<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 25, 1999
REGISTRATION NO. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------
DITECH CORPORATION
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
CALIFORNIA (Before
reincorporation)
DELAWARE (After 3661 94-2935531
reincorporation)
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of incorporation or Classification Code Number) Identification
organization) Number)
</TABLE>
------------------
825 E. MIDDLEFIELD ROAD
MOUNTAIN VIEW, CA 94043
(650) 623-1300
(Address, including zip code, and telephone number, including
area code, of registrant's principal executive offices)
------------------
TIMOTHY K. MONTGOMERY, PRESIDENT AND CHIEF EXECUTIVE OFFICER
825 E. MIDDLEFIELD ROAD
MOUNTAIN VIEW, CA 94043
(650) 623-1300
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------
COPIES TO:
ANDREI M. MANOLIU
BRETT D. WHITE NEIL WOLFF
COOLEY GODWARD LLP WILSON SONSINI GOODRICH & ROSATI
FIVE PALO ALTO SQUARE PROFESSIONAL CORPORATION
3000 EL CAMINO REAL 650 PAGE MILL ROAD
PALO ALTO, CA 94306-2155 PALO ALTO, CA 94304
(650) 843-5000 (650) 493-9300
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
AS SOON AS PRACTICABLE AFTER THIS REGISTRATION STATEMENT BECOMES EFFECTIVE.
------------------
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box: / /
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering: / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
<S> <C> <C>
Common Stock, par value $.001 per share............. $36,000,000 $10,008
</TABLE>
(1) Estimated solely for the purpose of calculating the registration fee
pursuant to with Rule 457(o).
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 THAT SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(a) OF
THE SECURITIES ACT OF 1933 OR UNTIL THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(a),
MAY DETERMINE.
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- --------------------------------------------------------------------------------
<PAGE>
SUBJECT TO COMPLETION
MARCH 25, 1999
THE INFORMATION IN THIS PRELIMINARY PROSPECTUS IS NOT COMPLETE AND MAY BE
CHANGED. THESE SECURITIES MAY NOT BE SOLD UNTIL THE REGISTRATION STATEMENT FILED
WITH THE SECURITIES AND EXCHANGE COMMISSION BECOMES EFFECTIVE. THIS PRELIMINARY
PROSPECTUS IS NOT AN OFFER TO SELL THESE SECURITIES NOR DOES IT SEEK OFFERS TO
BUY THESE SECURITIES IN ANY JURISDICTION WHERE THE OFFER OR SALE IS NOT
PERMITTED.
<PAGE>
Shares
[LOGO]
Common Stock
---------
Ditech Corporation is offering all shares. Prior to this offering,
there was no public market for Ditech's common stock. It is currently estimated
that the initial public offering price will be between $ and $
per share. See "Underwriting" for a discussion of the factors used to determine
the initial public offering price.
Ditech intends to apply to have the common stock approved for listing on the
Nasdaq National Market under the symbol "DITC."
INVESTING IN THE COMMON STOCK INVOLVES RISKS.
SEE "RISK FACTORS" BEGINNING ON PAGE 7.
<TABLE>
<CAPTION>
Per Share Total
----------- --------------
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts.............................................. $ $
Proceeds to Ditech.................................................. $ $
</TABLE>
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY OTHER REGULATORY BODY
HAS APPROVED OR DISAPPROVED OF THESE SECURITIES OR PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL
OFFENSE.
Ditech has granted the underwriters the right to purchase up to
additional shares at the public offering price to cover any
over-allotments.
The underwriters are severally underwriting the shares being offered. The
underwriters expect to deliver the shares against payment in Baltimore, Maryland
on , 1999.
BT ALEX. BROWN
BANCBOSTON ROBERTSON STEPHENS
ING BARING FURMAN SELZ LLC
, 1999
<PAGE>
TRADEMARKS:
The name Ditech Corporation appearing in this prospectus is a registered
trademark of Ditech. Ditech has applied for trademarks for the following:
Ditech, the DART acronym, and the wave design logo. This prospectus also
includes trademarks of companies other than Ditech.
2
<PAGE>
DITECH CORPORATION
DITECH ECHO CANCELLATION SOLUTION
VOICE QUALITY IS THE COMPETITIVE DIFFERENCE
[Graphical illustration of telecommunication networks, with a cloud in the
center in which the following words appear:
Cable
Satellite
Wireline
Wireless
Voice-over packet
(Voice-over Internet,
ATM, Frame Relay)
Above the cloud are the words "Circuit Switched Network," and below the
cloud are the words "Packet Switched Network." Leading into the cloud from the
top left is a figure of a person on a telephone with two dotted lines leading to
a vertical line on the right labeled "Echo generated at 2-to-4 conversion
hybrid." Out of this are four dotted lines leading to the right to a box labeled
"Echo Cancellers." Out of this box come four dotted lines to the right to the
upper left portion of the cloud.
At the upper right portion of the cloud is the mirror image of the figures
described in the proceeding paragraph.
Leading into the cloud from the bottom left is a figure of a person on a
telephone with two dotted lines leading to a box on the right labeled "PBX" with
rectangle labeled "Echo Canceller (4SA)" sitting on top of it. Out of this are
two dotted lines leading to a vertical line on the right labeled "Echo generated
at hybrid." Out of this are four dotted lines leading to the right to a box
labeled "Packet Switch (e.g. router)." Out of this come four dotted lines to the
right to the lower left portion of the cloud.
At the lower right portion of the cloud is the mirror image of the figures
described in the proceeding paragraph.]
<TABLE>
<CAPTION>
DITECH PRODUCTS STATUS
<S> <C> <C>
[rectangle representing Echo Canceller (4SA)
an Echo Canceller] (For small office and network environments) Shipping
18T1/E1 Echo Canceller
[box representing (220 T1's in 7 foot rack)
an Echo Canceller] (126 e1's in 2.1m rack) Shipping
[box representing Quad T1 Echo Canceller
an Echo Canceller] (480 T1's in 7 foot rack) Shipping
[box representing Quad E1 Echo Canceller
Echo Canceller] (480 E1's in 2.1m rack) Shipping
[box representing Broadband Echo Canceller (BBEC")
Echo Canceller] (For higher capacity networks) Development
</TABLE>
BENEFITS TO SERVICE PROVIDER
- High capacity
- High performance
- Remote software upgradeability
- Low power consumption
<PAGE>
BUILDING THE NEW PUBLIC NETWORK
DITECH'S OPTICAL SOLUTION
EXPANDING THE NEW OPTICAL NETWORK
[Graphical illustration of a telecommunication network labeled "Long
Distance" represented by a large ring with (i) nine triangles on the ring
representing EDFA optical amplifiers, and (ii) four balls, the lower two of
which are labeled "Switching Center." To the left of the large ring is a box
labeled "SONET/SDH Terminal Packet Switch," underneath which the words "16
Wavelength DWDM Multiplexer System" are found. Out of this box come 16 arrows to
the right to a stack of 16 boxes labeled at the top with a "T" to denote that
they are Transponders. Out of each of these boxes comes an arrow to the right to
a trapezoid labeled "DWDM Mux." Out of this comes one arrow to the large ring.
At the right of the large ring is the mirror image of the figures described in
the proceeding four sentences, except that all arrows continue to go to the
right and the trapezoid labeled "DWDM Mux" is labeled "DWDM DeMux." Above and to
the left of the large ring is the figure of a person at a computer labeled
"Technician" with a dotted line out of the computer leading to two boxes, one of
which is labeled "Network Management System" and one of which is labeled
"Optical Telemetry System (OTS)." Out of these boxes comes a dotted line that
splits into two dotted lines, each leading to a box labeled "OTS." Out of each
of these boxes is a dotted line leading through one of the optical amplifiers on
the top of the large ring, then to a box labeled "Monitor," and them to one of
the optical amplifiers on the bottom of the large ring. In the center of the
large ring are the words "Remote Monitoring and Management."
Below the large ring is a graphical illustration of a telecommunication
network labeled "Local Exchange" represented by a smaller ring with four balls,
each with a different label as follows: "Remote Terminal"; "Central Office";
"Terminal"; "Campus"; and "ISP." Each of the first two balls, which are at the
top of the small ring, has a thick line leading up from it to one of the two
balls on the large ring labeled "Switching Center." To the left of the small
ring is a box labeled "SONET/SDH Terminal Packet Switch," underneath which the
words "4 Wavelength WDM Multiplexer System" are found. Out of this box come 4
arrows to the right to a stack of 4 boxes each labeled with a "T" to denote that
they are Transponders. Out of each of these boxes come an arrow to the right to
a trapezoid labeled "WDM Mux." Out of this comes one arrow to the small ring. At
the right of the small ring is the mirror image of the figures described in the
proceeding four sentences, except that all arrows continue to go to the right
and the trapezoid labeled "WDM Mux" is labeled "WDM DeMux." In the center of the
small ring are the words "Cost-effective, scalable solution."
To the left of the large and small rings and other graphical representations
is a cloud with the words "Voice," "Data," and "Video" in it. The cloud has two
dotted lines coming out of it, each to a box labeled "SONET/SDH Terminal Packet
Switch" on the left side of each of the two rings.]
<TABLE>
<CAPTION>
DITECH PRODUCTS STATUS
<S> <C> <C>
[Triangle] EDFA (optical amplifier) Shipping
Commercially
[Box with "T" in the middle] Transponder Available
Commercially
[Trapazoid] WDM Multiplexer/Demultiplexer Available
[Trapazoid] DWDM Multiplexer/Demultiplexer Development
Commercially
[Box with "OTS" in the middle] Optical Telemetry System (OTS) Available
[Box with "Monitor" in the middle] DWDM Channel Monitor Development
</TABLE>
BENEFITS TO SERVICE PROVIDER
- Cost-effective, scalable solutions
- Interoperable in multivendor networks
- Designed to industry standards
- Remote monitoring and management
<PAGE>
PROSPECTUS SUMMARY
YOU SHOULD READ THE FOLLOWING SUMMARY TOGETHER WITH THE MORE DETAILED
INFORMATION AND FINANCIAL STATEMENTS AND NOTES THERETO APPEARING ELSEWHERE IN
THIS PROSPECTUS.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. THE OUTCOME OF THE
EVENTS DESCRIBED IN THESE FORWARD-LOOKING STATEMENTS IS SUBJECT TO RISKS AND
ACTUAL RESULTS COULD DIFFER MATERIALLY. THE SECTIONS ENTITLED "RISK FACTORS,"
"DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS," "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND "BUSINESS"
CONTAIN A DISCUSSION OF SOME OF THE FACTORS THAT COULD CONTRIBUTE TO THOSE
DIFFERENCES.
DITECH
Ditech designs, develops and markets equipment used in building and
expanding telecommunications and cable communications networks. Our products
fall into two categories, echo cancellation equipment and optical communications
subsystems. Our echo cancellation products eliminate echo, which is a
significant problem in existing and emerging networks. Echo results from speech
signals that are reflected back to the speaker during a telephone call, making
conversation difficult. This effect is most pronounced when two people are
talking over long distance, satellite, cellular, PCS or packetized networks. Our
echo cancellation products use a software-intensive architecture coupled with
one of the latest commercially available digital signal processors ("DSPs") to
cancel echo and enhance the quality of voice communications. To date, the vast
majority of our revenue has been derived from sales of our echo cancellation
products. Our optical communications subsystem products enable the
implementation of wavelength division multiplexing ("WDM") technology, which is
becoming more widely adopted by service providers to address network capacity
constraints. Ditech's optical communications subsystem products are designed to
function either as stand-alone products or as a complete system known as the
Optical Path Solution.
Service providers, struggling to meet the demands of increasing traffic,
also face intense competition as worldwide deregulation and privatization have
enabled new players to enter the market. Growing numbers of service providers
are both expanding legacy infrastructures and building out new networks.
Consequently, traffic that was previously carried through the network of a
single service provider, is now routed through the networks of multiple service
providers. These networks are comprised of equipment from several different
vendors that must carry traffic over existing and emerging infrastructures. This
added complexity makes it more difficult to ensure network reliability and
service quality. Service providers, operating in an increasingly competitive
industry, must cost-effectively meet these challenges or lose business to
competitors who can.
Our objective is to become a leading provider of echo cancellation and
optical communications subsystem products required to cost-effectively build and
manage the telecommunications networks of the twenty-first century. Key elements
of our strategy include the following:
- Extend technology leadership;
- Increase optical communications subsystem products growth;
- Expand and leverage distribution channels;
- Strengthen existing and develop new customer relationships;
- Deliver cost-effective solutions; and
- Expand outsourced manufacturing.
We have established a direct sales force that sells to our customers in the
United States and internationally. We also intend to expand the use of sales
agents, systems integrators, original equipment manufacturers ("OEMs") and
distributors to sell and market our products internationally.
3
<PAGE>
More than fifty companies purchased our products in fiscal 1999. Our top ten
customers for that period are Qwest/LCI, Frontier Communications, MCI Worldcom,
GTE Telecom, Facilicom, GCI, GST, Ericsson Venezuela, RSL, and Electronica
Multimedia.
Ditech was originally incorporated as Phone Info, Inc. in July 1983 and
subsequently changed its name to Automated Call Processing Corporation, Inc. In
March 1997, Automated Call Processing sold portions of its business and was
merged with Ditech Corporation, its wholly-owned subsidiary, and the surviving
entity was renamed Ditech Corporation. Ditech will reincorporate in Delaware
prior to the closing of this offering. Our principal offices are located at 825
E. Middlefield Road, Mountain View, California 94043, and our telephone number
is (650) 623-1300.
4
<PAGE>
THE OFFERING
<TABLE>
<CAPTION>
<S> <C>
Shares offered by Ditech.............................. shares
Shares to be outstanding after the offering........... shares (1)
Use of proceeds....................................... Approximately $19.6 million (projected balance at
April 30, 1999) to redeem Ditech's outstanding
Series A Preferred Stock, $2.96 million to complete
the acquisition of technology, $[ ] to repay
bank debt, and the balance for general corporate
purposes
Proposed Nasdaq National Market symbol................ DITC
</TABLE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED APRIL 30, JANUARY 31,
-------------------------------------------- ---------------
1995
------ 1996 1997 1998 1998 1999
------- ------- ------- ------ -------
1994 (UNAUDITED)
---------
(UNAUDITED)
(UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue..................................................... $10,764 $7,979 $14,354 $14,066 $12,326 $8,687 $18,025
Cost of goods sold.......................................... 5,430 3,793 7,164 6,790 5,651 4,029 8,588
--------- ------ ------- ------- ------- ------ -------
Gross profit.............................................. 5,334 4,186 7,190 7,276 6,675 4,658 9,437
--------- ------ ------- ------- ------- ------ -------
Operating expenses:
Sales and marketing....................................... 396 563 1,041 1,521 2,405 1,438 4,104
Research and development.................................. 361 514 1,040 1,072 2,367 1,657 2,850
General and administrative................................ 205 243 536 714 1,279 923 1,622
--------- ------ ------- ------- ------- ------ -------
Total operating expenses................................ 962 1,320 2,617 3,307 6,051 4,018 8,576
--------- ------ ------- ------- ------- ------ -------
Income from operations...................................... 4,372 2,866 4,573 3,969 624 640 861
Other income (expense), net................................. -- -- (5) (104) (593) (458) (398)
--------- ------ ------- ------- ------- ------ -------
Income from continuing operations before income taxes....... 4,372 2,866 4,568 3,865 31 182 463
Provision for income taxes.................................. 1,705 1,245 1,776 1,522 24 73 186
--------- ------ ------- ------- ------- ------ -------
Income from continuing operations........................... 2,667 1,621 2,792 2,343 7 109 277
Discontinued operations:
Income (loss) from operations (2)......................... 390 (848 ) (1,413) (2,751) -- -- --
Gain on disposal (2)...................................... -- -- -- 2,843 -- -- --
--------- ------ ------- ------- ------- ------ -------
Net income.................................................. 3,057 773 1,379 2,435 7 109 277
Accretion of mandatorily redeemable preferred stock to
redemption value.......................................... -- -- -- 187 1,374 1,030 1,115
--------- ------ ------- ------- ------- ------ -------
Net income (loss) attributable to common stockholders....... $ 3,057 $773 $ 1,379 $ 2,248 $(1,367) $ (921) $ (838)
--------- ------ ------- ------- ------- ------ -------
--------- ------ ------- ------- ------- ------ -------
Per share data (3)
Basic
Income (loss) from continuing operations................ $ 0.05 $0.04 $ 0.07 $ 0.06 $ (0.30) $(0.20) $ (0.16)
Discontinued operations................................. 0.01 (0.02 ) (0.04) 0.00 -- -- --
--------- ------ ------- ------- ------- ------ -------
Net income (loss) per share............................. $ 0.06 $0.02 $ 0.03 $ 0.06 $ (0.30) $(0.20) $ (0.16)
--------- ------ ------- ------- ------- ------ -------
--------- ------ ------- ------- ------- ------ -------
Diluted
Income (loss) from continuing operations................ $ 0.05 $0.04 $ 0.07 $ 0.06 $ (0.30) $(0.20) $ (0.16)
Discontinued operations................................. 0.01 (0.02 ) (0.04) 0.00 -- -- --
--------- ------ ------- ------- ------- ------ -------
Net income (loss) per share............................. $ 0.06 $0.02 $ 0.03 $ 0.06 $ (0.30) $(0.20) $ (0.16)
--------- ------ ------- ------- ------- ------ -------
--------- ------ ------- ------- ------- ------ -------
Number of shares used in per share calculations (3)
Basic..................................................... 48,616 41,854 41,854 37,158 4,592 4,582 5,170
--------- ------ ------- ------- ------- ------ -------
--------- ------ ------- ------- ------- ------ -------
Diluted................................................... 48,616 41,854 42,407 37,836 4,592 4,582 5,170
--------- ------ ------- ------- ------- ------ -------
--------- ------ ------- ------- ------- ------ -------
Pro forma data
Net loss per share--basic and diluted..................... $ (0.10) $ (0.05)
------- -------
------- -------
Shares used in per share calculations--basic and
diluted................................................. 10,852 11,430
------- -------
------- -------
</TABLE>
5
<PAGE>
<TABLE>
<CAPTION>
JANUARY 31, 1999
--------------------------------
ACTUAL AS ADJUSTED(4)
--------- ---------------------
(UNAUDITED)
<S> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................................................... $ 4,724 $
Total assets............................................................................ 21,714
Long-term debt.......................................................................... 6,830
Total stockholders' deficit............................................................. (23,499)
</TABLE>
- ------------------------------
(1) Based on number of shares outstanding on January 31, 1999, assuming
conversion of the Series B Preferred Stock. Excludes 973,733 shares of
common stock issuable upon exercise of outstanding options at a weighted
average exercise price of $0.85 per shares, and 793,662 shares of common
stock reserved for issuance pursuant to our 1998 Stock Option Plan, in each
case at January 31, 1999.
(2) See Note 3 of notes to the financial statements included elsewhere in this
prospectus.
(3) Both basic and diluted earnings per share for fiscal 1998 and the nine
months ended January 31, 1999 are based on reported net income less the
accretion on our outstanding Series A and Series B Preferred Stock of $1.4
million and $1.1 million in fiscal 1998 and the nine months ended January
31, 1999, respectively. This reduction in earnings per share will not occur
after this offering because the Series A Preferred Stock will be redeemed
and the Series B Preferred Stock will be converted to common stock at the
closing of the offering. See Note 2 of notes to the financial statements
included elsewhere in this prospectus.
(4) As adjusted to reflect the receipt and application of the net proceeds from
the sale of common stock in this offering, after deducting estimated
underwriting discounts and estimated offering expenses. See "Use of
Proceeds."
UNLESS OTHERWISE INDICATED, ALL INFORMATION INCLUDED IN THIS PROSPECTUS
ASSUMES: (I) THE REINCORPORATION OF DITECH FROM CALIFORNIA TO DELAWARE; (II) THE
REDEMPTION OF ALL OF DITECH'S OUTSTANDING SERIES A PREFERRED STOCK AND SERIES C
PREFERRED STOCK AND CONVERSION OF ALL OF DITECH'S SERIES B PREFERRED STOCK TO
COMMON STOCK TO OCCUR SIMULTANEOUSLY WITH THE CLOSING OF THIS OFFERING; AND
(III) NO EXERCISE OF THE UNDERWRITERS' OVER-ALLOTMENT OPTION. AS USED IN THIS
PROSPECTUS, UNLESS THE CONTEXT OTHERWISE REQUIRES, THE TERM "DITECH" REFERS TO
DITECH, A DELAWARE CORPORATION, ITS PREDECESSOR CALIFORNIA CORPORATION, AND ITS
PREDECESSORS AND SUBSIDIARIES.
6
<PAGE>
RISK FACTORS
THIS OFFERING INVOLVES A HIGH DEGREE OF RISK. YOU SHOULD CAREFULLY CONSIDER
THE RISKS AND UNCERTAINTIES DESCRIBED BELOW AND THE OTHER INFORMATION IN THIS
PROSPECTUS BEFORE DECIDING WHETHER TO INVEST IN SHARES OF OUR COMMON STOCK. IF
ANY OF THE FOLLOWING RISKS ACTUALLY OCCUR, OUR BUSINESS, FINANCIAL CONDITION OR
OPERATING RESULTS COULD BE MATERIALLY ADVERSELY AFFECTED. THIS COULD CAUSE THE
TRADING PRICE OF OUR COMMON STOCK TO DECLINE, AND YOU MAY LOSE PART OR ALL OF
YOUR INVESTMENT.
THIS PROSPECTUS ALSO CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS THAT
INVOLVE RISKS AND UNCERTAINTIES. THESE STATEMENTS RELATE TO OUR FUTURE PLANS,
OBJECTIVES, EXPECTATIONS AND INTENTIONS. THESE STATEMENTS MAY BE IDENTIFIED BY
THE USE OF WORDS SUCH AS "EXPECTS," "ANTICIPATES," "INTENDS," "PLANS" AND
SIMILAR EXPRESSIONS. OUR ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE
DISCUSSED IN THESE STATEMENTS. FACTORS THAT COULD CONTRIBUTE TO THESE
DIFFERENCES INCLUDE THOSE DISCUSSED BELOW AND ELSEWHERE IN THIS PROSPECTUS.
WE DEPEND ON A LIMITED NUMBER OF CUSTOMERS FOR OUR PRODUCTS, THE LOSS OF ANY ONE
OF WHICH COULD CAUSE OUR REVENUE TO DECREASE
Our revenue historically has come from a small number of customers. A
customer may stop buying our products or significantly reduce its orders for our
products for a number of reasons including consolidation in its industry. If
this happens, our business would be materially and adversely affected. Over 75%
of our revenue came from our five largest customers in the first nine months of
fiscal 1999 and in fiscal 1998. Qwest/LCI accounted for 51% of our revenue in
the first nine months of fiscal 1999, and 42% of our revenue in fiscal 1998. Our
four next largest customers accounted collectively for 25% of our revenue in the
first nine months of fiscal 1999 and 38% of our revenue in fiscal 1998. MCI
accounted for $7.6 million, or more than 50%, of our revenue in fiscal 1997, but
only $1.4 million, or approximately 11%, of our revenue in fiscal 1998. This
reduction began shortly before the acquisition of MCI by Worldcom.
OUR OPERATING RESULTS HAVE FLUCTUATED SIGNIFICANTLY IN THE PAST, AND WE
ANTICIPATE THAT THEY MAY CONTINUE TO DO SO IN THE FUTURE, WHICH COULD ADVERSELY
AFFECT OUR STOCK PRICE
Our quarterly operating results have fluctuated significantly in the past
and may fluctuate in the future as a result of several factors, some of which
are outside of our control. If revenue declines in a quarter, our operating
results will be adversely affected because many of our expenses are relatively
fixed. In particular, sales and marketing, research and development and general
and administrative expenses do not change significantly with variations in
revenue in a quarter.
OUR REVENUE MAY VARY FROM PERIOD TO PERIOD. Factors that could cause our
revenue to fluctuate from period to period include:
- the timing or cancellation of orders from, or shipments to, existing and
new customers;
- the timing of new product and service introductions by us, our customers,
our partners or our competitors;
- competitive pressures;
- variations in the mix of products offered by us; and
- variations in our sales or distribution channels.
In particular, sales of our echo cancellation products, which historically
have accounted for the vast majority of our revenue, have typically come from
our major customers ordering large quantities when they deploy a switching
center. Consequently, we may get one or more large orders in
7
<PAGE>
one quarter from a customer and then no orders the next quarter. As a result,
our revenue may vary significantly from quarter to quarter.
In addition, the sales cycle for our products is typically lengthy. Before
ordering our products our customers perform significant technical evaluations,
which typically last up to 90 days in the case of our echo cancellation products
and up to 180 days in the case of our optical communications products. Once an
order is made, delivery times can vary depending on the product ordered, with
delivery times for optical communications products exceeding those for our echo
cancellation products. As a result, revenue forecasted for a specific customer
for a particular quarter may not occur in that quarter. Because of the potential
large size of our customers' orders, this would adversely affect our revenue for
the quarter.
OUR EXPENSES MAY VARY FROM PERIOD TO PERIOD. Many of our expenses do not
vary with our revenue. Factors that could cause our expenses to fluctuate from
period to period include:
- the extent of marketing and sales efforts necessary to promote and sell
our products;
- the timing and extent of our research and development efforts;
- the availability and cost of key components for our products; and
- the timing of personnel hiring.
If we incur such additional expenses in a quarter in which we do not
experience increased revenue, our profitability would be adversely affected and
we may even incur losses for that quarter.
WE ANTICIPATE THAT AVERAGE SELLING PRICES FOR OUR PRODUCTS WILL DECLINE IN THE
FUTURE, WHICH COULD ADVERSELY AFFECT OUR PROFITABILITY
We expect that the price we can charge our customers for our products will
decline as new technologies become available and as competitors lower prices
either as a result of reduced manufacturing costs or a strategy of cutting
margins to achieve or maintain market share. We expect price reductions to be
more pronounced in the market for our echo cancellation products, at least in
the near term, due to more established competition for these products. While we
intend to reduce our manufacturing costs in an attempt to maintain our margins
and to introduce enhanced products with higher selling prices, we may not
execute these programs on schedule. In addition, our competitors may drive down
prices faster or lower than our planned cost reduction programs. Even if we can
reduce our manufacturing costs, many of our operating costs will not decline
immediately if revenue decreases due to price competition. As a result, we may
face reduced profitability and perhaps losses in future periods.
WE NEED TO SUCCESSFULLY DEVELOP AND INTRODUCE OUR NEW PRODUCTS TO GROW OUR
BUSINESS
Our ability to increase revenue in the future will depend primarily on:
- acceptance of our new Quad T1, Quad E1, Broadband Echo Cancellation System
and 4SA echo cancellation products; and
- our successful introduction and sale of our new optical monitors,
telemetry systems, transponders and four-channel WDM products, and our
successful development and introduction of our sixteen-channel WDM
products.
However, we may not be able to successfully produce or market our new
products in commercial quantities, complete product development when
anticipated, or increase sales. These risks are of particular concern when a new
generation product is introduced. As a result, while we believe we will achieve
our product introduction dates, they may be delayed. As of January 31, 1999, we
had neither shipped nor recognized revenue from the sale of any significant
amount of these new
8
<PAGE>
products. For the nine months ended January 31, 1999, sales of our 18T1 and 18E1
echo cancellation products accounted for the vast majority of our revenue.
Shipments of our EDFA optical communications subsystem product began in the
third quarter of calendar 1996 and accounted for all of our revenue for optical
communications products during the first nine months of fiscal 1999. In the
past, we experienced an unforeseen delay in the development of one of our
products due to the need to design around a part that did not function as
anticipated and also when the first version of one of our optical communications
subsystem products did not fully meet customer requirements. We may experience
similar unforeseen delays in the development of our new products. We must devote
a substantial amount of resources in order to develop and achieve commercial
acceptance of our new echo cancellation and optical communications subsystem
products. We may not be able to address evolving demands in these markets in a
timely or effective way. Even if we do, customers in these markets may purchase
or otherwise implement competing products.
CUSTOMERS MAY DELAY ORDERS FOR OUR EXISTING PRODUCTS IN ANTICIPATION OF NEW
PRODUCTS. Our customers may delay orders for our existing products in
anticipation of the release of our or our competitors' new products. Further, if
our or our competitors' new products substantially replace the functionality of
our existing products, our existing products may become obsolete, and we could
be forced to sell them at reduced prices or even at a loss.
WE RELY ON SALES OF OUR ECHO CANCELLATION PRODUCTS FOR THE VAST MAJORITY OF OUR
REVENUE
To date, the vast majority of our revenue has been derived from sales of our
echo cancellation products. In fiscal 1997, fiscal 1998 and for the first nine
months of fiscal 1999, we derived 99.5%, 94.1% and 95.4%, respectively, of our
revenue from the sale of our echo cancellation products. We expect that a
substantial majority of our revenue will continue to come from sales of our echo
cancellation products for the foreseeable future. If we are not able to develop
substantial revenue from sales of our optical communications subsystem products,
our ability to grow our business may be substantially impaired.
WE FACE INTENSE COMPETITION, WHICH COULD ADVERSELY AFFECT OUR PROFITABILITY
The markets for our echo cancellation and optical communications subsystem
products are intensely competitive, continually evolving and subject to rapid
technological change. We may not be able to compete successfully against current
or future competitors, including our customers.
We believe that our products face competition in the following areas:
- price;
- product features and enhancements (including improvements in product
performance, reliability, size, compatibility and scalability);
- cost of ownership (including power consumption and ease and cost of
maintenance);
- ease of product deployment and installation; and
- technical support and service.
Our principal competitors in the echo cancellation market are Lucent and
Tellabs. Our principal competitors in the optical communications subsystem
products market are Alcatel, Ciena, Lucent and Pirelli. Certain of our customers
also have the ability to internally produce the equipment that they currently
purchase from us. In such cases, we also compete with their internal product
development capabilities. We expect that competition in each of the echo
cancellation and optical communications markets will increase in the future. We
may not have the financial resources, technical expertise or marketing,
manufacturing, distribution and support capabilities to compete successfully.
9
<PAGE>
One of our competitors, Nortel Networks, has announced that it is developing
an integrated switch, which would have echo cancellation capability built into
it and would therefore eliminate the need for the echo cancellation capability
provided by our products. Announcements such as these, or the commercial
availability of such switches or other competing products, may cause our
customers to delay or cancel orders for our products.
Most of our competitors and potential competitors have substantially greater
name recognition and technical, financial and marketing resources than we do.
Such competitors may undertake more extensive marketing campaigns, adopt more
aggressive pricing policies and devote substantially more resources to
developing new products than we will. For more information on the competition we
face, see "Business--Competition."
WE DEPEND ON TELINNOVATION FOR TRANSITIONAL SUPPORT OF OUR ECHO CANCELLATION
TECHNOLOGY, THE LOSS OF WHICH COULD DELAY PRODUCT DEVELOPMENT
We recently acquired our echo cancellation technology from Telinnovation.
Prior to this acquisition we licensed this technology from Telinnovation, which
provided engineering support for our use of this technology. We are currently
focused on increasing our knowledge of this technology so that we will be able
to modify and enhance it ourselves. If Telinnovation does not fulfill its
obligations to assist us during this transitional phase, or if we need to devote
more resources to this technology than we currently expect, our product
development plans could be delayed.
WE ARE DEPENDENT ON A SINGLE MANUFACTURER FOR OUR CURRENT PRODUCTS AND MAY NOT
BE ABLE TO REDUCE MANUFACTURING COSTS OF OUR PRODUCTS TO RESPOND TO DECREASING
AVERAGE SELLING PRICES
In order to respond to increasing competition and our anticipation that
average selling prices will decrease, we are attempting to reduce manufacturing
costs of our new and existing products. However, we may not be able to
successfully reduce the cost of manufacturing our products due to a number of
factors, including:
WE RELY ON A SOLE SOURCE OF MANUFACTURING. Manufacturing of our echo
cancellation products and the electronic printed circuit board assemblies for
our optical communications products is currently outsourced to one contract
manufacturer. We are in the process of establishing additional relationships.
Until we are able to establish multiple manufacturing relationships, we may not
be able to successfully reduce manufacturing costs. In addition, we may
encounter problems in the transition of manufacturing to another contract
manufacturer, which could temporarily increase our manufacturing costs and cause
product delays. See "Business--Manufacturing."
WE HAVE NO COMMERCIAL MANUFACTURING EXPERIENCE WITH OUR NEW PRODUCTS. To
date we have manufactured our pre-production Broadband Echo Cancellation System
and optical communications products in our facilities but not in commercial
quantities. We will need to outsource the manufacturing of these products once
we begin to commercially manufacture them. We may experience delays and other
problems during the transition to outsourcing the manufacture of these products.
WE OPERATE IN AN INDUSTRY EXPERIENCING RAPID TECHNOLOGICAL CHANGE, WHICH MAY
MAKE OUR PRODUCTS OBSOLETE
Our future success will depend on our ability to develop, introduce and
market enhancements to our existing products and to introduce new products in a
timely manner to meet our customers' requirements. The echo cancellation and
optical communications markets we target are characterized by:
- rapid technological developments;
- frequent enhancements to existing products and new product introductions;
10
<PAGE>
- changes in end user requirements; and
- evolving industry standards.
WE MAY NOT BE ABLE TO RESPOND QUICKLY AND EFFECTIVELY TO THESE RAPID
CHANGES. The emerging nature of these products and their rapid evolution will
require us to continually improve the performance, features and reliability of
our products, particularly in response to competitive product offerings. We may
not be able to respond quickly and effectively to these developments. The
introduction or market acceptance of products incorporating superior
technologies or the emergence of alternative technologies and new industry
standards could render our existing products, as well as our products currently
under development, obsolete and unmarketable. In addition, we may have only a
limited amount of time to penetrate certain markets, and we may not be
successful in achieving widespread acceptance of our products before competitors
offer products and services similar or superior to our products. We may fail to
anticipate or respond on a cost-effective and timely basis to technological
developments, changes in industry standards or end user requirements. We may
also experience significant delays in product development or introduction. In
addition, we may fail to release new products or to upgrade or enhance existing
products on a timely basis.
WE MAY NEED TO MODIFY OUR PRODUCTS AS A RESULT OF CHANGES IN INDUSTRY
STANDARDS. The emergence of new industry standards, whether through adoption by
official standards committees or widespread use by service providers, could
require us to redesign our products. If such standards become widespread, and
our products are not in compliance, our current and potential customers may not
purchase our products. The rapid development of new standards increases the risk
that our competitors could develop and introduce new products or enhancements
directed at new industry standards before us.
OUR ABILITY TO GROW IS TIED TO THE SUCCESS OF EMERGING COMPETITIVE SERVICE
PROVIDERS AND THE TELECOMMUNICATIONS INDUSTRY AS A WHOLE
Our success will depend in large part on continued development and expansion
of voice and data communications networks. Development of communications
networks is driven in part by the growth of competitive service providers that
emerged as a result of the Telecommunications Act of 1996 and privatization of
the telecommunications industry on a global scale. We are subject to risks of
growth constraints due to our current and planned dependence on emerging
competitive and privatized overseas service providers. These potential customers
may be constrained for a number of reasons, including their limited capital
resources, changes in regulation and consolidation.
WE DEPEND ON TEXAS INSTRUMENTS AS THE SOLE SOURCE OF DSPS USED IN OUR PRODUCTS,
THE LOSS OF WHICH COULD DELAY PRODUCT SHIPMENTS
We rely on Texas Instruments as the sole source of the DSPs that we use in
our echo cancellation products. We have no guaranteed supply arrangements with
Texas Instruments. Any extended interruption in the supply of DSPs from Texas
Instruments would affect our ability to meet scheduled deliveries of our echo
cancellation products to customers. If we are unable to obtain a sufficient
supply of DSPs from Texas Instruments, we could experience difficulties in
obtaining alternative sources or in altering product designs to use alternative
components. Resulting delays or reductions in product shipments could damage
customer relationships, and we could lose customers and orders.
OUR BUSINESS IS GROWING, WHICH IS PUTTING STRAINS ON OUR MANAGEMENT
In December 1998, we moved into our new corporate offices and research and
development facilities. We anticipate significantly expanding our management
team and business capacity to address potential growth in our customer base and
market opportunities. The relocation to our new
11
<PAGE>
facilities diverted our management's attention from our business. Additional
expansion of our business may further strain our management personnel,
operations and resources. Growth in our customer base may require us to improve
our predictions of what customers are likely to need and when they will need it,
which may also further strain our sales and marketing personnel. Continued
growth will require us to hire more engineering, sales, marketing, operations,
customer support and services, and administrative personnel and scale our
research and development capability, which we may not be able to do.
RECENT AND PLANNED PERSONNEL ADDITIONS. Our Chief Executive Officer also
functions as our Vice President of Sales, and has only been the Chief Executive
Officer since September 1998. We recently hired our new Vice President of
Operations, who began working with us in December 1998. We also need, and are
actively searching for, a Vice President of Marketing, especially for the
marketing of our optical communications products. We may experience problems in
integrating new personnel into our corporate culture. In addition, new hires may
not be productive during the time that they are being integrated into our
business.
WE MAY EXPERIENCE UNFORESEEN PROBLEMS AS WE DIVERSIFY OUR INTERNATIONAL CUSTOMER
BASE
Historically, we have sold mostly to customers in North America. We
currently are contemplating the expansion of our international presence, which
will require additional hiring of personnel for the overseas market and other
expenditures. Our planned expansion overseas may not be successful. As we expand
our sales focus further into international markets, we will face additional and
complex issues that we may not have faced before, such as addressing currency
fluctuations, manufacturing overseas and import/export controls, which will put
additional strain on our management personnel. In the past, substantially all of
our international sales have been denominated in U.S. dollars, however, in the
future, we may be forced to denominate a greater amount of international sales
in foreign currencies. The number of installations we will be responsible for is
likely to increase as a result of our continued international expansion. In the
past, we have experienced difficulties installing one of our echo cancellation
products overseas. In addition, we may not be able to establish more OEM
relationships. If we do not, our ability to increase sales could be materially
impaired.
WE DEPEND ON CERTAIN KEY PERSONNEL
Our success is dependent in part on Tim Montgomery, our President and Chief
Executive Officer, and Pong Lim, our Chairman of the Board, and on other key
management and technical personnel, the loss of one or more of whom could
adversely affect our business. We do not have employment contracts with any of
our executive officers other than Mr. Montgomery, Mr. Lim and Ms. Toni Bellin,
our Vice President of Operations, and we maintain a "key person" life insurance
policy only on Mr. Lim. We believe that our future success will depend in large
part upon our continued ability to attract, retain and motivate highly skilled
employees, who are in great demand. However, we may not be able to do so.
A SMALL GROUP OF ENTITIES OWN OR CONTROL A SUBSTANTIAL AMOUNT OF OUR STOCK AND
MAY, THEREFORE, INFLUENCE OUR AFFAIRS
Following this offering, and assuming that the underwriters' over-allotment
option is not exercised, Summit Partners and its affiliates, and Kenneth Jones,
will collectively control approximately [ ]% of our outstanding common stock,
as follows:
- Summit Partners and its affiliates [ ]%
- Kenneth Jones [ ]%
12
<PAGE>
In addition, Messrs. Avis and Chung, directors of Ditech, are affiliated with
Summit Partners, and Mr. Jones is a director of Ditech. As a result, these
stockholders as a group will be able to substantially influence the management
and affairs of Ditech and, if acting together, would be able to influence most
matters requiring the approval by our stockholders, including the election of
directors, any merger, consolidation or sale of all or substantially all of our
assets and any other significant corporate transactions. The concentration of
ownership may also delay or prevent a change of control of Ditech at a premium
price if these stockholders oppose it.
WE MAY NOT BE ABLE TO PROTECT OUR INTELLECTUAL PROPERTY
Our ability to compete successfully will depend, in part, on our ability to
protect our intellectual property rights. We rely on a combination of patents,
trade secrets, copyright and trademark laws, nondisclosure agreements and other
contractual provisions and technical measures to protect our intellectual
property rights. Nevertheless, such measures may not be adequate to safeguard
the technology underlying our echo cancellation and optical communications
subsystem products. In addition, employees, consultants and others who
participate in the development of our products may breach their agreements with
us regarding our intellectual property, and we may not have adequate remedies
for any such breach. In addition, we may not be able to effectively protect our
intellectual property rights in certain countries. We also realize that our
trade secrets may become known through other means not currently foreseen by us.
Notwithstanding our efforts to protect our intellectual property, our
competitors may be able to develop products that are equal or superior to our
products without infringing on any of our intellectual property rights. For
further information on our intellectual property and the difficulties in
protecting it, see "Business--Patents and Intellectual Property Rights."
OUR PRODUCTS EMPLOY TECHNOLOGY THAT MAY INFRINGE ON THE PROPRIETARY RIGHTS OF
THIRD PARTIES
Although we do not believe that our products infringe the proprietary rights
of any third parties, third parties may still assert infringement or invalidity
claims (or claims for indemnification resulting from infringement claims)
against us. Such assertions could materially adversely affect our business,
financial condition and results of operations. In addition, irrespective of the
validity or the successful assertion of such claims, we could incur significant
costs in defending against such claims.
WE EXPECT OUR STOCK PRICE TO BE VOLATILE
The market price of the shares of our common stock is likely to be highly
volatile. Factors that may have a significant effect on the market price of our
common stock include:
- fluctuations in our operating results;
- announcements of technological innovations;
- new products or new services introduced by us or our partners, competitors
or customers;
- our competitors' developments with respect to patents or proprietary
rights;
- announcements of litigation by or against us;
- changes in research analyst recommendations regarding Ditech or our
competitors; and
- general market conditions.
In addition, equity markets, particularly the market for high-technology
companies, recently have experienced significant price and volume fluctuations
unrelated to the operating performance of individual companies. These broad
market fluctuations may also adversely affect the market price of our common
stock.
13
<PAGE>
OUR CHARTER DOCUMENTS AND DELAWARE LAW MAY INHIBIT A TAKEOVER
Provisions in our Certificate of Incorporation and Bylaws may have the
effect of delaying or preventing a change of control or changes in our
management. These provisions include, among others:
- the division of the Board of Directors into three separate classes;
- the ability of the Board of Directors to issue up to 5,000,000 shares of
preferred stock, and to determine the price, rights, preferences,
privileges and restrictions, including voting rights, of those shares
without any further vote or action by the stockholders;
- advance notice requirements for stockholders to nominate directors and
bring stockholder proposals to a vote; and
- the inability of stockholders to act by written consent.
Furthermore, because we are incorporated in Delaware, we are subject to the
provisions of Section 203 of the Delaware General Corporation Law. These
provisions prohibit certain large stockholders, in particular those owning 15%
or more of the outstanding voting stock, from consummating a merger or
combination with a corporation unless (1) 66 2/3% of the shares of voting stock
not owned by the large stockholder approve the merger or combination or (2)
Board of Directors approves the merger or combination or the transaction that
resulted in the large stockholder owning 15% or more of our outstanding voting
stock. Such provisions could limit the price that certain investors might be
willing to pay in the future for shares of our common stock. See "Description of
Capital Stock--Anti-Takeover Effects of Provisions of Charter Documents and
Delaware Law."
THERE ARE A LARGE NUMBER OF SHARES THAT MAY BE SOLD IN THE MARKET FOLLOWING THIS
OFFERING, WHICH MAY DEPRESS THE MARKET PRICE OF OUR COMMON STOCK
Sales of substantial numbers of shares of our common stock in the public
market after this offering, or the perception that such sales may be made, could
materially and adversely affect the market price of our common stock.
All of the shares issued in this offering will be freely tradeable. Of the
13,118,626 shares of common stock outstanding as of January 31, 1999, 12,455,598
shares will become available for sale 180 days following the date of this
prospectus upon the expiration of lock-up agreements with our underwriters,
subject to the restrictions imposed by the federal securities laws on sales by
affiliates. An additional 473,474 shares may become available for sale at
various times after the 180 days following the date of this prospectus as
Ditech's repurchase option on such shares lapses, subject to the restrictions
imposed by the federal securities laws on sales by affiliates and 189,554 shares
may become available for sale at various times after the 180 days following the
date of this Prospectus, subject to the restrictions imposed by the federal
securities laws on sales by affiliates. The underwriters, however, may waive the
lock-up restriction at their sole discretion. In addition, up to an additional
692,273 shares may become available for sale 180 days from the date of this
prospectus upon the exercise of stock options. See "Shares Eligible for Future
Sale."
OUR OR THIRD PARTIES' COMPUTER SYSTEMS MAY FAIL IN THE YEAR 2000, WHICH WOULD
DELAY OUR PRODUCT DEVELOPMENT AND THE MANUFACTURING OF OUR PRODUCTS
Failure of our computer systems could adversely affect our product
development processes and/or our ability to cost-effectively manage Ditech
during the time required to fix such problems. In addition, computer failures
could cause the manufacturer of our products to incur delays in manufacturing,
or our customers to postpone or cancel orders for our products. We are currently
14
<PAGE>
assessing the readiness of our computer systems and those of our manufacturers
and major customers to handle dates beyond the year 1999. Unforeseen problems in
our own computers and embedded systems and from customers, our manufacturers,
suppliers and other organizations with which we conduct transactions worldwide
may arise. These statements constitute Year 2000 disclosures under federal law.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations--Impact of the Year 2000 Computer Problem" for more information on
the status of our preparation relating to this issue.
DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus includes "forward-looking statements." The words "believe,"
"anticipate," "expect," "intend" and other similar words intended to identify
these statements as forward-looking statements. Such statements include
statements under the captions "Risk Factors," "Use of Proceeds," "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
"Business" and elsewhere in this prospectus as to, among others:
- the timing of availability of products under development or in beta-test;
- our ability to commercialize new products;
- the acceptance and performance of our products;
- our ability to reduce manufacturing costs and introduce enhanced products
with higher selling prices;
- the relative contributions to our revenues from future sales of our echo
cancellation and optical communications subsystem products;
- our expectations as to margins on our new products and products we sell
through OEMs;
- our future sales and marketing, research and development and general
administrative expenditures and income tax rates;
- our expectations as to increases in working capital and planned
expenditures on property and equipment;
- our belief as to our future cash requirements;
- our state of readiness for the year 2000 and the effect it will have on
us;
- the effectiveness of, and our ability to carry out, each element of our
business strategy;
- the commencement of shipping of our 4SA and Broadband Echo Cancellation
System echo cancellation products;
- our intentions with respect to future research and development and
manufacturing activities;
- our expectations as to the increase in demand for echo cancellation
products;
- our plan to hire a new Vice President of Marketing;
- our expectations of expanding our management team and business capacity;
- our expectations of our international presence and hiring personnel for
the overseas market; and
- our ability to satisfy cash requirements for at least the next twelve
months from a combination of the proceeds from this offering, our cash
flow from operations and our bank line of credit.
The ultimate outcome of the matters set forth in these statements are subject to
risks and uncertainties that could cause actual results to differ materially
from those projected. The cautionary statements made in this prospectus should
be read as being applicable to all related forward-looking statements wherever
they appear in this prospectus. We assume no obligation to update such
forward-looking statements or to update the reasons actual results could differ
materially from those anticipated in such forward-looking statements.
15
<PAGE>
USE OF PROCEEDS
The net proceeds to Ditech from the sale of the [ ] shares of common
stock being offered, at an assumed initial public offering price of $[ ]
per share, are estimated to be approximately $[ ] after deducting
underwriting discounts and commissions and estimated offering expenses payable
by us. We expect to use the net proceeds:
- to redeem our outstanding Series A Preferred Stock upon the closing of the
offering for approximately $19.6 million (projected balance at April 30,
1999);
- to pay Telinnovation $2.96 million as a one-time fee in connection with
the acquisition of certain of our technology;
- to repay up to approximately $[ ] million in debt owed to BankBoston,
N.A.; and
- for general corporate purposes, including capital expenditures and
research and development.
The interest rate on the BankBoston term loan as of March 15, 1999 was 8.25%
(the current base rate of 7.75% plus 0.5%) and this debt will mature on December
31, 2002. See "Management's Discussion and Analysis of Financial Condition and
Results of Operation--Liquidity and Capital Resources." The amounts and timing
of our actual expenditures will depend upon numerous factors, including the
status of our product development and commercialization efforts, the amount of
proceeds actually raised in this offering, the amount of cash generated by our
operations, competition, and sales and marketing activities. If we receive
substantially less net proceeds from this offering than we currently
contemplate, then we may not repay some or all of our outstanding debt. Pending
application of the net proceeds as described above, we intend to invest the net
proceeds of the offering in short-term, investment-grade, interest-bearing
securities.
DIVIDEND POLICY
Ditech has never paid any cash dividends on its capital stock. We currently
anticipate that we will retain earnings to support operations and to finance the
growth and development of our business and do not anticipate paying cash
dividends for the foreseeable future. In addition, our credit agreement with
BankBoston prohibits us from paying cash dividends without the lender's written
consent.
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<PAGE>
CAPITALIZATION
The following table sets forth the capitalization of Ditech as of January
31, 1999: (i) on an actual basis; and (ii) on a pro forma basis assuming the
conversion of all of our Series B Preferred Stock to common stock, and (iii) on
an as adjusted pro forma basis assuming the sale of the [ ] shares of
common stock offered by us at an assumed initial public offering price of
$[ ] per share (after deducting the estimated underwriting discount and
offering expenses) and application of the estimated net proceeds therefrom
including the redemption of all of our Series A Preferred Stock for cash, the
redemption of all of our Series C Preferred Stock for the preferred stock we
hold in Globe Wireless and the change in par value of our common stock. This
table should be read in conjunction with our financial statements and notes
thereto appearing elsewhere in this prospectus.
<TABLE>
<CAPTION>
JANUARY 31, 1999
------------------------------------
PRO FORMA PRO FORMA
ACTUAL(1) ------------ AS ADJUSTED
--------- -----------
(IN
THOUSANDS)
------------
<S> <C> <C> <C>
Capital lease, net of current........................... $ 80 $ 80 $
Note payable, net of current............................ 6,750 6,750
--------- ------------ -----------
Long term debt.......................................... 6,830 6,830
--------- ------------ -----------
Redeemable preferred stock:
Series A Preferred Stock, no par value, 17,250,000
shares authorized and outstanding actual and pro
forma; no shares authorized or outstanding pro forma
as adjusted........................................... 18,949 18,949 --
Series B Preferred Stock, no par value; 6,259,718
shares authorized and outstanding actual; no shares
authorized or outstanding pro forma and pro forma as
adjusted.............................................. 5,926 -- --
Series C Preferred Stock, no par value; 7,508,221
shares authorized and outstanding actual and pro
forma, no shares authorized or outstanding pro forma
as adjusted........................................... 7,361 7,361 --
--------- ------------ -----------
Total redeemable preferred stock.................... 32,236 26,310 --
--------- ------------ -----------
Stockholders' equity (deficit):
Undesignated Preferred Stock, $.001 par value pro
forma as adjusted; no shares authorized actual and pro
forma; 5,000,000 shares authorized, none issued and
outstanding, pro forma as adjusted.................... -- -- --
Common Stock, no par value actual and pro forma, $.001
par value pro forma as adjusted; 50,000,000 shares
authorized actual, pro forma and pro forma as
adjusted; 6,858,908 shares issued and outstanding
actual; 13,118,626 shares issued and outstanding pro
forma; and shares issued and outstanding pro
forma as adjusted..................................... 1,883 7,809
Additional paid in capital.............................. -- --
Deferred stock compensation............................. (409) (409) (409)
Accumulated deficit..................................... (24,973) (24,973) (24,973)
--------- ------------ -----------
Total stockholders' equity (deficit).................... (23,499) (17,573)
--------- ------------ -----------
Total capitalization................................ $ 15,567 $ 15,567 $
--------- ------------ -----------
--------- ------------ -----------
</TABLE>
- ------------------------
(1) Excludes (i) 973,733 shares of common stock issuable upon exercise of
options outstanding as of January 31, 1999 at a weighted average exercise
price of $0.85 per share and (ii) 793,662 additional shares of common stock
reserved for future issuance under our stock option plans, (iii) 200,000
shares currently reserved for issuance under our employee stock purchase
plan and (iv) 150,000 shares currently reserved for issuance under our
non-employee directors' stock option plan.
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<PAGE>
DILUTION
The net tangible book deficit of Ditech at January 31, 1999, was
approximately $18 million, or $1.38 per share (assuming conversion of the Series
B Preferred Stock). Net tangible book value per share is determined by dividing
our tangible net worth (tangible assets less liabilities) by the number of
shares of common stock outstanding. After giving effect to the sale by us of the
[ ] shares of common stock we are offering at an assumed public offering
price of $[ ] per share, after deducting estimated underwriting discounts
and commissions and estimated offering expenses, the net tangible book value of
Ditech as of January 31, 1999 would have been approximately $[ ] million,
or $[ ] per share. This represents an immediate increase in the net
tangible book value of $[ ] per share to existing stockholders and an
immediate dilution in the net tangible book value of $[ ] per share to new
investors purchasing shares at the assumed public offering price. The following
table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share..................... $ [ ]
Net tangible book value per share as of January 31, 1999.......... $ (1.38)
Increase per share attributable to new investors in this
offering........................................................ [ ]
----------
Net tangible book value per share after the offering................ [ ]
----------
Dilution per share to new investors................................. $ [ ]
----------
----------
</TABLE>
The following table sets forth, as of January 31, 1999, the difference
between the number of shares of common stock purchased from Ditech (assuming the
conversion of Series B Preferred Stock), the total consideration paid and the
average price per share paid by the existing stockholders and by the new
investors at an assumed initial public offering price of $[ ] per share
for shares purchased in this offering, before deducting underwriting discounts
and commissions and estimated offering expenses:
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION
------------------ --------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
------- -------- ------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders............................. 13,118,626 % $ % $
New investors.....................................
------- -------- ------ ------- -------------
Total........................................... 100.0% $ 100.0% $
------- -------- ------ ------- -------------
------- -------- ------ ------- -------------
</TABLE>
To the extent our existing option holders exercise their options currently
outstanding, there will be further dilution.
18
<PAGE>
SELECTED FINANCIAL DATA
The statement of operations data for each of the three years ended April 30,
1998, and the balance sheet data as of April 30, 1998 and 1997, have been
derived from the audited financial statements of Ditech included elsewhere in
this prospectus that have been audited by PricewaterhouseCoopers LLP,
independent accountants. The statement of operations data for the nine months
ended January 31, 1998 and 1999, and the balance sheet data as of January 31,
1998 and 1999, have been derived from the unaudited financial statements of
Ditech included elsewhere in this prospectus. The statement of operations data
for each of the two years ended April 30, 1995, and the balance sheet data as of
April 30, 1996, 1995, and 1994 have been derived from the unaudited financial
statements of Ditech not included in this prospectus. The data set forth below
should be read in conjunction with the financial statements of Ditech, including
the notes thereto, and with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus.
19
<PAGE>
SUMMARY FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED
YEARS ENDED APRIL 30, JANUARY 31,
----------------------------------------------------- ---------------
1994 1995 1996 1997 1998 1998 1999
----------- ----------- ------- ------- ------- ------ -------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue................................................ $10,764 $7,979 $14,354 $14,066 $12,326 $8,687 $18,025
Cost of goods sold..................................... 5,430 3,793 7,164 6,790 5,651 4,029 8,588
----------- ----------- ------- ------- ------- ------ -------
Gross profit......................................... 5,334 4,186 7,190 7,276 6,675 4,658 9,437
----------- ----------- ------- ------- ------- ------ -------
Operating expenses:
Sales and marketing.................................. 396 563 1,041 1,521 2,405 1,438 4,104
Research and development............................. 361 514 1,040 1,072 2,367 1,657 2,850
General and administrative........................... 205 243 536 714 1,279 923 1,622
----------- ----------- ------- ------- ------- ------ -------
Total operating expenses........................... 962 1,320 2,617 3,307 6,051 4,018 8,576
----------- ----------- ------- ------- ------- ------ -------
Income from operations................................. 4,372 2,866 4,573 3,969 624 640 861
Other income (expense), net............................ -- -- (5) (104) (593) (458) (398)
----------- ----------- ------- ------- ------- ------ -------
Income from continuing operations before income taxes.. 4,372 2,866 4,568 3,865 31 182 463
Provision for income taxes............................. 1,705 1,245 1,776 1,522 24 73 186
----------- ----------- ------- ------- ------- ------ -------
Income from continuing operations...................... 2,667 1,621 2,792 2,343 7 109 277
Discontinued operations:
Income (loss) from operations (1).................... 390 (848) (1,413) (2,751) -- -- --
Gain on disposal (1)................................. -- -- -- 2,843 -- -- --
----------- ----------- ------- ------- ------- ------ -------
Net income............................................. 3,057 773 1,379 2,435 7 109 277
Accretion of mandatorily redeemable preferred stock to
redemption value..................................... -- -- -- 187 1,374 1,030 1,115
----------- ----------- ------- ------- ------- ------ -------
Net income (loss) attributable to common
stockholders......................................... $ 3,057 $ 773 $ 1,379 $ 2,248 $(1,367) $ (921) $ (838)
----------- ----------- ------- ------- ------- ------ -------
----------- ----------- ------- ------- ------- ------ -------
Per share data (2)
Basic
Income (loss) from continuing operations........... $ 0.05 $ 0.04 $ 0.07 $ 0.06 $ (0.30) $(0.20) $ (0.16)
Discontinued operations............................ 0.01 (0.02) (0.04) 0.00 -- -- --
----------- ----------- ------- ------- ------- ------ -------
Net income (loss) per share........................ $ 0.06 $ 0.02 $ 0.03 $ 0.06 $ (0.30) $(0.20) $ (0.16)
----------- ----------- ------- ------- ------- ------ -------
----------- ----------- ------- ------- ------- ------ -------
Diluted
Income (loss) from continuing operations........... $ 0.05 $ 0.04 $ 0.07 $ 0.06 $ (0.30) $(0.20) $ (0.16)
Discontinued operations............................ 0.01 (0.02) (0.04) 0.00 -- -- --
----------- ----------- ------- ------- ------- ------ -------
Net income (loss) per share........................ $ 0.06 $ 0.02 $ 0.03 $ 0.06 $ (0.30) $(0.20) $ (0.16)
----------- ----------- ------- ------- ------- ------ -------
----------- ----------- ------- ------- ------- ------ -------
Number of shares used in per share calculations (2)
Basic................................................ 48,616 41,854 41,854 37,158 4,592 4,582 5,170
----------- ----------- ------- ------- ------- ------ -------
----------- ----------- ------- ------- ------- ------ -------
Diluted.............................................. 48,616 41,854 42,407 37,836 4,592 4,582 5,710
----------- ----------- ------- ------- ------- ------ -------
----------- ----------- ------- ------- ------- ------ -------
Proforma data
Net loss per share--basic and diluted................ $ (0.10) $ (0.05)
------- -------
------- -------
Shares used in per share calculation--basic and
diluted............................................ 10,852 11,430
------- -------
------- -------
</TABLE>
<TABLE>
<CAPTION>
APRIL 30, JANUARY 31,
------------------------------------------------------------- --------------------
1994 1995 1996 1997 1998 1998 1999
------------- ------------- --------- --------- --------- --------- ---------
(UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 42 $ 100 $ 531 $ 4,199 $ 3,433 $ 3,222 $ 4,724
Total assets............................... 5,880 7,333 11,075 17,508 17,274 16,889 21,714
Long-term debt............................. -- -- -- 7,875 7,410 7,500 6,830
Total stockholders' equity (deficit)....... 5,217 6,793 8,172 (22,768) (24,057) (23,610) (23,499)
</TABLE>
- ------------------------------
(1) See Note 3 of notes to the financial statements included elsewhere in this
prospectus.
(2) Both basic and diluted earnings per share for fiscal 1998 and the nine
months ended January 31, 1999 are based on reported net income less the
accretion on our outstanding Series A and Series B Preferred Stock of $1.4
million and $1.1 million in fiscal 1998 and the nine months ended January
31, 1999, respectively. This reduction in earnings per share will not occur
after this offering because the Series A Preferred Stock will be redeemed
and the Series B Preferred Stock will be converted to common stock at the
closing of the offering. See Note 2 of notes to the financial statements
included elsewhere in this prospectus.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION AND ANALYSIS SHOULD BE READ IN CONJUNCTION WITH
"SELECTED FINANCIAL DATA" AND OUR FINANCIAL STATEMENTS AND NOTES THERETO
INCLUDED ELSEWHERE IN THIS PROSPECTUS. THE DISCUSSION IN THIS PROSPECTUS
CONTAINS FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES, SUCH
AS STATEMENTS OF OUR PLANS, OBJECTIVES, EXPECTATIONS AND INTENTIONS. THE
CAUTIONARY STATEMENTS MADE IN THIS PROSPECTUS SHOULD BE READ AS BEING APPLICABLE
TO ALL RELATED FORWARD-LOOKING STATEMENTS WHEREVER THEY APPEAR IN THIS
PROSPECTUS. DITECH'S ACTUAL RESULTS COULD DIFFER MATERIALLY FROM THOSE DISCUSSED
HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO SUCH DIFFERENCES INCLUDE THOSE
DISCUSSED IN "RISK FACTORS," AS WELL AS THOSE DISCUSSED ELSEWHERE HEREIN. SEE
"RISK FACTORS" AND "DISCLOSURE REGARDING FORWARD-LOOKING STATEMENTS."
OVERVIEW
Ditech designs, develops and markets equipment used in building and
expanding telecommunications and cable communications networks. Our products
fall into two categories, echo cancellation equipment and optical communications
subsystems. Our echo cancellation products eliminate echo, which is a
significant problem in existing and emerging networks. Echo results from speech
signals that are reflected back to the speaker during a telephone call, making
conversation difficult. This effect is most pronounced when two people are
talking over long distance, satellite, cellular, PCS or packetized networks. Our
echo cancellation products use a software-intensive architecture coupled with
one of the latest commercially available DSPs to cancel echo and enhance the
quality of voice communications. To date, the vast majority of our revenue has
been derived from sales of our echo cancellation products. Our optical
communications subsystem products enable the implementation of WDM technology,
which is becoming more widely adopted by service providers to address network
capacity constraints. Ditech's optical communications subsystem products are
designed to function either as stand-alone products or as a complete system
known as the Optical Path Solution. We began sales of our third generation echo
cancellation products in March 1995. We began sales of our first optical
communications subsystems product in September 1996.
Ditech was originally incorporated as Phone Info, Inc. in July 1983 and
subsequently changed its name to Automated Call Processing Corporation, Inc. In
March 1997, Automated Call Processing sold its call processing business to
persons and entities related to Ditech. Automated Call Processing also sold its
wireless marine communications business operated by its wholly-owned subsidiary,
Globe Wireless, Inc., to persons and entities related to Ditech. Automated Call
Processing was subsequently merged with Ditech Corporation, its wholly-owned
subsidiary, and the surviving entity was renamed Ditech Corporation. Financial
information for prior periods have been restated to reflect the discontinuation
of these lines of business in March 1997. Immediately prior to the consummation
of this offering we intend to reincorporate Ditech in Delaware. As part of the
reincorporation and at the closing of this offering, we will redeem all of our
Series A Preferred Stock for approximately $19.6 (projected balance at April 30,
1999) million in cash and redeem all of our Series C Preferred Stock with the
shares of preferred stock of Globe Wireless that we hold. See "Use of Proceeds."
In November 1998, we acquired the echo cancellation technology that we
previously licensed from Telinnovation. We acquired this technology for a total
purchase price of 250,000 shares of our common stock and $2.96 million, the cash
portion of which is to be paid upon the consummation of this offering. In
addition, we have been paying and are obligated to continue to pay royalties to
Telinnovation on the sales of our products incorporating this technology until
the $2.96 million cash portion of the purchase price has been paid from the
proceeds of this offering. We will amortize the purchased technology over a
period of five years.
21
<PAGE>
We recognize revenue when a product has been shipped, no material vendor
obligations remain outstanding, and collection of the resulting receivable is
probable. In the event that we defer revenue recognition due to uncertainty
about collectibility or the existence of a material vendor obligation such as
installation, we recognize the revenue when the uncertainty is removed or the
obligation is fulfilled. We generally do not grant rights of return. We offer a
five year warranty on all of our products. The warranty generally provides that
we will repair or replace any defective product prior to the passage of five
years from the invoice date.
To date, the vast majority of our revenue has been derived from sales of our
echo cancellation products. In fiscal 1997, fiscal 1998 and for the first nine
months of fiscal 1999, we derived 99.5%, 94.1% and 95.4%, respectively, of our
revenue from the sale of our echo cancellation products. We expect that a
substantial majority of our revenue will continue to come from sales of our echo
cancellation products for the foreseeable future. See "Risk Factors--We rely on
sales of our echo cancellation products for the vast majority of our revenue."
We have established a direct sales force that sells to our customers in the
U.S. and internationally. We also intend to expand the use of sales agents,
systems integrators, OEMs and distributors to sell and market our products
internationally. In addition, we have entered into an agreement with an OEM for
distribution of our optical communications subsystem products and are exploring
the possibility of entering into others. We generally expect that margins will
be higher on our newer products than on our more established products, and that
margins on our new products will decline as competition from competing products
becomes more intense. In addition, we expect that gross margins on products that
we sell through OEMs will generally be less than gross margins on direct sales.
Gross margins in any one period may not be indicative of gross margins for
future periods.
Historically the majority of our sales have been to customers in the U.S.
These customers accounted for over 96% of our revenue in the first nine months
of fiscal 1999 and over 94% in fiscal 1998. However, sales to some of our
customers in the U.S. may result in our products eventually being deployed
internationally, especially in the case of any OEMs that distribute overseas. To
date, substantially all of our international sales have been export sales and
denominated in U.S. dollars.
Our revenue historically has come from a small number of customers. Over 75%
of our revenue came from our five largest customers in the first nine months of
fiscal 1999 and in fiscal 1998. Qwest/LCI accounted for 51% of our revenue in
the first nine months of fiscal 1999, and 42% of our revenue in fiscal 1998. Our
four next largest customers accounted collectively for 25% of our revenue in the
first nine months of fiscal 1999 and 38% of our revenue in fiscal 1998. MCI
accounted for $7.6 million, or more than 50%, of our revenue in fiscal 1997, but
only $1.4 million, or approximately 11%, of our revenue in fiscal 1998. This
reduction began shortly before the acquisition of MCI by Worldcom.
22
<PAGE>
RESULTS OF OPERATIONS
The following table sets forth certain items from our statements of
operations as a percentage of revenue for the periods indicated:
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED APRIL 30, JANUARY 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenue................................................ 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold..................................... 49.9 48.3 45.8 46.4 47.6
--------- --------- --------- --------- ---------
Gross margin......................................... 50.1 51.7 54.2 53.6 52.4
--------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing.................................. 7.3 10.8 19.5 16.5 22.8
Research and development............................. 7.2 7.6 19.2 19.1 15.8
General and administrative........................... 3.7 5.1 10.4 10.6 9.0
--------- --------- --------- --------- ---------
Total operating expenses........................... 18.2 23.5 49.1 46.2 47.6
--------- --------- --------- --------- ---------
Income from operations................................. 31.9 28.2 5.1 7.4 4.8
Other income (expense), net............................ (0.1) (0.7) (4.8) (5.3) (2.2)
--------- --------- --------- --------- ---------
Income from continuing operations before income
taxes.............................................. 31.8 27.5 0.3 2.1 2.6
Provisions for income taxes............................ 12.4 10.8 0.2 0.8 1.1
--------- --------- --------- --------- ---------
Income from continuing operations...................... 19.4 16.7 0.1 1.3 1.5
Discontinued operations:
Loss from operations................................. (9.8) (19.6) -- -- --
Gain on disposal..................................... -- 20.2 -- -- --
--------- --------- --------- --------- ---------
Net income......................................... 9.6% 17.3% 0.1% 1.3% 1.5%
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
NINE MONTHS ENDED JANUARY 31, 1999 AND 1998
REVENUE. Revenue increased to $18.0 million for the nine months ended
January 31, 1999 from $8.7 million for the same period in fiscal 1998. The
primary reason for this increase was increased unit sales of our third
generation echo cancellation products. We believe that this increase in unit
sales is in part due to increased sales and marketing efforts made possible by
the increase in the number of sales and marketing personnel in the second half
of fiscal 1998.
COST OF GOODS SOLD. Cost of goods sold consists of direct material costs,
personnel costs for test and quality assurance, and the cost of licensed
technology incorporated into our products. Cost of goods sold increased to $8.6
million for the nine months ended January 31, 1999 from $4.0 million for the
same period in fiscal 1998. The primary reason for the increase was costs
associated with increased unit sales of our third generation echo cancellation
products.
GROSS MARGIN. Gross margin decreased to 52.4% for the nine months ended
January 31, 1999 from 53.6% for the same period in fiscal 1998. The primary
factor causing this decline in gross margin was the increase in royalties
payable to Telinnovation.
SALES AND MARKETING. Sales and marketing expenses primarily consist of
personnel costs including commissions and costs associated with customer
service, travel, trade shows and outside consulting services. Sales and
marketing expenses increased to $4.1 million for the nine months ended January
31, 1999 from $1.4 million for the same period in fiscal 1998. The primary cause
for the increase was increased expenditures associated with additional sales and
marketing personnel
23
<PAGE>
both domestically and internationally. The average number of sales and marketing
personnel for the nine months ended January 31, 1999 more than doubled as
compared to the same period in fiscal 1998. This increase in sales and marketing
personnel also resulted in a corresponding increase in personnel related costs
such as travel and accommodations. We plan to continue to increase our
expenditures in sales and marketing in order to broaden distribution of our
products both domestically and internationally.
RESEARCH AND DEVELOPMENT. Research and development expenses primarily
consist of personnel costs, contract consultants, and equipment and supplies
used in the development of echo cancellation and optical communications
products. Research and development expense increased to $2.9 million for the
nine months ended January 31, 1999 from $1.7 million for the same period in
fiscal 1998. The increase is primarily related to increased personnel and supply
costs needed to support both echo cancellation and optical communications
subsystem product development, including our fourth generation echo
cancellation, optical telemetry and WDM products. We expect research and
development expenses to continue to grow in future periods as we enhance current
products and develop new products.
GENERAL AND ADMINISTRATIVE. General and administrative expenses primarily
consist of personnel costs for corporate officers and finance personnel, and
legal, accounting and consulting costs. General and administrative expenses
increased to $1.6 million for the nine months ended January 31, 1999 from
$923,000 for the same period in fiscal 1998. The increase was primarily due to
increased personnel costs to support the increased level of operations and
increased legal costs associated with increased contract negotiations and an
arbitration matter. See "Business--Legal Proceedings." General and
administrative expenses also increased due to consulting costs associated with
the relocation to our new headquarters and implementation of our new financial
accounting system. We expect general and administrative expenses to increase as
a result of the additional reporting requirements and expenses incurred as a
public company and increased infrastructure costs as we continue to expand our
business.
OTHER INCOME (EXPENSE). Other income (expense) consists of interest expense
attributable to our outstanding debt and capital leases, offset by interest
income on our invested cash and cash equivalents balances. Other income
(expense) decreased to $398,000 for the nine months ended January 31, 1999 from
$458,000 for the same period in 1998. The decrease was primarily attributable to
reduced interest costs due to a decline in the average level of debt outstanding
during fiscal 1999 and increased interest income due to increased invested cash
balances.
INCOME TAXES. Income taxes consist of federal and state income taxes. The
effective tax rate for the nine months ended January 31, 1998 and 1999 was 40%.
We expect that our ongoing effective tax rate should remain at approximately
40%.
FISCAL YEARS ENDED APRIL 30, 1998 AND 1997
REVENUE. Revenue decreased to $12.3 million in fiscal 1998 from $14.1
million in fiscal 1997. The decrease was primarily due to a decline in purchases
of echo cancellation products by MCI, which began shortly before it was acquired
by Worldcom.
COST OF GOODS SOLD. Cost of goods sold decreased to $5.7 million in fiscal
1998 from $6.8 million in fiscal 1997. The decrease was primarily due to a
decrease in echo cancellation product sales and, to a lesser extent, to
reductions in the production cost of our echo cancellation products.
GROSS MARGIN. Gross margin as a percentage of revenue increased to 54.2% in
fiscal 1998 from 51.7% in fiscal 1997. The increase in gross margin percentage
was primarily due to a reduction in the production cost of our echo cancellation
products.
24
<PAGE>
SALES AND MARKETING. Sales and marketing expenses increased to $2.4 million
in fiscal 1998 from $1.5 million in fiscal 1997. The increase was primarily
attributable to increased personnel costs associated with sales and marketing
staff added in the second half of fiscal 1998 focused on both domestic and
international markets.
RESEARCH AND DEVELOPMENT. Research and development expense increased to
$2.4 million in fiscal 1998 from $1.1 million in fiscal 1997. The increase was
primarily caused by increased personnel and supplies needed to support both echo
cancellation and optical communications subsystem product development.
GENERAL AND ADMINISTRATIVE. General and administrative expense increased to
$1.3 million in fiscal 1998 from $714,000 in fiscal 1997. The increase was
primarily due to the expansion of the administrative services because of the
development of a stand-alone administrative organization. Prior to the
recapitalization in March 1997, the majority of our administrative services were
provided by a centralized corporate group that allocated its costs to us and the
entities that were divested as part of the discontinued operations.
OTHER INCOME (EXPENSE). Other expense increased to $593,000 in fiscal 1998
from $104,000 in fiscal 1997. The increase was due to the recognition of a full
year's interest on long term debt issued as part of the recapitalization in
March 1997 (subsequently refinanced in August 1997). This increased interest
expense was partially offset by increased interest income from increased
invested cash balances.
INCOME TAXES. The effective tax rate was 77% for fiscal 1998 as compared to
39% in fiscal 1997. The increase in the effective rate is primarily attributable
to a relatively small pre-tax income in fiscal 1998 and the existence of certain
nondeductible expenses.
DISCONTINUED OPERATIONS. We sold our call processing and marine radio
communications operations as part of our recapitalization in March 1997. As a
result, our financial information for fiscal 1997 reflects ten and one half
months of operating results of these entities and the ultimate gain realized on
their disposal (see Note 3 of notes to the financial statements).
FISCAL YEARS ENDED APRIL 30, 1997 AND 1996
REVENUE. Revenue decreased slightly to $14.1 million in fiscal 1997 from
$14.4 million in fiscal 1996. Revenue remained relatively unchanged as we were
operating at a relatively sustained operations level prior to our
recapitalization and sale of discontinued operations. The focus of Automated
Call Processing at that time was to grow the operations of Globe Wireless, Inc.,
one of the discontinued operations, while not investing heavily in our ongoing
operations to maximize our cash flow. As a result, the level of fluctuations in
our revenue was not significant.
COST OF GOODS SOLD. Cost of goods sold decreased to $6.8 million in fiscal
1997 from $7.2 million in fiscal 1996. The decrease was primarily due to the 2%
decline in sales of echo cancellation products during fiscal 1997 as well as a
small reduction in the production cost of our echo cancellation products.
GROSS MARGIN. Gross margin increased to 51.7% in fiscal 1997 from 50.1% in
fiscal 1996 due primarily to a small reduction in production costs of our echo
cancellation products.
SALES AND MARKETING. Sales and marketing expense increased to $1.5 million
in fiscal 1997 from $1.0 million in fiscal 1996. The increase was primarily
related to increases in personnel and related expenses related to a 50% increase
in the domestic sales and marketing staff.
25
<PAGE>
RESEARCH AND DEVELOPMENT. Research and development expense remained
relatively constant at $1.1 million in fiscal 1997 compared to $1.0 million in
fiscal 1996, as we maintained our research and development efforts at a constant
level during that time.
GENERAL AND ADMINISTRATIVE. General and administrative expenses increased
to $714,000 in fiscal 1997 from $536,000 in fiscal 1996. The increase in 1997 as
compared to 1996 is attributable to an increase in the provision for bad debt, a
move to new office space and increased personnel related costs.
OTHER INCOME (EXPENSE). Other expense increased to $104,000 in fiscal 1997
from $5,000 in fiscal 1996. The increase in 1997 as compared to 1996 was due to
interest expense associated with the issuance of debt in March 1997 as part of
the recapitalization. This increased interest cost was partially offset by
increased interest income from increased invested cash balances.
INCOME TAXES. The effective tax rate was 39% for fiscal 1997 and 1996.
DISCONTINUED OPERATIONS. The loss from operations of the discontinued
operations increased to $2.8 million in fiscal 1997 from $1.4 million in fiscal
1996. This increase was primarily attributable to increased expenditures to
expand the marine radio communications operations.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited quarterly statement of
operations data for the seven quarters ended January 31, 1999. In the opinion of
our management, this information has been prepared substantially on the same
basis as the audited financial statements appearing elsewhere in this
prospectus, and all necessary adjustments, consisting of normal recurring
adjustments, have been made in the amounts stated below to present fairly the
unaudited quarterly results of operations. The quarterly data should be read in
conjunction with our audited financial statements and the notes thereto
appearing elsewhere in this prospectus. The results of operations for any one
quarter are not necessarily indicative of the results of operations for any
future period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31, JANUARY 31,
1997 1997 1998 1998 1998 1998 1999
--------- ------------ ------------ ----------- --------- ------------ ------------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Revenue............................. $ 2,708 $ 2,564 $ 3,415 $ 3,639 $ 5,124 $ 5,814 $ 7,087
Cost of goods sold.................. 1,301 1,134 1,594 1,622 2,408 2,704 3,476
--------- ------------ ------------ ----------- --------- ------------ ------------
Gross profit...................... 1,407 1,430 1,821 2,017 2,716 3,110 3,611
--------- ------------ ------------ ----------- --------- ------------ ------------
Operating expenses:
Sales and marketing............... 326 371 740 968 1,285 1,307 1,512
Research and development.......... 490 552 615 710 848 1,016 987
General and administrative........ 301 295 328 355 441 551 629
--------- ------------ ------------ ----------- --------- ------------ ------------
Total operating expenses........ 1,117 1,218 1,683 2,033 2,574 2,874 3,128
--------- ------------ ------------ ----------- --------- ------------ ------------
Income from operations.............. 290 212 138 (16) 142 236 483
Other income (expense), net......... (198) (142) (118) (135) (132) (136) (131)
--------- ------------ ------------ ----------- --------- ------------ ------------
Income (loss) before income
taxes........................... 92 70 20 (151) 10 100 352
Provision for (benefit from) income
taxes............................. 37 28 8 (49) 4 40 141
--------- ------------ ------------ ----------- --------- ------------ ------------
Net income (loss)................... $ 55 $ 42 $ 12 $ (102) $ 6 $ 60 $ 211
--------- ------------ ------------ ----------- --------- ------------ ------------
--------- ------------ ------------ ----------- --------- ------------ ------------
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------
JULY 31, OCTOBER 31, JANUARY 31, APRIL 30, JULY 31, OCTOBER 31,
1997 1997 1998 1998 1998 1998
----------- ------------- ------------- ----------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Revenue............................. 100.0% 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of goods sold.................. 48.0 44.2 46.7 44.6 47.0 46.5
----- ----- ----- ----- ----- -----
Gross margin...................... 52.0 55.8 53.3 55.4 53.0 53.5
----- ----- ----- ----- ----- -----
Operating expenses:
Sales and marketing............... 12.1 14.6 21.6 26.5 25.1 22.5
Research and development.......... 18.1 21.5 18.0 19.5 16.5 17.5
General and administrative........ 11.1 11.5 9.6 9.8 8.6 9.5
----- ----- ----- ----- ----- -----
Total operating expenses........ 41.3 47.6 49.2 55.8 50.2 49.5
----- ----- ----- ----- ----- -----
Income from operations.............. 10.7 8.2 4.1 (0.4) 2.8 4.0
Other income (expense), net......... (7.3) (5.5) (3.5) (3.7) (2.6) (2.3)
----- ----- ----- ----- ----- -----
Income (loss) before income
taxes......................... 3.4 2.7 0.6 (4.1) 0.2 1.7
Provision for (benefit from) income
taxes............................. 1.4 1.1 0.2 (1.3) 0.1 0.7
----- ----- ----- ----- ----- -----
Net income (loss)............... 2.0% 1.6% 0.4% (2.8)% 0.1% 1.0%
----- ----- ----- ----- ----- -----
----- ----- ----- ----- ----- -----
<CAPTION>
JANUARY 31,
1999
-------------
<S> <C>
Revenue............................. 100.0%
Cost of goods sold.................. 49.0
-----
Gross margin...................... 51.0
-----
Operating expenses:
Sales and marketing............... 21.3
Research and development.......... 13.9
General and administrative........ 8.9
-----
Total operating expenses........ 44.1
-----
Income from operations.............. 6.9
Other income (expense), net......... (1.9)
-----
Income (loss) before income
taxes......................... 5.0
Provision for (benefit from) income
taxes............................. 2.0
-----
Net income (loss)............... 3.0%
-----
-----
</TABLE>
Our quarterly sales trend over the seven quarters shows sequential increases
in revenue, except for the quarter ended October 31, 1997, which showed a
decline over the quarter ended July 31, 1997 due to a decline in purchases by
our largest customer shortly before it was acquired. The overall growth trend
reflects a broadening of our customer base as the increased sales staff both
domestically and internationally began to develop new customers. Gross margin
decreased in the quarter ended January 31, 1999 due to the increase in the
royalties payable to Telinnovation. Operating expenses generally increased over
the seven quarters as we expanded personnel levels in all operating expense
categories, with the largest increases in personnel occurring in sales and
marketing and research and development. Research and development expenses for
the quarter ended January 31, 1999 decreased slightly from the prior quarter's
levels primarily due to a slight reduction in spending after the development
efforts on our fourth generation echo cancellation products were substantially
completed in the quarter ended October 31, 1998.
Our quarterly operating results have fluctuated significantly in the past
and may fluctuate in the future as a result of several factors, some of which
are outside of our control. If revenue declines in a quarter, our operating
results will be adversely affected because many of our expenses are relatively
fixed. In particular, research and development and general and administrative
expenses do not change significantly with variations in revenue in a quarter.
See "Risk Factors--Our operating results have fluctuated significantly in the
past, and we anticipate that they may continue to do so in the future, which
could adversely affect our stock price."
STOCK-BASED COMPENSATION
With respect to certain stock option grants in fiscal 1999, we have recorded
deferred compensation of $433,000 as of January 31, 1999. We amortized
approximately $24,000 of the deferred compensation in fiscal 1999, and will
amortize the remainder over the corresponding vesting period of the stock
options. See Note 15 of notes to financial statements.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
From the beginning of fiscal 1994 through the date of the recapitalization
in March 1997, we satisfied the majority of our liquidity requirements through
cash flow generated from operations. In connection with our recapitalization in
March 1997, we had a net infusion of cash of approximately $4 million after
using the proceeds from issuance of preferred stock and subordinated debt to
repurchase common stock. Following our recapitalization, we satisfied the
majority of our liquidity requirements through cash flow generated from
operations and funds received upon exercises of stock options.
Operating activities used $102,000 of cash in fiscal 1998, primarily due to
the limited amount of profit for the year, increases in inventories and
reductions in accounts payable and accrued liabilities including royalties
payable, partially offset by a reduction of income taxes receivable. For the
nine months ended January 31, 1999, we generated $1.4 million in cash from
operations, primarily due to increased operating profits, increases in accounts
payable, income taxes payable and deferred revenue, partially offset by an
increase in inventories and other current assets.
Investing activities used $602,000 in cash in fiscal 1998 and $598,000 in
cash in the nine months ended January 31, 1999. These amounts primarily
represented purchases of property and equipment.
Financing activities used $62,000 in cash in fiscal 1998, consisting of
repayment on term debt partially offset by proceeds from the exercise of stock
options. For the nine months ended January 31, 1999, we generated $479,000 of
cash from financing, primarily from the exercise of stock options partially
offset by the principal repayments on the term debt.
As of January 31, 1999, we had cash and cash equivalents of $4.7 million. In
addition, we had a line of credit with the ability to borrow the lesser of $2.0
million or 80% of qualified accounts receivable. At January 31, 1999, borrowings
of $1.6 million were available and no borrowings were outstanding. Borrowings
under the line of credit bear interest at a rate of prime plus one-half of a
percent. The line of credit expires in August of 2000. At January 31, 1999, we
also had outstanding an aggregate of $7.5 million of term debt issued by a bank
in August of 1997. This debt replaced an original aggregate of $8.0 million
subordinated promissory notes issued to stockholders in connection with the
recapitalization in March of 1997. The term debt bears interest at a rate of
prime plus one-half of a percent per annum, payable quarterly along with
principal payments of $187,500, $562,500, and $562,500 per calendar quarter in
1999, 2000 and 2001, respectively. During the third and fourth quarter of fiscal
1998 and the second quarter of fiscal 1999, we were in violation of certain
minimum cash flow and ratio covenants related to both the term debt and credit
line. The bank has since waived these violations. We also had approximately
$200,000 available under a separate operating lease line of credit.
We have no material commitments other than obligations under operating
leases, particularly our facility lease. See Notes 6 and 15 of notes to
financial statements.
We anticipate significant increases in working capital on a period to period
basis primarily as a result of planned increased product sales and higher
relative levels of inventory and receivables. We will also continue to expend
funds on property and equipment related to the expansion of systems
infrastructure and office equipment to support our growth and lab and test
equipment to support on-going research and development operations.
We believe that we will be able to satisfy our cash requirements for at
least the next twelve months from a combination of the proceeds of this
offering, cash flow from operations and our bank line of credit.
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<PAGE>
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1 on
its financial statements and related disclosures.
IMPACT OF EUROPEAN MONETARY CONVERSION
We are aware of the issues associated with the changes in Europe resulting
from the formation of a European economic and monetary union ("EMU"). One change
resulting from this union required EMU member states to irrevocably fix their
respective currencies to a new currency, the euro, as of January 1, 1999, at
which date the euro became a functional legal currency of these countries.
During the next three years, business in the EMU member states will be conducted
in both the existing national currency, such as the French franc or the Deutsche
mark, and the euro. As a result, companies operating or conducting business in
EMU member states will need to ensure that their financial and other software
systems are capable of processing transactions and properly handing these
currencies, including the euro.
We are still assessing the impact that the conversion to the euro will have
on our internal systems, the sale of our products, and the European and global
economies. To date we have experienced limited sales activities in the European
economies, substantially all of which have been in U.S. dollars. We will take
appropriate corrective actions based on the results of such assessment. We have
not yet determined the cost related to addressing this issue.
IMPACT OF THE YEAR 2000 COMPUTER PROBLEM
The Year 2000 computer problem refers to the potential for system and
processing failures of date-related data as a result of computer-controlled
systems using two digits rather than four to define the applicable year. For
example, computer programs that have time-sensitive software may recognize a
date represented as "00" as the year 1900 rather than the year 2000.
Additionally, the month of February will have 29 days in the year 2000. These
problems could result in a system failure or miscalculations causing disruptions
of operations, including among other things, a temporary inability to process
transactions, send invoices, or engage in similar normal business activities.
STATE OF READINESS OF OUR PRODUCTS
We have been testing our existing products for use in the year 2000 and
beyond. Based on the results of these tests, we believe that the following
products are Year 2000 compliant:
<TABLE>
<CAPTION>
Optical Communications
Echo Cancellation Products Subsystem Products
- ------------------------------------- -------------------------------------
<S> <C>
18T1 EDFAs
18E1 DWDM Monitor
Quad T1 OTS
Quad E1 Transponder
Broadband Echo Cancellation System WDM Multiplexer/Demultiplexer
4SA
</TABLE>
29
<PAGE>
Certain of our customers may be using older versions of the above products
and, based on our testing, we believe they will not be required to upgrade those
products to become Year 2000 compliant. In addition, we have not tested certain
products for Year 2000 compliance that we no longer market, some of which might
still be in use.
STATE OF READINESS OF OUR INTERNAL SYSTEMS
We may be affected by Year 2000 issues related to non-compliant internal
systems developed by us or by third-party vendors. We are seeking assurances
from our third-party vendors for all systems in use by us and that are material
to our operations that such systems are Year 2000 compliant. We are not
currently aware of any Year 2000 problem relating to any of these internal
systems. We plan to test all such systems for Year 2000 compliance by June 30,
1999. We believe that we do not have any systems material to our operations that
contain embedded chips that are not Year 2000 compliant.
Our internal operations and business are also dependent upon the
computer-controlled systems of third parties such as suppliers, customers and
service providers. We believe that absent a systemic failure outside of our
control, such as a prolonged loss of electrical or telephone service, Year 2000
problems at such third parties will not have a material impact on us.
COST
Based on our assessment to date, we do not anticipate that costs associated
with remediating our non-compliant products or internal systems will be
material.
RISKS
Any failure to make our products Year 2000 compliant could result in:
- a decrease in sales of our products;
- an increase in allocation of resources to address Year 2000 problems of
our customers without additional revenue commensurate with such dedication
of resources; and/or
- an increase in litigation costs relating to losses suffered by our
customers due to such Year 2000 problems.
Failures of our internal systems could temporarily prevent us from
processing orders, issuing invoices, and developing products, and could require
us to devote significant resources to correcting such problems. Due to the
general uncertainty inherent in the Year 2000 computer problem, resulting from
the uncertainty of the Year 2000 readiness of third-party suppliers and vendors,
we are unable to determine at this time whether the consequences of Year 2000
failures will have a material impact on our business, results of operations, and
financial condition.
30
<PAGE>
BUSINESS
COMPANY OVERVIEW
Ditech designs, develops and markets equipment used in building and
expanding telecommunications and cable communications networks. Our products
fall into two categories, echo cancellation equipment and optical communications
subsystems. Our echo cancellation products eliminate echo, which is a
significant problem in existing and emerging networks. Echo results from speech
signals that are reflected back to the speaker during a telephone call, making
conversation difficult. This effect is most pronounced when two people are
talking over long distance, satellite, cellular, PCS or packetized networks. Our
echo cancellation products use a software-intensive architecture coupled with
one of the latest commercially available DSPs to cancel echo and enhance the
quality of voice communications. To date, the vast majority of our revenue has
been derived from sales of our echo cancellation products. Our optical
communications subsystem products enable the implementation of WDM technology,
which is becoming more widely adopted by service providers to address network
capacity constraints. Ditech's optical communications subsystem products are
designed to function either as stand-alone products or as a complete system
known as the Optical Path Solution.
INDUSTRY OVERVIEW
TRENDS IN THE TELECOMMUNICATIONS INDUSTRY
The overall volume of voice and data traffic transmitted over
telecommunications and cable communications networks has grown rapidly in recent
years. Data traffic has grown due to the increased utilization of the Internet,
corporate data networks and higher bandwidth applications. Voice traffic, while
a more mature market, has increased steadily in the U.S. and more quickly
worldwide as wireline, wireless and satellite services are more widely deployed
internationally. As a result of this growth in data and voice traffic, networks
are increasingly operating at or near capacity. To deal with these capacity
constraints, incumbent and emerging service providers are investing significant
resources in the enhancement of existing and the deployment of new fiber optic,
wireless and satellite networks. This infrastructure deployment results in
significant opportunities for companies that provide the building blocks for
these networks.
Service providers, struggling to meet the demands of increasing traffic,
also face intense competition as worldwide deregulation and privatization have
enabled new players to enter the market. Growing numbers of service providers
are both expanding legacy infrastructures and building out new networks. As a
result, traffic that previously was carried through the network of a single
service provider, is now routed through the networks of multiple service
providers. These networks are comprised of equipment from several different
vendors that must carry traffic over existing and emerging infrastructures. This
added complexity makes it more difficult to ensure network reliability and
service quality. Service providers operating in an increasingly competitive
industry must cost-effectively meet these challenges or lose business to
competitors who can.
ECHO CANCELLATION MARKET
In the current deregulated market, voice quality is a key competitive
differentiator. One of the primary challenges faced by service providers in
delivering quality voice communication is the elimination of echo. Echo results
from signal reflection at the "hybrid," commonly the point where the two wires
of the local network meet the four wires of the long distance network. The
hybrid is not completely efficient in carrying the electrical energy from the
four-wire network to the two-wire network, and a certain amount of the
electrical energy or voice signal is reflected back from the hybrid towards the
speaker. Echo is present whenever the one-time delay of a rebounded voice signal
exceeds 16 milliseconds. If the delay exceeds 32 milliseconds, the quality of
the voice call
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<PAGE>
begins to degrade and an echo is reflected back to the speaker. When these echo
problems are present, people describe the effect as their voices sounding hollow
or like someone talking in a tunnel. Delays, either due to a long transmission
path, as in a long distance telephone call, or due to the complex signal
hand-off from one network to another, for instance wireless to wireline,
exacerbate the effect of echo. Therefore, most long distance, digital wireless
and satellite voice calls require echo cancellation. Delays are also introduced
as intelligent processing equipment is increasingly incorporated into networks.
Digital processing of voice signals requires time to compress, decompress and
route signals through networks. As there is a greater shift towards voice-over
packet, which is a means of packaging voice signals into units of digital data
for efficient transmission, these processing delays will continue to increase.
Voice-over Internet, voice-over ATM and voice-over Frame Relay are examples of
voice-over packet networks.
To address these delays, service providers deploy echo cancellation
technology that quickly analyzes all voice channels and cancels any reflected
signals.
How an Echo Canceller Works
[Box in the center labeled "Echo Canceller" in which a smaller box is found
labeled "DSP." Inside the large box and above the smaller box are the words
"DSP" Cancels Echo." At the right of the box is a telephone, with a line leading
out of it to the left through the embedded boxes and out the other side, then
through a small box labeled "Hybrid" and to another telephone. At the small box
labeled "Hybrid" there is a dotted line leading back into the large box to the
box labeled "DSP" where it stops. Above the dotted line are the words "Reflected
signal." The text below this graphical representation describes what is being
depicted in the graphical representation]
As the figure above shows, a speaker's voice signal travels over the
network. At the hybrid, part of the speaker's voice signal is
reflected back towards the speaker. The DSP within the echo canceller
eliminates or cancels this reflected signal so the original speaker
does not hear an echo.
Service providers are demanding both smaller and higher capacity equipment
as space in service provider facilities and central offices is becoming more
crowded. In addition, due to intense competition, service providers are
expanding network services offered to consumers. In order to compete
successfully, they must deliver these services reliably and under the strict
time-to-market and cost constraints demanded by consumers. Echo cancellation
products that address these market pressures are poised to gain share in a
market that is expanding worldwide.
While we are unaware of any independent analysis of the size and growth
characteristics of the echo cancellation market, we believe the demand for echo
cancellation will increase with the growth of the international market for voice
services, digital wireless networks and voice-over packet technology.
Additionally, as data and voice networks converge, we expect echo cancellation
products to be key building blocks for most existing and emerging networks,
regardless of the proportion of voice traffic that they carry.
OPTICAL COMMUNICATIONS PRODUCTS MARKET
The rise in traffic volumes, increased competition in the telecommunications
industry, and the increased complexity of voice and data networks have spurred
the deployment of several new technologies. Service providers seeking to expand
the capacity of their fiber optic network currently have three primary
alternatives: laying new fiber optic cables, implementing time division
multiplexing ("TDM"), or deploying WDM. While appropriate for certain service
providers, laying new fiber optic cables and implementing technologies based on
legacy infrastructures such as TDM have significant drawbacks. Installing new
fiber optic cable is a costly and time-consuming process for service providers.
Similarly, TDM requires significant investment in network equipment and has
inherent bandwidth limitations. WDM allows service providers to multiply their
bandwidth capacity
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<PAGE>
without the costs and delays associated with installing new fiber. By
multiplying the number of channels that travel over wavelengths of light in a
fiber optic cable, WDM significantly increases the ability to expand network
bandwidth. Dense wavelength division multiplexing ("DWDM") increases network
bandwidth even more by increasing the number of channels on a single fiber optic
connection. As a result, many service providers are attracted to the scalability
of WDM and DWDM and their ability to multiply the capacity of existing fiber.
Like traditional service providers, cable communications service providers are
increasingly deploying WDM systems in order to meet traffic demands from a
growing number of subscribers using cable modems and other high-bandwidth access
devices. According to Ryan Hankin Kent, a market research firm in the
telecommunications industry, sales of WDM systems in the U.S. are expected to
increase approximately 58% over the next five years, rising from $1.9 billion in
1998 to $3.0 billion in 2002.
Despite the substantial growth in data and voice traffic, there are
currently impediments to the widespread deployment of WDM by service providers.
WDM enables a single fiber connection to carry more traffic, making the
reliability of that connection increasingly important. Any interruption of
service on a single fiber could disrupt service to tens of thousands of
end-users, resulting in severe business consequences for service providers,
including regulatory fines and loss of business. WDM is also currently expensive
to implement. To date, WDM has been deployed primarily in U.S. long distance
networks where the vast aggregation of traffic and the revenue it generates can
justify its expense. Local exchange carriers and international service providers
have lagged behind U.S. long distance service providers in deploying WDM
technology. Industry analysts expect this trend to reverse as local exchange and
international service providers face growing bandwidth demands of consumers and
businesses using high bandwidth applications, such as the Internet.
DITECH'S SOLUTIONS
ECHO CANCELLATION SOLUTION
Ditech designs, develops and markets echo cancellation products for
wireline, wireless, satellite and cable communications networks throughout the
world. Our products use a software-intensive architecture coupled with one of
the latest commercially available DSPs to cancel echo and enhance the quality of
voice communications. We believe our architectural approach enables us to offer
the highest capacity echo cancellation products currently commercially
available. The key elements of our echo cancellation solution include:
EFFICIENT ARCHITECTURAL APPROACH. Our dynamic allocation of resources
technology ("DART") is designed to solve the echo problem more efficiently than
other solutions, by applying processing power only when and where it is needed.
By using DART, a single DSP can monitor multiple channels and dynamically assign
the full processor resources to each echo problem as it arises. Using this
efficient architectural approach, we can build our echo cancellation products
with fewer dedicated processors and fewer memory integrated circuits ("ICs"),
which reduces product size and power consumption requirements.
TIME-TO-MARKET ADVANTAGES. Based on an intelligent software algorithm, the
DART approach enables us to utilize off-the-shelf ICs and DSPs. Competitive echo
cancellation solutions using application specific integrated circuits ("ASIC")
are more expensive to design, require more development time and are difficult to
upgrade. Our approach leverages rapid technological advances in the commercial
IC and DSP industries. As a result, we believe that we are able to deliver high
performance products to market with shorter product development cycles and lower
investments in capital equipment than alternative solutions.
LOWER TOTAL COST OF OWNERSHIP. Our software-intensive compact design allows
us to offer echo cancellation products with approximately two to four times as
much echo cancelling capacity as
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<PAGE>
other commercial suppliers based on a seven-foot industry standard equipment
rack located in service providers' central offices or remote facilities. This
higher capacity (more echo cancellation capacity per rack) represents cost and
space savings for service providers. Our newest generation product will also
offer more efficient cabling and network equipment installation, saving service
providers even more space and deployment expense. Our products are designed to
allow service providers to remotely download and upgrade software via the
Internet without interrupting network service or dispatching a technician to the
remote site, which also lowers the cost of ownership. Finally, our products
consume less power than other solutions, resulting in greater reliability and
additional cost savings for our customers.
REMOTE MONITORING AND SERVICE ASSURANCE. Our real-time monitoring
technology, known as reflectometry, allows remote monitoring of real-time
performance data. Service providers can use this technology to identify problems
remotely and address them proactively. We are also able to assist our customers
on-line during this process. As a result, service providers can improve
performance levels and monitor voice quality on a consistent basis. Remote
monitoring systems also reduce our customers' costs by reducing the number of
technical personnel required for on-site services.
OPTICAL COMMUNICATIONS PRODUCTS SOLUTION
Ditech designs, develops and markets a suite of optical communications
subsystems for telecommunications and cable communications networks. This suite
of products is called the Optical Path Solution and is comprised of optical
amplifiers, an optical telemetry system ("OTS"), WDM multiplexers and
demultiplexers, transponders and a DWDM monitor. To date we have shipped only
our optical amplifier product. The key characteristics of our Optical Path
Solution include:
PRODUCT BREADTH, MODULARITY, INTEROPERABILITY AND SCALABILITY. We provide
our customers with the option of purchasing our optical communications
subsystems as either stand-alone products or our Optical Path Solution as a
complete system. Our products are modular in nature and adhere to optical
communications operating standards. Therefore, our products are interoperable
with the optical communications subsystems and systems of other manufacturers.
Customers can purchase our products to expand or improve existing optical
communications systems. Our products are also scalable, which enables our
customers to improve their existing optical communications systems, or to expand
network capacity, on an as-needed basis.
COST-EFFECTIVE SOLUTIONS FOR SERVICE PROVIDERS. Our optical products offer:
sophisticated monitoring and control features; modular, scalable subsystems; and
standards-based software and hardware. These characteristics are designed to
reduce overall network maintenance costs. In addition, we believe our optical
amplifiers' superior performance lowers our customers' capital costs. We have
focused on cost-effectiveness as a product design goal so that not only long
distance carriers, but also local exchange carriers, can justify deploying WDM
technology.
SUPERIOR OPTICAL AMPLIFIER PERFORMANCE. Our optical amplifiers are based on
widely accepted EDFA (erbium doped fiber amplifier) technology, and we believe
that our optical amplifiers provide superior performance features that offer
consistent amplification and low noise figures, allowing optical signals to
travel longer distances without degradation. As a result, our products maintain
the quality of the optical signal over longer territorial spans, which reduces
the need for additional equipment and intervention by service providers.
REMOTE MONITORING AND MANAGEMENT CAPABILITY. All of our products are
designed with features that allow remote monitoring and management. These
features enable service providers to remotely monitor and predict service
outages in optical networks, which helps to improve reliability and lower the
troubleshooting costs involved in on-site monitoring. OTS management software
also helps facilitate communications between legacy network management software
and our products.
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<PAGE>
This promotes the use of our products on existing networks and lowers overall
cost of ownership. Additionally, the OTS has many customizable capabilities for
service providers to cost-effectively monitor and manage their facilities and
equipment.
DITECH'S STRATEGY
Our objective is to become a leading provider of the echo cancellation and
optical communications subsystem products required to cost-effectively build and
manage telecommunications and cable communications networks. Key elements of our
strategy include the following:
EXTEND TECHNOLOGY LEADERSHIP. We invest in product development and
enhancement efforts that are designed to provide service providers and the OEMs
that serve them higher capacity products with key price performance and
management advantages. Our use of commercially available technology and products
enables us to incorporate technological advances quickly with reduced research
and development costs. This provides a time-to-market advantage that enables us
to rapidly deploy our products within strict time constraints demanded by our
customers. We collaborate with our customers to develop value-added products
designed to meet customer needs.
INCREASE OPTICAL COMMUNICATIONS SUBSYSTEM PRODUCTS GROWTH. Our optical
amplifier began shipping in the third quarter of calendar 1996. Since our
initial product release, we have introduced three optical communications
subsystem products and are developing additional products, which together
comprise our complete suite of optical communications subsystems known as the
Optical Path Solution. We intend to allocate significant resources to expand
this product line and increase our optical communications product revenue.
EXPAND AND LEVERAGE DISTRIBUTION CHANNELS. We have expanded our direct
sales channels in North America to Latin America, Europe and Asia. In addition,
we are actively pursuing select and strategic OEM relationships for specific
geographical markets or technology segments, and have already entered into one
such relationship. We believe that OEM channels enable greater market share
penetration while reducing customer support costs. We intend to leverage our
reputation for providing high quality products and customer support in the echo
cancellation market to increase the penetration of our optical communications
subsystem products. To further our presence and penetration in the global
telecommunications market, we will continue to expand our direct sales force and
broaden channels of distribution.
STRENGTHEN EXISTING AND DEVELOP NEW CUSTOMER RELATIONSHIPS. We intend to
continue to strengthen our customer-centric culture and support programs. We
offer a full suite of support services, including twenty-four hour technical
support seven days a week, a five-year product warranty, and engineering,
installation and field support. We intend to continue to design and develop
technology that enables us to assist our customers in diagnosing problems
on-line.
DELIVER COST-EFFECTIVE SOLUTIONS. We achieve cost-effective solutions as a
result of our business approach and product design philosophy. Our
software-intensive designs provide high performance, flexibility, upgradabililty
and remote monitoring and management. In addition, our modular, scalable
products allow our customers to build-out their networks on an incremental
basis. With designs that allow the use of some of the latest commercially
available electronic and optical component technologies, we can rapidly deliver
advanced products at low cost. Our products' open architecture also enables our
customers to build and operate multi-vendor equipment networks, allowing them to
better choose the combination of products most suitable for their specific
needs.
EXPAND OUTSOURCED MANUFACTURING. We intend to establish additional
third-party turnkey manufacturing relationships designed to decrease production
costs while increasing manufacturing
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<PAGE>
volumes and order fulfillment requirements and accelerating product deployment.
We fulfill a majority of our echo cancellation equipment orders within thirty
days, which is a key competitive advantage. We intend to continue to design
products that facilitate higher manufacturing volumes, rapid order fulfillment
and deployment at lower costs.
PRODUCTS
ECHO CANCELLATION PRODUCTS
All of our echo cancellation products are designed to cancel echo in
wireline, wireless, satellite, packetized and cable communications networks. Our
echo cancellation product family consists of six products. The 18T1 and 18E1 are
our third generation echo cancellation products and have been deployed in
significant volumes since March 1995. The Quad T1 and Quad E1 products are our
fourth generation echo cancellation products. Production shipment commenced for
our Quad T1 and E1 products in the first quarter of calendar 1999. The 4SA is
designed for small office and network environments by utilizing a single Quad T1
module that is placed on top of a voice access device, such as a private branch
exchange ("PBX"). The 4SA commenced production shipment in the first quarter of
calendar 1999. The Broadband Echo Cancellation System ("BBEC") is a system level
product that employs the Quad T1 and is currently in early stages of beta
testing with customers. We believe we will begin production shipment of the BBEC
in the second quarter of calendar 1999.
Our echo cancellation product family shares several common advantages:
HIGHER CAPACITY. We believe our fourth generation echo cancellation
products have approximately two to four times the echo cancellation capacity of
currently commercially available competitive products.
HIGH PERFORMANCE. Our echo cancellation products cancel echo in less than
50 milliseconds, which is a significant improvement relative to industry
standard cancellation times of 100 to 500 milliseconds as defined by the
International Telecommunication Union ("ITU"), the organization responsible for
developing global telecommunications standards.
REMOTE SOFTWARE UPGRADABILITY. With our products, the latest software
upgrades can be downloaded remotely and incorporated into our products without
taking the echo cancellation products off-line and interrupting service.
LOWER POWER CONSUMPTION. We believe our products generally require less
power than competitive products as a result of our software-intensive design and
use of fewer ICs.
ITU STANDARDS. Our products are fully compliant with current ITU standards.
As a member of the ITU, we actively participate in establishing the evolving
global standards.
WARRANTY. We offer a five-year warranty on all of our echo cancellation
products.
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<PAGE>
The following table provides additional information with respect to each of
our echo cancellation products:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION FUNCTIONALITY
<S> <C> <C>
18T1 Single port echo canceller for use - A high capacity product that
at T1 (1.544 Mb/s) transmission rate cancels 220 T1 lines per seven-foot
(North American markets) industry standard equipment rack
- Low power consumption
18E1 Single port echo canceller for use - A high capacity product that
at E1 (2.048 Mb/s) transmission rate cancels 126 E1 lines per 2.1 meter
(international markets and North international industry standard
American gateway applications) equipment rack
- Low power consumption
Quad T1 Single module including four - Doubles the capacity of nearest
independent T1 cancellers (North commercially available competitive
American markets) product
- Cancels 480 T1 lines per rack
Quad E1 Single module including four - Doubles the capacity of nearest
independent E1 cancellers commercially available competitive
(international markets and North product
American gateway applications) - Cancels 480 E1 lines per rack
4SA Single Quad T1 module (North Ameri- - Designed for small office and net-
can markets) work environments
BBEC Broadband echo cancellation system - First system level echo
utilizing DS3 (45 Mb/s) interfaces cancellation product
to accommodate the growing adoption - Uses two DS3s per shelf
of higher speed broadband - Reduces bulky T1 cabling and
infrastructures (North American installation
markets) - Fault tolerant architecture and
autonomous alarm reporting via
Ethernet to simplify fault
isolation
- Cancels 336 T1s per rack
</TABLE>
OPTICAL COMMUNICATIONS SUBSYSTEM PRODUCTS
Our suite of optical communications subsystem products, called the Optical
Path Solution, is intended for use in telecommunications and cable
communications networks throughout the world. Our Optical Path Solution is
comprised of optical amplifiers, an OTS, transponders, four-channel WDM
multiplexers and demultiplexers, and a DWDM monitor. All of these subsystems are
intended to be sold either as stand-alone products or as a complete system. All
of our optical communications subsystem products are commercially available,
except the DWDM monitor, which is undergoing customer beta testing. As of
January 31, 1999, we have only recognized revenue for our optical amplifiers,
which have been shipping since the third quarter of calendar 1996. Our
sixteen-channel DWDM multiplexers and demultiplexers are currently in
development.
Our optical product family shares several common advantages:
INTEROPERABLE IN MULTI-VENDOR ENVIRONMENT. Our subsystems and modules are
built to industry standards so that they easily interoperate with different
vendors' facilities and shelving.
DESIGNED TO INDUSTRY STANDARDS. Our suite of products are designed to meet
industry standards, such as those from the ITU.
REMOTE MONITORING AND MANAGEMENT. Our products are designed to function in
a sophisticated, remote monitoring and management environment.
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<PAGE>
WARRANTY. We offer a five-year warranty on all of our optical products.
The following table provides additional information with respect to each of
our optical products:
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------
PRODUCT DESCRIPTION FUNCTIONALITY
<S> <C> <C>
Optical amplifiers Complete suite of transmit, line and - Consistent optical amplification
receive amplifiers that are based on and low noise figures, making them
EDFA technology suitable for DWDM applications
- Supports higher bandwidth fiber
optic channels, allowing service
providers to expand bandwidth
without upgrading our amplifiers
Optical Telemetry Optical and element management and - Enables remote management and
System (OTS) facility monitoring solution that is monitoring of both our products and
designed with open interface legacy network equipment and
architecture facilities
- Management and monitoring commands
are carried on a supervisory
channel in the same fiber as the
revenue traffic but using
out-of-band wavelengths, thereby
not displacing revenue-generating
bandwidth
- Packaged in a compact module to
minimize space requirements
WDM Multiplexer And Four channel solution that combines - Packaged in a compact module to
Demultiplexer multiple optical wavelengths onto minimize space requirements
one fiber. At the far end, these - Accommodates network growth by
same devices function in reverse as supporting higher bandwidth fiber
demultiplexers optic channels
Transponder Accepts an optical signal from a - Allows legacy non-ITU compliant
legacy laser source and re-transmits transmission equipment to be used
the signal at an industry standard on WDM networks
compliant optical wavelength - Packaged in a compact module that
suitable for transmission on a WDM is half the size of currently
network commercially available competing
products
DWDM Measures wavelength amplitude - Remotely deployable unit that is
Monitor signal- to-noise ratio and gain environmentally tolerant
flatness of each optical channel in - Sophisticated real-time monitoring
a multi-wavelength network, allowing of each optical signal
service providers to identify - User definable alarm thresholds
transmission path degradations - Easy to use graphical user
before they become service-affecting interface
</TABLE>
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<PAGE>
The following diagram illustrates how our optical communications subsystems
operate in a network environment.
DITECH'S OPTICAL COMMUNICATION SUBSYSTEMS
[Graphical illustration of a telecommunication network. To the left is a white
box labeled "SONET/ SDH Terminal Packet Switch." Out of this box come 4 arrows
to the right to a stack of 4 gray boxes each labeled with a "T" to denote that
they are Transponders. Out of each of these boxes come an arrow to the right to
a gray trapezoid labeled "WDM Mux." Out of this comes one arrow to the right to
a gray triangle labeled "EDFA" and under which are the words "Transmit
Amplifier." Out of this comes one arrow to the right to a gray triangle labeled
"EDFA" and under which are the words "Line Amplifier." Out of this comes one
arrow to the right to a gray triangle labeled "EDFA" and under which are the
words "Receive Amplifier." Out of this comes an arrow to the right to a gray
trapezoid labeled "WDM DeMux." Out of this come 4 arrows to the right to a white
box labeled "SONET/SDH Terminal Packet Switch." Above each of the two white
boxes labeled "SONET/SDH Terminal Packet Switch" is a cloud with the words
"Voice," "Data," and "Video" in it with a dotted line coming out of it to the
white box.
Above the graphical representation described above is the figure of a person at
a computer labeled "Technician" with a dotted line out of the computer leading
to two boxes, one of which is labeled "Network Management System" and one of
which is labeled "Optical Telemetry System (OTS)." Out of these boxes comes a
dotted line that splits into three lines, each leading to a box labeled "OTS."
Out of each of these boxes is a dotted line leading through one of the optical
amplifiers described above, then to a box labeled "Monitor."
Below the graphical representation described above is a white box and a gray
box. The white box is labeled "Multivendor Equipment" and the gray box is
labeled "Ditech Subsystems" to denote which of the components in the items
graphical representation are Ditech's subsystems]
CUSTOMERS
Our principal customers are competitive local exchange carriers, satellite,
wireless, cellular and cable communications service providers. Among our more
than fifty customers that have purchased our products in fiscal 1999, the
following is a list of our top ten customers by sales volume for that period:
<TABLE>
<S> <C>
Qwest/LCI GCI
Frontier Communications GST
MCI Worldcom Ericsson Venezuela
GTE Telecom RSL
Facilicom Electonica Multimedia
</TABLE>
In addition to these service providers, we have sold products to one OEM.
Selected examples of our customers and their applications of our products are as
follows:
QWEST/LCI. Qwest is a long-distance telecommunications company with 8,600
employees. In June 1998 Qwest acquired LCI, which provides telephone service to
commercial customers in over 40 U.S. markets. Qwest/LCI is Ditech's largest
customer and is installing Ditech's echo cancellation products in the build-out
of its national fiber optic network.
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<PAGE>
FRONTIER COMMUNICATIONS. Frontier Communications is one of the leading
providers of integrated communications services, providing local phone service
in 32 states and the District of Columbia. Frontier Communications is a business
unit of Frontier Corporation, which had 1997 revenues exceeding $2.4 billion and
employs more than 8,000 employees. Frontier uses Ditech's echo cancellation
products in its long distance and wireless networks.
MCI WORLDCOM. MCI Worldcom is a global communications company with revenue
of more than $30 billion and established operations in over 65 countries
encompassing the Americas, Europe and the Asia Pacific regions. MCI Worldcom's
global networks provide end-to-end high-capacity connectivity to more than
40,000 buildings worldwide. MCI Worldcom uses Ditech's echo cancellation
products in its domestic and international networks.
GTE TELECOM. GTE Telecom is one of the nation's leading telecommunications
companies, employing over 27,000 people and providing 5.4 million telephone
access lines. GTE Telecom is a business unit of GTE Corporation, one of the
world's largest telecommunications companies, reporting 1998 revenues of more
than $25 billion. GTE Telecom uses Ditech's echo cancellation products in its
long distance and wireless networks.
FACILICOM Facilicom is a leading telecommunications service provider and
supports a worldwide fiber optic network. Facilicom's strong European base has
enabled it to develop strong relationships with state-owned telephone companies
throughout the world. Facilicom uses Ditech's echo cancellation products in its
domestic and international networks.
GCI. GCI, located in Alaska, provides services to more than 150,000
residential, commercial and government customers. In November 1996, GCI
purchased three leading cable television companies giving the company wired
access to 78% of the state's households in 17 of the state's largest
communities. GCI had 1997 revenues of $224 million. GCI uses Ditech's optical
amplifiers in its network.
Our customer base is highly concentrated, and a small number of customers
has accounted for a significant portion of our total revenue. Over 75% of our
revenue came from our five largest customers in the first nine months of fiscal
1999 and in fiscal 1998. Qwest/LCI accounted for 51% of our revenue in the first
nine months of fiscal 1999, and 42% of our revenue in fiscal 1998. Our four next
largest customers accounted collectively for 25% of our revenue in the first
nine months of fiscal 1999 and 38% of our revenue in fiscal 1998. MCI accounted
for $7.6 million, or more than 50%, of our revenue in fiscal 1997, but only $1.4
million, or approximately 11%, of our revenue in fiscal 1998. This reduction
began shortly before the acquisition of MCI by Worldcom.
RESEARCH AND DEVELOPMENT
We have engineering departments dedicated to and focused on developing high
performance echo cancellation products and optical communications products.
These engineering departments are staffed with appropriate talent in software
and hardware, radio-frequency ("RF"), mechanical and test engineering, and
photonic physics. In addition, we have created an independent product
verification group whose charter is to ensure that we meet customers'
expectations from an ease-of-use perspective.
Our research and development expenses for the nine months ended January 31,
1999, fiscal 1998, fiscal 1997 and fiscal 1996 were approximately $2.9 million,
$2.4 million, $1.1 million and $1.0 million, respectively. We intend to increase
our research and development budget and staffing levels in fiscal 2000. As of
February 28, 1999, we had 26 employees engaged in research and development,
including 9 engineers with advanced degrees. By continuing to develop new
generation echo cancellation and optical communications subsystem products, we
intend to leverage our ability to address various markets with a relatively
focused investment in research and development.
40
<PAGE>
We believe that recruiting and retaining qualified engineering personnel will be
essential to our continuing success.
MANUFACTURING
We intend to operate as a "virtual" manufacturing organization by relying on
contract manufacturers to assemble our echo cancellation products and our
optical communications subsystems. We perform only final test functions for our
echo cancellation products and both final assembly and test functions for our
optical communications products at our facility. We are ISO 9001 certified and
require that our contract manufacturers have ISO 9002 registration as a
condition of qualification. Our stringent incoming inspection procedures for
critical optical components include analysis and monitoring of the performance
characteristics of critical optical components and sub-assemblies. Our raw
materials are procured from outside suppliers through our contract
manufacturers. In procuring components, we and our contract manufacturers rely
on Texas Instruments as the sole source of our DSPs. See "Risk Factors--We
depend on Texas Instruments as the sole source of DSPs used in our products, the
loss of which could delay product shipments." Our future success will depend in
significant part on our ability to obtain manufacturing on time, at low costs
and in sufficient quantities to meet demand. See "Risk Factors--We are dependent
on a single manufacturer for our current products, and may not be able to reduce
manufacturing costs of our products to respond to decreasing average selling
prices."
SALES AND MARKETING
We have established a direct sales force that sells to our customers in the
U.S. and internationally. We also intend to expand the use of sales agents,
systems integrators, OEMs, and distributors to sell and market our products
internationally. We have entered into an agreement with an OEM for distribution
of our optical communications subsystem products and are exploring the
possibility of entering into others.
In 1998, we expanded our direct sales coverage by establishing regional
sales offices throughout the U.S. We believe that our products can serve a
substantial market for echo cancellation products and optical communications
products outside of the U.S. To address these growing international markets, we
opened a sales office in Beijing, China to support Asia, another office in
Stuttgart, Germany to cover Europe and an office in Miami, Florida to focus on
Latin America. In 1997 and 1998, we derived approximately 10% and 6% of our
total revenue, respectively, from customers in international markets.
We are committed to enhancing our brand recognition by continuing to exhibit
in trade shows, participate in industry conferences (e.g. SuperComm, CTIA, OFC,
Telexpo in Brazil, Com Cable in China) and organize targeted technical seminars
to expand our company and product visibility. We conduct direct marketing and
have ongoing communications with our customers, the press and industry analysts.
In addition, we intend to develop a sophisticated web site that will provide
detailed technical briefings and sales presentations to our customers.
CUSTOMER SUPPORT
We have established a dedicated department to provide pre-sales technical,
system engineering, post-sales and field service support. These services are
available from headquarters as well as regional offices. In addition, we offer
customer service around the clock every day of the week. We have also
established relationships with third-party organizations for engineering,
furnish and installation services in North America and Europe.
With remote monitoring and management capabilities designed into all of our
products, we are capable of assisting our customers in diagnosing problems
on-line, thereby reducing the time and
41
<PAGE>
costs associated with dispatching a technician to the remote site. In addition,
the detailed technical information we intend to provide on our website will
provide our customers with useful support information.
COMPETITION
The markets for our products are intensely competitive, continually evolving
and subject to rapid technological change. We believe that rapid product
introductions with price performance advantages is a critical competitive
factor. We believe we and our products also face competition in the following
areas:
- product features and enhancements (including improvements in product
performance, reliability, size, compatibility and scalability);
- cost of ownership (including power consumption and ease and cost of
maintenance);
- ease of product deployment and installation; and
- technical support and service.
Although we believe that we currently compete favorably with respect to all
of these factors, we may not have the financial resources, technical expertise
or marketing, manufacturing, distribution and support capabilities to compete
successfully in the future. We expect that competition in each of our markets
will increase in the future. In the echo cancellation market, our principal
competitors are Lucent and Tellabs for stand-alone products. Although Alcatel,
Nortel Networks, Ericsson and Nokia can provide echo cancellation in their
systems, they do not sell stand-alone products or compete in the open market.
Our principal competitors in the optical communications products market are
Alcatel, Ciena, Lucent and Pirelli.
Nortel Networks has announced that it is developing an integrated switch,
which would have echo cancellation capability built into it and would therefore
eliminate the need for the echo cancellation capability provided by our
products. Announcements such as these, or the commercial availability of such
switches or other competing products, may cause our customers to delay or cancel
orders for our products.
Competitors in any portion of our business are also capable of rapidly
becoming our competitors in other portions of our business. Many of our
competitors and potential competitors have substantially greater name
recognition and technical, financial, marketing, purchasing and other resources
than we do. As a result, these competitors may be able to respond more quickly
to new or emerging technologies or standards and to changes in customer
requirements, to devote greater resources to the development, promotion and sale
of products, or to deliver competitive products at a lower price. We may not be
able to compete successfully against our current or future competitors.
Existing and potential customers are also our current and potential
competitors. These companies may develop or acquire additional competitive
products or technologies in the future and thereby reduce or cease their
purchases from us. In addition, we believe that the size of suppliers will be an
increasingly important part of purchasers' decision-making criteria in the
future. We may not be able to grow rapidly and therefore compete successfully
with our existing or new competitors. In addition, competitive pressures faced
by us may result in lower prices for our products, loss of market share, or
reduced gross margins, any of which could materially and adversely affect our
business, financial condition and results of operations.
42
<PAGE>
PATENTS AND INTELLECTUAL PROPERTY RIGHTS
Our success will depend, in part, on our ability to protect our intellectual
property. We rely primarily on patent, copyright, trademark and trade secret
laws, as well as nondisclosure agreements and other methods to protect our
proprietary technologies and processes. Nevertheless, such measures may not be
adequate to safeguard the proprietary technology underlying our echo
cancellation and optical communications products. As of March 23, 1999, we had
three U.S. patents issued and five U.S. patent applications pending. These
patents expire between 2014 and 2016. No patents may issue as a result of these
or future applications. If they do issue, any patent claims allowed may not be
sufficiently broad to protect our technology. In addition, any existing or
future patents may be challenged, invalidated or circumvented, and any right
granted thereunder may not provide meaningful protection to us. The failure of
any patents to provide protection to our technology would make it easier for our
competitors to offer similar products.
In November 1998, we acquired the echo cancellation technology that we
previously licensed from Telinnovation. We acquired this technology for a total
purchase price of 250,000 shares of our common stock and $2.96 million, the cash
portion of which is to be paid upon the consummation of this offering. In
addition, we have been paying and are obligated to continue to pay royalties to
Telinnovation on the sales of our products incorporating this technology until
the $2.96 million cash portion of the purchase price has been paid from the
proceeds of this offering.
We generally enter into confidentiality agreements with our employees and
strategic partners, and generally control access to and distribution of our
documentation and other proprietary information. Despite these precautions, it
may be possible for a third party to copy or otherwise obtain and use our
products or technology without authorization, develop similar technology
independently or design around our patents. In addition, effective patent,
copyright, trademark and trade secret protection may be unavailable or limited
outside of the U.S., Europe and Japan. We may not be able to obtain any
meaningful intellectual property protection in such countries and territories.
Further, we occasionally incorporate the intellectual property of our customers
into our designs, and we have certain obligations with respect to the non-use
and non-disclosure of such intellectual property. However, the steps taken by us
to prevent misappropriation or infringement of the intellectual property of our
company or our customers may not be successful. Moreover, litigation may be
necessary in the future to enforce our intellectual property rights, to protect
our trade secrets or to determine the validity and scope of proprietary rights
of others, including our customers. Such litigation could result in substantial
costs and diversion of our resources and could have a material adverse effect on
our business, financial condition and results of operations.
The telecommunications equipment industry is characterized by vigorous
protection and pursuit of intellectual property rights. We may receive in the
future notices of claims of infringement of other parties' proprietary rights.
We may not prevail in actions alleging infringement of third-party patents. In
addition, the invalidity of our patents may be asserted or prosecuted against
us. In addition, in a patent or trade secret action, an injunction could issue
against us, requiring that we withdraw certain products from the market or
necessitating that certain products offered for sale or under development be
redesigned. We have also entered into certain indemnification obligations in
favor of our customers and strategic partners that could be triggered upon an
allegation or finding of our infringement of other parties' proprietary rights.
Irrespective of the validity or successful assertion of such claims, we would
likely incur significant costs and diversion of our resources with respect to
the defense of such claims, which could also have a material adverse effect on
our business, financial condition and results of operations. To address any
potential claims or actions asserted against us, we may seek to obtain a license
under a third party's intellectual property rights. Under such circumstances, a
license may not be available on commercially reasonable terms, if at all.
43
<PAGE>
Substantial inventories of intellectual property are held by a few industry
participants, such as Lucent, Nortel Networks and certain major universities and
research laboratories. This concentration of intellectual property in the hands
of a few major entities also poses certain risks to us in seeking to hire
qualified personnel. We have on a few occasions recruited such personnel from
such entities. These entities or others may claim the misappropriation or
infringement of their intellectual property, particularly when and if employees
of these entities leave to work for us. We may not be able to avoid litigation
in the future, particularly if new employees join us after having worked for a
competing company. Such litigation could be very expensive to defend, regardless
of the merits of the claims, and could have a material adverse effect on our
business, financial condition and results of operations.
EMPLOYEES
As of February 28, 1999, we employed 85 persons, 20 of whom were primarily
engaged in operations, 26 of whom were engaged in research and development, 28
of whom were engaged in sales, marketing and technical support and 11 of whom
were engaged in finance and administration. Our employees are not represented by
any collective bargaining agreement, and we have not experienced a work
stoppage. We believe our employee relations are good.
FACILITIES
Our principal offices and facilities are located in one leased building
totaling 35,800 square feet in Mountain View, California. This lease expires on
December 15, 2003. We believe that our existing facilities are adequate to meet
our current needs.
LEGAL PROCEEDINGS
In January 1998, we filed a demand for Arbitration with the American
Arbitration Association in Los Angeles County against Antec Corporation, the
successor-in-interest through merger to Texscan Corporation. The demand for
arbitration alleges that Antec/Texscan breached a contract to purchase our
optical amplifier products and seeks monetary damages. Antec/Texscan have denied
liability and, in December 1998, filed a counterclaim against us claiming that
we breached the purchase contract first and seeking monetary damages. The matter
is set to complete arbitration in May 1999. Although we believe that we have a
valid claim to recover against Antec/Texscan for breach of contract and have
meritorious defenses to the counterclaim, if the case is resolved unfavorably to
us it could have a material adverse effect on our financial condition.
As of the date of this Prospectus, and other than as described above, we are
not involved in any material legal proceedings.
44
<PAGE>
MANAGEMENT
DIRECTORS, EXECUTIVE OFFICERS AND KEY EMPLOYEES
Certain information regarding Ditech's directors, executive officers and key
employees as of January 31, 1999 is set forth below.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ------------------------------------ --- ---------------------------------------------------------------------
<S> <C> <C>
Timothy K. Montgomery............... 46 President, Chief Executive Officer and Director
Toni M. Bellin...................... 53 Vice President of Operations
Salim N. Jabr....................... 46 Vice President of Engineering and Development, Optical Products
Serge Stepanoff..................... 56 Vice President of Engineering and Development, Echo Cancellation
Products
William J. Tamblyn.................. 40 Vice President and Chief Financial Officer
Pong C. Lim......................... 45 Chairman of the Board of Directors
Gregory M. Avis(1).................. 40 Director
Peter Y. Chung(2)................... 31 Director
William A. Hasler(1)(2)............. 57 Director
Kenneth E. Jones(1)................. 52 Director
George J. Turner.................... 61 Director
</TABLE>
- ------------------------
(1) Member of the Compensation Committee
(2) Member of the Audit Committee
TIMOTHY K. MONTGOMERY has served as Ditech's President and Chief Executive
Officer since September 1998 and as a Director since October 1998. From November
1997 to September 1998, he served as Ditech's Senior Vice President of Sales and
Marketing. Mr. Montgomery served as Vice President of Sales of Digital Link
Corporation, a manufacturer of digital access products for wide area networks,
from August 1993 to October 1997. From October 1992 to July 1993, Mr. Montgomery
worked as an independent consultant. From August 1986 to September 1992 Mr.
Montgomery was employed as Vice President of Sales at Telebit Corporation, a
networking company. Mr. Montgomery has a B.S.B.A. in marketing from Florida
State University.
TONI M. BELLIN joined Ditech in December 1998 as Vice President of
Operations. Before joining Ditech, Ms. Bellin served as the Vice President of
Operations for Digital Link Corporation from December 1993 to December 1998, and
as the Vice President of Operations of Zeiss Humphrey Systems, a medical capital
equipment manufacturer, from July 1987 to December 1993. Ms. Bellin has a B.A.
in business administration and an M.B.A. in executive management from St. Mary's
College.
SALIM N. JABR joined Ditech in May 1995 as Vice President of Engineering and
Development, Optical Products. In August 1994, Mr. Jabr founded ORCA Technology,
a company engaged in the development of DWDM systems. From November 1993 to
December 1994, Mr. Jabr was a senior staff manager for SDL Inc., a designer and
manufacturer of specialized semiconductor products. Mr. Jabr served as Director
of Optical Technology at Raychem Corporate Technology, a telecommunications and
industrial equipment manufacturing company, from September 1989 to November
1993. From June 1981 to September 1989, he worked at Litton Guidance and
Control, an aerospace company. He was also an Assistant Professor in Physics at
the University of Southern California from September 1979 to August 1981. Mr.
Jabr has a Ph.D. in physics and an M.S. in electrical engineering from Yale
University, and a B.S. in physics from The American University in Beirut.
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<PAGE>
SERGE STEPANOFF joined Ditech in February 1987 and was its Vice President of
Engineering until May 1991. In September 1996, he rejoined Ditech and assumed
his current position of Vice President of Engineering and Development, Echo
Cancellation Products. Mr. Stepanoff worked as Director of Software at Telecom
Solutions, a telecommunications company, from March 1995 to August 1996. From
May 1991 to February 1995, he was a Senior Manager for MCI Communications, a
telecommunications company. He has a B.S. in electrical engineering from Heald
Engineering College and an M.S. in Computer Science from West Coast University.
WILLIAM J. TAMBLYN joined Ditech in June 1997 as a Vice President and Chief
Financial Officer. Mr. Tamblyn was the Chief Financial Officer at Conductus,
Inc., a telecommunications company, from December 1993 to June 1997. He served
as Chief Financial Officer at Ramtek, an imaging company, from May 1993 to
December 1993. Prior to May 1993, Mr. Tamblyn worked in public accounting,
including for Coopers & Lybrand, LLP. He has a B.S. in accounting from San Jose
State University and is a certified public accountant.
PONG C. LIM has served as Ditech's Chairman of the Board since October 1998.
From March 1997 to September 1998, Mr. Lim served as Ditech's Chief Executive
Officer and President. From May 1994 to March 1997, Mr. Lim served as Ditech's
President and Chief Operating Officer. From June 1989 to April 1994, Mr. Lim
served as General Manager of Santa Clara Business Unit, a division of DSC
Communications, a telecommunications company. Mr. Lim has a B.S. in civil
engineering from Drexel University and an M.B.A. in marketing and finance from
the University of Phoenix.
GREGORY M. AVIS has been a director of Ditech since February 1997. Mr. Avis
has served as a Managing Partner of Summit Partners, a private equity capital
firm, since 1990 and has been a General Partner since 1987. Summit Partners and
its affiliates manage a number of venture capital funds, including Summit
Ventures IV, L.P., Summit Investors III, L.P. and Summit Subordinated Debt Fund,
L.P., which are all stockholders of Ditech. Mr. Avis also serves as a director
of Extended Systems, Inc., a network peripherals and wireless communications
company; Powerwave Technologies, Inc., a designer and manufacturer of power
amplifiers for wireless communications; Splash Technology Holdings, Inc., a
developer of color server systems; and several privately held companies. Mr.
Avis received a B.A. from Williams College and an M.B.A. from Harvard
University.
PETER Y. CHUNG has been a director of Ditech since February 1997. Mr. Chung
is a Principal of Summit Partners, a private equity capital firm, where he has
been employed since August 1994. Summit Partners and its affiliates manage a
number of venture capital funds, including Summit Ventures IV, L.P., Summit
Investors III, L.P. and Summit Subordinated Debt Fund, L.P., which are all
stockholders of Ditech. From August 1989 to July 1992, Mr. Chung worked in the
Mergers and Acquisitions Department of Goldman, Sachs & Co. Mr. Chung also
serves as a director of E-Tek Dynamics, Inc., an optical components and modules
company; Splash Technology Holdings, Inc., a developer of color server systems;
and several privately held companies. Mr. Chung received a B.A. from Harvard
University and an M.B.A. from Stanford University.
WILLIAM A. HASLER has been a director of Ditech since May 1997. He also
serves as a Co-Chief Executive Officer and Director of Aphton Corp., a
bio-pharmaceutical company, a position he has held since July 1998. From August
1991 to July 1998, Mr. Hasler was the Dean of the Haas School of Business at the
University of California at Berkeley, and from January 1984 to August 1991, Mr.
Hasler served as a Vice Chairman of KPMG Peat Marwick. Mr. Hasler is a director
of numerous companies, including Quickturn Design Systems, Inc., a design
verification company, Solectron Corp., an electronics manufacturing services
company, TCSI Corporation, a telecommunications software company, Tenera Inc.,
an engineering consulting firm, and Walker Interactive Systems, Inc., an
operations and analytical software company. He received a B.A. from Pomona
College and an M.B.A. from Harvard University.
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<PAGE>
KENNETH E. JONES has been a director of Ditech since July 1983. He is
currently the Chairman and Chief Executive Officer of Globe Wireless, Inc., a
position he has held since Globe Wireless was sold by Automated Call Processing
and became an independent company in 1997. Mr. Jones founded Automated Call
Processing in 1983 (which in 1997 merged with Ditech and changed its name to
Ditech Corporation), and worked as its President and Chief Executive Officer
until 1997. From 1986 to 1994, he also served as President and Chief Executive
Officer of Automated Call Processing's wholly-owned subsidiary, Ditech
Corporation. Prior to founding Automated Call Processing, Mr. Jones served as
President and Chief Executive Officer of Clausen-Koch Company, a private label
manufacturer of canned meats. Mr. Jones also served as the Chief Financial
Officer of Hills Brothers Coffee, Inc. from 1976 to 1979. Mr. Jones is a
director of Quadramed Corporation, a medical software company. He served as a
commanding officer of USS Flagstaff in the United States Navy and has a B.S.
from the University of Nebraska and an M.B.A. from Harvard University.
GEORGE J. TURNER has been a director of Ditech since November 1993. He is
currently the President and Chief Operating Officer of Globe Wireless, Inc., a
position he has held since December 1996. He previously worked for Automated
Call Processing for over ten years, serving the company in several senior
management roles. Mr. Turner has a B.A., an M.A. and a PhD. from the University
of California, Berkeley.
BOARD COMPOSITION
Ditech currently has authorized seven directors. In accordance with the
terms of our Amended and Restated Certificate of Incorporation, effective upon
the closing of this offering, the terms of office of the Board of Directors will
be divided into three classes: Class I, whose term will expire at the annual
meeting of stockholders to be held in 1999; Class II, whose term will expire at
the annual meeting of stockholders to be held in 2000; and Class III, whose term
will expire at the annual meeting of stockholders to be held in 2001. The Class
I directors are Gregory Avis and George Turner, the Class II directors are Peter
Chung and Kenneth Jones, and the Class III directors are William Hasler, Pong
Lim, and Timothy Montgomery. At each annual meeting of stockholders after the
initial classification, the successors to directors whose terms will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following election. In addition, our Certificate of
Incorporation provides that the authorized number of directors may be changed
only by resolution of the Board of Directors. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly as possible, each class will consist of
one-third of the directors. This classification of the Board of Directors may
have the effect of delaying or preventing changes in control or management of
Ditech. Although directors of Ditech may be removed for cause by the affirmative
vote of the holders of a majority of the common stock, our Amended and Restated
Certificate of Incorporation provides that holders of two-thirds of the common
stock must vote to approve the removal of a director without cause.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During fiscal 1998, Messrs. Avis, Hasler and Jones served as members of the
Compensation Committee of Ditech's Board of Directors. Mr. Avis is a Managing
Partner of Summit Partners, a private equity capital firm that became a major
stockholder of Ditech in connection with our recapitalization. See "Certain
Transactions."
No member of the Compensation Committee serves as a member of the board of
directors or compensation committee of any other entity that has one or more
executive officers serving as a member of Ditech's Board of Directors or
Compensation Committee. Prior to the formation of the Compensation Committee in
May 1997, the Board of Directors of Ditech as a whole made decisions relating to
compensation of Ditech's executive officers.
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<PAGE>
BOARD COMMITTEES
The Audit Committee of the Board of Directors reviews the internal
accounting procedures of Ditech and consults with, and reviews the services
provided by, Ditech's independent accountants. Current members of the Audit
Committee are Messrs. Chung and Hasler.
The Compensation Committee of the Board of Directors reviews and recommends
to the Board of Directors the compensation and benefits of all officers of
Ditech and reviews general policy relating to compensation and benefits of
employees of Ditech. The Compensation Committee also administers the issuance of
stock options and other awards under Ditech's stock plans. Current members of
the Compensation Committee are Messrs. Avis, Hasler and Jones.
DIRECTOR COMPENSATION
Ditech does not currently provide cash compensation to non-employee
directors for services in such capacity, but directors may be reimbursed for
certain expenses in connection with attendance at Board of Directors and
committee meetings. See also "Benefit Plans--1999 Non-Employee Directors' Stock
Option Plan."
LIMITATION OF DIRECTORS' AND OFFICERS' LIABILITY
Ditech's Bylaws provide that Ditech will indemnify its directors and
executive officers and may indemnify its other officers, employees and other
agents to the fullest extent permitted by Delaware law. Ditech is also empowered
under its Bylaws to enter into indemnification contracts with its directors and
officers and to purchase insurance on behalf of any person it is required or
permitted to indemnify. Pursuant to this provision, Ditech expects to enter into
indemnification agreements with each of its directors and executive officers.
Ditech has obtained officer and director liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act. In addition, Ditech's Certificate of Incorporation provides
that, to the fullest extent permitted by Delaware law, Ditech's directors will
not be liable for monetary damages for breach of the directors' fiduciary duty
of care to Ditech and its stockholders. This provision in the Certificate of
Incorporation does not eliminate the duty of care, and in appropriate
circumstances, equitable remedies such as an injunction or other forms of
non-monetary relief would remain available under Delaware law. Under current
Delaware law, a director's liability to Ditech or its stockholders may not be
limited with respect to any breach of the director's duty of loyalty to Ditech
or its stockholders, for acts or omissions not in good faith or involving
intentional misconduct, for knowing violations of law, for any transaction from
which the director derived an improper personal benefit, for improper
transactions between the director and Ditech and for improper distributions to
stockholders and loans to directors and officers. This provision also does not
affect a director's responsibilities under any other laws such as the federal
securities laws or state or federal environmental laws.
There is no pending litigation or proceeding involving a director or officer
of Ditech as to which indemnification is being sought, nor is Ditech aware of
any pending or threatened litigation that may result in claims for
indemnification by any director or officer.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to our directors, officers, and controlling persons pursuant to
the provisions described above or otherwise, we have 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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<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information for the fiscal year ended
April 30, 1998, regarding the compensation of Ditech's Chief Executive Officer
and each of the most highly compensated executive officers of Ditech whose
salary and bonus for such year were in excess of $100,000 on an annualized basis
(the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
--------------
ANNUAL COMPENSATION (1) SECURITIES
----------------------------------- UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION
- ----------------------------------------------- --------- ----------- ----------- -------------- -------------------
<S> <C> <C> <C> <C> <C>
Timothy Montgomery
Chief Executive Officer, President and Senior
Vice President, Sales and Marketing (2)...... 1998 $ 150,000 -- 400,000 --
Pong Lim
Chairman of the Board (3).................... 1998 $ 100,000 $ 73,500 170,000 $ 1,111
Salim Jabr
Vice President of Engineering and
Development, Optical Products................ 1998 $ 110,000 $ 22,000 150,000 --
Serge Stepanoff
Vice President of Engineering and
Development, Echo Cancellation Products...... 1998 $ 105,833 $ 22,000 75,000 --
William Tamblyn
Vice President and Chief Financial
Officer(4)................................... 1998 $ 111,779 $ 35,000 150,000 --
</TABLE>
- ------------------------------
(1) In accordance with Securities and Exchange Commission rules, other annual
compensation in the form of perquisites and other personal benefits has been
omitted where the aggregate amount of such perquisites and other personal
benefits constitutes less than the lesser of $50,000 or 10% of the total
annual salary and bonus for the Named Executive Officer for the fiscal year.
(2) Mr. Montgomery began working for Ditech on November 1, 1997. He was promoted
to his current position of President, Chief Executive Officer of Ditech in
September 1998.
(3) Mr. Lim served as President and Chief Executive Officer of Ditech until
September 1998, at which time Mr. Montgomery became President and Chief
Executive Officer. Mr. Lim became Chairman of the Board of Ditech in October
1998. Compensation listed in the "all other compensation" column consists of
insurance premiums paid by Ditech for the benefit of Mr. Lim.
(4) Mr. Tamblyn began working for Ditech on June 9, 1997.
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<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth each grant of stock options made during the
fiscal year ended April 30, 1998 to each of the Named Executive Offiers.
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES OF
NUMBER OF STOCK PRICE
SECURITIES APPRECIATION FOR
UNDERLYING % OF TOTAL EXERCISE OPTION TERM(4)
OPTIONS OPTIONS GRANTED PRICE PER EXPRIATION --------------------
NAME GRANTED(1) 1998(2) SHARE(3) DATE 5% 10%
- ------------------------------------------------- ----------- --------------- ----------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Timothy Montgomery............................... 300,000 20.4% $ 0.55 11/13/07 $ 103,768 $ 262,350
100,000 6.8% $ 0.55 1/15/08 $ 34,589 $ 87,656
Pong Lim......................................... 170,000 11.5% $ 0.55 11/13/07 $ 58,802 $ 149,015
William Tamblyn.................................. 100,000 6.8% $ 0.55 7/9/07 $ 34,590 $ 87,656
50,000 3.4% $ 0.55 1/15/08 $ 17,295 $ 43,828
Serge Stepanoff.................................. 75,000 5.1% $ 0.55 7/9/07 $ 24,942 $ 65,742
Salim Jabr....................................... 150,000 10.2% $ 0.55 5/12/07 $ 51,884 $ 131,484
</TABLE>
- ------------------------------
(1) The options granted to Messrs Montgomery, Lim, Tamblyn, Stepanoff and Jabr
vest in two ways: some vest over a standard four-year period, with an
initial one-year cliff and monthly thereafter; others have full vesting
after approximately six years with acceleration schedules tied to
performance goals and Ditech's financial results.
(2) In the fiscal year ended April 30, 1998, Ditech granted employees,
consultants and directors options to purchase an aggregate of 1,473,250
shares of common stock.
(3) The exercise price per share of each option was equal to the fair market
value of the common stock on the date of grant as determined in good faith
by the Board of Directors on such date based upon such factors as the
purchase price paid by investors for shares of Ditech's preferred stock, the
absence of a trading market for Ditech's securities and Ditech's financial
outlook and results of operations.
(4) In accordance with the rules of the Securities and Exchange Commission,
these columns show the gains or "option spreads" that would exist for the
options granted. These gains are based on the assumed rates of annual
compound stock price appreciation of 5% and 10% from the date the option was
granted over the full option term. The rules of the SEC require us to use
these assumed annual compound rates of stock price appreciation. These
estimated rates do not represent our estimate or projection of future common
stock prices.
AGGREGATE OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information regarding option exercises, and
the fiscal year end values of stock options held by each of the Named Executive
Officers during the fiscal year ended April 30, 1998 and exercisable and
unexercisable options held as of April 30, 1998:
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS AT
UNDERLYING AT APRIL 30, 1998(1) APRIL 30, 1998(1)(2)
SHARES ACQUIRED VALUE ---------------------------- --------------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- --------------------------------- ----------------- ----------- ----------- --------------- ----------- -------------------
<S> <C> <C> <C> <C> <C> <C>
Timothy Montgomery............... -- -- 362,500 37,500 -- --
Pong Lim......................... 30,000 $ 13,500 720,000 -- $ 247,500 --
William Tamblyn.................. -- -- 150,000 -- -- --
Serge Stepanoff.................. -- -- 150,000 -- -- --
Salim Jabr....................... -- -- 300,000 -- $ 67,500 --
</TABLE>
- ------------------------------
(1) Each option grant other than with respect to the 37,500 shares not
exercisable by Mr. Montgomery permits immediate exercise subject to a
repurchase option in favor of Ditech, which lapses over time.
(2) The fair market value of Ditech's common stock as determined by the Board of
Directors on or about April 30, 1998 was $0.55 per share.
50
<PAGE>
BENEFIT PLANS
1997 STOCK OPTION PLAN. Ditech's 1997 Stock Option Plan was adopted by the
Board of Directors on February 20, 1997 and amended on November 13, 1997. The
1997 plan was approved by the stockholders on March 7, 1997. The Board
authorized and reserved an aggregate of 3,000,000 shares of Ditech common stock
for issuance under the 1997 plan. The 1997 plan provides for the grant of
incentive stock options to employees and nonstatutory stock options to
employees, directors and consultants of Ditech and its affiliates. The 1997 plan
provides that it will be administered by the Board of Directors, or a committee
appointed by the Board, which determines recipients and types of options to be
granted, including number of shares subject to the option and the exercisability
of the shares.
The terms of stock options granted under the 1997 plan may not exceed ten
years. The exercise price for a nonstatutory stock option granted under the 1997
plan cannot be less than 85% of the fair market value of the common stock on the
date of the option grant and the exercise price for an incentive stock option
granted under the 1997 plan cannot be less than 100% of the fair market value of
the common stock on the date of the option grant. However, options granted in
substitution for other options may be granted with a lower exercise price than
that above. The options may, but need not, contain provisions for early exercise
and the right of first refusal.
Options granted under the 1997 plan vest at the rate specified in each
optionee's option agreement. No stock option may be transferred by the optionee
other than by will or the laws of descent or distribution or, for a nonstatutory
stock option, upon the terms of the option agreement. An optionee whose
relationship with Ditech or any affiliate ceases for any reason (other than by
death or permanent and total disability) may exercise options in a period not to
exceed three months following such cessation. When an optionee's relationship
with Ditech and any affiliate ceases due to death or disability, options may be
exercised for between six and eighteen months.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Ditech or any affiliate of Ditech, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant, and the term of the option does not
exceed five years from the date of grant. No person shall be granted options
covering more than 300,000 shares of Ditech's common stock in any calendar year.
Upon certain changes in control of Ditech, all outstanding options under the
1997 plan shall either be assumed or substituted by the surviving entity. If the
surviving entity determines not to assume, continue or substitute such options,
the time during which such options may be exercised shall be accelerated. If the
options are not exercised following the acceleration, the options shall
terminate.
As of January 31, 1999, under the 1997 plan (i) options to purchase 691,283
shares of common stock were outstanding, and (ii) options to purchase 2,153,345
shares had been exercised. On October 15, 1998, the Board voted that no
additional grants would be made under the 1997 plan.
1998 STOCK OPTION PLAN. Ditech's 1998 Stock Option Plan was adopted by the
Board of Directors on October 15, 1998 and approved by the stockholders on
November 6, 1998. The Board authorized and reserved an aggregate of 1,142,062
shares of Ditech common stock for issuance under the 1998 plan. In March 1999
the Board of Directors approved an amendment to the 1998 plan increasing the
number of shares issuable under the 1998 plan by 250,000 shares, and made
certain technical amendments to the 1998 plan in anticipation of Ditech becoming
a public company. These amendments will be submitted to the stockholders for
approval in 1999.
The 1998 plan provides for the grant of incentive stock options to employees
and nonstatutory stock options to employees, directors and consultants of Ditech
and our affiliates. The 1998 plan
51
<PAGE>
provides that it will be administered by the Board of Directors, or a committee
appointed by the Board, which determines recipients and types of options to be
granted, including number of shares subject to the option and the exercisability
of the shares.
The terms of stock options granted under the 1998 plan may not exceed ten
years. The exercise price for a nonstatutory stock option granted under the 1998
plan cannot be less than 85% of the fair market value of the common stock on the
date of the option grant and the exercise price for an incentive stock option
granted under the 1998 plan cannot be less than 100% of the fair market value of
the common stock on the date of the option grant. However, options granted in
substitution for other options may be granted with a lower exercise price than
that above. The options may, but need not, contain provisions for early exercise
and the right of first refusal.
Options granted under the 1998 plan vest at the rate specified in each
optionee's option agreement. No stock option may be transferred by the optionee
other than by will or the laws of descent or distribution or, for a nonstatutory
stock option, upon the terms of the option agreement. An optionee whose
relationship with Ditech or any affiliate ceases for any reason (other than by
death or permanent and total disability) may exercise options in a period not to
exceed three months following such cessation. When an optionee's relationship
with Ditech and any affiliate ceases due to death or disability, options may be
exercised for between six and eighteen months.
No incentive stock option may be granted to any person who, at the time of
the grant, owns (or is deemed to own) stock possessing more than 10% of the
total combined voting power of Ditech or any affiliate of Ditech, unless the
option exercise price is at least 110% of the fair market value of the stock
subject to the option on the date of grant, and the term of the option does not
exceed five years from the date of grant. No person shall be granted options
covering more than 300,000 shares of Ditech's common stock in any calendar year
Upon certain changes in control of Ditech, all outstanding options under the
1998 plan shall either be assumed or substituted by the surviving entity. If the
surviving entity determines not to assume, continue or substitute such options,
the time during which such options may be exercised shall be accelerated. If the
options are not exercised following the acceleration, the options shall
terminate.
As of March 15, 1999, Ditech had granted options to purchase 360,900 shares
of common stock under the 1998 plan and an additional 1,031,162 shares remained
available for future grant. Of the options granted (i) options to purchase
288,075 shares of common stock were outstanding, (ii) options to purchase 72,825
shares had been exercised, and (iii) no options to purchase shares had been
canceled or repurchased or had lapsed without being exercised.
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN. In March 1999 the Board
adopted, and the Board will submit to our stockholders to approve, the Ditech
Corporation 1999 Non-Employee Directors' Stock Option Plan (the "Directors'
Option Plan"). The Board has reserved 150,000 shares of common stock for
issuance under the Director's Option Plan. Under the Directors' Option Plan
- each new non-employee director who is elected or appointed for the first
time following this offering other than at an annual meeting will
automatically be granted an option to purchase that number of shares of
common stock equal to 6,000 multiplied by the number of months remaining
until the next succeeding annual meeting of stockholders divided by
twelve; and
- each non-employee director will automatically be granted an option to
purchase 6,000 shares of common stock immediately following each annual
meeting of stockholders.
Options granted under the Directors' Option Plan are granted at 100% of the
fair market value of the common stock on the date of grant. Options granted
under the Directors' Option Plan have a
52
<PAGE>
five-year term and are fully vested. The Directors' Option Plan will terminate
in March 2009, unless earlier terminated by the Board of Directors.
Upon certain changes in control of Ditech, all outstanding options under the
Directors' Option Plan shall be assumed by the surviving entity or the surviving
entity shall substitute similar options for such outstanding options. If the
surviving entity determines not to assume such outstanding options or substitute
similar options therefor, then the options will terminate if not exercised prior
to such change in control.
As of March 15, 1999, no options had been granted under the Directors'
Option Plan, and 150,000 shares were reserved for future grants or purchases
under the Directors' Option Plan.
EMPLOYEE STOCK PURCHASE PLAN. In March 1999 the Board adopted, and the
Board will submit to our stockholders to approve, the Ditech Corporation 1999
Employee Stock Purchase Plan (the "Purchase Plan") covering an aggregate 200,000
shares of common stock. The Purchase Plan is intended to qualify as an employee
stock purchase plan within the meaning of Section 423 of the Code. Under the
Purchase Plan, the Board may authorize participation by eligible employees,
including officers, in periodic offerings following the adoption of the Purchase
Plan. The offering period for any offering will be no more than 27 months.
Employees are eligible to participate if they have been continuously
employed by Ditech, or an affiliate of Ditech designated by the Board for at
least three months on the commencement date of an offering or on the day after a
purchase date under an offering, and are customarily scheduled to work at least
20 hours per week and for at least five months per calendar year. Employees who
participate in an offering can have up to 10% of their earnings withheld
pursuant to the Purchase Plan. The amount withheld will then be used to purchase
shares of the common stock on specified dates determined by the Board. The price
of common stock purchased under the Purchase Plan will be equal to 85% of the
lower of the fair market value of the common stock on the commencement date of
each offering period or on the specified purchase date. Employees may end their
participation in the offering at any time during the offering period.
Participation ends automatically on termination of employment with Ditech.
In the event of certain changes of control of Ditech, the Board has
discretion to provide that each right to purchase common stock will be assumed
or an equivalent right substituted by the successor corporation, or the Board
may shorten the offering period and provide for all sums collected by payroll
deductions to be applied to purchase stock immediately prior to the change in
control. The Purchase Plan will terminate at the Board's discretion. The Board
has the authority to amend or terminate the Purchase Plan, subject to the
limitation that no such action may adversely affect any outstanding rights to
purchase common stock.
401(k) PLAN. We maintain a retirement and deferred savings plan for our
employees that is intended to qualify as a tax-qualified plan under the Code.
The 401(k) Plan provides that each participant may contribute up to a statutory
limit, which was $10,000 in calendar year 1998.
EMPLOYMENT AGREEMENTS
In September 1998, Ditech entered into an employment agreement with Timothy
Montgomery to serve as Ditech's President and Chief Executive Officer at a base
salary of $225,000 a year starting on November 1, 1998, with an annual
discretionary bonus set by the Board and based upon specific objectives to be
agreed upon by Mr. Montgomery and the Board. The employment agreement also
provides that Mr. Montgomery will receive an option to purchase 200,000 shares
of Ditech common stock. The employment agreement is at-will, contains a
non-solicitation agreement, and provides that if Mr. Montgomery is terminated
without cause, he will be paid a lump sum equal to twelve months base salary.
However, if Mr. Montgomery resigns, his employment is terminated for cause, or
53
<PAGE>
there is a change in control of Ditech, he will receive no severance benefits.
In the event of a change of control of Ditech, all of Mr. Montgomery's
outstanding, unvested options will immediately become fully vested.
In September 1998, Ditech entered into an employment agreement with Pong Lim
to serve as Chairman of the Board of Directors and a Ditech employee at a base
salary of $175,000 a year, with an annual bonus based on Ditech financial
achievements. In addition, if the requirements tied to the bonus are met, all of
Mr. Lim's remaining unvested stock options will become fully vested in September
1999. The employment agreement is at-will, contains a non-solicitation agreement
and provides that if Mr. Lim is terminated for any reason before September 1999,
his compensation package will be paid in full, including the bonus and
accelerated vesting provisions.
In November 1998, Ditech entered into an employment agreement with Toni
Bellin to serve as Vice President of Operations at a base salary of $150,000 a
year, with a guaranteed bonus of $25,000 in 1999 and an option to purchase
150,000 shares of Ditech common stock. The employment agreement is at-will,
although if Ms. Bellin is terminated for other than cause or permanent
disability during her first two years of service, Ditech must pay Ms. Bellin's
base salary for the lesser of (i) a period of one year following the termination
of her employment, or (ii) the period ending on the second anniversary of her
first day of employment. Ms. Bellin received a signing bonus of $25,000, though
if she severs her employment with Ditech within her first twelve months with the
company, she must repay $12,500 of the signing bonus.
54
<PAGE>
CERTAIN TRANSACTIONS
STOCK AND NOTE PURCHASE AGREEMENT. On March 11, 1997, Ditech completed a
recapitalization. In connection with the recapitalization, Ditech entered into a
Stock and Note Purchase Agreement with entities affiliated with Summit Partners
(collectively, "Summit Partners") and a small group of other accredited
investors. Pursuant to this agreement, Ditech issued an aggregate of 12,506,539
shares of Series A Redeemable Preferred Stock at a purchase price of $1.00 per
share or an aggregate purchase price of $12,506,539; 6,259,718 shares of Series
B Convertible Preferred Stock at a purchase price of approximately $0.86 per
share or an aggregate purchase price of approximately $5,394,937; and two Class
A Subordinated Promissory Notes in the aggregate original principal amount of
$8,000,000, for a total purchase price of approximately $25,901,476. Of these
amounts, Summit Partners purchased 12,000,000 shares of Series A Redeemable
Preferred Stock, 5,801,475 shares of Series B Preferred Stock and both Class A
Subordinated Promissory Notes. Subsequent to the deal, Mr. Avis, a Managing
Partner of Summit Partners, and Mr. Chung, a Principal of Summit Partners, were
elected to our Board of Directors.
SHAREHOLDERS AGREEMENT. Concurrent with the Stock and Note Purchase
Agreement, Ditech entered into a Shareholders Agreement with the investors who
were part of the Purchase Agreement, including Summit Partners, and with Kenneth
E. Jones, the founder and a current director of Ditech. The investors agreed to
vote in favor of the election of certain representatives, a joint director and
at least one Series B director, designated by the investors to serve as members
of Ditech's Board of Directors. Messrs. Avis and Chung were elected pursuant to
this provision. The restrictions under this agreement terminate upon this
offering. In addition, Mr. Jones agreed to restrictions on the sale, transfer,
assignment, pledge or other disposition of any interest in any of his shares,
except pursuant to a public sale or a sale to Ditech which does not otherwise
violate the provisions of the Purchase Agreement. The agreement provides Summit
Partners with a right of first refusal should Mr. Jones elect to transfer any of
his shares and also with a right to participate in any transfer of Mr. Jones'
shares.
REGISTRATION AGREEMENT. Concurrent with the Stock and Note Purchase
Agreement, Ditech entered into a Registration Agreement with certain investors,
including Summit Partners, pursuant to which the holders of a majority of the
Series B Preferred Stock and the common stock held by holders of Series B
Preferred Stock may request registration under the Securities Act of all or any
portion of the shares of common stock issuable upon conversion of the Series B
Preferred Stock and the common stock held by holders of Series B Preferred Stock
on Form S-1, and the holders of at least 15% of the Series B Preferred Stock and
common stock held by holders of Series B Preferred Stock may request
registration under the Securities Act of all or any portion of their shares of
Series B Preferred Stock and common stock held by holders of Series B Preferred
Stock on Form S-2 or S-3.
ESCROW AGREEMENT. Concurrent with the Stock and Note Purchase Agreement,
Ditech entered into an Escrow Agreement with State Street Bank and Trust Company
of California, N.A. as Escrow Agent and a group of redeeming shareholders
pursuant to which Ditech authorized the redemption of 90.12% of its outstanding
common stock (39,139,094 shares) in exchange for $21,485,621 in cash, 4,743,461
shares of its Series A Redeemable Preferred Stock, valued at $1.00 per share,
and 7,508,221 shares of its Series C Preferred Stock, valued at approximately
$1.00 per share, for an aggregate redemption price of $33,737,303. Of these
shares redeemed, Ditech redeemed 18,983,626 shares of common stock from two
trusts and one company controlled by Mr. Jones (Seahawk Investment Trust,
Seahawk Ranch Irrevocable Trust, and Western General Corporation), and 2,107,851
shares of common stock from Mr. Turner. Each of Messrs. Jones and Turner are
directors of Ditech. The shares of common stock referred to above reflect a
forward stock split that occurred on March 11, 1997.
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<PAGE>
STOCK PURCHASE AGREEMENT. Concurrent with the Stock and Note Purchase
Agreement, Ditech entered into a Stock Purchase Agreement with Kenneth E. Jones
pursuant to which Ditech sold 8,347,437 shares of the common stock of Globe
Wireless, Inc., a Delaware corporation, to Mr. Jones for an aggregate purchase
price of $1,413,000.
ASSET PURCHASE AGREEMENTS. Concurrent with the Stock and Note Purchase
Agreement, Ditech entered into two Asset Purchase Agreements with entities
controlled by Kenneth E. Jones. As part of the first agreement, Automated Call
Processing LLC, a California limited liability company controlled by Mr. Jones,
purchased assets including technical equipment, raw materials and intellectual
property, from Ditech for a total of $690,000. As part of the second agreement,
ACP Interactive LLC, a California limited liability company controlled by Mr.
Jones, purchased assets including technical equipment, raw materials and
intellectual property, from Ditech for a total of $520,000.
Ditech believes that the foregoing transactions were in its best interests
and were on terms no less favorable to Ditech than could be obtained from
unaffiliated third parties.
Ditech has entered into employment contracts with each of its Chief
Executive Officer, Chairman, and Vice President of Operations. See
"Management--Employment Agreements."
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of January 31, 1999, and as adjusted to reflect
the sale of the common stock offered by this prospectus, by: (i) each
stockholder who is known by us to own beneficially more than 5% of our common
stock; (ii) each of our Named Executive Officers; (iii) each of our directors;
and (iv) all of our directors and executive officers as a group.
Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
Except as indicated by footnote, and subject to community property laws where
applicable, we believe, based on information furnished by such persons, that the
persons named in the table below have sole voting and investment power with
respect to all shares of common stock shown as beneficially owned by them.
Percentage of beneficial ownership is based on 13,118,626 shares of common stock
(including shares issuable upon conversion of Series B Preferred Stock that will
convert to common stock on a one-to-one ratio at the closing of the offering)
outstanding as of January 31, 1999, and [ ] shares of common stock
outstanding after completion of this offering.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY OWNED PERCENT BENEFICIALLY
OWNED AFTER THE
PRIOR TO THE OFFERING OFFERING
-------------------------- -----------------------
BENEFICIAL OWNER NUMBER PERCENT PERCENT
- ------------------------------------------------------------------- ------------- ----------- -----------------------
<S> <C> <C> <C>
Entities affiliated with Summit Partners (1)....................... 5,801,475 44.2% %
Seahawk Ranch Irrevocable Trust (2)................................ 1,138,478 8.7
Seahawk Investment Trust (2)....................................... 916,987 7.0
Timothy Montgomery (3)............................................. 600,000 4.5
Pong Lim (4)....................................................... 750,000 5.7
William Tamblyn (5)................................................ 175,000 1.3
Toni Bellin (6).................................................... 150,000 1.1
Serge Stepanoff (7)................................................ 150,000 1.1
Salim Jabr (8)..................................................... 300,000 2.3
Gregory Avis (9)................................................... 5,801,475 44.2
Peter Chung (10)................................................... 5,801,475 44.2
William Hasler (11)................................................ 100,000 *
Kenneth E. Jones (12).............................................. 2,081,134 15.8
George Turner (13)................................................. 231,079 1.8
All directors and executive officers as a group (11 persons)....... 10,338,688 75.0%
</TABLE>
- ------------------------
* Represents beneficial ownership of less than 1 percent.
(1) Shares consist of 5,273,150 shares held Summit Ventures IV L.P., 174,394
shares held Summit Investors III, L.P., and 353,931 shares held by Summit
Subordinated Debt Fund, L.P. Summit Partners is located at 499 Hamilton
Ave., Suite 200, Palo Alto, CA 94301.
57
<PAGE>
(2) Seahawk Investment Trust and Seahawk Ranch Irrevocable Trust are located at
550 Pilgrim Drive, Foster City, California 94404.
(3) Includes 150,000 shares which may be acquired pursuant to the exercise of
stock options. On January 31, 1999, 527,084 of Mr. Montgomery's shares were
subject to a repurchase option in favor of Ditech. The address for Mr.
Montgomery is c/o Ditech Corporation, 825 E. Middlefield Rd., Mountain View,
CA 94043.
(4) On January 31, 1999, 188,334 of Mr. Lim's shares were subject to a
repurchase option in favor of Ditech. The address for Mr. Lim is c/o Ditech
Corporation, 825 E. Middlefield Rd., Mountain View, CA 94043.
(5) Includes 55,625 shares which may be acquired pursuant to the exercise of
stock options. On January 31, 1999, 135,417 of Mr. Tamblyn's shares were
subject to a repurchase option in favor of Ditech. The address for Mr.
Tamblyn is c/o Ditech Corporation, 825 E. Middlefield Rd., Mountain View, CA
94043.
(6) Consists solely of 150,000 shares which may be acquired pursuant to the
exercise of stock options. On January 31, 1999, 150,000 of Ms. Bellin's
shares were subject to a repurchase option in favor of Ditech. The address
for Ms. Bellin is c/o Ditech Corporation, 825 E. Middlefield Rd., Mountain
View, CA 94043.
(7) Consists solely of 150,000 shares which may be acquired pursuant to the
exercise of stock options. On January 31, 1999, 100,000 of Mr. Stepanoff's
shares were subject to a repurchase option in favor of Ditech. The address
for Mr. Stepanoff is c/o Ditech Corporation, 825 E. Middlefield Rd.,
Mountain View, CA 94043.
(8) Includes 187,500 shares which may be acquired pursuant to the exercise of
stock options. On January 31, 1999, 141,667 of Mr. Jabr's shares were
subject to a repurchase option in favor of Ditech. The address for Mr. Jabr
is c/o Ditech Corporation, 825 E. Middlefield Rd., Mountain View, CA 94043.
(9) The shares are beneficially owned by Summit Partners. Mr. Avis is a Managing
Partner of Summit Partners. See footnote (1). The address for Mr. Avis is
c/o Summit Partners, 499 Hamilton Ave., Suite 200, Palo Alto, CA 94301.
(10) The shares are beneficially owned by Summit Partners. Mr. Chung is a
Principal of Summit Partners. See footnote (1). The address for Mr. Chung is
c/o Summit Partners, 499 Hamilton Ave., Suite 200, Palo Alto, CA 94301.
(11) The address for Mr. Hasler is c/o Apthon Corporation, One Market, Spear
Tower, Suite 1850, San Francisco, CA 94105.
(12) Total number of shares includes 1,138,478 shares of common stock held by
Seahawk Ranch Irrevocable Trust, of which Mr. Jones is a trustee; 916,987
shares of common stock held by Seahawk Investment Trust, of which Mr. Jones
is a trustee; and 25,669 shares of common stock held by Western General
Corporation, of which Mr. Jones is the president. The address for Mr. Jones
is 550 Pilgrim Drive, Foster City, California 94404.
(13) The address for Mr. Turner is P.O. Box 666, Lafayette, CA 94549.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon completion of this offering, the authorized capital stock of Ditech
will consist of 50,000,000 shares of common stock, $0.001 par value, and
5,000,000 shares of undesignated Preferred Stock, $0.001 par value.
COMMON STOCK
As of January 31, 1999, and assuming conversion of our Series B Preferred
Stock, there were 13,118,626 shares of common stock outstanding held of record
by 143 stockholders. The holders of common stock are entitled to one vote for
each share held of record on all matters submitted to a vote of the
stockholders. The holders of common stock are entitled to receive ratably such
dividends as may be declared by the Board of Directors out of funds legally
available therefore, subject to the rights of the holders of preferred stock.
See "Dividend Policy." In the event of a liquidation, dissolution or winding up
of Ditech, holders of the common stock are entitled to share ratably in all
assets remaining after payment of liabilities and amounts due to the holders of
preferred stock as described below. Holders of common stock have no preemptive
rights and no right to convert their common stock into any other securities.
There are no redemption or sinking fund provisions applicable to the common
stock. All outstanding shares of common stock are, and all shares of common
stock to be outstanding upon completion of this offering will be, fully paid and
non-assessable.
PREFERRED STOCK
The Board of Directors has the authority to issue up to 5,000,000 shares of
preferred stock in one or more series and to fix the rights, preferences,
privileges and restrictions granted to or imposed upon such preferred stock,
including dividend rights, conversion rights, terms of redemption, liquidation
preference, sinking fund terms and the number of shares constituting any series
or the designation of such series, without any further vote or action by the
stockholders. The Board of Directors, without stockholder approval, can issue
preferred stock with voting and conversion rights which could adversely affect
the voting power of the holders of common stock. The issuance of preferred stock
could have the effect of delaying, deferring or preventing a change in control
of Ditech. We have no present plan to issue any shares of preferred stock.
ANTI-TAKEOVER EFFECTS OF PROVISIONS OF CHARTER DOCUMENTS AND DELAWARE LAW
CHARTER DOCUMENTS. The Certificate of Incorporation and Bylaws include a
number of provisions that may have the effect of deterring hostile takeovers or
delaying or preventing changes in control or management of Ditech. First, the
Certificate of Incorporation provides that all stockholder actions upon
completion of this offering must be effected at a duly called meeting of holders
and not by a consent in writing. Second, the Bylaws provide that special
meetings of the holders may be called only by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer or (iii) Board of Directors pursuant
to a resolution adopted by a majority of the total number of authorized
directors. Third, the Certificate of Incorporation and the Bylaws provide for a
classified Board of Directors, in which approximately one-third of the directors
would be elected each year. See "Management--Board Composition." Consequently,
any potential acquiror would need to successfully complete two proxy contests in
order to take control of the Board of Directors. The Certificate of
Incorporation includes a provision requiring cumulative voting for directors
only if required by applicable California law. Under cumulative voting, a
minority stockholder holding a sufficient percentage of a class of shares may be
able to ensure the election of one or more directors. As a result of the
provisions of the Certificate of Incorporation and applicable California and
Delaware law, unless Ditech is subject to the California Corporations Code,
stockholders will not be able to cumulate votes for directors. See "--California
Foreign Corporation Law" below. Finally, the Bylaws establish procedures,
including advance notice procedures with regard to the
59
<PAGE>
nomination of candidates for election as directors and stockholder proposals.
These provisions of the Certificate of Incorporation and Bylaws could discourage
potential acquisition proposals and could delay or prevent a change in control
or management of Ditech. Such provisions also may have the effect of preventing
changes in the management of Ditech. See "Risk Factors--Our charter documents
and Delaware law may inhibit a takeover."
DELAWARE TAKEOVER STATUTE. Ditech is subject to the provisions of Section
203 of the Delaware General Corporation Law ("Section 203"). In general, Section
203 prohibits a publicly-held Delaware corporation, such as Ditech upon
completion of this offering, from engaging in a "business combination" with an
"interested stockholder" for a period of three years after the date of the
transaction pursuant to which the person became an interested stockholder,
unless the business combination is approved in a manner prescribed by Delaware
law. For purposes of Section 203, a "business combination" includes a merger,
asset sale or other transaction resulting in a financial benefit to the
interested stockholder, and an "interested stockholder" is a person who,
together with affiliates and associates, owns (or within three years prior, did
own) 15% or more of the corporation's voting stock.
CALIFORNIA FOREIGN CORPORATION LAW
Pursuant to section 2115 ("Section 2115") of the California General
Corporation Law (the "California GCL"), under certain circumstances certain
provisions of the California GCL may be applied to foreign corporations
qualified to do business in California notwithstanding the law of the
jurisdiction where the corporation is incorporated. Such corporations are
referred to herein as "quasi-California" corporations. Section 2115 applies to
foreign corporations which have more than half of their voting stock held by
stockholders residing in California and more than half of their business
deriving from California, measured on or after the 135(th) day of the
corporation's fiscal year. If Ditech were determined to be a quasi-California
corporation, it would have to comply with California law with respect to, among
other things, elections of directors and distributions to stockholders. Under
the California GCL, a corporation is prohibited from paying dividends unless (i)
the retained earnings of the corporation immediately prior to the distribution
equals or exceeds the amount of the proposed distribution; or (ii) (a) the
assets of the corporation (exclusive of certain non-tangible assets) equal or
exceed 1 1/4 times its liabilities (exclusive of certain liabilities), and (b)
the current assets of the corporation at least equal its current liabilities,
but if the average pre-tax net earnings of the corporation before interest
expense for the two years preceding the distribution was less than the average
interest expense of the corporation for those years, the current assets of the
corporation must exceed 1 1/4 times its current liabilities. Ditech will be
exempt from the application of Section 2115 following this offering, and
thereafter in the event that more than half of the voting stock is held by
stockholders with residences outside of California or is held by more than 800
persons.
TRANSFER AGENT AND REGISTRAR
Norwest Bank Minnesota N.A. has been appointed as the transfer agent and
registrar for Ditech's common stock.
60
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our common
stock. Future sales of substantial amounts of common stock in the public market
could adversely affect the market price of the common stock prevailing from time
to time. Furthermore, since only a limited number of shares will be available
for sale shortly after this offering because of certain contractual and legal
restrictions on resale described below, sales of substantial amounts of our
common stock in the public market after the restrictions lapse could adversely
affect the prevailing market price and the ability of Ditech to raise equity
capital in the future.
Upon completion of this offering, based on the number of shares outstanding
as of January 31, 1999, Ditech will have outstanding an aggregate of [ ]
shares of common stock assuming (i) the issuance by Ditech of the shares of
common stock offered hereby, (ii) no exercise of exercisable options to purchase
966,858 shares of common stock, and (iii) no exercise of the Underwriters'
over-allotment option to purchase [ ] shares of common stock.
Of these shares, the [ ] shares sold in this offering will be freely
tradable without restriction or further registration under the Securities Act,
except for shares held by "affiliates" of Ditech as that term is defined in Rule
144 under the Securities Act (whose sales would be subject to certain
limitations and restrictions described below) and the regulations promulgated
thereunder.
The remaining 13,118,626 shares held by officers, directors, employees,
consultants and other stockholders of Ditech were sold by Ditech in reliance on
exemptions from registration requirements of the Securities Act and are
"restricted securities" within the meaning of Rule 144 under the Securities Act.
Restricted securities may be sold in the public market only if registered or if
they qualify for an exemption from registration under Rules 144 or 701
promulgated under the Securities Act, which rules are summarized below. Subject
to the provisions of the 180-day lock-up agreements described below and the
provisions of Rules 144 and 701, additional shares may be available for sale in
the public market as follows: (i) no restricted securities will be eligible for
immediate sale on the effective date of this offering or 90 days thereafter;
(ii) 12,455,598 restricted securities will be eligible for sale 180 days after
the date of this prospectus upon expiration of the lock-up agreements referred
to below; (iii) an additional 473,474 shares may become available for sale at
various times after the 180 days following the date of this prospectus as
Ditech's repurchase option on such shares lapses, subject to the restrictions
imposed by the federal securities laws on sales by affiliates; and (iv) 189,554
shares may become available for sale at various times after the 180 days
following the date of this prospectus, subject to the restrictions imposed by
the federal securities laws on sales by affiliates. An additional 692,273 shares
may be eligible for sale 180 days after the date of this prospectus upon the
exercise of stock options. In order to sell shares of common stock under Rule
144, the shares must be held for a period longer than one year prior to such
sale.
The stockholders of Ditech have agreed with the representatives of the
Underwriters for a period of 180 days after the date of this prospectus, that
they will not, directly or indirectly, offer, sell, contract to sell or grant
any option to sell or otherwise dispose of, directly or indirectly, any shares
of common stock or securities convertible into or exchangeable for, or any
rights to purchase or acquire, common stock, without the prior written consent
of BT Alex. Brown Incorporated. BT Alex. Brown Incorporated, in its sole
discretion and at any time without notice, may release all or any portion of the
securities subject to the 180-day lock-up agreement. Ditech has agreed that it
will not, without the prior written consent of BT Alex. Brown Incorporated,
offer, sell or otherwise dispose of any shares of common stock, options to
acquire shares of common stock or securities exchangeable for or convertible
into shares of common stock during the 180-day period following the date of this
prospectus, except that Ditech may issue shares upon the exercise of options
granted prior to the date hereof, and may grant additional options under its
stock option plans,
61
<PAGE>
provided that, without the prior written consent of BT Alex. Brown Incorporated,
such additional options shall not be exercisable during such 180-day period.
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, an affiliate of Ditech, or person (or persons whose
shares are aggregated) who has beneficially owned restricted securities that
were not acquired from Ditech or an affiliate of Ditech within the previous one
year, will be entitled to sell in any three-month period a number of shares that
does not exceed the greater of (i) 1% of the then outstanding shares Ditech's
common stock (approximately [ ] shares immediately after this offering) or
(ii) the average weekly trading volume of Ditech's common stock in the Nasdaq
National Market during the four calendar weeks immediately preceding the date on
which notice of the sale is filed with the Commission. Sales pursuant to Rule
144 are subject to certain requirements relating to manner of sale, notice and
availability of current public information about Ditech. A person (or person
whose shares are aggregated) who is not deemed to have been an affiliate of
Ditech at any time during the 90 days immediately preceding the sale and who
beneficially owns restricted securities is entitled to sell such shares pursuant
to Rule 144(k) without regard to the limitations described above; provided that
at least two years have elapsed since the later of the date the shares were
acquired from Ditech or from an affiliate of Ditech.
An employee, officer or director of or consultant to Ditech who purchased or
was awarded shares or options to purchase shares pursuant to a written
compensatory plan or contract is entitled to rely on the resale provisions of
Rule 701 under the Securities Act, which permits affiliates and non-affiliates
to sell their Rule 701 shares without having to comply with Rule 144's holding
period restrictions, in each case commencing 90 days after the date of this
prospectus. In addition, non-affiliates may sell Rule 701 shares without
complying with public information, volume and notice provisions of Rule 144.
We intend to file a registration statement under the Securities Act to
register shares of common stock reserved for issuance under our stock option and
employee stock purchase plans, thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the Securities
Act. Such registration statement will become effective immediately upon filing.
62
<PAGE>
UNDERWRITING
Subject to the terms and conditions of the underwriting agreement (the
"Underwriting Agreement"), the underwriters named below (the "Underwriters"),
through their Representatives, BT Alex. Brown Incorporated, BancBoston Robertson
Stephens LLC, and ING Baring Furman Selz LLC, have severally agreed to purchase
from Ditech the following respective number of shares of common stock at the
assumed public offering price less the underwriting discounts and commissions
set forth on the cover page of this prospectus:
<TABLE>
<CAPTION>
NUMBER
UNDERWRITER OF SHARES
- ----------------------------------------------------------------------------- -----------
<S> <C>
BT Alex. Brown Incorporated..................................................
BancBoston Robertson Stephens LLC............................................
ING Baring Furman Selz LLC...................................................
-----------
Total....................................................................
-----------
-----------
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
are subject to certain conditions precedent and that the Underwriters will
purchase all shares of the common stock offered hereby if any of such shares are
purchased.
We have been advised by the Representatives that the Underwriters propose to
offer the shares of common stock directly to the public at the initial public
offering price set forth on the cover page of this Prospectus and to certain
dealers at such price less a concession not in excess of $[ ] per share.
The Underwriters may allow and such dealers may reallow a concession not in
excess of $[ ] per share to certain other dealers. After the initial
public offering of the shares, the offering price and other selling terms may be
changed by the Representatives.
We have granted to the Underwriters an option, exercisable no later than 30
days after the date of this prospectus, to purchase up to [ ] additional
shares of common stock at the initial public offering price less the
underwriting discounts and commissions set forth on the cover page of this
Prospectus. To the extent that the Underwriters exercise such option, each of
the Underwriters will have a firm commitment to purchase approximately the same
percentage of such additional shares as the number set forth next to such
Underwriter's name in the above table bears to the total number of shares of
common stock offered hereby. The Underwriters may exercise such option only to
cover over-allotments made in connection with the sale of common stock offered
hereby. If purchased, the Underwriters will offer such additional shares on the
same terms as those on which the [ ] shares are being offered.
The following table summarizes the compensation to be paid to the
Underwriters by Ditech, and the expenses payable by Ditech.
<TABLE>
<CAPTION>
TOTAL
--------------------------------
WITHOUT WITH
PER SHARE OVER-ALLOTMENT OVER-ALLOTMENT
----------- --------------- ---------------
<S> <C> <C> <C>
Underwriting Discounts and Commissions paid by
Ditech........................................................... $ $ $
</TABLE>
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, and to contribute
to payments the Underwriters may be required to make in respect thereof.
The Company and its officers and directors and certain stockholders have
agreed not to offer, sell or otherwise dispose of any shares of Common Stock for
a period of 180 days after the date of
63
<PAGE>
this prospectus without the prior written consent of BT Alex. Brown
Incorporated. Such consent may be given at any time without any public notice.
Prior to this offering, there has been no public market for the common
stock. Consequently, the initial public offering price for the common stock will
be determined by negotiation between us and the Representatives. Among the
factors to be considered in such negotiations are prevailing market conditions,
the results of operations of the Company in recent periods, the market
capitalization and stages of development of other companies that we and the
Representatives believe to be comparable to Ditech, estimates of the business
potential, and its industry in general and the present state of Ditech's
development and other factors deemed relevant. The estimated initial public
offering price range set forth on the cover of this preliminary prospectus is
subject to change as a result of market conditions and other factors.
We have been advised by the Representatives that during and after this
offering, the Underwriters may purchase and sell common stock in the open
market. These transactions may include over-allotment and stabilizing
transactions and purchases to cover syndicate short positions created in
connection with this offering. Stabilizing transactions consist of certain bids
or purchases for the purpose of preventing or retarding a decline in the market
price of the common stock; and syndicate short positions involve the sale by the
Underwriters of a greater number of shares of common stock than they are
required to purchase from us in this offering. The Underwriters also may impose
penalty bids, whereby selling concessions allowed to the syndicate members or
other broker-dealers in respect of the common stock sold in this offering for
their account may be reclaimed by the syndicate if such securities are
repurchased by the syndicate in stabilizing or short-covering transactions.
These activities may stabilize, maintain or otherwise affect the market price of
the common stock, which may be higher than the price that might otherwise
prevail in the open market. These transactions may be effected on the Nasdaq
National Market or otherwise and these activities, if commenced, may be
discontinued at any time.
The Representatives have informed us that the Underwriters do not intend to
confirm orders to any account over which they exercise discretionary authority.
We estimate that the total expenses of the offering, excluding underwriting
discounts and commissions, will be approximately $900,000.
We are obligated to pay interest under a credit agreement with and granted a
security interest in our assets to BankBoston, N.A., an affiliate of BancBoston
Robertson Stephens LLC, a Representative of the Underwriters. We are also
obligated to pay rent to BancBoston Leasing Inc., also an affiliate of
BancBoston Robertson Stephens LLC, pursuant to a lease line of credit.
64
<PAGE>
LEGAL MATTERS
The validity of the issuance of the common stock offered hereby will be
passed upon for Ditech by Cooley Godward LLP, Palo Alto, California. Certain
legal matters in connection with the offering will be passed upon for the
Underwriters by Wilson Sonsini Goodrich & Rosati, Professional Corporation, Palo
Alto, California.
EXPERTS
The financial statements of Ditech as of April 30, 1997 and 1998, and for
each of the three years in the period ended April 30, 1998, appearing in this
prospectus and registration statement have been audited by and have been
included herein in reliance on the report of PricewaterhouseCoopers LLP,
independent accountants, as set forth in their report thereon appearing
elsewhere herein, and are included in reliance upon such report given on the
authority of such firm as experts in accounting and auditing.
CHANGE IN ACCOUNTANTS
In April 1998, Ditech's Board of Directors determined to change its
accountants and approved the engagement of PricewaterhouseCoopers LLP (formerly
Coopers & Lybrand LLP) to replace the former accountants as Ditech's principal
accountants. Prior to and as of PricewaterhouseCoopers' appointment, there were
no disagreements with the former accountants during the two years ended April
30, 1997 or during the subsequent interim period preceding their replacement on
any matters of accounting principles or practices, financial statement
disclosure, or auditing scope or procedures which, if not resolved to the former
accountants' satisfaction, would have caused them to make reference to the
matter in their report. The former accountants issued an unqualified opinion on
the financial statements of Ditech as of and for the two years ended April 30,
1997. The former accountants' report does not cover any of the financial
statements of Ditech included in this Prospectus. Ditech did not consult with
PricewaterhouseCoopers LLP on any accounting or financial reporting matters in
the periods prior to their appointment.
65
<PAGE>
ADDITIONAL INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the shares of common stock being offered. This prospectus does not
contain all the information set forth in the registration statement and the
exhibits and schedules thereto. For further information with respect to Ditech
and our common stock, we refer you to the registration statement and to the
exhibits and schedules filed therewith. Statements contained in this prospectus
as to the contents of any contract or other document referred to are not
necessarily complete, and in each instance we refer you to the copy of such
contract or other document filed as an exhibit to the registration statement,
each such statement being qualified in all respects by such reference. A copy of
the registration statement may be inspected and copied by anyone at the SEC's
Public Reference Room at 450 Fifth Street, N.W., Washington, D.C. 20549. You may
obtain information on the operation of the Public Reference Room by calling the
SEC at 1-800-SEC-0330. The SEC also maintains a World Wide Web site that
contains reports, proxy and information statements and other information
regarding registrants, such as Ditech, that file electronically with the SEC.
The address of the site is http://www.sec.gov.
The Company intends to furnish to its stockholders annual reports containing
audited financial statements certified by an independent public accounting firm
and quarterly reports containing unaudited interim financial information for
each of the first three fiscal quarters of each fiscal year of the Company.
66
<PAGE>
DITECH CORPORATION
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
-----------
<S> <C>
Report of Independent Accountants...................................................... F-2
Balance Sheets......................................................................... F-3
Statements of Operations............................................................... F-4
Statements of Shareholders' Equity (Deficit)........................................... F-5
Statements of Cash Flows............................................................... F-6
Notes to Financial Statements.......................................................... F-7
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of
Ditech Corporation:
In our opinion, the accompanying balance sheets and the related statements
of operations, shareholders' equity (deficit) and cash flows present fairly, in
all material respects, the financial position of Ditech Corporation at April 30,
1997 and 1998, and the results of its operations and cash flows for each of the
three years in the period ended April 30, 1998, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audits to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PRICEWATERHOUSECOOPERS LLP
March 12, 1999
San Jose, California
F-2
<PAGE>
DITECH CORPORATION
BALANCE SHEETS
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
APRIL 30, JANUARY 31, JANUARY 31,
-------------------- ------------ ---------------
1997 1998 1999 1999 (NOTE 12)
--------- --------- ------------ ---------------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................. $ 4,199 $ 3,433 $ 4,724
Investments................................................ 221 -- --
Accounts receivable, net of allowance for doubtful accounts
of $75, $30 and $100 in 1997, 1998 and 1999,
respectively............................................. 2,203 2,190 2,097
Inventories................................................ 1,660 2,163 4,209
Deferred income taxes...................................... 364 473 637
Other assets............................................... 38 89 320
Income taxes receivable.................................... 848 142 --
--------- --------- ------------
Total current assets..................................... 9,533 8,490 11,987
Property and equipment, net.................................. 426 1,228 1,588
Investment in preferred stock................................ 7,508 7,508 7,508
Other assets................................................. 41 48 631
--------- --------- ------------
Total assets............................................. $ 17,508 $ 17,274 $ 21,714
--------- --------- ------------
--------- --------- ------------
LIABILITIES
Current liabilities:
Note payable, current portion.............................. $ 125 $ 563 $ 750
Accounts payable........................................... 1,391 1,212 2,778
Accrued expenses........................................... 1,138 892 948
Deferred revenue........................................... -- -- 1,316
Income taxes payable....................................... -- -- 207
Obligations under capital lease, current portion........... -- 41 57
--------- --------- ------------
Total current liabilities................................ 2,654 2,708 6,056
Deferred income taxes........................................ -- 91 91
Note payable, net of current portion......................... 7,875 7,313 6,750
Obligations under capital lease, net of current portion...... -- 97 80
--------- --------- ------------
Total liabilities........................................ 10,529 10,209 12,977
--------- --------- ------------
Commitments and contingencies (Note 6 and 15)
Redeemable preferred shares:
Series A preferred shares, no par value, 17,250 shares
authorized, issued and outstanding actual and pro forma
(Liquidation value: $18,439 in 1998)..................... 17,053 18,100 18,949 $ 18,949
Series B convertible preferred shares, no par value, 6,260
shares authorized, issued and outstanding actual and no
pro forma shares
(Liquidation value: $5,767 in 1998)...................... 5,333 5,661 5,926 --
Series C preferred shares, no par value, 7,508 shares
authorized, issued and outstanding actual and pro
forma.................................................... 7,361 7,361 7,361 7,361
--------- --------- ------------ ---------------
Total redeemable preferred shares........................ 29,747 31,122 32,236 $ 26,310
--------- --------- ------------ ---------------
---------------
SHAREHOLDERS' DEFICIT
Common shares, no par value: 50,000 shares authorized and
4,291 and 4,621 shares issued and outstanding at April 30,
1997 and 1998, respectively; 6,859 shares outstanding at
January 31, 1999 and 13,119 shares pro forma............... -- 78 1,883 $ 7,809
Deferred stock compensation.................................. -- -- (409) (409)
Accumulated deficit.......................................... (22,768) (24,135) (24,973) (24,973)
--------- --------- ------------ ---------------
Total shareholders' deficit.............................. (22,768) (24,057) (23,499) $ (17,573)
--------- --------- ------------ ---------------
---------------
Total liabilities, redeemable preferred shares and
shareholders' deficit.................................... $ 17,508 $ 17,274 $ 21,714
--------- --------- ------------
--------- --------- ------------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-3
<PAGE>
DITECH CORPORATION
STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED APRIL 30, JANUARY 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue.................................................... $ 14,354 $ 14,066 $ 12,326 $ 8,687 $ 18,025
Cost of goods sold......................................... 7,164 6,790 5,651 4,029 8,588
--------- --------- --------- --------- ---------
Gross profit............................................. 7,190 7,276 6,675 4,658 9,437
--------- --------- --------- --------- ---------
Operating expenses:
Sales and marketing...................................... 1,041 1,521 2,405 1,438 4,104
Research and development................................. 1,040 1,072 2,367 1,657 2,850
General and administrative............................... 536 714 1,279 923 1,622
--------- --------- --------- --------- ---------
Total operating expenses................................. 2,617 3,307 6,051 4,018 8,576
--------- --------- --------- --------- ---------
Income from operations..................................... 4,573 3,969 624 640 861
--------- --------- --------- --------- ---------
Other income (expense):
Interest income.......................................... 3 21 175 135 155
Interest expense......................................... (8) (125) (768) (593) (553)
--------- --------- --------- --------- ---------
Total other income (expense)........................... (5) (104) (593) (458) (398)
--------- --------- --------- --------- ---------
Income from continuing operations before income
taxes................................................ 4,568 3,865 31 182 463
Provision for income taxes................................. 1,776 1,522 24 73 186
--------- --------- --------- --------- ---------
Income from continuing operations.......................... 2,792 2,343 7 109 277
Discontinued operations:
Loss from operations (net of income tax benefits of
$1,131 and $1,037 in 1996 and 1997).................... (1,413) (2,751) -- -- --
Gain on disposal (net of income tax benefit of $364)..... -- 2,843 -- -- --
--------- --------- --------- --------- ---------
Net income................................................. 1,379 2,435 7 109 277
Accretion of mandatorily redeemable preferred shares to
redemption value......................................... -- 187 1,374 1,030 1,115
--------- --------- --------- --------- ---------
Net income (loss) attributable to common shareholders...... $ 1,379 $ 2,248 $ (1,367) $ (921) $ (838)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Per share data
Basic
Income from continuing operations...................... $ 0.07 $ 0.06 $ (0.30) $ (0.20) $ (0.16)
Discontinued operations................................ (0.04) 0.00 -- -- --
--------- --------- --------- --------- ---------
Net income (loss) per share............................ $ 0.03 $ 0.06 $ (0.30) $ (0.20) $ (0.16)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted
Income from continuing operations...................... $ 0.07 $ 0.06 $ (0.30) $ (0.20) $ (0.16)
Discontinued operations................................ (0.04) 0.00 -- -- --
--------- --------- --------- --------- ---------
Net income (loss) per share............................ $ 0.03 $ 0.06 $ (0.30) $ (0.20) $ (0.16)
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Number of shares used in per share calculations
Basic.................................................... 41,854 37,158 4,592 4,582 5,170
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Diluted.................................................. 42,407 37,836 4,592 4,582 5,170
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
Pro forma data
Net loss per share--basic and diluted.................... $ (0.10) $ (0.05)
--------- ---------
--------- ---------
Shares used in per share calculation--basic and
diluted................................................ 10,852 11,430
--------- ---------
--------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-4
<PAGE>
DITECH CORPORATION
STATEMENTS OF SHAREHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON SHARES NOTES
--------------------- RECEIVABLE FROM DEFERRED STOCK ACCUMULATED
SHARES AMOUNT SHAREHOLDERS COMPENSATION DEFICIT TOTAL
--------- ---------- --------------- --------------- ------------- ----------
<S> <C> <C> <C> <C> <C> <C>
BALANCES, MAY 1, 1995.............. 41,854 $ 9,638 $ (87) $ (2,758) $ 6,793
Net income......................... -- -- -- 1,379 1,379
--------- ---------- ----- ------------- ----------
BALANCES, APRIL 30, 1996........... 41,854 9,638 (87) (1,379) 8,172
Exercise of stock options.......... 1,576 155 -- -- 155
Tax benefit on exercise of stock
options.......................... -- 307 -- -- 307
Collection of shareholder notes
receivable....................... -- -- 87 -- 87
Repurchase of common shares........ (39,139) (10,100) -- (23,637) (33,737)
Accretion for dividend on Series A
and B redeemable preferred
shares........................... -- -- -- (187) (187)
Net income......................... -- -- -- 2,435 2,435
--------- ---------- ----- ------------- ----------
BALANCES, APRIL 30, 1997........... 4,291 -- -- (22,768) (22,768)
Exercise of stock options.......... 230 23 -- -- 23
Issuance of common shares.......... 100 55 -- -- 55
Accretion for dividend on Series A
and B redeemable preferred
shares........................... -- -- -- (1,374) (1,374)
Net income......................... -- -- -- 7 7
--------- ---------- ----- ------------- ----------
BALANCES, APRIL 30, 1998........... 4,621 78 -- (24,135) (24,057)
Exercise of stock options.......... 1,989 873 -- -- 873
Issuance of common shares.......... 250 500 -- -- 500
Repurchase of common shares........ (1) (1) -- -- (1)
Accretion for dividend on Series A
and B redeemable preferred
shares........................... -- -- -- (1,115) (1,115)
Deferred compensation in issuance
of stock options................. -- 433 -- $ (433) -- --
Amortization of deferred stock
compensation..................... -- -- -- 24 -- 24
Net income......................... -- -- -- -- 277 277
--------- ---------- ----- ------ ------------- ----------
BALANCES, JANUARY 31, 1999
(UNAUDITED)...................... 6,859 $ 1,883 $ -- $ (409) $ (24,973) $ (23,499)
--------- ---------- ----- ------ ------------- ----------
--------- ---------- ----- ------ ------------- ----------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-5
<PAGE>
DITECH CORPORATION
STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
YEARS ENDED APRIL 30, JANUARY 31,
------------------------------- --------------------
1996 1997 1998 1998 1999
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net income...................................................... $ 1,379 $ 2,435 $ 7 $ 109 $ 277
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Loss from discontinued operations............................. 1,413 2,751 -- -- --
Gain on disposal of discontinued operations................... -- (2,843) -- -- --
Depreciation and amortization................................. 29 68 175 110 299
Increase (decrease) in provision for doubtful accounts........ -- 75 (45) (45) 70
Loss on disposal of property and equipment.................... -- 1 -- -- --
Deferred income taxes......................................... (199) (142) (18) -- (164)
Amortization of deferred stock compensation................... -- -- -- -- 24
Change in assets and liabilities:
Accounts receivable......................................... (2,416) 749 58 307 22
Inventories................................................. (688) (562) (503) (349) (2,173)
Other assets................................................ 1 (69) (58) (14) (231)
Income taxes receivable/payable............................. -- (848) 705 72 349
Accounts payable............................................ 941 80 (177) (335) 1,566
Accrued expenses and other.................................. 1,422 (455) (246) (479) 55
Deferred revenue............................................ -- -- -- -- 1,316
--------- --------- --------- --------- ---------
Net cash provided by (used in) operating activities of
continuing operations................................... 1,882 1,240 (102) (624) 1,410
--------- --------- --------- --------- ---------
Cash flows from investing activities:
Proceeds from sales of discontinued operations.................. -- 2,623 -- --
Purchases of property and equipment............................. (182) (289) (823) (626) (482)
Other assets.................................................... -- -- -- (25) (116)
Maturity (purchase) of investments.............................. (514) 293 221 221 --
--------- --------- --------- --------- ---------
Net cash provided by (used in) investing activities of
continuing operations....................................... (696) 2,627 (602) (430) (598)
--------- --------- --------- --------- ---------
Cash flows from financing activities:
Issuance of note payable........................................ -- -- 8,000 -- --
Issuance of subordinated promissory notes....................... -- 8,000 -- -- --
Collection of notes receivable from shareholders................ -- 87 -- -- --
Repayment of subordinated promissory notes...................... -- -- (8,000) -- --
Repurchase of common shares..................................... -- (21,486) -- -- (1)
Principal payments on note payable.............................. -- -- (125) -- (375)
Principal payments under capital lease obligations.............. -- -- (15) -- (18)
Proceeds from issuance of preferred shares...................... -- 17,901 -- -- --
Proceeds from issuance of common shares......................... -- -- 55 55 --
Proceeds from exercise of stock options......................... -- 155 23 23 873
--------- --------- --------- --------- ---------
Net cash provided by (used in) financing activities of
continuing operations....................................... -- 4,657 (62) 78 479
--------- --------- --------- --------- ---------
Net cash used in discontinued operations.......................... (755) (4,856) -- -- --
--------- --------- --------- --------- ---------
Net increase (decrease) in cash and cash equivalents.............. 431 3,668 (766) (976) 1,291
Cash and cash equivalents, beginning of period.................... 100 531 4,199 4,199 3,433
--------- --------- --------- --------- ---------
Cash and cash equivalents, end of period.......................... $ 531 $ 4,199 $ 3,433 $ 3,223 $ 4,724
--------- --------- --------- --------- ---------
--------- --------- --------- --------- ---------
</TABLE>
The accompanying notes are an integral part of these financial statements
F-6
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND NATURE OF BUSINESS
Ditech Corporation (formerly Automated Call Processing Corporation) (the
"Company") is a California corporation that intends to reincorporate to Delaware
immediately prior to the consummation of this offering. The Company designs,
develops and markets echo cancellation equipment and optical communications
subsystems for use in building and expanding telecommunications and cable
communications networks. The Company has established a direct sales force that
sells its products in the U.S. and internationally. The Company operates in one
business segment.
Effective March 11, 1997, the Company sold its operations doing business as
Automated Call Processing Corporation ("ACP") and its wholly owned subsidiary,
Globe Wireless ("GW") and subsequently merged with its wholly owned subsidiary,
Ditech Corporation and renamed the Company. The operations of ACP and GW have
been presented as discontinued operations in the financial statements.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
REVENUE RECOGNITION
The Company recognizes revenue when a product has been shipped, no material
vendor obligations remain outstanding and collection of the resulting receivable
is probable. In the event that revenue recognition is deferred due to
uncertainty about collectibility or the existence of a material vendor
obligation such as installation, the revenue is recognized when the uncertainty
is removed and/or the vendor obligation is fulfilled.
The Company generally does not grant rights of return.
WARRANTIES
The Company's products are warranted for one to five years. A provision for
the estimated future cost of warranty is made at the time a sale is recorded.
RESEARCH AND DEVELOPMENT
Research and development costs are expensed as incurred.
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. Management
believes that the financial institutions in which it maintains such deposits are
financially sound and, accordingly, minimal credit risk exists with respect to
these deposits. Cash and cash equivalents are held by two major U.S. financial
institutions.
F-7
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
FAIR VALUE OF FINANCIAL INSTRUMENTS
Carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, investments, accounts receivable, accounts
payable and note payable are considered to approximate fair value based upon
comparable market information available at the respective balance sheet dates.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined by
using the first-in, first-out ("FIFO") method. Appropriate consideration is
given to obsolescence, excessive levels, deterioration and other factors in
evaluating net realizable value.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and are depreciated using the
straight-line method over their estimated useful lives ranging from three to
five years or, in the case of leasehold improvements, the lease period, if
shorter. Upon disposal, the assets and related accumulated depreciation are
removed from the Company's accounts, and the resulting gains or losses are
reflected in the statements of operations.
CERTAIN RISKS AND CONCENTRATIONS
The Company's products are concentrated in the telecommunications component
industry, which is highly competitive and rapidly changing. Revenues for the
Company's products are concentrated with a relatively limited number of
customers. During the year ended April 30, 1996, three customers accounted for
78% (34%, 30% and 14%) of net revenues. During the year ended April 30, 1997,
two customers accounted for 65% (54% and 11%) of net revenues. During the year
ended April 30, 1998, three customers accounted for 67% (42%, 14%, and 11%) of
net revenues. Net revenues from customers outside the United States, which were
denominated in U.S. dollars, were 35%, 10% and 6% in 1996, 1997 and 1998,
respectively. The Company's accounts receivable was concentrated with two
customers at April 30, 1997 (representing 42% and 28% of receivables) and one
customer at April 30, 1998 (representing 75% of receivables).
A significant component of one of the Company's products is purchased from a
sole vendor. If the Company was unable to obtain the component at prices
reasonable to the Company, it would experience delays in redesigning the product
to function with a component from an alternative supplier. The Company relies on
a single manufacturer for a majority of the Company's products. The Company may
experience delays if it were to shift production to an alternative vender.
INCOME TAXES
Income taxes are accounted for under the liability method. Under this
method, deferred income taxes are recognized for temporary differences by
applying enacted statutory rates applicable to future years to differences
between the financial statement carrying amounts and the tax basis of existing
assets and liabilities. The effect on deferred taxes of a change in tax rates is
recognized in income in the period that includes the enactment date.
F-8
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
UNAUDITED INTERIM FINANCIAL INFORMATION
The accompanying financial statements at January 31, 1999 and for the nine
months ended January 31, 1999 and 1998, together with the related notes, are
unaudited but include all adjustments (consisting only of normal recurring
adjustments) which, in the opinion of management, are necessary for a fair
presentation, in all material respects, of the financial position and the
operating results and cash flows for the interim date and periods presented.
Results for the interim period ended January 31, 1999 are not necessarily
indicative of results for the entire fiscal year or future periods.
PRINCIPALS OF CONSOLIDATION
In fiscal years 1997 and 1996, the Company's financial statements included
the accounts of the Company and its two subsidiaries. Intercompany transactions
and balances were eliminated in consolidation. See Note 3 for discussion on
discontinued operations presentation for ACP and GW.
COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" ("FAS 130"). FAS 130 establishes standards for
reporting and display of comprehensive income and its components in a full set
of general-purpose financial statements. There was no difference between the
Company's net income and its total comprehensive income for 1996, 1997 and 1998.
ACCOUNTING FOR STOCK-BASED COMPENSATION
As prescribed by Statement of Financial Accounting Standards No. 123,
"Accounting for Stock-based Compensation," ("SFAS 123"), the Company accounts
for grants of equity instruments to employees using the intrinsic value method
described in Accounting Practice Bulletin No. 25, "Accounting for Stock Issued
to Employees," ("APB 25"). All other grants are accounted for using the fair
value method described in FAS 123, with appropriate compensation expense
recognition in the statement of operations, where significant.
RECENT ACCOUNTING PRONOUNCEMENTS
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-1 "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use" (SOP 98-1). This standard requires
companies to capitalize qualifying computer software costs which are incurred
during the application's development stage and amortize them over the software's
estimated useful life. SOP 98-1 is effective for fiscal years beginning after
December 15, 1998. The Company is currently evaluating the impact of SOP 98-1 on
its financial statements and related disclosures.
EARNINGS PER SHARE
Basic earnings per share is calculated based on the weighted average number
of common shares outstanding during the period less shares subject to
repurchase. Diluted earnings per share is
F-9
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
calculated based on the weighted average number of common and common equivalent
shares outstanding, including the dilutive effect of stock options, using the
treasury stock method, and the assumed conversion of all outstanding shares of
Series B preferred shares.
A reconciliation of the numerator and denominator used in the calculation of
the historical basic and diluted net income (loss) per share follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Historical net income (loss) per share, basic and diluted:
Basic:
Net income......................................................... $ 1,379 $ 2,435 $ 7
Less accretion on mandatorily redeemable preferred shares.......... -- 187 1,374
--------- --------- ---------
Net income (loss) attributable to common shareholders.............. $ 1,379 $ 2,248 $ (1,367)
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding......................... 41,854 37,158 4,592
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share........................................ $ 0.03 $ 0.06 $ (0.30)
--------- --------- ---------
--------- --------- ---------
Diluted:
Net income......................................................... $ 1,379 $ 2,435 $ 7
Less accretion on mandatorily redeemable preferred shares.......... -- 187 1,374
--------- --------- ---------
Net income (loss) attributable to common shareholders.............. $ 1,379 $ 2,248 $ (1,367)
--------- --------- ---------
--------- --------- ---------
Weighted average common shares outstanding......................... 41,854 37,158 4,592
Dilutive effect of stock options................................... 553 678 --
--------- --------- ---------
Shares used in calculation of diluted per share numbers............ 42,407 37,836 4,592
--------- --------- ---------
--------- --------- ---------
Net income (loss) per share........................................ $ 0.03 $ 0.06 $ (0.30)
--------- --------- ---------
--------- --------- ---------
</TABLE>
RECLASSIFICATIONS
Certain 1996, 1997 and 1998 amounts in the Statement of Operations have been
reclassified to conform with the 1999 presentation. These reclassifications did
not change previously reported shareholders' equity (deficit) or net income.
3. DISCONTINUED OPERATIONS
Effective March 11, 1997 the Company sold, in their entirety, both the
operating entities of ACP and GW. ACP represented the call processing segment of
the Company's business and GW represented the wireless marine communications
segment of the Company's business. Both had operations that were separate and
distinct from Ditech Corporation and each other. ACP was sold for cash of
$1,210,000, to a limited liability company and a limited partnership of which
the manager and controlling member is a director and shareholder of the Company.
F-10
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
3. DISCONTINUED OPERATIONS (CONTINUED)
All of the common stock in GW was sold for cash of $1,413,000. The sale of
GW was to certain shareholders of the Company, a new investor and entities
controlled by a director and shareholder of the Company. The Company accounts
for its investment in GW Series A Preferred at the lesser of historical cost or
market. As no liquid market exists for the stock, the Company has evaluated the
recoverability of the investment based on secondary financings that GW has
completed. To date the financings that have been completed indicate that no
impairment has occurred.
The following summarizes the revenues, operations and gain on disposal of
the entities.
Revenue from discontinued operations for the years ended April 30, 1996 and
1997 were (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
ACP...................................................................... $ 5,983 $ 5,161
GW....................................................................... 2,195 2,072
--------- ---------
Total.................................................................. $ 8,178 $ 7,233
--------- ---------
--------- ---------
</TABLE>
Income (loss) from operations of discontinued operations for the years ended
April 30, 1996 and 1997 were (in thousands):
<TABLE>
<CAPTION>
1996 1997
--------- ---------
<S> <C> <C>
ACP (net of tax benefit of $201 in 1996 and $583 in 1997)............... $ (248) $ 119
GW (net of tax benefit of $930 in 1996 and $454 in 1997)................ (1,165) (2,870)
--------- ---------
$ (1,413) $ (2,751)
--------- ---------
--------- ---------
</TABLE>
Gain on disposal of discontinued operations during the year ended April 30,
1997 were (in thousands):
<TABLE>
<S> <C>
ACP (net of tax benefit of $305).................................. $ 63
GW (net of tax benefit of $59).................................... 2,780
---------
$ 2,843
---------
---------
</TABLE>
F-11
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. BALANCE SHEET ACCOUNTS
INVESTMENTS:
The amortized cost of the Company's investments consist of the following (in
thousands):
<TABLE>
<CAPTION>
APRIL 30,
1997
-----------
<S> <C>
U.S. government obligations........................................................ $ 100
Municipal bonds.................................................................... 121
-----
$ 221
-----
-----
</TABLE>
All of the Company's held to maturity investments matured within the first
six months of fiscal 1998. The cost of investments approximates their fair value
and the amount of unrealized gains and losses were not significant at April 30,
1997.
INVENTORIES:
Inventories comprised (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Raw materials and work in progress....................................... $ 160 $ 484
Finished goods........................................................... 1,500 1,679
--------- ---------
Total.................................................................. $ 1,660 $ 2,163
--------- ---------
--------- ---------
</TABLE>
PROPERTY AND EQUIPMENT:
Property and equipment comprised (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Furniture and fixtures................................................... $ 23 $ 118
Equipment................................................................ 499 1,190
Leasehold improvements................................................... 25 25
Computer software........................................................ -- 190
--------- ---------
547 1,523
Less: accumulated depreciation and amortization.......................... (121) (295)
--------- ---------
Total.................................................................. $ 426 $ 1,228
--------- ---------
--------- ---------
</TABLE>
Included in property and equipment are assets under capital lease of
$154,000 at April 30, 1998 with related accumulated amortization of $9,000.
Prior to fiscal year 1998, the Company did not have any assets under capital
lease.
F-12
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. BALANCE SHEET ACCOUNTS (CONTINUED)
ACCRUED EXPENSES:
Accrued expenses comprised (in thousands):
<TABLE>
<CAPTION>
APRIL 30,
--------------------
1997 1998
--------- ---------
<S> <C> <C>
Accrued royalties........................................................ $ 287 $ 171
Accrued compensation..................................................... 417 332
Other accrued expenses................................................... 434 389
--------- ---------
Total.................................................................. $ 1,138 $ 892
--------- ---------
--------- ---------
</TABLE>
5. NOTE PAYABLE
In August 1997, the Company entered into an $8 million loan with a bank in
conjunction with its line of credit (see Note 6), collateralized by
substantially all the Company assets. Interest is based on the bank's Base Rate
plus .25% to 1% or LIBOR Rate plus 2.0% to 2.75%, as allowed based on compliance
with certain covenants and the Company's elected instrument. Based on the
quarterly principal payments the loan will be paid in full December 31, 2002.
The Note has covenants including a minimum quick ratio and minimum quarterly
earnings before interest, taxes, depreciation and amortization. During fiscal
1998, the Company was out of compliance with certain of the notes covenants. The
Company received a waiver from the bank for these instances of non-compliance.
The loan was used to repay the subordinated promissory notes of $8,000,000 to
shareholders, which were issued as part of the recapitalization.
At April 30, 1998, principal payments consist of the following (in
thousands):
<TABLE>
<S> <C>
1999....................................................... $ 563
2000....................................................... 1,125
2001....................................................... 2,250
2002....................................................... 2,250
2003....................................................... 1,688
---------
7,876
Less current portion....................................... (563)
---------
$ 7,313
---------
---------
</TABLE>
6. COMMITMENTS AND CONTINGENCIES
LEASES
The Company leases its office facilities under a non-cancelable operating
lease expiring in December 2003. The Company is responsible for taxes, insurance
and maintenance expenses related to the leased facilities. Under the terms of
the lease agreement, the lease may be extended, at the Company's option, and the
lease provides for potential adjustments of the minimum monthly rent upon
exercise of the option(s). The Company also has operating leases on furniture
and equipment from unrelated parties. Additionally, the Company has capital
leased equipment with future minimum payments.
F-13
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. COMMITMENTS AND CONTINGENCIES (CONTINUED)
At April 30, 1998, future minimum payments under the leases are as follows
(in thousands):
<TABLE>
<CAPTION>
YEARS ENDED APRIL 30, OPERATING CAPITAL
- ------------------------------------------------------------------------ ------------- -----------
<S> <C> <C>
1999.................................................................... $ 143 $ 54
2000.................................................................... 48 54
2001.................................................................... 15 39
2002.................................................................... -- 17
2003.................................................................... -- 9
----- -----
$ 206 173
-----
-----
Less amount representing interest....................................... 35
-----
138
Less current portion 41
-----
$ 97
-----
-----
</TABLE>
Rent expense for the years ended April 30, 1996, 1997 and 1998 was $87,000,
$131,000 and $384,000, respectively.
LINE OF CREDIT
At April 30, 1998, the Company had a revolving line of credit of $3 million
collateralized by substantially all of the Company's assets. Borrowings under
the agreement bear interest at the bank's Base Rate plus .25% to 1.0% or at
LIBOR Rate plus 2.0% to 2.75%, as allowed based on covenants and the Company's
elected instrument. On August 13, 1998, the Company converted the existing line
into a new revolving line of credit with available borrowings of $2 million or
80% of eligible accounts receivable, whichever is lower, with the same financial
institution. Borrowings under the agreement are at the bank's Base Rate plus
.50% until April 30, 1999 and then are adjustable based on attaining certain
covenants at the bank's Base Rate plus .25% to 1.0% or LIBOR Rate plus 2.0% to
3.0%. The line expires on August 20, 2000. There were no amounts outstanding at
April 30, 1997 or 1998.
ARBITRATION
In January 1998, the Company filed a demand for Arbitration with the
American Arbitration Association in Los Angeles County against Antec
Corporation, the successor-in-interest through merger to Texscan Corporation.
The demand for arbitration alleges that Antec/Texscan breached a contract to
purchase our optical amplifier products and seeks monetary damages.
Antec/Texscan have denied liability and, in December 1998, filed a counterclaim
against the Company claiming that the Company breached the purchase contract
first and seeking monetary damages. The matter is set to complete arbitration in
May 1999. Although management believes that it has a valid claim to recover
against Antec/Texscan for breach of contract and has meritorious defenses to the
counterclaim, if the case is resolved unfavorably to us it could have a material
adverse effect on our financial condition. The Company has not accrued for any
potential losses.
F-14
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE PREFERRED SHARES
The Company has authorized and issued 17,250,000 Series A preferred shares,
6,259,718 Series B preferred shares and 7,508,221 Series C preferred shares.
Certain former common shareholders of the Company own a portion of Series A
preferred shares and Series C preferred shares. The rights, preferences and
privileges of the Series A, Series B and Series C preferred shares are as
follows:
LIQUIDATION RIGHTS
The preferred shares have certain liquidation preferences over the common
shares in the event of a liquidating event such as dissolution of the affairs of
the Company or a take-over by another corporation. The Series C preferred
shareholders have distribution preference related to the Globe Wireless
preferred stock and related to unpaid dividends over the Series A and Series B
preferred shareholders. The liquidation preferences entitle the Series A and
Series B preferred shareholders to receive $1.00 and $0.86185 per share,
respectively, in addition to amounts due on unpaid dividends which have been
accrued or declared. The Series A preferred shareholders have preference over
the Series B preferred shareholders in determining the order of liquidation
payout. Subsequently, the Series C preferred shareholders may then receive the
difference between the GW preferred liquidation value of $1.00 and the GW
preferred fair market value, if the fair market value is less than the
liquidation value. The preferred shares do not participate in the distribution
of assets remaining after the liquidation preference has been paid.
CONVERSION RIGHTS
The Series A and Series C preferred shares have no conversion rights. The
Series B preferred shareholders have the right at any time to convert each
preferred shares into common shares at the specified conversion rate per share,
which currently is $0.86185 per common shares. The conversion rate will be
adjusted for stock splits and recapitalization. In the event of a public
offering of the Company's common shares where the net proceeds received by the
Company equals or exceeds $20,000,000 and the offering price is at least $2.59
per share, or in the event of approval from two thirds of Series B preferred
shareholders, all shares of the Series B preferred shares automatically convert
into common shares at the specified conversion rate.
REDEMPTION RIGHTS
The Company may not redeem any or all of the Series A and Series B preferred
shares until after February 1, 2004, with a request of the majority of the
outstanding shareholders. The Series B preferred shares may be redeemed only if
there are no Series A preferred shares then outstanding.
The Company, upon the election of the holders of a majority of the
outstanding shares, will redeem all of the Series A preferred shares in the
event of a public offering of the Company's common shares. Upon a change in
ownership or fundamental change in the Company and an election by a majority of
the shareholders, the Series A and Series B preferred shareholders may redeem
all of their shares at liquidation value and unpaid dividends. The Series A
preferred has preference over the Series B preferred. Series C preferred
redemption shall only occur upon the redemption or sale of Globe Wireless
preferred.
F-15
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. REDEEMABLE PREFERRED SHARES (CONTINUED)
VOTING RIGHTS
The Series B preferred shareholders are entitled to vote on all matters with
the holders of common shares as if on an as converted basis and have the right
to elect two directors to the Board of Directors. The Series A preferred
shareholders have no rights to vote. The Series C preferred shareholders shall
have one vote for every five shares held and have the right along with the
holders of common shares to elect two directors to the Board of Directors.
DIVIDEND RIGHTS
The preferred shareholders will be entitled to receive dividends in
preference to the common shareholders. In addition, Series A and Series B
shareholders dividends shall be on a pro rata basis based on liquidation values
of each. From the date of issuance, cumulative dividends are payable when and if
declared or accumulate as part of the shares' liquidation preferences at 6% per
year, compounded daily.
The carrying amounts of both Series A and Series B have been increased by
amounts representing dividends not currently declared or paid but which will be
payable under the dividend rights of the respective series of preferred shares.
The increases have been effected by a charge against accumulated deficit.
Dividends for Series C shareholders shall accrue only when dividends are
paid with respect to the investment in Globe Wireless preferred stock on a pro
rata basis.
8. SHAREHOLDERS' EQUITY (DEFICIT)
RECAPITALIZATION
In March 1997, the Company recapitalized its financial structure by
exchanging substantially all of the then outstanding common shares for cash of
$21,486,000 and Series A and C preferred shares. In retiring the common shares
outstanding at that time, the excess of the fair value of the common shares over
the original issuance price of common stock of $23,637,000 was recorded against
retained earnings, which gave rise to the accumulated deficit of $22,768,000 as
of April 30, 1997.
STOCK OPTION PLAN
The Company's 1997 Stock Option Plan (the 'Plan') serves as the successor
equity incentive program to the Company's 1987 Stock Option Plan and the
Supplemental Stock Option Plan (the 'Predecessor Plans'). All outstanding stock
options under the Predecessor Plans will continue to be governed by the terms
and conditions of the Plan. The Company has reserved 3,000,000 common shares for
issuance under the Plan. Under the Plan, the Board of Directors may grant
incentive or non-statutory stock options at a price not less than 100% or 85%,
respectively, of fair market value of common shares, as determined by the Board
of Directors, at grant date. Options under the Plan may be immediately
exercisable. The options have a ten-year term. Shares issued through early
option exercises are subject to the Company's right of repurchase at the
original exercise price. The number of shares subject to repurchase generally
decreases by 25% of the options shares one year after the grant date, and
thereafter, ratably over 48 months. No shares were subject to repurchase as of
April 30, 1998.
F-16
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
All the options associated with the ACP operations were either exercised or
cancelled during the year ended April 30, 1997 (with the discontinued
operations). No options were outstanding at April 30, 1997.
Activity under the Plan was as follows (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
---------------------------------------------------------
SHARES WEIGHTED
AVAILABLE NUMBER OF AGGREGATE AVERAGE
FOR GRANT SHARES EXERCISE PRICE PRICE EXERCISE PRICE
----------- ----------- -------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
Balances, May 1, 1995....................... 1,603 2,026 $0.10 $ 200 $ 0.10
Options granted........................... (564) 564 $0.10-$1.00 139 $ 0.25
----------- ----------- -------------- ----------- -----
Balances, April 30, 1996.................... 1,039 2,590 $0.10-$1.00 339 $ 0.13
Options granted........................... (382) 382 $0.55-$1.00 281 $ 0.74
Options exercised......................... -- (1,576) $0.10 (155) $ 0.10
Options canceled.......................... 243 (243) $1.00 (243) $ 1.00
----------- ----------- -------------- ----------- -----
Balances, April 30, 1997.................... 900 1,153 $0.10-$0.55 222 $ 0.19
Reservation of shares..................... 948
Options granted........................... (1,473) 1,473 $0.55 810 $ 0.55
Options exercised......................... -- (230) $0.10 (23) $ 0.10
Options canceled.......................... 49 (49) $0.55 (27) $ 0.55
----------- ----------- -------------- ----------- -----
Balances, April 30, 1998.................... 424 2,347 $0.10-$0.55 982 $ 0.42
Additional shares reserved................ 1,142
Reserved shares cancelled................. (142)
Options granted........................... (690) 690 $0.55-$5.00 759 $ 1.11
Options exercised......................... -- (1,989) $0.10-$2.00 (873) $ 0.44
Options canceled.......................... 60 (74) $0.55 (41) $ 0.55
----------- ----------- -------------- ----------- -----
Balances, January 31, 1999 (unaudited)...... 794 974 $0.10-$5.00 $ 827 $ 0.85
----------- ----------- ----------- -----
----------- ----------- ----------- -----
</TABLE>
Options Outstanding at April 30, 1998 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
OPTIONS EXERCISABLE AT
APRIL 30, 1998
WEIGHTED AVERAGE ----------------------------
WEIGHTED REMAINING WEIGHTED
RANGE OF OPTIONS AVERAGE CONTRACTUAL LIFE AVERAGE
EXERCISE PRICES OUTSTANDING EXERCISE PRICE YEARS OPTIONS EXERCISE PRICE
- --------------- ------------- --------------- ------------------- ----------- ---------------
<S> <C> <C> <C> <C> <C>
$0.10 700 $ 0.10 6.86 458 $ 0.10
$0.55 1,647 $ 0.55 9.24 85 $ 0.55
----- ---
$0.10-$0.55 2,347 $ 0.42 8.53 543 $ 0.17
----- ---
----- ---
</TABLE>
The estimated weighted average fair value of options granted during fiscal
year 1996, 1997 and 1998 was $0.18, $0.19 and $0.19 per share, respectively. The
Company applies Accounting Principles Board Opinion No. 25 and related
Interpretations in accounting for its stock option plan other than
F-17
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. SHAREHOLDERS' EQUITY (DEFICIT) (CONTINUED)
that described above. If compensation cost for the Company's stock option plan
had been determined based on the fair value at the grant dates for awards under
those plans consistent with the method of SFAS 123, the Company's net income for
the years ended April 30, 1996, 1997 and 1998 would have been reduced to the pro
forma amounts indicated in the following table (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
APRIL 30,
-------------------------------
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Income from continuing operations before income taxes, as reported....... $ 4,568 $ 3,865 $ 31
Less: net expense per SFAS 123........................................... 10 31 86
--------- --------- ---------
Pro forma income (loss) from continuing operations....................... 4,558 3,834 (55)
Less: pro forma provision (benefit) for income taxes..................... 1,772 1,510 (22)
--------- --------- ---------
Pro forma income (loss) from continuing operations....................... $ 2,786 $ 2,324 $ (33)
--------- --------- ---------
--------- --------- ---------
Income from continuing operations as reported............................ $ 2,792 $ 2,343 $ 7
--------- --------- ---------
--------- --------- ---------
Net income from continuing operations per share:
Pro forma.............................................................. $ 0.07 $ 0.06 $ (0.31)
--------- --------- ---------
--------- --------- ---------
As reported............................................................ $ 0.07 $ 0.06 $ (0.30)
--------- --------- ---------
--------- --------- ---------
</TABLE>
The fair value of options granted under the Company's stock option plans
during 1996, 1997 and 1998 was estimated on the date of grant using the
Black-Scholes option pricing model. The model utilized the multiple option
approach with the following weighted average assumptions used: no dividend
yield, expected volatility is zero based on private company status, risk-free
interest rates of 6.28%, 6.48% and 5.90% in 1996, 1997 and 1998, respectively,
and expected lives of four years. Forfeitures are recognized as they occur.
9. INCOME TAXES
The provision for income taxes for continuing operations reflected in the
statements for the years ended April 30, 1996, 1997 and 1998 were as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.................................................. $ 1,452 $ 1,308 $ 41
State.................................................... 523 356 1
--------- --------- ---------
Total current.......................................... 1,975 1,664 42
--------- --------- ---------
Deferred:
Federal.................................................. (168) (105) (19)
State.................................................... (31) (37) 1
--------- --------- ---------
Total deferred......................................... (199) (142) (18)
--------- --------- ---------
Total................................................ $ 1,776 $ 1,522 $ 24
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-18
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
9. INCOME TAXES (CONTINUED)
The deferred income tax provision reflects the tax effect of changes in the
amounts of temporary differences during each year ended April 30, 1996, 1997 and
1998. As of April 30, 1997 and 1998, the Company's deferred tax assets and
liabilities consisted of (in thousands):
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Deferred tax asset (liability):
Uniform capitalization................................................... $ 200 $ 238
Depreciation............................................................. (36) (79)
Inventory reserves and other, net........................................ 200 223
--------- ---------
Total.................................................................. $ 364 $ 382
--------- ---------
--------- ---------
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Tax provision at federal statutory rate.......................... 34.0% 34.0% 34.0%
State taxes, net of federal benefit.............................. 6.1 6.1 13.0
Other, primarily non-deductible expenses......................... (1.2) (0.7) 30.4
--- --- ---
Total........................................................ 38.9% 39.4% 77.4%
--- --- ---
--- --- ---
</TABLE>
10. SEGMENT INFORMATION
The Company has adopted the Financial Accounting Standards Board's Statement
of Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information," ("SFAS 131") effective for fiscal years
beginning after December 31, 1997. This statement supercedes Statement of
Financial Accounting Standards No. 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 changes current practice under Statement No. 14
by establishing a new framework on which to base segment reporting and also
required interim reporting of segment information.
The Company markets its products from its continuing operations, primarily
to customers in the United States and in the telecommunications industry.
Management uses one measurement of profitability and does not disaggregate its
business for internal reporting. The Company's revenues, from its continuing
operations, by geographic area are summarized as follows (in thousands):
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
USA............................................................ $ 9,330 $ 12,673 $ 11,539
Mexico......................................................... 4,278 120 345
Rest of the world.............................................. 746 1,273 442
--------- --------- ---------
$ 14,354 $ 14,066 $ 12,326
--------- --------- ---------
--------- --------- ---------
</TABLE>
International sales are entirely comprised of export sales.
F-19
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
11. RELATED PARTY TRANSACTIONS
Transactions between the Company and its former wholly owned subsidiaries,
other than the reorganization transactions described in Notes 1 and 3 to these
financial statements, are as follows (in thousands):
<TABLE>
<CAPTION>
GW ACP
--------- ---------
<S> <C> <C>
Year-ended April 30 1996
Benefits, goods and services provided.............................................. $ 397 $ --
Year ended April 30, 1997:
Benefits, goods and services provided/(used)....................................... $ 450 $ (30)
Income tax refund transferred...................................................... -- 420
</TABLE>
12. UNAUDITED PRO FORMA NET LOSS PER SHARE AND PRO FORMA
SHAREHOLDERS EQUITY (DEFICIT) (UNAUDITED):
Pro forma basic net loss per share has been computed as described in Note 2
and also gives effect to common equivalent shares from Series B Preferred Shares
that will automatically convert upon the closing of the Company's initial public
offering (using the as-if-converted method).
A reconciliation of the numerator and denominator used in the calculation of
unaudited pro forma basic and diluted net income per share follow (in thousands
except per share data):
<TABLE>
<CAPTION>
YEAR ENDED NINE MONTHS ENDED
APRIL 30, 1998 JANUARY 31, 1999
-------------- -----------------
<S> <C> <C>
Pro forma net income per share, basic and diluted:
Net income.................................................................. $ 7 $ 277
Less accretion of non-convertible mandatorily redeemable Series A preferred
shares...................................................................... 1,047 849
-------------- -----------------
Net loss attributable to common shareholders................................ $ (1,040) $ (572)
-------------- -----------------
-------------- -----------------
Weighted average common shares outstanding.................................. 4,592 5,793
Less stock subject to repurchase............................................ -- (623)
Adjustments to reflect the effect of the assumed conversion of convertible
Series B preferred shares................................................... 6,260 6,260
-------------- -----------------
Shares used in computing pro forma net loss per share....................... 10,852 11,430
-------------- -----------------
-------------- -----------------
Pro forma net loss per share................................................ $ (0.10) $ (0.05)
-------------- -----------------
-------------- -----------------
</TABLE>
If the offering contemplated by this Prospectus is consummated, all of the
Series B convertible Preferred Shares outstanding as of the closing date will
automatically be converted into an aggregate of approximately 6,259,718 common
shares based on the number of Series B convertible preferred shares outstanding
at January 31, 1999. Unaudited pro forma shareholders' equity at January 31,
1999, as adjusted for the conversion of Series B convertible preferred shares,
is disclosed on the balance sheet.
F-20
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
13. PROFIT SHARING PLAN
The Company maintains a 401(k) profit sharing plan for all eligible
employees. Employees may contribute to the Plan based on statutory limits. Any
Company contributions are at the discretion of the Board of Directors. The
Company made no contributions to the Plan during the years ended April 30, 1996,
1997 and 1998.
14. SUPPLEMENTAL CASHFLOW INFORMATION
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Interest paid.............................................................. $ 8 $ 7 $ 600
Income taxes paid.......................................................... 334 1,072 --
Noncash financing activities:
Accretion of preferred stock............................................... -- 187 1,374
Acquisition of asset under capital lease................................... -- -- 154
Issuance of Series A preferred stock....................................... -- 4,743 --
Issuance of Series C preferred stock....................................... -- 7,508 --
</TABLE>
15. SUBSEQUENT EVENTS
In December 1998, the Company leased new office space for its headquarters.
The lease expires in December 2003. Total minimum rental payments over the term
of the lease are approximately $5 million.
In March 1999, the Company's Board of Directors (i) authorized management of
the Company to file a Registration Statement with the Securities and Exchange
Commission permitting the Company to sell its common shares to the public and
(ii) approved the reincorporation of the Company from California to Delaware.
In the second fiscal quarter of 1999, the Company was out of compliance with
a specific financial covenant. The Company has received a waiver for this
instance of non-compliance.
During fiscal 1999, the Company granted options to certain employees under
the 1997 Stock Plan and 1998 Stock Option Plan with exercise prices below the
deemed fair market value of the Company's common stock at the date of grant. In
accordance with the requirements of APB 25, the Company has recorded deferred
compensation for the difference between the exercise price of the stock options
and the fair market value of the Company's shares at the date of grant. This
deferred compensation is being amortized to expense over the period during which
the options become exercisable, generally four years. At January 31, 1999, the
Company had recorded deferred compensation related to these options in the total
amount of $433,000, of which $24,000 had been amortized to expense during 1999.
Future compensation expense from options granted through January 31, 1999 is
estimated to be $27,000 for the remainder of fiscal 1999 and $108,000, $108,000,
$108,000 and $58,000 for the years ending April 30, 2000, 2001, 2002 and 2003,
respectively.
In November 1998, the Company adopted its 1998 Stock Option Plan and
determined not to grant any further options under its 1997 Stock Option Plan.
The Company reserved a total of 1,142,062 shares of common stock for issuance
under the 1998 Stock Option Plan. The terms of
F-21
<PAGE>
DITECH CORPORATION
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
15. SUBSEQUENT EVENTS (CONTINUED)
options granted under the 1998 Stock Option Plan are substantially similar to
those granted under the 1997 Stock Option Plan.
In March 1999, the Company adopted its 1999 Employee Stock Purchase Plan and
1999 Non-Employee Directors' Stock Option Plan covering an aggregate of 200,000
and 150,000 common shares, respectively. In March the Company increased the
shares reserved under the 1998 Stock Option Plan by 250,000 common shares.
In November 1998, the Company entered into an agreement with a partnership,
from which it licenses technology included in its echo cancellation products.
The Company issued 250,000 of its common shares, increased the royalty
percentage until a triggering event and agreed to pay $2.96 million upon a
triggering event. A triggering event is defined as an IPO or merger where the
Company is not the surviving entity. After the triggering event the Company
receives a royalty fee non-exclusive license to the technology.
F-22
<PAGE>
[LOGO]
<PAGE>
- -------------------------------------------
-------------------------------------------
- -------------------------------------------
-------------------------------------------
YOU MAY RELY ON THE INFORMATION CONTAINED IN THIS PROSPECTUS. WE HAVE NOT
AUTHORIZED ANYONE TO PROVIDE INFORMATION DIFFERENT FROM THAT CONTAINED IN THIS
PROSPECTUS. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR SALE OF COMMON STOCK
MEANS THAT INFORMATION CONTAINED IN THIS PROSPECTUS IS CORRECT AFTER THE DATE OF
THIS PROSPECTUS. THIS PROSPECTUS IS NOT AN OFFER TO SELL OR SOLICITATION OF AN
OFFER TO BUY THESE SHARES OF THE COMMON STOCK IN ANY CIRCUMSTANCES UNDER WHICH
THE OFFER OR SOLICITATION IS UNLAWFUL.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Disclosure Regarding Forward-Looking Statements........................... 15
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Financial Data................................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations.............................................................. 21
Business.................................................................. 31
Management................................................................ 45
Certain Transactions...................................................... 55
Principal Stockholders.................................................... 57
Description of Capital Stock.............................................. 59
Shares Eligible for Future Sale........................................... 61
Underwriting.............................................................. 63
Legal Matters............................................................. 65
Experts................................................................... 65
Change in Accountants..................................................... 65
Additional Information.................................................... 66
Index to Financial Statements............................................. F-1
</TABLE>
--------------
DEALER PROSPECTUS DELIVERY OBLIGATION:
Until , 1999 (25 days after the date of this Prospectus), all
dealers that buy, sell or trade these shares of common stock, whether or not
participating in this offering, may be required to deliver a Prospectus. This is
in addition to the dealers' obligation to deliver a Prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
SHARES
[LOGO]
COMMON STOCK
------------------
P R O S P E C T U S
------------------
BT ALEX. BROWN
BANCBOSTON ROBERTSON STEPHENS
ING BARING FURMAN SELZ LLC
, 1999
- -------------------------------------------
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- -------------------------------------------
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<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth all expenses, other than the underwriting
discounts and commissions, payable by the Registrant in connection with the sale
of the Common Stock being registered. All the amounts shown are estimates except
for the registration fee, the NASD filing fee and the Nasdaq National Market
application fee.
<TABLE>
<S> <C>
Registration fee.............................................. $ 10,008
NASD filing fee............................................... 4,100
Nasdaq National Market application fee........................ 50,000
Blue sky qualification fee and expenses....................... 5,000
Printing and engraving expenses............................... 175,000
Legal fees and expenses....................................... 300,000
Accounting fees and expenses.................................. 230,000
Directors' and Officers' Liability Insurance.................. 50,000
Transfer agent and registrar fees............................. 5,000
Miscellaneous................................................. 70,892
Total..................................................... $ 900,000
---------
---------
</TABLE>
ITEM 14. INDEMNIFICATION OF OFFICERS AND DIRECTORS.
Under Section 145 of the Delaware General Corporation Law, the Registrant
has broad powers to indemnify its directors and officers against liabilities
they may incur in such capacities, including liabilities under the Securities
Act of 1933, as amended (the "Securities Act"). The Registrant's Bylaws also
provide that the Registrant will indemnify its directors and executive officers
and may indemnify its other officers, employees and other agents to the fullest
extent not prohibited by Delaware law.
The Registrant's Certificate of Incorporation provides for the elimination
of liability for monetary damages for breach of the directors' fiduciary duty of
care to the Registrant and its stockholders. These provisions do not eliminate
the directors' duty of care and, in appropriate circumstances, equitable
remedies such as injunctive or other forms of non-monetary relief will remain
available under Delaware law. In addition, each director will continue to be
subject to liability for breach of the director's duty of loyalty to the
Registrant, for acts or omissions not in good faith or involving intentional
misconduct, for knowing violations of law, for any transaction from which the
director derived an improper personal benefit, and for payment of dividends or
approval of stock repurchases or redemptions that are unlawful under Delaware
law. The provision does not affect a director's responsibilities under any other
laws, such as the federal securities laws or state or federal environmental
laws.
The Registrant has entered into agreements with its directors and executive
officers that require the Registrant to indemnify such persons against expenses,
judgments, fines, settlements and other amounts actually and reasonably incurred
(including expenses of a derivative action) in connection with any proceeding,
whether actual or threatened, to which any such person may be made a party by
reason of the fact that such person is or was a director or officer of the
Registrant or any of its affiliated enterprises, provided such person acted in
good faith and in a manner such person reasonably believed to be in or not
opposed to the best interests of the Registrant and, with respect to any
criminal proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The
II-1
<PAGE>
indemnification agreements also set forth certain procedures that will apply in
the event of a claim for indemnification thereunder.
The Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for indemnification by the Underwriters of the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise. In addition, the Indemnity Agreement filed as Exhibit 10.15 to
this Registration Statement provides for indemnification by the Registrant and
its officers and directors for certain liabilities arising under the Securities
Act or otherwise.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since February 22, 1996, except as otherwise noted, the Registrant has sold
and issued the following unregistered securities:
(1) On March 11, 1997, the Registrant issued an aggregate of 12,506,539 shares
of Series A Redeemable Preferred Stock; 6,259,718 shares of Series B
Convertible Preferred Stock; and two Class A Subordinated Promissory Notes
to a group of accredited investors for a total purchase price of
$25,901,476, payable as follows: for the Series A Redeemable Preferred
Stock, $12,506,539; for the Series B convertible stock; $5,394,937; and for
the Class A Subordinated Promissory Notes, the aggregate original principal
amount of $8,000,000.
(2) On March 11, 1997, the Registrant redeemed 39,139,094 shares of Common
Stock in exchange for 4,743,461 shares of Series A Redeemable Preferred
Stock and 7,508,221 shares of Series C Preferred Stock and $21,485,621 in
cash.
(3) On September 15, 1997, the Registrant issued to William A. Hasler 100,000
shares of Common Stock. The stock is subject to a repurchase option that
vests over a four-year period.
(4) On November 15, 1998, the Registrant issued to Telinnovation 250,000 shares
of Common Stock as consideration for technology acquired.
(5) As of March 15, 1999, the Registrant had granted incentive stock options
and nonstatutory stock options to employees, directors and consultants
covering an aggregate of 3,572,150 shares of the registrant's Common Stock,
at a weighted average price of $0.59 a share. Options to purchase 966,858
shares are currently outstanding. The Registrant has sold 2,238,670 shares
of its Common Stock to employees, directors or consultants pursuant to the
exercise of stock options.
The sale and issuance of securities in the transactions described in
paragraphs 1, 2 and 4 above were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2) and/or Regulation D thereunder. The
purchasers in each case represented their intention to acquire the securities
for investment only and not with a view to distribution thereof. Appropriate
legends are affixed to the stock certificate issued in such transactions. All
recipients either received adequate information about the Registrant or had
access, through employment or other relationships, to such information. The sale
and issuance of securities in the transactions described in paragraphs 3 and 5
above were deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2) and/or Rule 701 of the Securities Act.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(A) EXHIBITS.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant, filed March 3, 1997.
3.2 Certificate of Correction of Amended and Restated Articles of Incorporation of the Registrant, filed
March 10, 1997.
3.3 Certificate of Amendment of Articles of Incorporation of the Registrant, filed October 16, 1998.
3.4 Certificate of Correction of Amended and Restated Articles of Incorporation of the Registrant, filed
March 2, 1999.
3.5 Form of Certificate of Incorporation of the Registrant to be effective upon the closing of the offering.
3.6 Bylaws of the Registrant.
3.7 Bylaws of the Registrant to be effective upon the closing of the offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen Stock Certificate.
4.3 Amended and Restated Registration Agreement, dated March 19, 1999, between Ditech and certain investors.
5.1* Opinion of Cooley Godward LLP.
10.1 Lease Agreement, dated August 31, 1998, between Ditech and Lincoln-Whitehall Pacific, LLC, as amended
January 25, 1999.
10.2 1997 Ditech Stock Option Plan.
10.3 1998 Amended and Restated Ditech Stock Option Plan.
10.4 1999 Employee Stock Purchase Plan.
10.5 1999 Non-Employee Directors' Stock Option Plan.
10.6 Employment Agreement, dated September 1998, between Ditech and Timothy Montgomery.
10.7 Employment Agreement, dated September 14, 1998, between Ditech and Pong Lim.
10.8 Employment Agreement, dated November 4, 1998, between Ditech and Toni Bellin.
10.9 Credit Agreement, dated August 20, 1997, between Ditech and BankBoston, N.A.
10.10 First Amendment to the Credit Agreement, dated August 13, 1998, between Ditech and BankBoston, N.A.
10.11 Second Amendment to the Credit Agreement, dated December 18, 1998, between Ditech and BankBoston, N.A.
10.12 Security Agreement, dated August 20, 1997, between Ditech and BankBoston, N.A.
10.13 Intellectual Property Security Agreement, dated August 20, 1997, between Ditech and BankBoston, N.A.
10.14 Master Amendment and Lease Schedule, dated December 15, 1998, between Ditech and BancBoston Leasing Inc.
10.15+ Invention Purchase Agreement, dated November 15, 1998, between Ditech and Telinnovation.
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.16 Form of Indemnity Agreement to be entered between Ditech and its executive
officers and directors.
16.1* Letter re: change in certifying accountant.
23.1 Consent of PricewaterhouseCoopers LLP.
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. (Reference is made to page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment requested as to a portion of this exhibit pursuant to
Rule 406 under the Securities Act. The confidential portion of such exhibit
has been omitted and filed separately with the Commission.
(B) FINANCIAL STATEMENT SCHEDULES.
All schedules are omitted because they are not required, they are not
applicable or the information is already included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
The undersigned Registrant hereby undertakes to provide the Underwriters at
the closing specified in the Underwriting Agreement certificates in such
denominations and registered in such names as required by the Underwriters to
permit prompt delivery to each purchaser.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer, or controlling person of the Registrant in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that: (1) for purposes of
determining any liability under the Securities Act, the information omitted from
the form of Prospectus as filed as part of the registration statement in
reliance upon Rule 430A and contained in the form of Prospectus filed by the
Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act
shall be deemed to be part of the registration statement as of the time it was
declared effective, and (2) for the purpose of determining any liability under
the Securities Act, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating to the
securities offered therein, and this offering of such securities at that time
shall be deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, Registrant has
caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the County of Santa Clara, State of
California, on the day of March, 1999.
<TABLE>
<S> <C> <C>
DITECH CORPORATION
By: /s/ TIMOTHY K. MONTGOMERY
------------------------------------------
Timothy K. Montgomery
CHIEF EXECUTIVE OFFICER AND PRESIDENT
</TABLE>
POWER OF ATTORNEY
Each person whose signature appears below constitutes and appoints Timothy
K. Montgomery and William J. Tamblyn his or her true and lawful attorney-in-fact
and agent, each acting alone, with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any
and all capacities, to sign any or all amendments (including post-effective
amendments and registration statements filed pursuant to Rule 462) to the
Registration Statement on Form S-1, and to any registration statement filed
under Securities and Exchange Commission Rule 462, and to file the same, with
all exhibits thereto, and all documents in connection therewith, with the
Securities and Exchange Commission, granting unto said attorney-in-fact and
agent, full power and authority to do and perform each and every act and thing
requisite and necessary to be done in and about the premises, as fully to all
intents and purposes as he or she might or could do in person, hereby ratifying
and confirming all that said attorney-in-fact and agent, or his or her
substitute or substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURES TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ TIMOTHY K. MONTGOMERY Officer and Director
- ------------------------------ (principal executive March 25, 1999
Timothy K. Montgomery officer)
/s/ WILLIAM J. TAMBLYN Chief Financial Officer
- ------------------------------ (principal financial and March 25, 1999
William J. Tamblyn accounting officer)
/s/ PONG C. LIM
- ------------------------------ Chairman of the Board of March 25, 1999
Pong C. Lim Directors
/s/ GREGORY M. AVIS
- ------------------------------ Director March 25, 1999
Gregory M. Avis
/s/ PETER Y. CHUNG
- ------------------------------ Director March 25, 1999
Peter Y. Chung
/s/ WILLIAM A. HASLER
- ------------------------------ Director March 25, 1999
William A. Hasler
/s/ KENNETH E. JONES
- ------------------------------ Director March 25, 1999
Kenneth E. Jones
/s/ GEORGE J. TURNER
- ------------------------------ Director March 25, 1999
George J. Turner
</TABLE>
II-5
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement.
3.1 Amended and Restated Articles of Incorporation of the Registrant, filed March 3, 1997.
3.2 Certificate of Correction of Amended and Restated Articles of Incorporation of the Registrant, filed
March 10, 1997.
3.3 Certificate of Amendment of Articles of Incorporation of the Registrant, filed October 16, 1998.
3.4 Certificate of Correction of Amended and Restated Articles of Incorporation of the Registrant, filed
March 2, 1999.
3.5 Form of Certificate of Incorporation of the Registrant to be effective upon the closing of the offering.
3.6 Bylaws of the Registrant.
3.7 Bylaws of the Registrant to be effective upon the closing of the offering.
4.1 Reference is made to Exhibits 3.1 through 3.4.
4.2* Specimen Stock Certificate.
4.3 Amended and Restated Registration Agreement, dated March 19, 1999, between Ditech and certain investors.
5.1* Opinion of Cooley Godward LLP.
10.1 Lease Agreement, dated August 31, 1998, between Ditech and Lincoln-Whitehall Pacific, LLC., as amended
January 25, 1999.
10.2 1997 Ditech Stock Option Plan.
10.3 1998 Amended and Restated Ditech Stock Option Plan.
10.4 1999 Employee Stock Purchase Plan.
10.5 1999 Non-Employee Directors' Stock Option Plan.
10.6 Employment Agreement, dated September 1998, between Ditech and Timothy Montgomery.
10.7 Employment Agreement, dated September 14, 1998, between Ditech and Pong Lim.
10.8 Employment Agreement, dated November 4, 1998, between Ditech and Toni Bellin.
10.9 Credit Agreement, dated August 20, 1997, between Ditech and BankBoston, N.A.
10.10 First Amendment to the Credit Agreement, dated August 13, 1998, between Ditech and BankBoston, N.A.
10.11 Second Amendment to the Credit Agreement, dated December 18, 1998, between Ditech and BankBoston, N.A.
10.12 Security Agreement, dated August 20, 1997, between Ditech and BankBoston, N.A.
10.13 Intellectual Property Security Agreement, dated August 20, 1997, between Ditech and BankBoston, N.A.
10.14 Master Amendment and Lease Schedule, dated December 15, 1998, between Ditech and BancBoston Leasing Inc.
10.15+ Invention Purchase Agreement, dated November 15, 1998, between Ditech and Telinnovation.
10.16 Form of Indemnity Agreement to be entered between Ditech and its executive
officers and directors.
16.1* Letter re: change in certifying accountant.
23.1 Consent of PricewaterhouseCoopers LLP.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF DOCUMENT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
23.2 Consent of Cooley Godward LLP. Reference is made to Exhibit 5.1.
24.1 Power of Attorney. (Reference is made to page II-5).
27.1 Financial Data Schedule.
</TABLE>
- ------------------------
* To be filed by amendment.
+ Confidential treatment requested as to a portion of this exhibit pursuant to
Rule 406 under the Securities Act. The confidential portion of such exhibit
has been omitted and filed separately with the Commission.
<PAGE>
Exhibit 1.1
_______________ Shares
Ditech Corporation
Common Stock
($ .001 Par Value)
EQUITY UNDERWRITING AGREEMENT
____, 1999
BT Alex. Brown Incorporated
BancBoston Robertson Stephens
ING Baring Furman Selz LLC
As Representatives of the
Several Underwriters
c/o BT Alex. Brown Incorporated
135 East Baltimore Street
Baltimore, Maryland 21202
Ladies and Gentlemen:
Ditech Corporation, a Delaware corporation (the "Company"), proposes
to sell to the several underwriters (the "Underwriters") named in Schedule I
hereto for whom you are acting as representatives (the "Representatives") an
aggregate of __________ shares of the Company's Common Stock, $_____ par
value (the "Firm Shares"). The respective amounts of the Firm Shares to be
so purchased by the several Underwriters are set forth opposite their names
in Schedule I hereto. The Company also proposes to sell at the Underwriters'
option an aggregate of up to __________ additional shares of the Company's
Common Stock (the "Option Shares") as set forth below.
As the Representatives, you have advised the Company (a) that you are
authorized to enter into this Agreement on behalf of the several
Underwriters, and (b) that the several Underwriters are willing, acting
severally and not jointly, to purchase the numbers of Firm Shares set forth
opposite their respective names in Schedule I, plus their pro rata portion of
the Option Shares if you elect to exercise the over-allotment option in whole
or in part for the accounts of the several Underwriters. The Firm Shares and
the Option Shares (to the extent the aforementioned option is exercised) are
herein collectively called the "Shares."
<PAGE>
In consideration of the mutual agreements contained herein and of the
interests of the parties in the transactions contemplated hereby, the parties
hereto agree as follows:
1. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each of the Underwriters
as follows:
(a) A registration statement on Form S-1 (File No.
333-______) with respect to the Shares has been prepared by the Company in
conformity with the requirements of the Securities Act of 1933, as amended
(the "Act"), and the Rules and Regulations (the "Rules and Regulations") of
the Securities and Exchange Commission (the "Commission") thereunder and has
been filed with the Commission. The Company has complied with the conditions
for the use of Form S-1. Copies of such registration statement, including
any amendments thereto, the preliminary prospectuses (meeting the
requirements of the Rules and Regulations) contained therein and the
exhibits, financial statements and schedules, as finally amended and revised,
have heretofore been delivered by the Company to you. Such registration
statement, together with any registration statement filed by the Company
pursuant to Rule 462(b) of the Act, herein referred to as the "Registration
Statement," which shall be deemed to include all information omitted
therefrom in reliance upon Rule 430A and contained in the Prospectus referred
to below, has become effective under the Act and no post-effective amendment
to the Registration Statement has been filed as of the date of this
Agreement. "Prospectus" means the form of prospectus first filed with the
Commission pursuant to Rule 424(b). Each preliminary prospectus included in
the Registration Statement prior to the time it becomes effective is herein
referred to as a "Preliminary Prospectus." Any reference herein to the
Registration Statement, any Preliminary Prospectus or to the Prospectus shall
be deemed to refer to and include any documents incorporated by reference
therein, and, in the case of any reference herein to any Prospectus, also
shall be deemed to include any documents incorporated by reference therein,
and any supplements or amendments thereto, filed with the Commission after
the date of filing of the Prospectus under Rules 424(b) or 430A, and prior to
the termination of the offering of the Shares by the Underwriters.
(b) The Company has been duly organized and is validly
existing as a corporation in good standing under the laws of the State of
Delaware with corporate power and authority to own or lease its properties
and conduct its business as described in the Registration Statement. The
reincorporation of the Company from a California corporation into a Delaware
corporation was duly and properly effectuated as a merger (the "Merger") in
accordance with the Delaware and California corporation laws, the successor
Company succeeded to all rights, privileges and obligations of the
predecessor Company, and the offer and sale of the securities issued in
connection with the Merger were in compliance with the applicable federal and
state securities laws. The Company has no subsidiaries. The 1997
restructuring of the Company's California predecessor described in the
Prospectus, and all
<PAGE>
redemptions of securities, mergers and asset sales occurring in connection
with the restructuring, the redemptions of all prior securities of the
Company (and its predecessors in California), including redemption of the
Series A and C Preferred Stock of the Company's California predecessor
immediately prior to the closing of this offering, and the reincorporation of
the Company's California predecessor in Delaware ("Prior Transactions") have
been duly authorized and were executed in compliance with the applicable
federal and state securities law. The Prior Transactions did not result in
any material adverse change in the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company and its predecessors, or cause the Company and its
predecessors to incur any liability, tax or adverse accounting treatment
except as disclosed in the Prospectus. The Company is duly qualified to
transact business in all jurisdictions in which the conduct of its business
requires such qualification.
(c) The outstanding shares of Common Stock of the Company
have been duly authorized and validly issued and are fully paid and
non-assessable and have been issued in compliance with all applicable
securities laws. The Shares have been duly authorized and when issued and
paid for as contemplated herein will be validly issued, fully paid and
non-assessable. No preemptive rights of stockholders, or other rights to
subscribe to, exist with respect to any of the Shares or the issue and sale
thereof. Neither the filing of the Registration Statement nor the offering
or sale of the Shares as contemplated by this Agreement gives rise to any
rights, other than those which have been waived or satisfied, for or relating
to the registration or purchase of any shares of Common Stock. All prior
securities of the Company (and its predecessors in California) have been duly
authorized and validly issued, are fully paid and nonassessable, and were
issued in compliance with the applicable federal and state securities laws.
(d) The information set forth under the caption
"Capitalization" in the Prospectus is true and correct. All of the Shares
conform to the description thereof contained in the Registration Statement.
The form of certificates for the Shares conforms to the requirements of the
Delaware General Corporate Law.
(e) The Commission has not issued an order preventing or
suspending the use of any Prospectus relating to the proposed offering of the
Shares nor instituted proceedings for that purpose. The Registration
Statement contains, and the Prospectus and any amendments or supplements
thereto will contain, all statements which are required to be stated therein
by, and will conform to, the requirements of the Act and the Rules and
Regulations. The Registration Statement and any amendment thereto do not
contain, and will not contain, any untrue statement of a material fact and do
not omit, and will not omit, to state any material fact required to be stated
therein or necessary to make the statements therein not misleading. The
Prospectus and any amendments and supplements thereto do not contain, and
will not contain, any untrue statement of material fact; and do not omit, and
will not omit, to state any material fact required to be stated therein or
necessary to
<PAGE>
make the statements therein, in the light of the circumstances under which
they were made, not misleading; provided, however, that the Company makes no
representations or warranties as to information contained in or omitted from
the Registration Statement or the Prospectus, or any such amendment or
supplement, in reliance upon, and in conformity with, written information
furnished to the Company by or on behalf of any Underwriter through the
Representatives, specifically for use in the preparation thereof.
(f) The consolidated financial statements of the Company and
the Subsidiaries, together with related notes and schedules as set forth in
the Registration Statement, present fairly the financial position and the
results of operations and cash flows of the Company, at the indicated dates
and for the indicated periods. Such financial statements and related
schedules have been prepared in accordance with generally accepted principles
of accounting, consistently applied throughout the periods involved, except
as disclosed therein, and all adjustments necessary for a fair presentation
of results for such periods have been made. The summary financial and
statistical data included in the Registration Statement present fairly the
information shown therein and such data have been compiled on a basis
consistent with the financial statements presented therein and the books and
records of the Company. The pro forma financial statements and other pro
forma financial information included in the Registration Statement and the
Prospectus present fairly the information shown therein, have been prepared
in accordance with the Commission's rules and guidelines with respect to pro
forma financial statements, have been properly compiled on the pro forma
bases described therein, and, in the opinion of the Company, the assumptions
used in the preparation thereof are reasonable and the adjustments used
therein are appropriate to give effect to the transactions or circumstances
referred to therein.
(g) PriceWaterhouseCoopers LLP, who have certified certain
of the financial statements filed with the Commission as part of the
Registration Statement, are independent public accountants as required by the
Act and the Rules and Regulations.
(h) There is no action, suit, claim or proceeding pending
or, to the knowledge of the Company, threatened against the Company before
any court or administrative agency or otherwise which if determined adversely
to the Company might result in any material adverse change in the earnings,
business, management, properties, assets, rights, operations, condition
(financial or otherwise) or prospects of the Company or to prevent the
consummation of the transactions contemplated hereby, except as set forth in
the Registration Statement.
(i) The Company has good and marketable title to all of the
properties and assets reflected in the financial statements (or as described
in the Registration Statement) hereinabove described, subject to no lien,
mortgage, pledge, charge or encumbrance of any kind except those reflected in
such financial statements (or as described in the Registration Statement) or
which are not material in amount. The Company occupies its leased properties
under valid and binding leases conforming in all material respects to the
description thereof set forth in the Registration Statement.
<PAGE>
(j) The Company has filed all Federal, State, local and
foreign tax returns which have been required to be filed and has paid all
taxes indicated by said returns and all assessments received by it or any of
them to the extent that such taxes have become due. All tax liabilities have
been adequately provided for in the financial statements of the Company, and
the Company does not know of any actual or proposed additional material tax
assessments.
(k) Since the respective dates as of which information is
given in the Registration Statement, as it may be amended or supplemented,
there has not been any material adverse change or any development involving a
prospective material adverse change in or affecting the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise), or prospects of the Company, whether or not occurring in the
ordinary course of business, and there has not been any material transaction
entered into or any material transaction that is probable of being entered
into by the Company, other than transactions in the ordinary course of
business and changes and transactions described in the Registration
Statement, as it may be amended or supplemented. The Company has no material
contingent obligations which are not disclosed in the Company's financial
statements which are included in the Registration Statement.
(l) The Company neither is nor with the giving of notice or
lapse of time or both, will be, in violation of or in default under its
Certificate of Incorporation or By-Laws or under any agreement, lease,
contract, indenture or other instrument or obligation to which it is a party
or by which it, or any of its properties, is bound and which default is of
material significance in respect of the condition, financial or otherwise of
the Company or the business, management, properties, assets, rights,
operations, condition (financial or otherwise) or prospects of the Company.
The execution and delivery of this Agreement and the consummation of the
transactions herein contemplated and the fulfillment of the terms hereof will
not conflict with or result in a breach of any of the terms or provisions of,
or constitute a default under, any indenture, mortgage, deed of trust or
other agreement or instrument to which the Company is a party, or of the
Certificate of Incorporation or By-Laws of the Company or any order, rule or
regulation applicable to the Company of any court or of any regulatory body
or administrative agency or other governmental body.
(m) Each approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative
or other governmental body necessary in connection with the execution and
delivery by the Company of this Agreement and the consummation of the
transactions herein contemplated (except such additional steps as may be
required by the Commission, the National Association of Securities Dealers,
Inc. (the "NASD") or such additional steps as may be necessary to qualify the
Shares for public offering by the Underwriters under state securities or Blue
Sky laws) has been obtained or made and is in full force and effect.
(n) The Company holds all material licenses, certificates
and permits from governmental authorities which are necessary to the conduct
of its business. The Company has sufficient trademarks, trade names,
<PAGE>
patents, patent rights, mask works, copyrights, licenses, approvals and
governmental authorizations to conduct its business as now conducted and as
proposed to be conducted. The Company has not infringed any trade names,
patents, patent rights, mask works, copyrights, license, trade secret or
other similar right of others. No claim has been made against the Company
regarding trademark, trade name, patent, mask work, copyright, license, trade
secret or other infringement which could have a material adverse effect on
the condition (financial or otherwise), business, results of operation or
prospects of the Company. The Company knows of no material infringement by
others of patents, patent rights, trade names, trademarks or copyrights owned
by or licensed to the Company.
(o) Neither the Company, nor to the Company's knowledge, any
of its affiliates, has taken or may take, directly or indirectly, any action
designed to cause or result in, or which has constituted or which might
reasonably be expected to constitute, the stabilization or manipulation of
the price of the shares of Common Stock to facilitate the sale or resale of
the Shares. The Company acknowledges that the Underwriters may engage in
passive market making transactions in the Shares on The Nasdaq National
Market in accordance with Rule 10b-6A under the Exchange Act of 1934, as
amended.
(p) The Company is not an "investment company" within the
meaning of such term under the Investment Company Act of 1940, (as amended,
the "1940 Act") and the rules and regulations of the Commission thereunder.
(q) The Company maintains a system of internal accounting
controls sufficient to provide reasonable assurances that (i) transactions
are executed in accordance with management's general or specific
authorization; (ii) transactions are recorded as necessary to permit
preparation of financial statements in conformity with generally accepted
accounting principles and to maintain accountability for assets; (iii) access
to assets is permitted only in accordance with management's general or
specific authorization; and (iv) the recorded accountability for assets is
compared with existing assets at reasonable intervals and appropriate action
is taken with respect to any differences.
(r) The Company carries, or is covered by, insurance in such
amounts and covering such risks as is adequate for the conduct of its business
and the value of its properties and as is customary for companies engaged in
similar industries.
(s) The Company is in compliance in all material respects
with all presently applicable provisions of the Employee Retirement Income
Security Act of 1974, as amended, including the regulations and published
interpretations thereunder ("ERISA"); no "reportable event" (as defined in
ERISA) has occurred with respect to any "pension plan" (as defined in ERISA)
for which the Company would have any liability; the Company has not incurred
and does not expect to incur liability under (i) Title IV of ERISA with
respect to termination of, or withdrawal from, any "pension plan" or (ii)
Sections 412 or 4971 of the Internal Revenue Code of 1986, as amended,
including the regulations and published interpretations thereunder (the
"Code"); and each "pension
<PAGE>
plan" for which the Company would have any liability that is intended to be
qualified under Section 401(a) of the Code is so qualified in all material
respects and nothing has occurred, whether by action or by failure to act,
which would cause the loss of such qualification.
(t) To the Company's knowledge, there are no affiliations or
associations between any member of the NASD and any of the Company's
officers, directors or securityholders, except as set forth in the
Registration Statement.
(u) Neither the Agreement and Plan of Exchange dated as of
_______________ between the Company and Ditech Corporation, a California
corporation nor the exchange of shares consummated in connection therewith
contravened, conflicted with or resulted in a material violation or breach
of, or resulted in a default under, any provisions of any agreement or
contract of the Company or its predecessor California corporations, except
for (i) any contravention, conflict, violation, breach or default which could
not reasonably be expected to result in a material adverse effect on the
Company; (ii) gave any person the right to (a) declare a default or exercise
any remedy under any such agreement or contract, except where any such
default or exercise of a remedy could not reasonably be expected to result in
a material adverse effect on the Company, (b) accelerate the maturity or
performance of any such agreement or contract, except where such acceleration
could not reasonably be expected to result in a material adverse effect on
the Company, or (c) cancel, terminate or modify any such contract, except
where any such cancellation, termination or modification could not reasonably
be expected to result in a material adverse effect on the Company; or (iii)
result in the imposition or creation of any encumbrance upon or with respect
to any of the shares of capital stock or the assets of the Company, except
where such encumbrance would not result in a material adverse effect on the
Company.
(v) There are no outstanding loans, advances (except normal
advances for business expenses in the ordinary course of business) or
guarantees of indebtedness by the Company to or for the benefit of any of the
officers or directors of the Company or any of the members of the families of
any of them, except as disclosed in the Registration Statement and the
Prospectus
2. PURCHASE, SALE AND DELIVERY OF THE FIRM SHARES.
(a) On the basis of the representations, warranties and
covenants herein contained, and subject to the conditions herein set forth,
the Company agrees to sell to the Underwriters and each Underwriter agrees,
severally and not jointly, to purchase, at a price of $_____ per share, the
number of Firm Shares set forth opposite the name of each Underwriter in
Schedule I hereof, subject to adjustments in accordance with Section 9 hereof.
(b) Payment for the Firm Shares to be sold hereunder is to
be made in same day funds by wire transfer against delivery of certificates
therefor to the Representatives for the several accounts of the Underwriters.
Such payment and delivery are to be made through the facilities of
<PAGE>
the Depository Trust Company, New York, New York at 10:00 a.m., New York
time, on the third business day after the date of this Agreement or at such
other time and date not later than five business days thereafter as you and
the Company shall agree upon, such time and date being herein referred to as
the "Closing Date." (As used herein, "business day" means a day on which the
New York Stock Exchange is open for trading and on which banks in New York
are open for business and are not permitted by law or executive order to be
closed.) The certificates for the Firm Shares will be delivered in such
denominations and in such registrations as the Representatives requests in
writing not later than the second full business day prior to the Closing
Date, and will be made available for inspection by the Representatives at
least one business day prior to the Closing Date.
(c) In addition, on the basis of the representations and
warranties herein contained and subject to the terms and conditions herein
set forth, the Company hereby grants an option to the several Underwriters to
purchase the Option Shares at the price per share as set forth in the first
paragraph of this Section 2. The option granted hereby may be exercised in
whole or in part by giving written notice (i) at any time before the Closing
Date and (ii) only once thereafter within 30 days after the date of this
Agreement, by you, as Representatives of the several Underwriters, to the
Company setting forth the number of Option Shares as to which the several
Underwriters are exercising the option, the names and denominations in which
the Option Shares are to be registered and the time and date at which such
certificates are to be delivered. The time and date at which certificates
for Option Shares are to be delivered shall be determined by the
Representatives but shall not be earlier than three nor later than ten full
business days after the exercise of such option, nor in any event prior to
the Closing Date (such time and date being herein referred to as the "Option
Closing Date"). If the date of exercise of the option is three or more days
before the Closing Date, the notice of exercise shall set the Closing Date as
the Option Closing Date. The number of Option Shares to be purchased by each
Underwriter shall be in the same proportion to the total number of Option
Shares being purchased as the number of Firm Shares being purchased by such
Underwriter bears to the total number of Firm Shares being purchased,
adjusted by you in such manner as to avoid fractional shares. The option
with respect to the Option Shares granted hereunder may be exercised only to
cover over-allotments in the sale of the Firm Shares by the Underwriters.
You, as Representatives of the several Underwriters, may cancel such option
at any time prior to its expiration by giving written notice of such
cancellation to the Company. To the extent, if any, that the option is
exercised, payment for the Option Shares shall be made on the Option Closing
Date in same day funds to the order of the Company against delivery of
certificates therefor through the facilities of the Depository Trust Company
in New York, New York.
3. OFFERING BY THE UNDERWRITERS.
It is understood that the several Underwriters are to make a
public offering of the Firm Shares as soon as the Representatives deem it
advisable to do so. The Firm Shares are to be initially offered to the
public at the initial public offering price set forth in the Prospectus. The
Representatives may from time to time thereafter change the public offering
price and other selling terms. To the extent, if at all, that any Option
Shares are purchased pursuant to Section 2 hereof, the Underwriters will
offer them to the public on the foregoing terms.
<PAGE>
It is further understood that you will act as the
Representatives for the Underwriters in the offering and sale of the Shares
in accordance with a Master Agreement Among Underwriters entered into by you
and the several other Underwriters.
4. COVENANTS OF THE COMPANY.
The Company covenants and agrees with the several Underwriters
that:
(a) The Company will (A) use its best efforts to cause the
Registration Statement to become effective or, if the procedure in Rule 430A
of the Rules and Regulations is followed, to prepare and timely file with the
Commission under Rule 424(b) of the Rules and Regulations a Prospectus in a
form approved by the Representatives containing information previously
omitted at the time of effectiveness of the Registration Statement in
reliance on Rule 430A of the Rules and Regulations, (B) not file any
amendment to the Registration Statement or supplement to the Prospectus of
which the Representatives shall not previously have been advised and
furnished with a copy or to which the Representatives shall have reasonably
objected in writing or which is not in compliance with the Rules and
Regulations and (C) file on a timely basis all reports and any definitive
proxy or information statements required to be filed by the Company with the
Commission subsequent to the date of the Prospectus and prior to the
termination of the offering of the Shares by the Underwriters.
(b) The Company will advise the Representatives promptly (A)
when the Registration Statement or any post-effective amendment thereto shall
have become effective, (B) of receipt of any comments from the Commission,
(C) of any request of the Commission for amendment of the Registration
Statement or for supplement to the Prospectus or for any additional
information, and (D) of the issuance by the Commission of any stop order
suspending the effectiveness of the Registration Statement or the use of the
Prospectus or of the institution of any proceedings for that purpose. The
Company will use its best efforts to prevent the issuance of any such stop
order preventing or suspending the use of the Prospectus and to obtain as
soon as possible the lifting thereof, if issued.
(c) The Company will cooperate with the Representatives in
endeavoring to qualify the Shares for sale under the securities laws of such
jurisdictions as the Representatives may reasonably have designated in
writing and will make such applications, file such documents, and furnish
such information as may be reasonably required for that purpose, provided the
Company shall not be required to qualify as a foreign corporation or to file
a general consent to service of process in any jurisdiction where it is not
now so qualified or required to file such a consent. The Company will, from
time to time, prepare and file such statements, reports, and other documents,
as are or may be required to continue such qualifications in effect for so
long a period as the Representatives may reasonably request for distribution
of the Shares.
(d) The Company will deliver to, or upon the order of, the
Representatives, from time to time, as many copies of any Preliminary
Prospectus as the Representatives may reasonably request. The Company will
deliver to, or upon the order of, the Representatives during the period when
delivery of a Prospectus is required under the Act, as many copies of the
<PAGE>
Prospectus in final form, or as thereafter amended or supplemented, as the
Representatives may reasonably request. The Company will deliver to the
Representatives at or before the Closing Date, four signed copies of the
Registration Statement and all amendments thereto including all exhibits
filed therewith, and will deliver to the Representatives such number of
copies of the Registration Statement (including such number of copies of the
exhibits filed therewith that may reasonably be requested), and of all
amendments thereto, as the Representatives may reasonably request.
(e) The Company will comply with the Act and the Rules and
Regulations, and the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), and the rules and regulations of the Commission thereunder,
so as to permit the completion of the distribution of the Shares as
contemplated in this Agreement and the Prospectus. If during the period in
which a prospectus is required by law to be delivered by an Underwriter or
dealer, any event shall occur as a result of which, in the judgment of the
Company or in the reasonable opinion of the Underwriters, it becomes
necessary to amend or supplement the Prospectus in order to make the
statements therein, in the light of the circumstances existing at the time
the Prospectus is delivered to a purchaser, not misleading, or, if it is
necessary at any time to amend or supplement the Prospectus to comply with
any law, the Company promptly will prepare and file with the Commission an
appropriate amendment to the Registration Statement or supplement to the
Prospectus so that the Prospectus as so amended or supplemented will not, in
the light of the circumstances when it is so delivered, be misleading, or so
that the Prospectus will comply with the law.
(f) The Company will make generally available to its
security holders, as soon as it is practicable to do so, but in any event not
later than 15 months after the effective date of the Registration Statement,
an earning statement (which need not be audited) in reasonable detail,
covering a period of at least 12 consecutive months beginning after the
effective date of the Registration Statement, which earning statement shall
satisfy the requirements of Section 11(a) of the Act and Rule 158 of the
Rules and Regulations and will advise you in writing when such statement has
been so made available.
(g) Prior to the Closing Date, the Company will furnish to
the Underwriters, as soon as they have been prepared by or are available to
the Company, a copy of any unaudited interim financial statements of the
Company for any period subsequent to the period covered by the most recent
financial statements appearing in the Registration Statement and the
Prospectus. The Company will, for a period of five years from the Closing
Date, deliver to the Representatives copies of annual reports and copies of
all other documents, reports and information furnished by the Company to its
stockholders or filed with any securities exchange pursuant to the
requirements of such exchange or with the Commission pursuant to the Act or
the Securities Exchange Act of 1934, as amended. The Company will deliver to
the Representatives similar reports with respect to significant subsidiaries,
as that term is defined in the Rules and Regulations, which are not
consolidated in the Company's financial statements.
(h) No offering, sale, short sale or other disposition of
any shares of Common Stock of the Company or other securities convertible
into or exchangeable or exercisable for
<PAGE>
shares of Common Stock or derivative of Common Stock (or agreement for such)
will be made for a period of 180 days after the date of this Agreement,
directly or indirectly, by the Company otherwise than hereunder or with the
prior written consent of BT Alex. Brown Incorporated.
(i) The Company will use its best efforts to list, subject
to notice of issuance, the Shares on the Nasdaq National Market.
(j) The Company has caused each officer, director and all
securityholders of the Company to furnish to you, on or prior to the date of
this agreement, a letter or letters, in form and substance satisfactory to
the Underwriters, pursuant to which each such person shall agree not to
offer, sell, sell short or otherwise dispose of any shares of Common Stock of
the Company or other capital stock of the Company, or any other securities
convertible, exchangeable or exercisable for Common Shares or derivative of
Common Shares owned by such person or request the registration for the offer
or sale of any of the foregoing (or as to which such person has the right to
direct the disposition of) for a period of 180 days after the date of this
Agreement, directly or indirectly, except with the prior written consent of
BT Alex. Brown Incorporated ("Lockup Agreements").
(k) The Company shall apply the net proceeds of its sale of
the Shares as set forth in the Prospectus and shall file such reports with
the Commission with respect to the sale of the Shares and the application of
the proceeds therefrom as may be required in accordance with Rule 463 under
the Act.
(l) The Company shall not invest, or otherwise use the
proceeds received by the Company from its sale of the Shares in such a manner
as would require the Company to register as an investment company under the
Investment Company Act (the "1940 Act").
(m) The Company will maintain a transfer agent and, if
necessary under the jurisdiction of incorporation of the Company, a registrar
for the Common Stock.
(n) The Company will not take, directly or indirectly, any
action designed to cause or result in, or that has constituted or might
reasonably be expected to constitute, the stabilization or manipulation of
the price of any securities of the Company.
(o) The Company will not take, directly or indirectly, any
action designed to cause or result in the filing of a registration statement
on Form S-8 under the Act covering shares of Common Stock reserved for
issuance under the Company's employee benefit plans for a period of 180 days
after the date of this Agreement.
5. COSTS AND EXPENSES.
The Company will pay all costs, expenses and fees incident to
the performance of the obligations of the Company under this Agreement,
including, without limiting the generality of the foregoing, the following:
accounting fees of the Company; the fees and disbursements of counsel for the
Company; the cost of printing and delivering to, or as requested by, the
<PAGE>
Underwriters copies of the Registration Statement, Preliminary Prospectuses,
the Prospectus, this Agreement, the Underwriters' Selling Memorandum, the
Underwriters' Invitation Letter, the Listing Application, the Blue Sky
Survey and any supplements or amendments thereto; the filing fees of the
Commission; the filing fees and expenses (including legal fees and
disbursements) incident to securing any required review by the National
Association of Securities Dealers, Inc. (the "NASD") of the terms of the sale
of the Shares; the Listing Fee of the Nasdaq National Market; and the
expenses, including the fees and disbursements of counsel for the
Underwriters, incurred in connection with the qualification of the Shares
under State securities or Blue Sky laws. The Company agrees to pay all costs
and expenses of the Underwriters, including the fees and disbursements of
counsel for the Underwriters, incident to the offer and sale of directed
shares of the Common Stock by the Underwriters to employees and persons
having business relationships with the Company and its Subsidiaries. The
Company shall not, however, be required to pay for any of the Underwriters
expenses (other than those related to qualification under NASD regulation and
State securities or Blue Sky laws) except that, if this Agreement shall not
be consummated because the conditions in Section 6 hereof are not satisfied,
or because this Agreement is terminated by the Representatives pursuant to
Section 11 hereof, or by reason of any failure, refusal or inability on the
part of the Company to perform any undertaking or satisfy any condition of
this Agreement or to comply with any of the terms hereof on its part to be
performed, unless such failure to satisfy said condition or to comply with
said terms be due to the default or omission of any Underwriter, then the
Company shall reimburse the several Underwriters for reasonable out-of-pocket
expenses, including fees and disbursements of counsel, reasonably incurred in
connection with investigating, marketing and proposing to market the Shares
or in contemplation of performing their obligations hereunder; but the
Company shall not in any event be liable to any of the several Underwriters
for damages on account of loss of anticipated profits from the sale by them
of the Shares.
6. CONDITIONS OF OBLIGATIONS OF THE UNDERWRITERS.
The several obligations of the Underwriters to purchase the
Firm Shares on the Closing Date and the Option Shares, if any, on the Option
Closing Date are subject to the accuracy, as of the Closing Date or the
Option Closing Date, as the case may be, of the representations and
warranties of the Company contained herein, and to the performance by the
Company of its covenants and obligations hereunder and to the following
additional conditions:
(a) The Registration Statement and all post-effective
amendments thereto shall have become effective and any and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall have
been made, and any request of the Commission for additional information (to
be included in the Registration Statement or otherwise) shall have been
disclosed to the Representatives and complied with to their reasonable
satisfaction. No stop order suspending the effectiveness of the Registration
Statement, as amended from time to time, shall have been issued and no
proceedings for that purpose shall have been taken or, to the knowledge of
the Company, shall be contemplated by the Commission and no injunction,
restraining order, or order of any nature by a Federal or state court of
competent jurisdiction shall have been issued as of the Closing Date which
would prevent the issuance of the Shares.
<PAGE>
(b) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, the opinions of Cooley
Godward LLP counsel for the Company, dated the Closing Date or the Option
Closing Date, as the case may be, addressed to the Underwriters (and stating
that it may be relied upon by counsel to the Underwriters) to the effect that:
(i) The Company has been duly organized and is
validly existing as a corporation in good standing under the laws of the
State of Delaware, with corporate power and authority to own or lease its
properties and conduct its business as described in the Registration
Statement; the Company has no subsidiaries and the Company is duly qualified
to transact business in all jurisdictions in which the conduct of its
business requires such qualification, or in which the failure to qualify
would have a materially adverse effect upon the business of the Company.
(ii) The Agreement and Plan of Merger dated ______
(the "Plan of Merger") by and between the Company and Ditech Corporation, a
California corporation ("Ditech California"), has been duly authorized by all
necessary board of directors and stockholder action on the part of the
Company and Ditech California and has been duly executed and delivered by
each of the parties thereto. The execution and delivery of the Plan of
Merger and the consummation of the merger contemplated thereby (the "Merger")
did not contravene any provision of applicable law or the certificate of
incorporation or bylaws of the Company or the articles of incorporation or
bylaws of Ditech California or any agreement or other instrument binding upon
the Company that is material to the Company and that is set forth as an
exhibit to the Registration Statement or any judgment or decree of any
governmental body, agency or court having jurisdiction over the Company or
Ditech California that is known to such counsel, except for any such
contravention that would not have a material adverse effect on the condition
(financial or otherwise), business, results of operation or prospects of the
Company, and no consent, approval, authorization or order of qualification
with any governmental body or agency was required for the performance by the
Company and Ditech California of its obligations under the Plan of Merger
except such as were obtained and except such consent, approval,
authorization, order or qualification, which if not obtained, would not have
a material adverse effect on the condition (financial or otherwise),
business, results of operation or prospects of the Company. The Merger is
effective under the laws of the State of California and the State of
Delaware. The Company succeeded to all rights, privileges and obligations of
Ditech California, and the offer and sale of the securities issued in
connection with the Merger were in compliance with the applicable federal and
state securities laws. Neither the Agreement and Plan of Exchange dated as of
_______________ between the Company and Ditech Corporation, a California
corporation nor the exchange of shares consummated in connection therewith
contravened, conflicted with or resulted in a material violation or breach
of, or resulted in a default under, any provisions of any agreement or
contract of the Company or its predecessor California corporations, except
for (i) any contravention, conflict, violation, breach or default which could
not reasonably be expected to result in a material adverse effect on the
Company; (ii) gave any person the right to (a) declare a default or exercise
any remedy under any such agreement or contract, except where any such
default or exercise of a remedy could not reasonably be expected to result in
a material adverse effect on the Company, (b) accelerate the maturity or
performance of any such agreement or contract, except where such acceleration
could not reasonably be expected to result in a material adverse effect on
the Company, or (c) cancel, terminate or modify any such contract, except
where any such cancellation, termination or modification could not reasonably
be expected to result in a material adverse effect on the Company; or (iii)
result in the imposition or creation of any encumbrance upon or with respect
to any of the shares of capital stock or the assets of the Company, except
where such encumbrance would not result in a material adverse effect on the
Company.
(iii) The Company has authorized and outstanding
capital stock as set forth under the caption "Capitalization" in the
Prospectus; the authorized shares of the Company's Common Stock have been
duly authorized; the outstanding shares of the Company's Common Stock have
been duly authorized and validly issued in compliance with all applicable
<PAGE>
securities laws and are fully paid and non-assessable; all of the Shares
conform to the description thereof contained in the Prospectus; the
certificates for the Shares, assuming they are in the form filed with the
Commission, are in due and proper form under Delaware law; the shares of
Common Stock, including the Option Shares, if any, to be sold by the Company
pursuant to this Agreement have been duly authorized and will be validly
issued, fully paid and non-assessable when issued and paid for as
contemplated by this Agreement; and no preemptive rights of stockholders
exist with respect to any of the Shares or the issue or sale thereof.
(iv) Except as described in or contemplated by the
Prospectus, to the knowledge of such counsel, there are no outstanding
securities of the Company convertible or exchangeable into or evidencing the
right to purchase or subscribe for any shares of capital stock of the Company
and there are no outstanding or authorized options, warrants or rights of any
character obligating the Company to issue any shares of its capital stock or
any securities convertible or exchangeable into or evidencing the right to
purchase or subscribe for any shares of such stock; and except as described
in the Prospectus, to the knowledge of such counsel, no holder of any
securities of the Company or any other person has the right, contractual or
otherwise, which has not been satisfied or effectively waived, to cause the
Company to sell or otherwise issue to them, or to permit them to underwrite
the sale of, any of the Shares or the right to have any shares of Common Stock
or other securities of the Company included in the Registration Statement or
the right, as a result of the filing of the Registration Statement, to
require registration under the Act of any shares of Common Stock or other
securities of the Company.
(v) The statements under the captions "Management
- --Limitation on Directors' and Officers' Liability," "Management -- Employment
Benefit Plans," "Certain Transactions," "Description of Capital Stock" and
"Shares Eligible for Future Sale" in the Prospectus, insofar as such
statements constitute a summary of documents referred to therein or matters
of law, fairly summarize in all material respects the information called for
with respect to such documents and matters.
(vi) The Registration Statement has become effective
under the Act and, to the best of the knowledge of such counsel, no stop
order proceedings with respect thereto have been instituted or are pending or
threatened under the Act.
(vii) At the time it became effective and at the
Closing Date of Option Closing Date (as the case may be), and the
Registration Statement, the Prospectus and each amendment or supplement
thereto comply or will have complied (as the case may be) as to form in all
material respects with the requirements of the Act and the applicable rules
and regulations thereunder (except that such counsel need express no opinion
as to the financial statements and related schedules therein).
(viii) Such counsel does not know of any contracts or
documents required to be filed as exhibits to the Registration Statement or
described in the Registration Statement or the Prospectus which are no so
filed or described as required, and such contracts and documents as are
summarized in the Registration Statement or the Prospectus are fairly
summarized in all material respects.
<PAGE>
(ix) Such counsel knows of no material legal or
governmental proceedings pending or threatened against the Company except as
set forth in the Prospectus.
(x) The execution and delivery of this Agreement and
the consummation of the transactions herein contemplated do not and will not
conflict with or result in a breach of any of the terms or provisions of, or
constitute a default under, the Certificate of Incorporation or By-Laws of
the Company, or any agreement or instrument known to such counsel to which
the Company is a party or by which the Company may be bound.
(xi) This Agreement has been duly authorized, executed
and delivered by the Company.
(xii) No approval, consent, order, authorization,
designation, declaration or filing by or with any regulatory, administrative
or other governmental body is necessary in connection with the execution and
delivery of this Agreement and the consummation of the transactions herein
contemplated (other than as may be required by the NASD or as required by
State securities and Blue Sky laws as to which such counsel need express no
opinion) except such as have been obtained or made, specifying the same.
(xiii) The Company is not, and will not become, as a
result of the consummation of the transactions contemplated by this
Agreement, and application of the net proceeds therefrom as described in the
Prospectus, required to register as an investment company under the 1940 Act.
(xiv) The 1997 restructuring of the Company's
California predecessor described in the Prospectus, and all redemptions of
securities, mergers and asset sales occurring in connection with the
restructuring, the redemptions of all prior securities of the Company (and
its predecessors in California), including redemption of the Series A and C
Preferred Stock of the Company's California predecessor immediately prior to
the closing of this offering, and the reincorporation of the Company's
California predecessor in Delaware ("Prior Transactions") have been duly
authorized and were executed in compliance
<PAGE>
with the applicable federal and state securities law. The Prior Transactions
did not result in any material adverse change in the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company or cause the Company to incur any
liability, tax or adverse accounting treatment except as disclosed in the
Prospectus. The Company is duly qualified to transact business in all
jurisdictions in which the conduct of its business requires such
qualification.
In rendering such opinion Cooley Godward LLP may rely as to matters
governed by the laws of states other than California, Delaware or Federal
laws on local counsel in such jurisdictions, provided that in each case
Cooley Godward LLP shall state that they believe that they and the
Underwriters are justified in relying on such other counsel. In addition to
the matters set forth above, such opinion shall also include a statement to
the effect that nothing has come to the attention of such counsel which leads
them to believe that (i) the Registration Statement, at the time it became
effective under the Act (but after giving effect to any modifications
incorporated therein pursuant to Rule 430A under the Act) and as of the
Closing Date or the Option Closing Date, as the case may be, 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 not
misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact necessary in order to
make the statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as to
financial statements, schedules and statistical information therein). With
respect to such statement, Cooley Godward LLP may state that their belief is
based upon the procedures set forth therein, but is without independent check
and verification.
(c) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, legal opinions from
Flehr Hohbach Test Albritton & Herbert LLP dated the Closing Date or the
Option Closing Date, as the case may be, with respect to certain intellectual
property matters, which collectively shall opine to the effect that:
(i) The Company owns all patents described in the
Prospectus as being owned by it or necessary for the conduct of its business,
and such counsel is not aware of any claim to the contrary or any challenge
by any other person to the rights of the Company with respect to the
foregoing.
(ii) Such counsel is not aware of any legal actions,
claims or proceedings pending or threatened against the Company alleging that
the Company is infringing or otherwise violating any patents or trade secrets
owned by others other than those identified in the Prospectus.
<PAGE>
(iii) Such counsel has reviewed the descriptions of
patents and patent applications under the captions "Risk
Factors--Intellectual Property" and "Business--Intellectual Property" in the
Registration Statement and Prospectus, and, to the extent they constitute
matters of law or legal conclusions, these descriptions are accurate and
fairly and completely present the patent situation of the Company.
(iv) Such counsel is aware of nothing that causes such
counsel to believe that, as of the date that the Registration Statement
became effective and as of the date of such opinion, the description of
patents and patent applications under the captions "Risk
Factors--Intellectual Property" and "Business--Intellectual Property" in the
Registration Statement and Prospectus contained or contains any untrue
statement of a material fact or omitted or omits to state a material fact
necessary to make the statements made therein, in light of the circumstances
under which they were made, not misleading, including without limitation, any
undisclosed material issue with respect to the subsequent validity or
enforceability of such patent or patent issuing from any such pending patent
application.
(d) The Representatives shall have received from Wilson
Sonsini Goodrich & Rosati, counsel for the Underwriters, an opinion dated the
Closing Date or the Option Closing Date, as the case may be, addressed to the
Underwriters substantially to the effect specified in subparagraphs (vi) and
(vii) of Paragraph (b) of this Section 6, and that the Company is a duly
organized and validly existing corporation under the laws of the State of
Delaware. In rendering such opinion Wilson Sonsini Goodrich & Rosati may
rely as to all matters governed other than by the laws of the State of
California, the State of Delaware or Federal laws on the opinion of counsel
referred to in Paragraph (b) of this Section 6. In addition to the matters
set forth above, such opinion shall also include a statement to the effect
that nothing has come to the attention of such counsel which leads them to
believe that (i) the Registration Statement, or any amendment thereto, as of
the time it became effective under the Act (but after giving effect to any
modifications incorporated therein pursuant to Rule 430A under the Act) as of
the Closing Date or the Option Closing Date, as the case may be, 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 not
misleading, and (ii) the Prospectus, or any supplement thereto, on the date
it was filed pursuant to the Rules and Regulations and as of the Closing Date
or the Option Closing Date, as the case may be, contained an untrue statement
of a material fact or omitted to state a material fact, necessary in order to
make the statements, in the light of the circumstances under which they are
made, not misleading (except that such counsel need express no view as to
financial statements, related notes, schedules and other financial or
statistical information therein). With respect to such statement, Wilson
Sonsini Goodrich & Rosati may state that their belief is based upon the
procedures set forth therein, but is without independent check and
verification.
(e) The Representatives shall have received at or prior to
the Closing Date from Wilson Sonsini Goodrich & Rosati a memorandum or
summary, in form and substance satisfactory to the Representatives, with
respect to the qualification for offering and sale by the Underwriters of the
Shares under the State securities or Blue Sky laws of such jurisdictions as
the Representatives may reasonably have designated to the Company.
<PAGE>
(f) The Representatives shall have received, on each of the
dates hereof, the Closing Date and the Option Closing Date, as the case may
be, a letter dated the date hereof, the Closing Date or the Option Closing
Date, as the case may be, in form and substance satisfactory to you, of
PriceWaterhouseCoopers LLP confirming that they are independent public
accountants within the meaning of the Act and the applicable published Rules
and Regulations thereunder and stating that in their opinion the financial
statements and schedules examined by them and included in the Registration
Statement comply in form in all material respects with the applicable
accounting requirements of the Act and the related published Rules and
Regulations; and containing such other statements and information as is
ordinarily included in accountants' "comfort letters" to Underwriters with
respect to the financial statements and certain financial and statistical
information contained in the Registration Statement and Prospectus.
(g) The Representatives shall have received on the Closing
Date or the Option Closing Date, as the case may be, a certificate or
certificates of the Chief Executive Officer and the Chief Financial Officer
of the Company to the effect that, as of the Closing Date or the Option
Closing Date, as the case may be, each of them severally represents as
follows:
(i) The Registration Statement has become effective
under the Act and no stop order suspending the effectiveness of the
Registrations Statement has been issued, and no proceedings for such purpose
have been taken or are, to his knowledge, contemplated by the Commission;
(ii) The representations and warranties of the Company
contained in Section 1 hereof are true and correct as of the Closing Date or
the Option Closing Date, as the case may be;
(iii) All filings required to have been made pursuant
to Rules 424 or 430A under the Act have been made;
(iv) He or she has carefully examined the Registration
Statement and the Prospectus and, in his or her opinion, as of the effective
date of the Registration Statement, the statements contained in the
Registration Statement were true and correct, and such Registration Statement
and Prospectus did not omit to state a material fact required to be stated
therein or necessary in order to make the statements therein not misleading,
and since the effective date of the Registration Statement, no event has
occurred which should have been set forth in a supplement to or an amendment
of the Prospectus which has not been so set forth in such supplement or
amendment; and
(v) Since the respective dates as of which
information is given in the Registration Statement and Prospectus, there has
not been any material adverse change or any development involving a
prospective material adverse change in or affecting the condition, financial
or otherwise, of the Company or the earnings, business, management,
properties, assets, rights, operations, condition (financial or otherwise) or
prospects of the Company, whether or not arising in the ordinary course of
business.
<PAGE>
(h) The Company shall have furnished to the Representatives
such further certificates and documents confirming the representations and
warranties, covenants and conditions contained herein and related matters as
the Representatives may reasonably have requested.
(i) The Firm Shares and Option Shares, if any, have been
approved for designation upon notice of issuance on the Nasdaq National
Market.
(j) The Lockup Agreements described in Section 4(j) are in
full force and effect.
The opinions and certificates mentioned in this Agreement shall
be deemed to be in compliance with the provisions hereof only if they are in
all material respects satisfactory to the Representatives and to Wilson
Sonsini Goodrich & Rosati, counsel for the Underwriters.
If any of the conditions hereinabove provided for in this
Section 6 shall not have been fulfilled when and as required by this
Agreement to be fulfilled, the obligations of the Underwriters hereunder may
be terminated by the Representatives by notifying the Company of such
termination in writing or by telegram at or prior to the Closing Date or the
Option Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be
under any obligation to each other (except to the extent provided in Sections
5 and 8 hereof).
7. CONDITIONS OF THE OBLIGATIONS OF THE COMPANY.
The obligations of the Company to sell and deliver the portion
of the Shares required to be delivered as and when specified in this
Agreement are subject to the conditions that at the Closing Date or the
Option Closing Date, as the case may be, no stop order suspending the
effectiveness of the Registration Statement shall have been issued and in
effect or proceedings therefor initiated or threatened.
8. INDEMNIFICATION.
(a) The Company agrees:
(i) to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of
the Act, against any losses, claims, damages or liabilities to which such
Underwriter or any such controlling person may become subject under the Act
or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon
(i) any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, (ii) the omission or
alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, or (iii)
any alleged act or failure to act by any Underwriter in connection with, or
relating in any manner to, the Shares or the offering
<PAGE>
contemplated hereby, and which is included as part of or referred to in any
loss, claim, damage, liability or action arising out of or based upon matters
covered by clause (i) or (ii) above (PROVIDED, that the Company shall not be
liable under this clause (iii) to the extent that it is determined in a final
judgment by a court of competent jurisdiction that such loss, claim, damage,
liability or action resulted directly from any such acts or failures to act
undertaken or omitted to be taken by such Underwriter through its gross
negligence or willful misconduct).
(ii) to reimburse each Underwriter and each such
controlling person upon demand for any legal or other out-of-pocket expenses
reasonably incurred by such Underwriter or such controlling person in
connection with investigating or defending any such loss, claim, damage or
liability, action or proceeding or in responding to a subpoena or
governmental inquiry related to the offering of the Shares, whether or not
such Underwriter or controlling person is a party to any action or
proceeding. In the event that it is finally judicially determined that the
Underwriters were not entitled to receive payments for legal and other
expenses pursuant to this subparagraph, the Underwriters will promptly return
all sums that had been advanced pursuant hereto. This indemnity agreement
will be in addition to any liability which the Company may otherwise have.
(b) Each Underwriter severally and not jointly will
indemnify and hold harmless the Company, each of its directors, each of its
officers who have signed the Registration Statement and each person, if any,
who controls the Company within the meaning of the Act, against any losses,
claims, damages or liabilities to which the Company or any such director,
officer, or controlling person may become subject under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) arise out of or are based upon (i) any
untrue statement or alleged untrue statement of any material fact contained
in the Registration Statement, any Preliminary Prospectus, the Prospectus or
any amendment or supplement thereto, or (ii) the omission or the alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made; and will reimburse any legal or
other expenses reasonably incurred by the Company or any such director,
officer, or controlling person in connection with investigating or defending
any such loss, claim, damage, liability, action or proceeding; provided,
however, that each Underwriter will be liable in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission has been made in the Registration Statement, any
Preliminary Prospectus, the Prospectus or such amendment or supplement, in
reliance upon and in conformity with written information furnished to the
Company by or through the Representatives specifically for use in the
preparation thereof. This indemnity agreement will be in addition to any
liability which such Underwriter may otherwise have.
(c) In case any proceeding (including any governmental
investigation) shall be instituted involving any person in respect of which
indemnity may be sought pursuant to this Section 8, such person (the
"indemnified party") shall promptly notify the person against whom such
indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 8(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 8(c) if the
party to whom notice was not given was unaware of the
<PAGE>
proceeding to which such notice would have related and was materially
prejudiced by the failure to give such notice, but the failure to give such
notice shall not relieve the indemnifying party or parties from any liability
which it or they may have to the indemnified party for contribution or
otherwise than on account of the provisions of Section 8(a) or (b). In case
any such proceeding shall be brought against any indemnified party and it
shall notify the indemnifying party of the commencement thereof, the
indemnifying party shall be entitled to participate therein and, to the
extent that it shall wish, jointly with any other indemnifying party
similarly notified, to assume the defense thereof, with counsel satisfactory
to such indemnified party and shall pay as incurred the fees and
disbursements of such counsel related to such proceeding. In any such
proceeding, any indemnified party shall have the right to retain its own
counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred (or within 30 days of presentation) the fees and
expenses of the counsel retained by the indemnified party in the event (i)
the indemnifying party and the indemnified party shall have mutually agreed
to the retention of such counsel, (ii) the named parties to any such
proceeding (including any impleaded parties) include both the indemnifying
party and the indemnified party and representation of both parties by the
same counsel would be inappropriate due to actual or potential differing
interests between them or (iii) the indemnifying party shall have failed to
assume the defense and employ counsel acceptable to the indemnified party
within a reasonable period of time after notice of commencement of the
action. It is understood that the indemnifying party shall not, in
connection with any proceeding or related proceedings in the same
jurisdiction, be liable for the reasonable fees and expenses of more than one
separate firm for all such indemnified parties. Such firm shall be
designated in writing by you in the case of parties indemnified pursuant to
Section 8(a) and by the Company in the case of parties indemnified pursuant
to Section 8(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if
settled with such consent or if there be a final judgment for the plaintiff,
the indemnifying party agrees to indemnify the indemnified party from and
against any loss or liability by reason of such settlement or judgment. In
addition, the indemnifying party will not, without the prior written consent
of the indemnified party, settle or compromise or consent to the entry of any
judgment in any pending or threatened claim, action or proceeding of which
indemnification may be sought hereunder (whether or not any indemnified party
is an actual or potential party to such claim, action or proceeding) unless
such settlement, compromise or consent includes an unconditional release of
each indemnified party from all liability arising out of such claim, action
or proceeding.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 8(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) referred to
therein, then each indemnifying party shall contribute to the amount paid or
payable by such indemnified party as a result of such losses, claims, damages
or liabilities (or actions or proceedings in respect thereof) in such
proportion as is appropriate to reflect the relative benefits received by the
Company on the one hand and the Underwriters on the other from the offering
of the Shares. If, however, the allocation provided by the immediately
preceding sentence is not permitted by applicable law then each indemnifying
party shall contribute to such amount paid or payable by such indemnified
party in such proportion as is appropriate to reflect not only such
<PAGE>
relative benefits but also the relative fault of the Company on the one hand
and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities, (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on
the one hand and the Underwriters on the other shall be deemed to be in the
same proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts
and commissions received by the Underwriters, in each case as set forth in
the table on the cover page of the Prospectus. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the Company on the
one hand or the Underwriters on the other and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission.
The Company and the Underwriters agree that it would not be
just and equitable if contributions pursuant to this Section 8(d) were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which does
not take account of the equitable considerations referred to above in this
Section 8(d). The amount paid or payable by an indemnified party as a result
of the losses, claims, damages or liabilities (or actions or proceedings in
respect thereof) referred to above in this Section 8(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 or claim.
Notwithstanding the provisions of this subsection (d), (i) no Underwriter
shall be required to contribute any amount in excess of the underwriting
discounts and commissions applicable to the Shares purchased by such
Underwriter and (ii) no person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this Section 8(d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) In any proceeding relating to the Registration
Statement, any Preliminary Prospectus, the Prospectus or any supplement or
amendment thereto, each party against whom contribution may be sought under
this Section 8 hereby consents to the jurisdiction of any court having
jurisdiction over any other contributing party, agrees that process issuing
from such court may be served upon him or it by any other contributing party
and consents to the service of such process and agrees that any other
contributing party may join him or it as an additional defendant in any such
proceeding in which such other contributing party is a party.
(f) Any losses, claims, damages, liabilities or expenses for
which an indemnified party is entitled to indemnification or contribution
under this Section 8 shall be paid by the indemnifying party to the
indemnified party as such losses, claims, damages, liabilities or expenses
are incurred. The indemnity and contribution agreements contained in this
Section 8 and the representations and warranties of the Company set forth in
this Agreement shall remain operative and in full force and effect,
regardless of (i) any investigation made by or on behalf of any Underwriter
or any person controlling any Underwriter, the Company, its directors or
officers or any persons controlling the Company, (ii) acceptance of any
Shares and payment therefor
<PAGE>
hereunder, and (iii) any termination of this Agreement. A successor to any
Underwriter, or to the Company, its directors or officers, or any person
controlling the Company, shall be entitled to the benefits of the indemnity,
contribution and reimbursement agreements contained in this Section 8.
9. DEFAULT BY UNDERWRITERS.
If on the Closing Date or the Option Closing Date, as the case
may be, any Underwriter shall fail to purchase and pay for the portion of the
Shares which such Underwriter has agreed to purchase and pay for on such date
(otherwise than by reason of any default on the part of the Company, you, as
Representatives of the Underwriters, shall use your reasonable efforts to
procure within 36 hours thereafter one or more of the other Underwriters, or
any others, to purchase from the Company such amounts as may be agreed upon
and upon the terms set forth herein, the Firm Shares or Option Shares, as the
case may be, which the defaulting Underwriter or Underwriters failed to
purchase. If during such 36 hours you, as such Representatives, shall not
have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (a) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of
the Firm Shares or Option Shares, as the case may be, covered hereby, the
other Underwriters shall be obligated, severally, in proportion to the
respective numbers of Firm Shares or Option Shares, as the case may be, which
they are obligated to purchase hereunder, to purchase the Firm Shares or
Option Shares, as the case may be, which such defaulting Underwriter or
Underwriters failed to purchase, or (b) if the aggregate number of shares of
Firm Shares or Option Shares, as the case may be, with respect to which such
default shall occur exceeds 10% of the Firm Shares or Option Shares, as the
case may be, covered hereby, the Company or you as the Representatives of the
Underwriters will have the right, by written notice given within the next
36-hour period to the parties to this Agreement, to terminate this Agreement
without liability on the part of the non-defaulting Underwriters or of the
Company except to the extent provided in Section 8 hereof. In the event of a
default by any Underwriter or Underwriters, as set forth in this Section 9,
the Closing Date or Option Closing Date, as the case may be, may be postponed
for such period, not exceeding seven days, as you, as Representatives, may
determine in order that the required changes in the Registration Statement or
in the Prospectus or in any other documents or arrangements may be effected.
The term "Underwriter" includes any person substituted for a defaulting
Underwriter. Any action taken under this Section 9 shall not relieve any
defaulting Underwriter from liability in respect of any default of such
Underwriter under this Agreement.
10. NOTICES.
All communications hereunder shall be in writing and, except as
otherwise provided herein, will be mailed, delivered, telecopied or
telegraphed and confirmed as follows: if to the Underwriters, to BT Alex.
Brown Incorporated, 101 California Street, 48th Floor, San Francisco,
California 94111, attention: Tony Meneghetti; with a copy to BT Alex. Brown
Incorporated, One Bankers Trust Plaza, 130 Liberty Street, New York, New York
10006, Attention: General Counsel; if to the Company, to
<PAGE>
----------------------------------------
----------------------------------------
----------------------------------------
11. TERMINATION.
This Agreement may be terminated by you by notice to the
Company as follows:
(a) at any time prior to the earlier of (i) the time the
Shares are released by you for sale by notice to the Underwriters, or (ii)
11:30 a.m. on the first business day following the date of this Agreement;
(b) at any time prior to the Closing Date if any of the
following has occurred: (i) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, any
material adverse change or any development involving a prospective material
adverse change in or affecting the condition, financial or otherwise, of the
Company and its Subsidiaries taken as a whole or the earnings, business,
management, properties, assets, rights, operations, condition (financial or
otherwise) or prospects of the Company, whether or not arising in the
ordinary course of business, (ii) any outbreak or escalation of hostilities
or declaration of war or national emergency or other national or
international calamity or crisis or change in economic or political
conditions if the effect of such outbreak, escalation, declaration,
emergency, calamity, crisis or change on the financial markets of the United
States would, in your reasonable judgment, make it impracticable to market
the Shares or to enforce contracts for the sale of the Shares, or (iii)
suspension of trading in securities generally on the New York Stock Exchange
or the American Stock Exchange or limitation on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such Exchange, (iv) the enactment, publication, decree or other promulgation
of any statute, regulation, rule or order of any court or other governmental
authority which in your opinion materially and adversely affects or may
materially and adversely affect the business or operations of the Company,
(v) declaration of a banking moratorium by United States or New York State
authorities, (vi) the suspension of trading of the Company's Common Stock by
the Commission on the Nasdaq National Market or (viii) the taking of any
action by any governmental body or agency in respect of its monetary or
fiscal affairs which in your reasonable opinion has a material adverse effect
on the securities markets in the United States; or
(c) as provided in Sections 6 and 9 of this Agreement.
12. SUCCESSORS.
This Agreement has been and is made solely for the benefit of
the Underwriters and the Company and their respective successors, executors,
administrators, heirs and assigns, and the officers, directors and
controlling persons referred to herein, and no other person will have any
right or obligation hereunder. No purchaser of any of the Shares from any
Underwriter shall be deemed a successor or assign merely because of such
purchase.
<PAGE>
13. INFORMATION PROVIDED BY UNDERWRITERS.
The Company and the Underwriters acknowledge and agree that the
only information furnished or to be furnished by any Underwriter to the
Company for inclusion in any Prospectus or the Registration Statement
consists of the information set forth in the last paragraph on the front
cover page (insofar as such information relates to the Underwriters), legends
required by Item 502(d) of Regulation S-K under the Act and the information
under the caption "Underwriting" in the Prospectus.
14. MISCELLANEOUS.
The reimbursement, indemnification and contribution agreements
contained in this Agreement and the representations, warranties and covenants
in this Agreement shall remain in full force and effect regardless of (a) any
termination of this Agreement, (b) any investigation made by or on behalf of
any Underwriter or controlling person thereof, or by or on behalf of the
Company or its directors or officers and (c) delivery of and payment for the
Shares under this Agreement.
This Agreement may be executed in two or more counterparts,
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
This Agreement shall be governed by, and construed in
accordance with, the laws of the State of Maryland.
If the foregoing letter is in accordance with your
understanding of our agreement, please sign and return to us the enclosed
duplicates hereof, whereupon it will become a binding agreement among the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
Ditech Corporation
By
---------------------------------
The foregoing Underwriting Agreement
is hereby confirmed and accepted as
of the date first above written.
BT ALEX. BROWN INCORPORATED
- -------------------------------------
As Representatives of the several
Underwriters listed on Schedule I
By: BT Alex. Brown Incorporated
By:
-----------------------------------
Authorized Officer
<PAGE>
SCHEDULE I
SCHEDULE OF UNDERWRITERS
<TABLE>
<CAPTION>
Number of Firm Shares to be
Underwriter Purchased
----------- ---------
<S> <C>
BT Alex. Brown Incorporated
BancBoston Robertson Stephens
ING Baring Furman Selz LLC
Total ---------------
---------------
</TABLE>
<PAGE>
SCHEDULE II
SCHEDULE OF OPTION SHARES
<TABLE>
<CAPTION>
Percentage of Total
Maximum Number of Number of Option
Name of Seller Option Shares to be Sold Shares
-------------- ------------------------ ------
<S> <C> <C>
Ditech Corporation
------------- -----
Total 100%
------------- -----
</TABLE>
<PAGE>
AMENDED AND RESTATED ARTICLES OF INCORPORATION OF
AUTOMATED CALL PROCESSING CORPORATION, INC.
Kenneth Jones and Signe K. Jones certify that:
1. They are the Chairman of the Board of Directors and the Secretary,
respectively, of Automated Call Processing Corporation, Inc., a California
corporation.
2. The Articles of Incorporation of this Corporation are amended and
restated to read as follows:
"ARTICLE I
The name of this Corporation is AUTOMATED CALL PROCESSING CORPORATION, INC.
ARTICLE 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.
ARTICLE III
This Corporation is authorized to issue two classes of stock, designated
"Common Stock" and "Preferred Stock." The total number of shares which this
Corporation is authorized to issue is 76,274,478. The number of shares of
Common Stock which this Corporation is authorized to issue is 50,000,000, no
par value per share. The number of shares of Preferred Stock which this
Corporation is authorized to issue is 26,274,478, no par value per share.
The Preferred stock shall be divided into three series: Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock. The number of
shares of Series A Preferred Stock which this Corporation is authorized to issue
is 12,506,539. The number of shares of Series B Preferred Stock which this
Corporation is authorized to issue is 6,259,718. The number of shares of Series
C Preferred Stock which this Corporation is authorized to issue is 7,508,221.
The Corporation shall from time to time in accordance with the laws of the
State of California increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of the Preferred Stock.
Effective upon the filing of these Amended and Restated Articles of
Incorporation, each outstanding share of Common Stock shall be divided and split
up into 22.84 shares of Common Stock (with fractional shares being rounded to
the nearest whole share).
1.
<PAGE>
The relative rights, preferences, privileges and restrictions granted to or
imposed upon the respective classes and series of Common Stock and Preferred
Stock or the holders thereof are as follows:
SECTION 1
DIVIDENDS
1.1 GENERAL OBLIGATION. When and as declared by the Corporation's Board
of Directors, the Corporation shall pay preferential dividends in cash to the
holders of the Series A Preferred, Series B Preferred and Series C Preferred as
provided in this Section 1.
(a) Dividends on each share of the Series A Preferred shall accrue
on a daily basis at the rate of six percent (6%) per annum of the sum of the
Series A Liquidation Value plus all accumulated and unpaid dividends thereon,
from and including the Series A Original Issue Date to and including the first
to occur of the date on which the Series A Liquidation Value of such share (plus
all accrued and unpaid dividends thereon) is paid to the holder thereof in
connection with the liquidation of the Corporation or the redemption of such
share by the Corporation or the date on which such share is otherwise acquired
by the Corporation. Such dividends shall accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends, and such dividends
shall be cumulative such that all accrued and unpaid dividends shall be fully
paid or declared with funds irrevocably set apart for payment before any
dividends, distributions, redemptions or other payments may be made with respect
to any Junior Securities.
(b) Dividends on each share of the Series B Preferred shall accrue
in an amount equal to the greater of (i) the rate of six percent (6%) per annum
(calculated on a daily basis) of the sum of the Series B Liquidation Value plus
all accumulated and unpaid dividends thereon or (ii) the dividends declared (if
any) with respect to the Common Stock. Such dividends shall accrue, from and
including the Series B Original Issue Date to and including the first to occur
of the date on which the Series B Liquidation Value of such share (plus all
accrued and unpaid dividends thereon) is paid to the holder thereof in
connection with the liquidation of the Corporation or the redemption of such
share by the Corporation or the date on which such share is otherwise acquired
by the Corporation; PROVIDED that all accrued but unpaid dividends with respect
to any share of Series B Preferred shall be retired and shall not be paid upon
the conversion of such share into Common Stock in accordance with Section 5
below Such dividends shall accrue whether or not they have been declared and
whether or not there are profits, surplus or other funds of the Corporation
legally available for the payment of dividends, and such dividends shall be
cumulative such that all accrued and unpaid dividends shall be fully paid or
declared with funds irrevocably set apart for payment before any dividends,
distributions, redemptions or other payments may be made with respect to any
Common Stock.
(c) Dividends on each share of the Series C Preferred shall accrue
at such time, and only at such time, as dividends are paid with respect to the
Globe Preferred in an amount equal to the quotient obtained by dividing the
Globe Dividend Amount by the number of outstanding shares of Series C Preferred.
Such dividends shall accrue whether or not they have been declared and whether
or not there are profits, surplus or other funds of the Corporation
2.
<PAGE>
legally available for the payment of dividends, and such dividends shall be
cumulative such that all accrued and unpaid dividends shall be fully paid or
declared with funds irrevocably set apart for payment before any dividends,
distributions, redemptions or other payments may be made with respect to any
Common Stock.
(d) No dividends or other distributions shall be made with respect
to the Common Stock in any fiscal year, other than dividends payable solely in
Common Stock, until the dividends (if any) set forth in Sections 1.1(a), 1.1(b)
and 1.1(c) above have been declared and paid.
1.2 DISTRIBUTION OF PARTIAL DIVIDEND PAYMENTS. Except as otherwise
provided herein, if at any time the Corporation pays less than the total amount
of dividends then accrued with respect to the Series A Preferred or the Series B
Preferred, such payment shall be distributed pro rata among the holders thereof
based upon the aggregate Series A Liquidation Value (plus all accrued and unpaid
dividends) of the shares of Series A Preferred held by each such holder or the
aggregate Series B Liquidation Value (plus all accrued and unpaid dividends) of
the shares of Series B Preferred held by each such holder, as the case may be.
SECTION 2
LIQUIDATION
2.1 Upon any liquidation, dissolution or winding up of the Corporation
(whether voluntary or involuntary), each holder of Series C Preferred shall
be paid in kind, prior and in preference to any distribution of any of the
assets of the Corporation to the holders of the Common Stock, a number of
shares of Globe Preferred equal to the product obtained by multiplying (a)
the number of shares of Series C Preferred then held by such holder by (b)
the quotient obtained by dividing the total number of shares of Globe
Preferred then held by the Corporation by the total number of shares of
Series C Preferred then outstanding. In addition, the holders of Series C
Preferred shall be entitled to receive, pro rata based upon the number of
shares of Series C Preferred then held by each such holder, in cash an amount
equal to all accrued and unpaid dividends with respect to the Series C
Preferred. Not less than 30 days prior to the payment date stated therein,
the Corporation shall mail written notice of any such liquidation,
dissolution or winding up to each record holder of Series C Preferred,
setting forth in reasonable detail the amount of Globe Preferred and cash to
be paid with respect to each share of Series C Preferred in connection with
such liquidation, dissolution or winding up.
2.2 After payment has been made to the holders of the Series C Preferred
of the full amounts to which they shall be entitled as set forth in Section 2.1,
each holder of Series A Preferred shall be entitled to be paid, before any
distribution or payment is made upon any Junior Securities, an amount in cash
equal to the aggregate Series A Liquidation Value of all shares of Series A
Preferred held by such holder (plus all accrued and unpaid dividends thereon),
and the holders of Series A Preferred shall not be entitled to any further
payment. If upon any such liquidation, dissolution or winding up of the
Corporation, the Corporation's assets to be distributed among the holders of the
Series A Preferred are insufficient to permit payment to such holders of the
aggregate amount which they are entitled to be paid under this Section 2.2, then
the entire assets available to be distributed to the Corporation's stockholders
shall be
3.
<PAGE>
distributed pro rata among the holders of Series A Preferred based upon the
aggregate Series A Liquidation Value (plus all accrued and unpaid dividends) of
the shares of Series A Preferred held by each such holder. Not less than 30
days prior to the payment date stated therein, the Corporation shall mail
written notice of any such liquidation, dissolution or winding up to each record
holder of Series A Preferred, setting forth in reasonable detail the amount of
assets to be paid with respect to each share of Series A Preferred in connection
with such liquidation, dissolution or winding up.
2.3 After payment has been made to the holders of the Series A
Preferred of the full amounts to which they shall be entitled as set forth in
Section 2.2, each holder of Series B Preferred shall be paid, prior and in
preference to any distribution of any of the assets of the Corporation to the
holders of the Common Stock, an amount in cash equal to the Series B
Liquidation Value of all shares of Series B Preferred held by such holder.
If upon any such liquidation, dissolution or winding up of the Corporation,
the Corporation's assets to be distributed among the holders of the Series B
Preferred are insufficient to permit payment to such holders of the aggregate
amount which they are entitled to be paid under this Section 2.3, then the
entire assets available to be distributed to the Corporation's stockholders
shall be distributed pro rata among the holders of Series B Preferred based
upon the aggregate Series B Liquidation Value of the shares of Series B
Preferred held by each such holder. Not less than 30 days prior to the
payment date stated therein, the Corporation shall mail written notice of any
such liquidation, dissolution or winding up to each record holder of Series B
Preferred, setting forth in reasonable detail the amount of assets to be paid
with respect to each share of Series B Preferred in connection with such
liquidation, dissolution or winding up.
2.4 After payment has been made to the holders of the Series A
Preferred and Series B Preferred of the full amounts to which they shall be
entitled as set forth in Sections 2.2 and 2.3, each holder of Series C
Preferred shall be paid, prior and in preference to any distribution of any
of the assets of the Corporation to the holders of the Common Stock, an
amount in cash equal to Series C Special Liquidation Value of all shares of
Series C Preferred held by such holder If upon any such liquidation,
dissolution or winding up of the Corporation, the Corporation's assets to be
distributed among the holders of the Series C Preferred are insufficient to
permit payment to such holders of the aggregate amount which they are
entitled to be paid under this Section 2.4, then the entire assets available
to be distributed to the Corporation's shareholders shall be distributed pro
rata among the holders of Series C Preferred based upon the aggregate Series
C Special Liquidation Value of the shares of Series C Preferred held by each
such holder.
2.5 After payment has been made to the holders of Preferred Stock of the
full amounts to which they shall be entitled as set forth in Sections 2.1, 2.2,
2.3 and 2.4 above, then the entire remaining assets and funds of the Corporation
legally available for distribution, if any, shall be distributed ratably among
the holders of Common Stock in a manner such that the amount distributed to each
such holder shall equal the amount obtained by multiplying the entire remaining
assets and funds of the Corporation legally available for distribution hereunder
by a fraction, the numerator of which shall be the number of shares of Common
Stock then held by such holder and the denominator of which shall be the total
number of shares of Common Stock then outstanding.
4.
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2.6 Neither the consolidation or merger of the Corporation into or with
any other Person (whether or not the Corporation is the surviving entity), nor
the sale or transfer by the Corporation of all or any part of its assets, nor
the reduction of the capital stock of the Corporation nor any other form of
recapitalization or reorganization affecting the Corporation shall be deemed to
be a liquidation, dissolution or winding up of the Corporation within the
meaning of this Section 2.
SECTION 3
PRIORITY OF PREFERRED ON DIVIDENDS AND REDEMPTION
So long as any shares of Series A Preferred remain outstanding, without
the prior written consent of the holders of a majority of the outstanding
shares of Series A Preferred, the Corporation shall not, nor shall it permit
any Subsidiary to, redeem, purchase or otherwise acquire, directly or
indirectly, any Junior Securities, nor shall the Corporation directly or
indirectly pay or declare any dividend, (cash, stock or otherwise) or make
any distribution upon any Junior Securities, except, in each case, as
otherwise expressly permitted pursuant to Section 4.2(b) below or the terms
of the Purchase Agreement. So long as any share of Series B Preferred
remains outstanding, without prior written consent of the holders of a
majority of the outstanding shares of Series B Preferred, the Corporation
shall not, nor shall it permit any Subsidiary to, redeem, purchase or
otherwise directly or indirectly, any Common Stock, nor shall the Corporation
directly or indirectly pay or declare any dividend (cash, stock or otherwise)
or make any distribution upon the Common Stock except, in each case, as
otherwise expressly permitted pursuant to Section 4.2(b) below or the
terms of the Purchase Agreement.
SECTION 4
REDEMPTIONS
4.1 SCHEDULED REDEMPTIONS.
(a) SCHEDULED REDEMPTION OF SERIES A PREFERRED. At any time on or
after February 1, 2004, the Corporation shall, at the request of holders of at
least a majority of the then outstanding shares of Series A Preferred, redeem
all outstanding shares of Series A Preferred at a price per share equal to the
Series A Liquidation Value PLUS all accrued and unpaid dividends thereon.
Holders of Series A Preferred requesting redemption hereunder shall notify the
Corporation at least thirty (30) days prior to the date on which such redemption
shall take place. Such notice (the "SERIES A REDEMPTION NOTICE") shall specify
the date of the requested redemption. The Corporation shall reply to the Series
A Redemption Notice within fifteen (15) days by notifying the holder or holders
of Series A Preferred requesting redemption hereunder the number of shares which
the Corporation may lawfully redeem on the date specified for redemption.
(b) SCHEDULED REDEMPTION OF SERIES B PREFERRED. At any time on or
after February 1, 2004, the Corporation shall, at the request of holders of at
least a majority of the then outstanding shares of Series B Preferred, redeem
all outstanding shares of Series B Preferred at a price per share equal to the
Series B Liquidation Value. Holders of Series B Preferred requesting
5.
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redemption hereunder shall notify the Corporation at least thirty (30) days
prior to the date on which such redemption shall take place. Such notice
(the "SERIES B REDEMPTION NOTICE") shall specify the date of the requested
redemption. The Corporation shall reply to the Series B Redemption Notice
within fifteen (15) days by notifying the holder or holders of Series B
Preferred requesting redemption hereunder the number of shares which the
Corporation may lawfully redeem on the date specified for redemption.
4.2 SPECIAL REDEMPTIONS.
(a) In the event of a Change in Ownership or a Fundamental
Change, the Corporation shall, upon the election of the holders of a majority
of outstanding shares of Series A Preferred, upon the consummation of such
transaction redeem the outstanding shares of Series A Preferred at a price
per share equal to the Series A Liquidation Value PLUS all accrued and
unpaid dividends thereon. Immediately following the redemption of the
outstanding shares of Series A Preferred in connection with such Change in
Control or Fundamental Change, the Corporation shall, upon the election of
holders of a majority of the outstanding shares of Series B Preferred, redeem
the outstanding shares of Series B Preferred at a price per share equal to
the Series B Liquidation Value; PROVIDED HOWEVER, that the holders of Series
B Preferred may elect to convert such shares into shares of Common Stock in
accordance with Section 5 hereof at any time prior to the closing of such
Change in Control or Fundamental Change.
(b) In the event of (i) a redemption of all (but not less than
all) of the shares of Globe Preferred held by the Corporation or (ii) a sale by
the Corporation of all (but not less than all) of the Globe Preferred to a third
party, the Corporation shall redeem all of the outstanding shares of Series C
Preferred at a price per share equal to the Series C Redemption Value. Any
redemption pursuant to this Section 4.2(b) shall take place on a date fixed by
the Corporation, which date shall be not more than ten (10) days after the
Corporation's receipt of proceeds from a redemption of the Globe Preferred.
4.3 REDEMPTION WITH PROCEEDS OF PUBLIC OFFERING.
(a) Upon the election of the holders of a majority of the
outstanding shares of Series A Preferred, the Corporation shall apply the net
cash proceeds from any Public Offering (after deduction of all discounts,
underwriters' commissions and other reasonable expenses) to redeem all
outstanding shares of Series A Preferred at a price per share equal to the
Series A Liquidation Value thereof PLUS all accrued and unpaid dividends
thereon. Such redemption shall take place on a date fixed by the holders of a
majority of the outstanding shares of Series A Preferred, which date shall be
not more than ten (10) days after the Corporation's receipt of such proceeds.
(b) Upon the election of the holders of a majority of the
outstanding shares of Series B Preferred, the Corporation shall apply the net
cash proceeds from any Public Offering (after deduction of all discounts,
underwriters' commissions and other reasonable expenses) to redeem shares of
Series B Preferred at a price per share equal to the Series B Liquidation
Value thereof; PROVIDED HOWEVER, that no such redemption shall occur in the
event that all outstanding shares of Series B Preferred are automatically
converted into shares of Common Stock upon the closing of a Qualifying IPO
pursuant to Section 5(b) below. Any redemption pursuant to this
6.
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Section 4.3(b) shall take place on a date fixed by the holders of a majority of
the outstanding shares of Series B Preferred, which date shall be not more than
ten (10) days after the Corporation's receipt of such proceeds.
4.4 REDEMPTION PAYMENTS. For each share of Series A Preferred, Series B
Preferred or Series C Preferred that is to be redeemed hereunder, the
Corporation shall be obligated on the Redemption Date to pay to the holder
thereof (upon surrender by such holder at the Corporation's principal office of
the certificate representing such share) an amount in immediately available
funds equal to the Series A Liquidation Value of such share (plus all accrued
and unpaid dividends thereon), the Series B Liquidation Value or the Series C
Redemption Value, as the case may be. If the funds of the Corporation legally
available for redemption of shares of Series A Preferred on any Redemption Date
are insufficient to redeem the total number of shares of Series A Preferred to
be redeemed on such date, those funds which are legally available shall be used
to redeem the maximum possible number of shares of Series A Preferred pro rata
among the holders of Series A Preferred to be redeemed based upon the aggregate
number of shares of Series A Preferred held by each such holder in accordance
with Section 4.6 below. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series A
Preferred, such funds shall immediately be used to redeem the balance of the
shares of Series A Preferred which the Corporation has become obligated to
redeem on any Redemption Date but which it has not so redeemed. If the funds of
the Corporation legally available for redemption of shares of Series B Preferred
on any Redemption Date are insufficient to redeem the total number of shares of
Series B Preferred to be redeemed on such date, then, subject to the foregoing,
those funds which are legally available shall be used to redeem the maximum
possible number of shares of Series B Preferred pro rata among the holders of
Series B Preferred based on the number of shares of Series B Preferred held by
each such holder in accordance with Section 4.6 below. At any time thereafter,
provided that the Corporation has fully satisfied its obligation to redeem
shares of Series A Preferred hereunder, when additional funds of the Corporation
are legally available for redemption of shares of Series B Preferred, such funds
shall immediately be used to redeem the balance of the shares of Series B
Preferred which the Corporation has become obligated to redeem on any Redemption
Date but which it has not redeemed If the funds of the Corporation legally
available for redemption of shares of Series C Preferred on any Redemption Date
are insufficient to redeem the total number of shares of Series C Preferred to
be redeemed on such date, those funds which are legally available shall be used
to redeem the maximum possible number of shares of Series C Preferred pro rata
among the holders of Series C Preferred to be redeemed based upon the aggregate
number of shares of Series C Preferred held by each such holder in accordance
with Section 4.6 below. At any time thereafter when additional funds of the
Corporation are legally available for the redemption of shares of Series C
Preferred, such funds shall immediately be used to redeem the balance of the
shares of Series C Preferred which the Corporation has become obligated to
redeem on any Redemption Date but which it has not so redeemed. Redemptions of
shares of Series A Preferred or Series B Preferred pursuant to any one of
Sections 4.1, 4.2 or 4.3 shall not relieve the Corporation of its obligation
to redeem outstanding shares of Series A Preferred or Series B Preferred
pursuant to any other of such sections which may apply.
7.
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4.5 NOTICE. Except as otherwise provided herein, the Corporation shall
mail written notice of(a) a potential Change in Ownership, Fundamental Change or
Public Offering, (b) each redemption of Globe Preferred and (c) each redemption
of any Series A Preferred, Series B Preferred or Series C Preferred to each
record holder of the Series A Preferred, the Series B Preferred and/or the
Series C Preferred, as applicable, (1) not more than 60 nor less than 30 days
prior to (x) in the case of an event referred to in (a) above, the date of
closing of such event and (y) in the case of a redemption referred to in (c)
above, the date on which such redemption is to be made and (2) in the case of an
event referred to in (b) above, not more than five days following such event.
In case fewer than the total number of shares represented by any certificate are
redeemed, a new certificate representing the number of unredeemed shares shall
be issued to the holder thereof without cost to such holder within five business
days after surrender of the certificate representing the redeemed shares.
4.6 DETERMINATION OF THE NUMBER OF EACH HOLDER'S SHARES TO BE REDEEMED.
The number of shares of Series A Preferred to be redeemed from each holder
thereof in redemptions hereunder shall be the number of shares determined by
multiplying the total number of shares of Series A Preferred to be redeemed by a
fraction, the numerator of which shall be the total number of shares of Series A
Preferred then held by such holder and the denominator of which shall be the
total number of shares of Series A Preferred then outstanding. The number of
shares of Series B Preferred to be redeemed from each holder thereof in
redemptions hereunder shall be the number of shares determined by multiplying
the total number of shares of Series B Preferred to be redeemed by a fraction,
the numerator of which shall be the total number of shares of Series B Preferred
then held by such holder and the denominator of which shall be the total number
of shares of Series B Preferred then outstanding. The number of shares of
Series C Preferred to be redeemed from each holder thereof in redemptions
hereunder shall be the number of shares determined by multiplying the total
number of shares of Series C Preferred to be redeemed by a fraction, the
numerator of which shall be the total number of shares of Series C Preferred
then held by such holder and the denominator of which shall be the total number
of shares of Series C Preferred then outstanding.
4.7 DIVIDENDS AFTER REDEMPTION DATE. No share of Series A Preferred
shall be entitled to any dividends accruing after the date on which the Series A
Liquidation Value of such share (plus all accrued and unpaid dividends thereon)
is paid to the holder of such share. No share of Series B Preferred shall be
entitled to any dividends accruing after the date on which the Series B
Liquidation Value of such share is paid to the holder of such share. No share
of Series C Preferred shall be entitled to any dividends accruing after the date
on which the Series C Redemption Value of such share is paid to the holder of
such share. On such date, all rights of the holder of such share shall cease,
and such share shall no longer be deemed to be issued or outstanding.
4.8 REDEEMED OR OTHERWISE ACQUIRED SHARES. Any shares of Preferred
Stock which are redeemed or otherwise acquired by the Corporation shall be
canceled and retired to authorized but unissued shares and shall not be
reissued, sold or transferred.
4.9 OTHER REDEMPTIONS OR ACQUISITION. The Corporation shall not, nor
shall it permit any Subsidiary to, redeem or otherwise acquire any shares of
Preferred Stock, except as expressly authorized herein.
8.
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SECTION 5
CONVERSION OF SERIES B PREFERRED
The holders of Series B Preferred shall have conversion rights as follows
(the "CONVERSION RIGHTS"):
(a) RIGHT TO CONVERT. Each share of Series B Preferred shall be
convertible, at the option of the holder thereof, at any time after the date
of issuance of such share, at the office of the Corporation or any transfer
agent for the Series B Preferred, into such number of fully paid and
nonassessable shares of Common Stock as is determined by dividing the Series
B Initial Issue Price by the Series B Conversion Price, determined as
hereinafter provided, in effect at the time of conversion. The price at
which shares of Common Stock shall be deliverable upon conversion of shares
of Series B Preferred (the "SERIES B CONVERSION PRICE") shall initially be
$0.86185 per share of Common Stock and shall be subject to adjustment as
hereinafter provided. Upon such conversion, all accrued and unpaid dividends
on the shares of Series B Preferred so converted shall be paid either in cash
or in shares of Common Stock of the Corporation, at the election of the
Company, wherein the shares of Common Stock shall be valued at the fair
market value at the time of such conversion, as determined in good faith by
the Board of Directors of the Corporation.
(b) AUTOMATIC CONVERSION. Each share of Series B Preferred shall
automatically be converted into shares of Common Stock at the then effective
Conversion Price upon the earlier to occur of(i) the closing of an underwritten
Public Offering at a price per share (prior to underwriter commissions and
offering expenses) of not less than $2.59 (as adjusted for stock splits, stock
dividends, reclassifications and like events) and in which the Corporation
receives aggregate gross proceeds of not less than $20,000,000 (a "QUALIFYING
IPO"), or (ii) the receipt by the Corporation of the affirmative vote at a duly
noticed shareholders meeting or pursuant to a duly solicited written consent of
the holders of more than sixty-six and two-thirds percent (66-2/3%) of the then
outstanding shares of Series B Preferred in favor of the conversion of all of
the shares of Series B Preferred into Common Stock. In the event of the
automatic conversion of the Series B Preferred upon a public offering as set
forth in subsection (i) hereof, the Person(s) entitled to receive the Common
Stock issuable upon such conversion of Series B Preferred shall not be deemed to
have converted such Series B Preferred until immediately prior to the closing of
such transaction. Upon such conversion, all accrued and unpaid dividends on the
shares of Series B Preferred so converted shall be paid either in cash or in
shares of Common Stock of the Corporation, at the election of the Company,
wherein the shares of Common Stock shall be valued at the fair market value at
the time of such conversion, as determined in good faith by the Board of
Directors of the Corporation.
(c) MECHANICS OF CONVERSION. No fractional shares of Common Stock
shall be issued upon conversion of Series B Preferred. In lieu of any
fractional shares to which the holder would otherwise be entitled, the
Corporation shall pay cash equal to such fraction multiplied by the then
effective Conversion Price. Before any holder of Series B Preferred shall be
entitled to convert the same into full shares of Common Stock and to receive
certificates therefor, he shall surrender the certificate or certificates
therefor, duly endorsed, at the office of the Corporation or of any transfer
agent for the Series B Preferred, and shall give written notice
9.
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to the Corporation at such office that he elects to convert the same; PROVIDED,
HOWEVER, that in the event of an automatic conversion pursuant to Section 5(b),
the outstanding shares of Series B Preferred shall be converted automatically
without any further action by the holders of such shares and whether or not the
certificates representing such shares are surrendered to the Corporation or its
transfer agent; PROVIDED, FURTHER, that the Corporation shall not be obligated
to issue certificates evidencing the shares of Common Stock issuable upon such
automatic conversion unless the certificates evidencing such shares of Series B
Preferred are either delivered to the Corporation or its transfer agent as
provided above, or the holder notifies the Corporation or its transfer agent
that such certificates have been lost, stolen or destroyed and executes an
agreement satisfactory to the Corporation to indemnify the Corporation from any
loss incurred by it in connection with such certificates. The Corporation
shall, as soon as practicable after such delivery, or such agreement and
indemnification in the case of a lost certificate, issue and deliver at such
office to such holder of Series B Preferred, a certificate or certificates for
the number of shares of Common Stock to which he shall be entitled as aforesaid
and a check payable to the holder in the amount of any cash amounts payable as
the result of a conversion into fractional shares of Common Stock. Such
conversion shall be deemed to have been made immediately prior to the close of
business on the date of such surrender of the shares of Series B Preferred to be
converted, or in the case of automatic conversion on the date of closing of the
offering or the effective date of such written consent, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock on such date.
(d) ADJUSTMENTS TO CONVERSION PRICE FOR CERTAIN EVENTS.
(i) ADJUSTMENTS FOR SUBDIVISIONS, STOCK DIVIDENDS,
COMBINATIONS OR CONSOLIDATIONS OF COMMON STOCK. In the event that the
Corporation at any time or from time to time shall declare or pay, without
consideration, any dividend on Common Stock payable in Common Stock or in any
right to acquire Common Stock for no consideration, or effects a subdivision or
combination of its outstanding shares of Common Stock into a greater or smaller
number of shares without a proportionate and corresponding subdivision or
combination of its outstanding shares of Series B Preferred, then and in each
such event Series B Conversion Price shall be appropriately increased or
decreased proportionally.
(ii) ADJUSTMENTS FOR RECLASSIFICATION, EXCHANGE AND
SUBSTITUTION. If the Common Stock issuable upon conversion of the Preferred
Stock shall be changed into the same or a different number of shares of any
other class or classes of stock, whether by capital reorganization,
reclassification or otherwise (other than in an event provided for in Section
5(d)(i) above), the Series B Conversion Price then in effect shall, concurrently
with the effectiveness of such reorganization or reclassification, be
proportionately adjusted such that the shares of Series B Preferred shall be
convertible into, in lieu of the number of shares of Common Stock which the
holders would otherwise have been entitled to receive, a number of shares of
such other class or classes of stock equivalent to the number of shares of
Common Stock that would have been subject to receipt by the holders upon
conversion of shares of such Series B Preferred immediately before that change.
(iii) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In
the event that the Corporation shall declare a distribution with respect to the
Common Stock payable
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in securities of Other issuers, evidences of indebtedness issued by this
Corporation or other issuers, assets (excluding cash dividends) or options or
rights and for which no adjustment is made pursuant to Section 5(d)(i) or
Section 5(d)(ii), the holders of Series B Preferred shall be entitled to a
proportionate share of any such distribution as though they were the holders of
the number of shares of Common Stock of the Corporation into which their shares
of Series B Preferred are convertible as of the record date fixed for the
determination of the holders of Common Stock of the Corporation entitled to
receive such distribution.
(e) NO IMPAIRMENT. Except as provided in Section 6 hereof, the
Corporation will not, by amendment of its Articles of Incorporation or through
any reorganization, transfer of assets, consolidation, merger, dissolution,
issue or sale of securities or any other voluntary action, avoid or seek to
avoid the observance or performance of any of the terms to be observed or
performed hereunder by the Corporation but will at all times in good faith
assist in the caring out of all the provisions of this Section 5 and in the
taking of all such action as may be necessary or appropriate in order to protect
the conversion rights of the holders of Series B Preferred against impairment.
(f) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the Conversion Price of any Series B Preferred
pursuant to this Section 5, the Corporation at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
furnish to each holder of Series B Preferred a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Corporation shall, upon the written
request at any time of any holder of such Series B Preferred, furnish or cause
to be furnished to such holder a like certificate setting forth (i) such
adjustments and readjustments, (ii) the Series B Conversion Price at the time in
effect, and (iii) the number of shares of Common Stock and the amount, if any,
of other property which at the time would be received upon the conversion of
such holder's shares of Series B Preferred.
(g) NOTICES OF RECORD DATE. In the event that this Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its Common
Stock, whether in cash, property, stock or other securities, whether or not a
regular cash dividend and whether or not out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of
any class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of
its Common Stock outstanding involving a change in the Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all of its property
or business, or to liquidate, dissolve or wind up; then, in connection with each
such event, this Corporation shall send to the holders of Series B Preferred:
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(A) at least 20 days' prior written notice of the
date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Common
Stock shall be entitled thereto) or for determining rights to vote in respect of
the matters referred to in (iii) and (iv) above; and
(B) in the case of the matters referred to in (iii)
and (iv) above, at least 20 days' prior written notice of the date when the same
shall take place (and specifying the date on which the holders of Common Stock
shall be entitled to exchange their Common Stock for securities or other
property deliverable upon the occurrence of such event).
Each such written notice shall be delivered personally or given by first
class mail, postage prepaid, addressed to the holders of Series B Preferred at
the address for each such holder as shown on the books of this Corporation.
(h) The Corporation shall at all times reserve and keep
available, out of its authorized but unissued Common Stock, solely for the
purpose of effecting the conversion of the Series B Preferred, the full
number of shares of Common Stock deliverable upon the conversion of all
Series B Preferred from time to time outstanding The Corporation shall from
time to time (subject to obtaining necessary director and shareholder
consent), in accordance with the laws of the State of California, increase
the number of authorized shares of Common Stock if at any time the authorized
number of shares of its Common Stock remaining unissued shall not be
sufficient to permit the conversion of all of the shares of Series B
Preferred at the time outstanding.
(i) The Corporation shall pay any and all issue and other taxes
that may be payable in respect of any issue or delivery of shares of Common
Stock on conversion of Series B Preferred pursuant to this Section 5.
SECTION 6
VOTING RIGHTS
6.1 GENERAL. Except as otherwise expressly provided herein and as
otherwise required by applicable law, the Series A Preferred shall have no
voting rights; provided that each holder of Series A Preferred shall be
entitled to notice of all meetings of shareholders at the same time and in
the same manner as notice is given to all shareholders entitled to vote at
such meetings. Except as otherwise required by law or except as otherwise set
forth herein, the holder of each share of Series B Preferred issued and
outstanding shall have a number of votes with respect to such share equal to
the number of shares of Common Stock into which such share of Series B
Preferred is then convertible. Except as otherwise required by law or except
as otherwise set forth herein, each holder of issued and outstanding Series C
Preferred shall have one (1) vote for each twenty-five (25) shares of Series
C Preferred held by such holder. The holders of Series B Preferred and
Series C Preferred shall be entitled to notice of any shareholders' meeting
in accordance with the Bylaws of the Corporation.
6.2 BOARD OF DIRECTORS.
(a) The authorized number of directors of the Corporation shall
not exceed five (5).
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(b) At each election of directors of the Corporation, so long as
any share of Series B Preferred is outstanding, the holders of Series B
Preferred shall be entitled, voting as a single series, to elect two (2)
directors of the Corporation (the "SERIES B DIRECTORS"). In the case of any
vacancy in the office of a Series B Director, a successor shall be elected to
hold office for the unexpired term of such director by the affirmative vote of
the holders of a majority of the Series B Preferred, voting as a single class,
given at a special meeting of such shareholders called for that purpose or by
the unanimous written consent of such shareholders. Prior to an annual or
special meeting of the holders of the Series B Preferred convened for the
purpose of electing a director to fill a vacancy on the Board of Directors as
provided above, the acting and incumbent Series B Director may appoint a
director to serve as such until the holders of the Series B Preferred duly elect
a successor director.
(c) At each election of directors of the Corporation, so long as
any share of Common Stock or Series C Preferred is outstanding, the holders of
Common Stock and Series C Preferred shall be entitled, voting together, to elect
two (2) directors of the Corporation (the "COMMON DIRECTORS"). In the case of
any vacancy in the office of a Common Director, a successor shall be elected to
hold office for the unexpired term of such director by the affirmative vote of
the holders of a majority of the Common Stock and Series C Preferred, voting
together, given at a special meeting of such shareholders called for that
purpose or by the unanimous written consent of such shareholders Prior to an
annual or special meeting of the holders of the Common Stock and Series C
Preferred convened for the purpose of electing a director to fill a vacancy on
the Board of Directors as provided above, the acting and incumbent Common
Director may appoint a director to serve as such until the holders of the Common
Stock and Series C Preferred duly elect a successor director.
(d) At each election of directors of the Corporation, so long as
any share of Series B Preferred, Common Stock and Series C Preferred is
outstanding, the holders of Common Stock, Series B Preferred and Series C
Preferred shall be entitled, voting together, to elect one (1) director of the
Corporation (the "JOINT DIRECTOR"). In the case of any vacancy in the office of
a Joint Director, a successor shall be elected to hold office for the unexpired
term of such director by the affirmative vote of the holders of a majority of
the Common Stock, Series B Preferred and Series C Preferred, voting together,
given at a special meeting of such shareholders called for that purpose or by
the unanimous written consent of such shareholders.
6.3 PROTECTIVE PROVISIONS.
(a) So long as any share of Series A Preferred remains
outstanding, the Corporation shall not, without the vote or written consent of
the holders of a majority of the shares of Series A Preferred then outstanding,
voting separately as a series:
(i) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 20% of the
consolidated assets of the Corporation and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Corporation's Board of Directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales of inventory in
the ordinary course of business), unless prior to or contemporaneously with the
consummation of such transaction the Corporation
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redeems all of the outstanding shares of Series A Preferred pursuant to the
terms of Section 4.2 hereof;
(ii) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a merger or
consolidation between or among Wholly-Owned Subsidiaries), unless prior to or
contemporaneously with the consummation of such transaction the Corporation
redeems all of the outstanding shares of Series A Preferred pursuant to the
terms of Section 4.2 hereof(regardless of whether such transaction would
otherwise constitute a Change in Ownership or a Fundamental Change);
(iii) authorize, issue or enter into any agreement providing
for the issuance (contingent or otherwise) of, (A) any notes or debt securities
containing equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable for capital stock or other equity
securities issued in connection with the issuance of capital stock or other
equity securities or containing profit participation features) or (B) any
capital stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities) which are senior
to Common Stock with respect to the payment of dividends, redemptions or
distributions upon liquidation or otherwise;
(iv) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other non-
corporate entity which is treated as a partnership for Canadian or United States
income tax purposes); or
(v) increase the number of authorized shares of the Series
A Preferred or alter, change or otherwise impair or adversely affect the rights
or the relative preferences and priorities of the holders of the Series A
Preferred.
(b) So long as any share of Series B Preferred remains
outstanding, the Corporation shall not, without the vote or written consent of
the holders of a majority of the shares of Series B Preferred then outstanding,
voting separately as a series:
(i) sell, lease or otherwise dispose of, or permit any
Subsidiary to sell, lease or otherwise dispose of, more than 20% of the
consolidated assets of the Corporation and its Subsidiaries (computed on the
basis of book value, determined in accordance with generally accepted accounting
principles consistently applied, or fair market value, determined by the
Corporation's Board of Directors in its reasonable good faith judgment) in any
transaction or series of related transactions (other than sales of inventory in
the ordinary course of business), unless prior to or contemporaneously with the
consummation of such transaction the Corporation redeems all of the outstanding
shares of Series B Preferred pursuant to the terms of Section 4.2 hereof;
(ii) merge or consolidate with any Person or permit any
Subsidiary to merge or consolidate with any Person (other than a merger or
consolidation between or among Wholly-Owned Subsidiaries), unless prior to or
contemporaneously with the consummation of such transaction the Corporation
redeems all of the outstanding shares of Series B Preferred
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pursuant to the terms of Section 4.2 hereof (regardless of whether such
transaction would otherwise constitute a Change in Ownership or a Fundamental
Change);
(iii) authorize, issue or enter into any agreement providing
for the issuance (contingent or otherwise) of, (A) any notes or debt securities
containing equity features (including, without limitation, any notes or debt
securities convertible into or exchangeable for capital stock or other equity
securities issued in connection with the issuance of capital stock or other
equity securities or containing profit participation features) or (B) any
capital stock or other equity securities (or any securities convertible into or
exchangeable for any capital stock or other equity securities) which are senior
to Common Stock with respect to the payment of dividends, redemptions or
distributions upon liquidation or otherwise;
(iv) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation, any
reorganization into a limited liability company, a partnership or any other non-
corporate entity which is treated as a partnership for Canadian or United States
income tax purposes);
(v) increase the number of authorized shares of the Series
B Preferred or alter, change or otherwise impair or adversely affect the rights
or the relative preferences and priorities of the holders of the Series B
Preferred; or
(vi) increase the authorized number of members of the Board
of Directors to a number greater than five (5).
(c) So long as any share of Series C Preferred remains
outstanding, the Corporation shall not, without the vote or written consent of
the holders of a majority of the shares of Series C Preferred then outstanding,
voting separately as a series, increase the number of authorized shares of the
Series C Preferred or alter, change or otherwise impair or adversely affect the
rights or the relative preferences and priorities of the holders of the Series C
Preferred.
SECTION 7
EVENTS OF NONCOMPLIANCE
7.1 DEFINITION. An Event of Noncompliance shall have occurred if:
(a) the Corporation fails to make any redemption payment with
respect to the Series A Preferred or Series B Preferred which it is required to
make hereunder, whether or not such payment is legally permissible or is
prohibited by any agreement to which the Corporation is subject; or
(b) the Corporation or any Subsidiary makes an assignment for
the benefit of creditors or admits in writing its inability to pay its debts
generally as they become due;. or an order, judgment or decree is entered
adjudicating the Corporation or any Subsidiary bankrupt or insolvent; or any
order for relief with respect to the Corporation or any Subsidiary is entered
under the United States Bankruptcy Code; or the Corporation or any Subsidiary
petitions or applies to any tribunal for the appointment of a custodian,
trustee, receiver or liquidator of the Corporation or any Subsidiary or of
any substantial part of the assets of the Corporation or any
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Subsidiary, or commences any proceeding (other than a proceeding for the
voluntary liquidation and dissolution of a Subsidiary.) relating to the
Corporation or any Subsidiary under any bankruptcy, reorganization,
arrangement, insolvency, readjustment of debt, dissolution or liquidation law
of any jurisdiction; or any such petition or application is filed, or any
such proceeding is commenced, against the Corporation or any Subsidiary and
either (i) the Corporation or any such Subsidiary by any act indicates its
approval thereof, consent thereto or acquiescence therein or (ii) such
petition, application or proceeding is not dismissed within 60 days.
7.2 CONSEQUENCES OF EVENTS OF NONCOMPLIANCE.
(a) If an Event of Noncompliance of the type described in
Section 7.1(a) has occurred, the holder or holders of a majority of the shares
of Series A Preferred and a majority of the shares of Series B Preferred then
outstanding may demand (by written notice delivered to the Corporation)
immediate redemption of all or any portion of the Series A Preferred owned by
such holder or holders at a price per share equal to the Series A Liquidation
Value thereof(plus all accrued and unpaid dividends thereon) and all or any
portion of the Series B Preferred owned by such holder or holders at a price per
share equal to the Series B Liquidation Value thereof (plus all accrued and
unpaid dividends thereon). The Corporation shall give prompt written notice of
such election to the other holders of Series A Preferred and Series B Preferred
(but in any event within five days after receipt of the initial demand for
redemption), and each such other holder may demand immediate redemption of all
or any portion of such holder's Series A Preferred or Series B Preferred by
giving written notice thereof to the Corporation within seven days after receipt
of the Corporation's notice. The Corporation shall redeem all Series A
Preferred and Series B Preferred as to which rights under this Section 7.2(a)
have been exercised within 15 days after receipt of the initial demand for
redemption.
(b) If an Event of Noncompliance of the type described in
Section 7.1(b) has occurred, all of the Series A Preferred and Series B
Preferred then outstanding shall be subject to immediate redemption by the
Corporation (without any action on the part of the holders of the Series A
Preferred or the Series B Preferred) at a price per Share equal to the Series A
Liquidation Value (plus all accrued and unpaid dividends thereon) or the Series
B Liquidation Value, respectively.
(c) If any Event of Noncompliance exists, each holder of Series A
Preferred and each holder of Series B Preferred shall also have any other rights
which such holder is entitled to under any contract or agreement at any time and
any other rights which such holder may have pursuant to applicable law.
SECTION 8
REGISTRATION OF TRANSFER
The Corporation shall keep at its principal office a register for the
registration of Series A Preferred, Series B Preferred and Series C Preferred.
Upon the surrender of any certificate representing Series A Preferred, Series B
Preferred or Series C Preferred at such place, the Corporation shall, at the
request of the record holder of such certificate, execute and deliver (at
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the Corporation's expense) a new certificate or certificates in exchange
therefor representing in the aggregate the number of shares represented by the
surrendered certificate. Each such new certificate shall be registered in such
name and shall represent such number of shares as is requested by the holder of
the surrendered certificate and shall be substantially identical in form to the
surrendered certificate.
SECTION 9
REPLACEMENT
Upon receipt of evidence reasonably satisfactory to the Corporation
(provided that an affidavit of the registered holder shall be deemed to be
reasonably satisfactory) of the ownership and the loss, theft, destruction or
mutilation of any certificate evidencing shares of Series A Preferred, Series B
Preferred or Series C Preferred, and in the case of any such loss, theft or
destruction, upon receipt of indemnity reasonably satisfactory to the
Corporation (provided that if the holder is a financial institution or other
institutional investor its own agreement shall be satisfactory), or, in the case
of any such mutilation upon surrender of such certificate, the Corporation shall
(at its expense) execute and deliver in lieu of such certificate a new
certificate of like kind representing the number of shares of Series A
Preferred, Series B Preferred or Series C Preferred represented by such lost,
stolen, destroyed or mutilated certificate and dated the date of such lost,
stolen, destroyed or mutilated certificate, and, in the case of the Series A
Preferred and Series B Preferred, dividends shall accrue on the Series A
Preferred or Series B Preferred represented by such new certificate from the
date to which dividends have been fully paid on such lost, stolen, destroyed or
mutilated certificate.
SECTION 10
DEFINITION
"CHANGE IN OWNERSHIP" means any sale, transfer or issuance or series of
sales, transfers and/or issuance of shares of the Corporation's capital stock by
the Corporation or any holders thereof which results in the Controlling
Shareholders ceasing to be the record and beneficial owners of capital stock of
the Corporation possessing the voting power (under ordinary circumstances) to
elect a majority of the Corporation's Board of Directors or ceasing to be the
record and beneficial owners of at least 51% of the Corporation's issued and
outstanding Common Stock.
"COMMON STOCK" means the Corporation's Common Stock, no par value per
share, and any capital stock of any class of the Corporation hereafter
authorized which is not limited to a fixed sum or percentage of par or stated
value in respect to the rights of the holders thereof to participate in
dividends or in the distribution of assets upon any liquidation, dissolution or
winding up of the Corporation.
"CONTROLLING SHAREHOLDERS" means Summit Ventures IV, L.P. and Summit
Investors III, L.P. and Kenneth E. Jones.
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"FAIR MARKET VALUE" shall mean, with respect to the Series B Preferred, the
fair market value of a share of the Series B Preferred as established by mutual
agreement of the holders of a majority of the Series B Preferred then
outstanding and the Corporation or, with respect to the Globe Preferred, the
fair market value of a share of Globe Preferred as established by mutual
agreement of the holders of a majority of the Series C Preferred then
outstanding and the Corporation (including the approval of at least one Series B
Director); PROVIDED, HOWEVER, if such parties cannot agree on such value within
ten (10) days of the reply given pursuant to any redemption notice as set forth
herein, then the fair market value shall be established by appraisal as set
forth below:
(i) Appraisals hereunder shall be undertaken by two (2)
appraisers, one (1) selected by the Corporation and one (1) selected by the
holders of a majority of the Series B Preferred then outstanding. Such
appraisers shall have twenty (20) days following the appointment of the last
appraiser to be appointed to agree upon a fair market value.
(ii) In the event that such appraisers cannot so agree
within such period of time (A) if such appraisers' valuations do not vary by
more than ten percent (10%), then the fair market value shall be the mean of
such valuations and (B) if such appraisers' valuations differ by more than ten
percent (10%), such appraisers shall select a third appraiser who shall
calculate the fair market value independently. Except as set forth in the next
sentence, following such independent appraisal, the fair market value shall be
the average of the two (2) valuations which are closest in amount. If one
appraiser's valuation is the mean of the two (2) other valuations, such mean
valuation shall be the fair market value. In the event that the two (2)
original appraisers cannot agree upon a third appraiser within thirty (30) days
following the end of the thirty (30) day period referred to above, then the
third appraiser shall be appointed by the American Arbitration Association
(iii) The fees and expenses of the appraisers chosen pursuant
to the provisions above shall be paid by the Corporation
"FUNDAMENTAL CHANGE" means (a) any sale or transfer of more than 20% of the
assets of the Corporation and its Subsidiaries on a consolidated basis (measured
either by book value in accordance with generally accepted accounting principles
consistently applied or by fair market value determined in the reasonable good
faith judgment of the Corporation's Board of Directors) in any transaction or
series of transactions (other than sales of inventory in the ordinary course of
business) and (b) any merger or consolidation to which the Corporation is a
party, except for a merger in which the Corporation is the surviving
corporation, the terms of the Series A Preferred and Series B Preferred are not
changed and the Series A Preferred and Series B Preferred are not exchanged for
cash, securities or other property, and after giving effect to such merger the
Controlling Stockholders continue to be the record and beneficial owners of
capital stock of the Corporation possessing the voting power (under ordinary
circumstances) to elect a majority of the Corporation's Board of Directors and
continue to be the record and beneficial owners of a majority of the
Corporation's issued and outstanding Common Stock.
"GLOBE" means Globe Wireless, Inc., a California corporation, and its
successors.
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"GLOBE DIVIDEND AMOUNT" means the difference obtained by subtracting (a)
any Tax of the Corporation resulting from the receipt by the Corporation of
dividends with respect to the Globe Preferred from (b) any amounts paid by Globe
and received by the Corporation as a dividend with respect to the Globe
Preferred.
"GLOBE PREFERRED" means the shares of Series A Preferred Stock, no par
value per share, of Globe (or any securities issued with respect thereto) held
by the Corporation.
"GLOBE PREFERRED REDEMPTION AMOUNT" means the difference obtained by
subtracting (a) any Tax of the Corporation resulting from the redemption by
Globe of the Globe Preferred or the sale by the Corporation to a third party of
the Globe Preferred from (b) the aggregate proceeds received by the Corporation
upon all redemptions by Globe of the Globe Preferred or upon the sale by the
Corporation to a third party of the Globe Preferred.
"JUNIOR SECURITIES" means any capital stock or other equity securities of
the Corporation, except for the Series A Preferred.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"PREFERRED STOCK" means the Series A Preferred, the Series B Preferred and
the Series C Preferred.
"PUBLIC OFFERING" means any offering by the Corporation of its capital
stock or equity securities to the public pursuant to an effective registration
statement under the United States Securities Act of 1933, as then in effect, or
any comparable statement under any similar federal statute then in force.
"PURCHASE AGREEMENT" means the Purchase Agreement, dated as of February 21,
1997, by and among the Corporation and certain Persons, as such agreement may
from time to time be amended in accordance with its terms.
"REDEMPTION DATE" as to any share means the applicable date specified
herein with respect to such redemption; PROVIDED no such date shall be a
Redemption Date unless the Liquidation Value of such share (plus, in the case of
the Series A Preferred, all accrued and unpaid dividends thereon) is actually
paid in full on such date, and if not so paid in full, the Redemption Date shall
be the date on which such amount is fully paid.
"SERIES A LIQUIDATION VALUE" shall be equal to $1.00.
"SERIES A ORIGINAL ISSUE DATE" shall be the date on which the Corporation
initially issues any shares of Series A Preferred, regardless of the number of
times a transfer of such share is made on the stock records maintained by or for
the Corporation and regardless of the number of certificates which may be issued
to evidence such share.
"SERIES A PREFERRED" means the Corporation's Series A Redeemable Preferred
Stock, no par value per share.
19.
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"SERIES B INITIAL ISSUE PRICE" shall be equal to $0.86185.
"SERIES B LIQUIDATION VALUE" shall be equal to the greatest of(i) the
Series B Initial Issue Price PLUS all accrued and unpaid dividends, (ii) the
Fair Market Value of the Series B Preferred or (iii) the quotient obtained by
dividing (A) the value of the entire assets available to be distributed to the
holders of the Series B Preferred and Common Stock (assuming, for purposes of
this definition, that the amount payable to the holders of the Series C
Preferred by operation of Section 2.4 hereof is zero (0)) by (B) the sum of the
number of shares of Common Stock then outstanding plus the number of shares of
Common Stock into which the shares of Series B Preferred then outstanding are
then convertible.
"SERIES B ORIGINAL ISSUE DATE" shall be the date on which the Corporation
initially issues any shares of Series B Preferred, regardless of the number of
times a transfer of such share is made on the stock records maintained by or for
the Corporation and regardless of the number of certificates which may be issued
to evidence such share.
"SERIES B PREFERRED" means the Corporation's Series B Convertible Preferred
Stock, no par value per share.
"SERIES C PREFERRED" means the Corporation's Series C Preferred Stock, no
par value per share.
"SERIES C REDEMPTION VALUE" means the fraction obtained by dividing the
Globe Preferred Redemption Amount by the total number of shares of Series C
Preferred then outstanding.
"SERIES C SPECIAL LIQUIDATION VALUE" shall be the difference obtained by
subtracting (i) the Fair Market Value of a share of Globe Preferred from (ii)
the liquidation preferential amount of a share of Globe Preferred.
"SUBSIDIARY" means, with respect to any Person, any corporation, limited
liability company, partnership, association or other business entity of which
(a) if a corporation, a majority of the total voting power of shares of stock
entitled (without regard to the occurrence of any contingency) to vote in the
election of directors, managers or trustees thereof is at the time owned or
controlled, directly or indirectly, by that Person or one or more of the other
Subsidiaries of that Person or a combination thereof, or (b) if a limited
liability company, partnership, association or other business entity, a majority
of the partnership or other similar ownership interest thereof is at the time
owned or controlled, directly or indirectly, by any Person or one or more
Subsidiaries of that person or a combination thereof. For purposes hereof, a
Person or Persons shall be deemed to have a majority ownership interest in a
limited liability company, partnership, association or other business entity if
such Person or Persons shall be allocated a majority of limited liability
company, partnership, association or other business entity gains or losses or
shall be or control the managing general partner of such limited liability
company, partnership, association or other business entity. Globe shall not be
deemed a Subsidiary of the Corporation.
"TAX" OR "TAXES" means federal, state, county, local, foreign or other
income, gross receipts, ad valorem, franchise, profits, sales or use, transfer
registration, excise, utility,
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environmental, communications, real or personal property, capital stock,
license, payroll, wage or other withholding, employment, social security,
severance, stamp, occupation, alternative or add-on minimum, estimated and other
taxes of any kind whatsoever (including, without limitation, deficiencies,
penalties, additions to tax, and interest attributable thereto) whether disputed
or not.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, a Subsidiary
of which all of the issued and outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person.
SECTION 11
AMENDMENT AND WAIVER
No amendment, modification or waiver shall be binding or effective with
respect to any provision of Sections 1 to 12 hereof without the prior written
consent of the holders of a majority of the shares of Series A Preferred
outstanding and a majority of the shares of Series B Preferred outstanding at
the time at which such action is taken; PROVIDED THAT no such action shall
change (a) the rate at which or the manner in which dividends on the Series A
Preferred accrue or the times at which such dividends become payable or the
amount payable on redemption of the Series A Preferred or upon liquidation of
the Corporation or the times at which redemption of Series A Preferred is to
occur, without the prior written consent of the holders of at least 66-2/3% of
the Series A Preferred then outstanding; (b) the percentage required to approve
any change described in clause (a) above, without the prior written consent of
the holders of at least 66-2/3% of the Series A Preferred then outstanding; or
(c) the amounts payable on redemption of the Series B Preferred or upon
liquidation of the Corporation or the times at which redemption of the Series B
Preferred is to occur, without the prior written consent of the holders of at
least 66-2/3% of the Series B Preferred then outstanding; and PROVIDED FURTHER,
that no change in the terms hereof may be accomplished by merger or
consolidation of the Corporation with another corporation or entity unless the
Corporation has obtained the prior written consent of the holders of the
applicable percentage of the Series A Preferred and Series B Preferred, voting
separately, then outstanding.
SECTION 12
NOTICES
Except as otherwise expressly provided hereunder, all notices referred to
herein shall be in writing and shall be delivered by registered or certified
mail, return receipt requested and postage prepaid, or by reputable overnight
courier service, charges prepaid, and shall be deemed to have been given when so
mailed or sent (a) to the Corporation, at its principal executive offices and
(b) to any stockholder, at such holder's address as it appears in the stock
records of the Corporation (unless otherwise indicated by any such holder).
21.
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ARTICLE IV
SECTION 1. LIMITATION OF DIRECTOR'S LIABILITY
The liability of the directors of the Corporation for monetary damages
shall be eliminated to the fullest extent permissible under California law.
SECTION 2. INDEMNIFICATION OF CORPORATE AGENTS.
The Corporation is authorized to provide indemnification of agents (as
defined in Section 317 of the California Corporations Code) through bylaw
provisions, agreements with agents, vote of shareholders or disinterested
directors or otherwise, in excess of the indemnification otherwise permitted by
Section 317 of the California Corporations Code, subject only to the applicable
limits set forth in Section 204 of the California Corporations Code with respect
to actions for breach of duty to the Corporation and its shareholders.
SECTION 3. REPEAL OR MODIFICATION.
Any repeal or modification of the foregoing provisions of this Article IV
by the shareholders of the Corporation shall not adversely affect any right or
protection of a director of the Corporation existing at the time of such repeal
or modification."
3. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the Board of Directors of the Corporation.
4. The foregoing amendment and restatement of Articles of Incorporation
has been duly approved by the required vote of shareholders of the Corporation
in accordance with Sections 902 and 903 of the Corporations Code. The total
number of outstanding shares of the Corporation is 1,832,481 shares of Common
Stock. The number of shares voting in favor of the amendment equaled or
exceeded the vote required. The percentage vote required was more than 50% of
the outstanding shares of 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.
Date: February 27, 1997
/s/ Kenneth Jones
----------------------------------------
Kenneth Jones, Chairman of the
Board of Directors
/s/ Signe K. Jones
----------------------------------------
Signe K. Jones, Secretary
22.
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CERTIFICATE OF CORRECTION
OF
AMENDED AND RESTATED ARTICLES OF INCORPORATION
OF
AUTOMATED CALL PROCESSING CORPORATION, INC.
Kenneth E. Jones certifies that:
1. He is the Chairman of the Board Directors, Chief Executive Officer
& Assistant Secretary of Automated Call Processing Corporation, Inc., a
California corporation.
2. The name of the corporation filing this certificate is Automated Call
Processing Corporation, Inc., and it is a California corporation.
3. The instrument being corrected is entitled "AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF AUTOMATED CALL PROCESSING CORPORATION, INC.," and
said instrument was filed in the office of the Secretary of State of the State
of California on March 3, 1997.
4. The first two paragraphs of Article III of said AMENDED AND RESTATED
ARTICLES OF INCORPORATION, as corrected, should read in its entirety as follows:
"This Corporation is authorized to issue two classes of stock,
designated "Common Stock" and "Preferred Stock." The total number of
shares which this Corporation is authorized to issue is 81,017,939. The
number of shares of Common Stock which this Corporation is authorized to
issue is 50,000,000, no par value per share. The number of shares of
Preferred Stock which this Corporation is authorized to issue is
31,017,939, no par value per share.
The Preferred Stock shall be divided into three series: Series A
Preferred Stock, Series B Preferred Stock and Series C Preferred Stock.
The number of shares of Series A Preferred Stock which this Corporation is
authorized to issue is 17,250,000. The number of shares of Series B
Preferred Stock which this Corporation is authorized to issue is 6,259,718.
The number of shares of Series C Preferred Stock which the Corporation is
authorized to issue is 7,508,221."
<PAGE>
5. Said AMENDED AND RESTATED ARTICLES OF INCORPORATION when corrected as
herein specified, will conform in wording to the wording of the AMENDED AND
RESTATED ARTICLES OF INCORPORATION in the resolutions adopted by the Board of
Directors and Shareholders approving the AMENDED AND RESTATED ARTICLES OF
INCORPORATION.
The undersigned declares 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 his own knowledge and that this declaration was executed on
March 7, 1997.
/s/ Kenneth E. Jones
-----------------------------------
Kenneth E. Jones
Title: Chairman of the Board,
Chief Executive Officer &
Assistant Secretary
<PAGE>
CERTIFICATE OF AMENDMENT OF
ARTICLES OF INCORPORATION OF
DITECH CORPORATION
The undersigned certify that:
1. They are the President and the Assistant Secretary, respectively, of
Ditech Corporation, a California corporation.
2. Section 6.2 of Article III of the Amended and Restated Articles of
Incorporation of this corporation is amended to read in full as follows:
"SECTION 6.2 BOARD OF DIRECTORS
a) At each election of directors of the Corporation, so long as any share
of Series B Preferred is outstanding, the holders of Series B Preferred shall be
entitled, voting as a single series, to elect two (2) directors of the
Corporation (the "Series B Directors"). In each case of any vacancy in the
office of a Series B Director, a successor shall be elected to hold office for
the unexpired term of such director by the affirmative vote of the holders of a
majority of the Series B Preferred, voting as a single class, given at a special
meeting of such shareholders called for that purpose or by the unanimous written
consent of such shareholders. Prior to an annual or special meeting of the
holders of the Series B Preferred convened for the purpose of electing a
director to fill a vacancy on the Board of Directors as provided above, the
acting and incumbent Series B Director may appoint a director to serve as such
until the holders of the Series B Preferred duly elect a successor director.
b) At each election of directors of the Corporation, so long as any share
of Common Stock or Series C Preferred is outstanding, the holders of Common
Stock and Series C Preferred shall be entitled, voting together, to elect two
(2) directors of the Corporation (the "Common Directors"). In the case of any
vacancy in the office of Common Director, a successor shall be elected to hold
office for the unexpired terms of such director by the affirmative vote of the
holders of a majority of the Common Stock and Series C Preferred, voting
together, given at a special meeting of such shareholders called for that
purpose or by the unanimous written consent of such shareholders. Prior to an
annual or special meeting of the holders of the Common Stock and Series C
Preferred convened for the purpose of electing a director to fill a vacancy on
the Board of Directors as provided above, the acting and incumbent Common
Director may appoint a director to serve as such until the holders of the Common
Stock and Series C Preferred duly elect a successor director.
c) At each election of directors of the Corporation, so long as any share
of Series B Preferred, Common Stock and Series C Preferred is outstanding, the
holders of Common Stock, Series B Preferred and Series C Preferred shall be
entitled, voting together, to elect three (3) directors of the Corporation (the
"Joint Directors"). In the case of any vacancy in the office of a Joint
Director, a successor shall be elected to hold office for the unexpired term of
such director by the affirmative vote of the holders of a majority of the Common
Stock, Series B Preferred and
1.
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Series C Preferred, voting together, given at a special meeting of such
shareholders called for that purpose or by the unanimous written consent of such
shareholders."
3. The foregoing amendment of Articles of Incorporation has been duly
approved by the Board of Directors.
4. The foregoing amendment of Articles of Incorporation has been duly
approved by the required vote of shareholders in accordance with Section 902 of
the California Corporations Code. The total number of outstanding shares of the
corporation is 3,251,874 shares of Common Stock and 12,506,359 shares of Series
A Preferred Stock, 6,259,718 shares of Series B Preferred Stock and 7,508,221
shares of Series C Preferred Stock. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
was more than 50% of the outstanding shares of Common Stock voting as a class,
more than 50% of the outstanding shares of Common Stock, Series B Preferred
Stock and Series C Preferred Stock voting together as a single class, more than
50% of the outstanding shares of Series A Preferred Stock, more than 50% of the
outstanding shares of Series B Preferred Stock and more than 50% of the
outstanding shares of Series A Preferred Stock, Series B Preferred Stock and
Series C Preferred Stock voting together as a single class.
We further declare under penalty of perjury under the laws of the State of
California that the matters set forth in this certificate are true and correct
of our own knowledge.
Date: October 15, 1998
/s/ Tim Montgomery
----------------------------------------
Tim Montgomery
President
/s/ William Tamblyn
----------------------------------------
William Tamblyn
Assistant Secretary
<PAGE>
CERTIFICATE OF CORRECTION OF
AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF
DITECH CORPORATION
Tim Montgomery and William Tamblyn certify that:
1. They are the President and Assistant Secretary, respectively, of
Ditech Corporation, a California corporation.
2. The name of the corporation filing this certificate is Ditech
Corporation and it is a California corporation.
3. The instrument being corrected is entitled "AMENDED AND RESTATED
ARTICLES OF INCORPORATION OF DITECH CORPORATION" and said instrument was filed
in the office of the Secretary of State of the State of California on March 3,
1997.
4. Section 6.1 of Article III of said AMENDED AND RESTATED ARTICLES OF
INCORPORATION, as corrected, should read in its entirety as follows:
"6.1 GENERAL. Except as otherwise expressly provided herein and as
otherwise required by applicable law, the Series A Preferred shall
have no voting rights; PROVIDED that each holder of Series A Preferred
shall be entitled to notice of all meetings of shareholders at the
same time and in the same manner as notice is given to all
shareholders entitled to vote at such meetings. Except as otherwise
required by law or except as otherwise set forth herein, the holder of
each share of Series B Preferred issued and outstanding shall have a
number of votes with respect to such share equal to the number of
shares of common stock into which such share of Series B Preferred is
then convertible. Except as otherwise required by law or except as
otherwise set forth herein, each holder of issued and outstanding
Series C Preferred shall have one (1) vote for each five (5) shares of
Series C Preferred held by such holder. The holders of Series B
Preferred and Series C Preferred shall be entitled to notice of any
shareholders' meeting in accordance with the Bylaws of the Corporation."
5. Said AMENDED AND RESTATED ARTICLES OF INCORPORATION when corrected as
herein specified, will conform in wording to the wording of the AMENDED AND
RESTATED ARTICLES OF INCORPORATION in the resolutions adopted by the Board of
Directors and Shareholders approving the AMENDED AND RESTATED ARTICLES OF
INCORPORATION.
1.
<PAGE>
Each of the undersigned declares 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 his own knowledge and that this declaration was executed on
February 18, 1999.
/s/ Tim Montgomery
----------------------------------------
Tim Montgomery
President
/s/ William Tamblyn
----------------------------------------
William Tamblyn
Assistant Secretary
2.
<PAGE>
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DITECH CORPORATION
DITECH CORPORATION, a corporation organized and existing under the laws
of the state of Delaware (the "Corporation") hereby certifies that:
1. The name of the Corporation is Ditech Corporation. The Corporation
was originally incorporated under the name Ditech Merger Corporation.
2. The date of filing of the Corporation's original Certificate of
Incorporation was _________, 1999.
3. The Amended and Restated Certificate of Incorporation of the
Corporation as provided in Exhibit A hereto was duly adopted in accordance
with the provisions of Section 242 and Section 245 of the General Corporation
Law of the State of Delaware by the Board of Directors of the Corporation.
4. Pursuant to Section 245 of the Delaware General Corporation Law,
approval of the stockholders of the Corporation has been obtained.
5. The Amended and Restated Certificate of Incorporation so adopted
reads in full as set forth in Exhibit A attached hereto and is hereby
incorporated by reference.
IN WITNESS WHEREOF, the undersigned has signed this certificate this ___
day of __________, 1999, and hereby affirms and acknowledges under penalty of
perjury that the filing of this Amended and Restated Certificate of
Incorporation is the act and deed of Ditech Corporation.
DITECH CORPORATION
By
--------------------------------
Timothy Montgomery
Chief Executive Officer
<PAGE>
EXHIBIT A
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
DITECH CORPORATION
I.
The name of this corporation is DITECH CORPORATION.
II.
The address of the registered office of the corporation in the State of
Delaware is 9 East Loockerman Street, City of Dover, County of Kent, and the
name of the registered agent of the corporation in the State of Delaware at such
address is National Registered Agents, Inc.
III.
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
the State of Delaware.
IV.
A. This corporation is authorized to issue two classes of stock to
be designated, respectively, "Common Stock" and "Preferred Stock." The total
number of shares which the corporation is authorized to issue is Fifty Five
Million (55,000,000) shares. Fifty Million (50,000,000) shares shall be Common
Stock, each having a par value of one tenth of one cent ($.001). Five Million
(5,000,000) shares shall be Preferred Stock, each having a par value of one
tenth of one cent ($.001).
B. The Preferred Stock may be issued from time to time in one or
more series. The Board of Directors is hereby authorized, by filing a
certificate (a "Preferred Stock Designation") pursuant to the Delaware General
Corporation Law, to fix or alter from time to time the designation, powers,
preferences and rights (voting or otherwise) granted upon, and the
qualifications, limitations or restrictions of, any wholly unissued series of
Preferred Stock, and to establish from time to time the number of shares
constituting any such series or any of them; and to increase or decrease the
number of shares of any series subsequent to the issuance of shares of that
series, but not below the number of shares of such series then outstanding. In
case the number of shares of any series shall be decreased in accordance with
the foregoing sentence, the shares constituting such decrease shall resume the
status that they had prior to the adoption of the resolution originally fixing
the number of shares of such series.
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V.
For the management of the business and for the conduct of the affairs of
the corporation, and in further definition, limitation and regulation of the
powers of the corporation, of its directors and of its stockholders or any class
thereof, as the case may be, it is further provided that:
A.
1. MANAGEMENT OF BUSINESS.
a. The management of the business and the conduct of the
affairs of the corporation shall be vested in its Board of Directors. The
number of directors which shall constitute the whole Board of Directors shall be
fixed exclusively by one or more resolutions adopted by the Board of Directors.
2. BOARD OF DIRECTORS.
a. Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the initial public offering pursuant to an effective
registration statement under the Securities Act of 1933, as amended (the "Act"),
covering the offer and sale of Common Stock to the public (the "Initial Public
Offering"), the directors shall be divided into three classes designated as
Class I, Class II and Class III, respectively. Directors shall be assigned to
each class in accordance with a resolution or resolutions adopted by the Board
of Directors. At the first annual meeting of stockholders following the closing
of the Initial Public Offering, the term of office of the Class I directors
shall expire and Class I directors shall be elected for a full term of three
years. At the second annual meeting of stockholders following the Initial
Public Offering, the term of office of the Class II directors shall expire and
Class II directors shall be elected for a full term of three years. At the
third annual meeting of stockholders following the Initial Public Offering, the
term of office of the Class III directors shall expire and Class III directors
shall be elected for a full term of three years. At each succeeding annual
meeting of stockholders, directors shall be elected for a full term of three
years to succeed the directors of the class whose terms expire at such annual
meeting. During such time or times that the corporation is subject to Section
2115(b) of the California General Corporation Law ("CGCL"), this Section A.2.a
of this Article V shall become effective and be applicable only when the
corporation is a "listed" corporation within the meaning of Section 301.5 of the
CGCL.
b. In the event that the corporation is subject to Section
2115(b) of the CGCL AND is not a "listed" corporation or ceases to be a "listed"
corporation under Section 301.5 of the CGCL, Section A. 2. a. of this Article V
shall not apply and all directors shall be shall be elected at each annual
meeting of stockholders to hold office until the next annual meeting.
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<PAGE>
c. No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL AND is not a
"listed" corporation or ceases to be a "listed" corporation under Section 301.5
of the CGCL. During this time, every stockholder entitled to vote at an
election for directors may cumulate such stockholder's votes and give one
candidate a number of votes equal to the number of directors to be elected
multiplied by the number of votes to which such stockholder's shares are
otherwise entitled, or distribute the stockholder's votes on the same principle
among as many candidates as such stockholder thinks fit. No stockholder,
however, shall be entitled to so cumulate such stockholder's votes unless (i)
the names of such candidate or candidates have been placed in nomination prior
to the voting and (ii) the stockholder has given notice at the meeting, prior to
the voting, of such stockholder's intention to cumulate such stockholder's
votes. If any stockholder has given proper notice to cumulate votes, all
stockholders may cumulate their votes for any candidates who have been properly
placed in nomination. Under cumulative voting, the candidates receiving the
highest number of votes, up to the number of directors to be elected, are
elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
3. REMOVAL OF DIRECTORS
a. During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; PROVIDED, HOWEVER, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
b. At any time or times that the corporation is not subject to
Section 2115(b) of the CGCL and subject to any limitations imposed by law,
Section A. 3. a. above shall no longer apply and removal shall be as provided in
Section 141(k) of the DGCL.
4. VACANCIES
a. Subject to the rights of the holders of any series of
Preferred Stock, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors, shall,
unless the Board of Directors determines by resolution that any such
3
<PAGE>
vacancies or newly created directorships shall be filled by the stockholders,
except as otherwise provided by law, be filled only by the affirmative vote of a
majority of the directors then in office, even though less than a quorum of the
Board of Directors, and not by the stockholders. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified.
b. If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted immediately prior to any such increase), the
Delaware Court of Chancery may, upon application of any stockholder or
stockholders holding at least ten percent (10%) of the total number of the
shares at the time outstanding having the right to vote for such directors,
summarily order an election to be held to fill any such vacancies or newly
created directorships, or to replace the directors chosen by the directors then
in offices as aforesaid, which election shall be governed by Section 211 of the
DGCL.
c. At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy by the
directors then in office who have been elected by stockholders shall constitute
less than a majority of the directors then in office, then:
(i) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(ii) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
B.
1. BYLAW AMENDMENTS
Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws
may be altered or amended or new Bylaws adopted by the affirmative vote of at
least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of
the then-outstanding shares of the voting stock of the corporation entitled to
vote. The Board of Directors shall also have the power to adopt, amend, or
repeal Bylaws.
2. BALLOTS.
The directors of the corporation need not be elected by written
ballot unless the Bylaws so provide.
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<PAGE>
3. ACTION BY STOCKHOLDERS.
No action shall be taken by the stockholders of the corporation
except at an annual or special meeting of stockholders called in accordance with
the Bylaws or by written consent of stockholders in accordance with the Bylaws
prior to the closing of the Initial Public Offering and following the closing of
the Initial Public Offering no action shall be taken by the stockholders by
written consent.
4. ADVANCE NOTICE.
Advance notice of stockholder nominations for the election of
directors and of business to be brought by stockholders before any meeting of
the stockholders of the corporation shall be given in the manner provided in the
Bylaws of the corporation.
VI.
A. The liability of the directors for monetary damages shall be
eliminated to the fullest extent under applicable law.
B. This corporation is authorized to provide indemnification of agents
(as defined in Section 317 of the CGCL) for breach of duty to the corporation
and its shareholders through bylaw provisions or through agreements with the
agents, or through shareholder resolutions, or otherwise, in excess of the
indemnification otherwise permitted by Section 317 of the CGCL, subject, at any
time or times the corporation is subject to Section 2115(b) to the limits on
such excess indemnification set forth in Section 204 of the CGCL.
C. Any repeal or modification of this Article VI shall be prospective and
shall not affect the rights under this Article VI in effect at the time of the
alleged occurrence of any act or omission to act giving rise to liability or
indemnification.
VII.
A. The corporation reserves the right to amend, alter, change or repeal
any provision contained in this Certificate of Incorporation, in the manner now
or hereafter prescribed by statute, except as provided in paragraph B of this
Article VII, and all rights conferred upon the stockholders herein are granted
subject to this reservation.
B. Notwithstanding any other provisions of this Certificate of
Incorporation or any provision of law which might otherwise permit a lesser vote
or no vote, but in addition to any affirmative vote of the holders of any
particular class or series of the Voting Stock required by law, this Certificate
of Incorporation or any Preferred Stock Designation, the affirmative vote of the
holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting
power of all of the then-outstanding shares of the voting stock, voting together
as a single class, shall be required to alter, amend or repeal Articles V, VI
and VII.
5
<PAGE>
Exhibit 3.6
BY-LAWS OF
AUTOMATED CALL PROCESSING CORPORATION INC.
OFFICES
1. PRINCIPAL OFFICE. The principal office for the transaction of the
business of the corporation is hereby fixed and located at 220 Jackson Street,
San Francisco, California 94111.
2. OTHER OFFICES. Branch or subordinate offices may at any time be
established by the Board of Directors at any place or places where the
corporation is qualified to do business.
SHAREHOLDERS
3. PLACE OF MEETINGS. Shareholders' meetings shall be held at the
principal office for the transaction of the business of this corporation in the
State of California, or at such other place as the Board of Directors shall, by
resolution, appoint.
4. ANNUAL MEETINGS. The annual meeting of the shareholders of the
corporation shall be held on any date and time which may from time to time be
designated by the Board of Directors.
Written notice of each annual meeting shall be mailed to each shareholder
entitled to vote, addressed to such shareholder at his address appearing on the
books of the corporation or given by him to the corporation for the purpose of
notice. If a shareholder gives no address, notice shall be deemed to have been
given if sent by mail or other means of written communication addressed to the
place where the principal executive office of the corporation is situated, or if
published at least once in some newspaper of general circulation in the county
in which said office is located. All such notices shall be mailed, postage
prepaid, to each shareholder entitled thereto not less than ten (10) days nor
more than sixty (60) days before each annual meeting. Such notices shall
specify the place, the day, and the hour of such meeting, the name of the
nominees for election as directors if directors are to be elected at the
meeting, and those matters which the Board of Directors intends to present for
action by the shareholders, and shall state such other matters, if any, as may
be expressly required by statute.
5. SPECIAL MEETINGS. Special meetings of the shareholders, for any
purpose or purposes whatsoever, may be called at any time by the Chairman of the
Board of Directors, if any, the President or any Vice President, or by the Board
of directors, or by one or more shareholders holding not less than ten (10%) of
the voting power of the corporation. Except in special cases where other
express provision is made by statute, notice of such special meeting shall be
given in the same manner as for an annual meeting of shareholders. Said notice
shall specify the general nature of the business to be transacted at the
meeting. No business shall be transacted at a special meeting except as stated
in the notice sent to shareholders, unless by the unanimous consent of all
shareholders represented at the meeting, either in-person or by proxy. Upon
written request to the Chairman of the Board, the President, the Secretary or
any Vice President of the corporation by any person (but not the Board of
Directors) entitled to call a
1.
<PAGE>
special meeting of shareholders, the person receiving such request shall
cause a notice to be given to the shareholders entitled to vote that a
meeting will be held at a time requested by the person calling the meeting
not less than thirty five (35) nor more than sixty (60) days after the
receipt of the request.
6. ADJOURNED MEETINGS AND NOTICE THEREOF. Any shareholders' meeting,
annual or special, whether or not a quorum is present, may be adjourned from
time to time by the vote of a majority of the shares the holders of which are
either present in person or represented by proxy thereat, but in the absence of
a quorum no other business may be transacted at such meeting.
Notice of an adjourned meeting need not be given if (a) the meeting is
adjourned for forty-five (45) days or less, (b) the time and place of the
adjourned meeting are announced at the meeting at which the adjournment is
taken, and (c) no new record date is fixed for the adjourned meeting. Otherwise,
notice of the adjourned meeting shall be given as in the case of an original
meeting.
7. VOTING. Except as provided below or as otherwise provided by the
Articles of Incorporation or by law, a shareholder shall be entitled to one vote
for each share held of record on the record date fixed for the determination of
the shareholders entitled to vote at a meeting or, if no such date is fixed, the
date determined in accordance with law. Upon the demand of any shareholder made
at a meeting before the voting begins, the election of directors shall be by
ballot. At every election of directors, shareholders may cumulate votes and
give one candidate a number of votes equal to the number of directors to be
elected multiplied by the number of votes to which the shares are entitled or
distribute votes according to the same principle among as many candidates as
desired; however, no shareholder shall be entitled to cumulate votes for any one
or more candidates unless such candidate or candidates' name have been placed in
nomination prior to the voting and at least one shareholder has given notice at
the meeting prior to the voting of such shareholder's intention to cumulate
votes.
8. QUORUM. A majority of the shares entitled to vote, represented in
person or by proxy, constitutes a quorum for the transaction of business. No
business may be transacted at a meeting in the absence of a quorum other than
the adjournment of such meeting, except that if a quorum is present at the
commencement or a meeting, business may be transacted until the meeting is
adjourned even though the withdrawal of shareholders results in less than a
quorum. If a quorum is present at a meeting, the affirmative vote of a majority
of the shares represented at the meeting and entitled to vote on any matter
shall be the act of the shareholders unless the vote of a larger number is
required by law or the Articles of Incorporation. If a quorum is present at the
commencement of a meeting but the withdrawal of shareholders results in less
than quorum, the affirmative vote of the majority of shares required to
constitute a quorum shall be the act of the shareholders unless the vote of a
larger number is required by law or the Articles of Incorporation. Any meeting
of shareholders, whether or not a quorum is present, may be adjourned by the
vote of a majority of the shares represented at the meeting.
9. CONSENT OF ABSENTEES. The transactions of any meeting of
shareholders, however called and noticed and wherever held, are as valid as
though had at a meeting duly held after regular call and notice, if a quorum is
present either in person or by proxy and if, either
2.
<PAGE>
before or after the meeting, each of the persons entitled to vote who is not
present at the meeting in person or by proxy signs a written waiver of
notice, a consent to the holding of the meeting or an approval of the minutes
of the meeting. For such purposes, a shareholder shall not be considered
present at a meeting if, at the beginning of the meeting, the shareholder
objects to the transaction of any business because the meeting was not
properly called or convened or, with respect to the consideration of a matter
required to be included in the notice for the meeting which was not so
included, the shareholder expressly objects to such consideration at the
meeting.
10. ACTION WITHOUT MEETING. Except as provided below or by the Articles
of Incorporation, any action which may be taken at any meeting of shareholders
may be taken without a meeting and without prior notice if a consent in writing,
setting forth the action so taken, is signed by the holders of outstanding
shares having not less than the minimum number of votes which would be necessary
to authorize or take such action at a meeting at which all shares entitled to
vote on such action were present and voted. Unless the consents of all
shareholders entitled to vote have been solicited in writing, the corporation
shall give, to those shareholders entitled to vote who have not consented in
writing, a written notice of (a) any shareholder approval obtained without a
meeting pursuant to those provisions of the California Corporations Code set
forth in Subsection 603(b)(1) of such Code at least ten (10) days before the
consummation of the action authorized by such approval, and (b) the taking of
any other action approved by shareholders without a meeting, which notice shall
be given promptly after such action is taken.
11. PROXIES. A shareholder may be represented at any meeting of
shareholders by a written proxy signed by the person entitled to vote or by such
person's duly authorized attorney-in-fact. A proxy must bear a date within
eleven (11) months prior to the meeting, unless the proxy specifies a different
length of time. A revocable proxy is revoked by a writing delivered to the
Secretary of the corporation stating that the proxy is revoked or by a
subsequent proxy executed by, or by attendance at the meeting and voting in
person by, the person executing the proxy.
12. ELECTION INSPECTORS. One or three election inspectors may be
appointed by the Board of Directors in advance of a meeting of shareholders or
at the meeting by the Chairman of the meeting. If not previously chosen, one or
three inspectors shall be appointed by the Chairman of the meeting if a
shareholder or proxyholder so requests. When inspectors are appointed at the
request of a shareholder or proxyholder, the majority of shares represented in
person or by proxy shall determine whether one or three inspectors shall be
chosen. The election inspectors shall determine all questions concerning the
existence of a quorum, the validity of proxies and the right to vote, shall
tabulate and determine the results of voting and shall do all other acts
necessary or helpful to the expeditious and impartial conduct of the vote. If
there are three inspectors, the decision, act or certificate of a majority of
the inspectors is effective as if made by all.
DIRECTORS
13. POWERS. Subject to limitations of the Articles of Incorporation, of
the By-Laws, and of the California General Corporation Law as to action to be
authorized or approved by the
3.
<PAGE>
shareholders, and subject to the duties of directors as prescribed by the
By-Laws, all corporate powers shall be exercised by or under the ultimate
direction of, and the business and affairs of the corporation shall be
managed by, the Board of Directors. Without prejudice to such general
powers, but subject to the same limitations, it is hereby expressly declared
that the directors shall have the following powers:
(a) To select and remove all of the other officers, agents and
employees of the corporation, prescribe such powers and duties for them as
may not be inconsistent with law, with the Articles of Incorporation, or the
By-Laws, 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 such rules and regulations therefor not inconsistent
with law, or with the Articles of Incorporation, or the By-Laws, as they may
deem best.
(c) To change the principal office for the transaction of the
business of the corporation from one location to another within the same county
as provided in Section 1 hereof; to fix and locate from time to time one or more
subsidiary offices of the corporation within or without the State of California,
as provided in Section 2 hereof; to designate any place within or without the
State of California for the holding of any shareholders' meeting or meetings;
and to prescribe the forms of certificates of stock, and to alter the form of
such certificates from time to time, as in their Judgment they may deem best,
provided such certificates shall at all times comply with the provisions of law.
(d) To authorize the issuance of shares of capital stock of the
corporation from time to time, upon such terms as may be lawful.
(e) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered therefor, in the
corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations, or other evidences of debt and securities therefor.
14. NUMBER OF DIRECTORS. The authorized number of directors of this
corporation shall be five (5) until changed by amendment of the Articles of
Incorporation or by a duly adopted By-Law amending this Section 14.
15. ELECTION, TERM OF OFFICE AND VACANCIES. At each annual meeting of
shareholders, directors shall be elected to hold office until the next annual
meeting. Each director, including a director elected to fill a vacancy, shall
hold office until the expiration of the term for which the director was elected
and until a successor has been elected. The Board of Directors may declare
vacant the office of a director who has been declared to be of unsound mind by
court order or convicted of a felony. Vacancies on the Board of Directors not
caused by removal may be filled by a majority of the directors then in office,
regardless of whether they constitute a quorum, or by the sole remaining
director. The shareholders may elect a director at any time to fill any vacancy
not filled, or which cannot be filled, by the Board of Directors.
16. REMOVAL. Except as described below, any or all of the directors may
be removed without cause if such removal is approved by the affirmative vote of
a majority of the
4.
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outstanding shares entitled to vote. Unless the entire Board of Directors is
so removed, no director may be removed if (a) the votes cast against removal,
or not consenting in writing to such removal, would be sufficient to elect
such director if voted cumulatively at an election at which the same total
number of votes were cast or, if such action is taken by written consent, all
shares entitled to vote were voted, and (b) the entire number of directors
authorized at the time of the director's most recent election were then being
elected.
17. RESIGNATION. Any director may resign by giving written notice to the
Chairman of the Board, the President, the Secretary or the Board of Directors.
Such resignation shall be effective when given unless the notice specifies a
later time. The resignation shall be effective regardless of whether it is
accepted by the corporation.
18. COMPENSATION. If the Board of Directors so resolves, the directors,
including the Chairman of the Board, shall receive compensation and expenses of
attendance for meetings of the Board of Directors and of committees of the
Board. Nothing herein shall preclude any director from serving the corporation
in another capacity and receiving compensation for such service.
19. COMMITTEES. The Board of Directors may, by resolution adopted by a
majority of the authorized number of directors, designate one or more
committees, each consisting of two or more directors, to serve at the pleasure
of the Board. The Board may designate one or more directors as alternate
members of a committee who may replace any absent member at any meeting of the
committee. To the extent permitted by resolution of the Board of Directors, a
committee may exercise all of the authority of the Board to the extent permitted
by Section 311 of the California Corporations Code.
20. INSPECTION OF RECORDS AND PROPERTIES. Each director may inspect all
books, records, documents and physical properties of the corporation and its
subsidiaries at any reasonable time. Inspections may be made either by the
director or the director's agent or attorney. The right of inspection includes
the right to copy and make extracts.
21. TIME AND PLACE OF MEETINGS AND TELEPHONE MEETINGS. Immediately
following each annual meeting of shareholders, the Board of Directors shall hold
a regular meeting for the purposes of organizing the Board, electing officers
and transacting other business. The Board may establish by resolution the
times, if any, other regular meetings of the Board shall be held. All meetings
of directors shall be held at the principal executive office of the corporation
or at such other place, within or without California, as shall be designated in
the notice for the meeting or in a resolution of the Board of Directors.
Directors may participate in a meeting through use of conference telephone or
similar communications equipment, so long as all directors participating in such
meeting can hear each other.
22. CALL. Meetings of the Board of Directors, whether regular or special,
may be called by the Chairman of the Board, the President, the Secretary, any
Vice President or any two directors.
23. NOTICE. Regular meetings of the Board of Directors may be held
without notice if the time of such meetings has been fixed by the Board.
Special meetings shall be held upon
5.
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four days' notice by mail or 48 hours' notice delivered personally or by
telephone or telegraph, and regular meetings shall be held upon similar
notice if notice is required for such meetings. Neither a notice nor a waiver
of notice need specify the purpose of any regular or special meeting. If a
meeting is adjourned for more than 24 hours, notice of the adjourned meeting
shall be given prior to the time of such meeting to the directors who were
not present at the time of the adjournment.
24. MEETING WITHOUT REGULAR CALL AND NOTICE. The transactions of any
meeting of the Board of Directors, however called and noticed or wherever held,
are as valid as though had at a meeting duly held after regular call and notice
if a quorum is present and if, either before or after the meeting, each of the
directors not present signs a written waiver of notice, a consent to holding the
meeting or an approval of the minutes of the meeting. For such purposes, a
director shall not be considered present at a meeting if, although in attendance
at the meeting, the director protests the lack of notice prior to the meeting or
at its commencement.
25. ACTION WITHOUT MEETING. Any action required or permitted to be taken
by the Board of Directors may be taken without a meeting, if all of the members
of the Board individually or collectively consent in writing to such action.
26. QUORUM AND REQUIRED VOTE. A majority of the directors then in office
shall constitute a quorum for the transaction of business, provided that unless
the authorized number of directors is one, the number constituting a quorum
shall not be less than the greater of one-third of the authorized number of
directors or two directors. Except as otherwise provided by Subsection
3071(a)(8) of the California Corporations Code, the Articles of Incorporation or
these By-Laws, 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 is the act of the
Board. A meeting at which a quorum is initially present may continue to
transact business notwithstanding the withdrawal of directors, if any action
taken is approved by at least a majority of the required quorum for such
meeting. A majority of the directors present at a meeting, whether or not a
quorum is present, may adjourn the meeting to another time and place.
27. COMMITTEE MEETINGS. The principles set forth in Sections 21 through
26 of these By-Laws shall apply to committees of the Board of Directors and to
actions by such committees.
28. LOANS. Except as provided by Section 315 of the Corporations Code,
the vote or written consent of the holders of majority of the shares of all
classes, regardless of limitations on voting rights, other than shares held by
the benefited director, officer or shareholder, shall be obtained before this
corporation makes any loan of money or property to or guarantees the obligation
of:
(a) Any director or officer of the corporation, any director or
officer of any of its parents, or any director or officer of any of its
subsidiary corporations, directly or indirectly.
(b) Any person upon the security of the shares of the corporation or
the shares of its parent, unless the loan or guaranty is otherwise adequately
secured.
6.
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OFFICERS
29. TITLES AND RELATION TO BOARD OF DIRECTORS. The officers of the
corporation shall include a President, a Secretary and a Treasurer. The Board
of Directors may also choose a Chairman of the Board and one or more Vice
Presidents, Assistant Secretaries, Assistant Treasurers or other officers. Any
number of offices may be held by the same person and, unless otherwise
determined by the Board, the Chairman of the Board and President shall be the
same person. All officers shall perform their duties and exercise their powers
subject to the direction of the Board of directors.
30. ELECTION, TERM OF OFFICE AND VACANCIES. At its regular meeting after
each annual meeting of shareholders, the Board of Directors shall choose the
officers of the corporation. No officer need be a member of the Board of
Directors except the Chairman of the Board. The officers shall hold office
until their successors are chosen, except that the Board of Directors may remove
any officer at any time. If an office becomes vacant for any reason, the
vacancy shall be filled by the Board.
31. RESIGNATION. Any officer may resign at any time upon written notice
to the corporation without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. Such resignation shall be
effective when given unless the notice specifies a later time. The resignation
shall be effective regardless of whether it is accepted by the corporation.
32. SALARIES. The Board of Directors shall fix the salaries of the
Chairman of the Board and President and may fix the salaries of other employees
of the corporation including the other officers. If the Board does not fix the
salaries of the other officers, the President shall fix such salaries.
33. CHAIRMAN OF THE BOARD. The Chairman of the Board, if there shall
be such an officer, shall, if present, preside at all meetings of the Board
of Directors, and exercise and perform such other powers and duties as may be
from time to time assigned to him by the Board of Directors or prescribed by
the By-Laws.
34. PRESIDENT (CHIEF EXECUTIVE OFFICER). Unless otherwise determined by
the Board of Directors, the President shall be the general manager and chief
executive officer of the corporation, shall preside at all meetings of the Board
of Directors and shareholders, shall be ex officio a member of any committees of
the Board, shall effectuate orders and resolutions of the Board of Directors and
shall exercise such other powers and perform such other duties as the Board of
Directors shall prescribe.
35. VICE PRESIDENT. In the absence or disability of the President, the
Vice President, if any, (or if more than one, the Vice Presidents in order of
their rank as fixed by the Board of Directors or, if not so ranked, the Vice
President designated by the Board of Directors) shall perform all the duties of
the President, and when so acting shall have all the powers of, and be subject
to all the restrictions upon, the President. The Vice Presidents shall have
such other powers and perform such other duties as from time to time may be
prescribed for them respectively by the Board of Directors or the By-Laws.
7.
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36. SECRETARY. The Secretary shall have the following powers and duties:
(a) RECORD OF CORPORATE PROCEEDINGS. The Secretary shall attend all
meetings of the Board of Directors and its committees and shall record all votes
and the minutes of such meetings in a book to be kept for that purpose at the
principal executive office of the corporation or at such other place as the
Board of Directors may determine. The Secretary shall keep at the corporation's
principal executive office, if in California, or at its principal business
office in California, if the principal executive office is not in California,
the original or a copy of the By-Laws, as amended.
(b) RECORD OF SHARES. Unless a transfer agent is appointed by the
Board of Directors to keep a share register, the Secretary shall keep at the
principal executive office of the corporation a share register showing the names
of the shareholders and their addresses, the number and class of shares held by
each, the number and date of certificates issued, and the number and date of
cancellation of each certificate surrendered for cancellation.
(c) NOTICES. The Secretary shall give such notices as may be
required by law or these By-Laws.
(d) ADDITIONAL POWERS AND DUTIES. The Secretary shall exercise such
other powers and perform such other duties as the Board of Directors or
President shall prescribe.
37. TREASURER (CHIEF FINANCIAL OFFICER). The Treasurer of the corporation
shall be its chief financial officer. Unless otherwise determined by the Board
of Directors, the Treasurer shall have custody of the corporate funds and
securities and shall keep adequate and correct accounts of the corporation's
properties and business transactions. The Treasurer shall disburse such funds
of the corporation as may be ordered by the Board of Directors, taking proper
vouchers for such disbursements, shall render to the President and directors, at
regular meetings of the Board of Directors or whenever the Board may require, an
account of all transactions and the financial condition of the corporation and
shall exercise such other powers and perform such other duties as the Board of
Directors or President shall prescribe.
38. OTHER OFFICERS. The other officers (if any) of this corporation shall
perform such duties as may be assigned to them by the Board of directors.
SHARES
39. CERTIFICATES. A certificate or certificates for shares of the capital
stock of the corporation shall be issued to each shareholder when any such
shares are fully paid up. All such certificates shall be signed by the Chairman
of the Board, the President or a Vice President and the Secretary or Assistant
Secretary.
40. TRANSFERS OF SHARES OF CAPITAL STOCK. Transfers of shares shall be
made only upon the transfer books of this corporation, kept at the office of the
corporation or transfer agent designated to transfer such shares, and before a
new certificate is issued, the old certificate shall be surrendered for
cancellation.
8.
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41. REGISTERED SHAREHOLDERS. Only registered shareholders shall be
entitled to be treated by the corporation as the holders in fact of the shares
standing in their respective names and the corporation shall not be bound to
recognize any equitable or other claim to or interest in any share on the part
of any other person, whether or not it shall have express or other notice
thereof, except as expressly provided by the laws of California.
42. LOST OR DESTROYED CERTIFICATES. The corporation may cause a new stock
certificate to be issued in place of any certificate previously issued by the
corporation alleged to have been lost, stolen or destroyed. The corporation
may, at its discretion and as a condition precedent to such issuance, require
the owner of such certificate to deliver an affidavit stating that such
certificate was lost, stolen or destroyed, or to give the corporation a bond or
other security sufficient to indemnify it against any claim that may be made
against it, including any expense or liability, on account of the alleged loss,
theft or destruction or the issuance of a new certificate.
43. RECORD DATE AND CLOSING OF STOCK BOOKS. The Board of Directors may
fix a time, in the future, not more than sixty (60) nor fewer than ten (10) days
prior to the date of any meeting of shareholders, or not more than sixty (60)
days prior to the date fixed for the payment of any dividend or distribution, or
for the allotment of rights, or when any change or conversion or exchange of
Shares shall go into effect, as a record date for the determination of the
shareholders entitled to notice of and to vote at any such meeting, or entitled
to receive any such dividend or distribution, or any such allotment of rights,
or to exercise the rights in respect to any such change, conversion, or exchange
of shares, and in such case except as provided by law, only shareholders of
record on the date so fixed shall be entitled to notice of and to vote at such
meeting or to receive such dividend, distribution, or allotment of rights, or to
exercise such rights, as the case may be, notwithstanding any transfer of any
shares on the books of the corporation after any record date fixed as aforesaid.
A determination of shareholders of record entitled to notice of or to vote at a
meeting of shareholders shall apply to any adjournment of the meeting unless the
Board of Directors fixes a new record date. The Board of Directors shall fix a
new record date if the adjourned meeting takes place more than 45 days from the
date set for the original meeting.
44. TRANSFER AGENTS AND REGISTRARS. The Board of Directors may appoint
one or more transfer agents or transfer clerks, and one or more registrars, who
shall be appointed at such times and places as the requirements of the
corporation may necessitate and the Board of Directors may designate.
45. RESTRICTIONS ON TRANSFER. Until the Corporation becomes a "reporting
company" under the Securities Exchange Act of 1934, as amended, or files a
registration statement with the Securities and Exchange Commission, whichever is
earlier, all persons, firms, or corporations owning or holding shares in the
Corporation own and hold the same subject to the following restrictions on the
right to transfer or dispose of the same:
9.
<PAGE>
(a) UNRESTRICTED TRANSFERS. The following transfers are not
restricted:
(i) by intestate succession or the testamentary disposition
upon death or by gift to shareholder's spouse or children or to a trustee in
trust for the sole benefit of the shareholder's spouse and/or children;
(ii) to any other shareholder on such terms as are agreed upon
by the shareholders who are parties to the transaction; and
(iii) to a corporation or other entity owned solely by the
transferring shareholder(s), provided however, that such transfer is approved by
the Board of Directors.
(b) RESTRICTED TRANSFERS FOR CONSIDERATION. If a shareholder wishes
to transfer shares for consideration in a manner not permitted under
subsection (a), then the shareholder shall first offer the shares to the
Corporation and then to the other holders of shares in the following manner:
(i) The offering shareholder shall deliver a notice in writing
by mail or otherwise to the Secretary stating the shareholder's intention to
sell or transfer, the number of shares to be sold or transferred, and the price,
terms, and conditions contained in an acceptable, bona fide offer. Within
ten (10) days thereafter, the Corporation shall have the right to purchase all
of any full number of the shares so offered ("Offered Shares") at the price and
on the terms contained in the notice (the "Purchase Price"). Should the
Corporation fail to purchase all of the Offered shares, at the expiration of the
ten (10) day period, or prior thereto upon the determination of the Corporation
to purchase none or only a portion of the Offered Shares, the Secretary shall,
within five (5) days thereafter, mail or deliver to each of the other
shareholders a notice setting forth that the shares are offered for sale at the
Purchase Price. Within ten (10) days of the date of the Secretary's notice, the
other shareholders shall have the right to purchase the Offered Shares by
delivering to the Secretary by mail or otherwise a written election or elections
to purchase all or any specified number of the Offered Shares at the Purchase
Price. If the total number of shares specified in the elections exceeds the
number of shares referred to in the Secretary's notice, each electing
shareholder shall be entitled to purchase the proportion of the shares as the
number of shares which the electing shareholder holds bears to the total number
of shares held by all shareholders desiring to purchase the shares.
(ii) If all of the Offered Shares are not disposed of under the
apportionment, each shareholder desiring to purchase shares in a number in
excess of the shareholder's proportionate share shall be entitled to purchase
such proportion of the remaining shares as the total number of shares which the
shareholder holds bears to the total number of shares held by all of the
shareholders desiring to purchase shares in excess of those to which they are
entitled under the Apportionment.
(iii) If none or only part of the Offered Shares is purchased
pursuant to the terms of the preceding subparagraphs (i) and (ii), the
shareholder desiring to sell or transfer may within thirty (30) days thereafter
dispose of all unsold shares to the person or persons and on the terms and
conditions specified in the notice given pursuant to subparagraph (i).
Otherwise, the procedure contained herein must be repeated. The remaining
shareholders'
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election or elections not to exercise their option to purchase pursuant to
any written notice shall not affect their rights pursuant to any subsequent
written notice.
(iv) Within the limitations herein provided, the Corporation may
purchase the shares of the Corporation from any offering shareholder; provided,
however, that at no time shall the Corporation be permitted to purchase all of
its outstanding voting shares. Any sale or transfer or purported sale or
transfer of the shares of the Corporation shall be null and void unless the
terms, conditions, and provisions of this subsection are strictly observed and
followed.
(v) The Purchase Price shall be paid to the offering
shareholder in the manner described in the notice given pursuant to
subparagraph (i) of this subsection, but in no event shall payment be required
earlier than thirty (30) days after the date of the notice.
(vi) Notwithstanding anything to the contrary herein, if the
proposed sale or transfer of the shares of the Corporation is in exchange for
property other than cash, the Purchase Price of the shares hereunder to the
Corporation and to the shareholders shall be an amount in cash equal to the
fair market value of the property proposed to be received in exchange for the
shares. If the offering shareholder and the Corporation are unable to agree,
in writing, on the fair market value for the property, the matter shall be
submitted to arbitration in accordance with the commercial arbitration rules
of the American Arbitration Association, as such rules shall be in effect on
the date of delivery of demand for arbitration, in the following manner:
Each party shall select an arbiter, who shall be a person qualified with
respect to the matters in dispute. The two (2) so selected shall select a
third (3rd), and a determination made by any two (2) of the three (3)
regarding the disputed matter as aforesaid shall be final and binding on the
parties hereto. In the event either party fails to select an arbiter within
five (5) days after written request by a party, the requesting party may
apply to the presiding judge of the Superior Court, San Francisco, for the
selection of an arbiter hereunder. The two (2) arbiters so selected shall
select a third (3rd), and a determination made by any two (2) of the three
(3) so selected shall be final and binding on the parties hereto. In the
event that the two (2) arbiters fail to select the third (3rd) arbiter within
twenty (20) days after written request by a party, the requesting party may
apply to the presiding judge of the Superior Court, San Francisco, for the
selection of the third (3rd) arbiter hereunder and a determination made by
any two (2) of the three (3) shall be final and binding on the parties
hereto. The cost of any arbitration hereunder shall be borne one-half (1/2)
by the Corporation and one-half (1/2) by the offering shareholder.
(vii) RESTRICTED TRANSFERS NOT FOR CONSIDERATION. If a
shareholder wishes to transfer shares in a manner not permitted under
subsection (a) or governed by the provisions of subsection (b), then the
shareholder shall first offer the shares to the Corporation and then to the
other shareholders of shares in the manner set forth in subsections (b)(i)
through (b)(iv), except that Purchase Price shall in all instances be book value
as if the date of receipt of the notice of intention to transfer per share, to
be paid within thirty (30) days after exercise of the respective options.
11.
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AMENDMENTS
46. ADOPTION OF AMENDMENTS. New By-Laws may be adopted or these By-Laws
may be amended or repealed:
(a) at any annual meeting, or other meeting of the shareholders
called for that purpose, by the vote of shareholders holding more than fifty
percent (50%) of the issued and outstanding shares of the corporation; or
(b) without a meeting, by written consent of shareholders holding
more than fifty percent (50%) of the issued and outstanding shares of the
corporation; or
(c) by a majority of the directors of the corporation; provided;
however, that a greater vote of shareholders or directors shall be necessary if
required by law or by the Articles of Incorporation; and provided, further,
that, after shares of the corporation have been issued, Section 14 (number of
directors) and this Section 46 shall be amended or repealed only by the vote or
written consent of shareholders holding not less than a majority of the issued
and outstanding voting shares of the corporation. Section 14 shall not be
amended to reduce the number of directors below five if the votes cast against
its adoption at a meeting or the shares not consenting in the case if an action
by written consent are equal to more than sixteen and two-thirds percent
(16-2/3%) of the outstanding shares entitled to vote.
47. RECORD OF AMENDMENTS. Whenever an amendment or new By-Law is adopted,
it shall be copied in the Book of By-Laws with the original By-Laws, in the
appropriate place. If any By-Laws or By-Law is repealed, the fact of repeal
with the date of the meeting at which the repeal was enacted or written assent
was filed shall be stated in said book.
CORPORATE SEAL
48. FORM OF SEAL. The corporation may adopt and use a corporate seal but
shall not be required to do so. If adopted and used, the corporate seal shall
be circular in form, and shall have inscribed thereon the name of the
corporation, the date of its incorporation and the word "Californian."
MISCELLANEOUS
49. CHECKS, DRAFTS, ETC. All checks, drafts, or other orders for payment
of money, notes, or other evidences of indebtedness, issued in the name of or
payable to the corporation, shall be signed or endorsed by such person or
persons and in such manner as, from time to time shall be determined by
resolution of the Board of Directors.
50. CONTRACT, ETC., HOW EXECUTED. The Board of Directors, except as
otherwise provided in these By-Laws, 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 such authority may be general or
confined to specific instances; and unless so authorized by the Board of
Directors, no officer, agent, or employee shall have any power or authority to
bind the corporation by any contract or engagement or to pledge its credit or to
render it liable for any purpose or for any amount.
12.
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51. REPRESENTATION OF SHARES OF OTHER CORPORATIONS. The Chairman of the
Board, the President or any Vice President and the Secretary or Assistant
Secretary of this corporation are authorized to vote, represent, and exercise on
behalf of this corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this corporation. The
authority herein granted to said officers to vote or represent on behalf of this
corporation any and all shares held by this corporation in any other corporation
or corporations may be exercised either by such officers in person or by any
other person authorized so to do by proxy or power of attorney duly executed by
said officers.
52. INSPECTION OF BY-LAWS. The corporation shall keep in its principal
office for the transaction of business the original or a copy of these By-Laws
as amended or otherwise altered to date, certified by the Secretary, which shall
be open to inspection by the shareholders at all reasonable times during office
hours.
53. ANNUAL REPORT. The annual report to shareholders specified in Section
1501 of the California Corporations Code is dispensed with except as the Board
of Directors may otherwise determined so long as there are fewer than 100
holders of record of the corporation's shares. Any such annual report sent to
shareholders shall be sent at least 15 days prior to the next annual meeting of
shareholders.
54. INDEMNIFICATION OF CORPORATE AGENTS. The Corporation shall have power
to indemnify each of its agents against expenses, judgments, fines, settlements,
and other amounts actually and reasonably incurred by such person by reason of
such person's having been made or having been threatened to be made a party to a
proceeding to the fullest extent permissible by the provisions of Section 317 of
the California Corporations Code, and the corporations shall have power to
advance the expenses reasonably expected to be incurred by such agent in
defending any such proceeding upon receipt of the undertaking required by
subdivision (f) of such section. The terms "agent, "proceeding" and "expenses"
used in this Section 54 shall have the same meaning as such terms in Section 317
of the California Corporations Code.
The corporation may purchase and maintain insurance on behalf of any
director, officer, or employee of the corporation against any liability asserted
against or incurred by the director, officer, or employee in such capacity or
arising out of the director's, officer's, or employee's status as such, whether
or not the corporation would have the power to indemnify the director, officer,
or employee against such liability under the provisions of Section 317 of the
California Corporations Code.
55. CONSTRUCTION AND DEFINITIONS. Unless the context otherwise
requires, the general provisions, rules and construction, and definitions
contained in the California General Corporation Law shall govern the
construction of these By-Laws. Without limiting the generality of the
foregoing, the masculine gender includes the feminine and neuter, the
singular number includes the plural and the plural number includes the
singular, and the terms "person" includes a corporation as well as a natural
person.
13.
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BYLAWS
OF
DITECH CORPORATION
(A DELAWARE CORPORATION)
ARTICLE I
OFFICES
SECTION 1. REGISTERED OFFICE. The registered office of the corporation
in the State of Delaware shall be in the City of Dover, County of Kent.
SECTION 2. OTHER OFFICES. The corporation shall also have and maintain
an office or principal place of business at such place as may be fixed by the
Board of Directors, and may also have offices at such other places, both within
and without the State of Delaware as the Board of Directors may from time to
time determine or the business of the corporation may require.
ARTICLE II
CORPORATE SEAL
SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die
bearing the name of the corporation and the inscription, "Corporate Seal-
Delaware." Said seal may be used by causing it or a facsimile thereof to be
impressed or affixed or reproduced or otherwise.
ARTICLE III
STOCKHOLDERS' MEETINGS
SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the
corporation shall be held at such place, either within or without the State of
Delaware, as may be designated from time to time by the Board of Directors, or,
if not so designated, then at the office of the corporation required to be
maintained pursuant to Section 2 hereof.
SECTION 5. ANNUAL MEETINGS.
(a) The annual meeting of the stockholders of the corporation,
for the purpose of election of directors and for such other business as may
lawfully come before it, shall be held on such date and at such time as may be
designated from time to time by the Board of Directors. Nominations of persons
for election to the Board of Directors of the corporation and the proposal of
business to be considered by the stockholders may be made at an annual meeting
of stockholders: (i) pursuant to the corporation's notice of meeting of
stockholders; (ii) by or at the
1.
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direction of the Board of Directors; or (iii) by any stockholder of the
corporation who was a stockholder of record at the time of giving of notice
provided for in the following paragraph, who is entitled to vote at the meeting
and who complied with the notice procedures set forth in Section 5.
(b) At an annual meeting of the stockholders, only such business
shall be conducted as shall have been properly brought before the meeting. For
nominations or other business to be properly brought before an annual meeting by
a stockholder pursuant to clause (iii) of Section 5(a) of these Bylaws, (i) the
stockholder must have given timely notice thereof in writing to the Secretary of
the corporation, (ii) such other business must be a proper matter for
stockholder action under the General Corporation Law of Delaware, (iii) if the
stockholder, or the beneficial owner on whose behalf any such proposal or
nomination is made, has provided the corporation with a Solicitation Notice (as
defined in this Section 5(b)), such stockholder or beneficial owner must, in the
case of a proposal, have delivered a proxy statement and form of proxy to
holders of at least the percentage of the corporation's voting shares required
under applicable law to carry any such proposal, or, in the case of a nomination
or nominations, have delivered a proxy statement and form of proxy to holders of
a percentage of the corporation's voting shares reasonably believed by such
stockholder or beneficial owner to be sufficient to elect the nominee or
nominees proposed to be nominated by such stockholder, and must, in either case,
have included in such materials the Solicitation Notice, and (iv) if no
Solicitation Notice relating thereto has been timely provided pursuant to this
section, the stockholder or beneficial owner proposing such business or
nomination must not have solicited a number of proxies sufficient to have
required the delivery of such a Solicitation Notice under this Section 5. To be
timely, a stockholder's notice shall be delivered to the Secretary at the
principal executive offices of the Corporation not later than the close of
business on the ninetieth (90th) day nor earlier than the close of business on
the one hundred twentieth (120th) day prior to the first anniversary of the
preceding year's annual meeting; provided, however, that in the event that the
date of the annual meeting is advanced more than thirty (30) days prior to or
delayed by more than thirty (30) days after the anniversary of the preceding
year's annual meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the one hundred twentieth
(120th) day prior to such annual meeting and not later than the close of
business on the later of the ninetieth (90th) day prior to such annual meeting
or the tenth (10th) day following the day on which public announcement of the
date of such meeting is first made. In no event shall the public announcement
of an adjournment of an annual meeting commence a new time period for the giving
of a stockholder's notice as described above. Such stockholder's notice shall
set forth: (A) as to each person whom the stockholder proposed to nominate for
election or reelection as a director all information relating to such person
that is required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended
(the "1934 Act") and Rule 14a-11 thereunder (including such person's written
consent to being named in the proxy statement as a nominee and to serving as a
director if elected); (B) as to any other business that the stockholder proposes
to bring before the meeting, a brief description of the business desired to be
brought before the meeting, the reasons for conducting such business at the
meeting and any material interest in such business of such stockholder and the
beneficial owner, if any,
2.
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on whose behalf the proposal is made; and (C) as to the stockholder giving the
notice and the beneficial owner, if any, on whose behalf the nomination or
proposal is made (i) the name and address of such stockholder, as they appear on
the corporation's books, and of such beneficial owner, (ii) the class and number
of shares of the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, and (iii) whether either such stockholder
or beneficial owner intends to deliver a proxy statement and form of proxy to
holders of, in the case of the proposal, at least the percentage of the
corporation's voting shares required under applicable law to carry the proposal
or, in the case of a nomination or nominations, a sufficient number of holders
of the corporation's voting shares to elect such nominee or nominees (an
affirmative statement of such intent, a "Solicitation Notice").
(c) Notwithstanding anything in the second sentence of
Section 5(b) of these Bylaws to the contrary, in the event that the number of
directors to be elected to the Board of Directors of the corporation is
increased and there is no public announcement naming all of the nominees for
director or specifying the size of the increased Board of Directors made by the
corporation at least one hundred (100) days prior to the first anniversary of
the preceding year's annual meeting, a stockholder's notice required by this
Section 5 shall also be considered timely, but only with respect to nominees for
any new positions created by such increase, if it shall be delivered to the
Secretary at the principal executive offices of the corporation not later than
the close of business on the tenth (10th) day following the day on which such
public announcement is first made by the corporation.
(d) Only such persons who are nominated in accordance with the
procedures set forth in this Section 5 shall be eligible to serve as directors
and only such business shall be conducted at a meeting of stockholders as shall
have been brought before the meeting in accordance with the procedures set forth
in this Section 5. Except as otherwise provided by law, the Chairman of the
meeting shall have the power and duty to determine whether a nomination or any
business proposed to be brought before the meeting was made, or proposed, as the
case may be, in accordance with the procedures set forth in these Bylaws and, if
any proposed nomination or business is not in compliance with these Bylaws, to
declare that such defective proposal or nomination shall not be presented for
stockholder action at the meeting and shall be disregarded.
(e) Notwithstanding the foregoing provisions of this Section 5,
in order to include information with respect to a stockholder proposal in the
proxy statement and form of proxy for a stockholder's meeting, stockholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Nothing in these Bylaws shall be deemed to affect any rights of stockholders to
request inclusion of proposals in the corporation proxy statement pursuant to
Rule 14a-8 under the 1934 Act.
(f) For purposes of this Section 5, "public announcement" shall
mean disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document publicly
filed by the corporation with the Securities and Exchange Commission pursuant to
Section 13, 14 or 15(d) of the 1934 Act.
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SECTION 6. SPECIAL MEETINGS.
(a) Special meetings of the stockholders of the corporation may
be called, for any purpose or purposes, by (i) the Chairman of the Board of
Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors
pursuant to a resolution adopted by a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any such resolution is presented to the Board of
Directors for adoption) or (iv) by the holders of shares entitled to cast not
less than fifty percent (50%) of the votes at the meeting, and shall be held at
such place, on such date, and at such time as the Board of Directors, shall fix.
At any time or times that the corporation is subject to Section 2115(b) of
the California General Corporation Law ("CGCL"), stockholders holding five
percent (5%) or more of the outstanding shares shall have the right to call a
special meeting of stockholders as set forth in Section 18(c) herein.
(b) If a special meeting is properly called by any person or
persons other than the Board of Directors, the request shall be in writing,
specifying the general nature of the business proposed to be transacted, and
shall be delivered personally or sent by registered mail or by telegraphic or
other facsimile transmission to the Chairman of the Board of Directors, the
Chief Executive Officer, or the Secretary of the corporation. No business may
be transacted at such special meeting otherwise than specified in such notice.
The Board of Directors shall determine the time and place of such special
meeting, which shall be held not less than thirty-five (35) nor more than one
hundred twenty (120) days after the date of the receipt of the request. Upon
determination of the time and place of the meeting, the officer receiving the
request shall cause notice to be given to the stockholders entitled to vote, in
accordance with the provisions of Section 7 of these Bylaws. If the notice is
not given within one hundred (100) days after the receipt of the request, the
person or persons properly requesting the meeting may set the time and place of
the meeting and give the notice. Nothing contained in this paragraph (b) shall
be construed as limiting, fixing, or affecting the time when a meeting of
stockholders called by action of the Board of Directors may be held.
(c) Nominations of persons for election to the Board of
Directors may be made at a special meeting of stockholders at which directors
are to be elected pursuant to the corporation's notice of meeting (i) by or at
the direction of the Board of Directors or (ii) by any stockholder of the
corporation who is a stockholder of record at the time of giving notice provided
for in these Bylaws who shall be entitled to vote at the meeting and who
complies with the notice procedures set forth in this Section 6(c). In the
event the corporation calls a special meeting of stockholders for the purpose of
electing one or more directors to the Board of Directors, any such stockholder
may nominate a person or persons (as the case may be), for election to such
position(s) as specified in the corporation's notice of meeting, if the
stockholder's notice required by Section 5(b) of these Bylaws shall be delivered
to the Secretary at the principal executive offices of the corporation not
earlier than the close of business on the one hundred twentieth (120th) day
prior to such special meeting and not later than the close of business on the
later of the ninetieth (90th) day prior to such meeting or the tenth (10th) day
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following the day on which public announcement is first made of the date of the
special meeting and of the nominees proposed by the Board of Directors to be
elected at such meeting. In no event shall the public announcement of an
adjournment of a special meeting commence a new time period for the giving of a
stockholder's notice as described above.
SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or
the Certificate of Incorporation, written notice of each meeting of stockholders
shall be given not less than ten (10) nor more than sixty (60) days before the
date of the meeting to each stockholder entitled to vote at such meeting, such
notice to specify the place, date and hour and purpose or purposes of the
meeting. Notice of the time, place and purpose of any meeting of stockholders
may be waived in writing, signed by the person entitled to notice thereof,
either before or after such meeting, and will be waived by any stockholder by
his attendance thereat in person or by proxy, except when the stockholder
attends a meeting for the express purpose of objecting, at the beginning of the
meeting, to the transaction of any business because the meeting is not lawfully
called or convened. Any stockholder so waiving notice of such meeting shall be
bound by the proceedings of any such meeting in all respects as if due notice
thereof had been given.
SECTION 8. QUORUM. At all meetings of stockholders, except where
otherwise provided by statute or by the Certificate of Incorporation, or by
these Bylaws, the presence, in person or by proxy duly authorized, of the
holders of a majority of the outstanding shares of stock entitled to vote shall
constitute a quorum for the transaction of business. In the absence of a
quorum, any meeting of stockholders may be adjourned, from time to time, either
by the chairman of the meeting or by vote of the holders of a majority of the
shares represented thereat, but no other business shall be transacted at such
meeting. The stockholders present at a duly called or convened meeting, at
which a quorum is present, may continue to transact business until adjournment,
notwithstanding the withdrawal of enough stockholders to leave less than a
quorum. Except as otherwise provided by statute, the Certificate of
Incorporation or these Bylaws, in all matters other than the election of
directors, the affirmative vote of the majority of shares present in person or
represented by proxy at the meeting and entitled to vote on the subject matter
shall be the act of the stockholders. Except as otherwise provided by statute,
the Certificate of Incorporation or these Bylaws, directors shall be elected by
a plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. Where a
separate vote by a class or classes or series is required, except where
otherwise provided by the statute or by the Certificate of Incorporation or
these Bylaws, a majority of the outstanding shares of such class or classes or
series, present in person or represented by proxy, shall constitute a quorum
entitled to take action with respect to that vote on that matter and, except
where otherwise provided by the statute or by the Certificate of Incorporation
or these Bylaws, the affirmative vote of the majority (plurality, in the case of
the election of directors) of the votes cast by the holders of shares ofsuch
class or classes or series shall be the act of such class or classes or series.
SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting
of stockholders, whether annual or special, may be adjourned from time to time
either by the
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chairman of the meeting or by the vote of a majority of the shares casting
votes. When a meeting is adjourned to another time or place, notice need not be
given of the adjourned meeting if the time and place thereof are announced at
the meeting at which the adjournment is taken. At the adjourned meeting, the
corporation may transact any business which might have been transacted at the
original meeting. If the adjournment is for more than thirty (30) days or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each stockholder of record
entitled to vote at the meeting.
SECTION 10. VOTING RIGHTS. For the purpose of determining those
stockholders entitled to vote at any meeting of the stockholders, except as
otherwise provided by law, only persons in whose names shares stand on the stock
records of the corporation on the record date, as provided in Section 12 of
these Bylaws, shall be entitled to vote at any meeting of stockholders. Every
person entitled to vote or execute consents shall have the right to do so either
in person or by an agent or agents authorized by a proxy granted in accordance
with Delaware law. An agent so appointed need not be a stockholder. No proxy
shall be voted after three (3) years from its date of creation unless the proxy
provides for a longer period.
SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having
voting power stand of record in the names of two (2) or more persons, whether
fiduciaries, members of a partnership, joint tenants, tenants in common, tenants
by the entirety, or otherwise, or if two (2) or more persons have the same
fiduciary relationship respecting the same shares, unless the Secretary is given
written notice to the contrary and is furnished with a copy of the instrument or
order appointing them or creating the relationship wherein it is so provided,
their acts with respect to voting shall have the following effect: (a) if only
one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the
majority so voting binds all; (c) if more than one (1) votes, but the vote is
evenly split on any particular matter, each faction may vote the securities in
question proportionally, or may apply to the Delaware Court of Chancery for
relief as provided in the Delaware General Corporation Law, Section 217(b). If
the instrument filed with the Secretary shows that any such tenancy is held in
unequal interests, a majority or even-split for the purpose of subsection (c)
shall be a majority or even-split in interest.
SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make,
at least ten (10) days before every meeting of stockholders, a complete list of
the stockholders entitled to vote at said meeting, arranged in alphabetical
order, showing the address of each stockholder and the number of shares
registered in the name of each stockholder. Such list shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not
specified, at the place where the meeting is to be held. The list shall be
produced and kept at the time and place of meeting during the whole time thereof
and may be inspected by any stockholder who is present.
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SECTION 13. ACTION WITHOUT MEETING.
(a) Unless otherwise provided in the Certificate of
Incorporation, any action required by statute to be taken at any annual or
special meeting of the stockholders, or any action which may be taken at any
annual or special meeting of the stockholders, may be taken without a meeting,
without prior notice and without a vote, if a consent in writing, setting forth
the action so taken, shall be signed by the holders of outstanding stock having
not less than the minimum number of votes that would be necessary to authorize
or take such action at a meeting at which all shares entitled to vote thereon
were present and voted.
(b) Every written consent shall bear the date of signature of
each stockholder who signs the consent, and no written consent shall be
effective to take the corporate action referred to therein unless, within sixty
(60) days of the earliest dated consent delivered to the corporation in the
manner herein required, written consents signed by a sufficient number of
stockholders to take action are delivered to the corporation by delivery to its
registered office in the State of Delaware, its principal place of business or
an officer or agent of the corporation having custody of the book in which
proceedings of meetings of stockholders are recorded. Delivery made to a
corporation's registered office shall be by hand or by certified or registered
mail, return receipt requested.
(c) Prompt notice of the taking of the corporate action without
a meeting by less than unanimous written consent shall be given to those
stockholders who have not consented in writing. If the action which is
consented to is such as would have required the filing of a certificate under
any section of the Delaware General Corporation Law if such action had been
voted on by stockholders at a meeting thereof, then the certificate filed under
such section shall state, in lieu of any statement required by such section
concerning any vote of stockholders, that written consent has been given in
accordance with Section 228 of the Delaware General Corporation Law.
(d) Notwithstanding the foregoing, no such action by written
consent may be taken following the closing of the initial public offering
pursuant to an effective registration statement under the Securities Act of
1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock
of the corporation (the "Initial Public Offering").
SECTION 14. ORGANIZATION.
(a) At every meeting of stockholders, the Chairman of the Board
of Directors, or, if a Chairman has not been appointed or is absent, the
President, or, if the President is absent, a chairman of the meeting chosen by a
majority in interest of the stockholders entitled to vote, present in person or
by proxy, shall act as chairman. The Secretary, or, in his absence, an
Assistant Secretary directed to do so by the President, shall act as secretary
of the meeting.
(b) The Board of Directors of the corporation shall be entitled
to make such rules or regulations for the conduct of meetings of stockholders as
it shall deem necessary, appropriate or convenient. Subject to such rules and
regulations of the Board of Directors, if
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any, the chairman of the meeting shall have the right and authority to prescribe
such rules, regulations and procedures and to do all such acts as, in the
judgment of such chairman, are necessary, appropriate or convenient for the
proper conduct of the meeting, including, without limitation, establishing an
agenda or order of business for the meeting, rules and procedures for
maintaining order at the meeting and the safety of those present, limitations on
participation in such meeting to stockholders of record of the corporation and
their duly authorized and constituted proxies and such other persons as the
chairman shall permit, restrictions on entry to the meeting after the time fixed
for the commencement thereof, limitations on the time allotted to questions or
comments by participants and regulation of the opening and closing of the polls
for balloting on matters which are to be voted on by ballot. Unless and to the
extent determined by the Board of Directors or the chairman of the meeting,
meetings of stockholders shall not be required to be held in accordance with
rules of parliamentary procedure.
ARTICLE IV
DIRECTORS
SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of
directors of the corporation shall be fixed in accordance with the Certificate
of Incorporation. Directors need not be stockholders unless so required by the
Certificate of Incorporation. If for any cause, the directors shall not have
been elected at an annual meeting, they may be elected as soon thereafter as
convenient at a special meeting of the stockholders called for that purpose in
the manner provided in these Bylaws.
SECTION 16. POWERS. The powers of the corporation shall be exercised,
its business conducted and its property controlled by the Board of Directors,
except as may be otherwise provided by statute or by the Certificate of
Incorporation.
SECTION 17. CLASSES OF DIRECTORS.
(a) Subject to the rights of the holders of any series of
Preferred Stock to elect additional directors under specified circumstances,
following the closing of the Initial Public Offering and during such time or
times that the corporation is not subject to Section 2115(b) of the CGCL, the
directors shall be divided into three classes designated as Class I, Class II
and Class III, respectively. Directors shall be assigned to each class in
accordance with a resolution or resolutions adopted by the Board of Directors.
At the first annual meeting of stockholders following the closing of the Initial
Public Offering (assuming the corporation is not subject to Section 2115(b) of
the CGCL), the term of office of the Class I directors shall expire and Class I
directors shall be elected for a full term of three years. At the second annual
meeting of stockholders following the Initial Public Offering (assuming the
corporation is not subject to Section 2115(b) of the CGCL), the term of office
of the Class II directors shall expire and Class II directors shall be elected
for a full term of three years. At the third annual meeting of stockholders
following the Initial Public Offering (assuming the corporation is not subject
to Section 2115(b) of the CGCL), the term of office of the Class III directors
shall expire and Class III directors shall be elected for a full term of three
years. At each succeeding annual meeting of
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stockholders (assuming the corporation is not subject to Section 2115(b) of the
CGCL), directors shall be elected for a full term of three years to succeed the
directors of the class whose terms expire at such annual meeting.
(b) In the event that the corporation is subject to Section
2115(b) of the CGCL at any time, or from time to time, Section 17(a) of these
Bylaws shall not apply and all directors shall be elected at each annual meeting
of stockholders to hold office until the next annual meeting.
(c) No person entitled to vote at an election for directors may
cumulate votes to which such person is entitled, unless, at the time of such
election, the corporation is subject to Section 2115(b) of the CGCL. During
such time or times that the corporation is subject to Section 2115(b) of the
CGCL, every stockholder entitled to vote at an election for directors may
cumulate such stockholder's votes and give one candidate a number of votes equal
to the number of directors to be elected multiplied by the number of votes to
which such stockholder's shares are otherwise entitled, or distribute the
stockholder's votes on the same principle among as many candidates as such
stockholder thinks fit. No stockholder, however, shall be entitled to so
cumulate such stockholder's votes unless (i) the names of such candidate or
candidates have been placed in nomination prior to the voting and (ii) the
stockholder has given notice at the meeting, prior to the voting, of such
stockholder's intention to cumulate such stockholder's votes. If any
stockholder has given proper notice to cumulate votes, all stockholders may
cumulate their votes for any candidates who have been properly placed in
nomination. Under cumulative voting, the candidates receiving the highest number
of votes, up to the number of directors to be elected, are elected.
Notwithstanding the foregoing provisions of this section, each director
shall serve until his successor is duly elected and qualified or until his
death, resignation or removal. No decrease in the number of directors
constituting the Board of Directors shall shorten the term of any incumbent
director.
SECTION 18. VACANCIES.
(a) Unless otherwise provided in the Certificate of
Incorporation, any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal or other causes and any newly created
directorships resulting from any increase in the number of directors shall,
unless the Board of Directors determines by resolution that any such vacancies
or newly created directorships shall be filled by stockholders, be filled only
by the affirmative vote of a majority of the directors then in office, even
though less than a quorum of the Board of Directors. Any director elected in
accordance with the preceding sentence shall hold office for the remainder of
the full term of the director for which the vacancy was created or occurred and
until such director's successor shall have been elected and qualified. A
vacancy in the Board of Directors shall be deemed to exist under this Bylaw in
the case of the death, removal or resignation of any director.
(b) If at the time of filling any vacancy or any newly created
directorship, the directors then in office shall constitute less than a majority
of the whole board (as constituted
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immediately prior to any such increase), the Delaware Court of Chancery may,
upon application of any stockholder or stockholders holding at least ten percent
(10%) of the total number of the shares at the time outstanding having the right
to vote for such directors, summarily order an election to be held to fill any
such vacancies or newly created directorships, or to replace the directors
chosen by the directors then in offices as aforesaid, which election shall be
governed by Section 211 of the Delaware General Corporation Law.
(c) At any time or times that the corporation is subject to
Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors
then in office who have been elected by stockholders shall constitute less than
a majority of the directors then in office, then
(1) Any holder or holders of an aggregate of five percent
(5%) or more of the total number of shares at the time outstanding having the
right to vote for those directors may call a special meeting of stockholders; or
(2) The Superior Court of the proper county shall, upon
application of such stockholder or stockholders, summarily order a special
meeting of stockholders, to be held to elect the entire board, all in accordance
with Section 305(c) of the CGCL. The term of office of any director shall
terminate upon that election of a successor.
SECTION 19. RESIGNATION. Any director may resign at any time by
delivering his written resignation to the Secretary, such resignation to specify
whether it will be effective at a particular time, upon receipt by the Secretary
or at the pleasure of the Board of Directors. If no such specification is made,
it shall be deemed effective at the pleasure of the Board of Directors. When
one or more directors shall resign from the Board of Directors, effective at a
future date, a majority of the directors then in office, including those who
have so resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each Director so chosen shall hold office for the unexpired
portion of the term of the Director whose place shall be vacated and until his
successor shall have been duly elected and qualified.
SECTION 20. REMOVAL.
(a) During such time or times that the corporation is subject to
Section 2115(b) of the CGCL, the Board of Directors or any individual director
may be removed from office at any time without cause by the affirmative vote of
the holders of at least a majority of the outstanding shares entitled to vote on
such removal; provided, however, that unless the entire Board is removed, no
individual director may be removed when the votes cast against such director's
removal, or not consenting in writing to such removal, would be sufficient to
elect that director if voted cumulatively at an election which the same total
number of votes were cast (or, if such action is taken by written consent, all
shares entitled to vote were voted) and the entire number of directors
authorized at the time of such director's most recent election were then being
elected.
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(b) Following any date on which the corporation is no longer
subject to Section 2115(b) of the CGCL and subject to any limitations imposed by
law, Section 20(a) above shall no longer apply and removal shall be as provided
in Section 141(k) of the Delaware General Corporation Law.
SECTION 21. MEETINGS.
(a) ANNUAL MEETINGS. The annual meeting of the Board of
Directors shall be held immediately before or after the annual meeting of
stockholders and at the place where such meeting is held. No notice of an
annual meeting of the Board of Directors shall be necessary and such meeting
shall be held for the purpose of electing officers and transacting such other
business as may lawfully come before it.
(b) REGULAR MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, regular meetings of the Board of Directors may be
held at any time or date and at any place within or without the State of
Delaware which has been designated by the Board of Directors and publicized
among all directors. No formal notice shall be required for regular meetings of
the Board of Directors.
(c) SPECIAL MEETINGS. Unless otherwise restricted by the
Certificate of Incorporation, special meetings of the Board of Directors may
be held at any time and place within or without the State of Delaware
whenever called by the Chairman of the Board, the President or any two of the
directors.
(d) TELEPHONE MEETINGS. Any member of the Board of Directors,
or of any committee thereof, may participate in a meeting by means of conference
telephone or similar communications equipment by means of which all persons
participating in the meeting can hear each other, and participation in a meeting
by such means shall constitute presence in person at such meeting.
(e) NOTICE OF MEETINGS. Notice of the time and place of all
special meetings of the Board of Directors shall be orally or in writing, by
telephone, including a voice messaging system or other system or technology
designed to record and communicate messages, facsimile, telegraph or telex, or
by electronic mail or other electronic means, during normal business hours, at
least twenty-four (24) hours before the date and time of the meeting, or sent in
writing to each director by first class mail, charges prepaid, at least three
(3) days before the date of the meeting. Notice of any meeting may be waived in
writing at any time before or after the meeting and will be waived by any
director by attendance thereat, except when the director attends the meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened.
(f) WAIVER OF NOTICE. The transaction of all business at any
meeting of the Board of Directors, or any committee thereof, however called or
noticed, or wherever held, shall be as valid as though had at a meeting duly
held after regular call and notice, if a quorum be present and if, either before
or after the meeting, each of the directors not present shall sign a
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written waiver of notice. All such waivers shall be filed with the corporate
records or made a part of the minutes of the meeting.
SECTION 22. QUORUM AND VOTING.
(a) Unless the Certificate of Incorporation requires a greater
number and except with respect to indemnification questions arising under
Section 43 hereof, for which a quorum shall be one-third of the exact number of
directors fixed from time to time in accordance with the Certificate of
Incorporation, a quorum of the Board of Directors shall consist of a majority of
the exact number of directors fixed from time to time by the Board of Directors
in accordance with the Certificate of Incorporation; PROVIDED, HOWEVER, at any
meeting whether a quorum be present or otherwise, a majority of the directors
present may adjourn from time to time until the time fixed for the next regular
meeting of the Board of Directors, without notice other than by announcement at
the meeting.
(b) At each meeting of the Board of Directors at which a quorum
is present, all questions and business shall be determined by the affirmative
vote of a majority of the directors present, unless a different vote be required
by law, the Certificate of Incorporation or these Bylaws.
SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the
Certificate of Incorporation or these Bylaws, any action required or permitted
to be taken at any meeting of the Board of Directors or of any committee thereof
may be taken without a meeting, if all members of the Board of Directors or
committee, as the case may be, consent thereto in writing, and such writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such
compensation for their services as may be approved by the Board of Directors,
including, if so approved, by resolution of the Board of Directors, a fixed sum
and expenses of attendance, if any, for attendance at each regular or special
meeting of the Board of Directors and at any meeting of a committee of the Board
of Directors. Nothing herein contained shall be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee, or otherwise and receiving compensation therefor.
SECTION 25. COMMITTEES.
(a) EXECUTIVE COMMITTEE. The Board of Directors may appoint an
Executive Committee to consist of one (1) or more members of the Board of
Directors. The Executive Committee, to the extent permitted by law and provided
in the resolution of the Board of Directors shall have and may exercise all the
powers and authority of the Board of Directors in the management of the business
and affairs of the corporation, and may authorize the seal of the corporation to
be affixed to all papers which may require it; but no such committee shall have
the power or authority in reference to (i) approving or adopting, or
recommending to the stockholders, any action or matter expressly required by the
Delaware General Corporation Law
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to be submitted to stockholders for approval, or (ii) adopting, amending or
repealing any bylaw of the corporation.
(b) OTHER COMMITTEES. The Board of Directors may, from time to
time, appoint such other committees as may be permitted by law. Such other
committees appointed by the Board of Directors shall consist of one (1) or more
members of the Board of Directors and shall have such powers and perform such
duties as may be prescribed by the resolution or resolutions creating such
committees, but in no event shall any such committee have the powers denied to
the Executive Committee in these Bylaws.
(c) TERM. Each member of a committee of the Board of Directors
shall serve a term on the committee coexistent with such member's term on the
Board of Directors. The Board of Directors, subject to any requirements of any
outstanding series of preferred Stock and the provisions of subsections (a) or
(b) of this Bylaw, may at any time increase or decrease the number of members of
a committee or terminate the existence of a committee. The membership of a
committee member shall terminate on the date of his death or voluntary
resignation from the committee or from the Board of Directors. The Board of
Directors may at any time for any reason remove any individual committee member
and the Board of Directors may fill any committee vacancy created by death,
resignation, removal or increase in the number of members of the committee. The
Board of Directors may designate one or more directors as alternate members of
any committee, who may replace any absent or disqualified member at any meeting
of the committee, and, in addition, in the absence or disqualification of any
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not he or they constitute a quorum, may
unanimously appoint another member of the Board of Directors to act at the
meeting in the place of any such absent or disqualified member.
(d) MEETINGS. Unless the Board of Directors shall otherwise
provide, regular meetings of the Executive Committee or any other committee
appointed pursuant to this Section 25 shall be held at such times and places as
are determined by the Board of Directors, or by any such committee, and when
notice thereof has been given to each member of such committee, no further
notice of such regular meetings need be given thereafter. Special meetings of
any such committee may be held at any place which has been determined from time
to time by such committee, and may be called by any director who is a member of
such committee, upon written notice to the members of such committee of the time
and place of such special meeting given in the manner provided for the giving of
written notice to members of the Board of Directors of the time and place of
special meetings of the Board of Directors. Notice of any special meeting of
any committee may be waived in writing at any time before or after the meeting
and will be waived by any director by attendance thereat, except when the
director attends such special meeting for the express purpose of objecting, at
the beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened. A majority of the authorized number
of members of any such committee shall constitute a quorum for the transaction
of business, and the act of a majority of those present at any meeting at which
a quorum is present shall be the act of such committee.
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SECTION 26. ORGANIZATION. At every meeting of the directors, the
Chairman of the Board of Directors, or, if a Chairman has not been appointed or
is absent, the President (if a director), or if the President is absent, the
most senior Vice President (if a director), or, in the absence of any such
person, a chairman of the meeting chosen by a majority of the directors present,
shall preside over the meeting. The Secretary, or in his absence, any Assistant
Secretary directed to do so by the President, shall act as secretary of the
meeting.
ARTICLE V
OFFICERS
SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall
include, if and when designated by the Board of Directors, the Chairman of the
Board of Directors, the Chief Executive Officer, the President, one or more Vice
Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the
Controller, all of whom shall be elected at the annual organizational meeting of
the Board of Directors. The Board of Directors may also appoint one or more
Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such
other officers and agents with such powers and duties as it shall deem
necessary. The Board of Directors may assign such additional titles to one or
more of the officers as it shall deem appropriate. Any one person may hold any
number of offices of the corporation at any one time unless specifically
prohibited therefrom by law. The salaries and other compensation of the
officers of the corporation shall be fixed by or in the manner designated by the
Board of Directors.
SECTION 28. TENURE AND DUTIES OF OFFICERS.
(a) GENERAL. All officers shall hold office at the pleasure of
the Board of Directors and until their successors shall have been duly elected
and qualified, unless sooner removed. Any officer elected or appointed by the
Board of Directors may be removed at any time by the Board of Directors. If the
office of any officer becomes vacant for any reason, the vacancy may be filled
by the Board of Directors.
(b) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman
of the Board of Directors, when present, shall preside at all meetings of the
stockholders and the Board of Directors. The Chairman of the Board of Directors
shall perform other duties commonly incident to his office and shall also
perform such other duties and have such other powers, as the Board of Directors
shall designate from time to time. If there is no President, then the Chairman
of the Board of Directors shall also serve as the Chief Executive Officer of the
corporation and shall have the powers and duties prescribed in paragraph (c) of
this Section 28.
(c) DUTIES OF PRESIDENT. The President shall preside at all
meetings of the stockholders and at all meetings of the Board of Directors,
unless the Chairman of the Board of Directors has been appointed and is present.
Unless some other officer has been elected Chief Executive Officer of the
corporation, the President shall be the chief executive officer of the
corporation and shall, subject to the control of the Board of Directors, have
general supervision, direction and control of the business and officers of the
corporation. The President shall perform
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other duties commonly incident to his office and shall also perform such other
duties and have such other powers, as the Board of Directors shall designate
from time to time.
(d) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume
and perform the duties of the President in the absence or disability of the
President or whenever the office of President is vacant. The Vice Presidents
shall perform other duties commonly incident to their office and shall also
perform such other duties and have such other powers as the Board of Directors
or the President shall designate from time to time.
(e) DUTIES OF SECRETARY. The Secretary shall attend all
meetings of the stockholders and of the Board of Directors and shall record all
acts and proceedings thereof in the minute book of the corporation. The
Secretary shall give notice in conformity with these Bylaws of all meetings of
the stockholders and of all meetings of the Board of Directors and any committee
thereof requiring notice. The Secretary shall perform all other duties given
him in these Bylaws and other duties commonly incident to his office and shall
also perform such other duties and have such other powers, as the Board of
Directors shall designate from time to time. The President may direct any
Assistant Secretary to assume and perform the duties of the Secretary in the
absence or disability of the Secretary, and each Assistant Secretary shall
perform other duties commonly incident to his office and shall also perform such
other duties and have such other powers as the Board of Directors or the
President shall designate from time to time.
(f) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial
Officer shall keep or cause to be kept the books of account of the corporation
in a thorough and proper manner and shall render statements of the financial
affairs of the corporation in such form and as often as required by the Board of
Directors or the President. The Chief Financial Officer, subject to the order
of the Board of Directors, shall have the custody of all funds and securities of
the corporation. The Chief Financial Officer shall perform other duties
commonly incident to his office and shall also perform such other duties and
have such other powers as the Board of Directors or the President shall
designate from time to time. The President may direct the Treasurer or any
Assistant Treasurer, or the Controller or any Assistant Controller to assume and
perform the duties of the Chief Financial Officer in the absence or disability
of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and
each Controller and Assistant Controller shall perform other duties commonly
incident to his office and shall also perform such other duties and have such
other powers as the Board of Directors or the President shall designate from
time to time.
SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other officer
or agent, notwithstanding any provision hereof.
SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving
written notice to the Board of Directors or to the President or to the
Secretary. Any such resignation shall be effective when received by the person
or persons to whom such notice is given, unless a later time is specified
therein, in which event the resignation shall become effective at such later
time. Unless otherwise specified in such notice, the acceptance of any such
resignation shall not be
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necessary to make it effective. Any resignation shall be without prejudice to
the rights, if any, of the corporation under any contract with the resigning
officer.
SECTION 31. REMOVAL. Any officer may be removed from office at any
time, either with or without cause, by the affirmative vote of a majority of the
directors in office at the time, or by the unanimous written consent of the
directors in office at the time, or by any committee or superior officers upon
whom such power of removal may have been conferred by the Board of Directors.
ARTICLE VI
EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE
CORPORATION
SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors
may, in its discretion, determine the method and designate the signatory officer
or officers, or other person or persons, to execute on behalf of the corporation
any corporate instrument or document, or to sign on behalf of the corporation
the corporate name without limitation, or to enter into contracts on behalf of
the corporation, except where otherwise provided by law or these Bylaws, and
such execution or signature shall be binding upon the corporation.
All checks and drafts drawn on banks or other depositaries on funds to the
credit of the corporation or in special accounts of the corporation shall be
signed by such person or persons as the Board of Directors shall authorize so to
do.
Unless authorized or ratified by the Board of Directors or within the
agency power of an officer, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to pledge
its credit or to render it liable for any purpose or for any amount.
SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock
and other securities of other corporations owned or held by the corporation for
itself, or for other parties in any capacity, shall be voted, and all proxies
with respect thereto shall be executed, by the person authorized so to do by
resolution of the Board of Directors, or, in the absence of such authorization,
by the Chairman of the Board of Directors, the Chief Executive Officer, the
President, or any Vice President.
ARTICLE VII
SHARES OF STOCK
SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the
shares of stock of the corporation shall be in such form as is consistent with
the Certificate of Incorporation and applicable law. Every holder of stock in
the corporation shall be entitled to have a certificate signed by or in the name
of the corporation by the Chairman of the Board of Directors, or the
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President or any Vice President and by the Treasurer or Assistant Treasurer or
the Secretary or Assistant Secretary, certifying the number of shares owned by
him in the corporation. Any or all of the signatures on the certificate may be
facsimiles. In case any officer, transfer agent, or registrar who has signed or
whose facsimile signature has been placed upon a certificate shall have ceased
to be such officer, transfer agent, or registrar before such certificate is
issued, it may be issued with the same effect as if he were such officer,
transfer agent, or registrar at the date of issue. Each certificate shall state
upon the face or back thereof, in full or in summary, all of the powers,
designations, preferences, and rights, and the limitations or restrictions of
the shares authorized to be issued or shall, except as otherwise required by
law, set forth on the face or back a statement that the corporation will furnish
without charge to each stockholder who so requests the powers, designations,
preferences and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights. Within a reasonable time after
the issuance or transfer of uncertificated stock, the corporation shall send to
the registered owner thereof a written notice containing the information
required to be set forth or stated on certificates pursuant to this section or
otherwise required by law or with respect to this section a statement that the
corporation will furnish without charge to each stockholder who so requests the
powers, designations, preferences and relative participating, optional or othe
special rights of each class of stock or series thereof and the qualifications,
limitations or restrictions of such preferences and/or rights. Except as
otherwise expressly provided by law, the rights and obligations of the holders
of certificates representing stock of the same class and series shall be
identical.
SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall
be issued in place of any certificate or certificates theretofore issued by the
corporation alleged to have been lost, stolen, or destroyed, upon the making of
an affidavit of that fact by the person claiming the certificate of stock to be
lost, stolen, or destroyed. The corporation may require, as a condition
precedent to the issuance of a new certificate or certificates, the owner of
such lost, stolen, or destroyed certificate or certificates, or his legal
representative, to agree to indemnify the corporation in such manner as it shall
require or to give the corporation a surety bond in such form and amount as it
may direct as indemnity against any claim that may be made against the
corporation with respect to the certificate alleged to have been lost, stolen,
or destroyed.
SECTION 36. TRANSFERS.
(a) Transfers of record of shares of stock of the corporation
shall be made only upon its books by the holders thereof, in person or by
attorney duly authorized, and upon the surrender of a properly endorsed
certificate or certificates for a like number of shares.
(b) The corporation shall have power to enter into and perform
any agreement with any number of stockholders of any one or more classes of
stock of the corporation to restrict the transfer of shares of stock of the
corporation of any one or more classes owned by such stockholders in any manner
not prohibited by the Delaware General Corporation Law.
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SECTION 37. FIXING RECORD DATES.
(a) In order that the corporation may determine the stockholders
entitled to notice of or to vote at any meeting of stockholders or any
adjournment thereof, the Board of Directors may fix, in advance, a record date,
which record date shall not precede the date upon which the resolution fixing
the record date is adopted by the Board of Directors, and which record date
shall, subject to applicable law, not be more than sixty (60) nor less than ten
(10) days before the date of such meeting. If no record date is fixed by the
Board of Directors, the record date for determining stockholders entitled to
notice of or to vote at a meeting of stockholders shall be at the close of
business on the day next preceding the day on which notice is given, or if
notice is waived, at the close of business on the day next preceding the day on
which the meeting is held. A determination of stockholders of record entitled
to notice of or to vote at a meeting of stockholders shall apply to any
adjournment of the meeting; PROVIDED, HOWEVER, that the Board of Directors may
fix a new record date for the adjourned meeting.
(b) Prior to the Initial Public Offering, in order that the
corporation may determine the stockholders entitled to consent to corporate
action in writing without a meeting, the Board of Directors may fix a record
date, which record date shall not precede the date upon which the resolution
fixing the record date is adopted by the Board of Directors, and which date
shall not be more than ten (10) days after the date upon which the resolution
fixing the record date is adopted by the Board of Directors. Any stockholder of
record seeking to have the stockholders authorize or take corporate action by
written consent shall, by written notice to the Secretary, request the Board of
Directors to fix a record date. The Board of Directors shall promptly, but in
all events within ten (10) days after the date on which such a request is
received, adopt a resolution fixing the record date. If no record date has been
fixed by the Board of Directors within ten (10) days of the date on which such a
request is received, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting, when no prior action
by the Board of Directors is required by applicable law, shall be the first date
on which a signed written consent setting forth the action taken or proposed to
be taken is delivered to the corporation by delivery to its registered office in
the State of Delaware, its principal place of business or an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Delivery made to the corporation's registered office
shall be by hand or by certified or registered mail, return receipt requested.
If no record date has been fixed by the Board of Directors and prior action by
the Board of Directors is required by law, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting shall be at the close of business on the day on which the Board of
Directors adopts the resolution taking such prior action.
(c) In order that the corporation may determine the stockholders
entitled to receive payment of any dividend or other distribution or allotment
of any rights or the stockholders entitled to exercise any rights in respect of
any change, conversion or exchange of stock, or for the purpose of any other
lawful action, the Board of Directors may fix, in advance, a record date, which
record date shall not precede the date upon which the resolution fixing the
record date is adopted, and which record date shall be not more than sixty (60)
days prior to such
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action. If no record date is fixed, the record date for determining
stockholders for any such purpose shall be at the close of business on the day
on which the Board of Directors adopts the resolution relating thereto.
SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends, and to vote as such owner, and shall not
be bound to recognize any equitable or other claim to or interest in such share
or shares on the part of any other person whether or not it shall have express
or other notice thereof, except as otherwise provided by the laws of Delaware.
ARTICLE VIII
OTHER SECURITIES OF THE CORPORATION
SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and
other corporate securities of the corporation, other than stock certificates
(covered in Section 34), may be signed by the Chairman of the Board of
Directors, the President or any Vice President, or such other person as may be
authorized by the Board of Directors, and the corporate seal impressed thereon
or a facsimile of such seal imprinted thereon and attested by the signature of
the Secretary or an Assistant Secretary, or the Chief Financial Officer or
Treasurer or an Assistant Treasurer; PROVIDED, HOWEVER, that where any such
bond, debenture or other corporate security shall be authenticated by the manual
signature, or where permissible facsimile signature, of a trustee under an
indenture pursuant to which such bond, debenture or other corporate security
shall be issued, the signatures of the persons signing and attesting the
corporate seal on such bond, debenture or other corporate security may be the
imprinted facsimile of the signatures of such persons. Interest coupons
appertaining to any such bond, debenture or other corporate security,
authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an
Assistant Treasurer of the corporation or such other person as may be authorized
by the Board of Directors, or bear imprinted thereon the facsimile signature of
such person. In case any officer who shall have signed or attested any bond,
debenture or other corporate security, or whose facsimile signature shall appear
thereon or on any such interest coupon, shall have ceased to be such officer
before the bond, debenture or other corporate security so signed or attested
shall have been delivered, such bond, debenture or other corporate security
nevertheless may be adopted by the corporation and issued and delivered as
though the person who signed the same or whose facsimile signature shall have
been used thereon had not ceased to be such officer of the corporation.
ARTICLE IX
DIVIDENDS
SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock
of the corporation, subject to the provisions of the Certificate of
Incorporation and applicable law, if any, may be declared by the Board of
Directors pursuant to law at any regular or special meeting.
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Dividends may be paid in cash, in property, or in shares of the capital stock,
subject to the provisions of the Certificate of Incorporation and applicable
law.
SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may
be set aside out of any funds of the corporation available for dividends such
sum or sums as the Board of Directors from time to time, in their absolute
discretion, think proper as a reserve or reserves to meet contingencies, or for
equalizing dividends, or for repairing or maintaining any property of the
corporation, or for such other purpose as the Board of Directors shall think
conducive to the interests of the corporation, and the Board of Directors may
modify or abolish any such reserve in the manner in which it was created.
ARTICLE X
FISCAL YEAR
SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be
fixed by resolution of the Board of Directors.
ARTICLE XI
INDEMNIFICATION
SECTION 43. INDEMNIFICATION OF DIRECTORS, EXECUTIVE OFFICERS, OTHER
OFFICERS, EMPLOYEES AND OTHER AGENTS.
(a) DIRECTORS AND EXECUTIVE OFFICERS. The corporation shall
indemnify its directors and executive officers (for the purposes of this Article
XI, "executive officers" shall have the meaning defined in Rule 3b-7 promulgated
under the 1934 Act) to the fullest extent not prohibited by the Delaware General
Corporation Law or any other applicable law; PROVIDED, HOWEVER, that the
corporation may modify the extent of such indemnification by individual
contracts with its directors and executive officers; and, PROVIDED, FURTHER,
that the corporation shall not be required to indemnify any director or
executive officer in connection with any proceeding (or part thereof) initiated
by such person unless (i) such indemnification is expressly required to be made
by law, (ii) the proceeding was authorized by the Board of Directors of the
corporation, (iii) such indemnification is provided by the corporation, in its
sole discretion, pursuant to the powers vested in the corporation under the
Delaware General Corporation Law or any other applicable law or (iv) such
indemnification is required to be made under subsection (d).
(b) OTHER OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation
shall have power to indemnify its other officers, employees and other agents as
set forth in the Delaware General Corporation Law or any other applicable law.
The Board of Directors shall have the power to delegate the determination of
whether indemnification shall be given to any such person to such officers or
other persons as the Board of Directors shall determine.
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(c) EXPENSES. The corporation shall advance to any person who
was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative
or investigative, by reason of the fact that he is or was a director or
executive officer, of the corporation, or is or was serving at the request of
the corporation as a director or executive officer of another corporation,
partnership, joint venture, trust or other enterprise, prior to the final
disposition of the proceeding, promptly following request therefor, all expenses
incurred by any director or executive officer in connection with such proceeding
upon receipt of an undertaking by or on behalf of such person to repay said
amounts if it should be determined ultimately that such person is not entitled
to be indemnified under this Bylaw or otherwise.
Notwithstanding the foregoing, unless otherwise determined pursuant to
paragraph (e) of this Bylaw, no advance shall be made by the corporation to an
executive officer of the corporation (except by reason of the fact that such
executive officer is or was a director of the corporation in which event this
paragraph shall not apply) in any action, suit or proceeding, whether civil,
criminal, administrative or investigative, if a determination is reasonably and
promptly made (i) by the Board of Directors by a majority vote of a quorum
consisting of directors who were not parties to the proceeding, or (ii) if such
quorum is not obtainable, or, even if obtainable, a quorum of disinterested
directors so directs, by independent legal counsel in a written opinion, that
the facts known to the decision-making party at the time such determination is
made demonstrate clearly and convincingly that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation.
(d) ENFORCEMENT. Without the necessity of entering into an
express contract, all rights to indemnification and advances to directors and
executive officers under this Bylaw shall be deemed to be contractual rights and
be effective to the same extent and as if provided for in a contract between the
corporation and the director or executive officer. Any right to indemnification
or advances granted by this Bylaw to a director or executive officer shall be
enforceable by or on behalf of the person holding such right in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. The claimant in such enforcement action,
if successful in whole or in part, shall be entitled to be paid also the expense
of prosecuting his claim. In connection with any claim for indemnification, the
corporation shall be entitled to raise as a defense to any such action that the
claimant has not met the standards of conduct that make it permissible under the
Delaware General Corporation Law or any other applicable law for the corporation
to indemnify the claimant for the amount claimed. In connection with any claim
by an executive officer of the corporation (except in any action, suit or
proceeding, whether civil, criminal, administrative or investigative, by reason
of the fact that such executive officer is or was a director of the corporation)
for advances, the corporation shall be entitled to raise a defense as to any
such action clear and convincing evidence that such person acted in bad faith or
in a manner that such person did not believe to be in or not opposed to the best
interests of the corporation, or with respect to any criminal action or
proceeding that such person acted without reasonable cause to believe that his
conduct was lawful. Neither the failure of the corporation (including its Board
of Directors, independent legal counsel or its
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stockholders) to have made a determination prior to the commencement of such
action that indemnification of the claimant is proper in the circumstances
because he has met the applicable standard of conduct set forth in the Delaware
General Corporation Law or any other applicable law, nor an actual determination
by the corporation (including its Board of Directors, independent legal counsel
or its stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that claimant
has not met the applicable standard of conduct.
(e) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by this Bylaw shall not be exclusive of any other right which such person
may have or hereafter acquire under any applicable statute, provision of the
Certificate of Incorporation, Bylaws, agreement, vote of stockholders or
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the Delaware General
Corporation Law, or by any other applicable law.
(f) SURVIVAL OF RIGHTS. The rights conferred on any person by
this Bylaw shall continue as to a person who has ceased to be a director,
officer, employee or other agent and shall inure to the benefit of the heirs,
executors and administrators of such a person.
(g) INSURANCE. To the fullest extent permitted by the Delaware
General Corporation Law or any other applicable law, the corporation, upon
approval by the Board of Directors, may purchase insurance on behalf of any
person required or permitted to be indemnified pursuant to this Bylaw.
(h) AMENDMENTS. Any repeal or modification of this Bylaw shall
only be prospective and shall not affect the rights under this Bylaw in effect
at the time of the alleged occurrence of any action or omission to act that is
the cause of any proceeding against any agent of the corporation.
(i) SAVING CLAUSE. If this Bylaw or any portion hereof shall be
invalidated on any ground by any court of competent jurisdiction, then the
corporation shall nevertheless indemnify each director and executive officer to
the full extent not prohibited by any applicable portion of this Bylaw that
shall not have been invalidated, or by any other applicable law. If this Section
43 shall be invalid due to the application of the indemnification provisions of
another jurisdiction, then the corporation shall indemnify each director and
executive officer to the full extent under any other applicable law.
(j) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the
following definitions shall apply:
(1) The term "proceeding" shall be broadly construed and
shall include, without limitation, the investigation, preparation, prosecution,
defense, settlement,
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arbitration and appeal of, and the giving of testimony in, any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative.
(2) The term "expenses" shall be broadly construed and
shall include, without limitation, court costs, attorneys' fees, witness fees,
fines, amounts paid in settlement or judgment and any other costs and expenses
of any nature or kind incurred in connection with any proceeding.
(3) The term the "corporation" shall include, in addition
to the resulting corporation, any constituent corporation (including any
constituent of a constituent) absorbed in a consolidation or merger which, if
its separate existence had continued, would have had power and authority to
indemnify its directors, officers, and employees or agents, so that any person
who is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, shall stand in the same position under
the provisions of this Bylaw with respect to the resulting or surviving
corporation as he would have with respect to such constituent corporation if its
separate existence had continued.
(4) References to a "director," "executive officer,"
"officer," "employee," or "agent" of the corporation shall include, without
limitation, situations where such person is serving at the request of the
corporation as, respectively, a director, executive officer, officer, employee,
trustee or agent of another corporation, partnership, joint venture, trust or
other enterprise.
(5) References to "other enterprises" shall include
employee benefit plans; references to "fines" shall include any excise taxes
assessed on a person with respect to an employee benefit plan; and references to
"serving at the request of the corporation" shall include any service as a
director, officer, employee or agent of the corporation which imposes duties on,
or involves services by, such director, officer, employee, or agent with respect
to an employee benefit plan, its participants, or beneficiaries; and a person
who acted in good faith and in a manner he reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have acted in a manner "not opposed to the best interests of the
corporation" as referred to in this Bylaw.
ARTICLE XII
NOTICES
SECTION 44. NOTICES.
(a) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of
these Bylaws, notice is required to be given to any stockholder, it shall be
given in writing, timely and duly deposited in the United States mail, postage
prepaid, and addressed to his last known post office address as shown by the
stock record of the corporation or its transfer agent.
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(b) NOTICE TO DIRECTORS. Any notice required to be given to any
director may be given by the method stated in subsection (a), or by overnight
delivery service, facsimile, telex or telegram, except that such notice other
than one which is delivered personally shall be sent to such address as such
director shall have filed in writing with the Secretary, or, in the absence of
such filing, to the last known post office address of such director.
(c) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by
a duly authorized and competent employee of the corporation or its transfer
agent appointed with respect to the class of stock affected, specifying the name
and address or the names and addresses of the stockholder or stockholders, or
director or directors, to whom any such notice or notices was or were given, and
the time and method of giving the same, shall in the absence of fraud, be prima
facie evidence of the facts therein contained.
(d) TIME NOTICES DEEMED GIVEN. All notices given by mail or by
overnight delivery service, as above provided, shall be deemed to have been
given as at the time of mailing, and all notices given by facsimile, telex or
telegram shall be deemed to have been given as of the sending time recorded at
time of transmission.
(e) METHODS OF NOTICE. It shall not be necessary that the same
method of giving notice be employed in respect of all directors, but one
permissible method may be employed in respect of any one or more, and any other
permissible method or methods may be employed in respect of any other or others.
(f) FAILURE TO RECEIVE NOTICE. The period or limitation of time
within which any stockholder may exercise any option or right, or enjoy any
privilege or benefit, or be required to act, or within which any director may
exercise any power or right, or enjoy any privilege, pursuant to any notice sent
him in the manner above provided, shall not be affected or extended in any
manner by the failure of such stockholder or such director to receive such
notice.
(g) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL.
Whenever notice is required to be given, under any provision of law or of the
Certificate of Incorporation or Bylaws of the corporation, to any person with
whom communication is unlawful, the giving of such notice to such person shall
not be required and there shall be no duty to apply to any governmental
authority or agency for a license or permit to give such notice to such person.
Any action or meeting which shall be taken or held without notice to any such
person with whom communication is unlawful shall have the same force and effect
as if such notice had been duly given. In the event that the action taken by
the corporation is such as to require the filing of a certificate under any
provision of the Delaware General Corporation Law, the certificate shall state,
if such is the fact and if notice is required, that notice was given to all
persons entitled to receive notice except such persons with whom communication
is unlawful.
(h) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever
notice is required to be given, under any provision of law or the Certificate of
Incorporation or Bylaws of the corporation, to any stockholder to whom
(i) notice of two consecutive annual meetings, and all notices of meetings or of
the taking of action by written consent without a meeting to such
24.
<PAGE>
person during the period between such two consecutive annual meetings, or
(ii) all, and at least two, payments (if sent by first class mail) of dividends
or interest on securities during a twelve-month period, have been mailed
addressed to such person at his address as shown on the records of the
corporation and have been returned undeliverable, the giving of such notice to
such person shall not be required. Any action or meeting which shall be taken
or held without notice to such person shall have the same force and effect as if
such notice had been duly given. If any such person shall deliver to the
corporation a written notice setting forth his then current address, the
requirement that notice be given to such person shall be reinstated. In the
event that the action taken by the corporation is such as to require the filing
of a certificate under any provision of the Delaware General Corporation Law,
the certificate need not state that notice was not given to persons to whom
notice was not required to be given pursuant to this paragraph.
ARTICLE XIII
AMENDMENTS
SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the
Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the
affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the
voting power of all of the then-outstanding shares of the voting stock of the
corporation entitled to vote. The Board of Directors shall also have the power
to adopt, amend, or repeal Bylaws.
ARTICLE XIV
LOANS TO OFFICERS
SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or
guarantee any obligation of, or otherwise assist any officer or other employee
of the corporation or of its subsidiaries, including any officer or employee who
is a Director of the corporation or its subsidiaries, whenever, in the judgment
of the Board of Directors, such loan, guarantee or assistance may reasonably be
expected to benefit the corporation. The loan, guarantee or other assistance
may be with or without interest and may be unsecured, or secured in such manner
as the Board of Directors shall approve, including, without limitation, a pledge
of shares of stock of the corporation. Nothing in these Bylaws shall be deemed
to deny, limit or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
25.
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TABLE OF CONTENTS
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ARTICLE I OFFICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 1. Registered Office. . . . . . . . . . . . . . . . . . . . . . . . .1
Section 2. Other Offices. . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE II CORPORATE SEAL. . . . . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 3. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . .1
ARTICLE III STOCKHOLDERS' MEETINGS . . . . . . . . . . . . . . . . . . . . . . . .1
Section 4. Place Of Meetings. . . . . . . . . . . . . . . . . . . . . . . . .1
Section 5. Annual Meetings. . . . . . . . . . . . . . . . . . . . . . . . . .1
Section 6. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . .4
Section 7. Notice Of Meetings . . . . . . . . . . . . . . . . . . . . . . . .5
Section 8. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .5
Section 9. Adjournment And Notice Of Adjourned Meetings . . . . . . . . . . .5
Section 10. Voting Rights. . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section 11. Joint Owners Of Stock. . . . . . . . . . . . . . . . . . . . . . .6
Section 12. List Of Stockholders . . . . . . . . . . . . . . . . . . . . . . .6
Section 13. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . .7
Section 14. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . .7
ARTICLE IV DIRECTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 15. Number And Term Of Office. . . . . . . . . . . . . . . . . . . . .8
Section 16. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Section 17. Classes of Directors . . . . . . . . . . . . . . . . . . . . . . .8
Section 18. Vacancies. . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section 19. Resignation. . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 20. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
Section 21. Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
Section 22. Quorum And Voting. . . . . . . . . . . . . . . . . . . . . . . . 12
Section 23. Action Without Meeting . . . . . . . . . . . . . . . . . . . . . 12
Section 24. Fees And Compensation. . . . . . . . . . . . . . . . . . . . . . 12
Section 25. Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
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Section 26. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V OFFICERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 27. Officers Designated. . . . . . . . . . . . . . . . . . . . . . . 14
Section 28. Tenure And Duties Of Officers. . . . . . . . . . . . . . . . . . 14
Section 29. Delegation Of Authority. . . . . . . . . . . . . . . . . . . . . 15
Section 30. Resignations . . . . . . . . . . . . . . . . . . . . . . . . . . 15
Section 31. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES
OWNED BY THE CORPORATION. . . . . . . . . . . . . . . . . . . . . . . 16
Section 32. Execution Of Corporate Instruments . . . . . . . . . . . . . . . 16
Section 33. Voting Of Securities Owned By The Corporation. . . . . . . . . . 16
ARTICLE VII SHARES OF STOCK. . . . . . . . . . . . . . . . . . . . . . . . . . . 16
Section 34. Form And Execution Of Certificates . . . . . . . . . . . . . . . 16
Section 35. Lost Certificates. . . . . . . . . . . . . . . . . . . . . . . . 17
Section 36. Transfers. . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
Section 37. Fixing Record Dates. . . . . . . . . . . . . . . . . . . . . . . 18
Section 38. Registered Stockholders. . . . . . . . . . . . . . . . . . . . . 19
ARTICLE VIII OTHER SECURITIES OF THE CORPORATION . . . . . . . . . . . . . . . . 19
Section 39. Execution Of Other Securities. . . . . . . . . . . . . . . . . . 19
ARTICLE IX DIVIDENDS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Section 40. Declaration Of Dividends . . . . . . . . . . . . . . . . . . . . 19
Section 41. Dividend Reserve . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE X FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 42. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE XI INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Section 43. Indemnification Of Directors, Executive Officers,
Other Officers, Employees And Other Agents. . . . . . . . . . . . . . . . . . 20
ARTICLE XII NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Section 44. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
</TABLE>
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ARTICLE XIII AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 45. Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE XIV LOANS TO OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . 25
Section 46. Loans To Officers. . . . . . . . . . . . . . . . . . . . . . . . 25
</TABLE>
iii.
<PAGE>
DITECH CORPORATION
AMENDED AND RESTATED
REGISTRATION AGREEMENT
THIS AGREEMENT is made as of March 19, 1999, by and among DITECH
CORPORATION, a California corporation (the "Company"), the parties listed as
Investors on the Schedule of Investors attached hereto (collectively, the
"Investors"), and TELINNOVATION, a California general partnership
("Telinnovation").
The parties to this Agreement, other than Telinnovation, are parties to
a (i) Stock and Note Purchase Agreement dated February 21, 1997 (the
"Purchase Agreement") and (ii) that certain Registration Rights Agreement,
dated March 11, 1997, by and among the Company (formerly Automated Call
Processing Corporation) and the Investors (the "Prior Registration Rights
Agreement"). In order to induce the Company to proceed forward with an
initial public offering, and to assist the Company on fulfilling its
obligations to Telinnovation, the Investors desire to amend the Prior
Registration Rights Agreement as set forth in this Agreement.
The parties hereto hereby agree as follows:
1. DEMAND REGISTRATIONS.
(a) REQUESTS FOR REGISTRATION. The holders of a majority of the
Registrable Securities may request registration under the Securities Act of
all or any portion of their Registrable Securities on Form S-1 or any similar
long-form registration ("Long-Form Registration"), and the holders of at
least 15% of the Registrable Securities may request registration under the
Securities Act of all or any portion of their Registrable Securities on Form
S-2 or S-3 or any similar short-form registration ("Short-Form
Registrations"), if available. All registrations requested pursuant to this
Section 1(a) are referred to herein as "Demand Registrations". Each request
for a Demand Registration shall specify the approximate number of Registrable
Securities requested to be registered and the anticipated per share price
range for such offering. Within ten days after receipt of any such request,
the Company shall give written notice of such requested registration to all
other holders of Registrable Securities and, subject to Section 1(e) below,
shall include in such registration all Registrable Securities with respect to
which the Company has received written requests for inclusion therein within
15 days after the receipt of the Company's notice.
(b) LONG-FORM REGISTRATION. The holders of Registrable
Securities shall be entitled to request one Long-Form Registration at any
time after August 31, 1997, PROVIDED THAT the aggregate offering value of the
Registrable Securities requested to be registered in any Long-Form
Registration must equal at least $5,000,000. A registration shall not be
considered one of the permitted Long-Form Registrations until the
registration statement has become effective, and a Long-Form Registration
shall not count as the permitted Long-Form Registration unless the holders of
Registrable Securities are able to register and sell at least 90% of the
Registrable Securities requested to be included in such registration.
1.
<PAGE>
(c) SHORT-FORM REGISTRATIONS. In addition to the Long-Form
Registrations provided pursuant to paragraph l(b), the holders of Registrable
Securities shall be entitled to request an unlimited number of Short-Form
Registrations; PROVIDED THAT the aggregate offering value of the Registrable
Securities requested to be registered in any Short-Form Registration must
equal at least $1,000,000; and PROVIDED FURTHER that the holders of
Registrable Securities may not request more than two (2) Short-Form
Registrations within any twelve month period. Demand Registrations shall be
Short-Form Registrations whenever the Company is permitted to use any
applicable short form. After the Company has become subject to the reporting
requirements of the Securities Exchange Act, the Company shall use its best
efforts to make Short-Form Registrations on Form S-3 available for the sale
of Registrable Securities.
(d) DEMAND EXPENSES. All Registration Expenses of the holders of
Registrable Securities incurred in connection with a Demand Registration
shall be paid by the Company.
(e) PRIORITY ON DEMAND REGISTRATIONS. The Company shall not
include in any Demand Registration any securities which are not Registrable
Securities without the prior written consent of the holders of a majority of
the Registrable Securities included in such registration. If a Demand
Registration is an underwritten offering and the managing underwriters advise
the Company in writing that in their opinion the number of Registrable
Securities and, if permitted hereunder, other securities requested to be
included in such offering exceeds the number of Registrable Securities and
other securities, if any, which can be sold in an orderly manner in such
offering within a price range acceptable to the holders of a majority of the
Registrable Securities initially requesting registration, the Company shall
include in such registration prior to the inclusion of any securities which
are not Registrable Securities the number of Registrable Securities requested
to be included which in the opinion of such underwriters can be sold in an
orderly manner within the price range of such offering, pro rata among the
respective holders thereof on the basis of the amount of Registrable
Securities owned by each such holder.
(f) RESTRICTIONS ON DEMAND REGISTRATIONS. The Company shall not
be obligated to effect any Demand Registration within 180 days after the
effective date of a previous Demand Registration or a previous registration
in which the holders of Registrable Securities were given the right to
include their Registrable Securities pursuant to Section 2 and in which there
was no reduction in the number of Registrable Securities requested to be
included. The Company may postpone for up to 90 days the filing or the
effectiveness of a registration statement for a Demand Registration if the
Company's board of directors determines in its reasonable good faith judgment
that such Demand Registration would reasonably be expected to have a material
adverse effect on any proposal or plan by the Company or any of its
Subsidiaries to engage in any acquisition of assets (other than in the
ordinary course of business) or any merger, consolidation, tender offer,
reorganization or similar transaction; PROVIDED THAT in such event, the
holders of Registrable Securities initially requesting such Demand
Registration shall be entitled to withdraw such request and, if such request
is withdrawn, such Demand Registration shall not count as a permitted Demand
Registration hereunder and the Company shall pay all Registration Expenses in
connection with such registration. The Company may delay a Demand
Registration pursuant to this Section 1(f) only once in any twelve-month
period.
2.
<PAGE>
(g) SELECTION OF UNDERWRITERS. The holders of a majority of the
Registrable Securities initially requesting registration hereunder shall have
the right to select the investment banker(s) and manager(s) to administer the
offering, subject to the Company's approval, which shall not be unreasonably
withheld.
(h) OTHER REGISTRATION RIGHTS. Except as provided in this
Agreement, the Company shall not grant to any Persons the right to request
the Company to register any equity securities of the Company, or any
securities convertible or exchangeable into or exercisable for such
securities, without the prior written consent of the holders of a majority of
the Registrable Securities.
2. PIGGYBACK REGISTRATIONS.
(a) RIGHT TO PIGGYBACK. Whenever the Company proposes to
register any of its securities under the Securities Act (other than a
registration relating solely to employee benefit plans or relating solely to
a Rule 145 transaction) and the registration form to be used may be used for
the registration of Registrable Securities (a "Piggyback Registration"), the
Company shall give prompt written notice to all holders of Registrable
Securities of its intention to effect such a registration and, subject to
Sections 2(c) and 2(d) below, shall include in such registration all
Registrable Securities with respect to which the Company has received written
requests for inclusion therein within 20 days after the receipt of the
Company's notice.
(b) PIGGYBACK EXPENSES. All Registration Expenses of the holders
of Registrable Securities incurred in connection with a Piggyback
Registration shall be paid by the Company.
(c) PRIORITY ON PRIMARY REGISTRATION. If a Piggyback
Registration is an underwritten primary registration on behalf of the
Company, and the managing underwriters advise the Company in writing that in
their opinion the number of securities requested to be included in such
registration exceeds the number which can be sold in such offering without
adversely affecting the marketability of the offering, the Company shall
include in such registration (i) first, the securities the Company proposes
to sell, (ii) second, the Registrable Securities requested to be included in
such registration, pro rata among the holders of such Registrable Securities
on the basis of the number of shares owned by each such holder, and (iii)
third, other securities requested to be included in such registration.
(d) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback
Registration is an underwritten secondary registration on behalf of holders
of the Company's securities, and the managing underwriters advise the Company
in writing that in their opinion the number of securities requested to be
included in such registration exceeds the number which can be sold in such
offering without adversely affecting the marketability of the offering, the
Company shall include in such registration (i) first, the securities
requested to be included therein by the holders requesting such registration
and the Registrable Securities requested to be included in such registration,
pro rata among the holders of such securities on the basis of the number of
securities owned by each such holder, and (ii) second, other securities
requested to be included in such registration.
3.
<PAGE>
(e) SELECTION OF UNDERWRITERS. If any Piggyback Registration is
an underwritten offering, the selection of investment banker(s) and
manager(s) for the offering must be approved by the holders of a majority of
the Registrable Securities included in such Piggyback Registration. Such
approval shall not be unreasonably withheld.
(f) OTHER REGISTRATIONS. If the Company has previously filed a
registration statement with respect to Registrable Securities pursuant to
Section 1 or pursuant to this Section 2, and if such previous registration
has not been withdrawn or abandoned, the Company shall not file or cause to
be effected any other registration of any of its equity securities or
securities convertible or exchangeable into or exercisable for its equity
securities under the Securities Act (except on Form S-8 or Form S-4 or any
successor form), whether on its own behalf or at the request of any holder or
holders of such securities, until a period of at least 180 days has elapsed
from the effective date of such previous registration
3. HOLDBACK AGREEMENTS.
(a) In connection with any underwritten public offering of the
Company's Common Stock, each holder of Registrable Securities shall not,
unless the underwriters managing the registered public offering otherwise
agree, effect any public sale or distribution (including sales pursuant to
Rule 144) of equity securities of the Company, or any securities convertible
into or exchangeable or exercisable for such securities (except as part of
such underwritten registration), during the seven days prior to and, in
connection with the Company's initial public offering, the 180 day period
beginning on the date of the offering or, in connection with subsequent
underwritten public offerings of the Company's Common Stock, the 90 day
period beginning on the date of the offering.
(b) The Company (i) shall not effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior
to and during the 180 day period beginning on the effective date of, any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to
registrations on Form S-8 or any successor form), unless the underwriters
managing the registered public offering otherwise agree, and (ii) shall cause
each holder of at least 1% of its Common Stock, or any securities convertible
into or exchangeable or exercisable for Common Stock, purchased from the
Company at any time after the date of this Agreement (other than in a
registered public offering) to agree not to effect any public sale or
distribution (including sales pursuant to Rule 144) of any such securities
(except as part of such underwritten registration, if otherwise permitted)
during such 180 day period, in the case of the Company's initial public
offering, or 90 day period, in the case of subsequent offerings, unless the
underwriters managing the registered public offering otherwise agree.
4. REGISTRATION PROCEDURES. Whenever the holders of Registrable
Securities have requested that any Registrable Securities be registered
pursuant to this Agreement, the Company shall use its best efforts to effect
the registration and the sale of such Registrable Securities in accordance
with the intended method of disposition thereof, and pursuant thereto the
Company shall as expeditiously as possible:
4.
<PAGE>
(a) prepare and file with the Securities and Exchange Commission
a registration statement with respect to such Registrable Securities and use
its best efforts to cause such registration statement to become effective;
PROVIDED THAT before filing a registration statement or prospectus or any
amendments or supplements thereto, the Company shall furnish to the counsel
selected by the holders of a majority of the Registrable Securities covered
by such registration statement copies of all such documents proposed to be
filed;
(b) notify each holder of Registrable Securities of the
effectiveness of each registration statement filed hereunder and prepare and
file with the Securities and Exchange Commission such amendments and
supplements to such registration statement and the prospectus used in
connection therewith as may be necessary to keep such registration statement
effective for a period of not less than 180 days and comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof
set forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number
of copies of such registration statement, each amendment and supplement
thereto, the prospectus included in such registration statement (including
each preliminary prospectus) and such other documents as such seller may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable
Securities under such securities or blue sky laws of such jurisdictions as
any seller reasonably requests and do any and all other acts and things which
may be reasonably necessary or advisable to enable such seller to consummate
the disposition in such jurisdictions of the Registrable Securities owned by
such seller; PROVIDED THAT the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this subparagraph, (ii) subject itself to
taxation in any such jurisdiction or (iii) consent to general service of
process in any such jurisdiction;
(e) notify each seller of such Registrable Securities, at any
time when a prospectus relating thereto is required to be delivered under the
Securities Act, of the happening of any event as a result of which the
prospectus included in such registration statement contains an untrue
statement of a material fact or omits any fact necessary to make the
statements therein not misleading, and, at the request of any such seller,
the Company shall prepare a supplement or amendment to such prospectus so
that, as thereafter delivered to the purchasers of such Registrable
Securities, such prospectus shall not contain an untrue statement of a
material fact or omit to state any fact necessary to make the statements
therein not misleading;
(f) cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are
then listed and, if not so listed, to be listed on the NASD automated
quotation system and, if listed on the NASD automated quotation system, use
its best efforts to secure designation of all such Registrable Securities
covered by such registration statement as a Nasdaq "national market system
security" within the meaning of Rule 11Aa2-1 promulgated pursuant to the
Securities Exchange Act or, failing that, to secure Nasdaq authorization for
such Registrable Securities and, without limiting the
5.
<PAGE>
generality of the foregoing, to arrange for at least two market makers to
register as such with respect to such Registrable Securities with the NASD;
(g) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(h) enter into such customary agreements (including underwriting
agreements in customary form) and take all such other actions as the holders
of a majority of the Registrable Securities being sold or the underwriters,
if any, reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities;
(i) make available for inspection by any seller of Registrable
Securities, any underwriter participating in any disposition pursuant to such
registration statement and any attorney, accountant or other agent retained
by any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the Securities and Exchange Commission, and make
available to its security holders, as, soon as reasonably practicable, an
earnings statement covering the period of at least twelve months beginning
with the first day of the Company's first full calendar quarter after the
effective date of the registration statement, which earnings statement shall
satisfy the provisions of Section 11(a) of the Securities Act and Rule 158
thereunder;
(k) permit any holder of Registrable Securities which holder, in
its reasonable judgment, might be deemed to be an underwriter or a
controlling person of the Company, to participate in the preparation of such
registration or comparable statement and to require the insertion therein of
material, furnished to the Company in writing, which in the reasonable
judgment of such holder and its counsel should be included;
(l) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the qualification
of any Common Stock included in such registration statement for sale in any
jurisdiction, the Company shall use its best efforts promptly to obtain the
withdrawal of such order; and
(m) obtain a comfort letter, addressed to the holders of the
Registrable Securities covered by the registration statement, from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by comfort letters as the holders of
a majority of the Registrable Securities being sold reasonably request.
5. REGISTRATION EXPENSES.
(a) All expenses incident to the Company's performance of or
compliance with this Agreement, including, without limitation, all
registration and filing fees, fees and
6.
<PAGE>
expenses of compliance with securities or blue sky laws, printing expenses,
messenger and delivery expenses, fees and disbursements of custodians, and
fees and disbursements of counsel for the Company and all independent
certified public accountants, underwriters (excluding discounts and
commissions) and other Persons retained by the Company (all such expenses
being herein called "Registration Expenses"), shall be borne as provided in
this Agreement; in addition, the Company shall pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit or quarterly review, the expense of any liability insurance and the
expenses and fees for listing the securities to be registered on each
securities exchange on which similar securities issued by the Company are
then listed or on the NASD automated quotation system.
(b) In connection with each Demand Registration and each
Piggyback Registration, the Company shall reimburse the holders of
Registrable Securities included in such registration for the reasonable fees
and disbursements (up to a maximum of $15,000) of one counsel chosen by the
holders of a majority of the Registrable Securities included in such
registration and for the reasonable fees and disbursements (up to a maximum
of $5,000 each) of each additional counsel retained by any holder of
Registrable Securities for the purpose of rendering a legal opinion on behalf
of such holder in connection with any underwritten Demand Registration or
Piggyback Registration.
(c) To the extent that Registration Expenses are not paid by the
Company, each holder of securities included in any registration hereunder
shall pay those Registration Expenses allocable to the registration of such
holder's securities so included, and any Registration Expenses not so
allocable shall be borne by all sellers of securities included in such
registration in proportion to the aggregate selling price of the securities
to be so registered.
6. INDEMNIFICATION.
(a) The Company agrees to indemnify, to the extent permitted by
law, each holder of Registrable Securities, its officers and directors and
each Person who controls such holder (within the meaning of the Securities
Act) against all losses, claims, damages, liabilities and expenses caused by
any untrue or alleged untrue statement of material fact contained in any
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, except insofar as the same are caused by
or contained in any information furnished in writing to the Company by such
holder expressly for use therein or, in a registration not involving an
underwritten offering, are caused by such holder's failure to deliver a copy
of the registration statement or prospectus or any amendments or supplements
thereto after the Company has furnished such holder with a sufficient number
of copies of the same. In connection with an underwritten offering, the
Company shall indemnify such underwriters, their officers and directors and
each Person who controls such underwriters (within the meaning of the
Securities Act) to the same extent as provided above with respect to the
indemnification of the holders of Registrable Securities.
(b) In connection with any registration statement in which a
holder of Registrable Securities is participating, each such holder shall
furnish to the Company in writing such information and affidavits as the
Company reasonably requests for use in connection with
7.
<PAGE>
any such registration statement or prospectus and, to the extent permitted by
law, shall indemnify the Company, its directors and officers and each Person
who controls the Company (within the meaning of the Securities Act) against
any losses, claims, damages, liabilities and expenses resulting from any
untrue or alleged untrue statement of material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission or alleged omission of a
material fact required to be stated therein or necessary to make the
statements therein not misleading, but only to the extent that such untrue
statement or omission is contained in any information or affidavit so
furnished in writing by such holder; PROVIDED THAT the obligation to
indemnify shall be individual, not joint and several, for each holder and
shall be limited to the net amount of proceeds received by such holder from
the sale of Registrable Securities pursuant to such registration statement.
(c) Any Person entitled to indemnification hereunder shall (i)
give prompt written notice to the indemnifying party of any claim with
respect to which it seeks indemnification (PROVIDED THAT the failure to give
prompt notice shall not impair any Person's right to indemnification
hereunder to the extent that such failure has not prejudiced the indemnifying
party) and (ii) unless in such indemnified party's reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist with respect to such claim, permit such indemnifying party to assume
the defense of such claim with counsel reasonably satisfactory to the
indemnified party. If such defense is assumed, the indemnifying party shall
not be subject to any liability for any settlement made by the indemnified
party without its consent (but such consent shall not be unreasonably
withheld). An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim shall not be obligated to pay the fees and
expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect
to such claim.
(d) The indemnification provided for under this Agreement shall
remain in full force and effect regardless of any investigation made by or on
behalf of the indemnified party or any officer, director or controlling
Person of such indemnified party and shall survive the transfer of
securities. The Company also agrees to make such provisions, as are
reasonably requested by any indemnified party, for contribution to such party
in the event the Company's indemnification is unavailable for any reason.
7. PARTICIPATION IN UNDERWRITTEN REGISTRATIONS. No Person may
participate in any registration hereunder which is underwritten unless such
Person (i) agrees to sell such Person's securities on the basis provided in
any underwriting arrangements approved by the Person or Persons entitled
hereunder to approve such arrangements and (ii) completes and executes all
questionnaires, powers of attorney, custody agreements, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements; PROVIDED THAT no holder of Registrable Securities
included in any underwritten registration shall be required to make any
representations or warranties to the Company or the underwriters (other than
representations and warranties regarding such holder and such holder's
intended method of distribution) or to undertake any indemnification
obligations to the Company or the underwriters with respect thereto, except
as otherwise provided in Section 6 hereof.
8.
<PAGE>
8. DEFINITIONS.
(a) "REGISTRABLE SECURITIES" means (i) Common Stock issuable upon
conversion of the Convertible Stock and the 250,000 shares of Common Stock
issued to Telinnovation pursuant to the Invention Purchase Agreement dated
November 15, 1998 between the Company and Telinnovation, (ii) any Common
Stock issued or issuable with respect to the securities referred to in clause
(i) above by way of a stock dividend or stock split or in connection with a
combination of shares, recapitalization, merger, consolidation or other
reorganization and (iii) any other shares of Common Stock held by Persons
holding securities described in clauses (i) or (ii) above. As to any
particular Registrable Securities, such securities shall cease to be
Registrable Securities when they have been distributed to the public pursuant
to an offering registered under the Securities Act or sold to the public
through a broker, dealer or market maker in compliance with Rule 144 under
the Securities Act (or any similar rule then in force) or repurchased by the
Company or any Subsidiary.
(b) Unless otherwise stated, other capitalized terms contained
herein have the meanings set forth in the Purchase Agreement.
9. MISCELLANEOUS.
(a) NO INCONSISTENT AGREEMENTS. The Company shall not hereafter
enter into any agreement with respect to its securities which is inconsistent
with or violates the rights granted to the holders of Registrable Securities
in this Agreement.
(b) ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company
shall not take any action, or permit any change to occur, with respect to its
securities which would materially and adversely affect the ability of the
holders of Registrable Securities to include such Registrable Securities in a
registration undertaken pursuant to this Agreement or which would materially
and adversely affect the marketability of such Registrable Securities in any
such registration (including, without limitation, effecting a stock split or
a combination of shares).
(c) REMEDIES. Any Person having rights under any provision of
this Agreement shall be entitled to enforce such rights specifically to
recover damages caused by reason of any breach of any provision of this
Agreement and to exercise all other rights granted by law. The parties
hereto agree and acknowledge that money damages may not be an adequate remedy
for any breach of the provisions of this Agreement and that any party may in
its sole discretion apply to any court of law or equity of competent
jurisdiction (without posting any bond or other security) for specific
performance and for other injunctive relief in order to enforce or prevent
violation of the provisions of this Agreement.
(d) AMENDMENTS AND WAIVERS. Except as otherwise provided herein,
the provisions of this Agreement may be amended or waived only upon the prior
written consent of the Company and holders of a majority of the Registrable
Securities.
(e) SUCCESSORS AND ASSIGNS. All covenants and agreements in this
Agreement by or on behalf of any of the parties hereto shall bind and inure
to the benefit of the respective successors and assigns of the parties hereto
whether so expressed or not. In addition, whether or not any express
assignment has been made, the provisions of this Agreement which
9.
<PAGE>
are for the benefit of purchasers or holders of Registrable Securities are
also for the benefit of, and enforceable by, any subsequent holder of
Registrable Securities.
(f) SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of this Agreement.
(g) COUNTERPARTS. This Agreement may be executed simultaneously
in two or more counterparts, any one of which need not contain the signatures
of more than one party, but all such counterparts taken together shall
constitute one and the same Agreement.
(h) DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience only and do not constitute a part of
this Agreement.
(i) GOVERNING LAW. All issues and questions concerning the
construction, validity, interpretation and enforcement of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of California, without giving effect
to any choice of law or conflict of law rules or provisions (whether of the
State of California or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of
California.
(j) NOTICES. All notices and other communications required or
permitted hereunder shall be in writing, shall be effective when given, and
shall in any event be deemed to be given upon receipt or, if earlier, (i)
five (5) days after deposit with the U.S. Postal Service or other applicable
postal service, if delivered by first class mail, postage prepaid, (ii) upon
delivery, if delivered by hand, (iii) one business day after the business day
of deposit with Federal Express or similar overnight courier, freight prepaid
or (iv) one business day after the business day of facsimile transmission, if
delivered by facsimile transmission with copy by first class mail, postage
prepaid, and shall be addressed as follows, or at such other address as a
party may designate by ten (10) days' advance written notice to the other
parties to this Agreement pursuant to the provisions of this Section 9(j):
(x) if to an Investor, to such Investor's address set forth
on the Schedule of Investors, with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Facsimile: (650) 493-6811
Attention: Jeffrey D. Saper, Esq.
10.
<PAGE>
(y) if to the Company, to:
Ditech Corporation
825 E. Middlefield Road
Mountain View, California 94043
Facsimile: (650) 564-9599
Attention: William Tamblyn
with a copy to:
Cooley Godward LLP
Five Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Facsimile: (650) 857-0663
Attention: Andrei M. Manoliu, Esq.
(y) if to Telinnovation, to:
Telinnovation
415 Clyde Avenue #105
Mountain View, California 94301
Facsimile: (650) [ ]
(k) NON-APPLICABILITY TO IPO. Notwithstanding anything to the
contrary set forth herein, no party hereto shall have any rights to register
any shares of the Company's Common Stock in connection with the Company's
underwritten initial public offering of its Common Stock pursuant to a
registration statement on Form S-1 to occur in calendar 1999.
(l) ENTIRE AGREEMENT. This Agreement constitutes the entire
agreement of the parties hereto with respect to the subject matter hereof,
and supercedes all prior agreements with respect to the subject matter
hereof, including the Prior Registration Rights Agreement.
11.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on
the date first written above.
DITECH CORPORATION,
a California corporation
By /s/ William Tamblyn
------------------------------
William Tamblyn
Chief Financial Officer
[REGISTRATION STATEMENT]
12.
<PAGE>
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.
Its General Partner
By: Stamps, Woodsum & Co. IV
Its General Partner
By: /s/ Stamps, Woodsum & Co.
---------------------------
Its: General Partner
---------------------------
SUMMIT INVESTORS III, L.P.
By: /s/ Summit Investors III, L.P.
------------------------------
Its: General Partner
------------------------------
SUMMIT SUBORDINATED DEBT FUND, L.P.
By: Summit Partners III, L.P.
Its General Partner
By: Stamps, Woodsum & Co. III
Its General Partner
By: /s/ Stamps, Woodsum & Co. III
-----------------------------
Its: General Partner
---------------------------
TELINNOVATION
By: /s/ David Shvarts
---------------------------
David Shvarts
Its: General Partner
[REGISTRATION STATEMENT]
13.
<PAGE>
SCHEDULE OF INVESTORS
Name and Address
- -----------------
Summit Ventures IV, L.P.
Summit Ventures III, L.P.
Summit Subordinated Debt Fund, L.P.
499 Hamilton Avenue
Palo Alto, California
Facsimile: (415) 321-1188
Attention: Mr. Gregory M. Avis
William Priest
c/o BEA Associates
153 East 53rd Street
New York, NY 10002
William Marquard
Anthony & Jane Stepanski
Alfred Martinelli
Todd Rice, Manager Empire Fund
c/o BEA Associates
153 East 53rd Street
New York, NY 10022
Attention: Lisa Rae Johnson
David Pauli
Bill Holland
David Riddle
Stephen MacPhail
Michael Kelly
Peter Anderson
C.I. Mutual Funds
151 Yonge St., 7th Floor
Toronto, Ontario
MSC 2Y1
Jim Wilhelm
Midland Walwyn Inc.
412 Dundas St., Ground Floor
Woodstock, Ontario
N3S 1B9
[REGISTRATION STATEMENT]
14.
<PAGE>
LEASE AGREEMENT
(NNN R&D)
BASIC LEASE INFORMATION
LEASE DATE: August 18, 1998
LANDLORD: Lincoln-Whitehall Pacific, LLC
a Delaware limited liability company
LANDLORD'S ADDRESS: c/o LPC MS, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404-1167
TENANT: DITECH Corporation,
a California corporation
TENANT'S ADDRESS: 570 Maude Court, Sunnyvale, CA 94086 CHANGING TO:
825 E. Middlefield Road, Mountain View, CA AS OF
OCTOBER 15, 1998
PREMISES: Approximately 35,800 rentable square feet as shown
on EXHIBIT A
PREMISES ADDRESS: 825 E. Middlefield Road, Unit A
Mountain View, CA
BUILDING: Approximately 45,716 rentable square feet
LOT (BUILDING'S TAX PARCEL): APN # 165-36-002
PARK: MIDDLEFIELD BERNARDO BUSINESS
PARK: Approximately 171,784 rentable square feet
TERM: October 15, 1998 ("Commencement Date"), through
October 14, 2003 ("Expiration Date")
BASE RENT (3): Sixty Four Thousand Two Hundred Six and 76/100
Dollars ($64,206.76) per month commencing October
15, 1998 through October 14, 1999
ADJUSTMENTS TO BASE RENT: Effective October 15, 1999, the Base Rent shall
increase to $66,713.30 per month;
Effective October 15, 2000, the Base Rent shall
increase to $69,319.54 per month;
Effective October 15, 2001, the Base Rent shall
increase to $72,030.03 per month;
Effective October 15, 2002, the Base Rent shall
increase to $74,848.48 per month.
SECURITY DEPOSIT (4): Eighty Three Thousand Seven Hundred Ninety-eight
and 94/100 Dollars ($83,798.94)
*TENANT'S SHARE OF OPERATING EXPENSES (6.1): 20.84% of the Park
*TENANT'S SHARE OF TAX EXPENSES (6.2): 20.84% of the Park
*TENANT'S SHARE OF COMMON AREA UTILITY COSTS (7): 20.84% of the Park
*TENANT'S SHARE OF UTILITY EXPENSES (7): 20.84% of the Park
*The amount of Tenant's Share of the expenses as referenced above shall be
subject to modification as set forth in this Lease.
PERMITTED USES (9): The Premises shall be used solely for the office,
R&D, light manufacturing; and sale of wireless and
wireline communications products and for no other
purposes without Landlord's prior written consent,
but only to the extent permitted by the City of
Mountain View and all agencies and governmental
authorities having jurisdiction thereof.
UNRESERVED
PARKING SPACES: One hundred twenty-three (123) non-exclusive and
non-designated spaces
BROKER (38): Colliers Parrish International for Tenant
LPC MS, Inc. for Landlord
EXHIBITS: EXHIBIT A - PREMISES, BUILDING, LOT AND/OR PARK
EXHIBIT B - TENANT IMPROVEMENTS
EXHIBIT C - RULES AND REGULATIONS
EXHIBIT D - COVENANTS, CONDITIONS AND
RESTRICTIONS (INTENTIONALLY
OMITTED)
EXHIBIT E - HAZARDOUS MATERIALS DISCLOSURE
CERTIFICATE - EXAMPLE
EXHIBIT F - CHANGE OF COMMENCEMENT DATE -
EXAMPLE
EXHIBIT G - TENANT'S INITIAL HAZARDOUS
MATERIALS DISCLOSURE CERTIFICATE
ADDENDA: ADDENDUM 1: OPTION TO EXTEND THE
LEASE
ADDENDUM 2: FIRST RIGHT OF OFFER
1
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
SECTION PAGE
<S> <C>
1. PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES. . . . . . . 4
3. RENT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
4. SECURITY DEPOSIT. . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
5. TENANT IMPROVEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . 5
6. ADDITIONAL RENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
7. UTILITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
8. LATE CHARGES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
9. USE OF PREMISES . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
10. ALTERATIONS AND ADDITIONS; AND SURRENDER OF PREMISES. . . . . . . . . . 9
11. REPAIRS AND MAINTENANCE . . . . . . . . . . . . . . . . . . . . . . . .10
12. INSURANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
13. WAIVER OF SUBROGATION . . . . . . . . . . . . . . . . . . . . . . . . .12
14. LIMITATION OF LIABILITY AND INDEMNITY . . . . . . . . . . . . . . . . .12
15. ASSIGNMENT AND SUBLEASING . . . . . . . . . . . . . . . . . . . . . . .12
16. AD VALOREM TAXES. . . . . . . . . . . . . . . . . . . . . . . . . . . .14
17. SUBORDINATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
18. RIGHT OF ENTRY. . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
19. ESTOPPEL CERTIFICATE. . . . . . . . . . . . . . . . . . . . . . . . . .15
20. TENANT'S DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . .15
21. REMEDIES FOR TENANT'S DEFAULT . . . . . . . . . . . . . . . . . . . . .16
22. HOLDING OVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
23. LANDLORD'S DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . .17
24. PARKING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17
25. SALE OF PREMISES. . . . . . . . . . . . . . . . . . . . . . . . . . . .17
26. WAIVER. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
27. CASUALTY DAMAGE . . . . . . . . . . . . . . . . . . . . . . . . . . . .18
28. CONDEMNATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .19
29. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS . . . . . . . . . . . . . . .20
30. FINANCIAL STATEMENTS. . . . . . . . . . . . . . . . . . . . . . . . . .22
31. GENERAL PROVISIONS. . . . . . . . . . . . . . . . . . . . . . . . . . .22
32. SIGNS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
33. MORTGAGEE PROTECTION. . . . . . . . . . . . . . . . . . . . . . . . . .24
34. QUITCLAIM . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
35. MODIFICATIONS FOR LENDER. . . . . . . . . . . . . . . . . . . . . . . .24
36. WARRANTIES OF TENANT. . . . . . . . . . . . . . . . . . . . . . . . . .24
37. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT . . . . . . . . . . . .24
38. BROKERAGE COMMISSION. . . . . . . . . . . . . . . . . . . . . . . . . .25
39. QUIET ENJOYMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . .25
40. LANDLORD'S ABILITY TO PERFORM TENANT'S UNPERFORMED OBLIGATIONS. . . . .25
</TABLE>
2
<PAGE>
LEASE AGREEMENT
DATE: This Lease is made and entered into as of the Lease Date set forth on
Page 1. The Basic Lease Information set forth on Page 1 and this
Lease are and shall be construed as a single instrument.
1. PREMISES: Landlord hereby leases the Premises to Tenant upon the terms and
conditions contained herein. Landlord hereby grants to Tenant a license for the
right to use, on a non-exclusive basis, parking areas and ancillary facilities
located within the Common Areas of the Park, subject to the terms of this Lease.
Landlord and Tenant hereby agree that for purposes of this Lease, as of the
Lease Date, the rentable square footage area of the Premises, the Building, the
Lot and the Park shall be deemed to be the number of rentable square feet as set
forth in the Basic Lease Information on Page 1. Tenant hereby acknowledges that
the rentable square footage of the Premises may include a proportionate share of
certain areas used in common by all occupants of the Building and/or the Park
(for example an electrical room or telephone room). Tenant further agrees that
the number of rentable square feet of the Building, the Lot and the Park may
subsequently change after the Lease Date commensurate with any modifications to
any of the foregoing by Landlord, and Tenant's Share shall accordingly change.
2. ADJUSTMENT OF COMMENCEMENT DATE; CONDITION OF THE PREMISES:
2.1 If Landlord cannot deliver possession of the Premises on the
Commencement Date, Landlord shall not be subject to any liability nor shall the
validity of the Lease be affected; provided, the Lease Term and the obligation
to pay Rent shall commence on the date possession is tendered and the Expiration
Date shall be extended commensurately. In the event the commencement date
and/or the expiration date of this Lease is other than the Commencement Date
and/or Expiration Date specified in the Basic Lease Information, as the case may
be, Landlord and Tenant shall execute a written amendment to this Lease,
substantially in the form of EXHIBIT F hereto, wherein the parties shall specify
the actual commencement date, expiration date and the date on which Tenant is to
commence paying Rent. The word "Term" whenever used herein refers to the
initial term of this Lease and any extension thereof. By taking possession of
the Premises, Tenant shall be deemed to have accepted the Premises in good
condition and state of repair. Tenant hereby acknowledges and agrees that
neither Landlord nor Landlord's agents or representatives has made any
representations or warranties as to the suitability, safety or fitness of the
Premises for the conduct of Tenant's business, Tenant's intended use of the
Premises or for any other purpose.
2.2 In the event Landlord permits Tenant to occupy the Premises prior
to the Commencement Date, such occupancy shall be at Tenant's sole risk and
subject to all the provisions of this Lease, including, but not limited to, the
requirement to pay Rent and the Security Deposit, and to obtain the insurance
required pursuant to this Lease and to deliver insurance certificates as
required herein. In addition to the foregoing, Landlord shall have the right to
impose such reasonable additional conditions on Tenant's early entry as Landlord
shall deem appropriate. If, at any time, Tenant is in default of any term,
condition or provision of this Lease, any such waiver by Landlord of Tenant's
requirement to pay rental payments shall be null and void and Tenant shall
immediately pay to Landlord all rental payments so waived by Landlord.
3. RENT: On the date that Tenant executes this Lease, Tenant shall deliver to
Landlord the original executed Lease, the Base Rent (which shall be applied
against the Rent payable for the first month Tenant is required to pay Base
Rent), the Security Deposit, and within ten (10) days thereafter, all insurance
certificates evidencing the insurance required to be obtained by Tenant under
Section 12 of this Lease. Tenant agrees to pay Landlord, without prior notice
or demand, or abatement, offset, deduction or claim, the Base Rent specified in
the Basic Lease Information, payable in advance at Landlord's address specified
in the Basic Lease Information on the Commencement Date and thereafter on the
first (1st) day of each month throughout the balance of the Term of the Lease.
In addition to the Base Rent set forth in the Basic Lease Information, Tenant
shall pay Landlord in advance on the Commencement Date and thereafter on the
first (1st) day of each month throughout the balance of the Term of this Lease,
as Additional Rent, Tenant's Share of Operating Expenses, Tax Expenses, Common
Area Utility Costs, and Utility Expenses. The term "Rent" whenever used herein
refers to the aggregate of all these amounts. If Landlord permits Tenant to
occupy the Premises without requiring Tenant to pay rental payments for a period
of time, the waiver of the requirement to pay rental payments shall only apply
to waiver of the Base Rent and Tenant shall otherwise perform all other
obligations of Tenant required hereunder. The Rent for any fractional part of a
calendar month at the commencement or termination of the Lease term shall be a
prorated amount of the Rent for a full calendar month based upon a thirty (30)
day month. The prorated Rent shall be paid on the Commencement Date and the
first day of the calendar month in which the date of termination occurs, as the
3
<PAGE>
case may be.
4. SECURITY DEPOSIT: Upon Tenant's execution of this Lease, Tenant shall
deliver to Landlord, as a Security Deposit for the performance by Tenant of its
obligations under this Lease, the amount specified in the Basic Lease
Information. If Tenant is in default, Landlord may, but without obligation to
do so, use the Security Deposit, or any portion thereof, to cure the default or
to compensate Landlord for all damages sustained by Landlord resulting from
Tenant's default. Tenant shall, immediately on demand, pay to Landlord a sum
equal to the portion of the Security Deposit so applied or used so as to
replenish the amount of the Security Deposit held to increase such deposit to
the amount initially deposited with Landlord. At any time after Tenant has
defaulted hereunder, Landlord may require an increase in the amount of the
Security Deposit required hereunder for the then balance of the Lease Term and
Tenant shall, immediately on demand, pay to Landlord additional sums in the
amount of such increase. As soon as practicable after the termination of this
Lease, Landlord shall return the Security Deposit to Tenant, less such amounts
as are reasonably necessary, as determined solely by Landlord, to remedy
Tenant's default(s) hereunder or to otherwise restore the Premises to the
condition in which Tenant is required to surrender the same, reasonable wear and
tear excepted. If the cost to restore the Premises exceeds the amount of the
Security Deposit, Tenant shall promptly deliver to Landlord any and all of such
excess sums as reasonably determined by Landlord. Landlord shall not be
required to keep the Security Deposit separate from other funds, and, unless
otherwise required by law, Tenant shall not be entitled to interest on the
Security Deposit. In no event or circumstance shall Tenant have the right to
any use of the Security Deposit and, specifically, Tenant may not use the
Security Deposit as a credit or to otherwise offset any payments required
hereunder, including, but not limited to, Rent or any portion thereof.
5. TENANT IMPROVEMENTS: Tenant hereby accepts the Premises as suitable for
Tenant's intended use and as being in good operating order, condition and
repair, "AS IS", except as specified in EXHIBIT B attached hereto. Landlord or
Tenant, as the case may be, shall install and construct the Tenant Improvements
(as such term is defined in EXHIBIT B hereto) in accordance with the terms,
conditions, criteria and provisions set forth in EXHIBIT B. Landlord and Tenant
hereby agree to and shall be bound by the terms, conditions and provisions of
EXHIBIT B. Tenant acknowledges and agrees that neither Landlord nor any of
Landlord's agents, representatives or employees has made any representations as
to the suitability, fitness or condition of the Premises for the conduct of
Tenant's business or for any other purpose, including without limitation, any
storage incidental thereto. Any exception to the foregoing provisions must be
made by express written agreement by both parties.
6. ADDITIONAL RENT : It is intended by Landlord and Tenant that this Lease be
a "triple net lease." The costs and expenses described in this Section 6 and
all other sums, charges, costs and expenses specified in this Lease other than
Base Rent are to be paid by Tenant to Landlord as additional rent (collectively,
"Additional Rent").
6.1 OPERATING EXPENSES: In addition to the Base Rent set forth in
Section 3, Tenant shall pay Tenant's Share, which is specified in the Basic
Lease Information, of all Operating Expenses as Additional Rent. The term
"Operating Expenses" as used herein shall mean the total amounts paid or payable
by Landlord in connection with the ownership, maintenance, repair and operation
of the Premises, the Building and the Lot, and where applicable, of the Park
referred to in the Basic Lease Information. The amount of Tenant's Share of
Operating Expenses shall be reviewed from time to time by Landlord and shall be
subject to modification by Landlord if there is a change in the rentable square
footage of the Premises, the Building and/or the Park. These Operating Expenses
may include, but are not limited to:
6.1.1 Landlord's cost of repairs to, and maintenance of, the roof,
the roof membrane and the exterior walls of the Building;
6.1.2 Landlord's cost of maintaining the outside paved area,
landscaping and other common areas for the Park. The term "Common Areas"
shall mean all areas and facilities within the Park exclusive of the
Premises and the other portions of the Park leasable exclusively to other
tenants. The Common Areas include, but are not limited to, parking areas,
access and perimeter roads, sidewalks, landscaped areas and similar areas
and facilities;
6.1.3 Landlord's annual cost of insurance insuring against fire
and extended coverage (including, if Landlord elects, "all risk" or
"special purpose" coverage) and all other insurance, including, but not
limited to, earthquake, flood and/or surface water endorsements for the
Building, the Lot and the Park (including the Common Areas), rental
value insurance against loss of Rent in an amount equal to the amount of
Rent for a period of at least six (6) months commencing on the date of
loss, and subject to the provisions of Section 27 below, any deductible;
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6.1.4 Landlord's cost of: (i) modifications and/or new
improvements to the Building, the Common Areas and/or the Park occasioned
by any rules, laws or regulations effective subsequent to the date on which
the Building was originally constructed; (ii) reasonably necessary
replacement improvements to the Building, the Common Areas and the Park
after the Lease Date; and (iii) new improvements to the Building, the
Common Areas and/or the Park that reduce operating costs or improve
life/safety conditions, all as reasonably determined by Landlord, in its
reasonable discretion; provided, however, if there are modifications
necessitated by any such rules, laws or regulations or there are
replacement improvements which are required to be made to the Building, the
Common Area and/or the Park which are in the nature of capital
improvements, then the costs of such modifications and replacement
improvements shall be amortized over a reasonable period which shall not be
less than the lesser of fifteen (15) years or the reasonably estimated
useful life of the modifications or replacement improvements in question
(at an interest rate as reasonably determined by Landlord) and Tenant shall
pay its pro rata share of the monthly amortized portion of such costs
(including interest charges) as part of the Operating Expenses;
6.1.5 If Landlord elects to so procure, Landlord's cost of
preventative maintenance, and repair contracts including, but not limited
to, contracts for elevator systems and heating, ventilation and air
conditioning systems, lifts for disabled persons, and trash or refuse
collection;
6.1.6 Landlord's cost of security and fire protection services for
the Building and/or the Park, as the case may be, if in Landlord's sole
discretion such services are provided;
6.1.7 Landlord's cost of supplies, equipment, rental equipment and
other similar items used in the operation and/or maintenance of the Park;
6.1.8 Landlord's cost for the repairs and maintenance items set
forth in Section 11.2 below; and
6.1.9 Landlord's cost for the management and administration of the
Premises, the Building, the Common Areas and the Park, including without
limitation, a property management fee, accounting, auditing, billing,
salaries for clerical and supervisory employees (whether located within the
Park or off-site) and all fees, licenses and permits related to the
ownership, operation and management of any portion of the Park in an amount
not to exceed three percent (3%) of the Rent, excluding for purposes of
calculating this sum, the costs described in this Section 6.1.9.
6.2 TAX EXPENSES: In addition to the Base Rent set forth in Section 3,
Tenant shall pay its share, which is specified in the Basic Lease Information,
of all real property taxes applicable to the land and improvements included
within the Lot on which the Premises are situated and one hundred percent (100%)
of all personal property taxes now or hereafter assessed or levied against the
Premises or Tenant's personal property. The amount of Tenant's Share of Tax
Expenses shall be reviewed from time to time by Landlord and shall be subject to
modification by Landlord if there is a change in the rentable square footage of
the Premises, the Building and/or the Park. Tenant shall also pay one hundred
percent (100%) of any increase in real property taxes attributable, in
Landlord's reasonable discretion, to any and all alterations, Tenant
Improvements or other improvements of any kind, which are above standard
improvements customarily installed within the Building, whatsoever placed in, on
or about the Premises for the benefit of, at the request of, or by Tenant. The
term "Tax Expenses" shall mean and include, without limitation, any form of tax
and assessment (general, special, supplemental, ordinary or extraordinary),
commercial rental tax, payments under any improvement bond or bonds, license
fees, license tax, business license fee, rental tax, transaction tax, or levy
imposed by authority having the direct or indirect power of tax (including any
city, county, state or federal government, or any school, agricultural,
lighting, drainage or other improvement district thereof) as against any legal
or equitable interest of Landlord in the Premises, the Building, the Lot or the
Park, as against Landlord's right to rent, or as against Landlord's business of
leasing the Premises or the occupancy of Tenant or any other tax, fee, or
excise, however described, including, but not limited to, any value added tax,
or any tax imposed in substitution (partially or totally) of any tax previously
included within the definition of real property taxes, or any additional tax the
nature of which was previously included within the definition of real property
taxes. The term "Tax Expenses" shall not include any franchise, estate,
inheritance, net income, or excess profits tax imposed upon Landlord.
6.3 PAYMENT OF EXPENSES: Landlord shall estimate Tenant's Share of the
Operating Expenses and Tax Expenses for the calendar year in which the Lease
commences. Commencing on the Commencement Date, one-twelfth (1/12th) of this
estimated amount shall be paid by Tenant to Landlord, as Additional Rent, and
thereafter on the first (1st) day of each month throughout the remaining months
of such calendar year. Thereafter, Landlord may estimate such expenses as of
the beginning of each calendar year during the Term of this Lease and Tenant
shall pay one-twelfth (1/12th) of such estimated amount as
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Additional Rent hereunder on the first (1st) day of each month during such
calendar year and for each ensuing calendar year throughout the Term of this
Lease. Tenant's obligation to pay Tenant's Share of Operating Expenses and Tax
Expenses shall survive the expiration or earlier termination of this Lease.
6.4 ANNUAL RECONCILIATION: By June 30th of each calendar year, or as
soon thereafter as reasonably possible, Landlord shall endeavor to furnish
Tenant with an accounting of actual Operating Expenses and Tax Expenses. Within
thirty (30) days of Landlord's delivery of such accounting, Tenant shall pay to
Landlord the amount of any underpayment. Notwithstanding the foregoing, failure
by Landlord to give such accounting by such date shall not constitute a waiver
by Landlord of its right to collect any of Tenant's underpayment at any time.
Landlord shall credit the amount of any overpayment by Tenant toward the next
estimated monthly installment(s) falling due, or where the Term of the Lease has
expired, refund the amount of overpayment to Tenant. If the Term of the Lease
expires prior to the annual reconciliation of expenses Landlord shall have the
right to reasonably estimate Tenant's Share of such expenses, and if Landlord
determines that an underpayment is due, Tenant hereby agrees that Landlord shall
be entitled to deduct such underpayment from Tenant's Security Deposit. If
Landlord reasonably determines that an overpayment has been made by Tenant,
Landlord shall refund said overpayment to Tenant as soon as practicable
thereafter. Notwithstanding the foregoing, failure of Landlord to accurately
estimate Tenant's Share of such expenses or to otherwise perform such
reconciliation of expenses, including without limitation, Landlord's failure to
deduct any portion of any underpayment from Tenant's Security Deposit, shall not
constitute a waiver of Landlord's right to collect any of Tenant's underpayment
at any time during the Term of the Lease or at any time after the expiration or
earlier termination of this Lease.
6.5 AUDIT: After delivery to Landlord of at least thirty (30) days
prior written notice, Tenant, at its sole cost and expense through any
accountant designated by it, shall have the right to examine and/or audit the
books and records evidencing such costs and expenses for the previous one (1)
calendar year, during Landlord's reasonable business hours but not more
frequently than once during any calendar year. Any such accounting firm
designated by Tenant may not be compensated on a contingency fee basis. The
results of any such audit (and any negotiations between the parties related
thereto) shall be maintained strictly confidential by Tenant and its accounting
firm and shall not be disclosed, published or otherwise disseminated to any
other party other than to Landlord and its authorized agents. Landlord and
Tenant shall use their best efforts to cooperate in such negotiations and to
promptly resolve any discrepancies between Landlord and Tenant in the accounting
of such costs and expenses.
7. UTILITIES: Utility Expenses, Common Area Utility Costs and all other sums
or charges set forth in this Section 7 are considered part of Additional Rent.
In addition to the Base Rent set forth in Section 3 hereof, Tenant shall pay the
cost of all water, sewer use, sewer discharge fees and sewer connection fees,
gas, heat, electricity, refuse pickup, janitorial service, telephone and other
utilities billed or metered separately to the Premises and/or Tenant. Tenant
shall also pay Tenant's Share of any assessments or charges for utility or
similar purposes included within any tax bill for the Lot on which the Premises
are situated, including, without limitation, entitlement fees, allocation unit
fees, and/or any similar fees or charges, and any penalties related thereto.
For any such utility fees or use charges that are not billed or metered
separately to Tenant, including without limitation, water and refuse pick up
charges, Tenant shall pay to Landlord, as Additional Rent, without prior notice
or demand, on the Commencement Date and thereafter on the first (1st) day of
each month throughout the balance of the Term of this Lease the amount which is
attributable to Tenant's use of the utilities or similar services, as reasonably
estimated and determined by Landlord based upon factors such as size of the
Premises and intensity of use of such utilities by Tenant such that Tenant shall
pay the portion of such charges reasonably consistent with Tenant's use of such
utilities and similar services ("Utility Expenses"). If Tenant disputes any
such estimate or determination, then Tenant shall either pay the estimated
amount or cause the Premises to be separately metered at Tenant's sole expense.
In addition, Tenant shall pay to Landlord Tenant's Share of any Common Area
utility costs, fees, charges or expenses ("Common Area Utility Costs"). Tenant
shall pay to Landlord one-twelfth (1/12th) of the estimated amount of Tenant's
Share of the Common Area Utility Costs on the Commencement Date and thereafter
on the first (1st) day of each month throughout the balance of the Term of this
Lease and any reconciliation thereof shall be substantially in the same manner
as specified in Section 6.4 above. The amount of Tenant's Share of Common Area
Utility Costs shall be reviewed from time to time by Landlord and shall be
subject to modification by Landlord if there is a change in the rentable square
footage of the Premises, the Building and/or the Park. Tenant acknowledges that
the Premises may become subject to the rationing of utility services or
restrictions on utility use as required by a public utility company,
governmental agency or other similar entity having jurisdiction thereof.
Notwithstanding any such rationing or restrictions on use of any such utility
services, Tenant acknowledges and agrees that its tenancy and occupancy
hereunder shall be subject to such rationing restrictions as may be imposed upon
Landlord, Tenant, the Premises, the Building or the Park, and Tenant shall in no
event be excused or relieved from any covenant or obligation to be kept or
performed by Tenant by reason of any such rationing or restrictions. Tenant
further agrees to timely and faithfully pay, prior to delinquency, any amount,
tax, charge, surcharge, assessment or imposition levied, assessed or imposed
upon the Premises for Tenant's use
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and occupancy thereof. Notwithstanding anything to the contrary contained
herein, if permitted by applicable Laws, Landlord shall have the right at any
time and from time to time during the Term of this Lease to either contract for
service from a different company or companies (each such company shall be
referred to herein as an "Alternate Service Provider") other than the company or
companies presently providing electricity service for the Building or the Park
(the "Electric Service Provider") or continue to contract for service from the
Electric Service Provider at Landlord's sole discretion. Tenant hereby agrees
to cooperate with Landlord, the Electric Service Provider, and any Alternate
Service Provider at all times and, as reasonably necessary, shall allow
Landlord, the Electric Service Provider, and any Alternate Service Provider
reasonable access to the Building's electric lines, feeders, risers, wiring, and
any other machinery within the Premises.
8. LATE CHARGES: Any and all sums or charges set forth in this Section 8 are
considered part of Additional Rent. Tenant acknowledges that late payment (the
fifth day of each month or any time thereafter) by Tenant to Landlord of Base
Rent, Tenant's Share of Operating Expenses, Tax Expenses, Common Area Utility
Costs, and Utility Expenses or other sums due hereunder, will cause Landlord to
incur costs not contemplated by this Lease, the exact amount of such costs being
extremely difficult and impracticable to fix. Such costs include, without
limitation, processing and accounting charges, and late charges that may be
imposed on Landlord by the terms of any note secured by any encumbrance against
the Premises, and late charges and penalties due to the late payment of real
property taxes on the Premises. Therefore, if any installment of Rent or any
other sum due from Tenant is not received by Landlord within four (4) days of
the date when due, Tenant shall promptly pay to Landlord all of the following,
as applicable: (a) an additional sum equal to seven and one half percent (7.5%)
of such delinquent amount. If Tenant delivers to Landlord a check for which
there are not sufficient funds, Landlord may, at its sole option, require Tenant
to replace such check with a cashier's check for the amount of such check and
all other charges payable hereunder. The parties agree that this late charge
and the other charges referenced above represent a fair and reasonable estimate
of the costs that Landlord will incur by reason of late payment by Tenant.
Acceptance of any late charge or other charges shall not constitute a waiver by
Landlord of Tenant's default with respect to the delinquent amount, nor prevent
Landlord from exercising any of the other rights and remedies available to
Landlord for any other breach of Tenant under this Lease. If a late charge or
other charge becomes payable for any three (3) installments of Rent within any
twelve (12) month period, then Landlord, at Landlord's sole option, can either
require the Rent be paid uarterly in advance, or be paid monthly in advance by
cashier's check or by electronic funds transfer.
9. USE OF PREMISES:
9.1 COMPLIANCE WITH LAWS, RECORDED MATTERS, AND RULES AND REGULATIONS:
The Premises are to be used solely for the purposes and uses specified in the
Basic Lease Information and for no other uses or purposes without Landlord's
prior written consent, which consent shall not be unreasonably withheld or
delayed so long as the proposed use (i) does not involve the use of Hazardous
Materials other than as expressly permitted under the provisions of Section 29
below, (ii) does not require any additional parking in excess of the parking
spaces already licensed to Tenant pursuant to the provisions of Section 24 of
this Lease, and (iii) is compatible and consistent with the other uses then
being made in the Park and in other similar types of buildings in the vicinity
of the Park, as reasonably determined by Landlord. The use of the Premises by
Tenant and its employees, representatives, agents, invitees, licensees,
subtenants, customers or contractors (collectively, "Tenant's Representatives")
shall be subject to, and at all times in compliance with, (a) any and all
applicable laws, ordinances, statutes, orders and regulations as same exist from
time to time (collectively, the "Laws"), (b) any and all documents, matters or
instruments, including without limitation, any declarations of covenants,
conditions and restrictions, and any supplements thereto, each of which has been
or hereafter is recorded in any official or public records with respect to the
Premises, the Building, the Lot and/or the Park, or any portion thereof
(collectively, the "Recorded Matters"), and (c) any and all rules and
regulations set forth in EXHIBIT C, attached to and made a part of this Lease,
and any other reasonable rules and regulations promulgated by Landlord now or
hereafter enacted relating to parking and the operation of the Premises, the
Building and the Park (collectively, the "Rules and Regulations"). Tenant
agrees to, and does hereby, assume full and complete responsibility to ensure
that the Premises are adequate to fully meet the needs and requirements of
Tenant's intended operations of its business within the Premises, and Tenant's
use of the Premises and that same are in compliance with all applicable Laws
throughout the Term of this Lease. Additionally, Tenant shall be solely
responsible for the payment of all costs, fees and expenses associated with any
modifications, improvements or alterations to the Premises, Building, the Common
Areas and/or the Park occasioned by the enactment of, or changes to, any Laws
arising from Tenant's particular use of the Premises or alterations,
improvements or additions made to the Premises by Tenant regardless of when such
Laws became effective.
9.2 PROHIBITION ON USE: Tenant shall not use the Premises or permit
anything to be done in or about the Premises nor keep or bring anything therein
which will in any way conflict with any of the
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requirements of the Board of Fire Underwriters or similar body now or hereafter
constituted or in any way increase the existing rate of or affect any policy of
fire or other insurance upon the Building or any of its contents, or cause a
cancellation of any insurance policy. No auctions may be held or otherwise
conducted in, on or about the Premises, the Building, the Lot or the Park
without Landlord's written consent thereto, which consent may be given or
withheld in Landlord's sole discretion. Tenant shall not do or permit anything
to be done in or about the Premises which will in any way obstruct or unduly
interfere with the rights of Landlord, other tenants or occupants of the
Building, other buildings in the Park, or other persons or businesses in the
area, or injure or reasonably annoy other tenants or use or allow the Premises
to be used for any unlawful or objectionable purpose, as determined by Landlord,
in its reasonable discretion, for the benefit, quiet enjoyment and use by
Landlord and all other tenants or occupants of the Building or other buildings
in the Park; nor shall Tenant cause, maintain or permit any private or public
nuisance in, on or about the Premises, Building, Park and/or the Common Areas,
including, but not limited to, any offensive odors, noises, fumes or vibrations.
Tenant shall not damage or deface or otherwise commit or suffer to be committed
any waste in, upon or about the Premises. Tenant shall not place or store, nor
permit any other person or entity to place or store, any property, equipment,
materials, supplies, personal property or any other items or goods outside of
the Premises for any period of time. Tenant shall not permit any animals,
including, but not limited to, any household pets, to be brought or kept in or
about the Premises. Tenant shall place no loads upon the floors, walls, or
ceilings n excess of the maximum designed load permitted by the applicable
Uniform Building Code or which may damage the Building or outside areas; nor
place any harmful liquids in the drainage systems; nor dump or store waste
materials, refuse or other such materials, or allow such to remain outside the
Building area, except for any non-hazardous or non-harmful materials which may
be stored in refuse dumpsters or in any enclosed trash areas provided. Tenant
shall honor the terms of all Recorded Matters relating to the Premises, the
Building, the Lot and/or the Park. Tenant shall honor the Rules and
Regulations.
10. ALTERATIONS AND ADDITIONS; AND SURRENDER OF PREMISES:
10.1 ALTERATIONS AND ADDITIONS: Tenant shall not install any signs,
fixtures, improvements, nor make or permit any other alterations or additions to
the Premises without the prior written consent of Landlord which shall not be
unreasonably withheld. If any such alteration or addition is expressly
permitted by Landlord, Tenant shall deliver at least twenty (20) days prior
notice to Landlord, from the date Tenant intends to commence construction,
sufficient to enable Landlord to post a Notice of Non-Responsibility. In all
events, Tenant shall obtain all permits or other governmental approvals prior to
commencing any of such work and deliver a copy of same to Landlord. All
alterations and additions shall be installed by a licensed contractor approved
by Landlord, (which approval shall not be unreasonably withheld) at Tenant's
sole expense in compliance with all applicable Laws (including, but not limited
to, the ADA as defined herein), Recorded Matters, and Rules and Regulations.
Tenant shall keep the Premises and the property on which the Premises are
situated free from any liens arising out of any work performed, materials
furnished or obligations incurred by or on behalf of Tenant. As a condition to
Landlord's consent to the installation of any fixtures, additions or other
improvements the cost of which exceed $50,000.00, Landlord may require Tenant to
post and obtain a completion and indemnity bond for up to one hundred fifty
percent (150%) of the cost of the work.
10.2 SURRENDER OF PREMISES: Upon the termination of this Lease, whether
by forfeiture, lapse of time or otherwise, or upon the termination of Tenant's
right to possession of the Premises, Tenant will at once surrender and deliver
up the Premises, together with the fixtures (other than trade fixtures),
additions and improvements which Landlord has notified Tenant, in writing, that
Landlord will require Tenant not to remove (and Landlord shall have so notified
Tenant of such removal requirement within twenty (20) business days of Tenant's
written request to make such additions and improvements), to Landlord in good
condition and repair (including, but not limited to, replacing all light bulbs
and ballasts not in good working condition) and in the condition in which the
Premises existed as of the Commencement Date, except for reasonable wear and
tear. Reasonable wear and tear shall not include any damage or deterioration to
the floors of the Premises arising from the use of forklifts in, on or about the
Premises (including, without limitation, any marks or stains of any portion of
the floors), and any damage or deterioration that would have been prevented by
proper maintenance by Tenant or Tenant otherwise performing all of its
obligations under this Lease. Upon such termination of this Lease, Tenant shall
remove all tenant signage, trade fixtures, furniture, furnishings, personal
property, additions, and other improvements unless Landlord requests, in
writing, that Tenant not remove some or all of such fixtures (other than trade
fixtures), additions or improvements installed by, or on behalf of Tenant or
situated in or about the Premises (and Landlord shall have so notified Tenant of
such removal requirement within twenty (20) business days of Tenant's written
request to make such additions and improvements). Tenant shall repair any
damage caused by the installation or removal of such signs, trade fixtures,
furniture, furnishings, fixtures, additions and improvements which are to be
removed from the Premises by Tenant hereunder. Tenant shall ensure that the
removal of such items and the repair of the Premises will be completed prior to
such termination of this Lease.
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11. REPAIRS AND MAINTENANCE:
11.1 TENANT'S REPAIRS AND MAINTENANCE OBLIGATIONS: Except for those
portions of the Building to be maintained by Landlord, as provided in Sections
11.2 and 11.3 below, Tenant shall, at Tenant's sole cost and expense, keep and
maintain the Premises and the adjacent dock and staging areas in good, clean and
safe condition and repair to the reasonable satisfaction of Landlord including,
but not limited to, repairing any damage caused by Tenant or Tenant's
Representatives and replacing any property so damaged by Tenant or Tenant's
Representatives. Without limiting the generality of the foregoing, Tenant shall
be solely responsible for maintaining, repairing and replacing (a) all
mechanical systems, heating, ventilation and air conditioning systems
exclusively serving the Premises, (b) all plumbing, electrical wiring and
equipment serving the Premises, (c) all interior lighting (including, without
limitation, light bulbs and/or ballasts) and exterior lighting serving the
Premises or adjacent to the Premises, (d) all glass, windows, window frames,
window casements, skylights, interior and exterior doors, door frames and door
closers, (e) all roll-up doors, ramps and dock equipment, including without
limitation, dock bumpers, dock plates, dock seals, dock levelers and dock
lights, (f) all tenant signage, (g) lifts for disabled persons serving the
Premises, (h) sprinkler systems, fire protection systems and security systems,
(i) all partitions, fixtures, equipment, interior painting, and interior walls
and floors of the Premises and every part thereof (including, without
limitation, any demising walls contiguous to any portion of the Premises).
11.2 REIMBURSABLE REPAIRS AND MAINTENANCE OBLIGATIONS: Subject to the
provisions of Sections 6 and 9 of this Lease and except for (i) the obligations
of Tenant set forth in Section 11.1 above, (ii) the obligations of Landlord set
forth in Section 11.3 below, and (iii) the repairs rendered necessary by the
intentional or negligent acts or omissions of Tenant or any of Tenant's
Representatives, Landlord agrees, at Landlord's expense, subject to
reimbursement pursuant to Section 6 above, to keep in good repair the plumbing
and mechanical systems exterior to the Premises, any rail spur and rail
crossing, the roof, roof membranes, exterior walls of the Building, signage
(exclusive of tenant signage), and exterior electrical wiring and equipment,
exterior lighting, exterior glass, exterior doors/entrances and door closers,
exterior window casements, exterior painting of the Building (exclusive of the
Premises), and underground utility and sewer pipes outside the exterior walls of
the Building. For purposes of this Section 11.2, the term "exterior" shall mean
outside of and not exclusively serving the Premises. Unless otherwise notified
by Landlord, in writing, that Landlord has elected to procure and maintain the
following described contract(s), Tenant shall procure and maintain (a) the
heating, ventilation and air conditioning systems preventative maintenance and
repair contract(s); such contract(s) to be on a bi-monthly or quarterly basis,
as reasonably determined by Landlord, and (b) the fire and sprinkler protection
services and preventative maintenance and repair contract(s) (including, without
limitation, monitoring services); such contract(s) to be on a bi-monthly or
quarterly basis, as reasonably determined by Landlord. Landlord reserves the
right, but without the obligation to do so, to procure and maintain (i) the
heating, ventilation and air conditioning systems preventative maintenance and
repair contract(s), and/or (ii) the fire and sprinkler protection services and
preventative maintenance and repair contract(s) (including, without limitation,
monitoring services). If Landlord so elects to procure and maintain any such
contract(s), Tenant will reimburse Landlord for the reasonable cost thereof in
accordance with the provisions of Section 6 above. If Tenant procures and
maintains any of such contract(s), Tenant will promptly deliver to Landlord a
true and complete copy of each such contract and any and all renewals or
extensions thereof, and each service report or other summary received by Tenant
pursuant to or in connection with such contract(s).
11.3 LANDLORD'S REPAIRS AND MAINTENANCE OBLIGATIONS: Except for repairs
rendered necessary by the intentional or negligent acts or omissions of Tenant
or any of Tenant's Representatives, Landlord agrees, at Landlord's sole cost and
expense, to (a) keep in good repair the structural portions of the floors,
foundations and exterior perimeter walls of the Building (exclusive of glass and
exterior doors), and (b) replace the structural portions of the roof of the
Building (excluding the roof membrane) as, and when, Landlord determines such
replacement to be necessary in Landlord's sole discretion.
11.4 TENANT'S FAILURE TO PERFORM REPAIRS AND MAINTENANCE OBLIGATIONS:
Except for normal maintenance and repair of the items described above, Tenant
shall have no right of access to or right to install any device on the roof of
the Building nor make any penetrations of the roof of the Building without the
express prior written consent of Landlord. If Tenant refuses or neglects to
repair and maintain the Premises and the adjacent areas properly as required
herein and to the reasonable satisfaction of Landlord, Landlord may, but without
obligation to do so, at any time make such repairs and/or maintenance without
Landlord having any liability to Tenant for any loss or damage that may accrue
to Tenant's merchandise, fixtures or other property, or to Tenant's business by
reason thereof, except to the extent any damage is caused by the willful
misconduct or gross negligence of Landlord or its authorized agents and
representatives. In the event Landlord makes such repairs and/or maintenance,
upon completion thereof Tenant shall pay to Landlord, as additional rent, the
Landlord's costs for making such repairs and/or maintenance. The obligations of
Tenant hereunder shall survive the expiration of the Term of this Lease or
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the earlier termination thereof. Tenant hereby waives any right to repair at
the expense of Landlord under any applicable Laws now or hereafter in effect
respecting the Premises.
12. INSURANCE:
12.1 TYPES OF INSURANCE: Tenant shall maintain in full force and effect
at all times during the Term of this Lease, at Tenant's sole cost and expense,
for the protection of Tenant and Landlord, as their interests may appear,
policies of insurance issued by a carrier or carriers reasonably acceptable to
Landlord and its lender(s) which afford the following coverages: (i) worker's
compensation: statutory limits; (ii) employer's liability, as required by law,
with a minimum limit of $100,000 per employee and $500,000 per occurrence; (iii)
commercial general liability insurance (occurrence form) providing coverage
against any and all claims for bodily injury and property damage occurring in,
on or about the Premises arising out of Tenant's and Tenant's Representatives'
use and/or occupancy of the Premises. Such insurance shall include coverage for
blanket contractual liability, fire damage, premises, personal injury, completed
operations, products liability, personal and advertising, and a plate-glass
rider to provide coverage for all glass in, on or about the Premises including,
without limitation, skylights. Such insurance shall have a combined single
limit of not less than One Million Dollars ($1,000,000) per occurrence with a
Two Million Dollar ($2,000,000) aggregate limit and excess/umbrella insurance in
the amount of Two Million Dollars ($2,000,000). If Tenant has other locations
which it owns or leases, the policy shall include an aggregate limit per
location endorsement. If necessary, as reasonably determined by Landlord,
Tenant shall provide for restoration of the aggregate limit; (iv) comprehensive
automobile liability insurance: a combined single limit of not less than
$2,000,000 per occurrence and insuring Tenant against liability for claims
arising out of the ownership, maintenance, or use of any owned, hired or non-
owned automobiles; (v) "all risk" or "special purpose" property insurance,
including without limitation, sprinkler leakage, boiler and machinery
comprehensive form, if applicable, covering damage to or loss of any personal
property, trade fixtures, inventory, fixtures and equipment located in, on or
about the Premises, and in addition, coverage for business interruption of
Tenant, together with, if the property of Tenant's invitees is to be kept in the
Premises, warehouser's legal liability or bailee customers insurance for the
full replacement cost of the property belonging to invitees and located in the
Premises. Such insurance shall be written on a replacement cost basis (without
deduction for depreciation) in an amount equal to one hundred percent (100%) of
the full replacement value of the aggregate of the items referred to in this
subparagraph (v); and (vi) such other insurance as Landlord deems necessary and
prudent or as may otherwise be required by any of Landlord's lenders or joint
venture partners.
12.2 INSURANCE POLICIES: Insurance required to be maintained by Tenant
shall be written by companies (i) licensed to do business in the State of
California, (ii) domiciled in the United States of America, and (iii) having a
"General Policyholders Rating" of at least A:X (or such higher rating as may be
required by a lender having a lien on the Premises) as set forth in the most
current issue of "A.M. Best's Rating Guides." Any deductible amounts under any
of the insurance policies required hereunder shall not exceed One Thousand
Dollars ($1,000). Tenant shall deliver to Landlord certificates of insurance
and true and complete copies of any and all endorsements required herein for all
insurance required to be maintained by Tenant hereunder at the time of execution
of this Lease by Tenant. Tenant shall, at least thirty (30) days prior to
expiration of each policy, furnish Landlord with certificates of renewal or
"binders" thereof. Each certificate shall expressly provide that such policies
shall not be cancelable or otherwise subject to modification except after thirty
(30) days prior written notice to the parties named as additional insureds as
required in this Lease (except for cancellation for nonpayment of premium, in
which event cancellation shall not take effect until at least ten (10) days'
notice has been given to Landlord). Tenant shall have the right to provide
insurance coverage which it is obligated to carry pursuant to the terms of this
Lease under a blanket insurance policy, provided such blanket policy expressly
affords coverage for the Premises and for Landlord as required by this Lease.
12.3 ADDITIONAL INSUREDS AND COVERAGE: Landlord, any property
management company and/or agent of Landlord for the Premises, the Building, the
Lot or the Park, and any lender(s) of Landlord having a lien against the
Premises, the Building, the Lot or the Park shall be named as additional
insureds under all of the policies required in Section 12.1(iii) above.
Additionally, such policies shall provide for severability of interest. All
insurance to be maintained by Tenant shall, except for workers' compensation and
employer's liability insurance, be primary, without right of contribution from
insurance maintained by Landlord. Any umbrella/excess liability policy (which
shall be in "following form") shall provide that if the underlying aggregate is
exhausted, the excess coverage will drop down as primary insurance. The limits
of insurance maintained by Tenant shall not limit Tenant's liability under this
Lease. It is the parties' intention that the insurance to be procured and
maintained by Tenant as required herein shall provide coverage for any and all
damage or injury arising from or related to Tenant's operations of its business
and/or Tenant's or Tenant's Representatives' use of the Premises and/or any of
the areas within the Park, whether such events occur within the Premises (as
described in EXHIBIT A hereto) or in any other areas of the Park. It is not
contemplated or anticipated by the parties that the aforementioned risks of loss
be borne by Landlord's
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insurance carriers, rather it is contemplated and anticipated by Landlord and
Tenant that such risks of loss be borne by Tenant's insurance carriers pursuant
to the insurance policies procured and maintained by Tenant as required herein.
12.4 FAILURE OF TENANT TO PURCHASE AND MAINTAIN INSURANCE: In the event
Tenant does not purchase the insurance required in this Lease or keep the same
in full force and effect throughout the Term of this Lease (including any
renewals or extensions), Landlord may with notice to Tenant, but without
obligation to do so, purchase the necessary insurance and pay the premiums
therefor. If Landlord so elects to purchase such insurance, Tenant shall
promptly pay to Landlord as Additional Rent, the amount so paid by Landlord,
upon Landlord's demand therefor. In addition, Landlord may recover from Tenant
and Tenant agrees to pay, as Additional Rent, any and all Enforcement Expenses
and damages which Landlord may sustain by reason of Tenant's failure to obtain
and maintain such insurance. If Tenant fails to maintain any insurance required
in this Lease, Tenant shall be liable for all losses, damages and costs
resulting from such failure.
13. WAIVER OF SUBROGATION: Landlord and Tenant hereby mutually waive their
respective rights of recovery against each other for any loss of, or damage to,
either parties' property to the extent that such loss or damage is insured by an
insurance policy required to be in effect at the time of such loss or damage.
Each party shall obtain any special endorsements, if required by its insurer
whereby the insurer waives its rights of subrogation against the other party.
This provision is intended to waive fully, and for the benefit of the parties
hereto, any rights and/or claims which might give rise to a right of subrogation
in favor of any insurance carrier. The coverage obtained by Tenant pursuant to
Section 12 of this Lease shall include, without limitation, a waiver of
subrogation endorsement attached to the certificate of insurance. The
provisions of this Section 13 shall not apply in those instances in which such
waiver of subrogation would invalidate such insurance coverage or would cause
either party's insurance coverage to be voided or otherwise uncollectible.
14. LIMITATION OF LIABILITY AND INDEMNITY: Except to the extent of damage
resulting from the active gross negligence or willful misconduct of Landlord or
its authorized representatives, Tenant agrees to protect, defend (with counsel
acceptable to Landlord) and hold Landlord and Landlord's lenders, partners,
members, property management company (if other than Landlord), agents,
directors, officers, employees, representatives, contractors, shareholders,
successors and assigns and each of their respective partners, members,
directors, employees, representatives, agents, contractors, shareholders,
successors and assigns (collectively, the "Indemnitees") harmless and indemnify
the Indemnitees from and against all liabilities, damages, claims, losses,
judgments, charges and expenses (including reasonable attorneys' fees, costs of
court and expenses necessary in the prosecution or defense of any litigation
including the enforcement of this provision) arising from or in any way related
to, directly or indirectly, (i) Tenant's or Tenant's Representatives' use of the
Premises, Building and/or the Park, (ii) the conduct of Tenant's business, (iii)
from any activity, work or thing done, permitted or suffered by Tenant in or
about the Premises, (iv) in any way connected with the Premises or with the
improvements or personal property therein, including, but not limited to, any
liability for injury to person or property of Tenant, Tenant's Representatives,
or third party persons, and/or (v) Tenant's failure to perform any covenant or
obligation of Tenant under this Lease. Tenant agrees that the obligations of
Tenant herein shall survive the expiration or earlier termination of this Lease.
Except to the extent of damage resulting from the active gross negligence
or willful misconduct of Landlord or its authorized representatives, to the
fullest extent permitted by law, Tenant agrees that neither Landlord nor any of
Landlord's lender(s), partners, members, employees, representatives, legal
representatives, successors or assigns shall at any time or to any extent
whatsoever be liable, responsible or in any way accountable for any loss,
liability, injury, death or damage to persons or property which at any time may
be suffered or sustained by Tenant or by any person(s) whomsoever who may at any
time be using, occupying or visiting the Premises, the Building or the Park,
including, but not limited to, any acts, errors or omissions by or on behalf of
any other tenants or occupants of the Building and/or the Park. Tenant shall
not, in any event or circumstance, be permitted to offset or otherwise credit
against any payments of Rent required herein for matters for which Landlord may
be liable hereunder. Landlord and its authorized representatives shall not be
liable for any interference with light or air, or for any latent defect in the
Premises or the Building.
15. ASSIGNMENT AND SUBLEASING:
15.1 PROHIBITION: Except as set forth in Section 15.4 below Tenant
shall not assign, mortgage, hypothecate, encumber, grant any license or
concession, pledge or otherwise transfer this Lease (collectively,
"assignment"), in whole or in part, whether voluntarily or involuntarily or by
operation of law,
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nor sublet or permit occupancy by any person other than Tenant of all or any
portion of the Premises without first obtaining the prior written consent of
Landlord, which consent shall not be unreasonably withheld. Tenant hereby
agrees that Landlord may withhold its consent to any proposed sublease or
assignment if the proposed sublessee or assignee or its business is subject to
compliance with additional requirements of the ADA (defined below) and/or
Environmental Laws (defined below) beyond those requirements which are
applicable to Tenant, unless the proposed sublessee or assignee shall (a) first
deliver plans and specifications for complying with such additional requirements
and obtain Landlord's written consent thereto, and (b) comply with all
Landlord's conditions for or contained in such consent, including without
limitation, requirements for security to assure the lien-free completion of such
improvements. If Tenant seeks to sublet or assign all or any portion of the
Premises, Tenant shall deliver to Landlord at least thirty (30) days prior to
the proposed commencement of the sublease or assignment (the "Proposed Effective
Date") the following: (i) the name of the proposed assignee or sublessee; (ii)
such information as to such assignee's or sublessee's financial responsibility
and standing as Landlord may reasonably require; and (iii) the aforementioned
plans and specifications, if any. Within ten (10) days after Landlord's receipt
of a written request from Tenant that Tenant seeks to sublet or assign all or
any portion of the Premises, Landlord shall deliver to Tenant a copy of
Landlord's standard form of sublease or assignment agreement (as applicable),
which instrument shall be utilized for each proposed sublease or assignment (as
applicable), and such instrument shall include a provision whereby the assignee
or sublessee assumes all of Tenant's obligations hereunder and agrees to be
bound by the terms hereof. As Additional Rent hereunder, Tenant shall pay to
Landlord a fee in the amount of five hundred dollars ($500) plus Tenant shall
reimburse Landlord for actual legal and other expenses incurred by Landlord in
connection with any actual or proposed assignment or subletting. In the event
the sublease or assignment (1) by itself or taken together with prior
sublease(s) or partial assignment(s) covers or totals, as the case may be, more
than twenty-five percent (25%) of the rentable square feet of the Premises or
(2) is for a term which by itself or taken together with prior or other
subleases or partial assignments is greater than fifty percent (50%) of the
period remaining in the Term of this Lease as of the time of the Proposed
Effective Date, then Landlord shall have the right, to be exercised by giving
written notice to Tenant, to recapture the space described in the sublease or
assignment. If such recapture notice is given, it shall serve to terminate this
Lease with respect to the proposed sublease or assignment space, or, if the
proposed sublease or assignment space covers all the Premises, it shall serve to
terminate the entire term of this Lease in either case, as of the Proposed
Effective Date. However, no termination of this Lease with respect to part or
all of the Premises shall become effective without the prior written consent,
where necessary, of the holder of each deed of trust encumbering the Premises or
any part thereof. If this Lease is terminated pursuant to the foregoing with
respect to less than the entire Premises, the Rent shall be adjusted on the
basis of the proportion of square feet retained by Tenant to the square feet
originally demised and this Lease as so amended shall continue thereafter in fll
force and effect. Each permitted assignee or sublessee shall assume and be
deemed to assume this Lease and shall be and remain liable jointly and severally
with Tenant for payment of Rent and for the due performance of, and compliance
with all the terms, covenants, conditions and agreements herein contained on
Tenant's part to be performed or complied with, for the term of this Lease. No
assignment or subletting shall affect the continuing primary liability of Tenant
(which, following assignment, shall be joint and several with the assignee), and
Tenant shall not be released from performing any of the terms, covenants and
conditions of this Lease. Tenant hereby acknowledges and agrees that it
understands that Landlord's accounting department may process and accept Rent
payments without verifying that such payments are being made by Tenant, a
permitted sublessee or a permitted assignee in accordance with the provisions of
this Lease. Although such payments may be processed and accepted by such
accounting department personnel, any and all actions or omissions by the
personnel of Landlord's accounting department shall not be considered as
acceptance by Landlord of any proposed assignee or sublessee nor shall such
actions or omissions be deemed to be a substitute for the requirement that
Tenant obtain Landlord's prior written consent to any such subletting or
assignment, and any such actions or omissions by the personnel of Landlord's
accounting department shall not be considered as a voluntary relinquishment by
Landlord of any of its rights hereunder nor shall any voluntary relinquishment
of such rights be inferred therefrom. For purposes hereof, except as set forth
in Section 15.4 below in the event Tenant is a corporation, partnership, joint
venture, trust or other entity other than a natural person, any change in the
direct or indirect ownership of Tenant (whether pursuant to one or more
transfers) which results in a change of more than fifty percent (50%) (except
for sale of shares through a regulated public exchange) in the direct or
indirect ownership of Tenant shall be deemed to be an assignment within the
meaning of this Section 15 and shall be subject to all the provisions hereof.
Any and all options, first rights of refusal, tenant improvement allowances and
other similar rights granted to Tenant in tis Lease, if any, shall not be
assignable by Tenant unless expressly authorized in writing by Landlord.
15.2 EXCESS SUBLEASE RENTAL OR ASSIGNMENT CONSIDERATION: In the event
of any sublease or assignment of all or any portion of the Premises where the
rent or other consideration provided for in the sublease or assignment either
initially or over the term of the sublease or assignment exceeds the Rent or pro
rata portion of the Rent, as the case may be, for such space reserved in the
Lease, Tenant shall pay the Landlord monthly, as Additional Rent, at the same
time as the monthly installments of Rent are payable hereunder, seventy-five
percent (75%) of the excess of each such payment of rent or other consideration
in
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excess of the Rent called for hereunder minus reasonable actual brokerage
commissions.
15.3 WAIVER: Notwithstanding any assignment or sublease, or any
indulgences, waivers or extensions of time granted by Landlord to any assignee
or sublessee, or failure by Landlord to take action against any assignee or
sublessee, Tenant waives notice of any default of any assignee or sublessee and
agrees that Landlord may, at its option, proceed against Tenant without having
taken action against or joined such assignee or sublessee, except that Tenant
shall have the benefit of any indulgences, waivers and extensions of time
granted to any such assignee or sublessee.
15.4 RELATED ENTITIES: Notwithstanding anything to the contrary
contained in this Section 15, so long as Tenant delivers to Landlord (1) at
least ten (10) business days prior written notice of its intention to assign or
sublease the Premises to any Related Entity, which notice shall set forth the
name of the Related Entity, (2) a copy of the proposed agreement pursuant to
which such assignment or sublease shall be effectuated, and (3) such other
information concerning the Related Entity as Landlord may reasonably require,
including without limitation, information regarding any change in the proposed
use of any portion of the Premises and any financial information with respect to
such Related Entity, and so long as Landlord approves, in writing, of any change
in the proposed use of the subject portion of the Premises and such financial
information, then Tenant may assign this Lease or sublease any portion of the
Premises (X) to any Related Entity, or (Y) in connection with any merger,
consolidation or sale of substantially all of the stock or assets of Tenant,
without having to obtain the prior written consent of Landlord thereto and
without triggering the right to recapture. For purposes of this Lease the term
"Related Entity" shall mean and refer to any corporation or entity which
controls, is controlled by or is under common control with Tenant, as all of
such terms are customarily used in the industry, and with an equal or greater
net worth as Tenant has as of the proposed transfer date.
16. AD VALOREM TAXES: Prior to delinquency, Tenant shall pay all taxes and
assessments levied upon trade fixtures, alterations, additions, improvements,
inventories and personal property located and/or installed on or in the Premises
by, or on behalf of, Tenant; and if requested by Landlord, Tenant shall promptly
deliver to Landlord copies of receipts for payment of all such taxes and
assessments. To the extent any such taxes are not separately assessed or billed
to Tenant, Tenant shall pay the amount thereof as invoiced by Landlord.
17. SUBORDINATION: Without the necessity of any additional document being
executed by Tenant for the purpose of effecting a subordination, and at the
election of Landlord or any bona fide mortgagee or deed of trust beneficiary
with a lien on all or any portion of the Premises or any ground lessor with
respect to the land of which the Premises are a part, the rights of Tenant under
this Lease and this Lease shall be subject and subordinate at all times to: (i)
all ground leases or underlying leases which may now exist or hereafter be
executed affecting the Building or the land upon which the Building is situated
or both, and (ii) the lien of any mortgage or deed of trust which may now exist
or hereafter be executed in any amount for which the Building, the Lot, ground
leases or underlying leases, or Landlord's interest or estate in any of said
items is specified as security. Notwithstanding the foregoing, Landlord or any
such ground lessor, mortgagee, or any beneficiary shall have the right to
subordinate or cause to be subordinated any such ground leases or underlying
leases or any such liens to this Lease provided Landlord or such ground lessor,
mortgagee, or beneficiary uses commercially reasonable efforts to deliver to
Tenant, for execution, such ground lessor's, mortgagee's, or beneficiary's form
of subordination, non-disturbance and attornment agreement which includes a
provision that Tenant's use, occupancy and quiet enjoyment of the Premises will
not be disturbed by such ground lessor, mortgagee or beneficiary so long as
Tenant is not in default of the terms and provisions of this Lease beyond any
applicable cure periods. If any ground lease or underlying lease terminates for
any reason or any mortgage or deed of trust is foreclosed or a conveyance in
lieu of foreclosure is made for any reason, Tenant shall, notwithstanding any
subordination and upon the request of such successor to Landlord, attorn to and
become the Tenant of the successor in interest to Landlord, provided such
successor in interest will not disturb Tenant's use, occupancy or quiet
enjoyment of the Premises so long as Tenant is not in default of the terms and
provisions of this Lease. The successor in interest to Landlord following
foreclosure, sale or deed in lieu thereof shall not be (a) liable for any act or
omission of any prior lessor or with respect to events occurring prior to
acquisition of ownership; (b) subject to any offsets or defenses which Tenant
might have against any prior lessor; (c) bound by prepayment of more than one
(1) month's Rent, except in those instances when Tenant pays Rent quarterly in
advance pursuant to Section 8 hereof, then not more than three months' Rent; or
(d) liable to Tenant for any Security Deposit not actually received by such
successor in interest to the extent any portion or all of such Security Deposit
has not already been forfeited by, or refunded to, Tenant. Landlord shall be
liable to Tenant for all or any portion of the Security Deposit not forfeited
by, or refunded to Tenant, until and unless Landlord transfers such Security
Deposit to the successor in interest. Tenant covenants and agrees to execute
(and acknowledge if required by Landlord, any lender or ground lessor) and
deliver, within five (5) days of a demand or request by Landlord and in the form
requested by Landlord, ground lessor, mortgagee or
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beneficiary, any additional documents evidencing the priority or subordination
of this Lease with respect to any such ground leases or underlying leases or the
lien of any such mortgage or deed of trust. Tenant's failure to timely execute
and deliver such additional documents shall, at Landlord's option, constitute a
material default hereunder. It is further agreed that Tenant shall indemnify
Landlord from and against any loss, cost, damage or expense, incidental,
consequential, or otherwise, arising or accruing directly or indirectly, from
any failure of Tenant to execute or deliver to Landlord any such additional
documents.
18. RIGHT OF ENTRY: Tenant grants Landlord or its agents the right to enter
the Premises at all reasonable times for purposes of inspection, exhibition,
posting of notices, repair or alteration. At Landlord's option, Landlord shall
at all times have and retain a key with which to unlock all the doors in, upon
and about the Premises, excluding Tenant's vaults and safes. It is further
agreed that Landlord shall have the right to use any and all means Landlord
deems necessary to enter the Premises in an emergency provided Landlord promptly
restores any damage caused by such entry. Landlord shall have the right to
place "for rent" or "for lease" signs on the outside of the Premises, the
Building and in the Common Areas. Landlord shall also have the right to place
"for sale" signs on the outside of the Building and in the Common Areas. Tenant
hereby waives any claim from damages or for any injury or inconvenience to or
interference with Tenant's business, or any other loss occasioned thereby except
for any claim for any of the foregoing arising out of the sole active gross
negligence or willful misconduct of Landlord or its authorized representatives.
19. ESTOPPEL CERTIFICATE: Tenant shall execute (and acknowledge if required by
any lender or ground lessor) and deliver to Landlord, within ten (10) days after
Landlord provides such to Tenant, a statement in writing certifying that this
Lease is unmodified and in full force and effect (or, if modified, stating the
nature of such modification), the date to which the Rent and other charges are
paid in advance, if any, acknowledging that there are not, to Tenant's
knowledge, any uncured defaults on the part of Landlord hereunder or specifying
such defaults as are claimed, and such other matters as Landlord may reasonably
require. Any such statement may be conclusively relied upon by Landlord and any
prospective purchaser or encumbrancer of the Premises. Tenant's failure to
deliver such statement within such time shall be conclusive upon the Tenant that
(a) this Lease is in full force and effect, without modification except as may
be represented by Landlord; (b) there are no uncured defaults in Landlord's
performance; and (c) not more than one month's Rent has been paid in advance,
except in those instances when Tenant pays Rent quarterly in advance pursuant to
Section 8 hereof, then not more than three month's Rent has been paid in
advance. Failure by Tenant to so deliver such certified estoppel certificate
shall be a material default of the provisions of this Lease. Tenant shall
indemnify Landlord from and against any loss, cost, damage or expense,
incidental, consequential, or otherwise, arising or accruing directly or
indirectly, from any failure of Tenant to execute or deliver to Landlord any
such certified estoppel certificate.
20. TENANT'S DEFAULT: The occurrence of any one or more of the following
events shall, at Landlord's option, constitute a material default by Tenant of
the provisions of this Lease:
20.1 The abandonment of the Premises by Tenant or the vacation of the
Premises by Tenant which would cause any insurance policy to be invalidated or
otherwise lapse; provided, however, notwithstanding the foregoing, Tenant may
leave the Premises vacant so long as (i) Tenant fully insures or otherwise pays
for any loss or damage thereto, and (ii) all insurance policies carried by
Landlord with respect to the Building are not invalidated, in whole or in part,
nor would such insurance policies be caused to otherwise lapse. Tenant agrees
to notice and service of notice as provided for in this Lease and waives any
right to any other or further notice or service of notice which Tenant may have
under any statute or law now or hereafter in effect;
20.2 The failure by Tenant to make any payment of Rent, Additional Rent
or any other payment required hereunder within three (3) business days after
Tenant's receipt of written notice that said payment is due. Tenant agrees that
such written notice by Landlord shall serve as the statutorily required notice
under the Law (including, without limitation, any unlawful detainer statutes)
and Tenant further agrees to notice and service of notice as provided for in
this Lease and waives any right to any other or further notice or service of
notice which Tenant may have under any statute or law now or hereafter in
effect;
20.3 The failure by Tenant to observe, perform or comply with any of the
conditions, covenants or provisions of this Lease (except failure to make any
payment of Rent and/or Additional Rent) and such failure is not cured within (i)
thirty (30) days of the date on which Landlord delivers written notice of such
failure to Tenant, complying with the notice requirements of Section 31.10
hereof, for all failures other than with respect to Hazardous Materials, and
(ii) ten (10) days of the date on which Landlord delivers written notice of such
failure to Tenant for all failures in any way related to Hazardous Materials.
However, Tenant shall not be in default of its obligations hereunder if such
failure cannot reasonably be cured within such
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thirty (30) or ten (10) day period, as applicable, and Tenant promptly
commences, and thereafter diligently proceeds with same to completion, all
actions necessary to cure such failure as soon as is reasonably possible, but in
no event shall the completion of such cure be later than sixty (60) days after
the date on which Landlord delivers to Tenant written notice of such failure,
unless Landlord, acting reasonably and in good faith, otherwise expressly agrees
in writing to a longer period of time based upon the circumstances relating to
such failure as well as the nature of the failure and the nature of the actions
necessary to cure such failure;
20.4 The making of a general assignment by Tenant for the benefit of
creditors, the filing of a voluntary petition by Tenant or the filing of an
involuntary petition by any of Tenant's creditors seeking the rehabilitation,
liquidation, or reorganization of Tenant under any law relating to bankruptcy,
insolvency or other relief of debtors and, in the case of an involuntary action,
the failure to remove or discharge the same within sixty (60) days of such
filing, the appointment of a receiver or other custodian to take possession of
substantially all of Tenant's assets or this leasehold, Tenant's insolvency or
inability to pay Tenant's debts or failure generally to pay Tenant's debts when
due, any court entering a decree or order directing the winding up or
liquidation of Tenant or of substantially all of Tenant's assets, Tenant taking
any action toward the dissolution or winding up of Tenant's affairs, the
cessation or suspension of Tenant's use of the Premises, or the attachment,
execution or other judicial seizure of substantially all of Tenant's assets or
this leasehold;
20.5 Tenant's use or storage of Hazardous Materials in, on or about the
Premises, the Building, the Lot and/or the Park other than as expressly
permitted by the provisions of Section 29 below; or
20.6 The making of any material misrepresentation or omission by Tenant
in any materials delivered by or on behalf of Tenant to Landlord pursuant to
this Lease and knowingly made.
21. REMEDIES FOR TENANT'S DEFAULT:
21.1 LANDLORD'S RIGHTS: In the event of Tenant's material default under
this Lease, Landlord may terminate Tenant's right to possession of the Premises
by any lawful means in which case upon delivery of written notice by Landlord
this Lease shall terminate on the date specified by Landlord in such notice and
Tenant shall immediately surrender possession of the Premises to Landlord. In
addition, the Landlord shall have the immediate right of re-entry whether or not
this Lease is terminated, and if this right of re-entry is exercised following
abandonment of the Premises by Tenant, Landlord may consider any personal
property belonging to Tenant and left on the Premises to also have been
abandoned. No re-entry or taking possession of the Premises by Landlord
pursuant to this Section 21 shall be construed as an election to terminate this
Lease unless a written notice of such intention is given to Tenant. If Landlord
relets the Premises or any portion thereof, (i) Tenant shall be liable
immediately to Landlord for all reasonable costs Landlord incurs in reletting
the Premises or any part thereof, including, without limitation, broker's
commissions, expenses of cleaning, redecorating, and repairing the Premises and
other similar costs (collectively, the "Reletting Costs"), and (ii) the rent
received by Landlord from such reletting shall be applied to the payment of,
first, any indebtedness from Tenant to Landlord other than Base Rent, Operating
Expenses, Tax Expenses, Common Area Utility Costs, and Utility Expenses; second,
all costs including maintenance, incurred by Landlord in reletting; and, third,
Base Rent, Operating Expenses, Tax Expenses, Common Area Utility Costs, Utility
Expenses, and all other sums due under this Lease. Any and all of the Reletting
Costs shall be fully chargeable to Tenant and shall not be prorated or otherwise
amortized in relation to any new lease for the Premises or any portion thereof.
After deducting the payments referred to above, any sum remaining from the
rental Landlord receives from reletting shall be held by Landlord and applied in
payment of future Rent as Rent becomes due under this Lease. In no event shall
Tenant be entitled to any excess rent received by Landlord. Reletting may be
for a period shorter or longer than the remaining term of this Lease. No act by
Landlord other than giving written notice to Tenant shall terminate this Lease.
Acts of maintenance, efforts to relet the Premises or the appointment of a
receiver on Landlord's initiative to protect Landlord's interest under this
Lease shall not constitute a termination of Tenant's right to possession. So
long as this Lease is not terminated, Landlord shall have the right to remedy
any default of Tenant, to mantain or improve the Premises, to cause a receiver
to be appointed to administer the Premises and new or existing subleases and to
add to the Rent payable hereunder all of Landlord's reasonable costs in so
doing, with interest at the maximum rate permitted by law from the date of such
expenditure.
21.2 DAMAGES RECOVERABLE: If Tenant breaches this Lease and abandons
the Premises before the end of the Term, or if Tenant's right to possession is
terminated by Landlord because of a breach or default under this Lease, then in
either such case, Landlord may recover from Tenant all damages proximately
suffered by Landlord as a result of Tenant's failure to perform its obligations
hereunder, including, but not limited to, the cost of any Tenant Improvements
constructed by or on behalf of Tenant pursuant to EXHIBIT B hereto, the portion
of any broker's or leasing agent's commission incurred with respect to the
leasing of the Premises to Tenant for the balance of the Term of the Lease
remaining after the date on which Tenant is in default of its obligations
hereunder, and all Reletting Costs, and the worth at the time of
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the award (computed in accordance with paragraph (3) of Subdivision (a) of
Section 1951.2 of the California Civil Code) of the amount by which the Rent
then unpaid hereunder for the balance of the Lease Term exceeds the amount of
such loss of Rent for the same period which Tenant proves could be reasonably
avoided by Landlord and in such case, Landlord prior to the award, may relet the
Premises for the purpose of mitigating damages suffered by Landlord because of
Tenant's failure to perform its obligations hereunder; provided, however, that
even though Tenant has abandoned the Premises following such breach, this Lease
shall nevertheless continue in full force and effect for as long as Landlord
does not terminate Tenant's right of possession, and until such termination,
Landlord shall have the remedy described in Section 1951.4 of the California
Civil Code (Landlord may continue this Lease in effect after Tenant's breach and
abandonment and recover Rent as it becomes due, if Tenant has the right to
sublet or assign, subject only to reasonable limitations) and may enforce all
its rights and remedies under this Lease, including the right to recover the
Rent from Tenant as it becomes due hereunder. The "worth at the time of the
award" within the meaning of Subparagraphs (a)(1) and (a)(2) of Section 1951.2
of the California Civil Code shall be computed by allowing interest at the rate
of ten percent (10%) per annum. Tenant waives redemption or relief from
forfeiture under California Code of Civil Procedure Sections 1174 and 1179, or
under any other present or future law, in the event Tenant is evicted or
Landlord takes possession of the Premises by reason of any default of Tenant
hereunder.
21.3 RIGHTS AND REMEDIES CUMULATIVE: The foregoing rights and remedies
of Landlord are not exclusive; they are cumulative in addition to any rights and
remedies now or hereafter existing at law, in equity by statute or otherwise, or
to any equitable remedies Landlord may have, and to any remedies Landlord may
have under bankruptcy laws or laws affecting creditor's rights generally.
21.4 WAIVER OF A DEFAULT: The waiver by Landlord of any default of any
provision of this Lease shall not be deemed or construed a waiver of any other
default by Tenant hereunder or of any subsequent default of this Lease, except
for the default specified in the waiver.
22. HOLDING OVER: If Tenant holds possession of the Premises after the
expiration of the Term of this Lease with Landlord's consent, Tenant shall
become a tenant from month-to-month upon the terms and provisions of this Lease,
provided the monthly Base Rent during such hold over period shall be 150% of the
Base Rent due on the last month of the Lease Term, payable in advance on or
before the first day of each month. Acceptance by Landlord of the monthly Base
Rent without the additional fifty percent (50%) increase of Base Rent shall not
be deemed or construed as a waiver by Landlord of any of its rights to collect
the increased amount of the Base Rent as provided herein at any time. Such
month-to-month tenancy shall not constitute a renewal or extension for any
further term. All options, if any, granted under the terms of this Lease shall
be deemed automatically terminated and be of no force or effect during said
month-to-month tenancy. Tenant shall continue in possession until such tenancy
shall be terminated by either Landlord or Tenant giving written notice of
termination to the other party at least thirty (30) days prior to the effective
date of termination. This paragraph shall not be construed as Landlord's
permission for Tenant to hold over. Acceptance of Base Rent by Landlord
following expiration or termination of this Lease shall not constitute a renewal
of this Lease.
23. LANDLORD'S DEFAULT: Landlord shall not be deemed in breach or default of
this Lease unless Landlord fails within a reasonable time to perform an
obligation required to be performed by Landlord hereunder. For purposes of this
provision, a reasonable time shall not be less than thirty (30) days after
receipt by Landlord of written notice specifying the nature of the obligation
Landlord has not performed; (except for emergencies which necessitate an earlier
response) provided, however, that if the nature of Landlord's obligation is such
that more than thirty (30) days, after receipt of written notice, is reasonably
necessary for its performance, then Landlord shall not be in breach or default
of this Lease if performance of such obligation is commenced within such thirty
(30) day period and thereafter diligently pursued to completion.
24. PARKING: Tenant shall have a license to use the number of non-designated
and non-exclusive parking spaces specified in the Basic Lease Information at no
additional charge. Landlord shall exercise reasonable efforts to insure that
such spaces are available to Tenant for its use, but Landlord shall not be
required to enforce Tenant's right to use the same.
25. SALE OF PREMISES: In the event of any sale of the Premises by Landlord or
the cessation otherwise of Landlord's interest therein and the assumption by the
transferee or Landlord's successor of Landlord's obligations hereunder, Landlord
shall be and is hereby entirely released from any and all of its obligations to
perform or further perform under this Lease and from all liability hereunder
accruing from or after the date of such sale; and the purchaser, at such sale or
any subsequent sale of the Premises shall be deemed,
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without any further agreement between the parties or their successors in
interest or between the parties and any such purchaser, to have assumed and
agreed to carry out any and all of the covenants and obligations of the Landlord
under this Lease. For purposes of this Section 25, the term "Landlord" means
only the owner and/or agent of the owner as such parties exist as of the date on
which Tenant executes this Lease. A ground lease or similar long term lease by
Landlord of the entire Building, of which the Premises are a part, shall be
deemed a sale within the meaning of this Section 25. Tenant agrees to attorn to
such new owner provided such new owner does not disturb Tenant's use, occupancy
or quiet enjoyment of the Premises so long as Tenant is not in default of any of
the provisions of this Lease.
26. WAIVER: No delay or omission in the exercise of any right or remedy of
Landlord on any default by Tenant shall impair such a right or remedy or be
construed as a waiver. The subsequent acceptance of Rent by Landlord after
default by Tenant of any covenant or term of this Lease shall not be deemed a
waiver of such default, other than a waiver of timely payment for the particular
Rent payment involved, and shall not prevent Landlord from maintaining an
unlawful detainer or other action based on such breach. No payment by Tenant or
receipt by Landlord of a lesser amount than the monthly Rent and other sums due
hereunder shall be deemed to be other than on account of the earliest Rent or
other sums due, nor shall any endorsement or statement on any check or
accompanying any check or payment be deemed an accord and satisfaction; and
Landlord may accept such check or payment without prejudice to Landlord's right
to recover the balance of such Rent or other sum or pursue any other remedy
provided in this Lease. No failure, partial exercise or delay on the part of
the Landlord in exercising any right, power or privilege hereunder shall operate
as a waiver thereof.
27. CASUALTY DAMAGE:
27.1 CASUALTY. If the Premises or any part thereof (excluding
any alterations or improvements installed by or for the benefit of Tenant,
including without limitation, the Tenant Improvements) shall be damaged or
destroyed by fire or other casualty, Tenant shall give immediate written notice
thereof to Landlord. Within sixty (60) days after receipt by Landlord of such
notice, Landlord shall notify Tenant, in writing, whether the necessary repairs
can reasonably be made, as reasonably determined by Landlord: (a) within ninety
(90) days; (b) in more than ninety (90) days but in less than one hundred eighty
(180) days; or (c) in more than one hundred eighty (180) days, from the date of
such notice.
27.1.1 MINOR INSURED DAMAGE. If the Premises are damaged
only to such extent that repairs, rebuilding and/or restoration can be
reasonably completed within ninety (90) days, this Lease shall not terminate
and, provided that insurance proceeds are available to fully repair the damage
and/or Tenant otherwise contributes any shortfall thereof to Landlord, Landlord
shall repair the Premises to substantially the same condition that existed prior
to the occurrence of such casualty, except Landlord shall not be required to
rebuild, repair, or replace any alterations or improvements installed by or for
the benefit of Tenant or any part of Tenant's Property, including without
limitation, the Tenant Improvements, Tenant's furniture, furnishings or trade
fixtures and equipment removable by Tenant. The Rent payable hereunder shall be
abated proportionately from the date of the occurrence of such insured damage
until any and all repairs are substantially completed to the extent of the
portion of the Premises which are rendered unusable and unfit for occupancy.
27.1.2 INSURED DAMAGE REQUIRING MORE THAN 90 DAYS TO
REPAIR. If the Premises are damaged only to such extent that repairs,
rebuilding and/or restoration can be reasonably completed in more than ninety
(90) days but in less than one hundred eighty (180) days, then Landlord shall
have the option of: (a) terminating the Lease effective upon the occurrence of
such damage, in which event the Rent shall be abated from the date of the
occurrence of such damage, provided Tenant diligently proceeds to vacate the
Premises; or (b) electing to repair the Premises to substantially the same
condition that existed prior to the occurrence of such casualty, provided
insurance proceeds are available to fully repair the damage (except that
Landlord shall not be required to rebuild, repair, or replace any alterations or
improvements installed by or for the benefit of Tenant or any part of Tenant's
Property, including without limitation, the Tenant Improvements, Tenant's
furniture, furnishings or trade fixtures and equipment removable by Tenant).
The Rent payable hereunder shall be abated proportionately from the date of the
occurrence of such insured damage until any and all repairs are substantially
completed, to the extent of the portion of the Premises which are rendered
unusable and unfit for occupancy. If Landlord should fail to substantially
complete such repairs within one hundred eighty (180) days after the date on
which Landlord is notified by Tenant of the occurrence of such casualty (such
180-day period to be extended for delays caused by Tenant or any force majeure
events, which events shall include, but not be limited to, acts or events beyond
Landlord's and/or its contractors' control, acts of God, earthquakes, strikes,
lockouts, riots, boycotts, casualties not caused by Landlord or Tenant,
discontinuance of any utility or other service required for performance of the
work, moratoriums, governmental agencies and weather, and the lack of
availability or shortage of materials), Tenant may within twenty (20) days after
expiration of such one
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hundred eighty (180) day period (as same may be extended), terminate this Lease
by delivering written notice to Landlord as Tenant's exclusive remedy, whereupon
all rights of Tenant hereunder shall cease and terminate twenty (20) days after
Landlord's receipt of such notice.
27.1.3 MAJOR INSURED DAMAGE. If the Premises are damaged
to such extent that repairs, rebuilding and/or restoration cannot be reasonably
completed within one hundred eighty (180) days, then either Landlord or Tenant
may terminate this Lease by giving written notice within twenty (20) days after
notice from Landlord regarding the time period of repair. If either party
notifies the other of its intention to so terminate the Lease, then this Lease
shall terminate and the Rent shall be abated from the date of the occurrence of
such damage, provided Tenant diligently proceeds to vacate the Premises. If
neither party elects to terminate this Lease, Landlord shall promptly commence
and diligently prosecute to completion the repairs to the Premises, provided
insurance proceeds are available to fully repair the damage and/or Tenant
contributes any shortfall thereof to Landlord (except that Landlord shall not be
required to rebuild, repair, or replace any alterations or improvements
installed by or for the benefit of Tenant or any part of Tenant's property,
including without limitation, the Tenant Improvements, Tenant's furniture,
furnishings or trade fixtures and equipment removable by Tenant). During the
time when Landlord is prosecuting such repairs to completion, the Rent payable
hereunder shall be abated proportionately from the date of the occurrence of
such insured damage until any and all repairs are substantially completed, to
the extent of the portion of the Premises which are rendered unusable and are
unfit for occupancy. Notwithstanding anything to the contrary contained herein,
if the holder of any indebtedness secured by the Premises requires that the
insurance proceeds be applied to such indebtedness, then Landlord shall have the
right to terminate this Lease by delivering written notice of termination to
Tenant within thirty (30) days after the date of notice to Tenant of any such
event, whereupon all rights and obligations shall cease and terminate hereunder,
except for those obligations expressly provided for in this Lease to srvive such
termination of the Lease.
27.1.4 DAMAGE NEAR END OF TERM. Notwithstanding anything
to the contrary contained in this Lease except for the provisions of Section
27.2 below, if the Premises are substantially damaged or destroyed during the
last year of then applicable term of this Lease, Landlord or Tenant may, at
their option, cancel and terminate this Lease by giving written notice to the
other party of its election to do so within thirty (30) days after receipt by
Landlord of notice from Tenant of the occurrence of such casualty. If either
party so elects to terminate this Lease, all rights of Tenant hereunder shall
cease and terminate ten (10) days after Tenant's receipt or delivery of such
notice, as applicable.
27.2 TENANT'S OR TENANT'S REPRESENTATIVE'S FAULT. If any portion
of the Premises is damaged or destroyed due to the fault, negligence (active or
passive) or breach of this Lease by Tenant or any of Tenant's Representatives,
Rent shall not be diminished during the repair of such damage to the extent
Landlord does not receive rental abatement insurance proceeds, and Tenant shall
be liable to Landlord for the cost of the repair caused thereby to the extent
such cost is not covered by insurance proceeds.
27.3 UNINSURED CASUALTY. Tenant shall be responsible for and
shall pay to Landlord, as Additional Rent, its proportionate share of any
commercially reasonable deductible amounts under the insurance policies for the
Premises and/or the Building. So long as Landlord actually maintains the
insurance policies required to be maintained by Landlord under this Lease, if
any portion of the Premises is damaged and is not fully covered by the aggregate
of insurance proceeds received by Landlord and any applicable deductible and/or
Tenant does not contribute any shortfall thereof to Landlord, or if the holder
of any indebtedness secured by the Premises requires that the insurance proceeds
be applied to such indebtedness, then Landlord shall have the right to terminate
this Lease by delivering written notice of termination to Tenant within thirty
(30) days after the date of notice to Tenant of any such event, whereupon all
rights and obligations shall cease and terminate hereunder, except for those
obligations expressly provided for in this Lease to survive such termination of
the Lease.
27.4 TENANT'S WAIVER. Landlord shall not be liable for any
inconvenience or annoyance to Tenant, injury to the business of Tenant, loss of
use of any part of the Premises by Tenant or loss of Tenant's personal property,
resulting in any way from such damage, destruction or the repair thereof, except
that, Landlord shall allow Tenant a fair diminution of Rent during the time and
to the extent the Premises are unusable and unfit for occupancy as specifically
provided above in this Section 27. With respect to any damage or destruction
which Landlord is obligated to repair or may elect to repair, except as
expressly set forth herein, Tenant hereby waives all rights to terminate this
Lease or offset any amounts against Rent pursuant to rights accorded Tenant by
any law currently existing or hereafter enacted, including but not limited to,
all rights pursuant to the provisions of Sections 1932(2.), 1933(4.), 1941 and
1942 of the California Civil Code, as the same may be amended or supplemented
from time to time.
28. CONDEMNATION: If twenty-five percent (25%) or more of the Premises is
condemned by eminent
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domain, inversely condemned or sold in lieu of condemnation for any public or
quasi-public use or purpose ("Condemned"), then Tenant or Landlord may terminate
this Lease as of the date when physical possession of the Premises is taken and
title vests in such condemning authority, and Rent shall be adjusted to the date
of termination. Tenant shall not because of such condemnation assert any claim
against Landlord or the condemning authority for any compensation because of
such condemnation, and Landlord shall be entitled to receive the entire amount
of any award without deduction for any estate of interest or other interest of
Tenant except Tenant shall be permitted to make a separate claim to the
condemning authority for the value of Tenant's equipment, trade fixtures, moving
expenses and such relocation benefits which are available under applicable laws.
If neither party elects to terminate this Lease, Landlord shall, if necessary,
promptly proceed to restore the Premises or the Building to substantially its
same condition prior to such partial condemnation, allowing for the reasonable
effects of such partial condemnation, and a proportionate allowance shall be
made to Tenant, as solely determined by Landlord, for the Rent corresponding to
the time during which, and to the part of the Premises of which, Tenant is
deprived on account of such partial condemnation and restoration. Landlord
shall not be required to spend funds for restoration in excess of the amount
received by Landlord as compensation awarded.
29. ENVIRONMENTAL MATTERS/HAZARDOUS MATERIALS:
29.1 HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE: Prior to executing
this Lease, Tenant has completed, executed and delivered to Landlord Tenant's
initial Hazardous Materials Disclosure Certificate (the "Initial HazMat
Certificate"), a copy of which is attached hereto as EXHIBIT G and incorporated
herein by this reference. Tenant covenants, represents and warrants to Landlord
that the information on the Initial HazMat Certificate is true and correct and
accurately describes the use(s) of Hazardous Materials which will be made and/or
used on the Premises by Tenant. Tenant shall commencing with the date which is
one year from the Commencement Date and continuing every year thereafter,
complete, execute, and deliver to Landlord, a Hazardous Materials Disclosure
Certificate ("the "HazMat Certificate") describing Tenant's present use of
Hazardous Materials on the Premises, and any other reasonably necessary
documents as requested by Landlord. The HazMat Certificate required hereunder
shall be in substantially the form as that which is attached hereto as EXHIBIT
E.
29.2 DEFINITION OF HAZARDOUS MATERIALS: As used in this Lease, the term
Hazardous Materials shall mean and include (a) any hazardous or toxic wastes,
materials or substances, and other pollutants or contaminants, which are or
become regulated by any Environmental Laws; (b) petroleum, petroleum by
products, gasoline, diesel fuel, crude oil or any fraction thereof; (c) asbestos
and asbestos containing material, in any form, whether friable or non-friable;
(d) polychlorinated biphenyls; (e) radioactive materials; (f) lead and
lead-containing materials; (g) any other material, waste or substance displaying
toxic, reactive, ignitable or corrosive characteristics, as all such terms are
used in their broadest sense, and are defined or become defined by any
Environmental Law (defined below); or (h) any materials which cause or threatens
to cause a nuisance upon or waste to any portion of the Premises, the Building,
the Lot, the Park or any surrounding property; or poses or threatens to pose a
hazard to the health and safety of persons on the Premises or any surrounding
property.
29.3 PROHIBITION; ENVIRONMENTAL LAWS: Tenant shall not be entitled to
use nor store any Hazardous Materials on, in, or about the Premises, the
Building, the Lot and the Park, or any portion of the foregoing, without, in
each instance, obtaining Landlord's prior written consent thereto except for
normal amounts of office supplies and cleaning solvents. If Landlord consents
to any such usage or storage, then Tenant shall be permitted to use and/or store
only those Hazardous Materials that are necessary for Tenant's business and to
the extent disclosed in the HazMat Certificate and as expressly approved by
Landlord in writing, provided that such usage and storage is only to the extent
of the quantities of Hazardous Materials as specified in the then applicable
HazMat Certificate as expressly approved by Landlord and provided further that
such usage and storage is in full compliance with any and all local, state and
federal environmental, health and/or safety-related laws, statutes, orders,
standards, courts' decisions, ordinances, rules and regulations (as interpreted
by judicial and administrative decisions), decrees, directives, guidelines,
permits or permit conditions, currently existing and as amended, enacted, issued
or adopted in the future which are or become applicable to Tenant or all or any
portion of the Premises (collectively, the "Environmental Laws"). Tenant agrees
that any changes to the type and/or quantities of Hazardous Materials specified
in the most recent HazMat Certificate may be implemented only with the prior
written consent of Landlord, which consent may be given or withheld in
Landlord's sole discretion. Tenant shall not be entitled nor permitted to
install any tanks under, on or about the Premises for the storage of Hazardous
Materials without the express written consent of Landlord, which may be given or
withheld in Landlord's sole discretion. Landlord shall have the right at all
times during the Term of this Lease to (i) inspect the Premises, (ii) conduct
tests and investigations to determine whether Tenant is in compliance with the
provisions of this Section 29, and (iii) request lists of all Hazardous
Materials used, stored or otherwise located on, under or about any portion of
the Premises and/or the Common Areas. The cost of all such inspections, tests
and investigations shall be borne solely by Tenant, if Landlord reasonably
determines
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that Tenant or any of Tenant's Representatives are directly or indirectly
responsible in any manner for any contamination revealed by such inspections,
tests and investigations. The aforementioned rights granted herein to Landlord
and its representatives shall not create (a) a duty on Landlord's part to
inspect, test, investigate, monitor or otherwise observe the Premises or the
activities of Tenant and Tenant's Representatives with respect to Hazardous
Materials, including without limitation, Tenant's operation, use and any
remediation related thereto, or (b) liability on the part of Landlord andits
representatives for Tenant's use, storage, disposal or remediation of Hazardous
Materials, it being understood that Tenant shall be solely responsible for all
liability in connection therewith.
29.4 TENANT'S ENVIRONMENTAL OBLIGATIONS: Tenant shall give to Landlord
immediate verbal and follow-up written notice of any spills, releases,
discharges, disposals, emissions, migrations, removals or transportation of
Hazardous Materials on, under or about any portion of the Premises or in any
Common Areas. Tenant, at its sole cost and expense, covenants and warrants to
promptly investigate, clean up, remove, restore and otherwise remediate
(including, without limitation, preparation of any feasibility studies or
reports and the performance of any and all closures) any spill, release,
discharge, disposal, emission, migration or transportation of Hazardous
Materials arising from or related to the intentional or negligent acts or
omissions of Tenant or Tenant's Representatives such that the affected portions
of the Park and any adjacent property are returned to the condition existing
prior to the appearance of such Hazardous Materials. Any such investigation,
clean up, removal, restoration and other remediation shall only be performed
after Tenant has obtained Landlord's prior written consent, which consent shall
not be unreasonably withheld so long as such actions would not potentially have
a material adverse long-term or short-term effect on any portion of the
Premises, the Building, the Lot or the Park. Notwithstanding the foregoing,
Tenant shall be entitled to respond immediately to an emergency without first
obtaining Landlord's prior written consent. Tenant, at its sole cost and
expense, shall conduct and perform, or cause to be conducted and performed, all
closures as required by any Environmental Laws or any agencies or other
governmental authorities having jurisdiction thereof. If Tenant fails to so
promptly investigate, clean up, remove, restore, provide closure or otherwise so
remediate, Landlord may, but without obligation to do so, take any and all steps
necessary to rectify the same and Tenant shall promptly reimburse Landlord, upon
demand, for all costs and expenses to Landlord of performing investigation,
clean up, removal, restoration, closure and remediation work. All such work
undertaken by Tenant, as required herein, shall be performed in such a manner so
as to enable Landlord to make full economic use of the Premises, the Building,
the Lot and the Park after the satisfactory completion of such work.
29.5 ENVIRONMENTAL INDEMNITY: In addition to Tenant's obligations as
set forth hereinabove, Tenant agrees to and shall, protect, indemnify, defend
(with counsel acceptable to Landlord) and hold Landlord and the other
Indemnitees harmless from and against any and all claims, judgments, damages,
penalties, fines, liabilities, losses (including, without limitation, diminution
in value of any portion of the Premises, the Building, the Lot or the Park,
damages for the loss of or restriction on the use of rentable or usable space,
and from any adverse impact of Landlord's marketing of any space within the
Building and/or Park), suits, administrative proceedings and costs (including,
but not limited to, attorneys' and consultant fees and court costs) arising at
any time during or after the Term of this Lease in connection with or related
to, directly or indirectly, the use, presence, transportation, storage,
disposal, migration, removal, spill, release or discharge of Hazardous Materials
on, in or about any portion of the Premises, the Common Areas, the Building, the
Lot or the Park as a result (directly or indirectly) of the intentional or
negligent acts or omissions of Tenant or any of Tenant's Representatives.
Neither the written consent of Landlord to the presence, use or storage of
Hazardous Materials in, on, under or about any portion of the Premises, the
Building, the Lot and/or the Park, nor the strict compliance by Tenant with all
Environmental Laws shall excuse Tenant and Tenant's officers and directors from
its obligations of indemnification pursuant hereto. Tenant shall not be
relieved of its indemnification obligations under the provisions of this Section
29.5 due to Landlord's status as either an "owner" or "operator" under any
Environmental Laws.
29.6 SURVIVAL: Tenant's obligations and liabilities pursuant to the
provisions of this Section 29 shall survive the expiration or earlier
termination of this Lease. If it is determined by Landlord that the condition
of all or any portion of the Premises, the Building, the Lot and/or the Park is
not in compliance with the provisions of this Lease with respect to Hazardous
Materials, including without limitation all Environmental Laws at the expiration
or earlier termination of this Lease, then in Landlord's reasonable discretion,
Landlord may require Tenant to hold over possession of the Premises until Tenant
can surrender the Premises to Landlord in the condition in which the Premises
existed as of the Commencement Date and prior to the introduction of such
Hazardous Materials by Tenant except for reasonable wear and tear, including
without limitation, the conduct or performance of any closures as required by
any Environmental Laws. The burden of proof hereunder shall be upon Tenant.
For purposes hereof, the term "reasonable wear and tear" shall not include any
deterioration in the condition or diminution of the value of any portion of the
Premises, the Building, the Lot and/or the Park in any manner whatsoever related
to directly, or indirectly, Hazardous Materials. Any such holdover by Tenant
will be with Landlord's consent, will not be terminable by Tenant in any event
or circumstance and will otherwise be subject to the provisions of Section 22 of
this Lease.
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29.7 EXCULPATION OF TENANT: Tenant shall not be liable to Landlord for
nor otherwise obligated to Landlord under any provision of the Lease with
respect to the following: (i) any claim, remediation, obligation, investigation,
obligation, liability, cause of action, attorney's fees, consultants' cost,
expense or damage resulting from any Hazardous Materials present in, on or about
the Premises or the Building to the extent not caused or otherwise permitted,
directly or indirectly, by Tenant or Tenant's Representatives; or (ii) the
removal, investigation, monitoring or remediation of any Hazardous Material
present in, on or about the Premises or the Building caused by any source,
including third parties, other than Tenant or Tenant's Representatives;
provided, however, Tenant shall be fully liable for and otherwise obligated to
Landlord under the provisions of this Lease for all liabilities, costs, damages,
penalties, claims, judgments, expenses (including without limitation, attorneys'
and experts' fees and costs) and losses to the extent (a) Tenant or any of
Tenant's Representatives contributes to the presence of such Hazardous
Materials, or Tenant and/or any of Tenant's Representatives exacerbates the
conditions caused by such Hazardous Materials, or (b) Tenant and/or Tenant's
Representatives allows or permits persons over which Tenant or any of Tenant's
Representatives has control, and/or for which Tenant or any of Tenant's
Representatives are legally responsible for, to cause such Hazardous Materials
to be present in, on, under, through or about any portion of the Premises, the
Common Areas, the Building or the Park, or (c) Tenant and/or any of Tenant's
Representatives does not take all reasonably appropriate actions to prevent such
persons over which Tenant or any of Tenant's Representatives has control and/or
for which Tenant or any of Tenant's Representatives are legally responsible from
causing the presence of Hazardous Materials in, on, under, through or about any
portion of the Premises, the Common Areas, the Building or the Park.
30. FINANCIAL STATEMENTS: Tenant, for the reliance of Landlord, any lender
holding or anticipated to acquire a lien upon the Premises, the Building or the
Park or any portion thereof, or any prospective purchaser of the Building or the
Park or any portion thereof, within ten (10) days after Landlord's request
therefor, but not more often than once annually so long as Tenant is not in
default of this Lease, shall deliver to Landlord the then current audited
financial statements of Tenant (including interim periods following the end of
the last fiscal year for which annual statements are available) which statements
shall be prepared or compiled by a certified public accountant and shall present
fairly the financial condition of Tenant at such dates and the result of its
operations and changes in its financial positions for the periods ended on such
dates. If an audited financial statement has not been prepared, Tenant shall
provide Landlord with an unaudited financial statement and/or such other
information, the type and form of which are acceptable to Landlord in Landlord's
reasonable discretion, which reflects the financial condition of Tenant. If
Landlord so requests, Tenant shall deliver to Landlord an opinion of a certified
public accountant, including a balance sheet and profit and loss statement for
the most recent prior year, all prepared in accordance with generally accepted
accounting principles consistently applied. Any and all options granted to
Tenant hereunder shall be subject to and conditioned upon Landlord's reasonable
approval of Tenant's financial condition at the time of Tenant's exercise of any
such option.
31. GENERAL PROVISIONS:
31.1 TIME. Time is of the essence in this Lease and with respect to
each and all of its provisions in which performance is a factor.
31.2 SUCCESSORS AND ASSIGNS. The covenants and conditions herein
contained, subject to the provisions as to assignment, apply to and bind the
heirs, successors, executors, administrators and assigns of the parties hereto.
31.3 RECORDATION. Tenant shall not record this Lease or a short form
memorandum hereof without the prior written consent of the Landlord.
31.4 LANDLORD'S PERSONAL LIABILITY. The liability of Landlord (which,
for purposes of this Lease, shall include Landlord and the owner of the Building
if other than Landlord) to Tenant for any default by Landlord under the terms of
this Lease shall be limited to the actual interest of Landlord and its present
or future partners or members in the Premises or the Building, and Tenant agrees
to look solely to the Premises for satisfaction of any liability and shall not
look to other assets of Landlord nor seek any recourse against the assets of the
individual partners, members, directors, officers, shareholders, agents or
employees of Landlord (including without limitation, any property management
company of Landlord); it being intended that Landlord and the individual
partners, members, directors, officers, shareholders, agents and employees of
Landlord (including without limitation, any property management company of
Landlord) shall not be personally liable in any manner whatsoever for any
judgment or deficiency. The liability of Landlord under this Lease is limited
to its actual period of ownership of title to the Building, and Landlord shall
be automatically released from further performance under this Lease upon
transfer of Landlord's interest in the Premises or the Building.
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31.5 SEPARABILITY. Any provisions of this Lease which shall prove to be
invalid, void or illegal shall in no way affect, impair or invalidate any other
provisions hereof and such other provision shall remain in full force and
effect.
31.6 CHOICE OF LAW. This Lease shall be governed by, and construed in
accordance with, the laws of the State of California.
31.7 ATTORNEYS' FEES. In the event any dispute between the parties
results in litigation or other proceeding, the prevailing party shall be
reimbursed by the party not prevailing for all reasonable costs and expenses,
including, without limitation, reasonable attorneys' and experts' fees and costs
incurred by the prevailing party in connection with such litigation or other
proceeding, and any appeal thereof. Such costs, expenses and fees shall be
included in and made a part of the judgment recovered by the prevailing party,
if any.
31.8 ENTIRE AGREEMENT. This Lease supersedes any prior agreements,
representations, negotiations or correspondence between the parties, and
contains the entire agreement of the parties on matters covered. No other
agreement, statement or promise made by any party, that is not in writing and
signed by all parties to this Lease, shall be binding.
31.9 WARRANTY OF AUTHORITY. On the date that Tenant executes this
Lease, Tenant shall deliver to Landlord an original certificate of status for
Tenant issued by the California Secretary of State or statement of partnership
for Tenant recorded in the county in which the Premises are located, as
applicable, and such other documents as Landlord may reasonably request with
regard to the lawful existence of Tenant. Each person executing this Lease on
behalf of either Landlord or Tenant represents and warrants that (1) such person
is duly and validly authorized to do so on behalf of the entity it purports to
so bind, and (2) if such party is a partnership, corporation or trustee, that
such partnership, corporation or trustee has full right and authority to enter
into this Lease and perform all of its obligations hereunder. Tenant hereby
warrants that this Lease is valid and binding upon Tenant and enforceable
against Tenant in accordance with its terms.
31.10 NOTICES. Any and all notices and demands required or permitted to
be given hereunder to Landlord shall be in writing and shall be sent: (a) by
United States mail, certified and postage prepaid; or (b) by personal delivery;
or (c) by overnight courier, addressed to Landlord at 101 Lincoln Centre Drive,
Fourth Floor, Foster City, California 94404-1167. Any and all notices and
demands required or permitted to be given hereunder to Tenant shall be in
writing and shall be sent: (i) by United States mail, certified and postage
prepaid; or (ii) by personal delivery to any employee or agent of Tenant over
the age of eighteen (18) years of age; or (iii) by overnight courier, all of
which shall be addressed to Tenant at the Premises. Notice and/or demand shall
be deemed given upon the earlier of actual receipt or the third day following
deposit in the United States mail. Any notice or requirement of service
required by any statute or law now or hereafter in effect, including, but not
limited to, California Code of Civil Procedure Sections 1161, 1161.1, and 1162
(including any amendments, supplements or substitutions thereof), is hereby
waived by Tenant.
31.11 JOINT AND SEVERAL. If Tenant consists of more than one person or
entity, the obligations of all such persons or entities shall be joint and
several.
31.12 COVENANTS AND CONDITIONS. Each provision to be performed by Tenant
hereunder shall be deemed to be both a covenant and a condition.
31.13 WAIVER OF JURY TRIAL. The parties hereto shall and they hereby do
waive trial by jury in any action, proceeding or counterclaim brought by either
of the parties hereto against the other on any matters whatsoever arising out of
or in any way related to this Lease, the relationship of Landlord and Tenant,
Tenant's use or occupancy of the Premises, the Building or the Park, and/or any
claim of injury, loss or damage.
31.14 UNDERLINING. The use of underlining within the Lease is for
Landlord's reference purposes only and no other meaning or emphasis is intended
by this use, nor should any be inferred.
31.15 MERGER. The voluntary or other surrender of this Lease by Tenant,
the mutual termination or cancellation hereof by Landlord and Tenant, or a
termination of this Lease by Landlord for a material default by Tenant
hereunder, shall not work a merger, and, at the sole option of Landlord, (i)
shall terminate all or any existing subleases or subtenancies, or (ii) may
operate as an assignment to Landlord of any or all of such subleases or
subtenancies. Landlord's election of either or both of the foregoing options
shall be exercised by delivery by Landlord of written notice thereof to Tenant
and all known subtenants under any sublease.
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32. SIGNS: All signs and graphics of every kind visible in or from public view
or corridors or the exterior of the Premises shall be subject to Landlord's
prior written approval and shall be subject to any applicable governmental laws,
ordinances, and regulations and in compliance with Landlord's sign criteria as
same may exist from time to time or as set forth in EXHIBIT H hereto and made a
part hereof. Tenant shall remove all such signs and graphics prior to the
termination of this Lease. Such installations and removals shall be made in a
manner as to avoid damage or defacement of the Premises; and Tenant shall repair
any damage or defacement, including without limitation, discoloration caused by
such installation or removal. Landlord shall have the right, at its option, to
deduct from the Security Deposit such sums as are reasonably necessary to remove
such signs, including, but not limited to, the costs and expenses associated
with any repairs necessitated by such removal. Notwithstanding the foregoing,
in no event shall any: (a) neon, flashing or moving sign(s) or (b) sign(s) which
shall interfere with the visibility of any sign, awning, canopy, advertising
matter, or decoration of any kind of any other business or occupant of the
Building or the Park be permitted hereunder. Tenant further agrees to maintain
any such sign, awning, canopy, advertising matter, lettering, decoration or
other thing as may be approved in good condition and repair at all times.
33. MORTGAGEE PROTECTION: Upon any default on the part of Landlord, Tenant
will give written notice by registered or certified mail to any beneficiary of a
deed of trust or mortgagee of a mortgage covering the Premises who has provided
Tenant with notice of their interest together with an address for receiving
notice, and shall offer such beneficiary or mortgagee a reasonable opportunity
to cure the default (which, in no event shall be less than ninety (90) days),
including time to obtain possession of the Premises by power of sale or a
judicial foreclosure, if such should prove necessary to effect a cure. If such
default cannot be cured within such time period, then such additional time as
may be necessary will be given to such beneficiary or mortgagee to effect such
cure so long as such beneficiary or mortgagee has commenced the cure within the
original time period and thereafter diligently pursues such cure to completion,
in which event this Lease shall not be terminated while such cure is being
diligently pursued. Tenant agrees that each lender to whom this Lease has been
assigned by Landlord is an express third party beneficiary hereof. Tenant shall
not make any prepayment of Rent more than one (1) month in advance without the
prior written consent of each such lender, except if Tenant is required to make
quarterly payments of Rent in advance pursuant to the provisions of Section 8
above. Tenant waives the collection of any deposit from such lender(s) or any
purchaser at a foreclosure sale of such lender(s)' deed of trust unless the
lender(s) or such purchaser shall have actually received and not refunded the
deposit. Tenant agrees to make all payments under this Lease to the lender with
the most senior encumbrance upon receiving a direction, in writing, to pay said
amounts to such lender. Tenant shall comply with such written direction to pay
without determining whether an event of default exists under such lender's loan
to Landlord.
34. QUITCLAIM: Upon any termination of this Lease, Tenant shall, at Landlord's
request, execute, have acknowledged and deliver to Landlord a quitclaim deed of
Tenant's interest in and to the Premises. If Tenant fails to so deliver to
Landlord such a quitclaim deed, Tenant hereby agrees that Landlord shall have
the full authority and right to record such a quitclaim deed signed only by
Landlord and such quitclaim deed shall be deemed conclusive and binding upon
Tenant.
35. MODIFICATIONS FOR LENDER: If, in connection with obtaining financing for
the Premises or any portion thereof, Landlord's lender shall request reasonable
modification(s) to this Lease as a condition to such financing, Tenant shall not
unreasonably withhold, delay or defer its consent thereto, provided such
modifications do not materially adversely affect Tenant's rights hereunder or
the use, occupancy or quiet enjoyment of Tenant hereunder.
36. WARRANTIES OF TENANT: Tenant hereby warrants and represents to Landlord,
for the express benefit of Landlord, that Tenant has undertaken a complete and
independent evaluation of the risks inherent in the execution of this Lease and
the operation of the Premises for the use permitted hereby, and that, based upon
said independent evaluation, Tenant has elected to enter into this Lease and
hereby assumes all risks with respect thereto. Tenant hereby further warrants
and represents to Landlord, for the express benefit of Landlord, that in
entering into this Lease, Tenant has not relied upon any statement, fact,
promise or representation (whether express or implied, written or oral) not
specifically set forth herein in writing and that any statement, fact, promise
or representation (whether express or implied, written or oral) made at any time
to Tenant, which is not expressly incorporated herein in writing, is hereby
waived by Tenant.
37. COMPLIANCE WITH AMERICANS WITH DISABILITIES ACT: Landlord and Tenant
hereby agree and
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acknowledge that the Premises, the Building and/or the Park may be subject to
the requirements of the Americans with Disabilities Act, a federal law codified
at 42 U.S.C. 12101 et seq, including, but not limited to Title III thereof, all
regulations and guidelines related thereto, together with any and all laws,
rules, regulations, ordinances, codes and statutes now or hereafter enacted by
local or state agencies having jurisdiction thereof, including all requirements
of Title 24 of the State of California, as the same may be in effect on the date
of this Lease and may be hereafter modified, amended or supplemented
(collectively, the "ADA"). Any Tenant Improvements to be constructed hereunder
shall be in compliance with the requirements of the ADA, and all costs incurred
for purposes of compliance therewith shall be a part of and included in the
costs of the Tenant Improvements. Subject to reimbursement pursuant to Section
6 of the Lease, if any barrier removal work or other work is required to the
Building, the Common Areas or the Park under the ADA, then such work shall be
the responsibility of Landlord; provided, if such work is required under the ADA
as a result of Tenant's use of the Premises or any work or alteration made to
the Premises by or on behalf of Tenant, after the Commencement Date then such
work shall be performed by Landlord at the sole cost and expense of Tenant.
Except as otherwise expressly provided in this provision, Tenant shall be
responsible at its sole cost and expense for fully and faithfully complying with
all applicable requirements of the ADA, including without limitation, not
discriminating against any disabled persons in the operation of Tenant's
business in or about the Premises, and offering or otherwise providing auxiliary
aids and services as, and when, required by the ADA. Within ten (10) days after
receipt, Landlord and Tenant shall advise the other party in writing, and
provide the other with copies of (as applicable), any notices aleging violation
of the ADA relating to any portion of the Premises or the Building; any claims
made or threatened in writing regarding noncompliance with the ADA and relating
to any portion of the Premises or the Building; or any governmental or
regulatory actions or investigations instituted or threatened regarding
noncompliance with the ADA and relating to any portion of the Premises or the
Building. Tenant and Landlord shall and hereby agrees to protect, defend (with
counsel acceptable to the other) and hold each other and the other Indemnitees
harmless and indemnify the Indemnitees from and against all liabilities,
damages, claims, losses, penalties, judgments, charges and expenses (including
reasonable attorneys' fees, costs of court and expenses necessary in the
prosecution or defense of any litigation including the enforcement of this
provision) arising from or in any way related to, directly or indirectly, the
other's violation or alleged violation of the ADA. Tenant agrees that the
obligations of Tenant herein shall survive the expiration or earlier termination
of this Lease.
38. BROKERAGE COMMISSION: Landlord and Tenant each represents and warrants for
the benefit of the other that it has had no dealings with any real estate
broker, agent or finder in connection with the Premises and/or the negotiation
of this Lease, except for the Broker(s) (as set forth on Page 1), and that it
knows of no other real estate broker, agent or finder who is or might be
entitled to a real estate brokerage commission or finder's fee in connection
with this Lease or otherwise based upon contacts between the claimant and
Tenant. Each party shall indemnify and hold harmless the other from and against
any and all liabilities or expenses arising out of claims made for a fee or
commission by any real estate broker, agent or finder in connection with the
Premises and this Lease other than Broker(s), if any, resulting from the actions
of the indemnifying party. Any real estate brokerage commission or finder's fee
payable to the Broker(s) in connection with this Lease shall only be payable and
applicable to the extent of the initial Term of the Lease and to the extent of
the Premises as same exist as of the date on which Tenant executes this Lease.
Unless expressly agreed to in writing by Landlord and Broker(s), no real estate
brokerage commission or finder's fee shall be owed to, or otherwise payable to,
the Broker(s) for any renewals or other extensions of the initial Term of this
Lease or for any additional space leased by Tenant other than the Premises as
same exists as of the date on which Tenant executes this Lease. Tenant further
represents and warrants to Landlord that Tenant will not receive (i) any portion
of any brokerage commission or finder's fee payable to the Broker(s) in
connection with this Lease or (ii) any other form of compensation or incentive
from the Broker(s) with respect to this Lease.
39. QUIET ENJOYMENT: Landlord covenants with Tenant, upon the paying of Rent
and observing and keeping the covenants, agreements and conditions of this Lease
on its part to be kept, and during the periods that Tenant is not otherwise in
default of any of the terms or provisions of this Lease, and subject to the
rights of any of Landlord's lenders, (i) that Tenant shall and may peaceably and
quietly hold, occupy and enjoy the Premises and the Common Areas during the Term
of this Lease, and (ii) neither Landlord, nor any successor or assign of
Landlord, shall disturb Tenant's occupancy or enjoyment of the Premises and the
Common Areas.
40. LANDLORD'S ABILITY TO PERFORM TENANT'S UNPERFORMED OBLIGATIONS:
Notwithstanding anything to the contrary contained in this Lease, if Tenant
shall fail to perform any of the terms, provisions, covenants or conditions to
be performed or complied with by Tenant pursuant to this Lease, and/or if the
failure of Tenant relates to a matter which in Landlord's judgment reasonably
exercised is of an emergency nature and such failure shall remain uncured for a
period of time commensurate with such emergency, then
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Landlord may, at Landlord's option without any obligation to do so, and in its
reasonable discretion as to the necessity therefor, perform any such term,
provision, covenant, or condition, or make any such payment and Landlord by
reason of so doing shall not be liable or responsible for any loss or damage
thereby sustained by Tenant or anyone holding under or through Tenant. If
Landlord so performs any of Tenant's obligations hereunder, the full amount of
the cost and expense entailed or the payment so made or the amount of the loss
so sustained shall immediately be owing by Tenant to Landlord, and Tenant shall
promptly pay to Landlord upon demand.
IN WITNESS WHEREOF, this Lease is executed by the parties as of the Lease
Date referenced on Page 1 of this Lease.
TENANT:
DITECH Corporation,
a California corporation
By: /s/ Pong Lim
------------------------------
Its: President & CEO
------------------------------
Date: 8-31-98
------------------------------
By: /s/ William Tamblyn
------------------------------
Its: VP/CFO
------------------------------
Asst. Secretary
Date: 8-31-98
------------------------------
LANDLORD:
Lincoln-Whitehall Pacific, LLC,
a Delaware limited liability company
By: LPC MS, Inc.,
as manager and agent for Lincoln-Whitehall Pacific, LLC
By: /s/ illegible
------------------------------
Senior Vice President
Date:
------------------------------
If Tenant is a CORPORATION, the authorized officers must sign on behalf of the
corporation and indicate the capacity in which they are signing. The Lease must
be executed by the president or vice-president AND the secretary or assistant
secretary, UNLESS the bylaws or a resolution of the board of directors shall
otherwise provide, in which event, the bylaws or a certified copy of the
resolution, as the case may be, must be attached to this Lease.
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EXHIBIT A - PREMISES
This exhibit, entitled "Premises", is and shall constitute EXHIBIT A to that
certain Lease Agreement dated August 18, 1998 (the "Lease"), by and between
Lincoln-Whitehall Pacific, LLC, a Delaware limited liability company
("Landlord") and DITECH Corporation, a California corporation ("Tenant") for the
leasing of certain premises located in the Middlefield Bernardo Business Park at
825 E. Middlefield Road, Unit A, Mountain View, California (the "Premises").
The Premises consist of the rentable square footage of space specified in the
Basic Lease Information and has the address specified in the Basic Lease
Information. The Premises are a part of and are contained in the Building
specified in the Basic Lease Information. The cross-hatched area depicts the
Premises within the Building:
[The diagram shows a triangle, bordered by Bernadro Ave., Middlefield Road and
an unnamed third road. Building C is located in the corner between
Middlefield Road and the unnamed road. Approximately 70% of the building is
shown as cross-hatched, the portion closes to the nexus of Middlefield and
the unnamed road.]
<PAGE>
EXHIBIT B TO LEASE AGREEMENT
TENANT IMPROVEMENTS
This exhibit, entitled "Tenant Improvements", is and shall constitute EXHIBIT B
to that certain Lease Agreement dated August 18, 1998 (the "Lease"), by and
between Lincoln-Whitehall Pacific, LLC, a Delaware limited liability company
("Landlord") and DITECH Corporation, a California corporation ("Tenant") for the
leasing of certain premises located in the Middlefield Bernardo Business Park at
825 E. Middlefield Road, Unit A, Mountain View, California (the "Premises"). The
terms, conditions and provisions of this EXHIBIT B are hereby incorporated into
and are made a part of the Lease. Any capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed to such terms as set
forth in the Lease:
1. TENANT IMPROVEMENTS. Subject to the conditions set forth below, Landlord
agrees to construct and install certain improvements ("Tenant Improvements") in
the Building of which the Premises are a part in accordance with the Final
Drawings (defined below) and pursuant to the terms of this EXHIBIT B.
2. DEFINITION. "Tenant Improvements" as used in this Lease shall include only
those interior portions of the Building which are described below. "Tenant
Improvements" shall specifically not include any alterations, additions or
improvements installed or constructed by Tenant, and any of Tenant's trade
fixtures, equipment, furniture, furnishings, telephone equipment or other
personal property (collectively, "Personal Property"). The Tenant Improvements
shall include any and all interior improvements to be made to the Premises as
specified in the Final Drawings (defined below), as specified and agreed to by
Tenant and Landlord.
3. TENANT'S INITIAL PLANS; THE WORK. Tenant desires Landlord to perform certain
Tenant Improvements in the Premises in substantial accordance with the plan(s)
or scope of work (collectively, the "Initial Plans") prepared by Landlord, a
copy of which is attached hereto as SCHEDULE 1, and made a part hereof. Such
work, as shown in the Initial Plans and as more fully detailed in the Final
Drawings (as defined and described in Section 4 below), shall be hereinafter
referred to as the "Work". Not later than five (5) days after Tenant executes
the Lease, Tenant and/or Tenant's Representatives shall furnish to Landlord such
additional plans, drawings, specifications and finish details as Landlord may
reasonably request to enable Landlord's architects and engineers, as applicable,
to prepare mechanical, electrical and plumbing plans and to prepare the Final
Drawings, including, but not limited to, a final telephone layout and special
electrical connections, if any. All plans, drawings, specifications and other
details describing the Work which have been, or are hereafter, furnished by or
on behalf of Tenant shall be subject to Landlord's approval, which approval
shall not be unreasonably withheld. Landlord shall not be deemed to have acted
unreasonably if it withholds its approval of any plans, specifications, drawings
or other details or of any Change Request (hereafter defined in Section 11
below) because, in Landlord's reasonable opinion, the work as described in any
such item, or any Change Request, as the case may be: (a) is likely to adversely
and materially affect Building systems, the structure of the Building or the
safety of the Building and/or its occupants; (b) might impair Landlord's ability
to furnish services to Tenant or other tenants in the Building; (c) would
substantially increase the cost of operating the Building or the Park; (d) would
violate any applicable governmental, administrative body's or agencies' laws,
rules, regulations, ordinances, codes or similar requirements (or
interpretations thereof); (e) contains or uses Hazardous Materials; (f) would
adversely affect the appearance of the Building or the Park; (g) might adversely
affect another tenant's premises or such other tenant's use and enjoyment of
such premises; (h) is prohibited by any ground lease affecting the Building, the
Lot and/or the Park, any Recorded Matters or any mortgage, trust deed or other
instrument encumbering the Building, the Lot and/or the Park; (i) is likely to
be substantially delayed because of unavailability or shortage of labor or
materials necessary to perform such work or the difficulties or unusual nature
of such work; (j) is not, at a minimum, in accordance with Landlord's Building
Standards (defined below), or (k) would increase the Tenant Improvement Costs
(defined in Section 9 below) by more than twenty-five percent (25%) from the
cost originally estimated and anticipated by the parties. The foregoing reasons,
however, shall not be the only reasons for which Landlord may withhold its
approval, whether or not such other reasons are similar or dissimilar to the
foregoing. Neither the approval by Landlord of the Work or the Initial Plans or
any other plans, specifications, drawings or other items associated with the
Work nor Landlord's performance, supervision or monitoring of the Work shall
constitute any warranty or covenant by Landlord to Tenant of the adequacy of the
design for Tenant's intended use of the Premises. Tenant agrees to, and does
hereby, assume full and complete responsibility to ensure that the Work and the
Final Drawings are adequate to fully meet the needs and requirements of Tenant's
intended operations of its business within the Premises and Tenant's use of the
Premises.
4. FINAL DRAWINGS. If necessary for the performance of the Work and to the
extent not already
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included as part of the Initial Plans attached hereto, Landlord shall prepare
or cause to be prepared final working drawings and specifications for the
Work (the "Final Drawings") based on and consistent with the Initial Plans
and the other plans, specifications, drawings, finish details or other
information furnished by Tenant or Tenant's Representatives to Landlord and
approved by Landlord pursuant to Section 3 above. Tenant shall cooperate
diligently with Landlord and Landlord's architect, engineer and other
representatives and Tenant shall furnish within five (5) days after any
request therefor, all information required by Landlord or Landlord's
architect, engineer or other representatives for completion of the Final
Drawings. So long as the Final Drawings are substantially consistent with the
Initial Plans, Tenant shall approve the Final Drawings within three (3)
business days after receipt of same from Landlord. Landlord and Tenant shall
indicate their approval of the Final Drawings by initialing each sheet of the
Final Drawings and delivering to one another a true and complete copy of such
initialed Final Drawings. A true and complete copy of the approved and
initialed Final Drawings shall be attached to the Lease as EXHIBIT B-1 and
shall be made a part thereof. If Tenant reasonably disapproves of any matters
included in the Final Drawings because such items are not substantially
consistent with the Initial Plans, Tenant shall, within the aforementioned
three (3) business day period, deliver to Landlord written notice of its
disapproval and Tenant shall specify in such written notice, in sufficient
detail as Landlord may reasonably require, the matters disapproved, the
reasons for such disapproval, and the specific changes or revisions necessary
to be made to the Final Drawings to cause such drawings to substantially
conform to the Initial Plans. Any additional costs associated with such
requested changes or revisions shall be paid for solely by Tenant, as the
Excess Tenant Improvement Costs (defined in Section 10 below), in cash upon
written demand therefor by Landlord. Any changes or revisions requested by
Tenant must first be approved by Landlord, which approval shall not be
unreasonably withheld, subject to the provisions of Section 3 above. If
Landlord approves such requested changes or revisions, Landlord shall cause
the Final Drawings to be revised accordingly and Landlord and Tenant shall
initial each sheet of the Final Drawings as revised and attach a true and
complete copy thereof to the Lease as EXHIBIT B-1. Landlord and Tenant hereby
covenant to each other to cooperate with each other and to act reasonably in
the preparation and approval of the Final Drawings.
5. PERFORMANCE OF WORK. As soon as practicable after Tenant and Landlord initial
and attach to the Lease as EXHIBIT B-1 a true and complete copy of the Final
Drawings, Landlord shall submit the Final Drawings to the governmental
authorities having rights of approval over the Work and shall apply for the
necessary approvals and building permits. Subject to the satisfaction of all
conditions precedent and subsequent to its obligations under this EXHIBIT B, and
further subject to the provisions of Section 10 hereof, as soon as practicable
after Landlord or its representatives have received all necessary approvals and
building permits, Landlord will put the Final Drawings out for bid to several
licensed, bonded and insured general contractors, who shall be subject to
Tenant's reasonable approval. The Tenant Improvements shall be constructed by a
general contractor selected by Landlord (the "General Contractor") and all work
shall be performed in good and workmanlike manner in accordance with laws, codes
and permits as reasonably determined by Landlord. Landlord shall promptly
commence construction, or cause the commencement of construction by the General
Contractor, of the Tenant Improvements, as soon as practicable after selection
of the General Contractor. Except as hereinafter expressly provided to the
contrary, Landlord shall cause the performance of the Work using (except as may
be stated or otherwise shown in the Final Drawings) building standard materials,
quantities and procedures then in use by Landlord ("Building Standards").
6. SUBSTANTIAL COMPLETION. Landlord and Tenant shall cause the General
Contractor to Substantially Complete (defined below) the Tenant Improvements in
accordance with the Final Drawings by the Commencement Date of the Lease as set
forth in Section 2 of the Lease (THE "COMPLETION DATE"), subject to delays due
to (a) acts or events beyond its control including, but not limited to, acts of
God, earthquakes, strikes, lockouts, boycotts, casualties, discontinuance of any
utility or other service required for performance of the Work, moratoriums,
governmental agencies and weather, (b) the lack of availability or shortage of
specialized materials used in the construction of the Tenant Improvements, (c)
any matters beyond the control of Landlord, the General Contractor or any
subcontractors, (d) any changes required by the fire department, building and/or
planning department, building inspectors or any other agency having jurisdiction
over the Building, the Work and/or the Tenant Improvements (except to the extent
such changes are directly attributable to Tenant's use or Tenant's specialized
tenant improvements, in which event such delays are considered Tenant Delays)
(the events and matters set forth in Subsections (a), (b), (c) and (d) are
collectively referred to as "Force Majeure Delays"), or (e) any Tenant Delays
(defined in Section 7 below). The Tenant Improvements shall be deemed
substantially complete on the date that the building officials of the applicable
governmental agency(s) issues its final approval of the construction of the
Tenant Improvements whether in the form of the issuance of a final permit,
certificate of occupancy or the written approval evidencing its final inspection
on the building permit(s), or the date on which Tenant first takes occupancy of
the Premises, whichever first occurs ("Substantial Completion", or
"Substantially Completed, or "Substantially Complete"). If the Work is not
deemed to be Substantially Completed on or before the scheduled COMPLETION DATE,
(i) Landlord agrees to use reasonable efforts to Substantially Complete the Work
as soon as practicable thereafter, (ii) the Lease shall remain in full force and
effect, (iii) Landlord shall not be deemed to be in breach or default of the
Lease or this EXHIBIT B as a result thereof and
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Landlord shall have no liability to Tenant as a result of any delay in
occupancy (whether for damages, abatement of all or any portion of the Rent, or
otherwise), and (iv) except in the event of any Tenant Delays, which will not
affect the Commencement Date but will extend the Completion Date without any
penalty or liability to Landlord, and notwithstanding anything to the contrary
contained in the Lease, the Commencement Date and the Expiration Date of the
term of the Lease (as defined in Section 2 of the Lease) shall be extended
commensurately by the amount of time attributable to such Force Majeure Delays,
and Landlord and Tenant shall execute a written amendment to the Lease
evidencing such extensions of time, substantially in the form of EXHIBIT F to
the Lease. Subject to the provisions of Section 10.2 of the Lease, the Tenant
Improvements shall belong to Landlord and shall be deemed to be incorporated
into the Premises for all purposes of the Lease, unless Landlord, in writing,
indicates otherwise to Tenant. As soon as practicable after Substantial
Completion of the Tenant Improvements, representatives of Landlord and Tenant
shall make a joint inspection of the Premises, and the results of such
inspection shall be set forth in a written list specifying the incomplete items
as well as those items for which corrections need to be made (the "Punchlist
Items"). Landlord and Tenant shall promptly approve the written list of
Punchlist Items in writing. Landlord, at its sole cost and expense, shall use
commercially reasonable efforts to cause the Punchlist Items to be promptly
completed and/or corrected, as applicable. The performance of the work
associated with the Punchlist Items shall be performed in such a manner so as
not to preclude or substantially prevent Tenant's conduct of its operations in
the Premises. Upon the completion of the Punchlist Items Tenant shall promptly
notify Landlord in writing that such items have been completed to Tenant's
reasonable satisfaction.
7. TENANT DELAYS. There shall be no extension of the scheduled Commencement Date
or Expiration Date of the term of the Lease (as otherwise permissibly extended
in accordance with the provisions of Section 6 above) if the Work has not been
Substantially Completed by the scheduled Commencement Date due to any delay
attributable to Tenant and/or Tenant's Representatives or Tenant's intended use
of the Premises (collectively, "Tenant Delays"), including, but not limited to,
any of the following described events or occurrences: (a) delays related to
changes made or requested by Tenant to the Work and/or the Final Drawings; (b)
the failure of Tenant to furnish all or any plans, drawings, specifications,
finish details or other information required under Sections 3 and 4 above; (c)
the failure of Tenant to comply with the requirements of Section 10 below; (d)
Tenant's requirements for special work or materials, finishes, or installations
other than the Building Standards or Tenant's requirements for special
construction or phasing; (e) any changes required by the fire department,
building or planning department, building inspectors or any other agency having
jurisdiction over the Building, the Work and/or the Tenant Improvements if such
changes are directly attributable to Tenant's use or Tenant's specialized tenant
improvements; (f) the performance of any additional work pursuant to a Change
Request (defined below in Section 11) which is requested by Tenant; (g) the
performance of work in or about the Premises by any person, firm or corporation
employed by or on behalf of Tenant, including, without limitation, any failure
to complete or any delay in the completion of such work; or (h) any and all
delays caused by or arising from acts or omissions of Tenant and/or Tenant's
Representatives, in any manner whatsoever, including, but not limited to, any
and all revisions to the Final Drawings. Any delays in the construction of the
Tenant Improvements due to any of the events described above, shall in no way
extend or affect the date on which Tenant is required to commence paying Rent
under the terms of the Lease. It is the intention of the parties that all of
such delays will be considered Tenant Delays for which Tenant shall be wholly
and completely responsible for any and all consequences related to such delays,
including, without limitation, any costs and expenses attributable to increases
in labor or materials.
8. TENANT IMPROVEMENT ALLOWANCE. Landlord and Tenant hereby acknowledge and
agree that the Tenant Improvement Costs (defined in Section 9 below) for the
Tenant Improvements, based upon the Initial Plans approved by Landlord and
Tenant in accordance with the provisions of Section 4 above, are estimated to be
approximately Five Hundred Forty-Two Thousand and 00/100 Dollars ($542,000.00)
(the "Estimated TI Costs"). If the actual Tenant Improvement Costs varies from
this estimate by more than twenty-five percent (25%), then Landlord may require
any of the following, in its sole discretion: (a) changes be made to the Final
Drawings to reduce the cost of the Tenant Improvements and Landlord may refuse
to sign any construction contract or Change Orders to the construction contract,
as the case may be, until such changes are made to the sole satisfaction of
Landlord; (b) Tenant to deposit into a separate escrow account cash in an amount
equal to the Excess Tenant Improvement Costs (defined in Section 10 below); (c)
Tenant to provide to Landlord evidence satisfactory to Landlord, in its sole
discretion, that Tenant has adequate financial resources to pay for the Excess
Tenant Improvement Costs, as solely determined by Landlord; and/or (d) Tenant to
pay all of the Excess Tenant Improvement Costs before Landlord's contribution of
the Tenant Improvement Allowance (defined in Section 10 below); provided,
however, in no event or circumstance shall the Tenant Improvement Costs exceed
the maximum amount of Seven Hundred Sixteen Thousand and 00/100 Dollars
($716,000.00), which amount is based on the amount of Twenty and 00/100 Dollars
($20.00) per rentable square foot for 35,800 square feet of the Premises which
is to be improved, as described in the Initial Plans. Subject to the foregoing,
Landlord shall provide an allowance for the planning and construction of the
Tenant Improvements for the Work to be performed
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in the Premises, as described in the Initial Plans and the Final Drawings, in
the amount of Four Hundred Twenty-Nine Thousand Six Hundred and 00/100 Dollars
($429,600.00) (the "Tenant Improvement Allowance") based upon an allowance of
Twelve and 00/100 Dollars ($12.00) per rentable square foot for 35,800 square
feet of the Premises which is to be improved, as described in the Initial Plans
and the Final Drawings. Tenant shall not be entitled to any credit, abatement or
payment from Landlord in the event that the amount of the Tenant Improvement
Allowance specified above exceeds the actual Tenant Improvement Costs. The
Tenant Improvement Allowance shall only be used for tenant improvements
typically installed by Landlord in office/R&D buildings. The Tenant Improvement
Allowance shall be the maximum contribution by Landlord for the Tenant
Improvement Costs and shall be subject to the provisions of Section 10 below.
9. TENANT IMPROVEMENT COSTS. The Tenant Improvements' cost ("Tenant Improvement
Costs") shall mean and include any and all costs and expenses of the Work,
including, without limitation, all of the following:
(a) All costs of preliminary space planning and final architectural and
engineering plans and specifications (including, without limitation, the scope
of work, all plans and specifications, the Initial Plans and the Final Drawings)
for the Tenant Improvements, and architectural fees, engineering costs and fees,
and other costs associated with completion of said plans;
(b) All costs of obtaining building permits and other necessary
authorizations and approvals from the City of Mountain View and other applicable
jurisdictions;
(c) All costs of interior design and finish schedule plans and
specifications including as-built drawings;
(d) All direct and indirect costs of procuring, constructing and
installing the Tenant Improvements in the Premises, including, but not limited
to, the construction fee for overhead and profit, the cost of all on-site
supervisory and administrative staff, office, equipment and temporary services
rendered by Landlord's consultants and the General Contractor in connection with
construction of the Tenant Improvements, and all labor (including overtime) and
materials constituting the Work;
(e) All fees payable to the General Contractor, architect and
Landlord's engineering firm if they are required by Tenant to redesign any
portion of the Tenant Improvements following Tenant's approval of the Final
Drawings; and
(f) A construction management fee payable to Landlord in the amount of
five percent (5%) of all direct and indirect costs of procuring, constructing
and installing the Tenant Improvements in the Premises and the Building.
10. EXCESS TENANT IMPROVEMENT COSTS. Prior to commencing the Work, Landlord
shall submit to Tenant a written statement of the actual Tenant Improvement
Costs (the "Actual TI Costs") (which shall include the amount of any overtime
projected as necessary to Substantially Complete the Work by the Completion
Date) as then known by Landlord, and such statement shall indicate the amount,
if any, by which the Actual TI Costs exceeds the Tenant Improvement Allowance
(the "Excess Tenant Improvement Costs"). The term "Excess Tenant Improvement
Costs" shall also include the costs related to any and all Change Orders. Tenant
agrees, within three (3) days after submission to it of such statement, to
execute and deliver to Landlord, in the form then in use by Landlord, an
authorization to proceed with the Work. Tenant shall faithfully pay all of the
Excess Tenant Improvement Costs to Landlord in cash, concurrently with Tenant's
delivery to Landlord of the aforementioned signed written authorization to
proceed. No Work shall be commenced until Tenant has fully complied with the
preceding provisions of this Section 10. If Tenant fails to remit the sums so
demanded by Landlord pursuant to Section 8 above and this Section 10 within the
time periods required, Landlord may, at its option, declare Tenant in default
under the Lease.
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11. CHANGE REQUESTS. No changes or revisions to the approved Final Drawings
shall be made by either Landlord or Tenant unless approved in writing by both
parties. Upon Tenant's request and submission by Tenant (at Tenant's sole cost
and expense) of the necessary information and/or plans and specifications for
any changes or revisions to the approved Final Drawings and/or for any work
other than the Work described in the approved Final Drawings ("Change Requests")
and the approval by Landlord of such Change Request(s), which approval Landlord
agrees shall not be unreasonably withheld, Landlord shall perform the additional
work associated with the approved Change Request(s), at Tenant's sole cost and
expense, subject, however, to the following provisions of this Section 11. Prior
to commencing any additional work related to the approved Change Request(s),
Landlord shall submit to Tenant a written statement of the cost of such
additional work and a proposed tenant change order therefor ("Change Order") in
the standard form then in use by Landlord. Tenant shall execute and deliver to
Landlord such Change Order and shall pay the entire cost of such additional work
in the following described manner. Any costs related to such approved Change
Request(s), Change Order and any delays associated therewith, shall be added to
the Tenant Improvement Costs and shall be paid for by Tenant as and with any
Excess Tenant Improvement Costs as set forth in Section 10 above. The billing
for such additional costs to Tenant shall be accompanied by evidence of the
amounts billed as is customarily used in the business. Costs related to approved
Change Requests and Change Orders shall include, without limitation, any
architectural or design fees, Landlord's construction fee for overhead and
profit, the cost of all on-site supervisory and administrative staff, office,
equipment and temporary services rendered by Landlord and/or Landlord's
consultants, and the General Contractor's price for effecting the change. If
Tenant fails to execute or deliver such Change Order, or to pay the costs
related thereto, then Landlord shall not be obligated to do any additional work
related to such approved Change Request(s) and/or Change Orders, and Landlord
may proceed to perform only the Work, as specified in the Final Drawings.
12. TERMINATION. If the Lease is terminated prior to the Completion Date, for
any reason due to the default of Tenant hereunder, in addition to any other
remedies available to Landlord under the Lease, Tenant shall pay to Landlord as
Additional Rent under the Lease, within five (5) days of receipt of a statement
therefor, any and all costs incurred by Landlord and not reimbursed or otherwise
paid by Tenant through the date of termination in connection with the Tenant
Improvements to the extent planned, installed and/or constructed as of such date
of termination, including, but not limited to, any costs related to the removal
of all or any portion of the Tenant Improvements and restoration costs related
thereto. Subject to the provisions of Section 10.2 of the Lease, upon the
expiration or earlier termination of the Lease, Tenant shall not be required to
remove the Tenant Improvements it being the intention of the parties that the
Tenant Improvements are to be considered incorporated into the Building.
Notwithstanding anything to the contrary contained herein, Landlord shall have
the right to terminate the Lease, upon written notice to Tenant, if Landlord is
unable to obtain a building permit for the Tenant Improvements within one
hundred twenty (120) days from the date the Lease is signed by Tenant.
13. TENANT ACCESS. Landlord, in Landlord's reasonable discretion and upon
receipt of a written request from Tenant, may grant Tenant a license to have
access to the Premises prior to the Completion Date to allow Tenant to do other
work required by Tenant to make the Premises ready for Tenant's use and (the
"Tenant's Pre-Occupancy Work"). It shall be a condition to the grant by Landlord
and continued effectiveness of such license that:
(a) Tenant shall give to Landlord a written request to have such access
not less than five (5) business days prior to the date on which such proposed
access will commence (the "Access Notice"). The Access Notice shall contain or
be accompanied by each of the following items, all in form and substance
reasonably acceptable to Landlord: (i) a detailed description of and schedule
for Tenant's Pre-Occupancy Work; (ii) the names and addresses of all
contractors, subcontractors and material suppliers and all other representatives
of Tenant who or which will be entering the Premises on behalf of Tenant to
perform Tenant's Pre-Occupancy Work or will be supplying materials for such
work, and the approximate number of individuals, itemized by trade, who will be
present in the Premises; (iii) copies of all contracts, subcontracts, material
purchase orders, plans and specifications pertaining to Tenant's Pre-Occupancy
Work; (iv) copies of all licenses and permits required in connection with the
performance of Tenant's Pre-Occupancy Work; (v) certificates of insurance (in
amounts satisfactory to Landlord and with the parties identified in, or required
by, the Lease named as additional insureds) and instruments of indemnification
against all claims, costs, expenses, penalties, fines, and damages which may
arise in connection with Tenant's Pre-Occupancy Work; and (vi) assurances of the
ability of Tenant to pay for all of Tenant's Pre-Occupancy Work and/or a letter
of credit or other security deemed appropriate by Landlord securing Tenant's
lien-free completion of Tenant's Pre-Occupancy Work.
(b) Such pre-term access by Tenant and Tenant's employees, agents,
contractors, consultants, workmen, mechanics, suppliers and invitees shall be
subject to scheduling by Landlord.
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(c) Tenant's employees, agents, contractors, consultants, workmen,
mechanics, suppliers and invitees shall fully cooperate, work in harmony and
not, in any manner, interfere with Landlord or Landlord's agents or
representatives in performing the Work and any additional work pursuant to
approved Change Orders, Landlord's work in other areas of the Building or the
Park, or the general operation of the Building. If at any time any such person
representing Tenant shall not be cooperative or shall otherwise cause or
threaten to cause any such disharmony or interference, including, without
limitation, labor disharmony, and Tenant shall immediately institute and
maintain corrective actions as directed by Landlord.
(d) Any such entry into and occupancy of the Premises or any portion
thereof by Tenant or any person or entity working for or on behalf of Tenant
shall be deemed to be subject to all of the terms, covenants, conditions and
provisions of the Lease, excluding only the covenant to pay Rent. Landlord shall
not be liable for any injury, loss or damage which may occur to any of Tenant's
Pre-Occupancy Work made in or about the Premises or to any property placed
therein prior to the commencement of the term of the Lease, the same being at
Tenant's sole risk and liability. Tenant shall be liable to Landlord for any
damage to any portion of the Premises, the Work or the additional work related
to any approved Change Orders caused by Tenant or any of Tenant's employees,
agents, contractors, consultants, workmen, mechanics, suppliers and invitees. In
the event that the performance of Tenant's Pre-Occupancy Work causes extra costs
to be incurred by Landlord or requires the use of other Building services,
Tenant shall promptly reimburse Landlord upon Landlord's notice to Tenant for
such extra costs and/or shall pay Landlord for such other Building services at
Landlord's standard rates then in effect.
14. LEASE PROVISIONS; CONFLICT. The terms and provisions of the Lease, insofar
as they are applicable, in whole or in part, to this EXHIBIT B, are hereby
incorporated herein by reference, and specifically including all of the
provisions of Section 31 of the Lease. In the event of any conflict between the
terms of the Lease and this EXHIBIT B, the terms of this EXHIBIT B shall
prevail. Any amounts payable by Tenant to Landlord hereunder shall be deemed to
be Additional Rent under the Lease and, upon any default in the payment of same,
Landlord shall have all rights and remedies available to it as provided for in
the Lease.
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EXHIBIT C TO LEASE AGREEMENT
RULES & REGULATIONS
This exhibit, entitled "Rules & Regulations", is and shall constitute EXHIBIT C
to that certain Lease Agreement dated August 18, 1998 (the "Lease"), by and
between Lincoln-Whitehall Pacific, LLC, a Delaware limited liability company
("Landlord") and DITECH Corporation, a California corporation ("Tenant") for the
leasing of certain premises located in the Middlefield Bernardo Business Park at
825 E. Middlefield Road, Unit A, Mountain View, California (the "Premises"). The
terms, conditions and provisions of this EXHIBIT C are hereby incorporated into
and are made a part of the Lease. Any capitalized terms used herein and not
otherwise defined herein shall have the meaning ascribed to such terms as set
forth in the Lease:
1. No advertisement, picture or sign of any sort shall be displayed on or
outside the Premises or the Building without the prior written consent
of Landlord. Landlord shall have the right to remove any such
unapproved item without notice and at Tenant's expense.
2. Tenant shall not regularly park motor vehicles in designated parking
areas after the conclusion of normal daily business activity.
3. Tenant shall not use any method of heating or air conditioning other
than that supplied by Landlord without the prior written consent of
Landlord.
4. All window coverings installed by Tenant and visible from the outside
of the Building require the prior written approval of Landlord.
5. Tenant shall not use, keep or permit to be used or kept any foul or
noxious gas or substance or any flammable or combustible materials on
or around the Premises, the Building or the Park.
6. Tenant shall not alter any lock or install any new locks or bolts on
any door at the Premises without the prior consent of Landlord.
7. Tenant agrees not to make any duplicate keys without the prior consent
of Landlord.
8. Tenant shall park motor vehicles in those general parking areas as
designated by Landlord except for loading and unloading. During those
periods of loading and unloading, Tenant shall not unreasonably
interfere with traffic flow within the Park and loading and unloading
areas of other tenants.
9. Tenant shall not disturb, solicit or canvas any occupant of the
Building or Park and shall cooperate to prevent same.
10. No person shall go on the roof without Landlord's permission.
11. Business machines and mechanical equipment belonging to Tenant which
cause noise or vibration that may be transmitted to the structure of
the Building, to such a degree as to be objectionable to Landlord or
other Tenants, shall be placed and maintained by Tenant, at Tenant's
expense, on vibration eliminators or other devices sufficient to
eliminate noise or vibration.
12. All goods, including material used to store goods, delivered to the
Premises of Tenant shall be immediately moved into the Premises and
shall not be left in parking or receiving areas overnight.
13. Tractor trailers which must be unhooked or parked with dolly wheels
beyond the concrete loading areas must use steel plates or wood blocks
under the dolly wheels to prevent damage to the asphalt paving
surfaces. No parking or storing of such trailers will be permitted in
the auto parking areas of the Park or on streets adjacent thereto.
14. Forklifts which operate on asphalt paving areas shall not have solid
rubber tires and shall only use tires that do not damage the asphalt.
15. Tenant is responsible for the storage and removal of all trash and
refuse. All such trash and refuse shall be contained in suitable
receptacles stored behind screened enclosures at locations approved by
Landlord.
16. Tenant shall not store or permit the storage or placement of goods, or
merchandise or pallets or equipment of any sort in or around the
Premises, the Building, the Park or any of the Common Areas of the
foregoing. No displays or sales of merchandise shall be allowed in the
parking lots or other Common Areas.
17. Tenant shall not permit any animals, including, but not limited to, any
household pets, to be brought or kept in or about the Premises, the
Building, the Park or any of the Common Areas of the foregoing.
18. Tenant shall not permit any motor vehicles to be washed on any portion
of the Premises or in the Common Areas of the Park, nor shall Tenant
permit mechanical work or maintenance of motor vehicles to be performed
on any portion of the Premises or in the Common Areas of the Park.
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EXHIBIT E
HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:
Landlord: _____________________________________________________________
_____________________________________________________________
c/o LPC MS, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn:________________________________________________________
Phone: (650) 571-2200
Name of (Prospective) Tenant:__________________________________________________
Mailing Address:_______________________________________________________________
_______________________________________________________________________________
Contact Person, Title and Telephone Number(s):_________________________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):___________________________________________________________
Address of (Prospective) Premises:_____________________________________________
Length of (Prospective) initial Term:__________________________________________
_______________________________________________________________________________
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or about
the Premises, including, without limitation, principal products
processed, manufactured or assembled services and activities to be
provided or otherwise conducted. Existing tenants should describe any
proposed changes to on-going operations.
_______________________________________________________________________
_______________________________________________________________________
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, generated, stored or
disposed of in, on or about the Premises? Existing tenants
should describe any Hazardous Materials which continue to be
used, generated, stored or disposed of in, on or about the
Premises.
Wastes Yes / / No / /
Chemical Products Yes / / No / /
Other Yes / / No / /
If Yes is marked, please explain:____________________________
_____________________________________________________________
_____________________________________________________________
2.2 If Yes is marked in Section 2.1, attach a list of any
Hazardous Materials to be used, generated, stored or disposed
of in, on or about the Premises, including the applicable
hazard class and an estimate of the quantities of such
Hazardous Materials at any given
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time; estimated annual throughput; the proposed location(s)
and method of storage (excluding nominal amounts of ordinary
household cleaners and janitorial supplies which are not
regulated by any Environmental Laws); and the proposed
location(s) and method of disposal for each Hazardous
Material, including, the estimated frequency, and the proposed
contractors or subcontractors. Existing tenants should attach
a list setting forth the information requested above and such
list should include actual data from on-going operations and
the identification of any variations in such information from
the prior year's certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel,
petroleum, or other Hazardous Materials in tanks or sumps
proposed in, on or about the Premises? Existing tenants should
describe any such actual or proposed activities.
Yes / / No / /
If yes, please explain:______________________________________
_____________________________________________________________
_____________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator
I.D. Number? Existing tenants should describe any additional
identification numbers issued since the previous certificate.
Yes / / No / /
4.2 Has your company filed a biennial or quarterly reports as a
hazardous waste generator? Existing tenants should describe
any new reports filed.
Yes / / No / /
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
____________storm drain? ____________sewer?
____________surface water? ____________no wastewater
or other wastes
discharged.
Existing tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
_____________________________________________________________
_____________________________________________________________
5.2 Will any such wastewater or waste be treated before discharge?
Yes / / No / /
If yes, describe the type of treatment proposed to be
conducted. Existing tenants should describe the actual
treatment conducted.
_____________________________________________________________
_____________________________________________________________
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be
used in your company's operations in, on or about the Premises
that will discharge into the air; and will such air emissions
be monitored? Existing tenants should indicate whether or not
there are any such air filtration systems or stacks in use in,
on or about the Premises which discharge into the air and
whether such air emissions are being monitored.
Yes / / No / /
If yes, please describe:_____________________________________
_____________________________________________________________
_____________________________________________________________
2
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6.2 Do you propose to operate any of the following types of
equipment, or any other equipment requiring an air emissions
permit? Existing tenants should specify any such equipment
being operated in, on or about the Premises.
__________ Spray booth(s) __________ Incinerator(s)
__________ Dip tank(s) __________ Other (Please describe)
__________ Drying oven(s) __________ No Equipment Requiring
Air Permits
If yes, please describe:_____________________________________
_____________________________________________________________
_____________________________________________________________
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan")
pursuant to Fire Department or other governmental or
regulatory agencies' requirements? Existing tenants should
indicate whether or not a Management Plan is required and has
been prepared.
Yes / / No / /
If yes, attach a copy of the Management Plan. Existing tenants
should attach a copy of any required updates to the Management
Plan.
7.2 Are any of the Hazardous Materials, and in particular
chemicals, proposed to be used in your operations in, on or
about the Premises regulated under Proposition 65? Existing
tenants should indicate whether or not there are any new
Hazardous Materials being so used which are regulated under
Proposition 65.
Yes / / No / /
If yes, please explain:_____________________________________
_____________________________________________________________
_____________________________________________________________
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has
your company ever been subject to any agency enforcement
actions, administrative orders, or consent decrees or has your
company received requests for information, notice or demand
letters, or any other inquiries regarding its operations?
Existing tenants should indicate whether or not any such
actions, orders or decrees have been, or are in the process of
being, undertaken or if any such requests have been received.
Yes / / No / /
If yes, describe the actions, orders or decrees and any
continuing compliance obligations imposed as a result of these
actions, orders or decrees and also describe any requests,
notices or demands, and attach a copy of all such documents.
Existing tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not
already delivered to Landlord pursuant to the provisions of
Section 29 of the signed Lease Agreement.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits
against your company regarding any environmental or health and
safety concerns?
Yes / / No / /
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other
documents related thereto as requested by Landlord. Existing
tenants should describe and attach a copy of any new
complaint(s), cross-complaint(s), pleadings and other related
documents not already delivered to Landlord pursuant to the
provisions of Section 29 of the signed Lease Agreement.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
3
<PAGE>
8.3 Have there been any problems or complaints from adjacent
tenants, owners or other neighbors at your company's current
facility with regard to environmental or health and safety
concerns? Existing tenants should indicate whether or not
there have been any such problems or complaints from adjacent
tenants, owners or other neighbors at, about or near the
Premises.
Yes / / No / /
If yes, please describe. Existing tenants should describe any
such problems or complaints not already disclosed to Landlord
under the provisions of the signed Lease Agreement.
_____________________________________________________________
_____________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company
with respect to its proposed operations in, on or about the
Premises, including, without limitation, any wastewater
discharge permits, air emissions permits, and use permits or
approvals. Existing tenants should attach copies of any new
permits and licenses as well as any renewals of permits or
licenses previously issued.
The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenant's indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlord's review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time, or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenant's Representatives. Notwithstanding the
foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement.
I (print name)_____________________, acting with full authority to bind the
(proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent
and warrant that the information contained in this certificate is true and
correct.
(PROSPECTIVE) TENANT:
By:___________________________________
Title:________________________________
Date:_________________________________
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<PAGE>
EXHIBIT F
FIRST AMENDMENT TO LEASE AGREEMENT
CHANGE OF COMMENCEMENT DATE
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of ___________________, by and between
____________________________ ("LANDLORD"), AND ________________________
("TENANT"), with reference to the following facts:
RECITALS
A. Landlord and Tenant have entered into that certain Lease Agreement dated
___________ (the "Lease"), for the leasing of certain premises containing
approximately __________ rentable square feet of space located at
____________________________, California (the "Premises") as such Premises
are more fully described in the Lease.
B. Landlord and Tenant wish to amend the Commencement Date of the Lease.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. RECITALS: Landlord and Tenant agree that the above recitals are true
and correct.
2. The Commencement Date of the Lease shall be ________________________.
3. The last day of the Term of the Lease (the "Expiration Date") shall be
______________.
4. The dates on which the Base Rent will be adjusted are:
<TABLE>
<CAPTION>
<S> <C>
for the period _________ to ________ the monthly Base Rent shall be $_____________;
for the period _________ to ________ the monthly Base Rent shall be $_____________; and
for the period _________ to ________ the monthly Base Rent shall be $_____________.
</TABLE>
5. EFFECT OF AMENDMENT: Except as modified herein, the terms and
conditions of the Lease shall remain unmodified and continue in full
force and effect. In the event of any conflict between the terms and
conditions of the Lease and this Amendment, the terms and conditions
of this Amendment shall prevail.
6. DEFINITIONS: Unless otherwise defined in this Amendment, all terms
not defined in this Amendment shall have the meaning set forth in the
Lease.
7. AUTHORITY: Subject to the provisions of the Lease, this Amendment
shall be binding upon and inure to the benefit of the parties hereto,
their respective heirs, legal representatives, successors and
assigns. Each party hereto and the persons signing below warrant that
the person signing below on such party's behalf is authorized to do
so and to bind such party to the terms of this Amendment.
8. The terms and provisions of the Lease are hereby incorporated in
this Amendment.
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first above written.
[PROPERTY MANAGER: PLEASE PROVIDE TENANT INFORMATION AND WORD PROCESSING WILL
COMPLETE THE SIGNATURE BLOCK]
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<PAGE>
EXHIBIT G (TENANT/LANDLORD)
TENANT'S INITIAL HAZARDOUS MATERIALS DISCLOSURE CERTIFICATE
Your cooperation in this matter is appreciated. Initially, the information
provided by you in this Hazardous Materials Disclosure Certificate is necessary
for the Landlord (identified below) to evaluate and finalize a lease agreement
with you as tenant. After a lease agreement is signed by you and the Landlord
(the "Lease Agreement"), on an annual basis in accordance with the provisions of
Section 29 of the signed Lease Agreement, you are to provide an update to the
information initially provided by you in this certificate. The information
contained in the initial Hazardous Materials Disclosure Certificate and each
annual certificate provided by you thereafter will be maintained in
confidentiality by Landlord subject to release and disclosure as required by (i)
any lenders and owners and their respective environmental consultants, (ii) any
prospective purchaser(s) of all or any portion of the property on which the
Premises are located, (iii) Landlord to defend itself or its lenders, partners
or representatives against any claim or demand, and (iv) any laws, rules,
regulations, orders, decrees, or ordinances, including, without limitation,
court orders or subpoenas. Any and all capitalized terms used herein, which are
not otherwise defined herein, shall have the same meaning ascribed to such term
in the signed Lease Agreement. Any questions regarding this certificate should
be directed to, and when completed, the certificate should be delivered to:
Landlord: Lincoln-Whitehall Pacific, LLC
a Delaware limited liability company
c/o LPC MS, Inc.
101 Lincoln Centre Drive, Fourth Floor
Foster City, California 94404
Attn: Portfolio Manager
Phone: (650) 571-2200
Name of (Prospective) Tenant: DITECH Corporation
Mailing Address: 580 Maude Court, Sunnyvale CA
_______________________________________________________________________________
Contact Person, Title and Telephone Number(s):_________________________________
Contact Person for Hazardous Waste Materials Management and Manifests and
Telephone Number(s):___________________________________________________________
Address of (Prospective) Premises:_____________________________________________
Length of (Prospective) initial Term:__________________________________________
_______________________________________________________________________________
1. GENERAL INFORMATION:
Describe the initial proposed operations to take place in, on, or about
the Premises, including, without limitation, principal products
processed, manufactured or assembled services and activities to be
provided or otherwise conducted. Existing tenants should describe any
proposed changes to on-going operations.
______________________________________________________________________
______________________________________________________________________
2. USE, STORAGE AND DISPOSAL OF HAZARDOUS MATERIALS
2.1 Will any Hazardous Materials be used, generated, stored or
disposed of in, on or about the Premises? Existing tenants
should describe any Hazardous Materials which continue to be
used, generated, stored or disposed of in, on or about the
Premises.
Wastes Yes / / No / /
Chemical Products Yes / / No / /
Other Yes / / No / /
If Yes is marked, please explain:____________________________
_____________________________________________________________
_____________________________________________________________
2.2 If Yes is marked in Section 2.1, attach a list of any
Hazardous Materials to be used, generated, stored or disposed
of in, on or about the Premises, including the applicable
hazard class and an estimate of the quantities of such
Hazardous Materials at any given
1
<PAGE>
time; estimated annual throughput; the proposed location(s)
and method of storage (excluding nominal amounts of ordinary
household cleaners and janitorial supplies which are not
regulated by any Environmental Laws); and the proposed
location(s) and method of disposal for each Hazardous
Material, including, the estimated frequency, and the proposed
contractors or subcontractors. Existing tenants should attach
a list setting forth the information requested above and such
list should include actual data from on-going operations and
the identification of any variations in such information from
the prior year's certificate.
3. STORAGE TANKS AND SUMPS
3.1 Is any above or below ground storage of gasoline, diesel,
petroleum, or other Hazardous Materials in tanks or sumps
proposed in, on or about the Premises? Existing tenants should
describe any such actual or proposed activities.
Yes / / No / /
If yes, please explain:_____________________________________
____________________________________________________________
____________________________________________________________
4. WASTE MANAGEMENT
4.1 Has your company been issued an EPA Hazardous Waste Generator
I.D. Number? Existing tenants should describe any additional
identification numbers issued since the previous certificate.
Yes / / No / /
4.2 Has your company filed a biennial or quarterly reports as a
hazardous waste generator? Existing tenants should describe
any new reports filed.
Yes / / No / /
If yes, attach a copy of the most recent report filed.
5. WASTEWATER TREATMENT AND DISCHARGE
5.1 Will your company discharge wastewater or other wastes to:
________ storm drain? ________ sewer?
________ surface water? ________ no wastewater or other
wastes discharged.
Existing tenants should indicate any actual discharges. If so,
describe the nature of any proposed or actual discharge(s).
_____________________________________________________________
_____________________________________________________________
5.2 Will any such wastewater or waste be treated before discharge?
Yes / / No / /
If yes, describe the type of treatment proposed to be
conducted. Existing tenants should describe the actual
treatment conducted.
_____________________________________________________________
_____________________________________________________________
6. AIR DISCHARGES
6.1 Do you plan for any air filtration systems or stacks to be
used in your company's operations in, on or about the Premises
that will discharge into the air; and will such air emissions
be monitored? Existing tenants should indicate whether or not
there are any such air filtration systems or stacks in use in,
on or about the Premises which discharge into the air and
whether such air emissions are being monitored.
Yes / / No / /
If yes, please describe:_____________________________________
_____________________________________________________________
_____________________________________________________________
2
<PAGE>
6.2 Do you propose to operate any of the following types of
equipment, or any other equipment requiring an air emissions
permit? Existing tenants should specify any such equipment
being operated in, on or about the Premises.
_______ Spray booth(s) _______ Incinerator(s)
_______ Dip tank(s) _______ Other (Please describe)
_______ Drying oven(s) _______ No Equipment Requiring
Air Permits
If yes, please describe:_____________________________________
_____________________________________________________________
_____________________________________________________________
7. HAZARDOUS MATERIALS DISCLOSURES
7.1 Has your company prepared or will it be required to prepare a
Hazardous Materials management plan ("Management Plan")
pursuant to Fire Department or other governmental or
regulatory agencies' requirements? Existing tenants should
indicate whether or not a Management Plan is required and has
been prepared.
Yes / / No / /
If yes, attach a copy of the Management Plan. Existing tenants
should attach a copy of any required updates to the Management
Plan.
7.2 Are any of the Hazardous Materials, and in particular
chemicals, proposed to be used in your operations in, on or
about the Premises regulated under Proposition 65? Existing
tenants should indicate whether or not there are any new
Hazardous Materials being so used which are regulated under
Proposition 65.
Yes / / No / /
If yes, please explain:______________________________________
_____________________________________________________________
_____________________________________________________________
8. ENFORCEMENT ACTIONS AND COMPLAINTS
8.1 With respect to Hazardous Materials or Environmental Laws, has
your company ever been subject to any agency enforcement
actions, administrative orders, or consent decrees or has your
company received requests for information, notice or demand
letters, or any other inquiries regarding its operations?
Existing tenants should indicate whether or not any such
actions, orders or decrees have been, or are in the process of
being, undertaken or if any such requests have been received.
Yes / / No / /
If yes, describe the actions, orders or decrees and any
continuing compliance obligations imposed as a result of these
actions, orders or decrees and also describe any requests,
notices or demands, and attach a copy of all such documents.
Existing tenants should describe and attach a copy of any new
actions, orders, decrees, requests, notices or demands not
already delivered to Landlord pursuant to the provisions of
Section 29 of the signed Lease Agreement.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
8.2 Have there ever been, or are there now pending, any lawsuits
against your company regarding any environmental or health and
safety concerns?
Yes / / No / /
If yes, describe any such lawsuits and attach copies of the
complaint(s), cross-complaint(s), pleadings and all other
documents related thereto as requested by Landlord. Existing
tenants should describe and attach a copy of any new
complaint(s), cross-complaint(s), pleadings and other related
documents not already delivered to Landlord pursuant to the
provisions of Section 29 of the signed Lease Agreement.
_____________________________________________________________
_____________________________________________________________
_____________________________________________________________
3
<PAGE>
8.3 Have there been any problems or complaints from adjacent
tenants, owners or other neighbors at your company's current
facility with regard to environmental or health and safety
concerns? Existing tenants should indicate whether or not
there have been any such problems or complaints from adjacent
tenants, owners or other neighbors at, about or near the
Premises.
Yes / / No / /
If yes, please describe. Existing tenants should describe any
such problems or complaints not already disclosed to Landlord
under the provisions of the signed Lease Agreement.
_____________________________________________________________
_____________________________________________________________
9. PERMITS AND LICENSES
9.1 Attach copies of all Hazardous Materials permits and licenses
including a Transporter Permit number issued to your company
with respect to its proposed operations in, on or about the
Premises, including, without limitation, any wastewater
discharge permits, air emissions permits, and use permits or
approvals. Existing tenants should attach copies of any new
permits and licenses as well as any renewals of permits or
licenses previously issued.
The undersigned hereby acknowledges and agrees that (A) this Hazardous Materials
Disclosure Certificate is being delivered in connection with, and as required
by, Landlord in connection with the evaluation and finalization of a Lease
Agreement and will be attached thereto as an exhibit; (B) that this Hazardous
Materials Disclosure Certificate is being delivered in accordance with, and as
required by, the provisions of Section 29 of the Lease Agreement; and (C) that
Tenant shall have and retain full and complete responsibility and liability with
respect to any of the Hazardous Materials disclosed in the HazMat Certificate
notwithstanding Landlord's/Tenant's receipt and/or approval of such certificate.
Tenant further agrees that none of the following described acts or events shall
be construed or otherwise interpreted as either (a) excusing, diminishing or
otherwise limiting Tenant from the requirement to fully and faithfully perform
its obligations under the Lease with respect to Hazardous Materials, including,
without limitation, Tenant's indemnification of the Indemnitees and compliance
with all Environmental Laws, or (b) imposing upon Landlord, directly or
indirectly, any duty or liability with respect to any such Hazardous Materials,
including, without limitation, any duty on Landlord to investigate or otherwise
verify the accuracy of the representations and statements made therein or to
ensure that Tenant is in compliance with all Environmental Laws; (i) the
delivery of such certificate to Landlord and/or Landlord's acceptance of such
certificate, (ii) Landlord's review and approval of such certificate, (iii)
Landlord's failure to obtain such certificate from Tenant at any time, or (iv)
Landlord's actual or constructive knowledge of the types and quantities of
Hazardous Materials being used, stored, generated, disposed of or transported on
or about the Premises by Tenant or Tenant's Representatives. Notwithstanding the
foregoing or anything to the contrary contained herein, the undersigned
acknowledges and agrees that Landlord and its partners, lenders and
representatives may, and will, rely upon the statements, representations,
warranties, and certifications made herein and the truthfulness thereof in
entering into the Lease Agreement and the continuance thereof throughout the
term, and any renewals thereof, of the Lease Agreement.
I (print name)____________________, acting with full authority to bind the
(proposed) Tenant and on behalf of the (proposed) Tenant, certify, represent
and warrant that the information contained in this certificate is true and
correct.
(PROSPECTIVE) TENANT:
By:__________________________________
Title:_______________________________
Date:________________________________
4
<PAGE>
ADDENDUM 1
OPTION TO EXTEND THE LEASE
This Addendum 1 ("Addendum") is incorporated as a part of that certain Lease
Agreement dated August 18, 1998 (the "Lease"), by and between Lincoln-Whitehall
Pacific, LLC, a Delaware limited liability company ("Landlord") and DITECH
Corporation, a California corporation ("Tenant") for the leasing of certain
premises located 825 E. Middlefield Road, Unit A, Mountain View, California as
more particularly described in EXHIBIT A to the Lease (the "Premises"). Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms as set forth in the Lease.
1. GRANT OF EXTENSION OPTION. Subject to the provisions, limitations and
conditions set forth in Paragraph 5 below, Tenant shall have an option
("Option") to extend the term of the Lease for five (5) years (the "Extended
Term").
2. TENANT'S OPTION NOTICE. If Landlord does not receive written notice from
Tenant of its exercise of this Option on a date which is not more than three
hundred sixty (360) days nor less than two hundred forty (240) days prior to the
end of the initial term of the Lease (the "Option Notice"), all rights under
this Option shall automatically terminate and shall be of no further force or
effect.
3. ESTABLISHING THE INITIAL MONTHLY BASE RENT FOR THE EXTENDED TERM. The initial
monthly Base Rent for the Extended Term shall be the then current market rent
for similar space within the competitive market area of the Premises (the "Fair
Rental Value"). "Fair Rental Value" of the Premises means the current market
rental value of the Premises as of the commencement of the Extended Term, taking
into consideration all relevant factors, including length of term, the uses
permitted under the Lease, the quality, size, design and location of the
Premises, including the condition and value of existing tenant improvements, and
the monthly base rent paid by tenants for premises comparable to the Premises,
and located in the competitive market area of the Premises, as reasonable
determined by Landlord.
If Landlord and Tenant are unable to agree on the Fair Rental Value for the
Extended Term within ten (10) days of receipt by Landlord of the Option
Notice for the Extended Term, Landlord and Tenant each, at its cost and by
giving notice to the other party, shall appoint a competent and impartial
commercial real estate broker (hereinafter "broker") with at least ten (10)
years' full-time commercial real estate brokerage experience in the
geographical area of the Premises to set the Fair Rental Value for the
Extended Term. If either Landlord or Tenant does not appoint a broker within
ten (10) days after the other party has given notice of the name of its
broker, the single broker appointed shall be the sole broker and shall set
the Fair Rental Value for the Extended Term. If two (2) brokers are appointed
by Landlord and Tenant as stated in this paragraph, they shall meet promptly
and attempt to set the Fair Rental Value. If the two (2) brokers are unable
to agree within ten (10) days after the second broker has been appointed,
they shall attempt to select a third broker, meeting the qualifications
stated in this paragraph within ten (10) days after the last day the two (2)
brokers are given to set the Fair Rental Value. If the two (2) brokers are
unable to agree on the third broker, either Landlord or Tenant by giving ten
(10) days' notice to the other party, can apply to the Presiding Judge of the
Superior Court of the county in which the Premises is located for the
selection of a third broker who meets the qualifications stated in this
paragraph. Landlord and Tenant each shall bear one-half (1/2) of the cost of
appointing the third broker and of paying the third broker's fee. The third
broker, however selected, shall be a person who has not previously acted in
any capacity for either Landlord or Tenant. Within fifteen (15) days after
the selection of the third broker, the third broker shall select one of the
two Fair Rental Values submitted by the first two brokers as the Fair Rental
Value for the Extended Term. If either of the first two brokers fails to
submit their opinion of the Fair Rental Value within the time frames set
forth above, then the single Fair Rental Value submitted shall automatically
be the initial monthly Base Rent for the Extended Term.
In no event shall the monthly Base Rent for any period of the Extended Term as
determined pursuant to this Addendum, be less than the highest monthly Base Rent
charged during the initial term of the Lease. Upon determination of the initial
monthly Base Rent for the Extended Term pursuant to the terms outlined above,
Landlord and Tenant shall immediately execute, at Landlord's sole option, either
the standard lease agreement then in use by Landlord, or an amendment to the
Lease. Such new lease agreement or amendment, as the case may be, shall set
forth among other things, the initial monthly Base Rent for the Extended Term
and the actual commencement date and expiration date of the Extended Term.
Tenant shall have no other right to further extend the term of the Lease under
this Addendum unless Landlord and Tenant otherwise agree in writing.
4. CONDITION OF PREMISES AND BROKERAGE COMMISSIONS FOR THE EXTENDED TERM. If
Tenant timely and properly exercises this Option, in strict accordance with the
terms contained herein: (1) Tenant shall accept the Premises in its then "As-Is"
condition and, accordingly, Landlord shall not be required to perform any
additional improvements to the Premises; and (2) Tenant hereby agrees that it
will solely be responsible
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<PAGE>
for any and all brokerage commissions and finder's fees payable to any broker
now or hereafter procured or hired by Tenant or who claims a commission based on
any act or statement of Tenant ("Tenant's Broker") in connection with the
Option; and Tenant hereby further agrees that Landlord shall in no event or
circumstance be responsible for the payment of any such commissions and fees to
Tenant's Broker.
5. LIMITATIONS ON, AND CONDITIONS TO, EXTENSION OPTION. This Option is personal
to Tenant and may not be assigned, voluntarily or involuntarily, separate from
or as part of the Lease. At Landlord's option, all rights of Tenant under this
Option shall terminate and be of no force or effect if any of the following
individual events occur or any combination thereof occur: (1) Tenant has been in
default at any time during the initial term of the Lease, or is currently in
default of any provision of the Lease; and/or (2) Tenant has assigned its rights
and obligations under all or part of the Lease or Tenant has subleased all or
part of the Premises; and/or (3) Tenant's financial condition is unacceptable to
Landlord at the time the "Option Notice" is delivered to Landlord; and/or (4)
Tenant has failed to exercise properly this Option in a timely manner in strict
accordance with the provisions of this Addendum; and/or (5) Tenant no longer has
possession of all or any part of the Premises under the Lease, or if the Lease
has been terminated earlier, pursuant to the terms of the Lease.
6. TIME IS OF THE ESSENCE. Time is of the essence with respect to each and every
time period set forth in this Addendum.
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<PAGE>
ADDENDUM 2
RIGHT OF FIRST OFFER
This Addendum 2 (the "Addendum") is incorporated as a part of that certain Lease
Agreement, dated for reference purposes as of August 18, 1998 (the "Lease"), by
and between Lincoln-Whitehall Pacific, LLC, a Delaware limited liability company
("Landlord") and DITECH Corporation, a California corporation ("Tenant") for the
leasing of certain premises located in the Middlefield Bernardo Business Park at
825 E. Middlefield Road, Unit A, Mountain View, California (the "Premises"). Any
capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms as set forth in the Lease.
During only the initial term of the Lease, Tenant shall have a one-time (not
continuing) right to make a first offer to lease (the "Right of First Offer")
from Landlord any or all of the following described certain leasable space
within the Park that becomes vacant: (1) the premises situated at 815 East
Middlefield Road, Suite B, Mountain View, California, consisting of
approximately 11,245 rentable square feet ("Expansion Space #1"); (2) the
premises situated at 815 East Middlefield Road, Suite A, Mountain View,
California, consisting of approximately 14,815 rentable square feet ("Expansion
Space #2"), as all of such expansion spaces are specified in EXHIBIT A attached
hereto and made a part hereof (collectively, the "Expansion Spaces"). Tenant's
Right of First Offer, as granted herein, is subject to the following conditions:
i. The Right of First Offer to each of the Expansion Spaces shall
be subject to the rights and options of the existing tenants
(together with their successors and assigns) presently occupying
each of said Expansion Spaces pursuant to the terms and provisions
of such existing tenants' leases, as such leases may be later
modified, amended or extended. Additionally, Tenant's Right of
First Offer on Expansion Space #1 shall be subject to and
subordinate to that certain Right of First Offer held by PRI
Automation ("PRI's Right") as defined in Addendum 2 to that certain
Lease between Landlord and PRI Automation, Inc., dated March 9,
1998. In addition, Tenant's Right of First Offer on Expansion Space
#2 shall be subject to and subordinate to that certain Right of
First Offer held by Cisco Systems ("Cisco's Right") as defined in
Addendum 1 to that certain Lease between Landlord and Cisco
Systems, Inc., dated September 20, 1997.
ii. The Right of First Offer to each of the Expansion Spaces shall be
void if Tenant has been or is then presently in default in the
performance of any of its obligations under the Lease; and
iii. The Right of First Offer to each of the Expansion Spaces shall be
subject to Landlord's review and approval of Tenant's then current
financial condition.
Provided the foregoing conditions are satisfied in each instance when any
Expansion Space becomes available, if any of the Expansion Spaces becomes
vacant, and Landlord desires to lease the subject vacant Expansion Space,
Landlord shall give Tenant written notice, by facsimile and by mail, describing
the location and size of such space, the estimated date upon which Landlord can
deliver such space to Tenant, and the terms and conditions upon which Landlord
is willing to lease the subject vacant Expansion Space (a "Landlord's
Availability Notice"). Tenant shall notify Landlord within five (5) days
following receipt of Landlord's Availability Notice of Tenant's election to
lease all the Expansion Space upon all of the terms specified in the Landlord's
Availability Notice by written acceptance delivered to Landlord without any
deviation in such offered terms (an "Election Notice"). If Tenant fails to
notify Landlord of Tenant's election to lease the subject Expansion Space within
the time specified herein, it shall be deemed that: (a) Tenant has elected not
to lease said subject Expansion Space; (b) Landlord may thereafter enter into a
lease agreement with a third party for the offered Expansion Space; and (c) all
rights under this Right of First Offer with respect to the offered Expansion
Space shall terminate and be of no further force or effect. Time is of the
essence herein.
If Tenant duly and timely exercises this Right of First Offer as herein provided
with respect to an offered Expansion Space, Tenant shall deliver to Landlord a
non-refundable deposit, equivalent to the first month's Rent for the subject
Expansion Space. The parties shall have ten (10) business days after Landlord
receives the Election Notice for the subject Expansion Space and the
non-refundable deposit therefor from Tenant in which to execute an amendment to
the Lease setting forth the agreed-upon terms for such subject Expansion Space.
Upon full execution of an amendment for the subject Expansion Space, the
non-refundable deposit shall be credited toward Base Rent for the subject
Expansion Space, as agreed between the parties.
This Right of First Offer shall terminate and be of no force or effect if, at
any time, Tenant is or has been in Default of the performance of any of the
covenants, conditions or agreements to be performed under this Lease; or the
Premises are being subleased at the time of this Right of First Offer for any of
the Expansion Spaces is offered to Tenant.
This Right of First Offer is personal to Tenant and may not be assigned,
voluntarily or involuntarily, separate from or as a part of the Lease. If Tenant
duly and timely exercises this Right of First Offer for any of the Expansion
Spaces, Landlord and Tenant shall execute an amendment to this Lease, adding the
subject
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Expansion Space to the Premises and adjusting the Base Rent and Tenant's
proportionate share of the items set forth in Sections 6, 7, and 8 of this
Lease. If Tenant does not elect to exercise the Right of First Offer granted
herein for any of the Expansion Spaces (or it is deemed that Tenant has not
elected to exercise this Right of First Offer due to the lapse of time or any
other failure of Tenant to strictly comply with the provisions of this
Addendum), based upon the material terms proposed by Landlord in the applicable
Landlord's Availability Notice, all rights of Tenant under, in or to this Right
of First Offer for the subject Expansion Space shall terminate and be of no
further force or effect.
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<PAGE>
ADDENDUM 2
EXHIBIT A - RIGHT OF FIRST OFFER
[The diagram is the same diagram described on Exhibit A. Above Building C,
closer to the nexus of Middlefield Road and Bernardo Ave., is Building B. It
is approximately 70% of the size of Building C. The portion closer to
Bernardo Ave. (approximately 30% of the total of Building B) is marked as
"Expansion Premises # 10/31/2000." The rest of Building B is marked as
"Expansion Premises #2 6/30/2000."]
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<PAGE>
FIRST AMENDMENT TO LEASE AGREEMENT
CHANGE OF COMMENCEMENT DATE
This First Amendment to Lease Agreement (the "Amendment") is made and entered
into to be effective as of January 25, 1999, by and between LINCOLN-WHITEHALL
PACIFIC, LLC, A DELAWARE LIMITED LIABILITY COMPANY ("LANDLORD"), AND DITECH
CORPORATION, A CALIFORNIA CORPORATION ("TENANT"), with reference to the
following facts:
RECITALS
A. Landlord and Tenant have entered into that certain Lease Agreement
dated August 18, 1998 (the "Lease"), for the leasing of certain
premises containing approximately 35,800 rentable square feet of space
located at 825 E. Middlefield Road, Unit A, Mountain View, California
(the "Premises") as such Premises are more fully described in the Lease.
B. Landlord and Tenant wish to amend the Commencement Date of the Lease.
NOW, THEREFORE, in consideration of the foregoing and for other good and
valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Landlord and Tenant hereby agree as follows:
1. RECITALS: Landlord and Tenant agree that the above recitals are
true and correct.
2. The Commencement Date of the Lease shall be December 14, 1998.
3. The last day of the Term of the Lease (the "Expiration Date") shall
be December 13, 2003.
4. The dates on which the Base Rent will be adjusted are:
Effective December 14, 1999, the Base Rent shall increase to
$66,713.30 per month;
Effective December 14, 2000, the Base Rent shall increase to
$69,319.54 per month;
Effective December 14, 2001, the Base Rent shall increase to
$72,030.03 per month;
Effective December 14, 2002, the Base Rent shall increase to
$74,848.48 per month.
5. EFFECT OF AMENDMENT: Except as modified herein, the terms and
conditions of the Lease shall remain unmodified and continue in
full force and effect. In the event of any conflict between the
terms and conditions of the Lease and this Amendment, the terms and
conditions of this Amendment shall prevail.
6. DEFINITIONS: Unless otherwise defined in this Amendment, all terms
not defined in this Amendment shall have the meaning set forth in
the Lease.
7. AUTHORITY: Subject to the provisions of the Lease, this Amendment
shall be binding upon and inure to the benefit of the parties
hereto, their respective heirs, legal representatives, successors
and assigns. Each party hereto and the persons signing below
warrant that the person signing below on such party's behalf is
authorized to do so and to bind such party to the terms of this
Amendment.
8. The terms and provisions of the Lease are hereby incorporated in
this Amendment.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Amendment as of the date
and year first above written.
TENANT:
DITECH Corporation,
a California corporation
By: /s/ Timothy K. Montgomery
-----------------------------------------
Its: Pres./CEO
-----------------------------------------
Date: 2-1-99
-----------------------------------------
By: /s/ William J. Tamblyn
-----------------------------------------
Its: VP/CFO &
Assist. Secretary
-----------------------------------------
Date: 1-28-99
-----------------------------------------
LANDLORD:
Lincoln-Whitehall Pacific, LLC,
a Delaware limited liability company
By: Legacy Partners Commercial, Inc.,
as manager and agent for Lincoln-Whitehall Pacific, LLC
By: [illegible]
-----------------------------------
Senior Vice President
Date:
-----------------------------------
If Tenant is a CORPORATION, the authorized officers must sign on behalf of
the corporation and indicate the capacity in which they are signing. The
Lease must be executed by the president or vice-president AND the secretary
or assistant secretary, UNLESS the bylaws or a resolution of the board of
directors shall otherwise provide, in which event, the bylaws or a certified
copy of the resolution, as the case may be, must be attached to this Lease.
<PAGE>
DITECH CORPORATION
1997 STOCK OPTION PLAN
ADOPTED BY THE BOARD FEBRUARY 20, 1997, APPROVED BY THE SHAREHOLDERS BY WRITTEN
CONSENT, AMENDED BY THE BOARD NOVEMBER 13, 1997, APPROVED BY THE SHAREHOLDERS
_________, AMENDED BY THE BOARD OCTOBER 15, 1998, APPROVED BY THE SHAREHOLDERS
___________
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its Affiliates,
may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services of
persons who are now Employees or Directors of or Consultants to the Company or
its Affiliates, to secure and retain the services of new Employees, Directors
and Consultants, and to provide incentives for such persons to exert maximum
efforts for the success of the Company and its Affiliates.
(c) The Company intends that the Options issued under the Plan shall, in
the discretion of the Board or any Committee to which responsibility for
administration of the Plan has been delegated pursuant to subsection 3(c), be
either Incentive Stock Options or Nonstatutory Stock Options. All Options shall
be separately designated Incentive Stock Options or Nonstatutory Stock Options
at the time of grant, and in such form as issued pursuant to Section 6, and a
separate certificate or certificates will be issued for shares purchased on
exercise of each type of Option.
2. DEFINITIONS.
<PAGE>
(a) "AFFILIATE" means any parent corporation or subsidiary corporation,
whether now or hereafter existing, as those terms are defined in Sections 424(e)
and (f) respectively, of the Code.
(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in accordance
with subsection 3(c) of the Plan.
(e) "COMPANY" means Ditech Corporation, a California corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by the
Company or an Affiliate to render consulting services and who is compensated for
such services, provided that the term "Consultant" shall not include Directors
who are paid only a director's fee by the Company or who are not compensated by
the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means that
the service of an individual to the Company, whether as an Employee, Director or
Consultant, is not interrupted or terminated. The Board or the chief executive
officer of the Company may determine, in that party's sole discretion, whether
Continuous Status as an Employee, Director or Consultant shall be considered
interrupted in the case of: (i) any leave of absence approved by the Board or
the chief executive officer of the Company, including sick leave, military
leave, or any other personal leave; or (ii) transfers between the Company,
Affiliates or their successors.
(h) "COVERED EMPLOYEE" means the chief executive officer and the four (4)
other highest compensated officers of the Company for whom total compensation is
required to be reported to stockholders under the Exchange Act, as determined
for purposes of Section 162(m) of the Code.
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<PAGE>
(i) "DIRECTOR" means a member of the Board.
(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as a
Director nor payment of a director's fee by the Company shall be sufficient to
constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the common
stock of the Company determined as follows and in each case in a manner
consistent with Section 260.140.50 of Title 10 of the California Code of
Regulations.
(1) If the common stock is listed on any established stock exchange
or traded on the Nasdaq National Market or the Nasdaq SmallCap 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
exchange or market (or the exchange or market with the greatest volume of
trading in the Company's 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) In the absence of such markets for the common stock, the Fair
Market Value shall be determined in good faith by the Board.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an
incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(n) "LISTING DATE" means the first date upon which any security of the
Company is listed (or approved for listing) upon notice of issuance on any
securities exchange, or designated (or approved for designation) upon notice of
issuance as a national market security on an
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<PAGE>
interdealer quotation system if such securities exchange or interdealer
quotation system has been certified in accordance with the provisions of Section
25100(o) of the California Corporate Securities Law of 1968.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does not
receive compensation (directly or indirectly) from the Company or its parent or
subsidiary for services rendered as a consultant or in any capacity other than
as a Director (except for an amount as to which disclosure would not be required
under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act
("Regulation S-K")), does not possess an interest in any other transaction as to
which disclosure would be required under Item 404(a) of Regulation S-K, and is
not engaged in a business relationship as to which disclosure would be required
under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a
"non-employee director" for purposes of Rule 16b-3.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as
an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within the
meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company and
an Optionee evidencing the terms and conditions of an individual Option grant.
Each Option Agreement shall be subject to the terms and conditions of the Plan.
(t) "OPTIONEE" means a person to whom an Option is granted pursuant to the
Plan or, if applicable, such other person who holds an outstanding Option.
4
<PAGE>
(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current
employee of the Company or an "affiliated corporation" (within the meaning of
the Treasury regulations promulgated under Section 162(m) of the Code), is not a
former employee of the Company or an "affiliated corporation" receiving
compensation for prior services (other than benefits under a tax qualified
pension plan), was not an officer of the Company or an "affiliated corporation"
at any time, and is not currently receiving direct or indirect remuneration from
the Company or an "affiliated corporation" for services in any capacity other
than as a Director, or (ii) is otherwise considered an "outside director" for
purposes of Section 162(m) of the Code.
(v) "PLAN" means this 1997 Stock Option Plan.
(w) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any successor to
Rule 16b-3 as in effect with respect to the Company at the time discretion is
being exercised regarding the Plan.
(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the Board
delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the limitations
of, the express provisions of the Plan:
(1) To determine from time to time which of the persons eligible
under the Plan shall be granted Options; when and how each Option shall be
granted; whether an Option will be an Incentive Stock Option or a Nonstatutory
Stock Option; the provisions of each Option granted (which need not be
identical), including the time or times such Option may be exercised
5
<PAGE>
in whole or in part; and the number of shares for which an Option shall be
granted to each such person.
(2) To construe and interpret the Plan and Options granted under it,
and to establish, amend and revoke rules and regulations for its administration.
The Board, in the exercise of this power, may correct any defect, omission or
inconsistency in the Plan or in any Option Agreement, in a manner and to the
extent it shall deem necessary or expedient to make the Plan fully effective.
(3) To amend the Plan or an Option as provided in Section 11.
(4) Generally, to exercise such powers and to perform such acts as
the Board deems necessary or expedient to promote the best interests of the
Company.
(c) The Board may delegate administration of the Plan to a committee of
the Board composed of not fewer than two (2) members (the "Committee"), all of
the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is delegated
to a Committee, the Committee shall have, in connection with the administration
of the Plan, the powers theretofore possessed by the Board, including the power
to delegate to a subcommittee of two (2) or more Outside Directors any of the
administrative powers the Committee is authorized to exercise (and references in
this Plan to the Board shall thereafter be to the Committee or such a
subcommittee), 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 may abolish the Committee at any time and revest in the Board the
administration of the Plan. Additionally, prior to the Listing Date, and
notwithstanding anything to the contrary contained herein, the Board may
delegate administration of the Plan to any person or persons and the term
"Committee" shall apply to any person or persons to whom
6
<PAGE>
such authority has been delegated. Notwithstanding anything in this Section 3
to the contrary, the Board or the Committee may delegate to a committee of one
or more members of the Board the authority to grant Options to eligible persons
who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are
either (i) not then Covered Employees and are not expected to be Covered
Employees at the time of recognition of income resulting from such Option, or
(ii) not persons with respect to whom the Company wishes to comply with Section
162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, the stock that may be sold pursuant to Options shall not
exceed in the aggregate four million (4,000,000) shares of the Company's common
stock. If any Option shall for any reason expire or otherwise terminate, in
whole or in part, without having been exercised in full, the stock not purchased
under such Option shall revert to and again become available for issuance under
the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) No person shall be eligible for the grant of an Option if, at the time
of grant, such person owns (or is deemed to own pursuant to Section 424(d) of
the Code) stock possessing more than ten percent (10%) of the total combined
voting power of all classes of stock of the Company or of any of its Affiliates
unless the exercise price of such Option is at least one
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<PAGE>
hundred ten percent (110%) of the Fair Market Value of such stock at the date
of grant and the Option is not exercisable after the expiration of five (5)
years from the date of grant.
(c) Subject to the provisions of Section 10 relating to adjustments upon
changes in stock, no person shall be eligible to be granted Options covering
more than three hundred thousand (300,000) shares of the Company's common stock
in any calendar year. This subsection 5(c) shall not apply prior to the Listing
Date and, following the Listing Date, shall not apply until (i) the earliest of:
(A) the first material modification of the Plan (including any increase to the
number of shares reserved for issuance under the Plan in accordance with Section
4); (B) the issuance of all of the shares of common stock reserved for issuance
under the Plan; (C) the expiration of the Plan; or (D) the first meeting of
stockholders at which directors are to be elected that occurs after the close of
the third calendar year following the calendar year in which occurred the first
registration of an equity security under Section 12 of the Exchange Act; or (ii)
such other date required by Section 162(m) of the Code and the rules and
regulations promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise) the
substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of ten (10)
years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall be not
less than one hundred percent (100%) of the Fair Market Value of the stock
subject to the Option on the
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<PAGE>
date the Option is granted; the exercise price of each Nonstatutory Stock Option
shall be not less than eighty-five percent (85%) of the Fair Market Value of the
stock subject to the Option on the date the Option is granted. Notwithstanding
the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory
Stock Option) may be granted with an exercise price lower than that set forth in
the preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of Section
424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii) at
the discretion of the Board or the Committee, at the time of the grant of the
Option, (A) by delivery to the Company of other common stock of the Company,
(B) according to a deferred payment or other arrangement (which may include,
without limiting the generality of the foregoing, the use of other common stock
of the Company) with the person to whom the Option is granted or to whom the
Option is transferred pursuant to subsection 6(d), or (C) in any other form of
legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be interest
under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by will
or by the laws of descent and distribution, and shall be exercisable during the
lifetime of the person to whom the Option is granted only by such person. A
Nonstatutory Stock Option granted after the Listing Date shall only be
transferable by the Optionee upon such terms and conditions as are set
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<PAGE>
forth in the Option Agreement for such Nonstatutory Stock Option, as the Board
or the Committee shall determine in its discretion. The person to whom the
Option is granted may, by delivering written notice to the Company, in a form
satisfactory to the Company, designate a third party who, in the event of the
death of the Optionee, shall thereafter be entitled to exercise the Option.
(e) VESTING. The total number of shares of stock subject to an Option
may, but need not, be allotted in periodic installments (which may, but need
not, be equal). The Option Agreement may provide that from time to time during
each of such installment periods, the Option may become exercisable ("vest")
with respect to some or all of the shares allotted to that period, and may be
exercised with respect to some or all of the shares allotted to such period
and/or any prior period as to which the Option became vested but was not fully
exercised. The Option may be subject to such other terms and conditions on the
time or times when it may be exercised (which may be based on performance or
other criteria) as the Board may deem appropriate. The vesting provisions of
individual Options may vary but in each case will provide for vesting of at
least twenty percent (20%) per year of the total number of shares subject to the
Option; PROVIDED, HOWEVER, that an Option granted to an officer, director or
consultant (within the meaning of Section 260.140.41 of Title 10 of the
California Code of Regulations) may become fully exercisable, subject to
reasonable conditions such as continued employment, at any time or during any
period established by the Company or of any of its Affiliates. The provisions
of this subsection 6(e) are subject to any Option provisions governing the
minimum number of shares as to which an Option may be exercised.
(f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, or
any person to whom an Option is transferred under subsection 6(d), as a
condition of exercising any
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such Option, (1) to give written assurances satisfactory to the Company as to
the Optionee's knowledge and experience in financial and business matters and/or
to employ a purchaser representative reasonably satisfactory to the Company who
is knowledgeable and experienced in financial and business matters, and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (2) to give
written assurances satisfactory to the Company stating that such person is
acquiring the stock subject to the Option for such person's own account and not
with any present intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such requirements,
shall be inoperative if (i) the issuance of the shares upon the exercise of the
Option has been registered under a then currently effective registration
statement under the Securities Act, or (ii) as to any particular requirement, a
determination is made by counsel for the Company that such requirement need not
be met in the circumstances under the then applicable securities laws. The
Company may require the Optionee to provide such other representations, written
assurances or information which the Company shall determine is necessary,
desirable or appropriate to comply with applicable securities and other laws as
a condition of granting an Option to such Optionee or permitting the Optionee to
exercise such Option. The Company may, upon advice of counsel to the Company,
place legends on stock certificates issued under the Plan as such counsel deems
necessary or appropriate in order to comply with applicable securities laws,
including, but not limited to, legends restricting the transfer of the stock.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR CONSULTANT.
In the event an Optionee's Continuous Status as an Employee, Director or
Consultant terminates (other than upon the Optionee's death or disability), the
Optionee may exercise his or her Option (to the extent that the Optionee was
entitled to exercise it as of the date of termination) but only
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<PAGE>
within such period of time ending on the earlier of (i) the date three (3)
months following the termination of the Optionee's Continuous Status as an
Employee, Director or Consultant, or such longer or shorter period, which shall
not be less than thirty (30) days, specified in the Option Agreement, or (ii)
the expiration of the term of the Option as set forth in the Option Agreement.
If, at the date of termination, the Optionee is not entitled to exercise his or
her entire Option, the shares covered by the unexercisable portion of the Option
shall revert to and again become available for issuance under the Plan. If,
after termination, the Optionee does not exercise his or her Option within the
time specified in the Option Agreement, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous Status
as an Employee, Director or Consultant terminates as a result of the Optionee's
disability, the Optionee may exercise his or her Option (to the extent that the
Optionee was entitled to exercise it as of the date of termination), but only
within such period of time ending on the earlier of (i) the date twelve (12)
months following such termination (or such longer or shorter period, which in no
event shall be less than six (6) months, specified in the Option Agreement), or
(ii) the expiration of the term of the Option as set forth in the Option
Agreement. If, at the date of termination, the Optionee is not entitled to
exercise his or her entire Option, the shares covered by the unexercisable
portion of the Option shall revert to and again become available for issuance
under the Plan. If, after termination, the Optionee does not exercise his or
her Option within the time specified herein, the Option shall terminate, and the
shares covered by such Option shall revert to and again become available for
issuance under the Plan.
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(i) DEATH OF OPTIONEE. In the event of the death of an Optionee during,
or within a period specified in the Option Agreement after the termination of,
the Optionee's Continuous Status as an Employee, Director or Consultant, the
Option may be exercised (to the extent the Optionee was entitled to exercise the
Option as of the date of death) by the Optionee's estate, by a person who
acquired the right to exercise the Option by bequest or inheritance or by a
person designated to exercise the option upon the Optionee's death pursuant to
subsection 6(d), but only within the period ending on the earlier of (i) the
date eighteen (18) months following the date of death (or such longer or shorter
period, which in no event shall be less than six (6) months, specified in the
Option Agreement), or (ii) the expiration of the term of such Option as set
forth in the Option Agreement. If, at the time of death, the Optionee was not
entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become available
for issuance under the Plan. If, after death, the Option is not exercised
within the time specified herein, the Option shall terminate, and the shares
covered by such Option shall revert to and again become available for issuance
under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a provision
whereby the Optionee may elect at any time while an Employee, Director or
Consultant to exercise the Option as to any part or all of the shares subject to
the Option prior to the full vesting of the Option. Any unvested shares so
purchased shall be subject to a repurchase right in favor of the Company, with
the repurchase price to be equal to the original purchase price of the stock, or
to any other restriction the Board determines to be appropriate; PROVIDED,
HOWEVER, that (i) the right to repurchase at the original purchase price shall
lapse at a minimum rate of twenty percent (20%) per year over five (5) years
from the date the Option was granted, and (ii) such right shall be exercisable
only within (A) the ninety (90) day period following the termination of
employment
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or the relationship as a Director or Consultant, or (B) such longer period as
may be agreed to by the Company and the Optionee (for example, for purposes of
satisfying the requirements of Section 1202(c)(3) of the Code (regarding
"qualified small business stock")), and (iii) such right shall be exercisable
only for cash or cancellation of purchase money indebtedness for the shares.
Notwithstanding the foregoing, shares received on exercise of an Option by an
officer, director or consultant (within the meaning of Section 260.140.41 of
Title 10 of the California Code of Regulations) may be subject to additional or
greater restrictions.
(k) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to exercise
a right of first refusal following receipt of notice from the Optionee of the
intent to transfer all or any part of the shares exercised pursuant to the
Option. Except as expressly provided in this subsection 6(k), such right of
first refusal shall otherwise comply with the provisions of the Bylaws of the
Company.
(l) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax withholding
obligation relating to the exercise of such Option by any of the following means
or by a combination of such means: (1) tendering a cash payment; (2)
authorizing the Company to withhold shares from the shares of the common stock
otherwise issuable to the Optionee as a result of the exercise of the Option; or
(3) delivering to the Company owned and unencumbered shares of the common stock
of the Company.
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep available at
all times the number of shares of stock required to satisfy such Options.
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(b) The Company shall seek to obtain from each regulatory commission or
agency having jurisdiction over the Plan such authority as may be required to
issue and sell shares of stock upon exercise of the Options; PROVIDED, HOWEVER,
that this undertaking shall not require the Company to register under the
Securities Act either the Plan, any Option or any stock issued or issuable
pursuant to any such Option. If, after reasonable efforts, the Company is
unable to obtain from any such regulatory commission or agency the authority
which counsel for the Company deems necessary for the lawful issuance and sale
of stock under the Plan, the Company shall be relieved from any liability for
failure to issue and sell stock upon exercise of such Options unless and until
such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) Subject to any applicable provisions of the California Corporate
Securities Law of 1968 and related regulations relied upon as a condition of
issuing securities pursuant to the Plan, the Board shall have the power to
accelerate the time at which an Option may first be exercised or the time during
which an Option or any part thereof will vest pursuant to subsection 6(e),
notwithstanding the provisions in the Option stating the time at which it may
first be exercised or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is transferred
under subsection 6(d) shall be deemed to be the holder of, or to have any of the
rights of a holder with respect to, any shares subject to such Option unless and
until such person has satisfied all requirements for exercise of the Option
pursuant to its terms.
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(c) Throughout the term of any Option, the Company shall deliver to the
holder of such Option, not later than one hundred twenty (120) days after the
close of each of the Company's fiscal years during the Option term, a balance
sheet and an income statement. This section shall not apply (i) after the
Listing Date, or (ii) when issuance is limited to key employees whose duties in
connection with the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate (or
to continue acting as a Director or Consultant) or shall affect the right of the
Company or any Affiliate to terminate the employment of any Employee, with or
without cause, to remove any Director as provided in the Company's Bylaws and
the provisions of the General Corporation Law of the State of California, or to
terminate the relationship of any Consultant subject to the terms of that
Consultant's agreement with the Company or Affiliate to which such Consultant is
providing services.
(e) To the extent that the aggregate Fair Market Value (determined at the
time of grant) of stock with respect to which Incentive Stock Options are
exercisable for the first time by any Optionee during any calendar year under
all plans of the Company and its Affiliates exceeds one hundred thousand dollars
($100,000), the Options or portions thereof which exceed such limit (according
to the order in which they were granted) shall be treated as Nonstatutory Stock
Options.
(f) (1) The Board or the Committee shall have the authority to effect, at
any time and from time to time (i) the repricing of any outstanding Options
under the Plan and/or (ii) with the consent of the affected holders of Options,
the cancellation of any outstanding Options and
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the grant in substitution therefor of new Options under the Plan covering the
same or different numbers of shares of common stock, but having an exercise
price per share not less than eighty-five percent (85%) of the Fair Market Value
(one hundred percent (100%) of the Fair Market Value in the case of an Incentive
Stock Option or, in the case of a ten percent (10%) stockholder (as defined in
subsection 5(b)), not less than one hundred and ten percent (110%) of the Fair
Market Value) per share of common stock on the new grant date.
(2) Shares subject to an Option canceled under this subsection 9(f)
shall continue to be counted, for the applicable period in which it was granted,
against the maximum award of Options permitted to be granted pursuant to
subsection 5(c) of the Plan. The repricing of an Option under this subsection
9(f), resulting in a reduction of the exercise price, shall be deemed to be a
cancellation of the original Option and the grant of a substitute Option; in the
event of such repricing, both the original and the substituted Options shall be
counted for the applicable period against the maximum awards of Options
permitted to be granted pursuant to subsection 5(c) of the Plan. The provisions
of this subsection 9(f)(2) shall be applicable only to the extent required by
Section 162(m) of the Code.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject to
any Option (through merger, consolidation, reorganization, recapitalization,
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), the Plan will be appropriately adjusted in the type(s) and maximum
number of securities subject to the Plan pursuant to subsection 4(a) and the
maximum number of securities subject to award to any person during any calendar
year pursuant to
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subsection 5(c), and the outstanding Options will be appropriately adjusted
in the type(s) and number of securities and price per share of stock subject
to such outstanding Options. Such adjustments shall be made by the Board or
Committee, 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 "transaction not involving the receipt of consideration by the
Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all or
substantially all of the assets of the Company; (2) a merger or consolidation in
which the Company is not the surviving corporation; or (3) a reverse merger in
which the Company is the surviving corporation but the shares of the Company's
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: (i) any surviving or acquiring corporation shall assume
Options outstanding under the Plan or shall substitute similar options
(including an option to acquire the same consideration paid to stockholders in
the transaction described in this subsection 10(b)) for those outstanding under
the Plan, or (ii) in the event any surviving or acquiring corporation refuses to
assume such Options or to substitute similar options for those outstanding under
the Plan, (A) with respect to Options held by persons then performing services
as Employees, Directors or Consultants and subject to any applicable provisions
of the California Corporate Securities Law of 1968 and related regulations
relied upon as a condition of issuing securities pursuant to the Plan, the
vesting of such Options and the time during which such Options may be exercised
shall be accelerated prior to such event and the Options terminated if not
exercised after such acceleration and at or prior to such event, and (B) with
respect to any other Options outstanding under the Plan, such Options shall be
terminated if not exercised prior to such event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
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(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in Section 10 relating to adjustments upon changes
in stock, no amendment shall be effective unless approved by the stockholders of
the Company within twelve (12) months before or after the adoption of the
amendment, where the amendment will:
(1) Increase the number of shares reserved for Options under the
Plan;
(2) Modify the requirements as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in order
for the Plan to satisfy the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification requires
stockholder approval in order for the Plan to satisfy the requirements of
Section 422 of the Code or to comply with applicable stock exchange listing
requirements.
(b) The Board may in its sole discretion submit any other amendment to the
Plan for stockholder approval, including, but not limited to, amendments to the
Plan intended to satisfy the requirements of Section 162(m) of the Code and the
regulations promulgated thereunder regarding the exclusion of performance-based
compensation from the limit on corporate deductibility of compensation paid to
certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan in any
respect the Board deems necessary or advisable to provide Optionees with the
maximum benefits provided or to be provided under the provisions of the Code and
the regulations promulgated thereunder relating to Incentive Stock Options
and/or to bring the Plan and/or Incentive Stock Options granted under it into
compliance therewith.
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(d) Rights and obligations under any Option granted before amendment of
the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the terms of
any one or more Options; PROVIDED, HOWEVER, that the rights and obligations
under any Option shall not be impaired by any such amendment unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on February 19, 2007, which shall be
within ten (10) years from the date the Plan is adopted by the Board or approved
by the stockholders of the Company, whichever is earlier. No Options may be
granted under the Plan while the Plan is suspended or after it is terminated.
(b) Rights and obligations under any Option granted while the Plan is in
effect shall not be impaired by suspension or termination of the Plan, except
with the written consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no Options
granted under the Plan shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
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DITECH CORPORATION
1998 STOCK OPTION PLAN
ADOPTED BY THE BOARD OCTOBER 15, 1998
APPROVED BY THE SHAREHOLDERS NOVEMBER 6, 1998
AMENDED AND RESTATED ___________________
1. PURPOSES.
(a) The purpose of the Plan is to provide a means by which selected
Employees and Directors of and Consultants to the Company, and its
Affiliates, may be given an opportunity to purchase stock of the Company.
(b) The Company, by means of the Plan, seeks to retain the services
of persons who are now Employees or Directors of or Consultants to the
Company or its Affiliates, to secure and retain the services of new
Employees, Directors and Consultants, and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
(c) The Company intends that the Options issued under the Plan
shall, in the discretion of the Board or any Committee to which
responsibility for administration of the Plan has been delegated pursuant to
subsection 3(c), be either Incentive Stock Options or Nonstatutory Stock
Options. All Options shall be separately designated Incentive Stock Options
or Nonstatutory Stock Options at the time of grant, and in such form as
issued pursuant to Section 6, and a separate certificate or certificates will
be issued for shares purchased on exercise of each type of Option.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary
corporation, whether now or hereafter existing, as those terms are defined in
Sections 424(e) and (f) respectively, of the Code.
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(b) "BOARD" means the Board of Directors of the Company.
(c) "CODE" means the Internal Revenue Code of 1986, as amended.
(d) "COMMITTEE" means a Committee appointed by the Board in
accordance with subsection 3(c) of the Plan.
(e) "COMPANY" means Ditech Corporation, a California corporation.
(f) "CONSULTANT" means any person, including an advisor, engaged by
the Company or an Affiliate to render consulting services and who is
compensated for such services, provided that the term "Consultant" shall not
include Directors who are paid only a director's fee by the Company or who
are not compensated by the Company for their services as Directors.
(g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means
that the service of an individual to the Company, whether as an Employee,
Director or Consultant, is not interrupted or terminated. The Board or the
chief executive officer of the Company may determine, in that party's sole
discretion, whether Continuous Status as an Employee, Director or Consultant
shall be considered interrupted in the case of: (i) any leave of absence
approved by the Board or the chief executive officer of the Company,
including sick leave, military leave, or any other personal leave; or (ii)
transfers between the Company, Affiliates or their successors.
(h) "COVERED EMPLOYEE" means the chief executive officer and the
four (4) other highest compensated officers of the Company for whom total
compensation is required to be reported to shareholders under the Exchange
Act, as determined for purposes of Section 162(m) of the Code.
(i) "DIRECTOR" means a member of the Board.
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(j) "EMPLOYEE" means any person, including Officers and Directors,
employed by the Company or any Affiliate of the Company. Neither service as
a Director nor payment of a director's fee by the Company shall be sufficient
to constitute "employment" by the Company.
(k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(l) "FAIR MARKET VALUE" means, as of any date, the value of the
common stock of the Company determined as follows:
(1) If the common stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
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 exchange or market (or the exchange or market with the
greatest volume of trading in the Company's 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) In the absence of such markets for the common stock, the
Fair Market Value shall be determined in good faith by the Board.
(3) Prior to the Listing Date, the value of the Common Stock
shall be determined in a manner consistent with Section 260.140.50 of Title
10 of the California Code of Regulations.
(m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as
an incentive stock option within the meaning of Section 422 of the Code and
the regulations promulgated thereunder.
(n) "LISTING DATE" means the first date upon which any security of
the Company is listed (or approved for listing) upon notice of issuance on
any securities exchange, or designated
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(or approved for designation) upon notice of issuance as a national market
security on an interdealer quotation system if such securities exchange or
interdealer quotation system has been certified in accordance with the
provisions of Section 25100(o) of the California Corporate Securities Law of
1968.
(o) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a
current Employee or Officer of the Company or its parent or subsidiary, does
not receive compensation (directly or indirectly) from the Company or its
parent or subsidiary for services rendered as a consultant or in any capacity
other than as a Director (except for an amount as to which disclosure would
not be required under Item 404(a) of Regulation S-K promulgated pursuant to
the Securities Act ("Regulation S-K")), does not possess an interest in any
other transaction as to which disclosure would be required under Item 404(a)
of Regulation S-K, and is not engaged in a business relationship as to which
disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is
otherwise considered a "non-employee director" for purposes of Rule 16b-3.
(p) "NONSTATUTORY STOCK OPTION" means an Option not intended to
qualify as an Incentive Stock Option.
(q) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(r) "OPTION" means a stock option granted pursuant to the Plan.
(s) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionee evidencing the terms and conditions of an individual Option
grant. Each Option Agreement shall be subject to the terms and conditions of
the Plan.
(t) "OPTIONEE" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
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(u) "OUTSIDE DIRECTOR" means a Director who either (i) is not a
current employee of the Company or an "affiliated corporation" (within the
meaning of the Treasury regulations promulgated under Section 162(m) of the
Code), is not a former employee of the Company or an "affiliated corporation"
receiving compensation for prior services (other than benefits under a tax
qualified pension plan), was not an officer of the Company or an "affiliated
corporation" at any time, and is not currently receiving direct or indirect
remuneration from the Company or an "affiliated corporation" for services in
any capacity other than as a Director, or (ii) is otherwise considered an
"outside director" for purposes of Section 162(m) of the Code.
(v) "PLAN" means this 1998 Stock Option Plan.
(w) "RULE 16b-3" means Rule 16b-3 of the Exchange Act or any
successor to Rule 16b-3 as in effect with respect to the Company at the time
discretion is being exercised regarding the Plan.
(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) The Plan shall be administered by the Board unless and until the
Board delegates administration to a Committee, as provided in subsection 3(c).
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(1) To determine from time to time which of the persons
eligible under the Plan shall be granted Options; when and how each Option
shall be granted; whether an Option will be an Incentive Stock Option or a
Nonstatutory Stock Option; the provisions of each Option granted (which need
not be identical), including the time or times such Option may be exercised
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in whole or in part; and the number of shares for which an Option shall be
granted to each such person.
(2) To construe and interpret the Plan and Options granted
under it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in
a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
(3) To amend the Plan or an Option as provided in Section 11.
(4) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of
the Company.
(c) The Board may delegate administration of the Plan to a committee
of the Board composed of not fewer than two (2) members (the "Committee"),
all of the members of which Committee may be, in the discretion of the Board,
Non-Employee Directors and/or Outside Directors. If administration is
delegated to a Committee, the Committee shall have, in connection with the
administration of the Plan, the powers theretofore possessed by the Board,
including the power to delegate to a subcommittee of two (2) or more Outside
Directors any of the administrative powers the Committee is authorized to
exercise (and references in this Plan to the Board shall thereafter be to the
Committee or such a subcommittee), 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 may abolish the Committee at any time and
revest in the Board the administration of the Plan. Additionally, prior to
the Listing Date, and notwithstanding anything to the contrary contained
herein, the Board may delegate administration of the Plan to any person or
persons and the term "Committee" shall apply to any person or persons to whom
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such authority has been delegated. Notwithstanding anything in this Section
3 to the contrary, the Board or the Committee may delegate to a committee of
one or more members of the Board the authority to grant Options to eligible
persons who (1) are not then subject to Section 16 of the Exchange Act and/or
(2) are either (i) not then Covered Employees and are not expected to be
Covered Employees at the time of recognition of income resulting from such
Option, or (ii) not persons with respect to whom the Company wishes to comply
with Section 162(m) of the Code.
4. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to Options shall
not exceed in the aggregate one million three hundred ninety-two thousand
sixty-two (1,392,062) shares of the Company's common stock. If any Option
shall for any reason expire or otherwise terminate, in whole or in part,
without having been exercised in full, the stock not purchased under such
Option shall revert to and again become available for issuance under the Plan.
(b) The stock subject to the Plan may be unissued shares or
reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
(a) Incentive Stock Options may be granted only to Employees.
Nonstatutory Stock Options may be granted only to Employees, Directors or
Consultants.
(b) No person shall be eligible for the grant of an Option if, at
the time of grant, such person owns (or is deemed to own pursuant to Section
424(d) of the Code) stock possessing more than ten percent (10%) of the total
combined voting power of all classes of stock of the Company or of any of its
Affiliates unless the exercise price of such Option is at least one
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hundred ten percent (110%) of the Fair Market Value of such stock at the date
of grant and the Option is not exercisable after the expiration of five (5)
years from the date of grant.
(c) Subject to the provisions of Section 10 relating to adjustments
upon changes in stock, no person shall be eligible to be granted Options
covering more than three hundred thousand (300,000) shares of the Company's
common stock in any calendar year. This subsection 5(c) shall not apply
prior to the Listing Date and, following the Listing Date, shall not apply
until (i) the earliest of: (A) the first material modification of the Plan
(including any increase to the number of shares reserved for issuance under
the Plan in accordance with Section 4); (B) the issuance of all of the shares
of common stock reserved for issuance under the Plan; (C) the expiration of
the Plan; or (D) the first meeting of shareholders at which directors are to
be elected that occurs after the close of the third calendar year following
the calendar year in which occurred the first registration of an equity
security under Section 12 of the Exchange Act; or (ii) such other date
required by Section 162(m) of the Code and the rules and regulations
promulgated thereunder.
6. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as the Board shall deem appropriate. The provisions of separate
Options need not be identical, but each Option shall include (through
incorporation of provisions hereof by reference in the Option or otherwise)
the substance of each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of
ten (10) years from the date it was granted.
(b) PRICE. The exercise price of each Incentive Stock Option shall
be not less than one hundred percent (100%) of the Fair Market Value of the
stock subject to the Option on the
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date the Option is granted; the exercise price of each Nonstatutory Stock
Option shall be not less than eighty-five percent (85%) of the Fair Market
Value of the stock subject to the Option on the date the Option is granted.
Notwithstanding the foregoing, an Option (whether an Incentive Stock Option
or a Nonstatutory Stock Option) may be granted with an exercise price lower
than that set forth in the preceding sentence if such Option is granted
pursuant to an assumption or substitution for another option in a manner
satisfying the provisions of Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to
an Option shall be paid, to the extent permitted by applicable statutes and
regulations, either (i) in cash at the time the Option is exercised, or (ii)
at the discretion of the Board or the Committee, at the time of the grant of
the Option, (A) by delivery to the Company of other common stock of the
Company, (B) according to a deferred payment or other arrangement (which may
include, without limiting the generality of the foregoing, the use of other
common stock of the Company) with the person to whom the Option is granted or
to whom the Option is transferred pursuant to subsection 6(d), or (C) in any
other form of legal consideration that may be acceptable to the Board.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by
will or by the laws of descent and distribution, and shall be exercisable
during the lifetime of the person to whom the Option is granted only by such
person. A Nonstatutory Stock Option granted after the Listing Date shall
only be transferable by the Optionee upon such terms and conditions as are
set
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forth in the Option Agreement for such Nonstatutory Stock Option, as the
Board or the Committee shall determine in its discretion. The person to whom
the Option is granted may, by delivering written notice to the Company, in a
form satisfactory to the Company, designate a third party who, in the event
of the death of the Optionee, shall thereafter be entitled to exercise the
Option.
(e) VESTING. The total number of shares of stock subject to an
Option may, but need not, be allotted in periodic installments (which may,
but need not, be equal). The Option Agreement may provide that from time to
time during each of such installment periods, the Option may become
exercisable ("vest") with respect to some or all of the shares allotted to
that period, and may be exercised with respect to some or all of the shares
allotted to such period and/or any prior period as to which the Option became
vested but was not fully exercised. The Option may be subject to such other
terms and conditions on the time or times when it may be exercised (which may
be based on performance or other criteria) as the Board may deem appropriate.
The vesting provisions of individual Options may vary. The provisions of
this subsection 6(e) are subject to any Option provisions governing the
minimum number of shares as to which an Option may be exercised.
Notwithstanding the foregoing, Options granted prior to the Listing Date
shall provide for vesting of at least twenty percent (20%) per year of the
total number of shares subject to the Option; PROVIDED, HOWEVER, that an
Option granted to an officer, director or consultant (within the meaning of
Section 260.140.41 of Title 10 of the California Code of Regulations) prior
to the Listing Date may become fully exercisable, subject to reasonable
conditions such as continued employment, at any time or during any period
established by the Company or of any of its Affiliates.
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(f) SECURITIES LAW COMPLIANCE. The Company may require any
Optionee, or any person to whom an Option is transferred under subsection
6(d), as a condition of exercising any such Option, (1) to give written
assurances satisfactory to the Company as to the Optionee's knowledge and
experience in financial and business matters and/or to employ a purchaser
representative reasonably satisfactory to the Company who is knowledgeable
and experienced in financial and business matters, and that he or she is
capable of evaluating, alone or together with the purchaser representative,
the merits and risks of exercising the Option; and (2) to give written
assurances satisfactory to the Company stating that such person is acquiring
the stock subject to the Option for such person's own account and not with
any present intention of selling or otherwise distributing the stock. The
foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (i) the issuance of the shares upon the
exercise of the Option has been registered under a then currently effective
registration statement under the Securities Act, or (ii) as to any particular
requirement, a determination is made by counsel for the Company that such
requirement need not be met in the circumstances under the then applicable
securities laws. The Company may require the Optionee to provide such other
representations, written assurances or information which the Company shall
determine is necessary, desirable or appropriate to comply with applicable
securities and other laws as a condition of granting an Option to such
Optionee or permitting the Optionee to exercise such Option. The Company
may, upon advice of counsel to the Company, place legends on stock
certificates issued under the Plan as such counsel deems necessary or
appropriate in order to comply with applicable securities laws, including,
but not limited to, legends restricting the transfer of the stock.
(g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR
CONSULTANT. In the event an Optionee's Continuous Status as an Employee,
Director or Consultant terminates
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(other than upon the Optionee's death or disability), the Optionee may
exercise his or her Option (to the extent that the Optionee was entitled to
exercise it as of the date of termination) but only within such period of
time ending on the earlier of (i) the date three (3) months following the
termination of the Optionee's Continuous Status as an Employee, Director or
Consultant, or such longer or shorter period specified in the Option
Agreement, which for Options granted prior to the Listing Date shall not be
less than thirty (30) days, or (ii) the expiration of the term of the Option
as set forth in the Option Agreement. If, at the date of termination, the
Optionee is not entitled to exercise his or her entire Option, the shares
covered by the unexercisable portion of the Option shall revert to and again
become available for issuance under the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified in the
Option Agreement, the Option shall terminate, and the shares covered by such
Option shall revert to and again become available for issuance under the Plan.
(h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous
Status as an Employee, Director or Consultant terminates as a result of the
Optionee's disability, the Optionee may exercise his or her Option (to the
extent that the Optionee was entitled to exercise it as of the date of
termination), but only within such period of time ending on the earlier of
(i) the date twelve (12) months following such termination (or such longer or
shorter period specified in the Option Agreement, which for Options granted
prior to the Listing Date shall not be less than six (6) months), or (ii) the
expiration of the term of the Option as set forth in the Option Agreement.
If, at the date of termination, the Optionee is not entitled to exercise his
or her entire Option, the shares covered by the unexercisable portion of the
Option shall revert to and again become available for issuance under the
Plan. If, after termination, the Optionee does not exercise his or her
Option within the time specified herein, the Option shall terminate, and
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<PAGE>
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
(i) DEATH OF OPTIONEE. In the event of the death of an Optionee
during, or within a period specified in the Option Agreement after the
termination of, the Optionee's Continuous Status as an Employee, Director or
Consultant, the Option may be exercised (to the extent the Optionee was
entitled to exercise the Option as of the date of death) by the Optionee's
estate, by a person who acquired the right to exercise the Option by bequest
or inheritance or by a person designated to exercise the option upon the
Optionee's death pursuant to subsection 6(d), but only within the period
ending on the earlier of (i) the date eighteen (18) months following the date
of death (or such longer or shorter period specified in the Option Agreement,
which for Options granted prior to the Listing Date shall not be less than
six (6) months), or (ii) the expiration of the term of such Option as set
forth in the Option Agreement. If, at the time of death, the Optionee was
not entitled to exercise his or her entire Option, the shares covered by the
unexercisable portion of the Option shall revert to and again become
available for issuance under the Plan. If, after death, the Option is not
exercised within the time specified herein, the Option shall terminate, and
the shares covered by such Option shall revert to and again become available
for issuance under the Plan.
(j) EARLY EXERCISE. The Option may, but need not, include a
provision whereby the Optionee may elect at any time while an Employee,
Director or Consultant to exercise the Option as to any part or all of the
shares subject to the Option prior to the full vesting of the Option. Any
unvested shares so purchased shall be subject to a repurchase right in favor
of the Company, with the repurchase price to be equal to the original
purchase price of the stock, or to any other restriction the Board determines
to be appropriate; PROVIDED, HOWEVER, that for Options granted
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<PAGE>
prior to the Listing Date (i) the right to repurchase at the original
purchase price shall lapse at a minimum rate of twenty percent (20%) per year
over five (5) years from the date the Option was granted, and (ii) such right
shall be exercisable only within (A) the ninety (90) day period following the
termination of employment or the relationship as a Director or Consultant, or
(B) such longer period as may be agreed to by the Company and the Optionee
(for example, for purposes of satisfying the requirements of Section
1202(c)(3) of the Code (regarding "qualified small business stock")), and
(iii) such right shall be exercisable only for cash or cancellation of
purchase money indebtedness for the shares. Notwithstanding the foregoing,
shares received on exercise of an Option by an officer, director or
consultant (within the meaning of Section 260.140.41 of Title 10 of the
California Code of Regulations) may be subject to additional or greater
restrictions.
(k) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a
provision whereby the Company may elect, prior to the Listing Date, to
exercise a right of first refusal following receipt of notice from the
Optionee of the intent to transfer all or any part of the shares exercised
pursuant to the Option. Except as expressly provided in this subsection
6(k), such right of first refusal shall otherwise comply with the provisions
of the Bylaws of the Company.
(l) WITHHOLDING. To the extent provided by the terms of an Option
Agreement, the Optionee may satisfy any federal, state or local tax
withholding obligation relating to the exercise of such Option by any of the
following means or by a combination of such means: (1) tendering a cash
payment; (2) authorizing the Company to withhold shares from the shares of
the common stock otherwise issuable to the Optionee as a result of the
exercise of the Option; or (3) delivering to the Company owned and
unencumbered shares of the common stock of the Company.
14
<PAGE>
7. COVENANTS OF THE COMPANY.
(a) During the terms of the Options, the Company shall keep
available at all times the number of shares of stock required to satisfy such
Options.
(b) The Company shall seek to obtain from each regulatory commission
or agency having jurisdiction over the Plan such authority as may be required
to issue and sell shares of stock upon exercise of the Options; PROVIDED,
HOWEVER, that this undertaking shall not require the Company to register
under the Securities Act either the Plan, any Option or any stock issued or
issuable pursuant to any such Option. If, after reasonable efforts, the
Company is unable to obtain from any such regulatory commission or agency the
authority which counsel for the Company deems necessary for the lawful
issuance and sale of stock under the Plan, the Company shall be relieved from
any liability for failure to issue and sell stock upon exercise of such
Options unless and until such authority is obtained.
8. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
9. MISCELLANEOUS.
(a) The Board shall have the power to accelerate the time at which
an Option may first be exercised or the time during which an Option or any
part thereof will vest pursuant to subsection 6(e), notwithstanding the
provisions in the Option stating the time at which it may first be exercised
or the time during which it will vest.
(b) Neither an Optionee nor any person to whom an Option is
transferred under subsection 6(d) shall be deemed to be the holder of, or to
have any of the rights of a holder with
15
<PAGE>
respect to, any shares subject to such Option unless and until such person
has satisfied all requirements for exercise of the Option pursuant to its
terms.
(c) Prior to the Listing Date, to the extent required by Section
260.140.46 of Title 10 of the California Code of Regulations, the Company
shall deliver financial statements to Optionees at least annually. This
subsection 9(c) shall not apply to key employees whose duties in connection
with the Company assure them access to equivalent information.
(d) Nothing in the Plan or any instrument executed or Option granted
pursuant thereto shall confer upon any Employee, Director, Consultant or
Optionee any right to continue in the employ of the Company or any Affiliate
(or to continue acting as a Director or Consultant) or shall affect the right
of the Company or any Affiliate to terminate the employment of any Employee,
with or without cause, to remove any Director as provided in the Company's
Bylaws and the provisions of the corporate law of the state in which the
Company or the Affiliate, as the case may be, is incorporated, or to
terminate the relationship of any Consultant subject to the terms of that
Consultant's agreement with the Company or Affiliate to which such Consultant
is providing services.
(e) To the extent that the aggregate Fair Market Value (determined
at the time of grant) of stock with respect to which Incentive Stock Options
are exercisable for the first time by any Optionee during any calendar year
under all plans of the Company and its Affiliates exceeds one hundred
thousand dollars ($100,000), the Options or portions thereof which exceed
such limit (according to the order in which they were granted) shall be
treated as Nonstatutory Stock Options.
10. ADJUSTMENTS UPON CHANGES IN STOCK.
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<PAGE>
(a) If any change is made in the stock subject to the Plan, or
subject to any Option (through merger, consolidation, reorganization,
recapitalization, 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), the Plan will be appropriately adjusted in
the type(s) and maximum number of securities subject to the Plan pursuant to
subsection 4(a) and the maximum number of securities subject to award to any
person during any calendar year pursuant to subsection 5(c), and the
outstanding Options will be appropriately adjusted in the type(s) and number
of securities and price per share of stock subject to such outstanding
Options. Such adjustments shall be made by the Board or Committee, 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 "transaction not involving the receipt of consideration by the Company.")
(b) In the event of: (1) a dissolution, liquidation, or sale of all
or substantially all of the assets of the Company; (2) a merger or
consolidation in which the Company is not the surviving corporation; or (3) a
reverse merger in which the Company is the surviving corporation but the
shares of the Company's 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: (i) any surviving or
acquiring corporation shall assume Options outstanding under the Plan or
shall substitute similar options (including an option to acquire the same
consideration paid to shareholders in the transaction described in this
subsection 10(b)) for those outstanding under the Plan, or (ii) in the event
any surviving or acquiring corporation refuses to assume such Options or to
substitute similar options for those outstanding under the Plan, (A) with
respect to Options held by persons then performing services as Employees,
Directors or
17
<PAGE>
Consultants, the vesting of such Options and the time during which such
Options may be exercised shall be accelerated prior to such event and the
Options terminated if not exercised after such acceleration and at or prior
to such event, and (B) with respect to any other Options outstanding under
the Plan, such Options shall be terminated if not exercised prior to such
event.
11. AMENDMENT OF THE PLAN AND OPTIONS.
(a) The Board at any time, and from time to time, may amend the
Plan. However, except as provided in Section 10 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
shareholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(1) Increase the number of shares reserved for Options under
the Plan;
(2) Modify the requirements as to eligibility for participation
in the Plan (to the extent such modification requires stockholder approval in
order for the Plan to satisfy the requirements of Section 422 of the Code); or
(3) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to satisfy the
requirements of Section 422 of the Code or to comply with applicable stock
exchange listing requirements.
(b) The Board may in its sole discretion submit any other amendment
to the Plan for stockholder approval, including, but not limited to,
amendments to the Plan intended to satisfy the requirements of Section 162(m)
of the Code and the regulations promulgated thereunder regarding the
exclusion of performance-based compensation from the limit on corporate
deductibility of compensation paid to certain executive officers.
(c) It is expressly contemplated that the Board may amend the Plan
in any respect the Board deems necessary or advisable to provide Optionees
with the maximum benefits provided
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<PAGE>
or to be provided under the provisions of the Code and the regulations
promulgated thereunder relating to Incentive Stock Options and/or to bring
the Plan and/or Incentive Stock Options granted under it into compliance
therewith.
(d) Rights and obligations under any Option granted before amendment
of the Plan shall not be impaired by any amendment of the Plan unless (i) the
Company requests the consent of the person to whom the Option was granted and
(ii) such person consents in writing.
(e) The Board at any time, and from time to time, may amend the
terms of any one or more Options; PROVIDED, HOWEVER, that the rights and
obligations under any Option shall not be impaired by any such amendment
unless (i) the Company requests the consent of the person to whom the Option
was granted and (ii) such person consents in writing.
12. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board may suspend or terminate the Plan at any time. Unless
sooner terminated, the Plan shall terminate on October 14, 2008, which shall
be within ten (10) years from the date the Plan is adopted by the Board or
approved by the shareholders of the Company, whichever is earlier. No
Options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) Rights and obligations under any Option granted while the Plan
is in effect shall not be impaired by suspension or termination of the Plan,
except with the written consent of the person to whom the Option was granted.
13. EFFECTIVE DATE OF PLAN.
The Plan shall become effective as determined by the Board, but no
Options granted under the Plan shall be exercised unless and until the Plan
has been approved by the shareholders
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of the Company, which approval shall be within twelve (12) months before or
after the date the Plan is adopted by the Board.
20
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DITECH CORPORATION
1999 EMPLOYEE STOCK PURCHASE PLAN
APPROVED BY THE BOARD OF DIRECTORS MARCH 5, 1999
APPROVED BY STOCKHOLDERS 1999
TERMINATION DATE MARCH 4, 2009
1. PURPOSE.
(a) The purpose of this Employee Stock Purchase Plan (the "Plan") is to
provide a means by which employees of Ditech Corporation (the "Company") and
its Affiliates, as defined in subparagraph 1(b), which are designated as
provided in subparagraph 2(b), may be given an opportunity to purchase common
stock of the Company.
(b) The word "Affiliate" as used in the Plan means any parent
corporation or subsidiary corporation of the Company, as those terms are
defined in Sections 424(e) and (f), respectively, of the Internal Revenue
Code of 1986, as amended (the "Code").
(c) The Company, by means of the Plan, seeks to retain the services of
its employees, to secure and retain the services of new employees, and to
provide incentives for such persons to exert maximum efforts for the success
of the Company.
(d) The Company intends that the rights to purchase stock of the
Company granted under the Plan be considered options issued under an
"employee stock purchase plan" as that term is defined in Section 423(b) of
the Code.
2. ADMINISTRATION.
(a) The Plan shall be administered by the Board of Directors (the
"Board") of the Company unless and until the Board delegates administration
to a Committee, as provided in subparagraph 2(c). Whether or not the Board
has delegated administration, the Board shall have the final power to
determine all questions of policy and expediency that may arise in the
administration of the Plan.
(b) The Board shall have the power, subject to, and within the
limitations of, the express provisions of the Plan:
(i) To determine when and how rights to purchase stock of the
Company shall be granted and the provisions of each offering of such rights
(which need not be identical).
(ii) To designate from time to time which Affiliates of the Company
shall be eligible to participate in the Plan.
(iii) To construe and interpret the Plan and rights granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the
1.
<PAGE>
exercise of this power, may correct any defect, omission or inconsistency in
the Plan, in a manner and to the extent it shall deem necessary or expedient
to make the Plan fully effective.
(iv) To amend the Plan as provided in paragraph 13.
(v) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of
the Company and its Affiliates and to carry out the intent that the Plan be
treated as an "employee stock purchase plan" within the meaning of Section
423 of the Code.
(c) The Board may delegate administration of the Plan to a Committee
composed of not fewer than two (2) members of the Board (the "Committee").
If administration is delegated to a Committee, the Committee shall have, in
connection with the administration of the Plan, the powers theretofore
possessed by the Board, 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 may abolish the Committee at any time and
revest in the Board the administration of the Plan.
3. SHARES SUBJECT TO THE PLAN.
(a) Subject to the provisions of paragraph 12 relating to adjustments
upon changes in stock, the stock that may be sold pursuant to rights granted
under the Plan shall not exceed in the aggregate two hundred thousand
(200,000) shares of the Company's common stock (the "Common Stock"). If any
right granted under the Plan shall for any reason terminate without having
been exercised, the Common Stock not purchased under such right shall again
become available for the Plan.
(b) The stock subject to the Plan may be unissued shares or reacquired
shares, bought on the market or otherwise.
4. GRANT OF RIGHTS; OFFERING.
The Board or the Committee may from time to time grant or provide for
the grant of rights to purchase Common Stock of the Company under the Plan to
eligible employees (an "Offering") on a date or dates (the "Offering
Date(s)") selected by the Board or the Committee. Each Offering shall be in
such form and shall contain such terms and conditions as the Board or the
Committee shall deem appropriate, which shall comply with the requirements of
Section 423(b)(5) of the Code that all employees granted rights to purchase
stock under the Plan shall have the same rights and privileges. The terms
and conditions of an Offering shall be incorporated by reference into the
Plan and treated as part of the Plan. The provisions of separate Offerings
need not be identical, but each Offering shall include (through incorporation
of the provisions of this Plan by reference in the document comprising the
Offering or otherwise) the period during which the Offering shall be
effective, which period shall not exceed twenty-seven (27) months beginning
with the Offering Date, and the substance of the provisions contained in
paragraphs 5 through 8, inclusive.
2.
<PAGE>
5. ELIGIBILITY.
(a) Rights may be granted only to employees of the Company or, as the
Board or the Committee may designate as provided in subparagraph 2(b), to
employees of any Affiliate of the Company. Except as provided in
subparagraph 5(b), an employee of the Company or any Affiliate shall not be
eligible to be granted rights under the Plan unless, on the Offering Date,
such employee has been in the employ of the Company or any Affiliate for such
continuous period preceding such grant as the Board or the Committee may
require, but in no event shall the required period of continuous employment
be greater than two (2) years. In addition, unless otherwise determined by
the Board or the Committee and set forth in the terms of the applicable
Offering, no employee of the Company or any Affiliate shall be eligible to be
granted rights under the Plan, unless, on the Offering Date, such employee's
customary employment with the Company or such Affiliate is for at least
twenty (20) hours per week and at least five (5) months per calendar year.
(b) The Board or the Committee may provide that each person who, during
the course of an Offering, first becomes an eligible employee of the Company
or designated Affiliate will, on a date or dates specified in the Offering
which coincides with the day on which such person becomes an eligible
employee or occurs thereafter, receive a right under that Offering, which
right shall thereafter be deemed to be a part of that Offering. Such right
shall have the same characteristics as any rights originally granted under
that Offering, as described herein, except that:
(i) the date on which such right is granted shall be the
"Offering Date" of such right for all purposes, including determination of
the exercise price of such right;
(ii) the period of the Offering with respect to such right shall
begin on its Offering Date and end coincident with the end of such Offering;
and
(iii) the Board or the Committee may provide that if such person
first becomes an eligible employee within a specified period of time before
the end of the Offering, he or she will not receive any right under that
Offering.
(c) No employee shall be eligible for the grant of any rights under the
Plan if, immediately after any such rights are granted, such employee owns
stock possessing five percent (5%) or more of the total combined voting power
or value of all classes of stock of the Company or of any Affiliate. For
purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code
shall apply in determining the stock ownership of any employee, and stock
which such employee may purchase under all outstanding rights and options
shall be treated as stock owned by such employee.
(d) An eligible employee may be granted rights under the Plan only if
such rights, together with any other rights granted under "employee stock
purchase plans" of the Company and any Affiliates, as specified by Section
423(b)(8) of the Code, do not permit such employee's rights to purchase stock
of the Company or any Affiliate to accrue at a rate which exceeds
3.
<PAGE>
twenty-five thousand dollars ($25,000) of fair market value of such stock
(determined at the time such rights are granted) for each calendar year in
which such rights are outstanding at any time.
(e) Officers of the Company and any designated Affiliate shall be
eligible to participate in Offerings under the Plan; PROVIDED, HOWEVER, that
the Board may provide in an Offering that certain employees who are highly
compensated employees within the meaning of Section 423(b)(4)(D) of the Code
shall not be eligible to participate.
6. RIGHTS; PURCHASE PRICE.
(a) On each Offering Date, each eligible employee, pursuant to an
Offering made under the Plan, shall be granted the right to purchase up to
the number of shares of Common Stock of the Company purchasable with a
percentage designated by the Board or the Committee not exceeding ten percent
(10%) of such employee's Earnings (as defined in subparagraph 7(a)) during
the period which begins on the Offering Date (or such later date as the Board
or the Committee determines for a particular Offering) and ends on the date
stated in the Offering, which date shall be no later than the end of the
Offering. The Board or the Committee shall establish one or more dates
during an Offering (the "Purchase Date(s)") on which rights granted under the
Plan shall be exercised and purchases of Common Stock carried out in
accordance with such Offering.
(b) In connection with each Offering made under the Plan, the Board or
the Committee may specify a maximum number of shares that may be purchased by
any employee as well as a maximum aggregate number of shares that may be
purchased by all eligible employees pursuant to such Offering. In addition,
in connection with each Offering that contains more than one Purchase Date,
the Board or the Committee may specify a maximum aggregate number of shares
which may be purchased by all eligible employees on any given Purchase Date
under the Offering. If the aggregate purchase of shares upon exercise of
rights granted under the Offering would exceed any such maximum aggregate
number, the Board or the Committee shall make a pro rata allocation of the
shares available in as nearly a uniform manner as shall be practicable and as
it shall deem to be equitable.
(c) The purchase price of stock acquired pursuant to rights granted
under the Plan shall be not less than the lesser of:
(i) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Offering Date; or
(ii) an amount equal to eighty-five percent (85%) of the fair
market value of the stock on the Purchase Date.
7. PARTICIPATION; WITHDRAWAL; TERMINATION.
(a) An eligible employee may become a participant in the Plan pursuant
to an Offering by delivering a participation agreement to the Company within
the time specified in the Offering, in such form as the Company provides.
Each such agreement shall authorize payroll
4.
<PAGE>
deductions of up to the maximum percentage specified by the Board or the
Committee of such employee's Earnings during the Offering. "Earnings" is
defined as an employee's wages (including amounts thereof elected to be
deferred by the employee, that would otherwise have been paid, under any
arrangement established by the Company that is intended to comply with
Section 125, Section 401(k), Section 402(h) or Section 403(b) of the Code or
that provides non-qualified deferred compensation), which shall include
overtime pay, bonuses and commissions, but shall exclude incentive pay,
profit sharing, other remuneration paid directly to the employee, the cost of
employee benefits paid for by the Company or an Affiliate, education or
tuition reimbursements, imputed income arising under any group insurance or
benefit program, traveling expenses, business and moving expense
reimbursements, income received in connection with stock options,
contributions made by the Company or an Affiliate under any employee benefit
plan, and similar items of compensation, as determined by the Board or the
Committee. The payroll deductions made for each participant shall be
credited to an account for such participant under the Plan and shall be
deposited with the general funds of the Company. A participant may reduce
(including to zero) or increase such payroll deductions, and an eligible
employee may begin such payroll deductions, after the beginning of any
Offering only as provided for in the Offering. A participant may make
additional payments into his or her account only if specifically provided for
in the Offering and only if the participant has not had the maximum amount
withheld during the Offering.
(b) At any time during an Offering, a participant may terminate his or
her payroll deductions under the Plan and withdraw from the Offering by
delivering to the Company a notice of withdrawal in such form as the Company
provides. Such withdrawal may be elected at any time prior to the end of the
Offering except as provided by the Board or the Committee in the Offering.
Upon such withdrawal from the Offering by a participant, the Company shall
distribute to such participant all of his or her accumulated payroll
deductions (reduced to the extent, if any, such deductions have been used to
acquire stock for the participant) under the Offering, without interest, and
such participant's interest in that Offering shall be automatically
terminated. A participant's withdrawal from an Offering will have no effect
upon such participant's eligibility to participate in any other Offerings
under the Plan but such participant will be required to deliver a new
participation agreement in order to participate in subsequent Offerings under
the Plan.
(c) Rights granted pursuant to any Offering under the Plan shall
terminate immediately upon cessation of any participating employee's
employment with the Company and any designated Affiliate, for any reason, and
the Company shall distribute to such terminated employee all of his or her
accumulated payroll deductions (reduced to the extent, if any, such
deductions have been used to acquire stock for the terminated employee),
under the Offering, without interest.
(d) Rights granted under the Plan shall not be transferable by a
participant otherwise than by will or the laws of descent and distribution,
or by a beneficiary designation as provided in paragraph 14 and, otherwise
during his or her lifetime, shall be exercisable only by the person to whom
such rights are granted.
5.
<PAGE>
8. EXERCISE.
(a) On each Purchase Date specified therefor in the relevant Offering,
each participant's accumulated payroll deductions and other additional
payments specifically provided for in the Offering (without any increase for
interest) will be applied to the purchase of whole shares of stock of the
Company, up to the maximum number of shares permitted pursuant to the terms
of the Plan and the applicable Offering, at the purchase price specified in
the Offering. No fractional shares shall be issued upon the exercise of
rights granted under the Plan. The amount, if any, of accumulated payroll
deductions remaining in each participant's account after the purchase of
shares which is less than the amount required to purchase one share of stock
on the final Purchase Date of an Offering shall be held in each such
participant's account for the purchase of shares under the next Offering
under the Plan, unless such participant withdraws from such next Offering, as
provided in subparagraph 7(b), or is no longer eligible to be granted rights
under the Plan, as provided in paragraph 5, in which case such amount shall
be distributed to the participant after such final Purchase Date, without
interest. The amount, if any, of accumulated payroll deductions remaining in
any participant's account after the purchase of shares which is equal to the
amount required to purchase whole shares of stock on the final Purchase Date
of an Offering shall be distributed in full to the participant after such
Purchase Date, without interest.
(b) No rights granted under the Plan may be exercised to any extent
unless the shares to be issued upon such exercise under the Plan (including
rights granted thereunder) are covered by an effective registration statement
pursuant to the Securities Act of 1933, as amended (the "Securities Act") and
the Plan is in material compliance with all applicable state, foreign and
other securities and other laws applicable to the Plan. If on a Purchase
Date in any Offering hereunder the Plan is not so registered or in such
compliance, no rights granted under the Plan or any Offering shall be
exercised on such Purchase Date, and the Purchase Date shall be delayed until
the Plan is subject to such an effective registration statement and such
compliance, except that the Purchase Date shall not be delayed more than
twelve (12) months and the Purchase Date shall in no event be more than
twenty-seven (27) months from the Offering Date. If on the Purchase Date of
any Offering hereunder, as delayed to the maximum extent permissible, the
Plan is not registered and in such compliance, no rights granted under the
Plan or any Offering shall be exercised and all payroll deductions
accumulated during the Offering (reduced to the extent, if any, such
deductions have been used to acquire stock) shall be distributed to the
participants, without interest.
9. COVENANTS OF THE COMPANY.
(a) During the terms of the rights granted under the Plan, the Company
shall keep available at all times the number of shares of stock required to
satisfy such rights.
(b) The Company shall seek to obtain from each federal, state, foreign
or other regulatory commission or agency having jurisdiction over the Plan
such authority as may be required to issue and sell shares of stock upon
exercise of the rights granted under the Plan. If, after reasonable efforts,
the Company is unable to obtain from any such regulatory commission
6.
<PAGE>
or agency the authority which counsel for the Company deems necessary for the
lawful issuance and sale of stock under the Plan, the Company shall be
relieved from any liability for failure to issue and sell stock upon exercise
of such rights unless and until such authority is obtained.
10. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to rights granted under the
Plan shall constitute general funds of the Company.
11. RIGHTS AS A STOCKHOLDER.
A participant shall not be deemed to be the holder of, or to have any of
the rights of a holder with respect to, any shares subject to rights granted
under the Plan unless and until the participant's shareholdings acquired upon
exercise of rights under the Plan are recorded in the books of the Company.
12. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) If any change is made in the stock subject to the Plan, or subject
to any rights granted under the Plan, due to a change in corporate
capitalization and without the receipt of consideration by the Company
(through reincorporation, stock dividend, stock split, reverse stock split,
combination or reclassification of shares), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject to the
Plan pursuant to subsection 3(a), and the outstanding rights will be
appropriately adjusted in the class(es) and number of securities and price
per share of stock subject to such outstanding rights. Such adjustments
shall be made by the Board, the determination of which shall be final,
binding and conclusive.
(b) In the event of: (1) a dissolution or liquidation of the Company;
(2) a sale of all or substantially all of the assets of the Company, (3) a
merger or consolidation in which the Company is not the surviving
corporation, (4) a reverse merger in which the Company is the surviving
corporation but the shares of 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, (5) an acquisition by any
person, entity or group within the meaning of Section 13(d) or 14(d) of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), or any
comparable successor provisions (excluding any employee benefit plan, or
related trust, sponsored or maintained by the Company or a Subsidiary) of the
beneficial ownership (within the meaning of Rule 13d-3 promulgated under the
Exchange Act, or comparable successor rule) of securities of the Company
representing at least fifty percent (50%) of the combined voting power
entitled to vote in the election of Directors, or (6) the individuals who, as
of the date of the adoption of this Plan, are members of the Board (the
"Incumbent Board"), cease for any reason to constitute at least fifty percent
(50%) of the Board (if the election, or nomination for election, by the
Company's stockholders of any new director was approved by a vote of at least
fifty percent (50%) of the Incumbent Board, such new director shall be
considered as a member of the Incumbent Board), then, as determined by the
Board in its sole discretion, (i) any surviving corporation may assume
outstanding rights or substitute similar rights for those under the Plan,
(ii) such rights may continue in full force and effect, or (iii)
participants'
7.
<PAGE>
accumulated payroll deductions may be used to purchase Common Stock
immediately prior to the transaction described above and the participants'
rights under the ongoing Offering terminated.
13. AMENDMENT OF THE PLAN.
(a) The Board at any time, and from time to time, may amend the Plan.
However, except as provided in paragraph 12 relating to adjustments upon
changes in stock, no amendment shall be effective unless approved by the
stockholders of the Company within twelve (12) months before or after the
adoption of the amendment, where the amendment will:
(i) Increase the number of shares reserved for rights under the
Plan;
(ii) Modify the provisions as to eligibility for participation in
the Plan (to the extent such modification requires stockholder approval in
order for the Plan to obtain employee stock purchase plan treatment under
Section 423 of the Code or to comply with the requirements of Rule 16b-3
promulgated under the Securities Exchange Act of 1934, as amended ("Rule
16b-3")); or
(iii) Modify the Plan in any other way if such modification
requires stockholder approval in order for the Plan to obtain employee stock
purchase plan treatment under Section 423 of the Code or to comply with the
requirements of Rule 16b-3.
It is expressly contemplated that the Board may amend the Plan in any respect
the Board deems necessary or advisable to provide eligible employees with the
maximum benefits provided or to be provided under the provisions of the Code
and the regulations promulgated thereunder relating to employee stock
purchase plans and/or to bring the Plan and/or rights granted under it into
compliance therewith.
(b) Rights and obligations under any rights granted before amendment of
the Plan shall not be impaired by any amendment of the Plan, except with the
consent of the person to whom such rights were granted, or except as
necessary to comply with any laws or governmental regulations, or except as
necessary to ensure that the Plan and/or rights granted under the Plan comply
with the requirements of Section 423 of the Code.
14. DESIGNATION OF BENEFICIARY.
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to the end
of an Offering but prior to delivery to the participant of such shares and
cash. In addition, a participant may file a written designation of a
beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death during an Offering.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant
and in the absence of a beneficiary
8.
<PAGE>
validly designated under the Plan who is living at the time of such
participant's death, the Company shall deliver such shares and/or cash to the
executor or administrator of the estate of the participant, or if no such
executor or administrator has been appointed (to the knowledge of the
Company), the Company, in its sole discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
15. TERMINATION OR SUSPENSION OF THE PLAN.
(a) The Board in its discretion, may suspend or terminate the Plan at
any time. No rights may be granted under the Plan while the Plan is
suspended or after it is terminated.
(b) Rights and obligations under any rights granted while the Plan is
in effect shall not be altered or impaired by suspension or termination of
the Plan, except as expressly provided in the Plan or with the consent of the
person to whom such rights were granted, or except as necessary to comply
with any laws or governmental regulation, or except as necessary to ensure
that the Plan and/or rights granted under the Plan comply with the
requirements of Section 423 of the Code.
(c) Notwithstanding the foregoing, the Plan shall terminate and no
rights may be granted under the Plan after the tenth anniversary of the
Effective Date.
16. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the day immediately prior to the
effectiveness of the Company's registration statement under the Securities
Act with respect to the initial public offering of shares of the Company's
Common Stock (the "Effective Date"), but no rights granted under the Plan
shall be exercised unless and until the Plan has been approved by the
stockholders of the Company within twelve (12) months before or after the
date the Plan is adopted by the Board or the Committee, which date may be
prior to the Effective Date.
9.
<PAGE>
Exhibit 10.5
DITECH CORPORATION
1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN
ADOPTED BY THE BOARD OF DIRECTORS MARCH 5, 1999
APPROVED BY STOCKHOLDERS _______________, 1999
EFFECTIVE DATE: MARCH 5, 1999
TERMINATION DATE: MARCH 4, 2009
1. PURPOSES.
(a) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive
Options are the Non-Employee Directors of the Company.
(b) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means
by which Non-Employee Directors may be given an opportunity to benefit from
increases in value of the Common Stock through the granting of Nonstatutory
Stock Options.
(c) GENERAL PURPOSE. The Company, by means of the Plan, seeks to
retain the services of its Non-Employee Directors, to secure and retain the
services of new Non-Employee Directors and to provide incentives for such
persons to exert maximum efforts for the success of the Company and its
Affiliates.
2. DEFINITIONS.
(a) "AFFILIATE" means any parent corporation or subsidiary corporation
of the Company, whether now or hereafter existing, as those terms are defined
in Sections 424(e) and (f), respectively, of the Code.
(b) "ANNUAL GRANT" means an Option granted annually to all Non-Employee
Directors who meet the specified criteria pursuant to subsection 6(b) of the
Plan.
(c) "ANNUAL MEETING" means the annual meeting of the stockholders of
the Company.
(d) "BOARD" means the Board of Directors of the Company.
(e) "CODE" means the Internal Revenue Code of 1986, as amended.
(f) "COMMON STOCK" means the common stock of the Company.
(g) "COMPANY" means Ditech Corporation, a California corporation.
(h) "CONSULTANT" means any person, including an advisor, (i) engaged by
the Company or an Affiliate to render consulting or advisory services and who
is compensated for
<PAGE>
such services or (ii) who is a member of the Board of Directors of an
Affiliate. However, the term "Consultant" shall not include either Directors
of the Company who are not compensated by the Company for their services as
Directors or Directors of the Company who are merely paid a director's fee by
the Company for their services as Directors.
(i) "CONTINUOUS SERVICE" means that the Optionholder's service with the
Company or an Affiliate, whether as an Employee, Director or Consultant, is
not interrupted or terminated. The Optionholder's Continuous Service shall
not be deemed to have terminated merely because of a change in the capacity
in which the Optionholder renders service to the Company or an Affiliate as
an Employee, Consultant or Director or a change in the entity for which the
Optionholder renders such service, provided that there is no interruption or
termination of the Optionholder's Continuous Service. For example, a change
in status from a Non-Employee Director of the Company to a Consultant of an
Affiliate or an Employee of the Company will not constitute an interruption
of Continuous Service. The Board or the chief executive officer of the
Company, in that party's sole discretion, may determine whether Continuous
Service shall be considered interrupted in the case of any leave of absence
approved by that party, including sick leave, military leave or any other
personal leave.
(j) "DIRECTOR" means a member of the Board of Directors of the Company.
(k) "DISABILITY" means the permanent and total disability of a person
within the meaning of Section 22(e)(3) of the Code.
(l) "EMPLOYEE" means any person employed by the Company or an
Affiliate. Mere service as a Director or payment of a director's fee by the
Company or an Affiliate shall not be sufficient to constitute "employment" by
the Company or an Affiliate.
(m) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
(n) "FAIR MARKET VALUE" means, as of any date, the value of the Common
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap
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 exchange or market (or the exchange or market 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.
(ii) In the absence of such markets for the Common Stock, the Fair
Market Value shall be determined in good faith by the Board.
2.
<PAGE>
(o) "INITIAL GRANT" means an Option granted to a Non-Employee Director
who meets the specified criteria pursuant to subsection 6(a) of the Plan.
(p) "NON-EMPLOYEE DIRECTOR" means a Director who is not employed by the
Company or an Affiliate.
(q) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify
as an incentive stock option within the meaning of Section 422 of the Code
and the regulations promulgated thereunder.
(r) "OFFICER" means a person who is an officer of the Company within
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(s) "OPTION" means a Nonstatutory Stock Option granted pursuant to the
Plan.
(t) "OPTION AGREEMENT" means a written agreement between the Company
and an Optionholder evidencing the terms and conditions of an individual
Option grant. Each Option Agreement shall be subject to the terms and
conditions of the Plan.
(u) "OPTIONHOLDER" means a person to whom an Option is granted pursuant
to the Plan or, if applicable, such other person who holds an outstanding
Option.
(v) "PLAN" means this Ditech Corporation 1999 Non-Employee Directors'
Stock Option Plan.
(w) "RULE 16b-3" means Rule 16b-3 promulgated under the Exchange Act or
any successor to Rule 16b-3, as in effect from time to time.
(x) "SECURITIES ACT" means the Securities Act of 1933, as amended.
3. ADMINISTRATION.
(a) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The
Board may not delegate administration of the Plan to a committee.
(b) POWERS OF BOARD. The Board shall have the power, subject to, and
within the limitations of, the express provisions of the Plan:
(i) To determine the provisions of each Option to the extent not
specified in the Plan.
(ii) To construe and interpret the Plan and Options granted under
it, and to establish, amend and revoke rules and regulations for its
administration. The Board, in the exercise of this power, may correct any
defect, omission or inconsistency in the Plan or in any Option Agreement, in
a manner and to the extent it shall deem necessary or expedient to make the
Plan fully effective.
3.
<PAGE>
(iii) To amend the Plan or an Option as provided in Section 12.
(iv) Generally, to exercise such powers and to perform such acts
as the Board deems necessary or expedient to promote the best interests of
the Company which are not in conflict with the provisions of the Plan.
4. SHARES SUBJECT TO THE PLAN.
(a) SHARE RESERVE. Subject to the provisions of Section 11 relating to
adjustments upon changes in stock, the stock that may be issued pursuant to
Options shall not exceed in the aggregate one hundred fifty thousand
(150,000) shares of Common Stock.
(b) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for
any reason expire or otherwise terminate, in whole or in part, without having
been exercised in full, the stock not acquired under such Option shall revert
to and again become available for issuance under the Plan.
(c) SOURCE OF SHARES. The stock subject to the Plan may be unissued
shares or reacquired shares, bought on the market or otherwise.
5. ELIGIBILITY.
Nondiscretionary Options as set forth in section 6 shall be granted
under the Plan to all Non-Employee Directors.
6. NON-DISCRETIONARY GRANTS.
Without any further action of the Board, each Non-Employee Director
shall be granted the following Options:
(a) INITIAL GRANTS. After the date of approval of the Plan by the
Board, each person who is appointed or elected for the first time to be a
Non-Employee Director other than at an Annual Meeting automatically shall,
upon the date of his or her appointment or election to be a Non-Employee
Director by the Board or stockholders of the Company, be granted an Initial
Grant to purchase the number of shares of Common Stock equal to the Initial
Grant Number on the terms and conditions set forth herein. The "Initial Grant
Number" shall be six thousand (6,000) multiplied by the fraction equal (i) to
the number of months remaining from such date of appointment or election
until the date of the next Annual Meeting or, if no such date has been set
then the first anniversary of the previous year's Annual Meeting (with a
fraction of a month rounded up to the next whole month), divided by (ii) 12.
(b) ANNUAL GRANTS. On the day of each Annual Meeting immediately
following such Annual Meeting, each Non-Employee Director then serving as
such automatically shall be granted an Annual Grant to purchase six thousand
(6,000) shares of Common Stock on the terms and conditions set forth herein.
4.
<PAGE>
7. OPTION PROVISIONS.
Each Option shall be in such form and shall contain such terms and
conditions as required by the Plan. Each Option shall contain such
additional terms and conditions, not inconsistent with the Plan, as the Board
shall deem appropriate. Each Option shall include (through incorporation of
provisions hereof by reference in the Option or otherwise) the substance of
each of the following provisions:
(a) TERM. No Option shall be exercisable after the expiration of five
(5) years from the date it was granted.
(b) EXERCISE PRICE. The exercise price of each Option shall be one
hundred percent (100%) of the Fair Market Value of the stock subject to the
Option on the date the Option is granted. Notwithstanding the foregoing, an
Option may be granted with an exercise price lower than that set forth in the
preceding sentence if such Option is granted pursuant to an assumption or
substitution for another option in a manner satisfying the provisions of
Section 424(a) of the Code.
(c) CONSIDERATION. The purchase price of stock acquired pursuant to an
Option may be paid, to the extent permitted by applicable statutes and
regulations, in any combination of (i) cash or check, (ii) delivery to the
Company of other Common Stock, (ii) deferred payment or (iv) any other form
of legal consideration that may be acceptable to the Board and provided in
the Option Agreement; provided, however, that at any time that the Company is
incorporated in Delaware, payment of the Common Stock's "par value," as
defined in the Delaware General Corporation Law, shall not be made by
deferred payment.
In the case of any deferred payment arrangement, interest shall be
compounded at least annually and shall be charged at the minimum rate of
interest necessary to avoid the treatment as interest, under any applicable
provisions of the Code, of any amounts other than amounts stated to be
interest under the deferred payment arrangement.
(d) TRANSFERABILITY. An Option shall not be transferable except by
will or by the laws of descent and distribution and shall be exercisable
during the lifetime of the Optionholder only by the Optionholder.
Notwithstanding the foregoing, the Optionholder may, by delivering
5.
<PAGE>
written notice to the Company, in a form satisfactory to the Company,
designate a third party who, in the event of the death of the Optionholder,
shall thereafter be entitled to exercise the Option.
(e) VESTING GENERALLY. Options shall be fully vested and exercisable on
the date of grant.
(f) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's
Continuous Service terminates (other than upon the Optionholder's death or
Disability), the Optionholder may exercise his or her Option (to the extent
that the Optionholder was entitled to exercise it as of the date of
termination) but only within such period of time ending on the earlier of (i)
the date three (3) months following the termination of the Optionholder's
Continuous Service, or (ii) the expiration of the term of the Option as set
forth in the Option Agreement. If, after termination, the Optionholder does
not exercise his or her Option within the time specified in the Option
Agreement, the Option shall terminate.
(g) EXTENSION OF TERMINATION DATE. If the exercise of the Option
following the termination of the Optionholder's Continuous Service (other
than upon the Optionholder's death or Disability) would be prohibited at any
time solely because the issuance of shares would violate the registration
requirements under the Securities Act, then the Option shall terminate on the
earlier of (i) the expiration of the term of the Option set forth in
subsection 7(a) or (ii) the expiration of a period of three (3) months after
the termination of the Optionholder's Continuous Service during which the
exercise of the Option would not be in violation of such registration
requirements.
(h) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's
Continuous Service terminates as a result of the Optionholder's Disability,
the Optionholder may exercise his or her Option (to the extent that the
Optionholder was entitled to exercise it as of the date of termination), but
only within such period of time ending on the earlier of (i) the date twelve
(12) months following such termination or (ii) the expiration of the term of
the Option as set forth in the Option Agreement. If, after termination, the
Optionholder does not exercise his or her Option within the time specified
herein, the Option shall terminate.
(i) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's
Continuous Service terminates as a result of the Optionholder's death or (ii)
the Optionholder dies within the three-month period after the termination of
the Optionholder's Continuous Service for a reason other than death, then the
Option may be exercised (to the extent the Optionholder was entitled to
exercise the Option as of the date of death) by the Optionholder's estate, by
a person who acquired the right to exercise the Option by bequest or
inheritance or by a person designated to exercise the Option upon the
Optionholder's death, but only within the period ending on the earlier of (1)
the date eighteen (18) months following the date of death or (2) the
expiration of the term of such Option as set forth in the Option Agreement.
If, after death, the Option is not exercised within the time specified
herein, the Option shall terminate.
6.
<PAGE>
8. COVENANTS OF THE COMPANY.
(a) AVAILABILITY OF SHARES. During the terms of the Options, the
Company shall keep available at all times the number of shares of Common
Stock required to satisfy such Options.
(b) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from
each regulatory commission or agency having jurisdiction over the Plan such
authority as may be required to grant Options and to issue and sell shares of
Common Stock upon exercise of the Options; provided, however, that this
undertaking shall not require the Company to register under the Securities
Act the Plan, any Option or any stock issued or issuable pursuant to any such
Option. If, after reasonable efforts, the Company is unable to obtain from
any such regulatory commission or agency the authority which counsel for the
Company deems necessary for the lawful issuance and sale of stock under the
Plan, the Company shall be relieved from any liability for failure to issue
and sell stock upon exercise of such Options unless and until such authority
is obtained.
9. USE OF PROCEEDS FROM STOCK.
Proceeds from the sale of stock pursuant to Options shall constitute
general funds of the Company.
10. MISCELLANEOUS.
(a) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the
holder of, or to have any of the rights of a holder with respect to, any
shares subject to such Option unless and until such Optionholder has
satisfied all requirements for exercise of the Option pursuant to its terms.
(b) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed
or Option granted pursuant thereto shall confer upon any Optionholder any
right to continue to serve the Company as a Non-Employee Director or shall
affect the right of the Company or an Affiliate to terminate (i) the
employment of an Employee with or without notice and with or without cause,
(ii) the service of a Consultant pursuant to the terms of such Consultant's
agreement with the Company or an Affiliate or (iii) the service of a Director
pursuant to the Bylaws of the Company or an Affiliate, and any applicable
provisions of the corporate law of the state in which the Company or the
Affiliate is incorporated, as the case may be.
(c) INVESTMENT ASSURANCES. The Company may require an Optionholder, as
a condition of exercising or acquiring stock under any Option, (i) to give
written assurances satisfactory to the Company as to the Optionholder's
knowledge and experience in financial and business matters and/or to employ a
purchaser representative reasonably satisfactory to the Company who is
knowledgeable and experienced in financial and business matters and that he
or she is capable of evaluating, alone or together with the purchaser
representative, the merits and risks of exercising the Option; and (ii) to
give written assurances satisfactory to the Company stating that the
Optionholder is acquiring the stock subject to the Option for the
Optionholder's own account and not with any present intention of selling or
otherwise distributing the stock.
7.
<PAGE>
The foregoing requirements, and any assurances given pursuant to such
requirements, shall be inoperative if (iii) the issuance of the shares upon
the exercise or acquisition of stock under the Option has been registered
under a then currently effective registration statement under the Securities
Act or (iv) as to any particular requirement, a determination is made by
counsel for the Company that such requirement need not be met in the
circumstances under the then applicable securities laws. The Company may,
upon advice of counsel to the Company, place legends on stock certificates
issued under the Plan as such counsel deems necessary or appropriate in order
to comply with applicable securities laws, including, but not limited to,
legends restricting the transfer of the stock.
(d) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal,
state or local tax withholding obligation relating to the exercise or
acquisition of stock under an Option by any of the following means (in
addition to the Company's right to withhold from any compensation paid to the
Optionholder by the Company) or by a combination of such means: (i)
tendering a cash payment; (ii) authorizing the Company to withhold shares
from the shares of the Common Stock otherwise issuable to the Optionholder as
a result of the exercise or acquisition of stock under the Option; or (iii)
delivering to the Company owned and unencumbered shares of the Common Stock.
11. ADJUSTMENTS UPON CHANGES IN STOCK.
(a) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock
subject to the Plan, or subject to any Option, without the receipt of
consideration by the Company (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), the Plan will be appropriately
adjusted in the class(es) and maximum number of securities subject both to
the Plan pursuant to subsection 4(a) and to the nondiscretionary Options
specified in Section 5, and the outstanding Options will be appropriately
adjusted in the class(es) and number of securities and price per share of
stock subject to such outstanding Options. The Board shall make such
adjustments, and its determination shall be final, binding and conclusive.
(The conversion of any convertible securities of the Company shall not be
treated as a transaction "without receipt of consideration" by the Company.)
(b) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE
MERGER. In the event of (i) a dissolution, liquidation or sale of all or
substantially all of the assets of the Company, (ii) a merger or
consolidation in which the Company is not the surviving corporation or (iii)
a reverse merger in which the Company is the surviving corporation but the
shares of 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 (i) any surviving corporation or
acquiring corporation shall assume any Options outstanding under the Plan or
shall substitute similar Options (including an option to acquire the same
consideration paid to the stockholders in the transaction described in this
subsection 11(b) for those outstanding under the Plan, or (ii) in the event
any surviving corporation or acquiring corporation
8.
<PAGE>
refuses to assume such Options or to substitute similar Options for those
outstanding under the Plan, then such Options shall terminate if not
exercised prior to such event.
12. AMENDMENT OF THE PLAN AND OPTIONS.
(a) AMENDMENT OF PLAN. The Board at any time, and from time to time,
may amend the Plan. However, except as provided in Section 11 relating to
adjustments upon changes in stock, no amendment shall be effective unless
approved by the stockholders of the Company to the extent stockholder
approval is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq
or securities exchange listing requirements.
(b) STOCKHOLDER APPROVAL. The Board may, in its sole discretion,
submit any other amendment to the Plan for stockholder approval.
(c) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before
amendment of the Plan shall not be impaired by any amendment of the Plan
unless (i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
(d) AMENDMENT OF OPTIONS. The Board at any time, and from time to
time, may amend the terms of any one or more Options; provided, however, that
the rights under any Option shall not be impaired by any such amendment
unless (i) the Company requests the consent of the Optionholder and (ii) the
Optionholder consents in writing.
13. TERMINATION OR SUSPENSION OF THE PLAN.
(a) PLAN TERM. The Board may suspend or terminate the Plan at any
time. Unless sooner terminated, the Plan shall terminate on the day before
the tenth (10th) anniversary of the date the Plan is adopted by the Board or
approved by the stockholders of the Company, whichever is earlier. No
Options may be granted under the Plan while the Plan is suspended or after it
is terminated.
(b) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan
shall not impair rights and obligations under any Option granted while the
Plan is in effect except with the written consent of the Optionholder.
14. EFFECTIVE DATE OF PLAN.
The Plan shall become effective on the date the Plan is adopted by the
Board but no Option shall be exercised unless and until the Plan has been
approved by the stockholders of the Company, which approval shall be within
twelve (12) months before or after the date the Plan is adopted by the Board.
9.
<PAGE>
15. CHOICE OF LAW.
All questions concerning the construction, validity and interpretation
of this Plan shall be governed by the law of the State of California, without
regard to such state's conflict of laws rules.
10.
<PAGE>
[DATE]
Timothy K. Montgomery
15000 Bonnie Brae Lane
Saratoga, CA 95070
Re: Employment Agreement
Dear Tim:
Ditech Corporation ("Ditech" or the "Company") is pleased to continue your
employment as President and Chief Executive Officer ("CEO") of Ditech on the
following terms (the "Agreement").
As President and CEO of Ditech, you will continue to work in Sunnyvale,
California and perform the duties customarily associated with this position,
and any duties as may be assigned to you by the Company's Board of Directors
(the "Board"). Of course, the Company may change your position, duties and
work location from time to time, as it deems necessary. You will be expected
to work the hours required by the nature of your work assignments.
Your initial base salary through October 31, 1998 was $25,000 per month
("Base Salary"), less standard deductions and withholdings, paid on the
Company's normal payroll dates. You acknowledge that no bonus will be paid
for your prior work at the Company or with respect to the period through
October 31, 1998. On November 1, 1998, your Base Salary changed to $225,000
per year, less standard deductions and withholdings, paid on the Company's
normal payroll dates.
You will be eligible for a discretionary bonus of up to $37,500 upon
attainment of goals through April 30, 1999 set by the Board and the
achievement of our 1999 financial plan. At the discretion of the Board, you
may receive an additional bonus if 1999 results exceed plan. Beginning with
the next fiscal year, starting on May 1, 1999, you will also be eligible for
a discretionary bonus, based upon your achievement of specific objectives to
be agreed upon by you and the Board. Ditech may, although it is not
obligated to, make similar bonuses available to you in subsequent years, and
the amount of such bonuses, if any, and the criteria for determining the
award of such bonuses, if any, will be at the sole discretion of the Board.
Accordingly, consistent with Company policy and its practice to reward
outstanding achievement, the Board may periodically evaluate you and your
management team's performance.
The Board has approved at its October 15, 1998 meeting a grant to you of a
compensatory stock option (the "Option") to purchase 200,000 shares of the
common stock of the Company. The exercise price per
1.
<PAGE>
share under the Option is the fair market value per share of common stock of
the Company on the date of the grant. The shares covered by the Option will
vest as follows: 50,000 shares covered by the Option will vest on September
30, 1999; the remaining shares covered by the Option will vest in 36 equal
monthly installments on the last calendar day of each month thereafter,
beginning on October 31, 1999 and ending on September 30, 2002. However, all
vesting of shares under the Option will cease upon termination of your
employment with the Company.
In addition to your salary and incentive compensation, you will be eligible
for Company benefits consistent with Company policy. Details about these
benefits are available for your review. The Company reserves the right to
modify your compensation and benefits from time to time, as it deems
necessary.
You acknowledge your continuing obligation to abide by all of the Company's
policies and procedures and your continuing obligations under the Company's
Proprietary Information Agreement that you signed on [DATE] (attached hereto
as Exhibit B).
By accepting this position, you represent and warrant that you are not a
party to any agreement with any third party or prior employer that would
conflict with or inhibit your performance of your duties with the Company.
Either you or the Company may terminate your employment relationship at any
time for any reason whatsoever, with or without Cause or advance notice.
This at-will employment relationship cannot be changed except in a writing
signed by a duly authorized officer of the Company. If the Company
terminates your employment without Cause, the Company will pay you, as
severance, a lump sum equal to 12 months of your Base Salary, subject to
standard payroll deductions and withholdings. In the event of such
termination, you will not be entitled to any additional compensation or
benefits (including but not limited to bonuses or continued vesting of your
stock option) beyond what is provided in this paragraph. If you resign or
your employment is terminated for Cause, all compensation and benefits will
cease immediately, and you will receive no severance benefits. For purposes
of this Agreement, "Cause" means misconduct, including: (i) commission of
any felony or any crime involving moral turpitude or dishonesty; (ii)
participation in a fraud or act of dishonesty against the Company; (iii)
material breach of the Company's policies; (iv) intentional damage to the
Company's property; (v) material breach of this Agreement; or (vi) conduct by
you that in the good faith and reasonable determination of the Company's
Board demonstrates unacceptable job performance or gross unfitness to serve.
In the event of a Change of Control (as defined in the Side Letter Agreement
of even date herewith attached as Exhibit C hereto), the vesting schedule of
the Option and of all other options to purchase shares of the common stock of
the Company which were granted to you on or before the date of this Agreement
shall be accelerated to the extent provided in the Side Letter Agreement. In
the event of a Change of Control and/or your termination of employment
following a Change of Control, you will not be entitled to any severance,
compensation or benefits beyond what is provided in the Side Letter Agreement
(for example, the benefits provided in the Side Letter Agreement supersede
those contained in the offer letter agreed to by you and the Company on or
about October 3, 1997 (attached hereto as
2.
<PAGE>
Exhibit A)). The Company may, however, at its sole discretion, offer you a
position as a consultant under terms and conditions to be agreed upon at that
time.
You agree that, for one year following the termination of your employment
with the Company, you will not personally initiate or participate in the
solicitation of any employee of the Company or any of its affiliates to
terminate his or her relationship with the Company or any of its affiliates
in order to become an employee or consultant for any other person or business
entity.
To ensure rapid and economical resolution of any disputes that may arise
under this Agreement, you and the Company agree that any and all disputes or
controversies, whether of law or fact of any nature whatsoever (including,
but not limited to, all state and federal statutory and discrimination
claims), with the sole exception of those disputes that may arise from any
Company Proprietary Information Agreement, arising from or regarding the
interpretation, performance, enforcement or breach of this Agreement will be
resolved, to the extent provided by law, by confidential, final and binding
arbitration to be held in San Jose, California (rather than trial by jury or
court or resolution in some other forum) under the then-existing Rules of
Practice and Procedure of Judicial Arbitration and Mediation Services
("JAMS").
This letter Agreement, and attached exhibits, constitute the complete, final
and exclusive embodiment of the entire agreement between you and Ditech with
respect to the terms and conditions of your employment. This Agreement is
entered into without reliance upon any promise, warranty or representation,
written or oral, other than those expressly contained herein, and it
supersedes any other such promises, warranties, representations or
agreements, including, but not limited to, the offer letter attached hereto
as Exhibit A. It may not be amended or modified except by a written
instrument signed by you and a duly authorized officer of the Company. If
any provision of this Agreement is determined to be invalid or unenforceable,
in whole or in part, this determination will not affect any other provision
of this Agreement. This Agreement will be construed and interpreted in
accordance with the laws of the State of California and will be deemed
drafted by both parties.
3.
<PAGE>
I trust that the points outlined above fully clarify the terms of Ditech's
offer. If you choose to accept our offer under the terms described above,
please sign below and return this letter to me. We look forward to a
productive and enjoyable work relationship helping Ditech grow.
Very truly yours,
DITECH CORPORATION
By: /s/ Kenneth Jones
------------------------------
Kenneth Jones or Greg Avis
Ditech Board of Directors
Exhibit A -- Offer Letter
Exhibit B -- Proprietary Information Agreement
Exhibit C -- Side Letter Agreement
ACKNOWLEDGED AND ACCEPTED:
/s/ Timothy K. Montgomery
- ----------------------------------
Timothy K. Montgomery
Date: ----------------------------
4.
<PAGE>
EXHIBIT A
OFFER LETTER
5.
<PAGE>
[DITECH LOGO]
October 3, 1997
Mr. Timothy K. Montgomery
15000 Bonnie Brae Lane
Saratoga, CA 95070
Subject: Employment Offer
Dear Tim:
We are pleased to offer you the position of Senior Vice President of
Sales and Marketing of Ditech Corporation and you will be reporting to me.
You will be an essential member of the Management Team and assist in
identifying and establishing the strategic directions of the Company. In
addition, your responsibilities will include the day-to-day management of
Sales and Marketing, which includes recruiting the "Sales Team" for domestic
and international markets, developing sales strategies and leading the
efforts for our current and future product sales.
During your first six months of employment, remainder of Ditech fiscal
1998, you will receive a prorated portion of your expected annual total
compensation which approximates $150,000 based on a November 1, 1997 start
date. Thereafter, your base salary will be one hundred fifty thousand dollars
($150,000) per year plus a target compensation at Company Revenue Plan which
may be equal to an additional one hundred and fifty thousand ($150,000). You
will receive a draw against your target compensation of $50,000 that would
not be subject to return based on actual Plan results. In addition, we will
propose to the Board of Directors three stock option grants of 200,000,
50,000 and 50,000 shares totaling 300,000 shares. The common stock grants are
subject to Board approval and will be incentive stock options. The first
option (200,000) will vest over four years with 25% after your first year and
then ratably thereafter. The second and third options will fully vest on the
beginning of the first day of the quarter after the Company's revenues for
the previous four quarters exceed $25 million and $50 million, respectively.
Assuming these revenue milestones are not achieved, the latter two options
will still vest in full on April 30, 2004.
If during the course of your first year at Ditech Corporation there is
either a change in control, as defined below, or chief executive officer
(CEO) and your position or equivalent is eliminated you will receive a six
month severance package equal to $150,000. Additionally, for up to three
years after your hire date if there is a change in either control or CEO, you
would receive an acceleration in 50% of your unvested and
6.
<PAGE>
[DITECH LOGO] October 3, 1997
outstanding options regardless of whether you continue with the acquiring
company or CEO. Outstanding options would include the three grants of
200,000, 50,000, and 50,000 shares totaling 300,000 shares.
The term "Change in Control" means (a) a merger in which more than 50%
of the Company's outstanding voting stock is transferred, (b) the sale or
other disposition of all or substantially all of the Company's assets or (c)
the sale of more than 50% of the Company's outstanding voting stock to a
person who is not a stockholder of the Company on the date of this letter or
an affiliate of such a stockholder. It does not include a reincorporation in
a different state or the creation of a holding company that will be owned by
the company's stockholders in substantially the same proportions.
Your benefits package with Ditech Corporation will become effective on
the first of the month following employment. It will include Health Insurance
coverage (with partial premium due if more than just yourself), Life and Long
term Disability insurance with an option for additional coverage, 401K
participation after three months of employment.
Your employment with Ditech Corporation is "at-will" and you will be
asked to sign the statement of your acceptance and a confidentiality
agreement due to the nature of our business when you report to work.
We look forward to working with you and having you as a part of our
valuable team!
This offer is valid through the end of business on Wednesday October 8,
1997.
Sincerely,
/s/ Pong Lim
Pong Lim
President and CEO
Accepted by:
/s/ Timothy K. Montgomery 6 Oct' 97
---------------------------- ----------
Timothy K. Montgomery Date:
7.
<PAGE>
EXHIBIT B
PROPRIETARY INFORMATION AGREEMENT
8.
<PAGE>
[DITECH LETTERHEAD]
PROPRIETARY AND CONFIDENTIAL INFORMATION
AND INVENTIONS AGREEMENT
December, 1987
As Amended on February 8, 1988
In consideration and as a condition of my being an employee of Ditech
Corporation, Inc., the "Company," and/or companies which the Company owns,
controls or is affiliated with, or their successors in business, I hereby
agree with Ditech Corporation to the following items:
1. Association with the Company. I agree to become employed as a full-time
employee of the Company.
2. Proprietary and confidential information. I understand that during my
employment I may produce, obtain, make known, or learn about certain
information which has a commercial value in the business in which the
Company is engaged and which is treated by the Company as proprietary and
confidential. Proprietary and confidential information is not generally
available to the public and includes source code, data and programs,
designs, company market plans, strategies, forecasts and budgets,
unpublished financial statements, licenses and licensing agreements,
pricing, costs, and customer and supplier lists. I understand that all
proprietary information is the sole property of the Company and that
anything that I produce that is termed proprietary belongs to the
Company. At all times, both during my employment by the Company and
afterwards, I will keep in strictest confidence and trust all proprietary
information. I will not use, reproduce, or disclose any proprietary
information without the written consent of the Company, except as may be
necessary to do my job. I will keep and maintain adequate and current
records of all proprietary information developed by me and these records
are also owned by the Company.
I will make sure that these proprietary and confidential information
items are locked up, put away after use and otherwise not available to
unauthorized third parties. I will also inform the Company if any
proprietary information which is in my possession is lost, missing or
presumed stolen.
3. Inventions. I understand that during my employment or following my
employment, I may make, conceive of or reduce to practice various
discoveries, developments, designs, improvements, inventions, formulas,
processes, techniques, programs, other works of authorship, know-how and
data (all of which shall be referred to as "inventions" throughout this
Agreement, whether or not patentable or registrable under copyright, mask
work or similar statutes, or "registrations").
I hereby assign and transfer to the Company my entire right, title and
interest in and to all inventions made or conceived or reduced to
practice by me either alone or jointly with others during the period of
my employment with the Company, except for those inventions which I can
prove qualify fully under the provisions of Section 2870 of the
California Labor Code (see Attachment 1). I will, at the Company's
request, promptly execute a written assignment of title to the Company
for any such invention and I will preserve any such invention as
confidential information of the Company.
I agree to keep and maintain adequate and current records of all
inventions made by me (in the form of notes, sketches, drawings and other
forms as may be specified by the Company) which records shall be
available to and remain the sole property of the Company at all times.
I will promptly disclose in writing to the Company all inventions made or
conceived or reduced to practice by me, either alone or jointly with
others, during the period of my employment, and for six months after
termination of my employment with the Company, whether or not I believe
the inventions qualify fully under Section 2870 of the California Labor
Code. Such disclosure shall be received in confidence by the Company.
9.
<PAGE>
I further agree to assist the Company in every proper way (but at the
Company's expense) to obtain and from time to time enforce registrations
in any and all countries, and to that end I will execute all documents
for use in applying for and obtaining such registration as the Company
may desire, together with any assignments thereof to the Company or
persons designated by it. My obligation to assist the Company in
obtaining and enforcing registrations in any and all countries shall
continue beyond the termination of my employment, but the Company shall
compensate me at a reasonable rate after such termination for time
actually spent by me at the Company's request on such assistance. In the
event the Company is unable, after reasonable effort, to secure my
signature on any document or documents needed to obtain or enforce any
registrations, whether because of my physical or mental incapacity or for
any other reason whatsoever, I hereby irrevocable designate and appoint
the Company and its duly authorized officers and agents as my agent and
attorney-in-fact, to act for and in my behalf and stead to execute and
file any application to further the prosecution and issuance to the
Company of registrations thereon with the same legal force and effect as
if executed by me.
4. Prior inventions. I understand that all invention, if any, patented or
unpatented, which I made prior to my employment by the Company, are
excluded from the scope of this Agreement. I agree to notify the Company
in writing before I make any disclosure or perform any work on behalf of
the Company which appears to threaten or conflict with proprietary rights
I claim on any invention or idea. In the event of my failure to give
such notice, I agree that I will make no claim against the Company with
respect to any such inventions or ideas.
5. Conflicting employment obligations. I represent that I have not brought
and will not bring with me to the Company or use in the performance of my
responsibilities at the Company any devices, materials or documents of a
former employer that are not generally available to the public unless I
have obtained express written authorization from the former employer for
their possession and use.
I agree that during my employment with the Company, I will not breach any
obligation of confidentiality that I have to former employers. I
represent that my performance under the terms of this Agreement and as an
employee of the Company does not and will not breach any agreement to
keep in confidence proprietary information acquired by me in confidence
or in trust prior to my employment by the Company. I have not entered
into, and I agree I will not enter into, any agreement either written or
oral in conflict herewith.
6. Government and other contracts. I acknowledge that the Company from time
to time may be involved in government projects of a highly classified
nature. I further acknowledge that the Company from time to time may
have agreements with other persons or governmental agencies which impose
obligations or restrictions on the Company regarding inventions made
during the course of work or information disclosed in connection
therewith. I agree to be bound by all such obligations and restrictions
and to take all action necessary to discharge the obligations of the
Company thereunder.
7. Confidentiality. Because of the special access to proprietary and
confidential information which I have, and will have, by virtue of my
position in the Company, and to ensure the appropriate possession and
retention of said information, I hereby agree not to use or disclose my
business and technical activities, results, or anything learned while
working for the Company which is of a proprietary or confidential nature
to unauthorized third parties between this date and leaving the Company
and for a period of three years after leaving the Company.
8. Termination of employment. I acknowledge that this Agreement does not
constitute a guarantee of employment, and that either the Company or I
may terminate my employment at any time and for any reason. In the event
of the termination of my employment by me or by the Company for any
reason, I will deliver to the Company all documents, notes, drawings,
specifications, programs, data, devices and other materials of any nature
pertaining to my work with the
10.
<PAGE>
Company and I will neither take with me nor recreate any of the
foregoing, any reproduction of any of the foregoing, or any Proprietary
Information that is embodied in a tangible medium of expression.
9. Modification. This Agreement may not be changed, modified, released,
discharged, abandoned or otherwise amended, in whole or in part, except
by an instrument in writing, signed by myself and the Company. I agree
that any subsequent change or changes in my duties, salary or
compensation shall not affect the validity or scope of this Agreement.
10. Entire Agreement. I acknowledge receipt of this Agreement and agree that
with respect to the subject matter hereof it is my entire agreement with
the Company, superceding any previous oral or written communications,
representatives, understandings, or agreements with the Company or any
officer or representative.
11. Severability. In the event that any paragraph or provision of this
Agreement shall be held to be illegal or unforceable, such paragraph or
provision shall be severed from this Agreement and the entire Agreement
shall not fail on account thereof, but shall otherwise remain in full
force and effect.
12. Successors and assigns. This Agreement shall be binding upon my heirs,
executors, administrators or other legal representatives and is for the
benefit of the Company, its successors and assigns.
13. Governing Law. This Agreement shall be governed by the laws of the State
of California.
This Agreement shall be effective as of 11/1/97
-----------
Dated: 11/3/97 Agreed: /s/ Timothy K. Montgomery
----------- -------------------------------
(Signature)
Timothy K. Montgomery
-------------------------------
(Printed Name)
11.
<PAGE>
Attachment 1
This Agreement does not require assignment of an invention which qualifies
fully under Section 2870 of the California Labor Code (as amended January 1,
1987), which provides as follows:
"(a) Any provision in an employment agreement which provides that an employee
shall assign, or offer to assign, any of his or her rights in an invention to
his or her employer shall not apply to an invention that the employee
developed entirely on his or her own time without using the employer's
equipment, supplies, facilities, or trade secret information except for those
inventions that either:
(1) Relate at the time of conception or reduction to practice of the
invention of the employer's business, or actual or demonstrably
anticipated research or development of the employer.
(2) Result from any work performed by the employee for the employer.
(b) To the extent a provision in an employment agreement purports to
require an employee to assign an invention otherwise excluded from being
required to be assigned under subdivision (a), the provision is against
the public policy of this state and is unenforceable."
12.
<PAGE>
EXHIBIT C
SIDE LETTER AGREEMENT
September 15, 1998
Timothy K. Montgomery
15000 Bonnie Brae Lane
Saratoga, CA 95070
Re: Option Acceleration
Dear Tim:
In connection with the employment agreement (the "Employment Agreement")
dated September 15, 1998, between you and Ditech Corporation (the "Company")
and as additional incentive compensation for your agreement to serve as
President and Chief Executive Officer of the Company, the Company agrees in
this side letter agreement (the "Side Letter Agreement") to provide for an
accelerated vesting schedule of those options to purchase shares of the
Company's capital stock which are subject to certain vesting restrictions and
rights of repurchase in favor of the Company and which you hold or which have
been granted to you in connection with the Employment Agreement on or prior
to the date of the Employment Agreement (the "Options").
In the event of a Change of Control (as defined below) and provided you
agree to accept an offer of employment or consultantship with the surviving
company for at least twelve (12) months from the date of such Change of
Control with base compensation and cash bonus opportunity comparable to that
in effect prior to such Change of Control, then at that time (i) one hundred
percent (100%) of the unvested Options then outstanding, if any, shall
automatically be accelerated in full such that you shall have the right to
exercise in accordance with their terms all or any portion of such Options
and (ii) the Company's repurchase right shall automatically lapse with
respect to one hundred percent (100%) of the shares then held by you which
are subject to such repurchase right under such Options; provided however,
that the acceleration and lapse provided in the foregoing clauses (i) and
(ii) shall automatically occur on the date of a Change of Control if no offer
as described above is made to you.
A "Change of Control" shall, for purposes of the foregoing, mean: (a)
any reorganization, consolidation or merger of the Company in which the
Company is not the surviving corporation or pursuant to which shares of the
Company's voting stock would be converted into cash, securities or other
property, in either case other than a merger of the Company in which the
holders of the Company's voting stock immediately prior to the merger have
the same proportionate ownership of voting stock of the surviving corporation
immediately after the merger; (b) a reverse merger in
13.
<PAGE>
which the Company is the surviving corporation but the shares of the
Company's 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; (c) the sale, lease, exchange or other
transfer (in one transaction or a series of related transactions) of all, or
substantially all, of the assets of the Company; (d) approval by the
shareholders of the Company of a plan or proposal for the liquidation or
dissolution of the Company; or (e) any "person" (as defined in Sections 13(d)
or 14(d) of the Securities Exchange Act of 1934, as amended ( the "Exchange
Act")) becoming the "beneficial owner" (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of 50% or more of the Company's
outstanding voting stock; provided, however, that "person" will not include
any holder of shares of the Company's preferred stock on the date of this
Side Letter Agreement.
In the event that any payment or distribution by the Company, or the
grant of any benefit by the Company, to you or for your benefit (whether paid
or payable, distributed or distributable or granted or to be granted pursuant
to the terms of this Side Letter Agreement or otherwise) (collectively,
"Benefits") would be nondeductible by the Company for federal income tax
purposes because of Section 280G of the Internal Revenue Code of 1986, as
amended (the "Code") or would cause you to be liable for an excise tax
pursuant to Section 4999 of the Code, then the Benefits paid, distributed or
granted to you under this Side Letter Agreement shall equal (i) the full
amount of such Benefits or (ii) the Reduced Amount (as defined below),
whichever of the foregoing amounts is determined by the Accounting Firm (as
defined below) to result, on an after-tax basis, in the receipt by you of the
greatest amount of such Benefits, notwithstanding that all or some portion of
the Benefits may be taxable under Section 4999 of the Code. The "Accounting
Firm" for purposes of this paragraph shall mean the accounting firm regularly
engaged by the Company immediately prior to the Change of Control. In making
its determination pursuant to the preceding sentence, such Accounting Firm
shall take into account all applicable federal, state, and local employment
and income taxes, as well as the excise tax imposed by Section 4999 of the
Code. For purposes of this paragraph, the "Reduced Amount" shall be the
maximum amount payable to you that would result in no portion of the Benefits
being (i) nondeductible by the Company under Section 280G of the Code or (ii)
subject to an excise tax liability under Section 4999 of the Code.
Notwithstanding the foregoing and any other provision contained herein, in
the event (as a result of Benefits to be received under this Side Letter
Agreement or any other plan or arrangement between the you and the Company)
of any required reduction of Benefits to be received by you, reduction shall
be made from such other plan or arrangement prior to any reduction relating
to Benefits to be received by you under this Side Letter Agreement.
This Side Letter Agreement shall be governed by the laws of the State of
California (without regard to principles of conflict of laws). Your rights
and obligations under this Side Letter Agreement may not be transferred or
assigned without the prior written consent of the Company. This Side Letter
Agreement is meant to supplement the terms of the Employment Agreement and of
the stock option agreements or other agreements pursuant to which you have
acquired Options. To the extent that the terms and conditions of this Side
Letter Agreement are inconsistent with those
14.
<PAGE>
found in the Employment Agreement, stock option agreements or other
agreements, the terms and conditions of this Side Letter Agreement shall be
controlling.
You agree upon request to execute any further documents or instruments
necessary or desirable to carry out the purposes or intent of this Side
Letter Agreement. In case any provision of this Side Letter Agreement shall
be invalid, illegal or unenforceable, the validity, legality and
enforceability of the remaining provisions shall not in any way be affected
or impaired.
This Side Letter Agreement, in whole or in part, may be modified, waived
or amended upon the written consent of the Company and you.
By your signature below, you represent that you are familiar with the
terms and provisions of this Side Letter Agreement, and hereby accept this
Side Letter Agreement subject to all of the terms and provisions set forth
herein. You have reviewed this Side Letter Agreement in its entirety, have
had an opportunity to obtain the advice of counsel prior to executing this
Side Letter Agreement and fully understand all provisions of this Side Letter
Agreement. You agree to accept as binding, conclusive and final all decisions
or interpretations of the Board of Directors of the Company upon any
questions arising under this Side Letter Agreement.
TIMOTHY K. MONTGOMERY DITECH CORPORATION
/s/ Timothy Kent Montgomery /s/ Kenneth Jones
- --------------------------------------- ------------------------------------
Signature By
Timothy Kent Montgomery Director
- --------------------------------------- ------------------------------------
Print Name Title
15.
<PAGE>
September 14, 1998
Mr. Pong Lim
C/O Ditech Corporation
570 Maude Corporation
Sunnyvale, CA 94086
Re: Employment Agreement
Dear Pong:
Congratulations on your election as Chairman of the Board for Ditech Corporation
("Ditech" or the "Company"). Ditech is also pleased to continue your
employment with the Company on the following terms (the "Agreement").
As an employee and Chairman of the Board for Ditech, your office will be based
in the Company's headquarters and you will perform the duties customarily
performed by the Chairman. In addition to being part of the IPO team, you will
also cooperate to perform other executive duties as may be assigned to you by
Ditech's Board of Directors (the "Board") or the Company's Chief Executive
Officer. You will be expected to work the hours required by the nature of your
work assignments.
For the one-year period following the date of this letter, you will be paid one
hundred and seventy-five thousand dollars ($175,000) per year ("Base Salary"),
less standard deductions and withholdings, paid on the Company's normal payroll
dates. You will remain eligible for a bonus based upon the achievement of
fiscal 1999 financial goals and individual objectives as set and approved by the
Board in your Management Bonus Plan dated on or about June 12, 1998 (attached
and incorporated by reference as Exhibit A). The bonus is considered earned by
the end of April 1999, the fiscal year end, and it will be paid soon after the
audited financial statement for FY99 is complete but no later than July 1999.
In addition, one year from the date of this letter, any remaining unvested
shares of all of your current outstanding incentive stock options (attached and
incorporated by reference as Exhibit B) with the Company will become fully
vested provided you cooperate to perform the duties described above. Within
thirty (30) days of the date of this Agreement all such incentive stock options
will be amended to reflect this change.
In addition to your salary and bonus compensation, you continue to be eligible
for the Company benefits consistent with Company policy. Details about these
benefits are available for your review. The Company reserves the right to
modify its benefits from time to time as it deems necessary.
<PAGE>
You acknowledge your continuing obligation to abide by all the Company's
policies and procedures and your continuing obligation under the Company's
Proprietary Information Agreement that you signed on May 31, 1994 (attached and
incorporated by reference Exhibit C). You also represent and warrant that you
are not a party to any agreement with any third party or prior employer that
would conflict with or inhibit your performance of your duties with the Company.
Either you or the Board may terminate your employment relationship or your
membership on the Board at any time for any reason whatsoever, with or without
cause or advance notice. This at-will relationship cannot be changed except in
writing signed by a duly authorized officer of the Company. However, if you are
terminated by the Company within a year from the date of the letter your
compensation package will be paid in full, including bonus, and the stock option
vesting schedule described in this Agreement will not be affected whatsoever.
In the event that a change in control of the Company occurs within a year from
the date of this letter, all remaining stock option will become vested
immediately.
You agree that, for one year following the termination of your employment with
the Company, you will not personally initiate or participle in the solicitation
of any employee of the Company, or that of any of its affiliates, to terminate
his or her relationship with the Company, or with any of its affiliates, in
order to become an employee or consultant for any other person or business
entity.
To ensure rapid and economical resolution of any disputes that may arise under
this Agreement, you and the Company agree that any and all disputes or
controversies, whether of law or fact of any nature whatsoever (including, but
not limited to, all state and federal statutory and discrimination claims), with
the sole exception of those disputes that may arise from any Company Proprietary
Information Agreement, arising from or regarding the interpretation,
performance, enforcement or breach of this Agreement will, to the extent
provided by law, be resolved by confidential, final and binding arbitration
(rather than trial by jury or court or resolution in some other forum) under the
then-existing Rules of Practice and Procedure of Judicial Arbitration and
Mediation Services ("JAMS").
This letter Agreement constitutes the complete, final and exclusive
embodiment of the entire agreement between you and Ditech with respect to the
terms and conditions of your employment. This agreement is entered into
without reliance upon any promise, warranty or representation, written or
oral, other than those expressly contained herein, and it supersedes any
other such promises, warranties, representations or agreements. It may not
be amended or modified except by a written instrument signed by you and a
duly authorized officer of the Company. If any provision of this Agreement
is determined to be invalid or unenforceable, in whole or in part, this
determination will not affect any other provision of this Agreement. This
Agreement will be construed and interpreted in accordance with the laws of
the State of California and will be deemed drafted by both parties.
<PAGE>
I trust that the points outlined above fully clarify the terms of Ditech's
offer. If you choose to accept our offer under the terms described above,
please sign below and return this letter to me. We look forward to a continued
productive and enjoyable work relationship helping Ditech grow.
Very truly yours,
DITECH CORPORATION
By: /s/ Kenneth Jones
-----------------------------------
Kenneth Jones for the
Ditech Board of Directors and a
Duly Authorized Officer
ACKNOWLEDGED AND ACCEPTED
/s/ Pong Lim
- ----------------------------------------
Pong Lim
Exhibit A - Management Bonus Plan
Exhibit B - Outstanding Incentive Stock Option Plan
Exhibit C - Proprietary Information Agreement
<PAGE>
EXHIBIT A
PONG LIM
FY 99 MANAGEMENT BONUS PLAN
<TABLE>
<CAPTION>
AT PLAN
BONUS REVENUE TARGET
- ------------------------------------------------------- --------------
<S> <C>
Financial Goals Actual Revenue X Actual EBITDA = 1.0 75,000
------------------------------
Plan Revenue Plan EBITDA
Individual Objectives 25,000
-------
100,000
BASE
- -------------------------------------------------------
Salary 175,000
TOTAL BASE + BONUS 275,000
</TABLE>
<TABLE>
<CAPTION>
PROJECTED
BONUS FORMULA FOR FINANCIAL GOALS FACTOR BONUS
----------------- --------------- ------ -----
<S> <C> <C> <C>
20.8/20.8 X 1.09/1.09 = 1 = 75,000
24/20.8 X 2/1.09 = 2.1171 = 158,783
23/20.8 X 1.69/1.09 = 1.7144 = 128,580
18/20.8 X .5/1.09 = 0.397 = 29,775
</TABLE>
<PAGE>
EXHIBIT B
OUTSTANDING STOCK OPTION SUMMARY
AS OF SEPTEMBER 1998
<TABLE>
<CAPTION>
OPTION SHARES VESTED UNVESTED
GRANT DATE GRANTED SHARES PRICE AT END OF SEPT 98 SHARES
---------- -------------- ----- ----------------- ------
<S> <C> <C> <C> <C>
5/1/96 80,000 $0.10 48,335 31,665
5/1/97 20,000 $0.55 7,085 12,915
Sep 97 75,000 $0.55 0 75,000
Sep 97 75,000 $0.55 0 75,000
</TABLE>
Pcl employment agreement September 1998
<PAGE>
EXHIBIT A1
FY99 OBJECTIVES
PONG LIM, PRESIDENT & CEO
1. Meet or exceed revenues and EBITDA plan:
Revenues - $20.8M
EBITDA - $1.09M
2. Increase Ditech market share by:
- Winning 4 new end-user customers in international markets
- Establishing 2 OEM relationships (1 for Echo and 1 for Fiber comm.)
3. Be 1st to market with key new products:
- Ensure DS3 Echo Cancellers introduction to market in Q3 and start
shipping for revenues by Q4
- Ensure OTS System introduction to market in Q1 and start shipping for
revenues by Q4
- Ensure DWDM Monitor introduction to market in Q2 and start shipping for
revenues by Q4
4. Establish operations capability to support a $30M business:
- Transition to full turn-key manufacturing for EDFA and OTS modules
- Develop test capabilities for broadband (DS3) echo cancellers
- Develop test capabilities for system level products
5. Visit 5 major customers to ensure customer satisfaction, understand their
future needs and continue to strengthen our relationships.
6. Visit 5 key suppliers to ensure Ditech is receiving quality product,
service, and cost savings benefits while continuing to strengthen our
relationships.
7. Begin establishing Ditech presence in the financial community by:
- Attending and/or presenting at analyst conferences
- Presenting Ditech at AEA conference in early 1999
8. Begin dialogue with a minimum of 10 investment bankers, identify the three
(3) leading candidates for recommendation to the Board
<PAGE>
Page 1 of 2
November 4, 1998
Toni Bellin
1634 Fountain Springs Circle
Danville, CA 94526
Subject: Employment Offer
Dear Toni:
We are pleased to offer you employment as Vice President, Operations, reporting
to Tim Montgomery, President & CEO. By signing this letter, you represent and
warrant to the Company that you are under no contractual commitments
inconsistent with your obligations to the Company.
Your compensation package consists of the following:
- - Base Salary of $150,000.
- - Bonus Guarantee of $25,000 for calendar year 1999 payable monthly on a
prorated basis for twelve months.
- - Your annualized total compensation is therefore $175,000.
- - Signing Bonus of $25,000. If you sever your employment within your first
twelve months with Ditech, you will be required to repay $12,500 of the
signing bonus.
Executive compensation is reviewed at the beginning of our fiscal year on May
1st.
Subject to the approval of the Company's Board of Directors or its Compensation
Committee, you will be granted stock options to purchase 150,000 shares of the
Company's Common Stock. The exercise price per share will be equal to the fair
market value per share on the date the option is granted. The option will be
subject to the terms and conditions applicable to options granted under the
Company's 1998 Stock Plan, as described in that Plan and the applicable stock
option agreement. The option will be immediately exercisable. Options granted
prior to your first day of employment will be non-qualified stock options. The
purchased shares will be subject to repurchase by the Company at the exercise
price in the event that your service terminates before you vest in the shares.
You will vest in 25% of the option shares after 12 months of continuous service,
and the balance will vest in monthly installments over the next 36 months of
continuous service, as described in the applicable stock option agreement.
If the company terminates your employment for any reason other than cause or
permanent disability during your first two years of service, then the Company
will continue to pay your base salary for the lesser of (a) a period of one year
following the termination of your employment for (b) the period ending on the
second anniversary of your first day of employment. During this period, your
base salary will be paid at the rate in effect at the time of the termination of
your employment and in accordance with the Company's standard payroll
procedures. The same period will be credited as continuous service for purposes
of the stock options described above. However, this paragraph will not apply
unless you (a) have executed a general release (in a form prescribed by the
Company) of all known and unknown claims that you may then have against the
Company or persons affiliated with the Company and (b) have agreed not to
prosecute any legal action for other proceedings based on those claims. This
paragraph is subject to Board approval.
Your benefit package with Ditech Corporation will become effective first of the
month following date of employment. It will include Health insurance coverage
(with partial premium due if for family coverage), Life and Long Term Disability
insurance with option for additional coverage, participation in Ditech's
Flexible Spending Program, and 401(k) participation after three months of
employment.
<PAGE>
Page 2 of 2
Your employment with Ditech Corporation is at-will. You will be asked to sign
the statement of your acceptance and a confidentiality agreement when you report
to work. We anticipate your full-time start date to be in the first two weeks
of January, 1999. Additionally, we anticipate your part-time employment to
commence in December, 1998 subsequent to your acceptance for a timely and
efficient transition. Please indicate your acceptance by signing and returning
this letter by November 5, 1998.
We look forward to working with you and having you as a part of our valuable
team!
Sincerely, Accepted by:
/s/ Glenda Dubsky /s/ Toni Bellin 11/5/98
- ------------------------------ ------------------------- ---------------
Glenda Dubsky Toni Bellin Date
Manager, Human Resources
<PAGE>
- --------------------------------------------------------------------------------
DITECH CORPORATION
CREDIT AGREEMENT
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
DEFINITIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Other Definitional Provisions . . . . . . . . . . . . . . . . . . . . . 11
ARTICLE II
THE LOANS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.1 The Revolving Loans.. . . . . . . . . . . . . . . . . . . . . . . . . . 11
2.2 Repayment.. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
2.3 Interest Rate and Payment Dates.. . . . . . . . . . . . . . . . . . . . 14
2.4 Continuation and Conversion Options . . . . . . . . . . . . . . . . . . 14
2.5 The Term Loan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.6 Security for Loans. . . . . . . . . . . . . . . . . . . . . . . . . . . 15
2.7 Letters of Credit . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS. . . . . . . . . . . . . . . . . . . . . . 18
3.1 Use of Proceeds . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
3.3 Computation of Interest and Fees. . . . . . . . . . . . . . . . . . . . 18
3.4 Payments. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.5 Payment on Non-Business Days. . . . . . . . . . . . . . . . . . . . . . 19
3.6 Reduced Return. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.7 Indemnities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
3.8 Funding Sources . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
3.9 Inability to Determine Interest Rate. . . . . . . . . . . . . . . . . . 21
3.10 Requirements of Law . . . . . . . . . . . . . . . . . . . . . . . . . . 22
3.11 Illegality. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE IV
CONDITIONS OF LENDING. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
4.1 Conditions Precedent to Initial Loans . . . . . . . . . . . . . . . . . 23
4.2 Conditions Precedent to Each Borrowing. . . . . . . . . . . . . . . . . 24
4.3 Conditions Precedent to Each Letter of Credit . . . . . . . . . . . . . 25
ARTICLE V
REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . . . . . . . 25
5.1 Representations and Warranties. . . . . . . . . . . . . . . . . . . . . 25
1
<PAGE>
ARTICLE VI
COVENANTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.1 Affirmative Covenants . . . . . . . . . . . . . . . . . . . . . . . . . 28
6.2 Negative Covenants. . . . . . . . . . . . . . . . . . . . . . . . . . . 32
ARTICLE VII
EVENTS OF DEFAULT. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
7.1 Events of Default . . . . . . . . . . . . . . . . . . . . . . . . . . . 36
ARTICLE VIII
MISCELLANEOUS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.1 Amendments, Etc.. . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.2 Notices, Etc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39
8.3 Right of Setoff; Deposit Accounts.. . . . . . . . . . . . . . . . . . . 39
8.4 No Waiver; Remedies . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.5 Costs and Expenses. . . . . . . . . . . . . . . . . . . . . . . . . . . 40
8.6 Successors and Assigns; Confidentiality.. . . . . . . . . . . . . . . . 40
8.7 Effectiveness; Binding Effect; Governing Law. . . . . . . . . . . . . . 41
8.8 Waiver of Jury Trial. . . . . . . . . . . . . . . . . . . . . . . . . . 41
8.10 Entire Agreement. . . . . . . . . . . . . . . . . . . . . . . . . . . . 42
8.11 Separability of Provisions. . . . . . . . . . . . . . . . . . . . . . . 42
8.12 Survival of Certain Agreements. . . . . . . . . . . . . . . . . . . . . 42
8.13 Execution in Counterparts . . . . . . . . . . . . . . . . . . . . . . . 42
</TABLE>
2
<PAGE>
CREDIT AGREEMENT
This Credit Agreement dated as of August 20, 1997 is entered into among
Ditech Corporation, a California corporation (the "BORROWER"), and BankBoston,
N.A. (the "LENDER").
RECITALS
WHEREAS, the Borrower wishes to obtain credit from time to time from the
Lender, and the Lender desires to extend credit to the Borrower;
NOW, THEREFORE, Borrower and Lender agree as follows:
ARTICLE I
DEFINITIONS
I.1 DEFINED TERMS. As used in this Agreement, the following terms have
the following meanings:
"ACCOUNTS": All rights of the Borrower or a Subsidiary of the
Borrower to payment for goods sold or leased or for services rendered, no matter
how evidenced, including accounts receivable, contract rights, notes, drafts,
chattel paper, acceptances and other forms of obligations and receivables so
long as the right to such payment has been earned (entitlement to recognize
revenue under GAAP) but regardless of whether an invoice for such amount has
been rendered so long as the failure to render such invoice is in accordance
with the payment schedule set forth in the underlying contract.
"ACCOUNT DEBTOR": The party who is obligated on or under an Account.
"AFFILIATE": As applied to any Person, any Person directly or
indirectly controlling, controlled by or under common control with, that Person.
For the purposes of this definition, "control" (including with the correlative
meanings, the terms "controlling", "controlled by" and "under common control
with"), as applied to any Person, means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
that Person, whether through the ownership of voting securities or by contract
or otherwise.
"AGREEMENT": This Credit Agreement, as amended, supplemented or
modified from time to time.
"APPLICABLE MARGIN": As defined in EXHIBIT C hereto.
"BASE RATE": The higher of (i) the rate of interest announced from
time to time by Lender as its Base Rate and (ii) the sum of 1/2 of 1% plus the
Federal Funds Rate on the day
1
<PAGE>
prior to the date on which the Base Rate is to be determined. The Base Rate is
a reference rate; the Lender may make loans at, above or below the Base Rate.
"BASE RATE LOANS": Loans hereunder at such time as they accrue
interest at a rate based upon the Base Rate.
"BORROWER": As defined in the introductory paragraph of this
Agreement.
"BORROWING": As defined in Section 2.1.
"BORROWING BASE": The amount equal to eighty percent (80%) of
Eligible Accounts Receivable.
"BUSINESS DAY": A day other than a Saturday, Sunday or day on which
commercial banks in California are authorized or required by law to close.
"CAPITAL LEASE": As applied to any Person, any lease of any property
(whether real, personal or mixed) by that Person as lessee which would, in
accordance with GAAP, be required to be accounted for as a capital lease on the
balance sheet of that Person.
"COMMITMENT": The obligation of the Lender to make Loans to the
Borrower pursuant to Article II in the amount or amounts referred to therein.
"CONSOLIDATED CAPITAL EXPENDITURES": For any period, the dollar
amount of gross expenditures (including obligations under Capital Leases)
incurred by the Borrower and its consolidated Subsidiaries during such period
for fixed assets, real property, plant and equipment, and renewals, improvements
and replacements thereto required to be included in "capital expenditures",
"additions to property, plant or equipment" or comparable items in the
consolidated statement of changes in financial position of the Borrower in
conformity with GAAP, excluding, however, expenditures of insurance proceeds
received as the result of damage or destruction of the property being replaced.
"CONSOLIDATED CASH FLOW": For any period, Consolidated Net Income
PLUS (i) depreciation and amortization expense deducted in calculating
Consolidated Net Income during such period, (ii) Consolidated Interest Expense
during such period, and (iii) Consolidated Taxes during such period, all as
determined in accordance with GAAP.
"CONSOLIDATED DEBT": At any date of determination, the sum,
determined on a consolidated basis, of all Debt of the Borrower and its
consolidated Subsidiaries.
"CONSOLIDATED DEBT SERVICE": For any period, the sum, determined on a
consolidated basis, of (i) all interest expensed by the Borrower and its
consolidated Subsidiaries during such period (including that attributable to
Capital Leases in accordance with GAAP) PLUS (ii) scheduled reductions of
principal of all Debt of the Borrower and its consolidated Subsidiaries during
such period (including that portion of rental payments with respect to Capital
Leases which is or should be applied as a reduction to the principal of such
Capital Leases in
2
<PAGE>
accordance with GAAP).
"CONSOLIDATED INTEREST EXPENSE": For any period, the sum, determined
on a consolidated basis, of all interest expensed by the Borrower and its
consolidated Subsidiaries during such period (including that attributable to
Capital Leases in accordance with GAAP).
"CONSOLIDATED LIABILITIES": At any date of determination, the total
liabilities of the Borrower and its consolidated Subsidiaries on a consolidated
basis determined in accordance with GAAP (including (i) any balance sheet
liability with respect to a Pension Plan recognized pursuant to Financial
Accounting Standards Board Statements 87 or 88 and (ii) any withdrawal liability
under Section 4201 of ERISA with respect to a withdrawal from a Multiemployer
Plan, as such liability may be set forth in a notice of withdrawal liability
under Section 4219 (and as adjusted from time to time subsequent to the date of
such notice)).
"CONSOLIDATED NET INCOME": For any period, the net income (or loss)
after income taxes for such period of the Borrower and its consolidated
Subsidiaries on a consolidated basis, excluding (i) the non-cash impact on net
income from operations related to the Borrower's investment in preferred stock
of Globe Wireless, Inc., and (ii) any extraordinary gains or losses, as
determined in accordance with GAAP.
"CONSOLIDATED TANGIBLE NET WORTH": At any date of determination, the
sum of the capital stock and additional paid-in capital PLUS retained earnings
(or minus accumulated deficit) of the Borrower and its consolidated Subsidiaries
minus intangible assets, on a consolidated basis determined in accordance with
GAAP.
"CONSOLIDATED TAXES": For any period, the sum of all taxes actually
paid by Borrower and its consolidated Subsidiaries during such period,
determined on a consolidated basis in conformity with GAAP.
"CONTINGENT OBLIGATION": As applied to any Person, any direct or
indirect liability, contingent or otherwise, of that Person (i) with respect to
any Debt, lease, dividend or other obligation of another if the primary purpose
or intent thereof by the Person incurring the Contingent Obligation is to
provide assurance that such obligation of another will be paid or discharged, or
that any agreements relating thereto will be complied with, or that the holders
of such obligation will be protected (in whole or in part) against loss in
respect thereof, (ii) with respect to any letter of credit issued for the
account of that Person or as to which that Person is otherwise liable for
reimbursement of drawings, or (iii) with respect to any Interest Rate Agreement
or Currency Agreement. Contingent Obligations shall include (a) the direct or
indirect guaranty, endorsement (otherwise than for collection or deposit in the
ordinary course of business), co-making, discounting with recourse or sale with
recourse by such Person of the obligation of another, (b) the obligation to make
take-or-pay or similar payment if required regardless of non-performance by any
other party or parties to an agreement, and (c) any liability of that Person for
the obligation of another through any agreement (contingent or otherwise) (x) to
purchase, repurchase or otherwise acquire such obligation or any security
therefor, or to provide funds for the payment or discharge of such obligation
(whether in the form of loans, advances, stock purchases, capital contributions
or otherwise) or (y) to maintain the solvency or
3
<PAGE>
any balance sheet item, level of income or financial condition of another if, in
the case of any agreement described under subclauses (x) or (y) of this
sentence, the primary purpose or intent thereof is as described in the preceding
sentence. The amount of any Contingent Obligation shall be equal to the amount
of the obligation so guaranteed or otherwise supported or, if less, the amount
to which such Contingent Obligation is specifically limited.
"DEBT": As applied to any Person, (i) all indebtedness for borrowed
money, (ii) that portion of obligations with respect to Capital Leases which is
properly classified as a liability on a balance sheet in accordance with GAAP,
(iii) notes payable and drafts accepted representing extensions of credit
whether or not representing obligations for borrowed money, (iv) any obligation
owed for all or any part of the deferred purchase price of property or services
which purchase price is (a) due more than six months from the date of incurrence
of the obligation in respect thereof, or (b) evidenced by a note or similar
written instrument and (v) all indebtedness secured by any Lien on any property
or asset owned or held by that Person regardless of whether the indebtedness
secured thereby shall have been assumed by that Person or is nonrecourse to the
credit of that person.
"DOLLARS AND $": Dollars in lawful currency of the United States of
America.
"ELIGIBLE ACCOUNTS RECEIVABLE": All Accounts excluding the following:
(i) Accounts with respect to which more than ninety (90) days
have elapsed since the original invoice or payment schedule due date;
(ii) Accounts with respect to which the Account Debtor is a
director, officer, shareholder, employee, Subsidiary or Affiliate of the payee
of the obligation;
(iii) Accounts with respect to which the Account Debtor is the
subject of bankruptcy, receivership or a similar insolvency proceeding, or has
made an assignment for the benefit of creditors, or has failed or suspended or
gone out of business;
(iv) Accounts with respect to which the Account Debtor's
obligation to pay the Account is conditional upon the Account Debtor's approval
or otherwise subject to return rights with respect to the goods purchased giving
rise to any such Account, but only to the extent of the portion thereof subject
to approval or return;
(v) any Account not payable in Dollars;
(vi) Accounts against which the Account Debtor or any Person
obligated to make payment thereon asserts any defense, offset, counterclaim or
other right to avoid or reduce the liability represented by such Accounts, but
only to the extent of the disputed portion thereof;
(vii) Accounts that are an obligation of any Person whose
billing address is located outside of the United States of America, unless
covered by credit insurance in form and amount satisfactory to Lender;
4
<PAGE>
(viii) Accounts with respect to which the Account Debtor is the
United States of America or any department, agency or instrumentality thereof,
except for those Accounts as to which the payee has assigned its rights of
payment thereof for the benefit of the Lender, and the assignment has been
acknowledged pursuant to the Assignment of Claims Act of 1940, as amended (31
U.S.C. 3727);
(ix) Accounts owed by an Account Debtor where more than thirty
percent (30%) of the aggregate Accounts owed to the Borrower or any of its
Subsidiaries by such Account Debtor do not constitute Eligible Accounts
Receivable by reason of clause (i) above;
(x) Accounts with respect to an Account Debtor, including
Affiliates, whose total obligations to Borrower exceed twenty-five (25%) of all
Accounts, to the extent such obligations exceed the aforementioned percentage,
except for Accounts with respect to MCI and as otherwise approved in writing by
the Lender; and
(xi) Accounts the collection of which the Lender reasonably
determines to be doubtful.
"EMPLOYEE BENEFIT PLAN": Any Pension Plan, any employee welfare
benefit plan, or any other employee benefit plan which is described in Section
3(3) of ERISA and which is maintained for employees of the Borrower or any ERISA
Affiliate of the Borrower.
"EQUITY ISSUANCE": As applied to any Person, the sale or issuance by
such Person of (i) any capital stock of such Person, (ii) any options, warrants
or other similar rights exercisable in respect of such capital stock, or (iii)
any other security or instrument representing an equity interest (or the right
to obtain an equity interest) in such Person.
"ERISA": The Employee Retirement Income Security Act of 1974, as
amended from time to time and any successor statute.
"ERISA AFFILIATE": As applied to any Person, any trade or business
(whether or not incorporated) which is a member of a group of which that Person
is a member and which is under common control within the meaning of Section
414(b) and (c) of the Internal Revenue Code.
"FEDERAL FUNDS RATE": On any day, a fluctuating interest rate per
annum equal to the weighted average of the rates on overnight Federal funds
transactions with members of the Federal Reserve System arranged by Federal
funds brokers as published for such day (or, if such day is not a Business Day,
for the next preceding Business Day) by the Federal Reserve Bank of New York, or
if such rate is not so published for any day which is a Business Day, the
average of the quotations for such day on such transactions received by the
Lender from three Federal funds brokers of recognized standing selected by it.
"GAAP": Generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public
5
<PAGE>
Accountants and statements and pronouncements of the Financial Accounting
Standards Board or in such other statements by such other entity as may be
approved by a significant segment of the accounting profession.
"INTELLECTUAL PROPERTY SECURITY AGREEMENT": The Intellectual Property
Security Agreement dated as of the date hereof between the Borrower and the
Lender.
"INTEREST PAYMENT DATE": As to any Base Rate Loan until payment in
full, the last day of each March, June, September and December commencing on the
first of such days to occur after such Base Rate Loan is made. As to any LIBO
Rate Loan with an Interest Period of three months or less until payment in full,
the last day of such Interest Period and the Maturity Date, and as to any LIBO
Rate Loan with an Interest Period in excess of three months until payment in
full, (i) the same day of each three months following the beginning of such
Interest Period, (ii) the last day of such Interest Period and (iii) the
Maturity Date.
"INTEREST PERIOD": With respect to any LIBO Rate Loan:
(i) initially, the period commencing on, as the case may be, the
Borrowing or conversion date with respect to such LIBO Rate Loan and ending one,
two, three or six months thereafter as selected by the Borrower in its notice of
Borrowing as provided in Section 2.1(b) or its notice of conversion as provided
in Section 2.4; and
(ii) thereafter, each period commencing on the last day of the next
preceding Interest Period applicable to such LIBO Rate Loan and ending one, two,
three or six months thereafter as selected by the Borrower in its notice of
continuation as provided in Section 2.4;
PROVIDED, that all of the foregoing provisions relating to Interest Periods are
subject to the following:
(a) if any Interest Period for a LIBO Rate Loan would otherwise
end on a day which is not a LIBO Business Day, that Interest Period shall be
extended to the next succeeding LIBO Business Day unless the result of such
extension would be to carry such Interest Period into another calendar month in
which event such Interest Period shall end on the immediately preceding LIBO
Business Day;
(b) the Borrower may not select an Interest Period with respect
to any portion of principal of a LIBO Rate Loan which extends beyond a date on
which the Borrower is required to make a scheduled payment of that portion of
principal; and
(c) there shall be no more than six Interest Periods with
respect to LIBO Rate Loans outstanding at any time.
"INTEREST RATE AGREEMENT": As applied to any Person, an interest rate
swap, cap or collar agreement or similar arrangement designed to protect that
Person against fluctuations in interest rates.
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"INTERNAL REVENUE CODE": The Internal Revenue Code of 1986, as
amended to the date hereof and from time to time hereafter.
"INVESTMENT": As applied to any Person, (i) any direct or indirect
purchase or other acquisition of, or of a beneficial interest in, capital stock,
bonds, notes, debentures, partnership or other ownership interests or other
securities of, another Person, or (ii) any direct or indirect loan, extension of
credit, advance (other than advances to employees for moving, entertainment and
travel expenses, drawing accounts and similar expenditures in the ordinary
course of business) or capital contribution to any other Person, including all
indebtedness and accounts receivable from the other Person that are not current
assets or did not arise from sales to that other Person in the ordinary course
of business. The amount of any Investment shall be the original cost of such
Investment plus the cost of all additions thereto, without any adjustment for
increases or decreases in value, or write-ups, write-downs or write-offs with
respect to such Investment.
"LENDER": As defined in the introductory paragraph of this Agreement.
"LETTER OF CREDIT" or "LETTERS OF CREDIT": Any letter of credit or
similar instrument issued or to be issued by the Lender for the account of the
Borrower pursuant to Section 2.7.
"LETTER OF CREDIT USAGE": At any date of determination, the sum of
(i) the maximum aggregate amount that is or at any time thereafter may become
available for drawing under all Letters of Credit then outstanding and (ii) the
aggregate amount of all drawings under Letters of Credit honored by the Lender
and not theretofore reimbursed by the Borrower.
"LIEN": Any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other title
retention agreement, any lease in the nature thereof, and any agreement to give
any security interest).
"LIBO BUSINESS DAY": A day which is a Business Day and a day on which
dealings in Dollar deposits may be carried out in the London interbank market.
"LIBO RATE": For each Interest Period (i) the rate of interest
determined by the Lender at which U.S. dollar deposits for the relevant Interest
Period and in the approximate amount of the relevant LIBO Rate Loan would be
offered by the Lender to prime banks in the London interbank market as of 11:00
A.M. (London time) on the day which is two (2) LIBO Business Days prior to the
first day of such Interest Period, divided by (ii) a number equal to 1.00 minus
the aggregate (but without duplication) of the rates (expressed as a decimal
fraction) of reserve requirements in effect on the day which is two (2) LIBO
Business Days prior to the beginning of such Interest Period (including basic,
supplemental, marginal and emergency reserves under any regulations of the Board
of Governors of the Federal Reserve System or other governmental authority
having jurisdiction with respect thereto, as in effect at the time the Lender
quotes the rate to the Borrower) for Eurocurrency funding of domestic assets
(currently referred to as "Eurocurrency liabilities" in Regulation D of such
Board) which are required to be maintained by a member bank of such System (such
rate to be adjusted to the next higher 1/16 of
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1%).
"LIBO RATE LOANS": Loans hereunder at such time as they accrue
interest at a rate based upon the LIBO Rate.
"LOANS": The Revolving Loans, the Term Loans and any combination
thereof, made to the Borrower pursuant to Section 2.1 and 2.5(a), respectively.
"LOAN DOCUMENTS": This Agreement, the Notes, the Letters of Credit
and each letter of credit application, the Security Agreement, the Intellectual
Property Security Agreement and other documents required by the Lender in
connection with this Agreement and/or the credit extended hereunder.
"MATURITY DATE": August 20, 2000.
"MULTIEMPLOYER PLAN": A "multiemployer plan" as defined in Section
4001(a) (3) of ERISA which is maintained for employees of the Borrower or any
ERISA Affiliate of the Borrower.
"NOTE" and "NOTES": The Revolving Note, the Term Note and any
combination thereof.
"PENSION PLAN": Any employee plan which is subject to Section 412 of
the Internal Revenue Code and which is maintained for employees of the Borrower
or any ERISA Affiliate of the Borrower, other than a Multiemployer Plan.
"PERMITTED LIENS": The following types of Liens (other than any such
Lien imposed pursuant to Section 401(a)(29) or 412(n) of the Internal Revenue
Code or by ERISA):
(i) Liens in favor of Lender securing obligations of Borrower to
Lender;
(ii) Liens for taxes, assessments or governmental charges or
claims to the extent not yet delinquent or being contested in good faith and for
which appropriate reserves have been made in accordance with GAAP;
(iii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics and materialmen and other Liens imposed by law incurred
in the ordinary course of business securing obligations that are not yet
delinquent or are being contested in good faith and for which appropriate
reserves have been made in accordance with GAAP;
(iv) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance and
other types of social security, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, trade contracts, performance and return-of-money bonds and other
similar obligations (exclusive of obligations for the payment of borrowed
money);
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(v) easements, reservations, rights-of-way, restrictions, minor
defects or irregularities in title and other similar charges or encumbrances
affecting real property not interfering in any material respect with the use or
value of such property;
(vi) any attachment or judgment Lien not constituting an Event of
Default under Section 7.1(h);
(vii) Licenses and sublicenses granted to others in the ordinary
course of business not interfering in any material respect with the business of
Borrower and its Subsidiaries taken as a whole; and
(viii) Liens which constitute rights of set-off of a customary
nature or bankers' liens with respect to amounts on deposit, whether arising by
operation of law or by contract.
"PERSON": An individual, partnership, corporation, business trust,
joint stock company, trust, unincorporated association, joint venture,
governmental authority or other entity of whatever nature.
"POTENTIAL EVENT OF DEFAULT": A condition or event which, after
notice or lapse of time or both, would constitute an Event of Default if that
condition or event were not cured or removed within any applicable grace or cure
period.
"REGULATIONS G, T, U AND X": Regulations G, T, U and X, respectively,
promulgated by the Board of Governors of the Federal Reserve System, as amended
from time to time, and any successors thereto.
"REVOLVING COMMITMENT": The lesser of (a) Three Million Dollars
($3,000,000) and (b) the amount of the Borrowing Base, as such amounts may be
reduced pursuant to Section 2.1(d).
"REVOLVING LOANS": As defined in Section 2.1(a).
"REVOLVING NOTE": As defined in Section 2.1(d).
"S.E.C.": The United States Securities and Exchange Commission and
any successor institution or body which performs the functions or substantially
all of the functions thereof.
"SECURITY AGREEMENT": The Security Agreement dated as of the date
hereof between the Borrower and the Lender.
"SUBSIDIARY": A corporation, partnership, association, joint venture
or other business entity of which more than 50% of the total voting power of
shares of stock or other ownership interests entitled (without regard to the
occurrence of any contingency) to vote in the
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election of Person or Persons (whether directors, managers, trustees or other
Persons performing similar functions) having the power to direct or cause the
direction of the management and policies thereof are at the time owned,
directly, or indirectly through one or more intermediaries, or both, by the
Borrower.
"TERM COMMITMENT": The amount of Eight Million Dollars ($8,000,000).
"TERM LOAN": As defined in Section 2.5(a).
"TERM NOTE": As defined in Section 2.5(c).
"TERMINATION EVENT": (i) a "Reportable Event" described in Section
4043 of ERISA and the regulations issued thereunder (other than a "Reportable
Event" not subject to the provision for 30 day notice to the Pension Benefit
Guaranty Corporation under such regulations), or (ii) the withdrawal of the
Borrower or any of its ERISA Affiliates from a Pension Plan during a plan year
in which it was a "substantial employer" as defined in Section 4001(l) (2) or
4068(f) of ERISA, or (iii) the filing of a notice of intent to terminate a
Pension Plan or the treatment of a Pension Plan amendment as a termination under
Section 4041 of ERISA, or (iv) the institution of proceedings to terminate a
Pension Plan by the Pension Benefit Guaranty Corporation, (v) any other event or
condition which might constitute grounds under ERISA for the termination of, or
the appointment of a trustee to administer, any Pension Plan, or (vi) the
imposition of a lien pursuant to Section 412(n) of the Internal Revenue Code.
I.2 OTHER DEFINITIONAL PROVISIONS.
(a) All terms defined in this Agreement shall have the defined
meanings when used in the Notes or any certificate or other document made or
delivered pursuant hereto.
(b) As used herein and in the Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms not defined in
Section 1.1, and accounting terms partly defined in Section 1.1 to the extent
not defined, shall have the respective meanings given to them under GAAP. In
the event that GAAP changes during the term of this Agreement such that the
financial covenants contained in Sections 6.2(a) through (e) would then be
calculated in a different manner or with different components, (i) the Borrower
and the Lender agree to negotiate to amend this Agreement in such respects as
are necessary to conform those covenants as criteria for evaluating the
Borrower's financial condition to substantially the same criteria as were
effective prior to such change in GAAP and (ii) the Borrower shall be deemed to
be in compliance with the financial covenants contained in such Sections,
pending reaching agreement on such amendment, following any such change in GAAP
if and to the extent that the Borrower would have been in compliance therewith
under GAAP as in effect immediately prior to such change.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section, subsection,
schedule and exhibit references are to this Agreement unless otherwise
specified.
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(d) So long as the Borrower does not have any Subsidiaries,
references to a Subsidiary or Subsidiaries and consolidated or consolidating
financial statements in this Agreement shall be deemed to be deleted.
(e) The terms defined in Section 1.1 include the plural as well as
the singular. Pronouns of either gender or neuter shall include, as
appropriate, the other pronoun forms. The terms "includes" and "including"
shall not be construed to imply any limitation.
ARTICLE II
THE LOANS
II.1 THE REVOLVING LOANS.
(a) THE REVOLVING COMMITMENT. The Lender agrees, on the terms and
conditions hereinafter set forth, to make loans ("REVOLVING LOANS") to the
Borrower from time to time during the period from the date hereof to and
including the Maturity Date in an aggregate amount not to exceed the lesser of
(x) the Revolving Commitment, as such amount may be reduced pursuant to Section
2.1(c) or (y) the Borrowing Base. Within the limits of the Revolving Commitment
and prior to the Maturity Date, the Borrower may borrow, repay pursuant to
Section 2.2(b) and reborrow under this Section, PROVIDED that at no time shall
the aggregate principal amount of outstanding Revolving Loans plus the Letter of
Credit Usage then in effect exceed the Revolving Commitment then in effect.
(b) MAKING THE REVOLVING LOANS.
(i) The Borrower may borrow under the Revolving Commitment on
any Business Day if the Borrowing is to consist of a Base Rate Loan and on any
LIBO Business Day if the Borrowing is to consist of a LIBO Rate Loan, PROVIDED
that the Borrower shall give the Lender irrevocable notice in the form of
Exhibit F attached hereto (which notice must be received by the Lender prior to
11:00 A.M., San Francisco time) (i) three (3) LIBO Business Days prior to the
requested Borrowing date in the case of a LIBO Rate Loan, and (ii) on or before
the requested Borrowing date in the case of a Base Rate Loan, specifying (A) the
amount of the proposed Borrowing, (B) the requested date of the Borrowing,
(C) whether the Borrowing is to consist of a LIBO Rate Loan or a Base Rate Loan,
and (D) if the Loan is to be a LIBO Rate Loan, the length of the Interest Period
therefor. Upon satisfaction of the applicable conditions set forth in Article
IV, the Lender will make available the proceeds of all such Loans to the
Borrower by crediting the account of the Borrower on the books of the Lender, or
as otherwise directed by the Borrower.
(ii) The notice of borrowing may be given orally (including
telephonically) and in writing (including telex or facsimile transmission) and
any conflict regarding a notice or between an oral notice and a written notice
applicable to the same Loan shall be conclusively determined by the Lender's
books and records. The Lender's failure to
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receive any written notice of a particular Loan shall not relieve the Borrower
of its obligations to repay the Loan made and to pay interest thereon. The
Lender shall not incur any liability to the Borrower in acting upon any notice
of Loan which the Lender believes in good faith to have been given by a Person
duly authorized to borrow on behalf of the Borrower.
(c) REDUCTION OF THE REVOLVING COMMITMENT. The Borrower shall have
the right, upon at least two (2) Business Days' notice to the Lender, to
terminate in whole or reduce in part the unused portion of the Revolving
Commitment, without premium or penalty, PROVIDED that such reduction shall not
reduce the Revolving Commitment to an amount less than the amount outstanding
hereunder on the effective date of the reduction.
(d) REVOLVING NOTE. The Revolving Loans made by the Lender pursuant
hereto shall be evidenced by a promissory note of the Borrower, substantially in
the form of Exhibit A, with appropriate insertions (the "REVOLVING NOTE"),
payable to the order of the Lender and representing the obligation of the
Borrower to pay the aggregate unpaid principal amount of all Revolving Loans
made by the Lender, with interest thereon as prescribed in Section 2.3. The
Lender is hereby authorized to record in its books and records and on any
schedule annexed to the Revolving Note, the date and amount of each Revolving
Loan made by the Lender, and the date and amount of each payment of principal
thereof, and in the case of LIBO Rate Loans, the Interest Period and interest
rate with respect thereto and any such recordation shall constitute PRIMA FACIE
evidence of the accuracy of the information so recorded; PROVIDED that failure
by the Lender to effect such recordation shall not affect the Borrower's
obligations hereunder. Prior to the transfer of the Revolving Note, the
transferring Lender shall record such information on any schedule annexed to and
forming a part of such Revolving Note.
(e) COMMITMENT FEE. The Borrower agrees to pay to the Lender a
Commitment fee on the average daily unused portion of the Revolving Commitment
from the date hereof until the Maturity Date at the rate of one-quarter of one
percent (0.25%) per annum, payable on the last day of each calendar quarter
commencing on the first such date occurring after the date of this Agreement,
and on the Maturity Date. For the purposes of calculating the Commitment fee,
the Letter of Credit Usage shall be deemed a usage of the Revolving Commitment.
(f) FACILITY FEE. Upon execution of this Agreement, the Borrower
shall pay to the Lender a non-refundable fee in the amount of Thirty-Three
Thousand Dollars ($33,000).
II.2 REPAYMENT.
(a) MANDATORY REPAYMENTS.
(i) REVOLVING LOANS. The aggregate principal amount of the
Revolving Loans outstanding on the Maturity Date, together with accrued interest
thereon, shall be due and payable in full on the Maturity Date. At any time the
sum of the aggregate principal amount of outstanding Revolving Loans plus the
Letter of Credit Usage exceeds the Revolving Commitment then in effect, the
Borrower shall immediately repay the Revolving Loans in an amount equal to the
excess.
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(ii) TERM LOAN. The aggregate principal amount of the Term Loan
shall be payable in quarterly installments as follows: (A) One Hundred
Twenty-Five Thousand Dollars ($125,000) on each of the last days of March, June,
September and December of 1998; (B) One Hundred Eighty-Seven Thousand Five
Hundred Dollars ($187,500) on each of the last days of March, June, September
and December of 1999; (C) Five Hundred Sixty-Two Thousand Five Hundred Dollars
($562,500) on each of the last days of March, June, September and December of
2000; (D) Five Hundred Sixty-Two Thousand Five Hundred Dollars ($562,500) on
each of the last days of March, June, September and December of 2001; (E) Five
Hundred Sixty-Two Thousand Five Hundred Dollars ($562,500) on each of the last
days of March, June, September and December of 2002. All outstanding principal
and interest on all Loans, together with any other amounts due under this
Agreement, shall be due and payable on December 31, 2002.
(b) OPTIONAL PREPAYMENT. The Borrower may at its option prepay the
Loans, in whole or in part, at any time and from time to time, PROVIDED that the
Lender shall have received from the Borrower notice of any such prepayment at
least one (1) Business Day prior to the date of the proposed prepayment if such
date is not the last day of the then current Interest Period for each Loan being
prepaid, in each case specifying the date and the amount of prepayment.
Payments which are partial prepayments of the Term Loan shall be applied to the
principal installments of the Term Loan of latest maturity.
II.3 INTEREST RATE AND PAYMENT DATES.
(a) PAYMENT OF INTEREST. Interest with respect to each Loan shall be
payable in arrears on each Interest Payment Date for such Loan, on the Maturity
Date and on the date of any prepayment.
(b) BASE RATE LOANS. Loans which are Base Rate Loans shall bear
interest on the unpaid principal amount thereof at a rate per annum equal to the
Base Rate plus the Applicable Margin.
(c) LIBO RATE LOANS. Loans which are LIBO Rate Loans shall bear
interest for each Interest Period with respect thereto on the unpaid principal
amount thereof at a rate per annum equal to the LIBO Rate determined for such
Interest Period in accordance with the terms hereof plus the Applicable Margin.
II.4 CONTINUATION AND CONVERSION OPTIONS. The Borrower may elect from time
to time to convert its outstanding Loans from Loans bearing interest at a rate
determined by reference to one basis to Loans bearing interest at a rate
determined by reference to an alternative basis by giving the Lender
(i) irrevocable notice of an election to convert Loans to Base Rate Loans and
(ii) at least three (3) LIBO Business Days' prior irrevocable notice of an
election to convert Loans to LIBO Rate Loans, PROVIDED that any conversion of
Loans other than Base Rate Loans shall only be made on the last day of an
Interest Period with respect thereto, PROVIDED, FURTHER that no Loan may be
converted to a Loan other than a Base Rate Loan so long as an Event of Default
or Potential Event of Default has occurred and is continuing. The Borrower may
elect
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from time to time to continue its outstanding Loans other than Base Rate Loans
upon the expiration of the Interest Period(s) applicable thereto by giving to
the Lender at least three (3) LIBO Business Days' prior irrevocable notice of
continuation of a LIBO Rate Loan and the succeeding Interest Period(s) of such
continued Loan or Loans will commence on the last day of the Interest Period of
the Loan to be continued, PROVIDED that no Loan may be continued as a Loan other
than a Base Rate Loan so long as an Event of Default or Potential Event of
Default has occurred and is continuing. Each notice electing to convert or
continue a Loan shall specify: (i) the proposed conversion/continuation date;
(ii) the amount of the Loan to be converted/continued; (iii) the nature of the
proposed continuation/conversion; and (iv) in the case of a conversion to, or
continuation of, a Loan other than a Base Rate Loan, the requested Interest
Period, and shall certify that no Event of Default or Potential Event of Default
has occurred and is continuing. On the date on which such conversion or
continuation is being made the Lender shall take such action as is necessary to
effect such conversion or continuation. In the event that no notice of
continuation or conversion is received by the Lender with respect to outstanding
Loans other than Base Rate Loans, upon expiration of the Interest Period(s)
applicable thereto, such Loans shall convert to Base Rate Loans. Subject to the
limitations set forth in this Section and in the definition of Interest Period,
all or any part of outstanding Loans may be converted or continued as provided
herein.
II.5 THE TERM LOAN.
(a) THE TERM COMMITMENT. The Lender agrees, on the terms and
conditions hereinafter set forth, to make a Loan (the "TERM LOAN") to the
Borrower on the date hereof in an aggregate amount equal to the Term Commitment.
The Term Loan shall consist of a LIBO Rate Loan, or a Base Rate Loan, as
determined by the Borrower and notified to the Lender in accordance with Section
2.5(b).
(b) MAKING THE TERM LOAN. The Borrower shall give the Lender
irrevocable notice of its intent to borrow under the Term Commitment (which
notice shall be received by the Lender prior to 11:00 A.M., San Francisco time)
at least (i) three (3) Business Days prior to the date the Term Loan is to be
made, if any portion of the Term Loan is to be a LIBO Rate Loan, and (ii) one
(1) Business Day prior to the date the Term Loan is to be made if any portion of
the Term Loan is to be a Base Rate Loan, specifying the amount of the proposed
borrowing and whether the Loan is to consist of a LIBO Rate Loan or a Base Rate
Loan, and if the Loan is to be a Loan other than a Base Rate Loan, the length of
the Interest Period therefor. Upon satisfaction of the applicable conditions
set forth in Article IV, the Lender will make available the proceeds of the Term
Loan to the Borrower by crediting the account of the Borrower on the books of
the Lender or as otherwise directed by the Borrower.
(c) TERM NOTE. The Term Loan made by the Lender pursuant hereto
shall be evidenced by a promissory note of the Borrower, substantially in the
form of Exhibit B, with any appropriate insertions (the "TERM NOTE"), payable to
the order of the Lender and representing the obligation of the Borrower to pay
the unpaid principal amount of the Term Loan made by the Lender, with interest
thereon as prescribed in Section 2.3. The Lender is hereby authorized to record
in its books and records and on any schedule annexed to its Term Note, the date
and amount of the Term Loan made by the Lender and the date and amount of each
payment of
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principal thereof, and in the case of LIBO Rate Loans, the Interest Period and
interest rate with respect thereto and any such recordation shall constitute
PRIMA FACIE evidence of the accuracy of the information so recorded; PROVIDED
that failure by the Lender to effect such recordation shall not affect the
Borrower's obligations hereunder. Prior to the transfer of a Term Note, the
transferring Lender shall record such information on any schedule annexed to and
forming a part of such Term Note.
II.6 SECURITY FOR LOANS. As security for the payment and performance of
its obligations hereunder, the Borrower hereby grants to the Lender a security
interest in all of the Borrower's right, title and interest in and to the
collateral described in the security agreement executed by the Borrower in favor
of the Lender.
II.7 LETTERS OF CREDIT
(a) LETTERS OF CREDIT. The Borrower may request from time to time
during the period from the date hereof through the Maturity Date that the Lender
issue Letters of Credit for the account of the Borrower, PROVIDED that (i)
Borrower shall not request that the Lender issue any Letter of Credit, if after
giving effect to such issuance, the sum of the aggregate principal amount of
outstanding Revolving Loans plus the Letter of Credit Usage exceeds the
Revolving Commitment then in effect, (ii) in no event shall the Lender issue any
Letter of Credit having an expiration date (x) later than ninety (90) days after
the Maturity Date PROVIDED that in the event the Revolving Commitment is not
extended by Lender, obligations under the Letter of Credit are secured by cash
or other collateral acceptable to Lender or (y) more than one year from the date
of issuance, and (iii) Borrower shall not request any Letter of Credit, if after
giving effect to such issuance, the Letter of Credit Usage exceeds $1,000,000 or
any regulatory, legal or internal limit on the Lender's ability to issue the
requested Letter of Credit.
(b) REQUEST FOR ISSUANCE; PAYMENTS UNDER LETTERS OF CREDIT. Whenever
the Borrower requests that the Lender issue a Letter of Credit, it shall deliver
to the Lender an executed application for such Letter of Credit in the form
customarily required by the Lender and the form of the Letter of Credit
requested, together with such other information or materials as the Lender may
request with respect to such Letter of Credit no later than 11:00 a.m., San
Francisco time, at least three (3) Business Days in advance of the proposed date
of issuance. IN DETERMINING WHETHER TO PAY UNDER ANY LETTER OF CREDIT, THE
LENDER SHALL BE RESPONSIBLE ONLY TO DETERMINE THAT THE DOCUMENTS AND
CERTIFICATES REQUIRED TO BE DELIVERED UNDER THAT LETTER OF CREDIT HAVE BEEN
DELIVERED AND THAT THEY COMPLY ON THEIR FACE WITH THE REQUIREMENTS OF THAT
LETTER OF CREDIT.
(c) ISSUANCE OF LETTERS OF CREDIT. If the Lender elects to issue the
requested Letter of Credit and upon the satisfaction of all relevant conditions
set forth in Sections 4.1 and 4.2, the Lender shall issue a Letter of Credit by
delivering the Letter of Credit to the beneficiary. If the Lender declines to
issue the requested Letter of Credit, it shall promptly so notify the Borrower
and the Borrower shall withdraw its application therefor.
(d) REIMBURSEMENT OF AMOUNTS DRAWN UNDER LETTER OF CREDIT. The
Lender
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shall notify the Borrower of each request for a drawing under a Letter of
Credit, and the Borrower shall reimburse the Lender for such amount in
immediately available funds prior to 1:00 p.m., San Francisco time, on the date
of the drawing. In the event that the Borrower shall fail to reimburse the
Lender on the date of any drawing under a Letter of Credit in an amount equal to
the amount of such drawing, the Lender, subject to the terms and conditions
contained herein (except those terms and conditions relating to notice and
minimum amounts of Borrowings), shall make a Revolving Loan to the Borrower in
an amount equal to the unreimbursed amount of such drawing together with accrued
interest thereon. The proceeds of such Revolving Loan shall be used to repay
the Lender the unreimbursed amount together with accrued interest thereon. Such
Revolving Loan shall be evidenced by the Revolving Note and shall initially be a
Prime Rate Loan.
(e) COMPENSATION. The Borrower agrees to pay the following amounts
to the Lender with respect to Letters of Credit:
(i) on the date of issuance or any extension or renewal of any
Letter of Credit and at such other time or times as such charges are customarily
made by the Lender, a fee (in each case, a "Letter of Credit Fee") (a) in
respect of each standby Letter of Credit, equal to the Applicable Margin for
LIBO Rate Loans in effect on the date of such issuance, extension or renewal,
multiplied by the face amount of such standby Letter of Credit; and (b) in
respect of each documentary Letter of Credit, equal to the Lender's customary
fees for such Letter of Credit at such time;
(ii) with respect to each Letter of Credit, the Lender's
customary amendment and other administrative fees, commissions and other charges
in accordance with the Lender's standard schedule for such charges in effect at
the time of issuance;
(iii) with respect to drawings made under any Letter of Credit,
to the extent a Revolving Loan is not made to reimburse the Lender for each such
drawing, interest, payable on demand, on the amount paid by the Lender in
respect of each such drawing from the date of the drawing through the date such
amount is reimbursed by the Borrower at a rate which is at all times equal to
two percent (2%) per annum in excess of the Prime Rate in effect from time to
time;
(iv) with respect to the amendment or transfer of each Letter of
Credit and each drawing made thereunder, documentary and processing charges in
accordance with the Lender's standard schedule for such charges in effect at the
time of amendment, transfer or drawing, as the case may be.
(f) OBLIGATIONS ABSOLUTE. The obligations of the Borrower to
reimburse the Lender for drawings made under each Letter of Credit shall be
unconditional and irrevocable and shall be paid strictly in accordance with the
terms of this Agreement under all circumstances including the following
circumstances:
(i) any lack of validity or enforceability of any Letter of
Credit;
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(ii) the existence of any claim, set-off, defense or other rights
which the Borrower may have at any time against the beneficiary or any
transferee of the Letter of Credit (or any persons or entities for whom any such
transferee may be acting), the Lender or any other person or entity, whether in
connection with this Agreement, the transactions contemplated herein or any
unrelated transaction (including any underlying transaction between the Borrower
and the beneficiary for which the Letter of Credit was procured);
(iii) any draft, certificate or any other document presented
under any Letter of Credit proving to be forged, fraudulent, invalid or
insufficient in any respect or any statement therein being untrue or inaccurate
in any respect;
(iv) payment against any draft, document or other demand for
payment that does not comply with the terms of the Letter of Credit, provided
that such payment does not constitute gross negligence or willful misconduct on
the part of the Lender; or
(v) any other circumstances or happening whatsoever, whether or
not similar to any of the foregoing.
ARTICLE III
GENERAL PROVISIONS CONCERNING THE LOANS
III.1 USE OF PROCEEDS. The proceeds of the Term Loan hereunder shall
be used by the Borrower for the refinancing of subordinated debt owing to Summit
Partners, L.P. The proceeds of the Revolving Loans hereunder shall be used by
the Borrower for working capital needs, general corporate purposes, and for fees
and expenses associated with this Agreement.
III.2 POST MATURITY INTEREST. Notwithstanding anything to the contrary
contained in Section 2.3, if all or a portion of the principal amount of any of
the Loans made hereunder or any interest accrued thereon shall not be paid when
due (whether at the stated maturity, by acceleration or otherwise), any such
overdue amount shall bear interest at a rate per annum which is equal to the
greater of (a) two percent (2%) above the highest rate which would otherwise be
applicable pursuant to Section 2.3 and (b) three percent (3%) above the Base
Rate, from the date of such nonpayment until paid in full (after as well as
before judgment), payable on demand. In addition, such Loan, if a Loan other
than a Base Rate Loan, shall be converted to a Base Rate Loan at the end of the
then current Interest Period therefor.
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III.3 COMPUTATION OF INTEREST AND FEES.
(a) CALCULATIONS. Interest in respect of the Base Rate Loans shall
be calculated on the basis of a 365 day year for the actual days elapsed.
Interest in respect of the LIBO Rate Loans shall be calculated on the basis of a
360 day year for the actual days elapsed. Interest payable pursuant to Section
2.7 shall be calculated on the basis of a 360 day year for actual days elapsed.
Any change in the interest rate on a Base Rate Loan resulting from a change in
the Base Rate shall become effective as of the opening of business on the day on
which such change in the Base Rate shall become effective. In computing
interest on any Loan, the date of the making of the Loan shall be included and
the date of payment shall be excluded; PROVIDED that if a Loan is repaid on the
same day on which it is made, one day's interest shall be paid on that Loan.
(b) DETERMINATION BY LENDER. Each determination of an interest rate
or fee by the Lender pursuant to any provision of this Agreement shall be
conclusive and binding on the Borrower in the absence of manifest error.
III.4 PAYMENTS. The Borrower shall make each payment of principal,
interest and fees hereunder and under the Notes, without setoff or counterclaim,
not later than 11:00 A.M., San Francisco time, on the day when due in lawful
money of the United States of America to the Lender at the office of the Lender
designated from time to time in immediately available funds. The Borrower
hereby authorizes the Lender to charge its accounts with the Lender in order to
cause timely payment to be made to the Lender of all principal, interest, fees
and expenses due hereunder (subject to sufficient funds being available in its
accounts for that purpose).
III.5 PAYMENT ON NON-BUSINESS DAYS. Whenever any payment to be made
hereunder or under the Notes shall be stated to be due on a day which is not a
Business Day, such payment may be made on the next succeeding Business Day, and
with respect to payments of principal, interest thereon shall be payable at the
then applicable rate during such extension.
III.6 REDUCED RETURN. If the Lender shall have determined that any
applicable law, regulation, rule or regulatory requirement ("REQUIREMENT")
regarding capital adequacy, or any change therein, or any change in the
interpretation or administration thereof by any governmental authority, central
bank or comparable agency charged with the interpretation or administration
thereof, or compliance by the Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) of any such authority,
central bank or comparable agency, has or would have the effect of reducing the
rate of return on the Lender's capital as a consequence of its Commitment and
obligations hereunder to a level below that which would have been achieved but
for such Requirement, change or compliance (taking into consideration the
Lender's policies with respect to capital adequacy) by an amount deemed by the
Lender to be material (which amount shall be determined by the Lender's
reasonable allocation of the aggregate of such reductions resulting from such
events), then from time to time, within five (5) Business Days after demand by
the Lender, the Borrower shall pay to the Lender such additional amount or
amounts as will compensate the Lender for such reduction; provided, however,
that the Borrower shall not be liable for the payment of any such amounts
incurred more than one hundred eighty (180) days prior to the date of such
demand.
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III.7 INDEMNITIES.
(a) GENERAL INDEMNITIES. Whether or not the transactions
contemplated hereby shall be consummated, the Borrower agrees to indemnify, pay
and hold the Lender, and the shareholders, officers, directors, employees and
agents of the Lender (each, an "INDEMNIFIED PERSON"), harmless from and against
any and all claims, liabilities, losses, damages, costs and expenses, including
reasonable attorneys' fees and costs (including the reasonable estimate of the
allocated cost of in-house legal counsel and staff) and including costs of
investigation, document production, attendance at a deposition or other
discovery, related to or in connection with the transactions contemplated by
this Agreement or any contemplated use of the proceeds of the Loans, whether or
not any Indemnified Person is a party thereto (collectively, the "INDEMNIFIED
LIABILITIES"), except to the extent that such Indemnified Liabilities result
from the gross negligence or willful misconduct of the Lender. If any claim is
made, or any action, suit or proceeding is brought, against any Indemnified
Person pursuant to this Section, the Indemnified Person shall notify the
Borrower of such claim or of the commencement of such action, suit or
proceeding, and the Borrower shall have the option to, and at the request of the
Indemnified Person shall, direct and control the defense of such action, suit or
proceeding, employing counsel selected by the Borrower and reasonably
satisfactory to the Indemnified Person, and pay the fees and expenses of such
counsel; PROVIDED, HOWEVER, that any Indemnified Person may at its own expense
retain separate counsel to participate in such defense. Notwithstanding the
foregoing, such Indemnified Person shall have the right to employ separate
counsel reasonably acceptable to Borrower and at the Borrower's expense and to
control and direct its own defense of such action, suit or proceeding if, in the
reasonable opinion of counsel to such Indemnified Person, (i) there are legal
defenses available to such Indemnified Person or to other Indemnified Persons
that are different from or additional to those available to the Borrower that
the Borrower cannot assert, or (ii) a conflict exists between the Borrower and
such Indemnified Person that would make such separate representation advisable.
The Borrower agrees that it will not, without the prior written consent of the
Lender, settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit or proceeding with respect to which
the indemnification provided for in this Section is available (whether or not
any Indemnified Person is a party thereto) unless such settlement, compromise or
consent includes an unconditional release of the Lender and each other
Indemnified Person from all liability arising or that may arise out of such
claim, action, suit or proceeding. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in this Section 3.7 may be
unenforceable because it is violative of any law or public policy, the Borrower
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all Indemnified
Liabilities incurred by any Indemnified Person. This covenant shall survive
termination of this Agreement and payment of the outstanding Notes.
(b) FUNDING LOSSES. The Borrower agrees to indemnify the Lender and
to hold the Lender harmless from any loss or expense including, but not limited
to, any such loss or expense arising from interest or fees payable by the Lender
to lenders of funds obtained by it in order to maintain its LIBO Rate Loans
hereunder, which the Lender may sustain or incur as a consequence of (i) default
by the Borrower in payment of the principal amount of or interest on the LIBO
Rate Loans of the Lender, (ii) default by the Borrower in making a conversion or
continuation after the Borrower has given a notice thereof, (iii) default by the
Borrower in
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making any payment after the Borrower has given a notice of payment or (iv) the
Borrower making any payment of a LIBO Rate Loan on a day other than the last day
of the Interest Period for such Loan. The determination of such amount by the
Lender shall be presumed correct in the absence of manifest error. This
covenant shall survive termination of this Agreement and payment of the
outstanding Notes.
(c) LETTERS OF CREDIT. As between the Borrower and the Lender, the
Borrower assumes all risks of the acts and omissions of, or misuse of the
Letters of Credit by, the respective beneficiaries of the Letters of Credit. In
furtherance and not in limitation of the foregoing, the Lender, in the absence
of gross negligence or wilful misconduct of Lender, shall not be responsible:
(i) for the form, validity, sufficiency, accuracy, genuineness or legal effect
of any document submitted by any party in connection with the application for
and issuance of the Letters of Credit, even if it should in fact prove to be in
any or all respects invalid, insufficient, inaccurate, fraudulent or forged;
(ii) for the validity or sufficiency of any instrument transferring or assigning
or purporting to transfer or assign a Letter of Credit or the rights or benefits
thereunder or proceeds thereof, in while or in part, which may prove to be
invalid or ineffective for any reason; (iii) for failure of the beneficiary of a
Letter of Credit to comply fully with conditions required in order to draw upon
such Letter of Credit; (iv) for errors, omissions, interruptions or delays in
transmission or delivery of any messages, by mail, cable, telegraph, telex or
otherwise, whether or not they be in cipher; (v) for errors in interpretation of
technical terms; (vi) for any loss or delay in the transmission or otherwise of
any document required in order to make a drawing under any Letter of Credit or
of the proceeds thereof; (vii) for the misapplication by the beneficiary of a
Letter of Credit of the proceeds of any drawing under such Letter of Credit; and
(viii) for any consequences arising from causes beyond the control of the
Lender, including any act or omission by any government or governmental
authority. None of the above shall affect, impair, or prevent the vesting of
any of the Lender's rights or powers hereunder. In furtherance and extension
and not in limitation of the specific provisions set forth herein, any action
taken or omitted by the Lender, under or i connection with the Letters of Credit
or the related certificates, if taken or omitted in good faith, shall not put
the Lender under any resulting liability to the Borrower.
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III.8 FUNDING SOURCES. Nothing in this Agreement shall be deemed to
obligate the Lender to obtain the funds for any Loan in any particular place or
manner or to constitute a representation by the Lender that it has obtained or
will obtain the funds for any Loan in any particular place or manner.
III.9 INABILITY TO DETERMINE INTEREST RATE. In the event that the
Lender shall have determined (which determination shall be conclusive and
binding upon the Borrower) that by reason of circumstances affecting the London
interbank market, adequate and reasonable means do not exist for ascertaining
the LIBO Rate applicable pursuant to Section 2.3 for any Interest Period with
respect to a LIBO Rate Loan that will result from a requested LIBO Rate Loan or
that such rate of interest does not adequately cover the cost of funding such
Loan, the Lender shall forthwith give notice of such determination to the
Borrower not later than 1:00 P.M., San Francisco time, on the requested
Borrowing date, the requested conversion date or the last day of an Interest
Period of a Loan which was to have been continued as a LIBO Rate Loan. If such
notice is given and has not been withdrawn (i) any requested LIBO Rate Loan
shall be made as a Base Rate Loan, or, at the Borrower's option, such Loan shall
not be made, (ii) any Loan that was to have been converted to a LIBO Rate Loan
shall be continued as, or converted into, a Base Rate Loan and (iii) any
outstanding LIBO Rate Loan shall be converted, on the last day of the then
current Interest Period with respect thereto, to a Base Rate Loan. Until such
notice has been withdrawn by the Lender, no further LIBO Rate Loans shall be
made and the Borrower shall not have the right to convert a Loan to a LIBO Rate
Loan. The Lender will review the circumstances affecting the London interbank
market from time to time and the Lender will withdraw such notice at such time
as it shall determine that the circumstances giving rise to said notice no
longer exist.
III.10 REQUIREMENTS OF LAW. In the event that any law, regulation or
directive or any change therein or in the interpretation or application thereof
or compliance by the Lender with any request or directive (whether or not having
the force of law) from any central bank or other governmental authority, agency
or instrumentality:
(a) does or shall subject the Lender to any tax of any kind
whatsoever with respect to this Agreement, any Note or any Loan made hereunder,
or any Letter of Credit issued hereunder, or change the basis of taxation of
payments to the Lender of principal, commitment fee, interest or any other
amount payable hereunder (except for changes in the rate of tax on the overall
net income of the Lender);
(b) does or shall impose, modify or hold applicable any reserve,
assessment rate, special deposit, compulsory loan or other requirement against
assets held by, or deposits or other liabilities in or for the account of,
advances or loans by, or other credit extended by, or any other acquisition of
funds by, any office of the Lender which are not otherwise included in the
determination of any LIBO Rate at the last Borrowing, conversion or continuation
date of a Loan;
(c) does or shall impose, modify or hold applicable any reserve,
special deposit, compulsory loan or other requirement against Commitments to
extend credit;
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(d) does or shall impose on the Lender any other condition;
and the result of any of the foregoing is to increase the cost to the Lender of
making, renewing or maintaining its Revolving Commitment or the LIBO Rate Loans
or of issuing, renewing, or maintaining the Letters of Credit, or to reduce any
amount receivable thereunder (which increase or reduction shall be determined by
such Lender's reasonable allocation of the aggregate of such cost increases or
reduced amounts receivable resulting from such events), then, in any such case,
the Borrower shall pay to the Lender, within three (3) Business Days of its
demand, any additional amounts necessary to compensate the Lender for such
additional cost or reduced amount receivable as determined by the Lender with
respect to this Agreement. If the Lender becomes entitled to claim any
additional amounts pursuant to this Section, it shall notify the Borrower of the
event by reason of which it has become so entitled. A statement incorporating
the calculation as to any additional amounts payable pursuant to the foregoing
sentence submitted by the Lender to the Borrower shall be conclusive in the
absence of manifest error.
III.11 ILLEGALITY. Notwithstanding any other provisions herein, if any
law, regulation, treaty or directive or any change therein or in the
interpretation or application thereof, shall make it unlawful or impossible for
the Lender to make or maintain LIBO Rate Loans as contemplated by this
Agreement, (a) the commitment of the Lender hereunder to make LIBO Rate Loans or
convert Base Rate Loans to LIBO Rate Loans shall forthwith be canceled and
(b) the Lender's Loans then outstanding as LIBO Rate Loans, if any, shall be
converted automatically to Base Rate Loans on the next succeeding Interest
Payment Date or within such earlier period as allowed by law. The Borrower
hereby agrees to pay the Lender, within three (3) Business Days of its demand,
any additional amounts necessary to compensate the Lender for any costs incurred
by the Lender in making any conversion in accordance with this Section,
including, but not limited to, any interest or fees payable by the Lender to
lenders of funds obtained by it in order to make or maintain its LIBO Rate Loans
hereunder (the Lender's notice of such costs, as certified to the Borrower to be
conclusive absent manifest error).
ARTICLE IV
CONDITIONS OF LENDING
IV.1 CONDITIONS PRECEDENT TO INITIAL LOANS. The obligation of the Lender
to make the initial Loan is subject to the conditions precedent that:
(a) The Lender shall have received on or before the day of the
initial Borrowing the following, each dated such day (except for the document
referred to in clause (ii)), in form and substance satisfactory to the Lender:
(i) The Notes issued by the Borrower to the order of the Lender;
(ii) Copies of the Articles or Certificate of Incorporation,
partnership agreement or other organizational document of the Borrower,
certified as of a recent date by the Secretary of State of its state of
formation or incorporation;
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(iii) Copies of the Bylaws, if any, of the Borrower, certified
by the Secretary or an Assistant Secretary of the Borrower;
(iv) Copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower, approving the Loan Documents and the
Borrowings and the reimbursement obligations under the Letters of Credit issued
hereunder;
(v) An incumbency certificate executed by the Secretary or an
Assistant Secretary of the Borrower or equivalent document, certifying the names
and signatures of the officers of the Borrower or other Persons authorized to
sign the Loan Documents and the other documents to be delivered hereunder;
(vi) Executed copies of all Loan Documents;
(vii) Executed financing statements (Forms UCC-1);
(viii) A Borrowing Base Certificate setting forth in detail
acceptable to the Lender the calculation of the Borrowing Base, certified by the
chief financial officer or treasurer of the Borrower; and
(ix) Such other documents as the Lender may reasonably request.
(b) The Borrower shall have paid to the Lender the fees payable as
required in Section 2.1.
(c) All corporate and legal proceedings and all instruments and
documents in connection with the transactions contemplated by this Agreement
shall be reasonably satisfactory in content, form and substance to the Lender
and its counsel, and the Lender, and the Lender's counsel shall have received
any and all further information and documents which the Lender or such counsel
may reasonably have requested in connection therewith, such documents where
appropriate to be certified by proper corporate or governmental authorities.
IV.2 CONDITIONS PRECEDENT TO EACH BORROWING. The obligation of the Lender
to make a Loan on the occasion of each Borrowing (including the initial
Borrowing) shall be subject to the further conditions precedent that on the date
of such Borrowing:
(a) the following statements shall be true and the Lender shall have
received the notice required by Section 2.1(b), which notice shall be deemed to
be a certification by the Borrower that:
(i) the representations and warranties contained in Section 5.1
are correct on and as of the date of such Borrowing as though made on and as of
such date,
(ii) no event has occurred and is continuing, or would result
from such Borrowing, which constitutes an Event of Default or Potential Event of
Default, and
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(iii) all Loan Documents are in full force and effect, and
(b) the Lender shall have received such other approvals, opinions or
documents as the Lender may reasonably request.
IV.3 CONDITIONS PRECEDENT TO EACH LETTER OF CREDIT. The issuance of any
Letter of Credit hereunder is subject to the prior or concurrent satisfaction of
all of the following conditions:
(a) On or before three (3) Business Days prior to the date of
issuance of the initial Letter of Credit, each of the conditions set forth in
Section 4.1 shall have been satisfied or waived and the initial Loan shall have
been made hereunder.
(b) On or before the date of issuance, the Lender shall have received
the executed application for such Letter of Credit in the form customarily
required by the Lender and all other information specified in Section 2.7(b) and
such other documents as the Lender may require in connection with the issuance
of such Letter of Credit.
(c) On the date of issuance, all conditions precedent described in
Section 4.2 shall be satisfied to the same extent as though the issuance of such
Letter of Credit were the making of a Loan and the date of issuance of such
Letter of Credit were the date of a Borrowing.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
V.1 REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants
as follows:
(a) ORGANIZATION. The Borrower is duly organized, validly existing
and in good standing under the laws of the state of its formation. The Borrower
is also duly authorized, qualified and licensed in all applicable jurisdictions,
and under all applicable laws, regulations, ordinances or orders of public
authorities, to carry on its business in the locations and in the manner
presently conducted.
(b) AUTHORIZATION. The execution, delivery and performance by the
Borrower of the Loan Documents, and the making of Borrowings hereunder, are
within the Borrower's corporate or partnership powers, as the case may be, have
been duly authorized by all necessary corporate or partnership action, as the
case may be, and do not contravene (i) the Borrower's charter, by-laws or other
organizational document or (ii) any law or regulation (including Regulations G,
T, U and X) or any contractual restriction binding on or affecting the Borrower.
(c) GOVERNMENTAL CONSENTS. No authorization or approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body (except the filing
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of financing statements and routine reports required pursuant to the Securities
Exchange Act of 1934, as amended (if such act is applicable to the Borrower),
which reports will be made in the ordinary course of business) is required for
the due execution, delivery and performance by the Borrower of the Loan
Documents.
(d) VALIDITY. The Loan Documents are the binding obligations of the
Borrower or other executing Person, if any, enforceable in accordance with their
respective terms; except in each case as such enforceability may be limited by
bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar
laws of general application and equitable principles relating to or affecting
creditors' rights.
(e) FINANCIAL CONDITION. The balance sheets of the Borrower and its
consolidated Subsidiaries as at April 30, 1996 and April 30, 1997, and the
related statements of income and retained earnings of the Borrower and its
consolidated Subsidiaries for the fiscal year and fiscal quarter then ended,
copies of which have been furnished to the Lender, fairly present the financial
condition of the Borrower and its consolidated Subsidiaries as at such dates and
the results of the operations of the Borrower and its consolidated Subsidiaries
for the respective periods ended on such dates, all in accordance with GAAP,
consistently applied, and since April 30, 1997 there has been no material
adverse change in the business, operations, properties, assets, prospects or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole.
(f) LITIGATION. There is no pending or threatened action or
proceeding affecting the Borrower or any of its Subsidiaries before any court,
governmental agency or arbitrator, which may materially adversely affect the
consolidated financial condition or operations of the Borrower or which may have
a material adverse effect on the Borrower's ability to perform its obligations
under the Loan Documents, having regard for its other financial obligations.
(g) EMPLOYEE BENEFIT PLANS. The Borrower and each of its ERISA
Affiliates is in compliance in all material respects with any applicable
provisions of ERISA and the regulations and published interpretations thereunder
with respect to all Employee Benefit Plans. No Termination Event has occurred
or is reasonably expected to occur with respect to any Pension Plan. The excess
of the actuarial present value of all benefit liabilities under all Pension
Plans (excluding in such computation Pension Plans with assets greater than
benefit liabilities) over the fair market value of the assets allocable to such
benefit liabilities are not greater than five percent (5%) of Consolidated
Tangible Net Worth. For purposes of the preceding sentence, the terms
"actuarial present value" and "benefit liabilities" shall have the meanings
specified in Section 4001 of ERISA.
(h) DISCLOSURE. No representation or warranty of the Borrower
contained in this Agreement or any other document, certificate or written
statement furnished to the Lender by or on behalf of the Borrower for use in
connection with the transactions contemplated by this Agreement contains any
untrue statement of a material fact or omits to state a material fact (known to
the Borrower in the case of any document not furnished by it) necessary in order
to make the statements contained herein or therein not misleading. There is no
fact known to the
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Borrower (other than matters of a general economic nature) which materially
adversely affects the business, operations, properties, assets, prospects or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole, which has not been disclosed herein or in such other documents,
certificates and statements furnished to the Lender for use in connection with
the transactions contemplated hereby.
(i) MARGIN STOCK. The aggregate value of all margin stock (as
defined in Regulation U) directly or indirectly owned by the Borrower and its
Subsidiaries is less than 25% of the aggregate value of the Borrower's assets.
No proceeds of any Loan will be used to purchase or carry any margin stock or to
extend credit to others for the purpose of purchasing or carrying any margin
stock.
(j) ENVIRONMENTAL MATTERS. Except as set forth in Schedule 5.1(j),
neither the Borrower nor any Subsidiary, nor any of their respective officers,
employees, representatives or agents, nor, to the best of their knowledge, any
other Person, has treated, stored, processed, discharged, spilled, or otherwise
disposed of any substance defined as hazardous or toxic by any applicable
federal, state or local law, rule, regulation, order or directive, or any waste
or by-product thereof, at any real property or any other facility owned, leased
or used by the Borrower or any Subsidiary, in violation of any applicable
statutes, regulations, ordinances or directives of any governmental authority or
court, which violations may result in liability to the Borrower or any
Subsidiary or any of their respective officers, employees, representatives,
agents or shareholders in an amount exceeding $100,000 for all such violations;
and the unresolved violations set forth in said Schedule will not result in
liability to the Borrower or any Subsidiary or any of their respective officers,
employees, representatives, agents or shareholders in an amount exceeding
$100,000 for all such unresolved violations. Except as set forth in said
Schedule, no employee or other Person has ever made a claim or demand against
the Borrower or any Subsidiary based on alleged damage to health caused by any
such hazardous or toxic substance or by any waste or by-product thereof; and the
unsatisfied claims or demands against the Borrower or any Subsidiary set forth
in said Schedule will not result in uninsured liability to the Borrower or any
Subsidiary or any of their respective officers, employees, representatives,
agents or shareholders in an amount exceeding $100,000 for all such unsatisfied
claims or demands. Except as set forth in said Schedule, neither the Borrower
nor any Subsidiary has been charged by any governmental authority with
improperly using, handling, storing, discharging or disposing of any such
hazardous or toxic substance or waste or by-product thereof or with causing or
permitting any pollution of any body of water; and the outstanding charges set
forth in said Schedule will not result in liability to the Borrower or any
Subsidiary or any of their respective officers, employees, representatives,
agents or shareholders in an amount exceeding $100,000 for all such outstanding
charges.
(k) PROJECTIONS. As of the date hereof, to the best knowledge of the
Borrower, the assumptions set forth and/or utilized in the projections
previously provided to the Lender are reasonable and consistent with each other
and with all facts known to the Borrower and the projections are based on such
assumptions. Nothing in this Section 5.1(k) shall be construed as a
representation or covenant that the projections in fact will be achieved.
(l) EMPLOYEE MATTERS. There is no strike or work stoppage in
existence or
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threatened involving the Borrower or its Subsidiaries that may materially
adversely affect the consolidated financial condition or operations of the
Borrower or that may have a material adverse effect on the Borrower's ability to
perform its obligations under the Loan Documents, having regard for its other
financial obligations.
ARTICLE VI
COVENANTS
VI.1 AFFIRMATIVE COVENANTS. So long as any Note shall remain unpaid, any
Letter of Credit shall remain outstanding or unreimbursed or the Lender shall
have any Commitment hereunder, the Borrower will, unless the Lender shall
otherwise consent in writing:
(a) FINANCIAL INFORMATION. Furnish to the Lender:
(i) as soon as available, but in any event within ninety (90)
days after the end of each fiscal year of the Borrower, a copy of the
consolidated balance sheet of the Borrower and its consolidated Subsidiaries as
at the end of each fiscal year and the related consolidated statements of income
and retained earnings (or comparable statement) and changes in financial
position and cash flow for such year, setting forth in each case in comparative
form the figures as at the end of the previous year as to the balance sheet and
the figures for the previous corresponding period as to the other statements,
accompanied by an unqualified report and opinion thereon of Deloitte & Touche,
or other independent certified public accountants acceptable to the Lender, all
such financial statements to be complete and correct in all material respects
and in accordance with GAAP applied consistently throughout the fiscal year
(except as approved by such accountants and disclosed therein);
(ii) as soon as available, but in any event within forty-five
(45) days after the end of each of the first three fiscal quarters of the
Borrower, a copy of the unaudited consolidated balance sheet of the Borrower and
its consolidated Subsidiaries as at the end of such period and the related
unaudited consolidated statements of income and retained earnings (or comparable
statement) and changes in financial position and cash flow for such period and
year to date, setting forth in each case in comparative form the figures as at
the end of the previous fiscal year as to the balance sheet and the figures for
the previous corresponding period as to the other statements, certified by a
duly authorized officer of the Borrower as being fairly stated in all material
respects subject to year end and audit adjustments, all such financial
statements to be complete and correct in all material respects and in accordance
with GAAP subject to normal year end and audit adjustments and the absence of
footnotes, applied consistently throughout the period reflected therein (except
as approved by such accountants and disclosed therein);
(iii) together with each delivery of financial statements of the
Borrower and its Subsidiaries pursuant to subdivisions (i) and (ii) above, (A)
an officer's certificate stating that the signer has reviewed the terms of the
Loan Documents and have made, or caused to be made under their supervision, a
review in reasonable detail of the transactions and condition of the Borrower
and its Subsidiaries during the accounting period covered by such financial
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<PAGE>
statements and that such review has not disclosed the existence during or at the
end of such accounting period, and that the signers do not have knowledge of the
existence as at the date of the officer's certificate, of any condition or event
which constitutes an Event of Default or Potential Event of Default, or, if any
such condition or event existed or exists, specifying the nature and period of
existence thereof and what action the Borrower has taken, is taking and proposes
to take with respect thereto; and (B) a Compliance Certificate in the form of
Exhibit D demonstrating in reasonable detail compliance during and at the end of
such accounting periods with the restrictions contained in Sections 6.2(a), (b),
(c) and (d) as of the end of the fiscal period covered thereby;
(iv) substantially concurrent with the sending or filing thereof,
copies of all reports which the Borrower sends to a majority of its security
holders, and copies of all reports and registration statements which the
Borrower or any of its Subsidiaries files with the S.E.C. or any national
securities exchange;
(v) within twenty (20) days after the end of each month in which
a Revolving Loan or a Letter of Credit is outstanding (or if no Revolving Loan
or Letter of Credit is outstanding, as a condition to the Borrower requesting a
Revolving Loan or Letter of Credit), a Borrowing Base Certificate in the form of
Exhibit E setting forth the calculation of the Borrowing Base, certified by the
chief financial officer of the Borrower.
(vi) as soon as available, but in any event within twenty (20)
days after the end of each calendar month, an aging of the Borrower's accounts
receivable and accounts payable in form and detail acceptable to the Lender; and
(vii) as soon as practicable, but in any event within ninety (90)
days after the end of each fiscal year, a budget and projections by fiscal
quarter for the next four fiscal quarters, INCLUDING projected consolidated
balance sheets and statements of income and retained earnings (or comparable
statements) and changes in financial position and cash flow of the Borrower and
its consolidated Subsidiaries, all in form and detail acceptable to the Lender.
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(b) NOTICES AND INFORMATION. Deliver to the Lender:
(i) promptly upon any officer of the Borrower obtaining
knowledge (A) of any condition or event which constitutes an Event of Default or
Potential Event of Default, (B) that any Person has given any notice to the
Borrower or any Subsidiary of the Borrower or taken any other action with
respect to a claimed default or event or condition of the type referred to in
Section 7.1(f), (C) of the institution of any litigation involving an alleged
liability (including possible forfeiture of property) of the Borrower or any of
its Subsidiaries equal to or greater than $250,000 or any adverse determination
in any litigation involving a potential liability of the Borrower or any of its
Subsidiaries equal to or greater than $250,000, or (D) of a material adverse
change in the business, operations, properties, assets or condition (financial
or otherwise) of the Borrower and its Subsidiaries, taken as a whole, an
officers' certificate specifying the nature and period of existence of any such
condition or event, or specifying the notice given or action taken by such
holder or Person and the nature of such claimed default, Event of Default,
Potential Event of Default, event or condition, and what action the Borrower has
taken, is taking and proposes to take with respect thereto;
(ii) promptly upon becoming aware of the occurrence of or
forthcoming occurrence of any (A) Termination Event, or (B) "prohibited
transaction," as such term is defined in Section 4975 of the Internal Revenue
Code or Section 406 of ERISA, in connection with any Employee Benefit Plan or
any trust created thereunder, a written notice specifying the nature thereof,
what action the Borrower has taken, is taking or proposes to take with respect
thereto, and, when known, any action taken or threatened by the Internal Revenue
Service, the Department of Labor, or the Pension Benefit Guaranty Corporation
with respect thereto;
(iii) with reasonable promptness copies of (A) all notices
received by the Borrower or any of its ERISA Affiliates of the Pension Benefit
Guaranty Corporation's intent to terminate any Pension Plan or to have a trustee
appointed to administer any Pension Plan, (B) each Schedule B (Actuarial
Information) to the annual report (Form 5500 Series) filed by the Borrower or
any of its ERISA Affiliates with the Internal Revenue Service with respect to
each Pension Plan, and (C) all notices received by the Borrower or any of its
ERISA Affiliates from a Multiemployer Plan sponsor concerning the imposition or
amount of withdrawal liability pursuant to Section 4202 of ERISA;
(iv) promptly, but in any event within thirty (30) days after
receipt thereof, a copy of any notice, summons, citation, directive, letter or
other form of communication from any governmental authority or court in any way
concerning any action or omission on the part of the Borrower or any of its
Subsidiaries in connection with any substance defined as toxic or hazardous by
any applicable federal, state or local law, rule, regulation, order or directive
or any waste or by product thereof, or concerning the filing of a lien upon,
against or in connection with the Borrower, its Subsidiaries, or any of their
leased or owned real or personal property, in connection with a Hazardous
Substance Superfund or a Post-Closure Liability Fund as maintained pursuant to '
9507 of the Internal Revenue Code if such act or omission may result in
liability in an amount exceeding $100,000 for all such acts or omissions or if
any such Lien, together with all other such Liens, is filed upon or against
property the fair market value of which
29
<PAGE>
exceeds $100,000 in the aggregate; and
(v) promptly, but in any event within ten (10) days after
request, such other information and data with respect to the Borrower or any of
its Subsidiaries as from time to time may be reasonably requested by the Lender.
(c) CORPORATE EXISTENCE, ETC. At all times preserve and keep in full
force and effect its and its Subsidiaries' corporate existence and rights and
franchises material to its business and those of each of its Subsidiaries;
PROVIDED, HOWEVER, that the corporate existence of any such Subsidiary may be
terminated if such termination is in the best interest of the Borrower and is
not materially disadvantageous to the holder of any Note.
(d) PAYMENT OF TAXES AND CLAIMS. Pay, and cause each of its
Subsidiaries to pay, all taxes, assessments and other governmental charges
imposed upon it or any of its properties or assets or in respect of any of its
franchises, business, income or property before any penalty or interest accrues
thereon, and all claims (including claims for labor, services, materials and
supplies) for sums which have become due and payable and which by law have or
may become a lien upon any of its properties or assets, prior to the time when
any penalty or fine shall be incurred with respect thereto; PROVIDED that no
such charge or claim need be paid if being contested in good faith by
appropriate proceedings promptly instituted and diligently conducted and if such
reserve or other appropriate provision, if any, as shall be required in
accordance with GAAP shall have been made therefor.
(e) MAINTENANCE OF PROPERTIES; INSURANCE. Maintain or cause to be
maintained in good repair, working order and condition all material properties
used or useful in the business of the Borrower and its Subsidiaries and from
time to time make or cause to be made all appropriate repairs, renewals and
replacements thereof. The Borrower will maintain or cause to be maintained,
with financially sound and reputable insurers, insurance with respect to its
properties and business and the properties and business of its Subsidiaries
against loss or damage of the kinds customarily insured against by corporations
of established reputation engaged in the same or similar businesses and
similarly situated, of such types and in such amounts as are customarily carried
under similar circumstances by such other corporations. The Borrower will
comply with any other insurance requirement set forth in any other Loan
Document.
(f) INSPECTION. Permit any authorized representatives designated by
the Lender to visit and inspect any of the properties of the Borrower or any of
its Subsidiaries, including its and their financial and accounting records, and
to make copies and take extracts therefrom, and to discuss its and their
affairs, finances and accounts with its and their officers and independent
public accountants, all at such reasonable times during normal business hours,
upon two (2) days prior notice if no Event of Default or Potential Event of
Default has occurred, and as often as may be reasonably requested, but not more
than once each quarter if an Event of Default or Potential Event of Default has
not occurred.
(g) COMPLIANCE WITH LAWS, ETC. Exercise, and cause each of its
Subsidiaries to exercise, all due diligence in order to comply with the
requirements of all applicable laws, rules, regulations and orders of any
governmental authority, including all environmental laws,
30
<PAGE>
rules, regulations and orders, noncompliance with which would materially
adversely affect the business, properties, assets, operations, prospects or
condition (financial or otherwise) of the Borrower and its Subsidiaries, taken
as a whole.
(h) REGISTRATION OF INTELLECTUAL PROPERTY RIGHTS.
(i) Borrower shall register or cause to be registered (to the
extent not already registered) with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those intellectual
property rights listed on Exhibits A, B and C to the Intellectual Property
Security Agreement delivered to the Lender by Borrower in connection with this
Agreement within thirty (30) days of the date of this Agreement. Borrower shall
register or cause to be registered with the United States Patent and Trademark
Office or the United States Copyright Office, as applicable, those additional
intellectual property rights developed or acquired by Borrower from time to time
in connection with any product which is material to Borrower's business or from
which revenue in excess of $50,000 is derived in any fiscal year, prior to the
sale or licensing of such product to any third party, including without
limitation revisions or additions to the intellectual property rights listed on
such Exhibits A, B and C.
(ii) Borrower shall execute and deliver such additional
instruments and documents from time to time as the Lender shall reasonably
request to perfect the Lender's security interest in the Intellectual Property
Collateral (as defined in the Intellectual Property Security Agreement).
(iii) Borrower shall (i) protect, defend and maintain the
validity and enforceability of the Trademarks, Patents, and Copyrights (as such
terms are defined in the Intellectual Property Security Agreement), (ii) use
commercially reasonable efforts to detect infringements of the Trademarks,
Patents, and Copyrights and promptly advise the Lender in writing of material
infringements detected and (iii) not allow any Trademarks, Patents, or
Copyrights to be abandoned, forfeited or dedicated to the public without the
written consent of the Lender, which shall not be unreasonably withheld, unless
the Lender determines that reasonable business practices suggest that
abandonment is appropriate.
(iv) the Lender shall have the right, but not the obligation, to
take, at Borrower's sole expense, any actions that Borrower is required under
this Section to take but which Borrower fails to take, after fifteen (15) days'
notice to Borrower. Borrower shall reimburse and indemnify the Lender for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this Section.
VI.2 NEGATIVE COVENANTS. So long as any Note shall remain unpaid, any
Letter of Credit shall remain outstanding or unreimbursed or the Lender shall
have any Commitment hereunder, the Borrower will not, without the written
consent of the Lender:
(a) DEBT COVERAGE RATIO. As at the end of any fiscal quarter of the
Borrower commencing with the fiscal quarter ending July 31, 1997, permit the
ratio of Consolidated Debt as at the end of such fiscal quarter to Consolidated
Cash Flow for the four fiscal quarters ending
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<PAGE>
on the last day of such fiscal quarter, to be more than the correlative amount
indicated below:
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
July 31, 1997 3.50 : 1.00
October 31, 1997 3.50 : 1.00
January 31, 1998 3.50 : 1.00
April 30, 1998 and thereafter 2.75 : 1.00
</TABLE>
(b) CASH FLOW COVERAGE RATIO. As at the end of any fiscal quarter of
the Borrower, permit the ratio of Consolidated Cash Flow, for the four quarters
ending on any date of determination, to Consolidated Interest Expense for such
four quarters, to be less than 5.00 to 1.00.
(c) FIXED CHARGE COVERAGE RATIO. As at the end of any fiscal quarter
of the Borrower, permit the ratio of (a) the sum of (i) Consolidated Cash Flow,
for the four quarters ending on any date of determination, MINUS (ii)
Consolidated Capital Expenditures for such four quarters, MINUS (iii)
Consolidated Taxes for such four quarters, to (b) Consolidated Debt Service for
such four quarters, to be less than 1.50 to 1.00.
(d) CONSOLIDATED NET INCOME. Permit Consolidated Net Income to be
less than $0 for any fiscal quarter of the Borrower.
(e) LIENS, ETC. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, whether now owned or hereafter acquired, other than:
(i) Liens existing on the date hereof and set forth in Schedule
6.2(e) or Borrower's financial statements;
(ii) Permitted Liens;
(iii) purchase money Liens upon or in any property acquired or
held by the Borrower or any Subsidiary in the ordinary course of business to
secure the purchase price of such property or to secure indebtedness incurred
solely for the purpose of financing the acquisition of such property;
(iv) other Liens, not otherwise permitted herein, not exceeding
$100,000 in the aggregate; and
(v) all renewals, refundings, refinancings and extensions of any
such Liens described in clause (i) above; PROVIDED that the principal amount
secured is not increased and that such Lien is not extended to other property.
(f) DEBT. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Debt, other than:
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(i) Debt existing on the date hereof and set forth on Schedule
6.2(f) or disclosed in Borrower's financial statements;
(ii) Debt owed to the Lender hereunder;
(iii) Debt relating to Liens permitted under Section 6.2(e)(iii);
(iv) Debt with respect to capital leases to finance the
acquisition of equipment;
(v) Debt of a wholly-owned Subsidiary of the Borrower to another
wholly-owned Subsidiary of the Borrower or to the Borrower and Debt of the
Borrower to a wholly-owned Subsidiary of the Borrower;
(vi) Other Debt not in excess of $100,000 in the aggregate at any
time; and
(vii) Contingent Obligations permitted under Section 6.2(j).
(g) DIVIDENDS, ETC. Declare or pay any dividends, purchase or
otherwise acquire for value any of its capital stock now or hereafter
outstanding, or make any distribution of assets to its stockholders as such, or
permit any of its Subsidiaries to purchase or otherwise acquire for value any
stock of the Borrower, except in connection with Borrower's investment in
preferred stock of Globe Wireless, Inc., provided and to the extent there is no
negative cash impact to Borrower.
(h) CONSOLIDATION, MERGER. Consolidate or merge with any other
Person, liquidate, wind-up or dissolve itself or acquire by purchase or
otherwise all or substantially all of the business, property or fixed assets of,
or stock or other evidence of beneficial ownership of, any Person, or permit any
of its Subsidiaries to do any of the foregoing.
(i) INVESTMENTS. Make or permit to remain outstanding, or permit any
Subsidiary to make or permit to remain outstanding, any Investment, except that
the Borrower and its Subsidiaries may:
(i) continue to own Investments existing on the date hereof and
set forth on Schedule 6.2(i) as the same may be reinvested similarly from time
to time;
(ii) own, purchase or acquire certificates of deposit, money
market mutual funds registered with the SEC, commercial paper rated Moody's P-I,
municipal bonds rated Moody's AA or better, direct obligations of the United
States of America or its agencies, and obligations guaranteed by the United
States of America;
(iii) acquire and own stock, obligations or securities received
from customers in connection with debts created in the ordinary course of
business owing to the
33
<PAGE>
Borrower or a Subsidiary;
(iv) continue to own the existing capital stock of the Borrower's
Subsidiaries; and
(v) make or permit to remain outstanding intercompany loans to
the extent permitted under Section 6.2(f)(iv).
(j) CONTINGENT OBLIGATIONS. Create or become or remain liable, or
permit any of its Subsidiaries to create or become or remain liable, with
respect to any Contingent Obligation, except that the Borrower and its
Subsidiaries may:
(i) remain liable with respect to Contingent Obligations
existing on the date hereof and set forth on Schedule 6.2(j);
(ii) endorse negotiable instruments for deposit or collection or
similar transactions in the ordinary course of business;
(iii) become or remain liable with respect to reimbursement
obligations under those Letters of Credit issued hereunder in accordance with
Section 2.7.
(k) ASSET SALES. Convey, sell, lease, transfer or otherwise dispose
of, or permit any Subsidiary to convey, sell, lease, transfer or otherwise
dispose of, in one transaction or a series of transactions, (i) all or any part
of its or its Subsidiary's business, property or fixed assets outside of the
ordinary course of business, whether now owned or hereafter acquired, or (ii)
any capital stock or debt of any of its Subsidiaries, except:
(i) the Borrower and its Subsidiaries may convey, sell, lease,
transfer of otherwise dispose of obsolete or worn out assets; and
(ii) any Subsidiary of the Borrower may sell, lease or transfer
assets to the Borrower or to any wholly-owned Subsidiary of the Borrower.
(l) TRANSACTIONS WITH SHAREHOLDERS AND AFFILIATES. Enter into, or
permit any of its Subsidiaries to enter into, any transaction (including the
purchase, sale, lease or exchange of any property or the rendering of any
service) with any holder of 5% or more of any class of equity securities of the
Borrower, or with any Affiliate of the Borrower or any such holder, on terms
that (when taken in the light of any related or series of transactions of which
such transaction is a part (if any)) are less favorable to the Borrower or any
such Subsidiary than those which might be obtained at the time from Persons who
are not such a holder or Affiliate.
(m) AGREEMENTS RESTRICTING PAYMENT OF DIVIDENDS. Permit any of its
Subsidiaries to enter into any agreement restricting the ability of such
Subsidiary to declare, order, pay or make or set apart any sum for any dividends
or other distributions on account of any shares of any class of its stock.
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<PAGE>
(n) RESTRICTIVE AGREEMENTS. Agree with any Person, or permit any of
its Subsidiaries to agree with any Person, that the Borrower or such Subsidiary
will not create, incur or suffer to exist any Liens on its properties.
(o) SALES AND LEASE-BACKS. Become or remain liable, or permit any of
its Subsidiaries to become or remain liable, directly or indirectly, with
respect to any lease, whether an operating lease or a Capital Lease, of any
property (whether real, personal or mixed), whether now owned or hereafter
acquired, (i) which the Borrower or any of its Subsidiaries has sold or
transferred or is to sell or transfer to any other Person (other than the
Borrower or any of its Subsidiaries) or (ii) which the Borrower or any of its
Subsidiaries intends to use for substantially the same purpose as any other
property which has been or is to be sold or transferred by the Borrower or any
of its Subsidiaries to any Person (other than the Borrower or any of its
Subsidiaries) in connection with such lease.
(p) CONDUCT OF BUSINESS. Engage, or permit any of its Subsidiaries
to engage, in any business other than the businesses engaged in by the Borrower
and its Subsidiaries on the date of this Agreement and extensions thereof and
similar or related businesses.
(q) FISCAL YEAR. Change its fiscal year-end from April 30.
ARTICLE VII
EVENTS OF DEFAULT
VII.1 EVENTS OF DEFAULT. If any of the following events ("EVENTS OF
DEFAULT") shall occur and be continuing:
(a) The Borrower shall fail to pay any installment of principal when
due hereunder, or shall fail to pay any installment of interest hereunder or
other amount payable hereunder within three (3) Business Days of the date when
due; or
(b) Any representation or warranty made by the Borrower herein or by
the Borrower (or any of its officers) in connection with this Agreement shall
prove to have been incorrect in any material respect when made; or
(c) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in Section 3.1, 6.1 or 6.2 on its part to be performed or
observed; or
(d) The Borrower shall fail to perform or observe any term, covenant
or agreement contained in this Agreement or any other Loan Document other than
those referred to in Sections 7.1(a), (b), and (c) above on its part to be
performed or observed and any such failure shall remain unremedied or uncured
for thirty (30) days after the Borrower knows of such failure; or
(e) The Borrower or any of its Subsidiaries shall default in the
performance of
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<PAGE>
or compliance with any term contained in any Loan Document other than this
Agreement and such default shall not have been remedied or waived within any
applicable grace period; or
(f) The Borrower or any of its Subsidiaries shall (A) fail to pay any
principal of, or premium or interest on, any Debt, the aggregate outstanding
principal amount of which is at least $250,000 (excluding Debt evidenced by the
Notes), when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Debt, or (B) fail to perform or observe any term, covenant or
condition on its part to be performed or observed under any agreement or
instrument relating to any such Debt, when required to be performed or observed,
and such failure shall continue after the applicable grace period, if any,
specified in such agreement or instrument; or
(g) (i) The Borrower or any of its Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of any
jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief entered
with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or
seeking reorganization, arrangement, adjustment, winding-up, liquidation,
dissolution, composition or other relief with respect to it or its debts, or (B)
seeking appointment of a receiver, trustee, custodian or other similar official
for it or for all or any substantial part of its assets, or the Borrower or any
of its Subsidiaries shall make a general assignment for the benefit of its
creditors; or (ii) there shall be commenced against the Borrower or any of its
Subsidiaries any case, proceeding or other action of a nature referred to in
clause (i) above which (A) results in the entry of an order for relief or any
such adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of thirty (30) days; or (iii) there shall be commenced
against the Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which results
in the entry of an order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within thirty (30) days from the
entry thereof; or (iv) the Borrower or any of its Subsidiaries shall take any
action in furtherance of, or indicating its consent to, approval of, or
acquiescence in, any of the acts set forth in clause (i), (ii) and (iii) above;
or (v) the Borrower or any of its Subsidiaries shall generally not, or shall be
unable to, or shall admit in writing its inability to, pay its debts as they
become due; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability (not
paid or fully covered by insurance) equal to or greater than $250,000 and all
such judgments or decrees shall not have been vacated, discharged, or stayed or
bonded pending appeal within thirty (30) days from the entry thereof; or
(i) (i) The Borrower or any of its ERISA Affiliates shall fail to
make full payment when due of all amounts which, under the provisions of any
Pension Plan or Section 412 of the Internal Revenue Code, the Borrower or any of
its ERISA Affiliates is required to pay as contributions thereto;
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<PAGE>
(ii) any accumulated funding deficiency shall occur or exist,
whether or not waived, with respect to any Pension Plan;
(iii) the excess of the actuarial present value of all benefit
liabilities under all Pension Plans over the fair market value of the assets of
such Pension Plans (excluding in such computation Pension Plans with assets
greater than benefit liabilities) allocable to such benefit liabilities shall be
greater than five percent (5%) of Consolidated Tangible Net Worth;
(iv) the Borrower or any of its ERISA Affiliates shall enter into
any transaction which has as its principal purpose the evasion of liability
under Subtitle D of Title IV of ERISA;
(v) (A) Any Pension Plan maintained by the Borrower or any of
its ERISA Affiliates shall be terminated within the meaning of Title IV of
ERISA, or (B) a trustee shall be appointed by an appropriate United States
district court to administer any Pension Plan, or (C) the Pension Benefit
Guaranty Corporation (or any successor thereto) shall institute proceedings to
terminate any Pension Plan or to appoint a trustee to administer any Pension
Plan, or (D) the Borrower or any of its ERISA Affiliates shall withdraw (under
Section 4063 of ERISA) from a Pension Plan, if as of the date of the event
listed in subclauses (A)-(D) above or any subsequent date, either the Borrower
or its ERISA Affiliates has any liability (such liability to include any
liability to the Pension Benefit Guaranty Corporation, or any successor thereto,
or to any other party under Sections 4062, 4063 or 4064 of ERISA or any other
provision of law) resulting from or otherwise associated with the events listed
in subclauses (A)-(D) above;
(vi) As used in this Section 7.1(i) the term "accumulated funding
deficiency" has the meaning specified in Section 412 of the Internal Revenue
Code, and the terms "actuarial present value" and "benefit liabilities" have the
meanings specified in Section 4001 of ERISA; or
(j) There shall be instituted against the Borrower or any of its
Subsidiaries any proceeding for which forfeiture of any property is a potential
penalty;
THEN (i) upon the occurrence of any Event of Default described in
clause (g) above, the Commitment and any obligation of the Lender to issue any
Letter of Credit shall immediately terminate and all Loans hereunder together
with accrued interest thereon, an amount equal to the Letter of Credit Usage and
all other amounts owing under this Agreement, the Notes, the Letters of Credit
and the other Loan Documents shall automatically become due and payable; and
(ii) upon the occurrence of any other Event of Default, the Lender may, by
notice to the Borrower, declare the Commitment and any obligation of the Lender
to issue any Letter of Credit to be terminated forthwith, whereupon the
Commitment and any obligation of the Lender to issue any Letter of Credit shall
immediately terminate, and/or, by notice to the Borrower, declare the Loans
hereunder, with accrued interest thereon, an amount equal to the Letter of
Credit Usage and all other amounts owing under this Agreement, the Notes, the
Letters of Credit and the other Loan Documents to be due and payable forthwith,
whereupon the same shall immediately become due and payable. Except as
expressly provided above in this Section, presentment, demand, protest and all
other notices of any kind are hereby expressly waived. So long as any
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Letter of Credit shall remain outstanding, any amounts received by the Lender
may be held as cash collateral for the obligation of the Borrower to reimburse
the Lender in the event of any drawing under any Letter of Credit. In the event
any Letter of Credit in respect of which the Borrower has deposited cash
collateral with the Lender is canceled or expires, the cash collateral shall be
applied FIRST to the reimbursement of the Lender for any drawings thereunder,
and SECOND to the payment of any outstanding obligations of the Borrower
hereunder or under any other Loan Document.
ARTICLE VIII
MISCELLANEOUS
VIII.1 AMENDMENTS, ETC. No amendment or waiver of any provision of the
Loan Documents nor consent to any departure by the Borrower therefrom, shall in
any event be effective unless the same shall be in writing and signed by the
Lender, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which given.
VIII.2 NOTICES, ETC. Except as otherwise set forth in this Agreement,
all notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex or facsimile communication) and mailed or
telegraphed or telexed or sent by facsimile or delivered, if to the Borrower, at
its address set forth on the signature page hereof; and if to the Lender, at its
address set forth on the signature page hereof; or, as to each party, at such
other address as shall be designated by such party in a written notice to the
other parties. All such notices and communications shall be effective three (3)
Business Days after deposit in the U.S mail, postage prepaid, when sent by telex
or sent by facsimile, or when delivered, respectively, except that notices and
communications to the Lender pursuant to Article II or VII shall not be
effective until received by the Lender.
VIII.3 RIGHT OF SETOFF; DEPOSIT ACCOUNTS. Upon and after the occurrence
of any Event of Default, the Lender is hereby authorized by the Borrower, at any
time and from time to time, without notice, (a) to set off against, and to
appropriate and apply to the payment of, the obligations and liabilities of the
Borrower under the Loan Documents (whether matured or unmatured, fixed or
contingent or liquidated or unliquidated) any and all amounts owing by the
Lender to the Borrower (whether payable in Dollars or any other currency,
whether matured or unmatured, and, in the case of deposits, whether general or
special, time or demand and however evidenced) and (b) pending any such action,
to the extent necessary, to hold such amounts as collateral to secure such
obligations and liabilities and to return as unpaid for insufficient funds any
and all checks and other items drawn against any deposits so held as the Lender
in its sole discretion may elect. The Borrower hereby grants to the Lender a
security interest in all deposits and accounts maintained with the Lender. The
rights of the Lender under this Section are in addition to other rights and
remedies (including other rights of set-off) which the Lender may have.
38
<PAGE>
VIII.4 NO WAIVER; REMEDIES. No failure on the part of the Lender to
exercise, and no delay in exercising, any right under any of the Loan Documents
shall operate as a waiver thereof; nor shall any single or partial exercise of
any right under any of the Loan Documents preclude any other or further exercise
thereof or the exercise of any other right. The remedies herein provided are
cumulative and not exclusive of any remedies provided by law.
VIII.5 COSTS AND EXPENSES. The Borrower agrees to pay on demand all
costs and expenses of the Lender (including reasonable attorney's fees and the
reasonable estimate of the allocated cost of in-house counsel and staff) in
connection with the preparation, amendment, modification, enforcement (including
in appellate, bankruptcy, insolvency, liquidation, reorganization, moratorium or
other similar proceedings) or restructuring of the Loan Documents.
VIII.6 SUCCESSORS AND ASSIGNS; CONFIDENTIALITY.
(a) The Lender may sell, assign, transfer, negotiate or grant
participations to other financial institutions in all or part of the obligations
of the Borrower outstanding under the Loan Documents, without notice to or the
approval of the Borrower; PROVIDED that any such sale, negotiation or
participation shall be in compliance with the applicable federal and state
securities laws and the other requirements of this Section 8.6.
(b) The Lender may disclose to any proposed assignee or participant
any information relating to the Borrower or any of its Subsidiaries; PROVIDED,
that prior to such disclosure such proposed assignee or participant shall have
agreed in writing to keep any such information confidential substantially on the
terms of Section 8.6(c).
(c) The Lender understands that some of the information and documents
furnished to it pursuant to this Agreement may be confidential and the Lender
agrees that it will keep all non-public information, documents and agreements so
furnished to it confidential and will make no disclosure to other Persons of
such information or agreements until it shall have become public, except (i) to
the extent required in connection with matters involving operations under or
enforcement or amendment of the Loan Documents; (ii) to the Lender's examiners
and auditors or in accordance with the Lender's obligations under law or
regulations or pursuant to subpoenas or other process to make information
available to governmental agencies and examiners or to others; (iii) to any
corporate parent of the Lender so long as such parent agrees to accept such
information or agreement subject to the restrictions provided in this Section
8.6(c); (iv) to any participant bank or trust company of the Lender so long as
such participant shares the corporate parent with the Lender and agrees to keep
such information, documents or agreement confidential in accordance with the
restrictions provided in this Section 8.6(c); (v) to the Lender's counsel and
other professional advisors so long as such Persons are instructed to keep such
information confidential in accordance with the provisions of this Section
8.6(c); (vi) to proposed assignees and participants in accordance with Section
8.6(b); and (vii) with the prior written consent of the Borrower.
VIII.7 EFFECTIVENESS; BINDING EFFECT; GOVERNING LAW. This Agreement
shall become effective when it shall have been executed by the Borrower and the
Lender and thereafter shall be
39
<PAGE>
binding upon and inure to the benefit of the Borrower, the Lender and their
respective successors and assigns, except that the Borrower shall not have the
right to assign its rights hereunder or any interest herein without the prior
written consent of the Lender. THIS AGREEMENT AND THE NOTES SHALL BE GOVERNED
BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF CALIFORNIA
WITHOUT GIVING EFFECT TO ITS CHOICE OF LAW DOCTRINE. EACH LETTER OF CREDIT
SHALL BE GOVERNED BY, AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH,
THE LAWS AND RULES DESIGNATED IN SUCH LETTER OF CREDIT, OR IF NO RULES OR LAWS
ARE DESIGNATED, THE UNIFORM CUSTOMS AND PRACTICES FOR DOCUMENTARY CREDIT (1993
REVISION), INTERNATIONAL CHAMBER OF COMMERCE, PUBLICATION NO. 400 (THE "UCP")
AND, AS TO MATTERS NOT GOVERNED BY THE UCP, THE LAWS OF THE STATE OF
CALIFORNIA.
VIII.8 WAIVER OF JURY TRIAL. THE BORROWER AND THE LENDER HEREBY AGREE
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT, ANY OF THE LOAN DOCUMENTS, OR ANY
DEALINGS BETWEEN THEM RELATING TO THE SUBJECT MATTER OF THIS LOAN TRANSACTION
AND THE LENDER/BORROWER RELATIONSHIP THAT IS BEING ESTABLISHED. The scope of
this waiver is intended to be all encompassing of any and all disputes that may
be filed in any court and that relate to the subject matter of this transaction,
including contract claims, tort claims, breach of duty claims, and all other
common law and statutory claims. The Lender and the Borrower each acknowledge
that this waiver is a material inducement to enter into a business relationship,
that each has already relied on the waiver in entering into this Agreement, and
that each will continue to rely on the waiver in their related future dealings.
The Lender and the Borrower further warrant and represent that each has reviewed
this waiver with its legal counsel, and that each knowingly and voluntarily
waives its jury trial rights following consultation with legal counsel. THIS
WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN
WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS,
SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT, THE LOAN DOCUMENTS, OR TO ANY
OTHER DOCUMENTS OR AGREEMENTS RELATING TO THE LOAN. In the event of litigation,
this Agreement may be filed as a written consent to a trial by the court.
VIII.9 CONSENT TO JURISDICTION; VENUE; SERVICE OF PROCESS. All judicial
proceedings brought against the Borrower or the Lender with respect to this
Agreement and the Loan Documents may be brought in any state or federal court of
competent jurisdiction in the County of Santa Clara in the State of California
and by execution and delivery of this Agreement, each of the Lender and the
Borrower accepts for itself and in connection with its properties, generally and
unconditionally, the nonexclusive jurisdiction of the aforesaid courts, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement. The Borrower and the Lender each irrevocably waives any
right it may have to assert the doctrine of FORUM NON CONVENIENS or to object to
venue to the extent any proceeding is brought in accordance with this Section.
In any action against the Borrower or the Lender, service of process may be made
upon the Borrower or the Lender by registered or certified mail, return receipt
requested, to its address indicated in the applicable signature page hereto,
which service shall be deemed
40
<PAGE>
sufficient for personal jurisdiction and shall be deemed effective ten (10) days
after mailing.
VIII.10 ENTIRE AGREEMENT. This Agreement with Exhibits and Schedules and
the other Loan Documents embody the entire agreement and understanding between
the parties hereto and supersedes all prior agreements and understandings
relating to the subject matter hereof.
VIII.11 SEPARABILITY OF PROVISIONS. In case any one or more of the
provisions contained in this Agreement should be invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein shall not in any way be affected or
impaired thereby.
VIII.12 SURVIVAL OF CERTAIN AGREEMENTS. Notwithstanding anything in this
Agreement or implied by law to the contrary, the agreements of the Borrower set
forth in Sections 3.6, 3.7, and 8.5 and the agreements of the Lender set forth
in Section 8.3 shall survive the payment of the Loans and the Notes and the
termination of this Agreement.
VIII.13 EXECUTION IN COUNTERPARTS. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement; signature
pages may be detached from counterpart documents and reassembled to form
duplicate executed originals.
[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
41
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
DITECH CORPORATION
By: /s/ William Tamblyn
------------------------------
Title: VP/CFO
------------------------------
Address:
570 Maude Court
Sunnyvale, CA 94086
Telecopier: (408) 990-0116
Attention: William J. Tamblyn
BANKBOSTON, N.A.
By: /s/ Teresa J. Heller
------------------------------
Title: Director
------------------------------
Notice and Payment Address:
435 Tasso Street
Palo Alto, California 94301
Telecopier: (415) 853-1425
Attention: Teresa J. Heller
42
<PAGE>
EXHIBIT A
DITECH CORPORATION
REVOLVING PROMISSORY NOTE
Palo Alto, California
$3,000,000 August 20, 1997
FOR VALUE RECEIVED, Ditech Corporation, a California corporation (the
"BORROWER"), promises to pay to the order of BankBoston, N.A. (the "LENDER") the
principal amount of Three Million Dollars ($3,000,000) or, if less, the
aggregate amount of Revolving Loans (as defined in the Credit Agreement referred
to below) made by the Lender to the Borrower pursuant to the Credit Agreement
referred to below outstanding on the Maturity Date (as defined in the Credit
Agreement referred to below) on the Maturity Date.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
office of the Lender described in the Credit Agreement. Until notified of the
transfer of this Note, the Borrower shall be entitled to deem the Lender or such
person who has been so identified by the transferor in writing to the Borrower
as the holder of this Note, as the owner and holder of this Note. Each of the
Lender and any subsequent holder of this Note agrees that before disposing of
this Note or any part hereof it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid on the schedule attached hereto, if any; PROVIDED, HOWEVER, that the
failure to make notation of any payment made on this Note shall not limit or
otherwise affect the obligation of the Borrower hereunder with respect to
payments of principal or interest on this Note.
This Note is referred to in, and is entitled to the benefits of, the Credit
Agreement dated as of August 20, 1997 (the "CREDIT AGREEMENT") among the
Borrower and the Lender. The Credit Agreement, among other things, (i) provides
for the making of advances (the "LOANS") by the Lender to the Borrower from time
to time in an aggregate amount not to exceed at any time outstanding the U.S.
dollar amount first above mentioned, the indebtedness of the Borrower resulting
from each such Loan being evidenced by this Note, and (ii) contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note
or the Credit
A-1
<PAGE>
Agreement shall alter or impair the obligation of the Borrower, which is
absolute and unconditional, to pay the principal of and interest on this Note at
the place, at the respective times, and in the currency herein prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note. The
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the laws
of the state of California without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
DITECH CORPORATION
By
------------------------------
Title
------------------------------
A-2
<PAGE>
TRANSACTIONS
ON
NOTE
<TABLE>
<CAPTION>
Amount of Interest
Amount of Principal Principal Interest Paid Notation
Date Loan Made Paid Balance Paid Through Made By
- ---- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
A-3
<PAGE>
EXHIBIT B
DITECH CORPORATION
TERM NOTE
Palo Alto, California
$8,000,000 August 20, 1997
FOR VALUE RECEIVED, Ditech Corporation, a California (the "BORROWER"),
promises to pay to the order of BankBoston, N.A. (the "LENDER") the principal
amount of Eight Million Dollars ($8,000,000) in installments as follows: (A)
One Hundred Twenty-Five Thousand Dollars ($125,000) on each of the last days of
March, June, September and December of 1998; (B) One Hundred Eighty-Seven
Thousand Five Hundred Dollars ($187,500) on each of the last days of March,
June, September and December of 1999; (C) Five Hundred Sixty-Two Thousand Five
Hundred Dollars ($562,500) on each of the last days of March, June, September
and December of 2000; (D) Five Hundred Sixty-Two Thousand Five Hundred Dollars
($562,500) on each of the last days of March, June, September and December of
2001; (E) Five Hundred Sixty-Two Thousand Five Hundred Dollars ($562,500) on
each of the last days of March, June, September and December of 2002. All
unpaid amounts of principal and interest shall be due and payable in full on
December 31, 2002.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
office of the Lender described in the Credit Agreement. Until notified of the
transfer of this Note, the Borrower shall be entitled to deem the Lender or such
person who has been so identified by the transferor in writing to the Borrower
as the holder of this Note, as the owner and holder of this Note. Each of the
Lender and any subsequent holder of this Note agrees that before disposing of
this Note or any part hereof it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid; PROVIDED, HOWEVER, that the failure to make notation of any payment
made on this Note shall not limit or otherwise affect the obligation of the
Borrower hereunder with respect to payments of principal or interest on this
Note.
This Note is the Term Note referred to in, and is entitled to the
benefits of, the Credit Agreement dated as of August 20, 1997 (the "CREDIT
AGREEMENT") among the Borrower and the Lender. The Credit Agreement, among
other things (i) provides for the making of an advance (the "TERM LOAN") by the
Lender to the Borrower on the date hereof in an aggregate amount equal to the
U.S. dollar amount first above mentioned, the indebtedness of the Borrower
resulting from such Loan being evidenced by this Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof upon the terms and conditions therein specified.
B-1
<PAGE>
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligation of the Borrower,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note. The
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the laws
of the state of California without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
DITECH CORPORATION
By
------------------------------
Title
------------------------------
B-2
<PAGE>
TRANSACTIONS
ON
NOTE
<TABLE>
<CAPTION>
Amount of Interest
Amount of Principal Principal Interest Paid Notation
Date Loan Made Paid Balance Paid Through Made By
- ---- --------- --------- --------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
B-3
<PAGE>
EXHIBIT C
PRICING GRID
The "APPLICABLE MARGIN" means the variable number of percentage points,
with respect to Base Rate Loans or LIBO Rate Loans, as applicable, as determined
by the Lender with reference to the Borrower's most recent financial statements
and Compliance Certificate, in accordance with the grid set forth below, based
upon the Borrower's ratio of Consolidated Debt as at the end of any fiscal
quarter to Consolidated Cash Flow on a rolling four quarter basis (as specified
in Section 6.2(a)). The effective date of any change in the Applicable Margin
shall be the first day of the month following the Lender's receipt of the
Borrower's financial statements and Compliance Certificate.
<TABLE>
<CAPTION>
Level Ratio of Applicable Applicable
- ----- Consolidated Margin for Margin for
Debt to Base Rate LIBO Rate
Consolidated Loans Loans
Cash Flow on ----- -----
rolling four
quarter basis
-------------
<S> <C> <C> <C>
I. Greater than 2.50:1.00 1.00 2.75
II. Less than or equal to 2.50:1.00 Greater than 0.75 2.50
2.00:1.00
III. Less than or equal to 2.00:1.00 Greater than 0.50 2.25
1.50:1.00
IV. Less than or equal to 1.50:1.00 0.25 2.00
</TABLE>
C-1
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
1. This Compliance Certificate ("Compliance Certificate") is executed
and delivered by Ditech Corporation, a California corporation (the "Borrower")
to BankBoston, N.A. (the "Lender") pursuant to Section 6.1(a)(iii)(B) of the
Credit Agreement dated as of August 20, 1997 between the Borrower and the
Lender. Any terms used herein and not defined herein shall have the meanings
defined in the Credit Agreement. This Compliance Certificate covers the
Borrower's:
Fiscal quarter ended _________, 19__
Fiscal year ended ________, 19__
2. The following paragraphs set forth calculations in compliance with
obligations pursuant to Section 6.2(a), (b), (c), and (d) of the Credit
Agreement, as of the end of the fiscal period set forth in paragraph 1 hereof.
A. DEBT COVERAGE RATIO (SEC 6.2(a)):
(a) Consolidated Debt $________
(b) Consolidated Cash Flow for the four-quarter
period ending on the last day of the most recently
ended fiscal quarter $________
Ratio (a) to (b) _________
Maximum Permitted Ratio
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
July 31, 1997 3.50 : 1.00
October 31, 1997 3.50 : 1.00
January 31, 1998 3.50 : 1.00
April 30, 1998 and thereafter 2.75 : 1.00
</TABLE>
B. CASH FLOW COVERAGE RATIO (SEC 6.2(b)):
(a) Consolidated Cash Flow for the four-quarter
period ending on the last day of the most recently
ended fiscal quarter $________
(b) Consolidated Interest Expense for the four-quarter
period ending on the last day of the most recently
D-1
<PAGE>
ended fiscal quarter $________
Ratio (a) to (b) _________
Minimum Permitted Ratio 5.0:1.0
C. FIXED CHARGE COVERAGE RATIO (SEC 6.2(c)):
(a) $________
(i) Consolidated Cash Flow for the
four-quarter period ending on the
last day of the most recently
ended fiscal quarter $________
(ii) MINUS Consolidated Capital
Expenditures for such period $________
(iii) MINUS Consolidated Taxes
for such period $________
(b) Consolidated Debt Service for such period $_________
Ratio (a) to (b) _________
Minimum Permitted Ratio 1.50:1.00
D. CONSOLIDATED NET INCOME (SEC. 6.2(d)):
(a) Consolidated Net Income $________
Required: (a) > $0
3. The undersigned has reviewed the terms of the Credit Agreement and
has made, or caused to be made under his/her supervision, a review in reasonable
detail of the transactions and condition of the Borrower and its Subsidiaries
during the fiscal period covered by this Compliance Certificate. The
undersigned does not (either as a result of such review or otherwise) have any
knowledge of the existence as of the date of this Compliance Certificate of any
condition or event that constitutes an Event of Default or a Potential Event of
Default, with the exception set forth below in response to which the Borrower is
taking or proposes to take the following actions (if none, so state):
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
D-2
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
4. This Compliance Certificate is executed on _______________, ____
by the Chief Executive Officer, Chief Financial Officer, or Controller of the
Borrower. The undersigned hereby certifies that each and every matter contained
herein is derived from the Borrower's books and records and is, to the best
knowledge of the undersigned, true and correct.
DITECH CORPORATION
a California corporation
By:
---------------------------------------------
Title:
D-3
<PAGE>
EXHIBIT E
BORROWING BASE CERTIFICATE
ACCOUNTS RECEIVABLE
1. Accounts Receivable Book Value as of $________
2. Additions (please explain on reverse) $________
3. TOTAL ACCOUNTS RECEIVABLE $________
ACCOUNTS RECEIVABLE DEDUCTIONS (without duplication)
4. Amounts over 90 days of the later of
invoice date or payment date $________
5. Intercompany/Employee Accounts $________
6. Insolvent Account Debtors $________
7. Conditional Accounts $________
8. Non-Dollar Accounts $________
9. Contra Accounts $________
10. Concentration Limits $________
11. Foreign Accounts (without credit insurance)
12. Governmental Accounts $________
13. Balance of 30% over 90 day accounts $________
14. Other (please explain on reverse) $________
15. TOTAL ACCOUNTS RECEIVABLE DEDUCTIONS $________
16. Eligible Accounts (#3 minus #15) $________
17. LOAN VALUE OF ACCOUNTS (80% of #16) $________
BALANCES
18. Maximum Revolving Loan Amount $________
19. Total Funds Available [Lesser of #18 or #17] $________
20. Present balance owing on Revolving Facility $________
21. RESERVE POSITION (#19 minus #20) $________
THE UNDERSIGNED REPRESENTS AND WARRANTS THAT THE FOREGOING IS TRUE, COMPLETE AND
CORRECT, AND THAT THE INFORMATION REFLECTED IN THIS BORROWING BASE CERTIFICATE
COMPLIES WITH THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THE CREDIT
AGREEMENT.
COMMENTS:
Ditech Corporation
By:
---------------------------------------
Authorized Signer
E-1
<PAGE>
EXHIBIT F
[FORM OF NOTICE OF REVOLVING LOAN]
NOTICE OF REVOLVING LOAN
Pursuant to that certain Credit Agreement (said Credit Agreement, as so
amended, supplemented or otherwise modified, being the "AGREEMENT"); the terms
defined therein and not otherwise defined herein being used herein as therein
defined), dated as of August 20, 1997 between Ditech Corporation, a California
corporation (the "Borrower") and BankBoston, N.A. (the "Lender"), this
represents the Borrower's request to borrow on _________________, _____ from the
Lender, $_______________ in Revolving Loans as [Base Rate] [LIBO Rate] Loans.
[The Interest Period for LIBO Rate Loans shall be [one] [two] [three] [six]
months.]
The undersigned officer, to the best of his/her knowledge, certifies that:
(i) The representations and warranties contained in the Agreement and the
other Loan Documents are true and correct in all material respects on and as of
the date hereof;
(ii) No event has occurred and is continuing or would result from the
consummation of the borrowing contemplated hereby that would constitute an Event
of Default or Potential Event of Default;
(iii) All Loan Documents are in full force and effect; and
(iv) There is not pending or threatened any action or proceeding against or
affecting the Borrower or any of its Subsidiaries before any court, governmental
agency or arbitrator, which could reasonably be expected to have a material
adverse effect on the business, operations, prospects, properties, assets or
condition (financial or otherwise) of the Borrower, or on the ability of the
Borrower to perform, or of the Lender to enforce, the obligations of the
Borrower under the Agreement or the other Loan Documents.
Dated: ___________________ DITECH CORPORATION
a California corporation
By:
------------------------------------
Title:
F-1
<PAGE>
DITECH CORPORATION
REVOLVING PROMISSORY NOTE
Palo Alto, California
$3,000,000 August 20, 1997
FOR VALUE RECEIVED, Ditech Corporation, a California corporation (the
"BORROWER"), promises to pay to the order of BankBoston, N.A. (the "LENDER") the
principal amount of Three Million Dollars ($3,000,000) or, if less, the
aggregate amount of Revolving Loans (as defined in the Credit Agreement referred
to below) made by the Lender to the Borrower pursuant to the Credit Agreement
referred to below outstanding on the Maturity Date (as defined in the Credit
Agreement referred to below) on the Maturity Date.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
office of the Lender described in the Credit Agreement. Until notified of the
transfer of this Note, the Borrower shall be entitled to deem the Lender or such
person who has been so identified by the transferor in writing to the Borrower
as the holder of this Note, as the owner and holder of this Note. Each of the
Lender and any subsequent holder of this Note agrees that before disposing of
this Note or any part hereof it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid on the schedule attached hereto, if any; PROVIDED, HOWEVER, that the
failure to make notation of any payment made on this Note shall not limit or
otherwise affect the obligation of the Borrower hereunder with respect to
payments of principal or interest on this Note.
This Note is referred to in, and is entitled to the benefits of, the Credit
Agreement dated as of August 20, 1997 (the "CREDIT AGREEMENT") among the
Borrower and the Lender. The Credit Agreement, among other things, (i) provides
for the making of advances (the "LOANS") by the Lender to the Borrower from time
to time in an aggregate amount not to exceed at any time outstanding the U.S.
dollar amount first above mentioned, the indebtedness of the Borrower resulting
from each such Loan being evidenced by this Note, and (ii) contains provisions
for acceleration of the maturity hereof upon the happening of certain stated
events and also for prepayments on account of principal hereof prior to the
maturity hereof upon the terms and conditions therein specified.
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligation of the Borrower,
which is absolute and
1
<PAGE>
unconditional, to pay the principal of and interest on this Note at the place,
at the respective times, and in the currency herein prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note. The
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the laws
of the state of California without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
DITECH CORPORATION
By /s/ William Tamblyn
------------------------------------
Title VP/CFO
------------------------------------
2
<PAGE>
TRANSACTIONS
ON
NOTE
<TABLE>
<CAPTION>
Amount of Interest
Amount of Principal Principal Interest Paid Notation
Date Loan Made Paid Balance Paid Through Made By
- ---- --------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
3
<PAGE>
DITECH CORPORATION
TERM NOTE
Palo Alto, California
$8,000,000 August 20, 1997
FOR VALUE RECEIVED, Ditech Corporation, a California (the "BORROWER"),
promises to pay to the order of BankBoston, N.A. (the "LENDER") the principal
amount of Eight Million Dollars ($8,000,000) in installments as follows: (A)
One Hundred Twenty-Five Thousand Dollars ($125,000) on each of the last days of
March, June, September and December of 1998; (B) One Hundred Eighty-Seven
Thousand Five Hundred Dollars ($187,500) on each of the last days of March,
June, September and December of 1999; (C) Five Hundred Sixty-Two Thousand Five
Hundred Dollars ($562,500) on each of the last days of March, June, September
and December of 2000; (D) Five Hundred Sixty-Two Thousand Five Hundred Dollars
($562,500) on each of the last days of March, June, September and December of
2001; (E) Five Hundred Sixty-Two Thousand Five Hundred Dollars ($562,500) on
each of the last days of March, June, September and December of 2002. All
unpaid amounts of principal and interest shall be due and payable in full on
December 31, 2002.
The Borrower also promises to pay interest on the unpaid principal amount
hereof from the date hereof until paid at the rates and at the times which shall
be determined in accordance with the provisions of the Credit Agreement.
All payments of principal and interest in respect of this Note shall be
made in lawful money of the United States of America in same day funds at the
office of the Lender described in the Credit Agreement. Until notified of the
transfer of this Note, the Borrower shall be entitled to deem the Lender or such
person who has been so identified by the transferor in writing to the Borrower
as the holder of this Note, as the owner and holder of this Note. Each of the
Lender and any subsequent holder of this Note agrees that before disposing of
this Note or any part hereof it will make a notation hereon of all principal
payments previously made hereunder and of the date to which interest hereon has
been paid; PROVIDED, HOWEVER, that the failure to make notation of any payment
made on this Note shall not limit or otherwise affect the obligation of the
Borrower hereunder with respect to payments of principal or interest on this
Note.
This Note is the Term Note referred to in, and is entitled to the
benefits of, the Credit Agreement dated as of August 20, 1997 (the "CREDIT
AGREEMENT") among the Borrower and the Lender. The Credit Agreement, among
other things (i) provides for the making of an advance (the "TERM LOAN") by the
Lender to the Borrower on the date hereof in an aggregate amount equal to the
U.S. dollar amount first above mentioned, the indebtedness of the Borrower
resulting from such Loan being evidenced by this Note, and (ii) contains
provisions for acceleration of the maturity hereof upon the happening of certain
stated events and also for prepayments on account of principal hereof prior to
the maturity hereof upon the terms and conditions therein specified.
1
<PAGE>
The terms of this Note are subject to amendment only in the manner provided
in the Credit Agreement.
No reference herein to the Credit Agreement and no provision of this Note
or the Credit Agreement shall alter or impair the obligation of the Borrower,
which is absolute and unconditional, to pay the principal of and interest on
this Note at the place, at the respective times, and in the currency herein
prescribed.
The Borrower promises to pay all costs and expenses, including reasonable
attorneys' fees, incurred in the collection and enforcement of this Note. The
Borrower hereby consents to renewals and extensions of time at or after the
maturity hereof, without notice, and hereby waives diligence, presentment,
protest, demand and notice of every kind and, to the full extent permitted by
law, the right to plead any statute of limitations as a defense to any demand
hereunder.
This Note shall be governed by, and construed in accordance with, the laws
of the state of California without giving effect to its choice of law doctrine.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed and
delivered by its duly authorized officer, as of the date and the place first
above written.
DITECH CORPORATION
By /s/ William Tamblyn
------------------------------------
Title VP/CFO
------------------------------------
2
<PAGE>
TRANSACTIONS
ON
NOTE
<TABLE>
<CAPTION>
Amount of Interest
Amount of Principal Principal Interest Paid Notation
Date Loan Made Paid Balance Paid Through Made By
- ---- --------- --------- ------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
</TABLE>
3
<PAGE>
FIRST AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER
This FIRST AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this
"Amendment") is entered into as of August 13, 1998 by and among DITECH
CORPORATION, a California corporation ("Borrower"), and BANKBOSTON, N.A., a
national banking association ("Lender"), with reference to the following facts:
A. Borrower and Lender are parties to that certain Credit Agreement dated
as of August 20, 1997, by and among the Borrower and the Lender (as amended, the
"Credit Agreement"). The Credit Agreement and all related and supporting
documents collectively are referred to in this Amendment as the "Loan
Documents."
B. One or more Events of Default have occurred under the Loan Documents
by virtue of the Borrower's failure to comply with Sections 6.2(a)-(d) of the
Credit Agreement, and by virtue of Borrower's failure to deliver its audited
financial statements for the fiscal year ended April 30, 1998 as required by
Section 6.1(a)(i). Such Events of Default entitle the Lender immediately to
enforce all the remedies set forth in the Credit Agreement. The Borrower has
asked the Lender to waive compliance with those sections as of certain dates,
and the Lender has agreed, provided the Borrower enters into this Amendment.
NOW, THEREFORE, in consideration of the promises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Capitalized terms not otherwise defined herein shall
have the same meanings as set forth in the Credit Agreement.
2. WAIVER. Subject to the terms and conditions contained herein and
performance by Borrower of all of the terms of this Amendment, and in reliance
on the representations and warranties of the Borrower set forth herein, the
Lender hereby waives Borrower's obligation to comply with Sections 6.2(a)-(d) of
the Credit Agreement through the date hereof. In addition, the Lender hereby
waives any Event of Default in connection with Borrower's failure to deliver the
financial statements, report and opinion required to be delivered pursuant to
Section 6.1(a)(i), provided Borrower complies with such requirements by August
31, 1998. Without limiting the generality of the provisions of Section 8.1 of
the Credit Agreement, the waiver set forth herein shall be limited precisely as
written and relates solely to the waiver of compliance by the Borrower with
Sections 6.1(a)(i) and 6.2(a)-(d) in the manner and to the extent described
above, and nothing in this Amendment shall be deemed to (i) constitute a waiver
of compliance by the Borrower with Sections 6.1(a)(i) or 6.2(a)-(d) in any other
instance, or (ii) constitute a waiver of any other Event of Default or other
failure by Borrower to perform in accordance with the Loan Documents or this
Amendment, or (iii) prejudice any right or remedy that the Lender may now have
or may have in the future under or in connection with the Credit Agreement or
the Loan Documents.
1
<PAGE>
3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows:
(a) The following defined term in Section 1.1 is amended to read as
follows:
"REVOLVING COMMITMENT": The lesser of (a) Two Million
Dollars ($2,000,000) and (b) the amount of the Borrowing Base, as such
amounts may be reduced pursuant to Section 2.1(d).
(b) The following new defined terms are added to Section 1.1 in their
proper alphabetical order:
"CONSOLIDATED QUICK ASSETS": At any date of determination,
the total cash, marketable securities and accounts receivable of the
Borrower and its consolidated Subsidiaries on a consolidated basis in
accordance with GAAP.
"CONSOLIDATED CURRENT LIABILITIES": At any date of
determination, the Consolidated Liabilities which may properly be
classified as current liabilities in accordance with GAAP.
"CONSOLIDATED LIABILITIES": At any date of determination,
the total liabilities of the Borrower and its consolidated Subsidiaries on
a consolidated basis determined in accordance with GAAP (including (i) any
balance sheet liability with respect to a Pension Plan recognized pursuant
to Financial Accounting Standards Board Statements 87 or 88 and (ii) any
withdrawal liability under Section 4201 of ERISA with respect to a
withdrawal from a Multiemployer Plan, as such liability may be set forth in
a notice of withdrawal liability under Section 4219 (and as adjusted from
time to time subsequent to the date of such notice)).
(c) Notwithstanding any provision of the Credit Agreement to the
contrary, but subject to Section 3.2, from and after the effective date of this
Amendment, Borrower shall not request or receive LIBO Rate Loans, and all Loans
shall bear interest on the unpaid principal amount thereof at a rate per annum
equal to the Base Rate plus 0.50%; PROVIDED that subject to Section 3.2, from
and after the first day of the month following Lender's receipt of Borrower's
financial statements and Compliance Certificate delivered pursuant to Section
6.1(a) demonstrating Borrower's achievement of a ratio of Consolidated Debt as
at the end of any fiscal quarter to Consolidated Cash Flow on a rolling four
quarter basis (as specified in Section 6.2(a)), of less than or equal to 3.40 to
1.00, Borrower may, subject to all of the terms and conditions of the Credit
Agreement, request and receive LIBO Rate Loans, and the Loans shall bear
interest at the rates set forth in Sections 2.3(b) and (c).
(d) Section 6.1(a) is amended by replacing the period at the end of
clause (vii)
2
<PAGE>
with a semicolon; by inserting the word "and" at the end thereof; and by adding
the following new clause (viii) in its proper alphanumeric order:
(viii) as soon as available, but in any event within
twenty-one (21) days after the end of each calendar month, a copy of the
unaudited consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such period and the related unaudited
consolidated statements of income and retained earnings (or comparable
statement) and changes in financial position and cash flow for such period
and year to date, setting forth in each case in comparative form the
figures as at the end of the previous fiscal year as to the balance sheet
and the figures for the previous corresponding period as to the other
statements, certified by a duly authorized officer of the Borrower as being
fairly stated in all material respects subject to year end and audit
adjustments, all such financial statements to be complete and correct in
all material respects and in accordance with GAAP subject to normal year
end and audit adjustments and the absence of footnotes, applied
consistently throughout the period reflected therein (except as approved by
such accountants and disclosed therein), together with a "backlog" report
of customer orders received for unconditional payment, for which the goods
and/or services ordered have not been shipped or delivered.
(e) Section 6.2(a) is amended to read as follows:
(a) DEBT COVERAGE RATIO. As at the end of any fiscal
quarter of the Borrower commencing with the fiscal quarter ending April 30,
1999, permit the ratio of Consolidated Debt as at the end of such fiscal
quarter to Consolidated Cash Flow for the four fiscal quarters ending on
the last day of such fiscal quarter, to be more than the correlative amount
indicated below:
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 3.40 : 1.00
July 31, 1999 2.75 : 1.00
October 31, 1999 2.50 : 1.00
January 31, 2000 2.25 : 1.00
April 30, 2000 and thereafter 2.00 : 1.00
</TABLE>
(f) Section 6.2(b) is amended to read as follows:
(b) CASH FLOW COVERAGE RATIO. As at the end of any fiscal
quarter of the Borrower, permit the ratio of Consolidated Cash Flow, for
the four
3
<PAGE>
quarters ending on any date of determination, to Consolidated Interest
Expense for such four quarters, to be less than the correlative amount
indicated below:
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 2.75 : 1.00
July 31, 1999 3.50 : 1.00
October 31, 1999 4.25 : 1.00
January 31, 2000 and thereafter 5.00 : 1.00
</TABLE>
(g) Section 6.2(c) is amended to read as follows:
(c) FIXED CHARGE COVERAGE RATIO. As at the end of any
fiscal quarter of the Borrower, permit the ratio of (a) the sum of (i)
Consolidated Cash Flow, for the four quarters ending on any date of
determination, MINUS (ii) Consolidated Capital Expenditures for such four
quarters, MINUS (iii) Consolidated Taxes for such four quarters, to (b)
Consolidated Debt Service for such four quarters, to be less than the
correlative amount indicated below:
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 1.00 : 1.00
July 31, 1999 1.05 : 1.00
October 31, 1999 and thereafter 1.20 : 1.00
</TABLE>
(h) Section 6.2(d) is amended to read as follows:
(d) CONSOLIDATED NET INCOME. Commencing with the fiscal
quarter ended April 30, 1999, permit Consolidated Net Income to be less
than $0 for any fiscal quarter of the Borrower.
(i) A new Section 6.2(r) is added to the agreement, which shall read
as follows:
(r) ADJUSTED QUICK RATIO. As at the end of any fiscal quarter
of the Borrower through and including the fiscal quarter ended April 30,
1999, permit the ratio of (a) Consolidated Quick Assets to (b) the sum of
(i) Consolidated Current Liabilities plus (ii) the aggregate principal
amount of outstanding Revolving Loans to be less than 1.20 to 1.00.
4
<PAGE>
(j) A new Section 6.2(s) is added to the agreement, which shall read
as follows:
(s) MINIMUM CONSOLIDATED CASH FLOW. Permit Consolidated Cash
Flow for the fiscal quarter ended July 31, 1998 to be less than $200,000.
(k) A new Section 6.2(t) is added to the agreement, which shall read
as follows:
(t) MINIMUM ROLLING 2 QUARTER CASH FLOW. Permit Consolidated
Cash Flow for (i) the two fiscal quarter period ended October 31, 1998 to
be less than $560,000 or (ii) the two fiscal quarter period ended
January 31, 1999 to be less than $985,000.
(l) EXHIBIT C is deleted and replaced with EXHIBIT C hereto.
(m) EXHIBIT D is deleted and replaced with EXHIBIT D hereto.
4. CONDITIONS TO EFFECTIVENESS.
This Amendment shall become effective as of August 13, 1998 (the
"Closing Date"), only upon:
(i) receipt by the Lender from the Borrower of an amendment fee
equal to Forty-Five Thousand Dollars ($45,000), which fee shall be fully
earned and non-refundable;
(ii) receipt by the Lender of the following (each of which shall
be in form and substance satisfactory to the Lender and its counsel):
(a) counterparts of this Amendment duly executed on behalf of
the Borrower and the Lender;
(b) copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower, authorizing the execution and delivery of
this Amendment; and
(iii) completion of such other matters and delivery of such other
agreements, documents and certificates as Lender may reasonably request.
5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to
enter into this Amendment, the Borrower represents and warrants to the Lender
that the following statements are true, correct and complete as of the effective
date of this Amendment:
5
<PAGE>
(a) CORPORATE POWER AND AUTHORITY. The Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "Amended Agreement"). The Articles
of Incorporation and Bylaws of the Borrower have not been amended since the
copies previously delivered to the Lender.
(b) AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance by the Borrower of the Amended Agreement have been
duly authorized by all necessary corporate action on the part of the Borrower.
(c) NO CONFLICT. The execution and delivery by the Borrower of this
Amendment do not and will not contravene (i) any law or any governmental rule or
regulation applicable to the Borrower, (ii) the Articles of Incorporation or
Bylaws of the Borrower, (iii) any order, judgment or decree of any court or
other agency of government binding on the Borrower, or (iv) any material
agreement or instrument binding on the Borrower.
(d) GOVERNMENTAL CONSENTS. The execution and delivery by the
Borrower of this Amendment and the performance by the Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
(e) BINDING OBLIGATION. This Amendment and the Amended Agreement
have been duly executed and delivered by the Borrower and are the binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms, except in each case as such enforceability may be
limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws and equitable principles relating to or affecting creditors'
rights.
(f) INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5.1 of the
Credit Agreement are correct on and as of the effective date of this Amendment
as though made on and as of such date (except to the extent such representations
and warranties expressly refer to an earlier date, in which case they were true
and correct as of such earlier date).
(g) ABSENCE OF DEFAULT. After giving effect to this Amendment, no
event has occurred and is continuing or will result from the consummation of the
transactions contemplated by this Amendment that would constitute an Event of
Default or a Potential Event of Default.
6. MISCELLANEOUS.
(a) REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
6
<PAGE>
(i) On and after the Closing Date, each reference in the
Credit Agreement to "this Agreement", "hereunder", "hereof", "herein" or words
of like import referring to the Credit Agreement, and each reference in the
other Loan Documents to the "Credit Agreement," "thereunder", "thereof" or words
of like import referring to the Credit Agreement, shall mean and be a reference
to the Amended Agreement.
(ii) Except as specifically amended by this Amendment, the
Credit Agreement and the other Loan Documents shall remain in full force and
effect and are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this Amendment
shall not, except as expressly provided herein, constitute a waiver of any
provision of, or operate as a waiver of any right, power or remedy of the Lender
under the Credit Agreement or any of the other Loan Documents.
(b) FEES AND EXPENSES. All costs and expenses of the Lender,
including, but not limited to, reasonable attorneys' fees, incurred by the
Lender in the preparation and negotiation of this Amendment constitute costs and
expenses in connection with the amendment and restructuring of the Loan
Documents, and as such are payable by the Borrower in accordance with Section
8.5 of the Credit Agreement.
(c) HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
(d) APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(e) COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[REMAINDER INTENTIONALLY LEFT BLANK]
7
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
DITECH CORPORATION
By: /s/ William Tamblyn
-------------------------------
Title: VP/CFO
-----------------------------
BANKBOSTON, N.A.,
By: /s/ illegible
-------------------------------
Title: Vice President
-----------------------------
S-1
<PAGE>
EXHIBIT C
PRICING GRID
The "APPLICABLE MARGIN" means the variable number of percentage points,
with respect to Base Rate Loans or LIBO Rate Loans, as applicable, as determined
by the Lender with reference to the Borrower's most recent financial statements
and Compliance Certificate, in accordance with the grid set forth below, based
upon the Borrower's ratio of Consolidated Debt as at the end of any fiscal
quarter to Consolidated Cash Flow on a rolling four quarter basis (as specified
in Section 6.2(a)). The effective date of any change in the Applicable Margin
shall be the first day of the month following the Lender's receipt of the
Borrower's financial statements and Compliance Certificate.
<TABLE>
<CAPTION>
Ratio of
Consolidated
Debt to
Consolidated
Cash Flow on
rolling four Applicable Margin Applicable Margin
Level quarter basis for Base Rate Loans for LIBO Rate Loans
- ----- ------------- ------------------- -------------------
<S> <C> <C> <C>
I. GREATER THAN 3.00:1.00 1.00 3.00
II. LESS THAN OR EQUAL 1.00 2.75
TO 3.00:1.00 GREATER
THAN 2.50:1.00
III. LESS THAN OR EQUAL 0.75 2.50
TO 2.50:1.00 GREATER
THAN 2.00:1.00
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
IV. LESS THAN OR EQUAL 0.50 2.25
TO 2.00:1.00 GREATER
THAN 1.50:1.00
V. LESS THAN OR EQUAL
TO 1.50:1.00 0.25 2.00
</TABLE>
C-2
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
1. This Compliance Certificate ("Compliance Certificate") is
executed and delivered by Ditech Corporation, a California corporation (the
"Borrower") to BankBoston, N.A. (the "Lender") pursuant to Section
6.1(a)(iii)(B) of the Credit Agreement dated as of August 20, 1997 between
the Borrower and the Lender. Any terms used herein and not defined herein
shall have the meanings defined in the Credit Agreement. This Compliance
Certificate covers the Borrower's:
Fiscal quarter ended _________, 19__
Fiscal year ended ________, 19__
2. The following paragraphs set forth calculations in
compliance with obligations pursuant to Section 6.2(a), (b), (c), (d), (r),
(s), and (t) of the Credit Agreement, as of the end of the fiscal period set
forth in paragraph 1 hereof.
<TABLE>
<S> <C>
A. DEBT COVERAGE RATIO (SEC 6.2(a)):
(a) Consolidated Debt $________
(b) Consolidated Cash Flow for the four-quarter
period ending on the last day of the most recently
ended fiscal quarter $________
Ratio (a) to (b) _________
Maximum Permitted Ratio:
</TABLE>
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 3.40 : 1.00
July 31, 1999 2.75 : 1.00
October 31, 1999 2.50 : 1.00
January 31, 2000 2.25 : 1.00
April 30, 2000 and thereafter 2.00 : 1.00
</TABLE>
<TABLE>
<S> <C>
B. CASH FLOW COVERAGE RATIO (SEC 6.2(b)):
(a) Consolidated Cash Flow for the four-quarter
period ending on the last day of the most recently
ended fiscal quarter
$________
(b) Consolidated Interest Expense for the four-quarter
period ending on the last day of the most recently
ended fiscal quarter $________
D-1
<PAGE>
Ratio (a) to (b) _________
Minimum Permitted Ratio:
</TABLE>
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 2.75 : 1.00
July 31, 1999 3.50 : 1.00
October 31, 1999 4.25 : 1.00
January 31, 2000 and thereafter 5.00 : 1.00
</TABLE>
<TABLE>
<S> <C>
C. FIXED CHARGE COVERAGE RATIO (SEC 6.2(c)):
(a) $________
(i) Consolidated Cash Flow for the
four-quarter period ending on the
last day of the most recently
ended fiscal quarter $________
(ii) MINUS Consolidated Capital
Expenditures for such period $________
(iii) MINUS Consolidated Taxes
for such period $________
(b) Consolidated Debt Service for such period $_________
Ratio (a) to (b) _________
Minimum Permitted Ratio
</TABLE>
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 1.00 : 1.00
July 31, 1999 1.05 : 1.00
October 31, 1999 and thereafter 1.20 : 1.00
</TABLE>
<TABLE>
<S> <C>
D. CONSOLIDATED NET INCOME (SEC. 6.2(d)):
(a) Consolidated Net Income $________
Required: (Commencing April 30, 1999) (a) GREATER THAN $0
</TABLE>
D-2
<PAGE>
<TABLE>
<S> <C>
E. ADJUSTED QUICK RATIO (SEC. 6.2(R):
(a) Consolidated Quick Assets $________
(b)
(i) Consolidated Current Liabilities $_________
(ii) PLUS outstanding Revolving Loans $_________
Ratio (a) to (b) __________
Minimum Permitted Ratio 1.20 : 1.00
F. MINIMUM CONSOLIDATED CASH FLOW (SEC. 6.2(s):
(a) Consolidated Cash Flow for fiscal quarter ended
July 31, 1998 $_________
Required: (a) GREATER THAN $200,000
G. MINIMUM ROLLING 2 QUARTER CASH FLOW (SEC 6.2(T):
(a) Consolidated Cash Flow for 2 quarter period
ended October 31, 1998 $__________
(b) Consolidated Cash Flow for 2 quarter period
ended January 31, 1999 $__________
Required: (a) GREATER THAN $560,000
(b) GREATER THAN $985,000
</TABLE>
3. The undersigned has reviewed the terms of the Credit Agreement
and has made, or caused to be made under his/her supervision, a review in
reasonable detail of the transactions and condition of the Borrower and its
Subsidiaries during the fiscal period covered by this Compliance Certificate.
The undersigned does not (either as a result of such review or otherwise)
have any knowledge of the existence as of the date of this Compliance
Certificate of any condition or event that constitutes an Event of Default or
a Potential Event of Default, with the exception set forth below in response
to which the Borrower is taking or proposes to take the following actions (if
none, so state):
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
_______________________________________________________________________________
D-3
<PAGE>
4. This Compliance Certificate is executed on _______________, ____
by the Chief Executive Officer, Chief Financial Officer, or Controller of the
Borrower. The undersigned hereby certifies that each and every matter contained
herein is derived from the Borrower's books and records and is, to the best
knowledge of the undersigned, true and correct.
DITECH CORPORATION
a California corporation
By:_______________________________________________
Title:
D-4
<PAGE>
SECOND AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER
This SECOND AMENDMENT TO CREDIT AGREEMENT AND LIMITED WAIVER (this
"Amendment") is entered into as of December 18, 1998 by and among DITECH
CORPORATION, a California corporation ("Borrower"), and BANKBOSTON, N.A., a
national banking association ("Lender"), with reference to the following facts:
A. Borrower and Lender are parties to that certain Credit Agreement dated
as of August 20, 1997, by and among the Borrower and the Lender (as amended, the
"Credit Agreement"). The Credit Agreement and all related and supporting
documents collectively are referred to in this Amendment as the "Loan
Documents."
B. The parties desire to amend and waive certain provisions of the Credit
Agreement, in accordance with the terms of this Amendment.
NOW, THEREFORE, in consideration of the promises and the agreements,
provisions and covenants herein contained, the parties hereto agree as follows:
1. DEFINED TERMS. Capitalized terms not otherwise defined herein shall
have the same meanings as set forth in the Credit Agreement.
2. WAIVER. Subject to the terms and conditions contained herein, and in
reliance on the representations and warranties of the Borrower set forth herein,
the Lender hereby waives Borrower's obligation to comply with Section 6.2(r) of
the Credit Agreement for the fiscal quarter ended October 31, 1998. Without
limiting the generality of the provisions of Section 8.1 of the Credit
Agreement, the waiver set forth herein shall be limited precisely as written and
relates solely to the waiver of compliance by the Borrower with Section 6.2(r)
in the manner and to the extent described above, and nothing in this Amendment
shall be deemed to (i) constitute a waiver of compliance by the Borrower with
Section 6.2(r) in any other instance, or (ii) constitute a waiver of any other
Event of Default or other failure by Borrower to perform in accordance with the
Loan Documents or this Amendment, or (iii) prejudice any right or remedy that
the Lender may now have or may have in the future under or in connection with
the Credit Agreement or the Loan Documents.
3. AMENDMENTS TO CREDIT AGREEMENT. The Credit Agreement is hereby
amended as follows:
(a) The following new defined term is added to Section 1.1 in its
proper alphabetical order:
"DEFERRED REVENUE LIABILITIES:" At any date of determination,
the deferred revenue liabilities of the Borrower and its consolidated
Subsidiaries, on a consolidated basis and determined in accordance with GAAP.
<PAGE>
(b) Section 6.2(r) is amended to read as follows:
(r) ADJUSTED QUICK RATIO. As at the end of any fiscal quarter
of the Borrower through and including the fiscal quarter ended April 30, 1999,
permit the ratio of (a) Consolidated Quick Assets to (b) the sum of
(i) Consolidated Current Liabilities (excluding any Deferred Revenue
Liabilities) plus (ii) the aggregate principal amount of outstanding Revolving
Loans to be less than 1.20 to 1.00.
(c) EXHIBIT D is replaced with EXHIBIT D hereto.
4. CONDITIONS TO EFFECTIVENESS.
This Amendment shall become effective as of December 18, 1998 (the
"Closing Date"), only upon:
(i) receipt by the Lender of the following (each of which shall be in
form and substance satisfactory to the Lender and its counsel):
(a) counterparts of this Amendment duly executed on behalf of
the Borrower and the Lender;
(b) copies of resolutions of the Board of Directors or other
authorizing documents of the Borrower, authorizing the execution and delivery of
this Amendment; and
(ii) completion of such other matters and delivery of such other
agreements, documents and certificates as Lender may reasonably request.
5. REPRESENTATIONS AND WARRANTIES. In order to induce the Lender to
enter into this Amendment, the Borrower represents and warrants to the Lender
that the following statements are true, correct and complete as of the effective
date of this Amendment:
(a) CORPORATE POWER AND AUTHORITY. The Borrower has all requisite
corporate power and authority to enter into this Amendment and to carry out the
transactions contemplated by, and perform its obligations under, the Credit
Agreement as amended by this Amendment (the "Amended Agreement"). The Articles
of Incorporation and Bylaws of the Borrower have not been amended since the
copies previously delivered to the Lender.
(b) AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance by the Borrower of the Amended Agreement have been
duly authorized by all necessary corporate action on the part of the Borrower.
(c) NO CONFLICT. The execution and delivery by the Borrower of this
Amendment do not and will not contravene (i) any law or any governmental rule or
regulation applicable to the Borrower, (ii) the Articles of Incorporation or
Bylaws of the Borrower, (iii) any order, judgment or decree of any court or
other agency of government binding on the Borrower, or (iv) any material
agreement or instrument binding on the Borrower.
-2-
<PAGE>
(d) GOVERNMENTAL CONSENTS. The execution and delivery by the
Borrower of this Amendment and the performance by the Borrower of the Amended
Agreement do not and will not require any registration with, consent or approval
of, or notice to, or other action to, with or by, any federal, state or other
governmental authority or regulatory body.
(e) BINDING OBLIGATION. This Amendment and the Amended Agreement
have been duly executed and delivered by the Borrower and are the binding
obligations of the Borrower, enforceable against the Borrower in accordance with
their respective terms, except in each case as such enforceability may be
limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or
other similar laws and equitable principles relating to or affecting creditors'
rights.
(f) INCORPORATION OF REPRESENTATIONS AND WARRANTIES FROM CREDIT
AGREEMENT. The representations and warranties contained in Section 5.1 of the
Credit Agreement are correct on and as of the effective date of this Amendment
as though made on and as of such date (except to the extent such representations
and warranties expressly refer to an earlier date, in which case they were true
and correct as of such earlier date).
(g) ABSENCE OF DEFAULT. After giving effect to this Amendment, no
event has occurred and is continuing or will result from the consummation of the
transactions contemplated by this Amendment that would constitute an Event of
Default or a Potential Event of Default.
6. MISCELLANEOUS.
(a) REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT AND THE OTHER
LOAN DOCUMENTS.
(i) On and after the Closing Date, each reference in the Credit
Agreement to "this Agreement", "hereunder", "hereof", "herein" or words of like
import referring to the Credit Agreement, and each reference in the other Loan
Documents to the "Credit Agreement," "thereunder", "thereof" or words of like
import referring to the Credit Agreement, shall mean and be a reference to the
Amended Agreement.
(ii) Except as specifically amended by this Amendment, the Credit
Agreement and the other Loan Documents shall remain in full force and effect and
are hereby ratified and confirmed.
(iii) The execution, delivery and performance of this
Amendment shall not, except as expressly provided herein, constitute a waiver of
any provision of, or operate as a waiver of any right, power or remedy of the
Lender under the Credit Agreement or any of the other Loan Documents.
(b) FEES AND EXPENSES. All costs and expenses of the Lender,
including, but not limited to, reasonable attorneys' fees, incurred by the
Lender in the preparation and negotiation of this Amendment constitute costs and
expenses in connection with the amendment
-3-
<PAGE>
and restructuring of the Loan Documents, and as such are payable by the Borrower
in accordance with Section 8.5 of the Credit Agreement.
(c) HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
(d) APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL
BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICTS OF LAWS PRINCIPLES.
(e) COUNTERPARTS. This Amendment may be executed in any number of
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[REMAINDER INTENTIONALLY LEFT BLANK]
-4-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed
by their respective officers thereunto duly authorized, as of the date first
above written.
DITECH CORPORATION
By: /s/ William Tamblyn
-------------------------------
Title: VP/CFO
-----------------------------
BANKBOSTON, N.A.
By: /s/ Teresa Heller
-------------------------------
Title: Director
-----------------------------
-5-
<PAGE>
EXHIBIT D
COMPLIANCE CERTIFICATE
1. This Compliance Certificate ("Compliance Certificate") is
executed and delivered by Ditech Corporation, a California corporation (the
"Borrower") to BankBoston, N.A. (the "Lender") pursuant to
Section 6.1(a)(iii)(B) of the Credit Agreement dated as of August 20, 1997
between the Borrower and the Lender. Any terms used herein and not defined
herein shall have the meanings defined in the Credit Agreement. This Compliance
Certificate covers the Borrower's:
Fiscal quarter ended _________, 19__
Fiscal year ended ________, 19__
2. The following paragraphs set forth calculations in compliance
with obligations pursuant to Section 6.2(a), (b), (c), (d), (r), (s), and (t) of
the Credit Agreement, as of the end of the fiscal period set forth in
paragraph 1 hereof.
A. DEBT COVERAGE RATIO (SEC 6.2(a)):
<TABLE>
<S> <C>
(a) Consolidated Debt $___________
(b) Consolidated Cash Flow for the four-quarter $___________
period ending on the last day of the most
recently ended fiscal quarter
Ratio (a) to (b) ____________
Maximum Permitted Ratio:
</TABLE>
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 3.40 : 1.00
July 31, 1999 2.75 : 1.00
October 31, 1999 2.50 : 1.00
January 31, 2000 2.25 : 1.00
April 30, 2000 and thereafter 2.00 : 1.00
</TABLE>
D-1
<PAGE>
<TABLE>
<S> <C>
B. CASH FLOW COVERAGE RATIO (SEC 6.2(b)):
(a) Consolidated Cash Flow for the $___________
four-quarter period ending on the last
day of the most recently ended fiscal
quarter
(b) Consolidated Interest Expense for $___________
the four-quarter period ending on the
last day of the most recently ended
fiscal quarter
Ratio (a) to (b)
Maximum Permitted Ratio:
</TABLE>
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 2.75 : 1.00
July 31, 1999 3.50 : 1.00
October 31, 1999 4.25 : 1.00
January 31, 2000 and thereafter 5.00 : 1.00
</TABLE>
<TABLE>
<S> <C> <C>
C. FIXED CHARGE COVERAGE RATIO (SEC 6.2(c)):
(a) $___________
(i) Consolidated Cash Flow for the $___________
four-quarter period ending on
the last day of the most
recently ended fiscal quarter
(ii) minus Consolidated Capital $___________
Expenditures for such period
(iii) minus Consolidated Taxes $___________
for such period
(b) Consolidated Debt Service for such $___________
period
Ratio (a) to (b) ____________
</TABLE>
D-2
<PAGE>
Minimum Permitted Ratio
<TABLE>
<CAPTION>
Quarter Ending Ratio
-------------- -----
<S> <C>
April 30, 1999 1.00 : 1.00
July 31, 1999 1.05 : 1.00
October 31, 1999 and thereafter 1.20 : 1.00
</TABLE>
<TABLE>
<S> <C> <C>
D. CONSOLIDATED NET INCOME (SEC. 6.2(d)):
(a) Consolidated Net Income $___________
Required: (Commencing April 30, 1999)
(a) > $0
E. ADJUSTED QUICK RATIO (SEC. 6.2(r):
(a) Consolidated Quick Assets $___________
(b)
(i) Consolidated Current $___________
Liabilities (excluding Deferred
Revenue Liabilities)
(ii) plus outstanding Revolving $___________
Loans
Ratio (a) to (b) ____________
Minimum Permitted Ratio 1.20 : 1.00
F. MINIMUM CONSOLIDATED CASH FLOW (SEC. 6.2(s):
(a) Consolidated Cash Flow for fiscal $___________
quarter ended July 31, 1998
Required: (a) > $200,000
G. MINIMUM ROLLING 2 QUARTER CASH FLOW (SEC 6.2(t):
(a) Consolidated Cash Flow for 2 $___________
quarter period ended October 31, 1998
</TABLE>
D-3
<PAGE>
<TABLE>
<S> <C>
(b) Consolidated Cash Flow for 2 $___________
quarter period ended January 31, 1999
Required: (a) > $560,000
(b) > $985,000
</TABLE>
3. The undersigned has reviewed the terms of the Credit Agreement
and has made, or caused to be made under his/her supervision, a review in
reasonable detail of the transactions and condition of the Borrower and its
Subsidiaries during the fiscal period covered by this Compliance Certificate.
The undersigned does not (either as a result of such review or otherwise) have
any knowledge of the existence as of the date of this Compliance Certificate of
any condition or event that constitutes an Event of Default or a Potential Event
of Default, with the exception set forth below in response to which the Borrower
is taking or proposes to take the following actions (if none, so
state):_________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
4. This Compliance Certificate is executed on _______________, ____
by the Chief Executive Officer, Chief Financial Officer, or Controller of the
Borrower. The undersigned hereby certifies that each and every matter contained
herein is derived from the Borrower's books and records and is, to the best
knowledge of the undersigned, true and correct.
DITECH CORPORATION
a California corporation
By:
-------------------------------
Title:
-------------------------------
D-4
<PAGE>
SECURITY AGREEMENT
This Security Agreement is entered into as of August 20, 1997, between
Ditech Corporation, a California corporation ("Grantor"), and BankBoston, N.A.
("Secured Party").
PRELIMINARY STATEMENTS
A. Grantor and Secured Party have entered into a Credit Agreement dated
as of even date herewith (said Credit Agreement, as it may hereafter be amended,
supplemented or otherwise modified from time to time, being the "Credit
Agreement", the terms defined therein and not otherwise defined herein being
used herein as therein defined), pursuant to which Secured Party has made
certain commitments, subject to the terms and conditions set forth in the Credit
Agreement, to extend certain credit facilities to Company.
B. It is a condition precedent to the initial extensions of credit by
Secured Party under the Credit Agreement that Grantor shall have granted the
security interests and undertaken the obligations contemplated by this
Agreement.
NOW, THEREFORE, in consideration of the premises and in order to induce
Secured Party to make the Loans under the Credit Agreement and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, Grantor hereby agrees with Secured Party as follows:
SECTION 1. GRANT OF SECURITY. Grantor hereby assigns to Secured Party,
and hereby grants to Secured Party a security interest in, all of Grantor's
right, title and interest in and to the following, in each case whether now or
hereafter existing or in which Grantor now has or hereafter acquires an interest
and wherever the same may be located (the "Collateral"):
(a) all deposit accounts, including without limitation all deposit
accounts maintained with Secured Party;
(b) all accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other rights and obligations of any kind
and all rights in, to and under all security agreements, leases and other
contracts securing or otherwise relating to any such accounts, contract rights,
chattel paper, documents, instruments, general intangibles or other obligations
(any and all such accounts, contract rights, chattel paper, documents,
instruments, general intangibles and other obligations being the "Accounts", and
any and all such security agreements, leases and other contracts being the
"Related Contracts");
(c) all inventory in all of its forms (including, but not limited to,
(i) all goods held by Grantor for sale or lease or to be furnished under
contracts of service or so leased or furnished, (ii) all raw materials, work in
process, finished goods, and materials used or consumed in the manufacture,
packing, shipping, advertising, selling, leasing, furnishing or production of
such inventory or otherwise used or consumed in Grantor's business, (iii) all
goods in which Grantor has an interest in mass or a joint or other interest or
right of any kind, (iv) all goods
1
<PAGE>
which are returned to or repossessed by Grantor and all accessions thereto and
products thereof (all such inventory, accessions and products being the
"Inventory");
(d) all equipment in all of its forms, all parts thereof and all
accessions thereto (any and all such equipment, parts and accessions being the
"Equipment");
(e) all trademarks, trade names, trade secrets, business names,
patents, patent applications, licenses, copyrights, registrations and franchise
rights, and all goodwill associated with any of the foregoing;
(f) to the extent not included in any other paragraph of this Section
1, all other general intangibles (including, without limitation, tax refunds,
rights to payment or performance, choses in action and judgments taken on any
rights or claims included in the Collateral);
(g) all plant fixtures, business fixtures and other fixtures and
storage and office facilities, and all accessions thereto and products thereof;
(h) all books, records, ledger cards, files, correspondence, computer
programs, tapes, disks and related data processing software that at any time
evidence or contain information relating to any of the Collateral or are
otherwise necessary or helpful in the collection thereof or realization
thereupon;
(i) all proceeds, products, rents and profits of or from any and all
of the foregoing Collateral and, to the extent not otherwise included, all
payments under insurance (whether or not Secured Party is the loss payee
thereof), or any indemnity, warranty or guaranty, payable by reason of loss or
damage to or otherwise with respect to any of the foregoing Collateral. For
purposes of this Agreement, the term "proceeds" includes whatever is receivable
or received when Collateral or proceeds are sold, exchanged, collected or
otherwise disposed of, whether such disposition is voluntary or involuntary.
SECTION 2. SECURITY FOR OBLIGATIONS. This Agreement secures, and the
Collateral is collateral security for, the prompt payment or performance in full
when due, whether at stated maturity, by required prepayment, declaration,
acceleration, demand or otherwise, of all obligations and liabilities of every
nature of Grantor now or hereafter existing, under or arising out of or in
connection with the Credit Agreement or the other Loan Documents, and all
extensions or renewals thereof, whether for principal, interest, fees, expenses,
indemnities or otherwise, whether voluntary or involuntary, direct or indirect,
absolute or contingent, liquidated or unliquidated, whether or not jointly owed
with others, and whether or not from time to time decreased or extinguished and
later increased, created or incurred, and all or any portion of such obligations
or liabilities that are paid, to the extent all or any part of such payment is
avoided or recovered directly or indirectly from Secured Party as a preference,
fraudulent transfer or otherwise (all such obligations and liabilities being the
"Underlying Debt"), and all obligations of every nature of Grantor now or
hereafter existing under this Agreement (all such obligations of Grantor,
together with the Underlying Debt, being the "Secured Obligations").
SECTION 3. GRANTOR REMAINS LIABLE. Anything contained herein to the
contrary
2
<PAGE>
notwithstanding, (a) Grantor shall remain liable under any contracts and
agreements included in the Collateral, to the extent set forth therein, to
perform all of its duties and obligations thereunder to the same extent as if
this Agreement had not been executed, (b) the exercise by Secured Party of any
of its rights hereunder shall not release Grantor from any of its duties or
obligations under the contracts and agreements included in the Collateral, and
(c) Secured Party shall not have any obligation or liability under any contracts
and agreements included in the Collateral by reason of this Agreement, nor shall
Secured Party be obligated to perform any of the obligations or duties of
Grantor thereunder or to take any action to collect or enforce any claim for
payment assigned hereunder.
SECTION 4. REPRESENTATIONS AND WARRANTIES. Grantor represents and
warrants as follows:
(a) OWNERSHIP OF COLLATERAL. Except for the security interest
created by this Agreement, Grantor owns the Collateral free and clear of any
lien, mortgage, security interest or other encumbrance. Except such as may have
been filed in favor of Secured Party relating to this Agreement, no effective
financing statement or other instrument similar in effect covering all or any
part of the Collateral is on file in any filing or recording office.
(b) LOCATION OF EQUIPMENT AND INVENTORY. All of the Equipment and
Inventory (as such terms are defined in Section 1) is, as of the date hereof,
located at the places specified in Schedule 1 annexed hereto.
(c) OFFICE LOCATIONS. The chief place of business, the chief
executive office and the office where Grantor keeps its records regarding the
Accounts is, and has been for the four month period preceding the date hereof,
located at 570 Maude Court, Sunnyvale, CA 94086.
(d) FICTITIOUS NAMES. Grantor does not do business under any
trade-name or fictitious business name.
(e) DELIVERY OF CERTAIN COLLATERAL. All notes and other instruments
(excluding checks) comprising any and all items of Collateral have been
delivered to Secured Party duly endorsed and accompanied by duly executed
instruments of transfer or assignment in blank.
(f) GOVERNMENTAL AUTHORIZATIONS. No authorization, approval or other
action by, and no notice to or filing with, any governmental authority or
regulatory body is required for either (i) the grant by Grantor of the security
interest granted hereby or for the execution, delivery or performance of this
Agreement by Grantor or (ii) the perfection of or the exercise by Secured Party
of its rights and remedies hereunder (except as may have been or will be taken
by or at the direction of Grantor).
(g) PERFECTION. This Agreement, together with the filing of a UCC-1
financing statement with the Secretary of State of California creates a valid,
perfected and, first priority security interest in the Collateral in which a
security interest may be perfected by such a filing, securing the payment of the
Secured Obligations.
3
<PAGE>
(h) OTHER INFORMATION All information heretofore, herein or
hereafter supplied to Secured Party by or on behalf of Grantor with respect to
the Collateral is accurate and complete in all respects.
SECTION 5. FURTHER ASSURANCES.
(a) Grantor agrees that from time to time, at the expense of Grantor,
Grantor will promptly execute and deliver all further instruments and documents,
and take all further action that may be necessary or desirable, or that Secured
Party may request, in order to perfect and protect any security interest granted
or purported to be granted hereby or to enable Secured Party to exercise and
enforce its rights and remedies hereunder with respect to any Collateral.
Without limiting the generality of the foregoing, Grantor will: (i) if any
Account shall be evidenced by a promissory note or other instrument (excluding
checks), deliver and pledge to Secured Party hereunder such note or instrument,
duly endorsed and accompanied by duly executed instruments of transfer or
assignment, all in form and substance satisfactory to Secured Party;
(ii) execute and file such financing or continuation statements, or amendments
thereto, and such other instruments or notices, as may be necessary or
desirable, or as Secured Party may request, in order to perfect and preserve the
security interests granted or purported to be granted hereby; (iii) at any
reasonable time, upon demand by Secured Party and reasonable prior notice to
Grantor, exhibit the Collateral to and allow inspection of the Collateral by
Secured Party, or persons designated by Secured Party; and (iv) at Secured
Party's request, appear in and defend any action or proceeding that may affect
Grantor's title to or Secured Party's security interest in all or any part of
the Collateral.
(b) Grantor hereby authorizes Secured Party to file one or more
financing or continuation statements, and amendments thereto, relative to all or
any part of the Collateral without the signature of Grantor. Grantor agrees
that a carbon, photographic or other reproduction of this Agreement or of a
financing statement signed by Grantor shall be sufficient as a financing
statement and may be filed as a financing statement in any and all
jurisdictions.
(c) Grantor will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party may
reasonably request, all in reasonable detail.
SECTION 6. COVENANTS OF GRANTOR. Grantor shall:
(a) not use or permit any Collateral to be used unlawfully or in
violation of any provision of this Agreement or any applicable statute,
regulation or ordinance or any policy of insurance covering the Collateral;
(b) notify Secured Party of any change in Grantor's name, identity or
corporate structure within 15 days of such change;
(c) give Secured Party 30 days' prior written notice of any change in
Grantor's chief place of business, chief executive office or residence;
4
<PAGE>
(d) if Secured Party gives value to enable Grantor to acquire rights
in or the use of any Collateral, use such value for such purposes; and
(e) pay promptly when due all property and other taxes, assessments
and governmental charges or levies imposed upon, and all claims (including
claims for labor, materials and supplies) against, the Collateral, except to the
extent the validity thereof is being contested in good faith; PROVIDED that
Grantor shall in any event pay such taxes, assessments, charges, levies or
claims not later than five days prior to the date of any proposed sale under any
judgement, writ or warrant of attachment entered or filed against Grantor or any
of the Collateral as a result of the failure to make such payment.
SECTION 7. SPECIAL COVENANTS WITH RESPECT TO EQUIPMENT AND INVENTORY.
Grantor shall:
(a) keep the Equipment and Inventory (other than Inventory sold in
the ordinary course of business) at the places there for specified on Schedule 1
annexed hereto or, upon 30 days' prior written notice to Secured Party, at such
other places in jurisdictions where all action that may be necessary or
desirable, or that Secured Party may request, in order to perfect and protect
any security interest granted or purported to be granted hereby, or to enable
Secured Party to exercise and enforce its rights and remedies hereunder, with
respect to such Equipment and Inventory shall have been taken;
(b) cause the Equipment to be maintained and preserved in the same
condition, repair and working order as when new, ordinary wear and tear
excepted, and in accordance with any manufacturer's manual, and shall forthwith,
or, in the case of any loss or damage to any of the Equipment when subsection
(c) of Section 8 is not applicable, as quickly as practicable after the
occurrence thereof, make or cause to be made all repairs, replacements and other
improvements in connection therewith that are necessary or desirable to such
end. Grantor shall promptly furnish to Secured Party a statement respecting any
material loss or damage to any of the Equipment;
(c) keep correct and accurate records of the Inventory, itemizing and
describing the kind, type and quantity of Inventory, Grantor's cost there for
and (where applicable) the current list prices for the Inventory; and
(d) if any Inventory is in possession or control of any of Grantor's
agents or processors if the aggregate book value of all such Inventory exceeds
$100,000, and in any event upon the occurrence of an Event of Default, instruct
such agent or processor to hold all such Inventory for the account of Secured
Party and subject to the instructions of Secured Party.
SECTION 8. INSURANCE.
(a) Grantor shall, at its own expense, maintain insurance with
respect to the Equipment and Inventory in such amounts, against such risks, in
such form and with such insurers as shall be satisfactory to Secured Party from
time to time. Such insurance shall include, without limitation, property damage
insurance and liability insurance. Each policy for property
5
<PAGE>
damage insurance shall provide for all losses to be paid directly to Secured
Party. Each policy shall in addition name Grantor and Secured Party as insured
parties thereunder (without any representation or warranty by or obligation upon
Secured Party) as their interests may appear and have attached thereto a loss
payable clause acceptable to Secured Party that shall (i) contain an agreement
by the insurer that any loss thereunder shall be payable to Secured Party
notwithstanding any action, inaction or breach of representation or warranty by
Grantor, (ii) provide that there shall be no recourse against Secured Party for
payment of premiums or other amounts with respect thereto, and (iii) provide
that at least 30 days' prior written notice of cancellation, material amendment,
reduction in scope or limits of coverage or of lapse shall be given to Secured
Party by the insurer. Grantor shall, if so requested by Secured Party, deliver
to Secured Party original or duplicate policies of such insurance and, as often
as Secured Party may reasonably request, a report of a reputable insurance
broker with respect to such insurance. Further, Grantor shall, at the request
of Secured Party, duly execute and deliver instruments of assignment of such
insurance policies to comply with the requirements of Section 5(a) and cause the
respective insurers to acknowledge notice of such assignment.
(b) Reimbursement under any liability insurance maintained by Grantor
pursuant to this Section 8 may be paid directly to the Person who shall have
incurred liability covered by such insurance. In case of any loss involving
damage to Equipment or Inventory when subsection (c) of this Section 8 is not
applicable, Grantor shall make or cause to be made the necessary repairs to or
replacements of such Equipment or Inventory, and any proceeds of insurance
maintained by Grantor pursuant to this Section 8 shall be paid to Grantor as
reimbursement for the costs of such repairs or replacements.
(c) Upon (i) the occurrence and during the continuation of any Event
of Default or (ii) the actual or constructive loss (in excess of $100,000 per
occurrence) of any Equipment or Inventory, all insurance payments in respect of
such Equipment or Inventory shall be paid to and applied by Secured Party as
specified in Section 17.
SECTION 9. SPECIAL COVENANTS WITH RESPECT TO ACCOUNTS AND RELATED
CONTRACTS.
(a) Grantor shall keep its chief place of business and chief
executive office and the office where it keeps its records concerning the
Accounts and Related Contracts at the location there for specified in Section 4
or, upon 30 days' prior written notice to Secured Party, at such other location
in a jurisdiction where all action that may be necessary or desirable, or that
Secured Party may request, in order to perfect and protect any security interest
granted or purported to be granted hereby, or to enable Secured Party to
exercise and enforce its rights and remedies hereunder, with respect to such
Accounts and Related Contracts shall have been taken. Grantor will hold and
preserve such records and, subject to Section 6.1(f) of the Credit Agreement,
will permit representatives of Secured Party at any time during normal business
hours to inspect and make abstracts from such records, and Grantor agrees to
render to Secured Party, at Grantor's cost and expense, such clerical and other
assistance as may be reasonably requested with regard thereto. Promptly upon
the request of Secured Party, Grantor shall deliver to Secured Party complete
and correct copies of each Related Contract.
(b) Grantor shall, for not less than 5 years from the date on which
such
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Account arose, maintain (i) complete records of each Account, including records
of all payments received, credits granted and merchandise returned, and (ii) all
documentation relating thereto.
(c) Except as otherwise provided in this subsection (c), Grantor
shall continue to collect, at its own expense, all amounts due or to become due
Grantor under the Accounts and Related Contracts. In connection with such
collections, Grantor may take (and, at Secured Party's direction, shall take)
such action as Grantor or Secured Party may deem necessary or advisable to
enforce collection of amounts due or to become due under the Accounts; PROVIDED,
HOWEVER, that Secured Party shall have the right at any time, upon the
occurrence and during the continuation of an Event of Default or an event which
with the giving of notice or the lapse of time, or both, would constitute an
Event of Default, and upon written notice to Grantor of its intention to do so,
to notify the account debtors or obligors under any Accounts of the assignment
of such Accounts to Secured Party, and to direct such account debtors or
obligors to make payment of all amounts due or to become due to Grantor
thereunder directly to Secured Party, to notify each person maintaining a
lockbox or similar arrangement to which account debtors or obligors under any
Accounts have been directed to make payment to remit all amounts representing
collections on checks and other payment items from time to time sent to or
deposited in such lock box or other arrangement directly to Secured Party and,
upon such notification and at the expense of Grantor, to enforce collection of
any such Accounts and to adjust, settle or compromise the amount or payment
thereof, in the same manner and to the same extent as Grantor might have done.
After receipt by Grantor of the notice from Secured Party referred to in the
PROVISO to the preceding sentence, (i) all amounts and proceeds (including
checks and other instruments) received by Grantor in respect of the Accounts and
the Related Contracts shall be received in trust for the benefit of Secured
Party hereunder, shall be segregated from other funds of Grantor and shall be
forthwith paid over or delivered to Secured Party in the same form as so
received (with any necessary endorsement) to be held as cash Collateral and
applied as provided by Section 17, and (ii) Grantor shall not adjust, settle or
compromise the amount or payment of any Account, or release wholly or partly any
account debtor or obligor thereof, or allow any credit or discount thereon.
SECTION 10. DEPOSIT ACCOUNTS. Upon the occurrence and during the
continuation of an Event of Default, Secured Party may exercise dominion and
control over, and refuse to permit further withdrawals (whether of money,
securities, instruments or other property) from any deposit accounts maintained
with Secured Party constituting part of the Collateral.
SECTION 11. LICENSE OF PATENTS, TRADEMARKS, COPYRIGHTS, ETC. Grantor
hereby assigns, transfers and conveys to Secured Party, effective upon the
occurrence and during the continuation of any Event of Default, the nonexclusive
right and license to use all trademarks, trade names, copyrights, patents or
technical processes owned or used by Grantor that relate to the Collateral and
any other collateral granted by Grantor as security for the Secured Obligations,
together with any goodwill associated therewith, all to the extent necessary to
enable Secured Party to use, possess and realize on the Collateral and to enable
any successor or assign to enjoy the benefits of the Collateral. This right and
license shall inure to the benefit of all successors, assigns and transferees of
Secured Party and its successors, assigns and transferees, whether by voluntary
conveyance, operation of law, assignment, transfer, foreclosure, deed in lieu of
foreclosure or otherwise. Such right and license is granted free of charge,
without requirement
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that any monetary payment whatsoever be made to Grantor.
SECTION 12. TRANSFERS AND OTHER LIENS. Grantor shall not:
(a) sell, assign (by operation of law or otherwise) or otherwise
dispose of any of the Collateral except as permitted by the Credit Agreement; or
(b) except for the security interest created by this Agreement and
Permitted Liens, create or suffer to exist any Lien upon or with respect to any
of the Collateral to secure the indebtedness or other obligations of any person.
SECTION 13. SECURED PARTY APPOINTED ATTORNEY-IN-FACT. Grantor hereby
irrevocably appoints Secured Party as Grantor's attorney-in-fact, with full
authority in the place and stead of Grantor and in the name of Grantor,
Secured Party or otherwise, from time to time upon the occurrence and during
the continuation of an Event of Default in Secured Party's discretion to take
any action and to execute any instrument that Secured Party may deem
necessary or advisable to accomplish the purposes of this Agreement,
including, without limitation: (a) to sign and file on behalf of Grantor any
financing or continuation statements, and amendments thereto, relative to all
or any part of the Collateral, regardless of whether an Event of Default has
occurred or is continuing; (b) to obtain and adjust insurance required to be
maintained by Grantor or paid to Secured Party pursuant to Section 8; (c) to
ask, demand, collect, sue for, recover, compound, receive and give
acquittance and receipts for monies due and to become due under or in respect
of any of the Collateral; (d) to receive, endorse and collect any drafts or
other instruments, documents and chattel paper in connection with clauses (a)
and (b) above; (e) to file any claims or take any action or institute any
proceedings that Secured Party may deem necessary or desirable for the
collection of any of the Collateral or otherwise to enforce the rights of
Secured Party with respect to any of the Collateral; (f) to pay or discharge
taxes or liens levied or placed upon or threatened against the Collateral,
the legality or validity thereof and the amounts necessary to discharge the
same to be determined by Secured Party in its sole discretion, any such
payments made by Secured Party to become obligations of Grantor to Secured
Party, due and payable immediately without demand; (g) to sign and endorse
any invoices, freight or express bills, bills of lading, storage or warehouse
receipts, drafts against debtors, assignments, verifications and notices in
connection with Accounts and other documents relating to the Collateral; and
(h) generally to sell, transfer, pledge, make any agreement with respect to
or otherwise deal with any of the Collateral as fully and completely as
though Secured Party were the absolute owner thereof for all purposes, and to
do, at Secured Party's option and Grantor's expense, all acts and things that
Secured Party deems necessary to protect, preserve or realize upon the
Collateral and Secured Party's security interest therein in order to effect
the intent of this Agreement, all as fully and effectively as Grantor might do.
SECTION 14. SECURED PARTY MAY PERFORM. If Grantor fails to perform any
agreement contained herein, Secured Party may itself perform, or cause
performance of, such agreement, and the expenses of Secured Party incurred in
connection therewith shall be payable by Grantor under Section 18.
SECTION 15. STANDARD OF CARE. The powers conferred on Secured Party
hereunder are
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solely to protect its interest in the Collateral and shall not impose any duty
upon it to exercise any such powers. Except for the exercise of reasonable care
in the custody of any Collateral in its possession and the accounting for moneys
actually received by it hereunder, Secured Party shall have no duty as to any
Collateral or as to the taking of any necessary steps to preserve rights against
prior parties or any other rights pertaining to any Collateral. Secured Party
shall be deemed to have exercised reasonable care in the custody and
preservation of Collateral in its possession if such Collateral is accorded
treatment substantially equal to that which Secured Party accords its own
property.
SECTION 16. REMEDIES. If any Event of Default shall have occurred and be
continuing Secured Party may exercise in respect of the Collateral, in addition
to all other rights and remedies provided for herein or otherwise available to
it, all the rights and remedies of a secured party on default under the Uniform
Commercial Code as in effect in any relevant jurisdiction (the "Code") (whether
or not the Code applies to the affected Collateral), and also may (a) require
Grantor to, and Grantor hereby agrees that it will at its expense and upon
request of Secured Party forthwith, assemble all or part of the Collateral as
directed by Secured Party and make it available to Secured Party at a place to
be designated by Secured Party that is reasonably convenient to both parties,
(b) enter onto the property where any Collateral is located and take possession
thereof with or without judicial process, (c) prior to the disposition of the
Collateral, store, process, repair or recondition the Collateral or otherwise
prepare the Collateral for disposition in any manner to the extent Secured Party
deems appropriate, (d) take possession of Grantor's premises or place custodians
in exclusive control thereof, remain on such premises and use the same and any
of Grantor's equipment for the purpose of completing any work in process, taking
any actions described in the preceding clause (c) and collecting any Secured
Obligation, and (e) without notice except as specified below, sell the
Collateral or any part thereof in one or more parcels at public or private sale,
at any of Secured Party's offices or elsewhere, for cash, on credit or for
future delivery, at such time or times and at such price or prices and upon such
other terms as Secured Party may deem commercially reasonable. Secured Party
may be the purchaser of any or all of the Collateral at any such sale and
Secured Party shall be entitled, for the purpose of bidding and making
settlement or payment of the purchase price for all or any portion of the
Collateral sold at any such public sale, to use nd apply any of the Secured
Obligations as a credit on account of the purchase price for any Collateral
payable by Secured Party at such sale. Each purchaser at any such sale shall
hold the property sold absolutely free from any claim or right on the part of
Grantor, and Grantor hereby waives (to the extent permitted by applicable law)
all rights of redemption, stay and/or appraisal which it now has or may at any
time in the future have under any rule of law or statute now existing or
hereafter enacted. Grantor agrees that, to the extent notice of sale shall be
required by law, at least ten days' notice to Grantor of the time and place of
any public sale or the time after which any private sale is to be made shall
constitute reasonable notification. Secured Party shall not be obligated to
make any sale of Collateral regardless of notice of sale having been given.
Secured Party may adjourn any public or private sale from time to time by
announcement at the time and place fixed there for, and such sale may, without
further notice, be made at the time and place to which it was so adjourned.
Grantor hereby waives any claims against Secured Party arising by reason of the
fact that the price at which any Collateral may have been sold at such a private
sale was less than the price which might have been obtained at a public sale,
even if Secured Party accepts the first offer received and does not offer such
Collateral to more than one offeree. If the proceeds of any sale
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or other disposition of the Collateral are insufficient to pay all the Secured
Obligations, Grantor shall be liable for the deficiency and the fees of any
attorneys employed by Secured Party to collect such deficiency.
SECTION 17. APPLICATION OF PROCEEDS. Except as expressly provided
elsewhere in this Agreement, all proceeds received by Secured Party in respect
of any sale of, collection from, or other realization upon all or any part of
the Collateral may in the discretion of Secured Party, be held by Secured Party
as Collateral for, and/or then, or at any other time thereafter, applied in full
or in part by Secured Party against, the Secured Obligations in the following
order of priority:
FIRST: To the payment of all costs and expenses of such sale, collection
or other realization, including reasonable compensation to Secured Party and its
agents and counsel, and all other expenses, liabilities and advances made or
incurred by Secured Party in connection therewith, and all amounts for which
Secured Party is entitled to indemnification hereunder and all advances made by
Secured Party hereunder for the account of Grantor, and to the payment of all
costs and expenses paid or incurred by Secured Party in connection with the
exercise of any right or remedy hereunder, all in accordance with Section 18;
SECOND: To the payment of all other Secured Obligations in such order as
Secured Party shall elect; and
THIRD: To the payment to or upon the order of Grantor, or to whosoever may
be lawfully entitled to receive the same or as a court of competent jurisdiction
may direct, of any surplus then remaining from such proceeds.
SECTION 18. INDEMNITY AND EXPENSES.
(a) Grantor agrees to indemnify Secured Party from and against any
and all claims, losses and liabilities in any way relating to, growing out of or
resulting from this Agreement and the transactions contemplated hereby
(including, without limitation, enforcement of this Agreement), except to the
extent such claims, losses or liabilities result solely from Secured Party's
gross negligence or willful misconduct.
(b) Grantor will pay to Secured Party upon demand the amount of any
and all costs and expenses, including the reasonable fees and expenses of its
counsel and of any experts and agents, that Secured Party may incur in
connection with (i) the administration of this Agreement, (ii) the custody,
preservation, use or operation of, or the sale of, collection from, or other
realization upon, any of the Collateral, (iii) the exercise or enforcement of
any of the rights of Secured Party hereunder, or (iv) the failure by Grantor to
perform or observe any of the provisions hereof.
SECTION 19. CONTINUING SECURITY INTEREST: TRANSFER OF SECURED OBLIGATIONS.
This Agreement shall create a continuing security interest in the Collateral and
shall (a) remain in full force and effect until the indefeasible payment in full
of the Secured Obligations, and the cancellation or termination of the Credit
Agreement, (b) be binding upon Grantor, its successors and assigns, and
(c) inure, together with the rights and remedies of Secured Party hereunder, to
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the benefit of Secured Party and its successors, transferees and assigns.
Without limiting the generality of the foregoing clause (c), Secured Party may
assign or otherwise transfer any Secured Obligations held by it to any other
Person, and such other Person shall thereupon become vested with all the
benefits in respect thereof granted to Secured Party herein or otherwise. Upon
the indefeasible payment in full of all Secured Obligations, the cancellation or
termination of the Credit Agreement, the security interest granted hereby shall
terminate and all rights to the Collateral shall revert to Grantor. Upon any
such termination, Secured Party will, at Grantor's expense, execute and deliver
to Grantor such documents as Grantor shall reasonably request to evidence such
termination.
SECTION 20. AMENDMENTS, ETC. No amendment or waiver of any provision of
this Agreement, or consent to any departure by Grantor here from, shall in any
event be effective unless the same shall be in writing and signed by Secured
Party, and then such waiver or consent shall be effective only in the specific
instance and for the specific purpose for which it was given.
SECTION 21. NOTICES. Except as otherwise set forth in this Agreement, all
notices and other communications provided for hereunder shall be in writing
(including telegraphic, telex or facsimile communication) and mailed or
telegraphed or telexed or sent by facsimile or delivered, if to the Grantor, at
its address set forth on the signature page hereof; and if to the Secured Party,
at its address set forth on the signature page hereof; or, as to each party, at
such other address as shall be designated by such party in a written notice to
the other parties. All such notices and communications shall be effective three
(3) Business Days after deposit in the U.S mail, postage prepaid, when sent by
telex or sent by facsimile, or when delivered, respectively.
SECTION 22. FAILURE OR INDULGENCE NOT WAIVER. REMEDIES CUMULATIVE. No
failure or delay on the part of Secured Party in the exercise of any power,
right or privilege hereunder shall impair such power, right or privilege or be
construed to be a waiver of any default or acquiescence therein, nor shall any
single or partial exercise of any such power, right or privilege preclude any
other or further exercise thereof or of any other power, right or privilege.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
SECTION 23. SEVERABILITY. In case any provision in or obligation under
this Agreement shall be invalid, illegal or unenforceable in any jurisdiction,
the validity, legality and enforceability of the remaining provisions or
obligations, or of such provision or obligation in any other jurisdiction, shall
not in any way be affected or impaired thereby.
SECTION 24. HEADINGS. Section and subsection headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose or be given any substantive effect.
SECTION 25. GOVERNING LAW; TERMS. THIS AGREEMENT SHALL BE GOVERNED BY,
AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE
STATE OF CALIFORNIA, EXCEPT AS REQUIRED BY MANDATORY PROVISION OF LAW AND EXCEPT
TO THE EXTENT THAT THE VALIDITY OR PERFECTION OF THE SECURITY INTEREST
HEREUNDER, OR
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REMEDIES HEREUNDER, IN RESPECT OF ANY PARTICULAR COLLATERAL ARE GOVERNED BY THE
LAWS OF A JURISDICTION OTHER THAN THE STATE OF CALIFORNIA. Unless otherwise
defined herein or in the Credit Agreement, terms used in Article 9 of the
Uniform Commercial Code in the State of California are used herein as therein
defined.
SECTION 26. CONSENT TO JURISDICTION AND SERVICE OF PROCESS. ALL JUDICIAL
PROCEEDINGS BROUGHT AGAINST GRANTOR ARISING OUT OF OR RELATING TO THIS AGREEMENT
MAY BE BROUGHT IN ANY STATE OR FEDERAL COURT OF COMPETENT JURISDICTION IN THE
STATE OF CALIFORNIA, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT GRANTOR
ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS PROPERTIES, GENERALLY AND
UNCONDITIONALLY, THE NONEXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS AND IRREVOCABLY AGREES TO BE BOUND BY
ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. In any action
against the Grantor or the Secured Party, service of process may be made upon
the Grantor or the Secured Party by registered or certified mail, return receipt
requested, to its address indicated in the applicable signature page hereto,
which service shall be deemed sufficient for personal jurisdiction and shall be
deemed effective ten (10) days after mailing.
SECTION 27. WAIVER OF JURY TRIAL. GRANTOR AND SECURED PARTY HEREBY AGREE
TO WAIVE THEIR RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. THE SCOPE OF THIS WAIVER IS
INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY
COURT AND THAT RELATE TO THE SUBJECT MATTER OF THIS TRANSACTION, INCLUDING
WITHOUT LIMITATION CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL
OTHER COMMON LAW AND STATUTORY CLAIMS. GRANTOR AND SECURED PARTY EACH
ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT FOR GRANTOR AND SECURED
PARTY TO ENTER INTO A BUSINESS RELATIONSHIP, THAT GRANTOR AND SECURED PARTY HAVE
ALREADY RELIED ON THIS WAIVER IN ENTERING INTO THIS AGREEMENT AND THAT EACH WILL
CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. GRANTOR AND
SECURED PARTY FURTHER WARRANT AND REPRESENT THAT EACH HAS REVIEWED THIS WAIVER
WITH ITS LEGAL COUNSEL, AND THAT EACH KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY
TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS
IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING,
AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS
OR MODIFICATIONS TO THIS AGREEMENT. In the event of litigation, this Agreement
may he filed as a written consent to a trial by the court.
SECTION 28. COUNTERPARTS. This Agreement may be executed in one or more
counterparts and by different parties hereto in separate counterparts, each of
which when so executed and delivered shall be deemed an original, but all such
counterparts together shall
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constitute but one and the same instrument; signature pages may be detached from
multiple separate counterparts and attached to a single counterpart so that all
signature pages are physically attached to the same document.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, Grantor and Secured Party have caused this Agreement to
be duly executed and delivered by their respective officers there unto duly
authorized as of the date first written above.
DITECH CORPORATION
By: /s/ William Tamblyn
----------------------------------
Title: VP/CFO
----------------------------------
Notice Address:
570 Maude Court
Sunnyvale, CA 94086
Attn: Mr. William J. Tamblyn
BANKBOSTON, N.A.
By: /s/ Teresa Heller
----------------------------------
Title: Director
----------------------------------
Notice Address:
435 Tasso Street #250
Palo Alto, California 94301
Attn: Teresa J. Heller
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SCHEDULE 1
TO SECURITY AGREEMENT
Locations of Equipment: Ditech Corporation
570 Maude Court, Sunnyvale, CA 94086
Locations of Inventory: Ditech Corporation
570 Maude Court, Sunnyvale, CA 94086
UMAI
42680 Christy Street, Fremont, CA 94538
South Bay Circuits, Inc.
210 Hillsdale Avenue, San Jose, CA 95136
Marshall Industries
336 Los Coches Street, Milpitas, CA 95035
Pro Dev MFG
3185 Molinaro Street, Santa Clara, CA 95054
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INTELLECTUAL PROPERTY SECURITY AGREEMENT
This Intellectual Property Security Agreement is made as of August 20,
1997, by and between DITECH CORPORATION ("Borrower"), and BANKBOSTON, N.A.
("Lender").
RECITALS
A. Lender has agreed to lend to Borrower certain funds (the "Loans"), and
Borrower desires to borrow such funds from Lender pursuant to the terms of a
Credit Agreement of even date herewith (the "Credit Agreement").
B. In order to induce Lender to make the Loans, Borrower has agreed to
grant a first priority security interest in certain intangible property to
Lender for purposes of securing the obligations of Borrower to Lender.
NOW, THEREFORE, THE PARTIES HERETO AGREE AS FOLLOWS:
1. GRANT OF SECURITY INTEREST. As collateral security for the prompt and
complete payment and performance of the Secured Obligations (as defined in the
Security Agreement between Borrower and Lender dated as of the date hereof),
Borrower hereby assigns, transfers, conveys and grants a first priority security
interest to Lender, as security, in and to Borrower's entire right, title and
interest in, to and under the following (all of which shall collectively be
called the "Intellectual Property Collateral"):
(a) Any and all copyright rights, copyright applications, copyright
registrations and like protections in each work or authorship and derivative
work thereof that is created by Borrower, whether published or unpublished and
whether or not the same also constitutes a trade secret, now or hereafter
existing, created, acquired or held, including without limitation those set
forth on EXHIBIT A attached hereto (collectively, the "Copyrights");
(b) Any and all trade secrets, and any and all intellectual property
rights in computer software and computer software products now or hereafter
existing, created, acquired or held;
(c) Any and all design rights which may be available to Borrower now
or hereafter existing, created, acquired or held;
(d) All patents, patent applications and like protections including
without limitation improvements, divisions, continuations, renewals, reissues,
extensions and continuations-in-part of the same, including without limitation
the patents and patent applications set forth on EXHIBIT B attached hereto
(collectively, the "Patents");
(e) Any trademark and servicemark rights, whether registered or not,
applications to register and registrations of the same and like protections, and
the entire goodwill of the business of Borrower connected with and symbolized by
such trademarks, including without limitation those set forth on EXHIBIT C
attached hereto (collectively, the "Trademarks");
(f) Right to the proceeds (excluding attorneys' and other
professional and expert fees and expenses) arising from any and all claims for
damages by way of past, present and future infringement of any of the rights
included above, with the right, but not the obligation, to sue on behalf of and
collect such damages for said use or infringement of the intellectual property
rights identified above;
(g) All licenses or other rights to use any of the Copyrights,
Patents or Trademarks, and all license fees and royalties arising from such use
to the extent permitted by such license or rights; and
(h) All amendments, renewals and extensions of any of the Copyrights,
Trademarks or Patents; and
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(i) All proceeds and products of the foregoing, including without
limitation all payments under insurance or any indemnity or warranty payable in
respect of any of the foregoing.
2. AUTHORIZATION AND REQUEST. Borrower authorizes and requests that the
Register of Copyrights and the Commissioner of Patents and Trademarks record
this security agreement.
3. COVENANTS AND WARRANTIES. Borrower represents, warrants, covenants
and agrees as follows:
(a) Borrower is now the sole owner of the Intellectual Property
Collateral, except for non-exclusive licenses granted by Borrower to its
customers in the ordinary course of business;
(b) Performance of this Agreement does not conflict with or result in
a breach of any agreement to which Borrower is party or by which Borrower is
bound, except to the extent that certain intellectual property agreements
prohibit the assignment of the rights thereunder to a third party without the
licensor's or other party's consent and this Agreement constitutes an
assignment;
(c) During the term of this Agreement, Borrower will not transfer or
otherwise encumber any interest in the Intellectual Property Collateral, except
for non-exclusive licenses granted by Borrower in the ordinary course of
business or as set forth in this Agreement;
(d) To its knowledge, each of the Patents is valid and enforceable,
and no part of the Intellectual Property Collateral has been judged invalid or
unenforceable, in whole or in part, and no claim has been made that any part of
the Intellectual Property Collateral violates the rights of any third party;
(e) Borrower shall promptly advise Lender of any material change in
the composition of the Intellectual Property Collateral, including but not
limited to any subsequent ownership right of the Borrower in or to any
Trademark, Patent or Copyright not specified in this Agreement;
(f) Borrower shall (i) protect, defend and maintain the validity and
enforceability of the Trademarks, Patents and Copyrights, (ii) use commercially
reasonable efforts to detect infringements of the Trademarks, Patents and
Copyrights and promptly advise Lender in writing of material infringements
detected and (iii) not allow any Trademarks, Patents or Copyrights to be
abandoned, forfeited or dedicated to the public without the written consent of
Lender, which shall not be unreasonably withheld, unless Borrower determines
that reasonable business practices suggest that abandonment is appropriate.
(g) Borrower shall promptly register the most recent version of any
of Borrower's Copyrights which are material to Borrower's business or which
generate revenue in excess of $50,000 in any fiscal year, if not so already
registered, and shall, from time to time, execute and file such other
instruments, and take such further actions as Lender may reasonably request from
time to time to perfect or continue the perfection of Lender's interest in the
Intellectual Property Collateral;
(h) This Agreement creates in favor of Lender a valid security
interest in the Intellectual Property Collateral in the United States listed on
the Exhibits hereto securing the payment and performance of the obligations
evidenced by the Credit Agreement and the Notes, and upon the filing of the UCC
financing statements in the appropriate jurisdictions and making the filings
referred to in clause (i) below, a perfected first priority security interest in
such collateral;
(i) To its knowledge, except for, and upon, the filing with the
United States Patent and Trademark office with respect to the Patents and
Trademarks and the Register of Copyrights with respect to the Copyrights
necessary to perfect the security interests created hereunder, and except for
the filing of the UCC financing statements, and except as has been already made
or obtained, no authorization, approval or other action by, and no notice to or
filing with, any U.S. governmental authority or U.S. regulatory body is required
either (i) for the grant by Borrower of the security interest granted hereby or
for the execution, delivery or performance of this Agreement by Borrower in the
U.S. or (ii) for the perfection in the United States or the exercise by Lender
of its rights and remedies
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hereunder;
(j) All information heretofore, herein or hereafter supplied to
Lender by or on behalf of Borrower with respect to the Intellectual Property
Collateral is accurate and complete in all material respects.
(k) Borrower shall not enter into any agreement that would materially
impair or conflict with Borrower's obligations hereunder without Lender's prior
written consent, which consent shall not be unreasonably withheld. Borrower
shall not permit the inclusion in any material contract to which it becomes a
party of any provisions that could or might in any way prevent the creation of a
security interest in Borrower's rights and interests in any property included
within the definition of the Intellectual Property Collateral acquired under
such contracts, except that certain contracts may contain anti-assignment
provisions that could in effect prohibit the creation of a security interest in
such contracts, and except that Borrower shall not be prohibited from granting
exclusive and non-exclusive licenses, or entering into marketing and
distribution agreements in the normal course of its business.
(l) Upon any executive officer of Borrower obtaining actual knowledge
thereof, Borrower will promptly notify Lender in writing of any event that
materially adversely affects the value of the Intellectual Property Collateral,
the ability of Borrower to dispose of any Intellectual Property Collateral or
the rights and remedies of Lender in relation thereto, including the levy of any
legal process against any of the Intellectual Property Collateral.
4. LENDER'S RIGHTS. Lender shall have the right, but not the obligation,
to take, at Borrower's sole expense, any actions that Borrower is required under
this Agreement to take but which Borrower fails to take, after fifteen (15)
days' notice to Borrower. Borrower shall reimburse and indemnify Lender for all
reasonable costs and reasonable expenses incurred in the reasonable exercise of
its rights under this section 4.
5. INSPECTION RIGHTS. Borrower hereby grants to Lender and its
employees, representatives and agents the right to visit, during reasonable
hours upon prior reasonable written notice to Borrower, any of Borrower's plants
and facilities that manufacture, install or store products (or that have done so
during the prior six-month period) that are sold utilizing any of the
Intellectual Property Collateral, and to inspect the products and quality
control records relating thereto upon reasonable written notice to Borrower and
as often as may be reasonably requested, but not more than once in each calendar
quarter if no Event of Default has occurred.
6. FURTHER ASSURANCES; ATTORNEY IN FACT.
(a) On a continuing basis, Borrower will, subject to any prior
licenses, encumbrances and restrictions and prospective licenses, make, execute,
acknowledge and deliver, and file and record in the proper filing and recording
places in the United States, all such instruments, including appropriate
financing and continuation statements and collateral agreements and filings with
the United States Patent and Trademark Office and the Register of Copyrights,
and take all such action as may reasonably be deemed necessary or advisable, or
as reasonably requested by Lender, to perfect Lender's security interest in all
Copyrights, Patents and Trademarks and otherwise to carry out the intent and
purposes of this Agreement, or for assuring and confirming to Lender the grant
or perfection of a security interest in all Intellectual Property Collateral.
(b) Borrower hereby irrevocably appoints Lender as Borrower's
attorney-in-fact, with full authority in the place and stead of Borrower and in
the name of Borrower, from time to time in Lender's discretion, to take any
action and to execute any instrument which Lender may deem necessary or
advisable to accomplish the purposes of this Agreement, including:
(i) To modify, in its sole discretion, this Agreement without
first obtaining Borrower's approval of or signature to such modification by
amending Exhibit A, Exhibit B and Exhibit C, thereof, as appropriate, to include
reference to any right, title or interest in any Copyrights, Patents or
Trademarks acquired by Borrower after the execution hereof or to delete any
reference to any right, title or interest in any Copyrights, Patents or
Trademarks in which Borrower no longer has or claims any right, title or
interest; and
(ii) To file, in its sole discretion, one or more financing or
continuation statements and
3
<PAGE>
amendments thereto, relative to any of the Intellectual Property Collateral
without the signature of Borrower where permitted by law.
7. EVENTS OF DEFAULT. The occurrence of any of the following shall
constitute an Event of Default under this Agreement:
(a) An Event of Default occurs under the Credit Agreement; or
(b) Borrower breaches any warranty or agreement made by Borrower in
this Agreement and, as to any breach that is capable of cure, Borrower fails to
cure such breach within ten (10) days of the occurrence of such breach.
8. REMEDIES. Upon the occurrence and continuance of an Event of Default,
Lender shall have the right to exercise all the remedies of a secured party
under the California Uniform Commercial Code, including without limitation the
right to require Borrower to assemble the Intellectual Property Collateral and
any tangible property in which Lender has a security interest and to make it
available to Lender at a place designated by Lender. Lender shall have a
nonexclusive, royalty free license to use the Copyrights, Patents and Trademarks
to the extent reasonably necessary to permit Lender to exercise its rights and
remedies upon the occurrence and during the continuation of an Event of Default.
Borrower will pay any expenses (including reasonable attorneys' fees) incurred
by Lender in connection with the exercise of any of Lender's rights hereunder,
including without limitation any expense incurred in disposing of the
Intellectual Property Collateral. All of Lender's rights and remedies with
respect to the Intellectual Property Collateral shall be cumulative.
9. INDEMNITY. Borrower agrees to defend, indemnify and hold harmless
Lender and its officers, employees, and agents against: (a) all obligations,
demands, claims, and liabilities claimed or asserted by any other party in
connection with the transactions contemplated by this Agreement, and (b) all
losses or expenses in any way suffered, incurred, or paid by Lender as a result
of or in any way arising out of, following or consequential to transactions
between Lender and Borrower, whether under this Agreement or otherwise
(including without limitation reasonable attorneys' fees and reasonable
expenses), except for losses arising from or out of Lender's gross negligence or
willful misconduct.
10. REASSIGNMENT. At such time as Borrower shall completely satisfy all
of the Secured Obligations, Lender shall execute and deliver to Borrower all
deeds, assignments and other instruments as may be necessary or proper to revest
in Borrower full title to the property assigned hereunder, subject to any
disposition thereof which may have been made by Lender pursuant hereto.
11. COURSE OF DEALING. No course of dealing, nor any failure to exercise,
nor any delay in exercising any right, power or privilege hereunder shall
operate as a waiver thereof.
12. ATTORNEYS' FEES. If any action relating to this Agreement is brought
by either party hereto against the other party, the prevailing party shall be
entitled to recover reasonable attorneys' fees, costs and disbursements.
13. AMENDMENTS. This Agreement may be amended only by a written
instrument signed by both parties hereto.
14. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together shall constitute the same instrument.
15. CALIFORNIA LAW AND JURISDICTION. This Agreement shall be governed by
the laws of the State of California, without regard for choice of law
provisions. Borrower and Lender consent to the exclusive jurisdiction of any
state or federal court located in Santa Clara County, California.
4
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on the
day and year first above written.
Address of Borrower: Borrower:
570 Maude Court DITECH CORPORATION
Sunnyvale, CA 94086
Attn: William J. Tamblyn By: /s/ William Tamblyn
------------------------------
Address of Lender: Lender:
435 Tasso Street, Suite 250 BANKBOSTON, N.A.
Palo Alto, CA 94301
Attn: Teresa J. Heller By: /s/ Teresa Heller
------------------------------
5
<PAGE>
EXHIBIT A
Copyrights
NONE
<PAGE>
EXHIBIT B
Patents
<TABLE>
<CAPTION>
REGISTRATION/ REGISTRATION/
APPLICATION APPLICATION
DESCRIPTION NUMBER DATE
- ----------- ------------- -------------
<S> <C> <C>
Method & Apparatus for Predicting
Semiconductor Laser Failure 5,594,748 01/14/97
Method of Monitoring the Input
and Output of an Optical Amp 08/593,899 01/30/96
Method & Apparatus for Optical
Amp Gain and Noise Figure Measurement 08/676,561 07/08/96
Broadband Optical Transmission System
Utilizing Differential Wavelength Modulation 05/07/97
Bidirectional Optical Amp Having Flat Gain 07/18/97
</TABLE>
<PAGE>
EXHIBIT C
Trademarks
<TABLE>
<CAPTION>
REGISTRATION/ REGISTRATION/
APPLICATION APPLICATION
DESCRIPTION NUMBER DATE
- ----------- ------------- -------------
<S> <C> <C>
The Clear Solution 75/276,306 04/17/97
DART 75/276,307 04/17/97
Ditech 1,503,709 09/13/88
</TABLE>
<PAGE>
[BANKBOSTON LOGO]
MASTER AGREEMENT
This MASTER AGREEMENT, dated as of the 15th day of December, 1998, which
together with all riders and amendments now or hereafter executed and made a
part hereof (the "Master Agreement"), is made at Boston, Massachusetts by and
between BANCBOSTON LEASING INC. ("Lessor"), a Massachusetts corporation with
its principal place of business at 100 Federal Street, Boston, Massachusetts
02110 and DITECH CORPORATION ("Lessee"), a California corporation with its
principal place of business at 825 East Middlefield Road, Mountain View,
California 94043.
IN CONSIDERATION OF the mutual promises and covenants contained herein,
Lessor and Lessee hereby agree as follows:
1. LEASING PROPERTY. At the request of Lessee and subject to the
terms and conditions of this Master Agreement, Lessor shall lease to Lessee
and Lessee shall lease from Lessor such personal property ("Equipment") as
may be mutually agreed upon by Lessor and Lessee. The Equipment shall be
selected by or ordered at the request of Lessee, identified in one or more
lease schedules substantially in the form as supplied by Lessor (each a
"Lease Schedule") and accepted by Lessee in one or more certificates of
acceptance in the form as supplied by Lessor (each a "Certificate of
Acceptance"). Each Lease Schedule executed by Lessor and Lessee expressly
incorporates by reference the terms and conditions of this Master Agreement
and any riders, schedules or amendments, now or hereafter executed,
applicable to such Lease Schedule and shall constitute a separate, distinct
and independent lease and contractual relationship between Lessor and Lessee.
2. CERTAIN DEFINITIONS.
2.1 The "Acquisition Cost" shall mean the total acquisition cost of
the Equipment paid by Lessor as set forth in the applicable Lease Schedule.
2.2 The "Commencement Date" shall mean the date on which the
Equipment identified in the applicable Lease Schedule is accepted and placed
in service by Lessee as evidenced by a Certificate of Acceptance.
2.3 The "Daily Rent" shall mean the per diem amount set forth in the
applicable Lease Schedule.
2.4 The "Initial Term Start Date" shall mean either (i) the first day
of the month immediately following the month in which the Commencement Date
occurs, or (ii) if the Commencement Date occurs on the first day of the
month, the Commencement Date. For all rental periods other than monthly, the
Initial Term Start Date shall be as set forth on the applicable Lease
Schedule.
2.5 The "Payment Date" shall mean the date set forth in the
applicable Lease Schedule.
2.6 The "Periodic Rent" shall mean the amount set forth in the
applicable Lease Schedule.
<PAGE>
2.7 The words "herein", "hereof", and "hereunder" shall refer to this
Master Agreement and any Lease Schedule as a whole and not to any particular
section. Other capitalized terms shall have the meanings specified elsewhere
in this Master Agreement or the Lease Schedule.
3. INITIAL TERM OF LEASE; PAYMENT OF RENT.
3.1 This Master Agreement shall be effective from and after the date
of execution hereof. The term of lease for the Equipment shall begin on the
Commencement Date set forth in the applicable Certificate of Acceptance and
shall continue during and until the expiration of the Initial Term as defined
and set forth in the applicable Lease Schedule, measured from the Initial
Term Start Date. The Initial Term may not be canceled or terminated except
as set forth in Sections 10.2 or 17.1 below.
3.2 At the expiration of the Initial Term, Lessor and Lessee may
extend the lease of the Equipment for any period as they may agree upon in
writing ("Extended Term") at the then fair market rental value of the
Equipment, as determined in good faith by Lessor.
3.3 Aggregate Daily Rent shall be due and payable by Lessee on the
Initial Term Start Date in an amount equal to the Daily Rent multiplied by
the actual number of days elapsed from, and including, the Commencement Date
to, but excluding, the Initial Term Start Date. The Periodic Rent shall be
due and payable, without prior notice or demand, on the Payment Date and
thereafter on the first day of each month or other applicable period of the
Initial Term or any Extended Term. All Daily Rents and Periodic Rents shall
be paid to Lessor at its principal place of business in Boston, Massachusetts
or other location to which the Lessor may direct in writing.
4. ACCEPTANCE OF EQUIPMENT; EXCLUSION OF WARRANTIES.
4.1 Lessee shall signify its acceptance of the Equipment identified
in the applicable Lease Schedule by promptly executing and delivering to
Lessor a Certificate of Acceptance. Lessee acknowledges that its execution
and delivery of the Certificate of Acceptance shall conclusively establish,
as between Lessor and Lessee, that the Equipment has been inspected by
Lessee, is in good repair and working order, is of the design, manufacture
and capacity selected by Lessee, and is accepted by Lessee under the
applicable Lease Schedule.
4.2 In the event the Equipment is ordered by Lessor from a
manufacturer or supplier at the request of Lessee, Lessor shall not be
required to pay the Acquisition Cost for such Equipment unless and until the
applicable executed Certificate of Acceptance has been received by Lessor.
All expenses incurred in connection with Lessor's purchase of the Equipment
(including shipment, delivery and installation) shall be the responsibility
of Lessee and shall be either capitalized in the Acquisition Cost or paid
upon demand. If Lessee shall refuse to accept delivery of any item of the
Equipment, Lessee will be assigned all rights and shall assume all
obligations as purchaser of such item of the Equipment. Lessee hereby agrees
to indemnify, defend and hold Lessor harmless from any liability to any
manufacturer or supplier of the Equipment (in each case a "Supplier") or any
other manufacturer or supplier arising from the failure of Lessee to lease
any Equipment which is ordered by Lessor at the request of Lessee or for
which Lessor has assumed an obligation to purchase at the request of Lessee.
4.3 Lessor leases the Equipment to Lessee and Lessee leases the
Equipment from Lessor "AS IS" and "WITH ALL FAULTS". Lessee hereby
acknowledges that (i) Lessor is not a manufacturer, supplier or dealer of
such Equipment nor an agent thereof, and (ii) LESSOR HAS NOT MADE, DOES NOT
MAKE, AND HEREBY DISCLAIMS ANY REPRESENTATION OR WARRANTY
-2-
<PAGE>
WHATSOEVER, EXPRESS OR IMPLIED, WITH RESPECT TO THE EQUIPMENT INCLUDING, BUT
NOT LIMITED TO, ITS DESIGN, CAPACITY, CONDITION, MERCHANTABILITY, OR FITNESS
FOR USE OR FOR ANY PARTICULAR PURPOSE. Lessee further acknowledges that
Lessor is not responsible for any repairs, maintenance, service, latent or
other defects in the Equipment or in the operation thereof, or for compliance
of any Equipment with requirements of any laws, ordinances, governmental
rules or regulations including, but not limited to, laws with respect to
environmental matters, patent, trademark, copyright or trade secret
infringement, or for any direct, indirect, incidental, punitive,
consequential or other damages arising out of the use of or inability to use
the Equipment. In addition, Lessor makes no representation and disclaims any
warranty that the Equipment is "Year 2000 Compliant," that is, that any
computer applications, imbedded microchips or other systems, if any, which
may be contained or included in the Equipment will be able to recognize, and
perform properly, date sensitive functions involving certain dates prior to,
and any date after, December 31, 1999.
4.4 Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, Lessor agrees to cooperate with Lessee, at the
sole cost and expense of Lessee, in making any claim against a manufacturer
or supplier of the Equipment arising from a defect in such Equipment or
breach of warranty, express or implied, and/or arising out of the purchase or
supply agreement between Lessor and Supplier. At the request of Lessee,
Lessor shall assign to Lessee, for the Initial Term and any Extended Term,
all warranties on the Equipment available from Supplier to the full extent
permitted by the terms of such warranties and by applicable law.
5. OWNERSHIP; INSPECTION; MAINTENANCE AND USE.
5.1 The Equipment shall at all times be the sole and exclusive
property of Lessor. Any Equipment subject to titling and registration laws
shall be titled and registered by Lessee on behalf of and in the name of
Lessor, or in such name as Lessor may direct, at the sole cost and expense of
Lessee. Lessee shall cooperate with and provide Lessor with any information
or documents necessary for titling and registration of the Equipment. Upon
the request of Lessor, Lessee shall execute any documents or instruments
which may be necessary or appropriate to confirm, to record or to give notice
of the ownership of the Equipment by Lessor including, but not limited to,
financing statements under the Uniform Commercial Code. Lessee, at the
request of Lessor, shall affix to the Equipment, in a conspicuous place, any
label, plaque or other insignia supplied by Lessor designating the ownership
of the Equipment by Lessor.
5.2 The Equipment shall be located at the address specified in the
applicable Lease Schedule, which must be within the continental United
States, or such other location as Lessor may agree in writing, and may be
removed therefrom to another location within the continental United States
only with prior written notice to Lessor. Lessor, its agents or employees
shall have the right to enter the premises of Lessee, upon reasonable notice
and during normal business hours, for the purpose of inspecting the Equipment
and all maintenance records kept by Lessee with respect to the Equipment.
5.3 Lessee shall pay all costs, expenses, fees and charges whatsoever
incurred in connection with the use and operation of the Equipment. Lessee
shall, at all times and at its own expense, keep the Equipment in good repair
and working order, reasonable wear and tear excepted. Lessee shall also use
the Equipment solely in the conduct of its business, and shall not
permanently discontinue use of the Equipment. Any maintenance contract
required by a manufacturer or supplier for the care and upkeep of the
Equipment shall be entered into by Lessee at its sole cost and expense.
Lessee shall permit the use and operation of the Equipment only by personnel
authorized by Lessee and shall comply with all laws,
-3-
<PAGE>
ordinances or governmental rules and regulations and applicable insurance
policies relating to the use and operation of the Equipment.
6. ALTERATIONS AND MODIFICATIONS. Lessee may make, or cause to be
made on its behalf, any improvement, modification or addition to the
Equipment with the prior written consent of Lessor, which will not be
unreasonably withheld; provided, however, that such improvement, modification
or addition is readily removable without causing damage to, or impairment of,
the functional effectiveness, remaining economic useful life or fair market
value of the Equipment. Any such improvement, modification or addition which
is so readily removable shall remain the property of Lessee and shall be
removed by Lessee prior to return of the Equipment. To the extent that such
improvement, modification or addition is not so removable, it shall be
permitted only with Lessor's prior written consent, which will be granted at
Lessor's sole discretion, and only if its attachment will not cause damage
to, or impairment of, the functional effectiveness, remaining economic useful
life or fair market value of the Equipment; and such improvement,
modification or addition shall immediately become the property of Lessor and
thereupon shall be considered Equipment for all purposes hereunder. Any
modification or addition to the Equipment which is required by law shall be
made by Lessee, at the sole cost and expense of Lessee, and shall immediately
become the property of Lessor and thereupon shall be considered Equipment for
all purposes hereunder. Any improvement, modification or addition made to
the Equipment shall be free of all liens, claims and encumbrances of third
parties.
7. QUIET ENJOYMENT; NO DEFENSE, SETOFF OR COUNTERCLAIMS.
7.1 Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, Lessee shall have the quiet enjoyment and use of
the Equipment in the ordinary course of its business during the Initial Term
or any Extended Term without interruption by Lessor or any person or entity
claiming through or under Lessor.
7.2 Lessee acknowledges and agrees that ANY DAMAGE TO OR LOSS,
DESTRUCTION, OR UNFITNESS OF, OR DEFECT IN THE EQUIPMENT, OR THE INABILITY OF
LESSEE TO USE THE EQUIPMENT FOR ANY REASON WHATSOEVER, OR ANY OTHER
CIRCUMSTANCE WHATSOEVER SHALL NOT (i) GIVE RISE TO ANY DEFENSE, COUNTERCLAIM,
OR RIGHT OF SETOFF AGAINST LESSOR, OR (ii) PERMIT ANY ABATEMENT OR RECOUPMENT
OF, OR REDUCTION IN DAILY OR PERIODIC RENT, OR (iii) ALLOW LESSEE TO CANCEL,
TERMINATE, MODIFY OR REPUDIATE THE APPLICABLE LEASE SCHEDULE, OR (iv) RELIEVE
LESSEE OF, OR EXCUSE LESSEE FROM, THE PERFORMANCE OF ITS OBLIGATIONS UNDER
THE APPLICABLE LEASE SCHEDULE INCLUDING, BUT NOT LIMITED TO, ITS OBLIGATION
TO PAY THE FULL AMOUNT OF DAILY RENT AND PERIODIC RENT, WHICH OBLIGATIONS ARE
ABSOLUTE AND UNCONDITIONAL. Any claim that Lessee may have which arises from
a defect in or deficiency of the Equipment shall be brought solely against
Supplier or any other manufacturer or supplier of the Equipment and Lessee
shall, notwithstanding any such claim, continue to pay Lessor all amounts due
and to become due under the applicable Lease Schedule.
8. ADVERSE CLAIMS AND INTERESTS.
8.1 Except for any liens, claims, mortgages, pledges, encumbrances or
security interests created by or for the benefit of Lessor, Lessee shall keep
the Equipment at all times, free and clear from all liens, claims, mortgages,
pledges, encumbrances and security interests, other than liens for fees,
taxes, levies, duties or other governmental charges of any kind, liens of
mechanics, materialmen, laborers,
-4-
<PAGE>
employees or suppliers and similar liens arising by operation of law incurred
by Lessee in the ordinary course of business for sums that are not yet
delinquent or are being contested in good faith by appropriate proceedings
which suspend the collection thereof provided, however, that such proceedings
do not involve any risk of the sale, forfeiture or loss of the Equipment or
any interest therein, or of the imposition of criminal liability on the part
of Lessor or Lessee, which shall be determined by Lessor in its sole
discretion. Lessee shall keep the Equipment at all times free and clear from
all levies, seizures and attachments, and shall defend Lessor's title in and
to the Equipment. Without limitation of the covenants and obligations of
Lessee set forth in the preceding sentence, Lessee shall immediately notify
Lessor in writing of the imposition of any prohibited lien, claim, levy or
attachment on or seizure of the Equipment, at which time Lessee shall provide
Lessor with all relevant information in connection therewith.
8.2 Lessee agrees that the Equipment shall be and at all times shall
remain personal property. Accordingly, Lessee shall take such steps as may
be necessary to prevent any person, including without limitation Lessee's
landlord and such landlord's mortgagee, from acquiring, having or retaining
any rights in or to the Equipment by reason of its being affixed or attached
to, or otherwise located on, real property including, without limitation,
obtaining and delivering to Lessor waivers of any lien, encumbrance or
interest which such person might have or hereafter obtain or claim with
respect to the Equipment which waivers shall be recorded at the sole cost and
expense of Lessee.
9. INDEMNITIES; PAYMENT OF TAXES.
9.1 Lessee hereby agrees to indemnify, defend and hold harmless (on
an after-tax basis) Lessor, its agents, employees, successors and assigns
from and against any and all claims, actions, suits, proceedings, costs,
expenses, damages and liabilities whatsoever arising out of or in connection
with the manufacture, ordering, selection, specifications, availability,
delivery, titling, registration, rejection, installation, possession,
maintenance, ownership, use, leasing, operation or return of the Equipment
including, but not limited to, any claim or demand based upon (i) any STRICT
OR ABSOLUTE LIABILITY IN TORT, (ii) any violation of any applicable
environmental or other laws or regulations, or (iii) any infringement or
alleged infringement of any patent, trademark, trade secret, license,
copyright or otherwise. All costs and expenses incurred by Lessor in
connection with any of the foregoing including, but not limited to,
reasonable legal fees shall be paid by Lessee on demand. The indemnification
provisions of this Section 9.1 shall not, however, apply to any claim, cost
or expense arising from, or in connection with, any gross negligence or
willful misconduct on the part of Lessor, its agents, employees, its
successors and assigns.
9.2 Lessee hereby agrees to indemnify, defend and hold Lessor
harmless, on an after-tax basis, against all federal, state and local taxes,
assessments, licenses, withholdings, levies, imposts, duties, excise taxes,
registration fees and other governmental fees and charges whatsoever, which
are imposed, assessed or levied on or with respect to the Equipment or its
use or related in any way to a Lease Schedule ("Tax Assessments") except for
taxes on or measured by the net income of Lessor determined substantially in
the same manner as under the Internal Revenue Code of 1986, as amended.
Lessee shall file all returns, reports or other such documents required in
connection with the Tax Assessments and shall provide Lessor with copies
thereof. Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, Lessee is also authorized, for and on behalf of
Lessor, to file abatements or otherwise seek a refund or reduction of any Tax
Assessments provided that no such filing shall create any risk of loss of or
encumbrance on the Equipment. If, under local law or custom, Lessee is not
authorized to make the filings required by a taxing authority, Lessee shall
notify Lessor in writing, and Lessor shall thereupon file such returns,
reports or documents at Lessee's sole cost and
-5-
<PAGE>
expense. Without limiting any of the foregoing, Lessee shall indemnify,
defend and hold Lessor harmless from all penalties, fines, interest payments,
claims and expenses, including but not limited to reasonable legal fees,
arising from any failure of Lessee to comply with the requirements of this
Section 9.2.
9.3 The obligations and indemnities of Lessee under this Section 9
for events occurring or arising or taxes accruing during the Initial Term or
any Extended Term shall continue and survive in full force and effect,
notwithstanding the expiration or other termination of this Master Agreement
or any Lease Schedule.
10. RISK OF LOSS; LOSS OF EQUIPMENT.
10.1 Lessee hereby assumes and shall bear the entire risk of loss for
theft, disappearance, damage, seizure, condemnation, casualty, destruction or
other injury whatsoever to the Equipment from any and every cause whatsoever.
Such risk of loss shall be deemed to have been assumed by Lessee from and
after such risk passes from the Supplier by agreement or pursuant to
applicable law. For purposes of this Section 10 only, Equipment shall include
any item or unit thereof.
10.2 In the event of loss or damage to any item of Equipment which can
be repaired by Lessee, Lessee shall, at its cost and expense, promptly repair
and restore such item of Equipment to the condition required by this Master
Agreement. In the event of any loss, seizure, condemnation, casualty or
destruction of the Equipment or damage to the Equipment which cannot be
repaired by Lessee, Lessee shall immediately notify Lessor in writing.
Within thirty (30) days of such notice, during which time Lessee shall
continue to pay Periodic Rent, Lessee shall, at the option of Lessor, either
(i) replace the Equipment with equipment of the same type and manufacture,
and having a value, utility and remaining economic useful life not less than
the Equipment replaced, and in good repair, condition and working order, and
transfer title to such equipment to Lessor free and clear of all liens,
claims and encumbrances, whereupon such equipment shall be deemed Equipment
for all purposes of the Lease Schedule, or (ii) pay to Lessor an amount equal
to the present value of both the aggregate of the remaining unpaid Periodic
Rents and the anticipated residual value of the Equipment plus any other
costs actually incurred by Lessor. Lessor and Lessee agree that the residual
value of the Equipment at the expiration of the Initial Term is reasonably
anticipated to be not less than twenty percent (20%) of the Acquisition Cost
of the Equipment. The present value shall be determined by discounting the
aggregate of the remaining unpaid Periodic Rents and the anticipated residual
value of the Equipment to the date of payment by Lessee at the rate of five
percent (5%) per annum. When and as requested by Lessor, Lessee shall also
pay to Lessor amounts due pursuant to Section 18 below, if any, arising as a
result of the loss, seizure, replacement, condemnation or destruction of the
Equipment. Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, any insurance or condemnation proceeds received
by Lessor shall be credited to the obligations of Lessee under this Section
10.2, and the remainder of such proceeds, if any, shall be paid to Lessee by
Lessor in full compensation for the loss of the leasehold interest in the
Equipment by Lessee.
10.3 Upon any replacement of or payment for the Equipment as provided
in Section 10.2 above, the Lease Schedule shall terminate only with respect
to the Equipment so replaced or paid for, and Lessor shall transfer to Lessee
title only to such Equipment "AS IS, WHERE IS", "WITH ALL FAULTS", and WITH
NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING WITHOUT
LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR ANY
PARTICULAR PURPOSE. Lessee shall pay any sales or use taxes due on such
transfer.
-6-
<PAGE>
11. INSURANCE.
11.1 Lessee shall keep the Equipment insured against all risks of loss
or damage from every cause whatsoever occurring during the Initial Term, or
any Extended Term for an amount not less than the higher of the full
replacement value of the Equipment or the aggregate of unpaid Daily Rent and
Periodic Rent for the balance of the Initial Term or the Extended Term.
Lessee shall also carry public liability insurance, both bodily injury and
property damage, covering the Equipment, and Lessee shall be liable for any
deductible portions of all required insurance.
11.2 All insurance required under this Section 11 shall be primary and
shall name Lessor as additional insured and loss payee. Such insurance shall
also be with such insurers and shall be in such form reasonably satisfactory
to Lessor and in such amounts as are satisfactory to Lessor. All applicable
policies shall provide that no act, omission or breach of warranty by Lessee
shall give rise to any defense against payment of the insurance proceeds to
Lessor. Lessee shall pay the premiums for such insurance and, at the request
of Lessor, deliver to Lessor duplicates of such policies or other evidence
satisfactory to Lessor of such insurance coverage. In any event, Lessee
shall provide Lessor with certificates of insurance or such other evidence of
coverage, to include endorsements upon the policies issued by the insurers
which evidence the existence of insurance coverage required by this Section
11, and by which the insurers agree to give Lessor written notice at least
thirty (30) days prior to the effective date of any expiration, modification,
reduction, termination, refusal to renew or cancellation of any such
policies. Lessee shall cause to be provided to Lessor, not less than fifteen
(15) days prior to the scheduled expiration or lapse of such insurance
coverage, evidence satisfactory to Lessor of renewal or replacement coverage.
11.3 Provided no Event of Default, as defined in Section 16 below, has
occurred and is continuing, the proceeds of insurance required under this
Section 11 and payable as a result of loss or damage to the Equipment shall
be applied as set forth in Section 10.2 above. Upon the occurrence of an
Event of Default as defined in Section 16 below, Lessee hereby irrevocably
appoints Lessor as its attorney-in-fact, which power shall be deemed coupled
with an interest, to make claim for, receive payment of, execute and endorse
all documents, checks or drafts received in payment for loss or damage under
any insurance policies required by this Section 11.
11.4 Notwithstanding anything herein, Lessor shall not be under any
duty to examine any evidence of insurance furnished hereunder, or to
ascertain the existence of any policy or coverage, or to advise Lessee of any
failure to comply with the provisions of this Section 11.
12. SURRENDER TO LESSOR.
12.1 Lessee shall advise Lessor in writing at least ninety (90) days
prior to the expiration of the Initial Term or any Extended Term of its
intent to surrender the Equipment. Upon receipt of such notice, Lessor shall
be authorized to demonstrate the Equipment in operation to potential buyers
or lessees during the normal business hours of Lessee, provided that Lessor
has given reasonable notice to Lessee prior to any such visit.
12.2 If Lessee elects to surrender the Equipment or, alternatively,
upon any other termination of the Lease Schedule, Lessee shall immediately
surrender the Equipment to Lessor by assembling and delivering the Equipment
to a place or places, as Lessor may designate, within the continental United
States. The shipment of the Equipment shall be conducted in accordance with
the manufacturer's
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recommendations or, in the absence of such recommendations, in accordance
with generally accepted industry practices for equipment similar to the
Equipment. All costs of deinstalling, preparation for shipment, and shipping
shall be borne by Lessee.
12.3 Upon surrender, the Equipment shall be in good repair, and
working order, in compliance with the manufacturer's recommended tolerances
for operation and performance in all material respects, in the same condition
and appearance as when received (reasonable wear and tear excepted), and with
all engineering and safety changes prescribed by the manufacturer or
maintenance organization incorporated therein. The Equipment shall be
complete, with all parts and pieces and all operating instructions,
maintenance documentation, service manuals and other historical records;
shall be capable of being immediately assembled and operated by a third party
for its originally intended purpose; and shall be in compliance with all
applicable laws, regulations and industry standards, without further repair,
replacement of parts, alteration or improvement. Lessee shall, in a
workmanlike manner and without damage to the Equipment, remove all
Lessee-supplied decals, logos, insignias, numbers, and any similar
identifications or markings from the Equipment. In conjunction with its
surrender of the Equipment, Lessee shall provide Lessor with a complete and
reasonably detailed inventory of the Equipment, including model numbers,
serial numbers, and a description of all modifications (if any) made to the
Equipment during the term of the Lease.
12.4 In the event that Lessee fails to comply with the provisions of
this Section 12, the Initial Term or any Extended Term shall be extended on a
day-to-day basis until Lessee shall have complied with such provisions.
During such period, Lessee shall continue paying a per diem rental equal to
the Daily Rent as set forth on the applicable Lease Schedule for each day of
such holdover period until such time as the Equipment shall have been
surrendered in accordance with this Section 12; provided, however, that if
Lessor so notifies Lessee, Lessee shall surrender the Equipment prior to full
compliance with this Section 12 (but not before the expiration of the Initial
Term or any Extended Term). In such case, Lessee shall be liable for (i) the
per diem rental set forth above through the date of actual surrender, plus
(ii) any cost or expense incurred by Lessor in placing the Equipment in the
condition required by this Section 12, both of which amounts shall be deemed
additional rent payments due under the applicable Lease Schedule.
13. FAIR MARKET VALUE PURCHASE OPTION. Lessor hereby grants to
Lessee the option to purchase all, but not less than all, Equipment set forth
on any Lease Schedule at the expiration of the applicable Initial Term or
Extended Term. Lessee shall notify Lessor in writing at least ninety (90)
days prior to the expiration of the Initial Term or any Extended Term of its
intent to exercise its option to purchase the Equipment on the date of such
expiration, which notice shall be final and irrevocable. Any such purchase
shall be for cash in an amount equal to the then fair market value of such
Equipment, as determined in good faith by Lessor (the "Fair Market Value").
This purchase option may be exercised by Lessee, provided that no Event of
Default, as defined in Section 16 below, has occurred and is continuing.
Upon payment of the Fair Market Value by Lessee to Lessor, Lessor shall
transfer title to the Equipment to Lessee "AS IS, WHERE IS", "WITH ALL
FAULTS", and WITH NO WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED,
INCLUDING WITHOUT LIMITATION ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR
USE OR FOR ANY PARTICULAR PURPOSE.
14. FINANCIAL STATEMENTS. Lessee shall annually, within ninety (90)
days after the close of its fiscal year, furnish to Lessor financial
statements of Lessee, including a balance sheet as of the close of such year
and statements of income and retained earnings for such year, prepared in
accordance with generally accepted accounting principles, consistently
applied from year to year, and certified by
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independent public accountants for Lessee reasonably acceptable to Lessor.
If requested by Lessor, Lessee shall also provide quarterly financial
statements of Lessee, similarly prepared for each of the first three quarters
of each fiscal year, certified (subject to normal year-end audit adjustments)
by the chief financial officer of Lessee and furnished to Lessor within
forty-five (45) days following the end of each quarter, and such other
financial information as may be reasonably requested by Lessor.
15. DELAYED PAYMENT CHARGE. Lessee shall pay to Lessor interest upon
the amount of any Daily Rent, Periodic Rent or other sums not paid by Lessee
when due and owing under the applicable Lease Schedule, from the due date
thereof until paid, at the rate of one and one half percent (1.5%) per month,
but if such rate violates applicable law, then at the maximum rate of
interest allowed by such law.
16. DEFAULT.
16.1 The occurrence of any of the following events shall constitute an
event of default ("Event of Default") under all Lease Schedules to which
Lessor is a party:
(a) Lessee fails to pay any Daily Rent or any Periodic Rent when
due, and such failure to pay continues for five (5) consecutive days
following written notice from Lessor; or
(b) Lessee fails to pay any other sum required hereunder, and such
failure continues for a period of ten (10) days following the giving of
written notice by Lessor; or
(c) Lessee fails to maintain the insurance as required by
Section 11 above; or
(d) Lessee violates or fails to perform any other term, covenant
or condition of this Master Agreement or any Lease Schedule or any other
document, agreement or instrument executed pursuant hereto or in connection
herewith, which failure is not cured within thirty (30) days after the
giving of written notice by Lessor; provided, however, that Lessor need not
give any written notice in the event of a default in the performance of any
financial covenants undertaken by Lessee in connection herewith; or
(e) Lessee ceases to exist or terminates its independent operations
by reason of any discontinuance, dissolution, liquidation, or sale of
substantially all of its assets in one transaction or a series of related
transactions, or otherwise ceases doing business as a going concern; or
(f) Lessee merges into or with any corporation or other legal
entity, and Lessee is not the surviving corporation or the surviving legal
entity; or
(g) Lessee (i) applies for or consents to the appointment of, or
the taking of possession by, a receiver, custodian, trustee, liquidator or
similar official for itself or for all or a substantial part of its
property, (ii) is generally not paying its debts as such debts become due,
(iii) makes a general assignment for the benefit of its creditors, (iv)
commences a voluntary case under the United States Bankruptcy Code, as now
or hereafter in effect, seeking liquidation, reorganization or other relief
with respect to itself or its debts, (v) files a petition seeking to take
advantage of any other law providing for the relief of debtors, (vi) takes
any action under the laws of its jurisdiction of incorporation or
organization similar to any of the foregoing, (vii) convenes a meeting of
its creditors, or (viii) takes any corporate action for the purpose of
effecting any of the foregoing; or
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(h) A proceeding or case is commenced, without the application or
consent of Lessee, in any court of competent jurisdiction, seeking (i) the
liquidation, reorganization, dissolution or winding up of Lessee or
composition or readjustment of the debts of Lessee, (ii) the appointment of
a trustee, receiver, custodian, liquidator or similar official for Lessee
or for all or any substantial part of its assets, or (iii) similar relief
with respect to Lessee under any law providing for the relief of debtors,
and such proceeding or case under any of the foregoing subsections shall
continue undismissed, or unstayed and in effect, for a period of sixty (60)
days; or an order for relief is entered with respect to Lessee in an
involuntary case under the United States Bankruptcy Code, as now or
hereafter in effect, or an action under the laws of the jurisdiction of
incorporation or organization of Lessee, similar to any of the foregoing,
is taken with respect to Lessee without its application or consent and
shall continue unstayed and in effect for period of sixty (60) days; or
(i) Lessee makes any representation or warranty herein or in any
statement or certificate at any time given in writing pursuant to or in
connection with this Master Agreement or any Lease Schedule, which is false
or misleading in any material respect; or
(j) Lessee defaults under any promissory note, credit agreement,
loan agreement, conditional sales contract, guaranty, lease, indenture,
bond, debenture or other material obligation whatsoever, and a party
thereto or a holder thereof is entitled to accelerate the obligations of
Lessee thereunder; or Lessee defaults in meeting any of its material trade,
tax or other current obligations as they mature, unless such obligations
are being contested diligently and in good faith; or
(k) Any party to any guaranty, letter of credit, subordination or
credit agreement or other undertaking, given for the benefit of Lessor and
obtained in connection with this Master Agreement or Lease Schedule,
breaches, fails to continue, contests, or purports to terminate or to
disclaim such guaranty, letter of credit, subordination or credit agreement
or other undertaking; or such guaranty, letter of credit, subordination
agreement or other undertaking becomes unenforceable while any obligation
or any Lease Schedule remains outstanding; or a guarantor of this Master
Agreement or any Lease Schedule shall die, cease to exist or terminate its
independent operations; or any event or condition set forth in subsections
(d), (e), (f), (g), (h), (i) or (j) of this Section 16.1 shall occur with
respect to any guarantor or other person responsible, in whole or in part,
for payment or performance of this Master Agreement or any Lease Schedule.
16.2 At the option of Lessor, the occurrence of an Event of Default
with respect to any Lease Schedule shall, without further act or declaration
by Lessor, constitute an Event of Default with respect to any other Lease
Schedule to which Lessor is then a party. If Lessor shall have made an
assignment of any Lease Schedule pursuant to Section 19 below, the assignee
of Lessor shall be deemed to be Lessor and the party to such assigned Lease
Schedule or Lease Schedules for purposes of this Section 16.
16.3 No waiver by Lessor of any Event of Default shall constitute a
waiver of any other Event of Default or of the same Event of Default at any
other time.
17. REMEDIES.
17.1 Upon the occurrence of an Event of Default, Lessor, at its sole
option, upon its declaration, and to the extent not inconsistent with
applicable law, may exercise any one or more of the following remedies:
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(a) Lessor may cancel any or all Lease Schedules, whereupon all
rights of Lessee to the quiet enjoyment and use of the Equipment shall
cease;
(b) Whether or not any or all Lease Schedules are cancelled, Lessor
may cause Lessee, at the sole cost and expense of Lessee, to cease
immediately all use and operation of the Equipment and return any or all of
the Equipment promptly to the possession of Lessor in good repair and
working order, reasonable wear and tear excepted, and otherwise in the
condition required by Section 12.3 hereof. Lessor, at its sole option and
through its employees, agents or contractors, may peaceably enter upon the
premises where the Equipment is located and take immediate possession of
and remove the Equipment, all without liability to Lessor, its employees,
agents or contractors for such entry. LESSEE HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, ANY AND ALL RIGHTS TO NOTICE AND/OR HEARING
PRIOR TO THE REPOSSESSION OR REPLEVIN OF THE EQUIPMENT BY LESSOR, ITS
EMPLOYEES, AGENTS OR CONTRACTORS;
(c) Lessor may proceed by court action to enforce performance by
Lessee of any or all of the Lease Schedules or pursue any other remedy
Lessor may have hereunder, at law, in equity or under any applicable
statute or law including, without limitation, the Uniform Commercial Code
as adopted by The Commonwealth of Massachusetts, and recover such other
actual damages as may be incurred by Lessor;
(d) Lessor may recover from Lessee damages, not as a penalty but as
liquidation for all purposes and without limitation of any other amounts
due from Lessee under any or all of the Lease Schedules, in an amount equal
to the sum of (i) any unpaid Daily Rents and/or Periodic Rents due and
payable for periods prior to the repossession of the Equipment by Lessor
plus any interest due thereon pursuant to Section 15 above, (ii) the
present value of all future Periodic Rents required to be paid over the
remaining Initial Term or any Extended Term after repossession of the
Equipment by Lessor, determined by discounting such future Periodic Rents
to the date of payment by Lessee at a rate of five percent (5%) per annum;
and (iii) all costs and expenses incurred in searching for, taking,
removing, storing, repairing, restoring, refurbishing and leasing or
selling such Equipment; and
(e) Lessor may sell, lease or otherwise dispose of any or all of
the Equipment, whether or not in the possession of Lessor, at public or
private sale and, in the case of a private sale, with or without notice to
Lessee, which notice is hereby expressly waived by Lessee, to the extent
permitted by and not inconsistent with applicable law. Lessor may be the
purchaser at any such sale. Lessor may sell, lease or dispose of the
Equipment in such order and manner as Lessor may determine. Lessor shall
then apply against the obligations of Lessee hereunder the net proceeds of
such sale, lease (provided, however, that the net proceeds of any such
lease shall be solely those rentals applicable to that period of the new
lease term which is comparable to the then remaining term of the Lease
Schedule) or other disposition, after deducting therefrom (i) the present
value of the residual value of the Equipment at the expiration of the
Initial Term, which is anticipated by Lessor and Lessee to be not less
than twenty percent (20%) of the Acquisition Cost, such present value to
be determined by discounting the anticipated residual value to the date of
sale, lease or other disposition at a rate of five percent (5%) per annum,
and (ii) all costs incurred by Lessor in connection with such sale, lease
or other disposition including, but not limited to, costs of
transportation, repossession, storage, refurbishing, advertising or other
fees. Lessee shall remain liable for any deficiency, and any excess of
such proceeds over the total
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obligations owed by Lessee shall be retained by Lessor. If any notice of
such sale, lease or other disposition of the Equipment is required by
applicable law, ten (10) days written notice to Lessee shall be deemed
reasonable.
17.2 Upon the occurrence of an Event of Default described in
subsections 16.1(g) and (h), the remedy set forth in subsection 17.1(d) shall
be deemed to have been exercised immediately and automatically without any
act or declaration of Lessor, and the liquidated damages described therein
shall be immediately due and payable.
17.3 Lessee shall pay all costs and expenses, including but not
limited to reasonable legal fees incurred by Lessor, arising out of or in
connection with any Event of Default under any Lease Schedule. Lessee shall
also be liable for any amounts due and payable to Lessor under any other
provision of any Lease Schedule or this Master Agreement, including but not
limited to amounts due and payable under Section 18 below.
17.4 No failure on the part of Lessor to exercise, and no delay in
exercising, any right or remedy hereunder shall operate as a waiver thereof.
No single or partial exercise of any right or remedy hereunder shall preclude
any other or further exercise thereof or the exercise of any other right or
remedy. Each right and remedy provided hereunder is cumulative and not
exclusive of any other right or remedy including, without limitation, any
right or remedy available to Lessor at law, by statute or in equity.
18. TAX INDEMNIFICATION.
18.1 Lessee represents and warrants that the Equipment is and will
remain, during the entire Initial Term and any Extended Term, property used
in a trade or business or for the production of income within the meaning of
Section 167 of the Internal Revenue Code of 1986, as amended ("Code").
Lessee further acknowledges and agrees that, pursuant to the Code, Lessor or
its affiliated group, as defined in Section 1504 of the Code ("Affiliated
Group"), (i) shall be entitled to deductions for the recovery of the
Acquisition Cost of the Equipment over the recovery period as set forth in
the applicable Lease Schedule, using the Modified Accelerated Cost Recovery
System as provided by Section 168(b)(1) of the Code ("MACRS Deductions") and
(ii) shall not be required to include in its gross income for Federal income
tax purposes any amount derived from the cost of any alteration, addition,
improvement, modification, replacement, or substitution of the Equipment or
from any refund or credit from the manufacturer or supplier of the Equipment
or any foreign source income.
18.2 If as a result of any reason or circumstance whatsoever, except
as specifically set forth in Section 18.3 below, Lessor or its Affiliated
Group shall not be entitled to, shall not be allowed, shall suffer recapture
of or shall lose any MACRS Deductions, or shall be required to include in
gross income such amounts as described in Section 18.1 above, then Lessee
shall pay to Lessor, upon demand, a sum to be computed by Lessor in the
following manner: such sum, after deduction of all Federal, state and local
income taxes payable by Lessor as a result of the receipt of such sum, shall
be sufficient to restore Lessor or its Affiliated Group to substantially the
same position, on an after-tax basis, as it would have been in but for the
loss of such MACRS Deductions or the inclusion of such additional amounts in
gross income. In making its computation, Lessor or its Affiliated Group
shall consider, but shall not be limited to, the following factors: (i) the
amounts and timing of any net loss of tax benefits resulting from any such
lack of entitlement to or loss, recapture, or disallowance of MACRS
Deductions or the inclusion of such additional amounts in gross income, but
offset by any tax benefits derived from any depreciation or other capital
recovery deductions or exclusions from income allowed to Lessor or its
Affiliated Group
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with respect to the same Equipment, or credits which may be available as a
result of such additional amounts required to be included in the gross income
of Lessor and its Affiliated Group; (ii) penalties, interest or other charges
imposed; (iii) differences in tax years involved; and (iv) the time value of
money at a reasonable rate per annum determined, in good faith, by Lessor.
For purposes of computation only, the amount of indemnification payments
hereunder shall be calculated on the assumption that Lessor and its
Affiliated Group have or will have, in all tax years involved, sufficient
taxable income and the tax liability to realize all tax benefits and incur
all losses of tax benefits at the highest marginal Federal corporate income
tax rate in each year. Upon request, Lessor shall provide Lessee with the
methods of computation used in determining any sum that may be due and
payable by Lessee under this Section 18. Lessor's computation of any sum
that may be due and payable by Lessee under this Section 18 shall be binding
and conclusive on the parties hereto in the absence of manifest error.
18.3 Lessee shall not be obligated to pay any sums required under this
Section 18 in the event that lack of entitlement to, or loss, recapture or
disallowance of any MACRS Deductions or the inclusion of such additional
amounts in gross income results from one or more of the following events: (i)
a disqualifying disposition due to the sale of the Equipment by Lessor when
no Event of Default, as defined in Section 16 above, has occurred, (ii) a
failure of Lessor or its Affiliated Group to timely claim any MACRS
Deductions for the Equipment in its tax return, and/or (iii) the fact that
Lessor or its Affiliated Group does not have, in any taxable year or years,
sufficient taxable income or tax liability to realize the benefit of any
MACRS Deductions that are otherwise allowable to Lessor or its Affiliated
Group.
18.4 The representations, obligations and indemnities of Lessee under
this Section 18 shall continue in full force and effect, and shall survive,
notwithstanding the expiration or other termination of this Master Agreement
or any Lease Schedules.
19. ASSIGNMENT; SUBLEASE.
19.1 LESSOR MAY SELL, ASSIGN OR OTHERWISE TRANSFER ALL OR ANY PART OF
ITS RIGHT, TITLE AND INTEREST IN AND TO THIS MASTER AGREEMENT, THE EQUIPMENT
AND/OR ANY LEASE SCHEDULE TO A THIRD-PARTY ASSIGNEE, SUBJECT TO THE TERMS AND
CONDITIONS OF ANY LEASE SCHEDULE, INCLUDING BUT NOT LIMITED TO, THE RIGHT TO
THE QUIET ENJOYMENT OF THE EQUIPMENT BY LESSEE AS SET FORTH IN SECTION 7.1
ABOVE. Such assignee shall assume all of the rights and obligations of Lessor
under the applicable Lease Schedule from and after the effective date of such
assignment, and shall relieve Lessor therefrom. Lessee hereby waives and
agrees not to assert against any such assignee any defense, setoff,
recoupment, claim or counterclaim which Lessee has or may at any time
hereafter have against Lessor, or any person, other than such assignee, for
any reason whatsoever. In no event, shall any of the rights or obligations
of Lessee change under an assigned Lease Schedule. In addition, any
assignment by Lessor shall not substantially increase any burden or risk to
Lessee. Upon any such assignment, all references to Lessor herein shall mean
such assignee. Notwithstanding any such sale, assignment or transfer,
Lessee's obligations hereunder shall remain absolute and unconditional
including, without limitation, as set forth in Section 7.2 above.
19.2 Lessor may also pledge, mortgage or grant a security interest in
the Equipment and assign any Lease Schedule as collateral. The assignee
thereof shall be entitled to all the rights of Lessor under the Lease
Schedule. If such assignee assumes all of the obligations of Lessor under
the Lease Schedule, Lessor shall be relieved of such obligation, and assignee
shall be deemed to be Lessor. Lessee hereby waives and agrees not to assert
against any such assignee any defense, setoff, recoupment, claim
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or counterclaim which Lessee has or may at any time hereafter have against
Lessor, or any person, other than such assignee, for any reason whatsoever.
Any pledge, mortgage or grant of security interest in the Equipment or
assignment of a Lease Schedule shall be subject to the terms and conditions
hereof including, but not limited to, the right to the quiet enjoyment of the
Equipment by Lessee as set forth in Section 7.1 above. Lessee, by reason of
such pledge, mortgage, grant of security interest or collateral assignment,
shall not be relieved of any of its obligations hereunder, which shall remain
absolute and unconditional including, without limitation, as set forth in
Section 7.2 above.
19.3 Upon the written request of Lessor, Lessee shall provide written
acknowledgment to any pledgee, mortgagee, lienholder, assignee, transferee or
purchaser of any Lease Schedule of the obligations of Lessee under the Lease
Schedule that is pledged, mortgaged, encumbered, assigned transferred or
purchased.
19.4 LESSEE SHALL NOT SELL, TRANSFER, ASSIGN, SUBLEASE, CONVEY OR
PLEDGE ANY OF ITS INTEREST IN THIS MASTER AGREEMENT ANY LEASE SCHEDULE OR ANY
OF THE EQUIPMENT, WITHOUT THE PRIOR WRITTEN CONSENT OF LESSOR. Any such
sale, transfer, assignment, sublease, conveyance or pledge, whether by
operation of law or otherwise, without the prior written consent of Lessor,
shall be void.
19.5 Subject to the foregoing, this Master Agreement and each Lease
Schedule inure to the benefit of, and are binding upon, the successors and
permitted assigns of the parties hereto and thereto, as the case may be.
20. OPTIONAL PERFORMANCE BY LESSOR. If an Event of Default, as
defined in Section 16 above, or an event or condition which with the giving
of notice or lapse of time, or both, would become an Event of Default occurs
and is continuing, Lessor in its sole discretion may pay or perform any
obligation of Lessee under this Master Agreement or any Lease Schedule in
whole or in part, without thereby becoming obligated to pay or to perform the
same on any other occasion or to pay any other obligation of Lessee. Any
payment or performance by Lessor shall not be deemed to cure any Event of
Default or any such event or condition hereunder. Upon such payment or
performance by Lessor, Lessee shall pay forthwith to Lessor, on demand, the
amount of such payment or an amount equal to all costs and expenses of such
performance, as well as any delayed payment charges on such amounts as set
forth in Section 15 above.
21. REPRESENTATIONS AND WARRANTIES OF LESSEE.
21.1 Lessee represents and warrants that (i) there are no pending
actions or proceedings to which Lessee is a party, and there are no
threatened actions or proceedings of which Lessee has knowledge, before any
court, arbitrator or administrative agency, which, either individually or in
the aggregate, would have a Material Adverse Effect on Lessee; Lessee is not
in default under any obligation for borrowed money, for the deferred purchase
price of property or any lease agreement which, either individually or in the
aggregate, would have a Material Adverse Effect on Lessee; (iii) under the
laws of the state(s) in which the Equipment is to be located, the Equipment
consists solely of personal property and not fixtures; (iv) the financial
statements of Lessee (copies of which have been furnished to Lessor) have
been prepared in accordance with generally accepted accounting principles
consistently applied, and fairly present the financial condition of Lessee
and the results of its operations as of the date of and for the period
covered by such statements, and since the date of such statements there has
been no material adverse change in such conditions or operations; (v) the
address of Lessee set forth above is the chief place of business and chief
executive office of Lessee; and Lessee does not conduct business under
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a trade, assumed or fictitious name; (vi) Lessee has reviewed the areas within
its business and operations which could be adversely affected by, and has
developed or is developing a program to address on a timely basis, the "Year
2000 Problem", that is, the risk that computer applications used by Lessee
may be unable to recognize and perform properly date-sensitive functions
involving certain dates prior to and any date on or after December 31, 1999),
and have made related appropriate inquiry of material suppliers and vendors,
based on such review and program, Lessee believes that the "Year 2000
Problem" will not have a Material Adverse Effect on Lessee; (vii) from time
to time, at the request of Lessor, Lessee shall provide to Lessor such
updated information or documentation as is requested regarding the status of
its efforts to address the Year 2000 Problem. For purposes of this Section
21.1, "Material Adverse Effect" shall mean (1) a materially adverse effect on
the business, condition (financial or otherwise), operations, performance or
properties of Lessee, or (2) a material impairment of the ability of Lessee
to perform its obligations under or to remain in compliance with the Master
Agreement and any Lease Schedule.
21.2 Lessee warrants and agrees that this Master Agreement and any
Lease Schedule and the performance by Lessee of all of its obligations
hereunder and thereunder have been duly authorized and do not and will not
conflict with any provision of the charter or bylaws of Lessee or of any
agreement, indenture, lease or other instrument, or any court, administrative
or other governmental order or decree, to which Lessee is a party or by which
Lessee or any of its property is or may be bound. Lessee warrants and agrees
that this Master Agreement and any Lease Schedule do not and will not require
any governmental authorization, approval, license or consent except, those
which have been duly obtained, and will remain in effect during the entire
Initial Term and any Extended Term.
22. MISCELLANEOUS.
22.1 The section headings are inserted herein for convenience of
reference and are not part of and shall not affect the meaning or
interpretation of this Master Agreement or any Lease Schedule.
22.2 Any provision of the Master Agreement or any Lease Schedule which
is unenforceable in whole or in part in any jurisdiction, or under particular
circumstances, shall, as to such jurisdiction or circumstances, be
ineffective only to the extent of such unenforceability without invalidating
any remaining part or other provision hereof, and shall not be determinative
of enforceability in any other jurisdiction or under any other circumstances.
The validity and interpretation of the Master Agreement and any Lease
Schedule and the rights and obligations of the parties hereto shall be
governed in all respects by the laws of The Commonwealth of Massachusetts
without giving effect to the conflicts of laws provisions thereof. Time is
of the essence with respect to each obligation of the Lessee pursuant to this
Master Agreement, any Lease Schedule and any riders or amendments hereto or
thereto.
22.3 Without derogation of any disclaimer or limitation otherwise set
forth in the Master Agreement or any Lease Schedule, any action by Lessee
against Lessor for any default by Lessor under the Master Agreement or any
Lease Schedule, including breach of warranty or indemnity, shall be commenced
within one (1) year after any such cause of action accrues.
22.4 LESSEE (BY ITS ACCEPTANCE HEREOF) AGREES THAT NEITHER IT, NOR ANY
PERMITTED ASSIGNEE OR SUCCESSOR OF LESSEE SHALL (a) SEEK A JURY TRIAL IN ANY
LAWSUIT, PROCEEDING, COUNTERCLAIM, OR ANY OTHER ACTION BASED UPON, OR ARISING
OUT OF, THIS MASTER AGREEMENT, ANY LEASE SCHEDULE, ANY RELATED AGREEMENTS,
THE EQUIPMENT, OR THE DEALINGS OR THE RELATIONSHIP BETWEEN OR AMONG LESSEE
AND LESSOR AND LESSOR'S SUCCESSORS AND ASSIGNS, OR (b) SEEK TO CONSOLIDATE
ANY SUCH ACTION WITH
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ANY OTHER ACTION IN WHICH A JURY TRIAL CANNOT BE OR HAS NOT BEEN WAIVED.
LESSEE HAS READ AND FULLY UNDERSTANDS THE PROVISIONS OF THIS PARAGRAPH, AND
THESE PROVISIONS SHALL BE SUBJECT TO NO EXCEPTIONS. LESSOR HAS NOT AGREED
WITH OR REPRESENTED TO LESSEE THAT THE PROVISIONS OF THIS PARAGRAPH WILL NOT
BE FULLY ENFORCED IN ALL INSTANCES. Lessee further agrees that any suit
based upon or arising out of the Master Agreement, any Lease Schedule, any
related agreements, the Equipment, or the dealings or the relationship
between or among Lessee and Lessor and Lessor's successors and assigns may be
brought in the courts of The Commonwealth of Massachusetts or any Federal
court sitting therein and consents to the non-exclusive jurisdiction of such
court and to service of process in any such suit being made upon Lessee by
mail in the manner specified in Section 22.6 hereof. Lessee hereby waives
any objection that it may now or hereafter have to the venue of any such suit
or any such court, or that such suit was brought in an inconvenient forum.
22.5 Each Lease Schedule, including the terms of this Master Agreement
expressly incorporated therein, any riders, schedules or amendments, and
other documents now or hereafter attached thereto or executed in connection
therewith, constitutes the entire agreement between Lessor and Lessee
regarding the Equipment and the matters addressed thereby. Lessor and Lessee
agree that neither the Master Agreement nor any Lease Schedule shall be
amended, altered or changed except by a written agreement signed by the
parties hereto. LESSEE ACKNOWLEDGES THAT THERE HAVE BEEN NO REPRESENTATIONS,
EXPRESS OR IMPLIED, BY LESSOR OTHER THAN AS SET FORTH HEREIN, AND LESSEE
EXPRESSLY CONFIRMS THAT IT HAS NOT RELIED UPON ANY REPRESENTATIONS BY LESSOR,
EXCEPT THOSE SET FORTH HEREIN, AS A BASIS FOR ENTERING INTO THIS MASTER
AGREEMENT OR ANY LEASE SCHEDULE.
22.6 Any notice required to be given by Lessee or Lessor hereunder
shall be deemed adequately given if sent by registered or certified mail,
return receipt requested, or by overnight courier via a nationally recognized
provider of such services, to the other party at its address stated herein or
at such other place as either party may designate in writing to the other.
Such notice shall be effective upon receipt.
22.7 Lessee agrees to execute and deliver such additional documents
and to perform such further acts as may be reasonably requested by Lessor in
order to carry out and effectuate the purposes of the Master Agreement and
any Lease Schedule. Upon the written request of Lessor, Lessee further
agrees to execute any instrument necessary for the filing or recording of
this Master Agreement or any Lease Schedule or to confirm the ownership of
the Equipment by Lessor, and to reimburse Lessor for costs incurred thereby,
or any other costs reasonably incurred by Lessor either in giving notice of
its interest in the Equipment or determining the existence of any liens or
encumbrances on the Equipment. Lessor is hereby authorized to insert in any
Lease Schedule the serial numbers of the Equipment and other identifying
marks or similar information and to sign, on behalf of Lessee, any Uniform
Commercial Code financing statements relating to the Equipment under the
applicable Lease Schedule.
22.8 Neither the Master Agreement nor any Lease Schedule may be
canceled or terminated except as expressly provided herein.
22.9 Whenever the context of this Master Agreement or any Lease
Schedule requires, the singular includes the plural and the plural includes
the singular. Whenever the word Lessor is used herein, it includes all
assignees and successors in interest of Lessor. If more than one Lessee is
named herein, the liability of each shall be joint and several.
-16-
<PAGE>
22.10 All agreements, indemnities, representations and warranties of
Lessee and all rights and remedies of Lessor shall survive the expiration or
other termination of this Master Agreement and the applicable Lease Schedule,
whether or not expressly provided herein.
22.11 Any waiver of any power, right, remedy or privilege of Lessor
hereunder shall not be effective unless in writing signed by Lessor.
22.12 This Master Agreement or any Lease Schedule 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.
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized
officer or agent, have duly executed and delivered this Master Agreement,
which is intended to take effect as a sealed instrument, as of the day and
year first written above.
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC. DITECH CORPORATION
By: /s/ Paula DeLawter By: /s/ William Tamblyn
----------------------------- -----------------------------
Print Name: Print Name:
Title: Assistant Vice President Title: VP/CFO
-------------------------- --------------------------
Federal Tax ID Number:
---------------------------------
-17-
<PAGE>
[BANKBOSTON LOGO]
LEASE SCHEDULE NO. 1
TO
MASTER AGREEMENT
DATED AS OF
DECEMBER 15, 1998
FINANCE (TAX) SCHEDULE
THIS IS COUNTERPART NO. ____ OF 2 WHICH HAS BEEN SERIALLY NUMBERED AND
MANUALLY EXECUTED. TO THE EXTENT THAT THIS DOCUMENT CONSTITUTES CHATTEL
PAPER UNDER ARTICLE NINE OF THE UNIFORM COMMERCIAL CODE AS ADOPTED BY THE
COMMONWEALTH OF MASSACHUSETTS, NO SECURITY INTEREST IN THIS DOCUMENT MAY BE
CREATED THROUGH TRANSFER OR POSSESSION OF ANY COUNTERPART OTHER THAN
COUNTERPART NO. 1.
This Lease Schedule dated as of the 15th day of December, 1998, ("Lease
Schedule") is made at Boston, Massachusetts by and between BANCBOSTON LEASING
INC. ("Lessor"), a Massachusetts corporation with its principal place of
business at 100 Federal Street, Boston, Massachusetts 02110, and DITECH
CORPORATION ("Lessee"), a California with its principal place of business at
825 East Middlefield Road, Mountain View, California 94043. This Lease
Schedule incorporates the above-referenced Master Agreement and any riders,
schedules, amendments or documents attached thereto or incorporated therein,
now or hereafter executed between Lessor and Lessee (the "Master Agreement").
1. LEASE. Subject to the terms and conditions set forth in this
Lease Schedule, Lessor hereby leases to Lessee and Lessee hereby leases from
Lessor the personal property (the "Equipment") described in Section 3 below.
Capitalized terms used herein shall have the meanings assigned to them in
this Lease Schedule or in the Master Agreement. The terms and conditions of
the Master Agreement are incorporated by reference into, and made a part of,
this Lease Schedule. This Lease Schedule evidences a separate, distinct and
independent lease and contractual agreement between Lessor and Lessee. In
the event of a conflict between the Master Agreement and this Lease Schedule,
the terms and conditions of this Lease Schedule shall prevail.
2. FINANCE LEASE STATUS. Lessor and Lessee agree that this Lease
Schedule is a "finance lease" as defined in Article 2A of the Uniform
Commercial Code as adopted by The Commonwealth of Massachusetts ("Article
2A"). Lessee acknowledges that (i) Lessor did not select, manufacture or
supply any of the Equipment, and (ii) Lessor has acquired the Equipment or
the right to the possession and use of the Equipment in connection with this
Lease Schedule. Lessor, at the express request of Lessee, has ordered the
Equipment described in Section 3 from one or more Suppliers selected solely
by Lessee. Lessor has made no representations or recommendations regarding
the choice of Supplier selected by Lessee. Lessee has negotiated or agreed
to the warranties given by each Supplier and all other terms relating to the
Equipment directly with each Supplier without the assistance or participation
of Lessor. Notwithstanding the foregoing, Lessee, nevertheless, hereby
grants Lessor a lien, claim and continuing security interest in the Equipment
and any accessions thereto, replacements, substitutions and proceeds thereof
in the event a court of competent jurisdiction shall determine that this
Lease Schedule is not a "finance lease".
3. DESCRIPTION OF EQUIPMENT; LOCATION. The description of the
Equipment, including quantity, model/feature, identification and/or serial
number and location, is set forth in Attachment A incorporated by reference
herein.
4. SUPPLIERS. LESSEE HEREBY ACKNOWLEDGES THAT, PRIOR TO EXECUTING
THIS LEASE SCHEDULE, IT (i) HAS RECEIVED A COPY OF EACH CONTRACT BY WHICH
LESSOR HAS ACQUIRED THE EQUIPMENT ("SUPPLY CONTRACT"), OR (ii) HAS APPROVED
EACH SUPPLY CONTRACT WITH ANY SUPPLIER FROM WHOM LESSOR HAS ACQUIRED THE
EQUIPMENT, OR (iii) HAS RECEIVED A COMPLETE AND ACCURATE STATEMENT
DESIGNATING THE PROMISES,
<PAGE>
WARRANTIES, LIMITATION OF WARRANTIES, DISCLAIMERS OF WARRANTIES, LIMITATIONS
OR MODIFICATIONS OF REMEDIES, INCLUDING LIQUIDATED DAMAGES, WITH RESPECT TO
THE EQUIPMENT, WHICH LESSOR HAS RECEIVED FROM EACH SUPPLIER, OR (iv) HAS BEEN
ADVISED THAT LESSEE MAY HAVE THE BENEFIT OF CERTAIN PROMISES OR WARRANTIES
UNDER A SUPPLY CONTRACT AND THAT LESSEE MAY CONTACT EACH SUPPLIER AT THE
ADDRESS(ES) SET FORTH HEREIN FOR A DESCRIPTION OF THE BENEFITS WHICH LESSEE
MAY HAVE UNDER SUCH SUPPLY CONTRACT. The list of Suppliers of the Equipment
described in Section 3 above is set forth in Attachment A and incorporated by
reference herein.
5. ACQUISITION COST; INITIAL TERM; PERIODIC RENT; DAILY RENT;
RECOVERY PERIOD; PAYMENT DATE.
<TABLE>
<S> <C>
5.1 ACQUISITION COST: $292,026.00
5.2 INITIAL TERM: 48 Months
5.3 PERIODIC RENT: $6,415.81 Per Month, In Advance
5.4 DAILY RENT: $213.86 Per Diem
5.5 RECOVERY PERIOD: 7 Years
5.6 PAYMENT DATE: _________________, and the first day of
each month thereafter
</TABLE>
6. CONFLICT; WAIVERS. To the extent there are any conflicts or
inconsistencies between the terms and conditions of this Lease Schedule or
the applicable Certificate of Acceptance and the provisions of Article 2A,
the terms and conditions of this Lease Schedule and the applicable
Certificate of Acceptance shall prevail. LESSEE HEREBY WAIVES ANY RIGHTS OR
REMEDIES CONFERRED UPON A LESSEE UNDER ARTICLE 2A WHICH MAY CONFLICT, OR ARE
INCONSISTENT, WITH THE TERMS AND CONDITIONS OF THIS LEASE SCHEDULE OR THE
APPLICABLE CERTIFICATE OF ACCEPTANCE, PROVIDED THAT SUCH WAIVER IS PERMITTED
UNDER APPLICABLE LAW.
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized
officer or agent, have duly executed and delivered this Lease Schedule, which
is intended to take effect as a sealed instrument as of the day and year
first written above.
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC. DITECH CORPORATION
By: /s/ Paula DeLawter By: /s/ William Tamblyn
----------------------------- -----------------------------
Print Name: Print Name:
--------------------- ---------------------
Title: Assistant Vice President Title: VP/CFO
-------------------------- --------------------------
-2-
<PAGE>
ATTACHMENT A
TO
LEASE SCHEDULE NO. 1
This Attachment A is hereby made a part of Lease Schedule No. 1 to the
above-referenced Master Agreement between BANCBOSTON LEASING INC. ("Lessor")
and DITECH CORPORATION ("Lessee").
SUPPLIER:
CONTRACT FURNITURE EXCHANGE
1402 BERINGER COURT
SAN JOSE, CALIFORNIA 95125
EQUIPMENT:
(1) LOT (94 UNITS EA. STATIONS AND LAB AREA) TEKNION BOULEVARD WORKSTATIONS
PER CUSTOMER LAYOUT TO INCLUDE WORK STATIONS, LAB AREA, AND 20 EA. FOUR
DRAWER LATERAL FILES.
(1) INSTALLATION OF ABOVE WORKSTATIONS DURING REGULAR BUSINESS HOURS
(MONDAY-FRIDAY)
(80) STYLEX CLICK 2 SEATING - CK67973, MULTI-TASK ERGONOMIC WITH SLIDING SEAT
GRADE A FABRIC
(20) STYLEX CLICK 2 GUEST SEATING - CK50000, SLED BASE, ARMLESS, GRADE A FABRIC
EQUIPMENT LOCATION: 825 EAST MIDDLEFIELD ROAD
MOUNTAIN VIEW, CALIFORNIA 94043
TOTAL ACQUISITION COST: $292,026.00
BANCBOSTON LEASING INC. DITECH CORPORATION
By: /s/ Paula De Lawter By: /s/ William Tamblyn
----------------------------- -----------------------------
Title: Assistant Vice President Title: VP/CFO
-------------------------- --------------------------
<PAGE>
[BANKBOSTON LOGO]
RIDER NO. 1
TO
LEASE SCHEDULE NO. 1
TO
MASTER AGREEMENT
DATED AS OF
DECEMBER 15, 1998
This Rider No. 1 (the "Rider") is entered into between BancBoston
Leasing Inc. ("Lessor") and DITECH CORPORATION ("Lessee"), and is
contemporaneous with and amends Lease Schedule No. 1 (the "Lease Schedule")
which incorporates the terms and conditions of the above-referenced Master
Agreement by and between Lessor and Lessee (the "Master Agreement"). It is
the intention of Lessor and Lessee that, upon execution, this Rider shall
constitute a part of the Lease Schedule.
IN CONSIDERATION OF the mutual covenants and promises as hereinafter set
forth, Lessor and Lessee hereby agree as follows:
1. All capitalized terms used in this Rider shall, unless otherwise
defined, have the meanings set forth in the Lease Schedule or Master
Agreement. The terms of this Rider shall apply only to the Equipment set
forth on the Lease Schedule.
2. Replace Section 3.2 of the Master Agreement with the following:
"3.2 Provided no Event of Default shall have occurred and be
continuing, the term of the applicable Lease Schedule shall be
automatically extended for successive monthly periods ("Extended Term")
until terminated by either party giving to the other not less than ninety
(90) days prior written notice of its election to terminate the applicable
Lease Schedule. Any such notice of election shall be effective only on the
last day of the Initial Term or the Extended Term, if any, and shall be
sent to Lessor via certified mail, return receipt requested, or overnight
courier, at the address first written in the Master Agreement, Attn.:
Equipment Management Group. In no event shall the Extended Term exceed
twelve (12) months unless agreed to in writing by both parties."
3. Replace Section 5.3 of the Master Agreement with the following:
"Lessee shall pay all costs, expenses, fees and charges whatsoever
incurred in connection with the use and operation of the Equipment. In
accordance with manufacturer's recommended maintenance plan, Lessee shall,
at all times and at its own expense, keep the Equipment in good repair and
working order, reasonable wear and tear excepted. Any maintenance contract
required by a manufacturer or supplier for the care and upkeep of the
Equipment shall be entered into by Lessee at its sole cost and expense.
Lessee shall purchase service contracts whenever available, and shall
provide copies of such contracts to Lessor promptly upon execution. Lessee
shall permit the use and operation of the Equipment only by competent and
licensed (if required) personnel authorized by Lessee and shall comply with
all laws, ordinances, industry standards, governmental rules and
regulations relating to the use and operation of the Equipment."
<PAGE>
4. Replace Section 12 of the Master Agreement with the following:
"12. SURRENDER TO LESSOR.
"12.1 Provided Lessee has advised Lessor in writing at least
ninety (90) days prior to the expiration of the Initial Term or Extended
Term of its intent to exercise its surrender option, or alternatively, upon
any other termination of the applicable Lease Schedule, Lessee shall
surrender the Equipment to Lessor by assembling and delivering the
Equipment, ready for shipment, to a place or carrier, as Lessor may
designate, within the continental United States. Lessor shall be
immediately authorized to show the surrendered Equipment to potential
buyers upon receipt of notice of Lessee's election to surrender the
Equipment during Lessee's normal business hours, provided Lessor notifies
Lessee at least two business days prior to any such visit. Upon surrender,
the Equipment shall be complete and in good repair and working order for
its originally intended purpose, operate within its rated capacity,
reasonable wear and tear excepted, including, without limitation: (i) all
software and documentation, if any, originally supplied with the Equipment
shall be returned to Lessor, and any or all software enhancements/upgrades
made by the manufacturer or Lessee shall become the property of Lessor;
archival or other copies made for other purposes shall be destroyed; (ii)
the Equipment shall be complete, with all parts, pieces, cabling and
accessories, and all literature and manuals, including but not limited to,
all operating instructions, service manuals, original diagrams, historical
records and maintenance documentation (including without limitation records
of all preventive maintenance and repairs, indicating date and meter usage
reading of the same); (iii) the Equipment shall be in compliance with the
manufacturer's recommended tolerances for operation and performance in all
material respects, or in the absence of any such recommended tolerances, in
conformity with industry standards, and in any event, with all applicable
laws, ordinances or governmental rules and regulations; (iv) Lessee shall
provide Lessor a complete inventory listing of the Equipment, complete with
model numbers, serial numbers and description of modifications made, if
any; (v) the Equipment shall be capable of being immediately assembled and
operated by a third party without further repair, replacement, alteration
or improvement; (vi) all costs incurred to deinstall, prepare for shipment,
or transport the Equipment shall be borne by the Lessee, and conducted in
accordance with the manufacturer's recommendations and specifications, or
in their absence, with generally accepted industry standards for new
machines at the time of lease expiration; (vii) the Equipment must be
decontaminated, steamed cleaned and free of any hazardous waste material in
accordance to all governmental regulations and any required certificates
will be forwarded to Lessor; and (viii) Lessee shall remove all decals and
markings, insignias, numbers and all other Lessee identification from the
Equipment in a professional manner without physical damage. Lessee shall
make use of any special transportation devices and methods which were used
to deliver the Equipment to Lessee, including but not limited to, cushion
padding, metal skids, lifting slings or brackets and climate-controlled,
air ride vans.
"Should Lessee fail to comply with the provisions set forth in this
section, the Initial Term or any Extended Term of the applicable Lease
Schedule shall be extended on a per diem basis equal to the Daily Rent as
set forth on the applicable Lease Schedule until all of Lessee's
obligations are fulfilled or until Lessor terminates the applicable Lease
Schedule by providing reasonable notice to Lessee.
"12.2 Furniture. Lessee is responsible for all costs associated
with disassembly, deinstallation, packaging and removal of the Equipment
from the facility. All upholstery will be professionally cleaned prior to
being packaged for shipment. Evidence of such cleaning is required by
Lessor. Any ripped or stained upholstery on the panels or furniture will
be replaced by Lessee. Any scratched or gouged surfaces will be resurfaced
and refinished. If the
-2-
<PAGE>
Equipment is, at any time during the Initial Term or any Extended Term,
placed in storage, it will be properly packaged and padded. Lessee shall
return the Equipment to a location designated by Lessor within the
continental United States.
"The provisions of this Section 12 shall be without prejudice to
the right of Lessor, if Lessor so elects, to demand the surrender of the
Equipment by Lessee at the expiration of the Initial Term or any Extended
Term, as the case may be. Any such demand by Lessor shall not relieve
Lessee of its obligations to pay Daily Rent pursuant to this Section 12.
Such obligation to pay Daily Rent shall continue until the surrender of
such Equipment."
4. In the first sentence of Section 13 of the Master Agreement, delete
the words: "on any Lease Schedule" and replace with the words: "on all Lease
Schedules"; and delete the third sentence of Section 13 and replace it with the
following:
"Any such purchase shall be for cash in an amount equal to the fair
market value (the "Fair Market Value") which shall mean the lower of (i)
the fair market value of the Equipment which is anticipated by Lessor and
Lessee to be twenty percent (20%) of the Acquisition Cost of the Equipment,
or (ii) the fair market value of the Equipment at the end of the Initial
Term, as determined in good faith by Lessor."
5. At the end of Section 22 of the Master Agreement, add the
following:
"23. EARLY TERMINATION AND EQUIPMENT PURCHASE. Lessee shall have
the option to purchase all, but not less than all, Equipment set forth on
the Lease Schedule and to terminate this Lease Schedule with respect to
such Equipment. If elected by Lessee, such purchase and termination will
be effective on the last day of the month ("Termination Date") during which
the payment of Monthly Rent is due and payable. This option may be
exercised by Lessee, provided that: (i) Lessee shall have given Lessor
ninety (90) days prior written notice of its intention to purchase the
Equipment and to terminate the Lease Schedule with respect to such
Equipment; (ii) all amounts due and payable by Lessee under the Lease
Schedule including, without limitation, the payment of Monthly Rent
shall have been received by Lessor; and (iii) no Event of Default (or event
which, upon the passing of time or the giving of notice, or both, would
constitute an Event of Default) has occurred and is continuing. On or
prior to the Termination Date, Lessee shall pay to Lessor the anticipated
fair market value of the Equipment on the Termination Date which Lessor and
Lessee agree shall be equal to thirty-seven and ninety-one hundredths
percent (37.91%) of the Acquisition Cost applicable to the Equipment (the
"Termination Purchase Price"). Upon payment of the Termination Purchase
Price and any other amounts due and owing under the Lease Schedule, the
Lease Schedule shall be terminated on the Termination Date with respect to
the Equipment, provided, however, that any liability or obligation of
Lessee under the Lease Schedule with respect to such Equipment shall
survive for events occurring or obligations accruing during the Initial
Term applicable to the Equipment. Lessor shall thereupon transfer title to
the Equipment to Lessee "AS IS, WHERE IS", "WITH ALL FAULTS", and WITH NO
WARRANTIES WHATSOEVER, EITHER EXPRESS OR IMPLIED, INCLUDING, WITHOUT
LIMITATION, ANY WARRANTIES OF MERCHANTABILITY OR FITNESS FOR USE OR FOR A
PARTICULAR PURPOSE."
The terms and conditions of this Rider shall prevail where there may be
conflicts or inconsistencies with the terms and conditions of the Master
Agreement as it applies to the Equipment set forth on the Lease Schedule.
-3-
<PAGE>
IN WITNESS WHEREOF, Lessor and Lessee, each by its duly authorized
officer or agent, have duly executed and delivered this Rider, which is
intended to take effect as a sealed instrument as of the date of the Lease
Schedule.
Accepted at Boston, Massachusetts
BANCBOSTON LEASING INC.
By: /s/ Paula DeLawter By: /s/ William TAmblyn
----------------------------- -----------------------------
Title: Assistant Vice President Title: VP/CFO
-------------------------- --------------------------
-4-
<PAGE>
[BANKBOSTON LOGO]
CERTIFICATE OF ACCEPTANCE
FOR
LEASE SCHEDULE NO. 1
To: BancBoston Leasing Inc.
100 Federal Street
Boston, Massachusetts 02110
Pursuant to the Lease Schedule ("Lease Schedule") referred to above,
which incorporates that certain Master Agreement dated the 15th day of
December, 1998 (the "Master Agreement") between BANCBOSTON LEASING INC.
("Lessor") and the undersigned ("Lessee"), the equipment described in the
Lease Schedule ("Equipment"), has been delivered to the location(s) set forth
therein, has been tested and inspected by Lessee, and has been found to be
in good repair and working order.
The Equipment has been accepted and placed in service by Lessee for all
purposes pursuant to the Lease Schedule on 12/21/98 (the "Commencement
Date"). Lessee hereby authorizes Lessor to insert the Payment Date and
Initial Term Start Date, if applicable, in the Lease Schedule.
Lessee represents, warrants and covenants that the Equipment has been
placed in service pursuant to the Lease Schedule on the Commencement Date.
Lessee further certifies that all representations and warranties of Lessee
set forth in the Master Agreement are true and correct as of the Commencement
Date. In the case of any Lease Schedule which is designated as a "finance
lease" as defined in Article 2A of the Uniform Code Commercial as adopted by
The Commonwealth of Massachusetts, Lessee further represents, warrants and
covenants that: (a) as of the Commencement Date, all representations set
forth in Section 18 of the Master Agreement apply to the Equipment accepted
hereunder; (b) in the event of a sale and leaseback of the Equipment, neither
Lessee nor any member of its Affiliated Group as defined in the Master
Agreement has made or will make any election under the Internal Revenue Code
of 1986, as amended (the "Code") affecting the depreciation of the Equipment
or of any class of property which would apply to the Equipment after the sale
of the Equipment to Lessor by Lessee; (c) in the event of a sale and
leaseback of the Equipment, the Equipment will not constitute property placed
in service in a churning transaction within the meaning of Section 168(f)(5)
of the Code; (d) neither Lessee nor any member of its Affiliated Group filing
a consolidated Federal income tax return will take any deduction for recovery
of the cost of the Equipment; and (e) neither Lessee nor any member of its
Affiliated Group has any investment in the cost of the Equipment.
The execution of this Certificate of Acceptance by Lessee shall not be
construed, in any way, to release or to waive the obligations of any
manufacturer or supplier for any warranties with respect to the Equipment.
IN WITNESS WHEREOF, Lessee, by its duly authorized officer or agent, has
executed and delivered this Certificate of Acceptance, which is intended to
take effect as a sealed instrument.
DITECH CORPORATION
By: /s/ William Tamblyn
-------------------------------------
Title: VP/CFO
----------------------------------
<PAGE>
*** Text Omitted and Filed Separately
Confidential Treatment Requested
Under 17 C.F.R. Sections 200.80(b)(4),
200.83 and 230.406
INVENTION PURCHASE AGREEMENT
THIS INVENTION PURCHASE AGREEMENT (the "Agreement") dated November 15,
1998 (the "Effective Date"), sets forth the terms by which DITECH CORPORATION
("Ditech"), a California corporation, with its principal place of business
located at 825 E. Middlefield Road, Mountain View, California 94043 shall
obtain ownership and exclusive rights to an invention and associated
intellectual property owned by TELINNOVATION, a California General
Partnership, ("Telinnovation"), with its principal place of business located
at 415 Clyde Avenue Suite 105, Mountain View, California 94043.
NOW, THEREFORE, in consideration of the premises and covenants contained
herein, the parties agree as follows:
1. DEFINITIONS.
(a) "INVENTION" means Telinnovation's Echo Cancellation invention as
described on Exhibit "A," attached hereto and incorporated herein by this
reference.
(b) "DOCUMENTATION" means electronically transferred manuals, source
code, executable code, instructions, explanations and the like, whether in
written or electronic form, that are necessary or useful for the use,
modification, revision, development or implementation of the Invention.
(c) "ENHANCEMENTS" means any enhancements, upgrades, revisions, error
corrections, additions, improvements and modifications to the Invention,
whenever made, if any.
(d) "TRAINING" means Telinnovation providing necessary training and
test procedures so that Ditech can fully utilize the Invention in its
products, which such Support/Training obligation shall terminate upon the
earlier to occur of five hundred (500) man hours, valued at [***] per hour,
or two (2) years from the Effective Date.
(e) "SOURCE CODE" means the human-readable source code version of any
implemented embodiment of the Invention that can be compiled into Executable
Code, together with all applicable build scripts, test scripts and
programmers' notes.
(f) "EXECUTABLE CODE" means the machine executable version of source
code.
(g) "INTELLECTUAL PROPERTY RIGHTS" means all patents, trademarks, trade
names, wade secrets, moral rights, contract rights, mask work rights,
know-how and other proprietary rights,
*CONFIDENTIAL TREATMENT REQUESTED
1.
<PAGE>
whether registered or unregistered, now known or hereafter recognized in any
jurisdiction, with respect to the Invention as described on Exhibit "A."
(h) "IPO LIQUIDITY EVENT" means the first trading day following
Ditech's first firm commitment underwriting of a public offering or its
common stock registered under the Securities Act.
(i) "MERGER LIQUIDITY EVENT" means Ditech's merger with, or acquisition
by, another company, or any other transfer of ownership of Ditech to the
extent such transfer constitutes a thirty-five percent (35%) or more change
in ownership of Ditech.
(j) "PRODUCTS" means any products developed by or for Ditech that
incorporate or are derived from elements of the Invention or Enhancements
(including but not limited to derivative works).
2. INVENTION AND RELATED MATERIAL DELIVERY.
(a) DELIVERY. Telinnovation shall deliver to Ditech, as soon
thereafter as is practicable via electronic transfer, the items listed and
described in Exhibit "A" in accordance with the schedule set forth in Exhibit
"B," attached hereto and incorporated herein by this reference.
Telinnovation shall also deliver when available, as soon thereafter as is
practicable via electronic transfer, all Enhancements to the Invention, if
any.
(b) TRAINING. In order to facilitate the transfer of Invention and
embodiments, the parties agree that it is essential that Telinnovation train
certain Ditech personnel (to be specified by Ditech) in the application and
modification of the Invention to better enable Ditech to develop new value
added features and to continue to use Invention. Such training will be
provided in accordance with the terms set forth in Exhibit "B," and such
training obligations hereunder shall terminate upon the earlier to occur of
five hundred (500) man hours, or two (2) years from the Effective Date. The
parties agree that the consideration for Telinnovation's training obligations
hereunder shall be paid at $[***] per hour.
(c) MAINTENANCE. No less often than once each calendar quarter
following the Effective Date, Telinnovation shall provide to Ditech, via
electronic transfer, copies of all Enhancements that it creates, if any, at
no additional charge.
3. TRANSFER OF OWNERSHIP, PURCHASE OF INVENTION. In exchange for the
consideration required pursuant to Section 4, below, Telinnovation hereby
sells, assigns and transfers to Ditech all right, title and interest in and
to the Invention, including but not limited to all patent, patentable and all
related rights therein and to the deliverables described in Exhibit "A." The
parties agree that the rights sold, transferred and assigned hereunder
include all patents, trade secrets and other proprietary rights associated
with the Invention as specifically described in Exhibit "A," incorporated
herein by this reference. Telinnovation agrees to cooperate with Ditech or
its designee(s), both during and after the tram of this Agreement, in the
procurement and maintenance of Ditech's rights to the Invention, the
Documentation and the Enhancements and to execute, when requested, any other
documents deemed necessary by Ditech to carry out the purpose of this
Agreement.
* Confidential Treatment Requested
2.
<PAGE>
4. PAYMENT.
(a) ROYALTIES. Ditech agrees to pay Telinnovation royalties on sales
of Products of [...***...] percent of gross revenues received by Ditech from
sales of Products, less returns, actual bad debt, taxes and freight. This
royalty obligation shall continue until the occurrence of an IPO Liquidity
Event or Merger Liquidity Event. Said royalties shall be paid to
Telinnovation no later than thirty (30) days after the close of each
immediately preceding calendar quarter. Ditech shall pay Telinnovation a
late payment charge equal to one percent (1%) per month on the amount of any
royalty payment due hereunder that is not received by Telinnovation within
five (5) days after the due date. Telinnovation shall have the right to
engage, at its own expense, an independent auditor reasonably acceptable to
Ditech, to examine Ditech's records from time to time, but no more often than
once per calendar year, during normal business hours and upon at least five
(5) days' advance written notice. Any such auditor shall enter into a
confidentiality agreement with Ditech reasonably acceptable to Ditech and
shall only be entitled to report to Telinnovation the amount of any
discrepancy in payment of the royalties due Telinnovation for the relevant
review period. If any such audit reveals an underpayment of more than ten
percent (10%) of the correct amount of royalties due hereunder, such audit
will be at the expense of Ditech. If any audit conducted on behalf of
Telinnovation shall show that Ditech underpaid the royalties due to
Telinnovation during to the period subject to the audit, then Ditech shall
immediately pay to Telinnovation any such deficiency with interest thereon at
a rate equal to the lower of one and a half percent per month or the highest
rate allowed by law from the date due until paid or at such lower rate as
shall be the maximum rate permitted by law.
(b) STOCK. Upon the Effective Date of this Agreement, Ditech shall
place into an escrow account Two Hundred and Fifty Thousand (250,000) shares
of Ditech common stock currently valued at One Dollar ($1.00) per share.
Ditech covenants that it will seek to amend the Ditech Registration Rights
Agreement to provide Telinnovation with the same registration rights as those
set forth therein for recipients of Ditech's stock, including but not limited
to Ditech investors, such as Summit Partners.
Following the Effective Date, Ditech will establish an escrow account
with a mutually acceptable third party escrow agent for purposes of
depositing the shares of Ditech Common Stock described above. The agreement
with the escrow agent will provide that the condition for release of the
escrowed shares will be a written notice provided by Ditech stating that
Telinnovation has transferred ownership to and delivered the Invention,
including without limitation all Enhancements, and performed all required
Training in a manner reasonably acceptable to Ditech. The shares shall be
subject to the "put option" described in Subsection 4.(d), below, and in
addition, the shares may be released from escrow in whole or in part for sale
in connection with Ditech's initial public offering or follow-on offering (an
IPO Liquidity Event, as defined herein), as long as fifteen percent (15%) of
the gross proceeds received from such sale is returned to escrow subject to
release from escrow thereafter only upon performance of the required
Training, as set forth herein. The parties currently anticipate that the IPO
Liquidity Event should occur, if at all, within twenty-four (24) months of
the Effective Date. Ditech agrees to pay the reasonable costs of retaining
such escrow account; PROVIDED, HOWEVER, that each
* OMITTED PURSUANT TO A CONFIDENTIAL TREATMENT REQUEST AND FILED SEPARATELY
WITH THE COMMISSION
3.
<PAGE>
party shall bear its own expenses in negotiating any agreement with the
escrow agent. Upon its execution, the agreement with the escrow agreement
will be attached hereto as Exhibit "C."
(c) PAYMENT ON IPO LIQUIDITY EVENT. Upon the occurrence of an IPO
Liquidity Event, Ditech agrees to pay Telinnovation as further consideration
for the sale, transfer and assignment of the Invention the sum of Two Million
Nine Hundred Sixty Thousand Dollars ($2,960,000.00). Said consideration
shall be due and payable to Telinnovation within fifteen (15) days following
the date of such IPO Liquidity Event, and such sum shall bear interest at the
rate of ten percent (10%) per annum simple interest, calculated on the basis
of a 360 day year, until paid, if not timely paid following the IPO Liquidity
Event.
(d) PAYMENT ON MERGER LIQUIDITY EVENT. Upon the occurrence of a Merger
Liquidity Event, Ditech agrees to pay Telinnovation as further consideration
for the sale, transfer and assignment of the Invention the sum of Two Million
Nine Hundred Sixty Thousand Dollars ($2,960,000.00). Said consideration
shall be due and payable to Telinnovation within fifteen (15) days following
the date of such Merger Liquidity Event, and such sum shall bear interest at
the rate of ten percent (10%) per annum simple interest, calculated on the
basis of a 360 day year, until paid, if not timely paid following the Merger
Liquidity Event. Ditech further agrees, at Telinnovation's option exercisable
upon a Merger Liquidity Event, to re-purchase the 250,000 shares of Ditech
stock referenced in subsection (b) of this Section at $6.00 per share.
(e) PAYMENT REQUIRED ONLY ON FIRST TO OCCUR OF IPO OR MERGER LIQUIDITY
EVENT. Ditech shall only be required to make the first to occur of the
payments specified in subsections (c) and (d) above, and upon any such
payment shall not be required to make further payment in the event another
Liquidity Event occurs.
(f) TERMINATION OF ROYALTY OBLIGATIONS UPON PAYMENT ON LIQUIDITY EVENT.
At such rime as Ditech makes either of the payments set forth in subsection
(c) or subsection (d) of this Section 4, above, its royalty obligations under
Section 4(a), above, will be completely fulfilled and it shall owe no further
payments to Telinnovation regarding the subject matter of this Agreement.
(g) CONSIDERATION FOR TRANSFER. Telinnovation acknowledges and agrees
that the consideration set forth in this Section 4 is Telinnovation's sole
and complete consideration for the transfer of ownership of the Invention and
associated deliverables and intellectual property rights.
5. REPRESENTATIONS AND WARRANTIES.
(a) INFRINGEMENT; OWNERSHIP. Telinnovation represents and warrants to
Ditech that (i) the Invention shall not infringe the patent, trade secret or
other proprietary rights of any third party, and (ii) Telinnovation has full
ownership rights to the Invention and has the unrestricted right and
authority to enter into this Agreement and to sell, transfer and convey to
Ditech the Invention hereunder.
(b) NO HARMFUL CODE. Telinnovation represents and warrants that the
Invention and all other deliverables, and any media used to distribute such,
contain no computer instructions, circuitry or other .technological means whose
purpose is to disrupt, damage or interfere with any
4.
<PAGE>
use of Ditech's or Ditech's customers' hardware, networks or systems which
were caused by or attributable to Telinnovation ("Harmful Code"). For the
purposes of this warranty, Harmful Code shall include any instrumentality
that could cause code compiled from the Source Code or hardware used
therewith to be not operative as a result of use by more than the authorized
number of users, use beyond any data size or quantity limit, or use beyond
the termination or expiration date of this Agreement, which was included in
the Invention, Source Code, Enhancement or other deliverables by
Telinnovation.
6. INDEMNIFICATION. Telinnovation shall indemnify, defend and hold Ditech
and its officers, directors, agents, successors and assigns harmless from and
against any liability, loss, cost (including without limitation reasonable
attorneys' fees) or damages arising out of or in any way related to a breach
or alleged breach of the representations and warranties set forth herein.
Telinnovation shall not enter into any settlement that obligates Ditech.
7. OBLIGATION TO DEFEND RIGHTS AND INTERESTS. The Invention and other
deliverables sold, assigned and transferred to Ditech pursuant to this
Agreement are exclusively transferred to Ditech. Prior to the occurrence of
a Liquidity Event, Ditech agrees to use commercially reasonable efforts, at
its sole cost and expense, to enforce its intellectual property rights in the
Invention and Enhancements, if any, acquired under this Agreement against any
infringement by any third party.
8. ASSIGNMENT. Telinnovation and Ditech may assign their rights under the
terms of this Agreement with the written permission of the other party;
PROVIDED, HOWEVER, that either party may assign its interests to a successor
in interest without obtaining such permission upon the event of a merger,
acquisition, reorganization or sale of ail or substantially all of the assets
or stock of the assigning party. Any successor in interest shall be bound by
the terms and conditions of this Agreement. Any assignment in violation of
any of the foregoing shall be null and void and shall in no way effect the
rights and obligations of the parties hereto.
9. TERM; TERMINATION.
(a) TERM. This Agreement shall remain in full force and effect until
the latest of the following (i) for such period as Ditech is obligated to pay
royalties to Telinnovation as provided herein, (ii) until a Liquidity Event
occurs, (iii) until the Training obligation of Telinnovation has been
satisfied, or (iv) until this Agreement is earlier terminated pursuant to
subsection (b) below.
(b) TERMINATION. This Agreement may be terminated upon notice of a
material breach upon thirty (30) days' prior written notice to the breaching
party. Such termination will become effective upon the expiration of such
period if prior to expiration thereof the breaching party has not cured said
breach to the reasonable satisfaction of the terminating party. In addition,
Telinnovation may terminate this Agreement in the event Ditech liquidates,
dissolves or ceases to do business.
(c) EFFECT OF TERMINATION. Upon any such termination prior to receipt of
payment of the amounts described in Sections 4(c) or 4(d), above, based on an
uncured breach by Ditech, Telinnovation's Training obligations shall thereafter
cease, and Ditech shall immediately thereafter transfer and assign to
Telinnovation for no additional consideration all rights received
5.
<PAGE>
hereunder to the Invention, Enhancements, if any, the Source Code and all
other deliverables transferred by Telinnovation to Ditech, PROVIDED, HOWEVER,
that Ditech shall own any derivative works and intellectual property rights
it may have as a result of creating any Improvements to the Invention or any
of the deliverables it has received. Further, upon termination by either
party, Telinnovation's support obligation under Section 2(c), above, shall
terminate and any license expressed or implied granted to Telinnovation for
such support shall terminate. Any Ditech payment obligations accrued prior
to termination shall be due and payable at the time of termination. In
addition, Sections 1, 4, 5, 6, 8, 9, 10, and 11 shall survive any termination
or expiration of this Agreement.
10. LIMITATION OF LIABILITY. Neither party shall be liable to the other
party or to any entity claiming through or under the other party for any loss
of profit or income, any lost data, any work stoppage, any equipment
downtime, or for any consequential, indirect, incidental, or special damages,
whether in an action for contract or tort or based on a warranty, in
connection with this agreement, even if such party has been advised of the
possibility of such damages. In no event shall either party's liability to
the other hereunder exceed the amounts paid hereunder. Each party
acknowledges and agrees that the foregoing limitations on liability are
essential elements of the basis of the bargain between the parties and that
in the absence of such limitations the material and economic terms of this
Agreement would be substantially different.
11. GENERAL. The parties hereto are independent contractors and no
employment, agency, or joint venture is created hereunder. This Agreement
shall for all purposes be governed by and interpreted in accordance with the
laws of the State of California, USA, as those laws are applied to contracts
entered into and to be performed entirely in California by California
residents and without regard to conflicts of laws principles, and the parties
submit to the exclusive jurisdiction of the courts of Santa Clara County,
California for all disputes arising hereunder. All notices, requests and
other communications under this Agreement must be in writing, and must be
mailed by registered or certified mail, postage prepaid and return receipt
requested, or delivered by hand to the party to whom such notice is required
or permitted to be given. Time is of the essence in the performance of
obligations under this Agreement. If any provision of this Agreement is held
by a court of competent jurisdiction to be unenforceable for any reason, the
remaining provisions hereof shall be unaffected and remain in full force and
effect. This Agreement may only be modified by the mutual written agreement
of the parties and any waiver of a provision or of a breach of a provision of
this Agreement shall not constitute a waiver of any other provision of this
Agreement or of any other breach of any provision of this Agreement. The
provisions of this Agreement shall be binding upon and inure to the benefit
of the parties and their successors and assigns.
12. ENTIRETY. This Agreement and the Exhibits attached hereto and
incorporated herein constitute the entire agreement and understanding between
the parties with respect to the subject matter hereof.
6.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed in duplicate originals as of the Effective Date.
DITECH CORPORATION TELINNOVATION
By: /s/ William Tamblyn By: /s/ Charles R. Davis
----------------------- ----------------------
Name: William Tamblyn Name: Charles R. Davis
----------------------- ----------------------
Title: VP/CFO Title: General Partner
----------------------- ----------------------
Address: 825 E. Middlefield Rd. Address: 415 Clyde Ave. #105
----------------------- ----------------------
Mountain View, CA Mountain View, CA
----------------------- ----------------------
94043 94301
----------------------- ----------------------
7.
<PAGE>
EXHIBIT A
DELIVERABLES
A. THE INVENTION: DUAL ECHO CANCELLER WITH MULTIPLE ADAPTATION METHODS
The Invention is a multiple channel echo cancellation system comprising:
1. Means to access the standard telephone carrier interfaces,
including T-l, E-I, DS3, OC3 and similar standard interfaces.
2. Primary cancellation means consisting of a tapped delay line
wherein portions of the tapped delay line generate an estimated echo which is
subtracted from the actual echo, hence producing estimated an echo free or
nearly echo free signal.
3. Several echo cancellation estimation and adaptation
mechanisms, which, in response to unsatisfactory performance by the primary
echo cancellation means, estimate and adapt a new solution.
4. Secondary cancellation means consisting of another tapped
delay line, wherein the results of several echo cancellation estimation and
adaptation mechanisms may be evaluated, by comparing cancellation performance
to the primary echo cancellation means:
B. C5x EMBODIMENT
Source code and design information for embodiment in Texas Instruments
TMS320C5x DSP processors.
C. C54x EMBODIMENT
Source code and design information for embodiment in Texas Instruments
TMS320C54x DSP processors.
D. TRAINING
Training as necessary to permit Ditech's utilization of the Invention
Training obligation shall terminate upon the earlier to occur of five hundred
(500) man hours, or two (2) years from the Effective Date, or upon
termination of the Agreement.
8.
<PAGE>
EXHIBIT B
DELIVERY DATES
A. Invention - Upon contract execution.
B. C5x Embodiment - Upon contract execution
C. C54x Embodiment - Upon contract execution
Training - Documentation preparation and training of Ditech personnel.
Training obligation shall terminate upon the earlier to occur of five hundred
(500) man hours, or two (2) years from the Effective Date, or upon
termination of the Agreement.
9.
<PAGE>
INDEMNITY AGREEMENT
THIS AGREEMENT is made and entered into this ____ day of _________, 1999 by
and between DITECH CORPORATION, a Delaware corporation (the "Corporation"), and
____________ ("Agent").
RECITALS
WHEREAS, Agent performs a valuable service to the Corporation in his/her
capacity as _______________ of the Corporation;
WHEREAS, the stockholders of the Corporation have adopted bylaws (the
"Bylaws") providing for the indemnification of the directors, officers,
employees and other agents of the Corporation, including persons serving at the
request of the Corporation in such capacities with other corporations or
enterprises, as authorized by the Delaware General Corporation Law, as amended
(the "Code");
WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit
contracts between the Corporation and its agents, officers, employees and other
agents with respect to indemnification of such persons; and
WHEREAS, in order to induce Agent to continue to serve as ______________ of
the Corporation, the Corporation has determined and agreed to enter into this
Agreement with Agent;
NOW, THEREFORE, in consideration of Agent's continued service as
_______________ after the date hereof, the parties hereto agree as follows:
AGREEMENT
1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the
Corporation or under separate contract, if any such contract exists, as
______________ of the Corporation or as a director, officer or other fiduciary
of an affiliate of the Corporation (including any employee benefit plan of the
Corporation) faithfully and to the best of his ability so long as he is duly
elected and qualified in accordance with the provisions of the Bylaws or other
applicable charter documents of the Corporation or such affiliate; PROVIDED,
HOWEVER, that Agent may at any time and for any reason resign from such position
(subject to any contractual obligation that Agent may have assumed apart from
this Agreement) and that the Corporation or any affiliate shall have no
obligation under this Agreement to continue Agent in any such position.
2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless
and indemnify Agent to the fullest extent authorized or permitted by the
provisions of the Bylaws and the Code, as the same may be amended from time to
time (but, only to the extent that such amendment permits the Corporation to
provide broader indemnification rights than the Bylaws or the Code permitted
prior to adoption of such amendment).
1.
<PAGE>
3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the
indemnification otherwise provided for herein, and subject only to the
exclusions set forth in Section 4 hereof, the Corporation hereby further agrees
to hold harmless and indemnify Agent:
(a) against any and all expenses (including attorneys' fees), witness
fees, damages, judgments, fines and amounts paid in settlement and any other
amounts that Agent becomes legally obligated to pay because of any claim or
claims made against or by him in connection with any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative (including an action by or in the right of the
Corporation) to which Agent is, was or at any time becomes a party, or is
threatened to be made a party, by reason of the fact that Agent is, was or at
any time becomes a director, officer, employee or other agent of Corporation, or
is or was serving or at any time serves at the request of the Corporation as a
director, officer, employee or other agent of another corporation, partnership,
joint venture, trust, employee benefit plan or other enterprise; and
(b) otherwise to the fullest extent as may be provided to Agent by
the Corporation under the non-exclusivity provisions of the Code and Section 43
of the Bylaws.
4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to
Section 3 hereof shall be paid by the Corporation:
(a) on account of any claim against Agent for an accounting of
profits made from the purchase or sale by Agent of securities of the Corporation
pursuant to the provisions of Section 16(b) of the Securities Exchange Act of
1934 and amendments thereto or similar provisions of any federal, state or local
statutory law;
(b) on account of Agent's conduct that was knowingly fraudulent or
deliberately dishonest or that constituted willful misconduct;
(c) on account of Agent's conduct that constituted a breach of
Agent's duty of loyalty to the Corporation or resulted in any personal profit or
advantage to which Agent was not legally entitled;
(d) for which payment is actually made to Agent under a valid and
collectible insurance policy or under a valid and enforceable indemnity clause,
bylaw or agreement, except in respect of any excess beyond payment under such
insurance, clause, bylaw or agreement;
(e) if indemnification is not lawful (and, in this respect, both the
Corporation and Agent have been advised that the Securities and Exchange
Commission believes that indemnification for liabilities arising under the
federal securities laws is against public policy and is, therefore,
unenforceable and that claims for indemnification should be submitted to
appropriate courts for adjudication); or
(f) in connection with any proceeding (or part thereof) initiated by
Agent, or any proceeding by Agent against the Corporation or its directors,
officers, employees or other agents, unless (i) such indemnification is
expressly required to be made by law, (ii) the proceeding was authorized by the
Board of Directors of the Corporation, (iii) such indemnification is provided by
the Corporation, in its sole discretion, pursuant to the powers
2.
<PAGE>
vested in the Corporation under the Code, or (iv) the proceeding is initiated
pursuant to Section 9 hereof.
5. CONTINUATION OF INDEMNITY. All agreements and obligations of the
Corporation contained herein shall continue during the period Agent is 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
other agent of another corporation, partnership, joint venture, trust, employee
benefit plan or other enterprise) and shall continue thereafter so long as Agent
shall be subject to any possible claim or threatened, pending or completed
action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Agent was serving in
the capacity referred to herein.
6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement
to indemnification by the Corporation for a portion of the expenses (including
attorneys' fees), witness fees, damages, judgments, fines and amounts paid in
settlement and any other amounts that Agent becomes legally obligated to pay in
connection with any action, suit or proceeding referred to in Section 3 hereof
even if not entitled hereunder to indemnification for the total amount thereof,
and the Corporation shall indemnify Agent for the portion thereof to which Agent
is entitled.
7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days
after receipt by Agent of notice of the commencement of any action, suit or
proceeding, Agent will, if a claim in respect thereof is to be made against the
Corporation under this Agreement, notify the Corporation of the commencement
thereof; but the omission so to notify the Corporation will not relieve it from
any liability which it may have to Agent otherwise than under this Agreement.
With respect to any such action, suit or proceeding as to which Agent notifies
the Corporation of the commencement thereof:
(a) the Corporation will be entitled to participate therein at its
own expense;
(b) except as otherwise provided below, the Corporation may, at its
option and jointly with any other indemnifying party similarly notified and
electing to assume such defense, assume the defense thereof, with counsel
reasonably satisfactory to Agent. After notice from the Corporation to Agent of
its election to assume the defense thereof, the Corporation will not be liable
to Agent under this Agreement for any legal or other expenses subsequently
incurred by Agent in connection with the defense thereof except for reasonable
costs of investigation or otherwise as provided below. Agent shall have the
right to employ separate counsel in such action, suit or proceeding but the fees
and expenses of such counsel incurred after notice from the Corporation of its
assumption of the defense thereof shall be at the expense of Agent unless
(i) the employment of counsel by Agent has been authorized by the Corporation,
(ii) Agent shall have reasonably concluded that there may be a conflict of
interest between the Corporation and Agent in the conduct of the defense of such
action or (iii) the Corporation shall not in fact have employed counsel to
assume the defense of such action, in each of which cases the fees and expenses
of Agent's separate counsel shall be at the expense of the Corporation. The
Corporation shall not be entitled to assume the defense of any action, suit or
proceeding brought by or on behalf of the Corporation or as to which Agent shall
have made the conclusion provided for in clause (ii) above; and
3.
<PAGE>
(c) the Corporation shall not be liable to indemnify Agent under this
Agreement for any amounts paid in settlement of any action or claim effected
without its written consent, which shall not be unreasonably withheld. The
Corporation shall be permitted to settle any action except that it shall not
settle any action or claim in any manner which would impose any penalty or
limitation on Agent without Agent's written consent, which may be given or
withheld in Agent's sole discretion.
8. EXPENSES. The Corporation shall advance, prior to the final
disposition of any proceeding, promptly following request therefor, all expenses
incurred by Agent in connection with such proceeding upon receipt of an
undertaking by or on behalf of Agent to repay said amounts if it shall be
determined ultimately that Agent is not entitled to be indemnified under the
provisions of this Agreement, the Bylaws, the Code or otherwise.
9. ENFORCEMENT. Any right to indemnification or advances granted by this
Agreement to Agent shall be enforceable by or on behalf of Agent in any court of
competent jurisdiction if (i) the claim for indemnification or advances is
denied, in whole or in part, or (ii) no disposition of such claim is made within
ninety (90) days of request therefor. Agent, in such enforcement action, if
successful in whole or in part, shall be entitled to be paid also the expense of
prosecuting his claim. It shall be a defense to any action for which a claim
for indemnification is made under Section 3 hereof (other than an action brought
to enforce a claim for expenses pursuant to Section 8 hereof, provided that the
required undertaking has been tendered to the Corporation) that Agent is not
entitled to indemnification because of the limitations set forth in Section 4
hereof. Neither the failure of the Corporation (including its Board of
Directors or its stockholders) to have made a determination prior to the
commencement of such enforcement action that indemnification of Agent is proper
in the circumstances, nor an actual determination by the Corporation (including
its Board of Directors or its stockholders) that such indemnification is
improper shall be a defense to the action or create a presumption that Agent is
not entitled to indemnification under this Agreement or otherwise.
10. SUBROGATION. In the event of payment under this Agreement, the
Corporation shall be subrogated to the extent of such payment to all of the
rights of recovery of Agent, who shall execute all documents required and shall
do all acts that may be necessary to secure such rights and to enable the
Corporation effectively to bring suit to enforce such rights.
11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this
Agreement shall not be exclusive of any other right which Agent may have or
hereafter acquire under any statute, provision of the Corporation's Certificate
of Incorporation or Bylaws, agreement, vote of stockholders or directors, or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding office.
4.
<PAGE>
12. SURVIVAL OF RIGHTS.
(a) The rights conferred on Agent by this Agreement shall continue
after Agent has ceased to be a director, officer, employee or other agent of the
Corporation or to serve at the request of the Corporation as a director,
officer, employee or other agent of another corporation, partnership, joint
venture, trust, employee benefit plan or other enterprise and shall inure to the
benefit of Agent's heirs, executors and administrators.
(b) The Corporation shall require any successor (whether direct or
indirect, by purchase, merger, consolidation or otherwise) to all or
substantially all of the business or assets of the Corporation, expressly to
assume and agree to perform this Agreement in the same manner and to the same
extent that the Corporation would be required to perform if no such succession
had taken place.
13. SEPARABILITY. Each of the provisions of this Agreement is a separate
and distinct agreement and independent of the others, so that if any provision
hereof shall be held to be invalid for any reason, such invalidity or
unenforceability shall not affect the validity or enforceability of the other
provisions hereof. Furthermore, if this Agreement shall be invalidated in its
entirety on any ground, then the Corporation shall nevertheless indemnify Agent
to the fullest extent provided by the Bylaws, the Code or any other applicable
law.
14. GOVERNING LAW. This Agreement shall be interpreted and enforced in
accordance with the laws of the State of Delaware.
15. AMENDMENT AND TERMINATION. No amendment, modification, termination or
cancellation of this Agreement shall be effective unless in writing signed by
both parties hereto.
16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more
counterparts, each of which shall for all purposes be deemed to be an original
but all of which together shall constitute but one and the same Agreement. Only
one such counterpart need be produced to evidence the existence of this
Agreement.
17. HEADINGS. The headings of the sections of this Agreement are inserted
for convenience only and shall not be deemed to constitute part of this
Agreement or to affect the construction hereof.
18. NOTICES. All notices, requests, demands and other communications
hereunder shall be in writing and shall be deemed to have been duly given
(i) upon delivery if delivered by hand to the party to whom such communication
was directed or (ii) upon the third business day after the date on which such
communication was mailed if mailed by certified or registered mail with postage
prepaid:
(a) If to Agent, at the address indicated on the signature page
hereof.
5.
<PAGE>
(b) If to the Corporation, to
Ditech Corporation
825 East Middlefield Road
Mountain View, CA 94043
or to such other address as may have been furnished to Agent by the Corporation.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and
as of the day and year first above written.
DITECH CORPORATION
By:
----------------------------------------
Title:
----------------------------------------
AGENT
---------------------------------------------
Address:
---------------------------------------------
---------------------------------------------
6.
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Registration Statement on Form S-1 of
our report dated March 12, 1999, on our audits of the financial statements of
Ditech Corporation as of April 30, 1997 and 1998 and for each of the three years
in the period ended April 30, 1998. We also consent to the reference to us under
the headings "Experts" and "Selected Financial Data."
/S/ PRICEWATERHOUSECOOPERS LLP
San Jose, California
March 23, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM BALANCE
SHEET, STATEMENT OF OPERATIONS AND STATEMENT OF CASH FLOWS AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 9-MOS
<FISCAL-YEAR-END> APR-30-1998 APR-30-1999
<PERIOD-START> MAY-01-1997 MAY-01-1998
<PERIOD-END> APR-30-1998 JAN-31-1999
<CASH> 3,433 4,724
<SECURITIES> 0 0
<RECEIVABLES> 2,190 2,097
<ALLOWANCES> 30 100
<INVENTORY> 2,163 4,209
<CURRENT-ASSETS> 8,490 11,987
<PP&E> 1,523<F1> 2,220
<DEPRECIATION> 295<F2> 632
<TOTAL-ASSETS> 17,274 21,714
<CURRENT-LIABILITIES> 2,708 6,056
<BONDS> 7,313 6,750
31,122 32,236
0 0
<COMMON> 78 1,883
<OTHER-SE> (24,135) (25,382)
<TOTAL-LIABILITY-AND-EQUITY> 17,274 21,714
<SALES> 12,326 18,025
<TOTAL-REVENUES> 12,326 18,025
<CGS> 5,651 8,588
<TOTAL-COSTS> 5,651 8,588
<OTHER-EXPENSES> 6,096 8,506
<LOSS-PROVISION> (45) 70
<INTEREST-EXPENSE> 768 553
<INCOME-PRETAX> 31 463
<INCOME-TAX> 24 186
<INCOME-CONTINUING> 7 277
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 7 277
<EPS-PRIMARY> (0.30) (0.16)
<EPS-DILUTED> (0.30) (0.16)
<FN>
<F1>FOOTNOTE 4
<F2>FOOTNOTE 4
</FN>
</TABLE>
