and equipment....................... (1,331) (1,363) (943)
------- ------- -------
Cash flows from financing activities:
Proceeds from sale of Series A Convertible Preferred Stock
to employees............................................. 278 201 287
Payments to repurchase Series A Convertible Preferred
Stock.................................................... (90) (35) (157)
Proceeds from exercise of Common Stock options, net......... -- 1 7
Proceeds (repayments) from short-term borrowings............ (112) 179 1,792
------- ------- -------
Net cash provided by financing activities........... 76 346 1,929
------- ------- -------
Net increase (decrease) in cash and cash equivalents.......... (32) (107) 1,319
Cash and cash equivalents at beginning of year................ 502 470 363
------- ------- -------
Cash and cash equivalents at end of year...................... $ 470 $ 363 $ 1,682
======= ======= =======
Supplemental disclosure of cash flow information:
Cash paid during the year for interest...................... $ 833 $ 929 $ 1,066
======= ======= =======
Cash paid during the year for income taxes.................. $ 6 $ 14 $ 25
======= ======= =======
Supplemental schedule of noncash financing activities:
Refinancing of short-term borrowings........................ $ -- $ -- $ 5,289
======= ======= =======
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE> 59
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING POLICIES:
Storage Dimensions, Inc. (the "Company") was incorporated in Delaware in
November 1992. The Company designs, manufactures, markets and supports high
performance data storage systems for open systems network applications.
The Company was formed in order to effect a majority interest
management-led buy-out (the "MBO") of Storage Dimensions, Inc. (a wholly owned
subsidiary of Maxtor Corporation ("Maxtor")) on December 26, 1992 by an investor
group comprised of members of management and Capital Partners, Inc.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company
and its subsidiaries after elimination of all significant intercompany accounts
and transactions.
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosures of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenue and expenses during the period.
Actual results could differ from those estimates.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents consist of highly liquid investment instruments
with original maturities of three months or less.
INVENTORIES
Inventories are stated at the lower of cost (using the first-in, first-out
method) or market.
PROPERTY AND EQUIPMENT
Property, equipment and leasehold improvements are stated at cost.
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets which range from three to five years. Amortization of
leasehold improvements is computed using the straight-line method over the
shorter of the estimated useful lives of the assets or the remaining lease term.
REVENUE RECOGNITION AND PRODUCT WARRANTY
Revenue from product sales is recognized upon shipment. Concurrently,
provisions are made for the estimated cost to repair or replace products under
warranty arrangements and for sales returns and allowances.
RESEARCH AND DEVELOPMENT COSTS
Research and development costs are charged to operations as incurred.
SOFTWARE DEVELOPMENT COSTS
To date, the period between achieving technological feasibility and
completion of such software has been short and software development costs
qualifying for capitalization have been insignificant. Accordingly, the Company
has not capitalized any software development costs.
F-7
<PAGE> 60
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
FISCAL YEAR
The Company operates and reports financial results on a
fifty-two/fifty-three week fiscal year cycle ending on the Saturday nearest
December 31. The Company also follows a five-four-four week quarterly cycle. For
convenience, the Company presents its fiscal year as ending on December 31.
Fiscal 1994, 1995 and 1996 each contained 52 weeks.
ACCOUNTING FOR STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation in accordance with
Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to
Employees." In January 1996, the Company adopted the disclosure requirements of
Statement of Financial Accounting Standards No. 123 ("FAS 123"), "Accounting for
Stock-Based Compensation" (see Note 7).
NET INCOME PER SHARE
Net income per share is computed using the weighted average number of
common and common equivalent shares outstanding during the periods assuming the
conversion of all shares of the Company's Series A Convertible Preferred Stock
into Common Stock which will occur upon the consummation of the Company's
intended initial public offering. Per share amounts also give retroactive effect
to the one-for-four reverse split of all shares of Common Stock (and an
adjustment to the conversion price of the Series A Convertible Preferred Stock)
as described in Note 11. Pursuant to the requirements of the Securities and
Exchange Commission, common equivalent shares relating to preferred stock and
stock options (using the treasury stock method and assuming an initial public
offering price of $9.50 per share) issued subsequent to January 22, 1996 have
been included in the computations for all periods presented.
Historical net income or loss per share data has not been presented since
such amounts are not deemed to be meaningful due to the significant change in
the Company's capital structure which is to occur in connection with the
offering.
2. RELATED PARTY TRANSACTIONS:
PURCHASES AND SALES
During 1994 and 1995, the Company purchased goods (principally rigid
magnetic and optical disk drives) from Maxtor Corporation and its affiliates
totaling $1,400,000 and $69,000, respectively. The Company did not purchase any
goods from Maxtor during 1996.
SUBORDINATED NOTE PAYABLE
In December 1992, in conjunction with the MBO, the Company issued a
subordinated promissory note of $4 million to Maxtor (the "Maxtor Note"). The
Maxtor Note is due and payable in full upon the earlier of the consummation of
the Company's initial public offering or May 10, 1997, subject to a
subordination agreement associated with the Company's Loan and Security
Agreement (Note 4) which restricts principal repayments until certain financial
covenants are met. During 1996, in accordance with these financial covenants,
the Company paid $400,000 in principal on the Maxtor Note. Interest at 12% per
annum is paid quarterly by the Company.
F-8
<PAGE> 61
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
ADVISORY FEE
During 1994, 1995 and 1996, the Company paid advisory fees of $362,000,
$360,000 and $729,000, respectively, to one of its investors in accordance with
an Investment Advisory Services Agreement (the "Advisory Agreement"). The
Advisory Agreement was terminated in December 1996.
3. BALANCE SHEET COMPONENTS (IN THOUSANDS):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Accounts receivable:
Gross receivables.............................................. $10,218 $12,478
Less allowance for doubtful accounts........................... (572) (539)
------- -------
$ 9,646 $11,939
======= =======
Inventory:
Raw material and purchased components.......................... $ 3,926 $ 2,540
Work in progress............................................... 1,170 1,639
Finished goods................................................. 1,819 2,125
------- -------
$ 6,915 $ 6,304
======= =======
Property and equipment:
Machinery and equipment........................................ $ 6,403 $ 6,992
Furniture and fixtures......................................... 599 620
Leasehold improvements......................................... 517 539
------- -------
7,519 8,151
Less accumulated depreciation and amortization................. (5,200) (6,036)
------- -------
$ 2,319 $ 2,115
======= =======
Accrued liabilities:
Accrued employee compensation.................................. $ 1,451 $ 1,865
Other.......................................................... 1,360 1,715
------- -------
$ 2,811 $ 3,580
======= =======
</TABLE>
4. SHORT-TERM BORROWINGS:
On May 17, 1996, the Company entered into a Loan and Security Agreement
(the "Agreement") with Congress Financial Corporation which expires May 16, 1998
and replaced an existing line of credit agreement. Under the revolving line of
credit provisions of the Agreement, the Company may borrow up to $11 million
based upon eligible accounts receivable and inventory. Under the terms of the
Agreement, deposits from collections of accounts receivable are restricted. The
Agreement also allows the Company to borrow up to $1 million for purchases of
property and equipment under its capital expenditure facility and $400,000 under
its term loan provisions. Such borrowings reduce the available borrowings under
the revolving line of credit. Borrowings bear interest at the rate of prime plus
1% (9.25% as of December 31, 1996) and are secured by all of the Company's
assets. Borrowings outstanding under the line at December 31, 1996 include
$267,000 borrowed under the term loan provisions.
F-9
<PAGE> 62
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. INCOME TAXES:
The provision for income taxes consists of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER
31,
----------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Current:
Federal..................................................... $ -- $ -- $ 34
State....................................................... 4 6 40
Foreign..................................................... 20 24 58
--- --- ----
$ 24 $ 30 $132
=== === ====
</TABLE>
Deferred tax assets consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------
1995 1996
------- -------
<S> <C> <C>
Depreciation and amortization.................................... $ 397 $ 358
Compensation accrual............................................. 149 199
Inventory reserves............................................... 334 420
Net operating loss carryforward.................................. 810 50
Research and development credits................................. 205 233
Other............................................................ 364 435
------- -------
Gross deferred tax assets........................................ 2,259 1,695
Deferred tax asset valuation allowance........................... (2,259) (1,695)
------- -------
Net deferred tax assets.......................................... $ -- $ --
======= =======
</TABLE>
The Company provides a valuation allowance for deferred tax assets when it
is more likely than not, based on available evidence including the prior history
of losses, that some portion or all of the deferred tax assets will not be
realized.
A reconciliation of the provision for income taxes to the amount computed
by applying the statutory federal income tax rate to income (loss) before income
taxes is as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Tax provision (benefit) at the U.S. federal statutory rate
of 34%................................................... $(140) $(206) $ 511
State income taxes, net of federal tax benefit............. 4 6 40
Change in valuation allowance.............................. 124 184 (564)
Other, net................................................. 36 46 145
----- ----- -----
$ 24 $ 30 $ 132
===== ===== =====
Effective tax rate......................................... (6)% (5)% 9%
===== ===== =====
</TABLE>
6. SHAREHOLDERS' EQUITY:
As of December 31, 1996, the Board of Directors was authorized to issue
13,850,000 shares of Series A Convertible Preferred Stock. The rights,
preferences, privileges and restrictions thereof are set forth in the
Certificate of Incorporation, as amended. Each share is convertible at the
option of the holder into Common Stock based on a formula which currently
results in a one-for-four exchange ratio of Common Stock for Preferred Stock.
This formula is subject to adjustment, as defined, which provides dilution
protection for
F-10
<PAGE> 63
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
preferred stockholders. The Preferred Stock automatically converts into shares
of Common Stock at the consent of the majority of the holders of the outstanding
shares or the closing of the sale of securities of the Company pursuant to a
firm commitment underwritten public offering under the Securities Act of 1933,
as amended. The shares have one vote for each share of Common Stock into which
each share of Preferred Stock is convertible.
Holders are entitled to dividends when and at a rate deemed by the Board.
No cash dividend may be paid to common stockholders unless an equal dividend is
paid with respect to all outstanding shares of Series A Preferred in an amount
equal to the number of shares into which each such share of Series A Preferred
could then be converted.
In the event of liquidation, holders of Series A Preferred Stock shares
have a preference over holders of Common Stock. The holders are entitled to
$0.59 per share, plus all declared but unpaid dividends. After payment in full,
the Common Stock holders are entitled to $0.20 per share. The remaining assets
after payment to the Series A Preferred Stock and the Common Stock, if any, will
be distributed ratably among the Common Stock holders and the number of shares
of Common Stock into which the Preferred Stock is then convertible.
In December 1996, the Board authorized 10,000,000 shares of undesignated
Preferred Stock, par value $0.005, effective upon the conversion of the Series A
Convertible Preferred Stock. The Board will have the authority, without further
action by the stockholders, to issue these shares in one or more series and to
fix and determine as to any series any and all of the relative rights and
preferences of shares in such series, including voting rights.
In August and October 1996, under the Company's 1996 Restricted Stock
Purchase Plan, certain employees were granted the right to purchase shares of
Preferred Stock at a price of $0.75 per share ($3.00 per share on a common
equivalent basis). A total of 382,970 shares of Preferred Stock (95,742 common
equivalent shares) were issued in accordance with these grants for a purchase
price of $287,000. Management has recorded $205,000 in compensation expense in
1996 as a result of these grants.
The Company's 1996 Employee Stock Purchase Plan (the "Purchase Plan") was
adopted by the Board of Directors in November 1996 and by the stockholders in
January 1997 subject to completion of the initial public offering of the
Company's Common Stock. A total of 200,000 shares of Common Stock has been
reserved for issuance under the Purchase Plan. As of December 31, 1996, no
shares have been granted under the Purchase Plan.
7. EMPLOYEE STOCK PLANS:
1996 Stock Plan
The 1996 Stock Plan (the "1996 Plan") provides for the granting to
employees of incentive stock options and for the granting to employees and
consultants of nonstatutory stock options. The 1996 Plan was approved by the
Board of Directors in November 1996 subject to completion of the initial public
offering of the Company's Common Stock. A total of 1,000,000 shares of Common
Stock are currently reserved for issuance pursuant to the 1996 Plan. As of
December 31, 1996, no options have been granted under the 1996 Plan.
1993 Stock Option Plan
The 1993 Stock Option Plan (the "1993 Plan") provides for the granting of
nonstatutory stock options for the purchase of up to an aggregate of 555,555
shares of the Company's common stock by officers, employees, consultants and
directors of the Company. The Board of Directors is responsible for
administration of the 1993 Stock Option Plan. The Board of Directors determines
the term of each option, option exercise price, number
F-11
<PAGE> 64
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
of shares for which each option is granted and the rate at which each option is
exercisable. Options granted under the 1993 Stock Option Plan generally vest
over a four year period.
Nonstatutory stock options may be granted at an exercise price per share of
not less than 100% of the fair value per common share on the date of the grant
(not less than 110% of the fair value in the case of holders of more than 10% of
the Company's voting stock). Options granted under the 1993 Stock Option Plan
generally expire ten years from the date of the grant.
Transactions under the 1993 Stock Option Plan are summarized as follows (in
thousands except per share amounts):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------------------------------------------
1994 1995 1996
-------------------- -------------------- --------------------
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ --------- ------ --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Outstanding at beginning of
period........................ 465 $0.20 451 $0.20 457 $0.20
Granted....................... 109 0.20 167 0.20 185 1.12
Exercised..................... -- -- (8) 0.20 (70) 0.20
Canceled...................... (123) 0.20 (153) 0.20 (115) 0.23
----- ----- -----
Outstanding at period end....... 451 0.20 457 0.20 457 0.57
===== ===== =====
Options exercisable at period
end........................... 173 0.20 233 0.20 224 0.21
===== ===== =====
Weighted average grant date fair
value of options granted
during the year............... $ 0.20 $ 0.20 $ 4.13
===== ===== =====
Weighted average grant date fair
value of options granted
during the year at exercise
prices below market prices.... $ -- $ -- $ 4.13
===== ===== =====
</TABLE>
During the year ended December 31, 1996, the Company granted options to
purchase 185,125 shares of Common Stock to employees at exercise prices ranging
from $0.20 to $3.00 per share. Management will amortize approximately $540,000
of compensation expense over the vesting period relating to these options, of
which $54,000 has been recorded during the year ended December 31, 1996.
Options outstanding at December 31, 1996 exclude a commitment to issue an
option to purchase 25,000 shares of Common Stock (See Note 11).
The following table summarizes information about stock options outstanding
at December 31, 1996:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------------------------- -----------------------------
NUMBER AVERAGE WEIGHTED NUMBER WEIGHTED
OUTSTANDING AT REMAINING AVERAGE EXERCISABLE AT AVERAGE
DECEMBER 31, CONTRACTUAL EXERCISE DECEMBER 31, EXERCISE
RANGE OF EXERCISE PRICES 1996 LIFE (YEARS) PRICE 1996 PRICE
- ------------------------------ --------------- ------------ --------- --------------- ---------
<S> <C> <C> <C> <C> <C>
$0.20......................... 310 7.3 $0.20 222 $0.20
1.00......................... 120 9.6 1.00 2 1.00
3.00......................... 27 9.9 3.00 -- 3.00
--- ---
457 8.1 0.57 224 0.21
=== ===
</TABLE>
F-12
<PAGE> 65
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair value disclosures
Had compensation cost for options granted in 1995 and 1996 under the
Company's option plan been determined based on the fair value at the grant
dates, as prescribed in FAS 123, the Company's net income (loss) and pro forma
net income per share would have been as follows (in thousands except per share
amounts):
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
----------------
1995 1996
----- ------
<S> <C> <C>
Net income (loss):
As reported.............................................. $(636) $1,370
Pro forma................................................ (638) 1,361
Net income per share:
As reported.............................................. $ 0.25
Pro forma................................................ 0.24
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the minimum value method with the following assumptions used for grants during
the applicable period: dividend yield of 0.0% for both periods; risk-free
interest rates of 5.86% to 7.05% for options granted during the year ended
December 31, 1995 and 5.36% to 6.60% for options granted during the year ended
December 31, 1996; and a weighted average expected option term of 5 years for
both periods.
Because the determination of the fair value of all options granted after
the Company becomes a public entity will include an expected volatility factor
in addition to the factors described in the preceding paragraph and, because
additional option grants are expected to be made each year, the above pro forma
disclosures are not representative of pro forma effects of reported net income
for future years.
Restricted Stock Purchase Plan
In August 1996, the Board of Directors approved the Company's 1996
Restricted Stock Purchase Plan pursuant to which an aggregate of 1,000,000
shares of Preferred Stock were reserved for issuance to employees. In August and
October 1996, under the Company's 1996 Restricted Stock Purchase Plan, certain
employees were granted the right to purchase shares of Preferred Stock at a
price of $0.75 per share, ($3.00 per share on a common equivalent basis). A
total of 382,970 shares of Preferred Stock (95,742 common equivalent shares)
were issued in accordance with these grants for a purchase price of $287,000.
Management has recorded $205,000 in compensation expense in 1996 as a result of
these grants.
8. EMPLOYEE BENEFIT PLANS:
Profit sharing
Employees of the Company are entitled to receive compensation under a
profit sharing agreement that is based upon attaining specific profit goals.
Profit sharing expense totaled $180,000, $20,000 and $231,000 in 1994, 1995 and
1996, respectively.
401(k) Plan
The Company maintains a 401(k) Tax Deferred Savings Plan (the Plan) which
covers all full-time employees of the Company who are at least 21 years of age.
Under the Plan, employees may elect to contribute up to 15% of their pre-tax
compensation to the Plan. The Company matches contributions under
F-13
<PAGE> 66
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
the Plan at the rate of 50% of the employee's contributions up to a specified
maximum. The Company's contributions to the Plan were $38,000, $75,000 and
$94,000 for 1994, 1995 and 1996, respectively.
9. EXPORT SALES AND CONCENTRATIONS OF CREDIT RISK:
The Company markets its products both domestically and internationally.
Export sales are as follows (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------
1994 1995 1996
------ ------ ------
<S> <C> <C> <C>
Europe....................................... $3,655 $4,597 $4,676
Other........................................ 2,563 1,010 543
------ ------ ------
$6,218 $5,607 $5,219
====== ====== ======
</TABLE>
Financial instruments that potentially subject the Company to significant
concentrations of credit risk consist principally of cash and accounts
receivable. Substantially all of the Company's cash is invested in high credit
quality financial institutions. The Company performs ongoing credit evaluations
of its customers' financial conditions and maintains an allowance for
uncollectible accounts receivable based upon expected write-offs. At December
31, 1996, one customer accounted for 12% gross accounts receivable. Revenues
from significant customers which represented 10% or more of total revenues for
the respective periods were as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Customer A.......................................... 6% 11% 13%
Customer B.......................................... 11% 15% 8%
</TABLE>
10. COMMITMENTS:
The Company leases its offices and operating facilities under various
noncancelable renewable operating leases. The Company's future minimum
commitments at December 31, 1996 under all operating leases are as follows (in
thousands):
<TABLE>
<S> <C>
1997........................................................ $ 913
1998........................................................ 800
1999........................................................ 64
2000........................................................ 13
2001........................................................ 11
------
$1,801
======
</TABLE>
Rental expense under noncancelable operating leases totaled $918,000,
$862,000 and $904,000 in 1994, 1995 and 1996, respectively.
11. SUBSEQUENT EVENTS:
Reverse stock split
In 1996, the Board of Directors authorized the Company to file a
registration statement with the Securities and Exchange Commission under the
Securities Act of 1933 to sell Common Stock of the Company in an initial public
offering ("IPO"). In December 1996, the Board also approved a one-for-four
reverse stock split of all outstanding Common Stock of the Company to be
effected prior to the closing of the
F-14
<PAGE> 67
STORAGE DIMENSIONS, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
IPO and an increase in the authorized Common Stock to 40,000,000 shares. At the
time the reverse stock split is effected, the conversion price of the Series A
Convertible Preferred Stock will be adjusted such that each four shares of
Series A Convertible Preferred Stock shall be convertible into one share of
Common Stock. In addition, the Board authorized 10,000,000 shares undesignated
Preferred Stock, par value $0.005, effective upon the conversion of the Series A
Convertible Preferred Stock which will occur automatically upon the closing of
the IPO. All outstanding share and per share data have been restated to reflect
the reverse stock split.
Grant of stock option
Upon consummation of the IPO, in accordance with a previous commitment, the
Company will grant a nonqualified option to purchase 25,000 shares of Common
Stock at an exercise price of $0.20 per share in exchange for financial planning
and management services. The option only becomes exercisable upon consummation
of an initial public offering or sale of a controlling interest of the Company's
stock. The Company expects to record approximately $233,000 in expense in the
period the IPO is consummated in connection with this option.
F-15
<PAGE> 68
Storage Dimensions' Systems, Programs and Services
Lower Life-Cycle Cost of Ownership
-------------------------------------------------
Typical client/server budget over 5 years
<TABLE>
<S> <C> <C> <C> <C>
Hardware and software
costs 20
Operations, maintenance,
support, and training
costs 80
</TABLE>
ONE OF THE KEY ISSUES FACING END-USERS OF PC-LAN NETWORKS IS THE ONGOING
COST OF NETWORK MAINTENANCE AND ADMINISTRATION. THE GARTNER GROUP HAS ESTIMATED
THAT THE PURCHASE PRICE OF HARDWARE AND SOFTWARE COMPRISES ONLY 20% OF THE
FIVE-YEAR COST OF NETWORK OWNERSHIP. THE REMAINING 80% OF A NETWORK'S LIFE-CYCLE
COST OF OWNERSHIP CONSISTS OF OTHER ASSOCIATED EXPENSES, SUCH AS DOWNTIME,
TROUBLESHOOTING, REPAIR, ADMINISTRATION, TRAINING AND USER SUPPORT. STORAGE
DIMENSIONS HAS DESIGNED AN INNOVATIVE PORTFOLIO OF SYSTEMS, PROGRAMS AND
SERVICES FOCUSED ON LOWERING THE LIFE-CYCLE COST OF NETWORK OWNERSHIP.
- --------------------------------------------------------------------------------
TECHCONNECT KNOWLEDGEBASE TechConnect is an artificial intelligence
knowledgebase that employs dynamic feedback loops
to provide customers with the most likely
solutions to system problems based upon the
symptoms described by the user. TechConnect is
accessible 24 hours-a-day over the Internet.
- --------------------------------------------------------------------------------
VANTAGEPOINT STORAGE
MANAGEMENT SOFTWARE VantagePoint storage management software provides
centralized management of storage systems
distributed across the enterprise network.
- --------------------------------------------------------------------------------
SPEEDEXCHANGE SpeedExchange provides warranty replacement of
components overnight, minimizing potential
downtime and on-site inventory requirements.
- --------------------------------------------------------------------------------
7X24 PRIORITY SERVICE AND PARTSFor an annual fee, the Company provides priority
access to technical support personnel during
business hours and access within 20 minutes via a
pager after hours. In addition, the Company
provides replacement of failed parts 24 hours-
a-day by counter-to-counter air freight with
courier delivery.
- --------------------------------------------------------------------------------
TECHASSIST EMERGENCY
OFF-HOURS SUPPORT For a one-time fee, the Company provides access
to technical support personnel after hours to
customers who need emergency help, but have not
contracted for the 7x24 Priority Service.
- --------------------------------------------------------------------------------
FLEXGUARD FlexGuard bundles optional services into
comprehensive site service and support
arrangements to meet the special needs of large
organizations.
- --------------------------------------------------------------------------------
TAPE MAINTENANCE For an annual fee per tape drive, the Company
will provide for overnight shipment of a
replacement unit for drives that fail and are not
covered by the Company's or manufacturer's
standard warranty.
- --------------------------------------------------------------------------------
WORLD WIDE WEB-BASED
TECHNICAL SUPPORT Storage Dimensions' easy-to-use World Wide Web
site provides customers with quick access to
TechConnect, as well as access to technical,
product and service information.
- --------------------------------------------------------------------------------
FREE ON-SITE SERVICE On-site service provided by IBM is free for one
year.
- --------------------------------------------------------------------------------
<PAGE> 69
- ------------------------------------------------------
- ------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN THIS
PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED HEREIN, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY, THE SELLING STOCKHOLDERS OR BY ANY OF THE
UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OF ANY SECURITIES
OTHER THAN THOSE TO WHICH IT RELATES OR AN OFFER TO SELL, OR A SOLICITATION OF
AN OFFER TO BUY, THOSE TO WHICH IT RELATES IN ANY STATE TO ANY PERSON TO WHOM IT
IS NOT LAWFUL TO MAKE SUCH OFFER IN SUCH STATE. DELIVERY OF THIS PROSPECTUS AT
ANY TIME DOES NOT IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO ITS DATE.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
-----
<S> <C>
Prospectus Summary..................... 3
Risk Factors........................... 6
Use of Proceeds........................ 12
Dividend Policy........................ 12
Capitalization......................... 13
Dilution............................... 14
Selected Consolidated Financial Data... 15
Management's Discussion and Analysis of
Financial Condition and Results of
Operations........................... 16
Business............................... 24
Management............................. 37
Certain Transactions................... 44
Principal and Selling Stockholders..... 45
Description of Capital Stock........... 46
Shares Eligible for Future Sale........ 47
Underwriting........................... 49
Legal Matters.......................... 50
Experts................................ 50
Additional Available Information....... 50
Index to Consolidated Financial
Statements........................... F-1
</TABLE>
UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THIS OFFERING), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, 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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
3,800,000 SHARES
LOGO
COMMON STOCK
------------
PROSPECTUS
, 1997
------------
SMITH BARNEY INC.
SALOMON BROTHERS INC
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 70
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses, other than
underwriting discounts and commissions, payable by the Registrant in connection
with the sale of Common Stock being registered. All amounts are estimates except
the SEC registration fee, the NASD filing fee and the Nasdaq National Market
listing fee.
<TABLE>
<CAPTION>
AMOUNT
TO BE
PAID
--------
<S> <C>
SEC registration fee.............................................. $ 13,905
NASD filing fee................................................... 5,089
Nasdaq National Market listing fee................................ 36,795
Printing and engraving expenses................................... 100,000
Legal fees and expenses........................................... 250,000
Accounting fees and expenses...................................... 225,000
Directors' and officers' liability insurance...................... 200,000
Blue Sky qualification fees and expenses.......................... 10,000
Transfer agent and registrar fees................................. 5,000
Miscellaneous..................................................... 104,211
--------
Total................................................... $950,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
As permitted by Section 145 of the Delaware General Corporation Law, the
Registrant's Amended and Restated Certificate of Incorporation includes a
provision that eliminates the personal liability of its directors for monetary
damages for breach or alleged breach of their duty of care. In addition, as
permitted by Section 145 of the Delaware General Corporation Law, the Bylaws, as
amended, of the Registrant provide that: (i) the Registrant is required to
indemnify its directors and officers and persons serving in such capacities in
other business enterprises (including, for example, subsidiaries of the
Registrant) at the Registrant's request, to the fullest extent permitted by
Delaware law, including in those circumstances in which indemnification would
otherwise be discretionary; (ii) the Registrant may, in its discretion,
indemnify employees and agents in those circumstances where indemnification is
not required by law; (iii) the Registrant is required to advance expenses, as
incurred, to its directors and officers in connection with defending a
proceeding (except that it is not required to advance expenses to a person
against whom the Registrant brings a claim for breach of the duty of loyalty,
failure to act in good faith, intentional misconduct, knowing violation of law
or deriving an improper personal benefit); (iv) the rights conferred in the
Bylaws, as amended, are not exclusive, and the Registrant is authorized to enter
into indemnification agreements with its directors, officers and employees; and
(v) the Registrant may not retroactively amend the Bylaw provisions in a way
that is adverse to such directors, officers and employees.
The Registrant's policy is to enter into indemnification agreements with
each of its directors and officers that provide the maximum indemnity allowed to
directors and officers by Section 145 of the Delaware General Corporation Law
and the Bylaws, as amended, as well as certain additional procedural
protections.
The indemnification provisions in the Bylaws, as amended, and the
indemnification agreements entered into between the Registrant and its directors
and officers may be sufficiently broad to permit indemnification of the
Registrant's directors and officers for liabilities arising under the Securities
Act.
II-1
<PAGE> 71
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
EXHIBIT
DOCUMENT NUMBER
- ------------------------------------------------------------------------------------ ------
<S> <C>
Form of Underwriting Agreement...................................................... 1.1
Form of Amended and Restated Certificate of Incorporation prior to completion of
this offering..................................................................... 3.1
Form of Second Amended and Restated Certificate of Incorporation to be effective
upon completion of this offering.................................................. 3.2
Bylaws, as amended.................................................................. 3.3
Form of Indemnification Agreement entered into by the Registrant with each of its
directors and executive officers.................................................. 10.1
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
From January 1, 1994 through December 31, 1996 the Registrant has issued
and sold the following securities (as adjusted to give effect to the
one-for-four reverse stock split of the Registrant's Common Stock): (i) the
Registrant issued and sold 299,138 shares of Preferred Stock to employees under
the Company's stock purchase plans at a purchase price ranging from $2.35 to
$3.00 of which 43,350 shares were repurchased by the Company; and (ii) the
Registrant issued and sold 78,179 shares of Common Stock to employees under the
Company's stock option plans at an exercise price of $0.20 of which 3,969 shares
were repurchased by the Company.
The issuances described above were deemed exempt from registration under
the Securities Act in reliance upon Rule 701 promulgated under the Securities
Act. The recipients of securities in each such transaction represented their
intentions to acquire the securities for investment only and not with a view to
or for sale in connection with any distribution thereof and appropriate legends
were affixed to the share certificates issued in such transactions. All
recipients had adequate access, through their relationships with the Registrant,
to information about the Registrant.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------
<S> <C>
1.1* Form of Underwriting Agreement.
3.1 Form of Amended and Restated Certificate of Incorporation of Registrant
prior to the completion of this offering.
3.2 Form of Second Amended and Restated Certificate of Incorporation to be
effective upon completion of this offering.
3.3 Bylaws, as amended, of Registrant.
4.1* Form of Registrant's Common Stock Certificate.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation,
regarding legality of the securities being issued.
10.1 Form of Director and Officer Indemnification Agreement.
10.2 1996 Stock Plan.
10.3 1996 Employee Stock Purchase Plan.
10.4 Loan and Security Agreement, dated May 16, 1996, by and between Congress
Financial Corporation (Western) and the Registrant.
10.5 Subordination Agreement, dated May 16, 1996, by and between the Registrant
and Maxtor Corporation.
</TABLE>
II-2
<PAGE> 72
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- --------------------------------------------------------------------------
<S> <C>
10.6 Subordinated Promissory Note, dated December 26, 1992, in favor of Maxtor
Corporation, executed by the Registrant, as amended.
10.7 Stockholders Agreement, dated December 26, 1992, among the Registrant,
Gene E. Bowles, Jr., David A. Eeg, CP Acquisition, L.P. No. 4A, CP
Acquisition, L.P. No. 4B, Capital Partners, Inc., FGS, Inc., Maxtor
Corporation, and certain other management investors.
10.8 Lease, dated October 8, 1993, between Registrant and Callahan-Pentz
Properties, McCarthy Four.
10.9 First Amendment to Lease, dated June 28, 1995, between Registrant and
Callahan-Pentz Properties, McCarthy Four.
10.10 Form of employment agreement, between the Registrant and certain
employees.
11.1 Statement of computation of earnings per share.
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation
(included in Exhibit 5.1).
23.2 Consent of Price Waterhouse LLP, Independent, Auditors (see page II-6).
24.1 Power of Attorney (see page II-5).
27.1 Financial Data Schedule.
</TABLE>
* To be filed by amendment.
(b) FINANCIAL STATEMENT SCHEDULES
No schedules are included because the information required to be set forth
therein is not applicable or is shown in the financial statements or notes
thereto.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes to provide to the Underwriters
at the closing specified in the Underwriting Agreement, certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities
Act, may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the California Corporation Law, the Registrant's Amended
and Restated Certificate of Incorporation, the Registrant's Bylaws, as amended,
the Registrant's indemnification agreements 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.
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
this Registration Statement in reliance upon Rule 430A and contained in a
form of Prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or
II-3
<PAGE> 73
497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the 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> 74
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement on Form S-1 to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of Milpitas,
State of California, on this 21st day of January 1997.
STORAGE DIMENSIONS, INC.
By: /s/ DAVID A. EEG
------------------------------------
David A. Eeg
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints Gene E. Bowles, Jr. and Robert E. Bylin,
and each of them singly, as true and lawful attorneys-in-fact and agents with
full power of substitution and resubstitution, for him and in his name, place
and stead, in any and all capacities to sign the Registration Statement filed
herewith and any or all amendments to said Registration Statement (including
post-effective amendments and registration statements filed pursuant to Rule 462
and otherwise), and to file the same, with all exhibits thereto and other
documents in connection therewith, with the Securities and Exchange Commission
granting unto said attorneys-in-fact and agents the full power and authority to
do and perform each and every act and thing requisite and necessary to be done
in and about the foregoing, as full to all intents and purposes as he or she
might or could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents or any of them, or his substitute, may lawfully do
or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------------- --------------------------------- -----------------
<C> <S> <C>
/s/ DAVID A. EEG President and Chief Executive January 21, 1997
- ------------------------------------- Officer (Principal Executive
David A. Eeg Officer)
/s/ GENE E. BOWLES, JR. Executive Vice President, January 21, 1997
- ------------------------------------- Marketing & Customer Service,
Gene E. Bowles, Jr. Director and Secretary
/s/ ROBERT E. BYLIN Senior Vice President, Finance, January 21, 1997
- ------------------------------------- and Chief Financial Officer
Robert E. Bylin (Principal Financial and
Accounting Officer)
/s/ BRIAN D. FITZGERALD Director January 21, 1997
- -------------------------------------
Brian D. Fitzgerald
/s/ A. GEORGE GEBAUER Director January 21, 1997
- -------------------------------------
A. George Gebauer
Director January 21, 1997
Chong Sup Park
</TABLE>
II-5
<PAGE> 75
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 16, 1997,
relating to the financial statements of Storage Dimensions, Inc., which appears
in such Prospectus. We also consent to the reference to us under the headings
"Experts" and "Selected Financial Data" in such Prospectus. However, it should
be noted that Price Waterhouse LLP has not prepared or certified such "Selected
Financial Data."
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
San Jose, California
January 17, 1997
II-6
<PAGE> 76
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION PAGE
-------- ---------------------------------------------------------------------------------
<S> <C> <C>
1.1* Form of Underwriting Agreement......................................
3.1 Form of Amended and Restated Certificate of Incorporation of
Registrant prior to the completion of this offering.................
3.2 Form of Second Amended and Restated Certificate of Incorporation to
be effective upon completion of this offering.......................
3.3 Bylaws, as amended, of Registrant...................................
4.1* Form of Registrant's Common Stock Certificate.......................
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation, regarding legality of the securities being issued......
10.1 Form of Director and Officer Indemnification Agreement..............
10.2 1996 Stock Plan.....................................................
10.3 1996 Employee Stock Purchase Plan...................................
10.4 Loan and Security Agreement, dated May 16, 1996, by and between
Congress Financial Corporation (Western) and the Registrant.........
10.5 Subordination Agreement, dated May 16, 1996, by and between the
Registrant and Maxtor Corporation...................................
10.6 Subordinated Promissory Note, dated December 26, 1992, in favor of
Maxtor Corporation, executed by the Registrant, as amended..........
10.7 Stockholders Agreement, dated December 26, 1992, among the
Registrant, Gene E. Bowles, Jr., David A. Eeg, CP Acquisition, L.P.
No. 4A, CP Acquisition, L.P. No. 4B, Capital Partners, Inc., FGS,
Inc., Maxtor Corporation, and certain other management investors....
10.8 Lease, dated October 8, 1993, between Registrant and Callahan-Pentz
Properties, McCarthy Four...........................................
10.9 First Amendment to Lease, dated June 28, 1995, between Registrant
and Callahan-Pentz Properties, McCarthy Four........................
10.10 Form of employment agreement, between the Registrant and certain
employees...........................................................
11.1 Statement of computation of earnings per share......................
23.1* Consent of Wilson Sonsini Goodrich & Rosati, Professional
Corporation (included in Exhibit 5.1)...............................
23.2 Consent of Price Waterhouse LLP, Independent, Auditors (see page
II-6)...............................................................
24.1 Power of Attorney (see page II-5)...................................
27.1 Financial Data Schedule.............................................
</TABLE>
- ------------------
* To be filed by amendment.
<PAGE> 1
EXHIBIT 3.1
AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STORAGE DIMENSIONS, INC.
A DELAWARE CORPORATION
Storage Dimensions, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of Delaware (the "Corporation"),
does hereby certify as follows:
FIRST: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on November 25, 1992.
SECOND: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Section 242 and 245 of General
corporation Law of the State of Delaware by the Board of Directors of the
Corporation.
THIRD: This Amended and Restated Certificate of Incorporation was
approved by written consent of the stockholders of the Corporation pursuant to
Section 228 of the General Corporation Law of the State of Delaware.
FOURTH: The Certificate of Incorporation of this Corporation is amended
and restated in its entirety to read as follows:
"I.
The name of the Corporation is Storage Dimensions, Inc. (hereinafter
sometimes referred to as the "Corporation").
II.
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the registered agent of the Corporation at that address is
The Corporation Trust Company.
III.
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 Delaware.
-1-
<PAGE> 2
IV.
The Corporation is authorized to issue a total of 53,850,000 shares of
stock in two classes designated respectively "Series A Preferred Stock" and
"Common Stock." The total number of shares of Series A Preferred Stock the
Corporation shall have authority to issue is 13,850,000, par value one-half of
one cent ($.005) per share, and the total number of shares of Common Stock the
Corporation shall have authority to issue is 40,000,000, par value one-half of
one cent ($.005) per share.
Undesignated shares of Preferred Stock authorized by this Amended and
Restated Certificate of Incorporation may be issued from time to time in one or
more series. For any wholly unissued series of Preferred Stock, the Board of
Directors is hereby authorized to fix and alter the dividend rights, dividend
rates, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption prices, liquidation preferences,
the number of shares constituting any such series and the designation thereof,
or any of them.
For any series of Preferred Stock having issued and outstanding shares,
the Board of Directors is further authorized to increase or decrease (but not
below the number of shares of such series then outstanding) the number of shares
of such series when the number of shares of such series was originally
fixed by the Board of Directors, but such increase or decrease shall be subject
to the limitations and restrictions stated in the resolution of the Board of
Directors originally fixing the number of shares of such series, if any. If the
number of shares of any series is so decreased, then the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
Upon the filing of this Amended and Restated Certificate of
Incorporation (the date of such filing being referred to herein as the
"Restatement Date"), each four (4) outstanding shares of Common Stock of this
Corporation shall be combined into one (1) share of Common Stock. This
Corporation shall not issue any fractional shares in connection with such stock
split, but in lieu thereof shall pay cash for any fractional share interest
based upon the fair market value of the Common Stock as determined by this
Corporation's Board of Directors. Effective upon the conversion of all shares of
Series A Preferred Stock into Common Stock, the authorized shares of Series A
Preferred Stock shall be converted into undesignated Preferred Stock on a
one-for-one basis up to an aggregate of ten million (10,000,000) shares, as set
forth in section 4(h) of this Article IV.
Series A Preferred Stock. The relative powers, preferences rights,
qualifications, limitations and restrictions and other matters relating to
Series A Preferred Stock are as follows:
1. Dividend Rights of Series A Preferred Stock. The holders of
Series A Preferred Stock shall be entitled to receive dividends out of any
assets at the time legally available therefor, when and as declared by the
Corporation's Board of Directors, at a rate determined by the Board. No cash
dividends shall be paid on any Common Stock unless at the same time an equal
dividend is paid with respect to all outstanding shares of Series A Preferred
Stock in an amount for each such share of Series A Preferred Stock equal to the
aggregate amount of such dividends payable on that number of shares of Common
Stock into which each such share of Series A Preferred Stock could then be
converted.
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2. Preference on Liquidation.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, distributions to the stockholders of the Corporation shall be made
in the following manner:
(i) The holders of Series A Preferred Stock shall be entitled to
receive, prior and in preference to any distribution of any of the assets or
surplus funds of the Corporation to the holders of the Common Stock by reason of
their ownership of such stock, the amount of (A) $0.588235 per share for each
share of Series A Preferred Stock then held by them, adjusted for any stock
split, combination, consolidation, or stock distribution or stock dividend with
respect to the Series A Preferred Stock, and (B) an amount equal to all declared
but unpaid dividends on Series A Preferred Stock as provided in Section 1 above.
If the assets and funds thus distributed among the holders of Series A Preferred
Stock shall be insufficient to permit the payment to such holders of the full
aforesaid preferential amount, then the entire assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of Series A Preferred Stock in proportion to their aggregate
preferential amounts.
(ii) After payment in full to the holders of Series A Preferred
Stock of all amounts exclusively payable on or with respect to said shares
pursuant to clause (i) of subsection (a) of this Section 2, the holders of the
Common Stock shall be entitled to receive, prior and in preference to any
further distribution of any of the assets or surplus funds of the Corporation to
its stockholders, the amount of (A) $0.20 per share for each share of Common
Stock then held by them, adjusted for any stock split, combination,
consolidation, or stock distribution or stock dividend with respect to the
Common Stock occurring at any time after the Restatement Date, and (B) an amount
equal to all declared but unpaid dividends on the Common Stock. If the assets
and funds thus distributed among the holders of the Common Stock shall be
insufficient to permit the payment to such holders of the full aforesaid
preferential amount, then the entire remaining assets and funds of the
Corporation legally available for distribution shall be distributed ratably
among the holders of the Common Stock in proportion to their aggregate
preferential amounts.
(iii) The remaining assets of the Corporation, if any, after
payment in full to the holders of Series A Preferred Stock and Common Stock of
all amounts exclusively payable on or with respect to said shares pursuant to
clauses (i) and (ii), respectively, of subsection (a) of this Section 2, shall
be distributed ratably among the holders of Series A Preferred Stock and Common
Stock on an "as converted" basis. For purposes of determining distributions
under this Section 2, the term "as converted" shall mean that Series A Preferred
Stock shall be deemed to have been converted into Common Stock at the Conversion
Price in effect for Series A Preferred Stock on the record date for such
distribution.
(b) In the event the Corporation shall propose to take any action of
the type described in subsection (a) of this Section 2, the Corporation shall
within ten (10) days after the date the Board of Directors approves such action
or twenty (20) days prior to any stockholders' meeting called to approve such
action, whichever is earlier, give each holder of shares of Series A Preferred
Stock written notice of the proposed action. Such written notice shall describe
the material terms and conditions of such proposed action, including a
description of the stock, cash and property to be received by the holders of
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shares of Series A Preferred Stock upon consummation of the proposed action and
the proposed date of delivery thereof. If any material change in the facts set
forth in the notice shall occur, the Corporation shall promptly give written
notice to each holder of shares of Series A Preferred Stock of such material
change.
(c) The Corporation shall not consummate any proposed action
of the type described in subsection (a) of this Section 2 before the expiration
of fifteen (15) days after the mailing of the initial written notice or five (5)
days after the mailing of any subsequent written notice, whichever is later;
provided, however, that any such 15-day or 5-day period may be shortened upon
the written consent of the holders of a majority of the outstanding shares of
Series A Preferred Stock.
(d) If the Corporation shall propose to take any action of the
type described in subsection (a) of this Section 2 which will involve the
distribution of assets other than cash, the Corporation shall promptly engage
independent competent appraisers to determine the value of the assets to be
distributed to the holders of shares of Series A Preferred Stock and the Common
Stock. The Corporation shall, upon receipt of such appraiser's valuation, give
prompt written notice of the appraiser's valuation to each holder of shares of
Series A Preferred Stock or Common Stock.
3. Voting. Except as set forth in Section 5 of Article IV or
as otherwise required by law, the shares of Series A Preferred Stock shall be
voted together with the Common Stock at any annual or special meeting of the
stockholders of the Corporation, or may act by written consent in the same
manner as the Common Stock, and shall have the voting rights and powers equal to
the voting rights of the Common Stock, upon the following basis: each holder of
shares of Series A Preferred Stock shall be entitled to such number of votes for
the shares of Series A Preferred Stock held by him on the record date fixed for
such meeting, or, if no record date is established, at the date such vote is
taken or on the effective date of any such written consent, as shall be equal to
the nearest whole number of shares of the Common Stock into which such holder's
shares of Series A Preferred Stock are convertible immediately after the close
of business on the record date fixed for such meeting, the date of such vote or
the effective date of such written consent, as the case may be.
4. Conversion Rights. The holders of Series A Preferred Stock
shall have conversion rights as follows:
(a) Each share of Series A Preferred Stock shall be
convertible, at the option of the holder thereof at any time at the principal
office of the Corporation or any transfer agent for such shares, into fully paid
and nonassessable shares of Common Stock of the Corporation. The number of
shares of Common Stock into which each share of Series A Preferred Stock may be
converted shall be determined by dividing $0.588235 by the Conversion Price
determined as hereinafter provided in effect at the time of the conversion. The
Conversion Price per share at which shares of Common Stock shall be issuable
upon conversion of any shares of Series A Preferred Stock shall be $2.352940,
subject to adjustment as provided herein.
(b) Each share of Series A Preferred Stock shall be converted
into Common Stock automatically in the manner provided herein upon the earlier
to occur of (i) the time the consent of at
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least a majority of the outstanding Series A Preferred Stock to such conversion
is obtained, or (ii) the closing of the sale of securities of the Corporation
pursuant to a firm commitment underwritten public offering registered with the
Securities and Exchange Commission, other than on Form S-4, Form S-8 or Form
S-18 or any successor form thereto.
(c) Before any holder of shares of Series A Preferred Stock
shall be entitled to convert the same into Common Stock, such holder shall
surrender the certificate or certificates therefor, duly endorsed in blank or
accompanied by proper instruments of transfer, at the principal office of the
Corporation or of any transfer agent for Series A Preferred Stock, and shall
give written notice to the Corporation at such office that such holder elects to
convert the same and shall state in writing therein the name or names in which
such holder wishes the certificate or certificates for the shares of Common
Stock to be registered and to which such holder wishes such shares of Common
Stock to be issued. As soon as practicable thereafter, the Corporation shall
issue and deliver at such office to such holder or to such holder's nominee or
nominees, certificates for the number of whole shares of Common Stock to which
such holder shall be entitled. No fractional shares of Common Stock shall be
issued by the Corporation and all such fractional shares shall be disregarded.
In lieu thereof, the Corporation shall pay in cash the fair market value of any
such fractional share as determined by the Board of Directors of the
Corporation. Such conversion shall be deemed to have been made as of the date of
such surrender of Series A Preferred Stock to be converted, and the person or
persons entitled to receive the Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such Common Stock
on said date.
(d) In case after the Restatement Date the Corporation shall
at any time (i) subdivide the Outstanding Common Stock, or (ii) issue a stock
dividend on its outstanding Common Stock, the number of shares of Common Stock
issuable upon conversion of Series A Preferred Stock immediately prior to such
subdivision or the issuance of such stock dividend shall be proportionately
increased by the same ratio as the subdivision or dividend (with appropriate
adjustments in the Conversion Price of Series A Preferred Stock). In case, after
the Restatement Date, the Corporation shall at any time combine its outstanding
Common Stock, the number of shares of Common Stock issuable upon conversion of
Series A Preferred Stock immediately prior to such combination shall be
proportionately decreased by the same ratio as the combination (with appropriate
adjustments in the Conversion Price of Series A Preferred Stock). All such
adjustments described herein shall be effective at the close of business on the
date of such subdivision, stock dividend or combination, as the case may be.
(e) In case of any capital reorganization (other than in
connection with a merger or other reorganization in which the Corporation is not
the continuing or surviving entity) or any reclassification of the Common Stock
of the Corporation occurring after the Restatement Date, each share of the
Series A Preferred Stock shall thereafter be convertible into that number of
shares of stock or other securities or property to which a holder of the number
of shares of Common Stock issuable upon conversion of a share of Series A
Preferred Stock immediately prior to such reorganization or recapitalization
would have been entitled upon such reorganization, or reclassification. In any
such case, appropriate adjustment (as determined by the Board of Directors)
shall be made in the application of the provisions herein set forth with respect
to the rights and interests thereafter of the holders of Series A
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<PAGE> 6
Preferred Stock, such that the provisions set forth herein shall thereafter be
applicable, as nearly as reasonably may be, in relation to any share of stock or
other property thereafter issuable upon conversion.
(f) In case:
(i) the Corporation shall take a record of the holders of the
Common Stock for the purpose of entitling them to receive a dividend, or any
other distribution, payable otherwise than in cash; or
(ii) the Corporation shall take a record of the holders of the
Common Stock for the purpose of entitling them to subscribe for or purchase any
shares of stock of any class or to receive any other rights; or
(iii) the Corporation shall effect a capital reorganization of the
Corporation, reclassification of the capital stock of the Corporation (other
than a subdivision or combination of its outstanding Common Stock),
consolidation or merger of the Corporation (other than a merger or other
reorganization in which the Corporation is not the continuing or surviving
entity);
then, and in any such case, the Corporation shall cause to be mailed to the
holders of its outstanding Series A Preferred Stock, at least ten (10) days
prior to the date hereinafter specified, a notice stating the date on which a
record is to be taken for the purpose of such dividend, distribution or rights,
or such action is to be taken in connection with such reorganization,
reclassification, merger or consolidation.
(g) The Corporation shall at all times reserve and keep available, out
of its authorized but unissued Common Stock, solely for the purpose of effecting
the conversion of Series A Preferred Stock, the full number of shares of Common
Stock deliverable upon the conversion of all Series A Preferred Stock from time
to time outstanding. The Corporation shall from time to time (subject to
obtaining necessary director and stockholder authorizations), in accordance with
the laws of the State of Delaware, increase the authorized amount of its Common
Stock if at any time the authorized number of shares of Common Stock remaining
unissued shall not be sufficient to permit the conversion of all of the shares
of Series A Preferred Stock at the time outstanding.
(h) Upon any conversion of Series A Preferred Stock pursuant to this
Section 4, the shares of Series A Preferred Stock which are converted shall, up
to a maximum of ten million (10,000,000) shares, resume the status of authorized
but undesignated Preferred Stock and all shares of Preferred Stock in excess of
ten million (10,000,000) shall be canceled and shall not be deemed authorized
for any purpose whatsoever. Upon conversion of all of the currently outstanding
shares of Series A Preferred Stock pursuant to this Section 4, all of this
Article IV other than the first three paragraphs hereof shall be void and deemed
to no longer be part of the Corporation's Certificate of Incorporation
(i) Upon the occurrence of each adjustment or readjustment of the
Conversion Price for Series A Preferred Stock pursuant to this Section 4, the
Corporation at its expense shall promptly compute such adjustment or
readjustment in accordance with the terms hereof and prepare and to each
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holder of Series A Preferred Stock a certificate setting forth such adjustment
or readjustment showing in retail the facts upon which such adjustment or
readjustment is based. The Corporation shall upon the reasonable written request
at any time of any holder of Series A Preferred Stock, furnish or cause to be
furnished to such holder a like certificate setting forth (i) such adjustments
and readjustments, and (ii) the number of shares of Common Stock and the amount,
if any, of other property which at the time would be received upon the
conversion of Series A Preferred Stock.
(j) In the event the Corporation at any time or from time to
time after the Restatement Date makes, or fixes a record date for the
determination of holders of Common Stock entitled to receive any distribution
payable in securities or other property of the Corporation other than Common
Stock and other than as otherwise adjusted in this Section 4, then and in each
such event provision shall be made so that the holders of Series A Preferred
Stock shall receive upon conversion thereof in addition to the number of shares
of Common Stock receivable thereupon, the amount of securities and other
property of the Corporation which they would have received had their shares of
Series A Preferred Stock been converted into shares of Common Stock on the date
of such event and had they thereafter, during the period from the date of such
event to and including the date of conversion, retained such securities and
other property receivable by them as aforesaid during such period, subject to
all other adjustments called for during such period under this Section 4 with
respect to the rights of the holders of Series A Preferred Stock.
(k) Any notices required by the provisions of this Section 4
to be given to the holders of shares of Series A Preferred Stock shad be deemed
given if deposited in the United States mail, first class postage prepaid and
addressed to each holder of record at its address appearing on the books of the
Corporation.
V.
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
1. The business of the Corporation shall be managed by or
under the direction of the Board of Directors.
2. Special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption), by the chairman of the
Board, vice-chairman of the Board or president of the Corporation or by the
holders of shares entitled to cast not less than 10% of the votes at the
meeting.
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VI.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders. (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any action from which the director derived an improper personal
benefit.
If the Delaware General Corporation Law is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of a director, then the liability of a director of the Corporation,
without any further corporate action on the part of the Corporation, shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
VI by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
VII.
The number of directors shall be fixed from time to time: (i) by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board for adoption); or (ii) by a resolution approved by holders of not
less than two-thirds (2/3) of the outstanding shares entitled to vote.
VIII.
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the Board of Directors shall require the approval of a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any resolution
providing for any such adoption, amendment or repeal is presented to the Board).
The stockholders shall also have power to adopt, amend or repeal the Bylaws of
the Corporation.
IX.
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers
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<PAGE> 9
appointed for the Corporation under the provisions of section 291 of Title 8 of
the Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for the Corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
X.
Effective at such time as the Corporation becomes subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, stockholders of the Corporation may not take action by written consent
in lieu of a meeting but must take any such action at a duly called annual or
special meeting.
XI.
Effective at such time as the Corporation becomes subject to the
periodic reporting requirements of the Securities Exchange Act of 1934, as
amended, (i) any merger or combination between the Corporation and any entity or
person owning, directly or indirectly, fifteen percent (15%) or more of the
Corporation's shares (an "Interested Purchaser"), and (ii) any sale by the
Corporation of all or substantially all of the assets of the Corporation
to an Interested Purchaser (a transaction of the type described in clauses (i)
and (ii) is referred to as a "Transaction") will require the affirmative vote of
at least two-thirds (2/3) of the combined voting power of all of the
then-outstanding shares of the Corporation entitled to vote, unless either: (A)
the Transaction is approved by two-thirds (2/3) of the members of the Board of
Directors; or (B) as a result of the Transaction all holders of then-outstanding
shares of the Corporation (other than the Interested Purchaser) receive as a
result of the Transaction consideration in an amount at least equal to the
highest price paid by the Interested Purchaser for any shares of the Corporation
acquired by such Interested Purchaser during the thirty-six month period
preceding the date of any offer or proposal to effect a Transaction. In order to
satisfy the condition set forth in clause (B), the consideration paid to
Stockholders as a result of the Transaction must be paid in the same form (or in
the same proportions in the case where consideration was of more than one type)
used to acquire the shares acquired prior to the Transaction, and, where more
than one type of consideration is involved, each stockholder must receive a pro
rata portion of each type of consideration is involved, each stockholder must
receive a pro rata portion of each type of consideration involved.
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XII.
Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of the capital stock required by law or this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
two-thirds (2/3) of the combined voting power of all of the then-outstanding
shares of the Corporation entitled to vote shall be required to alter, amend or
repeal Articles VII, VIII, X, XI or XII or any provision thereof.
XIII.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and all
rights conferred upon stockholders herein are granted subject to this
reservation."
IN WITNESS WHEREOF, the undersigned, David A. Eeg and Gene E.
Bowles, Jr. have signed this Amended and Restated Certificate of Incorporation
as President and Secretary, respectively, of said Storage Dimensions, Inc. this
______ day of __________, 1997.
_______________________________
David A. Eeg, President
_______________________________
Gene E. Bowles, Jr., Secretary
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EXHIBIT 3.2
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
STORAGE DIMENSIONS, INC.
A DELAWARE CORPORATION
Storage Dimensions, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of Delaware (the "Corporation"),
does hereby certify as follows:
FIRST: The original Certificate of Incorporation of the Corporation was
filed with the Secretary of State of Delaware on November 25, 1992.
SECOND: This Amended and Restated Certificate of Incorporation has been
duly adopted in accordance with the provisions of Section 242 and 245 of General
corporation Law of the State of Delaware by the Board of Directors of the
Corporation.
THIRD: This Amended and Restated Certificate of Incorporation was
approved by written consent of the stockholders of the Corporation pursuant to
Section 228 of the General Corporation Law of the State of Delaware.
FOURTH: The Certificate of Incorporation of this Corporation is amended
and restated in its entirety to read as follows:
"I.
The name of the Corporation is Storage Dimensions, Inc. (hereinafter
sometimes referred to as the "Corporation").
II.
The address of the registered office of the Corporation in the State
of Delaware is 1209 Orange Street, in the City of Wilmington, County of New
Castle. The name of the registered agent of the Corporation at that address is
The Corporation Trust Company.
III.
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 Delaware.
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IV.
The Corporation is authorized to issue a total of Fifty Million
(50,000,000) shares of stock in two classes designated respectively "Series A
Preferred Stock" and "Common Stock." The total number of shares of Preferred
Stock the Corporation shall have authority to issue is Ten Million (10,000,000)
par value one-half of one cent ($.005) per share, and the total number of shares
of Common Stock the Corporation shall have authority to issue is Forty Million
(40,000,000), par value one-half of one cent ($.005) per share.
Undesignated shares of Preferred Stock authorized by this Amended and
Restated Certificate of Incorporation may be issued from time to time in one or
more series. For any wholly unissued series of Preferred Stock, the Board of
Directors is hereby authorized to fix and alter the dividend rights, dividend
rates, conversion rights, voting rights, rights and terms of redemption
(including sinking fund provisions), redemption prices, liquidation preferences,
the number of shares constituting any such series and the designation thereof,
or any of them.
For any series of Preferred Stock having issued and outstanding shares,
the Board of Directors is further authorized to increase or decrease (but not
below the number of shares of such series then outstanding) the number of shares
of such series when the number of shares of such series was originally
fixed by the Board of Directors, but such increase or decrease shall be subject
to the limitations and restrictions stated in the resolution of the Board of
Directors originally fixing the number of shares of such series, if any. If the
number of shares of any series is so decreased, then the shares constituting
such decrease shall resume the status that they had prior to the adoption of the
resolution originally fixing the number of shares of such series.
V.
The following provisions are inserted for the management of the
business and the conduct of the affairs of the Corporation, and for further
definition, limitation and regulation of the powers of the Corporation and of
its directors and stockholders:
1. The business of the Corporation shall be managed by or
under the direction of the Board of Directors.
2. Special meetings of stockholders of the Corporation may be
called only by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there exist
any vacancies in previously authorized directorships at the time any such
resolution is presented to the Board for adoption), by the chairman of the
Board, vice-chairman of the Board or president of the Corporation or by the
holders of shares entitled to cast not less than 10% of the votes at the
meeting.
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<PAGE> 3
VI.
A director of the Corporation shall not be personally liable to the
Corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders. (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law, (iii) under Section 174 of the Delaware General Corporation
Law, or (iv) for any action from which the director derived an improper personal
benefit.
If the Delaware General Corporation Law is hereafter amended to
authorize corporate action further eliminating or limiting the personal
liability of a director, then the liability of a director of the Corporation,
without any further corporate action on the part of the Corporation, shall be
eliminated or limited to the fullest extent permitted by the Delaware General
Corporation Law, as so amended.
Any repeal or modification of the foregoing provisions of this Article
VI by the stockholders of the Corporation shall not adversely affect any right
or protection of a director of the Corporation existing at the time of such
repeal or modification.
VII.
The number of directors shall be fixed from time to time: (i) by the
Board of Directors pursuant to a resolution adopted by a majority of the total
number of authorized directors (whether or not there exist any vacancies in
previously authorized directorships at the time any such resolution is presented
to the Board for adoption); or (ii) by a resolution approved by holders of not
less than two-thirds (2/3) of the outstanding shares entitled to vote.
VIII.
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation. Any adoption, amendment or repeal of Bylaws of the
Corporation by the Board of Directors shall require the approval of a majority
of the total number of authorized directors (whether or not there exist any
vacancies in previously authorized directorships at the time any resolution
providing for any such adoption, amendment or repeal is presented to the Board).
The stockholders shall also have power to adopt, amend or repeal the Bylaws of
the Corporation.
IX.
Whenever a compromise or arrangement is proposed between this
Corporation and its creditors or any class of them and/or between this
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers
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<PAGE> 4
appointed for the Corporation under the provisions of section 291 of Title 8 of
the Delaware Code or on the application of trustees in dissolution or of any
receiver or receivers appointed for the Corporation under the provisions of
section 279 of Title 8 of the Delaware Code order a meeting of the creditors or
class of creditors, and/or of the stockholders or class of stockholders of the
Corporation, as the case may be, to be summoned in such manner as the said court
directs. If a majority in number representing three-fourths in value of the
creditors or class of creditors, and/or of the stockholders or class of
stockholders of the Corporation, as the case may be, agree to any compromise or
arrangement and to any reorganization of the Corporation as consequence of such
compromise or arrangement, the said compromise or arrangement and the said
reorganization shall, if sanctioned by the court to which the said application
has been made, be binding on all the creditors or class of creditors, and/or on
all the stockholders or class of stockholders, of the Corporation, as the case
may be, and also on the Corporation.
X.
Stockholders of the Corporation may not take action by written consent
in lieu of a meeting but must take any such action at a duly called annual or
special meeting.
XI.
Any (i) merger or combination between the Corporation and any entity or
person owning, directly or indirectly, fifteen percent (15%) or more of the
Corporation's shares (an "Interested Purchaser"), and (ii) any sale by the
Corporation of all or substantially all of the assets of the Corporation
to an Interested Purchaser (a transaction of the type described in clauses (i)
and (ii) is referred to as a "Transaction") will require the affirmative vote of
at least two-thirds (2/3) of the combined voting power of all of the
then-outstanding shares of the Corporation entitled to vote, unless either: (A)
the Transaction is approved by two-thirds (2/3) of the members of the Board of
Directors; or (B) as a result of the Transaction all holders of then-outstanding
shares of the Corporation (other than the Interested Purchaser) receive as a
result of the Transaction consideration in an amount at least equal to the
highest price paid by the Interested Purchaser for any shares of the Corporation
acquired by such Interested Purchaser during the thirty-six month period
preceding the date of any offer or proposal to effect a Transaction. In order to
satisfy the condition set forth in clause (B), the consideration paid to
stockholders as a result of the Transaction must be paid in the same form (or in
the same proportions in the case where consideration was of more than one type)
used to acquire the shares acquired prior to the Transaction, and, where more
than one type of consideration is involved, each stockholder must receive a pro
rata portion of each type of consideration is involved.
XII.
Notwithstanding any other provision of this Amended and Restated
Certificate of Incorporation or any provision of law which might otherwise
permit a lesser vote or no vote, but in addition to any affirmative vote of the
holders of the capital stock required by law or this Amended and Restated
Certificate of Incorporation, the affirmative vote of the holders of at least
two-thirds (2/3) of the combined voting power of all of the then-outstanding
shares of the Corporation entitled to vote shall be required to alter, amend or
repeal Articles VII, VIII, X, XI or XII or any provision thereof.
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XIII.
The Corporation reserves the right to amend, alter, change or repeal
any provision contained in this Amended and Restated Certificate of
Incorporation, in the manner now or hereafter prescribed by statute and by this
Amended and Restated Certificate of Incorporation and all rights conferred upon
stockholders herein are granted subject to this reservation."
IN WITNESS WHEREOF, the undersigned, David A. Eeg and Gene E. Bowles,
Jr. have signed this Amended and Restated Certificate of Incorporation as
President and Secretary, respectively, of said Storage Dimensions, Inc. this ___
day of ________________________, 1997.
_____________________________
David A. Eeg, President
_____________________________
Gene E. Bowles, Jr., Secretary
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<PAGE> 1
EXHIBIT 3.3
AMENDED AND RESTATED
BYLAWS
OF
STORAGE DIMENSIONS, INC.
ARTICLE I.
Stockholders
1.1 Annual Meeting. The annual meeting of the stockholders of the
Corporation shall be held on such date, at such time and at such place within or
without the State of Delaware as may be designated by the Board of Directors,
for the purpose of electing Directors and for the transaction of such other
business as may be property brought before the meeting.
1.2 Special Meetings. Except as otherwise provided in the Certificate
of Incorporation, a special meeting of the stockholders of the Corporation may
be called at any time by the Board of Directors, the Chairman of the Board, the
Vice Chairman of the Board or the President and shall be called by the Chairman
of the Board, Vice Chairman of the Board, the President or the Secretary at the
request in writing of stockholders holding together at least ten percent (10%)
of the number of shares of stock outstanding and entitled to vote at such
meeting. Any special meeting of the stockholders shall be held on such date, at
such time and at such place within or without the State of Delaware as the Board
of Directors or the officer calling the meeting may designate.
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 delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board, the President, or the
Secretary of the Corporation. No business may be transacted at such special
meeting otherwise than as specified in such notice. The officer receiving the
request shall cause notice to be promptly given to the stockholders entitled to
vote, in accordance with the provisions of Section 1.3. Nothing contained in
this paragraph of this Section 1.2 shall be construed as limiting, fixing, or
affecting the time when a meeting of stockholders called by action of the Board
of Directors may be held.
1.3 Notice of Meetings. Except as otherwise provided in these Bylaws or
by law, a written notice of each meeting of the stockholders shall be given not
less than ten (10) nor more than sixty (60) days before the date of the meeting
to each stockholder of the Corporation entitled to vote at such meeting at his
address as it appears on the records of the Corporation. The notice shall state
the place, date and hour of the meeting and, in the case of a special meeting,
the purpose or purposes for which the meeting is called.
1.4 Quorum. At any meeting of the stockholders, the holders of a
majority in number of the total outstanding shares of stock of the Corporation
entitled to vote at such meeting, present in person or represented by proxy,
shall constitute a quorum of the stockholders for all purposes, unless the
representation of a larger number of shares shall be required by law, by the
Certificate of Incorporation
<PAGE> 2
or by these Bylaws, in which case the representation of the number of shares so
required shall constitute a quorum; provided that at any meeting of the
stockholders at which the holders of any class of stock of the Corporation shall
be entitled to vote separately as a class, the holders of a majority in number
of the total, outstanding shares of such class, present in person or represented
by proxy shall constitute a quorum for purposes of such class vote unless the
representation of a larger number of shares of such class shall be required by
law, by the Certificate of Incorporation or by these Bylaws.
1.5 Adjourned Meetings. Whether or not a quorum shall be present in
person or represented at any meeting of the stockholders, the holders of a
majority in number of the shares of stock of the Corporation present in person
or represented by proxy and entitled to vote at such meeting may adjourn from
time to time; provided, however, that if the holders of any class of stock of
the Corporation are entitled to vote separately as a class upon any matter at
such meeting, any adjournment of the meeting in respect of action by such class
upon such matter shall be determined by the holders of a majority of the shares
of such class present in person or represented by proxy and entitled to vote at
such meeting. When a meeting is adjourned to another time or place, notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the stockholders, or the holders of any class of stock entitled to vote
separately as a class, as the case may be, may transact any business which might
have been transacted by them at the original meeting. If the adjournment is for
more than thirty days, or if after the adjournment a new record date is fixed
for the adjourned meeting, a notice of the adjourned meeting shall be given to
each stockholder of record entitled to vote at the adjourned meeting.
1.6 Organization. The Chairman of the Board or, in the absence of the
Chairman of the Board, the Vice Chairman of the Board or, in the absence of the
Chairman of the Board and the Vice Chairman of the Board, the President shall
call all meetings of the stockholders to order, and shall preside over such
meetings. In the absence of the Chairman of the Board, the Vice Chairman of the
Board and the President, the holders of a majority in number of the shares of
stock of the Corporation present in person or represented by proxy and entitled
to vote at such meeting shall elect a chairman of the meeting to preside over
the meeting.
The Secretary of the Corporation shall act as secretary of all meetings
of the stockholders; but in the absence of the Secretary, the chairman of the
meeting may appoint any person to act as secretary of the meeting. It shall be
the duty of the Secretary to prepare and make, at least ten days before every
meeting of stockholders, a complete list of stockholders entitled to vote at
such meeting, arranged in alphabetical order and showing the address of each
stockholder and the number of shares registered in the name of each stockholder.
Such list shall be open, either at a place within the city where the meeting is
to be held, which place shall be specified in the notice of the meeting or, if
not so specified, at the place where the meeting is to be held, for the ten days
next preceding the meeting, to the examination of any stockholder, for any
purpose germane to the meeting, during ordinary business hours, and shall be
produced and kept at the time and place of the meeting during the whole time
thereof and subject to the inspection of any stockholder who may be present.
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1.7 Voting. Except as otherwise provided in the Certificate of
Incorporation or by law, each stockholder shall be entitled to one vote for each
share of the capital stock of the Corporation registered in the name of such
stockholder upon the books of the Corporation. Each stockholder entitled to vote
at a meeting of stockholders or to express consent or dissent to corporate
action in writing without a meeting may authorize another person or persons to
act for him by proxy, but no such proxy shall be voted or acted upon after three
years from its date, unless the proxy provides for a longer period. When
directed by the presiding officer or upon the demand of any stockholder, the
vote upon any matter before a meeting of stockholders shall be by ballot. Except
as otherwise provided by law or by the Certificate of Incorporation, Directors
shall be elected by a plurality of the votes cast at a meeting of stockholders
by the stockholders entitled to vote in the election arid, whenever any
corporate action, other than the election of Directors is to be taken, it shall
be authorized by a majority of the votes cast at a meeting of stockholders by
the stockholders entitled to vote thereon.
Shares of the capital stock of the Corporation belonging to the
Corporation or to another corporation, if a majority of the shares entitled to
vote in the election of directors of such other corporation is held, directly or
indirectly by the Corporation, shall neither be entitled to vote nor be counted
for quorum purposes.
1.8 Inspectors. When required by law or directed by the presiding
officer or upon the demand of any stockholder entitled to vote, but not
otherwise, the polls shall be opened and closed, the proxies and ballots shall
be received and taken in charge, and all questions touching the qualification of
voters, the validity of proxies and the acceptance or rejection of votes shall
be decided at any meeting of the stockholders by two or more Inspectors who may
be appointed by the Board of Directors before the meeting, or if not so
appointed, shall be appointed by the presiding officer at the meeting. If any
person so appointed fails to appear or act, the vacancy may be filled by
appointment in like manner.
1.9 Advanced Notice of Stockholder Nominees and Stockholder Business.
To be properly brought before an annual meeting or a special meeting,
nominations for the election of Director or other business must be (a) specified
in the notice of meeting (or any supplement thereto) given by or at the
direction of the Board of Directors, (b) otherwise properly brought before the
meeting by or at the direction of the Board of Directors, or (c) otherwise
properly brought before the meeting by a stockholder. For such nominations or
other business to be considered properly brought before the meeting by a
stockholder such stockholder must have given timely notice and in proper form of
his intent to bring such business before such meeting. To be timely, such
stockholder's notice must be delivered to or mailed and received by the
Secretary of the Corporation not less than sixty (60) days nor more than ninety
(90) days prior to the meeting; provided, however, that in the event that less
than forty-five (45) days notice or prior public disclosure of the date of the
meeting is given or made to stockholders, notice by the stockholder to be timely
must be so received not later than the close of business on the tenth day
following the day on which such notice of the date of the meeting was mailed or
such public disclosure was made. To be in proper form, a stockholder's notice to
the Secretary shall set forth:
(i) The name and address of the stockholder who
intends to make the nominations or propose the business and, as the case may be,
the name and address of the person or persons to be nominated or the nature of
the business to be proposed;
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<PAGE> 4
(ii) A representation that the stockholder is a
holder of record of stock of the Corporation entitled to vote at such meeting
and, if applicable, intends to appear in person or by proxy at the meeting to
nominate the person or persons specified in the notice or introduce the business
specified in the notice;
(iii) If applicable, a description of all
arrangements or understandings between the stockholder and each nominee and any
other person or persons (naming such person or persons) pursuant to which the
nomination or nominations are to be made by the stockholder;
(iv) Such other information regarding each
nominee or each matter of business to be proposed by such stockholder as would
be required to be included in a proxy statement filed pursuant to the proxy
rules of the Securities and Exchange Commission had the nominee been nominated,
or intended to be nominated, or the matter been proposed, or intended to be
proposed by the Board of Directors; and
(v) If applicable, the consent of each nominee
to serve as Director of the Corporation if so elected.
The Chairman of the meeting may refuse to acknowledge the nomination of
any person or the proposal of any business not made in compliance with the
foregoing procedure.
1.10 Manner of Giving Notice; Affidavit of Notice. Written notice of
any meeting of stockholders, if mailed, is given when deposited in the United
States mail, postage prepaid, directed to the stockholder at his address as it
appears on the records of the Corporation. An affidavit of the Secretary or an
assistant Secretary or of the transfer agent of the Corporation that the notice
has been given shall, in the absence of fraud, be prima facie evidence of the
facts stated therein.
ARTICLE II.
Board of Directors
2.1 Number and Term of Office. The business and affairs of the
Corporation shall be managed by or under the direction of a Board of Directors,
none of whom need be stockholders of the Corporation. The number of Directors
constituting the Board of Directors shall be fixed from time to time by
resolution passed by a majority of the Board of Directors. The Directors shall,
except as hereinafter otherwise provided for filling vacancies, be elected at
the annual meeting of stockholders, and shall hold office until their respective
successors are elected and qualified or until their earlier resignation or
removal.
2.2 Removal, Vacancies and Additional Directors. Unless otherwise
restricted by statute, by the Corporation's Certificate of Incorporation, as
amended or restated, or by these Bylaws, the stockholders may at any special
meeting the notice of which shall state that it is called for that purpose,
remove, with or without cause, any Director and fill the vacancy; provided that
whenever any Director shall have been elected by the holders of any class of
stock of the corporation voting separately as a class
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<PAGE> 5
under the provisions of the Corporation's Certificate of Incorporation, as
amended or restated, such Director may be removed and the vacancy filled only by
the holders of that class of stock voting separately as a class. Vacancies
caused by any such removal and not filled by the stockholders at the meeting at
which such removal shall have been made, or any vacancy caused by the death or
resignation of any Director or for any other reason, and any newly created
directorship resulting from any increase in the authorized number of Directors,
may be filled by the affirmative vote of a majority of the Directors then in
office, although less than a quorum and any Director so elected to fill any such
vacancy or newly created directorship shall hold office until his successor is
elected and qualified or until his earlier resignation or removal.
Unless otherwise provided in the Corporation's Certificate of
Incorporation, as amended or restated, or these Bylaws:
(i) Vacancies and newly created directorships
resulting from any increase in the authorized number of Directors elected by all
of the stockholders having the right to vote as a single class may be filled by
a majority of the Directors then in office, although less than a quorum, or by a
sole remaining Director.
(ii) Whenever the holders of any class or classes
of stock or series thereof are entitled to elect one or more Directors by the
provisions of the Certificate of Incorporation, as amended or restated,
vacancies and newly created directorships of such class or classes or series may
be filled by a majority of the Directors elected by such class or classes or
series thereof then in office, or by a sole remaining Director so elected.
2.3 Place of Meeting. The Board of Directors may hold its meetings in
such place or places in the State of Delaware or outside the state of Delaware
as the Board from time to time shall determine.
2.4 Regular Meetings. Regular meetings of the Board of Directors shall
be held at such times and places as the Board from time to time by resolution
shall determine. No notice shall be required for any regular meeting of the
Board of Directors, but a copy of every resolution fixing or changing the time
or place of regular meetings shall be mailed to every Director at least five
days before the first meeting held in pursuance thereof.
2.5 Special Meetings. Special meetings of the Board of Directors
shall be held whenever called by direction of the Chairman of the Board, the
Vice Chairman of the Board, the President or by any two of the Directors then in
office.
Notice of the day, hour and place of holding of each special meeting
shall be given by mailing the same at least two days before the meeting or by
causing the same to be transmitted by telegraph, cable or wireless at least one
day before the meeting to each Director. Unless otherwise indicated in the
notice thereof, any and all business other than an amendment of these Bylaws may
be transacted at any special meeting, and an amendment of these Bylaws may be
acted upon if the notice of the meeting shall have stated that the amendment of
these Bylaws is one of the purposes of the meeting. At any meeting at
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which every Director shall be present, even though without any notice, any
business may be transacted, including the amendment of these Bylaws.
2.6 Quorum. Subject to the provisions of Section 1.2, a majority of the
members of the Board of Directors in office (but, unless the Board shall consist
solely of one Director, in no case less than one-third of the total number of
Directors nor less than two Directors) shall constitute a quorum for the
transaction of business and the vote of the majority of the Directors present at
any meeting of the Board of Directors at which a quorum is present shall be the
act of the Board of Directors. If at any meeting of the Board there is less than
a quorum present, a majority of those present may adjourn the meeting from time
to time.
2.7 Organization. The Chairman of the Board or, in the absence of the
Chairman of the Board, the Vice Chairman of the Board or, in the absence of the
Chairman of the Board and the Vice Chairman of the Board, the President, shall
preside at all meetings of the Board of Directors. In the absence of the
Chairman of the Board, the Vice Chairman of the Board and the President, a
chairman of the meeting shall be elected from the Directors present to preside
at the meeting. The Secretary of the Corporation shall act as secretary of all
meetings of the Directors; but in the absence of the Secretary, the chairman of
the meeting may appoint any person to act as secretary of the meeting.
2.8 Committees. The Board of Directors may, by resolution passed by a
majority of the whole Board, designate one or more committees, each committee to
consist of one or more of the Directors of the Corporation. The Board may
designate one or more Directors as alternate members of any committee, who may
replace any absent or disqualified member at any meeting of the committee. In
the absence or disqualification of a member of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether
or not he or they constitute a quorum, may unanimously appoint another member of
the Board of Directors to act at the meeting in the place of any such absent or
disqualified member. Any such committee, to the extent provided by resolution
passed by a majority of the whole Board, shall have and may exercise ail the
powers and authority of the Board of Directors in the management of the business
and the affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to amending the
Certificate of Incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to the
stockholders a dissolution of the Corporation or a revocation of a dissolution,
or amending these Bylaws; and unless such resolution, these Bylaws, or the
Certificate of Incorporation expressly so provide, no such committee shall have
the power or authority to declare a dividend or to authorize the issuance of
stock.
2.9 Conference Telephone Meetings. Unless otherwise restricted by the
Certificate of Incorporation or by these Bylaws, the members of the Board of
Directors or any committee designated by the Board, may participate in a meeting
of the Board or such committee, as the case may be, by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and such participation shall
constitute presence in person at such meeting.
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2.10 Consent of Directors or Committee in Lieu of Meeting. Unless
otherwise restricted by the Certificate of Incorporation or by these Bylaws, any
action required or permitted to be taken at any meeting of the Board of
Directors, or of any committee thereof, may be taken without a meeting if all
members of the Board or committee, as the case may be, consent thereto in
writing and the writing or writings are filed with the minutes of proceedings of
the Board or committee, as the case may be.
ARTICLE III.
Officers
3.1 Officers. The officers of the Corporation shall be a Chairman of
the Board, a President, a Secretary and a Treasurer, and such additional
officers, if any, as shall be elected by the Board of Directors pursuant to the
provisions of Section 3.9 of these Bylaws. The Chairman of the Board and each
other officer shall be reelected by the Board of Directors at its first meeting
after each annual meeting of the stockholders. The failure to hold such election
shall not of itself terminate the term of office of any officer. All officers
shall hold office at the pleasure of the Board of Directors. Any officer may
resign at any time upon written notice to the Corporation. Officers may, but
need not, be Directors. Any number of offices may be held by the same person.
All officers, agents and employees shall be subject to removal, with or
without cause, at any time by the Board of Directors. The removal of an officer
without cause shall be without prejudice to his contract rights, if any. The
election or appointment of an officer shall not of itself create contract
rights. All agents and employees other than officers elected by the Board of
Directors shall also be subject to removal, with or without cause, at any time
by the officers appointing them.
Any vacancy caused by the death of any officer, his resignation, his
removal, or otherwise, may be filled by the Board of Directors, and any officer
so elected shall hold office at the pleasure of the Board of Directors.
In addition to the powers and duties of the officers of the Corporation
as set forth in these Bylaws, the officers shall have such authority and shall
perform such duties as from time to time may be determined by the Board of
Directors.
3.2 Powers and Duties of the Chairman of the Board. The Chairman of the
Board shall preside at all meetings of the stockholders and at all meetings of
the Board of Directors and shall have such other powers and perform such other
duties as may from time to time be assigned to him by these Bylaws or by the
Board of Directors.
3.3 Powers and Duties of the Vice Chairman of the Board. In the absence
of the Chairman of the Board, the Vice Chairman of the Board shall preside at
all meetings of the stockholders and at all meetings of the Board of Directors
and shall have such other powers and perform such other duties as may from time
to time be assigned to him by these Bylaws or by the Board of Directors.
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3.4 Powers and Duties of the President. The President shall be the
chief executive officer of the Corporation and, subject to the control of the
Board of Directors, shall have general charge and control of all its business,
affairs and operations and shall have all powers and shall perform all duties
incident to the office of President. In the absence of the Chairman of the Board
and the Vice Chairman of the Board, the President shall preside at all meetings
of the stockholders and at all meetings of the Board of Directors and shall have
such other powers and perform such other duties as may from time to time be
assigned to him by these Bylaws or by the Board of Directors.
3.5 Powers and Duties of the Executive Vice President. The Executive
Vice President shall have ail powers and shall perform all duties incident to
the office of Executive Vice President and shall have such other powers and
perform such other duties as may from time to time be assigned to him by these
Bylaws or by the Board of Directors or the President.
3.6 Powers and Duties of the Vice President. Each Vice President shall
have all powers and shall perform all duties incident to the office of Vice
President and shall have such other powers and perform such other duties as may
from time to time be assigned to him by these Bylaws or by the Board of
Directors or the President.
3.7 Powers and Duties of the Secretary. The Secretary shall keep the
minutes of all meetings of the Board of Directors and the minutes of all
meetings of the stockholders in books provided for that purpose: he shall attend
to the giving or serving of all notices of the Corporation; he shall have
custody of the corporate seal of the Corporation and shall affix the same to
such documents and other papers as the Board of Directors or the President shall
authorize and direct; he shall have charge of the stock certificate books,
transfer books and stock ledgers and such other books and papers as the Board of
Directors or the President shall direct, all of which shall at all reasonable
times be open to the examination of any Director, upon application, at the
office of the Corporation during business hours; and whenever required by the
Board of Directors or the President shall render statements of such accounts:
and he shall have ail powers and shall perform all duties incident to the office
of Secretary and shall also have such other powers and shall perform such other
duties as may from time to time be assigned to him by these Bylaws or by the
Board of Directors.
3.8 Powers and Duties of the Treasurer. The Treasurer shall have
custody of, and when proper shall pay out, disburse or otherwise dispose of, all
funds and securities of the Corporation which may have come into his hands; he
may endorse on behalf of the Corporation for collection checks, notes and other
obligations and shall deposit the same to the credit of the Corporation in such
bank or banks or depositary or depositories as the Board of Directors may
designate; he shall sign all receipts and vouchers for payments made to the
Corporation; he shall enter or cause to be entered regularly in the books of the
Corporation kept for the purpose full and accurate accounts of all moneys
received or paid or otherwise disposed of by him and whenever required by the
Board of Directors or the President shall render statements of such accounts; he
shall, at all reasonable times, exhibit his books and accounts to any Director
of the Corporation upon application at the office of the Corporation during
business hours; and he shall have all powers and he shall perform all duties
incident to the office of Treasurer and shall also have such other powers and
shall perform such other duties as may from time to time be assigned to him by
these Bylaws or by the Board of Directors or the President.
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3.9 Additional Officers. The Board of Directors may from time to time
elect such other officers (who may but need not be Directors), including a
Controller, Assistant Treasurers, Assistant Secretaries and Assistant
Controllers, as the Board may deem advisable and such officers shall have such
authority and shall perform such duties as may from time to time be assigned to
them by the Board of Directors or the President.
The Board of Directors may from time to time by resolution delegate to
any Assistant Treasurer or Assistant Treasurers any of the powers or duties
herein assigned to the Treasurer; and may similarly delegate to any Assistant
Secretary or Assistant Secretaries any of the powers or duties herein assigned
to the Secretary.
3.10 Giving of Bond by Officers. All officers of the Corporation, if
required to do so by the Board of Directors, shall furnish bonds to the
Corporation for the faithful performance of their duties, in such penalties and
with such conditions and security as the Board shall require.
3.11 Voting Upon Stocks. Unless otherwise ordered by the Board of
Directors, the President or any Vice President shall have full power and
authority on behalf of the Corporation to attend and to act and to vote, or in
the name of the Corporation to execute proxies to vote, at any meeting of
stockholders of any corporation in which the Corporation may hold stock, and at
any such meeting shall possess and may exercise, in person or by proxy any and
all rights, powers and privileges incident to the ownership of such stock. The
Board of Directors may from time to time, by resolution, confer like powers upon
any other person or persons.
3.12 Compensation of Officers. The officers of the Corporation shall be
entitled to receive such compensation for their services as shall from time to
time be determined by the Board of Directors.
ARTICLE IV.
Indemnification of Directors and Officers
4.1 Nature of Indemnity. The Corporation shall indemnify any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was or has agreed to
become a Director or officer of the Corporation, or is or was serving or has
agreed to serve at the request of the Corporation as a Director or officer of
another corporation, partnership, joint venture, trust or other enterprise, or
by reason of any action alleged to have been taken or omitted in such capacity,
and may indemnify any person who was or is a party or is threatened to be made a
party to such an action, suit or proceeding by reason of the fact that he is or
was or has agreed to become an employee or agent of the Corporation, or is or
was serving or has agreed to serve at the request of the Corporation as an
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, against expenses (including attorneys' fees), judgments, fines
and amounts paid in settlement actually and reasonably incurred by him or on his
behalf in connection with such action, suit or proceeding and any appeal
therefrom, if he acted in good faith and in a manner he reasonably believed to
be in or not opposed to the best interests of the Corporation, and, with respect
to any criminal action or proceeding, had no
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reasonable cause to believe his conduct was unlawful; except that in the case of
an action or suit by or in the right of the Corporation to procure a judgment in
its favor (1) such indemnification shall be limited to expenses (including
attorneys' fees) actually and reasonably incurred by such person in the defense
or settlement of such action or suit, and (2) no indemnification shall be made
in respect of any claim, issue or matter as to which such person shall have been
adjudged to be liable to the Corporation unless and only to the extent that the
Delaware Court of Chancery or the court in which such action or suit was brought
shall determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Delaware Court of
Chancery or such other court shall deem proper.
The termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contenders or its equivalent,
shall not, of itself, create a presumption that the person did not act in good
faith and in a manner which he reasonably believed to be in or not opposed to
the best interests of the Corporation, and, with respect to any criminal action
or proceeding, had reasonable cause to believe that his conduct was unlawful.
4.2 Successful Defense. To the extent that a Director, officer,
employee or agent of the Corporation has been successful on the merits or
otherwise in defense of any action, suit or proceeding referred to in Section
4.1 of these Bylaws or in defense of any claim, issue or matter therein, he
shall be indemnified against expenses (including attorneys' fees) actually and
reasonably incurred by him in connection therewith.
4.3 Determination that Indemnification is Proper. Any indemnification
of a Director or officer of the Corporation under Section 4.1 of these Bylaws
(unless ordered by a court) shall be made by the Corporation unless a
determination is made that indemnification of the Director or officer is not
proper in the circumstances because he has not met the applicable standard of
conduct set forth in Section 4.1 of these Bylaws. Any indemnification of an
employee or agent of the Corporation under Section 4.1 of these Bylaws (unless
ordered by a court) may be made by the Corporation upon a determination that
indemnification of the employee or agent is proper in the circumstances because
he has met the applicable standard of conduct set forth in Section 4.1 of these
Bylaws. Any such determination shall be made (1) by the Board of Directors by a
majority vote of a quorum consisting of Directors who were not parties to such
action, suit or proceeding, or (2) if such a quorum is not obtainable, or, even
if obtainable a quorum of disinterested Directors so directs, by independent
legal counsel in a written opinion, or (3) by the stockholders.
4.4 Advance Payment of Expenses. Unless the Board of Directors
otherwise determines in a specific case, expenses incurred by a Director or
officer in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of such action, suit
or proceeding upon receipt of an undertaking by or on behalf of the Director or
officer to repay such amount if it shall ultimately be determined that he is not
entitled to be indemnified by the Corporation as authorized in this Article IV.
Such expenses incurred by other employees and agents may be so paid upon such
terms and conditions, if any, as the Board of Directors deems appropriate. The
Board of Directors may authorize the Corporation's legal counsel to represent
such Director, officer, employee or
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<PAGE> 11
agent in any action, suit or proceeding, whether or not the Corporation is a
party to such action, suit or proceeding.
4.5 Survival; Preservation of Other Rights. The foregoing
indemnification provisions shall be deemed to be a contract between the
Corporation and each Director, officer, employee and agent who serves in any
such capacity at any time while these provisions as well as the relevant
provisions of the Delaware General Corporation Law are in effect and any repeal
or modification thereof shall not affect any right or obligation then existing
with respect to any state of facts then or previously existing or any action,
suit, or proceeding previously or thereafter brought or threatened based in
whole or in part upon any such state of facts. Such a contract right may not be
modified retroactively without the consent of such Director, officer, employee
or agent.
The indemnification provided by this Article IV shall not be deemed
exclusive of any other rights to which those indemnified may be entitled under
any by-law, agreement, vote of stockholders or disinterested Directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a person
who has ceased to be a Director, officer, employee or agent and shall inure to
the benefit of the heirs, executors and administrators of such a person. The
corporation may enter into an agreement with any of its Directors, officers,
employees or agents providing for indemnification and advancement of expenses,
including attorneys fees, that may change, enhance, qualify or limit any right
to indemnification or advancement of expenses created by this Article IV.
4.6 Severability. If this Article IV or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
Corporation shall nevertheless indemnify each Director or officer and may
indemnify each employee or agent of the Corporation as to costs, charges and
expenses (including attorneys' fees), judgment, fines and amounts paid in
settlement with respect to any action, suit or proceeding, whether civil,
criminal, administrative or investigative, including an action by or in the
right of the Corporation, to the fullest extent permitted by any applicable
portion of this Article IV that shall not have been invalidated and to the
fullest extent permitted by applicable law.
4.7 Subrogation. In the event of payment of indemnification to a person
described in Section 4.1 of these Bylaws, the Corporation shall be subrogated to
the extent of such payment to any right of recovery such person may have and
such person, as a condition of receiving indemnification from the Corporation,
shall execute all documents and do all things that the Corporation may deem
necessary or desirable to perfect such right of recovery, including the
execution of such documents necessary to enable the Corporation effectively to
enforce any such recovery.
4.8 No Duplication of Payments. The Corporation shall not be liable
under this Article IV to make any payment in connection with any claim made
against a person described in Section 4.1 of these Bylaws to the extent such
person has otherwise received payment (under any insurance policy, by-law or
otherwise) of the amounts otherwise indemnifiable hereunder.
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<PAGE> 12
ARTICLE V.
Stock Seal; Fiscal Year
5.1 Certificates For Shares of Stock. The certificates for shares of
stock of the Corporation shall be in such form, not inconsistent with the
Certificate of Incorporation, as shall be approved by the Board of Directors.
All certificates shall be signed by the Chairman of the Board, the Vice Chairman
of the Board, the President or a Vice President and by the Secretary or an
Assistant Secretary or the Treasurer or an Assistant Treasurer, and shall not be
valid unless so signed. In case any officer or officers who shall have signed
any such certificate or certificates shall cease to be such officer or officers
of the Corporation, whether because of death, resignation or otherwise, before
such certificate or certificates shall have been delivered by the Corporation,
such certificate or certificates may nevertheless be issued and delivered as
though the person or persons who signed such certificate or certificates had not
ceased to be such officer or officers of the Corporation.
All certificates for shares of stock shall be consecutively numbered as
the same are issued. The name of the person owning the shares represented
thereby with the number of such shares and the date of issue thereof shall be
entered on the books of the Corporation.
Except as hereinafter provided, all certificates surrendered to the
Corporation for transfer shall be cancelled, and no new certificates shall be
issued until former certificates for the same number of shares have been
surrendered and cancelled.
5.2 Lost, Stolen or Destroyed Certificates. Whenever a person owning a
certificate for shares of stock of the Corporation alleges that it has been
lost, stolen or destroyed, he shall file in the office of the Corporation an
affidavit setting forth, to the best of his knowledge and belief, the time,
place and circumstances of the loss, theft or destruction, and, if required by
the Board of Directors, a bond of indemnity or other indemnification sufficient
in the opinion of the Board of Directors to indemnify the Corporation and its
agents against any claim that may be made against it or them on account of the
alleged loss, theft or destruction of any such certificate or the issuance of a
new certificate in replacement therefor. Thereupon the Corporation may cause to
be issued to such person a new certificate in replacement for the certificate
alleged to have been lost, stolen or destroyed. Upon the stub of every new
certificate so issued shall be noted the fact of such issue and the number, date
and the name of the registered owner of the lost, stolen or destroyed
certificate in lieu of which the new certificate is issued.
5.3 Transfer of Shares. Shares of stock of the Corporation shall be
transferred on the books of the Corporation by the holder thereof, in person or
by his attorney duly authorized in writing, upon surrender and cancellation of
certificates for the number of shares of stock to be transferred, except as
provided in Section 4.2 of these Bylaws.
5.4 Regulations. The Board of Directors shall have power and authority
to make such rules and regulations as it may deem expedient concerning the
issue, transfer and registration of certificates for shares of stock of the
Corporation.
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<PAGE> 13
5.5 Record Date. In order that the Corporation may determine the
stockholders entitled to notice of or to vote at any meeting of stockholders or
any adjournment thereof, or to express consent to corporate action in writing
without a meeting or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights in
respect of any change, conversion or exchange of stock or for the purpose of any
other lawful action, as the case may be, the Board of Directors may fm in
advance, a record date, which shall not be more than sixty (60) nor less than
ten (10) days before the date of such meeting, nor more than sixty (60) days
prior to any other action.
If no record date is fixed, the record date for determining
stockholders entitled to notice of or to vote at a meeting of stockholders shall
be at the close of business on the day next preceding the day on which notice is
given or, if notice is waived, at the close of business on the day next
preceding the day on which the meeting is held; the record date for determining
stockholders entitled to express consent to corporate action in writing without
a meeting, when no prior action by the Board of Directors is necessary, shall be
the day on which the first written consent is expressed; and the record date for
determining stockholders for any other purpose shall be at the close of business
on the day on which the Board of Directors adopts the resolution relating
thereto. A determination of stockholders of record entitled to notice of or to
vote at a meeting of stockholders shall apply to any adjournment of the meeting;
provided, however, that the Board of Directors may fix a new record date for the
adjourned meeting.
5.6 Dividends. Subject to the provisions of the Certificate of
Incorporation, the Board of Directors shall have power to declare and pay
dividends upon shares of stock of the Corporation, but only out of funds
available for the payment of dividends as provided by law.
Subject to the provisions of the Certificate of Incorporation, any
dividends declared upon the stock of the Corporation shall be payable on such
date or dates as the Board of Directors shall determine. If the date fixed for
the payment of any dividend shall in any year fall upon a legal holiday, then
the dividend payable on such date shall be paid on the next day not a legal
holiday.
5.7 Corporate Seal. The Board of Directors shall provide a suitable
seal, containing the name of the Corporation, which seal shall be kept in the
custody of the Secretary. A duplicate of the seal may be kept and be used by any
officer of the Corporation designated by the Board of Directors or the
President.
5.8 Fiscal Year. The fiscal year of the Corporation shall be such
fiscal year as the Board of Directors from time to time by resolution shall
determine.
///
///
///
///
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<PAGE> 14
ARTICLE VI.
Miscellaneous Provisions
6.1 Checks, Notes, Etc. All checks, drafts, bills of exchange,
acceptances, notes or other obligations or orders for the payment of money shall
be signed and, if so required by the Board of Directors, countersigned by such
officers of the Corporation and/or other persons as the Board of Directors from
time to time shall designate.
Checks, drafts, bills of exchange, acceptances, notes, obligations and
orders for the payment of money made payable to the Corporation may be endorsed
for deposit to the credit of the Corporation with a duly authorized depository
by the Treasurer and/or such other officers or persons as the Board of Directors
from time to time may designate.
6.2 Loans. No loans and no renewals of any loans shall be contracted on
behalf of the Corporation except as authorized by the Board of Directors. When
authorized so to do, any officer or agent of the Corporation may effect loans
and advances for the Corporation from any bank, trust company or other
institution or from any firm, corporation or individual, and for such loans and
advances may make, execute and deliver promissory notes, bonds or other
evidences of indebtedness of the Corporation. When authorized so to do, any
officer or agent of the Corporation may pledge, hypothecate or transfer, as
security for the payment of any and all loans, advances, indebtedness and
liabilities of the Corporation, any and all stocks, securities and other
personal property at any time held by the Corporation, and to that end may
endorse, assign and deliver the same. Such authority may be general or confined
to specific instances.
6.3 Contracts. Except as otherwise provided in these Bylaws or by law
or as otherwise directed by the Board of Directors, the President or any Vice
President shall be authorized to execute and deliver, in the name and on behalf
of the Corporation, all agreements, bonds, contracts, deeds, mortgages, and
other instruments, either for the Corporation's own account or in a fiduciary or
other capacity, and the seal of the Corporation, if appropriate, shall be
affixed thereto by any of such officers or the Secretary or an Assistant
Secretary. The Board of Directors, the President or any Vice President
designated by the Board of Directors or the President may authorize any other
officer, employee or agent to execute and deliver, in the name and on behalf of
the Corporation, agreements, bonds, contracts, deeds, mortgages, and other
instruments, either for the Corporation's own account or in a fiduciary or other
capacity, and, if appropriate, to affix the seal of the Corporation thereto. The
grant of such authority by the Board or any such officer may be general or
confined to specific instances.
6.4 Waivers of Notice. Whenever any notice whatever is required to be
given by law, by the Certificate of Incorporation or by these Bylaws to any
person or persons, a waiver thereof in writing, signed by the person or persons
entitled to the notice, whether before or after the time stated therein, shall
be deemed equivalent thereto.
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<PAGE> 15
6.5 Offices Outside of Delaware. Except as otherwise required by the
laws of the State of Delaware, the Corporation may have an office or offices and
keep its books, documents and papers outside of the State of Delaware at such
place or places as from time to time may be determined by the Board of Directors
or the President.
ARTICLE VII.
Amendments
7.1 Amendment By Board of Directors. These Bylaws and any amendment
thereof may be altered, amended or repealed, or new Bylaws may be adopted, by
(i) the Board of Directors at any regular or special meeting of the Board by the
affirmative vote of a majority of all of the members of the Board, provided in
the case of any special meeting at which all of the members of the Board are not
present, that the notice of such meeting shall have stated that the amendment of
these Bylaws was one of the purposes of the meeting.
7.2 Amendment by Stockholders. In addition to the provisions of Section
7.1 of these Bylaws, these Bylaws and any amendment thereof, may be altered,
amended or repealed or new Bylaws may be adopted by the affirmative vote of at
least two-thirds (2/3) of the combined voting power of all of the
then-outstanding shares of the Corporation entitled to vote at any annual
meeting or at any special meeting, provided that notice of such proposed
alteration, amendment, repeal or adoption is included in the notice of the
meeting.
Amended and Restated Bylaws Adopted by the Board of Directors on December 19,
1996.
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<PAGE> 1
EXHIBIT 10.1
STORAGE DIMENSIONS, INC.
INDEMNIFICATION AGREEMENT
This INDEMNIFICATION AGREEMENT is made as of the ____ day of
____________, 1996 by and between Storage Dimensions, Inc., a Delaware
corporation (the "CORPORATION"), and the individual whose name appears on the
signature page hereof (such individual being referred to herein as the
"INDEMNIFIED REPRESENTATIVE" and, together with other persons who may execute
similar agreements, as "INDEMNIFIED REPRESENTATIVES").
WHEREAS, the Indemnified Representative currently is and will be in the
future serving in one or more capacities as a director, officer, employee, or
agent of the Corporation or, at the request of the Corporation, as a director,
officer, employee, agent, fiduciary, or trustee of, or in a similar capacity
for, another corporation, partnership, joint venture, trust, employee benefit
plan, or other entity, and in so doing is and will be performing a valuable
service to or on behalf of the Corporation;
WHEREAS, the Board of Directors of the Corporation has determined that,
in order to attract and retain qualified individuals, the Corporation will
attempt to maintain, at its sole expense, liability insurance to protect persons
serving the Corporation and its subsidiaries from certain liabilities. Although
the furnishing of such insurance has been a customary and widespread practice
among United States based corporations and other business enterprises, the
Corporation believes that, given current market conditions and trends, such
insurance may be available to it in the future only at higher premiums and with
more exclusions. At the same time, directors, officers, and other persons in
service to corporations or business enterprises are being increasingly subjected
to expensive and time-consuming litigation relating to, among other things,
matters that traditionally would have been brought only against the Corporation
or business enterprise itself;
WHEREAS, the Indemnified Representative is willing to continue to serve
and to undertake additional duties and responsibilities for and on behalf of the
Corporation on the condition that he or she be indemnified contractually by the
Corporation; and
WHEREAS, as an inducement to the Indemnified Representative to continue
to serve the Corporation, and in consideration for such continued service, the
Corporation has agreed to indemnify the Indemnified Representative upon the
terms set forth herein.
NOW, THEREFORE, in consideration of the promises and mutual covenants
contained herein, and intending to be legally bound hereby, the Corporation and
the Indemnified Representative agree as follows:
1. AGREEMENT TO SERVE. The Indemnified Representative agrees to serve
or continue to serve for or on behalf of the Corporation in each Official
Capacity (as hereinafter defined) held now or in the future for so long as the
Indemnified Representative is duly elected or appointed or until such time as
the Indemnified Representative tenders a resignation in writing. This Agreement
shall not be deemed an employment contract between the Corporation or any of its
subsidiaries and any Indemnified
<PAGE> 2
Representative who is an employee of the Corporation or any of its subsidiaries.
The Indemnified Representative specifically acknowledges that the Indemnified
Representative's employment with the Corporation or any of its subsidiaries, if
any, is at will, and that the Indemnified Representative may be discharged at
any time for any reason, with or without cause, except as may be otherwise
provided in any written employment contract between the Indemnified
Representative and the Corporation or any of its subsidiaries, other applicable
formal severance policies duly adopted by the board of directors of the
Indemnified Representative's employer, or, with respect to service as a director
of the Corporation, by the Corporation's Certificate of Incorporation, Bylaws,
and the Delaware General Corporation Law. The foregoing notwithstanding, this
Agreement shall continue in force after the Indemnified Representative has
ceased to serve in any Official Capacity for or on behalf of the Corporation or
any of its subsidiaries.
2. INDEMNIFICATION.
(a) Except as provided in Sections 3 and 5 hereof, the
Corporation shall indemnify the Indemnified Representative against any Liability
(as hereinafter defined) incurred by or assessed against the Indemnified
Representative in connection with any Proceeding (as hereinafter defined) in
which the Indemnified Representative may be involved, as a party or otherwise,
by reason of the fact that the Indemnified Representative is or was serving in
any Official Capacity held now or in the future, including, without limitation,
any Liability resulting from actual or alleged breach or neglect of duty, error,
misstatement, misleading statement, omission, negligence, act giving rise to
strict or product liability, act giving rise to liability for environmental
contamination, or other act or omission, whether occurring prior to or after the
date of this Agreement. As used in this Agreement:
(1) "Liability" means any damage, judgment, amount paid in
settlement, fine, penalty, punitive damage, or expense of any nature (including
attorneys' fees and expenses);
(2) "Proceeding" means any threatened, pending, or
completed action, suit, appeal, arbitration, or other proceeding of any nature,
whether civil, criminal, administrative, or investigative, whether formal or
informal, and whether brought by or in the right of the Corporation, a class of
its security holders, or any other party; and
(3) "Official Capacity" means service to the Corporation as
a director or officer or, at the request of the Corporation, as a director,
officer, employee, agent, fiduciary, or trustee of, or in a similar capacity
for, another corporation, partnership, joint venture, trust, employee benefit
plan (including a plan qualified under the Employee Retirement Income Security
Act of 1974), or other entity.
(b) Notwithstanding Section 2(a) hereof, except for a
Proceeding brought pursuant to Section 5(d) of this Agreement, the Corporation
shall not indemnify the Indemnified Representative under this Agreement for any
Liability incurred in a Proceeding initiated by the Indemnified Representative
unless the Proceeding is authorized, either before or after commencement of the
Proceeding, by the majority vote of a quorum of the Board of Directors of the
Corporation. An affirmative defense or counterclaim of an Indemnified
Representative shall not be deemed to constitute a Proceeding initiated by the
Indemnified Representative.
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<PAGE> 3
3. EXCLUSIONS.
(a) The Corporation shall not be liable under this Agreement
to make any payment in connection with any Liability incurred by the Indemnified
Representative:
(1) to the extent payment for such Liability is made to
the Indemnified Representative under an insurance policy obtained by the
Corporation;
(2) to the extent payment is made to the Indemnified
Representative for such Liability by the Corporation under its Certification of
Incorporation, Bylaws, the Delaware General Corporation Law, or otherwise than
pursuant to this Agreement;
(3) to the extent such Liability is determined in a final
determination pursuant to Section 5(d) hereof to be based upon or attributable
to the Indemnified Representative gaining any personal profit to which such
Indemnified Representative was not legally entitled;
(4) for any claim by or on behalf of the Corporation for
recovery of profits resulting from the purchase and sale or sale and purchase by
such Indemnified Representative of equity securities of the Corporation pursuant
to Section 16(b) of the Securities Exchange Act of 1934, as amended;
(5) for which the conduct of the Indemnified
Representative has been determined in a final determination pursuant to Section
5(d) hereof to constitute bad faith or active and deliberate dishonesty, in
either such case material to the cause of action or claim at issue in the
Proceeding, or
(6) to the extent such indemnification has been determined
in a final determination pursuant to Section 5(d) hereof to be unlawful.
(b) Any act, omission, liability, knowledge, or other fact of
or relating to any other person, including any other person who is also an
Indemnified Representative, shall not be imputed to the Indemnified
Representative for the purposes of determining the applicability of any
exclusion set forth herein.
(c) The termination of a proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its equivalent
shall not, of itself, create a presumption that the Indemnified Representative
is not entitled to indemnification under this Agreement.
4. ADVANCEMENT OF EXPENSES. The Corporation shall pay any
Liability in the nature of an expense (including attorneys' fees and expenses)
incurred in good faith by the Indemnified Representative in advance of the final
disposition of a Proceeding within thirty (30) days of receipt of a demand for
payment by the Indemnified Representative; provided, however, that the
Indemnified Representative shall repay such amount if it shall ultimately be
determined, pursuant to Section 5(d) hereof, that the Indemnified Representative
is not entitled to be indemnified by the Corporation pursuant to this
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<PAGE> 4
Agreement. The financial ability of the Indemnified Representative to repay an
advance shall not be a prerequisite to the making to such advance.
5. INDEMNIFICATION PROCEDURE.
(a) The Indemnified Representative shall use his best efforts
to notify promptly the Secretary of the Corporation of the commencement of any
Proceeding or the occurrence of any event which might give rise to a Liability
under this Agreement, but the failure to so notify the Corporation shall not
relieve the Corporation of any obligation which it may have to the Indemnified
Representative under this Agreement or otherwise.
(b) The Corporation shall be entitled, upon notice to the
Indemnified Representative, to assume the defense of any Proceeding with counsel
reasonably satisfactory to the Indemnified Representative involved in such
Proceeding or, if there be more than one (1) Indemnified Representatives
involved in such Proceeding, to a majority of the Indemnified Representatives
involved in such Proceeding. If, in accordance with the foregoing, the
Corporation defends the Proceeding, the Corporation shall not be liable for the
expenses (including attorneys' fees and expenses) of the Indemnified
Representative incurred in connection with the defense of such Proceeding
subsequent to the required notice, unless (i) such expenses (including
attorneys' fees) have been authorized by the Corporation or (ii) the Corporation
shall not in fact have employed counsel reasonably satisfactory to such
Indemnified Representative, or to the majority of Indemnified Representative if
more than one (1) is involved, to assume the defense of such Proceeding or (iii)
counsel for the Indemnified Representative shall have provided a written legal
opinion that there may be a conflict of interest between such Indemnified
Representative and other parties represented by legal counsel selected by the
Corporation, in any of which events the Indemnified Representative shall be
entitled to have the expenses of separate legal counsel paid by the Corporation.
The foregoing notwithstanding, the Indemnified Representative may elect to
retain counsel at the Indemnified Representative's own cost and expense to
participate in the defense of such Proceeding.
(c) The Corporation shall not be required to obtain the
consent of the Indemnified Representative to the settlement of any Proceeding
which the Corporation has undertaken to defend if the Corporation assumes full
and sole responsibility for such settlement and the settlement grants the
Indemnified Representative a complete and unqualified release in respect of the
potential Liability. The Corporation shall not be liable for any amount paid by
an Indemnified Representative in settlement of any Proceeding that is not
defended by the Corporation, unless the Corporation has consented to such
settlement, which consent shall not be unreasonably withheld.
(d) Except as set forth herein, any dispute concerning the
right to indemnification under this Agreement and any other dispute arising
hereunder, including but not limited to matters of validity, interpretation,
application, and enforcement, shall be determined exclusively by and through
final and binding arbitration in Milpitas, California, or other location
mutually agreed to, each party hereto expressly and conclusively waiving its,
his or her right to proceed to a judicial determination with respect to such
matter; provided, however, that in the event that a claim for indemnification
against liabilities arising under the Securities Act of 1933 (the "Act") (other
than the payment by the Corporation of
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<PAGE> 5
expenses incurred or paid by a director, officer, or controlling person of the
Corporation in the successful defense of any action, suit, or proceeding) is
asserted by a director, officer, or controlling person in connection with
securities being registered under the Act, the Corporation will, unless in the
opinion of its counsel the matter has been settled by controlling precedent,
submit to a court of competent jurisdiction the question whether such
indemnification by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue. The arbitration shall be
conducted in accordance with the commercial arbitration rules then in effect of
the American Arbitration Association before a panel of three (3) arbitrators,
one (1) of whom shall be selected by the Corporation, the second of whom shall
be selected by the Indemnified Representative, and the third of whom shall be
selected by the other two (2) arbitrators. Each arbitrator selected as provided
herein is required to be serving or to have served as a director or an executive
officer of a corporation whose shares of common stock, during at least one year
of such service, were quoted on the Nasdaq National Market or listed on the New
York Stock Exchange or the American Stock Exchange. The Corporation shall
reimburse the Indemnified Representative for the expenses (including attorneys'
fees) incurred in prosecuting or defending such arbitration to the full extent
of such expenses if the Indemnified Representative is awarded 50% or more of the
monetary value of his claim or, if not, to the extent such expenses are
determined by the arbitrators to be allocable to the Corporation. It is
expressly understood and agreed by the parties that a party may compel
arbitration pursuant to this Section 5(d) through an action for specific
performance and that any award entered by the arbitrators may be enforced,
without further evidence or proceedings, in any court of competent jurisdiction.
(e) Upon a payment under this Agreement to the Indemnified
Representative with respect to any Liability, the Corporation shall be
subjugated to the extent of such payment to all of the rights of the Indemnified
Representative to recover against any person with respect to such Liability, and
the Indemnified Representative shall execute all documents and instruments
required and shall take such other actions as may be necessary to secure such
rights including the execution of such documents as may be necessary for the
Corporation to bring suit to enforce such rights.
6. CONTRIBUTION. If the indemnification provided for in this Agreement
is unavailable for any reason to hold harmless an Indemnified Representative in
respect of any Liability or portion thereof the Corporation shall contribute to
such Liability or portion thereof in such proportion as is appropriate to
reflect the relative benefits received by the Corporation and the Indemnified
Representative from the transaction giving rise to the Liability.
7. NON-EXCLUSIVITY. The rights granted to the Indemnified
Representative pursuant to this Agreement shall not be deemed exclusive of any
other rights to which the Indemnified Representative may be entitled under
statute, the provisions of any Certificate of Incorporation, Bylaws, or
agreement, a vote of stockholders or directors, or otherwise, both as to action
in an Official Capacity and in any other capacity.
8. RELIANCE ON PROVISIONS. The Indemnified Representative, when acting
in any Official Capacity, shall be deemed to be acting in reliance upon the
rights of indemnification provided by this Agreement and the indemnification
provisions of the Corporation's Certificate of Incorporation and Bylaws.
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<PAGE> 6
9. SEVERABILITY AND REFORMATION. Any provision of this Agreement which
is determined to be invalid or unenforceable in any jurisdiction or under any
circumstances shall be ineffective only to the extent of such invalidity or
unenforceability and shall be deemed reformed to the extent necessary to conform
to the applicable law of such jurisdiction and still give maximum effect to the
intent of the parties hereto. Any such determination shall not invalidate or
render unenforceable the remaining provisions hereof and shall not invalidate or
render unenforceable such provision in any other jurisdiction or under any other
circumstances.
10. NOTICES. Any notice, claim, request, or demand required or
permitted hereunder shall be in writing and shall be deemed given if delivered
personally or sent by telegram or by registered or certified mail, first class,
postage prepaid: (i) if to the Corporation to Storage Dimensions, Inc., at its
principal executive offices, Attention: Secretary, or (ii) if to any Indemnified
Representative, to the address of such Indemnified Representative listed on the
signature page hereof, or to such other address as any party hereto shall have
specified in a notice duly given in accordance with this Section 10.
11. AMENDMENTS: BINDING EFFECT. No amendment, modification,
termination, or cancellation of this Agreement shall be effective as to the
Indemnified Representative unless signed in writing by the Corporation and the
Indemnified Representative. This Agreement shall be binding upon the Corporation
and its successors and assigns and shall inure to the benefit of the Indemnified
Representative's heirs, executors, administrators, and personal representatives.
12. GOVERNING LAW. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, without regard to the
conflict of laws provisions thereof.
13. COUNTERPARTS. This Agreement may be executed in multiple
counterparts, each of which shall be enforceable against the party actually
executing such counterpart, and all of which together shall constitute one
instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the undersigned have executed this Agreement as of
the day and year first set forth above.
(Corporate Seal) STORAGE DIMENSIONS, INC.
By:______________________________
Title:___________________________
INDEMNIFIED REPRESENTATIVE
_________________________________
Name
Address
_________________________________
_________________________________
_________________________________
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<PAGE> 1
EXHIBIT 10.2
STORAGE DIMENSIONS, INC.
1996 STOCK OPTION PLAN
1. Purposes of the Plan. The purposes of this Plan are:
- to attract and retain the best available personnel
for positions of substantial responsibility,
- to provide incentives to Employees, including
Officers, Directors and Consultants, and
- to promote the success of the Company's business.
Options granted under the Plan will be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall
apply:
(a) "Administrator" means the Board or any of its
Committees as shall be administering the Plan, in accordance with Section 4 of
the Plan.
(b) "Applicable Laws" means the requirements relating to
the administration of stock option plans under U. S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options are, or will be, granted under
the Plan.
(c) "Board" means the Board of Directors of the Company.
(d) "Code" means the Internal Revenue Code of 1986, as
amended.
(e) "Committee" means a committee of Directors appointed
by the Board in accordance with Section 4 of the Plan.
(f) "Common Stock" means the Common Stock of the Company.
(g) "Company" means Storage Dimensions, Inc., a Delaware
corporation.
(h) "Consultant" means any person, including an advisor,
engaged by the Company or a Parent or Subsidiary to render services to such
entity.
(i) "Director" means a member of the Board.
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(j) "Disability" means total and permanent disability as
defined in Section 22(e)(3) of the Code.
(k) "Employee" means any person, excluding Officers, employed
by the Company or any Parent or Subsidiary of the Company. A Service Provider
shall not cease to be an Employee in the case of (i) any leave of absence
approved by the Company or (ii) transfers between locations of the Company or
between the Company, its Parent, any Subsidiary, or any successor. Neither
service as a Director nor payment of a director's fee by the Company shall be
sufficient to constitute "employment" by the Company.
(l) "Exchange Act" means the Securities Exchange Act of 1934,
as amended.
(m) "Fair Market Value" means, as of any date, the value of
Common Stock determined as follows:
(i) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(ii) If the Common Stock is regularly quoted by
a recognized securities dealer but selling prices are not reported, the Fair
Market Value of a Share of Common Stock shall be the mean between the high bid
and low asked prices for the Common Stock on the last market trading day prior
to the day of determination, as reported in The Wall Street Journal or such
other source as the Administrator deems reliable;
(iii) In the absence of an established market for
the Common Stock, the Fair Market Value shall be determined in good faith by the
Administrator.
(n) "Notice of Grant" means a written or electronic notice
evidencing certain terms and conditions of an individual Option grant. The
Notice of Grant is part of the Option Agreement.
(o) "Officer" means a person who is an officer of the Company
within the meaning of Section 16 of the Exchange Act and the rules and
regulations promulgated thereunder.
(p) "Option" means a nonstatutory stock option granted
pursuant to the Plan, that is not intended to qualify as an incentive stock
option within the meaning of Section 422 of the Code and the regulations
promulgated thereunder.
(q) "Option Agreement" means an agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. The Option Agreement is subject to the terms and conditions of the Plan.
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(r) "Option Exchange Program" means a program whereby
outstanding options are surrendered in exchange for options with a lower
exercise price.
(s) "Optioned Stock" means the Common Stock subject to an
Option.
(t) "Optionee" means the holder of an outstanding Option
granted under the Plan.
(u) "Parent" means a "parent corporation," whether now or
hereafter existing, as defined in Section 424(e) of the Code.
(v) "Plan" means this 1996 Stock Option Plan.
(w) "Service Provider" means an Employee, Consultant,
Director or Officer.
(x) "Share" means a share of the Common Stock, as adjusted in
accordance with Section 12 of the Plan.
(y) "Subsidiary" means a "subsidiary corporation", whether
now or hereafter existing, as defined in Section 424(f) of the Code.
3. Stock Subject to the Plan. Subject to the provisions of Section 12
of the Plan, the maximum aggregate number of Shares which may be optioned and
sold under the Plan is 1,000,000 Shares (after giving effect to a one-for-four
reverse stock split of the Common Stock approved by the Board December 5, 1996).
The Shares may be authorized, but unissued, or reacquired Common Stock. If an
Option expires or becomes unexercisable without having been exercised in full,
or is surrendered pursuant to an Option Exchange Program, the unpurchased Shares
which were subject thereto shall become available for future grant or sale under
the Plan (unless the Plan has terminated).
4. Administration of the Plan.
(a) The Plan shall be administered by (A) the Board or (B) a
Committee, which committee shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions
of the Plan, and in the case of a Committee, subject to the specific duties
delegated by the Board to such Committee, the Administrator shall have the
authority, in its discretion:
(i) to determine the Fair Market Value of the Common
Stock;
(ii) to select the Service Providers to whom Options
may be granted hereunder;
(iii) to determine whether and to what extent Options
are granted hereunder;
(iv) to determine the number of shares of Common
Stock to be covered by each Option granted hereunder;
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<PAGE> 4
(v) to approve forms of agreement for use under
the Plan;
(vi) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any award granted hereunder. Such
terms and conditions include, but are not limited to, the exercise price, the
time or times when Options may be exercised (which may be based on performance
criteria), any vesting acceleration or waiver of forfeiture restrictions, and
any restriction or limitation regarding any Option or the shares of Common Stock
relating thereto, based in each case on such factors as the Administrator, in
its sole discretion, shall determine;
(vii) to reduce the exercise price of any Option
to the then current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option shall have declined since the date the Option was
granted;
(viii) to institute an Option Exchange Program;
(ix) to construe and interpret the terms of the
Plan and awards granted pursuant to the Plan;
(x) to prescribe, amend and rescind rules and
regulations relating to the Plan, including rules and regulations relating to
sub-plans established for the purpose of qualifying for preferred tax treatment
under foreign tax laws;
(xi) to modify or amend each Option (subject to
Section 15(b) of the Plan), including the discretionary authority to extend the
post-termination exercisability period of Options longer than is otherwise
provided for in the Plan;
(xii) to authorize any person to execute on
behalf of the Company any instrument required to effect the grant of an Option
or previously granted by the Administrator;
(xiii) to determine the terms and restrictions
applicable to Options;
(xiv) to allow Optionees to satisfy withholding
tax obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to the amount required to be withheld. The Fair
Market Value of the Shares to be withheld shall be determined on the date that
the amount of tax to be withheld is to be determined. All elections by an
Optionee to have Shares withheld for this purpose shall be made in such form and
under such conditions as the Administrator may deem necessary or advisable; and
(xv) to make all other determinations deemed
necessary or advisable for administering the Plan.
(c) Effect of Administrator's Decision. The
Administrator's decisions, determinations and interpretations shall be final and
binding on all Optionees and any other holders of Options.
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5. Eligibility. Options may be granted to Service Providers;
provided, however, that notwithstanding anything to the contrary contained in
the Plan, Options may not be granted to Officers and Directors.
6. Limitation. Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's relationship as a
Service Provider with the Company, nor shall they interfere in any way with the
Optionee's right or the Company's right to terminate such relationship at any
time, with or without cause.
7. Term of Plan. The Plan shall become effective upon the later
of (i) its adoption by the Board and (ii) that date on which the Company first
becomes subject to the periodic reporting requirements of the Exchange Act. It
shall continue in effect until terminated under Section 14 of the Plan.
8. Term of Option. The term of each Option shall be stated in
the Option Agreement.
9. Option Exercise Price and Consideration.
(a) Exercise Price. The per share exercise price for
the Shares to be issued pursuant to exercise of an Option shall be determined by
the Administrator.
(b) Waiting Period and Exercise Dates. At the time an
Option is granted, the Administrator shall fix the period within which the
Option may be exercised and shall determine any conditions which must be
satisfied before the Option may be exercised.
(c) Form of Consideration. The Administrator shall
determine the acceptable form of consideration for exercising an Option,
including the method of payment. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six months on the date of surrender, and (B) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised;
(v) consideration received by the Company under
a cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company
liability to the Optionee, including any liability attributable to the
Optionee's participation in any Company-sponsored deferred compensation program
or arrangement;
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<PAGE> 6
(vii) such other consideration and method of
payment for the issuance of Shares to the extent permitted by Applicable Laws;
or
(viii) any combination of the foregoing methods of
payment.
10. Exercise of Option.
(a) Procedure for Exercise; Rights as a Stockholder. Any
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. An Option may not be exercised for a
fraction of a Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a stockholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 12 of the Plan.
Exercising an Option in any manner shall decrease the
number of Shares thereafter available, both for purposes of the Plan and for
sale under the Option, by the number of Shares as to which the Option is
exercised.
(b) Termination of Relationship as a Service Provider. If an
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise his or her Option, but only within such
period of time as is specified in the Option Agreement, and only to the extent
that the Option is vested on the date of termination (but in no event later than
the expiration of the term of such Option as set forth in the Option Agreement).
In the absence of a specified time in the Option Agreement, the Option shall
remain exercisable for three (3) months following the Optionee's termination.
If, on the date of termination, the Optionee is not vested as to his or her
entire Option, the Shares covered by the unvested portion of the Option shall
revert to the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified by the Administrator, the Option shall
terminate, and the Shares covered by such Option shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement, to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve
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<PAGE> 7
(12) months following the Optionee's termination. If, on the date of
termination, the Optionee is not vested as to his or her entire Option, the
Shares covered by the unvested portion of the Option shall revert to the Plan.
If, after termination, the Optionee does not exercise his or her Option within
the time specified herein, the Option shall terminate, and the Shares covered by
such Option shall revert to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant), by the Optionee's estate or
by a person who acquires the right to exercise the Option by bequest or
inheritance, but only to the extent that the Option is vested on the date of
death. In the absence of a specified time in the Option Agreement, the Option
shall remain exercisable for twelve (12) months following the Optionee's
termination. If, at the time of death, the Optionee is not vested as to his or
her entire Option, the Shares covered by the unvested portion of the Option
shall immediately revert to the Plan. The Option may be exercised by the
executor or administrator of the Optionee's estate or, if none, by the person(s)
entitled to exercise the Option under the Optionee's will or the laws of descent
or distribution. If the Option is not so exercised within the time specified
herein, the Option shall terminate, and the Shares covered by such Option shall
revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
to buy out for a payment in cash or Shares, an Option previously granted based
on such terms and conditions as the Administrator shall establish and
communicate to the Optionee at the time that such offer is made.
11. Non-Transferability of Options . Unless determined otherwise by the
Administrator, an Option may not be sold, pledged, assigned, hypothecated,
transferred, or disposed of in any manner other than by will or by the laws of
descent or distribution and may be exercised, during the lifetime of the
Optionee, only by the Optionee. If the Administrator makes an Option
transferable, such Option shall contain such additional terms and conditions as
the Administrator deems appropriate.
12. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
Asset Sale.
(a) Changes in Capitalization. Subject to any required action
by the Stockholders of the Company, the number of shares of Common Stock covered
by each outstanding Option, and the number of shares of Common Stock which have
been authorized for issuance under the Plan but as to which no Options have yet
been granted or which have been returned to the Plan upon cancellation or
expiration of an Option, as well as the price per share of Common Stock covered
by each such outstanding Option, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without receipt of
consideration by the Company; provided, however, that conversion of any
convertible securities of the Company shall not be deemed to have been "effected
without receipt of consideration." Such adjustment shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided herein, no issuance by the Company of shares of
stock of any class, or securities convertible into shares of stock of any class,
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shall affect, and no adjustment by reason thereof shall be made with respect to,
the number or price of shares of Common Stock subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option shall lapse as to all such Shares,
provided the proposed dissolution or liquidation takes place at the time and in
the manner contemplated. To the extent it has not been previously exercised, an
Option will terminate immediately prior to the consummation of such proposed
action.
(c) Change of Control. In the event of a Change of Control (as
defined below), Options under this Plan shall become fully vested and
exercisable as to all optioned Stock, including Shares as to which an Option
would not otherwise be vested or exercisable, effective as of immediately prior
to closing of the transaction constituting the Change of Control. For purposes
of this Plan, "CHANGE OF CONTROL" shall mean a corporate reorganization of the
Company which results in the then current Stockholders of the Company owning
less than 50% of the equity securities of the surviving company, or the sale of
all or substantially all of the assets of the Company.
13. Date of Grant. The date of grant of an Option shall be, for all
purposes, the date on which the Administrator makes the determination granting
such Option, or such other later date as is determined by the Administrator.
Notice of the determination shall be provided to each Optionee within a
reasonable time after the date of such grant.
14. Amendment and Termination of the Plan.
(a) Amendment and Termination. The Board may at any
time amend, alter, suspend or terminate the Plan.
(b) Effect of Amendment or Termination. No amendment,
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to options
granted under the Plan prior to the date of such termination.
15. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to
the exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with Applicable Laws and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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(b) Inability to Obtain Authority. The inability of the
Company to obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to which
such requisite authority shall not have been obtained.
16. Reservation of Shares. The Company, during the term of this Plan,
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
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EXHIBIT 10.3
STORAGE DIMENSIONS, INC.
1996 EMPLOYEE STOCK PURCHASE PLAN
1. Purpose. The purpose of the Plan is to provide employees of
the Company and its Designated Subsidiaries with an opportunity to purchase
Common Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
(a) "Board" shall mean the Board of Directors of the
Company.
(b) "Code" shall mean the Internal Revenue Code of 1986,
as amended.
(c) "Common Stock" shall mean the Common Stock of the
Company.
(d) "Company" shall mean Storage Dimensions, Inc., a
Delaware corporation, and any Designated Subsidiary of the Company.
(e) "Compensation" shall mean all base straight time
gross earnings and commissions, exclusive of payments for overtime, shift
premium, incentive compensation, incentive payments, bonuses and other
compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary
which has been designated by the Board from time to time in its sole discretion
as eligible to participate in the Plan.
(g) "Employee" shall mean any individual who is an
Employee of the Company for tax purposes whose customary employment with the
Company is at least twenty (20) hours per week and more than five (5) months in
any calendar year. For purposes of the Plan, the employment relationship shall
be treated as continuing intact while the individual is on sick leave or other
leave of absence approved by the Company. Where the period of leave exceeds 90
days and the individual's right to reemployment is not guaranteed either by
statute or by contract, the employment relationship shall be deemed to have
terminated on the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each
Offering Period.
(i) "Exercise Date" shall mean the last day of each
Offering Period.
<PAGE> 2
(j) "Fair Market Value" shall mean, as of any date, the
value of Common Stock determined as follows:
(1) If the Common Stock is listed on any
established stock exchange or a national market system, including without
limitation the Nasdaq National Market or The Nasdaq SmallCap Market of The
Nasdaq Stock Market, its Fair Market Value shall be the closing sales price for
such stock (or the closing bid, if no sales were reported) as quoted on such
exchange or system for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable, or;
(2) If the Common Stock is regularly quoted by a
recognized securities dealer but selling prices are not reported, its Fair
Market Value shall be the mean of the closing bid and asked prices for the
Common Stock on the date of such determination, as reported in The Wall Street
Journal or such other source as the Board deems reliable, or;
(3) In the absence of an established market for
the Common Stock, the Fair Market Value thereof shall be determined in good
faith by the Board.
(4) For purposes of the Enrollment Date of the
first Offering Period under the Plan, the Fair Market Value shall be the initial
price to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(k) "Offering Period" shall mean a period of
approximately six (6) months during which an option granted pursuant to the Plan
may be exercised, commencing on the first Trading Day on or after
February 15 and terminating on the last Trading Day in the period ending the
following August 14, or commencing on the first Trading Day on or after
August 15 and terminating on the last Trading Day in the period ending the
following February 14; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or after
August 14. The duration of Offering Periods may be changed pursuant to
Section 4 of this Plan.
(l) "Plan" shall mean this Employee Stock Purchase Plan.
(m) "Purchase Price" shall mean an amount equal to 85% of
the Fair Market Value of a share of Common Stock on the Enrollment Date or on
the Exercise Date, whichever is lower (subject to any limit imposed by the
Code).
(n) "Reserves" shall mean the number of shares of Common
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for issuance
under the Plan but not yet placed under option.
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(o) "Subsidiary" shall mean a corporation, domestic or
foreign, of which not less than 50% of the voting shares are held by the Company
or a Subsidiary, whether or not such corporation now exists or is hereafter
organized or acquired by the Company or a Subsidiary.
(p) "Trading Day" shall mean a day on which national
stock exchanges and the Nasdaq System are open for trading.
3. Eligibility.
(a) Any Employee who shall be employed by the Company on
a given Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other person
whose stock would be attributed to such Employee pursuant to Section 424(d) of
the Code) would own capital stock of the Company and/or hold outstanding options
to purchase such stock possessing five percent (5%) or more of the total
combined voting power or value of all classes of the capital stock of the
Company or of any Subsidiary, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company and its
subsidiaries accrues at a rate which exceeds any limit imposed by the Code for
each calendar year in which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
Offering Periods. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without stockholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
(a) An eligible Employee may become a participant in the
Plan by completing a subscription agreement authorizing payroll deductions in
the form of Exhibit A to this Plan and filing it with the Company's payroll
office prior to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence
on the first payroll following the Enrollment Date and shall end on the last
payroll in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
(a) At the time a participant files his or her
subscription agreement, he or she shall elect to have payroll deductions made on
each pay day during the Offering Period in an amount not
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exceeding fifteen percent (15%) of the Compensation which he or she receives on
each pay day during the Offering Period, up to a maximum of seven thousand five
hundred dollars ($7,500) during such Offering Period. Without limiting the
generality of Section 20 hereof, the Company may, with respect to any
prospective Offering Period, amend the maximum percent of Compensation which
participants may elect to have deducted pursuant to the Plan or the maximum
aggregate amount which may be withheld in any Offering Period (subject to any
limit imposed by the Code).
(b) All payroll deductions made for a participant shall
be credited to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her
participation in the Plan as provided in Section 10 hereof, or may increase or
decrease the rate of his or her payroll deductions during the Offering Period by
completing or filing with the Company a new subscription agreement authorizing a
change in payroll deduction rate. The Board may, in its discretion, limit the
number of participation rate changes during any Offering Period. The change in
rate shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent
necessary to comply with Section 423(b)(8) of the Code and Section 3(b) hereof,
a participant's payroll deductions may be decreased to zero percent (0%) at any
time during an Offering Period. Payroll deductions shall recommence at the rate
provided in such participant's subscription agreement at the beginning of the
first Offering Period which is scheduled to end in the following calendar year,
unless terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in
part, or at the time some or all of the Company's Common Stock issued under the
Plan is disposed of, the participant must make adequate provision for the
Company's federal, state, or other tax withholding obligations, if any, which
arise upon the exercise of the option or the disposition of the Common Stock. At
any time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering
Period, each eligible Employee participating in such Offering Period shall be
granted an option to purchase on the Exercise Date of such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that such purchase
shall be subject to the limitations set forth in Sections 3(b) and 12 hereof.
Exercise of the option shall occur as provided in Section 8 hereof, unless the
participant has withdrawn pursuant to Section 10 hereof. The Option shall expire
on the last day of the Offering Period.
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<PAGE> 5
8. Exercise of Option. Unless a participant withdraws from the
Plan as provided in Section 10 hereof, his or her option for the purchase of
shares shall be exercised automatically on the Exercise Date, and the maximum
number of full shares subject to option shall be purchased for such participant
at the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Offering Period, subject to earlier withdrawal by the participant as provided in
Section 10 hereof. Any other monies left over in a participant's account after
the Exercise Date shall be returned to the participant. During a participant's
lifetime, a participant's option to purchase shares hereunder is exercisable
only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date
on which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
(a) A participant may withdraw all but not less than all
the payroll deductions credited to his or her account and not yet used to
exercise his or her option under the Plan at any time by giving written notice
to the Company in the form of Exhibit B to this Plan. All of the participant's
payroll deductions credited to his or her account shall be paid to such
participant promptly after receipt of notice of withdrawal and such
participant's option for the Offering Period shall be automatically terminated,
and no further payroll deductions for the purchase of shares shall be made for
such Offering Period. If a participant withdraws from an Offering Period,
payroll deductions shall not resume at the beginning of the succeeding Offering
Period unless the participant delivers to the Company a new subscription
agreement.
(b) A participant's withdrawal from an Offering Period
shall not have any effect upon his or her eligibility to participate in any
similar plan which may hereafter be adopted by the Company or in succeeding
Offering Periods which commence after the termination of the Offering Period
from which the participant withdraws.
11. Termination of Employment. Upon a participant's ceasing to be
an Employee for any reason, he or she shall be deemed to have elected to
withdraw from the Plan and the payroll deductions credited to such participant's
account during the Offering Period but not yet used to exercise the option shall
be returned to such participant or, in the case of his or her death, to the
person or persons entitled thereto under Section 15 hereof, and such
participant's option shall be automatically terminated. The preceding sentence
notwithstanding, a participant who receives payment in lieu of notice of
termination of employment shall be treated as continuing to be an Employee for
the participant's customary number of hours per week of employment during the
period in which the participant is subject to such payment in lieu of notice.
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<PAGE> 6
12. Interest. No interest shall accrue on the payroll deductions
of a participant in the Plan.
13. Stock.
(a) The maximum number of shares of the Company's Common
Stock which shall be made available for sale under the Plan shall be Two-Hundred
Thousand (200,000) shares (after giving effect to a one-for-four reverse split
of the Common Stock approved by the Board on December 5, 1996), subject to
adjustment upon changes in capitalization of the Company as provided in Section
19 hereof. If, on a given Exercise Date, the number of shares with respect to
which options are to be exercised exceeds the number of shares then available
under the Plan, the Company shall make a pro rata allocation of the shares
remaining available for purchase in as uniform a manner as shall be practicable
and as it shall determine to be equitable.
(b) The participant shall have no interest or voting
right in shares covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the
Plan shall be registered in the name of the participant or in the name of the
participant and his or her spouse.
14. Administration. The Plan shall be administered by the Board or
a committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
(a) A participant may file a written designation of a
beneficiary who is to receive any shares and cash, if any, from the
participant's account under the Plan in the event of such participant's death
subsequent to an Exercise Date on which the option is exercised but prior to
delivery to such participant of such shares and cash. In addition, a participant
may file a written designation of a beneficiary who is to receive any cash from
the participant's account under the Plan in the event of such participant's
death prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required for
such designation to be effective.
(b) Such designation of beneficiary may be changed by the
participant at any time by written notice. In the event of the death of a
participant and in the absence of a beneficiary validly designated under the
Plan who is living at the time of such participant's death, the Company shall
deliver such shares and/or cash to the executor or administrator of the estate
of the participant, or if no such executor or administrator has been appointed
(to the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
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<PAGE> 7
relatives of the participant, or if no spouse, dependent or relative is known to
the Company, then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the
Company under the Plan may be used by the Company for any corporate purpose, and
the Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each
participant in the Plan. Statements of account shall be given to participating
Employees at least annually, which statements shall set forth the amounts of
payroll deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution,
Liquidation, Merger or Asset Sale.
(a) Changes in Capitalization. Subject to any required
action by the stockholders of the Company, the Reserves, the maximum number of
shares each participant may purchase per Offering Period (pursuant to Section
7), as well as the price per share and the number of shares of Common Stock
covered by each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split, stock
dividend, combination or reclassification of the Common Stock, or any other
increase or decrease in the number of shares of Common Stock effected without
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the
proposed dissolution or liquidation of the Company, the Offering Period shall
terminate immediately prior to the consummation of such proposed action, unless
otherwise provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale
of all or substantially all of the assets of the Company, or the merger of the
Company with or into another corporation, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date").
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<PAGE> 8
The New Exercise Date shall be before the date of the Company's proposed sale or
merger. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise Date, that the Exercise Date for the
participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
20. Amendment or Termination.
(a) The Board of Directors of the Company may at any time
and for any reason terminate or amend the Plan. Except as provided in Section 19
hereof, no such termination can affect options previously granted, provided that
an Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its stockholders. Except as provided in Section 19
hereof, no amendment may make any change in any option theretofore granted which
adversely affects the rights of any participant. To the extent necessary to
comply with Section 423 of the Code (or any other applicable law, regulation or
stock exchange rule), the Company shall obtain shareholder approval in such a
manner and to such a degree as required.
(b) Without stockholder consent and without regard to
whether any participant rights may be considered to have been "adversely
affected," the Board (or its committee) shall be entitled to change the Offering
Periods, limit the frequency and/or number of changes in the amount withheld
during an Offering Period, establish the exchange ratio applicable to amounts
withheld in a currency other than U.S. dollars, permit payroll withholding in
excess of the amount designated by a participant in order to adjust for delays
or mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or accounting
and crediting procedures to ensure that amounts applied toward the purchase of
Common Stock for each participant properly correspond with amounts withheld from
the participant's Compensation, and establish such other limitations or
procedures as the Board (or its committee) determines in its sole discretion
advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant
to the Company under or in connection with the Plan shall be deemed to have been
duly given when received in the form specified by the Company at the location,
or by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued
with respect to an option unless the exercise of such option and the issuance
and delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
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As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier
to occur of its adoption by the Board of Directors or its approval by the
stockholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
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<PAGE> 1
EXHIBIT 10.4
LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
CONGRESS FINANCIAL CORPORATION (WESTERN)
AS LENDER
AND
STORAGE DIMENSIONS, INC.
AS BORROWER
DATED: MAY 16, 1996
<PAGE> 2
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated May 16, 1996 is entered
into by and between Congress Financial Corporation (Western), a California
corporation ("Lender") and Storage Dimensions, Inc., a Delaware corporation
("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural. All
references to Borrower and Lender pursuant to the definitions set forth in the
recitals hereto, or to any other person herein, shall include their respective
successors and assigns. The words "hereof", "herein", "hereunder", "this
Agreement" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not any particular provision of this Agreement
and as this Agreement now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced. An Event of Default shall
exist or continue or be continuing until such Event of Default is waived in
accordance with Section 11.3 or cured with the consent of Lender. Any accounting
term used herein unless otherwise defined in this Agreement shall have the
meanings customarily given to such term in accordance with GAAP. For purposes of
this Agreement, the following terms shall have the respective meanings given to
them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of
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<PAGE> 3
Revolving Loans, Letter of Credit Accommodations and advances under the Capital
Expenditure Facility which would otherwise be available to Borrower under the
lending formula(s) provided for herein: (a) to reflect events, conditions,
contingencies or risks which, as reasonably determined by Lender in good faith,
do or is reasonably likely to adversely affect either (i) a material portion of
the Collateral or any other property which is security for the Obligations or
its value, (ii) a material portion of the assets of Borrower or any Obligor or
(iii) the security interests and other rights of Lender in the Collateral
(including the enforceability, perfection and priority thereof) or (b) to
reflect Lender's good faith belief that any collateral report or financial
information furnished by or on behalf of Borrower or any Obligor to Lender is or
may have been incomplete, inaccurate or misleading in any material respect or
(c) in respect of any state of facts which Lender determines in good faith
constitutes an Event of Default or is reasonably likely to, with notice or
passage of time or both, constitute an Event of Default.
1.3 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.4 "Capital Expenditure Facility" shall have the meaning set forth in
Section 2.4 hereof.
1.5 "Capital Expenditure Loan Note" has the meaning set forth in
Section 2.4.
1.6 "Change of Control" shall be deemed to have occurred at such times
as a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities and Exchange Act of 1934, as amended), with the exception of
Capital Partners Holdings, becomes the "beneficial owner" (as defined in Rule
13d-3 under the Securities and Exchange Act of 1934, as amended), directly or
indirectly, of more than fifty-one percent (51%) of the total voting power of
all classes of stock then outstanding of Borrower normally entitled to vote in
elections of directors.
1.7 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.8 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.9 "Desktop Review" shall mean an appraisal of either Inventory or
Equipment, without the physical inspection thereof, based upon listings of the
Inventory or Equipment provided to the appraisal firm, and certified as accurate
and complete, by the Borrower.
1.10 "Dilution" shall mean, as of the date of determination, the ratio
of (i) the aggregate amount of reductions in Accounts other than as a result of
payments in cash to (ii) the aggregate amount of total sales, determined by
Lender on a four (4) month rolling basis.
1.11 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
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<PAGE> 4
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto;
(b) such Accounts are not unpaid more than ninety (90) days
after the date of the original invoice for them;
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent, with the
exception of Accounts in compliance with Borrower's policies and procedures with
respect to returns, restocking and price protection as set forth in that certain
letter and exhibit thereto from Borrower to Lender dated May 10, 1996 (the
"Policy Letter"), which Accounts shall be considered Eligible Accounts;
(e) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America or Canada,
or, at Lender's option, if either: (i) the account debtor has delivered to
Borrower an irrevocable letter of credit issued or confirmed by a bank
satisfactory to Lender, sufficient to cover such Account, in form and substance
satisfactory to Lender and, if required by Lender, the original of such letter
of credit has been delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of credit to Lender,
or (ii) such Account is subject to credit insurance payable to Lender issued by
an insurer and on terms and in an amount acceptable to Lender, or (iii) such
Account is otherwise acceptable in all respects to Lender (subject to such
lending formula with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill
and hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute, but in each such case, the
reduction in borrowing availability shall be only to the extent of the amount of
the counterclaim, defense or dispute asserted, and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts;
(h) there are no facts, events or occurrences which would
impair the validity, enforceability or collectability of such Accounts or reduce
the amount payable or delay payment thereunder;
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<PAGE> 5
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
(j) neither the account debtor nor any officer or employee of
the account debtor with respect to such Accounts is an officer, employee or
agent of or affiliated with Borrower directly or indirectly by virtue of family
membership, ownership, control, management or otherwise;
(k) the account debtors with respect to such Accounts are not
any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened
or pending against the account debtors with respect to such Accounts which are
reasonably expected to result in any material adverse change in the financial
ability of such account debtor to fully pay all Accounts of such account debtor
as and when due and payable;
(m) such Accounts of a single account debtor or its affiliates
do not constitute more than twenty percent (20%) of all otherwise Eligible
Accounts, with the exception of Tech Data Corporation and CNA Insurance
Companies for which the applicable concentration percentage shall be twenty-five
percent (25%), and with the further exception of future adjustments to the
concentration percentages and the addition of account debtors with specific
concentration percentages, as consented to in writing by Lender at the request
of Borrower, from time to time, which consent shall not be unreasonably withheld
(but the portion of the Accounts not in excess of such percentage shall be
deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than ninety (90) days after the date of the original
invoice for them which constitute more than fifty percent (50%) of the total
Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Lender from time to time in the exercise of its
reasonable credit judgment (but the portion of the Accounts not in excess of
such credit limit may still be deemed Eligible Accounts); and
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Lender, as determined by Lender in the exercise of
its reasonable credit judgment.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
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<PAGE> 6
1.12 "Eligible Inventory" shall mean Inventory components consisting of
hard disks, tape drives or optical drives, and Eligible Used Inventory which are
acceptable to Lender based on the criteria set forth below. In general, Eligible
Inventory shall not include (a) work-in-process other than hard disks, tape
drives or optical disks; (b) components which are not part of finished goods
other than hard disks, tape drives or optical disks; (c) spare parts for
equipment other than hard disks, tape drives or optical disks; (d) packaging and
shipping materials; (e) supplies used or consumed in Borrower's business; (f)
Inventory at premises other than Borrower's facilities at 1656 McCarthy
Boulevard, Milpitas, California 95035, except if Lender shall have received an
agreement in writing from the person in possession of such Inventory and/or the
owner or operator of such premises in form and substance satisfactory to Lender
acknowledging Lender's first priority security interest in the Inventory,
waiving security interests and claims by such person against the Inventory and
permitting Lender access to, and the right to remain on, the premises so as to
exercise Lender's rights and remedies and otherwise deal with the Collateral;
(g) Inventory subject to a security interest or lien in favor of any person
other than Lender except those permitted in this Agreement; (h) bill and hold
goods; (i) unserviceable, obsolete or slow moving Inventory; (j) Inventory which
is not subject to the first priority, valid and perfected security interest of
Lender; (k) returned (except for Eligible Used Inventory), damaged and/or
defective Inventory; and (l) Inventory purchased or sold on consignment. General
criteria for Eligible Inventory may be established and revised from time to time
by Lender in good faith. Any Inventory which is not Eligible Inventory shall
nevertheless be part of the Collateral.
1.13 "Eligible Used Inventory" shall mean Inventory components
consisting of hard disks, tape drives or optical drives refurbished to first
quality or designated with the product code "U" in Inventory reports provided by
Borrower to Lender.
1.14 "Environmental Laws" shall mean all federal, state, district,
local and foreign laws, rules, regulations, ordinances, and consent decrees
relating to health, safety, hazardous substances, pollution and environmental
matters, as now or at any time hereafter in effect, applicable to Borrower's
business and facilities (whether or not owned by it), including laws relating to
emissions, discharges, releases or threatened releases of pollutants,
contamination, chemicals, or hazardous, toxic or dangerous substances, materials
or wastes into the environment (including, without limitation, ambient air,
surface water, ground water, land surface or subsurface strata) or otherwise
relating to the generation, manufacture, processing, distribution, use,
treatment, storage, disposal, transport or handling of pollutants, contaminants,
chemicals, or hazardous, toxic or dangerous substances, materials or wastes.
1.15 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.16 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
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<PAGE> 7
1.17 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
1.18 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.19 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts
and the Value of Eligible Inventory, as determined by Lender and subject to the
sublimits and Availability Reserves from time to time established by Lender
hereunder, and (ii) the Maximum Credit (less the sum of (x) the then outstanding
principal amount of the Term Loan, (y) the then outstanding principal amount of
any Capital Expenditure Loan Notes, and (z) the then outstanding balance of
Letter of Credit Accommodations), minus the sum of: (i) the amount of all then
outstanding and unpaid Obligations (but not including for this purpose the then
outstanding principal amount of the Term Loan, the outstanding principal amount
of any Capital Expenditure Loan Notes and the outstanding balance of Letter of
Credit Accommodations), plus (ii) the aggregate amount of all then outstanding
and unpaid trade payables of Borrower which are more than sixty (60) days past
due as of such time.
1.20 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.21 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Boards which are applicable to the
circumstances as of the date of determination consistently applied, except that,
for purposes of Sections 9.13 and 9.14 hereof, GAAP shall be determined on the
basis of such principles in effect on the date hereof and consistent with those
used in the preparation of the audited financial statements delivered to Lender
prior to the date hereof.
1.22 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including, without limitation, hydrocarbons
(including naturally occurring or man-made petroleum and hydrocarbons),
flammable explosives, asbestos, urea formaldehyde insulation, radioactive
materials, biological substances, polychlorinated biphenyls, pesticides,
herbicides and any other kind and/or type of pollutants or contaminants
(including, without limitation, materials which include hazardous constituents),
sewage, sludge, industrial slag, solvents and/or any other similar substances,
materials, or wastes and including any other substances, materials or wastes
that are or become regulated under any Environmental Law (including, without
limitation any that are or become classified as hazardous or toxic under any
Environmental Law).
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1.23 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
1.24 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.25 "Inventory Advance Rate" shall have the meaning set forth in
Section 2.1(a)(ii) hereof.
1.26 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of Borrower or any Obligor
or (b) with respect to which Lender has agreed to indemnify the issuer or
guaranteed to the issuer the performance by Borrower of its obligations to such
issuer.
1.27 "Loans" shall mean the Revolving Loans, the Term Loan and any
advances under the Equipment Acquisition Facility.
1.28 "Maximum Credit" shall mean the amount of Eleven Million Dollars
($11,000,000).
1.29 "Maxtor" shall mean Maxtor Corporation, a Delaware corporation.
1.30 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, [available] or claimed with
respect thereto [will revise to reflect price protection policy].
1.31 "Obligations" shall mean any and all Revolving Loans, the Term
Loan, Letter of Credit Accommodations, advances under the Capital Expenditure
Facility, and all other obligations, liabilities and indebtedness of every kind,
nature and description owing by Borrower to Lender and/or its affiliates,
including principal, interest, charges, fees, costs and expenses, however
evidenced, whether as principal, surety, endorser, guarantor or otherwise,
arising under this Agreement or under any other Financing Agreement, whether now
existing or hereafter arising, whether arising before, during or after the
initial or any renewal term of this Agreement or after the commencement of any
case with respect to Borrower under the United States Bankruptcy Code or any
similar statute (including, without limitation, the payment of interest and
other amounts which would accrue and become due but for the commencement of such
case), whether direct or indirect, absolute or contingent, joint or several, due
or not due, primary or secondary, liquidated or unliquidated, secured or
unsecured, and however acquired by Lender.
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1.32 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.33 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.34 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including, without limitation, any
corporation which elects subchapter S status under the Internal Revenue Code of
1986, as amended), business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.35 "Policy Letter" shall have the meaning set forth in Section
1.11(d) hereof.
1.36 "Prime Rate" shall mean the rate from time to time publicly
announced by CoreStates Bank, N.A., or its successors, at its office in
Philadelphia, Pennsylvania, as its prime rate, whether or not such announced
rate is the best rate available at such bank, which rate shall be within the
range of the prime or base rates announced from time to time by United States
money center banks.
1.37 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
1.38 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.39 "Subordination Agreement" shall mean that certain Subordination
Agreement, dated as of May , 1996, executed by Maxtor and Borrower in favor of
Lender.
1.40 "Term Loan" shall mean the term loan made by Lender to Borrower as
provided for in Section 2.3 hereof.
1.41 "Term Note" shall have the meaning set forth in Section 2.3
hereof.
1.42 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) actual cost computed in accordance with
GAAP or (b) market value.
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SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to, and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty percent (80%) of the Net Amount of
Eligible Accounts; provided, however, that the foregoing
initial advance rate of eighty percent (80%) shall be
subsequently increased to eighty-five percent (85%) at such
time as Dilution has been reduced to five percent (5%) or less
provided that no Event of Default shall have occurred and be
continuing at such time; and provided, further, however, that
the adjusted advance rate of eighty-five percent (85%) shall
revert to the initial advance rate of eighty percent (80%) at
such time as Dilution is greater than five percent (5%), and
the advance rate shall thereafter further adjust between
eighty percent (80%) and eighty-five percent (85%) from time
to time in similar manner depending upon whether Dilution is
greater, or equal to or less than, five percent (5%); plus
(ii) the lesser of: (A) eighty percent (80%) of
the orderly liquidation value of Eligible Inventory
(determined no less frequently than quarterly on the basis of
a Desktop Review, or more frequently as determined by Lender
in its reasonable credit judgment, by an appraisal firm
reasonably acceptable to Lender) to the extent that such
amount does not exceed sixty percent (60%) of the Value of
such Inventory (the percentage of the Value of Inventory equal
to eighty percent (80%) of the appraised orderly liquidation
value thereof is hereinafter referred to as the "Inventory
Advance Rate") (with the further understanding that no more
than Two Hundred Thousand Dollars ($200,000) will be advanced
by Lender against Eligible Used Inventory), or (B) the amount
equal to: (1) Two Million Dollars ($2,000,000) minus (2) the
product of the then undrawn amounts of the outstanding Letter
of Credit Accommodations for the purpose of purchasing goods
multiplied by the Inventory Advance Rate, less
(iii) any Availability Reserves.
(b) Lender may, in the exercise of its reasonable credit judgment, from
time to time, upon not less than ten (10) days prior notice to Borrower, (i)
reduce the lending formula with respect to Eligible Accounts to the extent that
Lender determines in good faith that: (A) the dilution with respect to the
Accounts for any period (based on the ratio of (1) the aggregate amount of
reductions in Accounts other than as a result of payments in cash to (2) the
aggregate amount of total sales) has increased in any material respect or may be
reasonably anticipated to increase in any material respect above historical
levels, or (B) the general creditworthiness of
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account debtors has declined or (ii) reduce the lending formula(s) with respect
to Eligible Inventory to the extent that Lender determines that: (A) the number
of days of the turnover or the mix of the Inventory for any period has changed
in any material respect or (B) the liquidation value of the Eligible Inventory
or Eligible Used Inventory, or any category thereof, has decreased in a material
amount, (C) the nature and quality of the Inventory has deteriorated to a
material extent or (D) the Value of Inventory has declined in a material amount
based upon the results of appraisals. In determining whether to reduce the
lending formula(s), Lender may consider events, conditions, contingencies or
risks which are also considered in determining Eligible Accounts, Eligible
Inventory, Eligible Used Inventory or in establishing Availability Reserves.
(c) Except in Lender's discretion, the aggregate amount of the
Loans and the Letter of Credit Accommodations outstanding at any time shall not
exceed the Maximum Credit. In the event that the outstanding amount of any
component of the Loans, or the aggregate amount of the outstanding Loans and
Letter of Credit Accommodations, exceed the amounts available under the lending
formulas, the sublimits for Letter of Credit Accommodations set forth in Section
2.2(c) or the Maximum Credit, as applicable, such event shall not limit, waive
or otherwise affect any rights of Lender in that circumstance or on any future
occasions and Borrower shall, upon demand by Lender, which may be made at any
time or from time to time, immediately repay to Lender the entire amount of any
such excess(es) for which payment is demanded.
2.2 Letter of Credit Accommodations.
(a) Subject to, and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by
any bank or issuer in connection with the Letter of Credit Accommodations,
Borrower shall pay to Lender a letter of credit fee at a rate equal to one and
one-half percent (1.5%) per annum on the daily outstanding balance of the Letter
of Credit Accommodations for the immediately preceding month (or part thereof),
payable in arrears as of the first day of each succeeding month. Such letter of
credit fee shall be calculated on the basis of a three hundred sixty (360) day
year and actual days elapsed and the obligation of Borrower to pay such fee
shall survive the termination or non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to the
Maximum Credit and any Availability Reserves) are equal to or greater than: (i)
if the proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory, the sum of (A) the product of the Value of such Eligible
Inventory multiplied by one minus the Inventory Advance Rate, plus (B) freight,
taxes, duty and other amounts which Lender estimates must be paid in connection
with such Inventory upon arrival and for delivery to
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one of Borrower's locations for Eligible Inventory within the United States of
America and (ii) if the proposed Letter of Credit Accommodation is for any other
purpose, an amount equal to one hundred (100%) percent of the face amount
thereof and all other commitments and obligations made or incurred by Lender
with respect thereto. Effective on the issuance of each Letter of Credit
Accommodation, the amount of Revolving Loans which might otherwise be available
to Borrower shall be reduced by the applicable amount set forth in Section
2.2(c)(i) or Section 2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in connection therewith, shall not at any
time exceed One Million Dollars ($1,000,000). At any time an Event of Default
exists or has occurred and is continuing, upon Lender's request, Borrower will
either furnish cash collateral to secure the reimbursement obligations to the
issuer in connection with any Letter of Credit Accommodations or furnish cash
collateral to Lender for the Letter of Credit Accommodations, and in either
case, the Revolving Loans otherwise available to Borrower shall not be reduced
as provided in Section 2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur, except as a result of Lender's gross
negligence or wilful misconduct, in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including, but not limited to, any losses, claims, damages, liabilities, costs
and expenses due to any action taken by any issuer or correspondent with respect
to any Letter of Credit Accommodation. Borrower assumes all risks with respect
to the acts or omissions of the drawer under or beneficiary of any Letter of
Credit Accommodation and for such purposes the drawer or beneficiary shall be
deemed Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise, but not if caused by the
gross negligence or wilful misconduct of Lender, with respect to or relating to
any Letter of Credit Accommodation. The provisions of this Section 2.2(e) shall
survive the payment of Obligations and the termination or non-renewal of this
Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any documents, drafts or acceptances thereunder,
notwithstanding that such interpretation may be inconsistent with any
instructions of Borrower. With respect to any Letter of Credit Accommodation or
any documents, drafts or acceptance thereunder, Lender shall have the sole and
exclusive right and authority to, and Borrower shall not: (i) at any time an
Event of Default
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exists or has occurred and is continuing, (A) approve or resolve any questions
of non-compliance of documents, (B) give any instructions as to acceptance or
rejection of any documents or goods or (C) execute any and all applications for
steamship or airway guaranties, indemnities or delivery orders, and (ii) at all
times, (A) grant any extensions of the maturity of, time of payment for, or time
of presentation of, any drafts, acceptances, or documents, and (B) agree to any
amendments, renewals, extensions, modifications, changes or cancellations of any
of the terms or conditions of any of the applications, Letter of Credit
Accommodations, or documents, drafts or acceptances thereunder or any letters of
credit included in the Collateral. Lender may take such actions either in its
own name or in Borrower's name.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Term Loan. Lender is making a Term Loan to Borrower in the original
principal amount of Four Hundred Thousand Dollars ($400,000). The Term Loan is
(a) evidenced by a term promissory note in such original principal amount duly
executed and delivered by Borrower to Lender concurrently herewith in the form
of Exhibit 2.3 attached hereto and incorporated herein by this reference (the
"Term Note"); (b) to be repaid, together with interest and other amounts, in
accordance with this Agreement, the Term Note, and the other Financing
Agreements and (c) secured by all of the Collateral.
2.4 Capital Expenditure Facility. In addition to amounts advanced under
Section 2.1 above, and subject to the terms and conditions of this Agreement,
including, without limitation, the procedures and advance limitations
hereinafter set forth in this Section 2.4, and so long as no Event of Default
has occurred and is continuing, Lender agrees to extend non-revolving loans to
Borrower in an aggregate amount not to exceed One Million Dollars ($1,000,000)
to facilitate Borrower's acquisition of new Equipment for uses directly related
to Borrower's manufacturing and assembly operations as in effect as of the date
of this Agreement (the "Capital Expenditure Facility"). Each advance under this
Section 2.4 shall be in an amount of no less than Two Hundred Thousand Dollars
($200,000) and shall be evidenced by and repayable in accordance with individual
Secured Capital Expenditure Facility Promissory Notes, dated the date of each
such advance, executed by Borrower to the order of Lender in the form of Exhibit
2.4 attached hereto and incorporated herein by this reference (each, an "Capital
Expenditure Loan Note"). The Capital Expenditure Loan Notes shall provide for a
thirty-six (36) month amortization of equal monthly payments of principal with
all amounts due and payable at the end of the initial term hereof, unless this
Agreement is sooner terminated pursuant to the terms hereof. Obligations owing
under the Capital Expenditure Loan Notes shall constitute Obligations, and shall
be secured by all of the Collateral, and each Capital Expenditure Loan Note,
together with each amendment, extension, supplement, or replacement thereto,
shall each be deemed a Financing Agreement.
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Lender will make advances to Borrower under this Section 2.4
upon Borrower presenting to Lender, in form and substance reasonably
satisfactory to Lender, invoices for the specific items of Equipment to be
acquired and financed hereunder. Upon review and approval by Lender, Lender will
advance to Borrower up to eighty percent (80%) of the appraised orderly
liquidation value of the Equipment to be acquired, determined on the basis of a
Desktop Review by an appraisal firm reasonably acceptable to Lender, net of any
ancillary costs or expenses associated with the acquisition of such Equipment,
including, but not limited to, freight and other transportation charges,
installation and delivery charges, brokerage commissions and similar costs and
expenses.
Lender may, at any time and from time to time and in its
discretion for any purpose, consolidate one or more of the Capital Expenditure
Loan Notes issued under this Section 2.4 into a single note. All terms and
conditions of any such Notes so consolidated shall remain the same as
immediately prior to consolidation.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the rate of one (1)
percentage point per annum in excess of the Prime Rate, except that Borrower
shall pay to Lender interest, at Lender's option, without notice, at the rate of
three (3) percentage point per annum in excess of the Prime Rate: (i) on the
non-contingent Obligations for the period from and after the date of termination
or non-renewal hereof, or the date of the occurrence of an Event of Default, and
for so long as such Event of Default is continuing as determined by Lender and
until such time as Lender has received full and final payment of all such
Obligations (notwithstanding entry of any judgment against Borrower) and (ii) on
the Revolving Loans and advances under the Capital Expenditure Facility at any
time outstanding in excess of the amounts available to Borrower under Section 2
(whether or not such excess(es), arise or are made with or without Lender's
knowledge or consent and whether made before or after an Event of Default);
provided, however, that in the event Borrower's availability under Section 2 was
reduced as a direct result of Lender's application of additional Availability
Reserves, and such resulting reduction in availability caused the amounts
outstanding under the Revolving Loans and advances under the Capital Expenditure
Facility to exceed availability, the Event of Default interest rate applicable
under clause (ii) above shall not take effect until five (5) days after receipt
by Borrower of notice from Lender of the initiation of such additional
Availability Reserve. All interest accruing hereunder on and after the
occurrence of any of the events referred to in Sections 3.1(a)(i) or 3.1(a)(ii)
above shall be payable on demand.
(b) In the event Borrower's net income before tax equals or
exceeds Seven Hundred Thousand Dollars ($700,000) for Borrower's fiscal year
ended December 31, 1996 (as supported by the Borrower's audited annual financial
statements provided by Borrower to Lender pursuant to Section 9.6 hereof), the
non-Event of Default interest rate applicable to the Loans shall be reduced to
three-quarters (0.75%) of a percentage point in excess of the Prime Rate, such
reduction in the Interest Rate to be effective as of January 1, 1997, and any
interest paid by
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Borrower to Lender in excess of the interest payable as a result of the
aforedescribed reduction in the Interest Rate shall be applied by Lender to
reduce subsequent interest payable by Borrower.
(c) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate shall increase or decrease by an amount equal to each
increase or decrease in the Prime Rate effective on the first day of the month
after any change in such Prime Rate is announced based on the Prime Rate in
effect on the last day of the month in which any such change occurs. In no event
shall charges constituting interest payable by Borrower to Lender exceed the
maximum amount or the rate permitted under any applicable law or regulation, and
if any part or provision of this Agreement is in contravention of any such law
or regulation, such part or provision shall be deemed amended to conform
thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of Eighty-Two Thousand Five Hundred Dollars ($82,500), which shall be
fully earned as of and payable on the date hereof.
3.3 Servicing Fee. Borrower shall pay to Lender quarterly a servicing
fee in an amount equal to Seven Thousand Five Hundred Dollars ($7,500) in
respect of Lender's services for each quarter (or part thereof) while this
Agreement remains in effect and for so long thereafter as any of the Obligations
are outstanding, which fee shall be fully earned as of and payable in advance on
the date hereof and on the first day of each quarter hereafter.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans or providing the initial Letter of Credit Accommodations
hereunder:
(a) Lender shall have received, in form and substance
satisfactory to Lender, all releases, terminations and such other documents as
Lender may request to evidence and effectuate the termination by any supplier or
any existing lender or lenders to Borrower of their respective financing
arrangements with Borrower and the termination and release by it or them, as the
case may be, of any interest in and to any assets and properties of Borrower and
each Obligor, duly authorized, executed and delivered by it or each of them,
including, but not limited to, UCC termination statements for all UCC financing
statements previously filed by it or any of them or their predecessors, as
secured party, and Borrower or any Obligor, as debtor;
(b) Lender shall have received evidence, in form and substance
satisfactory to Lender, that Lender has valid perfected and first priority
security interests in and liens upon the Collateral and any other property which
is intended to be security for the Obligations or the liability of any Obligor
in respect thereof, subject only to the security interests and liens permitted
herein or in the other Financing Agreements;
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(c) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received all
information and copies of all documents, including, without limitation, records
of requisite corporate action and proceedings which Lender may have requested in
connection therewith, such documents where requested by Lender or its counsel to
be certified by appropriate corporate officers or governmental authorities;
(d) no material adverse change shall have occurred in the
assets, business or prospects of Borrower since the date of Lender's latest
field examination and no change or event shall have occurred which is reasonably
expected to impair the ability of Borrower or any Obligor to perform its
obligations hereunder or under any of the other Financing Agreements to which it
is a party or of Lender to enforce the Obligations or realize upon the
Collateral;
(e) Lender shall have completed a field review of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Revolving Loans available to Borrower, the results of
which shall be satisfactory to Lender, not more than five (5) business days
prior to the date hereof;
(f) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, acknowledgements
by lessors, mortgagees and warehousemen of Lender's security interests in the
Collateral, waivers by such persons of any security interests, liens or other
claims by such persons to the Collateral and agreements permitting Lender access
to, and the right to remain on, the premises to exercise its rights and remedies
and otherwise deal with the Collateral;
(g) Lender shall have received evidence of insurance and loss
payee endorsements required hereunder and under the other Financing Agreements,
in form and substance satisfactory to Lender, and certificates of insurance
policies and/or endorsements naming Lender as loss payee;
(h) the Excess Availability as determined by Lender, as of the
date hereof, shall be not less than One Million Dollars ($1,000,000) after
giving effect to the initial Loans made or to be made and Letter of Credit
Accommodations issued or to be issued in connection with the initial
transactions hereunder;
(i) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with respect
to the Financing Agreements and such other matters as Lender may reasonably
request;
(j) Lender shall have received, in form and substance
satisfactory to Lender, the Subordination Agreement, providing for the
subordination and permitted repayment of indebtedness, duly authorized, executed
and delivered by Maxtor and Borrower in favor of Lender;
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(k) Lender shall have received, in form and substance
satisfactory to Lender, Collateral Assignment of Patents (Security Agreement),
Collateral Assignment of Trademarks (Security Agreement) and Collateral
Assignment of Copyrights (Security Agreement) executed by Borrower in favor of
Lender;
(l) Lender shall have received the Koll-Dove Tech, Inc.
Inventory and Equipment appraisals acceptable in form and substance to Lender in
its sole discretion; and
(m) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto; and
(b) no Event of Default and no event or condition which, with
notice or passage of time or both, would constitute an Event of Default, shall
exist or have occurred and be continuing on and as of the date of the making of
such Loan or providing each such Letter of Credit Accommodation and after giving
effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property, whether now owned or hereafter acquired or
existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including, but not limited to, tax and duty refunds, registered and
unregistered patents, trademarks, service marks, copyrights, trade names,
applications for the foregoing, trade secrets, goodwill, processes, drawings,
blueprints, customer lists, licenses, whether as licensor or licensee, choses in
action and other claims and existing and future leasehold interests in
equipment, real estate and fixtures), chattel paper, documents, instruments,
letters of credit, bankers' acceptances and guaranties;
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5.3 all present and future monies, securities, credit balances,
deposits, deposit accounts and other property of Borrower now or hereafter held
or received by or in transit to Lender or its affiliates or at any other
depository or other institution from or for the account of Borrower, whether for
safekeeping, pledge, custody, transmission, collection or otherwise, and all
present and future liens, security interests, rights, remedies, title and
interest in, to and in respect of Accounts and other Collateral, including,
without limitation, (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including, without limitation, returned,
repossessed and reclaimed goods, and (d) deposits by and property of account
debtors or other persons securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Records; and
5.7 all products and proceeds of the foregoing, in any form, including,
without limitation, insurance proceeds and all claims against third parties for
loss or damage to or destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including, without limitation, fees,
charges, costs, expenses and interest. All entries in the loan account(s) shall
be made in accordance with Lender's customary practices as in effect from time
to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or omissions,
be considered correct and deemed accepted by Borrower and conclusively binding
upon Borrower as an account stated except to the extent that Lender receives a
written notice from Borrower of any specific exceptions of Borrower thereto
within thirty (30) days after the date such statement has been mailed by Lender.
Until such time as Lender shall have rendered to Borrower a written statement as
provided above, the balance in Borrower's loan account(s) shall be presumptive
evidence of the amounts due and owing to Lender by Borrower.
6.3 Collection of Accounts.
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(a) Borrower shall establish and maintain, at its expense,
blocked accounts or lockboxes and related blocked accounts (in either case,
"Blocked Accounts"), as Lender may specify, with such banks as are acceptable to
Lender into which Borrower shall promptly deposit and direct its account debtors
to directly remit all payments on Accounts and all payments constituting
proceeds of Inventory or other Collateral in the identical form in which such
payments are made, whether by cash, check or other manner. The banks at which
the Blocked Accounts are established shall enter into an agreement, in form and
substance reasonably satisfactory to Lender, providing that all items received
or deposited in the Blocked Accounts are the property of Lender, that the
depository bank has no lien upon, or right to setoff against, the Blocked
Accounts, the items received for deposit therein, or the funds from time to time
on deposit therein and that the depository bank will wire, or otherwise
transfer, in immediately available funds, on a daily basis, all funds received
or deposited into the Blocked Accounts to such bank account of Lender as Lender
may from time to time designate for such purpose ("Payment Account"). Borrower
agrees that all payments made to such Blocked Accounts or other funds received
and collected by Lender, whether on the Accounts or as proceeds of Inventory or
other Collateral or otherwise shall be the property of Lender.
(b) For purposes of calculating interest on the Obligations,
such payments or other funds received will be applied (conditional upon final
collection) to the Obligations one (1) business days following the date of
receipt of immediately available funds by Lender in the Payment Account. For
purposes of calculating the amount of the Revolving Loans available to Borrower
such payments will be applied (conditional upon final collection) to the
Obligations on the business day of receipt by Lender in the Payment Account, if
such payments are received within sufficient time (in accordance with Lender's
usual and customary practices as in effect from time to time) to credit
Borrower's loan account on such day, and if not, then on the next business day.
(c) Borrower and all of its affiliates, subsidiaries,
shareholders, directors, employees or agents shall, acting as trustee for
Lender, receive, as the property of Lender, any monies, checks, notes, drafts or
any other payment relating to and/or proceeds of Accounts or other Collateral
which come into their possession or under their control and immediately upon
receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement for a period of
three hundred and sixty-seven (367) days following the date of such termination
or non-renewal.
6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including, without limitation, the monetary proceeds of
collections or of realization upon any Collateral) to such of the Obligations,
whether or not then due, in such order and manner as Lender determines. At
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Lender's option, all principal, interest, fees, costs, expenses and other
charges provided for in this Agreement or the other Financing Agreements may be
charged directly to the loan account(s) of Borrower. Borrower shall make all
payments to Lender on the Obligations free and clear of, and without deduction
or withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. If after receipt of any payment of, or proceeds of
Collateral applied to the payment of, any of the Obligations, Lender is required
to surrender or return such payment or proceeds to any Person for any reason,
then the Obligations intended to be satisfied by such payment or proceeds shall
be reinstated and continue and this Agreement shall continue in full force and
effect as if such payment or proceeds had not been received by Lender. Borrower
shall be liable to pay to Lender, and does hereby indemnify and hold Lender
harmless for the amount of any payments or proceeds surrendered or returned.
This Section 6.4 shall remain effective notwithstanding any contrary action
which may be taken by Lender in reliance upon such payment or proceeds. This
Section 6.4 shall survive the payment of the Obligations and the termination or
non-renewal of this Agreement for a period of three hundred and sixty-seven
(367) days following the date of such termination or non-renewal.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a business day) and the amount of the requested Loan. Requests received after
10:30 a.m., Los Angeles time on any day shall be deemed to have been made as of
the opening of business on the immediately following business day. All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in accordance with the instructions of Borrower or in accordance
with the terms and conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrower to
Lender on or about the date hereof and (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements. All other Loans made or Letter of
Credit Accommodations provided by Lender to Borrower pursuant to the provisions
hereof shall be used by Borrower only for general operating, working capital and
other proper corporate purposes of Borrower not otherwise prohibited by the
terms hereof. None of the proceeds will be used, directly or indirectly, for the
purpose of purchasing or carrying any margin security or for the purposes of
reducing or retiring any indebtedness which was originally incurred to purchase
or carry any margin security or for any other purpose which might cause any of
the Loans to be considered a "purpose credit" within the meaning of Regulation G
of the Board of Governors of the Federal Reserve System, as amended.
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SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting. Borrower shall provide Lender with the
following documents in a form satisfactory to Lender: (a) on a regular basis as
required by Lender in its reasonable credit judgment, a schedule of Accounts;
(b) on a weekly basis or more frequently as Lender may request, in its
reasonable credit judgment, perpetual inventory reports; (c) on a monthly basis
or more frequently as Lender may request in its reasonable credit judgment, (i)
standard cost inventory reports by category with a detailed listing of all
drives and (ii) agings of accounts receivable and accounts payable, (c) upon
Lender's request, (i) copies of customer statements and credit memos, remittance
advices and reports, and copies of deposit slips and bank statements, (ii)
copies of shipping and delivery documents, and (iii) copies of purchase orders,
invoices and delivery documents for Inventory and Equipment acquired by
Borrower; and (d) such other reports as to the Collateral as Lender, in its
reasonable credit judgment, shall request from time to time. If any of
Borrower's records or reports of the Collateral are prepared or maintained by an
accounting service, contractor, shipper or other agent, Borrower hereby
irrevocably authorizes such service, contractor, shipper or agent to deliver
such records, reports, and related documents to Lender and to follow Lender's
instructions with respect to further services at any time that an Event of
Default exists or has occurred and is continuing.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its obligations to any account debtor
or the assertion of any claims, offsets, defenses or counterclaims by any
account debtor, or any disputes with account debtors, or any settlement,
adjustment or compromise thereof, (ii) all material adverse information relating
to the financial condition of any account debtor and (iii) any event or
circumstance which, to Borrower's knowledge would cause Lender to consider any
then existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor without Lender's consent, except in the ordinary
course of Borrower's business in accordance with practices and policies
previously disclosed in writing to Lender. So long as no Event of Default exists
or has occurred and is continuing, Borrower shall settle, adjust or compromise
any claim, offset, counterclaim or dispute with any account debtor. At any time
that an Event of Default exists or has occurred and is continuing, Lender shall,
at its option, have the exclusive right to settle, adjust or compromise any
claim, offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
(b) Borrower shall promptly report to Lender any return of
Inventory by an account debtor having a sales price in excess of One Hundred
Thousand Dollars ($100,000). At any time that Inventory is returned, reclaimed
or repossessed, the related Account shall not be deemed an Eligible Account. In
the event any account debtor returns Inventory when an Event of Default exists
or has occurred and is continuing, Borrower shall, upon Lender's request, (i)
hold the returned Inventory in trust for Lender, (ii) segregate all returned
Inventory from all of its other property, (iii) dispose of the returned
Inventory solely according to Lender's instructions, and (iv) not issue any
credits, discounts or allowances with respect thereto without Lender's prior
written consent.
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(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender, (iv)
there shall be no setoffs, deductions, contras, defenses, counterclaims or
disputes existing or asserted with respect thereto except as reported to Lender
in accordance with the terms of this Agreement, (v) none of the transactions
giving rise thereto will violate any applicable State or Federal laws or
regulations, all documentation relating thereto will be legally sufficient under
such laws and regulations and all such documentation will be legally enforceable
in accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except as Lender may otherwise
agree.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other action Lender may, in the exercise
of its reasonable credit judgment, deem necessary or desirable for the
protection of its interests. At any time that an Event of Default exists or has
occurred and is continuing, at Lender's request, all invoices and statements
sent to any account debtor shall state that the Accounts and such other
obligations have been assigned to Lender and are payable directly and only to
Lender and Borrower shall deliver to Lender such originals of documents
evidencing the sale and delivery of goods or the performance of services giving
rise to any Accounts as Lender may, in the exercise of its reasonable credit
judgment, require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
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physical count of the Inventory at least once each year (which may be conducted
in cycles in a manner reasonably acceptable to Lender), but at any time or times
as Lender may request on or after the occurrence and during the continuance of
an Event of Default; and promptly following such physical inventory shall supply
Lender with a report in the form and with such specificity as may be reasonably
satisfactory to Lender concerning such physical count; (c) Borrower shall not
remove any Inventory from the locations set forth or permitted herein, without
the prior written consent of Lender, except for sales of Inventory in the
ordinary course of Borrower's business and except to move Inventory directly
from one location set forth or permitted herein to another such location; (d)
upon Lender's request, Borrower shall, at its expense, no less frequently than
quarterly, but at any time or times as Lender may, in the exercise of its
reasonable credit judgment, request on or after the occurrence and during the
continuance of an Event of Default, deliver or cause to be delivered to Lender
written reports or appraisals as to the Inventory in form, scope and methodology
acceptable to Lender and by an appraiser acceptable to Lender, addressed to
Lender or upon which Lender is expressly permitted to rely; (e) Borrower shall
produce, use, store and maintain the Inventory, with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with applicable laws (including, but not limited to, the requirements
of the Federal Fair Labor Standards Act of 1938, as amended and all rules,
regulations and orders related thereto); (f) Borrower assumes all responsibility
and liability arising from or relating to the production, use, sale or other
disposition of the Inventory; (g) Borrower shall not sell Inventory to any
customer on approval, or any other basis which entitles the customer to return
or may obligate Borrower to repurchase such Inventory except for such sales in
conformity with the Policy Letter; (h) Borrower shall keep the Inventory in good
and marketable condition; and (i) Borrower shall not, without prior written
notice to Lender, acquire or accept any Inventory on consignment or approval.
7.4 Equipment Covenants. With respect to the Equipment: (a) at least
quarterly or more frequently as determined in Lender's reasonable credit
judgment, Borrower shall, at its expense, deliver or cause to be delivered to
Lender Desktop Review appraisals of the orderly liquidation value of the
Equipment in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender; (b) Borrower shall keep the Equipment in good
order, repair, running and marketable condition (ordinary wear and tear
excepted); (c) Borrower shall use the Equipment with all reasonable care and
caution and in accordance with applicable standards of any insurance and in
conformity with all applicable laws; (d) the Equipment is and shall be used in
Borrower's business and not for personal, family, household or farming use; (e)
Borrower shall not remove any Equipment from the locations set forth or
permitted herein, except to the extent necessary to have any Equipment repaired
or maintained in the ordinary course of the business of Borrower or to move
Equipment directly from one location set forth or permitted herein to another
such location and except for the movement of motor vehicles used by or for the
benefit of Borrower in the ordinary course of business; (f) the Equipment is now
and shall remain personal property and Borrower shall not permit any of the
Equipment to be or become a part of or affixed to real property; and (g)
Borrower assumes all responsibility and liability arising from the use of the
Equipment.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or
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event which with notice or passage of time or both would constitute an Event of
Default exists or has occurred and is continuing (i) demand payment on Accounts
or other proceeds of Inventory or other Collateral, (ii) enforce payment of
Accounts by legal proceedings or otherwise, (iii) exercise all of Borrower's
rights and remedies to collect any Account or other Collateral, (iv) sell or
assign any Account upon such terms, for such amount and at such time or times as
the Lender deems advisable, (v) settle, adjust, compromise, extend or renew an
Account, (vi) discharge and release any Account, (vii) prepare, file and sign
Borrower's name on any proof of claim in bankruptcy or other similar document
against an account debtor, (viii) notify the post office authorities to change
the address for delivery of Borrower's mail to an address designated by Lender,
and open and dispose of all mail addressed to Borrower, and (ix) do all acts and
things which are necessary, in Lender's determination, to fulfill Borrower's
obligations under this Agreement and the other Financing Agreements and (b) at
any time to (i) take control in any manner of any item of payment or proceeds
thereof, (ii) have access to any lockbox or postal box into which Borrower's
mail is deposited, (iii) endorse Borrower's name upon any items of payment or
proceeds thereof and deposit the same in the Lender's account for application to
the Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign Borrower's name
on any verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or wilful misconduct.
7.6 Right to Cure. Lender may, at its option, (a) cure any default by
Borrower under any agreement with a third party or pay or bond on appeal any
judgment entered against Borrower, (b) discharge taxes, liens, security
interests or other encumbrances at any time levied on or existing with respect
to the Collateral and (c) pay any amount, incur any expense or perform any act
which, in Lender's reasonable credit judgment, is necessary or
appropriate to preserve, protect, insure or maintain the Collateral and the
rights of Lender with respect thereto. Lender may add any amounts so expended to
the Obligations and charge Borrower's account therefor, such amounts to be
repayable by Borrower on demand. Lender shall be under no obligation to effect
such cure, payment or bonding and shall not, by doing so, be deemed to have
assumed any obligation or liability of Borrower. Any payment made or other
action taken by Lender under this Section shall be without prejudice to any
right to assert an Event of Default hereunder and to proceed accordingly.
7.7 Access to Premises. From time to time as requested by Lender, in
the exercise of its reasonable credit judgment, at the cost and expense of
Borrower, (a) Lender or its designee shall have complete access to all of
Borrower's premises during normal business hours and after reasonable notice to
Borrower, or at any time and without notice to Borrower if an Event of Default
exists or has occurred and is continuing, for the purposes of inspecting,
verifying and auditing the Collateral and all of Borrower's books and records,
including, without limitation, the Records, and (b) Borrower shall promptly
furnish to Lender such copies of such books and records or extracts therefrom as
Lender may request, and (c) use during normal business hours such of Borrower's
personnel, equipment, supplies and premises as may be reasonably necessary
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for the foregoing and if an Event of Default exists or has occurred and is
continuing for the collection of Accounts and realization of other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is
a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound. This Agreement and the other Financing Agreements
constitute legal, valid and binding obligations of Borrower enforceable in
accordance with their respective terms. Borrower does not have any subsidiaries
except as set forth on the Information Certificate.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date of this
Agreement, there has been no material adverse change in the assets, liabilities,
properties and condition, financial or otherwise, of Borrower, since the date of
the most recent audited financial statements furnished by Borrower to Lender
prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof and to the best of Borrower's
knowledge, the holders of any mortgages on such locations.
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8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.
8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any governmental agency pending, or to the
best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets, business or prospects
of Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is
not in default in any material respect under, or in violation in any material
respect of any of the terms of, any agreement, contract, instrument, lease or
other commitment to which it is a party where such default is reasonably likely
to impair the ability of Borrower to perform its obligations hereunder or under
any of the other Financing Agreements to which it is a party or of Lender to
enforce the Obligations or realize on the Collateral, or by which it or any of
its assets are bound and Borrower is in compliance in all material respects with
all applicable provisions of laws, rules, regulations, licenses, permits,
approvals and orders of any foreign, Federal, State or local governmental
authority.
8.8 Environmental Compliance.
(a) Except as set forth on Schedule 8.8 hereto, Borrower has
not generated, used, stored, treated, transported, manufactured, handled,
produced or disposed of any Hazardous Materials, on or off its premises (whether
or not owned by it) in any manner which at any time violates any applicable
Environmental Law or any license, permit, certificate, approval or
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similar authorization thereunder and the operations of Borrower complies in all
material respects with all Environmental Laws and all licenses, permits,
certificates, approvals and similar authorizations thereunder.
(b) Except as set forth on Schedule 8.8 hereto, there has been
no investigation, proceeding, complaint, order, directive, claim, citation or
notice by any governmental authority or any other person nor is any pending or
to the best of Borrower's knowledge threatened, with respect to any
non-compliance with or violation of the requirements of any Environmental Law by
Borrower or the release, spill or discharge, threatened or actual, of any
Hazardous Material or the generation, use, storage, treatment, transportation,
manufacture, handling, production or disposal of any Hazardous Materials or any
other environmental, health or safety matter, which affects Borrower or its
business, operations or assets or any properties at which Borrower has
transported, stored or disposed of any Hazardous Materials.
(c) To the best of Borrower's knowledge, Borrower has no
material liability (contingent or otherwise) in connection with a release, spill
or discharge, threatened or actual, of any Hazardous Materials or the
generation, use, storage, treatment, transportation, manufacture, handling,
production or disposal of any Hazardous Materials.
(d) Borrower has all licenses, permits, certificates,
approvals or similar authorizations required to be obtained or filed in
connection with the operations of Borrower under any Environmental Law and all
of such licenses, permits, certificates, approvals or similar authorizations are
valid and in full force and effect.
8.9 Employee Benefits.
(a) Borrower has not engaged in any transaction in connection
with which Borrower or any of its ERISA Affiliates could be subject to either a
civil penalty assessed pursuant to Section 502(i) of ERISA or a tax imposed by
Section 4975 of the Code, including any accumulated funding deficiency described
in Section 8.9(c) hereof and any deficiency with respect to vested accrued
benefits described in Section 8.9(d) hereof.
(b) No liability to the Pension Benefit Guaranty Corporation
has been or is expected by Borrower to be incurred with respect to any employee
pension benefit plan of Borrower or any of its ERISA Affiliates. There has been
no reportable event (within the meaning of Section 4043(b) of ERISA) or any
other event or condition with respect to any employee pension benefit plan of
Borrower or any of its ERISA Affiliates which presents a risk of termination of
any such plan by the Pension Benefit Guaranty Corporation.
(c) Full payment has been made of all amounts which Borrower
or any of its ERISA Affiliates is required under Section 302 of ERISA and
Section 412 of the Code to have paid under the terms of each employee pension
benefit plan as contributions to such plan as of the last day of the most recent
fiscal year of such plan ended prior to the date hereof, and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412 of the
Code), whether or not waived, exists with respect to any employee pension
benefit plan, including
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any penalty or tax described in Section 8.9(a) hereof and any deficiency with
respect to vested accrued benefits described in Section 8.9(d) hereof.
(d) The current value of all vested accrued benefits under all
employee pension benefit plans maintained by Borrower that are subject to Title
IV of ERISA does not exceed the current value of the assets of such plans
allocable to such vested accrued benefits, including any penalty or tax
described in Section 8.9(a) hereof and any accumulated funding deficiency
described in Section 8.9(c) hereof. The terms "current value" and "accrued
benefit" have the meanings specified in ERISA.
(e) Neither Borrower nor any of its ERISA Affiliates is or has
ever been obligated to contribute to any "multiemployer plan" (as such term is
defined in Section 4001(a)(3) of ERISA) that is subject to Title IV of ERISA.
8.10 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including, without limitation, all information
on the Information Certificate is true and correct in all material respects on
the date as of which such information is dated or certified and does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.11 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto, and Borrower shall maintain in full force and
effect all permits, licenses, trademarks, trade names, approvals,
authorizations, leases and contracts necessary to carry on the business as
presently or proposed to be conducted except where the failure to maintain any
of the foregoing would not have a material adverse effect on the assets or
business prospects of Borrower or would not be reasonably likely to impair the
ability of Borrower to perform its obligations hereunder or under any of the
other Financing Agreements to which it is a party or of Lender to enforce the
Obligations or realize on the Collateral. Borrower shall give Lender thirty (30)
days prior written notice of any proposed change in its corporate name, which
notice shall set forth the new name
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and Borrower shall deliver to Lender a copy of the amendment to the Certificate
of Incorporation of Borrower providing for the name change certified by the
Secretary of State of the jurisdiction of incorporation of Borrower as soon as
it is available.
9.2 New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including, without limitation, UCC financing statements.
9.3 Compliance with Laws, Regulations.
(a) Borrower shall, at all times, comply in all material
respects with all laws, rules, regulations, licenses, permits, approvals and
orders applicable to it and duly observe all requirements of any Federal, State
or local governmental authority, including, without limitation, the Employee
Retirement Security Act of 1974, as amended, the Occupational Safety and Hazard
Act of 1970, as amended, the Fair Labor Standards Act of 1938, as amended, and
all statutes, rules, regulations, orders, permits and stipulations relating to
environmental pollution and employee health and safety, including, without
limitation, all of the Environmental Laws.
(b) Borrower shall establish and maintain, at its expense, a
system to assure and monitor its continued compliance with all Environmental
Laws in all of its operations. Copies of any environmental surveys, audits,
assessments, feasibility studies and results of remedial investigations shall be
promptly furnished, or caused to be furnished, by Borrower to Lender. Borrower
shall take prompt and appropriate action to respond to any non-compliance with
any of the Environmental Laws and shall regularly report to Lender on such
response.
(c) Borrower shall give both oral and written notice to Lender
immediately upon Borrower's receipt of any notice of, or Borrower's otherwise
obtaining actual knowledge of, (i) the occurrence of any event involving the
release, spill or discharge, threatened or actual, of any Hazardous Material or
(ii) any investigation, proceeding, complaint, order, directive, claims,
citation or notice with respect to: (A) any non-compliance with or violation of
any Environmental Law by Borrower or (B) the release, spill or discharge,
threatened or actual, of any Hazardous Material or (C) the generation, use,
storage, treatment, transportation, manufacture, handling, production or
disposal of any Hazardous Materials or (D) any other environmental, health or
safety matter, which affects Borrower or its business, operations or assets or
any properties at which Borrower transported, stored or disposed of any
Hazardous Materials.
(d) Without limiting the generality of the foregoing, whenever
Lender reasonably determines that there is non-compliance, or any condition
which requires any action by or on behalf of Borrower in order to avoid any
material non-compliance, with any Environmental Law, Borrower shall prepare and
deliver to Lender a report as to such non-compliance setting forth a proposed
plan for responding to any environmental problems described therein.
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(e) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including, without limitation, the costs of
any required or necessary repair, cleanup or other remedial work with respect to
any property of Borrower and the preparation and implementation of any closure,
remedial or other required plans except to the extent directly caused by
Lender's gross negligence or wilful misconduct. All representations, warranties,
covenants and indemnifications in this Section 9.3 shall survive the payment of
the Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall duly pay and discharge
all taxes, assessments, contributions and governmental charges upon or against
it or its properties or assets, except for taxes the validity of which are being
contested in good faith by appropriate proceedings diligently pursued and
available to Borrower and with respect to which adequate reserves have been set
aside on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, at all times, maintain with financially
sound and reputable insurers insurance with respect to the Collateral against
loss or damage and all other insurance of the kinds and in the amounts
customarily insured against or carried by corporations of established reputation
engaged in the same or similar businesses and similarly situated. Said policies
of insurance shall be satisfactory to Lender as to form, amount and insurer.
Borrower shall furnish certificates, policies or endorsements to Lender as
Lender shall require as proof of such insurance, and, if Borrower fails to do
so, Lender is authorized, but not required, to obtain such insurance at the
expense of Borrower. All policies shall provide for at least thirty (30) days
prior written notice to Lender of any cancellation or reduction of coverage and
that Lender may act as attorney for Borrower in obtaining, and at any time an
Event of Default exists or has occurred and is continuing, adjusting, settling,
amending and canceling such insurance. Borrower shall cause Lender to be named
as a loss payee and an additional insured (but without any liability for any
premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its affiliates. If
no Event of Default has occurred and is continuing, Lender shall turn over to
Borrower any insurance proceeds received by Lender and Borrower shall apply such
proceeds to the repair or replacement of the Collateral to which the proceeds
relate. After the occurrence and during the continuance of any Event of Default,
Lender may, at its option, apply any insurance proceeds received by Lender at
any time
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to the cost of repairs or replacement of Collateral and/or to payment of the
Obligations, whether or not then due, in any order and in such manner as Lender
may determine or hold such proceeds as cash collateral for the Obligations.
9.6 Financial Statements and Other Information.
(a) Borrower shall keep proper books and records in which true
and complete entries shall be made of all dealings or transactions of or in
relation to the Collateral and the business of Borrower and its subsidiaries (if
any) in accordance with GAAP and Borrower shall furnish or cause to be furnished
to Lender: (i) within forty-five (45) days after the end of each fiscal month,
monthly unaudited consolidated financial statements, and, if Borrower has any
subsidiaries, unaudited consolidating financial statements (including in each
case balance sheets, statements of income and loss and statements of
shareholders' equity), all in reasonable detail, fairly presenting the financial
position and the results of the operations of Borrower and its subsidiaries as
of the end of and through such fiscal month and (ii) within ninety (90) days
after the end of each fiscal year, audited consolidated financial statements
and, if Borrower has any subsidiaries, audited consolidating financial
statements of Borrower and its subsidiaries (including in each case balance
sheets, statements of income and loss, statements of cash flow and statements of
shareholders' equity), and the accompanying notes thereto, all in reasonable
detail, fairly presenting the financial position and the results of the
operations of Borrower and its subsidiaries as of the end of and for such fiscal
year, together with the opinion of independent certified public accountants,
which accountants shall be an independent accounting firm selected by Borrower
and reasonably acceptable to Lender, that such financial statements have been
prepared in accordance with GAAP, and present fairly the results of operations
and financial condition of Borrower and its subsidiaries as of the end of and
for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any loss, damage, investigation, action, suit, proceeding or
claim relating to the Collateral or any other property which is security for the
Obligations which is reasonably likely to result in any material adverse change
in the value of the Collateral or in Borrower's business, properties, assets,
goodwill or condition, financial or otherwise or impair Lender's ability to
enforce the Obligations or realize on the Collateral and (ii) the occurrence of
any Event of Default or event which, with the passage of time or giving of
notice or both, would constitute an Event of Default.
(c) Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of Borrower, as Lender may, from time to time,
request in its reasonable credit judgment. Lender is hereby authorized to
deliver a copy of any financial statement or any other information relating to
the business of Borrower to any court or other government agency or to any
participant or assignee or prospective participant or assignee. Borrower hereby
irrevocably authorizes and
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directs all accountants or auditors to deliver to Lender, at Borrower's expense,
copies of the financial statements of Borrower and any reports or management
letters prepared by such accountants or auditors on behalf of Borrower and to
disclose to Lender such information as they may have regarding the business of
Borrower. Any documents, schedules, invoices or other papers delivered to Lender
may be destroyed or otherwise disposed of by Lender one (1) year after the same
are delivered to Lender, except as otherwise designated by Borrower to Lender in
writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, directly or indirectly, (a) merge into or with or consolidate with
any other Person or permit any other Person to merge into or with or consolidate
with it other than mergers or consolidations with respect to which (i) Borrower
is the surviving corporation, (ii) after giving effect to such merger or
consolidation, Borrower has a tangible net worth (determined in accordance with
GAAP) at least equal to the tangible net worth of Borrower immediately prior to
such merger or consolidation, and (iii) no Event of Default is then continuing
or would result from such merger or consolidation, or (b) sell, assign, lease,
transfer, abandon or otherwise dispose of any stock or indebtedness of any other
Person to any other Person or any of its assets to any other Person (except for
(i) sales of Inventory in the ordinary course of business and (ii) the
disposition of worn-out or obsolete Equipment or Equipment no longer used in the
business of Borrower so long as (A) if an Event of Default exists or has
occurred and is continuing, any proceeds are paid to Lender and (B) such sales
do not involve Equipment having an aggregate fair market value in excess of One
Hundred Fifty Thousand Dollars ($150,000) for all such Equipment disposed of in
any fiscal year of Borrower), or (c) form or acquire any subsidiaries, or (d)
wind up, liquidate or dissolve or (e) agree to do any of the foregoing except
for such agreement for which performance is expressly conditioned on the written
consent of Lender.
9.8 Encumbrances. Borrower shall not create, incur, assume or suffer to
exist any security interest, mortgage, pledge, lien, charge or other encumbrance
of any nature whatsoever on any of its assets or properties, including, without
limitation, the Collateral, except: (a) liens and security interests of Lender;
(b) liens securing the payment of taxes, either not yet overdue or the validity
of which are being contested in good faith by appropriate proceedings diligently
pursued and available to Borrower and with respect to which adequate reserves
have been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of
Borrower's business to the extent: (i) such liens secure indebtedness which is
not overdue or (ii) such liens secure indebtedness relating to claims or
liabilities which are fully insured and being defended at the sole cost and
expense and at the sole risk of the insurer or being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower, in each
case prior to the commencement of foreclosure or other similar proceedings and
with respect to which adequate reserves have been set aside on its books; (d)
zoning restrictions, easements, licenses, covenants and other restrictions
affecting the use of real property which do not interfere in any material
respect with the use of such real property or ordinary conduct of the business
of Borrower as presently conducted thereon; (e) purchase money security
interests in Equipment (including capital leases) so long as such security
interests do not apply to any property of Borrower other than the Equipment so
acquired, and the indebtedness secured thereby does not exceed the cost of the
Equipment so acquired; and (f) the security interests and liens set forth on
Schedule 8.4 hereto.
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9.9 Indebtedness. Borrower shall not incur, create, assume, become or
be liable in any manner with respect to, or permit to exist, any obligations or
indebtedness, except:
(a) the Obligations;
(b) trade obligations and normal accruals in the ordinary
course of business not yet due and payable, or with respect to which Borrower is
contesting in good faith the amount or validity thereof by appropriate
proceedings diligently pursued and available to Borrower and with respect to
which adequate reserves have been set aside on its books;
(c) purchase money indebtedness (including capital leases) to
the extent not incurred or secured by liens (including capital leases) in
violation of any other provision of this Agreement;
(d) unsecured indebtedness of Borrower to Maxtor evidenced by
that certain Subordinated Promissory Note, dated December 26, 1992, issued by
Borrower payable to Maxtor, as assignee of Storage Dimensions, Inc., a
California corporation, not to exceed the aggregate principal amount of
$4,000,000 (the "Maxtor Note") which indebtedness is subject to, and subordinate
in right of payment to, the right of Lender to receive the prior payment in full
of all of the Obligations pursuant to the terms of the Subordination Agreement;
provided, that: (i) Borrower shall not, directly or indirectly, make any
payments in respect of such indebtedness, including, but not limited to, any
prepayments or other non-mandatory payments, except that until an Event of
Default, or event which with notice or passage of time or both would constitute
an Event of Default, shall exist or have occurred and be continuing, Borrower
may make regularly scheduled payments of principal and interest in accordance
with the terms of the Maxtor Note as in effect on the date hereof; provided
further, however, that notwithstanding the foregoing, Borrower shall not make
any principal payments on the Maxtor Note if, after giving effect to any such
principal payment, Borrower shall not be in compliance with the following
financial conditions (it being agreed by the parties hereto that the failure, in
and of itself, to comply with any of the following financial covenants shall not
constitute an Event of Default hereunder):
(A) Borrower shall maintain, for each fiscal quarter,
commencing with the fiscal quarter ended March 31,
1996, a Fixed Charge Ratio of not less than
1.25:1.00;
(B) Borrower shall maintain, for each fiscal quarter,
commencing with the fiscal quarter ended March 31,
1996, Tangible Net Worth of not less than Six Million
Four Hundred Thousand Dollars ($6,400,000); and
(C) Borrower shall have Excess Availability of not less
than Two Million Dollars ($2,000,000);
(For the purposes only of these financial conditions:
(1) The Fixed Charge Ratio shall be defined as the ratio
of the following numbers:
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(a) Numerator: Earnings before interest and taxes
(EBIT) plus depreciation expense, less cash payments
for taxes, interest expense, management fees to
Capital Partners Holdings and principal payments on
senior debt. All of these numbers are on a
year-to-date basis.
(b) Denominator: The sum of the current portion of
long term debt (excluding the Maxtor Note and
year-to-date principal payment to Maxtor (including
the payment under consideration) and year-to-date
expenditures on capital equipment acquisitions.
(2) Tangible Net Worth shall mean, as of any particular
date, the difference between (a) Borrower's total
assets as they would normally be shown on the balance
sheet, but excluding the aggregate amount of all
Borrower's intangibles assets and (b) Borrower's
total liabilities and deferred charges as they would
normally be shown on the balance sheet, including as
liabilities any guarantees of the indebtedness of
affiliates or any other Person but excluding amounts
outstanding under the Maxtor Note),
(ii) Borrower shall not, directly or indirectly, (A) amend, modify, alter or
change any terms of such indebtedness or any agreement, document or instrument
related thereto, or (B) redeem, retire, defease, purchase or otherwise acquire
such indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (iii) Borrower shall furnish to Lender all notices, demands or
other materials concerning such indebtedness either received by Borrower or on
its behalf, promptly after receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be;
(e) unsecured indebtedness of Borrower for borrowed money
owing to any person other than any shareholder, officer, director, agent,
employee or affiliate of Borrower on commercially reasonable rates and terms
pursuant to an arm's length transaction; provided, that, (i) Lender shall have
received not less than five (5) business days prior written notice of the
intention to incur such indebtedness, which notice shall set forth in reasonable
detail satisfactory to Lender, the amount of such indebtedness, the person to
whom such indebtedness will be owed, the interest rate, the schedule of
repayments and maturity date with respect thereto and such other information as
Lender may reasonably request with respect thereto, (ii) Lender shall have
received, upon its request, true, correct and complete copies of all agreements,
documents and instruments evidencing or otherwise related to such indebtedness,
(iii) the aggregate amount of such indebtedness at any time outstanding shall
not exceed Five Million Dollars ($5,000,000), (iv) on and before the date of
incurring such indebtedness and after giving effect thereto, no Event of
Default, or event which with the passage of time or both would constitute an
Event of Default, shall exist or have occurred and be continuing, (v) Borrower
may only make regularly scheduled payments of principal and interest in respect
of such indebtedness in accordance with the terms of the agreement or instrument
evidencing or giving rise to such indebtedness as in effect on the date of the
execution thereof, and (vi) Borrower shall not, directly or indirectly, (A) make
any prepayments or other non-mandatory payments in respect of such indebtedness
if an Event of Default has occurred and is continuing hereunder or would result
from such prepayment or other non-mandatory payment, or (B) redeem, retire,
defease, purchase or otherwise acquire such
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indebtedness, or set aside or otherwise deposit or invest any sums for such
purpose, and (vii) Borrower shall furnish to Lender a summary of the payment
terms of such Indebtedness and all notices of defaults or demands for payment or
performance in connection with such indebtedness either received by Borrower or
on its behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, directly
or indirectly, make any loans or advance money or property to any person, or
invest in (by capital contribution, dividend or otherwise) or purchase or
repurchase the capital stock or indebtedness or all or a substantial part of the
assets or property of any person, or guarantee, assume, endorse, or otherwise
become responsible for (directly or indirectly) the indebtedness, performance,
obligations or dividends of any Person or agree to do any of the foregoing,
except: (a) the endorsement of instruments for collection or deposit in the
ordinary course of business; (b) investments in: (i) short-term direct
obligations of the United States Government, (ii) negotiable certificates of
deposit issued by any bank satisfactory to Lender, payable to the order of the
Borrower or to bearer and delivered to Lender, and (iii) commercial paper rated
A1 or P1; provided, that, as to any of the foregoing, unless waived in writing
by Lender, Borrower shall take such actions as are deemed necessary by Lender to
perfect the security interest of Lender in such investments; (c) the guarantees
set forth in the Information Certificate; and (d) provided no Event of Default
has occurred and is continuing or would result from the making of any such loan,
loans to employees not to exceed Two Hundred Fifty Thousand Dollars ($250,000)
outstanding at any one time.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
capital stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of capital stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing, except as set forth on Schedule 9.11
hereto; provided, however, that notwithstanding the foregoing and with the
further proviso that no Event of Default shall have occurred and is continuing
or would result from the repurchase of such capital stock, Borrower may
repurchase shares of its capital stock from former employees during any fiscal
year in an amount not to exceed Two Hundred Fifty Thousand Dollars ($250,000),
net of any sales proceeds received by Borrower from the resale of such
repurchased capital stock.
9.12 Transactions with Affiliates. Borrower shall not enter into any
transaction for the purchase, sale or exchange of property or the rendering of
any service to or by any affiliate, except in the ordinary course of and
pursuant to the reasonable requirements of Borrower's business and upon fair and
reasonable terms no less favorable to the Borrower than Borrower would obtain in
a comparable arm's length transaction with an unaffiliated person, with the
exception that Borrower may pay management fees to its majority shareholder,
Capital Partners Holdings, in an amount not to exceed Fifty Thousand Dollars
($50,000) per month plus reimbursement of reasonable out-of-pocket costs and
expenses.
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9.13 Compliance with ERISA. Borrower shall not with respect to any
"employee pension benefit plan" maintained by Borrower or any of its ERISA
Affiliates:
(a) (i) terminate any of such employee pension benefit plans so as
to incur any liability to the Pension Benefit Guaranty Corporation established
pursuant to ERISA, (ii) allow or suffer to exist any prohibited transaction
involving any of such employee pension benefit plans or any trust created
thereunder which would subject Borrower or such ERISA Affiliate to a tax or
penalty or other liability on prohibited transactions imposed under Section 4975
of the Code or ERISA, (iii) fail to pay to any such employee pension benefit
plan any contribution which it is obligated to pay under Section 302 of ERISA,
Section 412 of the Code or the terms of such plan, (iv) allow or suffer to exist
any accumulated funding deficiency, whether or not waived, with respect to any
such employee pension benefit plan, (v) allow or suffer to exist any occurrence
of a reportable event or any other event or condition which presents a material
risk of termination by the Pension Benefit Guaranty Corporation of any such
employee pension benefit plan that is a single employer plan, which termination
could result in any liability to the Pension Benefit Guaranty Corporation or
(vi) incur any withdrawal liability with respect to any multiemployer pension
plan.
(b) As used in this Section 9.15, the term "employee pension
benefit plans," "employee benefit plans", "accumulated funding deficiency" and
"reportable event" shall have the respective meanings assigned to them in ERISA,
and the term "prohibited transaction" shall have the meaning assigned to it in
Section 4975 of the Code and ERISA.
9.14 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including, but not limited to: (a)
all reasonable costs and expenses of filing or recording (including Uniform
Commercial Code financing statement filing taxes and fees, documentary taxes,
intangibles taxes and mortgage recording taxes and fees, if applicable); (b)
costs and expenses and fees for title insurance and other insurance premiums,
environmental audits, surveys, assessments, engineering reports and inspections,
appraisal fees and search fees; (c) costs and expenses of remitting loan
proceeds, collecting checks and other items of payment, and establishing and
maintaining the Blocked Accounts, together with Lender's customary charges and
fees with respect thereto; (d) charges, fees or expenses charged by any bank or
issuer in connection with the Letter of Credit Accommodations; (e) costs and
expenses of preserving and protecting the Collateral; (f) costs and expenses
paid or incurred in connection with obtaining payment of the Obligations,
enforcing the security interests and liens of Lender, selling or otherwise
realizing upon the Collateral, and otherwise enforcing the provisions of this
Agreement and the other Financing Agreements or defending any claims made or
threatened against Lender arising out of the transactions contemplated hereby
and thereby (including, without limitation, preparations for and consultations
concerning any such matters); (g) all reasonable out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations; and (h) the fees
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and disbursements of counsel (including legal assistants) to Lender in
connection with any of the foregoing.
9.15 Further Assurances. At the request of Lender at any time and from
time to time, Borrower shall, at its expense, duly execute and deliver, or cause
to be duly executed and delivered, such further agreements, documents and
instruments, and do or cause to be done such further acts as may be necessary or
proper to evidence, perfect, maintain and enforce the security interests and the
priority thereof in the Collateral and to otherwise effectuate the provisions or
purposes of this Agreement or any of the other Financing Agreements. Lender may
at any time and from time to time request a certificate from an officer of
Borrower representing that all conditions precedent to the making of Loans and
providing Letter of Credit Accommodations contained herein are satisfied. In the
event of such request by Lender, Lender may, at its option, cease to make any
further Loans or provide any further Letter of Credit Accommodations until
Lender has received such certificate and, in addition, Lender has determined
that such conditions are satisfied. Where permitted by law, Borrower hereby
authorizes Lender to execute and file one or more UCC financing statements
signed only by Lender.
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any of the Obligations within two
(2) days after the same becomes due and payable or (ii) Borrower or any Obligor
fails to perform any of the terms, covenants, conditions or provisions contained
in this Agreement or any of the other Financing Agreements other than as
described in Section 10.1(a)(i) and such failure shall continue for ten (10)
days; provided, that;, such ten (10) day period shall not apply in the case of:
(A) any failure to observe any such term, covenant, condition or provision which
is not capable of being cured at all or within such ten (10) day period or which
has been the subject of a prior failure within a six (6) month period or (B) an
intentional breach by Borrower or any Obligor of any such term, covenant,
condition or provision, or (C) the failure to observe or perform any of the
covenants or provisions contained in Section 7.1, 9.1 or 9.5 of this Agreement
or any covenants or agreements covering substantially the same matter as such
sections in any of the other Financing Agreements;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of the
terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
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(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of Two Hundred Fifty Thousand Dollars
($250,000) in any one case or in excess of Three Hundred Thousand Dollars
($300,000) in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) any Obligor (being a natural person or a general partner of an
Obligor which is a partnership) dies or Borrower or any Obligor, which is a
partnership or corporation, dissolves or suspends or discontinues doing
business;
(f) Borrower or any Obligor becomes insolvent (however defined or
evidenced), makes an assignment for the benefit of creditors, makes or sends
notice of a bulk transfer or calls a meeting of its creditors or principal
creditors;
(g) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at law or
in equity) is filed against Borrower or any Obligor or all or any part of its
properties and such petition or application is not dismissed within sixty (60)
days after the date of its filing or Borrower or any Obligor shall file any
answer admitting or not contesting such petition or application or indicates its
consent to, acquiescence in or approval of, any such action or proceeding or the
relief requested is granted sooner;
(h) a case or proceeding under the bankruptcy laws of the United
States of America now or hereafter in effect or under any insolvency,
reorganization, receivership, readjustment of debt, dissolution or liquidation
law or statute of any jurisdiction now or hereafter in effect (whether at a law
or equity) is filed by Borrower or any Obligor or for all or any part of its
property; or
(i) any default by Borrower or any Obligor under any agreement,
document or instrument relating to any indebtedness for borrowed money owing to
any person other than Lender, or any capitalized lease obligations, contingent
indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of Three Hundred Thousand Dollars ($300,000), which
default continues for more than the applicable cure period, if any, with respect
thereto, or any default by Borrower or any Obligor under any material contract,
lease, license or other obligation to any person other than Lender, which
default continues for more than the applicable cure period, if any, with respect
thereto;
(j) any Change of Control of Borrower; provided, however, in the
event of the occurrence of an Event of Default under this subsection (j), Lender
shall waive the applicable early termination fee under Section 12.1(c) hereof
should Borrower repay all outstanding Obligations and terminate this Agreement
as provided in Section 12.1(a) within sixty (60) days of the occurrence of the
Event of Default under this subsection (j);
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(k) the indictment of Borrower or any Obligor under any criminal
statute, or commencement of criminal or civil proceedings against Borrower or
any Obligor, pursuant to which statute or proceedings the penalties or remedies
sought or available include forfeiture of any of the property of Borrower or
such Obligor;
(l) there shall be a material adverse change in the business,
assets or prospects of Borrower or any Obligor after the date hereof; or
(m) there shall be an event of default (after any applicable grace
period) under any of the other Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and is
continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including, without limitation,
entering into contracts with respect thereto, public or private sales at any
exchange, broker's board, at any office of Lender or elsewhere) at such prices
or terms as Lender may deem reasonable, for cash, upon credit or for future
delivery, with the Lender having the right to purchase the whole or any part of
the Collateral at any such public sale, all of the foregoing being free from any
right or equity of redemption of Borrower, which right or equity of redemption
is hereby expressly waived and released by Borrower and/or (vii) terminate this
Agreement. If any of the Collateral is sold or
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leased by Lender upon credit terms or for future delivery, the Obligations shall
not be reduced as a result thereof until payment therefor is finally collected
by Lender. If notice of disposition of Collateral is required by law, five (5)
days prior notice by Lender to Borrower designating the time and place of any
public sale or the time after which any private sale or other intended
disposition of Collateral is to be made, shall be deemed to be reasonable notice
thereof and Borrower waives any other notice. In the event Lender institutes an
action to recover any Collateral or seeks recovery of any Collateral by way of
prejudgment remedy, Borrower waives the posting of any bond which might
otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans and Letter of Credit
Accommodations available to Borrower and/or (ii) terminate any provision of this
Agreement providing for any future Loans or Letter of Credit Accommodations to
be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Agreement
and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of California
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the Superior Court of the State of California, for
the Counties of Los Angeles or Santa Clara, and the United States District Court
for the Northern or Central Districts of California, and waive any objection
based on venue or forum non conveniens with respect to any action instituted
therein arising under this Agreement or any of the other Financing Agreements or
in any way connected with or related or incidental to the dealings of the
parties hereto in respect of this Agreement or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case whether
now existing or hereafter arising, and whether in contract, tort, equity or
otherwise, and agree that any dispute with respect to any such matters shall be
heard
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only in the courts described above (except that Lender shall have the right to
bring any action or proceeding against Borrower or its property in the courts of
any other jurisdiction which Lender deems necessary or appropriate in order to
realize on the Collateral or to otherwise enforce its rights against Borrower or
its property).
(c) Borrower hereby waives personal service of any and all process
upon it and consents that all such service of process may be made by certified
mail (return receipt requested) directed to its address set forth on the
signature pages hereof with a copy of such service of process to its counsel,
Kenneth M. Siegel, Esq., Wilson Sonsini Goodrich & Rosati, 650 Page Mill Road,
Palo Alto, California 94304-1050 and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the U.S.
mails, or, at Lender's option, by service upon Borrower in any other manner
provided under the rules of any such courts. Within thirty (30) days after such
service, Borrower shall appear in answer to such process, failing which Borrower
shall be deemed in default and judgment may be entered by Lender against
Borrower for the amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether in
tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to
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or demand on Borrower which Lender may elect to give shall entitle Borrower to
any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender and Borrower. Lender shall not, by any act, delay, omission or otherwise
be deemed to have expressly or impliedly waived any of its rights, powers and/or
remedies unless such waiver shall be in writing and signed by an authorized
officer of Lender. Any such waiver shall be enforceable only to the extent
specifically set forth therein. A waiver by Lender of any right, power and/or
remedy on any one occasion shall not be construed as a bar to or waiver of any
such right, power and/or remedy which Lender would otherwise have on any future
occasion, whether similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including, without limitation, amounts paid in settlement, court costs, and the
reasonable fees and expenses of counsel, except as directly caused by their
gross negligence or wilful misconduct. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section may be unenforceable
because it violates any law or public policy, Borrower shall pay the maximum
portion which it is permitted to pay under applicable law to Lender in
satisfaction of indemnified matters under this Section. The foregoing indemnity
shall survive the payment of the Obligations and the termination or non-renewal
of this Agreement.
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall become
effective as of the date set forth on the first page hereof and shall continue
in full force and effect for a term ending on the date two (2) years from the
date hereof (the "Renewal Date"), and from year to year thereafter, unless
terminated pursuant to the terms hereof. Lender or Borrower may terminate this
Agreement and the other Financing Agreements effective on the Renewal Date or on
the anniversary of the Renewal Date in any year by giving to the other party at
least sixty (60) days prior written notice; provided, that, this Agreement and
all other Financing Agreements must be terminated simultaneously. Upon the
effective date of termination or non-renewal of the
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Financing Agreements, Borrower shall pay to Lender, in full, all outstanding and
unpaid Obligations and shall furnish cash collateral to Lender in such amounts
as Lender determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including reasonable attorneys' fees and legal expenses, in
connection with any contingent Obligations, including issued and outstanding
Letter of Credit Accommodations and checks or other payments provisionally
credited to the Obligations and/or as to which Lender has not yet received final
and indefeasible payment. Such cash collateral shall be remitted by wire
transfer in Federal funds to such bank account of Lender, as Lender may, in its
discretion, designate in writing to Borrower for such purpose. Interest shall be
due until and including the next business day, if the amounts so paid by
Borrower to the bank account designated by Lender are received in such bank
account later than 10:30 a.m., Los Angeles time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If for any reason this Agreement is terminated prior to the
end of the then current term or renewal term of this Agreement, in view of the
impracticality and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Lender's lost
profits as a result thereof, Borrower agrees to pay to Lender, upon the
effective date of such termination, an early termination fee in the amount set
forth below if such termination is effective in the period indicated:
Amount Period
(i) 3% of Maximum Credit from the date hereof to and
including May 15, 1997; and
(ii) 2% of Maximum Credit from May 16, 1997 to and
including May 15, 1998;
provided, however, that in the event termination of this Agreement occurs as a
result of the repayment of all Obligations from the proceeds of either (i) an
initial public offering of the equity of the Borrower or (ii) a strategic
alliance with an unaffiliated Person accompanied by a resulting Change of
Control, and (x) if such repayment occurs during the period from November 16,
1996 through May 15, 1997, the early termination fee for such period shall be
reduced from three percent (3%) of the Maximum Credit to two percent (2%) of the
Maximum Credit or (y) if such repayment occurs during the period from May 16,
1997 through May 15, 1998, the early termination fee for such period shall be
reduced from two percent (2%) of the Maximum Credit to one percent (1%) of the
Maximum Credit. Such early termination fee shall be presumed to be the amount of
damages sustained by Lender as a result of such early termination and Borrower
agrees that it is reasonable under the circumstances currently existing. The
early termination fee provided for in this Section 12.1 shall be deemed included
in the Obligations.
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12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
business day, one (1) business day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign all or
any part of the Loans, the Letter of Credit Accommodations or any other interest
herein to another financial institution or other person, in which event, the
assignee shall have, to the extent of such assignment, the same rights and
benefits as it would have if it were the Lender hereunder, except as otherwise
provided by the terms of such assignment. Borrower may, in the event Lender
assigns the Loans, the Letter of Credit Accommodations or any other interest
herein, terminate this Agreement on sixty (60) days written notice to Lender
without the payment of any early termination fee as set forth in Section
12.1(c); provided, however, Borrower shall be obligated to pay the applicable
early termination fee as set forth in Section 12.1(c) in connection with any
termination of this Agreement under the circumstances described in this sentence
if either (i) Lender's assignment of the Loans, the Letter of Credit
Accommodations or other interest herein occurs in connection with a sale of
substantially all of Lender's assets, or (ii) if after giving effect to Lender's
assignment of the Loans, the Letter of Credit Accommodations or other interest
herein, Lender continues to remain the lender hereunder. Lender shall not sell
participations in all or any part of the Loans, the Letter of Credit
Accommodations or any other interest therein.
12.5 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written.
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IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
================================================================================
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION STORAGE DIMENSIONS,
(WESTERN) INC.
By: By:
Title: Senior Vice President Title: Senior Vice President
Address: Chief Executive Office:
225 South Lake Avenue, Suite 1000 1656 McCarthy Boulevard
Pasadena, California 91101 Milpitas, California 95035
================================================================================
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TABLE OF CONTENTS
PAGE
SECTION 1. DEFINITIONS................................................... 1
SECTION 2. CREDIT FACILITIES............................................. 9
2.1 Revolving Loans......................................... 9
2.2 Letter of Credit Accommodations......................... 10
2.3 Term Loan............................................... 12
2.4 Capital Expenditure Facility............................ 12
SECTION 3. INTEREST AND FEES............................................. 13
3.1 Interest................................................ 13
3.2 Closing Fee............................................. 14
3.3 Servicing Fee........................................... 14
SECTION 4. CONDITIONS PRECEDENT.......................................... 14
4.1 Conditions Precedent to Initial Loans and Letter
of Credit Accommodations................................ 14
4.2 Conditions Precedent to All Loans and Letter of
Credit Accommodations................................... 16
SECTION 5. GRANT OF SECURITY INTEREST.................................... 16
SECTION 6. COLLECTION AND ADMINISTRATION................................. 17
6.1 Borrower's Loan Account................................. 17
6.2 Statements.............................................. 17
6.3 Collection of Accounts.................................. 18
6.4 Payments................................................ 19
6.5 Authorization to Make Loans............................. 19
6.6 Use of Proceeds......................................... 19
SECTION 7. COLLATERAL REPORTING AND COVENANTS............................ 20
7.1 Collateral Reporting.................................... 20
7.2 Accounts Covenants...................................... 20
7.3 Inventory Covenants..................................... 22
7.4 Equipment Covenants..................................... 22
7.5 Power of Attorney....................................... 23
7.6 Right to Cure........................................... 23
7.7 Access to Premises...................................... 24
SECTION 8. REPRESENTATIONS AND WARRANTIES................................ 24
8.1 Corporate Existence, Power and Authority;
Subsidiaries............................................ 24
(i)
<PAGE> 47
TABLE OF CONTENTS
(CONTINUED)
PAGE
8.2 Financial Statements; No Material Adverse
Change.................................................. 24
8.3 Chief Executive Office; Collateral Locations............ 25
8.4 Priority of Liens; Title to Properties.................. 25
8.5 Tax Returns............................................. 25
8.6 Litigation.............................................. 25
8.7 Compliance with Other Agreements and
Applicable Laws......................................... 26
8.8 Environmental Compliance................................ 26
8.9 Employee Benefits....................................... 26
8.10 Accuracy and Completeness of Information................ 27
8.11 Survival of Warranties; Cumulative...................... 27
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS............................ 28
9.1 Maintenance of Existence................................ 28
9.2 New Collateral Locations................................ 28
9.3 Compliance with Laws, Regulations....................... 28
9.4 Payment of Taxes and Claims............................. 29
9.5 Insurance............................................... 29
9.6 Financial Statements and Other Information.............. 30
9.7 Sale of Assets, Consolidation, Merger,
Dissolution, Etc........................................ 31
9.8 Encumbrances............................................ 31
9.9 Indebtedness............................................ 32
9.10 Loans, Investments, Guarantees, Etc..................... 34
9.11 Dividends and Redemptions............................... 34
9.12 Transactions with Affiliates............................ 35
9.13 Compliance with ERISA................................... 35
9.14 Costs and Expenses...................................... 35
9.15 Further Assurances...................................... 36
SECTION 10. EVENTS OF DEFAULT AND REMEDIES................................ 36
10.1 Events of Default....................................... 36
10.2 Remedies................................................ 39
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW...................... 40
11.1 Governing Law; Choice of Forum; Service of
Process; Jury Trial Waiver.............................. 40
11.2 Waiver of Notices....................................... 41
11.3 Amendments and Waivers.................................. 41
11.4 Waiver of Counterclaims................................. 42
(ii)
<PAGE> 48
TABLE OF CONTENTS
(CONTINUED)
PAGE
11.5 Indemnification......................................... 42
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS.............................. 42
12.1 Term.................................................... 42
12.2 Notices................................................. 43
12.3 Partial Invalidity...................................... 44
12.4 Successors.............................................. 44
12.5 Entire Agreement........................................ 44
(iii)
<PAGE> 49
INDEX TO
EXHIBITS AND SCHEDULES
Exhibit A Information Certificate
Exhibit 2.3 Term Note
Exhibit 2.4 Equipment Loan Note
Schedule 8.4 Existing Liens
Schedule 9.11 Permitted Dividends and Other Distributions on
Capital Stock
(iv)
<PAGE> 50
SCHEDULE 8.4
EXISTING LIENS
None.
<PAGE> 51
SCHEDULE 9.11
PERMITTED DIVIDENDS AND OTHER
DISTRIBUTIONS ON CAPITAL STOCK
None.
<PAGE> 1
EXHIBIT 10.5
SUBORDINATION AGREEMENT
To: Congress Financial Corporation (Western)
Maxtor Corporation, a Delaware corporation ("Creditor"), requests you to make
loans or extend credit to Storage Dimensions, Inc., a Delaware corporation,
formerly known as SDI Acquisition Corporation ("Borrower") and to induce you so
to do and in consideration thereof and of benefits to accrue to Creditor and
Borrower therefrom, Creditor agrees with Borrower, and Creditor and Borrower
represent to and agree with you as follows:
1. Creditor, as assignee of Storage Dimensions, Inc., a
California corporation, and Borrower each represents to you
that (a) the total indebtedness (including contingent and all
other liabilities) owing on the date hereof by Borrower to
Creditor under that certain Subordinated Promissory Note (the
"Subordinated Note") dated December 26, 1992 as amended by
that certain letter from Walter D. Amaral, Vice President,
Finance and CFO of Creditor to Robert E. Bylin, Senior Vice
President, Operations and Finance, CFO, of Borrower, dated
January 13, 1995 ("Junior Indebtedness") is as per the
Schedule of Junior Indebtedness described below; (b) no part
of the Junior Indebtedness is, or will be, evidenced by a
negotiable instrument or secured except as set forth in said
Schedule of Junior Indebtedness; (c) no part of the Junior
Indebtedness has heretofore been assigned or otherwise
transferred to or for the benefit of others; and (d) no
subordination agreement relating to all or any part of the
Junior Indebtedness has heretofore been executed in favor of
others.
2. Creditor and Borrower each agree with you that the references
to the "Loan Agreement" in the Subordinated Note shall be
deemed to mean the "Loan Agreement" described in Section 3.
below.
3. Creditor agrees with you that (a) the Junior Indebtedness
shall be and hereby is subordinated and the payment thereof,
except as otherwise provided in paragraph 3 below, is deferred
to all amounts now or hereafter owing by Borrower to you
("Senior Indebtedness"); (b) except as otherwise provided in
paragraph 5 below, Creditor will not, without your prior
written consent, assert, accelerate, collect or enforce the
Junior Indebtedness or any part thereof or realize upon or
enforce any collateral securing same; (c) Creditor will hold
in trust and forthwith pay to you for application to the
Senior Indebtedness, any payment Creditor receives on the
Junior Indebtedness in violation of this Agreement; (d)
Creditor will not demand or accept any property of Borrower as
collateral for the Junior Indebtedness or any part thereof,
and will forthwith deliver or cause to be delivered to you any
such collateral; and (e) each note or other instrument
evidencing all or any part of the Junior Indebtedness will be
marked with a legend, acceptable to you, stating that all
rights thereunder are subject to this Subordination Agreement.
<PAGE> 2
4. Borrower and Creditor agree with you that Borrower will not,
without your prior written consent, pay to Creditor, and
Creditor will not accept, all or any part of the Junior
Indebtedness except as follows:
Unless (i) an Event of Default, as defined
in the Loan and Security Agreement dated as
of May 16, 1996, between you and Borrower
(including any extensions, riders,
supplements, notes, amendments, or
modifications to or in connection
therewith, the ("Loan Agreement") shall
have occurred and be continuing and
Creditor has received notice of such
occurrence, or (ii) an Event of Default
would occur as a result of such payment
(and you notify Creditor within ninety (90)
days of the date that such payment caused
an Event of Default to occur), Borrower may
pay Creditor interest payable monthly in
arrears on the first day of each month
commencing June 1, 1996 on the unpaid
principal amount of the obligations
evidenced by the Subordinated Note,
computed on the basis of a 365-day year at
a rate of twelve percent (12%) per annum;
provided that in no case shall the interest
charged exceed the maximum rate under
applicable law. Unless (i) an Event of
Default under the Loan Agreement shall have
occurred and be continuing and Creditor has
received notice of such occurrence, or (ii)
an Event of Default would occur as a result
of such payment (and you notify Creditor
within ninety (90) days of the date of such
payment caused an Event of Default to
occur), Borrower may pay Creditor scheduled
payments of principal payable pursuant to
the Subordinated Note. If (i) an Event of
Default under the Loan Agreement has
occurred and is continuing and Creditor has
received notice of such occurrence, or (ii)
an Event of Default would occur as a result
of such payment (and you notify Creditor
within ninety (90) days of the date that
such payment caused an Event of Default to
occur), no payment of principal or interest
may be made on the Subordinated Note. If
Borrower fails to meet the financial
covenants conditioning the payment of
principal of the Subordinated Note under
Section 9.9 of the Loan Agreement, then no
payment of principal may be made on the
Subordinated Note, and payments of
principal otherwise scheduled to be made
shall not be
-2-
<PAGE> 3
considered "due" until such time as
Borrower meets such financial covenants.
5. Borrower agrees with you that it will not, without your prior
written consent, transfer any property to Creditor as security
for the payment of the Junior Indebtedness; execute or deliver
any negotiable instrument (other than described in paragraph 7
below) as evidence of the Junior Indebtedness or any part
thereof; assign or transfer all or any part of the Junior
Indebtedness to or for the benefit of others or execute any
subordination agreement in favor of others with respect to all
or any part of the Junior Indebtedness unless such other
subordination agreement is expressly made subject, in a manner
satisfactory to you, to your prior rights under this
Agreement. Borrower further agrees that if any representation
made to you by Borrower or Creditor under or pursuant to this
Agreement shall be false, or if Borrower or Creditor defaults
in the performance of any agreement contained herein, any and
all Senior Indebtedness may, at your option, be declared to be
immediately due and payable notwithstanding the maturity
stated in any presently outstanding or future note or other
instrument evidencing or governing any such Senior
Indebtedness.
6. Unless and until the Senior Indebtedness has been paid and
discharged in full, Creditor shall not, without your prior
written consent, which you may give or withhold in your sole
discretion, directly or indirectly take any action or declare
any default under the Junior Indebtedness including, without
limitation:
(a) Commencing and prosecuting any lawsuit or legal
proceeding against Borrower to collect the Junior Indebtedness
and perfecting any lien arising out of any resultant judgment
against Borrower;
(b) Repossessing and/or foreclosing upon any
collateral or property of Borrower, whether judicially or
nonjudicially;
(c) Accelerating the maturity of any of the Junior
Indebtedness;
(d) Seeking to attach any asset of Borrower, or
seeking the appointment of a liquidator, trustee, conservator,
receiver, keeper or custodian for Borrower or any of its
assets;
(e) Commencing or join in the commencement of
involuntary bankruptcy or insolvency proceedings against
Borrower; or
(f) Taking any other enforcement action against
Borrower with respect to the Junior Indebtedness;
Provided, however, that (i) Creditor may, upon a principal
payment default under the Subordinated Note (other than a
principal payment default caused by your exercise of
-3-
<PAGE> 4
your rights under this Agreement) take action under paragraphs
6(a) and (c) above to collect or enforce the payments on the
Subordinated Note, after providing written notice of such
default to you and the passage of six months from the date of
such notice, and (ii) Creditor may, upon an interest payment
default under the Subordinated Note take action under
paragraphs 6(a) and (c) above to collect or enforce the
payments on the Subordinated Note, after providing written
notice of such default to you and the passage of six months
from the date of such notice. In no event shall any such
action or any enforcement of any judgment or lien or any other
enforcement of Creditor's rights or remedies under the
Subordinated Note impair your security interest or any other
interest that you may have in the Collateral or your rights
under the Loan Agreement, or the interest or rights of any
third party, the proceeds of whose loan to Borrower would be
used to repay the Senior Indebtedness under the Loan
Agreement. Any other collection action on such payments is
subject to your prior written approval and consent. Provided
further that Creditor may accelerate the maturity of any of
the Junior Indebtedness in accordance with Section 3 of the
Subordinated Note.
If Creditor, in violation of this Agreement, shall institute
or participate in any suit, action or proceeding against
Borrower, Borrower may interpose as a defense or dilatory plea
this Agreement and you are irrevocably authorized to intervene
and to interpose such defense or plea in your or Borrower's
name. If Creditor attempts to enforce or realize upon any
collateral securing the Junior Indebtedness in violation of
this Agreement, Borrower or you (in Borrower's or your name)
may by virtue of this Agreement restrain such realization or
enforcement.
7. No termination of this subordination prior to payment of all
amount due under, and the termination of, the Loan Agreement
shall be effective without your prior written consent.
Creditor waives notice of acceptance hereof and of
presentment, demand, protest and notice of nonpayment or
protest as to any note or obligation signed, accepted,
endorsed or assigned to you by Borrower, and all exemptions
and any other demands and notices required by law, and waives
all defenses, setoffs and counterclaims whether hereunder or
with respect to any obligations owing to Creditor by you or by
Borrower. Until you have received payment in full of the
Senior Indebtedness, Creditor agrees that you may at any time
and from time to time, without Creditor's consent, and without
notice to Creditor, do any one or more of the following in
your sole and absolute discretion: (a) renew, accelerate,
extend the time for payment of, or increase the Senior
Indebtedness and any or all of the obligations of Borrower's
customers, of any guarantors of Borrower, or of any other
party at any time directly or contingently liable for the
payment of any of the Senior Indebtedness; (b) grant any other
indulgence to Borrower or any other person in respect of any
or all of the Senior Indebtedness or any other matter; (c)
amend, alter or change in any respect whatsoever any term or
provision relating to any or all of the Senior Indebtedness,
including the rate of interest thereon, or the loan documents
relating thereto; (d) substitute or add, or take any action or
omit to take any action which results in the release of any
one or more endorsers or guarantors of all or any part of
-4-
<PAGE> 5
the Senior Indebtedness; (e) apply any sums received from
Borrower, any guarantor, endorser, or co-signer, or from the
disposition of any collateral to any indebtedness whatsoever
owing from such person or secured by such collateral, in such
manner and order as you determine in your sole discretion, and
regardless of whether such indebtedness is part of the Senior
Indebtedness, is secured, or is due and payable; (f) permit
Borrower to use proceeds of any collateral for any purpose;
(g) make loans or advances to Borrower secured in whole or in
part by any collateral or refrain from making any such loans
or advances; (h) accept partial payments of, compromise or
settle, refuse to enforce, or release all or any parties to,
any or all of the Senior Indebtedness; (i) settle, release (by
operation of law or otherwise), compound, compromise, collect
or liquidate any of the Senior Indebtedness or any collateral
in any manner permitted by applicable law; and (j) accept,
release, waiver, surrender, enforce, exchange, modify, impair,
or extend the time for the performance, discharge, or payment
of, any and all property of any kind securing any or all of
the Senior Indebtedness, or on which you at any time may have
a lien, or refuse to enforce your rights or make any
compromise or settlement or agreement therefor in respect of
any or all of such property. You are not under and shall not
hereafter be under any obligation to marshall any assets in
favor of Creditor, or against or in payment of any or all of
the Senior Indebtedness, and may proceed against any
collateral in such order and manner as you elect. This
subordination shall bind our respective heirs, administrators,
executors, successors and assigns, and shall enure to your
successors and assigns. Waiver of any default shall not be
deemed a waiver of any other or subsequent default. All of
your rights are cumulative and not alternative.
8. Schedule of Junior Indebtedness.
(a) The total Junior Indebtedness (including contingent
and other liabilities) owing on the date hereof by
Borrower to Creditor is as follows:
<TABLE>
<CAPTION>
Creditor Amount Payable on
- -------- ------ ------- --
<S> <C> <C>
Maxtor Corporation, $4,000,000 December 23, 1996
a Delaware corporation
</TABLE>
(b) Note evidencing above Junior Indebtedness is as
follows:
<TABLE>
<CAPTION>
Date Principal Interest
Creditor of Note Amount Per Annum
-------- ------- ------ ---------
<S> <C> <C> <C>
Maxtor Corporation, Dec. 26, 1992, $4,000,000 12%
a Delaware corporation as amended
</TABLE>
-5-
<PAGE> 6
MATURITY
Dec 23, 1996
(c) Collateral for above Junior Indebtedness is as
follows:
The Junior Indebtedness is and will remain unsecured.
9. In the event Borrower becomes the debtor in any voluntary or
involuntary bankruptcy proceeding, Creditor shall have the
following rights:
(1) Creditor may file one or more proofs of claim in such
bankruptcy with respect to the Junior Indebtedness,
provided that Creditor shall not be entitled to
receive payment of its claims prior to payment in
full of the Senior Indebtedness, and, in the event of
any distribution to Creditor with respect to the
Junior Indebtedness at a time when any Senior
Indebtedness remains unpaid, Creditor shall pay over
such distribution to you to be applied in reduction
of the Senior Indebtedness, and Creditor shall become
subrogated to your claims to the extent of any such
payments made at such time, if any, as the Senior
Indebtedness is fully satisfied, but not sooner.
(2) Creditor may vote its claim with respect to the
Junior Indebtedness in connection with any matter
requiring the vote of creditors, but shall not vote
in favor of any plan that would cause Creditor to be
paid ahead of you in violation of the provisions of
this Agreement.
(3) Creditor may appear and be heard on any matter
relating to its claim, but shall not seek to assert
rights contrary to the provisions of this Agreement.
If Creditor should fail to file a proof of claim within thirty (30)
days of the expiration of the time period within which creditors must
file their proofs of claim or take any other action advisable to
preserve its claims against Borrower within thirty (30) days of your
request to take such action, Creditor agrees that you may file such
claim or take such action in the Creditor's place and stead, as its
attorney-in-fact, and Creditor hereby irrevocably appoints you as its
attorney-in-fact for such purposes for the term of this Agreement.
10. In the event of any action based upon or arising out of this Agreement,
the prevailing party shall be entitled to recover from the
non-prevailing party all out-of-pocket costs, fees and reasonable
expenses incurred in connection therewith, including without limitation
reasonable attorneys' fees. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of California. Each
party hereto hereby agrees to execute such additional documents and
instruments and take such further actions as may reasonably be required
to carry out the purposes and intent of this Agreement.
-6-
<PAGE> 7
11. BORROWER AND CREDITOR EACH HEREBY WAIVES ANY RIGHT TO TRIAL BY
JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i)
ARISING UNDER THIS AGREEMENT OR (ii) IN ANY WAY CONNECTED WITH
OR RELATED OR INCIDENTAL TO THE DEALINGS OF IN RESPECT OF THIS
AGREEMENT OR THE TRANSACTIONS RELATED HERETO IN EACH CASE
WHETHER NOW EXISTING OR HEREAFTER ARISING, AND WHETHER IN
CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND CREDITOR
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND,
ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT BORROWER, CREDITOR OR YOU MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO
TO THE WAIVER OF THEIR RIGHT TO TRIAL BY JURY.
12. All notices and other communications provided for hereunder
must be in writing and must be mailed, telecopied or delivered
to the appropriate party at the address set forth below or at
any other address as may be designated by it in a written
notice sent to all other parties in accordance with this
paragraph, and shall be effective (a) if given by mail, on the
earlier of receipt or the third calendar day after deposit in
the United States mail with first class or airmail postage
paid, (b) if given by telecopier, when sent, or (c) if given
by personal delivery, when delivered.
If to Borrower, at:
Storage Dimensions, Inc.
1656 McCarthy Boulevard
Milpitas, CA 95035
Attn: Chief Financial Officer
Telephone: (408) 954-0710
Telecopier: (408) 944-1208
If to Creditor, at:
Maxtor Corporation
211 River Oaks Parkway
San Jose, CA 95134
Attn: General Counsel
Telephone: (408) 432-4644
Telecopier: (408) 432-4169
If to Congress Financial Corporation (Western), at
-7-
<PAGE> 8
Congress Financial Corporation (Western)
225 South Lake Avenue, Suite 1000
Pasadena, CA 91101
Attn: Account Executive - Storage Dimensions
Telephone: (818) 304-4900
Telecopier: (818) 304-4949
13. This Agreement may be executed in one or more counterparts,
all of which counterparts together shall constitute one and
the same instrument.
Borrower and Creditor have severally duly executed this Agreement as of May 16,
1996.
STORAGE DIMENSIONS, INC. MAXTOR CORPORATION,
a Delaware corporation a Delaware, corporation
"Borrower" "Creditor"
By: /s/ ROBERT E. BYLIN By: /s/ NATHAN KAWAYE
-------------------------------- --------------------------------
Robert E. Bylin Nathan Kawaye
Title: CFO Title: VP, CFO
----------------------------- -----------------------------
-8-
<PAGE> 1
EXHIBIT 10.6
SUBORDINATED PROMISSORY NOTE
$4,000,000 December 26, 1992
San Jose, California
STORAGE DIMENSIONS, INC., a Delaware corporation formerly known as SDI
Acquisition Corporation, ("Newco"), for value received, hereby promises to pay
to STORAGE DIMENSIONS, INC., a California corporation ("SDI"), the principal sum
of Four Million Dollars ($4,000,000) and to pay interest (computed on the basis
of a 365-day year) on the unpaid principal thereof at the rate of eight percent
(8%) per annum from the date hereof through the first anniversary hereof;
thereafter, at a rate of ten percent (10%) per annum through the second
anniversary hereof; and thereafter at a rate of twelve percent (12%) per annum;
provided that in no case shall the interest charged exceed the maximum rate
under applicable law.
1. Payment. Interest shall be payable monthly in arrears, on the first
day of each month, commencing February 1, 1993 until the principal sum is paid
in full (whether at maturity or otherwise). Principal shall be due and payable
in three equal installments on the first, second and third anniversaries of the
date hereof. On the third anniversary hereof, all unpaid principal and interest
shall be due and payable; provided, however, that Newco shall make prepayments
on account of amounts owing hereunder to the extent not expressly prohibited by
the Loan and Security Agreement dated as of December 26, 1992 (the "Loan
Agreement") between Newco and Sanwa Business Credit Corporation (the "Lender")
or the Subordination Agreement dated as of December 26, 1992 among Newco, SDI
and the Lender (the "Subordination Agreement"), with the written approval of the
Lender. Payments of principal and interest shall be made in lawful money of the
United States of America without set-off, counterclaim, withholding or deduction
of any kind.
2. Subordination. The indebtedness evidenced by this Note is
subordinate and junior to the prior payment in full of the principal and
interest and other amounts due on all Senior Indebtedness (as defined below) to
the extent and in the manner hereinafter set forth. For so long as any portion
of the Senior Indebtedness is outstanding, Newco will not pay to SDI and SDI
will not receive from Newco any part of the indebtedness evidenced by this Note
except for regularly scheduled payments of principal and interest and
prepayments not expressly prohibited by the Loan Agreement or the Subordination
Agreement. SDI agrees, from time to time as reasonably requested by Newco, to
execute any documents required by the Lender reaffirming the subordination
provisions contained in this Note; provided, however, that the rights of SDI
under this Note shall not be adversely affected by such reaffirmation. For
purposes of this Note, the term "Senior Indebtedness" shall mean: (i) all
indebtedness of Newco under the Loan Agreement; (ii) all indebtedness of Newco
hereafter arising for an aggregate principal amount of up to Ten Million Dollars
($10,000,000) from banks, trust companies or other lenders who are not
affiliates
1
<PAGE> 2
of Newco, the proceeds of which Newco will use to finance positive growth; and
(iii) renewals, extensions, replacements or refinancings of any such
indebtedness referred to in clauses (i) and (ii) above, to the extent of the
maximum aggregate principal amount of borrowings permitted under the Loan
Agreement and the agreements with regard to the indebtedness described in clause
(ii) above; provided, however, that the term "Senior Indebtedness" shall not
include any indebtedness expressly subordinated to this Note.
3. Default; Acceleration. Upon the occurrence of one or more of the
following events, SDI shall have a right to accelerate this Note, in which case
the entire principal amount and all unpaid interest and fees will be immediately
due and payable:
(i) if any Lender accelerates payment of the indebtedness
outstanding under the Loan Agreement;
(ii) if no default exists under the Loan Agreement, and a
scheduled principal or interest payment has not been made under this Note for a
period of ninety (90) days following the date such payment is due; and
(iii) if a default exists under the Loan Agreement, and the
Lender has prohibited Newco from making an interest payment hereunder, and a
scheduled interest payment has not been made under this Note for a period of one
hundred eighty (180) days following the due date.
Any acceleration under (i) shall be rescinded if the Lender rescinds
acceleration of its indebtedness, and any acceleration under (ii) or (iii) shall
be rescinded upon correction of the payment default that gave rise to the
acceleration. During any period during which no payments to the Lender required
by the Loan Agreement are being made, SDI shall have no right to accelerate
amounts due hereunder except pursuant to clause (i) above. For so long as (A) a
default exists under the Loan Agreement and (B) the Lender has directed Newco
not to make payments of any principal amount hereunder, Newco shall not make,
and SDI shall not accept, a payment of any principal amount due hereunder.
During such period, SDI shall have no right to accelerate the amount due
hereunder except pursuant to clauses (i) and (ii) of this Section 3.
4. Collection Costs. In the event any action is taken to enforce the
rights of SDI under this Note, the person prevailing in that action shall be
entitled, in addition to such other relief as may be granted, to all reasonable
costs and expenses, including reasonable attorneys' fees, incurred in such
action.
5. Miscellaneous. Newco hereby waives presentment, demand, protest or
notice of any kind in connection with this Note. This Note shall not be assigned
without the prior written consent of Newco, other than to Maxtor Corporation, a
Delaware corporation ("Maxtor"), or a wholly-owned subsidiary of Maxtor. This
Note is issued in connection with the Stock Purchase and Asset Acquisition
Agreement dated as of December 4, 1992 among SDI,, Newco and certain other
parties. This Note shall be construed in accordance with and governed by the
laws of the State of California (without regard to its conflict of laws
principles).
2
<PAGE> 3
STORAGE DIMENSIONS, INC.
By: /s/ A. GEORGE GEBAUER
----------------------------------------
A. George Gebauer
Title: President
By: /s/
----------------------------------------
Title: Assistant Treasurer
3
<PAGE> 4
AGREEMENT TO AMEND
SUBORDINATED PROMISSORY NOTE
This Agreement to Amend Subordinated Promissory Note ("Third
Amendment") is made by and among Storage Dimensions, Inc., a Delaware
corporation ("SDI"), Old SDI-Sub (formerly Storage Dimensions, Inc.), a
California corporation, and Maxtor Corporation, a Delaware corporation
(collectively, "Maxtor") as of January 9, 1997.
RECITALS
A. Pursuant to the terms of a Subordinated Promissory Note, dated
December 26, 1992 (the "Note"), SDI promised to pay to Storage Dimensions, Inc.,
a California corporation and wholly-owned subsidiary of Maxtor Corporation
("Maxtor"), the principal sum of Four Million Dollars ($4,000,000). Such terms
provided for payment of interest on a monthly basis, commencing February 1, 1993
until the principal sum was paid in full, and for equal annual principal
installments due on each of the first three anniversary dates of the Note.
Maxtor subsequently agreed to allow SDI to defer principal payments due under
the Note in accordance with Maxtor's letters dated February 17, 1994 (the "First
Amendment") and January 3, 1995 (the "Second Amendment").
B. SDI intends to conduct an initial public offering (the "Offering")
of its stock and wishes to further defer both interest and principal payments
due under the Note until it receives the proceeds from the Offering.
NOW, THEREFORE, in consideration for the obligations undertaken herein,
Maxtor agrees to the amendment and modification of the Note as set forth herein.
AMENDMENT
1. Notwithstanding the provisions of Paragraph 2 of the Note, all sums
due under the Note, including principal and accrued interest, shall become
immediately due and payable on the earlier of: (i) the date on which SDI
receives the proceeds from the Offering; or (ii) May 10, 1997.
2. All provisions of the Note, except as modified by this Third
Amendment, shall remain in full force and effect and are reaffirmed. Other than
as stated in this Third Amendment, this amendment shall not operate as a waiver
of any condition or obligation imposed on SDI under the Note.
<PAGE> 5
3. In the event of any conflict, inconsistency, or incongruity between
any provision of this Third Amendment and any provision of the Note, the
provisions of this Third Amendment shall govern and control.
This Agreement may be executed in counterparts, each of which shall be
an original, but all of which together shall constitute one instrument.
IN WITNESS WHEREOF, SDI and Maxtor have executed this Third Amendment
as of the date first above written.
SDI
STORAGE-DIMENSIONS, INC.
a Delaware Corporation
By /s/ ROBERT E. BYLIN
-----------------------------------
Name: Robert E. Bylin
Title: Sr. Vice President Finance, CFO
MAXTOR
OLD SDI SUB
(formerly Storage Dimensions, Inc.)
a California corporation
By /s/ GLENN H. STEVENS
-----------------------------------
Name: Glenn H. Stevens
Title: Secretary
MAXTOR CORPORATION
a Delaware corporation
By: /s/ GLENN H. STEVENS
-----------------------------------
Name: Glenn H. Stevens
Title: Vice President, General
Counsel and Secretary
-2-
<PAGE> 1
EXHIBIT 10.7
STOCKHOLDERS
AGREEMENT
Dated as of December 26, 1992
Among
GENE E. BOWLES, JR.
DAVID A. EEG
CP ACQUISITION, L.P. NO.4A
CP ACQUISITION, L.P. NO.4B
CAPITAL PARTNERS, INC.
FGS, INC.
MAXTOR CORPORATION
STORAGE DIMENSIONS, INC.
and
OTHER MANAGEMENT INVESTORS
<PAGE> 2
TABLE OF CONTENTS
Page
BACKGROUND AND STATEMENT OF PURPOSE.................................... 1
ARTICLE 1 DEFINITIONS...................................... 1
1.1 "Action"......................................... 1
1.2 "Agreement"...................................... 1
1.3 "Approval"....................................... 2
1.4 "Board".......................................... 2
1.5 "Bylaws"......................................... 2
1.6 "Closing"........................................ 2
1.7 "Closing Date"................................... 2
1.8 "Exchange Act"................................... 2
1.9 "Governmental Entity"............................ 2
1.10 "Holder" or "Holders"............................ 2
1.11 "Immediate Family Member"........................ 2
1.12 "Initial Public Offering"........................ 2
1.13 "Law"............................................ 2
1.14 "Loss"........................................... 2
1.15 "Management Investor"............................ 3
1.16 "Management Investor Permitted Transferee"....... 3
1.17 "Maxtor Permitted Transferee".................... 3
1.18 "Newco Common Stock"............................. 3
1.19 "Newco Equity Equivalent"........................ 3
1.20 "Newco Equity Security".......................... 3
1.21 "Newco Voting Convertible Preferred Stock"....... 3
1.22 "1993 Stock Option Plan"......................... 3
1.23 "1993 Stock Purchase Plan"....................... 3
1.24 "Order".......................................... 3
1.25 "Other Management Investor"...................... 3
1.26 "Person"......................................... 3
1.27 "Purchaser"...................................... 3
1.28 "Register," "registered" and "registration"...... 3
1.29 "Registrable Securities"......................... 3
1.30 "Restated Certificate of Incorporation".......... 4
1.31 "Securities Act"................................. 4
1.32 "SEC"............................................ 4
1.33 "Stock Subscription Agreement"................... 4
1.34 "Total Voting Power of Newco".................... 4
1.35 "Voting Stock"................................... 4
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ARTICLE 2 LEGENDS AND TRANSFER RESTRICTIONS....................... 5
2.1 Legend.................................................. 5
2.2 Removal of Legend and Transfer Restrictions............. 5
2.3 Restrictions on Transfer................................ 5
2.4 Notice of Proposed Transfers............................ 6
ARTICLE 3 COVENANTS CONCERNING CONDUCT OF CAPITAL
INVESTORS, MANAGEMENT INVESTORS, MAXTOR AND
NEWCO AFTER CLOSING..................................... 6
3.1 Maxtor's Right of First Refusal on New Issuances........ 6
(a) Right of Pro Rata Purchase...................... 6
(b) Procedure....................................... 6
(c) Exceptions...................................... 7
3.2 Maxtor's Permitted Transfers............................ 7
3.3 Management Investors Permitted and Required Transfers... 9
3.4 Maxtor's Right of Co-Sale on Stock Transfers............ 10
3.5 Capital's "Bring-Along" Right........................... 10
3.6 Composition of Newco Board.............................. 11
3.7 Maxtor's Director-Designee's Voting Rights.............. 11
3.8 Renewal of Voting Agreement............................. 12
3.9 Books, Records and Financial Statements................. 12
3.10 Public Accountants...................................... 12
3.11 Accounting Assistance................................... 13
3.12 Proprietary Information Agreements...................... 13
3.13 Standstill.............................................. 13
3.14 Legend.................................................. 13
3.15 Other Management Investors.............................. 13
3.16 Termination............................................. 14
ARTICLE 4 REGISTRATION RIGHTS..................................... 14
4.1 Company Registration.................................... 14
(a) Registration.................................... 14
(b) Underwriting.................................... 14
4.2 Form S-3................................................ 15
4.3 Expenses of Registration................................ 16
4.4 Registration Procedures................................. 16
4.5 Indemnification......................................... 17
4.6 Information by Holder................................... 19
4.7 Rule 144 Reporting...................................... 19
4.8 Transfer of Registration Rights......................... 20
4.9 "Market Stand-Off" Agreement............................ 20
4.10 Other Registration Rights............................... 20
4.11 Most Favored Registration Rights........................ 21
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ARTICLE 5 GENERAL................................................ 21
5.1 Amendments; Waivers.................................... 21
5.2 Integration............................................ 21
5.3 Reasonable Efforts; Further Assurances................. 21
5.4 Governing Law.......................................... 21
5.5 Assignment............................................. 21
5.6 Headings............................................... 22
5.7 Counterparts........................................... 22
5.8 Parties in Interest.................................... 22
5.9 Notices................................................ 22
5.10 Remedies; Waiver....................................... 24
5.11 Severability........................................... 24
5.12 No Consequential Damages............................... 24
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STOCKHOLDERS' AGREEMENT
This Stockholders' Agreement (this "Agreement") is entered into as of
December 26, 1992 among David A. Eeg ("Eeg"), Gene E. Bowles, Jr. ("Bowles"), CP
Acquisition, L.P. No. 4A, a Delaware limited partnership ("CP4A"), CP
Acquisition, L.P. No. 4B, a Delaware limited partnership ("CP4B"), Capital
Partners, Inc., a Connecticut corporation ("CP Inc."), FGS, Inc., a Delaware
corporation ("FGS"; and collectively with CP4A, CP4B and CP Inc., the "Capital
Investors"), Maxtor Corporation, a Delaware corporation ("Maxtor"), STORAGE
DIMENSIONS, INC., a Delaware corporation formerly known as SDI Acquisition
Corporation ("Newco") and each of the Other Management Investors (as defined
below) who becomes a party to this Agreement at the Closing (as defined below).
BACKGROUND AND STATEMENT OF PURPOSE
The Capital Investors, Bowles, Eeg and Maxtor (the "Original
Investors") and Newco have entered into a Stock Purchase and Asset Acquisition
Agreement dated as of December 4, 1992 (the "Acquisition Agreement") with
Storage Dimensions, Inc. a California corporation ("SDI"). It is a condition to
the closing of the transactions contemplated by the Acquisition Agreement that
the Original Investors will have entered into a Stockholders' Agreement
substantially in the form of this Agreement. It is contemplated that Other
Management Investors (as defined below) who purchase shares of Newco Voting
Convertible Preferred Stock (as defined below) will become parties to this
Agreement.
In consideration of the mutual promises contained herein the parties,
intending to be legally bound, agree as follows:
ARTICLE 1
DEFINITIONS
As used in this Agreement, the following terms shall have the
respective meanings set forth below.
1.1 "Action" means any action, complaint, investigation, suit or other
proceeding, whether civil or criminal, in law or in equity, or before any
arbitrator or Governmental Entity.
1.2 "Agreement" means this Agreement, as amended or supplemented,
together with all exhibits and schedules attached to or incorporated by
reference pursuant to this Agreement.
1.3 "Approval" means any approval, authorization, consent,
qualification or registration, or any waiver of any of the foregoing, required
to be obtained from, or any notice, statement or other communication required to
be filed with or delivered to, any Governmental Entity or any other Person.
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1.4 "Board" means the Board of Directors of Newco.
1.5 "Bylaws" means the bylaws of Newco in the form attached to the
Acquisition Agreement as Exhibit C, as amended.
1.6 "Closing" means the closing of the purchase by Newco from SDI of
the assets of SDI and the purchase by the Original Investors from Newco of Newco
Common Stock and Newco Voting Convertible Preferred Stock as provided in the
Acquisition Agreement.
1.7 "Closing Date" means the day on which the Closing occurs.
1.8 "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
1.9 "Governmental Entity" means any government or any agency, bureau,
commission, court, department, official, political subdivision, tribunal or
other instrumentality of any government, whether federal, state or local,
domestic or foreign.
1.10 "Holder" or "Holders" means any person or persons to whom
Registrable Securities were originally issued, any Maxtor Permitted Transferee,
any Management Investor Permitted Transferee and any qualifying transferee under
Section 4.8 hereof who holds Registrable Securities.
1.11 "Immediate Family Member" means any parent, spouse, child or
grandchild of the subject Person.
1.12 "Initial Public Offering" means the initial public offering of
securities of Newco in a firm underwriting pursuant to a registration statement
that has become effective in accordance with the provisions of the Securities
Act.
1.13 "Law" means any constitutional provision, statute or other law,
rule, regulation, or interpretation of any thereof or any Order.
1.14 "Loss" means any action, cost, damage, disbursement, expense,
liability, loss, deficiency, diminution in value, obligation, penalty or
settlement of any kind or nature, whether foreseeable or unforeseeable,
including but not limited to, interest or other carrying costs, penalties,
legal, accounting and other professional fees and expenses incurred in the
investigation, collection, prosecution and defense of claims and amounts paid in
settlement, that may be imposed on or otherwise incurred or suffered by the
specified Person.
1.15 "Management Investor" means Bowles, Eeg or any Other Management
Investor.
1.16 "Management Investor Permitted Transferee" is defined in Section
3.3(a).
1.17 "Maxtor Permitted Transferee" is defined in Section 3.2(a).
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1.18 "Newco Common Stock" means the common stock, par value $0.005 per
share, of Newco.
1.19 "Newco Equity Equivalent" means any capital stock or other
security of Newco directly or indirectly convertible into, or exercisable or
exchangeable for, any equity security of Newco, including, without limitation,
the Newco Common Stock and the Newco Voting Convertible Preferred Stock. The
term "Newco Equity Equivalent" shall include the Newco Voting Convertible
Preferred Stock.
1.20 "Newco Equity Security" means any Newco Common Stock or any Newco
Equity Equivalent.
1.21 "Newco Voting Convertible Preferred Stock" means the voting
convertible preferred stock, par value $0.005 per share, of Newco.
1.22 "1993 Stock Option Plan" is defined in Section 3.1(c).
1.23 "1993 Stock Purchase Plan" is defined in Section 3.1(c).
1.24 "Order" means any decree, injunction, judgment, order, ruling,
assessment or writ.
1.25 "Other Management Investor" means those of Robert E. Bylin, George
K. Peck, Gary D. Taggart and Hermann E. Steigerwald that purchase Newco Voting
Convertible Preferred Stock pursuant to a Stock Subscription Agreement and who
becomes a party to this Agreement as provided in Section 3.15.
1.26 "Person" means any association, corporation, individual,
partnership, trust or other entity or organization, including a Governmental
Entity.
1.27 "Purchaser" means any Person that purchases any Newco Equity
Security and that becomes a party to this Agreement.
1.28 "Register," "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
1.29 "Registrable Securities" means (a) all shares of Newco Common
Stock (i) acquired at any time by or issuable upon the conversion, exchange or
exercise of any Newco Equity Equivalent acquired at any time by Maxtor pursuant
to the Acquisition Agreement, this Agreement or otherwise, (ii) acquired at any
time by or issuable upon the conversion, exchange or exercise of any Newco
Equity Equivalent acquired at any time by any Capital Investor pursuant to the
Acquisition Agreement, this Agreement or otherwise, (iii) issuable upon the
conversion of the Newco Voting Convertible Preferred Stock acquired by Eeg or
Bowles pursuant to the Acquisition Agreement and (iv) issuable upon the
conversion of the Newco Voting Convertible Preferred Stock acquired by any Other
Management Investor pursuant to a Stock Subscription Agreement; (b) all equity
securities issued in lieu of any of the securities referred to in clause (a)
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of this Section 1.29 in any reorganization which have not been sold in a
distribution (as defined in the Securities Act); and (c) all equity securities
issued in respect of any of the securities referred to in clause (a) or (b) of
this Section 1.29 as a result of a stock split, stock dividend, recapitalization
or the like, which have not been sold in a distribution.
1.30 "Restated Certificate of Incorporation" means the restated
certificate of incorporation of Newco in the form attached to the Acquisition
Agreement as Exhibit B, as amended.
1.31 "Securities Act" means the Securities Act of 1933, as amended,
together with the rules and regulations promulgated thereunder.
1.32 "SEC" means the Securities and Exchange Commission.
1.33 "Stock Subscription Agreement" means an agreement between Newco
and an Other Management Investor providing for the purchase of Newco Voting
Convertible Preferred Stock by such Other Management Investor from Newco. The
aggregate amount of Newco Voting Convertible Preferred Stock that will be
purchased and sold under all Stock Subscription Agreements shall not exceed
467,500 shares.
1.34 "Total Voting Power of Newco" means the total number of votes
which may be cast in the election of directors of Newco at any meeting of
stockholders of Newco if all securities entitled to vote in the election of
directors of Newco are present and vote at such meeting (other than votes that
may be cast only upon the happening of a contingency).
1.35 "Voting Stock" means the Newco Common Stock, the Newco Voting
Convertible Preferred Stock and any other securities issued by Newco having the
ordinary power to vote in the election of directors of Newco (other than
securities having such power only upon the happening of a contingency).
ARTICLE 2
LEGENDS AND TRANSFER RESTRICTIONS
2.1 Legend. Each certificate representing any Newco Equity Securities
shall be endorsed with the following legends:
(a) THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND
MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED, ASSIGNED OR
PLEDGED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, THE TRANSFER IS MADE
IN COMPLIANCE WITH RULE 144 PROMULGATED UNDER SUCH ACT OR THE
CORPORATION RECEIVES AN OPINION OF
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COUNSEL FOR THE HOLDER OF THESE SECURITIES WHICH IS REASONABLY
SATISFACTORY TO THE CORPORATION, STATING THAT REGISTRATION
UNDER SUCH ACT IS NOT REQUIRED.
(b) Any other legends required by California law or other
applicable state blue sky laws; and
(c) Any legends required by this Agreement.
2.2 Removal of Legend and Transfer Restrictions.
(a) Any legend endorsed on a certificate pursuant to Section
2.1(a) and any stop transfer instructions with respect to such Newco Equity
Securities shall be removed and Newco shall issue a certificate without such
legend to the holder thereof if such Newco Equity Securities are registered
under the Securities Act and a prospectus meeting the requirements of Section 10
of the Securities Act is available, if such legend may be properly removed under
the terms of Rule 144 promulgated under the Securities Act or if such holder
provides Newco with an opinion of counsel for such holder reasonably
satisfactory to legal counsel for Newco, to the effect that a public sale,
transfer or assignment of such Newco Equity Securities may be made without
registration.
(b) Any legend endorsed on a certificate pursuant to Section
2.1(b) shall be removed upon receipt by Newco of an order of the California
Department of Corporations or other blue sky authority authorizing such removal,
as appropriate.
2.3 Restrictions on Transfer. Each Purchaser agrees that it will not,
directly or indirectly, offer, sell, transfer, assign, pledge, hypothecate or
otherwise dispose of, or make any exchange, gift, assignment or pledge of, any
Newco Equity Securities held by it except in accordance with the terms of this
Agreement. Newco need not register a transfer of any Newco Equity Securities and
may also instruct its transfer agent not to register a transfer of any Newco
Equity Securities unless the conditions specified in this Agreement are
satisfied.
2.4 Notice of Proposed Transfers. The holder of each certificate
representing any Newco Equity Securities by acceptance thereof agrees to comply
in all respects with the provisions of this Section 2.4. Prior to any proposed
transfer of any Newco Equity Securities unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the holder
thereof shall give written notice to Newco of such holder's intention to effect
such transfer. Each such notice shall set forth the manner, circumstances and
material terms of the proposed transfer in a manner satisfactory to Newco,
including without limitation the price. Unless in the opinion of counsel to
Newco the transaction is in compliance with Rule 144 or otherwise exempt from
registration, the notice required by this Section 2.4 shall be accompanied by
either (a) a written opinion of legal counsel addressed to Newco and reasonably
satisfactory in form and content to Newco's counsel to the effect that the
proposed transfer may be effected without registration under the Securities Act,
or (b) a "no action" letter from the SEC to the
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effect that the proposed transfer of such securities without registration will
not result in a recommendation by the staff of the Commission that action be
taken with respect thereto.
ARTICLE 3
COVENANTS CONCERNING CONDUCT OF CAPITAL INVESTORS,
MANAGEMENT INVESTORS, MAXTOR
AND NEWCO AFTER CLOSING
3.1 Maxtor's Right of First Refusal on New Issuances.
(a) Right of Pro Rata Purchase. If Newco decides to issue any
Newco Equity Securities it will give Maxtor the right to purchase its pro rata
share of such Newco Equity Securities based upon its then percentage ownership
of Newco Common Stock (assuming the conversion of all then outstanding Newco
Equity Equivalents convertible into shares of Newco Common Stock and the
exchange of all then outstanding Newco Equity Equivalents exchangeable for
shares of Newco Common Stock without the delivery of any additional
consideration) on the terms set forth in this Section 3.1.
(b) Procedure. In the event Newco proposes to issue any Newco
Equity Securities, it shall give Maxtor written notice of the proposed terms.
Maxtor shall have thirty days after receipt of such notice to notify Newco in
writing that Maxtor agrees to purchase all or part of its pro rata share of such
Newco Equity Securities and it shall have thirty days thereafter to complete
such purchase. If Maxtor declines to exercise its right to purchase or fails to
give notice to Newco within thirty days after receipt of Newco's notice, Newco
shall have one hundred twenty days thereafter to sell the Newco Equity
Securities upon terms no more favorable to the purchasers thereof than specified
in Newco's notice.
(c) Exceptions. The pro rata purchase rights set forth in this
Section 3.1 shall not apply to: (i) the issuance by Newco of any Newco Equity
Securities pursuant to the terms of the Acquisition Agreement or any Stock
Subscription Agreement, (ii) the issuance by Newco of up to 2,222,222 shares of
Newco Common Stock pursuant to a stock option plan (the "1993 Stock Option
Plan") to be adopted by the Board after the Closing or 467,500 shares of Newco
Voting Convertible Preferred Stock pursuant to a stock purchase plan (the "1993
Stock Purchase Plan") to be adopted by the Board promptly after the Closing, to
directors, officers, employees or consultants of Newco, such number of shares as
increased, if at all, in accordance with Section 3.7, (iii) the issuance of
Newco Equity Securities in connection with any transaction of a type described
in Rule 145 under the Securities Act in which, among other things, Maxtor has
been offered the opportunity to maintain its proportionate interest in Newco
Common Stock (assuming the conversion of all then outstanding Newco Equity
Equivalents convertible into shares of Newco Common Stock and the exchange of
all then outstanding Newco Equity Equivalents exchangeable for shares of Newco
Common Stock without the delivery of any additional consideration by purchase
for cash of Newco Equity Securities of the same type issued in such transaction
for value substantially equivalent to that paid or contributed by other offerees
or purchasers in such transaction, (iv) the issuance of Newco Equity Securities
upon the conversion,
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exercise or exchange of any Newco Equity Equivalents which were issued pursuant
to the Acquisition Agreement or any Stock Subscription Agreement, or the
issuance of which was subject to such rights or (v) the issuance of Newco Equity
Securities pursuant to the Initial Public Offering.
3.2 Maxtor's Permitted Transfers. Neither Maxtor nor any Maxtor
Permitted Transferee may transfer directly or indirectly any of the Newco Equity
Securities acquired by it pursuant to the Acquisition Agreement or otherwise
except as provided in this Section 3.2.
(a) Maxtor shall be entitled to transfer all or part of its
Newco Equity Securities to any corporation of which Maxtor owns not less than a
majority of the voting stock (each a "Maxtor Permitted Transferee"); provided,
that each Maxtor Permitted Transferee, if not a party hereto, shall
simultaneously with such transfer become a party hereto by executing and filing
with Newco a letter substantially in the following form:
Storage Dimensions, Inc. [Date]
[Address]
Dear Sirs:
The undersigned hereby agrees to become a party to the Stockholders Agreement
dated as of December 26, 1992 (the "Agreement") among Storage Dimensions, Inc.
and certain of its stockholders, and agrees, as of the date hereof, to be bound
by all of the terms and provisions thereof. The Agreement shall be binding upon
the successors and assigns of the undersigned.
Very truly yours,
__________________________
Each certificate evidencing any Newco stock transferred to any Maxtor
Permitted Transferee as above provided shall bear the appropriate restrictive
legends set forth in Section 2.1 unless such legends would be removable pursuant
to Section 2.2.
(b) If Maxtor or any Maxtor Permitted Transferee (the "Maxtor
Offeror") desires to transfer all or part of its Newco Equity Securities to a
person other than a Maxtor Permitted Transferee, it will first give written
notice to the Capital Investors stating the Newco Equity Securities it intends
to offer and the price and terms it intends to ask. Not later than 45 days after
receipt of such written notice, the Capital Investors or their designee will
give the Maxtor Offeror written notice stating either that the Capital Investors
or such designee elects to purchase such Newco Equity Securities at the price
and on the terms stated in such notice or that the Capital Investors or such
designee offers to acquire all such Newco Equity Securities at such other price
or on such other terms as the Capital Investors or such designee shall state in
such notice. If the Capital Investors or such designee does not give the Maxtor
Offeror such notice within such period, the Maxtor Offeror may transfer all of
the Newco Equity Securities with
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respect to which such notice was given free of the Capital Investors' right of
first refusal during the 317-day period after the date of the Maxtor Offeror's
notice to the Capital Investors at such price and on such terms as the Maxtor
Offeror may determine. If the Capital Investors or such designee gives such
notice timely and elects to purchase such Newco Equity Securities on the terms
offered by the Maxtor Offeror, the parties will complete the sale at the price
and on the terms offered. If the Capital Investors or such designee gives such
notice timely and offers to purchase the Newco Equity Securities on other terms,
the Maxtor Offeror may accept such offer by giving the Capital Investors or such
designee written notice not later than 45 days after receipt of notice from the
Capital Investors or such designee, whereupon the parties will complete the sale
at the price and on the terms of the offer of the Capital Investors or such
designee. If the Maxtor Offeror does not accept such offer, the Maxtor Offeror
may sell such Newco Equity Securities to a third party during the twelve (12)
month period after the date of the notice from the Capital Investors or such
designee, but only at a price and on terms that on the whole are not materially
less favorable to the Maxtor Offeror than those of the offer of the Capital
Investors or such designee. If the Maxtor Offeror does not sell the shares
during such twelve-month period, Maxtor may not sell or otherwise transfer such
Newco Equity Securities without giving a new written notice to the Capital
Investors and following again the procedure described in this Section 3.2. The
procedures set forth in this Section 3.2 may be initiated only once in any
nine-month period.
(c) The provisions of this Section 3.2 will terminate on the
fifth anniversary of the Closing Date unless earlier terminated pursuant to
Section 3.16.
3.3 Management Investors Permitted and Required Transfers.
(a) Except as provided in this Section 3.3, neither any
Management Investor nor any Management Investor Permitted Transferee may
transfer any of the Newco Equity Securities issued or issuable to such
Management Investor or Management Investor Permitted Transferee pursuant to (i)
the Acquisition Agreement, (ii) a Stock Subscription Agreement, (iii) a stock
purchase plan or stock option plan adopted by the Board or (iv) upon the
conversion, exchange or exercise of any such Newco Equity Securities referred to
in clauses (i) through (iii) of this Section 3.3(a) and each of them shall be
required to transfer his Newco Equity Securities as provided in this Section
3.3.
(b) A Management Investor shall be entitled to transfer any
such Newco Equity Securities to any of the following persons (each a "Management
Investor Permitted Transferee"): (i) an Immediate Family Member of such
Management Investor; (ii) a trust for the sole benefit of such Management
Investor or one or more Immediate Family Members of such Management Investor;
(iii) the personal representative of such Management Investor but only upon the
death of such Management Investor for purposes of administration of such
Management Investor's estate or upon the incompetency of such Management
Investor for purposes of the protection and management of such Management
Investor's assets; and (iv) any party to this Agreement including, without
limitation, Newco; provided, that each Management Investor Permitted Transferee,
if not a party hereto, shall simultaneously with such transfer become a party
hereto by executing and filing with Newco a letter substantially in the
following form:
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Storage Dimensions, Inc. [Date]
[Address]
Dear Sirs:
The undersigned hereby agrees to become a party to the Stockholders Agreement
dated as of December 26, 1992 (the "Agreement") among Storage Dimensions, Inc.
and certain of its stockholders, and agrees, as of the date hereof, to be bound
by all of the terms and provisions thereof. The Agreement shall be binding upon
the executors, administrators, successors and assigns of the undersigned.
Very truly yours,
__________________________
(c) Each certificate evidencing any Newco Equity Securities
transferred to any Management Investor Permitted Transferee as above provided
shall bear the appropriate restrictive legends set forth in Section 2.1 unless
such legends would be removable pursuant to Section 2.2.
3.4 Maxtor's Right of Co-Sale on Stock Transfers. If any of the Capital
Investors arranges a sale of any of its Newco Equity Securities to a
non-affiliate or any Management Investor arranges a sale of any of his Newco
Equity Securities to a person other than a Management Investor Permitted
Transferee, such Capital Investor or Management Investor, as the case may be,
will, before consummating the sale, offer to Maxtor and all Maxtor Permitted
Transferees the opportunity to participate in the sale pro rata in proportion to
the parties' interests in Newco Equity Securities outstanding at the time of
sale, provided, however, that neither any Capital Investor nor any Management
Investor shall be required to make any such offer to Maxtor or any Maxtor
Permitted Transferee in connection with any sale by such Capital Investor or
Management Investor as part of the Initial Public Offering. Such offer to
participate must be made in writing at least 30 days before the contemplated
closing date for the sale of the Newco Equity Securities and must set forth the
material terms of such proposed sale. If Maxtor or any Maxtor Permitted
Transferee desires to participate, it must so notify the offering party in
writing at least 5 days prior to such closing date and must agree to the same
terms and conditions for the sale as those agreed by the offering party. If
Maxtor or any Maxtor Permitted Transferee gives such notice timely, the parties
will complete the sale at the price and on the terms offered.
3.5 Capital's "Bring-Along" Right. If any of the Capital Investors
enters into an agreement with a third party not affiliated with any of the
Capital Investors under which such party agrees to purchase all outstanding
Newco Equity Securities, the Capital Investors may require Maxtor, all Maxtor
Permitted Transferees, all Management Investors and all Management Investor
Permitted Transferees, at the closing of such transaction, to sell all, but not
less than all, of the Newco Equity Securities owned by them to such third party
at the same price and on the same terms as the Capital Investors receive under
such agreement for comparable securities. The
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Capital Investors will notify Maxtor, all Maxtor Permitted Transferees, all
Management Investors and all Management Investor Permitted Transferees of the
proposed transaction and its principal terms not later than ten (10) days after
it enters into such an agreement, and will provide Maxtor, all Maxtor Permitted
Transferees, all Management Investors and all Management Investor Permitted
Transferees promptly such information as they reasonably may request regarding
the transaction and the third party. Neither Maxtor nor any Maxtor Permitted
Transferee will be obligated to sell its Newco Equity Securities under this
Section 3.5, however, unless Maxtor and all Maxtor Permitted Transferees in the
aggregate will receive in such transaction not less than $8 million in exchange
for the Newco Equity Securities acquired by Maxtor at the Closing; provided,
that such amount shall be adjusted to reflect the effect of any assignment, sale
or transfer by Maxtor or any Maxtor Permitted Transferee, other than to a Maxtor
Permitted Transferee, of any Newco Equity Securities between the Closing Date
and the closing of a transaction contemplated by this Section 3.5. Neither any
of the Management Investors nor any Management Investor Permitted Transferee
will be obligated to sell any of their Newco Equity Securities under this
Section 3.5 unless Maxtor sells its Newco Equity Securities in a transaction
contemplated by this Section 3.5.
3.6 Composition of Newco Board. So long as Maxtor and all Maxtor
Permitted Transferees in the aggregate own Voting Stock representing not less
than 16% of the Total Voting Power of Newco, the Purchasers will vote their
stock and take all other action reasonably required to elect to the Board an
individual designated by Maxtor and the Maxtor Permitted Transferees. Maxtor and
the Maxtor Permitted Transferees agree that such designee will not be the Chief
Executive Officer or Chairman of Maxtor. Such director may be removed, with or
without cause, at any time by Maxtor and the Maxtor Permitted Transferees. If a
vacancy is created on the Board at any time by the death, permanent disability,
retirement, resignation, removal or expiration of the term of the director
designated by Maxtor and the Maxtor Permitted Transferees, each party hereby
agrees promptly to take such action as may be reasonably required to fill such
vacancy by electing as a director an individual designated by Maxtor and the
Maxtor Permitted Transferees. Each party hereto agrees to take promptly such
action as may be reasonably required to call, or cause promptly Newco and the
appropriate officers and directors of Newco to call, special or annual meetings
of the Board or the stockholders of Newco, or to take promptly such other action
as may be reasonably required, including voting or the execution of written
consents in lieu of any meeting, to ensure promptly that the composition of the
Board is consistent with, and that the election of individuals as members of the
Board is in accordance with, this Section 3.6. The provisions of this Section
3.6 shall terminate at such time as Maxtor and all Maxtor Permitted Transferees
in the aggregate own Voting Stock representing less than 16% of the Total Voting
Power of Newco.
3.7 Maxtor's Director-Designee's Voting Rights. Without the affirmative
approval of the director-designee of Maxtor and the Maxtor Permitted Transferees
on the Board given at a duly called and held meeting of the Board or by
unanimous written consent in accordance with the Delaware General Corporation
Law and the Bylaws: (i) the number of authorized directors of Newco will not be
increased to more than seven, (ii) Newco will not enter into an agreement to
merge with, or to sell substantially all of its assets to, any buyer in which
the Capital Investors or any of their affiliates has a financial interest or in
a transaction in which Maxtor and all of the Maxtor Permitted Transferees in the
aggregate receive less than $8 million in cash in exchange for
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<PAGE> 15
the Newco Equity Securities acquired by Maxtor at the Closing; provided, that
such amount shall be adjusted to reflect the effect of any assignment, sale or
transfer by Maxtor or any Maxtor Permitted Transferee (other than to a Maxtor
Permitted Transferee) of any Newco Equity Securities between the Closing Date
and the closing of any such merger or sale of assets, (iii) Newco will not adopt
any stock option or stock purchase plan other than the 1993 Stock Option Plan
and the 1993 Stock Purchase Plan to be adopted by the Board following the
Closing and in connection with which no more than 2,222,222 shares of Newco
Common Stock and 467,500 shares of Newco Voting Convertible Preferred Stock,
respectively, will be reserved for issuance, (iv) Newco will not increase the
number of shares of Newco Voting Convertible Preferred Stock reserved for
issuance pursuant to the 1993 Stock Purchase Plan to more than 467,500 shares,
(v) Newco will not increase the number of shares of Newco Common Stock reserved
in connection with any employee stock option or stock purchase plan to a level
that would permit the aggregate share reserve of all such plans (excluding the
1993 Stock Purchase Plan) to exceed, at any time, 10% (or such larger percentage
as the Capital Investors and Maxtor and the Maxtor Permitted Transferees may
agree) of the then outstanding shares of Newco Common Stock, assuming for the
purpose of such calculation the conversion of all then outstanding Newco Equity
Securities convertible into shares of Newco Common Stock and the exercise or
exchange of all outstanding Newco Equity Securities exercisable or exchangeable
for shares of Newco Common Stock and (vi) no dividends shall be paid on any
share of Newco Voting Convertible Preferred Stock unless at the same time a
comparable dividend is paid with respect to each outstanding share of Newco
Common Stock. The provisions of this Section 3.7 shall terminate at such time as
Maxtor and all Maxtor Permitted Transferees in the aggregate own Voting Stock
representing less than 16% of the Total Voting Power of Newco.
3.8 Renewal of Voting Agreement. Prior to the tenth anniversary of the
Closing Date, and beginning at any time after the eighth anniversary thereof,
the Purchasers will negotiate in good faith a ten-year extension to the voting
arrangements set forth in Section 3.7, such extension to take effect on the
tenth anniversary of the Closing Date. The Purchasers will negotiate in good
faith consecutive extensions of such voting arrangements for additional ten-year
periods, each to take effect upon the expiration of the prior extension, such
negotiations to begin prior to the tenth anniversary of the effective date of
the current extension, beginning at any time after the eighth anniversary
thereof. The provisions of this Section 3.8 shall terminate at such time as
Maxtor and all Maxtor Permitted Transferees in the aggregate own Voting Stock
representing less than 16% of the Total Voting Power of Newco.
3.9 Books, Records and Financial Statements. Only so long as Maxtor and
all Maxtor Permitted Transferees in the aggregate own Voting Stock representing
not less than 16% of the Total Voting Power of Newco: Newco will keep proper
corporate records and books of account in which true and correct entries will be
made of all transactions on an accrual basis; the books of account will be
sufficient to permit the preparation of the financial statements of Newco in
accordance with United States generally accepted accounting principles; Newco
will prepare and provide to the Board on a timely basis (a) monthly and
quarterly unaudited financial statements; and (b) annual financial statements
audited by an independent certified public accounting firm; and Newco will
deliver copies of such financial statements to Maxtor and all Maxtor Permitted
Transferees; provided, that in addition to the director designated by Maxtor and
the Maxtor Permitted Transferees such financial statements will be distributed
only to such other employees
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of Maxtor or such Maxtor Permitted Transferees, as such director can reasonably
demonstrate have a need to know the information contained in such financial
statements.
3.10 Public Accountants. Newco will retain an independent certified
public accounting firm to perform an audit of the annual financial statements of
Newco.
3.11 Accounting Assistance. Newco will provide information and
assistance to each party to this Agreement and its independent auditors as they
may reasonably request to enable such party and its independent auditors to
prepare financial statements in accordance with generally accepted accounting
principles as appropriate, including accounting for such party's investment in
Newco pursuant to the equity method, and to comply with such party's reporting
requirements and other disclosure obligations under applicable securities laws
and regulations.
3.12 Proprietary Information Agreements. Newco will require all of its
employees to execute agreements with respect to the protection of Newco's
proprietary information and technology and the assignment of inventions in a
form satisfactory to the Board.
3.13 Standstill. Maxtor and each Maxtor Permitted Transferee agrees
that, except as permitted by Section 3.1 above, none of them will, unless the
prior written approval of the Board has been obtained, acquire, or permit any of
their affiliates to acquire, by purchase or otherwise, any Newco Equity
Securities. The provisions of this Section 3.13 shall terminate upon the
earliest to occur of (a) the fourth anniversary of the Closing Date, (b) the
second anniversary of the closing of the Initial Public Offering and (c) such
time as Maxtor and all Maxtor Permitted Transferees in the aggregate own Voting
Stock representing less than 16% of the Total Voting Power of Newco.
3.14 Legend. To assist in effectuating the provisions of this Article
3, each Purchaser hereby consents to the placement of the following legend on
all certificates certifying ownership of any securities issued hereunder:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
PROVISIONS OF AN AGREEMENT BETWEEN THE HOLDER AND THE CORPORATION, AND
MAY NOT BE SOLD, TRANSFERRED, PLEDGED, OR OTHERWISE DISPOSED OF EXCEPT
IN ACCORDANCE THEREWITH. A COPY OF SAID AGREEMENT IS ON FILE AT THE
OFFICE OF THE SECRETARY OF THE CORPORATION".
3.15 Other Management Investors. Newco shall not issue any Newco Equity
Securities to any Other Management Investor unless such Other Management
Investor shall simultaneously with such issuance become a party hereto by
executing and filing with Newco a letter substantially in the following form:
Storage Dimensions, Inc. [Date]
[Address]
Dear Sirs:
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The undersigned hereby agrees to become a party to the Stockholders Agreement
dated as of December 26, 1992 (the "Agreement") among Storage Dimensions, Inc.
and certain of its stockholders, and agrees, as of the date hereof, to be a
Management Investor (as defined therein) and to be bound by all of the terms and
provisions thereof. The Agreement shall be binding upon the successors and
assigns of the undersigned.
Very truly yours,
_____________________________
Each certificate evidencing any Newco Equity Securities issued to any
Other Management Investor as above provided shall bear the appropriate
restrictive legends set forth in (i) Section 2.1 unless such legends would be
removable pursuant to Section 2.2 and (ii) Section 3.14.
3.16 Termination. Except for Sections 3.11 and 3.13, the provisions of
this Article 3 shall terminate upon the closing of the Initial Public Offering.
ARTICLE 4
REGISTRATION RIGHTS
4.1 Company Registration.
(a) Registration. If at any time or from time to time, Newco
determines to register any of its securities either for its own account or for
the account of any of its stockholders, other than a registration relating
solely to employee benefit plans, or a registration relating solely to an SEC
Rule 145 transaction, Newco will:
(i) promptly give to each Holder written notice
thereof (which will include a list of the jurisdictions in which Newco intends
to attempt to qualify such securities under the applicable blue sky or other
state securities laws); and
(ii) include in such registration (and compliance),
and in any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made within 20 days after receipt of
such written notice from Newco, by any Holder or Holders, except as set forth in
subsection 4.1(b) below.
(b) Underwriting. If the registration of which Newco gives
notice is for a registered public offering involving an underwriting, Newco will
so advise the Holders as a part of the written notice given pursuant to
subsection 4.1(a)(i). In such event the right of any Holder to registration
pursuant to subsection 4.1 will be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting to
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the extent provided herein. All Holders proposing to distribute their securities
through such underwriting will (together with Newco and the other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by Newco. Notwithstanding any other provision of
this subsection 4.1, if the underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the underwriter
and Newco may limit the number of Registrable Securities to be included in the
registration and underwriting, or may exclude Registrable Securities entirely
from such registration and underwriting; provided, however, that no Registrable
Securities will be so excluded unless all other securities proposed to be
included in such registration (other than securities registered for the account
of Newco) also have been reduced on a pro rata basis, or excluded entirely from
such registration and underwriting, as the case may be; and provided further,
however, that after the Initial Public Offering, the shares to be included in
any registration and underwriting pursuant to this subsection 4.1(b) by Holders
and other stockholders may not be reduced below 20% of the shares included in
such registration and underwriting. In the event of any such limitation of the
number of shares to be underwritten, Newco will so advise all Holders of
Registrable Securities which would otherwise be registered and underwritten
pursuant hereto, and the number of shares of Registrable Securities that may be
included in the registration and underwriting will be allocated among the
Holders requesting registration in proportion, as nearly as practicable, as the
respective amounts of Registrable Securities held by each of such Holders
participating in such registration as of the date of the notice pursuant to
subsection 4.1(a)(i) above bears to the total number of Registrable Securities
held by all of such Holders participating in such registration. If any Holder
disapproves of the terms of any such underwriting, it may elect to withdraw
therefrom by written notice to Newco and the underwriter. Any Registrable
Securities excluded or withdrawn from such underwriting will be withdrawn from
such registration.
4.2 Form S-3. Newco will use its reasonable efforts to qualify for
registration on SEC Form S-3 or any successor form. After Newco has qualified
for the use of Form S-3, a Holder or Holders will have the right to request
registrations on Form S-3 (which requests will be in writing and will state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of shares by such Holders), subject to the following
limitations:
(a) No Holder or group of Holders may require Newco to effect
a registration pursuant to this subsection 4.2 (i) within 12 months after the
effective date of the Initial Public Offering, (ii) within 180 days after the
effective date of the last registration pursuant to this subsection 4.2 or (iii)
from and after such time as Newco is then providing current public information
within the meaning of Rule 144(c)(1), and such Holder or group of Holders is
able to sell under Rule 144 during any 3-month period all of the Registrable
Securities then held by such Holder or group of Holders.
(b) Newco will not be required to effect a registration
pursuant to this subsection 4.2 unless the Holder or Holders requesting
registration propose to dispose of shares of Registrable Securities having an
anticipated aggregate price to the public (before deduction of underwriting
discounts and expenses of sale) of at least $1,000,000.
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(c) Newco will have the right to defer filing a registration
statement pursuant to this subsection 4.2 for a period of up to 60 days
following the requested filing date if Newco furnishes to the Holders requesting
registration a certificate signed by the Chief Executive Officer of Newco
stating that in his good faith judgment it would be detrimental to Newco and its
shareholders for a registration statement to be filed at the requested filing
date and that it is therefore highly desirable to defer the filing of such
registration statement.
Newco will give written notice to all Holders of Registrable Securities
of the receipt of a request for registration pursuant to this subsection 4.2 and
will provide a reasonable opportunity for all Holders to participate in the
registration, provided that if the registration is for an underwritten offering,
the terms of subsection 4.1(b) will apply to all participants in such offering.
Newco may include shares for its own account in any registration pursuant to
subsection 4.2, up to 50% of the shares included in any such registration.
Subject to the foregoing, Newco will use its reasonable efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by any Holder or Holders thereof for purposes of
disposition.
4.3 Expenses of Registration. All expenses incurred in connection with
any registration, qualification or compliance pursuant to this Article 4
including, without limitation, all registration, filing and qualification fees,
printing expenses, fees and disbursements of counsel for Newco and expenses of
any special audits incidental to or required by such registration, will be borne
by Newco except as follows:
(a) Newco will not be required to pay fees or disbursements of
more than one legal counsel for all Holders who are selling Registrable
Securities in such registration, qualification or compliance.
(b) Newco will not be required to pay underwriters' fees,
discounts, commissions or transfer taxes relating to Registrable Securities.
(c) Newco will not be required to pay any expenses incurred in
connection with any registration pursuant to subsection 4.2 after the second
such registration; provided, however, if Newco includes shares in any
registration pursuant to subsection 4.2, Newco will bear all such expenses.
All expenses of any registered offering not otherwise borne by Newco
will be borne pro rata among the Holders and other stockholders participating in
the offering (and Newco, if it is selling securities in the offering) on the
basis of the number of shares registered.
4.4 Registration Procedures. In the case of each registration,
qualification or compliance effected by Newco pursuant to this Agreement, Newco
will keep each Holder participating therein advised in writing as to the
initiation of such registration, qualification and compliance and as to the
completion thereof. Except as otherwise provided in subsection 4.3, at its
expense Newco will:
(a) Prepare and file with the SEC a registration statement
with respect to the Registrable Securities to be included in the registration
and use its reasonable efforts to cause
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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 120 days.
(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 Securities 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 Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them and covered by such registration statement.
(d) Use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions as may be reasonably requested by the
Holders, provided that Newco will 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 state or jurisdiction.
(e) In the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder and
other stockholder participating in such underwriting will also enter into such
an agreement.
(f) Notify each Holder of Registrable Securities covered by
any such registration statement at any time when a prospectus relating thereto
is required to be delivered under the Securities Act or of the happening of any
event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
4.5 Indemnification.
(a) Newco will indemnify each Holder of Registrable Securities
and each of its officers, directors and partners, and each person controlling
such Holder, with respect to which registration, qualification or compliance has
been effected pursuant to this Agreement, and each underwriter, if any, and each
person who controls any underwriter of the Registrable Securities held by or
issuable to such Holder, against all claims, losses, expenses, damages and
liabilities (or actions in respect thereto), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any prospectus, offering circular or other document (including
any related registration statement, notification or the like) incident to any
such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make any statement therein not misleading, or any violation or
alleged violation by Newco of the Securities Act, the Exchange
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Act, or any state securities law applicable to Newco or any rule or regulation
promulgated under the Securities Act, the Exchange Act or any such state law and
relating to action or inaction required of Newco in connection with any such
registration, qualification of compliance, and will reimburse each such Holder,
each of its officers, directors and partners, and each person controlling such
Holder, each such underwriter and each person who controls any such underwriter,
within a reasonable amount of time after the incurrence thereof, for any
reasonable legal and any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action; provided, however, that the indemnity agreement contained in this
subsection 4.5(a) will not apply to amounts paid in settlement of any such
claim, loss, damage, liability, or action if such settlement is effected without
the consent of Newco (which consent will not be unreasonably withheld); and
provided further, that Newco will not be liable in any such case to the extent
that any such claim, loss, damage or liability arises out of or is based on any
untrue statement or omission based upon written information furnished to Newco
by an instrument duly executed by such Holder or underwriter specifically for
use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to such Holder are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify Newco,
each of its directors and officers, each underwriter, if any, of Newco's
securities covered by such a registration statement, each person who controls
Newco within the meaning of the Securities Act, and each other such Holder, each
of its officers, directors and partners and each person controlling such Holder,
against all claims, losses, expenses, damages and liabilities (or actions in
respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
Newco, and such Holders, directors, officers, partners, persons and
underwriters, within a reasonable amount of time after the incurrence thereof,
for any reasonable legal or any other expenses incurred in connection with
investigating, defending or settling any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to Newco by an instrument duly executed by such Holder specifically for use
therein; provided, however, that the indemnity agreement contained in this
subsection 4.5(b) will not apply to amounts paid in settlement of any such
claim, loss, damage, liability or action if such settlement is effected without
the consent of the Holder (which consent will not be unreasonably withheld); and
provided further, that the total amount for which any Holder will be liable
under this subsection 4.5(b) will not in any event exceed the aggregate proceeds
received by such Holder from the sale of Registrable Securities held by such
Holder in such registration.
(c) Each party entitled to indemnification under this Section
4.5 (the "Indemnified Party") will give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and will
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom; provided that counsel for the Indemnifying
Party, who will conduct the defense of such claim or litigation, will be
approved by the
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Indemnified Party (whose approval will not be unreasonably withheld), and the
Indemnified Party may participate in such defense at such party's expense; and
provided further, that the failure of any Indemnified Party to give notice as
provided herein will not relieve the Indemnifying Party of its obligations
hereunder, unless such failure resulted in prejudice to the Indemnifying Party;
and provided further, that an Indemnified Party (together with all other
Indemnified Parties which may be represented without conflict by one counsel)
will have the right to retain one separate 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. No
Indemnifying Party, in the defense of any such claim or litigation, will, except
with the consent of each Indemnified Party, consent to entry of any judgment or
enter into any settlement which does not include as an unconditional term
thereof the giving by the claimant or plaintiff to such Indemnified Party of a
release from all liability in respect to such claim or litigation.
4.6 Information by Holder. Any Holder or Holders of Registrable
Securities included in any registration will promptly furnish to Newco such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as Newco may request in writing and as may be required in
connection with any registration, qualification or compliance referred to
herein.
4.7 Rule 144 Reporting. With a view to making available to Holders the
benefits of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, Newco agrees
at all times to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, after the effective date of the
registration filed by Newco for the Initial Public Offering;
(b) file with the SEC in a timely manner all reports and other
documents required of Newco under the Securities Act and the Exchange Act (at
any time after it has become subject to such reporting requirements); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by Newco as to
its compliance with the reporting requirements of said Rule 144 (at any time
after 90 days after the effective date of the registration statement filed by
Newco for the Initial Public Offering), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of Newco,
and such other reports and documents so filed by Newco as the Holder may
reasonably request in complying with any rule or regulation of the SEC allowing
the Holder to sell any such securities without registration.
4.8 Transfer of Registration Rights. Holders' rights to cause Newco to
register their securities and keep information available granted to them by
Newco under this Section 4 may be assigned to any transferee or assignee of a
Holder's Registrable Securities not sold to the public, provided that Newco is
given written notice by such Holder at the time of or within a reasonable
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time after said transfer, stating the name and address of said transferee or
assignee and identifying the securities with respect to which such registration
rights are being assigned. Newco may prohibit the transfer of any Holders'
rights under this subsection 4.8 to any proposed transferee or assignee who
Newco reasonably believes is a competitor of Newco.
4.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
during the period of duration (not to exceed 180 days) specified by Newco and an
underwriter of Newco Common Stock or other securities of Newco, following the
effective date of a registration statement of Newco filed under the Securities
Act, it will not, to the extent requested by Newco and such underwriter,
directly or indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise transfer
or dispose of (other than to donees who agree to be similarly bound) any
securities of Newco held by it at any time during such period except Newco
Common Stock included in such registration; provided, however, that:
(a) such agreement will be applicable only to the Initial
Public Offering; and
(b) such agreement will not be required unless all executive
officers and directors of Newco and all other holders of at least 5% of Newco's
outstanding voting equity securities enter into similar agreements.
In order to enforce the foregoing covenant, Newco may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares of securities of every other person subject to the
foregoing restriction) until the end of such period.
4.10 Other Registration Rights. Except as otherwise provided in Section
4.11 below, without the prior written consent of Holders of a majority of the
then Registrable Securities, Newco will not grant (a) any rights to require
Newco to register securities (other than "piggyback" registration rights) or (b)
any "piggyback" registration rights superior to or on a parity with the rights
granted pursuant to Section 4.1 hereof.
4.11 Most Favored Registration Rights. If Newco grants registration
rights to any other Person which are more favorable in any material respect to
such Person than those contained in this Article 4 are to the Holders, Newco
will amend this Article 4 or grant new registration rights to the Holders to
provide rights at least as favorable to the Holders.
ARTICLE 5
GENERAL
5.1 Amendments; Waivers. This Agreement may be amended only by an
agreement in writing signed by Newco and parties to this Agreement owning Voting
Stock representing not less than seventy-five percent of the Voting Stock the
owners of which are parties to this Agreement, but may not be so amended if such
amendment would adversely effect any party to this Agreement in a manner
different from other parties to this Agreement unless such party
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agrees to such amendment; provided, however, Sections 3.1, 3.2, 3.4, 3.7, 3.9
and 3.13 may be amended by an agreement in writing signed by Maxtor and, subject
to the approval of the Board, by Newco. No waiver of any provision nor consent
to any exception to the terms of this Agreement will be effective unless in
writing and signed by the party to be bound.
5.2 Integration. This Agreement, together with the exhibit attached
hereto, constitutes the entire agreement among the parties pertaining to the
subject matter hereof and supersedes all prior agreements and understandings of
the parties in connection therewith.
5.3 Reasonable Efforts; Further Assurances. Each party will use
reasonable efforts to perform and fulfill all obligations on its part to be
performed and fulfilled under this Agreement, to the end that the transactions
contemplated by this Agreement will be effected substantially in accordance with
its terms as soon as reasonably practicable. The parties will cooperate with
each other in such actions and in securing requisite Approvals.
5.4 Governing Law. This Agreement and the legal relations between the
parties will be governed by and construed in accordance with the laws of the
State of California applicable to contracts made and performed in such state and
without regard to conflicts of law doctrines except to the extent that certain
matters are preempted by federal law or are governed by the laws of the
jurisdictions of organization of the respective parties.
5.5 Assignment. This Agreement will inure to the benefit of, and be
binding on, the successors and assigns of the parties to this Agreement.
5.6 Headings. The descriptive headings of the Articles, Sections and
subsections of this Agreement are for convenience only and do not constitute a
part of this Agreement.
5.7 Counterparts. This Agreement and any amendment hereto or any other
agreement or document delivered pursuant hereto may be executed in one or more
counterparts and by different parties in separate counterparts. All of such
counterparts will constitute one and the same instrument and will become
effective (unless otherwise provided therein) when one or more counterparts have
been signed by each party thereto and delivered to the other parties thereto.
5.8 Parties in Interest. This Agreement will be binding upon and inure
to the benefit of each party, and nothing in this Agreement, express or implied,
is intended to confer upon any other person any rights or remedies of any nature
whatsoever under or by reason of this Agreement. Nothing in this Agreement is
intended to relieve or discharge the obligation of any third person to (or to
confer any right of subrogation or action over against) any party to this
Agreement.
5.9 Notices.
(a) Notices or other communications required to be given
pursuant to this Agreement will be written and delivered personally or sent in
letter form or by facsimile to the address of the recipient specified herein or
to such other address as may from time to time be
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designated by such recipient through notification to the other parties. The
dates on which notices will be deemed to have been effectively given will be
determined as follows:
(i) Notices given by personal delivery (including
courier delivery) will be deemed effectively given on the date of personal
delivery;
(ii) Notices given in letter form will be deemed
effectively given five business days after the date mailed by registered
airmail, postage prepaid; and
(iii) Notices given by facsimile will be deemed
effectively given on the 1st business day following the date of transmission, as
indicated on the document in question.
(b) Addresses to which notices are to be sent are as follows:
(i) If to the Capital Investors:
Capital Partners
One Pickwick Plaza
Suite 300
Greenwich, CT 06830
Attention: A. George Gebauer
Facsimile: (203) 625-0423
With a copy to:
Morgan, Lewis & Bockius
101 Park Avenue
New York, NY 10178
Attention: Samuel B. Fortenbaugh, III
Facsimile: (212) 309-6273
(ii)If to Maxtor:
Maxtor Corporation
211 River Oaks Parkway
San Jose, CA 95134
Attention: General Counsel
Facsimile: (408) 432-4169
21
<PAGE> 26
With a copy to:
Ware & Freidenrich,
A Professional Corporation,
400 Hamilton Avenue
Palo Alto, CA 94301
Attention: Gregory Gallo
Facsimile: (415) 327-3699
(iii) If to any Management Investor, to the address
for such Management Investor set forth on Exhibit A or the records of Newco,
With a copy to:
Wilson, Sonsini, Goodrich & Rosati
Professional Corporation
Two Palo Alto Square, Suite 900
Palo Alto, California 94306
Attn: Steven E. Bochner
Facsimile: (415) 858-4486
5.10 Remedies; Waiver. All rights and remedies existing under this
Agreement are cumulative to and not exclusive of, any rights or remedies
otherwise available. No failure on the part of any party to exercise or delay in
exercising any right hereunder will be deemed a waiver thereof, nor will any
single or partial exercise preclude any further or other exercise of such or any
other right.
5.11 Severability. If any provision of this Agreement is determined by
any Governmental Entity to be unenforceable, the remaining provisions of this
Agreement will remain in effect provided that the essential terms and conditions
of this Agreement for both parties remain enforceable. In event of any such
determination, the parties agree to negotiate in good faith to modify this
Agreement to fulfill as closely as possible the original intents and purposes
hereof.
5.12 No Consequential Damages. No party will have any liability to any
other party for any special, consequential or similar damages arising from any
actual or alleged breach of this Agreement.
22
<PAGE> 27
IN WITNESS WHEREOF, each of the parties hereto has executed this
Agreement as of the day and year first above written.
CP ACQUISITION, L.P. NO. 4A MAXTOR CORPORATION
By: Capital Partners, Inc.
By: /s/ A. GEORGE GEBAUER By: /s/ WALTER D. AMARAL
------------------------- ----------------------------
A. George Gebauer Walter D. Amaral
Title: Vice President Title:
-------------------------
CP ACQUISITION, L.P. NO. 4B STORAGE DIMENSIONS, INC.
By: Capital Partners, Inc.
By: /s/ A. GEORGE GEBAUER By: /s/ A. GEORGE GEBAUER
------------------------- ----------------------------
A. George Gebauer A. George Gebauer
Title: Vice President Title: President
CAPITAL PARTNERS, INC. FGS, INC.
By: /s/ A. GEORGE GEBAUER By: /s/ A. GEORGE GEBAUER
------------------------- ----------------------------
A. George Gebauer A. George Gebauer
Title: Vice President Title: Vice President
/s/ GENE E. BOWLES, JR.
--------------------------------
GENE E. BOWLES, JR.
/s/ DAVID A. EEG
--------------------------------
DAVID A. EEG
23
<PAGE> 1
Exhibit 10.8
LEASE
(SINGLE-TENANT BUILDING ON SINGLE-BUILDING PROPERTY)
1. Parties.
THIS LEASE (the "Lease") dated October 8, 1993 is entered into
by and between Callahan-Pentz Properties, McCarthy Four, a California general
partnership ("Landlord"), whose address is c/o CPS Realty Group, 1740 Technology
Drive, Suite 290, San Jose, CA 95110, and Storage Dimensions, Inc., a California
corporation ("Tenant"), whose address 1656 McCarthy Boulevard, Milpitas, CA
95035.
2. Premises.
Landlord hereby leases to Tenant and Tenant hereby leases from
Landlord those certain premises commonly known as 1656 McCarthy Boulevard,
Milpitas, California, consisting of that certain real property of approximately
five and 193/1000ths (5.193) acres, more particularly described in EXHIBIT A,
together with that one-story building ("Building") located thereon consisting of
approximately eighty thousand sixty (80,060) square feet (collectively, the
"Premises").
3. Definitions.
The following terms shall have the following meanings in this
Lease:
A. Alterations. Any alterations, additions or improvements
made in, on or about the Building after the Commencement Date, including, but
not limited to, lighting, heating, ventilating, air conditioning, electrical,
partitioning, drapery and carpentry installations.
B. CC&R's. Those certain covenants, conditions and
restrictions recorded at Page 189, Book E45, of the Official Records of Santa
Clara County, California, on June 5, 1979, as amended, a copy which is attached
hereto as EXHIBIT B.
C. Commencement Date. The Commencement Date of this Lease
shall be the first day of the Term as stated in Paragraph 4.A.
D. HVAC. Heating, ventilating and air conditioning.
E. Interest Rate. Twelve percent (12%) per annum, however, in
no event to exceed the maximum rate of interest permitted by law.
F. Landlord's Agents. Landlord's authorized agents, partners,
subsidiaries, directors, officers, and employees.
G. Monthly Rent. The rent payable pursuant to Paragraph 5.A.,
as adjusted from time to time pursuant to the terms of this Lease.
H. Outside Area. All areas and facilities within the Premises
exclusive of the Building, including without limitation, parking areas,
sidewalks, landscaped areas, service areas, trash disposal facilities, and
similar areas and facilities.
I. Real Property Taxes. Any form of assessment, license, fee,
rent tax, levy, penalty (if a result of Tenant's delinquency), or tax (other
than net income, estate, succession, inheritance, gift, transfer or franchise
taxes), imposed by any
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<PAGE> 2
authority having the direct or indirect power to tax, or by any city, county,
state or federal government or any improvement or other district or division
thereof, whether such tax is: (i) determined by the area of the Premises or any
part thereof or the rent and other sums payable hereunder by Tenant or by other
tenants, including, but not limited to, any gross income or excise tax levied by
any of the foregoing authorities with respect to receipt of such rent or other
sums due under this Lease; (ii) upon any legal or equitable interest of Landlord
in the Premises or any part thereof; (iii) upon this transaction or any document
to which Tenant is a party creating or transferring any interest in the
Premises; (iv) levied or assessed in lieu of, in substitution for, or in
addition to, existing or additional taxes against the Premises whether or not
now customary or within the contemplation of the parties; or (v) surcharged
against the parking area. Real Property Taxes shall not include any real
property tax or assessment: (i) levied on Landlord's rental income, unless the
tax or assessment is levied or imposed in lieu of real property taxes, (ii) in
excess of the amounts which would be payable if the tax or assessment were paid
in installments over the longest term permitted; (iii) imposed on land or
equipment other than the Premises; or (iv) attributable to Landlord's gift
taxes.
J. Rent. Monthly Rent plus the Additional Rent defined in
Paragraph 5.B.
K. Security Deposit. That amount paid by Tenant pursuant to
Paragraph 7.
L. Sublet. Any transfer, sublet, assignment, license or
concession agreement, change of operational control, mortgage, or hypothecation
of this Lease or the Tenant's interest in the Lease or in and to all or a
portion of the Premises.
M. Subrent. Any consideration of any kind received, or to be
received, by Tenant from a subtenant if such sums are related to Tenant's
interest in this Lease or in the Premises, including, but not limited to, bonus
money and payments (in excess of book value) for Tenant's assets including its
trade fixtures, equipment and other personal property, goodwill, general
intangibles, and any capital stock or other equity ownership of Tenant, less
Tenant's out-of-pocket costs to effect the Sublet, including, without
limitation, brokerage commissions, reasonable attorneys' fees and costs of
redecorating or rehabilitating the Premises.
N. Subtenant. The person or entity with whom a Sublet
agreement is proposed to be or is made.
O. Tenant's Personal Property. Tenant's trade fixtures,
furniture, equipment and other personal property in the Premises.
P. Term. The term of this Lease set forth in Paragraph 4, as
it may be extended hereunder pursuant to any options to extend granted herein.
4. Lease Term. The Term shall be a period of two (2) years,
beginning on the Commencement Date of December 7, 1993, and terminating on
December 6, 1995, unless sooner terminated, subject to any extensions granted
hereunder. Tenant agrees that if Landlord, for any reason whatsoever, is unable
to deliver possession of the Premises on the Commencement Date, Landlord shall
not be liable to Tenant for any loss or damage therefrom, nor shall this Lease
be void or voidable. In such event, the Commencement Date, termination date and
all other dates of this Lease shall be extended to conform to the date of
Landlord's tender of possession of the Premises to Tenant and Tenant shall not
be obligated to pay
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<PAGE> 3
Monthly Rent or other sums due Landlord hereunder until possession of the
Premises is tendered to Tenant.
5. Rent.
A. Monthly Rent. Tenant shall pay to Landlord, in lawful money
of the United States, for each calendar month of the Term, net Monthly Rent in
the amount of Fifty-Four Thousand Nine Hundred and no/100ths Dollars
($54,900.00) per month, in advance, on the first day of each calendar month,
without abatement, deduction, claim, offset, prior notice or demand except as
otherwise provided in this Lease. In addition, Tenant shall pay Landlord
monthly, together with the net Monthly Rent, the estimated monthly Real Property
Taxes pursuant to Paragraph 15, the estimated monthly Outside Area and Building
Maintenance Expenses, as set forth in Paragraph 17.C.(i), subject to adjustment
as provided in Paragraph 17.C.(ii), and the monthly cost of insurance premiums
required pursuant to Paragraph 21.C., as adjusted from time to time hereunder.
Tenant shall deposit with Landlord, not later than thirty (30) days prior to the
Commencement Date, the following amounts to be applied toward the Rent due for
the first month of the Term:
<TABLE>
<CAPTION>
<S> <C>
Monthly Rent (net): $54,900.00/month
Real Property Taxes: $ 5,610.00/month
Insurance Premiums,
Outside Area and Building
Maintenance Expenses: $ 5,610.00/month
----------------
TOTAL $66,120.00/month
</TABLE>
B. Additional Rent. All monies required to be paid by Tenant
under this Lease, including, without limitation, Real Property Taxes pursuant to
Paragraph 15, Outside Area and Building Maintenance Expenses pursuant to
Paragraph 17, and insurance premiums pursuant to Paragraph 21, shall be deemed
Additional Rent.
C. Prorations. If the Commencement Date is not the first (1st)
day of a month, or if the termination date of this Lease is not the last day of
a month, a prorated installment of Monthly Rent based on a thirty (30) day month
shall be paid for the fractional month during which the Lease commences or
terminates.
6. Late Payment Charges.
Tenant acknowledges that late payment by Tenant to Landlord of
Rent and other charges provided for under this Lease will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult or impracticable to fix. Therefore, if any installment of
Rent or any other charge due from Tenant is not received by Landlord within five
(5) days after receipt of written notice from Landlord that such sum is due,
Tenant shall pay to Landlord an additional sum equal to four percent (4%) of the
amount overdue as a late charge for every month or portion thereof that the Rent
or other charges remain unpaid. The parties agree that this late charge
represents a fair and reasonable estimate of the costs that Landlord will incur
by reason of the late payment by Tenant.
Initials:
- ------------------------------- ----------------------------------
Landlord Tenant
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<PAGE> 4
7. Security Deposit.
Tenant shall deposit with Landlord not later than the
Commencement Date the sum of Fifty-Five Thousand and no/100ths Dollars
($55,000.00) as the Security Deposit for the full and faithful performance of
every provision of this Lease to be performed by Tenant. If Tenant defaults with
respect to any provision of this Lease, Landlord may apply all or any part of
the Security Deposit for the payment of any rent or other sum in default, the
repair of such damage to the Premises or the payment of any other amount which
Landlord may spend or become obligated to spend by reason of Tenant's default or
to compensate Landlord for any other loss or damage which Landlord may suffer by
reason of Tenant's default to the full extent permitted by law. If any portion
of the Security Deposit is so applied, Tenant shall, within ten (10) days after
written demand therefor, deposit cash with Landlord in an amount sufficient to
restore the Security Deposit to its original amount. Landlord shall not be
required to keep the Security Deposit separate from its general funds, and
Tenant shall not be entitled to interest on the Security Deposit. If Tenant is
not otherwise in default, the Security Deposit or any balance thereof shall be
returned to Tenant within thirty (30) days of termination of the Lease.
8. Holding Over.
If Tenant remains in possession of all or any part of the
Premises after the expiration of the Term with the express or implied consent of
Landlord, such tenancy shall be month-to-month only and shall not constitute a
renewal or extension for any further term. If Tenant remains in possession
either with or without Landlord's consent, Monthly Rent shall be increased to an
amount equal to one hundred twenty-five percent (125%) of the Monthly Rent
payable during the last month of the Term, and any other sums due under this
Lease shall be payable in the amount and at the times specified in this Lease.
Such month-to-month tenancy shall be subject to every other term, condition, and
covenant contained herein. If Tenant fails to surrender the Premises upon the
expiration of the Term despite demand to do so by Landlord, Tenant shall
indemnify and hold Landlord harmless from all loss or liability, including
without limitation any claim made by a succeeding tenant, resulting from
Tenant's failure to surrender.
9. Tenant Improvements. (Intentionally omitted)
10. Condition of Premises.
Tenant acknowledges that as Tenant has occupied the Premises
for a period of approximately three and one-half (3 1/2) years pursuant to a
sublease agreement between Tenant and Racal-Vadic, the former tenant of the
Premises, Tenant accepts the Premises "as is," without any improvements or
alterations to be made by Landlord (other than the HVAC repairs to be made by
Landlord as described in Paragraph 17.A), and subject to all applicable laws,
codes and ordinances. Tenant acknowledges that neither Landlord nor its Agents
have made any representations or warranties as to the suitability or fitness of
the Premises for the conduct of Tenant's business or for any other purpose, nor
has Landlord or its Agents agreed to undertake any Alterations or construct any
Tenant Improvements to the Premises.
11. Use of the Premises.
A. Tenant's Use. Tenant shall use the Premises solely for
general office, research and development, warehousing and manufacturing of
electronics equipment and related activities and shall not use the Premises for
any other purpose without the prior written consent of Landlord, which consent
shall not be
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<PAGE> 5
unreasonably withheld or delayed. Tenant acknowledges that the Premises are
subject and this Lease is subordinate to the CC&R's. Tenant acknowledges that it
has read the CC&R's and knows the contents thereof. Throughout the Term, Tenant
shall faithfully and timely perform and comply with the CC&R's and any
modification or amendments thereof, including the payment by Tenant of any
periodic or special dues, assessments, and owners' association fees levied or
assessed against the Premises during the Term of this Lease. Tenant shall
indemnify, defend and hold Landlord and its Agents harmless from and against any
liability, loss, expense, damage, attorneys' fees and costs arising out of or in
connection with Tenant's failure to perform or comply with the CC&R's.
B. Compliance.
(i) Tenant shall not use the Premises or suffer or permit
anything to be done in or about the Premises which will in any way conflict with
any law, statute, zoning restriction, ordinance or governmental law, rule,
regulation or requirement of public authorities now in force or which may
hereafter be in force, relating to or affecting the use or occupancy of the
Premises. Tenant shall not commit any public or private nuisance or any other
act or thing which might or would disturb the quiet enjoyment of any other
tenant of Landlord or any occupant of nearby property. Tenant shall place no
loads upon the floors, walls or ceilings in excess of the maximum designed load
determined by Landlord or which endanger the structure; nor place any harmful
liquids in the drainage systems; nor dump or store waste materials or refuse or
allow such to remain outside the Building proper, except in the enclosed trash
areas provided. Tenant shall not store or permit to be stored or otherwise
placed any other material of any nature whatsoever outside the Building.
(ii) In particular, Tenant, at its sole cost, shall comply
with all laws relating to the storage, use and disposal of hazardous, toxic or
radioactive matter, including those materials identified in Sections 66680
through 66685 of Title 22 of the California Code of Regulations, Division 4,
Chapter 30 as they may be amended from time to time (collectively "Toxic
Materials"). If Tenant does store, use or dispose of any Toxic Materials, Tenant
shall notify Landlord in writing at least ten (10) days prior to their first
appearance on the Premises. Tenant shall be solely responsible for and shall
defend, indemnify and hold Landlord and its Agents harmless from and against all
claims, costs and liabilities, including reasonable attorneys' fees and costs,
arising out of or in connection with the storage, use and disposal of Toxic
Materials in, or about the Premises by Tenant, its agents, employees,
contractors, invitees or subtenants. Tenant shall further be solely responsible
for and shall defend, indemnify and hold Landlord and its Agents harmless from
and against any all claims, costs, and liabilities, including reasonable
attorneys' fees and costs, arising out of or in connection with the removal,
clean-up or other remediation of any Toxic Materials used, stored, released or
disposed of in, on or under the Premises by Tenant, its agents, employees,
contractors, invitees or subtenants, including any restoration of the Premises
required to return the Premises to their condition existing prior to such use,
storage, release or disposal of Toxic Materials in, on or under the Premises by
Tenant, its agents, employees, contractors, invitees or subtenants. If any
governmental agency or the beneficiary of any deed of trust covering the
Premises requires any testing of the Premises, including the soil or groundwater
of the Premises, to ascertain whether there has been any release of Toxic
Materials in, on or about the Premises, Landlord shall have the right to install
monitoring wells on or about the Outside Area and to perform such other tests
and investigations of the Premises for such purpose. Tenant shall reimburse
Landlord as Additional Rent for the reasonable cost of such tests and
investigations and of the
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<PAGE> 6
installation, maintenance, repair and replacement of such monitoring wells or
other measuring devices if the results of such tests and investigations disclose
the presence of any Toxic Materials in, or about the Premises in violation of
any applicable laws, statutes, ordinances, governmental rules or regulations as
a result of the acts or omissions of Tenant, its agents, employees, contractors,
invitees or subtenants. Tenant's obligations hereunder shall survive the
termination of this Lease.
(iii) Landlord represents that, to the best of Landlord's
knowledge, no litigation has been brought or threatened, nor any settlements
reached with any governmental or private party, concerning the actual or alleged
presence of any Toxic Materials or about the Premises, or the soil, groundwater
or surface water of the Premises, nor has Landlord received any notice of any
violation or alleged violation of any applicable Toxic Materials laws, pending
claims, or pending investigations with respect to the presence of Toxic
Materials on or about the Premises or the soil, groundwater or surface water of
the Premises. Landlord's representations hereunder shall survive the termination
of this Lease. Landlord shall be solely responsible for any investigation,
clean-up, removal, remediation, and/or monitoring required or mandated by any
governmental agencies, authorities or regulatory bodies in connection with any
Toxic Materials used, stored, released or disposed of in, on or under the
Premises by Landlord, Landlord's Agents or contractors, or by any previous owner
or occupant of the Premises, except to the extent any such Toxic Materials were
used, stored, released or disposed of by Tenant, its agents, employees,
contractors or invitees. Landlord's obligations hereunder shall survive the
termination of this Lease.
12. Quiet Enjoyment.
Landlord covenants that Tenant, upon performing the terms,
conditions and covenants of this Lease, shall have quiet and peaceful possession
of the Premises as against any person claiming the same by, through or under
Landlord.
13. Alterations.
After the Commencement Date, Tenant shall not make or permit
any Alterations in, on or about the Premises, except for nonstructural
Alterations not exceeding Ten Thousand Dollars ($10,000.00) in cost, without the
prior written consent of Landlord, and according to plans and specifications
approved in writing by Landlord, which consent shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing Tenant shall not, without the
prior written consent of Landlord, make any:
(i) Alterations to the exterior of the Building;
(ii) Alterations to and penetrations of the roof of the
Building; and
(iii) Alterations visible from outside the Building, to which
Landlord may withhold Landlord's consent on wholly aesthetic grounds.
All Alterations shall be installed at Tenant's sole expense, in compliance with
all applicable laws, by a licensed contractor, shall be done in a good and
workmanlike manner conforming in quality and design with the Premises existing
as of the Commencement Date, and shall not materially diminish the value of
either the Building or the Premises. Tenant shall obtain all necessary permits
required for constructing or installing any Alterations prior to commencing such
work. All Alterations made by Tenant shall be and become the property of
Landlord upon installation and shall not be deemed Tenant's Personal Property;
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<PAGE> 7
provided, however, that Landlord may, at the expiration or earlier termination
of this Lease, require that Tenant, at Tenant's expense, remove any Alterations
installed by Tenant (provided that Landlord has indicated to Tenant at the time
of Landlord's consent to any such Alteration(s) that Landlord will require their
removal at the expiration of the Term) and return the Premises to their
condition as of the Commencement Date of this Lease, normal wear and tear, acts
of God, condemnation and Toxic Materials not stored, used or disposed of on the
Premises by Tenant, its agents, employees, contractors or invitees excepted and
subject to the provisions of Paragraph 23. Notwithstanding any other provision
of this Lease, Tenant shall be solely responsible for the maintenance and repair
of any and all Alterations made to the Premises by Tenant. Tenant shall give
Landlord written notice of Tenant's intention to perform work on the Premises at
least twenty (20) days prior to the commencement of such work to enable Landlord
to post and record a Notice of Nonresponsibility or other notice deemed proper
before the commencement of any such work.
14. Surrender of the Premises.
Upon the expiration or earlier termination of the Term, Tenant
shall surrender the Premises to Landlord in its condition existing as of the
Commencement Date, normal wear and tear and fire or other casualty,
condemnation, acts of God, Alterations not required to be removed pursuant to
Paragraph 13 hereof and Toxic Materials not stored, used or disposed of by
Tenant, its agents, employees, contractors, or invitees excepted, with all
interior walls repaired and repainted if marked or damaged, all carpets
shampooed and cleaned, all broken, marred or nonconforming acoustical ceiling
tiles replaced, all windows washed, the plumbing and electrical systems and
lighting in good order and repair, including replacement of burned out or broken
light bulb or ballasts, the HVAC equipment serviced and repaired by a reputable
and licensed service firm, and all floors cleaned and waxed, all to the
reasonable satisfaction of Landlord. Tenant shall remove from the Premises all
of Tenant's Alterations required to be removed pursuant to Paragraph 13, and all
Tenant's Personal Property, and repair any damage and perform any restoration
work caused by such removal. If Tenant fails to remove such Alterations and
Tenant's Personal Property, and such failure continues after the termination of
this Lease, Landlord may retain such property and all rights of Tenant with
respect to it shall cease, or Landlord may place all or any portion of such
property in public storage for Tenant's account. Tenant shall be liable to
Landlord for costs of removal of any such Alterations and Tenant's Personal
Property and storage and transportation costs of same, and the cost of repairing
and restoring the Premises, together with interest at the Interest Rate from the
date of expenditure by Landlord. If the Premises are not so surrendered at the
termination of this Lease, Tenant shall indemnify Landlord and its Agents
against all loss or liability, as supported by written evidence thereof,
including reasonable attorneys' fees and costs, resulting from delay by Tenant
in so surrendering the Premises.
Normal wear and tear, for the purposes of this Lease, shall be
construed to mean wear and tear caused to the Premises by a natural aging
process which occurs in spite of prudent application of reasonable standards for
maintenance, repair and janitorial practices. It is not intended, nor shall it
be construed, to include items of neglected or deferred maintenance which would
have or should have been attended to during the Term of the Lease if reasonable
standards had been applied to properly maintain and keep the Premises at all
times in good condition and repair.
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15. Real Property Taxes.
A. Payment by Tenant. Tenant shall pay Landlord monthly, as
Additional Rent, one-twelfth (1/12th) of the Real Property Taxes levied or
assessed against the Premises during each year of the Term of this Lease, based
upon the county assessor's tax statement for the Premises. Tenant shall pay any
Real Property Tax not included within the county tax assessor's tax statement
within thirty (30) days after being billed for same by Landlord. Assessments,
taxes, fees, levies and charges may be imposed by governmental agencies for such
purposes as fire protection, street, sidewalk, road, utility construction and
maintenance, refuse removal and for other governmental services which may
formerly have been provided without charge to property owners or occupants. It
is the intention of the parties that all new and increased assessments, taxes,
fees, levies and charges are to be included within the definition of Real
Property Taxes for purposes of this Lease.
B. Taxes on Personal Property. Tenant shall pay any increase
in Real Property Taxes resulting from any and all Alterations of any kind
whatsoever placed in, on or about the Premises for the benefit of, at the
request of, or by Tenant. Tenant shall pay prior to delinquency all taxes
assessed or levied against Tenant's Personal Property in, on or about the
Premises or elsewhere. When possible, Tenant shall cause its Personal Property
to be assessed and billed separately from the real or personal property of
Landlord.
C. Proration. Tenant's liability to pay Real Property Taxes
shall be prorated on the basis of a 365-day year to account for any fractional
portion of a fiscal tax year included at the commencement or expiration of the
Term. With respect to any assessments which may be levied against or upon the
Premises, or which under the laws then in force may be evidenced by improvements
or other bonds or may be paid in annual installments, only the amount of such
annual installment (with appropriate proration for any partial year) and
interest due thereon shall be included within the computation of the annual Real
Property Taxes levied against the Premises.
16. Utilities and Services.
Tenant shall be responsible for and shall pay promptly all
charges for water, gas, electricity, telephone, refuse pickup, janitorial
service and all other utilities, materials and services furnished directly to or
used by Tenant in, on or about the Premises during the Term, together with any
taxes thereon. Landlord shall not be liable in damages or otherwise for any
failure or interruption, of any utility service or other service furnished to
the Premises, except to the extent caused by the negligence or willful
misconduct of Landlord, its Agents, contractors or invitees. In addition, Tenant
shall not be entitled to any abatement or reduction of Rent by reason of such
failure or interruption, no eviction of Tenant shall result from such failure or
interruption and Tenant shall not be relieved from the performance of any
covenant or agreement in this Lease because of such failure or interruption. If,
however, any failure or interruption of services or utilities continues for a
period of seven (7) consecutive days or more due to the negligence or willful
misconduct of Landlord, its agents, employees, or contractors and such failure
or interruption materially affects Tenant's ability to use the Premises for the
purposes permitted by this Lease, then there shall be a proportional abatement
of Rent to the extent of any such interference. If any failure or interruption
of services or utilities occurs for any other reason (other than the negligence
or willful misconduct of Tenant, its agents, employees, contractors or
invitees), Tenant shall be entitled to a proportional abatement
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<PAGE> 9
of Rent to the extent of any rent loss insurance proceeds paid to Landlord.
17. Repair and Maintenance.
A. Landlord's Obligations. Landlord shall replace, at
Landlord's expense, three (3) heat exchangers and one (1) compressor for the
HVAC system servicing the Building as described in the proposal prepared by
Shoreline Mechanical, Inc., dated September 17, 1993, provided, however, that
the cost to Landlord to complete such work shall not exceed Ten Thousand and
no/100ths Dollars ($10,000.00). Landlord shall maintain in good order, condition
and repair the structural parts of the Building, including the foundation and
subflooring of the Building, the roof (including the roof membrane), exterior
walls and interior bearing or structural walls (excluding, however, interior
wall surfaces) except for any damage thereto caused by the negligence or willful
acts or omissions of Tenant or of Tenant's agents, employees or invitees, or by
reason of the failure of Tenant to perform or comply with any terms of this
Lease, or caused by Alterations made by Tenant or by Tenant's agents, employees
or contractors. Landlord shall also maintain the Outside Area. The manner in
which the Outside Area shall be maintained and the expenditures therefor shall
be at the sole discretion of Landlord. Landlord shall at all times have
exclusive control of the Outside Area and may at any time temporarily close any
part thereof, and may change the configuration of the Outside Area. In
exercising any such rights, Landlord shall make a reasonable effort to minimize
any disruption of Tenant's business. It is an express condition precedent to all
obligations of Landlord to repair and maintain that Tenant shall have notified
Landlord of the need for such repairs or maintenance. Tenant waives the
provisions of Sections 1941 and 1942 of the California Civil Code and any
similar or successor law regarding Tenant's right to make repairs and deduct the
expenses of such repairs from the Rent due under this Lease.
B. Tenant's Obligations. Tenant shall at all times and at its
own expense clean, keep and maintain in good order, condition and repair every
part of the Premises which is not within Landlord's obligation pursuant to
Paragraph 17.A. Tenant's repair and maintenance obligations shall include all
plumbing and sewage facilities within the Premises, fixtures, interior walls and
ceiling, floors, windows, doors, entrances, plateglass, showcases, skylights,
all electrical facilities and equipment, including lighting fixtures, lamps,
fans and any exhaust equipment and systems, any automatic fire extinguisher
equipment within the Premises, electrical motors and all other appliances and
equipment of every kind and nature located in or upon the Premises. Tenant shall
also be responsible for all pest control within the Premises. Tenant shall
obtain HVAC systems preventive maintenance contracts with bimonthly or monthly
service in accordance with manufacturer recommendations, which shall be subject
to the reasonable approval of Landlord and paid for by Tenant, and which shall
provide for and include replacement of filters, oiling and lubricating of
machinery, parts replacement, adjustment of drive belts, oil changes and other
preventive maintenance, including annual maintenance of duct work, interior unit
drains and caulking at sheet metal, and recaulking of jacks and vents on an
annual basis. Tenant shall have the benefit of all warranties available to
Landlord regarding the equipment in such HVAC systems.
C. Reimbursement by Tenant.
(i) Tenant to Pay Outside Area and Building Maintenance
Expenses. Tenant shall pay Landlord monthly, as Additional Rent, all reasonable
costs and expenses paid or incurred by Landlord during the Term in maintaining,
repairing and replacing the Outside Area, the roof of the Building (including
the roof
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membrane), including annual roof inspections and preventive maintenance work on
the roof, and the exterior walls of the Building, including appropriate reserves
for any such maintenance or repair, and a reasonable management fee for
Landlord's property manager (the "Outside Area and Building Maintenance
Expenses"). The cost of any capital improvements shall be amortized over the
useful life of the improvement and only the annual amortized cost of such
improvement shall be included as an Outside Area and Building Maintenance
Expense. Notwithstanding anything to the contrary contained in this Lease, in no
event shall Tenant have any obligation to perform, to pay directly, or to
reimburse Landlord for all or any portion of the following repairs, maintenance,
improvements, replacements, premiums, claims, losses, fees, commissions,
charges, disbursements, attorneys' fees, experts' fees, costs and expenses
(collectively "Costs"):
(a) Costs occasioned by the negligence or willful misconduct
or violation of law by Landlord, its Agents, invitees or contractors, or Costs
to correct any construction defect in the Premises or Costs arising out of a
failure to construct the Premises, the Outside Area, or any tenant improvements
constructed by Landlord in accordance with all laws or the CC&R's.
(b) Costs occasioned by fire, acts of God, or other casualties
(other than any deductible payable by Tenant pursuant to Paragraph 23.B) or by
the exercise of the power of eminent domain or Costs for insurance coverage not
customarily paid by tenants of similar projects in the vicinity of the Premises,
and co-insurance payments.
(c) Lease payments and other Costs to acquire or install
capital machinery and equipment (such as air conditioners, elevators, and the
like), and Costs which would properly be capitalized under generally accepted
accounting principles and which relate to repairs, alterations, improvements,
equipment and tools to the extent that Tenant's share of the total Cost of such
capital item exceeds (i) the reduction in other expenses payable by Tenant under
the Lease which results from the capital repair or installation of the capital
item; or (ii) in any year, the annual amortized cost of the item based on its
useful life determined in accordance with generally accepted accounting
principles.
(d) Costs for which Landlord has a right of reimbursement from
others or Costs which Tenant pays directly to a third person.
(e) Costs associated with utilities and services of a type not
provided to Tenant.
(f) Depreciation or amortization (except as provided in
subparagraph (c) above).
(g) Interest, charges and fees incurred on debt, payments on
mortgages and rent under ground leases.
(h) Costs incurred to investigate the presence of any Toxic
Materials, Costs to respond to any claim of Toxic Materials contamination or
damage, Costs to remove any Toxic Material from the Premises or to remediate any
Toxic Materials contamination and any judgments or other Costs incurred in
connection with any Toxic Materials exposure or release, except to the extent
that the Cost is caused by the storage, use or disposal of the Toxic Material(s)
in question by Tenant, its agents, employees, contractors or invitees.
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(i) Wages, salaries, compensation and labor burden for
any employee not stationed on the Premises on a full- time basis.
(ii) Monthly Payments. From and after the Commencement Date,
Tenant shall pay to Landlord on the first day of each calendar month of the Term
an amount estimated by Landlord to be the monthly Outside Area and Building
Maintenance Expenses. The foregoing estimated monthly charges may be adjusted by
Landlord at the end of any calendar quarter on the basis of Landlord's
experience and reasonably anticipated costs. Any such adjustment shall be
effective as of the calendar month next succeeding receipt by Tenant of written
notice of such adjustment. Within one hundred twenty (120) days following the
end of each calendar year Landlord shall furnish Tenant a statement of the
actual Outside Area and Building Maintenance Expenses ("Actual Expenses") for
the calendar year and the payments made by Tenant with respect to such period.
If Tenant's payments for the Outside Area and Building Maintenance Expenses do
not equal the amount of the Actual Expenses, Tenant shall pay Landlord the
deficiency within thirty (30) days after receipt of such statement. If Tenant's
payments exceed the Actual Expenses, Landlord shall either offset the excess
against the Outside Area and Building Maintenance Expenses, next thereafter to
become due to Landlord, or promptly shall refund the amount of the overpayment
to Tenant, in cash, as Landlord shall elect. There shall be appropriate
adjustments of the Outside Area and Building Maintenance Expenses as of the
Commencement Date and expiration of the Term.
(iii) Tenant's Right to Inspect Landlord's Books. Within sixty
(60) days after Tenant's receipt of Landlord's statement of Actual Expenses,
Tenant or its authorized representative shall have the right to inspect
Landlord's books and records relating to the Building Maintenance and Outside
Area Expenses during the business hours of Landlord or Landlord's property
manager at Landlord's office or, at Landlord's option, such other location as
Landlord reasonably may specify, for the purpose of verifying the information in
the statement. Unless Tenant asserts specific errors within sixty (60) days
after Tenant's receipt of Landlord's statement, the statement shall be deemed
correct as between Landlord and Tenant.
D. Compliance with Governmental Regulations. Tenant shall, at
its cost, comply with, including the making by Tenant of any Alteration to the
Premises, all present and future regulations, rules, laws, ordinances, and
requirements of all governmental authorities (including, without limitation
state, municipal, county and federal governments and their departments, bureaus,
boards and officials) arising from the use or occupancy of the Premises.
Notwithstanding anything to the contrary contained in this Lease, and subject to
the provisions of Paragraph 17.C(i), with respect to any capital improvement
item required to be paid for by Tenant pursuant to any provision of this Lease,
except for those costs which (i) are caused by the negligence or willful
misconduct of Tenant, its agents, employees, contractors or invitees, or any
failure to maintain by Tenant as set forth in this Lease, or any other breach of
this Lease by Tenant; or (ii) result directly or indirectly from Tenant's
particular use of the Premises, or Tenant's application for any governmental
permits or approvals in connection with the Premises, Tenant shall be required
to pay only a pro rata share of the cost of such item on a monthly basis for the
remainder of the Term after the date of expenditure of the capital improvement
item. The monthly pro rata share payable by Tenant shall be equal to the
quotient obtained by dividing the cost of the improvement, including interest
thereon at an annual rate equal to the Interest Rate, by its useful life
(expressed in months). Landlord shall be responsible for the remainder, if any,
of the cost of the improvement. Tenant shall
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not be responsible for any costs, fines or penalties due to any governmental
code violation which existed prior to the commencement date of the sublease
between Tenant and Racal-Vadic.
18. Liens.
Tenant shall keep the Building and the Premises free from any
liens arising out of any work performed, materials furnished or obligations
incurred by or on behalf of Tenant and hereby indemnifies and holds Landlord and
its Agents harmless from all liability and cost, including attorneys' fees and
costs, in connection with or arising out of any such lien or claim of lien.
Tenant shall cause any such lien imposed to be released of record by payment or
posting of a proper bond acceptable to Landlord within twenty (20) days after
written request by Landlord. Tenant shall give Landlord written notice of
Tenant's intention to perform work on the Premises which might result in any
claim of lien at least ten (10) days prior to the commencement of such work to
enable Landlord to post and record a Notice of Nonresponsibility. If Tenant
fails to so remove any such lien within the prescribed twenty (20) day period,
then Landlord may do so at Tenant's expense and Tenant shall reimburse Landlord
as Additional Rent for such amounts upon demand. Such reimbursement shall
include all costs incurred by Landlord including Landlord's reasonable
attorneys' fees with interest thereon at the Interest Rate.
19. Landlord's Right to Enter the Premises.
Tenant shall permit Landlord and its Agents to enter the
Premises at all reasonable times with twenty-four (24) hours' prior notice,
except for emergencies in which case no notice shall be required, to inspect the
same, to post Notices of Nonresponsibility and similar notices and "For Sale"
signs, to show the Premises to interested parties such as prospective lenders
and purchasers, to make necessary repairs, to discharge Tenant's obligations
hereunder when Tenant has failed to do so within a reasonable time after written
notice from Landlord, and at any reasonable time within one hundred and eighty
(180) days prior to the expiration of the Term, to place upon the Building
ordinary "For Lease" signs and to show the Premises to prospective tenants. The
above rights are subject to reasonable security regulations of Tenant, and to
the requirement that Landlord shall at all times act in a manner to cause the
least possible interference with Tenant's business.
20. Signs.
Tenant shall be permitted to install Tenant's identification
signage on the exterior monument sign in the Outside Area. Tenant shall have no
right to maintain a Tenant identification sign in any other location in, on or
about the Building or the Outside Area and shall not display or erect any other
Tenant identification sign, display or other advertising material that is
visible from the exterior of the Building. The size, design, color and other
physical aspects of the Tenant identification sign shall be subject to the
Landlord's written approval prior to installation, which shall not be
unreasonably withheld, and any appropriate municipal or other governmental
approvals. The cost of the sign, its installation, maintenance and removal shall
be Tenant's sole expense. If Tenant fails to maintain its sign, or, if Tenant
fails to remove its sign upon termination of this Lease, Landlord may do so at
Tenant's expense and Tenant's reimbursement to Landlord for such amounts shall
be deemed Additional Rent.
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<PAGE> 13
21. Insurance.
A. Indemnification. Tenant hereby agrees to defend, indemnify
and hold harmless Landlord and its Agents from and against any and all damage,
loss, liability or expense including reasonable attorneys' fees and legal costs
suffered directly or by reason of any claim, suit or judgment brought by or in
favor of any person or persons for damage, loss or expense due to, but not
limited to, bodily injury and property damage sustained by such person or
persons which arises out of, is occasioned by or in any way attributable to the
use or occupancy of the Premises or any part thereof and adjacent areas by
Tenant, the acts or omissions of the Tenant, its agents, employees or any
contractors brought onto the Premises by Tenant, except to the extent caused by
the negligence or willful misconduct of Landlord or its Agents, employees,
contractors or invitees. Tenant agrees that the obligations assumed herein shall
survive the termination of this Lease.
Landlord hereby agrees to defend, indemnify and hold harmless Tenant
from and against any and all damage, loss, liability or expense, including
reasonable attorneys' fees and legal costs, suffered directly by or by reason of
any claim, suit or judgment brought by or in favor of any person or persons for
damage, loss or expense due to, but not limited to, bodily injury and property
damage sustained by such person or persons which arises out of, is occasioned by
or in any way attributable to the negligence or willful misconduct of Landlord
or its Agents, or any contractors brought onto the Premises by Landlord, or
Landlord's breach of its obligations under this Lease, except to the extent
caused by the negligence or willful misconduct of Tenant, its agents, employees,
contractors or invitees. Landlord agrees that the obligations assumed herein
shall survive the termination of this Lease.
B. Tenant's Insurance. Tenant agrees to maintain in full force
and effect at all times during the Term, at its own expense, for the protection
of Tenant and Landlord, as their interests may appear, policies of insurance
issued by a responsible carrier or carriers acceptable to Landlord which afford
the following coverages:
(i) Commercial general liability insurance in an amount
not less than Three Million and no/100ths Dollars ($3,000,000.00) combined
single limit for both bodily injury and property damage which includes blanket
contractual liability broad form property damage, personal injury, completed
operations, products liability, and fire damage legal (in an amount not less
than Twenty-Five Thousand and no/100ths Dollars ($25,000.00)), naming Landlord
and its Agents as additional insureds.
(ii) "All Risk" property insurance (including, without
limitation, vandalism, malicious mischief, inflation endorsement, and sprinkler
leakage endorsement) on Tenant's Personal Property located on or in the Premises
and any Alterations constructed or installed on the Premises by Tenant. Such
insurance shall be in the full amount of the replacement cost, as the same may
from time to time increase as a result of inflation or otherwise, and shall be
in a form providing coverage comparable to the coverage provided in the standard
ISO All-Risk form. As long as this Lease is in effect, the proceeds of such
policy shall be used for the repair and replacement of such items so insured.
Landlord shall have no interest in the insurance proceeds on Tenant's Personal
Property.
(iii) Boiler and machinery insurance, including steam
pipes, pressure pipes, condensation return pipes and other pressure vessels and
HVAC equipment, including miscellaneous electrical apparatus, in an amount
satisfactory to Landlord.
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<PAGE> 14
C. Premises Insurance. During the Term Landlord shall maintain
"All Risk" property insurance (including inflation endorsement, sprinkler
leakage endorsement, and, at Landlord's option, earthquake and flood coverage)
on the Building, excluding coverage of all Tenant's Personal Property located on
or in the Premises. Such insurance shall also include insurance against loss of
rents on an "All Risk" basis, including, at Landlord's option, earthquake and
flood, in an amount equal to the Monthly Rent and Additional Rent, and any other
sums payable under the Lease, for a period of at least twelve (12) months
commencing on the date of loss. Such insurance shall name Landlord and its
Agents as named insureds and include a lender's loss payable endorsement in
favor of Landlord's lender (Form 438 BFU Endorsement). Tenant shall reimburse
Landlord for one-twelfth (1/12th) of Landlord's annual cost of such insurance as
Additional Rent, monthly on the first day of each calendar month of the Term,
prorated for any partial month, or on such other periodic basis as Landlord
shall elect. If the property insurance premiums are increased after the
Commencement Date, due to an increase in the value of the Building or its
replacement cost, or due to Tenant's use of the Premises, any Alterations
installed by Tenant, or any other cause solely attributable to Tenant, Tenant
shall pay such increase within ten (10) days of notice of such increase.
D. Increased Coverage. Upon demand, Tenant shall provide
Landlord, at Tenant's expense, with such increased amount of existing insurance,
and such other insurance as Landlord or Landlord's lender may reasonably
require. Landlord agrees, however, that Landlord shall not have the right to
require Tenant to provide Landlord with increased insurance more than once
during the Term of this Lease.
E. Co-Insurer. If, on account of the failure of Tenant to
comply with the foregoing provisions, Landlord is adjudged a co- insurer by its
insurance carrier, then, any loss or damage Landlord shall sustain by reason
thereof, including reasonable attorneys' fees and costs, shall be borne by
Tenant and shall be immediately paid by Tenant upon receipt of a bill therefor
and evidence of such loss.
F. Insurance Requirements. All insurance shall be in a form
reasonably satisfactory to Landlord and shall be carried with companies that
have a general policy holder's rating of not less than "A" and a financial
rating of not less than Class "X" in the most current edition of Best's
Insurance Reports; shall provide that such policies shall not be subject to
material alteration or cancellation except after at least thirty (30) days'
prior written notice to Landlord; and shall be primary as to Landlord. The
policy or policies, or duly executed certificates for them, together with
satisfactory evidence of payment of the premium thereon shall be deposited with
Landlord prior to the Commencement Date, and upon renewal of such policies, not
less than thirty (30) days prior to the expiration of the term of such coverage.
If Tenant fails to procure and maintain the insurance required hereunder,
Landlord may, but shall not be required to, order such insurance at Tenant's
expense and Tenant shall reimburse Landlord upon demand. Such reimbursement
shall include all costs incurred by Landlord including Landlord's reasonable
attorneys' fees, with interest thereon at the Interest Rate.
G. Landlord's Disclaimer. Landlord and its Agents shall not be
liable for any loss or damage to persons or property resulting from fire,
explosion, falling plaster, glass, tile or sheetrock, steam, gas, electricity,
water or rain which may leak from any part of the Building, or from the pipes,
appliances or plumbing works therein or from the roof, street or subsurface or
from any other cause whatsoever, unless caused by or due to the negligence or
willful acts of Landlord, its Agents, contractors or
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<PAGE> 15
invitees. Tenant shall give prompt written notice to Landlord in case of a
casualty, accident or repair needed in the Premises.
22. Waiver of Subrogation.
Landlord and Tenant each hereby waive all rights of recovery
against the other on account of loss and damage occasioned to such waiving party
for its property or the property of others under its control to the extent that
such loss or damage is insured against under any insurance policies which may be
in force at the time of such loss or damage. Tenant and Landlord shall, upon
obtaining policies of insurance required hereunder, give notice to the insurance
carrier that the foregoing mutual waiver of subrogation is contained in this
Lease and Tenant and Landlord shall cause each insurance policy obtained by such
party to provide that the insurance company waives all right of recovery by way
of subrogation against either Landlord or Tenant in connection with any damage
covered by such policy.
23. Damage or Destruction.
A. Landlord's Obligation to Rebuild. If the Building is
damaged or destroyed, Landlord shall promptly and diligently repair the same
unless it has the right to terminate this Lease as provided herein and it elects
to so terminate.
B. Right to Terminate. Landlord shall have the right to
terminate this Lease in the event any of the following events occur:
(i) Insurance proceeds are not available to pay one
hundred percent (100%) of the cost of such repair (excluding the deductible for
which Tenant shall be responsible); provided, however, that Landlord shall not
be permitted to terminate this Lease if the insurance proceeds are not available
due to Landlord's failure to maintain the insurance coverage required by this
Lease;
(ii) The Building cannot, with reasonable diligence, be
fully repaired by Landlord within one hundred fifty (150) days after the date of
the damage or destruction; or
(iii) The Building cannot be safely repaired because of the
presence of hazardous factors, including, but not limited to, earthquake faults,
radiation, chemical waste and other similar dangers.
If Landlord elects to terminate this Lease, Landlord may give
Tenant written notice of its election to terminate within thirty (30) days after
such damage or destruction, and this Lease shall terminate fifteen (15) days
after the date Tenant receives such notice. If Landlord elects not to terminate
the Lease, subject to Tenant's termination right set forth below, Landlord shall
promptly commence the process of obtaining necessary permits and approvals and
repair of the Building as soon as practicable, and this Lease will continue in
full force and effect. All insurance proceeds from insurance under Paragraph 21,
excluding proceeds for Tenant's Personal Property, shall be disbursed and paid
to Landlord. Tenant shall be required to pay to Landlord the amount of any
deductibles payable in connection with any insured casualties, unless the
casualty was caused by the sole negligence or willful misconduct of Landlord.
If the Premises are damaged or destroyed by a casualty not
covered by an "All-Risk" policy of insurance or by any other insurance which
Landlord elects to maintain, and Landlord elects to terminate this Lease as
permitted by Paragraph 23.B(i) above, Tenant may, at Tenant's election, pay the
cost of repairing or restoring the Premises, and in such event this Lease shall
not be
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<PAGE> 16
terminated. Tenant shall notify Landlord of Tenant's election within ten (10)
days after Landlord's notice to Tenant of Landlord's election to terminate.
Tenant shall have the right to terminate this Lease, if the
Building cannot, with reasonable diligence, be fully repaired within one hundred
fifty (150) days from the date of damage or destruction. The determination of
the estimated repair period shall be made by Landlord in its good faith business
judgment within thirty (30) days after such damage or destruction. Landlord
shall deliver written notice of the repair period to Tenant after such
determination has been made and Tenant shall exercise its right to terminate
this Lease, if at all, within ten (10) days of receipt of such notice from
Landlord.
C. Limited Obligation to Repair. Landlord's obligation, should
it elect or be obligated to repair or rebuild, shall be limited to the original
Building, as the same existed on the date of this Lease, and Tenant shall, at
Tenant's expense, replace or fully repair all Tenant's Personal Property and any
Alterations installed by Tenant and existing at the time of such damage or
destruction.
D. Abatement of Rent. Rent shall be temporarily abated
proportionately during any period when, by reason of such damage or destruction,
Tenant reasonably determines that there is substantial interference with
Tenant's use of the Premises, having regard to the extent to which Tenant may be
required to discontinue Tenant's use of the Premises. Such abatement shall
commence upon such damage or destruction and end upon substantial completion by
Landlord of the repair or reconstruction which Landlord is obligated or
undertakes to do. Tenant shall not be entitled to any compensation or damages
from Landlord for loss of the use of the Premises, damage to Tenant's Personal
Property or any inconvenience occasioned by such damage, repair or restoration.
Tenant hereby waives the provisions of Section 1932, Subdivision 2, and Section
1933, Subdivision 4, of the California Civil Code, and the provisions of any
similar law hereinafter enacted.
E. Damage Near End of Term. Anything herein to the contrary
notwithstanding, if the Building is destroyed or materially damaged during the
last twelve (12) months of the Term, then Landlord or Tenant may, at its option,
cancel and terminate this Lease as of the date of the occurrence of such damage.
If neither Landlord nor Tenant elects to so terminate this Lease, the repair of
such damage shall be governed by Paragraphs 23.A. and 23.B.
24. Condemnation.
If title to all of the Premises or so much thereof is taken
for any public or quasipublic use under any statute or by right of eminent
domain so that reconstruction of the Premises or the Building will not, in
Tenant's reasonable opinion, result in the Premises being reasonably suitable
for Tenant's continued occupancy for the uses and purposes permitted by this
Lease, this Lease shall terminate as of the date that possession of the Premises
or part thereof be taken. A sale by Landlord to any authority having the power
of eminent domain, either under threat of condemnation or while condemnation
proceedings are pending, shall be deemed a taking under the power of eminent
domain for all purposes of this paragraph.
If any part of the Premises is taken and the remaining part is
reasonably suitable, in Tenant's reasonable opinion, for Tenant's continued
occupancy for the purposes and uses permitted by this Lease, this Lease shall,
as to the part so taken, terminate as of the date that possession of such part
of the Premises is taken.
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<PAGE> 17
The Rent and other sums payable hereunder shall be reduced in the same
proportion that Tenant's use and occupancy of the Premises is reduced. If any
portion of the Outside Area is taken, Tenant's Rent shall be reduced only if
such taking materially interferes with Tenant's use of the Outside Area and then
only to the extent that the fair market rental value of the Premises is
diminished by such partial taking. Each party hereby waives the provisions of
Section 1265.130 of the California Code of Civil Procedure allowing either party
to petition the Superior Court to terminate this Lease in the event of a partial
taking of the Premises.
No award for any partial or entire taking shall be
apportioned. Tenant assigns to Landlord its interest in any award which may be
made in such taking or condemnation, together with any and all rights of Tenant
arising in or to the same or any part thereof. Nothing contained herein shall be
deemed to give Landlord any interest in or require Tenant to assign to Landlord
any separate award made to Tenant for the taking of Tenant's Personal Property,
or its moving costs or interruption of Tenant's business or loss of good will,
or relocation costs.
25. Assignment and Subletting.
A. Landlord's Consent. Tenant shall not enter into a Sublet
without Landlord's prior written consent, which consent shall not be
unreasonably withheld or delayed. Any attempted or purported Sublet without
Landlord's prior written consent shall be void and confer no rights upon any
third person and, at Landlord's election, shall terminate this Lease. Each
Subtenant shall agree in writing, for the benefit of Landlord, to assume, to be
bound by, and to perform the terms, conditions and covenants of this Lease to be
performed by Tenant. Notwithstanding anything contained herein, Tenant shall not
be released from personal liability for the performance of each term, condition
and covenant of this Lease by reason of Landlord's consent to a Sublet unless
Landlord specifically grants such release in writing. Consent by Landlord to any
Sublet shall not be deemed a consent to any subsequent Sublet.
B. Information to be Furnished. If Tenant desires at any time
to Sublet the Premises or any portion thereof, it shall first notify Landlord of
its desire to do so and shall submit in writing to Landlord: (i) the name of the
proposed Subtenant; (ii) the nature of the proposed Subtenant's business to be
carried on in the Premises; (iii) the terms and provisions of the proposed
Sublet and a copy of the proposed Sublet form containing a description of the
subject premises; and (iv) such financial information, including financial
statements, as Landlord may reasonably request concerning the proposed
Subtenant.
C. Landlord's Alternatives. At any time within thirty (30)
days after Landlord's receipt of the information specified in Paragraph 25.D.,
Landlord may, by written notice to Tenant, elect: (i) to consent to the Sublet
by Tenant; (ii) to refuse its consent to the Sublet (which refusal shall not be
unreasonable), or (iii) elect to terminate this Lease, or in the case of a
partial Sublet, terminate this lease as to the portion of the Premises proposed
to be Sublet. Notwithstanding anything to the contrary contained in this Lease,
if Landlord elects to terminate this Lease, Landlord shall so notify Tenant
within ten (10) days after receipt of the information specified in Paragraph
25.B., and Tenant shall have the option to rescind its request for Subletting.
If Tenant rescinds its request, this Lease shall continue in full force and
effect.
If Landlord consents to the Sublet, Tenant may thereafter
enter into a valid Sublet of the Premises or portion thereof, upon the terms and
conditions and with the proposed Subtenant set forth in the information
furnished by Tenant to Landlord pursuant to
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Paragraph 25.B., subject, however, at Landlord's election, to the condition that
any excess of the Subrent over the Rent required to be paid by Tenant under this
Lease shall be paid to Landlord.
D. Proration. If a portion of the Premises is Sublet, the pro
rata share of the Rent attributable to such partial area of the Premises shall
be determined by Landlord by dividing the Rent payable by Tenant hereunder by
the total square footage of the Premises and multiplying the resulting quotient
(the per square foot rent) by the number of square feet of the Premises which
are Sublet.
E. Exempt Sublets. Notwithstanding the above, Landlord's prior
written consent shall not be required for an assignment of this Lease to a
subsidiary, affiliate or parent corporation of Tenant, or a corporation into
which Tenant merges or consolidates, if Tenant gives Landlord prior written
notice of the name of any such assignee, and if the assignee assumes, in
writing, for the benefit of Landlord all of Tenant's obligations under the
Lease. An assignment or other transfer of this Lease to a purchaser of all or
substantially all of the assets of Tenant shall be deemed a Sublet requiring
Landlord's prior written consent.
26. Default.
A. Tenant's Default. A default under this Lease by Tenant
shall exist if any of the following occurs:
(i) If Tenant fails to pay Rent or any other sum required
to be paid hereunder within five (5) days after receipt of written notice from
Landlord that such sum is due; provided, however, that such notice shall be in
lieu of, and not in addition to, the notice required pursuant to Section 1161 of
the California Code of Civil Procedure regarding unlawful detainer actions;
(ii) If Tenant fails to perform any term, covenant or
condition of this Lease except those requiring the payment of money, and Tenant
fails to cure such breach within thirty (30) days after written notice from
Landlord where such breach could reasonably be cured within such thirty (30) day
period; provided, however, that where such failure could not reasonably be cured
within the thirty (30) day period, that Tenant shall not be in default if it
commences such performance within the thirty (30) day period and diligently
thereafter prosecutes the same to completion;
(iii) If Tenant assigns its assets for the benefit of its
creditors;
(iv) If the sequestration or attachment of or execution on
any material part of Tenant's Personal Property essential to the conduct of
Tenant's business occurs, and Tenant fails to obtain a return or release of such
Personal Property within sixty (60) days thereafter, or prior to sale pursuant
to such sequestration, attachment or levy, whichever is earlier;
(v) If Tenant fails to continuously or uninterruptedly
conduct its business in the Premises, or shall have abandoned or vacated the
Premises; or
(vi) If a court makes or enters any decree or order other
than under the bankruptcy laws of the United States adjudging Tenant to be
insolvent; or approving as properly filed a petition seeking reorganization of
Tenant; or directing the winding up or liquidation of Tenant and such decree or
order shall have continued for a period of sixty (60) days.
B. Remedies. Upon a default, Landlord shall have the following
remedies, in addition to all other rights and remedies
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<PAGE> 19
provided by law or otherwise provided in this Lease, to which Landlord may
resort cumulatively or in the alternative:
(i) Landlord may continue this Lease in full force and
effect, and this Lease shall continue in full force and effect as long as
Landlord does not terminate this Lease, and Landlord shall have the right to
collect Rent when due.
(ii) Landlord may terminate Tenant's right to possession of
the Premises at any time by giving written notice to that effect, and relet the
Premises or any part thereof. Tenant shall be liable immediately to Landlord for
all costs Landlord incurs in reletting the Premises or any part thereof,
including, without limitation, broker's commissions, expenses of cleaning and
redecorating the Premises required by the reletting and like costs. reletting
may be for a period shorter or longer than the remaining term of this Lease. No
act by Landlord other than giving written notice to Tenant shall terminate this
Lease. Acts of maintenance, efforts to relet the Premises or the appointment of
a receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. On
termination, Landlord has the right to remove all Tenant's Personal Property and
store same at Tenant's cost and to recover from Tenant as damages:
(a) The worth at the time of award of unpaid Rent and
other sums due and payable which had been earned at the time of termination;
plus
(b) The worth at the time of award of the amount by which
the unpaid Rent and other sums due and payable which would have been payable
after termination until the time of award exceeds the amount of such Rent loss
that Tenant proves could have been reasonably avoided; plus
(c) The worth at the time of award of the amount by which
the unpaid rent and other sums due and payable for the balance of the Term after
the time of award exceeds the amount of such Rent loss that Tenant proves could
be reasonably avoided; plus
(d) Any other amount necessary to compensate Landlord for
all the detriment proximately caused by Tenant's failure to perform Tenant's
obligations under this Lease, or which, in the ordinary course of things, would
be likely to result therefrom, including, without limitation, any costs or
expenses incurred by Landlord: (i) in retaking possession of the Premises; (ii)
in maintaining, repairing, preserving, restoring, replacing, cleaning, altering
or rehabilitating the Premises or any portion thereof, including such acts for
reletting to a new tenant or tenants; (iii) for leasing commissions; or (iv) for
any other costs necessary or appropriate to relet the Premises; plus
(e) At Landlord's election, such other amounts in
addition to or in lieu of the foregoing as may be permitted from time to time by
the laws of the State of California.
The "worth at the time of award" of the amounts referred to in
Paragraphs 26.B.(ii)(a) and 26.B.(ii)(b) is computed by allowing interest at the
Interest Rate on the unpaid rent and other sums due and payable from the
termination date through the date of award. The "worth at the time of award" of
the amount referred to in Paragraph 26.B.(ii)(c) is computed by discounting such
amount at the discount rate of the Federal Reserve Bank of San Francisco at the
time of award plus one percent (1%). Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law,
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<PAGE> 20
in the event Tenant is evicted or Landlord takes possession of the Premises by
reason of any default of Tenant hereunder.
(iii) Landlord may, with or without terminating this Lease,
re-enter the Premises and remove all persons and property from the Premises;
such property may be removed and stored in a public warehouse or elsewhere at
the cost of and for the account of Tenant. No reentry or taking possession of
the Premises by Landlord pursuant to this paragraph shall be construed as an
election to terminate this Lease unless a written notice of such intention is
given to Tenant.
C. Landlord's Default. Landlord shall not be deemed to be in
default in the performance of any obligation required to be performed by it
hereunder unless and until it has failed to perform such obligation within
thirty (30) days after receipt of written notice by Tenant to Landlord
specifying the nature of such default; provided, however, that if the nature of
Landlord's obligation is such that more than thirty (30) days are required for
its performance, then Landlord shall not be deemed to be in default if it shall
commence such performance within such thirty (30) day period and thereafter
diligently prosecute the same to completion.
27. Subordination.
This Lease is subject and subordinate to any ground and
underlying leases and any first mortgages and first deeds of trust (collectively
"Encumbrances") which may now affect the Premises, and to all renewals,
modifications, consolidations, replacements and extensions thereof; provided,
however, if the holder or holders of any such Encumbrance ("Holder") shall
require this Lease be prior and superior to such Encumbrance, within ten (10)
days of written request of Landlord to Tenant, Tenant shall execute, have
acknowledged and deliver any and all documents or instruments, in the form
presented to Tenant, which Landlord or Holder deems necessary or desirable for
such purposes. Landlord shall have the right to cause this Lease to be and
become and remain subject and subordinate to any and all Encumbrances which are
now or may hereafter be executed covering the Premises or any renewals,
modifications, consolidations, replacements or extensions thereof, for the full
amount of all advances made or to be made thereunder and without regard to the
time or character of such advances, together with interest thereon and subject
to all the terms and provisions thereof; provided only, that in the event of
termination of any such lease or upon the foreclosure of any such mortgage or
deed of trust, so long as Tenant is not in default, Holder shall agree in
writing to recognize Tenant's rights under this Lease as long as Tenant shall
pay the Rent and observe and perform all the provisions of this Lease to be
observed and performed by Tenant. Within twenty (20) days after Landlord's
written request, Tenant shall execute any and all documents required by Landlord
or the Holder to make this Lease subordinate to any lien of the Encumbrance.
Notwithstanding anything to the contrary set forth in this
paragraph, Tenant hereby attorns and agrees to attorn to any entity purchasing
or otherwise acquiring the Building or the Premises at any sale or other
proceeding or pursuant to the exercise of any other rights, powers or remedies
under such Encumbrance. Notwithstanding anything to the contrary contained in
this Lease, subordination of Tenant's leasehold interest to any Encumbrance, and
Tenant's attornment to any party, is conditioned upon (i) Tenant's receipt from
the Holder of the Encumbrance in question of an express written agreement, in
form reasonably satisfactory to Tenant, providing for recognition of all the
terms and conditions of this Lease and providing for continuation of this Lease
upon foreclosure of the Encumbrance; and (ii) the written agreement by such
Holder to perform all of the obligations to be
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<PAGE> 21
performed by Landlord under this Lease on or after the date of the foreclosure.
28. Notices.
Any notice or demand required or desired to be given under
this Lease shall be in writing and shall be personally served or in lieu of
personal service may be given by mail. If given by mail, such notice shall be
deemed to have been given when seventy- two (72) hours have elapsed from the
time when such notice was deposited in the United States mail, registered or
certified, and postage prepaid, addressed to the party to be served. At the date
of execution of this Lease, the addresses of Landlord and Tenant are as set
forth in Paragraph 1. After the Commencement Date, the address of Tenant shall
be the address of the Premises. Either party may change its address by giving
notice of same in accordance with this paragraph.
29. Attorneys' Fees.
If either party brings any action or legal proceeding for
damages for an alleged breach of any provision of this Lease, to recover rent,
or other sums due, to terminate the tenancy of the Premises or to enforce,
protect or establish any term, condition or covenant of this Lease or right of
either party, the prevailing party shall be entitled to recover as a part of
such action or proceedings, or in a separate action brought for that purpose,
reasonable attorneys' fees and costs.
30. Estoppel Certificates.
Tenant shall within twenty (20) days following written request
by Landlord:
(i) Execute and deliver to Landlord any documents, including
estoppel certificates, in the form prepared by Landlord (a) certifying that this
Lease is unmodified and in full force and effect or, if modified, stating the
nature of such modification and certifying that this Lease, as so modified, is
in full force and effect and the date to which the Rent and other charges are
paid in advance, if any, and (b) acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord, or, if there are
uncured defaults on the part of the Landlord, stating the nature of such uncured
defaults, and (c) evidencing the status of the Lease as may be required either
by a lender making a loan to Landlord to be secured by deed of trust or mortgage
covering the Premises or a purchaser of the Premises from Landlord. Tenant's
failure to deliver an estoppel certificate within twenty (20) days after
delivery of Landlord's written request therefor shall be conclusive upon Tenant
(a) that this Lease is in full force and effect, without modification except as
may be represented by Landlord, (b) that there are now no uncured defaults in
Landlord's performance and (c) that no Rent has been paid in advance.
If Tenant fails to so deliver a requested estoppel certificate
within the prescribed time it shall be conclusively presumed that this Lease is
unmodified and in full force and effect except as represented by Landlord.
(ii) Deliver to Landlord the current financial statements of
Tenant, and financial statements of the two (2) years prior to the current
financial statements year, with an opinion of a certified public accountant,
including a balance sheet and profit and loss statement for the most recent
prior year, all prepared in accordance with generally accepted accounting
principles consistently applied.
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<PAGE> 22
31. Transfer of the Premises by Landlord.
In the event of any conveyance of the Premises and assignment
by Landlord of this Lease, Landlord shall be and is hereby entirely released
from all liability under any and all of its covenants and obligations contained
in or derived from this Lease occurring after the date of such conveyance and
assignment and Tenant agrees to attorn to such transferee provided such
transferee assumes in writing Landlord's obligations under this Lease.
32. Landlord's Right to Perform Tenant's Covenants.
If Tenant shall at any time fail to make any payment or
perform any other act on its part to be made or performed under this Lease,
Landlord may, but shall not be obligated to and without waiving or releasing
Tenant from any obligation of Tenant under this Lease, make such payment or
perform such other act to the extent Landlord may deem desirable, and in
connection therewith, pay expenses and employ counsel. All sums so paid by
Landlord and all penalties, interest and costs in connection therewith shall be
due and payable by Tenant on the next day after any such payment by Landlord,
together with interest thereon at the Interest Rate from such date to the date
of payment by Tenant to Landlord, plus reasonable collection costs and
attorneys' fees. Landlord shall have the same rights and remedies for the
nonpayment thereof as in the case of default in the payment of Rent.
33. Tenant's Remedy.
If, as a consequence of a default by Landlord under this
Lease, Tenant recovers a money judgment against Landlord, such judgment shall be
satisfied only out of the proceeds of sale received upon execution of such
judgment and levied thereon against the right, title and interest of Landlord in
the Premises and out of Rent or other income from such property received by
Landlord or out of consideration received by Landlord from the sale or other
disposition of all or any part of Landlord's right, title or interest in the
Premises, and neither Landlord nor its Agents shall be liable for any
deficiency.
34. Mortgagee Protection.
If Landlord defaults under this Lease, Tenant will notify any
beneficiary of a first deed of trust or mortgagee of a first mortgage covering
the Premises for whom Tenant has an address for notice, and offer such
beneficiary or mortgagee a reasonable opportunity to cure the default, including
time to obtain possession of the Premises by power of sale or a judicial
foreclosure, if such should prove necessary to effect a cure.
35. Brokers.
Tenant warrants and represents that it has had no dealings
with any real estate broker or agent in connection with the negotiation of this
Lease, except for CPS Realty Group, and that it knows of no other real estate
broker or agent who is or might be entitled to a commission in connection with
this Lease. Landlord and Tenant each agree to indemnify, defend and hold the
other and their respective Agents harmless from and against any and all
liabilities or expenses, including attorneys' fees and costs, arising out of or
in connection with claims made by any other broker or individual for commissions
or fees resulting from Landlord's and Tenant's execution of this Lease, based
upon such party's relationship or alleged relationship with Landlord or Tenant.
36. Acceptance.
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<PAGE> 23
This Lease shall only become effective and binding upon full
execution hereof by Landlord and delivery of a signed copy to Tenant. Neither
party shall record this Lease nor a short form memorandum thereof.
37. Modifications for Lender.
If, in connection with obtaining financing for the Premises or
any portion thereof, Landlord's lender shall request reasonable modification to
this Lease as a condition to such financing, Tenant shall not unreasonably
withhold, delay or defer its consent thereto, provided such modifications do not
materially adversely affect Tenant's rights or obligations hereunder.
38. Option to Extend.
A. Option Period. Provided that Tenant is not in material
default hereunder, either at the time of exercise or at the time the extended
Term commences, Tenant shall have the option to extend the initial two (2) year
Term of this Lease for one additional period of three (3) years ("Option
Period") on the same terms, covenants and conditions provided herein, except
that upon such renewal the net Monthly Rent due hereunder shall be determined
pursuant to Paragraph 38.B. Tenant shall exercise its option by giving Landlord
written notice ("Option Notice") at least one hundred eighty (180) days but not
more than two hundred seventy (270) days prior to the expiration of the initial
Term of this Lease.
B. Option Period Monthly Rent. The net Monthly Rent for the
Option Period shall be determined as follows:
(i) The parties shall have fifteen (15) days after
Landlord receives the Option Notice within which to agree on the net Monthly
Rent for the Option Period based upon the then fair market rental value of the
Premises as defined in Paragraph 38.B.(iii). If the parties agree on the net
Monthly Rent for the Option Period within fifteen (15) days, they shall
immediately execute an amendment to this Lease stating the net Monthly Rent for
the Option Period.
(ii) If the parties are unable to agree on the net Monthly
Rent for the Option Period within fifteen (15) days, then, the net Monthly Rent
for the Option Period shall be the then current fair market rental value of the
Premises as determined in accordance with Paragraph 38.B.(iv).
(iii) The "then fair market rental value of the Premises"
shall be defined to mean the fair market rental value of the Premises as of the
commencement of the Option Period, taking into consideration the uses permitted
under this Lease, the quality, size, design and location of the Premises, and
the rent for comparable buildings located in Santa Clara. In no event, however,
shall the fair market monthly rental value of the Premises for the Option Period
be less than the net Monthly Rent payable under the Lease during the last month
of the Term as adjusted by the percentage increase in the Consumer Price Index,
All Item, All Urban Consumers, published by the U.S. Department of Labor, Bureau
of Labor Statistics for the San Francisco-Oakland-San Jose Metropolitan Area
(1982-84=100) from the Commencement Date to the date of the Option Notice, nor
shall such fair market monthly rental value of the Premises exceed one hundred
ten percent (110%) of the net Monthly Rent payable during the last month of the
Term.
(iv) Within seven (7) days after the expiration of the
fifteen (15) day period set forth in Paragraph 38.B.(ii), each party, at its
cost and by giving notice to the other party, shall appoint a real estate
appraiser with at least five (5) years'
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<PAGE> 24
full-time commercial appraisal experience in the area in which the Premises are
located to appraise and set the net Monthly Rent and Adjustments. If a party
does not appoint an appraiser within ten (10) days after the other party has
given notice of the name of its appraiser, the single appraiser appointed shall
be the sole appraiser and shall set the net Monthly Rent. If the two (2)
appraisers are appointed by the parties as stated in this paragraph, they shall
meet promptly and attempt to set the net Monthly Rent. If they are unable to
agree within thirty (30) days after the second appraiser has been appointed,
they shall attempt to elect a third appraiser meeting the qualifications stated
in this paragraph within ten (10) days after the last day the two (2) appraisers
are given to set the net Monthly Rent. If they are unable to agree on the third
appraiser, either of the parties to this Lease, by giving ten (10) days' notice
to the other party, can apply to the then President of the Santa Clara County
Real Estate Board, or the then Presiding Judge of the Santa Clara County
Superior Court, for the selection of a third appraiser who meets the
qualifications stated in this paragraph. Each of the parties shall bear one-half
(1/2) of the cost of appointing the third appraiser and of paying the third
appraiser's fee. The third appraiser, however selected, shall be a person who
has not previously acted in any capacity for either party.
Within thirty (30) days after the selection of the
third appraiser, a majority of the appraisers shall set the net Monthly Rent. If
a majority of the appraisers are unable to set the net Monthly Rent within the
stipulated period of time, the three (3) appraisals shall be added together and
their total divided by three (3); the resulting quotient shall be the net
Monthly Rent.
If, however, the low appraisal and/or the high
appraisal are/is more than ten percent (10%) lower and/or higher than the middle
appraisal, the low appraisal and/or the high appraisal shall be disregarded. If
only one appraisal is disregarded, the remaining two (2) appraisals shall be
added together and their total divided by two (2); the resulting quotient shall
be the Monthly Rent. If both the low appraisal and the high appraisal are
disregarded as stated in this paragraph, then only the middle appraisal shall be
used as the result of the appraisal.
After the Monthly Rent has been set, the appraisers
shall immediately notify the parties and the parties shall amend this Lease to
set forth such amount.
39. General.
A. Captions. The captions and headings used in this Lease are
for the purpose of convenience only and shall not be construed to limit or
extend the meaning of any part of this Lease.
B. Executed Copy. Any fully executed copy of this Lease shall
be deemed an original for all purposes.
C. Time. Time is of the essence for the performance of each
term, condition and covenant of this Lease.
D. Separability. If one or more of the provisions contained
herein, except for the payment of Rent, is for any reason held invalid, illegal
or unenforceable in any respect, such invalidity, illegality, or
unenforceability shall not affect any other provision of this Lease, but this
Lease shall be construed as if such invalid, illegal or unenforceable provision
had not been contained herein.
E. Choice of Law. This Lease shall be construed and enforced
in accordance with the laws of the State of California.
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<PAGE> 25
The language in all parts of this Lease shall in all cases be construed as a
whole according to its fair meaning and not strictly for or against either
Landlord or Tenant.
F. Gender; Singular, Plural. When the context of this Lease
requires, the neuter gender includes the masculine, the feminine, a partnership
or corporation or joint venture, and the singular includes the plural.
G. Binding Effect. The covenants and agreement contained in
this Lease shall be binding on the parties hereto and on their respective
successors and assigns to the extent this Lease is assignable.
H. Waiver. The waiver by Landlord of any breach of any term,
condition or covenant, of this Lease shall not be deemed to be a waiver of such
provision or any subsequent breach of the same or any other term, condition or
covenant of this Lease. The subsequent acceptance of Rent hereunder by Landlord
shall not be deemed to be a waiver of any preceding breach at the time of
acceptance of such payment. No covenant, term or condition of this Lease shall
be deemed to have been waived by Landlord unless such waiver is in writing
signed by Landlord.
I. Entire Agreement. This Lease, including any exhibits and
documents referenced herein, is the entire agreement between the parties, and
there are no agreements or representations between the parties except as
expressed herein. Except as otherwise provided herein, no subsequent change or
addition to this Lease shall be binding unless in writing and signed by the
parties hereto.
J. Authority. If Tenant is a corporation or a partnership,
each individual executing this Lease on behalf of said corporation or
partnership, as the case may be, represents and warrants that he is duly
authorized to execute and deliver this Lease on behalf of said entity in
accordance with its corporate bylaws, statement of partnership or certificate of
limited partnership, as the case may be, and that this Lease is binding upon
said entity in accordance with its terms. Landlord, at its option, may require a
copy of such written authorization to enter into this Lease. If Landlord is a
corporation or a partnership, each individual executing this Lease on behalf of
the corporation or partnership, as the case may be, represents and warrants that
he or she is duly authorized to execute and deliver this Lease on behalf of the
entity in accordance with its corporate bylaws, statement of partnership or
certificate of limited partnership, as the case may be, and that this Lease is
binding upon the entity in accordance with its terms.
K. Exhibits. All exhibits, amendments, riders and addenda
attached hereto are hereby incorporated herein and made a part hereof.
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<PAGE> 26
L. Lease Summary. The Lease Summary attached to this Lease is
intended to provide general information only. In the event of any inconsistency
between the Lease Summary and the specific provisions of this Lease, the
specific provisions of this Lease shall prevail.
THIS LEASE is effective as of the date the last signatory
necessary to execute the Lease shall have executed this Lease.
TENANT:
Dated October 13, 1993 Storage Dimensions,
- ----------------------- Inc., a California corporation
By /s/ DAVID A. EEG
----------------------------------------
David A. Eeg, President
and CEO
LANDLORD:
Dated October 14, 1993 Callahan-Pentz Properties,
- ---------------------- McCarthy Four, a California
general partnership
By /s/ GEORGE B. PENTZ
-----------------------------------------
George B. Pentz,
Managing General Partner
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<PAGE> 27
THE PREMISES
[To Be Attached]
<PAGE> 28
EXHIBIT A
LEASE
(SINGLE-TENANT SINGLE-BUILDING MODIFIED NET)
by and between
CALLAHAN-PENTZ PROPERTIES, McCARTHY FOUR
("Landlord")
and
STORAGE DIMENSIONS, INC.
("Tenant")
<PAGE> 29
For the approximately 80,060 SF Premises at
1656 McCarthy Boulevard, Milpitas, CA 95035
<PAGE> 30
EXHIBIT B
LEASE SUMMARY
<TABLE>
<S> <C>
Lease Date: October 8, 1993
Landlord: Callahan-Pentz Properties,
McCarthy Four
Address of Landlord: c/o CPS Realty Group
1740 Technology Drive, Suite 290
San Jose, CA 95110
Tenant: Storage Dimensions, Inc.
Address of Tenant: 1656 McCarthy Boulevard
Milpitas, CA 95035
Contact: David A. Eeg
Telephone: (408)954-0710
Building Address: 1656 McCarthy Boulevard
Milpitas, CA 95035
Building Square Footage: approximately 80,060 square feet
Commencement Date: December 7, 1993
Term: Two (2) years
Net Monthly Rent: $54,900.00/month
Estimated Initial Insurance
Premiums, Outside Area and
Building Maintenance Expenses: $5,610.00/month
Estimated Initial Real Property
Taxes: $5,610.00/month
Security Deposit: $55,000.00
</TABLE>
<PAGE> 31
TABLE OF CONTENTS
Article Page
- ------- ----
1. Parties........................................................... 1
2. Premises.......................................................... 1
3. Definitions....................................................... 1
4. Lease Term........................................................ 2
5. Rent.............................................................. 2
6. Late Payment Charges.............................................. 3
7. Security Deposit.................................................. 3
8. Holding Over...................................................... 4
9. Tenant Improvements............................................... 4
10. Condition of Premises............................................. 4
11. Use of the Premises............................................... 4
12. Quiet Enjoyment................................................... 6
13. Alterations....................................................... 6
14. Surrender of the Premises......................................... 6
15. Real Property Taxes............................................... 7
16. Utilities and Services............................................ 8
17. Repair and Maintenance............................................ 8
18. Liens............................................................. 11
19. Landlord's Right to Enter the Premises............................ 11
20. Signs............................................................. 12
21. Insurance......................................................... 12
22. Waiver of Subrogation............................................. 14
23. Damage or Destruction............................................. 14
24. Condemnation...................................................... 15
25. Assignment and Subletting......................................... 16
26. Default........................................................... 17
27. Subordination..................................................... 19
28. Notices........................................................... 19
29. Attorneys' Fees................................................... 20
30. Estoppel Certificates............................................. 20
31. Transfer of the Premises by Landlord.............................. 20
<PAGE> 32
32. Landlord's Right to Perform Tenant's Covenants.................... 20
33. Tenant's Remedy................................................... 21
34. Mortgagee Protection.............................................. 21
35. Brokers........................................................... 21
36. Acceptance........................................................ 21
37. Modifications for Lender.......................................... 21
38. Option to Extend.................................................. 21
39. General........................................................... 23
TABLE OF EXHIBITS
EXHIBIT A The Premises
EXHIBIT B CC&R's
<PAGE> 1
EXHIBIT 10.9
FIRST AMENDMENT TO LEASE
This First Amendment to Lease ("First Amendment") is entered into as of
_______________ by and between Callahan-Pentz Properties, McCarthy Four, a
California general partnership ("Landlord") and Storage Dimensions, Inc., a
California corporation ("Tenant").
RECITALS
A. Landlord and Tenant entered into a Lease Agreement dated
October 8, 1993, for the premises located at 1656 McCarthy Boulevard, Milpitas,
consisting of approximately eighty thousand sixty (80,060) square feet
(collectively, the "Premises").
B. Tenant desires to exercise their option to extend the lease
for three (3) years, commencing December 7, 1995.
AGREEMENT
Now, therefore in consideration of their mutual covenants and other
valuable consideration, receipt of which is hereby acknowledged, Landlord and
Tenant agree as follows:
1. Lease Term: Paragraph 4 of the Lease shall be amended to extend the
term of the Lease for a period of three (3) years, commencing December 7, 1995
and expiring December 6, 1998.
2. Rent: Paragraph 5 of the Lease shall be amended by adding the
following:
Commencing December 7, 1995, the Net Monthly Rent shall be
paid pursuant to the provisions of the Lease in the amount of
Fifty-Eight Thousand Two Hundred and no/100ths Dollars
($58,200.00) per month.
Except as set forth in this First Amendment the Lease is unmodified and in full
force and effect.
LANDLORD TENANT
Callahan-Pentz Properties, Storage Dimensions, Inc.,
McCarthy Four, a California a California corporation
general partnership
By: /s/GEORGE B. PENTZ By: /s/ ROBERT E. BYLIN
--------------------------- ----------------------------------------
George B. Pentz Robert E. Bylin
Its: Managing General Partner Its: Senior Vice President of Operations
& Finance/Chief Financial Officer
<PAGE> 1
EXHIBIT 10.10
FORM OF EMPLOYMENT AGREEMENT
THIS AGREEMENT is made as of this 26th day of December, 1992, between
STORAGE DIMENSIONS, INC., a Delaware corporation formerly known as SDI
Acquisition Corporation (hereinafter called the "Employer"), and __________ of
__________, California (hereinafter called the "Employee").
WITNESSETH:
WHEREAS, pursuant to the terms of the Stock Purchase and Asset
Acquisition Agreement dated as of December 4, 1992 (the "Acquisition Agreement")
among the Employer, the Employee and certain other persons, the Employer is
acquiring the business operations and assets of Storage Dimensions, Inc., a
California corporation ("SDI"); and
WHEREAS, the Employee has been an executive of SDI and is intimately
familiar with its business operations; and
WHEREAS, the Employer desires to employ the Employee as an executive
officer and the Employee desires to accept such employment;
NOW, THEREFORE, in consideration of the premises, the covenants
contained herein, and other good and valuable consideration, the Employer and
the Employee hereby agree as follows:
ARTICLE 1
EMPLOYMENT OF EMPLOYEE
1.1 Employment and Term. The Employer hereby employs the Employee, and
the Employee hereby accepts employment with the Employer, upon the terms and
conditions hereinafter set forth for the period commencing on December 29, 1992
and terminating on the 31st day of December, 1995 (such period, as extended or
reduced pursuant hereto, being referred to herein as the "Term"), unless earlier
terminated pursuant to the provisions of Article 6.
1.2 Position and Location. The Employee is employed to be and serve as
the ____________________ of the Employer and shall work at 1656 McCarthy
Boulevard, Milpitas, California or at such other location as may be agreed by
the Employee and the Board of Directors (the "Board") of the Employer.
ARTICLE 2
DUTIES OF EMPLOYEE
2.1 Primary Duty. The primary duty of the Employee shall be to serve as
the ____________________ of the Employer, and to carry out the duties of such
office as provided in the By-Laws of the Employer. The Employee shall devote his
full productive time, ability and attention, and his best efforts, to the
business of the Employer.
<PAGE> 2
ARTICLE 3
COMPENSATION AND BENEFITS
3.1 Base Compensation. As base compensation for his services to be
rendered under this Agreement, the Employee shall receive the same annual salary
as he is receiving on the date hereof as an employee of SDI, and shall be
eligible to receive merit increases on terms consistent with those under which
such increases have in the past been granted to him by SDI.
3.2 Additional Compensation. As additional compensation for services to
be rendered, the Employee shall be entitled to the following:
(a) Management Bonus Plan. Employee shall be entitled to cash
bonuses under and subject to the terms of Employer's Management Bonus Plan, a
copy of which is attached hereto as Exhibit A.
(b) Stock Options. Employee will be granted a nonstatutory option
to purchase up to ______ shares of Employer's Common Stock at an exercise price
of $0.05 per share. The option will vest over a four year period, will have a
ten year term and shares issuable upon exercise of the option will not be
subject to a right of repurchase.
(c) Other Plans. Employee will participate in Employer's Profit
Sharing Plan and any additional employee benefit plans which may be adopted by
Employer, as determined by the Board, as each such plan may be amended from time
to time by the Employer in its sole discretion.
3.3 Medical, Hospital and Other Benefits. The Employer agrees to
provide to the Employee substantially the same medical, hospital and other
benefits as are provided to him by SDI on the date hereof.
ARTICLE 4
COVENANT NOT TO COMPETE
4.1 Noncompetition Agreement.
(a) During the term of employment provided in Section 1.1 and any
extension or renewal hereof, Employee will be a full-time employee of the
Company. During such period, Employee will not, without the express written
consent of Employer:
(i) work as an employee, consultant, owner, part-owner,
shareholder, partner, director, officer, trustee or agent of any
business, whether or not competitive with Employer or any
subsidiary thereof (provided that Employee may invest in less
-2-
<PAGE> 3
than 5% of the outstanding shares of an enterprise whose
shares are publicly traded); or
(ii) invest in any new or ongoing business or venture
which investment would require Employee's active involvement
in such business or venture.
(b) In addition, for so long as Employee continues to be
engaged by Employer or any subsidiary thereof as an employee or a consultant and
for a period of not less than one (1) year and not more than two (2) years (as
selected by Employer within fifteen (15) days following the date of termination
of employment) after Employee ceases to be so engaged, but not longer than the
period during which Employer or any subsidiary thereof makes severance payments
to Employee pursuant to Section 5.3(a), Employee will not, without the express
written consent of Employer, directly or indirectly engage, participate or
invest in or assist, as owner, part owner, shareholder, partner, director,
officer, trustee, employee, agent or consultant, or in any other capacity, any
business organization other than Employer whose activities or products are
competitive with activities or products of Employer or any subsidiary thereof in
which activities Employee shall have participated or as to which products
Employee shall have had responsibility either in their development, marketing or
otherwise, provided that Employee may make passive investments in a competitive
enterprise the shares of which are publicly traded if Employee's investment
constitutes less than 5% of the outstanding shares of such enterprise. The
foregoing agreement not to compete shall apply in any and all cities and
counties of each state of the United States of America in which the activities
of Employer or any subsidiary thereof shall have been conducted, or the products
of any of them sold, on or before the date upon which Employee's employment by
Employer or any subsidiary thereof ceases.
4.2 No Interference. During the period in which the noncompetition
agreement set forth in Section 4.1 is in effect, the Employee shall not, whether
for his own account or for the account of any other individual, corporation,
partnership, firm, joint venture, sole proprietorship or other entity (other
than the Employer), intentionally solicit, endeavor to entice away from the
Employer, or otherwise interfere with the relationship of the Employer with, any
person who is employed or retained in any capacity by the Employer (including,
but not limited to, any independent sales representative or organization), or
any person or entity who is, or was within the then most recent twelve-month
period, a customer or client of the Employer.
4.3 Secrecy. The Employee agrees to execute and be bound by the terms
of the Proprietary Information Agreement of the Employer (the "Proprietary
Information Agreement"), a form of which is attached hereto as Exhibit B. Any
breach of the Proprietary Information Agreement shall be deemed to be a breach
of the provisions of this Article 4.
4.4 Injunctive Relief. Without limiting the remedies available to the
Employer, the Employee acknowledges that a breach of any of the covenants
contained in this Article 4 or in the Proprietary Information Agreement may
result in material irreparable injury to the Employer for which there is no
adequate remedy at law, that it will not be possible to measure damages for such
injuries precisely and that, in the event of such a breach or threat thereof,
the Employer shall be
-3-
<PAGE> 4
entitled to obtain a temporary restraining order and/or a preliminary or
permanent injunction restraining the Employee from engaging in activities
prohibited by this Article 4 or such other relief as may be required to enforce
specifically any of the covenants in this Article 4.
ARTICLE 5
RENEWAL; TERMINATION
5.1 Renewal. After the initial term set forth in Section 1.1, this
Agreement shall automatically continue until termination by either party on not
less than 60 days' written notice to the other.
5.2 Termination.
(a) This Agreement and Employee's employment hereunder may be
terminated at any time by the mutual consent of the parties hereto.
(b) Employee's employment may be terminated by Employer for
any reason (in addition to the reasons set forth in Section 5.2(c)), or for no
reason, by Employer giving Employee thirty (30) days written notice of
termination and, in such event, Employer shall make severance payments as
provided in Section 5.3(a). If Employee voluntarily terminates his employment
thereunder as a result of (i) a change in the location at which Employee is
expected to perform his duties to a location outside of Santa Clara County, (ii)
a decrease in compensation or benefits payable to Employee which is not
applicable to Employer's executive employees generally, (iii) a material
diminution of the duties assigned to Employee, (iv) a material breach of this
Agreement (including the terms of the Management Bonus Plan attached as an
Exhibit hereto) by Employer, which breach is not cured within thirty (30) days
after written notice thereof by Employee, or (v) a change in the position or
title of Employee, such termination shall be deemed to be a termination by
Employer pursuant to this Section 5.2(b) and Employer shall make severance
payments as provided in Section 5.3(a).
(c) Employee's employment hereunder may be terminated by
Employer, effective upon written notice to Employee, in the event of:
(i) the willful commission by the Employee of any act or
acts that are dishonest and demonstrably and materially injurious to
the Employer, monetarily or otherwise;
(ii) the Employee is found guilty by a court of competent
jurisdiction of any felonious act or acts involving moral turpitude;
(iii) a material breach of any of the covenants set forth
in Article 4 of this Agreement; or
-4-
<PAGE> 5
(iv) the resignation by the Employee from his
employment hereunder simultaneously with or following (A) his
termination for any of the reasons set forth in subsections (i) - (iii)
above, or (B) the occurrence of an event which if known to the Employer
at the time of such resignation would constitute grounds for
termination by Employer pursuant to subsections (i) - (iii) above.
5.3 Effects of Termination.
(a) Upon a termination described in Section 5.2(b), Employer
shall pay to Employee each month during the period of non-competition by
Employee selected by Employer pursuant to Section 4.1(b) (but in no event for
less than one (1) year or more than two (2) years), less applicable income tax
withholding, one hundred percent (100%) of Employee's monthly salary in effect
on the date of termination of Employee's regular employment hereunder, such
amount to be payable in equal installments on the Company's normal payment date
for employees beginning on the payment date next following the date of
termination. In addition, vesting under the stock option referred to in Section
3.2(b), and in any subsequently granted stock options, shall be accelerated and
such stock option(s) shall become immediately exercisable in full.
(b) If Employee is terminated for any reason other than as
specified in 5.2(b), (i) the stock option referred to in Section 3.2(b), and any
subsequently granted stock options, shall be exercisable only to the extent
vested in accordance with their terms, (ii) Employee's eligibility for payments
under the Management Bonus Plan and under any other employee benefit plan in
which employee was then participating shall be prorated through the termination
date and (iii) Employer shall have the option (exercisable within fifteen (15)
days following the date of termination of employment), but not the obligation,
to elect to continue the period of noncompetition by Employee for a period of up
to two (2) years. In the event that Employer elects to continue the period of
noncompetition as provided in this Section 5.3(b), Employer shall pay to
Employee each month during the period of non-competition by Employee selected by
Employer one hundred percent (100%) of Employee's monthly salary in effect on
the date of termination of Employee's regular employment hereunder (less
applicable income tax withholding), such amount to be payable in equal
installments on the Company's normal payment date for employees beginning on the
payment date next following the date of termination.
(c) Employee's employment under this Agreement will terminate
upon his death and in such event his current salary and his eligibility for and
right to payments under the Management Bonus Plan, if any, will be prorated as
of the date of his death.
(d) In the event of Employee's permanent physical or mental
disability or incapacity, this Agreement may be terminated by the Employer and
Employee will be subject to and entitled to benefits under the Employer's
disability plan, if any, as then in effect. In the event of such termination,
Employee's current salary and his eligibility for and right to payments under
the Management Bonus Plan, if any, will be prorated as of the date of such
disability or incapacity.
-5-
<PAGE> 6
ARTICLE 6
GENERAL PROVISIONS
6.1 Successors; Binding Agreement. This Agreement shall not be
assignable by Employee. This Agreement shall inure to the benefit of and be
enforceable by the Employee's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If the
Employee should die while any amount would still be payable hereunder if the
Employee had continued to live, all such amounts, unless otherwise provided to
the contrary herein, shall be paid in accordance with the terms of this
Agreement to the Employee's devisee, legatee or other designee to whom the right
to receive such payment shall have been effectively assigned or, if there is no
such devisee, legatee or other designee, to the Employee's estate.
6.2 Notices. Any notices to be given hereunder by either party to the
other may be effected either by personal delivery in writing or by mail,
registered or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the addresses appearing below, but
each party may change his address by written notice in accordance with this
Section . Notices delivered personally shall be deemed communicated as of actual
receipt; mailed notices shall be deemed communicated as of three (3) days after
mailing. Notices shall be sent:
To Employer: Storage Dimensions, Inc.
c/o Capital Partners
One Pickwick Plaza, Suite 300
Greenwich, Connecticut 06830
Attention: A. George Gebauer
To Employee: _________________________
_________________________
_________________________
6.3 Amendment and Waiver. No provision of this Agreement may be
amended, modified or discharged unless such amendment, modification or discharge
is agreed to in writing and signed by the Employee and the Employer. 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.
6.4 Partial Invalidity. If the final determination of a court of
competent jurisdiction declares, after the expiration of the time within which
judicial review (if permitted) of such determination may be perfected, that any
term or provision hereof is invalid or unenforceable, (a) the remaining term and
provisions hereof shall be unimpaired and (b) the invalid or unenforceable term
or provision shall be deemed replaced by a term or provision that is valid and
enforceable and that comes closest to expressing the intention of the invalid or
unenforceable term or provision.
-6-
<PAGE> 7
6.5 Counterparts. This Agreement may be executed in 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 Inclusion of Entire Agreement Herein. This Agreement supersedes any
and all other agreements, either oral or in writing, between the parties hereto
with respect to the employment of the Employee by the Employer, and contains all
of the covenants and agreements between the parties with respect to such
employment in any manner whatsoever.
6.7 Law Governing Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of California. Each of the
Employer and the Employee hereby irrevocably and unconditionally submits to the
non-exclusive jurisdiction of any California State or federal court sitting in
Santa Clara County, California, and any appellate court from any thereof, in any
action or proceeding arising out of or relating to this Agreement and waives, to
the fullest extent it may effectively do so, any defense of an inconvenient
forum to the maintenance of such action or proceeding in any such court.
IN WITNESS WHEREOF, the undersigned have executed this Employment
Agreement as of the day and year first above written.
STORAGE DIMENSIONS, INC.
By: _______________________________
Title: Vice Chairman of the Board
___________________________________
Employee Name
-7-
<PAGE> 8
SCHEDULE ONE
1. Employment Agreement with David A. Eeg dated December 26, 1992.
2. Employment Agreement with Gene E. Bowles, Jr. dated December 26, 1992.
3. Employment Agreement with Robert E. Bylin dated December 26, 1992.
-8-
<PAGE> 1
EXHIBIT 11.1
STORAGE DIMENSIONS, INC.
COMPUTATION OF NET INCOME PER SHARE
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended
December 31,
1996
------------
<S> <C>
Net income...................................... $ 1,370
------------
Shares utilized in calculating net
income per share:.............................
Weighted average shares outstanding............. 1,641
Common Stock equivalent shares outstanding
during the period............................. 454
Effect of conversion of Series A
Preferred Stock............................... 3,434
------------
5,529
============
Net income per share............................ $ 0.25
============
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted fron (a) 1996
audited financial statements contained in the Company's registration statement
on Form S-1 filed with the Securities and Exchange Commission on January 21,
1997 and is qualified in its entirety by reference to such (b) registration
statement.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-START> DEC-31-1995
<PERIOD-END> DEC-28-1996
<EXCHANGE-RATE> 1
<CASH> 1,682
<SECURITIES> 0
<RECEIVABLES> 12,478
<ALLOWANCES> 539
<INVENTORY> 6,304
<CURRENT-ASSETS> 20,783
<PP&E> 8,151
<DEPRECIATION> 6,036
<TOTAL-ASSETS> 22,898
<CURRENT-LIABILITIES> 18,270
<BONDS> 0
0
69
<COMMON> 8
<OTHER-SE> 4,551
<TOTAL-LIABILITY-AND-EQUITY> 22,898
<SALES> 72,310
<TOTAL-REVENUES> 72,310
<CGS> 45,327
<TOTAL-COSTS> 45,327
<OTHER-EXPENSES> 24,326
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,155
<INCOME-PRETAX> 1,502
<INCOME-TAX> 132
<INCOME-CONTINUING> 1,370
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,370
<EPS-PRIMARY> .25
<EPS-DILUTED> .25
</TABLE>
