U.S. Securities and Exchange Commission
Washington, D.C. 20549
FORM 10-SB
General Form For Registration of Securities of
Small Business Issuers
Under Section 12(b) or (g) of the Securities Exchange Act of 1934
INNOVACOM, INC.
(Name of Small Business Issuer in its Charter)
NEVADA 88-0308568
(State or other jurisdiction (IRS Employer Identification No.)
of incorporation or organization
2855 Kifer Road, Suite 100
SANTA CLARA, CA 95051
(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (408) 727-2447
Securities to be registered under Section 12(b) of the Act: None
Securities to be registered under Section 12(g) of the Act:
COMMON STOCK
(Title of Class)
<PAGE>1
PART I
THIS DISCUSSION, OTHER THAN THE HISTORICAL FINANCIAL INFORMATION, MAY
CONSIST OF FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES,
INCLUDING QUARTERLY AND YEARLY FLUCTUATIONS IN RESULTS, THE TIMELY
AVAILABILITY OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE PRODUCTS AND
PRICING, AND THE OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S
SEC REPORTS, INCLUDING THIS REPORT. THESE FORWARD-LOOKING STATEMENTS SPEAK
ONLY AS OF THE DATE HEREOF, AND SHOULD NOT BE GIVEN UNDUE RELIANCE. ACTUAL
RESULTS MAY VARY SIGNIFICANTLY.
THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
ITEM 1. DESCRIPTION OF BUSINESS
INNOVACOM, INC.
InnovaCom, Inc. ("InnovaCom" or the "Company") is a development stage
technology company based in Santa Clara, California. Its principal product
focus is video compression technology (single chip, multiple chip, board
and integrated solution levels). The Company has several key strategic
alliances in place including those with DEC, Litton-Fibercom, Sun
Microsystems, Mitsubishi Chemical, ESS Technology, Telia and others.
The Company believes that it has a strong competitive advantage in the
globally accepted video compression format for the next decade (MPEG-2)
which was instituted less than 2 years ago by the Moving Picture Experts
Group ("MPEG") and where the market is now heading. The Company is
currently shipping video compression software with boards using the 3-chip
compression technology from IBM on an original equipment manufacturing
basis. These products are scheduled to be replaced with the Company's own
single chip solution in the second quarter of 1998, and with future chip
generations thereafter. The Company's single-chip design has been
completed and will be tested over the next four months, and will then go to
volume production.
InnovaCom was originally incorporated under the laws of Florida in
1993 by the Company's founder, Mark Koz, as a research and development
company ("InnovaCom-Florida"). From 1993 to 1996, InnovaCom-Florida was
essentially dormant. Mr. Koz also founded FutureTel, Inc. in Santa Clara,
California ("FutureTel"). He was CEO, chief technical officer and a
director of FutureTel from 1993 to 1995. After Mr. Koz left FutureTel,
where he was in charge of the development of the "gecko" video compression
chip, he used InnovaCom-Florida to license the "gecko" technology and to
continue development of the chip.
Following advice given by certain financial advisors and in an effort
to create a public trading market in InnovaCom-Florida's common stock, in
July 1996 InnovaCom-Florida acquired Jettson Realty Development
Corporation, a Nevada corporation ("Jettson"). The acquisition took the
<PAGE>2
form of a share for share exchange, where all of the shares of InnovaCom-
Florida were exchanged for a controlling block of shares of Jettson, a "shell"
company whose shares were trading on the NASD OTC Bulletin Board.
Thereafter, the name of Jettson was changed to InnovaCom. InnovaCom's
common stock currently trades on the NASD OTC Bulletin Board under the
symbol "MPEG."
In May, 1997, InnovaCom acquired Sierra Vista Entertainment, Inc., a
Nevada corporation ("Sierra Vista") in a share exchange by issuing
8,514,500 shares of its common stock. As a result of the acquisition of
Sierra Vista, InnovaCom gained access to approximately $3 million of Sierra
Vista's working capital and a credit facility of up to $5 million in
convertible debt from one of Sierra Vista's original shareholders. The
principal amount outstanding on the credit facility as of October 31, 1997
was approximately $2,835,000 with an average conversion price of $2.66 per
share.
The Company has been in the development stage from its inception, and
has concentrated its marketing to date on developing future major customer
and partner relationships for joint ventures and sales of technologies,
chips, boards and system designs. Several patents have been issued to the
Company and, recently, InnovaCom agreed to acquire substantially all of the
intellectual property of Intelligent Instruments Corporation, an
intellectual property holding company owned by Mark Koz, in exchange for
two million shares of InnovaCom common stock. Intelligent Instruments
Corporation holds the patent for a proprietary set-top box design and has
applied for a patent for a proprietary server design, both of which
complement and enhance the technology being developed by InnovaCom.
InnovaCom's principal engineering and administrative office is located
at 2855 Kifer Road, Suite 100, Santa Clara, California 95051 (408-727-
2447). Unless otherwise indicated, reference to InnovaCom in this
registration statement includes its wholly owned subsidiary Sierra Vista.
CERTAIN FACTORS
An investment in InnovaCom's common stock involves a high degree of
risk and should be regarded as a speculative investment. Current and
prospective investors should consider the following factors:
CAUTIONARY STATEMENT FOR PURPOSES OF THE "SAFE HARBOR" PROVISIONS OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. With the exception
of historical facts stated herein, the matters discussed in this report are
"forward looking" statements that involve risks and uncertainties that
could cause actual results to differ materially from projected results.
Such "forward looking" statements include, but are not necessarily limited
to, statements regarding anticipated levels of future revenue and earnings
from operations of the Company, projected costs and expenses related to the
Company product development and marketing, and the availability of future
debt and equity capital on commercially reasonable terms. Factors that
could cause actual results to differ materially include those set forth
<PAGE>3
below. Readers of this report are cautioned not to put undue reliance on
"forward looking" statements which are, by their nature, uncertain as
reliable indicators of future performance. The Company disclaims any
intent or obligation to publicly update these "forward looking" statements,
whether as a result of new information, future events or otherwise.
LIMITED OPERATING HISTORY. Since its inception in 1993, InnovaCom has
generated nominal revenues. Its primary activities to date have been the
research and development of MPEG-2 products. InnovaCom's success is
dependent upon the development and marketing of its existing and proposed
products, as to which there can be no assurance. Unanticipated problems,
expenses and delays are frequently encountered in developing new products.
Other factors that may affect the development of products and their sales
include, but are not limited to, new or competing products developed by
competitors, the need to develop customer support capabilities and market
expertise, delays in product development, market acceptance, and sales and
marketing. The failure of InnovaCom to meet any of these conditions could
have a materially adverse effect upon InnovaCom's operations. No assurance
can be given that InnovaCom can or will ever be profitable.
OPERATING LOSSES. Since its inception, InnovaCom has incurred losses.
For the year ended December 31, 1996, InnovaCom incurred a net loss of
$8,193,395 and had an accumulated deficit of $8,196,220. InnovaCom expects
to continue to incur losses and to continue to accumulate a deficit through
the year ending December 31, 1997, and the first half of 1998, until
InnovaCom develops and markets its DVImpact chip. There can be no
assurance that InnovaCom will achieve profitability.
ACCOUNTANT'S OPINION. The report of InnovaCom's independent accountants
contains an explanatory paragraph regarding InnovaCom's ability to continue
as a going concern. Among the factors cited by the accountants as raising
substantial doubt as to InnovaCom's ability to continue as a going concern
are the facts that InnovaCom has no established source of operating income
and that InnovaCom has recurring losses from operations.
NEED FOR ADDITIONAL CAPITAL. Development of new products requires
substantial capital. InnovaCom's future capital requirements will depend
on many factors, including cash flow from operations, progress in
developing new products, competing technological and market developments,
and InnovaCom's ability to successfully market its products. Because
InnovaCom currently does not have significant revenues, and will not have
revenues until it begins to market its products, InnovaCom will be required
to raise additional capital through equity or debt financings for its
operations. Any equity financings could result in dilution to InnovaCom's
then-existing stockholders. Sources of debt financing will result in
interest expense. If InnovaCom is unable to raise additional funds,
InnovaCom may be required to reduce its operations.
COMPETITION. The digital video and audio industry is marked by
numerous small as well as large competitors. Some of InnovaCom's
competitors include C-Cube, Inc., IBM and LSI Logic, Inc. Additionally,
<PAGE>4
InnovaCom competes in an industry segment in which numerous competitors
have substantially greater resources than InnovaCom. There can be no
assurance that existing or potential competitors of InnovaCom will not
develop products equal to or better than those developed by InnovaCom.
DEPENDENCE ON INDEPENDENT MANUFACTURERS/SUBCONTRACTORS AND SUPPLIERS
OF COMPONENTS. InnovaCom does not maintain its own manufacturing or
production facilities, and does not intend to do so in the foreseeable
future. InnovaCom anticipates that its products will be manufactured and
its components will be supplied by independent companies. Many of these
independent companies may manufacture and supply products for InnovaCom's
existing and potential competitors. As is customary in the manufacturing
industry, InnovaCom does not have any licensing or other supply agreements
with its manufacturers and suppliers. Therefore, these suppliers could
terminate their relationship with InnovaCom at any time. In the event
InnovaCom were to have difficulties with its present manufacturers and
suppliers, InnovaCom could experience delays in supplying products to its
customers.
UNCERTAINTY OF MARKET ACCEPTANCE. To date, InnovaCom has had minimal
sales of its products. InnovaCom's success will depend upon acceptance of
its products by the technology industry, including independent third party
companies and the general public. Achieving such acceptance will require
significant marketing investment. No assurance can be given that the
technology industry will accept InnovaCom's existing and proposed products.
DEPENDENCE ON TECHNOLOGY INDUSTRIES AND TECHNOLOGICAL OBSOLESCENCE.
The digital video and audio industry is characterized by extensive research
and development and rapid technological changes, resulting in very short
product life cycles. Further, the video and audio industry is
characterized by intense competition among various technologies and their
respective proponents. Development of new or improved products, processes
or technologies may render InnovaCom's products obsolete or less
competitive. InnovaCom will be required to devote substantial efforts and
financial resources to enhance its existing products and to develop new
products. There can be no assurance that other products will not be
developed which would render InnovaCom's products obsolete.
DEPENDENCE ON MPEG-2 ACCEPTANCE AND CONTINUATION AS STANDARD.
InnovaCom has focused much of its resources on the MPEG-2 technology and
the success of that standard will impact InnovaCom's success. There can be
no assurance that the MPEG-2 standard will remain in favor in the industry.
Furthermore, should the standard be modified or replaced, there can be no
assurance that InnovaCom's research and development work will successfully
transfer to an alternative standard.
RELIANCE ON OEM CUSTOMERS AND RETAIL DISTRIBUTORS. InnovaCom's
success will depend to a significant extent upon its ability to develop a
distribution system with original equipment manufacturers ("OEMs") and
retail distributors to sell InnovaCom's products in the marketplace. There
can be no assurance that InnovaCom will be successful in obtaining and
retaining the OEM customers and retail distributors it requires to continue
to grow and expand its marketing and sales efforts.
<PAGE>5
PROTECTION OF INTELLECTUAL PROPERTY. InnovaCom has a worldwide
license to manufacture, use, sell and otherwise deal with the video
compression technology which is the subject of docket numbers 2056 and 2057
for patent applications. The license was exclusive to InnovaCom for the
one year period from March 1996 through March 1997, but is now
nonexclusive. The Company is presently negotiating to extend the term of
the exclusive license. InnovaCom is also receiving the patent for a
proprietary set-top box design and a pending patent for a proprietary
server design from Intelligent Instruments Corporation. InnovaCom holds
trademarks on InnovaCom's name and the names of its products. InnovaCom is
presently applying for copyright protection on its logo and software codes.
However, there can be no assurance that another company will not
attempt to infringe upon the licenses, patents, patent applications,
trademarks, or copyrights on InnovaCom's products and technology. Such
infringement could result in protracted and costly litigation and sales
losses. Further, there can be no assurance that others will not
independently develop products or technology that are equivalent or
superior to those of InnovaCom.
DEPENDENCE ON KEY PERSONNEL. InnovaCom's performance is substantially
dependent on the performance of its executive officers and key personnel
and on its ability to retain and motivate such personnel. The loss of any
of InnovaCom's key personnel, particularly Mark Koz, the Company's
President and Chief Executive Officer, could have a material adverse effect
on InnovaCom's business, financial condition and operating results.
InnovaCom's success will also depend upon its ability to hire and retain
additional qualified personnel. There can be no assurance that InnovaCom
will be able to hire or retain such qualified personnel.
DIGITAL VIDEO INDUSTRY OVERVIEW
Since the 1930s, video images have been transmitted and stored almost
exclusively using analog formats. Digital video technology, including
InnovaCom's technology, provides several benefits over analog video
technology. Unlike analog video, digital video can be compressed,
providing significant storage and transmission efficiencies, and can be
transmitted and reproduced without perceptible image degradation. In the
1980s, the benefits of digital format led the consumer audio industry to
convert from analog long playing records ("LPs") to digital compact discs
("CDs"). In the 1990s, the ongoing evolution from analog to digital is
transforming the way in which video data is produced, stored, transmitted
and viewed.
In 1988, a group of industry experts formed an international standards
organization ("ISO") known as the Moving Picture Experts Group ("MPEG").
The group's charter was to develop a worldwide industry standard for the
digital compression of video data of all forms of motion pictures,
including theatrical films. In 1991, the MPEG committee ratified a
standard known as MPEG-1, for digital video for personal computers with
quality equivalent to video tape, thereby establishing a technical standard
for "compressing full motion video." MPEG uses the discrete cosine
transform, or DCT, to remove spatial redundancies from single frames of
video data.
<PAGE>6
Video, however, introduces a second type of redundancy: temporal.
Temporal redundancies are the elements of several video frames that are
similar or identical. Because video represents movement, it is possible to
detect and estimate the movement of similar picture elements between video
frames, a process called motion estimation. MPEG motion estimation uses
the content of previous and future frames to predict the content of the
current frame. To perform motion estimation, a frame is divided into small
blocks of pixels, and each block is compared to a range of blocks on a
reference frame. When a match is found, the estimated block can be
replaced by a motion vector and a difference value that compensates for the
lack of a perfect match.
The MPEG committee realized that a higher quality digital video
standard was needed to broadcast quality video. Thus, the MPEG committee
ratified the Second Generation Standard of the Moving Picture Experts Group
for video and audio compression ("MPEG-2"), which was made a permanent
standard in 1994. The MPEG-2 video compression standard defines the
standard applicable to broadcast quality video, permits effective storage
and transmission of digital video and produces universal access to the
fundamental benefit of digital video.
MPEG-2 enables playback of broadcast quality video on audio size CDs.
All standards other than MPEG-2 cannot produce broadcast quality video at
data rates supported by CD ROM drives. MPEG-2 video has been selected as
the video standard of the future. For example, MPEG-2 video will be used
for the long-awaited, high definition television, or HDTV.
INNOVACOM'S MPEG-2 TECHNOLOGY
InnovaCom provides Very Large Scale Integrated Circuits ("VSLI") for
the specific application of broadcast quality encoded video using MPEG-2.
The Applications Specific Integrated Circuit ("ASIC"), or "chip," developed
by InnovaCom is known as DVImpact, which is a single chip video encoder
providing MPEG-2 video encoding and system multiplexing in a single chip.
InnovaCom has a worldwide license from FutureTel to manufacture, use,
distribute, sell and otherwise deal with the video compression technology
which is the subject of docket numbers 2056 and 2057 for patent
applications. Under the License Agreement, InnovaCom has the rights to
use, duplicate, distribute, modify and enhance the technology for the
development, manufacture and distribution of its products and to sublicense
the technology to others for the enhancement, development, manufacture and
distribution of its products. The term of the license from FutureTel to
InnovaCom is in perpetuity. InnovaCom also holds trademarks under docket
numbers 2014, 2015, 2016, 2017, 2018, 2019 and 2020 on InnovaCom's name and
the names of its products. InnovaCom is also in the process of applying
for copyright protection on its logo and software codes.
<PAGE>7
InnovaCom's technology was developed by Mark Koz, a Silicon Valley
technologist credited with many advances in the field, and by a team of
MPEG engineers that is as extensive as any in the industry. Mr. Koz has
assigned his most relevant and most important patents in this field to the
Company, including a set-top box design patent that broadly covers much of
the future industry, and which will provide significant long-term licensing
revenues. MPEG-2 is by far the most broadly accepted coming technology for
high-quality video encoding and decoding, and InnovaCom's greatest strength
is in the most complex operation, the encoding side. Video compression
encoding requires processing power equivalent to 200 Pentiums on a single
chip and software that accurately digitizes video at high resolutions in
real time. The engineers at InnovaCom have worked specifically on MPEG
solutions for many years and have a strong track record of bringing such a
complex project to fruition.
INNOVACOM'S PRODUCTS
InnovaCom, a technology leader, develops core technologies and
methodologies essential to video compression and networking applications.
The Company's adherence to "open standards" ensures its customers the
flexibility of developing solutions based on InnovaCom's current products
and future products as they are developed and released. This also ensures
the customers' products meet time-to-market requirements. The following
are products currently available or currently under development by the
Company.
APPLICATIONS DEVELOPMENT PLATFORM ("ADP"), InnovaCom's first product,
consists of encoder and decoder circuit boards in a personal computer using
Intel's Pentium Microprocessor, Windows NT or Windows '95 operating systems
and allowing the plug-in of encoder and decoder boards into standard PCI
connectors. InnovaCom's ADP provides MPEG-2 video encoding with sufficient
compression to store 5 to 6 hours of broadcast quality video content on a
single audio CD-sized Digital Versatile Disk, or DVD, for playback on a
consumer electronics DVD player. ADP is both a stand alone product
allowing MPEG authoring and software development platform. Engineers
working for InnovaCom's customers use the ADP product as a software
development platform for the DVImpact system on a chip encoder.
DV-1100 MPEG 1 ENCODER/DECODER (codec) board is presently available
for sale. Designed for applications where network bandwidth conservation
is crucial, this low cost product also fits in the consumer market. The
DV-1100 is targeted at major corporations planning to deploy in mass
quantities, PC workstations with low cost codecs that are required to send
audio/video over low bandwidth networks. The second market is the general
consumer who wants to create video content on a video CD-ROM or to send
MPEG compressed video over normal telephone lines.
DV-2100 MPEG 2 REAL-TIME ENCODER BOARD is currently available for
sale. This product is used in the development of applications that will
soon reach the market. No other MPEG encoder company offers a product with
the flexibility of the type of host platforms this product supports. The
single slot DV-2100 can be used on PCs running Windows '95 and NT Operating
Systems, and may soon be deployed on the SUN workstation using the Solaris
operating system depending on the outcome of a joint development effort
between the Company and Sun MicroSystems. Other Unix platforms may also
be supported in the future.
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The DV-2100 will target market sectors including telemedicine,
remote court arraignment, distance learning, conferencing, broadcast video
distribution (video trunking), video surveillance, satellite news gathering
and DVD authoring. The Company believes that the Software Developers Kit
(SDK) and other analysis tools available are the most flexible and useful on
the market.
DV-2110 MPEG 2 REAL-TIME ENCODER BOARD is the second generation of the
DV-2100. It uses all the features of the first generation, but possesses
significantly richer feature set, flexibility and modularity. All
development work performed for the DV-2100 can be seamlessly used on the
DV-2110. The DV-2110 is in development and the Company expects to be able
to ship the product soon.
The DV-2110 is the platform for future generations of encoders,
decoders, and other digital audio and video related products. The DV-2110
applies the concept of a "plug-in" daughter card to expand or change the
functionality. The DV-2110 incorporates a PCI mastering device with a
programmable RISC processor with additional processing power for data
manipulation. The DV-2110 also supports a secondary PCI bus and Movie2
bus that provides high bandwidth data capabilities and additional card
expansion.
The DV-2112 is the first of many daughter cards for use with the
DV-2110. The DV-2112 incorporates the single chip encoder with an audio
encoder to provide the next generation MPEG-2 encoder. The DV-2112
mounts directly to the DV-2110 while still meeting the power and size
requirements for a single PCI card slot.
The DV-2110 will target the same markets as the DV-2100, but may
additionally capture new markets due to its enhanced feature set,
flexibility and modular design. The board's modular design expands its
utilization to the latest generation encoder chips, as well as networking
and A/V muxing chips. The Company knows of no other MPEG-2 encoder board on
the market with the rich feature set of the DV-2110's plus the added
flexibility, modularity or video quality.
DVIMPACT SINGLE CHIP MPEG-2 ENCODER. The DVImpact is scheduled to
become available in the first quarter of 1998 for customer sampling. The
chip will have MPEG-1 capabilities for impressive audio/video quality over
lower bandwidth networks and MPEG-2 capabilities for broadcast quality
audio/video. The DVImpact chip sets a new standard in integration and
associated economy which opens new markets with significant potential, such
as adding the recording function to DVD players, TV set-top boxes and
camcorders. The DVImpact chip also provides MPEG-2 video encoding to
telephone and cable companies to transmit broadcast quality television over
the equivalent of 64 voice telephone lines rather than the present analog
television that requires the equivalent of 2,400 voice telephone lines.
The market is projected to expand quickly in all the above targeted
mentioned market areas, in addition to new applications such as embedded
systems, PC/workstation motherboards, DVD encoding platforms and multimedia
video players.
There is no other single chip MPEG-2 encoding product available today.
The InnovaCom DVImpact single chip MPEG-2 encoder will be made available for
sampling with developer tools including software developed for the DV-2100
and the DV-2110 products. This should greatly reduce the time to market of
products developed using the DVImpact chip.
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EXPLORER is a very powerful MPEG analysis tool. Developed for the
MPEG systems engineer, this unique tool gives the engineer the ability to
perform analysis of MPEG-2 program and transport streams. An intuitive
Windows interface and excellent visual representation make it very simple
to analyze the MPEG stream.
COMPETITIVE ADVANTAGE
InnovaCom believes that its products will provide the following
advantages over competitor products:
COMPARABLE BROADCAST PICTURE QUALITY AT HALF THE DATA RATE. Better
techniques of motion estimation translate into a competitive advantage by
requiring lower data rates to obtain the desired video quality. InnovaCom,
as a result of proprietary techniques, can obtain the broadcast picture
quality at a data rate of 3 megabytes per second, whereas competitors
require 6 megabytes per second to accomplish this quality. For example, in
satellite transmission applications, this competitive advantage effectively
doubles the digital channels per satellite transponder. This
represents a significant economic advantage to the user. InnovaCom's
proprietary techniques used to enhance compression involve field and frame
simultaneous searching and two stage motion estimation.
FIELD AND FRAME SIMULTANEOUS SEARCHING. An analog video stream that
is the input to the MPEG-2 video encoder is made up of three types of
screens: field 1, field 2 and frame. Field 1 and field 2 are odd and even
line information that when superimposed on each other, or interlaced,
become a full frame of information. InnovaCom's competitors' MPEG-2
encoders encode all field 1 or field 2 information and only when encoding
is completed can the determination be made that the data was a frame and
not a field. The result is that time is wasted encoding a field as a
frame. InnovaCom has developed and implemented into its single chip
encoder a proprietary method of simultaneously encoding field and frame
data that results in saving time and increases throughput at a given data
rate.
TWO STAGE MOTION ESTIMATION. The task of compression for a video
stream is complex and involves techniques of estimating the motion of
subsequent frames relative to a base image or I frame. A frame of digital
video is composed of picture elements, or pixels. One typical frame is a
matrix for PAL, the European television standard. The matrix contains 704
elements in a row and 580 rows for a total of 408,320 pixels.
Motion estimation techniques used by competitive MPEG-2 encoders are:
(i) brute force comparison of each pixel in the subsequent to reference
frame, or (ii) comparison of the center pixel to an edge pixel. In the
brute force method, each pixel is compared. The process starts at the
upper left hand corner of the first row of the screen and continues across
each row until the right hand corner of the bottom row is reached. When
the comparison of center to edge pixel technique is used, the left hand
side of the first row is identical to the center of the screen setting off
a pixel by pixel comparison similar to the first case.
<PAGE>10
COMPRESSION OF THE TIME TO MARKET CUSTOMERS' PRODUCTS. InnovaCom
intends to offer its products in design kits with all the necessary
hardware, software and reference designs to provide its customers with the
advantage of "time to market" products at a price substantially less than
other products. In addition, InnovaCom intends to offer "upward"
compatibility for its products to its customers such that any custom
designed software and/or hardware for one of its customers' products will
be compatible with future InnovaCom products. The hardware intensive
design fixes the MPEG related parameters and algorithms, leaving only a
minimum layer that the design engineer needs to access to customize for
each specific customer product. InnovaCom's chip has been designed from
the perspective of the systems engineer. The single chip covers all the
popular input and output combinations such as allowing both D-l and
Phillips video input rather than competitors' products (which allow only
Phillips input) and program elementary stream (PES). The layers of the
chips that are useful to be accessed by the customers' design engineers
are the Video Encoder and the Video System. These layers are accessible
through graphical user interfaces, or GUIs, where parameters such as choice
of input and output video stream and encoding and output data rates in
the range of 1-40 megabits per second are selected.
EFFICIENT DESIGN REDUCES POWER AND SPACE REQUIREMENTS. The DVImpact
single chip will allow the output to be in the variable data rates required
in DVD applications. To accomplish this task, the competitive
encoders would require the writing of extremely complex custom microcode.
InnovaCom's DVImpact chip also allows "hot modification" of the output
data rate, whereas the competitors' products must stop and restart to
change the data rate. In addition to the motion estimation and frame and
field encoding of video, the critical elements of MPEG encoding are
multiplexing of the audio to the video and the output communications
protocol. The task of matching the timing to coordinate the audio and
video is complex. If the coordination isn't exact, the picture is out of
sync with the voice.
Plans for InnovaCom's next MPEG-2 chip include having the multiplexing
function built into the chip. Most competitors have not addressed the
multiplexing function and are relying on their customers' engineers to
write code resident on host computers to perform this complex function.
Likewise, some competitors have manufactured video compression products and
not addressed the important function of multiplexing video and audio. By
planning to build the multiplexing function into the chip, InnovaCom will
make it easier for its customers' engineers to implement their product
design and shorten the time to market process.
<PAGE>11
Another aspect of the process that InnovaCom's competitors have not
yet addressed is the output communications protocol. Competitors only
provide packets of MPEG data output which have to be loaded "first in,
first out" on the host and be ported into the various communications
protocols. InnovaCom's next MPEG-2 chip will have the popular protocols of
ATM and PES technologies in addition to MPEG packet output.
MARKETS FOR INNOVACOM'S PRODUCTS
The key markets for InnovaCom's MPEG-2 based products are
broadcasting, networking, consumer devices and content authoring. The
transmission and exchange of video requires standardized technology (a
"standard") with which every device in the industry can communicate. MPEG
is a primary standard and a vital part of the present data compression
market alongside JPEG (still pictures), MJPEG (motion JPEG) and various
other techniques. MPEG represents the bulk of the compressed video market,
and MPEG-2 is the chosen standard worldwide for video compression of the
future. For example, it is mandated in all DVD standards, in future HDTV,
and will appear in computing and networking and communications platforms of
all types.
Alliances and standards are pushing convergence within the entire
video industry. The Digital TV (DTV) Alliance between Microsoft, Compaq
and Intel demonstrates how fast the standards are being adopted. Such
alliances will speed the development of such applications as distance
learning, telemedicine, broadcasting, teleconferencing and entertainment.
The overall market potential for compressed video applications is very
large, and expanding with bandwidth improvements and with increasingly
ubiquitous networks. According to Dataquest projections, by 2001 there
will be 268 million PCs on-line or networked in some fashion, including
intranets and the Internet. In 2001, this means that the market for
internet software (essentially all networked computers) is expected to
reach $32 billion, up from $7 billion this year. At the end of 1997, 82
million computers are expected to be connected to the Internet, up 71% from
1996, and this growth is continuing.
InnovaCom is carefully targeting the market segments and niches in
which it can establish and maintain the highest quality products and
profitability in the future. Many of the emerging markets for MPEG-2 chips
and devices are described below:
HIGH-END VIDEO WORKSTATION MARKETS
Business applications for both video authoring and video dissemination
are growing rapidly. In addition, business markets include training and
distance learning, as well as professional conferencing. InnovaCom intends
to aggressively pursue this market. To that end, InnovaCom has established
an important relationship with Sun Microsystems and is planning to install
a video encoder/decoder board on a Sun Sparc platform. See DV-2100 MPEG-2
description under InnovaCom's Products.
<PAGE>12
An MPEG-2 video compression encoding board currently is priced upward
of $25,000 but is anticipated to come down to an average of $10,000 in 1998
as production costs decline with volume and as InnovaCom's single chip
solutions arrive. InnovaCom expects to sell chips to other board-makers
and thereby participate in the entire marketplace. Rather than compete
broadly with its own board-level customers, InnovaCom intends to capture
only selective shares of board markets in those applications where
InnovaCom can best create custom integrated multimedia boards.
DIGITAL VIDEO CDS (VCD)
The market for VCDs has been growing rapidly for several years in Asia
and continues to look attractive. InnovaCom believes that there is an
opportunity to create the next generation of VCD players for Asia. Such an
encoder/decoder product, cheaply produced in China under a joint venture
now being negotiated there, could be imported into the US as a transitional
and less expensive product for those consumers that will not be ready to
move to DVD standards immediately
PROFESSIONAL AND CONSUMER SET-TOP BOX DESIGN
Through a strategic relationship with ESS Corporation, InnovaCom has
been asked to design and build MPEG-2 decoder set-top boxes in 1998.
InnovaCom holds a patent on set-top box implementations that support more
than one compression technology, and InnovaCom believes that the ESS
Corporation relationship is the beginning of a serious role for the Company
in future set-top box markets.
Digital set-top boxes will offer opportunities for decoders first, and
encoders later. InnovaCom intends to participate in this market from the
outset and as the market evolves. Digital technologies and advanced
semiconductors are reshaping the consumer electronics world. The
introduction of exciting new products such as DVD-Video players and direct
broadcast satellite (DBS) set-top boxes creates many opportunities. These
can be divided into prosumer markets (early adopters and drivers of demand)
and consumer markets (mass adoption of new devices).
Set-top boxes are required for cable connections for at least half of
all cable connections and are essential for descrambling special channels
such as pay-per-view movies and subscription services. With 63 million
homes now listed as subscribers, there are now over 35 million set-top
boxes which are being rapidly updated for digital services, and this market
is expected to show a rapid growth rate based on the extra benefits users
will be offered.
Other "black box" devices are appearing to enhance consumer video
technology. What is called the TV/PC convergence is making the computing
device just another audio/video (A/V) component of the entire entertainment
experience. The TV acts as no more than an output device, switching
between the regular TV and specialized devices like video disc players,
<PAGE>12
video game consoles and Web enabled devices. This includes Web TV-branded
units from Microsoft, Sony and Phillips, future DVD/Web machines, the Sega
Saturn with NetLink and other future products. This creates another market
where MPEG chips may become important, as consumers are increasingly able
to edit multiple media sources.
THE PERSONAL COMPUTER MARKET FOR MPEG-2 COMPRESSION
Intel has stated that by the year 2000, all of the PCs shipped will be
digital television receivers as well as computers, an estimated market of
more than 100 million units annually. A large percentage of these will be
able to record via MPEG encoders as well as play via MPEG decoders.
Ninety-eight percent of households now have TV, and only thirty-five
percent thus far have computers, but the gap is decreasing.
Recently introduced DVD components for PCs will take a five percent
market share of high-end PCs, or approximately 5 million DVD players, all
with decoders on board. Recordable DVD-RAMs are also expected to begin
appearing in quantity in 1998, shipping at least another million units,
each needing an encoder as well as a decoder if there is to be any
recording of uncompressed analog and digital television broadcasts or
camcorder inputs. This PC segment is, therefore, a very promising market
for InnovaCom even in the near term.
THE CABLE HEAD-END BROADCASTING MARKET
Of some 15,000 total cable transmission facilities in the United
States, there are more than 1,000 sizable cable head-ends which will need
up to 500 MPEG-2 chips per head-end for a total potential market for chips
alone of approximately 7.5 million chips. In 1998, InnovaCom anticipates
that this market will just begin to emerge, and InnovaCom will attempt to
penetrate this market toward the end of that year.
THE DVB - DIGITAL VIDEO BROADCASTING MARKET
There are 1,600 TV broadcast stations in the United States alone, and
conversion to digital broadcast is mandated by the FCC. HDTV is estimated
to require at least $2 million investment per station, including
transmission tower, top-quality encoding/decoding equipment and digital
cameras. All stations are mandated for conversion within 6 years, a $3
billion dollar total investment. The larger metropolitan areas must
convert by 1999, and 53% of US consumers will be able to receive at least 3
digital TV or HDTV channels at that time. InnovaCom anticipates marketing
its chips to the broadcast encoding business.
Wireless forms of digital broadcast other than television abound,
especially in high-frequency and microwave installations and dedicated
business networks. These are not as yet used for video to any great extent
but have available bandwidth that would be sufficient to become a serious
market in the future.
<PAGE>14
INTERNET OPPORTUNITIES
The Internet links to any and all transmission media, thereby making
those sources part of the global Internet. While digital video, even
compressed, cannot be transferred quickly enough to be very practical on
the Internet as it exists today, there are many private networks and
segments of the Internet, such as fiberoptic and high-speed telephone
lines, that are fully capable of carrying compressed digital video for
corporate and bulk-transmission uses. An effort to build an "Internet2"
using ATM and Gigabit Ethernet, as opposed to fiberoptic, that will offer
bandwidth on demand with fewer limitations is presently being contemplated.
Since InnovaCom anticipates including ATM in its next generation of the
MPEG-2 chip, it hopes to capitalize on this potential change. Carrier
networks are increasingly offering such services even to standard Internet
users via cable modems and other means. Advances in this area have
consistently exceeded forecasters' expectations.
THE DBS SATELLITE MARKET
In the satellite video markets, digital broadcast has been
well-developed for some time. Video is compressed by MPEG-2 encoders
located at groundstations, uplinked to satellites, broadcast and, finally,
decoded at the receivers.
Sales are increasing at the rate of 1% per week (DBS Digest), a
compound rate of nearly 70% a year. Hughes has recently begun to
offer a combined DBS and PC-Internet dish, the first of its kind, which
will accelerate the convergence of TV and PC digital data. This
development is quite promising for InnovaCom and the MPEG industry, as the
dissemination of digital video will become much easier and more widespread.
<PAGE>15
CABLE MODEM VIDEO DELIVERY
Digital interactive video transmission over cable modems is a growing
reality via TCI, Cox, Shaw, @home and Com21 cable modem technologies, among
others. In the US, there are 63.2 million cable subscribers. By the end
of 1997, Time Warner is projecting that its cable modems will serve 168,000
subscribers and pass more than 2.4 million homes. Operators worldwide are
now conducting commercial trials and have placed orders for hundreds of
thousands of units. In Europe, more than a third of all homes are
cable-ready, and high telecommunications costs for the most part push
consumers toward cable as the medium of choice for high-bandwidth services
such as video. Given substantial penetration of cable modems and resulting
interactive video services which need encoders as well as decoders,
InnovaCom anticipates participating in this market as well.
VIDEO DELIVERY OVER NORMAL TELEPHONE LINES
Somewhat lower in performance than Cable modems but nevertheless
important is the growth of ADSL modems and ISDN modems, which can operate
over a relatively large portion of the plain old telephone system (POTS).
Some 2 million ISDN lines toward the end of 1998 in the US (Dataquest) and
perhaps as many as 2 million ADSL connections by 1999 will allow for
greater penetration of compressed video applications into mainstream
consumer markets in America. The capacity expansion which is feasible in
POTS over the next decade will open up many new applications.
DIGITAL VIDEO PRODUCTION OR AUTHORING
Digital video production is performed on high-end specialized
workstations on boards that process video. But in the authoring segment,
both additional filtering of video streams in the workstation and further
processing in the cameras provide supplementary opportunities.
A market segment in which InnovaCom may participate is the MPEG Filter
application, where the highest level of digital video quality is assured
for content producers and distribution. Patented techniques in InnovaCom's
forthcoming chips are expected to provide a level of quality superior to
the competition. With the advent of high-definition video in HDTV, such
sophistication becomes even more important.
<PAGE>16
VIDEOCONFERENCING
InnovaCom plans to develop a low-cost videoconferencing encoder chip
in 1998. A joint venture presently in formation will provide InnovaCom
with additional markets for this application. Videoconferencing is
increasingly enabled in faster hardware and in software such as Microsoft's
Netmeeting, but compression is still too limited to provide quality
sufficient to grow this market as quickly as projected in the past.
InnovaCom anticipates contributing to the creation of more cost-effective
solutions, and as bandwidth is increased in many arenas, this market is
expected to grow.
TELECOMMUNICATIONS CARRIERS AND SWITCHES
There are approximately 15,000 sites where the major
telecommunications carriers, specifically AT&T, MCI, GTE, Sprint and the
European Telecoms provide high-speed switching, including video
transmission. Videoconferencing, distance learning and video-on-demand
switching by these carriers will require about 10 encoders per site.
Additional communications carrier applications include digital
transmission from studios to cable head-ends, from remote sites to studios,
digital video and multimedia within businesses, distance learning from and
between educational facilities and other private networks. All of these
require encoders on site as well as decoders.
Carriers and telephone companies will increasingly use gigabit
ethernet and ATM to manage their data networks, and these technologies
handle video very effectively. The advent of gigabit ethernet will also
greatly hasten the penetration of bandwidth-friendly equipment. MPEG-2 is
the ideal standard technology by which to send compressed video over these
newly outfitted transmission lines, requiring encoders and decoders at
every node.
The increase in access speed made possible by cable modems and soon by
DSL technologies (digital subscriber lines, replacing ISDN) radically
changes the cost / benefit of information delivery to the home. Cable
companies can offer up to 10 Mbit access for $30-40 per month, leaving ISDN
and T1 services uncompetitive. Whether the ultimate winner of the consumer
is the telephone or the cable company, InnovaCom anticipates a growing
market for its chips.
VIDEO STORAGE MARKETS
One of the valuable patents assigned by Intelligent Instruments to the
Company deals with the storage of digitally compressed video, which broadly
covers an entire segment of the future video storage industry.
<PAGE>17
Video always has to be efficiently stored somewhere for later
retrieval, and the best way is to encode and compress it first. There are
many professional markets, and several developing niches which may become
very large, such as the archiving of high-resolution security videos for
later use in legal pursuit of criminals. Simulations in military and
training applications generate video for later training that must be stored
and remixed for later training or review.
Medical imaging, an area where InnovaCom's current alliance partner
Mitsubishi Chemical is particularly strong, represents a multi-billion
dollar industry, and images are increasingly becoming digital, multi-image,
or motion-video representations of medical conditions. Not only motion
video but single-frame materials can greatly benefit from video
compression. Thus a series of radiological images or geological maps may
be stored using minimum disk capacity. Some original images need to remain
uncompressed for legal reasons, but medical diagnosis from remote locations
(e.g. second opinions) will be a prime application for video/image
compression. In one application, 3D images supplement the diagnostic
information in 2D cross-sectional images provided by X-ray computed
tomography (CT) and magnetic resonance imaging (MRI). There is a new
procedure for surgical planning and surgical support that combines live
video of the patient with the computer-generated 3D anatomy of the patient.
Prior to surgery, this video mixing permits surgeons to plan access to the
pertinent pathology within the patient. Another application is remote
viewing of images for expert consultation. Substantial high-quality
compression would be necessary for any remote viewing, and growth in DSL
lines and other high speed modems will encourage such applications.
COMPETITION
InnovaCom faces competition from numerous companies, some of which are
more established, have greater market recognition, and have greater
financial, production and marketing resources than InnovaCom. InnovaCom's
products compete on the basis of certain factors, including first to market
product capabilities, product performance, price, support of industry
standard, ease of use and customer support as well as user productivity.
The market for InnovaCom's products is intensely competitive, subject
to rapid change and significantly affected by new product introductions and
other market activities of industry participants. InnovaCom faces direct
and indirect competition from a broad range of competitors who offer a
variety of products and solutions to InnovaCom's current and potential
<PAGE>18
customers. InnovaCom's principal competition comes from: (i) companies
offering competing systems; and (ii) companies offering competing
technologies capable of addressing certain components of InnovaCom's
technology. Many of InnovaCom's competitors have longer operating
histories, including greater experience in the market, significantly
greater financial, technical and other resources than InnovaCom, greater
name recognition and a larger installed base of customers. InnovaCom's
principal competitors are C-Cube Microsystems and IBM. Other competitors
include LSI Logic and Matsushita.
C-Cube Microsystems ("C-Cube") is the only really direct competitor to
InnovaCom and is one of the few companies similarly focused on compression.
On the basis of the MPEG-1 compression standard, C-Cube's sales grew very
rapidly to over $300 million. Since the MPEG-2 standard is less than 2
years old, only a small percentage of C-Cube's sales is as yet in that
segment. C-Cube also typically sells components rather than the complete
hardware/software solutions InnovaCom anticipates offering its customers.
IBM was at one time expected to compete with a single-chip MPEG-2
encoder and decoder (codec), but has recently indicated it will not go in
that direction and will buy future chips from other sources. IBM thus
becomes an opportunity for future cooperation with InnovaCom. InnovaCom
and many other market participants presently buy a 3-chip MPEG-2 chipset
from IBM for their own current board products.
Other major potential competitors, chip and board manufacturers at the
lower end of the markets, who may become players in InnovaCom's target
markets, are companies such as Phillips and SGS-Thomson as
well as large, integrated Japanese and Korean consumer electronics
companies, such as Sony, Hyundai, Toshiba, NEC and Samsung, which have
their own semiconductor design and manufacturing capacity. In high-level
MPEG-2 decoders as well as MPEG-1 encoders, LSI Logic has substantial
market share. In many of these cases, InnovaCom intends to work jointly
with these companies to enhance quality encoding and decoding in the mass
markets. Consequently, these companies will become customer prospects for
InnovaCom.
Among smaller competitors is FutureTel, which serves primarily the
video authoring marketplace with boards and software toolkits for encoding
video sequences for TV broadcast studios. Minerva is a venture-funded,
fast-growing system reseller using C-Cube and other chip sources. Another
market participant, 3DO, started shipping MPEG-2 encoder/decoders for the
Apple MacIntosh in 1996, based on IBM's chipset, and may decide to enter
the PC market. Several such companies develop specialized professional
video production boards in the $10-20,000 range.
<PAGE>19
The Company believes that future competitive risk is reduced by its
many strategic alliances and that any interest in the field from
consumer-oriented companies like Intel will lead to expanded markets. For
the most part, InnovaCom's focus on encoders will mean that it does not
compete with increasingly powerful CPUs from Intel, DEC or Motorola, or
from specialized companies such as Zoran. In addition, because MPEG-2 is
now entrenched as a de facto standard, other alternative video compression
technologies such as wavelet and fractal algorithms are unlikely to pose a
serious competitive threat.
InnovaCom's competitors can be expected to continue to improve the
design and performance of their products and to introduce new products with
more competitive prices and performance features. Maintaining the
technological and other advantages of InnovaCom's products over its
competitors' products will require a continued high level of investment by
InnovaCom in both research and development and operations. InnovaCom
believes it can maintain its competitive position by continuing to supply
updated, state-of-the-art system features, by providing complete aftersales
support and by continuing to develop improved features for its systems to
meet sophisticated customer needs. There can be no assurance that
InnovaCom will be able to continue to make such investments or that
InnovaCom will be able to achieve the technological advances necessary to
maintain its current competitive advantages.
SIERRA VISTA ENTERTAINMENT, INC.
Sierra Vista Entertainment, Inc.("Sierra Vista"), was incorporated
under the laws of Nevada on April 3, 1996, for purposes of engaging in the
production of television or theatrical feature films. However, Sierra
Vista had no significant operations until April 1997, when it commenced its
search for suitable film properties in earnest. InnovaCom purchased all of
the outstanding shares of Sierra Vista in May, 1997, in a stock for stock
exchange that also brought a significant amount of cash into the Company.
A long term purpose of InnovaCom's acquisition will be to implement
MPEG and other video technology in a film production setting, where
eventually such technology will become an important differentiator.
Digital technology will, for example, permit multiple endings or multiple
camera angles to be made available to consumers. All future Sierra Vista
films are intended to be created with DVD format in mind, as this new
format is becoming one of the new standards in home video. Rights to
convert other existing films to digital programming and DVD are currently
being negotiated.
<PAGE>20
THIS DISCUSSION, OTHER THAN THE HISTORICAL FINANCIAL INFORMATION, MAY
CONSIST OF FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES,
INCLUDING QUARTERLY AND YEARLY FLUCTUATIONS IN RESULTS, THE TIMELY
AVAILABILITY OF NEW PRODUCTS, THE IMPACT OF COMPETITIVE PRODUCTS AND
PRICING, AND THE OTHER RISKS DETAILED FROM TIME TO TIME IN THE COMPANY'S
SEC REPORTS, INCLUDING THIS REPORT. THESE FORWARD-LOOKING STATEMENTS SPEAK
ONLY AS OF THE DATE HEREOF, AND SHOULD NOT BE GIVEN UNDUE RELIANCE. ACTUAL
RESULTS MAY VARY SIGNIFICANTLY.
THE COMPANY UNDERTAKES NO OBLIGATION TO PUBLICLY UPDATE OR REVISE ANY
FORWARD-LOOKING STATEMENTS, WHETHER AS A RESULT OF NEW INFORMATION, FUTURE
EVENTS OR OTHERWISE.
ITEM 2. MANAGEMENT DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction
with the Company's consolidated financial statements and the notes thereto
and other financial information included elsewhere in this document.
OVERVIEW
The Company is a development stage technology company with a principal
focus in video compression technology compliant with MPEG-2 standards. The
Company is currently shipping development systems to targeted potential
customers and expects to begin shipment of commercial volume products
shortly. In 1997, the Company merged with Sierra Vista, a Nevada
corporation in the development stages of production and distribution of
feature length films.
The Company does not believe that its business is seasonal.
PLAN OF OPERATIONS
The Company plans to make the transition from development stage to
full production and sale of products in 1998. The Company's single-chip
MPEG-2 encoder, the DV2000 MPEG-2 encoder board, and a number of smaller
products are at advanced stages of development and are expected to begin
significant volume shipment in the immediate future. Management
anticipates that the Company will become profitable in 1998, but that
continuing operating losses early in 1998 combined with the requirements of
increased inventories and accounts receivable will require additional
funding in 1997 and 1998.
Product development in 1998 is planned to continue in areas
complimentary to its pending product sales. These developments are
expected to include new versions of the initially released products with
enhanced feature sets and functionality, products that will compliment
other existing products, and ones that will broaden product lines to
address additional market niches. Management anticipates significant
increases in the staffing in its research and development efforts.
<PAGE>21
In concert with the transition from development to production,
management anticipates increases in staffing in production, marketing,
sales and administration. Management has no plans for significant
purchases of plant or equipment, but the Company has entered into an
agreement to lease a larger facility.
The Company does not believe that inflation will have and impact on its
results of operations.
Management of Sierra Vista anticipates entering into production of one
feature-length film in the next twelve months, but does not anticipate
significant revenues in this period. Production of this film is expected
to be accomplished principally with outside contractors and temporary
employees. No significant increases in permanent employees and no
significant purchases of plant and equipment are anticipated.
NINE MONTHS ENDED SEPTEMBER 30, 1997 COMPARED TO SEPTEMBER 30, 1996
REVENUES
Revenues for the nine months ended September 30, 1997 were $149,000 as
compared to zero in the nine months ended September 30, 1996. The revenue
in 1997 was from shipments of developer systems to five customers who
purchased the systems to begin development of their own software in
anticipation of the Company's commercial release of its board level
encoding products. The Company's products were at an earlier state of
development in 1996, and accordingly there was no revenue.
GROSS MARGINS
Gross margins were approximately $96,000 or 64% of revenues for the
nine months ended September 30, 1997 as compared to zero for the nine
months ended September 30, 1996. The gross margin percentage in 1997 is
not necessarily representative of the margins that the Company might expect
on its commercial products when they begin shipment.
RESEARCH AND DEVELOPMENT
Research and development expense in the nine months ended September
30, 1997 totaled approximately $2,988,000. This was an increase of
approximately $1,026,000, or 52%, from the research and development expense
for the same period in 1996. The change results principally from an
increase in the number of employees in the research and development group
and an increase in the period that these people were working (activity in
the first half of 1996 was low because the Company did not receive
significant funding until July of 1996), partially offset by a reduction in
the amount of purchased research and development expensed in 1997 relative
to 1996.
<PAGE>22
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses were approximately
$4,140,000 in the nine months ended September 30, 1997 which was a decrease
of approximately $164,000, or 4%, from the same period in 1996. The total
in 1996 included approximately $3,396,000 in expense recognized in
conjunction with the issuance of stock and stock options at prices below
fair market value to various consultants for services rendered. This
expense was not repeated in 1997. Except for this $3,396,000 item,
selling, general and administrative expense in the nine months ended
September 30, 1997 would have been approximately $3,232,000 higher than in
the same period in 1996, an increase of 356%. This increase is related to
a substantial increase in employees, an increase in the period of time they
were present in 1997 relative to 1996 (activity in the first half of 1996
was low because the Company did not receive significant funding until July
of 1996), expense related to Sierra Vista which was present in 1997 but not
in 1996, and significant increases in consulting, legal, auditing and
travel expenses.
INTEREST INCOME
Interest income increased from zero in the first nine months of 1996
to approximately $6,000 in the same period in 1997. This increase reflects
the return from temporary investment of surplus cash.
INTEREST EXPENSE
Interest expense increased from approximately $5,000 to approximately
$581,000 from the nine months ended September 30, 1996 to the same period
in 1997. This increase results from a credit facility created in 1997
against which the Company had drawn approximately $2,125,000 as of
September 30, 1997. The outstanding balance of this note may be converted
into common stock of the Company at a discount to the market price of the
stock. Accordingly, the value of this discount, approximately $541,000 at
September 30, 1997 is recorded as interest expense in the nine month period
then ended.
INCOME TAX EXPENSE
Income tax expense for the nine months ended September 30, 1997 was
approximately $2,000 as compared to approximately $1,000 for the same
period of 1996. This increase is related to the merger with Sierra Vista
which increased the minimum franchise tax payable to the State of
California.
<PAGE>23
YEAR ENDED DECEMBER 31, 1996
REVENUES
The Company had no revenues in 1996, and management does not expect
significant revenues in 1997. Revenues will become significant only at
such time as the Company's development of significant products is
completed.
RESEARCH AND DEVELOPMENT
Research and development expense for 1996 was approximately
$2,711,000. This included a charge of $1,275,000 for purchased research
and development. The balance of expense is principally salaries and other
employee related expenses, supplies and expensed software or tools, and
outside consulting expenses. Management anticipates that research and
development expenses will increase in the year ended December 31, 1997 from
the levels seen in 1996 due in large part to increases in staffing.
Expenses in 1997 will include the amount of any research and development
purchased which might be significantly different than the amount reported
in 1996.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses in 1996 were
approximately $5,473,000. This included approximately $3,411,000 in
expense recognized in conjunction with the issuance of stock and stock
options at prices below fair market value to various consultants for
services rendered. The largest part of the remaining expense is salaries,
related employee expenses and director fees. Management expects that
selling, general and administrative expenses will be lower in 1997 than in
1996 as substantial increases in staffing and related spending, and most
other expense line items will be more than offset by the fact that the
expense recognized in 1996 for issuance of stock and stock options for
services rendered will not repeat.
INTEREST INCOME
Interest income in 1996 of approximately $2,000 was earned on the
temporary investment of surplus cash. Management anticipates that similar
small amounts will be earned in 1997.
INTEREST EXPENSE
The Company recorded interest expense in the year ended December 31,
1996 of approximately $11,000. The level of interest expense in 1997 will
depend on the amount of debt financing incurred by the Company, the periods
over which this debt is outstanding and the terms of the indebtedness.
Interest expense could increase significantly in 1997.
<PAGE>24
LIQUIDITY AND CAPITAL RESOURCES
As of September 30, 1997 and December 31, 1996, the Company had
negative working capital of approximately $3,617,000 and $1,244,000,
respectively. For the year ended December 31, 1996 and for the nine months
ended September 30, 1997, the Company has had no significant positive cash
flow from operations and has relied on the placement of capital stock and
debt to fund its development stage losses and its investments in capital
assets.
As of September 30, 1997, the Company's debt consists of advances
against a $5,000,000 credit facility granted by a shareholder with a
principal balance of approximately $2,125,000 and accrued interest of
approximately $40,000. This note matures in 1998, bears interest at 10%
per annum and is secured by a first security interest in essentially all of
the Company's assets. The principal and interest on this credit facility
can be converted at the lender's option into common stock of the Company at
a 20% discount to the market price of the stock at the date that individual
advances were made to the Company under this credit facility. The Company
has been advised by the lender that the lender does intend to convert this
debt into common stock.
The Company does not anticipate any material capital expenditures in
the next twelve months.
ITEM 3. DESCRIPTION OF PROPERTY
Until January 1998, InnovaCom is renting approximately 8,200 square
feet of space in Santa Clara, California, which includes offices and
research space pursuant to a sublease agreement entered into on March 28,
1996. The term of the sublease covers the period of April 1, 1996 through
February 28, 1998 on two parcels, and on June 30, 1998 on a third parcel,
and required monthly payments are $14,000. The Company is hopeful that the
landlord will be able to re-rent the property quickly as the rental market
in the area is tight.
The Company has entered into a five (5) year lease agreement effective
January 1998, with an option to extend for an additional three (3) year
term, for the leasing of new offices of approximately 18,000 square feet,
also in Santa Clara, California.
The monthly base rent will be $28,800 for 1998, increasing by $900 per
month for each year thereafter, plus operating expenses for the common
areas of the entire complex equal to the Company's pro-rata square footage
of the complex (approximately 47% of the building, 27% of the project).
<PAGE>25
The offices will be used primarily for engineering, software
development and administrative purposes. InnovaCom does not maintain its
own manufacturing or production facilities.
ITEM 4. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Shareholdings of the Company's Common Stock by its principal (5%)
shareholders and its executive officers and directors as of December 1,
1997 are as follows:
COMMON STOCK
<TABLE>
<CAPTION>
Percentage
NAME AND ADDRESS NUMBER OF SHARES(1) BENEFICIALLY OWNED
<S> <C> <C>
Mark C. Koz 7,463,000(2) 33.4%
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
Micro Technology S.A. 2,500,000 11.2%
c/o Rhone Rinance SA
World Trade Center
10 Route de l'aeroport
CH-1215 Geneva 15 Switzerland
507784 BC Ltd. 6,097,500(3) 27.3%
10th Floor, Four Bental Centre
P.O. Box 49333, 1055 Dunsmuir St
Vancouver BC V7X 1LX CANADA
Rand Shrader 400,000(4) 1.8%
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
Stan Creasey 100,000(5) *
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
John Champlin, MD 100,000(6) *
Med Center Medical Clinic
6651 Madison Avenue
Carmichael, CA 95608
James Anderson -0- -0-
Sierra Vista Entertainment
9350 Wilshire Blvd., Suite 200
Beverly Hills, CA 90212
Simone Anderson -0- -0-
Sierra Vista Entertainment
9350 Wilshire Blvd., Suite 200
Beverly Hills, CA 90212
Robert Sibthorpe -0- -0-
6311 E. Naumann Drive
Paradise Valley, AZ 85253
Tony Low -0- -0-
The Saatchi Entertainment Group
37 26th Avenue
Venice, CA 90291
All officers and directors as a 8,063,000(7) 35.1%
group (8 persons)
</TABLE>
*Less than one percent
- ---------------------------
(1) Except as otherwise indicated, InnovaCom believes that the beneficial
owners of Common Stock listed above, based on information furnished by
such owners, have sole investment and voting power with respect to
such shares, subject to community property laws where applicable.
Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and generally includes voting or
investment power with respect to securities. Shares of Common Stock
subject to options or warrants currently exercisable, or exercisable
within 60 days, are deemed outstanding for purposes of computing the
percentage ownership of the person holding such options or warrants,
but are not deemed outstanding for purposes of computing the
percentage ownership of any other person.
<PAGE>26
(2) Includes 1,000,000 shares of Common Stock owned by 507784 BC Ltd. and
4,948,000 owned by Mark Koz, all of which are subject to a Voting
Agreement by and between 507784 BC Ltd. and Mark Koz, wherein Mr. Koz
has the right to nominate three (3) members of the six (6) member
board of directors of InnovaCom and 507784 BC Ltd, a former Sierra
Vista shareholder, has the right to nominate the remaining three (3)
members of the six (6) member board of directors of InnovaCom, and all
the shares subject to the voting agreement shall vote in favor of the
six (6) nominees. Includes an additional 2,000,000 shares to be
issued to Intelligent Instruments Corporation, less 500,000 shares
which Mr. Koz has agreed to surrender in settlement of any possible
claims relating to any alleged breach of fiduciary duty by Mr. Koz in
connection with the formation of the Company. Also includes options
to purchase 15,000 shares of Common Stock at $0.50 per share expiring
August 7, 2001, held by Mr. Koz's wife.
(3) Includes 1,000,000 shares of Common Stock owned by 507784 BC Ltd. and
4,948,000 owned by Mark Koz, all of which are subject to a Voting
Agreement by and between 507784 BC Ltd. and Mark Koz, wherein Mr. Koz
has the right to nominate three (3) members of the six (6) member
board of directors of InnovaCom and 507784 BC Ltd, a former Sierra
Vista shareholder, has the right to nominate the remaining three (3)
members of the six (6) member board of directors of InnovaCom, and all
the shares subject to the voting agreement shall vote in favor of the
six (6) nominees.
(4) Includes options to purchase 400,000 shares of the Company's Common
Stock at $2.75 per share, expiring May 27, 2002.
(5) Includes options to purchase 100,000 shares of InnovaCom Common Stock
at $3.375 per share, which shall become exercisable upon the filing of
this Registration Statement.
(6) Includes options to purchase 100,000 shares of the Company's Common
Stock at $3.375 per share, expiring April 22, 2000.
(7) Includes those items noted in footnotes 3, 4, 5 and 6 to this table.
<PAGE>27
ITEM 5. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS
The directors and executive officers of InnovaCom are as follows:
<TABLE>
<CAPTION>
Director
NAME AGE POSITION SINCE
<S> <C> <C> <C>
Mark C. Koz 42 President, Chief Executive 1993
Tony Low 43 Director October 1996
F. James Anderson 48 Secretary, Executive May 1997
Director, Corporate Strategy
and Finance, Director
Simone Anderson 33 Director May 1997
Robert Sibthorpe 48 Director May 1997
John Champlin, M.D. 42 Director October 1997
Stanton Creasey 43 Chief Financial Officer --
Rand E. Shrader 42 Chief Operating Officer --
</TABLE>
OFFICERS
MARK KOZ - CHAIRMAN, PRESIDENT & CEO, (AGE 42) has been the founder,
the technologist, the largest shareholder, and the key executive of
InnovaCom since its inception. He was founder, CEO, chief technical
officer and a director of FutureTel from 1993 to 1995, and CEO of
Intelligent Instruments Corporation 1993 to 1996. His background includes
a NASA technical internship at an early age, a broadcast engineering
license at age 16, five years of technical education at Florida
Technological University (University of Central Florida), and setting up of
operations for a series of television broadcasting stations in the
Caribbean and South America. He is a voting member of the Moving Picture
Experts Group, the international standards-setting body for MPEG. Mark
Koz's vision and unique experience in the broadcasting and digital video
markets give the Company a substantial lead in addressing the problems
which make this technology so difficult to implement.
F. JAMES ANDERSON - SECRETARY AND EXECUTIVE DIRECTOR, CORPORATE
STRATEGY AND FINANCE AND DIRECTOR (AGE 48), has served in these capacities
since the Company's acquisition of Sierra Vista in May 1997. Mr. Anderson
founded Sierra Vista and served as Director General of the Moscow Country
<PAGE>28
Club, a Russian-American joint venture and was President of the American
holding company which owned 50% of that venture. He has acted as CEO of
Brush Creek Mining and Development, Co., Inc., a Nevada corporation, and
was Chairman of the Board of Trans-Russian Exploration and Development,
Inc., both of which engaged in exploration and development of precious
mineral properties in the US and Canada. He has had a long and highly
successful career as a businessman in a variety of industries, including
establishment of a series of profitable auto dealerships, management of
mining and oil and gas properties, and management of several public
utilities companies. He has assisted numerous companies in raising capital
domestically and internationally.
RAND E. SHRADER - CHIEF OPERATING OFFICER (COO), (AGE 42) has
extensive experience in technical product and program management, technical
sales management and quality management. Immediately before joining
InnovaCom in May 1997, Mr. Shrader had been with ITT Automotive (now part
of ITT Industries) for 12 years. Mr. Shrader was with Dayton-Walther (now
part of Lucas-Varity) for 6 years before joining ITT. In his last position
there, he made major improvements as Quality Manager of the firm's largest
plant.
STANTON R. CREASEY - CHIEF FINANCIAL OFFICER (CFO), (AGE 43) has
been the CFO since April 1997. Mr. Creasey is a CPA with 19 years of
experience in finance, first with Arthur Anderson & Co., and then with a
number of high technology manufacturing companies, including National
Semiconductor Corporation. He has served as chief financial officer of
several Silicon Valley start-up companies during the past ten years.
He was Chief Financial Officer and/or President of Sixty-Eight
Thousand, Inc. from September 1989 through March 1994, and left that
company in April 1994. In June 1994, Sixty-Eight Thousand, Inc., a
computer which made Macintosh compatible workstations, declared bankruptcy
in San Jose, California (case: 94-54123). From September 1994 through
March 1996, Mr. Creasey was at Purus Inc. From March 1996 through April
1997, he was a Consultant.
DIRECTORS
MARK KOZ and JAMES ANDERSON are Directors as well as senior managers
of the Company.
SIMONE ANDERSON is the Marketing Director and CFO for Sierra Vista,
and has been at Sierra Vista since 1997. She has been a director of the
Moscow Country Club joint venture with Russia, and was previously CFO of
Brush Creek Mining and Development Co., Inc. from 1989 to 1994 and
Trans-Russian Exploration and Development, Inc. from 1991 to 1993. She has
been instrumental in many business ventures with her husband, F. James
Anderson.
<PAGE>29
JOHN CHAMPLIN, M.D. has done extensive work in the application of
computers and video in the field of medicine and is the owner and president
of the Med Center Medical Clinic in Carmichael, California, since 1993.
Prior to that he was a medical director of Madison Center from 1988 to 1993.
He is also associate clinical professor, family practice, at the University
of California at Davis since 1986. He earned his M.D. at the University of
Florida.
ANTHONY LOW is currently the Chief Operating Officer at Darwin Digital
since July 1997, a newly formed Saatchi & Saatchi Vision Company involved
in interactive advertising and media buying. Prior to that, he was
director of business affairs at the Los Angeles based Saatchi Entertainment
Group, a division of Saatchi & Saatchi, the multinational ad agency from
January 1996 through June 1997. From June 1993 through January 1996 he was
President of Tercer Mundo, Inc., a company marketing sound recordings.
From October 1983 through June 1993 he was Partner and Business Manager of
Oberman, Tivoli, Miller and Low.
ROBERT A. SIBTHORPE has been in the securities industry and corporate
acquisitions for more than 20 years, most recently with Yorkton Securities,
Inc., Toronto, from June 1986 through April 1996, and Midland Walwyn Ltd.,
Toronto. He has raised venture capital for small-cap technology and
resource companies, such as InnovaCom, Diamond Fields, Ltd. and Stikine
Resources. He is an investment banker with extensive experience in
corporate finance, with an MBA in Finance and a Bachelor of Science in
Earth Sciences.
ITEM 6. EXECUTIVE COMPENSATION
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
LONG TERM COMPENSATION
ANNUAL COMPENSATION AWARDS PAYOUTS
<S> <C> <C> <C> <C> <C> <C> <C>
Restricted Securities
Name and Other Annual Stock Underlying LTIP
Principal Compensation Award(s) Options Payouts All Other
POSITION YEAR SALARY ($) ($) (#) ($) COMPENSATION
Mark Koz 1996 $120,000 $0 $0 -0- $0 $0
President and CEO
</TABLE>
On May 15, 1997, InnovaCom and Mr. Koz entered into a five year
employment contract. Under the terms of Mr. Koz's employment contract, Mr.
Koz shall serve as President and Chief Executive Officer of InnovaCom and
his salary shall be $240,000 per annum subject to a 7% cost of living
increase and increases as determined by the Board of Directors. In
addition, pursuant to Mr. Koz's employment contract, in the event that Mr.
Koz is terminated in connection with a change in control, Mr. Koz shall be
entitled to receive a lump sum payment equal to three times his then annual
salary. Finally, pursuant to his contract, Mr. Koz shall be indemnified by
InnovaCom for serving as President and Chief Executive Officer.
<PAGE>30
On May 15, 1997, InnovaCom and Mr. Anderson entered into a five year
employment contract. Under the terms of Mr. Anderson's employment
contract, Mr. Anderson shall serve as Director of Strategic Planning and
President of InnovaCom's Entertainment Division and his salary shall be
$180,000 per annum subject to a 7% cost of living increase and increases as
determined by the Board of Directors. In addition, pursuant to Mr.
Anderson's employment contract, in the event that Mr. Anderson is
terminated in connection with a change in control, Mr. Anderson shall be
entitled to receive a lump sum payment equal to three times his then annual
salary. Finally, pursuant to his contract, Mr. Anderson shall be
indemnified by InnovaCom for serving as Director of Strategic Planning and
President of InnovaCom's Entertainment Division.
ITEM 7. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MICRO TECH CREDIT FACILITY. As a result of the acquisition of Sierra
Vista, Micro Technology, SA ("Micro Tech"), received 2,500,000 shares of
InnovaCom Common Stock (approximately 11.2%) in exchange for Micro Tech's
shares of Sierra Vista. In July 1997, Micro Tech and the Company entered
into a credit facility agreement of up to $5 million in convertible debt.
The principal amount outstanding on the credit facility as of October 31,
1997 was approximately $2,835,000 with an average conversion price of $2.66
per share.
The credit facility and related promissory notes shall become due in
July 1998, and accrue interest at the rate of 10% per year, or the maximum
rate allowed by law, whichever is lower. InnovaCom has the right to
require Micro Tech to make advances to the $5 million limit, but may pre-
pay without penalty. The credit line is secured by all of the assets of
the Company, including all receivables, goods, equipment, inventory,
contract rights and other property interests.
ACQUISITION OF INTELLIGENT INSTRUMENTS CORPORATION. The Company has
agreed to acquire substantially all of the intellectual property of
Intelligent Instruments Corporation, an intellectual property holding
company owned by Mark Koz, in exchange for two million shares of InnovaCom
common stock. Intelligent Instruments Corporation holds the patent for a
proprietary set-top box design and has applied for a patent for a
proprietary server design, both of which complement and enhance the
technology being developed by InnovaCom.
<PAGE>31
FUTURETEL. Mark Koz was the founder, CEO, chief technical officer and
a director of FutureTel from 1993 to 1996, where he was in charge of the
development of the "gecko" video compression chip. When Mr. Koz left
FutureTel in early 1996, he used InnovaCom to license the "gecko"
technology and to continue development of the chip. FutureTel also
transferred certain rights to technology to Mr. Koz and/or Intelligent
Instruments Corporation.
InnovaCom has a worldwide license from FutureTel to manufacture, use,
distribute, sell and otherwise deal with the video compression technology
which is the subject of docket numbers 2056 and 2057 for patent
applications. Under the License Agreement, InnovaCom has the rights to
use, duplicate, distribute, modify and enhance the technology for the
development, manufacture and distribution of its products and to sublicense
the technology to others for the enhancement, development, manufacture and
distribution of its products. The term of the license from FutureTel to
InnovaCom is in perpetuity.
Recently InnovaCom, with Mark Koz and Intelligent Instruments
Corporation, has filed a lawsuit naming FutureTel among the defendants.
See LEGAL PROCEEDINGS.
With respect to each transaction between the Company and an affiliate
of the Company, the Company believes that such transactions were on terms
at least as favorable to the Company as they would have been had they been
consummated with unrelated third parties under similar circumstances.
SETTLEMENT AGREEMENT WITH MARK KOZ. The Company has entered into a
Settlement Agreement with Mark Koz which was adopted by the Company's
Litigation Committee of the Board of Directors. The Settlement Agreement
concerns the lawsuit recently filed by the Company regarding Jettson Realty
Development Corporation. See LEGAL PROCEEDINGS.
ITEM 8. DESCRIPTION OF SECURITIES
InnovaCom's authorized capital stock consists of 50,000,000 shares of
Common Stock, par value $0.001. As of December 8, 1997, there were
outstanding 22,328,587 shares of Common Stock held of record by
stockholders.
COMMON STOCK
Each stockholder is entitled to one vote for each share of Common
Stock held on all matters submitted to a vote of stockholders. Each holder
of Common Stock has the right to cumulate his votes, which means each share
shall have the number of votes equal to the number of directors to be
elected and all of which votes may be cast for any one nominee. Subject to
<PAGE>32
such preferences as may apply to any Preferred Stock outstanding at the
time, the holders of outstanding shares of Common Stock are entitled to
receive dividends out of assets legally available therefor at such times
and in such amounts as the Board of Directors may from time to time
determine. The Common Stock is not entitled to preemptive rights and is
not subject to conversion or redemption. Upon the liquidation,
dissolution, or winding up of the Company, the holders of Common Stock and
any participating Preferred Stock outstanding at that time would be
entitled to share ratably in all assets remaining after the payment of
liabilities and the payment of any liquidation preferences with respect to
any outstanding Preferred Stock. Each outstanding share of Common Stock
now is, and all shares of Common Stock that will be outstanding after
completion of the offering will be, fully paid and non-assessable.
Mark Koz and S07784 BC Ltd have entered into a voting agreement.
Please see footnotes 2 and 3 to the Security Ownership Table under Item 4
of this Registration Statement.
PART II
ITEM 1. MARKET PRICE OF AND DIVIDENDS ON THE REGISTRANTS' COMMON EQUITY
AND OTHER SHAREHOLDER MATTERS
InnovaCom's Common Stock began trading on the OTC Bulletin Board under
the symbol "MPEG" on July 15, 1996. The high and low prices of InnovaCom's
Common Stock on a quarterly basis is as follows:
QUARTER ENDED HIGH LOW
September 30, 1996 $9.25 $ .96
December 31, 1996 $8.12 $4.25
March 31, 1997 $5.87 $1.65
June 30, 1997 $5.00 $2.50
September 30, 1997 $4.06 $2.16
ITEM 2. LEGAL PROCEEDINGS
JAPAN TABACCO, MASATO HATA, FUTURETEL, ET.AL. On July 25, 1996, Mark
Koz, Intelligent Instruments Corporation and InnovaCom filed suit against
Japan Tabacco, Masato Hata, FutureTel, et al., in the Superior Court of the
State of California case no. CV 759582. InnovaCom and the other plaintiffs
are claiming fraud by the defendants in the formation of a business venture
involving the development and marketing of multimedia technology. On or
about September 5, 1996, FutureTel filed a cross-complaint against
InnovaCom alleging breach of contract by InnovaCom for failure to pay
FutureTel for salaries, payroll taxes and insurance for certain personnel
and rental equipment expenses incurred by FutureTel representing
<PAGE>33
approximately $65,000 in the aggregate. The above legal proceeding is at
its initial stage. The parties agreed to settle their dispute and are
presently reducing the agreement to writing. Under the agreement,
InnovaCom will pay $100,000, without admitting any liability.
MATURI. On October 7, 1996, InnovaCom filed a complaint for
declaratory relief in Santa Clara County Superior Court (Case No. CV
761218) against Gregory V. Maturi, a former employee. The complaint seeks
clarification under Mr. Maturi's employment agreement under which InnovaCom
believe that Mr. Maturi is not entitled to any further payments or benefits
under his employment agreement and that certain payments amounting to
approximately $150,000 made by InnovaCom to Mr. Maturi should be returned
to InnovaCom. On October 18, 1996, Mr. Maturi filed a cross-complaint
against InnovaCom for breach of contract, fraud and deceit, and breach of
the implied covenant of good faith and fair dealing, seeking damages in
excess of $5 million. The litigation is in its initial stages.
DECORAH COMPANY. On June 9, 1997, the Decorah Company and Edwin
Reedholm filed a complaint against Digital Hollywood, InnovaCom and Mark
Koz in the circuit court of Cook County, Illinois County Department, Law
Division, case no. 97L06866. Plaintiffs are alleging breach of contract in
the amount of $7,225.19 lent to InnovaCom. In addition, Decorah Company
alleges that it has lent funds to Digital Hollywood which has yet to be
paid and is alleging that its damages are approximately $900,000, and that
Mark Koz has guaranteed the repayment of the monies by Digital Hollywood to
Decorah Company, secured by a portion of Mr. Koz's InnovaCom Common Stock.
Discovery has yet to begin in this proceeding.
JETTSON REALTY DEVELOPMENT CORPORATION. On November 10, 1997,
InnovaCom filed suit against Michael D. Haynes, David S. Jett, Manhattan
West, Inc., Marketing Direct Concepts, Inc., Ann Denton, Ronald Thomas,
Arun Pande, Edwin L. Reedholm, Atlas Stock Transfer Corporation, Geneva
Capital International, Inc., Geneva Consolidated Group, Inc., Delphi-Riker
International, Inc., Zelton Foundation, Checkers Foundation, United West
Communications, Inversora Greenway, Norbury Foundation, Whittington
Foundation, Conception One Foundation, The Delhaas Group, Incorporated, The
Delhaas Group, Inc., Chaerpico Industrial Development, Inc., Silicon
Software International Ltd., Bransome and Associates, Inc., David F. Bahr,
Tariq Kahn, The Checkers Group, Ltd., and Maxwell Ventures.
The complaint, case number 990965 in San Francisco Superior Court,
claims fraud, breach of fiduciary duty and negligence, surrounding the
Jettson Realty Development Corporation acquisition, and seeks compensation
in excess of $26 million. The litigation is in its early stages and no
discovery has commenced.
<PAGE>34
CHECKERS FOUNDATION. InnovaCom and Checkers Foundation entered into a
Stock Purchase Agreement in February 1997, whereby Checkers Foundation
purchased 229,310 shares of InnovaCom's Common Stock. Before the stock was
issued, the Jettson Realty Development Corporation lawsuit was filed,
naming Checkers Foundation among the parties. As a result, the stock
issuance has not been completed and will not be completed, and the Stock
Purchase Agreement may become the subject of litigation.
ITEM 4. RECENT SALES OF UNREGISTERED SECURITIES
In January 1997, InnovaCom issued 100,000 shares of Common Stock to
Dr. Paul Kim, an unaffiliated third party, in exchange for an MPEG-1 board
design.
On May 12, 1997, InnovaCom issued 8,500,000 shares of Common Stock to
approximately 65 purchasers in exchange for all of the outstanding shares
of Sierra Vista. No commission was paid by InnovaCom, and the InnovaCom
shares of Common Stock were not registered with the Commission upon
reliance of Section 3(a)11 of the Securities Act. The shares were issued
pursuant to a fairness hearing held by the California Department of
Corporations.
<PAGE>35
In June 1997, Patrick Johnson received 7,003 shares of InnovaCom
Common Stock in exchange for approximately $17,000 worth of legal services
rendered.
ITEM 5. INDEMNIFICATION OF DIRECTORS AND OFFICERS
InnovaCom has adopted Section 78.751 of the Domestic and Foreign
Corporation Laws of the State of Nevada in its bylaws. Section 78.751
states:
1. A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil,
criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he is
or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a
director, officer, employee or agent 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 in
connection with the action, suit or proceeding if he acted 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 no
reasonable cause to believe his conduct was unlawful. The
termination of any action, suit or proceeding by judgment, order,
settlement, conviction, or upon a plea of nolo contendere or its
equivalent, does 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 that, with respect to any criminal action
or proceeding, he had reasonable cause to believe that his
conduct was unlawful.
2. A corporation may indemnify any person who was or is a
party or is threatened to be made a party to any threatened,
pending or completed action or suit by or in the right of the
corporation to procure a judgment in its favor by reason of the
fact that he is or was a director, officer, employee or agent of
the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement
and attorneys' fees actually and reasonably incurred by him in
connection with the defense or settlement of the action or suit
if he acted in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the
corporation. Indemnification may not be made for any claim,
issue or matter as to which such a person has been adjudged by a
court of competent jurisdiction, after exhaustion of all appeals
therefrom, to be liable to the corporation or for amounts paid in
settlement to the corporation, unless and only to the extent that
the court in which the action or suit was brought or other court
of competent jurisdiction determines upon application that in
view of all the circumstances of the case, the person is fairly
and reasonably entitled to indemnity for such expenses as the
court deems proper.
<PAGE>36
InnovaCom has entered into indemnification agreements with its
officers and directors. Pursuant to the agreements, InnovaCom has agreed
to defend and indemnify such officers and directors for all expenses and
liabilities for acting as such.
In addition, InnovaCom carries directors' and officers' insurance
pursuant to authority in its Bylaws to maintain a liability insurance
policy which insures directors or officers against any liability incurred
by them in their capacity as such, or arising out of their status as such.
PART F/S
The financial statements of InnovaCom follow.
<PAGE>
INNOVACOM, INC.
AND SUBSIDIARIES
Financial Statements
For the Years Ended
December 31, 1995 and 1996,
For the Nine Months Ended
September 30, 1996 and 1997 (unaudited)
and For the Period
From May 11, 1990 (inception) to
September 30, 1997 (unaudited)
<PAGE>F-1
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
INDEPENDENT AUDITOR'S REPORT...........................................F-2
CONSOLIDATED BALANCE SHEETS - December 31, 1996 and September 30,
1997 (unaudited)....................................................F-3
CONSOLIDATED STATEMENTS OF OPERATIONS - For the Years Ended
December 31, 1995 and 1996,
for the Nine Months Ended September 30, 1996 and 1997
(unaudited) and for the Period from May 11, 1990 (inception)
to September 30, 1997 (unaudited)...................................F-4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY - For the Period
from May 11, 1990 (inception) to September 30, 1997 (The period
from January 1, 1997 to September 30, 1997 is unaudited)..........F-5
CONSOLIDATED STATEMENTS OF CASH FLOWS - For the Years Ended
December 31, 1995 and 1996, for the Nine Months Ended
September 30, 1996 and 1997 (unaudited) and for the
Period from May 11, 1990 (inception) to September 30, 1997
(unaudited).........................................................F-7
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS.............................F-10
<PAGE>F-2
INDEPENDENT AUDITOR'S REPORT
The Stockholders and Board of Directors
InnovaCom, Inc. (a Development Stage Enterprise) and Subsidiaries
Santa Clara, California
We have audited the accompanying consolidated balance sheet of InnovaCom, Inc.
(a Development Stage Enterprise) and subsidiaries as of December 31, 1996, and
the related consolidated statements of operations, stockholders' equity
(deficit), and cash flows for the year ended December 31, 1996 and the period
from May 11, 1990 (inception) to December 31, 1996. These financial statements
are the responsibility of the Company's management. Our responsibility is to
express an opinion on these consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of InnovaCom, Inc. (a
Development Stage Enterprise) and subsidiaries as of December 31, 1996, and the
results of their operations and their cash flows for the year ended December
31, 1996 and for the period from May 11, 1990 (inception) to December 31, 1996
in conformity with generally accepted accounting principles.
The accompanying consolidated financial statements have been prepared assuming
that the Company will continue as a going concern. As discussed in Note 3 to
the financial statements, the Company has negative working capital of
$1,243,756, a stockholders' deficit of $1,040,467, and has suffered significant
losses from operations that raise substantial doubt about the Company's ability
to continue as a going concern. Management's plans in regard to these matters
are also described in Note 3. The financial statements do not included any
adjustments relating to the recoverability and classification of reported asset
amounts or the amounts and classification of liabilities that might result from
the outcome of this uncertainty.
HEIN + ASSOCIATES LLP
Certified Public Accountants
Orange, California
October 15, 1997
<PAGE>F-3
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- ------------
(unaudited)
ASSETS
<S> <C> <C>
CURRENT ASSETS:
Cash $ - $ 88,082
Cash - restricted 9,507 8,480
Other receivables 3,200 12,594
Prepaid expenses - 132,995
---------- ------------
Total current assets 12,707 242,151
PROPERTY AND EQUIPMENT, net 183,991 650,063
FILM RIGHTS - 250,000
DEPOSITS 19,298 63,662
---------- ------------
TOTAL ASSETS $ 215,996 $ 1,205,876
========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Bank overdraft $ 38,574 $ -
Notes payable 6,678 2,172,976
Accounts payable 394,286 593,199
Accrued liabilities 816,925 1,093,095
--------- ------------
Total current liabilities 1,256,463 3,859,270
--------- ------------
COMMITMENTS AND CONTINGENCIES (Notes 3, 8 and 11) - -
STOCKHOLDERS' EQUITY (DEFICIT):
Common stock, $.001 par value, 50,000,000 shares
authorized, 12,211,084 and 21,061,897 (unaudited)
shares issued and outstanding 12,211 21,062
Additional paid-in capital 7,143,542 13,130,133
Deficit accumulated during development stage (8,196,220) (15,804,589)
---------- ----------
Total stockholders' equity (deficit) (1,040,467) (2,653,394)
---------- ---------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) $ 215,996 $ 1,205,876
=========== ===========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>F-4
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
MAY 11, 1990
FOR THE YEARS ENDED FOR THE NINE MONTHS (INCEPTION) TO
DECEMBER 31, ENDED SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997 1997
---------- ------------ ----------- ----------- -----------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
REVENUES $ - $ - $ - $ 149,000 $ 149,000
---------- ------------ ----------- ----------- -----------
COSTS AND EXPENSES:
Cost of Goods Sold
- - - 52,538 52,538
Research and
development - 2,711,028 1,961,914 2,987,715 5,698,743
Selling, general
and administrative 300 5,472,578 4,304,058 4,140,414 9,613,417
---------- ---------- ---------- --------- ---------
Total costs
and expenses 300 8,183,606 6,265,972 7,180,667 15,364,698
---------- ---------- ---------- --------- ----------
OPERATING LOSS (300) (8,183,606) (6,265,972) (7,031,667) (15,215,698)
---------- ---------- ----------- ----------- -----------
OTHER INCOME (EXPENSE):
Interest income - 1,622 - 5,641 7,263
Interest expense - (10,611) (5,080) (580,742) (591,353)
---------- ----------- ---------- ----------- ---------
(8,989) (5,080) (575,101) (584,090)
---------- ---------- --------- --------- ---------
LOSS BEFORE
INCOME TAX
EXPENSE (300) (8,192,595) (6,271,052) (7,606,768) (15,799,788)
INCOME TAX
EXPENSE 800 800 800 1,600 4,800
--------- --------- --------- --------- -----------
NET LOSS $ (1,100) $ (8,193,395) $ (6,271,852) $ (7,608,368) $ (15,804,588)
========== ============ ============ ============ =============
NET LOSS PER SHARE
$ (.00) $ (.98) $ (.88) $ (.46)
========== ============ ============ ============
WEIGHTED
AVERAGE NUMBER
OF SHARES
OUTSTANDING 5,122,869 8,361,597 7,100,597 16,455,744
========== ============ =========== ============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>F-5
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING TOTAL
COMMON STOCK PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C>
Common stock issued to form company
at $0.0017 per share (May 1990) 5,122,869 $ 5,123 $ 3,377 $ - $ 8,500
Net loss - - - (125) (125)
--------- ------- --------- ----------- --------------
BALANCES, December 31, 1990, 1991,
and 1992 5,122,869 5,123 3,377 (125) 8,375
Net loss - - - (800) (800)
--------- ------- --------- ----------- --------------
BALANCES, December 31, 1993 5,122,869 5,123 3,377 (925) 7,575
Net loss - - - (800) (800)
--------- ------- --------- ----------- --------------
BALANCES, December 31, 1994 5,122,869 5,123 3,377 (1,725) 6,775
Net loss - - - (1,100) (1,100)
--------- ------- --------- ------------ --------------
BALANCES, December 31, 1995 5,122,869 5,123 3,377 (2,825) 5,675
Issuance of common stock at $0.50
per share to 900,000 900 449,100 - 450,000
directors for services performed
(March 1996)
Issuance of common stock at $0.50
per share to 130,000 130 64,870 - 65,000
employees for services performed (May
1996)
Sale of common stock, net of
expenses at $0.26 per 408,200 408 103,762 - 104,170
share (June 1996)
Sale of common stock, net of
expenses at $0.16 per 4,620,015 4,620 715,380 - 720,000
share (July 1996)
Issuance of common stock at $0.50
per share to 500,000 500 249,500 - 250,000
employees for services performed (July
1996)
Issuance of common stock at $1.36
per share for consulting services
performed (July 1996) 250,000 250 388,960 - 389,210
</TABLE>
(Continued)
<PAGE>F-6
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
(CONTINUED)
<TABLE>
<CAPTION>
DEFICIT
ACCUMULATED
ADDITIONAL DURING TOTAL
COMMON STOCK PAID-IN DEVELOPMENT STOCKHOLDERS'
SHARES AMOUNT CAPITAL STAGE EQUITY (DEFICIT)
<S> <C> <C> <C> <C> <C>
Sale of common stock at $5.00 per
share, net of expenses 280,000 280 1,399,720 - 1,400,000
(October 1996)
Compensation recognized upon
issuance of stock - - 2,493,873 - 2,493,873
options
Contribution of Product License - - 1,275,000 - 1,275,000
Net loss - - - (8,193,395) (8,193,395)
----------- ------- ---------- ----------- -----------
BALANCES, December 31, 1996 12,211,084 12,211 7,143,542 (8,196,220) (1,040,467)
Issuance of common stock in exchange
for technology at $5.00 per share 100,000 100 499,900 - 500,000
(January 1997) (unaudited)
Sale of common stock, net of
expenses at $2.90 per share (February 229,310 229 664,771 - 665,000
1997) (unaudited)
Acquisition of Sierra Vista net of
expenses at $.37 per share (April 8,514,500 8,515 3,158,283 - 3,166,798
1997) (unaudited)
Issuance of common stock at $2.43
per share for legal services rendered
(June 1997) (unaudited) 7,003 7 16,976 - 16,983
Interest calculated for possible
debt conversion (unaudited) - - 541,349 - 541,349
Compensation recognized upon
issuance of stock options (unaudited) - - 1,105,312 - 1,105,312
Net loss (unaudited) - - - (7,608,368) (7,608,368)
----------- -------- ------------ -------------- -------------
BALANCES, September 30, 1997 21,061,897 $ 21,062 $13,130,132 $ (15,804,588) $ (2,653,394)
=========== ======== ============ ============== =============
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>F-7
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
MAY 11,1990
FOR THE YEARS ENDED FOR THE NINE MONTHS (INCEPTION) TO
DECEMBER 31, ENDED SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $ (1,100) $ (8,193,395) $ (6,271,852) $ (7,608,368) $ (15,804,588)
--------- ------------- ------------- ------------- --------------
Adjustments to reconcile net loss
to net cash used in operating activities:
Depreciation - 21,175 9,602 103,782 124,957
Compensation costs recognized
upon issuance of stock or stock options - 3,648,083 3,502,763 1,122,294 4,770,377
Interest related to debt - - - 541,349 541,349
conversion
Contribution of Product License - 1,275,000 1,275,000 - 1,275,000
Write-off of related party - 94,062 45,290 24,711 118,773
receivable
Changes in operating assets and
liabilities:
Cash - restricted - (9,507) - 1,027 (8,480)
Other receivables - 5,300 - (9,394) (12,594)
Prepaid Expenses - - - (132,995) (132,995)
Deposits - (19,298) (11,954) (44,364) (63,662)
Accounts payable - 394,286 256,787 198,913 593,199
Accrued liabilities 1,100 814,100 579,759 276,170 1,093,095
------- ------------ ----------- ------------ ------------
Net adjustments 1,100 6,223,201 5,657,247 2,081,493 8,299,019
------- ------------ ----------- ------------ ------------
Net cash used in operating - (1,970,194) (614,605) (5,526,875) (7,505,569)
activities ------- ------------ ----------- ------------ -------------
</TABLE>
(continued)
<PAGE>F-8
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOW
(continued)
<TABLE>
<CAPTION>
MAY 11, 1990
FOR THE YEARS ENDED FOR THE NINE MONTHS (INCEPTION) TO
DECEMBER 31, ENDED SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997 1997
---- ---- ---- ---- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM INVESTING ACTIVITIES:
Advance to related party - (94,062) (45,290) (24,711) (118,773)
Purchases of property and - (205,166) (82,812) (569,854) (775,020)
equipment -------- ----------- ---------- ---------- ----------
Net cash used in investing - (299,228) (128,102) (594,565) (893,793)
activities -------- ------------ ---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Bank overdraft - 38,574 - (38,574)
Proceeds from sale of common stock - 2,224,170 824,170 4,081,798 6,314,468
Proceeds from notes payable - 106,478 106,478 2,166,298 2,272,776
Principal payments on notes - (99,800) (44,920) - (99,800)
payable -------- ----------- ---------- ---------- ----------
Net cash provided by financing - 2,269,422 885,728 6,209,522 8,487,444
activities -------- ----------- ----------- ----------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS - - 143,021 88,082 88,082
CASH AND CASH EQUIVALENTS, beginning
of period - - - - -
------- ---------- ---------- ----------- ----------
CASH AND CASH EQUIVALENTS, end of period $ - $ - $ 143,021 $ 88,082 $ 88,082
======= ========== ========== =========== ==========
</TABLE>
(continued)
<PAGE>F-9
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
CONSOLIDATED STATEMENTS OF CASH FLOW
(continued)
<TABLE>
<CAPTION>
MAY 11, 1990
FOR THE YEARS ENDED FOR THE NINE MONTHS (INCEPTION) TO
DECEMBER 31, ENDED SEPTEMBER 30, SEPTEMBER 30,
1995 1996 1996 1997 1997
---- ---- ---- ---- -------------
<S> <C> <C> <C> <C> <C>
(unaudited) (unaudited) (unaudited)
SUPPLEMENTAL CASH FLOW INFORMATION:
Cash payments for:
Interest $ - $ 9,079 $ 5,080 $ 2,091 $ 11,170
=========== ========== ========== ========== ==========
Income taxes $ - $ - $ - $ 4,800 $ 4,800
=========== ========== ========== ========== ==========
Non-cash investing and financing
transactions:
500,000 shares of common stock
issued for contribution of
film rights $ $ - $ - $ 250,000 $ 250,000
=========== ========== =========== =========== =========
</TABLE>
SEE ACCOMPANYING NOTES TO THESE CONSOLIDATED FINANCIAL STATEMENTS.
<PAGE>F-10
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
1. NATURE OF OPERATIONS:
InnovaCom, Inc. ("the Company") was formed to develop, manufacture and/or
supply Very Large Scale Integrated Circuits ("VLSI") and other related
products for the specific application of broadcast quality encoded video
using the Second Generation Standard of the Moving Picture Experts Group
standard for video and audio compression ("MPEG-2"). The Company employs
VLSI to create an MPEG-2 digital video encoding system on a chip. It is the
current intention of the Company's management to establish itself as one of
the top suppliers of MPEG-2 video encoding systems on a chip and produce a
full line of such products in a effort to meet the needs of today's digital
video market.
The Company was formed pursuant to a business reorganization effective July
10, 1996 between Jettson Realty Development, Inc. ("JRD"), a Nevada
corporation formed in 1990 and InnovaCom Corp. ("InnovaCom Florida"), a
Florida corporation formed in 1993. Under the reorganization, JRD issued
6,000,000 previously unissued restricted common shares in exchange for all
of the issued and outstanding common stock of InnovaCom Florida. JRD's
board of directors then changed the name of JRD to InnovaCom, Inc., and
InnovaCom Florida became its wholly owned subsidiary. Prior to the
reorganization, JRD had no operations. This transaction was accounted for
as a reverse acquisition of JRD by InnovaCom Florida.
On February 27, 1997, the Company acquired 100% of the issued and
outstanding shares of Sierra Vista Entertainment, Inc. a Nevada Corporation
("Sierra Vista"), solely in exchange for common stock of the Company.
Sierra Vista was originally incorporated under the name of Simone Anderson
Productions under the laws of the state of Nevada on April 3, 1996. Simone
Anderson Productions changed its name to Sierra Vista Entertainment, Inc. on
February 21, 1997. Sierra Vista was formed to produce, acquire, and
distribute low-budget feature films that will provide a good return to its
investors. The Company agreed to acquire all of the issued and outstanding
shares of common stock of Sierra Vista for 8,514,500 previously unissued
common shares of the Company. The shares were issued on a basis of one
share of the Company for every one share of Sierra Vista stock. Upon
completion, the shares of common stock of the Company are to be registered
with the appropriate agencies. Also, the agreement calls for the Board of
Directors to consist of six members; three to be nominated by the Company
and three to be nominated by Sierra Vista, and the nominations approved by
all shareholders. The transaction was accounted for as a purchase.
Management believes that this transaction is a capital transaction in
substance rather than a business combination. Therefore, no goodwill will
be recorded. Sierra Vista had no material activity prior to the merger,
therefore the statements presented for the period ended September 30, 1997
resemble those that would be shown in a proforma.
2. SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION - The consolidated financial statements include
the accounts of the Company and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated in
consolidation.
<PAGE>F-11
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
STATEMENT OF CASH FLOWS - For purposes of the statements of cash flows, the
Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
RESTRICTED CASH - Restricted cash consists of amounts in an escrow account
for equity transactions. The Company's attorney has control over the
account and disburses funds according to agreements entered into.
PROPERTY AND EQUIPMENT - Property and equipment are stated at cost.
Depreciation of equipment and furniture is calculated using the straight-
line method over the estimated useful lives (3 years) of the respective
assets. The cost of normal maintenance and repairs is charged to operations
as incurred. Material expenditures which increase the life of an asset are
capitalized and depreciated over the estimated remaining useful life of the
asset. The cost of fixed assets sold, or otherwise disposed of, and the
related accumulated depreciation or amortization are removed from the
accounts, and any gains or losses are reflected in current operations.
FILM RIGHTS - Film rights are stated at the fair market value of the stock
issued upon contribution to the Company, which has become the cost of the
assets, and consists of screen plays, foreign films, and other materials
related to the film industry. Such amounts will be amortized to expense
over their estimated useful lives.
INCOME TAXES - The Company accounts for income taxes under the liability
method, which requires recognition of deferred tax assets and liabilities
for the expected future tax consequences of events that have been included
in the financial statements or tax returns. Under this method, deferred tax
assets and liabilities are determined based on the difference between the
financial statements and tax basis of assets and liabilities using enacted
tax rates in effect for the year in which the differences are expected to
reverse.
RESEARCH AND DEVELOPMENT COSTS - Research and development costs are charged
to operations in the period incurred.
ACCOUNTING ESTIMATES - The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the amounts reported in the financial
statements and the accompanying notes. The actual results could differ from
those estimates.
The Company's financial statements are based upon a number of significant
estimates, including the estimated useful lives selected for property and
equipment and other assets and the adequacy of valuation allowances. Due to
the uncertainties inherent in the estimation process, it is at least
reasonably possible that these estimates will be further revised in the near
term and such revisions could be material.
<PAGE>F-12
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
IMPAIRMENT OF LONG-LIVED ASSETS - In the event that facts and circumstances
indicate that the cost of assets or other assets may be impaired, an
evaluation of recoverability would be performed. If an evaluation is
required, the estimated future undiscounted cash flows associated with the
asset would be compared to the asset's carrying amount to determine if a
write-down to market value or discounted cash flow value is required.
STOCK-BASED COMPENSATION - In October, 1995, the Financial Accounting
Standards Board (FASB) issued a new statement titled "Accounting for Stock-
Based Compensation" (FAS 123) which the Company adopted January 1, 1996.
FAS 123 encourages, but does not require, companies to recognize
compensation expense for grants of stock, stock options and other equity
instruments to employees based on fair value. Companies that do not adopt
the fair value accounting rules must disclose the impact of adopting the new
method in the notes to the financial statements. Transactions in equity
instruments with non-employees for goods or services must be accounted for
on the fair value method. The Company has elected not to adopt the fair
value accounting prescribed by FAS 123 for employees, but is subject to the
disclosure requirements prescribed by FAS 123.
CONCENTRATIONS OF CREDIT RISK - Credit Risk represents the accounting loss
that would be recognized at the reporting date if counterparties failed
completely to perform as contracted. Concentrations of credit risk (whether
on or off balance sheet) that arise from financial instruments exist for
groups of customers or groups of counterparties when they have similar
economic characteristics that would cause their ability to meet contractual
obligations to be similarly effected by changes in economic or other
conditions. The Company does not believe it has any significant
concentrations.
FAIR VALUE OF FINANCIAL INSTRUMENTS - The estimated fair values for
financial instruments under FAS Statement No. 107, DISCLOSURES ABOUT FAIR
VALUE OF FINANCIAL INSTRUMENTS, are determined at discrete points in
time based on relevant market information. These estimates involve
uncertainties and cannot be determined with precision. The estimated fair
values of the Company's financial instruments, which includes all cash,
accounts payable, long-term debt, and other debt, approximates the carrying
value in the consolidated financial statements at December 31, 1996.
IMPACT OF RECENTLY ISSUED ACCOUNTING STANDARDS - The FASB recently issued
Statement of Financial Accounting Standards 128, "Earnings per Share" and
Statement of Financial Accounting Standards 129 "Disclosure of Information
About an Entity's Capital Structure." Statement 128 provides a different
method of calculating earnings per share than is currently used in
accordance with Accounting Principles Board Opinion 15 "Earnings per Share."
Statement 128 provides for the calculation of "basic" and "diluted" earnings
per share. Basic earning per share includes no dilution and is computed by
dividing income available to common shareholders by the weighted average
number of common shares outstanding for the period. Diluted reflects the
potential dilution of securities that could share in the earnings of an
entity, similar to fully diluted earnings per share. Statement 129
establishes standards for disclosing information about an entity's capital
structure. Statements 128 and 129 are effective for financial statements
issued for periods ending after December 15, 1997. Their implementation is
not expected to have a material effect on the consolidated financial
statements.
<PAGE>F-13
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
The FASB has also issued Statement of Financial Accounting Standards 130
"Reporting Comprehensive Income" and Statement of Financial Accounting
Standards 131 "Disclosures About Segments of an Enterprise and Related
Information." Statement 130 establishes standards for reporting and display
of comprehensive income, its components and accumulated balances.
Comprehensive income is defined to include all changes in equity except
those resulting from investments by owners and distributions to owners.
Among other disclosures, Statement 130 requires that all items that are
required to be recognized under current accounting standards as components
of comprehensive income be reported in a financial statement that displays
with the same prominence as other financial statements. Statement 131
supersedes Statement of Financial Accounting Standards 14 "Financial
Reporting for Segments of a Business Enterprise." Statement 131 establishes
standards on the way that public companies report financial information
about operating segments in interim financial statements issued to the
public. It also establishes standards for disclosures regarding products
and services, geographic areas and major customers. Statement 131 defines
operating segments as components of a company about which separate financial
information is available that is evaluated regularly by the chief operating
decision maker in deciding how to allocate resources and in assessing
performance.
Statements 130 and 131 are effective for financial statement for period
beginning after December 15, 1997 and require comparative information for
earlier years to be restated. Because of the recent issuance of these
standards, management has been unable to fully evaluate the impact, if any,
the standards may have on the future financial statement disclosures.
Results of operations and financial position, however, will be unaffected by
implementation of these standards.
UNAUDITED INFORMATION - The balance sheet as of September 30, 1997 and the
statements of operations for the nine month periods ended September 30, 1996
and 1997 were taken from the Company's books and records without audit.
However, in the opinion of management, such information includes all
adjustments (consisting only of normal accruals), which are necessary to
properly reflect the financial position of the Company as of September 30,
1997 and the results of operations for the nine months ended September 30,
1996 and 1997. The results of operations for the interim periods presented
are not necessarily indicative of those expected for the year.
3. BASIS OF PRESENTATION:
The financial statements have been prepared on a going concern basis, which
contemplates, among other things, the realization of assets and the
satisfaction of liabilities in the normal course of business. However,
there is substantial doubt about the Company's ability to continue as a
going concern because of the magnitude of its loss of $8,193,395 for the
year ended December 31, 1996, its negative working capital of $1,243,756 and
its stockholders' deficit of $1,040,467 as of December 31, 1996. The
Company's continued existence is dependent upon its ability to raise
substantial capital, to generate revenues and to significantly improve
operations.
<PAGE>F-14
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
Management has taken several actions in response to these conditions. In
February 1997, the Company acquired Sierra Vista in exchange for shares of
its common stock (See Note 1). As a condition of completing the
transaction, Sierra Vista raised approximately $3,000,000 in a private
placement of its common stock, of which in excess of $2,000,000 was
allocated for the Company's operations. In June 1997, the Company obtained
a $5,000,000 convertible debt facility from a shareholder (See Note 6). The
Company has also retained an investment advisor to assist in raising capital
through a private placement (See Note 7). Management believes that these
actions will allow the Company to continue as a going concern.
Accordingly, the financial statements do not include any adjustments
relating to the recoverability and classification of recorded asset amounts
or the amount and classification of liabilities or any other adjustment that
might be necessary should the Company be unable to continue as a going
concern.
4. PROPERTY AND EQUIPMENT:
Property and equipment consists of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------- -------------
(Unaudited)
Computer and equipment $ 176,537 $ 715,126
Office equipment and furniture 28,629 59,894
---------- ----------
205,166 775,020
Accumulated depreciation 21,175 124,957
---------- ----------
$ 183,991 $ 650,063
========== ==========
5. ACCRUED LIABILITIES:
Accrued liabilities consists of the following:
DECEMBER 31, SEPTEMBER 30,
1996 1997
------------ -------------
(Unaudited)
Accrued payroll and benefits $ 421,367 $ 340,955
Accrued consulting 164,094 216,402
Payable for agreement - 122,000
termination
Other 231,464 413,738
---------- ------------
$ 816,925 $ 1,093,095
========== ============
<PAGE>F-15
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
6. NOTES PAYABLE:
DECEMBER 31,
1996
------------
Note payable-related party in the
original amount of $50,000 bearing
interest at 18%, collateralized by
certain stock of the Company, due on $ 6,678
demand (See Note 8) ==========
In June 1997, the Company obtained a $5,000,000 convertible debt facility
from a shareholder with interest at 10%, secured by all assets of the
Company. The debt is convertible into common stock at 80% of the market
price for shares of common stock at the time a draw is funded. At September
30, 1997 the balance due, including accrued interest totaled $2,165,398 and
is shown in notes payable. Additionally, the Company has recorded
interest expense totaling $541,349 for the below market value conversion
feature of the debt to shares of common stock.
7. STOCKHOLDERS' EQUITY:
In March 1996, the Company granted 900,000 shares of common stock to two
directors for services performed in 1996. The Company has recognized
$450,000 in compensation expense related to their services for the year
ended December 31, 1996.
In July 1996, the Company issued 500,000 shares of common stock to certain
officers and directors of JRD for services rendered. The Company has
recognized $250,000 in compensation expense related to these services for
the year ended December 31, 1996.
In October 1996, the Company adopted the 1996 Incentive and Nonstatutory
Stock Option Plan (the 1996 Plan) covering 1,500,000 shares. In 1997, this
was increased to 3,000,000 shares pending shareholder approval. Under the
plan, the Company can grant to key employees, directors, and consultants
either incentive, non-statutory, or performance based stock options. The
price of the incentive options granted pursuant to the plan are not less
than 100% of the fair market value of the shares on the date of grant. The
board of directors will decide the vesting period of the options, if any and
no option will be exercisable after ten years from the date granted. Prices
for incentive options granted to employees who own 10% or more of the
Company's stock are at least 110% of market value at date of grant.
During 1996, the Company issued 380,000 shares of common stock and options
to purchase 1,099,500 shares of common stock to consultants for services
rendered. The options were granted with exercise prices ranging from $0.001
to $3.00 per share, vesting throughout 1999 and expire from one to five
years after the date of grant. Of the options granted, 369,500 were granted
under the 1996 Plan and 700,000 were granted for services rendered in
connection with a private placement of the Company's common stock. The
Company has recognized $2,292,406 in compensation expense related to these
services for the options and $454,210 for the stock for the year ended
December 31, 1996.
<PAGE>F16
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
In October 1996, the Company granted non-plan options to purchase 3,500,000
shares of common stock to three individuals who are officers, directors and
shareholders of the Company. The options were granted with an exercise
price of $3.00 per share and expire in October 2001. The options vest as
follows: 1,166,666 vest if fiscal 1997 revenue exceeds $5,000,000,
1,166,667 vest if fiscal 1998 revenue exceeds $25,000,000 and 1,166,667 vest
if fiscal 1999 revenue exceeds $50,000,000.
In January 1997, the Company purchased the rights to certain proprietary
technology from a third party in exchange for 100,000 shares of the
Company's common stock. This technology was valued at $500,000 or $5.00 per
share which was the current market value of the Company's common stock.
During 1997, the Company granted options under the 1996 Plan to purchase
635,190 shares of common stock to employees who were hired in 1996. The
options were granted with exercise prices ranging from $0.50 to $3.00 per
share, expire in 2001 and vest over three years from the date of hire. The
Company has recognized $201,467 in compensation expense related to the 1996
service period for the year ended December 31, 1996.
In April 1997, the Company granted options to purchase 100,000 shares of
common stock for $3.375 per share for a term of three years in exchange for
consulting services.
In April 1997, the Company granted options to purchase 1,320,640 shares of
common stock to employees under the 1996 Plan. The options were granted
with exercise prices ranging from $0.50 to $3.375 per share, expire in 2002
and vest over three years or upon attainment of certain performance
criteria.
In May 1997, the Company granted options to purchase 1,000,000 shares of
common stock under the 1996 Plan to an officer. The options were granted
with exercise prices ranging from $2.75 to $4.75 per share. 200,000 options
vested upon grant, the remainder vest upon attainment of certain performance
criteria.
In July 1997, the Company retained the services of an investment advisor to
assist in raising up to $15,000,000 in a private placement. In connection
with these services, the Company granted options to purchase 400,000 shares
of common stock at $2.50 per share. 200,000 of the options were exercisable
upon grant, the remainder will be exercisable upon the successful completion
of a $15,000,000 private placement.
<PAGE>F-17
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
The following table sets forth activity for all options granted under the
Plan:
AVERAGE
EXERCISE PRICE
NUMBER PER SHARE
-------- --------------
OUTSTANDING, from
inception through December 31, - $ -
1995
Granted 369,500 1.62
Forfeited - -
Exercised - -
------- -----------
BALANCE, December 31, 1996 369,500 1.62
Granted 2,678,640 2.55
Forfeited (512,250) 1.62
Exercised - -
--------- -----------
BALANCE, September 30, 1997
2,535,890 $ 2.60
========= ===========
Presented below is a comparison of the weighted average exercise price and
market price of the Company's common stock on the measurement date for all
options granted under the Plan during 1996 and through September 30, 1997.
1996
NUMBER EXERCISE MARKET
OF SHARES PRICE PRICE
--------- -------- ------
Market price equal to
exercise price - $ - $ -
Market price greater than
exercise price 369,500 1.62 6.39
Exercise price greater than
market price - - -
<PAGE>F-18
INNOVACOM AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
1997
NUMBER EXERCISE MARKET
OF SHARES PRICE PRICE
--------- -------- ------
Market price equal to
exercise price 738,300 $ 3.04 $ 3.04
Market price greater than
exercise price 1,201,390 2.00 3.29
Exercise price greater than
market price 600,000 3.67 2.85
At December 31, 1996 and September 30, 1997, options to purchase 169,500 and
500,857 shares, respectively, were exercisable at prices ranging from $.001
per share to $2.75. The remaining 2,035,033 options outstanding at
September 30, 1997 become exercisable as follows:
WEIGHTED
NUMBER OF AVERAGE
YEAR ENDING DECEMBER 31, SHARES EXERCISE PRICE
- ------------------------- --------- --------------
1997 318,200 2.39
1998 1,122,767 3.03
1999 375,786 1.69
2000 218,280 3.22
--------- -----
2,035,033 2.70
========= =====
If not previously exercised, all options outstanding at September 30, 1997
will expire during the year ended December 31, 2002.
The following is a summary of activity during the year ended December 31,
1996 and the period ended September 30, 1997 for all non-plan options:
WEIGHTED
NUMBER OF AVERAGE PRICE
Shares Per Share
--------- -------------
Outstanding from inception
through December 31, 1995 - $ -
Vested options granted to
consultants 730,000 2.90
Performance options
granted to officers 3,500,000 3.00
<PAGE>F-19
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
WEIGHTED
NUMBER OF AVERAGE PRICE
SHARES PER SHARE
--------- -------------
Vested options exercised
by consultants (30,000) .50
Outstanding, December 31, 1996 4,200,000 3.00
Vested options granted to
consultants 222,160 2.84
Options granted to directors 60,000 3.00
Outstanding, September 30, 1997 4,482,160 $ 2.99
Presented below is a comparison of the weighted average exercise price and
market price of the Company's common stock on the measurement date for all
non-plan options granted during 1996 and September 30, 1997:
1996
NUMBER EXERCISE MARKET
OF SHARES PRICE PRICE
--------- -------- ------
Market price equal to
exercise price 30,000 $ .50 $ .50
Market price greater than
exercise price 700,000 3.00 6.25
Exercise price greater
than market price 3,500,000 3.00 .50
<PAGE>F-20
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
1997
NUMBER EXERCISE MARKET
OF SHARES PRICE PRICE
--------- -------- -------
Market price equal to
exercise price 102,500 $ 3.30 $ 3.30
Market price greater than
exercise price 179,660 2.62 5.09
Exercise price greater
than market price - - -
As stated in Note 2, the Company has not adopted the fair value accounting
prescribed by FAS 123 for employees. Had compensation cost for stock
options issued to employees been determined based on the fair value at grant
date for awards in 1996 and for the period ended September 30, 1997
consistent with the provisions of FAS 123, the Company's net loss and net
loss per share would have been adjusted to the proforma amounts indicated
below:
DECEMBER 31, SEPTEMBER 30,
1997 1997
------------ -------------
Net loss $ (8,229,908) $ (9,245,770)
Net loss per common share $ (.98) $ (.56)
The fair value of each option is estimated on the date of grant using the
present value of the exercise price and is pro-rated based on the percent of
time from the grant date to the end of the vesting period. The weighted-
average fair value of the options on the grant date was $3.22 per share.
The following assumptions were used for grants in 1996: risk-free interest
rate of 6.17%; expected lives of three years; dividend yield of 0%; and
expected volatility of 0%.
8. COMMITMENTS AND CONTINGENCIES:
In June 1997, the Company entered into an agreement with a foundry company
in anticipation of manufacturing the Company's single chip MPEG-2 encoder.
In July 1997, the board of directors approved the Company entering into an
agreement to obtain a 66% interest in a joint venture with China
International Radio Development. As part of this agreement, the Company
will have to fund up to $200,000 of expenses. The purpose of the joint
venture is to develop an exhibition center in China to display new high-tech
products. In connection with obtaining the joint venture interest, the
Company will be issuing 100,000 shares of common stock to a third party as a
finder's fee upon close of the agreement. As of September 30, 1997, the
Company had not made this investment.
LEASES
The Company leases office space in California under a long-term operating
lease. The Company's lease includes the cost of real property taxes and
maintenance expenses. Future minimum lease payments for all non-cancelable
operating leases are as follows:
YEARS ENDING DECEMBER 31, AMOUNT
------------------------- ----------
1997 $ 150,402
1998 41,052
----------
$ 191,454
==========
<PAGE>F-21
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
Rent expense was $55,728 and $ 0 for 1996 and 1995, respectively.
EMPLOYMENT AGREEMENT
In connection with the acquisition of Sierra Vista Entertainment, Inc. (See
Note 1), the Company entered into five year employment agreements with its
president and the president of Sierra Vista which provide for minimum annual
salaries totaling $420,000 and other incentives, as well as severance
payments equal to three year's salary for termination without cause.
CONSULTING AGREEMENTS
The Company has entered into non-cancelable consulting agreements. Future
minimum payments under these agreements are as follows:
YEARS ENDING DECEMBER 31,
-------------------------
1997 $ 167,000
1998 60,000
1999 25,000
---------
$ 252,000
=========
The Company recorded $141,000 in expense related to these contracts for
1996.
LITIGATION
On December 27, 1996, the Company issued a purchase order to Compass Design
Automation (Compass) in the amount of $1,021,300 for software tools.
Subsequent to December 31, 1996, the Company canceled this purchase order
because it believes Compass reneged on certain commitments. In July 1997,
Compass made a demand for payment. Company management has had discussions
with Compass to resolve this issue, however, no agreement has been reached.
Management believes that any settlement would not have a material adverse
impact on the Company.
On June 18, 1997, the Decorah Company and Edwin Reedholm, a shareholder and
former director and officer, commenced a lawsuit seeking to recover in
excess of $900,000 on a promissory note given to the plaintiffs by Digital
Hollywood, Inc., a company controlled by the Company's president. The
Company's president allegedly guaranteed the note through the pledging of
approximately six million shares of his personal Company stock. In addition
to the original note amount, the Decorah Company and Edwin Reedholm seek to
recover the pledged shares as well as a $7,225 balance on a promissory note,
including accrued interest, and $69,746 in accrued wages and other expenses
(See Notes 5 and 6). Management believes that this lawsuit will have no
additional material adverse impact on the Company.
On October 7, 1996, the Company filed a complaint for declaratory relief
against a former employee. The lawsuit states that the person breached a
written employment agreement between the two parties. In response to the
action, the employee filed a similar cross-complaint, which was subsequently
amended after an unsuccessful mediation process. The amended cross
complaint seeks damages in excess of $5,000,000 and 2% of the company's
stock. Management intends to pursue and defend this lawsuit vigorously and
believes that no material adverse impact will arise as a result of the
litigation.
<PAGE>F-22
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
Future Tel, Inc., a third party, filed claims amounting to $123,000 against
the Company for recovery of unpaid lease payments and wages under an alleged
reimbursement agreement. The parties have participated in a voluntary
mediation, which has resulted in a tentative agreement of $100,000. The
Company has accrued this amount as of December 31, 1996.
PRODUCT LICENSE
In March 1996, a company controlled by the Company's president contributed a
license to the Company. The Company has recorded the license at the cost
recorded by the contributing company of $1,275,000. The license grants the
Company rights to use and grant sublicenses to use proprietary technology to
develop the MPEG-2 video encoding systems on a chip. In accordance with
Statement of Financial Accounting Standards 2, the cost of intangibles that
are acquired from others for a particular research and development project
and that have no alternative future use are research and development costs
at the time the costs are incurred. As stated in Note 2, research and
development costs are charged to operations in the period incurred.
Consequently, the cost of acquiring the license was charged to research and
development expense during 1996.
The Company is committed under the license to pay royalties to a third party
for a percentage of gross revenue on sublicenses and for a percentage of the
Foundry price for silicon in connection with sales to end users as follows:
YEAR 1 YEAR 2 YEAR 3 YEAR 4 YEAR 5 YEAR 6 YEAR 7
- ------ ------ ------ ------ ------ ------ ------
20% 15% 8% 5% 3% 1% 1%
The maximum amount of royalties to be paid under the license shall not
exceed $3,000,000.
9. RELATED PARTY TRANSACTION:
During 1996, the Company made advances to a company controlled by the
Company's president totaling $94,062. Management does not believe that the
advances made are realizable and, as a result, has written off the
receivable as of December 31, 1996.
<PAGE>F-23
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
10. INCOME TAXES:
Income tax expense is comprised of the following:
FOR YEAR ENDED MAY 11, 1990
DECEMBER 31, (INCEPTION) TO
DECEMBER 31,
1996 1996
-------------- --------------
Current
Federal $ - $ -
State 800 3,200
--------------- --------------
800 3,200
Deferred
Federal - -
State - -
--------------- --------------
Income tax expense $ 800 $ 3,200
=============== ==============
Deferred income tax assets (liabilities) are comprised of the following at
December 31, 1996:
Deferred income tax assets:
Net operating loss carryforward $ 1,588,893
Accrued vacation 11,183
Accrued wages 106,827
Notes receivable, allowance 37,755
Accrued settlement 20,069
Accrued expenses 54,186
Stock based compensation 1,021,060
Research and development credit 137,805
Other 3,877
----------
2,981,655
Valuation allowance 2,981,655
----------
Net deferred income tax asset
(liability) $ -
==========
<PAGE>F-24
INNOVACOM, INC. AND SUBSIDIARIES
(A DEVELOPMENT STAGE ENTERPRISE)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information subsequent to December 31, 1996 is unaudited)
Total income tax expense differed from the amounts computed by applying the
U.S. federal statutory tax rates to pre-tax income as follows:
FOR YEAR
ENDED DECEMBER
31, 1996
--------------
Total benefit computed by
applying the U.S. statutory
rate $ (2,785,482)
Non-deductible license cost 433,500
State income taxes 800
Effect of valuation allowance 2,351,982
------------
$ 800
============
At December 31, 1996, the Company had net operating loss carryforwards of
approximately $3,656,985 available to offset future federal taxable income.
The carryforward expires in 2011. The Company also had net operating loss
carryforwards of approximately $3,715,244 to offset future California
taxable income. The carryforward expires in 2001.
11. SUBSEQUENT EVENTS:
In July 1997, the Company entered into an interim agreement to acquire all
of the issued and outstanding shares of Technical Systems Associates (TSA)
in exchange for 100,000 shares of common stock. In October 1997, the
Company rescinded the interim agreement and entered into an Option to
Purchase and Mutual Release Agreement. Under the new agreement, the Company
has the option to purchase TSA under the terms of the interim agreement
through November 30, 1997 in exchange for $300,000. In addition, the
Company has agreed to provide up to $150,000 in debt financing if TSA
obtains a certain purchase order.
In October 1997, the Company agreed to acquire certain patents from a
company controlled by the Company's president in exchange for 2,000,000
shares of common stock.
In October 1997, the Company granted options to purchase 261,233 shares of
common stock to employees under the 1996 Plan. The options were granted
with an exercise price of $3.0625 per share, expire in 2002 and vest over
three years or upon attainment of certain performance criteria.
<PAGE>
PART III
ITEM 1. INDEX TO EXHIBITS
ITEM 2. DESCRIPTION OF EXHIBITS
(2) Charter and by-laws
2.1 Certificate of Incorporation, as amended, of InnovaCom
2.2 Amended and Restated Bylaws of InnovaCom
(3) Instruments defining the rights of security holders
3.1 1996 Incentive and Nonstatutory Stock Option Plan
(5) Voting Trust Agreement
5.1 Voting Agreement of InnovaCom, Inc., dated February 27, 1997, and
amended as of April 1, 1997, May 14, 1997, June 10, 1997, and December
1, 1997, between Mark Koz and 507784 BC Ltd.
(6) Material Contracts
6.1 Plan and Agreement of Reorganization, dated February 27, 1997, as
amended April 1, 1997 and May 14, 1997, between InnovaCom and Sierra
Vista
6.2 License Agreement, dated as of March 7, 1996, between InnovaCom and
FutureTel
6.3 Employment Agreement with Mark C. Koz, dated as of May 15, 1997
6.4 Employment Agreement with F. James Anderson, dated as of May 15, 1997
6.5 Escrow Agreement and Instructions between InnovaCom, Sierra Vista and
Bartel Eng Linn & Schroder, dated as of February 27, 1997
6.6 Lease between Cooperage-Rose Properties II and InnovaCom
6.7 Credit Facility Agreement between InnovaCom and Micro Technology S.A.,
dated as of July 1, 1997
6.8 Security Agreement between InnovaCom and Micro Technology S.A., dated
as of July 1, 1997
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
InnovaCom, Inc.
Dated: December 11, 1997 MARK KOZ
By: Mark Koz,
President
Exhibit 2.1
CERTIFICATE OF AMENDMENT OF ARTICLES OF INCORPORATION
(After Issuance of Stock)
JETTSON REALTY DEVELOPMENT, INC.
We the undersigned David Jett and Ronald Thomas of Jettson Realty
Development, Inc., do hereby certify:
That the Board of Directors of said corporation at a meeting duly convened,
held on the 1st day of July 1996, adopted a resolution to amend the
original Articles as follows:
ARTICLE 1 IS HEREBY AMENDED TO READ AS FOLLOWS:
The Name of the Corporation shall be: INNOVACOM, INC.
The number of shares of the Corporation outstanding and entitled to vote on
a amendment to the Articles of Incorporation is 431.035 that the said
change and amendments have been consented to and approved by a majority
vote of the shareholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
DAVID JETT
David Jett, President
RONALD THOMAS
Ronald Thomas, Secretary
State of Nevada )
) SS.
County of Clark )
On 7/9/1996, personally appeared before me, a Notary Public, Ronald Thomas
and David Jett, who acknowledged that they executed the above instrument.
HERBERT F. HALL
Signature of Notary
<PAGE>
THIS FORM SHOULD ACCOMPANY AMENDED AND RESTATED
ARTICLES OF INCORPORATION FOR A NEVADA CORPORATION
(Corporation No.)
1. Name of Corporation: Jettson Realty Development, Inc.
2. Date of adoption of Amended and Restated Articles: July 1, 1996
3. If the Articles were amended, please indicate what change have been
made:
(a) Was there a name change? Yes [X] No [ ] if yes, what is the
new name?
(b) Did you change the resident agent? Yes [ ] No [ ] if yes,
please indicate the new resident agent and address.
(c) Did you change the purpose Yes [ ] No [X]. Did you add
Banking? [ ] Gaming? [ ] Insurance? [ ] None of these [ ]
(d) Did you change the Capital Stock? Yes [ ] No [ ] If yes,
indicate the changes?
(e) Did you change the directors? Yes [ ] No [X]. If yes, indicate
the change:
(f) Did you add the directors liability provisions? Yes [ ] No [ ]
(g) Did you change the period of existence? Yes [ ] No [X] if yes,
what is the new existence?
(h) If none of the above apply and you have amended or modified the
articles, how did you change your Articles?
By: RONALD THOMAS
RONALD THOMAS, SECRETARY
Dated this 1st day of July, 1996.
State of Nevada )
) SS.
County of Clark )
The undersigned Notary Public certified, deposed and states that
Ronald Thomas personally appeared before me and executed the foregoing on
behalf of the Corporation this 9th day of July 1996.
HERBERT F. HALL
Notary Public
<PAGE>
STATE OF NEVADA
SECRETARY OF STATE
CERTIFICATE OF REINSTATEMENT
I, DEAN HELLER, the duly elected Secretary of State of the State of
Nevada, do hereby certify that JETTSON REALTY DEVELOPMENT, INC., a
corporation formed under the laws of the State of NEVADA, having paid all
filing fees, licenses, penalties and costs, in accordance with the
provisions of Title 7 of the Nevada Revised Statutes, as amended, for the
years and in the amounts as follows:
1994-95 LIST OF OFFICERS AND PENALTY./.....$100
1995-95 LIST OF OFFICERS $85
REINSTATEMENT FEE $50
and otherwise complied with the provisions of said section, the said
corporation has been reinstated, and that by virtue of such reinstatement
it is authorized to transact its business in the same manner as if the
aforesaid filing fees, licenses, penalties and costs had been paid when
due.
IN WITNESS WHEREOF, I have hereunto set my
hand and affixed the Great Seal of State, at
my office in Carson City, Nevada, this
TWENTY-NINTH day of SEPTEMBER, A.D., 1995
SIGNED
Secretary of State
By SIGNED
Deputy
<PAGE>
CERTIFICATE OF AMENDMENT
OF ARTICLES OF INCORPORATION
Jettson Realty Development, Inc.
NAME OF CORPORATION
The undersigned, David S. Jett, President and Secretary of JETTSON REALTY
DEVELOPMENT, INC. DO HEREBY CERTIFY:
That the Board of Directors of said corporation at a meeting fully
convened and held on the 17th day of June, 1995, adopted a resolution
to amend the original articles as follows:
Article IV is hereby amended to read as follows:
The amount of total authorized capital stock of this corporation is
FIFTY MILLION (50,000,000) shares of common stock having a par value
of ONE MIL $.001) per share; The percent 13,250 shares of issue and
outstanding be forward split 200 for one, making a total of 2,650,000
Two Million Six Hundred Fifty thousand shares issued and outstanding.
The 2,650,000 shares issued and outstanding are included in the total
of the 50,000,000 authorized capital common shares, at a par of .001
per share.
The number of shares of the corporation outstanding and entitled to vote on
an amendment to the Articles of Incorporation are 13,250; that the said
change(s) and amendment has been consented to and approved by a majority
vote of the stockholders holding at least a majority of each class of stock
outstanding and entitled to vote thereon.
DAVID JETT
President or Vice President
DAVID JETT
Secretary or Assistant Secretary
State of Nevada )
) SS.
County of Clark )
On June 17, 1995, personally appeared before me, a Notary Public,
David S. Jett, who acknowledged that they executed the above instrument.
G.A. NOBIL
Signature of Notary
<PAGE>
ARTICLES OF INCORPORATION
OF
JETTSON REALTY DEVELOPMENT, INC.
WE, THE UNDERSIGNED, HAVING ASSOCIATED OURSELVES TOGETHER FOR THE PURPOSE
OF FORMING A CORPORATION UNDER THE GENERAL CORPORATION LAWS OF THE STATE OF
NEVADA, DO HEREBY CERTIFY:
I
THE NAME OF THE CORPORATION IS: JETTSON REALTY DEVELOPMENT, INC.
II
THE PRINCIPAL OFFICE OR PLACE OF BUSINESS OF THIS CORPORATION IS:
3631 SENECA LANE, LAS VEGAS, NV 89104
THIS CORPORATION MAY HAVE OTHER OFFICES AT OTHER PLACES AS THE BOARD OF
DIRECTORS SHALL DESIGNATE AND AS THE BUSINESS OF THE CORPORATION MAY
REQUIRE.
III
THIS CORPORATION IS ORGANIZED FOR THE OBJECT AND PURPOSES OF ENGAGING IN
EVERY LAWFUL ACTIVITY SUBJECT TO EXPRESSED LIMITATIONS.
IV
THE AMOUNT OF TOTAL AUTHORIZED CAPITAL STOCK OF THIS CORPORATION IS TWENTY
FIVE THOUSAND (25,000) SHARES OF COMMON STOCK HAVING A PAR VALUE OF ONE
DOLLAR ($1.00) PER SHARE, SAID STOCK BEING NON-ASSESSABLE.
HOLDERS OF THIS STOCK SHALL BE ENTITLED TO VOTE AT ALL CORPORATE ELECTIONS
AND MAY CAST ONE VOTE FOR EACH SHARE HELD IN THEIR NAME.
V
THE MEMBERS OF THE GOVERNING BOARD OF THIS CORPORATION ARE DIRECTORS AND
THERE ARE ONE (1) IN NUMBER AND THE NAMES AND POST OFFICE ADDRESS OF THE
FIRST BOARD OF DIRECTORS ARE AS FOLLOWS:
NAME ADDRESS
DAVID S. JETT 3631 SENECA LANE, LAS VEGAS, NV 89104
<PAGE>
THE NUMBER OF THE BOARD OF DIRECTORS MAY, FROM TIME TO TIME, BE INCREASED
(BUT NEVER LESS THAN ONE (1), IN THE MANNER PROVIDED FOR BY SECTION 33 OF
THE GENERAL CORPORATION LAW.
VI
THE BOARD OF DIRECTORS SHALL HAVE THE POWER AND AUTHORITY TO ISSUE CAPITAL
STOCK IN PAYMENT FOR OR IN EXCHANGE FOR MONEY, SERVICES, OR OTHER ASSETS.
VII
THE NAMES AND POST OFFICE ADDRESS OF EACH OF THE INCORPORATORS SIGNING
THESE ARTICLES OF INCORPORATION ARE AS FOLLOWS:
NAME ADDRESS
DAVID S. JETT 3631 SENECA LANE, LAS VEGAS, NV 89104
VIII
THE DURATION OF THE EXISTENCE OF THIS CORPORATION IS PERPETUAL.
IX
AS FULLY AS POSSIBLE UNDER THE LAWS OF THE STATE OF NEVADA AS THEY NOW
EXIST AND THEY MAY FROM TIME TO TIME BE REVISED, THE CORPORATION INTENDS
THAT ITS DIRECTORS BE PROTECTED FROM LEGAL ACTION BY STOCKHOLDERS OR OTHER
PERSONS (NATURAL OR OTHERWISE) ON ACCOUNT OF SERVICE AS DIRECTORS OF THE
CORPORATION. A DIRECTOR SHALL NOT BE LIABLE FOR DAMAGES FOR ACTIONS OF THE
CORPORATION TO STOCKHOLDERS OR TO ANY OTHER PERSON (NATURAL OR OTHERWISE)
UNLESS SUCH DIRECTOR ENGAGED IN PERSONAL FRAUD DIRECTLY AFFECTING SUCH
ACTION OR ACTIONS OF THE CORPORATION.
IN WITNESS WHEREOF, WE HAVE HEREUNTO SUBSCRIBED OUR NAMES THIS 11TH DAY OF
MAY, 1990.
(Signature) DAVID S. JETT
DAVID S. JETT
State of California On this 11th day of May, 1990, before me,
County of Los Angeles Clovette W. Coulter, the undersigned Notary
Public, personally appeared David J. Jett, proved
to me on the basis of satisfactory evidence to be
the person whose name is subscribed to the within
instrument, and acknowledged that he executed it.
CLOVETTE W. COULTER
Notary Signature
Exhibit 2.2
AMENDED AND RESTATED
BYLAWS OF INNOVACOM, INC.
AS OF APRIL 28, 1997
4.28.97
<PAGE>i
TABLE OF CONTENTS
TO THE
BYLAWS OF
INNOVACOM, INC.
Page
MEETINGS 2
SECTION 5 - MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE 3
SECTION 6 - ADJOURNED MEETINGS AND NOTICE THEREOF 4
SECTION 7 - VOTING AT MEETINGS OF SHAREHOLDERS 4
SECTION 8 - RECORD DATE FOR SHAREHOLDER NOTICE, VOTING
AND GIVING CONSENTS 5
SECTION 9 - QUORUM 6
SECTION 10 - WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS 6
SECTION 11 - SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT MEETING 7
SECTION 12 -PROXIES 8
SECTION 13 -INSPECTORS OF ELECTION 9
ARTICLE III - DIRECTORS 10
SECTION 1 -POWERS 10
SECTION 2 -NUMBER AND QUALIFICATION OF DIRECTORS 10
SECTION 3 -ELECTION AND TERM OF OFFICE 10
SECTION 4 -VACANCIES 10
SECTION 5 -REMOVAL OF DIRECTORS 11
SECTION 6 -RESIGNATION OF DIRECTOR 12
SECTION 7 -PLACE OF MEETING 12
SECTION 8 -ANNUAL MEETING 12
SECTION 9 -SPECIAL MEETINGS 13
SECTION 10 -ADJOURNMENT 13
SECTION 11 -NOTICE OF ADJOURNMENT 13
SECTION 12 -WAIVER OF NOTICE 13
SECTION 13 -QUORUM AND VOTING 14
SECTION 14 -FEES AND COMPENSATION 14
SECTION 15 -ACTION WITHOUT MEETING 14
4.28.97
<PAGE>ii
ARTICLE IV - OFFICERS 15
SECTION 1 -OFFICERS 15
SECTION 2 -ELECTION 15
SECTION 3 -SUBORDINATE OFFICERS 15
SECTION 4 -REMOVAL AND RESIGNATION 15
SECTION 5 -VACANCIES 16
SECTION 6 -CHAIRMAN OF THE BOARD 16
SECTION 7 -CHIEF EXECUTIVE OFFICER AND PRESIDENT 16
SECTION 8 -VICE PRESIDENTS 17
SECTION 9 -SECRETARY 17
SECTION 10 -ASSISTANT SECRETARIES 17
SECTION 11 -CHIEF FINANCIAL OFFICER (TREASURER) 18
SECTION 12 -ASSISTANT FINANCIAL OFFICERS 18
SECTION 13 -SALARIES 18
ARTICLE V - SHARES OF STOCK 19
SECTION 1 -SHARE CERTIFICATES 19
SECTION 2 -TRANSFER OF SHARES 19
SECTION 3 -LOST OR DESTROYED CERTIFICATE 19
ARTICLE VI - COMMITTEES 20
SECTION 1 -COMMITTEES 20
ARTICLE VII - INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES, AND OTHER AGENTS 20
SECTION 1 -AGENTS, PROCEEDINGS, AND EXPENSES 20
SECTION 2 -INDEMNIFICATION 21
SECTION 3 -INSURANCE 21
ARTICLE VIII - RECORDS AND REPORTS 21
SECTION 1 - SHAREHOLDER INSPECTION OF ARTICLES AND BYLAWS 21
SECTION 2 - MAINTENANCE AND INSPECTION OF RECORDS OF
SHAREHOLDERS 21
SECTION 3 - SHAREHOLDER INSPECTION OF CORPORATE RECORDS 22
SECTION 4 -INSPECTION BY DIRECTORS 23
SECTION 5 -ANNUAL STATEMENT OF GENERAL INFORMATION 23
ARTICLE IX - MISCELLANEOUS 23
SECTION 1 - CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS 23
SECTION 2 - CONTRACTS, ETC., HOW EXECUTED 23
SECTION 3 - REPRESENTATION OF SHARES OF OTHER CORPORATIONS 24
ARTICLE X - AMENDMENTS TO BYLAWS 24
SECTION 1 -AMENDMENT BY SHAREHOLDERS 24
SECTION 2 -AMENDMENT BY DIRECTORS 24
4.28.97
<PAGE>1
BYLAWS
OF
INNOVACOM, INC.
ARTICLE I - OFFICES
SECTION 1 -PRINCIPAL EXECUTIVE OFFICE
The principal executive office for the transaction of the business of the
corporation is hereby fixed and located at 2855 Kifer Road, Suite 100,
Santa Clara, California 95051.
SECTION 2 -REGISTERED OFFICE
The registered office of the corporation in the State of Nevada is 502 East
John Street, Carson City, Nevada 89706.
SECTION 3 -CHANGE OF LOCATION
The board of directors is hereby granted full power and authority to change
the principal executive office and the registered office from one location
to another, and to fix the location of the principal executive office of
the corporation at any place within or outside the State of Nevada. If the
principal executive office is located outside this State, and the
corporation has one or more business offices in this State, the Board of
Directors shall fix and designate a principal executive office in the State
of Nevada.
SECTION 4 -OTHER OFFICES
Branch or subordinate offices may at any time be established by the board
of directors at any place or places where the corporation is qualified to
do business.
ARTICLE II - MEETINGS OF SHAREHOLDERS
SECTION 1 -PLACE OF MEETINGS
All annual and all other meetings of shareholders shall be held at the
location designated by the board of directors pursuant to a resolution or
as set forth in a notice of the meeting, within or outside of the State of
Nevada. If no such location is set forth in a resolution or in the notice
of the meeting, the meeting shall be held at the principal executive office
of the corporation.
4.28.97
<PAGE>2
SECTION 2 -ANNUAL MEETINGS
The annual meetings of shareholders shall be held on the first Thursday of
May of each year at 10:00 a.m., or on such other date or such other time as
may be fixed by the board of directors.
SECTION 3 -SPECIAL MEETINGS
Special meetings of the shareholders, for any purpose or purposes
whatsoever, may be called at any time by the president or by the board of
directors or the chairman of the board. Special meetings may not be called
by any other person or persons. Each special meeting shall be held on such
date and at such time as is determined by the person or persons calling the
meeting.
SECTION 4 -NOTICE OF SHAREHOLDERS' MEETINGS
All notices of meetings of shareholders shall be sent or otherwise given in
accordance with Section 5 of this Article II not less than ten (10) or more
than sixty (60) days before the date of the meeting to each shareholder
entitled to vote thereat. The notice shall specify the place, date and
hour of the meeting.
In the case of a special meeting the notice shall specify the general
nature of the business to be transacted and no other business may be
transacted at the meeting.
In the case of the annual meeting the notice shall specify those matters
which the board of directors, at the time of the mailing of the notice,
intends to present for action by the shareholders, but any proper matter
may be presented at the meeting. The notice shall also state the general
nature of the business or proposal to be considered or acted upon at such
meeting before action may be taken at such meeting for approval of (i) any
transaction governed by section 78.140 of the General Corporation Law of
Nevada including a proposal to enter into a contract or other transaction
between the corporation and one or more of its directors, or between the
corporation and any corporation, firm or association in which one or more
of the corporation's directors has a material financial interest or in
which one or more of its directors are directors; or (ii) a proposal to
amend the articles of incorporation in any manner other than may be
accomplished by the board of directors alone as permitted by section 78.380
of the General Corporation Law of Nevada; or (iii) a proposal to reorganize
the corporation under sections 78.411 through 78.466 of the General
Corporation Law of Nevada; or (iv) a proposal to wind up and dissolve the
corporation under section 78.580 of the General Corporation Law of Nevada;
or (v) if the corporation is in the process of winding up and has both
<PAGE>3
preferred and common shares outstanding, a proposal for a plan of
distribution of the shares, obligations or securities of any other
corporation, domestic or foreign, or assets other than money which is not
in accordance with the liquidation rights of the preferred shares as
specified in the articles of incorporation of this corporation.
The notice of any meeting at which directors are to be elected shall
include the name of any candidates intended at the time of the notice to be
presented by the board of directors for election. Shareholders who intend
to present their own slate of candidates must give notice to the board of
directors of the name(s), address(es) and telephone number(s) of such
candidate(s) not less than seventy (70) days prior to the meeting date as
set forth in these bylaws or by resolution of the board. Notice shall be
deemed submitted to the board if it is delivered to the Secretary of the
corporation personally or by first-class mail, by telegraph, facsimile or
other form of written communication, charges prepaid, addressed to the
corporation's principal executive office. Notice shall be deemed to have
been given at the time delivered personally, deposited in the mail,
delivered to a common carrier for transmission to the recipient, or
actually transmitted by facsimile or electronic means to the recipient by
the person given the notice.
SECTION 5 -MANNER OF GIVING NOTICE; AFFIDAVIT OF NOTICE
Notice of any shareholders' meeting or any distribution of reports required
by law to be given to shareholders shall be given to shareholders either
personally or by first-class mail, by telegraph, facsimile or other form of
written communication, charges prepaid, sent to each shareholder at the
address of that shareholder appearing on the books of the corporation or
given by the shareholder to the corporation for the purpose of notice. If
no such address appears on the corporation's books or has been so given,
notice shall be deemed to have been given if sent to that shareholder by
first-class mail, by telegraph, facsimile or other written communication to
the corporation's principal executive office, or if published at least once
in a newspaper of general circulation in the county where that office is
located. Notice shall be deemed to have been given at the time when
delivered personally, deposited in the mail, delivered to a common carrier
for transmission to the recipient, or actually transmitted by facsimile or
other electronic means to the recipient by the person giving the notice.
If any notice or report sent to a shareholder at the address of that
shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to
the shareholder at that address, all future notices or reports shall be
<PAGE>4
deemed to have been duly given without further mailing if these shall be
available to the shareholder on written demand of the shareholder at the
principal executive office of the corporation for a period of one year from
the date of the giving of the notice or report to all other shareholders.
An affidavit of the mailing or other means of giving any notice of any
shareholders' meeting or report may be executed by the secretary, assistant
secretary, or any transfer agent of the corporation giving the notice, and
filed and maintained in the minute book of the corporation.
SECTION 6 -ADJOURNED MEETINGS AND NOTICE THEREOF
Any shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of the majority of
the shares, the holders of which are either present in person or
represented by proxy thereat, but in the absence of a quorum, no other
business may be transacted at such meeting except in the case of the
withdrawal of a shareholder from a quorum as provided in Section 9 of this
Article II.
When any shareholders' meeting, either annual or special, is adjourned for
more than forty-five (45) days, or if after the adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting
shall be given to each shareholder of record entitled to vote at the
adjourned meeting in accordance with the provisions of Sections 4 and 5 of
this Article II. Except as provided above, it shall not be necessary to
give any notice of an adjournment or of the business to be transacted at an
adjourned meeting other than by announcement at the meeting at which such
adjournment is taken. The corporation may transact any business at any
adjourned meetings that might have been transacted at the regular meeting.
SECTION 7 -VOTING AT MEETINGS OF SHAREHOLDERS
The shareholders entitled to vote at any meeting of shareholders shall be
determined in accordance with the provisions of Section 8 of this Article
II, subject to the provisions of sections 78.350 to 78.365, inclusive, of
the General Corporation Law of Nevada. Each shareholder shall be entitled
to one vote for each share of stock registered on the books of the
corporation in his name, whether represented in person or by proxy. Every
shareholder entitled to vote shall have the right to vote in person, or as
provided in Section 12 of this Article II, by proxy. The shareholders'
vote may be by voice vote or by ballot; provided, however, that any
election for directors must be by ballot if demanded by any shareholder
before the voting has begun. On any matter other than the election of
directors, any shareholder may vote part of the shares in favor of or in
opposition to the proposal and refrain from voting the remaining shares,
<PAGE>5
but if the shareholder fails to specify the number of shares which the
shareholder is voting, it will be conclusively presumed that the
shareholder's vote is with respect to all shares that the shareholder is
entitled to vote.
The affirmative vote of a majority of the shares represented at the meeting
and entitled to vote on any matter (which shares voting affirmatively also
constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless the vote of a greater number or voting by classes
is required by the General Corporation Law of Nevada or by the articles of
incorporation.
SECTION 8 -RECORD DATE FOR SHAREHOLDER NOTICE, VOTING AND
GIVING CONSENTS
In order that the corporation may determine the shareholders entitled to
notice of or to vote at, any meeting of shareholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other
distribution or allotment of any rights, or entitled to exercise any rights
in respect of any change, conversion or exchange of stock or for the
purpose of any other lawful action, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board of Directors and
which record date: (1) in the case of determination of shareholders
entitled to vote at any meeting of shareholders or adjournment thereof,
shall, unless otherwise required by law, not be more than 60 nor less than
10 days before the date of such meeting; (2) in the case of determination
of shareholders entitled to express consent to corporate action in writing
without a meeting, shall not be more than 10 days from the date upon which
the resolution fixing the record date is adopted by the Board of Directors;
and (3) in the case of any other action, shall not be more than 60 days
prior to such other action. If no record date is fixed: (1) the record
date for determining shareholders entitled to notice of or to vote at a
meeting of shareholders shall be at the close of business on the date next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the day next preceding the day on which the meeting is
held; (2) the record date for determining shareholders entitled to express
consent to corporate action in writing without a meeting when no prior
action of the Board of Directors is required by law, shall be the first
date on which a signed written consent setting forth the action taken or
proposed to be taken is delivered to the corporation in accordance with
applicable law, or, if prior action by the Board of Directors is required
by law, shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action; and (3) the
record date for determining shareholders for any other purpose shall be at
<PAGE>6
the close of business on the day on which the Board of Directors adopts the
resolution relating thereto. A determination of shareholders of record
entitled to notice of or to vote at a meeting of shareholders shall apply
to any adjournment of the meeting; provided, however, that the Board of
Directors may fix a new record date for the adjourned meeting.
SECTION 9 -QUORUM
A majority of the shares entitled to vote, represented in person or by
proxy, shall constitute a quorum at the meeting of shareholders. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to transact business until adjournment,
notwithstanding the withdrawal of enough shareholders to leave less than a
quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum and by any
greater number of shares otherwise required to take such action by
applicable law or in the articles of incorporation. In the absence of a
quorum, any meeting of shareholders may be adjourned from time to time by
the vote of a majority of the shares represented either in person or by
proxy, but no business may be transacted except as hereinabove provided.
SECTION 10 -WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS
The transactions of any meeting of shareholders, either annual or special,
however called and noticed and wherever held, shall be as valid as though
had at a meeting duly held after regular call and notice, if a quorum be
present either in person or by proxy, and if, either before or after the
meeting, each of the shareholders entitled to vote, who was not present in
person or by proxy, signs a written waiver of notice or a consent to the
holding of such meeting or an approval of the minutes thereof.
The waiver of notice or consent need not specify either the business to be
transacted or the purpose of any annual or special meeting of shareholders,
except that if action is taken or proposed to be taken for approval of any
of those matters specified in the second paragraph of Section 4 of this
Article II, the waiver of notice or consent shall state the general nature
of the proposal. All such waivers, consents or approvals shall be filed
with the corporate records or made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when the person objects, at the beginning of
the meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not
a waiver of any right to object to the consideration of matters not
included in the notice of the meeting if the objection is expressly made at
the meeting.
<PAGE>7
SECTION 11 -SHAREHOLDER ACTION BY WRITTEN CONSENT WITHOUT
MEETING
Any action which may be taken at any annual or special meeting of
shareholders may be taken without a meeting and without prior notice if a
consent in writing, setting forth the action so taken, shall be signed by
the holders of outstanding shares having not less than the minimum number
of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and
voted. Notwithstanding the previous sentence, directors may be elected by
written consent without a meeting only if the unanimous written consent of
all outstanding shares entitled to vote is obtained, except that a vacancy
in the board (other than a vacancy created by removal of a director) not
filled by the board may be filled by the written consent of the holders of
a majority of the outstanding shares entitled to vote.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, the secretary shall give to those shareholders
entitled to vote who have not consented in writing notice of such approval
at least ten (10) calendar days before the consummation of the action
authorized by such approval for any of the following:
(i)Any transaction governed by section 78.140 of the General Corporation
Law of Nevada including contracts or other transactions between the
corporation and one or more of its directors, or between the corporation
and any corporation, firm or association in which one or more of its
directors has a direct or indirect financial interest or in which one or
more of its directors are directors;
(ii)Indemnification to be made by the corporation to any person who is
or was a director, officer, employee or other agent of the corporation or
is or was serving at the request of the corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust
or other enterprise, or was a director, officer, employee or agent of a
corporation which was a predecessor corporation to which such person was or
is a party or is threatened to be made a party as provided for in section
78.751 of the General Corporation Law of Nevada;
(iii)An amendment to the articles of incorporation in any manner other
than may be accomplished by the board of directors alone as may be
permitted by section 78.380 of the General Corporation Law of Nevada;
<PAGE>8
(iv)The principal terms of a reorganization of the corporation under
sections 78.411 through 78.466 of the General Corporation Law of Nevada; or
(v)In case the corporation in the process of winding up has both preferred
and common shares outstanding, a plan of distribution of the shares,
obligations or securities of any other corporation, domestic or foreign, or
assets other than money which is not in accordance with the liquidation
rights of the preferred shares as specified in the articles of
incorporation.
Unless the consents of all shareholders entitled to vote have been
solicited in writing, prompt notice shall be given of the taking of any
other corporate action approved by shareholders without a meeting by less
than unanimous written consent, to those shareholders entitled to vote who
have not consented in writing. Such notice shall be given in accordance
with Section 5 of this Article II.
All such waivers, consents or approvals shall be filed with the secretary
of the corporation and shall be maintained in the corporate records. Any
shareholder giving a written consent, or the shareholder's proxyholders, or
a transferee of the shares or a personal representative of the shareholder
or their respective proxyholders, may revoke the consent by a writing
received by the corporation prior to the time that written consent of the
number of shares required to authorize the proposed action has been filed
with the secretary of the corporation, but may not do so thereafter. Such
revocation is effective upon its receipt by the secretary of the
corporation.
SECTION 12 -PROXIES
Every shareholder entitled to vote for directors or on any other matter
shall have the right to do so either in person or by one or more agents
authorized by a written proxy signed by the shareholder. A proxy shall be
deemed signed if the shareholder's name is placed on the proxy (whether by
manual signature, typewriting, telegraphic transmission, facsimile or other
electronic transmission, or otherwise) by the shareholder or the
shareholder's attorney in fact. A validly executed proxy that does not
state that it is irrevocable shall continue in full force and effect unless
(i) revoked by the person executing it, before the vote pursuant to that
<PAGE>9
proxy, by a writing delivered to the corporation stating that the proxy is
revoked, or by a subsequent proxy executed by, or as to any meeting by
attendance at the meeting and voting in person by, the person executing the
proxy; or (ii) written notice of the death or incapacity of the maker of
that proxy is received by the corporation before the vote pursuant to that
proxy is counted; provided, however, that no proxy shall be valid after the
expiration of eleven (11) months from the date of the proxy, unless
otherwise provided in the proxy. The revocability of a proxy that states
on its face that it is irrevocable shall be governed by the provisions of
section 78.355 of the General Corporation Law of Nevada.
SECTION 13 -INSPECTORS OF ELECTION
Before any meeting of shareholders, the board of directors may appoint any
persons other than nominees for office to act as inspectors of election at
the meeting or its adjournment. If inspectors of election are not so
appointed, the chairman of the meeting may, and on the request of any
shareholder or a shareholder's proxy shall, appoint inspectors of election
at the meeting. The number of inspectors shall be either one (1) or three
(3). If inspectors are appointed at a meeting on the request of one or
more shareholders or proxies, the holders of a majority of shares or their
proxies present at the meeting shall determine whether one (1) or three (3)
inspectors are to be appointed. If any person appointed as inspector fails
to appear or fails or refuses to act, the chairman of the meeting may, and
upon the request of any shareholder or a shareholder's proxy shall, appoint
a person to fill that vacancy.
These inspectors shall:
(a)Determine the number of shares outstanding and the voting power of each,
the shares represented at the meeting, the existence of a quorum, and the
authenticity, validity and effect of proxies;
(b)Receive votes, ballots or consents;
(c)Hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d)Count and tabulate all votes or consents;
(e)Determine when the polls shall close;
(f)Determine the result; and
(g)Do any other acts that may be proper to conduct the election or vote
with fairness to all shareholders.
<PAGE>10
ARTICLE III - DIRECTORS
SECTION 1 -POWERS
Subject to the provisions of section 78.120 et seq. of the General
Corporation Law of Nevada and any limitations in the articles of
incorporation and the bylaws of this corporation relating to action
required to be approved by the shareholders or by the outstanding shares,
or by a less than majority vote of a class or series of preferred shares,
the business and affairs of the corporation shall be managed and all
corporate powers shall be exercised by or under the direction of the board
of directors. The board may delegate the management of the day-to-day
operation of the business of the corporation to a management company or
other person provided that the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised under the
ultimate direction of the board.
SECTION 2 -NUMBER AND QUALIFICATION OF DIRECTORS
The authorized number of directors of the corporation shall not be less
than five nor more than nine with the exact number of directors to be
fixed, within the limits specified, by approval of the board. Each
director must be at least eighteen (18) years of age. A director need not
be a shareholder of this corporation or a resident of the State of Nevada.
After the issuance of shares, a bylaw specifying or changing a fixed number
of directors or the maximum or minimum number or changing from a fixed to a
variable board or vice versa may only be adopted by approval of the
majority of the outstanding shares entitled to vote; provided that an
amendment reducing the number to less than five cannot be adopted if the
votes cast against its adoption at a meeting or the shares not consenting
in the case of action by written consent are equal to more than 16 2/3
percent of the outstanding shares entitled to vote.
SECTION 3 -ELECTION AND TERM OF OFFICE
Except as provided in section 78.330 of the General Corporation Law of
Nevada, at each annual meeting of shareholders, directors shall be elected
to hold office until the next annual meeting. Each director, including the
director elected to fill a vacancy, shall hold office until the expiration
of the term for which elected and until a successor has been elected and
qualified.
4.28.97
<PAGE>11
SECTION 4 -VACANCIES
Vacancies in the board of directors may be filled by a majority of the
remaining directors, though less than a quorum, or by a sole remaining
director. Each director so elected shall hold office until his successor is
elected at an annual or special meeting of the shareholders.
A vacancy or vacancies in the board of directors shall be deemed to exist
in case of the death, resignation or removal of any director, or if the
board of directors by resolution declares vacant the office of a director
who has been declared of unsound mind by an order of court or convicted of
a felony, or if the authorized number of directors is increased, or if the
shareholders fail, at any annual or special meeting of shareholders at
which any director or directors are elected, to elect the full authorized
number of directors to be voted for at that meeting.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors. If, after the filling of
any vacancy by the directors, the directors then in office who have been
elected by the shareholders shall constitute less than a majority of the
directors then in office, any holder or holders of an aggregate of five
percent (5%) or more of the total number of shares at the time outstanding
having the right to vote for such directors may call a special meeting of
the shareholders, to be held to elect the entire board of directors. If
the board of directors accepts the resignation of a director tendered to
take effect at a future time, the board or the shareholders shall have the
power to elect a successor to take office when the resignation is to become
effective.
No reduction of the authorized number of directors or amendment reducing
the number of classes of directors shall have the effect of removing any
director prior to the expiration of such director's term of office.
SECTION 5 -REMOVAL OF DIRECTORS
Any or all of the directors may be removed without cause if any such
removal is approved by the outstanding shares, subject to the following:
(1) Except for a corporation whose board of directors is classified
pursuant to section 78.330 of the General Corporation Law of Nevada, no
director may be removed (unless the entire board of directors is removed)
when the votes cast against removal, or not consenting in writing to the
removal, would be sufficient to elect the director if voted cumulatively at
an election at which the same total number of votes were cast, (or, if the
<PAGE>12
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of the directors'
most recent election were then being elected, (2) When by the provisions of
the articles of incorporation of this corporation the holders of the shares
of any class or series, voting as a class or series, are entitled to elect
one or more directors, any director so elected may be removed only by the
applicable vote of the holders of the shares of that class or series.
A director of a corporation whose board of directors is classified pursuant
to section 78.330 of the General Corporation Law of Nevada may not be
removed if the votes cast against removal of the director, or not
consenting in writing to the removal, would be sufficient to elect the
director if voted cumulatively (without regard to whether shares may
otherwise be voted cumulatively) at an election at which the same total
number of votes were cast (or, if the action is taken by written consent,
all shares entitled to vote were voted) and either the number of directors
elected at the most recent annual meeting of shareholders, or if greater,
the number of directors for whom removal is being sought, were then being
elected.
SECTION 6 -RESIGNATION OF DIRECTOR
Any director may resign effective upon giving written notice to the
chairman of the board, the president, the secretary or the board of
directors of the corporation, unless the notice specifies a later time for
the effectiveness of such resignation. If the resignation is effective at
a future date, a successor may be elected to take office when the
resignation becomes effective.
SECTION 7 -PLACE OF MEETING
Regular meetings of the board of directors shall be held at any place
within or outside the State of Nevada which has been designated from time
to time by resolution of the board of directors. In the absence of such
designation, regular meetings shall be held at the corporation's principal
executive office.
Special meetings of the board may be held either at a place within or
outside the State of Nevada which has been designated by resolution of the
board of directors or as set forth in a notice of the meeting. If no such
location is set forth in a resolution or in the notice of the meeting, the
meeting shall be held at the principal executive office of the corporation.
Members of the board may participate in a meeting through use of a
conference telephone or similar communication equipment, so long as all
members participating in such meeting can hear one another. Participation
in a meeting by means of the above-described procedure shall constitute
presence in person at such meeting.
<PAGE>13
SECTION 8 -ANNUAL MEETING
Immediately following each annual meeting of shareholders, the board of
directors shall hold a regular meeting for the purpose of organization,
election of officers and the transaction of other business. Notice of such
meeting is hereby dispensed with.
SECTION 9 -SPECIAL MEETINGS
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board or the president or vice
president or the secretary or any two directors.
Written notice of the date, time and place of special meetings shall be
delivered personally to each director or sent to each director by first-
class mail, by telegraph, facsimile or by other form of written
communication, charges prepaid, sent to him at his address as it appears
upon the records of the corporation or, if it is not so shown or is not
readily ascertainable, at the place in which the meetings of directors are
regularly held. The notice need not state the purpose for the meeting. In
case such notice is mailed, it shall be deposited in the United States mail
at least four (4) days prior to the time of the meeting. In case such
notice is delivered personally, transmitted by facsimile or other
electronic means, or telegraphed, it shall be so delivered, deposited with
the telegraph company or electronically transmitted at least forty-eight
(48) hours prior to the time of the meeting. Such delivery, mailing,
telegraphing, or transmitting as above provided, shall be due, legal and
personal notice to such director. Notice of a meeting need not be given to
any director who signs a waiver of notice, whether before or after the
meeting, or who attends the meeting without protesting, prior thereto or at
its commencement, the lack of notice to such director.
SECTION 10 -ADJOURNMENT
A majority of the directors present, whether or not a quorum is present,
may adjourn any directors' meeting to another time and place.
SECTION 11 -NOTICE OF ADJOURNMENT
If a meeting is adjourned for more than twenty-four (24) hours, notice of
any adjournment to another time or place shall be given prior to the time
of the adjourned meeting to the directors who were not present at the time
of adjournment.
<PAGE>14
SECTION 12 -WAIVER OF NOTICE
The transactions at any meeting of the board of directors, however called
and noticed, or wherever held, shall be as valid as though such
transactions had occurred at a meeting duly held after regular call and
notice if a quorum be present and if, either before or after the meeting,
each of the directors not present signs a written waiver of notice of or
consent to holding the meeting or an approval of the minutes thereof. All
such waivers, consents or approvals shall be filed with the corporate
records or made a part of the minutes of the meeting. The waiver of notice
need not state the purpose for which the meeting is or was held.
SECTION 13 -QUORUM AND VOTING
A majority of the authorized number of directors shall be necessary to
constitute a quorum for the transaction of business, except to adjourn as
hereinabove provided. In no event shall a quorum be less than two (2)
unless the authorized number of directors is one (1), in which case one (1)
director constitutes a quorum. Every act or decision done or made by a
majority of the directors at a meeting duly held at which a quorum is
present shall be regarded as an act of the board of directors subject to
the provisions of section 78.140 of the General Corporation Law of Nevada
requiring shareholder approval of a contract or other transaction in which
a director has a direct or indirect financial interest, section 78.125 of
that Law as to appointment of committees, and section 78.751 of that Law
requiring shareholder approval of indemnification of directors, officers,
employees or other agents of the corporation. However, a meeting at which
a quorum is initially present may continue to transact business
notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for such meeting.
SECTION 14 -FEES AND COMPENSATION
Directors may receive any stated salary for their services as directors
which is established by resolution of the board, or a fixed fee, with or
without expenses of attendance, may be allowed to directors not receiving
monthly compensation for attendance at each meeting if also authorized by a
resolution of the board. Nothing herein contained shall be construed to
preclude any director from serving the corporation in any other capacity,
as an officer, agent, employee or otherwise, from receiving compensation
therefor.
<PAGE>15
SECTION 15 -ACTION WITHOUT MEETING
Any action required or permitted to be taken by the board of directors
under the General Corporation Law of Nevada may be taken without a meeting
if all members of the board individually or collectively consent in writing
to such action. Such consent or consents shall be filed with the minutes
of the meetings of the board. Such action by written consent shall have
the same force and effect as a unanimous vote of such directors. Any
certificate or other document filed under the provision of the General
Corporation Law of Nevada which relates to action so taken shall state that
the action was taken by unanimous written consent of the board of directors
without a meeting and that the bylaws authorized the directors to so do.
ARTICLE IV - OFFICERS
SECTION 1 -OFFICERS
The officers of the corporation shall be a Chairman of the Board, a Chief
Executive Officer or a President or both, a Secretary and Chief Financial
Officer (treasurer) and such other officers with such titles and duties as
may be appointed in accordance with the provisions of Section 3 of this
Article. Any number of offices may be held by the same person except that
the Secretary may not be the Chairman of the Board, Chief Executive Officer
or the President. All officers must be natural persons and any natural
person may hold two or more offices.
SECTION 2 -ELECTION
The officers of the corporation, except such officers as may be appointed
in accordance with the provisions of Section 3 or Section 5 of this
Article, shall be chosen annually by the board of directors, and each shall
hold his office until he shall resign or shall be removed or otherwise
disqualified to serve or until his successor shall be elected and
qualified.
SECTION 3 -SUBORDINATE OFFICERS
The board of directors may appoint such other officers as the business of
the corporation may require, each of whom shall hold office for such
period, have such authority and perform such duties as are provided in the
bylaws or as the board of directors may from time to time determine.
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SECTION 4 -REMOVAL AND RESIGNATION
Any officer may be removed, either with or without cause, by a majority of
the directors at the time in office, at any regular or special meeting of
the board, or, except in the case of an officer chosen by the board of
directors, by any officer upon whom such power of removal may be conferred
by the board of directors.
Any officer may resign at any time by giving written notice to the board of
directors or to the president or to the secretary of the corporation. Any
such resignation shall take effect at the date of the receipt of such
notice or any later time specified therein; and, unless otherwise specified
therein, the acceptance of such resignation shall not be necessary to make
it effective.
SECTION 5 -VACANCIES
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner
prescribed in the bylaws for regular appointments to such office.
SECTION 6 -CHAIRMAN OF THE BOARD
The chairman of the board, if there shall be such an officer, shall, if
present, preside at all meetings of the board of directors and shareholders
and exercise and perform all such other powers and duties as may from time
to time be assigned to him by the board of directors or prescribed by the
bylaws.
SECTION 7 -CHIEF EXECUTIVE OFFICER AND PRESIDENT
The Chief Executive Officer, or if there is no Chief Executive Officer, the
President or if there is no President, the Chairman of the Board, shall be
the general manager and chief executive of the corporation and shall,
subject to the board of directors, have general supervision, direction and
control of the business and of other officers and employees of the
corporation. He shall preside at all meetings of the shareholders and, if
there is no regular, appointed Chairman of the Board or if such chairman is
absent, at all meetings of the board of directors. He shall be an ex
officio member of all standing committees, including the executive
committee, if any, and shall have general powers and duties of management
usually vested in the office of the Chief Executive Offocer of a
corporation, and shall have such other powers and duties as may be
prescribed by the board of directors or the bylaws. If the corporation has
both a Chief Executive Officer and a President, the President shall have
the powers and duties as may be prescribed by the board of directors.
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SECTION 8 -VICE PRESIDENTS
In the absence or disability of the president and the chairman of the
board, the vice presidents, if any, in order of their rank as fixed by the
board of directors or, if not ranked, the vice president designated by the
board of directors, shall perform all the duties of the president and, when
so acting, shall have all the powers of and be subject to all the
restrictions upon the president and chairman of the board. Each vice
president shall have such other powers and shall perform such other duties
as from time to time may be prescribed for him by the board of directors or
the bylaws, and the president or the chairman of the board.
SECTION 9 -SECRETARY
The secretary shall keep, or cause to be kept, at the principal executive
office, or such other place as the board of directors may order, a book of
minutes of all meetings of directors and shareholders, with the time and
place of holding, whether regular or special and, if special, how
authorized, the notice thereof given, the names of those present at
directors' meetings, the number of shares present or represented at
shareholders' meeting and the proceedings thereof.
The secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent, a share
register or a duplicate share register showing the names of the
shareholders and their addresses, the number and classes of shares held by
each, the number and the date of certificates issued for the same, and the
number and date of cancellation of every certificate surrendered for
cancellation.
The secretary shall give, or cause to be given, notice of all the meetings
of the shareholders and of the board of directors required by the bylaws or
by law to be given, shall keep the seal of the corporation in safe custody
and shall have such other powers and shall perform such other duties as
from time to time may be prescribed by the board of directors or the
bylaws.
SECTION 10 -ASSISTANT SECRETARIES
In the absence or disability of the secretary, the assistant secretaries in
order of their rank as fixed by the board of directors or, if not ranked,
the assistant secretary designated by the board of directors shall perform
all the duties of the secretary and, when so acting, shall have all the
powers of and be subject to all the restrictions upon the secretary. Each
assistant secretary shall have such other powers and shall perform such
other duties as from time to time may be prescribed for him by the board of
directors or the bylaws.
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<PAGE>18
SECTION 11 -CHIEF FINANCIAL OFFICER (TREASURER)
The chief financial officer shall be the treasurer. The treasurer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
accounts of the properties and business transactions of the corporation,
including accounts of its assets, liabilities, receipts, disbursements,
gains, losses, capital, surplus and shares.
The treasurer shall deposit all moneys and other valuables in the name and
to the credit of the corporation with such depositaries as may be
designated by the board of directors. He shall be responsible for the
proper disbursement of the funds of the corporation as may be ordered by
the board of directors and shall render to the president or directors,
whenever they request it, an account of all of his transactions as
treasurer and of the financial condition of the corporation. The treasurer
shall prepare a proper annual budget of income and expenses for each
calendar year, revised quarterly, for approval of or revision by the board
of directors and shall be responsible for the handling of finances in
connection therewith. He shall have such other powers and shall perform
such other duties as may be prescribed by the board of directors. He shall
see that all officers signing checks are bonded in such amounts as may be
fixed from time to time by the board of directors.
SECTION 12 -ASSISTANT FINANCIAL OFFICERS
In the absence of or disability of the treasurer, the assistant financial
officers in order of their rank or, if not ranked, the assistant financial
officer designated by the board of directors shall perform all the duties
of the treasurer and, when so acting, shall have the powers of and be
subject to all the restrictions upon the treasurer. Each assistant
financial officer shall have such other powers and perform such other
duties as from time to time may be prescribed for him by the board of
directors or the bylaws.
SECTION 13 -SALARIES
Salaries of officers and other shareholders employed by the corporation
shall be fixed periodically by the board of directors or established under
agreements with the officers or shareholders approved by the board of
directors. No officer shall be prevented from receiving this salary
because he is also a director of the corporation.
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<PAGE>19
ARTICLE V - SHARES OF STOCK
SECTION 1 -SHARE CERTIFICATES
The certificates of shares of the corporation shall be in such form
consistent with the articles of incorporation and the laws of the State of
Nevada as shall be approved by the board of directors. A certificate or
certificates for shares of the capital stock of the corporation shall be
issued to each shareholder when any of these shares are fully paid, and the
board of directors may authorize the issuance of certificates or shares as
partly paid provided that these certificates shall state the amount of the
consideration to be paid for them and the amount paid. All such
certificates shall be signed by the chairman or vice chairman of the board
or the president or a vice president, and by the treasurer or an assistant
financial officer or the secretary or any assistant secretary, certifying
the number of shares and the class or series of shares owned by the
shareholder. Any or all of the signatures on the certificate may be
facsimile.
SECTION 2 -TRANSFER OF SHARES
Subject to the provisions of law, upon the surrender to the corporation of
a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer, it shall be the duty of
the corporation to issue a new certificate to the person entitled thereto,
cancel the old certificate and record the transaction upon its books.
SECTION 3 -LOST OR DESTROYED CERTIFICATE
The holder of any shares of stock of the corporation shall immediately
notify the corporation of any loss or destruction of the certificate
therefor, and the corporation may issue a new certificate in the place of
any certificate theretofore issued by it alleged to have been lost or
destroyed, upon approval of the board of directors. The board may, in its
discretion, as a condition to authorizing the issue of such new
certificate, require the owner of the lost or destroyed certificate, or his
legal representative, to make proof satisfactory to the board of directors
of the loss or destruction thereof and to give the corporation a bond or
other security, in such amount and with such surety or sureties as the
board of directors may determine, as indemnity against any claim that may
be made against the corporation on account of any such certificate so
alleged to have been lost or destroyed.
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<PAGE>20
ARTICLE VI - COMMITTEES
SECTION 1 -COMMITTEES
The board of directors may, by resolution adopted by a majority of the
authorized number of directors, designate one or more committees, each
consisting of one (1) or more directors, to serve at the pleasure of the
board. The board may designate one or more directors as alternate members
of any committee, who may replace any absent member at any meeting of the
committee. Any such committee, to the extent provided by resolution of the
board, shall have all authority of the board, except with respect to:
(i) the approval of any action requiring shareholder approval as enumerated
in Subsection (i) through (vi) of Section of Article II of these bylaws and
requiring notice to shareholders of such action; (ii) the filling of
vacancies on the board of directors or on any committee; (iii) the fixing
of compensation of the board of directors for serving on the board or on
any committee; (iv) the amendment or repeal of bylaws or the adoption of
new bylaws; (v) the amendment or repeal of any resolution of the board of
directors which by its expressed terms is not so amenable or repealable;
(vi) a distribution to the shareholders of the corporation, except at a
rate or in a periodic amount within a price range determined by the board
of directors; or (vii) the appointment of other committees of the board of
directors or the members of these committees.
The provisions of these bylaws for notice to directors of meetings, place
of meetings, regular meetings, special meetings and notice, quorum, waiver
of notice, adjournment, notice of adjournment, and actions without
meetings, without such changes in the context of those bylaws as may be
necessary to substitute the committee and its members for the board of
directors and its members, apply also to the committees of the board of
directors and action by such committees, except that the time of regular
meetings of committees may be determined either by resolution of the board
of directors or by resolution of the committee.
ARTICLE VII - INDEMNIFICATION OF DIRECTORS,
OFFICERS, EMPLOYEES, AND OTHER AGENTS
SECTION 1 -AGENTS, PROCEEDINGS, AND EXPENSES
For purposes of this Article, an "agent" of the corporation includes any
person who is or was a director, officer, employee or other agent of the
corporation; or is or was serving at the request of the corporation as a
director, officer, employee or agent of another foreign or domestic
corporation, partnership, joint venture, trust or other enterprise; or was
a director, officer, employee or agent of a foreign or domestic corporation
which was a predecessor corporation of the corporation or of another
4.28.97
<PAGE>21
enterprise at the request of such predecessor corporation; "proceeding"
means any threatened, pending or completed action or proceeding, whether
civil, criminal, administrative or investigative; and "expenses" include,
without limitation, attorneys' fees, judgments, fines, settlements, and
other amounts actually and reasonably incurred in connection with any
proceeding arising by reason of the fact any such person is or was an agent
of the corporation.
SECTION 2 -INDEMNIFICATION
The corporation shall, to the maximum extent permitted by Nevada law, have
the power to indemnify each of its agents against expenses and shall have
the power to advance to each such agent expenses incurred in defending any
such proceeding to the maximum extent permitted by that law.
SECTION 3 -INSURANCE
The corporation may, upon the resolution of the directors, purchase and
maintain insurance on behalf of any agent of the corporation against any
liability asserted against or incurred by the agent in such capacity or
arising out of the agent's status as such, whether or not the corporation
would have the power to indemnify the agent against such liability under
the provisions of this Article VII.
ARTICLE VIII - RECORDS AND REPORTS
SECTION 1 -SHAREHOLDER INSPECTION OF ARTICLES AND BYLAWS
The corporation shall keep at its registered office in Nevada, a copy
certified by the secretary of state of its articles of incorporation and
any amendments thereto, a copy certified by the corporation's secretary of
the bylaws and any amendments thereto, which shall be open to inspection by
shareholders at all reasonable times during office hours.
SECTION 2 -MAINTENANCE AND INSPECTION OF RECORDS OF
SHAREHOLDERS
The corporation shall keep at its registered office, or at the office of
its transfer agent or registrar, if either be appointed and as determined
by resolution of the board of directors, a record of its shareholders,
giving the names and addresses of all shareholders and the number and class
of shares held by each shareholder.
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<PAGE>22
Any person who has been a shareholder of record of the corporation for at
least six months preceding his demand, or any shareholder or shareholders
holding at least five percent (5%) in the aggregate of the outstanding
voting shares of the corporation, or any shareholder or shareholders who
hold at least one percent (1%) of such voting shares and have filed a
Schedule 14B with the United States Securities and Exchange Commission
relating to the election of directors of the corporation shall have an
absolute right to do either or both of the following: (i) inspect and copy
the records of shareholders' names, addresses and shareholdings, during
usual business hours on five (5) days' prior written demand on the
corporation, or (ii) obtain from the transfer agent of the corporation, on
written demand and on the tender of such transfer agent's usual charges for
such list (the amount of which charges shall be stated to the shareholder
by the transfer agent upon request), a list of the shareholders' names and
addresses, who are entitled to vote for the election of directors, and
their shareholdings, as of the most recent record date for which that list
has been compiled or as of a date specified by the shareholder after the
date of demand. This list shall be made available to any such shareholder
or shareholders by the transfer agent on or before the later of five (5)
days after the demand is received or the date specified in the demand as
the date as of which the list is to be compiled. The record of
shareholders shall also be open to inspection on the written demand of any
shareholder or holder of a voting trust certificate, at any time during
usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
Any inspection and copying under this Section 2 may be made in person or by
an agent or attorney of the shareholder or holder of a voting trust
certificate making the demand.
SECTION 3 -SHAREHOLDER INSPECTION OF CORPORATE RECORDS
The accounting books and records and minutes of proceedings of the
shareholders and the board of directors and any committee or committees of
the board of directors shall be kept at such place or places designated by
the board of directors, or, in the absence of such designation, at the
principal executive office of the corporation. The minutes shall be kept
in written form, and the accounting books and records shall be kept either
in written form or in any other form capable of being converted into
written form. The minutes and accounting books and records shall be open
to inspection upon the written demand on the corporation of any shareholder
or holder of a voting trust certificate, at any reasonable time during
usual business hours, for a purpose reasonably related to the holder's
interests as a shareholder or as the holder of a voting trust certificate.
The inspection may be made in person or by an agent or attorney and shall
include the right to copy and make extracts. These rights of inspection
4.28.97
<PAGE>23
shall extend to the records of each subsidiary corporation of the
corporation and may not be limited by the articles and bylaws.
SECTION 4 -INSPECTION BY DIRECTORS
Every director shall have the absolute right at any reasonable time to
inspect all books, records and documents of every kind and to inspect the
physical properties of the corporation and each of its subsidiary
corporations, domestic or foreign. This inspection by a director may be
made in person or by an agent or attorney and the right of inspection
includes the right to copy and make extracts of documents.
SECTION 5 -ANNUAL STATEMENT OF GENERAL INFORMATION
The corporation shall, each year during the calendar month in which its
articles of incorporation originally were filed with the Nevada Secretary
of State, file with the Secretary of State, on the prescribed form, a
statement setting forth the names and complete business or residence
addresses of all incumbent directors, the names and complete business or
residence addresses of the president, secretary and treasurer, and the
corporation's duly appointed resident agent in charge of the registered
office in the State of Nevada upon whom process can be served, all in
compliance with section 78.150 of the General Corporation Law of Nevada.
ARTICLE IX - MISCELLANEOUS
SECTION 1 -CHECKS, DRAFTS, EVIDENCE OF INDEBTEDNESS
All checks, drafts or other orders for payment of money, notes or other
evidences of indebtedness, issued in the name of or payable to the
corporation, shall be signed or endorsed by such person or persons and in
such manner as from time to time shall be determined by resolution of the
board of directors.
SECTION 2 -CONTRACTS, ETC., HOW EXECUTED
The board of directors, except as otherwise provided in these bylaws, may
authorize any officer or officers, or agent or agents, to enter into any
contract or execute any instrument in the name of and on behalf of the
corporation; such authority may be general or confined to specific
instances; and, unless so authorized by the board of directors, no officer,
agent or employee shall have any power or authority to bind the corporation
by any contract or engagement or to pledge its credit to render it liable
for any purpose or to any amount.
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<PAGE>24
SECTION 3 -REPRESENTATION OF SHARES OF OTHER CORPORATIONS
The president or, in the event of his absence or inability to serve, any
vice president and the secretary or assistant secretary of this corporation
are authorized to vote, represent and exercise, on behalf of this
corporation, all rights incidental to any and all shares of any other
corporation standing in the name of this corporation. The authority herein
granted to the officers to vote or represent on behalf of this corporation
any and all shares held by this corporation in any other corporation may be
exercised either by such officers in person or by any person authorized to
do so by proxy or power of attorney duly executed by the officers.
ARTICLE X - AMENDMENTS TO BYLAWS
SECTION 1 -AMENDMENT BY SHAREHOLDERS
New bylaws may be adopted or these bylaws may be amended or repealed by the
vote or written consent of the shareholders entitled to exercise a majority
of the voting power of the corporation; except as provided in these bylaws,
a bylaw amendment reducing the number or the minimum number of directors
cannot be adopted if the votes cast against its adoption at a meeting or
the shares not consenting in the case of action by written consent would be
sufficient to elect at least one (1) director if voted cumulatively at an
election at which all of the outstanding shares entitled to vote were voted
and the entire number of previously authorized directors were then being
elected.
SECTION 2 -AMENDMENT BY DIRECTORS
Subject to the rights of the shareholders as provided in Section 1 of this
Article X to adopt, amend or repeal bylaws, bylaws may be adopted, amended,
or repealed by the board of directors; except as provided in these bylaws,
a bylaw specifying or changing a fixed number of directors or the maximum
or minimum number or changing from a fixed to variable Board or vice versa
may only be adopted by the affirmative vote of a majority of the
outstanding shares entitled to vote.
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<PAGE>25
CERTIFICATE OF SECRETARY
I, F. James Anderson, am the corporate secretary for InnovaCom, Inc., a
Nevada corporation, and hereby certify that the Amended and Restated Bylaws
of InnovaCom, Inc, attached hereto, are the true and correct bylaws adopted
by the corporation's Board of Directors on April 28, 1997.
Date: April 28, 1997 F. JAMES ANDERSON
F. James Anderson, Secretary
4.28.97
Exhibit 3.1
INNOVACOM, INC.
1996 INCENTIVE AND NONSTATUTORY STOCK OPTION PLAN
1. PURPOSE
This Incentive and Nonstatutory Stock Option Plan (the "Plan") is
intended to further the growth and financial success of INNOVACOM, INC.
(the "Corporation") by providing additional incentives to selected
employees of and consultants to the Corporation or parent corporation or
subsidiary corporation of the Corporation as those terms are defined in
Sections 425(3) and 425(f) of the Internal Revenue Code of 1986, as amended
(the "Code") (such parent corporations and subsidiary corporations
hereinafter collectively referred to as "Affiliates") so that such
employees may acquire or increase their proprietary interest in the
Corporation. Stock options granted under the Plan (hereinafter "Options")
may be either "Incentive Stock Options", as defined in Section 422A of the
Code and any regulations promulgated under said Section, or "Nonstatutory
Options" at the discretion of the Board of Directors of the Corporation
(the "Board") and as reflected in the respective written stock option
agreements granted pursuant hereto.
2. ADMINISTRATION
The Plan shall be administered by the Board; provided however, that
the Board may delegate such administration to a committee of not fewer than
three (3) members (the "Committee"), at least two (2) of whom are members
of the Board and all of whom are disinterested administrators, as
contemplated by Rule 16b-3 promulgated under the Securities Exchange Act of
1934, as amended ("Rule 16b-3"); and provided further, that the foregoing
requirement for disinterested administrators shall not apply prior to the
date of the first registration of any of the securities of the Corporation
under Securities Act of 1933, as amended.
Subject to the provisions of the Plan, the Board and/or the Committee
shall have authority to (a) grant, in its discretion, Incentive Stock
Options in accordance with Section 422A of the Code or Nonstatutory
Options; (b) determine in good faith the fair market value of the stock
covered by an Option; (c) determine which eligible persons shall be granted
Options and the number of shares to be covered thereby and the term
thereof; (d) construe and interpret the Plan; (e) promulgate, amend and
rescind rules and regulations relating to its administration, and correct
defects, omissions, and inconsistencies in the Plan or any Option; (f)
consistent with the Plan and with the consent of the optionee, as
appropriate, amend any outstanding Option or amend the exercise date or
dates thereof; (g) determine the duration and purpose of leaves of absence
which may be granted to optionholders without constituting termination of
their employment for the purpose of the Plan; and (h) make all other
determinations necessary or advisable for the Plan's administration. The
interpretation and construction by the Board of any provisions of the Plan
or of any Option it shall be conclusive and final. No member of the Board
or the Committee shall be liable for any action or determination made in
good faith with respect to the Plan or any Option.
<PAGE>2
3. ELIGIBILITY
The persons who shall be eligible to receive Options shall be key
employees of or consultants to the Corporation or any of its Affiliates
("Optionees"). The term consultant shall mean any person who is engaged by
the Corporation to render services and is compensated for such services,
and any director of the Corporation whether or not compensated for such
services; provided that, if the Corporation registers any of its securities
pursuant to the Securities Exchange Act of 1934, the term consultant shall
thereafter not include directors who are not compensated for their services
or are paid only a director fee by the Corporation.
(a) INCENTIVE STOCK OPTIONS. Incentive Stock Options may only be
issued to employees of the Corporation or its Affiliates. Incentive Stock
Options may be granted to officers, whether or not they are directors, but
a director shall not be granted an Incentive Stock Option unless such
director is also an employee of the Corporation. Payment of a director fee
shall not be sufficient to constitute employment by the Corporation. Any
grant of option to an officer or director of the Corporation subsequent to
the first registration of any of the securities of the Corporation under
Securities Act of 1933, as amended, shall comply with the requirements of
Rule 16b-3. An optionee may hold more than one Option.
The Corporation shall not grant an Incentive Stock Option under
the Plan to any employee if such grant would result in such employee
holding the right to exercise for the first time in any one calendar year,
under all options granted to such employee under the Plan or any other
stock option plan maintained by the Corporation or any Affiliate, with
respect to shares of stock having an aggregate fair market value,
determined as of the date of the Option is granted, in excess of $100,000.
Should it be determined that an Incentive Stock Option granted under the
Plan exceeds such maximum for any reason other than a failure in good faith
to value the stock subject to such option, the excess portion of such
option shall be considered a Nonstatutory Option. If, for any reason, an
entire option does not qualify as an Incentive Stock Option by reason of
exceeding such maximum, such option shall be considered a Nonstatutory
Option.
(b) NONSTATUTORY OPTION. The provisions of the foregoing Section
3(a) shall not apply to any option designated as a "Non-statutory Stock
Option Agreement" or which sets forth the intention of the parties that the
option be a Nonstatutory Option.
4. STOCK
The stock subject to Options shall be shares of the Corporation's
authorized but unissued or reacquired common stock (the "Stock").
<PAGE>3
(a) NUMBER OF SHARES. Subject to adjustment as provided in
Paragraph 5(i) of this Plan, the total number of shares of Stock which may
be purchased through exercise of Options granted under this Plan shall not
exceed one million five hundred thousand (1,500,000) shares. If any Option
shall for any reason terminate or expire, any shares allocated thereto but
remaining unpurchased upon such expiration or termination shall again be
available for the grant of Options with respect thereto under this Plan as
though no Option had been granted with respect to such shares.
(b) RESERVATION OF SHARES. The Corporation shall reserve and
keep available at all times during the term of the Plan such number of
shares as shall be sufficient to satisfy the requirements of the Plan. If,
after reasonable efforts, which efforts shall not include the registration
of the Plan or Options under the Securities Act of 1933, the Corporation is
unable to obtain authority from any applicable regulatory body, which
authorization is deemed necessary by legal counsel for the Corporation for
the lawful issuance of shares hereunder, the Corporation shall be relieved
of any liability with respect to its failure to issue and sell the shares
for which such requisite authority was so deemed necessary unless and until
such authority is obtained.
5. TERMS AND CONDITIONS OF OPTIONS
Options granted hereunder shall be evidenced by agreements between the
Corporation and the respective Optionees, in such form and substance as the
Board or Committee shall from time to time approve. Such agreements need
not be identical, and in each case may include such provisions as the Board
or Committee may determine, but all such agreements shall be subject to and
limited by the following terms and conditions:
(a) NUMBER OF SHARES: Each Option shall state the number of
shares to which it pertains.
(b) OPTION PRICE: Each Option shall state the Option Price,
which shall be determined as follows:
(i) Any Option granted to a person who at the time the
Option is granted owns (or is deemed to own pursuant to Section
425(d) of the Code) stock possessing more than ten percent (10%)
of the total combined voting power of value of all classes of
stock of the Corporation, or of any Affiliate, ("Ten Percent
Holder") shall have an Option Price of no less than 110% of the
fair market value of the common stock as of the date of grant;
and
(ii) Incentive Stock Options granted to a person who at the
time the Option is granted is not a Ten Percent Holder shall have an
Option price of no less than 100% of the fair market value of the
common stock as of the date of grant.
(iii) Nonstatutory Options granted to a person who at the
time the Option is granted is not a Ten Percent Holder shall have an
Option Price determined by the Board as of the date of grant.
<PAGE>4
For the purposes of this paragraph 5(b), the fair market value
shall be as determined by the Board, in good faith, which determination
shall be conclusive and binding; provided however, that if there is a
public market for such stock, the fair market value per share shall be the
average of the bid and asked prices (or the closing price if such stock is
listed on the NASDAQ National Market System) on the date of grant of the
Option, or if listed on a stock exchange, the closing price on such
exchange on such date of grant.
(c) MEDIUM AND TIME OF PAYMENT: To the extent permissible by
applicable law, the Option price shall be paid, at the discretion of the
Board, at either the time of grant or the time of exercise of the Option
(i) in cash or by check, (ii) by delivery of other common stock of the
Corporation, provided such tendered stock was not acquired directly or
indirectly from the Corporation, or, if acquired from the Corporation, has
been held by the Optionee for more than six (6) months, (iii) by the
Optionee's promissory note in a form satisfactory to the Corporation and
bearing interest at a rate determined by the Board, in its sole discretion,
but in no event less than 6% per annum, or (iv) such other form of legal
consideration permitted by the California Corporations Code as may be
acceptable to the Board.
(d) TERM AND EXERCISE OF OPTIONS: Any Option granted to an
Employee of the Corporation shall become exercisable over a period of no
longer than five (5) years, and no less than twenty percent (20%) of the
shares covered thereby shall become exercisable annually. No Option shall
be exercisable, in whole or in part, prior to one (1) year from the date it
is granted unless the Board shall specifically determine otherwise, as
provided herein. In no event shall any Option be exercisable after the
expiration of ten (10) years from the date it is granted, and no Incentive
Stock Option granted to a Ten Percent Holder shall, by its terms, be
exercisable after the expiration of five (5) years from the date of the
Option. Unless otherwise specified by the Board or the Committee in the
resolution authorizing such option, the date of grant of an Option shall be
deemed to be the date upon which the Board or the Committee authorizes the
granting of such Option.
Each Option shall be exercisable to the nearest whole share, in
installments or otherwise, as the respective option agreements may provide.
During the lifetime of an Optionee, the Option shall be exercisable only by
the Optionee and shall not be assignable or transferable by the Optionee,
and no other person shall acquire any rights therein. To the extent not
exercised, installments (if more than one) shall accumulate, but shall be
exercisable, in whole or in part, only during the period for exercise as
stated in the option agreement, whether or not other installments are then
exercisable.
(e) TERMINATION OF STATUS AS EMPLOYEE OR CONSULTANT: If
Optionee's status as an employee or consultant shall terminate for any
reason other than Optionee's disability or death, then the Optionee (or if
the Optionee shall die after such termination, but prior to exercise,
Optionee's personal representative or the person entitled to succeed to the
Option) shall have the right to exercise the portions of any such
termination, in whole or in part, at any time within three (3) months after
such termination (or in the event of "termination for good cause" as that
term is defined under California Labor Code and case law related thereto,
such shorter period as the option agreement may specify, but not less than
<PAGE>5
30 days) or the remaining term of the Option, whichever is the lesser;
provided, however, that with respect to Nonstatutory Options, the Board may
specify such longer period, not to exceed six (6) months, for exercise
following termination as the Board deems reasonable and appropriate. The
Option may be exercised only with respect to installments that the Optionee
could have exercised at the date of termination of employment. Nothing
contained herein or in any Option granted pursuant hereto shall be
construed to affect or restrict in any way the right of the Corporation to
terminate the employee of an Optionee with or without cause.
(f) DISABILITY OF OPTIONEE: If an Optionee dies while employed
or engaged as a consultant by the Corporation or an Affiliate, the portion
of such Optionee's Option or Options which were exercisable at the date of
death may be exercised, in whole or in part, by the estate of the decedent
or by a person succeeding to the right to exercise such Option or Options,
at any time within (i) a period, as determined by the Board and set forth
in the Option, of not less than six (6) months nor more than one (1) year
after Optionee's death, which period shall not be less, in the case of a
Nonstatutory Option, than the period for exercise following termination, or
(ii) during the remaining term of the Option, whichever is the lesser. The
Option may be so exercised only with respect to installments exercisable at
the time of Optionee's death and not previously exercised by the Optionee.
(g) NONTRANSFERABILITY OF OPTION: No Option shall be
transferable by the Optionee, except by will or by the laws of descent and
distribution.
(h) RECAPITALIZATION: Subject to any required action by the
stockholders, the number of shares of common stock covered by each
outstanding Option, and the price per share thereof set forth in each such
Option, shall be proportionately adjusted for any increase or decrease in
the number of issued shares of common stock of the Corporation resulting
from a subdivision or consolidation of shares or the payment of a stock
dividend, or any other increase or decrease in the number of such shares
affected without receipt of consideration by the Corporation.
Subject to any required action by the stockholders, if the
Corporation shall be the surviving entity in any merger or consolidation,
each outstanding Option thereafter shall pertain to and apply to the
securities to which a holder of shares of common stock equal to the shares
subject to the Option would have been entitled by reason of such merger or
consolidation. A dissolution or liquidation of the Corporation or a merger
or consolidation in which the Corporation is not the surviving entity shall
cause each outstanding Option to terminate on the effective date of such
dissolution, liquidation, merger or consolidation. In such event, if the
entity which shall be the surviving entity does not tender to Optionee an
offer, for which it has no obligation to do so, to substitute for any
unexercised Option a stock option or capital stock of such surviving
entity, as applicable, which on an equitable basis shall provide the
Optionee with substantially the same economic benefit as such unexercised
Option, then the Board may grant to such Optionee, but shall not be
obligated to do so, the right for a period commencing thirty (30) days
prior to and ending immediately prior to such dissolution, liquidation,
<PAGE>6
merger or consolidation or during the remaining term of the Option,
whichever is the lesser, to exercise any unexpired Option or Options,
without regard to the installment provisions of Paragraph 5(d) of this
Plan; provided, that any such right granted shall be granted to all
Optionees not receiving an offer to substitute on a consistent basis, and
provided further, that any such exercise shall be subject to the
consummation of such dissolution, liquidation, merger or consolidation.
In the event of a change in the common stock of the Corporation
as presently constituted, which is limited to a change of all of its
authorized shares without par value into the same number of shares with a
par value, the shares resulting from any such change shall be deemed to be
the common stock within the meaning of this Plan.
To the extent that the foregoing adjustments relate to stock or
securities of the Corporation, such adjustments shall be made by the Board,
whose determination in that respect shall be final, binding and conclusive.
Except as expressly provided in this Paragraph 5(i), the Optionee shall
have no rights by reason of any subdivision or consolidation of shares of
stock or any class or the payment of any stock dividend or any other
increase or decrease in the number of shares of stock of any class, and the
number or price of shares of common stock subject to any Option shall not
be affected by, and no adjustment shall be made by reason of, any
dissolution, liquidation, merger or consolidation, or any issue by the
Corporation of shares of stock of any class or securities convertible into
shares of stock of any class.
The grant of an Option pursuant to the Plan shall not affect in
any way the right or power of the Corporation to make any adjustments,
reclassifications, reorganizations or changes in its capital or business
structure or to merge, consolidate, dissolve, or liquidate or to sell or
transfer all or any part of its business or assets.
(i) RIGHTS AS A STOCKHOLDER: An Optionee shall have no rights as
a stockholder with respect to any shares covered by an Option until the
date of the issuance of a stock certificate to Optionee for such shares.
No adjustment shall be made for dividends (ordinary or extraordinary,
whether in cash, securities or other property) or distributions or other
rights for which the record date is prior to the date such stock
certificate is issued, except as expressly provided in Paragraph 5(i)
hereof.
(j) MODIFICATION, ACCELERATION, EXTENSION, AND RENEWAL OF
OPTIONS: Subject to the terms and conditions and within the limitations of
the Plan, the Board may modify an Option, or once an Option is exercisable,
accelerate the rate at which it may be exercised, and may extend or renew
outstanding Options granted under the Plan or accept the surrender of
outstanding Options (to the extent not theretofore exercised) and authorize
the granting of new Options in substitution for such Options, provided such
action is permissible under Section 422A of the Code and Section 260.140.41
of the Corporate Securities Rules of the California Corporations
Commissioner.
Notwithstanding the foregoing provisions of this Paragraph 5(k),
however, no modification of an Option shall, without the consent of the
Optionee, alter to the Optionee's detriment or impair any rights or
obligations under any Option theretofore granted under the Plan.
<PAGE>7
(k) INVESTMENT INTENT: Unless and until the issuance and sale of
the shares subject to the Plan are registered under the Securities Act of
1933, as amended (the "Act"), each Option under the Plan shall provide that
the purchases of stock thereunder shall be for investment purposes and not
with a view to, or for resale in connection with, any distribution thereof.
Further, unless the issuance and sale of the stock have been registered
under the Act, each Option shall provide that no shares shall be purchased
upon the exercise of such Option unless and until (i) any then applicable
requirements of state and federal laws and regulatory agencies shall have
been fully complied with to the satisfaction of the Corporation and its
counsel, and (ii) if requested to do so by the Corporation, the person
exercising the Option shall (i) give written assurances as to knowledge and
experience of such person (or a representative employed by such person) in
financial and business matters and the ability of such person (or
representative) to evaluate the merits and risks of exercising the Option,
and (ii) execute and deliver to the Corporation a letter of investment
intent, all in such form and substance as the Corporation may require. If
shares are issued upon exercise of an Option without registration under the
Act, subsequent registration of such shares shall relieve the purchaser
thereof of any investment restrictions or representations made upon the
exercise of such Options.
(l) EXERCISE BEFORE EXERCISE DATE: At the discretion of the
Board, the Option may, but need not, include a provision whereby the
Optionee may elect to exercise all or any portion of the Option prior to
the stated exercise date of the Option or any installment thereof. Any
shares so purchased prior to the stated exercise date shall be subject to
repurchase by the Corporation upon termination of Optionee's employment as
contemplated by Paragraphs 5(3), 5(f) and 5(g) hereof prior to the exercise
date stated in the Option and such other restrictions and conditions as the
Board or Committee may deem advisable.
(m) OTHER PROVISIONS: The Option agreements authorized under
this Plan shall contain such other provisions, including, without
limitation, restrictions upon the exercise of the Options, as the Board or
the Committee shall deem advisable. Shares shall not be issued pursuant to
the exercise of an Option, if the exercise of such Option or the issuance
of shares thereunder would violate, in the opinion of legal counsel for the
Corporation, the provisions of any applicable law or the rules or
regulations of any applicable governmental or administrative agency or
body, such as the Act, the Securities Exchange Act of 1934, the rules
promulgated under the foregoing or the rules and regulations of any
exchange upon which the shares of the Corporation are listed.
6. AVAILABILITY OF INFORMATION
During the term of the Plan and any additional period during which an
Option granted pursuant to the Plan shall be exercisable, the Corporation
shall make available, not later than one hundred and twenty (120) days
following the close of each of its fiscal years, such financial and other
information regarding the Corporation as is required by the bylaws of the
Corporation and applicable law to be furnished in an annual report to the
stockholders of the Corporation.
<PAGE>8
7. EFFECTIVENESS OF PLAN; EXPIRATION
Subject to approval by the stockholders of the Corporation, this Plan
shall be deemed effective as of the date it is adopted by the Board. The
Plan shall expire on October 25, 2001, but such expiration shall not affect
the validity of outstanding Options.
8. AMENDMENT AND TERMINATION OF THE PLAN
The Board may, insofar as permitted by law, from time to time, with
respect to any shares at the time not subject to Options, suspend or
terminate the Plan or revise or amend it in any respect whatsoever, except
that without the approval of the stockholders of the Corporation, no such
revision or amendment shall (i) increase the number of shares subject to
the Plan, (ii) decrease the price at which Options may be granted, (iii)
materially increase the benefits to Optionees, or (iv) change the class of
persons eligible to receive Options under this Plan; provided, however, no
such action shall alter or impair the rights and obligations under any
Option outstanding as of the date thereof without the written consent of
the Optionee thereunder. No Option may be granted while the Plan is
suspended or after it is terminated, but the rights and obligations under
any Option granted while the Plan is in effect shall not be impaired by
suspension or termination of the Plan.
9. INDEMNIFICATION OF BOARD
In addition to such other rights or indemnifications as they may have
as directors or otherwise, and to the extent allowed by applicable law, the
members of the Board and the Committee shall be indemnified by the
Corporation against the reasonable expenses, including attorneys' fees,
actually and necessarily incurred in connection with the defense of any
claim, action, suit or proceeding, or in connection with any appeal
thereof, to which they or any of them may be a party by reason of any
action taken, or failure to act, under or in connection with the Plan or
any Option granted thereunder, and against all amounts paid by them in
settlement thereof (provided such settlement is approved by independent
legal counsel selected by the Corporation) or paid by them in satisfaction
of a judgment in any such claim, action, suit or proceeding, except in any
case in relation to matters as to which it shall be adjudged in such claim,
action, suit or proceeding that such Board member is liable for negligence
or misconduct in the performance of his or her duties; provided that
within sixty (60) days after institution of any such action, suit or Board
proceeding the member involved shall offer the Corporation, in writing, the
opportunity, at its own expense, to handle and defend the same.
10. APPLICATION OF FUNDS
The proceeds received by the Corporation from the sale of common stock
pursuant to the exercise of Options will be used for general corporate
purposes.
<PAGE>9
11. NO OBLIGATION TO EXERCISE OPTION
The granting of an Option shall impose no obligation upon the Optionee
to exercise such Option.
12. NOTICES
All notice, requests, demand, and other communications pursuant this
Plan shall be in writing and shall be deemed to have been duly given on the
date of service if served personally on the party to whom notice is to be
given, or on the third day following the mailing thereof to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid.
* * * * *
The foregoing Incentive Stock Option Plan was duly adopted and
approved by the Board of Directors on October 25, 1996, and approved by the
shareholders of the Corporation effective October 25, 1996.
_______________________________
, Secretary
<PAGE> Exhibit 3.1
continued
DATE OF GRANT:
INNOVACOM, INC.
NONQUALIFIED STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT MAY BE EXERCISED ONLY IN ACCORDANCE WITH THE TERMS
AND CONDITIONS OF THE INNOVACOM, INC. 1996 STOCK OPTION PLAN, AS AMENDED
(THE "1996 PLAN"), INCORPORATED HEREIN. A COPY OF THE 1996 PLAN CAN BE
OBTAINED FROM THE COMPANY UPON REQUEST OF THE HOLDER HEREUNDER. THE GRANT
OF THIS OPTION SHALL NOT IMPOSE AN OBLIGATION UPON THE OPTIONEE TO EXERCISE
THIS OPTION.
THIS AGREEMENT is made by and between InnovaCom, Inc., a Nevada corporation
(the "Company") and ("Optionee"), as of , 199.
In consideration of the mutual covenants contained herein and for other
good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1.GRANT OF OPTION. The Company hereby grants to Optionee, in the manner
and subject to the conditions hereinafter provided, the right, privilege
and option to purchase (the "Option") an aggregate of () shares of the
Company's Common Stock, par value $.001, (the "Shares"). This Option is
specifically conditioned on compliance with the terms and conditions set
forth herein and in the 1996 Plan.
1.TERM OF OPTION. Subject to the terms, conditions, and restrictions set
forth herein, the term of this Option shall be () years from the date of
grant (the "Expiration Date"). Any portion of this Option not exercised
prior to the Expiration Date shall thereupon become null and void.
1.EXERCISE OF OPTION.
A. VESTING OF OPTION. This Option shall become exercisable as follows:
VESTING DATE
NUMBER OF SHARES
<PAGE>2
Each of the foregoing dates shall be referred to as a "Vesting Date" for
that portion of this Option vested on such date ("Vested Portion").
All or any portion of the shares underlying a Vested Portion of this Option
may be purchased during the term of this Option, but not as to less than
100 shares (unless the remaining shares then constituting the Vested
Portion of this Option is less than 100 shares) at any time.
B. MANNER OF EXERCISE. The Vested Portion of this Option may be exercised
from time to time, in whole or in part, by presentation of a Request to
Exercise Form, substantially in the form attached hereto, to the Company
at its principal office, which Form must be duly executed by Optionee and
accompanied by payment, in cash, cash equivalent or form of obligation
acceptable to the Company, in the aggregate amount of the Exercise Price
(as defined below), multiplied by the number of Shares the Optionee is
purchasing at such time, subject to reduction for withholding for tax
obligations as provided in Section 13.
Upon receipt and acceptance by the Company of such Form accompanied by the
payment specified, the Optionee shall be deemed to be the record owner of
the Shares purchased, notwithstanding that the stock transfer books of the
Company may then be closed or that certificates representing the Shares
purchased under this Option may not then be actually delivered to the
Optionee.
C. EXERCISE PRICE. The exercise price (the "Exercise Price") payable upon
exercise of this Option shall be $ per share.
4.EXERCISE AFTER CERTAIN EVENTS.
A.TERMINATION OF EMPLOYMENT, CONSULTANCY, DIRECTORSHIP. If for any reason
other than permanent and total disability (as defined below) or death an
Optionee ceases to be employed by or to be a consultant or director of the
Company, or a Subsidiary, Options held at the date of such termination (to
the extent then exercisable) may be exercised, in whole or in part, at any
time within three (3) months after the date of such termination or such
lesser period specified in the Option Agreement (but in no event after the
expiration date of the Option).
B.PERMANENT DISABILITY AND DEATH. If an Optionee becomes permanently and
totally disabled (within the meaning of Section 22(e)(3) of the Internal
Revenue Code of 1986, as amended), or dies while employed by the Company,
or while acting as an officer, consultant or director of the Company, or a
Subsidiary, (or, if the Optionee dies within the period that the Option
<PAGE>3
remains exercisable after termination of employment or affiliation),
Options then held (to the extent then exercisable) may be exercised by the
Optionee, the Optionee's personal representative, or by the person to whom
the Option is transferred by will or the laws of descent and distribution,
in whole or in part, at any time within one (1) year after the disability
or death (but in no event after the expiration date of the Option).
5.RESTRICTIONS ON TRANSFER OF OPTION. This Option is not transferable by
Optionee other than by will or the laws of descent and distribution and is
exercisable only by the Optionee during his lifetime except as provided in
Section 4.2. above. In accordance with the 1996 Plan, the Option and the
Shares underlying the Option shall not be available for the debts or
obligations of the Optionee, nor shall it be subject to disposition by
transfer, alienation, pledge, or other means of disposition, whether
voluntary or involuntary or by operation of law through judgment, levy,
attachment, garnishment, or other legal proceeding (including bankruptcy).
6.ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of this Option
shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations or other changes in its or any other
corporation's capital structure or business, any merger or consolidation,
any issuance of bonds, debentures, preferred or prior preference stock
ahead of or affecting the Shares, the dissolution or liquidation of the
Company's or any other corporation's assets or business or any other
corporate act whether similar to the events described above or otherwise.
If the outstanding shares of the Company's Common Stock are increased or
decreased in number or changed into or exchanged for a different number or
kind of securities of the Company or any other corporation by reason of a
recapitalization, reclassification, stock split, reverse stock split,
combination of shares, stock dividend or other similar event, an
appropriate adjustment of the number and kind of securities with respect to
which this Option may be exercised and the exercise price at which this
Option may be exercised will be made.
7.DISSOLUTION, LIQUIDATION, MERGER.
A.COMPANY NOT THE SURVIVOR. In the event of a dissolution or liquidation
of the Company, a merger, consolidation, combination or reorganization in
which the Company is not the surviving corporation, or a sale of
substantially all of the assets of the Company (as determined in the sole
discretion of the Board of Directors), the Administrator, in its absolute
discretion, may cancel each outstanding Option upon payment in cash to the
Optionee of the amount by which any cash and the fair market value of any
<PAGE>4
other property which the Optionee would have received as consideration for
the shares of Stock covered by the Option if the Option had been exercised
before such liquidation, dissolution, merger, consolidation or sale exceeds
the exercise price of the Option. In addition to the foregoing, in the
event of a dissolution or liquidation of the Company, or a merger
consolidation, combination or reorganization, in which the Company is not
the surviving corporation, the Administrator, in its absolute discretion,
may accelerate the time within which each outstanding Option may be
exercised.
B.COMPANY IS THE SURVIVOR. In the event of a merger, consolidation,
combination or reorganization in which the Company is the surviving
corporation, the Board of Directors shall determine the appropriate
adjustment of the number and kind of securities with respect to which
outstanding Options may be exercised, and the exercise price at which
outstanding Options may be exercised. The Board of Directors shall
determine, in its sole and absolute discretion, when the Company shall be
deemed to survive for purposes of this Plan.
8.RESERVATION OF SHARES. The Company agrees that prior to the earlier of
the expiration of this Option or the exercise and purchase of the total
number of Shares represented by this Option, there shall be reserved for
issuance and delivery upon exercise of this Option such number of the
Company's authorized and unissued Shares as shall be necessary to satisfy
the terms and conditions of this Agreement. However, see Section 15 with
respect to the Company's obligation to comply with the securities laws.
9.NO RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any Shares covered by this Option unless the
Optionee shall have exercised this Option, and then only with respect to
the shares underlying the portion of the Option exercised. The Optionee
shall have no right to vote any Shares, or to receive distributions of
dividends or any assets or proceeds from the sale of Company assets upon
liquidation until Optionee has effectively exercised this Option and fully
paid for such Shares. Subject to Section 6, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
date title to the Shares has been acquired by the Optionee.
10.NO RIGHTS TO EMPLOYMENT OR CONTINUED EMPLOYMENT. The grant of this
Option shall in no way be construed so as to confer on Optionee the rights
to employment or continued employment by the Company. Nothing in the 1996
Plan or hereunder shall confer upon any Optionee any right to employment or
to continue in the employ or consultancy of the Company or a Subsidiary, or
to interfere with or restrict in any way the rights of the Company or its
<PAGE>5
Subsidiaries, which are hereby expressly reserved, to terminate or
discharge any Optionee at any time for any reason whatsoever, with or
without cause.
11. SUSPENSION AND TERMINATION. In the event the Board or the
Administrator reasonably believes that the Optionee has committed an act of
misconduct specified below, the Administrator may suspend the Optionee's
right to exercise any Option pending final determination by the Board or
the Administrator, which final determination shall be made within five (5)
business days of such suspension. If the Administrator determines that an
Optionee has committed an act of embezzlement, fraud, breach of fiduciary
duty or deliberate disregard of the Company rules resulting in loss, damage
or injury to the Company, or if an Optionee makes an unauthorized
disclosure of any Company trade secret or confidential information, engages
in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company or induces any principal for
whom the Company acts as agent to terminate such agency relationship,
neither the Optionee nor his estate shall be entitled to exercise any
Option hereunder. In making such determination, the Board or the
Administrator shall act fairly and in good faith and shall give the
Optionee an opportunity to appear and present evidence on the Optionee's
behalf.
12. PARTICIPATION IN OTHER OPTION PLANS. The grant of this Option shall
not prevent Optionee from participating or being granted other options in
the same or other plans provided, however, that the Optionee meets the
eligibility requirements, and such participation or grant does not prevent
the other plan from meeting the requirements of the Internal Revenue Code
of 1986, as amended.
13.PAYMENT OF TAXES. Unless the Administrator of the 1996 Plan permits
otherwise, the Optionee shall pay the Company in cash all local, state and
federal withholding taxes applicable, in the Administrator's absolute
discretion, to the grant or exercise of this Option, or the transfer or
other disposition of Shares acquired upon exercise of this Option. Any
such payment must be made promptly when the amount of such obligation
becomes determinable. The Administrator may, in lieu of such cash payment,
withhold that number of Shares sufficient to satisfy such withholding.
14.ISSUE AND TRANSFER TAX. The Company will pay all issuance taxes, if any,
attributable to the initial issuance of Shares upon the exercise of the
Option; provided, however, that the Company shall not be required to pay
any income tax or any tax or taxes which may be payable in respect of any
transfer involved in the issue or delivery of any certificates for Shares
in a name other than that of the Optionee.
<PAGE>6
15.COMPLIANCE WITH SECURITIES LAWS. The Company shall not be obligated to
issue any Shares upon exercise of this Option unless such Shares are at
that time effectively registered or exempt from registration under the
federal securities laws and the offer and sale of the Shares are otherwise
in compliance with all applicable securities laws. The Company intends to
register the Shares under the federal securities laws and to take whatever
other steps may be necessary to enable the Shares to be offered and sold
under federal or other securities laws. Upon exercising all or any portion
of this Option, an Optionee may be required to furnish representations or
undertakings deemed appropriate by the Company to enable the offer and sale
of the Shares or subsequent transfers of any interest in such Shares to
comply with applicable securities laws. Evidences of ownership of Shares
acquired upon exercise of this Option shall bear any legend required by, or
useful for purposes of compliance with, applicable securities laws, the
1996 Plan or this Agreement.
A. SEC HOLDING REQUIREMENTS. To the extent required by Rule 16b-3, as
promulgated under Section 16(b) of the Securities Exchange Act of 1934, as
amended, all Optionees who are officers or directors of the Company shall
not be entitled to transfer any shares of Common Stock that they receive
from the exercise of the Options granted hereunder for a period of six (6)
months from the date that such Options were granted. Any stock issued upon
conversion during the initial six (6) month period shall be appropriately
legended with respect to this restriction.
16. ARBITRATION. Any controversy, dispute or claim arising out of or
relating to this Option which cannot be amicably settled including, but not
limited to, the suspension or termination of Optionee's right in accordance
with Section 11 above, shall be settled by arbitration conducted in San
Diego County or such other mutually agreed upon location. Said arbitration
shall be conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association at a time and place within the above-
referenced location as selected by the arbitrator(s).
A. INITIATION OF ARBITRATION. After seven (7) days prior written notice
to the other, either party hereto may formally initiate arbitration under
this Agreement by filing a written request therefor, and paying the
appropriate filing fees, if any.
B. HEARING AND DETERMINATION DATES. The hearing before the arbitrator
shall occur within thirty (30) days from the date the matter is submitted
to arbitration. Further, a determination by the arbitrator shall be made
within forty-five (45) days from the date the matter is submitted to
arbitration. Thereafter, the arbitrator shall have fifteen (15) days to
provide the parties with his or her decision in writing. However, any
failure to meet the deadlines in this section will not affect the validity
of any decision or award.
<PAGE>7
C. BINDING NATURE OF DECISION. The decision of the arbitrator shall be
binding on the parties. Judgment thereon shall be entered in a court of
competent jurisdiction.
D. INJUNCTIVE ACTIONS. Nothing herein contained shall bar the right of
either party to seek to obtain injunctive relief or other provisional
remedies against threatened or actual conduct that will cause loss or
damages under the usual equity rules including the applicable rules for
obtaining preliminary injunctions and other provisional remedies.
E. COSTS. The cost of arbitration, including the fees of the arbitrator,
shall initially be borne equally by the parties; provided, the prevailing
party (as determined by the arbitrator in accordance with California Code
of Civil Procedure Section 1032) shall be entitled to recover such costs,
in addition to attorneys' fees and other costs, in accordance with Section
19 of this Agreement.
17.NOTICES. All notices to be given by either party to the other shall be
in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; PROVIDED, HOWEVER, that notices of
change of address or telex or facsimile number shall be effective only upon
actual receipt by the other party. Notices shall be delivered at the
following addresses, unless changed as provided for herein.
To the Optionee:
To the Company:
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
Attention: Secretary
Facsimile: (408) 727-6625
With Copy to:
Scott E. Bartel, Esq.
BARTEL ENG LINN & SCHRODER
300 Capitol Mall, Suite 1100
Sacramento, California 95814
Facsimile: (916) 442-3442
<PAGE>8
18.APPLICABLE LAW. This Option and the relationship of the parties in
connection with its subject matter shall be governed by, and construed
under, the laws of the State of California.
19.ATTORNEYS FEES. In the event of any litigation, arbitration, or other
proceeding arising out of this Option the prevailing party shall be
entitled to an award of costs, including an award of reasonable attorneys'
fees. Any judgment, order, or award entered in any such proceeding shall
designate a specific sum as such an award of attorney's fees and costs
incurred. This attorneys' fee provision is intended to be severable from
the other provisions of this Agreement, shall survive any judgment or order
entered in any proceeding and shall not be deemed merged into any such
judgment or order, so that such further fees and costs as may be incurred
in the enforcement of an award or judgment or in defending it on appeal
shall likewise be recoverable by further order of a court or panel or in a
separate action as may be appropriate.
20. GOVERNMENTAL COMPLIANCE. [OPTIONAL SECTION] The Option granted hereby
shall be subject to the requirement that, if at any time the Company shall
determine, in its sole discretion, that the listing upon any securities
exchange or the registration or qualification under any state or federal
securities laws of the Common Stock covered thereby or the consent or
approval of any governmental or regulatory agency is necessary or desirable
as a condition of, or in connection with, the granting of such Option or
the issuance or purchase of the Common Stock thereunder, no such Option
may be exercised, in whole or in part, unless such listing, registration,
qualification, consent, or approval shall have been effected or obtained
free of any conditions not acceptable to the Company.
21. BINDING EFFECT. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective heirs, executors, and
successors.
22.ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to the granting of stock options to Employee by Employer and
contains all of the covenants and agreements between the parties with
respect thereto. Each party to this Agreement acknowledges that no
representation, inducements, promises, or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party, which
are not embodied herein, and that no other agreement shall be valid or
binding on either party.
<PAGE>9
23. COUNTERPARTS. This Option may be executed in one or more counterparts,
each of which when taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, this Option Agreement has been executed as of the day
of , 199, at , California.
THE COMPANY:
InnovaCom, Inc.
By: ________________________
Mark C. Koz
Chief Executive Officer
OPTIONEE:
______________________________
<PAGE>10
REQUEST TO EXERCISE FORM
Dated:______________
The undersigned hereby irrevocably elects to exercise all or part, as
specified below, of the Vested Portion of the option ("Option") granted to
him pursuant to a certain stock option agreement ("Agreement") effective
_____________________, between the undersigned and InnovaCom, Inc. (the
"Company") to purchase an aggregate of shares of the Company's Common
Stock, par value $0.001 (the "Shares").
The undersigned hereby tenders cash, cash equivalent or a promissory note
in a form acceptable by the Company in the amount of $ per share
multiplied by __________, the number of Shares he is purchasing at this
time, for a total of $_____________, which constitutes full payment of the
total Exercise Price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
IN COMPANY'S TRANSFER BOOKS
Name:____________________________________
(Please typewrite or print in block letters)
Address:____________________________________
____________________________________
Signature:____________________________________
Accepted by InnovaCom, Inc.:
By:____________________________
____________________________
Name
____________________________
Title
<PAGE> Exhibit 3.1
continued
DATE OF GRANT:
INNOVACOM, INC.
INCENTIVE STOCK OPTION AGREEMENT
THIS OPTION AGREEMENT MAY BE EXERCISED ONLY IN ACCORDANCE WITH THE TERMS
AND CONDITIONS OF THE INNOVACOM, INC. 1996 STOCK OPTION PLAN (THE "PLAN"),
INCORPORATED HEREIN. A COPY OF THE PLAN CAN BE OBTAINED FROM THE COMPANY
UPON REQUEST OF THE HOLDER HEREUNDER. THE GRANT OF THIS OPTION SHALL NOT
IMPOSE AN OBLIGATION UPON THE OPTIONEE TO EXERCISE THIS OPTION.
THIS AGREEMENT is made by and between Innovacom, Inc., a Nevada
corporation (the "Company") and __________________________ ("Optionee"), as
of _______ 199_.
In consideration of the mutual covenants contained herein and for
other good and valuable consideration, the receipt of which is hereby
acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION. The Company hereby grants to Optionee, in the manner
and subject to the conditions hereinafter provided, the right, privilege
and option to purchase (the "Option") an aggregate of
________________________ (______) shares of the Company's Common Stock,
$0.001 par value, (the "Shares"). This Option is specifically conditioned
on compliance with the terms and conditions set forth herein and in the
Plan.
2. TERM OF OPTION. Subject to the terms, conditions, and restrictions
set forth herein, the term of this Option shall be ____ (___) years from
the date of grant (the "Expiration Date"). Any portion of this Option not
exercised prior to the Expiration Date shall thereupon become null and
void.
3. EXERCISE OF OPTION.
1. VESTING OF OPTION. This Option shall become exercisable as
follows:
VESTING DATE
NUMBER OF SHARES
<PAGE>2
Each of the foregoing dates shall be referred to as a "Vesting Date" for
that portion of this Option vested on such date ("Vested Portion").
All or any portion of the shares underlying a Vested Portion of this
Option may be purchased during the term of this Option, but not as to less
than 100 shares (unless the remaining shares then constituting the Vested
Portion of this Option is less than 100 shares) at any time.
2. MANNER OF EXERCISE. The Vested Portion of this Option may be
exercised from time to time, in whole or in part, by presentation of a
"Request to Exercise Form", substantially in the form attached hereto, to
the Company at its principal office, which Form must be duly executed by
Optionee and accompanied by payment, in cash, to the Company, in the
aggregate amount of the Exercise Price (as defined below), multiplied by
the number of Shares the Optionee is purchasing at such time, subject to
reduction for withholding for tax obligations as provided in Section 13.
Upon receipt and acceptance by the Company of such Form accompanied by
the payment specified, the Optionee shall be deemed to be the record owner
of the Shares purchased, notwithstanding that the stock transfer books of
the Company may then be closed or that certificates representing the Shares
purchased under this Option may not then be actually delivered to the
Optionee.
3. EXERCISE PRICE. The exercise price (the "Exercise Price")
payable upon exercise of this Option shall be $ ______per share.
4. EXERCISE AFTER CERTAIN EVENTS.
1. TERMINATION OF EMPLOYMENT. If for any reason other than
permanent and total disability (as defined below) or death, an Optionee
ceases to be employed by the Company, Options held at the date of such
termination (to the extent then exercisable) may be exercised, in whole or
in part, at any time within three (3) months after the date of such
termination or such lesser period specified in the Option Agreement (but in
no event after the expiration date of the Option).
2. PERMANENT DISABILITY AND DEATH. If an Optionee becomes
permanently and totally disabled (within the meaning of Section 22(e)(3) of
the Internal Revenue Code of 1986, as amended), or dies while employed by
the Company, (or, if the Optionee dies within the period that the Option
remains exercisable after termination of employment or affiliation),
Options then held (to the extent then exercisable) may be exercised by the
<PAGE>3
Optionee, the Optionee's personal representative, or by the person to whom
the Option is transferred by will or the laws of descent and distribution,
in whole or in part, at any time within one (1) year after the disability
or death (but in no event after the expiration date of the Option).
5. RESTRICTIONS ON TRANSFER OF OPTION. This Option is not transferable
by Optionee other than by will or the laws of descent and distribution and
is exercisable only by the Optionee during his lifetime except as provided
in Section 4.2. above. In accordance with the Plan, the Option and the
Shares underlying the Option shall not be available for the debts or
obligations of the Optionee, nor shall it be subject to disposition by
transfer, alienation, pledge, or other means of disposition, whether
voluntary or involuntary, or by operation of law through judgment, levy,
attachment, garnishment, or other legal proceeding (including bankruptcy).
6. ADJUSTMENT FOR CHANGES IN CAPITALIZATION. The existence of this
Option shall not affect the Company's right to effect adjustments,
recapitalizations, reorganizations, or other changes in its or any other
corporation's capital structure or business, any merger or consolidation,
any issuance of bonds, debentures, preferred or prior preference stock
ahead of or affecting the Shares, the dissolution or liquidation of the
Company's or any other corporation's assets or business or any other
corporate act, whether similar to the events described above or otherwise.
If the outstanding shares of the Company's Common Stock are increased or
decreased in number or changed into or exchanged for a different number or
kind of securities of the Company or any other corporation by reason of a
recapitalization, reclassification, stock split, reverse stock split,
combination of shares, stock dividend, or other similar event, an
appropriate adjustment of the number and kind of securities with respect to
which this Option may be exercised and the exercise price at which this
Option may be exercised will be made.
7. DISSOLUTION, LIQUIDATION, MERGER.
A. COMPANY NOT THE SURVIVOR. In the event of a dissolution or
liquidation of the Company, a merger, consolidation, combination, or
reorganization in which the Company is not the surviving corporation, or a
sale of substantially all of the assets of the Company (as determined in
the sole discretion of the Board of Directors), the Administrator, in its
absolute discretion, may cancel each outstanding Option upon payment in
cash to the Optionee of the amount by which any cash and the fair market
value of any other property which the Optionee would have received as
consideration for the shares of Stock covered by the Option if the Option
had been exercised before such liquidation, dissolution, merger,
<PAGE>4
consolidation, or sale exceeds the exercise price of the Option. In
addition to the foregoing, in the event of a dissolution or liquidation of
the Company, or a merger, consolidation, combination, or reorganization, in
which the Company is not the surviving corporation, the Administrator, in
its absolute discretion, may accelerate the time within which each
outstanding Option may be exercised.
B. COMPANY IS THE SURVIVOR. In the event of a merger,
consolidation, combination, or reorganization in which the Company is the
surviving corporation, the Board of Directors shall determine the
appropriate adjustment of the number and kind of securities with respect to
which outstanding Options may be exercised, and the exercise price at which
outstanding Options may be exercised. The Board of Directors shall
determine, in its sole and absolute discretion, when the Company shall be
deemed to survive for purposes of this Plan.
8. RESERVATION OF SHARES. The Company agrees that prior to the earlier
of the expiration of this Option or the exercise and purchase of the total
number of Shares represented by this Option, there shall be reserved for
issuance and delivery upon exercise of this Option such number of the
Company's authorized and unissued Shares as shall be necessary to satisfy
the terms and conditions of this Agreement.
9. NO RIGHTS AS SHAREHOLDER. The Optionee shall have no rights as a
shareholder with respect to any Shares covered by this Option unless the
Optionee shall have exercised this Option, and then only with respect to
the shares underlying the portion of the Option exercised. The Optionee
shall have no right to vote any Shares, or to receive distributions of
dividends or any assets or proceeds from the sale of Company assets upon
liquidation until Optionee has effectively exercised this Option and fully
paid for such Shares. Subject to Section 6, no adjustment shall be made
for dividends or other rights for which the record date is prior to the
date title to the Shares has been acquired by the Optionee.
10. NO RIGHTS TO EMPLOYMENT OR CONTINUED EMPLOYMENT. The grant of this
Option shall in no way be construed so as to confer on Optionee the rights
to employment or continued employment by the Company. Nothing in the Plan
or hereunder shall confer upon any Optionee any right to employment or to
continue in the employ of the Company, or to interfere with or restrict in
any way the rights of the Company, which are hereby expressly reserved, to
terminate or discharge any Optionee at any time for any reason whatsoever,
with or without cause.
<PAGE>5
11. SUSPENSION AND TERMINATION. In the event the Board or the
Administrator reasonably believes that the Optionee has committed an act of
misconduct specified below, the Administrator may suspend the Optionee's
right to exercise any Option pending final determination by the Board or
the Administrator, which final determination shall be made within five (5)
business days of such suspension. If the Administrator determines that an
Optionee has committed an act of embezzlement, fraud, breach of fiduciary
duty, or deliberate disregard of the Company rules resulting in loss,
damage, or injury to the Company, or if an Optionee makes an unauthorized
disclosure of any Company trade secret or confidential information, engages
in any conduct constituting unfair competition, induces any Company
customer to breach a contract with the Company, or induces any principal
for whom the Company acts as agent to terminate such agency relationship,
neither the Optionee nor his estate shall be entitled to exercise any
Option hereunder. In making such determination, the Board or the
Administrator shall act fairly and in good faith and shall give the
Optionee an opportunity to appear and present evidence on the Optionee's
behalf.
12. PARTICIPATION IN OTHER OPTION PLANS. The grant of this Option shall
not prevent Optionee from participating or being granted other options in
the same or other plans provided, however, that the Optionee meets the
eligibility requirements, and such participation or grant does not prevent
the other plan from meeting the requirements of the Internal Revenue Code
of 1986, as amended.
13. PAYMENT OF TAXES. Unless the Administrator of the Plan permits
otherwise, the Optionee shall pay the Company in cash all local, state, and
federal withholding taxes applicable, in the Administrator's absolute
discretion, to the grant or exercise of this Option, or the transfer or
other disposition of Shares acquired upon exercise of this Option. Any
such payment must be made promptly when the amount of such obligation
becomes determinable. The Administrator may, in lieu of such cash payment,
withhold that number of Shares sufficient to satisfy such withholding.
14. ISSUE AND TRANSFER TAX. The Company will pay all issuance taxes, if
any, attributable to the initial issuance of Shares upon the exercise of
the Option; provided, however, that the Company shall not be required to
pay any tax or taxes which may be payable in respect of any transfer
involved in the issue or delivery of any certificates for Shares in a name
other than that of the Optionee.
15. ARBITRATION. Any controversy, dispute, or claim arising out of or
relating to this Option which cannot be amicably settled including, but not
limited to, the suspension or termination of Optionee's right in accordance
with Section 11 above, shall be settled by arbitration. Said arbitration
shall be conducted in accordance with the Commercial Arbitration Rules of
the American Arbitration Association at a time and place as selected by the
arbitrator(s).
<PAGE>6
A. INITIATION OF ARBITRATION. After seven (7) days prior
written notice to the other, either party hereto may formally initiate
arbitration under this Agreement by filing a written request therefor, and
paying the appropriate filing fees, if any.
B. HEARING AND DETERMINATION DATES. The hearing before the
arbitrator shall occur within thirty (30) days from the date the matter is
submitted to arbitration. Further, a determination by the arbitrator shall
be made within forty-five (45) days from the date the matter is submitted
to arbitration. Thereafter, the arbitrator shall have fifteen (15) days to
provide the parties with his or her decision in writing. However, any
failure to meet the deadlines in this section will not affect the validity
of any decision or award.
C. BINDING NATURE OF DECISION. The decision of the arbitrator
shall be binding on the parties. Judgment thereon shall be entered in a
court of competent jurisdiction.
D. INJUNCTIVE ACTIONS. Nothing herein contained shall bar the
right of either party to seek to obtain injunctive relief or other
provisional remedies against threatened or actual conduct that will cause
loss or damages under the usual equity rules including the applicable rules
for obtaining preliminary injunctions and other provisional remedies.
E. COSTS. The cost of arbitration, including the fees of the
arbitrator, shall initially be borne equally by the parties; provided, the
prevailing party shall be entitled to recover such costs, in addition to
attorneys' fees and other costs, in accordance with Section 18 of this
Agreement.
16. NOTICES. All notices to be given by either party to the other shall
be in writing and may be transmitted by personal delivery, facsimile
transmission, overnight courier or mail, registered or certified, postage
prepaid with return receipt requested; PROVIDED, HOWEVER, that notices of
change of address or telex or facsimile number shall be effective only upon
actual receipt by the other party. Notices shall be delivered at the
following addresses, unless changed as provided for herein:
To the Optionee:
_____________________________________
_____________________________________
_____________________________________
<PAGE>7
To the Company:
INNOVACOM, INC.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
Facsimile: 408-727-6625
17. APPLICABLE LAW. This Option and the relationship of the parties in
connection with its subject matter shall be governed by, and construed
under, the laws of the state of California.
18. ATTORNEYS FEES. In the event of any litigation, arbitration, or other
proceeding arising out of this Option, the prevailing party shall be
entitled to an award of costs, including an award of reasonable attorneys'
fees. Any judgment, order, or award entered in any such proceeding shall
designate a specific sum as such an award of attorneys' fees and costs
incurred. This attorneys' fee provision is intended to be severable from
the other provisions of this Agreement, shall survive any judgment or order
entered in any proceeding, and shall not be deemed merged into any such
judgment or order, so that such further fees and costs as may be incurred
in the enforcement of an award or judgment or in defending it on appeal
shall likewise be recoverable by further order of a court or panel or in a
separate action as may be appropriate.
19. BINDING EFFECT. This Agreement shall inure to the benefit of, and be
binding upon, the parties hereto and their respective heirs, executors, and
successors.
20. TAX EFFECT. For the options to receive possible treatment as
incentive stock options under the Internal Revenue Code, Internal Revenue
Service rules, and Treasury Regulations governing incentive stock options,
the Optionee must meet certain holding period requirements as follows: the
Optionee must (a) not dispose of any common stock acquired upon exercise of
this Option within two years from the date of the grant hereby, and (b) not
dispose of any common stock acquired upon exercise of the Option within one
year from the date of exercise. The tax consequences to Optionee from the
exercise of this Option and/or sale of the underlying common stock is
dependent on Optionee's circumstances, and the applicable Internal Revenue
Service rules and Treasury Regulations then in effect. The Company makes
no representation with respect to tax consequences. Each person should
consult with his or her tax advisor before exercising any Option or
disposing of any common stock acquired upon the exercise of an Option.
21. ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to the granting of stock options to Employee by Employer and
<PAGE>8
contains all of the covenants and agreements between the parties with
respect thereto. Each party to this Agreement acknowledges that no
representation, inducements, promises, or agreements, orally or otherwise,
have been made by any party, or anyone acting on behalf of any party, which
are not embodied herein, and that no other agreement shall be valid or
binding on either party.
22. COUNTERPARTS. This Option may be executed in one or more counterparts,
each of which when taken together shall constitute one and the same
instrument.
IN WITNESS WHEREOF, this Option Agreement has been executed on the
______ day of February, 1997, at _________, California.
INNOVACOM, INC.
_________________________________
Mark C. Koz
Chief Executive Officer
<PAGE>9
REQUEST TO EXERCISE FORM
Dated:_________________
The undersigned hereby irrevocably elects to exercise all or part, as
specified below, of the Vested Portion of the option ("Option") granted to
him pursuant to a certain stock option agreement ("Agreement") effective
_____________________, between the undersigned and Innovacom, Inc. (the
"Company") to purchase an aggregate of __________________ (________) shares
of the Company's Common Stock, $0.001 par value (the "Shares").
The undersigned hereby tenders cash in the amount of $__________ per
share multiplied by ___________________ (__________), the number of Shares
he is purchasing at this time, for a total of $______________, which
constitutes full payment of the total Exercise Price thereof.
INSTRUCTIONS FOR REGISTRATION OF SHARES
IN COMPANY'S TRANSFER BOOKS
Name: ____________________________________
(Please typewrite or print in block letters)
Address: ____________________________________
____________________________________
Signature: ____________________________________
Accepted by Innovacom, Inc.:
By: ______________________________
______________________________
Name
______________________________
Title
Exhibit 5.1
VOTING AGREEMENT OF INNOVACOM, INC.
THIS VOTING AGREEMENT, dated February 27, 1997 and amended as of April
1, 1997, May 14, 1997, June 10, 1997 and December 1, 1997 (the
"Agreement"), is made and entered into by and among the following parties:
(i) the shareholder of Sierra Vista Entertainment, Inc. identified in
EXHIBIT A hereto (the "Sierra Vista Shareholder"); and (ii) Mr. Mark Koz
("Koz"), a shareholder of InnovaCom, Inc. (collectively, the Sierra Vista
Shareholder and Koz shall be referred to herein as the "Shareholders" in
the plural and as the "Shareholder" in the singular).
RECITALS
WHEREAS, InnovaCom, Inc., a Nevada corporation ("InnovaCom") and
Sierra Vista Entertainment, Inc., a Nevada corporation ("Sierra Vista")
have entered into that certain "PLAN AND AGREEMENT OF REORGANIZATION" dated
February 27, 1997 and amended as of April 1, 1997, and May 14, 1997 (the
"Reorganization Agreement") pursuant to which, among other things, the
Sierra Vista Shareholder shall acquire shares of common stock in InnovaCom;
and
WHEREAS, Section 8.3(e) of the Reorganization Agreement provides as a
condition precedent to closing that the Sierra Vista Shareholder and Koz
shall have entered into a voting agreement wherein Koz shall have the right
to nominate three (3) members of the six (6) member board of directors of
InnovaCom and the Sierra Vista Shareholder shall have the right to nominate
three (3) members of the six (6) member board of directors of InnovaCom,
and that all shares subject to the voting agreement shall vote in favor of
the six (6) nominees; and
WHEREAS, the parties desire to enter into this Voting Agreement
prepared pursuant to Nevada Corporations Code <section>78.365(3) for the
purpose of effectuating the intent of Section 8.3(e) of the Reorganization
Agreement;
NOW, THEREFORE, for the mutual promises contained herein and in the
Reorganization Agreement, and for other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, the Sierra
Vista Shareholder and Koz hereby AGREE AS FOLLOWS:
1. SHARES SUBJECT TO AGREEMENT. The number of shares of common
stock of InnovaCom listed opposite the name of the Sierra Vista Shareholder
in EXHIBIT A hereto, shall be subject to this Agreement. EXHIBIT A is
incorporated herein and made a part of this Agreement by this reference.
In addition, the number of shares of common stock of InnovaCom listed
opposite the name of Koz in EXHIBIT B hereto, represented by the indicated
share certificate numbers, shall be subject to this Agreement. EXHIBIT B
is incorporated herein and made a part of this Agreement by this reference.
<PAGE>2
2. AGREEMENT TO NOMINATE DIRECTORS AND VOTE SHARES. The parties
agree that the Sierra Vista Shareholder shall have the right to nominate
three (3) members of the six (6) member board of directors of InnovaCom,
and that Koz shall have the right to nominate three (3) members of the six
(6) member board of directors of InnovaCom. All shares subject to this
Agreement as identified in Section 1 above shall vote in favor of the six
(6) nominees of the Shareholders at all elections of directors of InnovaCom
held during the term of this Agreement.
3. SHARE CERTIFICATE LEGEND. Each certificate representing the
shares of common stock of InnovaCom held by the Sierra Vista Shareholder
and by Koz and subject to this Agreement shall be stamped or otherwise
imprinted with a legend in the following form (in addition to any legend
required under applicable securities laws):
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A VOTING AGREEMENT DATED FEBRUARY 27, 1997, AS AMENDED, BY AND
BETWEEN CERTAIN SHAREHOLDERS OF SIERRA VISTA ENTERTAINMENT, INC. AND
MARK KOZ, A COPY OF WHICH MAY BE OBTAINED FREE OF CHARGE FROM THE
COMPANY UPON REQUEST.
Upon the sale of common stock (i) by the Sierra Vista Shareholder and
with the written consent of Koz or, (ii) by Koz and with the written
consent of the Sierra Vista Shareholder, each new share certificate issued
in connection with such sale and receipt of the appropriate written consent
shall be free of the foregoing legend.
4. SIERRA VISTA SHAREHOLDER'S PROXY. Until such time as the
conditions contained in Section 9.5(a) of the Reorganization Agreement have
been satisfied, all shares of common stock of InnovaCom held by the Sierra
Vista Shareholder and subject to this Agreement shall be voted by Koz,
pursuant to a proxy in substantially the form attached hereto as EXHIBIT C,
on all matters other than the election of directors.
5. TERMINATION OF AGREEMENT. This Agreement shall terminate five
(5) years after the date first written above. At any time within the two
(2) years next preceding the expiration of the Agreement, the parties
hereto may extend its duration for as many additional periods, each not to
exceed ten (10) years, as they wish. Notwithstanding anything else in this
Agreement to the contrary, this Agreement shall also terminate upon the
date InnovaCom's common stock is accepted for trading on the NASDAQ Stock
Market, or on any national stock exchange.
<PAGE>3
6. MERGER OR CONSOLIDATION. If InnovaCom is merged into or
consolidated with another corporation, or all or substantially all of the
assets of InnovaCom are transferred to another corporation, then the term
"InnovaCom" shall be construed to include the successor corporation; and
the Shareholders shall receive and hold under this Agreement any shares of
the successor corporation received by them as a result of their ownership
of shares held by them under this Agreement before the merger,
consolidation or transfer. Certificates issued and outstanding under this
Agreement at the time of the merger, consolidation or transfer may remain
outstanding, but the Shareholders may, at their discretion, substitute for
these voting certificates new certificates in appropriate form.
7. NECESSARY ACTS. The parties shall perform any acts, including
executing any documents, that may be reasonably necessary to carry out
fully the provisions and intent of this Agreement.
8. NOTICES. All notices, demands, requests, or other communications
required or permitted by this Agreement shall be in writing and shall be
deemed duly served when personally delivered to the party or to an officer
or agent of the party, or when deposited in the United States mail, first-
class postage prepaid, addressed to a Shareholder at the address appearing
for him or it on the books and records of InnovaCom, or at any other
address the party may designate by written notice to the others.
9. REMEDIES. The parties shall have all the remedies available to
them for breach of this Agreement as are provided by law or in equity. The
parties further agree that in addition to all other remedies available at
law or in equity, the parties shall be entitled to specific performance of
the obligations of each party to this Agreement and immediate injunctive
relief. The parties also agree that if an action is brought in equity to
enforce a party's obligations, no party shall argue, as a defense, that
there is an adequate remedy at law.
10. ATTORNEYS' FEES. In the event of any litigation concerning this
Agreement between the parties to this Agreement or the parties to this
Agreement and the estate of any deceased Shareholder, the prevailing party
shall be entitled, in addition to any other relief that may be granted, to
reasonable attorneys' fees.
11. BINDING ON SUCCESSORS AND ASSIGNS. This Agreement shall be
binding on the parties to the Agreement and on each of their heirs,
executors, administrators, successors and assigns.
12. SEVERABILITY. If any provision is unenforceable or invalid for
any reason, the remaining provisions shall be unaffected by such a holding.
<PAGE>3
13. AMENDMENTS AND MODIFICATIONS. This Agreement may not be amended,
modified, changed, supplemented, superseded, canceled or terminated, except
by written instrument signed by the parties hereto.
14. WAIVERS. No waiver of any provision, or consent to any action,
or breach of any provision herein contained, shall constitute or be deemed
a waiver of a preceding or succeeding breach of the same provision, or of
any other provision, whether or not similar. No waiver or consent shall
constitute a continuing waiver or consent, or commit a party to provide a
waiver or consent in the future, except to the extent specifically set
forth in writing.
15. GOVERNING LAW. This Agreement shall be construed according to
and governed by the laws of the State of Nevada.
16. ENTIRE AGREEMENT. This instrument, and EXHIBIT A and EXHIBIT B
hereto, constitute the entire Voting Agreement of InnovaCom and correctly
set forth the rights, duties and obligations of each party and of each
party to the other. Any prior agreements, promises, negotiations or
representations concerning the Agreement's subject matter not expressly set
forth in this Agreement are of no force or effect.
17. SIGNATURES AND COUNTERPARTS. Each of the counterparts of this
Agreement executed simultaneously herewith by all parties hereto shall be
deemed an original of this Agreement. Facsimile signatures transmitted by
telecopy shall have the same dignity, and shall be acceptable for all
purposes, as an original signature.
<PAGE>5
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first written above.
Sierra Vista Shareholder
_______________________________
507784 BC Ltd. By Al Fabbro
MR. MARK C. KOZ
_______________________________
Mark C. Koz, an individual
<PAGE>
EXHIBIT A
SIERRA VISTA SHAREHOLDER AND SHARES
SHARES HELD
507784 BC Ltd. 1,000,000
<PAGE>
EXHIBIT B
KOZ SHARES
4,948,000 shares, Certificate Nos. 000326 through 000544, inclusive
<PAGE>
EXHIBIT C
FORM OF PROXY
Until the conditions contained in Section 9.5(a) of that certain Plan
and Agreement of Reorganization dated February 27, 1997 and amended as of
April 1, 1997, (the "Conditions"), the undersigned shareholder of
InnovaCom, Inc. hereby appoints Mark Koz as Proxy with the power of
substitution and hereby authorizes him to represent and to vote all shares
of stock of InnovaCom, Inc. which the undersigned is entitled to vote, on
all matters other than the election of directors, at any meeting of
shareholders, any written consent of shareholders, any adjournment of any
meeting of shareholders, and any other matters which may be subject to
shareholder vote or approval.
This proxy may not be revoked at any time prior to the satisfaction of
the Closing Conditions.
Dated: ___________ _____________________________
Signature of Shareholder
Number of Shares ___________ _____________________________
Name
______________________________
Address
______________________________
Exhibit 6.1
PLAN AND AGREEMENT OF REORGANIZATION
BETWEEN
INNOVACOM INC.
AND
SIERRA VISTA ENTERTAINMENT, INC.
DATED FEBRUARY 27, 1997
as amended on April 1, 1997, and May 14, 1997
Sierra Vista/InnovaCom
Reorg. Agreement 04/01/97
<PAGE>i
TABLE OF CONTENTS
TRANSFER OF SIERRA VISTA SHARES ............................ 1
1.1. Establishment of Escrow. ........................ 1
1.2. Delivery of Sierra Vista Shares to Escrow Agent. 1
ISSUANCE OF INNOVACOM STOCK
TO SIERRA VISTA SHAREHOLDERS ............................... 2
2.1 Issuance and Delivery of Exchange Stock. .......... 2
2.2 No Lien or Encumbrances on Exchange Stock. ........ 2
2.3 No Registration of the Exchange Stock. ............ 2
CLOSING ..................................................... 3
3.1 Closing of Transaction; First Closing Date and Final
Closing Date....................................... 3
3.2 Deliveries at Signing of Agreement. .............. 3
3.3 Deliveries on the First Closing Date by Sierra Vista. 3
3.4 Deliveries on the First Closing Date by InnovaCom. 4
3.5 Deliveries on the Final Closing Date by Sierra Vista. 5
3.6 Deliveries on the Final Closing Date by InnovaCom. 5
3.7 Filings; Cooperation. ............................. 6
REPRESENTATIONS AND WARRANTIES BY SIERRA VISTA .............. 6
4.1 Representations and Warranties of Sierra Vista. ... 6
4.2 Disclosure. ....................................... 9
REPRESENTATIONS AND WARRANTIES BY INNOVACOM ................ 10
5.1 Representations and Warranties of InnovaCom. ..... 10
5.2 Disclosure. ....................................... 14
REGISTRATION RIGHTS ......................................... 14
6.1.1. Demand Registration. ........................... 14
6.1.2. Company Registration. .......................... 16
6.1.3. Expenses of Registration. .................... 18
6.1.4. Registration Procedures. ..................... 18
6.2. Indemnification and Contribution. ................. 20
6.3. Information by the Holder. ........................ 22
6.4. Limitations on Registration of Issues of Securities. 22
6.5. Transfer or Assignment of Registration Rights. .... 22
6.6. "Market Stand-off" Agreement. ..................... 22
CONDUCT OF PARTIES PENDING CLOSING .......................... 23
7.1 Conduct of Sierra Vista Business Pending Closing. . 23
7.2 Conduct of InnovaCom Pending Closing. ............. 24
<PAGE>ii
CONDITIONS PRECEDENT TO CLOSING ............................. 25
8.1 Conditions Precedent to Closing. .................. 25
ADDITIONAL COVENANTS OF THE PARTIES ......................... 26
9.1 Cooperation. ...................................... 26
9.2 Expenses. ......................................... 26
9.3 Publicity. ........................................ 26
9.4 Confidentiality. .................................. 26
9.5 Post-Closing Covenants. ........................... 27
TERMINATION ................................................. 28
10.1 Mutual Termination. ............................... 28
SURVIVAL OF REPRESENTATIONS AND WARRANTIES .................. 28
11.1 As to Sierra Vista. ............................... 28
11.2 As to InnovaCom. .................................. 28
MISCELLANEOUS ............................................... 28
12.1 Entire Agreement, Amendments. .................... 28
12.2 Binding Agreement. ............................... 28
12.3 Indemnification ................................... 29
12.4 Attorney's Fees. ................................. 29
12.5 Severability. .................................... 29
12.6 Governing Law. ................................... 29
12.7 Notices. ......................................... 29
12.8 Counterparts; Signatures. ........................ 30
EXHIBIT LIST
Exhibit A--List of Shareholders owning the
outstanding common stock of Sierra Vista Entertainment, Inc.
SCHEDULE LIST .......................................... 31
Sierra Vista/InnovaCom
Reorg.Agreement 04/01/97
<PAGE>1
PLAN AND AGREEMENT OF REORGANIZATION
This PLAN AND AGREEMENT OF REORGANIZATION ("Agreement") is entered
into as of this 27th day of February, 1997, and amended as of April 1, 1997
and May 14, 1997, by and between InnovaCom, Inc., a Nevada corporation
("InnovaCom"), and Sierra Vista Entertainment, Inc., a Nevada corporation
("Sierra Vista").
PLAN OF REORGANIZATION
The transaction contemplated by this Agreement is intended to be a
"tax free" exchange (the "Share Exchange") as contemplated by the
provisions of Section 368(a)(1)(B) of the Internal Revenue Code of 1986, as
amended. InnovaCom will offer to acquire 100% of Sierra Vista's issued and
outstanding common stock, par value $0.001 per share (the "Sierra Vista
Stock" or the "Sierra Vista Shares"), in exchange for 8,500,000 shares of
InnovaCom's voting common stock, par value $.001 per share (the "Exchange
Stock"). Upon the consummation of the exchange transaction and the
issuance and transfer of the Exchange Stock as set forth in Section 2
hereinbelow, Sierra Vista will be a wholly-owned subsidiary of InnovaCom.
AGREEMENT
SECTION 1
TRANSFER OF SIERRA VISTA SHARES
1.1. ESTABLISHMENT OF ESCROW. In order to facilitate the exchange of
Sierra Vista Shares for the Exchange Stock, the parties have entered into
an escrow agreement with Bartel Eng Linn & Schroder (the "Escrow Agent")
establishing an escrow for the deposit and delivery of the Sierra Vista
Shares and the Exchange Stock.
1.2. DELIVERY OF SIERRA VISTA SHARES TO ESCROW AGENT. The Sierra
Vista Shareholders listed in Exhibit A as of the First Closing Date as such
term is defined in Section 3 hereof, shall transfer, assign, convey and
deliver to Escrow Agent, at the First Closing Date, certificates
representing 6,500,000 shares of the Sierra Vista Stock. Since it is
contemplated that an additional 2,000,000 shares of Sierra Vista common
stock will be issued for cash prior to the Final Closing Date, Sierra Vista
will ensure that the shares issued after the First Closing Date will be
delivered to the Escrow Agent prior to the Final Closing Date as that term
<PAGE>2
is defined in Section 3 hereof. The transfer of all Sierra Vista Shares
shall be made free and clear of all liens, mortgages, pledges, encumbrances
or charges, whether disclosed or undisclosed, except as any Sierra Vista
shareholder and InnovaCom shall have otherwise agreed in writing.
SECTION 2
ISSUANCE OF INNOVACOM STOCK
TO SIERRA VISTA SHAREHOLDERS
2.1 ISSUANCE AND DELIVERY OF EXCHANGE STOCK. As consideration
for the transfer, assignment, conveyance and delivery of the Sierra Vista
Shares hereunder, on the First Closing Date, as that term is defined in
Section 3 hereof, or as soon as pratical thereafter, InnovaCom shall
deliver to the Escrow Agent, on behalf of and issued in the name of the
Sierra Vista Shareholders, one share of InnovaCom voting common stock for
each one share of Sierra Vista common stock outstanding immediately prior
to the First Closing Date, representing 6,500,000 shares of InnovaCom
Common Stock and an additional 2,000,000 shares of InnovaCom Common Stock
issued in the name of "Bartel Eng Linn & Schroder, as Escrow Agent" for the
shareholders of Sierra Vista who purchase the additional 2,000,000 shares
of Sierra Vista common stock after the First Closing Date and before the
Final Closing Date (the "Exchange Stock").
2.2 NO LIEN OR ENCUMBRANCES ON EXCHANGE STOCK. The issuance of
the Exchange Stock shall be made free and clear of all liens, mortgages,
pledges, encumbrances or charges, whether disclosed or undisclosed, except
as the Sierra Vista Shareholders and InnovaCom shall have otherwise agreed
in writing. As provided herein and immediately prior to the First Closing
Date, InnovaCom shall have issued and outstanding not more than 12,111,084
shares of InnovaCom Common Stock.
2.3 NO REGISTRATION OF THE EXCHANGE STOCK. The Exchange Stock
issued to the Sierra Vista Shareholders shall be issued pursuant to an
exemption under the Securities Act of 1933, as amended (the "Act") pursuant
to Section 3(a)(10) of the Act, or such other exemption as may be
available. The Company shall file an application for a permit to issue its
securities pursuant to Section 25121 of the California Corporate Securities
Laws of 1968, as amended, ("CCSL") and request a fairness hearing from the
Commissioner of Corporations pursuant to Section 25146 of the CCSL.
InnovaCom's transfer agent shall issue the Exchange Stock to the Escrow
Agent without legend to be delivered to the Sierra Vista Shareholders after
the Section 25146 fairness hearing and the issuance of the permit by the
California Commissioner of Corporaitons. In addition, Sierra Vista
<PAGE>3
Shareholders shall have registration rights as more specifically provided
for in this Agreement.
SECTION 3
CLOSING
3.1 CLOSING OF TRANSACTION; FIRST CLOSING DATE AND FINAL CLOSING
DATE. The Closing of the Share Exchange (the "Closing") shall take place
in two closings, the first of which shall occur when all of the conditions
precedent provided for in Section 8.1 to the first closing shall have been
satisfied or waived and all deliveries provided for in Sections 3.3. and
3.4. have been made, (the "First Closing Date") and the second of which
shall occur on or before May 15, 1997, at 11:00 a.m., Pacific Standard
Time, (the "Final Closing Date") unless another date shall be mutually
agreed upon by the parties. The Closing shall take place at the offices of
Bartel Eng Linn & Schroder, 300 Capital Mall, Suite 1100, Sacramento, CA
and simultaneously at such other places mutually agreed to by the parties.
3.2 DELIVERIES AT SIGNING OF AGREEMENT. Prior to executing this
Agreement InnovaCom and Sierra Vista shall provide respective Board Minutes
and/or consents approving the terms of this Agreement and the transaction
contemplated herein.
3.3 DELIVERIES ON THE FIRST CLOSING DATE BY SIERRA VISTA. Sierra
Vista shall deliver or cause to be delivered to InnovaCom or the Escrow
Agent, as the case may be, the following on or before the First Closing
Date:
(a) to InnovaCom, a copy of the minutes and/or consent of Sierra
Vista's Board of Directors authorizing Sierra Vista to take the necessary
steps toward Closing the transaction described by this Agreement;
(b) to InnovaCom, a copy of a Certificate of Good Standing for
Sierra Vista issued not more than thirty days prior to the First Closing
Date by the Nevada Secretary of State;
(c) to InnovaCom, by wire transfer or cashier's check, $250,000;
(d) to the Escrow Agent, share certificates representing
8,500,000 shares of Sierra Vista common stock, sufficiently endorsed by
stock powers for transfer to InnovaCom pursuant to the terms and conditions
of this Agreement;
<PAGE>4
(e) to InnovaCom, a voting agreement, executed by certain Sierra
Vista Shareholders, as more specifically provided for in Section 8.1(e) of
this Agreement; and
(f) to InnovaCom, a certificate signed by Sierra Vista's Chief
Executive Officer dated as of the First Closing Date stating that all of
Sierra Vista's representations and warranties set forth in this Agreement
are true and correct and that all of the conditions of this Agreement
applicable to the First Closing Date have been satisfied or waived.
3.4 DELIVERIES ON THE FIRST CLOSING DATE BY INNOVACOM. InnovaCom
shall deliver, or cause to be delivered, to the Sierra Vista or the Escrow
Agent, as the case may be, the following on or before the First Closing
Date:
(a) to the Escrow Agent, certificates representing the Exchange
Stock, in the name of the Sierra Vista Shareholders, or any nominee as may
be designated by any Sierra Vista Shareholders, and in the name of the
Escrow Agent as provided for in Section 2 hereof, each in the appropriate
denomination, requested by the Sierra Vista Shareholders, in the aggregate
amount of 8,500,000 shares.
(b) to Sierra Vista, a copy of the minutes and/or consents of
InnovaCom's Board of Directors authorizing InnovaCom to take the necessary
steps toward Closing the transaction described by this Agreement;
(c) to Sierra Vista, a copy of a Certificate of Good Standing
for InnovaCom issued not more than thirty days prior to the Closing by the
Nevada Secretary of State;
(d) to Sierra Vista, an originally signed Notice of Sale
Pursuant to Corporations Code Section 25102(f) and an SEC Form D relating
to this transaction;
(e) to Sierra Vista, a promissory note providing for the
borrowing of $250,000 on or before the First Closing Date and an additional
$750,000 thereafter, executed by InnovaCom;
(f) to Sierra Vista, a voting agreement, executed by Mr. Mark
Koz, as more specifically provided for in Section 8.1(e) of this Agreement;
and
(f) to Sierra Vista, a certificate signed by InnovaCom's Chief
Executive Officer dated as of the First Closing Date stating that all of
InnovaCom's representations and warranties set forth in this Agreement are
true and correct and that all of the conditions of this Agreement
applicable to the First Closing Date have been satisfied or waived.
<PAGE>5
3.5 DELIVERIES ON THE FINAL CLOSING DATE BY SIERRA VISTA. Provided
that all of the terms and conditions of this Agreement have been satisfied,
Sierra Vista or the Escrow Agent, as the case may be, shall deliver to
InnovaCom the following on the Final Closing Date:
(a) the Escrow Agent will deliver all 8,500,000 Sierra Vista
Shares to InnovaCom which were deposited with the Escrow Agent pursuant to
this Agreement; and
(b) Sierra Vista will deliver to InnovaCom a certificate signed
by Sierra Vista's Chief Executive Officer dated as of the Final Closing
Date stating that all of Sierra Vista's representations and warranties set
forth in this Agreement are true and correct and that all of the conditions
of this Agreement applicable to the final Closing Date have been satisfied
or waived.
3.6 DELIVERIES ON THE FINAL CLOSING DATE BY INNOVACOM. Provided that
all of the terms and conditions of this Agreement have been satisfied,
InnovaCom or the Escrow Agent, as the case may be, shall deliver to the
Sierra Vista Shareholders the following on the Final Closing Date:
(a) the Escrow Agent will deliver all of the InnovaCom Common
Stock to the Sierra Vista Shareholders which were deposited with the Escrow
Agent pursuant to Section 3.4(a) hereof;
(b) InnovaCom will deliver to Sierra Vista an unaudited balance
sheet, dated as of a date within three (3) days of the Final Closing Date,
showing InnovaCom's assets and liabilities; and
(c) InnovaCom will deliver to Sierra Vista a certificate signed
by InnovaCom's Chief Executive Officer dated as of the Final Closing Date
stating that all of InnovaCom's representations and warranties set forth in
this Agreement are true and correct and that all of the conditions of this
Agreement applicable to the final Closing Date have been satisfied or
waived.
3.7 FILINGS; COOPERATION. Sierra Vista and InnovaCom shall, on
request and without further consideration, cooperate with one another by
<PAGE>6
furnishing or using their best efforts to cause others to furnish any
additional information and/or executing and delivering or using their best
efforts to cause others to execute and deliver any additional documents
and/or instruments, and doing or using their best efforts to cause others
to do any and all such other things as may be reasonably required by the
parties or their counsel to consummate or otherwise implement the
transactions contemplated by this Agreement.
SECTION 4
REPRESENTATIONS AND WARRANTIES BY SIERRA VISTA
4.1 REPRESENTATIONS AND WARRANTIES OF SIERRA VISTA. Subject to the
schedules, attached hereto and incorporated herein by this reference,
(which schedules shall be acceptable to InnovaCom), Sierra Vista represents
and warrants to InnovaCom as follows:
(a) ORGANIZATION AND GOOD STANDING OF SIERRA VISTA. The
Articles of Incorporation of Sierra Vista and all amendments thereto as
presently in effect, certified by the Nevada Secretary of State, and the
Bylaws of Sierra Vista as presently in effect, certified by the President
and Secretary of Sierra Vista, have been delivered to InnovaCom and are
complete and correct and since the date of such delivery, there has been no
amendment, modification or other change thereto.
(b) CAPITALIZATION. Sierra Vista's authorized capital stock
consists of 50,000,000 shares, 40,000,000 of which are common stock, $0.001
par value and of which 8,500,000 shares of voting common stock are issued
and currently outstanding or will be issued and outstanding as of the Final
Closing Date, and 10,000,000 of which are preferred stock and none of which
will be issued and outstanding as of the Final Closing Date. All of such
outstanding shares are validly issued, fully paid and non-assessable.
Sierra Vista has no currently outstanding promissory notes, other
securities or debt instruments except as set forth in SCHEDULE 4.1(B). No
other equity securities or debt instruments of Sierra Vista are authorized,
issued or outstanding.
According to Sierra Vista's books and records, it currently has
approximately 98 shareholders, and all such shareholders are currently
residents of one of the following jurisdictions: California, Arizona,
Canada, and Sweden. All securities issued by Sierra Vista as of the date
<PAGE>7
of this Agreement have been issued in compliance with all applicable state
and federal laws.
(c) SUBSIDIARIES. Sierra Vista has no subsidiaries and no other
material investments, directly or indirectly, or other material financial
interest in any other corporation or business organization, joint venture
or partnership of any kind whatsoever.
(d) FINANCIAL STATEMENTS. Sierra Vista is a recently organized
Nevada corporation. As such, it has not commenced operations.
Consequently, Sierra Vista has not prepared audited financial statements.
Schedule 4.1(d) contains the unaudited financial statements of Sierra Vista
as of March 31, 1997.
(e) ABSENCE OF UNDISCLOSED LIABILITIES. Except for accounts
payable and other liabilities as disclosed in SCHEDULES 4.1(D) AND 4.1(E),
Sierra Vista has no other liabilities, other than those incurred in the
ordinary course of business, secured or unsecured and whether accrued,
absolute, contingent, direct, indirect or otherwise, which would be
individually, or in the aggregate, material to the results of operations or
financial condition of Sierra Vista as of the First Closing Date.
(f) LITIGATION. There are no outstanding orders, judgments,
injunctions, awards or decrees of any court, governmental or regulatory
body or arbitration tribunal against Sierra Vista or its properties. There
are no actions, suits or proceedings pending, or, to the knowledge of
Sierra Vista, threatened against or affecting Sierra Vista, any of its
officers or directors relating to their positions as such, or any of its
properties, at law or in equity, or before or by any federal, state,
municipal or other governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, in connection with the
business, operations or affairs of Sierra Vista which might result in any
material adverse change in the operations or financial condition of Sierra
Vista, or which might prevent or materially impede the consummation of the
transactions under this Agreement.
(g) COMPLIANCE WITH LAWS. To the best of its knowledge, the
operations and affairs of Sierra Vista do not violate any law, ordinance,
rule or regulation currently in effect, or any order, writ, injunction or
decree of any court or governmental agency, the violation of which would
substantially and adversely affect the business, financial condition or
operations of Sierra Vista.
<PAGE>8
(h) EMPLOYEES. Except as disclosed in Schedule 4.1(h), there
are no collective bargaining, bonus, profit sharing, compensation, or other
plans, agreements or arrangements between Sierra Vista and any of its
directors, officers or employees and there is no written employment,
consulting, severance or indemnification a agreements between Sierra Vista
on the one hand, and any current or former directors, officers or employees
of Sierra Vista on the other hand.
(i) ASSETS. All of Sierra Vista's assets are set forth in
SCHEDULE 4.1(I), and Sierra Vista owns outright and has good and marketable
title, or holds valid and enforceable leases or options, to all of such
assets, and no liens exist, except for liens placed upon the property at
the time of purchase or lease or through one or more financing
transactions.
(j) TAX MATTERS. Except as set forth in SCHEDULE
4.1(J) all federal, foreign, state and local tax returns, reports and
information statements required to be filed by or with respect to the
activities of Sierra Vista have been timely filed. Such returns, reports
and information statements are true and correct in all material respects
insofar as they relate to the activities of Sierra Vista.
(k) CONTRACTS. Set forth on SCHEDULE 4.1(K) hereto is a true
and complete list of all material contracts, agreements or commitments to
which Sierra Vista is a party or is bound. All such material contracts,
agreements and commitments are valid and binding on Sierra Vista in
accordance with their terms.
(l) OPERATING AUTHORITIES. Except as set forth on SCHEDULE
4.1(L), to the best of its knowledge, Sierra Vista has all material
operating authorities, governmental certificates and licenses, permits,
authorizations and approvals ("Permits") required to conduct its business
as presently conducted. Except as set forth on SCHEDULE 4.1(L) or
otherwise disclosed in this Agreement during the last 2 years, there has
not been any notice or adverse development regarding such Permits; such
Permits are in full force and effect; no material violations are or have
been recorded in respect of any Permit; and no proceeding is pending or
threatened to revoke or limit any Permit.
<PAGE>9
(m) BOOKS AND RECORDS. The books and records of Sierra Vista
are complete and correct, are maintained in accordance with good business
practice and accurately present and reflect, in all material respects, all
of the transactions therein described, and there have been no transactions
involving Sierra Vista which properly should have been set forth therein
and which have not been accurately so set forth.
(n) AUTHORITY TO EXECUTE AGREEMENT. The Board of Directors of
Sierra Vista, pursuant to the power and authority legally vested in it, has
duly authorized the execution and delivery by Sierra Vista of this
Agreement, and has duly agreed to each of the transactions hereby
contemplated. Sierra Vista has the power and authority to execute and
deliver this Agreement, to approve the transactions hereby contemplated and
to take all other actions required to be taken by it pursuant to the
provisions hereof. Sierra Vista has taken all actions required by law, its
Articles of Incorporation, as amended, or otherwise to authorize the
execution and delivery of this Agreement. This Agreement is valid and
binding upon Sierra Vista in accordance with its terms. Neither the
execution and delivery of this Agreement nor the consummation of the
transactions contemplated hereby will constitute a violation or breach of
the Articles of Incorporation, as amended, or the Bylaws, as amended, of
Sierra Vista, or any agreement, stipulation, order, writ, injunction,
decree, law, rule or regulation applicable to Sierra Vista.
(o) FINDER'S, BROKER'S, CONSULTING FEES. Sierra Vista is not
liable or obligated to pay any finder's, agent's, broker's or consultant's
fee arising out of or in connection with this Agreement or the transactions
contemplated by this Agreement other than to R.L Vaerst and Yorkton
Securities, Inc.
4.2 DISCLOSURE. Sierra Vista has disclosed all events, conditions
and facts materially affecting the business and prospects of Sierra Vista.
Sierra Vista has not withheld knowledge of any such events, conditions or
facts which Sierra Vista knows, or has reasonable grounds to know, may
materially affect Sierra Vista's business and prospects. No representation
or warranty by Sierra Vista in this Agreement nor any certificate, exhibit,
<PAGE>10
schedule or other written document or statement, furnished to InnovaCom by
Sierra Vista in connection with the transactions contemplated by this
Agreement contains or will contain any untrue statement of a material fact
or omits or will omit to state a material fact necessary to be stated in
order to make the statements contained herein or therein not misleading.
SECTION 5
REPRESENTATIONS AND WARRANTIES BY INNOVACOM
5.1 REPRESENTATIONS AND WARRANTIES OF INNOVACOM. InnovaCom
represents and warrants to Sierra Vista as follows:
(a) ORGANIZATION AND GOOD STANDING. InnovaCom is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Nevada and has full corporate power and authority to own or lease
its properties and to carry on its business as now being conducted and as
proposed to be conducted.
(b) CAPITALIZATION. InnovaCom's authorized capital stock
consists of 50,000,000 shares of $.001 par value Common Stock (defined
above as "InnovaCom Common Stock"), of which 12,111,084 are currently
outstanding and will be issued and outstanding as of the First Closing Date
and held by approximately 442 shareholders. SCHEDULE 5.1(B) sets forth the
names and share ownership of each InnovaCom shareholder owning over 5% of
InnovaCom's outstanding common stock as of the date of this Agreement.
There are options to purchase 5,4000,000 shares of InnovaCom Common Stock
issued and outstanding pursuant to the InnovaCom Stock Option Plan and to
officers, directors and consultants and there is no other authorized and/or
outstanding options and warrants for InnovaCom Common Stock and no other
equity securities or debt obligations of InnovaCom authorized, issued or
outstanding and there is no other outstanding options, warrants,
agreements, contracts, calls, commitments or demands of any character,
preemptive or otherwise, other than this Agreement, relating to any
InnovaCom stock, and there is no outstanding security of any kind
convertible into InnovaCom stock.
(c) AUTHORITY TO EXECUTE AGREEMENT. The Board of Directors of
InnovaCom, pursuant to the power and authority legally vested in it, has
duly authorized the execution and delivery by InnovaCom of this Agreement,
and has duly agreed to each of the transactions hereby contemplated.
<PAGE>11
InnovaCom has the power and authority to execute and deliver this
Agreement, to approve the transactions hereby contemplated and to take all
other actions required to be taken by it pursuant to the provisions hereof.
InnovaCom has taken all actions required by law, its Articles of
Incorporation, as amended, or otherwise to authorize the execution and
delivery of this Agreement. This Agreement is valid and binding upon
InnovaCom. Neither the execution and delivery of this Agreement nor the
consummation of the transactions contemplated hereby will constitute a
violation or breach of the Articles of Incorporation, as amended, or the
Bylaws, as amended, of InnovaCom, or any agreement, stipulation, order,
writ, injunction, decree, law, rule or regulation applicable to InnovaCom.
(d) SUBSIDIARIES. InnovaCom has no subsidiaries and no
investments, directly or indirectly, or other financial interest in any
other corporation or business organization, joint venture or partnership of
any kind whatsoever.
(e) FINANCIAL STATEMENTS. InnovaCom will deliver to Sierra
Vista, prior to the First Closing Date, copies of all of InnovaCom's
audited and unaudited financial statements through the most recent
practical date, all of which, to the best of its knowledge, are true and
complete and have been prepared in accordance with generally accepted
accounting principles. In addition, InnovaCom shall provide an internally
prepared, unaudited balance sheet dated as of a date within three business
days of the Final Closing Date (the "Pre-closing Balance Sheet") showing
its assets and liabilities.
(f) ABSENCE OF CERTAIN CHANGES. Except as set forth in SCHEDULE
5.1(F), since the date of the most recent unaudited financial statements
specified in Section 5.1(e) above, to the best of its knowledge, there has
been no material change in InnovaCom's financial condition, assets or
liabilities, except capital contributions and the incurring of expenses in
connection with the acquisition of Sierra Vista. Further, since the Pre-
closing Balance Sheet, other than as set forth in SCHEDULE 5.1(F), to the
best of its knowledge, there has been no change in InnovaCom's financial
condition, assets or liabilities.
(g) ABSENCE OF UNDISCLOSED LIABILITIES. Except as set forth in
SCHEDULE 5.1(G) or to the extent reflected in InnovaCom's most recent
<PAGE>12
financial statements specified in Section 5.1(e) above, or in the Pre-
closing Balance Sheet, InnovaCom has no knowledge of any other liabilities,
as of the Final Closing Date, of any nature, whether accrued, absolute,
contingent, or otherwise except the expenses in connection with the
acquisition of Sierra Vista, which would be material, individually or in
the aggregate, to the results of operation or financial condition of
InnovaCom.
(h) LITIGATION. Except as set forth in SCHEDULE 5.1(H), there are no
outstanding orders, judgments, injunctions, awards or decrees of any court,
governmental or regulatory body or arbitration tribunal against InnovaCom
or its properties. There are no actions, suits or proceedings pending, or,
to the knowledge of InnovaCom, threatened against or relating to InnovaCom.
InnovaCom is not in default under or with respect to any judgment, order,
writ, injunction or decree of any court or of any federal, state, municipal
or other governmental authority, department, commission, board, agency or
other instrumentality.
(i) CONTRACTS. All of InnovaCom's material contracts are set
forth in SCHEDULE 5.1(I) and except as disclosed therein, InnovaCom is not
a party to any contract, nor is InnovaCom a party to any written or oral
commitment for capital expenditures. InnovaCom has in all material
respects performed all obligations required to be performed by it to date
and is not in default in any material respect under any agreements or other
documents to which it was a party.
(j) TAX MATTERS. Except as set forth in SCHEDULE 5.1(J), all
federal, foreign, state and local tax returns, reports and information
statements required to be filed by or with respect to the activities of
InnovaCom have been filed for all the years and periods for which such
returns and statements were due, including extensions thereof. InnovaCom
has not incurred any liability with respect to any federal, foreign, state
or local taxes except in the ordinary and regular course of business.
Except as set forth in SCHEDULE 5.1(J), InnovaCom is not delinquent in the
payment of any such tax or assessment, and no deficiencies for any amount
of such tax have been proposed or assessed.
(k) INTELLECTUAL PROPERTIES. All of InnovaCom's intellectual
properties, including, but not limited to, the DVImpact chip, are set forth
<PAGE>13
in SCHEDULE 5.1(K). InnovaCom owns outright and has good and marketable
title, or holds valid and enforceable license agreements or assignments, to
all of such assets, and no liens or encumbrances exists thereon.
(l) COMPLIANCE WITH LAWS. To the best of its knowledge, the
operations and affairs of InnovaCom do not violate any law, ordinance, rule
or regulation currently in effect, or any order, writ, injunction or decree
of any court or governmental agency, the violation of which would
substantially and adversely affect the business, financial condition or
operations of InnovaCom.
(m) EMPLOYEES. Except as disclosed in SCHEDULE 5.1(M), there
are no collective bargaining, bonus, profit sharing, compensation, or other
plans, agreements or arrangements between InnovaCom and any of its
directors, officers or employees and there is no employment, consulting,
severance or indemnification arrangements, agreements or understandings
between InnovaCom on the one hand, and any current or former directors,
officers or employees of InnovaCom on the other hand.
(n) OPERATING AUTHORITIES. Except as set forth on SCHEDULE
5.1(N), to the best of its knowledge, InnovaCom has all material operating
authorities, governmental certificates and licenses, permits,
authorizations and approvals ("Permits") required to conduct its business
as presently conducted. Except as set forth on SCHEDULE 5.1(N) or
otherwise disclosed in this Agreement during the last 2 years, there has
not been any notice or adverse development regarding such Permits; such
Permits are in full force and effect; no material violations are or have
been recorded in respect of any Permit; and no proceeding is pending or
threatened to revoke or limit any Permit.
(o) BOOKS AND RECORDS. The books and records of InnovaCom are
complete and correct, are maintained in accordance with good business
practice and accurately present and reflect, in all material respects, all
of the transactions therein described, and there have been no transactions
involving InnovaCom which properly should have been set forth therein and
which have not been accurately so set forth.
<PAGE>14
(p) FINDER'S FEES. InnovaCom is not liable or obligated to pay
any finder's, agent's or broker's fee arising out of or in connection with
this Agreement or the transactions contemplated by this Agreement.
5.2 DISCLOSURE. No representation or warranty by InnovaCom in this
Agreement, nor any statement or certificate furnished or to be furnished to
Sierra Vista pursuant hereto, or in connection with the transactions
contemplated hereby, knowingly contains or will contain any untrue
statement of a material fact, or omits or will omit to state a material
fact necessary to make the statements contained therein not misleading.
SECTION 6
REGISTRATION RIGHTS
6.1.1. DEMAND REGISTRATION. Upon the election of a majority of the
Exchange Stock issued by InnovaCom to the Sierra Vista Shareholder (the
"Holders") pursuant to this Agreement, InnovaCom shall promptly initiate a
registration with respect to all or a part of the Exchange Stock
(hereinafter referred to as the "Registrable Securities"). In this
respect, and in connection with all Registrable Securities, InnovaCom will:
(a) promptly give written notice of the proposed registration to all
other Holders; and
(b) as soon as practicable, use its best efforts to effect such
registration (including, without limitation, the execution of an
undertaking to file post-effective amendments, and appropriate compliance
with applicable regulations issued under the Securities Act and applicable
state securities laws) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all
or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request given within
thirty (30) days after receipt of such written notice from InnovaCom;
provided that InnovaCom shall not be obligated to effect, or to take any
action to effect, any such registration pursuant to this SECTION 6.1 in any
particular jurisdiction in which InnovaCom would be required to qualify to
do business as a foreign corporation in such jurisdiction unless InnovaCom
is already qualified as a foreign corporation in such jurisdiction and
except as may be required by the Securities Act or applicable rules or
regulations thereunder;
(c) The Holders of Registrable Securities shall be entitled to
only one (1) registration pursuant to this SECTION 6.1.1 which has been
<PAGE>15
declared or ordered effective by the Commission for a period of at least
(90) days; PROVIDED, HOWEVER, if in such registration the Holders are not
able to sell in such registration at least 90% of their Registrable
Securities requested to be included in such registration, then such Holders
will be entitled to demand one additional registration pursuant to the
provisions of this SECTION 6.1.1;
(d) Such registration shall be on a Long-Form Registration or a
Short-Form Registration to the extent InnovaCom meets the applicable
requirements under the Securities Act for a Short-Form Registration.
Subject to the foregoing clauses (b), (c) and (d), InnovaCom shall file a
registration statement covering the Registrable Securities so requested to
be registered as soon as practicable after receipt of the request or
requests of the Holders demanding registration pursuant to the provisions
of this Section 6.1.1 (the "Initiating Holders").
The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of set forth below,
include other securities of InnovaCom which are held by persons who, by
virtue of agreements with InnovaCom, are entitled to include their
securities in any such registration, and InnovaCom shall have the right to
include securities in such registration for its own account.
If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall
so advise InnovaCom as a part of their request made pursuant to SECTION
6.1.1 and InnovaCom shall include such information in the written notice
referred to in SECTION 6.1.1(A). The right of any Holder to registration
pursuant to SECTION 6.1.1 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Initiating Holders and such Holder
with respect to such participation and inclusion) to the extent provided
herein. A Holder may elect to include in such underwriting all or a part
of the Registrable Securities he holds.
If InnovaCom shall request inclusion of its securities in
any registration pursuant to SECTION 6.1.1, or if holders of Other
Registrable Securities request such inclusion, securities of InnovaCom and
holders of Other Registrable Securities may be included in the underwriting
conditioned on their acceptance of the further applicable provisions of
this SECTION 6. InnovaCom shall (together with all Holders, officers,
directors, and holders of Other Registrable Securities proposing to
distribute their securities through such underwriting) enter into an
<PAGE>16
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the Initiating Holders and acceptable to InnovaCom (which
acceptance shall not be unreasonably withheld or delayed). Notwithstanding
any other provision of this SECTION 6.1.1, if the representative advises
the Initiating Holders in writing that marketing factors require a
limitation on the number of shares to be underwritten, the securities of
InnovaCom held of record by officers or directors (other than Other
Registrable Securities) of InnovaCom shall be excluded from such
registration to the extent so required by such limitation, and if a
limitation of the number of shares is still required, then the securities
of InnovaCom shall be excluded from such registration to the extent so
required by such limitation, and if a limitation of the number of shares is
still required, then the Other Registrable Securities shall be excluded
from such registration to the extent so required by such limitation, and if
a limitation is still required, the number of shares that may be included
in the registration and underwriting shall be allocated among all Holders
of Registrable Securities in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities which such Holders requested
to be included in such registration at the time of filing the registration
statement. No Registrable Securities or any other securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall
be included in such registration. If any holder of Registrable Securities,
Other Registrable Securities, or any officer or director who has requested
inclusion in such registration as provided above disapproves of the terms
of the underwriting, such person may elect to withdraw therefrom by written
notice to InnovaCom, the underwriter and the Initiating Holders. The
securities so withdrawn shall also be withdrawn from registration.
6.1.2. COMPANY REGISTRATION. If InnovaCom, at any time or from
time to time during the period commencing on the date of this Agreement and
ending on the fifth anniversary of the Final Closing Date, shall determine
to register any of its securities for its own account or for the account of
others, other than a registration relating solely to "employee benefit
plans" (Form S-8), or a registration relating solely to a Commission Rule
145 transaction (Form S-4), or a registration on any registration form
which does not permit secondary sales, InnovaCom will:
(a) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which InnovaCom intends
to attempt to qualify such securities under the applicable blue sky or
other state securities laws); and
(b) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in
<PAGE>17
a written request or requests, made by any Holder within thirty (30) days
after receipt of the written notice from InnovaCom described in clause (a)
above, except as set forth below. Such written request may specify all or
a part of a Holder's Registrable Securities.
If the registration of which InnovaCom gives notice is for a
registered public offering involving an underwriting, InnovaCom shall so
advise the Holders as a part of the written notice given pursuant to
SECTION 6.1.2(A). In such event the right of any Holder to registration
pursuant to SECTION 6.1.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with InnovaCom and any other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or
underwriters selected for underwriting. Notwithstanding any other
provision of this SECTION 6.1.2, if the underwriter determines that
marketing factors require a limitation on the number of shares to be
underwritten, the underwriter may (subject to the allocation priority set
forth below) limit the number of Registrable Securities to be included in
the registration and underwriting. InnovaCom shall so advise all holders
of securities requesting registration, and the number of shares that are
entitled to be included in the registration and underwriting shall be
allocated in the following manner. The securities of InnovaCom held by
officers and directors of InnovaCom (other than Other Registrable
Securities) shall be excluded from such registration and underwriting to
the extent required by such limitation and, if a limitation on the number
of shares is still required, then:
(i) if the registration is initiated by InnovaCom for its
account, the securities of InnovaCom held by holders of Other Registrable
Securities and by each of the Holders of Registrable Securities shall be
excluded to the extent required by such limitation, in proportion, as
nearly as practicable, to the respective amount of Other Registrable
Securities and Registrable Securities then owned by each such holder, prior
to limiting the inclusion of the securities of InnovaCom to be included in
such registration; PROVIDED, HOWEVER, that in no event shall the number of
Registrable Securities included in the registration be reduced if such
reduction would cause the Registrable Securities to be less than 10% of the
securities included in such registration;
(ii) if the registration is initiated at the request of
holders of Other Registrable Securities, then the securities of InnovaCom
<PAGE>18
held by the Holders of Registrable Securities shall be excluded to the
extent required by such limitation, in proportion, as nearly as
practicable, to the respective amount of Registrable Securities which each
such Holder had requested to be included in such registration at the time
of filing the registration statement; PROVIDED, HOWEVER, that in no event
shall the number of Registrable Securities included in the registration be
reduced if such reduction would cause the Registrable Securities to be less
than 10% of the securities included in such registration. If the
underwriter has not limited the number of Registrable Securities requested
to be underwritten under this paragraph (ii), InnovaCom may include its
securities for its own account in such registration if the underwriter so
agrees and if the number of Registrable Securities which would otherwise
have been included in such registration and underwriting will not thereby
be limited.
If any Holder of Registrable Securities, Other Registrable
Securities or any officer or director disapproves of the terms of any such
underwriting, he may elect to withdraw therefrom by written notice to
InnovaCom and the underwriter. Any Registrable Securities or other
securities excluded or withdrawn from such underwriting shall be withdrawn
from such registration.
6.1.3. EXPENSES OF REGISTRATION. All Registration Expenses
relating to the Registrable Securities incurred in connection with any
registration, qualification or compliance pursuant to this SECTION 6 shall
be borne by InnovaCom. All Selling Expenses shall be borne by the holders
of the securities so registered, pro rata on the basis of the number of
their shares so registered.
6.1.4. REGISTRATION PROCEDURES. In the case of each
registration effected by InnovaCom pursuant to SECTION 6, InnovaCom will
keep each Holder advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, InnovaCom
will:
(a) Keep such registration effective for a period of one
hundred eighty (180) days or until the Holder or Holders have completed the
distribution described in the registration statement relating thereto,
whichever first occurs; provided, however, that in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such one hundred eighty (180) day
period shall be extended, if necessary, to keep the registration statement
effective until all such Registrable Securities are sold, provided that
<PAGE>19
Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that
applicable rules under the Securities Act governing the obligation to file
a post-effective amendment, permit, in lieu of filing a post-effective
amendment which (y) includes any Prospectus required by Section 10(a)(3) of
the Securities Act or (z) reflects facts or events representing a material
or fundamental change in the information set forth in the registration
statement, the incorporation by reference of information required to be
included in clause (y) and (z) above to be contained in periodic reports
filed pursuant to Section 13 or 15(d) of the Exchange Act in the
registration statement;
(b) Furnish such number of prospectuses, including a
summary or a preliminary prospectus, and other documents incident thereto
as each Holder from time to time may reasonably request;
(c) In connection with any underwritten offering pursuant
to a registration statement filed pursuant to SECTION 6.1 hereof, InnovaCom
will enter into any underwriting agreement reasonably necessary to effect
the offer and sale of the securities, provided such underwriting agreement
contains customary underwriting provisions and provided further that if the
underwriter so requests the underwriting agreement will contain customary
indemnification and contribution provisions;
(d) Use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to its security
holders, as soon as reasonably practicable (but not more than 18 months)
after the effective date of the registration statement, an earnings
statement which shall satisfy the provisions of Section 11(a) of the
Securities Act, and the rules and regulations promulgated thereunder;
(e) Use its best efforts to list such Registrable
Securities on any securities exchange on which any equity security of
InnovaCom is then listed, if such Registrable Securities are not already so
listed and if such listing is then permitted under the rules of such
exchange, and to provide a transfer agent and registrar for such
Registrable Securities covered by such registration statement not later
than the effective date of such registration statement;
(f) Furnish to each seller of Registrable Securities
included in such registration such number 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 Registrable Securities owned by
such sellers;
(g) Make available at InnovaCom's offices for inspection by
any seller of such Registrable Securities covered by such registration
statement, by any underwriter participating in any disposition to be
effected pursuant to such registration statement and by any attorney,
accountant or other agent retained by any such seller or any such
<PAGE>20
underwriter, all financial and other records, corporate documents and
properties of InnovaCom material to such registration, and cause all of
InnovaCom's officers, directors and employees to supply all information
material to such registration reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such
registration statement;
(h) Furnish or cause to be furnished to each seller of
Registrable Securities covered by such registration statement, a copy of
the opinion of counsel for InnovaCom, and a copy of the "comfort" letter
signed by the independent public accounts who have certified InnovaCom's
financial statements included in the registration statement, delivered on
the closing date to the underwriters of such Registrable Securities; and
(i) In the event of the issuance of any stop order
suspending the effectiveness of any registration statement or of any order
suspending or preventing the use of any prospectus or suspending the
qualification of any Registrable Securities for sale in any jurisdiction,
use its best efforts promptly to obtain its withdrawal.
6.2. INDEMNIFICATION AND CONTRIBUTION.
(a) InnovaCom will indemnify the Holder and its successors
and each of its officers, directors and partners, and each person
controlling the Holder, and its successors, with respect to which
registration, qualification or compliance has been effected pursuant to
this SECTION 6, and each underwriter, if any, and each person who controls
any underwriter, against all claims, losses, 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
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 the statements therein not misleading, or any
violation by InnovaCom of the Securities Act or any rule or regulation
thereunder applicable to InnovaCom and relating to action or inaction
required of InnovaCom in connection with any such registration,
qualification or compliance, and will reimburse the Holder, and its
successors and its officers, directors and partners, and each person
controlling the Holder, its successors, each such underwriters and each
person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating and defending
any such claim, loss, damage, liability or action, provided that InnovaCom
will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission based upon written information furnished to InnovaCom
by any Holder, successor or underwriter and stated to be specifically for
use therein.
<PAGE>21
(b) The Holder, and its successors will, if Registrable
Securities held by it are included in the securities as to which such
registration, qualification or compliance is being effected, indemnify
InnovaCom, each of its directors and officers and each underwriter, if any,
of InnovaCom's securities covered by such a registration statement, each
person who controls InnovaCom or such underwriter within the meaning of the
Securities Act and the rules and regulations thereunder, against all
claims, losses, 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 InnovaCom and its directors, officers, partners,
underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending 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 InnovaCom by any
Holder (or the Holder's successors) and stated to be specifically for use
therein; provided, however, that the obligations of the Holder (or the
Holder's successors) hereunder shall be limited to an amount equal to the
net proceeds to the Holder (or the Holder's successors) of Registrable
Securities sold or to be sold in such registration.
(c) Each party entitled to indemnification under this
SECTION 6.2 (the "Indemnified Party") shall 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 shall 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 shall conduct the
defense of such claim or any litigation resulting therefrom, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld or delayed), and the Indemnified Party may participate in such
defense at its own expense (except in the event such Indemnified Party may
not be represented by the counsel retained by the Indemnifying Party due to
a conflict of interest, in which case the Indemnifying Party shall pay the
counsel fees incurred by the Indemnified Party), and provided further that
the failure of any Indemnified Party to give notice as provided herein
shall not relieve the Indemnifying Party of its obligations under this
SECTION 6. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party,
<PAGE>22
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 alleged by such claimant or plaintiff.
Each Indemnified Party shall furnish such information regarding itself or
the claim in question as an Indemnifying Party may reasonably request in
writing and as shall be reasonably required in connection with defense of
such claim and litigation resulting therefrom.
(d) The indemnification provided for under this Agreement
will remain in full force and effect regardless of any investigation made
by or on behalf of the Indemnified Party or any officer, director or
controlling person of such Indemnified Party and will survive the transfer
of securities. The Indemnifying Party also agrees to make such provisions,
as are reasonably requested by any Indemnified Party, for contribution to
such party in the event the Indemnifying Party's indemnification is
unavailable for any reason.
6.3. INFORMATION BY THE HOLDER. If Registrable Securities of the
Holder (or its successors) are included in any registration, the Holder (or
its successors) shall furnish to InnovaCom such information regarding the
Holder (or its successors) and the distribution proposed by them as
InnovaCom may reasonably request in writing and as shall be reasonably
required in connection with any registration, qualification or compliance
referred to in this SECTION 6.
6.4. LIMITATIONS ON REGISTRATION OF ISSUES OF SECURITIES.
Any right given by InnovaCom to any holder or prospective holder of
InnovaCom's securities in connection with the registration of securities
shall comply with this SECTION 6.
6.5. TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights
to cause InnovaCom to register Registrable Securities under SECTION 6.1.1
OR 6.1.2 may not be assigned but shall inure to the benefit of any
successor of the Holder.
6.6. "MARKET STAND-OFF" AGREEMENT. Except for securities of the
Holder (or its successors) being distributed pursuant to an effective
registration statement under this SECTION 6, the Holder (or the Holder's
successors) agree, if requested by InnovaCom and an underwriter of Common
Stock (or other securities) of InnovaCom, not publicly to sell or otherwise
transfer or dispose of any Common Stock (or other securities) of InnovaCom
held by it during the seven (7) day period prior to and the ninety (90) day
period following the effective date of a registration statement of
InnovaCom filed under the Securities Act.
<PAGE>23
InnovaCom agrees (x) not to effect any public sale or
distribution of its equity securities or securities convertible into or
exchangeable or exercisable for any of such securities during the seven (7)
days prior to and the ninety (90) days after any underwritten registration
pursuant to SECTION 6.1.1. OR 6.1.2 has become effective, except as part of
such underwritten registration and except pursuant to registrations on Form
S-4 or S-8 or any successor or similar forms thereto, and (y) to use its
best efforts to cause each holder of its equity securities or any
securities convertible into or exchangeable or exercisable for any of such
securities who is an affiliate of InnovaCom to agree not to effect any such
public sale or distribution of such securities during such period. Such
agreement shall be in writing in a form satisfactory to InnovaCom and such
underwriter. InnovaCom may impose stop-transfer instructions with respect
to the shares (or securities) subject to the foregoing restriction until
the end of said ninety (90) day period.
SECTION 7
CONDUCT OF PARTIES PENDING CLOSING
7.1 CONDUCT OF SIERRA VISTA BUSINESS PENDING CLOSING. Sierra
Vista, covenants that pending the Final Closing Date:
(a) Sierra Vista's business will be conducted only in the
ordinary course.
(b) No change will be made in Sierra Vista's Articles of
Incorporation or bylaws other than such changes as may be first approved in
writing by InnovaCom.
(c) Sierra Vista will not consider any inquiries or
proposals relating to the possible merger or reorganization of Sierra Vista
or its assets, except to the extent that they may be legally obligated to
do so in which case InnovaCom would be notified in writing.
(d) Other than in the ordinary course of business, no
contract or commitment will be entered into by or on behalf of Sierra Vista
or indebtedness otherwise incurred, except with the prior consent of
InnovaCom.
(e) No dividends shall be declared, no stock bonuses or
options shall be granted and no extraordinary increases in compensation to
employees, including officers, shall be declared and no new employment
agreements shall be entered into with officers or directors of Sierra
Vista, except with notice in writing to InnovaCom.
<PAGE>24
(f) Sierra Vista will use its best efforts to preserve
Sierra Vista's business organization intact; to keep available to Sierra
Vista the services of its present officers and employees; and to preserve
the goodwill of those having business relations with Sierra Vista.
(g) Subject to the protection provided by Section 9.4
herein, Sierra Vista has given or will give to InnovaCom, its accountants
and other representatives full access during normal business hours
throughout the period prior to the Final Closing Date, to all of Sierra
Vista's properties, books, contracts, commitments, and records, and has
furnished InnovaCom during such period with all such information concerning
Sierra Vista's affairs as InnovaCom may reasonably request.
7.2 CONDUCT OF INNOVACOM PENDING CLOSING. InnovaCom covenants
that, pending the Closing:
(a) No change will be made in InnovaCom's Articles of
Incorporation or bylaws or in InnovaCom's authorized or issued shares of
stock, and, except for shares issued for cash for working capital purposes,
no change will be made in InnovaCom's issued shares of stock except as may
be first approved in writing by Sierra Vista.
(b) InnovaCom will not discuss or negotiate with any other
corporation, firm or other person, or entertain or consider any inquiries
or proposals relating to the possible disposition of its shares of capital
stock, or its assets, except to the extent that it may be legally obligated
to do so in which case Sierra Vista would be notified in writing.
(c) No dividends shall be declared, no stock options
granted and no employment agreements shall be entered into with officers or
directors of InnovaCom, except as may be first approved in writing by
Sierra Vista.
(d) Other than in the ordinary course of business, no
contract or commitment will be entered into by or on behalf of InnovaCom or
indebtedness otherwise incurred, except with the prior consent of Sierra
Vista.
(e) Subject to the protection provided by Section 9.4
herein, InnovaCom has given or will give to Sierra Vista, its accountants
and other representatives, full access, during normal business hours
<PAGE>25
throughout the period prior to the Final Closing Date, to all of
InnovaCom's books and records concerning InnovaCom's affairs as Sierra
Vista may reasonably request.
SECTION 8
CONDITIONS PRECEDENT TO CLOSING
8.1 CONDITIONS PRECEDENT TO CLOSING. All obligations of
InnovaCom, and Sierra Vista under this Agreement are subject to the
fulfillment, prior to or at the First Closing Date and the Final Closing
Date, as the case may be, of all conditions herein set forth, including,
but not limited to, receipt by the appropriate party of all deliveries
required by Section 3 herein, and fulfillment, prior to the First Closing
Date and the Final Closing Date, as the case may be, of each of the
following conditions:
(a) Sierra Vista's and InnovaCom's representations,
warranties and covenants contained in this Agreement shall be true at the
time of the First Closing Date and the Final Closing Date as though such
representations, warranties and covenants were made at such time.
(b) Sierra Vista shall have performed and complied with all
agreements and conditions required by this Agreement to be performed or
complied with prior to or at the First Closing Date and the Final Closing
Date.
(c) On the First Closing Date, Sierra Vista shall loan
Innovacom $250,000 and prior to the Final Closing Date, up to an additional
$750,000.
(d) Before the Final Closing Date, Sierra Vista shall have
raised at least $3,000,000 through the private placement of its equity
securities and shall have a cash balance of $3,000,000 on the Final Closing
Date, less the amounts loaned to InnovaCom pursuant to this Agreement,
commissions (which shall not exceed five percent (5%) of the proceeds
raised), finder's fees of $100,000, professional fees, and expenses.
(e) Effective as of the First Closing Date, the current
members of InnovaCom's board of directors shall take all steps necessary to
expand the authorized number of directors to six and to appoint three
directors, nominated by letter from Sierra Vista's Chief Executive Officer.
<PAGE>26
In addition, as of the First Closing Date, certain Sierra Vista
Shareholders totaling 3,700,000 shares of voting common stock and Mr. Mark
Koz will have entered into a voting agreement wherein Mr. Koz will have the
right to nominate three (3) members of the six (6) member board of
directors and the Sierra Vista Shareholders will have the right to nominate
three (3) members of the six (6) members of the board of directors and all
shares subject to the voting agreement will vote in favor of the six
nominees.
(f) Before the Final Closing Date, Mr. Mark Koz shall enter
into a five (5) year employment agreement with InnovaCom as president and
chief executive officer on terms mutually acceptable to Mr. Koz, InnovaCom
and Sierra Vista and Mr. F. James Anderson shall enter into a five (5) year
employment agreement with InnovaCom as the president of InnovaCom's Sierra
Vista Entertainment division on terms mutually acceptable to Mr. Anderson,
InnovaCom and Sierra Vista. No other employee of InnovaCom or Sierra Vista
shall have any employment agreements which are not "at will" agreements
without severance benefits provided for therein.
SECTION 9
ADDITIONAL COVENANTS OF THE PARTIES
9.1 COOPERATION. Sierra Vista and InnovaCom will cooperate with
each other and their respective agents in carrying out the transactions
contemplated by this Agreement, and in delivering all documents and
instruments deemed reasonably necessary or useful by the other party.
9.2 EXPENSES. Each of the parties hereto shall pay all of its
respective costs and expenses (including attorneys' and accountants' fees,
finder's and consultant's fees, costs and expenses) incurred in connection
with this Agreement and the consummation of the transactions contemplated
herein.
9.3 PUBLICITY. Prior to the Final Closing Date, any written
news releases and/or other shareholder communication by any party
pertaining to this Agreement or the transactions contemplated herein shall
be submitted to the other parties for their review and approval prior to
such news release and/or other shareholder communication provided, however,
that (a) such approval shall not be unreasonably withheld, and (b) such
review and approval shall not be required of disclosures required to
comply, in the judgment of counsel, with federal or state securities or
corporate laws or policies.
<PAGE>27
9.4 CONFIDENTIALITY. While each party is obligated to provide
access to and furnish information in accordance with this Agreement, it is
understood and agreed that such disclosure and information obtained as a
result of such disclosures are proprietary and confidential in nature.
Each party agrees to hold such information in confidence and not to reveal
any such information to any person who is not a party to this Agreement, or
an officer, director or key employee thereof, and not to use the
information obtained for any purpose other than assisting in its due
diligence inquiry. This subsection 9.4 shall survive the execution and
delivery of this Agreement, the Closing and the consummation of the
transaction called for by this Agreement and shall not be limited to the
time period otherwise set forth in Section 12 below.
9.5 POST-CLOSING COVENANTS. The parties hereto agree to the
following covenants to be performed after the Closing:
(a) The Sierra Vista Shareholders and InnovaCom, by and
through its newly constituted board of directors, shall use their very best
efforts to raise at least $12 million through the issuance of InnovaCom
common stock at a price equal to or greater than $5.00 per share. Final
terms and conditions to the issuance of additional shares shall be subject
to the approval of the newly constituted board of directors. The proceeds
from the private placement shall be used to bring the DVImpact chip into
production, for acquisitions, and for other general corporate and working
capital purposes. The parties shall commence their fund raising activities
immediately with a view towards completing the private placement as soon as
possible.
(b) Promptly after meeting the financial listing criteria
for the NASDAQ Stock Market, InnovaCom will commence the SEC registration
and NASD application procedure to have its stock listed and traded on the
NASDAQ Stock Market.
(c) InnovaCom agrees that of the $3 million raised by
Sierra Vista prior to the Final Closing Date, after deducting commissions,
finder's fees, professional fees and expenses, shall be allocated two
thirds to the operations of InnovaCom in furtherance of its efforts to
commercialize the DVImpact chip and one third to the operations of Sierra
Vista, a wholly owned subsidiary of InnovaCom, in furtherance of its effort
to develop commercially viable entertainment properties, such as screen
plays and the production of movies.
<PAGE>28
SECTION 10
TERMINATION
10.1 MUTUAL TERMINATION. Sierra Vista and InnovaCom may agree to
mutually terminate this Agreement prior to Closing without any liability to
each other.
SECTION 11
SURVIVAL OF REPRESENTATIONS AND
WARRANTIES
11.1 AS TO SIERRA VISTA. The representations and warranties of
Sierra Vista contained herein shall survive the execution and delivery of
this Agreement, the Closing and the consummation of the transactions called
for by this Agreement for a period of 2 years from the date of this
Agreement unless a lesser time period is specified.
11.2 AS TO INNOVACOM. The representations and warranties of
InnovaCom contained herein shall survive the execution and delivery of this
Agreement, the Closing and the consummation of the transactions called for
by this Agreement for a period of 2 years from the date of this Agreement
unless a lesser time period is specified.
SECTION 12
MISCELLANEOUS
12.1 ENTIRE AGREEMENT, AMENDMENTS. This Agreement (including
the Exhibits and Schedules hereto) contains the entire agreement between
the parties with respect to the transactions contemplated hereby, and
supersedes all negotiations, representations, warranties, commitments,
offers, contracts, and writings prior to the date hereof. No waiver and no
modification or amendment of any provision of this Agreement shall be
effective unless specifically made in writing and duly signed by the
parties to this Agreement.
12.2 BINDING AGREEMENT. This Agreement shall be binding upon
and inure to the benefit of the parties hereto and their respective assigns
and successors in interest; provided, that neither this Agreement nor any
right hereunder shall be assignable by InnovaCom or Sierra Vista without
the prior written consent of the other parties.
<PAGE>29
12.3 INDEMNIFICATION
(a) BY INNOVACOM. InnovaCom covenants and agrees to
defend, indemnify and hold harmless Sierra Vista, each of its officers,
directors, employees, agents, advisors and shareholders and affiliates
(collectively, the "Sierra Vista Indemnitees") from and against, any loss,
liability, damage or expense (including reasonable attorney's fees and
costs) which any Sierra Vista Indemnitee may suffer, sustain or become
subject to as a result of a breach of any representation or warranty by
InnovaCom contained in this Agreement.
(b) BY SIERRA VISTA. Sierra Vista covenants and agrees to
defend, indemnify and hold harmless each of the officers, directors,
employees, agents, advisors of InnovaCom, and shareholders owning over 10%
of InnovaCom's common stock, as such persons existed prior to the Final
Closing Date (collectively, the "InnovaCom Indemnitees") from and against
any loss, liability, damage or expense (including reasonable attorney's
fees and costs) which the InnovaCom Indemnitees may suffer, sustain or
become subject to, as a result of a breach of any representation, warranty
or covenant by Sierra Vista contained in this Agreement.
12.4 ATTORNEY'S FEES. Except as otherwise provided for in
Section 12.3 above, in the event of any controversy, claim or dispute among
the parties to this Agreement arising out of or relating to this Agreement
or breach thereof, each party hereto shall pay its own legal expenses,
attorney's fees and costs.
12.5 SEVERABILITY. If any provision hereof shall be held
invalid or unenforceable by any court of competent jurisdiction or as a
result of future legislative action, such holding or action shall be
strictly construed and shall not affect the validity or effect on any other
provisions hereof.
12.6 GOVERNING LAW. In any action or proceeding arising out of
or related to this Agreement, the law of the State of California shall be
followed.
12.7 NOTICES. All notices or other communications required
hereunder shall be in writing and shall be sufficient in all respects and
shall be deemed delivered after 3 days if sent via registered or certified
mail, postage prepaid; the next day if sent by overnight courier service;
or upon completion of transmission if sent by facsimile to the following:
<PAGE>30
IF TO SIERRA VISTA:
Mr. F. James Anderson
13940 Lodestar Drive
Grass Valley, CA 95949
Fax: 916-346-2681
IF TO INNOVACOM:
Mr. Mark Koz, CEO
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
Fax: 408-727-8778
12.8 COUNTERPARTS; SIGNATURES. This Agreement may be executed
in one or more counterparts, each of which may be deemed an original, but
all of which together, shall constitute one and the same instrument. This
Agreement may be executed by a party and sent to the other parties via
facsimile transmission and the facsimile transmitted copy shall have the
same integrity, force and effect as an original document.
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the date first written above.
INNOVACOM INC, a Nevada SIERRA VISTA ENTERTAINMENT,
corporation INC., a Nevada corporation
By: MARK KOZ By: F. JAMES ANDERSON
Mark Koz, President F. James Anderson, CEO
<PAGE>31
EXHIBIT LIST
Exhibit A--List of Shareholders owning the
outstanding common stock of Sierra Vista Entertainment, Inc.
SCHEDULE LIST
SIERRA VISTA
Schedule 4.1(b) Capitalization
Schedule 4.1(e) Absence of Undisclosed Liabilities
Schedule 4.1(I) Assets
Schedule 4.1(j) Tax Matters
Schedule 4.1(k) Contracts
Schedule 4.1(l) Operating Authorities
INNOVACOM
Schedule 5.1(b) Capitalization
Schedule 5.1(f) Absence of Undisclosed Certain Changes
Schedule 5.1(g) Absence of Undisclosed Liabilities
Schedule 5.1(h) Litigation
Schedule 5.1(i) Tax Matters
Schedule 5.1(k) Intellectual Properties
Schedule 5.1(m) Employees
Schedule 5.1(n) Operating Authorities
Exhibit 6.2
LICENSE AGREEMENT
This Agreement ("Agreement") is made as of this 7th day of March,
1996, by and between FutureTel, Inc., a Florida corporation, with offices
at 1092 East Arques Avenue, Sunnyvale, California 94086 ("FutureTel"), and
InnovaCOM, a Florida corporation, with offices at 333 El Camino Real,
Sunnyvale, California 94086 ("InnovaCOM").
RECITALS
WHEREAS, FutureTel has developed certain proprietary technology
referred to by the parties as Gecko ("GECKO") as defined in Schedule A
hereto;
WHEREAS, FutureTel desires to grant to InnovaCOM, and InnovaCOM
desires to accept, a license to use and to grant sublicenses to use GECKO
to develop silicon-based products, subject to the terms and conditions
hereinafter set forth;
WHEREAS, the parties to this Agreement intend that royalties shall be
paid by InnovaCOM to FutureTel in exchange for the licenses granted by this
Agreement.
NOW, THEREFORE, in consideration of the premises and mutual covenants
contained herein, the parties hereto agree as follows:
I. DEFINITIONS.
A. The term "Clean Room Product" shall mean a silicon product
or other product related to, or competitive with, any of the Licensed
Materials, which is developed by InnovaCOM without the use, aid or benefit
of any of the Licensed Materials.
B. The term "C-Model Code" shall mean that segment of the
source code to GECKO referred to by the parties as the C-Model source code
and further described in Schedule A hereto.
C. The term "Derivative Work" shall mean technology, materials,
documentation and other works, including without limitation, software that
is derived from the Licensed Materials or which incorporates in whole or in
part, or which constitutes a modification of the Licensed Materials.
D. The term "Documentation" shall mean all documentation
created by FutureTel, whether in human readable or machine readable form,
which describes the function and use of GECKO and is delivered to InnovaCOM
under this Agreement, and which may include FutureTel's manuals, program
listings, data models, flow charts, logic diagrams, input and output forms,
functional specifications, and instructions and any full or partial copies
of any of the foregoing.
<PAGE>
E. The term "End User" shall mean any customer who purchases a
product for internal use only and who will not further sublicense or
distribute the product, but who shall have the right to develop,
manufacture and sell GECKO Systems.
F. The term "GECKO" shall include each and every
component of the technology referred to as GECKO, including without
limitation the C-Model Code, the Specifications, the Verilog Source Code,
the Simulation Environment, the Microcode, the Synthesis and Simulation
with IBM Library, the Netlist, the IBM Mask and the IBM Silicon, as further
defined in Schedule A.
G. The term "GECKO Derivative Work" shall mean all Derivative
Works based on GECKO developed by InnovaCOM, its employees, agents, or
consultants, whether in object or source code form, including without
limitation works used in manufacturing, or silicon products to be
distributed to sublicensees and End Users.
H. The term "GECKO Products" shall mean silicon products
(including the microcode, in object code form only, and documentation
necessary to use such silicon products in Systems) which may be developed
or manufactured by InnovaCOM or its sublicensees using GECKO, any GECKO
Derivative Work, or any portion of any of the foregoing.
I. The term "GECKO Systems" shall mean Systems in which GECKO
Products are embedded or with which GECKO Products are bundled, but which
are otherwise developed independently of, and do not incorporate or
include, the Licensed Materials.
J. The term "GECKO Team" shall mean the individuals employed by
FutureTel for the development and manufacture of GECKO and specifically
identified in Schedule D hereto.
K. The term "Cross Revenues" shall mean the total revenues
received by InnovaCOM in connection with any transaction or sublicense
involving any of the Licensed Materials.
L. The term "IBM Mask" shall mean the proprietary technology
further described in Schedule A hereto.
M. The term "IBM Silicon" shall mean the proprietary technology
further described in Schedule A hereto.
N. The term "Licensed Materials" shall mean GECKO,
the GECKO Products and the Documentation
O. The term "Netlist" shall mean the proprietary technology
further described in Schedule A hereto.
<PAGE>
P. The term "Proprietary Information" shall mean the Licensed
Materials and all concepts, data, documentation, information, software
(expressly including source code) and other materials, made available by
FutureTel to, or developed by, InnovaCOM, its agents, employees, or
consultants, in connection with this Agreement. Notwithstanding the
foregoing, "Proprietary Information" shall not include any information
which is: (i) publicly available or which is in or enters into the public
domain through no action by or fault of the receiving party; (ii)
rightfully obtained by the receiving party without any obligation of
confidentiality from a third party who is rightfully in possession thereof
and in a manner permitted by the terms of this Agreement; or (iii)
disclosed pursuant to a governmental, judicial, administrative or
regulatory obligation, order or
decree.
Q. The term "Specifications" shall mean the proprietary
information and documentation further described in Schedule A hereto.
R. The term "Synthesis and Simulation with IBM Library" shall
mean the proprietary technology further described in Schedule A hereto.
S. The term "System" shall mean any computer, printed circuit
board, configuration of printed circuit board, peripheral equipment or
other item which is used to encode video into an MPEG stream.
T. The term "Verilog Code" shall mean that segment of the
source code to GECKO referred to by the parties as the Verilog source code
and further described in Schedule A hereto.
II. LICENSES
A. Non-Exclusive GECKO License. FutureTel hereby grants to
InnovaCOM the following non-exclusive rights to use and sublicense GECKO:
1. License to Use GECKO. Subject to the terms and
conditions of this Agreement, FutureTel hereby grants to InnovaCOM, and
InnovaCOM hereby accepts, a non-exclusive, nontransferable, worldwide
license to use, duplicate, distribute, modify and enhance GECKO and the
Documentation, solely for the development, manufacture and distribution of
GECKO Products and GECKO Derivative Works. InnovaCOM shall have no right
to use the Licensed Materials to develop any System, including GECKO
Systems, but shall have the right to embed GECKO Products in or bundle
GECKO Products with, GECKO Systems.
2. Right to Sublicense GECKO. Subject to the terms and
conditions of this Agreement, the foregoing license granted by FutureTel to
InnovaCOM hereunder shall include the right to grant sublicenses to use
GECKO, solely for the enhancement of GECKO and the development, manufacture
and distribution of GECKO Products and GECKO Derivative Works.
<PAGE>
3. Right to Use GECKO Source Code. Subject to the terms
and conditions of this Agreement, the foregoing right to use and sublicense
GECKO granted by FutureTel to InnovaCOM hereunder shall include the limited
right to use the C-Model Code and the Verilog Code, solely for purposes of
modification and enhancement of GECKO, GECKO Derivative Works, and GECKO
Products.
B. EXCLUSIVE GECKO LICENSE. FutureTel grants to InnovaCOM the
following exclusive rights:
1. SINGLE CHIP MPEG 2 REAL TIME ENCODER. Subject to the
terms and conditions of this Agreement and for the period of one year from
the date of this Agreement (the "Exclusivity Period"), FutureTel hereby
grants to InnovaCOM, and InnovaCOM hereby accepts, the exclusive right to
distribute and sell single chip MPEG 2 real time encoders developed by
InnovaCOM and/or its sublicensees using GECKO or GECKO Derivative Works
(the "InnovaCOM MPEG Chip") to End Users. During the Exclusivity Period,
FutureTel shall not have, nor grant to any third party, the right to
distribute and sell single chip MPEG 2 real time encoders developed by
FutureTel and/or its sublicensees using GECKO or Derivative Works (the
"FutureTel MPEG Chip") to End Users during the Exclusivity Period, but
shall have, and may grant to any third party other than the Exclusive
Sublicensees as defined below, the right to license, develop, duplicate,
use, modify and enhance the FutureTel MPEG Chip for all other purposes,
including but not limited to, demonstration and engineering sample
purposes. Upon the expiration of the Exclusivity Period, the exclusive
right granted herein shall terminate and FutureTel shall have, and may
grant to any third party, the right to freely use, license, manufacture,
produce, market, distribute and sell the FutureTel MPEG Chip and InnovaCOM
shall have, and may grant to any third party, the right to freely
use, license, manufacture, produce, market, distribute and sell InnovaCOM
MPEG Chip.
2. EXCLUSIVE LICENSE TO USE GECKO ELEMENTS. Subject to the
terms and conditions of this Agreement and for the Exclusivity Period,
FutureTel hereby grants to InnovaCOM, and InnovaCOM hereby accepts, an
exclusive, non-transferable, worldwide license to use, duplicate,
distribute, modify and enhance the following elements of GECKO, solely for
the development, manufacture, and sublicensing of GECKO Products: (1) the
Netlist; (2) the IBM Mask; and (3) the IBM Silicon (collectively, the
"GECKO Exclusive Elements"). During the Exclusivity Period, FutureTel
shall not have, nor grant to any third party, the right to use, duplicate,
license, distribute, modify or enhance the GECKO Exclusive Elements, but
shall have the right to distribute GECKO Products using separately
developed proprietary elements in lieu of the GECKO Exclusive Elements.
Upon the expiration of the Exclusivity Period, the exclusive license
granted herein shall terminate and FutureTel shall have the right to freely
use, duplicate, license, distribute, modify or enhance all elements of
GECKO.
<PAGE>
3. EXCLUSIVE GECKO SUBLICENSES. Subject to the terms and
conditions of this Agreement, and during the Exclusivity Period, InnovaCOM
shall have the exclusive right to grant sublicenses to the three customers
identified in Schedule B hereto (the "Exclusive Sublicensees") to use
GECKO, solely for the enhancement of GECKO and the development, manufacture
and sublicense of GECKO Products. Prior to the execution of this
Agreement, InnovaCOM shall select and identify in Schedule B hereto the
Exclusive Sublicensees. During the Exclusivity
Period, FutureTel shall not have the right to sublicense GECKO to the
Exclusive Sublicensees, but shall have the right to sublicense GECKO
without the GECKO Exclusive Elements to any other third parties. Upon the
expiration of the Exclusivity Period, FutureTel shall have the right to
sublicense GECKO to the Exclusive Sublicensees and all other sublicensees.
C. DELIVERY AND DUPLICATION.
1. DELIVERY OF MASTER COPIES. FutureTel shall provide to
InnovaCOM a master copy of the Licensed Materials, in appropriate magnetic
media as agreed upon by the parties, to enable InnovaCOM to duplicate any
desired components of the Licensed Materials in accordance with the terms
of this Agreement.
2. SECURITY MEASURES. In duplicating the Licensed
Materials, InnovaCOM shall comply with all of FutureTel's instructions
regarding authorization codes, encryption and other security procedures and
devices designed to protect FutureTel's and InnovaCOM's respective
interests in the Licensed Materials. InnovaCOM shall keep any master
copies of the Licensed Materials delivered by FutureTel in secure storage
when not in use.
D. RIGHT TO DUPLICATE.
1. LIMITED RIGHT TO COPY GECKO. InnovaCOM shall have the
right to duplicate the Licensed Materials solely for the purposes of
entering into permitted sublicenses hereunder, and as further set forth in
this Agreement.
2. RECORDS. InnovaCOM shall maintain a log of the number
and location of all originals and authorized copies of any Licensed
Materials, which shall be made available to FutureTel upon request.
E. CLEAN ROOM PRODUCT. Any product developed and manufactured
by InnovaCOM that uses or incorporates any of the Licensed Materials, or
portions thereof, shall be subject to the terms and conditions of this
Agreement. InnovaCOM shall have the right to develop Clean Room Products
provided that, prior to the commencement of development of any Clean Room
Products, InnovaCOM shall propose the "clean room" procedures to FutureTel,
which procedures must be approved in writing by FutureTel prior to such
<PAGE>
commencement. InnovaCOM shall: (1) adhere to such procedures; (2) maintain
contemporaneous records of such procedures as FutureTel may require; and
(3) permit an independent agent selected by FutureTel (the "Agent") to
inspect InnovaCOM's facilities and records from time to time to confirm
that InnovaCOM is adhering to such procedures. FutureTel shall not employ
Agent in the development of any FutureTel products. FutureTel shall cause
Agent to keep confidential all information obtained from InnovaCOM during
such inspection(s), except to the extent such information is needed by
Agent and/or FutureTel to confirm and document InnovaCOM's adherence to the
clean room procedures and/or any variation from or violation of such
procedures by InnovaCOM.
F. PROPRIETARY NOTICES. InnovaCOM shall reproduce and include
FutureTel's patent, copyright and trade secret notices on any copies (which
copies must be permitted) of Licensed Materials made in whole or in part in
any form (including partial copies, modifications, or resulting object
binary codes), in the same form and location as any legend appearing on the
work from which the copies are made, and shall affix such other proprietary
legends to the Licensed Materials as FutureTel may designate. The
inclusion of a copyright notice on any of the applicable copies of Licensed
Materials shall not cause or be construed to cause it to be a published
work. Upon FutureTel's request, but no more than once per semi-annual
period, InnovaCOM shall provide FutureTel with samples of packaging,
advertising and other materials on which such proprietary notices are used.
All uses of the proprietary notices shall inure to FutureTel's benefit and
nothing in this Agreement gives InnovaCOM any rights in the Licensed
Materials except as expressly granted hereunder.
G. ENHANCEMENT AND SUPPORT OBLIGATIONS. FutureTel is under no
obligation, pursuant to the terms of this Agreement or otherwise, to
provide to InnovaCOM or any sublicensees or End Users any enhancements,
modifications, corrections, updates, or upgrades of the Licensed Materials,
or any support, training, or
consulting services to InnovaCOM or any sublicensees or End Users regarding
the Licensed Materials.
H. OTHER LICENSES. Except as set forth in Section
II(B) above, this Agreement does not limit or restrain the right of
FutureTel to execute agreements for the licensing of the Licensed Materials
or any components thereof with other licensees.
I. NO TRANSFER OF RIGHTS. Use of the terms "sell," "sale,"
"sold," "purchase," "purchaser" and the like are used throughout this
Agreement for convenience only, and do not transfer any right, title or
interest in or to any Licensed Materials to InnovaCOM, any sublicensee or
any End User.
<PAGE>
J. FORM OF SUBLICENSE. All sublicenses, including shrinkwrap
license agreements and/or end user license agreements, made or entered into
by InnovaCOM and its sublicensees pursuant to this Agreement shall contain
provisions consistent with the provisions of this Agreement and shall
include this Agreement as an exhibit thereto. In the event that any of the
terms of the sublicenses are inconsistent with the terms hereof, the terms
of the sublicenses shall be superseded by the terms of this Agreement,
unless such inconsistent terms of the sublicenses are agreed to in writing
by FutureTel prior to the execution of the sublicenses. InnovaCOM shall
ensure that its sublicensees shall comply with each of the restrictions and
obligations for InnovaCOM set forth in this Agreement.
K. NO ASSIGNMENT. FutureTel's performance under this Agreement
is offered personally and exclusively to InnovaCOM. Neither this Agreement
nor any part hereof may be assigned by InnovaCOM to any party which
FutureTel deems, in its reasonable discretion, to be a competitor of
FutureTel, without FutureTel's prior written consent, and any such
attempted assignment without such consent shall be null and void.
FutureTel reserves the right to assign this Agreement and/or all or any
part of the rights and obligations hereunder to any third party. Subject
to the restrictions herein with regard to assignment, this Agreement shall
bind and inure to the benefit of the respective successors and assigns of
the parties hereto.
L. LIMITATIONS ON RIGHTS TO USE. Except as expressly permitted
by this Agreement, InnovaCOM shall not: (1) transfer, assign, alter,
amend, modify, disclose, duplicate, distribute, license or otherwise use or
change the Licensed Materials or any information contained therein or any
other materials related thereto, including without limitation the
Documentation; (2) use the Licensed Materials to develop, manufacture or
sell any products other than GECKO Products and GECKO Systems, including
without limitation, Systems other than GECKO Systems and manufacture or
sell any software; or (3) cause or permit others to do any of the
foregoing.
M. PATENTS. If for any reason FutureTel decides, with respect
to any country, not to initiate or to continue prosecution of a patent
application on an invention included in GECKO, to pay a maintenance fee on
such a patent application or issued patent (collectively, "GECKO Patents"),
to defend any GECKO Patent in a reexamination or opposition proceeding, or
to enforce any GECKO Patent against an apparent infringer (which actions
shall be collectively referred to as "Patent Action"), then FutureTel shall
notify InnovaCOM of such decision not less than sixty (60) days before the
right to perform such Patent Action expires, unless FutureTel is given
fewer than sixty (60) days notice of the expiration of the right to perform
such Patent Action, in which event FutureTel shall notify InnovaCOM of such
decision as promptly as possible. Upon InnovaCOM's receipt of such notice,
InnovaCOM shall have the right to make payments to FutureTel required to
<PAGE>
take any Patent Action. Any payment by InnovaCOM required to take such
Patent Action shall be made in advance, according to reasonable estimates
provided by FutureTel's patent counsel. If such payment is insufficient
and, upon notice of such insufficiency from FutureTel, if InnovaCOM does
not provide a sufficient amount in the time frame reasonably designated by
FutureTel (based on estimates of FutureTel's counsel), InnovaCOM shall be
deemed to have elected not to support such Patent Action. FutureTel shall
exercise its right to select patent counsel with reasonable discretion.
InnovaCOM shall exercise its right to make payments required to undertake
the Patent Action in a manner so as not to disrupt, harass, or cause
damage, loss or delay to FutureTel and/or its officers, directors,
employees or agents. In the event InnovaCOM elects to make payment to
FutureTel required to undertake Patent Action that FutureTel reasonably
deems may cause it to incur material damage, loss, costs, delay or
disruption, FutureTel shall have the right to refuse to undertake such
Patent Action. FutureTel shall return to InnovaCOM all payments made by
InnovaCOM in excess of the amounts required to undertake the Patent Action.
N. ONGOING SUPPORT AND RIGHTS IN PATENTS. If, at any time,
InnovaCOM elects to discontinue funding any Patent Action, then InnovaCOM
shall notify FutureTel, and FutureTel shall, in its discretion, either
discontinue such Patent Action, or continue such Patent Action at no
expense to InnovaCOM. Nothing in this Section shall affect FutureTel's
rights in the GECKO Patents or Licensed Materials generally, and
InnovaCOM's rights therein shall be limited to the rights licensed under
this Agreement. InnovaCOM's rights granted hereunder to fund any Patent
Action shall riot obligate InnovaCOM to undertake any such funding.
Rather, InnovaCOM shall be free to independently decide whether or not to
fund any Patent Action.
III. PAYMENT.
A. ROYALTY ON GECKO SUBLICENSES.
1. COVERED TRANSACTIONS. With the exception of any
transactions by and between InnovaCOM and OKI (the "OKI Transactions,"
further described in Schedule C hereto), any transaction directly involving
the Licensed Materials initiated
by InnovaCOM during the four-year period from the date of this Agreement
until the fourth anniversary of this Agreement (the "Initial 4-Year
Period") shall be subject to a royalty as set forth in this Section. For
purposes of this Section, a transaction shall be deemed initiated during
the Initial 4-Year Period if InnovaCOM makes an offer to a third party
(other than
an End User) or vice versa regarding the Licensed Materials during such
period, and an agreement reflecting such transaction is ultimately
consummated, regardless of whether such consummation occurs during the
Initial 4-Year Period. Any such transaction shall be referred to herein as
a "Covered Transaction." The parties agree that Covered Transactions shall
<PAGE>
exclude, by way of example and without limitation, sublicenses of GECKO
Products by InnovaCOM directly to End Users and the purchase or sale to a
sublicensee of equipment used for the development of the Licensed
Materials. In the event such equipment includes, contains or is bundled
with the Licensed Materials, the purchase or sale of such equipment shall
be deemed a Covered Transaction.
a. DISPUTE RESOLUTION. In the event that the parties
cannot agree as to whether a particular transaction constitutes a Covered
Transaction, the transaction shall go forward and the parties shall attempt
to resolve any such disagreement promptly by good faith negotiation between
executives of each party who have authority to settle the dispute, and
their counsel. If the disagreement cannot be resolved by negotiation or if
either party does not respond to the other party's request for negotiation
within thirty (30) days of such request, the disagreement shall be settled
by arbitration pursuant to Article X hereunder.
2. APPLICABLE ROYALTIES. InnovaCOM shall pay to FutureTel
a royalty in the percentage specified below for the applicable year on the
Gross Revenues received by InnovaCOM in connection with the applicable
Covered Transaction during that year, until the expiration of Year 7 as
defined below. Specifically, for all Covered Transactions, InnovaCOM shall
pay to FutureTel 20% of the Gross Revenues received by InnovaCOM in
connection with such transaction during the one-year period following the
date of this Agreement ("Year 1"); 15% of the Gross Revenues received by
InnovaCOM in connection with such transaction during the one-year period
following Year 1 ("Year 2"); 8% of the Gross Revenues received by InnovaCOM
in connection with such transaction during the one-year period following
Year 2 ("Year 3"); 5% of the Gross Revenues received by InnovaCOM in
connection with such transaction during the one-year period following Year
3 ("Year 4"); 3% of the Gross Revenues received by InnovaCOM in connection
with such transaction during the one-year period following Year 4 ("Year
5"); 1% of the Gross Revenues received by InnovaCOM in connection with such
transaction during the one-year period following Year 5 ("Year 6"); and 1%
of the Gross Revenues received by InnovaCOM in connection with such
transaction during the one-year period following Year 6 ("Year 7"), as
follows:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
20% 15% 8% 5% 3% 1% 1%
<PAGE>
B. ROYALTY ON GECKO SALES DIRECTLY TO END USERS.
1. COVERED TRANSACTIONS. Any transaction involving the
sales of GECKO Products by InnovaCOM directly to End Users for which an
initial order of silicon is placed by InnovaCOM during the Initial 4-Year
Period shall be subject to a royalty as set forth in this Section.
Specifically, a silicon order shall be subject to royalty payments if: (a)
it is placed during the Initial 4-Year Period for any GECKO Product or
GECKO Derivative Work; or (b) it is placed prior to the expiration of Year
7 for any additional copies of any GECKO Product or GECKO Derivative Work
for which an initial order of silicon was placed during the Initial 4-Year
Period. InnovaCOM shall place orders for silicon in good faith, and shall
not postpone any order until after the Initial 4-Year Period expires or
modify the GECKO Product or GECKO Derivative Work solely for purposes of
avoiding royalties hereunder. Any such order shall be referred to herein
as a "Covered Order."
a. DISPUTE RESOLUTION. In the event that the parties
cannot agree as to whether a particular transaction constitutes a Covered
Order, the transaction shall go forward and the parties shall attempt to
resolve any such disagreement promptly by good faith negotiation between
executives of each party who have authority to settle the dispute, and
their counsel. If the disagreement cannot be resolved by negotiation or if
either party does not respond to the other party's request for negotiation
within thirty (30) days of such request, the disagreement shall be settled
by arbitration pursuant to Article X hereunder.
2. APPLICABLE ROYALTIES. InnovaCOM shall pay to FutureTel
a royalty in the percentage specified below for the applicable year on the
total amount paid by InnovaCOM to any Foundry or other silicon source for
any silicon (excluding taxes, shipping, delivery, and/or handling charges)
(the "Foundry
Price") in connection with a Covered Order. Specifically, for all Covered
Orders, InnovaCOM shall: pay to FutureTel 20% of the Foundry Price for any
Covered Orders during Year 1; 15% of the Foundry Price for any Covered
Orders during Year 2; 8% of the Foundry Price for any Covered Orders during
Year 3; 5% of the Foundry Price for any Covered Orders during Year 4: 3% of
the Foundry Price for any Covered Orders during Year 5; 1% of the Foundry
Price for any Covered Orders during Year 6; and 1% of the Foundry Price for
any Covered Orders during Year 7, as follows:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
20% 15% 8% 5% 3% 1% 1%
In the event that the Foundry Price for any silicon cannot be determined,
InnovaCOM shall pay the foregoing royalty percentages on the Gross Revenues
which will be due to InnovaCOM from sublicenses of GECKO Products made
using such silicon; provided however, that such Gross Revenues shall be
deemed to accrue on the date InnovaCOM orders the silicon, and shall be
based on InnovaCOM's list price for the applicable GECKO Products in effect
as of the order date.
<PAGE>
3. NO CUMULATIVE ROYALTIES. In the event that any
transaction has any characteristics which could be covered by both this
Section III(B) and Section III(A) above, InnovaCOM shall pay royalty
amounts pursuant to Section III(A) only. Sublicenses of GECKO Products by
any sublicensee of InnovaCOM shall be subject to the royalty provisions set
forth in Section III(A) above.
C. ROYALTY CAP. The maximum amount of royalties to be paid by
InnovaCOM to FutureTel pursuant to the terms of this Agreement shall not
exceed Three Million Dollars ($3,000,000) (the "Royalty Cap"). Once
InnovaCOM has paid to FutureTel, pursuant to the terms of this Agreement,
royalties in an amount equal to the amount of the Royalty Cap, InnovaCOM
shall have no further royalty obligations under this Agreement.
D. PAYMENT OF FEES AND INTEREST. All royalties due under this
Article III shall be payable quarterly for the calendar quarters ending on
the last day of March, June, September and December during the term of this
Agreement and thereafter, until all amounts due hereunder have been paid.
InnovaCOM shall calculate and pay, and/or cause its sublicensees to
calculate and pay to FutureTel all royalties that have accrued during the
applicable calendar quarter no later than thirty (30) days after the end of
that calendar quarter. Each such payment shall be accompanied by a written
statement showing: (a) the basis for InnovaCOM's and/or its sublicensees'
calculation of royalties payable to FutureTel, including without limitation
the revenues generated under any transaction involving any of the
Licensed Materials; (b) the number of units of GECKO Products, Drivers
distributed, if applicable; (c) the identity of all recipients of any of
the Licensed Materials; (d) a summary of all relevant Foundry Prices; and
(e) such other information as FutureTel may deem necessary or appropriate
to determine the amounts due hereunder. Payments received by FutureTel
more than
thirty (30) days after the end of the calendar quarter in which such
royalties have accrued shall be charged two percent (2%) interest per month
or the maximum applicable legal rate of interest chargeable, if less, until
such royalties are paid in full.
E. NO ROYALTY ON SALES TO FUTURETEL. InnovaCOM shall not pay
royalties hereunder to FutureTel on sales of the GECKO Products to
FutureTel. On sales of the GECKO Products to FutureTel, InnovaCOM shall
grant (and shall cause its sublicensees to grant) to FutureTel pricing of
the GECKO Products which is as favorable as, or more favorable than, the
pricing InnovaCOM (or its sublicensees, as the case may be) offers to any
third party for comparable GECKO Products, including all applicable
discounts, reductions and credits.
<PAGE>
F. TAXES. InnovaCOM agrees to pay and to indemnify FutureTel
for, and to hold FutureTel harmless from and against, any and all income,
franchise, sales, use, property, ad valorem, value added, licensing, stamp,
employment, withholding or other taxes, levies, imposts, duties, charges,
withholdings of any nature, together with any penalties, fines or interest
thereon, arising out of the transactions contemplated by this Agreement and
imposed against FutureTel, InnovaCOM, and/or its sublicensee, or imposed
with respect to any of the Licensed Materials, by any federal, state, local
or foreign government or other taxing authority (excluding only U.S.
federal and U.S. state taxes on, or measured by, the net income of
FutureTel, which net income arose in whole or in part from stated royalty
payments made pursuant to Article III of this Agreement or from the sale of
Equipment pursuant to Article IV of this Agreement). Any obligations of
InnovaCOM arising under this provision shall not alter the amount of the
obligation of InnovaCOM or its sublicensee under any other provision of
this Agreement.
G. RECORDS. InnovaCOM shall maintain, at its address provided
for purposes of notice, throughout the term of this Agreement and for a
period of three (3) years following the termination of this Agreement, or
until any dispute relating to this Agreement is finally resolved, whichever
is later, complete and accurate records and accounts with respect to any
transaction involving Licensed Materials (including foundry orders for
silicon) which may be consummated by InnovaCOM, including the details
regarding revenues generated by InnovaCOM and the basis therefor, the
prices and quantities of Licensed Materials distributed by InnovaCOM and/or
its sublicensees, the amounts
payable to FutureTel by InnovaCOM and its sublicensees pursuant to the
terms of this Agreement and a copy of all invoices showing relevant Foundry
Prices, if applicable, in the event that FutureTel elects to conduct an
audit pursuant to subsection H below.
H. AUDIT. Upon reasonable notice and during normal business
hours, FutureTel shall have the right to have certified public accountants
or like agents examine such records and accounts for the purpose of
verifying the accuracy of the payments made by InnovaCOM and/or its
sublicensees to FutureTel under this Article. Any such audits shall be at
the expense of FutureTel, except that if the audit discloses underpayment
by InnovaCOM and/or its sublicensees of more than seven and one-half
percent (7.5%) of the total amount due to FutureTel during any calendar
quarter, InnovaCOM shall pay and/or cause its sublicensees to pay all costs
of the audit and shall promptly make payment and/or cause its sublicensees
to promptly make payment to FutureTel of any such underpayment. FutureTel
may not conduct such audits more than once per month.
I. PAYMENT OBLIGATIONS OF SUBLICENSEES. Any sublicense granted
by InnovaCOM relating to any of the Licensed Materials shall be covered by
an agreement, executed by the sublicensee, including a provision stating
<PAGE>
that, in the event of a liquidation, bankruptcy, reorganization or
modification of InnovaCOM to the extent that InnovaCOM can no longer
receive payments, the sublicensees of InnovaCOM shall be obligated to make
payment of all royalties due to InnovaCOM, to InnovaCOM's successor,
trustee in bankruptcy or, to the extent permitted by law, the shareholders
of InnovaCOM and with respect to the royalties due to FutureTel, directly
to FutureTel. Such provision shall have no effect on the obligation of any
transferee, trustee in bankruptcy or other successor of InnovaCOM with
respect to InnovaCOM's obligations hereunder, including its obligation to
indemnify FutureTel hereunder, and InnovaCOM shall have no right to assign
or otherwise transfer this Agreement without FutureTel's consent, as set
forth in Section II(L) above.
J. SURVIVAL OF TERMINATION. The provisions of this Article
shall survive the termination of this Agreement until all amounts due to
FutureTel hereunder have been paid.
IV. PERSONNEL
A. RIGHT TO EMPLOY FUTURETEL PERSONNEL. Notwithstanding any
employment contracts which members of the GECKO Team may have entered into
with FutureTel, InnovaCOM may contact those persons identified in Schedule
D hereto solely for the purpose of employment with InnovaCOM; provided,
however, that neither InnovaCOM nor such members shall have any right to
use any trade secrets or other proprietary information of FutureTel
which is unrelated to GECKO and to which such members may have had access.
For a period of three (3) years from the date of this Agreement, InnovaCOM
agrees that it will not, either directly or indirectly, induce or solicit
any FutureTel employees other than those identified in Schedule D hereto to
terminate their employment with FutureTel.
V. PROPRIETARY RIGHTS
A. PROPRIETARY INFORMATION OF FUTURETEL.
1. OWNERSHIP BY FUTURETEL. InnovaCOM agrees that the
rights granted by FutureTel pursuant to this Agreement constitute a license
only, and that ownership of and title to the Licensed Materials, including
without limitation all patent, trademark, service mark, copyright, trade
secret rights and other proprietary rights, in and to the Licensed
Materials is and shall remain in FutureTel, and that by virtue of this
Agreement, InnovaCOM acquires only the right to use the Licensed Materials
under the terms and conditions of this Agreement for so long as it is in
effect and does not acquire any rights of ownership of or title in the
Licensed Materials or any other Proprietary Information.
2. NONDISCLOSURE. InnovaCOM shall not disclose to any
third party, nor permit any third party or organization to use or copy any
<PAGE>
of the FutureTel Proprietary Information, except employees or consultants
of InnovaCOM whose access is necessary to enable InnovaCOM to exercise its
rights or perform its obligations under this Agreement. InnovaCOM
expressly agrees that prior to providing any employee or consultant with
access any Proprietary Information, it will obtain from such employee or
consultant written acknowledgment that he or she understands fully his or
her obligations as contemplated by this Agreement and agrees in writing to
be bound by its terms.
3. MEASURES TO BE TAKEN. InnovaCOM acknowledges that any
publication or disclosure to third parties of Proprietary Information of
FutureTel may cause immediate and irreparable harm to FutureTel, and
therefore agrees to take all reasonable steps and the same protective
precautions to protect FutureTel's Proprietary Information from disclosure
to third parties as it would to protect its own proprietary and
confidential information. InnovaCOM agrees to keep confidential and
protect from unauthorized disclosure by its employees, agents, consultants
or any person with access to the Proprietary Information, the contents of
such Proprietary Information. InnovaCOM shall not use, or allow any
employee, agent, consultant, or other person or entity to use, the
Proprietary Information (except as expressly provided in this Agreement).
In the event that InnovaCOM becomes aware of any unauthorized use or
dissemination of FutureTel's Proprietary Information, InnovaCOM
shall immediately notify FutureTel of such unauthorized use or
dissemination and shall cooperate with any action FutureTel may take with
respect to the unauthorized use, dissemination or publication of the
Proprietary Information.
B. DERIVATIVE WORKS BASED ON GECKO.
1. OWNED BY INNOVACOM. Any modifications to GECKO made by
InnovaCOM pursuant to Section II(A)(3) above shall be considered GECKO
Derivative Works. FutureTel expressly agrees that all GECKO Derivative
Works shall become the property of InnovaCOM and that FutureTel shall not
have, either expressly or impliedly, any rights, title, interest, or
licenses to the GECKO Derivative Works. Notwithstanding the foregoing,
nothing in this Section shall effect InnovaCOM's obligation to pay
royalties due in connection with any GECKO Products (whether based on GECKO
or any GECKO Derivative Works).
C. IBM FOUNDRY ARRANGEMENTS. FutureTel has discussed certain
foundry arrangements with International Business Machines, Inc. ("IBM")
regarding production of ASIC products (the "IBM Foundry Arrangements").
The parties warrant that no agreement finalizing the IBM Foundry
Arrangements has been executed by either party or any shareholder thereof.
All obligations for orders placed by FutureTel with IBM for ASIC products
shall be assumed by InnovaCOM. If InnovaCOM assumes any prospective rights
and obligations of FutureTel under the IBM Foundry Arrangements, or if
<PAGE>
InnovaCOM itself enters into any arrangement with IBM or Nexus
Manufacturers' Representative, Inc. regarding, related to or connected in
any way with the subject matter of the IBM Foundry Arrangements
(collectively, a "New IBM Arrangement"), FutureTel shall not prevent
InnovaCOM from completing an agreement with respect thereto. To the extent
that InnovaCOM enters into any New IBM Arrangement, InnovaCOM hereby agrees
to indemnify and hold FutureTel harmless from and against any liability
FutureTel may incur arising out of or related to such New IBM Arrangement.
D. SIGN-OFF PROCEDURE. Prior to the execution of this
Agreement, FutureTel and InnovaCOM shall execute an acknowledgement of the
transfer of the Licensed Materials to InnovaCOM. Such acknowledgement will
include an exhibit identifying all files and documents relating to GECKO
that are transferred to InnovaCOM.
VI. WARRANTY
A. DISCLAIMER OF WARRANTY. THE LICENSED MATERIALS ARE PROVIDED
BY FUTURETEL ON AN "AS IS" BASIS. FUTURETEL HEREBY EXPRESSLY DISCLAIMS ALL
WARRANTIES, EXPRESS, STATUTORY OR IMPLIED REGARDING THE LICENSED MATERIALS
AND ANY RESULTS TO BE OBTAINED FROM THE USE THEREOF OR OF GECKO PRODUCTS TO
BE DEVELOPED THEREFROM, INCLUDING BUT NOT LIMITED TO ALL WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR USE, ACCURACY,
COMPLETENESS, ORIGINALITY AND NON-INFRINGEMENT, AND ALL WARRANTIES ARISING
FROM THE COURSE OF PERFORMANCE, COURSE OF DEALING AND USAGE OF TRADE OR
THEIR EQUIVALENTS UNDER THE LAWS OF ANY JURISDICTION. FUTURETEL DOES NOT
WARRANT THAT THE LICENSED MATERIALS WILL BE FREE FROM ERROR, UNAUTHORIZED
HIDDEN PROGRAMS INTRODUCED INTO THE LICENSED MATERIALS WITHOUT THEIR
KNOWLEDGE, OR WILL OPERATE UNINTERRUPTED.
VII. LIMITATION OF ACTION AND LIABILITY.
A. INNOVACOM'S REMEDIES. InnovaCOM's sole and exclusive remedy
for any damages or loss in any way connected with the Licensed Material,
whether by FutureTel's negligence, any breach of any other duty, shall be,
at FutureTel's option, the repair or replacement of the applicable Licensed
Material, or a refund of any amount paid hereunder by InnovaCOM in
connection with the applicable Licensed Material.
B. LIMITATION OF LIABILITY.
1. NO LIABILITY UNDER CERTAIN CIRCUMSTANCES. FUTURETEL
SHALL NOT BE LIABLE TO INNOVACOM, ANY AFFILIATE, ANY END USER OR ANY OTHER
PERSON OR ENTITY UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER
LEGAL OR EQUITABLE THEORY FOR: (1) ANY LOST PROFITS, LOST SAVINGS, LOST
DATA OR LOSS OF USE; (2) ANY CLAIMS AGAINST INNOVACOM OR ANY OF ITS
AFFILIATES BY ANY OTHER PARTY; (3) ANY INDIRECT, INCIDENTAL, SPECIAL,
CONSEQUENTIAL OR PUNITIVE DAMAGES OR COSTS; (4) COST OF PROCUREMENT OF
<PAGE>
SUBSTITUTE GOODS OR SERVICES; OR (5) ANY DELAY OR FAILURE OF THE LICENSED
MATERIALS OR THE GECKO PRODUCTS TO PERFORM, ERRORS OF ANY KIND, EVENT OF
FORCE MAJEURE AND/OR MATTERS BEYOND ITS CONTROL, WHETHER OR NOT FUTURETEL
HAS BEEN ADVISED OR COULD HAVE FORESEEN THE POSSIBILITY OF SUCH DAMAGES.
INNOVACOM AGREES THAT THIS LIMITATION OF LIABILITY IS REASONABLE AND WILL
NOT CAUSE IT TO LOSE ANY EXPECTED BENEFITS, RIGHTS OR REMEDIES UNDER THIS
AGREEMENT.
2. AGGREGATE LIABILITY. In no event (including
unenforceability of the above limitations and independent of any failure of
essential purpose of the limited warranty and remedies provided hereunder)
shall FutureTel's aggregate liability for damages in connection with this
Agreement exceed the payment of
royalties to FutureTel by InnovaCOM associated with the applicable Licensed
Materials pursuant to the terms of Article III of this Agreement.
3. SEVERABILITY OF ACTIONS. IT IS EXPRESSLY
UNDERSTOOD AND AGREED THAT EACH AND EVERY PROVISION OF THIS AGREEMENT WHICH
PROVIDES FOR A LIMITATION OF LIABILITY, DISCLAIMER OF WARRANTIES OR
EXCLUSION OF DAMAGES, IS INTENDED BY
THE PARTIES TO BE SEVERABLE AND INDEPENDENT OF ANY OTHER PROVISION AND TO
BE ENFORCED AS SUCH.
4. SURVIVAL OF TERMINATION. The provisions of this
Article shall survive the termination of this Agreement.
VIII. INDEMNIFICATION
A. Indemnification. InnovaCOM agrees to indemnify FutureTel
and hold it harmless from and against any and all claims, actions,
liabilities, losses, costs, damages and expenses (including reasonable
attorneys' fees) (collectively, "Loss") associated with, arising from or
relating to the subject matter of this Agreement, including without
limitation any Loss resulting from: (1) any use of or reliance upon the
Licensed Materials, or any portion thereof, or modification or enhancement
thereof, by InnovaCOM or any sublicensee of InnovaCOM; and (2) the acts or
omissions of the employees, servants, agents, independent contractors, or
representatives of InnovaCOM, its sublicensees or any other party, whether
a failure to comply with the terms of this Agreement or pay any amount due
to FutureTel hereunder or otherwise. InnovaCOM further agrees to indemnify
FutureTel from any claims against FutureTel for incidental, special,
direct, or consequential damages, including any claims for lost profits,
lost savings, lost data or loss of use and loss of plant, equipment or
production, arising from or relating to the license, sublicense,
duplication, modification, enhancement, distribution or use of the Licensed
Materials, or any portion thereof, regardless of whether FutureTel has been
informed of the possibility of such damages.
<PAGE>
B. FUTURETEL'S RIGHT TO COMMENCE INFRINGEMENT ACTIONS. Except
as provided in this Section, FutureTel shall have the sole right, but not
the obligation, to take such actions which it determines are reasonably
necessary or desirable in its sole discretion in connection with any
infringement or alleged infringement by a third party of any portion of the
Licensed Materials. InnovaCOM shall not undertake any action in response
to any infringement or alleged' infringement of the Licensed Materials
without the prior written consent of FutureTel. InnovaCOM agrees to
cooperate with and assist FutureTel in taking whatever action (including
consenting to being named as a party to any suit or other proceeding) which
FutureTel determines to be reasonably necessary or desirable. FutureTel
agrees to reimburse InnovaCOM for reasonable legal fees and other expenses
incurred in connection with FutureTel's investigating or bringing any such
claim, suit, damage, or loss.
C. SURVIVAL OF TERMINATION. The provisions of this Article
shall survive the termination of this Agreement.
IX. TERM AND TERMINATION
A. TERM. Unless sooner terminated as provided herein, this
Agreement and the licenses granted hereunder shall become effective upon
execution by FutureTel and InnovaCOM and shall continue in effect in
perpetuity.
B. TERMINATION. This Agreement and the license provided
hereunder shall terminate upon the earlier to occur of the following:
1. Upon ten (10) days' prior written notice of termination
by InnovaCOM to FutureTel, for any reason, after payment of all fees due to
FutureTel hereunder.
2. Thirty (30) days after either party gives the other
notice of the other's material breach of any provision of this Agreement
(other than InnovaCOM's intentional breach of its obligations under Article
V, which breach shall result in immediate termination), unless the
breaching party has cured such breach during such thirty (30) day period.
InnovaCOM's failure to pay any money due hereunder within thirty (30) days
of the date on which payment is due shall be a material breach hereunder,
and thirty days after FutureTel provides notice of such breach (e.g. a
minimum of sixty (60) days after the date such payment is due), the
licenses provided hereunder shall terminate unless InnovaCOM has cured such
nonpayment during such sixty (60) day period.
3. Immediately upon the existence of any one or more of
the following events with respect to either party, which remain uncured for
more than sixty (60) days: (a) entry of an order for relief under Title 11
of the United States Code; (b) the making of a general assignment for the
<PAGE>
benefit of creditors; (c) the appointment of a general receiver or trustee
in bankruptcy of a party's business or property; or (d) action under any
state insolvency or similar law for the purpose of bankruptcy,
reorganization, or liquidation; unless within the specified sixty (60) day
period, the party in bankruptcy (including its receiver or trustee in
bankruptcy) provides to the other party adequate written assurances,
reasonably acceptable to such other party, of the party in bankruptcy's
continuing ability and willingness to fulfill all its obligations under
this Agreement.
C. EFFECT OF TERMINATION. Upon any termination of this
Agreement, InnovaCOM's rights under Article II shall immediately cease.
Within five (5) days after any termination for breach by InnovaCOM (except
a breach for nonpayment of any amount due hereunder) or within thirty (30)
days after termination for any reason, including breach of this Agreement
for nonpayment by InnovaCOM, InnovaCOM shall deliver to FutureTel
at InnovaCOM's sole cost and expense (adequately packaged and insured for
safe delivery), all copies of any Licensed Materials, and all Proprietary
Information of FutureTel. Alternatively, and at FutureTel's request,
InnovaCOM shall destroy all copies of any Licensed Materials, in every
form, including binary or other resulting files, and all copies of records
relating thereto, and all other FutureTel Proprietary Information.
InnovaCOM further agrees to erase all copies of any Licensed Materials from
any storage media.
D. NO REFUND. Except as otherwise expressly provided herein,
in the event of any termination hereunder, InnovaCOM shall not be entitled
to any refund of any payments made to FutureTel.
X. ARBITRATION
Except for the right of either party to apply to a court of
competent jurisdiction for a Temporary Restraining Order to preserve the
status quo or prevent irreparable harm pending the selection and
confirmation of a panel of arbitrators, and for the right of FutureTel to
bring suit on an open account for any payments due FutureTel hereunder, any
controversy or claim arising out of or relating to this Agreement, or the
breach thereof, shall be settled by arbitration in Santa Clara County,
California, in accordance with the Commercial Arbitration Rules of the
American Arbitration Association, and judgment upon the award rendered by
the arbitrators may be entered in any court having jurisdiction thereof.
Arbitration shall be conducted by a panel of three (3) members, one member
selected by FutureTel, one member selected by InnovaCOM and the third
member, who shall be chairman, selected by agreement between the other two
(2) members. The arbitrators shall have the authority to grant injunctive
relief in a form substantially similar to that which would otherwise be
granted by a court of law. The parties obligations under this Article XI
shall survive termination of this Agreement.
<PAGE>
XI. GENERAL PROVISIONS
A. AGREEMENT BINDING. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors
and permitted assigns for purposes of carrying out this Agreement.
B. RIGHTS TO INJUNCTIVE RELIEF. Both parties acknowledge that
remedies at law may be inadequate to provide either party with full
compensation in the event of the other party's material breach of Articles
II, V, VI, VII or VIII, and that the non-breaching party shall therefore be
entitled to seek injunctive relief in the event of any such material
breach.
C. ENTIRE AGREEMENT. This Agreement and each Schedule attached
hereto constitutes the complete and exclusive statement of the agreement
between FutureTel and InnovaCOM, and all previous representations,
discussions and writings are merged in this Agreement. This Agreement may
be modified only by a writing signed by both parties. This Agreement and
each Schedule attached hereto shall prevail over any additional,
conflicting or inconsistent terms and conditions which may appear on any
purchase order or other document furnished by InnovaCOM to FutureTel.
D. SEVERABILITY. It is the intent of the parties that in case
any one or more of the provisions contained in this Agreement shall be held
to be invalid or unenforceable in any respect, such invalidity, illegality,
or unenforceability shall not affect the other provisions of this
Agreement, and this Agreement shall be construed as if such invalid,
illegal or unenforceable provision had never been contained herein.
E. NO WAIVER. If either party should waive any breach of any
provision of this Agreement, it shall not thereby be deemed to have waived
any preceding or succeeding breach of the same or any other provision
hereof.
F. HEADINGS. Section and subsection headings of this Agreement
are inserted for convenience only and shall not be deemed to constitute a
part hereof nor to affect the meaning thereof.
G. COUNTERPARTS. This Agreement may be signed in two (2)
counterparts, each of which shall be deemed an original and which shall
together constitute one Agreement.
H. ADVERTISING AND PUBLICITY. Neither party shall use the name
of the other in publicity, advertising, or similar activity, without the
prior written consent of the other, except that InnovaCOM hereby consents
to FutureTel's inclusion of InnovaCOM's name in customer listings which may
be published from time to time as part of FutureTel's marketing efforts.
<PAGE>
I. GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the laws of the State of California without
reference to its conflicts of law principles.
J. NOTICES. All notices or reports which are required or may
be given pursuant to the terms of this Agreement shall be in writing and
shall be deemed duly given when delivered to the respective executive
offices of FutureTel and InnovaCOM at the addresses first set forth above.
K. REPRESENTATIVE. Each party shall have the following
representatives who shall promptly give or obtain all
necessary information and decisions relating to GECKO and the Documentation
and this Agreement. Each party shall contact the designated representative
of the other party at such times as it deems necessary to facilitate proper
performance of the mutual obligations of the parties under this Agreement.
Each party may change its designated representative upon thirty (30) days
written notice to the other party.
FutureTel: Masato Hata
InnovaCOM: Mark Koz
L. FORCE MAJEURE. Neither party shall be liable for any delay
or nonperformance of any provision of this Agreement (other than for the
payment of amounts due hereunder) due to fire, explosion, flood or other
natural catastrophe, governmental legislation, act, orders or regulations,
strikes or labor difficulties, to the extent any such event is not
occasioned by the negligence of the delayed party, and the time for
performance of such provision shall he deemed to be extended for a period
equal to the duration of the conditions preventing performance. The party
affected by an event described in the preceding sentence shall use its
reasonable efforts to minimize the delays caused by such events. Each
party shall notify the other as promptly as practicable of the occurrence
of a force majeure event hereunder.
M. FURTHER ASSURANCES. Each party hereto shall, without
further consideration, execute such documents and deliver such materials as
may be necessary or appropriate to further the purposes of this Agreement.
Without limiting the generality of the foregoing, each party shall give the
other all assistance reasonably required to perfect or ensure such other
party's ownership of Derivative Works and any other property developed in
connection with this Agreement, including executing and delivering such
instruments and taking such other actions as such other party may
reasonably require to establish, maintain, evidence, defend or enforce its
exclusive ownership of, and rights related such property.
<PAGE>
IN WITNESS WHEREOF, the undersigned, intending to be legally bound
have duly executed this Agreement to become effective as of the date first
above written.
InnovaCOM, Inc.
By: _________________________
Name: Mark Koz
Title: CEO
FutureTel, Inc.
By: _________________________
Name: Masato Hata
Title: President
<PAGE>
SCHEDULE A
ADDITIONAL DEFINITIONS
I. GECKO:
A. SPECIFICATIONS: Document referred to as "GECKO Design
Specification." Represented by the frame readable document named
"gecko.1.3."
B. C-MODEL SOURCE CODE:
The code represented on pages 11-19 of the attached 30-page "LIST
OF FILES." The C-Model Source Code performs software simulation
for encoding, decoding, and other functions with the GECKO
hardware.
C. VERILOG SOURCE CODE:
The code represented on pages 1-11 of the attached "LIST OF
FILES." The Verilog Source Code represents the logical structure
of the GECKO modules in source code format.
D. SIMULATION ENVIRONMENT:
All test benches/simulation suites used to stimulate the GECKO
design in either behavioral or gate level verification. These
test benches consist of Verilog or C-Model or other modules used
for stimulation or verification of the design. These files can
be found on pages 1-11 in the attached "LIST OF FILES."
E. MICROCODE:
The code:
i) required to exercise the design for the purpose of design
verification;
ii) required to enable the GECKO chip to perform any and all
functions pursuant to its design. This microcode is
represented by the ".asm" files on pages 1-2 of the attached
"LIST OF FILES," including the "assemble.c" file.
F. SYNTHESIS AND SIMULATION WITH IBM LIBRARY:
i) Gate-level libraries for IBM process represented on pages 27
and 28 of the attached "LIST OF FILES."
ii) Synopsis scripts necessary for module and top-level
synthesis to generate gate-level netlists. These are
represented on pages 19-24 of the attached "LIST OF FILES."
G. NETLIST:
Gate-level netlist generated using IBM libraries. The netlist is
represented on pages 28-30 of the attached "LIST OF FILES."
<PAGE>
H. IBM MASK:
Ultimate physical representation of the final device.
I. IBM SILICON:
The final GECKO integrated circuit in wafer, bare die, or
packaged form.
<PAGE>
SCHEDULE B
EXCLUSIVE GECKO SUBLICENSES
Oki Semiconductor
Mitsubishi Electronics Corporation
Toshiba, Ltd.
<PAGE>
SCHEDULE C
OKI TRANSACTION
1. OKI COVERED TRANSACTIONS. Any transaction by and between
InnovaCOM and OKI directly involving the Licensed Materials shall be
subject to a royalty as set forth in this Section. Any such transaction
shall be referred to herein as an "OKI Covered Transaction."
2. APPLICABLE ROYALTIES. InnovaCOM shall pay to FutureTel a
royalty in the percentage specified below for the applicable year on the
Gross Revenues received by InnovaCOM in connection with the applicable OKI
Covered Transaction during that year, until the expiration of Year 7.
Specifically, for all OKI Covered Transactions, InnovaCOM shall pay to
FutureTel 10% of the Gross Revenues received by InnovaCOM in connection
with such transaction during Year 1; 10%k of the Gross Revenues received by
InnovaCOM in connection with such transaction during Year 2; 8% of the
Gross Revenues received by InnovaCOM in connection with such transaction
during Year 3; 5% of the Gross Revenues received by InnovaCOM in connection
with such transaction during Year 4: 3% of the Gross Revenues received by
InnovaCOM in connection with such transaction during Year 5; 1% of the
Gross Revenues received by InnovaCOM in connection with such transaction
during Year 6; and 1% of the Gross Revenues received by InnovaCOM in
connection with such transaction during Year 7, as follows:
Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Year 7
20% 15% 8% 5% 3% 1% 1%
<PAGE>
SCHEDULE D
MEMBERS OF GECKO TEAM
Wei Li
Sagar Edara
Ren-Yuh Wang
Vivek Bhargaua
Exhibit 6.3
EMPLOYMENT AGREEMENT
BETWEEN
INNOVACOM, INC.
AND
MARK C. KOZ
THIS AGREEMENT is entered into as of the 15th day of May, 1997, by and
between InnovaCom, Inc., a Nevada corporation (hereafter referred to as
"Employer") and Mark C. Koz, an individual (hereafter referred to as
"Employee"), in consideration of the mutual promises made herein, (the
"Agreement"):
TERM OF EMPLOYMENT
SECTION 1.01. EMPLOYMENT AND TERM. Employer hereby employs Employee and
Employee hereby accepts employment with Employer, upon the terms and
conditions hereinafter set forth, from May 15, 1997 until May 15, 2002 or
until the employment relationship is sooner terminated by either party in
accordance with the terms of this Agreement.
SECTION 1.02. "EMPLOYMENT TERM" DEFINED. As used in this Agreement, the
phrase "Employment Term" refers to the entire period of employment of
Employee by Employer hereunder.
<PAGE>2
DUTIES OF EMPLOYEE AS PRESIDENT AND
CHIEF EXECUTIVE OFFICER
SECTION 2.01. GENERAL DUTIES. Employee shall serve as the President and
Chief Executive Officer of InnovaCom, Inc., a Nevada Corporation. In his
capacity as President and Chief Executive Officer of Employer, Employee
shall do and perform all services, acts, or things necessary or advisable
to manage and conduct the strategic planning of the business of Employer,
including, but not limited to, the supervision, direction and control of
the business and employees of Employer, subject at all times to the
policies and directions set by Employer's Board of Directors (the "Board").
To the extent not inconsistent with Employer's articles and bylaws,
Employee shall preside at all meetings of Employer's stockholders and, in
the absence of the Chairman of the Board, or if there be none, at all
meetings of the Board. Employee shall also have such other powers, duties
and responsibilities as may be prescribed by the Board and the Employer's
corporate articles and bylaws. Finally, Employee shall serve as a director
of the Employer and on the Executive Committee of the Board, if one exists
now or in the future, and shall be nominated as a director as one of the
Boards' slate of directors from year to year and subject only to the
continued approval of the stockholders of Employer as required by law.
<PAGE>3
SECTION 2.03. PASSIVE INVESTMENTS AND ENDEAVORS. This Agreement shall not
be interpreted to prohibit Employee from making passive personal
investments or conducting private business affairs if those activities do
not materially interfere with the services required of Employee under this
Agreement. However, Employee shall not directly or indirectly acquire,
during the Employment Term, a controlling interest in any business
competing with the business of Employer without the prior consent of the
Board.
OBLIGATIONS OF EMPLOYER
SECTION 3.01. GENERAL OBLIGATIONS. Employer shall provide Employee with
the compensation, incentives, benefits, and business expense reimbursements
specified elsewhere in this Agreement. Employer shall also provide
Employee with an office located in Santa Clara, California, stenographic
help, office equipment, a cellular phone, supplies, and other facilities
and services, suitable to Employee's position and adequate for the
performance of his duties. Employer may not change the domicile of
Employee's office without Employee's prior consent.
SECTION 3.02. INDEMNIFICATION. Employer shall indemnify and hold Employee
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as Employer's President and Chief
Executive Officer during the Employment Term. To the extent permitted by
law, Employer shall pay, indemnify and hold Employee harmless from any
<PAGE>4
liability, cost or expense (including, without limitation, reasonable
attorneys' fees) incurred by him in the defense of any claim, proceeding or
action arising out of his performance of services for Employer or out of
his status as an officer and director of Employer. Employer will use its
best efforts to obtain coverage for Employee under any insurance now in
force or hereafter obtained during the term of this Agreement covering any
employee, officer or director of Employer. Notwithstanding the foregoing,
Employer does not intend to and shall not indemnify Employee against any
act or omission by him constituting fraud, willful misconduct or gross
negligence.
COMPENSATION OF EMPLOYEE
SECTION 4.01. ANNUAL SALARY. As compensation for the services to be
performed hereunder, Employee shall receive a salary at the rate of two
hundred forty thousand dollars ($240,000) per annum, payable not less
frequently than the regular payroll schedule of Employer during the
Employment Term.
SECTION 4.02. ANNUAL INCREASES. Employee shall receive such annual
increases in salary as may be determined by the Board in its sole
discretion. Notwithstanding the foregoing, Employee shall be entitled to a
seven percent (7%) cost of living increase annually for the period through
May 15, 2000, at which time the Board, in its sole discretion, may change
the amount of the annual cost of living increase.
<PAGE>5
SECTION 4.03. TAX WITHHOLDING. Employer shall have the right to deduct or
withhold from the compensation due to Employee hereunder any and all sums
required for federal income and Social Security taxes and all state or
local taxes now applicable or that may be enacted and become applicable in
the future.
SECTION 4.04. VEHICLE ALLOWANCE. As additional compensation to the
Employee, Employer shall pay to Employee a vehicle allowance of one
thousand five hundred dollars ($1,500) per month during the Employment
Term.
SECTION 4.05 WHOLE LIFE POLICY. The Company shall purchase and provide
Employee with a $2,000,000.00 Whole Life Insurance policy on the life of
Employee, payable to Employee's designated beneficiaries. Upon expiration
or termination of this Agreement, said policy, together with any
accumulated cash value shall become the sole and exclusive property of
Employee.
SECTION 4.06. INTELLECTUAL PROPERTY. Compensation to be paid by Employer
to Employee for intellectual property created by Employee shall be governed
by a separate agreement between the Employee and Employer.
<PAGE>6
EMPLOYEE BENEFITS
SECTION 5.01. ANNUAL VACATION. Employee shall be entitled to thirty (30)
days vacation time each year without loss of compensation. Accrued unused
vacation shall accumulate from year to year up to a maximum of sixty (60)
days.
SECTION 5.02. ILLNESS. Employee shall be entitled to thirty (30) days per
year as sick leave with full pay. Sick leave may be accumulated from year
to year up to a maximum of one hundred eighty (180) days and may be used
only during periods of bona fide illness.
SECTION 5.03. EMPLOYEE BENEFITS GENERALLY. During the Employment Term,
Employee shall be entitled to participate in and to receive benefits from
all present and future accident, disability, medical, dental and similar
plans, pension plans, savings plans, profit sharing plans, stock option
plans or other similar employee benefit plans available generally to all
other officers or employees of Employer. The amount and extent of these
benefits, including employee-paid premiums, co-payments and deductibles,
shall be governed by the specific benefit plan, as it may be amended from
time to time.
BUSINESS EXPENSES
SECTION 6. REIMBURSEMENT OF BUSINESS EXPENSES. Employer shall promptly
reimburse Employee for all reasonable business expenses incurred by
<PAGE>7
Employee in connection with the business of Employer. Employee shall
furnish to Employer adequate records and other documentary evidence
required by federal and state tax statutes and regulations for the
substantiation of each such expenditure prior to reimbursement.
TERMINATION OF EMPLOYMENT
SECTION 7.01. TERMINATION FOR CAUSE. Employer reserves the right to
terminate this Agreement upon: (a) Employee's willful and continued
failure to substantially perform his duties with Employer (other than such
failure resulting from his incapacity due to physical or mental illness)
after there is delivered to Employee by the Board of Directors, a written
demand for substantial performance which sets forth in detail the specific
respects in which the Board believes Employee has not substantially
performed his duties, and giving Employee not less than thirty (30) days to
correct the deficiencies specified in the written demand, (b) Employee's
willful engagement in gross misconduct as determined by the Board which is
materially and demonstrably injurious to Employer, or (c) Employee's
commission of a felony or an act of fraud against Employer or its
affiliates. No act, or failure to act, by Employee shall be considered
"willful" if done, or omitted to be done, by Employee in good faith and
with the reasonable belief that the act or omission was in the best
interest of Employer and/or required by applicable law. Anything contained
<PAGE>8
in this Section 7.01 to the contrary notwithstanding, Employee shall not be
deemed to have been terminated for cause for purposes of Sections (a) or
(b) of this Section 7.01 unless and until there shall have been delivered
to Employee a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board at a meeting
of the Board called and held for that purpose (after reasonable notice to
and an opportunity for Employee, together with his counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Employee was guilty of conduct set forth in Sections (a) or (b) of this
Section 7.01 and specifying the particulars thereof in detail. Termination
under this Section 7.01 shall be considered "for cause" for the purposes of
this Agreement.
SECTION 7.02. TERMINATION WITHOUT CAUSE. This Agreement shall terminate
upon the death of Employee. Employer reserves the right to terminate this
Agreement after three (3) continuous months of physical or mental
disability suffered by Employee that would prevent the performance of
Employee's duties under this Agreement. Such a termination shall be
effected by giving thirty (30) days written notice of termination to
Employee. Notwithstanding anything else to the contrary, physical or
mental disability shall not include periods of bona fide illness for which
Employee is entitled to sick leave pursuant to Section 5.02 of this
Agreement. Other than on death or upon the physical or mental disability
<PAGE>9
of Employee, Employer reserves the right at any time to terminate this
Agreement upon sixty (60) days written notice to Employee and, in such an
event, Employee shall be paid his severance benefit hereinafter provided.
SECTION 7.03. TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon sixty (60) days written notice to Employer.
Other than upon Employee's termination of this Agreement pursuant to
Section 7.05, Employer shall not be obligated to pay any severance benefit
if Employee terminates this Agreement pursuant to this Section 7.03.
SECTION 7.04. SEVERANCE BENEFIT UPON TERMINATION WITHOUT CAUSE.
Notwithstanding any other provision of this Agreement, if Employer
terminates this Agreement other than for cause as defined in Section 7.01,
Employer shall pay Employee a lump sum cash payment equal to one years
annual salary as provided for in this Agreement, or Employee's then current
rate of compensation, whichever is greater.
SECTION 7.05. SEVERANCE BENEFIT UPON CHANGE IN CONTROL. Notwithstanding
any other provision of this Agreement, if Employer terminates this
Agreement for any reason, other than "for cause" pursuant to Section 7.01,
within six months of a "change of control" as hereinafter defined, Employer
shall pay Employee a lump sum cash payment equal to three years annual
<PAGE>10
salary as provided for in this Agreement, or Employee's then current rate
of compensation, whichever is greater. Notwithstanding any other provision
of this Agreement, if Employee terminates this Agreement within six months
following a "change of control," as hereinafter defined, as a result of
Employee's determination, in his sole and complete discretion, that the
policies and procedures of the Board of Directors of Employer are
unacceptable to Employee, Employer shall pay Employee a lump sum cash
payment equal to one year of Employee's annual salary as provided for in
this Agreement, or Employee's then current rate of compensation, whichever
is greater. For the purposes of this Section 7.04, a "change of control"
shall mean an event involving one transaction or a related series of
transactions, in which (i) the Employer issues securities equal to 51% or
more of the issued and outstanding capital stock of Employer to any
individual, firm, partnership or other entity, including a "group" within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
(ii) the Employer issues securities equal to 51% or more of the issued and
outstanding capital stock of Employer in connection with a merger,
consolidation or other business combination, (iii) the Employer is acquired
in a merger or other business combination transaction in which the Employer
is not the surviving corporation, or (iv) 51% or more of the Employers'
consolidated assets or earning power are sold or transferred.
<PAGE>11
SECTION 7.06. NONCOMPETITION. If the Employee services with the Company
are terminated pursuant to paragraph 7(a), in further consideration for
this Agreement, the Employee agrees that for a period of two years
following termination, Employee will not engage, directly or indirectly,
either personally or as an employee, associate, partner, manager, agent or
otherwise, or by means of any corporation or other entity which is in
competition with the Company at the date of such termination, in any
territory within a radius of 50 miles of any city in which the Company does
business or has customers.
GENERAL PROVISIONS
SECTION 8.01. NOTICES. Any notice to be given hereunder by either party
to the other shall be in writing and may be transmitted by personal
delivery, facsimile transmission, overnight courier or by mail, registered
or certified, postage prepaid with return receipt requested. Mailed
notices shall be addressed to the parties at the following addresses:
EMPLOYER InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
EMPLOYEE Mark Koz
180 Elm St. #1901
Sunnyvale, CA 94086
<PAGE>12
Any party may change the address at which notice is to be provided by
providing a written notice to the other party specifying a new address.
Notices delivered personally or by facsimile transmission shall be deemed
communicated as of the date of actual receipt; notices mailed shall be
deemed communicated as of the third day after mailing.
SECTION 8.02. ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions,
or conditions of this Agreement shall on the written request of either
party which is served on the other be submitted to arbitration.
Arbitration shall comply with and be governed by the provisions of the
American Arbitration Association. Employer and Employee shall each appoint
one person who shall then choose a third person, all three of which shall
hear and determine the dispute. The decision of the arbitrators shall be
final and conclusive upon both parties.
SECTION 8.03. ATTORNEYS' FEES AND COSTS. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorneys' fees, costs
and necessary disbursements in addition to any other relief to which that
party may be entitled.
SECTION 8.04. ENTIRE AGREEMENT. This Agreement supersedes any and all
other agreements, either oral or in writing, between the parties hereto
with respect to the employment of Employee by Employer and contains all of
<PAGE>13
the covenants and agreements between the parties with respect thereto.
Each party to this Agreement acknowledges that no representation,
inducements, promises, or agreements, orally or otherwise, have been made
by any party, or anyone acting on behalf of any party, which are not
embodied herein, and that no other agreement shall be valid or binding on
either party.
SECTION 8.05. MODIFICATION. Any modification of this Agreement will be
effective only if it is in writing and signed by the party to be charged.
SECTION 8.06. EFFECT OF WAIVER. The failure of either party to insist on
strict compliance with any of the terms, covenants, or conditions, of this
Agreement by the other party shall not be deemed a waiver of that term,
covenant, or condition, nor shall any waiver or relinquishment of any right
or power at any one time or times be deemed a waiver or relinquishment of
that right or power for all or any other time.
SECTION 8.07. PARTIAL INVALIDITY. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way.
<PAGE>14
SECTION 8.08. LAW GOVERNING AGREEMENT. This Agreement shall be governed
by and construed in accordance with the laws of the State of California.
SECTION 8.09. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together
shall constitute one instrument.
IN WITNESS WHEREOF, the Employer and Employee have duly executed this
Employment Agreement as of the day and year first above written.
EMPLOYER
InnovaCom, Inc.
By: F. James Anderson
Its: Director of Strategic Planning
EMPLOYEE
Mark C. Koz, an individual
Exhibit 6.4
EMPLOYMENT AGREEMENT
BETWEEN
INNOVACOM, INC.
AND
F. JAMES ANDERSON
THIS AGREEMENT is entered into as of the 15th day of May, 1997, by and
between InnovaCom, Inc., a Nevada corporation (hereafter referred to as
"Employer") and F. James Anderson, an individual (hereafter referred to as
"Employee"), in consideration of the mutual promises made herein, (the
"Agreement"):
TERM OF EMPLOYMENT
SECTION 1.01.EMPLOYMENT AND TERM. Employer hereby employs Employee and
Employee hereby accepts employment with Employer, upon the terms and
conditions hereinafter set forth, from May 15, 1997 until May 15, 2002 or
until the employment relationship is sooner terminated by either party in
accordance with the terms of this Agreement.
SECTION 1.02."EMPLOYMENT TERM" DEFINED. As used in this Agreement, the
phrase "Employment Term" refers to the entire period of employment of
Employee by Employer hereunder.
<PAGE>2
<PAGE>2
DUTIES OF EMPLOYEE AS DIRECTOR OF STRATEGIC PLANNING AND PRESIDENT OF
EMPLOYER'S ENTERTAINMENT DIVISION
SECTION 2.01.GENERAL DUTIES. Employee shall serve as the Director of
Strategic Planning and President of Employer's Entertainment Division with
supervision over the Employer's Sierra Vista Entertainment, Inc., wholly
owned subsidiary. In his capacity as Director of Strategic Planning of
Employer, Employee shall do and perform all services, acts, or things
necessary or advisable to manage and conduct the strategic planning of the
business of Employer, including, but not limited to, the supervision,
direction and control of the business and financial planning activities of
Employer and the supervision of the Employer's Chief Financial Officer,
subject at all times to the policies and directions set by Employer's Board
of Directors (the "Board"). As the President of the Employer's
Entertainment Division, Employee shall do and perform all services, acts,
or things necessary or advisable to manage and conduct the business of the
Employer's wholly owned subsidiary, Sierra Vista Entertainment, Inc.
Employee shall also have such other powers, duties and responsibilities as
may be prescribed by the Board and the Employer's corporate articles and
bylaws. Finally, Employee shall serve as a director of the Employer and a
director and Chairman of the board of directors of Employer's wholly owned
subsidiary, Sierra Vista Entertainment, Inc., and serve on the Executive
<PAGE>3
Committee of the Board, if one exists now or in the future, and shall be
nominated as a director as one of the Boards' slate of directors from year
to year and subject only to the continued approval of the stockholders of
Employer as required by law.
SECTION 2.02.DEVOTION TO EMPLOYER'S BUSINESS. During the Employment Term,
Employee shall devote his full time, efforts and attention to the
performance of the duties specified in Section 2.01 above and to such other
services as may be reasonably requested by the Board. Employee shall not
engage in any other business duties or pursuits or directly render any
services of a business, commercial, or professional nature to any other
person or organization, other than passive investments and endeavors
provided hereinbelow, without obtaining the prior consent of the Board.
Notwithstanding the foregoing, activities by Employee which do not
materially interfere with the services required of Employee under this
Agreement shall not be deemed a breach of this Section 2.02 and shall not
require the prior consent of the Board.
SECTION 2.03.PASSIVE INVESTMENTS AND ENDEAVORS. This Agreement shall not
be interpreted to prohibit Employee from making passive personal
investments or conducting private business affairs if those activities do
not materially interfere with the services required of Employee under this
Agreement. However, Employee shall not directly or indirectly acquire,
during the Employment Term, a controlling interest in any business
competing with the business of Employer without the prior consent of the
Board.
<PAGE>4
OBLIGATIONS OF EMPLOYER
SECTION 3.01.GENERAL OBLIGATIONS. Employer shall provide Employee with the
compensation, incentives, benefits, and business expense reimbursements
specified elsewhere in this Agreement. Employer shall also provide
Employee with an office located in Santa Clara, California, stenographic
help, office equipment, a cellular phone, supplies, and other facilities
and services, suitable to Employee's position and adequate for the
performance of his duties. Employer may not change the domicile of
Employee's office without Employee's prior consent.
SECTION 3.02.INDEMNIFICATION. Employer shall indemnify and hold Employee
harmless for any actions taken or decisions made by him in good faith while
performing services in his capacity as Director of Strategic Planning and
President of Employer's Entertainment Division of Employer during the
Employment Term. To the extent permitted by law, Employer shall pay,
indemnify and hold Employee harmless from any liability, cost or expense
(including, without limitation, reasonable attorneys' fees) incurred by him
in the defense of any claim, proceeding or action arising out of his
performance of services for Employer or out of his status as an officer and
director of Employer. Employer will use its best efforts to obtain
coverage for Employee under any insurance now in force or hereafter
obtained during the term of this Agreement covering any employee, officer
or director of Employer. Notwithstanding the foregoing, Employer does not
<PAGE>5
intend to and shall not indemnify Employee against any act or omission by
him constituting fraud, willful misconduct or gross negligence.
COMPENSATION OF EMPLOYEE
SECTION 4.01.ANNUAL SALARY. As compensation for the services to be
performed hereunder, Employee shall receive a salary at the rate of one
hundred eighty thousand dollars ($180,000) per annum, payable not less
frequently than the regular payroll schedule of Employer during the
Employment Term.
SECTION 4.02. ANNUAL INCREASES. Employee shall receive such annual
increases in salary as may be determined by the Board in its sole
discretion. Notwithstanding the foregoing, Employee shall be entitled to a
seven percent (7%) cost of living increase annually for the period through
May 15, 2000, at which time the Board, in its sole discretion, may change
the amount of the annual cost of living increase.
SECTION 4.03.TAX WITHHOLDING. Employer shall have the right to deduct or
withhold from the compensation due to Employee hereunder any and all sums
required for federal income and Social Security taxes and all state or
local taxes now applicable or that may be enacted and become applicable in
the future.
SECTION 4.04. HOUSING AND VEHICLE ALLOWANCE. As additional compensation
to the Employee, Employer shall pay to Employee a housing allowance equal
<PAGE>6
to three thousand five hundred dollars ($3,500) per month for the first
twelve months of the Employment Term. In addition, as additional
compensation, Employer shall pay to employee a vehicle allowance of one
thousand five hundred dollars ($1,500) per month during the Employment
Term.
EMPLOYEE BENEFITS
SECTION 5.01.ANNUAL VACATION. Employee shall be entitled to thirty (30)
days vacation time each year without loss of compensation. Accrued unused
vacation shall accumulate from year to year up to a maximum of sixty (60)
days.
SECTION 5.02.ILLNESS. Employee shall be entitled to thirty (30) days per
year as sick leave with full pay. Sick leave may be accumulated from year
to year up to a maximum of one hundred eighty (180) days and may be used
only during periods of bona fide illness.
SECTION 5.03.EMPLOYEE BENEFITS GENERALLY. During the Employment Term,
Employee shall be entitled to participate in and to receive benefits from
all present and future accident, disability, medical, dental and similar
plans, pension plans, savings plans, profit sharing plans, stock option
plans or other similar employee benefit plans available generally to all
other officers or employees of Employer. The amount and extent of these
benefits, including employee-paid premiums, co-payments and deductibles,
shall be governed by the specific benefit plan, as it may be amended from
time to time.
<PAGE>7
SECTION 5.04. LIFE INSURANCE. Employer shall provide Employee a one
million dollar ($1,000,000) life insurance policy, and Employer's expense,
insuring the life of Employee during the Employment Term, with a
beneficiary designated by the Employee.
BUSINESS EXPENSES
SECTION 6.REIMBURSEMENT OF BUSINESS EXPENSES. Employer shall promptly
reimburse Employee for all reasonable business expenses incurred by
Employee in connection with the business of Employer. Employee shall
furnish to Employer adequate records and other documentary evidence
required by federal and state tax statutes and regulations for the
substantiation of each such expenditure prior to reimbursement.
TERMINATION OF EMPLOYMENT
SECTION 7.01.TERMINATION FOR CAUSE. Employer reserves the right to
terminate this Agreement upon: (a) Employee's willful and continued
failure to substantially perform his duties with Employer (other than such
failure resulting from his incapacity due to physical or mental illness)
after there is delivered to Employee by the Board of Directors, a written
demand for substantial performance which sets forth in detail the specific
respects in which the Board believes Employee has not substantially
<PAGE>8
performed his duties, and giving Employee not less than thirty (30) days to
correct the deficiencies specified in the written demand, (b) Employee's
willful engagement in gross misconduct as determined by the Board which is
materially and demonstrably injurious to Employer, or (c) Employee's
commission of a felony or an act of fraud against Employer or its
affiliates. No act, or failure to act, by Employee shall be considered
"willful" if done, or omitted to be done, by Employee in good faith and
with the reasonable belief that the act or omission was in the best
interest of Employer and/or required by applicable law. Anything contained
in this Section 7.01 to the contrary notwithstanding, Employee shall not be
deemed to have been terminated for cause for purposes of Sections (a) or
(b) of this Section 7.01 unless and until there shall have been delivered
to Employee a copy of a resolution duly adopted by the affirmative vote of
not less than a majority of the entire membership of the Board at a meeting
of the Board called and held for that purpose (after reasonable notice to
and an opportunity for Employee, together with his counsel, to be heard
before the Board), finding that in the good faith opinion of the Board,
Employee was guilty of conduct set forth in Sections (a) or (b) of this
Section 7.01 and specifying the particulars thereof in detail. Termination
under this Section 7.01 shall be considered "for cause" for the purposes of
this Agreement.
SECTION 7.02.TERMINATION WITHOUT CAUSE. This Agreement shall terminate
upon the death of Employee. Employer reserves the right to terminate this
<PAGE>9
Agreement after three (3) continuous months of physical or mental
disability suffered by Employee that would prevent the performance of
Employee's duties under this Agreement. Such a termination shall be
effected by giving thirty (30) days written notice of termination to
Employee. Notwithstanding anything else to the contrary, physical or
mental disability shall not include periods of bona fide illness for which
Employee is entitled to sick leave pursuant to Section 5.02 of this
Agreement. Other than on death or upon the physical or mental disability
of Employee, Employer reserves the right at any time to terminate this
Agreement upon sixty (60) days written notice to Employee and, in such an
event, Employee shall be paid his severance benefit hereinafter provided.
SECTION 7.03.TERMINATION BY EMPLOYEE. Employee may terminate this
Agreement at any time upon sixty (60) days written notice to Employer.
Other than upon Employee's termination of this Agreement pursuant to
Section 7.05, Employer shall not be obligated to pay any severance benefit
if Employee terminates this Agreement pursuant to this Section 7.03.
SECTION 7.04.SEVERANCE BENEFIT UPON TERMINATION WITHOUT CAUSE.
Notwithstanding any other provision of this Agreement, if Employer
terminates this Agreement other than for cause as defined in Section 7.01,
Employer shall pay Employee a lump sum cash payment equal to one years
annual salary as provided for in this Agreement, or Employee's then current
rate of compensation, whichever is greater.
<PAGE>10
SECTION 7.05. SEVERANCE BENEFIT UPON CHANGE IN CONTROL. Notwithstanding
any other provision of this Agreement, if Employer terminates this
Agreement for any reason, other than "for cause" pursuant to Section 7.01,
within six months of a "change of control" as hereinafter defined, Employer
shall pay Employee a lump sum cash payment equal to three years annual
salary as provided for in this Agreement, or Employee's then current rate
of compensation, whichever is greater. Notwithstanding any other provision
of this Agreement, if Employee terminates this Agreement within six months
following a "change of control," as hereinafter defined, as a result of
Employee's determination, in his sole and complete discretion, that the
policies and procedures of the Board of Directors of Employer are
unacceptable to Employee, Employer shall pay Employee a lump sum cash
payment equal to twelve months of Employees annual salary as provided for
in this Agreement, or Employee's then current rate of compensation,
whichever is greater. For the purposes of this Section 7.04, a "change of
control" shall mean an event involving one transaction or a related series
of transactions, in which (i) the Employer issues securities equal to 51%
or more of the issued and outstanding capital stock of Employer to any
individual, firm, partnership or other entity, including a "group" within
the meaning of Section 13(d)(3) of the Securities Exchange Act of 1934,
(ii) the Employer issues securities equal to 51% or more of the issued and
outstanding capital stock of Employer in connection with a merger,
<PAGE>11
consolidation or other business combination, (iii) the Employer is acquired
in a merger or other business combination transaction in which the Employer
is not the surviving corporation, or (iv) 51% or more of the Employers'
consolidated assets or earning power are sold or transferred.
GENERAL PROVISIONS
SECTION 8.01.NOTICES. Any notice to be given hereunder by either party to
the other shall be in writing and may be transmitted by personal delivery,
facsimile transmission, overnight courier or by mail, registered or
certified, postage prepaid with return receipt requested. Mailed notices
shall be addressed to the parties at the following addresses:
EMPLOYER
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
EMPLOYEE
13940 Lodestar Drive
Grass Valley, CA 95949
Any party may change the address at which notice is to be provided by
providing a written notice to the other party specifying a new address.
Notices delivered personally or by facsimile transmission shall be deemed
communicated as of the date of actual receipt; notices mailed shall be
deemed communicated as of the third day after mailing.
<PAGE>12
SECTION 8.02.ARBITRATION. Any controversy between Employer and Employee
involving the construction or application of any of the terms, provisions,
or conditions of this Agreement shall on the written request of either
party which is served on the other be submitted to arbitration.
Arbitration shall comply with and be governed by the provisions of the
American Arbitration Association. Employer and Employee shall each appoint
one person who shall then choose a third person, all three of which shall
hear and determine the dispute. The decision of the arbitrators shall be
final and conclusive upon both parties.
SECTION 8.03.ATTORNEYS' FEES AND COSTS. If any action at law or in equity
is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which that party
may be entitled.
SECTION 8.04.ENTIRE AGREEMENT. This Agreement supersedes any and all other
agreements, either oral or in writing, between the parties hereto with
respect to the employment of Employee by Employer and contains all of the
covenants and agreements between the parties with respect thereto. Each
party to this Agreement acknowledges that no representation, inducements,
promises, or agreements, orally or otherwise, have been made by any party,
or anyone acting on behalf of any party, which are not embodied herein, and
that no other agreement shall be valid or binding on either party.
<PAGE>13
SECTION 8.05.MODIFICATION. Any modification of this Agreement will be
effective only if it is in writing and signed by the party to be charged.
SECTION 8.06.EFFECT OF WAIVER. The failure of either party to insist on
strict compliance with any of the terms, covenants, or conditions, of this
Agreement by the other party shall not be deemed a waiver of that term,
covenant, or condition, nor shall any waiver or relinquishment of any right
or power at any one time or times be deemed a waiver or relinquishment of
that right or power for all or any other time.
SECTION 8.07.PARTIAL INVALIDITY. If any provision in this Agreement is
held by a court of competent jurisdiction to be invalid, void, or
unenforceable, the remaining provisions shall nevertheless continue in full
force without being impaired or invalidated in any way.
SECTION 8.08.LAW GOVERNING AGREEMENT. This Agreement shall be governed by
and construed in accordance with the laws of the State of California.
SECTION 8.09. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be an original but all of which together
shall constitute one instrument.
<PAGE>14
IN WITNESS WHEREOF, the Employer and Employee have duly executed this
Employment Agreement as of the day and year first above written.
EMPLOYER
InnovaCom, Inc.
By:Mark C. Koz
Its:President
EMPLOYEE
F. James Anderson, an individual
Exhibit 6.5
ESCROW AGREEMENT AND INSTRUCTIONS
This Escrow Agreement and Instructions (the "Agreement") is made and
entered into as of this 27th day of February, 1997, by and among InnovaCom,
Inc., a Nevada corporation ("InnovaCom"), Sierra Vista Entertainment, Inc.,
a Nevada corporation ("Sierra Vista")(collectively, "the parties"), and
Bartel Eng Linn & Schroder (the "Escrow Agent").
WHEREAS, pursuant to the Plan and Agreement of Reorganization of even
date hereof (the "Plan"), a copy of which is attached hereto as EXHIBIT A,
InnovaCom and Sierra Vista intend to complete a "tax free" exchange, as
contemplated by the provisions of Section 368(a)(1)(B) of the Internal
Revenue Code of 1986, as amended; and
WHEREAS, InnovaCom and Sierra Vista desire to facilitate the exchange
of shares of Sierra Vista common stock (the "Sierra Vista Shares") for
shares of InnovaCom common stock (the "InnovaCom Shares") through the use
of an escrow account; and
WHEREAS, InnovaCom and Sierra Vista desire to appoint Bartel Eng Linn
& Schroder to act as Escrow Agent to receive the Sierra Vista Shares and
the InnovaCom Shares from each of the parties and to distribute the same
pursuant to the terms set forth herein and those contained in the Plan; and
WHEREAS, the Escrow Agent agrees to maintain an escrow account
pursuant to the terms of this Agreement and the Plan.
NOW, THEREFORE, in consideration of the foregoing, it is hereby agreed
as follows:
1. ESTABLISHMENT OF ESCROW ACCOUNT; DELIVERIES TO AND BY THE ESCROW
AGENT. By no later than the First Closing Date, as defined in the Plan,
Sierra Vista shall deliver to the Escrow Agent certificates representing an
aggregate of 6,500,000 shares of its previously issued and outstanding
common stock, as held by the shareholders of record and indicated on
"Exhibit A" to the Plan (the "Sierra Vista Shareholders"), and InnovaCom
shall deliver to the Escrow Agent certificates representing an equal number
of shares of its common stock with each certificate individually issued in
the name of the Sierra Vista Shareholders and a certificate (the
"Additional Certificate") representing 2,000,000 shares of its common stock
issued in the name of "Bartel Eng Linn & Schroder as Escrow Agent"; and
By no later than the Final Closing Date, as defined in the Plan,
Sierra Vista shall deliver to the Escrow Agent additional certificates
representing an aggregate of 2,000,000 shares of its outstanding common
stock which shall have been issued by Sierra Vista to various purchasers,
for cash, after the First Closing Date (the "New Shareholders"). The
<PAGE>2
Escrow Agent shall have the authority to release the Additional
Certificate, representing the 2,000,000 shares of InnovaCom common stock,
to a transfer agent for purposes of receiving individual certificates for
each of the New Shareholders.
Once the Escrow Agent has received all of the deliveries from the
parties and all conditions of the Plan have been satisfied or waived, as
determined by the Escrow Agent in its sole discretion, the Escrow Agent
shall then deliver to Sierra Vista the 8,500,000 shares of InnovaCom common
stock and shall deliver to InnovaCom the 8,500,000 shares of Sierra Vista
common.
If, pursuant to the Plan, the conditions of the First Closing or the
Final Closing have not been achieved, as determined by the Escrow Agent in
its sole discretion, the Escrow Agent shall then return all certificates
held in escrow to the respective parties and the escrow account shall be
terminated.
2. ESCROW PERIOD. The escrow shall begin with the execution of this
Agreement and shall terminate when all deliveries required to be made by
the Escrow Agent, pursuant to Section 1, have in fact been made.
3. DUTIES OF ESCROW AGENT. The Escrow Agent acts hereunder as
depository only and is not responsible or liable for the sufficiency,
correctness, authenticity or validity of any instrument deposited with it
thereunder, or the identity, authority or right of any person executing or
depositing the same. The Escrow Agent is hereby authorized and directed to
deliver the Additional Certificate representing 2,000,000 shares of
InnovaCom common stock, received after the First Closing, to a transfer
agent for purposes of having individual certificates issued in the name of
each of the New Shareholders and to have the certificates returned to the
Escrow Agent. The Escrow Agent will transmit all shares to be delivered
hereunder by certified mail or courier to Sierra Vista or InnovaCom, as the
case may be, at the addresses indicated in Section 7 hereof.
4. RIGHTS AND LIABILITIES OF THE PARTIES. The Escrow Agent shall
have the right to act upon any notice, request, waiver, consent or other
paper, document, or facsimile of the same believed by the Escrow Agent to
be genuine and to be signed by the proper party or parties. The Escrow
Agent shall not be liable for, and both Sierra Vista and InnovaCom agree to
indemnify and hold the Escrow Agent harmless from and against liability for
any error of judgment or for any act done or step taken or omitted by it in
good faith, or for any mistake of fact or law, or for anything which it may
do or refrain from doing in connection herewith, except its own wilful
misconduct or recklessness. The Escrow Agent shall have no duties to
anyone other than those signing this Agreement.
<PAGE>3
5. CONTROVERSIES. If any controversy arises between the parties, or
with any other party, concerning the subject matter of this Agreement or
its terms or conditions, the Escrow Agent will not be required to determine
the controversy or to take any action regarding it. The Escrow Agent may
hold all documents and instruments and may wait for settlement of any such
controversy by final appropriate legal proceedings or other means as, in
the Escrow Agent's sole discretion, it deems to be required. In such
event, the Escrow Agent will not be liable for interest or damages arising
from any non-delivery thereunder. Furthermore, the Escrow Agent may, at
its option, file an action of interpleader requiring the parties to answer
and litigate any clams and rights between themselves. The Escrow Agent is
authorized to deposit with the clerk of the court all documents and
instruments held, and the parties agree to pay all costs, expenses,
charges, and attorneys' fees incurred by the Escrow Agent due to any such
interpleader action. Upon initiating such action, the Escrow Agent shall
be fully released and discharged of and from all obligations and liability
imposed by the terms of this Agreement.
6. ACTIONS BY THE ESCROW AGENT. The Escrow Agent shall be entitled
to act and rely upon any statement, request, notice or instructions
respecting this Agreement given to the Escrow Agent by the parties.
However, any statement or notice to the Escrow Agent under this Agreement,
or with respect to the termination of this Agreement, must be confirmed in
writing to the Escrow Agent. At any time during the Escrow Period, the
Escrow Agent has the authority to release all shares from escrow solely to
the transfer agent for the purpose of breaking down the certificates held
under this Agreement so long as the Escrow Agent first obtains the written
consent of the parties.
7. NOTICES. Any notice required or permitted hereunder shall be
given in writing and shall be deemed effectively given upon personal
delivery or three business days after deposit with a recognized
international courier service, delivery charges prepaid, with instructions
to deliver the notice by the most expeditious means offered by courier
service, addressed to the following addresses, or the next business day
after delivery by facsimile transmission to the numbers listed hereinbelow,
so long as an original notice is also either personally delivered or sent
by means of a recognized international courier service as provided herein:
SIERRA VISTA: Mr. F. James Anderson
13940 Lodestar Drive
Grass Valley, CA 95949
Facsimile: (916) 346-2681
<PAGE>4
INNOVACOM: Mr. Mark Koz
Chief Executive Officer
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
Facsimile: (408) 727-8778
ESCROW AGENT: Bartel Eng Linn & Schroder
300 Capitol Mall
Suite 1100
Sacramento, CA 95814
Attn: Scott E. Bartel
Facsimile: (916) 442-3442
8. SIGNATURES AND COUNTERPARTS. This Agreement may be executed in
any number of counterparts, each of which shall be an original, but all of
which taken together shall constitute one instrument. This Agreement may
be executed by facsimile signature of the signature page.
IN WITNESS WHEREOF, the parties have each caused this Agreement to be
duly executed, individually or by an authorized representative, as of the
date first above written.
SIERRA VISTA ENTERTAINMENT, INC.
a Nevada corporation
_______________________________
F. James Anderson, President
INNOVACOM, INC.
a Nevada corporation
_______________________________
Mark Koz, President
BARTEL ENG LINN & SCHRODER
___________________________
Scott E. Bartel
Exhibit 6.6
STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE
1. BASIC PROVISIONS ("BASIC PROVISIONS").
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes
only, October 22, 1997, is made by and between COOPERAGE-ROSSE PROPERTIES
II, a General Partnership ("LESSOR") and INNOVACOM, INC., a California
corporation ("LESSEE"), (collectively the "PARTIES," or individually a
"PARTY").
1.2(a) PREMISES: That certain portion of the Building, including all
improvements therein or to be provided by Lessor under the terms of this
Lease, commonly known by the street address of 3400 Garrett Drive, located
in the City of Santa Clara, County of Santa Clara, State of California,
with zip code 95054, as outlined on Exhibit A attached hereto ("PREMISES").
The "BUILDING" is that certain building containing the Premises and
generally described as (describe briefly the nature of the Building):
Approx. 18,000 sq. ft. of space situated on the northern most portion of a
single story building which is part of a 2 bldg. complet situated at the
northwesterly corner of Scott Blvd. & Garrett Drive. In addition to
Lessee's rights to use and occupy the Premises as hereinafter specified,
Lessee shall have non-exclusive rights to the Common Areas (as defined in
Paragraph 2.7 below) as hereinafter specified, but shall not have any
rights to the roof, exterior walls or utility raceways of the Building or
to any other buildings in the Industrial Center. The Premises, the
Building, the Common Areas, the land upon which they are located, along
with all other buildings and improvements thereon, are herein collectively
referred to as the "INDUSTRIAL CENTER." (Also see Paragraph 2.)
1.2(b) PARKING: 70 unreserved vehicle parking spaces ("UNRESERVED
PARKING SPACES"); and no reserved vehicle parking spaces ("RESERVED PARKING
SPACES"). (Also see Paragraph 2.6.)
1.3 TERM: 5 years and 0 months ("ORIGINAL TERM") commencing
January 1, 1998 ("COMMENCEMENT DATE") and ending December 31, 2002
("EXPIRATION DATE"). (Also see Paragraph 3.)
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE").
(Also see Paragraphs 3.2 and 3.3.)
1.5 BASE RENT: $28,800.00 per month ("BASE RENT"), payable on the
first day of each month commencing January 1, 1998. (Also see Paragraph
4.)
<checked-box> If this box is checked, this Lease provides for the Base Rent
to be adjusted per Addendum _________, attached hereto.
1.6(a) BASE RENT PAID UPON EXECUTION: $28,800 as Base Rent for the
period January 1, 1998 - January 31, 1998.
1.6(b) LESSEE'S SHARE OF COMMON AREA OPERATING EXPENSES: 47% of Bldg,
27% of Project ("LESSEE'S SHARE") as determined by <checked-box> prorata
square footage of the Premises as compared to the total square footage of
the Building or <square> other criteria as described in Addendum _____.
1.7 SECURITY DEPOSIT: $32,400.00 ("SECURITY DEPOSIT"). (Also see
Paragraph 5.)
1.8 PERMITTED USE: General office, engineering, software
development, storage, shipping & receiving, testing and other legally
related uses ("PERMITTED USE"). (Also see Paragraph 6.)
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." (Also see
Paragraph 8.)
1.10(a) REAL ESTATE BROKERS. The following real estate broker(s)
(collectively, the "BROKERS") and brokerage relationships exist in this
transaction and are consented to by the Parties (check applicable boxes):
<square> ______________________________ represents Lessor exclusively
("LESSOR'S BROKER");
<checked-box> Wayne Mascia & Associates represents Lessee exclusively
("LESSEE'S BROKER");
<square> ____________________________ represents both Lessor and Lessee
("DUAL AGENCY"); (Also see Paragraph 15.)
1.10(b) PAYMENT TO BROKERS. Upon the execution of this Lease by
both Parties,
Lessor shall pay to said Broker(s) jointly, or in such separate shares as
they may mutually designate in writing, a fee as set forth in a separate
written agreement between Lessor and said Broker(s) (or in the event there
is no separate written agreement between Lessor and said Broker(s), the sum
of $__________) for brokerage services rendered by said Broker(s) in
connection with this transaction.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to
be guaranteed by NONE ("GUARANTOR"). (Also see Paragraph 37.)
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 49 through 55, and Exhibits A through B, all of
which constitute a part of this Lease.
2. PREMISES, PARKING AND COMMON AREAS.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby
leases from Lessor, the Premises, for the term, at the rental, and upon all
of the terms, covenants and conditions set forth in this Lease. Unless
otherwise provided herein, any statement of square footage set forth in
this Lease, or that may have been used in calculating rental and/or Common
Area Operating Expenses, is an approximation which Lessor and Lessee agree
is reasonable and Lessee's Share (as defined in Paragraph 1.6(b)) based
thereon is not subject to revision whether or not the actual square footage
is more or less.
2.2 CONDITION. Lessor shall deliver the Premises to Lessee clean and
free of debris on the Commencement Date and warrants to Lessee that the
existing plumbing, electrical systems, fire sprinkler system, lighting, air
conditioning and heating systems and loading doors, if any, in the
Premises, other than those constructed by Lessee, shall be in good
operating condition on the Commencement Date. If a non-compliance with
said warranty exists as of the Commencement Date, Lessor shall, except as
otherwise provided in this Lease, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify same at Lessor's expense. If Lessee does not give
Lessor written notice of a non-compliance with this warranty within thirty
(30) days after the Commencement Date, correction of that non-compliance
shall be the obligation of Lessee at Lessee's sole cost and expense.
2.3 COMPLIANCE WITH COVENANTS, RESTRICTIONS AND BUILDING CODE.
Lessor warrants that any improvements (other than those constructed by
Lessee or at Lessee's direction) on or in the Premises which have been
constructed or installed by Lessor or with Lessor's consent or at Lessor's
direction shall comply with all applicable covenants or restrictions of
record and applicable building codes, regulations and ordinances in effect
on the Commencement Date. Lessor further warrants to Lessee that Lessor
has no knowledge of any claim having been made by any governmental agency
that a violation or violations of applicable building codes, regulations,
or ordinances exist with regard to the Premises as of the Commencement
Date. Said warranties shall not apply to any Alterations or Utility
Installations (defined in Paragraph 7.3(a)) made or to be made by Lessee.
If the Premises do not comply with said warranties, Lessor shall, except as
otherwise provided in this Lease, promptly after receipt of written notice
from Lessee given within six (6) months following the Commencement Date and
setting forth with specificity the nature and extent of such non-
compliance, take such action, at Lessor's expense, as may be reasonable or
appropriate to rectify the non-compliance. Lessor makes no warranty that
the Permitted Use in Paragraph 1.8 is permitted for the Premises under
Applicable Laws (as defined in Paragraph 2.4).
2.4 ACCEPTANCE OF PREMISES. Lessee hereby acknowledges: (a) that it
has been advised by the Broker(s) to satisfy itself with respect to the
condition of the Premises (including but not limited to the electrical and
fire sprinkler systems, security, environmental aspects, seismic and
earthquake requirements, and compliance with the Americans with
Disabilities Act and applicable zoning, municipal, county, state and
federal laws, ordinances and regulations and any covenants or restrictions
of record (collectively, "APPLICABLE LAWS") and the present and future
suitability of the Premises for Lessee's intended use; (b) that Lessee has
made such investigation as it deems necessary with reference to such
matters, is satisfied with reference thereto, and assumes all
responsibility therefore as the same relate to Lessee's occupancy of the
Premises and/or the terms of this Lease; and (c) that neither Lessor, nor
any of Lessor's agents, has made any oral or written representations or
warranties with respect to said matters other than as set forth in this
Lease.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
this Paragraph 2 shall be of no force or effect if immediately prior to the
date set forth in Paragraph 1.1 Lessee was the owner or occupant of the
Premises. In such event, Lessee shall, at Lessee's sole cost and expense,
correct any noncompliance of the Premises with said warranties.
<PAGE>
2.6 VEHICLE PARKING. Lessee shall be entitled to use the number of
Unreserved Parking Spaces and Reserved Parking Spaces specified in
Paragraph 1.2(b) on those portions of the Common Areas designated from time
to time by Lessor for parking. Lessee shall not use more parking spaces
than said number. Said parking spaces shall be used for parking by
vehicles no larger than full-size passenger automobiles or pick-up trucks,
herein called "PERMITTED SIZE VEHICLES." Vehicles other than Permitted
Size Vehicles shall be parked and loaded or unloaded as directed by Lessor
in the Rules and Regulations (as defined in Paragraph 40) issued by Lessor.
(Also see Paragraph 2.9.)
(a) Lessee shall not permit or allow any vehicles that belong to
or are controlled by Lessee or Lessee's employees, suppliers, shippers,
customers, contractors or invitees to be loaded, unloaded, or parked in
areas other than those designated by Lessor for such activities.
(b) If Lessee permits or allows any of the prohibited activities
described in this Paragraph 2.6, then Lessor shall have the right, without
notice, in addition to such other rights and remedies that it may have, to
remove or tow away the vehicle involved and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
(c) Lessor shall at the Commencement Date of this Lease, provide
the parking facilities required by Applicable Law.
2.7 COMMON AREAS - DEFINITION. The term "COMMON AREAS" is defined as
all areas and facilities outside the Premises and within the exterior
boundary line of the Industrial Center and interior utility raceways within
the Premises that are provided and designated by the Lessor from time to
time for the general non-exclusive use of Lessor, Lessee and other Leases
of the Industrial Center and their respective employees, suppliers,
shippers, customers, contractors and invitees, including parking areas,
loading and unloading areas, trash areas, roadways, sidewalks, walkways,
parkways, driveways and landscaped areas.
2.8 COMMON AREAS - LESSEE'S RIGHTS. Lessor hereby grants to Lessee,
for the benefit of Lessee and its employees, suppliers, shippers,
contractors, customers and invitees, during the term of this Lease, the
non-exclusive right to use, in common with others entitled to such use, the
Common Areas as they exist from time to time, subject to any rights,
powers, and privileges reserved by Lessor under the terms hereof or under
the terms of any rules and regulations or restrictions governing the use of
the Industrial Center. Under no circumstances shall the right herein
granted to use the Common Areas be deemed to include the right to store any
property, temporarily or permanently, in the Common Areas. Any such
storage shall be permitted only by the prior written consent of Lessor or
Lessor's designated agent, which consent may be revoked at any time. In
the event that any unauthorized storage shall occur then Lessor shall have
the right, without notice, in addition to such other rights and remedies
that it may have, to remove the property and charge the cost to Lessee,
which cost shall be immediately payable upon demand by Lessor.
2.9 COMMON AREAS - RULES AND REGULATIONS. Lessor or such other
person(s) as Lessor may appoint shall have the exclusive control and
management of the Common Areas and shall have the right, from time to time,
to establish, modify, amend and enforce reasonable Rules and Regulations
with respect thereto in accordance with Paragraph 40. Lessee agrees to
abide by and conform to all such Rules and Regulations, and to cause its
employees, suppliers, shippers, customers, contractors and invitees to so
abide and conform. Lessor shall not be responsible to Lessee for the non-
compliance with said rules and regulations by other lessees of the
Industrial Center.
2.10 COMMON AREAS - CHANGES. Lessor shall have the right, in Lessor's
sole discretion, from time to time:
(a) To make changes to the Common Areas, including, without
limitation, changes in the location, size, shape and number of driveways,
entrances, parking spaces, parking areas, loading and unloading areas,
ingress, egress, direction of traffic, landscaped areas, walkways and
utility raceways;
(b) To close temporarily any of the Common Areas for maintenance
purposes so long as reasonable access to the Premises remains available;
(c) To designate other land outside the boundaries of the
Industrial Center to be a part of the Common Areas;
(d) To add additional buildings and improvements to the Common
Areas;
(e) To use the Common Areas while engaged in making additional
improvements, repairs or alterations to the Industrial Center, or any
portion thereof; and
(f) To do and perform such other acts and make such other
changes in, to or with respect to the Common Areas and Industrial Center as
Lessor may, in the exercise of sound business judgment, deem to be
appropriate. REFER TO PARAGRAPH 56 BELOW.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term
of this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If an Early Possession Date is specified in
Paragraph 1.4 and if Lessee totally or partially occupies the Premises
after the Early Possession Date but prior to the Commencement Date, the
obligation to pay Base Rent shall be abated for the period of such early
occupancy. All other terms of this Lease, however (including but not
limited to the obligations to pay Lessee's Share of Common Area Operating
Expenses and to carry the insurance required by Paragraph 8) shall be in
effect during such period. Any such early possession shall not affect nor
advance the Expiration Date of the Original Term.
3.3 DELAY IN POSSESSION. If for any reason Lessor cannot deliver
possession of the Premises to Lessee by the Early Possession Date, if one
is specified in Paragraph 1.4, or if no Early Possession Date is specified,
by the Commencement Date, Lessor shall not be subject to any liability
therefor, nor shall such failure affect the validity of this Lease, or the
obligations of Lessee hereunder, or extend the term hereof, but in such
case, Lessee shall not, except as otherwise provided herein, be obligated
to pay rent or perform any other obligation of Lessee under the terms of
this Lease until Lessor delivers possession of the Premises to Lessee. If
possession of the Premises is not delivered to Lessee within sixty (60)
days after the Commencement Date, Lessee may, at its option, by notice in
writing to Lessor within ten (10) days after the end of said sixty (60) day
period, cancel this Lease, in which event the parties shall be discharged
from all obligations hereunder; provided, further, however, that if such
written notice of Lessee is not received by lessor within said ten (10) day
period, Lessee's right to cancel this Lease hereunder shall terminate and
be of no further force or effect. Except as may be otherwise provided, and
regardless of when the Original Term actually commences, if possession is
not tendered to Lessee when required by this Lease and Lessee does not
terminate this Lease, as aforesaid, the period free of the obligation to
pay Base Rent, if any, that Lessee would otherwise have enjoyed shall run
from the date of delivery of possession and continue for a period equal to
the period during which the Lessee would have otherwise enjoyed under the
terms hereof, but minus any days of delay caused by the acts, changes or
omissions of Lessee.
4. RENT.
4.1 BASE RENT. Lessee shall pay Base Rent and other rent or charges,
as the same may be adjusted from time to time, to Lessor in lawful money of
the United States, without offset or deduction, on or before the day on
which it is due under the terms of this Lease. Base Rent and all other
rent and charges for any period during the term hereof which is for less
than one full month shall be prorated based upon the actual number of days
of the month involved. Payment of Base Rent and other charges shall be
made to Lessor at its address stated herein or to such other persons or at
such other addresses as Lessor may from time to time designate in writing
to Lessee.
4.2 COMMON AREA OPERATING EXPENSES. Lessee shall pay to Lessor
during the term hereof, in addition to the Base Rent, Lessee's Share (as
specified in Paragraph 1.6(b) of all Common Area Operating Expenses, as
hereinafter defined, during each calendar year of the term of this Lease,
in accordance with the following provisions: REFER TO PARAGRAPH 57 BELOW.
(a) "COMMON AREA OPERATING EXPENSES" are defined, for purposes
of this Lease, as all costs incurred by Lessor relating to the ownership
and operation of the Industrial Center, including, but not limited to, the
following:
(i) The operation, repair and maintenance, in neat, clean,
good order and condition, of the following:
(aa) The Common Areas, including parking areas, loading
and unloading areas, trash areas, roadways, sidewalks, walkways, parkways,
driveways, landscaped areas, striping, bumpers, irrigation systems, Common
Area lighting facilities, fences and gates, elevators and roof.
(bb) Exterior signs and any tenant directories.
(cc) Fire detection and sprinkler systems.
(ii) The cost of water, gas, electricity and telephone to
service the Common Areas.
(iii) Trash disposal, property management and security
services and the costs of any environmental inspections.
(iv) Reserves set aside for maintenance and repair of Common
Areas.
(v) Real Property Taxes (as defined in Paragraph 10.2) to
be paid by Lessor for the Building and the Common Areas under Paragraph 10
hereof.
(vi) The costs of the premiums for the insurance policies
maintained by Lessor under Paragraph 8 hereof.
(vii) Any deductible portion of an insured loss concerning
the Building or the Common Areas.
(viii) Any other services to be provided by Lessor that are
stated elsewhere in this Lease to be a Common Area Operating Expense.
(b) Any Common Area Operating Expenses and Real Property Taxes
that are specifically attributable to the Building or to any other building
in the Industrial Center or to the operation, repair and maintenance
thereof, shall be allocated entirely to the Building or to such other
building. However, any Common Area Operating Expenses and Real Property
Taxes that are not specifically attributable to the Building or to any
other building or to the operation, repair and maintenance thereof, shall
be equitably allocated by Lessor to all buildings in the Industrial Center.
(c) The inclusion of the improvements, facilities and services
set forth in Subparagraph 4.2(a) shall not be deemed to impose an
obligation upon Lessor to either have said improvements or facilities or to
provide those services unless the Industrial Center already has the same,
Lessor already provides the services, or Lessor has agreed elsewhere in
this Lease to provide the same or some of them.
(d) Lessee's Share of Common Area Operating Expenses shall be
payable by Lessee within ten (10) days after a reasonably detailed
statement of actual expenses is presented to Lessee by Lessor. At Lessor's
option, however, an amount may be estimated by Lessor from time to time of
Lessee's Share of annual Common Area Operating Expenses and the same shall
be payable monthly or quarterly, as Lessor shall designate, during each 12-
month period of the Lease term, on the same day as the Base Rent is due
hereunder. Lessor shall deliver to Lessee within sixty (60) days after the
expiration of each calendar year a reasonably detailed statement showing
Lessee's Share of the actual Common Area Operating Expenses incurred during
the preceding year. If Lessee's payments under this Paragraph 4.2(d)
during said preceding year exceed Lessee's Share as indicated on said
statement, Lessor shall be credited the amount of such over-payment against
Lessee's Share of Common Area Operating Expenses next becoming due. If
Lessee's payments under this Paragraph 4.2(d) during said preceding year
were less than Lessee's Share as indicated on said statement, Lessee shall
pay to Lessor the amount of the deficiency within twenty (20) days after
delivery by Lessor to Lessee of said statement.
<PAGE>
5. SECURITY DEPOSIT. Lessee shall deposit with Lessor upon Lessee's
execution hereof the Security Deposit set forth in Paragraph 1.7 as
security for Lessee's faithful performance of Lessee's obligations under
this Lease. If Lessee fails to pay Base Rent or other rent or charges due
hereunder, or otherwise Defaults under this Lease (as defined in Paragraph
13.1), Lessor may use, apply or retain all or any portion of said Security
Deposit for the payment of any amount due Lessor or to reimburse or
compensate Lessor for any liability, cost, expense, loss or damage
(including attorneys fees) which Lessor may suffer or incur by reason
thereof. If Lessor uses or applies all or any portion of said Security
Deposit, Lessee shall within ten (10) days after written request therefore
deposit monies with Lessor sufficient to restore said Security Deposit to
the full amount required by this Lease. Any time the Base Rent increases
during the term of this Lease, Lessee shall, upon written request from
Lessor, deposit additional monies with Lessor as an addition to the
Security Deposit so that the total amount of the Security Deposit shall at
all times bear the same proportion to the then current Base Rent as the
initial Security Deposit bears to the initial Base Rent set forth in
Paragraph 1.5. Lessor shall not be required to keep all or any part of the
Security Deposit separate from its general accounts. Lessor shall, at the
expiration or earlier termination of the term hereof and after Lessee has
vacated the Premises, return to Lessee (or, at Lessor's option, to the last
assignee, if any, of Lessee's interest herein), that portion of the
Security Deposit not used or applied by Lessor. Unless otherwise expressly
agreed in writing by Lessor, no part of the Security Deposit shall be
considered to be held in trust, to bear interest or other increment for its
use, or to be prepayment for any monies to be paid by Lessee under this
Lease.
6. USE.
6.1 PERMITTED USE.
(a) Lessee shall use and occupy the Premises only for the
Permitted Use set forth in Paragraph 1.8, or any other legal use which is
reasonably comparable thereto, and for no other purpose. Lessee shall not
use or permit the use of the Premises in a manner that is unlawful, creates
waste or a nuisance, or that disturbs owners and/or occupants of, or causes
damage to the Premises or neighboring premises or properties.
(b) Lessor hereby agrees to not unreasonably withhold or delay
its consent to any written request by Lessee, Lessee's assignees or
subtenants, and by prospective assignees and subtenants of Lessee, its
assignees and subtenants, for a modification of said Permitted Use, so long
as the same will not impair the structural integrity of the improvements on
the Premises or in the Building or the mechanical or electrical systems
therein, does not conflict with uses by other lessees, is not significantly
more burdensome to the Premises or the Building and the improvements
thereon, and is otherwise permissible pursuant to this Paragraph 6. If
Lessor elects to withhold such consent, Lessor shall within five (5)
business days after such request give a written notification of same, which
notice shall include an explanation of Lessor's reasonable objections to
the change in use.
6.2 HAZARDOUS SUBSTANCES.
(a) REPORTABLE USES REQUIRE CONSENT. The term "HAZARDOUS
SUBSTANCE" as used in this Lease shall mean any product, substance,
chemical, material or waste whose presence, nature, quantity and/or
intensity of existence, use, manufacture, disposal, transportation, spill,
release or effect, either by itself or in combination with other materials
expected to be on the Premises, is either: (i) potentially injurious to the
public health, safety or welfare, the environment, or the Premises;
(ii) regulated or monitored by any governmental authority; or (iii) a basis
for potential liability of Lessor to any governmental agency or third party
under any applicable statute or common law theory. Hazardous Substance
shall include, but not be limited to, hydrocarbons, petroleum, gasoline,
crude oil or any products or by-products thereof. Lessee shall not engage
in any activity in or about the Premises which constitutes a Reportable Use
(as hereinafter defined) of Hazardous Substances without the express prior
written consent of Lessor and compliance in a timely manner (at Lessee's
sole cost and expense) with all Applicable Requirements (as defined in
Paragraph 6.3). "REPORTABLE USE" shall mean (i) the installation or use of
any above or below ground storage tank, (ii) the generation, possession,
storage, use, transportation, or disposal of a Hazardous Substance that
requires a permit from, or with respect to which a report, notice,
registration or business plan is required to be filed with, any
governmental authority, and (iii) the presence in, on or about the Premises
of a Hazardous Substance with respect to which any Applicable Laws require
that a notice be given to persons entering or occupying the Premises or
neighboring properties. Notwithstanding the foregoing, Lessee may, without
Lessor's prior consent, but upon notice to Lessor and in compliance with
all Applicable Requirements, use any ordinary and customary materials
reasonably required to be used by Lessee in the normal course of the
Permitted Use, so long as such use is not a Reportable Use and does not
expose the Premises or neighboring properties to any meaningful risk of
contamination or damage or expose Lessor to any liability therefor. In
addition, Lessor may (but without any obligation to do so) condition its
consent to any Reportable Use of Hazardous Substance by Lessee upon
Lessee's giving Lessor such additional assurances as Lessor, in its
reasonable discretion, deems necessary to protect itself, the public, the
Premises and the environment against damage, contamination or injury and/or
liability therefor, including but not limited to the installation (and, at
Lessor's option, removal on or before Lease expiration or earlier
termination) or reasonably necessary protective modifications to the
Premises (such as concrete encasements) and/or the deposit of an additional
Security Deposit under Paragraph 5 hereof.
(b) DUTY TO INFORM LESSOR. If Lessee knows, or has reasonable
cause to believe, that a Hazardous Substance has come to be located in, on,
under or about the Premises or the Building, other than as previously
consented to by Lessor, Lessee shall immediately give Lessor written notice
thereof, together with a copy of any statement, report, notice,
registration, application, permit, business plan, license, claim, action,
or proceeding given to, or received from, any governmental authority or
private party concerning the presence, spill, release, discharge of, or
exposure to, such Hazardous Substance including but not limited to all such
documents as may be involved in any Reportable Use involving the Premises.
Lessee shall not cause or permit any Hazardous Substance to be spilled or
released in, on, under or about the Premises (including, without
limitation, through the plumbing or sanitary sewer system).
(c) INDEMNIFICATION. Lessee shall indemnify, protect, defend
and hold Lessor, its agents, employees, lenders and ground lessor, if any,
and the Premises, harmless from and against any and all damages,
liabilities, judgments, costs, claims, liens, expenses, penalties, loss of
permits and reasonable attorneys' and reasonable consultants' fees arising
out of or involving any Hazardous Substance brought onto the Premises by or
for Lessee or by anyone under Lessee's control. Lessee's obligations under
this Paragraph 6.2(c) shall include, but not be limited to, the effects of
any contamination or injury to person, property or the environment created
or suffered by Lessee, and the cost of investigation (including
consultants' and attorneys' fees and testing), removal, remediation,
restoration and/or abatement thereof, or of any contamination therein
involved, and shall survive the expiration or earlier termination of this
Lease. No termination, cancellation or release agreement entered into by
Lessor and Lessee shall release Lessee from its obligations under this
Lease with respect to Hazardous Substances, unless specifically so agreed
by Lessor in writing at the time of such agreement.
6.3 LESSEE'S COMPLIANCE WITH REQUIREMENTS. Lessee shall, at Lessee's
sole cost and expense, fully, diligently and in a timely manner, comply
with all "APPLICABLE REQUIREMENTS," which term is used in this Lease to
mean all laws, rules, regulations, ordinances, directives, covenants,
easements and restrictions of record, permits, the requirements of any
applicable fire insurance underwriter or rating bureau, and the
recommendations of Lessor's engineers and/or consultants, relating in any
manner to the Premises (including but not limited to matters pertaining to
(i) industrial hygiene, (ii) environmental conditions on, in, under or
about the Premises, including soil and groundwater conditions, and
(iii) the use, generation, manufacture, production, installation,
maintenance, removal, transportation, storage, spill, or release of any
Hazardous Substance), now in effect or which may hereafter come into
effect. REFER TO PARAGRAPH 58 BELOW. Lessee shall, within five (5) days
after receipt of Lessor's written request, provide Lessor with copies of
all documents and information, including but not limited to permits,
registrations, manifests, applications, reports and certificates,
evidencing Lessee's compliance with any Applicable Requirements specified
by Lessor, and shall immediately upon receipt, notify Lessor in writing
(with copies of any documents involved) of any threatened or actual claim,
notice, citation, warning, complaint or report pertaining to or involving
failure by Lessee or the Premises to comply with any Applicable
Requirements.
6.4 INSPECTION; COMPLIANCE WITH LAW. Lessor, Lessor's agents,
employees, contractors and designated representatives, and the holders of
any mortgages, deeds of trust or ground leases on the Premises ("LENDERS")
shall have the right to enter the Premises at any time in the case of an
emergency, and other wise at reasonable times upon reasonable prior notice,
for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease and all Applicable
Requirements (as defined in Paragraph 6.3), and Lessor shall be entitled to
employ experts and/or consultants in connection therewith to advise Lessor
with respect to Lessee's activities, including but not limited to Lessee's
installation, operation, use, monitoring, maintenance, or removal of any
Hazardous Substance on or from the Premises. The costs and expenses of any
such inspections shall be paid by the party requesting same, unless a
Default or Breach of this Lease by Lessee or a violation of Applicable
Requirements or a contamination, caused or materially contributed to by
Lessee, is found to exist or to be imminent, or unless the inspection is
requested or ordered by a governmental authority as the result of any such
existing or imminent violation or contamination. In such case, Lessee
shall upon request reimburse Lessor or Lessor's Lender, as the case may be,
for the costs and expenses of such inspections.
7. MAINTENANCE, REPAIRS, UTILITY INSTALLATIONS, TRADE FIXTURES AND
ALTERATIONS. REFER TO PARAGRAPH 59 BELOW.
7.1 LESSEE'S OBLIGATIONS.
(a) Subject to the provisions of Paragraphs 2.2 (Condition), 2.3
(Compliance with Covenants, Restrictions and Building Code), 7.2 (Lessor's
Obligations), 9 (Damage or Destruction), and 14 (Condemnation), Lessee
shall, at Lessee's sole cost and expense and at all times, keep the
interior, non-structural portions of the Premises and every part thereof in
good order, condition and repair (whether or not such portion of the
Premises requiring repair, or the means of repairing the same, are
reasonably or readily accessible to Lessee, and whether or not the need for
such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, without
limiting the generality of the foregoing, all equipment or facilities
specifically serving the Premises, such as plumbing, heating, air
conditioning, ventilating, electrical, lighting facilities, boilers, fired
or unfired pressure vessels, fire hose connections if within the Premises,
fixtures, interior walls, interior surfaces of exterior walls, ceilings,
floors windows, doors, plate glass, and skylights, but excluding any items
which are the responsibility of Lessor pursuant to Paragraph 7.2 below.
Lessee, in keeping the Premises in good order, condition and repair, shall
exercise and perform good maintenance practices. Lessee's obligations
shall include restorations, replacements or renewals when necessary to keep
the Premises and all improvements thereon or a part thereof in good order,
condition and state of repair. REFER TO PARAGRAPH 60 BELOW.
(b) Lessee shall, at Lessee's sole cost and expense, procure and
maintain a contract, with copies to Lessor, in customary form and substance
for and with a contractor specializing and experienced in the inspection,
maintenance and service of the heating, air conditioning and ventilation
for the Premises. However, Lessor reserves the right, upon notice to
Lessee, to procure and maintain the contract for the heating, air
conditioning and ventilating systems, and if Lessor so elects, Lessee shall
reimburse Lessor within twenty (20) days after receipt of, upon demand, for
the cost thereof.
(c) If Lessee fails to perform Lessee's obligations under this
Paragraph 7.1, Lessor may enter upon the Premises after ten (10) days'
prior written notice to Lessee (except in the case of an emergency, in
which case no notice shall be required), perform such obligations on
Lessee's behalf, and put the Premises in good order, condition and repair,
in accordance with Paragraph 13.2 below.
7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs
2.2 (Condition), 2.3 (Compliance with Covenants, Restrictions and Building
Code), 4.2 (Common Area Operating Expenses), 6 (Use), 7.1 (Lessee's
Obligations), 9 (Damage or Destruction) and 14 (Condemnation), Lessor,
subject to reimbursement pursuant to Paragraph 4.2, shall keep in good
<PAGE>
order, condition and repair the foundations, exterior walls, structural
condition of interior bearing walls, exterior roof, fire sprinkler and/or
standpipe and hose (if located in the Common Areas) or other automatic fire
extinguishing system including fire alarm and/or smoke detection systems
and equipment, fire hydrants, parking lots, walkways, parkways, driveways,
landscaping, fences, signs and utility systems serving the Common Areas and
all parts thereof, as well as providing the services for which there is a
Common Area Operating Expense pursuant to Paragraph 4.2. Lessor shall not
be obligated to paint the exterior or interior surfaces of exterior walls
nor shall Lessor be obligated to maintain, repair or replace windows, doors
or plate glass of the Premises. Lessee expressly waives the benefit of any
statute now or hereafter in effect which would otherwise afford Lessee the
right to make repairs at Lessor's expense or to terminate this Lease
because of Lessor's failure to keep the Building, Industrial Center or
Common Areas in good order, condition and repair.
7.3 UTILITY INSTALLATIONS, TRADE FIXTURES, ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" is used in this Lease to refer to all air lines, power
panels, electrical distribution, security, fire protection systems,
communications systems, lighting fixtures, heating, ventilating and air
conditioning equipment, plumbing, and fencing in, on or about the Premises.
The term "TRADE FIXTURES" shall mean Lessee's machinery and equipment which
can be removed without doing material damage to the Premises. The term
"ALTERATIONS" shall mean any modification of the improvements on the
Premises which are provided by Lessor under the terms of this Lease, other
than Utility Installations or Trade Fixtures. "LESSEE-OWNED ALTERATIONS
AND/OR UTILITY INSTALLATIONS" are defined as Alterations and/or Utility
Installations made by Lessee that are not yet owned by Lessor pursuant to
Paragraph 7.4(a). Lessee shall not make nor cause to be made any
Alterations or Utility Installations in, on, under or about the Premises
without Lessor's prior written consent. Lessee may, however, make non-
structural Utility Installations to the interior of the Premises (excluding
the roof) without Lessor's consent but upon notice to Lessor, so long as
they are not visible from the outside of the Premises, do not involve
puncturing, relocating or removing the roof or any existing walls, or
changing or interfering with the fire sprinkler or fire detection systems
and the cumulative cost thereof during the term of this Lease as extended
does not exceed $10,000.00.
(b) CONSENT. Any Alterations or Utility Installations that
Lessee shall desire to make and which require the consent of the Lessor
shall be presented to Lessor in written form with detailed plans. All
consents given by Lessor, whether by virtue of Paragraph 7.3(a) or by
subsequent specific consent, shall be deemed conditioned upon:
(i) Lessee's acquiring all applicable permits required by governmental
authorities; (ii) the furnishing of copies of such permits together with a
copy of the plans and specifications for the Alteration or Utility
Installation to Lessor prior to commencement of the work thereon; and
(iii) the compliance by Lessee with all conditions of said permits in a
prompt and expeditious manner. Any Alterations or Utility Installations by
Lessee during the term of this Lease shall be done in a good and
workmanlike manner, with good and sufficient materials, and be in
compliance with all Applicable Requirements. Lessee shall promptly upon
completion thereof furnish Lessor with as-built plans and specifications
therefor. Lessor may (but without obligation to do so) condition its
consent to any requested Alteration or Utility Installation that costs
$2,500.00 or more upon Lessee's providing Lessor with a lien and completion
bond in an amount equal to one and one-half times the estimated cost of
such Alteration or Utility Installation.
(c) LIEN PROTECTION. Lessee shall pay when due all claims for
labor or materials furnished or alleged to have been furnished to or for
Lessee at or for use on the Premises, which claims are or may be secured by
any mechanic's or materialmen's lien against the Premises or any interest
therein. Lessee shall give Lessor not less than ten (10) days' notice
prior to the commencement of any work in, on, or about the Premises, and
Lessor shall have the right to post notices of non-responsibility in or on
the Premises as provided by law. If Lessee shall, in good faith, contest
the validity of any such lien, claim or demand, then Lessee shall, at its
sole expense, defend and protect itself, Lessor and the Premises against
the same and shall pay and satisfy any such adverse judgment that may be
rendered thereon before the enforcement thereof against the Lessor or the
Premises. If Lessor shall require, Lessee shall furnish to Lessor a surety
bond satisfactory to Lessor in an amount equal to one and one-half times
the amount of such contested lien claim or demand, indemnifying Lessor
against liability for the same, as required by law for the holding of the
Premises free from the effect of such lien or claim. In addition, Lessor
may require Lessee to pay Lessor's attorneys' fees and costs in
participating in such action if Lessor shall decide it is to its best
interest to do so.
7.4 OWNERSHIP, REMOVAL, SURRENDER, AND RESTORATION.
(a) OWNERSHIP. Subject to Lessor's right to require their
removal and to cause Lessee to become the owner thereof as hereinafter
provided in this Paragraph 7.4, all Alterations and Utility Installations
made to the Premises by Lessee shall be the property of and owned by
Lessee, but considered a part of the Premises. Lessor may, at any time and
at its option, elect in writing to Lessee to be the owner of all or any
specified part of the Lessee-Owned Alterations and Utility Installation.
Unless otherwise instructed per Subparagraph 7.4(b) hereof, all
Lessee-Owned Alterations and Utility Installations shall, at the expiration
or earlier termination of this Lease, become the property of Lessor and
remain upon the Premises and be surrendered with the Premises by Lessee.
(b) REMOVAL. Unless otherwise agreed in writing, Lessor may
require that any or all Lessee-Owned Alterations or Utility Installations
be removed by the expiration or earlier termination of this Lease,
notwithstanding that their installation may have been consented to by
Lessor. Lessor may require the removal at any time of all or any part of
any Alterations or Utility Installations made without the required consent
of Lessor. REFER TO PARAGRAPH 61 BELOW.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises
by the end of the last day of the Lease term or any earlier termination
date, clean and free of debris and in good operating order, condition and
state of repair, ordinary wear and tear excepted. Ordinary wear and tear
shall not include any damage or deterioration that would have been
prevented by good maintenance practice or by Lessee performing all of its
obligations under this Lease. Except as otherwise agreed or specified
herein, the Premises, as surrendered, shall include the Alterations and
Utility Installations. The obligation of Lessee shall include the repair
of any damage occasioned by the installation, maintenance or removal of
Lessee's Trade Fixtures, furnishings, equipment, and Lessee-Owned
Alterations and Utility Installations, as well as the removal of any
storage tank installed by or for Lessee, and the removal, replacement, or
remediation of any soil, material or ground water contaminated by Lessee,
all as may then be required by Applicable Requirements and/or good
practice. Lessee's Trade Fixtures shall remain the property of Lessee and
shall be removed by Lessee subject to its obligation to repair and restore
the Premises per this Lease.
8. INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUMS. The cost of premiums for the insurance
policies maintained by Lessor under this Paragraph 8 shall be a Common Area
Operating Expense pursuant to Paragraph 4.2 hereof. Premiums for policy
periods commencing prior to, or extending beyond, the term of this Lease
shall be prorated to coincide with the corresponding Commencement Date or
Expiration Date.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force
during the term of this Lease a Commercial General Liability policy of
insurance protecting Lessee, Lessor and any Lender(s) whose names have been
provided to Lessee in writing (as additional insureds) against claims for
bodily injury, personal injury and property damage based upon, involving or
arising out of the ownership, use, occupancy or maintenance of the Premises
and all areas appurtenant thereto. Such insurance shall be on an
occurrence basis providing single limit coverage in an amount not less than
$1,000,000 per occurrence with an "Additional Insured-Managers or Lessors
of Premises" endorsement and contain the "Amendment of the Pollution
Exclusion" endorsement for damage caused by heat, smoke or fumes from a
hostile fire. The policy shall not contain any intra-insured exclusions as
between insured persons or organizations, but shall include coverage for
liability assumed under this Lease as an "INSURED CONTRACT" for the
performance of Lessee's indemnity obligations under this Lease. The limits
of said insurance required by this Lease or as carried by Lessee shall not,
however, limit the liability of Lessee nor relieve Lessee of any obligation
hereunder. All insurance to be carried by Lessee shall be primary to and
not contributory with any similar insurance carried by Lessor, whose
insurance shall be considered excess insurance only.
(b) CARRIED BY LESSOR. Lessor shall also maintain liability
insurance described in Paragraph 8.2(a) above, in addition to and not in
lieu of, the insurance required to be maintained by Lessee. Lessee shall
not be named as an additional insured therein.
8.3 PROPERTY INSURANCE-BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. Lessor shall obtain and keep in
force during the term of this Lease a policy or policies in the name of
Lessor, with loss payable to Lessor and to any Lender(s), insuring against
loss or damage to the Premises. Such insurance shall be for full
replacement cost, as the same shall exist from time to time, or the amount
required by any Lender(s), but in no event more than the commercially
reasonable and available insurable value thereof if, by reason of the
unique nature or age of the improvements involved, such latter amount is
less than full replacement cost. Lessee-Owned Alterations and Utility
Installations, Trade Fixtures and Lessee's personal property shall be
insured by Lessee pursuant to Paragraph 8.4. If the coverage is available
and commercially appropriate, Lessor's policy or policies shall insure
against all risks of direct physical loss or damage (except the perils of
flood and/or earthquake unless required by a Lender), including coverage
for any additional costs resulting from debris removal and reasonable
amounts of coverage for the enforcement of any ordinance or law regulating
the reconstruction or replacement of any undamaged sections of the Building
required to be demolished or removed by reason of the enforcement of any
building, zoning, safety or land use laws as the result of a covered loss,
but not including plate glass insurance. Said policy or policies shall
also contain an agreed valuation provision in lieu of any co-insurance
clause, waiver of subrogation, and inflation guard protection causing an
increase in the annual property insurance coverage amount by a factor of
not less than the adjusted U.S. Department of Labor Consumer Price Index
for All Urban Consumers for the city nearest to where the Premises are
located.
(b) RENTAL VALUE. Lessor shall also obtain and keep in force
during the term of this Lease a policy or policies in the name of Lessor,
with loss payable to Lessor and any Lender(s), insuring the loss of the
full rental and other charges payable by all lessees of the Building to
Lessor for one year (including all Real Property Taxes, insurance costs,
all Common Area Operating Expenses and any scheduled rental increases).
Said insurance may provide that in the event the Lease is terminated by
reason of an insured loss, the period of indemnity for such coverage shall
be extended beyond the date of the completion of repairs or replacement of
the Premises, to provide for one full year's loss of rental revenues from
the date of any such loss. Said insurance shall contain an agreed
valuation provision in lieu of any co-insurance clause, and the amount of
coverage shall be adjusted annually to reflect the projected rental income,
Real Property Taxes, insurance premium costs and other expenses, if any,
otherwise payable, for the next 12-month period. Common Area Operating
Expenses shall include any deductible amount in the event of such loss.
(c) ADJACENT PREMISES. Lessee shall pay for any increase in the
premiums for the property insurance of the Building and for the Common
Areas or other buildings in the Industrial Center if said increase is
caused by Lessee's acts, omissions, use or occupancy of the Premises.
(d) LESSEE'S IMPROVEMENTS. Since Lessor is the Insuring Party,
Lessor shall not be required to insure Lessee-Owned Alterations and Utility
Installations unless the item in question has become the property of Lessor
under the terms of this Lease.
8.4 LESSEE'S PROPERTY INSURANCE. Subject to the requirements of
Paragraph 8.5, Lessee at its cost shall either by separate policy or, at
Lessor's option, by endorsement to a policy already carried, maintain
insurance coverage on all of Lessee's personal property, Trade Fixtures and
Lessee-Owned Alterations and Utility Installations in, on, or about the
Premises similar in coverage to that carried by Lessor as the Insuring
Party under Paragraph 8.3(a). Such insurance shall be full replacement
cost coverage with a deductible not to exceed $1,000 per occurrence. The
proceeds from any such insurance shall be used by Lessee for the
replacement of personal property and the restoration of Trade Fixtures and
Lessee-Owned Alterations and Utility Installations. Upon request from
Lessor, Lessee shall provide Lessor with written evidence that such
insurance is in force.
8.5 INSURANCE POLICIES. Insurance required hereunder shall be in
companies duly licensed to transact business in the state where the
Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, or such other rating as may be
<PAGE>
required by a Lender, as set forth in the most current issue of "Best's
Insurance Guide." Lessee shall not do or permit to be done anything which
shall invalidate the insurance policies referred to in this Paragraph 8.
Lessee shall cause to be delivered to Lessor, within seven (7) days after
the earlier of the Early Possession Date or the Commencement Date,
certified copies of, or certificates evidencing the existence and amounts
of, the insurance required under Paragraph 8.2(a) and 8.4. No such policy
shall be cancelable or subject to modification except after thirty (30)
days' prior written notice to Lessor. Lessee shall at least thirty (30)
days prior to the expiration of such policies, furnish Lessor with evidence
of renewals or "insurance binders" evidencing renewal thereof, or Lessor
may order such insurance and charge the cost thereof to Lessee, which
amount shall be payable be Lessee to Lessor upon demand.
8.6 WAIVER OF SUBROGATION. Without affecting any other rights or
remedies, Lessee and Lessor each hereby release and relieve the other, and
waive their entire right to recover damages (whether in contract or in
tort) against the other, for loss or damage to their property arising out
of or incident to the perils required to be insured against under
Paragraph 8. The effect of such releases and waivers of the right to
recover damages shall not be limited by the amount of insurance carried or
required, or by any deductibles applicable thereto. Lessor and Lessee
agree to have their respective insurance companies issuing property damage
insurance waive any right to subrogation that such companies may have
against Lessor or Lessee, as the case may be, so long as the insurance is
not invalidated thereby.
8.7 INDEMNITY. Except for Lessor's negligence, willful misconduct
and/or breach of express warranties, Lessee shall indemnify, protect,
defend and hold harmless the Premises, Lessor and its agents, Lessor's
master or ground lessor, partners and Lenders, from and against any and all
claims, loss of rents and/or damages, costs, liens, judgments, penalties,
loss of permits, attorneys' and consultants' fees, expenses and/or
liabilities arising out of, involving, or in connection with, the occupancy
of the Premises by Lessee, the conduct of Lessee's business, any act,
omission or neglect of Lessee, its agents, contractors, employees or
invitees, and out of any Default or Breach by Lessee in the performance in
a timely manner of any obligation on Lessee's part to be performed under
this Lease. The foregoing shall include, but not be limited to, the
defense or pursuit of any claim or any action or proceeding involved
therein, and whether or not (in the case of claims made against Lessor)
litigated and/or reduced to judgment. In case any action or proceeding be
brought against Lessor by reason of any of the foregoing matters, Lessee
upon notice from Lessor shall defend the same at Lessee's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee in such defense. Lessor need not have first paid any such claim in
order to be so indemnified.
8.8 EXEMPTION OF LESSOR FROM LIABILITY. Except for Lessor's
negligence, and/or willful misconduct, Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other
property of Lessee's employees, contractors, invitees, customers, or any
other person in or about the Premises, whether such damage or injury is
caused by or results from fire, steam, electricity, gas, water or rain, or
from the breakage, leakage, obstruction or other defects of pipes, fire
sprinklers, wires, appliances, plumbing, air conditioning or lighting
fixtures, or from any other cause, whether said injury or damage results
from conditions arising upon the Premises or upon other portions of the
Building of which the Premises are a part, from other sources or places,
and regardless of whether the cause of such damage or injury or the means
of repairing the same is accessible or not. Lessor shall not be liable for
any damages arising from any act or neglect of any other lessee of Lessor
nor from the failure by Lessor to enforce the provisions of any other lease
in the Industrial Center. Notwithstanding Lessor's negligence or breach of
this Lease, Lessor shall under no circumstances be liable for injury to
Lessee's business or for any loss of income or profit therefrom.
9. DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction
to the Premises, other than Lessee-Owned Alterations and Utility
Installations, the repair cost of which damage or destruction is less than
fifty percent (50%) of the then Replacement Cost (as defined in
Paragraph 9.1(d) of the Premises (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures) immediately prior to such damage
or destruction.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or
destruction to the Premises, other than Lessee-Owned Alterations and
Utility Installations, the repair cost of which damage or destruction is
fifty percent (50%) or more the then Replacement Cost of the Premises
(excluding Lessee-Owned Alterations and Utility Installations and Trade
Fixtures) immediately prior to such damage or destruction. In addition,
damage or destruction to the Building, other than Lessee-Owned Alterations
and Utility Installations and Trade Fixtures of any lessees of the
Building, the cost of which damage or destruction is fifty percent (50%) or
more of the then Replacement Cost (excluding Lessee-Owned Alterations and
Utility Installations and Trade Fixtures of any lessees of the Building) of
the Building shall, at the option of Lessor, be deemed to be Premises Total
Destruction.
(c) "INSURED LOSS" shall mean damage or destruction to the
Premises, other than Lessee-Owned Alterations and Utility Installations and
Trade Fixtures, which was caused by an event required to be covered by the
insurance described in Paragraph 8.3(a) irrespective of any deductible
amounts or coverage limits involved.
(d) "REPLACEMENT COST" shall mean the cost to repair or rebuild
the improvements owned by Lessor at the time of the occurrence to their
condition existing immediately prior thereto, including demolition, debris
removal and upgrading required by the operation of applicable building
codes, ordinances or laws, and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by,
a Hazardous Substance as defined in Paragraph 6.2(a), in, on or under the
Premises.
9.2 PREMISES PARTIAL DAMAGE - INSURED LOSS. If Premises Partial
Damage that is an Insured Loss occurs, then Lessor shall, at Lessor's
expense, repair such damage (but not Lessee's Trade Fixtures or
Lessee-Owned Alterations and Utility Installations) as soon as reasonably
possible and this Lease shall continue in full force and effect. In the
event, however, that there is a shortage of insurance proceeds and such
shortage is due to the fact that, by reason of the unique nature of the
improvements in the Premises, full replacement cost insurance coverage was
not commercially reasonable and available, Lessor shall have no obligation
to pay for the shortage in insurance proceeds or to fully restore the
unique aspects of the Premises unless Lessee provides Lessor with the funds
to cover same, or adequate assurance thereof, within ten (10) days
following receipt of written notice of such shortage and request therefor.
If Lessor receives said funds or adequate assurance thereof within said ten
(10) day period, Lessor shall complete them as soon as reasonably possible
and this Lease shall remain in full force and effect. If Lessor does not
receive such funds or assurance within said period. Lessor may
nevertheless elect by written notice to Lessee within ten (10) days
thereafter to make such restoration and repair as is commercially
reasonable with Lessor paying any shortage in proceeds, in which case this
Leases shall remain in full force and effect. If Lessor does not receive
such funds or assurance within such ten (10) day period, and if Lessor does
not so elect to restore and repair, then this Lease shall terminate sixty
(60) days following the occurrence of the damage or destruction. Unless
otherwise agreed, Lessee shall in no event have any right to reimbursement
from Lessor for any funds contributed by Lessee to repair any such damage
or destruction. Premises Partial Damage due to flood or earthquake shall
be subject to Paragraph 9.3 rather than Paragraph 9.2, notwithstanding that
there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act
of Lessee (in which the event Lessee shall make the repairs at Lessee's
expense and this Lease shall continue in full force and effect), Lessor may
at Lessor's option, either (i) repair such damage as soon as reasonably
possible at Lessor's expense, in which event this Lease shall continue in
full force and effect, or (ii) give written notice to Lessee within thirty
(30) days after receipt by Lessor of knowledge of the occurrence of such
damage of Lessor's desire to terminate this Lease as of the date sixty (60)
days following the date of such notice. In the event Lessor elects to give
such notice of Lessor's intention to terminate this Lease, Lessee shall
have the right within ten (10) days after the receipt of such notice to
give written notice to Lessor of Lessee's commitment to pay for the repair
of such damage totally at Lessee's expense and without reimbursement from
Lessor. Lessee shall provide Lessor with the required funds or
satisfactory assurance thereof within thirty (30) days following such
commitment from Lessee. In such event this Lease shall continue in full
force and effect, and Lessor shall proceed to make such repairs as soon as
reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the funds or assurance thereof within in
the times specified above, this Lease shall terminate as of the date
specified in Lessor's notice of termination.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof,
if Premises Total Destruction occurs (including any destruction required by
any authorized public authority), this Lease shall terminate sixty (60)
days following the date of such Premises Total Destruction, whether or not
the damage or destruction is an Insured Loss or was caused by a negligent
or willful act of Lessee. In the event, however, that the damage or
destruction was caused by Lessee, Lessor shall have the right to recover
Lessor's damages from Lessee except as released and waived in
Paragraph 9.7.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of the term of this Lease there is damage for which the cost to
repair exceeds one month's Base Rent, whether or not an Insured Loss,
Lessor may, at Lessor's option, terminate this Lease effective sixty (60)
days following the date of occurrence of such damage by giving written
notice to Lessee of Lessor's election to do so within thirty (30) days
after the date of occurrence of such damage. Provided, however, if Lessee
at that time has an exercisable option to extend this Lease or to purchase
the Premises, then Lessee may preserve this Lease by (a) exercising such
option, and (b) providing Lessor with any shortage in insurance proceeds
(or adequate assurance thereof) needed to make the repairs on or before the
earlier of (i) the date which is ten (10) days after Lessee's receipt of
Lessor's written notice purporting to terminate this Lease, or (ii) the day
prior to the date upon which such option expires. If Lessee duly exercises
such option during such period and provides Lessor with funds (or adequate
assurance thereof) to cover any shortage in insurance proceeds, Lessor
shall, at Lessor's expense repair such damage as soon as reasonably
possible and this Lease shall continue in full force and effect. If Lessee
fails to exercise such option and provide such funds or assurance during
such period, then this Lease shall terminate as of the date set forth in
the first sentence of this Paragraph 9.5.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES.
(a) In the event of (i) Premises Partial Damage or
(ii) Hazardous Substance Condition for which Lessee is not legally
responsible, the Base Rent, Common Area Operating Expenses and other
charges, if any, payable by Lessee hereunder for the period during which
such damage or condition, its repair, remediation or restoration continues,
shall be abated in proportion to the degree to which Lessee's use of the
Premises is impaired, but not in excess of proceeds from insurance required
to be carried under Paragraph 8.3(b). Except for abatement of Base Rent,
Common Area Operating Expenses and other charges, if any, as aforesaid, all
other obligations of Lessee hereunder shall be performed by Lessee, and
Lessee shall have no claim against Lessor for any damage suffered by reason
of any such damage, destruction, repair, remediation or restoration.
(b) If Lessor shall be obligated to repair or restore the
Premises under the provisions of this Paragraph 9 and shall not commence,
in a substantial and meaningful way, the repair or restoration of the
Premises within ninety (90) days after such obligation shall accrue, Lessee
may, at any time prior to the commencement of such repair or restoration,
give written notice to Lessor and to any Lenders of which Lessee has actual
notice of Lessee's election to terminate this Lease on a date not less than
sixty (60) days following the giving of such notice. If Lessee gives such
notice to Lessor and such Lenders and such repair or restoration is not
commenced within thirty (30) days after receipt of such notice, this Lease
shall terminate as of the date specified in said notice. If Lessor or a
Lender commences the repair or restoration of the Premises within thirty
(30) days after the receipt of such notice, this Lease shall continue in
full force and effect. "COMMENCE" as used in this Paragraph 9.6 shall mean
either the unconditional authorization of the preparation of the required
plans, or the beginning of the actual work on the Premises, whichever
occurs first.
<PAGE>
9.7 HAZARDOUS SUBSTANCE CONDITIONS. If a Hazardous Substance
Condition occurs, unless Lessee is legally responsible therefor (in which
case Lessee shall make the investigation and remediation thereof required
by Applicable Requirements and this Lease shall continue in full force and
effect, but subject to Lessor's rights under Paragraph 6.2(c) and
Paragraph 13), Lessor may at Lessor's option either (i) investigate and
remediate such Hazardous Substance Condition, if required, as soon as
reasonably possible at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) if the estimated cost to
investigate and remediate such condition exceeds twelve (12) times the then
monthly Base Rent or $100,000 whichever is greater, give written notice to
Lessee within thirty (30) days after receipt by Lessor of knowledge of the
occurrence of such Hazardous Substance Condition of Lessor's desire to
terminate this Lease as of the date sixty (60) days following the date of
such notice. In the event Lessor elects to give such notice of Lessor's
intention to terminate this Lease, Lessee shall have the right within ten
(10) days after the receipt of such notice to give written notice to Lessor
of Lessee's commitment to pay for the excess costs of (a) investigation and
remediation of such Hazardous Substance Condition to the extent required by
Applicable Requirements, over (b) an amount equal to twelve (12) times the
then monthly Base Rent or $100,000, whichever is greater. Lessee shall
provide Lessor with the funds required of Lessee or satisfactory assurance
thereof within thirty (30) days following said commitment by Lessee. In
such event this Lease shall continue in full force and effect, and Lessor
shall proceed to make such investigation and remediation as soon as
reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the required funds or assurance thereof
within the time period specified above, this Lease shall terminate as of
the date specified in Lessor's notice of termination.
9.8. TERMINATION - ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to this Paragraph 9, Lessor shall return to Lessee any advance
payment made by Lessee to Lessor and so much of Lessee's Security Deposit
as has not been or is not then required to be, used by Lessor under the
terms of this Lease.
9.9 WAIVER OF STATUTES. Lessor and Lessee agree that the terms of
this Lease shall govern the effect of any damage to or destruction of the
Premises and the Building with respect to the termination of this Lease and
hereby waive the provisions of any present or future statute to the extent
it is inconsistent herewith.
10. REAL PROPERTY TAXES.
10.1 PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes, as
defined in Paragraph 10.2, applicable to the Industrial Center, and except
as otherwise provided in Paragraph 10.3, any such amounts shall be included
in the calculation of Common Area Operating Expenses in accordance with the
provisions of Paragraph 4.2.
10.2 REAL PROPERTY TAX DEFINITION. As used herein, the term "REAL
PROPERTY TAXES" shall include any form of real estate tax or assessment,
general, special, ordinary or extraordinary, and any license fee,
commercial rental tax, improvement bond or bonds, levy or tax (other than
inheritance, personal income or estate taxes) imposed upon the Industrial
Center by any authority having the direct or indirect power to tax,
including any city, state or federal government, or any school,
agricultural, sanitary, fire, street, drainage, or other improvement
district thereof, levied against any legal or equitable interest of Lessor
in the Industrial Center or any portion thereof, Lessor's right to rent or
other income therefrom, and/or Lessor's business of leasing the Premises.
The term "REAL PROPERTY TAXES" shall also include any tax, fee, levy,
assessment or charge, or any increase therein, imposed by reason of events
occurring, or changes in Applicable Law taking effect, during the term of
this Lease, including but not limited to a change in the ownership of the
Industrial Center or in the improvements thereon, the execution of this
Lease, or any modification, amendment or transfer thereof, and whether or
not contemplated by the Parties. In calculating Real Property Taxes for
any calendar year, the Real Property Taxes for any real estate tax year
shall be included in the calculation of Real Property Taxes for such
calendar year based upon the number of days which such calendar year and
tax year have in common. REFER TO PARAGRAPH 62 BELOW.
10.3 ADDITIONAL IMPROVEMENTS. Common Area Operating Expenses shall
not include Real Property Taxes specified in the tax assessor's records and
work sheets as being caused by additional improvements placed upon the
Industrial Center by other lessees or by Lessor for the exclusive enjoyment
of such other lessees. Notwithstanding Paragraph 10.1 hereof, Lessee
shall, however, pay to Lessor at the time Common Area Operating Expenses
are payable under Paragraph 4.2, the entirety of any increase in Real
Property Taxes if assessed solely by reason of Alterations, Trade Fixtures
or Utility Installations placed upon the Premises by Lessee or at Lessee's
request.
10.4 JOINT ASSESSMENT. If the Building is not separately assessed,
Real Property Taxes allocated to the Building shall be an equitable
proportion of the Real Property Taxes for all of the land and improvements
included within the tax parcel assessed, such proportion to be determined
by Lessor from the respective valuations assigned in the assessor's work
sheets or such other information as may be reasonably available. Lessor's
reasonable determination thereof, in good faith, shall be conclusive.
10.5 LESSEE'S PROPERTY TAXES. Lessee shall pay prior to delinquency
all taxes assessed against and levied upon Lessee-Owned Alterations and
Utility Installations, Trade Fixtures, furnishings, equipment and all
personal property of Lessee contained in the Premises or stored within the
Industrial Center. When possible, Lessee shall cause its Lessee-Owned
Alterations and Utility Installations, Trade Fixtures, furnishings,
equipment and all other personal property to be assessed and billed
separately from the real property of Lessor. If any of Lessee's said
property shall be assessed with Lessor's real property, Lessee shall pay
Lessor the taxes attributable to Lessee's property within ten (10) days
after receipt of a written statement setting forth the taxes applicable to
Lessee's property.
11. UTILITIES. Lessee shall pay directly for all utilities and services
supplied to the Premises, including but not limited to electricity,
telephone, security, gas and cleaning of the Premises, together with any
taxes thereon. If any such utilities or services are not separately
metered to the Premises or separately billed to the Premises, Lessee shall
pay to Lessor a reasonable proportion to be determined by Lessor of all
such charges jointly metered or billed with other premises in the Building,
in the manner and within the time periods set forth in Paragraph 4.2(d).
12. ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or otherwise transfer or encumber (collectively,
"assign") or sublet all or any part of Lessee's interest in this Lease or
in the Premises without Lessor's prior written consent given under and
subject to the terms of Paragraph 36.
(b) A change in the control of Lessee shall constitute an
assignment requiring Lessor's consent. The transfer, on a cumulative
basis, of forty-five percent (45%) or more of the voting control of Lessee
shall constitute a change in control for this purpose.
(c) The involvement of Lessee or its assets in any transaction,
or series of transactions (by way of merger, sale, acquisition, financing,
refinancing, transfer, leveraged buy-out or otherwise), whether or not a
formal assignment or hypothecation of this Lease or Lessee's assets occurs,
which results or will result in a reduction of the Net Worth of Lessee, as
hereinafter defined, by an amount equal to or greater than twenty-five
percent (25%) of such Net Worth of Lessee as it was represented to Lessor
at the time of full execution and delivery of this Lease or at the time of
the most recent assignment to which Lessor has consented, or as it exists
immediately prior to said transaction or transactions constituting such
reduction, at whichever time said Net Worth of Lessee was or is greater,
shall be considered an assignment of this Lease by Lessee to which Lessor
may reasonably withhold its consent. "NET WORTH OF LESSEE" for purposes of
this Lease shall be the net worth of Lessee (excluding any Guarantors)
established under generally accepted accounting principles consistently
applied.
(d) An assignment or subletting of Lessee's interest in this
Lease without Lessor's specific prior written consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1, or a non-
curable Breach without the necessity of any notice and grace period. If
Lessor elects to treat such unconsented to assignment or subletting as a
non-curable Breach, Lessor shall have the right to either: (i) terminate
this Lease, or (ii) upon thirty (30) days' written notice ("LESSOR'S
NOTICE"), increase the monthly Base Rent for the Premises to the greater of
the then fair market rental value of the Premises, as reasonably determined
by Lessor, or one hundred ten percent (110%) of the Base Rent then in
effect. Pending determination of the new fair market rental value, if
disputed by Lessee, Lessee shall pay the amount set forth in Lessor's
Notice, with any overpayment credited against the next installment(s) of
Base Rent coming due, and any underpayment for the period retroactively to
the effective date of the adjustment being due and payable immediately upon
the determination thereof. Further, in the event of such Breach and rental
adjustment, (i) the purchase price of any option to purchase the Premises
held by Lessee shall be subject to similar adjustment to the then fair
market value as reasonably determined by Lessor (without the Lease being
considered an encumbrance or any deduction for depreciation or
obsolescence, and considering the Premises at its highest and best use and
in good condition) or one hundred ten percent (110%) of the price
previously in effect, (ii) any index-oriented rental or price adjustment
formulas contained in this Lease shall be adjusted to require that the base
index be determined with reference to the index applicable to the time of
such adjustment, and (iii) any fixed rental adjustments scheduled during
the remainder of the Lease term shall be increased in the same ratio as the
new rental bears to the Base Rent in effect immediately prior to the
adjustment specified in Lessor's Notice.
(e) Lessee's remedy for any breach of this Paragraph 12.1 by
Lessor shall be limited to compensatory damages and/or injunctive relief.
12.2 TERMS AND CONDITIONS APPLICABLE TO ASSIGNMENT AND SUBLETTING.
(a) Regardless of Lessor's consent, any assignment or subletting
shall not (i) be effective without the express written assumption by such
assignee or sublessee of the obligations of Lessee under this Lease,
(ii) release Lessee of any obligations hereunder, nor (iii) alter the
primary liability of Lessee for the payment of Base Rent and other sums due
Lessor hereunder or for the performance of any other obligations to be
performed by Lessee under this Lease.
(b) Lessor may accept any rent or performance of Lessee's
obligations from any person other than Lessee pending approval or
disapproval of an assignment. Neither a delay in the approval or
disapproval of such assignment nor the acceptance of any rent for
performance shall constitute a waiver or estoppel of Lessor's right to
exercise its remedies for the Default or Breach by Lessee of any of the
terms, covenants or conditions of this Lease.
(c) The consent of Lessor to any assignment or subletting shall
not constitute a consent to any subsequent assignment or subletting by
Lessee or to any subsequent or successive assignment or subletting by the
assignee or sublessee. However, Lessor may consent to subsequent
sublettings and assignments of the sublease or any amendments or
modifications thereto without notifying Lessee or anyone else liable under
this Lease or the sublease and without obtaining their consent, and such
action shall not relieve such persons from liability under this Lease or
the sublease.
(d) In the event of any Default or Breach of Lessee's obligation
under this Lease, Lessor may proceed directly against Lessee, any
Guarantors or anyone else responsible for the performance of the Lessee's
obligations under this Lease, including any sublessee, without first
exhausting Lessor's remedies against any other person or entity responsible
therefor to Lessor, or any security held by Lessor.
(e) Each request for consent to an assignment or subletting
shall be in writing, accompanied by information relevant to Lessor's
determination as to the financial and operational responsibility and
appropriateness of the proposed assignee or sublessee, including but not
limited to the intended use and/or required modification of the Premises,
if any, together with a non-refundable deposit of $1,000 or ten percent
(10%) of the monthly Base Rent applicable to the portion of the Premises
which is the subject to the proposed assignment or sublease, whichever is
greater, as reasonable consideration for Lessor's considering processing
the request for consent. Lessee agrees to provide Lessor with such other
or additional information and/or documentation as may be reasonably
requested by Lessor.
(f) Any assignee of, or sublessee under, this Lease shall, by
reason of accepting such assignment or entering into such sublease, be
deemed, for the benefit of Lessor, to have assumed and agreed to conform
and comply with each and every term, covenant, condition and obligation
herein to be observed or performed by Lessee during the term of said
assignment or sublease, other than such obligations as are contrary to or
inconsistent with provisions of an assignment or sublease to which Lessor
has specifically consented in writing.
<PAGE>
(g) The occurrence of a transaction describe in Paragraph
12.2(c) shall give Lessor the right (but not the obligation) to require
that the Security Deposit be increased by an amount equal to six (6) times
the then monthly Base Rent, and Lessor may make the actual receipt by
Lessor of the Security Deposit increase a condition to Lessor's consent to
such transaction.
(h) Lessor, as a condition to giving its consent to any
assignment or subletting, may require that the amount and adjustment
schedule of the rent payable under this Lease be adjusted to what is then
the market value and/or adjustment schedule for property similar to the
Premises as then constituted, as determined by Lessor.
12.3 ADDITIONAL TERMS AND CONDITIONS APPLICABLE TO SUBLETTING. The
following terms and conditions shall apply to any subletting by Lessee of
all or any part of the Premises and shall be deemed included in all
subleases under this Lease whether or not expressly incorporated therein:
(a) Lessee hereby assigns and transfers to Lessor all of
Lessee's interest in all rentals and income arising from any sublease of
all or a portion of the Premises heretofore or hereafter made by Lessee,
and Lessor may collect such rent and income and apply same toward Lessee's
obligations under this Lease; provided, however, that until a Breach (as
defined in Paragraph 13.1) shall occur in the performance of Lessee's
obligations under this Lease, Lessee may, except as otherwise provided in
this Lease, receive, collect and enjoy the rents accruing under such
sublease. Lessor shall not, by reason of the foregoing provision or any
other assignment of such sublease to Lessor, nor by reason of the
collection of the rents from a sublessee, be deemed liable to the sublessee
for any failure of Lessee to perform and comply with any of Lessee's
obligations to such sublessee under such Sublease. Lessee hereby
irrevocably authorizes and directs any such sublessee, upon receipt of a
written notice from Lessor stating that a Breach exists in the performance
of Lessee's obligations under this Lease, to pay to Lessor the rents and
other charges due and to become due under the sublease. Sublessee shall
rely upon any such statement and request from Lessor and shall pay such
rents and other charges to Lessor without any obligation or right to
inquire as to whether such Breach exists and notwithstanding any notice
from or claim from Lessee to the contrary. Lessee shall have no right or
claim against such sublessee, or, until the Breach has been cured, against
Lessor, for any such rents and other charges so paid by said sublessee to
Lessor.
(b) In the event of a Breach by Lessee in the performance of its
obligations under this Lease, Lessor, at its option and without any
obligation to do so, may require any sublessee to attorn to Lessor, in
which event Lessor shall undertake the obligations of the sublessor under
such sublease from the time of the exercise of said option to the
expiration of such sublease; provided, however, Lessor shall not be liable
for any prepaid rents or security deposit paid by such sublessee to such
sublessor or for any other prior defaults or breaches of such sublessor
under such sublease.
(c) Any matter or thing requiring the consent of the sublessor
under a sublease shall also require the consent of Lessor herein.
(d) No sublessee under a sublease approved by Lessor shall
further assign or sublet all or any part of the Premises without Lessor's
prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or
Breach by Lessee to the sublessee, who shall have the right to cure the
Default of Lessee within the grace period, if any, specified in such
notice. The sublessee shall have a right of reimbursement and offset from
and against Lessee for any such Defaults cured by the sublessee. REFER TO
PARAGRAPH 63 BELOW.
13. DEFAULT; BREACH; REMEDIES.
13.1 DEFAULT; BREACH. Lessor and Lessee agree that if an attorney is
consulted by Lessor in connection with a Lessee Default or Breach (as
hereinafter defined), $350.00 is a reasonable minimum sum per such
occurrence for legal services and costs in the preparation and service of a
notice of Default, and that Lessor may include the cost of such services
and costs in said notice as rent due and payable to cure said default. A
"DEFAULT" by Lessee is defined as a failure by Lessee to observe, comply
with or perform any of the terms, covenants, conditions or rules applicable
to Lessee under this Lease. A "BREACH" by Lessee is defined as the
occurrence of any one or more of the following Defaults, and, where a grace
period for cure after notice is specified herein, the failure by Lessee to
cure such Default prior to the expiration of the applicable grace period,
and shall entitle Lessor to pursue the remedies set forth in Paragraphs
13.2 and/or 13.3:
(a) The vacating of the Premises without the intention to
reoccupy same, or the abandonment of the Premises.
(b) Except as expressly otherwise provided in this Lease, the
failure by Lessee to make any payment of Base Rent, Lessee's Share of
Common Area Operating Expenses, or any other monetary payment required to
be made by Lessee hereunder as and when due, the failure by Lessee to
provide Lessor with reasonable evidence of insurance or surety bond
required under this Lease, or the failure of Lessee to fulfill any
obligation under this Lease which endangers or threatens life or property,
where such failure continues for a period of three (3) days following
written notice thereof by or on behalf of Lessor to Lessee.
(c) Except as expressly otherwise provided in this Lease, the
failure by Lessee to provide Lessor with reasonable written evidence (in
duly executed original form, if applicable) of (i) compliance with
Applicable Requirements per Paragraph 6.3, (ii) the inspection, maintenance
and service contracts required under Paragraph 7.1(b), (iii) the rescission
of an unauthorized assignment or subletting per Paragraph 12.1, (iv) a
Tenancy Statement per Paragraphs 16 or 37, (v) the subordination or non-
subordination of this Lease per Paragraph 30, (vi) the guaranty of the
performance of Lessee's obligations under this Lease if required under
Paragraphs 1.11 and 37, (vii) the execution of any document requested under
Paragraph 42 (easements), or (viii) any other documentation or information
which Lessor may reasonably require of Lessee under the terms of this
Lease, where any such failure continues for a period of ten (10) days
following written notice by or on behalf of Lessor to Lessee.
(d) A Default by Lessee as to the term, covenants, conditions or
provisions of this Lease, or of the rules adopted under Paragraph 40 hereof
that are to be observed, complied with or performed by Lessee, other than
those described in Subparagraphs 13.1(a), (b) or (c), above, where such
Default continues for a period of thirty (30) days after written notice
thereof by or on behalf of Lessor to Lessee; provided, however, that if the
nature of Lessee's Default is such that more than thirty (30) days are
reasonably required for its cure, then it shall not be deemed to be a
Breach of this Lease by Lessee if Lessee commences such cure within said
thirty (30) day period and thereafter diligently prosecutes such cure to
completion.
(e) The occurrence of any of the following events: (i) the
making by Lessee of any general arrangement or assignment for the benefit
of creditors; (ii) Lessee's becoming a "debtor" as defined in 11 U.S. Code
Section 101 or any successor statute thereto (unless, in the case of a
petition filed against Lessee, the same is dismissed within sixty (60)
days); (iii) the appointment of a trustee or receiver to take possession of
substantially all of Lessee's assets located at the Premises or of Lessee's
interest in this Lease, where possession is not restored to Lessee within
thirty (30) days; or (iv) the attachment, execution or other judicial
seizure of substantially all of Lessee's assets located at the Premises or
of Lessee's interest in this Lease, where such seizure is not discharged
within thirty (30) days; provided, however, in the event that any provision
of this Subparagraph 13.1(e) is contrary to any applicable law, such
provision shall be of no force or effect, and shall not affect the validity
of the remaining provisions.
(f) The discovery by Lessor that any financial statement of
Lessee or of any Guarantor, given to Lessor by Lessee or any Guarantor, was
materially false.
(g) If the performance of Lessee's obligations under this Lease
is guaranteed: (i) the death of a Guarantor, (ii) the termination of a
Guarantor's liability with respect to this Lease other than in accordance
with the terms of such guaranty, (iii) a Guarantor's becoming insolvent or
the subject of a bankruptcy filing, (iv) a Guarantor's refusal to honor the
guaranty, or (v) a Guarantor's breach of its guaranty obligation on an
anticipatory breach basis, and Lessee's failure, within sixty (60) days
following written notice by or on behalf of Lessor to Lessee of any such
event, to provide Lessor with written alternative assurances of security,
which, when coupled with the then existing resources of Lessee, equals or
exceeds the combined financial resources of Lessee and the Guarantors that
existed at the time of execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any affirmative duty or
obligation of Lessee under this Lease, within ten (10) days after written
notice to Lessee (or in case of an emergency, without notice), Lessor may
at its option (but without obligation to do so), perform such duty or
obligation on Lessee's behalf, including but not limited to the obtaining
of reasonably required bonds, insurance policies, or governmental licenses,
permits or approvals. The costs and expenses of any such performance by
Lessor shall be due and payable by Lessee to Lessor upon invoice therefor.
If any check given to Lessor by Lessee shall not be honored by the bank
upon which it is drawn, Lessor at its own option, may require all future
payments to be made under this Lease by Lessee to be made only by cashier's
check. In the event of a Breach of this Lease by Lessee (as defined in
Paragraph 13.1), with or without further notice or demand, and without
limiting Lessor in the exercise of any right or remedy which Lessor may
have by reason of such Breach, Lessor may:
(a) Terminate Lessee's right to possession of the Premises by
any lawful means, in which case this Lease and the term hereof shall
terminate and Lessee shall immediately surrender possession of the Premises
to Lessor. In such event Lessor shall be entitled to recover from Lessee:
(i) the worth at the time of the award of the unpaid rent which had been
earned at the time of termination; (ii) the worth at the time of award of
the amount by which the unpaid rent which would have been earned after
termination until the time of award exceeds the amount of such rental loss
that the Lessee proves could have been reasonably avoided; (iii) the worth
at the time of award of the amount by which the unpaid rent for the balance
of the term after the time of award exceeds the amount of such rental loss
that the Lessee proves could be reasonably avoided; and (iv) any other
amount necessary to compensate Lessor for all the detriment proximately
caused by the Lessee's failure to perform its obligations under this Lease
or which in the ordinary course of things would be likely to result
therefrom, including but not limited to the cost of recovering possession
of the Premises, expenses of reletting, including necessary renovation and
alteration of the Premises, reasonable attorneys' fees, and that portion of
any leasing commission paid by Lessor in connection with this Lease
applicable to the unexpired term of this Lease. The worth at the time of
award of the amount referred to in provision (iii) of the immediately
preceding sentence shall be computed by discounting such amount at the
discount rate of the Federal Reserve Bank of San Francisco or the Federal
Reserve Bank District in which the Premises are located at the time of
award plus one percent (1%). Efforts by Lessor to mitigate damages caused
by Lessee's Default or Breach of this Lease shall not waive Lessor's right
to recover damages under this Paragraph 13.2. If termination of this Lease
is obtained through the provisional remedy of unlawful detainer, Lessor
shall have the right to recover in such proceeding the unpaid rent and
damages as are recoverable therein, or Lessor may reserve the right to
recover all or any part thereof in a separate suit for such rent and/or
damages. If a notice and grace period required under Subparagraph 13.1(b),
(c) or (d) was not previously given, a notice to pay rent or quit, or to
perform or quit, as the case may be, given to Lessee under any statute
authorizing the forfeiture of leases for unlawful detainer shall also
constitute the applicable notice for grace period purposes required by
Subparagraph 13.1(b), (c) or (d). In such case, the applicable grace
period under the unlawful detainer statute shall run concurrently after the
one such statutory notice, and the failure of Lessee to cure the Default
within the greater of the two (2) such grace periods shall constitute both
an unlawful detainer and a Breach of this Lease entitling Lessor to the
remedies provided for in this Lease and/or by said statute.
(b) Continue the Lease and Lessee's right to possession in
effect (in California under California Civil Code Section 1951.4) after
Lessee's Breach and recover the rent as it becomes due, provided Lessee has
the right to sublet or assign, subject only to reasonable limitations.
Lessor and Lessee agree that the limitations on assignment and subletting
this Lease are reasonable. Acts of maintenance or preservation, efforts to
relet the Premises, or the appointment of a receiver to protect the
Lessor's interest under this Lease, shall not constitute a termination of
the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available to Lessor
under the laws or judicial decisions of the state wherein the Premises are
located.
<PAGE>
(d) The expiration or termination of this Lease and/or the
termination of Lessee's right to possession shall not relieve Lessee from
liability under any indemnity provisions of this Lease as to matters
occurring or accruing during the term hereof or by reason of Lessee's
occupancy of the Premises.
13.3 INDUCEMENT RECAPTURE IN EVENT OF BREACH. Any agreement by Lessor
for free or abated rent or other charges applicable to the Premises, or for
the giving or paying by Lessor to or for Lessee of any cash or other bonus,
inducement or consideration for Lessee's entering into this Lease, all of
which concessions are hereinafter referred to as "INDUCEMENT PROVISIONS"
shall be deemed conditioned upon Lessee's full and faithful performance of
all of the terms, covenants and conditions of this Lease to be performed or
observed by Lessee during the term hereof as the same may be extended.
Upon the occurrence of a Breach (as defined in paragraph 13.1) of this
Lease by Lessee, any such Inducement Provision shall automatically be
deemed deleted from this Lease and of no further force or effect, and any
rent, other charge, bonus, inducement or consideration theretofore abated,
given or paid by Lessor under such an Inducement Provision shall be
immediately due and payable by Lessee to Lessor, and recoverable by Lessor,
as additional rent due under this Lease, notwithstanding any subsequent
cure of said Breach by Lessee. The acceptance by Lessor of rent or the
cure of the Breach which initiated the operation of this Paragraph 13.3
shall not be deemed a waiver by Lessor of the provisions of this Paragraph
13.3 unless specifically so stated in writing by Lessor at the time of such
acceptance.
13.4 LATE CHARGES. Lessee hereby acknowledges that late payment by
Lessee to Lessor of rent and other sums due hereunder will cause Lessor to
incur costs not contemplated by this Lease, the exact amount of which will
be extremely difficult to ascertain. Such costs include, but are not
limited to, processing and accounting charges, and late charges which may
be imposed upon Lessor by the terms of any ground lease, mortgage or deed
of trust covering the Premises. Accordingly, if any installment of rent or
other sum due from Lessee shall not be received by Lessor or Lessor's
designee within ten (10) days after such amount shall be due, then, without
any requirement for notice to Lessee, Lessee shall pay to Lessor a late
charge equal to six percent (6%) of such overdue amount. The parties
hereby agree that such late charge represents a fair and reasonable
estimate of the costs Lessor will incur by reason of late payment by
Lessee. Acceptance of such late charge by Lessor shall in no event
constitute a waiver of Lessee's Default or Breach with respect to such
overdue amount, nor prevent Lessor from exercising any of the other rights
and remedies granted hereunder. In the event that a late charge is payable
hereunder, whether or not collected, for three (3) consecutive installments
of Base Rent, then notwithstanding Paragraph 4.1 or any other provision of
this Lease to the contrary, Base Rent shall, at Lessor's option, become due
and payable quarterly in advance.
13.5 BREACH BY LESSOR. Lessor shall not be deemed in breach of this
Lease unless Lessor fails within a reasonable time to perform an obligation
required to be performed by Lessor. For purposes of this Paragraph 13.5, a
reasonable time shall in no event be less than thirty (30) days after
receipt by Lessor, and by any Lender(s) whose name and address shall have
been furnished to Lessee in writing for such purpose, of written notice
specifying wherein such obligation of Lessor has not been performed;
provided, however, that if the nature of Lessor's obligation is such that
more than thirty (30) days after such notice are reasonably required for
its performance, then Lessor shall not be in breach of this Lease if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
14. CONDEMNATION. If the Premises or any portion thereof are taken under
the power of eminent domain or sold under the threat of the exercise of
said power (all of which are herein called "condemnation", this Lease shall
terminate as to the part so taken as of the date the condemning authority
takes title or possession, whichever first occurs. If more than ten
percent (10%) of the floor area of the Premises, or more than twenty-five
percent (25%) of the portion of the Common Areas designated for Lessee's
parking, is taken by condemnation, Lessee may, at Lessee's option, to be
exercised in writing within ten (10) days after Lessor shall have given
Lessee written notice of such taking (or in the absence of such notice,
within ten (10) days after the condemning authority shall have taken
possession) terminate this Lease as of the date the condemning authority
takes such possession. If Lessee does not terminate this Lease in
accordance with the foregoing, this Lease shall remain in full force and
effect as to the portion of the Premises remaining, except that the Base
Rent shall be reduced in the same proportion as the rentable floor area of
the Premises taken bears to the total rentable floor area of the Premises.
No reduction of Base Rent shall occur if the condemnation does not apply to
any portion of the Premises. Any award for the taking of all or any part
of the Premises under the power of eminent domain or any payment made under
threat of the exercise of such power shall be the property of Lessor,
whether such award shall be made as compensation for diminution of value of
the leasehold or for the taking of the fee, or as severance damages;
provided, however, that Lessee shall be entitled to any compensation,
separately awarded to Lessee for Lessee's relocation expenses and/or loss
of Lessee's Trade Fixtures. In the event that this Lease is not terminated
by reason of such condemnation, Lessor shall to the extent of its net
severance damages received, over and above Lessee's Share of the legal and
other expenses incurred by Lessor in the condemnation matter, repair any
damage to the Premises caused by such condemnation authority. Lessee shall
be responsible for the payment of any amount in excess of such net
severance damages required to complete such repair.
15. BROKERS' FEES.
15.1 PROCURING CAUSE. The Broker(s) named in Paragraph 1.10 is/are
the procuring cause of this Lease.
15.2 ADDITIONAL TERMS. Unless Lessor and Broker(s) have otherwise
agreed in writing, Lessor agrees that: (a) if Lessee exercises any Option
(as defined in Paragraph 39.1) granted under this Lease or any Option
subsequently granted, or (b) if Lessee acquires any rights to the Premises
or other premises in which Lessor has an interest, or (c) if Lessee remains
in possession of the Premises with the consent of Lessor after the
expiration of the term of this Lease after having failed to exercise an
Option, or (d) if said Brokers are the procuring cause of any other lease
or sale entered into between the Parties pertaining to the Premises and/or
any adjacent property in which Lessor has an interest, or (e) if Base Rent
is increased, whether by agreement or operation of an escalation clause
herein, then as to any of said transactions, Lessor shall pay said
Broker(s) a fee in accordance with the schedule of said Broker(s) in effect
at the time of the execution of this Lease.
15.3 ASSUMPTION OF OBLIGATIONS. Any buyer or transferee of Lessor's
interest in this Lease, whether such transfer is by agreement or by
operation of law, shall be deemed to have assumed Lessor's obligation under
this Paragraph 15. Each Broker shall be an intended third party
beneficiary of the provisions of Paragraph 1.10 and of this Paragraph 15 to
the extent of its interest in any commission arising from this Lease and
may enforce that right directly against Lessor and its successors.
15.4 REPRESENTATIONS AND WARRANTIES. Lessee and Lessor each represent
and warrant to the other that it has had no dealings with any person, firm,
broker or finder other than as named in Paragraph 1.10(a) in connection
with the negotiation of this Lease and/or the consummation of the
transaction contemplated hereby, and that no broker or other person, firm
or entity other than said named Broker(s) is entitled to any commission or
finder's fee in connection with said transaction. Lessee and Lessor do
each hereby agree to indemnify, protect, defend and hold the other harmless
from and against liability for compensation or charges which may be claimed
by any such unnamed broker, finder or other similar party by reason of any
dealings or actions of the indemnifying Party, including any costs,
expenses, and/or attorneys' fees reasonably incurred with respect thereto.
16. TENANCY AND FINANCIAL STATEMENTS.
16.1 TENANCY STATEMENT. Each Party (as "RESPONDING PARTY") shall
within ten (10) days after written notice from the other Party (the
"REQUESTING PARTY") execute, acknowledge and deliver to the Requesting
Party a statement in writing in a form similar to the then most current
"TENANCY STATEMENT" form published by the American Industrial Real Estate
Association, plus such additional information, confirmation and/or
statements as may be reasonably requested by the Requesting Party.
16.2 FINANCIAL STATEMENT. If Lessor desires to finance, refinance, or
sell the Premises or the Building, or any part thereof, Lessee and all
Guarantors shall deliver to any potential lender or purchaser designated by
Lessor such financial statements of Lessee and such Guarantors as may be
reasonably required by such lender or purchaser, including but not limited
to Lessee's financial statements for the past three (3) years. All such
financial statements shall be received by Lessor and such lender or
purchaser in confidence and shall be used only for the purposes herein set
forth.
17. LESSOR'S LIABILITY. The term "LESSOR" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises.
In the vent of a transfer of Lessor's title or interest in the Premises or
in this Lease, Lessor shall deliver to the transferee or assignee (in cash
or by credit) any unused Security Deposit held by Lessor at the time of
such transfer or assignment. Except as provided in Paragraph 15.3, upon
such transfer or assignment and delivery of the Security Deposit, as
aforesaid, the prior Lessor shall be relieved of all liability with respect
to the obligations and/or covenants under this Lease thereafter to be
performed by the Lessor. Subject to the foregoing, the obligations and/or
covenants in this Lease to be performed by the Lessor shall be binding only
upon the Lessor as hereinabove defined and this Lease shall remain in full
force and effect in the event of any transfer of Lessor's interest in the
Premises of this Lease.
18. SEVERABILITY. The invalidity of any provision of this Lease, as
determined by a court of competent jurisdiction, shall in no way affect the
validity of any other provision hereof.
19. INTEREST ON PAST-DUE OBLIGATIONS. Any monetary payment due Lessor
hereunder, other than late charges, not received by Lessor within ten (10)
days following the date on which it was due, shall bear interest from the
date due at the prime rate charged by the largest state chartered bank in
the state in which the Premises are located plus four percent (4%) per
annum, but not exceeding the maximum rate allowed by law, in addition to
the potential late charge provided for in Paragraph 13.4.
20. TIME OF ESSENCE. Time is of the essence with respect to the
performance of all obligations to be performed or observed by the Parties
under this Lease.
21. RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease are deemed to be rent.
22. NO PRIOR OR OTHER AGREEMENTS; BROKER DISCLAIMER. This Lease contains
all agreements between the Parties with respect to any matter mentioned
herein, and no other prior or contemporaneous agreement or understanding
shall be effective. Lessor and Lessee each represents and warrants to the
Brokers that it has made, and is relying solely upon, its own investigation
as to the nature, quality, character and financial responsibility of the
other Party to this Lease and as to the nature, quality and character of
the Premises. Brokers have no responsibility with respect thereto or with
respect to any default or breach hereof by either Party. Each Broker shall
be an intended third party beneficiary of the provisions of this Paragraph
22.
23. NOTICES.
23.1 NOTICE REQUIREMENTS. All notices required or permitted by this
Lease shall be in writing and may be delivered in person (by hand or by
messenger or courier service) or may be sent by regular, certified or
registered mail or U.S. Postal Service Express Mail, with postage prepaid,
or by facsimile transmission during normal business hours, and shall be
deemed sufficiently given if served in a manner specified in this Paragraph
23. The addresses noted adjacent to a Party's signature on this Lease
shall be that Party's address for delivery or mailing of notice purposes.
Either Party may by written notice to the other specify a different address
for notice purposes, except that upon Lessee's taking possession of the
Premises, the Premises shall constitute Lessee's address for the purpose of
mailing or delivering notices to Lessee. A copy of all notices required or
permitted to be given to Lessor hereunder shall be concurrently transmitted
to such party or parties at such addresses as Lessor may from time to time
hereafter designate by written notice to Lessee.
23.2 DATE OF NOTICE. Any notice sent by registered or certified mail,
return receipt requested, shall be deemed given on the date of delivery
shown on the receipt card, or if no delivery date is show, the postmark
thereon. If sent by regular mail, the notice shall be deemed given forty-
eight (48) hours after the same is addressed as required herein and mailed
with postage prepaid. Notices delivered by United States Express Mail or
overnight courier that guarantees next day delivery shall be deemed given
twenty-four (24) hours after delivery of the same to the United States
Postal Service or courier. If any notice is transmitted by facsimile
transmission or similar means, the same shall be deemed served or delivered
upon telephone or facsimile confirmation of receipt of the transmission
thereof, provided a copy is also delivered via delivery or mail. If notice
is received on a Saturday or a Sunday or a legal holiday, it shall be
deemed received on the next business day.
<PAGE>
24. WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any
other term, covenant or condition hereof, or of any subsequent Default or
Breach by Lessee of the same or any other term, covenant or condition
hereof. Lessor's consent to, or approval of, any such act shall not be
deemed to render unnecessary the obtaining of Lessor's consent to, or
approval of, any subsequent or similar act by Lessee, or be construed as
the basis of an estoppel to enforce the provision or provisions of this
Lease requiring such consent. Regardless of Lessor's knowledge of a
Default or Breach at the time of accepting rent, the acceptance of rent by
lessor shall not be a waiver of any Default or Breach by Lessee of any
provision hereof. Any payment given Lessor by Lessee may be accepted by
Lessor on account of moneys or damages due Lessor, notwithstanding any
qualifying statements or conditions made by Lessee in connection therewith,
which such statements and/or conditions shall be of no force or effect
whatsoever unless specifically agreed to in writing by Lessor at or before
the time of deposit of such payment.
25. RECORDING. Either Lessor or Lessee shall, upon request of the other,
execute, acknowledge and deliver to the other a short form memorandum of
this Lease for recording purposes. The Party requesting recordation shall
be responsible for payment of any fees or taxes applicable thereto.
26. NO RIGHT TO HOLDOVER. Lessee has no right to retain possession of the
Premises or any part thereof beyond the expiration or earlier termination
of this Lease. In the event that Lessee holds over in violation of this
Paragraph 26 then the Base Rent payable from and after the time of the
expiration or earlier termination of this Lease shall be increased to one
hundred fifty percent (150%) of the Base Rent applicable during the month
immediately preceding such expiration or earlier termination. Nothing
contained herein shall be construed as a consent by Lessor to any holding
over by lessee.
27. CUMULATIVE REMEDIES. No remedy or election hereunder shall be deemed
exclusive but shall, wherever possible, be cumulative with all other
remedies at law or in equity.
28. COVENANTS AND CONDITIONS. All provisions of this Lease to be observed
or performed by Lessee are both covenants and conditions.
29. BINDING EFFECT; CHOICE OF LAW. This Lease shall be binding upon the
Parties, their personal representatives, successors and assigns and be
governed by the laws of the State in which the Premises are located. Any
litigation between the Parties hereto concerning this Lease shall be
initiated in the county in which the Premises are located.
30. SUBORDINATION; ATTORNMENT; NON-DISTURBANCE.
30.1 SUBORDINATION. This Lease and any Option granted hereby shall be
subject and subordinate to any ground lease, mortgage, deed of trust, or
other hypothecation or security device (collectively, "SECURITY DEVICE"),
now or hereafter placed by Lessor upon the real property of which the
Premises are a part, to any and all advances made on the security thereof,
and to all renewals, modifications, consolidations, replacements and
extensions thereof. Lessee agrees that the Lenders holding any such
Security Device shall have no duty, liability or obligation to perform any
of the obligations of Lessor under this Lease, but that in the event or
Lessor's default with respect to any such obligation, Lessee will give any
Lender whose name and address have been furnished Lessee in writing for
such purpose notice of Lessor's default pursuant to Paragraph 13.5. If any
Lender shall elect to have this Lease and/or any Option granted hereby
superior to the lien of its Security Device and shall give written notice
thereof to Lessee, this Lease and such Options shall be deemed prior to
such Security Device, notwithstanding the relative dates of the
documentation or recordation thereof. REFER TO PARAGRAPH 64 BELOW.
30.2 ATTORNMENT. REFER TO PARAGRAPH 64 BELOW. Subject to the non-
disturbance provisions of Paragraph 30.3, Lessee agrees to attorn to a
Lender or any other party who acquires ownership of the Premises by reason
of a foreclosure of a Security Device, and that in the vent of such
foreclosure, such new owner shall not: (i) be liable for any act or
omission or any prior lessor or with respect to events occurring prior to
acquisition of ownership, (ii) be subject to any offsets or defenses which
Lessee might have against any prior lessor, or (iii) be bound by prepayment
of more than one month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into
by Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiver assurance (a "non-disturbance
agreement") from the Lender that Lessee's possession and this Lease,
including any options to extend the term hereof, will not be disturbed so
long as Lessee is not in Breach hereof and attorns to the record owner of
the Premises.
30.4 SELF-EXECUTING. The agreements contained in this Paragraph 30
shall be effective without the execution of any further documents;
provided, however, that upon written request from Lessor or a Lender in
connection with a sale, financing or refinancing of Premises, Lessee and
Lessor shall execute such further writings as may be reasonably required to
separately document any such subordination or non-subordination, attornment
and/or non-disturbance agreement as is provided for herein.
31. ATTORNEYS' FEES. If any Party or Broker brings an action or
proceeding to enforce the terms hereof or declare rights hereunder, the
Prevailing Party (as hereafter defined) in any such proceeding, action, or
appeal thereon, shall be entitled to reasonable attorneys' fees. Such fees
may be awarded in the same suit or recovered in a separate suit, whether or
not such action or proceeding is pursued to decision or judgment. The term
"PREVAILING PARTY" shall include, without limitation, a Party or Broker who
substantially obtains or defeats the relief sought, as the case may be,
whether by compromise, settlement, judgment, or the abandonment by the
other Party or Broker of its claim or defense. The attorneys' fee award
shall not be computed in accordance with any court fee schedule, but shall
be such as to fully reimburse all attorneys' fees reasonably incurred.
Lessor shall be entitled to attorneys' fees, costs and expenses incurred in
preparation and service of notices of Default and consultations in
connection therewith, whether or not a legal action is subsequently
commenced in connection with such Default or resulting Breach. Broker(s)
shall be intended third party beneficiaries of this Paragraph 31.
32. LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's
agents shall have the right to enter the Premises at any time, in the case
of an emergency, and otherwise at reasonable times for the purpose of
showing the same to prospective purchasers, lenders, or lessees, and making
such alterations, repairs, improvements or additions to the Premises or to
the Building, as Lessor may reasonably deem necessary. Lessor may at any
time place on or about the Premises or Building any ordinary "For Sale"
signs and Lessor may at any time during the last one hundred eighty (180)
days of the term hereof place on or about the Premises any ordinary "For
Lease" signs. All such activities of Lessor shall be without abatement of
rent or liability to Lessee.
33. AUCTIONS. Lessee shall not conduct, nor permit to be conducted,
either voluntarily or involuntarily, any auction upon the Premises without
first having obtained Lessor's prior written consent. Notwithstanding
anything to the contrary in this Lease, Lessor shall not be obligated to
exercise any standard of reasonableness in determining whether to grant
such consent.
34. SIGNS. Lessee shall not place any sign upon the exterior of the
Premises or the Building, except that Lessee may, with Lessor's prior
written consent, install (but not on the roof) such signs as are reasonably
required to advertise Lessee's own business so long as such signs are in a
location designated by Lessor and comply with Applicable Requirements and
the signage criteria established for the Industrial Center by Lessor. The
installation of any sign on the Premises by or for Lessee shall be subject
to the provisions of Paragraph 7 (Maintenance, Repairs, Utility
Installations, Trade Fixtures and Alterations). Unless otherwise expressly
agreed herein, Lessor reserves all rights to the use of the roof of the
Building, and the right to install advertising signs on the Building,
including the roof, which do not unreasonably interfere with the conduct of
Lessee's business; Lessor shall be entitled to all revenues from such
advertising signs.
35. TERMINATION; MERGER. Unless specifically stated otherwise in writing
by Lessor, the voluntary or other surrender of this Lease by Lessee, the
mutual termination or cancellation hereof, or a termination hereof by
Lessor for Breach by Lessee, shall automatically terminate any sublease or
lesser estate in the Premises; provided, however, Lessor shall, in the
event of any such surrender, termination or cancellation, have the option
to continue any one or all of any existing subtenancies. Lessor's failure
within ten (10) days following any such event to make a written election to
the contrary by written notice to the holder of any such lesser interest,
shall constitute Lessor's election to have such event constitute the
termination of such interest.
36. CONSENTS.
(a) Except for Paragraph 33 hereof (Auctions) or as otherwise
provided herein, wherever in this Lease the consent of a Party is required
to an act by or for the other Party, such consent shall not be unreasonably
withheld or delayed. Lessor's actual reasonable costs and expenses
(including but not limited to architects', attorneys', engineers' and other
consultants' fees) incurred in the consideration of, or response to, a
request by Lessee for any Lessor consent pertaining to this Lease or the
Premises, including but not limited to consents to an assignment a
subletting or the presence or use of a Hazardous Substance, shall be paid
by Lessee to Lessor upon receipt of an invoice and supporting documentation
therefor. In addition to the deposit described in Paragraph 12.2(e),
Lessor may, as a condition to considering any such request by Lessee,
require that Lessee deposit with Lessor an amount of money (in addition to
the Security Deposit held under Paragraph 5) reasonably calculated by
Lessor to represent the cost Lessor will incur in considering and
responding to Lessee's request. Any unused portion of said deposit shall
be refunded to Lessee without interest. Lessor's consent to any act,
assignment of this Lease or subletting of the Premises by Lessee shall not
constitute an acknowledgment that no Default or Breach by Lessee of this
Lease exists, nor shall such consent be deemed a waiver of any then
existing Default or Breach, except as may be otherwise specifically stated
in writing by Lessor at the time of such consent.
(b) All conditions to Lessor's consent authorized by this Lease
are acknowledged by Lessee as being reasonable. The failure to specify
herein any particular condition to Lessor's consent shall not preclude the
impositions by Lessor at the time of consent of such further or other
conditions as are then reasonable with reference to the particular matter
for which consent is being given.
37. GUARANTOR.
37.1 FORM OF GUARANTY. If there are to be any Guarantors of this
Lease per Paragraph 1.11, the form of the guaranty to be executed by each
such Guarantor shall be in the form most recently published by the American
Industrial Real Estate Association, and each such Guarantor shall have the
same obligations as Lessee under this Lease, including but not limited to
the obligation to provide the Tenancy Statement and information required in
Paragraph 16.
37.2 ADDITIONAL OBLIGATIONS OF GUARANTOR. It shall constitute a
Default of the Lessee under this Lease if any such Guarantor fails or
refuses, upon reasonable request by Lessor to give: (a) evidence of the
due execution of the guaranty called for by this Lease, including the
authority of the Guarantor (and of the party signing on Guarantor's behalf)
to obligate such Guarantor on said guaranty, and resolution of its board of
directors authorizing the making of such guaranty, together with a
certificate of incumbency showing the signatures of the persons authorized
to sign on its behalf, (b) current financial statements of Guarantor as may
from time to time be requested by Lessor, (c) a Tenancy Statement, or
(d) written confirmation that the guaranty is still in effect.
38. QUITE POSSESSION. Upon payment by Lessee of the rent for the Premises
and the performance of all of the covenants, conditions and provisions on
Lessee's part to be observed and performed under this Lease, Lessee shall
have quiet possession of the Premises for the entire term hereof subject to
all of the provisions of this Lease.
<PAGE>
39. OPTIONS.
39.1 DEFINITION. As used in this Lease, the word "OPTION" has the
following meaning: (a) the right to extend the term of this Lease or to
renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal to lease the Premises or
the right of first offer to lease the Premises or the right of first
refusal to lease other property of Lessor or the right of first offer to
lease other property of Lessor; (c) the right to purchase the Premises, or
the right of first refusal to purchase the Premises, or the right of first
offer to purchase the Premises, or the right to purchase other property of
Lessor, or the right of first refusal to purchase other property of Lessor,
or the right of first offer to purchase other property of Lessor.
39.2 OPTIONS PERSONAL TO ORIGINAL LESSEE. Each Option granted to
Lessee in this Lease is personal to the original Lessee named in Paragraph
1.1 hereof, and cannot be voluntarily or involuntarily assigned or
exercised by any person or entity other than said original Lessee while the
original Lessee is in full and actual possession of the Premises and
without the intention of thereafter assigning or subletting. The Options,
if any, herein granted to Lessee are not assignable, either as a part of an
assignment of this Lease or separately or apart therefrom, and no Option
may be separated from this Lease in any manner, by reservation or
otherwise.
39.3 MULTIPLE OPTIONS. In the event that Lessee has any multiple
Options to extend or renew this Lease, a later option cannot be exercised
unless the prior Options to extend or renew this Lease have been validly
exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option,
notwithstanding any provision in the grant of Option to the contrary:
(i) during the period commencing with the giving of any notice of Default
under Paragraph 13.1 and continuing until the noticed Default is cured, or
(ii) during the period of time any monetary obligation due Lessor from
Lessee is unpaid (without regard to whether notice thereof is given
Lessee), or (iii) during the time Lessee is in Breach of this Lease, or
(iv) in the event that Lessor has given to Lessee three (3) or more notices
of separate Defaults under Paragraph 13.1 during the twelve (12) month
period immediately preceding the exercise of the Option, whether or not the
Defaults are cured.
(b) The period of time within which an Option may be exercised
shall not be extended or enlarged by reason of Lessee's inability to
exercise an Option because of the provisions of Paragraph 39.4(a).
(c) All rights of Lessee under the provisions of an Option shall
terminate and be of no further force or effect, notwithstanding Lessee's
due and timely exercise of the Option, if, after such exercise and during
the term of this Lease, (i) Lessee fails to pay to Lessor a monetary
obligation of Lessee for a period of thirty (30) days after such obligation
becomes due (without any necessity of Lessor to give notice thereof to
Lessee), or (ii) Lessor gives to Lessee three (3) or more notices of
separate Defaults under Paragraph 13.1 during any twelve (12) month period,
whether or not the Defaults are cured, or (iii) if Lessee commits a Breach
of this Lease.
40. RULES AND REGULATIONS. Lessee agrees that it will abide by, and keep
and observe all reasonable rules and regulations ("Rules and Regulations")
which Lessor may make from time to time for the management, safety, care,
and cleanliness of the grounds, the parking and unloading of vehicles and
the preservation of good order, as well as for the convenience of other
occupants or tenants of the Building and the Industrial Center and their
invitees.
41. SECURITY MEASURES. Lessee hereby acknowledges that the rental payable
to Lessor hereunder does not include the cost of guard service or other
security measures, and that Lessor shall have no obligation whatsoever to
provide same. Lessee assumes all responsibility for the protection of the
Premises, Lessee, its agents and invitees and their property from the acts
of third parties.
42. RESERVATIONS. Lessor reserves the right, from time to time, to grant,
without the consent or joinder of Lessee, such easements, rights of way,
utility raceways, and dedications that Lessor deems necessary, and to cause
the recordation of parcel maps and restrictions, so long as such easements,
rights of way, utility raceways, dedications, maps and restrictions do not
reasonably interfere with the use of the Premises by Lessee. Lessee agrees
to sign any documents reasonably requested by Lessor to effectuate any such
easement rights, dedication, map or restrictions.
43. PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to
any amount or sum of money to be paid by one Party to the other under the
provisions hereof, the Party against whom the obligation to pay the money
is asserted shall have the right to make payment "under protest" and such
payment shall not be regarded as a voluntary payment and there shall
survive the right on the part of said Party to institute suit for recovery
of such sum. If it shall be adjudged that there was no legal obligation on
the part of said Party to pay such sum or any part thereof, said Party
shall be entitled to recover such sum or so much thereof as it was not
legally required to pay under the provisions of this Lease.
44. AUTHORITY. If either Party hereto is a corporation, trust, or general
or limited partnership, each individual executing this Lease on behalf of
such entity represents and warrants that he or she is duly authorized to
execute and deliver this Lease on its behalf. If Lessee is a corporation,
trust or partnership, Lessee shall, within thirty (30) days after request
by Lessor, deliver to Lessor evidence satisfactory to Lessor of such
authority.
45. CONFLICT. Any conflict between the printed provisions of this Lease
and the typewritten or handwritten provisions shall be controlled by the
typewritten or handwritten provisions.
46. OFFER. Preparation of this Lease by either Lessor or Lessee or
Lessor's agent or Lessee's agent and submission of same to Lessee or Lessor
shall not be deemed an offer to lease. This Lease is not intended to be
binding until executed and delivered by all Parties hereto.
47. AMENDMENTS. This Lease may be modified only in writing, signed by the
parties in interest at the time of the modification. The Parties shall
amend this Lease from time to time to reflect any adjustments that are made
to the Base Rent or other rent payable under this Lease. As long as they
do not materially change Lessee's obligations hereunder, Lessee agrees to
make such reasonable non-monetary modifications to this Lease as may be
reasonably required by an institutional insurance company or pension plan
Lender in connection with the obtaining of normal financing or refinancing
of the property of which the Premises are a part.
48. MULTIPLE PARTIES. Except as otherwise expressly provided herein, if
more than one person or entity is named herein as either Lessor or Lessee,
the obligations of such multiple parties shall be the joint and several
responsibility of all persons or entities named herein as such Lessor or
Lessee.
<PAGE>
LESSOR AND LESSEE HAVE CAREFULLY READ AND REVIEWED THIS LEASE AND EACH TERM
AND PROVISION CONTAINED HEREIN, AND BY THE EXECUTION OF THIS LEASE SHOW
THEIR INFORMED AND VOLUNTARY CONSENT THERETO. THE PARTIES HEREBY AGREE
THAT, AT THE TIME THIS LEASE IS EXECUTED, THE TERMS OF THIS LEASE ARE
COMMERCIALLY REASONABLE AND EFFECTUATE THE INTENT AND PURPOSE OF LESSOR AND
LESSEE WITH RESPECT TO THE PREMISES.
IF THIS LEASE HAS BEEN FILLED IN, IT HAS BEEN PREPARED FOR YOUR
ATTORNEY'S REVIEW AND APPROVAL. FURTHER, EXPERTS SHOULD BE CONSULTED
TO EVALUATE THE CONDITION OF THE PROPERTY AS TO THE POSSIBLE PRESENCE
OF ASBESTOS, UNDERGROUND STORAGE TANKS OR HAZARDOUS SUBSTANCES. NO
REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN INDUSTRIAL
REAL ESTATE ASSOCIATION OR BY THE REAL ESTATE BROKERS OR THEIR
CONTRACTORS, AGENTS OR EMPLOYEES AS TO THE LEGAL SUFFICIENCY, LEGAL
EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH
IT RELATES; THE PARTIES SHALL RELY SOLELY UPON THE ADVICE OF THEIR OWN
COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE. IF THE
SUBJECT PROPERTY IS LOCATED IN A STATE OTHER THAN CALIFORNIA, AN
ATTORNEY FROM THE STATE WHERE THE PROPERTY IS LOCATED SHOULD BE
CONSULTED.
The parties hereto have executed this Lease at the place on the dates
specified above to their respective signatures.
Executed at Executed at
on on
by LESSOR: by LESSEE:
COOPERAGE-ROSE PROPERTIES II INNOVACOM, INC.
By: By:
Name Printed: Terrence J. Rose Name Printed: Mark Koz
Title: Partner Title: President
By: By:
Name Printed: Name Printed:
Title: Title:
Address: 3375 Scott Blvd., Suite 308 Address:
Santa Clara, CA 95054
Telephone: (___) ________
Telephone: (408) 496-1234 Facsimile: (___) _______
Facsimile: (408) 988-4768
BROKER: BROKER:
Executed at: Executed at:
on: on:
By: By:
Name Printed: Name Printed:
Title: Title:
Address: Address:
Telephone: (___) ________ Telephone: (___) ________
Facsimile: (___) _______ Facsimile: (___) _______
NOTE: These forms are often modified to meet changing requirements of
law and needs of the industry. Always write or call to make sure you are
utilizing the most current form: AMERICAN INDUSTRIAL REAL ESTATE
ASSOCIATION, 345 South Figueroa Street, Suite M-1, Los Angeles, California
90071 (213) 687-8777
<PAGE>
Exhibit 6.6
continued
ADDENDUM TO STANDARD INDUSTRIAL/COMMERCIAL MULTI-TENANT LEASE -
MODIFIED NET
Parties: COOPERAGE-ROSE PROPERTIES II (Lessor), INNOVACOM, INC. (Lessee).
Dated: October 22, 1997
49. BASE RENT ADJUSTMENTS: Commencing January 1, 1999, the new monthly
base rent shall be Twenty-nine Thousand Seven Hundred and no/100
($29,700.00) Dollars.
Commencing January 1, 2000, the new monthly base rent shall be Thirty
Thousand Six Hundred and no/100 ($30,600.00) Dollars.
Commencing January 1, 2001, the new monthly base rent shall be Thirty-
one Thousand Five Hundred and no/100 ($31,500.00) Dollars.
Commencing January 1, 2002, the new monthly base rent shall be Thirty-
two Thousand Four Hundred Ninety and no/100 ($32,400.00) Dollars.
50. IMPROVEMENTS. At any time during the first twelve (12) months of the
lease term Lessee may make modifications to the interior of the
Premises. All such modifications shall be done by a licensed
contractor, be in keeping with the existing interior improvements, be
pursued to a prompt completion and done in a workmanlike manner.
Lessee's contractor shall obtain a building permit from governmental
authorities and all improvements shall comply with all applicable
building codes. Prior to commencement of all such modifications
Lessee shall obtain Lessor's written approval of Lessee's plans. Such
approval will not be unreasonably withheld. Lessor agrees to pay for
said modifications in an amount not to exceed $25,000. Lessor may, at
its option, pay said amount directly to Lessee's contractor, or after
Lessee has presented proof of payment of said amount by Lessee to
contractor, Lessor may forgive a portion of one of Lessee's monthly
rental payments for Lessee to recover said amount.
51. LATE CHARGES. In reference to paragraph 13.4 above, the ten (10) day
time period for performance shall end at 4:00 PM Pacific Time on the
tenth (10th) calendar day. If the ten (10) day time period for
performance ends on a Saturday, Sunday, or federal, state, city or
legal holiday, then such date for performance shall be accelerated to
4:00 PM Pacific Time on the preceding day which is not a Saturday,
Sunday or federal, state, city or legal holiday.
52. PETS. Lessee shall not keep or permit to be kept any pets within the
Premises or Common Areas at any time.
53. CONDITION OF PREMISES. Lessee and Lessor agree that any repairs
needed to the plumbing, HVAC and roof, outside of normal common area
charges, shall be paid by Lessor for the first sixty (60) days of the
Lease term.
54. SIGNAGE. Lessee shall be allowed to place a monument sign on the
property which shall conform with applicable CC & R's and the
requirements of the City of Sunnyvale.
55. OPTION TO EXTEND. Subject to the provisions contained in Paragraph 39
above, Lessee shall have the right, at its option, to extend the term
of this Lease for a period of three (3) years commencing January 1,
2003 (the "Extension Term"). If Lessee elects to extend this Lease
pursuant to this Paragraph, Lessee shall give unequivocal written
notice ("Exercise Notice") of its exercise to Lessor not less than one
hundred eighty (180) days prior to the expiration Date of the Original
Term. Lessee's failure to give the Exercise Notice in a timely manner
shall be deemed a waiver of Lessee's right to extend. The terms,
covenants and conditions applicable to the Extension Term shall be the
same terms, covenants and conditions of this Lease except that (1)
Lessee shall not be entitled to any further option to extend for any
period after the Extension Term, and (2) the Base Rent for the
Premises shall be increased as provided in this Paragraph 55.
<PAGE>
DETERMINATION OF BASE RENT DURING THE EXTENSION TERM:
(i) AGREEMENT ON RENT. Lessor and Lessee shall have sixty (60)
days after Lessor receives the Exercise Notice in which to agree on
the Base Rent during the Extension Term, which shall be the fair
market rental value of the Premises during the Extension Term. In
determining the fair market rental value of the Premises during the
Extension term, consideration shall be given to the uses of the
Premises permitted under this Lease, the quality, size, design and
location of the Premises, and the rental value of comparable space
located in the Oakmead Village area with similar quality improvements
in existence on the date of the extension. In no event shall the Base
Rent for the Extension Term be less than the Base Rent last able under
this Lease during the Original Term. If Lessor and Lessee agree on
the Base Rent for the Extension Term during the sixty (60) day period,
they shall immediately execute an amendment to this Lease stating the
Base Rent.
(ii) SELECTION OF APPRAISERS. If Lessor and Lessee are unable
to agree on the Base Rent for the Extension Term within the sixty (60)
day period, then within ten (10) days after the expiration of the
sixty (60) day period, Lessor and Lessee each, at its cost and by
giving notice to the other party, shall appoint a competent and
disinterested real estate appraiser with at least five (5) years'
full-time commercial appraisal experience in the geographical area of
the Building to appraise and set the Base Rent during the Extension
Term. If either Lessor or Lessee 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 Base Rent during the Extension Term. If
two (2) appraisers are appointed by Lessor and Lessee as stated in
this paragraph, they shall meet promptly and attempt to set the Base
Rent during the Extension Term. If two (2) appraisers are unable to
agree within thirty (30) days after the second appraiser has been
appointed, they shall attempt to select 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 Base Rent. If
they are unable to agree on the third appraiser, either Lessor or
Lessee, by giving ten (10) days' notice to the other party, can apply
to the then president of the real estate board of the county in which
the Building is located, or to the Presiding Judge of the Superior
Court of the county in which the Building is located, for the
selection of a third appraiser who meets the qualifications stated in
this paragraph. Lessor and Lessee each 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 Lessor
or Lessee.
(iii) VALUE DETERMINED BY THREE (3) APPRAISERS. Within thirty
(30) days after the selection of a third appraiser, a majority of the
appraisers shall set the Base Rent for the Extension Term. If a
majority of the Appraisers is unable to set the Base Rent within the
stipulated period of time, Lessor's appraiser shall arrange for a
simultaneous exchange of written appraisals from each of the
appraisers and the three (3) appraisals shall be added together and
their total divided by three (3); the resulting quotient shall be the
Base Rent for the Premises during the Extension Term. If, however,
the low appraisal and/or high appraisal are/is more than ten percent
(10%) lower and/or higher than the middle appraisal, the lower
appraisal and/or higher appraisal shall be disregarded. If only one
(1) 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 Base Rent for the Premises during the Extension
Term. If both the low appraisal and the high appraisal are
disregarded as stated this paragraph, the middle appraisal shall be
the Base Rent for the Premises during the Extension Term.
(iv) NOTICE TO LESSOR AND LESSEE. After the Base Rent for the
Extension Term has been set, the appraisers shall immediately notify
Lessor and Lessee, and Lessor and Lessee shall immediately execute an
amendment to this Lease stating the Base Rent.
56. Lessor's exercise for the foregoing rights shall not materially
interfere with Lessee's use or enjoyment of the Premises or its rights
under this Lease, including, without limitation, Lessee's parking
rights.
<PAGE>
57. Notwithstanding anything to the contrary contained in this Lease, in
no event shall Lessee have any obligation to perform, to pay directly,
or to reimburse Lessor 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"), (i) Costs
occasioned by the act, omission or violation of Law by Lessor, any
other occupant of the Complex, or their respective agents, employees
or contractors', (ii) Costs occasioned by fire, acts of God or other
casualties, not caused by Lessee and subject to 4.2(a)(vii), or by the
exercise of the power of eminent domain; (iii) Costs which properly
would be capitalized under generally accepted accounting principles
and which relate to repairs, alterations, improvements, replacements,
equipment and tools except to the extent that Lessee's share of such
Costs is amortized over the useful life of the capital improvement in
question in accordance with generally accepted accounting principles;
(iv) Costs which Lessee pays directly to a third person or for which
Lessor has a right of reimbursement from others; (v) Costs associated
with utilities and services of a type not provided to Lessee; (vi)
Costs incurred in connection with negotiations or disputes with other
occupant(s) of the Complex, and Costs arising from the violation by
Lessor or any occupant of the Complex (other than Lessee) of the terms
and conditions of any lease or other agreement; (vii) depreciation,
amortization or other expense reserves; or (viii) Costs related to
Hazardous Substances, except to the extent the Cost is caused by the
storage, use or disposal of the Hazardous Substance in question by
Lessee in violation of Applicable Laws.
58. Notwithstanding anything to the contrary contained in this Lease,
Lessee shall not be required to construct or pay the cost of any
Applicable Requirements (i) regarding the presence of Hazardous
Substances, unless the same were stored, used or disposed of by
Lessee, its agents or employees on or in the Premises; or (ii)
requiring the correction of any condition existing on the Premises as
of the Commencement Date.
59. Lessee's Responsibility. Notwithstanding anything to the contrary
contained in this Lease, except to the extent that the Hazardous
Substance in question was released, emitted, used, stored,
manufactured, transported or discharged by Lessee, or its agents,
employees or contractors, in violation of Applicable Laws, Lessee
shall not be responsible for, and hereby is released from, losses,
costs (including reasonable attorneys' fees), damages, claims, suits,
actions and causes of action with respect to any Hazardous Substance
present on or about the Premises, the Building or the Complex, or the
soil, groundwater or surface water thereof, without regard to whether
the Hazardous Substances were present on the Premises, Building or
Complex as of the Commencement Date.
60. Notwithstanding anything to the contrary contained in this Lease, if
the repair or replacement required, including compliance with
Applicable Requirements, by Lessee hereunder is of a capital item, as
defined in accordance with generally accepted accounting principles,
Lessor shall pay the cost to repair or replace the capital item and
amortize the cost over its useful life (again determined in accordance
with generally accepted accounting principles), and Lessee shall
reimburse Lessor for the cost thereof on a monthly basis for each
month of useful life falling within the remainder of this term, as
extended. Provided, however, that Lessee shall bear the full cost of
capital items required due to Applicable Requirements imposed due to
Lessee's misuse of the Premises and or due to Applicable Requirements
imposed on Lessee because of its particular use of the Premises and
not imposed on all tenant's of the project.
61. Notwithstanding anything to the contrary contained in this Lease, with
respect to Alterations or Utility Installations requiring Lessor's
prior written consent, if so requested by Lessee, Lessor shall notify
Lessee in writing at the time that Lessee requests Lessor's consent
whether Lessor shall require removal of the Alteration or Utility
Installation upon the expiration or earlier termination of this Lease.
62. Notwithstanding anything to the contrary contained in this Lease,
Lessee shall not be required to pay any portion of any tax or
assessment expense (i) levied on Lessor's rental income, unless such
tax or assessment, expense is imposed in lieu of real property taxes;
(ii) in excess of the amount which would be payable if such tax or
assessment expense were paid in installments over the longest possible
term; (iii) imposed on land and improvements other than the Project;
or (iv) attributable to Lessor's net income, inheritance, gift,
franchise, estate or state taxes. Lessee may in good faith contest
any tax or assessment, provided that Lessee indemnifies Lessor from
any loss or liability in connection therewith.
<PAGE>
63. Notwithstanding anything to the contrary contained in this Lease,
Lessee, without Lessor's prior written consent, may sublet the
Premises or assign this Lease to: (i) a wholly owned subsidiary, (ii)
a successor corporation related to Lessee by merger, so long as the
net worth of the merged entity is not less than the net worth of the
Lessee on the date of this Lease. For purposes of this Lease, a sale
of Lessee;s capital stock through any public exchange shall not be
deemed an assignment, subletting or other transfer of this Lease or
the Premises requiring Lessor's consent.
64. Lessor shall exert reasonable efforts to deliver a non-disturbance
agreement from the current lender, in a form reasonably satisfactory
to Lessee, to Lessee after execution of this Lease by both parties.
The failure to Lessor to deliver such agreement shall not be a breach
of this Lease.
Exhibit 6.7
CREDIT FACILITY AGREEMENT
THIS CREDIT FACILITY AGREEMENT (the "Agreement"), is made and entered
into as of ___________________, 1997, by and between Micro Technology S.A.,
a ___________ corporation ("Micro Technology") and InnovaCom, Inc., a
Nevada corporation (the "Company").
RECITALS
WHEREAS, Micro Technology has agreed to extend credit to the Company
on the terms and conditions set forth herein and in the exhibits hereto.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, Micro Technology and the
Company hereby agree as follows:
1. CREDIT FACILITY; USE OF PROCEEDS.
(a) Subject to the availability of funds to Micro Technology, as
determined by Micro Technology in its sole discretion, and subject to the
terms and conditions of this Agreement, Micro Technology hereby agrees to
make advances ("Advances") to the Company from time to time from the date
hereof up to and including ___________, 1998 (the "Maturity Date") unless
sooner terminated as provided herein. All Advances shall be made pursuant
to and shall be evidenced by a secured convertible promissory note, dated
the date hereof (the "Note"), in the form of EXHIBIT A attached hereto, the
terms of which are incorporated herein by this reference.
(b) The Company may, from time to time, prior to the Maturity
Date, borrow, partially or wholly repay all prior Advances, and reborrow,
subject to the limitations, terms and conditions set forth herein. The
Advances shall include any and all payments of any kind to third parties,
or any monies expended by Micro Technology as agent for the Company, for
the benefit of the Company. The Company shall provide to Micro Technology
a request for an Advance at least one week (and at least two weeks in the
case of an Advance in excess of $500,000) prior to the date of the Advance,
and shall include in such request wire transfer instructions and such other
information as Micro Technology shall reasonably request.
(c) The Advances shall be used by the Company for general
working capital purposes.
2. INTEREST RATE AND FEES. Interest and fees shall accrue and be
payable on all Advances as set forth in the Note.
<PAGE>2
3. COLLATERAL; OTHER AGREEMENTS. As a material inducement to Micro
Technology to make Advances to the Company, the Company has, concurrently
with the execution and delivery of this Agreement, executed and delivered
to Micro Technology a security agreement (the "Security Agreement") in the
form of EXHIBIT B attached hereto.
4. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
As a material inducement to Micro Technology to enter into and
execute this Agreement and to perform its covenants, agreements, duties and
obligations hereunder, and in consideration therefor, the Company hereby
makes the following representations and warranties, each of which (a) is
material and is being relied upon by Micro Technology as a material
inducement to enter into this Agreement and (b) is true at and as of the
date hereof (as used in this Section 4 the term "Company" shall be deemed
to refer also to any subsidiary of the Company.
4.1 AUTHORITY. The Company has full power and authority to
enter into and perform its obligations set forth in this Agreement and to
borrow and repay Advances under this Agreement.
4.2 COMPLIANCE WITH LAWS, ETC. The execution and delivery of
this Agreement and the drawing of advances hereunder do not and will not
violate any requirement of law or any contractual obligation of the
Company.
4.3 DEFAULTS. The Company is not currently in default of any
contractual obligation which would have a material adverse effect on the
Company's business, assets or financial condition.
4.4 LITIGATION. There is no litigation, arbitration or other
proceedings taking place, pending or to the knowledge of the Company
threatened against the Company or any of its assets which questions the
validity of this Agreement or the right of the Company to enter into it or
to consummate the transactions contemplated hereby.
4.5 DISCLOSURES. To the best of the Company's knowledge, the
information contained in the covenants, agreements, representations and
warranties of the Company in this Agreement, or in any of the schedules,
lists, exhibits, documents or instruments attached hereto or to be
delivered by the Company, as contemplated hereby does not contain or will
contain any untrue statement of a material fact or omits or will omit to
state a material fact necessary to make the statements contained herein or
therein not misleading.
4.6 MATERIAL ADVERSE CHANGE. There has been no Event of Default
(as defined in Section 6.1) and no change or changes in the operations,
management, business or prospects of the Company which, either individually
<PAGE>3
or in the aggregate, has had or may have, a material adverse effect on the
Company and its subsidiaries, taken as a whole (a "Material Adverse
Change").
5. COVENANTS OF THE COMPANY. The Company covenants and agrees with
Micro Technology that during the term of this Agreement, unless otherwise
consented to in writing by Micro Technology, the Company and any subsidiary
of the Company shall:
5.1 OPERATION IN THE ORDINARY COURSE. Operate and conduct its
business within the normal course of business, and use reasonable efforts
to maintain its business and properties, maintain the corporate existence
of the Company and any subsidiaries, maintain insurance in accordance with
current policies, and operate in accordance with all contractual
obligations and requirements of law.
5.2 ACCOUNTING; FINANCIAL STATEMENTS.
(a) The Company shall, and shall cause each of its
Subsidiaries to, maintain a system of accounting established and
administered in accordance with generally accepted accounting principles
consistently applied, and shall set aside on its books, and cause each of
its subsidiaries to set aside on its books, all such proper reserves as
shall be required by generally accepted accounting principles.
(b) The Company shall deliver to Micro Technology:
(i) Within 15 days after the end of each monthly
accounting period in each fiscal year of the Company, a consolidated
balance sheet of the Company and any subsidiaries as and at the end of each
such period, and consolidated statements of operations and shareholders'
equity (deficit) for each such period and for the period from the beginning
of the current fiscal year to the end of such monthly period, and the
corresponding periods of the previous fiscal year.
(ii) Within 90 days after the end of each fiscal year
of the Company, a consolidated balance sheet of the Company and its
Subsidiaries as at the end of such year and consolidated statements of
operations and shareholders' equity (deficit) and changes in consolidated
financial position of the Company for such year, all in reasonable detail
and accompanied by a report of the Company's certified public accountants
that such financial statements have been audited in accordance with
generally accepted auditing standards, that it is the opinion of the
Company's certified public accountants that such financial statements
present fairly, in all material respects, the financial position, results
of operations and cash flows of the Company for the year for the period, in
conformity with generally accepted accounting principles and in a
<PAGE>4
consistent manner with prior periods, and that the Company's certified
public accountants believe that their audit provides a reasonable basis for
such opinion.
(iii) Within ten (10) days after receipt by the
Company, a copy of any management letter delivered to the Company by its
certified public accountants.
(iv) Promptly (but in any event within ten days) after
the discovery of any material adverse event or circumstance affecting the
Company or any of its subsidiaries (including, but not limited to, the
filing of any material litigation against the Company or any subsidiary or
the discovery that the Company or any subsidiary is not, or with the
passage of time will not be, in material compliance with any provision of
this Agreement, its Articles of Incorporation, its Bylaws, or any other
material agreement of the Company), a notice specifying the nature and
period of existence thereof, and what actions the Company has taken and/or
proposes to take with respect thereto.
5.3 INSPECTION RIGHTS. The Company shall permit any authorized
representative designated by Micro Technology, at Micro Technology's
expense, to visit and inspect any of the properties of the Company or any
of its subsidiaries, and to discuss its and their affairs, finances and
accounts with its and their officers or employees all at such reasonable
times and as often as may be reasonably requested; provided that such
rights shall be exercised in a manner so as not to materially and adversely
disrupt the ordinary course of business of the Company or any of its
subsidiaries.
5.4 NOTIFICATION. The Company shall promptly (but in no event
more than five (5) days following the occurrence of any such event or
matter) notify Micro Technology of (i) the occurrence of any Material
Adverse Change or any "Event of Default" (as hereinafter defined), or any
condition, event or act which with the giving of notice or the passage of
time (or both) would constitute an Event of Default; (ii) any change in the
name, organizational structure or control of the Company; (iii) the
occurrence of any uninsured or partially insured loss through fire, theft,
liability or property damage in excess of $100,000; or (iv) any suit or
other proceeding where the amount sought to be recovered by the complaining
party exceeds $100,000, or where one or more of the allegations against the
Company or any of its officers, directors or employees involves fraud or
potential criminal liability on the part of any such persons or entities.
5.5 USE OF PROCEEDS. The Company shall use the Advances for
general working capital purposes, as determined by the Company's Board of
Directors.
<PAGE>5
6. EVENTS OF DEFAULT; REMEDIES.
6.1 EVENT OF DEFAULT. The occurrence of any one or more of the
following shall constitute an "Event of Default" under this Agreement: (a)
the Company shall fail to pay when due any principal, interest, fees or
other amounts payable under or shall fail to observe or perform any
obligation, duty or other covenant contained in this Agreement, or any
representation or warranty of the Company under any Loan Document or any
exhibit hereto shall
prove at any time to be incorrect in any significant respect (provided that
the Company shall be provided a ten (10) day grace period not more often
than twice during any 12 month period with respect to the failure to make
any payment required hereunder); (b) the Company shall be in default under
the terms of any other material agreement, contract or instrument to which
it shall be a party, which default shall have a material adverse impact on
the Company; (c) the Company shall dissolve and wind-up its business
affairs or shall otherwise discontinue or substantially wind down its
business operations; shall become insolvent; shall suffer, consent to or
apply for the appointment of a receiver, trustee, custodian or liquidator
of or for itself or for any of its property; shall generally fail to pay
its debts as they become due or make a general assignment for the benefit
of creditors; shall file a voluntary petition in bankruptcy or seek a
reorganization in order to effect a plan or other arrangement with
creditors or seek any other relief under the United States Bankruptcy Code,
as amended (the "Bankruptcy Code"), or any state law, whether now or
hereafter in effect; shall be adjudicated a bankrupt; or shall have entered
against it any order for relief under the Bankruptcy Code or any such state
law, or shall have filed against it, an involuntary petition pursuant to
the Bankruptcy Code or any such state law, and in each such case the same
shall not be dismissed or discharged within sixty (60) days following the
entry of such order or filing; (d) any of the agreements attached as
exhibits hereto shall be in whole or in material part unenforceable; or (e)
there shall exist or occur any event or condition which impairs or is
substantially likely to impair the Company's ability to repay in a prompt
and timely fashion all principal and accrued interest under this Agreement,
and/or the Company's ability to perform in a timely manner all duties and
obligations hereunder in strict accordance with the terms hereof.
6.2 REMEDIES. Upon the occurrence of an Event of Default, Micro
Technology shall furnish written notice to the Company, specifying the
Event of Default. If the Company shall not have cured such alleged Default
within ten (10) days in the event of a failure to make any payment due
hereunder or within twenty (20) calendar days in the event of any other
Event of Default, then, at Micro Technology's option and notwithstanding
anything else in this Agreement to the contrary, (a) all unpaid and
outstanding principal and accrued interest under the Note shall become
immediately due and payable without notice, presentment, demand, protest or
<PAGE>6
notice of dishonor, all of which are expressly waived by the Company; (b)
the obligation of Micro Technology to make any further Advances shall
immediately cease and terminate; and (c) Micro Technology shall have all
rights, powers and remedies available under this Agreement or as otherwise
provided by law, all of which rights, powers and remedies may be exercised
at any time, or from time to time, by Micro Technology following such
occurrence. All such rights, powers and remedies of Micro Technology are
cumulative and not exclusive and shall be in addition to any and all other
rights, powers and remedies provided by law or equity.
7. CONDITIONS TO THE OBLIGATIONS OF MICRO TECHNOLOGY TO MAKE INITIAL
ADVANCE. The obligation of Micro Technology to make the initial advance
hereunder shall be subject to the satisfaction prior to making such Advance
of each of the conditions set forth in this Section 7, unless waived in
writing by Micro Technology.
7.1 AUTHORIZATION OF AGREEMENTS. The Company shall have
delivered to Micro Technology resolutions of the Board of Directors of the
Company authorizing the Company to enter into the Agreement and all other
agreements contemplated by this Agreement to which it is a party,
accompanied by a certificate of the Secretary of the Company certifying
that such resolutions have been duly adopted by the Board of Directors of
the Company, have not been amended or superseded by any other action of the
Board of Directors of the Company and remain in full force and effect.
7.2 DELIVERY OF AGREEMENTS. The Company shall have executed and
delivered to Micro Technology the Promissory Note and the Security
Agreement, and there shall have been filed with the California Secretary of
State a UCC-1 Financing Statement as required by the Security Agreement.
8. CONDITIONS TO THE OBLIGATIONS OF MICRO TECHNOLOGY TO MAKE
ADVANCES. The obligation of Micro Technology to make the first advance
hereunder, and all subsequent advances hereunder, shall be subject to the
satisfaction prior to making each Advance of each of the conditions set
forth in this Section 8, unless waived by Micro Technology.
8.1 ACCURACY OF REPRESENTATIONS AND WARRANTIES OF THE COMPANY
AND RELATED CERTIFICATE. The representations and warranties of the Company
shall be true and correct as of the date Advance is made (an "Advance
Date") as though made on and as of such date, the Company shall have
performed all obligations and complied with all covenants required to be
performed or to be complied with by the Company under this Agreement on or
prior to each Advance Date.
8.2 NO PENDING OR THREATENED LEGAL ACTION. No order,
injunction, decree or other action or legal, administrative, arbitration or
<PAGE>7
other proceeding or investigation by any governmental organization shall be
pending or threatened, challenging or imposing a material limitation on the
execution, delivery or performance of this Agreement, the consummation of
any of the transactions contemplated hereby or the operation by the Company
of its business as now conducted or as presently proposed to be conducted.
8.3 PROCEEDINGS AND DOCUMENTS. All proceedings taken in
connection with the transactions contemplated hereby and all documents
incident to such transactions shall be reasonably satisfactory in form and
substance to Micro Technology and its counsel.
8.4 APPROVAL OF BUDGET. The Company's annual operating budget
(the "Annual Budget") shall have been approved by the Board of Directors of
the Company, no later than 60 days prior to the beginning of each fiscal
year, which Annual Budget shall contain such detail as Micro Technology
shall reasonably request. Micro Technology shall not be under any
obligation to fund any amounts for the operation of the Company in excess
of the amounts set forth in the Annual Budget.
8.5 NO MATERIAL ADVERSE CHANGE. There shall have been no
Material Adverse Change.
9. INDEMNIFICATION.
9.1 INDEMNIFICATION. The Company hereby indemnifies Micro
Technology and/or its Affiliates, (collectively the "Micro Technology
Indemnified Parties" and each individually an "Micro Technology Indemnified
Party") against, and agrees to hold the Micro Technology Indemnified
Parties harmless from, and to defend the Micro Technology Indemnified
Parties against, any and all damages (as defined below) incurred or
suffered by the Micro Technology Indemnified Parties arising out of any
misrepresentation, inaccuracy or omission in any representation or warranty
made by the Company under this Agreement, or any breach of any warranty,
covenant or agreement made or to be performed by the Company. No
investigation by Micro Technology at or prior to the date hereof shall
relieve the Company of any liability hereunder. Promptly after receipt by
an Micro Technology Indemnified Party of notice of the commencement of any
action such party will, if a claim in respect thereof is to be made against
an Micro Technology Indemnified Party under this Section 9, notify the
Company in writing of the commencement thereof. In case any such action is
brought against an Micro Technology Indemnified Party and such Micro
Technology Indemnified Party notifies the Company of the commencement
thereof, the Company will be entitled to participate therein.
<PAGE>8
9.2 CUMULATIVE REMEDY. The indemnity provided by this Section 9
is in addition to any other rights or remedies which the Micro Technology
Indemnified Parties or their successors or assigns may have at law or in
equity on account of, or with respect to, any of the matters covered by
this Section 9, or any other Section based upon any other representations,
warranties or covenants or agreements set forth in this Agreement.
9.3 DAMAGES. "Damages" as used herein shall mean any and all
claims, actions, demands, losses, costs, expenses, liabilities, damages and
recoveries to the full amount of the actual damage occasioned by each
deficiency, misrepresentation, inaccuracy, omission or breach in each case
including interest, penalties or other damage (including, without
limitation, reasonable attorneys' fees and other costs and expenses
reasonably incurred in investigating or in attempting to avoid the same or
oppose the imposition thereof or of enforcing this indemnity).
10. DEFINITIONS.
10.1 "AFFILIATE" means, with respect to any Person: (A) any
Person who is an "affiliate" of such Person as defined in Rule 12b-2 of the
United States Securities Exchange Commission under the United States
Securities and Exchange Act of 1934, as amended, (B) any Person who is a
director, officer or partner or holds a similar position with any entity in
which such Person has a 10% or greater equity or profit interest, and (C)
any family member of a person referred to in (A) or (B).
10.2 "CONTRACTUAL OBLIGATION" means, in respect of any Person,
any agreement or instrument, written or oral, to which such Person is a
party or by which it or any of its properties or assets are bound,
including, without limitation, (i) any charter, bylaw, trust instrument,
indenture or evidence of indebtedness and (ii) any lease, contract,
guarantee, indemnity or other obligation or commitment either by the Person
or by any other person which relates to the property, assets, obligations
or commitments of the Person.
10.3 "INTANGIBLE" means any trademark, service mark, trade name
(whether registered or unregistered), copyright, license, patent or design
patent, or pending application therefor, trade secret, process, design,
software (including, but not limited to, source codes and object codes),
recipe or formula, and any right with respect to the foregoing and with
respect to the use of any brand name, distinctive emblem or devices of
merchandising and design.
10.4 "PERSON" means any individual, corporation, partnership,
joint venture, trust, estate, unincorporated organization, Government or
Governmental body.
<PAGE>9
10.5 "REQUIREMENT OF LAW" in respect of any Person means (i) any
law, rule, regulation, restriction, order, writ, judgment, award,
determination, injunction or decree of any court or Government, or any
decision or ruling of any arbitrator,* applicable to such Person or any of
its properties or assets, and (ii) the certificate of incorporation or
other charter document or bylaws of such Person.
10.6 "TAXES" means all Governmental taxes, assessments, fees,
levies, imposts, duties, license and registration fees, charges or
withholdings of any nature whatsoever arising in connection with or in
respect of any assets, income, profits, businesses or other properties of
any nature whatsoever.
11. NOTICES. All notices, requests, demands, deliveries and
other communications hereunder shall be in writing and, except as otherwise
specifically provided in this Agreement, shall be deemed to have been duly
given, upon receipt, if delivered personally or via fax, or ten business
days after deposit in the mail, if mailed, first class with postage prepaid
(confirmed by telex if the addressee is in a country other than that of the
sender) to the parties at the following addresses:
If to Micro Technology:
Micro Technology, S.A.
c/o Rhone Finance S.A.
World Trade Center
10, route de l'aeroport
P.O. Box 423
CH-1215 Geneva 15
Switzerland
Attn: Ian McNeil, President
Fax: 011-41-22-798-8325
If to the Company:
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
Attn: Mark Koz, President
Fax: 408-727-8778
with a copy to:
Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attn: Scott E. Bartel, Esq.
Fax: 916-442-3442
<PAGE>10
Any of the parties hereto may, from time to time, change its address for
receiving notices by giving written notice thereof in the manner outlined
above.
12. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
13. ENTIRE AGREEMENT. This Agreement and the other agreements
entered into in connection herewith supersede all prior negotiations and
agreements (whether written or oral) and constitute the entire
understanding among the parties hereto.
14. SUCCESSORS. This Agreement shall inure to the benefit of and be
binding upon the parties named herein and their respective successors and
assigns.
15. HEADINGS. The section headings contained in this Agreement are
for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
16. GOVERNING LAW. This Agreement shall be construed and enforced in
accordance with the laws of the State of California applicable to
Agreements to be entered into and entirely performed within such state.
17. DELAY, ETC. No delay or omission to exercise any right, power or
remedy accruing to any party hereto shall impair any such right, power or
remedy of such party nor be construed to be a waiver of any such right,
power or remedy nor constitute any course of dealing or performance
hereunder.
18. COSTS AND ATTORNEYS' FEES. If any action, suit, arbitration
proceeding or other proceeding is instituted arising out of this Agreement,
the prevailing party shall recover all of such party's costs, including,
without limitation, the court costs and reasonable attorneys' fees incurred
therein, including any and all appeals or petitions therefrom.
19. FURTHER ASSURANCES, ETC. Following the Closing Date, the Company
will cooperate with Micro Technology in order to effectuate the
transactions contemplated hereby and, in that regard, will execute and
deliver such instruments, documents and further assurances as Micro
Technology from time to time may reasonably request.
20. WAIVER AND AMENDMENT. Any of the terms and provisions of this
Agreement may be waived at any time by the party which is entitled to the
benefit thereof, but only by a written instrument executed by such party.
<PAGE>11
This Agreement may be amended only by an agreement in writing executed by
Micro Technology and the Company.
21. ASSIGNMENT. Neither this Agreement nor any right pursuing hereto
or interest herein shall be assignable by either of the parties hereto
without the prior written consent of the other party hereto.
IN WITNESS WHEREOF, the undersigned parties hereto have duly
executed this Agreement as of the date first above written.
MICRO TECHNOLOGY S.A.
By: ________________________________
Ian McNeil, President
INNOVACOM, INC.
By: _______________________________
Mark Koz, President
353.ejs
<PAGE>
EXHIBITS
Exhibit A Note
Exhibit B Security Agreement
<PAGE>A-1
EXHIBIT "A"
SECURED CONVERTIBLE PROMISSORY NOTE
$5,000,000.00 Santa Clara, California
_________________, 1997
Pursuant to the terms of the Credit Facility Agreement dated the date
hereof (the "Credit Agreement") and in consideration of such loans or
advances ("Advances") as Micro Technology, S.A., a _____________
corporation ("Micro Technology"), from time to time makes to or for the
benefit or at the request of InnovaCom, Inc., a Nevada corporation (the
"Maker"), the Maker hereby promises to pay on or before _______________,
1998 (the "Maturity Date") to Micro Technology, or other holder of this
Note (the "Holder"), in lawful money of the United States of America or in
restricted shares of Maker's common stock (at the option of the Holder),
all Advances, plus interest thereon, at the rate and subject to the terms
hereinafter provided.
The unpaid principal balance hereon at any time shall not exceed Five
Million Dollars ($5,000,000) ("Maximum Principal Amount"), and shall be
equal to the aggregate amount of all Advances then made less the aggregate
amount of all payments then made thereon.
Any Advances shall be presumed to be made to and for the benefit and
at the request of the undersigned when credited to an account of the
undersigned designated by the undersigned in writing to Micro Technology,
or otherwise made in accordance with the oral or written instructions of
the undersigned.
NEITHER THIS NOTE NOR THE COMMON STOCK ISSUABLE ON EXERCISE OF THE
CONVERSION RIGHT HAVE BEEN OR WILL BE REGISTERED UNDER THE FEDERAL
SECURITIES LAWS OR THE SECURITIES LAWS OF ANY STATE, AND NEITHER THIS
NOTE NOR ANY COMMON STOCK ACQUIRED ON EXERCISE OF THE CONVERSION RIGHT
MAY BE TRANSFERRED, HYPOTHECATED, SOLD OR ASSIGNED, EXCEPT IN
COMPLIANCE WITH THE PROVISIONS OF THE SECURITIES ACT OF 1933, AND ANY
APPLICABLE STATE SECURITIES LAWS. NEITHER THIS NOTE NOR ANY COMMON
STOCK UNDERLYING THIS NOTE MAY BE SOLD, ASSIGNED, PLEDGED,
HYPOTHECATED OR OTHERWISE TRANSFERRED, EXCEPT AFTER NOTICE TO MAKER
AND WITH MAKER'S CONSENT, AND MAKER NEED NOT CONSENT TO ANY SUCH
PROPOSED TRANSFER UNLESS, IN THE OPINION OF LEGAL COUNSEL REASONABLY
SATISFACTORY TO MAKER, SUCH TRANSFER DOES NOT VIOLATE ANY APPLICABLE
FEDERAL OR STATE SECURITIES LAWS.
Interest on this Note shall accrue at a per annum rate of ten percent
(10%) or the maximum interest rate allowed by law, whichever is lower. The
outstanding principal amount of this Note, together with accrued interest
thereon, shall be due and payable in full on or before the Maturity Date.
<PAGE>A-2
The Maker shall, to the extent permitted by the terms of the Credit
Agreement and subject to the availability of funds to Micro Technology, as
determined by Micro Technology in its sole discretion, have the right to
require Micro Technology to make Advances up to the Maximum Principal
Amount.
Payment of this Note is secured by a security interest in the assets
of Maker pursuant to a security agreement (the "Security Agreement")
between Maker and Micro Technology dated the date hereof.
This Note shall, at the option of the Holder, become immediately due
and payable, without notice or demand, and Micro Technology's obligation to
make advances to the Maker shall, without notice or demand, terminate upon
an Event of Default or as otherwise provided in the Credit Agreement.
Should interest, late charges or other sums due hereon not be paid
when due, said past due sums and the unpaid principal balance of this Note
shall bear interest at the rate of eighteen percent (18%) per annum (the
"Default Rate"). Should any payment required to be made under this Note not
be paid within ten (10) days after the same becomes due and payable, it is
recognized by the Maker that the Holder will incur extra expenses for the
handling of delinquent payments, the exact amount of such extra expense
being economically impracticable to ascertain, but that a charge of five
percent (5%) of the amount of the delinquent payment would be a fair
approximation of the expense so incurred by the Holder. Therefore, the
Maker shall, in such event, without further notice and without prejudice to
any rights of the Holder, including, without limitation, the right to
collect any other amounts provided to be paid hereunder or under any
instrument securing this Note or to declare a default hereunder, pay to the
Holder to cover such expenses incurred in handling such delinquent
payments, a "late charge" of five percent (5%) of the amount of such
delinquent payment.
All payments on this Note shall be applied first to the payment of
late charges and other sums due hereon or pursuant hereto (other than
principal and interest), and then to the payment of accrued unpaid
interest, and the remainder thereof shall be applied to the reduction of
the principal balance of this Note.
The Maker may, from time to time, prepay this Note either in full or
in part, without penalty.
The Maker and all endorsers and guarantors hereof, if any, severally
waive diligence and the right to plead any statute of limitations,
presentment, grace, protest and demand, and also notice of protest, demand,
dishonor and nonpayment of this Note, and notice of intention to accelerate
the maturity date, and any and all moratorium, appraisement, exemption and
homestead rights now provided or which may hereafter be provided by an
<PAGE>A-3
federal or state statute both as to itself personally and as to all of its
or their property, whether real or personal, against the enforcement and
collection of the obligations evidenced by this Note and any and all
extensions, renewals and modifications hereof. The Maker, and every
endorser or guarantor of this Note, regardless of the time, order or place
of signing, hereby assents to any extension or postponement of the time of
payment or any other indulgence, to any substitution, exchange or release
of collateral, and to the addition or release of any other party or person
primarily or secondarily liable with respect to the obligations evidenced
by this Note. No delay or omission on the part of the Holder in exercising
any right or remedy under this Note shall operate as a waiver of such right
or of any other right of such Holder, nor shall any delay, omission or
waiver on any one occasion be deemed to constitute the waiver of the same
or of any other right on any future occasion. Time is of the essence of
each and every provision herein.
Upon failure of the Maker to perform or to pay, in full, any
obligation of the Maker under this Note, or any instrument securing this
Note, as and when such performance or payment shall become due, then at the
option of the Holder, upon demand but without any advance notice being
required, the principal balance of this Note together with all accrued
interest thereon, plus all other amounts payable at the time of such demand
pursuant to this Note, or any instrument securing this Note, shall become
immediately due and payable in full or as to any portion designated by the
Holder. Failure to exercise the foregoing option (or any other right or
remedy provided herein in any instrument securing this Note, or at law)
upon any default of the Maker shall not constitute waiver of the right to
exercise the same or any other option, right, or remedy at any subsequent
time in respect of the same event or any other event of default, and the
Maker and each endorser and each guarantor hereof hereby expressly waive
the benefit of every statute or rule of law or equity which would produce a
result contrary to or in conflict with the foregoing.
The acceptance by the Holder of any payment hereunder which is less
than payment in full of any amount due and payable by the time of such
payment shall not constitute a waiver of the right to exercise any option,
right, or remedy at that time or at any subsequent time, nor shall it
nullify any prior exercise of any such option, right, or remedy without the
express written consent of the Holder.
All amounts payable hereunder are payable in immediately available
funds, without setoff or deduction. Any payment received by the Holder
after 5:00 p.m., prevailing local time at the place designated from time to
time for payment, shall be considered for all purposes (including the
calculation of interest and late charges) as having been made on the next
following day which is not a Saturday, Sunday, or legal holiday ("business
<PAGE>A-4
day"); if the date for any payment hereunder falls on a day which is not a
business day, then, for all purposes of this Note, the same shall be deemed
to have fallen on the next following business day, and such extension of
time shall in such case be included in the computation of interest. The
Maker agrees to pay all costs of collection when incurred, including
reasonable attorneys' fees and costs. Interest hereon shall be calculated
on the basis of 365-day year and shall be compounded monthly.
The Holder may convert any and all amounts payable hereunder into
restricted shares of Maker's common stock as follows:
A. The Holder has the right, but not the obligation at any time
prior to _________, 1998, to convert the outstanding principal and accrued
interest due under this Note, in units of Ten Thousand Dollars ($10,000.00)
or more, into restricted shares of common stock of the Maker, par value
$0.001 ("Common Shares") at the conversion price set forth below, upon
surrender of this Note to Maker accompanied by a written notice of
conversion in a form reasonably acceptable to Maker and duly executed by
the Holder or his or her duly authorized attorney; provided however that,
in case this Note shall be called for redemption or principal and accrued
interest shall otherwise be prepaid, such right shall terminate at the
close of business on the seventh day following written notice to Holder of
Maker's intent to redeem or otherwise prepay principal. Upon such
surrender for conversion, Maker shall issue Common Shares to the Holder
promptly upon surrender of the Note for conversion. In the event Holder
elects to convert a portion, but not all, of the outstanding principal
amount hereof into Common Shares of Maker, a new Note will be issued to
Holder, which Note shall evidence the amount of outstanding principal not
converted. Such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the Note
and the Holder shall be treated for all purposes as the record holder or
holders of such Common Shares as of such date. All Common Shares issuable
upon conversion of this Note shall be fully paid and non-assessable. No
fractional shares or script representing fractional shares will be issued
upon any conversion, but an adjustment in cash will be made in respect of
any fraction of a Common Share which would otherwise be issuable upon the
surrender of this Note for conversion. Any accrued and unpaid interest
shall be paid to the date of conversion, or if not paid, shall be included
in calculating the number of Common Shares converted.
B. The Conversion Price at which Common Shares shall be issuable
upon conversion of this Note shall be equal to eighty percent (80%) of the
trading price per share of Maker's common stock, on NASDAQ or other
nationally recognized market where Maker's common stock is traded, on the
date such Advance was made until all principle and accrued interest amounts
of such Advance have been converted or paid in full. Conversion hereunder
<PAGE>A-5
of principle and accrued interest amounts for additional Advances shall be
based on the trading price per share of Maker's common stock on the date
such additional Advances were made until all principle and accrued interest
amounts thereunder are converted or paid in full.
C. Maker shall at all times reserve and keep available out of its
authorized but unissued Common Shares, solely for the purpose of effecting
the conversion of this Note, the full number of whole Common Shares
necessary for conversion hereunder. Maker shall take at all times such
corporate action as shall be necessary in order that Maker may validly and
legally issue fully paid and nonassessable Common Shares upon the
conversion of this Note in accordance with the provisions hereof.
D. Each certificate representing all Common Shares issued to Holder
upon conversion hereunder shall be stamped or otherwise imprinted with the
following legend:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933 OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD
OR OFFERED FOR SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND ANY APPLICABLE
STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE
COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED."
E. If Maker, prior to the Maturity Date, shall determine to register
any of its securities for its own account or for the account of others,
other than a registration relating solely to "employee benefit plans" (Form
S-8), or a registration relating solely to a Commission Rule 145
transaction (Form S-4), or a registration on any registration form which
does not permit secondary sales, Maker will offer to the Holder the
opportunity to register any amount of registratable securities previously
converted hereunder. Maker will give written notice to the Holder of its
intention to effect such a registration not later than thirty (30) days
prior to the anticipated date of filing with the SEC of a registration
statement with respect to such registration. Such notice shall offer the
Holder the opportunity to include in such registration statement such
registrable securities as the Holder may request (a "Piggyback
Registration"). Subject to the provisions hereof, Maker shall include in
such Piggyback Registration all registrable securities with respect to
which Maker has received a written request from the Holder for inclusion
therein within fifteen (15) days after the receipt by the Holder of Maker's
notice.
F. If a Piggyback Registration is being made with respect to an
underwritten primary registration on behalf of Maker and the managing
underwriter or underwriters advise Maker in writing that in their opinion
<PAGE>A-6
the total number or dollar amount of securities of any class requested to
be included in such registration is sufficiently large to adversely affect
the success of such offering, Maker shall include in such registration:
(1) first, all securities Maker proposes to sell to the public, the
proceeds of which shall go to Maker, (2) second, up to the full number of
the registrable securities requested to be included in such registration in
excess of the number or dollar amount of securities Maker proposes to sell
which, in the opinion of such managing underwriter or underwriters, can be
sold without adversely affecting the offering.
Payments on or conversion of this Note, as well as any notices to the
Holder, are to be mailed or delivered to the Holder at its address set
forth in the Credit Agreement or to such other place as the Holder may from
time to time direct by written notice to the Maker. This Note, made in the
State of California, shall be construed according to the laws of the State
of California.
No Holder of this Note, simply by virtue of this Note, shall be
considered a shareholder of Maker for any purpose, nor shall anything in
this Note be construed to confer on any Holder any rights of a shareholder
of Maker including, without limitation, any right to vote, give or withhold
consent to any corporate action, receive notice of meetings of shareholders
or receive dividends.
All agreements between the Maker and the Holder are expressly limited
so that in no contingency or event whatsoever, whether by reason of payment
of extension or loan or commitment fees, of advancement of proceeds,
acceleration of maturity of the unpaid principal balance hereof or
otherwise, shall the amount paid or agreed to be paid to the Holder for the
use, forbearance or detention of the principal amount hereof exceed the
maximum legal rate permissible under any law which a court of competent
jurisdiction may deem applicable hereto. If, from any circumstance
whatsoever, fulfillment of any provision of this Note or any instrument
securing this Note, at the time performance of such provision shall be due,
shall involve transcending the maximum legal rate of interest prescribed by
law which a court of competent jurisdiction may deem applicable hereto or
thereto, then, ipso facto, the obligation to be fulfilled shall be reduced
to the limit of such maximum rate, and if from any circumstance the Holder
shall ever receive as interest an amount which would exceed said maximum
legal rate, such amount which would be excessive interest shall be applied
to the reduction of the unpaid principal balance due hereunder and not to
the payment of interest; to the extent that such excessive amount exceeds
the unpaid principal balance hereon, the Holder shall refund it to the
Maker. In determining whether excessive interest would be charged hereon,
to the extent permitted by applicable law all sums paid or agreed to be
<PAGE>A-7
paid to the Holder for the use, forbearance, or detention of the
indebtedness evidenced hereby outstanding from time to time shall be
prorated, amortized, allocated and spread from the date of disbursement of
the proceeds of this Note until payment in full of the unpaid principal sum
so that the actual rate of interest on account of such indebtedness is
uniform throughout the term hereof.
The Maker and the Holder intend that all of the provisions hereof
shall be valid and enforceable as specifically set forth herein. If any
provision hereof is declared to be invalid or unenforceable, it is the
intention of the Maker and the Holder that the remainder of this document,
or, if applicable, the remainder of the invalid or unenforceable clause,
sentence, or paragraph, shall be valid and enforced to the fullest extent
permitted.
The Maker agrees to pay on demand all costs of collection, including
reasonable attorneys' fees, incurred by the Holder in enforcing the
obligations of the Maker under this Note.
This Note may not be changed orally but only by an agreement in
writing signed by the party against whom such change is sought to be
enforced.
///
<PAGE>A-8
IN WITNESS WHEREOF, the Maker has executed and delivered this Note as
of the date first above written.
INNOVACOM, INC.
By: ____________________________
Mark Koz, President
Exhibit 6.8
SECURITY AGREEMENT
THIS SECURITY AGREEMENT (the "Agreement"), dated as of
_______________, 1997, is made by and between Micro Technology, S.A. a
__________ company ("Micro Technology") and InnovaCom, Inc., a Nevada
corporation ("Company").
RECITALS
A. The Company and Micro Technology are, concurrently herewith,
entering into that certain credit facility agreement (the "Credit
Agreement"), dated of even date herewith, pursuant to which Micro
Technology has agreed to make certain advances (the "Advances") to the
Company.
B. It is a condition of Micro Technology's obligations under the
Credit Agreement that the Company enter into this Agreement.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the receipt of
which is hereby acknowledged, and as an inducement to Micro Technology to
enter into the Credit Agreement, the Company hereby agrees as follows:
1. DEFINITIONS. Unless otherwise defined, or unless the context
otherwise requires, capitalized terms used in this Agreement shall have the
same meaning given such terms in the Credit Agreement.
(a) The following terms shall have the same meaning given such
terms in Article 9 of the Uniform Commercial Code of the State of
California, as amended to the date of this Agreement: Chattel Paper,
Documents, Goods, Instruments, Accounts, Consumer Goods, Equipment,
Fixtures, Deposit Accounts, Proceeds, General Intangibles and Inventory.
2. GRANT OF SECURITY INTEREST. As security for the full and
punctual satisfaction, payment and performance of all of the obligations
(the "Obligations") of the Company pursuant to the Credit Agreement, the
Secured Promissory Note issued thereunder ("Note") and this Agreement, the
Company does hereby pledge, mortgage, assign, set over, convey, grant,
transfer and deliver (collectively, "Transfer") to Micro Technology a first
priority continuing security interest and lien (the "Security Interest") in
and to all of the Company's right, title and interest of whatsoever kind
and nature in and to the Collateral (as hereinafter defined), which
Security Interest shall be subject and subordinate only to the security
interests provided for in Section 3 hereof.
<PAGE>2
3. PERMITTED INDEBTEDNESS. Notwithstanding Section 2 hereof, the
Security Interest shall be subordinate to any security interests (the
"Permitted Senior Indebtedness") to the extent that such security interests
are described on Schedule 3 hereto or Micro Technology consents in writing
to such subordination, which consent may be withheld in Micro Technology's
sole discretion.
4. COLLATERAL. The "Collateral" shall cover and include all right,
title and interest of the Company in, to and under all of the following,
whether now existing or hereafter acquired from time to time: (i) all
Accounts; (ii) all receivables; (iii) all General Intangibles; (iv) all
Goods, including, without limitation, all Equipment, and all Inventory,
whether now held or acquired in the future and wherever located, including,
but not limited to Inventory that is repossessed, returned or acquired as a
result of a "trade-in;" and (v) all letters of credit, notes, drafts, stock
and other debt and equity securities whether or not certificated, and all
instruments; (vi) all Chattel Paper and all Documents including without
limitation documents of title (vii) all Instruments; (viii) all contract
rights and all causes of action; (ix) all Deposit Accounts (general or
special) with, and all credits and other claims against, all-lenders or
other financial institutions; (x) all money; (xi) all property or interests
in property now or hereafter coming into the possession, custody or control
of the Company (whether for safekeeping, deposit, custody, pledge,
transmission, collection or otherwise); (xii) all Proceeds including,
without limitation, all proceeds of any loans, including the Advances and
all insurance proceeds of or relating to any of the foregoing; (xiii) all
books and records relating to any of the foregoing; (xiv) all Fixtures,
accessions and additions to, substitutions for, and replacements, products
and proceeds of any of the foregoing and (xv) all rights to payment
resulting from disposition or other Transfer of any of the foregoing.
5. PRESERVATION AND PERFECTION OF SECURITY INTERESTS. Concurrently
with the execution of this Agreement, the Company has executed and
delivered to Micro Technology a Uniform Commercial Code Form 1 Financing
Statement ("UCC Form 1") with respect to the Security Interest. In
addition, the Company shall, as required from time to time by Micro
Technology, execute and deliver or endorse any and all instruments,
documents, conveyances, assignments, security agreements, additional
financing statements, continuation statements and other agreements and
writings which Micro Technology may request in order to create, perfect or
continue the Security Interest or which Micro Technology may otherwise
reasonably request in order to secure, protect or enforce the Security
Interest or the rights of Micro Technology under this Agreement (but any
failure to request or assure that the Company execute, deliver or endorse
any such item shall not affect nor impair the validity, sufficiency or
enforceability of this Agreement or any security interests granted herein,
regardless of whether any such item was or was not executed, delivered or
<PAGE>3
endorsed in a similar context or on a prior occasion). A carbon,
photographic or other reproduction of this Agreement or of a financing
statement is sufficient as a financing statement.
6. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
hereby incorporates by reference those representations and warranties set
forth in the Credit Agreement, and further represents and warrants to Micro
Technology:
(a) The Company has full power, authority and legal right to
Transfer the Security Interest in the Collateral to Micro Technology.
(b) Subject to the Permitted Senior Indebtedness, this Agreement
is fully sufficient to, and shall create and transfer to Micro Technology a
Security Interest in and to all of the Company's right, title and interest
in the Collateral free and clear of any and all adverse liens, claims and
encumbrances of any kind or nature, and the Company has not Transferred,
and shall not Transfer any security interest in the Collateral to any other
person, without the prior written consent of Micro Technology.
(c) Subject to the Permitted Senior Indebtedness, this Agreement
creates a valid and perfected first priority security interest in the
Collateral, securing the performance of the Obligations. Except for the
filing of the UCC Form 1 delivered to Micro Technology pursuant to Section
5 hereof, all filings and other actions necessary to perfect and protect
such security interest have been made or taken.
(d) No consent of any person (including, without limitation,
stock holders or creditors of the Company) is required for the subjection
by the Company of the Collateral to the terms of this Agreement.
7. COVENANTS OF THE COMPANY. The Company hereby reaffirms and
incorporates those covenants set forth in the Credit Agreement and further
covenants and agrees:
(a) To appear and defend any and all actions and proceedings
affecting the Collateral, or otherwise affecting the Security Interest, and
the Company shall obtain and furnish to Micro Technology from time to time,
upon demand, such releases and/or subordinations of claims and liens which
may be required to maintain the priority of the Security Interest
hereunder.
(b) To permit Micro Technology, its representatives and its
agents to inspect the Collateral at any time, and to make copies of records
pertaining to the Collateral as may be requested by Micro Technology from
time-to-time.
<PAGE>4
(c) That all Collateral shall, for the entire term of this
Agreement, be free and clear of any liens, mortgages, pledges, or any other
encumbrances of any kind or nature whatsoever, except only for the security
interests created by this Agreement and the Permitted Senior Indebtedness
or as otherwise consented to in writing by Micro Technology.
(d) Not to sell, lease, Transfer or remove the Collateral, or
any part thereof, from its present location without first obtaining the
express written consent of Micro Technology, except in the ordinary course
of business.
(e) With respect to that part of the Collateral which is
tangible, the Company will maintain such Collateral in good order and
repair and will not use any part of such Collateral in any manner injurious
or likely to be injurious or which will result in its unreasonable
deterioration or consumption or which will be in violation of any laws or
regulations or any policy of insurance. With respect to Collateral which
is not tangible, the Company will take all steps reasonably necessary to
preserve and protect the value of such Collateral, and the Company will
diligently pursue and seek to preserve, enforce and collect any rights,
claims, causes of action and accounts receivable.
(f) To promptly notify Micro Technology upon becoming aware of
any attachment, garnishment, execution or other legal process levied
against any or all of the Collateral and of any other information received
by the Company that may materially affect the value of the Collateral or
the rights and remedies of Micro Technology hereunder.
(g) To maintain insurance on the Collateral against loss or
damage by fire, perils commonly covered under the extended coverage
endorsement, malicious mischief and sprinkler leakage.
8. DUTY TO HOLD IN TRUST. Upon the occurrence of any Event of
Default, the Company shall, upon receipt by it of any revenue, income or
other sums (collectively, the "Sums") subject to the Security Interest,
whether payable pursuant to the Credit Agreement or otherwise, or of any
check, draft, note, trade acceptance or other instrument evidencing an
obligation to pay any such sum, hold the same in trust for Micro Technology
and shall forthwith endorse and transfer any such sums or instruments, or
both, to Micro Technology for application to the satisfaction of the
Obligations, (except for those Sums subject to the rights of the third
parties pursuant to this Agreement including Permitted Senior Indebtedness
under Section 3 hereof).
9. REMEDIES UPON DEFAULT. Upon the occurrence of any Event of
Default, as defined in the Credit Agreement, Micro Technology shall,
subject to the rights, if any, of parties under the Permitted Senior
Indebtedness, and in addition to all of its rights under the Credit
<PAGE>5
Agreement, have all of the rights and remedies of a secured party under the
Uniform Commercial Code of the State of California, and all other rights
and remedies under any applicable laws, and, without limiting the
generality of the foregoing, Micro Technology may in its sole discretion:
(a) Enter upon the premises where any of the Collateral may be
located, and take possession of the Collateral, and demand and receive
reconveyance of the Collateral from any person who has possession thereof,
and Micro Technology may take such measures as may be necessary or proper
for the care or protection of the value thereof, including the right to
remove, keep and/or store all or any portion of the Collateral or put a
custodian in charge thereof; and/or
(b) Require the Company to assemble the Collateral and make it
and all records relating to the Collateral available to Micro Technology at
such times and in such places as is reasonably convenient to the Company
and Micro Technology; and/or
(c) With or without taking possession, sell or cause to be sold,
at any time, and from time to time, as Micro Technology may determine, any
of the Collateral in its entirety or in parcels, either at public or
private sale, at such price and on such terms as Micro Technology may deem
best, at which sale Micro Technology may bid and purchase to the extent
permitted by law, as now or hereinafter in effect. The Company agrees that
notice to the Company of a public or private sale, which notice is given
not less than ten (10) business days prior to such sale, shall constitute
"reasonable notice." The Company shall have no right of redemption
subsequent to any such sale, and hereby expressly waives any such right.
Micro Technology shall apply the proceeds of any such sale or sales first
to the expenses incident thereto, including reasonable attorneys' fees, and
next to the full and complete satisfaction of all of the Obligations. The
Company shall remain fully liable to Micro Technology for any deficiency
which may exist after any such sale or sales and the application of the
proceeds thereof in accordance herewith. Any purchaser at any such sale or
sales (including without limitation Micro Technology) shall thereafter hold
any of the Collateral so purchased absolutely free from any claim or right
of any nature whatsoever by any other person or entity (including without
limitation the Company) except only the claims and rights of the secured
parties under the Permitted Senior Indebtedness; and/or
(d) Institute any proceeding at law, in equity, or otherwise in
order to foreclose upon the Collateral or any part thereof. To the extent
permitted by law, any sale thereof shall be held in the same manner, with
the same effect and subject to the same terms and conditions as specified
in paragraph (c) of this Section 9. Micro Technology may, in the exercise
of its sole and absolute discretion, from time to time, at any time and in
<PAGE>6
any order, choose to institute a proceeding for foreclosure on some portion
of the Collateral and/or a sale under paragraphs (c) or (d) on other
portions of the Collateral, without being deemed to have made an election
of remedies or to have waived any other rights or remedies, and without in
any other way limiting any remedies or rights which it may otherwise have;
and/or
(e) In its name or in the name of the Company or otherwise,
demand, sue for, collect or receive any money or property at any time
payable or receivable on account of or in exchange for or make any
compromise or settlement deemed desirable with respect to, any of the
Collateral, but shall be under no obligation to do so, and Micro Technology
may extend the time of payment, arrange for payment in installments, or
otherwise modify the terms of, or release, any of the Collateral, without
thereby incurring responsibility to, or discharging or otherwise affecting
any liability of, the Company or in any other way limiting any remedies or
rights which Micro Technology may otherwise have; and/or
(f) In the event Micro Technology takes possession of the
Collateral pursuant to the exercise of any right or remedy provided for
hereunder or by law, any insurance policy owned by the Company, together
with any unearned or prepaid premium thereon, shall, at the option of Micro
Technology, be assigned by the Company to, and become the sole property of
Micro Technology, provided that the amount of any such unearned or prepaid
premium is thereupon applied to the payment or satisfaction of the
Obligations.
10. SECURITY INTEREST ABSOLUTE. All rights of Micro Technology and
the security interest hereunder, and all Obligations of the Company
hereunder, shall be absolute and unconditional, irrespective of: (a) Any
lack of validity or enforceability of this Agreement, the Credit Agreement
and any agreement entered into in connection with the foregoing, or any
portion hereof or thereof; (b) any change in the time, manner or place of
payment or performance of, or in any other term of, all or any of the
Obligations, or any other amendment or waiver of or any consent to any
departure from the Credit Agreement; (c) any exchange, release or
nonperfection of any of the Collateral, or any release or amendment or
waiver of or consent to departure from any other collateral for, or any
guaranty, or any other security, for all or any of the Obligations; (d) any
action by Micro Technology to obtain, adjust, settle and cancel in its sole
discretion any insurance claims or matters made or arising in connection
with the Collateral; or (e) any other circumstance which might otherwise
constitute any legal or equitable defense available to the Company, or a
discharge of all or any part of the Security Interest granted hereby.
Until the Obligations shall have been paid and performed in full, Micro
Technology's rights shall continue even if the Obligations are barred for
any reason, including, without limitation, the running of the statute of
<PAGE>7
limitations or bankruptcy. The Company expressly waives presentment,
protest, notice of protest, demand, notice of nonpayment and demand for
performance. This Agreement shall create a continuing security interest in
the Collateral and shall remain in full force and effect until the
Obligations shall have been paid and performed in full, and shall be
binding upon the Company and its successors and permitted transferees and
assigns. In the event that at any time any transfer of any Collateral or
any payment received by Micro Technology hereunder shall be deemed by final
order of a court of competent jurisdiction to have been a voidable
preference or fraudulent conveyance under the bankruptcy or insolvency laws
of the United States, or shall be deemed to be otherwise due to any party
other than Micro Technology, then, in any such event, the Company's
obligations hereunder shall survive cancellation of this Agreement, and
shall not be discharged or satisfied by any prior payment thereof and/or
cancellation of this Agreement, but shall remain a valid and binding
obligation enforceable in accordance with the terms and provisions hereof.
The Company waives all right to require Micro Technology to proceed against
any other person or to apply any Collateral which Micro Technology may hold
at any time, or to marshal assets, or to pursue any other remedy. Micro
Technology may, at its election, exercise any right or remedy it may have
against any security held by Micro Technology, including, without
limitation, the right to foreclose any such security by judicial or
nonjudicial sale, without affecting or impairing in any way the rights of
Micro Technology hereunder. The Company waives any defense arising by
reason of the application of the statute of limitations to any obligation
secured hereby.
11. MICRO TECHNOLOGY APPOINTED ATTORNEY-IN-FACT. Subject to the
rights, if any, of the Permitted Senior Indebtedness, the Company hereby
irrevocably makes, nominates, constitutes and appoints Micro Technology and
each of its Agents (with full power of substitution and resubstitution), as
the Company's true and lawful attorney-in-fact with full power to take all
actions and sign, execute, acknowledge, record and file, in the Company's
name and for Micro Technology's use and benefit, all documents that shall
be necessary to accomplish the following upon the occurrence of any Event
of Default:
(a) To receive, open and dispose of all mail addressed to the
Company which relates to the Collateral, or to endorse and collect any
notes, checks, drafts, money orders or other evidences of payment that may
come into the possession of Micro Technology;
(b) To enforce all rights of the Company under and pursuant to
any agreements or other contractual arrangements relating to the
Collateral, and to enter into such other agreements as may be necessary to
exploit the Collateral;
<PAGE>8
(c) To execute and perform such other and further agreements,
documents and instruments of any nature whatsoever, including, but not
limited to the execution and filing of a UCC Form 1 and to do any and all
other things as Micro Technology may deem necessary or appropriate for the
purpose of preserving, protecting or maintaining the Collateral and the
Security Interest granted to Micro Technology; and
(d) To do any and all other things necessary, advisable or
appropriate to carry out the intention and provisions of and transactions
contemplated by the Credit Agreement.
12. DUTIES OF MICRO TECHNOLOGY.
(a) The powers conferred on Micro Technology hereunder are
solely to protect its interests in the Collateral and shall not impose any
duty upon it to exercise any such powers. Except for the safe custody of
any Collateral in its actual possession and the accounting for monies
actually received by it hereunder with respect to which Micro Technology
shall act with reasonable care, Micro Technology shall have no duty as to
any Collateral or as to the taking of any steps necessary to preserve its
rights against prior parties or any other rights pertaining to any
Collateral. Micro Technology shall be deemed to have exercised reasonable
care in the custody and preservation of the Collateral in its possession if
the Collateral is accorded treatment that is substantially equal to that
treatment which Micro Technology accords its own property in the ordinary
course of its business.
(b) If the Company fails to pay, before delinquency, any taxes
or other governmental charges which may be levied against the Collateral or
its operation or use, or any assessments made against the Collateral, or
fails to make any payment or to take any action required herein or in the
Credit Agreement, or to take any other action necessary to preserve the
priority and value of Micro Technology's rights under this Agreement, then
Micro Technology may (but shall not be obligated to) make such payments and
take all such actions as Micro Technology deems necessary to protect its
security interest in or to protect and preserve the value of the
Collateral, and Micro Technology is hereby authorized (without limiting the
general nature of the authority hereinabove conferred) to pay, purchase,
contest or compromise any encumbrances, charges or liens which in the
judgment of Micro Technology appear to be prior to or superior to, or of
equal priority with, the Security Interest. Any amount so paid shall be
included in the Obligations secured hereby and shall bear interest thereon
at the maximum rate permitted by law from date of payment until repaid, and
shall be secured pursuant to the terms of this Agreement by the Collateral
and shall be repayable by the Company on demand.
<PAGE>9
13. EXPENSES. In addition to expenses payable under the Credit
Agreement, the Company agrees to pay all expenses incurred in the filing of
the UCC Form-1 or any other financing statements, continuation statements,
partial releases and/or termination statements related thereto or any
expenses of any searches reasonably required by Micro Technology. The
Company shall pay all other claims and charges which in the reasonable
opinion of Micro Technology might prejudice, imperil or otherwise affect
the Collateral or the Security Interest therein. All expenses so incurred
shall be immediately paid by the Company upon demand by Micro Technology.
The Company will upon demand pay to Micro Technology the amount of any and
all reasonable expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, which Micro Technology may incur in
connection with (i) the administration of this Agreement, (ii) the custody
or preservation of, or the sale of, collection from, or other realization
upon, any of the Collateral, (iii) the exercise or enforcement of any of
the rights of Micro Technology hereunder or under the Credit Agreement or
this Agreement, or (iv) the failure by the Company to perform or observe
any of the provisions contained herein or in the Credit Agreement.
14. MISCELLANEOUS.
(a) INDEMNITY. The Company agrees to defend, protect, indemnify
and hold harmless Micro Technology and each and all of its respective
officers, directors, employees, attorneys, and Agents (collectively called
the "Indemnitees") from and against any and all liabilities, obligations,
losses, damages, penalties, actions, judgments, suits, claims, costs,
expenses and disbursements of any kind or nature whatsoever (including,
without limitation, the reasonable fees and disbursements of counsel for
such Indemnitees in connection with any investigative, administrative or
judicial proceeding, whether or not such Indemnitees shall be designated a
party thereto), which may be imposed on, incurred by, or asserted against
such Indemnitees (whether direct, indirect or consequential and whether
based on any federal or state laws or other statutory regulations,
including, without limitation, securities and commercial laws and
regulations, common law or at equitable cause, or contract or otherwise) in
any manner relating to or arising out of this Agreement or the Obligations,
or any act, event or transaction related or attendant thereto, including,
without limitation, any and all costs and expenses incurred in the
enforcement of this Agreement (collectively, the "Indemnified Matters"). To
the extent that the undertaking to indemnify, pay and hold harmless set
forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Company shall contribute the
maximum portion which it is permitted to pay and satisfy under applicable
law, to the payment and satisfaction of all Indemnified Matters incurred by
the Indemnitees.
<PAGE>10
(b) REMEDIES CUMULATIVE. Except as otherwise expressly provided
herein, no remedy conferred by any of the specific provisions of this
Agreement is intended to be exclusive of any other remedy which is
otherwise available at law, in equity, by statute or otherwise, and except
as otherwise expressly provided for herein, each and every other remedy
shall be cumulative and shall be in addition to every other remedy given
hereunder or otherwise. The election of any one or more of such remedies by
any of the parties hereto shall not constitute a waiver by such party of
the right to pursue any other available remedies.
(c) NOTICES. All notices, requests, demands, deliveries and
other communications hereunder shall be in writing and, except as otherwise
specifically provided in this Agreement, shall be deemed to have been duly
given, upon receipt, if delivered personally or via fax, or ten (10)
business days after deposit in the mail, if mailed, first class with
postage prepaid (confirmed by telex if the addressee is in a country other
than that of the sender) to the parties at the following addresses:
If to Micro Technology, to:
Micro Technology, S.A.
c/o Rhone Finance S.A.
World Trade Center
10, route de l'aeroport
P.O. Box 423
CH-1215 Geneva 15
Switzerland
Attn: Ian McNeil, President
Fax: 011-41-22-798-8325
If to the Company, to:
InnovaCom, Inc.
2855 Kifer Road, Suite 100
Santa Clara, CA 95051
Attn: Mark Koz, President
Fax: 408-727-8778
with a copy to:
Bartel Eng Linn & Schroder
300 Capitol Mall, Suite 1100
Sacramento, CA 95814
Attn: Scott E. Bartel, Esq.
Fax: 916-442-3442
(d) HEADINGS. The section headings contained in this Agreement
are for convenience only and shall not control or affect the meaning or
construction of any of the provisions of this Agreement.
<PAGE>11
(e) GOVERNING LAW. This Agreement shall be construed and
enforced in accordance with the laws of the State of California applicable
to Agreements to be entered into and entirely performed within such State.
(f) AMENDMENTS, ETC. Any of the terms and provisions of this
Agreement may be waived at any time by the party which is entitled to the
benefit thereof, but only by a written instrument executed by such party.
This Agreement may be amended only by an agreement in writing executed by
Micro Technology and the Company.
(g) SEVERABILITY. Any provision hereof which is
prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
(h) DELAY, ETC. No delay or omission to exercise any right,
power or remedy accruing to any party hereto shall impair any such right,
power or remedy of such party nor be construed to be a waiver of any such
right, power or remedy nor constitute any course of dealing or performance
hereunder.
(i) COSTS AND ATTORNEYS' FEES. If any action, suit,
arbitration proceeding or other proceeding is instituted arising out of
this Agreement, the prevailing party shall recover all of such party's
costs, including, without limitation, the court costs and reasonable
attorneys' fees incurred therein, including any and all appeals or
petitions therefrom.
(j) COUNTERPARTS. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.
(k) ENTIRE AGREEMENT. This Agreement and the other agreements
referred to herein supersede all prior negotiations and agreements (whether
written or oral) and constitute the entire understanding among the parties
hereto.
<PAGE>12
IN WITNESS WHEREOF, the Company has caused this Agreement to be duly
executed and delivered by its officers thereunto duly authorized as of the
date first above written.
INNOVACOM, INC.
By: __________________________
Mark Koz, President
Accepted and Agreed to this
____ day of _________, 1997
MICRO TECHNOLOGY, S.A.
By: ________________________
Ian McNeil, President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-SB
FILED BY INNOVACOM, INC. AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<PERIOD-TYPE> 12-MOS 9-MOS
<FISCAL-YEAR-END> DEC-31-1996 DEC-31-1997
<PERIOD-END> DEC-31-1996 SEP-30-1997
<CASH> (38,574) 88,082
<SECURITIES> 0 0
<RECEIVABLES> 3,200 12,594
<ALLOWANCES> 0 0
<INVENTORY> 0 0
<CURRENT-ASSETS> 12,707 242,151
<PP&E> 205,166 775,020
<DEPRECIATION> 21,175 124,957
<TOTAL-ASSETS> 215,996 1,205,876
<CURRENT-LIABILITIES> 1,256,463 3,859,270
<BONDS> 0 0
0 0
0 0
<COMMON> 12,211 21,062
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 215,996 1,205,876
<SALES> 0 149,000
<TOTAL-REVENUES> 0 149,000
<CGS> 0 28,202
<TOTAL-COSTS> 0 52,538
<OTHER-EXPENSES> 8,183,606 7,128,129
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 10,611 580,742
<INCOME-PRETAX> (8,192,595) (7,606,768)
<INCOME-TAX> 800 1,600
<INCOME-CONTINUING> (8,193,395) (7,608,368)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> (8,193,395) (7,608,368)
<EPS-PRIMARY> (.98) (.46)
<EPS-DILUTED> (.98) (.46)
</TABLE>
