<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1998
REGISTRATION NO. 333-43151
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
AMENDMENT NO. 4 TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
CUMETRIX DATA SYSTEMS CORP.
(Exact Name of Registrant as Specified in its Charter)
<TABLE>
<S> <C> <C>
CALIFORNIA 5045 95-4574138
(State or Other Jurisdiction (Primary Standard Industrial (I.R.S. Employer
of Classification Code Number) Identification
Incorporation or Organization) No.)
</TABLE>
957 LAWSON STREET, INDUSTRY, CALIFORNIA 91748
(626) 965-6899
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
MAX TOGHRAIE, CHIEF EXECUTIVE OFFICER
957 LAWSON STREET
INDUSTRY, CALIFORNIA 91748
(626) 965-6899
(Address, Including Zip Code, and Telephone Number, Including Area Code, of
Agent for Service)
------------------------
COPIES TO:
MURRAY MARKILES, ESQ. RUBI FINKELSTEIN, ESQ.
Jessica Cullen Smith, Esq. Orrick, Herrington & Sutcliffe LLP
Troop Meisinger Steuber & Pasich, LLP 666 Fifth Avenue
10940 Wilshire Boulevard New York, New York 10103
Los Angeles, California 90024 (212) 506-5000
(310) 824-7000
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
------------------------
If any of the securities being registered in this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. / /
If the delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. / /
------------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
This Preliminary Prospectus and the information contained herein are subject to
completion or amendment. These securities may not be sold nor may offers to buy
be accepted prior to the time the Registration Statement becomes effective.
Under no circumstances shall this Preliminary Prospectus constitute an offer to
sell or a solicitation of an offer to buy, nor shall there be any sale of these
securities, in any jurisdiction in which such offer, solicitation or sale would
be unlawful prior to registration or qualification under the securities laws of
such jurisdiction.
<PAGE>
SUBJECT TO COMPLETION, DATED MARCH 25, 1998
[LOGO]
2,300,000 SHARES
CUMETRIX DATA SYSTEMS CORP.
COMMON STOCK
--------------------
Cumetrix Data Systems Corp., a California corporation ("CUMETRIX" or the
"Company"), is hereby offering (the "Offering") 2,300,000 shares of common
stock, no par value per share (the "Common Stock"). It is currently anticipated
that the initial public offering price of the Common Stock will be between $4.50
and $5.50 per share. Prior to the Offering, there has been no public market for
the Common Stock and there can be no assurance that a trading market will
develop or, if developed, that it will be sustained after the Offering. For
information relating to the factors considered in determining the initial
offering price to the public, see "Underwriting."
The Common Stock has been approved for quotation on The Nasdaq SmallCap
Market ("Nasdaq") under the trading symbol "CDSC."
-------------------
THE SECURITIES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK AND IMMEDIATE AND
SUBSTANTIAL DILUTION. SEE "RISK FACTORS," COMMENCING ON PAGE 6 AND "DILUTION."
-------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS(1) COMPANY(2)
<S> <C> <C> <C>
Per share....................................... $ $ $
Total(3)........................................ $ $ $
</TABLE>
(1) Does not include additional compensation payable to the Underwriter in the
form of a 3% non-accountable expense allowance or the Company's agreement to
sell to the Underwriter five year warrants to purchase 230,000 shares of
Common Stock at 165% of the initial public offering price per share of
Common Stock (the "Underwriter's Warrants"). See "Underwriting" for
information concerning indemnification and contribution arrangements and
other compensation payable to the Underwriter.
(2) Before deducting expenses estimated at $802,000 payable by the Company
including the Underwriter's non-accountable expense allowance. Of the
Proceeds to the Company, $400,000 is being distributed to certain of the
Company's existing shareholders in payment of notes issued. See "Use of
Proceeds."
(3) The Company has granted the Underwriter an option (the "Over-Allotment
Option"), exercisable for a period of 45 days after the date of this
prospectus, to purchase up to 345,000 additional shares of Common Stock at
the Price to the Public less Underwriting Discounts and Commissions, solely
to cover over-allotments, if any. If such option is exercised in full, the
total Price to the Public, Underwriting Discounts and Commissions and
Proceeds to the Company will be $ , $ and $ , respectively. See
"Underwriting."
-------------------
The shares of Common Stock are offered by the Underwriter subject to prior
sale, when, as and if issued by the Company, delivered to and accepted by the
Underwriter and subject to approval of certain legal matters by its counsel and
subject to certain other conditions. The Underwriter reserves the right to
withdraw, cancel or modify the Offering and to reject any order in whole or in
part. It is expected that delivery of the certificates representing the Common
Stock offered hereby will be made against payment therefor at the offices of
Joseph Stevens & Company, Inc., 33 Maiden Lane, New York, New York 10038 on or
about , 1998.
-------------------
JOSEPH STEVENS & COMPANY, INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[Graphic depicting schematically ACSA Solution and Distribution Services in the
center with four arrows pointing outward:
-- System Configuration Services is written on the arrow pointing to
System Integrators
-- Hardware configuration is written on the arrow pointing to Value
Added Resellers
-- Built to order process is written on the arrow pointing to Original
Equipment Manufacturers
-- Software configuration is written on the arrow pointing toward
Independent Software Vendors.]
[Photo of a hard drive]
[Caption: HIGH CAPACITY STORAGE The Company is a distributor of hard drives and
integrates hard drives as components into systems the Company assembles.]
[Graphic depicting three arrows in circular form around the caption, ACSA
Solution
- Customized End-user configuration requirement.
- Automated Mass Custom configuration
- Assembly]
[Caption: Using data gathered by manufacturers, Value Added Resellers and
Systems Integrators, the ACSA Center integrated assembly line will automatically
mass configure hardware and software to each end user's custom requirements.
CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
INCLUDING PURCHASES OF THE COMMON STOCK TO STABILIZE MARKET PRICE, PURCHASES OF
THE COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION MAINTAINED BY THE
UNDERWRITER IN THE COMMON STOCK AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED
INFORMATION, INCLUDING "RISK FACTORS" AND THE FINANCIAL STATEMENTS AND NOTES
THERETO, APPEARING ELSEWHERE IN THIS PROSPECTUS. THE STATEMENTS WHICH ARE NOT
HISTORICAL FACTS CONTAINED IN THIS PROSPECTUS ARE FORWARD-LOOKING STATEMENTS
THAT INVOLVE RISKS AND UNCERTAINTIES, INCLUDING THOSE DESCRIBED UNDER "RISK
FACTORS." PROSPECTIVE PURCHASERS OF THE SECURITIES OFFERED BY THIS PROSPECTUS
SHOULD CAREFULLY CONSIDER THE "RISK FACTORS" SECTION, AS WELL AS THE OTHER
INFORMATION AND DATA INCLUDED IN THIS PROSPECTUS, BEFORE MAKING AN INVESTMENT IN
THE SECURITIES OFFERED HEREBY.
EXCEPT AS OTHERWISE NOTED, ALL INFORMATION IN THIS PROSPECTUS HAS BEEN
ADJUSTED TO GIVE EFFECT TO A 10.960591-FOR-1 STOCK SPLIT (THE "STOCK SPLIT") OF
THE OUTSTANDING SHARES OF COMMON STOCK EFFECTED IN OCTOBER 1997, AND ASSUMES (I)
THE EXPIRATION OF A CONTINGENT WARRANT (THE "CASI WARRANT") TO PURCHASE SHARES
OF THE COMPANY'S COMMON STOCK, SEE "CERTAIN TRANSACTIONS," (II) NO EXERCISE OF
THE UNDERWRITER'S OVER-ALLOTMENT OPTION, (III) NO GRANT OF ADDITIONAL OPTIONS
UNDER THE COMPANY'S 1997 STOCK PLAN (THE "STOCK INCENTIVE PLAN"), (IV) NO
EXERCISE OF 100,000 WARRANTS (THE "BRIDGE WARRANTS") OF THE COMPANY, EACH
WARRANT EXERCISABLE DURING THE 36-MONTH PERIOD COMMENCING ONE YEAR FROM THE DATE
THE WARRANTS WERE ISSUED TO PURCHASE ONE SHARE OF COMMON STOCK AT AN INITIAL
EXERCISE PRICE OF $3.00 PER SHARE, SUBJECT TO ADJUSTMENT, ISSUED TO THE
PURCHASERS OF 18 MONTH MATURITY PROMISSORY NOTES (THE "BRIDGES NOTES") OF THE
COMPANY BEARING INTEREST AT A RATE OF 10% PER ANNUM ORIGINALLY ISSUED IN A
FINANCING (THE "BRIDGE FINANCING"), SEE "RECENT BRIDGE FINANCING," AND (V) NO
EXERCISE OF THE UNDERWRITER'S WARRANTS, EACH EXERCISABLE TO PURCHASE ONE SHARE
OF COMMON STOCK AT AN INITIAL EXERCISE PRICE EQUAL TO 165% OF THE INITIAL PUBLIC
OFFERING PRICE OF THE COMMON STOCK. SEE "MANAGEMENT--STOCK OPTION PLAN,"
"CERTAIN TRANSACTIONS" AND "UNDERWRITING."
THE COMPANY
The Company distributes computer equipment and related hardware components
and software ("Computer Products") to value added resellers ("VARs"), systems
integrators ("SIs"), original equipment manufacturers ("OEMs"), independent
software vendors ("ISVs") and major government and corporate accounts. In
December 1996, the Company entered the system configuration business. The
Company intends to build upon vendor and customer relationships in the Computer
Products business and the system configuration business to become a leading
provider of software-enabled custom configuration to its target markets both
domestically and internationally. The Company intends to implement a fully
automated systems integration and configuration process, referred to as the
Automated Custom System Assembly Solution, or "ACSA Solution," incorporating
licensed proprietary software. The Company believes the ACSA Solution will
enable the Company to assemble multiple computer systems and custom configure
the software loaded on these systems to each customer's end user's unique
specifications at a fraction of the cost and time required by other commercially
available configuration processes. See "Business--ACSA Growth Strategy--THE ACSA
SOLUTION." The Company has begun initial construction of the first of its ACSA
Solution production lines ("ACSA Centers") located at the Company's facility.
The Company's first ACSA Center is expected to be completed and the Company is
expected to commence offering the ACSA Solution by mid-1998. Future ACSA Centers
may be located at the facilities of its customers. This technology is intended
to enable the Company's customers to outsource their procurement, warehousing,
assembly, staging, and shipping processes. The Company will use a portion of the
proceeds of the Offering to complete the construction of and operate its first
ACSA Center.
The Company's Computer Products business procures and distributes a broad
and comprehensive range of Computer Products including components and systems
networking products. These products include components such as high capacity
storage devices, CD-ROMs and CD Recorders, network adapters, hubs, small
computer systems interface components ("SCSIs"), integrated device enhancement
components ("IDEs") and ZIP drives as well as memory and central processing
units ("CPUs") for desktop and notebook computer products. The Company also
assembles built-to-order computer systems for its target markets.
3
<PAGE>
The Company's net sales have grown from $17,175,071 for the period from
April 2, 1996 (inception) through December 31, 1996, and $25,940,203 for the
Company's first fiscal year ending March 31, 1997 to $49,267,491 for the first
nine months of fiscal 1998 primarily because of development of an experienced
sales management team with strong customer relationships, expansion of the sales
force, quick delivery of a broad selection of Computer Products and competitive
pricing offered by the Company. The Company's gross profit margins have improved
from approximately 3.3% and 3.1% of net sales in the nine month period ending
December 31, 1996 and the year ended March 31, 1997, respectively, to 4.2% for
the nine month period ending December 31, 1997 due to a number of factors
including strong product demand, more favorable direct manufacturer pricing and
an improved sales mix achieved by the Company which favors components with
higher profit margins and computer system sales. The Company expects that
implementation of the ACSA Centers will increase sales of higher margin
built-to-order computer systems and service revenues.
The Company intends to expand through enhancing existing and establishing
additional strategic relationships with leading master distributors and
manufacturers and by developing custom assembly and software configuration
relationships with computer resellers, manufacturers and integrators. The
Company also intends to enter into joint venture or license arrangements with
foreign partners in South America, Mexico and Asia. The Company's strategy is to
access these markets by identifying foreign joint venture partners or licensees
with substantial industry presence capable of effectively utilizing the ACSA
Solution. The Company also intends to utilize management's extensive network of
domestic and foreign contacts to explore possible acquisition opportunities. The
Company is exploring joint ventures with potential partners identified in Asia,
but is not currently negotiating any acquisition opportunities. There can be no
assurance that the Company will successfully establish any joint ventures or
identify any acquisition opportunities or that if such opportunities are
presented that they will be on terms and conditions acceptable to the Company.
The Company was incorporated in California on April 2, 1996 under the name
Data Net International, Inc. On January 6, 1998, the Company changed its name to
Cumetrix Data Systems Corp. The Company's executive offices are located at 957
Lawson Street, Industry, California, 91748; and its telephone number is (626)
965-6899, and its facsimile number is (626) 965-0415.
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered.................. 2,300,000 shares
Common Stock outstanding before the
Offering............................ 4,750,000 shares(1)
Common Stock outstanding after the
Offering............................ 7,050,000 shares(1)
Repayment of Bridge Notes and other indebtedness; construction
of first ACSA Center; marketing and sales for the ACSA
Solution; development of additional ACSA Centers; expansion of
Computer Products sales and marketing capability; and for
working capital and general corporate purposes. See "Use of
Proceeds."
Use of proceeds.......................
Proposed Nasdaq SmallCap Market
Symbol.............................. CDSC
</TABLE>
- --------------------------
(1) Does not include (i) 383,717 shares of Common Stock issuable upon the
exercise of stock options issued under the Company's 1997 Stock Option Plan
(the "Stock Option Plan"), which have a weighted average exercise price of
$3.06 per share, (ii) 45,000 shares of Common Stock issuable pursuant to the
exercise of outstanding warrants at an exercise price of $3.00 per share,
(iii) 100,000 shares of Common Stock issuable upon the exercise of the
Bridge Warrants which have an exercise price of $3.00 per share, and (iv)
116,283 shares reserved for issuance upon the exercise of options which may
be granted under the Stock Option Plan.
4
<PAGE>
SUMMARY FINANCIAL DATA
<TABLE>
<CAPTION>
PERIOD FROM
APRIL 2, 1996 NINE MONTHS ENDED
(INCEPTION) DECEMBER 31
TO ----------------------
MARCH 31, 1997 1996 1997
-------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales............................................................. $ 25,940,203 $17,175,071 $49,267,491
Cost of products...................................................... 25,139,001 16,604,294 47,192,956
-------------- ---------- ----------
Gross profit........................................................ 801,202 570,777 2,074,535
Selling, general and administrative expenses.......................... 751,133 501,923 1,029,504
-------------- ---------- ----------
Income from operations................................................ 50,069 68,854 1,045,031
Interest expense...................................................... 9,334 4,500 13,908
Other income (expense), net........................................... (5,871) 10 10,723
-------------- ---------- ----------
Income before provision for income taxes.............................. 34,864 64,364 1,041,846
Provision for income taxes............................................ 9,500 25,745 416,738
-------------- ---------- ----------
Net income.......................................................... $ 25,364 $ 38,619 $ 625,108
-------------- ---------- ----------
-------------- ---------- ----------
Basic and diluted earnings per share.................................. $ 0.01 $ 0.01 $ 0.14
-------------- ---------- ----------
-------------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
---------------------------
AT MARCH 31, ACTUAL AS ADJUSTED(1)
1997 ----------- --------------
------------ (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital..................................................... $ 154,160 $ 232,529 $ 9,946,580
Total assets........................................................ 1,855,241 10,272,214 18,367,914
Total liabilities................................................... 1,579,877 8,622,542 7,267,342
Retained earnings................................................... 25,364 650,472 553,372(2)
Shareholders' equity................................................ 275,364 1,649,672 11,100,572
</TABLE>
- ------------------------------
(1) As adjusted to reflect (i) the proceeds of the sale of 2,300,000 shares of
Common Stock offered by the Company at an assumed initial public offering
price of $5.00 per share after deducting commissions and estimated offering
expenses (estimated at $1,952,000); and (ii) the application of the net
proceeds of the Offering, including payment of $400,000, $700,000 and
$100,000 due under the Bridge Notes, the CASI Note and the the Datatec Note,
respectively.
(2) As adjusted to reflect a non-recurring interest expense of $97,100 for the
unamortized portion of the original issue discount and financing costs
related to the Bridge Financing.
5
<PAGE>
RISK FACTORS
IN ADDITION TO THE OTHER INFORMATION IN THIS PROSPECTUS, PROSPECTIVE
INVESTORS SHOULD CAREFULLY CONSIDER THE FOLLOWING RISK FACTORS BEFORE PURCHASING
SHARES OF COMMON STOCK OFFERED BY THIS PROSPECTUS.
LIMITED OPERATING HISTORY. The Company commenced operations in April 1996;
therefore, there is only limited financial information in existence upon which
an investment decision may be based. Although the Company has achieved
profitability, the ability of the Company to sustain profitability will depend
in part upon the successful and timely introduction and operation of its ACSA
Centers, continuation of the Company's close relationships with its vendors and
customers, successful marketing of existing products and the Company's ability
to finance inventories and growth and to collect trade receivables in a timely
manner. The likelihood of the success of the Company in implementing its ACSA
Centers must be considered in light of the difficulties and risks inherent in a
new business. There can be no assurance that revenues will increase
significantly in the future or that the Company will ever achieve profitable
operations for the ACSA Center business. There can be no assurance that the
Company will be able to generate and sustain profitability in the future. See
"Business--ACSA Growth Strategy."
BROAD DISCRETION OF MANAGEMENT AND THE BOARD OF DIRECTORS IN USE OF
PROCEEDS. Although the Company intends to apply the net proceeds of the
Offering in the manner described herein under "Use of Proceeds," the Company's
management and its Board of Directors have broad discretion within such proposed
uses as to the precise allocation of the net proceeds, the timing of
expenditures and all other aspects of the use thereof. In addition,
approximately 19% of the net proceeds of the Offering will be allocated and used
for working capital and other general corporate purposes. The Company reserves
the right to reallocate the net proceeds of the Offering among the various
categories set forth under "Use of Proceeds" as it, in its sole discretion,
deems necessary or advisable based upon prevailing business conditions and
circumstances. See "Use of Proceeds."
CONTROL BY INSIDERS. Upon completion of the Offering, the executive
officers and directors will beneficially own approximately 62.75% of the
outstanding Common Stock and will be able to elect all the Company's directors
and thereby direct the policies of the Company. See "Principal Shareholders" and
"Management."
DEPENDENCE UPON KEY PERSONNEL. The Company is highly dependent upon the
services of Max Toghraie and James Ung, its Chief Executive Officer and
President, respectively. Both James Ung and Max Toghraie are employed pursuant
to five year employment agreements. See "Management--Employment Agreements." The
success of the Company to date has been in part dependent upon their efforts and
abilities, and the loss of the services of either of them for any reason could
have a material adverse effect upon the Company. In addition, the Company's work
force includes executives and employees with significant knowledge and
experience in the Computer Products distribution industry. The Company's future
success will be strongly influenced by its ability to continue to recruit, train
and retain a skilled work force. While the Company believes that it would be
able to locate suitable replacements for its executives or other personnel if
their services were lost to the Company, there can be no assurance that the
Company would be able to do so on terms acceptable to the Company. In
particular, the location and hiring of suitable replacements for Mr. Toghraie
and Mr. Ung could be very difficult. The Company maintains a key-man life
insurance policy on the lives of Messrs. Toghraie and Ung with benefits of
$1,000,000 each, payable to the Company in the event of their death. The
benefits received under these policies would not be sufficient to compensate the
Company for the loss of the services of Mr. Toghraie or Mr. Ung should suitable
replacements not be employed. See "Management."
DEPENDENCE UPON RELATIONSHIPS WITH VENDORS. A key element of the Company's
past success and future business strategy involves the establishment of
relationships with certain major distributors and Computer Product
manufacturers. Purchases from these vendors account for the majority of the
Company's aggregate purchases for fiscal 1997 and for the nine month period
ended December 31, 1997. For the nine months ended December 31, 1997, DSS
Technology Distribution Partners, Inc. ("DSS"), a master distributor of hard
drives to the Company, accounted for 58.3% of the Company's purchases. Certain
of
6
<PAGE>
these vendors provide the Company with substantial incentives in the form of
rebates passed through from the manufacturer, discounts, credits and cooperative
advertising. There can be no assurance that the Company will continue to receive
such incentives in the future. Other than ordinary purchase orders, the Company
does not have written supply, distribution or franchise agreements with any of
its Computer Product vendors. Although the Company believes that it has
established close working relationships with its principal vendors, the
Company's success will depend, in large part, on maintaining these relationships
and developing new vendor relationships for its existing and future product and
service lines. Because the Company does not have written contracts with any of
its vendors, there can be no assurance that the Company will be able to maintain
these relationships. Periodically, Computer Product suppliers consolidate their
distribution networks and otherwise restructure or limit their distribution
channels. There can be no assurance that the Company will continue to be
selected to resell products by its principal vendors. Termination or
interruption of such relationships or modification of the terms the Company
receives from these vendors would materially adversely affect the Company's
financial position, operating results, and cash flows. See "--Asian Market
Instability" and "Business--Vendor Relationships and Procurement."
Certain of the products offered by the Company are subject to manufacturer
allocations, which limit the number of units of such products available to the
Company's vendors, which in turn may limit the number of units available to the
Company. In order to offer the products of most manufacturers, the Company is
required to obtain authorizations from the manufacturers to act as a reseller of
such products, which authorizations may be terminated at the discretion of the
manufacturers at any time. There can be no assurance that the Company will be
able to obtain or maintain authorizations to offer products, directly or
indirectly, from new or existing manufacturers. Termination of the Company's
rights to act as a reseller of the products of one or more significant
manufacturers would have a material adverse effect on the Company's financial
position, operating results, and cash flows.
POSSIBLE ADDITIONAL FINANCING REQUIRED. The Company's business is capital
intensive in that the Company is required to finance the purchase of Computer
Products in order to fill sales orders. In order to obtain necessary capital,
the Company relies primarily on unsecured vendor credit lines and a line of
credit provided by Finova Capital Corporation ("Finova") that is collateralized
by accounts receivable and inventory. As a result, the amount of credit
available to the Company may be adversely affected by factors such as delays in
collection or deterioration in the quality of the Company's accounts receivable,
economic trends in the computer industry, interest rate fluctuations and the
lending or credit policies of the Company's lenders and vendors. Many of these
factors are beyond the Company's control. Further, the Company must obtain
Finova's written permission prior to arranging other financing, and Finova may
require certain acknowledgments and undertakings from other lenders. There can
be no assurance that Finova will permit additional financing or that other
lenders will provide the acknowledgments and undertakings Finova may require.
Any decrease or material limitation on the amount of capital available to the
Company under its financing arrangements or vendor credit lines will limit the
ability of the Company to fill existing sales orders or expand its sales levels
and, therefore, would have a material adverse effect on the Company's financial
position, operating results, and cash flows. In addition, while the Company does
not have significant exposure to interest rate fluctuations under its current
financing, any significant increases in interest rates will increase the cost of
possible future financing to the Company which would have a material adverse
effect on the Company's financial position, operating results, and cash flows.
The Company is dependent on the availability of accounts receivable financing on
reasonable terms and at levels that are high relative to its equity base in
order to maintain and increase its sales. There can be no assurance that such
financing will be available to the Company in the future. The inability of the
Company to have continuous access to such financing at reasonable costs would
severely and adversely impact the Company's financial position, operating
results, and cash flows. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations--Liquidity and Capital Resources."
RISK OF PRODUCT RETURNS. As is typical of the computer industry, the
Company incurs expenses as a result of the return of products by customers. Such
returns may result from defective goods, inadequate performance relative to
customer expectations, distributor shipping errors and other causes which are
7
<PAGE>
outside the Company's control. Although the Company's distributors and
manufacturers have specific return policies that enable the Company to return
certain types of goods for credit, to the extent that the Company's customers
return products which are not accepted for return by the distributor or
manufacturer of such products, the Company will be forced to bear the cost of
such returns. Any significant increase in the rate of product returns coupled
with the unwillingness by the Company's distributors or manufacturers to accept
goods for return could have a material adverse effect on the Company's financial
position, operating results, and cash flows. See "Business--Inventory
Management."
PRODUCT MIX; RISK OF DECLINING PRODUCT MARGINS. The Company's gross profit
margins have increased from 3.3% to 4.2% in the nine months ending December 31,
1996 and 1997, respectively, due to a number of factors, including strong
product demand, the ability of the Company to obtain favorable pricing, and a
sales mix of products with higher profit margins. However, given the significant
levels of competition that characterize the Computer Products market, there can
be no assurance that the Company will maintain the current gross profit margins
or be able to achieve further increases in profit margins. From time to time,
product margins will also be reduced as a result of marketing strategies
implemented by the Company. For instance, introductory pricing implemented by
the Company to develop market awareness of product lines, particularly disk
drives, of vendors new to the Company will have an adverse effect upon gross
profit margins and, potentially, earnings during the period promotional pricing
is offered. Moreover, in order to attract and retain many of its larger
customers, the Company frequently must agree to volume discounts and maximum
allowable mark-ups that serve to limit the profitability of sales to such
customers. Accordingly, to the extent that the Company's sales to such customers
increase, the Company's gross profit margins may be reduced, and therefore any
future increases in net income will have to be derived from continued sales
growth or effective expansion into higher margin business segments, neither of
which can be assured. Furthermore, low margins increase the sensitivity of the
business to increases in costs of financing, because financing costs to carry a
receivable can be very high compared to the low amount of gross profit on the
sale underlying the receivable itself. Any failure by the Company to maintain or
increase its profit margins and sales levels could have a material adverse
effect on the Company's results of operations and prospects for future growth.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations."
UNCERTAINTY OF COMMERCIALIZATION OF THE ACSA SOLUTION; IMPORTANCE OF ACSA TO
GROWTH. The Company's ability to successfully implement, market and introduce
the ACSA Solution services on a timely basis will be a significant factor in the
Company's ability to improve its operating margins and remain competitive. The
Company's ability to market the ACSA Solution successfully will depend on the
Company convincing potential customers of the benefits of the ACSA Solution. The
Company has only recently commenced marketing the ACSA Solution. The Company is
currently constructing its first ACSA Center located in City of Industry. No
ACSA Center is currently in operation and the Company currently has no sales
revenue attributable to the ACSA Solution or a ACSA Center. Although the Company
is engaged in negotiations and discussions with a number of potential customers,
there can be no assurance that any such discussions will lead to significant
sales of the ACSA Solution, or that the ACSA Solution will attain market
acceptance. Although the Company intends to devote a substantial portion of the
proceeds of this Offering to implementation and marketing of ACSA Solution
services, there can be no assurance that the commitment and use of such funds
will result in successful implementation, marketing and sales of ACSA Solution
services. Any failure by the Company to anticipate or respond in a
cost-effective and timely manner to market trends or customer requirements, or
any significant delays in introduction of ACSA services, could have a material
adverse effect on the Company's business, operating results and financial
condition. See "Business--ACSA Growth Strategy."
LENGTHY SALES AND IMPLEMENTATION CYCLES FOR ACSA. The Company believes that
the purchase of the Company's ACSA Solution services will entail an
enterprise-wide decision by prospective customers and require the Company to
engage in a lengthy sales cycle, estimated at between three and twelve months,
as the Company will be required to provide a significant level of education to
prospective customers regarding the use and benefits of the Company's ACSA
Solution services and products. Also, the purchase
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of ACSA Solution services will often depend upon the successful coordination of
marketing, system design and installation efforts by the Company, end-user
customers and others with influence over the purchase decisions of the Company's
customers such as consultants, VARs and SIs. Purchase decisions will generally
occur only after significant internal analysis by each customer and will be
subject to competition with other capital spending priorities of certain
customers. As a result, the sales and customer implementation cycles will be
subject to a number of significant delays over which the Company has little or
no control. Delay in the sale or customer implementation of a limited number of
transactions could have a material adverse effect on the Company's business and
results of operations and could cause the Company's operating results to vary
significantly from quarter to quarter. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business."
DEPENDENCE ON CASI FOR DEVELOPMENT AND ENHANCEMENT OF CONFIGURATION
SOFTWARE. Under the Company's non-exclusive license and reseller agreements
with Computer-Aided Software Integration, Inc. ("CASI"), CASI retains the source
code of the Configurator software required to operate the automated software
configuration functions of the Company's planned ACSA Solution and ACSA Centers,
and retains all rights to modify and enhance the Configurator-TM- software. CASI
has agreed to provide the Company with all enhancements and upgrades to the
Configurator software used internally or distributed by CASI to its customers,
and to develop additional enhancements requested by the Company at the Company's
sole expense. Any enhancements requested by the Company and implemented by CASI
at CASI's expense may be incorporated in the generally distributed version of
CASI's software. If CASI determines not to fund development of an enhancement
then CASI must prepare the enhancement at pre-agreed rates and ownership of the
requested enhancement will belong to the Company. Failure by CASI to promptly
and adequately perform its obligations under its license agreement with the
Company would have a material adverse effect on the Company. Furthermore, there
can be no assurance that CASI will fully comply with its contractual obligations
to the Company, that CASI will dedicate sufficient software development capacity
to satisfy the Company's requirements, or that the Company's remedies in the
event CASI does not perform its obligations will be adequate. The Company has no
capability to internally develop any enhancements or upgrades. Failure or delay
by CASI to fulfill the Company's anticipated needs for enhancement and upgrading
of the Configurator software would adversely affect the Company's ability to
market ACSA services and to become and remain competitive in the software
configuration market. In the event that CASI fails to meet its obligations under
the license, the Company has, among other rights, the contractual right to the
source code underlying the software, but there can be no assurance that the
Company will be able to obtain the source code in a timely manner, if at all,
because CASI is in possession of the only copies of the source code. Even if the
Company is able to obtain the source code under such circumstances, internal
maintenance and enhancement of the source code could place a significant
financial burden on the Company. See "Business--ACSA Growth Strategy" and
"Certain Transactions."
LIMITED MARKETING CAPABILITIES. The Company's operating results will depend
to a large extent on its ability to successfully market the ACSA Solution
services to personal computer manufacturers and multi-user system buyers. The
Company currently has limited marketing capability. The Company intends to use a
portion of the proceeds of the Offering to hire additional sales and marketing
personnel and outside consultants to market the ACSA Solution. There can be no
assurance that any marketing efforts undertaken by the Company will be
successful or will result in any significant sales of the ACSA Solution. See
"Business--ACSA Growth Strategy."
MANAGEMENT OF GROWTH. The Company has grown rapidly since inception in
April 1996, with net sales reaching $25,940,203 in the Company's first fiscal
year and reaching $49,267,491 for the nine months ended December 31, 1997, and
employees increasing from 3 at inception to 23 at January 31, 1998.
Implementation of the Company's business plan, including implementation of ACSA
Solution services and the general strains of the Company's growth will require
that the Company significantly expand its operations in all areas. This growth
in the Company's operations and activities will place a significant strain on
the Company's management, operational, financial and accounting resources.
Successful management of the
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Company's operations will require the Company to continue to implement and
improve its financial and management information systems. The Company's ability
to manage its future growth, if any, will also require it to hire and train new
employees, including management and technical personnel, and motivate and manage
its new employees and integrate them into its overall operations and culture.
The Company recently has made additions to its management team, including
appointing Max Toghraie as Chief Executive Officer in September 1997 and Carl L.
Wood as Chief Financial Officer in February 1998 and is in the process of
expanding its accounting staff and modifying its internal procedures to prepare
to function as a public company, a process which is expected to continue
following the Offering. The Company's failure to manage implementation of its
business plan would have a material adverse effect on the Company's business,
operating results and financial condition.
RISK OF POTENTIAL JOINT VENTURES OR ACQUISITIONS. In the future, the
Company may acquire complementary companies, products or technologies, although
no specific acquisitions currently are pending or under negotiation.
Acquisitions involve numerous risks, including adverse short-term effects on the
combined business' reported operating results, impairments of goodwill and other
intangible assets, the diversion of management's attention, the dependence on
retention, hiring and training of key personnel, the amortization of intangible
assets and risks associated with unanticipated problems or legal liabilities. A
portion of the net proceeds of this Offering may be used to fund such
acquisitions at the broad discretion of the Board of Directors. The Board of
Directors may consummate such acquisitions, if any, without permitting
shareholders to review or vote on such transactions, unless required under
applicable law. See "Use of Proceeds." and "Business--ACSA Growth Strategy."
CONSTRUCTION OF FIRST ACSA CENTER. The Company intends to use approximately
$0.3 million of the net proceeds from the Offering to complete construction of
and to equip its first ACSA Center. It is expected that the construction will
require a substantial time commitment of certain members of management. The
first ACSA Center is expected to be completed by mid-1998. Any delay in
completion of the first ACSA Center could result in delays in the commencement
of sales of assembly and custom software configuration services and adversely
affect the Company's business, operating results and financial condition. There
can be no assurance that the Company will be able to complete the ACSA Center at
the budgeted price. Additionally, there can be no assurance that the ACSA Center
will be available on time or that the Company will be successful in timely
hiring and training engineers and technicians necessary to commence operations
of the ACSA Center. Any such delay would delay the Company's ability to commence
offering the ACSA Solution and have a material adverse effect upon the Company's
business, operating results and financial condition. See "Business--Facilities."
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT INTRODUCTIONS. The market for the
Company's ACSA technology is characterized by rapidly changing technology and
frequent new product introductions. Even if the Company's ACSA Solution services
using its licensed Configurator software gains initial market acceptance, the
Company's success will depend, among other things, upon its ability to enhance
the ACSA Solution services and to develop and introduce new products and
services that keep pace with technological developments, respond to evolving
customer requirements and achieve continued market acceptance. There can be no
assurance that the Company will be able to identify, develop, manufacture,
market or support new products or offer new services successfully, that such new
products or services will gain market acceptance, or that the Company will be
able to respond effectively to technological changes or product announcements by
competitors. Any failure by the Company to anticipate or respond adequately to
technological developments and customer requirements or any significant delays
in product development or introductions could result in a loss of market share
or revenues. See "Business--ACSA Growth Strategy."
INDUSTRY EVOLUTION AND PRICE REDUCTIONS; CHANGING METHODS OF
DISTRIBUTION. The personal computer industry is undergoing significant change.
The industry has become more accepting of large volume, cost-effective channels
of distribution such as computer superstores, consumer electronics and office
supply superstores, national direct marketers and mass merchants. In addition,
many traditional computer
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resellers are consolidating operations and acquiring or merging with other
resellers to increase efficiency. This current industry reconfiguration has
resulted in increased pricing pressures. Decreasing prices of Computer Products
require the Company to sell a greater number of products to achieve the same
level of net sales and gross profit. The continuation of such trend would make
it more difficult for the Company to maintain or to increase its net sales and
net income. In addition, it is possible that the historically high rate of
growth of the personal computer industry may slow at some point in the future.
If the growth rate of the personal computer industry were to decrease, the
Company's financial position, operating results, and cash flows could be
materially adversely affected. Furthermore, new methods of distribution and
sales of Computer Products, such as on-line shopping services and catalogs
published on CD-ROM, may emerge in the future. Computer Products and software
manufacturers have sold, and may in the future intensify their efforts to sell,
their products directly to end users. From time to time, certain vendors have
instituted programs for the direct sale of large orders of Computer Products and
software to certain major corporate accounts. These types of programs may
continue to be developed and used by various vendors. While the Company attempts
to anticipate future distribution trends, any of these distribution methods or
competitive programs, if expanded, could have a material adverse effect on the
Company's financial position, operating results, and cash flows.
AVAILABILITY OF COMPONENTS. The computer component and computer assembly
businesses have from time to time experienced periods of extreme shortages in
product supply, generally as the result of demand exceeding available supply.
When these shortages occur, suppliers tend to either slow down shipments or
place their customers "on allocation," reducing the number of units sold to each
customer. While the Company believes that it has well-established relationships
with vendors and that it has not been adversely affected by recent shortages in
certain storage and other computer components, no assurance can be given that
future shortages will not adversely impact the Company. See "Business--Vendor
Relationships and Procurement."
COMPETITION. The Company faces intense competition, both in its selling
efforts and purchasing efforts, from the significant number of companies that
configure and/or assemble personal computers, manufacture or distribute disk
drives and offer software configuration services. Many of these companies, such
as CompuCom Systems, Inc., CDW Computer Centers, Inc., Vanstar Corp. and Inacom,
Inc. in the Computer Products distribution market, large computer manufacturers
such as IBM Corp. and Compaq Computer Corporation, which provide custom
configuration and automated software configuration for standardized systems,
large distributors such as Ingram Micro Inc., Vanstar Corp., En Point
Technologies, Inc., Microwarehouse, Inc. and CompuCom Systems, Inc. in the
systems integration and network services market, have substantially greater
assets and possess substantially greater financial and personnel resources than
those of the Company and may develop software, or services or products which are
comparable to the ACSA Solution. Many competing distributors also carry or offer
brands or product lines which the Company does not carry. Generally, large disk
drive and personal computer component manufacturers and large distributors do
not focus their direct selling efforts on small to medium sized OEMs and
distributors, which constitute the vast majority of the Company's customers;
however, as the Company's customers increase in size, disk drive and component
manufacturers may find it cost effective to focus direct selling efforts on
those customers, which could result in the loss of customers or pressure on
margins. In addition, CASI and/or Datatec Systems Inc. ("Datatec"), formerly
known as Glasgal Communications, Inc., the parent corporation of CASI, may
directly enter into the Company's integration and configuration markets using
the software the Company has licensed from CASI. While no operating division or
subsidiary of Datatec is currently competing in the Company's markets, there can
be no assurance that Datatec will not decide to directly compete with the
Company in the future. Further, the terms of the Company's license agreement
with CASI allows CASI to license the software used in the ACSA Solution and the
ACSA Centers to new or existing direct competitors of the Company. There can be
no assurance that the Company will be able to continue to compete effectively
with existing or potential competitors. See "Business--Competition" and "Certain
Transactions."
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ELECTRONICS INDUSTRY CYCLICALITY. The personal computer component
distribution industry has been affected historically by general economic
downturns, which have had an adverse economic effect upon manufacturers and
corporate end users of personal computers, as well as component distributors
such as the Company. In addition, the life cycle of existing personal computer
products and the timing of new product development and introduction can affect
demand for disk drives and other personal computer components. Any downturns in
the personal computer component distribution industry, or the personal computer
industry in general, could adversely affect the Company's business and results
of operations.
ASIAN MARKET INSTABILITY. Economies and financial markets in Asia have
recently experienced significant turmoil. A non-material portion of the
Company's revenues are derived from sales to businesses which primarily export
Computer Products to Asian customers, and certain of the Company's vendors are
based in Korea, Japan and other Asian countries. The recent turmoil in the Asian
financial markets has not had a material impact on the Company's sales orders or
the Company's ability to obtain products from its Asian vendors. However, the
financial instability in these regions may have an adverse impact on the
financial position of end-users in the region which could impact future orders
from the Company's customers and/or the ability of such end users to pay the
Company's customers, which could also impact the ability of such customers to
pay the Company. If the Company's customers who export into Asia are unable to
maintain export sales or current margins on such export sales, the Company's
sales and/or sales margins may be adversely affected. Additionally, if the
Company's vendors in these regions are unable to continue to supply the Company,
the Company may be adversely impacted.
FOREIGN TRADE REGULATION. A significant number of the products distributed
by the Company are manufactured in Taiwan, China, Korea, Japan and the
Philippines. The purchase of goods manufactured in foreign countries is subject
to a number of risks, including economic disruptions, transportation delays and
interruptions, foreign exchange rate fluctuations, imposition of tariffs and
import and export controls and changes in governmental policies, any of which
could have a material adverse effect on the Company's business and results of
operations. The ability to remain competitive with respect to the pricing of
imported components could be adversely affected by increases in tariffs or
duties, changes in trade treaties, strikes in air or sea transportation,
fluctuation in currency and possible future United States legislation with
respect to pricing and import quotas on products from foreign countries. For
example, it is possible that political or economic developments in China, or
with respect to the United States' relationship with China, could have an
adverse effect on the Company's business. The Company's ability to remain
competitive could also be affected by other governmental actions related to,
among other things, anti-dumping legislation and international currency
fluctuations. While the Company does not believe that any of these factors
adversely impact its business at present, there can be no assurance that these
factors will not materially adversely affect the Company in the future. Any
significant disruption in the delivery of merchandise from the Company's
suppliers, substantially all of whom are foreign, would also have a material
adverse impact on the Company's business and results of operations. See
"Business--Vendor Relationships and Procurement."
FLUCTUATIONS IN QUARTERLY EARNINGS. The Company's business is subject to
certain quarterly influences. Net sales and operating profits are generally
higher in the third quarter due to the purchasing patterns of personal computer
integrators and resellers and are generally lower in the second quarter due
primarily to lower industry shipments. Quarterly results may also be adversely
affected by a variety of other factors, including the timing of acquisitions and
related costs, the release of new products, promotions, and component pricing
and availability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CONFLICTS OF INTERESTS. Until March 9, 1998 David Tobey, a director of the
Company, was President, Chief Executive Officer and a significant stockholder of
CASI and an employee of CASI's parent, Datatec. CASI is a vendor and licensor of
the Company. Until March 9, 1998 Mr. Tobey had an employment agreement with CASI
whereby Mr. Tobey was obligated to assign to CASI all ideas, inventions and
designs
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created or developed by Mr. Tobey (alone or with others) relating to computer
integration and development tools. On March 9, 1998, Mr. Tobey resigned from his
positions at CASI and Datatec, and his entire equity interest in CASI was
acquired by Datatec. Although the Company believes that Mr. Tobey's departure
from CASI and Datatec will have no adverse effect on the Company's relationship
with CASI and Datatec, there can be no assurance that Mr. Tobey's resignation
will not adversely effect the Company's working relationship with CASI and
Datatec. During Mr. Tobey's employment at CASI and Datatec, the Company entered
into a licensing agreement (the "CASI License") and a reseller agreement (the
"CASI Reseller Agreement") with CASI relating to the Company's non-exclusive
license to use and resell CASI's Configurator software. As a result, although
the Company believes that the CASI License and the CASI Reseller Agreement were
negotiated on an arms-length basis, conflicts existed between Mr. Tobey's
interests and obligations to CASI and Datatec and his obligations as a Director
of the Company during the period in which the Company negotiated and concluded
the CASI License and the CASI Reseller Agreement. The license fee for the CASI
Configurator software was $1.1 million, of which $150,000 was advanced on the
Company's behalf by an officer of CASI's parent, Datatec and is evidenced by a
promissory note (the "Datatec Note"), and $950,000 was paid by delivery to CASI
of a non-interest bearing promissory note (the "CASI Note"). The Company repaid
$250,000 principal amount of the CASI Note and $50,000 of the principal amount
of the Datatec Note out of the proceeds of the Company's Bridge Financing in
December 1997. The Company intends to repay the outstanding $100,000 principal
amount of the Datatec Note and the $700,000 principal amount of the CASI Note
out of the proceeds of this Offering. The CASI Note provides that the Company
has also issued CASI a contingent warrant (the "CASI Warrant") pursuant to which
CASI may apply any amount then due and unpaid under the CASI Note to the
purchase of the Company's Common Stock at a price of $4.50 per share if the
Company defaults under the CASI Note. The CASI Warrant will expire upon full
payment of the CASI Note. The Company believes that all of these transactions
were on terms no less favorable than were available from unaffiliated third
parties. There can be no assurance that the Company will not enter into
transactions with affiliated parties in the future. See "Certain Transactions."
IMMEDIATE AND SUBSTANTIAL DILUTION. The proposed initial public offering
price is substantially higher than the book value per outstanding share of
Common Stock. Specifically, investors will sustain immediate dilution of $3.43
per share (69%) based on the net tangible book value of the Company at December
31, 1997 of $0.35 per share. Investors in the Offering therefore will bear a
disproportionate part of the financial risk associated with the Company's
business while effective control will remain with the Company's directors and
executive officers. See "Dilution."
REPAYMENT OF INDEBTEDNESS. Approximately thirteen (13%) percent, or an
aggregate of $1,200,000, of the net proceeds of the Offering has been allocated
for the repayment of the Bridge Notes, the CASI Note, and the Datatec Note, and
therefore will not be available for future operations. Approximately seven (7%)
percent, or $700,000, of such net proceeds will be paid to CASI in connection
with the repayment of the CASI Note. See "Use of Proceeds." Until March 9, 1998
David Tobey, a director of the Company, was President, Chief Executive Officer
and a significant stockholder of CASI and an employee of CASI's parent, Datatec.
On March 9, 1998, Mr. Tobey resigned from his positions at CASI and Datatec, and
his entire equity interest in CASI was acquired by Datatec. See "Certain
Transactions."
POTENTIAL BENEFIT TO CERTAIN INVESTORS. The investors who participated in
the Bridge Financing (the "Bridge Holders") acquired an aggregate of 300,000
shares of Common Stock at a stated purchase price of $2.00 per share and 100,000
Bridge Warrants exercisable for the purchase of an aggregate of 100,000 shares
of Common Stock at an exercise price of $3.00 per share. If after the expiration
of the transfer restrictions applicable to the securities sold in the Bridge
Financing the market price for the Common Stock is equal to or exceeds the
initial offering price of the Common Stock, the Bridge Holders will realize a
return which could significantly exceed that which would be realized by the
purchasers of Common Stock in this Offering. See "Shares Eligible for Future
Sale."
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POSSIBLE ISSUANCE OF PREFERRED STOCK; BARRIERS TO TAKEOVER. The Company's
Articles of Incorporation authorize the issuance of up to 2,000,000 shares of
Preferred Stock. Following the Offering, no shares of Preferred Stock of the
Company will be outstanding, and the Company has no present intention to issue
any shares of Preferred Stock. However, because the rights and preferences for
any series of Preferred Stock may be set by the Company's Board of Directors in
its sole discretion, the rights and preferences of any such Preferred Stock are
likely to be superior to those of the Common Stock and thus could adversely
affect the rights of the holders of Common Stock. The Company currently has no
commitments or contracts to issue any additional securities. Any securities
issuances might result in a reduction in the book value or market price of the
outstanding shares. Further, any new issuances could be used for anti-takeover
purposes or might be used as a method of discouraging, delaying or preventing a
change of control of the Company. Additionally, certain provisions of the
Company's Articles of Incorporation and Bylaws could delay or make more
difficult a merger, tender offer or proxy contest involving the Company. See
"Description of Capital Stock."
NO DIVIDENDS ANTICIPATED. The Company has never declared or paid dividends
on its Common Stock. After the consummation of this Offering, the Company does
not intend for the foreseeable future to declare or pay any cash dividends and
intends to retain earnings, if any, for the future operation and expansion of
the Company's business. See "Dividend Policy."
ABSENCE OF PRIOR PUBLIC MARKET; POSSIBLE VOLATILITY OF STOCK PRICE;
ARBITRARY DETERMINATION OF OFFERING PRICE. Prior to the Offering, there has been
no public market for the Common Stock. Although the Company has applied for
approval for inclusion of the Common Stock on The Nasdaq SmallCap Market
("Nasdaq"), there can be no assurance that an active trading market for the
Common Stock will develop as a result of the Offering or, if a trading market
does develop, that it will continue. In the absence of such a market, investors
may be unable readily to liquidate their investment in the Common Stock. The
trading price of the Common Stock could be subject to wide fluctuations in
response to quarter to quarter variations in operating results, news
announcements relating to the Company's business (including new product
introductions by the Company or its competitors), changes in financial estimates
by securities analysts, the operating and stock price performance of other
companies that investors may deem comparable to the Company as well as other
developments affecting the Company or its competitors. In addition, the market
for equity securities in general has been volatile and the trading price of the
Common Stock could be subject to wide fluctuations in response to general market
trends, changes in general conditions in the economy, the financial markets or
the manufacturing or retail industries and other factors which may be unrelated
to the Company's performance. The public offering price of the shares of Common
Stock has been determined by negotiations between the Company and the
Underwriter and does not necessarily bear any relationship to the Company's book
value, assets, past operating results, financial condition or any other
established criteria of value. There can be no assurance that the shares offered
by this Prospectus will trade at market prices in excess of the initial public
offering price. See "Underwriting."
SHARES ELIGIBLE FOR FUTURE SALE. Future sales of Common Stock by existing
shareholders could adversely affect the prevailing market price of the Common
Stock and the Company's ability to raise capital. Upon completion of the
Offering, the Company will have 7,050,000 shares of Common Stock outstanding. Of
those shares, the 2,300,000 shares of Common Stock offered by this Prospectus
will be freely tradeable without restriction or further registration under the
Securities Act, unless purchased by "affiliates" of the Company as that term is
defined in Rule 144 under the Securities Act ("Rule 144"). The remaining
4,750,000 shares of Common Stock outstanding are "restricted securities," as
that term is defined by Rule 144. Under lock-up agreements with the Underwriter,
each existing shareholder has agreed that he or it will not, directly or
indirectly, sell, assign or otherwise transfer any shares of Common Stock owned
by it for a period of (a) in the case of management and founding shareholders of
the Company who collectively hold 4,450,000 shares of Common Stock, a period of
18 months after the effective date of the Registration Statement of which this
Prospectus is a part (the "Management Lock-Up Period") except with the
Underwriter's prior written consent and (b) in the case of the holders of
300,000 shares of Common Stock issued in the Company's Bridge Financing, a
period of 12 months after the effective date of the
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Registration Statement of which this Prospectus is a part, and thereafter for an
additional six (6) months, without the written consent of the Underwriter (the
"Bridge Holder Lock-Up Period"); provided, however, that (i) the Management
Lock-Up Period shall immediately terminate if the Common Stock is quoted on The
Nasdaq SmallCap Market or The Nasdaq National Market and the average closing bid
price of the Common Stock equals or exceeds $10.00 per share (subject to
customary adjustments for stocksplits, combinations, consolidations and similar
transactions) for any 30 consecutive calendar days, and (ii) for twenty-four
(24) months following the effective date of the Registration Statement any sales
of the Company's securities subject to the lock-up agreements shall be made
through the Underwriter in accordance with its customary brokerage practices
either on a principal or agency basis. Once the lock-up agreements expire, all
of the 4,750,000 shares of Common Stock will become eligible for immediate sale,
subject to compliance with the volume limitations of Rule 144 by the holders of
these shares. See "Shares Eligible for Future Sale" and "Underwriting."
DELISTING FROM THE NASDAQ SMALLCAP MARKET; POTENTIAL PENNY STOCK
CLASSIFICATION. The Company has applied for quotation of the Common Stock on
The Nasdaq SmallCap Market. However, there can be no assurance that the Common
Stock will be approved for quotation on The Nasdaq SmallCap Market, or, if
approved, that a trading market for the Common Stock will develop, or if
developed, that it will be maintained. No assurance can be given that the
Company will be approved for initial inclusion or be able to satisfy the
criteria for continued quotation on The Nasdaq SmallCap Market following this
Offering. Failure to meet the maintenance criteria in the future may result in
the Common Stock not being eligible for quotation. If the Company were removed
from The Nasdaq SmallCap Market, trading, if any, in the Common Stock would
thereafter have to be conducted in the over-the-counter market in so-called
"pink sheets" or, if then available, the OTC Bulletin Board. As a result,
holders of the Common Stock would find it more difficult to dispose of, or to
obtain accurate quotations as to the market value of, the Common Stock.
In addition, if the Common Stock is approved for quotation and is
subsequently delisted from trading on Nasdaq and the trading price of the Common
Stock is less than $5.00 per share, trading in the Common Stock would also be
subject to the requirements of Rule 15g-9 promulgated under the Securities
Exchange Act of 1934, as amended (the "Exchange Act"). Under such rule,
broker/dealers who recommend such low-priced securities to persons other than
established customers and accredited investors must satisfy special sales
practice requirements, including a requirement that they make an individualized
written suitability determination for the purchaser and receive the purchaser's
written consent prior to the transaction. The Securities Enforcement Remedies
and Penny Stock Reform Act of 1990 also requires additional disclosure in
connection with any trades involving a stock defined as a penny stock
(generally, according to regulations adopted by the Securities Exchange
Commission (the "Commission"), any equity security not traded on an exchange or
quoted on Nasdaq that has a market price of less than $5.00 per share, subject
to certain exceptions), including the delivery, prior to any penny stock
transaction, of a disclosure schedule explaining the penny stock market and the
risks associated therewith. Such requirements could severely limit the market
liquidity of the Common Stock and the ability of purchasers in this Offering to
sell their securities in the secondary market. There can be no assurance that,
if approved for quotation, the Common Stock will not be delisted or treated as a
penny stock.
ELIMINATION OF CUMULATIVE VOTING. The Articles of Incorporation of the
Company provide that at such time as the Company has (i) shares listed on the
New York Stock Exchange or the American Stock Exchange, (ii) securities
designated for trading as a national market security on the National Association
of Securities Dealers Automatic Quotation System (or any successor national
market system) if the Company has at least 800 or more holders of its Common
Stock as of the record date of the Company's most recent annual meeting of
shareholders, the cumulative voting rights of shareholders will cease. Upon
closing of this Offering the Company believes that it will have more than 800
holders. If the Company has shares listed on the New York Stock Exchange or the
American Stock Exchange, or designated for trading as
15
<PAGE>
national market securities on The Nasdaq National Market System, cumulative
voting rights of shareholders will cease. Elimination of cumulative voting will
have the effect of making it more difficult for minority shareholders to obtain
representation on the Board of Directors.
LIMITATION OF LIABILITY AND INDEMNIFICATION. The Company's Articles of
Incorporation, as amended, (the "Articles") include a provision that eliminates
the personal liability of its directors to the Company for monetary damages for
breach of their fiduciary duties (subject to certain limitations) as a director
to the fullest extent permissible under California law. The Company's Articles
and Bylaws allow the Company to provide for indemnification of its Directors the
fullest extent permitted by law. The Bylaws allow the Company to enter into
indemnity agreements with individual directors, officers, employees and other
agents. The Company has entered into indemnification agreements designed to
provide the maximum indemnification permitted by law with all the directors of
the Company. These agreements, together with the Company's Bylaws and Articles,
may require the Company, among other things, to indemnify these directors
against certain liabilities that may arise by reason of their status or service
as directors (other than liabilities resulting from willful misconduct of a
culpable nature), to advance expenses to them as they are incurred, provided
that they undertake to repay the amount advanced if it is ultimately determined
by a court that they are not entitled to indemnification, and to obtain
directors' and officers' insurance if available on reasonable terms. The Company
intends to purchase and maintain directors' and officers' liability insurance.
As a result of the provisions in the Company's Articles and in the
indemnification agreements, it may be more difficult for shareholders to obtain
relief against a director for breaches of such director's fiduciary duty than if
these provisions were not included in the Company's Articles and Bylaws. See
"Management--Limitation of Liability and Indemnification Matters."
UNDERWRITER'S POTENTIAL INFLUENCE ON THE MARKET. It is anticipated that a
significant portion of the Common Stock offered hereby will be sold to customers
of the Underwriter. Although the Underwriter has advised the Company that it
intends to make a market in the Common Stock, it will have no legal obligation
to do so. The price and the liquidity of the Common Stock may be significantly
affected by the degree, if any, of the Underwriter's participation in the
market. Moreover, if the Underwriter sells the securities issuable upon exercise
of the Underwriter's Warrants, it may be required under the Exchange Act, as
amended, to temporarily suspend its market-making activities. No assurance can
be given that any market activities of the Underwriter, if commenced, will be
continued. See "Underwriting."
NO EARTHQUAKE INSURANCE. The Company's executive office, warehouse and
assembly facility is located in a Company-leased facility in City of Industry,
California, an area which experienced damage in the 1994 Northridge, California
earthquake. The Company does not currently carry insurance against earthquake-
related risks.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS. This Prospectus includes
"forward-looking statements." All statements other than statements of historical
fact included in this Prospectus, including, without limitation, the statements
under "Offering Summary," "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," regarding the
Company's strategies, plans, objectives and expectations; the Company's ability
to provide custom assembly, configuration and distribution services of computer
equipment and peripherals to technology companies; the ability of the Company to
establish and operate an ACSA Center and to automate its custom configuration
process and systems integration solutions for its customers; the ability of the
Company to successfully market the ACSA Solution; the ability of the Company to
develop processes to position itself as a low-cost leader for outsourcing system
assembly and distribution services; the Company's future operating results; and
other matters are all forward-looking statements. Although the Company believes
that the expectations reflected in such forward-looking statements are
reasonable at this time, it can give no assurance that those expectations will
prove to be correct. Important factors that could cause actual results to differ
materially from the Company's expectations are set forth in these "Risk
Factors," as well as elsewhere in this Prospectus. All subsequent written and
oral forward-looking statements attributable to the Company or persons acting on
its behalf are expressly qualified in their entirety by these "Risk Factors."
16
<PAGE>
RECENT BRIDGE FINANCING
On December 23, 1997, the Company completed a financing (the "Bridge
Financing") consisting of the sale of 20 units, each comprised of: (i) an
unsecured promissory note (each a "Bridge Note") of the Company in the principal
amount of $20,000, bearing interest at a rate of 10% per annum payable upon the
earlier of the closing of the Offering or 18 months from the date of issuance;
(ii) 15,000 shares of Common Stock of the Company, and (iii) 5,000 warrants of
the Company, each warrant exercisable to purchase one share of Common Stock at
an initial exercise price of $3.00 per share, subject to adjustment, during the
36-month period commencing one year from the date the warrants were issued (the
"Bridge Warrants"). Each unit was sold for $50,000 generating gross proceeds to
the Company of $1,000,000 and net proceeds of $740,000. The investors in the
Bridge Financing were brokerage customers of the Underwriter, who acted as
placement agent for the Bridge Financing, but were not otherwise related to or
affiliated with the Company or the Underwriter. The Company repaid $250,000 of
the principal amount of the CASI Note and $50,000 of the Datatec Note out of the
proceeds of the Bridge Financing. The Company intends to repay the remainder of
its indebtedness under the CASI Note and the Datatec Note with the proceeds of
this Offering. See "Risk Factors--Repayment of Indebtedness" and "--Potential
Benefit to Certain Investors" and "Use of Proceeds."
17
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from its sale of the 2,300,000 shares of
Common Stock offered by this Prospectus (at an assumed initial public offering
price of $5.00 per share), after deducting the estimated underwriting discounts
and offering expenses, are estimated to be approximately $9,548,000 ($11,048,750
if the Over-Allotment Option is exercised in full).
The Company anticipates allocating the net proceeds of the Offering among
the foregoing uses approximately as follows:
<TABLE>
<CAPTION>
AMOUNT OF PERCENTAGE OF
APPLICATION NET PROCEEDS NET PROCEEDS
- -------------------------------------------------------------------- ------------ -------------
<S> <C> <C>
Repayment of the Bridge Notes, Datatec Note and CASI Note........... $ 1,200,000 13%
Construction of first ACSA Center................................... 300,000 3
Sales and marketing of ACSA Solution for first ACSA Center.......... 1,000,000 10
Construction, sales and marketing of additional ACSA Centers........ 2,550,000 27
Expansion of Computer Products sales and marketing capability....... 2,700,000 28
Working capital..................................................... 1,798,000 19
------------ ---
------------ ---
Total........................................................... $ 9,548,000 100%
------------ ---
------------ ---
</TABLE>
The Company is also conducting the Offering to create a market for its
Common Stock, to facilitate future access by the Company to the public equity
markets and to enhance the Company's public image and credibility to support its
marketing efforts.
The CASI Note is non-interest bearing and is due and payable on February 28,
1998, or the closing of the Offering, whichever is sooner. Until March 9, 1998,
David Tobey, a director of the Company, was the President, Chief Executive
Officer and a significant stockholder of CASI and an employee of CASI's parent
Datatec. The Datatec Note bears interest at the rate of 10% per annum, and is
required to be repaid on February 28, 1998, or the closing of the Offering,
whichever is sooner. The Bridge Notes bear interest at a rate of 10% per annum
and are payable upon the earlier of the closing of the Offering or 18 months
from the date of issuance. As of December 31, 1997 (excluding interest), the
balance of the CASI Note was $700,000, the balance of the Datatec Note was
$100,000 and the aggregate balance of the Bridge Notes was $400,000.
The Company believes that the proceeds of the Offering, funds from
operations and available lines of credit will be sufficient to support the
Company's capital needs for the next 12 months. The Company intends to maintain
flexibility in the use of the proceeds of the Offering (other than amounts to
retire the Bridge Notes, the Datatec Note and the CASI Note). The amounts
actually expended for each use of the proceeds, if any, are at the discretion of
the Company and may vary significantly depending upon a number of factors,
including requirements for launching new product lines, marketing, advertising
and working capital to support growth. Accordingly, management reserves the
right to reallocate the proceeds of the Offering as it deems appropriate. The
Company may also use a portion of the net proceeds to acquire businesses,
products or proprietary rights, or to enter into joint ventures; however, the
Company currently has no commitments or agreements relating to any of these
types of transactions other than those disclosed in this Prospectus. Until the
net proceeds of the Offering are used, the Company intends to invest them in
United States government securities, short-term certificates of deposit, money
market funds or other short-term interest bearing investments.
18
<PAGE>
DIVIDEND POLICY
The Company has not and does not currently intend to pay dividends on its
Common Stock following the Offering and plans to follow a policy of retaining
earnings to finance the growth of its business. Any future determination to pay
dividends will be at the discretion of the Company's Board of Directors and will
depend on the Company's results of operations, financial condition, contractual
and legal restrictions and other factors deemed relevant by the Board of
Directors at that time.
DILUTION
The net tangible book value of the Company's Common Stock at December 31,
1997 was $1,649,672, or $0.35 per share. Net tangible book value per common
share represents the book value of the Company's tangible assets less total
liabilities divided by the number of shares of Common Stock outstanding.
Dilution per share to new investors represents the difference between the amount
per share paid by purchasers of Common Stock of the Company pursuant to the
Offering and the as adjusted net tangible book value per share of Common Stock
immediately after completion of the Offering. After giving effect to the sale of
the 2,300,000 shares of Common Stock offered hereby and the application of the
net proceeds therefrom, the as adjusted net tangible book value of the Common
Stock at December 31, 1997 would have been $11,100,572 or $1.57 per share. This
represents an immediate increase in pro forma net tangible book value of $1.22
per share of Common Stock to existing shareholders and an immediate dilution of
$3.43 (69%) per share of Common Stock to new investors purchasing Common Stock
pursuant to this Offering. The following table illustrates the per share effect
of this dilution on an investor's purchase of shares:
<TABLE>
<CAPTION>
<S> <C> <C>
Assumed initial public offering price........................................ $ 5.00
Net tangible book value per share as of December 31, 1997.................. $ 0.35
Increase in net tangible book value per share attributable to new
investors................................................................ $ 1.22
---------
As adjusted net tangible book value per share................................ $ 1.57
---------
Dilution per share to new investors.......................................... $ 3.43
---------
---------
</TABLE>
The following table summarizes, as of December 31, 1997, the difference
between the number of shares of Common Stock purchased from the Company, the
total consideration paid, and the average price per share paid by existing
shareholders and by new investors purchasing shares of Common Stock pursuant to
this Offering.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION PAID AVERAGE
----------------------- -------------------------- PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
---------- ----------- ------------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Existing shareholders............. 4,750,000 67.4% $ 1,150,000 9.1% $ 0.24
New investors..................... 2,300,000 32.6 11,500,000 90.9 5.00
---------- ----- ------------- ----- -----
Total......................... 7,050,000 100.0% $ 12,650,000 100.0% $ 1.79
---------- ----- ------------- ----- -----
---------- ----- ------------- ----- -----
</TABLE>
The foregoing tables and calculations assume no exercise of outstanding
options and warrants. At December 31, there were an aggregate of 452,717 shares
of Common Stock issuable upon exercise of outstanding options and warrants at a
weighted average exercise price of $2.80 per share comprised of (i) 307,717
shares of Common Stock issuable upon the exercise of stock options issued under
the Company's Stock Option Plan, which have an exercise price of $2.70 per
share, (ii) 45,000 shares of Common Stock issuable pursuant to the exercise of
outstanding warrants at an exercise price of $3.00 per share, (iii) 100,000
shares of Common Stock issuable upon the exercise of the Bridge Warrants which
have an exercise price of $3.00 per share.
19
<PAGE>
CAPITALIZATION
The following table sets forth (i) the actual capitalization of the Company
as of December 31, 1997 (unaudited), and (ii) as adjusted to give effect to the
sale of the 2,300,000 shares of Common Stock offered by the Company hereby at
the assumed initial public offering price of $5.00 per share, after deducting
underwriting discounts and commissions and the estimated offering expenses
payable by the Company, and the application of the net proceeds thereof as set
forth in "Use of Proceeds." This table should be read in conjunction with the
Financial Statements and related notes contained therein and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
appearing elsewhere in this Prospectus. The following unaudited as adjusted
financial data may not represent the results of operations or financial position
which actually would have been obtained if the transactions described above had
been completed as of the date indicated or which may be obtained in the future.
<TABLE>
<CAPTION>
AT DECEMBER 31, 1997
(UNAUDITED)
---------------------------
AS
ACTUAL ADJUSTED(1)
------------ -------------
<S> <C> <C>
Debt.......................................................................... $ 1,213,448 $ 13,448
------------ -------------
Shareholders' equity
Preferred Stock, no par value:
Authorized--2,000,000 shares
Issued and outstanding: None.............................................. -- --
Common Stock, no par value:
Authorized--20,000,000 shares
Issued and outstanding: (2)
Actual: 4,750,000
As adjusted: 7,050,000.................................................. 999,200 10,547,200
Retained earnings............................................................. 650,472 553,372(3)
------------ -------------
Total shareholders' equity.................................................... 1,649,672 11,100,572
------------ -------------
Total capitalization.......................................................... $ 2,863,120 $11,114,020
------------ -------------
------------ -------------
</TABLE>
- --------------------------
(1) As adjusted to reflect (i) the proceeds of the sale of 2,300,000 shares of
Common Stock offered by the Company at an assumed initial public offering
price of $5.00 per share after deducting commissions and estimated offering
expenses (estimated at $1,952,000); and (ii) the application of the net
proceeds of the Offering, including payment of $400,000, $700,000 and
$100,000 due under the Bridge Notes, the CASI Note and the the Datatec Note,
respectively.
(2) Does not include (i) 307,717 shares of Common Stock issuable upon the
exercise of stock options issued under the Company's Stock Option Plan,
which have an exercise price of $2.70 per share, (ii) 45,000 shares of
Common Stock issuable pursuant to the exercise of outstanding warrants at an
exercise price of $3.00 per share, (iii) 100,000 shares of Common Stock
issuable upon the exercise of the Bridge Warrants which have an exercise
price of $3.00 per share, and (iv) 192,283 shares reserved for issuance upon
the exercise of options which may be granted under the Stock Option Plan.
(3) As adjusted to reflect a non-recurring interest expense of $97,100 for the
unamortized portion of the original issue discount and deferred financing
costs related to the Bridge Financing.
20
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data set forth below with respect to the year
ended March 31, 1997 and the balance sheet data at March 31, 1997 are derived
from, and are qualified by reference to, the audited financial statements
included elsewhere in this Prospectus. The statement of operations data set
forth below with respect to the nine months ended December 31, 1996 and 1997 are
derived from the unaudited financial statements prepared on the same basis as
the audited financial statements. In the opinion of management, all unaudited
financial information includes all adjustments, consisting of normal recurring
adjustments, necessary to present fairly the information presented. The selected
financial data should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the financial
statements and related notes and other financial information appearing elsewhere
in this Prospectus. The statement of operations data for the nine months ended
December 31, 1997 are not necessarily indicative of the results for the entire
year.
<TABLE>
<CAPTION>
PERIOD FROM NINE MONTHS ENDED
APRIL 2, 1996 DECEMBER 31
(INCEPTION) TO ----------------------
MARCH 31, 1997 1996 1997
-------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
STATEMENTS OF OPERATIONS DATA:
Net sales:
Nonaffiliates......................................................... $ 25,407,403 $16,838,795 $47,876,191
Affiliate(1).......................................................... 532,800 336,276 1,391,300
-------------- ---------- ----------
25,940,203 17,175,071 49,267,491
Cost of products:
Nonaffiliates......................................................... 24,615,411 16,270,620 45,878,548
Affiliate(1).......................................................... 523,590 333,674 1,314,408
-------------- ---------- ----------
25,139,001 16,604,294 47,192,956
Gross profit:
Nonaffiliates....................................................... 791,992 568,175 1,997,643
Affiliate(1)........................................................ 9,210 2,602 76,892
-------------- ---------- ----------
801,202 570,777 2,074,535
Selling, general and administrative expenses............................ 751,133 501,923 1,029,504
-------------- ---------- ----------
Income from operations.................................................. 50,069 68,854 1,045,031
Interest expense........................................................ 9,334 4,500 13,908
Other income (expense,) net............................................. (5,871) 10 10,723
-------------- ---------- ----------
Income before provision for income taxes................................ 34,864 64,364 1,041,846
Provision for income taxes.............................................. 9,500 25,745 416,738
-------------- ---------- ----------
Net income ........................................................... $ 25,364 $ 38,619 $ 625,108
-------------- ---------- ----------
-------------- ---------- ----------
Basic and diluted earnings per share.................................... $ 0.01 $ 0.01 $ 0.14
-------------- ---------- ----------
-------------- ---------- ----------
</TABLE>
<TABLE>
<CAPTION>
AT DECEMBER 31
--------------------
AT MARCH 31, 1997 1996 1997
----------------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital...................................................... $ 154,160 $ 221,402 $ 232,529
Total assets......................................................... 1,855,241 1,636,743 10,272,214
Total liabilities.................................................... 1,579,877 1,398,124 8,622,542
Retained earnings.................................................... 25,364 38,619 650,472
Shareholders' equity................................................. 275,364 238,619 1,649,672
</TABLE>
- ------------------------------
(1) Relates to sales at fair market value made to Samax Technology Inc., a
company controlled by the mother of Mr. Max Toghraie. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
and "Certain Transactions."
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH THE
SELECTED FINANCIAL DATA, FINANCIAL STATEMENTS AND NOTES THERETO AND THE OTHER
FINANCIAL INFORMATION CONTAINED ELSEWHERE IN THIS PROSPECTUS. MOREOVER, THIS
PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES. THE COMPANY'S ACTUAL RESULTS MAY DIFFER SIGNIFICANTLY FROM THE
RESULTS DISCUSSED IN THE FORWARD-LOOKING STATEMENTS. FACTORS THAT MIGHT CAUSE OR
CONTRIBUTE TO SUCH DIFFERENCES INCLUDE, BUT ARE NOT LIMITED TO, THOSE DISCUSSED
IN "RISK FACTORS."
OVERVIEW
The Company was founded in April 1996, and until December of 1996 operated
entirely as a distributor and value added reseller of computer equipment and
related hardware components and software peripherals. In December of 1996, the
Company entered the system configuration business. This process required certain
organizational and operational changes to effectively position the Company as a
provider of configuration and integration solutions to various levels within the
distribution, integration and end-user markets. In February 1997, the Company
began negotiations on its first systems integration and configuration order and
by April 1997 had secured a non-binding (7,000 Unit PC systems) configuration
order on a twelve-month delivery schedule, under which approximately 2,500
systems have been shipped.
In order to enhance its competitive advantage in the systems integration
market, the Company has entered into a perpetual non-exclusive licensing
agreement with Computer Aided Software Integration, Inc. ("CASI") to license
CASI's Configurator software for use in the development and commercialization of
Company's ACSA Solution. The Company paid CASI a one-time license fee of $1.1
million. The license fee was paid (i) by delivering to CASI a non-interest
bearing promissory note in the principal amount of $950,000 (the "CASI Note"),
and (ii) a cash payment of $150,000 funded by the Datatec Note. The payments
under the CASI Note will be capitalized and amortized over the useful life of
the software, which, for accounting purposes, is currently estimated to be
between three and five years.
The Company believes that the ACSA Solution will operate as a fully
automated systems integration and configuration process. When operational, the
ACSA Solution will enable the Company to assemble systems and custom configure
the software loaded on the systems to each customer's varied end user
specifications. The Company anticipates that the ACSA Solution will enable it to
deliver multi-unit assembled hardware systems with pre-loaded software custom
configured to suit each end user at a lower cost and time required by other
commercially available configuration processes. The Company anticipates a
portion of the proceeds from this Offering will be used to finance construction
of the Company's initial ACSA Center and to fund ACSA Solution marketing
activities. Costs incurred in connection with the construction of the ACSA
Center will be capitalized and amortized over the useful life of the ACSA
Center, which is expected to be between three and five years for accounting
purposes.
This discussion summarizes the significant factors affecting the operating
results, financial condition and liquidity/cash flows of the Company for the
year ended March 31, 1997, and for the nine month periods ended December 31,
1996 and 1997. The Company has a limited history of operations.
RESULTS OF OPERATIONS
YEAR ENDED MARCH 31, 1997.
SALES. Sales are currently generated from the sale of components and
systems. Systems include ready-to-use computers that have been assembled and
have software already installed. Components sales consist of individual hardware
items. Net sales consists of gross sales (invoice price) less sales returns.
Sales are recognized upon product shipment. Net sales for the year ended March
31, 1997 were $25,940,203 (net of returns of $62,751) which consisted entirely
of components sales. Gross sales for the year ended March 31, 1997 were
$26,002,954. This revenue was achieved by growth of the Company's sales force
from
22
<PAGE>
2 persons at inception to 4 persons at the end of the first fiscal year and
financed by the initial capitalization and the Company's available vendor credit
of approximately $2.0 million at March 31, 1997. Net sales to an affiliate
represents sales at fair market value made to Samax Technology, Inc. ("Samax"),
a company controlled by the mother of Mr. Max Toghraie.
COST OF PRODUCTS. Cost of products consists primarily of product costs,
freight charges, and labor cost, and includes cost incurred at the time of
purchase, freight in and outside warehouse cost. Cost of products was
$25,139,001, representing 96.9% of net sales for the period. The cost of
products for the year ended March 31, 1997 is almost entirely attributable to
product purchase costs, with freight, labor and outside warehouse costs in the
aggregate representing less than 1% of the total cost of products.
Except for a limited inventory maintained to satisfy anticipated systems
assembly and integration orders, the Company generally does not place orders for
product purchases until it has received a customer purchase order for the
product. The merchandise is then shipped to either the customer or the Company's
warehouse. The distributor typically ships its products within one or two days
of receipt of a purchase order and consequently, substantially all of the
Company's revenues in any quarter result from orders received in that quarter.
The Company records as inventory merchandise being configured, its limited
inventory for the systems configuration business, and merchandise purchased from
vendors but not yet shipped to customers. As a result, the Company generally
reflects five to seven days of cost of products as inventory.
GROSS PROFITS. Gross profits for the year ended March 31, 1997 were
$801,202. Gross profits as a percentage of net sales was 3.1% for the period
ended March 31, 1997. The Company's gross profit ratio is mainly attributable to
strong product demand, the ability of the Company to purchase inventory at
favorable prices, and management's focus on a sales mix which favors products
with higher profit margins and computer system integration sales.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling expenses includes
costs for marketing activities to promote the Company's products and services
throughout its distribution channels, marketing personnel costs, advertising,
promotions, brochures, travel and trade shows. General and administrative
expenses include salaries of management and administrative personnel ($323,649),
commissions ($77,411) rent expense ($49,096), bad debt expense ($50,329) and
other costs. Selling, general and administrative expenses for the period ended
March 31, 1997 were $751,133 and are expected to increase as the Company expands
in anticipation of growth and commences focusing the business on marketing the
ACSA Solution.
NET INCOME. Net income for fiscal year ended March 31, 1997 was $25,364.
NINE MONTHS ENDED DECEMBER 31, 1997 AND 1996.
NET SALES. Gross sales for the nine months ended December 31, 1997 were
$49,617,539 compared to $17,193,211 for the Company's first nine months of
operations from inception through December 31, 1996. Net sales for the nine
months ended December 31, 1997 were $49,267,491 (net of returns of $350,048)
compared to $17,175,071 (net of returns of $18,140) for the nine months ended
December 31, 1996. This increase of approximately $32,092,420 in net sales is
attributable to growth of the Company's sales force from 4 to 8 individuals at
the end of each period, and an increase in the Company's available combined
credit (including its vendor credit and the Finova Line), from $1.3 million to
$16.5 million (as a 90 day average available credit for the respective periods)
which allowed the Company to increase its ability to purchase product to fulfill
more sales orders. In addition, at the beginning of the nine month period ending
December 31, 1997, the Company retained new management and implemented a
commission structure concurrent with a significant increase in sales quotas and
minimum margin policies. During the same period, the Company also began
marketing its integration and configuration services, which resulted in net
system sales of approximately $1,395,439 for the nine month period ended
December 31, 1997. Net sales to an affiliate represents sales at fair market
value made to Samax. For the nine month period ended December 31, 1997, the
Company had sales of approximately $1.39 million to Samax. At December 31, 1997,
the Company had approximately $146,500 included in trade receivables attributed
to Samax.
23
<PAGE>
COST OF PRODUCTS. Cost of products increased $30,588,662 from $16,604,294
to $47,192,956 for the nine months ended December 31, 1996 and 1997,
respectively. This increase is mainly attributable to the increase in net sales.
Cost of products represented 96.7% and 95.8% of net sales for the nine months
ended December 31, 1996 and 1997, respectively. The decrease in cost of products
as a percentage of net sales is primarily due to management's focus on a sales
mix which favors products with higher profit margins and computer system
integration sales.
GROSS PROFITS. Gross profits for nine months ended December 31, 1997 were
$2,074,535 compared to $570,777 in the nine month ended December 31, 1996. Gross
profits as a percentage of net sales were 4.2% for the nine months ended
December 31, 1997 compared to 3.3% for the nine months ended December 31, 1996.
This represents a 27% increase in gross profit ratios, and is mainly
attributable to strong product demand, the ability of the Company to purchase
inventory at favorable prices, management's focus on a sales mix which favors
products with higher profit margins and computer system integration sales, a
more efficient shipping process implemented in the first quarter, tighter
control and management of labor costs and implementation of operational
objectives requiring management to focus on increasing efficiency. See "Risk
Factors--Product Mix; Risk of Declining Product Margins."
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES. Selling, general and
administrative expenses for nine months ended December 31, 1997 were $1,029,504
compared to $501,923 for the nine months ended December 31, 1996, the Company's
first nine months of operations.
The major components of selling, general and administrative expenses for the
periods include the following:
<TABLE>
<CAPTION>
12/31/96 12/31/97
---------- ------------
<S> <C> <C>
Payroll............................................................. $ 227,754 $ 506,676
Commissions......................................................... 52,681 168,726
Rent................................................................ 39,469 35,712
Write off of related party receivable............................... -- 100,000
Bad debt............................................................ 17,000 56,310
Other (under 5%).................................................... 165,019 162,080
---------- ------------
Total............................................................. $ 501,923 $ 1,029,504
---------- ------------
---------- ------------
</TABLE>
The increase of $527,581 in selling, general and administrative expenses is
attributable primarily to the Receivable Write-Off of $100,000 incurred in the
first quarter and to increased staff and overhead to support the higher levels
of sales and marketing activity. The Company also increased the salaries of
executive officers during this period to levels the Company believes to be
commensurate with current market levels. These salary increases represent, in
the aggregate, an increase in expense to the Company of approximately $30,000
per quarter. Direct costs associated with increased marketing activities to
promote the Company's products and services throughout its distribution channels
as well as a significant increase in sales and marketing personnel costs account
for approximately $146,300 of this increase. The Company intends to continue its
sales force expansion and to increase its spending on advertising and joint
marketing promotions and trade shows for the remainder of the current fiscal
year. In addition, the Company hired additional personnel in finance and
administration to facilitate growth of the Company's infrastructure and revenue
expansion costing approximately $28,340, year-end audit and printing and
consulting fees of $23,700. Selling, general and administrative expenses
(excluding the Receivable Write-Off of $100,000) as a percentage of net sales
decreased by 34.5% from 2.9% for nine months ended December 31, 1996 to 1.9% for
nine months ended December 31, 1997. This decrease is a result of economies of
scale achieved through significant increases in sales volume as well as
employment of various operational controls and organizational efficiencies. The
Company intends to continue strict monitoring of all its fixed and variable cost
structure to achieve optimum operational performance. See "Certain Transactions"
and Note 7 to the Financial Statements.
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NET INCOME
Net income for the nine-month period ended December 31, 1996 was $38,619
compared to $625,108 for the nine-month period ended December 31, 1997. The
increase of $586,489 is mainly attributable to an increase of net sales of
$32,092,420 and economies of scale.
LIQUIDITY AND CAPITAL RESOURCES
The Company has historically met its working capital and capital expenditure
requirements through a combination of cash flows from operations, bank
financing, vendor credit lines, the sale of equity and the Bridge Financing. At
February 2, 1998, the Company had vendor credit lines and a credit facility
aggregating $16.5 million, consisting of a $7.5 million credit line provided by
Finova (the "Finova Line") and approximately $9.0 million in unsecured vendor
credit. Under the Finova Line, the Company orders product from vendors approved
by Finova and agrees to pay Finova within 30 days of purchase of the ordered
products. Unless the Company fails to pay Finova within this 30 day period, all
finance costs associated with this line are charged by Finova to the Company's
vendor. The Finova line is terminable at Finova's discretion at any time without
notice. The Company believes that it can currently obtain similar financing on
comparable terms from competitors of Finova. However, if Finova terminates the
Finova Line and the Company for any reason fails to replace the Finova line with
comparable financing, the business of the Company would be materially adversely
effected. The Company also believes that expansion of its infrastructure to
accommodate its current expected growth rate will require a substantially higher
level of liquidity and capital. Specifically, the Company's planned ACSA
operations are expected to require significant capital expenditure over the next
twelve months. The Company believes that the proceeds of the Offering, and funds
from operations and available lines of credit, will be sufficient to support the
Company's short term capital needs for the next twelve (12) months. The Company
believes that if currently expected growth rates are achieved the Company may
require additional financing commencing in twelve to eighteen months from the
time of the Offering. The Company would seek to obtain additional funding
through additional vendor credit, expanded lines of credit and other sources.
Although the Company believes that it will be able to obtain sufficient
financing, no assurance can be given that such financing will be available. See
"Risk Factors--Possible Additional Financing Required."
On November 26, 1997, December 16, 1997 and December 23, 1997, the Company
sold 12.0, 7.5, and 0.5 units, respectively, each unit comprised of: (i) an
unsecured promissory Bridge Note of the Company in the principal amount of
$20,000, bearing interest at a rate of 10% per annum payable upon the earlier of
the closing of the Offering or 18 months from the date of issuance; (ii) 15,000
shares of Common Stock of the Company, and (iii) 5,000 Bridge Warrants of the
Company, each exercisable to purchase one share of Common Stock at an initial
exercise price of $3.00 per share, subject to adjustment, during the 36-month
period commencing one year from the date the Bridge Warrants were issued. Each
unit was sold for $50,000 generating gross proceeds to the Company of $1,000,000
and net proceeds of $740,000. The Company repaid $250,000 of the principal
amount of the CASI Note and $50,000 of the Datatec Note out of the proceeds of
the Bridge Financing. The Company intends to repay the remainder of its
indebtedness under the CASI Note and the Datatec Note using proceeds of the
Offering. See "Recent Bridge Financing" and "Use of Proceeds."
In the normal course of business, the Company evaluates potential
acquisitions and joint ventures that may complement the Company's business.
While the Company has no present plans, commitments or agreements with respect
to any potential acquisitions or joint ventures, the Company may consummate
acquisitions or enter into joint ventures, which may require the Company to make
additional capital expenditures. Such expenditures may be significant and
require external sources of funding.
INCOME TAXES
The Company provides for income taxes using the liability method in
accordance with the Statement of Financial Accounting Standards No. 109 entitled
"Accounting for Income Taxes." The Company provides for federal and state income
taxes based on statutory rates. The provision for income taxes differ
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from the amounts computed by applying the statutory federal income tax rate to
income before taxes primarily due to the effect of state income taxes net of the
related federal tax benefit.
Deferred income taxes are provided for income/expense items reported in
different periods for income tax and financial statement purposes. Deferred
income taxes are primarily attributable to temporary differences resulting from
depreciation, state income taxes and various accrued expenses. The Company has
no current "tax loss carry forwards."
INFLATION
The Company does not believe that inflation has had a material effect on its
results of operations. There can be no assurance, however, that the Company's
business will not be affected by inflation in the future.
BACKLOG
The Company's backlog is not meaningful due to short turnaround cycles in
its core distribution operations and only one order received as of the date
hereof in its developing systems configuration business.
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BUSINESS
GENERAL
The Company distributes computer equipment and related hardware components
and software ("Computer Products") to value added resellers ("VARs"), systems
integrators ("SIs"), original equipment manufacturers ("OEMs"), independent
software vendors ("ISVs") and major government and corporate accounts. In
December 1996, the Company entered the system configuration business. The
Company intends to build upon vendor and customer relationships in the Computer
Products and system configuration business to become a leading provider of
software-enabled custom configuration to its target markets both domestically
and internationally. The Company intends to implement a fully automated systems
integration and configuration process, referred to as the Automated Custom
System Assembly Solution, or "ACSA Solution," incorporating licensed proprietary
software. The Company believes the ACSA Solution will enable the Company to
assemble multiple computer systems and custom configure the software loaded on
these systems to each customer's end user's unique specifications at a fraction
of the cost and time required by other commercially available configuration
processes. See "--ACSA Growth Strategy--THE ACSA SOLUTION". The Company has
begun initial construction of the first of its ACSA Solution production lines
("ACSA Centers") located at the Company's facility. The Company's first ACSA
center is expected to be completed and the Company is expected to commence
offering the ACSA Solution by mid-1998. Future ACSA Centers may be located at
the facilities of its customers. This technology is intended to enable the
Company's customers to outsource their procurement, warehousing, assembly,
staging, and shipping processes. The Company will use a portion of the proceeds
of the Offering to complete the construction of and operate its first ACSA
Center.
The Company's Computer Products business procures and distributes a broad
and comprehensive range of Computer Products including components and systems
networking products. These products include components such as high capacity
storage devices, CD-ROMs and CD Recorders, network adapters, hubs, small
computer systems interface components ("SCSIs"), integrated device enhancement
components ("IDEs") and ZIP drives as well as memory and central processing
units ("CPUs") for desktop and notebook computer products. The Company also
assembles built-to-order computer systems for its target markets.
The Company's net sales have grown from $17,175,071 for the period from
April 2, 1996 (inception) through December 31, 1996, and $25,940,203 for the
Company's first fiscal year ending March 31, 1997 to $49,267,491 for the first
nine months of fiscal 1998 primarily because of development of an experienced
sales management team with strong customer relationships, expansion of the sales
force, quick delivery of a broad selection of Computer Products and competitive
pricing offered by the Company. The Company's gross profit margins have improved
from approximately 3.3% and 3.1% of net sales in the nine month period ending
December 31, 1996 and the year ended March 31, 1997, respectively, to 4.2% for
the nine month period ending December 31, 1997 due to a number of factors
including strong product demand, more favorable direct manufacturer pricing and
an improved sales mix achieved by the Company which favors components with
higher profit margins and computer system sales. The Company expects that
implementation of the ACSA Centers will increase sales of higher margin
built-to-order computer systems and service revenues.
The Company intends to expand through enhancing existing and establishing
additional strategic relationships with leading master distributors and
manufacturers and by developing custom assembly and software configuration
relationships with computer resellers, manufacturers and integrators. The
Company also intends to enter into joint venture or license arrangements with
foreign partners in South America, Mexico and Asia. The Company's strategy is to
access these markets by identifying foreign joint venture partners or licensees
with substantial industry presence capable of effectively utilizing the ACSA
Solution. The Company also intends to utilize management's extensive network of
domestic and foreign contacts to explore possible acquisition opportunities. The
Company is exploring joint ventures with potential partners
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identified in Asia, but is not currently negotiating any acquisition
opportunities. There can be no assurance that the Company will successfully
establish any joint ventures or identify any acquisition opportunities or that
if such opportunities are presented that they will be on terms and conditions
acceptable to the Company.
The Company was incorporated in California on April 2, 1996 under the name
Data Net International, Inc. On January 6, 1998, the Company changed its name to
Cumetrix Data Systems Corp. The Company's executive offices are located at 957
Lawson Street, Industry, California 91748; and its telephone number is (626)
965-6899, and its facsimile number is (626) 965-0415.
COMPUTER PRODUCTS BUSINESS
The Company's principal business upon which its growth strategy is built is
the procurement and distribution of a broad and comprehensive range of Computer
Products. These products include, components such as high capacity storage
devices, CD-ROMs and CD Recorders, network adapters, hubs, SCSIs, IDEs and ZIP
drives as well as memory and CPU's for desktop and notebook products. The
Company also assembles built-to-order computer systems for its target market.
Two significant strengths of the Company are its well-developed vendor
relationships and its ability to effectively manage its cash and inventory.
COMPUTER PRODUCTS MARKET
The computer hardware and component market is heavily dependent on worldwide
personal computer demand and shipments. According to a Hambrecht & Quist
research report dated August 19, 1997 on the PC Hardware Market entitled, "VIEW
FROM THE CHANNEL," worldwide personal computer unit shipments have increased
from 47 million units in 1994 to 83 million scheduled shipments for the 1997
calendar year, and unit volume is expected to grow to an estimated 112 million
by the 1999 calendar year. The Computer Products market is generally segmented
between top-level warehousing master distributors, who distribute to VARs, OEMs,
SIs and other distributors. Master distributors are required to purchase
significant volumes of Computer Products to obtain their manufacturer
relationships and pricing. The Company generally procures its components from
these master distributors and distributes these products to medium sized VARs,
SIs, ISVs and OEMs. The Company believes that a valuable asset of the Company is
its position in the distribution channel, between that of master distributors
and lower level VARs, SIs and ISVs because unlike master distributors, the
Company, without maintaining large inventories, can focus its procurement on
only those components which it has expertise in marketing to its target markets.
COMPUTER PRODUCTS BUSINESS STRATEGY
The Company has structured its Computer Products business in a manner
designed to maximize net profit margins while competing on the basis of price
and service. The Company generated approximately 98.6% and 97.2% of net sales in
the fiscal year ended March 31, 1997 and the nine months ended December 31,
1997, respectively, from its Computer Product distribution and procurement
operations. See "Management's Discussion and Analysis of Financial Condition and
Results of Operations." The remainder of the Company's revenues in each period
were derived primarily from system assembly and sale. The Company's net sales
have grown from approximately $17,175,000, to approximately $49,267,500 for the
nine months ended December 31, 1996, and 1997, respectively, primarily because
of the development of an experienced sales management team with strong customer
relationships, expansion of the sales force, quick delivery of a broad selection
of Computer Products and competitive pricing offered by the Company.
Although the Company is seeking to expand into higher margin, value-added
services, the Company believes that the gross profit on its core distribution
operations will remain relatively stable. Therefore, management's primary
objective remains gross profit improvement through strategic implementation of
its planned ACSA operations. The Company's gross profit margins have improved
from approximately 3.3% and 3.1% of net sales in the nine month period ended
December 31, 1996 and the fiscal year ended
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March 31, 1997, respectively, to 4.2% for the nine month period ended December
31, 1997 due to a number of factors, including strong product demand, more
favorable direct manufacturing pricing, and an improved sales mix achieved by
the Company which favors components with higher profit margins and computer
system integration sales.
COMPUTER PRODUCT CUSTOMERS AND SALES
The Company has more than 700 active customers, including Alpha Computers,
East Gate Micro, Inc. and Data Impressions Inc. For the fiscal year ended March
31, 1997 no customer accounted for more than 10% of net sales. During the nine
months ended December 31, 1997, Alpha Systems Inc. accounted for 10.9% of net
sales. During fiscal 1997, the Company had net sales of approximately $532,800
to Samax, a company owned by the mother of Mr. Max Toghraie. For the nine month
period ended December 31, 1997, the Company had sales of approximately $1.39
million to Samax. At December 31, 1997, the Company had approximately $146,500
in trade receivables attributed to Samax. During the three month period
commencing September 30, 1997 and ending December 31, 1997, the Company had no
sales to Samax. Although the Company is not currently making sales to Samax, if
the Company determines that resuming sales to Samax in the future would be in
the best interests of the Company, any such future transactions would be
negotiated on an arms-length basis and on terms and conditions at least as
favorable to the Company as those which would be obtained from competitors of
Samax. See "Certain Transactions." The cessation of business with Samax has not
had a material adverse effect on the Company's business, and the Company doesn't
believe that the loss of Alpha Systems, Inc. or any other individual customer
would have a material adverse effect on the Company's business.
The Company currently markets its distribution services via a direct sales
staff, with use of telemarketing techniques to identify, qualify and close
business. At the beginning of the 1997 calendar year, the Company began an
aggressive campaign to develop a channel program to sell its Computer Products
through OEMs, SIs, and ISVs. As of December 31, 1997, 44% of the Company's
accounts have been originated through this channel program, and they provide the
majority of revenues to the Company.
As of January 31, 1998, the Company employed eight sales representatives.
All sales representatives are managed by the Company's President. The Company's
sales representatives have been highly effective in developing and maintaining
customer relationships, averaging approximately $8.2 million of sales per
representative on an annualized basis based on the nine months ended December
31, 1997. The Company believes that sales per representative of $8.2 million,
would, if achieved for fiscal 1998, compare very favorably with its competitors.
See "Risk Factors--Limited Operating History."
The Company's representatives compete for sales on the basis of product
knowledge, product selection targeted to the Company's customer base and
competitive pricing. The Company offers an aggressive return merchandise policy
("RMA") that is attractive to its customers. The Company is able to offer such a
policy because of RMA allowances it has negotiated from its vendors. The Company
experienced loss on returns of less than one percent of shipments in the fiscal
year ended March 31, 1997 and the nine months ended December 31, 1997,
respectively, because it was able to return substantially all of the returned
products to manufacturers for immediate cash refunds or credits. See "Risk
Factors--Risk of Product Returns."
VENDOR RELATIONSHIPS AND PROCUREMENT
The Company has relationships with a large number of manufacturers and
distributors around the world. The Company is a reseller of selected product
lines and single components from major manufacturers, including Western Digital
Corporation, Adaptec Inc., Fujitsu Computer Products of America, Samsung
Electronics Co. Ltd., Quantum Corporation, Maxtor Corporation, 3Com Corporation,
Creative Labs Corporation, Matrox Electronics Systems, Ltd., Goldstar L.G.
Electronics, Intel Corporation, Toshiba Corporation, Pioneer Electronics Corp.
and Sony Electronics. In the distribution channel, major suppliers
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include DSS Technology Distribution Partners, Inc. ("DSS"), Maxtor Corporation,
Canara Technologies, Alpha Computers, DTK Computer, Tech Data Computer, Merisel
Incorporated and Toshiba Corporation. For the nine months ended December 31,
1997, DSS, a master distributor of hard drives to the Company, accounted for
58.3%, of the Company's purchases. For the nine month period ended December 31,
1997, the Company had purchases of approximately $598,000 from Samax. Although
the Company is not currently making purchases from Samax, if the Company
determines that resuming purchases from Samax in the future would be in the best
interests of the Company, any such future transactions would be negotiated on an
arms-length basis and on terms and conditions at least as favorable to the
Company as those which would be obtained from competitors of Samax. See "Certain
Transactions." The Company believes that its relationships with DSS and its
other vendors is satisfactory and does not believe that the loss of its
relationship with DSS or any other of its vendors would materially adversely
affect its business. See "Risk Factors--Dependence Upon Relationships with
Vendors."
The Company receives discounts from major Computer Product manufacturers and
master distributors as a result of its volume purchases. The Company routinely
negotiates stock rotation and price protection privileges with certain of its
major vendors. Additionally, DSS has featured the Company in its national
advertising campaigns.
The Company also benefits from its ability to effectively dispose of excess
inventory of major manufacturers and master distributors due to the Company's
well developed sales channel. In this way, major distributors and manufacturers
rely on the Company as a release valve for inventory when excess supplies must,
due to contractual commitments, be shipped by such manufacturers to the
Company's master distributor vendors. In return for the Company's willingness to
accept such excess inventory, the Company is afforded pricing concessions and
rebates by the vendor. As a result, the Company receives favorable pricing from
master distributors who desire to reduce inventory growth or to be assured of
satisfying volume purchase commitments to manufacturers without adversely
impacting downstream pricing. Also, because the Company is relied upon by its
vendors to take their excess inventory, the Company is rewarded with
preferential allocation, allowing the Company to maintain availability and
increase its margins during component shortages. These arrangements with respect
to purchases of excess inventory from vendors are informal, are not subject to
any written agreements and may be discontinued by the Company at the Company's
discretion. See "Risk Factors--Availability of Components," "--Foreign Trade
Regulation," and "--Dependence Upon Relationships with Vendors."
The Company promptly pays its vendors, typically paying within 30 days from
receipt of invoice. This policy also encourages the Company's vendors to
expedite shipments to the Company as these shipments can be quickly converted to
cash flow.
INVENTORY MANAGEMENT
The Company's strong vendor relationships enable it to receive prompt and
consistent deliveries. As a result, the Company, unlike many resellers of
Computer Products, maintains a very limited inventory, and avoids many of the
costs associated with the traditional distribution model, including capital
costs associated with the warehousing of products, obsolescence costs, inventory
finance costs, the costs of computer inventory and tracking systems, and the
costs associated with the need to employ personnel for stocking and shipping
duties.
Unlike master warehousing distributors who supply the Company, the Company
has the added flexibility of not being required to maintain large inventories to
achieve its favored pricing. The Company believes that although the pricing it
receives is not as favorable as the pricing received by master warehousing
distributors, the Company benefits by avoiding the need to stock and finance
often rapidly depreciating Computer Products. In the Company's judgment, it is
often more cost effective to purchase Computer Products from its vendors on an
as-needed basis than to stock the quantities of parts required to receive volume
discounts available to the Company's vendors.
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The Company is leanly staffed and focuses on rapid inventory turns. The
Company's warehouse is 4,000 square feet and, as of December 31, 1997, employed
3 people. In the nine months ended December 31, 1997, the Company shipped $47.2
million of Computer Products, turning inventory at an annualized rate of
approximately 41 times.
Rather than merely focusing on price discounts from vendors, the Company has
negotiated favorable RMA terms with its vendors permitting rapid replacement of
parts returned by customers. Rapid replacement of such parts, allows the Company
to reduce inventory costs (by increasing the speed of inventory turns) and
improves customer satisfaction. See "Risk Factors--Risk of Product Returns."
The Company also closely coordinates its sales efforts and procurement,
particularly in the area of high volume parts such as computer drives. In many
cases, entire shipments of products are already sold or under order by the
Company's customers prior to their purchase by the Company.
CASH MANAGEMENT
The Company has traditionally collected its receivables in 21 days or less
while generally paying its key vendors and the Company's Finova Line in 30 days,
thereby allowing the Company to finance its growth at low cost. At February 2,
1998, the Company had vendor credit lines and a credit facility aggregating
$16.5 million, consisting of a $7.5 million under the Finova Line and
approximately $9.0 million in unsecured vendor credit. Under the Finova Line,
the Company orders product from vendors approved by Finova and agrees to pay
Finova within 30 days of purchase of the ordered products. Unless the Company
fails to pay Finova within this 30 day period, all finance costs associated with
this line are charged by Finova to the Company's vendor. The Company also
maintains its margins by carefully screening the credit records of its new and
existing customers and by requiring check guarantees from almost all smaller
customers who pay by check.
ACSA GROWTH STRATEGY
The Company intends to create a new high volume, custom system and software
configuration solution attractive to major computer system sellers, installers
and end-users both domestically and internationally. The ACSA Solution is
intended to replace a manual process with an automated assembly line. The
Company intends to complete construction of and to equip its first ACSA Center
with a portion of proceeds of this Offering. The Company's planned ACSA Centers
will introduce its integrated, rapid, low-cost, automated custom software
configuration solution to a market burdened by slow, high-cost, labor-intensive
manual software configuration methods. The Company's first ACSA Center is
expected to be completed and the Company is expected to commence offering the
ACSA Solution by mid-1998.
The Company intends to market the ACSA Solution to the Company's base of
Computer Products customers and vendors and create strategic alliances with
joint venture partners and licensees in domestic and overseas markets.
Establishing joint ventures with well positioned partners is expected to benefit
the Company by reducing capital expenditures required from the Company for each
ACSA Center launch, as well as by providing the Company with market presence
established by the Company's selected partners. This initiative also is expected
to result in increased volume to the Company's systems sales, thereby providing
the Company's traditional business with a more favorable sales mix and improved
operating results. The Company also intends to utilize management's extensive
network of domestic and foreign contacts to explore possible acquisition
opportunities. The Company is exploring joint ventures with potential partners
identified in Asia, but is not currently negotiating any acquisition
opportunities. There can be no assurance that the Company will successfully
establish any joint ventures or identify any acquisition opportunities or that
if such opportunities are presented that they will be on terms and conditions
acceptable to the Company. In addition, recent economic and political
developments in Asia, may lead the Company to defer establishment of joint
ventures or partnerships with such potential partners. See "Risk Factors--Asian
Market Instability."
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THE ACSA MARKET
The market for fully-configured computer systems is both diverse and
expanding. Distribution channels are already established and include:
- VARs and SIs
VARs and SIs are the primary distribution channel for new PCs. An IDC
study cited in EDP Weekly on December 15, 1997 stated that the overall PC
market in the U.S. is expected to grow in 1998 by 17%, "outpacing the
worldwide rate of 13.5%." In addition, Computer Reseller News reported in
June of 1996 that the top ten domestic SIs generated revenues of over $40
billion dollars in 1995. VARs and SIs represent a major focus of the
Company's ongoing program in targeting potential configuration services
customers through its existing distribution and procurement operations.
- OEMs and ISVs
These vendors provide solutions to vertical markets and must provide
turnkey systems that are heavily customized to their marketplace
requirements. These vendors have historically provided integration
services in addition to their primary products to ensure delivery of the
complete product to their customer. However, due to their small size and
scope of services, these vendors find it very difficult to offer
cost-effective, quality integration services and often provide these
services at a loss. The Company intends to offer these vendors a more
profitable, higher quality alternative.
- International Emerging Markets
ASIA/PACIFIC REGIONAL MARKETS. A recent IDC study found that almost 17
million systems were shipped in the Asia/Pacific Region in 1996, "which
allowed the region to substantially outpace worldwide PC market growth by
16%." A January 27, 1998 report in Newsbytes, citing an IDC study, found
that, although a slowdown occurred in Southeast Asia in 1997, "three of
the five largest regional markets, China, India and Australia, buoyed the
region's growth." China, for example, "chalked up a 43% year-on-year
growth rate in the fourth quarter." EDP Weekly reported on December 15,
1997, however, that IDC had reduced its sales forecast for PC demand in
1998 in the region from 12.93 million to 12.36 million units. Recent
economic and political developments in Asia, however, may slow or
eliminate this growth potential. See "Risk Factors--Asian Market
Instability."
LATIN AMERICAN MARKETS. A recent study by Software Publishers Association
found that unit sales in Latin America grew by 78% in 1996, with growth in
the fourth quarter exceeding 110%. Another study by IDC confirmed that
Latin America is undergoing unprecedented growth in system demand.
According to this study, Latin American users are seeking lower-cost ways
to increase network capacity and flexibility. The study also found that
growth in the market is expected to remain in the double-digits through
the end of the millennium, stimulated from continued corporate network
re-engineering, the move to client/server and multimedia applications, and
with increasing impetus coming from the Internet. The strongest country in
both studies was Brazil, which accounted for approximately 35%-40% of all
unit sales.
THE ACSA OPPORTUNITY
The Company believes that ACSA Solution and the automated methodology it
represents will enable it to successfully expand on its existing systems and
Computer Products sales and achieve higher margin sales of the ACSA services as
an increasing percentage of total revenues. Currently, most SIs and VARs are
unable to offer, and most corporate and institutional buyers with large numbers
of networked servers, PCs or workstations are unable to procure, systems with
non-uniform preconfigured software. For instance, a hypothetical purchaser of
1,000 workstations cannot presently specify diverse software configurations for
each workstation without incurring the potentially prohibitive cost of
labor-intensive custom software installation and configuration. The Company
estimates that a typical manual assembly and software configuration process for
custom systems requires three to five hours per workstation, excluding
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time required for re-builds due to inexperienced labor or accidental
typographical errors. Consequently, these enterprises either specify uniform
software configurations for each workstation, thereby depriving some end users
of valuable software applications while unnecessarily purchasing licenses for
others, or bear the high cost of manual software configuration for each
non-standard setup. As a result, many computers are installed with less than
optimal software configuration and any necessary custom software configuration
is provided by high cost consultants or management information systems staff.
The Company believes that the ACSA Solution will enable the Company to
successfully offer the first single-sourced, high volume, fully automated
computer assembly and custom software configuration service that uniquely
configures each workstation.
In marketing system assembly and integration services to VARs, OEMs, SIs and
ISVs, the Company expects that the planned ACSA Solution will enable the Company
to enjoy a significant advantage over traditional system configurators who
currently offer automated software configuration for only a limited subset of
business software applications and who are presently unable to offer custom
software configuration services. See "Risk Factors--Lengthy Sales and
Implementation Cycles for ACSA" and "-- Competition."
The Company believes that its relationships with customers and vendors in
the Computer Products channel provides it with an ideal platform to aggressively
explore and successfully market the ACSA Solution to OEMs, ISVs, VARs and SIs.
Historically the systems integration market has been heavily dependent on these
vendors for its computer and software procurement needs. The Company expects
such dependence to increase as corporate and government information technology
departments are under increasing pressure to outsource their network and
personal computer configuration operations to shorten customer delivery time,
reduce labor cost, better manage the uncertainties of component pricing and
improve the quality control process.
THE ACSA SOLUTION
The Company is assembling technologies to automate the process of custom
configuration and integration in ACSA Centers of entire system solutions for its
customers. The technology to be employed by each ACSA Center is based upon
successful systems in use in flexible manufacturing environments. The ACSA
Center automation process will move components to each unskilled worker to be
assembled and loaded using the Integrator's Workbench Product Series ("IWPS")
software created by CASI and licensed by the Company. See "Risk
Factors--Dependence on CASI for Developments and Enhancement of Configuration
Software" "--Conflicts of Interests." The IWPS "Configurator" component
automates the loading and personalized setup of workstations, servers and
network devices, saving significant labor costs and ensuring accurate and
consistent installations. The Company believes, based on case studies published
by CASI, that units coming off the automated assembly line can be uniquely
configured at the rate of up to 18 units per hour. The ACSA Centers are expected
to enable the Company to:
- Meet customer demands for custom systems utilizing the latest technologies
where the assembly is outsourced but the customer closely controls the
design and software configuration
- Shorten the time required to assemble complex, custom solutions
- Eliminate up to 80% of the costs of manual labor normally associated with
custom software loading and configuration.
- Obtain ISO 9000 certification for systems assembly processes
- Construct or have joint venture partners construct permanent or temporary
ACSA Centers for customers
Even assuming that the manual laborers are able to produce consistent,
error-free configurations, the ACSA Center is expected by the Company to be able
to provide significant increases in productivity. The Company believes that a
fully operational ACSA Center will be able to configure 72 machines in the time
a manual laborer takes to configure one. This technology is intended to enable
the Company's customers to outsource their procurement, warehousing, assembly,
staging, and shipping processes. By implementing
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manufacturing processes that automate the assembly of custom systems, the
Company intends to position itself as a low cost, high value provider of
outsourcing services to the systems distribution and end user markets. The
Company has commenced construction of two assembly lines at its first ACSA
Center located in the City of Industry, California which can support up to 16
assembly lines. Construction of its first ACSA Center is expected to be
completed in mid-1998. See "Facilities," and "Risk Factors-- Construction of
First ACSA Center."
Each ACSA Center assembly line is modularly designed to enable the Company
and its customers to realize high productivity and profits from varying job lot
size and location. Highest optimization is reached in configurations of eight
assembly lines, however these may be combined to create larger facilities, or
scaled back to create smaller ones with corresponding increases or decreases in
labor and productivity. ACSA Centers can be located in a central facility, or be
constructed at a customer's location in a few weeks.
COMPETITION
The markets for the Company's products and services are extremely
competitive and is characterized by rapid and constantly changing market
conditions, price fluctuations and technological change. Pricing is very
aggressive and the Company expects pricing pressures to continue. The Company
competes with a large number and wide variety of resellers of Computer Products,
including traditional personal computer retailers, computer superstores,
consumer electronics and office supply superstores, mass merchandisers, national
direct marketers (including VARs and specialty retailers, distributors,
franchisers, manufacturers and national computer retailers which have commenced
their own direct marketing operations to end-users). Many of these companies
compete principally on the basis of price and may have lower costs than the
Company. Many of the Company's competitors are larger, have substantially
greater resources and offer a broader range of services than does the Company.
The Company competes with, among others, CompuCom Systems, Inc., En Point
Technologies, Inc. and Vanstar Corp. in the Computer Products distribution
market.
Competitive factors in the Computer Products market include price, service
and support, the variety of products offered, and marketing and sales
capabilities. While the Company believes that it competes successfully with
respect to most if not all of these factors, there can be no assurance that it
will continue to do so in the future. The industry has come to be characterized
by aggressive price cutting, and the Company expects that pricing pressures will
continue to increase in the foreseeable future. In addition, the Computer
Products industry is characterized by rapid changes in technology and associated
inventory and product obsolescence, rapid changes in consumer preferences, short
product life cycles and evolving industry standards. The Company will need to
continually provide competitive prices, superior product selection and delivery
response time in order to remain competitive. If the Company were to fail to
compete favorably with respect to any of these factors, the Company's business
and operating results would be adversely affected.
CASI and/or Datatec may directly enter into the Company's integration and
configuration markets using the software the Company has licensed from CASI.
While no operating division or subsidiary of Datatec is currently competing in
the Company's markets, there can be no assurance that Datatec will not decide to
directly compete with the Company in the future. Further, the terms of CASI's
license allow CASI to license the software used in the ACSA Solution and the
ACSA Centers to new or existing direct competitors of the Company. See "Risk
Factors--Conflicts of Interest."
The primary competition for the ACSA Centers will most likely be large
computer manufactures such as IBM Corp. and Compaq Computer, Inc. which provide
custom configuration and automated software configuration for standardized
systems, large distributors such as Ingram Micro Inc., Vanstar Corp., Tech Data
Computer and CompuCom Systems, Inc. in the systems integration and network
services market, network software and equipment providers such as Cisco Systems
Inc. that sell networking hardware and offer automated software configuration to
ensure compatibility between networks and hardware, and the
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internal departments within the target markets currently performing hardware
and/or software configuration, and consulting and integration companies which
offer manual software configuration services. There are also retail chains such
as Comp USA and MicroAge that offer configuration and distribution services.
These competitors currently offer configuration services primarily for
STANDARDIZED solutions, based upon generic configurations for limited numbers of
products. While some of these competitors offer the high level of customization
available from a ACSA Center, they do so at high hourly rates. Although no
assurance can be given, the Company believes that leveraging its manufacturing
process and licensed proprietary software will enable it to offer increased
variety and customization with significant improvements in response times at
prices below these competitors standardized solutions. There can be no assurance
that the Company will be able to compete successfully against existing
competitors or future entrants into the market. See "Risk Factors--Competition."
EMPLOYEES
As of January 31, 1998, the Company had 23 full time employees. At that
time, the Company employed eight sales, two technical support, five
administrative and finance, three customer service and four warehousing and
delivery related personnel. The Company does not have any unionized employees
and believes its relationship with its employees is satisfactory.
The Company's expansion may significantly strain the Company's management,
financial and other resources. Any failure to expand these areas in an efficient
manner could have a material adverse effect on the Company's operating results.
The Company believes its future success will depend in large part on the
Company's ability to recruit and retain qualified employees, particularly those
highly skilled design, process and test engineers involved in the manufacture of
existing systems and the development of new systems and processes. The
competition for such personnel is intense. There can be no assurances that the
Company will be successful in retaining or recruiting key personnel. See "Risk
Factors--Management of Growth."
FACILITIES
The Company's corporate headquarters is located in City of Industry,
California. Until March 23, 1998 the Company was headquartered in a leased
facility of approximately 6,200 square feet of office and warehousing space,
which lease expires on April 30, 1998.
The Company has entered into a lease for approximately 21,900 square feet of
office and warehouse space, located in the City of Industry. The Company began
to move its operations into its new premises on February 1, 1998 and completed
the move on March 23, 1998. The Company believes the increased space will more
adequately meet the Company's current needs. The Company believes that if
needed, additional office space will be available on acceptable terms in the
future.
The Company intends to use approximately $300,000 of the net proceeds from
the Offering to complete construction of and to equip its first ACSA Center at
this facility. It is expected that the construction will require a substantial
time commitment of certain members of management. The Company expects to
complete the first ACSA Center in mid-1998. Any delays in completion of the
first ACSA Center could result in delays in the commencement of sales of
assembly and custom software configuration services. There can be no assurance
that the Company will be able to complete the ACSA Center at the budgeted price.
Additionally, there can be no assurance that the ACSA Center will be available
on time or that the Company will be successful in timely hiring and training
engineers and technicians necessary to commence operations of the ACSA Center.
Any such delays would have a material adverse effect upon the Company's
business, operating results and financial condition. See "Risk
Factors--Construction of First ACSA Center."
LEGAL PROCEEDINGS
The Company is not a party to any legal proceedings.
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MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS.
The executive officers and directors of the Company, their ages and present
positions with the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION WITH COMPANY
- ------------------------------------------------------ --- ---------------------------------
<S> <C> <C>
Max Toghraie.......................................... 35 Chief Executive Officer, Director
James Ung............................................. 36 President, Director
Mei Yang.............................................. 35 Secretary, Treasurer, Director
Carl L. Wood.......................................... 45 Chief Financial Officer
David Tobey........................................... 37 Director
Nancy Hundt........................................... 29 Director
Philip J. Alford...................................... 44 Director
</TABLE>
- --------------------------
MAX TOGHRAIE, CHIEF EXECUTIVE OFFICER AND DIRECTOR. Mr. Toghraie has served
as the Chief Executive Officer of the Company since September 1997, and as a
director since April 1997. He has also served as a consultant to the Company
since its inception in April of 1996. Mr. Toghraie served as a trading group
manager for D'Argent Inc., an international trading company from 1992 through
December 1996. During the past 5 years, he has been involved with various
privately held development stage companies as a director and/or a consultant.
Mr. Toghraie is a member of the Audit Committee of the Board of Directors.
JAMES UNG, PRESIDENT AND DIRECTOR. Mr. Ung is a co-founder of the Company
and has served as its President since April 1997 and as a director since the
Company's inception in April of 1996. From February 1992 until joining the
Company, Mr. Ung was Director of Operations of American Systec Corporation, a
privately held systems distribution and configuration company in Brea,
California. From 1989 to 1992, Mr. Ung served as Vice President of Marketing at
PC Systems Design, a California based systems integration and distribution
company. James Ung is married to Mei Yang.
MEI YANG, SECRETARY, TREASURER AND DIRECTOR. Ms. Yang has served as a
director of the Company since its inception in April of 1996. Ms. Yang has
served as a secretary and treasurer of the Company since March 1997. From 1990
to 1996, Ms. Yang was the Chief Operating Officer of American Systec
Corporation. At American Systec Corporation, she was responsible for the
accounting department and the development of the domestic sales and marketing
infrastructure. Ms. Yang was the accounting manager at the Business Integration
Group from 1987 to 1990. Mei Yang is married to James Ung.
CARL L. WOOD, CHIEF FINANCIAL OFFICER. Mr. Wood has served as the Chief
Financial Officer since February 6, 1998. From September 1996 to June 1997, Mr.
Wood served as Corporate Controller and Director of Management Information
Systems at Murad, Inc. in El Segundo, California, a cosmetic retail business
specializing in high-end skin care products. From 1989 to September 1996, Mr.
Wood was Corporate Controller and Vice President, Finance, and subsequently the
Chief Financial Officer of 99 Cents Only Stores in Los Angeles, California, a
deep discount retailer of general merchandise, which is listed on the New York
Stock Exchange.
DAVID TOBEY, DIRECTOR. Mr. Tobey has served as a director of the Company
since July 1997. Mr. Tobey was the founder and has served as President and CEO
of CASI from February 1995 to March 9, 1998 and was a significant stockholder of
CASI, a subsidiary of Datatec Systems, Inc. ("Datatec") (formerly known as
Glasgal Communications, Inc.), a Nasdaq traded company. CASI is a supplier of
configuration management software for system deployment and customization. On
March 9, 1998, Mr. Tobey sold his entire equity interest in CASI to Datatec. He
also founded and served as the Executive Director of the Integrating Technology
Consortium, an integration standards, certification, and education organization
focused on the hospitality industry from June 1994 to October 1997. Prior to
founding CASI in February 1995, Mr. Tobey was the Senior Vice President of
Corporate Services from April 1993 to April 1995 for Hotel Information Systems
where he was responsible for articulating and managing the development of
strategic initiatives and corporate operations in marketing, product
development, and professional services. From September 1986 to April 1993, Mr.
Tobey was the founder and served as Chairman/CEO of
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Stratcon, a systems integration company in the legal market and later as CTO of
automation Partners, into which Stratcon merged in 1990. Mr. Tobey has also
consulted with numerous technology and service companies and is a frequent
speaker at international conferences on technology and management topics.
NANCY HUNDT, DIRECTOR. Ms. Hundt has served as a director of the Company
since its inception in April of 1996. Ms. Hundt is a co-founder of the Company.
She has a background in the optical industry and has served as a representative
of the American Board of Opticianery, an optical industry retail group. Ms.
Hundt acts as a consultant to the optical industry and has served over the last
five years as Chief Operating Officer of Academy Optical, Inc. Ms. Hundt is a
member of the Audit Committee of the Board of Directors.
PHILIP J. ALFORD, DIRECTOR. Mr. Alford has served as a director of the
Company since February, 1998. Mr. Alford is the co-founder and Chairman and
acting Chief Financial Officer of Verix Software, a position he has held since
July, 1997. Prior to joining Verix Software, a business software developer, Mr.
Alford was employed by Tekelec, a publicly traded company, from 1985 to December
1996, where he served primarily as its Chief Financial Officer and from 1994 to
1996 as its President, Chief Executive Officer and Director. Tekelec is a
supplier of diagnostic and switching systems to the communications industry.
After leaving Tekelec, Mr. Alford served as an independent management
consultant. Mr. Alford is a member of the Audit Committee of the Board of
Directors.
INDEPENDENT DIRECTORS
Directors are elected for one year terms which expire at the next annual
meeting of Shareholders. Officers are elected annually by the Board of Directors
to hold office until the first meeting of the Board following the next annual
meeting of shareholders and until their successors have been elected and
qualified. If, following consummation of the Offering the Company's has shares
listed on the New York Stock Exchange or the American Stock Exchange or
designated for trading as national market securities on The Nasdaq National
Market System, the Company's Bylaws provide that the Board of Directors will be
divided into two classes, Class 1 and Class 2, Class 1 to be comprised of three
directors, and Class 2 to be comprised of four directors. If the Board of
Directors is divided into two classes, at each annual meeting of shareholders,
successors of the class of directors whose term expires at that annual meeting
would be elected for a two-year term or until their successors have been elected
and qualified.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid during the fiscal year
ended March 31, 1997, to the Company's former President and Vice President of
Operations. No other officer, director, or employee earned more than $100,000
for the fiscal year ended March 31, 1997. The Company operated without a Chief
Executive Officer in the fiscal year ended March 31, 1997. In September 1997,
the Company hired Max Toghraie to serve as Chief Executive Officer at an annual
salary of $192,000. See "--Employment Agreements."
<TABLE>
<CAPTION>
SUMMARY COMPENSATION TABLE
------------------------------------------------------------
ANNUAL COMPENSATION
FISCAL YEAR ---------------------------------------------
ENDED OTHER ANNUAL
NAME AND PRINCIPAL POSITION MARCH 31, SALARY BONUS COMPENSATION(1)
- ---------------------------------------------------------------- ------------- --------- ----------- ---------------------
<S> <C> <C> <C> <C>
Tommy Tang(2), President........................................ 1997 $ 132,000 $ 0 $ 0
Sherry Haynes(3), Vice President-Operations..................... 1997 $ 70,000 $ 0 $ 0
</TABLE>
- --------------------------
(1) The named executive officers did not receive any annual compensation not
properly categorized as salary or bonus, including stock options, restricted
stock awards, stock appreciation rights, long term incentive plan payouts,
or any perquisites or other personal benefits, securities or property that
exceeded the lesser of $50,000 or 10% of the salary and bonus for such
officer during the fiscal year ended March 31, 1997.
(2) Mr. Tang resigned from the Company in May 1997 and his position was assumed
by Mr. Ung, who is being compensated at a rate of $192,000 per annum. See
"--Employment Agreements"
(3) Ms. Haynes resigned from the Company in June 1997 and her duties were
assumed by Mei Yang, who is being compensated at a rate of $72,000 per
annum. See "--Employment Agreements."
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<PAGE>
BOARD COMMITTEES
AUDIT COMMITTEE. Mr. Toghraie, Ms. Hundt and Mr. Alford are members of the
Audit Committee of the Board of Directors. The Audit Committee's functions
include recommending to the Board of Directors the engagement of the Company's
independent certified public accountants, reviewing with those accountants the
plan and results of their audit of the financial statements and determining the
independence of the accountants.
COMPENSATION. Following the Offering, the Company's Board of Directors
intends to establish a Compensation Committee. The Compensation Committee will
review and makes recommendations with respect to compensation of officers and
key employees, and will be responsible for the grant of options and other awards
under the Company's Stock Option Plan. The current executive's salaries were set
by the Board. See "--Stock Option Plan."
DIRECTOR COMPENSATION
Nonemployee directors of the Company currently are paid $500 for their
personal attendance at any meeting of the Board and $100 for attendance at any
telephonic meeting of the Board or at any meeting of a committee of the Board.
Directors also are reimbursed for their reasonable travel expenses incurred in
attending Board or committee meetings.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with Max Toghraie to
serve as Chief Executive Officer. The agreement is for an initial term of five
years commencing July 1, 1997 and will automatically be extended for consecutive
periods of one year unless the Company elects to terminate the agreement. Mr.
Toghraie is entitled to an annual base salary of $192,000 and has been issued
options to to purchase 126,046 shares of the Company's Common Stock at $2.70 per
share pursuant to the Company's Stock Option Plan. The Company will also provide
Mr. Toghraie with other customary benefits, including health, life and
disability insurance, an automobile allowance and reimbursement for ordinary
business expenses. If Mr. Toghraie's employment is terminated "without cause,"
all of his options immediately vest, and he will be entitled to receive a
payment equal to the then effective base salary for the lesser of the remainder
of the term of the agreement, and 24 months.
The Company has entered into an employment agreement with James Ung to serve
as President. The agreement is for an initial term of five years commencing July
1, 1997 and will automatically be extended for consecutive periods of one year
unless the Company elects to terminate the agreement. Mr. Ung's base salary from
July 1, 1997 until September 30, 1997 was $144,000 per annum, and effective
September 30, 1997 increased to $192,000. Mr. Ung has been issued options to
purchase 98,645 shares of the Company's Common Stock at $2.70 per share pursuant
to the Company's Stock Option Plan. The Company will also provide Mr. Ung
customary benefits, including health, life and disability insurance, an
automobile allowance and reimbursement for ordinary business expenses. If Mr.
Ung's employment is terminated "without cause" he will be entitled to receive a
payment equal to the then effective base salary for the lesser of the remainder
of the term of the agreement and six (6) months.
The Company has entered into an employment agreement with Mei Yang to serve
as Secretary and Treasurer. The agreement is for an initial term of five years
commencing July 1, 1997 and will automatically be extended for consecutive
periods of one year unless the Company elects to terminate the agreement. Ms.
Yang's base salary from June 1, 1997 until September 30, 1997 was $40,000 per
annum, and, effective September 30, 1997 increased to $72,000. Ms. Yang has been
issued options to purchase 27,404 shares of the Company's Common Stock at $2.70
per share pursuant to the Company's Stock Option Plan. The Company will also
provide Ms. Yang customary benefits, including health, life and disability
insurance, an automobile allowance and reimbursement for ordinary business
expenses.
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STOCK OPTION PLAN
The Company adopted the 1997 Stock Option Plan (the "Stock Option Plan") in
July 1997. Each officer, other employee, director or consultant of the Company
or any of its future subsidiaries is eligible to be considered for the grant of
awards under the Stock Option Plan. A maximum of 500,000 shares of Common Stock
may be issued pursuant to awards granted under the Stock Option Plan, subject to
certain adjustments to prevent dilution. Any shares of Common Stock subject to
an award which for any reason expires or terminates unexercised are again
available for issuance under the Stock Option Plan. The Stock Option Plan
terminates in 2007 and no option may be granted under the Stock Option Plan
after July 1, 2007, although options previously granted may be thereafter
amended consistent with the Stock Option Plan.
ADMINISTRATION. The Stock Option Plan will be administered by the Company's
Board of Directors or by a committee whose members serve at the pleasure of the
Board. The Board intends to appoint the Company's Compensation Committee to
administer the Plan after the Offering. Subject to the provisions of the Stock
Option Plan, the Board has full and final authority to select to whom awards
will be granted, to grant the awards and to determine the terms and conditions
of the awards and the number of shares to be issued pursuant thereto.
The Stock Option Plan authorizes the Board to enter into any type of
arrangement with an eligible award and recipient that, by its terms, involves or
might involve the issuance of (i) shares of Common Stock, (ii) an option,
warrant, convertible security, stock appreciation right or similar right with an
exercise or conversion privilege at a price related to the Common Stock, or
(iii) any similar security or benefit with a value derived from the value of the
Common Stock. No person may receive awards representing more than 40% of the
number of shares of Common Stock covered by the Stock Option Plan (i.e., 200,000
shares).
EXERCISE AND PAYMENT. The Board shall determine the extent to which awards
shall be payable in cash, shares of Common Stock or any combination thereof. The
exercise price of future options will be at least 85% of the fair market value
of the Common Stock on the date of grant.
AWARDS. Stock awards under the Stock Option Plan are not restricted to any
specified form or structure and may include arrangements such as sales, bonuses
and other transfers of stock, restricted stock, stock options, reload stock
options, stock purchase warrants, other rights to acquire stock or securities
convertible into or redeemable for stock, stock appreciation rights, phantom
stock, dividend equivalents, performance units or performance shares. An award
may consist of one such arrangement or two or more such arrangements in tandem
or in the alternative. An award may provide for the issuance of Common Stock for
any lawful consideration, including cash payment, services rendered, or the
cancellation of indebtedness.
The Board may amend or terminate the Stock Option Plan at any time and in
any manner, subject to the following: (i) no recipient of any award may, without
his or her consent, be deprived of the award or of any of his or her rights
under or relating to the award as a result of the amendment or termination; and
(ii) if any rule or regulation promulgated by the Securities and Exchange
Commission (the "Commission"), the Internal Revenue Service, other applicable
law, or any national securities exchange or quotation system upon which any of
the Company's securities are listed requires that the amendment be approved by
the Company's shareholders, then the amendment will not be effective until it
has been approved by the Company's shareholders.
LIMITATION OF LIABILITY AND INDEMNIFICATION MATTERS
The Company's Articles of Incorporation, as amended, (the "Articles")
include a provision that eliminates the personal liability of its directors to
the Company and its shareholders for monetary damages to the fullest extent
permissible under California law. This limitation has no effect on a director's
liability
39
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(i) for acts or omissions that involve intentional misconduct or a knowing and
culpable violation of law, (ii) for acts or omissions that a director believes
to be contrary to the best interests of the Company or its shareholders or that
involve the absence of good faith on the part of the director, (iii) for any
transaction from which a director derives an improper personal benefit, (iv) for
acts or omissions that show a reckless disregard for the director's duty to the
Company or its shareholders in circumstances in which the director was aware, or
should have been aware, in the ordinary course of performing a director's
duties, of a risk of a serious injury to the Company or its shareholders, (v)
for acts or omissions that constitute an unexcused pattern of inattention that
amounts to an abdication of the director's duty to the Company or its
shareholders, (vi) under Section 310 of the California Corporations Code (the
"California Code") (concerning contracts or transactions between the Company and
a director) or (vii) under Section 316 of the California Code (concerning
directors' liability for improper dividends, loans and guarantees). The
provision does not extend to acts or omissions of a director in his capacity as
an officer. Further, the provision will not affect the availability of
injunctions and other equitable remedies available to the Company's shareholders
for any violation of a director's fiduciary duty to the Company or its
shareholders.
The Company's Articles also include an authorization for the Company to
indemnify its agents (as defined in Section 317 of the California Code), through
bylaw provisions, by agreement or otherwise, to the fullest extent permitted by
law. Pursuant to this provision, the Company's Bylaws, as amended, provide for
indemnification of the Company's directors, officers, employees and other
agents. In addition, the Company, at its discretion, may indemnify persons whom
the Company is not obligated to indemnify. The Bylaws also allow the Company to
enter into indemnity agreements with individual directors, officers, employees
and other agents. The Company has entered into indemnification agreements
designed to provide the maximum indemnification permitted by law with all the
directors and executive officers of the Company. These agreements, together with
the Company's Bylaws and Articles, may require the Company, among other things,
to indemnify these directors and executive officers against certain liabilities
that may arise by reason of their status or service as directors or executive
officers (other than liabilities resulting from willful misconduct of a culpable
nature), to advance expenses to them as they are incurred, provided that they
undertake to repay the amount advanced if it is ultimately determined by a court
that they are not entitled to indemnification, and to obtain directors' and
officers' insurance if available on reasonable terms. The Company intends to
purchase and maintain directors' and officers' liability insurance.
Section 317 of the California Code, the Company's Bylaws and the Company's
indemnification agreements with its directors and executive officers make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify those persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act. Insofar as indemnification for liabilities
arising under the Securities Act may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing provisions, or
otherwise, the registrant has been advised that in the opinion of the Securities
and Exchange Commission such indemnification is against public policy as
expressed in the Securities Act and is, therefore, unenforceable.
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CERTAIN TRANSACTIONS
Until March 9, 1998 David Tobey, a director of the Company, was the founder,
and the President, Chief Executive Officer and a principal stockholder of CASI.
CASI is a subsidiary of Datatec Systems, Inc. ("Datatec"), formerly known as
Glasgal Communications, Inc. On March 9, 1998, Mr. Tobey resigned all positions
with CASI and Datatec and sold his entire equity interest in CASI to Datatec.
Although the Company believes that Mr. Tobey's departure from CASI and Datatec
will have no adverse effect on the Company's relationship with CASI and Datatec,
there can be no assurance that Mr. Tobey's resignation will not adversely effect
the Company's working relationship with CASI and Datatec. During his employment
at CASI and Datatec during which Mr. Tobey was a principal stockholder of CASI,
the Company and CASI entered into (i) a license agreement (the "CASI License")
pursuant to which the Company received a worldwide, perpetual, royalty-free,
nonexclusive (except as to the countries comprising South America (excluding
Central America) and Malaysia where the license is exclusive for a term of five
years) and non-transferable license to reproduce and use CASI's IWPS software
including CASI's Configurator and router software products, and (ii) a reseller
agreement (the "Reseller Agreement") pursuant to which the Company may market,
distribute and support CASI's products throughout the world. The Company paid
CASI a one-time license fee of $1,100,000. The license fee was paid (i) by
delivering to CASI a non-interest bearing promissory note in the principal
amount of $950,000 (the "CASI Note"), and (ii) a cash payment of $150,000 funded
by a loan to the Company in such amount by an officer of Datatec (the "Datatec
Loan") described below. In connection with its license of the Configurator
software from CASI, the Company issued to CASI a contingent warrant (the "CASI
Warrant") exercisable if the Company defaults on payment of the $950,000
principal amount due under the CASI Note. Under the CASI Note, CASI's sole
remedy for a payment default is to apply any amount then due and unpaid under
the CASI Note to the purchase of the Company's Common Stock at a price of $4.50
per share. The CASI Note bears default interest at a rate of 5% per annum. The
exercise price of the CASI Warrant was determined by negotiation between the
Company and CASI and should not be construed to be predictive of or to imply
that any price increases in the Company's securities will occur. The CASI
Warrant does not confer upon the Warrant holder any voting or other rights of a
shareholder of the Company. The Company will fully repay the Datatec Loan and
the CASI Note, out of the proceeds of this Offering. Upon delivery to CASI of
the CASI Note, the CASI License was fully paid and the Company has no further
license fee obligations. Under the CASI License, the Company is entitled to
receive maintenance for the Configurator software for a fee of $25,000 per
annum, payable in equal quarterly installments. Maintenance is limited to
debugging and delivery to the Company of any enhancements or upgrades to the
Configurator software used internally by CASI or released by CASI to its
customer base. The Company is also entitled to request that CASI provide
enhancements and additional features on CASI's licensed Configurator system
specified by the Company. CASI may develop such enhancements and features at
CASI's expense and incorporate them as part of CASI's generally released
Configurator software, or, if CASI declines to develop the enhancements and
features at its own expense, the Company is able to require CASI to perform such
development services at preferential rates and any resulting work product of
CASI will be owned by the Company. If CASI ceases to provide support or
enhancements or otherwise fails to perform its obligations to the Company, the
Company's remedies include access to CASI's source code for the Configurator
software. The Company's license to the Configurator software includes a license
to modify and maintain the source code from and after such time, if any, as the
Company receives access to the Configurator software source code. See "Risk
Factors--Conflicts of Interests."
In connection with the Datatec Loan, the Company executed a promissory note
(the "Datatec Note") in favor of the officer of Datatec who made the Datatec
Loan. The Datatec Note provides that the Company is obligated to pay $50,000 on
November 31, 1997 and $100,000 on February 28, 1998; provided, however, that if
the Company consummates an initial public offering (an "IPO") of its securities
pursuant to a registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, $100,000 of the proceeds of such
IPO shall be immediately applied to prepayment of the $100,000 due to be paid on
February 28, 1998. The Datatec Note bears interest at a rate of 10% per annum,
and
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accrued interest is due with the payments indicated above. In the event that the
Company completes an IPO prior to February 28, 1998 and fails to pay the Datatec
Note in full by that date, or, the Datatec Note is not paid in full on or prior
to February 28, 1998, in any event, the Datatec Note shall be converted into
such number of shares of Common Stock of the Company as shall equal the
principal amount then outstanding plus accrued interest divided by a fraction,
the numerator of which shall equal the greater of $20,000,000 or the fair market
value of the Company, and the denominator of which shall be the number of shares
of Common Stock of the Company outstanding immediately prior to such conversion.
Under the Reseller Agreement, the Company has an exclusive right for a
period of five years to resell CASI's licensed software in South America
(excluding Central America) and Malaysia and a non-exclusive worldwide right (i)
to market, distribute, license and support the CASI's Configurator software in
object-code form, and (ii) to use CASI's Configurator software to provide
services to the Company's customers and sublicensees. CASI has agreed that it
will not enter into any agreement with a third party which provides for the
right to license or resell the CASI's Configurator software products in the
countries comprising Asia, the Pacific Rim, Japan or Australia without allowing
the Company a first right of refusal to create an agreement with such third
party as a distributor and/or sub-licensee and/or first offering the Company the
right to license or resell on terms and conditions, including price, equivalent
to those contained in the proposed third party agreement. CASI has retained the
right to use its software in Malaysia and South America only for CASI's own
configuration centers.
The Company loaned approximately $40,000 aggregate principal amount to Mr.
Max Toghraie, the Chief Executive Officer of the Company and a director, in
exchange for a promissory note dated February 12, 1997, at a rate of 5.7% per
annum. The loan was fully repaid on June 16, 1997.
During fiscal 1997, the Company had sales of approximately $532,800 to and
purchases of approximately $804,300 from Samax, a company owned by the mother of
Mr. Max Toghraie. For the nine month period ended December 31, 1997, the Company
had sales of approximately $1.39 million to and purchases of approximately
$598,200 from Samax. At December 31, 1997, the Company had approximately
$146,500 and $0 included in trade receivables and accounts payable,
respectively, attributed to Samax. Although the Company is not currently making
purchases from or sales to Samax, if the Company determines that resuming
purchases from or sales to Samax in the future would be in the best interests of
the Company, any such future transactions would be negotiated on an arms-length
basis and on terms and conditions at least as favorable to the Company as those
which would be obtained from competitors of Samax.
The Company purchased 200,000 shares and 100,000 warrants in Evolutions,
Inc. ("Evolutions") for $100,000 which, at March 31, 1997, was personally
guaranteed by Max Toghraie. This guarantee was recorded as a receivable from a
director, Max Toghraie. Subsequent to June 13, 1997, the Board of Directors and
shareholders voted to release Max Toghraie from this guarantee as partial
inducement for Max Toghraie to accept additional management responsibilities at
the Company, including agreeing to become the chief executive officer. The
Company has determined, due to significant cash flow difficulties encountered by
Evolutions, that its investment is worthless. Accordingly, the Company has
recognized a one-time loss of $100,000 during the first quarter of 1997 which is
included in selling, general and administrative expenses.
In June 1997, Mr. James Ung and Ms. Mei Yang signed individual guarantees of
the Company's Finova Line.
On December 3, 1997, the Company executed a lease for approximately 21,900
square feet of office and warehouse space in the City of Industry, California.
The lease term is three years, and the base rent is $11,169 per month. On
December 3, 1997, James Ung and Mei Yang signed an individual guarantee (the
"Guarantee") of the Company's obligations under the lease, which Guarantee shall
terminate upon the earlier occurrence of (i) the date upon which the Company's
net worth exceeds 50% of the Company's net worth on the date of the Guarantee or
(ii) the date the Company becomes a public company.
42
<PAGE>
The Company believes that, with the exception of the determination to
release Mr. Toghraie from his guarantee, the transactions described above were
on terms no less favorable to the Company than could have been obtained in arm's
length transactions from unaffiliated third parties. All future transactions
between the Company and its officers, directors and 5% (or greater) shareholders
will be on terms no less favorable than could be obtained from unaffiliated
third parties and will be approved by a majority of the disinterested directors.
43
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth, as of February 1, 1998, certain information
concerning the beneficial ownership of Common Stock, by (i) each stockholder
known by the Company to own beneficially five percent or more of the outstanding
Common Stock, (ii) each director, (iii) each executive officer named in this
Prospectus (a "Named Executive Officer"), and (iv) all executive officers and
directors of the Company as a group:
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED(1)
-----------------------------------
PERCENT OF TOTAL
------------------------
NAME AND ADDRESS OF DIRECTORS, NAMED BEFORE AFTER
EXECUTIVE OFFICERS AND 5% SHAREHOLDERS NUMBER OFFERING OFFERING
- ---------------------------------------------------------------------------------- --------- ----------- -----------
<S> <C> <C> <C>
Max Toghraie(2) .................................................................. 49,237 1.03% *
2062 Sapra St.
Thousand Oaks, CA 91362
James Ung and Mei Yang(3) ........................................................ 2,241,355 46.70% 31.57%
2010 E. Roundtree Court
Walnut, CA 91789
Nancy Hundt(4) ................................................................... 2,194,152 46.17% 31.11%
450 Belcaro
Agoura, CA 91301
Carl Wood(5) ..................................................................... 0 * *
1105 Harkness Lane
Redondo Beach, CA 90278
Philip Alford(6) ................................................................. 0 * *
746 West Adams Blvd Suite 109
Los Angeles, CA 90089
David Tobey(7) ................................................................... 5,994 * *
1545 Shadowtree Ct.
Colorado Springs, CO 80921
All Executive Officers and Directors as a group (7 persons)(8).................... 4,490,738 94.27% 62.75%
</TABLE>
- --------------------------
* less than one (1) percent.
(1) Beneficial ownership has been determined in accordance with Rule 13d-3 of
the Securities Exchange Act of 1934, as amended. Generally, a person is
deemed to be the beneficial owner of a security if he has the right to
acquire voting or investment power within 60 days. Except as otherwise
noted, each individual or entity has sole voting and investment power over
the securities listed.
(2) Shares issuable upon the exercise of options granted under the Stock Option
Plan on July 1, 1997 exercisable at $2.70 per share within 60 days of
February 1, 1998.
(3) Mr. Ung and Ms. Yang are married. Includes 38,533 shares issuable upon the
exercise of options granted under the Stock Option Plan to Mr. Ung on July
1, 1997 exercisable at $2.70 per share within 60 days of February 1, 1998,
and 10,704 shares issuable upon the exercise of options granted under the
Stock Option Plan to Ms. Yang on July 1, 1997 exercisable at $2.70 per share
within 60 days of February 1, 1998, 1,096,059 shares owned by Mr. Ung, and
1,096,059 shares owned by Ms. Yang.
(4) Includes 2,034 shares issuable upon the exercise of options granted under
the Stock Option Plan on July 1, 1997 exercisable at $2.70 per share within
60 days of February 1, 1998.
(5) Mr. Wood was granted options to purchase 40,000 shares of Common Stock under
the Stock Option Plan on February 6, 1998, exercisable at $4.50 per share,
none of which were exercisable within 60 days of February 1, 1998.
(6) Mr. Alford was granted options to purchase 36,000 shares under the Stock
Option Plan on February 2, 1998, exercisable at $4.50 per share, none of
which were exercisable within 60 days of February 1, 1998.
(7) Shares issuable upon the exercise of options granted under the Stock Option
Plan on July 1, 1997 exercisable at $2.70 per share within 60 days of
February 1, 1998.
(8) Includes an aggregate of 106,502 shares issuable upon the exercise of
options granted under the Stock Option Plan on July 1, 1997 exercisable at
$2.70 per share within 60 days of February 1, 1998.
44
<PAGE>
DESCRIPTION OF CAPITAL STOCK
The Company is authorized to issue 20,000,000 shares of Common Stock,
without par value, and 2,000,000 shares of Preferred Stock, without par value.
At February 2, 1998, the Company had 27 holders of record of the Common Stock.
The following statements are brief summaries of certain provisions relating to
the Company's capital stock.
COMMON STOCK
The holders of Common Stock are entitled to one vote for each share held of
record on all matters on which the holders of Common Stock are entitled to vote
and have cumulative voting rights for the election of directors. The Articles of
Incorporation of the Company provide that at such time as the Company has (i)
shares listed on the New York Stock Exchange or the American Stock Exchange, or
(ii) securities designated for trading as a national market security on the
National Association of Securities Dealers Automatic Quotation System (or any
successor national market system) if the Company has at least 800 or more
holders of its Common Stock as of the record date of the Company's most recent
annual meeting of shareholders, the cumulative voting rights of shareholders
will cease. The holders of Common Stock are entitled to receive dividends
ratably when, as and if declared by the Board of Directors out of funds legally
available therefor. In the event of liquidation, dissolution or winding up of
the Company, the holders of Common Stock are entitled, subject to the rights of
holders of Preferred Stock issued by the Company, if any, to share ratably in
all assets remaining available for distribution to them after payment of
liabilities and after provision is made for each class of stock, if any, having
preference over the Common Stock.
The holders of Common Stock have no preemptive or conversion rights and they
are not subject to further calls or assessments by the Company. There are no
redemption or sinking fund provisions applicable to the Common Stock. The
outstanding shares of Common Stock are, and the shares of Common Stock issuable
pursuant to this Prospectus will be, when issued, fully paid and nonassessable.
PREFERRED STOCK
The Board of Directors has the authority to issue the authorized and
unissued Preferred Stock in one or more series with such designations, rights
and preferences as may be determined from time to time by the Board of
Directors. Accordingly, the Board of Directors is empowered, without shareholder
approval, to issue Preferred Stock with dividend, liquidation, conversion,
voting or other rights which adversely affect the voting power or other rights
of the holders of the Company's Common Stock. In the event of issuance, the
Preferred Stock could be utilized, under certain circumstances, as a way of
discouraging, delaying or preventing an acquisition or change in control of the
Company. The Company does not currently intend to issue any shares of its
Preferred Stock.
BRIDGE WARRANTS
On December 23, 1997, the Company completed the Bridge Financing, which
included the sale of an aggregate of 100,000 Bridge Warrants for the purchase of
one share of Common Stock per warrant at an exercise price of $3.00 per share.
The Bridge Warrants provide for adjustment of the exercise price and for a
change in the number of shares issuable upon exercise to protect holders against
dilution in the event of a stock dividend, stock split, combination or
reclassification of the Common Stock. The exercise price of the Bridge Warrants
was arbitrarily determined by the Company and the purchasers thereof and should
not be construed to be predictive of or to imply that any price increases in the
Company's securities will occur. The Bridge Warrants do not confer upon the
Bridge Warrant holder any voting or other rights of a shareholder of the
Company. See "Risk Factors--Repayment of Indebtedness" and "--Potential Benefit
to Certain Investors."
45
<PAGE>
REGISTRATION RIGHTS
The 300,000 shares of Common Stock issued in the Bridge Financing and the
100,000 shares of Common Stock issuable upon exercise of the Bridge Warrants are
entitled to demand registration rights on one occasion, at the expense of the
Company, as well as "piggyback" registration rights with respect to any
registration of equity securities of the Company for a period of five (5) years,
commencing November 26, 1998 (unless the Company files a Form S-8, S-4 or
comparable registration statement).
TRANSFER AGENT AND REGISTRATION
Continental Stock Transfer and Trust Company, New York, New York, is the
transfer agent and registrar for the Common Stock.
SHARES ELIGIBLE FOR FUTURE SALE
Upon completion of this Offering the Company will have outstanding 7,050,000
shares of Common Stock (7,395,000 if the Underwriter's over allotment option is
exercised in full) not including shares issuable upon exercise of outstanding
options warrants. Of such shares 4,750,000 are subject to the resale limitations
contained in Rule 144 promulgated under the Securities Act. In general, under
Rule 144, as currently in effect, a person (or persons whose shares are
aggregated), with respect to restricted securities that satisfy a one-year
holding period, may sell within any three-month period a number of restricted
shares which does not exceed the greater of 1% of the then outstanding shares of
such class of securities or the average weekly trading volume during the four
calendar weeks prior to such sale. Sales under Rule 144 are also subject to
certain requirements as to the manner of sale, notice and the availability of
current public information about the Company. Rule 144 also permits, under
certain circumstances, a person who is not an affiliate of the Company, to sell
restricted securities that satisfy a two-year holding period, without regard to
the volume or other resale limitations. The above is a brief summary of Rule 144
and is not intended to be a complete description of the Rule.
The "restricted" shares of Common Stock may in the future be eligible for
sale pursuant to Rule 144. Under lock-up agreements with the Underwriter, each
existing shareholder has agreed that he or it will not, directly or indirectly,
sell, assign or otherwise transfer any shares of Common Stock owned by it for a
period of (a) in the case of management and founding shareholders of the Company
who collectively hold 4,450,000 shares of Common Stock, a period of 18 months
after the effective date of the Registration Statement of which this Prospectus
is a part (the "Management Lock-Up Period") except with the Underwriter's prior
written consent, and (b) in the case of the holders of 300,000 shares of Common
Stock issued in the Company's Bridge Financing, a period of 12 months after the
effective date of the Registration Statement of which this Prospectus is a part,
and thereafter for an additional six (6) months, without the written consent of
the Underwriter (the "Bridge Holder Lock-Up Period"); provided, however, that
(i) the Management Lock-Up Period shall immediately terminate if the Common
Stock is quoted on The Nasdaq SmallCap Market or The Nasdaq National Market and
the average closing bid price of the Common Stock equals or exceeds $10.00 per
share (subject to customary adjustments for stock splits, combinations,
consolidations and similar transactions) for any 30 consecutive calendar days,
and (ii) that, for twenty-four (24) months following the effective date of the
Registration Statement any sales of the Company's securities subject to the
lock-up agreements shall be made through the Underwriter in accordance with its
customary brokerage practices either on a principal or agency basis. Once the
lock-up agreements expire, all of the 4,750,000 shares of Common Stock will
become eligible for immediate sale, subject to compliance with the volume
limitations of Rule 144 by the holders of these shares.
46
<PAGE>
UNDERWRITING
Joseph Stevens & Company, Inc. (the "Underwriter") has entered into an
Underwriting Agreement with the Company pursuant to which, and subject to the
terms and conditions thereof, it has agreed to purchase from the Company, and
the Company has agreed to sell to the Underwriter, on a firm commitment basis,
all of the Common Stock offered by the Company hereby.
The Company has been advised by the Underwriter that the Underwriter
initially proposes to offer the Common Stock to the public at the public
offering price set forth on the cover page of this Prospectus and that the
Underwriter may allow to certain dealers who are members of the National
Association of Securities Dealers, Inc. ("NASD") concessions not in excess of
$ per share of Common Stock, of which amount a sum not in excess of
$ per share of Common Stock may in turn be reallowed by such dealers to
other dealers. After the initial distribution of the shares of Common Stock
offered hereby has been completed, the public offering price, concessions and
reallowances may be changed by the Underwriter. The Underwriter has informed the
Company that it does not expect sales to discretionary accounts by the
Underwriter to exceed five percent of the securities offered by the Company
hereby.
The Company has granted to Underwriter an option, exercisable within 45 days
of the date of this Prospectus, to purchase from the Company at the offering
price, less underwriting discounts and the non-accountable expense allowance,
all or part of an additional 345,000 shares of Common Stock on the same terms
and conditions of this Offering for the sole purpose of covering
over-allotments, if any.
The Company has agreed to indemnify the Underwriter against certain
liabilities, including liabilities under the Securities Act. The Company has
agreed to pay to the Underwriter a non-accountable expense allowance equal to
three percent (3%) of the gross proceeds derived from the sale of the Common
Stock underwritten, $30,000 of which has been paid to date.
In connection with this offering, the Underwriter and certain selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriter also may create a short position for the account of the Underwriter
by selling more Common Stock in connection with this Offering than it is
committed to purchase from the Company, and in such case may purchase Common
Stock in the open market following completion of this Offering to cover all or a
portion of such short position. The Underwriter may also cover all or a portion
of such short position, up to 345,000 shares of Common Stock, by exercising the
Over-Allotment Option. In addition, the Underwriter may impose "penalty bids"
under contractual arrangements whereby it may reclaim from a dealer
participating in this Offering for the account of the Underwriter, the selling
concession with respect to shares of Common Stock that are distributed in this
Offering but subsequently purchased for the account of the Underwriter in the
open market. Any of the transactions described in this paragraph may result in
the maintenance of the prices of the Common Stock at levels above that which
might otherwise prevail in the open market. None of the transactions described
in the paragraph is required, and if they are undertaken, they may be
discontinued at any time.
Each officer and director of the Company and all of the holders of the
issued and outstanding shares of Common Stock, other than the investors in the
Bridge Financing, have agreed (i) not to directly or indirectly, issue, offer to
sell, sell, grant an option for the sale of transfer, pledge, assign,
hypothecate, or otherwise encumber or dispose of (collectively, "Transfer"), any
securities issued by the Company, including shares of Common Stock or securities
convertible into or exchangeable or exercisable for or evidencing any right to
purchase or subscribe for any shares of Common Stock for a period of eighteen
(18) months from the effective date of the Registration Statement (the Lock-Up
Period), without the prior written consent of the Underwriter provided, however,
that the Lock-Up Period shall immediately terminate if the Common Stock is
quoted on The Nasdaq SmallCap Market or The Nasdaq National Market and the
average closing bid price of the Common Stock equals or exceeds $10.00 per share
(subject
47
<PAGE>
to customary adjustments for stocksplits, combinations, consolidations and
similar transactions) for any 30 consecutive calendar days, and (ii) that, for
twenty-four (24) months following the effective date of the Registration
Statement any sales of the Company's securities shall be made through the
Underwriter in accordance with its customary brokerage practices either on a
principal or agency basis. An appropriate legend shall be marked on the face of
certificates representing all such securities.
Each purchaser in the Bridge Financing has agreed (i) not to Transfer any
securities purchased by the investor in the Bridge Financing for a period of
twelve (12) months from the effective date of the Registration Statement and
thereafter for an additional period of six (6) months, without the consent of
the Underwriter, and (ii) that, for a period of twenty-four (24) months
following the effective date of the Registration Statement, any sales of the
securities purchased in the Bridge Financing shall be made through the
Underwriter in accordance with its customary brokerage practices either on a
principal or agency basis. An appropriate legend shall be marked on the face of
the certificates representing all such securities.
In connection with this Offering, the company has agreed to issue and sell
to the Underwriter and/or its designees, at the closing of the proposed
underwriting, for $23.00, five (5) year Underwriter's Warrants (the
"Underwriter's Warrants") to purchase 230,000 shares of Common Stock. The
Underwriter's Warrants are exercisable at any time during a period of four (4)
years commencing twelve months after the effective date of the Registration
Statement at a price equal to 165% of the public offering price per share and
are restricted from sale, transfer, assignment or hypothecation for a period of
twelve months from the date hereof, except to officers of the Underwriter. The
shares of Common Stock issuable upon exercise of the Underwriter's Warrants are
identical to those offered to the public. The Underwriter's Warrants contain
anti-dilution provisions providing for adjustment of the number of warrants and
exercise price under certain circumstances. The Underwriter's Warrants grant to
the holders thereof and to the holders of the underlying securities certain
rights of registration of the securities underlying the Underwriter's Warrants.
In connection with the Bridge Financing, the Company paid to the
Underwriter, as placement agent, $100,000 in cash as commissions and a
non-accountable expense allowance of $30,000. The Company also paid certain
expenses of the placement agent including the placement agent's legal counsel
fees and issued to the placement agent warrants (the "Placement Agent's
Warrants") to purchase 35,000 shares of Common Stock at an exercise price of
$3.00 per share commencing November 26, 1998. The Placement Agent's Warrants
were canceled on March 6, 1998 .
The Company has also agreed that for five (5) years from the effective date
of the Registration Statement, the Underwriter may designate one person for
election to the Company's Board of Directors (the "Designation Right"). In the
event that the Underwriter elects not to exercise it Designation Right, then it
may designate one person to attend all meetings of the Company's Board of
Directors for a period of five (5) years. The Company has agreed to reimburse
the Underwriter's designee for all out-of-pocket expenses incurred in connection
with the designee's attendance at meetings, of the Board of Directors. The
Company has also agreed to retain the Underwriter as the Company's financial
consultant for a period of twenty-four (24) months from the date hereof and to
pay the Underwriter a monthly retainer of $2,000 all of which is payable in
advance on the closing date set forth in the Underwriting Agreement.
Prior to this Offering, there has been no public market for the Common
Stock. Accordingly, the initial public offering price of the Common Stock was
determined by negotiation between the Company and the Underwriter. Among the
factors considered in determining such price, in addition to the prevailing
market conditions, included the history of and the prospects for the industry in
which the Company competes, the market price of the Common Stock, an assessment
of the Company's management, the prospects of the Company, its capital structure
and such other factors that were deemed relevant. The offering price does not
necessarily bear any relationship to the assets, results of operations or net
worth of the Company.
48
<PAGE>
The foregoing is a summary of the principal terms of the agreements
described above and does not purport to be complete. Reference is made to a copy
of each agreement which are filed as exhibits to the Registration Statement. See
"Additional Information."
LEGAL MATTERS
Counsel for the Company, Troop Meisinger Steuber & Pasich, LLP, Los Angeles,
California, have rendered an opinion to the effect that the Common Stock offered
by the Company upon sale will be duly and validly issued, fully paid and
non-assessable. Troop Meisinger Steuber & Pasich, LLP holds warrants to purchase
45,000 shares of Common Stock of the Company. Orrick, Herrington & Sutcliffe
LLP, New York, has acted as counsel to the Underwriter in connection with
certain legal matters relating to this Offering.
EXPERTS
The financial statements of the Company at March 31, 1997 and for the year
then ended, included in this Prospectus and Registration Statement have been
audited by Arthur Andersen LLP, independent public accountants, as indicated in
their report with respect thereto and are included herein in reliance upon
authority of said firm as experts in giving said report.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission in
Washington, D.C., a Registration Statement under the Securities Act for the
shares offered by this Prospectus. This Prospectus does not contain all of the
information set forth in the Registration Statement and the exhibits included
with the Registration Statement. Statements contained in this Prospectus as to
the contents of any contract or any other document referred to are not
necessarily complete, and with respect to any contract or other document filed
as an exhibit to the Registration Statement, reference is made to the exhibit
for a more complete description of the matter involved, and each such statement
is qualified in its entirety by this reference. For further information about
the Company and the shares offered by this Prospectus, reference is hereby made
to the Registration Statement and exhibits included with the Registration
Statement. A copy of the Registration Statement, including exhibits, may be
inspected without charge at the Securities and Exchange Commission's principal
office in Washington, D.C., and copies of all or any part thereof may be
obtained from the Public Reference Section of the Securities and Exchange
Commission at 450 Fifth Street, N .W. Washington, D.C. 20549, upon payment of
certain prescribed rates.
Upon consummation of the Offering, the Company will become subject to the
information requirements of the Exchange Act and, in accordance therewith, will
file reports and other information with the Securities, and Exchange Commission
in accordance with its rules. These reports and other information concerning the
Company may be inspected and copied at the public reference facilities referred
to above as well as certain regional offices of the Securities and Exchange
Commission located at Seven World Trade Center, 13th Floor, New York, New York,
10048, and Citicorp Center, 500 West Madison Street, Suite 1400, Chicago,
Illinois, 60661-2511.
The Securities and Exchange Commission also maintains a Web Site which
contains reports, proxy and information statements and other information
regarding issuers that file electronically with the Securities and Exchange
Commission (such as the Company) at http:\\www.sec.gov.
The Company intends to furnish to its stockholders annual reports containing
financial statements audited by its independent auditors and quarterly reports
containing unaudited consolidated financial statements for each of the first
three quarters of each fiscal year.
49
<PAGE>
CUMETRIX DATA SYSTEMS CORP.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Report of Independent Public Accountants................................................................... F-2
Balance Sheets as of March 31, 1997 and December 31, 1997 (unaudited)...................................... F-3
Statements of operations for the period from April 2, 1996 (inception) to March 31, 1997 and the nine month
periods ended December 31, 1996 and 1997 (unaudited)..................................................... F-4
Statements of Changes in Shareholders' equity for the period from April 2, 1996 (inception) to March 31,
1997 and the nine month period ended December 31, 1997 (unaudited)....................................... F-5
Statements of Cash Flows for the period from April 2, 1996 (inception) to March 31, 1997 and the nine month
periods ended December 31, 1996 and 1997 (unaudited)..................................................... F-6
Notes to the Financial Statements.......................................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Cumetrix Data Systems Corp.:
We have audited the accompanying balance sheet of Cumetrix Data Systems
Corp. (a California corporation--formerly Data Net International, Inc.) as of
March 31, 1997, and the related statements of operations, shareholders' equity
and cash flows for the period from April 2, 1996 (inception) to March 31, 1997.
These financial statements are the responsibility of the Company's management.
Our responsibility is to express an opinion on these financial statements based
on our audit.
We conducted our audit 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 audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cumetrix Data Systems Corp.
as of March 31, 1997 and the results of its operations and its cash flows for
the period from April 2, 1996 (inception) to March 31, 1997, in conformity with
generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Los Angeles, California
June 13, 1997
F-2
<PAGE>
CUMETRIX DATA SYSTEMS CORP.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1997
MARCH 31, -------------
ASSETS 1997
----------- (UNAUDITED)
<S> <C> <C>
CURRENT ASSETS:
Cash................................................................................ $ 479,796 $ 2,962,821
Trade receivables, net of allowance for doubtful accounts of $2,000 at March 31,
1997 and $39,800 at December 31, 1997............................................. 853,090 3,081,217
Receivables from related party...................................................... 39,700 --
Inventories......................................................................... 331,559 2,723,275
Deferred taxes...................................................................... 12,000 53,788
Prepaid expenses.................................................................... 5,318 24,148
----------- -------------
Total current assets............................................................ 1,721,463 8,845,249
----------- -------------
FIXED ASSETS, net 32,278 38,115
----------- -------------
OTHER ASSETS:
Capitalized purchased software costs................................................ -- 1,100,000
Receivable from director............................................................ 100,000 --
Other............................................................................... 1,500 288,850
----------- -------------
Total Assets.................................................................... $ 1,855,241 $10,272,214
----------- -------------
----------- -------------
</TABLE>
<TABLE>
<CAPTION>
LIABILITIES AND SHAREHOLDERS' EQUITY
<S> <C> <C>
CURRENT LIABILITIES:
Accounts payable................................................... $1,455,139 $6,713,957
Accrued expenses................................................... 87,274 279,924
Income taxes payable............................................... 21,500 415,213
Current portion of long-term debt.................................. 3,390 1,203,626
--------- -----------
Total current liabilities...................................... 1,567,303 8,612,720
--------- -----------
LONG-TERM DEBT, net of current portion............................... 12,574 9,822
--------- -----------
COMMITMENTS AND CONTINGENCIES
SHAREHOLDERS' EQUITY:
Preferred stock, no par value: Authorized, 2,000,000 shares
Issued and outstanding, none..................................... -- --
Common stock, no par value: Authorized, 20,000,000 shares
Issued and outstanding, 4,384,236 at March 31, 1997 and 4,750,000
at December 31, 1997............................................. 250,000 999,200
Retained earnings.................................................. 25,364 650,472
--------- -----------
Total shareholders' equity..................................... 275,364 1,649,672
--------- -----------
Total liabilities and shareholders' equity..................... $1,855,241 1$0,272,214
--------- -----------
--------- -----------
</TABLE>
The accompanying notes are an integral part of these balance sheets.
F-3
<PAGE>
CUMETRIX DATA SYSTEMS CORP.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
FOR THE PERIOD NINE MONTH PERIODS ENDED
FROM APRIL 2, DECEMBER 31,
1996 (INCEPTION) ----------------------------
TO MARCH 31, 1997 1996 1997
----------------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C>
NET SALES....................................................... $ 25,940,203 $ 17,175,071 $ 49,267,491
COST OF PRODUCTS................................................ 25,139,001 16,604,294 47,192,956
----------------- ------------- -------------
Gross profit................................................ 801,202 570,777 2,074,535
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES.................... 751,133 501,923 1,029,504
----------------- ------------- -------------
Income from operations...................................... 50,069 68,854 1,045,031
INTEREST EXPENSE................................................ 9,334 4,500 13,908
OTHER INCOME (EXPENSE), net..................................... (5,871) 10 10,723
----------------- ------------- -------------
Income before provision for income taxes.................... 34,864 64,364 1,041,846
PROVISION FOR INCOME TAXES...................................... 9,500 25,745 416,738
----------------- ------------- -------------
NET INCOME...................................................... $ 25,364 $ 38,619 $ 625,108
----------------- ------------- -------------
----------------- ------------- -------------
BASIC AND DILUTED EARNINGS PER SHARE............................ $ 0.01 $ 0.01 $ 0.14
----------------- ------------- -------------
----------------- ------------- -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-4
<PAGE>
CUMETRIX DATA SYSTEMS CORP.
STATEMENTS OF SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
COMMON STOCK
---------------------- RETAINED
SHARES AMOUNT EARNINGS TOTAL
---------- ---------- ---------- ------------
<S> <C> <C> <C> <C>
Balance, April 2, 1996 (inception)............................ -- $ -- $ -- $ --
Sale of common stock........................................ 4,384,236 250,000 -- 250,000
Net income.................................................. -- -- 25,364 25,364
---------- ---------- ---------- ------------
Balance, March 31, 1997....................................... 4,384,236 250,000 25,364 275,364
Sale of common stock, net of offering expenses of $150,800
(unaudited)............................................... 365,764 745,500 -- 745,500
Issuance of warrants in connection with Private Placement,
net of offering expenses of $1,300........................ -- 3,700 -- 3,700
Net income (unaudited)...................................... -- -- 625,108 625,108
---------- ---------- ---------- ------------
Balance, December 31, 1997 (unaudited)........................ 4,750,000 $ 999,200 $ 650,472 $ 1,649,672
---------- ---------- ---------- ------------
---------- ---------- ---------- ------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-5
<PAGE>
CUMETRIX DATA SYSTEMS CORP.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
FOR THE PERIOD NINE-MONTH PERIODS ENDED
FROM APRIL 2, DECEMBER 31,
1996 (INCEPTION) ---------------------------
TO MARCH 31, 1997 1996 1997
----------------- ------------ -------------
(UNAUDITED)
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 25,364 $ 38,619 $ 625,108
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization............................. 6,634 5,528 2,847
Amortization of deferred financing costs.................. -- -- 12,100
Provision for doubtful accounts........................... 50,329 17,000 56,310
Loss on receivable from director.......................... -- -- 100,000
Changes in assets and liabilities:
Trade receivables......................................... (903,419) (790,284) (2,284,437)
Inventories............................................... (331,559) (313,700) (2,391,716)
Deferred taxes............................................ (12,000) (10,000) (41,788)
Prepaid expenses.......................................... (5,318) (5,318) (18,830)
Other..................................................... (1,500) (60,000) (129,250)
Accounts payable.......................................... 1,455,139 1,313,967 5,258,818
Accrued expenses.......................................... 87,274 31,647 22,450
Income taxes payable...................................... 21,500 35,745 393,713
----------------- ------------ -------------
Net cash provided by operating activities............... 392,444 263,204 1,605,325
----------------- ------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of fixed assets....................................... (38,912) (36,192) (8,684)
Purchase of investment guaranteed by director................... (100,000) (100,000) --
Receivables from related parties................................ (39,700) -- 39,700
Purchase of Capitalized Software Costs.......................... -- -- (150,000)
----------------- ------------ -------------
Net cash used in investing activities................... (178,612) (136,192) (118,984)
----------------- ------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from bank borrowings................................... 18,820 18,820 --
Payments on bank borrowings..................................... (2,856) (2,055) (2,516)
Proceeds from Notes............................................. -- -- 550,000
Payments on Notes............................................... -- -- (300,000)
Proceeds from stock issuance.................................... 250,000 200,000 749,200
----------------- ------------ -------------
Net cash provided by financing activities............... 265,964 216,765 996,684
----------------- ------------ -------------
NET INCREASE IN CASH.............................................. 479,796 343,777 2,483,025
CASH, beginning of period......................................... -- -- 479,796
----------------- ------------ -------------
CASH, end of period............................................... $ 479,796 $ 343,777 $ 2,962,821
----------------- ------------ -------------
----------------- ------------ -------------
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CUMETRIX DATA SYSTEMS CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 1997
(INFORMATION AS OF DECEMBER 31, 1997 AND 1996 IS UNAUDITED)
1. LINE OF BUSINESS
Cumetrix Data Systems Corp., formerly Data Net International, Inc. (the
Company) was incorporated on April 2, 1996 in the state of California. The
Company distributes computer peripherals, components, accessories and assembles
computer systems. The Company currently sells a majority of its products to
distributors, systems integrators, and retail stores.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS
a. CASH
Cash includes currency on hand and deposit accounts to which funds may be
deposited or withdrawn at any time without prior notice or penalty. At times,
cash balances in the Company's accounts may exceed federally insured limits.
b. TRADE RECEIVABLES
Trade receivables represent unsecured balances due from its customers with
the Company at risk to the extent such amounts become uncollectible. The Company
performs credit evaluations of each of its customers and maintains allowances
for potential credit losses. Such losses have generally been within management's
expectations.
c. INVENTORIES
Inventories consist primarily of purchased finished goods and are stated at
the lower of cost or market; cost is determined using the first-in, first-out
method of accounting.
d. FIXED ASSETS
Depreciation is provided principally on the straight-line method over the
estimated useful lives of the assets. Estimated useful lives are as follows:
<TABLE>
<S> <C>
Furniture and fixtures 7 years
Office equipment 5 years
Vehicles 5 years
Leasehold improvements 5 years
</TABLE>
The Company's fixed assets are recorded at cost and includes significant
expenditures that increase the asset lives. Ordinary maintenance and repairs are
charged to operations as incurred
When assets are sold or otherwise disposed of, the recorded cost and related
accumulated depreciation or amortization are removed from the accounts and any
resulting gain or loss is recognized.
e. DEFERRED OFFERING COSTS
Costs associated with offerings of Company common shares are initially
capitalized and then netted with the proceeds received from the sale of the
common shares when the offering is completed. If the intended offering is
terminated these costs are charged to operations. Offering costs of $166,000 are
capitalized as of December 31, 1997 and included in other long-term assets.
F-7
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS (CONTINUED)
f. DEFERRED FINANCING COSTS
Debt issuance costs are initially capitalized as deferred financing costs
and amortized over the terms of the notes using the effective interest rate
method. In the event the notes are repaid prior to their original maturity, any
unamortized portion of the debt issuance costs capitalized will be charged to
operations. Debt issuance costs of $109,200, net amortization of $12,100, have
been capitalized as of December 31, 1997 and included in other long-term assets.
g. CAPITALIZED PURCHASED SOFTWARE COSTS
Capitalized purchased software costs represents the license fee paid to
Computer-Aided Software Integration, Inc. (CASI) for certain configuration
software (see Note 9). The Company will amortize these costs on a straight-line
basis over the estimated life of the configuration software (currently estimated
to be between 3-5 years) commencing at the date that the configuration software
is first placed into service.
h. STATEMENT OF CASH FLOWS
The Company prepares its statement of cash flows using the indirect method
as defined under Statement of Financial Accounting Standards No. 95 (SFAS No.
95). In July 1997, the Company licensed software for $1,100,000 by issuing a
note and obtaining a loan from a related party (see Note 9). Supplemental
disclosures of cash flow information are as follows:
<TABLE>
<CAPTION>
NINE-MONTH
PERIODS ENDED
DECEMBER 31,
MARCH 31, --------------------
1997 1996 1997
----------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C>
Cash paid for interest........................................ $ 1,431 $ 4,500 $ 1,808
Cash paid for income taxes.................................... $ -- $ -- $ 13,000
</TABLE>
i. USE OF ESTIMATES
The preparation of the financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and the
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
j. CONCENTRATION OF RISK
During the period from April 2, 1996 (inception) to March 31, 1997, one
vendor accounted for 43 percent of purchases. There are many vendors in this
industry and management believes that the other vendors could provide similar
products on comparable terms. Management believes that a change in suppliers
would not cause any material effect to the Company's operations or loss of
sales.
During fiscal 1997, no customer accounted for more than 10 percent of net
sales.
k. REVENUE RECOGNITION
Net sales are currently generated from the sales of components and systems.
Systems include ready-to-use computers that have been assembled and have
software already installed. Components sales consist of individual hardware
items.
Revenue is recorded at the time of shipment net of allowances for estimated
sales returns.
F-8
<PAGE>
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND RISK FACTORS (CONTINUED)
l. UNAUDITED QUARTERLY FINANCIAL STATEMENTS
The unaudited financial statements for the nine-month periods ended December
31, 1997 and 1996, have been prepared in conformity with generally accepted
accounting principles. Certain information and note disclosures normally
included in annual financial statements prepared in accordance with generally
accepted accounting principles have been condensed or omitted, although the
Company believes that the disclosures made are adequate to make the information
presented not misleading. These unaudited financial statements reflect, in the
opinion of management, all adjustments (which include only normal recurring
adjustments) necessary to fairly present the results of operations, changes in
cash flows and financial position as of and for the periods presented. The
unaudited financial statements should be read in conjunction with the audited
financial statements and related notes thereto. The results for the interim
periods presented are not necessarily indicative of results to be expected for
the full year.
m. INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes". Under SFAS No. 109, deferred income tax assets or
liabilities are computed based on the temporary difference between the financial
statement and income tax bases of assets and liabilities using the enacted
marginal tax rate in effect for the year in which the differences are expected
to reverse. Deferred income tax expenses or credits are based on the changes in
the deferred income tax assets or liabilities from period to period.
n. NEW AUTHORITATIVE PRONOUNCEMENTS
In March 1997, the FASB issued SFAS No. 128, "Earnings per Share" and SFAS
No. 129, "Disclosure of Information about Capital Structure." SFAS No. 128
revises and simplifies the computation for earnings per share and requires
certain additional disclosures. SFAS No. 129 requires additional disclosures
regarding the Company's capital structure. SFAS No. 128 was adopted for the
period ended December 31, 1997 and SFAS No. 129 will be adopted for the year
ending March 31, 1998.
In July 1997, the FASB issued SFAS No. 130, "Reporting Comprehensive Income"
and SFAS No. 131, "Disclosures About Segments on Enterprise and Related
Information." SFAS No. 130 establishes standards for reporting and display of
comprehensive income. SFAS No. 131 requires disclosure for each segment that is
similar to those required under current standards and additional quarterly
disclosure requirements. Both standards will be adopted on April 1, 1998.
F-9
<PAGE>
o. INCOME PER COMMON SHARE
Income per common share is based on the weighted average number of shares of
common stock and common stock equivalents outstanding during the related
periods. For all periods presented, per share information was computed pursuant
to the provisions of SFAS No.128.
A summary of the shares used to compute earnings per share is as follows:
<TABLE>
<CAPTION>
NINE-MONTH PERIODS
FOR THE PERIOD ENDED
FROM APRIL 2, DECEMBER 31,
1996 (INCEPTION) ----------------------
TO MARCH 31, 1997 1996 1997
----------------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Weighted average common shares used to compute
basic earnings per share....................... 3,310,574 3,132,569 4,477,590
Effect of Dilutive Securities:
Stock options................................ -- -- 56,826
Warrants..................................... -- -- 21,568
----------------- ---------- ----------
Weighted average common shares used to compute
diluted earnings per share 3,310,574 3,132,569 4,555,984
----------------- ---------- ----------
----------------- ---------- ----------
</TABLE>
The adoption of SFAS No. 128 did not have any impact on basic or diluted
earnings per share for the periods from April 2, 1996 (inception) to March 31,
1997 or the nine-month period ended December 31, 1997.
p. RISK FACTORS
UNCERTAINTY OF COMMERCIALIZATION OF THE ACSA SOLUTION--The Company's ability
to successfully implement, market and introduce the ACSA Solution services on a
timely basis will be a significant factor in the Company's ability to improve
its operating margins and remain competitive. The Company's ability to market
the ACSA Solution successfully will depend on the Company convincing potential
customers of the benefits of the ACSA Solution. The Company has only recently
commenced marketing the ACSA Solution. The Company is currently constructing its
first ACSA Center located in the City of Industry. No ACSA Center is currently
in operation and the Company currently has no sales revenue attributable to the
ACSA Solution or a ACSA Center. Although the Company is engaged in negotiations
and discussions with a number of potential customers, there can be no assurance
that any such discussions will lead to significant sales of the ACSA Solution,
or that the ACSA Solution will attain market acceptance. Any failure by the
Company to anticipate or respond in a cost-effective and timely manner to market
trends or customer requirements, or any significant delays in introduction of
ACSA services, could have a material adverse effect on the Company's business,
operating results and financial condition.
ELECTRONICS INDUSTRY CYCLICALITY--The personal computer component
distribution industry has been affected historically by general economic
downturns, which have had an adverse economic effect upon manufacturers and
end-users of personal computers, as well as component distributors such as the
Company. In addition, the life-cycle of existing personal computer products and
the timing of new product development and introduction can affect demand for
disk drives and other personal computer components. Any downturns in the
personal computer component distribution industry, or the personal computer
industry in general, could adversely affect the Company's business and results
of operations.
FOREIGN SUPPLIERS REGULATION--A significant number of the products
distributed by the Company are manufactured in Taiwan, China, Korea and the
Philippines. The purchase of goods manufactured in foreign countries is subject
to a number of risks, including economic disruptions, transportation delays and
interruptions, foreign exchange rate fluctuations, imposition of tariffs, import
and export controls and changes in governmental policies, any of which could
have a material adverse effect on the Company's
F-10
<PAGE>
business and results of operations. While the Company does not believe that any
of these factors adversely impact its business significantly at present, there
can be no assurance that these factors will not materially adversely affect the
Company in the future. Any significant disruption in the delivery of merchandise
from the Company's suppliers, substantially all of whom are foreign, would also
have a material adverse impact on the Company's business and results of
operations. Currently all purchases are made in U.S. dollars.
3. FIXED ASSETS, NET
Fixed assets, net, consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
1997
----------- DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C> <C>
Furniture and fixtures.............................................. $ 8,260 $ 8,260
Office equipment.................................................... 9,039 17,723
Vehicles............................................................ 21,320 21,320
Leasehold improvements.............................................. 293 293
----------- ------------
38,912 47,596
Less--Accumulated depreciation and amortization..................... (6,634) (9,481)
----------- ------------
$ 32,278 $ 38,115
----------- ------------
----------- ------------
</TABLE>
4. INCOME TAXES
The provision for income taxes is comprised of the following components:
<TABLE>
<CAPTION>
MARCH 31,
1997
------------ NINE-MONTH
PERIOD ENDED
DECEMBER 31,
1997
-------------
(UNAUDITED)
<S> <C> <C>
Current:
Federal........................................................ $ 14,500 $ 389,747
State.......................................................... 7,000 68,779
Deferred:
Federal........................................................ (8,700) (35,520)
State.......................................................... (3,300) (6,268)
------------ -------------
Provision for income taxes....................................... $ 9,500 $ 416,738
------------ -------------
------------ -------------
</TABLE>
The approximate tax effect of temporary differences which gave rise to
significant deferred tax liabilities and assets are as follows:
<TABLE>
<CAPTION>
MARCH 31,
1997
------------ DECEMBER 31,
1997
------------
(UNAUDITED)
<S> <C> <C>
Depreciation and amortization.................................... $ (434) $ (4,195)
Reserves......................................................... 2,408 32,623
Accrued liabilities.............................................. 4,006 5,299
Unicap........................................................... 6,020 20,061
------------ ------------
$ 12,000 $ 53,788
------------ ------------
------------ ------------
</TABLE>
F-11
<PAGE>
4. INCOME TAXES (CONTINUED)
A reconciliation of the provision for income taxes to the amount computed at
the Federal statutory rate is as follows:
<TABLE>
<CAPTION>
NINE-MONTH
PERIODS ENDED
DECEMBER 31,
MARCH 31, ----------------------
1997 1996 1997
----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Federal income tax provision at the statutory rate........ $ 11,854 $ 21,884 $ 354,228
State taxes, net of federal benefit....................... 2,092 3,861 62,510
Other items, net.......................................... (4,446) -- --
----------- ---------- ----------
Provision for income taxes................................ $ 9,500 $ 25,745 $ 416,738
----------- ---------- ----------
----------- ---------- ----------
</TABLE>
5. RELATED PARTY TRANSACTIONS
In February 1997, a director borrowed $39,700 from the Company. The
receivable is evidenced by an unsecured note due in 120 days on June 15, 1997,
with interest at 5.75 percent. The note was repaid in June 1997.
During fiscal 1997, the Company had sales of approximately $532,800 to and
purchases of approximately $804,300 from a corporation owned by a related party.
At March 31, 1997, the Company had $12,400 and $132,700 included in trade
receivables and accounts payable, respectively, related to these transactions.
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases a facility under a lease agreement which expires on April
30, 1998. The following is a schedule of future minimum lease payments required
under this operating lease as of March 31, 1997:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
<S> <C>
1998......................................................................... $ 47,616
1999......................................................................... 3,968
---------
$ 51,584
---------
---------
</TABLE>
Total rental expense for the year ended March 31, 1997 was approximately
$49,000.
LONG-TERM DEBT
The Company has borrowed from a bank for its delivery van. The loan bears
interest at 8.9 percent per annum with monthly installments of principal and
interest of approximately $400. The following is a schedule of future minimum
required payments:
<TABLE>
<CAPTION>
YEAR ENDING MARCH 31,
<S> <C>
1998......................................................................... $ 3,390
1999......................................................................... 3,707
2000......................................................................... 4,054
2001......................................................................... 4,426
2002......................................................................... 387
---------
$ 15,964
---------
---------
</TABLE>
F-12
<PAGE>
7. RECEIVABLE FROM DIRECTOR
The receivable from director at March 31, 1997 resulted from the purchase by
the Company of 200,000 shares and 100,000 warrants for $100,000 in Evolutions,
Inc. (Evolutions) which at March 31, 1997, was personally guaranteed by a
director of the Company. Subsequent to June 13, 1997, the board of directors and
shareholders voted to release this director from this guarantee as partial
inducement for this individual to accept additional management responsibilities
at the Company, including agreeing to become the chief executive officer. The
Company has determined, due to significant cash flow difficulties encountered by
Evolutions, that its investment is worthless. Accordingly, the Company has
recorded a $100,000 loss during the first quarter of 1997 which is included in
selling, general and administrative expenses.
8. SUBSEQUENT EVENTS
COMMON STOCK
On April 7, 1997, a relative of a shareholder purchased 65,764 shares of
common stock for $300,000. In addition, the Company granted to this party an
option to acquire up to an additional 372,659 common shares at $4.56 per share.
The options expired on October 7, 1997 unexercised.
FINANCING ARRANGEMENT
In June 1997, the Company obtained credit for inventory purchases through
Finova Capital Corporation. The terms for purchases are net 30 and are
collateralized by inventory and accounts receivable. Unless the Company fails to
pay Finova within this 30 day period, all finance costs associated with this
line are charged by Finova to the Company's vendors. This arrangement is
personally guaranteed by two officers of the company. At December 31, 1997, the
Company had a payable to Finova Capital Corporation of approximately $3,400,460
included in accounts payable.
9. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT (UNAUDITED)
RELATED PARTY TRANSACTIONS
For the nine-month period ended December 31, 1997, the Company had sales of
approximately $1,391,300 to and purchases of approximately $598,200 from a
corporation owned by a related party. At December 31, 1997, the Company had
$146,500 and $0 included in trade receivables and accounts payable,
respectively, from this related party.
CONCENTRATION OF RISK
During the nine-month period ended December 31, 1997, one vendor accounted
for 58.3 percent of purchases. During the nine-month period ended December 31,
1997, one customer accounted for 10.9 percent of net sales.
SOFTWARE LICENSE
In September 1997, the Company signed a software license and a reseller
agreement with Computer Aided Software Integration, Inc. (CASI), a subsidiary of
Datatec Systems, Inc. (Datatec), formerly known as Glasgal Communications, Inc.
A director of the Company is also the founder, president, C.E.O., and a
principal shareholder of CASI. The Company paid CASI a one-time license fee of
$1,100,000 for the configuration software. The license agreement is generally a
worldwide royalty-free and nonexclusive license to reproduce and use the
software. The Company has capitalized this amount and will start to amortize
these costs' once the Company puts the software into use. The license fee was
paid in the form of a non-interest bearing promissory note for $950,000 and a
cash payment of $150,000 loaned to the Company by an officer of Datatec (Datatec
Note) with interest at 10 percent. The Datatec Note provides
F-13
<PAGE>
9. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT (UNAUDITED) (CONTINUED)
that the Company is obligated to pay $50,000 (amount paid prior to December 31,
1997) and $100,000 on or before February 28, 1998; provided, however, that if
the Company consummates an initial public offering (an "IPO") of its securities
pursuant to a registration statement filed with the Securities and Exchange
Commission under the Securities Act of 1933, $100,000 of the proceeds of such
IPO shall be immediately applied to prepayment of the $100,000 due to be paid on
February 28, 1998. In the event that the Company completes an IPO prior to
February 28, 1998 and fails to pay the Datatec Note in full by that date, or,
the Datatec Note is not paid in full on or prior to February 28, 1998, in any
event, the Datatec Note shall be converted into such number of shares of Common
Stock of the Company as shall equal the principal amount then outstanding plus
accrued interest divided by a fraction, the numerator of which shall equal the
greater of $20,000,000 or the fair market value of the Company, and the
denominator of which shall be the number of shares of Common Stock of the
Company outstanding immediately prior to such conversion. The CASI note is due
in installments of $250,000 (paid prior to December 31, 1997) and $700,000 due
on or before February 28, 1998, respectively. The aggregate principal balance on
these Notes of $800,000 is included in current portion of long-term debt in the
December 31, 1997 Balance Sheet. In addition, the Company has a maintenance fee
of $25,000 per year, payable in equal quarterly installments. The Company also
issued CASI a contingent warrant exercisable in the event of default of the note
at $4.50 per share. This warrant is convertible into 155,902 shares of common
stock.
STOCK SPLIT
In October 1997, the Company effected a 10.960591 for one common stock split
and increased the number of authorized shares of common stock to 20,000,000. All
information in the accompanying financial statements has been retroactively
restated to reflect these changes.
PREFERRED STOCK
In October 1997, the Company authorized 2,000,000 shares of preferred stock.
EMPLOYMENT AGREEMENTS
The Company has employment agreements with certain key executives. These
agreements have terms of five years.
STOCK OPTIONS
In July 1997, the Company established the 1997 Stock Incentive Plan (the
"Plan"). Under the Plan, options are generally granted to employees and
directors at an exercise price equal to fair market value, as determined by the
board of directors. The Company has reserved 500,000 shares of the Company's
common stock for issuance under the Plan. On July 1, 1997, the Company granted
options to purchase up to 307,717 shares of common stock with an exercise price
of $2.70 per share. The plan terminates in 2007.
Information regarding the Company's options is as follows:
<TABLE>
<CAPTION>
WEIGHTED
SHARES AVERAGE WEIGHTED
UNDER EXERCISE AVERAGE AGGREGATE
OPTION PRICE FAIR VALUE PRICE
--------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
BALANCE, March 31, 1997.............................................. -- $ -- $ -- $ --
Granted............................................................ 307,717 2.70 0.72 830,836
Canceled........................................................... -- -- -- --
Exercised.......................................................... -- -- -- --
--------- ----- ----- ----------
BALANCE, December 31, 1997........................................... 307,717 $ 2.70 $ 0.72 $ 830,836
--------- ----- ----- ----------
--------- ----- ----- ----------
</TABLE>
F-14
<PAGE>
9. EVENTS SUBSEQUENT TO THE DATE OF THE AUDITORS' REPORT (UNAUDITED) (CONTINUED)
Information about the Company's options outstanding at December 31, 1997 is
summarized as follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE REMAINING
EXERCISE PRICE NUMBER OF SHARES OUTSTANDING CONTRACTUAL LIFE
- ------------------------------- ------------------------------- -------------------------------
<S> <C> <C>
$2.70 307,717 9.50 years
</TABLE>
The Company accounts for stock options granted to non-employees in
accordance with SFAS No. 123 which requires non-cash compensation expense be
recognized over the expected period of benefit. The Company accounts for its
stock options granted to employees and directors under Accounting Principles
Board No. 25 (APB 25), under which no compensation cost has been recognized. As
of December 31, 1997, options for 93,721 shares were exercisable.
If the Company had recognized compensation cost for stock-based employee
compensation in accordance with SFAS No. 123, the Company's net income would
have decreased as follows:
<TABLE>
<CAPTION>
NINE-MONTH PERIODS
ENDED
DECEMBER 31, 1997
-----------------------
AS REPORTED PRO FORMA
----------- ----------
(UNAUDITED)
<S> <C> <C>
Net income..................................................................... $ 625,108 $ 582,672
Basic and diluted earnings per share........................................... $ 0.14 $ 0.13
</TABLE>
The fair value of each option granted is estimated on the date of grant
using the Black-Scholes option pricing model with the following assumptions used
for grants: risk-free interest rate of 6.31 percent; expected lives of five
years; no expected volatility and no dividends would be issued during the option
terms.
Subsequent to December 31, 1997, the Company granted additional options
under the Plan to purchase up to 76,000 shares of Common Stock with an exercise
price of $4.50 per share.
PRIVATE PLACEMENT
In December 1997, the Company completed a private placement for $1,000,000
with net proceeds of approximately $740,000. The Company sold 20 units for
$50,000 per unit. Each unit consisted of (i) an unsecured promissory note for
$20,000, bearing interest at 10 percent due eighteen months from the date of
issue or upon closing of a $2,000,000 financing, (ii) 15,000 shares of common
stock and (iii) 5,000 warrants exercisable at $3.00 per share into common stock
for three years, commencing one year after of issuance. The proceeds were used,
in part, to pay $250,000 of the CASI note and $50,000 of the Datatec Note. In
connection with the private placement the Placement Agent and the Company's
legal counsel received 35,000 warrants and 45,000 warrants, respectively for
nominal consideration. The warrants are excercisable at $3.00 per share. The
Placement Agent Warrants were cancelled on March 6, 1998.
F-15
<PAGE>
Back Inside Cover Page
[Graphic depicting schematically: File & Print Services, Client Server
Applications, Workstation Setup, and Connectivity Devices]
Caption: The ACSA solution will enable automated custom software and hardware
configuration of computers at the point of assembly to permit operation with
each individual end user's specific network and software applications including
file and print services, workstation applications and communication devices.
[Photo of motherboard]
[Caption: The Company assembles custom systems from individual components
such as 'motherboards.']
Collage of Products sold by the Company.
No Caption
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
NO UNDERWRITER, DEALER, SALES REPRESENTATIVE OR OTHER PERSON HAS BEEN
AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN
THOSE CONTAINED IN THIS PROSPECTUS IN CONNECTION WITH THE OFFERING AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY
SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF
ANY DATE SUBSEQUENT TO THE DATE HEREOF. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL, OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OFFERED
HEREBY BY ANYONE IN ANY JURISDICTION IN WHICH SUCH OFFER TO SELL OR SOLICITATION
IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR SOLICITATION IS
NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH
OFFER OR SOLICITATION.
-------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
---------
<S> <C>
Prospectus Summary............................. 3
Risk Factors................................... 6
Recent Bridge Financing........................ 17
Use of Proceeds................................ 18
Dividend Policy................................ 19
Dilution....................................... 19
Capitalization................................. 20
Selected Financial Data........................ 21
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................... 22
Business....................................... 27
Management..................................... 36
Certain Transactions........................... 41
Principal Shareholders......................... 44
Description of Capital Stock................... 45
Shares Eligible for Future Sale................ 46
Underwriting................................... 47
Legal Matters.................................. 49
Experts........................................ 49
Additional Information......................... 49
Index to Financial Statements.................. F-1
</TABLE>
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL
DEALERS EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING
IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS DELIVERY
REQUIREMENT IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS
WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.
[LOGO]
2,300,000 SHARES
OF
COMMON STOCK
--------------
PROSPECTUS
--------------
JOSEPH STEVENS & COMPANY, INC.
, 1998
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table itemizes the expenses incurred by the Registrant in
connection with the issuance and distribution of the Securities being
registered, other than underwriting discounts. All the amounts shown are
estimates except the Securities and Exchange Commission registration fee and the
NASD filing fee.
<TABLE>
<CAPTION>
<S> <C>
Registration fee--Securities and Exchange Commission........................... $ 4,300.00
NASD filing fee................................................................ 1,535.00
Nasdaq Listing fee............................................................. 10,000.00
Accounting fees and expenses................................................... 90,000.00
Legal fees and expenses (other than blue sky).................................. 150,000.00
Blue sky fees and expenses, including legal fees............................... 10,000.00
Underwriter's expenses......................................................... 345,000.00
Printing; stock certificates................................................... 100,000.00
Transfer agent and registrar fees.............................................. 2,500.00
Directors and Officers' Insurance.............................................. 50,000.00
Miscellaneous.................................................................. 38,665.00
-------------
Total...................................................................... $ 802,000.00
-------------
-------------
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Registrant's Articles of Incorporation include a provision that
eliminates the personal liability of its directors to the Registrant and its
shareholders for monetary damages for breach of the directors' fiduciary duties
in certain circumstances. This limitation has no effect on a director's
liability (i) for acts or omissions that involve intentional misconduct or a
knowing and culpable violation of law, (ii) for acts or omissions that a
director believes to be contrary to the best interests of the Registrant or its
shareholders or that involve the absence of good faith on the part of the
director, (iii) for any transaction from which a director derived an improper
personal benefit, (iv) for acts or omissions that show a reckless disregard for
the director's duty to the Registrant or its shareholders in circumstances in
which the director was aware, or should have been aware, in the ordinary course
of performing a director's duties, of a risk of a serious injury to the
Registrant or its shareholders, (v) for acts or omissions that constitute an
unexcused pattern of inattention that amounts to an abdication of the director's
duty to the Registrant or its shareholders, (vi) under Section 310 of the
California Corporations Code (the "California Code") (concerning contracts or
transactions between the Registrant and a director) or (vii) under Section 316
of the California Code (concerning directors' liability for improper dividends,
loans and guarantees). The provision does not extend to acts or omissions of a
director in his capacity as an officer. Further, the provision will not affect
the availability of injunctions and other equitable remedies available to the
Registrant's shareholders for any violation of a director's fiduciary duty to
the Registrant or its shareholders.
The Registrant's Articles of Incorporation also include an authorization for
the Registrant to indemnify its agents (as defined in Section 317 of the
California Code), through bylaw provisions, by agreement or otherwise, to the
fullest extent permitted by law. Pursuant to this latter provision, the
Registrant's Bylaws provide for indemnification of the Registrant's directors,
officers and employees. In addition, the Registrant, at its discretion, may
provide indemnification to persons whom the Registrant is not obligated to
indemnify. The Bylaws also allow the Registrant to enter into indemnity
agreements with individual directors, officers, employees and other agents.
These indemnity agreements have been entered into with all directors and provide
the maximum indemnification permitted by law. These agreements,
II-1
<PAGE>
together with the Registrant's Bylaws and Articles of Incorporation, may require
the Registrant, among other things, to indemnify such directors against certain
liabilities that may arise by reason of their status or service as directors
(other than liabilities resulting from willful misconduct of a culpable nature),
to advance expenses to them as they are incurred, provided that they undertake
to repay the amount advanced if it is ultimately determined by a court that they
are not entitled to indemnification, and to obtain directors' and officers'
insurance if available on reasonable terms.
Section 317 of the California Code and the Registrant's Bylaws make
provision for the indemnification of officers, directors and other corporate
agents in terms sufficiently broad to indemnify such persons, under certain
circumstances, for liabilities (including reimbursement of expenses incurred)
arising under the Securities Act.
Section 10 of the Underwriting Agreement filed as Exhibit 1.1 hereto sets
forth certain provisions with respect to the indemnification of certain
controlling persons, directors and officers against certain losses and
liabilities, including certain liabilities under the Securities Act.
The Registrant maintains director and officer liability insurance.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
Reference is made to the following documents filed as exhibits to this
Registration Statement regarding relevant indemnification provisions described
above and elsewhere herein:
<TABLE>
<CAPTION>
DOCUMENT EXHIBIT NUMBER
- ----------------------------------------------------------------------------- -----------------
<S> <C>
Proposed form of Underwriting Agreement...................................... 1.1
Registrant's Restated Articles of Incorporation.............................. 3.1
Registrant's Amended and Restated Bylaws..................................... 3.2
Registrant's Form of Indemnification Agreement............................... 10.3
</TABLE>
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
On November 26, 1997, the Company issued warrants to purchase 35,000 shares
of Common Stock to Joseph Stevens & Company, Inc. (the "Placement Agent
Warrants"). The Placement Agent's Warrants were sold for a nominal purchase
price of $3.50, or $.0001 per warrant, and were exercisable at $3.00 per share
during the period commencing November 26, 1998 and ending November 26, 2001. The
Placement Agent's Warrants were cancelled on March 6, 1998. In December 1997,
the Company issued warrants to purchase 45,000 shares of common stock of the
Company to Troop Meisinger Steuber & Pasich, LLP. The warrants issued to Troop
Meisinger Steuber and Pasich, LLP were issued for nominal consideration of
$45.00 and for legal services. These warrants are exercisable beginning December
23, 1997 and ending December 31, 2002 at an exercise price of $3.00 per share.
Each of Joseph Stevens & Company, Inc. and Troop Meisinger Steuber & Pasich,
LLP, represented that (i) it acquired the warrants for its own account with the
present intention of holding such warrants for investment purposes only and not
with a view to, or for sale in connection with, any distribution of such
warrants (other than a distribution in compliance with all applicable federal
and state securities laws); (ii) it is an experienced and sophisticated investor
and has such knowledge and experience in financial and business matters that it
is capable of evaluating the relative merits and the risks of an investment in
the warrants and of protecting its own interest in connection with the
transaction at issue; (iii) it is willing to bear and is capable of bearing the
economic risk of an investment in the warrants; and (iv) the Company made
available, prior to the date of its warrant agreement, to it the opportunity to
ask questions of the Company and its officers, and to receive from the Company
and its officers information concerning the terms and conditions of the warrant
and the warrant agreement and to obtain any additional information with respect
to the Company, its business, operations
II-2
<PAGE>
and prospects, as reasonably requested by it; and (v) it is an "accredited
investor" as that term is defined under Rule 501(a)(8) of Regulation D
promulgated by the Commission under the Securities Act. The issuance and sale of
these securities was exempt from the registration and prospectus delivery
requirements of the Securities Act pursuant to Section 4(2) of the Securities
Act (in accordance with Rule 506 of Regulation D and Rule 152 promulgated by the
Commission under the Securities Act) as a transaction not involving any public
offering.
On December 23, 1997, prior to the filing of the Registration Statement with
respect to the Offering, the Company completed a financing (the "Bridge
Financing") consisting of the sale of 20 units (the "Units"), each unit
comprised of: (i) an unsecured promising note (each a "Bridge Note") of the
Company in the principal amount of $20,000, bearing interest at a rate of 10%
per annum payable upon the earlier of the closing of the Offering or 18 months
from the date of issuance; (ii) 15,000 shares of Common Stock of the Company,
and (iii) 5,000 warrants of the Company, each warrant exercisable to purchase
one share of Common Stock at an initial exercise price of $3.00 per share,
subject to adjustment, during the 36-month period commencing one year from the
date the warrants are issued (the "Bridge Warrants"). Each Unit was sold for
$50,000 generating gross proceeds to the Company of $1,000,000 and net proceeds
of $740,000. 60,000 of the Bridge Warrants are exercisable during the period
beginning November 26, 1998 and ending November 26, 2001. 37,500 of the Bridge
Warrants are exercisable during the period beginning December 16, 1998 and
ending December 16, 2001. 2,500 of the Bridge Warrants are exercisable during
the period beginning December 23, 1998 and ending December 23, 2001. Prior to
filing the Registration Statement with respect to the Offering, the purchasers
in the Bridge Financing had entered into binding agreements for the purchase of
the Units. 12 of the Units we sold on November 26, 1997, 7.5 of the Units were
sold December 16, 1997, and 0.5 of the Units were sold on December 23, 1997. The
obligations of the purchasers were not subject to any conditions within the
control of the purchasers or any right of renegotiation. All purchasers of Units
in the Bridge Financing were brokerage customers of Joseph Stevens & Company,
Inc., the Underwriter, who acted as placement agent for the Bridge Financing,
but were not and are not otherwise related to or affiliated with the Company or
Joseph Stevens & Company, Inc. Joseph Stevens & Company, Inc. acted as placement
agent and there was no public solicitation or advertising in connection with the
offering. The transaction was exempt from the registration requirements of the
Securities Act of 1933 (the "Act") under Section 4(2) of the Act and Rule 506 of
Regulation D and Rule 152 promulgated thereunder. The proceeds were used by the
Company for working capital, to repay indebtedness and to commence construction
of the Company's first ACSA Center.
On April 12, 1996, the Company sold 2,192,118 shares of its Common stock to
Nancy Hundt in consideration of $200,000 cash. On November 12, 1997, Ms. Hundt
signed an investment representation which states that she purchased the shares
for her own account and not with a view to resale or distribution. On April 12,
1996, Ms. Hundt was appointed, and she accepted, director of the Company. There
were no underwriters involved in the sale of these securities and there was no
public solicitation or advertisement by the Company in connection with the sale
of these securities. This transaction was exempt from the registration
requirements of the Act under section 4(2) of the Act and section 25102(f) of
the California Securities Law. The proceeds were used by the Company as working
capital to cover general start-up costs.
On April 12, 1996, the Company sold 1,096,059 shares of its Common Stock
each to James Ung and Mei Yang, who are married, each of whom paid $25,000 in
consideration therefor. On November 12, 1997, each of Mr. Ung and Ms. Yang
signed an investment representation which states that each of Mr. Ung and Ms.
Yang purchased the shares for their own accounts and not with a view to resale
or distribution. On April 12, 1996, Mr. Ung and Ms. Yang were appointed, and
they each accepted, director of the Company. There were no underwriters involved
in the sale of these securities and there was no public solicitation or
advertisement by the Company in connection with the sale of these securities.
This transaction was exempt from the registration requirements of the Act under
Section 4(2) of the Act and section 25102(f) of the
II-3
<PAGE>
California Securities Law. The proceeds were used by the Company as working
capital to cover general start-up costs.
On April 7, 1997, the Company sold 65,764 shares of its Common Stock and an
option to purchase an additional 372,659 shares, which option expired October 7,
1997, to Vince Yiang, the brother of Mei Yang, who paid $300,000 in
consideration therefor. On November 12, 1997, Mr. Yiang signed an investment
representation in which Mr. Yiang represents that he purchased the shares for
his own account and not with a view to resale or distribution, and that he has
an individual net worth greater than $1.0 million. There were no underwriters
involved in the sale of these securities and there was no public solicitation or
advertisement by the Company in connection with the sale of these securities.
The transaction was exempt from the registration requirements of the Act under
Section 4(2) of the Act. The proceeds were used by the Company as general
working capital.
II-4
<PAGE>
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Warrant Agreement.
1.3 Form of Financial Advisory and Consulting Agreement.
3.1 Articles of Incorporation of Registrant.
3.2 Certificate of Amendment to Articles of Incorporation, as filed on December 22, 1997.
3.2.1 Certificate of Amendment of the Articles of Incorporation, as filed on January 6, 1998.
3.3 Amended and Restated Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.
10.1 Standard Sublease Agreement, dated April 9, 1996, between ITT Barton Instruments and the Company.
10.2 Employment Agreement, dated May 1, 1997, between the Company and James Ung.
10.3 Employment Agreement, dated July 1, 1997, between the Company and Mei Yoon Yang.
10.4 Executive Employment Agreement, dated July 1, 1997, between the Company and Max Toghraie.
10.5 Amended and Restated License Agreement, dated July 1, 1997, between Computer-Aided Software Integration,
Inc. and the Company.
10.6 Reseller Agreement, made effective as of September 15, 1997, between Computer-Aided Software
Integration, Inc. and the Company.(++)
10.7 Promissory Note, dated July 1, 1997, executed by the Company in favor of Computer Aided Software
Integration, Inc.
10.8 Warrant Agreement, dated July 1, 1997, between the Company and Computer-Aided Software Integration, Inc.
10.9 Promissory Note, dated July 1, 1997, executed by the Company in favor of Ralph Glasgal.
10.10 Lease Agreement, dated for reference purposes October 28, 1997, between the Company and Fortune Dynamic,
Inc.
10.11 Guaranty, dated December 3, 1997, given by James Ung to Fortune Dynamic, Inc.
10.12 Dealer Loan and Security Agreement, dated June 3, 1997, between the Company and FINOVA Capital
Corporation.
10.13 Individual Guaranty, dated June 3, 1997, between FINOVA Capital Corporation and James Ung and Mei Yang.
10.14 Amended and Restated 1997 Stock Plan.
10.15 Form of Nonstatutory Stock Option Agreement.
10.16 Warrant Agreement, dated December 23, 1997, between the Company and Troop Meisinger Steuber & Pasich,
LLP.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its Opinion filed as Exhibit 5.1 herewith)
27 Financial Data Schedule.
99.1 Consent of Carl L. Wood.
</TABLE>
- ------------------------
++ Specified portions of this Exhibit have been omitted and filed separately
with the United States Securities and Exchange Commission pursuant to a
request for an order granting confidential treatment pursuant to Rule 406 of
the General Rules and Regulations under the Securities Act of 1933.
II-5
<PAGE>
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes:
(a) To provide to the underwriter at the closing specified in the
underwriting agreements, certificates in such denominations and registered in
such names as required by the underwriter to permit prompt delivery to each
purchaser.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers, and controlling persons of
the registrant pursuant to the foregoing provisions, or otherwise, the
registrant has been advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the
Securities Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless in
the opinion of its counsel the matter has been settled by a controlling
precedent, submit to a court of appropriate jurisdiction the question whether
such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For the purposes of determining any liability under the Securities
Act of 1933, the information omitted from the form of prospectus filed as
part of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule 424(b)(1)
or (4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities
Act of 1933, each post-effective amendment that contains a form of
prospectus shall be deemed to be a new registration statement relating to
the securities offered therein, and the Offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused Amendment No. 4 to this
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Los Angeles, State of California, on March 25,
1998.
<TABLE>
<S> <C> <C>
CUMETRIX DATA SYSTEMS CORP.
By: /s/ MAX TOGHRAIE
-----------------------------------------
Max Toghraie
CHIEF EXECUTIVE OFFICER
</TABLE>
Pursuant to the requirements of the Securities Act of 1933, Amendment No. 4
to this Registration Statement has been signed by the following persons in the
capacities and on the dates stated.
SIGNATURE TITLE DATE
- ------------------------------ -------------------------- -------------------
/s/ MAX TOGHRAIE
- ------------------------------ Chief Executive Officer March 25, 1998
Max Toghraie and Director
*
- ------------------------------ President and Director March 25, 1998
James Ung
*
- ------------------------------ Secretary, Treasurer March 25, 1998
Mei Yang and Director
Chief Financial Officer
* and
- ------------------------------ Principal Accounting March 25, 1998
Carl Wood Officer
*
- ------------------------------ Director March 25, 1998
Nancy Hundt
*
- ------------------------------ Director March 25, 1998
David Tobey
*
- ------------------------------ Director March 25, 1998
Philip J. Alford
*By: /s/ MAX TOGHRAIE
-------------------------
Max Toghraie March 25, 1998
ATTORNEY-IN-FACT
<PAGE>
INDEX TO EXHIBITS
ITEM 16. EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT DESCRIPTION
- --------- --------------------------------------------------------------------------------------------------------
<S> <C>
1.1 Form of Underwriting Agreement.
1.2 Form of Underwriter's Warrant Agreement.
1.3 Form of Financial Advisory and Consulting Agreement.
3.1 Articles of Incorporation of Registrant.
3.2 Certificate of Amendment to Articles of Incorporation, as filed on December 22, 1997.
3.2.1 Certificate of Amendment of the Articles of Incorporation, as filed on January 6, 1998.
3.3 Amended and Restated Bylaws of Registrant.
4.1 Specimen Stock Certificate of Common Stock of Registrant.
5.1 Opinion and Consent of Troop Meisinger Steuber & Pasich, LLP.
10.1 Standard Sublease Agreement, dated April 9, 1996, between ITT Barton Instruments and the Company.
10.2 Employment Agreement, dated May 1, 1997, between the Company and James Ung.
10.3 Employment Agreement, dated July 1, 1997, between the Company and Mei Yoon Yang.
10.4 Executive Employment Agreement, dated July 1, 1997, between the Company and Max Toghraie.
10.5 Amended and Restated License Agreement, dated July 1, 1997, between Computer-Aided Software Integration,
Inc. and the Company.
10.6 Reseller Agreement, made effective as of September 15, 1997, between Computer-Aided Software
Integration, Inc. and the Company.(++)
10.7 Promissory Note, dated July 1, 1997, executed by the Company in favor of Computer Aided Software
Integration, Inc.
10.8 Warrant Agreement, dated July 1, 1997, between the Company and Computer-Aided Software Integration, Inc.
10.9 Promissory Note, dated July 1, 1997, executed by the Company in favor of Ralph Glasgal.
10.10 Lease Agreement, dated for reference purposes October 28, 1997, between the Company and Fortune Dynamic,
Inc.
10.11 Guaranty, dated December 3, 1997, given by James Ung to Fortune Dynamic, Inc.
10.12 Dealer Loan and Security Agreement, dated June 3, 1997, between the Company and FINOVA Capital
Corporation.
10.13 Individual Guaranty, dated June 3, 1997, between FINOVA Capital Corporation and James Ung and Mei Yang.
10.14 Amended and Restated 1997 Stock Plan.
10.15 Form of Nonstatutory Stock Option Agreement.
10.16 Warrant Agreement, dated December 23, 1997, between the Company and Troop Meisinger Steuber & Pasich,
LLP.
23.1 Consent of Arthur Andersen LLP.
23.2 Consent of Troop Meisinger Steuber & Pasich, LLP (included in its Opinion filed as Exhibit 5.1 herewith)
27 Financial Data Schedule.
99.1 Consent of Carl L. Wood.
</TABLE>
- ------------------------
++ Specified portions of this Exhibit have been omitted and filed separately
with the United States Securities and Exchange Commission pursuant to a
request for an order granting confidential treatment pursuant to Rule 406 of
the General Rules and Regulations under the Securities Act of 1933.
<PAGE>
EXHIBIT 1.1
SHARES OF
COMMON STOCK
CUMETRIX DATA SYSTEMS CORP.
UNDERWRITING AGREEMENT
New York, New York
__________ __, 1998
JOSEPH STEVENS & COMPANY, INC.
33 Maiden Lane, 8th Floor
New York, New York 10038
Ladies and Gentlemen:
CUMETRIX DATA SYSTEMS CORP., a California corporation (the
"Company"), confirms its agreement with Joseph Stevens & Company, Inc.
("JSC") (hereinafter also referred to as "you" or the "Underwriter"), with
respect to the sale by the Company and the purchase by the Underwriter of
shares of common stock, no par value (the "Common Stock"). Such
shares of Common Stock are hereinafter referred to as the "Firm
Shares." Upon the Underwriter's request, as provided in Section 2(b) of this
Agreement, the Company shall also issue and sell to the Underwriter up to an
additional shares for the purpose of covering over-allotments, if
any. Such shares are hereinafter collectively referred to as the
"Option Shares." The Company also proposes to issue and sell to the
Underwriter or its designees warrants (the "Underwriter's Warrants"),
pursuant to the Underwriter's Warrant Agreement (the "Underwriter's Warrant
Agreement"), for the purchase of an additional shares of Common Stock
(the "Underwriter's Shares"). The Firm Shares, the Option Shares, the
Underwriter's Warrants and the Underwriter's Shares are hereinafter
collectively referred to as the "Securities" and are more fully described in
the Registration Statement and the Prospectus referred to below.
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY. The Company
represents and warrants to, and covenants and agrees with, the Underwriter as of
the date hereof, and as of the Closing Date (hereinafter defined) and the Option
Closing Date (hereinafter defined), if any, as follows:
<PAGE>
(a) The Company has prepared and filed with the Securities and
Exchange Commission (the "Commission") a registration statement, and amendments
thereto, on Form S-1 (Registration No. 333-43151), including any related
preliminary prospectus or prospectuses (each a "Preliminary Prospectus"), for
the registration of the Securities, under the Securities Act of 1933, as amended
(the "Act"), which registration statement and amendment or amendments have been
prepared by the Company in conformity with the requirements of the Act, and the
rules and regulations of the Commission under the Act. The Company will not
file any other amendment to such registration statement which the Underwriter
shall have objected to in writing after having been furnished with a copy
thereof. Except as the context may otherwise require, such registration
statement, as amended, on file with the Commission at the time it becomes
effective (including the prospectus, financial statements, schedules, exhibits
and all other documents filed as a part thereof or incorporated therein
(including, but not limited to, those documents or that information incorporated
by reference therein) and all information deemed to be a part thereof as of such
time pursuant to paragraph (b) of Rule 430A of the rules and regulations under
the Act), is hereinafter called the "Registration Statement," and the form of
prospectus in the form first filed with the Commission pursuant to Rule 424(b)
of the rules and regulations under the Act is hereinafter called the
"Prospectus." For purposes hereof, "Rules and Regulations" mean the rules and
regulations adopted by the Commission under either the Act or the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), as applicable.
(b) Neither the Commission nor any state regulatory authority has
issued any order preventing or suspending the use of any Preliminary Prospectus,
the Registration Statement or the Prospectus or any part of any thereof and no
proceedings for a stop order suspending the effectiveness of the Registration
Statement or any of the Company's securities have been instituted or are pending
or threatened. Each of the Preliminary Prospectus, the Registration Statement
and the Prospectus, at the respective times of filing thereof, conformed with
the requirements of the Act and the Rules and Regulations, and none of the
Preliminary Prospectus, the Registration Statement nor the Prospectus, at the
respective times of filing thereof, contained an untrue statement of a material
fact or omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading; PROVIDED, HOWEVER, that this representation and
warranty does not apply to statements made or statements omitted in reliance
upon and in conformity with written information furnished to the Company with
respect to the Underwriter by or on behalf of the Underwriter expressly for use
in such Preliminary Prospectus, the Registration Statement or the Prospectus.
The Company has filed all reports, forms or other documents required to be filed
under the Act and the Exchange Act and the respective Rules and Regulations
thereunder, and all such reports, forms or other documents, when so filed or as
subsequently amended, complied in all material respects with the Act and the
Exchange Act and the respective Rules and Regulations thereunder.
(c) When the Registration Statement becomes effective and at all
times subsequent thereto up to the Closing Date and each Option Closing Date, if
any, and during such longer period as the Prospectus may be required to be
delivered in connection with sales by the Underwriter or a dealer, the
Registration Statement and the Prospectus will contain all statements which are
required to be stated therein in accordance with the Act and the Rules and
Regulations,
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and will conform to the requirements of the Act and the Rules and Regulations;
and, at and through such dates, neither the Registration Statement nor the
Prospectus, nor any amendment or supplement thereto, will contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; PROVIDED, HOWEVER, that
this representation and warranty does not apply to statements made or statements
omitted in reliance upon and in conformity with written information furnished to
the Company with respect to the Underwriter by or on behalf of the Underwriter
expressly for use in the Preliminary Prospectus, Registration Statement or the
Prospectus or any amendment thereof or supplement thereto.
(d) The Company has been duly organized and is validly existing as a
corporation in good standing under the laws of the jurisdiction of its
incorporation. The Company is duly qualified and licensed and in good standing
as a foreign corporation in each jurisdiction in which its ownership or leasing
of any properties or the character of its operations require such qualification
or licensing. Except as set forth in the Prospectus, the Company does not own,
directly or indirectly, an interest in any corporation, partnership, trust,
joint venture or other business entity. The Company has all requisite power and
authority (corporate and other), and has obtained any and all necessary
authorizations, approvals, orders, licenses, certificates, franchises and
permits of and from all governmental or regulatory officials and bodies
(including, without limitation, those having jurisdiction over environmental or
similar matters), to own or lease its properties and conduct its business as
described in the Prospectus; the Company is and has been doing business in
compliance with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits and with all federal, state, local and
foreign laws, rules and regulations to which it is subject; and the Company has
not received any notice of proceedings relating to the revocation or
modification of any such authorization, approval, order, license, certificate,
franchise or permit which, singly or in the aggregate, if the subject of an
unfavorable decision, ruling or finding, would materially and adversely affect
the condition, financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of operations of the
Company. The disclosure in the Registration Statement concerning the effects of
federal, state, local and foreign laws, rules and regulations on the Company's
business as currently conducted and as contemplated is correct in all respects
and does not omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(e) The Company has a duly authorized, issued and outstanding
capitalization as set forth in the Prospectus under "Capitalization" and
"Description of Securities" and will have the adjusted capitalization set forth
therein on the Closing Date and the Option Closing Date, if any, based upon the
assumptions set forth therein, and the Company is not a party to or bound by any
instrument, agreement or other arrangement providing for it to issue any capital
stock, rights, warrants, options or other securities, except for this Agreement
and the Underwriter's Warrant Agreement and as described in the Prospectus. The
Securities and all other securities issued or issuable by the Company on or
prior to the Closing Date and each Option Closing Date, if any, conform or, when
issued and paid for, will conform, in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. All issued and
outstanding securities of the Company have been duly authorized and validly
issued and are fully paid and
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non-assessable; the holders thereof have no rights of rescission with respect
thereto and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the preemptive
rights of any holder of any security of the Company or any similar contractual
right granted by the Company. The Securities to be sold by the Company
hereunder and pursuant to the Underwriter's Warrant Agreement are not and will
not be subject to any preemptive or other similar rights of any stockholder,
have been duly authorized and, when issued, paid for and delivered in accordance
with the terms hereof and thereof, will be validly issued, fully paid and
non-assessable and conform to the descriptions thereof contained in the
Prospectus; the holders thereof will not be subject to any liability solely as
such holders; all corporate action required to be taken for the authorization,
issue and sale of the Securities has been duly and validly taken; and the
certificates representing the Securities, when delivered by the Company, will be
in due and proper form. Upon the issuance and delivery pursuant to the terms
hereof and the Underwriter's Warrant Agreement of the Securities to be sold by
the Company hereunder and thereunder to the Underwriter, the Underwriter will
acquire good and marketable title to such Securities, free and clear of any
lien, charge, claim, encumbrance, pledge, security interest, defect or other
restriction or equity of any kind whatsoever asserted against the Company or any
affiliate (within the meaning of the Rules and Regulations) of the Company.
(f) The financial statements of the Company together with the related
notes thereto, included in the Registration Statement, each Preliminary
Prospectus and the Prospectus fairly present the financial position, income,
changes in stockholders' equity and the results of operations of the Company at
the respective dates and for the respective periods to which they apply and the
pro forma financial information included in the Registration Statement and
Prospectus presents fairly on a basis consistent with that of the audited
financial statement therein, what the Company's pro forma capitalization and
balance sheet data would have been for the respective periods and as of the
respective dates to which they apply after giving effect to the adjustments
described therein. Such financial statements have been prepared in conformity
with generally accepted accounting principles and the Rules and Regulations,
consistently applied throughout the periods involved. There has been no adverse
change or development involving a material prospective change in the condition,
financial or otherwise, or in the earnings, prospects, stockholders' equity,
value, operations, properties, business or results of operations of the Company,
whether or not arising in the ordinary course of business, since the date of the
financial statements included in the Registration Statement and the Prospectus;
and the outstanding debt, the property, both tangible and intangible, and the
business of the Company conform in all respects to the descriptions thereof
contained in the Registration Statement and the Prospectus. The financial
information set forth in the Prospectus under the headings "Summary Financial
Data," "Capitalization," "Selected Financial Data" and "Management's Discussion
and Analysis of Financial Condition and Results of Operation" fairly presents,
on the basis stated in the Prospectus, the information set forth therein and
such financial information has been derived from or compiled on a basis
consistent with that of the audited financial statements included in the
Prospectus.
(g) The Company (i) has paid all federal, state, local and foreign
taxes for which it is liable, including, but not limited to, withholding taxes
and amounts payable under Chapters 21 through 24 of the Internal Revenue Code of
1986, as amended (the "Code"), and has
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<PAGE>
furnished all information returns it is required to furnish pursuant to the
Code, (ii) has established adequate reserves for such taxes which are not due
and payable, and (iii) does not have any tax deficiency or claims outstanding,
proposed or assessed against it.
(h) No transfer tax, stamp duty or other similar tax is payable by or
on behalf of the Underwriter in connection with (i) the issuance by the Company
of the Securities, (ii) the purchase by the Underwriter of the Securities from
the Company, (iii) the consummation by the Company of any of its obligations
under this Agreement or the Underwriter's Warrant Agreement, or (iv) resales of
the Firm Shares or the Option Shares in connection with the distribution
contemplated hereby.
(i) The Company maintains insurance policies, including, but not
limited to, general liability, property, personal and product liability
insurance, and surety bonds which insure the Company and its employees against
such losses and risks generally insured against by comparable businesses. The
Company (i) has not failed to give notice or present any insurance claim with
respect to any insurable matter under the appropriate insurance policy or surety
bond in a due and timely manner, (ii) does not have any disputes or claims
against any underwriter of such insurance policies or surety bonds, nor has
failed to pay any premiums due and payable thereunder, or (iii) has not failed
to comply with all conditions contained in such insurance policies and surety
bonds. There are no facts or circumstances under any such insurance policy or
surety bond which would relieve any insurer of its obligation to satisfy in full
any valid claim of the Company.
(j) There is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including, without
limitation, those pertaining to environmental or similar matters), domestic or
foreign, pending or threatened against (or circumstances that may give rise to
the same), or involving the properties or business of, the Company which (i)
questions the validity of the capital stock of the Company, this Agreement, the
Underwriter's Warrant Agreement or the Consulting Agreement (as defined in
Section 1(ff) hereof) or of any action taken or to be taken by the Company
pursuant to or in connection with this Agreement, the Underwriter's Warrant
Agreement or the Consulting Agreement, (ii) is required to be disclosed in the
Registration Statement which is not so disclosed (and such proceedings as are
summarized in the Registration Statement are accurately summarized in all
respects), or (iii) might materially and adversely affect the condition,
financial or otherwise, or the earnings, prospects, stockholders' equity, value,
operations, properties, business or results of operations of the Company.
(k) The Company has full legal right, power and authority to
authorize, issue, deliver and sell the Securities, to enter into this Agreement,
the Underwriter's Warrant Agreement and the Consulting Agreement and to
consummate the transactions provided for in such agreements; each of this
Agreement, the Underwriter's Warrant Agreement and the Consulting Agreement have
been duly and properly authorized, executed and delivered by the Company. Each
of this Agreement, the Underwriter's Warrant Agreement and the Consulting
Agreement constitutes a legal, valid and binding agreement of the Company,
enforceable against the Company in accordance with its respective terms (except
as such enforceability may be limited by applicable
5
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bankruptcy, insolvency, reorganization, moratorium or other laws of general
application relating to or affecting the enforcement of creditors' rights and
the application of equitable principles in any motion, legal or equitable, and
except as obligations to indemnify or contribute to losses may be limited by
applicable law). None of the Company's issue and sale of the Securities,
execution or delivery of this Agreement, the Underwriter's Warrant Agreement or
the Consulting Agreement, its performance hereunder and thereunder, its
consummation of the transactions contemplated herein and therein or the conduct
of its business as described in the Registration Statement and the Prospectus
and any amendments or supplements thereto, conflicts with or will conflict with
or results or will result in any breach or violation of any of the terms or
provisions of, or constitutes or will constitute a default under, or result in
the creation or imposition of any lien, charge, claim, encumbrance, pledge,
security interest, defect or other restriction or equity of any kind whatsoever
upon, any property or assets (tangible or intangible) of the Company pursuant to
the terms of (i) the certificate of incorporation or by-laws of the Company,
(ii) any license, contract, indenture, mortgage, lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan or credit agreement or
other agreement or instrument evidencing an obligation for borrowed money, or
any other agreement or instrument to which the Company is a party or by which it
is or may be bound or to which its properties or assets (tangible or intangible)
are or may be subject, or (iii) any statute, judgment, decree, order, rule or
regulation applicable to the Company of any arbitrator, court, regulatory body
or administrative agency or other governmental agency or body (including,
without limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or any of
its activities or properties.
(l) No consent, approval, authorization or order of, and no filing
with, any arbitrator, court, regulatory body, administrative agency,
government agency or other body, domestic or foreign, is required for the
issuance of the Securities pursuant to the Prospectus and the Registration
Statement, this Agreement and the Underwriter's Warrant Agreement, the
performance of this Agreement, the Underwriter's Warrant Agreement and the
Consulting Agreement and the transactions contemplated hereby and thereby,
except such as have been obtained under the Act, state securities laws, The
Nasdaq Stock Market and the rules of the National Association of Securities
Dealers, Inc. (the "NASD") in connection with the Underwriter's purchase and
distribution of the Securities.
(m) All executed agreements, contracts or other documents or copies
of executed agreements, contracts or other documents filed as exhibits to the
Registration Statement to which the Company is a party or by which it may be
bound or to which its assets, properties or business may be subject have been
duly and validly authorized, executed and delivered by the Company, and
constitute legal, valid and binding agreements of the Company enforceable
against the Company, in accordance with their respective terms (except as such
enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of equitable
principles in any motion, legal or equitable, and except as obligations to
indemnify or contribute to losses may be limited by applicable law). The
descriptions in the Registration Statement of agreements, contracts and other
documents are accurate and fairly present the information required to be shown
with respect thereto by Form S-1; and there are no agreements,
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<PAGE>
contracts or other documents which are required by the Act to be described in
the Registration Statement or filed as exhibits to the Registration Statement
which are not described or filed as required; and the exhibits which have been
filed are complete and correct copies of the documents of which they purport to
be copies.
(n) Subsequent to the respective dates as of which information is set
forth in the Registration Statement and the Prospectus, and except as may
otherwise be indicated or contemplated herein or therein, the Company has not
(i) issued any securities or incurred any liability or obligation, direct or
contingent, for borrowed money, (ii) entered into any transaction other than in
the ordinary course of business, or (iii) declared or paid any dividend or made
any other distribution on or in respect of any class of its capital stock; and,
subsequent to such dates, and except as may be otherwise disclosed in the
Prospectus, there has not been any change in the capital stock, debt (long or
short term) or liabilities or any material change in the condition, financial or
otherwise, or the earnings, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company.
(o) No default exists in the due performance and observance of any
term, covenant or condition of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders' agreement, note,
loan or credit agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to which the
Company is a party or by which the Company is or may be bound or to which the
property or assets (tangible or intangible) of the Company is or may be subject.
(p) The Company has generally enjoyed a satisfactory
employer-employee relationship with its employees and is in compliance with all
federal, state, local and foreign laws, rules and regulations respecting
employment, employment practices, terms and conditions of employment and wages
and hours. There are no pending investigations involving the Company by the
United States Department of Labor or any other governmental agency responsible
for the enforcement of any federal, state, local or foreign laws, rules and
regulations relating to employment. There is no unfair labor practice charge or
complaint against the Company pending before the National Labor Relations Board
or any strike, picketing, boycott, dispute, slowdown or stoppage pending or
threatened against or involving the Company, or any predecessor entity, and none
has ever occurred. No representation question exists respecting the employees
of the Company, and no collective bargaining agreement or modification thereof
is currently being negotiated by the Company. No grievance or arbitration
proceeding is pending under any expired or existing collective bargaining
agreements of the Company. No labor dispute with the employees of the Company
exists or is imminent.
(q) The Company does not maintain, sponsor or contribute to any
program or arrangement that is an "employee pension benefit plan," an "employee
welfare benefit plan" or a "multiemployer plan," as such terms are defined in
Sections 3(2), 3(l) and 3(37), respectively, of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA") ("ERISA Plans"). The Company does
not maintain or contribute, now or at any time previously, to a defined benefit
plan, as defined in Section 3(35) of ERISA. No ERISA Plan (or any trust created
thereunder) has engaged in a "prohibited transaction" within the meaning of
Section 406 of ERISA
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or Section 4975 of the Code which could subject the Company to any tax penalty
on prohibited transactions and which has not adequately been corrected. Each
ERISA Plan is in compliance with all material reporting, disclosure and other
requirements of the Code and ERISA as they relate to any such ERISA Plan.
Determination letters have been received from the Internal Revenue Service with
respect to each ERISA Plan which is intended to comply with Code Section 401(a),
stating that such ERISA Plan and the attendant trust are qualified thereunder.
The Company has never completely or partially withdrawn from a "multiemployer
plan."
(r) Neither the Company nor any of its respective employees,
directors, stockholders or affiliates (within the meaning of the Rules and
Regulations), has taken or will take, directly or indirectly, any action
designed to or which has constituted or which might be expected to cause or
result in, under the Exchange Act or otherwise, the stabilization or
manipulation of the price of any security of the Company, whether to facilitate
the sale or resale of the Securities or otherwise.
(s) To the best of the Company's knowledge, none of the trademarks,
trade names, service marks, service names, copyrights, patents and patent
applications, and none of the licenses and rights to the foregoing, presently
owned or held by the Company are in dispute or are in conflict with the right of
any other person or entity. The Company (i) owns or has the right to use, free
and clear of all liens, charges, claims, encumbrances, pledges, security
interests, defects or other restrictions or equities of any kind whatsoever, all
trademarks, trade names, service marks, service names, copyrights, patents and
patent applications, and licenses and rights with respect to the foregoing, used
in the conduct of its business as now conducted or proposed to be conducted
without infringing upon or otherwise acting adversely to the right or claimed
right of any person, corporation or other entity under or with respect to any of
the foregoing and (ii) is not obligated or under any liability whatsoever to
make any payments by way of royalties, fees or otherwise to any owner or
licensee of, or other claimant to, any trademark, trade name, service mark,
service name, copyright, patent or patent application except as set forth in the
Registration Statement or the Prospectus. There is no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, pending or threatened (or circumstances that
may give rise to the same) against the Company which challenges the exclusive
rights of the Company with respect to any trademarks, trade names, service
marks, service names, copyrights, patents, patent applications or licenses or
rights to the foregoing used in the conduct of its business.
(t) Except as set forth in the Registration Statement or the
Prospectus, the Company owns and has the unrestricted right to use all trade
secrets, know-how (including all unpatented and/or unpatentable proprietary or
confidential information, systems or procedures), inventions, technology,
designs, processes, works of authorship, computer programs and technical data
and information that are material to the development, manufacture, operation and
sale of all products and services sold or proposed to be sold by the Company,
free and clear of and without violating any right, lien, or claim of others,
including, without limitation, former employers of its employees.
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(u) The Company has good and marketable title to, or valid and
enforceable leasehold estates in, all items of real and personal property stated
in the Prospectus to be owned or leased by it, free and clear of all liens,
charges, claims, encumbrances, pledges, security interests, defects or other
restrictions or equities of any kind whatsoever, other than liens for taxes not
yet due and payable.
(v) Arthur Andersen LLP, whose reports are filed with the Commission
as a part of the Registration Statement, are independent certified public
accountants as required by the Act and the Rules and Regulations.
(w) The holders of all of the shares of Common Stock of the Company,
including each director, officer and principal shareholder of the Company, but
excluding the Bridge Investors (as such term is defined below), have executed an
agreement (collectively, the "Lock-Up Agreements") pursuant to which he, she or
it has agreed, for a period extending eighteen (18) months following the
effective date of the Registration Statement (the "Lock-Up Period"), not to
directly or indirectly, offer, offer to sell, sell, grant an option for the
purchase or sale of, transfer, pledge, assign, hypothecate or otherwise encumber
(whether pursuant to Rule 144 of the Rules and Regulations or otherwise) any
securities issued or issuable by the Company, whether or not owned by or
registered in the name of such persons, or dispose of any interest therein,
without the prior written consent of the Underwriter; provided, however, that
the Lock-Up Period shall immediately terminate if the average closing bid price
of the Common Stock, if the Common Stock is quoted on the Nasdaq system, or the
average closing sale price of the Common Stock, if the Common Stock is listed on
the American Stock Exchange, equals or exceeds $9.00 per share (subject to
customary adjustments for stocksplits, combinations, consolidations and similar
transactions) for any 30 consecutive calendar days. Such persons have all
further agreed in the Lock-Up Agreements that, for a period extending
twenty-four (24) months following the effective date of the Registration
Statement, all sales of such securities of the Company shall be made through JSC
in accordance with its customary brokerage policies. The Company will cause its
transfer agent to mark an appropriate legend on the face of stock certificates
representing all of such securities and to place "stop transfer" orders on the
Company's stock ledgers. The investors (collectively, the "Bridge Investors"),
who purchased securities of the Company in the Company's bridge financing (the
"Bridge Financing") pursuant to the confidential private placement memorandum
dated October 29, 1997, have agreed not to directly or indirectly, issue, offer
to sell, grant an option for the sale of, transfer, assign, hypothecate, pledge,
distribute or otherwise dispose of or encumber (either pursuant to Rule 144 of
the regulations under the Securities Act or otherwise) the units, the shares of
common stock, the warrants or the shares of common stock underlying such
warrants acquired or sold in the Bridge Financing for a period extending twelve
(12) months following the effective date of the Registration Statement and
thereafter for an additional six (6) months, without the prior written consent
of the Underwriter. The Bridge Investors has further agreed that for a period
extending twenty-four (24) months following the effective date of the
Registration Statement, all sales of such securities shall be made through JSC
in accordance with its customary brokerage policies. The Company will cause its
transfer agent to make an appropriate legend on the face of stock certificates
representing all such securities and to place "stop transfer" orders on the
Company's stock ledgers.
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(x) There are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of a
finder's or origination fee with respect to the sale of the Securities hereunder
or any other arrangements, agreements, understandings, payments or issuances
that may affect the Underwriter's compensation, as determined by the NASD.
(y) The Common Stock has been approved for quotation on the Nasdaq
SmallCap Market.
(z) Neither the Company nor any of its respective directors,
officers, stockholders, employees, agents or any other person acting on behalf
of the Company has, directly or indirectly, given or agreed to give any money,
gift or similar benefit (other than legal price concessions to customers in the
ordinary course of business) to any customer, supplier, employee or agent of a
customer or supplier, or any official or employee of any governmental agency or
instrumentality of any government (domestic or foreign) or instrumentality of
any government (domestic or foreign) or any political party or candidate for
office (domestic or foreign) or any other person who was, is or may be in a
position to help or hinder the business of the Company (or assist the Company in
connection with any actual or proposed transaction) which (i) might subject the
Company, or any other such person to any damage or penalty in any civil,
criminal or governmental litigation or proceeding (domestic or foreign), (ii) if
not given in the past, might have had a material and adverse effect on the
condition, financial or otherwise, or the earnings, business affairs, prospects,
stockholders' equity, value, operations, properties, business or results of
operations of the Company, or (iii) if not continued in the future, might
materially and adversely affect the condition, financial or otherwise, or the
earnings, business affairs, prospects, stockholders' equity, value, operations,
properties, business or results of operations of the Company. The Company's
internal accounting controls are sufficient to cause the Company to comply with
the Foreign Corrupt Practices Act of 1977, as amended.
(aa) The Company confirms as of the date hereof that it is in
compliance with all provisions of Section 1 of Laws of Florida, Chapter 92-198,
AN ACT RELATING TO DISCLOSURE OF DOING BUSINESS WITH CUBA, and the Company
further agrees that if it or any affiliate commences engaging in business with
the government of Cuba or with any person or affiliate located in Cuba after the
date the Registration Statement becomes or has become effective with the
Commission or with the Florida Department of Banking and Finance (the
"Department"), whichever date is later, or if the information reported or
incorporated by reference in the Prospectus, if any, concerning the Company's,
or any affiliate's, business with Cuba or with any person or affiliate located
in Cuba changes in any material way, the Company will provide the Department
notice of such business or change, as appropriate, in a form acceptable to the
Department.
(bb) Except as set forth in the Prospectus, no officer, director or
stockholder of the Company, and no affiliate or associate (as these terms are
defined in the Rules and Regulations) of any of the foregoing persons or
entities, has or has had, either directly or indirectly, (i) an interest in any
person or entity which (A) furnishes or sells services or products which are
furnished or sold or are proposed to be furnished or sold by the Company, or (B)
purchases from or sells or furnishes to the Company any goods or services, or
(ii) a beneficial
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interest in any contract or agreement to which the Company is a party or by
which the Company may be bound. Except as set forth in the Prospectus under
"Certain Transactions," there are no existing agreements, arrangements,
understandings or transactions, or proposed agreements, arrangements,
understandings or transactions, between or among the Company, and any officer,
director or any person listed in the "Principal Shareholders" section of the
Prospectus or any affiliate or associate of any of the foregoing persons or
entities.
(cc) The minute books of the Company have been made available to the
Underwriter, contain a complete summary of all meetings and actions of the
directors and stockholders of the Company since the time of its incorporation,
and reflect all transactions referred to in such minutes accurately in all
respects.
(dd) Except and to the extent described in the Prospectus, no holder
of any securities of the Company or of any options, warrants or other
convertible or exchangeable securities of the Company has the right to include
any securities issued by the Company in the Registration Statement or any
registration statement to be filed by the Company or to require the Company to
file a registration statement. Except as set forth in the Prospectus, no person
or entity holds any anti-dilution rights with respect to any securities of the
Company.
(ee) Any certificate signed by any officer of the Company and
delivered to the Underwriter or to Underwriter's Counsel (as defined in Section
4(d) herein), shall be deemed a representation and warranty by the Company to
the Underwriter as to the matters covered thereby.
(ff) The Company has entered into a financial advisory and consulting
agreement substantially in the form filed as Exhibit _____ to the Registration
Statement (the "Consulting Agreement") with the Underwriter, with respect to the
rendering of consulting services by the Underwriter to the Company. The
Consulting Agreement provides that the Underwriter shall be retained by the
Company commencing on the consummation of the proposed public offering and
ending 24 months thereafter, at a monthly retainer of $2,000, all of which is
payable on consummation of the proposed public offering. The Consulting
Agreement has been duly and validly authorized by the Company and assuming due
execution by the parties thereto other than the Company, constitutes a valid and
legally binding agreement of the Company, enforceable against the Company in
accordance with its terms (except as such enforceability may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or other laws of
general application relating to or affecting enforcement of creditors' rights
and the application of equitable principles in any action, legal or equitable,
and except as rights to indemnity or contribution may be limited by applicable
law).
(gg) The Company has filed a Form 8-A with the Commission providing
for the registration under the Exchange Act of the Securities and such Form 8-A
has been declared effective by the Commission.
(hh) The Company has as of the effective date of the Registration
Statement (i) entered into an employment agreement with each of Max Tohgraie,
James Ung and Mei Yang in the forms file as Exhibit 10.__, 10.__ and 10.__,
respectively, to the Registration Statement and
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(ii) has obtained term key-man insurance on the lives of James Ung and Max
Toghraie in the amount of $1,000,000 which policy names the Company as sole
beneficiary.
2. PURCHASE, SALE AND DELIVERY OF THE SECURITIES.
(a) On the basis of the representations, warranties, covenants and
agreements herein contained, but subject to the terms and conditions herein set
forth, the Company agrees to sell to the Underwriter, and the Underwriter agrees
to purchase from the Company, the Firm Shares at a price equal to $__________
[90% of the initial public offering price] per Share.
(b) In addition, on the basis of the representations, warranties,
covenants and agreement, herein contained, but subject to the terms and
conditions herein set forth, the Company hereby grants an option to the
Underwriter to purchase all or any part of the Option Shares at a price equal to
$__________ [90% of the initial public offering price] per Share. The option
granted hereby will expire forty-five (45) days after (i) the date the
Registration Statement becomes effective, if the Company has elected not to rely
on Rule 430A under the Rules and Regulations, or (ii) the date of this Agreement
if the Company has elected to rely upon Rule 430A under the Rules and
Regulations, and may be exercised in whole or in part from time to time only for
the purpose of covering over-allotments which may be made in connection with the
offering and distribution of the Firm Shares upon notice by the Underwriter to
the Company setting forth the number of Option Shares as to which the
Underwriter is then exercising the option and the time and date of payment and
delivery for any such Option Shares. Any such time and date of delivery (an
"Option Closing Date") shall be determined by the Underwriter, but shall not be
later than seven (7) full business days after the exercise of said option, nor
in any event prior to the Closing Date, unless otherwise agreed upon by the
Underwriter and the Company. Nothing herein contained shall obligate the
Underwriter to exercise the option granted hereby. No Option Shares shall be
delivered unless the Firm Shares shall be simultaneously delivered or shall
theretofore have been delivered as herein provided.
(c) Payment of the purchase price for, and delivery of certificates
for, the Firm Shares shall be made at the offices of the Underwriter at 33
Maiden Lane, New York, New York 10038, or at such other place as shall be agreed
upon by the Underwriter and the Company. Such delivery and payment shall be
made at 10:00 a.m. (New York City time) on __________ __, 1998 or at such other
time and date as shall be agreed upon by the Underwriter and the Company, but
not less than three (3) nor more than seven (7) full business days after the
effective date of the Registration Statement (such time and date of payment and
delivery being herein called the "Closing Date"). In addition, in the event
that any or all of the Option Shares are purchased by the Underwriter, payment
of the purchase price for, and delivery of certificates for, such Option Shares
shall be made at the above mentioned office of the Underwriter or at such other
place as shall be agreed upon by the Underwriter and the Company. Delivery of
the certificates for the Firm Shares and the Option Shares, if any, shall be
made to the Underwriter against payment by the Underwriter of the purchase price
for the Firm Shares and the Option Shares, if any, to the order of the Company
by New York Clearing House funds. Certificates for the Firm Shares and the
Option Shares, if any, shall be in definitive, fully registered form, shall bear
no restrictive legends and shall be in such denominations and registered in such
names as the Underwriter may
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request in writing at least two (2) business days prior to the Closing Date or
the relevant Option Closing Date, as the case may be. The certificates for the
Firm Shares and the Option Shares, if any, shall be made available to the
Underwriter at such offices or such other place as the Underwriter may designate
for inspection, checking and packaging no later than 9:30 a.m. on the last
business day prior to the Closing Date or the relevant Option Closing Date, as
the case may be.
(d) On the Closing Date, the Company shall issue and sell to the
Underwriter or its designees the Underwriter's Warrants for an aggregate
purchase price of $.0001 per warrant, which warrants shall entitle the holders
thereof to purchase an aggregate of an additional Shares. The
Underwriter's Warrants shall be exercisable for a period of four (4) years
commencing one (1) year from the effective date of the Registration Statement at
a price equaling percent ( ) of the initial public
offering price of the Shares. The Underwriter's Warrant Agreement and the form
of the certificates for the Underwriter's Warrant shall be substantially in the
form filed as Exhibit ___ to the Registration Statement. Payment for the
Underwriter's Warrants shall be made on the Closing Date.
3. PUBLIC OFFERING OF THE SHARES. As soon after the Registration
Statement becomes effective as the Underwriter deems advisable, the Underwriter
shall make a public offering of the Firm Shares and such of the Option Shares as
the Underwriter may determine (other than to residents of or in any jurisdiction
in which qualification of the Shares is required and has not become effective)
at the price and upon the other terms set forth in the Prospectus. The
Underwriter may from time to time increase or decrease the public offering price
after distribution of the Shares has been completed to such extent as the
Underwriter, in its sole discretion, deems advisable. The Underwriter may enter
into one or more agreements as the Underwriter, in its sole discretion, deems
advisable with one or more broker-dealers who shall act as dealers in connection
with such public offering.
4. COVENANTS AND AGREEMENTS OF THE COMPANY. The Company covenants
and agrees with the Underwriter as follows:
(a) The Company shall use its best efforts to cause the Registration
Statement and any amendments thereto to become effective as promptly as
practicable and will not at any time, whether before or after the effective date
of the Registration Statement, file any amendment to the Registration Statement
or supplement to the Prospectus or file any document under the Act or the
Exchange Act before termination of the offering of the Securities to the public
by the Underwriter of which the Underwriter shall not previously have been
advised and furnished with a copy, or to which the Underwriter shall have
objected or which is not in compliance with the Act, the Exchange Act and the
Rules and Regulations.
(b) As soon as the Company is advised or obtains knowledge thereof,
the Company will advise the Underwriter and confirm the same in writing, (i)
when the Registration Statement, as amended, becomes effective, when any
post-effective amendment to the Registration Statement becomes effective and, if
the provisions of Rule 430A promulgated under the Act will be relied upon, when
the Prospectus has been filed in accordance with said Rule 430A, (ii) of the
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issuance by the Commission of any stop order or of the initiation, or the
threatening, of any proceeding the outcome of which may result in the suspension
of the effectiveness of the Registration Statement or any order preventing or
suspending the use of the Preliminary Prospectus or the Prospectus, or any
amendment or supplement thereto, or the institution of any proceedings for that
purpose, (iii) of the issuance by the Commission or by any state securities
commission of any proceedings for the suspension of the qualification of any of
the Securities for offering or sale in any jurisdiction or of the initiation, or
the threatening, of any proceeding for that purpose, (iv) of the receipt of any
comments from the Commission, and (v) of any request by the Commission for any
amendment to the Registration Statement or any amendment or supplement to the
Prospectus or for additional information. If the Commission or any state
securities regulatory authority shall enter a stop order or suspend such
qualification at any time, the Company will make every effort to obtain promptly
the lifting of such order.
(c) The Company shall file the Prospectus (in form and substance
satisfactory to the Underwriter) with the Commission, or transmit the Prospectus
by a means reasonably calculated to result in filing the same with the
Commission, pursuant to Rule 424(b)(1) of the Rules and Regulations (or, if
applicable and if consented to by the Underwriter, pursuant to Rule 424(b)(4) of
the Rules and Regulations) within the time period specified in Rule 424(b)(1)
(or, if applicable and if consented to by the Underwriter, Rule 424(b)(4)).
(d) The Company will give the Underwriter notice of its intention to
file or prepare any amendment to the Registration Statement (including any
post-effective amendment) or any amendment or supplement to the Prospectus
(including any revised prospectus which the Company proposes for use in
connection with the offering of any of the Securities which differs from the
corresponding prospectus on file at the Commission at the time the Registration
Statement becomes effective, whether or not such revised prospectus is required
to be filed pursuant to Rule 424(b) of the Rules and Regulations), and will
furnish the Underwriter with copies of any such amendment or supplement a
reasonable amount of time prior to such proposed filing or use, as the case may
be, and will not file any such amendment or supplement to which the Underwriter
or Orrick, Herrington & Sutcliffe LLP, its counsel ("Underwriter's Counsel"),
shall object.
(e) The Company shall endeavor in good faith, in cooperation with the
Underwriter, at or prior to the time the Registration Statement becomes
effective, to qualify the Securities for offering and sale under the securities
laws of such jurisdictions as the Underwriter may reasonably designate to permit
the continuance of sales and dealings therein for as long as may be necessary to
complete the distribution contemplated hereby, and shall make such applications,
file such documents and furnish such information as may be required for such
purpose; PROVIDED, HOWEVER, the Company shall not be required to qualify as a
foreign corporation or file a general or limited consent to service of process
in any such jurisdiction. In each jurisdiction where such qualification shall
be effected, the Company will, unless the Underwriter agrees that such action is
not at the time necessary or advisable, use all reasonable efforts to file and
make such statements or reports at such times as are or may reasonably be
required by the laws of such jurisdiction to continue such qualification.
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<PAGE>
(f) During the time when a prospectus is required to be delivered
under the Act, the Company shall use all reasonable efforts to comply with all
requirements imposed upon it by the Act, the Exchange Act and the Rules and
Regulations so far as necessary to permit the continuance of sales of or
dealings in the Securities in accordance with the provisions hereof and the
Prospectus, or any amendments or supplements thereto. If, at any time when a
prospectus relating to the Securities is required to be delivered under the Act,
any event shall have occurred as a result of which, in the opinion of counsel
for the Company or Underwriter's Counsel, the Prospectus, as then amended or
supplemented, includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances in which they were made,
not misleading, or if it is necessary at any time to amend or supplement the
prospectus to comply with the Act, the Company will notify the Underwriter
promptly and prepare and file with the Commission an appropriate amendment or
supplement in accordance with Section 10 of the Act, each such amendment or
supplement to be satisfactory to Underwriter's Counsel, and the Company will
furnish to the Underwriter copies of such amendment or supplement as soon as
available and in such quantities as the Underwriter may request.
(g) As soon as practicable, but in any event not later than forty
five (45) days after the end of the 12-month period beginning on the day after
the end of the fiscal quarter of the Company during which the effective date of
the Registration Statement occurs (ninety (90) days in the event that the end of
such fiscal quarter is the end of the Company's fiscal year), the Company shall
make generally available to its security holders, in the manner specified in
Rule 158(b) of the Rules and Regulations, and to the Underwriter, an earnings
statement which will be in the detail required by, and will otherwise comply
with, the provisions of Section 11(a) of the Act and Rule 158(a) of the Rules
and Regulations, which statement need not be audited unless required by the Act,
covering a period of at least twelve (12) consecutive months after the effective
date of the Registration Statement.
(h) During a period of five (5) years after the date hereof, the
Company will furnish to its stockholders, as soon as practicable, annual reports
(including financial statements audited by independent public accountants) and
unaudited quarterly reports of earnings and will deliver to the Underwriter:
i) concurrently with furnishing such quarterly reports to its
stockholders statements of income of the Company for such quarter in
the form furnished to the Company's stockholders and certified by the
Company's principal financial and accounting officer;
ii) concurrently with furnishing such annual reports to its
stockholders, a balance sheet of the Company as at the end of the
preceding fiscal year, together with statements of operations,
stockholders' equity and cash flows of the Company for such fiscal
year, accompanied by a copy of the report thereon of the Company's
independent certified public accountants;
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iii) as soon as they are available, copies of all reports
(financial or other) mailed to stockholders;
iv) as soon as they are available, copies of all reports and
financial statements furnished to or filed with the Commission, the
NASD or any securities exchange;
v) every press release and every material news item or
article of interest to the financial community in respect of the
Company, or its respective affairs which was released or prepared by
or on behalf of the Company; and
vi) any additional information of a public nature concerning
the Company (and any future subsidiaries) or its respective business
which the Underwriter may request.
During such five-year period, if the Company has active subsidiaries, the
foregoing financial statements will be on a consolidated basis to the extent
that the accounts of the Company and its subsidiaries are consolidated, and will
be accompanied by similar financial statements for any significant subsidiary
which is not so consolidated.
(i) The Company will maintain a transfer agent and, if necessary
under the jurisdiction of incorporation of the Company, a registrar (which may
be the same entity as the transfer agent) for the Common Stock.
(j) The Company will furnish to the Underwriter, without charge and
at such place as the Underwriter may designate, copies of each Preliminary
Prospectus, the Registration Statement and any pre-effective or post-effective
amendments thereto (one of which will be signed and will include all financial
statements and exhibits), the Prospectus, and all amendments and supplements
thereto, including any prospectus prepared after the effective date of the
Registration Statement, in each case as soon as available and in such quantities
as the Underwriter may request.
(k) On or before the effective date of the Registration Statement,
the Company shall provide the Underwriter with originally-executed copies of
duly executed, legally binding and enforceable Lock-Up Agreements which are in
form and substance satisfactory to the Underwriter. On or before the Closing
Date, the Company shall deliver instructions to its transfer agent authorizing
such transfer agent to place appropriate legends on the certificates
representing the securities of the Company subject to the Lock-Up Agreements and
to place appropriate stop transfer orders on the Company's ledgers.
(l) The Company agrees that, for the duration of the Lock-Up Period
(as defined in SECTION 1(w), it and its future subsidiaries will not, without
the prior written consent of the Underwriter (i) issue, sell, contract or offer
to sell, grant an option for the purchase or sale of, assign, transfer, pledge,
hypothecate, distribute or otherwise dispose of, directly or indirectly, any
shares of capital stock or any option, right or warrant with respect to any
shares of capital stock or any security convertible, exchangeable or exercisable
for capital stock, provided, that the
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Company may, without consent of the Underwriter, issue securities (a) upon the
exercise of any outstanding stock options or warrants granted or issued on or
prior to the date hereof, and (b) subject to the terms of Section 4(u) of this
Agreement, up to an additional 192,283 shares of Common Stock issuable upon the
exercise stock options which may be granted pursuant to the Company's 1997 Stock
Option Plan, or (ii) file any registration statement for the offer or sale of
securities issued or to be issued by the Company or any present or future
subsidiaries.
(m) Neither the Company nor any of its officers, directors,
stockholders or affiliates (within the meaning of the Rules and Regulations)
will take, directly or indirectly, any action designed to stabilize or
manipulate the price of any securities of the Company, or which might in the
future reasonably be expected to cause or result in the stabilization or
manipulation of the price of any such securities.
(n) The Company shall apply the net proceeds from the sale of the
Securities offered to the public in the manner set forth under "Use of Proceeds"
in the Prospectus. No portion of the net proceeds will be used, directly or
indirectly, to acquire any securities issued by the Company.
(o) The Company shall timely file all such reports, forms or other
documents as may be required (including, but not limited to, any Form SR
required by Rule 463 under the Act) from time to time under the Act, the
Exchange Act, and the Rules and Regulations, and all such reports, forms and
documents will comply as to form and substance with the applicable requirements
under the Act, the Exchange Act and the Rules and Regulations.
(p) The Company shall furnish to the Underwriter as early as
practicable prior to each of the date hereof, the Closing Date and each Option
Closing Date, if any, but no later than two (2) full business days prior
thereto, a copy of the latest available unaudited interim financial statements
of the Company (which in no event shall be as of a date more than thirty (30)
days prior to the date hereof, the Closing Date or the relevant Option Closing
Date, as the case may be) which have been read by the Company's independent
public accountants, as stated in their letters to be furnished pursuant to
SECTION 6(j) hereof.
(q) The Company shall cause the Common Stock to be quoted on the
Nasdaq SmallCap Market and, for a period of five (5) years from the date
hereof, use its best efforts to maintain the Nasdaq SmallCap Market quotation
of the Common Stock to the extent outstanding.
(r) For a period of five (5) years from the Closing Date, the Company
shall at the request of the Underwriter, furnish or cause to be furnished to the
Underwriter and at the Company's sole expense, (i) daily consolidated transfer
sheets relating to the Common Stock and (ii) a list of holders of all of the
Company's securities.
(s) For a period of five (5) years from the Closing Date, the Company
shall, at the Company's sole expense, (i) promptly provide the Underwriter, upon
any and all requests of the Underwriter, with a "blue sky trading survey" for
secondary sales of the Company's
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securities, prepared by counsel to the Company, and (ii) take all necessary and
appropriate actions to further qualify the Company's securities in all
jurisdictions of the United States in order to permit secondary sales of such
securities pursuant to the "blue sky" laws of those jurisdictions, provided that
such jurisdictions do not require the Company to qualify as a foreign
corporation.
(t) As soon as practicable, but in no event more than thirty (30)
days after the effective date of the Registration Statement, the Company agrees
to take all necessary and appropriate actions to be included in Standard and
Poor's Corporation Descriptions and Moody's OTC Manual and to continue such
inclusion for a period of not less than five (5) years.
(u) Without the prior written consent of the Underwriter, the Company
hereby agrees that it will not, for the duration of the Lock-UP Period, adopt,
propose to adopt or otherwise permit to exist any employee, officer, director,
consultant or compensation plan or arrangement (i) permitting the grant, issue,
sale or entry into any agreement to grant, issue or sell any option, warrant or
other contract right (a) at an exercise or sale price per share that is less
than the greater of the initial public offering price of the Shares set forth
herein or the fair market value per share of the Common Stock on the date of
grant or sale, or (b) upon payment of less than the full purchase or exercise
price for such shares of Common Stock or other securities of the Company on the
date of grant or issuance; or (ii) permitting the existence of stock
appreciation rights, phantom options or similar arrangements; or (iii)
permitting the payment for such securities with any form of consideration other
than cash; or (iv) permitting the maximum number of shares of Common Stock or
other securities of the Company purchasable at any time pursuant to options,
warrants or other contract rights to exceed 600,000 (excluding the Underwriter's
Warrants and the Underwriter's Option to purchase 345,000 shares to
cover-allotments, if any); or (v) to any direct or indirect beneficial holder on
the date hereof of more than 10% of the issued and outstanding shares of Common
Stock.
(v) Until the completion of the distribution of the Securities to the
public, and during any period during which a prospectus is required to be
delivered, the Company shall not, without the prior written consent of the
Underwriter, issue, directly or indirectly, any press release or other
communication or hold any press conference with respect to the Company or its
activities or the offering contemplated hereby, other than trade releases issued
in the ordinary course of the Company's business consistent with past practices
with respect to the Company's operations.
(w) The Company agrees that:
i) For a period of five (5) years after the effective date of
the Registration Statement, the Company shall cause one (1) individual
selected by the Underwriter, subject to the good faith approval of the
Company, to be elected to the Board of Directors of the Company (the
"Board"), if requested by the Underwriter.
ii) In the event the Underwriter elects not to exercise the
right as set forth above, then it may designate one person to attend
all meetings of the
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Company's Board of Directors for a period of five (5) years. Such
person shall be entitled to attend all such meetings and to receive
all notices and other correspondence and communications sent by the
Company to members of its Board of Directors.
iii) The Company shall reimburse the Underwriter's designee for
his or her out-of-pocket expenses incurred in connection with his or
her attendance of the Board meetings.
iv) In the event the Underwriter shall not have designated
such individual at the time of any meeting of the Board or such person
has not been elected or is unavailable to serve, the Company shall
notify the Underwriter of each meeting of the Board.
(x) For a period equal to the lesser of (i) five (5) years from the
date hereof, and (ii) the sale to the public of the Underwriter's Securities,
the Company will not take any action or actions which may prevent or disqualify
the Company's use of Form S-1 (or other appropriate form) for the registration
under the Act of the Underwriter's Securities.
(y) For the duration of the Lock-Up Period, the Company shall not
restate, amend or alter any term of any written employment, consulting or
similar agreement entered into between the Company and any officer, director or
key employee as of the effective date of the Registration Statement in a manner
which is more favorable to such officer, director or key employee, without the
prior written consent of the Underwriter.
(aa) The Company will use its best efforts to maintain the
effectiveness of the Registration Statement for a period of five (5) years after
the date hereof.
5. PAYMENT OF EXPENSES.
(a) The Company hereby agrees to pay (such payment to be made, at the
discretion of the Underwriter, on the Closing Date and any Option Closing Date
(to the extent not paid on the Closing Date or a previous Option Closing Date))
all expenses and fees (other than fees of Underwriter's Counsel, except as set
forth in clause (iv) below), incident to the performance of the obligations of
the Company under this Agreement and the Underwriter's Warrant Agreement,
including, without limitation, (i) the fees and expenses of accountants and
counsel for the Company, (ii) all costs and expenses incurred in connection with
the preparation, duplication, printing, (including mailing and handling charges)
filing, delivery and mailing (including the payment of postage, overnight
delivery or courier charges with
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respect thereto) of the Registration Statement and the Prospectus and any
amendments and supplements thereto and the printing, mailing (including the
payment of postage, overnight delivery or courier charges with respect thereto)
and delivery of this Agreement, the Underwriter's Warrant Agreement and
agreements with selected dealers, and related documents, including the cost of
all copies thereof and of each Preliminary Prospectus and of the Prospectus and
any amendments thereof or supplements thereto supplied to the Underwriter and
such dealers as the Underwriter may request, in such quantities as the
Underwriter may request, (iii) the printing, engraving, issuance and delivery of
the Securities, (iv) the qualification of the Securities under state or foreign
securities or "blue sky" laws and determination of the status of such securities
under legal investment laws, including the costs of printing and mailing the
"Preliminary Blue Sky Memorandum," the "Supplemental Blue Sky Memorandum" and
"Legal Investments Survey," if any, and disbursements, expenses and fees of
counsel in connection therewith, (v) advertising costs and expenses, including,
but not limited to costs and expenses in connection with "road shows,"
information meetings and presentations, bound volumes and prospectus memorabilia
and "tombstone" advertisement expenses, (vi) costs and expenses in connection
with due diligence investigations, including, but not limited to, the fees of
any independent counsel or consultants, (vii) fees and expenses of a transfer
and warrant agent and registrar for the Securities, (viii) applications for
assignments of a rating of the Securities by qualified rating agencies, (ix) the
fees payable to the Commission and the NASD, and (x) the fees and expenses
incurred in connection with the [listing of the Securities on the American Stock
Exchange] [quotation of the Securities on the Nasdaq SmallCap Market] and any
other exchange.
(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of SECTION 6 or SECTION 10(a) hereof, the Company shall
reimburse and indemnify the Underwriter for all of its actual out-of-pocket
expenses, including the fees and disbursements of Underwriter's Counsel, less
any amounts already paid pursuant to SECTION 5(c) hereof.
(c) The Company further agrees that, in addition to the expenses
payable pursuant to SECTION 5(a) hereof, it will pay to the Underwriter on the
Closing Date by certified or bank cashier's check, or, at the election of the
Underwriter, by deduction from the proceeds of the offering of the Firm Shares,
a non-accountable expense allowance equal to three percent (3%) of the gross
proceeds received by the Company from the sale of the Firm Shares, thirty
thousand dollars ($30,000) of which has been paid to date by the Company. In
the event the Underwriter elects to exercise the overallotment option described
in SECTION 2(b) hereof, the Company further agrees to pay to the Underwriter on
each Option Closing Date, by certified or bank cashier's check, or, at the
Underwriter's election, by deduction from the proceeds of the Option Shares
purchased on such Option Closing Date, a non-accountable expense allowance equal
to three percent (3%) of the gross proceeds received by the Company from the
sale of such Option Shares.
6. CONDITIONS OF THE UNDERWRITER'S OBLIGATIONS. The obligations of
the Underwriter hereunder shall be subject to the continuing accuracy of the
representations and warranties of the Company herein as of the date hereof and
as of the Closing Date and each Option Closing Date, if any, as if they had been
made on and as of the Closing Date and each Option Closing Date, as the case may
be; the accuracy on and as of the Closing Date and each Option Closing Date, if
any, of the statements of officers of the Company made pursuant to the
provisions hereof; the performance by the Company on and as of the Closing Date
and each
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Option Closing Date, if any, of its covenants and obligations hereunder; and to
the following further conditions:
(a) The Registration Statement shall have become effective not later
than 12:00 p.m., New York time, on the date of this Agreement or such later date
and time as shall be consented to in writing by the Underwriter, and, at the
Closing Date and each Option Closing Date, if any, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and no
proceedings for that purpose shall have been instituted or shall be pending or
contemplated by the Commission and any request on the part of the Commission for
additional information shall have been complied with to the reasonable
satisfaction of Underwriter's Counsel. If the Company has elected to rely upon
Rule 430A of the Rules and Regulations, the price of the Shares and any
price-related information previously omitted from the effective Registration
Statement pursuant to such Rule 430A shall have been transmitted to the
Commission for filing pursuant to Rule 424(b) of the Rules and Regulations
within the prescribed time period, and prior to the Closing Date the Company
shall have provided evidence satisfactory to the Underwriter of such timely
filing, or a post-effective amendment providing such information shall have been
promptly filed and declared effective in accordance with the requirements of
Rule 430A of the Rules and Regulations.
(b) The Underwriter shall not have advised the Company that the
Registration Statement, or any amendment thereto, contains an untrue statement
of fact which, in the Underwriter's opinion, is material, or omits to state a
fact which, in the Underwriter's opinion, is material and is required to be
stated therein or is necessary to make the statements therein, in light of the
circumstances in which they were made not misleading, or that the Prospectus, or
any supplement thereto, contains an untrue statement of fact which, in the
Underwriter's opinion, is material, or omits to state a fact which, in the
Underwriter's opinion, is material and is required to be stated therein or is
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading.
(c) On or prior to the Closing Date, the Underwriter shall have
received from Underwriter's Counsel such opinion or opinions with respect to the
organization of the Company, the validity of the Securities, the Registration
Statement, the Prospectus and such other related matters as the Underwriter may
request and Underwriter's Counsel shall have received such papers and
information as they may request in order to enable them to pass upon such
matters.
(d) On the Closing Date, the Underwriter shall have received the
favorable opinion of Troop Meisinger Steuber & Pasich, LLP, counsel to the
Company, dated the Closing Date, addressed to the Underwriter, in form and
substance satisfactory to Underwriter's Counsel, to the effect that:
i) the Company (A) has been duly organized and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation, (B) is duly qualified and licensed and
in good standing as a foreign corporation in each jurisdiction in
which its ownership or leasing of any properties or the character of
its operations requires such qualification or licensing, and (C) has
all
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requisite power and authority (corporate and other) and has obtained
any and all necessary authorizations, approvals, orders, licenses,
certificates, franchises and permits of and from all governmental or
regulatory officials and bodies (including, without limitation, those
having jurisdiction over environmental or similar matters), to own or
lease its properties and conduct its business as described in the
Prospectus. The Company is and has been doing business in compliance
with all such authorizations, approvals, orders, licenses,
certificates, franchises and permits obtained by it from governmental
or regulatory officials and agencies and all federal, state, local and
foreign laws, rules and regulations to which it is subject; and, the
Company has not received any notice of proceedings relating to the
revocation or modification of any such authorization, approval, order,
license, certificate, franchise or permit which, singly or in the
aggregate, if the subject of an unfavorable decision, ruling or
finding, would materially and adversely affect the condition,
financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operations, properties, business or results of
operations of the Company. The disclosure in the Registration
Statement concerning the effects of federal, state, local and foreign
laws, rules and regulations on the Company's business as currently
conducted and as contemplated are correct in all respects and do not
omit to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading;
ii) Except as set forth in the Prospectus, the Company does
not own, directly or indirectly, an interest in any corporation,
partnership, joint venture, trust or other business entity;
iii) the Company has a duly authorized, issued and outstanding
capitalization and as set forth in the Prospectus under
"Capitalization," and except as set forth in the Prospectus, the
Company is not a party to or bound by any instrument, agreement or
other arrangement providing for it to issue any capital stock, rights,
warrants, options or other securities, except for this Agreement and
the Underwriter's Warrant Agreement. The Securities and all other
securities issued or issuable by the Company conform, or when issued
and paid for, will conform, in all respects to the descriptions
thereof contained in the Registration Statement and the Prospectus.
All issued and outstanding securities of the Company have been duly
authorized and validly issued and are fully paid and non-assessable;
the holders thereof have no rights of rescission with respect thereto
and are not subject to personal liability by reason of being such
holders; and none of such securities were issued in violation of the
statutory preemptive rights of any holders of any security of the
Company or, to the best of such counsel's knowledge any similar
contractual right granted by the Company. The Securities to be sold
by the Company hereunder and under the Underwriter's Warrant Agreement
are not and will not be subject to any statutory preemptive or, to the
best of such counsel's knowledge other similar rights of any
stockholder, have been duly authorized and, when issued, paid for and
delivered in accordance with the terms
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hereof and thereof, will be validly issued, fully paid and
non-assessable and conform to the descriptions thereof contained in
the Prospectus; the holders thereof will not be subject to any
liability solely as such holders; all corporate action required to be
taken for the authorization, issue and sale of the Securities has been
duly and validly taken; and the certificates representing the
Securities are in due and proper form. The Underwriter's Warrants
constitute valid and binding obligations of the Company to issue and
sell, upon exercise thereof and payment therefor, the number and type
of securities of the Company called for thereby. Upon the issuance
and delivery pursuant to this Agreement and the Underwriter's Warrant
Agreement of the Securities to be sold by the Company hereunder and
thereunder, the Underwriter will acquire good and marketable title to
such Securities, free and clear of any lien, charge, claim,
encumbrance, pledge, security interest, defect or other restriction or
equity of any kind whatsoever asserted against the Company or any
affiliate (within the meaning of the Rules and Regulations) of the
Company;
iv) the Registration Statement is effective under the Act,
and, if applicable, filing of all pricing information has been timely
made in the appropriate form under Rule 430A, and no stop order
suspending the use of the Preliminary Prospectus, the Registration
Statement or the Prospectus or any part of any thereof or suspending
the effectiveness of the Registration Statement has been issued and no
proceedings for that purpose have been instituted or are pending,
threatened or contemplated under the Act;
v) each of the Preliminary Prospectus, the Registration
Statement, and the Prospectus and any amendments or supplements
thereto (other than the financial statements and schedules and other
financial and statistical data included therein, as to which no
opinion need be rendered) comply as to form in all material respects
with the requirements of the Act and the Rules and Regulations;
vi) to such counsel's knowledge, (A) there are no agreements,
contracts or other documents required by the Act to be described in
the Registration Statement and the Prospectus or required to be filed
as exhibits to the Registration Statement (or required to be filed
under the Exchange Act if upon such filing they would be incorporated,
in whole or in part, by reference therein) other than those described
in the Registration Statement and the Prospectus and filed as exhibits
thereto, and the exhibits which have been filed are correct copies of
the documents of which they purport to be copies; (B) the descriptions
in the Registration Statement and the Prospectus and any supplement or
amendment thereto of agreements, contracts and other documents to
which the Company is a party or by which it is bound are accurate and
fairly represent the information required to be shown by Form S-1; (C)
there is no action, suit, proceeding, inquiry, arbitration,
investigation, litigation or governmental proceeding (including,
without limitation, those pertaining to environmental or similar
matters), domestic or foreign, pending or threatened against (or
circumstances that may give rise to the same), or
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<PAGE>
involving the properties or business of, the Company which (i) is
required to be disclosed in the Registration Statement which is not so
disclosed (and such proceedings as are summarized in the Registration
Statement are accurately summarized in all respects), or (ii)
questions the validity of the capital stock of the Company or of this
Agreement, the Underwriter's Warrant Agreement or the Consulting
Agreement or of any action taken or to be taken by the Company
pursuant to or in connection with any of the foregoing; (D) no statute
or regulation or legal or governmental proceeding required to be
described in the Prospectus is not described as required; and (E)
there is no action, suit or proceeding pending or threatened against
or affecting the Company before any court, arbitrator or governmental
body, agency or official (or any basis thereof known to such counsel)
in which there is a reasonable possibility of an adverse decision
which may result in a material adverse change in the condition,
financial or otherwise, or the earnings, prospects, stockholders'
equity, value, operation, properties, business or results of
operations of the Company taken as a whole, which could adversely
affect the present or prospective ability of the Company to perform
its obligations under this Agreement, the Underwriter's Warrant
Agreement or the Consulting Agreement or which in any manner draws
into question the validity or enforceability of this Agreement, the
Underwriter's Warrant Agreement or the Consulting Agreement;
vii) the Company has full legal right, power and authority to
enter into each of this Agreement, the Underwriter's Warrant
Agreement, and the Consulting Agreement and to consummate the
transactions provided for herein and therein; and each of this
Agreement, the Underwriter's Warrant Agreement, and the Consulting
Agreement has been duly authorized, executed and delivered by the
Company. Each of this Agreement, the Underwriter's Warrant Agreement
and the Consulting Agreement, assuming due authorization, execution
and delivery by each other party thereto, constitutes a legal, valid
and binding agreement of the Company, enforceable against the Company
in accordance with its terms (except as such enforceability may be
limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application relating to or
affecting the enforcement of creditors' rights and the application of
equitable principles in any action, legal or equitable, and except as
obligations to indemnify or contribute to losses may be limited by
applicable law). None of the Company's execution or delivery of this
Agreement, the Underwriter's Warrant Agreement, or the Consulting
Agreement, its performance hereunder and thereunder, its consummation
of the transactions contemplated herein and therein, or the conduct of
its business as described in the Registration Statement and the
Prospectus and any amendments or supplements thereto, conflicts with
or will conflict with or results or will result in any breach or
violation of any of the terms or provisions of, or constitutes or will
constitute a default under, or result in the creation or imposition of
any lien, charge, claim, encumbrance, pledge, security interest,
defect or other restriction or equity of any kind whatsoever upon, any
property or assets (tangible or intangible) of the Company pursuant to
the terms of (A) the
24
<PAGE>
certificate of incorporation or bylaws of the Company, (B) any
license, contract, indenture, mortgage, lease, deed of trust, voting
trust agreement, stockholders' agreement, note, loan or credit
agreement or any other agreement or instrument evidencing an
obligation for borrowed money, or any other agreement or instrument to
which the Company is a party or by which either is or may be bound or
to which the properties or assets (tangible or intangible) of either
are or may be subject, (C) any statute applicable to the Company or
(D) any judgment, decree, order, rule or regulation applicable to the
Company of any arbitrator, court, regulatory body or administrative
agency or other governmental agency or body (including, without
limitation, those having jurisdiction over environmental or similar
matters), domestic or foreign, having jurisdiction over the Company or
any of their activities or properties;
viii) no consent, approval, authorization or order of, and no
filing with, any arbitrator, court, regulatory body, administrative
agency, government agency or other body, domestic or foreign (other
than such as may be required under "blue sky" laws, as to which no
opinion need be rendered), is required in connection with the issuance
of the Securities pursuant to the Prospectus, the Registration
Statement, this Agreement, the Underwriter's Warrant Agreement, or the
performance of this Agreement, the Underwriter's Warrant Agreement,
and the Consulting Agreement and the transactions contemplated hereby
and thereby;
ix) the properties and business of the Company conform to the
description thereof contained in the Registration Statement and the
Prospectus; and the Company has good and marketable title to, or valid
and enforceable leasehold estates in, all items of real and personal
property stated in the Prospectus to be owned or leased by it, in each
case free and clear of all liens, charges, claims, encumbrances,
pledges, security interests, defects or other restrictions or equities
of any kind whatsoever, other than those referred to in the Prospectus
and liens for taxes not yet due and payable;
x) the Company is not in breach of, or in default under, any
term or provision of any license, contract, indenture, mortgage,
lease, deed of trust, voting trust agreement, stockholders' agreement,
note, loan or credit agreement or any other agreement or instrument
evidencing an obligation for borrowed money, or any other agreement or
instrument to which the Company is a party or by which it is or may be
bound or to which its property or assets (tangible or intangible) are
or may be subject; and the Company is not in violation of any term or
provision of (A) its certificate of incorporation or by-laws, (B) any
authorization, approval, order, license, certificate, franchise or
permit of any governmental or regulatory official or body, or (C) any
judgement, decree, order, statute, rule or regulation to which it is
subject;
xi) the statements in the Prospectus under "Prospectus
Summary," "Risk Factors," "The Company," ["Recent Bridge Financings,"]
"Business,"
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<PAGE>
"Management," "Principal Shareholders," "Certain Transactions,"
"Shares Eligible For Future Sale," and "Description of Securities"
have been reviewed by such counsel, and insofar as they refer to
statements of law, descriptions of statutes, licenses, rules or
regulations or legal conclusions, are correct in all material
respects;
xii) the Common Stock has been accepted for quotation on the
Nasdaq SmallCap Market;
xiii) the Company owns or possesses, free and clear of all liens
or encumbrances and right thereto or therein by third parties, the
requisite licenses or other rights to use all trademarks, service
marks, copyrights, service names, tradenames, patents, patent
applications and licenses necessary to conduct its business (including
without limitation any such licenses or rights described in the
Prospectus as being owned or possessed by the Company) and there is no
claim or action by any person pertaining to, or proceeding, pending or
threatened, which challenges the rights of the Company with respect to
any trademarks, service marks, copyrights, service names, trade names,
patents, patent applications and licenses used in the conduct of the
Company's business (including, without limitation, any such licenses
or rights described in the Prospectus as being owned or possessed by
the Company);
xiv) the persons listed under the captions "Principal
Shareholders" and in the Prospectus are the respective "beneficial
owners" (as such phrase is defined in Rule 13d-3 under the Exchange
Act) of the securities set forth opposite their respective names
thereunder as and to the extent set forth therein;
xv) except as disclosed in the Prospectus, no person,
corporation, trust, partnership, association or other entity has the
right to include and/or register any securities of the Company in the
Registration Statement, require the Company to file any registration
statement or, if filed, to include any security in such registration
statement;
xvi) there are no claims, payments, issuances, arrangements or
understandings, whether oral or written, for services in the nature of
a finder's or origination fee with respect to the sale of the
Securities hereunder or financial consulting arrangement or any other
arrangements, agreements, understandings, payments or issuances that
may affect the Underwriter's compensation, as determined by the NASD;
and
xvii) assuming due execution by the parties thereto, the Lock-Up
Agreements are legal, valid and binding obligations of the parties
thereto, enforceable against such parties and any subsequent holder of
the securities subject thereto in accordance with their terms.
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<PAGE>
Such counsel shall state that such counsel has participated in
conferences with officers and other representatives of the Company and
representatives of the independent public accountants for the Company, at which
conferences such counsel made inquiries of such officers, representatives and
accountants and discussed the contents of the Preliminary Prospectus, the
Registration Statement, the Prospectus and related matters and, although such
counsel is not passing upon and does not assume any responsibility for the
accuracy, completeness or fairness of the statements contained in the
Preliminary Prospectus, the Registration Statement or the Prospectus, on the
basis of the foregoing, no facts have come to the attention of such counsel
which lead them to believe that either the Registration Statement or any
amendment thereto, at the time such Registration Statement or amendment became
effective, or the Preliminary Prospectus or the Prospectus, or any amendment or
supplement thereto, as of the date of the Preliminary Prospectus and the
Prospectus, and as of the date of such opinion, contained any untrue statement
of a material fact or omitted to state a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading (it being understood that
such counsel need express no opinion with respect to the financial statements
and schedules and other financial and statistical data included in the
Preliminary Prospectus, the Registration Statement or the Prospectus, or any
supplements or amendments thereto).
In rendering such opinion, such counsel may rely (a) as to matters
involving the application of laws other than the laws of the United States and
jurisdictions in which they are admitted, to the extent such counsel deems
proper and to the extent specified in such opinion, if at all, upon an opinion
or opinions (in form and substance satisfactory to Underwriter's Counsel) of
other counsel acceptable to Underwriter's Counsel, familiar with the applicable
laws; and (b) as to matters of fact, to the extent they deem proper, on
certificates and written statements of responsible officers of the Company and
certificates or other written statements of officers of departments of
jurisdictions having custody of documents respecting the corporate existence or
good standing of the Company, provided that copies of any such statements or
certificates shall be delivered to Underwriter's Counsel, if requested. The
opinion of such counsel for the Company shall state that the opinion of any such
other counsel is in form satisfactory to such counsel and that the Underwriter
and they are justified in relying thereon. Such opinion shall also state that
the Underwriters' Counsel is entitled to rely thereon. Such opinion shall not
state that it is to be governed or qualified by, or that it is otherwise subject
to, any treatise, written policy or other document relating to legal opinions,
including without limitation, the Legal Opinion Accord of the ABA Section of
Business Law (1991) or any comparable state accord.
At each Option Closing Date, if any, the Underwriter shall have
received the favorable opinion of Troop Meisinger Steuber & Pasich, LLP, counsel
to the Company, dated the relevant Option Closing Date, addressed to the
Underwriter, and in form and substance satisfactory to Underwriter's Counsel
confirming as of the Option Closing Date, the statements made by Troop Meisinger
Steuber & Pasich, LLP, in its opinion delivered on the Closing Date.
(e) On or prior to each of the Closing Date and each Option Closing
Date, if any, Underwriter's Counsel shall have been furnished with such
documents, certificates and opinions as they may reasonably require for the
purpose of enabling them to review or pass upon
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<PAGE>
the matters referred to in SECTION 6(c) hereof, or in order to evidence the
accuracy, completeness or satisfaction of any of the representations, warranties
or conditions of the Company herein contained.
(f) Prior to the Closing Date and each Option Closing Date, if any,
(i) there shall have been no material adverse change or development involving a
prospective adverse change in the condition, financial or otherwise, or the
earnings, stockholders' equity, value, operations, properties, business or
results of operations of the Company, whether or not in the ordinary course of
business, from the latest dates as of which such matters are set forth in the
Registration Statement and the Prospectus; (ii) there shall have been no
transaction, not in the ordinary course of business, entered into by the Company
from the latest date as of which the financial condition of the Company is set
forth in the Registration Statement and the Prospectus; (iii) the Company shall
not be in default under any provision of any instrument relating to any
outstanding indebtedness; (iv) the Company shall not have issued any securities
(other than the Securities) or declared or paid any dividend or made any
distribution in respect of its capital stock of any class and there shall not
have been any change in the capital stock, debt (long or short term) or
liabilities or obligations of the Company (contingent or otherwise) from the
latest dates as of which such matters are set forth in the Registration
Statement and the Prospectus; (v) no material amount of the assets of the
Company shall have been pledged or mortgaged, except as set forth in the
Registration Statement and the Prospectus; (vi) no action, suit, proceeding,
inquiry, arbitration, investigation, litigation or governmental or other
proceeding, domestic or foreign, shall be pending or threatened (or
circumstances giving rise to same) against the Company or affecting any of its
properties or business before or by any court or federal, state or foreign
commission, board or other administrative agency wherein an unfavorable
decision, ruling or finding may materially and adversely affect the condition,
financial or otherwise, or the earnings, stockholders' equity, value,
operations, properties, business or results of operations of the Company taken
as a whole, except as set forth in the Registration Statement and Prospectus;
and (vii) no stop order shall have been issued under the Act with respect to the
Registration Statement and no proceedings therefor shall have been initiated,
threatened or contemplated by the Commission.
(g) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received a certificate of the Company signed by the
principal executive officer and by the chief financial or chief accounting
officer of the Company, dated the Closing Date or the relevant Option Closing
Date, as the case may be, to the effect that each of such persons has carefully
examined the Registration Statement, the Prospectus and this Agreement, and
that:
i) The representations and warranties of the Company in this
Agreement are true and correct, as if made on and as of the Closing
Date or the Option Closing Date, as the case may be, and the Company
has complied with all agreements and covenants and satisfied all
conditions contained in this Agreement on its part to be performed or
satisfied at or prior to such Closing Date or Option Closing Date, as
the case may be;
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<PAGE>
ii) No stop order suspending the effectiveness of the
Registration Statement or any part thereof has been issued, and no
proceedings for that purpose have been instituted or are pending or,
to the best of each of such person's knowledge, are contemplated or
threatened under the Act;
iii) The Registration Statement and the Prospectus and, if any,
each amendment and each supplement thereto contain all statements and
information required to be included therein, and none of the
Registration Statement, the Prospectus or any amendment or supplement
thereto includes any untrue statement of a material fact or omits to
state any material fact required to be stated therein or necessary to
make the statements therein, in light of the circumstances in which
they were made, not misleading and neither the Preliminary Prospectus
nor any supplement thereto included any untrue statement of a material
fact or omitted to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading; and
iv) Subsequent to the respective dates as of which information
is given in the Registration Statement and the Prospectus, (A) the
Company has not incurred any material liabilities or obligations,
direct or contingent; (B) the Company has not paid or declared any
dividends or other distributions on its capital stock; (C) the Company
has not entered into any transactions not in the ordinary course of
business; (D) there has not been any change in the capital stock or
long-term debt or any increase in the short-term borrowings (other
than any increase in short-term borrowings in the ordinary course of
business) of the Company (E) the Company has not sustained any
material loss or damage to its property or assets, whether or not
insured; (F) there is no litigation which is pending or threatened (or
circumstances giving rise to same) against the Company or any
affiliate (within the meaning of the Rules and Regulations) of the
foregoing which is required to be set forth in an amended or
supplemented Prospectus which has not been set forth; and (G) there
has occurred no event required to be set forth in an amended or
supplemented Prospectus which has not been set forth.
References to the Registration Statement and the Prospectus in this SECTION 6(g)
are to such documents as amended and supplemented at the date of such
certificate.
(h) By the Closing Date, the Underwriter will have received clearance
from the NASD as to the amount of compensation allowable or payable to the
Underwriter, as described in the Registration Statement.
(i) At the time this Agreement is executed, the Underwriter shall
have received a letter, dated such date, addressed to the Underwriter and the
Board of Directors of the Company and in form and substance satisfactory in all
respects (including the non-material nature of the changes or decreases, if any,
referred to in clause (iii) below) to the Underwriter and Underwriter's Counsel,
from Arthur Andersen LLP.
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<PAGE>
i) confirming that they are independent certified public
accountants with respect to the Company within the meaning of the Act
and the Rules and Regulations;
ii) stating that it is their opinion that the financial
statements of the Company included in the Registration Statement
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations and
that the Underwriter may rely upon the opinion of Arthur Andersen LLP
with respect to such financial statements and supporting schedules
included in the Registration Statement;
iii) stating that, on the basis of a limited review which
included a reading of the latest unaudited interim financial
statements of the Company, a reading of the latest available minutes
of the stockholders and board of directors and the various committees
of the board of directors of the Company, consultations with officers
and other employees of the Company responsible for financial and
accounting matters and other specified procedures and inquiries,
nothing has come to their attention which would lead them to believe
that (A) the unaudited financial statements and supporting schedules
of the Company included in the Registration Statement do not comply as
to form in all material respects with the applicable accounting
requirements of the Act and the Rules and Regulations or are not
fairly presented in conformity with generally accepted accounting
principles applied on a basis substantially consistent with that of
the audited financial statements of the Company included in the
Registration Statement, (B) the pro forma financial information
contained in the Registration Statement and the Prospectus does not
comply as to form in all material respects with the applicable
accounting requirements of the Act and the Rules and Regulations or is
not fairly presented in conformity with generally accepted accounting
principles applied on a basis consistent with that of the audited
financial statements of the Company or the unaudited financial
information included in the Registration Statement and Prospectus or
(C) at a specified date nor more than five (5) days prior to the
effective date of the Registration Statement, there has been any
change in the capital stock or long-term debt of the Company, or any
decrease in the stockholders' equity or net current assets or net
assets of the Company as compared with amounts shown in the September
30, 1997 balance sheet included in the Registration Statement, other
than as set forth in or contemplated by the Registration Statement,
or, if there was any change or decrease, setting forth the amount of
such change or decrease, and (D) during the period from September 30,
1997 to a specified date not more than five (5) days prior to the
effective date of the Registration Statement, there was any decrease
in net revenues, net earnings or net earnings per share of Common
Stock, in each case as compared with the corresponding period
beginning September 30, 1996, other than as set forth in or
contemplated by the Registration Statement, or, if there was any such
decrease, setting forth the amount of such decrease;
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<PAGE>
iv) setting forth, at a date not later than five (5) days
prior to the effective date of the Registration Statement, the amount
of liabilities of the Company (including a break-down of commercial
paper and notes payable to banks);
v) stating that they have compared specific dollar amounts,
numbers of shares, percentages of revenues and earnings, statements
and other financial information pertaining to the Company set forth in
the Prospectus, in each case to the extent that such amounts, numbers,
percentages, statements and information may be derived from the
general accounting records, including work sheets, of the Company and
excluding any questions requiring an interpretation by legal counsel,
with the results obtained from the application of specified readings,
inquiries and other appropriate procedures (which procedures do not
constitute an audit in accordance with generally accepted auditing
standards) set forth in the letter and found them to be in agreement;
and
vi) statements as to such other matters incident to the
transaction contemplated hereby as the Underwriter may request.
(j) At the Closing Date and each Option Closing Date, if any, the
Underwriter shall have received from Arthur Andersen LLP a letter, dated as of
the Closing Date or the relevant Option Closing Date, as the case may be, to the
effect that (i) it reaffirms the statements made in the letter furnished
pursuant to SECTION 6(i), (ii) if the Company has elected to rely on Rule 430A
of the Rules and Regulations, to the further effect that Arthur Andersen LLP has
carried out procedures as specified in clause (v) of SECTION 6(j) hereof with
respect to certain amounts, percentages and financial information as specified
by the Underwriter and deemed to be a part of the Registration Statement
pursuant to Rule 430A(b) and have found such amounts, percentages and financial
information to be in agreement with the records specified in such clause (v).
(k) The Company shall have received a letter, dated such date,
addressed to the Company, in form and substance satisfactory in all respects to
the Underwriter, from Arthur Andersen LLP stating that they have not during the
immediately preceding five (5) year period brought to the attention of the
Company's management any "weakness," as defined in Statement of Auditing
Standard No. 60 "Communication of Internal Control Structure Related Matters
Noted in an Audit," in any of the Company's internal controls.
(l) On each of Closing Date and Option Closing Date, if any, there
shall have been duly tendered to the Underwriter the appropriate number of
Securities.
(m) No order suspending the sale of the Securities in any
jurisdiction designated by the Underwriter pursuant to SECTION 4(e) hereof shall
have been issued on either the Closing Date or the Option Closing Date, if any,
and no proceedings for that purpose shall have been instituted or shall be
contemplated.
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(n) On or before the effective date of the Registration Statement,
the Company shall have executed and delivered to the Underwriter, the
Underwriter's Warrant Agreement, substantially in the form filed as Exhibit ___
Registration Statement. On or before the Closing Date, the Company shall have
executed and delivered to the Underwriter the Underwriter's Warrants in such
denominations and to such designees as shall have been provided to the Company.
(o) On or before Closing Date, the Common Stock shall have been duly
approved for [listing on the American Stock Exchange] [quotation on the Nasdaq
SmallCap Market], subject to official notice of issuance.
(p) On or before Closing Date, there shall have been delivered to the
Underwriter all of the Lock-Up Agreements, in form and substance satisfactory to
Underwriter's Counsel.
(q) On or before the Closing Date, the Company shall have (i)
executed and delivered to the Underwriter the Consulting Agreement,
substantially in the form filed as Exhibit _____ to the Registration Statement
and (ii) paid the Underwriter $48,000 representing the retainer fee pursuant to
the Consulting Agreement.
(r) At least two (2) full business days prior to the date hereof, the
Closing Date and each Option Closing Date, if any, the Company shall have
delivered to the Underwriter the unaudited interim financial statements required
to be so delivered pursuant to SECTION 4(p) of this Agreement.
If any condition to the Underwriter's or the Underwriter's obligations
hereunder to be fulfilled prior to or at the Closing Date or at any Option
Closing Date, as the case may be, is not so fulfilled, the Underwriter may
terminate this Agreement or, if the Underwriter so elects, it may waive any such
conditions which have not been fulfilled or extend the time for their
fulfillment.
7. INDEMNIFICATION
(a) The Company agrees to indemnify and hold harmless each
Underwriter (for purposes of this SECTION 7, "Underwriter" shall include the
officers, directors, partners, employees, agents and counsel of the Underwriter,
and each person, if any, who controls the Underwriter ("controlling person")
within the meaning of Section 15 of the Act or Section 20(a) of the Exchange
Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (and actions, proceedings, investigations,
inquiries and suits in respect thereof), whatsoever (including but not limited
to any and all costs and expenses whatsoever reasonably incurred in
investigating, preparing or defending against such action, proceeding,
investigation, inquiry or suit commenced or threatened, or any claim
whatsoever), as such are incurred, to which the Underwriter or such controlling
person may become subject under the Act, the Exchange Act or any other statute
or at common law or otherwise or under the laws of foreign countries, arising
out of or based upon (A) any untrue statement or alleged untrue statement of
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a material fact contained (i) in any Preliminary Prospectus, the Registration
Statement or the Prospectus (as from time to time amended and supplemented);
(ii) in any post-effective amendment or amendments or any new registration
statement and prospectus in which is included securities of the Company issued
or issuable upon exercise of the Securities; or (iii) in any application or
other document or written communication (in this SECTION 7, collectively
referred to as "applications") executed by the Company or based upon written
information furnished by the Company filed, delivered or used in any
jurisdiction in order to qualify the Securities under the securities laws
thereof or filed with the Commission, any state securities commission or agency,
the NASD, Nasdaq or any securities exchange; (B) the omission or alleged
omission therefrom of a material fact required to be stated therein or necessary
to make the statements therein not misleading (in the case of the Prospectus, in
light of the circumstances in which they were made); or (C) any breach of any
representation, warranty, covenant or agreement of the Company contained herein
or in any certificate by or on behalf of the Company or any of its officers
delivered pursuant hereto, unless, in the case of clause (A) or (B) above, such
statement or omission was made in reliance upon and in conformity with written
information furnished to the Company with respect to any Underwriter by or on
behalf of such Underwriter expressly for use in any Preliminary Prospectus, the
Registration Statement or any Prospectus, or any amendment thereof or supplement
thereto, or in any application, as the case may be. The indemnity agreement in
this Section 7(a) shall be in addition to any liability which the Company may
have at common law or otherwise.
(b) The Underwriter agrees to indemnify and hold harmless the
Company, each of its directors, each of its officers who signed the Registration
Statement, and each person, if any, who controls the Company within the meaning
of the Act, to the same extent as the foregoing indemnity from the Company to
the Underwriter but only with respect to statements or omissions, if any, made
in any Preliminary Prospectus, the Registration Statement or the Prospectus or
any amendment thereof or supplement thereto or in any application made in
reliance upon, and in strict conformity with, written information furnished to
the Company with respect to any Underwriter by such Underwriter expressly for
use in such Preliminary Prospectus, the Registration Statement or Prospectus or
any amendment thereof or supplement thereto or in any such application, provided
that such written information or omissions only pertain to disclosures in the
Preliminary Prospectus, the Registration Statement or the Prospectus directly
relating to the transactions effected by the Underwriter in connection with the
offering contemplated hereby. The Company acknowledges that the statements with
respect to the public offering of the Securities set forth under the heading
"Underwriting" and the stabilization legend in the Prospectus have been
furnished by the Underwriter expressly for use therein and constitute the only
information furnished in writing by or on behalf of the Underwriter for
inclusion in any Preliminary Prospectus, the Registration Statement or the
Prospectus. The indemnity agreement in this Section 7(b) shall be in addition
to any liability which the Underwriter may have at common law or otherwise.
(c) Promptly after receipt by an indemnified party under this SECTION
7 of notice of the commencement of any action, such indemnified party shall, if
a claim in respect thereof is to be made against one or more indemnifying
parties under this SECTION 7, notify each party against whom indemnification is
to be sought in writing of the commencement thereof (but the
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failure to so notify an indemnifying party shall not relieve it from any
liability which it may have under this SECTION 7 (except to the extent that it
has been prejudiced in any material respect by such failure) or from any
liability which it may have otherwise). In case any such action, investigation,
inquiry, suit or proceeding is brought against any indemnified party, and it
notifies an indemnifying party or parties of the commencement thereof, the
indemnifying party or parties will be entitled to participate therein, and to
the extent it or they may elect by written notice delivered to the indemnified
party promptly after receiving the aforesaid notice from such indemnified party,
to assume the defense thereof with counsel reasonably satisfactory to such
indemnified party. Notwithstanding the foregoing, an indemnified party shall
have the right to employ its own counsel in any such case but the fees and
expenses of such counsel shall be at the expense of such indemnified party
unless (i) the employment of such counsel shall have been authorized in writing
by the indemnifying parties in connection with the defense of such action at the
expense of the indemnifying party, (ii) the indemnifying parties shall not have
employed counsel reasonably satisfactory to such indemnified party to have
charge of the defense of such action within a reasonable time after notice of
commencement of the action, or (iii) such indemnified party shall have
reasonably concluded that there may be defenses available to it which are
different from or additional to those available to one or all of the
indemnifying parties (in which event the indemnifying parties shall not have the
right to direct the defense of such action, investigation, inquiry, suit or
proceeding on behalf of the indemnified party or parties), in any of which
events such fees and expenses of one additional counsel shall be borne by the
indemnifying parties. In no event shall the indemnifying parties be liable for
fees and expenses of more than one counsel (in addition to any local counsel)
separate from their own counsel for all indemnified parties in connection with
any one action, investigation, inquiry, suit or proceeding or separate but
similar or related actions, investigations, inquiries, suits or proceedings in
the same jurisdiction arising out of the same general allegations or
circumstances. An indemnifying party will not, without the prior written
consent of the indemnified parties, settle, compromise or consent to the entry
of any judgment with respect to any pending or threatened claim, action, suit or
proceeding in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified parties are actual or potential
parties to such claim or action), unless such settlement, compromise or consent
(i) includes an unconditional release of each indemnified party from all
liability arising out of such claim, action, suit or proceeding and (ii) does
not include a statement as to or an admission of fault, culpability or a failure
to act by or on behalf of any indemnified party. Anything in this SECTION 7 to
the contrary notwithstanding, an indemnifying party shall not be liable for any
settlement of any claim or action effected without its written consent;
PROVIDED, HOWEVER, that such consent may not be unreasonably withheld.
(d) In order to provide for just and equitable contribution in any
case in which (i) an indemnified party makes a claim for indemnification
pursuant to this SECTION 7, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
the express provisions of this SECTION 7 provide for indemnification in such
case, or (ii) contribution under the Act may be required on the part of any
indemnified party, then each indemnifying party shall contribute to the amount
paid as a result of such losses, claims, damages, expenses or liabilities (or
actions, investigations, inquiries, suits or proceedings in respect thereof) (A)
in such
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proportion as is appropriate to reflect the relative benefits received by each
of the contributing parties, on the one hand, and the party to be indemnified,
on the other hand, from the offering of the Securities or (B) if the allocation
provided by clause (A) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (A) above but also the relative fault of each of the contributing
parties, on the one hand, and the party to be indemnified, on the other hand, in
connection with the statements or omissions that resulted in such losses,
claims, damages, expenses or liabilities, as well as any other relevant
equitable considerations. In any case where the Company is a contributing party
and the Underwriter is the indemnified party, the relative benefits received by
the Company, on the one hand, and the Underwriter, on the other, shall be deemed
to be in the same proportion as the total net proceeds from the offering of the
Securities (before deducting expenses) bear to the total underwriting discounts
received by the Underwriter hereunder, in each case as set forth in the table on
the cover page of the Prospectus. Relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information supplied by the Company or by the Underwriter, and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such untrue statement or omission. The amount paid by an
indemnified party as a result of the losses, claims, damages, expenses or
liabilities (or actions, investigations, inquiries, suits or proceedings in
respect thereof) referred to in the first (1st) sentence of this SECTION 7(d)
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending any such
action, claim, investigation, inquiry suit or proceeding. Notwithstanding the
provisions of this SECTION 7(d), the Underwriter shall not be required to
contribute any amount in excess of the underwriting discount applicable to the
Securities purchased by the Underwriter hereunder. No person guilty of
fraudulent misrepresentation (within the meaning of Section 12(f) of the Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this SECTION 7(d), each person,
if any, who controls the Company or the Underwriter within the meaning of the
Act, each officer of the Company who has signed the Registration Statement and
each director of the Company shall have the same rights to contribution as the
Company or the Underwriter, as the case may be, subject in each case to this
SECTION 7(d). Any party entitled to contribution will, promptly after receipt
of notice of commencement of any action, suit, inquiry, investigation or
proceeding, against such party in respect to which a claim for contribution may
be made against another party or parties under this SECTION 7(d), notify such
party or parties from whom contribution may be sought, but the omission to so
notify such party or parties shall not relieve the party or parties from whom
contribution may be sought from any obligation it or they may have hereunder or
otherwise than under this SECTION 7(d), or to the extent that such party or
parties were not adversely affected by such omission. Notwithstanding anything
in this SECTION 7 to the contrary, no party will be liable for contribution with
respect to the settlement of any action or claim effected without its written
consent. The contribution agreement set forth above shall be in addition to any
liabilities which any indemnifying party may have at common law or otherwise.
8. REPRESENTATIONS, WARRANTIES, COVENANTS AND AGREEMENTS TO SURVIVE
DELIVERY. All representations, warranties, covenants and agreements of the
Company contained in this Agreement, or contained in certificates of officers of
the Company submitted pursuant
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<PAGE>
hereto, shall be deemed to be representations, warranties, covenants and
agreements at the Closing Date and each Option Closing Date, if any, and such
representations, warranties, covenants and agreements of the Company, and the
respective indemnity and contribution agreements contained in SECTION 7 hereof,
shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any Underwriter, the Company, any
controlling person of any Underwriter or the Company, and shall survive the
termination of this Agreement or the issuance and delivery of the Securities to
the Underwriter.
9. EFFECTIVE DATE. This Agreement shall become effective at 10:00
a.m., New York City time, on the next full business day following the date
hereof, or at such earlier time after the Registration Statement becomes
effective as the Underwriter, in its discretion, shall release the Securities
for sale to the public; PROVIDED, however, that the provisions of SECTIONS 5, 7
and 10 of this Agreement shall at all times be effective. For purposes of this
SECTION 9, the Securities to be purchased hereunder shall be deemed to have been
so released upon the earlier of dispatch by the Underwriter of telegrams to
securities dealers releasing such shares for offering or the release by the
Underwriter for publication of the first newspaper advertisement which is
subsequently published relating to the Securities.
10. TERMINATION.
(a) Subject to SECTION 10(b) hereof, the Underwriter shall have the
right to terminate this Agreement: (i) if any domestic or international event or
act or occurrence has materially adversely disrupted, or in the Underwriter's
opinion will in the immediate future materially adversely disrupt, the financial
markets; or (ii) if any material adverse change in the financial markets shall
have occurred; or (iii) if trading generally shall have been suspended or
materially limited on or by, as the case may be, any of the New York Stock
Exchange, the American Stock Exchange, the NASD, the Boston Stock Exchange, the
Commission or any governmental authority having jurisdiction over such matters;
or (iv) if trading of any of the securities of the Company shall have been
suspended, or if any of the securities of the Company shall have been delisted,
on any exchange or in any over-the-counter market; or (v) if the United States
shall have become involved in a war or major hostilities, or if there shall have
been an escalation in an existing war or major hostilities, or a national
emergency shall have been declared in the United States; or (vi) if a banking
moratorium shall have been declared by any state or federal authority; or (vii)
if the Company shall have sustained a material or substantial loss by fire,
flood, accident, hurricane, earthquake, theft, sabotage or other calamity or
malicious act which, whether or not such loss shall have been insured, will, in
the Underwriter's opinion, make it inadvisable to proceed with the delivery of
the Securities; or (ix) if there shall have occurred any outbreak or escalation
of hostilities or any calamity or crisis or there shall have been such a
material adverse change in the conditions or prospects of the Company, or if
there shall have been such a material adverse change in the general market,
political or economic conditions, in the United States or elsewhere, as in the
Underwriter's judgment would make it inadvisable to proceed with the offering,
sale and/or delivery of the Securities; or (x) if Mr. James Ung or Mr. Max
Toghraie shall no longer serve the Company in their present respective
capacities.
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(b) If this Agreement is terminated by the Underwriter in accordance
with the provisions of SECTION 6 or SECTION 10(a) hereof the Company shall
promptly reimburse and indemnify the Underwriter for all its actual
out-of-pocket expenses, including the fees and disbursements of Underwriter's
Counsel, less amounts previously paid pursuant to SECTION 5(c) hereof. In
addition, the Company shall remain liable for all "blue sky" counsel fees and
expenses and "blue sky" filing fees. Notwithstanding any contrary provision
contained in this Agreement, any election hereunder or any termination of this
Agreement (including, without limitation, pursuant to SECTIONS 6 and 10(a)
hereof), and whether or not this Agreement is otherwise carried out, the
provisions of SECTION 5 and SECTION 7 shall not be in any way be affected by
such election or termination or failure to carry out the terms of this Agreement
or any part hereof.
11. DEFAULT BY THE COMPANY. If the Company shall fail at the Closing
Date or any Option Closing Date, as applicable, to sell and deliver the number
of Securities which it is obligated to sell hereunder on such date, then this
Agreement shall terminate (or, if such default shall occur with respect to any
Option Shares to be purchased on an Option Closing Date, the Underwriter may, at
its option, by notice from the Underwriter to the Company, terminate the
Underwriter's obligation to purchase Option Shares from the Company on such
date) without any liability on the part of any non-defaulting party other than
pursuant to SECTION 5, SECTION 7 and SECTION 10 hereof. No action taken
pursuant to this SECTION 11 shall relieve the Company from liability, if any, in
respect of such default.
12. NOTICES. All notices and communications hereunder, except as
herein otherwise specifically provided, shall be in writing and shall be
deemed to have been duly given if mailed or transmitted by any standard form
of telecommunication. Notices to the Underwriter shall be directed to the
Underwriter at Joseph Stevens & Company, Inc., 33 Maiden Lane, 8th Floor, New
York, NY 10038, Attention: Mr. Joseph Sorbara, with a copy to Orrick,
Herrington & Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103,
Attention: Rubi Finkelstein, Esq. Notices to the Company shall be directed
to the Company at CUMETRIX DATA SYSTEMS CORP., 1304 John Reed Court, City of
Industry, CA 91745, with a copy to Troop, Meisinger, Steuber & Pasich, LLP,
Attention: Murray M. Markiles, Esq.
13. PARTIES. This Agreement shall inure solely to the benefit of,
and shall be binding upon, the Underwriter, the Company and the controlling
persons, directors and officers referred to in SECTION 7 hereof, and their
respective successors, legal representatives and assigns, and no other person
shall have or be construed to have any legal or equitable right, remedy or claim
under or in respect of or by virtue of this Agreement or any provisions herein
contained. No purchaser of Shares from the Underwriter shall be deemed to be a
successor by reason merely of such purchase.
14. CONSTRUCTION. This Agreement shall be governed by and construed
and enforced in accordance with the laws of the State of New York, without
giving effect to choice of law or conflict of laws principles.
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15. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original, and all of which
taken together shall be deemed to be one and the same instrument.
16. ENTIRE AGREEMENT; AMENDMENTS. This Agreement, the Underwriter's
Warrant Agreement and the Consulting Agreement constitute the entire agreement
of the parties hereto and supersede all prior written or oral agreements,
understandings and negotiations with respect to the subject matter hereof and
thereof. This Agreement may not be amended except in a writing signed by the
Underwriter and the Company.
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If the foregoing correctly sets forth the understanding between the
Underwriter and the Company, please so indicate in the space provided below for
that purpose, whereupon this letter shall constitute a binding agreement between
us.
Very truly yours,
CUMETRIX DATA SYSTEMS CORP.
By:
-------------------------------------
Max Toghraie
Chief Executive Officer
Confirmed and accepted as of
the date first above written.
JOSEPH STEVENS & COMPANY, INC.
By:
------------------------------
Name:
Title:
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EXHIBIT 1.2
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CUMETRIX DATA SYSTEMS CORP.
AND
JOSEPH STEVENS & COMPANY, INC.
----------------
UNDERWRITER'S
WARRANT AGREEMENT
---------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
UNDERWRITER'S WARRANT AGREEMENT dated as of __________, 1998 by and
between CUMETRIX DATA SYSTEMS CORP., a California corporation (the
"Company"), and JOSEPH STEVENS & COMPANY, INC. ("Joseph Stevens") (Joseph
Stevens is hereinafter referred to variously as the "Holder" or the
"Underwriter").
W I T N E S S E T H:
WHEREAS, the Company proposes to issue to the Underwriter or its
designee(s) warrants ("Warrants") to purchase up to shares ("Shares") of
common stock, no par value per share, of the Company ("Common Stock"); and
WHEREAS, the Underwriter has agreed pursuant to the underwriting
agreement (the "Underwriting Agreement") dated as of the date hereof by and
between the Underwriter and the Company to act as the underwriter in connection
with the proposed public offering of shares of Common Stock at a
public offering price of $____ per share; and
WHEREAS, the Warrants to be issued pursuant to this Agreement will be
issued on the Closing Date (as such term is defined in the Underwriting
Agreement) by the Company to the Underwriter in consideration for, and as part
of the Underwriter's compensation in connection with the Underwriting Agreement;
NOW, THEREFORE, in consideration of the promises, the payment by the
Underwriter to the Company of __________ dollars ($_____) [.0001 per Warrant],
the agreements herein set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. GRANT. The Underwriter (or its designee(s)) is hereby granted
the right to purchase, at any time from __________, 1999
[one year from the date hereof], until 5:00
<PAGE>
p.m., New York time, on __________, 2003 [5 years from the date hereof], up
to Shares at an initial exercise price (subject to adjustment as
provided in Section 8 hereof) of $____ per Share subject to the terms and
conditions of this Agreement.
2. WARRANT CERTIFICATES. The warrant certificates (the "Warrant
Certificates") delivered and to be delivered pursuant to this Agreement shall be
in the form set forth in Exhibit A attached hereto and made a part hereof, with
such appropriate insertions, omissions, substitutions and other variations as
required or permitted by this Agreement.
3. EXERCISE OF WARRANT.
3.1 METHOD OF EXERCISE. The Warrants are initially exercisable at an
initial exercise price per Share set forth in Section 6 hereof payable by
certified or official bank check in New York Clearing House funds, subject to
adjustment as provided in Section 8 hereof. Upon surrender of a Warrant
Certificate, together with the annexed Form of Election to Purchase duly
executed and payment of the Exercise Price (as hereinafter defined) for the
Shares purchased at the Company's principal offices, located at 1304 John Reed
Court, City of Industry, CA 91745, the registered holder of a Warrant
Certificate ("Holder" or "Holders") shall be entitled to receive a certificate
or certificates for the Shares so purchased. The purchase rights represented by
each Warrant Certificate are exercisable at the option of the Holder thereof, in
whole or in part (but not as to fractional shares of the Common Stock underlying
the Warrants). Warrants may be exercised to purchase all or part of the Shares
represented thereby. In the case of the purchase of less than all the Shares
purchasable under any Warrant Certificate, the Company shall cancel said Warrant
Certificate upon the surrender
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thereof and shall execute and deliver a new Warrant Certificate of like tenor
for the balance of the Shares purchasable thereunder.
3.2 EXERCISE BY SURRENDER OF WARRANT. In addition to the method of
payment set forth in Section 3.1 and in lieu of any cash payment required
thereunder, the Holder(s) of the Warrants shall have the right at any time and
from time to time to exercise the Warrants in full or in part by surrendering
the Warrant Certificate in the manner specified in Section 3.1 in exchange for
the number of Shares equal to the product of (x) the number of Shares as to
which the Warrants are being exercised, multiplied by (y) a fraction, the
numerator of which is the Market Price (as defined in Section 3.3 hereof) of the
Shares minus the Exercise Price of the Shares and the denominator of which is
the Market Price per Share. Solely for the purposes of this Section 3.2, Market
Price shall be calculated either (i) on the date on which the form of election
attached hereto is deemed to have been sent to the Company pursuant to Section
13 hereof ("Notice Date") or (ii) as the average of the Market Price for each of
the five trading days immediately preceding the Notice Date, whichever of (i) or
(ii) results in a greater Market Price.
3.3 DEFINITION OF MARKET PRICE.
(a) As used herein, the phrase "Market Price" of the Shares, at any
date shall be deemed to be the last reported sale price of the Common Stock, or,
in case no such reported sale takes place on such day, the average of the last
reported sale prices for the last three (3) trading days, in either case as
officially reported by the principal securities exchange on which shares of the
Common Stock are listed or admitted to trading or by the Nasdaq National Market
("Nasdaq/NM") or the Nasdaq Small Cap Market ("Nasdaq Small Cap"), or, if the
Common Stock is not listed or admitted to trading on any national securities
exchange or
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quoted by the National Association of Securities Dealers Automated Quotation
System ("Nasdaq"), the average closing bid price as furnished by the National
Association of Securities Dealers, Inc. ("NASD") through Nasdaq or similar
organization if Nasdaq is no longer reporting such information. If the Market
Price of the Shares cannot be determined pursuant to the sentence above, the
Market Price of the Shares shall be determined in good faith (using customary
valuation methods) by resolution of the members of the Board of Directors of the
Company, based on the best information available to it.
4. ISSUANCE OF CERTIFICATES. Upon the exercise of the Warrants, the
issuance of certificates for shares of Common Stock or other securities,
properties or rights underlying such Warrants shall be made forthwith (and in
any event such issuance shall be made within five (5) business days thereafter)
without charge to the Holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the provisions of Sections 5 and 7 hereof) be issued in the
name of, or in such names as may be directed by, the Holder thereof.
The Warrant Certificates and the certificates representing the shares
of Common Stock underlying the Warrants or other securities, property or rights
shall be executed on behalf of the Company by the manual or facsimile signature
of the then present Chairman or Vice Chairman of the Board of Directors or
President or Vice President of the Company under its corporate seal reproduced
thereon, attested to by the manual or facsimile signature of the then present
Secretary or Assistant Secretary or Treasurer or Assistant Treasurer of the
Company. Warrant Certificates shall be dated the date of execution by the
Company upon initial issuance, division, exchange, substitution or transfer.
4
<PAGE>
5. RESTRICTION ON TRANSFER OF WARRANTS. The Holder of a Warrant
Certificate, by its acceptance thereof, covenants and agrees that the Warrants
are being acquired as an investment and not with a view to the distribution
thereof; that the Warrants may not be sold, transferred, assigned, hypothecated
or otherwise disposed of, in whole or in part, for a period of one (1) year from
the date hereof, except to officers or partners of the Underwriter.
6. EXERCISE PRICE.
6.1 INITIAL AND ADJUSTED EXERCISE PRICE. Except as otherwise
provided in Section 8 hereof, the initial exercise price of each Warrant
shall be $____ per Share. The adjusted exercise price shall be the price
which shall result from time to time from any and all adjustments of the
initial exercise price in accordance with the provisions of Section 8 hereof.
6.2 EXERCISE PRICE. The term "Exercise Price" herein shall mean the
initial exercise price or the adjusted exercise price, depending upon the
context.
7. REGISTRATION RIGHTS.
7.1 REGISTRATION UNDER THE SECURITIES ACT OF 1933. The Warrants and
the shares of Common Stock underlying the Warrants and any other securities
issuable upon exercise of the Warrants (collectively, the "Warrant Securities")
have been registered under the Securities Act of 1933, as amended (the "Act"),
pursuant to the Company's Registration Statement on Form S-1 (Registration No.
333-43151) (the "Registration Statement"). All the representations and
warranties of the Company contained in the Underwriting Agreement relating to
the Registration Statement, the Preliminary Prospectus and Prospectus (as such
terms are defined in the Underwriting Agreement) and made as of the dates
provided therein,
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are hereby incorporated by reference. The Company agrees and covenants promptly
to file post effective amendments to such Registration Statement as may be
necessary to maintain the effectiveness of the Registration Statement as long as
any Warrants are outstanding. In the event that, for any reason, whatsoever,
the Company shall fail to maintain the effectiveness of the Registration
Statement, upon exercise, in part or in whole, of the Warrants, certificates
representing the shares of Common Stock underlying the Warrants and any other
securities issuable upon exercise of the Warrants shall bear the following
legend:
The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended ("Act"),
and may not be offered, sold, pledged, hypothecated, assigned or
transferred except pursuant to (i) an effective registration
statement under the Act, (ii) to the extent applicable, Rule 144
under the Act (or any similar rule under such Act relating to the
disposition of securities), or (iii) an opinion of counsel, if
such opinion shall be reasonably satisfactory to counsel to the
issuer, that an exemption from registration under such Act is
available.
7.2 PIGGYBACK REGISTRATION. If, at any time commencing after the
date hereof and expiring seven (7) years thereafter, the Company proposes to
register any of its securities under the Act (other than pursuant to Form S-8,
S-4 or a comparable registration statement), the Company will give written
notice by registered mail, at least thirty (30) days prior to the filing of each
such registration statement, to the Underwriter and to all other Holders of the
Warrants and/or the Warrant Securities of its intention to do so. If the
Underwriter or other Holders of the Warrants and/or Warrant Securities notifies
the Company within twenty (20) days after receipt of any such notice of its or
their desire to include any such securities in such proposed registration
statement, the Company shall afford the Underwriter and such Holders of the
Warrants and/or Warrant Securities the opportunity to have any such Warrant
Securities registered under such registration statement.
6
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Notwithstanding the provisions of this Section 7.2, the Company shall
have the right at any time after it shall have given written notice pursuant to
this Section 7.2 (irrespective of whether a written request for inclusion of any
such securities shall have been made) to elect not to file any such proposed
registration statement, or to withdraw the same after the filing but prior to
the effective date thereof.
7.3 DEMAND REGISTRATION.
(a) At any time after the date hereof and expiring five (5) years
thereafter, the Holders of the Warrants and/or Warrant Securities representing a
"Majority" (as hereinafter defined) of such securities (assuming the exercise of
all of the Warrants) shall have the right (which right is in addition to the
registration rights under Section 7.2 hereof), exercisable by written notice to
the Company, to have the Company prepare and file with the Securities and
Exchange Commission (the "Commission"), on one occasion, a registration
statement and such other documents, including a prospectus, as may be necessary
in the opinion of both counsel for the Company and counsel for the Underwriter
and Holders, in order to comply with the provisions of the Act, so as to permit
a public offering and sale of their respective Warrant Securities for nine (9)
consecutive months by such Holders and any other Holders of the Warrants and/or
Warrant Securities who notify the Company within ten (10) days after receiving
notice from the Company of such request.
(b) The Company covenants and agrees to give written notice of any
registration request under this Section 7.3 by any Holder or Holders to all
other registered Holders of the Warrants and the Warrant Securities within ten
(10) days from the date of the receipt of any such registration request.
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<PAGE>
(c) Notwithstanding anything to the contrary contained herein, if the
Company shall not have filed a registration statement for the Warrant Securities
within the time period specified in Section 7.4(a) hereof pursuant to the
written notice specified in Section 7.3(a) of a Majority of the Holders of the
Warrants and/or Warrant Securities, the Company shall have the option, upon the
written notice of election of a Majority of the Holders of the Warrants and/or
Warrant Securities to repurchase (i) any and all Warrant Securities at the
higher of the Market Price per Share of Common Stock on (x) the date of the
notice sent pursuant to Section 7.3(a) or (y) the expiration of the period
specified in Section 7.4(a) and (ii) any and all Warrants at such Market Price
less the Exercise Price of such Warrant. Such repurchase shall be in
immediately available funds and shall close within two (2) days after the later
of (i) the expiration of the period specified in Section 7.4(a) or (ii) the
delivery of the written notice of election specified in this Section 7.3(c).
(d) In addition to the registration rights under Section 7.2 and
subsection (a) of this Section 7.3, at any time commencing after the date hereof
and expiring five (5) years thereafter, any Holder of Warrants and/or Warrant
Securities shall have the right, exercisable by written request to the Company,
to have the Company prepare and file, on one occasion, with the Commission a
registration statement so as to permit a public offering and sale for nine (9)
consecutive months by any such Holder of its Warrant Securities provided,
however, that the provisions of Section 7.4(b) hereof shall not apply to any
such registration request and registration and all costs incident thereto shall
be at the expense of the Holder or Holders making such request.
8
<PAGE>
7.4 COVENANTS OF THE COMPANY WITH RESPECT TO REGISTRATION. In
connection with any registration under Section 7.2 or 7.3 hereof, the Company
covenants and agrees as follows:
(a) The Company shall use its best efforts to file a registration
statement within thirty (30) days of receipt of any demand therefor, shall
use its best efforts to have any registration statement declared effective
at the earliest possible time, and shall furnish each Holder desiring to
sell Warrant Securities such number of prospectuses as shall reasonably be
requested.
(b) The Company shall pay all costs (excluding fees and expenses of
Holder(s)' counsel and any underwriting or selling commissions), fees and
expenses in connection with all registration statements filed pursuant to
Sections 7.2 and 7.3(a) hereof including, without limitation, the Company's
legal and accounting fees, printing expenses, blue sky fees and expenses.
The Holder(s) will pay all costs, fees and expenses in connection with any
registration statement filed pursuant to Section 7.3(d). If the Company
shall fail to comply with the provisions of Section 7.4(a), the Company
shall, in addition to any other equitable or other relief available to the
Holder(s), be liable for any or all incidental or special damages sustained
by the Holder(s) requesting registration of their Warrant Securities,
excluding consequential damages.
(c) The Company will take all necessary action which may be required
in qualifying or registering the Warrant Securities included in a
registration statement for offering and sale under the securities or blue
sky laws of such states as reasonably are requested by the Holder(s),
provided that the Company shall not be obligated to
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<PAGE>
execute or file any general consent to service of process or to qualify as
a foreign corporation to do business under the laws of any such
jurisdiction.
(d) The Company shall indemnify the Holder(s) of the Warrant
Securities to be sold pursuant to any registration statement and each
person, if any, who controls such Holders within the meaning of Section 15
of the Act or Section 20(a) of the Securities Exchange Act of 1934, as
amended ("Exchange Act"), against all loss, claim, damage, expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them
may become subject under the Act, the Exchange Act or otherwise, arising
from such registration statement but only to the same extent and with the
same effect as the provisions pursuant to which the Company has agreed to
indemnify the Underwriters contained in Section 7 of the Underwriting
Agreement. The Company further agree(s) that upon demand by an indemnified
person, at any time or from time to time, it will promptly reimburse such
indemnified person for any loss, claim, damage, liability, cost or expense
actually and reasonably paid by the indemnified person as to which the
Company has indemnified such person pursuant hereto. Notwithstanding the
foregoing provisions of this Section 7.4(d) any such payment or
reimbursement by the Company of fees, expenses or disbursements incurred by
an indemnified person in any proceeding in which a final judgment by a
court of competent jurisdiction (after all appeals or the expiration of
time to appeal) is entered against the Company or such indemnified person
as a direct result of the Holder(s) or such person's gross negligence or
willful misfeasance will be promptly repaid to the Company.
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<PAGE>
(e) The Holder(s) of the Warrant Securities to be sold pursuant to a
registration statement, and their successors and assigns, shall severally,
and not jointly, indemnify the Company, its officers and directors and each
person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20(a) of the Exchange Act, against all loss, claim,
damage or expense or liability (including all expenses reasonably incurred
in investigating, preparing or defending against any claim whatsoever) to
which they may become subject under the Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such Holders, or
their successors or assigns, for specific inclusion in such registration
statement to the same extent and with the same effect as the provisions
contained in Section 7 of the Underwriting Agreement pursuant to which the
Underwriters have agreed to indemnify the Company. The Holder(s) further
agree(s) that upon demand by an indemnified person, at any time or from
time to time, they will promptly reimburse such indemnified person for any
loss, claim, damage, liability, cost or expense actually and reasonably
paid by the indemnified person as to which the Holder(s) have indemnified
such person pursuant hereto. Notwithstanding the foregoing provisions of
this Section 7.4(e) any such payment or reimbursement by the Holder(s) of
fees, expenses or disbursements incurred by an indemnified person in any
proceeding in which a final judgment by a court of competent jurisdiction
(after all appeals or the expiration of time to appeal) is entered against
the Company or such indemnified person as a direct result of the Company or
such person's gross negligence or willful misfeasance will be promptly
repaid to the Holder(s).
11
<PAGE>
(f) Nothing contained in this Agreement shall be construed as
requiring the Holder(s) to exercise their Warrants prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) The Company shall not permit the inclusion of any securities
other than the Warrant Securities to be included in any registration
statement filed pursuant to Section 7.3 hereof other than the holders of
securities in the Company's private placement consummated in _____________,
1997, without the prior written consent of the Holders of the Warrants and
Warrant Securities representing a Majority of such securities (assuming the
exercise of all of the Warrants).
(h) The Company shall furnish to each Holder participating in the
offering and to each underwriter, if any, a signed counterpart, addressed
to such Holder or underwriter, of (i) an opinion of counsel to the Company,
dated the effective date of such registration statement (and, if such
registration includes an underwritten public offering, an opinion dated the
date of the closing under the underwriting agreement), and (ii) a "cold
comfort" letter dated the effective date of such registration statement
(and, if such registration includes an underwritten public offering, a
letter dated the date of the closing under the underwriting agreement)
signed by the independent public accountants who have issued a report on
the Company's financial statements included in such registration statement,
in each case covering substantially the same matters with respect to such
registration statement (and the prospectus included therein) and, in the
case of such accountants' letter, with respect to events subsequent to the
date of such financial statements, as are customarily covered in opinions
of issuer's counsel and in
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<PAGE>
accountants' letters delivered to underwriters in underwritten public
offerings of securities.
(i) The Company shall as soon as practicable after the effective date
of the registration statement, and in any event within 15 months
thereafter, make "generally available to its security holders" (within the
meaning of Rule 158 under the Act) an earnings statement (which need not be
audited) complying with Section 11(a) of the Act and covering a period of
at least 12 consecutive months beginning after the effective date of the
registration statement.
(j) The Company shall deliver promptly to each Holder participating
in the offering requesting the correspondence and memoranda described below
and to the managing underwriter, if any, copies of all correspondence
between the Commission and the Company, its counsel or auditors and all
memoranda relating to discussions with the Commission or its staff with
respect to the registration statement and permit each Holder and
underwriter to do such investigation, upon reasonable advance notice, with
respect to information contained in or omitted from the registration
statement as it deems reasonably necessary to comply with applicable
securities laws or rules of the NASD. Such investigation shall include
access to books, records and properties and opportunities to discuss the
business of the Company with its officers and independent auditors, all to
such reasonable extent and at such reasonable times and as often as any
such Holder or underwriter shall reasonably request.
(k) The Company shall enter into an underwriting agreement with the
managing underwriter selected for such underwriting by Holders holding a
Majority of the Warrant Securities requested to be included in such
underwriting, which may be the
13
<PAGE>
Underwriter. Such agreement shall be satisfactory in form and substance to
the Company, each Holder and such managing underwriter, and shall contain
such representations, warranties and covenants by the Company and such
other terms as are customarily contained in agreements of that type used by
the managing underwriter. The Holders shall be parties to any underwriting
agreement relating to an underwritten sale of their Warrant Securities and
may, at their option, require that any or all of the representations,
warranties and covenants of the Company to or for the benefit of such
underwriters shall also be made to and for the benefit of such Holders.
Such Holders shall not be required to make any representations or
warranties to or agreements with the Company or the underwriters except as
they may relate to such Holders and their intended methods of distribution.
(l) In addition to the Warrant Securities, upon the written request
therefor by any Holder(s), the Company shall include in the registration
statement any other securities of the Company held by such Holder(s) as of
the date of filing of such registration statement, including without
limitation, restricted shares of Common Stock, options, warrants or any
other securities convertible into shares of Common Stock.
(m) For purposes of this Agreement, the term "Majority" in reference
to the Holders of Warrants or Warrant Securities shall mean in excess of
fifty percent (50%) of the then outstanding Warrants or Warrant Securities
that (i) are not held by the Company, an affiliate, officer, creditor,
employee or agent thereof or any of their respective affiliates, members of
their family, persons acting as nominees or in conjunction therewith and
(ii) have not been resold to the public pursuant to a registration
statement filed with the Commission under the Act.
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<PAGE>
8. ADJUSTMENTS TO EXERCISE PRICE AND NUMBER OF SECURITIES.
8.1 SUBDIVISION AND COMBINATION. In case the Company shall at any
time subdivide or combine the outstanding shares of Common Stock, the Exercise
Price shall forthwith be proportionately decreased in the case of subdivision or
increased in the case of combination.
8.2 STOCK DIVIDENDS AND DISTRIBUTIONS. In case the Company shall pay
dividend in, or make a distribution of, shares of Common Stock or of the
Company's capital stock convertible into Common Stock, the Exercise Price shall
forthwith be proportionately decreased. An adjustment made pursuant to this
Section 8.2 shall be made as of the record date for the subject stock dividend
or distribution.
8.3 ADJUSTMENT IN NUMBER OF SECURITIES. Upon each adjustment of the
Exercise Price pursuant to the provisions of this Section 8, the number of
Warrant Securities issuable upon the exercise at the adjusted Exercise Price of
each Warrant shall be adjusted to the nearest whole number by multiplying a
number equal to the Exercise Price in effect immediately prior to such
adjustment by the number of Warrant Securities issuable upon exercise of the
Warrants immediately prior to such adjustment and dividing the product so
obtained by the adjusted Exercise Price.
8.4 DEFINITION OF COMMON STOCK. For the purpose of this Agreement,
the term "Common Stock" shall mean (i) the class of stock designated as Common
Stock in the Certificate of Incorporation of the Company as may be amended or
restated as of the date hereof, or (ii) any other class of stock resulting from
successive changes or reclassifications of such Common Stock consisting solely
of changes in par value, or from par value to no par value, or from no par value
to par value.
15
<PAGE>
8.5 MERGER OR CONSOLIDATION OR SALE.
(a) In case of any consolidation of the Company with, or merger of
the Company with, or merger of the Company into, another corporation (other than
a consolidation or merger which does not result in any reclassification or
change of the outstanding Common Stock), the corporation formed by such
consolidation or merger shall execute and deliver to the Holder a supplemental
warrant agreement providing that the holder of each Warrant then outstanding or
to be outstanding shall have the right thereafter (until the expiration of such
Warrant) to receive, upon exercise of such Warrant, the kind and amount of
shares of stock and other securities and property receivable upon such
consolidation, merger, sale or transfer by a holder of the number of shares of
Common Stock of the Company for which such Warrant might have been exercised
immediately prior to such consolidation, merger, sale or transfer. Such
supplemental warrant agreement shall provide for adjustments which shall be
identical to the adjustments provided in this Section 8. The above provision of
this subsection shall similarly apply to successive consolidations or mergers.
(b) In the event of (i) the sale by the Company of all or
substantially all of its assets, or (ii) the engagement by the Company or any of
its affiliates in a "Rule 13e-3 transaction" as defined in paragraph (a)(3) of
Rule 13e-3 of the General Rules and Regulations under the Securities Exchange
Act of 1934, as amended, or (iii) a distribution to the Company's stockholders
of any cash, assets, property, rights, evidences of indebtedness, securities or
any other thing of value, or any combination thereof, the Holders of the
unexercised Warrants shall receive notice of such sale, transaction or
distribution twenty (20) days prior to the date of such sale or the record date
for such transaction or distribution, as applicable, and, if they exercise such
Warrants prior to such date, they shall be entitled, in
16
<PAGE>
addition to the shares of Common Stock issuable upon the exercise thereof, to
receive such property, cash, assets, rights, evidence of indebtedness,
securities or any other thing of value, or any combination thereof, on the
payment date of such sale, transaction or distribution.
8.6 NO ADJUSTMENT OF EXERCISE PRICE IN CERTAIN CASES. No adjustment
of the Exercise Price shall be made if the amount of said adjustment shall be
less than ten cents (10 CENTS) per Warrant Security, provided, however, that in
such case any adjustment that would otherwise be required then to be made shall
be carried forward and shall be made at the time of and together with the next
subsequent adjustment which, together with any adjustment so carried forward,
shall amount to at least ten cents (10 CENTS) per Warrant Security.
9. EXCHANGE AND REPLACEMENT OF WARRANT CERTIFICATES. Each Warrant
Certificate is exchangeable without expense, upon the surrender thereof by the
registered Holder at the principal executive office of the Company, for a new
Warrant Certificate of like tenor and date representing in the aggregate the
right to purchase the same number of Shares in such denominations as shall be
designated by the Holder thereof at the time of such surrender.
Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft, destruction or mutilation of any Warrant Certificate, and,
in case of loss, theft or destruction, of indemnity or security reasonably
satisfactory to it, and reimbursement to the Company of all reasonable expenses
incidental thereto, and upon surrender and cancellation of the Warrants, if
mutilated, the Company will make and deliver a new Warrant Certificate of like
tenor, in lieu thereof.
10. ELIMINATION OF FRACTIONAL INTERESTS. The Company shall not be
required to issue certificates representing fractions of shares of Common Stock
upon the exercise of the
17
<PAGE>
Warrants, it being the intent of the parties that all fractional interests shall
be eliminated by rounding any fraction up to the nearest whole number of shares
of Common Stock, or other securities, properties or rights.
11. RESERVATION AND LISTING OF SECURITIES. The Company shall at all
times reserve and keep available out of its authorized shares of Common Stock,
solely for the purpose of issuance upon the exercise of the Warrants, such
number of shares of Common Stock or other securities, properties or rights as
shall be issuable upon the exercise thereof. The Company covenants and agrees
that, upon exercise of the Warrants and payment of the Exercise Price therefor,
all shares of Common Stock and other securities issuable upon such exercise
shall be duly and validly issued, fully paid, non-assessable and not subject to
the preemptive rights of any stockholder. As long as the Warrants shall be
outstanding, the Company shall use its best efforts to cause all shares of
Common Stock issuable upon the exercise of the Warrants to be listed (subject to
official notice of issuance) on all securities exchanges on which the Common
Stock issued to the public in connection herewith may then be listed and/or
quoted on Nasdaq National Market or Nasdaq Small Cap Market.
12. NOTICES TO WARRANT HOLDERS. Nothing contained in this Agreement
shall be construed as conferring upon the Holders the right to vote or to
consent or to receive notice as a stockholder in respect of any meetings of
stockholders for the election of directors or any other matter, or as having any
rights whatsoever as a stockholder of the Company. If, however, at any time
prior to the expiration of the Warrants and their exercise, any of the following
events shall occur:
(a) the Company shall take a record of the holders of its shares of
Common Stock for the purpose of entitling them to receive a dividend or
distribution payable
18
<PAGE>
otherwise than in cash, or a cash dividend or distribution payable
otherwise than out of current or retained earnings, as indicated by the
accounting treatment of such dividend or distribution on the books of the
Company; or
(b) the Company shall offer to all the holders of its Common Stock
any additional shares of capital stock of the Company or securities
convertible into or exchangeable for shares of capital stock of the
Company, or any option, right or warrant to subscribe therefor; or
(c) a dissolution, liquidation or winding up of the Company (other
than in connection with a consolidation or merger) or a sale of all or
substantially all of its property, assets and business as an entirety shall
be proposed;
then, in any one or more of said events, the Company shall give written notice
of such event at least twenty (20) days prior to the date fixed as a record date
or the date of closing the transfer books for the determination of the
stockholders entitled to such dividend, distribution, convertible or
exchangeable securities or subscription rights, or entitled to vote on such
proposed dissolution, liquidation, winding up or sale. Such notice shall
specify such record date or the date of closing the transfer books, as the case
may be. Failure to give such notice or any defect therein shall not affect the
validity of any action taken in connection with the declaration or payment of
any such dividend, or the issuance of any convertible or exchangeable
securities, or subscription rights, options or warrants, or any proposed
dissolution, liquidation, winding up or sale.
13. NOTICES. All notices, requests, consents and other
communications hereunder shall be in writing and shall be deemed to have been
duly made when delivered, or mailed by registered or certified mail, return
receipt requested:
19
<PAGE>
(a) If to the registered Holder of the Warrants, to the address of
such Holder as shown on the books of the Company; or
(b) If to the Company, to the address set forth in Section 3 hereof
or to such other address as the Company may designate by notice to the
Holders.
(c) If to the Underwriter, to Joseph Stevens & Company, Inc., 33
Maiden Lane, New York, New York, 10038, Attention: Joseph Sorbara.
14. SUPPLEMENTS AND AMENDMENTS. The Company and the Underwriter may
from time to time supplement or amend this Agreement without the approval of any
Holders of Warrant Certificates (other than the Underwriter) in order to cure
any ambiguity, to correct or supplement any provision contained herein which may
be defective or inconsistent with any provisions herein, or to make any other
provisions in regard to matters or questions arising hereunder which the Company
and the Underwriter may deem necessary or desirable and which the Company and
the Underwriter deem shall not adversely affect the interests of the Holders of
Warrant Certificates.
15. SUCCESSORS. All the covenants and provisions of this Agreement
shall be binding upon and inure to the benefit of the Company, the Holders and
their respective successors and assigns hereunder.
16. TERMINATION. This Agreement shall terminate at the close of
business on __________, 2005. Notwithstanding the foregoing, the
indemnification provisions of Section 7 shall survive such termination until the
close of business on __________, 2011.
17. GOVERNING LAW, SUBMISSION TO JURISDICTION. This Agreement and
each Warrant Certificate issued hereunder shall be deemed to be a contract made
under the laws of
20
<PAGE>
the State of New York and for all purposes shall be construed in accordance with
the laws of said State without giving effect to the rules of said State
governing the conflicts of laws.
The Company, the Underwriter and the Holders hereby agree that any
action, proceeding or claim against it arising out of, or relating in any way
to, this Agreement shall be brought and enforced in the courts of the State of
New York or of the United States of America for the Southern District of New
York, and irrevocably submits to such jurisdiction, which jurisdiction shall be
exclusive. The Company, the Underwriter and the Holders hereby irrevocably
waive any objection to such exclusive jurisdiction or inconvenient forum. Any
such process or summons to be served upon any of the Company, the Underwriter
and the Holders (at the option of the party bringing such action, proceeding or
claim) may be served by transmitting a copy thereof, by registered or certified
mail, return receipt requested, postage prepaid, addressed to it at the address
as set forth in Section 13 hereof. Such mailing shall be deemed personal
service and shall be legal and binding upon the party so served in any action,
proceeding or claim. The Company, the Underwriter and the Holders agree that
the prevailing party(ies) in any such action or proceeding shall be entitled to
recover from the other party(ies) all of its/their reasonable legal costs and
expenses relating to such action or proceeding and/or incurred in connection
with the preparation therefor.
18. ENTIRE AGREEMENT; MODIFICATION. This Agreement (including the
Underwriting Agreement to the extent portions thereof are referred to herein)
contain the entire understanding between the parties hereto with respect to the
subject matter hereof and may not be modified or amended except by a writing
duly signed by the party against whom enforcement of the modification or
amendment is sought.
21
<PAGE>
19. SEVERABILITY. If any provision of this Agreement shall be held
to be invalid or unenforceable, such invalidity or unenforceability shall not
affect any other provision of this Agreement.
20. CAPTIONS. The caption headings of the Sections of this Agreement
are for convenience of reference only and are not intended, nor should they be
construed as, a part of this Agreement and shall be given no substantive effect.
21. BENEFITS OF THIS AGREEMENT. Nothing in this Agreement shall be
construed to give to any person or corporation other than the Company and the
Underwriter and any other registered Holder(s) of the Warrant Certificates or
Warrant Securities any legal or equitable right, remedy or claim under this
Agreement; and this Agreement shall be for the sole and exclusive benefit of the
Company and the Underwriter and any other Holder(s) of the Warrant Certificates
or Warrant Securities.
22. COUNTERPARTS. This Agreement may be executed in any number of
counterparts and each of such counterparts shall for all purposes be deemed to
be an original, and such counterparts shall constitute but one and the same
instrument.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed, as of the day and year first above written.
CUMETRIX DATA SYSTEMS CORP.
By:
-------------------------------------
Max Toghraie
Chief Executive Officer
Attest:
- ---------------------
Secretary
JOSEPH STEVENS & COMPANY, INC.
By:
-------------------------------------
Name:
Title:
<PAGE>
EXHIBIT A
[FORM OF WARRANT CERTIFICATE]
THE WARRANTS REPRESENTED BY THIS CERTIFICATE AND THE OTHER SECURITIES ISSUABLE
UPON EXERCISE THEREOF MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
(ii) TO THE EXTENT APPLICABLE, RULE 144 UNDER SUCH ACT (OR ANY SIMILAR RULE
UNDER SUCH ACT RELATING TO THE DISPOSITION OF SECURITIES), OR (iii) AN OPINION
OF COUNSEL, IF SUCH OPINION SHALL BE REASONABLY SATISFACTORY TO COUNSEL FOR THE
ISSUER, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
THE TRANSFER OR EXCHANGE OF THE WARRANTS REPRESENTED BY THIS CERTIFICATE IS
RESTRICTED IN ACCORDANCE WITH THE WARRANT AGREEMENT REFERRED TO HEREIN.
EXERCISABLE ON OR BEFORE
5:00 P.M., NEW YORK TIME, __________, 2003
No. UW-01 Warrants to Purchase 230,000
Shares of Common Stock
WARRANT CERTIFICATE
This Warrant Certificate certifies that Joseph Stevens & Company,
Inc., or registered assigns, is the registered holder of Warrants to purchase
initially, at any time from __________, 1999 until 5:00 p.m. New York time on
__________, 2003 ("Expiration Date"), up to 180,000 fully paid and
non-assessable shares of common stock, no par value ("Common Stock") of
CUMETRIX DATA SYSTEMS CORP., a California corporation (the "Company"), at the
initial exercise price, subject to adjustment in certain events (the
"Exercise Price"), of $____ per share upon surrender of this Warrant
Certificate and payment of the Exercise Price at an office or agency of the
Company, or by surrender of this Warrant Certificate in lieu of cash payment,
but subject to the conditions set forth herein and in the warrant agreement
dated as of __________, 1998 between the Company and Joseph Stevens &
Company, Inc. (the "Warrant Agreement"). Payment of the Exercise Price shall
be made by certified or official bank check in New York Clearing House funds
payable to the order of the Company or by surrender of this Warrant
Certificate.
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No Warrant may be exercised after 5:00 p.m., New York time, on the
Expiration Date, at which time all Warrants evidenced hereby, unless exercised
prior thereto, hereby shall thereafter be void.
The Warrants evidenced by this Warrant Certificate are part of a duly
authorized issue of Warrants issued pursuant to the Warrant Agreement, which
Warrant Agreement is hereby incorporated by reference in and made a part of this
instrument and is hereby referred to for a description of the rights, limitation
of rights, obligations, duties and immunities thereunder of the Company and the
holders (the words "holders" or "holder" meaning the registered holders or
registered holder) of the Warrants.
The Warrant Agreement provides that upon the occurrence of certain
events the Exercise Price and the type and/or number of the Company's securities
issuable thereupon may, subject to certain conditions, be adjusted. In such
event, the Company will, at the request of the holder, issue a new Warrant
Certificate evidencing the adjustment in the Exercise Price and the number
and/or type of securities issuable upon the exercise of the Warrants; provided,
however, that the failure of the Company to issue such new Warrant Certificates
shall not in any way change, alter, or otherwise impair, the rights of the
holder as set forth in the Warrant Agreement.
Upon due presentment for registration of transfer of this Warrant
Certificate at an office or agency of the Company, a new Warrant Certificate or
Warrant Certificates of like tenor and evidencing in the aggregate a like number
of Warrants shall be issued to the transferee(s) in exchange for this Warrant
Certificate, subject to the limitations provided herein and in the Warrant
Agreement, without any charge except for any tax or other governmental charge
imposed in connection with such transfer.
Upon the exercise of less than all of the Warrants evidenced by this
Certificate, the Company shall forthwith issue to the holder hereof a new
Warrant Certificate representing such number of unexercised Warrants.
The Company may deem and treat the registered holder(s) hereof as the
absolute owner(s) of this Warrant Certificate (notwithstanding any notation of
ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof, and of any distribution to the holder(s) hereof, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
All terms used in this Warrant Certificate which are defined in the
Warrant Agreement shall have the meanings assigned to them in the Warrant
Agreement.
2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Warrant Certificate to
be duly executed under its corporate seal.
Dated as of , 1998
CUMETRIX DATA SYSTEMS CORP.
[SEAL] By:
---------------------------------------
Max Toghraie
Chief Executive Officer
Attest:
- --------------------------
Secretary
3
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.1]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _____________ Shares
and herewith tenders in payment for such securities a certified or official
bank check payable in New York Clearing House Funds to the order of CUMETRIX
DATA SYSTEMS CORP. in the amount of $__________, all in accordance with the
terms of Section 3.1 of the Underwriter's Warrant Agreement dated as of
___________, 1998 between CUMETRIX DATA SYSTEMS CORP. and Joseph Stevens &
Company, Inc. The undersigned requests that certificates for such securities
be registered in the name of _______________ whose address is
__________________________ and that such certificates be delivered to
______________________________ whose address is ____________________________.
Dated:
Signature
--------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
------------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
4
<PAGE>
[FORM OF ELECTION TO PURCHASE PURSUANT TO SECTION 3.2]
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Shares all
in accordance with the terms of Section 3.2 of the Underwriter's Warrant
Agreement dated as of ______________, 1998 between CUMETRIX DATA SYSTEMS
CORP. and Joseph Stevens & Company, Inc. The undersigned requests that
certificates for such securities be registered in the name of
__________________ whose address is _______________________ and that such
certificates be delivered to _____________________ whose address is
____________________________________.
Dated:
Signature
--------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
------------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
5
<PAGE>
[FORM OF ASSIGNMENT]
(To be executed by the registered holder if such holder
desires to transfer the Warrant Certificate.)
FOR VALUE RECEIVED _____________ hereby sells, assigns and transfers
unto
- ------------------------------------------------------------------------------
(Please print name and address of transferee)
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint ________________ Attorney, to
transfer the within Warrant Certificate on the books of the within-named
Company, with full power of substitution.
Dated: Signature:
---------------------- --------------------------------
(Signature must conform in all respects to
name of holder as specified on the face of
the Warrant Certificate.)
------------------------------------------
(Insert Social Security or Other
Identifying Number of Holder)
6
<PAGE>
EXHIBIT 1.3
FINANCIAL ADVISORY AND CONSULTING AGREEMENT
This Agreement is made and entered into as of this ___ day of
__________, 1998, by and between CUMETRIX DATA SYSTEMS CORP., a California
corporation (the "Company"), and Joseph Stevens & Company, Inc. (the
"Consultant").
In consideration of and for the mutual promises and covenants
contained herein, and for other good and valuable consideration, the receipt of
which is hereby acknowledged, the parties hereto hereby agree as follows:
1. PURPOSE. The Company hereby retains the Consultant during the
term specified in SECTION 2 hereof to render consulting advice to the Company as
an investment banker relating to financial and similar matters, upon the terms
and conditions as set forth herein.
2. TERM. Subject to the provisions of SECTIONS 8, 9 and 10 hereof,
this Agreement shall be effective for a period of twenty-four (24) months
commencing on the date hereof.
3. DUTIES OF CONSULTANT. During the term of this Agreement, the
Consultant will provide the Company with such regular and customary consulting
advice as is reasonably requested by the Company, provided that the Consultant
shall not be required to undertake duties not reasonably within the scope of the
consulting advisory service contemplated by this Agreement. In performance of
these duties, the Consultant shall provide the Company with the benefits of its
best judgment and efforts. It is understood and acknowledged by the parties
that the value of the Consultant's advice is not measurable in any quantitative
manner, and that the Consultant shall be obligated to render advice, upon the
request of the Company, in good faith, but shall not be obligated to spend any
specific amount of time in doing so. The Consultant's duties may include, but
will not necessarily be limited to:
A. Providing sponsorship and exposure in connection with the
dissemination of corporate information regarding the Company
to the investment community at large under a systematic
planned approach.
B. Rendering advice and assistance in connection with the
preparation of annual and interim reports and press
releases.
<PAGE>
C. Arranging, on behalf of the Company and its representatives,
at appropriate times, meetings with securities analysts of
major regional investment banking firms.
D. Assisting in the Company's financial public relations,
including discussions between the Company and the financial
community.
E. Rendering advice with regard to internal operations,
including:
(i) advice regarding formation of corporate goals and
their implementation;
(ii) advice regarding the financial structure of the
Company and its divisions or subsidiaries or any
programs and projects of such entities;
(iii) advice concerning the securing, when necessary and if
possible, of additional financing through banks,
insurance companies and/or other institutions; and
(iv) advice regarding corporate organization and
personnel.
F. Rendering advice with respect to any acquisition program of
the Company.
G. Rendering advice regarding a future public or private
offering of securities of the Company or of any subsidiary.
4. RELATIONSHIPS WITH OTHERS. The Company acknowledges that the
Consultant and its affiliates are in the business of providing financial
services and consulting advice (of all types contemplated by this Agreement) to
others. Nothing herein contained shall be construed to limit or restrict the
Consultant or its affiliates from rendering such services or advice to others.
5. CONSULTANT'S LIABILITY. In the absence of gross negligence or
willful misconduct on the part of the Consultant, or the Consultant's breach of
this Agreement, the Consultant shall not be liable to the Company, or to any
officer, director, employee, shareholder or creditor of the Company, for any act
or omission in the course of or in connection with the rendering or providing of
advice hereunder. Except in those cases where the gross negligence or willful
misconduct of the Consultant or the breach by the Consultant of this Agreement
is alleged and proven, the Company agrees to defend, indemnify and hold the
Consultant harmless from and against any and all reasonable costs, expenses and
liability (including, but not limited to, attorneys' fees paid in the defense of
the Consultant) which may in any way result from services rendered by the
Consultant pursuant to or in any connection with this Agreement.
2
<PAGE>
6. EXPENSES. The Company, upon receipt of appropriate supporting
documentation, shall reimburse the Consultant for any and all reasonable
out-of-pocket expenses incurred by the Consultant in connection with services
rendered by the Consultant to Company pursuant to this Agreement, including, but
not limited to, hotel, food and associated expenses, all charges for travel and
long-distance telephone calls and all other expenses incurred by the Consultant
in connection with services rendered by the Consultant to the Company pursuant
to this Agreement. Expenses payable under this SECTION 6 shall not include
allocable overhead expenses of the Consultant, including, but not limited to,
attorneys' fees, secretarial charges and rent.
7. COMPENSATION. As compensation for the services to be rendered by
the Consultant to the Company pursuant to SECTION 3 hereof, the Company shall
pay the Consultant a financial consulting fee of two thousand dollars ($2,000)
per month for twenty-four (24) months commencing on __________, 1998.
Forty-Eight Thousand Dollars ($48,000), representing payment in full of all
amounts due the Consultant pursuant to this Section 7, shall be paid by the
Company on __________, 1998.
8. OTHER ADVICE. In addition to the duties set out in SECTION 3
hereof, the Consultant agrees to furnish advice to the Company in connection
with the acquisition of and/or merger with other companies, joint ventures with
any third parties, license and royalty agreements and any other financing (other
than the private or public sale of the Company's securities for cash),
including, but not limited to, the sale of the Company itself (or any
significant percentage, subsidiaries or affiliates thereof).
In the event that any such transactions are directly or indirectly
originated by the Consultant for a period of five (5) years from the date
hereof, the Company shall pay fees to the Consultant as follows:
LEGAL CONSIDERATION FEE
------------------- ---
1. $ -0- - $3,000,000 5% of legal consideration
2. $ 3,000,001 - $4,000,000 Amount calculated pursuant to line
1 of this computation, plus 4% of
excess over $3,000,000
3. $ 4,000,001 - 5,000,000 Amount calculated pursuant to lines
1 and 2 of this computation, plus
3% of excess over $4,000,000
4. above $ 5,000,000 Amount calculated pursuant to lines
1, 2 and 3 of this computation,
plus 2% of excess over $5,000,000.
3
<PAGE>
Legal consideration is defined, for purposes of this Agreement, as the
total of stock (valued at market on the day of closing, or if there is no public
market, valued as set forth herein for other property), cash and assets and
property or other benefits exchanged by the Company or received by the Company
or its shareholders (all valued at fair market value as agreed or, if not, by
any independent appraiser), irrespective of period of payment or terms.
9. SALES OR DISTRIBUTIONS OF SECURITIES. If the Consultant assists
the Company in the sale or distribution of securities to the public or in a
private transaction, the Consultant shall receive fees in the amount and form to
be arranged separately at the time of such transaction.
10. FORM OF PAYMENT. All fees due to the Consultant pursuant to
SECTION 8 hereof are due and payable to the Consultant, in cash or by
certified check, at the closing or closings of a transaction specified in
such SECTION 8 or as otherwise agreed between the parties hereto; PROVIDED,
however, that in the case of license and royalty agreements specified in
SECTION 8 hereof, the fees due the Consultant in receipt of such license and
royalty agreements shall be paid as and when license and/or royalty payments
are received by the Company. In the event that this Agreement shall not be
renewed for a period of at least twelve (12) months at the end of the five
(5) year period referred to in SECTION 8 hereof or if terminated for any
reason prior to the end of such five (5) year period then, notwithstanding
any such non-renewal or termination, the Consultant shall be entitled to the
full fee for any transaction contemplated under SECTION 8 hereof which closes
within twelve (12) months after such non-renewal or termination.
11. LIMITATION UPON THE USE OF ADVICE AND SERVICES.
A. No person or entity, other than the Company or any of its
subsidiaries, shall be entitled to make use of or rely upon the advice of the
Consultant to be given hereunder, and the Company shall not transmit such advice
to others, or encourage or facilitate the use of or reliance upon such advice
by others, without the prior written consent of the Consultant.
B. It is clearly understood that the Consultant, for services
rendered under this Agreement, makes no commitment whatsoever as to making a
market in the securities of the Company or to recommend or advise its clients to
purchase the securities of the Company. Research reports or corporate finance
reports that may be prepared by the Consultant will, when and if prepared, be
done solely on the merits or judgment of analysts of the Consultant or senior
corporate finance personnel of the Consultant.
C. The use of the Consultant's name in any annual report or other
report of the Company, or any release or similar document prepared by or on
behalf of the Company, must have the prior written approval of the Consultant
unless the Company is required by law to include the Consultant's name in such
annual report, other report or release, in which event the Consultant will be
furnished with a copy of such annual report, other report or release using
Consultant's name in advance of publication by or on behalf of the Company.
D. Should any purchases of securities be requested to be effected
through the Consultant by the Company, its officers, directors, employees or
other affiliates, or by any person
4
<PAGE>
on behalf of any profit sharing, pension or similar plan of the Company, for the
account of the Company or the individuals or entities involved, such orders
shall be taken by a registered account executive of the Consultant, shall not be
subject to the terms of this Agreement, and the normal brokerage commission as
charged by the Consultant will apply in conformity with all rules and
regulations of the New York Stock Exchange, the National Association of
Securities Dealers, Inc. or other regulatory bodies. Where no regulatory body
sets the fee, the normal established fee as used by the Consultant shall apply.
E. The Consultant shall not disclose confidential information which
it learns about the Company as a result of its engagement hereunder, except as
such disclosure as may be required for Consultant to perform its duties
hereunder.
12. INDEMNIFICATION. Since the Consultant will be acting on behalf
of the Company in connection with its engagement hereunder, the Company and
Consultant have entered into a separate indemnification agreement substantially
in the form attached hereto as EXHIBIT A and dated the date hereof, providing
for the indemnification of Consultant by the Company. The Consultant has
entered into this Agreement in reliance on the indemnities set forth in such
indemnification agreement.
13. SEVERABILITY. Every provision of this Agreement is intended to
be severable. If any term or provision hereof is deemed unlawful or invalid for
any reason whatsoever, such unlawfulness or invalidity shall not affect the
validity of the remainder of this Agreement.
14. MISCELLANEOUS.
A. Any notice or other communication between the parties hereto
shall be sent by certified or registered mail, postage prepaid, if to the
Company, addressed to CUMETRIX, INC., 1304 John Reed Court, City of Industry,
CA 91745, Attention: Max Toghraie, Chief Executive Officer with a copy to
Troop Meisinger Steuber & Pasich, LLP, 10940 Wilshire Boulevard, Los Angeles,
CA 90024-3902, Attn: Murray M. Markiles, or, if to the Consultant, addressed
to it at 33 Maiden Lane, 8th Floor, New York, New York 10038, Attention:
Joseph Sorbara, Chief Executive Officer, with a copy to Orrick, Herrington &
Sutcliffe LLP, 666 Fifth Avenue, New York, New York 10103, Attention: Rubi
Finkelstein, Esq., or to such address as may hereafter be designated in
writing by one party to the other. Such notice or other communication shall
be deemed to be given on the date of receipt.
B. If, during the term hereof, the Consultant shall cease to do
business, the provisions hereof relating to the duties of the Consultant and
compensation by the Company as it applies to the Consultant shall thereupon
cease to be in effect, except for the Company's obligation of payment for
services rendered prior thereto. This Agreement shall survive any merger of,
acquisition of, or acquisition by the Consultant and, after any such merger or
acquisition, shall be binding upon the Company and the corporation surviving
such merger or acquisition.
5
<PAGE>
C. This Agreement embodies the entire agreement and understanding
between the Company and the Consultant and supersedes any and all negotiations,
prior discussions and preliminary and prior agreements and understandings
related to the central subject matter hereof.
D. This Agreement has been duly authorized, executed and delivered
by and on behalf of the Company and the Consultant.
E. This Agreement shall be construed and interpreted in accordance
with laws of the State of New York, without giving effect to conflicts of laws.
F. This Agreement and the rights hereunder may not be assigned by
either party (except by operation of law) and shall be binding upon and inure to
the benefit of the parties and their respective successors, assigns and legal
representatives.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date hereof.
CUMETRIX DATA SYSTEMS CORP.
By:
--------------------------------------------
Max Toghraie
Chief Executive Officer
JOSEPH STEVENS & COMPANY, INC.
By:
--------------------------------------------
Enrico Suppa
Chief Operating Officer
6
<PAGE>
EXHIBIT A
_________________, 1998
JOSEPH STEVENS & COMPANY, INC.
33 Maiden Lane
8th Floor
New York, New York 10038
Ladies and Gentlemen:
In connection with our engagement of JOSEPH STEVENS & COMPANY, INC.
(the "Consultant") as our financial advisor and investment banker, we hereby
agree to indemnify and hold the Consultant and its affiliates, and the
directors, officers, partners, shareholders, agents and employees of the
Consultant (collectively the "Indemnified Persons"), harmless from and against
any and all claims, actions, suits, proceedings (including those of
shareholders), damages, liabilities and expenses incurred by any of them
(including, but not limited to, fees and expenses of counsel) which are (A)
related to or arise out of (i) any actions taken or omitted to be taken
(including any untrue statements made or any statements omitted to be made) by
us, or (ii) any actions taken or omitted to be taken by any Indemnified Person
in connection with our engagement of the Consultant pursuant to the Financial
Advisory and Consulting Agreement, of even date herewith, between the Consultant
and us (the "Consulting Agreement"), or (B) otherwise related to or arising out
of the Consultant's activities on our behalf pursuant to the Consultant's
engagement under the Consulting Agreement, and we shall reimburse any
Indemnified Person for all expenses (including, but not limited to, fees and
expenses of counsel) incurred by such Indemnified Person in connection with
investigating, preparing or defending any such claim, action, suit or proceeding
(collectively a "Claim"), whether or not in connection with pending or
threatened litigation in which any Indemnified Person is a party. We will not,
however, be responsible for any Claim which is finally judicially determined to
have resulted exclusively from the gross negligence or willful misconduct of any
person seeking indemnification hereunder. We further agree that no Indemnified
Person shall have any liability to us for or in connection with the Consultant's
engagement under the Consulting Agreement except for any Claim incurred by us
solely as a direct result of any Indemnified Person's gross negligence or
willful misconduct.
We further agree that we will not, without the prior written consent
of the Consultant settle, compromise or consent to the entry of any judgment in
any pending or threatened Claim in respect of which indemnification may be
sought hereunder (whether or not any Indemnified
<PAGE>
Person is an actual or potential party to such Claim), unless such settlement,
compromise or consent includes a legally binding, unconditional, and irrevocable
release of each Indemnified Person hereunder from any and all liability arising
out of such Claim.
Promptly upon receipt by an Indemnified Person of notice of any
complaint or the assertion or institution of any Claim with respect to which
indemnification is being sought hereunder, such Indemnified Person shall notify
us in writing of such complaint or of such assertion or institution, but failure
to so notify us shall not relieve us from any obligation we may have hereunder,
unless, and only to the extent that, such failure results in the forfeiture by
us of substantial rights and defenses, and such failure to so notify us will not
in any event relieve us from any other obligation or liability we may have to
any Indemnified Person otherwise than under this Agreement. If we so elect or
are requested by such Indemnified Person, we will assume the defense of such
Claim, including the employment of counsel reasonably satisfactory to such
Indemnified Person and the payment of the fees and expenses of such counsel. In
the event, however, that such Indemnified Person reasonably determines in its
sole judgment that having common counsel would present such counsel with a
conflict of interest or such Indemnified Person concludes that there may be
legal defenses available to it or other Indemnified Persons different from or in
addition to those available to us, then such Indemnified Person may employ its
own separate counsel to represent or defend it in any such Claim and we shall
pay the reasonable fees and expenses of such counsel. Notwithstanding anything
herein to the contrary, if we fail timely or diligently to defend, contest, or
otherwise protect against any Claim, the relevant Indemnified Party shall have
the right, but not the obligation, to defend, contest, compromise, settle,
assert crossclaims or counterclaims, or otherwise protect against the same, and
shall be fully indemnified by us therefor, including, but not limited to, for
the fees and expenses of its counsel and all amounts paid as a result of such
Claim or the compromise or settlement thereof. In any Claim in which we assume
the defense, the Indemnified Person shall have the right to participate in such
defense and to retain its own counsel therefor at its own expense.
We agree that if any indemnity sought by an Indemnified Person
hereunder is held by a court to be unavailable for any reason, then (whether or
not the Consultant is the Indemnified Person) we and the Consultant shall
contribute to the Claim for which such indemnity is held unavailable in such
proportion as is appropriate to reflect the relative benefits to us, on the one
hand, and the Consultant, on the other, in connection with the Consultant's
engagement by us under the Consulting Agreement, subject to the limitation that
in no event shall the amount of the Consultant's contribution to such Claim
exceed the amount of fees actually received by the Consultant from us pursuant
to the Consultant's engagement under the Consulting Agreement. We hereby agree
that the relative benefits to us, on the one hand, and the Consultant, on the
other hand, with respect to the Consultant's engagement under the Consulting
Agreement shall be deemed to be in the same proportion as (a) the total value
paid or proposed to be paid or received by us or our stockholders as the case
may be, pursuant to the transaction (whether or not consummated) for which the
Consultant is engaged to render services bears to (b) the fee paid or proposed
to be paid to the Consultant in connection with such engagement.
2
<PAGE>
Our indemnity, reimbursement and contribution obligations under this
Agreement shall be in addition to, and shall in no way limit or otherwise
adversely affect any rights that an Indemnified Part may have at law or at
equity.
Should the Consultant, or any of its directors, officers, partners,
shareholders, agents or employees, be required or be requested by us to provide
documentary evidence or testimony in connection with any proceeding arising from
or relating to the Consultant's engagement under the Consulting Agreement, we
agree to pay all reasonable expenses (including but not limited to fees and
expenses of counsel) in complying therewith and one thousand dollars ($1,000)
per day for any sworn testimony or preparation therefor, payable in advance.
We hereby consent to personal jurisdiction and service of process and
venue in any court in which any claim for indemnity is brought by any
Indemnified Person.
It is understood that, in connection with the Consultant's engagement
under the Consulting Agreement, the Consultant may be engaged to act in one or
more additional capacities and that the terms of the original engagement or any
such additional engagement may be embodied in one or more separate written
agreements. The provisions of this Agreement shall apply to the original
engagement and any such additional engagement and shall remain in full force and
effect following the completion or termination of the Consultant's
engagement(s).
Very truly yours,
CUMETRIX DATA SYSTEMS CORP.
By:
--------------------------------------------
Max Toghraie
Chief Executive Officer
CONFIRMED AND AGREED TO:
JOSEPH STEVENS & COMPANY, INC.
By:
------------------------------
Enrico Suppa
Chief Operating Officer
3
<PAGE>
EXHIBIT 3.1
AMENDED AND RESTATED
ARTICLES OF INCORPORATION
OF
DATA NET INTERNATIONAL, INC.
The undersigned, James Ung and Mei Yang, do hereby certify that:
1. They are the President and Secretary, respectively, of Data Net
International, Inc., a California corporation (the "Corporation").
2. The Articles of Incorporation of this Corporation are restated to read
as follows:
I.
The name of this Corporation is Data Net International, Inc.
II.
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law
of California other than the banking business, the trust company business,
or the practice of a profession permitted to be incorporated by the
California Corporations Code.
III.
(a) The liability of the directors of this Corporation for monetary
damages shall be eliminated to the fullest extent permissible under
California law.
(b) This Corporation is authorized to provide for, whether by bylaw,
agreement or otherwise, the indemnification of agents (as defined in
Section 317 of the General Corporation Law of California) of this
Corporation in excess of that expressly permitted by such Section 317 for
those agents, for breach of duty to this Corporation and its shareholders
to the extent permissible under California law (as now or hereafter in
effect). In furtherance and not in limitation of the powers conferred by
statute:
(i) this Corporation may purchase and maintain insurance on behalf of
any person who is or was a director, officer, employee or agent of this
Corporation, or is serving at the request of this Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise against any
liability asserted against him and incurred by him in any such capacity, or
arising out of his status as such, whether or not this Corporation would
have the power to indemnify against such liability under the provisions of
law; and
1
<PAGE>
(ii) this Corporation may create a trust fund, grant a security
interest and/or use other means (including, without limitation, letters of
credit, surety bonds and/or other similar arrangements), as well as enter
into contracts providing indemnification to the fullest extent authorized
or permitted by law and including as part thereof provisions with respect
to any or all of the foregoing to ensure the payment of such amounts as may
become necessary to effect indemnification as provided therein, or
elsewhere.
No such bylaw, agreement or other form of indemnification shall be
interpreted as limiting in any manner the rights which such agents would
have to indemnification in the absence of such bylaw, agreement or other
form of indemnification.
(c) Any repeal or modification of the foregoing provisions of this Article
III by the shareholders of this Corporation shall not adversely affect any
right or protection of a director of this Corporation existing at the time
of such repeal or modification.
IV.
(a) This Corporation is authorized to issue 20,000,000 shares of Common
Stock, no par value (hereinafter referred to as the "Common Stock"), and
2,000,000 shares of Preferred Stock, no par value (hereinafter referred to
as the "Preferred Stock").
(b) Such Preferred Stock may be issued from time to time in one or more
series as shall be authorized by the Board of Directors of this
Corporation. The Board of Directors of this Corporation shall, prior to
the issuance of any such shares of any series of Preferred Stock, fix (i)
the number of shares of each such series of Preferred Stock and (ii) such
distinctive designation or title of each such series of Preferred Stock
with such rights, privileges, powers and preferences thereof.
(c) Upon the filing of this restatement of the Articles of Incorporation
of this Corporation, each outstanding share of Common Stock shall, without
any further action on the part of the Corporation, be split and converted
into 10.960591 shares of Common Stock.
V.
Cumulative voting for the election of directors of this Corporation shall
be eliminated effective upon the date this Corporation becomes, and for as
long as this Corporation is, a "listed corporation" within the meaning of
Section 301.5 of the General Corporation Law of California.
3. The foregoing restatement of the Articles of Incorporation has been
duly approved by the Board of Directors of this Corporation.
2
<PAGE>
4. The foregoing restatement of the Articles of Incorporation has been
duly approved by the required vote of shareholders in accordance with Section
902 of the General Corporation Law of California. The total number of
outstanding shares of this Corporation is 4,450,000 shares of Common Stock. The
number of shares voting in favor of the restatement equaled or exceeded the vote
required. The percentage vote required was more than 50% of the Common Stock.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Executed at Los Angeles, California, on October 22, 1997.
/s/ JAMES UNG
--------------------------------
James Ung, President
/s/ MEI YANG
--------------------------------
Mei Yang, Secretary
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<PAGE>
EXHIBIT 3.2
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
DATA NET INTERNATIONAL, INC.
(California corporation #1781368)
The undersigned, James Ung and Mei Yang, do hereby certify that:
1. They are the President and Secretary, respectively, of Data Net
International, Inc., a California corporation (the "Corporation").
2. Article I of the Articles of Incorporation of this Corporation is amended
to read as follows:
I.
The name of this Corporation is CUMETRIX COMPUTER SYSTEMS, INC.
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors of this Corporation.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section
902 of the California Corporation Code. The total number of shares of the
Corporation issued and outstanding is 4,742,500 shares. The number of
shares voting in favor of the amendment equaled or exceeded the vote
required. The percentage vote was more than 50%.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and
correct of my own knowledge.
Executed at City of Industry, California, on December 20, 1997.
/s/ JAMES UNG
------------------------
James Ung, President
/s/ MEI YANG
------------------------
Mei Yang, Secretary
<PAGE>
EXHIBIT 3.2.1
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
CUMETRIX COMPUTER SYSTEMS, INC.
(California corporation # 1781368)
The undersigned, James Ung and Mei Yang, do hereby certify that:
1. They are the President and Secretary, respectively, of CUMETRIX Computer
Systems, Inc., a California corporation (the "Corporation").
2. Article I of the Articles of Incorporation of this Corporation is amended
to read as follows:
I.
The name of this Corporation is CUMETRIX DATA SYSTEMS CORP.
3. The foregoing amendment of the Articles of Incorporation has been duly
approved by the Board of Directors of this Corporation.
4. The foregoing amendment of the Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section
902 of the California Corporation Code. The total number of shares of the
Corporation issued and outstanding is 4,750,000. The number of shares
voting in favor of the amendment equaled or exceeded the vote required.
The percentage vote was more than 50%.
I further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of my own knowledge.
Executed at City of Industry, California, on January 5, 1998
/s/ JAMES UNG
------------------------------------
James Ung, President
/s/ MEI YANG
------------------------------------
Mei Yang, Secretary
<PAGE>
EXHIBIT 3.3
AMENDED AND RESTATED BYLAWS
OF
CUMETRIX DATA SYSTEMS CORP.
A CALIFORNIA CORPORATION
<PAGE>
AMENDED AND RESTATED BYLAWS
OF
CUMETRIX DATA SYSTEMS CORP.
A CALIFORNIA CORPORATION
Page
----
ARTICLE I - CORPORATE OFFICES. . . . . . . . . . . . . . . . . . . . . . . 1
Section 1. PRINCIPAL EXECUTIVE OFFICE. . . . . . . . . . . . . . . 1
Section 2. OTHER OFFICES . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II - SHAREHOLDERS MEETINGS . . . . . . . . . . . . . . . . . . . . 1
Section 1. PLACE OF MEETINGS . . . . . . . . . . . . . . . . . . . 1
Section 2. ANNUAL MEETINGS.. . . . . . . . . . . . . . . . . . . . 1
Section 3. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . 1
Section 4. NOTICE AND REPORTS TO SHAREHOLDERS. . . . . . . . . . . 2
Section 5. QUORUM. . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 6. ADJOURNED MEETING AND NOTICE THEREOF. . . . . . . . . . 3
Section 7. VOTING. . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 8. VALIDATION OF DEFECTIVELY CALLED OR NOTICED
MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . 4
Section 9. ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . 5
Section 10. PROXIES.. . . . . . . . . . . . . . . . . . . . . . . . 6
Section 11. INSPECTORS OF ELECTION. . . . . . . . . . . . . . . . . 6
Section 12. RECORD DATE.. . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III - DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . 7
i
<PAGE>
Section 1. POWERS. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 2. NUMBER AND QUALIFICATIONS . . . . . . . . . . . . . . . 8
Section 3. ELECTION AND TERM OF OFFICE . . . . . . . . . . . . . . 8
Section 4. VACANCIES . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5. PLACE OF MEETING. . . . . . . . . . . . . . . . . . . . 9
Section 6. REGULAR MEETINGS. . . . . . . . . . . . . . . . . . . . 9
Section 7. SPECIAL MEETINGS. . . . . . . . . . . . . . . . . . . . 9
Section 8. QUORUM AND REQUIRED VOTE. . . . . . . . . . . . . . . . 10
Section 9. VALIDATION OF DEFECTIVELY CALLED OR OTICED
MEETINGS. . . . . . . . . . . . . . . . . . . . . . . . 10
Section 10. ADJOURNMENT.. . . . . . . . . . . . . . . . . . . . . . 10
Section 11. ACTION WITHOUT MEETING. . . . . . . . . . . . . . . . . 10
Section 12. FEES AND COMPENSATION.. . . . . . . . . . . . . . . . . 10
Section 13. COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE IV - OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 1. OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . 11
Section 2. ELECTION OF OFFICERS. . . . . . . . . . . . . . . . . . 12
Section 3. SUBORDINATE OFFICERS. . . . . . . . . . . . . . . . . . 12
Section 4. REMOVAL AND RESIGNATION OF OFFICERS.. . . . . . . . . . 12
Section 5. VACANCIES IN OFFICES. . . . . . . . . . . . . . . . . . 12
Section 6. CHAIRMAN OF THE BOARD.. . . . . . . . . . . . . . . . . 12
Section 7. PRESIDENT.. . . . . . . . . . . . . . . . . . . . . . . 12
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Section 8. VICE PRESIDENTS.. . . . . . . . . . . . . . . . . . . . 13
Section 9. SECRETARY.. . . . . . . . . . . . . . . . . . . . . . . 13
Section 10. CHIEF FINANCIAL OFFICER.. . . . . . . . . . . . . . . . 13
ARTICLE V - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYES AND
OTHER AGENTS . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. . . . . . . . . . . . 14
Section 2. ACTIONS OTHER THAN BY THE CORPORATION.. . . . . . . . . 14
Section 3. ACTIONS BY THE CORPORATION. . . . . . . . . . . . . . . 15
Section 4. SUCCESSFUL DEFENSE BY AGENT.. . . . . . . . . . . . . . 15
Section 5. REQUIRED APPROVAL.. . . . . . . . . . . . . . . . . . . 15
Section 6. ADVANCE OF EXPENSES.. . . . . . . . . . . . . . . . . . 16
Section 7. OTHER CONTRACTUAL RIGHTS. . . . . . . . . . . . . . . . 16
Section 8. LIMITATIONS.. . . . . . . . . . . . . . . . . . . . . . 16
Section 9. INSURANCE.. . . . . . . . . . . . . . . . . . . . . . . 16
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. . . . . 17
ARTICLE VI - RECORDS AND REPORTS . . . . . . . . . . . . . . . . . . . . . 17
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. . . . . . 17
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. . . . . . . . . . 18
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE
RECORDS.. . . . . . . . . . . . . . . . . . . . . . . . 18
Section 4. INSPECTION BY DIRECTORS.. . . . . . . . . . . . . . . . 18
Section 5. ANNUAL REPORT TO SHAREHOLDERS.. . . . . . . . . . . . . 18
Section 6. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . 19
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Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION.. . . . . . . . 20
Section 8. CHECKS, DRAFTS, EVIDENCES OF INDEBTEDNESS.. . . . . . . 20
Section 9. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED.. . . 20
Section 10. CERTIFICATES FOR SHARES.. . . . . . . . . . . . . . . . 20
Section 11. LOST CERTIFICATES.. . . . . . . . . . . . . . . . . . . 21
Section 12. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. . . . . 21
Section 13. STOCK PURCHASE PLANS. . . . . . . . . . . . . . . . . . 21
Section 14. CONSTRUCTION AND DEFINITIONS. . . . . . . . . . . . . . 21
ARTICLE VII - AMENDMENT. . . . . . . . . . . . . . . . . . . . . . . . . . 21
Section 1. AMENDMENT BY SHAREHOLDERS . . . . . . . . . . . . . . . 21
Section 2. AMENDMENT BY DIRECTORS. . . . . . . . . . . . . . . . . 22
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AMENDED AND RESTATED BYLAWS
Bylaws for the regulation, except
as otherwise provided by statute or
its Articles of Incorporation, of
Cumetrix Data Systems Corp.
(a California corporation)
ARTICLE I
CORPORATE OFFICES
Section 1. PRINCIPAL EXECUTIVE OFFICE. The principal executive office
of the corporation is hereby fixed and located at:
1304 John Reed Court
City of Industry, California 91745
The Board is hereby granted full power and authority to change the principal
executive office from one location to another. Any such change shall be noted
in the Bylaws opposite this Section, or this Section may be amended to state the
new location.
Section 2. OTHER OFFICES. Branch or subordinate business offices may
at any time be established by the Board at any place or places.
ARTICLE II
SHAREHOLDERS' MEETINGS
Section 1. PLACE OF MEETINGS. Meetings of the shareholders shall be
held at the principal executive office of the corporation, or at any other place
within or without the State of California as may from time to time be designated
for that purpose by the Board.
Section 2. ANNUAL MEETINGS. The annual meeting of shareholders shall
be held each year on a date and at a time designated by the Board. At the
annual meeting the shareholders shall elect directors, consider reports of the
affairs of the corporation, and transact any other proper business.
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Section 3. SPECIAL MEETINGS. Special meetings of the shareholders for
the purpose of taking any action which the shareholders are permitted to take
under the General Corporation Law of the State of California (herein, as the
same may from time to time hereafter be amended, referred to as the "General
Corporation Law") may be called at any time by the Chairman or a Co-Chairman of
the Board, the Chief Executive Officer or the President, or by the Board, or by
any Vice President, or by one or more shareholders entitled to cast not less
than 10 percent of the votes of the meeting. Upon request in writing to the
Chairman or a Co-Chairman of the Board, Chief Executive Officer, President, Vice
President or Secretary by any person (other than the Board) entitled to call a
special meeting of shareholders that a special meeting be held for any proper
purpose, the officer receiving the request shall forthwith cause notice to be
given to the shareholders entitled to vote that a meeting will be held at the
time requested by the person or persons calling the meeting, not less than 35
nor more than 60 days after the receipt of the request. If the notice is not
given within 20 days after receipt of the request, the persons entitled to call
the meeting may give the notice.
Section 4. NOTICE AND REPORTS TO SHAREHOLDERS. Written notice of each
meeting of shareholders, annual or special, shall be given to each shareholder
entitled to vote thereat, not less than 10 nor more than 60 days before the date
of the meeting. The notice of each such annual or special meeting of
shareholders shall state the place, the date, and the hour of the meeting, and
(1) in the case of a special meeting, the general nature of the business to be
transacted at the meeting (and no other business may be transacted at the
meeting), or (2) in the case of the annual meeting, those matters which the
Board, at the time of the mailing of the notice, intend to present for action by
the shareholders, and any proper matter may be presented at the meeting for
action, provided, however, that the notice shall specify the general nature of a
proposal, if any, to take action with respect to approval of (i) a contract or
other transaction with an interested director pursuant to Section 310 of the
General Corporation Law, (ii) amendment of the Articles of Incorporation
pursuant to Section 902 of the General Corporation Law, (iii) a reorganization
of the corporation pursuant to Section 1201 of the General Corporation Law, (iv)
voluntary dissolution of the corporation pursuant to Section 1900 of the General
Corporation Law or (v) a distribution in dissolution other than in accordance
with the rights of outstanding preferred shares, if any, pursuant to Section
2007 of the General Corporation Law. The notice of any meeting at which
directors are to be elected shall include the names of nominees intended at the
time of the notice to be presented by management for election.
Notice of a shareholders' meeting or any report shall be given either
personally or by first-class mail (or in the case the corporation's outstanding
shares are held of record by 500 or more persons on the record date for the
shareholders' meeting, notice may be sent by third-class mail) or other means
of written communication, charges prepaid, addressed to such shareholder at the
address of such shareholder appearing on the books of the corporation or given
by the shareholder to the corporation for the purpose of notice. If no such
address appears on the corporation's books or is given, the notice or report
shall be deemed to have been given if sent to that shareholder by mail or other
means of written communication addressed to the place where the principal
executive office of the corporation is situated, or if published at least once
in some
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newspaper of general circulation in the county in which said principal executive
office is located. The notice or report shall be deemed to have been given at
the time when delivered personally or deposited in the mail or sent by other
means of written communication. An affidavit of mailing of any notice or report
in accordance with the provisions of this Section, executed by the Secretary,
Assistant Secretary or any transfer agent of the corporation shall be prima
facie evidence of the giving of the notice.
If any notice or any report addressed to the shareholder at the address of
that shareholder appearing on the books of the corporation is returned to the
corporation by the United States Postal Service marked to indicate that the
United States Postal Service is unable to deliver the notice or report to the
shareholder at such address, all future notices or reports shall be deemed to
have been duly given without further mailing if the same shall be available for
the shareholder upon written demand of the shareholder at the principal
executive office of the corporation for a period of one year from the date of
the giving of the notice or report to all other shareholders.
Section 5. QUORUM. A majority of the shares entitled to vote, present
in person or by proxy, shall constitute a quorum for the transaction of business
at any meeting of shareholders. Except as provided in the next sentence, the
affirmative vote of a majority of the shares represented and voting at a duly
held meeting at which a quorum is present (which shares voting affirmatively
also constitute at least a majority of the required quorum) shall be the act of
the shareholders, unless a vote of a greater number is required by the General
Corporation Law or the Articles of Incorporation of the Corporation (the
"Articles of Incorporation"). The shareholders present at a duly called or held
meeting at which a quorum is present may continue to do business until
adjournment, notwithstanding the withdrawal of enough shareholders to leave less
than a quorum, if any action taken (other than adjournment) is approved by at
least a majority of the shares required to constitute a quorum.
Section 6. ADJOURNED MEETING AND NOTICE THEREOF. Any shareholders'
meeting, annual or special, whether or not a quorum is present, may be adjourned
from time to time by the vote of a majority of the shares present, either in
person or by proxy, but in the absence of a quorum no other business may be
transacted at such meeting, except as expressly provided in Section 5 of this
Article with respect to the right of the shareholders present at a duly called
or held meeting to continue to do business until adjournment, notwithstanding
the withdrawal of enough shareholders to leave less than a quorum.
When any shareholders' meeting, either annual or special, is adjourned to
another time and place, it shall not be necessary to give any notice of the time
and place of the adjourned meeting or of the business to be transacted thereat,
other than by announcement of the time and place thereof at the meeting at which
such adjournment is taken; provided, however, that if any such shareholders'
meeting is adjourned for 45 days or more, or if after adjournment a new record
date is fixed for the adjourned meeting, notice of the adjourned meeting shall
be given as in the case of an original meeting. At the adjourned meeting the
corporation may transact any business which might have been transacted at the
original meeting.
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Section 7. VOTING. The shareholders entitled to notice of any meeting
or to vote at any such meeting shall only be persons in whose names shares stand
on the stock records of the corporation on the record date determined in
accordance with Section 12 of this Article; provided, however, that if no such
record date shall be fixed by the Board, only persons in whose names shares
stand on the stock records of the corporation at the close of business on the
business day next preceding the day on which notice of the meeting is given or
if such notice is waived, at the close of business on the business day next
preceding the day on which the meeting of shareholders is held, shall be
entitled to vote at such meeting, and such day shall be the record date for such
meeting.
Voting shall in all cases be subject to the provisions of Sections 702
through 704, inclusive, of the General Corporation Law (relating to voting of
shares held by fiduciaries, held in the name of a corporation, or held in joint
ownership).
The shareholders' vote may be VIVA VOCE or by ballot; provided, however,
that all elections for directors must be by ballot upon demand made by a
shareholder at the meeting and before the voting begins.
Section 8. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. 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
persons entitled to vote, not present in person or by proxy, or who, although
present, has, at the beginning of the meeting, properly objected to the
transaction of any business because the meeting was not lawfully called or
convened or to particular matters of business legally required to be included in
the notice, but not so included, signs a written waiver of notice, or a consent
to the holding of such meeting, or an approval of the minutes thereof. 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 the waiver of notice or consent shall state the general nature of
the proposal of any action taken or proposed to be taken with respect to
approval of (i) a contract or other transaction with an interested director
pursuant to Section 310 of the General Corporation Law, (ii) amendment of the
Articles of Incorporation pursuant to Section 902 of the General Corporation
Law, (iii) a reorganization of the corporation pursuant to Section 1201 of the
General Corporation Law, (iv) voluntary dissolution of the corporation pursuant
to Section 1900 of the General Corporation Law, or (v) a distribution and
dissolution other than in accordance with the rights of outstanding preferred
shares, if any, pursuant to Section 2007 of the General Corporation Law. If
such statement is not included in such written waiver of notice or consent, then
any shareholder approval at the meeting, other than unanimous approval of those
entitled to vote, to any such matters shall be invalid. All such waivers,
consents or approvals shall be filed with the corporate records or made a part
of the minutes of the meeting.
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Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at the 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 any matter legally
required to be included in the notice of meeting, but not so included, if that
objection is expressly made at the meeting and before any vote is taken on such
matter.
Section 9. ACTION 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, except as hereinafter set forth, 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 that action at a meeting at which all shares entitled to
vote on that action were present and voted. Notwithstanding the foregoing,
directors may not be elected without a meeting by written consent except by
unanimous written consent of all shares entitled to vote for the election of
directors; provided, however, that a director may be elected at any time to fill
a vacancy on the Board (other than a vacancy created by the removal of a
director) that has not been filled by the directors, by the written consent of
the holders of a majority of the outstanding shares entitled to vote for the
election of directors. Any shareholder giving a written consent, or the
shareholder's proxy holder, or a transferee of the shares, or a personal
representative of the shareholder or their respective proxy holders, may revoke
the consent by a writing received by the Secretary of the corporation before
written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary, but not thereafter. Such revocation
is effective upon its receipt by the Secretary of the corporation.
If the consents of all shareholders entitled to vote have not been
solicited in writing, or if the unanimous written consent of all such
shareholders shall not have been received, the Secretary shall give prompt
notice of the corporate action approved by the shareholders without a meeting to
those shareholders entitled to vote and who have not consented in writing to the
action authorized by such approval. Such notice shall be given, and shall be
deemed to have been given, in the same manner as provided in Section 4 of this
Article. In the case of approval of (i) contracts or transactions in which a
director has a direct or indirect financial interest, pursuant to Section 310 of
the General Corporation Law, (ii) indemnification of agents of the corporation
pursuant to Section 317 of the General Corporation Law, (iii) a reorganization
of the corporation pursuant to Section 1201 of the General Corporation Law, or
(iv) a distribution and dissolution other than in accordance with the rights of
outstanding.preferred shares pursuant to Section 2007 of the General Corporation
Law, the notice shall be given at least 10 days before the consummation of any
action authorized by such approval.
Unless, as provided in Section 12 of this Article, the Board has fixed a
record date for the determination of shareholders entitled to notice of and to
give such written consent, the record date for such determination shall be the
day on which the first written consent is given. All such written consents
shall be filed with the Secretary of the corporation and shall be maintained in
the corporate records.
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Section 10. PROXIES. Every person entitled to vote shares shall have
the right to do so either in person or by one or more persons authorized by a
written proxy executed by such shareholder or his duly authorized agent and
filed with the Secretary of the corporation. Any proxy duly executed which does
not state that it is irrevocable shall continue in full force and effect until
(i) an instrument revoking it is filed with the Secretary of the corporation or
a duly executed proxy bearing a later date is presented to the meeting prior to
the vote pursuant thereto, (ii) the person executing the proxy attends the
meeting and votes in person, or (iii) written notice of the death or incapacity
of the maker of such proxy is received by the corporation before the vote
pursuant thereto is counted; provided, however, that no proxy shall be valid
after the expiration of 11 months from the date of its execution, 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
705(e) and Section 705(f) of the General Corporation Law.
Section 11. INSPECTORS OF ELECTION. In advance of any meeting of
shareholders, the Board may appoint any persons other than nominees for office
as inspectors of election to act at such meeting or any adjournment thereof. If
no inspectors of election are so appointed, the chairman of any such meeting
may, and on the request of any shareholder or his proxy shall, make such
appointment at the meeting. The number of inspectors shall be either one or
three. If appointed at a meeting on the request of one or more shareholders or
proxies, the majority of shares present in person or by proxy shall determine
whether one or three inspectors are to be appointed. In case any person
appointed as inspector fails to appear or refuses to act, the vacancy may, and
on the request of any shareholder or a shareholder's proxy shall, be filled by
appointment by the Board in advance of the meeting, or at the meeting by the
chairman of the meeting.
The duties of such inspector shall be as prescribed by Section 707 of the
General Corporation Law and shall include: determining the number of shares
outstanding and voting power of each; the shares represented at the meeting; the
existence of a quorum; the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges and
questions in any way arising in connection with the right to vote; counting and
tabulating all votes or consents; determining when the polls shall close;
determining the result; and performing such acts as may be proper to conduct the
election or vote with fairness to all shareholders. If there are three
inspectors of election, the decision, act or certificate of a majority is
effective in all respects as the decision, act or certificate of all.
Section 12. RECORD DATE. The Board may fix, in advance, a record date
for the determination of the shareholders entitled to notice of any meeting or
to vote or entitled to give consent to corporate action in writing without a
meeting, to receive any report, to receive any dividend or distributions or any
allotment of rights, or to exercise rights in respect of any other lawful
action. The record date so fixed shall be not more than 60 days nor less than
10 days prior to the date of any meeting nor more than 60 days prior to any
other event for the purposes of which it is fixed. When a record date is so
fixed, only shareholders of record at the close of
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business on that date are entitled to notice of and to vote at any such meeting,
to give consent without a meeting, to receive any report, to receive dividends,
distributions or allotments of rights, or to exercise the rights, as the case
may be, notwithstanding any transfer of any shares on the books of the
corporation after the record date.
ARTICLE III
DIRECTORS
Section 1. POWERS. Subject to the provisions of the General
Corporation Law and any limitations in the Articles of Incorporation and these
Bylaws as to action required to be approved by the shareholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate power shall be exercised by or under the direction of the
Board. The Board may delegate the management of the day-to-day operation of the
business of the corporation to a management company or other persons, 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.
Without prejudice to such powers, but subject to the same limitation, it is
hereby expressly declared that the directors shall have the following powers in
addition to other powers enumerated in these Bylaws:
(a) To select and remove all officers, agents and employees of the
corporation; prescribe any powers and duties for them that are consistent with
law, with the Articles of Incorporation, and with these ByLaws; fix their
compensation; and require from them security for faithful service;
(b) To conduct, manage and control the affairs and business of the
corporation, and to make rules and regulations therefor consistent with law,
with the Articles of Incorporation and with these Bylaws;
(c) To change the principal executive office or the principal
business office in the State of California from one location to another; to fix
and locate from time to time one or more other offices of the corporation within
or without the State of California; to cause the corporation to be qualified to
do business and to conduct business in any other state, territory, dependency
or country; and to designate any place within or without the State of California
for the holding of any shareholders' meeting or meetings, including annual
meetings;
(d) To adopt, make and use a corporate seal; to prescribe the forms
and certificates of stock; and to alter the form of the seal and certificates;
(e) To authorize the issuance of shares of stock of the corporation
from time to time, upon such terms and for such consideration as may be lawful;
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(f) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, and other evidences of debt and securities therefor.
Section 2. NUMBER AND QUALIFICATIONS. The number of directors
constituting the entire Board shall be not less than four (4) nor more than
seven (7) as fixed from time to time by a duly adopted resolution of the
Board; provided, however, that if the Company becomes a "listed corporation"
within the meaning of section 301.5 of the General Corporation Law of the
State of California (a "Listed Corporation"), the number of directors shall
not be less than six (6); provided further than an amendment to the Articles
or a Bylaw reducing the number of directors to a number less than five cannot
be adopted if the votes cast against its adoption at a meeting or the shares
not consenting to its adoption in the case of action by written consent are
equal to more than 16-2/3% of the outstanding shares entitled to vote; and
provided further that the number of directors constituting the entire Board
shall be five until otherwise fixed by a duly adopted resolution of the
Board, or until such time as the Company becomes a "listed corporation" as
discussed above.
Section 3. ELECTION AND TERM OF OFFICE. At such time as the
Corporation becomes a Listed Corporation, the directors of the Corporation
shall be divided into two classes, designated Class I and Class II. The term
of the initial Class I directors shall terminate on the date of the first
annual meeting of stockholders following the date the Corporation becomes a
Listed Corporation, and the term of the Class II directors shall terminate on
the date of the second annual meeting of stockholders following the date the
Corporation becomes a Listed Corporation. At each annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting shall be elected for a two-year term. If the number of
directors is changed, any increase or decrease shall be apportioned between
the classes so as to maintain the number of directors in each class as nearly
equal as reasonably possible, and any additional directors of either class
elected to fill a vacancy resulting from an increase in such class shall hold
office for a term that shall coincide with the remaining term of that class,
but in no case will a decrease in the number of directors shorten the term of
any incumbent directors. Prior to the Corporation becoming a Listed
Corporation, or after such time as the Corporation ceases to be a Listed
Corporation, all directors' terms shall expire, and all director positions
shall be filled by election, at the next annual meeting of shareholders. A
director shall hold office until the annual meeting for the year in which his
term expires and until his successor shall be elected and shall qualify,
subject, however, to prior death, resignation, retirement, disqualification
or removal from office. Any vacancy on the Board of Directors, however
resulting, shall be filled only by a majority of the directors then in
office, even if less than a quorum, or by a sole remaining director and not
by the shareholders. Any director elected to fill a vacancy shall hold
office for a term that shall coincide with the terms of the class to which
such director shall have been elected.
Section 4. VACANCIES. A vacancy or vacancies in the Board shall be
deemed to exist in case of the death, resignation or removal of any director, or
if the authorized number of directors be increased, or if the shareholders fail,
at any annual or special meeting of shareholders at which any director or
directors are elected, to elect the full authorized number of directors to be
voted for at that meeting.
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Any director may resign effective upon giving written notice to the
Chairman of the Board, the Chief Executive Officer, the President, the Secretary
or the Board, unless the notice specifies a later date for the effectiveness of
such resignation. If the Board 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.
Vacancies in the Board (other than a vacancy created by the removal of a
director) may be filled by a majority of the remaining directors, though less
than a quorum, or by a sole remaining director, and each director so elected
shall hold office until the next annual meeting and until such director's
successor has been elected; subject, however, to the right of any shareholder or
shareholders of the corporation holding at least 5% in the aggregate of the
outstanding voting shares of the corporation, in accordance with the provisions
of Section 305(c) of the General Corporation Law, to a special meeting to elect
the entire Board in the event that after the filling of any such vacancy by the
directors, the directors elected by the shareholders shall constitute less than
a majority of the directors then in office.
The shareholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors, and shall have the right, to
the exclusion of the directors, to fill any vacancy or vacancies created by the
removal of one or more directors. The election of any director or directors to
fill a vacancy or vacancies created by the removal of one or more directors
shall require the affirmative vote of a majority of the shares represented and
voting at a duly held meeting at which a quorum is present (which shares voting
affirmatively also constitute at least a majority of the required quorum) or the
unanimous written consent of all shares entitled to vote for the election of
directors.
No reduction of the authorized number of directors shall have the effect of
removing any directors prior to the expiration of his term of office.
Subject to the provisions of Section 303(a) of the General Corporation Law,
any or all of the directors may be removed from office, without cause, if such
removal is approved by a vote of a majority of the outstanding shares entitled
to vote.
Section 5. PLACE OF MEETING. Regular and special meetings of the Board
shall be held at any place within or without the State of California which has
been designated from time to time by resolution of the Board or by written
consent of the members of the Board. In the absence of such designation,
regular meetings shall be held at the principal executive office of the
corporation.
Section 6. REGULAR MEETINGS. Immediately following each annual meeting
of shareholders, the Board shall hold a regular meeting at the place of that
annual meeting or at such other place as shall be fixed by the Board for the
purpose of organization, election of officers and the transaction of other
business.
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Other regular meetings of the Board shall be held without call at such time
and place as the Board may from time to time deem appropriate; provided,
however, should the day fall upon a legal holiday, then said meeting shall be
held at the same time on the next day thereafter ensuing which is a full
business day. Call and notice of regular meetings of the Board are hereby
dispensed with.
Section 7. SPECIAL MEETINGS. Special meetings of the Board for any
purpose or purposes may be called at any time by the Chairman or a Co-Chairman
of the Board, the Chief Executive Officer, the President, any Vice President,
the Secretary or by any two directors.
Written notice of the time and place of special meetings shall be delivered
personally to each director or communicated to each director by telephone or by
telegraph or mail, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation or, if it is
not so shown on such records or is not readily ascertainable, at the place at
which the meetings of the directors are regularly held. In case such notice is
mailed, it shall be deposited in the United States mail in the place in which
the principal executive office of the corporation is located at least four days
prior to the time of the holding of the meeting. In case such notice is
delivered personally or by telephone or telegraph, it shall be delivered
personally or by telephone or to the telegraph company at least 48 hours before
the time of the holding of the meeting. The notice need not specify the place
of the meeting, if the meeting is to be held at the principal executive office
of the corporation, or the purpose of the meeting.
Section 8. QUORUM AND REQUIRED VOTE. Presence of a majority of the
authorized number of directors at a meeting of the Board constitutes a quorum
for the transaction of business, except to adjourn as hereinafter provided.
Members of the Board may participate in a meeting through use of conference
telephone or similar communications equipment, and such members shall be
considered present in person, as long as all members participating in such
meeting can hear one another. Subject to the provisions of Section 5(a) of
Article V of these Bylaws, every act or decision done or made by a majority of
the directors present at a meeting duly held at which a quorum is present shall
be regarded as the act of the Board. A meeting at which a quorum is initially
present may continue to transact business notwithstanding the withdrawal of a
director or directors, provided that any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 9. VALIDATION OF DEFECTIVELY CALLED OR NOTICED MEETINGS. The
transactions of any meeting of the Board, however called and noticed or
wherever held, shall be as valid as though made or performed at a meeting duly
held after regular call and notice, if a quorum is present and if, either before
or after the meeting, each of the directors not present or who, though present,
has prior to the meeting or at its commencement protested the lack of proper
notice to such director, signs a written waiver of notice or a consent to
holding such meeting or 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.
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Section 10. ADJOURNMENT. A majority of the directors present, whether
or not a quorum is present, may adjourn any meeting to another time and place.
Notice of the time and place of holding an adjourned meeting need not be given
to absent directors if the time and place is fixed at the meeting adjourned;
provided, however, that if the meeting is adjourned for more than 24 hours,
notice of adjournment to another time or place shall be given prior to the time
of the adjourned meeting to the directors who are not present at the time of the
adjournment.
Section 11. ACTION WITHOUT MEETING. Any action by the Board may be
taken without a meeting if all members of the Board shall individually or
collectively consent in writing to such action. Such written consent or
consents shall be filed with the minutes of the proceedings of the Board and
shall have the same force and effect as a unanimous vote of the Board.
Section 12. FEES AND COMPENSATION. Directors and members of committees
may receive such compensation, if any, for their services, and such
reimbursement for expenses, as may be fixed or determined by resolution of the
Board.
Section 13. COMMITTEES. The Board may appoint one or more committees,
each consisting of two or more directors, and delegate to such committees any of
the authority of the Board except with respect to:
(a) The approval of any action for which the General Corporation Law,
the Articles of Incorporation or these Bylaws also require shareholders'
approval or approval of the outstanding shares;
(b) The filling of vacancies on the Board or on any committee;
(c) The fixing of compensation of the directors for serving on the
Board or on any committee;
(d) The amendment or repeal of Bylaws or the adoption of new Bylaws;
(e) The amendment or repeal of any resolution of the Board which by
its express terms is not so amendable or repealable;
(f) A distribution to the shareholders of the corporation except at a
rate or in a periodic amount or within a price range determined by the Board; or
(g) The appointment of other committees of the Board or the members
thereof.
Any such committee must be designated by resolution adopted by a majority
of the authorized number of directors and may be designated an Executive
Committee or by such other
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name as the Board shall specify. The appointment of members and alternate
members of any such committee shall require the affirmative vote of a majority
of the authorized number of directors. The Board shall have the power to
prescribe the manner in which proceedings of any such committee shall be
conducted. In the absence of any such prescription, such committee shall have
the power to prescribe the manner in which its proceedings shall be conducted.
Unless the Board or such committee shall otherwise provide, the regular and
special meetings and other actions of any such committee shall be governed by
the provisions of this Article applicable to meetings and actions of the Board.
Minutes shall be kept of each meeting of each committee.
ARTICLE IV
OFFICERS
Section 1. OFFICERS. The officers of the corporation shall be a
President, a Secretary and a Chief Financial Officer. The corporation may also
have, at the discretion of the Board, a Chief Executive Officer, a Chairman or
Co-Chairmen of the Board, one or more Vice Presidents, one or more Assistant
Secretaries, one or more Assistant Treasurers, and such other officers as may be
appointed in accordance with the provisions of Section 3 of this Article. Any
number of offices may be held by the same person.
Section 2. ELECTION OF OFFICERS. The officers of the corporation,
except such officers as may be appointed in accordance with the provisions of
Section 3 or Section 5 of this Article, shall be chosen annually by the Board,
and each shall serve at the pleasure of the Board, subject to the rights, if
any, of an officer under any contract of employment.
Section 3. SUBORDINATE OFFICERS. The Board may appoint, and may
empower the Chief Executive Officer or the President to 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 these Bylaws or as the Board may from time to time determine.
Section 4. REMOVAL AND RESIGNATION OF OFFICERS. Without prejudice to
the rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the Board, at any regular or
special meeting of the Board, or, except in case of an officer chosen by the
Board, by any officer upon whom such power of removal may be conferred by the
Board.
Any officer may resign at any time by giving written notice to the
corporation. Any resignation shall take effect at the date of the receipt of
that notice or at any later time specified in that notice; the acceptance of the
resignation shall not be necessary to make it effective. Any resignation is
without prejudice to the rights, if any, of the corporation under any contract
to which the officer is a party.
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Section 5. VACANCIES IN OFFICES. A vacancy in any office because of
death, resignation, removal, disqualification or any other cause shall be filled
in the manner prescribed in these Bylaws for regular election or appointment to
such office.
Section 6. CHAIRMAN OF THE BOARD. The Chairman or a Co-Chairman of the
Board, or both, if such an officer or officers be elected, shall, if present,
preside at all meetings of the Board and exercise and perform such other powers
and duties as may be from time to time assigned to him or them by the Board. If
there is no President nor Chief Executive Officer, the Chairman or a Co-Chairman
of the Board, or both, shall in addition be Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in Section 7 of this
Article.
Section 7. PRESIDENT. Subject to such supervisory powers, if any, as
may be given by the Board to the Chairman or a Co-Chairman of the Board, or
both, or the Chief Executive Officer, if there be such officers, the President
shall have general supervision, direction and control of the business and the
officers of the corporation. The President shall have such other powers and
duties as may be prescribed by the Board.
Section 8. VICE PRESIDENTS. In the absence or disability of the
President and the Chief Executive Officer, if any, the Vice Presidents, if any,
in order of their rank as fixed by the Board, shall perform all the duties of
the President, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice Presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board, the Chief Executive Officer, 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 may direct, a
book of minutes of all meetings and actions of directors, committees of
directors, and shareholders, with the time and place of holding, whether regular
or special, and, if special, how authorized, the notice given, the names of
those present at directors' meetings or committee meetings, the number of shares
present or represented at shareholders' meetings, and the proceedings.
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, as
determined by resolution of the Board, a share register, or a duplicate share
register, showing the names of all shareholders and their addresses, the number
and classes of share held by each, the number and date of certificates issued
for the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the shareholders and of the Board required by the Bylaws or by law to be given,
and he shall keep the
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seal of the corporation, if one be adopted, in safe custody, and shall have such
other powers and perform such other duties as may be prescribed by the Board.
Section 10. CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall
keep and maintain, or cause to be kept and maintained, adequate and correct
books and records of accounts of the properties and business transactions of the
corporation, including accounts of its assets, liabilities, receipts,
disbursements, gains, losses, capital, retained earnings and shares, and shall
send or cause to be sent to the shareholders of the corporation such financial
statements and reports as are bylaw or these Bylaws required to be sent to
them. The books of account shall at all reasonable times be open to inspection
by any director.
The Chief Financial Officer shall deposit all monies and other valuables in
the name and to the credit of the corporation with such depositories as may be
designated by the Board. The Chief Financial Officer shall disburse the funds
of the corporation as may be ordered by the Board, shall render to the Chief
Executive Officer, the President and directors, whenever they request it, an
account of all transactions undertaken as Chief Financial Officer and of the
financial condition of the corporation, and shall have such other powers and
perform such other duties as may be prescribed by the Board.
ARTICLE V
INDEMNIFICATION OF DIRECTORS, OFFICERS,
EMPLOYEES AND OTHER AGENTS
Section 1. AGENTS, PROCEEDINGS AND EXPENSES. For the purposes of this
Article, "agent" means 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 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" includes, without limitation,
attorneys' fees and any expenses of establishing a right to indemnification
under Section 4 or Section 5(c) of this Article.
Section 2. ACTIONS OTHER THAN BY THE CORPORATION. The corporation
shall indemnify any person who was or is a party, or is threatened to be made a
party, to any proceeding (other than an action by or in the right of the
corporation to procure a judgment in its favor) by reason of the fact that such
person is or was an agent of the corporation, against expenses, judgments,
fines, settlements and other amounts actually and reasonably incurred in
connection with such proceeding if that person acted in good faith and in a
manner that person reasonably believed to be in the best interests of the
corporation, and in the case of a criminal
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proceeding, had no reasonable cause to believe the conduct of that person was
unlawful. The termination of any proceeding by judgment, order, settlement,
conviction or upon a plea of NOLO CONTENDERE or its equivalent shall not, of
itself, create a presumption that the person did not act in good faith and in a
manner which the person reasonably believed to be in the best interests of the
corporation or that the person had reasonable cause to believe that the person's
conduct was unlawful.
Section 3. ACTIONS BY THE CORPORATION. The corporation shall indemnify
any person who was or is a party, or is threatened to be made a party, to any
threatened, pending or completed action by or in the right of the corporation to
procure a judgment in its favor by reason of the fact that that person is or was
an agent of the corporation, against expenses actually and reasonably incurred
by that person in connection with the defense or settlement of that action if
that person acted in good faith, in a manner that person believed to be in the
best interests of the corporation and its shareholders. No indemnification
shall be made under this Section 3 for any of the following:
(a) In respect of any claim, issue or matter as to which that person
shall have been adjudged to be liable to the corporation in the performance of
that person's duty to the corporation and its shareholders, unless and only to
the extent that the court in which that proceeding is or was pending shall
determine upon application that, in view of all the circumstances of the case,
that person is fairly and reasonably entitled to indemnification for expenses
and then only to the extent that the court shall determine;
(b) Of amounts paid in settling or otherwise disposing of a pending
action, without court approval; or
(c) Of expenses incurred in defending a pending action which is
settled or otherwise disposed of without court approval.
Section 4. SUCCESSFUL DEFENSE BY AGENT. To the extent that an agent of
the corporation has been successful on the merits in defense of any proceeding
referred to in Sections 2 or 3 of this Article, or in defense of any claim,
issue or matter therein, the agent shall be indemnified against expenses
actually and reasonably incurred by the agent in connection therewith.
Section 5. REQUIRED APPROVAL. Except as provided in Section 4 of this
Article, any indemnification under this Article shall be made by the corporation
only if authorized in the specific case on a determination that indemnification
of the agent is proper in the circumstances because the agent has met the
applicable standard of conduct set forth in Sections 2 or 3 of this Article, by
any of the following:
(a) A majority vote of a quorum consisting of directors who are not
parties to the proceeding;
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(b) If a quorum as described in Section 5(a) of this Article is not
obtainable, by independent legal counsel in a written opinion;
(c) Approval by the affirmative vote of a majority of the shares of
the corporation represented and voting at a duly held meeting at which a quorum
is present (which shares voting also constitute at least a majority of the
required quorum) or by the written consent of holders of a majority of the
outstanding shares entitled to vote. For this purpose, the shares owned by the
person to be indemnified shall not be considered outstanding or entitled to vote
thereon; or
(d) The court in which the proceeding is or was pending, on
application made by the corporation or the agent or the attorney or other
person rendering services in connection with the defense, whether or not such
application by the agent, attorney or other person is opposed by the
corporation.
Section 6. ADVANCE OF EXPENSES. Expenses incurred in defending any
proceeding may be advanced by the corporation before the final disposition of
the proceeding on receipt of an undertaking by or on behalf of the agent to
repay the amount of the advance if it shall be determined ultimately that the
agent is not entitled to be indemnified as authorized in this Article.
Section 7. OTHER CONTRACTUAL RIGHTS. The indemnification provided by
this Article shall not be deemed exclusive of any other rights to which those
seeking indemnification may be entitled under any agreement, vote of
stockholders or disinterested directors or otherwise, both as to action in an
official capacity and as to action in another capacity while holding such
office, to the extent such additional rights to indemnification are authorized
in the Articles of Incorporation of the corporation. The rights to indemnity
hereunder shall continue as to a person who has ceased to be a director,
officer, employee, or agent and shall inure to the benefit of the heirs,
executors, and administrators of the person. Nothing contained in this Article
shall affect any right to indemnification to which persons other than directors
and officers of the corporation or any subsidiary hereof may be entitled by
contract or otherwise.
Section 8. LIMITATIONS. No indemnification or advance shall be made
under this Article, except as provided in Section 4 or Section 5(c), in any
circumstances where it appears:
(a) That it would be inconsistent with a provision of the Articles of
Incorporation, a resolution of the shareholders or an agreement in effect at the
time of the accrual of the alleged cause of action asserted in the proceeding in
which the expenses were incurred or other amounts were paid, which prohibits or
otherwise limits indemnification; or
(b) That it would be inconsistent with any condition expressly
imposed by a court in approving a settlement.
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Section 9. INSURANCE. The corporation shall, if so authorized by the
Board, purchase and maintain insurance on behalf of any agent of the corporation
or its subsidiaries selected by the Board in its authorization, or designated in
the policy of insurance so purchased, against such liabilities asserted against
or incurred by the agent (in his capacity as agent or arising out of his status
as such) as may be set forth in such authorization or in such policy of
insurance, in each case upon such terms and conditions, and subject to such
limitations, as the Board in its sole and absolute discretion determines to be
appropriate, its general authorization to purchase or maintain any policy of
insurance to conclusively establish that it has determined all of the terms,
conditions, and limitations set forth in the policy of insurance in the form so
purchased to be appropriate, and the power to purchase and maintain such
insurance shall exist regardless of whether the corporation would have the power
to indemnify the agent against the insured liabilities under the provision of
this Article. The fact that the corporation owns all or a portion of the shares
of the company issuing a policy of insurance shall not render this subdivision
inapplicable if either of the following conditions are satisfied:
(a) the purchase and maintenance of the policy is authorized by the
Articles of Incorporation of the association and is limited to the extent
provided in subdivision (d) of Section 204 of the General Corporation Law;
(b) (1) the company issuing the insurance policy is organized,
licensed and operated in a manner that complies with the insurance laws and
regulations applicable to its jurisdiction of organization, (2) the company
issuing the policy provides procedures for processing claims that do not permit
the company to be subject to the direct control of the corporation, and (3) the
policy issued provides for some manner of risk sharing between the issuer and
purchaser of the policy, on one hand, and some unaffiliated person or persons,
on the other hand, such as by providing for more than one unaffiliated owner of
the company issuing the policy or by providing that a portion of the coverage
furnished will be obtained from some unaffiliated insurer or reinsurer.
Section 10. FIDUCIARIES OF CORPORATE EMPLOYEE BENEFIT PLAN. The
provisions of this Article shall not apply to any proceeding against any
trustee, investment manager or other fiduciary of an employee benefit plan in
that person's capacity as such, even though that person may also be an agent of
the corporation as defined in Section 1 of this Article. Nothing contained in
this Article shall limit the power of the corporation, upon and in the event of
a determination of the Board to indemnify any trustee, investment manager or
other fiduciary of an employee benefit plan, and the corporation may thereupon
indemnify and purchase and maintain insurance on behalf of any such trustee,
investment manager or other fiduciary.
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ARTICLE VI
RECORDS AND REPORTS
Section 1. MAINTENANCE AND INSPECTION OF SHARE REGISTER. The
corporation shall keep at its principal executive office, or at the office of
its transfer agent or registrar, if either be appointed and as determined by
resolution of the Board, a record of its shareholders, giving the names and
addresses of all shareholders and the number and class of shares held by each
shareholder.
A shareholder or shareholders of the corporation holding at least 5% in the
aggregate of the outstanding voting shares of the corporation may (i) inspect
and copy the records of shareholders' names and addresses and shareholdings
during usual business hours on five business days' prior written demand on the
corporation, and (ii) obtain from the transfer agent, if any, for the
corporation, on written demand and on the tender of such transfer agent's usual
charges for such list, 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 the 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 by the transfer agent on or before the later
of 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 1 may be made in person or by an agent or attorney of the
shareholder or holder of a voting trust certificate making the demand.
Section 2. MAINTENANCE AND INSPECTION OF BYLAWS. The corporation shall
keep at its principal executive office the original or a copy of the Bylaws as
amended to date, which shall be open to inspection by the shareholders at all
reasonable times during office hours. If the principal executive office of the
corporation is outside the State of California and the corporation has no
principal business office in this state, the Secretary shall, upon the written
request of any shareholder, furnish to that shareholder a copy of the Bylaws as
amended to date.
Section 3. MAINTENANCE AND INSPECTION OF OTHER CORPORATE RECORDS. The
accounting books and records and minutes of proceedings of the shareholders and
the Board and any committee or committees of the Board shall be kept at such
place or places designated by the Board 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 of any shareholder or holder of a voting trust certificate,
at
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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 shall extend to the records of each subsidiary corporation of the
corporation.
Section 4. INSPECTION BY DIRECTORS. Every director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and the physical properties of the corporation and each
of its subsidiary corporations. This inspection by a director may 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 REPORT TO SHAREHOLDERS. Unless otherwise expressly
required by the General Corporation Law or by this Section 5, the annual report
to shareholders referred to in Section 1501 of the General Corporation Law is
hereby expressly waived and dispensed with; provided, that nothing herein set
forth shall be construed to prohibit or restrict the right of the Board to issue
such annual or other periodic reports to the shareholders of the corporation as
they may from time to time consider appropriate.
In the event that the corporation shall have 100 or more shareholders of
record (determined as provided in Section 605 of the General Corporation Law) at
the close of any fiscal year of the corporation, the Board shall cause a report
to be sent to the shareholders not later than 120 days after the close of said
fiscal year, and each fiscal year thereafter ensuing. The report shall be sent
at least 15 days (or 35 days if sent by third-class mail as permitted by Section
4 of Article II) before the annual meeting of shareholders to be held during the
next fiscal year in the manner specified in Section 4 of Article II of these
Bylaws for reports to shareholders of the corporation. The annual report shall
contain a balance sheet as of the end of the fiscal year and an income statement
and statement of changes in financial position for the fiscal year, accompanied
by any report of independent accountants or, if there is no such report, the
certificate of an authorized officer of the corporation that the statements were
prepared without audit from the books and records of the corporation. The
annual report shall also contain a brief description, as required by Section
1501(b) of the General Corporation Law, of (i) any transaction with interested
officers, directors or shareholders during the previous fiscal year; and (ii)
any indemnification or advance made during the fiscal year to any officer or
director of the corporation.
Section 6. FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the corporation as of
the end of each such period, that has been prepared by the corporation shall be
kept on file in the principal executive office of the corporation for 12 months,
and each such statement shall be exhibited at all reasonable times to any
shareholder demanding an examination of any such statement or a copy shall be
mailed to any such shareholder.
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If any shareholder or shareholders holding at least 5% of the outstanding
shares of any class of stock of the corporation makes a written request to the
corporation for an income statement of the corporation for the three-month,
six-month or nine-month period of the then current fiscal year ended more than
30 days before the date of the request, and a balance sheet of the corporation
as of the end of that period, the Chief Financial Officer shall cause that
statement to be prepared, and shall deliver personally or mail that statement or
statements to the person making the request within 30 days after the receipt of
the request. If the corporation has not sent to the shareholders its annual
report for the last fiscal year, this report shall likewise be delivered or
mailed to the requesting shareholder or shareholders within 30 days after the
request.
If the corporation has not sent to the shareholders its annual report for
the last fiscal year, upon the written request of any shareholder made to the
corporation for an income statement for the fiscal year ended more than 120 days
before the date of the request, the Chief Financial Officer shall cause that
statement to be prepared, together with a statement of change in financial
position and a balance sheet as of the end of that period and shall deliver
personally or mail all such statements to the person making the request within
30 days after receipt of the request.
The corporation shall also, on the written request of any shareholder, mail
to the shareholder a copy of the last annual, semi-annual, or quarterly income
statement which it has prepared, and a balance sheet as of the end of that
period.
The quarterly income statements and balance sheet referred to in this
Section shall be accompanied by the report, if any, of any independent
accountants engaged by the corporation or the certificate of an authorized
officer of the corporation that the financial statements were prepared without
audit from the books and records of the corporation.
Section 7. ANNUAL STATEMENT OF GENERAL INFORMATION. The corporation
shall each year during the calendar month in which its Articles of Incorporation
were originally filed with the California Secretary of State, or at any time
during the immediately preceding 5 calendar months, file with the California
Secretary of State a statement on the prescribed form and in compliance with
Section 1502 of the General Corporation Law.
Section 8. CHECKS, DRAFTS, EVIDENCES 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.
Section 9. CORPORATE CONTRACTS AND INSTRUMENTS; HOW EXECUTED. The
Board, except as otherwise provided in these Bylaw, 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, and this authority may be
general or confined to specific instances; and, subject to the provisions of
Section 313 of the General Corporation Law, unless
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so authorized or ratified by the Board or within the agency power of an officer,
no officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
Section 10. CERTIFICATES FOR SHARES. A certificate or certificates for
shares of the capital stock of the corporation shall be issued to each
shareholder when any of the shares are fully paid, and the Board may authorize
the issuance of certificates for shares as partly paid provided that
certificates representing such shares shall state the amount of the
consideration to be paid for them and the amount paid. All certificates shall
be signed in the name of the corporation by the Chairman or a Co-Chairman of the
Board or the Chief Executive Officer or the President or Vice President and by
the Chief Financial Officer or an Assistant Treasurer or the Secretary or any
Assistant Secretary, certifying the number of shares and the class or series of
shares owned by the shareholder. Any or all of the signatures on the
certificate may be facsimile. In case any officer, transfer agent or registrar
who has signed or whose facsimile signature has been placed on a certificate
shall have ceased to be that officer, transfer agent or registrar before that
certificate is issued, it may be issued by the corporation with the same effect
as if that person were an officer, transfer agent or registrar at the date of
issue.
Section 11. LOST CERTIFICATES. Except as provided in this Section 11,
no new certificate for shares shall be issued to replace an old certificate
unless the latter is surrendered to the corporation and cancelled at the same
time. The Board may, in case any share certificate or certificate for any other
security is lost, stolen or destroyed, authorize the issuance of a replacement
certificate on such terms and conditions as the Board may require, including
provision for indemnification of the corporation secured by a bond or other
adequate security sufficient to protect the corporation against any claim that
may be made against it, including any expense or liability, on account of the
alleged loss, theft or destruction of the certificate or the issuance of the
replacement certificate.
Section 12. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The
Chairman or a Co-Chairman of the Board, the Chief Executive Officer, the
President, any Vice President or any other person authorized by resolution of
the Board or by any of the foregoing designated officers, is authorized to vote
on behalf of the corporation any and all shares of any other corporation or
corporations, foreign or domestic, standing in the name of the corporation. The
authority granted to these officers to vote or represent on behalf of the
corporation any and all shares held by the corporation in any other corporation
or corporations may be exercised by any of these officers in person or by any
person authorized to do so by proxy duly executed by these officers.
Section 13. STOCK PURCHASE PLANS. The corporation may adopt and carry
out a stock purchase plan or agreement or stock option plan or agreement
providing for the issue and sale for such consideration as may be fixed of its
unissued shares, or of issued shares acquired or to be acquired, to one or more
of the employees or directors of the corporation or of a subsidiary or to a
trustee on their behalf and for the payment for such shares in installments or
21
<PAGE>
at one time, and may provide for aiding any such persons in paying for such
shares by compensation for services rendered, promissory notes, or otherwise.
Section 14. CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions in the
General Corporation Law shall govern the construction of these Bylaws. Without
limiting the generality of this provision, the singular number includes the
plural, the plural number includes the singular, and the term "person" includes
both a corporation and a natural person.
ARTICLE VII
AMENDMENT
Section 1. AMENDMENT BY SHAREHOLDERS. New bylaws may be adopted or
these Bylaws may be amended or repealed by the vote of holders of a majority of
the outstanding shares entitled to vote; provided, however, that if the Articles
of Incorporation set forth the number of authorized directors of the
corporation, then the authorized number of directors may be changed only by an
amendment of the Articles of Incorporation.
Section 2. AMENDMENT BY DIRECTORS. In addition to the rights of the
shareholders as provided in Section 1 of this Article VII, bylaws, other than a
bylaw or an amendment of a bylaw changing the authorized number of directors
(except to fix the authorized number of directors pursuant to a bylaw providing
for a variable number of directors), may be adopted, amended or repealed by the
board of directors.
22
<PAGE>
CERTIFICATE OF SECRETARY
I, the undersigned, do hereby certify:
(1) that I am the duly elected and acting Secretary of Cumetrix
Data Systems Corp., a California corporation; and
(2) that the foregoing Bylaws, comprising 22 pages, constitute the
Bylaws of said Corporation as of February 2, 1998, as duly adopted by the
Board of Directors.
IN WITNESS WHEREOF, I have hereunto subscribed my name as of this 3rd day
of February, 1998.
/s/ Mei Yang
---------------------------------
Mei Yang, Secretary
<PAGE>
EXHIBIT 4.1
[LOGO]
CUMETRIX DATA SYSTEMS CORP.
Number SHARES
CD
INCORPORATED UNDER THE LAWS SEE REVERSE FOR STATEMENTS
OF THE STATE OF CALIFORNIA RELATING TO RIGHTS, PREFERENCES,
PRIVILEGES AND RESTRICTIONS, IF ANY
- --------------------------------------------------------------------------------
THIS CERTIFIES THAT CUSIP 230903 10 6
SPECIMEN
IS THE RECORD HOLDER OF
- --------------------------------------------------------------------------------
FULLY PAID AND NONASSESSABLE SHARES OF COMMON STOCK, WITHOUT PAR VALUE, OF
CUMETRIX DATA SYSTEMS CORP.
transferable only on the books of the Corporation by the holder hereof
in person or by duly authorized Attorney upon surrender of this certificate
properly endorsed. This certificate is not valid until countersigned by the
Transfer Agent and registered by the Registrar.
WITNESS the facsimile seal of the Corporation and the facsimile
signatures of its duly authorized officers.
Dated
[SEAL]
/s/ CARL L. WOOD /s/ JAMES UNG
----------------------- --------------------
CHIEF FINANCIAL OFFICER PRESIDENT
COUNTERSIGNED AND REGISTERED:
CONTINENTAL STOCK TRANSFER & TRUST COMPANY
(Jersey City, NJ)
TRANSFER AGENT
AND REGISTRAR
BY
AUTHORIZED OFFICER
<PAGE>
A statement of the rights, preferences, privileges and restrictions
granted to or imposed upon the respective classes or series of shares and
upon the holders thereof as established, from time to time, by the Articles
of Incorporation of the Corporation and by any certificate of determination,
and the number of shares constituting each class and series and the
designations thereof, may be obtained by the holder hereof upon written
request and without charge from the Secretary of the Corporation at its
corporate headquarters.
The following abbreviations, when used in the inscription on the face of
this certificate, shall be construed as though they were written out in full
according to applicable laws or regulations:
TEN COM -- as tenants in common
TEN ENT -- as tenants by the entireties
JT TEN -- as joint tenants with right of survivorship and not as
tenants in common
UNIF GIFT MIN ACT -- _________________ Custodian _______________________
(Cust) (Minor)
under Uniform Gifts to Minors
Act _______________________________________________
(State)
UNIF TRF MIN ACT -- ______________ Custodian (until age ________________)
(Cust)
____________________________ under Uniform Transfers
(Minor)
to Minors Act ______________________________________
(State)
Additional abbreviations may also be used though not in the above list.
FOR VALUE RECEIVED, __________________ hereby sell, assign and transfer unto
PLEASE INSERT SOCIAL SECURITY OR OTHER
IDENTIFYING NUMBER OF ASSIGNEE
____________________________________
________________________________________________________________________________
(PLEASE PRINT OR TYPEWRITE NAME AND ADDRESS, INCLUDING ZIP CODE, OF ASSIGNEE)
_______________________________________________________________________________
_______________________________________________________________________________
_________________________________________________________________________Shares
of the capital stock represented by the within Certificate, and do hereby
irrevocably constitute and appoint
________________________________________________________________________Attorney
to transfer the said stock on the books of the within named Corporation with
full power of substitution in the premises.
Dated ________________________________
X _________________________________
X _________________________________
NOTICE: THE SIGNATURE(S) TO THIS
ASSIGNMENT MUST CORRESPOND WITH
THE NAME(S) AS WRITTEN UPON THE
FACE OF THE CERTIFICATE IN EVERY
PARTICULAR, WITHOUT ALTERATION OR
ENLARGEMENT OR ANY CHANGE
WHATEVER.
Signature(s) Guaranteed
By ________________________________________
THE SIGNATURE(S) SHOULD BE GUARANTEED BY AN
ELIGIBLE GUARANTOR INSTITUTION (BANKS, STOCK-
BROKERS, SAVINGS AND LOAN ASSOCIATIONS AND
CREDIT UNIONS WITH MEMBERSHIP IN AN APPROVED
SIGNATURE GUARANTEE MEDALLION PROGRAM),
PURSUANT TO S.E.C. RULE 17Ad-15.
<PAGE>
EXHIBIT 5.1
[LETTERHEAD OF TROOP MEISINGER STEUBER & PASICH, LLP LAWYERS]
February 4, 1998
Cumetrix Data Systems Corp.
1304 John Reed Court
City of Industry, CA 91745
Ladies/Gentlemen:
At you request, we have examined the Registration Statement on Form S-1
(the "Registration Statement") to which this letter is attached as Exhibit
5.1 filed by Cumetrix Data Systems Corp, a California corporation (the
"Company"), in order to register under the Securities Act of 1933, as amended
(the "Act"), 2,300,000 shares of Common Stock, without par value of the
company, and an additional 345,000 shares of Common Stock without par value
of the Company subject to the underwriters' over allotment option.
We are of the opinion that the Shares have been duly authorized and upon
issuance and sale of the Shares in conformity with and pursuant to the
Registration Statement, the Shares will be validly issued, fully paid and
non-assessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and to use of our name in the Prospectus constituting a part
thereof.
Respectfully submitted,
/s/ Troop Meisinger Steuber & Pasich, LLP
TROOP MEISINGER STEUBER & PASICH, LLP
<PAGE>
EXHIBIT 10.1
STANDARD SUBLEASE
American Industrial Real Estate Association
1. PARTIES. This Sublease, dated, for reference purposes only, April 9, 1996,
is made by and between ITT Barton Instruments, a division of International
Telephone and Telegraph, a Delaware corporation (herein called "Sublessor") and
Data Net International Inc. (herein called "Sublessee").
2. PREMISES. Sublessor hereby subleases to Sublessee and Sublessee hereby
subleases from Sublessor for the term, at the rental, and upon all of the
conditions set forth herein, that certain real property situated in the County
of Los Angeles, State of California, commonly known as 1304 John Reed, City of
Industry, CA and described as an approximate 6200 SF portion of a larger
concrete tilt-up industrial building. Said real property, including the land and
all improvements thereon, is hereinafter called the "Premises."
3. TERM.
3.1. TERM. The term of this Sublease shall be for twenty-four and
one/half (24 1/2) months commencing on April 15, 1996 and ending on April 30,
1998 unless sooner terminated pursuant to any provision hereof.
3.2. DELAY IN COMMENCEMENT. Notwithstanding said commencement date, if
for any reason Sublessor cannot deliver possession of the Premises to Sublessee
on said date, Sublessor shall not be subject to any liability therefore, nor
shall such failure affect the validity of this Lease or the obligations of
Sublessee hereunder or extend the term hereof, but in such case Sublessee shall
not be obligated to pay rent until possession of the Premises is tendered to
Sublessee; provided, however, that if Sublessor shall not have delivered
possession of the Premises within sixty (60) days from said commencement date.
Sublessee may, at Sublessee's option, by notice in writing to Sublessor within
ten (10) days thereafter, cancel this Sublease, in which event the parties shall
be discharged from all obligations thereunder. If Sublessee occupies the
Premises prior to said commencement date such occupancy shall be subject to all
provisions hereof, such occupancy shall not advance the termination date and
Sublessee shall pay rent for such period at the initial monthly rates set forth
below.
4. RENT. Sublessee shall pay to Sublessor as rent for the Premises equal
monthly payments of $3,968.00, in advance, on the first (1st) day of each month
of the term hereof. Sublessee shall pay Sublessor upon the execution hereof
$1,984.00 as rent for April 15, 1996 to April 30, 1996. Rent for any period
during the term hereof which is for less than one month shall be a prorata
portion of the monthly installment. Rent shall be payable in lawful money of
the United States to Sublessor at the address stated herein or to such other
persons or at such other places as Sublessor may designate in writing.
1
<PAGE>
5. SECURITY DEPOSIT. Sublessee shall deposit with Sublessor upon execution
hereof $3,968.00 as security for Sublessee's faithful performance of Sublessee's
obligations hereunder. If Sublessee fails to pay rent or other charges due
hereunder, or otherwise defaults with respect to any provision of this Sublease,
Sublessor may use, apply or retain all or any portion of said deposit for the
payment of any rent or other charge in default or for the payment of any other
sum to which Sublessor may become obligated by reason of Sublessee's default, or
to compensate Sublessor for any loss or damage which Sublessor may suffer
thereby. If Sublessor so uses or applies all or any portion of said deposit,
Sublessee shall within ten (10) days after written demand therefore deposit cash
with Sublessor in an amount sufficient to restore said deposit to the full
amount hereinabove stated and Sublessee's failure to do so shall be a material
breach of this Sublease. Sublessor shall not be required to keep said deposit
separate from its general accounts. If Sublessee performs all of Sublessee's
obligations hereunder, said deposit, or so much thereof as has not theretofore
been applied by Sublessor, shall be returned, without payment of interest or
other increment for its use to Sublessee (or at Sublessor's option, to the last
assignee, if any, of Sublessee's interest hereunder) at the expiration of the
term hereof, and after Sublessee has vacated the Premises. No trust
relationship is created herein between Sublessor and Sublessee with respect to
said Security Deposit.
6. USE.
6.1. USE. The Premises shall be used and occupied only for the general
office use, warehousing and distribution of computer parts, and for no other
purpose.
6.2. COMPLIANCE WITH LAW.
(a) Sublessor warrants to Sublessee that the Premises, in its
existing state, but without regard to the use for which Sublessee will use the
Premises, does not violate any applicable building code regulation or ordinance
at the time that this Sublease is executed. In the event that it is determined
that this warranty has been violated, then it shall be the obligation of the
Sublessor, after written notice from Sublessee, to promptly at Sublessor's sole
cost and expense, rectify any such violation. In the event that Sublessee does
not give to Sublessor written notice of the violation of this warranty within 1
year from the commencement of the term of this Sublease, it shall be
conclusively deemed that such violation did not exist and the correction of the
same shall be the obligation of the Sublessee.
(b) Except as provided in paragraph 6.2(a), Sublessee shall, at
Sublessee's expense, comply promptly with all applicable statutes, ordinances,
rules, regulations, orders, restrictions of record, and requirements in effect
during the term or any part of the term hereof regulating the use by Sublessee
of the Premises. Sublessee shall not use or permit the use of the Premises in
any manner that will tend to create waste or a nuisance or, if there shall be
more than one tenant of the building containing the Premises, which shall tend
to disturb such other tenants.
2
<PAGE>
6.3. CONDITION OF PREMISES. Except as provided in paragraph 6.2(a)
Sublessee hereby accepts the Premises in their condition existing as of the date
of the execution hereof, subject to all applicable zoning, municipal, county and
state laws, ordinances, and regulations governing and regulating the use of the
Premises, and accepts this Sublease subject thereto and to all matters disclosed
thereby and by any exhibits attached hereto Sublessee acknowledges that neither
Sublessor nor Sublessor's agents have made any representation or warranty as to
the suitability of the Premises for the conduct of Sublessee's business.
7. MASTER LEASE.
7.1. Sublessor is the lessee of the Premises by virtue of a lease,
hereinafter referred to as the "Master Lease," a copy of which is attached
hereto marked Exhibit 1, dated April 2, 1993, wherein Northern Trust of
California, N.A., a national banking association, not individually, but in its
capacity as special trustee under Trust #22-81962 is the lessor, hereinafter
referred to as the "Master Lessor."
7.2. This Sublease is and shall be at all times subject and subordinate
to the Master Lease.
7.3. The Terms, conditions and respective obligations of Sublessor and
Sublessee to each other under this Sublease shall be the terms and conditions of
the master Lease except for those provisions of the master Lease which are
directly contradicted by this Sublease in which event the terms of this Sublease
document shall control over the Master Lease. Therefore, for the purposes of
this Sublease, wherever in the master Lease the word "Lessor" is used it shall
be deemed to mean the Sublessor herein and wherever in the master Lease the word
"Lessee" is used it shall be deemed to mean the Sublessee herein.
7.4. During the term of this Sublease and for all periods subsequent for
obligations which have arisen prior to the termination of this Sublease,
Sublessee does hereby expressly assume and agree to perform and comply with for
the benefit of Sublessor and Master Lessor each and every obligation of
Sublessor under the master Lease except for the following paragraphs which are
excluded therefrom ________________________________________________.
7.5. The obligations that Sublessee has assumed under paragraph 7.4
hereof are hereinafter referred to as the "Sublessee's Assumed Obligations."
The obligations that Sublessee has not assumed under paragraph 7.4 hereof are
hereinafter referred to as the "Sublessor's Remaining Obligations."
7.6. Sublessee shall hold Sublessor free and harmless of and from all
liability, judgments, costs, damages, claims or demands, including reasonable
attorneys fees, arising out of Sublessee's failure to comply with or perform
Sublessee's Assumed Obligations.
3
<PAGE>
7.7. Sublessor agrees to maintain the Master Lease during the entire term
of this Sublease, subject, however, to any earlier termination of the Master
Lease without the fault of the Sublessor, and to comply with or perform
Sublessor's Remaining Obligations and to hold Sublessee free and harmless of and
from all liability, judgments, costs, damages, claims or demands arising out of
Sublessor's failure to comply with or perform Sublessor's Remaining Obligations.
7.8. Sublessor represents to Sublessee that the Master Lease is in full
force and effect and that no default exists on the part of any party to the
Master Lease.
8. ASSIGNMENT OF SUBLEASE AND DEFAULT.
8.1. Sublessor hereby assigns and transfers to Master Lessor the
Sublessor's interest in this Sublease and all rentals and income arising
therefrom, subject however to terms of Paragraph 8.2 hereof.
8.2. Master Lessor, by executing this document, agrees that until a
default shall occur in the performance of Sublessor's Obligations under the
Master Lease, that Sublessor may receive, collect and enjoy the rents accruing
under this Sublease. However, if Sublessor shall default in the performance of
its obligations to Master Lessor then Master Lessor may, at its option, receive
and collect, directly from Sublessee, all rent owing and to be owed under this
Sublease. Master Lessor shall not, by reason of this assignment of the Sublease
nor by reason of the collection of the rents from the Sublessee, be deemed
liable to Sublessee for any failure of the Sublessor to perform and comply with
Sublessor's Remaining Obligations.
8.3. Sublessor hereby irrevocably authorizes and directs Sublessee, upon
receipt of any written notice from the master Lessor stating that a default
exists in the performance of Sublessor's obligations under the Master Lease, to
pay to Master Lessor the rents due and to become due under the Sublease.
Sublessor agrees that Sublessee shall have the right to rely upon any such
statement and request from Master Lessor and that Sublessee shall pay such rents
to Master Lessor without any obligation or right to inquire as to whether such
default exists and notwithstanding any notice from or claim from Sublessor to
the contrary and Sublessor shall have no right or claim against Sublessee for
any such rents so paid by Sublessee.
8.4. No changes or modifications shall be made to this Sublease without
the consent of Master Lessor.
9. CONSENT OF MASTER LESSOR.
9.1. In the event that the Master Lease requires that Sublessor obtain
the consent of Master Lessor to any subletting by Sublessor then this Sublease
shall not be effective unless, within 10 days of the date hereof, Master Lessor
signs this Sublease thereby giving its consent to this Subletting.
4
<PAGE>
9.2. In the event that the obligations of the Sublessor under the Master
Lease have been guaranteed by third parties then this Sublease, nor the Master
Lessor's consent, shall not be effective unless, within 10 days of the date
hereof, said guarantors sign this Sublease thereby giving guarantor's consent to
this Sublease and the terms thereof.
9.3. In the event that Master Lessor does give such consent then:
(a) Such consent will not release Sublessor of its obligations
or alter the primary liability of Sublessor to pay the rent and perform and
comply with all of the obligations of Sublessor to be performed under the Master
Lease.
(b) The acceptance of rent by Master Lessor from Sublessee or
anyone else liable under the Master Lease shall not be deemed a waiver by Master
Lessor of any provisions of the Master Lease.
(c) The consent to this Sublease shall not constitute a consent
to any subsequent subletting or assignment.
(d) In the event of any default of Sublessor under the Master
Lease, Master Lessor may proceed directly against Sublessor, any guarantors or
anyone else liable under the Master Lease or this Sublease without first
exhausting Master Lessor's remedies against any other person or entity liable
thereon to Master Lessor.
(e) Master Lessor may consent to subsequent sublettings and
assignments of the Master Lease or this Sublease or any amendments or
modifications thereto without notifying Sublessor nor anyone else liable under
the master Lease and without obtaining their consent and such action shall not
relieve such persons from liability.
(f) In the event that Sublessor shall default in its obligations
under the Master Lease, then Master Lessor, at its option and without being
obligated to do so, may require Sublessee to attorn to Master Lessor in which
event Master Lessor shall undertake the obligations of Sublessor under this
Sublease from the time of the exercise of said option to termination of this
Sublease but Master Lessor shall not be liable for any prepaid rents nor any
security deposit paid by Sublessee, nor shall Master Lessor be liable for any
other defaults of the Sublessor under the Sublease.
9.4. The signatures of the master Lessor and any Guarantor of Sublessor
at the end of this document shall constitute their consent to the terms of this
Sublease.
9.5. Master Lessor acknowledges that, to the best of Master Lessor's
knowledge, no default presently exists under the Master Lease of obligations to
be performed by Sublessor and that the Master Lease is in full force and effect.
5
<PAGE>
9.6. In the event that Sublessor defaults under its obligations to be
performed under the Master Lease by Sublessor, Master Lessor agrees to deliver
to Sublessee a copy of any such notice of default. Sublessee shall have the
right to cure any default of Sublessor described in any notice of default within
ten days after service of such notice of default on Sublessee. If such default
is cured by Sublessee then Sublessee shall have the right of reimbursement and
offset from and against Sublessor.
10. BROKERS FEE.
10.1. Upon execution hereof by all parties, Sublessor shall pay to Per
Separate Agreement, a licensed real estate broker, (herein called "Broker"), a
fee as set forth in a separate agreement between Sublessor and Broker, or in the
event there is no separate agreement between Sublessor and Broker, the sum
$XXXXXXX for brokerage services rendered by Broker to Sublessor in this
transaction.
10.2. Sublessor agrees that if Sublessee exercises any option or right of
first refusal granted by Sublessor herein, or any option or right substantially
similar thereto, either to extend the term of this Sublease, to renew the is
Sublease, to purchase the Premises, or to lease or purchase adjacent property
which Sublessor may own or in which Sublessor has an interest, or if Broker is
the procuring cause of any lease, sublease, or sale pertaining to the Premises
or any adjacent property which Sublessor may own or in which Sublessor has an
interest, then as to any of said transactions Sublessor shall pay to Broker a
fee, in cash, in accordance with the schedule of Broker in effect at the time of
the execution of this Sublease. Notwithstanding the foregoing, Sublessor's
obligation under this paragraph 10.2 is limited to a transaction in which
Sublessor is acting as a sublessor, lessor or seller.
10.3. Master lessor agrees, by its consent to this Sublease that if
Sublessee shall exercise any option or right of first refusal granted to
Sublessee by Master Lessor in connection with this Sublease, or any option or
right substantially similar thereto, either to extend the Master Lease, to renew
the Master Lease, to purchase the Premises or any part thereof, or to lease or
purchase adjacent property which Master Lessor may own or in which Master Lessor
has an interest, or if Broker is the procuring cause of any other lease or sale
entered into between Sublessee and Master Lessor pertaining to the Premises, any
part thereof, or any adjacent property which Master Lessor owns or in which it
has an interest, then as to any of said transactions Master Lessor shall pay to
Broker a fee, in cash, in accordance with the schedule of Broker in effect at
the time of its consent to this Sublease.
10.4. Any fee due from Sublessor or master Lessor hereunder shall be due
and payable upon the exercise of any option to extend or renew as to any
extension or renewal, upon the execution of any new lease, as to a new lease
transaction or the exercise of a right of first refusal to lease, or at the
close of escrow, as to the exercise of any option to purchase or other sale
transaction.
6
<PAGE>
10.5. Any transferee of Sublessor's interest in this Sublease, or of
master Lessor's interest in the master Lease, by accepting an assignment
thereof, shall be deemed to have assumed the respective obligations of Sublessor
or Master Lessor under this paragraph 10. Broker shall be deemed to be a
third-party beneficiary of this paragraph 10.
11. ATTORNEY'S FEES. If any party or the Broker named herein brings an action
to enforce the terms hereof or to declare rights hereunder, the prevailing party
in any such action, on trial and appeal, shall be entitled to his reasonable
attorney's fees to be paid by the losing party as fixed by the Court. The
provision of this paragraph shall inure to the benefit of the Broker named
herein who seeks to enforce a right hereunder.
12. ADDITIONAL PROVISIONS. [If there are no additional provisions draw a line
from this point to the next printed word after the Space left here. If there
are additional provisions place the same here.]
SEE ADDENDUM TO STANDARD SUBLEASE FOR ITEMS: 13, 14, 15, & 16.
If this Sublease has been filled in it has been prepared for submission to
your attorney for his approval. No representation or recommendation is
made by the real estate broker or its agents or employees as to the legal
sufficiency, legal effect, or tax consequences of this Sublease or the
transaction relating thereto.
-------------------------------------------------
Signatures on Next Page
7
<PAGE>
Executed at ---------------------------------
---------------------- By
on -------------------------------
------------------------------- By
address -------------------------------
-------------------------- "Sublessor" (Corporate Seal)
- ---------------------------------
Executed at ITT-Barton Instruments, a division
---------------------- of International Telephone and
on Telegraph,a Delaware Corporation.
-------------------------------
address
--------------------------
- --------------------------------- By /s/ [LANDLORD]
-------------------------------
"Sublessor" (Corporate Seal)
Executed at DataNet International,
---------------------- a California Corporation.
on
-------------------------------
address
--------------------------
- --------------------------------- By /s/ JEFF TOGHRAIE
-------------------------------
By
-------------------------------
"Master Lessor" (Corporate Seal)
Executed at
---------------------- -------------------------------
on -------------------------------
------------------------------- -------------------------------
address -------------------------------
-------------------------- "Guarantors"
- ---------------------------------
8
<PAGE>
ADDENDUM TO
STANDARD SUBLEASE DATED APRIL 9, 1996
BY AND BETWEEN
ITT BARTON INSTRUMENTS (SUBLESSOR)
AND
DATA NET INTERNATIONAL, INC. (SUBLESSEE)
13. Sublessee Agrees to:
A. Promptly move out of the Subleased Premises on the Sublease
Termination Date or on the Termination of this Sublease.
B. Indemnify, defend and hold Sublessor harmless from any loss,
attorney's fees, expenses, or claims arising out of use of the
Sublease Premises or resulting from Sublessee's failure to comply
with the "Master Lease."
C. Maintain liability insurance for the Subleased Premises and the
conduct of Sublessee's business which shall be consistent with and
meet the criteria established in section 4.04 (A) of the "Master
Lease". Sublessor shall be named as an additional insured, in the
amounts stated in the "Master Lease."
D. Deliver certificates of insurance to Sublessor before the Sublease
Commencement Date and thereafter when requested.
14. Sublessee Agrees Not To:
A. Alter the Subleased Premises with out prior written approval from
Sublessor. Approval shall not be unreasonably withheld.
B. Allow a lien to be placed on the Subleased Premises.
C. Assign this Sublease or sublease any portion of the Subleased
Premises without Sublessor's prior written consent.
15. General Provisions:
Please see default language as defined in Article Ten (10) of the "Master
Lease."
9
<PAGE>
16. Building Improvements:
Sublessor, at Sublessor's sole cost and expense, shall complete the
following building improvements prior to Sublease commencement:
A. Re-carpet existing office.
B. Repair damaged flooring in the bathrooms.
C. Re-paint office walls.
D. Re-tack the ceiling insulation in warehouse.
Sublessor____________ Sublessee ______
page 1 of 1
11
<PAGE>
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into by and between
Data Net International, Inc. (the "Company") and James Ung ("Employee"), as of
the 1st day of May, 1997.
I. EMPLOYMENT.
The Company hereby employs Employee and Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth, from May 1st,
1997, to and including April 30th, 2002. This Agreement is subject to renewal
only as set forth in Section VI below.
II. DUTIES.
A. Employee shall serve during the course of his employment as President
of the company, and shall have such other duties and responsibilities as the
Chief Executive Officer of the Company shall determine from me to time.
B. Employee agrees to devote substantially all of his time, energy and
ability to the business of the Company. Nothing herein shall prevent Employee,
upon approval of the Board of Directors of the Company, from serving as a
director or trustee of other corporations or businesses which are not in
competition with the business of the Company as set forth in Section IV hereof
or in competition with any present or future affiliate of the Company. Nothing
herein shall prevent Employee from investing in real estate for his own account
or from becoming a partner or a stockholder in any corporation, partnership or
other venture not in competition with the business of the Company as set forth
in Section IV hereof or in competition with any present or future affiliate of
the Company.
C. For term of this Agreement, Employee shall report to the Chief
Executive Officer of the Company or his designee.
III. COMPENSATION.
A. The Company will pay to Employee a base salary at the rate of
$144,000.00 per year. Such salary shall be earned monthly and shall be payable
in periodic installments no less frequently than monthly in accordance with the
Company's customary practices. Amounts payable shall be reduced by standard
withholding and other authorized deductions. The Company may in its discretion
increase Employee's salary but it may not reduce it during the term of this
agreement.
B. BONUS. Employee shall be entitled to receive a quarterly bonus based
upon the following formula: 15% of the Gross Profit (as defined below) of the
Computer Hardware
<PAGE>
Distribution Division of Employer in excess of $100.000.00
during the relevant fiscal quarter. "Gross Profit" means all revenues generated
by the Computer Hardware Distribution Division less cost of goods sold,
insurance shipping and credit/check guarantee fees. The bonus will be paid
within 45 days after the end of each fiscal quarter of Employer based upon sales
during the fiscal quarter. Any disputes regarding the computation of Gross
Profit will be determined by the Employer's independent public accountants whose
determination will be final and binding. Employer agrees to maintain sufficient
accountants to determine the Gross Profit.
C. WELFARE BENEFIT PLANS. Employee and/or his family, as the case may
be, shall be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company. Employee will be compensated for up to
ten sick days per year.
D. EXPENSES. Employee shall have access to an expense account in the sum
of $20,400.00 per year. Employee shall be entitled to withdraw from the expense
account to pay for all reasonable employment expenses incurred by his in
accordance with the policies, practices and procedures as in effect generally
with respect to other peer executives of the Company.
E. FRINGE BENEFITS. Employee shall be entitled to fringe benefits in
accordance with the plans, practices, programs and policies as in effect
generally with respect to other peer executives of the Company.
F. VACATION. Employee shall be entitled to two weeks paid vacation per
year, in accordance with the plans, policies, programs and practices as in
effect generally with respect to other peer executives of the Company.
G. CAR ALLOWANCE. Employee shall be entitled to a car allowance in the
sum of $500.00 per month.
H. The Company reserves the right to modify, suspend or discontinue any
and all of the above plans, practices, policies and programs at any time without
recourse by Employee so long as such action is taken generally with respect to
other similarly situated peer executives and does not single out Employee.
IV. TERMINATION.
A. DEATH OR DISABILITY. Employee's employment shall terminate
automatically upon Employee's death. If the Company determines in good faith
that the Disability of Employee has occurred (pursuant to the definition of
Disability set forth below), it may give to Employee written notice in
accordance with Section XIX of its intention to terminate Employee's
employment. In such event, Employee's employment with the Company shall
terminate effective on the 30th day
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<PAGE>
after receipt of such notice by Employee, provided that, within the 30 days
after such receipt, Employee shall not have returned to full-time performance
of his duties. For purposes of this Agreement, "disability" shall mean a
physical or mental impairment which substantially limits a major life
activity of Employee and which renders Employee unable to perform the
essential functions of his position, even with reasonable accommodation which
does not impose an undue hardship on the Company. The Company reserves the
right, in good faith, to make the determination of disability under this
Agreement based upon information supplied by Employee and/or his medical
personnel, as well as information from medical personnel (or others) selected
by the Company or its insurers. "Incapacity" as used herein shall be limited
only to such Disability which substantially prevents the Company from
availing itself of the services of Employee.
B. CAUSE. The Company may at any time terminate Employee's employment
for Cause. For purposes of this Agreement, "cause" shall mean that the Company,
acting in good faith based upon the information then known to the Company,
determines that Employee has engaged in or committed: willful misconduct; gross
negligence; theft, fraud or other illegal conduct; refusal or unwillingness to
perform his duties; sexual harassment; conduct which reflects adversely upon, or
making any remarks disparaging of, the Company, its Board, officers, directors,
advisors or employees or its affiliates or subsidiaries; insubordination; any
willful act that is likely to and which does in fact have the effect of injuring
the reputation, business or a business relationship of the Company; violation of
any fiduciary duty; violation of any duty of loyalty; and breach of any term of
this Agreement.
C. OTHER THAN CAUSE OR DEATH OR DISABILITY. The Company may terminate
Employee's employment at any time, with or without cause, upon [6 months']
written notice.
D. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
1. DEATH OR DISABILITY. If Employee's employment is terminated by
reason of Employee's Death or Disability, this Agreement shall terminate without
further obligations to Employee or his/her legal representatives under this
Agreement, other than for (a) payment of the sum of (i) employee's annual base
salary through the date of termination to the extent not heretofore paid and
(ii) any compensation previously deferred by Employee (together with any accrued
interest or earnings thereon) and any accrued vacation pay, in each case to the
extent not theretofore paid (the sum of the amounts described in clauses (i) and
(ii) shall be hereinafter referred to as the "Accrued Obligations"), which shall
be paid to Employee or his estate or beneficiary, as applicable, in a lump sum
in cash within 30 days of the date of termination; and (b) payment to Employee
or his estate or beneficiary, as applicable, any amounts due pursuant to the
terms of any applicable welfare benefit plans.
2. CAUSE. If Employee's employment is terminated by the Company for
Cause, this Agreement shall terminate without further obligations to Employee
other than for the timely payment of Accrued Obligations. If it is subsequently
determined that the Company did
3
<PAGE>
not have Cause for termination under this Section IV-D-2, then the Company's
decision to terminate shall be deemed to have been made under Section IV-D-3
and the amounts payable thereunder shall be the only amounts Employee may
receive for his termination.
3. OTHER THAN CAUSE OF DEATH OR DISABILITY. If the Company
terminates Employee's employment for other than Cause or Death or Disability,
this Agreement shall terminate without further obligations to Employee other
than for the timely payment of Accrued Obligations.
4. EXCLUSIVE REMEDY. Employee agrees that the payments contemplated
by this Agreement shall constitute the exclusive and sole remedy for any
termination of his employment and Employee covenants not to assert or pursue any
other remedies, at law or in equity, with respect to any termination of
employment.
V. ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement, its
enforcement or interpretation, or because of an alleged breach, default, or
misrepresentation in connection with any of its provisions, shall be submitted
to arbitration, to be held in Los Angeles County, California in accordance with
California Civil Procedures Code Sections 1282-1284.2. In the event either
party institutes arbitration under this Agreement, the party prevailing in any
such litigation shall be entitled, in addition to all other relief, to
reasonable attorneys' fees relating to such arbitration. The non-prevailing
party shall be responsible for all costs of the arbitration, including but not
limited to, the arbitration fees, court reporter fees, etc.
VI. RENEWAL.
This Agreement shall be automatically renewed for one additional year each
year after the expiration of the stated term, unless one party or the other
gives notice, in writing, at least (30) days prior to the expiration of this
Agreement (or any renewal) of their desire to terminate the Agreement or modify
its terms.
VII. ANTI-SOLICITATION.
Employee promises and agrees that during the term of this Agreement or
renewal in accordance with Section VI above, he will not influence or attempt to
influence customers of the Company or any of its present or future subsidiaries
or affiliates, either directly or indirectly to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary or affiliate of the Company.
VIII. JOINING FORMER COMPANY EMPLOYEES.
4
<PAGE>
Employee promises and agrees that for one year following his termination of
employment other than pursuant to Section IV-C above or Disability above or
expiration of this Agreement, he will not enter business or work with any person
who was employed with the Company, and who earned annually $25,000 or more as a
Company employee during the last six months of his or her won employment, in any
business, partnership, firm, corporation or other entity then in competition
with the business of the Company or any subsidiary or affiliate of the Company.
IX. SOLICITING EMPLOYEES.
Employee promises and agrees that he will not, for a period of one year
following termination of his accordance with Section VI above, directly or
indirectly solicit any of the Company employees who earned annually $25,000 or
more as a Company employee during the last six months of his or her own
employment to work for any business, individual, partnership, firm, corporation,
or other entity then in competition with the business of the Company or any
subsidiary or affiliate of the Company.
X. CONFIDENTIAL INFORMATION.
A. Employee, in the performance of Employee's duties on behalf of the
Company, shall have access to, receive and be entrusted with confidential
information, including but in no way limited to development, marketing,
organizational, financial, management, administrative, production,
distribution and sales information, data, specifications and processes
presently owned or at any time in the future developed, by the Company or its
agents or consultants, or used presently or at any time in the future in the
course of its business that is not otherwise part of the public domain
(collectively, the "confidential Material"). All such confidential Material
is considered secret and will be available to Employee in confidence. Except
in the performance of duties on behalf of the Company, Employee shall
disclose or use any such Confidential Material, unless such Confidential
Material ceases (through no fault of Employee's) to be confidential because
it has become party of the public domain. All records, files, drawings,
documents, equipment and other tangible items, wherever located, relating in
any way to the Confidential Material or otherwise to the Company's business,
which Employee prepares, uses or encounters, shall be and remain the
Company's sole and exclusive property and shall be included in the
Confidential Material. Upon termination of this Agreement by any means, or
whenever requested by the Company, Employee shall promptly deliver to the
Company any and all of the Confidential Material, not previously delivered to
the Company, that may be or at any previous time has been in Employee's
possession or under Employee's control.
B. Employee hereby acknowledges that the sale or unauthorized use or
disclosure of any of the Company's Confidential Material by any means whatsoever
and any time before, during or after Employee's employment with the Company
shall constitute unfair Competition. Employee agrees that Employee shall not
engage in Unfair Competition either during the time employed by the Company or
any time thereafter.
5
<PAGE>
XI. SUCCESSORS.
A. This Agreement is personal to Employee and shall not, without the
prior written consent of the Company, be assignable by Employee.
B. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and any such successor or assignee shall
be deemed substituted for the Company under the terms of this Agreement for all
purposes. As used herein, "successor" and "assignee" shall include any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock of the
Company or to which the Company assigns this Agreement by operation of law or
otherwise.
XII. WAIVER.
No waiver of any breach of any term or provisions of this Agreement shall
be construed to be, nor shall be, a waiver of any other breach of this
agreement. No waiver shall be binding unless in writing and signed by the party
waiving the breach.
XIII. MODIFICATION.
This Agreement may not be amended or modified other than by a written
agreement executed by Employee and an officer of the Company following
authorization by the Board of Directors of the Company.
XIV. SAVING CLAUSE.
If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not effect other provisions or applications of the
Agreement which can be given effect without the invalid provisions or
applications and to this end the provisions of this Agreement are declared to be
severable.
XV. COMPLETE AGREEMENT.
This Agreement constitutes and contains the entire agreement and final
understanding concerning Employee's employment with the Company and the other
subject matters addressed herein between the parties. It is extended by the
parties as a complete and exclusive statement of the terms of their agreement.
It supersedes and replaces all prior negotiations and all agreements proposed or
otherwise, whether written or oral, concerning the subject matter hereof. Any
representation, promise or agreement, not specifically included in this
Agreement shall not be binding upon or enforceable against either party. This
is a fully integrated agreement.
XVI. GOVERNING LAW.
6
<PAGE>
This Agreement shall be deemed to have been executed and delivered within
the State of California, and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with and governed by, by the laws
of the State of California without regard to principles of conflict of laws.
XVII. CONSTRUCTION.
Each party has cooperated in the drafting and preparation of this
Agreement. Hence, in any construction to be made of this Agreement, the same
shall not be construed against any party on the basis that the party was the
drafter. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
XVIII. COMMUNICATIONS.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly give if delivered or if mailed
by registered or certified mail, postage prepaid, addressed to Employee at 20110
Roundtree Court, Walnut, CA 91789, or addressed to the Company at 1304 John Reed
Court, City of Industry, CA 91745. Either party may change the address at which
notice shall be given by written notice given in the above manner.
XIX. EXECUTION.
This Agreement is being executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Photographic copies of such signed counterparts may be
used in lieu of the original for any purpose.
XX. LEGAL COUNSEL.
Employee and the Company recognize that this is a legally binding contract
and acknowledge and agree that they have had the opportunity to consult with
legal counsel of their choice.
In witness whereof, the parties hereto have executed this Agreement as of
the date first above written.
Data Net International
By /s/ MAX TOGHRAIE /s/ JAMES UNG
---------------------------- -------------------------------
Its Chief Executive Officer "Employee"
7
<PAGE>
AMENDMENT NO. 1 TO EMPLOYMENT AGREEMENT
This Amendment No. 1 (the "Amendment"), dated as of July 1, 1997, to that
certain Employment Agreement (the "Employment Agreement") by and between , Data
Net International, Inc. (the "Company") and James Ung ("Employee"), dated as of
the 1st day of May, 1997, with reference to the following facts:
RECITALS
WHEREAS, Employee is currently serving as President of the Company pursuant
to the terms and conditions of the Employment Agreement;
WHEREAS, Employee and the Company have orally agreed to amend the
Employment Agreement;
WHEREAS, Employee and the Company wish to memorialize the terms and
conditions of the Amendment.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Company and Employee agree as
set forth below.
1. Sections III(A), III(B), IV(C) and IV(D)(3) of the Employment Agreement
shall be deleted in their entirety.
2. The following provisions shall be inserted as Sections III(A) and (B) to
the Employment Agreement:
III. COMPENSATION.
A. SALARY. The Company will pay to Employee a base salary at the
annual rate of $144,000.00 up to and including September 30, 1997 and thereafter
at the annual rate of $192,000.00 during the remaining term of his employment
pursuant to the Employment Agreement. Such salary shall be earned monthly and
shall be payable in periodic installments no less frequently than monthly in
accordance with the Company's customary practices. The Company may in its
discretion increase Employee's salary pursuant to this Paragraph III(A), but it
may not reduce it during the term of the Employment Agreement. If Employee
accepts such increase, the Employment Agreement will continue in full force and
effect whether or not it has been amended to reflect such increase.
B. STOCK OPTIONS. The Company shall grant to Employee, concurrent
with the execution of this Amendment, options to purchase 9,000 shares of the
Company's Common Stock (the "Options"), exercisable at a per share exercise
price of $29.55 per share, subject to the vesting requirements set forth in the
Option Certificate to be signed by Employee, a copy of which is attached hereto
and made a part hereof.
<PAGE>
3. The following provisions shall be inserted as Sections IV(C) and (D)(3) to
the Employment Agreement:
IV. TERMINATION.
C. OTHER THAN CAUSE OR DEATH OR DISABILITY. The Company may
terminate Employee's employment other than for the reasons set forth in
Paragraphs IV(A) and (B) of the Employment Agreement upon written notice.
D. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
3. If the Company terminates Employee's employment for other
than Cause or Death or Disability, it shall continue to pay to Employee, in
installments in the same manner and at the same times the Company pays base
salaries to other executive officers of the Company, Employee's then current
base salary pursuant to Paragraph III(A) of the Employment Agreement, as
amended, for the lesser of (i) six (6) months, commencing on the date of notice
of termination pursuant to this Paragraph IV(C) or (ii) the remainder of the
term of this Agreement (the "Severance Period"), and the Company shall continue
to provide Executive benefits pursuant to Paragraph III(C) of this Agreement
during the Severance Period until comparable benefits are obtained by Employee
from another employer.
4. Other than the deletion and addition of the terms set forth in paragraphs
1, 2 and 3 above, all terms of the Employment Agreement shall remain in full
force and effect.
5. This Amendment has been negotiated and entered into in the State of
California and shall be construed in accordance with the laws of the State of
California.
IN WITNESS WHEREOF, the Company has caused this Amendment to be executed on
its behalf by its duly authorized officer and Employee has executed the same as
of the day and year first above written.
Data Net International, Inc.
By /s/ MAX TOGHRAIE /s/ JAMES UNG
---------------------------- -----------------------------
Its Chief Executive Officer Employee
<PAGE>
OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Data Net International, Inc., a California
corporation (the "COMPANY"), has granted to the person named below ("OPTIONEE")
a non-statutory stock option (the "OPTION") to purchase shares of the Company's
Common Stock (the "SHARES") under its 1997 Stock Plan and upon the terms and
conditions as follows:
Name of Optionee: James Ung
---------------------------------------
Address of Optionee: 20110 E. Roundtree Court
---------------------------------------
Walnut, CA 91789
---------------------------------------
Number of Shares: 9,000
---------------------------------------
Option Exercise Price: $ 29.55 per share
-------
Date of Grant: July 1, 1997
--------------
Option Expiration Date: July 1, 2007
--------------
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
One quarter (1/4) of the options shall vest on July 1, 1997. The remaining
three quarters (3/4) shall vest on the first day of each calendar month for
forty seven (47) months thereafter in forty seven (47) equal installments of
one-forty eighth (1/48) of the remaining shares rounded down to the nearest
whole share, and all remaining shares shall vest on July 1, 2001; provided,
however, that if the employment of Optionee pursuant to that certain Employment
Agreement between Optionee and the Company dated May 1, 1997 is terminated
without cause by the Company, then all unvested shares shall vest immediately
upon such termination.
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is
attached to this Option Certificate (the "CERTIFICATE") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the
Option Agreement, not by this summary. The Company strongly suggests that
you carefully review the full Option Agreement prior to signing this
Certificate or exercising the Option.
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<PAGE>
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed IN WRITING, the Company
reserves the right to terminate any employee at any time, with or without
cause. See Section 5(d) of the Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option
which had vested prior to the date of death or disability. In all other
cases, the Option terminates 30 days after the date of termination of
employment, and is exercisable during such time period as to the portion of
the Option which had vested prior to the date of termination of employment;
PROVIDED, HOWEVER, if you are terminated "for cause," the Option will
terminate 5 days after the date of termination of your employment and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment. See Section 5 of the
Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold,
transferred, assigned or otherwise disposed of to any other person, except on
your death. See Section 15(d) of the Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the Option Agreement.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any
of your Shares without the prior written consent of the Company or its
underwriters for a period of up to 180 days after the effective date of the
offering. See Section 6(a) of the Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the Option Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to options or stock which may
otherwise have been promised to you. See Section 8 of the Option Agreement.
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<PAGE>
WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the Option Agreement.
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<PAGE>
AGREEMENT
Data Net International, Inc., a California corporation, and Optionee each
hereby agrees to be bound by all of the terms and conditions of the Stock Option
Agreement (Non-Statutory Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED:
----------------------
DATA NET INTERNATIONAL, INC.
By:
------------------------------------
Its:
-----------------------------------
OPTIONEE
---------------------------------------
Name:
---------------------------------------
(Please print your name exactly as you wish it
to appear on any stock certificates issued to you
upon exercise of the Option)
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<PAGE>
ANNEX I
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Data Net International, Inc., a California
corporation (the "COMPANY"), and the person named in the Certificate
("OPTIONEE").
Pursuant to the Data Net International, Inc. Amended and Restated 1997
Stock Plan (the "PLAN"), the Board of Directors of the Company (the "BOARD")
has authorized the grant to Optionee of a non-statutory stock option to
purchase shares of the Company's Common Stock, no par value (the "COMMON
STOCK"), upon the terms and subject to the conditions set forth in this
Option Agreement and in the Plan.
The Company and Optionee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Optionee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this
Option Agreement and the Plan, to purchase all or any portion of that number
of shares of the Common Stock (the "SHARES") set forth in the Certificate at
the Option exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner
terminated as provided herein. In no event shall the Option be exercisable
after the expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part)
upon and after the dates set forth under the caption "Exercise Schedule" in
the Certificate. The installments shall be cumulative; i.e., the Option may
be exercised, as to any or all Shares covered by an installment, at any time
or times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
<PAGE>
(b) Notwithstanding anything to the contrary contained in this
Option Agreement, the Option may not be exercised, in whole or in part,
unless and until any then-applicable requirements of all federal, state and
local laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares
then being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either
(1) in cash, or (2) with the consent of the Board (which may be withheld in
its absolute discretion), by (i) delivery to the Company of other shares of
Common Stock with an aggregate Fair Market Value equal to the total Exercise
Price of the Purchased Shares, (ii) according to a deferred payment or other
arrangement (which may include without limiting the generality of the
foregoing, the use of other shares of Common Stock) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to the
terms of this Option Agreement, or (iii) in any other form of legal
consideration that may be acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in
such form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of
interest necessary to avoid the imputation of interest, under the applicable
provision of the Internal Revenue Code of 1986, as amended (the "CODE"), and
Treasury Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair
Market Value of any fraction or fractions of a share exercised by Optionee.
"FAIR MARKET VALUE" shall be determined as follows: (1) if the Common Stock
is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq
System (but not on the Nasdaq
2
<PAGE>
National Market) or is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a share of Common
Stock shall be the mean between the bid and asked prices for the Common Stock
on the last market trading day prior to the day of determination, as reported
in the Wall Street Journal or such other source as the Board deems reliable;
and (3) in the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
5. TERMINATION OF SERVICES.
(a) If Optionee shall cease to be an officer, director, consultant
or employee of the Company or any "Affiliate" of the Company (as that term is
defined in Rule 501(b) of the Rules and Regulations under the Securities Act
of 1933, as amended (the "1933 ACT")) for any reason other than death or
permanent disability (a "TERMINATING EVENT"), Optionee shall have the right,
subject to the provisions of Section 5(c) below, to exercise the Option at
any time following such Terminating Event until the earlier to occur of (1)
30 days following the date of such Terminating Event and (2) the Expiration
Date. The Option may be exercised following a Terminating Event only to the
extent exercisable as of the date of the Terminating Event. To the extent
unexercised at the end of the period referred to above, the Option shall
terminate. The Board, in its sole and absolute discretion, shall determine
whether or not authorized leaves of absence shall constitute termination of
employment for purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Optionee shall cease to be an officer, director, consultant or
employee of the Company or any Affiliate, then Optionee, Optionee's executors
or administrators or any person or persons acquiring the Option directly from
Optionee by bequest or inheritance, shall have the right to exercise the
Option at any time following such Special Terminating Event until the earlier
to occur of (1) six months following the date of such Special Terminating
Event and (2) the Expiration Date. The Option may be exercised following a
Special Terminating Event only to the extent exercisable at the date of the
Special Terminating Event. To the extent unexercised at the end of the
period referred to above, the Option shall terminate. For purposes of this
Option Agreement, "disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code. Optionee shall not be considered
permanently disabled unless he furnishes proof of such disability in such
form and manner, and at such times, as the Board may from time to time
require.
(c) If Optionee's employment shall be terminated "for cause" by the
Company or any Affiliate, Optionee shall have the right to exercise the
Option at any time following such Terminating Event until the earlier to
occur of (1) 5 days following the date of such Terminating Event and (2) the
Expiration Date. For purposes of this Option Agreement, "for cause" shall
mean:
(1) with respect to employees of the Company or any Affiliate
the following to the extent it results in substantial harm to the Company or
any Affiliate or could reasonably be expected to result in substantial harm
to the Company or any Affiliate:
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(i) the willful failure or refusal by Optionee to perform
his duties to the Company or any Affiliate; or
(ii) Optionee's willful disobedience of any orders or
directives of the Board of Directors of the Company or any Affiliate or any
officers thereof acting under the authority thereof or Optionee's deliberate
interference with the compliance by other employees of the Company or any
Affiliate with any such orders or directives; or
(iii) the willful failure or refusal of Optionee to abide
by or comply with the written policies, standard procedures or regulations of
the Company or any Affiliate; or
(iv) any willful or continued act or course of conduct by
Optionee which the Board in good faith determines might reasonably be
expected to have a material detrimental effect on the Company or any
Affiliate or their respective business, operations, affairs or financial
position; or
(v) the committing by the Optionee of any fraud, theft,
embezzlement or other dishonest act against the Company or any Affiliate; or
(vi) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that Optionee is not competent to
perform his duties of employment; and
(2) with respect to consultants, any material breach of their
consulting agreement with the Company or any Affiliate.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon Optionee any right to continue in the service and/or employ
of the Company or any Affiliate or shall affect the right of the Company or
any Affiliate to terminate the relationship or employment of Optionee, with
or without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Company's initial public
offering, Optionee shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to any Purchased Shares without the prior written
consent of the Company or its underwriters, for such period of time from and
after the effective date of such registration statement as may be requested
by the Company or such underwriters; PROVIDED, HOWEVER, that in no event
shall such period exceed 180 days. This Section 6(a)(1) shall only remain in
effect for the two-year period
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immediately following the effective date of the Company's initial public
offering and shall thereafter terminate and cease to be in force or effect.
Optionee agrees to execute and deliver to the Company such further documents
or instruments as the Company reasonably determines to be necessary or
appropriate to effect the provisions of this Section 6(a).
(2) In the event of any stock dividend, stock split,
recapitalization or other transaction resulting in an adjustment under
Section 7 hereof, then any new, substituted or additional securities or other
property which is by reason of such transaction distributed with respect to
or in exchange for the Purchased Shares shall be immediately subject to the
provisions of this Section 6(a), to the same extent the Purchased Share are
at such time covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the
Company may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. In the event that the issuance of
the Purchased Shares shall not be registered under the 1933 Act, none of the
Purchased Shares shall be sold, transferred, assigned, pledged, hypothecated
or otherwise disposed of ("TRANSFERRED") (with or without consideration), and
the Company shall not be required to register any such sale, transfer,
assignment, pledge, hypothecation or other disposition ("TRANSFER") and the
Company may instruct its transfer agent not to register any such Transfer,
unless and until one of the following events shall have occurred:
(1) The Purchased Shares are Transferred pursuant to and in
conformity with (i) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933
Act, and (ii) the qualification and/or registration requirements under any
applicable securities laws of any state of the United States; or
(2) Optionee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
the Company's counsel so that upon the Company's request, the Company's
counsel is able to, and actually prepares and delivers to the Company a
written opinion that the proposed Transfer (i) is exempt from registration
under the 1933 Act as then in effect, and the Rules and Regulations of the
Commission thereunder, and (ii) is exempt from qualification and/or
registration under any applicable state securities laws. The Company shall
bear all reasonable costs of preparing such opinion.
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which
is not in full compliance with this Section 6 shall be null and void AB INITIO,
and of no force or effect.
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7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is
made in the Common Stock, without receipt of consideration by the Company or
its shareholders (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the Company or its shareholders), the Option
will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to the Option. Such adjustments shall be
made by the Board, the determination of which shall be final, binding and
conclusive. The conversion of any convertible securities of the Company
shall not be treated as a change "without the receipt of consideration by the
Company or its shareholders."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the "surviving corporation" (as defined below);
or (3) a merger in which the Company is the surviving corporation but the
shares of the Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, at the sole discretion of the Board and
to the extent permitted by applicable law, the Option shall (i) terminate
upon such event and may be exercised prior thereto to the extent the Option
is then exercisable or (ii) continue in full force and effect and, if
applicable, the surviving corporation or an Affiliate of such surviving
corporation shall assume the Option and/or shall substitute a similar option
or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and
its determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Optionee shall have no other rights upon the occurrence of any of the
events described in this Section 7.
(e) The grant of the Option shall not affect in any way the right
or power of the Company to make 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.
(f) The determination as to which party is a "surviving
corporation" in a merger or consolidation shall be made on the basis of the
relative equity interests of the shareholders in the corporation existing
after the merger or consolidation, as follows: If following any merger or
consolidation the holders of outstanding voting securities of the Company
prior to the merger or consolidation own equity securities possessing more
than 50% of the voting power of the corporation existing after the merger or
consolidation, then for purposes of the Option
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Agreement, the Company shall be the surviving corporation. In all other
cases, the Company shall not be the surviving corporation.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and agrees
that neither the Company nor any other person or entity is under any
obligation to sell or transfer to Optionee any option or equity security of
the Company, other than the Shares subject to the Option and any other right
or option to purchase Common Stock which was previously granted in writing to
Optionee by the Board. By signing this Option Agreement, Optionee
specifically waives all rights which he or she may have had prior to the date
of this Option Agreement to receive any option or equity security of the
Company.
9. INVESTMENT INTENT.
Optionee represents and agrees that if he or she exercises the
Option in whole or in part, and if at the time of such exercise the Plan
and/or the Purchased Shares have not been registered under the 1933 Act, he
or she will acquire the Shares upon such exercise for the purpose of
investment and not with a view to the distribution of such Shares, and that
upon each exercise of the Option he or she will furnish to the Company a
written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions
(if any) as the Company may deem advisable under the rules, regulations and
other requirements of the Commission, any stock exchange upon which the
Common Stock is then listed and any applicable federal or state securities
laws, and the Company may cause a legend or legends to be put on such
certificates to make appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Optionee
shall have no rights as a shareholder with respect to the Shares until the
date of the issuance to Optionee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this
Option Agreement, 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.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Optionee) may modify, extend or renew the Option
or accept the surrender of, and
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authorize the grant of a new option in substitution for, the Option (to
the extent not previously exercised). No modification of the Option shall be
made which, without the consent of Optionee, would alter or impair any rights
of the Optionee under the Option.
13. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the
Optionee agree to remit, at the time of such delivery or at such later date
as the Company may determine, an amount sufficient to satisfy all federal,
state and local withholding tax requirements relating thereto, and Optionee
agrees to take such other action required by the Company to satisfy such
withholding requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the
Board, Optionee may elect to satisfy his or her obligations under Section
13(a) above by (1) directing the Company to withhold a portion of the Shares
otherwise deliverable (or to tender back to the Company a portion of the
Shares issued where the Optionee (a "SECTION 16(B) RECIPIENT") is required to
report the ownership of the Shares pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, and has not made an election
under Section 83(b) of the Code (a "WITHHOLDING RIGHT")); or (2) tendering
other shares of the Common Stock of the Company which are already owned by
Optionee which in all cases have a Fair Market Value (as determined in
accordance with the provisions of Section 4 hereof) on the date as of which
the amount of tax to be withheld is determined (the "TAX DATE") equal to the
amount of taxes to be paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Optionee must deliver to the Company a written notice
of election (the "ELECTION") and specify whether all or a stated percentage
of the applicable taxes will be paid in accordance with Section 13(b) above
and whether the amount so paid shall be made in accordance with the "flat"
withholding rates for supplemental wages or as determined in accordance with
Optionee's form W-4 (or comparable state or local form);
(2) unless disapproved by the Board (excluding the Optionee)
as provided in subsection (3) below, the Election once made will be
irrevocable;
(3) no Election is valid unless the Board (excluding the
Optionee) has the right and power, in its sole discretion, with or without
cause or reason therefor, to consent to the Election, to refuse to consent to
the Election, or to disapprove the Election; and if the Board has not
consented to the Election on or prior to the Tax Date, the Election will be
deemed approved; and
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(4) if the Optionee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even
if the Option to which such Withholding Right relates has been granted prior
to such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual
summary statements of sales and earnings of the Company and ending on the
12th business day following such date or at least six calendar months or more
prior to the Tax Date.
14. CHARACTER OF OPTION.
The Option is not intended to qualify as an "incentive stock option"
as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Data Net International, Inc.
1304 John Reed Court
City of Industry, CA 91745
(2) If to Optionee, to the address set
forth on the Certificate,
or at such other address or addresses as may have been furnished by such
either party in writing to the other party hereto. Any such notice, request,
demand or other communication shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail by first-class
certified mail, return receipt requested, postage prepaid, addressed as
aforesaid, or (ii) if given by any other means, when delivered at the address
specified in this subsection (b).
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(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company
may at any time transfer and assign its rights and delegate its obligations
under this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Optionee may not Transfer the Option
except by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of Optionee only by Optionee or by his or her
guardian or legal representative in the case of a disability, and upon
Optionee's death only by his or her Estate or by any person who acquired the
Option by bequest or inheritance or by reason of the death of Optionee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE
EXTENT PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein
by reference, and it is intended that this Option Agreement shall be
interpreted in a manner to comply therewith. Any provision of this Option
Agreement inconsistent with the Plan shall be superseded and governed by the
Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"COMMITTEE"). If administration is delegated to a Committee, the Committee
shall have, in connection with the this Option Agreement, the powers
theretofore possessed by the Board (and references in this Option Agreement
to the Board shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not
constitute a part of this Option Agreement for any other purpose. Except as
specifically provided herein, neither this Option Agreement nor any right
pursuant hereto or interest herein shall be assignable by any of the parties
hereto without the prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
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Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Data Net International, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement
(Non-Statutory Stock Option), hereby irrevocably elects to exercise the
purchase rights represented by the Option and to purchase thereunder _______*
shares of Common Stock of Data Net International, Inc. (the "COMPANY"), and
herewith encloses payment of $__________ and/or _________ shares of the
Company's Common Stock in full payment of the purchase price of such shares
being purchased.
Dated:
---------------------------------
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Option)
---------------------------------------
(Please Print Name)
---------------------------------------
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
EXHIBIT 10.3
EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into by and
between Cumetrix Data Systems Corp. (the "Company") and Mei Yoon Yang
("Employee"), as of the 1st day of July, 1997.
I. EMPLOYMENT.
The Company hereby employs Employee and Employee hereby accepts such
employment, upon the terms and conditions hereinafter set forth, from July 1,
1997, to and including June 30, 2002. This Agreement is subject to renewal
only as set forth in Section VI below.
II. DUTIES.
A. Employee shall serve during the course of her employment as
Secretary and Treasurer of the Company, and shall have such other duties and
responsibilities as the Chief Executive Officer of the Company shall
determine from time to time.
B. Employee agrees to devote substantially all of her time, energy and
ability to the business of the Company. Nothing herein shall prevent
Employee, upon approval of the Board of Directors of the Company, from
serving as a director or trustee of other corporations or businesses which
are not in competition with the business of the Company as set forth in
Section IV hereof or in competition with any present or future affiliate of
the Company. Nothing herein shall prevent Employee from investing in real
estate for her own account or from becoming a partner or a stockholder in any
corporation, partnership or other venture not in competition with the
business of the Company as set forth in Section IV hereof or in competition
with any present or future affiliate of the Company.
C. During the term of this Agreement, Employee shall report to the
Chief Executive Officer of the Company or his designee.
III. COMPENSATION.
A. The Company will pay to Employee a base salary at the annual rate of
$40,000.00 up to and including September 30, 1997 and thereafter at the
annual rate of $72,000.00 during the remaining term of this Agreement. Such
salary shall be earned monthly and shall be payable in periodic installments
no less frequently than monthly in accordance with the Company's customary
practices. Amounts payable shall be reduced by standard withholding and other
authorized deductions. The Company may in its discretion increase Employee's
salary but it may not reduce it during the term of this agreement.
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B. STOCK OPTIONS. The Company shall grant to Employee, concurrent with
the execution of this Agreement, options to purchase 2,500 shares of the
Company's Common Stock (the "Options"), exercisable at a per share exercise
price of $29.55 per share, subject to the vesting requirements set forth in
the Option Certificate to be signed by Employee, a copy of which is attached
hereto and made a part hereof.
C. WELFARE BENEFIT PLANS. Employee and/or her family, as the case may
be, shall be eligible for participation in and shall receive all benefits
under welfare benefit plans, practices, policies and programs provided by the
Company (including, without limitation, medical, prescription, dental,
disability, salary continuance, employee life, group life, accidental death
and travel accident insurance plans and programs) to the extent applicable
generally to other peer executives of the Company. Employee will be
compensated for up to ten sick days per year.
D. EXPENSES. Employee shall have access to an expense account in the
sum of $20,400.00 per year. Employee shall be entitled to withdraw from the
expense account to pay for all reasonable employment expenses incurred by her
in accordance with the policies, practices and procedures as in effect
generally with respect to other peer executives of the Company.
E. FRINGE BENEFITS. Employee shall be entitled to fringe benefits in
accordance with the plans, practices, programs and policies as in effect
generally with respect to other peer executives of the Company.
F. VACATION. Employee shall be entitled to two weeks paid vacation per
year, in accordance with the plans, policies, programs and practices as in
effect generally with respect to other peer executives of this Company.
G. CAR ALLOWANCE. Employee shall be entitled to a car allowance in the
sum of $500.00 per month.
H. The Company reserves the right to modify, suspend or discontinue any
and all of the above plans, practices, policies and programs at any time
without recourse by Employee so long as such action is taken generally with
respect to other similarly situated peer executives and does not single out
Employee.
IV. TERMINATION.
A. DEATH OR DISABILITY. Employee's employment shall terminate
automatically upon Employee's death. If the Company determines in good faith
that the Disability of Employee has occurred (pursuant to the definition of
Disability set forth below), it may give to Employee written notice in
accordance with Section XIX of its intention to terminate effective on the
30th day after receipt of such notice by Employee, provided that, within the
30 days after such receipt, Employee shall not have returned to full-time
performance of her duties. For purposes of this Agreement, "disability"
shall mean a physical or mental impairment which substantially limits a
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major life activity of Employee and which renders Employee unable to perform
the essential functions of her position, even with reasonable accommodation
which does not impose an undue hardship on the Company. The Company reserves
the right, in good faith, to make the determination of disability under this
Agreement based upon information supplied by Employee and/or her medical
personnel, as well as information from medical personnel (or others) selected
by the Company or its insurers. "Incapacity" as used herein shall be limited
only to such Disability which substantially prevents the Company from
availing itself of the services of Employee.
B. CAUSE. The Company may at any time terminate Employee's
employment for Cause. For purposes of this Agreement, "cause" shall mean
that the Company, acting in good faith based upon the information then known
to the Company, determines that Employee has engaged in or committed:
willful misconduct; gross negligence; theft, fraud or other illegal conduct;
refusal or unwillingness to perform her duties; sexual harassment; conduct
which reflects adversely upon, or making any remarks disparaging of, the
Company, its Board officers, directors, advisors or employees or its
affiliates or subsidiaries; insubordination; any willful act that is likely
to and which does in fact have the effect of injuring the reputation,
business or a business relationship of the Company; violation of any
fiduciary duty; violation of any duty of loyalty; and breach of any term of
this Agreement.
C. OTHER THAN CAUSE OR DEATH OR DISABILITY. The Company may
terminate Employee's employment at any time, with or without cause, upon
written notice.
D. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
1. DEATH OR DISABILITY. If Employee's employment is terminated
by reason of Employee's Death or Disability, this Agreement shall terminate
without further obligations to Employee or her/her legal representatives
under this Agreement, other than for (a) payment of the sum of (i) employees
annual base salary through the date of termination to the extent not
heretofore paid and (ii) any compensation previously deferred by Employee
(together with any accrued interest or earnings thereon) and any accrued
vacation pay, in each case to the extent not theretofore paid (the sum of the
amounts described in clauses (i) and (ii) shall be hereinafter referred to as
the "Accrued Obligations"), which shall be paid to Employee or her estate or
beneficiary, as applicable, in a lump sum in cash within 30 days of the date
of termination; and (b) payment to Employee or her estate or beneficiary, as
applicable, any amounts due pursuant to the terms of any applicable welfare
benefit plans.
2. CAUSE. If Employee's employment is terminated by the Company
for Cause, this Agreement shall terminate without further obligations to
Employee other than for the timely payment of Accrued Obligations. If it is
subsequently determined that the Company did not have Cause for termination
under this Section IV(D)(2), then the Company's decision to terminate shall
be deemed to have been made under Section IV(D)(3) and the amounts payable
thereunder shall be the only amounts Employee may receive for her termination.
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3. OTHER THAN CAUSE OR DEATH OR DISABILITY. If the Company
terminates Employee's employment for other than Cause of Death or Disability,
this Agreement shall terminate without further obligations to Employee other
than for the timely payment of Accrued Obligations.
4. EXCLUSIVE REMEDY. Employee agrees that the payments
contemplated by this Agreement shall constitute the exclusive and sole remedy
for any termination of her employment and Employee covenants not to assert or
pursue any other remedies, at law or in equity, with respect to any
termination of employment.
V. ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement,
its enforcement or interpretation, or because of an alleged breach, default
or misrepresentation in connection with any of its provisions, shall be
submitted to arbitration, to be held in Los Angeles County, California in
accordance with California Civil Procedures Code Sections 1282-1284.2. In
the event either party institutes arbitration under this Agreement, the party
prevailing in any such litigation shall be entitled, in addition to all other
relief, to reasonable attorneys' fees relating to such arbitration. The non
prevailing party shall be responsible for all costs of the arbitration,
including but not limited to, the arbitration fees, court reporter fees, etc.
VI. RENEWAL.
This Agreement shall be automatically renewed for consecutive periods
ofone year, each after the expiration of the stated term, unless one party or
the other gives notice, in writing, at least thirty (30) days prior to the
expiration of this Agreement (or any renewal) of their desire to terminate
the Agreement or modify its terms.
VII. ANTI-SOLICITATION.
Employee promises and agrees that during the term of this Agreement or
renewal in accordance with Section VI above, she will not influence or
attempt to influence customers of the Company or any of its present or future
subsidiaries or affiliates, either directly or indirectly to divert their
business to any individual, partnership, firm, corporation or other entity
then in competition with the business of the Company, or any subsidiary or
affiliate of the Company.
VIII. JOINING FORMER COMPANY EMPLOYEES.
Employee promises and agrees that for one year following her termination
of employment, other than pursuant to Section IV(A) or (C) above or
expiration of this Agreement, she will not enter business or work with any
person who was employed with the Company, and who earned annually $25,000 or
more as a Company employee during the last six months of her or her own
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employment, in any business, partnership, firm, corporation or other entity
then in competition with the business of the Company or any subsidiary or
affiliate of the Company.
IX. SOLICITING EMPLOYEES.
Employee promises and agrees that she will not, for a period of one year
following termination of her employment in accordance with Section VI above,
directly or indirectly solicit any of the Company employees who earned
annually $25,000 or more as a Company employee during the last six months of
her or her own employment to work for any business, individual, partnership,
firm, corporation, or other entity then in competition with the business of
the Company or any subsidiary or affiliate of the Company.
X. CONFIDENTIAL INFORMATION.
A. Employee, in the performance of Employee's duties on behalf of the
Company, shall have access to, receive and be entrusted with confidential
information, including but in no way limited to development, marketing,
organizational, financial, management, administrative, production,
distribution and sales information, data, specifications and processes
presently owned or at any time in the future developed, by the Company or its
agents or consultants, or used presently or at any time in the future in the
course of its business that is not otherwise part of the public domain
(collectively, the "Confidential Material"). All such Confidential Material
is considered secret and will be available to Employee in confidence. Except
in the performance of duties on behalf of the Company, Employee shall
disclose or use any such Confidential Material, unless such Confidential
Material ceases (through no fault of Employee's) to be confidential because
it has become part of the public domain. All records, files, drawings,
documents, equipment and other tangible items, wherever located, relating in
any way to the Confidential Material or otherwise to the Company's business,
which Employee prepares, uses or encounters, shall be and remain the
Company's sole and exclusive property and shall be included in the
Confidential Material. Upon termination of this Agreement by any means, or
whenever requested by the Company, Employee shall promptly deliver to the
Company any and all of the Confidential Material, not previously delivered to
the Company, that may be or at any previous time has been in Employee's
possession or under Employee's control.
B. Employee hereby acknowledges that the sale or unauthorized use or
disclosure of any of the Company's Confidential Material by any means
whatsoever and any time before, during or after Employee's employment with
the Company shall constitute unfair Competition. Employee agrees that
Employee shall not engage in Unfair Competition either during the time
employed by the Company or any time thereafter.
XI. SUCCESSORS.
A. This Agreement is personal to Employee and shall not, without the
prior written consent of the Company, be assignable by Employee.
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B. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and any such successor or assignee
shall be deemed substituted for the Company under the terms of this Agreement
for all purposes. As used herein, "successor" and "assignee" shall include
any person, firm, corporation or other business entity which at any time,
whether by purchase, merger or otherwise, directly or indirectly acquires the
stock of the Company or to which the Company assigns this Agreement by
operation of law or otherwise.
XII. WAIVER.
No waiver of any breach of any term or provision of this Agreement shall
be construed to be, nor shall be, a waiver of any other breach of this
agreement. No waiver shall be binding unless in writing and signed by the
party waiving the breach.
XIII. MODIFICATION.
This Agreement may not be amended or modified other than by a written
agreement executed by Employee and an officer of the Company following
authorization by the Board of Directors of the Company.
XIV. SAVING CLAUSE.
If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not effect other provisions or applications of
the Agreement which can be given effect without invalid provisions or
application and to this end the provisions of this Agreement are declared to
be severable.
XV. COMPLETE AGREEMENT.
This Agreement constitutes and contains the entire agreement and final
understanding concerning Employee's employment with the Company and the other
subject matters addressed herein between the parties. It is extended by the
parties as a complete and exclusive statement of the terms of their
agreement. It supersedes and replaces all prior negotiations and all
agreements proposed or otherwise, whether written or oral, concerning the
subject matter hereof. Any representation, promise or agreement, not
specifically included in this Agreement shall not be binding upon or
enforceable against either party. This is a fully integrated agreement.
XVI. GOVERNING LAW.
This Agreement shall be deemed to have been executed and delivered within
the State of California, and the rights and obligations of the parties
hereunder shall be construed and enforced in accordance with and governed by,
by the laws of the State of California without regard to principles of
conflict of laws.
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XVII. CONSTRUCTION.
Each party has cooperated in the drafting and preparation of this
Agreement. Hence, in any construction to be made of this Agreement, the same
shall not be construed against any party on the basis that the party was the
drafter. The captions of this Agreement are not part of the provisions
hereof and shall have no force or effect.
XVIII.NOTICES.
All notices, requests, demands and other communications hereunder shall
be in writing and shall be deemed to have been duly given if delivered or if
mailed by registered or certified mail, postage prepaid, addressed as follows:
If to Employee: Mei Yoon Yang
20110 E. Roundtree Court
Walnut, California 91789
If to Company: Cumetrix Data Systems Corp.
1304 John Reed Court
City of Industry, CA 91745
Either party may change the address at which notice shall be given by written
notice given in the above manner.
XIX. EXECUTION.
This Agreement is being executed in one or more counterparts, each of
which shall be deemed an original, but all of which together shall constitute
one and the same instrument. Photographic copies of such signed counterparts
may be used in lieu of the original for any purpose.
XX. LEGAL COUNSEL.
Employee and the Company recognize that this is a legally binding
contract and acknowledge and agree that they have had the opportunity to
consult with legal counsel of their choice.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CUMETRIX DATA SYSTEMS CORP. EMPLOYEE
By /s/ MAX TOGHRAIE /s/ MEI YOON YANG
---------------------------------- --------------------------------
Its Chief Executive Officer Mei Yoon Yang
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OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Data Net International, Inc., a California
corporation (the "COMPANY"), has granted to the person named below ("OPTIONEE")
a non-statutory stock option (the "OPTION") to purchase shares of the Company's
Common Stock (the "SHARES") under its 1997 Stock Plan and upon the terms and
conditions as follows:
Name of Optionee: Mei Yang
---------------------------------------
Address of Optionee: 20110 E. Roundtree Court
---------------------------------------
Walnut, Ca 91789
---------------------------------------
Number of Shares: 2,500
---------------------------------------
Option Exercise Price: $29.55 per share
-------
Date of Grant: July 1, 1997
--------------
Option Expiration Date: July 1, 2007
--------------
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
One quarter (1/4) of the options shall vest on July 1, 1997. The remaining
three quarters (3/4) shall vest on the first day of each calendar month for
forty seven (47) months thereafter in forty seven (47) equal installments of
one-forty eighth (1/48) of the remaining shares rounded down to the nearest
whole share, and all remaining shares shall vest on July 1, 2001; provided,
however, that if the employment of Optionee pursuant to that certain Employment
Agreement between Optionee and the Company dated May 1, 1997 is terminated
without cause by the Company, then all unvested shares shall vest immediately
upon such termination.
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is
attached to this Option Certificate (the "CERTIFICATE") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the
Option Agreement, not by this summary. The Company strongly suggests that
you carefully review the full Option Agreement prior to signing this
Certificate or exercising the Option.
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Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed IN WRITING, the Company
reserves the right to terminate any employee at any time, with or without
cause. See Section 5(d) of the Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option
which had vested prior to the date of death or disability. In all other
cases, the Option terminates 30 days after the date of termination of
employment, and is exercisable during such time period as to the portion of
the Option which had vested prior to the date of termination of employment;
PROVIDED, HOWEVER, if you are terminated "for cause," the Option will
terminate 5 days after the date of termination of your employment and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment. See Section 5 of the
Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold,
transferred, assigned or otherwise disposed of to any other person, except on
your death. See Section 15(d) of the Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the Option Agreement.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any
of your Shares without the prior written consent of the Company or its
underwriters for a period of up to 180 days after the effective date of the
offering. See Section 6(a) of the Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the Option Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to options or stock which may
otherwise have been promised to you. See Section 8 of the Option Agreement.
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WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the Option Agreement.
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AGREEMENT
Data Net International, Inc., a California corporation, and Optionee each
hereby agrees to be bound by all of the terms and conditions of the Stock Option
Agreement (Non-Statutory Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED:
----------------------
DATA NET INTERNATIONAL, INC.
By:
------------------------------------
Its:
-----------------------------------
OPTIONEE
---------------------------------------
Name:
---------------------------------------
(Please print your name exactly as you wish it
to appear on any stock certificates issued to you
upon exercise of the Option)
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ANNEX I
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Data Net International, Inc., a California
corporation (the "COMPANY"), and the person named in the Certificate
("OPTIONEE").
Pursuant to the Data Net International, Inc. Amended and Restated 1997
Stock Plan (the "PLAN"), the Board of Directors of the Company (the "BOARD")
has authorized the grant to Optionee of a non-statutory stock option to
purchase shares of the Company's Common Stock, no par value (the "COMMON
STOCK"), upon the terms and subject to the conditions set forth in this
Option Agreement and in the Plan.
The Company and Optionee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Optionee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this
Option Agreement and the Plan, to purchase all or any portion of that number
of shares of the Common Stock (the "SHARES") set forth in the Certificate at
the Option exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner
terminated as provided herein. In no event shall the Option be exercisable
after the expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part)
upon and after the dates set forth under the caption "Exercise Schedule" in
the Certificate. The installments shall be cumulative; i.e., the Option may
be exercised, as to any or all Shares covered by an installment, at any time
or times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
<PAGE>
(b) Notwithstanding anything to the contrary contained in this
Option Agreement, the Option may not be exercised, in whole or in part,
unless and until any then-applicable requirements of all federal, state and
local laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares
then being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either
(1) in cash, or (2) with the consent of the Board (which may be withheld in
its absolute discretion), by (i) delivery to the Company of other shares of
Common Stock with an aggregate Fair Market Value equal to the total Exercise
Price of the Purchased Shares, (ii) according to a deferred payment or other
arrangement (which may include without limiting the generality of the
foregoing, the use of other shares of Common Stock) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to the
terms of this Option Agreement, or (iii) in any other form of legal
consideration that may be acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in
such form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of
interest necessary to avoid the imputation of interest, under the applicable
provision of the Internal Revenue Code of 1986, as amended (the "CODE"), and
Treasury Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair
Market Value of any fraction or fractions of a share exercised by Optionee.
"FAIR MARKET VALUE" shall be determined as follows: (1) if the Common Stock
is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq
System (but not on the Nasdaq
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<PAGE>
National Market) or is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a share of Common
Stock shall be the mean between the bid and asked prices for the Common Stock
on the last market trading day prior to the day of determination, as reported
in the Wall Street Journal or such other source as the Board deems reliable;
and (3) in the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
5. TERMINATION OF SERVICES.
(a) If Optionee shall cease to be an officer, director, consultant
or employee of the Company or any "Affiliate" of the Company (as that term is
defined in Rule 501(b) of the Rules and Regulations under the Securities Act
of 1933, as amended (the "1933 ACT")) for any reason other than death or
permanent disability (a "TERMINATING EVENT"), Optionee shall have the right,
subject to the provisions of Section 5(c) below, to exercise the Option at
any time following such Terminating Event until the earlier to occur of (1)
30 days following the date of such Terminating Event and (2) the Expiration
Date. The Option may be exercised following a Terminating Event only to the
extent exercisable as of the date of the Terminating Event. To the extent
unexercised at the end of the period referred to above, the Option shall
terminate. The Board, in its sole and absolute discretion, shall determine
whether or not authorized leaves of absence shall constitute termination of
employment for purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Optionee shall cease to be an officer, director, consultant or
employee of the Company or any Affiliate, then Optionee, Optionee's executors
or administrators or any person or persons acquiring the Option directly from
Optionee by bequest or inheritance, shall have the right to exercise the
Option at any time following such Special Terminating Event until the earlier
to occur of (1) six months following the date of such Special Terminating
Event and (2) the Expiration Date. The Option may be exercised following a
Special Terminating Event only to the extent exercisable at the date of the
Special Terminating Event. To the extent unexercised at the end of the
period referred to above, the Option shall terminate. For purposes of this
Option Agreement, "disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code. Optionee shall not be considered
permanently disabled unless he furnishes proof of such disability in such
form and manner, and at such times, as the Board may from time to time
require.
(c) If Optionee's employment shall be terminated "for cause" by the
Company or any Affiliate, Optionee shall have the right to exercise the
Option at any time following such Terminating Event until the earlier to
occur of (1) 5 days following the date of such Terminating Event and (2) the
Expiration Date. For purposes of this Option Agreement, "for cause" shall
mean:
(1) with respect to employees of the Company or any Affiliate
the following to the extent it results in substantial harm to the Company or
any Affiliate or could reasonably be expected to result in substantial harm
to the Company or any Affiliate:
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<PAGE>
(i) the willful failure or refusal by Optionee to perform
his duties to the Company or any Affiliate; or
(ii) Optionee's willful disobedience of any orders or
directives of the Board of Directors of the Company or any Affiliate or any
officers thereof acting under the authority thereof or Optionee's deliberate
interference with the compliance by other employees of the Company or any
Affiliate with any such orders or directives; or
(iii) the willful failure or refusal of Optionee to abide
by or comply with the written policies, standard procedures or regulations of
the Company or any Affiliate; or
(iv) any willful or continued act or course of conduct by
Optionee which the Board in good faith determines might reasonably be
expected to have a material detrimental effect on the Company or any
Affiliate or their respective business, operations, affairs or financial
position; or
(v) the committing by the Optionee of any fraud, theft,
embezzlement or other dishonest act against the Company or any Affiliate; or
(vi) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that Optionee is not competent to
perform his duties of employment; and
(2) with respect to consultants, any material breach of their
consulting agreement with the Company or any Affiliate.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon Optionee any right to continue in the service and/or employ
of the Company or any Affiliate or shall affect the right of the Company or
any Affiliate to terminate the relationship or employment of Optionee, with
or without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Company's initial public
offering, Optionee shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to any Purchased Shares without the prior written
consent of the Company or its underwriters, for such period of time from and
after the effective date of such registration statement as may be requested
by the Company or such underwriters; PROVIDED, HOWEVER, that in no event
shall such period exceed 180 days. This Section 6(a)(1) shall only remain in
effect for the two-year period
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<PAGE>
immediately following the effective date of the Company's initial public
offering and shall thereafter terminate and cease to be in force or effect.
Optionee agrees to execute and deliver to the Company such further documents
or instruments as the Company reasonably determines to be necessary or
appropriate to effect the provisions of this Section 6(a).
(2) In the event of any stock dividend, stock split,
recapitalization or other transaction resulting in an adjustment under
Section 7 hereof, then any new, substituted or additional securities or other
property which is by reason of such transaction distributed with respect to
or in exchange for the Purchased Shares shall be immediately subject to the
provisions of this Section 6(a), to the same extent the Purchased Share are
at such time covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the
Company may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. In the event that the issuance of
the Purchased Shares shall not be registered under the 1933 Act, none of the
Purchased Shares shall be sold, transferred, assigned, pledged, hypothecated
or otherwise disposed of ("TRANSFERRED") (with or without consideration), and
the Company shall not be required to register any such sale, transfer,
assignment, pledge, hypothecation or other disposition ("TRANSFER") and the
Company may instruct its transfer agent not to register any such Transfer,
unless and until one of the following events shall have occurred:
(1) The Purchased Shares are Transferred pursuant to and in
conformity with (i) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933
Act, and (ii) the qualification and/or registration requirements under any
applicable securities laws of any state of the United States; or
(2) Optionee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
the Company's counsel so that upon the Company's request, the Company's
counsel is able to, and actually prepares and delivers to the Company a
written opinion that the proposed Transfer (i) is exempt from registration
under the 1933 Act as then in effect, and the Rules and Regulations of the
Commission thereunder, and (ii) is exempt from qualification and/or
registration under any applicable state securities laws. The Company shall
bear all reasonable costs of preparing such opinion.
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which
is not in full compliance with this Section 6 shall be null and void AB INITIO,
and of no force or effect.
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7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is
made in the Common Stock, without receipt of consideration by the Company or
its shareholders (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the Company or its shareholders), the Option
will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to the Option. Such adjustments shall be
made by the Board, the determination of which shall be final, binding and
conclusive. The conversion of any convertible securities of the Company
shall not be treated as a change "without the receipt of consideration by the
Company or its shareholders."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the "surviving corporation" (as defined below);
or (3) a merger in which the Company is the surviving corporation but the
shares of the Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, at the sole discretion of the Board and
to the extent permitted by applicable law, the Option shall (i) terminate
upon such event and may be exercised prior thereto to the extent the Option
is then exercisable or (ii) continue in full force and effect and, if
applicable, the surviving corporation or an Affiliate of such surviving
corporation shall assume the Option and/or shall substitute a similar option
or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and
its determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Optionee shall have no other rights upon the occurrence of any of the
events described in this Section 7.
(e) The grant of the Option shall not affect in any way the right
or power of the Company to make 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.
(f) The determination as to which party is a "surviving
corporation" in a merger or consolidation shall be made on the basis of the
relative equity interests of the shareholders in the corporation existing
after the merger or consolidation, as follows: If following any merger or
consolidation the holders of outstanding voting securities of the Company
prior to the merger or consolidation own equity securities possessing more
than 50% of the voting power of the corporation existing after the merger or
consolidation, then for purposes of the Option
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<PAGE>
Agreement, the Company shall be the surviving corporation. In all other
cases, the Company shall not be the surviving corporation.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and agrees
that neither the Company nor any other person or entity is under any
obligation to sell or transfer to Optionee any option or equity security of
the Company, other than the Shares subject to the Option and any other right
or option to purchase Common Stock which was previously granted in writing to
Optionee by the Board. By signing this Option Agreement, Optionee
specifically waives all rights which he or she may have had prior to the date
of this Option Agreement to receive any option or equity security of the
Company.
9. INVESTMENT INTENT.
Optionee represents and agrees that if he or she exercises the
Option in whole or in part, and if at the time of such exercise the Plan
and/or the Purchased Shares have not been registered under the 1933 Act, he
or she will acquire the Shares upon such exercise for the purpose of
investment and not with a view to the distribution of such Shares, and that
upon each exercise of the Option he or she will furnish to the Company a
written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions
(if any) as the Company may deem advisable under the rules, regulations and
other requirements of the Commission, any stock exchange upon which the
Common Stock is then listed and any applicable federal or state securities
laws, and the Company may cause a legend or legends to be put on such
certificates to make appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Optionee
shall have no rights as a shareholder with respect to the Shares until the
date of the issuance to Optionee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this
Option Agreement, 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.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Optionee) may modify, extend or renew the Option
or accept the surrender of, and
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authorize the grant of a new option in substitution for, the Option (to
the extent not previously exercised). No modification of the Option shall be
made which, without the consent of Optionee, would alter or impair any rights
of the Optionee under the Option.
13. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the
Optionee agree to remit, at the time of such delivery or at such later date
as the Company may determine, an amount sufficient to satisfy all federal,
state and local withholding tax requirements relating thereto, and Optionee
agrees to take such other action required by the Company to satisfy such
withholding requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the
Board, Optionee may elect to satisfy his or her obligations under Section
13(a) above by (1) directing the Company to withhold a portion of the Shares
otherwise deliverable (or to tender back to the Company a portion of the
Shares issued where the Optionee (a "SECTION 16(B) RECIPIENT") is required to
report the ownership of the Shares pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, and has not made an election
under Section 83(b) of the Code (a "WITHHOLDING RIGHT")); or (2) tendering
other shares of the Common Stock of the Company which are already owned by
Optionee which in all cases have a Fair Market Value (as determined in
accordance with the provisions of Section 4 hereof) on the date as of which
the amount of tax to be withheld is determined (the "TAX DATE") equal to the
amount of taxes to be paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Optionee must deliver to the Company a written notice
of election (the "ELECTION") and specify whether all or a stated percentage
of the applicable taxes will be paid in accordance with Section 13(b) above
and whether the amount so paid shall be made in accordance with the "flat"
withholding rates for supplemental wages or as determined in accordance with
Optionee's form W-4 (or comparable state or local form);
(2) unless disapproved by the Board (excluding the Optionee)
as provided in subsection (3) below, the Election once made will be
irrevocable;
(3) no Election is valid unless the Board (excluding the
Optionee) has the right and power, in its sole discretion, with or without
cause or reason therefor, to consent to the Election, to refuse to consent to
the Election, or to disapprove the Election; and if the Board has not
consented to the Election on or prior to the Tax Date, the Election will be
deemed approved; and
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(4) if the Optionee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even
if the Option to which such Withholding Right relates has been granted prior
to such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual
summary statements of sales and earnings of the Company and ending on the
12th business day following such date or at least six calendar months or more
prior to the Tax Date.
14. CHARACTER OF OPTION.
The Option is not intended to qualify as an "incentive stock option"
as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Data Net International, Inc.
1304 John Reed Court
City of Industry, CA 91745
(2) If to Optionee, to the address set
forth on the Certificate,
or at such other address or addresses as may have been furnished by such
either party in writing to the other party hereto. Any such notice, request,
demand or other communication shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail by first-class
certified mail, return receipt requested, postage prepaid, addressed as
aforesaid, or (ii) if given by any other means, when delivered at the address
specified in this subsection (b).
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(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company
may at any time transfer and assign its rights and delegate its obligations
under this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Optionee may not Transfer the Option
except by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of Optionee only by Optionee or by his or her
guardian or legal representative in the case of a disability, and upon
Optionee's death only by his or her Estate or by any person who acquired the
Option by bequest or inheritance or by reason of the death of Optionee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE
EXTENT PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein
by reference, and it is intended that this Option Agreement shall be
interpreted in a manner to comply therewith. Any provision of this Option
Agreement inconsistent with the Plan shall be superseded and governed by the
Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"COMMITTEE"). If administration is delegated to a Committee, the Committee
shall have, in connection with the this Option Agreement, the powers
theretofore possessed by the Board (and references in this Option Agreement
to the Board shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not
constitute a part of this Option Agreement for any other purpose. Except as
specifically provided herein, neither this Option Agreement nor any right
pursuant hereto or interest herein shall be assignable by any of the parties
hereto without the prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
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Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Data Net International, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement
(Non-Statutory Stock Option), hereby irrevocably elects to exercise the
purchase rights represented by the Option and to purchase thereunder _______*
shares of Common Stock of Data Net International, Inc. (the "COMPANY"), and
herewith encloses payment of $__________ and/or _________ shares of the
Company's Common Stock in full payment of the purchase price of such shares
being purchased.
Dated:
---------------------------------
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Option)
---------------------------------------
(Please Print Name)
---------------------------------------
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
EXHIBIT 10.4
EXECUTIVE EMPLOYMENT AGREEMENT
This Employment Agreement (the "Agreement") is entered into by and
between Cumetrix Data Systems Corp. (the "Company") and Max Toghraie
("Executive"), as of the 1st day of July, 1997.
I. EMPLOYMENT.
The Company hereby employs Executive and Executive hereby accepts such
employment, upon the terms and conditions hereinafter set forth, from July 1,
1997, to and including June 30, 2002. This Agreement is subject to renewal only
as set forth in Section VI below.
II. DUTIES.
A. Executive shall, during course of his employment, serve as Chief
Executive Officer and a director of the Board of Directors of the Company, and
shall have such other duties and responsibilities as the Board of Directors of
the Company shall determine from time to time.
B. Executive agrees to devote substantially all of his time, energy and
ability to the business of the Company. Nothing herein shall prevent Executive,
upon approval of the Board of Directors of the Company, from serving as a
director or trustee of other corporations or businesses which are not in
competition with the business of the Company as set forth in Section IV hereof
or in competition with any present or future affiliate of the Company. Nothing
herein shall prevent Executive from investing in real estate for his own account
or from becoming a partner or a stockholder in any corporation, partnership or
other venture not in competition with the business of the Company as set forth
in Section IV hereof or in competition with any present or future affiliate of
the Company.
C. During the term of this Agreement, Executive shall be the most senior
executive officer in the Company and shall report to the Board of Directors of
the Company.
III. COMPENSATION.
A. The Company will pay to Executive a base salary at the annual rate of
$144,000.00 up to and including September 30, 1997 and thereafter at the annual
rate of $192,000.00 during the remaining term of his employment pursuant to this
Agreement. Such salary shall be earned monthly and shall be payable in periodic
installments no less frequently than monthly in accordance with the Company's
customary practices. Amounts payable shall be reduced by standard withholding
and other authorized deductions. The Company may in its discretion increase
Executive's salary but it may not reduce it during the term of this Agreement.
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B. STOCK OPTIONS. The Company shall grant to Executive, concurrent with
the execution of this Agreement, options to purchase 11,500 shares of the
Company's Common Stock (the "Options"), exercisable at a per share exercise
price of $29.55 per share, subject to the vesting requirements set forth in the
Option Certificate to be signed by Executive, a copy of which is attached hereto
and made a part hereof.
C. WELFARE BENEFIT PLANS. Executive and/or his family, as the case may
be, shall be eligible for participation in and shall receive all benefits under
welfare benefit plans, practices, policies and programs provided by the Company
(including, without limitation, medical, prescription, dental, disability,
salary continuance, employee life, group life, accidental death and travel
accident insurance plans and programs) to the extent applicable generally to
other peer executives of the Company. Executive will be compensated for up to
ten sick days per year.
D. EXPENSES. Executive shall have access to an expense account in the sum
of $20,400.00 per year. Executive shall be entitled to withdraw from the
expense account to pay for all reasonable employment expenses incurred by him in
accordance with the policies, practices and procedures as in effect generally
with respect to other peer executives of the Company.
E. FRINGE BENEFITS. Executive shall be entitled to fringe benefits in
accordance with the plans, practices, programs and policies as in effect
generally with respect to other peer executives of the Company.
F. VACATION. Executive shall be entitled to two weeks paid vacation per
year, in accordance with the plans, policies, programs and practices as in
effect generally with respect to other peer executives of the Company.
G. CAR ALLOWANCE. Executive shall be entitled to a car allowance in the
sum of $500.00 per month.
H. The Company reserves the right to modify, suspend or discontinue any
and all of the above plans, practices, policies and programs at any time without
recourse by Executive so long as such action is taken generally with respect to
other similarly situated peer executives and does not single out Executive.
IV. TERMINATION.
A. DEATH OR DISABILITY. Executive's employment shall terminate
automatically upon Executive's death. If the Company determines in good faith
that the Disability of Executive has occurred (pursuant to the definition of
Disability set forth below), it may give to Executive written notice in
accordance with Section XIX of its intention to terminate, effective on the 30th
day after receipt of such notice by Executive, provided that, within the 30 days
after such receipt, Executive shall not have returned to full-time performance
of his duties. For purposes of this Agreement, "disability" shall mean a
physical or mental impairment which substantially limits a major life
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activity of Executive and which renders Executive unable to perform the
essential functions of his position, even with reasonable accommodation which
does not impose an undue hardship on the Company. The Company reserves the
right, in good faith, to make the determination of disability under this
Agreement based upon information supplied by Executive and/or his medical
personnel, as well as information from medical personnel (or others) selected
by the Company or its insurers. "Incapacity" as used herein shall be limited
only to such Disability which substantially prevents the Company from
availing itself of the services of Executive.
B. CAUSE. The Company may at any time terminate Executive's employment
for "cause," which shall be based solely upon a good-faith determination by a
majority vote of the Company's Board of Directors that such termination of such
employment is necessary for the welfare of, and in the best interests of, the
Company by reason of: (i) acts of dishonesty, theft, misappropriation of
corporate assets; (ii) willful and repeated failure to follow explicit
instructions of the Company's Board of Directors; (iii) willful malfeasance;
(iv) willful nonfeasance; and (v) breach of any material term of this Agreement.
C. OTHER THAN CAUSE OR DEATH OR DISABILITY. The Company may terminate
Executive's employment other than for the reasons set forth in Sections IV(A)
and (B) above upon written notice.
D. OBLIGATIONS OF THE COMPANY UPON TERMINATION.
1. DEATH OR DISABILITY. If Executive's employment is terminated
by reason of Executive's Death or Disability, this Agreement shall terminate
without further obligations to Executive or his/her legal representatives under
this Agreement, other than for (a) payment of the sum of (i) employees annual
base salary through the date of termination to the extent not heretofore paid
and (ii) any compensation previously deferred by Executive (together with any
accrued interest or earnings thereon) and any accrued vacation pay, in each case
to the extent not theretofore paid (the sum of the amounts described in clauses
(i) and (ii) shall be hereinafter referred to as the "Accrued Obligations"),
which shall be paid to Executive or his estate or beneficiary, as applicable, in
a lump sum in cash within 30 days of the date of termination; and (b) payment to
Executive or his estate or beneficiary, as applicable, any amounts due pursuant
to the terms of any applicable welfare benefit plans.
2. CAUSE. If Executive's employment is terminated by the Company
for Cause, this Agreement shall terminate without further obligations to
Executive other than for the timely payment of Accrued Obligations. If it is
subsequently determined that the Company did not have Cause for termination
under this Section IV(D)(2), then the Company's decision to terminate shall be
deemed to have been made under Section IV(D)(3) and the amounts payable
thereunder shall be the only amounts Executive may receive for his termination.
3. OTHER THAN CAUSE OR DEATH OR DISABILITY. If the Company
terminates Executive's employment for other than Cause or Death or Disability,
it shall continue to pay to
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Executive, in installments in the same manner and at the same times the
Company pays base salaries to other executive officers of the Company,
Executive's then current base salary pursuant to Section III(A) of this
Agreement, for the lesser of (i) twenty four (24) months, commencing on the
date of notice of termination pursuant to this Section IV(C) or (ii) the
remainder of the term of this Agreement (the "Severance Period"), and the
Company shall continue to provide Executive benefits pursuant to Section
III(C) of this Agreement during the Severance Period until comparable
benefits are obtained by Executive from another employer.
4. EXCLUSIVE REMEDY. Executive agrees that the payments
contemplated by this Agreement shall constitute the exclusive and sole remedy
for any termination of his employment and Executive covenants not to assert or
pursue any other remedies, at law or in equity, with respect to any termination
of employment.
V. ARBITRATION.
Any controversy or claim arising out of or relating to this Agreement, its
enforcement or interpretation, or because of an alleged breach, default or
misrepresentation in connection with any of its provisions, shall be submitted
to arbitration, to be held in Los Angeles County, California in accordance with
California Civil Procedures Code Sections 1282-1284.2. In the event either
party institutes arbitration under this Agreement, the party prevailing in any
such litigation shall be entitled, in addition to all other relief, to
reasonable attorneys' fees relating to such arbitration. The non prevailing
party shall be responsible for all costs of the arbitration, including but not
limited to, the arbitration fees, court reporter fees, etc.
VI. RENEWAL.
This Agreement shall be automatically renewed for consecutive periods of
one year each, after the expiration of the stated term, unless one party or the
other gives notice, in writing, at least (30) days prior to the expiration of
this Agreement (or any renewal) of their desire to terminate the Agreement or
modify its terms.
VII. ANTI-SOLICITATION.
Executive promises and agrees that during the term of this Agreement or
renewal in accordance with Section VI above, he will not influence or attempt to
influence customers of the Company or any of its present or future subsidiaries
or affiliates, either directly or indirectly to divert their business to any
individual, partnership, firm, corporation or other entity then in competition
with the business of the Company, or any subsidiary or affiliate of the Company.
VIII. JOINING FORMER COMPANY EMPLOYEES.
Executive promises and agrees that for one year following his termination
of employment other than pursuant to Section IV(C) above or Disability above or
expiration of this Agreement,
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<PAGE>
he will not enter business or work with any person who was employed with the
Company, and who earned annually $25,000 or more as a Company employee during
the last six months of his or her own employment, in any business,
partnership, firm, corporation or other entity then in competition with the
business of the Company or any subsidiary or affiliate of the Company.
IX. SOLICITING EMPLOYEES.
Executive promises and agrees that he will not, for a period of one year
following termination of his accordance with Section VI above, directly or
indirectly solicit any of the Company employees who earned annually $25,000 or
more as a Company employee during the last six months of his or her own
employment to work for any business, individual, partnership, firm, corporation,
or other entity then in competition with the business of the Company or any
subsidiary or affiliate of the Company.
X. CONFIDENTIAL INFORMATION.
A. Executive, in the performance of Executive's duties on behalf of the
Company, shall have access to, receive and be entrusted with confidential
information, including but in no way limited to development, marketing,
organizational, financial, management, administrative, production,
distribution and sales information, data, specifications and processes
presently owned or at any time in the future developed, by the Company or its
agents or consultants, or used presently or at any time in the future in the
course of its business that is not otherwise part of the public domain
(collectively, the "Confidential Material"). All such Confidential Material
is considered secret and will be available to Executive in confidence.
Except in the performance of duties on behalf of the Company, Executive shall
disclose or use any such Confidential Material, unless such Confidential
Material ceases (through no fault of Executive's) to be confidential because
it has become part of the public domain. All records, files, drawings,
documents, equipment and other tangible items, wherever located, relating in
any way to the Confidential Material or otherwise to the Company's business,
which Executive prepares, uses or encounters, shall be and remain the
Company's sole and exclusive property and shall be included in the
Confidential Material. Upon termination of this Agreement by any means, or
whenever requested by the Company, Executive shall promptly deliver to the
Company any and all of the Confidential Material, not previously delivered to
the Company, that may be or at any previous time has been in Executive's
possession or under Executive's control.
B. Executive hereby acknowledges that the sale or unauthorized use or
disclosure of any of the Company's Confidential Material by any means whatsoever
and any time before, during or after Executive's employment with the Company
shall constitute unfair Competition. Executive agrees that Executive shall not
engage in Unfair Competition either during the time employed by the Company or
any time thereafter.
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XI. SUCCESSORS.
A. This Agreement is personal to Executive and shall not, without the
prior written consent of the Company, be assignable by Executive.
B. This Agreement shall inure to the benefit of and be binding upon the
Company and its successors and assigns and any such successor or assignee shall
be deemed substituted for the Company under the terms of this Agreement for all
purposes. As used herein, "successor" and "assignee" shall include any person,
firm, corporation or other business entity which at any time, whether by
purchase, merger or otherwise, directly or indirectly acquires the stock of the
Company or to which the Company assigns this Agreement by operation of law or
otherwise.
XII. WAIVER.
No waiver of any breach of any term or provision of this Agreement shall be
construed to be, nor shall be, a waiver of any other breach of this agreement.
No waiver shall be binding unless in writing and signed by the party waiving the
breach.
XIII. MODIFICATION.
This Agreement may not be amended or modified other than by a written
agreement executed by Executive and an officer of the Company following
authorization by the Board of Directors of the Company.
XIV. SAVING CLAUSE.
If any provision of this Agreement or the application thereof is held
invalid, the invalidity shall not effect other provisions or applications of the
Agreement which can be given effect without invalid provisions or application
and to this end the provisions of this Agreement are declared to be severable.
XV. COMPLETE AGREEMENT.
This Agreement constitutes and contains the entire agreement and final
understanding concerning Executive's employment with the Company and the other
subject matters addressed herein between the parties. It is extended by the
parties as a complete and exclusive statement of the terms of their agreement.
It supersedes and replaces all prior negotiations and all agreements proposed or
otherwise, whether written or oral, concerning the subject matter hereof. Any
representation, promise or agreement, not specifically included in this
Agreement shall not be binding upon or enforceable against either party. This
is a fully integrated agreement.
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XVI. GOVERNING LAW.
This Agreement shall be deemed to have been executed and delivered within
the State of California, and the rights and obligations of the parties hereunder
shall be construed and enforced in accordance with and governed by, by the laws
of the State of California without regard to principles of conflict of laws.
XVII. CONSTRUCTION.
Each party has cooperated in the drafting and preparation of this
Agreement. Hence, in any construction to be made of this Agreement, the same
shall not be construed against any party on the basis that the party was the
drafter. The captions of this Agreement are not part of the provisions hereof
and shall have no force or effect.
XVIII. NOTICES.
All notices, requests, demands and other communications hereunder shall be
in writing and shall be deemed to have been duly given if delivered or if mailed
by registered or certified mail, postage prepaid, addressed as follows:
If to Executive: Max Toghraie
254 Cedar Heights
Thousand Oaks, California 91360
If to Company: Cumetrix Data Systems Corp.
1304 John Reed Court
City of Industry, CA 91745
Either party may change the address at which notice shall be given by written
notice given in the above manner.
XIX. EXECUTION.
This Agreement is being executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument. Photographic copies of such signed counterparts may be
used in lieu of the original for any purpose.
XX. LEGAL COUNSEL.
Executive and the Company recognize that this is a legally binding contract
and acknowledge and agree that they have had the opportunity to consult with
legal counsel of their choice.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
CUMETRIX DATA SYSTEMS CORP. EXECUTIVE
By /s/ MEI YANG /s/ MAX TOGHRAIE
------------------------------------ ----------------------------------
Its Secretary Max Toghraie
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OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Data Net International, Inc., a California
corporation (the "COMPANY"), has granted to the person named below ("OPTIONEE")
a non-statutory stock option (the "OPTION") to purchase shares of the Company's
Common Stock (the "SHARES") under its 1997 Stock Plan and upon the terms and
conditions as follows:
Name of Optionee: Max Toghraie
---------------------------------------
Address of Optionee: 254 Cedar Heights
---------------------------------------
Thousand Oaks, Ca 91360
---------------------------------------
Number of Shares: 11,500
---------------------------------------
Option Exercise Price: $29.55 per share
-------
Date of Grant: July 1, 1997
--------------
Option Expiration Date: July 1, 2007
--------------
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
One quarter (1/4) of the options shall vest on July 1, 1997. The remaining
three quarters (3/4) shall vest on the first day of each calendar month for
forty seven (47) months thereafter in forty seven (47) equal installments of
one-forty eighth (1/48) of the remaining shares rounded down to the nearest
whole share, and all remaining shares shall vest on July 1, 2001; provided,
however, that if the employment of Optionee pursuant to that certain Employment
Agreement between Optionee and the Company dated May 1, 1997 is terminated
without cause by the Company, then all unvested shares shall vest immediately
upon such termination.
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is
attached to this Option Certificate (the "CERTIFICATE") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the
Option Agreement, not by this summary. The Company strongly suggests that
you carefully review the full Option Agreement prior to signing this
Certificate or exercising the Option.
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Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed IN WRITING, the Company
reserves the right to terminate any employee at any time, with or without
cause. See Section 5(d) of the Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option
which had vested prior to the date of death or disability. In all other
cases, the Option terminates 30 days after the date of termination of
employment, and is exercisable during such time period as to the portion of
the Option which had vested prior to the date of termination of employment;
PROVIDED, HOWEVER, if you are terminated "for cause," the Option will
terminate 5 days after the date of termination of your employment and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment. See Section 5 of the
Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold,
transferred, assigned or otherwise disposed of to any other person, except on
your death. See Section 15(d) of the Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the Option Agreement.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any
of your Shares without the prior written consent of the Company or its
underwriters for a period of up to 180 days after the effective date of the
offering. See Section 6(a) of the Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the Option Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to options or stock which may
otherwise have been promised to you. See Section 8 of the Option Agreement.
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WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the Option Agreement.
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AGREEMENT
Data Net International, Inc., a California corporation, and Optionee each
hereby agrees to be bound by all of the terms and conditions of the Stock Option
Agreement (Non-Statutory Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED:
----------------------
DATA NET INTERNATIONAL, INC.
By:
------------------------------------
Its:
-----------------------------------
OPTIONEE
---------------------------------------
Name:
---------------------------------------
(Please print your name exactly as you wish it
to appear on any stock certificates issued to you
upon exercise of the Option)
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ANNEX I
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Data Net International, Inc., a California
corporation (the "COMPANY"), and the person named in the Certificate
("OPTIONEE").
Pursuant to the Data Net International, Inc. Amended and Restated 1997
Stock Plan (the "PLAN"), the Board of Directors of the Company (the "BOARD")
has authorized the grant to Optionee of a non-statutory stock option to
purchase shares of the Company's Common Stock, no par value (the "COMMON
STOCK"), upon the terms and subject to the conditions set forth in this
Option Agreement and in the Plan.
The Company and Optionee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Optionee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this
Option Agreement and the Plan, to purchase all or any portion of that number
of shares of the Common Stock (the "SHARES") set forth in the Certificate at
the Option exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner
terminated as provided herein. In no event shall the Option be exercisable
after the expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part)
upon and after the dates set forth under the caption "Exercise Schedule" in
the Certificate. The installments shall be cumulative; i.e., the Option may
be exercised, as to any or all Shares covered by an installment, at any time
or times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
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(b) Notwithstanding anything to the contrary contained in this
Option Agreement, the Option may not be exercised, in whole or in part,
unless and until any then-applicable requirements of all federal, state and
local laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares
then being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either
(1) in cash, or (2) with the consent of the Board (which may be withheld in
its absolute discretion), by (i) delivery to the Company of other shares of
Common Stock with an aggregate Fair Market Value equal to the total Exercise
Price of the Purchased Shares, (ii) according to a deferred payment or other
arrangement (which may include without limiting the generality of the
foregoing, the use of other shares of Common Stock) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to the
terms of this Option Agreement, or (iii) in any other form of legal
consideration that may be acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in
such form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of
interest necessary to avoid the imputation of interest, under the applicable
provision of the Internal Revenue Code of 1986, as amended (the "CODE"), and
Treasury Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair
Market Value of any fraction or fractions of a share exercised by Optionee.
"FAIR MARKET VALUE" shall be determined as follows: (1) if the Common Stock
is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq
System (but not on the Nasdaq
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National Market) or is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a share of Common
Stock shall be the mean between the bid and asked prices for the Common Stock
on the last market trading day prior to the day of determination, as reported
in the Wall Street Journal or such other source as the Board deems reliable;
and (3) in the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
5. TERMINATION OF SERVICES.
(a) If Optionee shall cease to be an officer, director, consultant
or employee of the Company or any "Affiliate" of the Company (as that term is
defined in Rule 501(b) of the Rules and Regulations under the Securities Act
of 1933, as amended (the "1933 ACT")) for any reason other than death or
permanent disability (a "TERMINATING EVENT"), Optionee shall have the right,
subject to the provisions of Section 5(c) below, to exercise the Option at
any time following such Terminating Event until the earlier to occur of (1)
30 days following the date of such Terminating Event and (2) the Expiration
Date. The Option may be exercised following a Terminating Event only to the
extent exercisable as of the date of the Terminating Event. To the extent
unexercised at the end of the period referred to above, the Option shall
terminate. The Board, in its sole and absolute discretion, shall determine
whether or not authorized leaves of absence shall constitute termination of
employment for purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Optionee shall cease to be an officer, director, consultant or
employee of the Company or any Affiliate, then Optionee, Optionee's executors
or administrators or any person or persons acquiring the Option directly from
Optionee by bequest or inheritance, shall have the right to exercise the
Option at any time following such Special Terminating Event until the earlier
to occur of (1) six months following the date of such Special Terminating
Event and (2) the Expiration Date. The Option may be exercised following a
Special Terminating Event only to the extent exercisable at the date of the
Special Terminating Event. To the extent unexercised at the end of the
period referred to above, the Option shall terminate. For purposes of this
Option Agreement, "disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code. Optionee shall not be considered
permanently disabled unless he furnishes proof of such disability in such
form and manner, and at such times, as the Board may from time to time
require.
(c) If Optionee's employment shall be terminated "for cause" by the
Company or any Affiliate, Optionee shall have the right to exercise the
Option at any time following such Terminating Event until the earlier to
occur of (1) 5 days following the date of such Terminating Event and (2) the
Expiration Date. For purposes of this Option Agreement, "for cause" shall
mean:
(1) with respect to employees of the Company or any Affiliate
the following to the extent it results in substantial harm to the Company or
any Affiliate or could reasonably be expected to result in substantial harm
to the Company or any Affiliate:
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(i) the willful failure or refusal by Optionee to perform
his duties to the Company or any Affiliate; or
(ii) Optionee's willful disobedience of any orders or
directives of the Board of Directors of the Company or any Affiliate or any
officers thereof acting under the authority thereof or Optionee's deliberate
interference with the compliance by other employees of the Company or any
Affiliate with any such orders or directives; or
(iii) the willful failure or refusal of Optionee to abide
by or comply with the written policies, standard procedures or regulations of
the Company or any Affiliate; or
(iv) any willful or continued act or course of conduct by
Optionee which the Board in good faith determines might reasonably be
expected to have a material detrimental effect on the Company or any
Affiliate or their respective business, operations, affairs or financial
position; or
(v) the committing by the Optionee of any fraud, theft,
embezzlement or other dishonest act against the Company or any Affiliate; or
(vi) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that Optionee is not competent to
perform his duties of employment; and
(2) with respect to consultants, any material breach of their
consulting agreement with the Company or any Affiliate.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon Optionee any right to continue in the service and/or employ
of the Company or any Affiliate or shall affect the right of the Company or
any Affiliate to terminate the relationship or employment of Optionee, with
or without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Company's initial public
offering, Optionee shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to any Purchased Shares without the prior written
consent of the Company or its underwriters, for such period of time from and
after the effective date of such registration statement as may be requested
by the Company or such underwriters; PROVIDED, HOWEVER, that in no event
shall such period exceed 180 days. This Section 6(a)(1) shall only remain in
effect for the two-year period
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immediately following the effective date of the Company's initial public
offering and shall thereafter terminate and cease to be in force or effect.
Optionee agrees to execute and deliver to the Company such further documents
or instruments as the Company reasonably determines to be necessary or
appropriate to effect the provisions of this Section 6(a).
(2) In the event of any stock dividend, stock split,
recapitalization or other transaction resulting in an adjustment under
Section 7 hereof, then any new, substituted or additional securities or other
property which is by reason of such transaction distributed with respect to
or in exchange for the Purchased Shares shall be immediately subject to the
provisions of this Section 6(a), to the same extent the Purchased Share are
at such time covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the
Company may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. In the event that the issuance of
the Purchased Shares shall not be registered under the 1933 Act, none of the
Purchased Shares shall be sold, transferred, assigned, pledged, hypothecated
or otherwise disposed of ("TRANSFERRED") (with or without consideration), and
the Company shall not be required to register any such sale, transfer,
assignment, pledge, hypothecation or other disposition ("TRANSFER") and the
Company may instruct its transfer agent not to register any such Transfer,
unless and until one of the following events shall have occurred:
(1) The Purchased Shares are Transferred pursuant to and in
conformity with (i) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933
Act, and (ii) the qualification and/or registration requirements under any
applicable securities laws of any state of the United States; or
(2) Optionee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
the Company's counsel so that upon the Company's request, the Company's
counsel is able to, and actually prepares and delivers to the Company a
written opinion that the proposed Transfer (i) is exempt from registration
under the 1933 Act as then in effect, and the Rules and Regulations of the
Commission thereunder, and (ii) is exempt from qualification and/or
registration under any applicable state securities laws. The Company shall
bear all reasonable costs of preparing such opinion.
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which
is not in full compliance with this Section 6 shall be null and void AB INITIO,
and of no force or effect.
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7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is
made in the Common Stock, without receipt of consideration by the Company or
its shareholders (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the Company or its shareholders), the Option
will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to the Option. Such adjustments shall be
made by the Board, the determination of which shall be final, binding and
conclusive. The conversion of any convertible securities of the Company
shall not be treated as a change "without the receipt of consideration by the
Company or its shareholders."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the "surviving corporation" (as defined below);
or (3) a merger in which the Company is the surviving corporation but the
shares of the Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, at the sole discretion of the Board and
to the extent permitted by applicable law, the Option shall (i) terminate
upon such event and may be exercised prior thereto to the extent the Option
is then exercisable or (ii) continue in full force and effect and, if
applicable, the surviving corporation or an Affiliate of such surviving
corporation shall assume the Option and/or shall substitute a similar option
or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and
its determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Optionee shall have no other rights upon the occurrence of any of the
events described in this Section 7.
(e) The grant of the Option shall not affect in any way the right
or power of the Company to make 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.
(f) The determination as to which party is a "surviving
corporation" in a merger or consolidation shall be made on the basis of the
relative equity interests of the shareholders in the corporation existing
after the merger or consolidation, as follows: If following any merger or
consolidation the holders of outstanding voting securities of the Company
prior to the merger or consolidation own equity securities possessing more
than 50% of the voting power of the corporation existing after the merger or
consolidation, then for purposes of the Option
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Agreement, the Company shall be the surviving corporation. In all other
cases, the Company shall not be the surviving corporation.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and agrees
that neither the Company nor any other person or entity is under any
obligation to sell or transfer to Optionee any option or equity security of
the Company, other than the Shares subject to the Option and any other right
or option to purchase Common Stock which was previously granted in writing to
Optionee by the Board. By signing this Option Agreement, Optionee
specifically waives all rights which he or she may have had prior to the date
of this Option Agreement to receive any option or equity security of the
Company.
9. INVESTMENT INTENT.
Optionee represents and agrees that if he or she exercises the
Option in whole or in part, and if at the time of such exercise the Plan
and/or the Purchased Shares have not been registered under the 1933 Act, he
or she will acquire the Shares upon such exercise for the purpose of
investment and not with a view to the distribution of such Shares, and that
upon each exercise of the Option he or she will furnish to the Company a
written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions
(if any) as the Company may deem advisable under the rules, regulations and
other requirements of the Commission, any stock exchange upon which the
Common Stock is then listed and any applicable federal or state securities
laws, and the Company may cause a legend or legends to be put on such
certificates to make appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Optionee
shall have no rights as a shareholder with respect to the Shares until the
date of the issuance to Optionee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this
Option Agreement, 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.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Optionee) may modify, extend or renew the Option
or accept the surrender of, and
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authorize the grant of a new option in substitution for, the Option (to
the extent not previously exercised). No modification of the Option shall be
made which, without the consent of Optionee, would alter or impair any rights
of the Optionee under the Option.
13. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the
Optionee agree to remit, at the time of such delivery or at such later date
as the Company may determine, an amount sufficient to satisfy all federal,
state and local withholding tax requirements relating thereto, and Optionee
agrees to take such other action required by the Company to satisfy such
withholding requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the
Board, Optionee may elect to satisfy his or her obligations under Section
13(a) above by (1) directing the Company to withhold a portion of the Shares
otherwise deliverable (or to tender back to the Company a portion of the
Shares issued where the Optionee (a "SECTION 16(B) RECIPIENT") is required to
report the ownership of the Shares pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, and has not made an election
under Section 83(b) of the Code (a "WITHHOLDING RIGHT")); or (2) tendering
other shares of the Common Stock of the Company which are already owned by
Optionee which in all cases have a Fair Market Value (as determined in
accordance with the provisions of Section 4 hereof) on the date as of which
the amount of tax to be withheld is determined (the "TAX DATE") equal to the
amount of taxes to be paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Optionee must deliver to the Company a written notice
of election (the "ELECTION") and specify whether all or a stated percentage
of the applicable taxes will be paid in accordance with Section 13(b) above
and whether the amount so paid shall be made in accordance with the "flat"
withholding rates for supplemental wages or as determined in accordance with
Optionee's form W-4 (or comparable state or local form);
(2) unless disapproved by the Board (excluding the Optionee)
as provided in subsection (3) below, the Election once made will be
irrevocable;
(3) no Election is valid unless the Board (excluding the
Optionee) has the right and power, in its sole discretion, with or without
cause or reason therefor, to consent to the Election, to refuse to consent to
the Election, or to disapprove the Election; and if the Board has not
consented to the Election on or prior to the Tax Date, the Election will be
deemed approved; and
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(4) if the Optionee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even
if the Option to which such Withholding Right relates has been granted prior
to such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual
summary statements of sales and earnings of the Company and ending on the
12th business day following such date or at least six calendar months or more
prior to the Tax Date.
14. CHARACTER OF OPTION.
The Option is not intended to qualify as an "incentive stock option"
as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Data Net International, Inc.
1304 John Reed Court
City of Industry, CA 91745
(2) If to Optionee, to the address set
forth on the Certificate,
or at such other address or addresses as may have been furnished by such
either party in writing to the other party hereto. Any such notice, request,
demand or other communication shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail by first-class
certified mail, return receipt requested, postage prepaid, addressed as
aforesaid, or (ii) if given by any other means, when delivered at the address
specified in this subsection (b).
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(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company
may at any time transfer and assign its rights and delegate its obligations
under this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Optionee may not Transfer the Option
except by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of Optionee only by Optionee or by his or her
guardian or legal representative in the case of a disability, and upon
Optionee's death only by his or her Estate or by any person who acquired the
Option by bequest or inheritance or by reason of the death of Optionee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE
EXTENT PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein
by reference, and it is intended that this Option Agreement shall be
interpreted in a manner to comply therewith. Any provision of this Option
Agreement inconsistent with the Plan shall be superseded and governed by the
Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"COMMITTEE"). If administration is delegated to a Committee, the Committee
shall have, in connection with the this Option Agreement, the powers
theretofore possessed by the Board (and references in this Option Agreement
to the Board shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not
constitute a part of this Option Agreement for any other purpose. Except as
specifically provided herein, neither this Option Agreement nor any right
pursuant hereto or interest herein shall be assignable by any of the parties
hereto without the prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
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Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Data Net International, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement
(Non-Statutory Stock Option), hereby irrevocably elects to exercise the
purchase rights represented by the Option and to purchase thereunder _______*
shares of Common Stock of Data Net International, Inc. (the "COMPANY"), and
herewith encloses payment of $__________ and/or _________ shares of the
Company's Common Stock in full payment of the purchase price of such shares
being purchased.
Dated:
---------------------------------
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Option)
---------------------------------------
(Please Print Name)
---------------------------------------
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
EXHIBIT 10.5
AMENDED AND RESTATED LICENSE AGREEMENT
THIS AMENDED AND RESTATED LICENSE AGREEMENT dated as of July 1st, 1997 (the
"Effective Date"), by and between COMPUTER-AIDED SOFTWARE INTEGRATION, INC. (the
"Licensor"), a Delaware corporation, and DATANET INTERNATIONAL, INCORPORATED
(the "Licensee"), a California corporation.
WHEREAS the Licensor and the Licensee are parties to a license agreement
dated as of April 30, 1997; and
WHEREAS the Licensor and the Licensee desire to amend such agreement and to
restate the agreement as so amended (as so amended and restated, this
"Agreement").
For and in consideration of the mutual covenants contained herein, it is
hereby agreed by and between the undersigned, intending to be bound thereby as
follows:
I. DEFINITIONS
A. SOFTWARE. The term "Software" means authorized copies of all of the
most recent versions of the Licensor computer software programs (in both object
and Source Code, as stipulated below) described in Exhibit A "Software" attached
hereto, including without limitation, technical manuals, user manuals, bug
reports and fixes, enhancements, upgrades, updates, sequels and technical
bulletins.
B. SOURCE CODE. The term "Source Code" means the complete instruction
set for the Software, including all comments and procedural code, such as
compilation switches, job control language statements and a description of
the system/program generation procedure, in a form intelligible to human
programmers and capable of being readily and easily translated into object
code for execution on computer equipment through minimal assembly or
compiling, together with all documentation to facilitate such translation,
assembly and compiling; including, without limitation, programmers' notes,
technical and functional specifications, flow charts, schematics, test
programs, statements of principles of operations, architectural and design
standards, and descriptions of data flows, data structures and control logic.
C. LICENSEE'S BUSINESS. The term "Licensee's Business" shall mean the
business of providing assembly, integration and configuration related solutions
and services to equipment manufacturers, software vendors, system integrators,
government and corporate entities and other businesses seeking such solutions
and services.
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II. LICENSE
In accordance with the terms herein, Licensor grants to Licensee, and
Licensee accepts from Licensor, a worldwide, perpetual, nonexclusive (except as
to the countries comprising South America (excluding Central America) and
Malaysia where the license granted herein shall be exclusive for a term of five
years from the Effective Date) and non-transferable license to reproduce, use
and distribute, and reproduce, disclose to others for the purpose of
maintenance, use, change, modify and otherwise prepare derivative works based on
the Source Code ("License"). The License may be exercised only at Licensee's
configuration centers in Los Angeles or other configuration centers in or
outside of the United States where the equipment on which the Software is used
is more than 50% owned by Licensee or, in the event Licensee leases the
equipment, the Licensee is obligated for more than 50% of the lease payment for
such equipment when used in connection with the Software (collectively
"Permitted Configuration Centers"). The Software shall be used only in
connection with Licensee's Business. Licensee shall not permit any third party
to use the Software. A license may be temporarily transferred to back up
equipment if the particular scheduled equipment is inoperative for more than one
(1) hour. Licensee may make copies, and use the Software for testing purposes.
Licensee may exercise the License with respect to the Source Code upon and
after occurrence of any of the following events (but not prior to the occurrence
of such events):
A. Licensor or Glasgal Communications, Inc. ("Glasgal") ceases doing
business;
B. Licensor or Glasgal becomes insolvent or makes a general assignment
for benefit of creditors;
C. The filing of a petition by or against Licensor or Glasgal for relief
under the laws of bankruptcy;
D. The petition of an appointment or an actual appointment of a receiver
or other custodian for the business or assets of Licensor or Glasgal;
E. Licensor or Glasgal admits in writing its inability to pay its debts
generally as they become due; or
F. Licensor materially breaches any of its obligations under this
Agreement, or the Reseller Agreement between the parties, and such default or
breach has not been cured. As used above, material breach is hereby defined to
include, without limitation, any default or breach that results in a hinderance
to Licensee's ability to operate Licensee's Business.
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III. COPIES
The License granted herein includes the right to copy the Software in
non-printed, machine readable form in whole or in part as necessary for
Licensee's Business. In order to protect Licensor's trade secret and copyrights
in the Software, Licensee agrees to reproduce and incorporate Licensor's trade
secret or copyright notice in any copies, modifications or partial copies.
Licensee shall maintain no more than three copies (or such greater number as
Licensor shall reasonably consent to) of the object code for the Software for
each Permitted Configuration Center at any time.
IV. PRICE AND PAYMENT
Licensee has paid Licensor a license fee of $1.1 million for the Software
and Source Code License, representing payment in full. As of the date hereof,
$150,000 of such fee has been paid to Licensor by Licensee in cash, and an
additional $950,000 of such license fee has been paid by execution and delivery
by Licensee to Licensor of the promissory note attached hereto and incorporated
herein by this reference as Exhibit "A" (the "Note").
Licensor hereby agrees that prior to entering into an agreement to license
the Software or Source Code to any third party for use in the countries
comprising Asia, Japan, the Pacific Rim and Australia, it shall first offer
Licensee the right to such license on terms and conditions, including price,
equivalent to those contained in the proposed third party agreement.
Any payment for any services or other performance by Licensor shall be
payable one hundred and eighty (180) days after receipt of a correct invoice
from Licensor; provided that portions of amounts disputed in good faith by
Licensee will be payable upon resolution of the dispute. Unless otherwise
expressly stated herein, there shall be no additional charges for any materials
and services provided under this Agreement.
V. SOFTWARE OWNERSHIP
Licensor represents and warrants that it is the sole owner (or is an
authorized licensee) of the Software and Source Code and all portions thereof
and that it has the right to modify same and to grant Licensee the Software and
Source Code License and that Licensee shall have no obligation or liability
toward any third parties for the exercise of the License and that Licensee's use
of the Software and Source Code will not infringe any third party rights in any
patent, copyright, trade secret or other proprietary right.
VI. INTENT TO COOPERATE
Both Licensor and Licensee acknowledge that successful implementation of
the Software pursuant to this Agreement shall require their full and mutual best
efforts. The
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parties acknowledge that they shall timely fulfill their responsibilities set
forth in this Agreement.
VII. TITLE TO SOFTWARE SYSTEMS AND CONFIDENTIALITY
The Software and all programs developed hereunder by Licensor and all
copies thereof are proprietary to Licensor and title thereto remains in
Licensor. All applicable rights to patents, copyrights, trademarks and trade
secrets in the Software or any modifications made by Licensor shall remain in
Licensor. Licensee shall not sell, transfer, publish, disclose, display or
otherwise make available the Software or copies thereof to others in violation
of this Agreement. Licensee agrees to take reasonable efforts to secure and
protect each module, software product, documentation and copies thereof in a
manner which Licensee takes to secure and protect its own software in order to
maintain Licensor's rights therein and to take appropriate action by instruction
or agreement with its employees or consultants who are permitted access to each
program or software product to satisfy its obligations hereunder. All copies
made by the Licensee of the Software and other programs developed hereunder,
including translations, compilations, partial copies with modifications and
updated and derivative works, are the property of Licensee. Licensee
acknowledges Licensor's claim that the Software is confidential in nature and
not in the public domain, that the Licensor claims all intellectual and
industrial property rights granted by law therein on behalf of itself or the
licensor(s) and that the Licensor does not hereby grant nor otherwise transfer
any rights or ownership of the Software to the Licensee or any third party
except in accordance with this Agreement. Except as otherwise expressly
permitted hereunder, the Licensee agrees not to copy or otherwise reproduce the
Software, in whole or in part. The Licensee further agrees to take all
reasonable steps which Licensee takes to protect its own software to ensure that
no unauthorized persons shall have access to the Software and that all
authorized persons having access to the Software shall refrain from any such
disclosure, duplication or reproduction.
The Licensee agrees to accord the Software, and both parties agree to
accord all other confidential information relating to this Agreement and each
party's proprietary business information such as pricing and customer identities
at least the same degree and methods of protection as such party undertakes with
respect to its own confidential information, trade secrets and other proprietary
data.
The Licensee agrees not directly or through any agent or intermediary, to
register, apply for registration or attempt to acquire any legal protection for
the Software or any proprietary rights therein or to take any other action which
would or could infringe upon the Licensor's right, title or interest in or to
the Software in any jurisdiction.
Provided that Licensor provides sixty (60) days written notice to Licensee
specifically stating in sufficient detail the violation or breach and such
violation or breach, capable of being cured, is not cured during this sixty (60)
day period, the Licensee acknowledges that,
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in the event of a breach or violation by the Licensee of its obligations under
this Section 7, the Licensor may immediately terminate its performance under
this Agreement without liability to the Licensee and may bring an appropriate
legal action to enjoin any such breach or violation hereof.
All copies of the Software shall retain the copyright notices and
proprietary markings contained in or appearing on the master copy thereof
supplied to the Licensee by the Licensor.
VIII. USE OF TRADE NAMES AND TRADEMARKS
Licensee hereby acknowledges Licensor's claim of ownership of the generic
trade names and marks "CASI", "COMPUTER-AIDED SOFTWARE INTEGRATION", and
"INTEGRATOR'S WORKBENCH PRODUCT SERIES", the Software names. Licensee further
acknowledges that it shall acquire no interest therein by virtue of this
Agreement or the performance by Licensee of its duties and obligations
hereunder, other than the License granted to Licensee under this Agreement.
Licensee agrees not to use the names "CASI" or "COMPUTER-AIDED SOFTWARE
INTEGRATION", or such Software names or marks (or any confusingly similar name
or symbol), in whole or in part, as part of the Licensee's business or trade
name.
The Licensee agrees to notify the Licensor promptly of any known use or
registration by third parties of any trade names or marks which might infringe
the Licensor's trade or Software names or marks. The Licensee acknowledges and
agrees that the Licensor shall have the sole right and duty to protect such
names and marks from a legal action or suit for infringement thereof.
IX. WARRANTY
A. The Licensor warrants that the Software will (i) conform, when
operated in Permitted Configuration Centers to Licensor's current published
specifications and documentation attached hereto or otherwise provided to
Licensee, including without limitation, those specifications set forth in
Licensor's so-called White Sheet Report; and (ii) will be free of defects which
affect the Software's performance. The Licensor does not warrant that the
Software will be defect or error free in all circumstances.
B. Licensor warrants that Licensee will not be required to obtain any
third-party software (other than third party operating system software) in order
to operate the Software or Source Code other than that which is set forth in
this Agreement and that the entering into and carrying out of the terms of this
Agreement will not violate or constitute a breach of any agreement binding on
Licensor.
C. Licensor warrants that the documentation and technical materials
provided by
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Licensor to Licensee will be accurate and complete.
D. Licensor warrants that there is not any disabling code in the Software
or Source Code which would alter, destroy, or inhibit any use of the Software or
Source Code or the data contained therein.
E. Licensor warrants that it will not terminate or attempt to terminate,
by modem or by electronic means or by other means, use of the Software by
Licensee in connection with any dispute.
F. Licensor warrants that the Software is designed to operate in the year
2000 and beyond to store, calculate, process and print year 2000 dates and is
coded so that the progression from the year 1999 to 2000 (and beyond) will not
cause the Software to cease operating, to operate incorrectly or otherwise fail
to meet its documentation.
G. Licensor warrants that it will perform its obligations arising
pursuant to this Agreement in a diligent and professional manner and in
accordance with current industry standards.
H. Licensor warrants that as of the Effective Date Licensor has no
knowledge of any written notice asserting a claim which might reasonably be
expected to impair Licensee's right to use the Software.
I. Licensee must notify Licensor in writing, within twelve (12) months of
delivery of the Software, or any changes or additions to the Software, to
Licensee (not including delivery of any subsequent modifications to the
Software), of its claim of any such defect(s) which Licensee is aware of. If
the Software is defective, Licensor shall remedy such defect in accordance with
the time frames set forth in Exhibit B "SOFTWARE MAINTENANCE AGREEMENT" attached
hereto and incorporated herein by this reference. The Licensee agrees to
provide the Licensor with information available to Licensee to allow the
Licensor to remedy such defect. The Licensor is not responsible for any defect
or error, which Licensee is aware of but not reported within such twelve (12)
month period, or any defect or error in the Software caused by any Licensee
modification, misuse or damage, except as set forth in Exhibit B. Except as set
forth above, the Software is being licensed to the Licensee "AS IS" and without
warranty of any kind.
J. THE ABOVE IS A LIMITED WARRANTY AND THE WARRANTIES SET FORTH IN THIS
AGREEMENT ARE THE ONLY WARRANTIES MADE BY LICENSOR. LICENSOR MAKES AND LICENSEE
RECEIVES NO WARRANTY (EXCEPT AS SET FORTH IN THIS AGREEMENT) EXPRESS OR IMPLIED
AND THERE ARE EXPRESSLY EXCLUDED ALL WARRANTIES OF MERCHANTABILITY AND FITNESS
FOR A PARTICULAR PURPOSE. NEITHER PARTY SHALL HAVE ANY LIABILITY WITH RESPECT TO
ITS OBLIGATIONS UNDER THIS AGREEMENT
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FOR INDIRECT, SPECIAL, CONSEQUENTIAL, EXEMPLARY, OR INCIDENTAL DAMAGES EVEN IF
IT HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES, INCLUDING, WITHOUT
LIMITATION ANY DAMAGE TO ANY PROPERTY OF THE LICENSEE EXCEPT IN THE CASE OF
WILFUL MISCONDUCT.
K. Correction for difficulties or defects traceable to the Licensee's
errors, or systems changes or modifications made by Licensee, shall be billed
pursuant to Section XVII Additional Consulting Services.
L. Either party's liability arising out of contract, negligence, strict
liability in tort or warranty shall not, except in the case of wilful
misconduct, exceed the amount paid by Licensee under this Agreement.
X. INDEMNITY
A. Licensor hereby agrees to indemnify, defend and hold harmless
Licensee, its shareholders, directors, officer, agents, employees, agents, and
representatives from and against any and all claims, expenses, damages, losses,
costs, fees, royalties or penalties (including reasonable attorneys' fees, costs
and expenses), liability, actions made or brought against Licensee arising out
of any allegation of any infringement of third party's rights, including without
limitation, patent, trademark, copyright, and trade secrets arising out of or
related to this Agreement, provided: (a) Licensee gives prompt written notice of
such claim to Licensor, b) Licensor has sole control of the defense and
settlement negotiation, on condition that Licensee may participate and appoint
any counsel to participate in any defense and settlement negotiation at
Licensee's expense, c) Licensee cooperates with Licensor in such defense and
settlement negotiation, at Licensor's expense and d) the infringement is based
on the use of the latest release of the Software made available to Licensee. In
no event shall Licensee settle any such claim, lawsuit or proceeding without
Licensor's prior written approval.
If, as a result of any claim of infringement against any patent, copyright,
license or other property right, Licensor is enjoined from using the Software,
or if Licensor believes that the Software is likely to become the subject of a
claim of infringement, Licensor at its option and expense may procure the right
for Licensee to continue to use the Software, or replace or modify the Software
so as to make it non-infringing, provided such replacement or modification is
reasonably acceptable to Licensee. If neither of these two options is reasonably
practicable or acceptable to Licensee, Licensor may discontinue the license
granted herein on one hundred and twenty days (120) days' written notice and
indemnify and hold Licensee harmless in accordance with the paragraph set forth
immediately above. The foregoing states the entire liability of Licensor with
respect to infringement of any copyrights, patents, license or other property
rights by the Software or any parts thereof. Upon the occurrence of any event
which triggers Licensor's obligation under this Agreement, Licensee may suspend
any of its obligations under this Agreement and deposit any amount
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owed under this Agreement into an interest-bearing trust account pending final
resolution of such claim, action or liability.
B. Licensor shall defend, indemnify and hold harmless Licensee, and its
respective directors, officers, employees and agents from and against all
claims, demands, causes of action, expenses, damages, losses, costs, fees or
penalties (including reasonable attorneys' fees, expenses and costs of
settlement) whether based upon tort, breach of contract or otherwise of
whatsoever kind and nature arising out of or on account of, or resulting in
whole or part from, any misrepresentation or default in the performance of
Licensor's obligations pursuant to this Agreement, to the extent caused by any
act, error or omission of Licensor, employees of Licensor, or of any other
persons or entities who are directly or indirectly associated with Licensor.
Licensee shall give Licensor prompt notice of any claim or liability hereby
indemnified against by Licensor and thereupon Licensor shall be entitled to
control, and shall assume full responsibility for, the defense of such matter.
The indemnity contained herein shall not be deemed to be a waiver of or in
limitation of any other rights Licensee may have.
XI. BREACH
Except as otherwise specifically set forth herein, Licensor shall have the
right to terminate this Agreement and the license granted herein in the event
Licensee is in default of its obligations under this Agreement (including those
set forth immediately below); upon one hundred and eighty (180) days prior
written notice detailing the reason for termination and providing an opportunity
for Licensee to cure any such default during such period:
A. In the event that Licensee, its officers or employees violates any
provision of this Agreement including, but not limited to, confidentiality and
payment and such violation is not cured during such period;
B. In the event Licensee (i) terminates its business; (ii) becomes
subject to any bankruptcy or insolvency proceeding (whether voluntary or
involuntary) under Federal or state statute or (iii) becomes insolvent, is
otherwise unable to pay its debts as they become due or becomes subject to
direct control by a trustee, receiver or similar authority;
C. In the event the Licensee assigns or transfers this Agreement or any
of its rights or obligations hereunder, without the Licensor's prior written
consent, which shall not be unreasonably withheld; provided however, no consent
is required other than notice in the event Licensee assigns or transfers this
Agreement or any of its rights or obligations hereunder to an affiliate
controlled by, under common control with or controlling Licensee or a successor
to all or substantially all of Licensee's assets used in Licensee's Business.
D. Within five days after termination, Licensee will return to Licensor
the Software and all copies in the form provided by Licensor or as modified by
Licensee, or
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upon request by Licensor destroy the Software and all copies, and certify in
writing that they have been destroyed. Termination shall not relieve Licensee
of its obligations regarding confidentiality of the Software. Termination will
be in addition to and not in lieu of any equitable remedies available to
Licensor.
Licensor shall be provided written notice by Licensee in the event of any
breach or default hereunder by Licensor. Licensor shall have fifteen (15) days
from receipt of such written notice to cure any such breach; provided however,
licensor shall have five days from receipt of such written notice to cure the
first occasion of any breach where Licensor has committed to a fixed time frame
for performance as expressly set forth in this Agreement. In any such instance,
time shall be considered of the essence.
XII. TAXES
Licensee shall, in addition to the other amounts payable under this
Agreement, pay all sales and other taxes, federal, state, or otherwise, however
designated, which are levied or imposed by reason of the transactions
contemplated by this Agreement, other than based on the income derived from
these transactions. Licensee shall pay to Licensor an amount equal to any such
items actually paid, or required to be collected or paid by Licensor at the time
the payment for the services performed or the License granted under this
Agreement.
XIII. HARDWARE REQUIREMENTS
Licensee shall make available for the Software implementation, at each
Permitted Configuration Center, computer equipment and software configurations
equivalent to any configuration which Licensor has approved prior to or during
the term of this Agreement for other licensees or customers.
XIV. DELIVERY, INSTALLATION AND TESTING
Licensee hereby acknowledges receipt of a previous version of the Software.
The Source Code shall be delivered within three days of an event occurring under
Section II that would allow Licensee access to the Source Code.
XV. CUSTOM MODIFICATIONS
All custom modifications to the Software, not including assisting Licensee
in implementation of the Software job control language, shall be undertaken by
Licensor in accordance with Section XVII Additional Consulting Services.
XVI. GENERAL
A. Each party acknowledges that it has read this Agreement, together with
the
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Exhibits hereto, it understands it, and agrees to be bound by its terms, and
further agrees that this is the complete and exclusive statement of the
agreement between the parties, which supersedes and merges all prior proposals,
understandings and all other agreements, oral and written, between the parties
relating to this Agreement. This Agreement may not be modified or altered except
by written instrument duly executed by both parties.
B. Dates or times by which Licensor is required to make performance under
this Agreement shall be postponed automatically to the extent that Licensor is
prevented from meeting them by causes beyond its reasonable control, but no more
than thirty (30) days.
C. This Agreement and the rights, obligations and relations of the
parties hereunder shall be governed by the laws of the State of California
without regard to its rules of conflicts of law. In the event any legal
proceeding is brought to enforce or interpret the provisions of this Agreement
the parties hereby agree to submit to the jurisdiction of the courts of Los
Angeles, California, which shall be the exclusive venue for all such
proceedings.
D. If any provision of this Agreement is invalid under any applicable
statute or rule of law, it is to that extent to be deemed omitted, but this
Agreement shall otherwise remain in full force and effect.
E. Neither party may sell, assign, transfer, convey, delegate, encumber
or sub-license, without the prior written consent of the other party, its
rights, duties or obligations under this Agreement to any person or entity, in
whole or in part, which consent shall not be unreasonably withheld, except as
otherwise provided in Section XI(c). Notwithstanding anything in this Agreement
to the contrary, in the event of a proposed assignment or transfer of the
Agreement by Licensee, and the assignee's use of the Software would materially
increase beyond the anticipated future use of the Software by Licensee, i.e., an
increase to at least 150% of the anticipated future use of the Software by
Licensee, the Licensor shall have the right to charge such assignee an
additional reasonable license fee equivalent to the fees Licensor then charges
to companies that would use the Software in an amount reasonably equivalent to
such assignees' anticipated usage, minus the license fee(s) paid by Licensee
hereunder. In the event such assignee refuses to pay such equivalent fee,
Licensor may in its sole and absolute discretion, refuse to consent to such
assignment or transfer.
F. In the event of any dispute or legal proceeding between the parties
arising out of related to this Agreement or its breach, the prevailing party
shall be entitled to recover from the non-prevailing party all fees, costs and
expenses, including without limitation, all attorney's and expert witness fees
and disbursements incurred in connection with such dispute or legal proceeding.
G. The waiver or failure of either party to exercise in any respects any
right provided for herein shall not be deemed a waiver of any further right
hereunder.
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H. All notices requests, reports, submissions and other communications
permitted or required to be given under this Agreement shall be deemed to have
been duly given if such notice of communication shall be in writing and sent by
personal delivery or by airmail, cable, telegram, telex, facsimile transmission
or other commercial means of rapid delivery, postage or costs of transmission
and delivery prepaid, to the parties at addresses specified herein until such
time as either party hereto shall give the other party hereto not less than ten
(10) days' prior written notice of a change of address in accordance with the
provisions hereof.
XVII. ADDITIONAL CONSULTING SERVICES
During the term of this Agreement, Licensor shall provide Licensee with
various business and technical consulting services as may be requested by
Licensee. Such services shall be provided subject to the following terms and
conditions.
A. Licensee shall be entitled to order services to be provided by
Licensor and Glasgal (or its subsidiaries) under the terms of this Agreement.
This Agreement includes the ability to require the services of any Licensor or
Glasgal "without limitations" (or its subsidiaries) personnel. Such services
shall be provided in a professional and workmanlike manner.
B. Unless otherwise cancelled in writing by Licensee, Licensee agrees to
pay Licensor $100,000 as a refundable Service Retainer Fee one week after the
beginning of each two month period beginning on the Effective Date (the "Service
Period") for all maintenance, installation, training, modification, support and
other services to be provided by Licensor that are not being provided by
Licensor pursuant to Exhibit "B". In the event that in any two month Service
Period the fees for the actual services provided by Licensor total less than
$100,000, Licensee shall subtract the remaining balance of the Service Retainer
Fee and shall pay Licensor the difference as the Minimum Service Fee for the
forthcoming Service Period.
If Licensee requests services during the first year after the execution date of
this Agreement in excess of $150,000 each Service Period, after deducting any
unused balance remaining from prior Service Periods, which by year end is in
excess of $900,000 (at the Exhibit D rates) all such excess requested services
will be provided by Licensor at the then current rate charged to a majority of
its customers. Licensor may charge for such excess services each Service
Period, subject to a year end reconciliation. To the extent total services for
the year (at the Exhibit D rates) are less than $900,000, Licensor shall
immediately refund any payments made by Licensee in excess thereof. After such
year, Licensor may charge for services requested by Licensee in excess of
$600,000 ($150,000 each Service Period), at its then current rates charged to a
majority of its customers, again subject to an annual reconciliation and
otherwise as set forth immediately above.
C. Licensee agrees to pay all reasonable out-of-pocket expenses. Licensee
shall
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have the option to book travel arrangements for Licensor and/or Glasgal (or its
subsidiaries) personnel.
D. Service fees that exceed the Service Retainer Fee shall be due and
payable within thirty (30) days following the end of the Service Period and the
receipt of invoice.
E. Services shall be provided based upon job classifications and at the
hourly rates specified in Exhibit "D" "SCHEDULE OF SERVICE CLASSIFICATIONS AND
RATES" attached hereto and incorporated by this reference herein. In the event
Licensee chose not to pay the Service Retainer Fee for any Service Period,
Licensor has the sole option to change the rates specified in Exhibit "D"
through notification, in writing, to its then current standard rates.
F. Licensor shall submit time records in writing for each month detailing
the personnel, services and time provided to Licensee by the fifth day of the
following month. Licensee shall have five (5) business days to review such time
records for accuracy and submit discrepancies to Licensor. Licensor shall use
its best efforts to ensure that only time spent working on behalf of Licensee is
reported and billed.
G. Licensee agrees to provide Licensor with a purchase order for services
to be provided under the terms herein at least three (3) days prior to the
required start date for the provision of the services.
H. Licensor hereby agrees to provide the Maintenance Services, commencing
on the execution date, set forth in Exhibit "B" in consideration of the payment
by Licensee to Licensor of $6,250 per quarter, payable within thirty (30) days
of receipt of invoice. Such payment shall commence on March 1, 1998. In the
event Licensee chooses not to secure Maintenance Services it will no longer be
obligated to make such payment and Licensor will no longer be obligated to
provide Maintenance Services.
XVIII. TECHNICAL SUPPORT
Licensor will deliver to Licensee any changes, updates, upgrades, or
enhancements to Software (and Source Code when and if Licensee is entitled to it
under the provisions of Section II hereof), including without limitation
programming changes, releases, versions, and other enhancements, along with
updates or revisions to technical materials and documentation to the extent that
they relate to the Software and Source Code within thirty (30) days of the
release to Licensor's own technical, programming, or support staff and in any
event, no later than the release to any customer or licensee of Licensor or
Glasgal and as otherwise set forth in Exhibit B; provided that Licensee is then
current in its payment for Maintenance Services (as defined in Exhibit B). End
User documentation shall be updated on diskette in Microsoft Word for Windows or
such other industry standard program as mutually agreed to by the parties.
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Licensor agrees to perform technically-feasible Software programming
changes requested by Licensee during the term of this Agreement, including
changes to or new formats for inclusion in the Software, in a timely manner and
at rates to be negotiated in good faith by the parties.
XIX. CORPORATE GUARANTEE
Glasgal unconditionally guarantees the performance of Licensor under the
Sections entitled Warranty and Indemnity of this Agreement, including without
limitation any obligation or liabilities of Licensor owed to Licensee
thereunder, heretofore, now or hereafter made, incurred or created, whether
voluntary or involuntary and however arising, whether due or not due, absolute
or contingent, liquidated or unliquidated, determined or undetermined, and
whether Licensor may be liable individually or jointly with others, or whether
recovery may be or hereafter become barred by any statute of limitations, or
whether such performance may be or hereafter become otherwise unenforceable.
Glasgal authorizes Licensee, without notice or demand and without affecting
its liability under this Agreement, from time to time to (a) renew, compromise,
extend, accelerate, or otherwise change, increase, or decrease Licensor's
performance or the terms of this Agreement
Glasgal waives any defense arising by reason of any disability or other
defense of Licensor or by reason of the cessation from any cause whatsoever of
the liability of Licensor. Until this Agreement has expired and all performance
of Licensor to Licensee shall have been fully performed, Glasgal shall have no
right of subrogation, and waives any right to enforce any remedy, which Glasgal
now has or may hereafter have against Licensor. Guarantor waives all demands
for performance, notices of nonperformance, protests, notices of protest, and of
the creation, or incurring of new or additional obligation or liability of
Licensor.
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LICENSOR: LICENSEE:
COMPUTER-AIDED SOFTWARE DATANET INTERNATIONAL,
INTEGRATION, INC. INCORPORATED
By: /s/ James M. Caci By: /s/ James Ung
--------------------- ---------------------
Name: James M. Caci Name: James Ung
Title: CFO Title: President
Address: 12477 W. Cedar Dr. Address: 1304 John Reed Ct
Suite 201 Industry, CA 91745
Denver CO 80228
Glasgal Communications, Inc. EXECUTION DATE, September 15th, 1997
as to Section XIX Corporate Guaranty
By: /s/ James M. Caci
---------------------------------
Name: James M. Caci
Title: CFO
Address: 20C Commerce Way
Totowa, NJ 07054
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EXHIBIT A
SOFTWARE
Licensor's IWPS Configurator products, version 2.20 or higher. IWPS
Configurator shall include all modules, tools and utilities produced by Licensor
for use with the IWPS Configurator product line.
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EXHIBIT B
SOFTWARE MAINTENANCE AGREEMENT
Article 1
DEFINITIONS.
Terms in this Maintenance Agreement which are capitalized have the meanings
set forth below, or as defined elsewhere in this Agreement.
"Error" means an instance of failure of the Software to meet the
requirements of Section XI, Warranty of this Agreement. An Error is a Class 1
Error if it renders continued use of the Software commercially infeasible in
Licensee's reasonable judgment. An Error is a Class 2 Error if it makes
continued use of the Software seriously inconvenient and substantially reduces
its value to Licensee, in Licensee's reasonable judgment. All other Errors are
Class 3 Errors; in particular, all documentation shortcomings and deviations and
cosmetic errors that do not have the economic consequences defined for Class 1
and Class 2 Errors shall be deemed Class 3 Errors.
Article 2
TERM AND TERMINATION.
2.1 TERM. Commencing upon delivery of the Software, the term for
providing Maintenance Services for such Software shall be three months and shall
automatically renew quarterly, unless Licensee notifies Licensor in writing of
its decision to not renew.
2.2 TERMINATION BY LICENSOR. Licensor may terminate the provision of
Maintenance Services at any time, whereupon Licensee's Source Code License shall
commence.
2.3 TERMINATION BILLING. Licensor shall refund any prepaid charges for
Maintenance Services pro rata from the effective date of any permitted
termination. Licensee shall pay any charges for Maintenance Services rendered
pro rata to the effective date of any permitted termination.
Article 3
CHARGES.
Charges for Maintenance Services shall be as stated in Section XVII.
Additional Consulting Services of the Agreement.
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Article 4
SERVICE RESPONSIBILITIES.
4.1 MAINTENANCE. Licensor shall provide Licensee the maintenance services
described in this Exhibit and the Agreement with respect to the Software and
Source Code, including providing updates and corrections ("Maintenance
Services"). Licensor shall correct all Errors reported by Licensee by means of
the procedures established by this Exhibit. Maintenance Services shall be
performed in a timely and professional manner by qualified maintenance
technicians familiar with the Software and Source Code and its operation.
Licensor shall provide, upon Licensee's request, periodic reports on the status
of Maintenance Services requested by Licensee.
4.2 SUPPORT AND RESPONSE TIME.
(i) Licensor shall provide telephone support solely for the
reporting and correction of suspected Errors ("Support") Monday through Friday,
9:30 a.m. to 5:30 p.m., Mountain Standard Time, except Licensee holidays
("Maintenance Period"). Licensor will also have personnel on call outside of
the Maintenance Period during which time Licensee may request Maintenance
Services. Maintenance Services, both in and outside of the Maintenance Period,
shall be provided as set forth below.
(ii) Licensor shall provide to Licensee, and keep current, a list
of persons and telephone numbers ("Calling List") for Licensee to contact for
Support. Such Calling List shall include: (1) the first person to contact for
the answer or assistance desired, and (2) the persons in successively more
responsible or qualified positions to provide the answer or assistance desired.
(iii) If Licensee desires Maintenance Services, Licensee shall
contact Licensor's telephone Support service in accordance with the Calling
List. Licensor shall make best efforts to respond to Licensee's initial
telephone call with off-site telephone consultation, assistance and advice
relating to Support of the Software within thirty (30) minutes of Licensee's
first call for Maintenance Services or, as to requests for assistance not
involving suspected Class 1 or 2 Errors made outside of the Maintenance Period,
within thirty (30) minutes after the start of the next day occurring during the
Maintenance Period and, in any event, Licensor shall respond within two hours of
such allowed response times. If Licensor fails to so respond; or if Licensee is
unable, after three or more calls within a fifteen (15) minute period, to reach
Licensor's telephone Support service; or if the designated person from the
Calling List is not available when Licensee makes contact with Licensor to
obtain consultation and assistance, then Licensee shall attempt to contact the
next more responsible or qualified person on the Calling List until contact is
made and a designated person responds to the call.
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(iv) After Licensee reports a suspected Class 1 or 2 Error,
Licensor shall provide a correction or workaround as soon as possible. Licensee
shall consult with Licensor to convey the severity of the Error. If Licensor
has not diagnosed and corrected a Class 1 or Class 2 Error on the same day as
Licensee's initial telephone call, Licensee shall submit to Licensor a listing
of output and such other data as Licensor may request and is reasonably
available to Licensee in order to reproduce operating conditions similar to
those present when Licensee detected such Error.
(v) For Class 1 Errors, Licensor shall provide a workaround
reasonable in Licensee's judgment, or a correction, in any event within three
days after receipt of output or other documentation of such Error. Licensor
shall, upon Licensee's request, without limitation, assign fully-qualified
technicians to work with Licensee at Licensee's site without interruption (i.e.,
24 hours per day) until Licensor provides a workaround reasonable in Licensee's
judgment, or a correction.
(vi) For Class 2 Errors, Licensor shall provide a workaround
reasonable in Licensee's judgment, or a correction, in any event within five
days after receipt of output or other documentation of such Error. Licensor
shall, upon Licensee's request, without limitation, assign fully-qualified
technicians to work with Licensee at Licensee's site during Licensee's regular
business hours until Licensor provides a workaround reasonable in Licensee's
judgment, or a correction.
(vii) For Class 3 Errors, Licensor shall correct such Error by
modifying the Software no later than the next update, unless Licensor has
scheduled release of such update less than thirty (30) days after Licensee's
notice, in which case Licensor shall correct the Error in the following update.
4.3 UPDATES. Licensor shall provide Licensee updates to the Software, the
earlier of whenever Licensor makes such updates generally available to its
customers or internally commences commercial use of such updates.
4.4 CONTINUING SUPPORT. Licensee may decline to install an update or
upgrade Licensor offers. In such event, Licensor shall continue the Maintenance
Services for whatever version of the Software that is installed at Licensee,
subject to Licensor's right to terminate this Maintenance agreement as permitted
in article 2.3 TERMINATION BY LICENSOR. Licensor may charge additionally for
such Maintenance Services pursuant to Section XX Additional Consulting Services
provided that Licensee is more than one update or upgrade behind and continues
to decline to install a prior update or upgrade that would cause the Software to
be in compliance with the Warranty.
4.5 COMPATIBILITY. Within ninety (90) days after the supplier of an
operating system ("OS") in use at a Permitted Configuration Center makes a new,
upgraded version or release of such OS generally available to its customers,
Licensor
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shall deliver to Licensee, upon Licensee's request, an update to the Software
and Source Code to ensure its compatibility with such new OS release, or if no
update is necessary, Licensor shall so state to Licensee in writing within such
ninety (90) days. Licensor may charge Licensee for such upgrade pursuant to
Section XVII Additional Consulting Services. In such event, Licensee shall have
the exclusive right to such upgrade and Licensor shall not be entitled to
license, sell, market or distribute such upgrade to any third party.
4.6 EARLY VERSION. Licensor shall, upon Licensee's request, provide
early versions of updates or upgrades prior to general release in order to
provide development feedback. Licensee, at its request, will be included in
Licensor design meetings during the development cycle and Licensor shall make
all reasonable efforts to include general interest features suggested by
Licensee and develop the workpapers and modules that Licensee considers most
important. Licensee may send a reasonable number of employees to attend
end-user group meetings sponsored by Licensor. Licensee shall pay all
out-of-pocket expenses associated therewith.
4.7 TRANSITIONAL SUPPORT. If the provision of Maintenance Services to the
Software covered by this Exhibit is terminated by Licensor as allowed in
Article 2.3 TERMINATION BY LICENSOR, Licensor shall give Licensee at least one
hundred and eighty (180) days' prior notice, whereupon the Source Code License
shall become effective.
Article 5
LICENSEE RESPONSIBILITIES.
5.1 SUSPECTED ERRORS. If Licensee discovers any suspected Error in the
Software Licensee shall analyze the suspected Error to determine if it is the
result of Licensee's misuse or misunderstanding of the Software before seeking
Licensor's assistance.
5.2 LICENSEE RESPONSIBILITY. In the event Licensor determines that the
problem reported by Licensee is directly related to unauthorized alterations of
the Software by Licensee, then
(i) Licensor may charge for employee time expended in accordance with
Section XVII Additional Consulting Services in addition to reasonable
out-of-pocket expenses.
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EXHIBIT C
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE 'ACT') OR STATE SECURITIES LAWS AND NO
TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION
THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A
SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT
FROM THE REQUIREMENTS OF THE ACT.
As of July 1, 1997 $950,000.00
Non-Interest Bearing
Promissory Note Due March 31, 1998
Data Net International, Incorporated, a California corporation (together
with its successors and assigns, "Issuer"), for value received hereby
promises to pay to Computer-Aided Software Integration, Inc., a Delaware
corporation (together with its successors, transferees and assigns,
"Noteholder"), by wire transfer of immediately available funds to an account
designated by Noteholder by notice to Issuer the principal sum of NINE
HUNDRED AND FIFTY THOUSAND DOLLARS ($950,000) ("Note Amount"), as provided
herein.
This Note (the "Note") is delivered to Noteholder as payment in full for
the license fee (the "License Fee") for the licenses and rights provided to
Issuer pursuant to that certain Amended and Restated License Agreement dated
as of the date hereof by and between Issuer and Noteholder (the "License
Agreement"). This Note is an amendment and restatement of, and issued in
substitution for, that certain Note of the Issuer dated April 30, 1997 in
favor of Noteholder in the principal amount of $1,500,000.00 (the "April
Note"). The execution and delivery of this Note shall render the April Note
null, void, canceled, terminated and satisfied in all respects, and Issuer
shall have no liability in connection therewith after such execution and
delivery.
1. TERMS OF NOTE. The Note Amount shall not accrue interest and shall be
due and payable in two installments (the "First Installment" and the "Second
Installment," respectively), payable in the amounts and on the dates as
follows:
PAYMENT DATE PRINCIPAL PAYMENT
------------ -----------------
First
Installment: October 31, 1997 $250,000
Second
Installment: February 28, 1998 $700,000
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;provided, however, that:
(i) in the event that Issuer in its sole discretion consummates a
Qualified Financing (as hereinafter defined) prior to payment of the
First Installment, the first $250,000 of proceeds of such Qualified
Financing shall be immediately applied to pre-payment of the First
Installment; and
(ii) in the event that Issuer in its sole discretion consummates a
Qualified IPO (as hereinafter defined) prior to payment of the Second
Installment, the first $350,000 of proceeds of such Qualified
Financing shall be immediately applied to pre-payment of the Second
Installment.
For purposes of this Note, (i) a Qualified Financing shall mean a
subordinated debt or equity financing transaction or a series of subordinated
debt or equity financing transactions which yield gross proceeds to the
Issuer or any of its subsidiaries of at least $1,000,000, and (ii) a
Qualified IPO shall mean an initial underwritten offering by the Issuer of
its securities to the public pursuant to a registration statement filed with
the Securities Exchange Commission under the Securities Act of 1933, as
amended.
Whenever any payment of this Note shall be stated to be due on a day,
which is not a Business Day, such payment shall be made on the next
succeeding Business Day. For purposes of this Note, "Business Day" means any
day except a Saturday, Sunday or other day on which commercial banks in the
City of New York are authorized by law to close.
2. EVENT OF DEFAULT DEFINED; ACCELERATION OF PAYMENT. In case one or
more of the following events ("Events of Default") (if it shall be voluntary
or pursuant to any final judgment, decree or order of any court or any final
order of any administrative or governmental body) shall have occurred and be
continuing:
a. Failure on the part of Issuer to pay any installment under this Note
when due at maturity, upon acceleration or otherwise and such default
continues for a period of more than thirty (30) days after the date on which
written notice specifying such failure, stating that such notice is a "Notice
of Default" hereunder and demanding that Issuer remedy the same, shall have
been given by registered or certified mail, return receipt requested, to
Issuer; or
b. Material failure on the part of Issuer duly to observe or perform
any of the material covenants or agreements on the part of Issuer contained
in the License Agreement, for a period of thirty (30) days after the date on
which written notice specifying such failure, stating that such notice is a
"Notice of Default" hereunder and demanding that Issuer remedy the same,
shall have been given by registered or certified mail, return receipt
requested, to Issuer; or
c. A material final judgment or order (not covered by insurance) for
the payment of money in excess of $500,000 shall be rendered against Issuer
(treating any deductibles as not so
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covered) shall be rendered against Issuer and such judgment or order shall
continue unsatisfied, unstayed or unappealed (by filing of motion after
judgment or order or filing of appeal to higher governmental authority) for a
period of 30 days; or
d. Issuer makes an assignment for benefit of creditors involving all of
its assets; or
e. Issuer pursuant to or within the meaning of title 11, U.S. Code or
any succeeding federal law ("Bankruptcy Law"):
i. Commences a voluntary case or proceeding, which is not
dismissed within ninety (90) days of commencement,
ii. Consents to the entry of an order for relief against it
effectuating the transfer of all of its assets in an involuntary case or
proceeding, unless such case or proceeding is dismissed within ninety (90)
days of commencement, or
iii. Consents to the appointment of any receiver, trustee,
assignee for the benefit of creditors, liquidator or similar official under
any Bankruptcy Law (a "Custodian") for it or for all or substantially all of
its property, which Custodian is not removed within ninety (90) days of
appointment, or
iv. A court of competent jurisdiction enters a final order or
decree under any Bankruptcy Law that:
v. Is for relief against Issuer effectuating the transfer of all
of its assets in an involuntary case or proceeding, unless such case or
proceeding is dismissed within ninety (90) days,
vi. Appoints a Custodian of Issuer for all or substantially all of the
property of Issuer, which Custodian is not removed within ninety (90) days of
appointment, or
vii. Orders the complete liquidation of all of the assets of Issuer,
And such order or decree remains unstayed or unappealed (by filing of
motion after judgment or order or filing of appeal to higher governmental
authority) and in effect for 60 days;
Then, (i) in each case where a material Event of Default occurs (other
than a material Event of Default under Section 3(e) or 3(f) hereof), the
Noteholder, by thirty (30) days notice in writing to Issuer (the
"Acceleration Notice"), may declare the aggregate Note Amount to be due, and
upon the passage of such thirty (30) days, the same shall become due;
PROVIDED that if a material Event of Default under Section 3(e) or 3(f)
occurs, the Note Amount shall become and be immediately due upon receipt of
written notice of such default to Issuer on the part of the Noteholder.
Subject to Section 7 below, the Noteholder may exercise this option to
accelerate on the terms of this Note during any default by Issuer regardless
of any prior forbearance.
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Upon the occurrence of, and during the continuation of, any material
Event of Default (or, in the case of those Events of Default with allotted
cure periods, upon expiration of the allotted cure period of such material
Event of Default) the principal amount of this Note shall bear interest at a
rate of 5% per annum (the "Default Interest").
3. DEFAULT BY NOTEHOLDER OR GLASGAL. If Noteholder or Glasgal
Communications, Inc. or any of its subsidiaries or affiliates (collectively,
AGlasgal@) breaches the License Agreement or any other agreement by and among
Issuer and Noteholder and/or Glasgal, then this Note shall be immediately
rendered null, void, canceled, terminated and satisfied in all respects, and
Issuer shall have no liability in connection therewith after such execution
and delivery.
4. PREPAYMENT. The Issuer may prepay the unpaid principal balance of
this Note in whole or in part, without penalty at any time. The principal
amount of this Note may be prepaid only in cash.
5. TRANSFER. This Note is assignable and transferable by Noteholder
only with the consent of Issuer and only upon compliance with the provisions
of Section 2 above, and by Issuer with Noteholders consent.
6. NO WAIVER. No failure on the part of Noteholder to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall any single exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right hereunder. The
remedies herein provided have been negotiated by the parties, are cumulative
and are exclusive of any other remedies provided by law.
7. NO COLLECTION. Notwithstanding any provision of Section 3 of this
Note, the License Agreement or otherwise, no suit may be brought to collect
this Note or for payment of the License Fee; instead, Noteholder shall only
be able, and its exclusive remedy for any default under this Note or the
failure to pay the License Fee shall be to apply the entire amount due
hereunder to payment for the Common Stock of the Issuer pursuant to the terms
of that certain Warrant Agreement of even date herewith by and between the
Issuer and the Noteholder.
8. AMENDMENT. No amendment or waiver of any provision of this Note,
nor consent to any departure by the Issuer herefrom, shall in any event be
effective unless the same shall be in writing and signed by Noteholder and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
9. MISCELLANEOUS. This Note shall be governed by and be construed in
accordance with the laws of the State of California without regard to the
conflicts of law rules of such state. Issuer hereby assents to extensions of
the time of payment, or forbearance or other indulgence without notice. The
Section headings herein are for convenience only and shall not affect the
construction hereof. After delivery of an indemnity in form and substance
reasonably satisfactory to Issuer, Issuer agrees to issue a replacement Note
if this Note has been lost, stolen, mutilated or destroyed.
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<PAGE>
10. NOTICES. All notices, requests and other communications to either
party hereunder shall be in writing by nationally recognized overnight mail
carrier, certified mail, return receipt requested or facsimile and shall be
given,
If to Issuer to:
Data Net International, Incorporated
1304 John Reed Court
City of Industry, California 91745
Attn: Maxwell Riazi
Fax: (805) 492-4294
if to Noteholder:
Computer-Aided Software Integration, Inc.
c/o Glasgal Communications, Inc.
20C Commerce Way
Totowa, New Jersey 07512
Attention: Chief Financial Officer
Telephone: (201) 890-4800
Fax: (201) 890-2888
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022-1170
Attention: Robert H. Friedman, Esq.
Telephone: (212) 753-7200
Fax: (212) 755-1467
if to Glasgal:
Glasgal Communications, Inc.
20C Commerce Way
Totowa, New Jersey 07512
Attention: Chief Financial Officer
Telephone: (201) 890-4800
Fax: (201) 890-2888
Any notice sent by nationally recognized overnight mail carrier shall be
deemed to be delivered to the address shown on the mailing receipt upon
actual receipt by the recipient. Any
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<PAGE>
notice sent by certified mail, return receipt requested, shall be deemed
to be delivered 3 days after mailing. Any notice sent by facsimile shall be
deemed delivered upon the receipt by sender of written confirmation of
transmission so long as within 24 hours such notice is also sent by regular
mail to the appropriate address written above.
IN WITNESS WHEREOF, Issuer has caused this Note to be executed as of the
date first above written.
DATANET INTERNATIONAL, INCORPORATED
By:
------------------------------
Name: James Ung
-----------------------
Title: President
-----------------------
Agreed and Accepted:
Computer-Aided Software Integration, Inc.
By:
--------------------------
Name: James Caci
Title: CFO
Dated: July 1, 1997
------------------------
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EXHIBIT D
"SCHEDULE OF SERVICE CLASSIFICATIONS AND RATES"
Service Type Job Class Hourly Rate
- ------------ --------- -----------
Management Consulting Principal $135
Software Development Programmer $100
Technical Consulting Consulting Engineer $95
Deployment Technician (Std Hours) $45
Technician (Overtime) $55
Technician (Holidays) $70
The above rates reflect a preferred rate.
The above rates may be adjusted by Licensor on each anniversary of the
execution date of this Agreement, upon at least 60 days prior written notice to
Licensee, to rates no higher than the lowest effective rate for each category of
Job Class (or functionally equivalent Job Class) charged by Licensor to
Licensor's then most favored customers.
The above rates shall be adjusted by Licensor one year after the execution
date of this Agreement, and shall thereafter continue to be adjusted, as and
when necessary to reduce (but not increase) such rates to the lowest effective
rate for each category of Job Class (or functionally equivalent Job Class) then
charged by Licensor to Licensor's then most favored customers.
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EXHIBIT 10.6
RESELLER AGREEMENT
THIS RESELLER AGREEMENT (the "Agreement") is made effective as of the 15th
day of September, 1997 by and between COMPUTER-AIDED SOFTWARE INTEGRATION, INC.
("CASI"), a Delaware corporation, and DATANET INTERNATIONAL, INC. ("RESELLER"),
a California corporation.
A. CASI markets and supports certain proprietary computer software
products that RESELLER desires to use to provide services to its Customers and
to market to third parties on a non-exclusive basis.
B. RESELLER markets and supports certain hardware and/or software
products and systems and is knowledgeable of the market for CASI products
therein.
C. CASI and RESELLER desire to enter into this Agreement authorizing
RESELLER to market, distribute and support CASI's products upon the terms and
provisions stated herein.
NOW, THEREFORE, in consideration of the foregoing, of the mutual promises
hereinafter set forth and of other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto, intending
legally to be bound, hereby agree as follows:
1. DEFINITIONS.
1.1 Products. The term "Products" means authorized copies of the
CASI computer software programs (in object or source code as stipulated below)
and related Documentation (as defined in Section 1.2 hereof) described in
Exhibit A attached hereto and incorporated by reference herein.
1.2 Documentation. The term "Documentation" means all user manuals
and other written materials to be prepared by and provided by CASI to RESELLER
(for redistribution to Customers) describing the installation, operation and
maintenance of the Products, including without limitation, technical manuals,
user manuals, bug reports, enhancements, upgrades, updates, sequels, technical
bulletins.
1.3 Customer. The term "Customer" means a person or entity, which
has either indicated to RESELLER an interest in acquiring one (1) or more of the
Products for use, or is a Licensee and end-user of a Product.
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1.4 Licensee. The term "Licensee" means any Customer to whom
RESELLER has granted a license to use one (1) or more of the Products in
accordance with Article 6 of this Agreement pursuant to a License Agreement.
1.5 License Agreement. The term "License Agreement" means a license
agreement between RESELLER (as sublicensor hereunder) and a Licensee (as a
sublicensee to the RESELLER hereunder) substantially in the form attached hereto
as Exhibit B.
1.6 Trial License Agreement. The term "Trial License Agreement"
means a trial license agreement between RESELLER and a Licensee substantially in
the form attached hereto as Exhibit C, under which a Customer is provided an
opportunity to test the Product without charge (or at minimal charge) for a
limited time.
1.7 Source Code. The term "Source Code" means the complete
instruction set for the Products, including all comments and procedural code,
such as compilation switches and job control language statements and a
description of the system/program generation procedure, in a form intelligible
to RESELLER's human programmers and capable of being readily and easily
translated by them into object code for execution on computer equipment through
minimal assembly or compiling, together with all necessary or proper
documentation to facilitate such translation, assembly and compiling, including,
without limitation, programmers' notes, technical and functional specifications,
flow charts, schematics, test programs, statements of principles of operations,
architectural and design standards, and descriptions of data flows, data
structures and control logic.
1.8 Derivative Work. The term "Derivative Work" means a work that is
solely based on one or more preexisting works, such as a revision, enhancement,
modification, translation, abridgement, condensation, expansion, or any other
form in which such preexisting works may be recast, transformed, or adapted, and
that, if prepared without authorization of the owner of the copyright in such
preexisting work, would constitute a copyright infringement. For purposes
hereof, a Derivative Work shall also include any compilation that incorporates
such a preexisting work if no significant alteration is made to such preexisting
work in including it in the Derivative Work. Unless otherwise provided in this
Agreement, all references to the Products include any Derivative Works provided
by Licensor or made by RESELLER hereunder.
2. APPOINTMENT OF RESELLER.
2.1 Grant of Certain Rights.
(a) CASI hereby grants to RESELLER, and RESELLER hereby accepts,
the non-exclusive worldwide right, subject to the other provisions of this
Agreement, (i) to use and modify the Source Code to the Products to create
Derivative Works of the Products incorporating modifications, enhancements and
custom configurations of the Products,
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(ii) to use the Products and Derivative Works, in Source Code and Object Code
form, to provide services to RESELLER's Customers and sublicensees and (iii) to
market, distribute, license and support the Products and Derivative Works, in
object-code form, to RESELLER's Customers and sublicensees. Notwithstanding
anything herein to the contrary, RESELLER's rights to the Source Code shall only
become effective in the event RESELLER is entitled to receive the Source Code
pursuant to the Restated License (as defined below).
(b) RESELLER acknowledges that CASI shall have the unrestricted right
to market, distribute and support the Products (except in those exclusive
territories as set forth in the Amended and Restated License Agreement entered
into between the parties hereto and Glasgal as of the date of this Agreement
("Restated License")), directly and through authorized third parties, without
any obligation to RESELLER under this Agreement, unless otherwise agreed in
writing by CASI. Notwithstanding the above, CASI shall not enter into any
agreement with a third party which provides for the right to license or resell
the Products in the countries comprising Asia, the Pacific Rim, Japan or
Australia without allowing RESELLER a first right of refusal to create an
agreement with such third party as a distributor and/or sub-licensee and/or
first offering RESELLER the right to license or resell on terms and conditions,
including price, equivalent to those contained in the proposed third party
agreement.
(c) RESELLER shall have the right, without charge, to use one (1)
limited evaluation copy of each Product for demonstration purposes during the
term hereof. Such copy shall be restricted to use for internal testing of the
product, training of Reseller employees, or demonstration to prospective
Customers, and shall be subject to the terms and conditions (other than the
payment terms) of the Trial License Agreement. In addition to the provisions of
the License Agreement, Reseller agrees that it will not use the evaluation copy
on behalf of, or for use by, any Customer, or receive any monetary compensation
from any third party for the use directly or indirectly of the evaluation copy.
Any use of the evaluation copy in support of, or directly applied to, the
provision of integration services shall be a violation of sections 6 and 7 of
this Agreement.
(d) RESELLER shall have the right to engage sub-distributors to
market and distribute the Products, in object code form only, under the same
terms and conditions contained in this Agreement; provided, however, that
RESELLER shall have no right to engage sub-distributors without CASI's consent
unless such sub-distributor qualifies under the following terms: the potential
sub-distributor (or any predecessor or affiliated entity thereto) (i) shall have
been in the computer technology integration business for not less than three (3)
years; and (ii) shall have had annual revenues of not less than One Million
Dollars ($1,000,000) in each of its last three (3) fiscal years.
2.2 No Agency Relationship. This Agreement does not create any
relationship of association, partnership, joint venture or agency between the
parties. RESELLER agrees to conducts its business as an independent contractor.
RESELLER agrees not to display or use the name "CASI" or "COMPUTER-AIDED
SOFTWARE INTEGRATION" or any mark or symbol
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used by CASI in identifying the Products (or permit or authorize the same to be
displayed or used) except as specifically provided in Section 8.1 of this
Agreement. RESELLER further agrees (i) not to assume, create or enter into any
obligation, agreement or commitment on behalf of, or for the account of, CASI or
obligate CASI in any manner other than as stipulated in this Agreement and (ii)
to assume sole responsibility for all expenses incurred by RESELLER in
performing its duties under this Agreement, unless such expenses are made for
the purpose of performing obligations required to be but not actually performed
by CASI hereunder.
3. UNDERTAKINGS OF CASI.
3.1 Duties of CASI. CASI agrees to provide to RESELLER, from CASI's
principal place of business, Maintenance Services, the materials and technical
assistance set forth herein and in Section XVII. Additional Consulting Services
of the Restated License, pursuant to the terms and conditions of such Restated
License.
(a) Copies of all necessary or appropriate Product corrections,
enhancements and new releases which CASI makes available for general
distribution to Licensees enrolled in CASI's maintenance plans, in Object and
Source Code form, for reproduction and distribution (in Object Code only) to
Customers pursuant to Article 4 hereof and for the other purposes set forth in
Section 2.1(a) hereof, as well as any other enhancements or new releases
necessary to allow RESELLER to obtain the full benefit of the rights it
bargained for hereunder;
(b) Copies of all promotional materials, suggested price lists
(including pricing for additional promotional materials) and other materials
which CASI may hereafter develop from time to time to assist RESELLER in
marketing the Products, for use by RESELLER pursuant to Article 4 hereof;
(c) Necessary and appropriate "second level" technical support
by telephone to RESELLER's designated personnel concerning the installation,
operation and maintenance of the Products in cases where RESELLER is unable,
after using reasonable commercial efforts, to resolve a technical problem
encountered by a Licensee or Customer (with such second level technical support
to include, but not be limited to, providing emergency bypasses to solve
technical problems and fixing program errors as identified by RESELLER), along
with all technical support and marketing support required under the CASI License
Agreement (as defined herein).
3.2 Product Standards. CASI shall provide to RESELLER a new version of
each Product at the time that such version is released for general commercial
distribution. CASI reserves the right at any time to modify, revise, replace or
reconfigure any of the Products (so long as it is in a manner compatible with
and does not degrade the performance of the prior version of the Product and
which does not require significant effort from RESELLER in order to prepare for
general commercial use with the Customers or sublicensees of RESELLER).
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3.3 Product Warranty.
(a) CASI warrants for a period of twelve (12) months after the date
hereof, for RESELLER's benefit alone, that each Product, as originally delivered
(or, if subsequently modified by CASI, then in regard to each such modification
as well) and when operated with the equipment configuration and in the operating
environment of a Permitted Configuration Center, as defined in the Restated
License, will perform in accordance with the technical and functional
specifications set forth in the Documentation for such Product provided by CASI.
CASI does not warrant that each Product will be error-free in all circumstances.
In the event of any defect or error, RESELLER agrees to provide CASI with
sufficient information to allow CASI to reproduce and repair the defect or
error. As RESELLER's primary remedy for any defect or error in a Product
covered by such warranty, CASI will correct such errors or defects at CASI's
facility by promptly issuing corrected instructions, a restriction, or a bypass,
in accordance with its' obligation for Maintenance Services, as defined in the
Restated License. CASI is not responsible for any defect or error not reported
during the warranty period (unless such defect or error did not come to
RESELLER's attention until after due use and examination of the Product during
said warranty period) or any defect or error in a Product which RESELLER has
modified, misused or damaged in a manner causing the error or defect.
(b) EXCEPT AS OTHERWISE PROVIDED IN THIS SECTION 3.3, CASI DISCLAIMS
ALL WARRANTIES, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE. EXCEPT AS PROVIDED IN THIS
AGREEMENT, IN NO CASE SHALL EITHER PARTY BE LIABLE FOR ANY SPECIAL OR
CONSEQUENTIAL DAMAGES, UNLESS CAUSED BY WILFUL OR KNOWING CONDUCT, INCLUDING,
WITHOUT LIMITATION, ANY SUCH SPECIAL OR CONSEQUENTIAL DAMAGES ARISING OUT OF THE
USE OR OPERATION OF THE PRODUCTS, DELAYS IN DELIVERY OR REPAIR, LOSS OF USE OF
THE PRODUCTS, OR DAMAGE TO ANY DOCUMENTS OR OTHER PROPERTY OF RESELLER OR ITS
LICENSEES, EXCEPT IN THE CASE OF WILFUL MISCONDUCT. Either party's liability
arising out of contract, negligence, strict liability in tort or warranty shall
not, except in the case of wilful misconduct, exceed the amounts paid by
RESELLER under this Agreement. Notwithstanding the foregoing, CASI (i) warrants
that RESELLER will not be required to obtain any third-party software in order
to operate the Products other than that which is set forth in the Restated
License; (ii) warrants that the documentation and technical materials provided
by CASI to RESELLER will be accurate and complete; (iii) warrants that it has
not placed, nor is it aware of, any disabling code in the Products or Source
Code which would alter, destroy, or inhibit any use of the Products or Source
Code or the data contained therein; (iv) covenants and agrees that it will not
terminate or attempt to terminate, by modem or by electronic means or by other
means, use of the Products by RESELLER in connection with any dispute; and (v)
warrants that the Products are designed to operate in the year 2000 and beyond
to store, calculate, process and print year 2000 dates and is coded so that the
progression from
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the year 1999 to 2000 (and beyond) will not cause the Products to cease
operating, to operate incorrectly or otherwise fail to meet its documentation.
4. UNDERTAKINGS OF RESELLER.
4.1 Duties of RESELLER. RESELLER agrees to promote, market,
distribute and support the Products as set forth below and agrees, in
furtherance of the foregoing:
(a) To identify and contact Customers in person, by telephone or
using direct mailings, to demonstrate the Products to Customers and to advise
Customers on the selection, use, functionality, specifications and
price/performance characteristics of the Products in accordance with the
Documentation;
(b) To market and distribute the Products only under License
Agreements in accordance with Article 5 hereof;
(c) To provide reasonable "first level" technical assistance to
Customers and Licensees concerning the installation, operation and maintenance
of the Products;
(d) To distribute corrections and enhancements prepared by CASI
to, and new releases of, the Products to Licensees;
(e) To remit promptly all amounts due to CASI pursuant to
Section 9.1 hereof;
(f) To maintain records concerning the name, address, contact
person, e-mail address, telephone and telefax number of all Customers and
Licensees;
(g) To provide CASI with the periodic reports described in
Section 9.2 hereof;
(h) To maintain an adequate number of experienced personnel who
are properly trained and certified by CASI to promote, license, install,
maintain and otherwise support the Products; and
(i) To notify CASI promptly of any Product defects or other
unresolved technical problems concerning the installation, use, or performance
of the Products.
4.2 Standard of Performance. RESELLER shall use commercially
reasonable efforts to perform each of the duties described in Section 4.1 hereof
in a commercially reasonable manner that reasonably preserves and protects
CASI's business reputation and all of its proprietary rights in the Products.
6
<PAGE>
4.3 Certain Covenants. RESELLER agrees not to make any warranties to
any third party concerning the Products which are in excess of the warranty
provided to RESELLER by CASI hereunder, except to the extent that such
warranties relate to features of Derivative Works not contained in the original
Products, for which RESELLER will be responsible.
4.4 Indemnification. Unless any of the following bases for liability
on the part of RESELLER arise due to information, guidance or Products provided
to RESELLER by CASI, or arise as a result of a breach by CASI of its'
obligations under this Agreement or the Restated License, RESELLER agrees to
indemnify and hold CASI harmless from and against any and all claims,
liabilities, costs and expenses (including reasonable legal fees and costs), up
to its limit of liability set forth in Section 3.3(b) above, arising out of (i)
the improper installation, support or maintenance of the Products by RESELLER or
its employees or agents, (ii) any misrepresentations by RESELLER or its
employees and agents in respect of the Products, (iii) any violation by RESELLER
of any of the material provisions of this Agreement, (iv) any negligent,
wrongful or intentional acts or omissions on the part of RESELLER or its
employees and agents or (v) any warranty or other claim arising from Customers'
use or inability to use Derivative Works made by or for RESELLER.
5. Reproduction of Products.
5.1 RESELLER may make copies of the master copy of the Product for
the purpose of marketing and distributing such Product to a Customer. Such
copies may be distributed or furnished to a Customer only if RESELLER and
Customer have executed a License Agreement in compliance with the provisions of
Section 6.1 of this Agreement.
5.2 RESELLER agrees not to remove any copyright notice or other
proprietary markings from the master copy of any Product, and each copy of a
Product shall contain the same copyright notices and proprietary markings
contained in or appearing on the master copy of such Product. All copies of the
Product or Documentation licensed to the U.S. Government shall contain an
appropriate "Restricted Rights" or "Limited Rights" legend according to
applicable U.S. government regulations.
5.3 Except as provided in this Agreement or the Restated License,
RESELLER agrees not to duplicate or reproduce, directly or indirectly, any
master copy or any copy of a Product derived therefrom in whole or in part.
6. PRODUCT LICENSES.
6.1 Licensing. RESELLER is authorized to sublicense the Products to
Customers. Each Product License Agreement shall be a signed instrument between
RESELLER and a Customer. RESELLER agrees not to make the Products available to
any Customer unless and until such Customer shall have executed and delivered to
RESELLER a signed License Agreement (except that RESELLER shall substitute its
name for CASI's in such an agreement),
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<PAGE>
and RESELLER shall have accepted, executed and delivered such License Agreement.
RESELLER shall thereafter make Products available to such Customer only in
accordance with the terms of such License Agreement.
6.2 Enforcement of License Agreements. RESELLER agrees to use
commercially reasonable efforts, without taking any legal actions, to enforce
each License Agreement under applicable law and to safeguard all material rights
(proprietary or otherwise) of CASI in the Products. RESELLER agrees to notify
CASI promptly following RESELLER's receipt of any material legal notice or
service of process relating to any legal action relating to the Products or to
this Agreement. RESELLER agrees to institute any legal action or other
proceedings or to enter into any compromise without the prior written consent of
CASI.
7. TRADE SECRETS AND PROPRIETARY INFORMATION.
7.1 Proprietary Nature of Products.
(a) RESELLER acknowledges CASI's claim that it is the owner (or
is an authorized licensee) of the Products, that the Products are confidential
in nature and not in the public domain, that CASI claims all intellectual and
industrial property rights granted by law therein on behalf of itself or the
licensor(s) and that CASI does not hereby grant nor otherwise transfer any
rights or ownership of the Products to RESELLER or any third party. Except as
otherwise expressly permitted hereunder, RESELLER agrees not to copy or
otherwise reproduce any Product, in whole or in part, other than as required for
internal use in order to provide, or allow third parties to provide, integration
services to Customers, without CASI's prior written consent. RESELLER further
agrees to take all commercially reasonable steps to ensure that no unauthorized
persons shall have access to any of the Products and that all authorized persons
having access to the Products shall refrain from any such disclosure,
duplication or reproduction except to the extent required in the performance of
RESELLER's duties under this Agreement. Notwithstanding the above, CASI
acknowledges that each Derivative Work which is developed exclusively by or for
RESELLER hereunder, whether by RESELLER's personnel or by CASI as in its
performance of CASI Services hereunder, shall be owned by RESELLER; provided,
however, that RESELLER shall own only the new material embodied in such
Derivative Work and not any preexisting material (unless such preexisting
material has become part of the public domain or does not constitute a material
element of the Derivative Work). Each such Derivative Work shall be assigned a
unique version number by CASI and shall display a statement indicating ownership
and copyright of appropriate modules or features by RESELLER.
(b) RESELLER agrees to accord the Products and all other
confidential information relating to this Agreement at least the same degree and
methods of protection as RESELLER undertakes with respect to its own
confidential information, trade secrets and other proprietary data.
8
<PAGE>
(c) Except as permitted by law, RESELLER agrees not directly or
through any agent or intermediary, to register, apply for registration or
attempt to acquire any legal protection for any of the Products or any
proprietary rights therein or to take any other action which infringes CASI's
right, title or interest in or to the Products in any jurisdiction.
(d) RESELLER acknowledges that, in the event of a willful
material breach by RESELLER of its obligations under this Article 7, CASI may
bring an appropriate legal action to enjoin any such breach hereof, and shall be
entitled to recover from RESELLER reasonable legal fees and costs in addition to
other appropriate relief.
7.2 Notices and Legends. All copies of the Products and the
Documentation distributed by RESELLER shall retain the copyright notices and
proprietary markings contained in or appearing on the master copy thereof
supplied to RESELLER by CASI; provided, however, that RESELLER may add
proprietary markings relating to Derivative Works to the extent such works are
owned by RESELLER. All copies of the Products and Documentation licensed to the
United States Government shall contain an appropriate "Restricted Rights" or
"Limited Rights" legend according to applicable United States government
regulations.
8. USE OF TRADE NAMES AND TRADEMARKS.
8.1 Scope of Use.
(a) RESELLER hereby acknowledges CASI's claim of ownership of
the trade names and marks "CASI", "COMPUTER-AIDED SOFTWARE INTEGRATION", and
"INTEGRATOR'S WORKBENCH PRODUCT SERIES", each of the Product names and all
related trademarks and service marks. RESELLER further acknowledges that it
shall acquire no interest therein by virtue of this Agreement or the performance
by RESELLER of its duties and obligations hereunder. RESELLER agrees not to use
the names "CASI" or "COMPUTER-AIDED SOFTWARE INTEGRATION", or any of the Product
names or marks (or any confusingly similar name or symbol), in whole or in part,
as part of RESELLER's business or trade name.
(b) CASI hereby grants to RESELLER during the term of this
Agreement the non-exclusive, worldwide limited right to use the proprietary
Product names and marks only in connection with the performance of RESELLER's
duties under this Agreement. RESELLER agrees not to use such names or marks in
connection with any other products or services other than as in its generic
sense to describe the function of the products or services provided by Licensee.
(c) RESELLER agrees to identify CASI as the owner of the
Products in all Documentation and promotional material. CASI reserves the right
to reasonably approve all material promotional material but only for the purpose
of ensuring that RESELLER properly
9
<PAGE>
uses CASI's proprietary names and marks. Upon termination of this Agreement,
RESELLER agrees and undertakes not to use such proprietary names and marks.
8.2 Protection Against Infringement. During the term of this
Agreement, RESELLER agrees to notify CASI promptly of (i) any known use or
registration by third parties of any trade names or marks which might infringe
CASI's trade or Product names or marks and (ii) any notice or claim of
infringement against RESELLER based on or resulting from RESELLER's use of such
names and marks. RESELLER acknowledges and agrees that CASI shall have the sole
right and duty to protect such names and marks from a legal action or suit for
infringement thereof.
9. PRICE, PAYMENT AND REPORTS.
9.1 Price and Payment.
(a) RESELLER shall pay CASI the license fees and CASI Service
fees set forth in the attached Exhibit D, which is hereby incorporated by this
reference herein, on the terms set forth therein.
(b) CASI agrees to supply the Products for resale to Licensees
and Customers by RESELLER pursuant to Article 5 hereof at current list prices,
less the applicable Product discounts specified in Exhibit D. All prices are
exclusive of taxes, shipping, insurance and other charges, and are subject to
change on not less than sixty (60) days' written notice to RESELLER, as more
specifically set forth in Exhibit D.
(c) RESELLER agrees to pay CASI for each Product licensed to a
Customer not later than sixty (60) days after delivery of such Product to such
Customer, so long as RESELLER has received payment from such Customer.
(d) Past due amounts shall accrue interest from the due date
thereof until paid in full, at the prime rate as published in the Wall Street
Journal, plus two percent per annum, or the maximum rate otherwise permitted by
applicable law, whichever shall be lower.
(e) In the event that RESELLER shall, at any time, be in arrears
on payments in excess of $200,000 owing to CASI or otherwise in material default
of this Agreement, CASI may, upon one hundred and eighty (180) days' prior
written notice to RESELLER, seek whatever remedies are available to it at law or
in equity, including the right to terminate, if RESELLER fails to cure such
default during such period.
(f) In the event that any License Agreement shall be canceled or
terminated for any reason or CASI breaches any of its obligations under this
Agreement or the Restated License, the amount payable by RESELLER to CASI
hereunder shall be reduced proportionately based on payments actually received
and retained by RESELLER.
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<PAGE>
9.2 Periodic Reports. Within twenty (20) days after the last day of
each calendar month, RESELLER agrees to prepare and transmit to CASI by telefax
a report stating the company name, address, contact name, phone number, Product,
hardware manufacturer and model number, operating system and release number of
each Product licensed, shipped or installed that month.
9.3 Financial Review. CASI shall have the right, during the term of
this Agreement and for a period of one (1) year following termination thereof
through an independent third party ("CPA"), upon not less than fifteen (15) days
prior written notice to RESELLER, to conduct a review at RESELLER's principal
business offices of RESELLER's books and records relating to this Agreement and
to make copies thereof at CASI's expense. If the results of such a review shall
disclose a deficiency in amounts payable by RESELLER to CASI in excess of five
percent (5%) of the amounts actually paid or reported as payable to CASI
hereunder for any period which is so reviewed, then RESELLER shall promptly
reimburse CASI for such amounts and for the cost of such review, including, but
not limited to, reasonable professional fees and travel expenses. The CPA shall
be one of the largest six accounting firms which is not currently providing
service to or has provided service to CASI and shall have entered into an
agreement with RESELLER agreeing not to disclose any information of RESELLER to
CASI, except for the amount of deficiency.
10. TERM AND BREACH.
10.1 Term of Agreement. The term of this Agreement shall be
perpetual, commencing as of the effective date hereof.
10.2 Breach by RESELLER. Notwithstanding the provisions of Section
10.1 hereof, CASI may seek whatever remedies are available to it at law or in
equity, including the right of termination at any time after the occurrence of
any of the following events:
(a) Pursuant to a final judgment or order of a court with
competent jurisdiction, RESELLER is declared bankrupt, and such judgment or
order remains unstayed or unappealed (by filing of motion after judgment or
order or filing of appeal to higher governmental authority) and in effect for 60
days;
(b) RESELLER assigns or transfers this Agreement or any License
Agreement or Trial Agreement or any of its rights to obligations hereunder or
thereunder, without CASI's prior written consent, which consent CASI shall not
unreasonably withheld;
(c) RESELLER violates any material provision of this Agreement
and fails to cure such violation upon one hundred and eighty (180) days
written notice detailing the violation; or
11
<PAGE>
(d) RESELLER becomes insolvent.
10.3 Termination by RESELLER. Notwithstanding the provisions of Section
6.1 hereof, RESELLER may terminate this Agreement at any time after the
occurrence of any of the following events:
(a) Pursuant to a final judgment or order of a court with
competent jurisdiction, CASI is declared bankrupt, and such judgment or order
remains unstayed or unappealed (by filing of motion after judgment or order or
filing of appeal to higher governmental authority) and in effect for 60 days; or
(b) CASI assigns or transfers this Agreement or any License
Agreement or Trial Agreement or any of its rights to obligations hereunder or
thereunder, without RESELLER's prior written consent, which consent shall not be
unreasonably withheld; or
(c) CASI violates any material provision of this Agreement.
10.4 Continuing Obligations. No termination of this Agreement for any
reason whatsoever shall in any way affect the continuing obligations of the
parties under Sections 4.4, 7.1, 9.1 (but only as payments, reports or other
obligations for any prior months or the then-current month during which
termination occurs) and 10.4 hereof.
11. GENERAL PROVISIONS.
11.1 Complete Agreement. This Agreement, together with the Exhibits
hereto and the Restated License, sets forth the entire agreement and
understandings between the parties hereto with respect to the subject matter
hereof. This Agreement merges all previous discussions and negotiations between
the parties and supersedes and replaces any and every other agreement, which may
have existed between CASI and RESELLER.
11.2 Modification or Amendment. Except to the extent and in the
manner specified in this Agreement, any modification or amendment of any
provisions of this Agreement must be in writing and bear the signature of the
duly authorized representative of each party.
11.3 No Implied Waivers. The failure of either party to exercise any
right or option it is granted herein, or to require the performance by the other
party hereto of any provision if this Agreement, or the waiver by either party
of any breach of this Agreement shall not prevent a subsequent exercise or
enforcement of such provisions or be deemed a waiver of any subsequent breach of
the same or any other provision of this Agreement.
11.4 Assignability. Neither party shall sell, assign, transfer,
convey, delegate or encumber any of its rights, duties or obligations hereunder,
and shall not suffer or permit any
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<PAGE>
encumbrance thereof, by operation of law or otherwise, without the prior written
consent of the other party, not to be unreasonably withheld; provided, that each
party reserves the right to assign or transfer this Agreement or any of its
rights, duties and obligations hereunder, to any of its direct or indirect
subsidiary or affiliate.
11.5 Notices. All notices, requests, reports, submissions and other
communications permitted or required to be given under this Agreement shall be
deemed to have been duly given if such notice of communication shall be in
writing and sent by personal delivery or by airmail, cable, telegram, telex,
facsimile transmission or other commercial means of rapid delivery, postage or
costs of transmission and delivery prepaid, to the parties at addresses
specified herein until such time as either party hereto shall give the other
party hereto not less than ten (10) days' prior written notice of a change of
address in accordance with the provisions hereof.
11.6 Law Governing Agreement. The validity of this Agreement and the
rights, obligations and relations of the parties hereunder shall be construed
and determined under and in accordance with the substantive laws of the State of
California, without regard to its rules of conflicts of law. In the event any
legal proceeding is brought to enforce or interpret the provisions of this
Agreement, the parties hereby agree to submit to the jurisdiction of the courts
of Los Angeles, California, which shall be the exclusive venue for all such
proceedings.
11.7 Severability. If any provision of this Agreement is determined
by a court of competent jurisdiction to be in violation of any applicable law or
otherwise invalid or unenforceable, such provision shall to such extent as it
shall be determined to be illegal, invalid or unenforceable under such law be
deemed null and void, but this Agreement shall otherwise remain in full force
and effect.
11.8 Publicity. RESELLER shall not publicize or disclose to any
third party by other means any of the terms or provisions of this Agreement, or
the discussions relating thereto, without the prior written consent of a duly
authorized officer of CASI, except as required by law.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized representatives as of the day and year first
above written.
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CASI: RESELLER:
COMPUTER-AIDED SOFTWARE DATANET INTERNATIONAL, INC.
INTEGRATION, INC., a Delaware a California corporation
corporation
By: /s/ James M. Caci By: /s/ James Ung
Name: James M. Caci Name: James Ung
Title: CFO Title: President
Address: 12477 W. Cedar Dr. Address: 1305 John Reed Court
Suite 201 City of Industry, CA 91745
Denver, CO 80228
Telephone: 303-987-3499 Telephone: 818-968-9868
Fax: 303-987-3923 Fax: 818-937-1986
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<PAGE>
LIST OF EXHIBITS
EXHIBIT A Product
EXHIBIT B Form of Customer License Agreement
EXHIBIT C Form of Trial License Agreement
EXHIBIT D Price and Quantity Terms
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EXHIBIT A
PRODUCTS
1. IWPS Configuration-TM-
CASI's IWPS Configurator products, version 2.20 or higher. IWPS Configurator
shall include all modules, tools and utilities produced by CASI for use with the
IWPS Configurator product line as described on the then current IWPS
Configurator Pricing Schedule.
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EXHIBIT B
FORM OF CUSTOMER LICENSE AGREEMENT
[To be provided at a later date]
17
<PAGE>
EXHIBIT C
FORM OF TRIAL LICENSE AGREEMENT
[To be provided at a later date]
18
<PAGE>
EXHIBIT D
PRICE AND QUANTITY TERMS
A. RESELLER shall pay CASI for each License Agreement entered into, a fee
equal to the suggested retail price set forth on CASI's then most current IWPS
Configuration Pricing Schedule, minus the discount set forth immediately below
in Section B. CASI reserves the right to change the suggested retail price of
the IWPS CONFIGURATOR, upon sixty (60) days' prior written notice to RESELLER,
provided that CASI hereby offers the IWPS CONFIGURATOR for sale to RESELLER on
terms, including price, no worse than it offers such item to any of its other
customers, licensees or distributors; and provided further, that any such price
increase shall not, in the aggregate over the term of this Agreement, exceed
125% of the lower of (i) its suggested retail price as of the date of this
Agreement, or (ii) the price that is no worse than offered to its other
customers, licensees or distributors.
B. Discounts. Discounts for the IWPS CONFIGURATOR will be set on a
projected annual commitment basis for sales of the Product and shall be
evaluated quarterly for performance; that is, the IWPS CONFIGURATOR discount for
each quarter will be set based on the RESELLER's ability to successfully achieve
at least 25% of its annual commitment each quarter based on the quantity of IWPS
CONFIGURATOR products sold in the prior quarter. Notwithstanding whether
RESELLER achieves its quarterly commitment, the following quantity discount
schedule shall apply; provided that, at the end of each annual period a
reconciliation shall be done so that if RESELLER exceeds its Annual Commitment,
it shall receive a payment equal to the difference between the higher discount
percentage applicable, times the amount of all sales made, minus the discount,
times all sales made, already taken.
<TABLE>
<CAPTION>
Annual Commitment Discount Per Unit
----------------- -----------------
<S> <C>
0 to $250,000 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION %
$250,000 to $799,999 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION %
$800,000 to $1,599,999 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION %
$1,600,000 to $3,200,000 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION %
Over $3,200,000 CONFIDENTIAL INFORMATION OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION %
</TABLE>
For the twelve (12) month period commencing on the date of this
Agreement, RESELLER agrees to an Annual Commitment of $800,000 to $1,599,999.
The parties agree to negotiate an Annual Commitment for each successive twelve
(12) month period, and appropriate discounts related thereto; provided that, in
the event the parties fail to agree, the Annual Commitment and discounts set
forth above, or, as applicable, the most recently agreed to Annual Commitment
and discounts shall continue to apply to each successive period.
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<PAGE>
EXHIBIT 10.7
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933 (THE 'ACT') OR STATE SECURITIES LAWS AND NO
TRANSFER OF THESE SECURITIES MAY BE MADE EXCEPT (A) PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE ACT, OR (B) PURSUANT TO AN EXEMPTION
THEREFROM WITH RESPECT TO WHICH THE COMPANY MAY, UPON REQUEST, REQUIRE A
SATISFACTORY OPINION OF COUNSEL FOR THE HOLDER THAT SUCH TRANSFER IS EXEMPT
FROM THE REQUIREMENTS OF THE ACT.
As of July 1, 1997 $950,000.00
Non-Interest Bearing
Promissory Note Due March 31, 1998
Data Net International, Incorporated, a California corporation (together
with its successors and assigns, "Issuer"), for value received hereby
promises to pay to Computer-Aided Software Integration, Inc., a Delaware
corporation (together with its successors, transferees and assigns,
"Noteholder"), by wire transfer of immediately available funds to an account
designated by Noteholder by notice to Issuer the principal sum of NINE
HUNDRED AND FIFTY THOUSAND DOLLARS ($950,000) ("Note Amount"), as provided
herein.
This Note (the "Note") is delivered to Noteholder as payment in full for
the license fee (the "License Fee") for the licenses and rights provided to
Issuer pursuant to that certain Amended and Restated License Agreement dated
as of the date hereof by and between Issuer and Noteholder (the "License
Agreement"). This Note is an amendment and restatement of, and issued in
substitution for, that certain Note of the Issuer dated April 30, 1997 in
favor of Noteholder in the principal amount of $1,500,000.00 (the "April
Note"). The execution and delivery of this Note shall render the April Note
null, void, canceled, terminated and satisfied in all respects, and Issuer
shall have no liability in connection therewith after such execution and
delivery.
1. TERMS OF NOTE. The Note Amount shall not accrue interest and shall be
due and payable in two installments (the "First Installment" and the "Second
Installment," respectively), payable in the amounts and on the dates as
follows:
PAYMENT DATE PRINCIPAL PAYMENT
------------ -----------------
First
Installment: October 31, 1997 $250,000
Second
Installment: February 28, 1998 $700,000
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;provided, however, that:
(i) in the event that Issuer in its sole discretion consummates a
Qualified Financing (as hereinafter defined) prior to payment of the
First Installment, the first $250,000 of proceeds of such Qualified
Financing shall be immediately applied to pre-payment of the First
Installment; and
(ii) in the event that Issuer in its sole discretion consummates a
Qualified IPO (as hereinafter defined) prior to payment of the Second
Installment, the first $350,000 of proceeds of such Qualified
Financing shall be immediately applied to pre-payment of the Second
Installment.
For purposes of this Note, (i) a Qualified Financing shall mean a
subordinated debt or equity financing transaction or a series of subordinated
debt or equity financing transactions which yield gross proceeds to the
Issuer or any of its subsidiaries of at least $1,000,000, and (ii) a
Qualified IPO shall mean an initial underwritten offering by the Issuer of
its securities to the public pursuant to a registration statement filed with
the Securities Exchange Commission under the Securities Act of 1933, as
amended.
Whenever any payment of this Note shall be stated to be due on a day,
which is not a Business Day, such payment shall be made on the next
succeeding Business Day. For purposes of this Note, "Business Day" means any
day except a Saturday, Sunday or other day on which commercial banks in the
City of New York are authorized by law to close.
2. EVENT OF DEFAULT DEFINED; ACCELERATION OF PAYMENT. In case one or
more of the following events ("Events of Default") (if it shall be voluntary
or pursuant to any final judgment, decree or order of any court or any final
order of any administrative or governmental body) shall have occurred and be
continuing:
a. Failure on the part of Issuer to pay any installment under this Note
when due at maturity, upon acceleration or otherwise and such default
continues for a period of more than thirty (30) days after the date on which
written notice specifying such failure, stating that such notice is a "Notice
of Default" hereunder and demanding that Issuer remedy the same, shall have
been given by registered or certified mail, return receipt requested, to
Issuer; or
b. Material failure on the part of Issuer duly to observe or perform
any of the material covenants or agreements on the part of Issuer contained
in the License Agreement, for a period of thirty (30) days after the date on
which written notice specifying such failure, stating that such notice is a
"Notice of Default" hereunder and demanding that Issuer remedy the same,
shall have been given by registered or certified mail, return receipt
requested, to Issuer; or
c. A material final judgment or order (not covered by insurance) for
the payment of money in excess of $500,000 shall be rendered against Issuer
(treating any deductibles as not so
2
<PAGE>
covered) shall be rendered against Issuer and such judgment or order shall
continue unsatisfied, unstayed or unappealed (by filing of motion after
judgment or order or filing of appeal to higher governmental authority) for a
period of 30 days; or
d. Issuer makes an assignment for benefit of creditors involving all of
its assets; or
e. Issuer pursuant to or within the meaning of title 11, U.S. Code or
any succeeding federal law ("Bankruptcy Law"):
i. Commences a voluntary case or proceeding, which is not
dismissed within ninety (90) days of commencement,
ii. Consents to the entry of an order for relief against it
effectuating the transfer of all of its assets in an involuntary case or
proceeding, unless such case or proceeding is dismissed within ninety (90)
days of commencement, or
iii. Consents to the appointment of any receiver, trustee,
assignee for the benefit of creditors, liquidator or similar official under
any Bankruptcy Law (a "Custodian") for it or for all or substantially all of
its property, which Custodian is not removed within ninety (90) days of
appointment, or
iv. A court of competent jurisdiction enters a final order or
decree under any Bankruptcy Law that:
v. Is for relief against Issuer effectuating the transfer of all
of its assets in an involuntary case or proceeding, unless such case or
proceeding is dismissed within ninety (90) days,
vi. Appoints a Custodian of Issuer for all or substantially all of the
property of Issuer, which Custodian is not removed within ninety (90) days of
appointment, or
vii. Orders the complete liquidation of all of the assets of Issuer,
And such order or decree remains unstayed or unappealed (by filing of
motion after judgment or order or filing of appeal to higher governmental
authority) and in effect for 60 days;
Then, (i) in each case where a material Event of Default occurs (other
than a material Event of Default under Section 3(e) or 3(f) hereof), the
Noteholder, by thirty (30) days notice in writing to Issuer (the
"Acceleration Notice"), may declare the aggregate Note Amount to be due, and
upon the passage of such thirty (30) days, the same shall become due;
PROVIDED that if a material Event of Default under Section 3(e) or 3(f)
occurs, the Note Amount shall become and be immediately due upon receipt of
written notice of such default to Issuer on the part of the Noteholder.
Subject to Section 7 below, the Noteholder may exercise this option to
accelerate on the terms of this Note during any default by Issuer regardless
of any prior forbearance.
3
<PAGE>
Upon the occurrence of, and during the continuation of, any material
Event of Default (or, in the case of those Events of Default with allotted
cure periods, upon expiration of the allotted cure period of such material
Event of Default) the principal amount of this Note shall bear interest at a
rate of 5% per annum (the "Default Interest").
3. DEFAULT BY NOTEHOLDER OR GLASGAL. If Noteholder or Glasgal
Communications, Inc. or any of its subsidiaries or affiliates (collectively,
AGlasgal@) breaches the License Agreement or any other agreement by and among
Issuer and Noteholder and/or Glasgal, then this Note shall be immediately
rendered null, void, canceled, terminated and satisfied in all respects, and
Issuer shall have no liability in connection therewith after such execution
and delivery.
4. PREPAYMENT. The Issuer may prepay the unpaid principal balance of
this Note in whole or in part, without penalty at any time. The principal
amount of this Note may be prepaid only in cash.
5. TRANSFER. This Note is assignable and transferable by Noteholder
only with the consent of Issuer and only upon compliance with the provisions
of Section 2 above, and by Issuer with Noteholders consent.
6. NO WAIVER. No failure on the part of Noteholder to exercise, and no
delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall any single exercise of any right hereunder preclude any other or
further exercise thereof or the exercise of any other right hereunder. The
remedies herein provided have been negotiated by the parties, are cumulative
and are exclusive of any other remedies provided by law.
7. NO COLLECTION. Notwithstanding any provision of Section 3 of this
Note, the License Agreement or otherwise, no suit may be brought to collect
this Note or for payment of the License Fee; instead, Noteholder shall only
be able, and its exclusive remedy for any default under this Note or the
failure to pay the License Fee shall be to apply the entire amount due
hereunder to payment for the Common Stock of the Issuer pursuant to the terms
of that certain Warrant Agreement of even date herewith by and between the
Issuer and the Noteholder.
8. AMENDMENT. No amendment or waiver of any provision of this Note,
nor consent to any departure by the Issuer herefrom, shall in any event be
effective unless the same shall be in writing and signed by Noteholder and
then such waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
9. MISCELLANEOUS. This Note shall be governed by and be construed in
accordance with the laws of the State of California without regard to the
conflicts of law rules of such state. Issuer hereby assents to extensions of
the time of payment, or forbearance or other indulgence without notice. The
Section headings herein are for convenience only and shall not affect the
construction hereof. After delivery of an indemnity in form and substance
reasonably satisfactory to Issuer, Issuer agrees to issue a replacement Note
if this Note has been lost, stolen, mutilated or destroyed.
4
<PAGE>
10. NOTICES. All notices, requests and other communications to either
party hereunder shall be in writing by nationally recognized overnight mail
carrier, certified mail, return receipt requested or facsimile and shall be
given,
If to Issuer to:
Data Net International, Incorporated
1304 John Reed Court
City of Industry, California 91745
Attn: Maxwell Riazi
Fax: (805) 492-4294
if to Noteholder:
Computer-Aided Software Integration, Inc.
c/o Glasgal Communications, Inc.
20C Commerce Way
Totowa, New Jersey 07512
Attention: Chief Financial Officer
Telephone: (201) 890-4800
Fax: (201) 890-2888
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022-1170
Attention: Robert H. Friedman, Esq.
Telephone: (212) 753-7200
Fax: (212) 755-1467
if to Glasgal:
Glasgal Communications, Inc.
20C Commerce Way
Totowa, New Jersey 07512
Attention: Chief Financial Officer
Telephone: (201) 890-4800
Fax: (201) 890-2888
Any notice sent by nationally recognized overnight mail carrier shall be
deemed to be delivered to the address shown on the mailing receipt upon
actual receipt by the recipient. Any
5
<PAGE>
notice sent by certified mail, return receipt requested, shall be deemed
to be delivered 3 days after mailing. Any notice sent by facsimile shall be
deemed delivered upon the receipt by sender of written confirmation of
transmission so long as within 24 hours such notice is also sent by regular
mail to the appropriate address written above.
IN WITNESS WHEREOF, Issuer has caused this Note to be executed as of the
date first above written.
DATANET INTERNATIONAL, INCORPORATED
By: /s/ JAMES UNG
------------------------------
Name: James Ung
-----------------------
Title: President
-----------------------
Agreed and Accepted:
Computer-Aided Software Integration, Inc.
By: /s/ JAMES CACI
--------------------------
Name: James Caci
Title: CFO
Dated: July 1, 1997
------------------------
6
<PAGE>
EXHIBIT 10.8
THIS WARRANT AGREEMENT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 AND MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED IN THE
ABSENCE OF A REGISTRATION STATEMENT IN EFFECT WITH RESPECT TO THE SECURITIES
UNDER SUCH ACT OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED.
WARRANT TO PURCHASE COMMON STOCK
OF
DATA NET INTERNATIONAL, INC.
This agreement ("Warrant") certifies that for value received, COMPUTER
AIDED SOFTWARE INTEGRATION, INC., Inc. ("CASI") is entitled, subject to the
terms set forth below, to purchase from Data Net International, Inc. (the
"Company"), for consideration consisting of cancellation of all obligations
of the Company to CASI, including cancellation of the entire outstanding
principal amount (the "Due Amount"), due and payable to CASI pursuant to that
certain promissory note issued by the Company to CASI on the date hereof (the
"Note"), that number of fully paid and nonassessable shares of Common Stock
(the "Shares") of the Company, as is equal to the quotient of (x) the Due
Amount, divided by (y) $49.26 (the "Price Per Share"), up to a maximum of
32,918 Shares. The Company represents and warrants to CASI that as of the
date of this Warrant, there are 406,000 shares of Common Stock issued and
outstanding.
1. TERM OF WARRANT. Subject to the terms and conditions set forth
herein, this Warrant shall be exercisable in whole, but not in part at the
option of CASI within the period (the "Exercise Period") commencing upon the
occurrence of a default under Section 2(a) of the Note (a "Payment Default")
and ending at 6:00 p.m., Los Angeles time on the thirtieth day following the
date of the Payment Default (the "Exercise Period") by delivering to the
Company the Notice of Exercise attached as Exhibit "A" hereto, and execution
and delivery to the Company of the Note Cancellation attached as Exhibit "B"
hereto. The right of CASI to exercise this Warrant shall expire, if not
exercised during the Exercise Period.
2. EXERCISE PRICE. The aggregate exercise price of this Warrant shall
be cancellation of the Due Amount and the Note.
3. EXERCISE OF WARRANT. The purchase rights represented by this
Warrant are exercisable by the CASI in whole, but not in part, during the
Exercise Period, by the surrender of this Warrant and the Notice of Exercise
attached hereto duly completed and executed on behalf of CASI, at the office
of the Company (or such other office or agency of the Company as it may
designate by notice in writing to the CASI at the address of the CASI
appearing on the books of
<PAGE>
the Company), and upon execution and delivery to the Company of the Note
Cancellation attached as Exhibit "B" hereto.
Except as specifically provided in Section 1, this Warrant shall be
deemed to have been exercised immediately prior to the close of business on
the date of its surrender for exercise as provided above, and the person
entitled to receive the Shares issuable upon such exercise shall be treated
for all purposes as the holder of record of such Shares as of the close of
business on such date. As promptly as practicable on or after such date, the
Company at its expense shall issue and deliver to the person or persons
entitled to receive the same a certificate or certificates for the number of
Shares issuable upon such exercise.
4 ADJUSTMENTS.
4.1. STOCK DIVIDENDS - SPLIT-UPS. If after the date hereof, and
subject to the provisions of Section 4.4 below, the number of outstanding
shares of Common Stock is increased by a stock dividend payable in shares of
Common Stock or by a split-up of shares of Common Stock or other similar
event, then, on the effective date thereof, the number of shares issuable on
exercise of this Warrant shall be increased in proportion to such increase in
outstanding shares and the then applicable Per Share Price shall be
correspondingly decreased.
4.2. AGGREGATION OF SHARES. If after the date hereof, and subject
to the provisions of Section 4.4, the number of outstanding shares of Common
Stock is decreased by a consolidation, combination or reclassification of
shares of Common Stock or other similar event, then, upon the effective date
of such consolidation, combination or reclassification, the number of shares
issuable on exercise of this Warrant shall be decreased in proportion to such
decrease in outstanding shares and the then applicable Per Share Price shall
be correspondingly increased.
4.3. REPLACEMENT OF SECURITIES UPON REORGANIZATION, ETC. If after the
date hereof any capital reorganization or reclassification of the Common Stock
of the Company, or consolidation or merger of the Company with another
corporation, or the sale of all or substantially all of its assets to another
corporation or other similar event shall be effected, then, as a condition of
such reorganization, reclassification, consolidation, merger, or sale, lawful
and fair provision shall be made whereby CASI shall thereafter have the right to
purchase and receive, upon the basis and upon the terms and conditions specified
in this Warrant and in lieu of the shares of Common Stock of the Company
immediately theretofore purchasable and receivable upon the exercise of the
rights represented hereby, such shares of stock, securities, or assets as may be
issued or payable with respect to or in exchange for the number of outstanding
shares of such Common Stock equal to the number of shares of such stock
immediately theretofore purchasable and receivable upon the exercise of the
rights represented by this Warrant, had such reorganization, reclassification,
consolidation, merger, or sale not taken place and in such event appropriate
provision shall be made with respect to the rights and interests of CASI to the
end that the provisions hereof (including, without limitation, provisions for
adjustments of the Per Share Price and of the number of shares purchasable upon
the exercise of this Warrant) shall thereafter
2
<PAGE>
be applicable, as nearly as may be in relation to any share of stock,
securities, or assets thereafter deliverable upon the exercise hereof.
4.4. NO FRACTIONAL SHARES OR SCRIP. No fractional shares or scrip
representing fractional shares shall be issued upon the exercise of this
Warrant. In lieu of any fractional share to which the CASI would otherwise
be entitled, the Company shall make a cash payment equal to the product of
(x) the Price Per Share, multiplied by (y) such fraction.
5. RIGHTS OF SHAREHOLDERS. CASI shall not be entitled to vote or
receive dividends or be deemed the holder of the Shares for any purpose, nor
shall anything contained herein be construed to confer upon CASI, as a holder
of this Warrant, any of the rights of a shareholder of the Company or any
right to vote for the election of directors or upon any matter submitted to
shareholders at any meeting thereof, or to give or withhold consent to any
corporate action (whether upon any recapitalization, issuance of stock,
reclassification of stock, change of par value, or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or to receive notice
of meetings, or to receive dividends or subscription rights or otherwise
until this Warrant shall have been exercised as provided herein.
6. TRANSFER OF WARRANT PROHIBITED; COMPLIANCE WITH SECURITIES LAWS.
6.1 TRANSFERABILITY OF WARRANT. This Warrant may not be
transferred or assigned in whole or in part.
6.2 COMPLIANCE WITH SECURITIES LAWS.
6.2.1 CASI of this Warrant, by acceptance hereof, acknowledges
that this Warrant and the Shares to be issued upon exercise hereof are being
acquired solely for CASI's own account and not as a nominee for any other
party, and for investment, and that the CASI will not offer, sell or
otherwise dispose of the Shares to be issued upon exercise hereof except
under circumstances that will not result in a violation of the Securities Act
of 1933, as amended (the "Act") or any state securities laws. Upon exercise
of this Warrant, CASI shall, if requested by the Company, confirm in writing,
in a form satisfactory to the Company, that the Shares so purchased are being
acquired solely for CASI's own account and not as a nominee for any other
party, for investment, and not with a view toward distribution or resale.
6.2.2 The Shares issued upon exercise hereof shall be
stamped or imprinted with a legend in substantially the following form (in
addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE BEEN ACQUIRED FOR INVESTMENT
AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933. SUCH
SECURITIES AND ANY SECURITIES OR SHARES ISSUED HEREUNDER OR THEREUNDER
MAY NOT BE SOLD OR
3
<PAGE>
TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION
THEREFROM UNDER SAID ACT. COPIES OF THE AGREEMENT COVERING THE PURCHASE
OF THESE SECURITIES AND RESTRICTING THEIR TRANSFER OR SALE MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE CASI OF RECORD
HEREOF TO THE SECRETARY OF THE COMPANY AT THE PRINCIPAL EXECUTIVE
OFFICES OF THE COMPANY.
6.2.3 CASI represents and warrants to the Company that CASI is an
"accredited investor" within the meaning of Regulation D of the Securities and
Exchange Commission under the Act.
7. MARKET STAND-OFF; CALL RIGHT. CASI agrees that if CASI does not
enter into an agreement with the underwriters of an initial underwritten
public offering by the Company (i) in form and substance acceptable to such
underwriters, and (ii) which provides that CASI agrees to not sell, make any
short sale of, loan, hypothecate, pledge, grant any option for the repurchase
of, or otherwise dispose or transfer for value or otherwise engage in any of
the foregoing transactions with respect to any securities of the Company
without the prior written consent of the underwriters, for such period of
time from and after the effective date of such registration statement as may
be requested by such underwriters, then the Company or its assigns shall have
the right (the "Call Right") to purchase from CASI, and CASI shall sell to
the Company or its assigns, all of the Shares, for a purchase price equal to
the Due Amount canceled by CASI upon exercise of this Warrant, plus interest
thereon from the date of exercise of this Warrant at a rate of 12% per annum
(the "Call Price"). The Call Right may be exercised by delivery to CASI of
written notice (a "Call Notice") of exercise and the closing of the exercise
of the Call Right (the "Call Closing") shall occur upon such date and at such
time as is specified in the Call Notice. At the Call Closing, CASI shall
deliver to the Company or its assigns a certificate or certificates
evidencing all of the Shares, duly endorsed for transfer to the Company or
its assignee, as specified in the Call Notice, against delivery to CASI of a
cashiers check in the amount of the Call Price.
8. RESERVATION OF STOCK. The Company covenants that during the term
this Warrant is exercisable, the Company will reserve a sufficient number of
Shares to provide for the issuance upon the exercise of this Warrant and,
from time to time, will take all steps necessary to amend its Certificate of
Incorporation to provide sufficient reserves of Shares issuable upon exercise
of this Warrant. The Company further covenants that the Shares that may be
issued upon the exercise of this Warrant, upon exercise of this Warrant and
payment of the Exercise Price, all as set forth herein, will be free from all
taxes, liens and charges in respect of the issue thereof (other than taxes in
respect of any transfer occurring contemporaneously or otherwise specified
herein).
9. AMENDMENTS. Any term of this Warrant may be amended only with the
written consent of the Company and the CASI. No waivers of, or exceptions to,
any term, condition or
4
<PAGE>
provision of this Warrant, in any one or more instances, shall be deemed to
be, or construed as, a further or continuing waiver of any such term,
condition or provision.
10. MISCELLANEOUS.
10.1 SEVERABILITY AND GOVERNING LAW. Should any Section or any part
of a Section within this Warrant be rendered void, invalid or unenforceable
by any court of law for any reason, such invalidity or unenforceability shall
not void or render invalid or unenforceable any other Section or part of a
Section in this Warrant. THIS WARRANT IS MADE AND ENTERED INTO IN THE STATE
OF CALIFORNIA AND THE LAWS OF SAID STATE SHALL GOVERN THE VALIDITY AND
INTERPRETATION HEREOF AND THE PERFORMANCE BY THE PARTIES HERETO OF THEIR
RESPECTIVE DUTIES AND OBLIGATIONS HEREUNDER.
10.2 COUNTERPARTS. This Warrant may be executed in one or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
10.3 CAPTIONS AND SECTION HEADINGS. Section titles or captions
contained in this Warrant are inserted as a matter of convenience and for
reference purposes only, and in no way define, limit, extend or describe the
scope of this Warrant or the intent of any provision hereof.
10.4 ATTORNEYS' FEES. In the event that any dispute among the
parties to this Warrant should result in litigation, the prevailing party in
such dispute shall be entitled to recover from the losing party its
reasonable fees and expenses of attorneys and accountants in connection
therewith.
10.5 ENTIRE AGREEMENT. This Warrant contains the entire
understanding of the parties and there are no further or other agreements or
understandings, written or oral, in effect between the parties relating to
the subject matter hereof unless expressly referred to herein.
5
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Warrant as of the date written below.
Dated: As of July 1, 1997
DATA NET INTERNATIONAL, INC.
By: /s/ JAMES UNG
---------------------------
Its: President
---------------------------
AGREED AND ACCEPTED:
COMPUTER AIDED SOFTWARE INTEGRATION, INC.
By: /s/ JAMES CACI
---------------------------
Its: Chief Financial Officer
---------------------------
6
<PAGE>
[EXHIBIT A]
NOTICE OF EXERCISE
To: Data Net International, Inc.
(1) The undersigned hereby elects to purchase _______ Shares of
_______________ pursuant to the terms of the attached Warrant, and tenders
herewith payment of the purchase price for such Shares in full.
(2) In exercising this Warrant, the undersigned hereby confirms and
acknowledges that the Shares are being acquired solely for the account of the
undersigned and not as a nominee for any other party, and for investment, and
that the undersigned will not offer, sell or otherwise dispose of any such
Shares except under circumstances that will not result in a violation of the
Securities Act of 1933, as amended, or any state securities laws.
(3) Please issue a certificate or certificates representing said Shares in the
name of the undersigned or in such other name as is specified below:
--------------------------
(Name)
--------------------------
(Name)
- --------------- -------------------------
(Date) (Signature)
7
<PAGE>
[EXHIBIT B]
NOTE CANCELLATION FORM
FOR VALUE RECEIVED, the undersigned holder and owner of that certain
promissory note in the original principal amount of $950,000 issued by Data Net
International, Inc. (the "Company") to the undersigned on September __, 1997
(the "Note") hereby tenders such Note, marked "CANCELED" across its face, and
hereby cancels and waives any claims of the undersigned for payment of
principal, interest, expenses and fees due to or claimed by the undersigned
under or pursuant to the Note. The undersigned represents and warrants that the
undersigned has not assigned any of its rights or claims at any time existing or
arising under the Note to any person, and agrees to indemnify, defend and hold
the Company harmless against liability or assertions of liability on the part of
the Company to any person other than the undersigned under or pursuant to the
provisions of the Note.
Dated:
----------------------
COMPUTER AIDED SOFTWARE INTEGRATION, INC.
By:
-----------------------------
Its:
----------------------------
8
<PAGE>
EXHIBIT 10.9
PROMISSORY NOTE
$150,000 JULY 1, 1997
WHEREAS, Ralph Glasgal (the "Lender") desires to loan to Data Net
International, Incorporated, a California Corporation (the "Borrower") and
the Borrower desires to borrow from the Lender, the principal amount of
$150,000 pursuant to the terms and conditions contained in this promissory
Note (the "Note").
NOW, THEREFORE, for good and valuable consideration herein
contained, lender hereby agrees to loan to Borrower, and Borrower hereby
promises to pay to the order of lender or his successors or assignees, the
principal amount of one hundred fifty thousand ($150,000) dollars on the
following schedule:
PAYMENT DATE PRINCIPAL PAYMENT
------------ ------------------
First Installment--November 31, 1997 $ 50,000
Second Installment--February 28, 1998 100,000
Provided, however, that (i) in the event that the Borrower in its sole
discretion consummates a qualified financing (as hereinafter defined) prior
to the payment of the first installment, $50,000 of the proceeds of such
qualified financing shall be immediately applied to repayment of the first
installment; and (ii) in the event that Borrower in its sole discretion
consummates a qualified IPO (as hereinafter defined) prior to payment of the
second installment, $100,000 of proceeds of such qualified financing shall be
immediately applied to prepayment of second installment.
For purposes of this Note, (i) a Qualified Financing shall mean a
subordinated debt or equity financing transaction or a series of subordinated
or equity financing transactions, which yield gross proceeds to the Borrower
or any of its subsidiaries of at least $1,000,000 and (ii) a Qualified IPO
shall mean an initial underwritten offering by the Borrower of its securities
to the public pursuant to a registration statement filed with the Securities
and Exchange Commission under the Securities Act of 1933, as amended.
Borrower also promises to pay interest on the $150,000 principal
amount of this Note at a rate of ten percent (10%) per
<PAGE>
annum (on the basis of a 360 day year and actual number of days elapsed)
from and including the date hereof until such principal sum shall be paid in
full according to this formula of (10%) per annum. Beginning July 1st 1997,
interest accrued shall be included in the 1st and 2nd installments indicated
above.
All payments of principal and interest in respect of this Note
shall be made in lawful money of the United States of America in immediately
available funds to Lender, at his office located at c/o Glasgal
Communications Inc., 20 Commerce Way, Tetowa, New Jersey 07512 or at such
other place as shall be designated in writing by Lender for such purpose.
Borrower hereby waves diligence, presentment, dishonor, demand,
notice and protest and, to the full extent permitted by law, the right to
plead any statute of limitations as a defense to any demand hereunder.
Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note.
The Borrower reserves the right to prepay the unpaid principal
balance of this Note in whole, at any time, without penalty or premium.
In the event that a qualified financing does not occur prior to
November 30, 1997, and as a result this Note is not paid in full on or prior
to Feb. 28, 1998, this Note shall be converted into such number of shares of
the common stock of the Borrower as shall equal the principal amount then
outstanding plus accrued interest divided by a fraction, the number of which
shall equal the greater of $20,000,000 or the fair market value of the
Borrower at the time of such conversion, and the denominator of which shall
be the number of shares of Common Stock outstanding immediately prior to such
conversion (the "Common Stock").
Whenever any payment on this Note shall be stated to be due on a
Saturday, a Sunday or a day on which banking institutions in the State of New
York are authorized or obligated by law, regulation or executive order to
remain closed (a "Legal Holiday"), such payments shall be made on the next
succeeding day which is not a Legal Holiday and such extension of time shall
be included in the computation of the payment of interest on this Note.
The terms of this Note are not subject to amendment except by
written agreement of Lender and Borrower and Borrower may not assign its
obligations hereunder without the prior written consent of Lender.
<PAGE>
This Note shall be governed by and construed and enforced in
accordance with the laws of the State of New York, without regard to
principles of conflicts of laws.
IN WITNESS WHEREOF, Borrower has duly executed this Note, the
day and year first above written.
DATA NET INTERNATIONAL, INCORPORATED
By: /s/ MAX TOGHRAIE
---------------------------------
Name: Max Toghraie
Title: Chief Executive Officer
By: RALPH GLASGAL
Signed: /s/ RALPH GLASGAL
--------------------------------
<PAGE>
EXHIBIT 10.10
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - GROSS
(DO NOT USE THIS FORM MULTI-TENANT BUILDINGS)
1. BASIC PROVISIONS ("BASIC PROVISIONS")
1.1 PARTIES: This Lease ("LEASE"), dated for reference purposes only
October 28, 1997 is made by and between Fortune Dynamic, Inc., a California
Corporation ("LESSOR") and Data Net International, Inc., a California
Corporation (collectively the "PARTIES," or individually a "PARTY").
1.2 PREMISES: That certain real property, including all improvements
therein or to be provided by Lessor under the terms of this Lease, and commonly
known as 957 Lawson Street, located in the County of Los Angeles, State of
California, and generally described as (describe briefly the nature of the
property and, if applicable, the "PROJECT," if the property is located within a
Project) A free-standing concrete tilt-up building with approximately 21,900
s.f. of space.
1.3 TERM: Three (3) years and 0 months ("ORIGINAL TERM") commencing
February 1, 1998 ("COMMENCEMENT DATE") and ending January 31, 2001 ("EXPIRATION
DATE"). (See also Paragraph 3).
1.4 EARLY POSSESSION: N/A ("EARLY POSSESSION DATE"). (See also
Paragraphs 3,2 and 3.3)
1.5 BASE RENT: $11,169 per month ("BASE RENT"), payable on the First day
of each month commencing February 1998.
1.6 BASE RENT PAID UPON EXECUTION: $11,169.00 as Base Rent for the period
February 1998.
1.7 SECURITY DEPOSIT: $11,169.00 ("SECURITY DEPOSIT"). (See also
Paragraph 5)
1.8 AGREED USE: General office use, warehousing and distribution of
computer related products. (See also Paragraph 6).
1.9 INSURING PARTY. Lessor is the "INSURING PARTY." The annual "BASE
PREMIUM" is $_____________. (See also Paragraph 8)
1.10 REAL ESTATE BROKERS: (See also Paragraph 15)
REPRESENTATION: The following real estate brokers (collectively,
the "BROKERS") and brokerage relationships exist in this transaction (check
applicable boxes):
[X] DAUM Commercial Real Estate Services represents Lessor exclusively
("LESSOR'S BROKER");
[X] The Seeley Co. represents Lessee exclusively ("LESSEE'S BROKER"); or
[ ] _______________________________ represents both Lessor and Lessee ("DUAL
AGENCY").
<PAGE>
PAYMENT TO BROKERS: Upon execution and delivery of this Lease by
both Parties, Lessor shall pay to the Broker the fee agreed to in their separate
written agreement.
1.11 GUARANTOR. The obligations of the Lessee under this Lease are to be
guaranteed by N/A ("GUARANTOR"). (See also Paragraph 37).
1.12 ADDENDA AND EXHIBITS. Attached hereto is an Addendum or Addenda
consisting of Paragraphs 50 through [51]* and Exhibits A (site plan), Exh. B
(hazardous material & ADA), all of which constitute a part of this Lease.
2. PREMISES.
2.1 LETTING. Lessor hereby leases to Lessee, and Lessee hereby leases
from Lessor, the Premises, for the term, at the rental, and upon all of the
terms, covenants and conditions set forth in this Lease. Unless otherwise
provided herein, any statement of size set forth in this Lease, or that may have
been used in calculating rental, is an approximation which the Parties agree is
reasonable and the rental based thereon is not subject to revision whether or
not the actual size is more or less.
2.2 CONDITION. Lessor shall deliver the Premises broom clean and free
of debris on the Commencement Date or the Early Possession Date, whichever
first occurs ("START DATE"), and warrants that the existing electrical,
plumbing, fire sprinkler, lighting, healing, ventilating and air conditioning
systems ("HVAC"), loading doors, if any, and all other such elements of the
building, in the Premises, other than those constructed by Lessee, shall be
in good operating condition on said date and that the surface and structural
elements of the roof, bearing walls and foundation of any buildings on the
Premises (the "BUILDING") shall be free of material defects. If a
non-compliance with said warranty exists as of the Start 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, after the Start
Date, Lessee does not give Lessor written notice of any non-compliance with
this warranty within (i) six (6) months as to the HVAC systems or (ii) thirty
(30) days as to the remaining systems and other elements of the Building,
correction of such non-compliance shall be the obligation of Lessee at
Lessee's sole cost and expense, except for the roof, foundations, and bearing
walls which are handled as provided in paragraph 7.
2.3 COMPLIANCE. Lessor warrants that the Improvements on the Premises
comply with all applicable laws, covenants or restrictions of record,
building codes, regulations and ordinances ("APPLICABLE REQUIREMENTS") in
effect on the Start Date. Said warranty does not apply to the use to which
Lessee will put the Premises or to any Alterations or Utility Installations
(as defined in Paragraph 7.3(a)) made or to be made by Lessee. NOTE: Lessee
is responsible for determining whether or not the zoning is appropriate for
Lessee's intended use, and acknowledges that past uses of the Premises may no
longer be allowed. If the Premises do not comply with said warranty, Lessor
shall, except as otherwise provided, promptly after receipt of written notice
from Lessee setting forth with specificity the nature and extent of such
non-compliance, rectify the same at Lessor's expense. If Lessee does not
give Lessor written notice of a non-compliance with this warranty within six
(6) months following the Start Date, correction of that non-compliance shall
*[The original document incorrectly reads "52." This is a typographical error
which has been corrected herein.]
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be the obligation of Lessee at Lessee's sole cost and expense. If the
Applicable Requirements are hereafter changed (as opposed to being in
existence at the Start Date, which is addressed in Paragraph 6.2(e) below) so
as to require during the term of this Lease the construction of an addition
to or an alteration of the Building, the remediation of any Hazardous
Substance, or the reinforcement or other physical modification of the
Building ("CAPITAL EXPENDITURE"), Lessor and Lessee shall allocate the cost
of such work as follows:
Subject to Paragraph 2.3(c) below, if such Capital
Expenditures are required as a result of the specific and unique use of the
Premises by Lessee as compared with uses by tenants in general, Lessee shall
be fully responsible for the cost thereof, provided, however that if such
Capital Expenditure is required during the last two (2) years of this Lease
and the cost thereof exceeds six (6) months' Base Rent, Lessee may instead
terminate this Lease unless Lessor notifies Lessee. In writing, within ten
(10) days after receipt of Lessee's termination notice that Lessor has
elected to pay the difference between the actual cost thereof and the amount
equal to six (6) months' Base Rent. If Lessee elects termination, Lessee
shall immediately cease the use of the Premises which requires such Capital
Expenditure and deliver to Lessor written notice specifying a termination
date at least ninety (90) days thereafter. Such termination date shall,
however, in no event be earlier than the last day that Lessee could legally
utilize the Premises without commencing such Capital Expenditure.
If such Capital Expenditure is not the result of the specific
and unique use of the Premises by Lessee (such as, governmentally mandated
seismic modifications), then Lessor and Lessee shall allocate the obligation
to pay for such costs pursuant to the provisions of Paragraph 7.1(c);
provided, however, that if such Capital Expenditure is required during the
last two years of this Lease or if Lessor reasonably determines that it is
not economically feasible to pay its share thereof, Lessor shall have the
option to terminate this Lease upon ninety (90) days prior written notice to
Lessee unless Lessee notifies Lessor, in writing, within ten (10) days after
receipt of Lessor's termination notice that Lessee will pay for such Capital
Expenditure. If Lessor does not elect to terminate, and fails to tender its
share of any such Capital Expenditure, Lessee may advance such funds and
deduct same, with Interest, from Rent until Lessor's share of such costs have
been fully paid. If Lessee is unable to finance Lessor's share, or if the
balance of the Rent due and payable for the remainder of this Lease is not
sufficient to fully reimburse Lessee on an offset basis, Lessee shall have
the right to terminate this Lease upon thirty (30) days written notice to
Lessor.
Notwithstanding the above, the provisions concerning Capital
Expenditures are intended to apply only to non-voluntary, unexpected, and new
Applicable Requirements. If the Capital Expenditures are instead triggered
by Lessee as a result of an actual or proposed change in use, change in
intensity of use, or modification to the Premises then, and in that event,
Lessee shall be fully responsible for the cost thereof, and Lessee shall not
have any right to terminate this Lease.
2.4 ACKNOWLEDGMENTS. Lessee acknowledges that: (a) it has been advised
by Lessor and/or Brokers to satisfy itself with respect to the condition of
the Premises (including but not limited to the electrical, HVAC and fire
sprinkler systems, security, environmental aspects, and compliance with
Applicable Requirements), and their suitability for Lessee's intended use;
(b)
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Lessee has made such investigation as it deems necessary with reference to
such matters and assumes all responsibility therefor as the same relate to
its occupancy of the Premises; and (c) neither Lessor, Lessor's agents, nor
any Broker has made any oral or written representations or warranties with
respect to said matters other than as set forth in this Lease. In addition,
Lessor acknowledges that: (a) Broker has made no representations, promises or
warranties concerning Lessee's ability to honor the Lease or suitability to
occupy the Premises; and (b) it is Lessor's sole responsibility to
investigate the financial capability and/or suitability of all proposed
tenants.
2.5 LESSEE AS PRIOR OWNER/OCCUPANT. The warranties made by Lessor in
Paragraph 2 shall be of no force or effect if immediately prior to the Start
Date Lessee was the owner or occupant of the Premises. In such event, Lessee
shall be responsible for any necessary corrective work.
3. TERM.
3.1 TERM. The Commencement Date, Expiration Date and Original Term of
this Lease are as specified in Paragraph 1.3.
3.2 EARLY POSSESSION. If Lessee totally or partially occupies the
Premises prior to the Commencement Date, the obligation to pay Base Rent
shall be abated for the period of such early possession. All other terms of
this Lease shall, however, be in effect during such period. Any such early
possession shall not affect the Expiration Date.
3.3 DELAY IN POSSESSION. Lessor agrees to use its best commercially
reasonable efforts to deliver possession of the Premises to Lessee by the
Commencement Date, if, despite said efforts, Lessor is unable to deliver
possession as agreed, Lessor shall not be subject to any liability therefor,
nor shall such failure affect the validity of this Lease. Lessee shall not,
however, be obligated to pay Rent or perform its other obligations until it
receives possession of the Premises. If possession is not delivered within
sixty (60) days after the Commencement Date, Lessee may, at its option, by
notice in writing within ten (10) days after the end of such sixty (60) day
period, cancel this Lease, in which event the Parties shall be discharged
from all obligations hereunder. If such written notice is not received by
Lessor within said ten (10) day period, Lessee's right to cancel shall
terminate. Except as otherwise provided, if possession is not tendered to
Lessee by the Start Date and Lessee does not terminate this Lease, as
aforesaid, any period of rent abatement that Lessee would otherwise have
enjoyed shall run from the date of delivery of possession and continue for a
period equal to what Lessee would otherwise have enjoyed under the terms
hereof, but minus any days of delay caused by the acts or omissions of
Lessee. If possession of the Premises is not delivered within four (4)
months after the Commencement Date, this Lease shall terminate unless other
agreements are reached between Lessor and Lessee, in writing.
3.4 LESSEE COMPLIANCE. Lessor shall not be required to tender
possession of the Premises to Lessee until Lessee complies with its
obligation to provide evidence of insurance (Paragraph 8.5). Pending
delivery of such evidence, Lessee shall be required to perform all of its
obligations under this Lease from and after the Start Date, including the
payment of Rent, notwithstanding Lessor's election to withhold possession
pending receipt of such evidence of
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insurance. Further, if Lessee is required to perform any other conditions
prior to or concurrent with the Start Date, the Start Date shall occur but
Lessor may elect to withhold possession until such conditions are satisfied.
4 RENT.
4.1 RENT DEFINED. All monetary obligations of Lessee to Lessor under
the terms of this Lease (except for the Security Deposit) are deemed to be
rent ("RENT").
4.2 PAYMENT. Lessee shall cause payment of Rent to be received by
Lessor in lawful money of the United States, without offset or deduction
(except as specifically permitted in this Lease), on or before the day on
which it is due. Rent for any period during the term hereof which is for less
than one (1) full calendar month shall be prorated based upon the actual
number of days of said month. Payment of Rent shall be made to Lessor at its
address stated herein or to such other persons or place as Lessor may from
time to time designate in writing. Acceptance of a payment which is less
than the amount then due shall not be a waiver of Lessor's rights to the
balance of such Rent, regardless of Lessor's endorsement of any check so
stating.
5 SECURITY DEPOSIT. Lessee shall deposit with Lessor upon execution
hereof the Security Deposit as security for Lessee's faithful performance of
its obligations under this Lease. If Lessee fails to pay Rent, or otherwise
Defaults under this Lease, 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, expense, loss or damage
which Lessor may suffer or incur by reason thereof. If Lessor uses or
applies all or any portion of said Security Deposit, Lessee shall within ten
(10) days after written request therefor deposit monies with Lessor
sufficient to restore said Security Deposit to the full amount required by
this Lease. If the Base Rent increases during the term of this Lease,
Lessee shall, upon written request from Lessor, deposit additional moneys
with Lessor so that the total amount of the Security Deposit shall at all
times bear the same proportion to the Increased Base Rent as the initial
Security Deposit bore to the Initial Base Rent. Should the Agreed Use be
amended to accommodate a material change in the business of Lessee or to
accommodate a sublessee or assignee, Lessor shall have the right to increase
the Security Deposit to the extent necessary, in Lessor's reasonable
judgment, to account for any increased wear and tear that the Premises may
suffer as a result thereof. If a change in control of Lessee occurs during
this Lease and following such change the financial condition of Lessee is, in
Lessor's reasonable judgment, significantly reduced, Lessee shall deposit
such additional monies with Lessor as shall be sufficient to cause the
Security Deposit to be at a commercially reasonable level based on said
change in financial condition. Lessor shall not be required to keep the
Security Deposit separate from its general accounts. Within fourteen (14)
days after the expiration or termination of this Lease, if Lessor elects to
apply the Security Deposit only to unpaid Rent, and otherwise within thirty
(30) days after the Premises have been vacated pursuant to Paragraph 7.2(c)
below, Lessor shall return that portion of the Security Deposit not used or
applied by Lessor. No part of the Security Deposit shall be considered to be
held in trust, to bear interest or to be prepayment for any monies to be paid
by Lessee under this Lease.
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6 USE.
6.1 USE. Lessee shall use and occupy the Premises only for the Agreed
Use, 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 damage, waste or a nuisance, or that
disturbs owners and/or occupants of, or causes damage to neighboring
properties. Lessor shall not unreasonably withhold or delay its consent to
any written request for modification of the Agreed Use, so long as the same
will not impair the structural integrity of the improvements on the Premises
or the mechanical or electrical systems therein, or is not significantly more
burdensome to the Premises. If Lessor elects to withhold consent, Lessor
shall within five (5) business days after such request give written
notification of same, which notice shall include an explanation of Lessor's
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, or waste
whose presence, use, manufacture, disposal, transportation, or release,
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 Substances shall include, but not be limited
to, hydrocarbons, petroleum, gasoline, and/or crude oil or any products,
by-products or fractions thereof. Lessee shall not engage in any activity in
or on the Premises which constitutes a Reportable Use of Hazardous Substances
without the express prior written consent of Lessor and timely compliance (at
Lessee's expense) with all Applicable Requirements. "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/or (iii) the presence at the Premises of a
Hazardous Substance with respect to which any Applicable Requirements
requires that a notice be given to persons entering or occupying the Premises
or neighboring properties. Notwithstanding the foregoing, Lessee may use any
ordinary and customary materials reasonably required to be used in the normal
course of the Agreed Use, so long as such use is in compliance with all
Applicable Requirements, is not a Reportable Use, and does not expose the
Premises or neighboring property to any meaningful risk of contamination or
damage or expose Lessor to any liability therefor. In addition, Lessor may
condition its consent to any Reportable Use upon receiving such additional
assurances as Lessor reasonably deems necessary to protect itself, the
public, the Premises and/or the environment against damage, contamination,
injury and/or liability, including, but not limited to, the installation (and
removal on or before Lease expiration or termination) of protective
modifications (such as concrete encasements) and/or increasing the Security
Deposit.
(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, other than as previously consented to by Lessor,
Lessee shall immediately give written notice of
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such fact to Lessor, and provide Lessor with a copy of any report, notice,
claim or other documentation which it has concerning the presence of such
Hazardous Substance.
(c) LESSEE REMEDIATION. Lessee shall not cause or permit any
Hazardous Substance to be spilled or released in, on, under, or about the
Premises (including through the plumbing or sanitary sewer system) and shall
promptly, at Lessee's expense, take all investigatory and/or remedial action
reasonably recommended, whether or not formally ordered or required, for the
cleanup of any contamination of, and for the maintenance, security and/or
monitoring of the Premises or neighboring properties, that was caused or
materially contributed to by Lessee, or pertaining to or involving any
Hazardous Substance brought onto the Premises during the term of this Lease,
by or for Lessee, or any third party.
(d) LESSEE INDEMNIFICATION. Lessee shall indemnify, defend and
hold Lessor, its agents, employees, lenders and ground lessor, if any
harmless from and against any and all loss of rents and/or damages,
liabilities, judgments, claims, expenses, penalties, and attorneys' and
consultants' fees arising out of or involving any Hazardous Substance brought
onto the Premises by or for Lessee, or any third party (provided, however,
that Lessee shall have no liability under this Lease with respect to
underground migration of any Hazardous Substance under the Premises from
adjacent properties). Lessee's obligations 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,
removal, remediation, restoration and/or abatement, and shall survive the
expiration or 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.
(e) LESSOR INDEMNIFICATION. Lessor and its successors and assigns
shall indemnify, defend, reimburse and hold Lessee, its employees and
lenders, harmless from and against any and all environmental damages,
including the cost of remediation, which existed as a result of Hazardous
Substances on the Premises prior to the Start Date or which are caused by the
gross negligence or willful misconduct of Lessor, its agents or employees.
Lessor's obligations as and when required by the Applicable Requirements,
shall include, but not be limited to, the cost of investigation, removal,
remediation, restoration and/or abatement, and shall survive the expiration
or termination of this Lease.
(f) INVESTIGATIONS AND REMEDIATIONS. Lessor shall retain the
responsibility and pay for any investigations or remediation measures
required by governmental entities having jurisdiction with respect to the
existence of Hazardous Substances on the Premises prior to the Start Date,
unless such remediation measure is required as a result of Lessee's use
(including alterations) of the Premises, in which event Lessee shall be
responsible for such payment. Lessee shall cooperate fully in any such
activities at the request of Lessor, including allowing Lessor and Lessor's
agents to have reasonable access to the Premises at reasonable times in order
to carry out Lessor's investigative and remedial responsibilities.
(g) LESSOR TERMINATION OPTION. If a Hazardous Substance Condition
occurs during the term of this Lease, unless Lessee is legally responsible
therefor (in which case Lessee
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shall make the investigation and remediation thereof required by the
Applicable Requirements and this Lease shall continue in full force and
effect, but subject to Lessor's rights under Paragraph 6.2(d) and Paragraph
13), Lessor may, at Lessor's expense, in which event this Lease shall
continue in full force and effect, or (ii) the estimated cost to 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 a termination notice, Lessee may, within ten (10) days
thereafter give written notice to Lessor of Lessee's commitment to pay the
amount by which the costs of the remediation of such Hazardous Substance
Condition exceeds an amount equal to twelve (12) times the then monthly Base
Rent or $100,000, whichever is greater. Lessee shall provide with said funds
or satisfactory assurance thereof within thirty (30) days following such
commitment. In such event, this Lease shall continue in full force and
effect, and Lessor shall proceed to make such remediation as soon as
reasonably possible after the required funds are available. If Lessee does
not give such notice and provide the required funds of assurance thereof
within the time provided, this Lease shall terminate as of the date specified
in Lessor's notice of termination.
6.3 LESSEE'S COMPLIANCE WITH APPLICABLE REQUIREMENTS. Except as
otherwise provided in this Lease, Lessee shall, at Lessee's sole expense,
fully, diligently and in a timely manner, materially comply with all
Applicable Requirements, the requirements of any applicable fire insurance
underwriter or rating bureau, and the recommendations of Lessor's engineers
and/or consultants which relate in any manner to the Premises, without regard
to whether said requirements are now in effort or become effective after the
Start Date. Lessee shall, within ten (10) days after receipt of Lessor's
written request, provide Lessor with copies of all permits and other
documents, and other information 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 the failure of Lessee or the Premises to
comply with any Applicable Requirements.
6.4 INSPECTION; COMPLIANCE. LESSOR AND LESSOR'S "LENDER" (as defined
in Paragraph 30 below) and consultants shall have the right to enter into
Premises at any time, in the case of emergency, and otherwise at reasonable
times, for the purpose of inspecting the condition of the Premises and for
verifying compliance by Lessee with this Lease. The cost of any such
inspections shall be paid by Lessor, unless a violation of Applicable
Requirements, or a contamination is found to exist or be imminent, or the
inspection is requested or ordered by a governmental authority. In such
case, Lessee shall upon request reimburse Lessor for the cost of such
inspections, so long as such inspection is reasonably related to the
violation or contamination.
7 MAINTENANCE; REPAIRS, UTILITY INSTALLATIONS; TRADE FIXTURES AND
ALTERATIONS.
7.1 LESSEE'S OBLIGATIONS.
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(a) IN GENERAL. Subject to the provisions of Paragraph 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
6.3 (Lessee's Compliance with Applicable Requirements), 7.2 (Lessor's
Obligations), 9 (Damage and Destruction), and 14 (Condemnation), Lessee
shall, at Lessee's sole expense, keep the Premises, Utility Installations,
and Alterations in good order, condition and repair (whether or not the
portion of the Premises requiring repairs, or the means of repairing the
same, are reasonably or readily accessible to Lessee, and whether or not the
need for such repairs occurs as a result of Lessee's use, any prior use, the
elements or the age of such portion of the Premises), including, but not
limited to, all equipment or facilities, such as plumbing, heating,
ventilating, air-conditioning, electrical lighting facilities, boilers,
pressure vessels, fire protection system, fixtures, walls (interior and
exterior), ceilings, floors, windows, doors, skylights, landscaping,
driveways, parking lots, fences, signs, sidewalks and parkways located in,
on, or adjacent to the Premises. Lessee is also responsible for keeping the
roof and roof drainage clean and free of debris. Lessor shall keep the
surface and structural elements of the roof, foundations, and bearing walls
in good repair (see paragraph 7.2). 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. Lessee shall,
during the term of this Lease, keep the exterior appearance of the Building
in a first-class condition (including, e.g., graffiti removal) consistent
with the exterior appearance of other similar facilities of comparable age
and size in the vicinity, including, when necessary, the exterior repainting
of the building.
(b) SERVICE CONTRACTS. Lessee shall, at Lessee's sole expense,
procure and maintain contracts, with copies to Lessor, in customary form and
substance for, and with contractors specializing and experienced in the
maintenance of the following equipment and improvements ("BASIC ELEMENTS"),
if any, if and when installed on the Premises: (i) HVAC equipment, (ii)
boiler, and pressure vessels, (iii) fire extinguishing systems, including
fire alarm an/or smoke detector, (iv) landscaping and irrigation systems, (v)
driveways and parking lots, (vi) clarifiers, and, (vii) basic utility feed to
the perimeter of the Building, (viii) any other equipment, if reasonably
required by Lessor.
(c) REPLACEMENT. Subject to Lessee's indemnification of Lessor as
set forth in Paragraph 8.7 below, and without relieving Lessee of liability
resulting from Lessee's failure to exercise and perform good maintenance
practices, if the Basic Elements described in Paragraph 7.1(b) cannot be
repaired other than at a cost which is in excess of 50% of the cost of
replacing such Basic Elements, then such Basic Elements shall be replaced by
Lessor, and the cost thereof shall be prorated between the Parties and Lessee
shall only be obligated to pay each month during the remainder of the term of
this Lease, on the date on which Base Rent is due, an amount equal to the
product of multiplying the cost of such replacement by a fraction, the
numerator of which is one, and the denominator of which is the number of
months of the useful life of such replacement as such useful life is
specified pursuant to Federal income tax regulations or guidelines for
depreciation thereof (including interest on the unamortized balance as is
then commercially reasonable in the judgment of Lessor's accountants), with
Lessee reserving the right to prepay its obligation at any time.
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7.2 LESSOR'S OBLIGATIONS. Subject to the provisions of Paragraphs 2.2
(Condition), 2.3 (Compliance with Covenants, Restrictions and Building Code),
8 (Damage or Destruction) and 14 (Condemnation), it is intended by the
Parties hereto that Lessor have no obligation, in any manner whatsoever, to
repair and maintain the Premises, or the equipment therein, all of which
obligations are intended to be that of the Lessee, except for the surface and
structural elements of the roof, foundations and bearing walls, the repair of
which shall be the responsibility of Lessor upon receipt of written notice
that such a repair is necessary. It is the intention of the Parties that the
terms of this Lease govern the respective obligations of the Parties as to
maintenance and repair of the Premises, and they expressly waive the benefit
of any statute now or hereafter in effect to the extent it is inconsistent
with the terms of this Lease.
7.3 UTILITY INSTALLATIONS; TRADE FIXTURES; ALTERATIONS.
(a) DEFINITIONS; CONSENT REQUIRED. The term "UTILITY
INSTALLATIONS" refers to all floor and window coverings, air lines, power
panels, electrical distribution, security and fire protection systems and
signs, communication systems, lighting fixtures, HVAC equipment, plumbing,
and fencing in or on the Premises. The term "TRADE FIXTURES" shall mean
Lessee's machinery and equipment that can be removed without doing material
damage to the Premises. The term "ALTERATIONS" shall mean any modification
of the improvements, other than Utility Installations or Trade Fixtures,
whether by addition or deletion. "LESSEE OWNED ALTERATIONS AND/OR UTILITY
INSTALLATIONS" are defined as Alterations and/or Utility Installations made
by Lessee that are not yet owned by Lessor pursuant to Paragraph 7.4(a).
Lessee shall not make any Alterations or Utility Installations to 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 such consent but upon notice to Lessor, as long
as they are not visible from the outside, do not involve puncturing,
relocating or removing the roof or any existing walls, and the cumulative
cost thereof during this Lease as extended does not exceed $50,000 in the
aggregate or $10,000 in any one year.
(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. Consent shall be
deemed conditioned upon Lessees" (1) acquiring al applicable governmental
permits, (ii) furnishing Lessor with copies of both the permits and the plans
and specifications prior to commencement of the work, and (ii) furnishing
Lessor with copies of both the permits and the plans and specifications prior
to commencement of the work, and (iii) compliance with all conditions of said
permits and other Applicable Requirements in a prompt and expeditious manner.
Any Alterations or Utility Installations shall be performed in a workmanlike
manner with good and sufficient materials. Lessee shall promptly upon
completion furnish Lessor with as-built plans and specifications. For work
which costs an amount equal to the greater of one month's Base Rent, or
$10,000, Lessor may condition its consent upon Lessee providing a lien and
completion bond in an amount equal to one and one-half times the estimated
cost of such Alteration or Utility Installation and/or upon Lessee's posting
an additional Security Deposit with Lessor.
(c) INDEMNIFICATION. Lessee shall pay, when due, all claims for
labor or material was furnished or alleged to have been furnished to or for
Lessee at or for use on the
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Premises, which claims are or may be secured by any mechanic's or
materialmen's lien against the Premises or any interest thereon. 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. If Lessee shall 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. If Lessor shall require, Lessee
shall furnish a surety bond 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. If Lessor elects to participate in any such action,
Lessee shall pay Lessor's attorneys' fees and costs.
7.4 OWNERSHIP; REMOVAL; SURRENDER; AND RESTORATION.
(a) OWNERSHIP. Subject to lessor's right to require removal or
elect ownership as hereinafter provided, all Alterations and Utility
Installations made by Lessee shall be the property of Lessee, but considered
a part of the Premises. Lessor may, at any time, elect in writing to be the
owner of all or any specific part of the Lessee Owned Alterations and Utility
Installations. Unless otherwise instructed per Paragraph 7.4(b) hereof, all
Lessee Owned Alterations and Utility Installations shall, at the expiration
or termination of this Lease, become the property of Lessor and be
surrendered by Lessee with Premises.
(b) REMOVAL. By delivery to Lessee of written notice from Lessor
not earlier than ninety (90) and not later than thirty (30) days prior to the
end of the term of this Lease, Lessor may require that any or all Lessee
Owned Alterations or Utility Installations be removed by the expiration or
termination of this Lease. Lessor may require the removal at any time of all
or any part of any Lessee Owned Alterations or Utility Installations made
without the required consent.
(c) SURRENDER/RESTORATION. Lessee shall surrender the Premises by
the Expiration Date or any earlier termination date, with all of the
improvements, parts and surfaces thereof broom 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.
Lessee shall repair any damage occasioned by the installation, maintenance or
removal of Trade Fixtures, Lessee Owned Alterations and/or Utility
Installations, furnishings, and equipment 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 groundwater contaminated by Lessee.
Trade Fixtures shall remain the property of Lessee and shall be removed by
Lessee. The failure by Lessee to timely vacate the Premises pursuant to this
Paragraph 7.4(c) without the express written consent of Lessor shall
constitute a holdover under the provisions of Paragraph 26 below.
8 INSURANCE; INDEMNITY.
8.1 PAYMENT OF PREMIUM INCREASES.
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(a) Lessee shall pay to Lessor any insurance cost increase
("INSURANCE COST INCREASE") occurring during the term of this Lease.
"Insurance Cost Increase" is defined as any increase in the actual cost of
the insurance required under Paragraph 8.2(b), 8.3(a) and 8.3(b) ("REQUIRED
INSURANCE"), over and above the Base Premium as hereinafter defined
calculated on an annual basis. "Insurance Cost Increase" shall include but
not be limited to increases resulting from the nature of Lessee's occupancy,
any act or omission or Lessee, requirements of the holder of mortgage or deed
of trust covering the Premises, increased valuation of the Premises,
increased valuation of the Premises and/or a premium rate increase. The
parties are encourage to fill the Base Premium in Paragraph 1.9 with a
reasonable premium for the Required Insurance based on the Agreed Use of the
Premises. If the parties fail to insert a dollar amount in Paragraph 1.9,
then the Based Premium shall be the lowest annual premium reasonably
obtainable for the Required Insurance as of the commencement of the Original
Term for the Agreed Use of the Premises. If the parties fail to insert a
dollar amount in Paragraph 1.9, then the Base Premium shall be the lowest
annual premium reasonably obtainable for the Required Insurance as of the
commencement of the Original Term for the Agreed Use of the Premises. In no
event, however, shall Lessee be responsible for any portion of the increase
in the premium cost attributable to liability insurance carried by Lessor
under Paragraph 8.1(b) in excess of $2,000,000 per occurrence.
(b) Lessee shall pay any such insurance Cost Increase to lessor
within thirty (30) days after receipt by Lessee of a copy of the premium
statement or other reasonable evidence of the amount due. If the insurance
policies maintained hereunder cover other property besides the Premises,
Lessor shall also deliver to Lessee a statement of the amount of such
Insurance Cost Increase attributable only to the Premises showing in
reasonable detail the manner in which such amount was computed. Premiums for
policy periods commencing prior to, or extending beyond the term of this
Lease, shall be prorated to correspond to the term of this Lease.
8.2 LIABILITY INSURANCE.
(a) CARRIED BY LESSEE. Lessee shall obtain and keep in force a
Commercial General Liability Policy of Insurance protecting Lessee and Lessor
against claims for bodily injury and property damage based upon or arising
out of the ownership, use, occupancy or maintenance of the Premises and all
areas appurtenant thereto. Such insurances, shall be an occurrence basis
providing single limit coverage in an amount not less than $2,000,000 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 shall
not, however, limit he liability of Lessee nor relieve Lessee of any
obligation hereunder. All insurance 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.
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(b) CERTIFIED BY LESSOR. Lessor shall maintain liability
insurance as described in Paragraph 8.2(a), in addition to, and not in lieu
of, the insurance required to be maintained by Lessee. Lessee shall not be
named as an additional insured therein.
8.3 PROPERTY INSURANCE - BUILDING, IMPROVEMENTS AND RENTAL VALUE.
(a) BUILDING AND IMPROVEMENTS. The Insuring Party shall obtain
and keep in force a policy or policies in the name of Lessor, with loss
payable to Lessor, any ground Lessor, and to any Lender(s) insuring loss or
damages to the Premises. The amount of such insurance shall be equal to the
full replacement cost of the Premises, as the same shall exist from time to
time, or the amount required by any Lenders, but no event more than the
commercially reasonable and available insurable value thereof. If Lessor is
the Insuring Party, however, Lessee Owned Alterations and Utility
Installations, Trade Fixtures, and Lessee's personal property shall be
insured by lessee under Paragraph 8.4 rather than by Lessor. If the coverage
is available and commercially appropriate, such policy or policies shall
insure against all risks by direct physical loss or damage (except the perils
of flood and/or earthquake unless required by a Lender or included in the
Base Premium), including coverage for debris removal and the increment of any
Applicable Requirements requiring the upgrading, demolition, reconstruction
or replacement of any portion of the Premises as the result of a covered
loss. Said policy or policies shall also contain an agreed valuation
provision in lieu of any coinsurance clause, waiver of subrogation, and
inflation guard protection causing an increase in the annual property
insurance coverage amount by a factor of not less than the adjusted U.S.
Department of Labor Consumer Price Index fro All Urban Consumers for the city
nearest to where the Premises are located.
(b) RENTAL VALUE. The Insuring Party shall obtain and keep in
force a policy or policies in the name of Lessor, with loss payable to Lessor
and any Lender, insuring the loss of the full Rent for one (1) year. Said
insurance shall provide that in the event the Lease is terminated by reason
of an insured loss, the period of indemnity for such coverage shall be
extended beyond the date of the completion of repairs or replacement of the
Premises, to provide for one full year's loss of Rent from the date of any
such loss. Said Insurance shall contain an agreed valuation provision in
lieu of any coincidence clause, and the amount of coverage shall be adjusted
annually to reflect the projected Rent otherwise payable by Lessee, for the
next twelve (12) month period.
(c) ADJACENT PREMISES. If the Premises are part of a larger
building, or of a group of buildings owned by Lessor which are adjacent to
the Premises, the Lessee shall pay for any increase in the premiums for the
property insurance of such building or buildings if said increase is caused
by Lessee's acts, omissions, use or occupancy of the Premises.
8.4 LESSEE'S PROPERTY/BUSINESS INTERRUPTION INSURANCE.
(a) PROPERTY DAMAGE. Lessee shall obtain and maintain insurance
coverage on all of Lessee's personal property, Trade Fixtures, and Lessee
Owned Alterations and Utility Installations. Such insurance shall be full
replacement cost converge with a deductible of not to exceed $1,000 per
occurrence. The proceeds from any such insurance shall be used by Lessee for
the replacement of personal property, Trade Fixtures and Lessee Owned
Alterations and
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Utility Installations. Lessee shall provide Lessor with written evidence
that such insurance is in force.
(b) BUSINESS INTERRUPTION. Lessee shall obtain and maintain loss
of income and extra expense insurance in amounts as will reimburse Lessee for
direct or Indirect loss of earnings attributable to all perils commonly
insured against by prudent lessees in the business of Lessee or attributable
to prevention of access to the Premises as a result of such perils.
(c) NO REPRESENTATION OF ADEQUATE COVERAGE. Lessor makes no
representation that the limits of forms of coverage of insurance specified
herein are adequate to cover Lessee's property, business operations or
obligations under this Lease.
8.5 INSURANCE POLICIES. Insurance required herein shall be by
companies duly licensed or admitted to transact business sin the state where
the Premises are located, and maintaining during the policy term a "General
Policyholders Rating" of at least B+, V, as set forth in the most current
issue of "Best's Insurance Guide", or such other rating as may be required by
a Lender. Lessee shall not do or permit to be done anything which
invalidates the required insurance policies. Lessee shall, prior to the
Start Date, deliver to Lessor certified copies of policies of such insurance
or certificates evidencing the existence and amounts of the required
insurance. No such policy shall be cancelable or subject to modification
except after thirty (30) days prior written notice to Lessor. Less shall, at
least thirty (30) days prior to the expiration of such policies, furnish
Lessor with evidence of renewals or "insurance binders" evidencing renewal
thereof, or Lessor may order such insurance and charge the cost thereof to
Lessee, which amount shall be payable by Lessee to Lessor upon demand. Such
policies shall be for a term of at least one year, or the length of the
remaining term of this Lease, whichever is less. If either Party shall fail
to procure and maintain the insurance required to be carried by it, the other
Party may, but shall not be required to, procure and maintain the same.
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 against the other, for loess of
or damage to its property arising out of or incident to the perils required
to be insured against herein. The effect of such releases and waivers is not
limited by the amount of insurance carried or required, or by any deductibles
applicable hereto. The Parties agree to have their respective property
damage insurance carriers 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 gross negligence or willful
misconduct, 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, liens, judgments, penalties, attorneys' and consultants' fees,
expenses and/or liabilities arising out of, involving, or in connection with,
the use and/or occupancy of the Premises by Lessee. If any action or
proceeding is brought against Lessor by reason of any of the foregoing
matters. Lessee shall upon notice defend the same at Lender's expense by
counsel reasonably satisfactory to Lessor and Lessor shall cooperate with
Lessee n such defense. Lessor need not have first paid any such claim in
order to be defended or indemnified.
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8.8 EXEMPTION OF LESSOR FROM LIABILITY. Lessor shall not be liable for
injury or damage to the person or goods, wares, merchandise or other property
of Lessee, Lessee's employees, contractors, invitees, customers, or any other
person in or about the Premises, whether such damage or injury is caused by
or results from fire, steam, electricity, gas, water or rain, or from the
breakage, leakage obstruction or other defects of pipes, fire sprinklers,
wire, appliances, plumbing, HVAC or lighting fixtures, or from any other
cause, whether the said injury or damage results from conditions arising upon
the Premise or upon the portions of the Building of which the Premises are a
part, or from other sources or places. Lessor shall not be liable for any
damages arising from any act or neglect of any other tenant of Lessor.
Notwithstanding Lessor's negligence or breach of this Lease, Lessor shall
under no circumstances be liable for injury to Lessee's business or for any
loss of income or profit therefrom.
9 DAMAGE OR DESTRUCTION.
9.1 DEFINITIONS.
(a) "PREMISES PARTIAL DAMAGE" shall mean damage or destruction to
the improvements on the Premises, other than Lessee Owned Alterations,
Utility Installations and Trade Fixtures, which can reasonably be repaired in
six (6) months or less from the date of the damage or destruction. Lessor
shall notify Lessee in writing within thirty (30) days from the date of the
damage or destruction as to whether or not the damage is Partial or Total.
(b) "PREMISES TOTAL DESTRUCTION" shall mean damage or destruction
to the Premises, other than Lessee Owned Alterations and Utility
Installations and Trade Fixtures, which cannot reasonably be repaired in six
(6) months or less from the date of the damage or destruction. Lessor shall
notify Lessee in writing within thirty (30) days from the date of the damage
or destruction as to whether or not the damage is Partial or Total.
(c) "INSURED LOSS" shall mean damage or destruction to
improvements on 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 Requirements,
and without deduction for depreciation.
(e) "HAZARDOUS SUBSTANCE CONDITION" shall mean the occurrence or
discovery of a condition involving the presence of, or a contamination by, a
Hazardous Substance as defined in Paragraph 6.2(a), in, on, or under the
Premises.
9.2 PARTIAL DAMAGE - INSURED LOSS. If a Premises Partial Damage that
is an Insured Loss occurs, then Lessor shall, at Lessor's expense, repair
such damage (but not Lessee's Trade Fixtures or Lessee Owned Alterations and
Utility Installations) as soon as reasonably possible and this Lease shall
continue in full force and effect; provided, however, that Lessee shall, at
Lessor's
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election, make the repair of any damage or destruction the total cost to
repair of which is $10,000 or less, and, in such event, Lessor shall make any
applicable insurance proceeds available to Lessee on a reasonable basis for
that purpose. Notwithstanding the foregoing, if the required insurance was
not in force or the insurance proceeds are not sufficient to effect such
repair, the Insuring Party shall promptly contribute the shortage in proceeds
as and when required to complete said repairs. In the event, however, such
shortage was due to the fact that, by reason of the unique nature of the
improvements, full replacement cost insurance coverage was not commercially
reasonable and available, Lessor shall have no obligation to pay for the
shortage in insurance proceeds or to fully restore the unique aspects of the
Premises unless Lessee provides Lessor with the funds to cover same, or
adequate assurance thereof, within ten (10) days following receipt of written
notice of such shortage and request therefor. If Lessor receives said funds
or adequate assurance thereof within said ten (10) day period, the party
responsible for making the repairs shall complete them as soon as reasonably
possibly and this Lease shall remain in full force and effect. If such funds
or assurance are not received, Lessor may nevertheless elect by written
notice to Lessee within ten (10) days thereafter to: (i) make such
restoration and repair as is commercially reasonable with Lessor paying any
shortage in proceeds, in which case this Lease shall remain in full force and
effect; or (ii) have this Lease terminate thirty (30) days thereafter.
Lessee shall not be entitled to reimbursement of 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, notwithstanding
that there may be some insurance coverage, but the net proceeds of any such
insurance shall be made available for the repairs if made by either Party.
9.3 PARTIAL DAMAGE - UNINSURED LOSS. If a Premises Partial Damage that
is not an Insured Loss occurs, unless caused by a negligent or willful act of
Lessee (in which event Lessee shall make the repairs at Lessee's Expense),
Lessor may 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 I) terminate this Lease by giving written notice to Lessee within
thirty (30) days after receipt by lessor of knowledge of the occurrence of
such damage. Such termination shall be effective sixty (60) days following
the date of such notice. In the event Lessor elects to terminate this Lease,
Lessee shall have the right within ten (10) days after receipt of the
termination notice to give written notice to Lessor of Lessee's commitment to
pay for the repair of such damage without reimbursement from Lessor. Lessee
shall provide Lessor with said funds or satisfactory assurance thereof within
thirty (30) days after making such commitment. In such event this Lease shall
continue in full force and effect, and Lessor shall proceed to make such
repairs as soon as reasonably possible after the required funds are
available. If Lessee doe snot make the required commitment, this Lease shall
terminate as of the date specified in the termination notice.
9.4 TOTAL DESTRUCTION. Notwithstanding any other provision hereof, if
a Premises Total Destruction occurs, this Lease shall terminate sixty (60)
days following such Destruction. If the damage or destruction was caused by
the gross negligence or willful misconduct of Lessee, Lessor shall have the
right to recover Lessor's damages from Lessee, except as provided in
Paragraph 8.6.
9.5 DAMAGE NEAR END OF TERM. If at any time during the last six (6)
months of this Lease there is damage for which the cost to repair exceeds one
(1) month's Base Rent, whether
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or not an Insured Loss, Lessor may terminate this Lease effective sixty (60)
days following the date of occurrence of such damage by giving a written
termination notice to Lessee within thirty (30) days after the date of
occurrence of such damage. Notwithstanding the foregoing, 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
insurance thereof) needed to make the repairs on or before the earlier of (i)
the date which is ten 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
commercially reasonable 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 on the date specified in the
termination notice and Lessee's option shall be extinguished.
9.6 ABATEMENT OF RENT; LESSEE'S REMEDIES
(a) ABATEMENT. In the event of Premises Partial Damage or
Premises Total Destruction or a Hazardous Substance Condition for which
Lessee is not responsible under this Lease, the Rent payable by lessee for
the period required for the repair, remediation or restoration of such damage
shall be abated in proportion to this degree to which Lessee's use of the
Premises is impaired, but not to exceed the proceeds received from the Rental
Value Insurance. All other obligations of Lessee hereunder shall be
performed by Lessee, and Lessor shall have no liability for any such damage,
destruction, remediation, repair or restoration except as provided herein.
(b) REMEDIES. If Lessor shall be obligated to repair or restore
the Premises and does not commence, in a substantial and meaningful way, such
repair or restoration 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 and such repair or restoration is not commenced within
thirty (30) days thereafter, this Lease shall terminate as of the date
specific din said notice. If the repair or restoration is commenced within
said thirty (30) days, this Lease shall continue in full force and effect.
"Commence" shall mean either the unconditional authorization of the
preparation of the required plans, or the beginning of the actual work on the
Premises, whichever first occurs.
9.7 TERMINATION-ADVANCE PAYMENTS. Upon termination of this Lease
pursuant to Paragraph 6.2(g) or Paragraph 9, an equitable adjustment shall be
made concerning advance Base Rent and any other advance payments made by
Lessee to Lessor, Lessor shall, in addition, return to Lessee so much of
Lessee's Security Deposit as has not been, or is not then required to be,
used by Lessor.
9.8 WAIVE STATUTES. Lessor and Lessee agree that the terms of this
Lease shall govern the effect of any damage to or destruction of the Premises
with respect to the termination of this
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Lease and hereby waive the provisions of any present or future statute to the
extent inconsistent herewith.
10 REAL PROPERTY TAXES.
10.1 DEFINITION OF "REAL PROPERTY TAXES". As used herein, the term
"REAL PROPERTY TAXES" shall include any form of assessment; real estate,
general, special, ordinary or extraordinary, or rental levy or tax (other
than inheritance, personal income or estate taxes); Improvement bond; and/or
license fee imposed upon or levied against any legal or equitable interest of
Lessor in the Premises, Lessor's right to other income therefrom, and/or
Lessor's business of leasing, by any authority having the direct or indirect
power to tax and where the funds are generated with reference to the Building
address and where the proceeds so generated are to be applied by the city,
county or other local taxing authority of a jurisdiction within which the
Premises are located. 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 during the term of this Lease, including but not
limited to, a change in the ownership of the Premises.
10.2
(a) PAYMENT OF TAXES. Lessor shall pay the Real Property Taxes
applicable to the Premises provided, however, that Lessee shall pay to Lessor
the amount, if any, by which Real Property Taxes applicable to the Premises
increase over the fiscal tax year during which the Commencement Date occurs
("TAX INCREASE"). Subject to Paragraph 10.2(b), payment of any such Tax
Increase shall be made by Lessee to Lessor within thirty (30) days after
receipt of Lessor's written statement setting forth the amount due and the
computation thereof. If any such taxes shall cover any period of time period
to or after the expiration or termination of this Lease, Lessee's share of
such taxes shall be prorated to cover only that portion of the tax bill
applicable to the period that this Lease is in effect.
(b) ADVANCE PAYMENT. In the event Lessee incurs a late charge on
any Rent payment, Lessor may, at Lessor's option, estimate the currently Real
Property Taxes, and require that the Tax Increase be paid in advance to the
Lessor by Lessee, either: (i) in a lump sum amount equal to the amount due,
at least twenty (20) days prior to the applicable delinquency date; or (ii)
monthly in advance with the payment of the Base Rent. If Lessor elects to
require payment monthly in advance, the monthly payment shall be an amount
equal to the amount of the estimated installment of the Tax Increase divided
by the number of months remaining before the month in which said installment
becomes delinquent. When the actual amount of the applicable Tax Increase is
known, the amount of such equal monthly advance payments shall be adjusted as
required to provide the funds needed to pay the applicable Tax Increase. If
the amount collected by Lessor is insufficient to pay the Tax Increase when
due, Lessee shall pay Lessor, upon demand, such additional sums as are
necessary to pay such obligations. All moneys paid to Lessor under this
Paragraph may be intermingled with the other moneys of Lessor and shall not
bear interest. In the event of a Breach by Lessee in the performance of its
obligations under this Lease, then any balance of funds paid to Lessor under
the provisions of this Paragraph may at the option of Lessor, be treated as
an additional Security Deposit.
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(c) ADDITIONAL IMPROVEMENTS. Notwithstanding anything to the
contrary in this Paragraph 10.2, Lessee shall pay to Lessor upon demand
therefor the entirety of any increase in Real Property Taxes assessed by
reason of Alternations or Utility Installations placed upon the Premises by
Lessee or at Lessee's request.
10.3 JOINT ASSESSMENT. If the Premises are not separately assessed,
Lessee's liability shall be an equitable proportion of the Tax Increase for
all of the land and improvements included within the tax parcel assessed,
such proportion to be conclusively determined by Lessor from the respective
valuations assigned in the assessor's work sheets for such other information
as may be reasonably available.
10.4 PERSONAL PROPERTY TAXES. Lessee shall pay, prior to delinquency,
all taxes assessed against and levied upon Lessee Owned Alternations, Utility
Installations, Trade Fixtures, furnishings, equipment and all personal
property of Lessee. When possible, Lessee shall cause such 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.
11 UTILITIES. Lessee shall pay for all water, gas, heat, light, power,
telephone, trash disposal and other utilities and service supplied to the
Premises, together with any taxes thereon. If any such services are not
separately metered to Lessee, Lessee shall pay a reasonable proportion, to be
determined by Lessor, of all charges jointly metered.
12 ASSIGNMENT AND SUBLETTING.
12.1 LESSOR'S CONSENT REQUIRED.
(a) Lessee shall not voluntarily or by operation of law assign,
transfer, mortgage or encumber (collectively, "assign or assignment") or sublet
all or any part of Lessee's interest in this Lease or in the Premises without
Lessor's prior written consent.
(b) A change in the control of Lessee shall constitute an assignment
requiring consent. The transfer, on a cumulative basis, of twenty-five percent
(25%) or more of the voting control of Lessee shall constitute a change in
control for this purpose.
(c) The involvement of Lessee or its assets in any transaction, or
series of transactions (by way of merger, sale, acquisition, financing,
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 by an amount greater than
twenty-five percent (25%) of such Net Worth as it was represented at the time of
the execution 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, whichever was or is
greater, shall be considered an assignment of this Lease to which Lessor may
withhold its consent. "NET WORTH OF LESSEE" shall mean the net worth of Lessee
(excluding any guarantors) established under generally accepted accounting
principles.
(d) An assignment or subletting without consent shall, at Lessor's
option, be a Default curable after notice per Paragraph 13.1(c), or a noncurable
Breach without the necessity
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of any notice and grace period. If Lessor elects to treat such unapproved
assignment or subletting as a noncurable Breach, Lessor may either (i)
terminate this Lease, or (ii) upon thirty (30) days written notice, increase
the monthly Base Rent to one hundred ten percent (110%) of the Base Rent then
in effect. 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 one hundred ten percent (110%) of
the price previously in effect, and (ii) all fixed and non-fixed rental
adjustments scheduled during the remainder of the Lease term shall be
increased to One Hundred Ten Percent (110%) of the scheduled adjusted rent.
(e) Lessee's remedy for any breach of Paragraph 12.1 by Lessor
shall be limited to compensatory damaged 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; or (iii) after the primary
liability of Lessee for the payment of Rent or for the performance of any other
obligations to be performed by Lessee.
(b) Lessor may accept Rent or performance of Lessee's obligation 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 Rent or performance shall constitute a waiver or estoppel of
Lessor's right to exercise its remedies for Lessee's default or Breach.
(c) Lessor's consent to any assignment or subletting shall not
constitute a consent to any subsequent assignment or subletting.
(d) In the even of any Default or Breach by Lessee, Lessor may
proceed directly against Lessee, any Guarantors or anyone else responsible for
the performance of Lessee's obligations under this Lease, including any assignee
or sublessee, without first exhausting Lessor's remedies against any other
person or entity responsible therefore 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 reasonability 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 fee of $1,000 or
ten percent (10%) of the currently monthly Base Rent applicable to the portion
of the Premises which is the subject of the proposed assignment or sublease,
whichever is greater, as consideration for Lessor's considering and processing
said request. Lessee agrees to provide Lessor with such other or additional
information and/or documentation as may be reasonably requested.
(f) Any assignee of, or sublessee under, this Lease shall, by reason
of accepting such assignment or entering into such sublease, be deemed to have
assumed and agreed to confirm 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 to in writing.
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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 party 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 Rent payable on any sublease, and Lessor may collect such Rent
and apply same toward Lessee's obligations under this Lease; provided, however,
that until a Breach shall occur in the performance of Lessee's obligations,
Lessee may collect said Rent. Lessor shall not, by reason of the foregoing or
any assignment of such sublease, nor by reason of the collection of Rent, be
deemed liable to the sublessee for any failure of Lessee to perform and comply
with any of Lessee's obligation to such sublease. Lessee hereby irrevocably,
authorized and directs any such sublease, 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 all Rent due and to become due under the
sublease. Sublease shall rely upon any such notice from Lessor and shall pay
all Rents to Lessor without any obligation or right to inquire as to whether
such Breach exits, notwithstanding any claim from Lessee to the contrary.
(b) In the event of a breach by Lessee, Lessor may, at its option,
require 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 prior Defaults or Breaches of such
sublessor.
(c) Any matter requiring the consent of the sublessor under a
sublease shall also require the consent of Lessor.
(d) No sublease shall further assign or sublet all or any part of the
Premises without Lessor's prior written consent.
(e) Lessor shall deliver a copy of any notice of Default or breach by
Lessee to the sublessee, who shall have the right to cure the Default of Lessee
within the grace period, if any, specified in such notice. The sublessee shall
have a right of reimbursement and offset from and against Lessee for any such
Defaults cured by the sublessee.
13 DEFAULT BREACH; REMEDIES.
13.1 DEFAULT; BREACH. A "DEFAULT" is defined as a failure by the Lessee to
comply with or perform any of the terms, covenants conditions or rules under
this Lease. A "BREACH is defined as the occurrence of one or more of the
following Default, and the failure of Lessee to cure such Default within any
applicable grace period:
(a) The abandonment of the Premises; or the vacating of the Premises
without providing a commercially reasonable level of security, and/or Security
deposit or where the coverage of the property insurance described in Paragraph
8.3 is jeopardized as a result thereof, or without providing reasonable
assurances to minimize potential vandalism.
(b) The failure of Lessee to make any payment of Rent or any Security
Deposit required to be made by Lessee hereunder whether to Lessor or to a third
party, when due, to provide reasonable evidence of insurance or surety bond, or
to fulfill any obligation under this Lese which endangers or threatens life or
property, where such failure continues for a period of three (3) business days
following written notice to Lessee.
(c) The failure by Lessee to provide (i) reasonable written evidence
of compliance with Applicable Requirements, (ii) the service contracts, (iii)
the rescission of an
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unauthorized assignment or subletting, (iv) a tenancy Statement,, (v) a
requested subordination, (vi) evidence concerning any guaranty and/or
Guarantor, (vii) any document requested under Paragraph 42 (easements), or
(viii) any other documentation or information with 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 to Lessee.
(d) A Default by Lessee as to the terms, covenants, condition or
provision of this Lease, or of the rules adopted under Paragraph 40 hereof,
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;
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 if Lessee commenced 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 of
any general arrangement or assignment or ht benefit of creditors; (ii) becoming
a "DEBTOR" as defined in 11 U.S.C. Section 101 or any successor statute thereto
(unless, in the case of a petition filed against Lessee, the same is dismissed
within sixty (60) days); (iii) the appointment of a trustee or receiver to take
possession of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where possession is not restored to Lessee
within thirty (30) days; or (iv) the attachment, execution other judicial
seizure of substantially all of Lessee's assets located at the Premises or of
Lessee's interest in this Lease, where such seizure is not discharged within
thirty (30) days; provided, however, in the event that any provision of this
subparagraph (e) is contrary to any applicable law, such provision shall be of
no force or effect, and not affect the validity of the remaining provisions.
(f) The discovery that any financial statement of Lessee or of any
Guarantor given to Lessor 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 basis, and
Lessee's failure, within sixty (60) days following written notice of any such
event, to provide written alternative assurance or security, which, when coupled
with the then existing resources of Lessee, equals or exceeds the combined
financial resources of Lessee and the Guarantors that existed at the time of
execution of this Lease.
13.2 REMEDIES. If Lessee fails to perform any of its affirmative duties or
obligations, within ten (10) days after written notice (or in case of any
emergency, without notice). Lessor may, at its option, 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 upon receipt of invoice therefor. If any check given
to Lessor by Lessee shall not be honored by the bank upon which it is drawn,
Lessor, at its option, may require all future payments to be made by Lessee to
be by cashier's check. In the event of a Breach, Lessor may, 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;
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(a) Terminate Lessee's right to possession of the Premises by any
lawful means, in which case this Lease shall terminate and Lessee shall
immediately surrender possession to Lessor. In such event Lessor shall be
entitled to recover from Lessee: (i) 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
term of and exceeds the amount of such rent loss that the Lessee proves could
have been reasonably avoided; (iii) the worth at the time of and of the amount
by which the unpaid rent for the balance of the term after the time of award
exceeds the amount of such rent loss that the Lessee provides 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 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 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 the District within which the Premises are located at the time
of award plus one percent (1%). Effort by Lessor to mitigate damaged caused by
Lessee's Breach of this Lease shall not waive Lessor's right or recover damages
under Paragraph 12. If termination of this Lease is obtained through the
provisional remedy of unlawful detainer, Lessor shall have the right to recover
in such proceeding any unpaid Rent and damages as are recoverable therein, or
Lessor may reserve the right to recover all or any party thereof in a separate
suit. If a notice and grace period required under Paragraph 13.1 was not
previously given, a notice to pay rent or quit, or to perform or quit given to
Lessee under the unlawful detainer statue shall also constitute the notice
required by Paragraph 13.1. In such case, the applicable grace period required
by Paragraph 13.1 and the unlawful detainer statute shall run concurrently, and
the failure of Lessee to cure the Default within the greater of the two such
grace periods shall constitute both an unlawful detainer and a Breach of the
Lease entitling Lessor to the remedies provided for in this Lease and/or by said
statute.
(b) Continue this Lease and Lessee's right to possession and recover
the Rent as it becomes due, in which event Lessee may sublet or assign, subject
only to reasonable limitations. Acts of maintenance, efforts to relet, and/or
the appointment of a receiver to protect the Lessor's interests, shall not
constitute a termination of the Lessee's right to possession.
(c) Pursue any other remedy now or hereafter available under the laws
of the judicial decisions of the state wherein the Premises are located. 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: Any agreement for free or abated rent or other
charges, or for the giving or playing 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. Upon Breach of
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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, notwithstanding any
subsequent cure of said Breach by Lessee. The acceptance by Lessor of rent or
the cure of the Breach which initiated the operation of this paragraph shall
not be deemed a waiver by Lessor of the provisions of this paragraph unless
specifically so stated in writing by Lessor at the time of such acceptance.
13.4 LATE CHARGES: Lessee hereby acknowledges that late payment by
Lessee of Rent 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 the late charges which may be imposed upon Lessor by any Lender.
Accordingly, if any Rent shall not be received by Lessor within five (5)
days after such amount shall be due, then, without any requirement for notice
to Lessee, Lessee shall pay to Lessor a one-time late charge equal to ten
percent (10%) of each 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 such late payment. 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 the exercise of 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 any provision of
this Lease to the contrary, Base Rent shall, at Lessor's option, become due
and payable quarterly in advance.
13.5 INTEREST: Any monetary payment due Lessor hereunder, other than
late charges, not received by Lessor, when due as to scheduled payments (such
as Base Rent) or within thirty (30) days following the date on which it was
due for non-scheduled payment, shall bear interest from the date when due, as
to scheduled payments, or the thirty-first (31st) day after it was due as to
non-scheduled payments. The interest ("INTEREST") charged shall be equal to
the prime rate reported in the Wall Street Journal as published closest prior
to the date when due plus 4%, but shall not exceed the maximum rate allowed
by laws. Interest is payable in additions to the potential late charge
provided for in Paragraph 13.4.
13.6 BREACH BY LESSOR:
(a) NOTICE OF BREACH: Lessor shall not be deemed in breach of this
Lease unless Lessor falls within a reasonable time to perform any obligation
required to be performed by Lessor. For purposes of this Paragraph, a
reasonable time shall in no event be less than thirty (30) days after receipt by
Lessor, and any Lender whose name and address shall have been furnished Lessee
in writing for such purpose, of written notice specifying wherein such
obligation of Lessor has not been performed; provided, however, that if the
nature of Lessor's obligations is such that more than thirty (30) days are
reasonably required for its performance, then Lessor shall not be in breach if
performance is commenced within such thirty (30) day period and thereafter
diligently pursued to completion.
(b) PERFORMANCE BY LESSEE ON BEHALF OF LESSOR: In the event that
neither Lessor nor Lender cures said breach within thirty (30) days after
receipt of said written notice,
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or if having commenced said cure they do not diligently pursue it to
completion, then Lessee may elect to cure said breach at Lessee's expense and
offset from Rent an amount equal to the greater of one month's Base Rent or
the Security Deposit, and to pay an excess of such expense under protest,
reserving Lessee's right to reimbursement form Lessor. Lessee shall document
the cost of said cure and supply said documentation to Lessor.
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 (collectively "CONDEMNATION"), this Lease shall terminate as to the
part taken as of the ate the condemning authority takes title or possession,
whichever first occurs. If more than ten percent (10%) of any building
portion of the premises, or more than twenty-five percent (25%) of the land
area portion of the premises not occupied by any building, is taken by
Condemnation, Lessee may, at Lessee's option, to be exercised in writing
within ten (10) days after Lessor shall have given Lessee written notice of
such taking (or in the absence of such notice, within ten (1) 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 proportion to the reduction in
utility of the Premises caused by such Condemnation. Condemnation awards
and/or payments shall be the property of Lessor, whether such award shall be
made as compensation for diminution in value of the leasehold, the value of
the part taken, or for severance damages; provided, however, that Lessee
shall be entitled to any compensation for Lessee's relocation expenses, loss
of business goodwill and/or Trade Fixtures, without regard to whether or not
this Lease is terminated pursuant to the provisions of this Paragraph. All
Alterations and Utility Installations made to the Premises by Lessee, for
purposes of Condemnation only, shall be considered the property of the Lessee
and Lessee shall be entitled to any and all compensation which is payable
therefor. In the event that this Lease is not terminated by reason of the
Condemnation, Lessor shall repair any damage to the Premises caused by such
Condemnation.
15 BROKER'S FEE:
15.1 ADDITIONAL COMMISSION: In addition to the payments owed pursuant to
Paragraph 1.10 above, and unless Lessor and the Brokers otherwise agree in
writing, Lessor agrees that: (a) if Lessee exercises any Option; (b) if Lessee
acquires any rights to the Premises or other premises owned by Lessor and
located with the same Project, if any, within which the Premises is located; (c)
if Lessee remains in possession of the Premises, with the consent of Lessor,
after the expiration of this Lease; or (d) if Base rent is increased, whether by
agreement or operation of an escalation clause herein, then, Lessor shall pay
Brokers a fee in accordance with the schedule of said Brokers in effect at the
time of the execution of this Lease.
15.2 ASSUMPTION OF OBLIGATIONS: Any buyer or transferee of Lessor's
interest in this Lease shall be deemed to have assumed Lessor's obligation
hereunder. Each Broker shall be a third party beneficiary of the provisions of
Paragraphs 1.10, 15, 22 and 31. If Lessor fails to pay to a Broker any amounts
to Lessee's Broker when due, Lessee's Broker may send written notice to Lessor
and Lessee of such failure and if Lessor fails to pay such amounts within ten
(10) days after said notice, Lessee shall pay said monies to its Broker and
offset such amounts against Rent.
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In addition, Lessee's Broker shall be deemed to be a third party beneficiary
of any commission agreement entered into by and/or between Lessor and
Lessor's Broker.
15.3 REPRESENTATIONS AND INDEMNITIES OF BROKER RELATIONSHIPS: Lessee and
Lessor each represent and warrant to the other that it has had no dealing with
any person, firm, broker or finder (other than the Brokers, if any) in
connection with this Lease, and that no one other than said named Brokers is
entitled to any commission or finder's fee in connection herewith. Lessee and
Lessor do each hereby agree to indemnify, protect, defend and hold the other
harmless from and against liability for compensation or charges which may be
claimed by any such unnamed broker, finder or other similar party by reason of
any dealings or actions of the Indemnifying Party, including any costs,
expenses, attorneys' fees reasonably incurred with respect thereto.
16 ESTOPPEL CERTIFICATES:
(a) Each Party (as "RESPONDING PARTY") shall within ten (10) days
after written notice from the other Party (the "REQUESTING PARTY") execute,
acknowledge and deliver to the Requesting Party a statement in writing in form
similar to the then most current "ESTOPPEL CERTIFICATE" form published by the
American Industrial Real Estate Association, plus such additional information,
confirmation and/or statements as may be reasonably requested by the Requested
Party.
(b) if the Responding Party shall fail to execute or deliver the
Estoppel Certificate within such ten day period, the Requesting Party may
execute an Estoppel Certificate stating that: (i) the Lease is in full force and
effect without modification except as may be represented by the Requesting
Party; (ii) there are no uncured defaults in the Requesting Party's performance;
and (iii) if Lessor is the Requesting Party, not more than one month's rent has
been paid in advance, Prospective purchasers and encumbrancers may rely upon the
Requesting Party's Estoppel Certificate, and the Responding Party shall be
estopped from denying the truth of the facts contained in said Certificate.
(c) If Lessor desires to finance, refinance or sell the Premises, or
any part thereof, Lessee and all Guarantors shall deliver to any potential
lender or purchaser designated by Lessor such financial statements 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 DEFINITION OF LESSOR. The term "Lessor" as used herein shall mean the
owner or owners at the time in question of the fee title to the Premises, or, if
this is a sublease, of the Lessee's interest in the prior lease. In the event
of a transfer of Lessor's title or interest in the Premises or this Lease,
Lessor shall deliver to the transferee or assignee (in cash or by credit) any
unused Security Deposit held by Lessor. Except as provided in Paragraph 15,
upon such transfer or assignment and delivery of the Security Deposit, as
aforesaid, the prior Lessor shall be relieved of all liability with respect to
the obligations and/or covenants under this Lease thereafter to be performed by
the Lessor. Subject to the foregoing, the obligations and/or covenants in this
Lease to be performed by the Lessor shall be binding only upon the Lessor as
hereinabove defined.
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Notwithstanding the above, and subject to the provisions of Paragraph 20
below, the original Lessor under this Lease, and all subsequent holders of
the Lessor's interest in this Lease shall remain liable and responsible with
regard to the potential duties and liabilities of Lessor pertaining to
Hazardous Substances as outlined in Paragraph 6 above.
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 DAYS. Unless otherwise specifically indicated to the contrary, the word
"days" as used in this Lease shall mean and refer to calendar days.
20 LIMITATION ON LIABILITY. Subject to the provisions of Paragraph 17
above, the obligations of Lessor under this Lease shall not constitute
personal obligations of Lessor, the individual partners of Lessor or its or
their individual partners, directors, officers or shareholders, and Lessee
shall look to the Premises, and to no other assets of Lessor, for the
satisfaction of any liability of Lessor with respect to this Lease, and shall
not seek recourse against the individual partners of Lessor, or its or their
individual partners, directors, officers or shareholders, or any of their
personal assets for such satisfaction.
21 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.
22 NO PRIOR OF 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. The liability
(including court costs and attorneys' fees), of any Broker with respect to
negotiation, execution, delivery or performance by either Lessor or Lessee
under this Lease or any amendment or modification hereto shall be limited to
an amount up to the fee received by such Broker pursuant to this Lease;
provided, however, that the foregoing limitation on each Broker's liability
shall not be applicable to any gross negligence or willful misconduct of such
Broker.
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
courier) or may be sent by regular, certified or registered mail or U.S.
Postal Service Express Mail, with postage prepaid, or by facsimile
transmission, and shall be deemed sufficiently given if served in a manner
specified in this Paragraph 23. The addresses noted adjacent to a Party's
signature on this Lease shall be that Party's address for delivery or mailing
of notices. Either Party may by written notice to the other specify a
different address for notice, except that upon Lessee's taking possession of
the Premises, the Premises shall constitute Lessee's address for notice. A
copy of all notices to Lessor shall be
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concurrently transmitted to such party or parties at such addresses as Lessor
may from time to time hereafter designate in writing.
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 shown, the postmark thereon.
If sent by regular mail the notice shall be deemed given forty-eight (48)
hours after the same is addressed as required herein and mailed with postage
prepaid. Notices delivered by United States Express Mail or overnight courier
that guarantee next day delivery shall be deemed given twenty-four (24) hours
after delivery of the same to the Postal Service or courier. Notices
transmitted by facsimile transmission or similar means shall be deemed
delivered upon telephone confirmation of receipt, provided a copy is also
delivered via delivery or mail. If notice is received on a Saturday, Sunday
or legal holiday, it shall be deemed received on the next business day.
24 WAIVERS. No waiver by Lessor of the Default or Breach of any term,
covenant or condition hereof by Lessee, shall be deemed a waiver of any other
term, covenant or condition hereof, or of any subsequent Default or Breach by
Lessee of the same or of any other term, covenant or condition hereof.
Lessor's consent to, or approval of, any act shall not be deemed to render
unnecessary the obtaining of Lessor's consent to, or approval of, any
subsequent or similar act by Lessee, or be construed as the basis of an
estoppel to enforce the provision or provisions of this Lease requiring such
consent. The acceptance of Rent by Lessor shall not be a waiver of any
Default or Breach by Lessee. Any payment by Lessee may be accepted by Lessor
on account of moneys or damages due Lessor, notwithstanding any qualifying
statements or conditions made by Lessor 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 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 termination of this
Lease. In the event that Lessee holds over, then the Base Rent shall be
increased to one hundred fifty percent (150%) of the Base Rent applicable
during the month immediately preceding the expiration or termination.
Nothing contained herein shall be construed as 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; CONSTRUCTION OF AGREEMENT. All provisions of
this Lease to be observed or performed by Lessee are both covenants and
conditions. In construing this Lease, all headings and titles are for the
convenience of the parties only and shall not be considered a part of this
Lease. Whenever required by the context, the singular shall include the
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plural and vice versa. This Lease shall not be construed as if prepared by
one of the parties, but rather according to its fair meaning as a whole, as
if both parties had prepared it.
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 upon the Premises, to any and all advances made on the
security thereof, and to all renewals, modifications, and extensions thereof.
Lessee agrees that the holders of any such Security Devices (in this Lease
together referred to as "Lessor's Lender") shall have no liability or
obligation to perform any of the obligations of Lessor under this Lease. Any
Lender may elect to have this Lease and/or any Option granted hereby superior
to the lien of its Security Device by giving written notice thereof to Lessee
whereupon this Lease and such Options shall be deemed prior to such Security
Device, notwithstanding the relative dates of the documentation or
recordation thereof.
30.2 ATTORNMENT. Subject to the non-disturbance provisions of Paragraph
30.3 Lessee agrees to attorn to a Lender or any other party who acquires
ownership of the Premises by reason of a foreclosure of a Security Device,
and that in the event of such foreclosure, such new owner shall not: (i) be
liable for any act or omission of any prior lessor or with respect to events
occurring prior to acquisition of ownership; (ii) be subject to any offsets
or defenses which lessee might have against any prior lessor; or (iii) be
bound by prepayment of more than one (1) month's rent.
30.3 NON-DISTURBANCE. With respect to Security Devices entered into by
Lessor after the execution of this Lease, Lessee's subordination of this
Lease shall be subject to receiving a commercially reasonable non-disturbance
agreement (a "NON-DISTURBANCE AGREEMENT") from the Lender which
Non-Disturbance Agreement provides that Lessee's possession of the Premises,
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 attorneys to the
record owner of the Premises. Further, within sixty (60) days after the
execution of this Lease, Lessor shall use its commercially reasonable efforts
to obtain a Non-Disturbance Agreement from the holder of any pre-existing
Security Device which is secured by the Premises. In the event that Lessor
is unable to provide the Non-Disturbance Agreement within said sixty (60)
days, then Lessee may, at Lessee's option, directly contact Lessor's lender
and attempt to negotiate for the execution and delivery of a Non-Disturbance
Agreement.
31 ATTORNEYS' FEES. If any Party or Broker brings an action or proceeding
involving the Premises to enforce the terms hereof or to 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,
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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' fees 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. In
addition, Lessor shall be entitled to attorneys' fees, costs and expenses
incurred in the preparation and service of notices of Default and
consultations in connection therewith, whether or not a legal action is
subsequently commenced in connection with such Default or resulting Breach.
32 LESSOR'S ACCESS; SHOWING PREMISES; REPAIRS. Lessor and Lessor's agents
shall have the right to enter the Premises at any time, in the case of an
emergency, and otherwise at reasonable times for he purposes of showing the
same to prospective purchasers, lenders, or lessees, and making such
alterations, repairs, improvements or additions to the Premises as Lessor may
deem necessary. All such activities shall be without abatement of rent or
liability to Lessee. Lessor may at any time place on the Premises any
ordinary "For Sale" signs and Lessor may during the last six (6) months of
the term hereof place on the Premises any ordinary "For Lease" signs. Lessee
may at any time place on or about the Premises any ordinary "For Sublease"
sign.
33 AUCTIONS. Lessee shall not conduct, nor permit to be conducted, any
auction upon the Premises without Lessor's prior written consent. Lessor
shall not be obligated to exercise any standard of reasonableness in
determining whether to permit an auction.
34 SIGNS. Except for ordinary "For Sublease" signs, Lessee shall not place
any sign upon the Premises without Lessor's prior written consent. All signs
must comply with all Applicable Requirements.
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, that Lessor may elect to continue any one
or all existing subtenancies. Lessor's failure within ten (10) days
following any such event to elect 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. Except 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, 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 upon receipt of an invoice and supporting documentation
therefor. Lessor's consent to any act, assignment or subletting 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. The failure to specify herein any particular
condition to Lessor's consent shall
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not preclude the imposition by Lessor at the time of consent of such further
or other conditions as are then reasonable with reference to the particular
matter for which consent is being given. In the event that either party
disagrees with any determination made by the other hereunder and reasonably
requests the reasons for such determination, the determining party shall
furnish its reasons in writing and in reasonable detail within ten (10)
business days following such request.
37 GUARANTOR.
37.1 EXECUTION. The Guarantors, if any, shall each execute a guaranty 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.
37.2 DEFAULT. It shall constitute a Default of the Lessee if any Guarantor
fails or refuses, upon request to provide: (a) evidence of the execution of the
guaranty, including the authority of the party signing on Guarantor's behalf to
obligate Guarantor, and in the case of a corporate Guarantor, a certified copy
of a resolution of its board of directors authorizing the making of such
guaranty, (b) current financial statements, (c) a Tenancy Statement, or 9d)
written confirmation that the guaranty is still in effect.
38 QUIET POSSESSION. Subject to payment by Lessee of the Rent and performance
of all of the covenants, conditions and provisions on Lessee's part to be
observed and performed under this Lease, Lessee shall have quiet possession and
quiet enjoyment of the Premises during the term hereof.
39 OPTIONS.
39.1 DEFINITION. "OPTION" shall mean: (a) the right to extend the term of
or renew this Lease or to extend or renew any lease that Lessee has on other
property of Lessor; (b) the right of first refusal or first offer to lease
either the Premises or other property of Lessor; (c) the right to purchase or
the right of first refusal to purchase the Premises or 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, and cannot be assigned or
exercised by anyone other than said original Lessee and only while the original
Lessee is in full possession of the Premises and, if requested by Lessor, with
Lessee certifying that Lessee has no intention of thereafter assigning or
subletting.
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 have been validly exercised.
39.4 EFFECT OF DEFAULT ON OPTIONS.
(a) Lessee shall have no right to exercise an Option; (i) during the
period commencing with the giving of any notice of Default and continuing until
said Default is cured; (ii) during the period of time any Rent is unpaid
(without regard to whether notice thereof is given
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Lessee); (iii) during the time Lessee is in Breach of this Lease; or (iv) in
the event that Lessee has been given three (3) or more notices of separate
Default, whether or not the Defaults are cured, during the twelve (12) month
period immediately preceding the exercise of the Option.
(b) The period of time within which an Option may be exercised shall
not be extended or enlarged by reason of Lessee's inability to exercise an
Option because of the provisions of paragraph 39.4(a).
(c) 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 prior to the commencement of the extended term, (i) Lessee fails to
pay Rent for a period of thirty (30) days after such Rent becomes due (without
any necessity of lessor to give notice thereof), (ii) Lessor gives to Lessee
three (3) or more notices of separate Default during any twelve (12) month
period, whether or not the Defaults are cured, or (iii) if Lessee commits a
Breach of this Lease.
40 MULTIPLE BUILDINGS. If the Premises are a part of a group of buildings
controlled by Lessor, Lessee agrees that it will observe all reasonable rules
and regulations which Lessor may make from time to time for the management,
safety, and care of said properties, including the case and cleanliness of the
grounds and including the parking, loading and unloading of vehicles, an that
Lessee will pay its fair share of common expenses incurred in connection
therewith.
41 SECURITY MEASURES. Lessee hereby acknowledges that the rental payable to
Lessor hereunder does not include the cost of guard service or other security
measures, and that Lessor shall have no obligation whatsoever to provide same.
Lessee assumes all responsibility for the protection of the Premises, Lessee,
its agents and invitees and their property from the acts of third parties.
42 RESERVATIONS. Lessor reserves to itself the right, from time to time, to
grant, without the consent or joinder of Lessee, such easements, rights and
dedications that Lessor deems necessary; and to cause the recordation of parcel
maps and restrictions, so long as such easements, rights, dedications, maps and
restrictions do not unreasonably interfere with the use of the Premises by
Lessee. Lessee agrees to sign any documents reasonably requested by Lessor to
effectuate any such easement rights, dedication, map or restrictions.
43 PERFORMANCE UNDER PROTEST. If at any time a dispute shall arise as to any
amount or sum of money to be paid by one Party to the other under the provisions
hereof, the party against whom the obligation to pay the money is asserted shall
have the right to make payment "under protest" and such payment shall not be
regarded as a voluntary payment and there shall survive the right on the part of
said Party to institute suit for recovery of such sum. If it shall be adjudged
that there was no legal obligation on the part of said Party to pay such sum or
any part thereof, said Party shall be entitled to recover such sum or so much
thereof as it was not legally required to pay.
44 AUTHORITY. If either Party hereto is a corporation, trust, limited
liability company, partnership, or similar entity, 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
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behalf. Each party shall, within thirty (30) days after request, deliver to
the other party satisfactory evidence 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 Party or their agent and
submission of same to the other Party shall not be deemed an offer to lease to
the other Party. 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. 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 a Lender in connection with the obtaining of normal financing or
refinancing of the Premises.
48 Multiple Parties. If more than one person or entity is named herein as
either Lessor or Lessee, such multiple Parties shall have joint and several
responsibility to comply with the terms of this Lease.
49 Mediation and Arbitration of Disputes. An Addendum requiring the Mediation
and/or the Arbitration of all disputes between the Parties and/or Brokers
arising out of this Lease __ is __ is not attached to this Lease.
49.1 Tenant Improvements. Lessor, at Lessor's sole cost and expense shall
complete the following tenant improvements prior to the lease commencement:
1. Steam/chemically clean the carpets in the existing office area.
2. Replace the carpets in the lunchroom.
3. Repaint the walls in the existing office area.
4. Replace all broken or stained ceiling tiles.
5. Sanitize the restrooms.
LESSOR AND LESSEE HAVE CAREFULLY RE4AD 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.
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- --------------------------------------------------------------------------------
ATTENTION: NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE AMERICAN
INDUSTRIAL REAL ESTATE ASSOCIATION OR BY ANY BROKER AS TO THE LEGAL SUFFICIENCY,
LEGAL EFFECT, OR TAX CONSEQUENCES OF THIS LEASE OR THE TRANSACTION TO WHICH IT
RELATES. THE PARTIES ARE URGED TO:
1. SEEK ADVICE OF COUNSEL AS TO THE LEGAL AND TAX CONSEQUENCES OF THIS LEASE.
2. RETAIN APPROPRIATE CONSULTANTS TO REVIEW AND INVESTIGATE THE CONDITION OF
THE PREMISES, SAID INVESTIGATION SHOULD INCLUDE, BUT NOT BE LIMITED TO THE
POSSIBLE PRESENCE OF HAZARDOUS SUBSTANCES, THE ZONING OF THE PREMISES, THE
STRUCTURAL INTEGRITY, THE CONDITION OF THE ROOF AND OPERATING SYSTEMS, AND THE
SUITABILITY OF THE PREMISES FOR LESSEE'S INTENDED USE.
WARNING: IF THE PREMISES IS LOCATED IN A STATE OTHER THAN CALIFORNIA, CERTAIN
- -------
PROVISIONS OF THE LEASE MAY NEED TO BE REVISED TO COMPLY WITH THE LAWS OF THE
STATE IN WHICH THE PREMISES IS LOCATED.
- --------------------------------------------------------------------------------
The parties hereto have executed this Lease at the place and on the dates
specified above their respective signatures.
Executed at: Industry Executed at: Industry
on: 12/5/97 on: 12/3/97
By LESSOR: By LESSEE:
Fortune Dynamic, Inc. Data Net International, Inc.
A California Corporation A California Corporation
By: \s\ Carol Lee By: \s\ James Ung
Name Printed: Carol Lee Name Printed: James Ung
Title: President Title: President
By: \s\ Alice Wang By:
By: Alice Wang By:
Title: Vice President Title:
Address: Rowland St., Industry, CA 91748 Address: 1304 John Reed Ct.,
Industry, CA 91745
Telephone: ( ) ___________________ Telephone: ( ) ___________________
Facsimile: ( ) ___________________ Facsimile: ( ) ___________________
Federal ID No. ___________________ Federal ID No. ___________________
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RENT ADJUSTMENT(S)
STANDARD LEASE ADDENDUM
DATED: October 28, 1997
BY AND BETWEEN (LESSOR): Fortune Dynamic, Inc.
(LESSEE) Data Net International, Inc.
ADDRESS OF PREMISES: 957 Lawson Street, Industry, CA 91748
Paragraph 50
A. RENT ADJUSTMENTS
The monthly rent for each month of the adjustment period(s) specified below
shall be increased using the method(s) indicated below:
(Check Method(s) to be Used and Fill in Appropriately)
B. Upon the establishment of each New Market Rental Value:
1) the new MRV will become the new "Base Rent" for the purpose
of calculating any further Adjustments, and
2) the first month of each Market Rental value term shall
become the new "Base Month" for the purpose of calculating any further
Adjustments.
___ III. FIXED RENTAL ADJUSTMENT(S) (FRA)
The Base Rent shall be increased to the following amounts on the dates set forth
below:
On (Fill in FRA Adjustment Date(s)): The New Base Rent shall be:
February 1, 1999 $11,388
February 1, 2000 $11,607
B. NOTICE:
Unless specified otherwise herein, notice of any such adjustments, other
than Fixed Rental Adjustments, shall be made as specified in paragraph 23 of the
Lease.
C. BROKER'S FEE:
The Brokers specified in paragraph 1.10 shall be paid a Brokerage Fee for
each adjustment specified above in accordance with paragraph 5 of the Lease.
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Initials: ___ Initials: _____
___ _____
RENT ADJUSTMENT(S)
Page 2 of 2
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OPTION(S) TO EXTEND
ADDENDUM TO
STANDARD LEASE
DATED: October 28, 1997
BY AND BETWEEN (LESSOR): Fortune Dynamic, Inc.
(LESSEE) Data Net International, Inc.
ADDRESS OF PREMISES: 957 Lawson Street, Industry, CA 91748
Paragraph 51
A. OPTION(S) TO EXTEND:
Lessor hereby grants to Lessee the option to extend the term of this Lease
for one additional 36 month period(s) commencing when the prior term expires
upon each and all of the following terms and conditions:
(i) Lessee gives to Lessor, and Lessor actually receives on a date which is
prior to the date that the option period would commence (if exercised) by at
least six and not more than nine months, a written notice of the exercise of the
option(s) to extend this Lease for said additional term(s), time being of
essence. If said notification of the exercise of said option(s) is (are) not so
given and received, the option(s) shall automatically expire; said option(s) may
(if more than one)only be exercised consecutively;
(ii) The provisions of paragraph 39, including the provisions relating to
default of Lessee set forth in paragraph 39.4 of this Lease are conditions of
this Option;
(iii) All of the terms and conditions of this Lease except where
specifically modified by this option shall apply;
(iv) The monthly rent for each month of the option period shall be calculated as
follows, using the method(s) indicated below:
X II. MARKET RENTAL VALUE ADJUSTMENT(S) (MRV)
- ---
(a) On (Fill in MRV Adjustment Date(s): February 1, 2001 the monthly rent
payable under paragraph 1.5 ("Base Rent") of the attached Lease shall be
adjusted to the "Market Rental value" of the property as follows:
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1) Four months prior to the Market Rental Value (MRV) Adjustment
Date(s) described above, Lessor and Lessee shall meet to establish an agreed
upon new MRV for the specified term. If agreement cannot be reached, then:
i) Lessor and Lessee shall immediately appoint a mutually
acceptable appraiser or broker to establish the new MRV within the next 30
days. Any associated costs will be split equally between the parties, or
ii) Both Lessor and Lessee shall each immediately select and
pay the appraiser or broker of their choice to establish a MRV within the
next 30 days. If, for any reason, either one of the appraisals is not
completed within the next 30 days, as stipulated, then the appraisal that is
completed at that time shall automatically become the new MRV. If both
appraisals are completed and the two appraisers/brokers cannot agree on a
reasonable average MRV then they shall immediately select a third mutually
acceptable appraiser/broker to establish a third MRV within the next 30 days.
The average of the two appraisals closest in value shall then become the new
MRV. The costs of the third appraisal will be split equally between the
parties.
2) In any event, the new MRV shall not be less than the rent
payable for the month immediately preceding the date for rent adjustment.
(b) Upon the establishment of each New Market Rental Value as
described in paragraph A11:
1) the monthly rental sum so calculated for each term as
specified in paragraph AII (a) will become the new "Base Rent" for the purpose
of calculating any further Cost of Living Adjustments as specified in paragraph
AII (a) above and
2) the first month of each Market Rental Value term as
specified in paragraph A1 (a) shall become the new "Base Month" for the purpose
of calculating any further Cost of Living Adjustments as specified in paragraph
A1(b).
B. NOTICE: Unless specified otherwise herein, notice of any escalations
other than Fixed Rental Adjustments shall be made as specified in paragraph 23
of the attached Lease.
C. BROKER'S FEE:
The Real Estate Brokers specified in paragraph 1.10 of the attached Lease
shall be paid a Brokerage Fee for each adjustment specified above in
accordance with paragraph 15 of the attached Lease.
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EXHIBIT A
SITE PLAN
[Graphic showing street map of City of Industry with an arrow pointing to a
point market "Site" on the northwest corner of Lawson and Rowland Streets.]
[Graphic showing a freeway map of Los Angeles County with an arrow pointing to
a point market "Site" in the City of Industry.]
[Graphic depicting the layout of the property. The east side is bound by Lawson
Street and the south side is bound by Rowland Street. An outline of the building
appears with an area on the east market "Office" and an area on the north-west
market "Truckwell." The north and west portions of the graphic show a parking
lot with approximately 40 parking spaces.]
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[EXHIBIT B]
DAUM HAZARDOUS SUBSTANCES
COMMERCIAL REAL ESTATE SERVICES &
AMERICAN DISABILITIES ACT
Notice to owners, Buyers and Tenants Regarding
HAZARDOUS SUBSTANCES AND UNDERGROUND STORAGE TANKS
Comprehensive Federal, state and local regulations have recently been enacted
to control the use, storage, handling, clean-up, removal and disposal of
hazardous and toxic wastes and substances. Extensive legislation has also
been adopted with regard to underground storage tanks. As real estate
licensees, we are not experts in the area of hazardous substances and we
encourage you to consult with your legal counsel with respect to your rights
and liabilities with regard to hazardous substances laws and regulations and
to obtain technical advice with regard to the use, storage, handling,
clean-up, removal or disposal of hazardous substances from professionals,
such as a civil engineer, geologist or other persons with experience in these
matters to advise you concerning the property. We also encourage you to
review the past uses of the property, which may provide information as to the
likelihood of the existence of hazardous substances or storage tanks on the
property.
DAUM Commercial Real Estate Services will disclose any knowledge it actually
possesses with respect to the existence of hazardous substances or
underground storage tanks on the property. DAUM Commercial Real Estate
Services has not made nay investigations or obtained reports regarding the
property, unless so indicated in a separate document signed by DAUM
Commercial Real Estate Services. DAUM Commercial Real Estate Services makes
no representation or warranty regarding the existence or nonexistence of
hazardous substances or underground storage tanks on the property.
With regard to the sale of real property, recently enacted California Health
and Safety Code Section 25359.7 provides that any owner of non-residential
real property who knows, or has reasonable cause to believe, that any release
of hazardous substances has come to be located on or beneath real property,
shall, prior to the sale or real property, give written notice of that
condition to the buyer of the real property. Failure of the owner to provide
written notice when required shall subject the owner to actual damages and
other remedies provided by the law. In addition, where the owner has actual
knowledge of the presence of any hazardous substance and knowingly and
willfully fails to provide written notice to the buyer, the owner is liable
for a civil penalty not to exceed $5,000 for each separate violation.
With regard to leases of real property, Section 25359.7 of the California
Health and Safety Code provides that any lessee of real property who knows,
or has reasonable cause to believe, that any release of hazardous substances
has come to be located on or beneath the real property shall, upon discovery
by the lessee of the presence or suspected presence of a hazardous substance
release, give notice of that condition to the owner of the real property.
failure of the lessee to provide written notice as required to the owner
shall make the lease voidable at the discretion of the owner. The Health and
Safety Code provides that if the lessee has actual knowledge of the presence
of any hazardous substance release and knowingly or willfully fails to
provide written
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notice as required to the owner, the lessee is liable for a civil penalty not
to exceed $5,000 for each violation.
As used in this notice, the term "hazardous substances" is used in the
broadest sense and includes all hazardous and toxic materials, substances, or
waste as defined by applicable Federal, state and local laws and regulations
and includes, but is not limited to petroleum products, paints and solvents,
PCBs, asbestos, pesticides and other substances. Hazardous substances may be
found on any type of real property, improved or unimproved, occupied or
vacant.
NOTICE TO OWNERS, BUYERS AND TENANTS REGARDING THE "AMERICANS WITH
DISABILITIES ACT"
Legislation known as the "Americans with Disabilities Act" ("ADA") was
recently adopted and may affect The Property and/or its intended use. As
real estate licensees, we are not experts in the legal or technical aspects
of ADA as it may pertain to you. We encourage you to consult your legal
counsel, architect and/or other professionals with appropriate experience
with regard to your rights or obligations for compliance with ADA.
DAUM Commercial Real Estate Services makes no representation or warranty
regarding the compliance or non-compliance of The Property under ADA.
By /s/ CAROL LEE
Fortune Dynamic, Inc. Dated:
By /s/ JAMES UNG
Data Net International, Inc. Dated: 12/3/1997
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ADDENDUM TO LEASE
STANDARD INDUSTRIAL/COMMERCIAL SINGLE-TENANT LEASE - GROSS
FORM - 1997
Lessor: FORTUNE DYNAMIC, INC., A CALIFORNIA CORPORATION
Lessee: DATA NET INTERNATIONAL, INC., A CALIFORNIA CORPORATION
Date of Lease: October 28, 1997
The following modifications and additions are hereby made to the aforesaid
Lease:
(a) PARAGRAPH 1.8: Notwithstanding anything to the contrary contained in
Paragraph 1.8, the agreed use shall be general office use,
warehousing, manufacturing and distribution of computer-related
products.
(b) SECTION 3.3: On the fourth line, the language "within sixty (60) days
after the" is hereby deleted and replaced with the word "by". In
addition, on the fifth line, the language "after the end of such sixty
(60) day period." is hereby deleted.
(c) PARAGRAPH 6.2(d): On the third line, after the words "third party"
the following language is hereby inserted: "under Lessee's control".
(d) PARAGRAPH 7.3(b): Notwithstanding anything to the contrary contained
in paragraph 7.3(b), Landlord hereby grants consent and acknowledges
that Lessee shall be installing an electronic security system and the
electrical system currently serving the building will be modified by
Lessee to accommodate Lessee's use.
(e) PARAGRAPH 8.4(b) is hereby deleted.
(f) PARAGRAPH 10.2: Notwithstanding anything to the contrary contained in
Paragraph 10.2, "Real Property Taxes" shall not include any corporate
franchise tax, business license tax, real estate transfer tax or
documentary transfer tax, capital gains or corporate income tax, and
"Tax Increase" shall not include any increase in "Real Property Taxes"
caused by any transfer by Lessor of the Premises or corporate
reorganization of Lessor.
(g) PARAGRAPH 12: The provisions of Paragraph 12 shall not apply to any
assignment or sublease to an "Affiliate" of Lessee. For purposes of
this Lease, the term "Affiliate" shall mean any person or entity for
which Lessee has direct (or through intermediary subsidiaries
controlled by Lessee) voting control.
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(h) PARAGRAPH 12.1(b): This Subparagraph has been deleted in its entirety
and the following language is inserted in its place and stead:
"Provided that the resulting entity has a net worth of not less than
one hundred fifty percent (150%) of the net worth of Lessee as of the
date of this Lease, a change in the control of Lessee shall not
constitute an assignment requiring Lessor's consent."
"LESSOR"
FORTUNE DYNAMIC, INC.,
A CALIFORNIA CORPORATION
By /s/ CAROL LEE
--------------------------------------
Carol Lee, President
"LESSEE"
DATA NET INTERNATIONAL, INC.,
A CALIFORNIA CORPORATION
By /s/ JAMES UNG
--------------------------------------
James Ung, President
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EXHIBIT 10.11
GUARANTY
This guaranty, dated as of December 3, 1997, is given by James Ung, whose
principal office is located at 1304 John Reed Court Industry (the "Guarantor"),
to Fortune Dynamic, Inc., a California corporation, located at 17503 Rowland
Street, City of Industry, California (the "Landlord").
RECITALS
At the request of the Guarantor, the Landlord has entered into a lease
dated October 28, 1997 with Data Net International, Inc., a California
corporation (the "Tenant"), pursuant to which the Landlord leases to the
Tenant an office\warehouse building, consisting of approximately 21,900
square feet of space located at 957 Lawson Street, City of Industry,
California (the "Lease"); and
The Landlord would not have entered into the Lease except for the request
of the Guarantor and the execution and delivery to this guaranty; and
In consideration of the Landlord entering into the Lease with a Tenant;
The Guarantor agrees as follows:
1. GUARANTY.
The Guarantor, for himself and his legal representatives, guarantees
the prompt payment when due, or whenever payment may become due
under the terms of the Lease, all payments of rent, additional rent,
and all other charges, expenses and costs of every kind and nature,
which are or may be due now or in the future under the terms of the
Lease, any agreements or documents related to the Lease, or any
other transaction between the Landlord and the Tenant directly or
indirectly related to the Lease; and the complete timely
performance, satisfaction and observation of the terms and
conditions of the Lease, rules and regulations and related
obligations arising by reason of the Lease, required to be
performed, satisfied or observed by the Tenant.
2. CONVERGE OF GUARANTY.
This guaranty extends to any and all liability which the Tenant has
or may have to the Landlord by reason of matters occurring before
the signing of the Lease by the parties or commencement of the term
of the Lease or by matters occurring after the expiration of the
term of the Lease by reason of removal of Tenant, property,
surrender of possession or other matters. This guaranty extends to
any successor
<PAGE>
of the Tenant, any assignee or sublessee of the Tenant, to any
extensions or renewals of the Lease, and to any term established by
reason of the holdover of the Tenant, and assignee or sublessee.
3. PERFORMANCE GUARANTY.
In the event the Tenant fails to perform, satisfy or observe the terms
and conditions of the Lease, rules and regulations, and related Lease
obligations required to be performed, satisfy or observed by the
Tenant, the Guarantor will promptly and fully perform, satisfy and
observe the obligation or obligations in place of the Tenant. The
Guarantor shall pay, reimburse and indemnify the Landlord for any and
all damages, costs, expenses, losses and other liabilities arising for
resulting from the failure of the Tenant to perform, satisfy or
observe any of the terms and conditions of the Lease, rules and
regulations and related obligations.
4. WAIVER OF NOTICES.
Without notice to or further assent form the Guarantor, the Landlord
may waive or modify any of the terms and conditions of the Lease, any
rules and regulations or related Tenant obligations; or compromise,
settle or extent the time and payment of any amount due from the
Tenant or the time or performance of any obligation of the Tenant.
These actions may be take by the Landlord without discharging or
otherwise affecting the obligations of the Guarantor.
5. LEASE SECURITY.
This guaranty shall remain in full force and effect, and the Guarantor
fully responsible, without regard to any security deposit or other
collateral for the performance of the terms and conditions of the
Lease, or the receipt, disposition, application, or release of any
security deposit or other collateral, now or hereafter held by or for
the Landlord.
6. UNCONDITIONAL OBLIGATIONS.
The liability of the Guarantor is direct, immediate, absolute,
continuing, unconditional and unlimited. The Landlord shall not be
required to pursue any remedies it may have against the Tenant or
against any security deposit or other collateral as a condition to
enforcement of this guaranty. Nor shall the Guarantor be discharged
or released by reason of the discharge and release of a Tenant for
any reason, including a discharge in bankruptcy, receivership or
other proceedings, a disaffirmation or rejection of the Lease by a
trustee, custodian, or other representative in bankruptcy, a stay or
other enforcement restriction, or any other reduction, modification,
impairment or limitations of the liability of the Tenant or
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any remedy of a Landlord. The Guarantor assumes all responsibility
for being and keeping himself informed of Tenant's financial condition
and assets, and of all other circumstances bearing upon the risk of
nonperformance by a Tenant under the Lease. The Guarantor agrees that
Landlord shall have no duty to advise the Guarantor of information
known to it regarding such circumstances or risks.
7. LIMITATIONS ON GUARANTY.
The Guarantor's liability hereunder shall terminate and Guarantor
shall have no further liability towards the Landlord on the sooner
to occur of the following events: (1) the date upon which the
Tenant's net worth exceeds 150% of the Tenant's net worth as of the
date of this guaranty, or (2) the date the Tenant, or its successor,
becomes a public company. Should any of the foregoing events occur
during the term of the Lease, and as a condition precedent to the
termination of the Guarantor's liability hereunder, the Guarantor
shall provide the Landlord documentary proof of the occurrence of
said event to the reasonable satisfaction of the Landlord.
8. SUBORDINATION OR SUBROGATION RIGHTS.
The guarantor subordinates any and all claims which the Guarantor has
or may have against the Tenant by reason of subrogation for payments
or performance under this Guaranty or claims for any other reason or
cause. The Guarantor agrees not to assert any claim which it has or
may have against the Tenant, including claims by reason of subornation
under this guaranty, until such time as the payment and other
obligations of the Tenant to the Landlord are fully satisfied and
discharged.
9. BINDING EFFECT.
This guaranty is binding upon the Guarantor, his legal
representatives and assigns, and is binding upon and shall inure it to
the benefit of the Landlord, its successors and assigns. No
assignment or delegation by the Guarantor shall release the Guarantor
of his obligations under this guaranty. The term 'Tenant' used in
this guaranty includes also the first and any successive assignee or
sublessee of the Tenant or any assignee or sublessee of the Tenant.
10. MODIFICATIONS.
This guaranty may not be modified orally, but only by a writing signed
by both the Guarantor and the Landlord. Modifications include any
waiver, change, discharge, modification, or termination.
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11. GOVERNING LAW.
This guaranty shall be deemed to be made under, and shall be governed
by, the laws of the State of California in all respects, including
matters of construction, validity, and performance.
12. INVALIDITY.
If any provision of this guaranty contravenes or is held invalid under
the laws of any jurisdiction, this guaranty shall be construed as
though it did not contain that provision, and the rights and
liabilities of the parties to this guaranty shall be construed and
enforced accordingly.
In witness whereof the Guarantor has duly signed this Guaranty on the date
stated above.
Witness: Guarantor:
/s/ Steven J. Ballitt /s/ James Ung
- ------------------------ ------------------------
Signature James Ung
Steven J. Ballitt
- ------------------------
Printed Name
12/3/97
- ------------------------
Date
The undersigned, spouse of the Guarantor, James Ung, hereby consents to his
execution of the above Guaranty and to his performance of all obligations
arising thereunder.
Date: 12/3/97 /s/ Mei Yang
------------------------ ------------------------
Mei Yang
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EXHIBIT 10.12
DEALER LOAN AND SECURITY AGREEMENT
FINOVA Capital Corporation Data net International, Inc.
1060 First Avenue 1304 John Reed Court
Suite 100 City of Industry, CA 91745
King of Prussia, PA 19406
Gentlemen:
1. We are an authorized dealer of goods manufactured and/or distributed
by various manufacturers and distributors (hereinafter called
"Manufacturer"). As such, we from time to time buy goods from Manufacturer to
be held by us as our Inventory for sale by us in the normal course of our
business. We may, as mere fully set forth herein, from time to time obtain
loans from you in order to finance the purchase of certain of such goods,
including parts and accessories therefor, from Manufacturer, and desire by
this Agreement to set forth in writing our understanding of our loan
arrangements with you and secure repayment of such loans and other related
debts and liabilities we may have to you, whether now existing or hereafter
arising.
2. Upon our request from time to time, you may, at your sole discretion
and without any obligation to do so, make loans to us, under such terms and
with such conditions as you shall specify, to enable us to acquire rights in
Inventory from Manufacturers pre-approved by you for financing programs. We
understand that each such loan will be solely at your discretion, and we
expressly disclaim any right to expect otherwise, either from the course of
our dealing, our need therefor, your dealings with others, your arrangements
with Manufacturer, or otherwise. Conversely, nothing herein will prevent us
from obtaining financing from other sources, provided that you are completely
satisfied that such other financing will not jeopardize our ability to comply
with our financial obligations to you and that adequate procedures will be
implemented to absolutely assure your ability to identify your Collateral.
Accordingly, we will obtain both your written permission prior to arranging
such other financing and such acknowledgments and undertakings from our other
lenders as you may require.
We understand that certain terms and conditions applicable to loans
obtained by us from you will be set forth in materials to be made available
from time to time to us and other dealers, the terms of which, as revised
from time to time, being deemed incorporated herein by reference. We
understand that these materials are subject to change by you at any time and
from time to time, and expressly assume the risk of confirming directly with
you, upon our request for each loan, the exact terms and conditions then
being stated by you, including without limitation rate of interest and terms
of repayment. In no event will we view such materials as a commitment or
other offer on your part to lend, and we will have no right to any loan under
any particular terms until actually made and under the terms so made. We
understand and agree that the full amount of each loan will be paid to you on
its due date without deduction for any sums due from Manufacturer or any
Credit Memo that may have
<PAGE>
been issued to you, unless you have previously notified us that you have
received and applied the amount of the Credit Memo Issued by the Manufacturer.
We understand that you may, from time to time, issue advices to us. Such
advices may include, but need not be limited to, periodic or monthly
statements of our account, periodic letter advices in the nature of
statements of account, issued from time to time, and letter forms or other
forms of notices of due dates of finance plan payments and of the specific
terms of loans which we have with you. Unless we, within ten (10) days from
the date of any such advice, give you written and itemized objection to the
contents of such advice, we shall be fully bound thereby and acknowledge that
the content of such advice is true, correct, and complete, and accurately
reflects our obligations to you as the date thereof.
In connection with each loan requested, we will deliver to you such other
writings as you shall require, which may include notes or other appropriate
evidence of debt. Such notes or other evidences of debt, Manufacturer
invoices, and other like materials as may be revised from time to time
("Collateral Documents"), together with this Agreement, contain our entire
understanding, and we acknowledge that we will not be relying upon any prior
oral or written promises or undertakings or future oral promises between us.
No modification hereof or of the Collateral Documents will be binding upon
you unless in a writing duly executed on your behalf by an officer holding
the rank of Vice President or higher.
We hereby authorize you to disburse the proceeds of each loan directly to
Manufacturer on our behalf. Further, we shall and hereby authorize
Manufacturer to deliver its invoice for Inventory, together with all
Certificates of Origin, directly to you. You may assume that all such
invoices so submitted are authentic and accurate and that they have been
submitted on our behalf and with our permission. Receipt by you from us or
Manufacturer of an invoice for Inventory shall be your authority to make a
loan to us under terms and conditions then being stated by you. In addition
we shall and hereby authorize the Manufacturer to issue all Credit Memos
directly to you.
We acknowledge that the term "Prime Rate," as used in the Collateral
Documents in reference to the rate of interest applicable to loans to us,
will mean the average of the Prime Rates (the base rate for corporate loans
at large U.S. money center commercial banks) quoted in the Wall Street
Journal under the caption "Money Rates," and agree that the interest rate
applicable to our loans from you will automatically change from time to time
effective upon each change in the published Prime Rate. We further agree
that interest on our loans from you will be calculated on the basis of a 360
day year but will be chargeable for the actual days that principal is
outstanding in the then current year.
3. We acknowledge that our financial arrangements with you are
completely independent of our arrangements with Manufacturer, and that
neither you nor Manufacturer are an agent for or acting on behalf of the
other. We are not relying, in our understanding with you, on any statements,
promises or representations, oral or written, made by Manufacturer, whether
or not purportedly on your behalf, relating to the subject matter hereof and
of our loans with you. Although we may receive official literature,
brochures and other written materials disseminated by you through
Manufacturer, we expressly assume the risk
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that the materials so received are the most current, up to date materials
then authorized by you to be disseminated. None of our obligations to you
will be affected or impaired, or be subject to any defense, set-off,
counterclaim, crossclaim or recoupment, by reason of any claim which we now
or hereafter have against Manufacturer or its agents, including without
limitation any claim for breach of express or implied warranty of title, or
otherwise related to the condition of the Collateral or our dealings with
Manufacturer.
4. As used herein, the following terms shall have the following meaning:
a) "Inventory" means all present and future Inventory, as that
term is defined in the Pennsylvania Uniform Commercial Code ("Code"),
together with all parts and accessories, and all replacements, substitutions
and additions thereof or thereto.
b) "Accounts" means all present and future Accounts, as that term
is defined in the Code.
c) "General Intangibles" means all present and future General
Intangibles, as that term is defined in the Code, and shall include, without
limitation, all Credit Memos and other sums due from Manufacturer, all books,
records, ledgers, journals, check books, computer tapes and disks, print outs
and other information and sources of information, and all licenses, permits,
franchises, tradenames and other rights and privileges used or useful in the
conduct of our business and the sale of Inventory.
d) "Proceeds" means present and future Proceeds, as that term is
defined in the Code, and shall include, without limitation, insurance payable
by reason of loss or damage to any of the Collateral. All Proceeds received
by us will be held in trust for you until our loans are paid, and we will
promptly deliver all Proceeds to you.
e) "Collateral" means, individually and collectively, Inventory,
Accounts, General Intangibles and Proceeds.
5. a) In order to secure repayment to you of each loan made by you to
us the proceeds of which enable us to acquire rights in or the use of
inventory, we hereby grant to you a purchase money security interest in such
Inventory, the Proceeds thereof and all General Intangibles relate thereto,
to secure repayment of such loan. It is intended by this subparagraph (a)
that only the Inventory so acquired, with Proceeds and related General
Intangibles, will secure the loan the proceeds of which enable us to acquire
rights in or the use of such Inventory.
b) In order to secure repayment to you of all debts and
liabilities we may now or hereafter have to you under this Agreement or any
other agreement, whether such debt or liability be obtained by you by
assignment, negotiation or otherwise, and whither direct or indirect, primary
or secondary, absolute or contingent, or otherwise, including but not limited
to all loans made by you to us, whither now existing or hereafter acquired,
and the Proceeds of all of the foregoing.
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c) All payments made by us will be deemed to be applied by you
first to the loan (i) the proceeds of which enabled us to acquire rights in
or the use of inventory which we have previously sold and (ii) with the
earliest due date.
6. We hereby represent to you that all information provided by us to
you in connection with our application for each loan from you is and will be
complete and accurate in every respect. WE WILL IMMEDIATELY NOTIFY YOU IN
WRITING OF ANY CHANGE IN ANY OF THIS INFORMATION.
7. We will from time to time execute and/or deliver or cause to be
executed and/or delivered to you such financing statements, amendments to
financing statements, continuation statements, documents of title,
manufacturers' certificates of origin, warehouse receipts, bills of lading,
vehicle titles, waivers, consents and such other manner of things, and take
all manner of actions, as you may from time to time request which are in your
sole opinion necessary or desirable in order to perfect, protect, maintain,
continue, realize and/or enforce your rights and security interest granted
herein. This shall include, without limitation, the written waiver by the
landlord of each location at which any Collateral is located. A carbon,
photographic or other reproduction of this Agreement shall be sufficient as a
financing statement and may be filed in any public office as a financing
statement.
8. We will maintain the Inventory in excellent, salable condition,
consistent with the highest standards in the industry, and will comply with
all applicable laws relating to our use thereof. We will provide you or your
designated representatives with access, at any time, during normal business
hours, whether announced or unannounced, to each location at which any
Collateral is located, to inspect and examine the Inventory and other
Collateral and business records, including without limitation all financial
records. We agree, at our sole cost, to keep all Inventory insured against
risks covered by standard forms of fire, theft and extended coverage and such
other risks as may be reasonably required by you and under policies issued by
an insurance company or companies and in amounts satisfactory to you. You
shall be named to the extent your interest may appear under a Lender's Loss
Payable Clause in such policy, which shall provide that the insurance cannot
be canceled without at least thirty (30) days prior written notice to you and
shall insure you notwithstanding any act or neglect on our part. At our
expense, we shall furnish you with evidence of the same in form satisfactory
to you, and shall provide you with a Certificate thereof naming you as
certificate holder. We will promptly remit to you in the form received, with
all necessary endorsements, any Proceeds of such insurance. You may make and
settle claims and endorse our name on any checks or drafts. You may apply
any Proceeds of Insurance which may be received by you toward payment of any
obligations or liabilities owed to you by us, whether or not then due, in
such order of application as you may determine.
Loss, damage or destruction of all or any of the Collateral shall
not affect or diminish our liabilities to you and we assume all
responsibility and risk for the existence, character, quality, condition,
value, and delivery of Inventory.
9. We will pay and/or cause to be paid all taxes, levies and other
governmental charges and assessments payable on or with respect to the
Collateral and any premises at
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which the Collateral is located, which if unpaid may result in a lien or
imposition thereon. Such taxes, levies, charges and assessments will be paid
prior to the date that any penalty for late payment may be assessed with
respect thereto, and if requested by you we will, at our expense, provide you
with receipts or other evidence of payment in form satisfactory to you.
10. We will not suffer or permit any lien, security interest, charge,
claim or encumbrance to be placed on any of the Collateral, other than in
your favor, or suffer or permit any interest to exist therein which is
adverse to your own. We represent that we are, and agree to remain, the sole
and absolute owner of the Collateral, until sold in the ordinary course of
our business, and are and will remain qualified under he terms of all
applicable laws and under our dealership arrangements with Manufacturer to
conduct our business as presently conducted, with all necessary governmental
and other licenses, consents and authorizations having been obtained.
11. At your option, without any obligation to do so, you may pay and
discharge taxes, liens, levies, security interests or other encumbrances
against the Collateral, may pay for insurance on and for the maintenance and
preservation of the collateral and perform on our behalf any other obligation
required to be performed by us hereunder but which we have failed to so do.
We shall reimburse you on demand for any payment made or any expense incurred
by you pursuant to the authority hereof, with interest at the highest rate
chargeable on any of our loans with you, and will pay you a late charge of
1.5% per month of the amount due to you, or the highest legally permissible
rate if lower.
12. We will furnish you such information regarding our business and
financial condition as you may request from time to time, including without
limitation such financial statements, in such form and bearing such
certifications, as you shall require. We agree that you may audit or cause
to be audited our books and records at any and all times, during normal
business hours, whether announced or unannounced, and to permit you access to
each location at which any of our General Intangibles are located.
13. We will provide you with written notice of the following matters
immediately upon the occurrence thereof:
a) A change in any information provided by us to you herein, in
any application made by us in connection with any loan, or otherwise,
including without limitation, any change in the location of any Collateral or
in any other circumstances regarding the collateral or our business
operations;
b) Loss, theft, or substantial damage or destruction of any of the
Collateral or related to our business operations generally; or
c) Any other matter which might have a material adverse affect on
our financial condition or operations or which, upon the giving of notice or
passage of time, or both, would result in an event of default by us hereunder.
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14. Any one or more of the following shall be an event of default by us
under this Agreement:
a) Failure by us or any person jointly or otherwise liable to you
for our obligations to you, as surety, guarantor or otherwise ("Other
Obligor") to pay any amount due you, as and when due, contained or referred
to herein or in any other instrument, document, or agreement to which we or
such Other Obligor are a party or by which we or such Other Obligor are bound
to you, whether now existing or hereafter created; or
b) Failure by us or any Other Obligor to perform or comply with
any other obligation, covenant or liability contained or referred to herein
or in any other instrument, document, or agreement to which we or such Other
Obligor are a party or by which we or such Other Obligor are bound to you,
whether now existing or hereafter created, and such failure, if reasonably
susceptible of cure, is not cured within fifteen (15) days of the occurrence
thereof; or
c) If any warranty, representation, or statement made or furnished
to you by us or on our behalf or on behalf of an Other Obligor, including any
representation made on our behalf by Manufacturer, proves to be false,
misleading or incomplete in any respect; or
d) Loss, theft or substantial damage or destruction of any of the
Collateral, or the making of any levy, seizure, or attachment thereof or
thereon; or
e) Dissolution, merger, consolidation, sale or other disposition
of a controlling interest in our ownership or of substantially all of our
assets, termination of existence, insolvency, business failure, appointment
of a receiver, trustee, sequestrator, conservator, or other judicial
representative, whether similar or dissimilar, for us or for all or any part
of our property, assignment by us for the benefit of creditors or the
commencement of any proceeding by or against us under any provision of any
federal or state bankruptcy or insolvency laws; or
f) Failure by us to pay any obligation(s) or liability(ies)
whatsoever, past, present or future, when due to any other creditor, or the
occurrence of any event of default by us under any agreement with any of our
respective creditors, including without limitation the occurrence of an event
of default under any lease relating to any premises upon which all or any
part of our Inventory or other Collateral is located; or
g) If we give notice of a Bulk Sale or intended Bulk Sale, or call
a meeting of our respective unsecured creditors or offer a composition or
extension to such creditors, or cease to operate our respective business.
15. Upon the occurrence of an event of default, you shall have the right
to repossess the Inventory and also any and all rights available under the
Code, including, without limitation, the right to declare any and all unpaid
balances of principal, interest, costs and expenses arising out of any and
all of our obligations or liabilities to you, whether past, present or
future, direct or indirect, matured or unmatured, liquidated or unliquidated,
6
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immediately due and payable without notice to or demand on us. We
irrevocably authorize you or your agent to enter all premises to take
possession of and remove the Inventory and other Collateral and release you
from any and all liability with respect to such entry or removal. We shall
in case of default, if you so request, assemble and deliver the Inventory and
other Collateral, at our expense, to a place to be designated by you. We
shall pay all of the costs you incur in the enforcement of any of our
obligations to you or the collection of any liabilities owed to you by us,
including, without limitation, costs, expenses and reasonable attorneys'
fees. If any notification of intended disposition of any of the Inventory or
other Collateral is required by law, such notification shall be deemed
reasonably and properly given if mailed by ordinary mail or overnight
delivery service at least ten (10) days before such disposition, postage
prepaid, addressed to us, either at our address shown in this Agreement, or
at such other address as we may have designated to you in writing.
16. To the extent permitted by applicable law, we authorize you, your
designee, the Clerk of the Court, or any attorney of any Court, in the
Commonwealth of Pennsylvania or any other state, to appear for us at any time
in any and all actions and to confess judgment against us for all sums then
owed to you, whether or not then payable, together with an attorney's fee of
15% of all sums then owed and/or for the recovery of any or all of the
Inventory in our possession. Wherever this provision is prohibited,
unenforceable or unlawful, it is deemed stricken from this Agreement.
17. Any law, custom or usage to the contrary notwithstanding, you shall
have the right at all times to enforce the covenants and provisions of this
Agreement in strict accordance with the terms hereof, n notwithstanding any
conduct or custom on your part in refraining from so doing at any time or
times. Your failure at any time to invoice your rights under the covenants
and provisions of this Agreement strictly in accordance with the same shall
not be construed as having created a custom in any way or manner contrary to
the specific terms and provisions of this Agreement or as having in any way
or manner modified altered or waived the same. Time is of the essence in our
performance hereunder and under all other agreements with you. All of your
remedies are cumulative and not alternative, and can be exercised in any
order and in any manner, separately or simultaneously, and from time to time
until all liabilities and obligations to you are satisfied in full.
18. This Agreement may be assigned by you, but we may not assign this
Agreement without your prior written consent. If you assign this Agreement,
you shall have no further obligation hereunder. All of your rights hereunder
shall inure to the benefit of your successors and assigns and all our
obligations shall bind our successors and assigns. If there be more than one
party obligated to you under this Agreement, their obligations hereunder
shall be joint and several, and the terms "we" "us" or "our" as used herein
shall refer to them jointly and severally.
19. We authorize and empower you or your employees, agents or
representatives, on our behalf, and in our name, to complete and supply any
omission or blank spaces in this Agreement and in any documents or financing
statements executed by us and including amendments and continuations thereof
under the Code; to execute and/or have acknowledged any form of security
instruments, notes, drafts and documents; and to make any requisite
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affidavits which may be necessary or required by you, and/or which you may
desire to evidence or secure advances made by you pursuant to the terms of
this Agreement. All of the foregoing may be executed in such form and
substance as you in your sole discretion may deem necessary or proper, and
this power of attorney, being coupled with an interest, is irrevocable.
20. Our officers, by execution hereof, warrant and represent to you that
we are a duly formed corporation and are qualified to do business in the
state(s) in which our place(s) of business is (are) located; and, at a Board
of Directors meeting duly convened, our officer(s) were properly authorized
to execute and deliver this Agreement and all other documents whether
hereunder or otherwise; that the execution and delivery of this Agreement
does not contravene the Articles of Incorporation, By-Laws, or any agreement,
document or instrument to which we are a party or by the terms of which we
are bound.
21. Any provision or part thereof in this Agreement found upon judicial
interpretation or construction to be prohibited by law shall be ineffective
to the extent of such prohibition, without invalidating the remaining
provisions hereof. All words used shall be understood and construed to be of
such gender or number as the circumstances may reasonably require.
22. THIS AGREEMENT SHALL BE DEEMED EFFECTIVE WHEN ACCEPTED AND EXECUTED
BY YOU IN THE COMMONWEALTH OF PENNSYLVANIA. THIS AGREEMENT SHALL BE
CONSTRUED IN ACCORDANCE WITH THE SUBSTANTIVE LAWS OF THE COMMONWEALTH OF
PENNSYLVANIA.
23. AS AN INDEPENDENT COVENANT, WE IRREVOCABLY CONSENT TO THE
JURISDICTION OF THE COURTS OF COMMON PLEAS OF PHILADELPHIA, PENNSYLVANIA
AND/OR THE UNITED STATES DISTRICT COURT FOR THE EASTERN DISTRICT OF
PENNSYLVANIA IN ANY AND ALL ACTIONS BETWEEN US WHETHER UNDER THIS AGREEMENT
OR OTHERWISE AND TO THE SERVICE OF PROCESS THEREIN BY CERTIFIED MAIL, RETURN
RECEIPT REQUESTED, AT THE ADDRESS AS SET FORTH HEREIN OR ON YOUR RECORDS, AND
IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT THERETO IN ANY AND ALL ACTIONS
BETWEEN US, WHETHER UNDER THIS AGREEMENT OR OTHERWISE.
WE HEREBY ACKNOWLEDGE THAT WE HAVE READ AND UNDERSTAND ALL OF THE
TERMS AND PROVISIONS OF THIS AGREEMENT.
Intending to be legally bound, signed and delivered on June 3rd,
1997:
DATA NET INTERNATIONAL, INC.
- ----------------------------
(Corporate Name)
By: /s/ JAMES UNG
-------------------------
President
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Attest: /s/ MEI YANG
--------------------
Secretary
(CORPORATE SEAL)
APPROVED AND ACCEPTED
IN KING OF PRUSSIA, PENNSYLVANIA
FINOVA CAPITAL CORPORATION
(Secured party)
BY: /s/
---------------------------------
DATE:
--------------------------------
9
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EXHIBIT 10.13
INDIVIDUAL GUARANTY
TO: FINOVA CAPITAL CORPORATION
1060 FIRST AVENUE
SUITE 100
KING OF PRUSSIA, PA 19406
1. IDENTIFICATION. This Guaranty is made by each of the undersigned,
jointly and severally if more than one, in your favor, in order to induce you
to enter into one or more notes, loan agreements and/or security agreements
(herein, the "Agreements") with Data Net International, Inc. (herein, the
"Debtor") or to otherwise extend or continue financial accommodations in
favor of the debtor or to acquire obligations or indebtedness owing by the
Debtor.
2. GUARANTY OBLIGATION.
a. We unconditionally guarantee to you and undertake the
obligations of a surety with respect to the following described obligations
and liabilities of the Debtor (herein, the "Debtor's Liabilities"):
i. the prompt payment in full of any and all now existing or
hereafter arising indebtedness or obligations of the Debtor to you of every
kind or nature, whether acquired by you by negotiation, assignment or
otherwise, and whether direct or indirect, absolute or contingent, matured or
unmatured, or otherwise, and including without limitation all advances and
other loans now or at any time hereafter made by you to the Debtor under or
secured by the Agreements, or otherwise. WITHOUT LIMITATION, THE FOREGOING
GUARANTY SHALL EXTEND TO ANY OBLIGATIONS WHICH THE DEBTOR MAY INCUR TO YOU
UNDER ANY AGREEMENT OR BY REASON OF ANY OTHER FINANCIAL ACCOMMODATION BETWEEN
YOU AND THE DEBTOR MADE AFTER THE DATE HEREOF WHETHER OR NOT PRESENTLY
CONTEMPLATED. WE ACKNOWLEDGE THAT IT IS OUR RESPONSIBILITY TO OBTAIN FORM
TIME TO TIME DIRECTLY FROM THE DEBTOR SUCH INFORMATION AS WE MAY REQUIRE
CONCERNING THE OBLIGATIONS AND INDEBTEDNESS GUARANTEED HEREBY, WHICH
RESPONSIBILITY IS REASONABLE IN LIGHT OF OUR RELATIONSHIP WITH THE DEBTOR; and
ii. the prompt, full and faithful performance and discharge by the
Debtor of each and every term, condition, agreement, representation, warranty
and provision on the part of the Debtor contained in any of the Agreements or
in any modification, amendment or substitution thereof or in any other
document or instrument evidencing or securing any obligation or indebtedness
of the Debtor to you.
b. We shall, on your demand, reimburse you for all expenses,
collection charges, court costs and attorneys' fees incurred by you in
endeavoring to collect Debtor's Liabilities, and to enforce, protect or
defend any of your rights and remedies against us and/or the Debtor or
against any other person or entity primarily or secondarily liable for the
obligations and indebtedness guaranteed hereby (herein, an "Obligor"), or
against or with respect to any
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property, real or personal now or hereafter granted to or obtained by you as
security for Debtor's Liabilities or for our liabilities and obligations to
you hereunder or for those of any Obligor (herein, "Secured Property"),
together with interest thereon until reimbursed at a rate equal to five (5)
percent above the rate of interest payable on the debtor's Liabilities
guaranteed hereby (or the highest rate permitted by law) of the amount due by
us to you.
3. LIABILITY ABSOLUTE; WAIVERS.
a. We shall pay all of the foregoing amounts and perform all of
the foregoing terms, covenants and conditions notwithstanding that any part
or all of the Agreements or other documents or instruments evidencing the
Debtor's Liabilities, or any financial accommodation for or transaction with
the Debtor, shall be invalid, void, voidable or otherwise unenforceable, in
whole or in part, as against the Debtor, any property of the Debtor, or any
of the Debtor's creditors, including a trustee in bankruptcy of Debtor or
Debtor as a debtor-in-possession, including without limitation by reason of
any theory or provision of law or equity, statutory or otherwise, relating to
consideration, or the lack thereof, or to any alleged fraudulent,
preferential or other improper transfer or conveyance, and including further,
without limitation, by reason of failure by any person, including yourself,
to file any document or take nay other action to make any of your rights
against the Debtor, any other Obligor or any property, pursuant to the
Agreements or otherwise, enforceable in accordance with their respective
terms.
b. You shall have the right from time to time, and at any time,
without notice to or consent from us, and without affecting, impairing or
discharging, in wh ole or in part, our obligations to you hereunder, to enter
into agreements with the Debtor or any other Obligor to modify, change or
supplement, in any respect whatsoever, any evidence of indebtedness, or any
agreement or transaction between you and the debtor or between you and any
other Obligor, or any portion or provision of any thereof; to grant
extensions of time and other indulgences of any kind to the Debtor or other
Obligor; to compromise, release, substitute, exercise, enforce, or fail or
refuse to exercise or enforce any claims, rights or remedies of any kind
which you may have, at any time, against the Debtor or any other Obligor, or
any portion thereof, or with respect to any Secured Property; and to release,
substitute or surrender and to enforce, collect or liquidate any security of
any kind held by you at any time, and all of the foregoing whether done
negligently, willfully or otherwise.
c. Our obligations to you shall not be affected, impaired or
discharged, in whole or in part, by reason of your failure to obtain, in the
first instance, rights against any person or entity, including without
limitation, the Debtor, or in with respect to any property, or to protect,
perfect, continue or maintain any such rights.
d. We waive notice of acceptance hereof and all notices and
demands of any kind to which we may otherwise be entitled including, without
limitation, all demands of payment and notice of nonpayment, protest and
dishonor, to us or to the Debtor, or to the makers or endorsers of any notes
or other instruments for which we are or may be liable hereunder and further
waive notice of any adverse change in the Debtor's financial condition, the
value of any Secured Property, or any other fact which might materially
increase our risk to you hereunder.
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e. We waive any right to require you to, prior to proceeding
against us hereunder; (i) proceed against Debtor and/or any other Obligor;
(ii) proceed against or exhaust any Secured Property; or (iii) pursue any
other remedy which you may have.
4. PRIMARY NATURE OF OBLIGATIONS; NO SET-OFF.
Our liability to you hereunder is primary, absolute, unconditional,
continuing, direct and independent of the obligations of the Debtor. Nothing
shall discharge or satisfy our liability hereunder except the full
performance and payment of all of the Debtor's Liabilities. In the event
that all of Debtor's Liabilities shall have at any time been paid and
performed in full, this Guaranty and our obligations hereunder shall
nevertheless remain in full force and effect and be operative with respect to
Debtor's Liabilities incurred or arising at any time to times thereafter. We
shall have no right of subrogation, reimbursement or indemnity whatsoever and
no right of recourse to or with respect to the Debtor and/or any property of
the Debtor, unless and until all of Debtor's Liabilities have been paid and
performed in full. Our liability to you hereunder shall not be subject to
set-off, counterclaim, crossclaim or defense arising out of or by virtue of
any claim or right which we may at any time have against the Debtor or other
Obligor, or which we may at any time have against you in connection with this
or any other transaction with or acquired by you.
5. CONTINUING NATURE OF GUARANTY.
Our obligations under this Guaranty shall be continuing. This
instrument shall continue in full force and effect until our obligations to
you are terminated by the actual receipt by you of written notice from us of
such termination. Such termination shall be applicable only to such of
Debtor's Liabilities as have their inception thereafter. Specifically,
without limitation, we shall, after and notwithstanding such termination,
remain obligated to you under the terms hereof for: ;(i) all of Debtor's
Liabilities incurred prior to your actual receipt of such notice of
termination, including interest or other finance charges at any time
theretofore accrued or thereafter accruing or payable thereon, (ii) all of
your costs and expenses, including attorneys' fees, at any time incurred in
connection with your enforcement and collection of Debtor's Liabilities
incurred prior to your actual receipt of such notice of termination, (iii)
Debtor's Liabilities incurred subsequent to your actual receipt of such
notice of termination pursuant to any perceived or actual commitment made on
your part prior to such notice of termination, arising out of any course of
dealing or other perceived or actual legal or other requirement obligating or
committing you to make advances, loans or other financial accommodations
giving rise to such Debtor's Liabilities, and (iv) advances at any time made
by you to protect your interests under or in connection with Debtor's
Liabilities incurred prior to your actual receipt of such notice or
termination. We acknowledge that, upon such termination, you will have
absolutely no further obligation to consider any further request for loans or
other extensions of credit or financial accommodations for the Debtor.
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6. SECURITY FOR GUARANTY.
All sums at any time to our credit and any of our present and future
property at any time in your possession shall be deemed held by you as
security for any and all of our obligations to you hereunder.
7. SUBORDINATION.
Any and all present and future indebtedness and obligation of the
Debtor to us are hereby agreed to be postponed in your favor. Upon written
notice given by you to us, which you may give at any time whether or not the
Debtor is in default to you, we will refrain form accepting any payments on
account of such indebtedness tendered by the Debtor or any other Obligor
thereon, or realized form any security therefor, and any amounts received
by us in violation of the foregoing shall be held by us upon an express trust
for your benefit and turned over to you upon demand. Until such notice, we
will accept only such payments which are in the nature of regularly scheduled
payments made pursuant to periodic reductions required by; the terms of the
documents evidencing such indebtedness, and shall not accept any prepayment
thereof, whether on default, on demand under any demand instrument, or
otherwise. We represent to you that all such indebtedness owing to us is,
and agree that it shall remain, and any future indebtedness shall be
unsecured.
8. NO WAIVER.
No failure, omission or deal on your part in exercising any rights
hereunder or under the Agreements or with respect to Debtor's Liabilities,
either against the Debtor or any other Obligor, or any Secured Property,
shall operate as a waiver of such rights or shall, in any manner, prejudice
your rights against us hereunder or otherwise.
9. CUMULATIVE REMEDIES.
All of your rights and remedies under the Agreements, this Guaranty
and under any other document or instrument evidencing or securing Debtor's
Liabilities are separate and cumulative and may be pursued separately,
successively or concurrently, are non-exclusive and the exercise of any one
or more of them shall in no way limit or prejudice any other legal or
equitable right, remedy or recourse to which you may be entitled. This
Guaranty shall be deemed to be in addition to, and not in lieu of, any prior
suretyship or guaranty delivered by us to you, and any surety or guaranty at
any time hereafter delivered by us to you shall be deemed to be in addition
to, and not in lieu of this Guaranty.
10. APPLICATION OF FUNDS.
Any payment made by us hereunder, or by the Debtor or any other
Obligor, and any proceeds realized by you from any Secured Property, may be
applied by you to any of Debtor's Liabilities in any order which you may
determine, notwithstanding any designation by us, the Debtor or other Obligor
to the contrary. To the extent that the Debtor has at any time any
liabilities or obligations to you for which we are not obligated to you under
the terms of this
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Guaranty, any payments received by you from the Debtor or any other Obligor,
or proceeds realized by you from any security, and regardless of any
designation by any person or entity to the contrary, may be applied by you to
such other liabilities and obligations prior to your applying any amounts to
Debtor's Liabilities for which we are obligated to you hereunder.
11. MODIFICATIONS.
No provision hereof shall be modified or limited, except by a
written agreement expressly referring hereto and to the provision so modified
or limited, and signed by us and you.
12. MERGER.
This writing is intended as a final, complete and exclusive
expression of our agreement with you relative to the subject matter hereof.
No course of prior dealing between you and us, no usage of the trade, and no
parole or extrinsic evidence of any nature, shall be used or be relevant to
supplement or explain or modify any term used in this Guaranty.
13. SEVERABILITY.
In case any one or more of the provisions contained in this Guaranty
shall for any reason be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provisions hereof, and this Guaranty shall be construed as if such
invalid, illegal or unenforceable provision had never been contained herein.
14. NOTICES.
We agree that any notice or demand upon us shall be deemed to be
sufficiently given or served if it is in writing and is personally served, or
in lieu of personal service is mailed by first class certified mail, postage
prepaid, addressed to us at the address set forth below. Any notice or
demand so mailed shall be deemed received on the date of actual receipt or
the first business day following mailing, whichever first occurs.
15. JUDGEMENT INTEREST.
Any judgment entered against us hereunder shall, to the extent
permitted by applicable law, bear interest at the highest rate applicable to
the Debtor's Liabilities guaranteed hereby.
16. GOVERNING LAW.
THIS INSTRUMENT SHALL FOR ALL PURPOSES BE GOVERNED BY AND INTERPRETED IN
ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA. WE CONSENT TO
THE JURISDICTION OF THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF
PENNSYLVANIA OR ANY STATE COURT LOCATED IN PHILADELPHIA COUNTY, PENNSYLVANIA
WITH RESPECT TO ANY LEGAL ACTION COMMENCED HEREUNDER. NOTHING CONTAINED
HEREIN IS
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INTENDED TO PRECLUDE YOU FROM COMMENCING ANY ACTION HEREUNDER IN ANY COURT
HAVING JURISDICTION THEREOF.
17. WAIVER OF JURY TRIAL.
AS AN INDEPENDENT COVENANT, WE IRREVOCABLY WAIVE JURY TRIAL AND THE RIGHT
THERETO IN ANY AND ALL ACTIONS BETWEEN US, WHETHER UNDER THIS AGREEMENT OR
OTHERWISE.
18. SUCCESSORS AND ASSIGNS.
This Guaranty shall inure to the benefit of your successors and assigns
and shall be binding on our heirs, personal representatives, successors and
assigns.
19. GENDER; JOINT AND SEVERAL LIABILITY.
If there be more than one person or entity signing this Guaranty, each of
us will be jointly and severally obligated to you hereunder, and the terms
"we", "us" or "our" as used herein shall refer to each of us jointly and
severally. If less than all persons or entities who were intended to sign
this Guaranty do so, the same shall nevertheless be binding upon those who do
sign.
IN WITNESS WHEREOF, we have duly executed this Guaranty this 3rd day of
June 1997.
WITNESS:
/s/ /s/ James Ung
- ---------------------------------- -------------------------------------
(Signature)
/s/ James Ung
- ---------------------------------- -------------------------------------
(Print Name)
- ---------------------------------- -------------------------------------
(Home Address)
WITNESS:
/s/ /s/
- ---------------------------------- -------------------------------------
(Signature)
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- ---------------------------------- -------------------------------------
(Print Name)
- ---------------------------------- -------------------------------------
(Home Address)
WITNESS:
- ---------------------------------- -------------------------------------
(Signature)
- ---------------------------------- -------------------------------------
(Print Name)
- ---------------------------------- -------------------------------------
(Home Address)
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EXHIBIT 10.14
DATANET INTERNATIONAL, INC.
AMENDED AND RESTATED 1997 STOCK PLAN
1. PURPOSE OF THE PLAN.
The purpose of this Amended and Restated 1997 Stock Plan (the "Plan") is to
provide incentives and rewards to selected eligible directors, officers,
employees and consultants of Data Net International, Inc. (the "Company") or its
subsidiaries in order to assist the Company and its subsidiaries in attracting,
retaining and motivating those persons by providing for or increasing the
proprietary interests of those persons in the Company, and by associating their
interests in the Company with those of the Company's shareholders.
2. ADMINISTRATION OF THE PLAN.
The Plan shall be administered by the Board of Directors of the Company
(the "Board"), or a committee of the Board (the "Committee") whose members shall
serve at the pleasure of the Board. If administration is delegated to the
Committee, the Committee shall have, in connection with the administration of
the Plan, the powers theretofore possessed by the Board (and references in this
Plan to the Board shall thereafter be to the Committee), subject, however, to
such resolutions, not inconsistent with the provisions of the Plan as may be
adopted from time to time by the Board.
The Board shall have all the powers vested in it by the terms of the Plan,
including exclusive authority (i) to select from among eligible directors,
officers, employees and consultants, those persons to be granted "Awards" (as
defined below) under the Plan; (ii) to determine the type, size and terms of
individual Awards (which need not be identical) to be made to each person
selected; (iii) to determine the time when Awards will be granted and to
establish objectives and conditions (including, without limitation, vesting and
performance conditions), if any, for earning Awards; (iv) to amend the terms or
conditions of any outstanding Award, subject to applicable legal restrictions
and to the consent of the other party to such Award; (v) to determine the
duration and purpose of leaves of absences which may be granted to holders of
Awards without constituting termination of their employment for purposes of
their Awards; (vi) to authorize any person to execute, on behalf of the Company,
any instrument required to carry out the purposes of the Plan; and (vii) to make
any and all other determinations which it determines to be necessary or
advisable in the administration of the Plan. The Board shall have full power
and authority to administer and interpret the Plan and to adopt, amend and
revoke such rules, regulations, agreements, guidelines and instruments for the
administration of the Plan and for the conduct of its business as the Board
deems necessary or advisable. The Board's interpretation of the Plan, and all
actions taken and determinations made by the Board pursuant to the powers vested
in it hereunder, shall be conclusive and binding on all parties concerned,
including the Company, its shareholders, any participants in the Plan and any
other employee of the Company or any of its subsidiaries.
<PAGE>
3. PERSONS ELIGIBLE UNDER THE PLAN.
Any person who is a director, officer, employee or consultant of the
Company, or any of its subsidiaries (a "Participant"), shall be eligible to be
considered for the grant of Awards under the Plan.
4. AWARDS.
(a) COMMON STOCK AND DERIVATIVE SECURITY AWARDS. Awards authorized under
the Plan shall consist of any type of arrangement with a Participant that is not
inconsistent with the provisions of the Plan and that, by its terms, involves or
might involve or be made with reference to the issuance of (i) shares of the
Common Stock, no par value, of the Company (the "Common Stock") or (ii) a
"derivative security" (as that term is defined in Rule 16a-1(c) of the Rules and
Regulations of the Securities and Exchange Commission under the Securities
Exchange Act of 1934, as amended, as the same may be amended from time to time)
with an exercise or conversion price related to the Common Stock or with a value
derived from the value of the Common Stock.
(b) TYPES OF AWARDS. Awards are not restricted to any specified form or
structure and may include, but need not be limited to, sales, bonuses and other
transfers of stock, restricted stock, stock options, reload stock options, stock
purchase warrants, other rights to acquire stock or securities convertible into
or redeemable for stock, stock appreciation rights, phantom stock, dividend
equivalents, performance units or performance shares, or any other type of Award
which the Board shall determine is consistent with the objectives and
limitations of the Plan. An Award may consist of one such security or benefit,
or two or more of them in tandem or in the alternative.
(c) CONSIDERATION. Common Stock may be issued pursuant to an Award for
any lawful consideration as determined by the Board, including, without
limitation, a cash payment, services rendered, or the cancellation of
indebtedness.
(d) GUIDELINES. The Board may adopt, amend or revoke from time to time
written policies implementing the Plan. Such policies may include, but need not
be limited to, the type, size and term of Awards to be made to participants and
the conditions for payment of such Awards.
(e) TERMS AND CONDITIONS. Subject to the provisions of the Plan, the
Board, in its sole and absolute discretion, shall determine all of the terms and
conditions of each Award granted pursuant to the Plan, which terms and
conditions may include, among other things:
(i)any provision necessary for such Award to qualify as an incentive
stock option under Section 422 of the Internal Revenue Code of 1986, as
amended (the "Code") (an "Incentive Stock Option");
(ii)a provision permitting the recipient of such Award to pay the
purchase price of the Common Stock or other property issuable pursuant to
such Award, or to pay such
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recipient's tax withholding obligation with respect to such issuance, in
whole or in part, by delivering previously owned shares of capital stock of
the Company (including "pyramiding") or other property, or by reducing the
number of shares of Common Stock or the amount of other property otherwise
issuable pursuant to such Award; or
(iii)a provision conditioning or accelerating the receipt of benefits
pursuant to the Award, or terminating the Award, either automatically or in
the discretion of the Board, upon the occurrence of specified events,
including, without limitation, a change of control of the Company, an
acquisition of a specified percentage of the voting power of the Company,
the dissolution or liquidation of the Company, a sale of substantially all
of the property and assets of the Company or an event of the type described
in Section 7 of the Plan.
(f) SUSPENSION OR TERMINATION OF AWARDS. If the Company believes that a
Participant has committed an act of misconduct as described below, the Company
may suspend the Participant's rights under any then outstanding Award pending a
determination by the Board. If the Board determines that a Participant has
committed an act of embezzlement, fraud, nonpayment of any obligation owed to
the Company or any subsidiary, breach of fiduciary duty or deliberate disregard
of the Company's rules resulting in loss, damage or injury to the Company, or if
a Participant makes an unauthorized disclosure of trade secret or confidential
information of the Company, engages in any conduct constituting unfair
competition, or induces any customer of the Company to breach a contract with
the Company, neither the Participant nor his or her estate shall be entitled to
exercise any rights whatsoever with respect to such Award. In making such
determination, the Board shall act fairly and shall give the Participant a
reasonable opportunity to appear and present evidence on his or her behalf to
the Board.
(g) MAXIMUM GRANT OF AWARDS TO ANY PARTICIPANT. No Participant shall
receive Awards representing more than 40% of the aggregate number of shares of
Common Stock that may be issued pursuant to all Awards under the Plan as set
forth in Section 5 hereof.
5. SHARES OF COMMON STOCK SUBJECT TO THE PLAN.
The aggregate number of shares of Common Stock that may be issued or
issuable pursuant to all Awards under the Plan (including Awards in the form of
Incentive Stock Options and Non-Statutory Stock Options) shall not exceed an
aggregate of 500,000 shares of Common Stock, subject to adjustment as provided
in Section 7 of the Plan. Shares of Common Stock subject to the Plan may
consist, in whole or in part, of authorized and unissued shares or treasury
shares. Any shares of Common Stock subject to an Award which for any reason
expires or is terminated unexercised as to such shares shall again be available
for issuance under the Plan. For purposes of this Section 5, the aggregate
number of shares of Common Stock that may be issued at any time pursuant to
Awards granted under the Plan shall be reduced by:(i) the number of shares of
Common Stock previously issued pursuant to Awards granted under the Plan, other
than shares of Common Stock subsequently reacquired by the Company pursuant to
the terms and conditions of such Awards and with respect to which the holder
thereof received no benefits of ownership, such as dividends; and (ii) the
number of shares of Common Stock which were otherwise issuable
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pursuant to Awards granted under this Plan but which were withheld by the
Company as payment of the purchase price of the Common Stock issued pursuant to
such Awards or as payment of the recipient's tax withholding obligation with
respect to such issuance.
6. PAYMENT OF AWARDS.
The Board shall determine the extent to which Awards shall be payable in
cash, shares of Common Stock or any combination thereof. The Board may, upon
request of a Participant, determine that all or a portion of a payment to that
Participant under the Plan, whether it is to be made in cash, shares of Common
Stock or a combination thereof, shall be deferred. Deferrals shall be for such
periods and upon such terms as the Board may determine in its sole discretion.
7. DILUTION AND OTHER ADJUSTMENT.
In the event of any change in the outstanding shares of the Common Stock or
other securities then subject to the Plan by reason of any stock split, reverse
stock split, stock dividend, recapitalization, merger, consolidation,
combination or exchange of shares or other similar corporate change, or if the
outstanding securities of the class then subject to the Plan are exchanged for
or converted into cash, property or a different kind of securities, or if cash,
property or securities are distributed in respect of such outstanding securities
as a class (other than cash dividends), then the Board may, but it shall not be
required to, make such equitable adjustments to the Plan and the Awards
thereunder (including, without limitation, appropriate and proportionate
adjustments in (i) the number and type of shares or other securities or cash or
other property that may be acquired pursuant to Incentive Stock Options and
other Awards theretofore granted under the Plan, (ii) the maximum number and
type of shares or other securities that may be issued pursuant to Incentive
Stock Options and other Awards thereafter granted under the Plan; and (iii) the
maximum number of securities with respect to which Awards may thereafter be
granted to any Participant in any fiscal year) as the Board in its sole
discretion determines appropriate, including any adjustments in the maximum
number of shares referred to in Section 5 of the Plan. Such adjustments shall
be conclusive and binding for all purposes of the Plan.
8. MISCELLANEOUS PROVISIONS.
(a) DEFINITIONS. As used herein, "subsidiary" means any future
corporation which would be a "subsidiary corporation," as that term is defined
in Section 424(f) of the Code, of the Company; and the term "or" means "and/or."
(b) CONDITIONS ON ISSUANCE. Securities shall not be issued pursuant to
Awards unless the grant and issuance thereof shall comply with all relevant
provisions of law and the requirements of any securities exchange or quotation
system upon which any securities of the Company are listed, and shall be further
subject to approval of counsel for the Company with respect to such compliance.
Inability of the Company to obtain authority from any regulatory body having
jurisdiction, which authority is determined by Company counsel to be necessary
to
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the lawful issuance and sale of any security or Award, shall relieve the Company
of any liability in respect of the nonissuance or sale of such securities as to
which requisite authority shall not have been obtained.
(c) RIGHTS AS SHAREHOLDER. A participant under the Plan shall have no
rights as a holder of Common Stock with respect to Awards hereunder, unless and
until certificates for shares of such stock are issued to the participant.
(d) ASSIGNMENT OR TRANSFER. Subject to the discretion of the Board, and
except with respect to Incentive Stock Options which are not transferable except
by will or the laws of descent and distribution, Awards under the Plan or any
rights or interests therein shall be assignable or transferable.
(e) AGREEMENTS. All Awards granted under the Plan shall be evidenced by
written agreements in such form and containing such terms and conditions (not
inconsistent with the Plan) as the Board shall from time to time adopt.
(f) WITHHOLDING TAXES. The Company shall have the right to deduct from
all Awards hereunder paid in cash any federal, state, local or foreign taxes
required by law to be withheld with respect to such awards and, with respect to
awards paid in stock, to require the payment (through withholding from the
participant's salary or otherwise) of any such taxes. The obligation of the
Company to make delivery of Awards in cash or Common Stock shall be subject to
the restrictions imposed by any and all governmental authorities.
(g) NO RIGHTS TO AWARD. No Participant or other person shall have any
right to be granted an Award under the Plan. Neither the Plan nor any action
taken hereunder shall be construed as giving any Participant any right to be
retained in the employ of the Company or any of its subsidiaries or shall
interfere with or restrict in any way the rights of the Company or any of its
subsidiaries, which are hereby reserved, to discharge a Participant at any time
for any reason whatsoever, with or without good cause.
(h) COSTS AND EXPENSES. The costs and expenses of administering the Plan
shall be borne by the Company and not charged to any Award nor to any
Participant receiving an Award.
(i) FUNDING OF PLAN. The Plan shall be unfunded. The Company shall not
be required to establish any special or separate fund or to make any other
segregation of assets to assure the payment of any Award under the Plan.
9. AMENDMENTS AND TERMINATION.
(a)AMENDMENTS. The Board may at any time terminate or from time to time
amend the Plan in whole or in part, but no such action shall adversely affect
any rights or obligations with respect to any Awards theretofore made under the
Plan. However, with the consent of the Participant affected, the Board may
amend outstanding agreements evidencing Awards under the Plan in a manner not
inconsistent with the terms of the Plan.
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(b)SHAREHOLDER APPROVAL. To the extent that Section 422 of the Code, other
applicable law, or the rules, regulations, procedures or listing agreement of
any national securities exchange or quotation system, requires that any
amendment of the Plan be approved by the shareholders of the Company, no such
amendment shall be effective unless and until it is approved by the shareholders
in such a manner and to such a degree as is required.
(c)TERMINATION. Unless the Plan shall theretofore have been terminated as
above provided, the Plan (but not the awards theretofore granted under the Plan)
shall terminate on and no awards shall be granted after July 1, 2007.
10. EFFECTIVE DATE.
The Plan, as amended, is effective on July 1, 1997, the date on which it
was adopted by the Board of Directors of the Company and the holders of the
majority of the Common Stock of the Company.
11. GOVERNING LAW.
The Plan and any agreements entered into thereunder shall be construed and
governed by the laws of the State of California applicable to contracts made
within, and to be performed wholly within, such state, without regard to the
application of conflict of laws rules thereof.
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EXHIBIT 10.15
OPTION CERTIFICATE
(NON-STATUTORY STOCK OPTION)
THIS IS TO CERTIFY that Data Net International, Inc., a California
corporation (the "COMPANY"), has granted to the person named below ("OPTIONEE")
a non-statutory stock option (the "OPTION") to purchase shares of the Company's
Common Stock (the "SHARES") under its 1997 Stock Plan and upon the terms and
conditions as follows:
Name of Optionee:
-------------------------------------
Address of Optionee:
-------------------------------------
-------------------------------------
-------------------------------------
Number of Shares:
-------------------------------------
Option Exercise Price: $ per share
---------
Date of Grant:
--------------
Option Expiration Date:
--------------
EXERCISE SCHEDULE: The Option shall become exercisable as follows:
One quarter (1/4) of the options shall vest on July 1, 1998. The remaining
three quarters (3/4) shall vest on the first day of each calendar month for
thirty five (35) months thereafter in 35 equal installments of one-thirty sixth
(1/36) of the remaining shares rounded down to the nearest whole share, and all
remaining shares shall vest on July 1, 2001.
SUMMARY OF OTHER TERMS: This Option is defined in the Stock Option
Agreement (Non-statutory Stock Option) (the "OPTION AGREEMENT") which is
attached to this Option Certificate (the "CERTIFICATE") as Annex I. This
Certificate summarizes certain of the provisions of the Option Agreement for
your information, but is not complete. Your rights are governed by the Option
Agreement, NOT by this summary. The Company strongly suggests that you
carefully review the full Option Agreement prior to signing this Certificate or
exercising the Option.
<PAGE>
Among the terms of the Option Agreement are the following:
EMPLOYMENT: The Option Agreement does not obligate the Company to retain
you for any period of time. Unless otherwise agreed IN WRITING, the Company
reserves the right to terminate any employee at any time, with or without
cause. See Section 5(d) of the Option Agreement.
TERMINATION OF EMPLOYMENT: While the Option terminates on the Option
Expiration Date, it will terminate earlier if you cease to be employed by the
Company. If your employment ends due to death or permanent disability, the
Option terminates six months after the date of death or disability, and is
exercisable during such six-month period as to the portion of the Option
which had vested prior to the date of death or disability. In all other
cases, the Option terminates 30 days after the date of termination of
employment, and is exercisable during such time period as to the portion of
the Option which had vested prior to the date of termination of employment;
PROVIDED, HOWEVER, if you are terminated "for cause," the Option will
terminate 5 days after the date of termination of your employment and is
exercisable during such time period as to the portion of the Option which had
vested prior to the date of termination of employment. See Section 5 of the
Option Agreement.
TRANSFER: The Option is personal to you, and cannot be sold,
transferred, assigned or otherwise disposed of to any other person, except on
your death. See Section 15(d) of the Option Agreement.
EXERCISE: You can exercise the Option (once it is exercisable), in whole
or in part, by delivering to the Company a Notice of Exercise identical to
Exhibit "A" attached to the Option Agreement, accompanied by payment of the
Exercise Price for the Shares to be purchased. The Company will then issue a
certificate to you for the Shares you have purchased. You are under no
obligation to exercise the Option. See Section 4 of the Option Agreement.
MARKET STAND-OFF: The Option provides that in connection with any
underwritten public offering by the Company, you may not sell or transfer any
of your Shares without the prior written consent of the Company or its
underwriters for a period of up to 180 days after the effective date of the
offering. See Section 6(a) of the Option Agreement.
ADJUSTMENTS UPON RECAPITALIZATION: The Option contains provisions which
affect your rights in the event of stock splits, stock dividends, mergers and
other major corporate reorganizations. See Section 7 of the Option Agreement.
WAIVER: By signing this Certificate, you will be agreeing to all of the
terms of the Option Agreement, including those not summarized in this
Certificate. You will waive your rights to options or stock which may
otherwise have been promised to you. See Section 8 of the Option Agreement.
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WITHHOLDING: The Company may require you to make any arrangements
necessary to insure the proper withholding of any amount of tax, if any,
required to be withheld by the Company as a result of the exercise of the
Option. See Section 13 of the Option Agreement.
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AGREEMENT
Data Net International, Inc., a California corporation, and Optionee each
hereby agrees to be bound by all of the terms and conditions of the Stock Option
Agreement (Non-Statutory Stock Option) which is attached hereto as Annex I and
incorporated herein by this reference as if set forth in full in this document.
DATED:
----------------------
DATA NET INTERNATIONAL, INC.
By:
------------------------------------
Its:
-----------------------------------
OPTIONEE
---------------------------------------
Name:
---------------------------------------
(Please print your name exactly as you wish it
to appear on any stock certificates issued to you
upon exercise of the Option)
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ANNEX I
STOCK OPTION AGREEMENT
(NON-STATUTORY STOCK OPTION)
This STOCK OPTION AGREEMENT (this "OPTION AGREEMENT") is made and entered
into as of the execution date of the Option Certificate to which it is attached
(the "CERTIFICATE") by and between Data Net International, Inc., a California
corporation (the "COMPANY"), and the person named in the Certificate
("OPTIONEE").
Pursuant to the Data Net International, Inc. Amended and Restated 1997
Stock Plan (the "PLAN"), the Board of Directors of the Company (the "BOARD")
has authorized the grant to Optionee of a non-statutory stock option to
purchase shares of the Company's Common Stock, no par value (the "COMMON
STOCK"), upon the terms and subject to the conditions set forth in this
Option Agreement and in the Plan.
The Company and Optionee agree as follows:
1. GRANT OF OPTION.
The Company hereby grants to Optionee the right and option (the
"OPTION"), upon the terms and subject to the conditions set forth in this
Option Agreement and the Plan, to purchase all or any portion of that number
of shares of the Common Stock (the "SHARES") set forth in the Certificate at
the Option exercise price set forth in the Certificate (the "EXERCISE PRICE").
2. TERM OF OPTION.
The Option shall terminate and expire on the Option Expiration Date
set forth in the Certificate (the "EXPIRATION DATE"), unless sooner
terminated as provided herein. In no event shall the Option be exercisable
after the expiration of ten years from the date it was granted.
3. EXERCISE PERIOD.
(a) Subject to the provisions of Sections 3(b), 5 and 7(b) of this
Option Agreement, the Option shall become exercisable (in whole or in part)
upon and after the dates set forth under the caption "Exercise Schedule" in
the Certificate. The installments shall be cumulative; i.e., the Option may
be exercised, as to any or all Shares covered by an installment, at any time
or times after the installment first becomes exercisable and until the Option
Expiration Date or the termination of the Option.
<PAGE>
(b) Notwithstanding anything to the contrary contained in this
Option Agreement, the Option may not be exercised, in whole or in part,
unless and until any then-applicable requirements of all federal, state and
local laws and regulatory agencies shall have been fully complied with to the
satisfaction of the Company and its counsel.
4. EXERCISE OF OPTION.
There is no obligation to exercise the Option, in whole or in part.
The Option may be exercised, in whole or in part, only by delivery to the
Company of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Option Agreement stating the number of Shares
then being purchased (the "PURCHASED SHARES");
(b) payment of the Exercise Price of the Purchased Shares, either
(1) in cash, or (2) with the consent of the Board (which may be withheld in
its absolute discretion), by (i) delivery to the Company of other shares of
Common Stock with an aggregate Fair Market Value equal to the total Exercise
Price of the Purchased Shares, (ii) according to a deferred payment or other
arrangement (which may include without limiting the generality of the
foregoing, the use of other shares of Common Stock) with the person to whom
the Option is granted or to whom the Option is transferred pursuant to the
terms of this Option Agreement, or (iii) in any other form of legal
consideration that may be acceptable to the Board; and
(c) if requested by the Company, a letter of investment intent in
such form and containing such provisions as the Company may require.
In the case of any deferred payment arrangement, interest shall be
payable at least annually and shall be payable at the minimum rate of
interest necessary to avoid the imputation of interest, under the applicable
provision of the Internal Revenue Code of 1986, as amended (the "CODE"), and
Treasury Regulations.
Following receipt of the notice and payment referred to above, the
Company shall issue and deliver to Optionee a stock certificate or stock
certificates evidencing the Purchased Shares; PROVIDED, HOWEVER, that the
Company shall not be obligated to issue a fraction or fractions of a share of
its Common Stock, and may pay to Optionee, in cash or by check, the Fair
Market Value of any fraction or fractions of a share exercised by Optionee.
"FAIR MARKET VALUE" shall be determined as follows: (1) if the Common Stock
is listed on any established stock exchange or a national market system,
including without limitation the Nasdaq National Market, the Fair Market
Value of a share of Common Stock shall be the closing sales price for such
stock (or the closing bid, if no sales were reported) as quoted on such
system or exchange (or the exchange with the greatest volume of trading in
the Common Stock) on the last market trading day prior to the day of
determination, as reported in the Wall Street Journal or such other source as
the Board deems reliable; (2) if the Common Stock is quoted on the Nasdaq
System (but not on the Nasdaq
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National Market) or is regularly quoted by a recognized securities dealer but
selling prices are not reported, the Fair Market Value of a share of Common
Stock shall be the mean between the bid and asked prices for the Common Stock
on the last market trading day prior to the day of determination, as reported
in the Wall Street Journal or such other source as the Board deems reliable;
and (3) in the absence of an established market for the Common Stock, the
Fair Market Value shall be determined in good faith by the Board.
5. TERMINATION OF SERVICES.
(a) If Optionee shall cease to be an officer, director, consultant
or employee of the Company or any "Affiliate" of the Company (as that term is
defined in Rule 501(b) of the Rules and Regulations under the Securities Act
of 1933, as amended (the "1933 ACT")) for any reason other than death or
permanent disability (a "TERMINATING EVENT"), Optionee shall have the right,
subject to the provisions of Section 5(c) below, to exercise the Option at
any time following such Terminating Event until the earlier to occur of (1)
30 days following the date of such Terminating Event and (2) the Expiration
Date. The Option may be exercised following a Terminating Event only to the
extent exercisable as of the date of the Terminating Event. To the extent
unexercised at the end of the period referred to above, the Option shall
terminate. The Board, in its sole and absolute discretion, shall determine
whether or not authorized leaves of absence shall constitute termination of
employment for purposes of this Option Agreement.
(b) If, by reason of death or disability (a "SPECIAL TERMINATING
EVENT"), Optionee shall cease to be an officer, director, consultant or
employee of the Company or any Affiliate, then Optionee, Optionee's executors
or administrators or any person or persons acquiring the Option directly from
Optionee by bequest or inheritance, shall have the right to exercise the
Option at any time following such Special Terminating Event until the earlier
to occur of (1) six months following the date of such Special Terminating
Event and (2) the Expiration Date. The Option may be exercised following a
Special Terminating Event only to the extent exercisable at the date of the
Special Terminating Event. To the extent unexercised at the end of the
period referred to above, the Option shall terminate. For purposes of this
Option Agreement, "disability" shall mean total and permanent disability as
defined in Section 22(e)(3) of the Code. Optionee shall not be considered
permanently disabled unless he furnishes proof of such disability in such
form and manner, and at such times, as the Board may from time to time
require.
(c) If Optionee's employment shall be terminated "for cause" by the
Company or any Affiliate, Optionee shall have the right to exercise the
Option at any time following such Terminating Event until the earlier to
occur of (1) 5 days following the date of such Terminating Event and (2) the
Expiration Date. For purposes of this Option Agreement, "for cause" shall
mean:
(1) with respect to employees of the Company or any Affiliate
the following to the extent it results in substantial harm to the Company or
any Affiliate or could reasonably be expected to result in substantial harm
to the Company or any Affiliate:
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(i) the willful failure or refusal by Optionee to perform
his duties to the Company or any Affiliate; or
(ii) Optionee's willful disobedience of any orders or
directives of the Board of Directors of the Company or any Affiliate or any
officers thereof acting under the authority thereof or Optionee's deliberate
interference with the compliance by other employees of the Company or any
Affiliate with any such orders or directives; or
(iii) the willful failure or refusal of Optionee to abide
by or comply with the written policies, standard procedures or regulations of
the Company or any Affiliate; or
(iv) any willful or continued act or course of conduct by
Optionee which the Board in good faith determines might reasonably be
expected to have a material detrimental effect on the Company or any
Affiliate or their respective business, operations, affairs or financial
position; or
(v) the committing by the Optionee of any fraud, theft,
embezzlement or other dishonest act against the Company or any Affiliate; or
(vi) the determination by the Board, in good faith and in
the exercise of reasonable discretion, that Optionee is not competent to
perform his duties of employment; and
(2) with respect to consultants, any material breach of their
consulting agreement with the Company or any Affiliate.
(d) Nothing in the Plan, the Certificate or this Option Agreement
shall confer upon Optionee any right to continue in the service and/or employ
of the Company or any Affiliate or shall affect the right of the Company or
any Affiliate to terminate the relationship or employment of Optionee, with
or without cause.
6. RESTRICTIONS ON PURCHASED SHARES.
(a) MARKET STAND-OFF.
(1) In connection with any underwritten public offering by the
Company of its equity securities pursuant to an effective registration
statement filed under the 1933 Act, including the Company's initial public
offering, Optionee shall not sell, make any short sale of, loan, hypothecate,
pledge, grant any option for the purchase of, or otherwise dispose or
transfer for value or otherwise agree to engage in any of the foregoing
transactions with respect to any Purchased Shares without the prior written
consent of the Company or its underwriters, for such period of time from and
after the effective date of such registration statement as may be requested
by the Company or such underwriters; PROVIDED, HOWEVER, that in no event
shall such period exceed 180 days. This Section 6(a)(1) shall only remain in
effect for the two-year period
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<PAGE>
immediately following the effective date of the Company's initial public
offering and shall thereafter terminate and cease to be in force or effect.
Optionee agrees to execute and deliver to the Company such further documents
or instruments as the Company reasonably determines to be necessary or
appropriate to effect the provisions of this Section 6(a).
(2) In the event of any stock dividend, stock split,
recapitalization or other transaction resulting in an adjustment under
Section 7 hereof, then any new, substituted or additional securities or other
property which is by reason of such transaction distributed with respect to
or in exchange for the Purchased Shares shall be immediately subject to the
provisions of this Section 6(a), to the same extent the Purchased Share are
at such time covered by such provisions.
(3) In order to enforce the provisions of Section 6(a), the
Company may impose stop-transfer instructions with respect to the Purchased
Shares until the end of the applicable stand-off period.
(b) SECURITIES LAW RESTRICTIONS. In the event that the issuance of
the Purchased Shares shall not be registered under the 1933 Act, none of the
Purchased Shares shall be sold, transferred, assigned, pledged, hypothecated
or otherwise disposed of ("TRANSFERRED") (with or without consideration), and
the Company shall not be required to register any such sale, transfer,
assignment, pledge, hypothecation or other disposition ("TRANSFER") and the
Company may instruct its transfer agent not to register any such Transfer,
unless and until one of the following events shall have occurred:
(1) The Purchased Shares are Transferred pursuant to and in
conformity with (i) an effective registration statement filed with the
Securities and Exchange Commission (the "COMMISSION") pursuant to the 1933
Act, and (ii) the qualification and/or registration requirements under any
applicable securities laws of any state of the United States; or
(2) Optionee has, prior to the Transfer of such Purchased
Shares, and if requested by the Company, provided all relevant information to
the Company's counsel so that upon the Company's request, the Company's
counsel is able to, and actually prepares and delivers to the Company a
written opinion that the proposed Transfer (i) is exempt from registration
under the 1933 Act as then in effect, and the Rules and Regulations of the
Commission thereunder, and (ii) is exempt from qualification and/or
registration under any applicable state securities laws. The Company shall
bear all reasonable costs of preparing such opinion.
(c) NONCOMPLYING TRANSFERS INVALID. Any attempted Transfer which
is not in full compliance with this Section 6 shall be null and void AB INITIO,
and of no force or effect.
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7. ADJUSTMENTS UPON RECAPITALIZATION.
(a) Subject to the provisions of Section 7(b), if any change is
made in the Common Stock, without receipt of consideration by the Company or
its shareholders (through merger, consolidation, reorganization,
recapitalization, reincorporation, stock dividend, dividend in property other
than cash, stock split, liquidating dividend, combination of shares, exchange
of shares, change in corporate structure or other transaction not involving
the receipt of consideration by the Company or its shareholders), the Option
will be appropriately adjusted in the class(es) and number of shares and
price per share of stock subject to the Option. Such adjustments shall be
made by the Board, the determination of which shall be final, binding and
conclusive. The conversion of any convertible securities of the Company
shall not be treated as a change "without the receipt of consideration by the
Company or its shareholders."
(b) In the event of: (1) a dissolution, liquidation or sale of
substantially all of the assets of the Company; (2) a merger or consolidation
in which the Company is not the "surviving corporation" (as defined below);
or (3) a merger in which the Company is the surviving corporation but the
shares of the Common Stock outstanding immediately preceding the merger are
converted by virtue of the merger into other property, whether in the form of
securities, cash or otherwise, then, at the sole discretion of the Board and
to the extent permitted by applicable law, the Option shall (i) terminate
upon such event and may be exercised prior thereto to the extent the Option
is then exercisable or (ii) continue in full force and effect and, if
applicable, the surviving corporation or an Affiliate of such surviving
corporation shall assume the Option and/or shall substitute a similar option
or award in place of the Option.
(c) To the extent that the foregoing adjustments relate to stock or
securities of the Company, such adjustments shall be made by the Board, and
its determination shall be final, binding and conclusive.
(d) The provisions of this Section 7 are intended to be exclusive,
and Optionee shall have no other rights upon the occurrence of any of the
events described in this Section 7.
(e) The grant of the Option shall not affect in any way the right
or power of the Company to make 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.
(f) The determination as to which party is a "surviving
corporation" in a merger or consolidation shall be made on the basis of the
relative equity interests of the shareholders in the corporation existing
after the merger or consolidation, as follows: If following any merger or
consolidation the holders of outstanding voting securities of the Company
prior to the merger or consolidation own equity securities possessing more
than 50% of the voting power of the corporation existing after the merger or
consolidation, then for purposes of the Option
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Agreement, the Company shall be the surviving corporation. In all other
cases, the Company shall not be the surviving corporation.
8. WAIVER OF RIGHTS TO PURCHASE STOCK.
By signing this Option Agreement, Optionee acknowledges and agrees
that neither the Company nor any other person or entity is under any
obligation to sell or transfer to Optionee any option or equity security of
the Company, other than the Shares subject to the Option and any other right
or option to purchase Common Stock which was previously granted in writing to
Optionee by the Board. By signing this Option Agreement, Optionee
specifically waives all rights which he or she may have had prior to the date
of this Option Agreement to receive any option or equity security of the
Company.
9. INVESTMENT INTENT.
Optionee represents and agrees that if he or she exercises the
Option in whole or in part, and if at the time of such exercise the Plan
and/or the Purchased Shares have not been registered under the 1933 Act, he
or she will acquire the Shares upon such exercise for the purpose of
investment and not with a view to the distribution of such Shares, and that
upon each exercise of the Option he or she will furnish to the Company a
written statement to such effect.
10. LEGEND ON STOCK CERTIFICATES.
Optionee agrees that all certificates representing the Purchased
Shares will be subject to such stock transfer orders and other restrictions
(if any) as the Company may deem advisable under the rules, regulations and
other requirements of the Commission, any stock exchange upon which the
Common Stock is then listed and any applicable federal or state securities
laws, and the Company may cause a legend or legends to be put on such
certificates to make appropriate reference to such restrictions.
11. NO RIGHTS AS SHAREHOLDER.
Except as provided in Section 7 of this Option Agreement, Optionee
shall have no rights as a shareholder with respect to the Shares until the
date of the issuance to Optionee of a stock certificate or stock certificates
evidencing such Shares. Except as may be provided in Section 7 of this
Option Agreement, 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.
12. MODIFICATION.
Subject to the terms and conditions and within the limitations of the
Plan, the Board (excluding the Optionee) may modify, extend or renew the Option
or accept the surrender of, and
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<PAGE>
authorize the grant of a new option in substitution for, the Option (to
the extent not previously exercised). No modification of the Option shall be
made which, without the consent of Optionee, would alter or impair any rights
of the Optionee under the Option.
13. WITHHOLDING.
(a) The Company shall be entitled to require as a condition of
delivery of any Purchased Shares upon exercise of any Option that the
Optionee agree to remit, at the time of such delivery or at such later date
as the Company may determine, an amount sufficient to satisfy all federal,
state and local withholding tax requirements relating thereto, and Optionee
agrees to take such other action required by the Company to satisfy such
withholding requirements.
(b) With the consent of the Board (excluding the Optionee), and in
accordance with any rules and procedures from time to time adopted by the
Board, Optionee may elect to satisfy his or her obligations under Section
13(a) above by (1) directing the Company to withhold a portion of the Shares
otherwise deliverable (or to tender back to the Company a portion of the
Shares issued where the Optionee (a "SECTION 16(B) RECIPIENT") is required to
report the ownership of the Shares pursuant to Section 16(a) of the
Securities Exchange Act of 1934, as amended, and has not made an election
under Section 83(b) of the Code (a "WITHHOLDING RIGHT")); or (2) tendering
other shares of the Common Stock of the Company which are already owned by
Optionee which in all cases have a Fair Market Value (as determined in
accordance with the provisions of Section 4 hereof) on the date as of which
the amount of tax to be withheld is determined (the "TAX DATE") equal to the
amount of taxes to be paid by such method.
(c) To exercise a Withholding Right, the Optionee must follow the
election procedures set forth below, together with such additional procedures
and conditions set forth in this Option Agreement or otherwise adopted by the
Board:
(1) the Optionee must deliver to the Company a written notice
of election (the "ELECTION") and specify whether all or a stated percentage
of the applicable taxes will be paid in accordance with Section 13(b) above
and whether the amount so paid shall be made in accordance with the "flat"
withholding rates for supplemental wages or as determined in accordance with
Optionee's form W-4 (or comparable state or local form);
(2) unless disapproved by the Board (excluding the Optionee)
as provided in subsection (3) below, the Election once made will be
irrevocable;
(3) no Election is valid unless the Board (excluding the
Optionee) has the right and power, in its sole discretion, with or without
cause or reason therefor, to consent to the Election, to refuse to consent to
the Election, or to disapprove the Election; and if the Board has not
consented to the Election on or prior to the Tax Date, the Election will be
deemed approved; and
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(4) if the Optionee on the date of delivery of the Election to
the Company is a Section 16(b) Recipient, the following additional provisions
will apply:
(i) the Election cannot be made during the six calendar
month period commencing with the date of grant of the Withholding Right (even
if the Option to which such Withholding Right relates has been granted prior
to such date); and
(ii) the Election (and the exercise of the related Option)
must be made either during the period beginning on the third business day
following the date of release for publication of the quarterly or annual
summary statements of sales and earnings of the Company and ending on the
12th business day following such date or at least six calendar months or more
prior to the Tax Date.
14. CHARACTER OF OPTION.
The Option is not intended to qualify as an "incentive stock option"
as that term is defined in Section 422 of the Code.
15. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Optionee shall promptly take all actions and
execute all documents requested by the Company which the Company deems to be
reasonably necessary to effectuate the terms and intent of this Option
Agreement.
(b) NOTICES. All notices, requests, demands and other communications
under this Option Agreement shall be in writing and shall be given to the
parties hereto as follows:
(1) If to the Company, to:
Data Net International, Inc.
1304 John Reed Court
City of Industry, CA 91745
(2) If to Optionee, to the address set
forth on the Certificate,
or at such other address or addresses as may have been furnished by such
either party in writing to the other party hereto. Any such notice, request,
demand or other communication shall be effective (i) if given by mail, 72
hours after such communication is deposited in the mail by first-class
certified mail, return receipt requested, postage prepaid, addressed as
aforesaid, or (ii) if given by any other means, when delivered at the address
specified in this subsection (b).
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(c) TRANSFER OF RIGHTS UNDER THIS OPTION AGREEMENT. The Company
may at any time transfer and assign its rights and delegate its obligations
under this Option Agreement to any other person, corporation, firm or entity,
including its officers, directors and stockholders, with or without
consideration.
(d) OPTION NON-TRANSFERABLE. Optionee may not Transfer the Option
except by will or the laws of descent and distribution, and the Option may be
exercised during the lifetime of Optionee only by Optionee or by his or her
guardian or legal representative in the case of a disability, and upon
Optionee's death only by his or her Estate or by any person who acquired the
Option by bequest or inheritance or by reason of the death of Optionee.
(e) SUCCESSORS AND ASSIGNS. Except to the extent specifically
limited by the terms and provisions of this Option Agreement, this Option
Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors, assigns, heirs and personal
representatives.
(f) GOVERNING LAW. THIS OPTION AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE, EXCEPT TO THE
EXTENT PREEMPTED BY FEDERAL LAW, WHICH SHALL TO THAT EXTENT GOVERN.
(g) INCORPORATION OF PLAN BY REFERENCE. This Option is granted
pursuant to the terms of the Plan, the terms of which are incorporated herein
by reference, and it is intended that this Option Agreement shall be
interpreted in a manner to comply therewith. Any provision of this Option
Agreement inconsistent with the Plan shall be superseded and governed by the
Plan.
(h) A COMMITTEE. As provided in the Plan, the Board may delegate
administration of the Plan and this Option Agreement to a committee (the
"COMMITTEE"). If administration is delegated to a Committee, the Committee
shall have, in connection with the this Option Agreement, the powers
theretofore possessed by the Board (and references in this Option Agreement
to the Board shall thereafter be to the Committee).
(i) MISCELLANEOUS. Titles and captions contained in this Option
Agreement are inserted for convenience of reference only and do not
constitute a part of this Option Agreement for any other purpose. Except as
specifically provided herein, neither this Option Agreement nor any right
pursuant hereto or interest herein shall be assignable by any of the parties
hereto without the prior written consent of the other party hereto.
THE SIGNATURE PAGE TO THIS OPTION AGREEMENT CONSISTS OF THE LAST PAGE
OF THE CERTIFICATE.
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Exhibit "A"
NOTICE OF EXERCISE
(To be signed only upon exercise of the Option)
To: Data Net International, Inc.
The undersigned, the holder of the enclosed Stock Option Agreement
(Non-Statutory Stock Option), hereby irrevocably elects to exercise the
purchase rights represented by the Option and to purchase thereunder _______*
shares of Common Stock of Data Net International, Inc. (the "COMPANY"), and
herewith encloses payment of $__________ and/or _________ shares of the
Company's Common Stock in full payment of the purchase price of such shares
being purchased.
Dated:
---------------------------------
---------------------------------------
(Signature must conform in all respects
to name of holder as specified on the
face of the Option)
---------------------------------------
(Please Print Name)
---------------------------------------
(Address)
* Insert here the number of Shares called for on the face of the Option
(or, in the case of a partial exercise, the number of Shares being exercised),
in either case without making any adjustment for additional Common Stock of the
Company, other securities or property which, pursuant to the adjustment
provisions of the Option, may be deliverable upon exercise.
<PAGE>
EXHIBIT 10.16
WARRANT AGREEMENT
This WARRANT AGREEMENT (this "Agreement") is made and entered into as of
the 23rd day of December, 1997 by and between CUMETRIX, Inc.. a California
corporation (the "Company"), and Troop Meisinger Steuber & Pasich, LLP
("Holder").
RECITALS
WHEREAS, the Company has retained the Holder to render professional
legal services in connection with a contemplated public offering of the
common stock (the "Offering") of the Company; and
WHEREAS, the Company desires and the Holder accepts the Warrant (as
defined below) as partial consideration for the services rendered by the
Holder in connection with the Offering.
In consideration of these premises and the mutual covenants and
agreements hereinafter set forth, and other good and valuable consideration
the receipt and sufficiency of which are hereby acknowledged, the Company and
Holder agree as follows:
1. GRANT OF WARRANT.
In consideration of the sum of $45.00 ($0.001 per Warrant), the Company
hereby grants to Holder the right and option (the "Warrant"), upon the terms
and subject to the conditions set forth in this Agreement, to purchase all or
any portion of 45,000 shares of the Common Stock no par value of the Company
(the "Warrant Shares") at an exercise price of $3.00 per share (the "Exercise
Price").
2. TERM OF WARRANT.
The Warrant shall terminate and expire at 5:00 p.m., Los Angeles time,
on December 31, 2002 (the "Warrant Expiration Date"), unless sooner
terminated as provided herein.
3. VESTING.
(a) The Warrant is immediately exercisable with respect to all
45,000 shares of Common Stock.
(b) Notwithstanding anything to the contrary contained in this
Agreement, the Warrant may not be exercised, in whole or in part, unless and
until any then-applicable requirements of all state and federal laws and
regulatory agencies shall have been fully complied with to the satisfaction
of the Company and its counsel.
4. EXERCISE OF WARRANT.
<PAGE>
There is no obligation to exercise the Warrant, in whole or in part. The
Warrant may be exercised, in whole or in part, only by delivery to the Company
of:
(a) written notice of exercise in form and substance identical to
Exhibit "A" attached to this Agreement stating the number of Warrant Shares then
being purchased (the "Purchased Shares"); and
(b) payment of the Exercise Price of the Purchased Shares in cash, by
check, or by wire transfer.
Upon receipt of the foregoing, the Company shall promptly issue in the name
of the Holder a stock certificate evidencing the Purchased Shares by such
exercise and deliver such certificate to the Holder.
5. RESTRICTIONS ON PURCHASED SHARES.
(a) Each certificate for Purchased Shares initially issued upon the
exercise of the Warrants, shall be stamped or otherwise imprinted with a legend
in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
THE CONDITIONS SPECIFIED IN A CERTAIN WARRANT AGREEMENT
DATED DECEMBER 23, 1997. NO TRANSFER, SALE, PLEDGE,
HYPOTHECATION, ENCUMBRANCE OR OTHER DISPOSITION OF THE
SHARES REPRESENTED BY THIS CERTIFICATE SHALL BE VALID OR
EFFECTIVE UNTIL REGISTERED OR THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL, SATISFACTORY TO IT, THAT THE TRANSACTION
IS EXEMPT FROM REGISTRATION, AND UNTIL SUCH CONDITIONS AS
ARE CONTAINED IN THE WARRANT AGREEMENT HAVE BEEN FULFILLED.
A COPY OF THE FORM OF THE WARRANT AGREEMENT IS ON FILE AT
THE OFFICES OF CUMETRIX, INC. THE HOLDER OF THIS
CERTIFICATE, BY ACCEPTANCE OF THIS CERTIFICATE, AGREES TO BE
BOUND BY THE PROVISIONS OF THE WARRANT AGREEMENT."
If the Purchased Shares are no longer subject to the transfer restrictions
imposed by applicable state and Federal securities law because either (I) the
Purchased Shares or the resale of the Purchased Shares has been registered on a
registration statement declared effective by the Commission, or (ii) in the
reasonable opinion of counsel for the Company, or the opinion of counsel for
Holder, which opinion is reasonably satisfactory to counsel for the Company, all
future dispositions of any of the Purchased Shares by the contemplated
transferee would be exempt from or would satisfy the registration and prospectus
delivery requirements of the Securities Act and the qualification requirements
of the applicable state securities laws, then the restrictions on transfer of
such securities contained in this Section 5(a) shall not apply to any subsequent
transfer thereof and the Company shall, promptly upon request by Holder, remove
the legend set forth
2
<PAGE>
above and shall promptly issue, in exchange for the certificate bearing such
legend, a certificate without such legend to Holder.
(b) HOLDER AGREES THAT THE WARRANT MAY NOT BE TRANSFERRED, SOLD,
ASSIGNED OR HYPOTHECATED EXCEPT (I) TO ITS SUCCESSORS IN A MERGER OR
CONSOLIDATION OR OTHER BUSINESS COMBINATION; (ii) TO PURCHASERS OF ALL OR
SUBSTANTIALLY ALL OF ITS ASSETS; OR (iii) BY OPERATION OF LAW. HOLDER FURTHER
AGREES THAT THE COMPANY SHALL HAVE NO OBLIGATION TO EFFECT ANY TRANSFER OF THE
WARRANTS DURING THE TIME PERIOD REFERRED TO ABOVE, UNLESS THE TRANSFEREE,
PURCHASER, ASSIGNEE OR PLEDGEE, AS THE CASE MAY BE, SHALL HAVE EXECUTED AN
AGREEMENT OBLIGATING THE TRANSFEREE TO COMPLY WITH ALL TERMS AND CONDITIONS OF
THIS AGREEMENT APPLICABLE TO THE TRANSFEROR.
(c) Prior to any exercise of the Warrants or any transfer or
attempted transfer of any of the Warrants or Warrant Shares, the Holder shall
give the Company written notice of Holder's intention so to do, describing
briefly the manner of any such proposed exercise, sale or transfer. The Holder
may effect such exercise or transfer, provided that such exercise or transfer is
not prohibited by this Section 5 and such exercise or transfer complies with all
applicable federal and state securities laws and regulations. If in the
reasonable opinion of counsel for the Company, notwithstanding the opinion of
counsel to a Holder to the contrary, if any, the proposed transfer of such
Warrant Shares or the Warrant may not be effected without registration thereof
under the Securities Act and such registration has not been accomplished, the
Company shall, as promptly as practicable, so notify the Holder and the Holder
shall not consummate the proposed transfer.
(d) The Holder agrees to enter into a lock-up agreement with the
underwriters of the initial public offering of the Company's common stock (the
"IPO") pursuant to which Holder agrees not to sell the Warrant Shares for such
period of time from and after the effective date of such public offering as may
be requested by such underwriters; provided that the term of the lock-up
agreement shall not exceed the term of similar lock-up agreements executed in
favor of the underwriter by the senior officers of the Company.
6. ADJUSTMENTS UPON RECAPITALIZATION.
(a) In the event the Company should at any time or from time to time
after the date of this Warrant (the "Issuance Date") fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive, directly or indirectly, additional shares of Common Stock (hereinafter
referred to as "Common Stock Equivalents") without payment of any consideration
by such holder for the additional shares of Common Stock or the Common Stock
Equivalents (including the additional shares of Common Stock issuable upon
conversion or exercise thereof), then, as of such record date (or the date of
such dividend distribution, split or subdivision if no record date is fixed),
the
3
<PAGE>
Exercise Price shall be appropriately decreased (i.e., the per share Exercise
Price shall be adjusted such that the aggregate exercise price for all
Warrant Shares issuable upon exercise of the Warrants in full, as adjusted,
shall remain the same) and the number of Warrant Shares shall be increased in
proportion to such increase in the aggregate number of shares of Common Stock
outstanding and those issuable with respect to such Common Stock Equivalents.
(b) If the number of shares of Common Stock outstanding at any
time after the Issuance Date is decreased by a combination of the outstanding
shares of Common Stock, then, following the record date of such combination,
the Exercise Price shall be appropriately increased (i.e., the per share
Exercise Price shall be adjusted such that the aggregate exercise price for
all Warrant Shares issuable upon exercise of the Warrants in full, as
adjusted, shall remain the same) and the number of Warrant Shares shall be
decreased in proportion to such decrease in the aggregate number of shares of
Common Stock outstanding and those issuable with respect to such Common Stock
Equivalents.
(c) In case of any capital reorganization, any reclassification of
the Common Stock (other than a change in par value or a recapitalization
described in Section 6(a) or 6(b) of this Agreement), or the consolidation of
the Company with, or a sale of substantially all of the assets of the Company
to (which sale is followed by a liquidation or dissolution of the Company),
or merger of the Company with, another person, the Holder shall thereafter be
entitled upon exercise of the Warrant to purchase the kind and number of
shares of stock or other securities or the amount or value of any cash,
assets or other property receivable upon such event by a holder of the number
of shares of the Common Stock which the Warrant entitles the holder of the
Warrant to purchase from the Company immediately prior to such event; and in
any such case, appropriate adjustment shall be made in the application of the
provisions set forth in this Agreement with respect to the Holder's rights
and interests thereafter, to the end that the provisions set forth in this
Agreement (including the specified changes and other adjustments to the
Exercise Price) shall thereafter be applicable in relation to any shares or
other property thereafter purchasable upon exercise of the Warrant.
(d) In the event the Company should at any time or from time to
time after the Issuance Date fix a record date for the determination of
holders of Common Stock entitled to receive a dividend or other distribution
payable in securities or rights convertible into, or entitling the holder
thereof to receive, directly or indirectly, additional shares of Common Stock
or the securities or such rights of any other corporation (other than Common
Stock Equivalents covered be Section 6(a) hereof), the Holder shall
thereafter be entitled upon exercise of the Warrant to receive, in addition
to the Purchased Shares being purchased upon such exercise, the securities or
rights convertible into securities receivable upon such event by a holder of
the number of shares of the Common Stock which the Holder is purchasing upon
such exercise.
(e) If it is expected that there will occur any event described in
Section 68 or 6(d) hereof, the Company shall give the holder of the Warrants
notice thereof, which notice shall
4
<PAGE>
be given at such time or times as notice is given to the holders of the
Company's Common Stock.
(f) The provisions of this Section 6 are intended to be exclusive,
and the holder of the Warrant shall have no rights other than as set forth in
this Agreement (and the rights of a stockholder upon exercise of the Warrant)
upon the occurrence of any of the events described in this Section 6.
(g) The grant of the Warrant shall not affect in any way the right
or power of the Company to make 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.
7. REPRESENTATIONS AND WARRANTIES OF HOLDER.
Holder makes the following representations and warranties:
(a) Holder is acquiring the Warrants for its own account with the
present intention of holding such securities for investment purposes only and
not with a view to, or for sale in connection with, any distribution of such
securities (other than a distribution in compliance with all applicable federal
and state securities laws).
(b) Holder is an experienced and sophisticated investor and has such
knowledge and experience in financial and business matters that it is capable of
evaluating the relative merits and the risks of an investment in the Warrants
and in the Warrant Shares and of protecting its own interests in connection with
this transaction.
(c) Holder is willing to bear and is capable of bearing the economic
risk of an investment in the Warrants and the Warrant Shares.
(d) The Company has made available, prior to the date of this
Agreement, to Holder the opportunity to ask questions of the Company and its
officers, and to receive from the Company and its officers information
concerning the terms and conditions of the Warrants and this Agreement and to
obtain any additional information with respect to the Company, its business,
operations and prospects, as reasonably requested by Holder.
(e) Holder is an "accredited investor" as that term is defined
under Rule 501(a) of Regulation D promulgated by the Securities and Exchange
Commission under the Act.
(f) For purposes of the application of federal and state
securities laws, Holder acknowledges that the offer and sale of the Warrants
to such Holder occurred in the State of California and that such Holder is a
resident of the State of California.
5
<PAGE>
8. LEGEND ON STOCK CERTIFICATES.
Holder agrees that all certificates representing the Purchased Shares
will be subject to such stock transfer orders and other restrictions as the
Company may deem advisable under the rules, regulations and other
requirements of the Securities and Exchange Commission (the "Commission"),
any stock exchange upon which the Common Stock is then listed and any
applicable federal or state securities laws, and the Company may cause the
following legend to be put on such certificates to make appropriate reference
to such restrictions:
THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE
TRANSFERRED OR OTHERWISE HYPOTHECATED WITHOUT REGISTRATION UNDER SUCH
ACT OR PURSUANT TO AN EXEMPTION THEREFROM.
9. NO RIGHTS AS STOCKHOLDER.
Holder shall have no rights as a stockholder of the Company with respect
to the Warrant Shares until the date of the issuance to Holder of a stock
certificate or stock certificates evidencing such Warrant Shares. Except as
may be provided in Paragraph 6 of this Agreement, 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.
10. MODIFICATION.
The Board or a committee thereof may modify, extend or renew the Warrant
or accept the surrender of, and authorize the grant of a new option in
substitution for, the Warrant (to the extent not previously exercised). No
modification of the Warrant shall be made without the consent of Holder which
would alter or impair any rights of Holder under the Warrant.
11. COVENANTS OF HOLDER AND THE COMPANY.
(a) DEMAND REGISTRATION.
i) At the later to occur of (I) one year following the closing of
any initial public offering of the Company=s securities, and (ii) that date
upon which the Company is eligible to register the Warrant Shares for resale
on a Form S-3, the Holder may deliver a written request (the "Notice")
executed by the Holder and requesting registration of the resale by Holder of
all of the Purchased Shares. As soon as practicable after receipt of the
Notice, the Company shall at its sole cost and expense file a registration
statement with the Commission on Form S-3 or any successor form, under the
Securities Act, covering the issuance of the Warrant Shares issuable to the
Holder upon exercise of the Warrant or the resale of the Warrant Shares
issuable upon
6
<PAGE>
exercise of the Warrant by the Holder. The Company will use its best efforts
to have such registration statement declared effective as soon as possible
thereafter, and shall keep such registration statement current and effective
until such time as the Warrant Shares issuable upon exercise of the Warrant
may be sold by the Holder at any time without restriction or pursuant to the
provisions of Rule 144(k) of the Commission or until such earlier date as all
of the Purchased Shares registered pursuant to such registration statement
shall have been sold or otherwise transferred by the Holder to a third party.
The Company shall also prepare and file with the Commission such amendments
and supplements to such registration statement (and the prospectus used in
connection therewith) as may be necessary to update and keep such
registration statement (and the prospectus used in connection therewith)
current and effective for such three-year period and to comply with the
provisions of the Securities Act with respect to the sale of all securities
covered by such registration statement.
ii) The Company shall not be required to effect a registration
pursuant to this Section 11(a): (I) after the Company has effected one (1)
registration pursuant to this Section 11(a), and such registration has either
(A) been declared or ordered effective or (B) the request for such
registration has been subsequently withdrawn by the Holder (and such
withdrawal is not based on materially adverse information concerning the
Company of which the Holder was not reasonably aware at the time of such
request); or (ii) if the Warrant Shares issuable upon exercise of the Warrant
may be sold by the Holder at any time without restriction or pursuant to the
provisions of Rule 144(k); or (iii) if Form S-3 (or a successor or similar
form) is not available for such offering by the Holder; or (iv) if the
Company shall furnish to the Holder following receipt of his written request
for registration, a certificate signed on behalf of the Board of Directors by
the Chairman of the Board stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
in which event the Company shall have the right to defer such filing for a
period of not more than one hundred eighty (180) days after receipt of the
Holder's request for registration.
(b) PIGGYBACK REGISTRATION OF WARRANT SHARES. If, at any time
during the period commencing on the date that is 180 days from the date upon
which an IPO is declared effective by the Commission and on or before
December 31, December 31, 2003, the Company shall propose to register any
shares of Common Stock (but excluding any shares or securities being
registered pursuant to Form S-8 or Form S-4 or any successor form thereto),
the Company shall (I) give the Holder written notice, or telegraphic,
telecopy or telephonic notice followed as soon as practicable by written
confirmation thereof, of such proposed registration at least 20 business days
prior to the filing of such registration statement and, (ii) upon written
notice, or telegraphic or telephonic notice followed as soon as practicable
by written confirmation thereof, given to the Company by the Holder within 15
days after the giving of such written confirmation or written notice by the
Company, the Company shall include or cause to be included in any such
registration statement all or such portion of the Warrant Shares as the
Holder may request; PROVIDED, HOWEVER, that the Company may at any time
withdraw or cease proceeding with any such registration if it shall at the
same time withdraw or cease proceeding with the registration of the Common
Stock originally proposed to be registered;
7
<PAGE>
and PROVIDED FURTHER, that in connection with any registered public offering
involving an underwriting, the managing underwriter may (if in its reasonable
opinion marketing factors so require) limit the number of securities
(including any Warrant Shares) included in such offering (other than
securities of the Company). In the event of any such limitation, the total
number of Warrant Shares to be offered for the account of the Holder in the
registration shall be reduced in proportion to the respective number of
shares requested to be included therein by all holders of the Company's
Common Stock (other than the Company) entitled to include shares of Common
Stock in the registration to the extent necessary to reduce the total number
of shares proposed to be registered to the number of shares recommended by
the managing underwriter.
(c) COMPANY'S OBLIGATIONS IN REGISTRATION. The following provisions
shall also be applicable at the sole cost and expense of the Company in the case
of registrations under Section 11:
i) Following the effective date of such registration statement,
the Company shall, upon the request of the Holder, forthwith supply such
number of prospectuses meeting the requirements of the Securities Act as
shall be requested by the Holder to permit it to make a public distribution
of all of its Warrant Shares, provided that the Holder shall from time to
time furnish the Company with such appropriate information (relating to the
intentions of the Holder) in connection therewith as the Company shall
request in writing.
ii) the Company shall bear the entire cost and expense of the
registration of securities provided for in this Section (but not the selling
expenses of the Holder).
iii) the Company shall indemnify and hold harmless the Holder from
and against any and all losses, claims, damages and liabilities (including
reasonable fees and expenses of counsel) arising out of or based upon any
untrue statement or alleged untrue statement of a material fact contained in
any registration statement or any prospectus included therein required to be
filed or furnished by reason of this Section or otherwise or in any
application or other filing under, the Securities Act or any other applicable
Federal or state securities law, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein (i.e., in any such registration statement, prospectus, application or
other filing) or necessary to make the statements therein not misleading, to
which such person may become subject, or any violation or alleged violation
by the Company to which such Person may become subject, under the Securities
Act, the Exchange Act, or other Federal or state laws or regulations, at
common law or otherwise, except to the extent that such losses, claims,
damages or liabilities are caused by any such untrue statement or alleged
untrue statement or omission or alleged omission based upon and in strict
conformity with written information furnished to the Company by such person
expressly for use therein; PROVIDED HOWEVER, that the Holder shall at the
same time indemnify the Company, its directors, each officer signing the
related registration statement, and each person, if any, who controls the
Company within the meaning of the Securities Act, from and against any and
all losses, claims, damages and liabilities (including reasonable fees and
expenses of counsel) arising out of or based upon any untrue statement or
alleged untrue statement of a material fact contained in any
8
<PAGE>
registration statement or any prospectus included therein required to be
filed or furnished by reason of this Section, or otherwise or in any
application or other filing under, the Securities Act or any other applicable
Federal or state securities law, or arising out of or based upon any omission
or alleged omission to state therein a material fact required to be stated
therein (i.e., in any such registration statement, prospectus, application or
other filing) or necessary to make the statements therein not misleading, to
which such person may become subject, or any violation or alleged violation
by the Holder to which the Company, its directors, each officer signing the
related registration statement, and each person, if any, who controls the
Company within the meaning of the Securities Act, may become subject, under
the Securities Act, the Exchange Act, or other Federal or state laws or
regulations, at common law or otherwise, to the extent that such losses,
claims, damages or liabilities are caused by any such untrue statement or
alleged untrue statement or omission or alleged omission based upon and in
strict conformity with written information furnished to the Company by the
Holder expressly for use therein.
(d) In the event any person entitled to indemnification hereunder
receives in writing a complaint, claim or other written notice of any loss,
claim, damage, liability or action giving rise to a claim for indemnification
under Section 11(c)(iii), the person claiming indemnification under Section
11(c)(iii) shall promptly notify the person or persons against whom
indemnification is sought (the "Indemnitor") of such complaint, notice, claim
or action, and the Indemnitor shall have the right to investigate and defend
any such loss, claim, damage, liability or action. The person claiming
indemnification shall have the right to employ separate counsel in any such
action and to participate in the defense thereof but the fees and expenses of
such counsel shall not be at the expense of the Indemnitor. In no event
shall the Indemnitor be obligated to indemnify any person for any settlement
of any claim or action effected without the Indemnitor's consent, which
consent shall not be unreasonably withheld.
12. DISPUTES.
(a) ARBITRATION. All disputes arising in connection with this
Agreement shall be finally settled by arbitration in Los Angeles, California,
in accordance with the rules of the American Arbitration Association (the
"Rules of Arbitration") and judgment on the award rendered by the arbitration
panel (the "Arbitration Panel") may be entered in any court or tribunal of
competent jurisdiction.
(b) Any party which desires to initiate arbitration proceedings as
provided in Section 11(a) above may do so by delivering written notice to the
other party (the "Arbitration Notice") specifying (A) the nature of the
dispute or controversy to be arbitrated, (B) the name and address of the
arbitrator appointed by the party initiating such arbitration and -c- such
other matters as may be required by the Rules of Arbitration.
(c) The Parties shall appoint a single arbitrator who shall
constitute the Arbitration Panel hereunder. Should the parties not agree
upon the appointment of the arbitrator within 30 days
9
<PAGE>
of delivery of the Arbitration Notice, the Arbitrator shall be appointed in
accordance with the Rules of Arbitration.
(d) In any arbitration proceeding conducted pursuant to the
provisions of this Section 11, both parties shall have the right to
discovery, to call witnesses and to cross-examine the opposing party's
witnesses, either through legal counsel, expert witnesses or both.
(e) FINALITY OF DECISION. All decisions of the Arbitration Panel
shall be final, conclusive and binding on all parties and shall not be
subject to judicial review. The arbitrator shall divide all costs (other
than fees of counsel) incurred in conducting the arbitration proceeding and
the final award in accordance with what they deem just and equitable under
the circumstances.
(f) LIMITATIONS. Notwithstanding anything to the contrary
contained in Sections 11(a) and 11(b) above, any claim by either party for
injunctive or other equitable relief, including specific performance, may be
brought in any court of competent jurisdiction and any judgment, order or
decree relating thereto shall have precedence over any arbitral award or
proceeding.
13. GENERAL PROVISIONS.
(a) FURTHER ASSURANCES. Holder shall promptly take all actions
and execute all documents requested by the Company which the Company deems to
be reasonably necessary to effectuate the terms and intent of this Agreement.
(b) NOTICES. All notices, requests, demands and other
communications under this Agreement shall be in writing and shall be given to
the parties hereto as follows:
If to the Company, to:
CUMETRIX, Inc.
1304 John Reed Court
City of Industry, CA 91475
Attention: Chief Executive Officer
If to Holder, to the address set
forth in the records of the Company,
or at such other address or addresses as may have been furnished by either party
in writing to the other party hereto. Any such notice, request, demand or other
communication shall be effective (I) if given by mail, two days after such
communication is deposited in the mail by first-class certified mail, return
receipt requested, postage prepaid, addressed as aforesaid, or (ii) if given by
any other means, when delivered at the address specified in this subparagraph
(b).
10
<PAGE>
(c) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND
CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA APPLICABLE
TO CONTRACTS MADE IN, AND TO BE PERFORMED WITHIN, THAT STATE. JURISDICTION
AND VENUE OVER ANY LEGAL ACTION BROUGHT HEREUNDER SHALL RESIDE EXCLUSIVELY IN
THE COUNTY OF LOS ANGELES, STATE OF CALIFORNIA. EACH OF THE PARTIES HERETO
WAIVE THEIR RIGHT TO A JURY TRIAL WITH RESPECT TO ANY SUCH LEGAL ACTIONS.
(d) ATTORNEYS' FEES. In the event that any action, suit or
arbitration or other proceeding is instituted upon any breach of this
Agreement, the prevailing party shall be paid by the other party thereto an
amount equal to all of the prevailing party's costs and expenses, including
attorneys' fees incurred in each and every such action, suit or proceeding
(including any and all appeals or petitions therefrom). As used in this
Agreement, "attorneys' fees" shall mean the full and actual cost of any legal
services actually performed in connection with the matter involved calculated
on the basis of the usual fee charged by the attorney performing such
services and shall not be limited to "reasonable attorneys' fees" as defined
in any statute or rule of court.
(e) AMENDMENT; WAIVER. This Agreement shall be binding upon and
inure to the benefit of the parties to this Agreement and their respective
successors, heirs and personal representatives. No provision of this
Agreement may be amended or waived unless in writing signed by all of the
parties to this Agreement. Waiver of any one provision of this Agreement
shall not be deemed to be a waiver of any other provision.
(f) NO FINDERS. The parties each agree to indemnify and hold
harmless the other against any expense incurred by reason of any consulting,
brokerage commission or finder's fee alleged to be payable to any person in
connection with the transactions contemplated hereby because of any act,
omission or statement of indemnifying party or any dealings by the
indemnifying party with any consultant, broker or finder.
(g) EXPENSES. Each of the parties shall pay its own expenses
incurred in connection with the preparation of this Agreement and the
consummation of the transactions contemplated hereby.
(h) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such a manner as to be effective and valid
under applicable law, but if any provision of this Agreement shall be or
become prohibited or invalid under applicable law, such provision shall be
ineffective to the extent of such prohibition or invalidity without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
(i) COUNTERPARTS. This Agreement may be executed in several
counterparts, all of which together shall constitute one agreement binding on
all parties hereto, notwithstanding that all of the parties have not signed the
same counterpart.
11
<PAGE>
(j) ENTIRE AGREEMENT. This Agreement constitutes and embodies the
entire understanding and agreement of the parties hereto relating to the
subject matter hereof and there are no other agreements or understandings,
written or oral, in effect between the parties relating to such subject
matter except as expressly referred to herein.
(k) MISCELLANEOUS. Titles and captions contained in this
Agreement are inserted for convenience of reference only and do not
constitute a part of this Agreement for any other purpose. Except as
specifically provided herein, neither this Agreement nor any right pursuant
hereto or interest herein shall be assignable by any of the parties hereto
without the prior written consent of the other party hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed as of the date first above written.
CUMETRIX, Inc.
By: /s/ MAX TOGHRAIE
------------------------------------
Max Toghraie
Its: Chief Executive Officer
TROOP MEISINGER STEUBER & PASICH, LLP
By: /s/MURRAY MARKILES
------------------------------------
Murray Markiles, Partner
12
<PAGE>
EXHIBIT "A"
NOTICE OF EXERCISE
(TO BE SIGNED ONLY UPON EXERCISE OF THE WARRANT)
TO: CUMETRIX, INC.
The undersigned hereby irrevocably elects (to the extent indicated herein)
to exercise the purchase right represented by the Warrant granted to the
undersigned on November --, 1997 and to purchase thereunder ___________ shares
of Common Stock of CUMETRIX, Inc., a California corporation (the "Company").
The closing of the exercise of the purchase right shall take place at _____ on
_________________, ____ at the principal executive office of the Company located
at 1304 John Reed Court, City of Industry, CA 91475.
HOLDER
By: _______________________________
Its: _______________________________
13
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
To CUMETRIX DATA SYSTEMS CORP.:
As independent public accountants, we hereby consent to the use of our
report (and to all references to our Firm) included in or made a part of this
registration statement.
ARTHUR ANDERSEN LLP
Los Angeles, California
March 25, 1998
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> MAR-31-1997 MAR-31-1997
<PERIOD-START> APR-01-1996 APR-01-1997
<PERIOD-END> DEC-31-1997 DEC-31-1997
<CASH> 479,796 2,962,821
<SECURITIES> 0 0
<RECEIVABLES> 855,090 3,121,017
<ALLOWANCES> (2,000) (39,800)
<INVENTORY> 331,559 2,723,275
<CURRENT-ASSETS> 1,721,463 8,845,249
<PP&E> 38,912 47,596
<DEPRECIATION> (6,634) (9,481)
<TOTAL-ASSETS> 1,855,241 10,272,214
<CURRENT-LIABILITIES> 1,567,303 8,612,720
<BONDS> 0 0
0 0
0 0
<COMMON> 250,000 999,200
<OTHER-SE> 0 0
<TOTAL-LIABILITY-AND-EQUITY> 1,855,241 10,272,214
<SALES> 25,940,203 49,267,491
<TOTAL-REVENUES> 25,940,203 49,267,491
<CGS> 25,139,001 47,192,956
<TOTAL-COSTS> 25,139,001 47,192,956
<OTHER-EXPENSES> 751,133 1,029,504
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 9,334 13,908
<INCOME-PRETAX> 34,864 1,041,846
<INCOME-TAX> 9,500 416,738
<INCOME-CONTINUING> 25,364 625,108
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 25,364 625,108
<EPS-PRIMARY> 0.01 0.13
<EPS-DILUTED> 0.01 0.13
</TABLE>
<PAGE>
EXHIBIT 99.1
CONSENT OF CHIEF FINANCIAL OFFICER
I, Carl L. Wood, do hereby consent to being named as Chief Financial
Officer of Cumetrix Data Systems Corp., a California corporation (the
"Company"), in the Company's Registration Statement on Form S-1 (the
"Registration Statement") to be filed with the Securities and Exchange
Commission (the "Commission"). I understand that the Registration Statement
is being filed with the Commission in connection with the Company's initial
public offering of Common Stock.
Date: February 5, 1997 /s/ CARL L. WOOD
------------------------
Carl L. Wood
